Global inequality and international trade

The paper analyses the effect of widespread trade liberalisationon global income inequality. The analysis of the trend in globalinequality during 1981–97, presented in the first partof the paper, shows that the apparent growth of income inequalityamong countries conceals a process of convergence. Some developingcountries achieved significantly faster economic growth thanthe advanced industrialised countries and, though small in number,they actually account for a majority of the population of thedeveloping world. Thus international inequality (i.e., the inequalityof distribution of per capita incomes among the world's population)in fact declined even though the inter-country income inequalityincreased. The analysis in the second part of the paper shows(i) that while improved trade performance did have a stimulatingeffect on growth performance of countries, trade liberalisationhad extremely varied effects on trade performance across countries,and (ii) that the distribution of benefits and costs of tradeliberalisation across countries has been such as to reduce internationalinequality without affecting inter-country inequality.     

Notes and comments. Cumulative causation, interrelatedness and the theory of economic growth: a reply to Argyrous and Toner

In responding to the comments of George Argyrous and PhillipToner, this reply focuses on four areas of contention betweenmyself and my critics. First, it is suggested that my originalmodel places more weight on the growth-enhancing characteristicsof increasing specialisation in production than either Argyrousor Toner acknowledge. Secondly, it is demonstrated that both'formal' and 'verbal' models of cumulative growth typicallyplace unwarranted emphasis on the importance of initial conditions.Thirdly, the evolutionary properties of my original model aredefended against the claim that lock-in renders it mechanicaland deterministic. Finally, it is argued that mathematicallymodelling open but structured social processes (such as economicgrowth) should not be rejected as redundant in principle.     

Persistent demi-regs and robust tendencies: critical realism and the Singer-Prebisch Thesis

Debate about whether the terms of trade for primary productsrelative to manufactures have a tendency to deteriorate hasbeen ongoing for half a century. The phenomenon itself providesan example of a persistent contrastive demi-regularity. Thisis viewed as the result of a robust tendency, understood asan enduring and pervasive characteristic effect generated bya powerful and stable underlying causal mechanism. On this basis,the key problem for primary products lies in the biologicallimits on consumption, to which may be added capitalism-specifictendencies affecting processes of production and distribution.The paper concludes by arguing that the relevant holistic generictendency under capitalism involves a long-term contraction inthe primary product share of world trade.     

A Methodological Note on Long-Period Positions

This brief paper seeks to overcome a number of methodologicaldisagreements among economists who use the long-period methodof analysis. In particular, it attempts to clarify the key distinctionsbetween convergence and stability, convergence and gravitationand chronological and theoretical persistence. The conclusionis that the theoretical soundness of the long-period methoddepends on the convergence of actual magnitudes towards theirlong-period counterparts, an empirical issue to which theoreticalconsiderations of stability are irrelevant.     

Regulation or Markets? The Case of Employment Contracts

Regulation of the employment contract is both wide spread anddiverse. The diversity of regulation is surprising because itsuggests that there is little consensus regarding optimal interventioninto the labor market. This paper discusses several economicreasons why it may be efficient for employers and employeesto enter into long term contracts that make employee dismissalexpensive. This analysis suggests that employment contractscan be expected to be complex in practice, and hence can beviewed as part of the technology of exchange. Given that knowledgeof a technology requires skill and know-how, one cannot expectall employee-employer matches to discover and use the most efficientcontract terms possible. It is suggested that the regulationof the employment relationship might be improved with the creationof a market for contracts, similar to the one that currentlyexists in the United States for construction projects.(JEL J300,J410, K310)     

A note on the theory and measurement of trust in explaining differences in economic growth

This paper takes issue with the trend to attribute differencesin economic growth rates to differences in interpersonal trust.I discuss the World Values Survey (WVS) measure that is usedto operationalise trust at the macro level. I hypothesise thatthere is a mismatch between the theoretical argument and theempirical operationalisation of trust. Instead of measuringtrust, the WVS measure may instead proxy the well-functioningof institutions. I provide circumstantial evidence for thisthesis by a principal components analysis of trust and institutionsand a robustness test of Zak and Knack's (2001. Trust and growth,Economic Journal, vol. 111, 295–321) seminal study ontrust and economic growth.     

Rate of profit and interest in a growth theory with endogenous money

This paper attempts to incorporate an endogenous money approachinto post-Keynesian growth theory in order to derive the fullemployment equilibrium rate of interest as well as that of profit.This rate of interest, named the ideal rate of interest, differsfrom the rate of profit in that it is in proportion to a monetaryvariable, not a real variable. Further, the rate of profit alsodiffers from the rate of interest as a premium because it isproductive. The rate of interest could be important in explainingcircumstances in which financial capital has been accumulatedin excess.     

