The tradeoff between growth and equity in decentralization policy: China's experience

This paper investigates the potential tradeoff between economic growth and regional equity in the design of fiscal decentralization policy in the context of China's experience. We develop a theoretical model of fiscal decentralization, where overall national economic growth and equity in the regional distribution of fiscal resources are the two objectives pursued by the central government. The model is tested using panel data for 1985–98. We find that fiscal decentralization in China has led to economic growth as well as to significant increases in regional inequality.     

The tradeoff between risk sharing and information production in financial markets

The production of information in financial markets is limited by the extent of risk sharing. The wider a stock's investor base, the smaller the risk borne by each shareholder and the less valuable information. A firm which expands its investor base without raising capital affects its information environment through three channels: (i) it induces incumbent shareholders to reduce their research effort as a result of improved risk sharing, (ii) it attracts potentially informed investors, and (iii) it may modify the composition of the base in terms of risk tolerance or liquidity trading. Implications for individual firms and the market as a whole are derived.     

The outsourcing productivity paradox: total outsourcing, organisational innovation, and long run productivity growth

A growing number of empirical studies find a relationship between the outsourcing of activities and a long term loss of firm productivity growth. The paper addresses this outsourcing productivity paradox by examining the connection between total outsourcing and organisational innovation. We present a model of organisational innovation in which managers raise productive efficiency by identifying organisational architectures that more effectively integrate value-adding activities and administrative routines. As part of this process, managers can internally or externally source an activity. Simulations of the model show that large scale outsourcing restricts the scope for future organisational innovation, leading to lower productivity growth. The findings accord with the empirical data and provide a salutary warning for managers and policy-makers about the long term implications of total outsourcing.

The productivity paradox and the new economy: The Spanish case

This paper studies the impact of the information and communication technologies (ICT) on economic growth in Spain using a dynamic general equilibrium approach. Contrary to previous works, we use a production function with six different capital inputs, three of them corresponding to ICT assets. Calibration of the model suggests that the contribution of ICT to Spanish productivity growth is very relevant, whereas the contribution of non-ICT capital has been even negative. Additionally, over the sample period 1995–2002, we find a negative TFP growth and productivity growth. These results together aim at the hypothesis that the Spanish economy could be placed within the productivity paradox.     

Globalization, the output-inflation tradeoff and inflation

This paper provides comprehensive evidence on the relation between inflation and globalization, defined here as trade and financial openness, using a large cross-section of 91 countries over the period 1985-2004. We establish two main empirical regularities: both higher trade and financial openness (i) reduce central banks’ inflation bias, yielding lower average inflation and (ii) are associated with a larger output-inflation tradeoff. This evidence is at odds with the standard Barro-Gordon framework, which would require globalization to have a negative effect on the output-inflation tradeoff to yield lower equilibrium inflation, but it is consistent with a recent strand of new Keynesian models emphasizing the role of imperfect competition and nominal rigidities. Our findings also support the relevance of the time-inconsistency hypothesis, which underlies the theoretical models predicting a relation between globalization and inflation. For the OECD subsample, however, we do not find an effect of openness on inflation (the output-inflation tradeoff), suggesting that these countries have created an institutional framework for central banks that eliminates distortions due to the time-inconsistency problem.     

Inflation-unemployment tradeoff and regional labor market data

We estimate a linear and a piecewise linear Phillips curve model with regional labor market data for West German and Neue L?nder. Employing regional observations allows us to country difference the data. This eliminates, under the assumption of homogeneous L?nder, supply shocks and changes in the formation of expectations as possible identification failures. With seemingly unrelated regressions we find a flat Phillips curve in the Neue L?nder. For the West German L?nder a piecewise linear model with a higher inflation-unemployment tradeoff for the regime of low unemployment rates fits the data very well. The results hold true if we control for endogeneity of the unemployment rate. With a kinked but upward sloping aggregate supply curve there seems to be room for stabilization policies, at least in the range of aggregate demand shifts that our data covers. First version received: December 2000/Final version accepted: Jan. 2002 RID="*" ID="*"  An earlier version of this paper was written while the second author was at Universidad Carlos III in Madrid. He thanks Juan Dolado and is grateful for financial support by the TMR Program on New Approaches for the Study of Economic Fluctuations. He would also like to thank Bertrand Koebel for his critique on that earlier version. Both authors are grateful to an editor and three anonymous referees for very helpful comments. Moreover, we wish to thank participants of the seminar on Quantitative Wirtschaftsforschung by Jürgen Wolters and Peter Kuhbier, Freie Universit?t Berlin. Finally we profited from discussions with participants at the conferences of the European Economic Association in Lausanne and the Verein für Socialpolitik in Magdeburg where the paper was presented. Of course, all errors are to our sole responsibility.     

The productivity crisis: Secular or cyclical?

Contrary to current theory, it is shown that some productivity lost in business cycle downturns is not regained in the upturn. These losses account for most, if not all, of the recent productivity slowdown.     

