DO RISING REAL WAGES INCREASE THE RATE OF LABOR‐SAVING TECHNICAL CHANGE? SOME ECONOMETRIC EVIDENCE

The long‐run relationship between real wages and labor productivity is investigated using cointegration and Granger non‐causality tests for the US economy over the period 1869–1999. The series are cointegrated, indicating that there is a link between real wages and labor productivity in the long run. Granger non‐causality tests support unidirectional causation from real wages to labor productivity. This outcome corroborates the conception that increases in real wages drive profit‐seeking capitalists to raise labor productivity as their main weapon in defending their profitability. This result is consistent with a long tradition among economists that perceives technical change as being biased toward labor‐saving.     

THE NUMÉRAIRE PROPERTY AND LONG‐TERM GROWTH OPTIMALITY FOR DRAWDOWN‐CONSTRAINED INVESTMENTS

We consider the portfolio choice problem for a long‐run investor in a general continuous semimartingale model. We combine the decision criterion of pathwise growth optimality with a flexible specification of attitude toward risk, encoded by a linear drawdown constraint imposed on admissible wealth processes. We define the constrained numéraire property through the notion of expected relative return and prove that drawdown‐constrained numéraire portfolio exists and is unique, but may depend on the investment horizon. However, when sampled at the times of its maximum and asymptotically as the time‐horizon becomes distant, the drawdown‐constrained numéraire portfolio is given explicitly through a model‐independent transformation of the unconstrained numéraire portfolio. The asymptotically growth‐optimal strategy is obtained as limit of numéraire strategies on finite horizons.     

ARE LONG‐RUN PRICE STABILITY AND SHORT‐RUN OUTPUT STABILIZATION ALL THAT MONETARY POLICY CAN AIM FOR?

A central tenet of the so‐called new consensus view in macroeconomics is that there is no long‐run trade‐off between inflation and unemployment. The main policy implication of this principle is that all monetary policy can aim for is (modest) short‐run output stabilization and long‐run price stability, i.e. monetary policy is neutral with respect to output and employment in the long run. However, research on the different sources of path dependency in the economy suggests that persistent but nevertheless transitory changes in aggregate demand may have a permanent effect on output and employment. If this is the case, then, the way monetary policy is run does have long‐run effects on real variables. This paper provides an overview of this research and explores conceptually how monetary policy should be implemented once these long‐run effects are acknowledged.     

An asymmetric analysis of the J‐curve effect in the commodity trade between China and the US

This paper follows a non‐linear ARDL error‐correction approach to examine the presence of the J‐curve in the commodity‐level trade between the United States and China. The analysis disaggregates the US–China trade flows by commodities and separately examines the trade balance responses of 97 commodities to the changes in the real yuan–US$ exchange rates. The analysis at the commodity level alleviates potential aggregation bias that is present in earlier studies offering little evidence for long‐run asymmetric effects of exchange rate on the China–US trade balance. We find strong support for short‐run asymmetric effects in the case of two‐third of the commodities, whereas significant long‐run asymmetric effects are present in the case of one‐third of the commodities including those commodities which command large shares in the China–US trade.     

International Trade and Economic Growth Nexus in Australia: A Robust Evidence from Time‐Series Estimators

This study examines the effects of international trade on output and tests the null of Granger non‐causality between trade and economic growth in Australia. The single‐equation IV‐GMM, DOLS, FMOLS and NLLS and the system‐based ML estimates consistently support the positive and significant long‐run effects of exports and investment on output. The effects of imports are consistently negative across all the estimates. The OLSEG, RLS and ARDL‐ECM estimates provide a mixed and weak and that overparameterised level‐VAR estimates no support for the effects of trade on output. The estimates of the model with structural breaks provide a dominant support for the cointegrating relationship among variables. In conclusion, the evidence supporting the positive and significant long‐run effects overwhelms the evidence providing a mixed, weak or no support for the effects of trade on output. The results of the study can be inductively generalised to mimic the findings of the literature at large and to suggest that a part of the inconclusiveness over the gains of trade could analogously be ascribed to the use of different methodologies and test statistics across studies. The results support the acceleration of exports and investment to foster the higher levels of output and economic growth.     

Long‐Run Stock and Operating Performance of Underwriter Warrants: Evidence from Seasoned Equity Offerings

We examine the long‐run stock and operating performance of firms issuing underwriter warrants. Using matched samples, we found significant long‐run underperformance of seasoned equity offerings (SEOs) with warrant compensation, relative to SEOs with cash compensation, following offering announcements. Profitability measures of firms issuing underwriter warrants are also significantly lower over the post‐offering period. In sharp contrast to these results, growth measures of warrant‐issuing firms are greater for both pre‐ and post‐offering periods. Combined together, our results suggest that underwriter warrants are offered in a way to take advantage of the higher growth potential of issuing firms in the short term, whose growth trend is, however, transitory and not materialized into higher stock or operating performance over the long‐run, post‐offering period. We interpret our results as suggesting that the certification effect of SEOs with warrant compensation through growth signaling does not last in the long run. We further offer a behavioral approach as explanations of the short‐run outperformance of SEO firms with warrant compensation with empirical evidence supporting the Miller's divergence of opinion hypothesis.     

