A unified theory of structural change

This paper uses dynamic general equilibrium and computational methods, inspired by the multi-sector growth model structure in Stephen Turnovsky's work, to develop a theory that unifies two of the traditional explanations of structural change: sector-biased technical change and non-homothetic preferences. The theory is based on an overlapping-generations growth model with endogenous technical change and non-homothetic preferences. An expanding-variety setup with two different R&D technologies, agricultural, and non-agricultural, is employed. The analysis, based on numerical simulations, shows that the biased technical change hypothesis finds most support in the data. It also points to production-side specific factors, such as asymmetries in cross-sector knowledge spillovers, as explanatory factors of the bias in technical change.     

Do Natural Barriers Affect the Relationship Between Trade Openness and Growth?*

This article investigates whether there are threshold effects in the relationship between openness and productivity growth that are fashioned by a country's natural barriers, using a cross‐country growth model. Alternative methods of modelling thresholds are explored. An endogenous threshold model is shown to be preferable to the use of interaction effects. The results identify critical levels of natural barriers which affect how greater openness or liberalization impacts on productivity growth. We find that only countries with higher natural barriers receive growth benefits from trade liberalization.     

The European Union's Proposed Equality and Data Protection Rules: An Existential Problem for Insurers?

Insurance companies use personal data to price personal insurance risks. Innovative data‐collection and processing strategies, including big data, offer the potential for better analysis of traditional risks and for markets in new types of insurance. This paper examines the potential for EU data protection and anti‐discrimination legislation – both existing and proposed – to threaten not only this potential but also the traditional personal insurance business. It offers a strategy based upon codes of practice and technological innovation that would allow insurers to protect their business and to innovate while meeting the concerns of legislators about discrimination and data protection.     

Technology and endowments as determinants of comparative advantage: Evidence from Mexico

We analyze whether the pattern of Mexico's comparative advantages in manufacturing trade flows, vis-à-vis its closest competitors, are related with productivity differentials (Ricardian hypothesis) or with differences in factor endowments (Heckscher–Ohlin hypothesis). The results suggest that Heckscher–Ohlin determinants tend to be more relevant than labor productivity differentials to explain the differences in the export patterns between Mexico and its competitors. This result holds even when we restrict the analysis to Mexico and other countries with relatively small differences in factor endowments, although in this case Ricardian comparative advantages gain some relevance.     

Should Directors Have Term Limits? – Evidence from Corporate Innovation

This paper examines the effect that directors with extended tenure have on corporate innovation based on a sample of US firms from 1996 to 2006. Using the propensity-score matched-pair research design, I find that firms with a higher portion of outside directors enjoying extended tenure produce significantly fewer patents and that these patents receive fewer subsequent citations. These firms also have lower research and development (R&D) productivity and exploration intensity than their matched control firms, although I found no significant difference in their R&D investment intensity. Difference-in-differences tests based on director deaths and regulatory changes in the early 2000s suggest that the adverse effect of long director tenure on innovation performance is causal. I also find that the effect is mitigated when long-tenured directors have more years of overlap in service with CEOs, and when long-tenured directors are executives at other firms. Finally, I find that boards with extended tenure attenuate the contributions of innovation outputs to future firm value and performance. These findings shed new light on the debate over length of board tenure and provide another justification for imposing term limits on directors.     

Efficient information theoretic inference for conditional moment restrictions

The generalised method of moments estimator may be substantially biased in finite samples, especially so when there are large numbers of unconditional moment conditions. This paper develops a class of first-order equivalent semi-parametric efficient estimators and tests for conditional moment restrictions models based on a local or kernel-weighted version of the Cressie–Read power divergence family of discrepancies. This approach is similar in spirit to the empirical likelihood methods of Kitamura et al. [2004. Empirical likelihood-based inference in conditional moment restrictions models. Econometrica 72, 1667–1714] and Tripathi and Kitamura [2003. Testing conditional moment restrictions. Annals of Statistics 31, 2059–2095]. These efficient local methods avoid the necessity of explicit estimation of the conditional Jacobian and variance matrices of the conditional moment restrictions and provide empirical conditional probabilities for the observations.     

