Health, Wealth, Fertility, Education, and Inequality

The authors use a new cross-country dataset to estimate the strength of the links between different dimensions of social and economic development, including indicators of health, fertility, and education, as well as material wellbeing. This differs from previous studies in employing data for different income groups in each country in order to provide direct evidence on factors driving inequality, and in using a unique measure of material wellbeing that does not rely on PPP comparisons.     

Trade,Remittances, Institutions,and Economic Growth

This paper empirically investigates the role of trade, remittances, and institutions in economic development in a large sample of developing countries using recently developed instruments for all these variables. Both cross-country (over 30 years) and dynamic panel data (over 5-year periods) regressions of growth rates on instrumented trade, remittances, and institutions provide evidence of a significant impact of trade, institutions, and remittances on growth. While institutions foster growth, remittances hamper it. The effect of trade on growth is positive in cross-sectional regressions but ambiguous in dynamic panel data regressions. These results are indicative of a more important role for trade in explaining growth in the very long run compared with over shorter horizons.     

Ageing,government budgets,retirement, and growth

We analyze the short and long-run effects of demographic ageing – increased longevity and reduced fertility – on per-capita growth. The OLG model captures direct effects, working through adjustments in the savings rate, labor supply, and capital deepening, and indirect effects, working through changes of taxes, government spending components and the retirement age in politico-economic equilibrium. Growth is driven by capital accumulation and productivity increases fueled by public investment. The closed-form solutions of the model predict taxation and the retirement age in OECD economies to increase in response to demographic ageing and per-capita growth to accelerate. If the retirement age was held constant, the growth rate in politico-economic equilibrium would essentially remain unchanged, due to a surge of social-security transfers and crowding out of public investment.     

Money,government debt,q, and investment

The aim of this study is to analyze empirically the linkages among changes in money and federal debt, Tobin's q variable, and investment expenditures in the United States. The vector autoregressive modeling technique proposed by Hsiao and extended by Caines, Keng, and Sethi is employed. The patterns of Granger-causality from the estimated vector autoregression are consistent with the transmission mechanism outlined by Tobin. Both money and debt Granger-cause q; q in turn causes investment and money and debt's effects upon investment operate primarily through their effects on q. However, neither money nor debt are exogenous.     

Inflation,money, interest rate,exchange rate,and casuality: the case of Egypt,Morocco, and Tunisia

This study provides further evidence of the inflationary efects of the rates of growth of money supply, gross domestic product, efective exchange rate, and imported inflation for Egypt, Morocco, and Tunisia using quarterly data from 1964 to 1990. In addition, it examines the Granger causality between inflation and money supply as well as between inflation and the real exchange rate in the countries under consideration. Most of the results are consistent with extant theory and empirical evidence.     

Country terms of trade: trends,unit roots,over-differencing,endogeneity, time dummies,and heterogeneity

The debate about the Prebisch-Singer thesis has focused on primary commodities with some extensions to manufactures. We analyse trends in country terms-of-trade for goods and services rather than those for commodities according to the World Bank income classification. We find that the natural logarithm of the terms of trade for all groups except for the poorest has common unit roots, but none has individual unit roots. As low-income countries have no unit roots over-differencing is inefficient and biases significance levels in first differences against the fall in the terms of trade. For the low-income countries the terms of trade of goods and services are falling at a rate that is significantly negative without and with endogeneity treatment by system GMM. A comprehensive analysis of the effects of time dummies supports the result of falling terms of trade for low-income countries. When all coefficients are country-specific 50% of all low-income countries have falling terms of trade in a simultaneous equation estimation using the SUR method. Food and financial crisis have no effect on the number of countries with falling terms of trade, but (dis-)improve the terms of trade or the significance of the results for a very small number of countries.     

Economic Growth, Inequality, Democratization, and the Environment

We augment the Stokey (1998) model by allowingagents to differ with respect to environmentalquality and income in order to analyze theimpact of income and environmental inequality,and of democratization on aggregate pollution.We find that the impact of a more equal incomedistribution depends on the degree ofdemocracy. In a complete democracy a more equalincome distribution generates, ceterisparibus, less pollution, which is consistentwith indirect empirical evidence, whereas theopposite is the case if democratic rights arehighly restricted. Furthermore, ademocratization is argued to typically lowerboth the income and the environmental qualityof the median voter. In this case, if, inutility terms, the fall in environmentalquality is worse than the fall in consumptionthe median voter decides to tightenenvironmental legislation so that aggregatepollution decreases.     

