Endogenous Imitation and Technology Absorption in a Model of North–South Trade

Abstract

This paper considers the transfer of technology from the North to the South that occurs through trade in high-technology goods and explicitly models the ‘reverse-engineering’ process that allows the South to assimilate new technologies. A key finding of this study is that the South's rate of growth is dictated by the size of the country's human capital, which determines its absorptive capacity and its ability to assimilate knowledge from the North. We find that while a Southern country that is poor in human capital can only imitate, Southern countries that possess sufficiently large human capital endowments, beyond a certain threshold, signal the onset of innovation. We also find that the North enjoys a higher rate of innovation and growth with trade than without. North's gains are the highest when it trades with a human-capital ‘poor’ South, because imitation increases South's demand for Northern intermediates. But trade with the Southern countries that are human capital rich (and therefore involved in innovation), dampens their demand for Northern imports, adversely affecting North's growth. The model predicts growth convergence between the North and a South that is well passed the threshold for innovation.     

Can country trade flows benefit from improved corporate social responsibility ratings?

We set out in this study to examine the effects of country ‘corporate social responsibility’ (CSR) ratings on the international trade flows of 28 countries. Drawing on categorization theory, we examine whether country CSR engagement is a categorizing factor capable of influencing the overall process of categorization. Based upon a two-stage approach, comprising of gravity and panel Tobit models, we find that a country's CSR rating has significantly positive effects on the country's international trade flows. When the CSR rating of a country is higher than that of another rival trading country, this will have significantly positive effects on the bilateral trade flows between the two countries.     

CROSS‐COUNTRY CAUSES AND CONSEQUENCES OF THE 2008 CRISIS: INTERNATIONAL LINKAGES AND AMERICAN EXPOSURE

We model the causes of the 2008 financial crisis together with its manifestations, using a cross‐country multiple indicator multiple cause model. We consider both national and, critically, international linkages between countries and potential crisis ‘epicentres’, including the United States. A country holding an epicentre's securities is exposed through a financial channel, while a country that exports to that epicentre is exposed through a real channel. We are unable to find strong evidence that international linkages can be associated with crisis incidence. In particular, exposure to the United States in either form has little impact. If anything, it appears to help.     

The Dynamic Effects of the US Productivity Boom on Australia*

How has the USA's ‘new economy’ productivity boom affected Australia? We consider this question using a dynamic multisector growth model of the Australian and US economies. We find that productivity growth in the US durables sector generates small but important gains to Australia. We find that the transmission of growth is generated through increased export demand for agriculture. Consequently, the USA's productivity growth tends to favour Australia's traditional export sectors. Likewise, it increases the relative demand for less skilled labour in Australia and reduces the demand for more skilled labour and higher education.     

TIME UNDER AUTOCRATIC RULE AND ECONOMIC GROWTH

We investigate how the length of time a country's regime was autocratic between 1920 and 2000 is correlated with economic growth and per capita income. We find that the longer a country was within an autocracy, the lower is the country's economic performance, even after controlling for other factors. We also find the length of time a country is not autocratic is positively related to growth and income. We claim this evidence is consistent with the thesis that one reason why some countries have had difficulty adjusting to life after autocracy is that the human and social capital necessary to make markets “work” eroded under autocratic regimes and take time to develop afterward. (JEL O17, O43, P0)     

Ideological spillovers across the Atlantic? Evidence from Trump's presidential election

Ideological spillovers refer to the modification of an individual's core beliefs after learning about other people's beliefs. We study one specific international ideological spillover, namely, the effect of the unexpected election of a United States (US) president (Donald Trump on the 9^th of November 2016), who openly questioned the so-called ‘core liberal consensus’, on European's core political beliefs. Using a regression discontinuity design (RDD) around the election event, we show that the Trump presidential election (TPE) gave rise to a ‘backlash effect’. That is, it steered core European beliefs in two specific domains, making Europeans more favourable to (i) globalisation and (ii) international mobility (about 10% change in the overall Likert scale range of the statement that immigrants contribute to a country). Contrasting with the hypotheses of ‘belief contagion’, we do not find evidence that TPE steered illiberal beliefs. Furthermore, TPE improved (deteriorated) the view Europeans had of their own country (the United States).     

Wage Rigidity,Inflation, and Institutions

We study the possible existence of downward nominal wage rigidity (DNWR) at wage growth rates different from zero in aggregate data. Even if DNWR prevails at zero for individual workers, compositional effects might lead to falling aggregate wages, while changes in relative wages combined with DNWR might lead to positive aggregate wage growth. We explore industry data for 19 OECD countries, over the 1971–2006 period. We find evidence for a floor on nominal wage growth at 6 percent in the 1970s and 1980s, at 1 percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that DNWR is stronger in country‐years with strict employment protection legislation, high union density, centralized wage setting, and high inflation.     

Trade expansion and employment generation: how mercantilist does China have to be?

