W. Artur Lewis Lecture: The Lewis model of “economic growth with unlimited supplies of labor”

The National Economic Association introduced the W. Arthur Lewis Distinguished Lecture series in December 1985. The Lewis Lecture is named in honor of the 1979 Nobel Laureate in Economics, much of whose research has been devoted to the problem of Third World economic development. A native of St. Lucia, in the former British West Indies, Arthur Lewis has risen to fame as the preeminent development economist of his generation. He is most famous for his 1954Manchester School paper on economic development with unlimited supplies of labor, but his contributions span the fields of industrial organization, public finance, and international trade. He was one of the first to explore in depth the evidence on movements on terms of trade between industrialized and developing countries and was the first to perform a regression analysis in empirical trade research. Lewis was an active advisor to various governments in West Africa, the Caribbean, and Southeast Asia during the development decades. He says that he conceived of the idea of unlimited supplies of labor while on mission in Bangkok, Thailand in 1952. This third lecture in the series, by Professor Charles Kindleberger, examines the broad applicability of the Lewis model.     

Traps for the American and world economies. Apropos the Russian translation of Joseph E. Stiglitz’s The Roaring Nineties. Seeds of Destruction (Sovremennaya ekonomika i pravo, Moscow, 2005)

The appearance of a new book by the winner of the 2001 Nobel Prize in economics Joseph Stiglitz, The Roaring Nineties. Seeds of Destruction (Norton, New York, 2003), was a major event in world economics. The author is more than merely an eminent American scholar. He served in the Clinton Administration as chair of the President’s Council of Economic Advisors (1993–1997). At the World Bank, he served as Senior Vice President and Chief Economist (1997–January 2001), took part in economic policy making in the United States and around the world, and visited dozens of countries. The Russian translation of his work was made by G. G. Pirogov, Dr. Sci. (Polit.), who succeeded in bringing home to the reader the frenetic spirit of Stiglitz’s ideas and making in the shape of notes important addenda and elucidations that develop the book’s ideas.     

The case for rules in the conduct of monetary policy: A critique on a paper by B.T. McCallum

Conclusion Certainly these last comments lead to the question what should be targeted: the growth rate [as for example in Gordon’s 1985 work] or the level as in Hall [1983] or McCallum [1988] or no targeting at all [like in Friedman 1960; 1968; 1985] or Meltzer [1984; 1987]. Since targeting GNP growth rates might lead to instability and overshooting effects as Taylor [1985] points out, altering rule (1) in that way is not appropriate. But targeting on the levels may not reduce fluctuations in growth rates or prevent cycles at all. If the latter are, however, more important in public opinion, a policy problem emerges. To summarize the last comment in a figurative way: McCallum’s rule prevents inflation in the long run and may prevent fluctuations in terms of half a Kondratieff cycle, but it preserves and intensifies Juglar and shorter cycles.     

Time series representation of the austrian labor market

Zusammenfassung Beschreibung des ?sterreichischen Arbeitsmarktes mit Hilfe von Zeitreihen. - Der Aufsatz untersucht die Eigenschaften der Zeitreihen von L?hnen, Preisen, Besch?ftigung und Zinss?tzen in ?sterreich. Im ersten Teil werden uni- und multivariate autoregressive Gleichungen gesch?tzt, bei denen der Polynomgrad für die zeitliche Verz?gerung durch die Maximierung des Bayes’schen Informationskriteriums gegeben ist. Zwei “Fakten” ergeben sich aus der Analyse der kausalen Ordnungen der Zeitreihen:(i) Die Besch?ftigung wirkt sich auf die L?hne (Reall?hne) aus und nicht umgekehrt.(ii) Preise und Besch?ftigung beeinflussen sich wechselseitig, was darauf hindeutet, da\ es in ?sterreich eine Phillips-Kurve gibt. Diese Ergebnisse bleiben unver?ndert, auch wenn der Reallohn und die bivariaten Gleichungen unterschiedlich spezifiziert werden. Schlie\lich wird gezeigt, da\ im Gegensatz zu neueren Befunden aus den Vereinigten Staaten einige Folgerungen aus dem intertempor?ren Arbeitsangebotsmodell von Lucas und Rapping und aus dem Taylorschen Modell der zeitlich gestaffelten Lohnvereinbarungen mit den “Fakten” dieses Aufsatzes vereinbar sind.

