Inflation and the finance–growth nexus

This paper re-investigates whether there exist inflation thresholds in the finance–growth linkage. By applying the Caner and Hansen's (2004) instrumental-variable threshold regression approach to the dataset of Levine et al. (2000), we find strong evidence of a nonlinear inflation threshold in the relationship, below which financial development exerts a significantly positive effect on economic growth, while, above which, the growth effect of finance appears to be insignificant. Furthermore, we also find a positive and significant relationship between finance and productivity for inflation rates below the threshold level, but no such relationship is detected for inflation rates above the critical level. This result suggests that finance influences growth mainly through the productivity channel.     

Limited liability and the risk–incentive relationship

Several empirical findings have challenged the traditional view on the trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model, the empirical puzzle on the positive relationship between risk and incentives can be explained. Increasing risk leads to a less informative performance signal. Under limited liability, the principal may optimally react by increasing the weight on the signal and, hence, choosing higher-powered incentives.     

Loss aversion and the quantity–quality tradeoff

Firms face an optimization problem that requires a maximal quantity output given a quality constraint. But how do firms incentivize quantity and quality to meet these dual goals, and what role do behavioral factors, such as loss aversion, play in the tradeoffs workers face? We address these questions with a theoretical model and an experiment in which participants are paid for both quantity and quality of a real effort task. Consistent with basic economic theory, higher quality incentives encourage participants to shift their attention from quantity to quality. However, we also find that loss averse participants shift their attention from quality to quantity to a greater degree when quality is weakly incentivized. These results can inform managers of appropriate ways to structure contracts, and suggest benefits to personalizing contracts based on individual behavioral characteristics.     

Effective rates of protection and the Fordney–McCumber and Smoot–Hawley Tariff Acts

This study presents the first calcualtions of effective rates of protection for 1920, 1923 and the first and second half of 1930 for the United States economy disaggregated to 39 sectors. The calculated changes in the effective on the United States economy of the Emergency and Fordney–McCumber tariff acts of 1921 and 1922 and of the Smooth–Hawley Tariff Act of 1930.

The results suggest that the Emergency and Fordney–McCumber tariff acts resulted in a much larger increase in the level of protection given to American industry than the Smoot-Hawley Tariff Act. Further, the results indicate that Smoot-Hawley had a small effect on the level of protection.     

On the Samuelson–Etula Master Function and the capital controversy

Abstract

The paper addresses the ambiguity that surrounds the conception of capital and its role in neoclassical price-and-distribution theory. The difficulties encountered in the various attempts to define the marginal product either of capital or of a capital good are recalled and the conclusion is drawn that neither concept appears theoretically sound. This historical reconstruction is combined with critical discussion of the recent attempt by Paul Samuelson to determine income distribution by means of the “Master Function”, a device previously developed and presented by Samuelson himself with Erkko Etula, and its “non-neoclassical” marginal products. Rather than the existence of a continuum of alternative technical possibilities, this construction assumes the simultaneous use of a discrete number of methods of production for the same commodity. Even though each technique employs the inputs in fixed proportions, the coexistence of various techniques permits the full employment of an arbitrarily given vector of input endowments. As is shown here, however, the coexistence of methods required for the differentiability of the Master Function can take place, if heterogenous capital goods are used in production, neither in the case with stationary relative prices nor in the non-stationary Arrow–Debreu framework.     

Investment and saving in Angola and the Feldstein–Horioka puzzle

This article analyses the relationship between investment and savings for Angola using the Feldstein–Horioka puzzle, with monthly data from January 2000 to December 2013. Integer and fractional integration and cointegration techniques are employed to investigate the relationship between investment and savings. Several regression specifications are employed, concluding that the Feldstein–Horioka puzzle is not validated for the Angolan economy. Policy implications are derived.     

Convergence of the Aumann–Davis–Maschler and Geanakoplos bargaining sets

Summary. Geanakoplos [17] defined a notion of bargaining set, and proved that his bargaining set is approximately competitive in large finite transferable utility (TU) exchange economies with smooth preferences. Shapley and Shubik [26] showed that the Aumann–Davis–Maschler bargaining set is approximately competitive in replica sequences of TU exchange economies with smooth preferences. We extend Geanakoplos result to nontransferable utility (NTU) exchange economies without smooth preferences, and we extend the Shapley and Shubik result to non-replica sequences of NTU exchange economies with smooth preferences.Received: November 11, 1996This revised version was published online in February 2005 with corrections to the cover date.     