The Cambridge School of Keynesian Economics

There have been strong ties between the Cambridge Journal ofEconomics (CJE) and the Cambridge School of Keynesian Economics,from the very beginning. In this paper, the author investigatesthe environment that saw the birth of the CJE at Cambridge (UK),in 1977, and the relationship that linked it to the direct pupilsof Keynes. A critical question is explicitly examined: why didn'tthe ‘Keynesian revolution’ succeed in becoming apermanent winning paradigm? Some behavioural mistakes of themembers of the Keynesian School may explain this lack of success,but only to a certain extent. In any case, there were and therestill are remedies too. But what we are inheriting is a uniqueset of analytical building blocks (the paper lists eight ofthem) that makes this School of economics a viable (and in somedirections definitely superior) alternative to mainstream economics.Admittedly, there is some important work still to be done. Thepaper highlights the need for a two-stage approach, addressingpure theory and extensive institutional analysis. It is arguedthat a combination of the two would strengthen the coherenceof the theoretical foundations, and at the same time would providea fruitful extension of economic analysis to empirical, institutionaland economic dynamics investigations.     

The Macroeconomic Implications of the New Basel Accord

This paper assesses the macroeconomic implications of BaselII in light of recent development in the literature. It arguesthat although Basel II is likely to strengthen banks' incentivesto control their risk-taking, it may reduce credit supply tocertain borrowers, such as small- and medium-sized enterprises(SMEs) and firms based in developing countries. Furthermore,Basel II may increase procyclical fluctuation of bank loanswhile weakening the monetary transmission mechanism during recessions.A widespread adoption of the "through-the-cycle" risk modelsmay mitigate these problems, but not completely eliminate them.This paper also considers whether monetary policy can be usedto counter effectively the procyclicality problem inherent inBasel II. (JEL E52, G21, G28)     

Poor Results and Poorer Policy: A Comparative Analysis of Estimates of Global Inequality and Poverty

This paper examines the data and methods used to estimate worldinequality and world poverty since 1950. It was found that regardlessof method used, world inequality reversed a more than a centuryold trend during the globalization period, loosely defined asthe post 1980 years. Consumption growth of the poor also acceleratedduring globalization, and such growth was in excess of thatof the average person. Poverty declined at close to 1.5 percentagepoints a year, a statistic not affected much by use of differentPPP data, or use of different methods, including the methodadopted by the official "keeper" of world poverty statistics,the World Bank. Indeed, a striking result obtained is that worldpoverty, according to the World Bank method, data, and definitions,was close to 15 percent in 2002, a level that is meant to bethe millennium development goal target for 2015. (JEL O15, O20,O47,O5)     

EU Enlargement, Migration and the New Constitution

The paper deals with the effects of migration resulting fromEU Eastern enlargement on the welfare states of Western Europe.Although migration is good in principle, as it yields gainsfrom trade and specialization for all countries involved, itdoes so only if it meets with flexible labour markets and ifit is not artificially induced by gifts of the welfare state.This is not the present state of affairs in Western Europe.In addition to measures that make labour markets more flexible,the introduction of delayed integration of working migrantsand the home country principle for nonworking migrants is arational reaction of the state. The proposed new EU constitution,which contains far-reaching rules for a European social union,should be amended accordingly. (JEL E2, F2, H0, J3, J6)     

Automatic Fiscal Stabilisers in EMU: A Conflict between Efficiency and Stabilisation?

It is often claimed that tax and welfare reforms that aim atenhancing efficiency may come at the cost of cyclical stabilisation.Reducing the generosity of welfare systems and lowering taxesmay boost efficiency and output, and improve market adjustmentto shocks. But, by reducing the size of automatic stabilisers,it may also imply less cyclical smoothing. This would be unwelcomein EMU given the loss of national monetary autonomy and thewell-known pitfalls of active fiscal management. This paperargues that the alleged trade-off between efficiency/flexibilityand stabilisation may not exist. We show that, if the initiallevel of the tax burden is high, reducing it may lead to higheroutput stabilisation in the event of a supply shock and higherinflation stabilisation in the event of a demand shock. Simulationsshow that European countries - especially small ones - mighthave a tax burden close to or even higher than the thresholdlevel. (JEL E52, E61, F42)     

The Effects of Business Cycles on Growth - Time Series Evidence for the G7-countries Using Survey-based Measures of the Business Cycle

The paper analyses whether business cycle fluctuations affectlong-run growth. This hypothesis is tested using quarterly timeseries for the G7-countries. A vector-autoregressive model containingtotal factor productivity and a survey-based direct measureof the business cycle is estimated. In this vector-autoregression,technology and business cycle shocks are identified based onthe assumption that productivity-improving measures need sometime and, thus, there is no contemporaneous response of productivityto a business cycle innovation. The results suggest that positivebusiness cycles shocks have a small negative impact on long-runproductivity. However, the results appear to be not robust againstchanges in the empirical model.(JEL E32, O41)     