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Résumé Représentation des séries chronologiques du marché du travail autrichien. — Cet article explore des séries chronologiques des salaires, des prix, d’emploi et des taux d’intérêt en Autriche. D’abord l’auteur estime uni- et multivariate représentations autoregressives où l’ordre des “lag” polyn?mials est donné en maximisant le critère d’information bayesien. Deux “faits” résultent de l’analyse du rangement causal des séries chronologiques:(i) L’emploi cause des salaires (salaires réels), mais pas vice versa,(ii) Prix et emploi se déterminent mutuellement l’un à l’autre indiquant l’existence d’une courbe de Phillips en Autriche. Ces résultats restent invariés s’il ya des spécifications différentes du salaire réel et en représentations bivariate. Finalement, l’auteur démontre que, en contraste des résultats récents pour les E. U., quelques implications du modèle intertemporal de l’offre de travail échelonné de Lucas et Rapping et du modèle de contrat de salaire de Taylor sont compatibles avec les “faits” établis dans cet article.

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Resumen La representación del mercado de trabajo austríaco en de series de tiempo. - En este trabajo se exploran las propiedades de las series de tiempo de salarios, precios, empleo y tasas de interés en Austria. En la primera parte se estiman especificaciones autorogrecivas univariadas y multivariadas, en las que el orden de los polinomios de desfasaje está dado por la maximización del criterio de información bayesiano. Dos “hechos” resultan del análisis del ordenamiento causal de las series de tiempo: primero, que el empleo determina el salario (real) y no al revés; segundo, que los precios y el empleo enteractúan entre ellos inicando la existencia de la curva de Phillips en Austria. Estos resultados no se alteran variando las especificaciones del salario real o en representaciones bivariadas. Finalmente, se muestra que, contrariamente a resultados recientes para los EEUU, una cierta implicación derivada del modelo de oferta de trabajo intertemporal de Lucas y Rapping y del de Taylor (staggered wage contract model) es compatible con los “hechos” establecidos en este trabajo.

     

Human capital: A critique

The human capital approach increasingly has been absorbed within the folds of cultural determinism. The trend has been so pronounced that it prompted the organization of a session at the December 1984 American Economic Association meetings in Dallas, Texas, entitled “Human Capital and Culture: Analyses of Variations in Labor Market Performance.” The papers from that session are available in the May 1985 issue of theAmerican Economic Review. One of the discussants for the session was Stephen Steinberg, a sociologist at Queens College. Steinberg was invited to comment on the presented papers for two major reasons—first, he had written an outstanding study that debunked many of the conventional linkages made between culture and ethnic achievement,The Ethnic Myth, and second, as a sociologist, he was expected to provide a perspective on the subject quite different from the rest of the panelists, all of whom were economists. In the midst of the coven of economists, Steinberg appeared well armed. He arrived with his own paper, a paper that went far beyond comments on the presented papers. Unfortunately, the current rules governing the inclusion of papers in the AEA proceedings prohibit publication of the discussants’ remarks. Fortunately, Steinberg graciously has consented to have the paper appear in theReview of Black Political Economy.     

Germany’s Stalling Economic Engine – How to Get it Running Again

Summary The German economy, once the powerhouse in Europe, is stalling. Unemployment has ratcheted upward since 1970, the social security systems can no longer be financed (even if the population were not ageing) and with an average annual GDP growth rate of 1.2 per cent since 1995, the economy almost stagnates. This paper analyses and suggests solutions to Germany’s three main challenges. To undo the adverse incentives with respect to unemployment, the institutional design for wage formation should be decentralized, the reservation wage adjusted and the tax on labour reduced. To make the social security systems sustainable, the level of social absorption has to be lowered. And, finally, to achieve a more dynamic economy, new stimuli for growth have to be unleashed, including human capital formation and innovation, which are vital for the knowledge society. The role of government has to be rethought and the German social market economy redefined. Jelle Zijlstra Professorial Fellow at the Netherlands Institute for Advanced Study during September 2004–January 2005, Agip Professor in International Economics at Johns Hopkins in Bologna and President-Emeritus, Kiel Institute of World Economics. The paper is a revised version of the Jelle Zijlstra Lecture, held on January 13, 2005 at the Free University of Amsterdam.     

