International trade and domestic distortions

When full competition prevails in product, labor, and capital markets, positive or negative external trade shocks may be accommodated by the migration of jobs between sectors; the negative impact on some households?? income of lower nominal wages will be more than offset by lower prices of imported final goods. Unemployment, if any, will be temporary, unless labor market rigidities prevent the necessary adjustment. By contrast, we argue that trade shocks trigger a process of creative destruction that necessarily causes distortions in the structure of productive capacity and, hence, market disequilibria. Therefore, the structural change that follows trade shocks can no longer be analyzed within an equilibrium framework. The transition following a shock may be characterized by increasing imbalances, and create scope for policy intervention. The model presented in this paper, which focuses on the time dimension of production and market imbalances, allows us to clarify the debate.     

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.

Intertemporal complementarity and money in an economy out of equilibrium

The role of money clearly stands up in a truly irreversible process of economic change, like the building up of an altogether new productive capacity. Money has an essential role in this process, although not in the usual sense of modifying the real equilibria of the economy. As a matter of fact the problem to be faced in the context considered-where focus is on the process of change in itself rather than on its outcome-is theviability of the process of change. This paper shows that it is indeed the availability of financial resources at the right moment during the process that determines its viability, and that this stresses the fact that, out of equilibrium,real choices cannot be separated from financial decisions.     

Innovation, competition, and growth: Schumpeterian ideas within a Hicksian framework

Schumpeter’s ideas, which should be the basis of any evolutionary approach to the relations between innovation, competition and growth, are revisited and interpreted within the analytical framework proposed by Hicks in Capital and Time. Two main results emerge. First, the introduction of any new technology may lead to higher unemployment and reduced productivity; only an active monetary (and banking policy) will allow the economy to capture productivity gains. Second, within an industry confronted by recurrent technological changes, certain monopoly practices may be needed for this industry to converge towards an efficient market structure determined by the content of technology and the profile of demand. These results suggest some reconsideration of the macroeconomic and industrial or competition policies designed, in Europe, to cope with both technical change and globalization in modern economies.     

Inequality and growth: the perverse relation between the productive and the non-productive assets of the economy

The explosion generated by the global financial crisis in 2008 and its transmission to the real economies have been interpreted as calling for new kinds of regulation of the banking and the financial systems that would have allowed re-establishing a virtuous relation between the real and the financial sectors of the economy. In this paper we maintain a different view, that the financial crisis and the ensuing real crisis have roots in the strong increase in income inequality that has been taking place in the Western world in the last thirty years or so. This has created an all around aggregate demand deficiency crisis that has strongly reduced prospects and opportunities for investments in productive capacities and shifted resources toward other uses, thus feeding a perverse relation between the productive and the non-productive assets of the economy. In this context the way out of the crisis is re-establishing the right distributive conditions, which cannot be obtained by a policy aimed at relieving the weight of private or public debts but calls for a redistribution through taxes on the incomes of non-productive sectors, a fine tuning that should prevent excessive taxations transforming positive into negative effects.     

Competition,Innovation And Increasing Returns ∗

When firms enjoy increasing returns in presence of a high rate of innovation, competition may obtain due to the continuous changes in demand and cost conditions even when there is no differentiation and the products of competing firms are essentially homogeneous. In this paper we intend to provide theoretical structure to this conjecture, and to confirm it by carrying out a simulation analysis in the case of two firms competing on the market.     

What’s the aim for competition policy: optimizing market structure or encouraging innovative behaviors?

Innovation is usually thought of as a change in the fundamentals of an economy, which can require adjustments by policy-makers. The latter are usually thought as in regard to a dominant vision, which is to restore an optimal market structure, and leads to a competition policy mainly aimed at controlling for antitrust practices and limiting market power. In this paper, we favor another vision of innovation, as a discovery process that cannot allow ex ante a definition of best practices. Dealing with information issues in two different and alternative perspectives, we argue that antitrust authorities confront a market imperfection–market failure dilemma (MI–MF dilemma) which leads them to favor the existence of appreciative and discretionary policy rather than encouraging the existence of any market structure thought of as optimal as regards the current state of information. We conclude with policy implications, contrasting the EU with the US. This paper was presented at the 10th International J.A. Schumpeter Society Conference on Innovation, Industrial Dynamics and Structural Transformation: Schumpeterian Legacies, Milan 2004. It owes very much to the collaboration of J-L Gaffard with M. Amendola in the recent years. However he is not responsible for the way we have taken advantage of it.     

Wage Flexibility and Unemployment: The Keynesian Perspective Revisited

Keynes' main concern in the General Theory is about the capacity of an economy to return to full employment equilibrium when subject to a (negative) demand shock. He maintains that money wages cuts may not help reabsorb unemployment, as they do not necessarily imply a fall in real wages. On the contrary, wage rigidity may be necessary for avoiding that a cumulative process propels the economy far away the full employment equilibrium. Co‐ordination failures in the investment‐saving market are behind this conclusion. However, the analysis is carried out within a static equilibrium framework. This paper is an attempt to focus on the problems of intertemporal co‐ordination arising within the context of a sequential economy. Our analysis of the out‐of‐equilibrium process of adjustment stirred by a shock allows to generalize the original Keynesian intuition. Unemployment emerges as the result of a lack of co‐ordination due to irreversibly constrained choices, and not only nominal but also real wage flexibility does not necessarily help to restore equilibrium. As a matter of fact, it may even be harmful, by triggering processes that make the economy diverge from equilibrium. Our analysis has important analytical implications as regards the role of market imperfections and the interpretation of the effects of monetary policy.