Technological structure of trade and BOP-constrained growth in Turkey

This study investigates the empirical validity of the Multisectoral Thirwall's Law for Turkey over the last half century. Multisectoral Thirwall's Law facilitates the discussion of the effects of the sectoral composition of trade on the extent of the balance of payments (BOP) constraint and consequently on the long run growth prospects of an economy. In particular, structural change favoring sectors with Schumpeterian and Keynesian efficiencies is expected to improve these prospects. Lall's commodity classification on a technology basis is adequate for delineating such sectors. In this study, distinct export and import functions are estimated for primary production, low technology manufacturing, medium technology manufacturing and high technology manufacturing industries using the autoregressive distributed lag (ARDL) bounds test and Johansen approaches to cointegration. Resulting income elasticities are used to discuss the structural change in the technological content of Turkish trade and the validity of the Multisectoral Thirwall's Law. Results suggest that Turkey has come a long way in terms of improvements in Schumpeterian and Keynesian efficiency over the last 50 years and that the Multisectoral Thirwall's Law is empirically valid in the case of Turkey.     

Redistribution in a Neo‐Kaleckian Two‐country Model

We investigate the interaction between demand‐driven growth and income distribution in open economies, by combining expenditure‐switching and demand spillover effects in a neo‐Kaleckian two country model. First, we specify elasticities of wage share and real exchange rate to the money wage relative to labor productivity, in order to precisely describe the distributive pass‐through from money wages to the labor share and the real exchange rate. Second, we analyze the demand effects of an increase in the money wage for given labor productivity (a redistribution towards labor) in both Home and Foreign country, as well as globally. We derive closed form results for two identical countries. These results indicate that redistribution towards labor at Home: (i) always increases growth globally if Home is wage‐led, but can lead to lower growth at Home relative to Foreign; and (ii) will always imply lower growth at Home relative to Foreign if Home is profit‐led, but can still be growth‐enhancing at Home. Thus, to the extent that countries are concerned with their relative economic performance, a fallacy of composition can emerge. Numerical simulations suggest that these fallacies could indeed occur. As a consequence, ‘returns to coordination’ over international labor policies might be substantial.     

US affiliates,infrastructure and growth: A simultaneous investigation of critical mass

A structural model of a small open economy is developed that demonstrates how the impacts of infrastructure on GDP, factor productivity, and multinational industrial location can be decomposed into direct and indirect general equilibrium effects. The model is then estimated on a panel of 28 countries and it is found that schools and telecommunications have a positive and significant direct effect on domestic growth and that there are greater marginal returns for countries with higher investment levels; a result that is suggestive of a critical mass story. However, once spurious correlation of firm location and the indirect effects through wages and multinational activity are accounted for, the total effects of telecommunications and schools on growth are found to be higher than direct estimates would suggest. The results reveal important implications for understanding the channels through which infrastructure influences growth.     

Multiple goods and growth

Recent analyses often use one-good models to explain why the least developed countries have little income growth. While a one-good model permits only supply side considerations, a multiple-goods framework enables analysing income growth differences from both the supply and the demand sides. Introducing asymmetry in preference and technology in a two-goods model proves to be promising in simultaneously explaining the unfavourable income growth rates for some LDCs and high growth rates for industrializing countries.     

Patterns of foreign direct investment in poor countries

This paper introduces endogenous adoption costs for productive assets in a Ramsey-type growth model with international capital flows. There are two classes of productive assets: owner-specific and location-specific. Adoption costs are an increasing function of the level of technology embodied in the investor's owner-specific assets and a declining function of the host country's location-specific assets. In this setting, the observed pattern of international capital flows is consistent with diminishing returns to capital. Further, our model predicts that the sectoral allocation of foreign direct investment is similar in rich and poor countries.     

A Note on Credit Allocation,Income Distribution and the Circuit of Capital

This note considers the relationship between credit allocation and the class distribution of income in the Circuit of Capital. Production and consumption credit inject means of purchase into different phases of capitalist reproduction. Comparative‐dynamic analysis of steady‐state evolutions shows that in the dynamic terms of Circuit of Capital production and consumption credit respectively increase wage and profit shares of aggregate income. These findings hold more broadly for any setting where sectoral revenue elasticities of outlays are below unity. They also have direct policy relevance for advanced and middle‐income economies where household borrowing has been encouraged in attempts to support demand and growth.     

A model of endogenous growth that elucidates the complexity of South–North convergence

This North–South model of Schumpeterian endogenous growth combines a market, productivity and knowledge effect. Depending upon the interaction of these effects, various convergent and divergent South–North growth paths occur: for example, full or partial convergence of the Southern technology level to the Northern one, conditional convergence or divergence depending upon the Southern initial technology level and absorptive capacity, higher or lower as well as decreasing or increasing growth rates during the phase of catching up, and equal or higher growth rates of the South compared to the North after catching up. This set of growth paths can better explain the diversity of the empirical observations for economies at different income and technology levels than those generated by existing models. In this new model, convergence based on North–South trade and associated flows of patents (innovations) is guaranteed if the knowledge effect dominates the productivity effect. A larger Southern market expands the area of convergence and can prevent divergence. Not only a larger Southern market, but also a higher Southern steady state growth rate benefit the North so that convergence is desirable for both, the South and the North.     

