Cost disease in service sector

A higher growth rate of the service sector prices, rather than prices in the manufacturing sector, through time is known as cost disease in the service sector. This paper investigates supply and demand-side reasons for cost disease. First, we present an analysis of the supply side of the cost disease, when services and manufacturing play their role both in the intermediate and final demand. Second, we consider a CES utility function for the consumer, which is a function of two commodity services and manufacturing. The results indicate that there are two reasons for cost disease to occur from the supply side in an economy: first, when the growth rate of total factor productivity and technological progress in services is less than that in the manufacturing sector, and second, when the elasticity of substitution between labor and manufacturing input in the services production function is large and elasticity of substitution in manufacturing production function is small. From the demand side, the result shows that the cost disease occurred if the growth rate of the income elasticity of service is more than the manufacturing sector through time.     

The productivity trend in Iran Evidence from manufacturing firms

Iran has been experiencing slow growth for the past ten years. Using plant‐level information, we show that on average firm‐specific productivity in manufacturing sectors declined at the rate of 2.6% annually, while large top decile firms experienced a modest growth in productivity between 2005 and 2011. We decompose this trend and find that within‐plant variation is its main driving force while the between firms and industries component is insignificant. We test several alternative explanations that may contribute to these negative trends. We show that the subsidy reform had a negative effect, while privatization seems to have had no effect. Private management not affected productivity growth, while firm size is associated with higher productivity growth. Also, we find that productivity growth decreases with the energy intensity of the firm. We also find that R&D expenditures significantly increase productivity growth, while the R&D sales ratio is about 0.5% in manufacturing sectors, which is about one‐fifth of the world average. A one‐percent point increase in R&D expenditures increases productivity growth by 0.5%.     

The Impact of Euro on Sectoral Equity Returns and Portfolio Risk

This paper examines the implications of the adoption of the euro and the resulting monetary policy integration for investors in the Euro area in terms of stock market diversification. In particular, we study the difference between investment strategies based on country indices and on sector indices. In addition, we use GARCH-M to model return and volatility for the daily sectoral euro equity indices from 1992 to 2009 to analyze how and to what extent volatility in the sector equity index is driven by shocks occurring in the US, aggregate European equity index, aggregate Euro Zone equity index, and the global equity index. We find strong evidence that diversification over sectors yields more efficient portfolios than diversification over countries and that the volatility spillover of the aggregated Euro zone equity return index on the sectoral equity return index has increased after the launch of the euro.     

Real and Monetary Determination of the Egyptian Real Exchange Rate

Abstract: The purpose of this paper is twofold. First, the question of whether the equilibrium condition of Purchasing Power Parity (PPP) holds is investigated using Egyptian data between 1970(1) to 1990(4). Second, the role played by real and monetary variables on the Egyptian real exchange rates appreciation is also analyzed. The results of this paper suggest that PPP does not hold and that monetary expansion, capital controls, the increase in government consumption and terms of trade deterioration played a key role in the growing Egyptian real exchange rate appreciation. Résumé: Cet article comporte deux volets. Il évalue d'abord l'importance dc la condition d'équilibre que constitue la parité du pouvoir d'achat (PPA), en utilisant les données égyptiennes des années 1970 (1) a 1990 (4). Il analyse ensuite l'influence des variables réellcs et monétaires sur l'appréciation des taux de change réels en Egypte. Les conclusions de cette double analyse font croire que la PPA n'est pas un factcur déterminant et que l'expansion monétaire, les mesures de régulation des capitaux, l'accroissement de la consommation publique et la détérioration des termes de l'échange ont joué un rôle clé dans l'appréciation du taux de change réel en Egypte.