Monetary Policy with Sectoral Trade‐Offs

We formulate a two‐sector New Keynesian economy featuring sectoral heterogeneity along three dimensions: price stickiness, consumption goods durability, and the usage of input materials in production. These factors affect both inter‐sectoral and intra‐sectoral stabilization. We examine the welfare properties of simple rules that react to alternative measures of final goods price inflation. Due to factor demand linkages, the cost of production in one sector is influenced by price‐setting in the other sector. Therefore, measures of aggregate inflation weighting sectoral prices based on their relative stickiness do not allow one to keep track of the effective speeds of sectoral price adjustment.     

Factor Market Oligopsony and the Production Possibility Frontier

The authors consider a model with two final goods, one intermediate good, and two primary factors. One final good and the intermediate good are produced using primary factors, labor and capital. The other final good is produced using labor and the intermediate input. Producers of the second final good exert oligopsonistic market power on the intermediate input, which captures real world phenomena prevalent in the food processing and other manufacturing industries. If the capital/labor ratio in one final‐good sector is in between those of the intermediate‐input sector and the combined intermediate‐input and the other final‐product sectors, and if the oligopsony power is sufficiently large, the model generates results that are not adherent to the standard two‐sector Heckscher–Ohlin model. Results that deviate from the H–O model include the relationships between factor prices and commodity prices, the price–output effect, tangency between the price line and the PPF, and the curvature of the PPF.     

The Relative Price of Services

Prices of GDP relative to the exchange rate increase with income per capita, which is known as the Penn‐effect. This is generally attributed to services being cheaper relative to goods in poorer countries. In this paper we re‐examine the Penn‐effect based on a new set of PPPs for industry output. These are estimated in an augmented Geary–Khamis approach using prices for final goods, exports, and imports. The resulting multilateral PPPs cover 35 industries in 42 countries for the year 2005. We find large variation in relative prices of various services industries. In particular the Penn‐effect appears to be mostly due to the rapidly rising output prices of non‐market services. This seems related mainly to the high labor intensity of that sector.     

经济结构变化和经济增长

本文试图从生产技术角度构建一个多部门的经济增长模型,同时容纳Kuznets事实和Kaldor事实。模型经济由最终部门和多个中间部门组成,最终产品由各中间产品以CES函数形式生产。各中间部门的技术增长率不同,而这种差异引起经济结构变化,并导致中间产品的相对价格变化,进而决定各中间部门之间要素流动和产值相对份额变动。最终产品的技术增长率为各中间部门的技术增长率加权平均和,并随经济增长单方向变动,变动方向与中间产品之间的替代弹性大小相关。     

经济结构变化和经济增长

本文试图从生产技术角度构建一个多部门的经济增长模型，同时容纳Kuznets事实和Kaldor事实。模型经济由最终部门和多个中间部门组成，最终产品由各中间产品以CES函数形式生产。各中间部门的技术增长率不同，而这种差异引起经济结构变化，并导致中间产品的相对价格变化，进而决定各中间部门之间要素流动和产值相对份额变动。最终产品的技术增长率为各中间部门的技术增长率加权平均和，并随经济增长单方向变动，变动方向与中间产品之间的替代弹性大小相关。     

Monopoly,intermediate goods and the pure theory of international trade

Conclusion In a model with two traded good sectors between which intersectoral flows of intermediate goods are allowed and with a monopolized non-traded good sector, the wage rate in terms of two traded goods increases and the rental of capital in terms of two traded goods decreases when the price of relatively more labor intensive traded good sector increases, though nothing definite can be said about the direction of change in the wage rate and rental in terms of the non-traded good. When prices of traded goods are kept constant and labor and/or capital increase(s), output of the non-traded good sector increases provided that the non-traded good is not inferior, having income elasticity of demand less than unity. The factor intensity condition for the traded goods is in general not sufficient for the validity of the Rybczynski theorem to hold with respect to net outputs of the traded goods. We have derived sufficient conditions for the magnification effect to be observed with respect to net outputs of the traded good sectors. Specifically, we have shown that the factor intensity condition (23) is sufficient for the magnification effect to prevail when only labor increases.     

Taxation In The Two‐Sector Neoclassical Growth Model With Sector‐Specific Externalities And Endogenous Labour Supply*

This paper examines the long‐run impacts of selective (or sector‐specific) commodity, payroll, and profit taxes in a two‐sector endogenous growth model with sector‐specific production externalities, in which one sector produces consumption goods and the other produces investment goods. The novelty of the model is that it allows not only for endogenous labour supply but also for the intersectoral allocation of resources, which may together lead to indeterminacy. We analytically show that the stability properties of the long‐run equilibrium critically affect the long‐run effects of these selective taxes, which may reverse the standard results of the growth effects of distortionary taxes.     

