Ricardo's discovery of comparative advantage revisited: a critique of Ruffin's account

Abstract

In an influential paper, Ruffin has attempted to reconstruct the circumstances of Ricardo's discovery of the law of comparative advantage. Ruffin's paper has inspired a number of further contributions on the precise nature, logical structure, and analytical significance of Ricardo's formulation of the law of comparative advantage. This paper re-examines Ruffin's reconstruction, and in particular his interpretation of Ricardo's three letters of October 1816 and suggests that it lacks textual and contextual support.     

Ricardo on machinery: an analysis of Ricardo's examples

The examples that are reported in the famous chapter “On Machinery” added by Ricardo in the third edition of his Principles are reconstructed and analyzed. Two sets of assumptions that rationalize the examples presented by Ricardo are identified: a) the innovation concerns an agricultural commodity and does affect neither which land is marginal nor the technology applied on the marginal land; b) the innovation concerns a non-basic commodity. Ricardo was aware of these two facts and he seems to have used them respectively in the first and second of his examples.     

The age of the universal consumer: a reconsideration of Ricardo's politics *

This paper reconsiders Ricardo's political thought, its relationship with his political economy and, more generally, Ricardo's connection with the ‘philosophical radicalism’ of Bentham and James Mill. It is arguedinter alia, that Ricardo's politics were utilitarian and individualistic; that he developed a notion of a shared, homogeneous interest; that he believed that individuals should know their ‘real’ interests as a condition for their suffrage; and that he subscribed to a doctrine of virtual representation. It is also argued that Ricardo was considerably less ‘radical’ in his political views than some previous commentators have recognized.     

Say's involvement in the 1819 French edition of Ricardo's Principles and the issue of rent

This paper focuses on Say's contribution to the first French edition of Ricardo's Principles and on the analytical consequences of his involvement on the issue of rent. Part one investigates the “story” of this edition. It stresses Say's friendship with the translator, his involvement in this publication and his attitude toward Ricardo. Part two analyses how elements from Say's thought were introduced into Ricardo's theory of rent through this edition. These elements conveyed ideas which were definitely at odds with Ricardo's theory and misrepresented Ricardo's true concept of differential rent which was central to his theory.     

The price of deposit liquidity: banks versus microfinance institutions

Using data from Bangladesh, this article finds that the liquidity premium – the difference between the interest paid on illiquid and liquid savings accounts – is higher in commercial banks than in microfinance institutions. One possible interpretation lies in the higher prevalence of time-inconsistency among the poor. The observed difference in liquidity premia could be due to poor time-inconsistent agents willing to forgo interest on illiquid savings accounts in order to discipline their future selves.     

Exchange rate exposure, foreign currency derivatives and the introduction of the euro: French evidence

We investigate the impact of the introduction of the Euro on exchange rate exposures for French corporations and examine the corporate use of foreign currency derivatives to hedge exchange rate exposure post-Euro. Our findings indicate that the introduction of the Euro is associated with both a reduction in the number of firms that have significant exchange rate exposure and the absolute size of exposure. Consistent with these reduced exposures, French firms use foreign currency derivatives less intensively. Furthermore, the use of foreign currency derivatives is found to be associated with lower exchange rate exposure but there is insufficient evidence that these instruments are more effective in the post-Euro environment.     

Determinants of income diversification: evidence from Chinese banks

This article presents an analysis of the determinants of Chinese commercial banks’ income diversification decisions. Using a panel dataset comprising 88 Chinese domestic banks from 2003 to 2010, we find that bank diversification reflects a variety of managerial abilities: insolvency risks, cost, capital position, asset scale and ownership structure. A larger ratio of banking assets to gross domestic product and lower interest spread lead to a higher level of diversification. Moreover, national banks and regional banks have different strategic responses to the macroeconomic, and indeed, regulatory environment. Resisting shocks from the banking sector and the macro economy, and supplementing liquidity shortages from intermediation business seem to be the driving forces of national banks to operate in non-banking sectors.     

Directional accuracy,forecasting error and the profitability of currency trading: model-based evidence

Three models (the flexible-price monetary model, PPP and a univariate ARIMA model) are estimated for 45 currency pairs to find out if the profitability of forecasting-based currency trading is more related to the ability of the underlying model to predict the direction of change than the magnitude of the forecasting error. Theoretical considerations show that a correct prediction of the direction of change is neither a necessary nor a sufficient condition for a profitable trade. The results of the exercise indicate that profitability is more strongly correlated with directional accuracy than with the magnitude of the error.     

A performance assessment of Mozambique banks: a Bayesian stochastic frontier

This article analyses the technical efficiency of Mozambican banks from 2005 to 2014 with a Bayesian stochastic frontier model. The intermediate approach is adopted and the results reveal that efficiency varies amongst the banks analysed. Foreign ownership of Mozambican banks is also analysed, as is public ownership, the role of mergers and acquisitions, big banks and active dividend policy within the context of bank costs. Policy implications are then derived.     

