A general equilibrium analysis of production subsidy in a Harris-Todaro developing economy: an application to India

Since 1950s India has advocated import substituting industrialization policies to promote its manufacturing sector. The end result was creation of a dual economy: highly favored manufacturing sector with high and rigid wages and neglected agricultural sector with low wages and poverty. Because of the higher wages in the manufacturing sector, the rural laborers migrate to the urban sector, a typical characteristic of the Harris-Todaro developing economy. Realizing this crisis, the Indian government recently initiated policies to boost agricultural production to curb the labor migration and improve the welfare of the rural population. In this study, we develop a computable general equilibrium (CGE) model for India by incorporating Harris-Todaro economic characteristics of unemployment, labor migration, farm dependant population, and labor-intensive agriculture. We use the model to analyze the effects of agricultural production subsidy policies on employment, factor price, output price, output levels, and welfare in agricultural and manufacturing sectors. Our findings show that agricultural production subsidy increases agricultural production, reduces unemployment, raises the wage rate in the agriculture sector, augments the consumption among the rural and urban households, and increases the rental rate for capital in agricultural sector.     

Growth,economic structure,and residential distribution of a small city

This article presents a growth model of a small open city with economic structure and geography. The city which is located along a line segment has three, industrial, services and housing, sectors. The spatial growth model of a small city synthesizes the main ideas in some important models in the neoclassical growth theory, urban economics, and the literature of economic growth of small open economies. We show that the dynamic system has a unique equilibrium. We also simulate the motion of the urban economy over time and space. The unique feature of our approach is to treat production activities, economic structure, residential distribution, capital accumulation, and consumption on the basis of microeconomic mechanism as an integrated whole. Our simulation provides some important insights into the processes of the urban economic growth. For instance, under certain conditions, when the industrial sector’s productivity is increased, the wage rate, price of services, capital intensities of the services and industrial sectors, and per-worker output levels of the two sectors are increased. The total labor supply, the capital stocks employed by the three sectors and the labor forces by the service and industrial sectors are all increased. The shares of the three sectors are not affected by the technological change in the long term, even though the shares are initially affected. The per capita consumption level of the industrial goods rises and the consumption level of services falls. The land and housing rents are increased and the consumption of housing per household falls. Moreover, the current account balance tends to be more in surplus and the growth rate is increased.     

A multi-region model of economic growth with human capital and negative externalities in innovation

We use a multi-region model and provide the first theoretical analysis of the effects of human capital use and a particular kind of innovative activity on economic growth. In each of the N heterogeneous regions in our model, consumers have constant relative risk aversion preferences, there are negative externalities in innovation, and there are three kinds of manufacturing activities involving the production of blueprints for inputs or machines, the inputs or machines themselves, and a single final good for consumption. Our analysis generates four salient findings. First, for each of the N regions, we define a balanced growth path equilibrium, we characterize the market clearing factor prices, and we determine the free entry condition in the R&D sector. Second, we show that without growth in human capital, there is no sustained economic growth in any of the N regions. Third, we show that human capital growth generates sustained economic growth in each of the N regions. Finally, when discussing the above three findings, we shed light on the spatial dimensions of economic growth in our multi-region aggregate economy.     

Local Manufacturing Hurt by Depreciations in a Theoretical Model Reflecting the Australian Experience

