Immiserizing Growth and the Metzler Paradox in the Ricardian Model

Conditions for the occurrence of immiserizing growth and the Metzler paradox are analysed in the Ricardian model when consumers in the foreign country have Leontief preferences while consumers in the home country have Cobb-Douglas preferences. By using specific functional forms, the conditions for the occurrence of the two paradoxes are defined in terms of the exogenous parameters of the model rather than endogenous variables such as the foreign import demand elasticity in the conditions of Bhagwati (1958) Bhagwati, J. N. 1958. Immiserizing growth: a geometrical note. Review of Economic Studies, 25: 201–205. [Crossref], [Web of Science ®] , [Google Scholar] and Metzler (1949a Metzler, L. A. 1949a. Tariffs, the terms of trade and the distribution of national income. Journal of Political Economy, 57: 1–29. [Crossref], [Web of Science ®] , [Google Scholar], b Metzler, L. A. 1949b. Tariffs, international demand, and domestic prices. Journal of Political Economy, 57: 345–351. [Crossref], [Web of Science ®] , [Google Scholar]). It is shown that the simultaneous occurrence of both paradoxical results is possible for some parameter values.     

Globalization and the effects of changes in functional income distribution on aggregate demand in Germany

Germany has experienced a period of extreme nominal and real wage moderation since the mid‐1990s. Contrary to the expectations of liberal economists, this has failed to improve Germany’s mediocre economic performance. However, Germany is now running substantial current account surpluses. One possible explanation for Germany’s disappointing performance is found in Kaleckian theory, which highlights that the domestic demand effect of a decline in the wage share will typically be contractionary, whereas net exports will increase (Blecker 1989 Blecker, R. 1989. International competition, income distribution and economic growth. Cambridge Journal of Economics, 13: 395–412. [Web of Science ®] [Google Scholar]). The size of the foreign demand effect will critically depend on the degree of openness of the economy. This paper aims at estimating empirically the demand side of a Bhaduri and Marglin (1990 Bhaduri, A. and Marglin, S. 1990. Unemployment and the real wage: The economic basis for contesting political ideologies. Cambridge Journal of Economics, 14: 375–93. [Crossref], [Web of Science ®] [Google Scholar]) type model for Germany. The paper builds on the estimation strategy of Stockhammer, Onaran, and Ederer (2009 Stockhammer, E., Onaran, Ö. and Ederer, S. 2009. Functional income distribution and aggregate demand in the Euro area. Cambridge Journal of Economics, 33(1): 139–59. [Crossref], [Web of Science ®] [Google Scholar]) and Hein and Vogel (2008 Hein, E. and Vogel, L. 2008. Distribution and growth reconsidered – empirical results for six OECD countries. Cambridge Journal of Economics, 32: 479–511. [Crossref], [Web of Science ®] [Google Scholar], 2009 Hein, E. and Vogel, L. 2009. Distribution and growth in France and Germany – single equation estimations and model simulations based on the Bhaduri/Marglin‐model. Review of Political Economy, 21(2): 245–72. [Taylor & Francis Online] [Google Scholar]). The main contribution lies in a careful analysis of the effects of globalization. Since Germany is a large open economy by now it is a particularly interesting case study.     

What (if any) are the returns to computer use?

Using North American data, we revisit the question first broached by Krueger (1993 Krueger, AB. 1993. How computers have changed the wage structure: evidence from microdata. Quarterly Journal of Economics, 108: 33–60. [Crossref], [Web of Science ®] , [Google Scholar]) and re-examined by DiNardo and Pischke (1997 DiNardo, JE and Pischke, J-S. 1997. The returns to computer use revisited: have pencils changed the wage structure too?. Quarterly Journal of Economics, 112: 291–303. [Crossref], [Web of Science ®] , [Google Scholar]) of whether there exists a real wage differential associated with computer use. Employing a mixed effects model with matched employer–employee data to correct for the fact that workers and workplaces that use computers are self-selected, we find that computer users enjoy an almost 4% wage premium over nonusers. Failure to correct for worker and workplace selection effect leads to a more than twofold overestimate of this premium.     