Turning values concrete: the role and ways of business selection in local currency schemes

Alternative consumption schemes require the selection of producers and traders according to criteria and through processes that should make alternative values concrete. The way values turn concrete is crucial for the effectiveness of such projects. This paper investigates the ways criteria and processes are defined and their real meanings and uses through the case of associative local currencies. Drawing on the framework of proximities, it analyses local currency schemes as combining proximities (geographical and non-geographical) and selection processes set up for providers wishing to join. Selection processes may be based on a charter, an approval committee and screening criteria. The objectives of the selection, its measures in principle, the way in which it is applied as well as the practical consequences are discussed. Even when charters and formal participatory schemes for selecting providers are established, proximities appear as the keystone of selection and trust.     

From bounties on exportation to the natural and market price of labour: Smith versus Ricardo

Abstract

The scope of this article is to examine the foundations of Smith's arguments and of Ricardo's criticisms on the issue of bounties on exportation. These criticisms are examined in the light of the counter-criticisms provided by a fictitious subject called Smith redivivus. These counter-criticisms highlight Ricardo's neglect of the differences between vérité de raison and vérité de fait and between the points of view of an individual and of society behind Smith's treatment of money vs. real, temporary vs. permanent and natural vs. market price of labour as labour and of commodities as products of labour.     

Monetary union in Latin America: an assessment in the context of optimum currency area

The article applies the optimum currency area (OCA) theory to Latin America to assess the potential of a monetary union in Latin America and in its major existing regional trade agreements (RTAs). According to OCA criteria we find that Latin America is far from being an optimum currency area, as its countries’ exposure to asymmetric shocks is high and their capacities to adjust in response to macroeconomic disturbances are limited. Using a panel of 20 Latin American countries from 1990 to 2014, we apply the dynamic OLS estimation techniques to estimate the costs and benefits of a potential monetary union in Latin America and in its various RTAs. to estimate the costs and benefits of a potential monetary union in Latin America and in its various RTAs. We find that the costs are high, because Latin America’s economies are vulnerable to severe macroeconomic disturbances and its RTAs differ significantly in their response to negative demand shocks. Most of the monetary efficiency gains are shown to be the result of a common restrictive monetary policy which would result in higher FDI inflows and, to a more limited extent, increased GDP, both overall and per capita. Although Central American countries are shown to be most suitable for further monetary integration, we conclude that Latin American countries should head first towards greater economic and political integration.     

Determinants of sovereign bond yield spreads in the EMU: An optimal currency area perspective

In the light of the recent financial crisis, we take a panel cointegration approach that allows for structural breaks to the analysis of the determinants of sovereign bond yield spreads in nine economies of the European Monetary Union. We find evidence for a level break in the cointegrating relationship. Moreover, results show that (i) fiscal imbalances – namely expected government debt-to-GDP differentials – are the main long-run drivers of sovereign spreads; (ii) liquidity risks and cumulated inflation differentials have non-negligible weights; but (iii) all conclusions are ultimately connected to whether or not the sample of countries is composed of members of an Optimal Currency Area (OCA). In particular, we establish (i) that results are overall driven by those countries not passing the OCA test; and (ii) that investors closely monitor and severely punish the deterioration of expected debt positions of those economies exhibiting significant gaps in competitiveness.     

Financing of innovation: national development banks in newly industrialized countries of East Asia

Abstract

Contemporary literature on innovation tends to overlook the issue of financing, whereas financial history suggests that banks have been essential to financing of new industries. Emerging literature ondevelopment banking, although inspiring, remains focused on financing policies. The article aims to rearticulate a coevolutionary nature of industrial and financial interests, following the works of Schumpeter and Minsky, by looking at the 4 cases of national development banks, tasked with long-term financing of industries, from newly industrialized countries of East Asia—South Korea, Taiwan, Singapore, and Malaysia. The study suggests that innovation in finance, as well as organizational innovation in financial institutions, represent essential elements of financing of innovative activities. Further, organizational innovation in financial institutions, such as development banks, might signify a disposition to face uncertainty, which characterizes economic and technological unknowns inherent in financing of innovation.     

Monetary policy, macroeconomic adjustment and currency speculation under floating exchange rates: the case of Bulgaria

This paper deals with the Bulgarian experience with exchange rate policy and the related macroeconomic adjustment in the transition period. It is argued that in the context of the Bulgarian macroeconomic environment, the exchange rate regime and the exchange rate policy (or the lack of such) did play a crucial role in determining the patterns of macroeconomic adjustment in this period. A simple general equilibrium model is suggested that provides some insights into the stylized performance of an economy under certain assumptions, similar to those characterizing the transitional state of the Bulgarian economy. Finally, some aspects of Bulgarian macroeconomic performance in recent years are analysed on the basis of the available empirical information and using the framework of the theoretical model. The paper concludes with the policy lessons of this experience.     