An empirical analysis of the relationship between the hedge ratio and hedging horizon: A simultaneous estimation of the short‐ and long‐run hedge ratios

This article analyzes the effects of the length of hedging horizon on the optimal hedge ratio and hedging effectiveness using 9 different hedging horizons and 25 different commodities. We discuss the concept of short‐ and long‐run hedge ratios and propose a technique to simultaneously estimate them. The empirical results indicate that the short‐run hedge ratios are significantly less than 1 and increase with the length of hedging horizon. We also find that hedging effectiveness increases with the length of hedging horizon. However, the long‐run hedge ratio is found to be close to the naïve hedge ratio of unity. This implies that, if the hedging horizon is long, then the naïve hedge ratio is close to the optimum hedge ratio. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:359–386, 2004     

TRADE,NON‐SCALE GROWTH AND UNEVEN DEVELOPMENT

This paper investigates the relationship between trade and economic development using a two‐country, non‐scale growth model. Depending on the share of the expenditure for manufactured goods, we obtain two different results with regard to long‐run production patterns. Whether or not the follower country can catch up with the leader country in the long run depends on two factors: (1) the patterns of production in both countries and (2) the measure of economic welfare that is used, i.e. per capita income or per capita consumption.     

DEMAND POLICIES FOR LONG‐RUN GROWTH: BEING KEYNESIAN BOTH IN THE SHORT AND IN THE LONG RUN?

The idea of demand‐led growth is defended by neo‐Kaleckians and neo‐Keynesians using very specific assumptions. In their models the paradox of costs is always valid in the long run. The central message of this paper is that these specific and strong assumptions are not needed to defend the Kaleckian perspective of a demand‐driven long‐run growth. What is needed is simply a less demanding theory of flexible mark‐ups in an open economy. The formal model developed in this paper shows that long‐run growth may be demand driven even when the paradox of costs does not hold in the long run.     

Does Post‐ante Investment Experience Matter? Lessons from FDI in China

Ample efforts of FDI literature have researched on the motives and determinants of FDI flows based on ex‐ante conditions. Little has been studied with regard to the effects of post‐ante behaviour in determining future investment decisions. Post‐ante experience of FDI decisions with regard to foreign investors’ satisfaction or dissatisfaction and future profit expectations on recurrent decisions are critical. This paper, thus, attempts to investigate FDI in the context of an emerging market environment with emphasis on how environmental and institutional factors and the micro‐firm effects of how investors’ post‐ante views on profits expectations and investment experience would affect MNCs’ decisions on recurrent investment and firm relocation. Empirical results show that decisions in the short and long run were affected differently by the factors under study. Specifically, the short‐run decisions were more affected by profit expectations while the long run by post‐ante experience on investment satisfaction/dissatisfaction and environmental and institutional determinants.     

The macroeconomic role of currency reserve accumulation in emerging markets—The Asian experience

The impact of currency reserve accumulation is controversially discussed since reserve accumulation potentially destabilises the international financial system and causes crises due to higher systemic risk. The main aim of this paper is to put the macroeconomic role of currency reserve accumulation for four Asian economies under closer scrutiny. The key question is whether accumulating currency reserves is beneficial from a long‐run perspective. Based on a vector error correction approach, we start by analysing long‐run steady‐state relationships between currency reserves, exchange rates against the US dollar, real GDP and interest rates. Our findings show that cumulated currency reserve shocks significantly affect real GDP . A likely explanation for our finding is that accumulation of reserves has supported growth through providing liquidity and supporting the development of the financial sector for the economies under observation.     

The Long‐run Relationship Between Trade and Population Health: Evidence from Five Decades

In recent years, the increase in international trade has sparked a debate about the impact of international trade on population health. To date, however, there has been very little econometric research on the relationship between these two variables. This paper examines the long‐run relationship between trade openness and population health for a sample of 74 countries over five decades, from 1960 to 2010. Using panel time‐series techniques, it is shown that international trade in general has a robust positive long‐run effect on health, as measured by life expectancy and infant mortality. This effect tends to be greater in countries with lower development levels, higher taxes on income, profits, and capital gains, and less restrictive business and labour market regulations.     

Demand‐led growth with endogenous innovation

This paper contributes to the recent macro‐dynamics literature on demand‐led growth, drawing upon the seminal idea that the implications of Harrodian instability may be tamed by a source of autonomous expenditure in the economy. Contrary to the other contributions in this literature, real autonomous expenditure is not growing at an exogenously given rate, and partly consists of a flow of profit‐seeking R&D and innovation expenditures raising labour productivity through time. If the state of distribution, hence the wage share, is exogenously fixed and constant, the model gives rise to dynamics in a two dimensional state space, that may converge to, or give rise to a limit cycle around, an endogenous growth path. An exogenous rise of the profit share exerts negative effects on long‐run growth and employment, showing that growth is wage led.     