The model is motivated by data showing that the Australian production of local manufactures is hurt by depreciations and invigorated by appreciations. The paper briefly presents such evidence and then proceeds to a theoretical analysis. The model aims to capture short‐to‐medium run exchange rate effects in an economy with goods and services aggregated into four commodities: (i) imports; (ii) local manufactures; (iii) services; and (iv) rural goods (agricultural, pastoral, forestry, fishing and mining products). With the exception of rural goods, each commodity comprises consumer goods as well as inputs into the other sectors. Rural goods enter consumption only indirectly after processing by the manufacturing sector. Exports are exclusively rural goods. The model has a Keynesian flavour in that the production of local manufactures and services is not constrained by the availability of resources and of labour. Variable inputs per unit of output are assumed to be constant. There are also fixed inputs. Variable inputs are imports in the case of the import sector; rural goods and imports in the case of the local manufacturing sector; and labour in the case of the services sector. The prices of imports, local manufactures and services are set by constant mark‐up factors on variable costs. This assumption is based on a picture of imperfect competition with constant elasticity of demand at the firm level. The extreme capital intensity of rural goods production is taken into account by modelling total production of rural goods as an exogenous parameter. The price of rural goods is determined in the export market. It falls with increasing exports. The economy is not assumed to be small in its export market. The domestic consumption demand schedule is modelled as predetermined in the sense that in the time span under consideration the relationship between quantities consumed and nominal prices is not affected by the exchange rate. The nominal wage rate is assumed to be predetermined in the same sense. No specific functional form is imposed on the consumption demand schedule: the analysis is based on general assumptions, mainly non‐inferiority and gross substitutability. In view of gross substitutability, there is a competitive relationship between imports and local manufactures. Adepreciation raises the price of imports and ceteris paribus such an increase raises the consumption of manufactures. However, the analysis shows that this enhancing influence of a depreciation on manufacturing is weaker than other causal channels that work in the opposite direction. An increase in the price of imports (and exportables) raises variable costs and thereby the price of local manufactures. This leads to a decrease in the output of local manufactures. In the course of the analysis, it is first shown that a uniquely determined equilibrium exists for every exchange rate above a lower bound. Then the effects of a change in the exchange rate are investigated. In most cases the results are unambiguous. In particular this is true for the output and the price of local manufactures. Other conclusions are that a depreciation increases exports and the amount of services provided. In some cases unequivocal results can be obtained only with the help of further assumptions. This concerns the domestic price of rural goods, the balance of trade in domestic prices and import penetration.     

Structural Change and Economic Growth

This paper presents a model in which a country's measured average propensity to save endogenously rises when its economy industrializes. The model has agricultural and manufacturing sectors. Only agriculture uses land. If at early dates income per capita is low, agricultural consumption is important, land is valuable, and capital gains on land may constitute most wealth accumulation, leaving the country's NIPA APS low. If exogenous technological progress raises incomes over time, Engel's law shifts demand to manufactured goods. Then land's portfolio importance relative to reproducible capital diminishes and the national income and products account saving rate can rise.     

The effects on agriculture in the United States of an oil import fee

This paper focuses on the effect that a crude oil import fee would have on the various producing sectors, consuming sectors and household categories in the United States where the interrelationships between these entities is explicitly considered. Special attention is given to the agricultural sectors of the economy. Thus, in the context of a general equilibrium model, the effect of a $5.00 per barrel import fee on the producing sectors in general and the three agricultural sectors plus forestry in particular, on the consuming sectors, on households and on the government is calculated. Over the period 1984–90 with such an import fee (relative to the absence of a crude–oil import fee), the model results suggest that there will be a reduction in output by all producing sectors (except the crude-oil industry) by about $13,924 billion, there will be a fall in the consumption of goods and services by about $318 million and there will be a decline in aggregate social welfare (measured as utility) by about $208 mill ion. The government will realize an increase in revenue of about $3,622 billion. The agricultural sectors in the aggregate can expect to see a fall in output of $769 million with an attendant increase in the price of its goods as a consequence of the oil import fee.     

Skilled–unskilled wage inequality,product variety,public input and increasing returns: A static general equilibrium analysis

The paper develops a four sector small open economy model with two traded final good sectors, a public intermediate good producing sector and a nontraded good sector producing varieties of intermediate goods. There are three primary factors: capital, skilled labour and unskilled labour. Industrial sector producing a traded good uses capital, intermediate goods and skilled labour as inputs. Intermediate goods producing sector also uses capital and skilled labour. Public input producing sector and the agricultural sector producing the other traded good use capital and unskilled labour as inputs. It is shown that, if production technologies are the same for the agricultural sector and the public input producing sector and if the scale elasticity of output is very low, then an increase in capital stock (unskilled labour endowment) raises (lowers) the skilled–unskilled wage ratio. However, an increase in skilled labour endowment does not produce any unambiguous effect. On the other hand, an increase in the tax rate on industrial output and/or an increase in the price of the agricultural product, armed with the same set of assumptions, lowers the skilled–unskilled wage ratio.     