Keynesian Economics, Monetary Policy and the Business Cycle - New and Old

After a brief review of the main differences between New andOld Keynesian economics from the sixties this paper focuseson a tension between traditional sluggish measures of potentialoutput commonly used by policymakers and the New Keynesian (NK)notion of this variable which conceptualizes it as the levelof output that would have been produced under perfect competitionhad all prices and wages been flexible. The paper shows that,under monopolistic competition, NK potential output is oftenmore volatile than the level of output produced under stickyprices and wages implying either of the following. Real lifepolicymakers mistakenly target smooth versions of output or(since actual economies are monopolistically rather than perfectlycompetitive) the flexible price and wage equilibrium does notnecessarily maximize welfare. The paper shows, that dependingon the shape of the utility function and of the distributionof productivity shocks either case is possible and proposesa criterion for discriminating between them. (JEL E3, E4, E5,E6)     

Macrodynamics of debt regimes, financial instability and growth

This paper develops a post-Keynesian dynamic model of capacityutilisation and growth, in which the supply of credit-moneyis endogenous and firms' debt position—and thus the financialfragility of the economy à la Hyman Minsky—is explicitlymodelled. The interest rate is set by banks as a markup overa base rate exogenously determined by the monetary authority.The banking markup varies with changes in capacity utilisation,while the debt ratio varies with changes in the rates of interest,capital accumulation and growth. Regarding dynamics, it is shownthe possibility of relating the stability properties of a systemwith the interest rate and the debt ratio as state variablesto the prevailing Minskyan regime—hedge, speculative orPonzi.     

Institutional individualism and institutional change: the search for a middle way mode of explanation

After noting the lack of enthusiasm of several well-known scholarsconcerning the adoption of both methodological holism and methodologicalindividualism in its several versions, this paper shows thatinstitutional individualism is a different mode of explanationfrom both of these and also that it is not the same thing asthe so-called Popperian programme of situational analysis. Institutionalindividualism is a mode of explanation that yields non-systemicand non-reductionist explanations at the same time as it allowsfor the incorporation into economic theories and models of themany formal and informal institutional aspects surrounding allhuman interactions, whether these interactions take place withinstable structures of legal rules and social norms or whetherthey attempt to change the said rules and norms. Finally, thepaper shows that it is possible for old institutionalists tomake institutional individualist analyses of institutional changeswhile retaining the remaining methodological assumptions ofthe school. The same is true for new institutionalists. Someexamples are offered from both camps.     

All About the Giants: Probing the Influences on World Growth and Income Inequality at the End of the 20th Century

This paper presents estimates of world output growth from 1970to 2000, the distribution of income among countries and personsfor the years 1980, 1990 and 2000, and world income povertyrates for the same years. It also presents the results of aseries of simulation exercises that attempt to isolate the effectof particular country and regional experiences on world outputgrowth and changes in global income inequality and poverty. The authors find that rapid growth in China (despite a downwardadjustment of official growth estimates) had a powerful impacton the growth of world output in both the 1980s and 1990s, butthat negative economic growth in Eastern Europe more than offsetthat effect in the 1990s. With respect to the distribution ofworld income between countries, the impressive growth performancesof the worlds most populous countries, China and India, ensureddecreasing levels of inequality during both the 1980s and 1990s.When the distribution of world income between persons is measured,the equalizing effect of China's rapid growth remains dominantthrough both the 1980s and 1990s, despite the contradictoryimpact of increasing domestic inequality. Only India's influenceremained substantial by comparison. Other identifiable eventsof the period, such as the economic contraction in Eastern Europeand continued economic decline in Africa, had little statisticalimpact. However, when the combined influence of China and India'sabove-average growth rates is removed, or their size effectdampened, the improving global distribution of (inter-countryand inter-personal) income suggested by all statistical measuresbecomes one of sharply worsening inequality. The impact of thesetwo countries is similarly critical with respect to global povertyreduction. (JEL F0, I3, O4)     

Labour employed in production and labour commanded: a Ricardian conjecture

This paper explains the origin of some important ambiguitiesin the analysis of value and prices put forward by Smith inhis Wealth of Nations by considering the possibility that theyreflect a previous draft of the book where the quantity of labouremployed in production was indicated as the sole determinantof real price and exchange ratios. This conjecture is evidencedindirectly by the way in which Smith presented his own analysisat the end of Book I, Chapter IV; by some passages containedin Book I and Book II which suggest that the quantity of labouremployed in production should play a crucial role within theanalysis of exchangeable value; and by the important modificationsintroduced by Smith in Book I, Chapter VI, after the first editionof the Wealth of Nations was published.     

The Role of the Natural Rate of Interest in Monetary Policy

This paper examines the role of the natural rate of interestin the conduct of monetary policy. The natural rate figuresprominently in many theories of the business cycle and of inflationfluctuations, and therefore has the potential to play a keyrole in monetary policy given the current mandates of many centralbanks. However, the presence of financial imperfections andmeasurement uncertainty draw into question whether estimatesof the natural rate can be reliable indicators of excess demandpressures. Natural rate-based theories may, nonetheless, provideuseful guidance in the formulation of desirable monetary policies.(JELE21, E31, E43, E58)