Employment protection, international specialization, and innovation

We develop a model to analyze the implications of firing costs on incentives for R&D and international specialization. The key idea is that countries with a rigid labor market will tend to produce relatively secure goods, at a late stage of their product life cycle. Consequently, their researchers tend to specialize in ‘secondary innovation’ which improves existing products, rather than ‘primary innovation’ which introduces new products. This is roughly consistent with the observed pattern of R&D in Europe versus the U.S. Employment protection does not necessarily harm the country where it prevails, but typically reduces world welfare and the world number of goods.     

Have the returns to education really increased in Vietnam? Wage versus employment effect

Many studies have analyzed changes in the returns to education in globalizing economies using the Mincerian framework. These studies have typically estimated the returns to education in terms of changes in wages rather than employment, effectively ignoring the fact that during globalization not only wages but also employment patterns are affected. In this paper we use four large-scale representative household surveys from the transition economy Vietnam for the period 1998–2006 to estimate the returns to education taking into account both changes in wages and employment. The results show that the estimated increases in returns to education are lower once changes in employment patterns are taken into account.     

Foreign direct investment,heterogeneous workers and employment security: Evidence from Germany

We analyze how foreign direct investment (FDI) affects employment security using administrative microdata for German employees. Measuring FDI intensity at the industry level enables us to take into account the sum of direct effects at multinationals as well as indirect effects of FDI throughout the affected industry. We find that both inward and outward FDI significantly reduce employment security. This is particularly the case for inward FDI coming from the western part of the European Union as well as for outward FDI going to Central and Eastern Europe. The effects are sizeable for older and low‐skilled workers.     

Foreign direct investment,economic freedom and economic growth: International evidence

In this paper, we investigate the systemic link between economic freedom, foreign direct investment (FDI) and economic growth in a panel of 85 countries. Our empirical results, based on the generalized method-of-moment system estimator, reveal that FDI by itself has no direct (positive) effect on output growth. Instead, the effect of FDI is contingent on the level of economic freedom in the host countries. This means the countries promote greater freedom of economic activities gain significantly from the presence of multinational corporations (MNCs).     

Why did wage inequality increase? Evidence from urban India 1983–99

Since the start of the economic reform in 1991, there have been serious concerns regarding the increasing income inequality in India. However, no studies have analyzed how and why the inequality has been accelerated. This study aims to fill these knowledge gaps. The main findings are: (1) The wage inequality in urban India started increasing before 1991; (2) The increase in the wage inequality was mainly attributable to increases in the returns to skills; (3) The accelerating skill premium was due to increases in the demand for skilled labor. The demand shift is attributed to skill-biased technological changes within industries.     

Foreign direct investment and China's regional income inequality

China's widening regional income inequality coupled with its pronounced regional disparity in foreign direct investment stock since 1990 has claimed the attention of many scholars. While some researchers confirm regional disparity in China's foreign direct investment, others attribute the widening regional income inequality to this regional disparity. This paper thus assesses the impacts of China's stock of foreign direct investment on its regional income inequality using simultaneous equation model and the Shapley value regression-based decomposition approach. Our results suggest that China's stock of foreign direct investment has accounted for merely 2% of its regional income inequality. Furthermore, the contribution ratio of per capita foreign direct investment stock to China's regional income inequality has relatively been on a steady decline since 2002. The decomposition results also reveal that provincial per capita physical assets account for over 50% of the nation's income inequality and 65% of the increases in income inequality since 1990. The other two important determinants of regional income inequality are province location and educational level. However, educational level is found to have a decreasing effect on regional income inequality.     

Sudden stops,sectoral reallocations,and the real exchange rate

A sudden stop of capital flows into a developing country tends to be followed by a rapid switch from trade deficits to surpluses, a depreciation of the real exchange rate, and decreases in output and total factor productivity. Substantial reallocation takes place from the nontraded sector to the traded sector. We construct a multisector growth model, calibrate it to the Mexican economy, and use it to analyze Mexico's 1994–95 crisis. When subjected to a sudden stop, the model accounts for the trade balance reversal and the real exchange rate depreciation, but it cannot account for the decreases in GDP and TFP. Extending the model to include labor frictions and variable capital utilization, we still find that it cannot quantitatively account for the dynamics of output and productivity without losing the ability to account for the movements of other variables.     

OUTWARD INVESTMENT TO CHINA AND LOCAL INNOVATION OF TAIWANESE MANUFACTURING FIRMS

Does outward investment induce more domestic innovation or simply move local innovative efforts to foreign plants? This question is topical and relevant to Taiwan in view of its large share of outward investment concentrated in China and the special political relationship between the two sides of the Taiwan Strait. The purpose of this paper is to examine the effect of outward investment in China on domestic innovative activity in Taiwan. Overall, this study finds that a positive relationship exists between outward investment and innovation in terms of R&D intensity and patents, implying that investing in China is part of a global resource allocation strategy of Taiwanese multinational enterprises to allocate production in China and pay more attention to innovative activity in their domestic plants. Moreover, the deregulation of the policy regarding investing in China in 2001 has induced an upsurge in investment in China, although it does not seem to have brought about an outflow of technologies.     

Is China different? A meta-analysis of export-led growth

We examine whether China has benefited more from exports than other countries. The results show that exports have been more significant for growth in China than in other countries, even when China is compared with other transition economies.     

