MIGRATION AND AGGLOMERATION WITH KNOWLEDGE SPILLOVERS*

In this paper, a Grossman–Helpman–Romer‐type endogenous growth model is developed that incorporates two regions and mobile workers. While the linkage between final goods firms and intermediate goods firms is strong, the linkage between innovation activities and manufacturing activities is weak in our paper. It is possible for the economy to reach either full agglomeration, partial agglomeration, or segmented agglomeration. We find that mobile workers acquire the highest welfare under full agglomeration. However, under segmented agglomeration, the welfare of skilled workers is not necessarily the lowest.     

Openness, technology capital, and development

In this paper, we extend the growth model to include firm-specific technology capital and use it to assess the gains from opening to foreign direct investment. A firm's technology capital is its unique know-how from investing in research and development, brands, and organization capital. Technology capital is distinguished from other forms of capital in that a firm can use it simultaneously in multiple domestic and foreign locations. A country can exploit foreign technology capital by permitting direct investment by foreign multinationals. In both steady-state and transitional analyses, the extended growth model predicts large gains to being open.     

Transfers, the terms of trade, and capital accumulation

Abstract .  In the context of a two-sector overlapping-generations model it is demonstrated that a steady-state transfer paradox may arise under commodity trade with stability and without distortions or bystanders. The existence of the paradox is due to the effect of the transfer on world capital accumulation, which is shown to always (i.e., for any ranking of factor intensities and savings rates) improve the donor's terms of trade. Transfers may also improve steady-state welfare for both donor and recipient and produce paradoxical welfare results along the transition path.     

Regional convergence clubs in Europe: Identification and conditioning factors

The aim of this paper is to empirically identify convergence clubs in per capita incomes of European regions and to investigate whether initial conditions − as suggested by the club convergence hypothesis − are responsible for club formation. To tackle this issue, we propose a two-step procedure in which we first endogenously identify groups of regions that converge to the same steady state level, and in a second step we investigate the role of starting conditions and structural characteristics for a region's club membership. Our sample comprises 206 European NUTS2 regions between 1990 and 2002. The results strongly support the existence of convergence clubs, indicating that European regions form six separate groups converging to their own steady state paths. Moreover, estimates from an ordered logit model reveal that the level of initial conditions such as human capital and per capita income plays a crucial role in determining the formation of convergence clubs among European regions.     

International asset market, nonconvergence, and endogenous fluctuations

We develop an overlapping generations model with re-tradeable paper assets and capital accumulation to analyze the interaction between the real economy and an international asset market. The world consists of two homogeneous countries, which differ only in their initial levels of capital. Consumers who live for two periods transfer wealth over time and across countries by holding international mutual funds which pay stochastic dividends. The optimal portfolio decisions of consumers do not necessarily induce convergence of incomes between the two countries. Moreover, interaction through the asset market induces endogenous fluctuation of capital flows between the rich and the poor country.     

Trade costs, international production shifting, and growth

In this paper I present a North-South endogenous growth model in which the impact of globalization on production location and growth can be analyzed. In the model the skilled-labor abundant North is the only innovator in the world. Using the model, I illustrate a scenario that is particularly interesting. Globalization (a reduction in trade costs) leads to a relocation of production to the South in a differentiated-product sector. As a result, more resources are shifted to R&D in the North, and the growth rate in the world increases. The model has several empirically consistent implications, such as rising relative wages of skilled to unskilled labor under globalization in both the North and South. I also discuss the welfare impact of globalization in this model.     

The brain drain and the world distribution of income

Skilled emigration (or brain drain) from developing to developed countries is becoming the dominant pattern of international migration today. Such migration is likely to affect the world distribution of income both directly, through the mobility of people, and indirectly, as the prospect of migration affects the rate of return to education in both the sending and receiving economies. This migration pattern will therefore affect human capital accumulation and fertility decisions in both the sending and receiving economies. This paper analyzes these effects in a dynamic two country model of the world economy where agents in both countries make optimal fertility and human capital decisions. The implications of the analysis for the world distribution of income are derived in the light of recent empirical findings of the brain drain literature. The analysis shows that the current trend towards predominantly skilled emigration from poor to rich countries may in the long run increase inequality in the world distribution of income as relatively poor countries grow large in terms of population. In the short run however, it is possible for world inequality to fall due to rises in GDP per capita in large developing economies with sufficiently low skilled emigration rates.     

