credit constraints equity market liberalizations and international trade abstract this paper provides evidence that credit constraints are an important determinant of international trade flows i exploit shocks to the availability of external finance and examine the impact of equity market liberalizations on the export behavior of 91 countries in the 1980 1997 period i show that liberalizations increase exports disproportionately more in financially vulnerable sectors that require more outside finance or employ fewer collateralizable assets this result is not driven by cross country differences in factor endowments and is independent of simultaneous trade policy reforms moreover it obtains with equal strength in the full panel of countries as well as in both panel and event study analyses of countries which removed capital controls during the sample period finally the effects of liberalizations are more pronounced in economies with initially less active stock markets indicating that foreign equity flows may substitute for an underdeveloped domestic financial system similarly opening equity markets has a greater impact in the presence of higher trade costs caused by restrictive trade policies

finance inflation and employment a post keynesian kaleckian analysis the purpose of this paper is to contribute to the post keynesian kaleckian macroeconomic literature we develop a macroeconomic model that explicitly integrates the role of borrowing and cash payment commitments on outstanding debt interest plus principal repayment into the consumption and investment expenditures as well as into the inflation generating process we explore the way that finance influences the distribution effects of inflation in the demand side of a money credit using economy we suggest a new phillips curve that encapsulates the impact of financial commitments on wage and profit claims we argue that high debt and cash payment commitments are likely to be associated with a positive demand side effect of inflation on the rate of employment and that they might be conducive to a negative supply side effect of employment on the inflation rate the author 2011 published by oxford university press on behalf of the cambridge political economy society all rights reserved

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

trade liberalization and wage inequality abstract this paper studies empirically the link between trade liberalization and wage inequality in chile within the context of the heckscher ohlin samuelson hos model we use cointegration techniques to estimate the long run relationship between the skill premium in chile and product prices openness and factor endowments we find that the fall in the relative price of labor intensive goods helps explaining the increase in wage inequality in chile during the last two decades the increase in proportion of the labor force with college degree on the other hand tends to reduce wage inequality in chile openness measured as the volume of trade over gdp widens the wage gap between skilled and unskilled labor we offer some hypothesis on the elements that are behind this positive relationship between wage openness and inequality but no empirical work is done this area may be an interesting subject of research

wage norms capital accumulation and unemployment a post keynesian view the paper presents a post keynesian view of unemployment it argues first that the effective labour demand need not be downward sloping with respect to real wages and aggregate demand need not be downward sloping with respect to inflation second that there is a broad case for unemployment hysteresis understood as endogeneity of the non accelerating inflation rate of unemployment nairu based on social norms in wage bargaining and on the supply side effects of capital accumulation and third that much as keynes argued capital investment rather than labour market institutions is the key variable to explain changes in aggregate unemployment performance across countries and over time overall the paper advocates a keynesian view of the nairu where effective demand determines unemployment in the short run and the deviation of actual unemployment from the nairu determines the change in inflation in the medium term the nairu is endogenous and follows actual unemployment copyright 2011 oxford university press

correctly analysing the balance of payments constraint on growth the balance of payments constrained growth bpcg model provides an interesting hypothesis regarding economic growth the main implication is that world demand places the dominant constraint to which individual country growth adjusts i discuss this implication and argue that tests of the bpcg model have essentially been tests of the hypothesis that trade is balanced over the long run a plausible hypothesis but one that need not hold mainly through responses to world demand as transmitted via income elasticities i then discuss the role of relative prices and investment point out logical inadequacies in the traditional bpcg framework and suggest an alternative theoretical framework to investigate its robustness our theoretical and empirical explorations suggest that traditional tests of the bpcg model may be misleading including investment as a proxy for the capacity to export and addressing endogeneity issues for example noticeably weakens the influence of world demand the evidence presented contributes to reconciling evidence supporting the bpcg hypothesis with recent work that consistently finds an important role for the level of the real exchange rate and investment independently of world demand

volatility of short term capital flows and private investment in emerging markets abstract using micro level panel data the paper analyses the impacts of short term capital flow volatility on new fixed investment spending of publicly traded real sector firms in three major emerging markets argentina mexico and turkey the empirical results including sensitivity tests suggest that increasing volatility of capital inflows has an economically and statistically significant negative effect on new investment spending of private firms accordingly a 10 per cent increase in capital flow volatility reduces fixed investment spending in the range of 1 1 7 2 3 15 and 1 per cent in argentina mexico and turkey respectively

