On the theory of macroeconomic policy

Summary Jan Tinbergen originated the theory of policy in the 1950s. Here I apply it to contemporary macroeconomics. The two standard instruments of short-run demand management cannot achieve the two usual targets, full employment and price stability. With respect to those goals, these two instruments are collinear, except for small and transient effects on foreign exchange rates. But the mix of fiscal and monetary policies, relative to one another, does have important effects on the composition of national output, as between investment and consumption.I point out that policy-makers, like portfolio managers, should diversify the instruments they use when they are uncertain of their effects. I discuss some pitfalls in the empirical estimation of policy effects, especially possible misinterpretations of simple correlations, and I note that policy rules cannot be invariant to changes in macroeconomic structure. I argue that policy rules should involve responses to new information and in practice allow discretion. Finally, I suggest that Tinbergen's theory of policy needs to be extended to policy coordination among nations.Third Tinbergen Lecture delivered on October 20, 1989, in Utrecht for the Royal Netherlands Economic Association.     

Discriminating Among Alternative Theories of the Multinational Enterprise

Recent theoretical developments have incorporated endogenous multinational firms into the general–equilibrium model of trade. One simple taxonomy separates the theory into "vertical" models, in which firms geographically separate activities by stages of production, and "horizontal" models, in which multiplant firms duplicate roughly the same activities in many countries. The authors nest a horizontal and a vertical model within a hybrid (unrestricted) "knowledge–capital model" and estimate the specifications with data on US foreign direct investment activity. In the nested econometric tests, the data sample cannot distinguish statistically between the unrestricted model and the restricted horizontal model, indicating that the latter captures virtually all of the determinants of FDI. The tests overwhelmingly reject the vertical model.     

The economics of dying: A misapplication of tools

Conclusions Unlike McKenzie and Tullock, we do not know how personsshould treat their bodily organs or what is an ideal exit. That depends upon their utility goals, which are defined in output terms specific to the decision maker. We contend that the body is an input into the utility production process, and therefore, as with any input, it must be maintained and repaired at a level consistent with the output goals for maximization of utility. Thus, from this framework, it is quite consistent for a person to die with healthy organs without any thought of belief in reincarnation or the desire to bequeath one's bodily organs to others, or religious values. Self interest is all that must prevail.Also, the fact that there are interrelationships between the organs in the system, and at points these relationships take on fixed factor characteristics such that reduced levels of operation in one organ can create disorientation or coma or damage to other organs, means that the body cannot die as M-T suggest. Zero capacity for all organs at death is a technical impossibility as well as being inconsistent with the output goals of utility maximizers.     

UK World War I and interwar data for business cycle and growth analysis

This article contributes new time series for studying the UK economy during World War I and the interwar period. The time series are per capita hours worked and average capital income, labor income, and consumption tax rates. Uninterrupted time series of these variables are provided for an annual sample that runs from 1913 to 1938. We highlight the usefulness of these time series with several empirical applications. The per capita hours worked data are used in a growth accounting exercise to measure the contributions of capital, labor, and productivity to output growth. The average tax rates are employed in a Bayesian model averaging experiment to reevaluate the Benjamin and Kochin (J Political Econ 87:441–478, 1979) regression.     

Human capital,trade, and economic growth

Human Capital, Trade, and Economic Growth. — Human capital, because of its special role in innovative activity and technological progress, has formed the bedrock of the new theories of endogenous growth. However, it not only serves as an engine of growth but also as a productive input along with labor and physical capital. In this study, the authors find evidence of the importance of both roles of human capital. They also find that the relationship between growth and the external effects of human capital vary according to trade regime. When literacy rates are relatively high, open economies grow about 0.65 to 1.75 percentage points more than closed economies.     

Union status and merger activity in the U.S.

Theories on merger activity and union membership suggest that conglomerate mergers should enhance the probability of managers employing nonunion workers, while nonconglomerate mergers should be associated with a greater probability of union membership. To test this hypothesis, a standard sample-selection derived union status equation is estimated which includes measures of three types of merger activity as explanatory variables. The findings suggest that being in an industry with substantial conglomerate mergers reduces the chance that a worker is a union member. All other types of mergers are positively associated with the probability of union membership. This pattern holds even after controlling for the possibility of merger endogeneity.     

Social responsibility in micro businesses in an African context: Towards a theoretical understanding

Small businesses often engage in social responsibility (SR) without knowing it or without referring to their actions as SR. This is particularly the case in developing countries where the idea of SR is seen as synonymous with philanthropy. While the literature on small business social responsibility is growing, our understanding of the context-specific determinants of responsible practices in microbusinesses (those that employ less than 10 employees) that dominate the business landscape in many developing countries is still limited. In this paper, we address this gap and offer a theoretical understanding of how microbusiness owner-managers understand and approach SR by drawing on rich qualitative data collected from Nigeria—Africa's largest economy. We utilise Social Representations Theory to understand (1) how and why microbusiness owner-managers limit their understanding of SR to philanthropic activities and (2) the wide range of practices, including philanthropic activities, that account for their overall Responsible Business Practices (RBPs)—those practices that enable them to act responsibly towards their stakeholders and/or operating environments. We find that owner-managers' representations of SR are anchored primarily on an idiosyncratic ethical tendency and inclination towards the creation of social/communal harmony by ‘giving back to society’ and objectified via actions deriving from three ‘giving back’ orientations, namely Core Philanthropism, Social Problem Solving, and Empowering. We model microbusiness owner-managers' RBPs, highlighting the intersectional interplay of the voluntary (SR as philanthropy) and non-voluntary (self-regulatory and legal) dimensions of RBPs. Finally, we discuss the key findings in relation to the extant literature and to policymakers and managers.