Phillips curves in West-Germany 1975–1985: On the role of the deutsche bundesbank as an expectation determining institution

Summary For the Federal Republic of Germany and for the period 1975–1985, the present study supports Friedman’s conjecture that a rise of the expected rate of inflation raises the rate of growth of money wages by the same amount, i.e. has no effect on employment. At all events, a systematic swap of “higher employment for higher inflation” was thus unlikely to succeed in the Federal Republic during the period under review.     

Output fluctuations with bargained wages and a competitive tradeable goods sector in the economy: Empirical estimates for the group of five, 1970.1 — 1985.4

Zusammenfassung Produktionsschwankungen bei ausgehandelten L?hnen und einem Wettbewerbssektor mit handelbaren Gütern. Empirische Befunde für die Fünfergruppe von Industriel?ndern für die Periode 1970–1985. — Der Verfasser untersucht die Beziehungen zwischen Lohnanpassung, Wettbewerbsf?higkeit, Fiskalpolitik und den Fluktuationen der gesamtwirtschaftlichen Produktion in den fünf wichtigsten Industrienationen vom ersten Quartal 1970 bis zum vierten Quartal 1985. Das von ihm benutzte Modell hat zwei besondere Merkmale: (i) unterschieden wird zwischen dem Sektor der handelbaren und dem der nicht handelbaren Güter; (ii) die L?hne sind das Ergebnis von Verhandlungen in dem Sektor, in dem Wettbewerb herrscht und in dem es handelbare Güter gibt. Als Ergebnis zeigen sich erhebliche Unterschiede zwischen den L?ndern — nicht nur bei den Gleichgewichtswerten, sondern auch bei den kurzfristigen Anpassungen.

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Resumen Fluctuaciones de la production en una economía con salarios negociados y un sector comercial competitivo: estimaciones empíricas para el Grupo de los Cinco 1970:I-1985:IV. — En este trabajo se investiga las relaciones entre ajuste salarial, competitividad, politica fiscal y fluctuaciones agregadas en las economías industriales más importantes durante el periodo 1970–1985. El modelo utilizado exhibe dos caracteristicas particulares: (a) la distinción entre bienes comerciados y bienes no comerciados y (b) negociaciones salariales que tienen lugar en el sector competitivo de bienes comerciados. Los resultados revelan diferencias substanciales entre los países, no sólo en sus relaciones de equilibrio, sino también en sus ajustes de corto plazo.

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Résumé Fluctuations de l’output dans une économie aux salaires négociés et au secteur compétitif des biens commerciaux: estimations empiriques pour le Groupe de Cinq, 1970:I à 1985:IV. — Dans cette étude l’auteur analyse les relations entre l’ajustement des salaires, la compétitivité, la politique fiscale et les fluctuations de production dans les économies industrialisées les plus importantes pendant la période 1970 à 1985. Le modèle a deux caractéristiques particuliers: (i) la distinction entre un secteur commercial et un secteur non-commercial, et (ii) la négociation des salaires qui a lieu au secteur compétitif des biens commerciaux. Les résultats rélèvent des différences substantielles entre les pays et pas seulement concernant les relations d’équilibre, mais aussi concernant leurs ajustements à court terme.

     

Exchange Rate Regimes and Reserve Policy: The Italian Lira, 1883–1911

The three exchange rate regimes adopted by Italy from 1883 up to the eve of World War I — the gold standard (1883–1893), floating rates (1894–1902), and “gold shadowing” (1903–1911)—produced a puzzling result: formal adherence to the gold standard ended in failure while shadowing the gold standard proved very successful. This paper discusses the main policies underlying Italy’s performance particularly focusing on the strategy of reserve accumulation. It presents a cointegration analysis identifying a distinct co-movement between exchange rate, reserves, and banknotes that holds over the three sub-periods of the sample. Given this long-run relationship, the different performance in each regime is explained by the diversity of policy measures, reflected in the different variables adjusting the system in the various regimes. Italy’s variegated experience during the gold standard provides a valuable lesson about current developments in the international scenario, showing the central role of fundamentals and consistent policies.     