Competition,taxation and economic growth

The paper mainly examines the relationship between economic growth, tax policy and sectoral labor distribution in an endogenous growth model with expanding varieties. For analyzing these relationships, we consider an economy where three sectors of production are vertically integrated: final goods sector, intermediate goods sector and research sector. We show that the extent of imperfect competition in the intermediate products market affects both economic growth and the allocation of the available labor to all the sectors employing this input. The resources from capital taxation, which are used for financing research sector, have a U-shaped effect on growth and lead to a movement of the labor from research sector to final goods sector. Additionally, we show that if there exists a higher competitive structure in an economy, the probability of the positive effect of an increase in tax on growth gets higher.     

Skilled–unskilled wage inequality,product variety,public input and increasing returns: A static general equilibrium analysis

The paper develops a four sector small open economy model with two traded final good sectors, a public intermediate good producing sector and a nontraded good sector producing varieties of intermediate goods. There are three primary factors: capital, skilled labour and unskilled labour. Industrial sector producing a traded good uses capital, intermediate goods and skilled labour as inputs. Intermediate goods producing sector also uses capital and skilled labour. Public input producing sector and the agricultural sector producing the other traded good use capital and unskilled labour as inputs. It is shown that, if production technologies are the same for the agricultural sector and the public input producing sector and if the scale elasticity of output is very low, then an increase in capital stock (unskilled labour endowment) raises (lowers) the skilled–unskilled wage ratio. However, an increase in skilled labour endowment does not produce any unambiguous effect. On the other hand, an increase in the tax rate on industrial output and/or an increase in the price of the agricultural product, armed with the same set of assumptions, lowers the skilled–unskilled wage ratio.     

Informal economy, wage goods and accumulation under structural adjustment theoretical reflections based on the Tanzanian experience

Economic development in sub-Saharan Africa under structuraladjustment witnessed the upsurge of informal sector development—thedevelopment of unregulated labour-intensive activities, in partexport-oriented. This paper argues that two factors played animportant role in shaping the dynamics of informal sector development:(1) the process of the relative cheapening of wage goods asa result of their importation, partly financed through foreignaid, thereby lowering unit-labour costs in labour-intensiveproduction, and (2) the processes at work of subsidising realwages by other forms of economic security as a result of multiple,diversified and spatially extended livelihood strategies. Whilethese factors undoubtedly brought a new vitality to economicdevelopment, this paper questions the long-run sustainabilityof this new trend for two reasons. One is its dependence onforeign aid to finance imports. The other is that it does notappear to propel endogenous increases in productivity by achievinggreater synergy in intersectoral linkages between agricultureand industry.     

Imperfect Competition and Growth with Entrepreneurial Risk

Abstract. This paper analyzes an overlapping generations endogenous growth model of occupational choice under risk in a two-sector economy with intermediate and final goods. Agents choose between business ownership in the monopolistically competitive intermediate goods industry or employment as a worker in this sector. Firm-specific profits are stochastic. Occupational choice under risk endogenizes the number of firms and products in the intermediate goods industry. The analysis shows that economic performance and growth both depend on the entrepreneurship rate and are inefficiently low compared with an economy with perfect markets for pooling risks. Monopolistic competition partly offsets the negative income effects from a too low level of entrepreneurial risk-taking.     

On the Terms of Trade and Sectoral Reallocations

A commonly held view is that a small open economy adjusts to a negative external shock by switching both expenditure and resources toward the domestic traded goods sector. We show that, when both labor and imported inputs are used as factors of production, the average labor intensity in the nontraded sector may increase substantially with a decline in the terms of trade. This can lead to an internal transfer of labor into the nontraded sector, and an improvement in the trade balance even with a decline in traded sector output. This result depends on a combination of a high elasticity of substitution across nontraded varieties and large differences in labor intensities in the production of nontraded varieties. Our analysis suggests that intersectoral labor flows are not necessarily a good measure of an economy's flexibility, and that intersectoral resource reallocation and expenditure‐switching can move in opposite directions.     

Franchise fee,contract bargaining,and economic growth

This paper combines the industrial organization (IO) theory and the R&D-based endogenous growth theory in a model of a successive imperfect competitive economy. The current study assumes that firms between upstream and downstream industries bargain over both the price of intermediate goods and the franchise fee. Findings show that the intermediate goods firm with a R&D sector charges the price equal to the marginal cost. Economic rent may also be partly transferred into the franchise fee determined by the relative bargaining power. In particular, the traditional double marginalization result, such as in Spengler (1950), does not take place here due to the above-mentioned bargaining scheme. Finally, this work shows that final goods firms in vertically linked industries play an important role in an economic growth model. The more bargaining power the final goods firms have (or the more returns to specialization upstream firms have, or the less substitution elasticity the final goods have), the more the economy grows. However, the consumer preference for diversity seemingly does not affect economic growth rate.     

