The complementary nature of technological capabilities: Measurement and robustness issues

The application of composite indicators to complex phenomena in social science has come to remarkable prominence. As a result, they have been widely applied in wide-ranging fields. This paper explores the application of a composite indicator of technological capabilities that can be also valid for composite indicators in other fields. We focus on whether different methodologies to build composite indicators lead to different results. The arithmetic mean to aggregate technological capabilities variables has been widely criticized, as it allows for perfect substitutability between variables, thus disregarding the complementary nature of technological capabilities. We introduce a new aggregation rule, the concave mean, in order to take into account the complementarity argument in a Science-Technology-Innovation context. Using a dataset for 138 countries, we show that the arithmetic mean is biased in principle but robust in practice. This depends upon the fact that technologically more advanced countries tend to have a more complementary structure in their technological capabilities compared to less developed nations.     

Sectoral adjustment of employment to shifts in outsourcing and trade: evidence from a dynamic fixed effects multinomial logit model

This paper analyzes the effects of trade and outsourcing on the transition probabilities of employment between sectors, using a dynamic multinomial logit framework with fixed effects. The data cover a sample of individual Austrian male workers over the period 1988–2001. Our results strongly support the view that international economic forces are important determinants of labor market turnover. In particular, an increase in the outsourcing intensity negatively affects the probability of staying in or changing into the manufacturing sector, even more so for industries with a comparative disadvantage. Copyright © 2007 John Wiley & Sons, Ltd.     

How Would David Ricardo Have Taught the Principle of Comparative Advantage?

If David Ricardo had lived beyond the age of 51, how might he have delivered a lecture on comparative advantage? I argue that Ricardo infers the direction of comparative advantage and the size of the gains from trade by interpreting the four numbers in his Principles of Political Economy and Taxation for cloth and wine traded between England and Portugal as amounts of labor embodied in the quantities actually traded. He illustrates diagrammatically the gains from trade as the overall labor that England would save if it were to liberalize wheat imports by repealing the Corn Laws. Postulating a concave production function for wheat, Ricardo also depicts the concomitant rise in the profit rate, describing it as an equally important contemporary gain from trade for England. His interpretation differs radically from the textbook versions of the “Ricardian trade model,” and suggests a more authentic way of presenting the principle of comparative advantage.     

Is training more frequent when the wage premium is smaller? Evidence from the European Community Household Panel

According to Becker [Becker, G., 1964, Human Capital, NBER, New York], when labour markets are perfectly competitive, general training is paid by the worker, who reaps all the benefits from the investment. Therefore, ceteris paribus, the greater the training wage premium, the greater the investment in general training. Using data from the European Community Household Panel, we compute a proxy of the training wage premium in clusters of homogeneous workers and find that smaller premia induce greater incidence of off-site training, which is likely to impart general skills. Our findings suggest that the Becker model provides insufficient guidance to understand empirical training patterns. Conversely, they are not inconsistent with theories of training in imperfectly competitive labour markets, in which firms may be willing to finance general training if the wage structure is compressed, that is, if the increase in productivity after training is greater than the increase in pay.     

Foreign trade,resource allocation,and structural adjustment in Yugoslavia: 1976–1980

A multisector computable general-equilibrium model for the Yugoslav economy is used to analyze some of the internal and external causes of the foreign-exchange crisis of the 1976–1980 period. Methodologically, its modeling approach, appropriately modified for institutional differences, can be used to study the behavior of socialist economies in which prices play a role in resource allocation. Empirically, the results suggest that internal policy errors and systemic factors were the predominant force behind Yugoslavia's growing foreign-exchange shortage between 1976 and 1980. J. Comp. Econ., March 1985, 9(1), pp. 46–70. University of California, Berkeley, California 94720.     

