ON THE OUTPUT EFFECTS OF BARRIERS TO TRADE*

We study the macroeconomic effects of international trade policy by integrating a Hecksher–Ohlin trade model into an optimal‐growth framework. The model predicts that a more open economy will have higher factor productivity. Furthermore, there is a “selective development trap” to which countries may or may not converge, depending on policy. Income at the development trap falls as trade barriers increase. Hence, cross‐country differences in barriers to trade may help explain the dispersion of per capita income observed across countries. The effects are quantified, and we show that protectionism can explain a relevant fraction of TFP and long‐run income differentials across countries.     

TESTING CATCHING‐UP BETWEEN THE DEVELOPING COUNTRIES: “GROWTH RESISTANCE” AND SOMETIMES “GROWTH TRAGEDY”

This paper provides empirical evidence that there is no convergence between the GDP per‐capita of the developing countries since 1950. Relying upon recent econometric methodologies (non‐stationary long‐memory models, wavelet models and time‐varying factor representation models), we show that the transition paths to long‐run growth (the catch‐up dynamics) are very persistent over time and non‐stationary, thereby yielding a variety of potential steady states (conditional convergence). Our findings do not support the idea according to which the developing countries share a common factor (such as technology) that eliminates per‐capita output divergence in the very long run. Instead, we conclude that growth is an idiosyncratic phenomenon that yields different forms of transitional economic performance: growth tragedy (some countries with an initial low level of per‐capita income diverge from the richest ones), growth resistance (with many countries experiencing a low speed of growth convergence), and rapid convergence.     

Downward nominal wage rigidity in Canada: Evidence against a “greasing effect”

The existence of downward nominal wage rigidity (DNWR) has often been used to justify a positive inflation target. It is traditionally assumed that positive inflation could “grease the wheels” of the labour market by putting downward pressure on real wages, easing labour market adjustments during a recession. A rise in the inflation target would attenuate the long‐run level of unemployment and hasten economic recovery after an adverse shock. Following Daly and Hobijn (2014), we re‐examine these issues in a model that accounts for precautionary motives in wage‐setting behaviour. We confirm that DNWR generates a long‐run negative relationship between inflation and unemployment, in line with previous contributions to the literature. However, we also find that the increase in the number of people bound by DNWR following a negative demand shock rises with the inflation target, offsetting the beneficial effects a higher inflation target has on closing the unemployment gap. As an implication, contrary to previous contributions that neglected precautionary behaviour, the speed at which unemployment returns back to pre‐crisis levels during recessions is relatively unaffected by variations in the inflation target.     

A Dynamic Incentive‐Based Argument for Conditional Transfers*

We compare the long‐run effects of replacing unconditional transfers to the poor by transfers conditional on the education of children. Unlike Mirrlees’ income taxation model, the distribution of skill evolves endogenously. Human capital accumulation follows the Freeman–Ljungqvist–Mookherjee–Ray OLG model with missing capital markets and dynastic bequest motives. Conditional transfers (funded by taxes on earnings of the skilled) are shown to induce higher long‐run output per capita and (both utilitarian and Rawlsian) welfare, owing to their superior effect on skill accumulation incentives. The result is established both with two skill levels, and a continuum of occupations.     

HOW SHOULD WE MEASURE THE “ECONOMIC” ASPECTS OF WELL‐BEING?

The Human Development Index (HDI) uses GDP per capita to measure “command over resources,” which implicitly makes the strong value judgment that inequality and insecurity do not matter. This paper presents revised estimates of the Index of Economic Well‐Being (IEWB) for the United States, the U.K., Canada, Australia, Germany, Norway and Sweden for the period 1980 to 2001 and demonstrates that replacing an index of the log per capita incomes with our IEWB as the “command over resources” component in the Human Development Index (HDI) affects the level and trend of the HDI, even among affluent nations. Because the IEWB recognizes four dimensions of command over resources (Current effective per capita Consumption flows, Net societal Accumulation of stocks of productive resources, Income Distribution and Economic Security), its use has a particularly large impact where underlying trends in these components diverge (e.g. the U.K. or the United States).     

