Development Dynamics: Economic Integration and the Demographic Transition

This paper examines the influence of economic integration—widening of the trading area—on economic development and the demographic transition. Economies produce with different technologies depending on their scale. Greater integration between regions (greater extensive scale) is instrumental in changing rates of return, which generates an industrial revolution and provokes changes in child bearing behavior. The demographic transition follows from the mortality response to income and birth response to greater scale. The model is calibrated and simulated using historical data from Europe. Historical evidence is cited to support the idea that integration precedes the dramatic rise in economic growth rates.     

Exploitation and Growth

I develop a model of exploitation—coercive wealthtransfer—and growth based on social importance. Exploitationreduces growth since the return to capital falls with exploitationcosts. Initial relative wealth across groups—the measureof social importance—determines which group is the exploiterand how costly exploitation will be. The exploiter selects anexploitation path that maintains its dominant position and rarelymaximizes current transfers. Productive minorities and fast-growinggroups are most prone to exploitation. International sanctions,if strong, end exploitation; otherwise they increase exploitationand reduce growth. Segregation and apartheid are broadly consistentwith the theory.     

Competence Catalogues and the Principle of Subsidiarity in a European Constitution

The purpose of this paper is to compare two instruments—the principle of subsidiarity and competence catalogues—which can be used in order to define a balance between powers vested in the European Union and those vested in the member-states. These instruments will be evaluated in the context of constitutional economics. The goal is to clarify the constitutional problem of dual jurisdictions in Europe. The principle of subsidiarity will be criticized because of the static nature of that device: the three main problems in making use of competence catalogues are to find criteria for deciding which competences should be allocated on which level, to protect the system against judicial erosion and to adapt it to changing environments.     

Tax competition,tax coordination and tax harmonization: The effects of EMU

There is little doubt that the step towards a monetary union in Europe will increase both the distorionary effects of existing differences in national tax systems and the intensity of tax competition for internationally mobile commodity and factor tax bases. This paper discusses selected issues of commodity and capital tax coordination that are likely to be affected by monetary unification. Starting from the distortive present scheme of value-added taxation in Europe we first analyze the effects of a switch to a general origin-based VAT as a way to maintain national tax rate autonomy over this important tax base. While an origin-based VAT would neither distort trade flows — both within the EU and with third countries — nor investment decisions in the long-run, its short-run effects are likely to be severe in the absence of exchange rate flexibility. In the field of capital taxation the focus switches to the feasibility of regional harmonization measures when there is no cooperation with the rest of the world. We argue that in a monetary union the mobility costs of capital will be significantly lower within the EU as compared to outside investments. This provides an efficiency argument for minimum source taxes on both interest income and corporate profits even if cooperation with third countries is infeasible.     

How Not to Write a Constitution—The Maastricht/Amsterdam Treaties

The member states of the European Union have negotiated two treaties intended to advance political union—Maastricht in 1992 and Amsterdam in 1997. This article critiques both treaties for their failures on both procedural and institutional questions. It suggests that the costs for member states of reaching a constitutional bargain can be reduced by emphasising decentralised arrangements for Europe and that a constitutional opportunity remains.     

Unwrapping some euro area growth puzzles: Factor substitution, productivity and unemployment

In this paper, we estimate a long run supply-side system incorporating a CES production function with time-varying factor-augmenting technical progress for the euro area over the period 1970–2005. We find that the elasticity of substitution lies below unity at 0.7, that labor-augmenting technical progress is dominant in the long run while capital-augmenting technical progress plays an important role in the interim period. Importantly, we also find evidence of a structural break in the pattern of biased technical progress towards the end of the 1990s. Our results help to solve two puzzles in Europe’s recent growth experience which differ markedly from the US experience. The first is related to the effects of the IT boom in the 1990s on productivity growth in Europe. The second puzzle concerns the changes in the “Okun’s law” relationship, linking growth to the reduction of unemployment, which are observable in Europe since the late 1990s.     

Inequality and Growth in a Panel of Countries

Evidence from a broad panel of countries shows little overall relation between income inequality and rates of growth and investment. For growth, higher inequality tends to retard growth in poor countries and encourage growth in richer places. The Kuznets curve—whereby inequality first increases and later decreases during the process of economic development—emerges as a clear empirical regularity. However, this relation does not explain the bulk of variations in inequality across countries or over time.     

