Offshoring and product innovation

We propose an endogenous growth model with offshoring to investigate its effects on product innovation and growth in the country of origin. Offshoring is associated with reduced feedback from offshored plants to domestic labs as well as coordination problems between the offshored and domestic divisions of firms. Production and transport cost parameters affect the static decision to relocate plants but not R&D. Hence, offshoring may be chosen by firms when it damages the growth rate of their countries of origin. In particular, if offshoring reduces the feedback from plants to labs, it is likely to bring dynamic losses when the countries of origin are large, especially in sectors in which R&D is cheap and product differentiation is strong. It is also likely to slow growth in sectors in which contractual incompleteness gives a strong bargaining power to offshored divisions in intra-firm transactions. We thank Thierry Verdier, an anonymous referee and participants to the Final Conference of the EU funded Research Training Network “Trade, Industrialisation and Development”, held at Paris Jourdan Sciences Economiques on 26–27 October 2006, for helpful comments. The second author gratefully acknowledges financial support from MIUR.     

Agrobiodiversity,farm profits and land fragmentation: Evidence from Bulgaria

This paper presents an empirical analysis of the role of land fragmentation, crop biodiversity and their interplay with farm profitability. Original primary data are drawn from a survey conducted in the Plodiv region of Bulgaria. The econometric results stress the ambiguous role of land fragmentation on farm profitability. On one hand, land fragmentation reduces farm profitability. On the other hand, land fragmentation fosters crop diversification. We also find that crop biodiversity plays a beneficial role in farm profitability. Policies that aim to increase land consolidation and reduce fragmentation may overlook the positive link between diversity and plot heterogeneity. Policies that encourage land consolidation should, therefore, consider the crucial role that this has on other variables such as farm biodiversity.     

Asymmetric Labor Markets, Southern Wages and the Location of Firms

This paper studies the behavior of firms towards weak protection of labor standards in developing countries (South). A less than perfectly elastic labor supply in the South gives firms an oligopsony position in the labor market tempting them to strategically reduce output to cut wages. In an open economy, competitors operating where labor standards are recognized meanwhile enjoy less aggressive competitors and raise output. Delocation also increases Southern wages and triggers a competition effect, lowering ex post output and hence potential profits of a relocating firm. These effects reduce relative profitability of moving production to the South casting doubts on traditional beliefs that multinationals are attracted to regions with lower wages. Moreover, adopting a minimum wage policy in the South eliminates the oligopsony distortion and improves competitiveness of Southern firms in the world product market. It also enhances consumer and wage surplus in the South and hence unambiguously raises Southern welfare.     

Accept–reject Metropolis–Hastings sampling and marginal likelihood estimation

We describe a method for estimating the marginal likelihood, based on Chib (1995) and C hib and Jeliazkov (2001) , when simulation from the posterior distribution of the model parameters is by the accept–reject Metropolis–Hastings (ARMH) algorithm. The method is developed for one-block and multiple-block ARMH algorithms and does not require the (typically) unknown normalizing constant of the proposal density. The problem of calculating the numerical standard error of the estimates is also considered and a procedure based on batch means is developed. Two examples, dealing with a multinomial logit model and a Gaussian regression model with non-conjugate priors, are provided to illustrate the efficiency and applicability of the method.     

Risk premia and seasonality in commodity futures

We develop and estimate a multifactor affine model of commodity futures that allows for stochastic seasonality. We document the existence of stochastic seasonal fluctuations in commodity futures and that properly accounting for the cost‐of‐carry curve requires at least three factors. We estimate the model using data on heating oil futures and analyze the contribution of the factors to risk premia. Correctly specifying seasonality as stochastic is important to avoid erroneously assigning those fluctuations to other risk factors. We also estimate a nonlinear version of the model that imposes the zero lower bound on interest rates and find similar results.     

Wage led aggregate demand in the United Kingdom

The wage led aggregate demand hypothesis is examined for the United Kingdom over the period 1971–2007. Existing studies disagree on the aggregate demand regime for the UK, and this appears to be due to differing empirical approaches. Studies relying on equation-by-equation estimation procedures tend to find support for wage led aggregate demand in the UK, while the single study using a multiple time series estimation procedure finds no support for the hypothesis. We test the wage led aggregate demand hypothesis in the UK using VAR models estimated on quarterly data employing an alternative identification strategy based on shocks to real earnings. The results provide support for the wage led aggregate demand hypothesis during the period of study. However, the expansionary effects of higher earnings seem to be limited and relatively short-lived.     

Trade Liberalization and Heterogeneous Technology Investments

We propose a trade model where heterogeneous firms decide on a productivity‐enhancing technology investment. The model analyzes the impact of multilateral trade liberalization on firm‐ and industry‐level productivity. Freer trade increases the incentives to invest in technology by raising export profits. It also dampens these incentives, however, as profits stemming from domestic sales are reduced. Only exporters benefit from the former positive effect. The shape of the distribution of efficiency draws, the level of trade costs and the technology intensity of the industry are key elements removing the ambiguities regarding the net impact of trade liberalization.