Market penetration by entry-exit dynamics

A generic characterization of the dynamics of market penetration by technological artifacts is here formulated on the basis of entry rate and exit rate considerations. It is shown that low-order reductions lead to the biologically based logistic dynamic, which—by empirical fit—has been found to be in very good agreement with numerous specific cases. In addition to the derivational justification of the logistic for artifact market penetration, we find that but a small number of parameters are involved in these autonomous characterizations suggesting therefore that market penetration may well be reduced to a similarly small number of dominant operative processes. Some nonautonomous extensions are also discussed.     

How Do Digital Technologies Drive Economic Growth?

This paper seeks to provide new empirical evidence that demonstrates the importance of digital technologies in promoting economic growth, drawing on the literature on advances in growth and leveraging a broader and more robust country‐level panel dataset. In particular, this paper estimates the long‐run economic impact of digital technologies using mobile phone penetration and internet usage as broad indicators. The empirical results suggest that, between 2004 and 2014, the diffusion of digital technologies significantly improved economic output in Australia and abroad, contributing to steady‐state gross domestic product per capita growth of approximately 5.8 per cent on average. These findings could serve as the starting‐point for predictions about the likely impact of future technologies, providing a better understanding for policy‐makers in prioritising initiatives that will continue to lift living standards in the coming years.     

Uncovered Interest Parity at Long Horizons: Evidence on Emerging Economies*

This paper estimates uncovered interest parity (UIP) at long horizons using bilateral US dollar rates vis‐à‐vis mature economy and emerging market currencies. The paper finds support in favor of UIP for dollar rates vis‐à‐vis major mature economy currencies, but far less against emerging market currencies. There are also signs that political risk and the exchange risk premium help explain the empirical failure of UIP for these latter currencies. This suggests that whether UIP holds depends more on the currency than on the horizon.     

Conjectural-variation models and supergames with price competition in a differentiated product oligopoly

Conjectural-variation models (CV models) are popular in empirical research as they infer the degree of market power from real data. Theorists of industrial organization, however, disapprove of them for lack of theoretical foundation arguing that dynamic reactions are forced into a static model with the strategy space and time horizon only loosely defined. The presented model follows an idea put forward by Cabral (1995) and demonstrates that the CV model can be interpreted as the joint-profit-maximizing steady-state reduced form of a price-setting supergame in a differentiated product market under optimal punishment strategies. For the symmetric two-firm case the CV parameter is shown to cover the full range of possible outcomes — from Bertrand competition to joint unconstrained monopoly — depending on the degree of product differentiation, market growth, bankruptcy risk, and the discount rate. For the asymmetric-cost case numerical calculations are provided.     

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.     

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.     

Unit root and trend breaks in per capita output: evidence from sub-Saharan African countries

This article examines the nonstationary properties of per capita real output in 28 sub-Saharan African (SSA) countries, covering the period 1960–2014. The sequential testing approach proposed by Kejriwal and Lopez (2013, Econometric Reviews 32(8), 892–927) is used to categorize SSA countries into growth shift, level shift and linear trend hypotheses based on the presence or not of breaks in slope and/or level of the trend function. The break dates are associated to major historical or economic events such as sociopolitical crisis, commodity price fluctuations on international market, the discovery and the exploitation of mineral deposits or unfavourable environmental and climatic conditions. The empirical evidences of appropriate unit root tests fail to reject the unit root hypothesis in all the countries, suggesting that a shock would have a permanent effect on growth process, and stabilization policies may be implemented in dealing with income fluctuations.     

A comparative study of environmental amenity valuations

The paper reports on a comparative study of direct and indirect approaches to valuing environmental amenities (i.e., public goods), specifically, air quality in terms of its human health effects. The application of three indirect valuation methods (via market goods) is reported here: the health production method, a consumer preferences (for nonmarket goods) model, and the cost of illness method. The first and second methods are (economic) behavior-based approaches where willingness to pay for an environmental good is derived by exploiting relationships in consumption between the public good and market good(s). The third method is based on a physical relationship—a dose-response function—between the environmental good and health. The direct valuation approach encompassed three contingent valuation elicitation formats: open-ended, modified iterative bidding game, and referenda-style binary choice. The application of all four methods was based on data from a survey of a large, stratified sample of households from the Haifa metropolitan area in northern Israel. The estimates of welfare change derived by the various methods are discussed and compared.     