The role of banks in CESEE countries: exploring non-standard determinants of economic growth

This paper explores the finance–growth nexus in 14 countries from Central, Eastern and South-eastern Europe (CESEE) over the 1995–2015 period. It investigates whether including two ‘non-standard’ variables, i.e. a credit cycle dummy and foreign bank relevance, deepens our understanding of the role of a typical financial determinant of economic growth, i.e. bank credit. We find evidence of a negative impact of bank credit on economic growth and the significance of cyclical fluctuations of bank credit. In contrast, a higher market share of loans granted by foreign-owned banks in a cyclical upswing and stock market capitalisation are found to have a proactive effect on growth.     

Beyond market failures: the market creating and shaping roles of state investment banks

The paper develops a typological framework of the roles of state investment banks (SIBs) in the economy. The typology identifies four different roles: countercyclical; developmental; venture capitalist; and challenge-led. The paper conceptually elaborates the typology by first providing a historical overview of SIBs, and then discussing how the mainstream “market failure theory” justifies them. It then advances a different conceptualization based on insights from heterodox economics, showing that all roles of SIBs are more about market creating/shaping rather than market-failure fixing. The paper concludes with a proposal of a new agenda for research on SIBs based on our typological framework.     

Profit strategy of Greek banks: cross-subsidization and diversification versus complementarity

This study analyses the profit strategy employed by banks in Greece using dynamic panel data techniques and a data set which includes proprietary supervisory data covering the whole Greek commercial banking system from 2004 to 2011. We provide evidence that banks use interest- and non-interest income (non-II) as substitutes rather than complements, with non-II representing an indirect competition instrument by the more efficient banks used in place of direct competition with their peers through prices on loans and deposits. This behaviour is explained by further decomposing the non-II into the relatively stable fees component and the volatile trading income. Moreover, we provide evidence that the net-interest income is primarily affected by the banks’ market power and their operating costs, while more efficient banks exploit their core deposit base to lever their non-II. Finally, macroeconomic developments affect both income components, which are found to be procyclical with respect to economic activity. In particular, the two income components are affected differently from inflation implying that non-II provides a natural hedge against adverse effects from deflation on interest income.     

Rethinking liquidity creation: Banks,shadow banks and the elasticity of finance

In this article, the authors use the concept of the hierarchy of money found in the works of Minsky (2008 Minsky, H. [1986]2008. Stabilizing an Unstable Economy. New Haven, CT: Yale University Press. [Google Scholar][1986]), Foley (1987 Foley, D. 1987. “Money in Economic Activity.” In The New Palgrave: Money, edited by J. Eatwell, M. Milgate, and P. Newman, 519–525. New York, NY: W.W. Norton.[Crossref] , [Google Scholar]), Wray (1990 Wray, L. R. 1990. Money and Credit in Capitalist Economies: The Endogenous Money Approach. Aldershot, UK: Edward Elgar. [Google Scholar]), and Bell (2001 Bell, S. 2001. “The Role of the State and the Hierarchy of Money.” Cambridge Journal of Economics 25 (2):149–63.[Crossref], [Web of Science ®] , [Google Scholar]) to analyze the process of liquidity creation in modern capitalist economies where shadow banks play an active role. They abandon the narrow focus on banks as the creators of money as well as the idea that nonbank financial institutions are mere intermediaries between savers and borrowers. Instead, the authors demonstrate that, similar to banks, nonbank financial institutions and foreign banks (through their cross-border activities) create liquidity endogenously by leveraging over the liabilities of entities hierarchically above them. The authors further elucidate Kregel’s concept of “fictitious” liquidity in the context of the hierarchy of financial liabilities, distinguishing it from “true” liquidity. By bringing shadow banks and the euro-currency markets into to the pyramid of financial liabilities, they develop a more complete framework of liquidity creation in modern capitalist economies. Their “extended” pyramid is useful for analyzing not only the fragility that may arise from the interactions between firms, households and banks, but also that which may originate through the interactions between banks, shadow banks and foreign banks.     

The impacts of bank-specific and macroeconomic variables on the capital adequacy ratio: evidence from Islamic banks

The study investigates the relationship between the capital adequacy ratio (CAR) and different bank-specific and macroeconomic variables for 28 Islamic banks. We document that there is a statistically significant positive relationship between the CAR and the bank-specific and macroeconomic variables. In particular, bank-specific variables such as ROA, ROE, leverage, credit risk and size show a strong association with the CAR, while on the macroeconomic side, inflation, market capitalization and exchange rate have an impact on the average Islamic bank in our sample study. Furthermore, we run another model (equity to assets ratio) as dependent, with similar control variables, and the results reveal that, except for inflation, all the variables that have a significant effect on the CAR also influence the equity to assets ratio.