Estimation of SEs for heteroscedastic and cross-sectionally correlated data

This study develops SE estimators for heteroscedastic and cross-sectionally correlated data. The new estimators are a cross-sectional version of the White and Domowitz (1984 White, H and Domowitz, I. 1984. Nonlinear regression with dependent observations. Econometrica, 52: 143–61. [Crossref], [Web of Science ®] , [Google Scholar]) and Newey and West (1987 Newey, W and West, K. 1987. A simple positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix. Econometrica, 55: 703–8. [Crossref], [Web of Science ®] , [Google Scholar]) estimators, and therefore, consistent in the presence of heteroscedasticity and cross correlation of unknown form. Unlike the estimators in the literature, these estimators can control for cross correlation even for single-period cross-sectional data.     

A nonparametric revealed preference test of optimal intra-firm resource allocation

The collective rationality hypothesis initiated by Chiappori (1988a Chiappori, PA. 1988a. Rational household labor supply. Econometrica, 56: 63–89. [Crossref], [Web of Science ®] , [Google Scholar]) and applied by Seaton (1997 Seaton, JS. 1997. Neoclassical and collective rationality in household labour supply. Applied Economics Letters, 4: 529–33. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar], 2001) for a two-person household is used to distinguish the organizational behaviour of firms. Firms produce satisfaction to groups as traditional managerial and early behavioural theories of the firm of Williamson, Baumol and Marris suggest, as well as more modern principle agent models. Under certain conditions, intra-firm bargaining leads to a Pareto optimal outcome. What makes this work an important contribution is that it identifies a set of nonvacuous testable restrictions to empirically detect if firm-level data satisfy Pareto optimal behaviour for the main decision makers in the organization.     

Modelling the dynamics of EU economic sentiment indicators: an interaction-based approach

This article estimates a simple univariate model of expectation or opinion formation in continuous time adapting a ‘canonical’ stochastic model of collective opinion dynamics (Weidlich and Haag, 1983 Weidlich, W, and Haag, G, 1983. Concepts and Models of a Quantitative Sociology. Berlin: Springer; 1983.[Crossref] , [Google Scholar]; Lux, 1995 Lux, T, 1995. Herd behavior, bubbles and crashes, The Economic Journal 105 (1995), pp. 881–96.[Crossref], [Web of Science ®] , [Google Scholar], 2009a Lux, T, 2009a. Rational forecasts or social opinion dynamics? Identification of interaction effects in a business climate survey, Journal of Economic Behavior and Organization 72 (2009a), pp. 638–55.[Crossref], [Web of Science ®] , [Google Scholar]). This framework is applied to a selected data set on survey-based expectations from the rich EU business and consumer survey database for 12 European countries. The model parameters are estimated through Maximum Likelihood (ML) and numerical solution of the transient probability density functions for the resulting stochastic process. The model's success is assessed with respect to its out-of-sample forecasting performance relative to univariate Time Series (TS) models of the Autoregressive Moving Average model, ARMA(p,?q) and Autoregressive Fractionally Integrated Moving Average, ARFIMA(p,?d,?q) varieties. These tests speak for a slight superiority of the canonical opinion dynamics model over the alternatives in the majority of cases.     

Labour values and energy values: some developments on the common substance of value since 1867

Abstract

Marx’s Das Kapital (1867) singled out labour as the common substance of value in all commodities. Costanza (1980 Costanza, Robert. 1980. “Embodied Energy and Economic Valuation.” Science 210 (4475): 1219–1224. doi:10.1126/science.210.4475.1219[Crossref], [PubMed], [Web of Science ®] , [Google Scholar]) in Science chose energy and propagated energy values (a century after Engels criticised Podolinsky on energy). Mainstream economists quickly questioned Marx’s logic. Pareto advocated simultaneous equations, unaware of their use by Mühlpfordt and Dmitriev. Contributions by Charasoff and Potron were also overlooked. Already in 1927, Leontief and Sraffa knew how to replace labour values by other commodity values. Generalising Sraffa’s subsystems and using “percentage formulas” for price-value deviations, I discuss some empirical results for labour or energy theories of value.     

