the relation between price and marginal cost in u s industry a contradiction in a recent article in this journal hall 1988 examined productivity shocks at the industry level derived from constant returns to scale production functions in which firms were assumed to be competitive hall had two important conclusions first he showed that productivity shocks i e solow residuals were correlated with aggregate demand variables implying that the former are not exogenous impulses second his results implied that firms persistently charge prices above marginal costs making inappropriate the constant returns to scale competitive production function assumed in many theoretical frameworks because of the importance of hall s findings the article has led to many extensions evans 1992 confirms the empirical finding of significant correlations between productivity shocks and aggregate demand variables burnside eichenbaum and rebelo 1993 show that this correlation can be explained by introducing labor hoarding into a theoretical model with competitive firms and constant returns to scale production functions the markups above marginal cost are explained by eden and griliches 1991 and galeotti and schiantarelli 1991 by modifying the theoretical production function caballero and lyons 1992 using the hall data and methodology examine the possibility of external economies in the aggregate manufacturing production finally waldmann 199 1 argues in this journal that the

a natural rate model of frictional and long term unemployment a simple labor market with spatial separation and markov production shocks is presented in the stationary equilibrium some workers are frictionally unemployed and others are long term unemployed the amounts of frictional and long term unemployment at each location depend on its recent history of productivity shocks producing a local hysteresis effect changes in the parameters affect the equilibrium aggregate amounts of frictional and long term unemployment differently in particular economies with larger moving costs will have more long term and total unemployment but less frictional unemployment this finding is broadly consistent with recently reported stylized facts

the determinants of developing countries access to the international capital market the traditional analysis of western credit relations with developing countries mainly focuses on the possibilities of debtor countries meeting their debt obligations and tries to find factors behind possible default the present study explicitly considers flows of funds between creditors and debtors and investigates the determinants of developing countries access to the international capital market a combination of gdp per capita net debt to gdp and the investment share predicts access to the 1985 87 capital market correctly in 75 per cent of the cases

the distribution of unemployment spells canada 1978 82 this paper empirically examines entire distributions of unemployment spells according to a novel duration share approach based on decile shares and lorenz curves of unemployment the approach is applied to a canadian micro data source akin to the work experience surveys for the united states the major empirical findings are that long term unemployment accounts for a very substantial proportion of total weeks of unemployment despite the short duration of the average spell of unemployment the structure of unemployment spell distribution differs significantly by gender age education and region and significant cyclical effects on the distribution of unemployment spells are associated with the severe recession in 1982

the measurement of labor force dynamics with longitudinal data the labour market activity survey filter this article explores the measurement of labor force dynamics using longitudinal data focusing in particular on the canadian labour market activity survey lmas which represents a potential advance in longitudinal data collection because it measures aspects of dynamics not available in existing panel data such as the panel study of income dynamics and the national longitudinal survey we examine the implications of the lmas questionnaire structure the lmas filter for the study of labor market dynamics and undertake simulations to provide a quantitative assessment of the importance of this filter for labor force spells and transitions between labor force states

financial markets shutdown and reaccess we employ a discrete time parametric duration model on a group of 121 countries over the period 1970 2011 and find that the probability of the end of financial markets shutdown and reaccess falls as these events become longer we also show that 1 shutdown episodes are longer when economic prospects are poor and the degree of financial openness falls the chief executive has been in office for long periods and the country has a default history and 2 spells of reaccess tend to be longer when economic growth improves and financial openness increases there are neither government crises nor government instability and the country did not default in the past jel c41 g15

structural change and financing constraints abstract in a multi industry growth model firms need external funds for productivity enhancing r d and face financing constraints the cost of research differs across industries so financing constraints hinder industry productivity growth unevenly equilibrium industry dynamics map into a differences in differences regression specification where industry growth depends on the interaction between country financial development and industry r d intensity the paper provides a framework for interpreting several empirical results that rely on industry growth data in terms of r d induced technology transfer and identifies a new channel for finance to encourage aggregate growth the reallocation of resources towards sectors with rapidly expanding technological frontiers

