Non-traded Goods,Technical Progress and Wages

We use a general equilibrium model of trade to show that technical improvement may indeed cause a fall in the wages of unskilled workers. Under some modest conditions, the wages of skilled workers may go down too.

Supporting the Endogenous Relationship Between Well-Being and Employment for US Individuals

We test the existence of an endogenous relationship between well-being and employment for US individuals. To that end, we use a simultaneous equation generalized Probit model applied to four recent waves of the National Health Interview Survey (1997–2000). Our results do not enable us to accept the hypothesis that there is a significant effect from employment status to subjective well-being. In contrast, we provide evidence that suggest that well-being is positively correlated to the probability of having a job.

Political regime and FDI from advanced to emerging countries

We investigate the effect of the political regime on bilateral FDI flows from advanced to emerging countries in the period 1992–2004. We control for country size, per capita income and privatization proceeds in the host country, and use a random-effect Tobit model to exploit information from zero entries. Our results suggest that democracy does have a positive effect on the amount and probability of FDI flows from developed to emerging countries. Moreover, we find that the effect of democracy on FDI also works through the total factor productivity channel, not only the political risk one as suggested in the literature.

International mixed duopoly and strategic commitments

This paper examines an international mixed model in which a social-welfare-maximizing domestic public firm competes against a profit-maximizing foreign private firm. First, the public firm can adopt either a lifetime employment contract or a wage-rise contract as strategic commitments. Second, the foreign private firm decides whether or not to enter the market. Third, if the foreign private firm enters, each firm independently chooses its actual output, while if the foreign private firm does not enter, the public firm acts as a monopolist. The paper shows the equilibrium of the international mixed model.

Public Spending Management and Macroeconomic Interdependence

This paper studies the domestic and international effects of “public competition policies” aimed at improving the efficiency of public spending. Such measures are modeled as an increase in the price elasticity of public consumption. The paper finds that public competition policies significantly affect macroeconomic interdependence across countries, both through the impact of the international elasticity of substitution and of mark-up effects. The paper also develops an extension in which fiscal shocks are stochastic. In welfare terms, countries with a larger government sector have an incentive to promote global public competition policies regardless of whether fiscal policy is modeled as deterministic or stochastic.

The takeover and selection effects of foreign-owned establishments: an analysis using linked employer–employee data

We provide the first estimates of the effect of foreign ownership on wages in Germany, controlling for the observed and unobserved characteristics of workers and plants. We also test whether the wage gains from joining a foreign-owned firm are subsequently lost when leaving that firm, and we examine whether wage gains vary across the sample. We find large selection effects in terms of worker and plant components of wages. Once the selection effect is taken into account, the takeover effect is small and in some cases insignificantly different from zero.

The Portuguese Economy in the Irish Mirror, 1960–2004

The deepening of economic and financial integration in the European Union has led to different responses in the group of ‘cohesion’ countries. Ireland and Portugal stand out as the two extreme examples, as Ireland caught-up to the forerunners after the launching of EMU, in 1992, whereas Portugal lost ground. This paper looks at structural shifts in order to explain different economic performances within Europe. We conclude that Portugal’s labour productivity lag was the outcome of a less favourable structure of employment; that differences in the structure of employment are not clustered in specific industries; and that such structural differences are associated with different factor endowments, namely physical and human capital. Portugal has a rising competitiveness problem in international markets as real wages have increased faster than labour productivity in the 1990s. That has to be changed by policy measures, by the market through higher levels of unemployment, or by a combination of both.

The road to liberalization: Policy design and implementation of Taiwan’s privatization

Among newly industrializing economies, Taiwan represents an archetypical example of a country in the process of economic catching up with institutional environments standing somewhere between Western and transition countries. Thus, Taiwan’s privatization experience may provide a means to assess the generalizability of conclusions drawn from prior research conducted in both kinds of countries. In the face of changing economic and political environments, Taiwan revamped its blueprint for privatization in 1989 as a major plank of its economic shift toward liberalization. Although it has proceeded on a trial-and-error basis, the policy has thus far yielded substantial though mixed results. This study systematically reviews Taiwan’s policy design and implementation of privatization, which originally was modeled on but later diverged from the Western experience as a result of the immature institutional settings and political compromises in various regards. Taiwan’s privatization, in a relative small scale to those in transition economies, is characterized by a set of stylized policy initiatives that provide a reference point for other developing countries.

The effect of globalization on union bargaining and price-cost margins of firms

In recent years, Europe has witnessed an accelerated process of economic integration. This paper analyzes how increased economic integration has affected labor and product markets. We use a panel of Belgian manufacturing firms to estimate price-cost margins and union bargaining power and show how various measures of globalization affect them. Import competition puts pressure on both markups and union bargaining power, especially when there is increased competition from low wage countries. This suggests that increased globalization is associated with a moderation of wage claims in unionized countries, which should be associated with positive effects on employment.

Labour Market Adjustments to Exchange Rate Fluctuations: Evidence from Canadian Manufacturing Industries

This paper provides some of the first empirical evidence on labour market adjustments to exchange rate movements in Canadian manufacturing industries. Controlling for endogeneity using generalized method of moments estimation, it is found that during the 1981–1997 period, exchange movements have a substantial impact on labour input and that this impact has grown over time as the manufacturing industries have become more exposed to trade. In contrast, the exchange rate effect on real wages is estimated to be virtually zero for all manufacturing industries.

Hurricane Katrina: Was There a Political Economy of Death?