Financial depth,internet penetration rates and economic growth: country-panel evidence

The article investigates causal relationships between internet penetration rates, financial depth and per capita economic growth in the Next-11 countries. Using panel vector autoregressive (VAR) approaches, our empirical results show that these variables are cointegrated. Moreover, we find bidirectional causality between internet penetration rates and economic growth, and between financial depth and economic growth in the short run.     

Estimation of the value of the marginal product of emission in a country where emissions output is regulated — an empirical study

Emissions resulting from the production process can be characterized as use of the elimination and disposal services of the ecological system. Hence, they are use of natural resources and thus an input to production. The present paper discusses an approach to evaluate the returns of these kind of services as a production factor.First, four main types of industrial emission are chosen —SO ₂,CO ₂,NO _xandparticulate matter — and integrated in a Cobb-Douglas production function. With this approach, the production elasticities and the marginal product of these types of emission can be estimated.Based on these results and assuming that marginal product equals price, the demand curve for emission is estimated. With this demand curve the consequences of different kinds of environmental policy are considered. Under further assumptions of optimal behaviour it can be shown that the demand curve for emission is equal to the curve of marginal costs of avoidance (MCA). Thus, the estimates of the demand curves can be considered as estimates of the MCA-curves. Furthermore the price elasticities of these four types of emission are estimated with this approach. The method used in the paper is suggested for calibration of CGE models.     

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.     

Fertility choice and economic growth: Empirical evidence from the U.S.

This paper provides empirical evidence to support the proposition of Barro and Becker [1989] that fertility depends positively on the world's long-term real interest rates and negatively on real wages in an economy linked to an international capital market. The empirical evidence suggests that there is no long-run relationship among fertility choice, real wages, long-term real interest rates, and output growth in the U.S. over the period 1960–95. However, when estimating a VAR model and employing the variance decomposition analysis and the impulse response functions, the empirical results support the endogeneity of fertility choice and the proposition that real wages, long-term real interest rates, and output growth is related to changes in fertility choice. The empirical results have important policy implications and provide an explanation for the decline of fertility in Western countries mainly in the last three decades.The views expressed in this paper are those of the authors and not those of the Bank of Greece.     

Discounting Nordhaus

This paper evaluates Nordhaus's neoclassical complaints about the Stern Review from the vantage point of classical growth theory. Nordhaus criticizes the Stern Review because it uses a discount rate that is well below the market rate of return on capital. From the perspective of classical growth theory, Nordhaus's belief in choosing preference parameters for the social planner based on observed market rates of return is equivalent to assigning the preferences of the capitalist agents to the social planner. This equivalence is an implication of the Cambridge Theorem, which interprets the Ramsey equation as the saving function of the capitalist agents.     

Market power of firms and exchange-rate fluctuations

This paper explores the potential of firms to restrict industry outputs (market power) in oligopolistically organized markets where domestic firms compete with foreign ones. Within a stochastic price-setting supergame framework, market power is shown to be lower in general with flexible exchange rates for the following reasons. (i) The conditions that the fully collusive outcome—oligopolists maximizing joint profits — is sustainable in equilibrium become stronger if the exchange rate fluctuates, provided that fluctuations are sufficiently small. (ii) Even if full collusion can be sustained, industry outputs will be higher on the average with flexible than with fixed exchange rates.     

Wealth inequality and credit markets: evidence from three industrialized countries

Economic theory predicts that changes in the distribution of wealth in an economy affect real interest rates if capital markets are imperfect. We investigate this link for the US, the UK, and Sweden, using multivariate time series analysis that explicitly allows for feedback effects between wealth inequality and real interest rates. Our estimates yield that, over the course of the twentieth century, decreases in wealth inequality led to significant declines in real interest rates. Our results therefore point to the importance of capital market imperfections that arise from moral hazard. They put to question the empirical relevance of a negative interest rate effect of inequality that may arise in variants of these models with high inequality, heterogeneous agents or adverse selection.     

