A tale of two countries: Directed technical change,trade and migratory movements

We propose a North-South model that reconciles trade and production strategies, flows of innovators and the path of economic divergence, or convergence, between countries. We explain the mechanisms behind these forces and show how the technological and economic gaps can be reversed if southern countries stop imitating northern goods and, instead, produce complementary goods. Such a strategy of complementarity on production yields the necessary incentives to innovators to engage in research in southern countries, which enhances the catching-up process between countries. It is also shown that migratory movements of unskilled labor between countries are also relevant to understand the dangers and benefits of different trade strategies for economic growth. This paper suggests a positive (negative) correlation between technological innovation in the North (South) and the level of substitutability in production, while under complementarity, technological innovation catches up in the South, therefore fostering the economic catching up process. A positive correlation between inflows of skilled and unskilled labor and substitutability of production between countries is also verified.     

Do exporters have anything to learn from foreign multinationals?

International technology diffusion through FDI has been examined mainly at macro or industry level whereas micro studies have been concerned mostly with spillovers. Using recent data on the UK manufacturing firms, this paper uncovers evidence that acquisition FDI is an important channel of direct technology transfer from foreign multinationals to domestic exporters. This finding accords with the prediction of the internalisation theory of FDI which postulates that multinational firms transfer a range of intangible proprietary assets to their affiliates.     

Product complexity and economic development

Development is a process of transforming a country's economic structure towards the production and export of more complex products. We use Hidalgo and Hausmann's (2009) method of reflections to compute measures of product and country complexity, and rank 5107 products and 124 countries. We find that: (i) the most complex products are in machinery, chemicals, and metals, while the least complex products are raw materials and commodities, wood, textiles, and agricultural products; (ii) the most complex economies in the world are Japan, Germany, and Sweden, and the least complex, Cambodia, Papua New Guinea, and Nigeria; (iii) the major exporters of the more complex products are the high-income countries, while the major exporters of the less complex products are the low-income countries; and (iv) export shares of the more complex products increase with income, while export shares of the less complex products decrease with income.     

Democratization is the driving force for technological and economic change

The purpose of this paper is to analyze the relationship between democratization and technological innovation. In primis, the paper shows, through economic history, that democratization is an antecedent process (cause) to technological and economic change (effect). In particular, the primary finding is that democratization is a driving force for technological change: most free countries, measured with liberal, participatory, and constitutional democracy indices, have a higher level of technology than less free and more autocratic countries. In fact, “democracy richness” generates a higher rate of technological innovation with fruitful effects for the wellbeing and wealth of nations. These findings and predictions lead to the conclusion that policy makers need to be cognizant of positive associations between democratization and technological innovation paths in order to support the modern economic growth and future technological progress of countries.     

The export price index with the effect of variety and an empirical analysis

The standard international trade models predict that economic growth induces decreasing export prices. Korea has recorded sustainable economic and export growth, and its export prices have been deteriorating over the last decades. Unlike the standard assumption of one good per country, the new theoretical approach by Krugman [Krugman, P. (1980) ‘Scale Economies, Product Differentiation, and Pattern of Trade’. American Economic Review 70, 950–959, Krugman, P. (1989) ‘Differences in income elasticities and trends in real exchange rates’. European Economic Review, 33, 1055–1085.], and Helpman and Krugman [Helpman, E. and Krugman, P. (1985), Market structure and foreign trade: increasing returns, imperfect competition, and international economy, The MIT Press, Cambridge, MA.] takes into account varieties of goods produced in each country. And many studies suggest that traditional estimates without variety effect have been rather under-stated. Therefore this paper develops a proper modeling for quantifying the impact of export variety on an exact export price index. Throughout the period (1984–2000), the conventional export price index without variety effect leads to under-state Korea's export price by 89.3%. This paper shows that the fall in Korean export prices has been offset by the effect of export variety. This paper emphasizes the effect of export variety on international trade.     

FACTOR SUBSTITUTION,MECHANIZATION, AND ECONOMIC GROWTH

This paper tries to explain the polarization of economic growth through mechanization. We derive a complementary relationship between capital accumulation and mechanization. While we assume an external effect that occurs as a result of mechanization, given the external effect, mechanization yields a constant‐elasticity‐of‐substitution production function in which the elasticity‐of‐substitution is greater than unity as the envelope of Cobb–Douglas production functions. When mechanization is difficult, which implies a low value for the elasticity‐of‐substitution, and the external effect is weak, there is potential for multiple steady states to exist.     