International Trade and Growth Miracles: the Implications of Nonhomothetic Preferences

If the rate of saving increases with income then a low per capita level of the capital stock may be self‐sustaining. In these circumstances international trade may allow an economy to quickly increase its per capita capital stock in a self‐reinforcing “growth miracle” process. A labor‐abundant economy trading with a capital‐abundant economy will see its wage rate rise relative to autarky. This rise in the wage rate also increases the savings rate and so raises the following period’s per capita capital stock. In this way a low‐income economy may exhibit large and permanent increases in its level of GDP per capita after opening its markets to international trade.     

Common Ground Between Free‐Traders and Environmentalists

We use a North–South model with property right differences and resource dynamics to study the effects of trade on resource use and welfare. Autarky is likely to Pareto‐dominate free trade in the long run when the environment is quite fragile, and the result is reversed when the environment is quite resilient. Trade may cause an environmentally poor country to “drag down” its richer trading partner, when they degrade their stocks which would be preserved under autarky. It may enable the environmentally richer country to “pull up” its partner, when they preserve their stocks which would be degraded under autarky.     

Fertility and climate change*

A quarter of the total increase in emissions is attributable to the growth of emissions per capita, whereas three-quarters are due to population growth. This evidence notwithstanding, demography in climate–economy models typically follows exogenous trends. We develop a climate–economy integrated model with endogenous fertility through a quality–quantity trade-off. The decentralization of the social optimum requires two complementary instruments: a carbon pricing policy and family planning interventions. Global population increases and reaches a peak, depending on the scenario, between 11.6 billion in the social optimum and 14.6 billion if only carbon prices are implemented. Fertility costs (i.e., the net present value of the climate-related costs per child) are in 2020 estimated to be about 22,000 euros in the “social optimum” scenario, and about 88,000 euros in the “second-best with fertility taxes” scenario. Carbon pricing tends to have a rebound effect as it increases population growth leading to higher future emissions. Our results highlight the effects of fertility choices and global population on climate change, quantifying the cost of neglecting the interaction.     

Variable Specific Factors and the “X-Efficiency Cost” of Protection *

This paper analyzes the effects of protection on X-efficiency using a general equilibrium Ricardo-Viner model with variable sector-specific effort. As in earlier models, it is found that protection only reduces effort if the income effect is sufficiently strong. It is also shown that, provided the correct compensated import demand curve is used, all welfare effects attributable to changes in effort are captured in the standard “triangle” measure of deadweight loss. Moreover, any protection-induced fall in effort will reduce the overall cost of protection, suggesting that policy-induced “X-inefficiency” may be beneficial.     

ON THE “PRO‐POORNESS” OF GROWTH IN A MULTIDIMENSIONAL CONTEXT

This paper represents a first attempt to bring together the issues of multidimensional poverty and growth “pro‐poorness” assessments. More specifically, we suggest the use of sequential dominance procedures to test the “pro‐poorness” of observed growth spells when poverty is measured on the basis of income and another discrete well‐being attribute. Sequential procedures are also used to obtain graphical tools that are consistent with the spirit of Ravallion and Chen's growth incidence curve and Son's poverty growth curve. Contrary to traditional unidimensional tests, our method makes it possible to take into account the importance of deprivation correlations at the individual level and thus may reverse results observed with the traditional tools used to check the “pro‐poorness” of growth. An illustration of our approach is given using Turkish data for the period 2003–05.     

股票财富、信号传递与中国城镇居民消费

本文尝试在消费者最优选择模型基础上,通过引入居民的借贷约束和预防性储蓄,推导出能够检验股市的财富效应、信号传递效应和不对称效应的实证分析框架,并利用中国的季度数据考察中国股市变动对居民消费的影响。与国内相关文献所得结论不同,本文的研究表明:如果不仅考虑股票价格变动的财富效应,而且考虑其信号传递效应,那么中国股票市场对城镇居民消费存在着较为明显的影响。分析也表明,如果用工资而不是人均可支配收入度量人力资本回报,中国股票市场同样存在正的财富效应,且这种财富效应具有明显的不对称性,反映经济基本面变化的股价变动对中国居民消费具有长期影响,投机因素引起的股价变动对中国居民消费的影响甚微。     

