Testing Goodwin: growth cycles in ten OECD countries

Following Desai (Desai, M. 1984. An econometric model of theshare of wages in national income: UK 1855-1965, pp. 253-77in Goodwin, R. M. et al. (eds), Nonlinear Models of FluctuatingGrowth, Berlin, Springer), Goodwin's simple 'predator-prey'growth cycle model of the economy (Goodwin, R. M. 1967. A growthcycle, pp. 54-8 in Feinstein, C. H. (ed), Socialism, Capitalism,and Economic Growth, Cambridge, Cambridge University Press;reprinted in Goodwin, R. M. 1982. Essays in Economic Dynamics,Basingstoke, Macmillan, pp. 165-70) is tested, using post-wardata for ten OECD countries - Australia, Canada, Finland, France,Germany, Greece, Italy, Norway, the UK and the US. At a quantitativelevel, Goodwin's model is found not to be adequate: (i) estimatedparameter values poorly predict the cycles' centres; and (ii)Goodwin's restrictive assumptions are not justified. However,at a qualitative level, the evidence presented here for theexistence of Goodwin-type cycles is extremely encouraging, justifyingboth existing theoretical extensions of Goodwin's model andfurther empirical work in this area.     

Reviews

Book reviewed in this article:
Wealth and Welfare: Collected Essays on Economic Theory , Volume 1, by John Hicks (Basil Blackwell, Oxford, 1981)
ASEAN in a Changing Pacific and World Economy , edited by Ross Garnaut (Australian National University Press, Canberra, 1980)
Energy Economics: Growth Resources and Policies , by R. Eden, M. Posner, R. Bending and J. Stanislaw (Cambridge University Press, Cambridge, 1981)
Mobility and Community Change in Australia , edited by I. G. Burnley, R. J. Pryor and D. T. Rowland
Free to Choose , by Milton and Rose Friedman (Penguin, Harmondsworth, 1980)     

Reviews

The Inner Suburbs. The Evolution of an Industrial Area. By B ernard B arrett . (Melbourne University Press, Carlton, 1971)
Australia's Economic Policies. By B urgess C ameron . (Cheshire, Melbourne, 1971)
Agricultural Policy in Wealthy Countries. By G wyn J ames . (Angus and Robertson, Sydney, 1971)
Australian Industrial Relations Systems. By K enneth F. W alker . (Harvard University Press, Cambridge, Mass., 1970)
Impact of Uncertainty on Location. By M ichael J. W ebber . (Australian National University Press, Canberra, 1972)
Uncertainty and Expectations in Economics. Edited by C. P. C arter and J. L. F ord . (Blackwell, Oxford, 1972)
Prospek Perekonomian Indonesia 1972. Edited by S uhdadi M angkusuwondo , S. J. J osdono , M oh A ushad . (Institute of Economic and Social Research, Faculty of Economics, University of Indonesia, Djakarta, 1972)
The Prediction of Profitability and other Studies of Company Behaviour. By G eoffrey W hittington . (Cambridge University Press for the University of Cambridge Department of Applied Economies, 1971)
Take-Overs, Their Relevance to the Stock Market and the Theory of The Firm. By A jit S ingh . (Cambridge University Press for the University of Cambridge Department of Applied Economies, 1971)
The Labour Government's Economic Record 1964-1970. Edited by W ilfred B eckerman . (Duckworth, London, 1972)
The British Prices and Incomes Board. By A llan P els . (Cambridge University Press for the University of Cambridge Department of Applied Economics, 1972)
An Economic Study of the City of London. Edited by J ohn H. D unning and E. V ictor M organ , (George Allen & Unwin, London, 1971)     

University of Laneaster

L. J. White , The Automobile Industry since 1945, Cambridge, Massachusetts: Harvard University Press, C. K. Rowley , Steel and Public Policy. London: McGraw-Hill, 1971 J. B. Heath (ed.), Department of Trade and Industry, International Conference on monopolies, mergers and restrictive practices, Papers and reports, Cambridge. 1969. London: C. F. Pratten , Economies of Scale in Manufacturing Industry. Cambridge: Cambridge University Press, 1971 A. Singh . Takeovers, their relevance to the stock market and the theory of the firm. Cambridge: Cambridge University Press, 1971 D. Coombes , State Enterprise. Business or Politics? London: Allen & Unwin, 1971     

SHORT REVIEWS

D. W. P earce and R. K erry T urner , Economics of Natural Resources and the Environment , Hemel Hempstead, Wheatsheaf
F rank A. C owell Cheating the Government: The economics of evasion MIT Press, Cambridge, Massachusetts, £15.95 (hard cover).
J ozef M. van B rabant , Remaking Eastern Europe—On the political economy of transition , Dordrecht     