Growth is (really) good for the (really) rich

This paper analyses the relationship between mean income and the income of the rich. Our methodology closely follows that of Dollar and Kraay (Journal of Economic Growth, 2002, 7, 195), but instead of looking at the bottom of the distribution, we focus on the top. We use panel data from the World Top Incomes database, which collects top income data from several countries using tax returns as the raw source. We define the “rich” as earners in the top 10%, 1%, 0.1% and 0.01% of the income distribution. Using data since 1980, we find that economic growth is good for the rich in the sense that the mean income of the top decile of the distribution grows in the same proportion as that of the whole population. However, we also find that the income of earners in the top percentile of the distribution and above grows faster than average income: therefore, economic growth is really good for the really rich. We also find that during economic downturns the average income of top earners responds proportionally less to changes in mean income than during economic expansions. Our results are consistent with the increase in inequality that has been recently observed at the top part of the distribution in many countries, and they are robust to different specifications, country samples and time observations.     

The Neoclassical Approach to Induced Technical Change: From Hicks to Acemoglu

This survey article provides a critical overview of the development of the neoclassical theory of induced technical change. From Hicks's introduction of the concept in his Theory of Wages up to the recent literature the strengths and weaknesses of the proposed models and the contexts in which they have been developed are outlined. It is shown that induced technical change has been invoked to explain various long‐run distribution conundrums which could not be explained with standard neoclassical growth theory. The importance of induced technical change for the long‐run distribution of income cannot be doubted. Nevertheless, we show that neoclassical models of induced technical change are still unsatisfactory in a number of respects.     

SIZE AND COMPOSITION OF PUBLIC SPENDING IN A NEOCLASSICAL GROWTH MODEL

This paper analyses the effect of public expenditures in a modified Solow model of capital accumulation with optimizing agents. The model identifies optimal government size and composition of public expenditures which maximize the rate of growth in the dynamics to the steady state and the long‐run level of per capita income. Different allocations of public resources lead to different growth rates in the transitional dynamics depending on their elasticities. However effects from fiscal policy are only temporary. Finally we argue that neglecting the non‐linear nature of the relationship between government spending and growth may lead empirical studies to biased results.     

Transitional dynamics of the R&D growth model with public education

This study analyzes the transition dynamics of the R&D-based growth model with public education, based on [Prettner, K. (2014). The non-monotonous impact of population growth on economic prosperity. Economics Letters, 124, 93–95]. We show that the equilibrium path can be monotonous or oscillatory, but may not converge depending on the value of parameters. Thus, we determine and indicate the sufficient condition for long-run oscillation to emerge. In addition, we find that the technological progress rate speeds up during the long-run balanced growth path when income tax rates for public education rise. This result is consistent with empirical analysis.     

Predator–Prey Model Estimates of the Cyclical Profit Squeeze

This paper extends the empirical literature on the cyclical profit squeeze (CPS) theory of crisis by developing a multivariate model with superior decomposition methods. A structural time series (unobserved components) model with trend and structural VAR components is employed. The VAR captures the dynamic cyclical interaction between unemployment and profit's share of income and is interpreted as a linear version of Goodwin's (1967) predator-prey model. Model extensions incorporate the accumulation process and structural shifts. Estimation results for the US economy are used to sort out the controversial relevance of the CPS in the post-1970 period. It is concluded that the CPS is relevant during the period from 1949 to 1985, but is moderately weakened in the post-1970 period. Inconclusive statistical support for the CPS is found for the post-1985 era.     

Sources of economic growth and stagnation in Iran

There is more than a 10 percentage point difference in the economic performance of Iran in roughly the two decades before and after the Islamic revolution in 1979. This paper aims to explain the difference. A standard measure of Total Factor Productivity (TFP) calculated at the aggregate level shows that over one-third of the difference in economic performance can be explained by the change in TFP growth rates in the two periods. The question is further pursued at the manufacturing level. A time-series cross sectional analysis of the manufacturing sector confirms that TFP growth rates fell after the revolution and did not recover anywhere close to their pre revolution levels even after the Iran–Iraq war. The regression analyses show that decreasing returns to scale and mark-up pricing behavior have developed in the manufacturing sector under the Islamic Republic. A Tornqvist measure of TFP, corrected for market imperfections and non-constant returns to scale technology, is used to explain sources of productivity slowdown. The results show that manufacturing TFP increases with (i) private participation rate in economic activities and (ii) exports. Manufacturing TFP falls with (iii) increase in capital-intensity and (iv) higher entry/exit barriers.     