We conduct an input–output analysis of China’s employment changes due to changes in trade structure on a sectoral level. We find that between 2002 and 2007 China generated about 71 million jobs due to trade expansion. We also estimate the additional amount of trade that would be needed if China were using its trade surplus as the main tool to absorb its excess labour. Given the magnitude of this estimated amount, we conclude that this ‘mercantilist’ approach to excess labour absorption is not feasible. Finally, using Spearman rank correlation analysis, we find that the ranking of China’s sectors’ employment generation capacities is inversely related to the ranking of these sectors’ trade performances. This suggests that the ‘mercantilist’ approach to excess labour absorption is not only infeasible but also inefficient. We end the paper by suggesting a more balanced growth path for China.     

Capital control reconsidered: financialisation and economic policy

We consider capital controls and their impact on selected countries, providing a critique of IMF policy. We show how the warning signs of the 1970s were ignored and the consequences became apparent during the ensuing period of neoliberal hegemony. We contend that promoting increased capital mobility is counterproductive as it reduces macroeconomic ‘policy space’. We introduce a development of the international policy ‘trilemma’ in the form of a variant of the idea of the ‘quadrilemma’. We suggest that, in most cases, the key policy driving economic growth is fiscal policy but it may be that its unconstrained use (and that of monetary policy) is not possible either under fixed exchange rates or when free capital mobility exists; a nation may face a ‘demi-quadrilemma’. We contend that, in practice, a country can only adopt ‘two from four’; if it chooses to retain free use of monetary and fiscal policy, it must sacrifice both fixed exchange rates and capital mobility. We advocate the rejection of fixed exchange rates and free capital mobility allowing the retention of requisite monetary and fiscal policy space, and that a multinational approach to the capital control policy would effectively contribute to a growth and development strategy.     

Natural Resources,Institutional Quality,and Economic Growth in China

The resource curse has been mainly studied using cross-country samples. In this paper we analyze a cross-province sample from one country: China. We focus on the interplay between resource abundance, institutional quality, and economic growth, using two different measures of resource abundance (a stock: resource reserves; and a flow: resource revenues), and employing various econometric approaches including varying coefficient models. We find that resource abundance has a positive effect on economic growth at the provincial level in China between 1990 and 2008, an effect that depends nonlinearly on institutional quality (1995 confidence in courts). The ‘West China Development Drive’ policy, initiated in 2000, caused substantial changes, which we investigate through a comparative panel-data analysis.     

Globalization, rent protection institutions, and going alone in freeing trade

We construct a two-country North-South Product-cycle model of trade with endogenous growth and trade barriers. We remove the scale effects on growth by incorporating rent protection activities by Northern incumbents. We examine the effects of two forms of globalization - an expansion of the relative size of the South and unilateral trade liberalization by either country. We find that the location of rent protection institutions and the sectoral trade structure determine whether or not globalization raises steady-state economic growth. We demonstrate that for accelerating worldwide economic growth, contrary to conventional wisdom, unilateral Northern trade liberalization is preferable to bilateral trade liberalization.     

Trade,finance or policies: What drives the cross-border spill-over of business cycles?

In this paper we investigate how income growth rates in one country are affected by growth rates in partner countries, testing for the importance of pairwise country links as well as characteristics of the receiving country (trade and financial openness, exchange rate regime, fiscal variables). We find that trade integration fosters the spill-over of business cycles, both bilaterally and as a country characteristic (trade openness). Results for financial integration are mixed; financial links as pairwise country characteristic are either insignificant or negatively signed (indicating a dampening of cross country spill-overs), but financial openness as characteristic of the receiving country amplifies spill-overs. We find no evidence for a role of the exchange rate regime. Finally, we find that higher government spending and debt reduces countries’ vulnerability to foreign business cycles, presumably through the effect of automatic stabilizers.     

From groundnuts to globalization: A structural estimate of trade and growth

Starting with Romer (1987) and Rivera-Batiz-Romer (1991) economists have been able to model how trade enhances growth through the creation and import of new varieties. In this framework, international trade increases economic output through two channels. First, trade raises productivity levels because producers gain access to new imported varieties. Second, increases in the number of varieties drives down the cost of innovation and results in ever more variety creation. Using highly disaggregate trade data, e.g. Gabon’ s imports of Gambian groundnuts, we structurally estimate the impact that new imports have had in approximately 4000 markets per country. We then move from groundnuts to globalization by building an exact TFP index that aggregates these micro gains to obtain an estimate of trade on productivity growth for each country. We find that in the typical country in the world, new imported varieties account for 10–25% of its productivity growth. However, when we structurally estimate the long-run impacts of these productivity growth effects, we find that import variety growth between 1994 and 2003 raised world permanent income by 17% .     

