Investment mobilization and capacity completion in the Chinese and Soviet economies

This paper examines the relationship between the mobilization of resources into capital projects and the completion of new productive capacity in two shortage economies—China and the USSR. Causes of delayed commissioning of new capacity, and the role of unfinished construction in the investment cycle, are analysed. Annual data over a long period are presented for both economies—for the USSR 1928–37 and 1950–83, and for China 1950–82. Changes over time in the relationship between investment mobilization and capacity completion are considered, along with differences and similarities between the records of the two economies under investigation.Department of Economics, University of Warwick. I am grateful for helpful advice and comments received from Julian Cooper and Philip Hanson of the Centre for Russian and East European Studies, University of Birmingham; from Bob Lewis, Department of Economic History, University of Exeter; from Raja Junankar of the Institute of Employment Research, David Rees of the Department of Economics and colleagues of the Development Economics Research Centre seminar, University of Warwick; and from an anonymous referee.     

Reallocation and productivity growth in Japan: revisiting the lost decade of the 1990s

Hayashi and Prescott (Rev Econ Dyn 5(1):206–235, 2002) argue that the ‘lost decade’ of the 1990s in Japan is explained by the slowdown in exogenous TFP growth rates. At the same time, other research suggests that Japanese banks’ support for inefficient firms prolonged recessions by reducing productivity through misallocation of resources. Using the data on large manufacturing firms between 1969 and 1996, the paper attempts to disentangle the factors behind the slowdown in productivity growth during the 1990s. The main results show that there was a significant drop in within-firm productivity, the component that is not affected by reallocation of input and output shares across firms over time, during the 1990s. Although we find that misallocation among large continuing firms represents a substantial drag to overall TFP growth for these firms throughout the sample period, the negative impact of misallocation was least visible during the 1990s. The significant reduction in within-firm productivity growth suggests that, as the Japanese economy has matured, a policy which fosters technological innovations via greater competition, R&D, and fast technological adoption may have become increasingly important in promoting economic growth.

Decomposing productivity patterns in a conditional convergence framework

In this study we examine regional data on per worker GDP, disaggregated at sectoral level, by focusing our interest on the role of differences in the sectoral composition of activities, and in productivity gaps that are uniform across sectors, in explaining the catching-up process, which is realized through physical and human capital as well as technological knowledge accumulation. Our objective is to investigate how much of the interregional inequality in aggregate productivity per worker is imputable to each component. A methodology for identifying and analyzing sources of inequality from a decomposed perspective is developed in the growth framework by combining a shift-share based technique and a SUR model specification for the conditional-convergence analysis. The proposed approach is employed to analyze aggregate interregional inequality of per worker productivity levels in Italy over the period 1970–2000. With respect to the existing empirical results, our approach provides a more comprehensive and detailed examination of the contribution of each identified component in explaining the regional productivity gaps in Italy. It is argued that region-specific productivity differentials, uniform across sectors, explain a quite large share of differences in productivity per worker. However, sectoral composition plays a non negligible role, although decreasing since the end of 1980s, and very different productivity patterns emerge within geographical areas.

The transition from central planning to a market economy: A computable general equilibrium model

This paper develops a computable general equilibrium (CGE) model of the transition from a central planned economy to a market economy. The model is an extension of Wellisz and Findlay's (1986) model of the Soviet second economy. By distinguishing alternative assumptions about the disposition of the government budget, two model variants — the activist and non-activist — are analyzed. Equilibria of these model variants are computed for various parameter specifications of the Kantorovich ray, which represents the stringency of central planners' direction of the economy. The paper shows that increasing efficiency of the private sector, while it reduces the size of government subsidies to the state sector, does not necessarily increase the net government budget.     

Kornai's soft budget constraint and the shortage phenomenon: A criticism and restatement

