On Decreasing Marginal Impatience,Stability and Monetary Policy in a Sidrauskian Economy

This paper analyzes the long‐run dynamics with which decreasing marginal impatience (DMI) is consistent with a saddle‐path equilibrium in a Sidrauskian economy. With exogenous growth, this occurs with a strong substitutability between capital and money. Otherwise, diminishing returns to capital have to be stronger than in a nonmonetary setting if capital and money are complements. With endogenous growth, saddle‐path stability ensues when the rate of time preference—the rate at which “impatience” is increasing—exceeds the rate at which the real economy is growing along a balanced growth path. Two monetary implications also emerge. One, DMI can be consistent with both a negative and positive long‐run inflation‐growth nexus. Two, under capital‐money substitutability, the Friedman optimal rule might even fail to hold.     

OPTIMAL INTERNATIONAL DEBT AND ENDOGENOUS TIME PREFERENCE IN A DEMOGRAPHICALLY DIVIDED WORLD (*)

The international transmission of shocks in population growth and technology is examined in an interdependent two-country world economy; decisions concerning the intertemporal allocation are made by social planners with an infinite horizon and an endogenous rate of time preference. Steady state shocks in population growth are shown to be negatively transmitted to the rate of time preference. In the steady state, the optimal foreign debt is determinate and it brings about a convergence of time preference. The net creditor and debtor positions in the steady state depend on the discount rate functions, the states of technology and the rates of population growth.     

Are Imports and Exports Cointegrated? An International Comparison

In this paper we use the Johansen and Juselius cointegration technique to examine the long‐run convergence between imports and exports for a number of industrialized countries. The results indicate that there exists a long‐run steady‐state relationship between imports and exports for most countries in the sample. The policy implications of our findings are that the countries are not in violation of their international budget constraints and, more importantly, there is no productivity gap between the domestic economy and the rest of the world, implying a lack of permanent technological shocks to the domestic economy.     

Indonesia – Trade Policy Review 2007

This paper examines the 2007 WTO review of Indonesian trade policy. Indonesia undertook a major policy liberalisation in the late 1960s. Serious protectionist pressures emerged in the 1970s but for most of this period, and especially since the mid‐1980s, the economy has remained broadly open. We summarise the WTO report, update some of its analysis, highlight its key findings, and point to some trade policy issues that in our opinion warranted greater attention. The main theme of the paper is that Indonesia is a largely open economy, but that this openness on occasion remains precarious. There are both political economy, rent‐seeking forces opposed to the current openness and, perhaps more importantly, much of the country's influential public opinion is sceptical of the merits of an open economy and deeper global commercial integration. Nor is there a deeply institutionalised support for openness in the country's bureaucracy and polity. Seen from this perspective, a key question to answer is why the country has remained open, particularly since the deep economic and political crises of 1997–98.     

Foreign Direct Investment,Competition and Industry Performance

This paper investigates the productivity effects of inward and outward foreign direct investment using industry‐ and country‐level data for 17 OECD countries over the period 1973 to 2001. Controlling for national and international knowledge spillovers we argue that the effects of FDI work through direct compositional effects as well as changing competition in the host country. Our results show that there are, on average, productivity benefits from inward FDI, although we can identify a number of countries which, on aggregate, do not appear to benefit in terms of productivity. On the other hand, a country's stock of outward FDI is, on average, negatively related to productivity. However, again there is substantial heterogeneity in the effect across OECD countries.     

STRATEGIC INVESTMENT IN A NEW MIXED MARKET WITH LABOR‐MANAGED AND PROFIT‐MAXIMIZING FIRMS

This paper examines a continuous‐time mixed model of the strategic investment decisions of a labor‐managed income‐per‐worker‐maximizing firm and a profit‐maximizing firm in a new mixed market and constructs a set of perfect equilibria of the continuous‐time mixed model. The paper shows that there exists a particular equilibrium in which neither firm invests to its steady‐state reaction curve. The paper also finds that the existence of the particular equilibrium depends on each firm's being able to respond quickly to its rival's investment and that the particular equilibrium is profitable for each firm.     

AN EQUILIBRIUM GUIDE TO DESIGNING AFFINE PRICING MODELS

The paper examines equilibrium models based on Epstein–Zin preferences in a framework in which exogenous state variables follow affine jump diffusion processes. A main insight is that the equilibrium asset prices can be computed using a standard machinery of affine asset pricing theory by imposing parametric restrictions on market prices of risk, determined inside the model by preference and model parameters. An appealing characteristic of the general equilibrium setup is that the state variables have an intuitive and testable interpretation as driving the consumption and dividend dynamics. We present a detailed example where large shocks (jumps) in consumption volatility translate into negative jumps in equilibrium prices of the assets as agents demand a higher premium to compensate for higher risks. This endogenous “leverage effect,” which is purely an equilibrium outcome in the economy, leads to significant premiums for out‐of‐the‐money put options. Our model is thus able to produce an equilibrium “volatility smirk,” which realistically mimics that observed for index options.     