THE 2005 LAWRENCE R. KLEIN LECTURE: EMERGENT CLASS STRUCTURE*

This article presents a model of the emergent class structure, in which a society inhabited by inherently identical households may be endogenously split into the rich bourgeoisie and the poor proletariat. For some parameter values, the model has no steady state where all households remain equally wealthy. In this case, the model predicts emergent class structure or the rise of class societies. Even if every household starts with the same amount of wealth, the society will experience “symmetry‐breaking” and will be polarized into two classes in steady state, where the rich maintain a high level of wealth partly due to the presence of the poor, who have no choice but to work for the rich at a wage rate strictly lower than the “fair” value of labor. The nonexistence of the equal steady state means that a one‐shot redistribution of wealth would not be effective, as wealth inequality and the class structure would always reemerge. Thus, the class structure is an inevitable feature of capitalism. For other parameter values, on the other hand, the model has the unique steady state, which is characterized by perfect equality. In this case, the model predicts dissipating class structure or the fall of class societies. Even if the society starts with significant wealth inequality, labor demand by the rich employers pushes up the wage rate so much that workers will escape from the poverty and eventually catch up with the rich, eliminating wealth inequality and the class structure in the long run. In an extension, we introduce self‐employment, which not only provides the poor with an alternative to working for the rich, but also provides the rich with an alternative to investment that creates jobs. Due to this dual nature of self‐employment, the effects of self‐employment turn out to be quite subtle. Yet, within the present framework, it is possible to offer a complete characterization of the steady states even in the presence of self‐employment.     

RESOURCE CURSE,POLITICAL ENTRY,AND DEADWEIGHT COSTS

A simple model of political entry in a two‐sector economy is developed to analyze the effects of natural resource wealth on economic policy, political development, and civil insurrection. The model emphasizes the role of political entry and deadweight costs of taxation on the joint determination of these economic and political outcomes. Contrary to popular belief, my model shows that natural resource abundance is an economic blessing even in a rent‐seeking society, although resource dependence can be negatively associated with economic performance. In a contested political market, dictators care about popular support and hence resource wealth can help reduce the deadweight cost of taxation (and hence the cost of public good provision). On the other hand, natural resource wealth can be a political curse, because it encourages political entry and hence it induces incumbent dictators to run more repressive regimes. With constant returns counterinsurgent technology, however, the equilibrium number of insurgents is independent of the size of resource wealth. The onset of civil war, therefore, depends on the counterinsurgent technology and whether the costs of entry deterrence are affected by resource wealth. This helps clarify the two seemingly contradictory hypotheses that “resource wealth enhances regime durability” and “resource wealth fuels conflict.”     

新古典模型中收入和财富分配持续不平等的动态演化

本文讨论了当个人劳动能力和偏好存在差异的情况下，资本收入和劳动收入分配的差异如何通过遗产机制影响收入和财富分配的持续性不平等程度。论文分析表明：在偏好、个人劳动能力和个人收入的随机冲击的影响下，如果市场是完善的，整个经济系统存在收入和财富分配的稳定不平等状态，而且，这种稳定的不平等状态与初始的财富分配的不平等和一次性的产权配置都是无关的。最后，本文分析了资本收入税和劳动收入税对持续不平等程度的影响，通过分析指出：从长期来看，在劳动能力和初始财富存在差异而偏好没有差异的情况下，征收劳动收入税比征收资本收入税更有利于改善由于能力差异所造成的持续不平等。     

Monetary and fiscal policies in a heterogeneous‐agent economy

We study the effects of long‐run inflation and income taxation in an economy where households face uninsurable idiosyncratic risks. We construct a tractable competitive‐search framework that generates dispersion of prices, income and wealth. We analytically characterize the stationary equilibrium and the policy effects on individual choices. Quantitative analysis finds that monetary and fiscal policies have distinct effects on macro aggregates, such as output, savings and wealth, income and consumption inequalities. There is a hump‐shaped relationship between welfare and the respective policies. Overall, welfare is maximized by a deviation from the Friedman rule, paired with distortionary income taxation.     