Endogenous phase switch in Baumol's service paradox model

This paper develops a two-sector model that considers Baumol's service paradox. The paper simultaneously incorporates two ideas about technological progress in the model: (1) the consumption of services contributes to human capital accumulation and (2) the production of manufacturing leads to technological progress due to learning-by-doing. Accordingly, productivity growth in both services and manufacturing is endogenously determined. We show that initially, a shift in the employment share toward the services sector decreases the per capita real GDP growth rate, but at some point in time, the shift begins to increase the growth rate. Therefore, we observe an endogenous phase switch from a phase where the employment shift toward services depresses the economy to another where the employment shift promotes the economy.     

Economic growth,exports and foreign direct investment in Least Developed Countries: A panel Granger causality analysis

This paper investigates potential Granger causality among the real GDP, real exports and inward FDI in Least Developed Countries for the period between 1970 and 2009. A new panel-data approach developed in Kónya (2006) [Kónya (2006), Exports and growth: Granger causality analysis on OECD countries with a panel data approach, Economic Modelling, 23, 978–992] which is based on SUR systems and Wald tests with country specific bootstrap critical values has been employed. The results indicate direct, one-period-ahead, unidirectional causality from exports to GDP in Haiti, Rwanda and Sierra Leone, and from GDP to exports in Angola, Chad and Zambia. Considering the FDI–Growth nexus, there is evidence of FDI Granger-causing GDP in Benin and Togo, and GDP Granger-causing FDI in Burkina Faso, Gambia, Madagascar and Malawi. While studying EXP–FDI relations, this paper finds that the causality is from FDI to real exports in Benin, Chad, Haiti, Mauritania, Niger, Togo and Yemen, and from real exports to FDI in Haiti, Madagascar, Mauritania, Malawi, Rwanda, Senegal and Zambia.     

Labour migration in the enlarged EU: a new economic geography approach

This paper studies the impact of migration policy liberalisation on international labour migration in the enlarged European Union (EU) in a structural economic geography approach. The liberalisation of migration policy would induce an additional 1.80–2.98% of the total EU workforce to change their country of location, with most of migrant workers relocating from the East to the West. The average net migration rate is decreasing in the level of integration, suggesting that from an economic point of view no regulatory policy responses are necessary to labour migration in the enlarged EU.     

Firm performance and labour turnover: Evidence from the 2004 workplace employee relations survey

We explore the impact of labour turnover on firm performance by analysing the predictions of an extension of the efficiency wage model of [Salop, S., (1979) ‘A Model of the Natural Rate of Unemployment’, American Economic Review, 69, 117–125.] developed by [Garino, G. and Martin, C., (2008) ‘The Impact of Labour Turnover: Theory and Evidence from UK Micro Data’, Quantitative and Qualitative Analysis in the Social Sciences, 1(3), 81–104.], which separates incumbent and newly hired workers in the production function. Within this theoretical framework, an exogenous increase in the turnover rate can increase profits if firms do not choose wages unilaterally. We test the theoretical predictions of the model using UK cross-section establishment-level data, the 2004 Workplace and Employee Relations Survey. In accordance with our theoretical priors, the empirical results support the standard inverse relationship between the quit rate and firm performance where firms unilaterally choose the wage and generally support a positive relationship between firm performance and the quit rate where trade unions influence wage setting.     

Informal self-employment and macroeconomic fluctuations

Informal self-employment is a major source of employment in developing countries. Its cyclical behavior is important to our understanding of the functioning of LDC labor markets, but turns out to be surprisingly complex. We develop a flexible model with two sectors: a formal salaried (tradable) sector that may be affected by wage rigidities, and an informal (non tradable) self-employment sector faced with liquidity constraints to entry. This labor market is then embedded in a standard small economy macro model. We show that different types of shocks interact with different institutional contexts to produce distinct patterns of comovement between key variables of the model: relative salaried/self-employed incomes, relative salaried/self-employed sector sizes and the real exchange rate. Model predictions are then tested empirically for Argentina, Brazil, Colombia and Mexico. We confirm episodes where the expansion of informal self-employment is consistent with the traditional segmentation views of informality. However, we also identify episodes where informal self-employment behaves “pro-cyclically”; here, informality is driven by relative demand or productivity shocks to the non tradable sector.     

Competing for capital when labor is heterogeneous

This paper investigates the impacts of capital mobility and tax competition in a setting with imperfect matching between firms and workers. The small country attracts less firms than the large one but accommodates a share of the industry that exceeds its capital share—a reverse home market effect. This allows the small country to be more aggressive and to set a higher tax rate than the large one, thus implying that tax competition reduces international inequalities. However, the large country always attains a higher utility than does the small country. Our model thus encapsulates both the “importance of being small” and the “importance of being large”. Last, tax harmonization benefits to the small country but is detrimental to the large one.     

Effects of longevity and dependency rates on saving and growth: Evidence from a panel of cross countries

While earlier empirical studies found a negative saving effect of old-age dependency rates without considering longevity, recent studies have found that longevity has a positive effect on growth without considering old-age dependency rates. In this paper, we first justify the related yet independent roles of longevity and old-age dependency rates in determining saving and growth by using a growth model that encompasses both neoclassical and endogenous growth models as special cases. Using panel data from a recent World Bank data set, we then find that the longevity effect is positive and the dependency effect is negative in savings and investment regressions. The estimates indicate that the differences in the demographic variables across countries or over time can well explain the differences in aggregate savings rates. We also find that both population age structure and life expectancy are important contributing factors to growth.