Enterprise responses to price and output shocks in transitioning economies: The case of the Czechoslovak machine-building sector

The behavior of a sample of 161 state-owned, Czechoslovak machine-building enterprises for the period 1985–89 is examined by means of simulation techniques based on the estimated dynamic factor demand equations. The simulations of input utilization for 1990–92 indicate that the state-owned firms have been less responsive to market signals and to output changes during the transition period of 1990–92 than they were in 1985–89. This may reflect either a change in decision-making regime at the firm level or the magnitude of changes in prices and output levels that occurred in 1990–92. We also find that the output shocks were much more important for the changes in input utilization during the transition than were input price shocks. The research results reported here are part of a World Bank project on enterprise behavior in transition. The results and conclusions are solely the responsibility of the authors and in no way represent the views of the World Bank or of their respective employers.     

The distribution of income: Evidence,theories and policy

Summary This Tinbergen Lecture begins by reviewing empirical evidence about trends in income inequality in a number of Western countries. There is considerable diversity of experience across countries. The first quarter century after the Second World War was not generally characterised by a steady downward trend in inequality, but by episodes of inequality reduction at different dates. More recently, several OECD countries have seen a rise in inequality, but the rates of increase differed and in around half of the countries shown there was no significant upward trend over the 1980s. The differing experiences, and the episodic nature of changes, have implications for the explanations of inequality considered in Sections 2 and 3 of the Lecture. I begin with the mechanism which Tinbergen described in Chapter 6 of hisIncome Distribution: the race between technological development and education. It is argued that behind the supply and demand model there lie a variety of factors, and that the explanation we give may be important in determining whether what we are observing are wagedifferentials or wageinequality. Moreover, we need to consider non-labour income, and Section 3 examines the determination of state transfers and of capital income. Finally, in Section 4, I consider some of the policy implications, focusing on one particular set of policy proposals in which Jan Tinbergen was interested: the idea of a basic income.Ninth Tinbergen Lecture delivered on September 29, 1995 at De Nederlandsche Bank, Amsterdam for the Royal Netherlands Economic Association.     

How Influential is Economics?

Economists often claim that their discipline has a great influence on the economy. An analysis of the existing literature reveals, however, that little convincing empirical evidence exists. The two approaches used are subject to major shortcomings. The ‘Economics Production Function’ relating the input of economic ideas to economic outcomes, is faced with major estimation problems. The ‘Revealed Behaviour Approach’ of choosing to study economics is based on very restrictive assumptions. It is argued that the ‘Case Study Approach’ analysing specific policy instances constitutes a more promising avenue and should be undertaken to identify more general patterns of influence.     

Price Anomalies in the Used Car Market

Summary Using two different samples – one based on newspaper advertisements, the other Internet-based – we identify some price anomalies in the used car market in the Netherlands. First, prices of used cars depend on their age in calendar years rather than months. Second, there is some evidence that crossing 100,000 km induces a sudden additional price reduction. Third, a new license plate format, something with no intrinsic value whatsoever, increases a car’s price by about 4%. We discuss possible explanations for these results.     

The divide-and-conquer and employer/ employee models of discrimination: Neoclassical competition as a familial defect

This article is an examination of the similarities between Michael Reich’s divide-and-conquer model of discrimination and the Becker-Arrow taste model of discrimination. It shows that Reich’s model of discrimination is analytically identical to Arrow’s employer discrimination model when employer utility is a function of total profits and the racial employment ratio. It also shows that the Becker-Arrow distinction between employer and employee discrimination is invalid. Finally, the author argues that neoclassical competition is the major defect of both models. After discussing the implications of these results the article points to new directions in the literature on the economics of discrimination.     

NEA Presidential Address: The role of race-conscious policies in addressing past and present discrimination

The impact of the current recession on the labor market situation of African-Americans highlights their longer-run plight. While there have been signs of improvement, especially during the 1960s, black per capita earnings have fallen despite improvements in their relative wages and occupational standing. Public debate over the recent Civil Rights Bill, the nomination of Justice Clarence Thomas, and the Supreme Court’s Croson decision, has raised again the issue of using race-conscious policies to address past and present discrimination. This article reports on a study of Birmingham, Alabama as a case study. It suggests that a combination of race-neutral and race-conscious approaches may be needed to address the problems blacks continue to face in the United States economy. This article was adapted from the Presidential Address to the National Economic Association, Allied Social Sciences Associations Meetings, January 3, 1992, New Orleans, LA.     