Market Size,Local Sourcing and Policy Competition for Foreign Direct Investment

This paper analyzes policy competition for a foreign‐owned monopolist firm between two asymmetric countries. In particular, one country has a larger economy than the other country. At the same time, the small country produces an intermediate good for the final good production, while the large country does not. We show that whether a country will win foreign direct investment (FDI) competition is determined by the interaction between relative transport costs of intermediate and final goods and the market size of the large country relative to that of the small country; and policy competition for FDI may Pareto weakly improve national welfare of the competing countries.     

Sector and importer determinants of prices for traded intermediates

While the literature on traded goods prices emphasizes final goods prices and related consumer theory to explain variation in goods prices with importer characteristics, trade in intermediates actually constitutes about two thirds of total trade. We propose a mechanism for explaining variations in the prices of intermediates as a function of importer characteristics, wherein production is vulnerable to failure and the probability of failure declines in the quality of intermediates. Higher wages mean a greater opportunity cost of failure, leading to a stronger demand for high-quality intermediates where firms face higher wages. We find empirical support for this mechanism in the case of intermediate goods using IV regressions. In addition, our findings indicate that while the cost of labour explains about one fifth of variation in imported intermediate prices, it is a non-significant determinant of imported final goods prices.     

How important is the intermediate input channel in explaining sectoral employment comovement over the business cycle?

This paper investigates both analytically and quantitatively the role of intersectoral linkages in explaining sectoral employment comovement over the business cycle. We use a multisector dynamic stochastic general equilibrium model calibrated to the 2-digit SIC level intermediate input-use and capital-use tables and sectoral productivity shocks. With indivisible labor implying constant marginal utility of leisure, intersectoral linkages at the disaggregated level generate strong employment comovement across sectors. With divisible labor, however, procyclical marginal utility of leisure can dominate intersectoral linkages, implying some negative comovement. It further requires some form of the difficulty in reallocating labor across sectors, so that the substitutability of labor supply across sectors is relatively low. With divisible labor, a limited substitution of labor hours across sectors is shown to generate strong employment comovement over the business cycle.     

Tariff Revenue, Government Expenditure and Growth in a Small Open Economy

I develop a small open endogenous growth model with domestic and foreign intermediate goods. The Marshallian external economies in the domestic intermediate goods sector work as the engine of sustained growth. The model offers two arguments. First, imposing a trade distortion is growth- and welfare-improving if the government uses the tariff revenue for correcting the domestic distortion. Second, comparing the tariff with a lump-sum tax as a financing device, the former is certainly worse than the latter with respect to both growth and welfare if the two intermediate goods are substitutes.
JEL Classification Numbers: F43, H20.     

A North–South model of outsourcing and growth

In this paper, I formulate a simple North–South R&D‐based growth model where final goods firms in the North endogenously determine the range of international outsourcing of intermediate goods to the South. I show that a fall in the trade cost (through trade liberalization) of intermediate goods in the North: (i) reduces the wage of the North relative to that of the South; (ii) increases the outsourced variety of intermediate goods in the North; and (iii) stimulates Northern R&D activity and economic growth in both countries. By conducting welfare analysis, I also show that a decline in the trade cost of intermediate goods in the North improves welfare in the South more than in the North.     

RAMSEY TAXES MEET PRICE RIGIDITY

‘Ramsey taxes’ are commodity taxes that minimize deadweight loss. Evidence has shown dramatic differences in the extent of price rigidity across goods: while the prices of some goods change frequently, the prices of other goods seldom change. This paper examines Ramsey taxes in the presence of heterogeneous price rigidity. We find that, to minimize deadweight loss, lower (higher) tax rates should be imposed on goods with rigid prices if their relative prices are too high (low) relative to the would‐be situation of no price stickiness. Intuitively, Ramsey taxes remedy the relative price distortion caused by the price rigidity of some goods. We calibrate our model to data from Taiwan and the USA, showing a significant cut in welfare cost if Ramsey rather than uniform taxes are applied.     

Environmental Goods and Measures for Their Promotion: An Analysis Using a Fair Wage Model

In this paper, we model a two‐sector small open economy with emissions and unemployment associated with the fair wage effort hypothesis, and investigate the environmental and employment impact of an emission tax, a subsidy for purchasing environmental goods in the downstream polluting industry, and a subsidy to the upstream eco‐industry. We then show that if the eco‐industry is skilled labor intensive relative to the polluting final goods industry, while a subsidy for purchasing environmental goods decreases the unemployment rate of unskilled labor, it may increase total emissions. In contrast, the emission tax and the subsidy to eco‐industry firms worsen the unemployment rate, though both policies decrease total emissions. Hence, if the emission tax is set equal to the marginal environmental damage, and either a downstream or upstream subsidy is used to mitigate unskilled unemployment, the optimal subsidy to purchase the goods is positive whereas the optimal subsidy to the eco‐industry is negative, i.e., a tax on the eco‐industry.