Concluding Remarks In this paper we have sought to modify Kornai's analysis of the shortage phenomenon. One point and two modifications are suggested. The point is that firms' budget softness in real terms, while generally probably higher under socialism than capitalism, is always limited enough for any economies still to remain very much productive. One modification is that, in the theory of the shortage phenomenon, the key operational variable is not the degree of budget softness, provided it is not too high as to make the economy unproductive, but a quite different concept of the degree of budget flexibility. Our example of the Leyland-type economy and references to Yugoslav economy were intended to make this proposition evident. In this and any other soft-budget economy the degree of softness is, instead, linked with inefficiency, both static and dynamic. The other modification is that while the household does have a hard budget constraint and the firm has a soft one, sufficiently high prices for consumer goods would nevertheless be able to abolish any consumer goods' shortages.An important topic which has been alluded to, but not discussed in this paper, is Kornai's suggestion that there may operate a trade-off between the rate of unemployment and the degree of goods shortages. This topic is related to a number of issues, one of which is the validity of equating shortage economy with resource-constrained economy. To indicate a potential problem, it may be noted—as Kornai himself does—that an abstract, perfectly competitive economy is free of shortage (as well as of unemployment), and yet it is resource-constrained (as well as demand-constrained). Actual market-based economies are from time to time also resource-constrained, but the point is that the distance to full employment is, in those economies, related to the inflation rate (the Phillips curve) rather than to the incidence of shortage (Kornai's suggestion), especially if the upward price flexibility is high. However, these are matters which may be better left for separate treatment.This paper was written when the author was Visiting Professor at the Department of Economics, the University of Pennsylvania. Its ideas were presented earlier, at seminars at the London School of Economics and the University of Oxford. The paper benefited much from detailed critical comments from Wlodzimierz Brus of Wolfson College, Oxford, Philip Hanson of the University of Birmingham, UK, Cezary Jozefiak of Lodz University, Poland, János Kornai, Kazimierz Laski of Linz University, Austria, Herbert Levine of the University of Pennsylvania, and Peter Wiles of the London School of Economics.     

Korean And Taiwanese Productivity Performance: Comparisons at Matched Manufacturing Levels

We compare the productivity performances of 15 matched manufacturing sectors in Korea and Taiwan, using the Malmquist productivity indexes, based on category-wise meta frontiers, 1978–1996. Comparisons at the sector levels are made using sequential multiplicative products of the indexes. The overall productivity and technology growth rates of Taiwan were higher than those of Korea. However, at disaggregated levels, the productivity and technology growth rates of the high-tech industries of Korea were much larger than those of Taiwan, while Taiwans high overall growth rate rested mainly on its traditional and basic industries. The leading innovators of both countries are also discussed.JEL Classification: C43, D24, L16, O11, O47, O53     

Decomposing hospital productivity changes, 1985–1988: A nonparametric Malmquist approach

Annual data on U.S. hospitals from 1985–1988 are evaluated by ownership type—profit, nonprofit, state and local government, and U.S. Department of Veterans Affairs (VA)—for changes in hospital productivity over time. Distance functions are used to measure Malmquist indices of productivity change, which are then decomposed into indices of efficiency change and technology change. In contrast to previous studies using this approach, we allow for variable returns to scale and use both input and output orientations. We find that changes in technology dominate changes in inefficiency in determining changes in productivity.     

Nash equilibrium reconsidered and an option for maximin

In this paper we will discuss some peculiarities of Nash equilibrium which are at odds with its standard applications: (a) the underlying dynamic interpretation, (b) the incentive independency if equilibria are mixed, and (c) the unprofitability if equilibrium and maximin are mixed and the game is 2-by-2. Maximin is proposed as an alternative solution concept in relevant situations.Institute of Economics, University of Hamburg, Von-Melle-Park 5, D-2000 Hamburg 13, Germany. This is a substantially revised version of the paper Anti-Nash and an Option for Maximin (Institute of Economics, University of Aarhus, Memo 1989-16), which the author presented at the Fourth Annual Congress of the European Economic Association, Augsburg, September 2–4, 1989.     

Informal pressures, mobilization, and campaigns in the management of centrally planned economies

Summary Following a short presentation of the striking deficiencies of plan instructions and financial regulation — the formal means of control of today's socialist centrally planned economies — we state that in actual fact these are not the basic means of control in these systems.The basic means of control is mobilization. Historically, this method originated from the declared unity of society. People — first of all economic managers — have to identify themselves with the objectives declared by the authorities. Moreover, the deficiencies of the formal means of control perpetuate the basic task assigned to mobilization.Campaigns are a specific kind of mobilization, meant for the implementation of new national economic objectives or tasks that have become newly important. Although mobilization facilitates the functioning of the economic system, we also have to underline two kinds of its negative consequences. First, mobilization oversimplifies the economic problems, tasks which in reality are tremedously complex. To be sure, some tasks can be implemented with its help, but certainly at high costs. Second, the never-ending repetition of the prevailing (campaign) slogans and the fact that they cannot be really contradicted weakens the capacity of central planners to forecast the future.This paper — the basic idea of which had already been present in Soós (1985) — was written while the author was visiting the European University Institute in April 1986, within the Research Project on East-West Trade and Financial Relations, directed by Professor D. M. Nuti. The paper was presented to the seminar of the working group on Comparative Economic Systems on 17 April 1986. The author wishes to thank Professor Paul Marer for his editorial help in preparing this final version.     

Global growth to 2024: reversion to which mean?

