On the determinants of complementarity: Elasticities of substitution, income shares, and relative prices

This paper extends an example due to Samuelson (1974) to develop the relationship between possible compensated complementarity between two goods and the two elasticities of substitution in an extended three good CES utility function. It also uses the same utility function to develop the implications of a generalized income share parameter and two different relative prices for possible complementarity between goods. Finally, it explores possible complementarity in a more general utility function with non-constant elasticities of substitution.     

Leadership in Public Good Provision: A Timing Game Perspective

We address in this paper the issue of leadership when two governments provide public goods to their constituencies with cross‐border externalities as both public goods are valued by consumers in both countries. We study a timing game between two different countries: before providing public goods, the two policymakers non‐cooperatively decide their preferred sequence of moves. We establish conditions under which a first‐ or second‐mover advantage emerges for each country, highlighting the role of spillovers and the complementarity or substitutability of public goods. As a result, we are able to prove that there is no leader when, for both countries, public goods are substitutable. When public goods are complements for both countries, each of them may emerge as the leader in the game. Hence a coordination issue arises. We use the notion of risk‐dominance to select the leading government. Finally, in the mixed case, the government for whom public goods are substitutable becomes the leader.     

Taxation of externalities: Direct versus Indirect

First, a model with separable utilities in the externalities is presented to analyze the impact of direct and indirect taxes on the correction of externalities that are caused by the consumption of one good. It is shown that the sign of the indirect tax is based not on the complementarity (or lack thereof) between the two taxed goods, but on the link between complementarity of the two goods for each consumer and the size of the marginal impact on his consumption on the externality. Second, a model of externality aggregate is further developed along the previous lines and alternative definitions of complementarity are considered.     

Complementarity,Linkages between Firms,and the Effect of Entry Costs on Productivity

In a general equilibrium model where firms are heterogeneous in terms of productivity, we introduce differentiated goods in production that are not perfect substitutes, as well as intermediate inputs needed to produce those goods. We show that an increase in either the complementarity of differentiated goods or the share of intermediate inputs in gross output, significantly increases the negative effect of entry costs on total factor productivity (TFP) and output per worker. We also find that the effect of complementarity is quantitatively stronger. If we assume an empirically plausible value for the elasticity of substitution between differentiated goods, then the model considerably improves its ability to reproduce the observed negative relationship between entry costs and TFP or output per worker.     

垄断竞争、中间产品与城市规模

从分工经济与城市规模之间关系的角度,运用Dixit-Stiglitz模型框架下经济活动的规模收益递增原理,在城市内部最终产品生产企业利润最大化的条件下,系统讨论了投入的中间产品种类数与城市人口规模之间的关系、中间产品之间的替代性对城市均衡人口规模的反馈作用,以及城市内部中间产品专业化水平和互补经济程度之间的关系。在此基础上,利用广东省城市增长的部分数据进行了实证分析。认为:经济活动的集聚形成了城市;在城市体积增长和城市系统随产业的专业化与多样化发展而演进的过程中,城市规模经济的实现除了依赖生产要素流动外,最终产品生产企业对中间产品投入的需求也具有不可忽视的作用。     

Upward and downward complementarity: the meso core of evolutionary growth theory

We propose that the concept of complementarity can take two distinct meanings in evolutionary economics: one referring to Adam Smith’s notion of increasing specialization and the division of labour, which we denote ‘downward complementarity’ (wholes into new parts); and a second type that refers to the discovery of emergent complementarity between extant or new components and products, which we call ‘upward complementarity’ (parts into new wholes). We outline this new conception and explore some of its analytic and theoretic implications.     

A biased firm in a market with complementary products. A note on the welfare effects

We analyse a duopoly setting with complementary products, in which a firm has a bias about its absolute advantage. We show that the bias can internalize parts of the negative externality that the complementarity of goods creates implying a higher producer's surplus. Moreover, we analyse additional conditions, which lead to an increase in the consumer's surplus. Counterintuitively, we show that the presence of a bias can lead to a positive welfare effect.     