democratization contracts and comparative advantage abstract we study how the international spread of democracy shaped the comparative advantage of countries using data on the third wave of democratization between 1976 and 2000 we find that democratizing countries shifted their exports towards more contract intensive goods that require a larger portion of relationship specific inputs this shift is observed on the intensive margin volumes of industry level exports as well as the extensive margin of trade number of goods a country exports using an instrumental variable strategy based on democracy waves alternative proxy variables and subsamples suggests that the effects of democratization on trade specialization are causal

unemployment wage bargaining and capital labour substitution many economists believe that capital accumulation technical progress and labour force expansion have no lasting effect on unemployment this view rests on the empirically doubtful assumption that the elasticity of substitution between labour and capital is equal to unity i e production is cobb douglas using a simple model based on the work of layard nickell and jackman this paper demonstrates that with a lower elasticity of substitution the equilibrium unemployment rate is affected by all of the above factors it considers briefly how capital accumulation may be endogenised and what long run implications this has for unemployment copyright 1999 by oxford university press

financial liberalization private investment and portfolio choice financialization of real sectors in emerging markets abstract using firm level panel data we analyze the impacts of rates of return gap between financial and fixed investments under uncertainty on real investment performance in three emerging markets argentina mexico and turkey employing a portfolio choice model to explain the low fixed investment rates in developing countries during the 1990s we suggest that rather than investing in irreversible long term fixed investments firms may choose to invest in reversible short term financial investments depending on respective rates of returns and the overall uncertainty in the economy the empirical results show that increasing rates of return gap and uncertainty have an economically and statistically significant fixed investment reducing effect while the opposite is true with respect to financial investments

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

wage and competition channels of foreign direct investment and new firm entry using a rich data set of the dutch manufacturing sector between 1995 and 2010 we investigate the effect of foreign direct investment fdi on domestic new firm entry the emerging empirical literature has focused on the direct relationship between fdi and entry but has not explored the mechanisms behind the observed effect drawing on a simultaneous equations model our analysis features both the direct effect of fdi as well as indirect effects through two channels industry competition and wages we estimate the parameters through 3sls and take into account the endogeneity of competition and wages with respect to entry our results show that there is a significant negative direct effect of fdi on entry at the same time fdi decreases competition and increases wage levels which then impact entry positively and negatively respectively the total effect of fdi is negative but small and virtually disappears after one year policy implications are discussed

capital subsidies versus labor subsidies a trade off between capital and employment this paper investigates regime switching in the response of u s output to a monetary policy action we find substantial statistically significant time variation in this response that corresponds to high response and low response regimes we then investigate whether the timing of the regime shifts are consistent with three particular manifestations of asymmetry by modeling the transition probabilities governing the switching process as functions of state variables we find strong evidence that policy actions taken during recessions have larger effects than those taken during expansions we find less evidence of asymmetry related to the direction or size of the policy action

international trade foreign investment and the formation of the entrepreneurial class in this paper i examine the argument that free trade may be harmful to less developed countries because such international competition inhibits the formation of a local entrepreneurial class i view the entrepreneur as the manager of the industrial enterprise as well as the agent who bears the risks associated with industrial production a two sector model of a small open economy is developed in which the size of the entrepreneurial class is endogenous it is shown that the entrepreneurial class is smaller under free trade than would be first best optimal in the presence of efficient risk sharing institutions such as stock markets nonetheless there are potential gains from trade and any protectionist policy that increases the number of entrepreneurs will have deleterious welfare consequences this abstract was borrowed from another version of this item

keynesian economic policies for the new millennium in this paper we outline an approach to economic policy in which there is an emphasis on the need for both demand side and supply side policies to secure full employment our approach can be considered keynesian in the sense that its policy implications arise from the perception of the role of aggregate demand in setting the level of economic activity and the lack of automatic forces leading a market economy to full employment our conception of the operations of a market economy is briefly outlined in section 2 this we further elaborate upon in section 3 by considering the constraints on achieving full employment that operate in a market economy this leads into section 4 in which we outline and analyse the nature of keynesian policies relating both to the demand and supply side of the economy the final main section 5 considers some of the constraints and ways of overcoming them on the implementation of the type of keynesian policies which we are advocating there are two key elements of keynes 1936 on which we draw the first is the contention that a laissez faire market economy will not usually generate full employment the obstacles to the achievement of full employment are not some imperfections like monopolistic competition or trade union activity which could potentially be removed through government action cf shapiro 1996 it is rather that a laissez faire market economy would exhibit elements of instability and does not usually generate a level of aggregate demand consistent with full employment the second is that a less unequal distribution of market power income and wealth is another desirable goal in its own right and a vehicle for increasing general prosperity as keynes 1936 remarked the outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes p 372