• We expect global GDP growth to average 3.5% per year (at PPP exchange rates) over the next ten years. This is lower than the 3.8% recorded in 2000–14 though not dramatically so. There will be a modest recovery in advanced economy growth ‐ but not to pre‐crisis rates. Emerging market (EM) growth will slow but remain faster than growth in the advanced economies. And with EM's share in world GDP much increased from 10–15 years ago, EMs will continue to provide a large proportion of world growth.
• EM growth is expected to run at around 4.5% per year in 2015–24, well down on the 6% seen in 2000–14. This includes a slowdown from around 10% to 5–6% in China ‐ but China's share in world GDP has risen so much that China's contribution to world growth will remain very substantial.
• Advanced economies are forecast to grow by 1.9% per year in 2015–24, a big improvement from the 1% pace of 2007–14 (which was affected by the global financial crisis) but below the 1990–2014 average. Indeed, the gap between forecast G7 GDP and GDP extrapolated using pre‐crisis trends in potential output will remain large at 10–15% in 2015–24.
• Global growth will remain relatively strong compared to much longer‐term averages: growth from 1870–1950 was only around 2% per year. But a return to such low growth rates looks unlikely; China and India were a major drag on world growth until the 1980s but are now fast growing regions.
• Our forecast is relatively cautious about key growth factors; the contribution of productivity growth is expected to improve slightly, while those from capital accumulation and labour supply fall back. Demographics will be a more severe drag on growth from 2025–40. Overall, risks to our long‐term forecasts look to be skewed to the downside.

     

Dynamics of Trade Integration and Technological Convergence

The issue of the impact of trade on economic performance and labour markets has been intensively discussed in recent literature on trade liberalization and globalization, where the debate was mainly about identifying the relative impact of trade and technology. The bulk of the existing literature in this area employs, almost without exception, a static Heckscher-Ohlin framework that seems not to be a suitable tool for analysing the ongoing dynamics. This paper presents a dynamic multi-sectoral framework with heterogenous labour to explore the issue of trade liberalization and sectoral catching-up in productivity levels. The model is basically an input-output framework with Schumpeterian features; the latter are modelled as the impact of transitory rents that result from uneven productivity growth and technological catching-up upon the price and quantity systems of the trading economies. Relative productivity and wage rate dynamics across sectors determine the comparative costs and the dynamics of trade specialization. In the Appendix, the equilibrium solutions of the model are derived.     

Endogenous growth, the Solow model and human capital

Both endogenous growth theory and the (augmented) Solow model propose a role for human capital in the growth process though each is based on different conceptual arguments. Since both approaches can justify the inclusion of human capitallevels andgrowth rates in an output growth regression the two theories cannot readily be distinguished empirically. This paper argues that the variable most commonly used in empirical studies to proxy human capital (levels or growth) — school enrolment rates (SERs) — may capture bothstock andaccumulation effects, butchanges in SERs can provide useful additional dynamic information on the contribution of human capital to growth. Empirical evidence from samples of developed and less developed countries during 1960–85 suggests important growth effects associated both with initial levels of, and changes in, SERs. The nature of these effects appears to differ between the two country groups.I am grateful to an anonymous referee and to Subrata Ghatak for helpful comments on an earlier draft of this paper, and to Massimo Suardi for research assistance     

Workfare: Servitude or success formula?

Neither welfare nor workfare is much of a choice. But workfare leads to real choices, freedom, and autonomy. Welfare represents the state's acceptance of its duties to honor the welfare claim rights of those citizens in real need of temporary public assistance. In contrast, workfare recognizes additional claim-rights, namely, those that enable full agency and autonomy through education for employment, with a view toward ensuring that the dependency period is indeed temporary. Critics of workfare cannot be unaware of the educational resources—especially those of open-access community colleges, open days, evenings and weekends—that taxpayers have put at the disposal of everyone who is at all serious about self-improvement.     

Servitization across countries and sectors: Evidence from world input-output data

This paper uses the supply tables underlying WIOT data to explore the provision of services by manufacturing. The service shares differ substantially across countries and sectors, while they remain largely stable over time. A latent class analysis assigns broadly defined manufacturing sectors to economy-wide growth models, differentiating between service- and manufacturing-driven models in catching-up and developed economies. Servitization increases with labor productivity. The service intensities in the sectoral production mix are lower in countries with higher manufacturing shares. This holds for both catching-up and developed economies. However, servitization is largely unrelated to productivity and employment growth. We therefore argue that the degree of servitization is contingent on and an attribute of the respective economic model in which a sector operates.     

Cost and technical change: Effects from bank deregulation

Banks were substantially deregulated during the 1980s. This altered the cost-minimizing mix between deposit interest payments and operating expenses (capital and labor for branch convenience and free deposit services). Measured bank output was relatively unaffected by these changes. The proportion of deposits receiving higher interest rates increased more rapidly than factor quantities were reduced, so unit deposit costs rose. Consumers benefited, but the measured net effects for banks were negative, averaging –0.8% to –1.4% a year in net technical change from 1977 to 1988. These influences were measured three different ways and for both equilibrium and disequilibrium factor input specifications. All three approaches—a standard time trend, a time-specific index, and shifts in cross-sectional cost functions—gave consistent results. The results were robust whether measured at the banking firm or branch office level or on the cost frontier.     