IMMIGRATION AND NATIVE WELFARE*

This article unifies two approaches for identifying the welfare and wage effects of immigration, one emphasizing the immigration surplus, the other stressing a potential welfare loss due to a terms‐of‐trade effect. We decompose the native welfare effect into a standard complementarity effect, augmented by a Stolper–Samuelson effect, and a terms‐of‐trade effect. We illustrate the welfare and wage effects of endogenous goods prices in a stylized‐specific factors model. Finally, we calibrate this model to a generic OECD economy and provide simulation results. The key insight is that endogenous goods prices play a quantitatively important role, sometimes even overturning received results.     

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.     

中国与海合会双边贸易的实证研究——兼论建立双边自贸区的对策

海合会是中国重要的贸易伙伴,也是中国最主要的石油进口来源地,是中国重要的货物出口市场.本文旨在研究中国与海合会的双边贸易关系,为中国海合会自贸区谈判提供理论依据.运用贸易结合度指数、可显示比较优势指数和出口相似度指数等指标进行了实证分析,发现中国与海合会双边贸易的比较密切;海合会国家在绝大多数产品生产上没有比较优势,中国具有比较优势的产品很多,双方的出口商品结构互补性很强,双方贸易竞争性很弱.自由贸易区建立以后,不会因为双边贸易的扩张导致任何一方产业受损.中国政府应加快双边自贸区谈判,并考虑签署投资自由化协议,促进双边能源产业相互投资;中国企业应积极拓展海合会商品市场,发展对海合会服务出口.     

Role of technological infrastructures in exports: evidence from a cross-country analysis

Using panel data for 48 heterogeneous countries for the period 2000–2010, we explore the impact of a wide set of determinants along with the technological infrastructures on goods and services exports in gravity models. We find that along with the usual basic factors such as incomes, distance, exchange rate depreciation, exchange rate regimes, common language, contiguity, free trade areas, colonial links, the technological infrastructures and complementarity between services and goods exports are quite crucial determinants for both types of exports. Among the technological infrastructures, internet use plays a significant role in promoting service exports rather than promoting goods exports.     

Limits to Substitution Between Ecosystem Services and Manufactured Goods and Implications for Social Discounting

This paper examines implications of limits to substitution for estimating substitutability between ecosystem services and manufactured goods and for social discounting. Based on a model that accounts for a subsistence requirement in the consumption of ecosystem services, we provide empirical evidence on substitution elasticities. We find an initial mean elasticity of substitution of two, which declines over time towards complementarity. We subsequently extend the theory of dual discounting by introducing a subsistence requirement. The relative price of ecosystem services is non-constant and grows without bound as the consumption of ecosystem services declines towards the subsistence level. An application suggests that the initial discount rate for ecosystem services is more than a percentage-point lower as compared to manufactured goods. This difference increases by a further half percentage-point over a 300-year time horizon. The results underscore the importance of considering limited substitutability in long-term public project appraisal.     

THE DIVISION OF LABOR AND ROUNDABOUT PRODUCTION: ALLYN YOUNG REVISITED

Abstract.  This paper investigates Allyn Young's two important doctrines concerning the division of labor and roundabout production. First, apart from advancing the state of knowledge, the progressive division of labor that can occur within a given population encourages the adoption of more specialized, differentiated intermediate goods in the production process. Second, the level of division of labor and the extent of the market depend on each other. Using a general equilibrium model with increasing returns to specialization, economies of complementarity between intermediate goods, and transaction costs, we demonstrate that the level of division of labor and the number of intermediate goods increase concurrently as transaction conditions are improved.     