The market response to product safety litigation

This paper examines the stock market impact of 29 product liability lawsuits reported in the Wall Street Journal from 1970–1985, an additional series of Agent Orange events, and a set of regulatory events involving product risks. If these events and the costs associated with them were fully anticipated, then there would be no effect on the stock market price. Adverse stock market effects increase if the event involves a product liability action, bodily injury, or a court decision. Lengthy newspaper coverage and initial reports also have a strong effect. If there are multiple defendants, the market cost per firm is reduced. One widely publicized good news event—the final Agent Orange decision—led to a dramatic increase in stock prices.     

An evolutionary model of long term cyclical variations of catching up and falling behind

We generalize a single-country model of endogenous growth to the case of a multi-country world economy in which technology transfer and behavioral imitation are the possible means of interaction between countries. The model is evolutionary in the sense that the economies are disaggregated by behaviourally heterogeneous firms, market selection occurs, and the innovation process is uncertain and stochastic. We demonstrate that this structure leads to a complex process of convergence and divergence over time that can be characterized as 1/f noise. Spectral analysis of measures of convergence for six core OECD countries in the period 1870–1989 reveals a similar pattern in the empirical data.     

Income instability,terms of trade,and the choice of exchange rate regime

In this article terms of trade fluctuations, which constitute an important source of income instability in many LDC's, are decomposed into three principal components: (a) shifts in world market conditions, (b) shifts in home market conditions and (c) changes in exchange rates. The appropriateness of a ‘basket peg’ is then analyzed in terms of a country's net export-side market power and a weighting formula is derived which would offset variations in third countries' exchange rates on the home country's terms of trade. Initial empirical results tend to support the hypothesis that basket pegs are usually adopted by countries with net export-side market power.     

Fluctuations in convex models of endogenous growth, I: Growth effects

Is there a trade-off between fluctuations and growth? The empirical evidence is mixed, with some studies finding a positive relationship, while others find a negative one. Our objectives are to understand how fundamental uncertainty affects the long run growth rate and to identify important factors determining this relationship in a convex endogenous growth model. Qualitatively, we show that the relationship between volatility in fundamentals (or policies) and mean growth can be either positive or negative. The curvature of the utility function is a key parameter that determines the sign of the relationship. Quantitatively, an increase in uncertainty always increases the growth rate in our calibrated models. Though the changes we find are nontrivial, they are not large enough by themselves to account for the large differences in growth rates observed in the data. We also find that differences in the curvature of preferences have very substantial effects on the estimated variability of stationary objects like the consumption–output ratio and hours worked. For this reason, we expect that the models considered in this paper will provide the basis of sharp estimates of the curvature parameter.     

Trade prices and supply in the UK economy

Current account imbalances are a major source of instability in the world monetary and trading system. Measures to correct these imbalances have largely involved adjustments to exchange rates. In the international trade literature, when the current account is in deficit, the Marshall-Lerner condition is sufficient for a successful devaluation. However, this partial equilibrium condition — apart from being based on the assumption that supply elasticities are infinite — abstracts from how the domestic economy responds to the change in relative prices. In this paper we develop a model of price and output determination in an open economy with imperpectly competitive markets, and draw a distinction between goods which are exported and those which are supplied to the domestic market. This means that we have to determine jointly both export prices and the domestic price of house sales. We show that as long as there is no money illusion in the labour market a fall in the nominal exchange rate raises domestic and export prices proportionally and leaves trade volumes unaffected. However, shifts in domestic absorption relative to overseas demand — by changing relative prices — cause shifts in the relative supply of exports and domestically sold goods and affect the trade balance. Thus fiscal and monetary measures directed towards reducing domestic absorption are more likely to be successful in correcting current account imbalances than exchange rate depreciation.