Vicarelli,Keynes, and the unstable nexus between investment,liquidity, and finance

The goal of this article is to reconstruct Keynes’s vision of the unstable nexus between investment, liquidity and finance, as set out by the Italian economist Fausto Vicarelli (1936–1986). As argued in the article, one of Vicarelli’s main contributions consists of explaining the inherent instability of financially sophisticated capitalist economies in terms of the interaction (and double dissociation) between investment, saving, and stock-holding decisions, within a Keynesian framework characterized by the presence of fundamental uncertainty. While Vicarelli’s interpretation of Keynes is best understood in the context of the post-Keynesian literature, its relevance goes beyond that, as its sheds light on current issues related to the post-2008 financial crisis and its policy implications.     

Capital Flows, Vertical Multinationals, Wage Inequality, and Welfare

Wage inequality between skilled and unskilled labor in the US and its trading partners, Mexico and Chile, has increased since 1980, while Taiwan's wage inequality has decreased since the mid‐1980s. The authors provide a new explanation for the latter, involving a rise in capital flows from Taiwan to less‐developed countries (LDCs) in the form of vertical multinationals (MNEs), and a corresponding rise in intermediate‐good exports from the MNEs to subsidiaries in LDCs. Moreover, national income in both countries definitely improves.     

Courts,contracts, and interference

This paper shows that the possibility of interference in court proceedings, or more generally jamming other agents’ messages, has significant consequences for the form of optimal contracts and the flexibility of decisions that can be made inside firms. Our approach offers a new view of authority, basing it on the ability of parties to have their say in court. Interference gives authority a role in worlds where it is traditionally absent in contract theory, like simple employment relationships without specific investments.     

Collectives,communes, and incentives

A model of individual-worker incentives in alternative economic organizations—collective, communal, capitalist—is developed. It is demonstrated that, ceteris paribus, incentives are much higher in collectives than in communes, and are likely higher in collectives than in comparable capitalist organizations. The effect on incentives of changes in prices, rent, and organization size is examined, and it is shown that individual incentives in a collective increase with the scale of the organization. The impact of various parameters on hours worked is examined in the framework of utility maximization. The results are compared to those of Domar, Ward, and Vanek.     

Trade costs, wage rates, technologies, and reverse imports

Abstract .  This paper explores the effects of transport costs, tariffs, and foreign wage rates on the domestic economy in the presence of reverse imports, with special emphasis on inter-firm cost asymmetry in an international oligopoly model. To serve the domestic market, a foreign firm produces in the foreign country, while two domestic firms produce either at home or abroad. Surprisingly, an increase in the foreign wage rate may increase the profits of a firm producing in the foreign country. Even if all firms produce in the foreign country, an increase in the foreign wage rate may improve domestic welfare.     

TRADE,WAGES, AND PRODUCTIVITY

We develop a general equilibrium monopolistic competition model in which wages, productivity, consumption diversity, and markups respond to trade integration. We structurally estimate the model and simulate the impacts of removing all trade barriers generated by the Canada–U.S. border. Firm selection gets tougher by 8.09% in Canada and by 0.80% in the United States. Markups that consumers face, which are central to welfare, fall by up to 12.11% in Canadian provinces and by up to 2.82% in U.S. states. However, changes in markups measured at the firm level are ambiguous, thus providing a different piece of information.     

Lying,Integrity, and Cooperation

While talk is cheap to some, it is expensive to others for whom moral considerations come into play. We employ a simple two-stage modified prisoner's dilemma game where integrity is endowed on a continuum to analyze when agents will lie in random economic interactions. If there is sufficient integrity in the population, all agents make a promise in the first stage to cooperate in the second. Some agents always lie, some always tell the truth, and some behave conditionally. Enhanced cooperation is a byproduct of integrity. In a second random interaction without the possibility of exit, some agents “switch” their behavior, that is, some who lied in the first period now tell the truth in the second (they've “reformed”), and some who told the truth in the first period now lie in the second (they've become “cynical”).     