Global governance and gross capital flows dynamics

Review of World Economics - One of the famous puzzles in macroeconomics, the Lucas (Am Econ Rev 80:92–96, 1990) paradox on “why doesn’t capital flow from rich to poor...     

Recent trends in intra-industry trade and their implications for future trade liberalization

Zusammenfassung Jüngste Entwicklungen im intra-industriellen Handel und ihre Bedeutung für eine künftige Handelsliberalisierung. — In diesem Aufsatz wird untersucht, ob sich die Muster des intra-industriellen Handels (IIH) aus den sechziger und siebziger Jahren in den achtziger Jahren fortgesetzt haben. Es wird gefragt, ob der historische Nachkriegstrend in Richtung auf einen verst?rkten IIH umgekehrt wurde und — falls das der Fall war — weshalb. In der Analyse werden Daten aus 16 OECD-L?ndern für die Perioden 1970–1980 und 1975–1985 verwendet. Die Entwicklung des IIH scheint besonders für die Handelsabkommen relevant zu sein, bei denen die Partner erwarten, da\ die haupts?chlichen Handelsanpassungen innerhalb der Firmen und Industriezweige stattfinden und weniger zwischen den Industriezweigen. Zwei kürzlich abgeschlossene bilaterale Abkommen — zwischen Neuseeland und Australien und zwischen Kanada und den Vereinigten Staaten — beleuchten diese Fragestellung.

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Résumé Les tendances récentes du commerce intra-industriel et leurs effets sur la libéralisation du commerce extérieur en futur. — Cette étude examine si les caractéristiques du commerce intra-industriel dans les années soixante et soixante-dix sont les mêmes comme dans les années quatre-vingt. Il est demandé si la tendance historique après la dernière guerre mondiale vers un commerce intra-industriel plus fort s’est changée et, si oui, quelles sont les causes d’une telle évolution. L’analyse compend des données de 16 pays de l’OCDE pour les années 1970–1980 et 1975–1985. Les tendances du commerce intra-industriel semblent être particulièrement importantes pour les accords du commerce en futur si les partenaires attendent que les ajustements primaires ont lieu plus en firmes et en industries qu’entre des secteurs industriels. Deux accords bilatéraux donnent un exemple récent: c’est l’accord entre la Nouvelle Zélande et l’Australie et celui entre le Canada et les Etats Unis.

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Resumen Tendencias recientes en el comercio intrasectorial y sus implicaciones para una futura liberalización del comercio. — En este trabajo se investiga si el patrón de comercio intrasectorial (CIS) de la década del 60 y del 70 continué en los a?os 80. Se pregunta, si la tendencia histórica de la posguerra indicando un aumento del CIS se ha revertido, y, en caso de ser así, ?porqué? El análisis cubre datos para 16 países miembros de la OECD para dos periodos, 1970–1980 y 1975–1985. La tendencia del CIS parece ser particularmente relevante para futuros acuerdos comerciales en los cuales los participantes esperan que los ajustes primarios en el comercio tengan lugar dentro de las empresas y dentro de los sectores industriales, en vez de entre los sectores. Dos acuerdos bilaterales recientes, firmados entre Nueva Zelandia y Australia por un lado y entre Canadá y los EE.UU. por el otro, arrojan algo de luz sobre el tema.

     

Global Public Finance and Funding the Millennium Development Goals

Summary The members of the United Nations have agreed to the Millennium Development Goals, but there remains a major challenge of funding these ambitions. This paper examines alternative sources of development funding: global taxes, new Special Drawing Rights, the International Finance Facility, a global lottery, and increased private transfers. The paper suggests that “global public finance” can contribute to the public debate about these alternatives. It indicates how progress can be made without unanimity, that subsidiarity can increase national acceptance, and draws attention to the implications of the changing world distribution of income.Based on the Fourth Jelle Zijlstra Lecture given at the Free University, Amsterdam, on 12 December 2005. I am most grateful to Antony Burgmans, the discussant, and other members of the audience, for their comments.     

Economics: The Sexy Social Science?

Michael Watts of Purdue University organized this symposium as a session at the 2002 Southern Economic Association Meetings in New Orleans. He invited five economists, who are specialists in economic education and other areas, to comment on William Becker's paper, “How to make economics the sexy social science.” which first appeared in the Chronicle of Higher Education (December 7, 2001). Their comments and Professor Becker's response appear below.