Does Real Exchange Rate Depreciation Boost Capital Accumulation? An Intertemporal Analysis

This paper examines the investment‐enhancing effect of real exchange rate (RER) depreciation in a two‐sector small open economy model where a representative firm in the tradable sector maximises its discounted profit over an infinite planning period. In this framework, a one‐time, permanent, unanticipated depreciation in the RER leads to a higher steady‐state level of capital stock and investment. This consequently increases the optimal investment rate associated with an arbitrary level of capital stock as the saddle path shifts upwards. In the benchmark calibration, the investment‐enhancing effect of RER depreciation is sizeable. One per cent depreciation in the RER leads to an increase of 0.4444 per cent in the rate of capital accumulation.     

Critical remarks on Piketty’s Capital in the Twenty-first Century

This article discusses the central macroeconomic claims that are made in Thomas Piketty’s book Capital in the Twenty-first Century. The article aims to show that Piketty’s contentions are not only logically flawed but also contradicted by his own data.     

On the ‘Origins’ of Sraffa’s Production Equations: A Reply to de Vivo

In this rejoinder to de Vivo’s comment on Gehrke and Kurz (2018, ‘Sraffa’s constructive and interpretive work, and Marx.’ Review of Political Economy) we first ask what could possibly be meant by seeking to identify the ‘origins’ of Sraffa’s production equations. We then show that in his comment de Vivo has abandoned his original view, according to which the magnitudes in Sraffa’s ‘first equations’ are to be interpreted in Marxian (labour) value terms, without advising the reader. In addition, we show that his ‘new’ view is not supported by evidence from Sraffa’s papers. De Vivo misconstrues several propositions of Sraffa and misunderstands his ‘reduction method’ by means of which the values of commodities are reduced to some basic product or to labour. The criticisms de Vivo levels at the interpretation advocated by us are without any foundation.     

Sraffa’s Constructive and Interpretive Work,and Marx

ABSTRACT

This article provides a summary account of Piero Sraffa’s constructive and interpretive work on the classical approach to the theory of value and distribution and its relationship with Marx’s contributions. It is shown that in the early phase of his constructive work Sraffa developed his equation systems by adopting a ‘physical real cost’ approach and a strictly objectivist point of view, and completely eschewed Marx’s labour-based approach and the related Marxian concepts. Only at a later stage did he explore systematically the relationship between his own modern re-formulation of the surplus approach to the theory of value and distribution and Marx’s contribution. He considered Marx’s most important analytical contribution to the further development of the surplus approach to consist of the re-integration of circular production relations, which allowed him to see the existence of a maximum rate of profits and its role in an analysis of accumulation and technical change.     

Health effects on children’s willingness to compete

The formation of human capital is important for a society’s welfare and economic success. Recent literature shows that child health can provide an important explanation for disparities in children’s human capital development across different socio-economic groups. While this literature focuses on cognitive skills as determinants of human capital, it neglects non-cognitive skills. We analyze data from economic experiments with preschoolers and their mothers to investigate whether child health can explain developmental gaps in children’s non-cognitive skills. Our measure for children’s non-cognitive skills is their willingness to compete with others. Our findings suggest that health problems are negatively related to children’s willingness to compete and that the effect of health on competitiveness differs with socio-economic background. Health has a strongly negative effect in our sub-sample with low socio-economic background, whereas there is no effect in our sub-sample with high socio-economic background.     

The Time-varying Impact of China’s Economic Rebalancing on Korea’s Exports to China

While China seeks to shift from exports and investment to a consumption-oriented economy and to increase the self-sufficiency rate of exports, this study uses time-varying parameter vector autoregression (TVP-VAR) to examine the impact of economic structural changes in China on Korea’s exports to China over time. The study results suggest that the impact of China’s export shocks on Korea’s exports has weakened, which demonstrates the slowdown in regional production fragmentation, considering that Korea’s export goods are mainly intermediate goods. Instead, the influence of China’s domestic demand shock on Korea’s exports has expanded, which implies that China has increasingly become the final destination of intermediate goods made in Korea.     

Trade Flows Versus Capital Flows: Are China’s Trade Surpluses Overestimated?

China has received massive foreign capital inflows after experiencing capital flight earlier in the last decade. The present paper offers estimates of capital inflows into China through the misinvoicing of trade after having outlined a model describing how trade prices could be manipulated by firms. In fact, the widely perceived undervalued Yuan has fueled expectations of a future revaluation of the Chinese currency. In a panel gravity modeling framework, we show that, China’s export and import prices for some commodities are sensitive to the non-deliverable forward exchange rate for the RMB in Hong Kong. In light of the evolution of this rate, which has rather systemically reflected anticipated revaluation of the Chinese currency, it is contended that the persistent Chinese trade imbalances may actually camouflage hidden ‘hot money’ inflows. Our findings provide evidence for export over-invoicing and import under-invoicing.     