entry exit and investment specific technical change using european data this paper finds that i industry entry and exit rates are positively related to industry rates of investment specific technical change istc and ii the sensitivity of industry entry and exit rates to cross country differences in entry costs depends on industry rates of istc the paper con structs a general equilibrium model in which the rate of istc varies across industries and new investment specific technologies can be introduced by entrants or by incumbents in the calibrated model equilibrium behavior is consistent with stylized facts i and ii provided the cost of technology adop tion is increasing in the rate of istc jel g31 li 1 031 033 entry and exit rates differ significantly across industries over the period 1963 1982 timothy dunne mark j roberts and larry samuelson 1988 find that five year entry rates in us manu facturing data range from 21 percent in tobacco to 60 percent in scientific instruments high entry industries are high exit industries suggesting that entry and exit are largely due to the same industry specific factors at the same time little is known about what these factors might be this paper finds a strong positive link between industry entry and exit rates and the pace of technical progress in the capital goods that the industry uses the rate of investment specific technical change istc a significant fraction of entry and exit thus represents the introduction and replacement of capital embodied technologies istc is also positively related to the proportion of enterprises in each industry that displays large investment outlays in a given year that investment often occurs in spikes has been known since at least mark doms and dunne 1998 and the results link this pattern to the replacement of new capital embodied technologies by incumbents furthermore the decision of whether or when to exit appears sensitive to policy in countries in which the cost of entry is high rates of entry and exit are disproportionately suppressed in industries with high rates of istc to analyze these findings the paper develops a general equilibrium model in which chang ing the vintage of capital used by a particular enterprise is costly in the model this vintage is termed a technology and an enterprise is a technology manager pair the manager accumu lates expertise with a given technology over time and at any date may choose to upgrade to a newer technology at the expense of accumulated expertise as in boyan jovanovic and yaw

can imperfect competition explain the difference between primal and dual productivity measures estimates for u s manufacturing it is well known that under the assumptions of constant returns to scale perfect competition and the absence of factor hoarding primal and dual productivity measures should be highly correlated the apparent lack of correlation is usually attributed to fixed factors of production in this paper i propose an alternative explanation by relaxing the assumption of perfect competition by controlling for the presence of a markup component i demonstrate that both productivity measures are in fact highly correlated for u s manufacturing the analysis also provides an alternative method of estimating a markup of prices over marginal cost that avoids certain difficulties inherent in some existing methods of estimation

financial dependence and growth revisited we revisit an earlier highly influential paper on financial dependence and growth by rajan and zingales 1998 we re examine their assumptions and the robustness of their results to alternative theories and interpretations we first show that they may be implicitly testing whether financial intermediaries allow firms to better respond to global shocks to growth opportunities rather than the extent that financial intermediaries allow firms to grow in industries with an inherent technological financial dependence we propose a more direct measure of growth opportunities if u s capital markets are perfect then actual growth in the u s is a good proxy for global growth opportunities we test this directly by including u s industry growth in rajan and zingales s original specification and find that our direct growth measure outperforms their financial dependence measure and is less vulnerable to controlling for outliers and level of development this still suggests an important role for finance in the allocation of resources but shifts the emphasis from financial dependence to global growth opportunities jel f3 g1 o4

financial development and economic growth abstract this paper examines the empirical relationship between long run growth and financial development proxied by the ratio between bank credit to the private sector and gdp we find that this proxy is positively correlated with growth in a large cross country sample but its impact changes across countries and is negative in a panel data for latin america we argue that the latter findings is the result of financial liberalization in a poor regulatory environment our findings also show that the main channel of transmission from financial development to growth is the efficiency rather than the volume of investment

official finance requirements in the 1990s abstract estimates based on a savings gap model with endogenous private bank lending suggest that projections of development aid requirements for sub saharan africa low income asia and latin america by fishlow 1987 the development committes 1988 and the un 1988 are too optimistic a substantial increase in official financial flows to developing countries is necessary it appears that an increase in private bank exposure by 25 a 35 debt reduction and a 35 interest reduction as proposed in the recent brady plan are insufficient to reach minimum growth rates in the three developing regions

stages of diversification this paper studies the evolution of sectoral concentration in relation to the level of per capita income we show that various measures of sectoral concentration follow a u shaped pattern across a wide variety of data sources countries first diversify in the sense that economic activity is spread more equally across sectors but there exists relatively late in the development process a point at which they start specializing again we discuss this finding in light of existing theories of trade and growth which generally predict a monotonic relationship between income and diversification

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

structural change in a multisector model of growth we study a multi sector model of growth with differences in tfp growth rates across sectors and derive sufficient conditions for the coexistence of structural change characterized by sectoral labour reallocation and constant aggregate growth path the conditions are weak restrictions on the utility and production functions commonly applied by macroeconomists we present evidence from us two digit industries that is consistent with our predictions about structural change and successfully calibrate the historical shift from agriculture to manufacturing and services we show quantitatively that reasonable deviations from our conditions do not have a big impact on the properties of the model

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

does the revival of international private capital flows mean the end of aid an analysis of developing countries access to private capital summary despite the collapse of private flows in the years following the debt crisis since 1987 international flows of private capital have been increasing at a remarkable rate some argue that these trends spell the end of aid as private capital will take its place but flows of private capital have been highly concentrated in a small number of countries with african countries in particular having apparently little access this paper presents an analysis of the determinants of private capital flows with a data set covering many low income and highly indebted countries the results suggest that such countries have a low probability of being able to gain access to sizeable quantities of private capital so that aid remains necessary to finance their requirement for external finance