Spatial dynamics and convergence: The spatial AK model

We study the optimal dynamics of an AK economy where population is uniformly distributed along the unit circle. Locations only differ in initial capital endowments. Spatio-temporal capital dynamics are described by a parabolic partial differential equation. The application of the maximum principle leads to necessary but non-sufficient first-order conditions. Thanks to the linearity of the production technology and the special spatial setting considered, the value function of the problem is found explicitly, and the (unique) optimal control is identified in feedback form. Despite constant returns to capital, we prove that the spatio-temporal dynamics, induced by the willingness of the planner to give the same (detrended) consumption over space and time, lead to convergence in the level of capital across locations in the long-run.     

Economic growth,exports and foreign direct investment in Least Developed Countries: A panel Granger causality analysis

This paper investigates potential Granger causality among the real GDP, real exports and inward FDI in Least Developed Countries for the period between 1970 and 2009. A new panel-data approach developed in Kónya (2006) [Kónya (2006), Exports and growth: Granger causality analysis on OECD countries with a panel data approach, Economic Modelling, 23, 978–992] which is based on SUR systems and Wald tests with country specific bootstrap critical values has been employed. The results indicate direct, one-period-ahead, unidirectional causality from exports to GDP in Haiti, Rwanda and Sierra Leone, and from GDP to exports in Angola, Chad and Zambia. Considering the FDI–Growth nexus, there is evidence of FDI Granger-causing GDP in Benin and Togo, and GDP Granger-causing FDI in Burkina Faso, Gambia, Madagascar and Malawi. While studying EXP–FDI relations, this paper finds that the causality is from FDI to real exports in Benin, Chad, Haiti, Mauritania, Niger, Togo and Yemen, and from real exports to FDI in Haiti, Madagascar, Mauritania, Malawi, Rwanda, Senegal and Zambia.     

International trade, exhaustible-resource abundance and economic growth

Countries with oil and other natural resources have grown less rapidly than those countries without. This phenomenon is known as the “natural resource curse”. We develop an infinite-horizon, two-country model of trade in which countries are identical, except that one country is endowed with deposits of an exhaustible resource and the other is not. Within the context of the model, we show that this phenomenon can be explained in part by an inelastic demand for the exhaustible resource that increases growth in trade revenues and induces the resource-abundant country to invest relatively less than the country lacking in exhaustible resources. These results are derived analytically and illustrated by an empirical analysis based on plausible parameters obtained from data.     

Walrasian General Equilibrium Allocations and Dynamics in Two-Sector Growth Models

This paper analyzes and solves miniature Walrasian general equilibrium systems of momentary and moving equilibria. The Walrasian framework encompasses the fundamental neoclassical and classical two‐sector growth models; the families of solutions of steady‐state and persistent growth per capita in various competitive two‐sector economies are parametrically characterized. Moreover, the endogenous behavior of relative prices and the sectoral allocation of primary factors are analyzed in detail. The technology parameters of the capital good industry are decisive for obtaining long‐run per capita growth in closed (global) economies. A review of the literature complements the theorems on the general equilibrium allocations, dynamic systems, and the time paths of Walrasian two‐sector economies.     

Is China different? A meta-analysis of export-led growth

We examine whether China has benefited more from exports than other countries. The results show that exports have been more significant for growth in China than in other countries, even when China is compared with other transition economies.     

Endogenous inequality and fluctuations in a two-country model

We study a two-country version of Matsuyama's [K. Matsuyama, Financial market globalization, symmetry-breaking, and endogenous inequality of nations, Econometrica 72 (2004) 853-884] world economy model. As in Matsuyama's model, symmetry-breaking can be observed, and symmetry-breaking generates endogenously determined levels of inequality. In addition, we show that when the countries differ in population size, their interaction through credit markets may lead to persistent endogenous fluctuations.     

