North-South interaction and commod control

A simple model of North-South interaction is presented with a Keynesian North producing industrial goods and a Classical South producing corn. If the terms of trade clear the corn market then commodity price stabilisation can only slightly increase the average value of Northern real consumption. But if there is real wage resistance in the North then output deflation in the North is necessary to avoid inflationary pressure whenever the terms of trade tend to turn against the North; commodity price stabilisation could, in such circumstances, greatly improve Northern welfare. The paper also examines whether fiscal policy in the North, instead of commodity price stabilisation, could provide equally large improvements in Northern welfare.     

A North–South model of outsourcing and growth

In this paper, I formulate a simple North–South R&D‐based growth model where final goods firms in the North endogenously determine the range of international outsourcing of intermediate goods to the South. I show that a fall in the trade cost (through trade liberalization) of intermediate goods in the North: (i) reduces the wage of the North relative to that of the South; (ii) increases the outsourced variety of intermediate goods in the North; and (iii) stimulates Northern R&D activity and economic growth in both countries. By conducting welfare analysis, I also show that a decline in the trade cost of intermediate goods in the North improves welfare in the South more than in the North.     

Endogenous NIC-formation in a North-South framework

In a model where initially the North specialises in manufactures and the South in primary products, international investment leads to a rising Northern growth rate. If this rate comes to exceed that of Northern labour growth, a full-employment barrier is reached, pushing up Northern wages. This may lead Northern capitalists to divert some manufacturing production to a favoured part of the South. Additional mechanisms are postulated that allow capitalists in the South to participate in, and possibly dominate manufacturing accumulation in that region.     

Keynesian Dominance in Crisis Therapy

The 1930s’ debate about the short-run Keynesian response to crisis and Hayek's critique of its long-run consequences has significant contemporary parallels. This article examines, from a historical perspective, the Keynes–Hayek debate by considering the development of Keynesian economic theory, its ascension and application during financially sound times, the Hayekian critique, the monetary counter-revolution, and the Keynesian renaissance in the wake of the global financial crisis. It is shown that Keynesian fiscal measures prevail over the Hayekian approach in the midst of a crisis leading to rising inflation and public debt, depressed long-run growth and a new crisis.     

Outsourcing and Wage Inequality in a Dynamic Product Cycle Model

This paper constructs a dynamic North–South trade model with outsourcing and endogenous innovation. Production of high quality goods is first performed in the North (Northern phase), then split between the North and the South (Outsourcing phase), and finally shifted to the South (Southern phase). This cycle is reignited whenever a Northern firm innovates a higher quality product. We find that an increase in the fraction of outsourced production raises the Northern skill premium unambiguously, while raising the Southern skill premium if and only if the skill intensity of outsourced production is higher than that of local Southern production.     

North–South Integration and the Location of Foreign Direct Investment

We investigate how North–South integration affects the location of foreign direct investment (FDI) between the two regions. The theoretical analysis suggests that integration affects the incentives of partner and nonpartner Northern countries to locate in the South differently and may lead to investment diversion from the Northern partner. We test our propositions using data from the North American Free Trade Agreement (NAFTA), the first major North–South integration scheme. We find that NAFTA partner FDI in Mexico has increased since the inception of NAFTA above what is implied by other determinants of FDI and the global upward trend during this time. Other countries have not increased their use of Mexico as an export platform. We also find no evidence that inward US FDI has been diverted. The results are robust to a number of different model and econometric specifications as well as the skill data used.     

Foreign direct investment and international trade in a continuum Ricardian trade model

We develop a continuum Ricardian trade model to capture both North–South trade and technology transfer via foreign direct investment (FDI) by multinational enterprises (MNEs). We show that there is a unique range of products produced in the South by MNEs. In the case of an infinitely elastic supply of expatriates, if the ability of Southern workers in absorbing Northern technology increases, then (a) the range of MNE production increases, (b) Northern workers's welfare and Southern workers' welfare change in opposite directions, and (c) the world aggregate welfare increases under certain conditions. We explore issues such as North–South wage gaps, FDI policies and the product cycle. We also derive results under a general supply of expatriates.     