Nonlinear dynamics and the exports–output growth nexus

The untested assumption of a linear relationship between exports and output growth in previous empirical investigations may lead to invalid inference if the actual relationship is nonlinear. This paper re-examines the relationship between exports and economic growth in five industrialized economies (Canada, Italy, Japan, UK, and the US) with emphasis on the effect of nonlinearities on the causal relationships. Results from linearity tests show that nonlinearities do exist in the dynamic relationship between exports and GDP growth. Nonlinear smooth transition autoregressive (STAR) model results suggest that nonlinear Granger causality flows from exports to output growth and vice versa. Predictive accuracy tests further confirm the appropriateness of the nonlinear models over the linear model specification.     

Human capital and the quantity–quality trade-off during the demographic transition

This paper provides an empirical test of the child quantity–quality (QQ) trade-off predicted by unified growth theory. Using individual census returns from the 1911 Irish census, we examine whether children who attended school were from smaller families—as predicted by a standard QQ model. To measure causal effects, we use a selection of models robust to endogeneity concerns which we validate for this application using an Empirical Monte Carlo analysis. Our results show that a child remaining in school between the ages of 14 and 16 caused up to a 27 % reduction in fertility. Our results are robust to alternative estimation techniques with different modeling assumptions, sample selection, and alternative definitions of fertility. These findings highlight the importance of the demographic transition as a mechanism which underpinned the expansion in human capital witnessed in Western economies during the twentieth century.     

Freight transportation costs and the thickening of the US–Mexico border

Border regulatory requirements and administrative practices changed subsequent to the September 11, 2001 (9/11), terrorist attacks in the United States. Research in this study examines the manners in which transportation cost data for merchandise imports from Mexico behaved before and after 2001. Evidence is obtained that confirms results earlier tabulated for imports from Canada. Empirical results further indicate that, beyond freight cost changes, growth in the value of imports from Mexico was disrupted by events associated with the aftermath of 9/11.     

A generalization of the Cairns–Krautkraemer model and the optimality of the mining rule

There exists a rule of thumb of mines, which decides how the cut-off grade (the lowest grade of extracted ore) should change in response to a change in the price of the metal. It requires that the cut-off grade should decrease (increase) when the present value price of metal increases (decreases). In this paper, the optimality of the rule will be examined by generalizing the Cairns–Krautkraemer model under the perfect foresight assumption.     

Divorce and the Birth Control Pill in the US, 1950–85

This paper explores the relationship between the advent of the birth control pill and divorce rates. Women using the pill can decide when and whether to have children and whether to maintain their attachment to the labor force. This ability may increase women's autonomy, making divorce more feasible. The pill's effects are identified through a quasi-experiment exploiting differences in the language of the Comstock anti-obscenity statutes approved in the late 1800s and early 1900s in the United States. Empirical evidence from state-level data on US divorce rates 1950 to 1985 shows that sales bans of oral contraceptives have a negative impact on divorce. These findings are robust to alternative specifications and controls for observed (such as women's labor force participation) and unobserved state-specific factors, and time-varying factors at the state level. Results suggest that the impact of women's control of hormonal contraception on their autonomy is important in divorce decisions.     

Regional and Sector-specific Determinants of Industry Dynamics and the Displacement–replacement Effects

In this paper, we empirically assess the importance of regional and sector-specific determinants of industry dynamics. To this aim we test three hypotheses (originally proposed by Shapiro and Khemani (1987, Int J Indust Organ 5:15–26)) for the relationship between the entry and exit of firms: independence, symmetry and simultaneity. Estimates from a panel data system of equations seem to confirm the simultaneity hypothesis for Spain, i.e. we find evidence of a displacement (replacement) effect between the gross rate of entry (exit) and the gross rate of exit (entry). Also, our results show that, irrespective of the hypothesis we use, both sectorial and regional variables affect entry and exit.