Fiscal sustainability and dollarization: the case of Ecuador

This article tries to disentangle the dynamic relationships between fiscal variables and economic activity in a small emerging economy characterized by full dollarization, namely, Ecuador. We find that fiscal policy in Ecuador seems to be sustainable, explained by its policy of debt payment through oil revenues, rather than by a fiscal discipline that dollarization is supposed to encourage. The non-oil tax revenues variable is a purely adjusting variable. This result suggests that in a dollarized country that cannot benefit from the ‘seignorage’ revenues, the reliance on volatile oil revenues and on smoothing tax revenues leaves the economy’s fiscal sustainability vulnerable.     

Fiscal position and the financing of productive government expenditures: an application to Latin America

Government spending on public infrastructure, education, and health care can increase economic growth. However, the appropriate financing depends on a country’s fiscal position. We develop a two-sector endogenous growth model to explore how variations in the composition and financing of government expenditures affect economic growth. We find that, when tax rates are moderate, funding public investment by raising taxes may increase long-run growth. If existing tax rates are high, public investment is only growth enhancing if funded by restructuring the composition of overall public spending. Additionally, public investment that is debt financed can have adverse effects on long-run growth due to the resulting increases in interest rates and debt-servicing costs.     

Reconsidering Wagner’s law: evidence from the functions of the government

We revisit Wagner’s law by function of government expenditure. Using data of 14 European countries between 1996 and 2013, we apply panel data and SUR methods to assess public expenditure–income elasticities. We find that some functions of government spending for a few countries (e.g. Austria, France, the Netherlands and Portugal) validate Wagner’s law. For the Netherlands, expenditures with environment protection increase more than proportionately to economic growth, and for France that is the case of spending in housing and community amenities. In addition, Greece is the only country where two public spending items react more than one to one to growth.     

Manufacturing growth accelerations in developing countries

This paper investigates the factors driving manufacturing growth accelerations in a sample of 134 developing countries over the period 1970 to 2014. We first identify growth acceleration episodes of manufacturing value added (MVA) by their year of initiation and according to a country’s income classification. We then estimate a probit model to explain what factors predict these MVA growth accelerations. Our results show that human capital and institutions represent contextual factors that favor the growth of manufacturing, together with macroeconomic policies related to investment, and openness to foreign trade and capital. We also find that most of these factors not only foster episodic accelerations of industry, but they contribute as well to a sustained process of industrialization that characterized the process of economic growth of a few successful countries over the period 1970 to 2014.     

Employment and Productivity Growth in Europe and North America: The Impact of Labor Market Institutions

In this paper, we examine long-run employment and productivity growth in the major economies of North America and Europe from 1960 to the early 1990s. We develop a model in which output growth is determined by the growth of aggregate demand, and the relative contributions of employment and productivity growth to the growth of output depend on country specific labor market institutions. We find that institutions that promote collective bargaining, employment security and social protection have roughly equal and opposite effects on employment growth (negative) and productivity growth (positive), giving rise to an inverse relationship between these variables. The welfare implications of this finding are that labor market deregulation could result in more work and greater inequality and insecurity for workers, without significantly increasing the rate of economic growth.     

The effect of NAFTA on internal migration in Mexico: a regional economic analysis

Trade facilitates growth in some regions of a country while shrinking others, and therefore to benefit from trade, labour may need to be able to migrate. This mobility is particularly crucial in a developing country with high income inequality like Mexico. We seek to answer the following questions: What characteristics facilitate or hinder that internal migration? Has trade liberalization changed the pattern of internal migration in Mexico? We first predict regional economic growth resulting from changes in Mexico-US tariffs by sector. We find that trade liberalization appears to have largely benefited the manufacturing sector. Next, using a spatial gravity model of migration, we find that while economic growth from trade openness drew workers to urban regions in the northern Border States of Mexico, much of the trade-driven migration occurred before NAFTA. Second, contrary to popular belief, migration from largely rural states appears to have decreased since NAFTA. We also find evidence that migration to the United States increased after NAFTA. Last, we find that income disparity in both the destination and origin region deters migration and that this effect increases after NAFTA. Thus, we see evidence that within-region income disparity can hinder migration, potentially exacerbating income disparity among regions.     

Growth opportunities and trade credit: evidence from Chinese listed firms

Private firms in China have led the explosive growth of the country’s economy, but with restricted or no access to formal financing. It is puzzling that these firms use relatively less trade credit than their counterparts in developed countries. We argue that firms with more growth opportunities should rely mainly on internal financing owing to high asymmetric information, especially in a financial market environment biased towards state-owned enterprises (SOEs) such as China. To explore growth opportunities, these firms may reduce their level of trade credit in the trade-off they face in deciding where to invest. Using panel data of Chinese non-financial listed firms for the period 2003–2013, we find that the relationship between growth opportunities and trade credit (both accounts receivable and payable) is significantly negative and is more pronounced in private firms than in SOEs. Furthermore, we also find that subsequent to the new receivable pledge policy being introduced, Chinese firms with more growth opportunities have higher accounts receivable, but similar levels of accounts payable.