Does the sector bias of skill-biased technical change explain changing skill premia?

This paper shows the sector bias of skill-biased technical change (SBTC) can help explain changing skill premia within countries in recent decades. Our model demonstrates that in many cases it is the sector bias of SBTC that determines SBTC's effect on relative factor prices, not its factor bias. Rising (falling) skill premia are caused by SBTC that is concentrated in skill-intensive (unskill-intensive) sectors. Our empirical findings for ten OECD countries over the 1970s and 1980s are consistent with sector bias being important. In countries when skill premia were rising (falling), SBTC was generally concentrated in skill-intensive (unskill-intensive) sectors.     

On US politics and IMF lending

The political factors shaping IMF lending to developing countries have attracted attention in recent empirical work. This goes in particular for the role and influence of the US. However, scant formal modelling makes interpretation of empirical results difficult. In this paper, we propose a model in which the US acts as principal within the IMF and seeks to maximize its impact on the policy stance of debtor countries. We derive an optimal loan allocation mechanism, which leads to the testable hypothesis that the probability of an IMF loan is increasing in the amount of political concessions countries make. A political concession is defined as the distance between a country's bliss point and its actual policy stance measured relative to the US. We introduce a bliss-point proxy and demonstrate that our hypothesis is strongly supported in the data. Moreover, we show that not accounting for bliss points may lead to endogeneity bias in empirical work.     

The quality and variety of exports from the new EU member states

The goal of this article is to evaluate the variety and quality of exports from the new EU member states (NMSs) in the period 1999–2009. The practical relevance of such an analysis is threefold: recent studies underline the importance of export variety for economic growth; empirical results show that export variety was influenced by the EU membership; and looking separately at export quality permits a better understanding of price competitiveness. Our results show that all NMSs significantly increased the average number of brands exported to the EU market, the largest increases being observed in 2004 and after. This indicates that integration into the EU market occurs in the extensive as well as the intensive dimension. We also find that all NMSs increased the average quality of their exports during the decade studied although there are differences between countries. Thus, a large part of the increase in the prices of exports from NMSs resulted from improving quality and did not result in a loss of competitiveness. Finally, estimates of relative quality are much more stable than relative prices, suggesting that our measure of relative quality is better than the traditional proxy.     

Asymmetric effects of financial development on South-South and South-North trade: Panel data evidence from emerging markets

Using bilateral trade data in total and technology-and-skill-intensive manufactured goods for 28 developing countries that account for 82% of all developing country manufactures exports between 1978 and 2005, this paper explores the effects of financial development on the pattern of specialization in South-South and South-North trade. The empirical results using dynamic panel regressions and comprehensive sensitivity tests suggest that financial development in the South has an economically and statistically significant positive effect on the share of total and technology-and-skill-intensive manufactures exports in GDP, and total exports in South-South trade. In contrast, no such significant or robust effect of financial development is found in South-North trade. Overall, the positive effect of financial development is found to be asymmetric favoring South-South significantly more than South-North trade. In addition, financial development is found to be increasing technology-and-skill-intensive manufactured goods exports significantly more than total manufactured or merchandise goods exports.     

The role of extensive and intensive margins and export growth

We investigate and compare countries' export growth based on their performance at the extensive and intensive export margins. Our empirical approach is motivated by an extension to the Melitz (2003) model of heterogeneous firms in which exporters are subject to a one-time sunk cost and also a per-period fixed cost. With imperfect information a firm may enter export markets but shortly exit when it learns its per-period fixed costs. We apply this insight to disaggregated export data and confirm that indeed most export relationships are very short lived. We then show that the survival issue is a significant factor in explaining differences in long run export performance. We find that developing countries would experience significantly higher export growth if they were able to improve their performance with respect to the two key components of the intensive margin: survival and deepening.     