Supply,wealth effects,negative multipliers,and stability

This paper is concerned with the Blinder-Solow contention that negative government expenditures multipliers are trivial inasmuch as the resulting equilibrium is unstable in a conventional IS-LM model with constant prices. An aggregate supply side, which features progressive taxation of labor income and a real balances effect in the labor supply equation, is added to the model, and it is shown that negative multipliers are not necessarily inconsistent with local asympototic stability.     

Basic income,liberal neutrality,socialism, and work

Liberal critics often object to basic income (BI) on the grounds that it violates reciprocity and is biased toward those who choose voluntarily to opt out of work and thus violate the principle of liberal neutrality toward conceptions of the good life. In the first part of this paper I argue that liberal neutrality favors BI. Marxist critics of BI are less likely to accept liberal neutrality, but I argue in the second part that the argument for BI in the first part applies with equal force to Marxist objections that BI is unfairly exploitative of workers. Marxists are also less likely to accept current labor market trends, seeing socialism as affording more opportunity for guaranteeing everyone a right to decent work, and suspecting BI of making the unfair inequalities of capitalism a little more palatable while diverting attention from a more equitable socialist alternative. I argue that BI is not incompatible with socialism or Marxism, and should not be opposed to but rather combined with strategies for full employment.     

Trade, regulations, and income

We examine the relationship between openness and per-capita income using cross-country data from 126 countries. We find that trade leads to a higher standard of living in flexible economies, but not in rigid economies. Business regulation, especially on firm entry, is more important than financial development, higher education, or rule of law as a complementary policy to trade liberalization. Specifically, after controlling for the standard determinants of per-capita income, our results imply that a 1% increase in trade is associated with more than a one-half percent rise in per-capita income in economies that facilitate firm entry, but has no positive income effects in more rigid economies. The findings are consistent with Schumpeterian “creative destruction”, which highlights the importance of new business entry in economic performance, and with previous firm-level studies showing that the beneficial effects of trade liberalization come largely from an intra-sectoral reallocation of resources.     

Rule of law, democracy, openness, and income

We estimate the interrelationships among economic institutions, political institutions, openness, and income levels, using identification through heteroskedasticity (IH). We split our cross‐national dataset into two sub‐samples: (i) colonies versus non‐colonies; and (ii) continents aligned on an East–West versus those aligned on a North–South axis. We exploit the difference in the structural variances in these two sub‐samples to gain identification. We find that democracy and the rule of law are both good for economic performance, but the latter has a much stronger impact on incomes. Openness (trade/GDP) has a negative impact on income levels and democracy, but a positive effect on rule of law. Higher income produces greater openness and better institutions, but these effects are not very strong. Rule of law and democracy tend to be mutually reinforcing.     

Growth,Death, and Taxes

Recent theories of endogenous growth suggest that changes in tax rates may permanently affect growth. However, attempts to quantify these growth effects have reached very different conclusions in spite of a common theoretical framework: the neoclassical growth model with human capital accumulation by infinitely lived households. This paper shows that a model which explicitly specifies human capital accumulation over the life-cycle provides sharper answers. In such a model, a plausible range for the growth effects of eliminating taxes in the United States is between 0.5 and 1.3 percentage points compared with 0 to 4 percentage points in the infinite horizon model. The much wider range found in the literature is due to two assumptions which are commonly viewed as innocuous simplifications but contrast sharply with traditional human capital theory: that households are infinitely lived and face constant point-in-time returns in human capital accumulation. The widely held view that long, finite horizons are closely approximated by infinite horizons is generally invalid. Abstracting from finite horizons leads to a systematic overstatement of the growth effects of taxes. Journal of Economic Literature Classification Numbers: J24, O41.     

Search, Money, and Prices

It is well known that models in which money is used as a medium of exchange to lubricate trading, frictions display multiplicity of equilibria. I show that the amount of activity varies as the value of money differs across these equilibria when production opportunities involve random fixed costs. When money has high value, trade is more profitable; therefore, there will be more agents engaged in trade relative to equilibria in which money has lower value. The higher-activity equilibria display higher production not only because more is produced and exchanged per transaction but also because more transactions occur per period. This Diamond-style result is obtained without increasing returns in the matching technology.