SUSTAINABLE CONSTANT CONSUMPTION IN A SEMI‐OPEN ECONOMY WITH EXHAUSTIBLE RESOURCES*

To sustain constant consumption, Hartwick's rule prescribes reinvesting all resource rents in reproducible capital. However, Hartwick's rule is not necessarily the result of optimization. In this paper, we address this insufficiency by deriving a constant consumption path endogenously in a semi‐open economy with an exhaustible resource, which has full access to world goods and capital markets, while the resource flows are not internationally tradable. Our findings show that, due to the essentiality of both capital and resource to the production process, the economy transforms its domestic assets into foreign ones, consuming a constant interest flow from the latter.     

Human capital use,innovation, patent protection,and economic growth in multiple regions

We provide the first theoretical analysis of the effects of human capital use, innovative activity, and patent protection, on economic growth in a model with many regions. In each region, consumers have constant relative risk-aversion preferences, there is no human capital growth, and there are three kinds of manufacturing activities involving the production of blueprints for inputs (machines), the inputs themselves, and a single final consumption good. Our analysis generates four results. For any given region, we first describe the balanced growth path (BGP) equilibrium and show that the BGP growth rate depends negatively on the rate at which patents expire. Second, we characterize the transitional dynamics in our model. Third, we determine the value of the patent expiry rate that maximizes the equilibrium growth rate of a region. Finally, we show that a policy of offering perpetual patent protection does not necessarily maximize social welfare in a region.     

Competition,taxation and economic growth

The paper mainly examines the relationship between economic growth, tax policy and sectoral labor distribution in an endogenous growth model with expanding varieties. For analyzing these relationships, we consider an economy where three sectors of production are vertically integrated: final goods sector, intermediate goods sector and research sector. We show that the extent of imperfect competition in the intermediate products market affects both economic growth and the allocation of the available labor to all the sectors employing this input. The resources from capital taxation, which are used for financing research sector, have a U-shaped effect on growth and lead to a movement of the labor from research sector to final goods sector. Additionally, we show that if there exists a higher competitive structure in an economy, the probability of the positive effect of an increase in tax on growth gets higher.     

ESTIMATION OF THE STOCK OF CAPITAL IN SPAIN

The paper presents the methodology and results of the estimation of the endowments of capital in the Spanish economy. It distinguishes between endowments of public capital and private capital. The series corresponding to the public sector cover the period 1955–97 and consider seven categories (or functions). The estimates are disaggregated by 17 regions and 50 provinces. The level of disaggregation is regional and provincial (NUTS2 and NUTS3 in European terminology). The private capital series cover the period 1964–97 and consider 17 sectors of production, with disaggregation at regional level. The information refers to two variables: gross formation of fixed capital (in current and constant pesetas) and capital stock in constant pesetas (base year 1990).     

康托洛维奇规划论、 DOSSO模型与中国经济

本文首先从理论和应用计算的角度考察了康托洛维奇规划论和DOSSO模型,并从逻辑上明确了这两类模型的一致性。其次追加了固定资本约束条件以及劳动资源约束条件对中国经济进行了应用分析,得出了如下结论：除建筑部门以外的固定资本部门的实际增长路径基本接近理论值,而流动资本及消费品部门的实际增长路径跟理论值略有波动。     

How to stop industrial growth with minimal pain

In order to reach material equilibrium in the economy, one must be able to control the total production volume of industrial sectors. The paper discusses three ways of stabilizing the size of an industrial sector. The no-nonsense appraoch entails direct regulation of the capacity of industrial plants. The manipulative approach softens the negative employment effects of direct regulation through a subsidy scheme. The enlightened public approach implies reduced material standards, as does the manipulative approach, but insures stable employment even at constant sector output.     

