Governments,Exports and Growth: Responding to the Challenges and Opportunities of Globalisation

We live in an increasingly globalised world. Trade has consistently grown faster than GDP and has been an important driver of world growth. What role should government play in this process? This paper considers the rationale for government action and the merits of various policies focusing on the UKs experience: the benefits of openness to trade and overseas investment and the merits of tackling barriers that discourage greater participation by firms in international markets. It also considers whether this approach needs to be adapted given current trends in globalisation, concluding that a continued emphasis on openness and addressing market failures will be welfare enhancing.     

Greenhouse abatement policy: insights from the G-cubed multi-country model

The third meeting of the Conference of the Parties of the Framework Convention on Climate Change held in Japan last December was a lost opportunity to set a realistic policy framework for addressing climate change in the coming decades. A number of countries proposed targets for greenhouse emissions, to be reached by a target date. The outcome was a range of different targets for each country. Analysis with the G-cubed multi-country model suggests that fixed targets are a costly way to address climate change. The extent of potential cost suggests the agreement will eventually fail. A better way to address climate change is to focus on uniformity in policy instruments that deliver differentiated outcomes rather than focus on differentiated policy settings.     

Long term projections of carbon emissions

Future scenarios of climate change depend on the projections of greenhouse gas emissions, which are highly uncertain. A framework for projecting emissions should focus on the sources of economic growth and the changing structure of the global economy over time. It also requires an understanding of key historical and statistical issues, including the role of convergence assumptions and the appropriate basis of comparisons between countries. This paper presents a methodology developed using the G-Cubed multi–country model in which the economic structure and emissions outcomes are determined simultaneously. In order to illustrate the importance of the assumptions underlying the way these long term carbon projections are produced we also explore the debate around the “Castles and Henderson Critique” of the Special Report on Emission Scenarios (SRES) regarding the use of Market Exchange Rates (MERs) rather than Purchasing Power Parity exchange rates (PPPs) for benchmarking income differentials in the world economy. We show that under one scenario, emission projections based on convergence assumptions defined in MER terms are 40% higher by 2100 than emission projections based on PPP comparisons of income differentials. While this result can not necessarily be generalized to all forecasting frameworks, the potential magnitude of the difference suggests that this is a significant issue for such projection efforts.     

Comparing the global performance of alternative exchange arrangements

This paper presents and applies a methodology useful for studying the operating characteristics of a number of alternative monetary arrangements using a large-scale simulation model of the world economy. We consider the performance of the regimes when policymakers do or do not observe the shocks, and when policymakers infer the shocks using an optimal filtering rule. Although the results are model specific and at best illustrative of the issues involved, the approach does have the advantage of providing a richer framework of analysis than is possible in simple models of international interdependence.     

Farmers, government, and the environment: the settlement of Australia's 'wet frontier', 1870–1920

Historical studies of Australian agriculture have tended to concentrate on the difficulties of farming in a dry environment. The extension of farming into high-rainfall, densely forested regions (what I term the wet frontierc ) has been almost completely overlooked. This article is an attempt to redress this imbalance. It concentrates on the settlement of the wet frontier between 1870 and 1920. Up to about 1890 settlement was slow and often unsuccessful because of the high cost of forest clearance, environmental problems, deficiencies in transport, and government hostility and indifference. However, after 1890 increased demand for butter and improvement in dairy production technology transformed the wet frontier into a highly productive agricultural region.     

Dividend payout and executive compensation: theory and evidence from New Zealand

Using a model based on Bhattacharyya (2007), we predict a positive (negative) relationship between the earnings retention ratio (dividend payout ratio) and managerial compensation. We use tobit regression to analyse data for New Zealand firms' dividend payouts over the period 1997–2015 and find results consistent with Bhattacharyya (2007). These results hold when the definition of payout is modified to incorporate both common dividends and common share repurchases. Our results indicate that corporate dividend policy among New Zealand firms is perhaps best understood by considering the dividend payout ratio, rather than the level of, or changes in, cash dividends alone.     

Insights into accounting choice from the adoption timing of International Financial Reporting Standards

This paper collects survey evidence on the costs and benefits of adopting International Financial Reporting Standards (IFRS). It also examines the motivations for the timing of IFRS adoption. Significant differences exist between early and late adopters for three of nine benefits and for one of six cost measures. No significant differences exist in terms of firm size or the impact of IFRS on contracts. Early adopters perceive themselves as market leaders. They are more certain about the manageability of implementing IFRS and are more specific with regard to the impact of IFRS adoption. Late adoption decisions are motivated by adverse consequences and uncertainty.     

Learning and international transmission of shocks

This paper studies the implications of adaptive learning in the modelling of inter-country linkages in a two-region MSG G-cubed model built on micro-founded behaviors of firms and households. The nature of the transmission process under rational expectations versus adaptive learning is explored. We investigate the propagation mechanism within and across borders for various shocks and policy changes within the United States: change in inflation target, fiscal policy, productivity shock, and rise in equity risk. Adaptive learning is found to change the short run sign of transmission in most cases but this also depends on the fraction of forward-looking agents in the economy.     

Modelling reality

There is a thriving debate on the usefulness of economic modelsfor policy analysis which this paper explores. It argues thatthere is a need for models that incorporate both the modernintertemporal approach to macroeconomics and short-run ad-hocbehaviour. This need cannot be met by the simple models thatpermeate the macroeconomics literature, but requires large-scalesimulation models such as the MSG2 and G-Cubed multi-countrymodels. In particular, it is shown that the approach of thesemodels gives insights into the adjustment into a number of historicalepisodes which are not well explained by simple macroeconomicframeworks: Reaganomics in the 1980s; German reunification inthe early 1990s; fiscal consolidation in Europe in the 1990s;the formation of NAFTA; the Asian Crisis; and the current productivityboom in the USA. The paper also argues that using a well-definedtheoretical specification but introducing real-world rigiditiescan also go some way towards explaining the so called 'six majorpuzzles in international macroeconomics' highlighted in a recentpaper by Obstfeld and Rogoff (2000).     

Korean Unification: Economic Adjustments under German Assumptions

This paper explores the impact of unification on North and South Korea under the hypothetical scenario that German‐type reunification occurs in the Korean peninsula. Simulation results using a global dynamic general equilibrium model show that with comprehensive market‐oriented reform and opening, the North Korean economy could capitalize on its growth potentials. Unification can reduce the growth rate in South Korea for a certain period following the unification shock due to the transfer of resources out of the South into the North and an increase in risk on the Korea peninsula. Due to the relative sizes in population and per capita gross domestic product of the two Koreas, unification can be more disruptive on North and South Korea, compared to the experience of Germany. The critical factors determining the economic effects of unification are the nature of wage‐adjustment, the size of resource transfers from the South to North, and exchange rate policy.