the wage price spiral this paper rehabilitates the old wage price spiral it shows that after an increase in aggregate demand the process of adjustment of nominal prices and nominal wages results from attempts by workers to maintain or increase their real wage and by firms to maintain or increase their markups of prices over wages under continuous price and wage setting the process of adjustment would be instantaneous under staggering of price and wage decisions the adjustment takes time the more inflexible real wages and markups are to shifts in demand the higher is the degree of price level inertia and the longer lasting are the effects of aggregate demand on output

unemployment and the real exchange rate in latin america summary today unemployment rates in several latin american countries are similar or even higher than the highest unemployment rates among oecd economies open unemployment has become for the first time in the region s history a major dimension of the employment problem this paper examines the role of the real exchange rate rer in the recent unemployment performance of latin america it presents a model of the determinants of unemployment the channels through which the rer influences unemployment performance as well as the stylized facts and empirical results about this relationship giving special attention to the cases of argentina brazil chile and mexico 2006 elsevier ltd all rights reserved

hysteresis in unemployment unemployment has risen sharply in a number of countries and it appears to be becoming more persistent the experience of the 1970s and 1980s showed that adverse unemployment shocks could have long lasting effects with very serious economic and social consequences a key mechanism producing these adverse consequences was hysteresis in unemployment whereby temporary rises in unemployment generated by supply and or demand shocks had permanent or at least very persistent effects clearly it is important to understand how hysteresis mechanisms might operate in order to avoid such adverse outcomes on the other hand experience during the subsequent two decades showed that under more favourable macroeconomic conditions it is possible to observe good hysteresis effects now is a very appropriate time to re visit the issue of hysteresis in unemployment in order to avoid the errors of the 1970s and 1980s and if possible to get hysteresis effects working in a positive direction copyright 2011 oxford university press

democratisation and growth this article challenges cross sectional findings that democracy has a negligible effect on growth we employ a new dataset of political transitions during the third wave of democratisation and examine the within effect of democratisation in countries that abandoned autocracy and consolidated representative institutions the panel estimates imply that on average democratisations are associated with a 1 increase in annual per capita growth the dynamic analysis reveals that while during the transition growth is slow in the medium and long run it stabilises at a higher level this evidence favours development theories of democratic rule and friedrich hayek 1960 s idea that the merits of democracy appear in the long run leading politicians and commentators have argued that democratisation will bring prosperity and growth into pariah and economically poorly performing countries 1 others however remain sceptical pointing to the mixed and inconclusive empirical evidence the old debate dating back to plato and aristotle on which political regime is socially and economically optimal arises again this debate is not purely academic and philosophical as it has important policy implications in the last thirty years the world has experienced an unprecedented move towards democratic institutions influential policy makers and scholars urge western authorities to foster democratic movements in totalitarian countries see the economist article philosophers and kings june 19th 2003 yet the question remains will democratisation bring economic growth to assess the average growth effect of a successful democratic transition we analyse the evolution of annual real per capita gdp growth before and after incidents of permanent democratic reform in the 1960 2003 period in our analysis we exploit a newly constructed dataset of permanent democratisations during the so called third wave of democratisation and the 1990s when many former socialist countries moved towards representative rule the panel results reveal new evidence that contrast with the previous mainly cross sectional work first conditioning on time invariant country characteristics and global shocks a permanent democratisation is associated with approximately a one half to one per cent increment in annual real per capita gdp growth second a dynamic j shaped effect emerges with considerable though not this article is a major revision of an earlier paper titled aristotle was right stable democracy fosters

trade and relative wages the role of supervisory function by skilled workers abstract the effect of trade on relative wages is examined taking into consideration some aspects of internal organization of firms namely the twin function of production and supervision by skilled workers when trade is based on endowment differences the effect of trade is greater than is predicted by the stolper samuelson theorem when trade is based on technological differences freer trade tends to reduce the relative wages in each country in a two country world economy