International Factor Mobility, Government Size and Welfare

An examination of the available data reveals that the size of government varies considerably across time and countries. By making use of a simple general equilibrium model, this paper demonstrates that size of government is affected by the availability of capital and labour within an economy. Specifically, this paper utilises a model of a closed economy that produces one-private and one-public good. Both goods are produced by means of capital and labour. Production functions are subject to constant returns to scale and perfect competition prevails in all markets. The elasticity of substitution between the public and the private good is greater than unity and there is no international factor mobility in the initial equilibrium. The size of government is measured by total spending on the public good as a proportion of the total expenditure on the private and public goods. It is shown that capital (labour) inflow can decrease (increase) the size of government. Capital inflow increases welfare if the private good is relatively capital intensive whereas labour inflow increases welfare if the public good is relatively capital intensive.     

Trade liberalization,firm entry,and income inequality

This paper examines the short‐ and long‐run effects of trade liberalization via tariff reductions on income inequality in an economy, which is characterized by an imperfectly competitive urban manufacturing sector and a perfectly competitive rural agricultural sector. Tariff reductions reduce domestic output in the importable urban manufacturing sector, leading to shifts of capital from the urban sector to the rural agricultural sector. This can narrow the wage gap between skilled and unskilled labor in the short run. However, the lowered capital cost attracts new firms, and subsequently excessive entry of firms, to the urban manufacturing sector. This firm entry effect can mitigate the favorable effect of tariff reductions on wage inequality in the long run. Empirical study confirms the findings.     

Urban unemployment, informal sector and development policies

We analyze the effects of wage subsidy policies on unemployment and welfare in the model that is characterized by the existence of both open unemployment and the informal sector that producesfinal goods. Our main findings are as follows. Wage subsidies to the agricultural and informal sectors increase welfare and decrease urban unemployment. The effects of a wage subsidy to manufacturing sector on welfare and unemployment are conditional. We identify some sufficient conditions for the definite results and interpret them.     

Ramsey Equilibrium in a Two-Sector Model with Heterogeneous Households

We prove an existence theorem for a stationary perfect foresight equilibrium under borrowing constraints in a two-sector model with infinitely lived heterogeneous agents. The most patient agent holds all the capital in this solution. We also show that if the capital goods sector is capital intensive and capital income is increasing in the aggregate capital stock, then the aggregate capital stock eventually is monotonic and converges to the steady state stock. If the consumption goods sector is more capital intensive and capital income is increasing in aggregate capital we prove convergence to the steady state under more restrictive conditions. Periodic equilibria are shown to exist under weaker hypotheses. Journal of Economic Literature Classification Numbers: D52, D90, E13.     

Variety of products,public capital,and endogenous growth

This paper develops an extension of the endogenous growth model with variety expansion presented in Romer [Romer, P.M., 1990. Endogenous technical change, Journal of Political Economy 98, part 2, S71–S102] by considering public capital accumulation. Characterizing the transitional dynamics, the growth rate of consumption traces (and available number of intermediate goods also might trace) an S-shaped converging path to the equilibrium growth rate, similar to a logistic growth curve, if the intensity of public capital is sufficiently high. We also show that public investment enhances economic growth because it stimulates demand for intermediate goods and raises the market interest rate.     

Investment options and the business cycle

This paper extends [R. Mehra, E.C. Prescott, Recursive competitive equilibrium: The case of homogeneous households, Econometrica 48 (1980) 1365-1380] to a production economy with two capital goods. It is an RBC model in which each unit of investment requires a new idea, an ‘option.’ When options are scarce, new capital is harder to put in place and the value of old capital rises. Thus the stock market and Tobin's Q are negative indexes of intangibles. During a boom, Q rises gradually, as options are used up. Because investment represents an exercise of options, it has an intertemporal substitution tradeoff that is absent from the adjustment-cost model. Equilibrium may be efficient even without markets for knowledge; the stock market may suffice.     

A bias in growth-rate comparisons of capitalist and socialist economies

An economy is described by an n-sector linear production matrix and a fixed vector of consumption needs. There are many ways in which goods may be priced and many ways in which “surplus labor” may be allocated among sectors. Depending on which vector of prices and which distribution of surplus labor prevails, the average growth rate of the economy will differ. It is shown that the surplus-labor-price constellation likely to prevail in oligopolistic, free-enterprise economies overestimates the “true” growth rate, and in a centrally planned socialist economy underestimates it. This raises the question whether actual growth rates are systematically biased in the directions indicated. J. Comp. Econ.,