North-South trade with increasing product variety

We present a model of one-way product cycles in international trade. Firms develop new product varieties in technologically advanced countries (the North), other firms copy these products in less developed countries (the South) and all shifts in production go from North to South. What distinguishes this paper from the earlier literature are the model's implications for economic growth and wage determination. Economic growth is characterized by weak scale effects, in contrast to the strong scale effects in the earlier literature. The model can also account for large North-South wage differences for plausible parameter values.     

SUSTAINING THE GOOSE THAT LAYS THE GOLDEN EGG: A CONTINUOUS TREATMENT OF TECHNOLOGICAL TRANSFER

This paper proposes a simple model of the trade-offs perceived by innovating firms when investing in countries with limited intellectual property rights (IPR). The model allows for a continuous treatment of technology transfer and production cost gains occurring through FDI. While it does not consider possible changes in rates of innovation caused by changes in IPR in developing countries, it allows one to uncover a potentially non-monotonic relationship between welfare and IPR in the recipient country.     

Aid, Dutch disease, and manufacturing growth

We examine the effects of aid on the growth of manufacturing, using a methodology that exploits the variation within countries and across manufacturing sectors, and corrects for possible reverse causality. We find that aid inflows have systematic adverse effects on a country's competitiveness, as reflected in the lower relative growth rate of exportable industries. We provide some evidence suggesting that the channel for these effects is the real exchange rate appreciation caused by aid inflows. We conjecture that this may explain, in part, why it is hard to find robust evidence that foreign aid helps countries grow.     

Baltic Dry Index and the democratic window of opportunity

In their seminal paper, Brückner and Ciccone (2011) document that a significant effect of democratic change may be triggered by negative transitory economic shocks, and that rainfall can open a democratic window of opportunity in sub-Saharan Africa (SSA). As a complement, this paper uses within-country variation in the Baltic Dry Index (BDI) as a source of transitory negative income shocks to SSA countries. The BDI reflects the cost of utilizing dry bulk carriers, which are specially designed vessels for transporting primary goods internationally, where these goods dominate the output and export sectors of the SSA economies. We find that positive BDI cost shocks are followed by significant contraction in income through trade channel and significant improvement in democratic institutions, where BDI can open a window of opportunity for democratic improvement. Instrumental variables estimates indicate that following a negative income shock of one percentage point, democracy scores improve by around 4–5 percentage points on average.     

Do external interventions work? The case of trade reform conditions in IMF supported programs

Trade reform conditions are common in IMF supported programs. Of the 99 countries that had IMF programs during 1993-2003, 77 had trade reform conditions in their programs. Since the WTO has not been found especially effective in promoting trade openness for most developing countries, it is of great interest to see if the IMF has been more effective as it combines carrots and sticks not available to the WTO. Yet, the effectiveness of these trade conditions has not been systematically studied. Using a unique dataset, this paper provides such an assessment. It finds that trade conditions are indeed associated with an increase in trade openness on average, but the effect comes mostly from countries that can be characterized by a high degree of “willingness to reform.”     

Endogenous institutional change after independence

Independence from colonial rule was a key event for both political and economic reasons. We argue that newly independent countries often inherited sub-optimal institutional arrangements, which the new regimes reacted to in very different ways. We present a model of endogenous changes in property rights institutions where an autocratic post-colonial elite faces a basic trade-off between stronger property rights, which increases the dividends from the modern sector, and weaker property rights that increases the elite's ability to appropriate resource rents. The model predicts that revenue-maximizing regimes in control of an abundance of resource rents and with insignificant interests in the modern sector will rationally install weak institutions of private property, a prediction which we argue is well in line with the experience of several developing countries.     

FINANCIAL CONSTRAINTS, GLOBAL ENGAGEMENT, AND FIRM SURVIVAL IN THE UNITED KINGDOM: EVIDENCE FROM MICRO DATA

Financial constraints have been found to play an important role on various aspects of firm behavior. Yet, their effects on firm survival have been largely neglected. We use a panel of 61,496 UK firms over the period 1997–2002 to study the effects of financial variables on firms' failure probabilities, differentiating firms into globally engaged and purely domestic. Estimating a wide range of specifications, we find that lower collateral and higher leverage result in higher failure probabilities for purely domestic than for globally engaged firms. This can be seen as evidence that global engagement shields firms from financial constraints.     

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.