Like Father,Like Son: Inheriting and Bequeathing

This paper incorporates indirect reciprocal behavior in the context of bequeathing decisions into an otherwise standard OLG model. We provide conditions for the existence of a unique steady state with operative bequests. Contrary to standard OLG models, we show that taking into account such behavioral interactions allows one to rationalize both an increasing and U‐shaped pattern of the inheritance to GDP ratio over time, consistent with recent empirical evidence. Moreover, the model predicts a nonlinear (U‐shaped) relationship between the size of an unfunded social security program and the long‐run stock of per capita capital, which in turn provides a novel explanation of the inconclusive empirical findings on the relationship between social security, savings and long‐run growth. Ricardian equivalence is shown to hold in a special case of the model     

An econometric analysis of the effects of population change on economic growth: a study of Taiwan

This study used an econometric model, estimated from time series data, to evaluate the effects of demographic factors on the T aiwanese economy. The simulation results suggest that, in the short run, a stationary population produces significantly higher income per capita than rapid population growth; in the long run, however, rapid population growth produces a slightly higher income per capita. Under assumptions of very low fertility trends, the population size, equivalent adult consumers, and labor force can be expected to grow by no more than 50% in a century, whereas under the very high fertility trend assumptions, they would more than double. The reason that lower fertility populations produce a smaller gross domestic product per capita in the long run than the normal fertility population is that the negative effects of a slower growing labor force dominate the positive effects of a faster growing capital formation. In terms of the present values of annual income per capita, the slow growing population shows considerably better economic performance. Given the immediate economic advantages of lower fertility, it is important for developing countries with high birth rates to reduce fertility in order to produce higher per capita income effects and break out of poverty. It is considered of little importance that the slow growing populations eventually produce slightly smaller per capita.     

Current Account Dynamics in a Small Open‐Economy Model of Status Seeking*

In this paper we analyze the implications of status preference, modeled as relative wealth, for the current account in a small open‐economy framework with capital stock dynamics. We demonstrate that the transitional dynamics of the economy are characterized by two distinct speeds of adjustment: a speed of adjustment arising from status preference and a speed of adjustment arising from installation costs of investment. This structure implies that the current account balance depends on both speeds of adjustment as well as on the long‐run equilibrium, which is a function of the degree of status consciousness. As a consequence, the current account can exhibit nonmonotonic behavior in transition to the steady‐state equilibrium subsequent to a productivity disturbance.     

Endogenous Growth and Publicly Funded Knowledge Accumulation

We investigate a centrally planned, infinite horizon, single good economy in which new knowledge is generated in a separate R&D sector with government subsidy. The rate of growth of new ideas is assumed to be linear in the amount of labor devoted to R&D. Perpetual growth in per capita output and consumption is sustained by the spillover effects of knowledge creation. Using an isoelastic social welfare function and a general production function, the unique balanced growth path is characterized and the conditions for balanced growth to take place derived. In analyzing standard balanced growth, we demonstrate that so long as physical capital and knowledge grow at some arbitrarily constant rates along an optimal time path, the two rates must necessarily be equal. Using a Cobb–Douglas production function, the dynamic evolution of the economy is explicitly described in closed form for each state and control variables. In particular, it is shown that the economy either (i) attains the balanced growth path from the initial time, or (ii) converges monotonically to the balanced growth path. An asymptotic balanced growth path along which labor input in manufacturing tends to zero in the long run is ruled out by the tranversality condition on knowledge.     

WHY SMALL GROUPS AND LOW INCOME SECTORS OBTAIN SUBSIDIES: THE “ALTRUISTIC” SIDE OF A “SELF-INTERESTED” GOVERNMENT*

We develop a model of political support seeking politicians and support supplying voters. Based on Downs' original formulation, the framework yields endogenous political weights with both liberal and conservative properties. Our model reconciles the apparent contradiction between models of self-interested politicians and of governments motivated by social concerns. We show that the “altruistic” aspect of government behavior is consistent with its “self-interested” behavior. We determine that the Olson-Becker pressure group model is not unique. An increase in deadweight costs reduces the equilibrium subsidy. Smaller groups receive a larger per capita subsidy. These results are consistent with Becker's model.