The Role of Keynesian Policies in Semi-industrialized Countries: theory and evidence from India

This paper examines the relevance of Keynesian policies—interpreted as those policies implied by Keynes's theoretical analysis of unemployment developed in The General Theory—for a subset of developing economies, which are called semi-industrialized countries. It draws on recent contributions in development economics to argue on theoretical grounds that Keynesian policies are relevant for semi-industrialized countries even when they are constrained by capital shortages, stagnant agricultural sectors, and foreign exchange availability. It then discusses the recent development experience of India to illustrate the empirical relevance of some of these theoretical issues.     

自生能力、经济转型与新古典经济学的反思

现有的新古典经济学理论体系把企业具有自生能力作为暗含的前提。但是 ,转型中国家和其他许多发展中国家的企业却因政府的赶超愿望 ,进入不具比较优势的产业而不具自生能力。当经济中大量企业缺乏自生能力时 ,实行根据新古典经济学所制定的改革或转型政策 ,往往达不到预期效果 ,而且 ,可能给社会带来巨大痛苦。本文主张 ,在分析社会主义经济、转型经济和发展经济问题时 ,放弃现有的新古典经济学体系中企业具有自生能力的暗含前提 ,把企业是否具有自生能力作为一个具体的考虑变量 ,这是新古典经济学理论的必要发展。     

Properties of Equivalence Scales in Different Countries

Recent studies in industrialized countries have shown that equivalence scales are income-dependent. We investigate whether this dependence also holds in poorer, services oriented countries, by considering the case of Cyprus. We also examine whether household economies of scale and relative children costs differ from those found for industrialized countries.     

How should emerging economies float their currencies?

Floating exchange rates seem to be gaining ground in Latin America, East Asia and the transition economies. The recent crises left many economies with no alternative but to float. Others have moved toward floating, searching for greater flexibility and insulation from external shocks. The question for most emerging market economies, then, is no longer to float or not to float, but how to float. Four issues arise in this regard. The first is how to float and have low inflation. The second is whether floating provides as much insulation as conventional theory predicts, especially in the presence of dollarized liabilities. Which leads to the third point: the relationship between the stability of the exchange rate and that of the financial system. The fourth is how to conduct monetary policy under a float, and the role of inflation targeting. We consider each of these points in turn, and conclude that a workable model of how to float seems to be emerging from the so‐far successful experience of countries like Chile and Brazil. It involves the adoption of an inflation target as the main anchor for monetary policy, coupled with a monetary policy reaction function that — aside from reacting to the output gap and other determinants of the inflation rate — reacts also partially to movements in the nominal exchange rate. JEL classification: F3, F4, E4, E5     

Competition And Its Regulation: Key Issues

This article examines the role of competition policy in developing countries. The leading international development agencies, such as the World Bank and the Asian Development Bank, have proclaimed their support for private sector–led development as the best strategy for reducing poverty. The benefits of private sector development are dependent on ensuring competitive market conditions, which are often absent in developing countries. However, theoretical notions of competition and the ways in which it is perceived to work vary widely and have implications for the type of competition policy that is to be implemented. Competition laws are widespread in industrialized countries but are only just beginning to be introduced in developing countries. The article examines some of the implications of applying competition policy in developing countries when account is taken of different theoretical perspectives, and of the structural and institutional differences between industrialized and developing countries.     

Sign here,please! On developing countries’ market access conditions in regional trade agreements

Have regional trade agreements (RTAs) improved market access conditions for developing countries? Employing a measure expressing effective tariff margins and using disaggregated panel data for a sample of 45 developing country exporters, 60 export destinations, and the period between 1991 and 2015, it is shown that this question can generally be answered in the affirmative. Although the effect is estimated to be moderate, RTAs might thus be an important long‐run building block in the United Nations 2030 Agenda for Sustainable Development in order to increase developing countries’ participation in world trade. On closer inspection, however, for the countries included in the sample, there is considerable variation depending on the choice of integration partners and economic sectors. More specifically, market access improvements cannot be found for African economies in South–South agreements and developing countries engaging formally with the European Free Trade Association (EFTA) or the Republic of Korea, while leading industrialized nations are reluctant to grant improved market access to developing countries in RTAs especially in capital‐intensive (high‐productivity) manufacturing sectors.     

Financial development and openness: Evidence from panel data

This paper addresses the empirical question of whether trade and financial openness can help explain the recent pace in financial development, as well as its variation across countries in recent years. Utilising annual data from developing and industrialised countries and dynamic panel estimation techniques, we provide evidence which suggests that both types of openness are statistically significant determinants of banking sector development. Our findings reveal that the marginal effects of trade (financial) openness are negatively related to the degree of financial (trade) openness, indicating that relatively closed economies stand to benefit most from opening up their trade and/or capital accounts. Although these economies may be able to accomplish more by taking steps to open both their trade and capital accounts, opening up one without the other could still generate gains in terms of banking sector development. Thus, our findings provide only partial support to the well known Rajan and Zingales hypothesis, which stipulates that both types of openness are necessary for financial development to take place.     