An Analysis of Sorting and Recycling of Household Waste: A neo‐Ricardian Approach

One of the most interesting but troublesome features of daily recycling is the mixture of different types of household waste and degradation of a recycled material caused by the mixture of different types of waste. This is often seen in recycling of materials such as used papers, plastics and so on. This paper analyses this aspect, and demonstrates how the formation of prices and activity levels is made in a long‐run growing economy, by means of a neo‐Ricardian type of production model. It is proved that a long‐run equilibrium exists under reasonable assumptions. It is also shown how the sorting rate of different types of waste affects the grade of recyclable resources as well as prices.     

Raising the Mandatory Retirement Age and its Effect on Long‐run Income and Pay‐as‐you‐go (PAYG) Pensions

In this paper we study the effects of raising the mandatory retirement age in the neoclassical growth model context. It is shown that postponement of the retirement age may be harmful for long‐run income and even for pensions. Our findings show that the retirement age might be reduced, thereby obtaining a higher income and even higher pension benefits. This suggests that the idea that a higher mandatory age of retirement is always beneficial in the long run for income and pension payments is theoretically controversial.     

Foreign Exchange Reserves and Import Demand: Evidence from Latin America

This paper investigates the impact of foreign reserves, domestic real income and relative import prices on import demand for seven Latin American countries. We differentiate empirically between the short‐run and long‐run impact of reserves, income and prices on imports. The paper has three main results. First, we show that there exists a unique long‐run relationship among real imports, real income, relative import prices and real foreign exchange reserves for all seven countries. Second, we find that increases in foreign exchange reserves exert a significant positive effect on import demand in both the long run and the short run in all countries. However, the economic impact of foreign exchange reserves is rather small. Finally, we find that the long‐ and short‐run impact of real domestic income on import demand is positive as well, while the effect of relative prices is negative.     

LONG‐RUN RISING SUPPLY PRICE AND THE NUMÉRAIRE

When a set of industries is kept in long‐run equilibrium, it is never possible to change just one price at a time. But when various (or all) prices are changing, the direction of change of any one price can depend on the numéraire adopted. What does it mean, then, to say that a long‐run supply curve is upward (or downward) sloping? Can this qualitative property be independent of the numéraire in terms of which the product price is being measured? In general, it cannot.     

Are Human and Social Capital Linked? Evidence from India

This paper develops a two‐period Overlapping Generations (OLG) model of endogenous growth in which a two‐way relationship between social capital and human capital is studied. In order to illustrate the impact of public policies, the model is calibrated using the data for a low‐income country, India and a sensitivity analysis is reported under different parameter values. Based on the numerical analysis, this paper focuses on possible trade‐offs in the allocation of government spending between two productive components, that is, social capital‐related activities and education. The results of this paper show that an increase in the share of public spending on social capital‐related activities through a cut in spending on education or vice versa entails trade‐offs. However, the trade‐off fades away and the net impact on long‐run growth turns out to be positive for different parameter values in the case where a higher share of spending on education is financed by a cut in spending on social capital‐related activities but a policy in improving social capital accumulation at the expense of education is always detrimental to long‐run growth.     

Monetary Dynamics of Inflation in China

This paper investigates both the short‐run and the long‐run relationships between monetary growth and inflation in China between 1980 and 2010. We construct multivariate dynamic models based on Friedman’s quantity theory of money (but permitting money to be endogenous) and Meltzer’s monetarist model. The empirical results provide robust evidence that there is a bilateral causal relationship between monetary growth and inflation as well as between monetary growth and output growth. An indirect and implicit causal relationship between monetary growth and inflation is found through the asset inflation channel. There are also long‐run equilibrium relationships between money stock, price index and other relevant variables. The present paper further provides a historical exploration of the mechanism of the monetary dynamics of inflation in China over the underlying period. We conclude that the monetary growth rule is likely to be the most promising policy orientation for China to manage its inflation.     

A Cointegration Analysis of Car Advertising and Sales Data in the Presence of Structural Change

This paper examines whether there is a long‐run stable equilibrium relationship between advertising and sales across the market segments of the UK car industry over the period 1971–2001. In order to achieve this goal, we allow for structural breaks in the series using cointegration techniques. The results show the existence of long‐run equilibrium relationships in all six market segments, although in four of them the relationship is not stable. In general, one structural change is detected in the late 1970s and another in the early 1990s, coinciding with two economic recessions. When we do not account for structural changes, the estimated long‐run elasticities of advertising on sales are seen to be substantially downwardly biased. Finally, a noticeable increase is observed in long‐run elasticities in most car market segments during the nineties with respect to previous decades.