capital formation and unemployment this paper criticizes the current enthusiasm for labour market policies as the main route to employment creation in oecd countries such policies are normally seen as a means of encouraging more employment on existing capital stock this approach is one sided and downplays the equally important task of increasing productive capacity with more investment in productive capacity conventional labour market policies for increasing employment would be more effective and some might be unnecessary the paper analyses the role of capital stock within the framework of a simple nairu model based on previous work by the author it also presents some empirical evidence copyright 1995 by oxford university press

capital market imperfections and financialization of real sectors in emerging markets private investment and cash flow relationship revisited summary the paper analyzes the impacts of cash flow from multiple investments in real and financial sectors on the new fixed investment spending of real sector firms the empirical results based on the euler equation approach and semi annual firm level data from two major emerging markets mexico and turkey suggest that profits and rates of returns from fixed and financial assets have differential effects on fixed investment spending of real sector firms accordingly increasing availability and accessibility of alternative investment opportunities in financial markets can become instrumental in channeling real sector savings to short term financial investments instead of long term fixed capital formation and thus lead to deindustrialization

entry barriers and economic welfare the relationship between economic welfare and the number of firms in a quasi cournot market is examined in the first place we presuppose the existence of a strong first best government that can enforce the marginal cost principle to the firms along with regulating the number of firms it is shown that there exist excessive number of firms at the free entry quasicournot equilibrium vis a vis the first best welfare maximizing number of firms the thrust of this result essentially survives even if we replace a utopian first best government by a secondbest government that leaves the firms to pursue their respective profit maximization freely and engages solely in regulating the number of firms it can be shown that the excess entry prevails again in this second best world recent studies in the theoretical industrial organization literature have uncovered several instances which cast serious doubt on the reasonableness of a widespread belief that increasing competition will increase welfare stiglitz 1981 p 184 it has been shown that there are cases which are not altogether unreasonable where social welfare will be increased by strengthening rather than weakening the protection of incumbent firms from the threat of potential entry this is in sharp contrast with the traditional belief 2 what is not known however is how robust these pathologies in fact are we intend to settle this problem by proving two excess entry theorems in the quasi cournot parametric conjectural variations homogeneous oligopoly model seade 1980a b in the first place we presuppose the existence of a strong first best government that could costlessly enforce the marginal cost pricing principle by firms in an oligopolistic market and regulate entry in pursuit of first best social welfare optimization it is shown that the number of firms at the free entry equilibrium exceeds the first best welfare optimizing number of firms the result has already been noted by von weizsacker 1980a b and others in terms of numerical examples our theorem 1 asserts that this phenomenon always holds true for the family of quasi cournot models at hand an implication of this result is that the existence of entry barriers which protect incumbent firms from potential competitors is not necessarily welfare decreasing in sharp contrast with the traditional belief a problem remains with theorem 1 however in that an omnipotent first best government does not exist in reality and the first best ideal is unrealizable in the actual economy therefore even if the intervention by a first best government with a view to restricting the number of firms within an industry may be welfare improving it does

is the accumulation of international reserves good for development international reserves accumulation has been the preferred policy recently adopted by developing economies to achieve financial stability the aim of this policy is to increase liquidity and thus reduce the risk of suffering a speculative attack the main concern expressed in the literature has been related to its cost most of the studies conclude that the opportunity cost of international reserves accumulation is around 1 of gdp however these studies have not analysed whether this strategy is or could be more broadly supportive of development an issue that must be of central interest for developing economies the aim of this paper is to show that the stockpiling of international reserves is not optimal for developmental purposes and that there exist alternative policies that can be applied to achieve financial stability policy autonomy and a better performance in terms of development

who supports free trade in latin america this paper examines individual trade policy preferences across 17 countries in latin america the focus is on whether skilled or unskilled workers are more likely to support liberalised trade and on whether country characteristics such as factor endowments alter the preferences of skilled and unskilled workers based on the standard heckscher ohlin model and the stolper samuelson theorem wage inequality in developing countries will decrease under free trade and unskilled workers will benefit we find that on average skilled workers are more likely than unskilled workers to support free trade in latin american countries separate country regressions reveal that this pattern is only statistically significant in 8 out of 17 latin american countries however there are no countries in our sample in which unskilled workers are statistically more likely to support free trade than skilled workers not even in the lowest skill endowed country in the sample we also find that people from latin american countries with higher gdp faster growth more cropland and a longer period of time since reform were more likely on average to support free trade