Farm size,land yields and the agricultural production function: An analysis for fifteen developing countries

The paper analyzes the relationship between factor inputs, land yields and labor productivity for farms of different size on the basis of FAO farm management data for 15 developing countries. For all but three countries a strong negative correlation is found between farm size on the one side, and factor inputs and yields per hectare on the other. The fitting of unconstrained production functions to the above data suggests that in only few cases the decline in yields for increasing farm size can be attributed to decreasing returns to scale. The higher yields observed in small farms are mainly to be ascribed to higher factor inputs and to a more intensive use of land. Therefore, where conspicuous labor surpluses exist, the superiority of small farming provides solid arguments in favor of land redistribution. Such an agrarian reform would determine higher output, higher labor absorption and a more equitable income distribution, thus contributing in a decisive manner to the alleviation of rural poverty. The paper also provides estimates of cross-sectional production functions for the 15 countries analyzed. Empirical relations are found between the output elasticities of land, labor and intermediate inputs and physical indicators of their scarcity. The paper concludes by proposing a simple method for deriving a long-term production function for agriculture.     

Influencing the influencers: a theory of strategic diffusion

The growth of the Internet and assorted technologies has made it possible to collect and process detailed information on social networks. This article investigates how firms (and governments) can harness the power of social networks to promote their goals. We show that the optimal use of social networks leads to higher sales and greater profits. However, an increase in the level and dispersion of social interaction can increase or decrease the optimal influence strategy and profits of the player, depending on the content of the interaction. Optimal influence strategies will target individuals with low or high connections, depending on the content of interaction. Finally, the returns to investing in market research on social networks are greater in more unequal networks.     

The Italian financial cycle: 1861–2011

In this paper, we investigate the main features of the Italian financial cycle, extracted by means of a structural trend-cycle decomposition of the credit-to-GDP ratio, using annual observations from 1861 to 2011. In order to draw conclusions based on solid historical data, we provide a thorough reconstruction of the key balance sheet time series of Italian banks, considering all the main assets and liabilities over the last 150 years. We come to three main conclusions. First, while there was close correlation between loans and deposits (relative to GDP) until the mid-1970s, over the last 30 years, this link became more tenuous and the volume of loans has increased in relation to deposits. The banks covered this “funding gap” mainly by issuing new debt securities. Second, the Italian financial cycle has a much longer duration than traditional business cycles. Third, taking into account the deviation of the credit-to-GDP ratio from its trend, an acceleration of credit preceded or accompanied a banking crisis in 8 out of the 12 episodes listed by Reinhart and Rogoff (This time is different: eight centuries of financial folly. Princeton University Press, Princeton, 2009). A Logit regression confirms a positive association between the probability of a banking crisis and a previous acceleration of the credit-to-GDP gap. However, there were also periods—such as the early 1970s—in which the growth of the credit-to-GDP ratio was not followed by a banking crisis.     

Taxation and the quality of entrepreneurship

We study the effect of taxation on entrepreneurship, investigating how taxes affect both the number of start-ups and their average quality. We show theoretically that even with risk neutral agents and no tax evasion progressive taxes can increase entrepreneurial entry, while reducing average firm quality. So called “success taxes” encourage start-ups with lower value business ideas by reducing the option value of pursuing better projects. This suggests that the most common measure used in the literature, the likelihood of entry into self-employment, may underestimate the adverse effect of taxation.     

Functions and failures: how to manage technological promises for societal challenges

Technological promises are becoming part of the way in which scientific and technological communities try to attract the attention of stakeholders, aiming at legitimation, reputation, and funding. Not all promises, however, become reality. With the increase in the use of promises comes the risk of disillusion and cynicism, which may affect negatively policy-makers and the public opinion. The paper suggests that the introduction in the field of S&T and innovation policy of a tool commonly used in engineering fields aimed at identifying and measuring all possible failures of a proposed technology. Instead of focusing on the magnitude of promises, it suggests that a useful perspective can be gained by placing systematic attention to the negative side, i.e. all reasons why a given technology may fail to deliver the promises. The paper develops the methodology, presents a case study, and illustrates the benefits of using it in policy-making.