US–China rivalry: The macro policy choices

Stylised representations of recent US and Chinese tax reforms, tariffs against imports and alternative Chinese monetary targeting are examined using a calibrated global macro model that embodies both trade and financial interdependencies. For both countries, unilateral capital tax relief and bilateral tariffs are shown to be ‘beggar thy neighbor’ policies. As large economies, both enjoy ‘optimal tariffs’, even bilaterally, though net outcomes are shown to depend on the allocation of revenues. Bilateral tariffs are most advantageous for the US if the additional revenue finances indirect tax relief. Once US bilateral tariffs are imposed, China is a net loser irrespective of its policy response, though a currency float is shown to cushion the effects on its GDP in the short run. Equilibria in normal form non-cooperative tariff games have the US imposing tariffs while China liberalises.     

Some Misunderstood Aspects of the Final Chapter of Keynes’s General Theory

ABSTRACT

Some seriously misunderstood issues arise in three paragraphs in the last chapter of Keynes’s General Theory concerning the relationship between his theory and orthodox theory. That these passages permit a form of theoretical reconciliation is a view shared by prominent commentators of opposing persuasions. Joan Robinson and John Eatwell strongly criticised Keynes for inconsistency and for opening the door to neoclassical elements that undermine his theorising, while Paul Samuelson made Keynes’s comments the foundation of his textbook neoclassical synthesis. The reconciliation view, however, is based on hasty non-contextual readings and is mistaken. More careful analysis leads to three conclusions: neither internal inconsistency nor neoclassical appeasement exists; Keynes’s paragraphs are aligned with the theoretical positions previously advanced in the General Theory; and what is actually deployed is a complementarity view relating his macro-theory to one particular part of orthodox micro-theory. Rejecting the dominant view, however, does not remove the issue of the absence in Keynes’s work of an adequately exposited micro-theory to accompany his macro-theory.     

Real exchange rate determination and the China puzzle

Traditionally, real exchange rates are seen to be influenced in the long run by forces that return economies to purchasing power parity and by differences in productivity growth across sectors and across regions, as per the Balassa–Samuelson hypothesis (BSH). However, minor and realistic relaxations of the assumptions underlying the BSH greatly generalise the set of possible influences over real exchange rates. This paper surveys the literature on real exchange rate determination, investigates short‐run behaviour, and addresses puzzles over the trends in China's real exchange rate. While China was widely expected to appreciate against the advanced economies following its first growth surge in the mid‐1990s, it actually depreciated slightly until the early 2000s. Then, after 2005, its rate of appreciation was more rapid than expected. These puzzles are resolved by accounting for the effects of the trade liberalisations associated with World Trade Organization accession, China's excess saving, and the tightening of rural labour markets.     

THE NATURAL RATE: AN ATTRACTOR FOR ACTUAL UNEMPLOYMENT,OR AN ATTRACTEE?

This article reviews the contributions of Richard Layard, Stephen Nickell and Richard Jackman, The Unemployment Crisis, Oxford U.P., 1994; and Edmund S. Phelps, Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest and Assets, Harvard U.P. 1994 to the literature on the determinants of the equilibrium rate of unemployment. The key issue is whether the doctrine of monetary neutrality, which is the hallmark of the natural rate of unemployment hypothesis investigated in the two volumes under review, is tenable with regard to equilibrium unemployment. The conclusion is that the influence of actual on equilibrium unemployment violates the neutrality axiom, and that the natural rate is as much an attractee as attractor for actual unemployment.     

Trade with Asia and skill upgrading: Effects on labor markets in the older industrial countries

Trade with Asia and Skill Upgrading: Effects on Factor Markets in the Older Industrial Countries. — The trade and labor nexus is examined with a model incorporating refinements which weaken the H-O-S result that free trade can cause factor rewards to equalize. Asian growth and rising openness in the period 1970–1992, taken in isolation, are found to cause real wages to rise there, even for production workers. Although they also cause increased wage dispersion, the magnitude is small compared with the effects of skill upgrading. Projections to 2010, which combine further expansion in imports from Asia with continued Northern skill upgrading, yield declining real wages and/or unemployment for both production and farm workers. Restricting imports from Asia is found to be an ineffective response.     

Globalisation and factor returns in competitive markets

The standard competitive trade model, extended to include many goods and factors, is used to analyze the effect of goods and factor market integration on average international disparities in the real returns of internationally immobile factors. It is shown that goods market integration decreases international real return differentials for all factors. We derive sufficient conditions for this result to hold for the subgroup of internationally immobile factors as well. While there is a presumption for similar results to hold with international factor market integration, we show that this is true for international migration but in general not for international investment.     

Economic effects of rules of origin

Economic Effects of Rules of Origin. — Rules of origin exist because governments wish to discriminate amongst products on the basis of their “country of origin”. Since the components and activities that make up the total value added of many products are not created in a single location, rules to define a unique geographical source for products must be somewhat arbitrary, and inevitably introduce distortions into production and trade patterns as producers seek to provide their products with the most favourable origin. This paper considers the structure of such rules and their economic consequences.     

Patterns in UK company innovation styles: New evidence from the CBI innovation trends survey

This paper reports on the results of an analysis at Centre for Research on Innovation and Competition (CRIC) of the data from the 1996 and 1997 Survey of Innovation Trends conducted by the Confederation of British Industry (CBI) in conjunction with the NatWest Bank in the UK. This is one of the few, direct surveys of innovation activity, as opposed to R&D and patenting actvity, which is conducted in the UK It is characterized by the fact that it asks responding firms to report on trends in a wide variety of aspects of their innovative behaviour. The central feature of the analysis in this paper is a factor analysis of the answers to a set of 15 questions on different aspects of innovative behaviour. This results in a three-factor solution which reveals three distinct 'styles' of innovation in the behaviour of respondents. These three styles are shown to be broadly applicable to both manufacturing industry firms and service industry firms in the sample, thus revealing a dimension of innovation in the service sector which is not so readily disclosed by analysis of R&D or patent statistics. Statistical modelling of the constraints and incentives influencing innovation shows that while constraints do not appear to be very significant, competitive pressure and the utilization of collaborative linkages are strongly positively associated with innovation, and especially with a more radical s o b of innovation. Ihe paper concludes that the CBI survey provides data about innovation in the UK which are not easily provided through other means. Its format allows certain aspects of innovation—particularly the similarities and differences between manufacturing and services —to be examined in an interesting way.