Can trust effects on development be generalized? A response by quantile

While the beneficial effects of social trust on economic performance have been largely recognized, we analyze whether these effects can be generalized for economies at different stages of economic development. Contrary to previous studies on this issue based on average effects (mostly considering ordinary least squares estimations), we follow a quantile regression approach that enables us to capture heterogeneous effects of trust for different development levels. By considering data for 80 countries, and using trust indicators from five different waves of the World Values Survey (WVS), our results by quantile indicate that trust is not relevant for the poorest economies, showing the existence of a social poverty trap. In addition, results suggest that the impact of trust on income decreases as an economy becomes richer. This would suggest not only that trust benefits cannot be generalized for all countries, as some previous studies have proposed, but also that the extent of its implications are heavily dependent on the level of development.     

Urbanization with and without industrialization

We document a strong positive relationship between natural resource exports and urbanization in a sample of 116 developing nations over the period 1960–2010. In countries that are heavily dependent on resource exports, urbanization appears to be concentrated in “consumption cities” where the economies consist primarily of non-tradable services. These contrast with “production cities” that are more dependent on manufacturing in countries that have industrialized. Consumption cities in resource exporters also appear to perform worse along several measures of welfare. We offer a simple model of structural change that can explain the observed patterns of urbanization and the associated differences in city types. We note that although the development literature often assumes that urbanization is synonymous with industrialization, patterns differ markedly across developing countries. We discuss several possible implications for policy.     

Joint Implementation: Strategic Reactions and Possible Remedies

This paper investigates the promising proposal of Joint Implementation (JI) to mitigate greenhouse gas emissions. This was ultimately the only concrete outcome of the Conference on Climate Change in Berlin, albeit restricted to a pilot phase. The basic idea, given the public's awareness of global warming, sounds economically plausible: The industrialized countries, the only ones required to stabilize and lower carbon emissions, can search for cheaper reductions of greenhouse gas emissions in developing countries and economies in transition. However, this proposal leads to strategic reactions by developing countries reinforced by the fact that this cheating coincides with the interest of the industrialized country. In short, this proposal will lead to cheating (given asymmetric information) and will thus produce largely faked reductions in emissions. On the constructive side, an efficient mechanism retaining the spirit of JI is derived, which deters strategic reactions. This differs from a usual principal-agent problem through an additional hierarchical layer: a global authority (e.g. the Conference of Parties on Climate Change), an industrialized country and a developing country. The unavoidable loss that is even associated with an optimal scheme due to strategic, behavioural reality (the first best optimum is unattainable, except at the top) leads, of course, to much less glamorous predictions in emission reductions. Moreover, the implicit subsidization scheme focuses and favours on already 'efficient' partners.     

Organizational patterns of economies: an ecological perspective

A complex adaptive systems paradigm can be used to abridge theorizing in ecological and economic sciences. The paper discusses economic flows, connectivity and stability from the perspective of theoretical ecology. The global economy, by analogy with ecosystems, appears to self-organize as an ascendent system: most of the world trade is done among the tiny fraction of technologically advanced countries and trade interaction strength exhibits a power law with exponential decay. Small world behavior and preferential attachment characterizes interactions among economic agents. Industrial economies and the world economic system as a whole appear to evolve towards the ‘maximum power’ efficiency. Development that fosters efficiency in the maximum power sense (all the world becomes industrialized) implies a trade-off in socio-economic diversity, and may be antithetical to the stability of the global economy. If we take an ecological perspective, then the problem of global development does not reside in the realm of technology or global governance. It boils down to the question of required natural balance in living systems, the balance between organized complexity and overhead, the harmony between efficiency and adaptability.     

The productivity effect of government capital in developing and industrialized countries

This paper uses an aggregate production function to examine the effect of government capital formation on growth of labour productivity in an annual panel of 12 developing and 12 OECD economies covering the period 1976–1989. The results from a pooled model of all 24 countries indicate that contribution of government capital to labour productivity is positive and statistically significant. This result also holds in separate samples of the industrialized and developing economies where we find that, while there are productivity differentials between the two types of economies with respect to private capital, there are no differences with regards to public capital.     

The Washington Consensus revisited: a new structural economics perspective

The Washington Consensus reform resulted in economic collapse and stagnation in many transition economies and “lost decades” in other developing countries in 1980s and 1990s. The paper provides a new structural economics perspective of such failures. The Washington Consensus reform failed to recognize that many firms in a transition economy were not viable in an open, competitive market because those industries went against the comparative advantages determined by the economy’s endowment structure. Their survival relied on the government’s protections and subsidies through various interventions and distortions. The Washington Consensus advised the government to focus their reforms on issues related to property rights, corporate governance, government interventions, and other issues that may obstruct a firm’s normal management. Without resolving the firms’ viability problem, such reforms led to the firms’ collapse and an unintended decline and stagnation of the economy in the transition process. This paper suggests that the viability assumption in neoclassical economics be relaxed when analyzing development and transition issues in socialist, transition, and developing economies.     