TOURISM,DUTCH DISEASE AND WELFARE IN AN OPEN DYNAMIC ECONOMY*

This paper examines the effects of an expansion in tourism on capital accumulation, sectoral output and resident welfare in an open economy with an externality in the traded good sector. An expansion of tourism increases the relative price of the nontraded good, improves the tertiary terms of trade and hence yields a gain in revenue. However, this increase in the relative price of nontraded goods results in a lowering of the demand for capital used in the traded sector. The subsequent de‐industrialization in the traded good sector may lower resident welfare. This result is supported by numerical simulations.     

The Dynamic Effects of the US Productivity Boom on Australia*

How has the USA's ‘new economy’ productivity boom affected Australia? We consider this question using a dynamic multisector growth model of the Australian and US economies. We find that productivity growth in the US durables sector generates small but important gains to Australia. We find that the transmission of growth is generated through increased export demand for agriculture. Consequently, the USA's productivity growth tends to favour Australia's traditional export sectors. Likewise, it increases the relative demand for less skilled labour in Australia and reduces the demand for more skilled labour and higher education.     

POVERTY TRAPS WITH LOCAL ALLOCATION TAX GRANTS IN JAPAN

This essay investigates poverty traps related to Local Allocation Tax (LAT) grants in Japan. LAT grants, which are transfers of funds from the central government to local governments, make efforts for enhancing regional economic growth, due to the calculation of the LAT grants. Using a simple dynamic model, we show that LAT grants lower regional income and are a disincentive to localities to increase their estimated tax revenue. Using panel Granger (non‐)causality tests, we find empirical support for asserting that there are poverty traps due to the LAT grants in Japan.     

Is foreign trade important for regional growth? Empirical evidence from Portugal

The aim of this study is to investigate whether openness, export shares or trade balances affect regional growth in Portugal. Human capital is also considered as a conditional factor to growth, expressed by the rate of success in high school education. Thus, we analyse whether the combination of international trade and human capital is relevant to explain regional growth in Portugal and how it affects the convergence process between regions. In the empirical analysis, interaction terms are introduced to explore the existence of different performances between regions of the Littoral and the Interior. As an alternative to the traditional approach that considers the population growth rate, we include the share of sectoral employment aiming to capture labour specialisation in the main sectors of economic activity and measure its impact on regional growth.The empirical analysis estimates the conditional convergence model of the Barro's type, applied to the Portuguese NUTS3 regions for the period 1996-2005. The GMM estimation approach applied to regional panel data reveals that factors associated with external trade, human capital and sectoral labour share (especially of the industrial sector) are relevant to explain regional growth and convergence in Portugal.     

Does Real Exchange Rate Depreciation Boost Capital Accumulation? An Intertemporal Analysis

This paper examines the investment‐enhancing effect of real exchange rate (RER) depreciation in a two‐sector small open economy model where a representative firm in the tradable sector maximises its discounted profit over an infinite planning period. In this framework, a one‐time, permanent, unanticipated depreciation in the RER leads to a higher steady‐state level of capital stock and investment. This consequently increases the optimal investment rate associated with an arbitrary level of capital stock as the saddle path shifts upwards. In the benchmark calibration, the investment‐enhancing effect of RER depreciation is sizeable. One per cent depreciation in the RER leads to an increase of 0.4444 per cent in the rate of capital accumulation.     

A century of economic growth in Latin America

This paper makes a contribution to the study of economic growth in developing countries by analyzing the six largest Latin American economies over 105 years within a two-equation framework. Confirming previous findings, physical and human capital prove to be key determinants of GDP per head growth. However, a more controversial result is an overall negative conditional correlation between trade openness and GDP per head growth — though openness has a positive link via investment. The evidence also shows that macroeconomic instability has been a drag on long-term growth in the region.     

Aid,non‐traded goods,and growth

Abstract We examine the effects of foreign aid in a small recipient country with two traded goods, one non‐traded good, and two factors. Learning by doing and intersectoral knowledge spillovers contribute to endogenous growth. We obtain two main results. First, a permanent increase in untied aid raises (or lowers) the growth rate if and only if the non‐traded good is more capital intensive (or effective labour intensive) than the operating traded good. Second, a permanent increase in untied aid raises welfare if the non‐traded good is more capital intensive than the operating traded good; otherwise, it may raise or lower welfare.