An Empirical Investigation of Twin Deficits Hypothesis: Evidence from India

Journal of Quantitative Economics - The paper empirically examines the relationship between fiscal deficit and current account deficit in India for the period from 1970–1971 to...     

SKILL FORMATION, CAPITAL ADJUSTMENT COST AND WAGE INEQUALITY

The paper employs a three-sector general equilibrium model for examining the consequences of an infrastructure development scheme to the education sector and an inflow of foreign capital on the skilled-unskilled wage inequality in a developing economy. The education sector faces a capital adjustment cost for which the effective unit cost of capital depends positively on the amount of capital employed. Although both infrastructure development schemes and inflows of foreign capital lead to higher skill formation, the policies produce incongruent effects on the wages of skilled and unskilled labor. Furthermore, the effects of the policies on the skilled-unskilled wage inequality depend crucially on the relative factor intensities of the low-skill and high-skill sectors. Finally, which of the two policies a country should adopt will depend on technological, institutional and trade related factors.     

The village midwife program and infant mortality in Indonesia

Indonesia introduced over 50,000 midwives into villages in the 1990s to provide primary care to women lacking easy access to health facilities. It seems plausible to argue that the significant reduction in infant mortality that occurred from about 1993–94 was a consequence of this. The paper estimates the village midwife program's impact on infant mortality, using data from the Indonesia Family Life Survey. Regressing mortality outcomes against choice of services would lead to biased estimates because of the correlation between service choice and unobserved individual characteristics. Furthermore, non-random placement of midwives could bias estimates of their impact on infant mortality. This study overcomes such endogeneity problems by aggregating mortality outcomes and program prevalence at district level and taking account of district fixed effects in estimating the program's impact. Surprisingly, the results do not support the hypothesis that the midwife program was responsible for the observed decline in infant mortality.     

Preferential trade areas, multinational enterprises, and welfare

Abstract.  The effects of preferential trade areas (PTAs) on the investments by multinational enterprises and their implications for the welfare of members and non‐members are studied in a model with two types of firms: national firms and multinational firms. In the presence of multinational activity PTAs can create new investment as well as divert investment from non‐members to members. Both affect the welfare of members positively. More interestingly, if the investment creation effect of a PTA is sufficiently strong, then the PTA could be welfare enhancing for non‐members as well. JEL classification: F2, L1     

Wage Determination of a Child Worker: A Theoretical Analysis

A theory of wage determination of a child worker is presented using the consumption efficiency hypothesis and the Nash bargaining technique. The employer and the guardian of the child play the bargaining game. The model shows some interesting results regarding the split of the wage between the consumption of the child and the income of the guardian.     

Economic recession, skilled unemployment and welfare

The paper develops a three-sector, specific factor, general equilibrium model with two high-skill sectors and unemployment of skilled labor. One of the two high-skill sectors produces a non-traded commodity whose aggregate demand consists of both domestic demand and an exogenously given foreign demand. The consequences of a decline in the foreign demand for the non-traded good resulting from worldwide economic recession on the skilled and unskilled labor markets in a developing economy have been examined. The analysis finds that the effects on the labor markets crucially hinge on the relative factor intensities of the two high-skill sectors and that through the adoption of appropriate fiscal measures; the country can shield its workforce from the rage of global economic downturn.     

Trade Liberalization and the Profitability of Mergers: a Global Analysis*

We analyze the effects of bilateral tariff reductions on the profitability of cost‐reducing horizontal mergers. Given Cournot competition in a two‐country world, for any positive tariff below a certain threshold, marginal trade liberalization is shown to encourage only those domestic mergers with sufficiently large cost‐savings and to discourage the rest. For tariffs close to, but smaller than, the prohibitive tariff, however, marginal trade liberalization necessarily encourages all domestic mergers. Moreover, we show that for a given level of cost‐savings, the impact of marginal trade liberalization may not reliably predict that of nonmarginal liberalization. Although at high tariffs, domestic mergers are shown to be unambiguously more profitable than cross‐border mergers, near free trade, mergers which yield the most cost‐savings become the most profitable. Thus, when comparing domestic and cross‐border mergers, trade liberalization encourages the type which yields the most cost‐savings.     

Distribution of personal income: Development of a new model and its application to U.S. income data

This paper proposes a four-parameter statistical model of the personalized distribution of income using the ‘income share elasticity’ approach suggested by Esteban (1986). Our proposed model includes the Singh–Maddala (1976) and Dagum (1977) distributions as special cases. The generalized beta II distribution of McDonald (1984) is also a variant of this model. It appears to give an excellent fit to US income data and its empirical performance turns out to be superior to those of the Singh–Maddala (1976), Dagum (1977), the five-parameter Champernowne (1953) distributions and the generalized beta II distribution of McDonald (1984) on some data.     

Generalized assignment models: with an applicationto technology transfer

Summary.  We consider a generalized assignment model where the payoffs depend on the number of matchings that take place. We formulate a simple non-cooperative game and look for subgame perfect equilibrium of this model. Existence is established for a wide class of games. We also look at a refinement criterion which, for the standard assignment model, selects the -optimal outcome as the unique equilibrium. We then apply these concepts to a model of technology transfer between domestic and foreign firms. Received: June 24, 1994; revised version October 12, 1995