Growth Effects of Fiscal Policy and Debt Sustainability in the EU

In this paper we study the relationship of fiscal policy and economicperformance of some core countries in the EU. Our aim is to find outwhether public deficit and public debt have consequences for real variables in the economies we consider. The background of our empirical study is a growth model that provides us with some predictions on the relationship between fiscal policy and economic growth. In a first step we then use Granger causality tests to analyze empirically whether some of the implications of our model arecompatible with the data. In a second step, we investigate whether the fiscalpolicies of the member states have been sustainable. Given this information,we then pursue the question of whether differences in the fiscal positions ofcountries have consequences as concerns the outcome of our empirical testsof step one. Finally, we study whether the impact of the public deficit ratiodepends on the magnitude of the debt ratio.     

Demographic structure and the security of property rights: The role of development and democracy

It is often argued that countries with a high population share of children and young workers should attract large capital inflows from aging industrialized economies. However, many of these countries deter foreign investors by a high risk of creeping or outright expropriation. In this paper we explore whether the correlation between countries' demographic structure and the perceived security of property rights reflects a causal relationship. We show that, in low-income countries, the ratio of young to old workers has a positive effect on the perceived security of property rights if the political system is sufficiently democratic. By contrast, this relationship cannot be observed in middle income countries.     

Strategic Investment in Climate Friendly Technologies: The Impact of Global Emissions Trading

Our point of departure is that a group of industrialized countries invest in research and development (R&D) of greenhouse gas (GHG) abatement technologies. R&D investments influence the future GHG abatement choices of both industrialized and developing countries. We distinguish between investments that reduce industrialized countries’ abatement costs and investments that reduce developing countries’ abatement costs. Unlike earlier contributions, we include global trading in emission permits. This changes the nature of the game. With global permit trading, industrialized countries should in many cases invest strategically in technologies that only reduce abatement costs at home. This comes in addition to investments abroad. Second, we show that R&D investments always decrease total emissions. Finally, we find that the developing region receiving investments always benefits.     

Export sophistication and the terms of trade of the developing and emerging countries

The question of the terms of trade has not yet been studied by the new empirical literature on the export sophistication, which focuses only on its effect on economic growth. The contribution of this paper is to investigate whether the increase in the export sophistication is terms of trade worsening or improving for the developing and emerging economies. Importantly, we find that the increase in the sophistication of the developing countries’ exports is accompanied by a deterioration of their terms of trade.     

Once again “smile curve”: Is chain upgrading possible?

The geographic fragmentation of the production process inevitably leads to the question of whether or not there is a relationship between the level of value-added and the position of production stages along with a global production/value chain, known as the “smile curve” as the theoretical literature suggests. This study investigates the relationship between value-added and production stages across more than 34 sectors over 40 countries for two different periods, 1995–2011 and 2000–2014, by taking into account a variety of different measures of production stage and country-sector heterogeneity. In the first step, we utilize the decomposition methodology of Wang, Wei, Yu, and Zhu (2017) to track the production stages across country sector. In the second step, we test our hypotheses by employing the fixed effects (FE) estimation technique. The results show that the relationship between value-added content in output and backward length exhibits a U-shaped distributional pattern. The significant results for both developed and developing economies indicate the potential of economies to benefit from the functional upgrading along with production stages. Our general conclusion regarding production chains is also valid for stages mainly related to the global value chain (GVC), especially for developed countries. Furthermore, capital intensity and total factor productivity appear to be crucial factors for improvements in process upgrading. Given the robust and positive impacts of chain upgrading in all countries considering both the total production process and GVC part, industries should exploit the opportunities for higher value-added in the global production system.     

Why is Income Inequality Increasing in the Developed World?

We address empirically the factors affecting the dynamics of income inequality among industrialized economies. Using a panel for 32 developed countries spanning the last four decades, our results indicate that the predictions of the Stolper–Samuelson theorem concerning the effects of international trade on income inequality find support in the data if we concentrate on imports from developing countries as a trade measure, as theory would imply. We find that democratization, the interaction of technology and education, and changes in the relative power of labor unions affect inequality dynamics robustly.     

The Wrong Type of Pluralism: Toward a Transdisciplinary Social Science

When heterodox economists talk of pluralism they are generally talking about pluralism within the economics profession—they are asking: how can we have a more pluralistic economics profession? This paper argues that another, perhaps more useful, way to think of pluralism and economics is from the perspective of all the social sciences. When considered in reference to the social science profession rather than in reference to the economics profession, the amount of pluralism increases significantly, since different social sciences follow quite different methodologies. But looking at pluralism from the social science perspective reveals a different type of pluralism problem in social science. While there may be plenty of pluralism within social science as a whole, there is a serious question about whether it is appropriately distributed. This paper argues that heterodox economists' agenda should be a greater blending of all the social science departments. It summarizes proposals to do so on both the undergraduate level and graduate level, and explains why supporting variations of these proposals would be a strategy that would further the objectives of most heterodox economists more than would their current strategy of pushing for more pluralism in economics.