Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development

We estimate the respective contributions of institutions, geography, and trade in determining income levels around the world, using recently developed instrumental variables for institutions and trade. Our results indicate that the quality of institutions trumps everything else. Once institutions are controlled for, conventional measures of geography have at best weak direct effects on incomes, although they have a strong indirect effect by influencing the quality of institutions. Similarly, once institutions are controlled for, trade is almost always insignificant, and often enters the income equation with the wrong (i.e., negative) sign. We relate our results to recent literature, and where differences exist, trace their origins to choices on samples, specification, and instrumentation.     

Revisiting the case for a populist central banker

It is known that discretionary policy may give rise to an inflationary bias if wages are negotiated in nominal terms. In a recent issue of this Review, Guzzo and Velasco argued that this bias can be eliminated, and welfare maximized, by the appointment of a central banker who does not care at all about inflation (a ‘populist’ central banker). A conceptual flaw of the latter result is identified here. It is shown that when wages are negotiated in nominal terms the result is true only in the special case of a single, all-encompassing, union. In the more general case of multiple unions, however, inflation increases linearly with their number and a populist central bank may turn out to decrease welfare.     

Intergenerational Earnings Inequality: New Evidence From Italy

Using an innovative dataset built by merging survey and administrative data, we provide new estimates of intergenerational earnings’ inequality between fathers and sons in Italy, extending previous evidence in several directions. We rely on the TSTSLS method to predict fathers’ earnings and compute intergenerational elasticities and imputed rank–rank slopes, trying to reduce estimation biases. Confirming previous evidence, we find that Italy is characterized by a high intergenerational inequality in cross-country comparison. Extending previous analyses, we show that the intergenerational association increases when sons at older ages and multi-annual averages of pseudo-fathers’ and sons’ earnings are considered. We also find that the intergenerational persistence differs across geographical macro-areas and is high also for daughters, especially when family earnings are considered. Furthermore, estimates where possible mediating factors of the parental influence are included among the covariates show that a high intergenerational association persists when sons’ education and occupation are controlled for.     

Banking and the role of money in the business cycle

This paper enriches a standard New Keynesian model with a simple banking sector to investigate the role of money in the business cycle. Maximum likelihood estimation of the model suggests that money balances play a significant role in explaining the intertemporal allocation of consumption and the dynamics of inflation as described by the forward-looking IS and Phillips curves. Nonetheless, the responses of the model’s variables to shocks remain qualitatively similar to a model without money, suggesting that the omission of money balances leaves the model’s transmission mechanism unaffected.     

Inside innovation persistence: New evidence from Italian micro-data

This paper contributes the analysis of the persistence of innovation activities, as measured by different innovation indicators and explores its past and path dependent characteristics. The study provides new insights on the role of R&D investments in innovation persistence and analyses differentiated patterns of persistence across product and process innovation, by accounting for complementarity effects between the two types of innovative behaviour. The empirical analysis is based on a sample of 451 Italian manufacturing companies observed during the years 1998–2006. Results highlight the relevance of innovation persistence. The highest level of persistence is found for R&D-based innovation activities, witnessing the actual presence of significant entry and exit barriers. Moreover, we obtain more robust evidence of persistence for product innovation than for process innovation when complementarity effects between the two types of innovation are accounted for.     

On the boundary behavior of the excess demand function

I revisit thoroughly the standard boundary behavior satisfied by the excess demand function of a competitive economy, and I prove two implications of the boundary behavior. Then, I show that these implications lead to an alternative proof of the existence of competitive equilibria which is instructive, shorter and perhaps easier than the available proofs in the literature.     

Tariffs,trade and unemployment in a disequilibrium model: issues and policies

This paper studies the disequilibrium transition process engaged by increased openness to trade, and the effect of institutions, market behaviors and economic policies on that transition. The issue is analyzed with a simple two country (north and south), two goods model, amended in order to take into account the time dimension of both the production and the decision processes. Investigating the consequences of a tariff decrease by means of numerical simulations, we show to what extent wage and price setting, and the degree of tightness of monetary policy affect the outcome of the disequilibrium process. The main result is that capturing the gains associated with international trade requires market behaviors and economic policies, which are rather different from what is usually prescribed.

Change vs. decline: A comparative analysis of the evolution of TFP in Italian regions,with a particular attention to the case of Turin

Recently a debate emerged in Italy, about the changing pattern of specialization in the sectors traditionally considered as cornerstones of the national economy. Such changes are far from representing a hopeless process of decline. Rather this process should be regarded as a step in a process of structural change, in which one can find the ingredients of creative destruction. This leads to spell out the hypothesis that the Italian economy has been taking a new direction, rather than a dead-end. In this paper we carry out an analysis of the evolution of Total Factor Productivity in the different macro-sectors at the regional level, over the period 1982-2001. The results of the analysis confirm the existence of a generalized process of transition characterized by the growing weight of service sectors. Within the Piedmont region, the case of Turin is of paramount importance, as it has influenced the national economy since the early decades of the 20^th century. (JEL: O41, O47)