Wage bargaining,trade and growth

We construct a North-South product-cycle model of trade with fully-endogenous growth and union wage bargaining. Economic growth is driven by Northern entrepreneurs who conduct R&D to innovate higher quality products. Northern production technologies can leak to the South upon successful imitation. The North has two sectors: a tradable industrial goods sector (manufacturing) where wages are determined via a bargaining process and a non-tradable sector (services) where wages are flexible. The South has only a tradable industrial goods sector where wages are flexible.We find that unilateral Northern trade liberalization, in the form of lower Northern tariffs on industrial goods, increases the rate of innovation but decreases both the bargained wage in the industrial sector and the flexible wage in the service sector. The wage effects are relative to the Southern wage rate. We also consider a variant of the model with Northern unemployment, driven by a binding minimum wage in the non-tradable service sector. In this case, Northern tariff cuts decrease the innovation rate and the bargained wage rate. In addition, the Northern unemployment rate increases. The model thus highlights the role of labor market institutions in determining the growth and labor market effects of tariff reductions. We also study the effects of unilateral Southern trade liberalization.     

International Technology Transfers and Competition*

This paper analyzes North–South technology transfers in a model of oligopolistic competition and spatial product differentiation. Two firms in the North supply a high‐tech good and a technically related low‐tech good. They decide about licensing the low‐tech good to suppliers in the South. With the license Southern firms get access to technology from the North, which enables them—with a certain probability—to enter the market for the high‐tech good. Northern firms may therefore license strategically to influence the competitive environment in the high‐tech market. In this setting, multiple equilibria with and without licensing may arise, and the resulting outcomes may be inefficient from the viewpoint of the Northern firms.     

A Schumpeterian North–South Growth Model of Trade and Wage Inequality*

The paper presents a dynamic general‐equilibrium model of interindustry North–South trade that is used to analyze the effects of trade liberalization on the Northern wage distribution. Both countries have a low‐tech sector where consumer goods of constant quality are produced by use of unskilled labor. The North also has a high‐tech sector that employs skilled labor and features a quality‐ladder model structure with endogenous growth. Both innovation and skill acquisition rates are endogenously determined. In a balanced trade equilibrium, it is found that Southern‐originated (Northern‐originated) trade liberalization leads to an increase (decrease) in Northern wage inequality both between skilled and unskilled workers and within the group of skilled workers. The endogenous change in the Southern terms of trade determines the direction of change in unskilled wages in both the North and the South.     

Trade costs, international production shifting, and growth

In this paper I present a North-South endogenous growth model in which the impact of globalization on production location and growth can be analyzed. In the model the skilled-labor abundant North is the only innovator in the world. Using the model, I illustrate a scenario that is particularly interesting. Globalization (a reduction in trade costs) leads to a relocation of production to the South in a differentiated-product sector. As a result, more resources are shifted to R&D in the North, and the growth rate in the world increases. The model has several empirically consistent implications, such as rising relative wages of skilled to unskilled labor under globalization in both the North and South. I also discuss the welfare impact of globalization in this model.     

Innovation and Intellectual Property Rights in a Product‐cycle Model of Skills Accumulation

This paper examines the effects of stronger intellectual property rights protection in the South based on a North–South general‐equilibrium model with foreign direct investment (FDI). Two types of innovation are considered – innovation targeting all products and innovation targeting only imitated products. We show that for both types of innovation, there will be increases in the innovation rate and Northern wage inequality and a decrease in the proportion of Northern unskilled labor if imitation intensity is sufficiently low. As regards the pattern of production, the extent of FDI will increase while the extent of Northern production and Southern production will decrease.     

How ‘Little’ Outsourcing Creates A Large Skill Premium: A Model of North‐to‐South Manufacturing Outsourcing

This paper develops a general equilibrium model that shows that a small volume of North–South ¹ trade (i.e. 2% of Northern GDP) could have caused the observed rise in the skill premium, thus resolving the ‘small trade volume paradox’ in the skill premium debate. We apply the concept of ‘trade in tasks’ of Grossman and Rossi‐Hansberg to analyze the nature of North‐to‐South manufacturing outsourcing. As a conceptual innovation, we carefully distinguish two different implicit assumptions of the Heckscher–Ohlin model: ‘factor immobility’ versus ‘task inseparability’. We show that outsourcing, as a form of trade in tasks, essentially attains ‘task separability’ while apparently retaining factor immobility, thus rendering the traditional Heckscher–Ohlin framework obsolete for analyzing current North–South trade. We argue that this change in the nature of trade calls for new thinking in economics and public policy‐making.     

The breakdown of the IS–LM synthesis: implications for post-Keynesian economic theory

The monetarist and the new classical economics attack routed the IS–LM version of Keynesian theory and the large scale econometric models from the centre of macroeconomic research. However monetarism and the new classical economics were more successful as a critique of the IS–LM orthodoxy than as a basis for fruitful research and policy analysis.