Dual Cities? Sectoral Shifts and Metropolitan Income Inequality, 1980–90

The sectoral shift from manufacturing to services is one of several potential explanations for increasing income inequality in the United States. This article reframes national-level explanations of rising inequality at the level of urban labour markets and assesses their relative contributions to levels and trends in metropolitan income inequality. We find that sectoral shifts, especially the rates of deindustrialisation and employment growth in personal services, significantly affect changes in Gini indices for the largest constant-boundary MSAs between 1980 and 1990. In addition, rising metropolitan inequality is associated with the trend towards self-employment and such supply-side factors as local education levels, changing family structure and immigration. The study provides mixed support for the mismatch and global cities hypotheses.     

International spillovers of knowledge and sectoral productivity growth: some evidence for Canada and the United States

This paper develops and tests a two-country model of a monopolistically competitive industry in which the production function shifts endogenously via national and international spillovers of knowledge. The basic version of this model implies that, in the long run, the growth rate of sectoral productivity is the same in each country. In support of this version, for a number of matched Canadian and US manufacturing industries, the paper finds that these two countries' rates of sectoral productivity growth tend to converge despite marked international differences in R and D.     

Prices and promotions in U.S. retail markets

We provide generalizable results on the price and promotion tactics employed in the U.S. retail grocery industry. First, we document a large degree of price dispersion for UPCs and brands across stores, both nationally and at the local market level. Base price differences across stores and price promotions contribute to the overall price variance, and we show how to decompose the price variance into base price and promotion components. Second, we document that a large percentage of the variation in prices and promotion tactics across stores can be explained by retail chain and especially market/chain factors, whereas market factors explain only smaller percentage of the variation. Third, we show that the chain-level price and promotions similarity can be explained by similarity in demand. In particular, a large percentage of the variance in price elasticities and promotion effects can be explained by retail chain and especially market/retail chain factors. Further, price elasticities and promotion effects across stores of the same chain are hard to distinguish from the chain-market-level mean, and cross-price elasticities are typically imprecisely estimated. These findings suggest that retail managers may plausibly consider price discrimination across stores to be infeasible.

     

Basic Needs,Government Debt and Economic Growth

This paper investigates the relationships between basic needs and economic growth where the interactions between output, health, nutrition and education are explicitly simultaneous. We find a unidirectional relationship that improving basic welfare contributes strongly to labour productivity change, but a clear reverse causation only from growth to nutrition. There are substantial differences in the patterns of simultaneous interactions at different income and welfare levels. There are strong self‐reinforcing effects of literacy and debt service on poverty, making it difficult for poor countries to rectify their situation. Channelling resources towards improving health, education and nutrition could bring dramatic economic returns.     

The Effect of Entrepreneurial Activity on National Economic Growth

Entrepreneurial activity is generally assumed to be an important aspect of the organization of industries most conducive to innovative activity and unrestrained competition. This paper investigates whether total entrepreneurial activity (TEA) influences GDP growth for a sample of 36 countries. We test whether this influence depends on the level of economic development measured as GDP per capita. Adjustment is made for a range of alternative explanations for achieving economic growth by incorporating the Growth Competitiveness Index (GCI). We find that entrepreneurial activity by nascent entrepreneurs and owner/managers of young businesses affects economic growth, but that this effect depends upon the level of per capita income. This suggests that entrepreneurship plays a different role in countries in different stages of economic development.     

Commercial policy and dynamic adjustment under monopolistic competition

We explore liberalization of trade in differentiated commodities using a model featuring monopolistic competition and capital accumulation. We identify a mechanism of ‘cumulative causation’ in investment and an associated externality leading to under-accumulation. We provide long-run analytical results for a stylized core model and offer a quantitative treatment of transitional and sectoral issues using a disaggregate computational model. The aggregate welfare gains from unilateral liberalization are about three times larger than in the competitive case with constant returns, and they exhibit a characteristic pattern of generational incidence. Small export subsidies may be self-financing.     

Intersectoral size differences and migration: Kuznets revisited

That researchers look for the inverted-U shape in inequality in the arbitrary periods of arbitrary countries underlies the divergent empirical evidence across studies. To point to the right context for the pattern, this paper establishes a formal mechanism in line with Kuznets' explanation that relates to the industrialization-cum-urbanization phases of closed trade regimes. The mechanism involves an interaction among urban–rural sectoral size differences, agricultural tastes/income, and migration, and predicts an inverted-U shape in inequality in the following way: (i) widening differences in the sizes of urban and rural sectors due to exogenous shocks affect negatively the agricultural tastes/income, worsening inequality; (ii) increasing sectoral size differences and decreasing agricultural tastes/income jointly foster intersectoral migration; (iii) migration acts, in turn, as an equilibrating effect, improving the income distribution. Empirically testing these predictions, non-Sub-Saharan developing countries' data support the mechanism, while data from developed and Sub-Saharan African countries provide little support, as per our prior expectations. This highlights a contrasting evidence on the inverted-U shape across country groups of differing development stages.