Taut plans, repressed inflation and the supply of effort in centrally planned economies

Conclusions In this paper we have developed a macroeconomic model of a centrally planned economy. In such an economy the use of taut plants to elicit greater supplies of effort from the work force is hampered by the inflationary pressures unleashed by the plan. Consequently the planners cannot, in general, optimize both the supply of effort and the supply of labour but rather must trade off one against the other.Planners may be able to alleviate inflationary pressures if they can impose wage discipline on enterprises or if they are willing to reduce investment. Both of these policies, however, have costs attached to them. Severe credit rationing designed to prevent upward wage drift may in fact reduce the output of enterprises by creating financial bottlenecks. Moreover, while upward wage drift does cause repressed inflation it may also be a way of moving workers from less efficient firms to more efficient ones and thus be useful in an allocational sense. Reductions in the volume of investment also represent a cost to planners since higher current output can be obtained only by sacrificing future output.We have also shown that the key mechanism driving our model, the link between disequilibrium in the market for consumer goods either at the micro-level or in the aggregate does exist. In our sample of East European countries there is a significant inverse relationship between deviations from the normal level of savings and deviations from the trend rate of growth of labour productivity, reflecting, we believe, fluctuations in the supply of effort by households.We are indebted to Zdenek Drabek, Michael Keren, Janos Kornai and J. Michael Montias for helpful comments. We also appreciate comments from the participants in the Ninth International Conference Models and Forecasts '85, Bratislava, Czechoslovakia, as well as from anonymous referees. Any errors and all opinions are, of course, entirely our responsibility.The research underlying this paper was supported by National Science Foundation Grant INT76-21084 and by funding from the National Council for Soviet and East European Research.     

Explaining economic growth in the Soviet Union, 1950–86

Production function estimates are provided for Soviet industrial production and gross national product for the period 1950–86. A variety of alternative specifications is tested, including Cobb-Douglas, constant elasticity of substitution and variable elasticity of substitution production functions, and an error correction mechanism is used to investigate the long-run properties of the estimated equation. The structural stability of the estimates is also examined. Constant-returns-to-scale Cobb-Douglas production functions suggest that the rate of total factor productivity growth in the Soviet economy has declined steadily over time, becoming negative sometime in the period between 1970 and 1980. However the extensive statistical tests can doubt on the validity of any production function estimated on Soviet data.     

Regulation and Productivity

We investigate the impact of occupational safety and health (OSH) and environmental regulation on the rate of growth of total factor productivity (TFP) in the Quebec manufacturing sector during the 1985–88 period. Our results show that environmental regulation and OSH protective reassignments (a prevention policy with respect to OSH) have led to a reduction in productivity growth, while the presence of mandatory prevention programs and of fines for infractions to OSH rules have led to an increase in productivity growth. Interestingly, this is, to our knowledge, the first result showing that OSH regulation may have had a positive effect on productivity growth.     

Boolean comparative analysis of qualitative data

This paper explores the use of Boolean logic in the analysis of qualitative data, especially on the basis of so-called process theories. Process theories treat independent variables as necessary conditions which are binary rather than variable in nature, while the dependent variable is a final cause. In this respect, Boolean comparison appears to be a rigorous method for testing process theories on the basis of qualitative evidence, for example, from case studies. It is argued that Boolean logic may compensate for some of the weaknesses of the conventional approach to process studies — going back to Stuart Mill's (1843) system of logic — by systematically comparing observations without forsaking complexity too much. In addition, Boolean logic systematically structures the kind of interpretive dialogue between theory and evidence typically found in qualitative research. Finally, a procedure for using Boolean analysis is outlined. This procedure involves systematic attempts to falsify and identify hypotheses on the basis of truth tables constructed from qualitative data.     

Utilization of fixed capital and Soviet industrial growth

Growth rates of output and factor productivity in Soviet industry fluctuate around a long-term downward trend. These fluctuations can be partially explained by fluctuations in the growth of services of capital. The capacity utilization rate is taken as a proxy for the extent of utilization of capital stock. Variations in the capacity utilization rate explain a significant part of the changes in the rate of growth of total factor productivity between 1970–1983. Declines in the capacity utilization rate are caused by errors in the allocation of investment, which create an imbalance of capacities between raw-materials and manufacturing sectors.Useful suggestions by Emil Bej, Robert Cambell, Richard Harmstone, Kenneth Gray, and Josef Brada are grateful acknowledged