An empirical implication of egalitarianism in the provision of public disaster relief services is that the probability of surviving a natural disaster should not be conditioned on a household’s position in the income distribution, or its racial characteristics. In this paper, we utilize data on deaths attributed to Hurricane Katrina in the City of New Orleans to estimate a political economy model of the public provision of disaster rescue services. Parameter estimates reveal that the probability of dying as a result of Hurricane Katrina, at both the census tract and individual level, increased with respect to being black and poor. Our results suggest that there was a departure from egalitarian principles in the provision of public disaster rescue services during Hurricane Katrina, and are consistent with a political economy of race and class governing decisions about the allocation of public resources to ameliorate population environmental risks.

Can the HOSS framework help shed light on the simultaneous growth of inequality and informalization in developing countries?

Using simple, modified versions of the factor proportions framework, and focusing on structural features within developing economies, this paper attempts to reconcile puzzling developments observed in many post-reform, post-liberalization countries whereby increasing income inequality has emerged side-by-side with informalization of the economy. Measures undertaken to enhance public sector efficiency and attract investment in an import-intensive export sector may increase rental–wage and skilled–unskilled wage gaps, contra the predictions of the simple Heckscher–Ohlin–Stolper–Samuelson (HOSS) framework regarding skill- and capital-scarce countries. The common thread generating our interesting results is the presence of sectors that are even more labor-intensive than those producing traded goods.

Trade in Capital Goods and International Co-movements of Macroeconomic Variables

This paper contributes to the ongoing debate on the causes of international co-movements of macroeconomic variables. In particular, existing real business cycle models predict cross-country consumption correlations to be higher than in the actual data, cross-country output correlations to be lower than in the actual data, and cross-country consumption correlations to be relatively higher than the output correlations. We show that cross-country correlations of consumption, investment, employment and output predicted by a standard international real business cycle model are highly sensitive to the share of capital goods in total trade. Our calibrated model shows that when capital goods account for a share of total traded goods greater than 50%, the apparent discrepancy between the data and the simulations is resolved.

Does financial integration make banks more vulnerable? Regulation,foreign owned banks,and the lender-of-last resort

We describe a simple model in which banks’ prudential efforts and public regulation can reduce the probability of bankruptcy. Focusing on the European example, we contrast the national case with an integrated banking market and find that banks will exert, and public regulators will demand, greater prudential effort to monitor their bank’s activities. Thus, financial integration may increase voluntary prudential behavior by banks, avoid a regulatory “race to the bottom,” and improve the soundness of the financial system. Along similar lines, we show that the absence of a dedicated lender of last resort within the euro area can reduce the probability of financial crisis. Despite these findings, the overall level of regulatory activity may remain suboptimal from a European perspective. We also discuss incentives for European banks to organize their foreign holdings in branches or subsidiaries.

The Contribution of Sectoral Productivity Differentials to Inflation in Greece

This paper estimates the magnitude of the Balassa-Samuelson effect for Greece. We calculate the effect directly, using sectoral national accounts data, which permits estimation of total factor productivity (TFP) growth in the tradeables and nontradeables sectors. Our results suggest that it is difficult to produce one estimate of the BS effect. Any particular estimate is contingent on the definition of the tradeables sector and the assumptions made about labour shares. Moreover, there is also evidence that the effect has been declining through time as Greek standards of living have caught up on those in the rest of the world and as the non-tradeables sector within Greece catches up with the tradeables.

International Risk Sharing and Government Moral Hazard

This paper analyzes incentive problems caused by international risk sharing. They arise because international risk sharing contributes to the insurance of domestic consumption and thus lowers governments’ incentives to increase output. We show that the resulting distortions can lead to substantial efficiency losses. Complete risk sharing is, therefore, undesirable and the optimal degree of risk sharing may be low. Furthermore, we show that households’ risk sharing decisions are socially inefficient and are effectively maximizing government moral hazard. As a result, financial innovation and integration may reduce welfare by increasing households’ risk sharing opportunities.

Minorities’ Fields of Expertise in Economics and Employment Demand in These Fields

Efforts by public and private institutions to increase the number of minorities participating in graduate economics programs has contributed to a growing supply of Ph. D. trained minority economists. However, minorities are still under-represented as faculty members in economics departments. This presidential address explores whether the concentration of minorities in a few fields of specialization creates a demand-supply mismatch for these individuals.

Specialisation patterns and the synchronicity of regional employment cycles in Europe

This paper examines the degree of correlation, i.e. the synchronicity, among EU regional employment cycles and attempts to link it to changing patterns of specialisation. This topic deserves attention since the existing evidence seems to suggest a rather limited role for a region’s industry structure in explaining its employment growth. A dynamic panel data model is estimated for pairs of regions by within groups, i.e., by a standard fixed effects estimator. The results indicate that synchronicity between regions has declined and differences in regional industry structure can be held account for this.

Shocks to Terms of Trade and Risk-premium in an Intertemporal Model: The Dutch Disease and a Dutch Party

In this paper, we analyze the impact of terms of trade and risk-premium shocks on a small open economy in an intertemporal Dutch disease model, with international capital mobility. Given that an improvement in the terms of trade is associated with a decrease in the risk-premium on lending to this economy, we find that this can lead to a Dutch party (rather than Dutch disease) in which real exchange rate appreciation is associated with an expansion of the capital-intensive traded sector, hence, pro-industrialization. The economy also accumulates more debt in the long-run in response to the lower borrowing costs.

Live or Let Die? Alternative Routes to Industry Exit

Each year around 8% of Swedish manufacturing firms leave an industry. Of the exit routes available, the least likely is firm closure. Firms are more likely to merge, become acquired or switch to a new industry. We investigate the importance of a range of firm and industry characteristics for the exit decision of Swedish firms from 1980–1996. From our analysis two patterns are evident. First, firms that close down appear to be the most distinct compared to those that remain within the sector. Second the same characteristics can have quite different associations with different exit strategies.