Income inequality, democracy and growth reconsidered

Persson and Tabellini (Persson, T., Tabellini, G., 1992a. Growth, distribution and politics. Eur. Econ. Rev. 36, 593–602; Persson, T., Tabellini, G., 1992b. Growth, distribution and politics. In: Cukierman, A., Hercowitz, Z., Leiderman, L. (Eds.), Political Economy, Growth, and Business Cycles. MIT Press, Cambridge, MA, pp. 3–22; Persson, T., Tabellini, G., 1994. Is inequality harmful for growth? Am. Econ. Rev. 84, 600–621) as well as Alesina and Rodrik (Alesina, A., Rodrik, D., 1992. Distribution, political conflict, and economic growth. In: Cukierman, A., Hercowitz, Z., Leiderman, L. (Eds.), Political Economy, Growth, and Business Cycles. MIT Press, Cambridge, MA, pp. 23–50; Alesina, A., Rodrik, D., 1994. Distributive politics and economic growth, Q. J. Econ. 109, 465–490) have argued that income inequality reduces economic growth rates among democracies because it promotes distributional struggles. In this paper I question the supportive evidence for a number of reasons. Measures of income distribution and democracy are unreliable and permit only very tentative conclusions. Changes in data sources or recoding of some influential cases affect results. It is questionable whether equality effects on growth apply only within democracies, as a median voter interpretation of this relationship should make one expect. The general idea that distributional struggle hurts the growth prospects of nations, however, receives some empirical support.     

Reviews

Book reviewed in this article:
The Intellectual Capital of Michal Kalecki: A Study in Economic Theory and Policy. By G. R. Fiewel
Production Functions and Aggregation. By K. Sato. (North Holland Publishing Company, Amsterdam, 1975)
United Nations Conference on Trade and Development, Geneva, Switzerland.
The Economics of Electricity Supply in Australia. By G. D. McColl. (Melbourne University Press, Melbourne, 1975.)
Price and Non-Price Competition: Dynamics of Marketing. By M. M. Metwally. (Asia Publishing House, London, 1976.)
Australia, Japan and the Western Pacific Economic Relations: A Report to the Governments of Australia and Japan. Presented by Sir John Crawford and Dr. Saburo Okita. (Australian Government Publishing Service, Canberra, 1976.) Pp. IX + 325. No price stated.
Money, Employment and Inflation. By R. J. Barro and H. I. Grossman. (Cambridge University Press, London, 1976.)
Investigating Economics. By A. Hocking. (Australian Economics Project, Cheshire, Melbourne, 1975.)
Teaching Economics. A Guide to Investigating Economics. By A. Hocking, A. Gregory and R. Wilkes. (Australian Economics Project, Cheshire, Melbourne, 1975.)
A Theory of Profits. By A. Wood. (Cambridge University Press, Cambridge, 1975
Investment and Employment Decisions. By Frank Brechling. (Manchester University Press, Manchester, 1975.)     

REVIEWS

Book reviewed in this article:
Gold and the Dollar Crisis. By R. T riffin . (Yale University Press, New Haven, 1960.) Pp. xiii + 195. 4·75.
Immigrants in Australia. By J. Z ubrzycki . (M.U.P. on behalf of the Australian National University, Melbourne, 1960.) Volume, pp. xi + 118. 57/6 Aust. Supplement, pp. ix + 102. 30/- Aust.
The Commonwealth and Europe. Prepared by T he E conomist I ntelligence U nit . (London, 1960.) Pp. xiii + 606. 42/- stg.
Merger Movements in American Industry, 1895–1956. By R. L. N elson . (Princeton University Press, Princeton, 1959.) Pp. xxi + 176. 5.00.
Industrial Development. By M. D. B ryce . (McGraw-Hill, New York, 1960.) Pp. xri + 282. 7.50.
Essays on Value and Distribution. By N. K aldor . (Duckworth, London, 1960.) Pp. 238. 35/- stg.
Labor and Trade Unionism. An Interdisciplinary Reader. Edited by W. G alenson and S. M. L ipset . (John Wiley & Sons, New York, 1960.) Pp. xix + 379. 6.50.
The Demand for Durable Goods. Edited by A. C. H abberger . (University of Chicago Press, Chicago, 1960.) Pp. viii + 274. 6.00.
The Prof. By R. F. H arrod . (Macmillan, London, 1959.) Pp. xv + 282. 41/6 Aust.
Fluctuations in Trade, Industry, and Finance:A Study of British Economic Development 1850–1860. By J. R. T. H ughes . (Oxford University Press, Melbourne, 1960.) Pp. xvi + 344. 73/- Aust.
Progress and Profits in British Economic Thought, 1650–1850. By G. S. L. T ucker . (Cambridge University Press, London, 1960.) Pp. vii + 205. 27/6 stg.     

Feature review

Promoting Polyarchy: Globalization, US Intervention, and Hegemony

William I. Robinson

(Cambridge University Press, 1996)     

The financial system and the Pasinetti theorem

Palley (Inside debt, aggregate demand, and the Cambridge theoryof distribution, Cambridge Journal of Economics, vol. 20, no.4, 465–74, 1996; Financial institutions and the Cambridgetheory of distribution, Cambridge Journal of Economics, vol.26, no. 2, 275–7, 2002) considers the Pasinetti theoremin the context of the credit money system where banks generatedebts endogenously, and claims that the theorem ceases to holdin such a system, being valid only in the loanable funds system.This paper traces the root of Palley's claim to his assumptionregarding the ownership of banks, sets out an alternative (morerealistic) ownership arrangement, and thereby restores the Pasinettitheorem unscathed in the credit money system (at least in thekind Palley must have considered). The paper, however, uncoversthe case where the theorem indeed collapses and discusses thereason for it: the hoarding of a non-interest-bearing asset.     