Do Firms Increase Productivity in Order to Become Exporters?*

Recent studies find that exporters are more productive than non‐exporters and that entry into exporting does not increase firms’ productivity. Thus, firms self‐select into foreign markets. This paper examines productivity before entry into exporting. Using Chilean plant‐level data, we find that productivity and investment increase before plants begin to export. Moreover, productivity of entrants to exporting, but not that of non‐exporters and exporters, increases in response to increases in foreign income, before entry but not after that. The results suggest that the productivity advantage of future exporters may be the result of firms increasing their productivity in order to export.     

The welfare cost of one-size-fits-all patent protection

To analyze the welfare gain from allowing for differentiated patent protection across sectors, this study develops a two-sector quality-ladder growth model in which patent breadth is a policy variable and derives optimal patent breadth under two patent regimes. We show that (a) uniform optimal patent breadth is a weighted average of sector-specific optimal patent breadth and (b) sector-specific optimal patent breadth is larger in the sector that has a larger market size and more technological opportunities. To derive the optimal policy, we allow for an arbitrary path of patent breadth and derive the optimal path by solving a Stackelberg differential game. We find that the optimal path of patent breadth under each patent regime is stationary, time-consistent and subgame perfect. Finally, we perform a numerical investigation and find that even a moderate degree of asymmetry across sectors can generate a significant welfare cost of uniform patent protection.     

Does Skill Content Explain Total Trade and Intra‐Industry Trade?*

This study compares the results of skill content tests for types of trade flows under alternative assumptions about the technologies used to produce imports and exports. For trade between high‐ and middle‐income countries, we show that the match between the actual skill content of trade and that predicted by endowments in a Heckscher–Ohlin–Vanek framework improves substantially if technological heterogeneity across countries is allowed for and if the factor content of intra‐industry trade is included with that of inter‐industry trade. Endowment differences are important in explaining net trade and vertical intra‐industry trade, but not horizontal intra‐industry trade.     

Import elasticities and the external constraint in Mexico

The paper estimates and analyzes an equation for intermediate imports in Mexico during the 1988–2006 post-liberalization period. While some results are obtained from Johansen's VECM model, most of the analysis is carried out within an Error-Correction ARDL framework, following the bounds testing approach of Pesaran et al. (2001). Besides showing that an aggregate equation for intermediate imports can be satisfactorily estimated, the paper focuses on two specific results. First, exports have a very significant effect on imports, and failure to control for this effect (as in most previous studies) can yield misleading results, like an over-estimation of the output elasticity of imports. Second, the response of imports to variations in the real exchange rate has fallen over time, presumably because of the rising share of maquila in Mexico's export basket and the increasing “vertical specialization” of non-maquila export production. Some implications of the estimation results are briefly discussed, making reference to the possible external constraint on Mexico's economic growth.     

How do natural resource endowment and institutional quality influence the nexus between external indebtedness and welfare in Africa?

Resource-rich African countries are often saddled with high external indebtedness. Yet, their management of resource endowment, a logical source of debt repayment, also remains a challenge, alongside their characteristic weak institutions. We investigate the relationship between external indebtedness and welfare whilst considering the pervasive influence of both natural resource rents and the quality of institutions. Using a two-stage analysis, we find that the quality of institutions, mineral- and oil-resource rents negatively affect indebtedness, while rents of aggregated natural resources, which include agricultural commodities, increase indebtedness. In the second stage, we find that welfare is enhanced by the quality of institutions, mineral- and oil-resource rents. These sets of results are interestingly conditional on the degree of resource endowment and the income level of countries, alongside the interesting effects of external indebtedness on welfare, both of which, importantly, nuance past results on the “resource curse”. Furthermore, the proxy for welfare matters: the human development index proxy reflects more the theoretical expectations of unsustainable indebtedness on welfare, than does the GDP per capita alternative. These and other results of our paper, which hold useful policy guides for African countries, are robust to alternative estimation techniques and other checks.     

Local structural quantile effects in a model with a nonseparable control variable

I consider a semiparametric version of the nonseparable triangular model of Chesher [Chesher, A., 2003. Identification in nonseparable models. Econometrica 71, 1405–1441]. The proposed model is linear in coefficients, where the coefficients are unknown functions of unobserved latent variables. Using a control variable idea and quantile regression methods, I propose a simple two-step estimator for the coefficients evaluated at particular values of the latent variables. Under the condition that the instruments are locally relevant (i.e. they affect a particular conditional quantile of interest of the endogenous variable) I establish consistency and asymptotic normality. Simulation experiments confirm the theoretical results.