On the interaction between public and private capital in economic growth

This paper introduces two forms of interaction between private and public capital in an endogenous growth model in which productive government expenditure takes the form of a stock-variable and public capital is used in part as an input in the production of final output and in part to increase its own supply. While the first form of interaction involves the stocks of the two capital-goods and takes place within the final output sector through the specification of the aggregate production function (Cobb?CDouglas vs. CES), the second one concerns the rates of investment in the two kinds of capital. The share of productive public expenditure devoted to output production can be either exogenous or endogenous. Our results suggest that when this share is exogenous, along the balanced growth path the optimal growth rate of the economy is a positive function of the degree of complementarity between the two forms of investment. When the share of productive public expenditure devoted to output production is endogenous, the public capital share in GDP becomes, along with the model??s preference parameters, an important determinant of the economy??s long run growth. We also find that the optimal growth rate is an increasing function of the elasticity of substitution between public and private capital inputs in goods production, and is independent of the complementarity/substitutability between the two forms of investment.     

Export- and Import-Specific Habit Formation

By incorporating good-specific habit formation into the consumption of export and import goods, I examine the dynamic adjustment of a small country to a permanent terms-of-trade deterioration. With differences in the strength of habit formation between export and import goods, the shock affects net output through countervailing income and substitution effects. Unlike in the existing literature, adjacent complementarity is neither necessary nor sufficient for the shock to reduce net foreign assets. When consuming export goods is more habit forming than is consuming import goods, the resulting asymmetric inertia of exports and imports leads the current account to exhibit a J-curve.     

More on tariffs and non-traded goods

The general equilibrium effects of a small tariff on relative prices are analysed within a demand and supply model which provides further insights into Dornbusch's (1974) results. It is shown that the elasticity of the price of non-traded goods with respect to the tariff is a weighted average of the degree of substitutability between non-traded goods and importables on the supply side and that on the demand side. When complementarity is ruled out, the price of non-traded goods increases with the tariff, but less than proportionally.     

Labor market integration policies and the convergence of regions: the role of skills and technology diffusion

We study the role of different labor market integration policies on economic performance and convergence of two distinct regions in an agent-based model. Production is characterized by a complementarity between the quality of the capital stock and the specific skills of workers using the capital stock. Hence, productivity changes in a region are influenced both by the investment of local firms in high quality capital goods and by the evolution of the specific skill distribution of workers employed in the region. We show that various labor market integration policies yield, via differing regional worker flows, to distinct regional distributions of specific skills. Through this mechanism, relative regional prices are affected, determining the shares that the regions can capture from overall consumption good demand. There occurs a trade-off between aggregate output and convergence of regions with closed labor markets resulting in relatively high convergence but low output, and more integrated labor markets yielding higher output but lower convergence. Furthermore, results differ substantially in several respects as distinct labor market opening policies are applied.     

Can Weak Substitution be Rehabilitated?

This paper develops a graphical analysis and an analytical model that demonstrate how weak substitution can be used for non-market valuation. Weak complementarity and weak substitution represent preference restrictions that allow us to develop equivalent price changes to describe quantity or quality changes in non-market goods. The price changes are Hicksian equivalents in that they yield the same utility changes as would the quantity or quality changes. After discussion of several potential applications of weak substitution, the paper develops the parallel between the restriction and recent strategies from modeling differentiated goods.     

Rehabilitating Weak Complementarity

Using weak complementarity to determine willingness to pay for nonmarket goods is problematic. This note offers a procedure for determining an agent's marginal willingness to pay for a nonmarket good under this assumption that mitigates these problems.
JEL Classification : D 6; H 4; Q 2     

The political economy of fiscal deficits and government production

This paper studies how disagreement over which goods government should provide affects resource allocation in the public sector. An incumbent combines pre-determined capital with labor to produce different goods in the current period, and accumulates physical and financial capital for future production. Capital-labor complementarity determines how anticipated political turnover shapes governments' choice between saving in physical capital or financial assets. Turnover tends to render the stock of physical capital for public production too low and inefficiently combined with labor. The main cost of political turnover is production inefficiency in the public sector, not a suboptimal savings level.