ENDOGENOUS CYCLICAL GROWTH WITH A SIGMOIDAL DIFFUSION OF INNOVATIONS

The model we propose in this paper is an extension of the one described in Freeman et al. [Freeman, S., Hong, D. and Peled, D. (1999) Endogenous Cycles and Growth with Indivisible Technological Developments. Review of Economics Dynamics, 2, 403–432]. In our model, we incorporate the process of diffusion of major innovations and analyze macroeconomic effects on consumption, capital and aggregate output. Following Bresnahan and Trajtenberg [Bresnahan, T. and Trajtenberg, M. (1995) General Purpose Technologies: Engines of Growth?. Journal of Econometrics, 65, 83–108.], Helpman [Helpman, E. (ed.) (1998) General Purpose Technologies and Economic Growth. MIT Press] and Lipsey et al. [Lipsey, R.G., Carlaw, K. and Bekar, C. (2005) Economic Transformations: General Purpose Technologies and Long Term Economic Growth. Oxford University Press.] we assimilate major innovations with the emergence of certain GPTs, and we suggest that the diffusion process for these technologies, at a large scale, might follow an S-shaped pattern. The proposed model presents optimum stationary solutions which are cyclical and have a wave dynamic within each cycle. The cycles are characterized by certain co-movements in consumption, R&D investment, capital accumulation and output. Consideration of the innovation diffusion process highlights new aspects of endogenous cycles and long-run growth.     

SHORT REVIEWS

D aniel M. H ausman , The Inexact and Separate Science of Economics , Cambridge;
G avin C. R eid , L owell R. J acobsen and M argo E. A nderson , Profiles in Small Business: A Competitive Strategy Approach , London;
P aul D e G rauwe , The Economics of Monetary Integration , Oxford; Oxford University Press, 1992,
S heila C. D ow , Money and the Economic Process , Aldershot; Edward Elgar, 1993,     

Aggregation for material balances

In an input-output system, let final demands and gross outputs be iteratively balanced by successive approximations. The speed of convergence will depend, among other things, on the initial choice of gross outputs. Suppose that, using some aggregation weights, aggregate supply is made equal to aggregate demand in the initial plan. The current paper finds the set of aggregation weights that yields speediest convergence. An economic interpretation of the “optimal” aggregation weights is given, and some examples are calculated. J. Comp. Econ., March 1978, 2(1), pp. 1–11. Boston University, Boston, Mass., and Massachusetts Institute of Technology, Cambridge, Mass.     

Technology analysis as ancestral ritual and power politics

John von Neumann and the Origins of Modern Computing W. Aspray London and Cambridge, MA, MIT Press, 1990 337, pp., $35 (US).

Science, Technology and Socxety: new directions A. J. Webster London und Basingstoke, Macmillan, 1991, 181 pp.,£35 hbk and £9.99 pbk.     

Temporal risk and the nature of induced preferences

It has been known since the work of H. Markowitz (“Portfolio Selection: Efficient Diversification of Investments,” Yale Univ. Press, 1959) and J. Mossin (Amer. Econ. Rev.59 (1969), 172–174) that even an individual whose underlying preferences satisfy the von Neumann-Morgenstern axioms will not choose over delayed (i.e., “temporal”) risky prospects in a manner which can be modelled as expected utility maximizing. Since most economically important instances of risk taking (insurance, real investment, agriculture, career training) involve delayed as opposed to immediately resolved risk, the standard use of expected utility theory to model such decisions must be questioned. In this paper the technique of “generalized expected utility analysis” (M. J. Machina, Econometrica50 (1982), 277–323) and the theory of support functions (R. T. Rockafellar, “Convex Analysis,” Princeton Univ. Press, 1970) are applied to exactly model and hence determine the nature of preferences over temporal risky prospects.     

A “Managerial” trade union and economic growth

By setting up a simple Romer-type [Romer, P.M., 1989. Capital accumulation in the theory of long-run growth. In: Barro, R.J. (Ed.), Modern Business Cycle Theory. Harvard University Press, Cambridge, MA] endogenous growth model embodying a political trade union (rather than the traditional economic labor union), this paper explores the effects of unionization on unemployment, growth and welfare by highlighting the essence of internal conflict within the union. It is shown that the conflicting interests between the leadership and membership within the union play a decisive role in the unemployment, growth and welfare effects of unionization. Given the fact that taxation is another potential candidate besides unions in explaining the poor performance of a macro-economy, we re-examine the taxation effects within the growth model with equilibrium unemployment caused by the presence of the trade union and compare our findings with those for the traditional full-employment growth model. In general, we find that the taxation effects of income and consumption crucially depend not only on the institutional arrangements for taxing unemployment benefits, but also on the way the government budget is balanced.