Product variety and technical change

Motivated by growth models based on the variety of capital goods, recent empirical studies have established links between productivity and several trade-based measures of product variety, carrying the implication that these measures may represent technology. We study this implication by explicitly proposing the variety of capital goods available for production as a direct measure of the state of technology. Within a simple growth and development framework, we derive a ‘conditional technological convergence’ hypothesis on how this variety should behave if it were indeed to represent the state of technology. The hypothesis is tested with highly disaggregated trade data, using tools from the income convergence literature. The results suggest that a trade-based count measure of the variety of available capital goods, allowing for product differentiation by country of origin, indeed behaves ‘as if’ it represented technology when change of technology is understood as a learning process, and that there is conditional technological convergence among our panel of mainly OECD and transition economies.     

The effects of economic reforms on manufacturing dualism: Evidence from India

Dualism is a pervasive feature of the manufacturing sectors of less-developed countries, with large differences in productivity between the informal and the formal sectors. Policy distortions are viewed as an important factor behind the prevalence of manufacturing dualism. We examine whether tariff reforms, industrial de-licensing and the withdrawal of reservation of products for small firms implemented since the mid-1980s have had any effects on efficiency differentials between informal and formal firms in Indian manufacturing. We find strong evidence that economic reforms have exacerbated dualism by increasing the productivity differentials between the more efficient formal firms and the less efficient informal firms.     

Testing convergence of European regions: A semiparametric approach

We provide a reappraisal of income convergence across European regions over the last two decades by using a semiparametric partially linear model to approximate the relationship between the average growth rate of GDP per capita and the initial GDP per capita. Estimation results point out both country heterogeneity and non-linearity in the convergence process. The findings suggest that low income regions, in particular those from new adhesion countries, diverge while medium income regions converge and that there is no evidence of convergence for high income regions.     

Re-examining the threshold effects in the inflation–growth nexus with cross-sectionally dependent non-linear panel: Evidence from six industrialized economies

This paper analyzes the empirical relationship between inflation and output growth using a novel panel data estimation technique, Panel Smooth Transition Regression (PSTR) model, which takes account of the non-linearities in the data. By using a panel data set for 6 industrialized countries that enable us to control for unobserved heterogeneity at both country and time levels, we find that there exists a statistically significant negative relationship between inflation and growth for the inflation rates above the critical threshold level of 2.52%, which is endogenously determined. Furthermore, we also control cross-section dependency by using the CD test modified to non-linear context and remedy cross-section dependency with Seemingly Unrelated Regression Equations through Generalized Least Squares (SURE-GLS) and newly proposed Common Correlated Effects (CCE) estimation techniques. We find that these methods change the critical threshold value slightly. The estimated threshold values from these estimation methods are 3.18% and 2.42%, respectively.     

Nonlinear economic growth: Some theory and cross-country evidence

This paper aims to test the existence of different growth regimes, that is of different relationships between growth rate and income level. We propose a simple nonlinear growth model and test its empirical implications by estimating Markov transition matrices and stochastic kernels. We show that growth is indeed nonlinear: a first phase of slow or zero growth is followed by a take-off and, finally, by a phase of deceleration. We discuss the relevance of these results with respect to the issue of convergence and reversibility of development, in the light of models of structural change and technological diffusion.     

A bioeconomic view of the transition to agriculture: a comment

Abstract Arthur Robson (2010) presents an ingenious model to explain why the standard of living apparently fell during the Neolithic transition from hunter‐gathering to agriculture. His demonstration relies on a production function that has a strong property with regard to technical change. This note shows how Robson’s result can be obtained using a more familiar set of restrictions on technical change. Under these restrictions, an improvement in technology will cause parents to invest less per child and the standard of living will fall.     

Strategic resource dependence

We consider a situation where an exhaustible-resource seller faces demand from a buyer who has a substitute but there is a time-to-build delay for the substitute. We find that in this simple framework the basic implications of the Hotelling model (1931) are reversed: over time the stock declines but supplies increase up to the point where the buyer decides to switch. Under such a threat of demand change, the supply does not reflect the current resource scarcity but it compensates the buyer for delaying the transition to the substitute. The analysis suggests a perspective on costs of oil dependence.     

What will be the environmental effects of new free-floating car-sharing systems? The case of car2go in Ulm

The purpose of this paper is the discussion of the environmental effects of a free-floating car-sharing system operating in Ulm, Germany. The system, called car2go, allows users to take and leave vehicles at any point within the city limits. Thus opposed to traditional car-sharing, there are no fixed stations and in particular one-way trips of any length are possible without a booking requirement. Since this is the first free-floating system in operation, there is as yet no associated empirical research. Based on primary data from a survey, a model was developed to forecast the environmental impact of car2go. The prognosis considers the period of five years after the launch of car2go in 2009 and indicates a CO₂-reduction per average car2go-user. In addition, more than a quarter of the survey respondents stated that they may forgo a car purchase if car2go was offered permanently. By reaching a greater share of citizens than traditional systems, the results indicate that free-floating car-sharing systems could contribute to reducing private vehicle ownership in cities.     