Portfolio flows and the US dollar–yen exchange rate

This paper investigates the effects of portfolio flows on the US dollar–Japanese yen exchange rate changes over the period 1988:01–2011:04. Using a time-varying transition probability Markov-switching framework, the results suggest that the impact of portfolio flows on the dollar–yen exchange rate changes is state-dependent. In particular, the results show that portfolio inflows from Japan toward the US, more than monetary variables, strengthen the probability of remaining in the dollar–yen appreciation (low volatility) state. Therefore, credit controls on the flows can be used as a policy tool to pursue economic and financial stability.     

US–Indonesia trade at commodity level and the role of the exchange rate

Previous studies that assessed the impact of currency depreciation on inpayments and outpayments of Indonesia with her major trading partners did not find much significant results, especially in the trade with the United States. We wonder whether insignificant link between the real rupiah-dollar rate and Indonesia’s inpayments and outpayments with the United States is due to aggregation bias. To answer this question, we disaggregate the trade flows between the two countries by commodity and consider the sensitivity of inpayments of 108 US exporting industries and outpayments of 32 US importing industries from Indonesia. We find that most industries respond to exchange rate changes in the short run. In the long run, however, 32 inpayments schedule and 17 outpayments schedule are significantly affected. A 1% real depreciation of the dollar was found to improve US trade balance by 1.8%.     

Optimal simple rules and the lower bound on the nominal interest rate in the Christiano–Eichenbaum–Evans model of the US business cycle

Schmitt-Grohé and Uribe (NBER wp 10724, 2004b) analyzes the optimal, simple and implementable monetary policy rules in a medium-scale macromodel, as the one proposed by Christiano et al. (J Polit Econ 113:1–45, 2005). In doing so, they use a sensible, but somewhat arbitrary constraint to account for the lower bound condition on the nominal interest rate. In this work, we check the robustness of their main results to such a criteria. We find that the optimal policies are actually absolutely robust to the easing of this criterion for all the different cases considered.

Technological change and the age–earnings profile: Evidence from the International Merchant Marine, 1861–1912

Models of vintage-specific learning predict systematic cross-technology differences in earnings among otherwise identical employees. This paper outlines a vintage learning model based on Chari and Hopenhayn's (1991, Journal of Political Economy) exposition. The model predicts that (i) the age–earnings profile is steeper in new technologies, (ii) the discounted present value of lifetime earnings are equalized across technologies, and (iii) the age–earnings profile in newer technologies becomes flatter over time. These predictions find support from a data set spanning a 52-year period beginning in 1861 that matches over 141,000 wage contracts accepted by merchant mariners to the technologies with which they worked. As a by-product, the paper reports some of the oldest evidence yet made available of the returns to literacy.     

Learning,experience and the dynamics of north–south Trade and technology transfer

This paper examines the dynamics of learning and experience that underlie technology transfer using a North-South trade model with a continuum of goods. Since North is historically more experienced than South, it initially produces the most advanced goods and pays higher wages. Whenever there is a market-driven transfer of technology and production over time, there will be some wage convergence as South gradually gains experience. Nevertheless, wage inequality must persist in the steady state. Product innovation typically increases steady-state wage inequality because new goods are produced in North, and North ultimately learns than South. [F12, O19]     

Population dynamics and utilitarian criteria in the Lucas–Uzawa Model

This paper introduces population growth in the Uzawa–Lucas model, analyzing the implications of the choice of the welfare criterion on the model's outcome. Traditional growth theory assumes population growth to be exponential, but this is not a realistic assumption (see Brida and Accinelli, 2007). We model exogenous population change by a generic function of population size. We show that a unique non-trivial equilibrium exists and the economy converges towards it along a saddle path, independently of population dynamics. What is affected by the type of population dynamics is the dimension of the stable manifold, which can be one or two, and when the equilibrium is reached, which can happen in finite time or asymptotically. Moreover, we show that the choice of the utilitarian criterion will be irrelevant on the equilibrium of the model, if the steady state growth rate of population is null, as in the case of logistic population growth. Then, we show that a closed-form solution for the transitional dynamics of the economy (both in the case population dynamics is deterministic and stochastic) can be found for a certain parameter restriction.