Nonlinearity in real exchange rates: an approach with disaggregated data and a new linearity test

Employing disaggregated real exchange rates from nine European counties in 16 goods categories, we assess in this study the nonlinearity in the real exchange rates. Surprisingly, we find evidence for nonlinearity in only four (10) out of 143 series with the linearity test proposed by Harvey et al. (2008 Harvey, D. I., Leybourne, S. J. and Xiao, B. 2008. A powerful test for linearity when the order of integration is unknown. Studies in Nonlinear Dynamics and Econometrics, 12 Art 8[Web of Science ®] , [Google Scholar]) at the 5% (10%) significance level. This result differs greatly from those of Juvenal and Taylor (2008 Juvenal, L. and Taylor, M. P. 2008. Threshold adjustment of deviations from the law of one price. Studies in Nonlinear Dynamics and Econometrics, 12 Art 8[Web of Science ®] , [Google Scholar]), Imbs et al. (2003 Imbs, J., Mumtaz, H., Raven, M. O. and Rey, H. 2003. Nonlinearities and real exchange rate dynamics. Journal of the European Economic Association, 1: 639–49. [Crossref] , [Google Scholar]), Sarno et al. (2004 Sarno, L., Taylor, M. P. and Chowdhury, I. 2004. Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study. Journal of International Money and Finance, 23: 1–25. [Crossref], [Web of Science ®] , [Google Scholar]) and Berka (2009 Berka, M. 2009. “Non-linear adjustment in law of one price deviations and physical characteristic of good”. In Review of International Economics Vol. 17, 51–73.  [Google Scholar]), who report ample evidence for nonlinearity for the same or similarly disaggregated real exchange rate datasets.     

Convergence in household credit demand across euro area countries: evidence from panel data

This article contributes to the literature on the convergence of financial systems in the euro area by estimating household credit demand in individual countries. Using the ARDL framework advocated notably by Pesaran et al. (1999 Pesaran, MH, Shin, Y and Smith, RP. 1999. Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94: 621–34. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]), the article provides evidence on the convergence of long-run credit demand determinants (interest rates, investment and house prices) in the largest euro area countries, while short run-dynamics remain heterogenous across countries. The article also demonstrates that the equation uncovers demand rather than supply behaviour.     

Does debt market timing increase firm value?

Survey evidence indicates that firm managers try to time debt markets when choosing the maturity of new debt issues, but we do not know whether these strategies increase firm value. This research examines differences in value across nontimers and timers, where timers are defined as firms that follow either a naïve strategy of choosing long-term debt when the term premium is low or a strategy from Baker et al. (2003 Baker, M, Greenwood, R and Wurgler, J. 2003. The maturity of debt issues and predictable variation in bond returns. Journal of Financial Economics, 70: 261–91. [Crossref], [Web of Science ®] , [Google Scholar]) based on the predictability of future excess bond returns. After controlling for various determinants of firm value, the research finds no differences in value across timers and nontimers. It also documents that the timing strategies do not increase firm value and do not affect announcement effects of long-term debt offerings. The results suggest that corporate debt markets are efficient and well integrated with equity markets.     

The payoff and implied pricing kernel in REITs

This article explores the hybrid character (i.e. the resemblance of both stock and bond) of Real Estate Investment Trust (REIT) through the implied pricing kernel behind REITs prices. We use the Empirical Pricing kernel method (Rosenberg and Engle, 2002 Rosenberg, J and Engle, RF. 2002. Empirical pricing kernels. Journal of Financial Economics, 64: 341–72. [Crossref], [Web of Science ®] , [Google Scholar]) to explore their Payoff probability density and extract the implied pricing kernel. To estimate payoff probability density, we use asymmetric GARCH model. Results indicate that implied pricing kernels flatten in all ranges of low rate of returns and decrease exponentially in ranges of high rate of returns. This means the REIT pricing kernel resembles a bond when rate of return is low, and a stock when it is high. The pattern is consistent between 1970 and 2000.     

Purchasing power parity for East-Asia countries: further evidence based on panel stationary test with multiple structural breaks

In this article, we re-investigate the validity of Purchasing Power Parity (PPP) for a sample of 10 East-Asia countries over the period of January 1987 to June 2005, using a recently developed econometric technique of the panel stationary test with multiple structural breaks, proposed by Carrion-i-Silvestre et al. (2005 Carrion-i-Silvestre, JL, Del Barrio, T and López-Bazo, E. 2005. Breaking the panels: an application to the GDP per capita. Econometrics Journal, 8: 159–75. [Crossref], [Web of Science ®] , [Google Scholar]). This test considers multiple structural breaks positioned at different unknown dates and a different number of breaks for each individual. Empirical evidence shows that the PPP holds true for half of 10 East-Asia countries during the research period. Our results have important policy implications for these 10 East-Asia countries under study.     

