One Money,One Market: A Revised Benchmark

The introduction of the euro generated substantial interest in the impact of currency unions (CUs) on trade flows. Initial estimates suggested a tripling of trade, which gave rise to a literature in search of “more reasonable” CU effects. Theoretical derivations of the gravity model highlight, however that the CU literature neglects to control simultaneously for general equilibrium effects (multilateral resistance) and unobserved bilateral heterogeneity among trade partners. Once we introduce the appropriate controls, CU trade effects are shown to range around 50%. We also highlight that the practice of reporting average CU effects generates misleading results. The average effect is shown to be a composite of disparate individual CU effects ranging from 40% (euro) to about 100% (Central African franc).     

FOREIGN DIRECT INVESTMENT,NON‐TRADED GOODS AND REAL WAGES

Using a three‐sector general equilibrium model with non‐traded goods, we investigate the impact of foreign direct investment on the real wages of skilled and unskilled workers. We show that foreign direct investment increases the real wages of skilled and unskilled workers alike, but widens the gap between the two under plausible conditions.     

Partial Regulation in Vertically Differentiated Industries

We provide theoretical foundations for quality‐adjusted price‐cap regulation in industries where a regulated incumbent and an unregulated entrant offer vertically differentiated products competing in price and quality. We show that, whether or not the incumbent anticipates the reaction of the entrant, the optimal weights in the cap depend upon the market served by the entrant, despite the latter not being directly concerned by regulation. We further show that the cap is robust to small errors in the weights. Our findings point to the conclusion that, in partially regulated industries, regulators should use information about the whole sectors rather than on the sole regulated incumbents.     

DELAYED OVERSHOOTING AND REAL EXCHANGE RATE PERSISTENCE IN AN IMPERFECT INFORMATION MODEL

Recent studies have pointed out that monetary shocks in sticky price models cannot generate real exchange rates that exhibit delayed overshooting and are highly persistent. This paper demonstrates that such exchange rate dynamics can be generated by incorporating incomplete information about the true nature of the monetary shock into a standard New Keynesian model of a small open economy.     

NORTH–SOUTH TRADE WITH MULTINATIONAL FIRMS AND INCREASING PRODUCT VARIETY*

We present a model of North–South trade with multinational firms and increasing product variety. Firms engage in innovative R&D to develop new product varieties in the North, and foreign affiliates of multinational firms engage in adaptive R&D to learn how to produce product varieties in the South. We find that a shift to stronger protection of intellectual property rights in the South induces foreign affiliates of multinational firms to increase their R&D expenditures, results in a faster rate of technology transfer within multinational firms, and increases long‐run consumer welfare in both regions.     

A form of government organization from the perspective of transaction cost economics

Taking the approach of the superfirm, we characterize government organization through six different features. First, citizens are viewed as sovereign owners of a superfirm; elected officials are employees of the sovereign citizens. Second, in analogy to the economic principle of the division of labor and specialization, a division of labor between five independent branches of government is advocated: the legislative, the budgetary, the executive, the law enforcement, and the judiciary branch. Third, we do not suggest a mechanism of checks and balances between government branches but deal with the threat of tyranny using the principle of separation of decision control and decision management developed by Eugene Fama and Michael Jensen. Fourth, with election as a decision control device, we demarcate the constituency of the budgetary branch by age groups to provide an explicit control mechanism for intertemporal and intergenerational trades. Fifth, to strengthen sovereign citizens' decision control, the powers to recall elected chief public servants, to declare emergency and war, to sign into international treaties, and to amend the constitution are vested with a national assembly. Sixth, there is no head of state.     

Expenditure behavior and children's welfare: an analysis of female headed households in Jamaica

This paper presents an analysis on the expenditure behavior and children's welfare among female-headed households in Jamaica. Included in the examination of household composition are the demographic effects, endogeneity of total expenditure, the headship variable and the endogeneity of family structure. Using the 1989 Jamaican Survey of Living Conditions (SLC), expenditure estimation on over 100 goods for 3500 household was examined. This study utilized the Ordinary Least Square estimates, 2 SLC and endogeneity tests, and partnered and unpartnered household heads. Results for the demand for preventive health care were significant among older children in female-headed households, with a 4% increase in the probability of a check-up across all ages. This study presents a partial explanation of lower morbidity rates in female-headed households despite lower budget and total per capita expenditure levels. In conclusion, this study confirms the significant influence of sex and union status of the household head on household expenditure behaviors with implications for individual household members, with more positive outcomes among children despite differences in budget allocation and lower health expenditures.     

PUBLIC ENTERPRISE IN THE EUROPEAN UNION: prospects and constraints

ABSTRACT * : The author highlights the problems and prospects of public enterprises within the European Union, as well as the major adjustments considered necessary for these enterprises to fulfil their role. He argues that general criteria determining whether the production of goods and services should be in the public sector cannot be readily established in the European Union, since public supply does not solely depend on the specific economic characteristics of the particular good or service, but also on the prevailing social, cultural and economic conditions in each country, on the economic policy pursued, and on the structural characteristics of its private and public sectors, including entrepreneurial and trade union behaviour.