New perspectives on corruption contagion

Is corruption within one country affected by corruption within another? Few studies have examined this question in detail due to the difficulty of measuring corruption and paucity of consistent data over an adequate time span. I use a cross-country panel data-set spanning 1995–2014 to examine how domestic corruption reacts to the culture of corruption amongst a country's regional neighbors. I find evidence that a reduction in regional corruption can actually lead to a worsening of corruption within a country, and vice versa. If in an open economy, regional graft lowers the level of income that a rent-seeking government can tax, a reduction in regional corruption can increase the marginal benefit of imposing a more extractive domestic policy by increasing the pool of exploitable funds. My results suggest that corruption will be an enduring institution in a more interconnected world.     

On the employment, investment and current account effects of inflation

The effects of inflation targets are examined for a small open economy with cash in advance constraints. An increase in the inflation rate, by increasing the price of consumption relative to leisure, reduces consumption and labor supply. The fall in labor reduces the marginal productivity of capital, and a fall in investment. The country runs a current account surplus, despite the fall in output. The dynamics of the model for permanent and temporary policy changes are fully worked out, with the aid of a diagrammatic apparatus. Quantitative analysis of the model reveals substantial impact and steady state effects.     

ARROW–DEBREU EQUILIBRIA FOR RANK‐DEPENDENT UTILITIES

We provide conditions on a one‐period‐two‐date pure exchange economy with rank‐dependent utility agents under which Arrow–Debreu equilibria exist. When such an equilibrium exists, we show that the state‐price density is a weighted marginal rate of intertemporal substitution of a representative agent, where the weight depends on the differential of the probability weighting function. Based on the result, we find that asset prices depend upon agents' subjective beliefs regarding overall consumption growth, and we offer a direction for possible resolution of the equity premium puzzle.     

Can Russia's state-managed,network capitalism be competitive?: Institutional pull versus institutional push

In the fall of 2005, former chairman of Yukos Oil, Mikhail Khodorkovsky, was sentenced to prison, after being found guilty of fraud and tax evasion. Many viewed the trial as the government's attempt to gain control of the energy sector which Putin had declared as strategically crucial to the country. This article examines the role of the state and the type of capitalism that is evolving in Russia. We view this system as consisting of three forms of network capitalism that coexist in this transition economy – market, oligarchic, and siloviki – and the relationships among them, all existing within the pervasive environment of the Russian state. We argue that the Russian economy will continue to be based for some time on the cognitive institutional pillar rather than the regulative pillar. The article concludes with implications of government policy decisions for the various forms of capitalism, for the country's competitiveness and attractiveness for foreign investment, and for Russian managers.     

Determinants of Bilateral Trade Protection

In this paper, determinants of bilateral protection levels are empirically identified when controlling for multilateral trade regulation and importing‐country‐specific factors. Strong empirical support is provided of that three bilateral factors are influencing the bilateral protection level. Specifically, a country's protection level on goods from a trade partner is positively affected by the domestic import penetration of goods produced by the trade partner, negatively influenced by the intra‐industry traded share of these imports and positively affected by the trade partner's protection level on domestic goods. Moreover, very high explanatory values are provided in the cross‐section estimations, indicating that these determinants, policy regulations and importer‐specific factors jointly explain almost all of the variation in bilateral protection levels. The results are general in the sense that estimations are performed for a large sample of bilateral trade relations including 22 trade partners that are highly differentiated in terms of country characteristics. The overall results indicate that, to the extent that policy makers can affect bilateral protection levels under multilateral trade regulation, they act on political‐economy rather than economic goals.     

The volatility of world trade in the 21st century: Whose fault is it anyway?

This paper explores the drivers of the volatility of international trade. It decomposes trade growth into six components that have gained attention in the literature and studies their contribution to overall volatility. It yields three main findings. First, trade volatility in the 1990–2015 period is mostly explained by a common factor, changes in the gravity‐related characteristics of a country's trading partners and country‐specific factors. Product composition and the identity of trading partners appear to be less important in explaining volatility. Second, the pre‐2009 decline in volatility and the post‐2009 increase in volatility appear to be driven by different factors. The former is mostly explained by a decline in the variance of country‐specific factors; the latter appears to be driven by an increase in the volatility of common factors. Third, diversification is a likely force behind the steady decline in the volatility stemming from country‐specific factors, especially in developing countries.     

Marketing Challenges and Opportunities in Emerging Economies: A Brazilian Perspective

This article describes the challenges and opportunities of marketing in an emerging economy, focusing on Brazil as an exemplar. The main features of the Brazilian economy are discussed with special attention given to the changing nature of the country's income distribution. Where Brazil once had a pyramid‐shaped income distribution typical of many less developed countries, this is rapidly giving way to a diamond‐shaped income distribution due to the emergence of a growing middle class. This, in turn, presents marketers with many opportunities ranging from franchise development to e‐commerce. At the same time, however, marketers are challenged by several features of the Brazilian economy, including poor logistics, corruption, and state interventionism, among other threats. © 2016 Wiley Periodicals, Inc.     