Another look at the spending response to the 2001 income tax rebates

This article revisits the spending response to the 2001 US tax rebates by focussing on two key aspects of how tax policy researchers use the Consumer Expenditure Survey (CEX). These two attributes, which are often overlooked, are as follows: the measures used for consumption and the ‘outlier’ criteria applied to the data. First, I reproduce the results in Johnson et al. (2006 Johnson, DS, Parker, JA and Souleles, NS. 2006. Household expenditure and the income tax rebates of 2001. American Economic Review, 96: 1589–610. [Crossref], [Web of Science ®] , [Google Scholar]), which (using the CEX) concluded that households immediately spent 20–40% of their rebates on nondurable consumption goods. Then, I show how making two changes – both of which are relied upon in the literature – affects their results. These adjustments reduce the estimated magnitude of the rebate's impact by as much as 100%.     

Financial development and economic growth nexus: a time-series evidence from India

This study examines the relationship between financial development and economic growth in India for the period 1951–52 to 1995–96. The long-run equilibrium and short-run dynamic models are estimated using financial interrelations ratio and new issue ratio as the measures of financial development, a la Goldsmith (1969 Goldsmith, RW. 1969. Financial Structure and Development, New Haven: Yale University Press.  [Google Scholar]). The Johansen (1991 Johansen, S. 1991. Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models’. Econometrica, 59: 1551–80. [Crossref], [Web of Science ®] , [Google Scholar]) estimator rejects the null of zero cointegrating vector and shows the presence of long-run equilibrium relationship between financial development and economic growth. The error correction model, impulse response and variance decomposition analyses (Sims, 1980 Sims, CA. 1980. Macroeconomics and reality. Econometrica, 48: 1–48. [Crossref], [Web of Science ®] , [Google Scholar]), and the Toda and Yamamoto (1995 Toda, HY and Yamamoto, T. 1995. Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66: 225–50. [Crossref], [Web of Science ®] , [Google Scholar]) estimator show the presence of bidirectional Granger-causality between financial development and economic growth. The presence of bidirectional Granger-causality suggested by these estimators points towards the possible problem of endogeneity and simultaneity bias in the growth models that examine the contemporaneous effect of financial development on economic growth. The economic reforms that started since July 1991 emphasized on the liberalization and development of financial sector to supplement the efforts aimed at achieving high economic growth in India.     

Within-groups wage inequality and schooling: further evidence for Portugal

This article provides further evidence on the positive impact of schooling on within-groups wage dispersion in Portugal, using data on male workers from the 2001 wave of the European Community Household Panel. The issue of schooling endogeneity is taken into account by using the latest available instrumental-variable technique for quantile regression, i.e. the control-function estimator due to Lee (2007 Lee, S. 2007. Endogeneity in quantile regresssion models: a control function approach. Journal of Econometrics, 141: 1131–58. [Crossref], [Web of Science ®] , [Google Scholar]). The findings are compared with earlier results based on different techniques, i.e. the instrumental-variable estimator due to Arias et al. (2001 Arias, O, Hallock, KF and Sosa-Escudero, W. 2001. Individual heterogeneity in the returns to schooling: instrumental variables quantile regression using twins data. Empirical Economics, 26: 7–40. [Crossref] , [Google Scholar]) and the standard exogeneity-based estimator due to Koenker and Bassett (1978 Koenker, R and Bassett, G. 1978. Regression quantiles. Econometrica, 46: 33–50. [Crossref], [Web of Science ®] , [Google Scholar]).     

Will the skill-premium in the Netherlands rise in the next decades?

While the skill-premium has been rising sharply in the US and the UK for 20 years, the Dutch skill-premium decreased for much of that period and only started to rise in the early 90s. In this article, we investigate whether the Dutch skill-premium will rise in the next decades. To answer this question, we forecast the skill-premium using the Katz and Murphy (1992 Katz, L and Murphy, K. 1992. Changes in relative wages, 1963–1987: supply and demand factors. Quarterly Journal of Economics, 107: 35–78. [Crossref], [Web of Science ®] , [Google Scholar]) and the Krusell et al. (2000 Krusell, P, Ohanian, L, Ríos-Rull, J-V and Violante, G. 2000. Capital-skill complementarity and inequality: a macroeconomic analysis. Econometrica, 68: 1029–53. [Crossref], [Web of Science ®] , [Google Scholar]) models. The Katz and Murphy model (KM) explains demand shifts by skill-biased technological change in unobservable variables captured by a time trend. In contrast, the Krusell et al. model (KORV) explains demand shifts by (observable) changes in the capital stock under a capital-skill complementarity technology. The results show that while the KM model predicts that the skill-premium will have increased by 30% in 2020, based on realistic predictions of the stock of capital, the KORV model predicts that the skill-premium will remain between ?5 and +5% of its 1996 level.     