Post-Keynesian economists also attack the IS–LM orthodoxy, mainly because it misspecified ‘… the economic society in which we actually live’. Post-Keynesians that emphasized financial and labour markets argued that properties of the real world economy made instability normal results ofmarket interactions.

The vacuum in main line theory that developed as the shortcomings of monetarism became evident led to a revival of interest in basic Keynesian propositions. This has spawned what is now labeled a new Keynesian economics. New Keynesian economists conform to the modeling standards set by the new classical rational expectations school but claim to get Keynesian results. To a degree these results are compatible with propositions of post-Keynesian economics.

It is suggested that a convergence between the new and the post-Keynesian economics can be expected, and the result is likely to be fruitful.     

Unprotected resources and voracious world markets: A proof of losses in North–South Trade

This paper develops a generalization of Chichilnisky's [Chichilnisky, G., 1994. North–South Trade and the global environment. American Economic Review 84 (4), 851–874.] model of North–South Trade, making use of the dual theory of international trade. The central purpose is to provide rigorous proof of the previously unproven assertion that the South can lose from trade and from price changes that normally constitute terms-of-trade improvements.     

NON‐SCALE EFFECTS OF INTERNATIONAL TECHNOLOGICAL‐KNOWLEDGE DIFFUSION ON SOUTHERN GROWTH AND WAGES

We develop a dynamic, general equilibrium non‐scale endogenous growth model of North–South technological‐knowledge diffusion by imitation. Countries differ in levels of exogenous productivity, human‐capital levels and R&D capacity. Growth is driven by Northern innovative R&D and the South converges towards the North. Growth is also driven by human‐capital accumulation, scale effects are removed, imitation is only feasible once a threshold distance to the frontier has been attained and is dependent on the South's relative level of employed human capital and on domestic policies promoting R&D. Imitation promotes partial convergence of inter‐country wages and governs the path of intra‐South wage inequality.     

Intellectual property rights and skills accumulation: A product-cycle model of FDI and outsourcing

This study investigates the effects of stronger intellectual property rights (IPR) protection in the South on innovation, skills accumulation, wage inequality, and patterns of production based on a North–South general-equilibrium model with foreign direct investment (FDI) and international outsourcing. We find that stronger Southern IPR protection raises the extent of outsourcing and reduces the extent of FDI. This increases the proportion of unskilled Southerners and mitigates Southern wage inequality. In the North, stronger Southern IPR protection raises the proportion of skilled Northerners and wage inequality. The effects of international specialization, R&D cost, and Northern population are also examined.     

International Trade and the Value of Time

I discuss a generalized Heckscher–Ohlin–Vanek (HOV) model in which consumption requires time as well as money (as in Becker's theory of the allocation of time) and the amount of work that a worker can do per unit of time—her “ability”—varies from country to country. High ability implies high income per hour, which implies a high value of time and, therefore, high consumption of the good that is more “time‐saving.” Therefore, if domestic production of this good is not commensurately high, it would have to be imported. In this way, I demonstrate that international differences in worker ability constitute an independent source of gains from trade. The model is able to explain several observed features of North–South trade that are not explained by the HOV model. The theoretical possibility of a Leontief paradox‐type trade pattern is also demonstrated.     

Money Creation in the Eurozone: An Empirical Assessment of the Endogenous and the Exogenous Money Theories

ABSTRACT

The aim of this paper is to strengthen our understanding of the money creation process in the Eurozone for 1999–2016 period, through an empirical assessment of two main monetary theories, namely the (Post Keynesian) endogenous money theory and the (Monetarist) exogenous money theory. By applying a VAR and VECM methodology, we analyse the causal relationship among monetary reserves (or monetary base), bank deposits and bank loans. Our empirical analysis supports several propositions of the Post Keynesian endogenous money theory since (i) bank loans determine bank deposits, and (ii) bank deposits in turn determine monetary reserves.     

Labor Market Integration, Unemployment, and Transfers

Integration of the labor markets between a rich country (North) and a poor country (South) often leads to high unemployment in the South and transfers from North to South; for instance: United States versus Puerto Rico, West versus East Germany, Northern versus Southern Italy. This paper presents a general equilibrium model in which workers finance a transfer to the unemployed in the South in order to limit migration. In addition, it extends the framework to consider: the difference in efficiency between natives and immigrants, taxes on fixed factors in the North with internal transfers, and subsidies to the employed in the South.