Unmeasurable characteristics in comparing economies: Poland and European Union Countries

After the recent period of economic and political change, many countries of Central and Eastern Europe are interested in integrating with the European Union. Therefore, there is considerable significance in comparative research in economic policies. One of the methods used is the taxonomic approach. During the evaluation and comparison of various national economies' development, both measurable and unmeasurable features are found in the collection of diagnostic features. For this reason, it is very important to estimate the level of research subjectivity—or the influence of unmeasurable features—on the results of comparative research. This paper proposes the methodology which makes such research possible.     

The diffusion of Internet telephony among consumers and firms: Current issues and future prospects

This paper analyses the current demand and market potential for Internet telephony—the transmission of voice over the public Internet or over a private Intranet—a technology that has attracted considerable attention as an appealing alternative to traditional telephony but that is likely to develop as a component within an integrated system of video, data and voice applications. The paper investigates technical, economic and social factors supporting and hindering the adoption of Internet telephony. In doing so, it relies upon the idea that the diffusion of Internet telephony is determined both by the attributes of the technological applications as perceived by the potential adopters, and by the characteristics of different users. According to this view, the research points out that relevant uncertainties reside on the demand side, particularly among residential users, and that in the future, businesses are more likely to adopt these applications than consumers. The assumptions concerning the future diffusion of Internet telephony are supported by the results of a survey carried out among a sample of Internet telephony service providers in Europe and North America.     

Prices and Outputs Under Cable TV Reregulation

Cable television reregulation in October 1992 did succeed in constraining subscriber bills about 9% below trend by October 1994. Yet, the growth rate of basic cable television subscribership fell sharply during the period of rate reductions. Only when real rates began rising in the period following October 1994—after an explicit relaxation of controls—did reliable industry output measures return to the pre-regulation growth trend. These data suggest that rate regulation becomes substantially less viable as the complexity of the regulated good increases.     

Democratic Choice of an Education System: Implications for Growth and Income Distribution

We use an OLG model to examine democratic choice betweentwo modes of government support for education: subsidies forprivately purchased education and free uniform public provision.We find little conflict between democracy and growth: the samefactors that generate popular support for subsidization overfree uniform provision—large external benefits, a largeexcess burden, and little inequality—also favor its relativegrowth performance. Furthermore, restricting the franchise toan upper-income elite may also reduce growth. Two extensionsexamine the effect of intergenerational mobility and indicatethe theoretical possibility of periodic swings in the balancebetween public and private spending.     

Empirical implications of mathematical functions used to analyze market penetration of new products—Cigarettes case study

Three types of S-shaped growth curves—the logistic, the lognormal, and the Gompertz—are widespread in the literature on analysis of market penetration of new products/processes. This article discusses the mathematical properties of these function in the light of their empirical implications, such as location of the point of maximum growth rate, the symmetry/asymmetry of the growth rates around that inflection point, and the ease of estimation (linear and nonlinear regressions). The empirical economic expectations cannot specify these phenomena a priori so that a less restrictive function should be preferred. Such a function is the Gompertz function. It is, therefore, applied to the study of market penetration of filtered and menthol cigarettes and shown that the empirical verification vindicates the theoretical postulates of that function. The empirical estimates are also closer to actual estimates of growth rates of adoption.     

The Japanese institutional mechanisms for industrial growth: A systems perspective—Part I

The two-part article focuses on the unique institutional setting which has enabled Japan to become a leader in rapid technology-based industrial growth. The innovation systems of the United States and Japan are compared. Three cases—fuzzy logic, active matrix crystal displays, and virtual reality—are examined. The underlying systemic characteristics are then probed.     

Democracy and growth

Growth and democracy (subjective indexes of political freedom) are analyzed for a panel of about 100 countries from 1960 to 1990. The favorable effects on growth include maintenance of the rule of law, free markets, small government consumption, and high human capital. Once these kinds of variables and the initial level of real per capita GDP are held constant, the overall effect of democracy on growth is weakly negative. There is a suggestion of a nonlinear relationship in which more democracy enhances growth at low levels of political freedom but depresses growth when a moderate level of freedom has already been attained. Improvements in the standard of living—measured by GDP, health status, and education—substantially raise the probability that political freedoms will grow. These results allow for predictions about which countries will become more or less democratic over time.     