Spanish stock market sensitivity to real interest and inflation rates: an extension of the Stone two-factor model with factors of the Fama and French three-factor model

This study is focussed on estimating the real interest and inflation sensitivity in Spanish market, proposing an extension of the Stone (1974 Stone, BK. 1974. Systematic interest-rate risk in a two-index model of returns. Journal of Financial and Quantitative Analysis, 9: 709–21. [Crossref], [Web of Science ®] , [Google Scholar]) two-factor model and controlling for size and growth of the companies [Fama and French (1993) three-factor model], because of its importance in the stock sensitivity shown by previous literature. I also study the classical explanatory factors of the stock sensitivity: leverage and liquidity level of the firms. The Spanish stock response is similar to the response in other markets, and the ‘size’ is higher than ‘growth’ effect.     

Nonlinearity as an explanation of the forward exchange rate anomaly

This article shows that nonlinearity can provide an explanation for the forward exchange rate anomaly (Fama, 1984 Fama, E. 1984. Forward and spot exchange rates. Journal of Monetary Economics, 14: 319–38. [Crossref], [Web of Science ®] , [Google Scholar]). Using sterling-Canadian dollar data and modelling nonlinearity of unspecified form by means of a random field, we find strong evidence of time-wise nonlinearity and, significantly, obtain parameter estimates that conform with theory to a high degree of precision.     

Functional income distribution and growth in Thailand: A post Keynesian econometric analysis

The aim of this article is to analyze the effect of the income distribution between labor and capital on the growth performance of Thailand from a post Keynesian view. It rests on the theoretical model of Bhaduri and Marglin (1990 Bhaduri, A., and Marglin, S. “Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies.” Cambridge Journal of Economics, December 1990, 14 (4), 375–393.[Crossref], [Web of Science ®] , [Google Scholar]) to see if an increase in the labor income share has a sufficient positive effect on consumption to offset a negative effect on investment and export demand. In order to investigate the question empirically we adopt and develop the approach of Stockhammer, Onaran, and Ederer (2009 Stockhammer, E.; Onaran, Ö.; and Ederer, S. “Functional Income Distribution and Aggregate Demand in the Euro-area.” Cambridge Journal of Economics, 2009, 33 (1), 139–159.[Crossref], [Web of Science ®] , [Google Scholar]). Several measures of the labor income share are calculated to take into account the fact that wage labor represents only half of the total labor force and check the robustness of our results. We also introduce a new treatment of external trade to better integrate the price competitiveness of Thailand. The econometric investigation shows that the growth regime is profit-led over the period 1970–2011, which shows that rebalancing the Thai economy will be difficult and requires an overall change of strategy going beyond a simple prolabor policy.     

Relationships between oil price shocks and stock market: an empirical analysis from Greater China

Although a lot of empirical research has studied the relationship between changes in oil price and economic activity, it is surprising that little research has been conducted on the relationship between oil price shocks and the Greater China region (China, Hong Kong and Taiwan). Therefore, the main goal of this article is to apply detailed monthly data from 1997/7 to 2008/9 to fill this gap. Compared to the effect of US stock market returns described by Kilian (2009 Kilian, L. 2009. Not All oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99: 1053–69. [Crossref], [Web of Science ®] , [Google Scholar]) and Kilian and Park (2009 Kilian, L. and Park, C. 2009. The impact of oil price shocks on the US stock market. International Economic Review, 50: 1267–87. [Crossref], [Web of Science ®] , [Google Scholar]), we found that the impact of oil price shocks on stock prices in Greater China has been mixed. First, the impact of oil price shocks on Taiwan's stock market is very similar to that on the US stock market. Additionally, all three shocks have had significantly positive impacts on Hong Kong's stocks, partially in contrast to the effects on the US stock market. However, in contrast to the effect in the US stock market, we found that only global oil supply shock has a significantly positive impact on China's stock returns, but global oil demand shock and the oil specific demand shock have no significant impacts. The reason for the lack of significant impacts is that the positive expectation effect of China's fast economic growth may be just offset by the negative effect of a precautionary demand-driven effect. This result is also consistent with the previous empirical findings that the segmented and integrated China stock market is mixed, and it implies that the China stock market is ‘partially integrated’ with the other stock markets and oil price shocks.