ICT and productivity: conclusions from the empirical literature

Innovation drives economic competitiveness and sustained long-term economic growth. Especially the emergence and intensive utilization of information and communication technologies (ICTs), which spawned the beginning of the digital economy two decades ago, heavily affected the opportunities and efficiency of how firms produce and provide goods and services. We provide an overview of the empirical literature on ICT and productivity and highlight the main results and methodological differences. The majority of studies indicates that the productivity effect of ICT is indeed positive and significant. However, methodological approaches of how to appropriately estimate the ICT effect matter. While aggregate and sectoral growth accounting exercises suggest stronger differences of the ICT effect between US and Europe, firm-level analyses suggest no significant country differences. Moreover, we shed light on the notion of ICT being a General Propose Technology (GPT) enabling further innovations. Most of the GPT evidence on ICT is found for the US, while evidence for European countries is harder to come by. However, more theoretical and empirical research is needed to better understand spillovers and externalities of ICT and how these technologies transform our economies.     

Poverty traps in a frictionless world: The effects of learning and technology assimilation

We study an endogenous growth model of technology assimilation through an adaptive learning process defining the accumulation of technological knowledge among both workers and industrial clusters. The assimilation of new technology and the arrival rate of innovations are both based on the distance from the technological frontier to the current technological development level of the country. We illustrate how, even if technological innovations become immediately available to all countries, and absent educational and institutional frictions among countries, differences in technological development levels allow for the existence of poverty traps leading to the economic stagnation of technological laggards.     

On the welfare benefits of an international currency

Is it beneficial for a country's currency to be used internationally? And, if so, can we quantify the benefit? Since the emergence of the euro, there has been great interest in the consequences of a transfer of the dollar's premier international role to the euro. This paper presents a novel model-based approach towards assessing the welfare benefits associated with the international use of a country's currency. Apart from the familiar benefits associated with seigniorage, residents of the issuing country experience an increase in the purchasing power of their currency both at home and abroad. In the calibration exercise carried out in this paper, we find the benefits of an international currency to be quantitatively significant. The welfare gain for the Euro area in having the euro internationally used ranges from 1.9% to 2.3% of consumption depending on relative inflation rates. The rest of the world is not indifferent as to which currency circulates as the dominant international currency. Conditional on their currency not being used internationally, their preference is for the dominant international currency to be the one with the lowest inflation rate.     

Insurance,credit, and technology adoption: Field experimental evidencefrom Malawi

Does production risk suppress the demand for credit? We implemented a randomized field experiment to ask whether provision of insurance against a major source of production risk induces farmers to take out loans to adopt a new crop technology. The study sample was composed of roughly 800 maize and groundnut farmers in Malawi, where by far the dominant source of production risk is the level of rainfall. We randomly selected half of the farmers to be offered credit to purchase high-yielding hybrid maize and groundnut seeds for planting in the November 2006 crop season. The other half of farmers were offered a similar credit package, but were also required to purchase (at actuarially fair rates) a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall. Surprisingly, take-up was lower by 13 percentage points among farmers offered insurance with the loan. Take-up was 33.0% for farmers who were offered the uninsured loan. There is suggestive evidence that reduced take-up of the insured loan was due to farmers already having implicit insurance from the limited liability clause in the loan contract: insured loan take-up was positively correlated with farmer education, income, and wealth, which may proxy for the individual's default costs. By contrast, take-up of the uninsured loan was uncorrelated with these farmer characteristics.     

Political regime type and variation in economic growth rates

Research about the effects of regime type on economic growth rates did not establish any robust differences in average growth rates between democracies and autocracies. Here, it is suggested that we may have asked the wrong question. There still might be a difference in variances. Democracy implies similar constraints on rulers and thereby might lead to quite similar economic performances. Among autocracies, however, constitutional and institutional constraints are likely to be weak and variable. Moreover, personal inclinations of autocrats might matter much more than personality differences between democratic rulers. Data from the 1960–87 period supply some evidence that there is indeed greater variation in growth rates among autocracies than among democracies.     

Engines of growth. Innovation and productivity in industry groups

The diversity of technological activities that contribute to growth in labour productivity is examined in this article for manufacturing and services industries in eight major EU countries. We test the relevance of two “engines of growth”, i.e., the strategies of technological competitiveness (based on innovation in products and markets) and cost competitiveness (relying on innovation in processes and machinery) and their impact on economic performance. We propose models for the determinants of changes in labour productivity and we carry out empirical tests for both the whole economy and for the four Revised Pavitt classes that group manufacturing and services industries with distinct patterns of innovation. Tests are carried out by pooling industries, countries and three time periods, using innovation survey data from CIS 2, 3 and 4, linked to economic variables. The results confirm the specificity of the two “engines of growth”; economic performances in European industries appear as the result of different innovation models, with strong specificities of the four Revised Pavitt classes.