A Luenberger-Hicks-Moorsteen productivity indicator: its relation to the Hicks-Moorsteen productivity index and the Luenberger productivity indicator

Summary. Introducing a new difference-based Luenberger-Hicks-Moorsteen productivity indicator, this contribution establishes theoretically its relations with some existing ratio- and difference-based productivity indexes and indicators. The first main result is an approximation proposition stating that the logarithm of the Hicks-Moorsteen productivity index is about equal to the Luenberger-Hicks-Moorsteen productivity indicator. Secondly, we also establish the specific conditions under which the Luenberger-Hicks-Moorsteen indicator equals the recently introduced Luenberger indicator and compare these to the conditions governing the relations between ratio-based Hicks-Moorsteen and Malmquist indices.Received: 2 May 2002, Revised: 19 May 2003, JEL Classification Numbers: C43, D21, D24.We are grateful for the most constructive remarks of a referee. Obviously, the authors remain solely responsible for any residual shortcomings. Correspondence to: W. Briec     

Natural resources and the tradeoff between authoritarianism and development

Why do African and Middle Eastern countries seem cursed by an abundance of natural resources yet USA, Australia and Norway seem blessed? A growing literature has argued that the benevolence or malignance of natural resources depends upon the quality of institutions. This paper offers a new explanation based on associational freedom and its interaction with the political system. The model predicts that natural resources have an adverse impact on economic performance and transition to democracy in authoritarian regimes but not in democracies. It also predicts that repression of associational freedom will be increasing in natural resources in authoritarian regimes. I test the model's predictions using fixed-effects regressions on an international panel from 1975 to 2000 and find support.     

Entrepreneurship and productivity: The slow growth of the planned economies

Trends in gross domestic product (GDP) and total factor productivity (TFP) growth in the former socialist economies seem to indicate that these economies were converging to unusually low long-run growth rates in the late 1980s. In this paper we develop an endogenous growth model of entrepreneurship that is able to account for the difference in long-run performance between centrally planned economies and market-oriented ones. Long-run growth rates of output and productivity are determined by the growth of the stock of managerial knowledge, which in turn depends on the share of the population involved in entrepreneurial activities and on the time that spent on those activities. We analyze the effect of two characteristics of centrally planned economies on their growth performance. First, in centrally planned economies factors of production are distributed by the central planner to the firms' managers through a contest that uses up some of the managers' productive effort. Second, the leadership is “egalitarian,” in the sense that it treats individuals with different abilities equally. We show that these two features reduce the fraction of people becoming entrepreneurs/managers, as well as their managerial effort, which in turn reduces long-run output and TFP growth. Furthermore, we find that centrally planned economies have lower income inequality and slightly higher capital–output ratios, which is consistent with these countries' experiences.     

MNEs and wages: The role of productivity spillovers and imperfect labor markets

Disentangling the labor market implications of increased foreign capital flows remains important. This paper provides a unifying framework allowing to study the wage implications of multinational enterprise (MNE) activities, pointing to the importance of controlling for both labor market imperfections and productivity spillovers from foreign to local firms. Results show that increased MNE activities increase average wages in the local economy while contributing to a larger wage dispersion between the MNE and local firms. While the results pertaining to average wages depends heavily on the frictions in the labor market, how much the wage dispersion alters also depends on the extent of productivity spillovers from the MNEs to the local firms and the complementarity between domestic and foreign capital.     

Trade and productivity: an industry perspective

We use a sample of 14 OECD countries and 15 manufacturing industries to test for the effect of trade on productivity. Endogeneity concerns are accounted for using the geographical component of trade as instrument as suggested by Frankel and Romer (Am Econ Rev 89(3):279–399, 1999). We find that trade, measured in terms of the export ratio, increases productivity, even if country-fixed effects such as the quality of institutions are controlled for, though results are less robust for imports. Estimates at the aggregate manufacturing level turn out much larger, emphasizing the role of inter-industry spillovers.

The structural transformation and aggregate productivity in Portugal

We document the substantial process of structural transformation—the reallocation of labor between agriculture, manufacturing, and services—and aggregate productivity growth undergone by Portugal between 1956 and 1995. We assess the quantitative role of sectoral labor productivity in accounting for these processes. We calibrate a model of the structural transformation to data for the United States and use the model to gain insight into the factors driving the structural transformation and aggregate productivity growth in Portugal. The model implies that Portugal features low and roughly constant relative productivity in agriculture and services (around 22%) and a modest but growing relative productivity in manufacturing (from 44 to 110%). We find that productivity growth in manufacturing accounts for most of the reduction of the aggregate productivity gap with the United States and that a further closing of this gap can only be accomplished via improvements in the relative productivity of services. This paper was written while the authors were affiliated with the Federal Reserve Bank of Richmond. We would like to thank the editor, two anonymous referees, and participants at the Third Conference on Portuguese Economic Development in the European Context organized by the Bank of Portugal for their comments. All errors are our own.     

Technical change and total factor productivity growth: The case of Chinese provinces

In the literature technical change (TC) is mostly assumed to be exogenous and specified as a function of the time trend or time dummies. However, some exogenous external factors other than time can also affect TC. In this paper we model TC via time trend (external non-economic) as well as other exogenous (external economic) factors (technology shifters). For this we define technology indices based on the external economic factors and the time trend. The specification of production function is then amended to accommodate these technology indices which are not necessarily separable from the traditional inputs. That is, these technology indices allow for non-neutral shift in the production function. In doing so we are able to decompose TC (a component of TFP change) into two parts. One part is driven by time and the other part is related to producer-specific external economic factors. The latter can further be decomposed into each external economic factors. The empirical model uses panel data on Chinese provinces. We identify a number of key technology shifters and their effect on technical change and TFP growth of provinces are examined.     

The network of networks: Localized technological change in telecommunications and productivity growth

Radical innovations in the usage of telecommunication services have drastically changed the role of telecommunications in the economy. Today the usage of telecommunications services is associated with the opportunity to extract significant quasi-rents. An empirical analysis of the Italian case in the mid-eighties confirms the significant difference between telecommunications cost share and marginal productivity levels. The opportunity to reap transient quasi-rents has in turn pushed users to innovate so as to become major players in the arena of technological change in telecommunications and information technologies. In this context the notion of network of networks, implemented in the European Union, seems most appropriate to push the dynamic efficiency of the system and accommodate both centrifugal and centripetal innovations, yet also to retain network interoperability and interconnectivity.