International spillovers and absorptive capacity: A cross-country cross-sector analysis based on patents and citations

This paper brings together the issues of knowledge spillovers and absorptive capacity, by assessing the role of prior R&D experience in enhancing a country's ability to understand and improve upon external knowledge. International spillovers are found effective in increasing innovative productivity in laggard countries, while technological leaders are a source rather than a destination of knowledge flows. Quantitative estimates of the effect of absorptive capacity on innovative performance, through knowledge spillovers, show that absorptive capacity increases the elasticity of a laggard country's innovation to international spillovers, while its marginal effect is negligible for countries at the technological frontier.     

Again on the Relevance of Reverse Capital Deepening and Reswitching

Among the recent interventions in the capital controversy, the debate between Paola Potestio and Kurz & Salvadori has raised important issues. We agree with Potestio's rejection of the legitimacy of a value endowment of capital but we disagree with her dismissal of the relevance of reswitching and reverse capital deepening: these phenomena are very important because they undermine the demand‐side role of the conception of capital as a single factor. For the marginal approach to be plausible, this demand‐side role had to imply the stability of the savings‐investment market even in shorter time frames than those required by a complete adaptation of the ‘form’ of capital; this was taken by Marshall to authorize doing without a given endowment of value capital, which opened the door to the shift to the modern neo‐Walrasian versions of the marginal approach. With proof from Hayek, Hicks, Malinvaud, and Lucas we argue that a continuing belief in traditional time‐consuming marginalist disequilibrium adjustments based on capital‐labour substitution is the hidden reason why the claim often made by contemporary marginalist economists, that the economy can be assumed to be all the time on the equilibrium‐growth path, is not found patently unacceptable. The true microfoundation of DSGE macromodels is not intertemporal equilibrium theory, but the time‐consuming adjustment mechanisms on whose basis the marginal approach was born and accepted, and on whose basis monetarism was then able to re‐assert a pre‐Keynesian view of the working of the economy.     

Structural Transformation and Comparative Advantage: Implications for Small Open Economies

Data from the last half‐century show that revealed comparative advantage in agriculture (manufacturing) is negatively (positively) associated with the rate of decline in labour share in agriculture. Motivated by this finding, the author constructs and calibrates a simple open‐economy model, where there is learning‐by‐doing in manufacturing and industry‐supplied inputs to agricultural production. This paper focuses on the effects of comparative advantage and learning‐by‐doing on structural transformation and calibrate the model to the US and the UK data to estimate key parameters of the model. Quantitative experiments show that holding constant other factors a small difference in a country's comparative advantage can account for a large variation in structural transformation for open economies, which does not require nearly as much differential productivity growth as in closed‐economy models.     

Cost share‐induced technological change and Kaldor’s stylized facts

This paper presents a theory of induced technological change in which firms pursue a random, local, and bounded search for productivity‐enhancing innovations. Firms implement profitable innovations at fixed prices, which then spread through the economy. After diffusion, all firms adjust prices and wages. The model is consistent with a variety of price‐setting behaviors, which determine equilibrium positions characterized by constant cost shares and productivity growth rates. A fixed mark‐up can yield Marx‐biased technological change. Target‐return pricing yields Harrod‐neutral technological change with a fixed wage share as a stable equilibrium, consistent with Kaldor's stylized facts, while allowing for deviations from equilibrium, as observed in the longer historical record.     

Chief executive officers' dispositional optimism,host country's rule of law,and foreign market equity mode choice of Ghanaian small and medium‐sized enterprises

Despite a growing interest in the influence of managerial characteristics on firms' strategic decision‐making process, scholarly knowledge is limited with regard to how and when psychological attributes of executives affect firms' foreign entry mode decision. Building on behavioral decision‐making theory, we address this gap by investigating the effect of chief executive officers' (CEOs') optimism on firms' foreign market equity mode choice. In addition, we examine the moderating influence of the host country's rule of law on this relationship. Using primary data from 227 small and medium‐sized enterprises (SMEs) in Ghana, we found that increases in the levels of CEOs' optimism are related to the increases in preference for equity entry mode. This relationship is amplified when CEOs perceive the host country to have stronger rule of law. The findings have theoretical, managerial, and policy implications for SMEs' foreign market entry mode strategy.     

Strategic Interactions and Contagion Effects under Monetary Unions

This paper applies game theory and a cost‐benefit analysis to study voluntary exits and contagion effects in countries joined to a monetary union. The paper looks at two non‐core or periphery countries of a large union and examines the role of structural asymmetries and strategic interactions as determinants of equilibrium outcomes, following both country‐specific and common shocks. The paper finds that under almost symmetry between countries, country‐specific shocks are never associated with multiple equilibria and, if large enough, can spread to other countries leading to contagion. By contrast, common shocks are seen to sustain multiple equilibria if almost‐symmetric countries are considered and to have implications similar to those found in the country‐specific case if large structural asymmetries are admitted.