Beyond lectures and tutorials: Formal on-the-job training received by young European university graduates

This paper examines the probability of receiving job-related formal training and the returns to on-the-job training in Europe using a sample containing personal, educational, and firm characteristics. The results show that certain occupations, such as managers and professionals, receive more training than others. Furthermore, certain types of workers are more likely to receive training—for example, those graduates in the public sector and those working in larger firms. With respect to the returns to training, estimation results show that the training measure has a significant impact on wages. In estimating the returns to training we have also taken into account the fact that participation in training is endogenous and not random.     

A directly democratic and Federal Europe

This paper endeavors to take up the neglected aspects of federalism and direct democracy. It emphasizes the mutual dependence of the two for reaching the goals of efficiency and trust. Direct democracy is seen to preserve federalism, but even more importantly, federalism is taken to enable and to preserve effective direct democracy. Empirical evidence is adduced showing in particular that direct democracy leads to higher efficiency in the sense of lowering transaction costs. A proposal for a novel combination of federalism and direct democracy—which is called FOCJ (the acronym for Functional Overlapping Competing Jurisdictions)—is suggested for Europe.Financial Supported by the Swiss National Fund (Project No. 12-42480-9) is greatefully acknowledge.     

The Transition from Stagnation to Growth: An Adaptive Learning Approach

This article develops the first model in which, consistentwith the empirical evidence, the transition from stagnation toeconomic growth is a very long endogenous process. The modelhas one steady state with a low and stagnant level of incomeper capita and another steady state with a high and growing levelof income per capita. Both of these steady states are locallystable under the perfect foresight assumption. We relax the perfectforesight assumption and introduce adaptive learning into thisenvironment. Learning acts as an equilibrium selection criterionand provides an interesting transition dynamic between steadystates. We find that for sufficiently low initial values of humancapital—values that would tend to characterize preindustrialeconomies—the system under learning spends a long periodof time (an epoch) in the neighborhood of the low-income steadystate before finally transitioning to a neighborhood of the high-incomesteady state. We argue that this type of transition dynamic providesa good characterization of the economic growth and developmentpatterns that have been observed across countries.     

The response of term rates to monetary policy uncertainty

This paper shows that greater uncertainty about monetary policy can lead to a decline in nominal interest rates. In the context of a limited participation model, monetary policy uncertainty is modeled as a mean preserving spread in the distribution for the money growth process. This increase in uncertainty lowers the yield on short-term maturity bonds because the household sector responds by increasing liquidity in the banking sector. Long-term maturity bonds also have lower yields but this decrease is a result of the effect that greater uncertainty has on the nominal intertemporal rate of substitution—which is a convex function of money growth. We examine the nature of these relations empirically by introducing the GARCH-SVAR model—a multivariate generalization of the GARCH-M model. The predictions of the model are broadly supported by the data: higher uncertainty in the federal funds rate can lower the yields of the three- and six-month treasury bill rates.     

Power, Distributive Conflicts, and Multiple Growth Paths

This article shows that multiple growth paths may occurin a politico-economic model of endogenous growth. This multiplicityis characterized by the coexistence of the low-tax, low-capital-flightequilibrium and a high-tax, high-capital-flight equilibrium.The likelihood of multiplicity is crucially related to the structureof power in society—namely, it is necessary that the politicallydecisive agents have a greater access to international capitalmarkets than the average in the economy.     

The Tyranny of Concepts: CUDIE (Cumulated, Depreciated, Investment Effort) Is Not Capital

The cost of public investment is not the increment to the value ofpublic capital. Unlike with private investors, there is no plausiblebehavioral model in which every dollar that the public sectorspends as ``investment' creates economically valuable ``capital.'While this simple analytic point is obvious, it has so far beenuniformly ignored in the empirical literature on economic growth,which uses—at best—cumulated, depreciated, investmenteffort (CUDIE) as a proxy for capital stocks. However, particularlyfor developing countries the difference between investment costand capital value is of first-order empirical importance: governmentinvestment is half of more of total investment, and calculationspresented here suggest that in many countries government investmentspending has created little useful capital. This has implicationsin three broad areas. First, none of the existing empirical estimatesof the impact of public spending has identified the productivityof public capital. Even where public capital has a potentiallylarge contribution to production, public-investment spendingmay have had a low impact. Second, it implies that all estimatesof total factor productivity in developing countries are deeplysuspect as there is no way to empirically distinguish betweenlow growth because of investments that create no factors andlow growth due to slow productivity growth. Third, multivariateregressions to date have not adequately controlled for capitalstock growth, which leads to erroneous interpretations of regressioncoefficients.