post keynesianism socialisation of investment and swedish wage earner funds this paper analyses the performance of one of the most controversial of recent economic policy experiments namely swedish wage earner funds wefs it examines the ability of the wefs to meet macroeconomic financial and democratic objectives the analysis indicates a favourable financial performance but little significant democratisation macroeconomic influence was constrained by the limited size of the scheme and though associated with positive changes in economic variables the experiment was ultimately overwhelmed by the collapse of an asset price bubble nevertheless the performance of the wefs has legitimised the concept of collective investment funds as an economic policy instrument copyright 2006 oxford university press

capital accumulation and unemployment a tale of two continents in contrast to much recent work regarding the causes of european unemployment in this paper we emphasize the importance of capital accumulation but unlike the few previous studies which have examined the relationship between capital accumulation and unemployment we argue that what matters for the evolution of employment and the unemployment rate is not the absolute growth rate of a country s capital stock but its evolution relative to other countries capital stock the empirical validity of the above statement is demonstrated for almost all oecd countries using quarterly time series data for the period 1961 1995 more detailed evidence is also presented for germany japan and the united kingdom

foreign direct investment and the relative wage in a developing economy abstract this paper examines the issue of the effect of foreign direct investment on the relative wage in the context of a developing economy recognizing that competing domestic entrepreneurs are potentially skilled workers foreign investment in skilled labor intensive sectors is shown to lower the relative wage moreover a general lump sum subsidy to foreign and domestic firms is shown to lower aggregate welfare whereas a discriminatory subsidy only to foreign firms may raise welfare

globalization outsourcing and wage inequality there is considerable debate over whether international trade has contributed to the declining economic fortunes of less skilled workers one issue that has become lost in the current discussion is how firms respond to import competition and how these responses in turn are transmitted to the labor market in previous work we have argued that outsourcing by which we mean the import of intermediate inputs by domestic firms has contributed to an increase in the relative demand for skilled labor in the united states if firms respond to import competition from low wage countries by moving non skill intensive activities abroad then trade will shift employment towards skilled workers within industries in this paper we extend our previous work by combining new import data from the revised nber trade database with disaggregated data on input purchases from the census of manufactures we construct industry by industry estimates of outsourcing for the period 1972 1990 and reexamine whether outsourcing has contributed to an increase in relative demand for skilled labor our main finding is that outsourcing can account for 31 51 of the increase in the relative demand for skilled labor that occurred in u s manufacturing industries during the 1980s compared to our previous estimate of 15 33 this abstract was borrowed from another version of this item

employment responses of skilled and unskilled workers at mexican maquiladoras the effects of external factors summary this paper compares a standard labor demand model to another augmented by the real exchange rate rer when studying the growth of dynamic mexican maquiladoras from 1990 to 2006 the basic question is whether the real value of the peso changes the responses of employment to wages and to capital in the augmented models skilled labor employment becomes very sensitive to its own wages also the user cost of capital has a larger negative impact on skilled employment and a weaker currency has a negative impact on unskilled employment only overall skilled labor benefits relatively more under globalization

innovation and wage effects of international outsourcing abstract we investigate the effects of increased outsourcing of production to a low wage country such international outsourcing lowers the marginal cost of production and thus increases profits creating greater incentives for innovation a reduction in the resource requirement in adapting technology relative to improving products or an expansion in the portion of production that can be outsourced generates a greater extent of international outsourcing a lower relative wage and a faster rate of innovation an increase in production taxes in the north production subsidies in the south or a subsidy to adapting technologies has similar effects

the impact of surges in net private capital inflows on manufacturing investment and unemployment abstract we use local projection methods to examine the dynamic response of surges in net private capital inflows on the output and employment shares of manufacturing the investment output ratio and the unemployment rate high income countries are studied separately from emerging economies both from asia and latin america our sample covers the years from 1970 to 2010 we find that surges in high income countries do not magnify the trend toward deindustrialization however the persistent decline in the investment to gdp ratio and the rise in the overall unemployment rate suggest that surges may negatively affect longer run growth prospects and employment opportunities in these countries in middle income asian countries surges tend to induce deindustrialization in both output and employment in the medium run but they do not lower the investment to gdp ratio in middle income latin america surges speed up deindustrialization lower investment and raise economy wide unemployment