China’s Capital Stock Series by Region and Sector

The lack of capital stock statistics for empirical research of the Chinese economy has for a long time been one of the major impediments in the profession. Professor Gregory Chow is one of the pioneers who attempted to deal with this matter. His seminal paper on China’s capital formation and economic growth was published in 1993 (Chow, 1993). Since then many authors have estimated their own capital stock data series. However, most authors have focused on investigations at the national level and their findings are not without controversies. In particular, few studies have provided estimates of capital stock for China’s regional economies. This paper adds to the existing literature in several ways. First, it presents a critical review of the methods and findings in the existing literature. Second, it proposes an alternative approach to estimate China’s capital stock series by region as well as across three economic sectors (agriculture, industry and services). Finally, preliminary analyses of the derived capital stock statistics are conducted to examine growth, disparity and convergence in China’s regional economies.     

Fashion’s Effect on Consumer’s Preference Formation

Abstract:

It is widely known that all principles of economics textbooks do not consider advertising much less fashion a demand determinant factor. Fashion’s effect on consumer choice is a critically important topic to the understanding of consumer behavior and decision-making in the “new economy.” The discussion of such issues includes verifying the effect of three important fashion market features on consumer preference formation and choice, namely the length of product life cycle, demand volatility, and impulse purchasing. It seems that time has come to concede that fashion firms, especially those producing fast or “junk” fashion, if you will, have successfully been affecting consumer preferences and have manipulated consumer choices for the sake of their own interests. Such a goal has been achieved by exploiting the fashion market features by employing specific marketing strategies, within the framework of supply chain agility, such as product remodeling, product customization, and revisions or innovation.     

Capital inflow-terms of trade ‘nexus’: Does it lead to financial crisis?

The paper models the nexus of foreign capital inflow and dynamic terms of trade to explain financial crisis in the form of sudden stop or reversal of capital inflow. Crisis in this structure is rooted in the role played by dynamic terms of trade rather than informational imperfections as generally found in the existing literature. Inspite of satisfying the regularity conditions for model consistency episodes of sudden crises get magnified due to the non-linearity of the equilibrium relations. This is the novelty of this paper and differentiates it from the standard theoretical literature, and well captures empirical evidence documented in the literature. Non-linearity plays a very important role in the model. Expectation of the exchange rate depreciation has higher potential to generate a financial crisis than shift in the risk perception of foreign lenders or supply shock in the borrowing country.     

Social Capital and Women’s Labor Force Participation in Chile

ABSTRACT

Using data from Chile, this study analyzes the relationship between different forms of social capital and women’s labor force participation, accounting for both endogeneity problems and differences among women of different economic strata. First, the results suggest that only some types of social capital are relevant for labor force participation: namely, networks with weaker yet far-reaching connections, including higher-status individuals. There are neither empirical nor theoretical reasons to believe that women have better access to such networks than men. Second, this type of social capital is only relevant for the economic integration of the richest women, failing to increase labor force participation among women of the other 80 percent of households. Thus, this study concludes that policies targeted at women’s economic integration based on the presumption that women have more social capital than men are deeply flawed.     

Satisficing behavior, Brouwer’s Fixed Point Theorem and Nash Equilibrium

Summary. We show that Nash Equilibrium points can be obtained by using response maps or reply functions that simply use better responses rather than best responses. We demonstrate the existence of a Nash Equilibrium as the fixed point of a better response map and since the better response map is continuous the fixed point can be established by simply using Brouwers fixed point theorem. The proof applies to games with a finite number of strategies as well as to games with a continuum of strategies. In case the games have a continuum of strategies the payoff functions have to be continuous on the action sets and quasi concave on the players action set.Received: 22 September 2003, Revised: 31 March 2004, JEL Classification Numbers: C72, D00, D40. Correspondence to: Robert A. BeckerWe have benefited from comments on an earlier draft made by participants at Indiana Universitys Microeconomics workshop (October 2002) and the Midwest Economic Theory Conference held at the University of Pittsburgh (May 2003). We also thank Roy Gardner for comments on earlier versions. We thank the Associate Editor, Mark Machina, for his detailed comments and suggestions. This project began when Subir Chakrabarti was a visitor in the Department of Economics, Indiana University, Bloomington in the Spring of 2002. He thanks that department for its support.     

How Does the Minimum Wage Affect Firm Investments in Fixed and Human Capital? Evidence from China

This paper empirically analyzes the impact of Chinese minimum wage regulations on the firm decision to invest in physical and human capital. We exploit the geographical and inter‐temporal variations of county‐level minimum wages in a panel data set of all state‐owned and all above‐scale non‐state‐owned Chinese firms covering the introduction of the new Chinese minimum wage regulations in 2004. In our basic regressions including all Chinese firms, we find significant negative effects of the minimum wage on human capital investment rates and no overall effects on fixed capital investment rates. When grouping firms by their ownership structure, we find that these results hold for most firms. Foreign‐owned firms are an exception to some extent, because the likelihood that they invest in human capital has not decreased in response to the policy.     

Choosing one’s own informal institutions: on Hayek’s critique of Keynes’s immoralism

In the main, Hayek favored rules that apply equally to all and located such rules in tradition, beyond conscious construction. This led Hayek to attack Keynes’s immoralism, i.e., the position that one should be free to choose how to lead one’s life irrespective of the informal institutions in place. However, it is argued here that immoralism may be compatible with Hayek’s enterprise since Hayek misinterpreted Keynes, who did not advocate the dissolving of all informal rules for everybody. By avoiding this misinterpretation, immoralism can be seen as institutional experimentation at the margin, which Hayek himself favored.