productivity shocks and real business cycles abstract productivity shocks play a central role in real business cycles as an exogenous impulse to macroeconomic activity however measured solow prescott residuals do not behave as an exogenous impulse rather econometric evidence provided in this paper indicates that 1 money interest rates and government spending granger cause these impulses and 2 a substantial component of the variance of these impulses between one quarter and one half is attributable to variations in aggregate demand these results are robust to a number of econometric issues including measurement errors specification of the production function and certain forms of omitted real variables

raw materials profits and the productivity slowdown a factor price frontier framework is used to clarify the analogy of an increase decrease in raw material prices with autonomous technological regress progress factor price profiles are estimated for the manufacturing sector of the united states the united kingdom germany and japan the production model in conjunction with estimates obtained from the factor price frontier attributes much of the slowdown in manufacturing productivity to the rise in relative raw material prices part of the apparent productivity riddle may have to do with the use of double deflated national accounting measures of value added which have an inherent measurement bias

accounting for unemployment a labour market perspective i examine whether prolonged high unemployment in canada can be attributed to various structural causes rather than to demand deficiency as found by macro econometric models the answer is largely negative neither the dispersion of sectoral growth rates nor excessive and rigid real wages can convincingly account for most unemployment contentions to the contrary are based upon inappropriately partial analyses enduring shifts in industrial structure have if anything been declining labour mobility is high much unemployment lasts too long to be frictional fuller quantitative understanding of the nature of unemployment can be achieved only in a more general framework

duration and concentration of unemployment this paper examines labour market turnover as a determinant of unemployment in canada the distribution of completed spells of unemployment is generated from gross flow data by using hazard functions unemployment is found to be more concentrated in long spells than can be expected under markov processes difficulties in access to jobs are also revealed in a high proportion of unemployment spells not ending in jobs but in withdrawals from the labour force the incidence of multiple spells of unemployment is also high on balance the characterization of unemployment and the policy conclusions differ markedly from those emphasized by the turnover literature duree et concentration du ch6mage ce memoire examine le roulement sur le marche du travail comme une force determinante du ch6mage au canada la distribution de la longueur des periodes de ch6mage est etablie a partir des donnees brutes par le moyen de fonctions de risque on trouve que le chomage a tendance a se concentrer bien davantage en periodes plus longues que ne le suggererait un modele markovien le serieux des difficultes que les travailleurs ont a se donner acces a un emploi est revele par la proportion des periodes de ch6mage qui se termine non pas par un emploi mais par un retrait de la main d oeuvre active l incidence de plusieurs periodes de chomage est tres forte d un facon generale les diagnostics et les politiques recommendees par la litterature specialisee qui met l accent sur le roulement sur le marche du travail comme force determinante ne semblent pas etre supportes par les resultats des auteurs

volatility and development why is gdp growth so much more volatile in poor countries than in rich ones we identify four possible reasons i poor countries specialize in more volatile sectors ii poor countries specialize in fewer sectors iii poor countries experience more frequent and more severe aggregate shocks e g from macroeconomic policy and iv poor countries macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in we show how to decompose volatility into these four sources quantify their contribution to aggregate volatility and study how they relate to the stage of development we document the following regularities first as countries develop their productive structure moves from more volatile to less volatile sectors second the level of specialization declines with development at early stages and slowly increases at later stages of development third the volatility of country specific macroeconomic shocks falls with development fourth the covariance between sector specific and country specific shocks does not vary systematically with the level of development we argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work

implausible results or implausible data anomalies in the construction of value added data and implications for estimates of price cost markups in a recent article in this journal robert hall 1988 argued that many american industries charge prices well above marginal costs suggesting either that firms fail to maximize profits or that the possession of substantial market power by firms is the rule rather than the exception hall found price exceeding marginal cost not only in manufacturing where high concentration and the plausible existence of important economies of scale suggest the importance of market power but in relatively unconcentrated nonmanufacturing industries as well subsequent research has confirmed hall s claim that price exceeds marginal cost in u s manufacturing industries domowitz hubbard and petersen 1988 applied hall s method to a more detailed and complete manufacturing data set and rejected the null of price equal to marginal cost at high levels of significance hall however analyzes nonmanufacturing industries as well since theories of the causes of markups can be tested more easily with a larger sample of industries and since further work to uncover the determinants and welfare effects of the market power apparently possessed by u s firms would

unemployment dynamics and labour market tightness an empirical evaluation of matching function models the implications of matching function models for the relationship between labour market tightness and the transition probability into employment are summarized these implications are then tested using monthly data for three canadian provinces british columbia ontario and quebec testing methods use flexible regression techniques so as to reduce the effect of any extraneous restrictions the results show rough concordance between theoretical assumptions and empirical facts evidence of non linearity in the estimated relationships favours a search theoretic model of labour markets over one based on queues and some quantitative results offer guidance to those using calibrated search models in theoretical analysis

dual factor price equalization elements of a theory abstract the article hypothesizes that despite wide differences in wages and incomes between the developed and the developing countries world wide factor price equalization is taking place once the factors of production are correctly identified in particular the developed country s counterparts to the informal sector workers in a developing country are its low skilled service sector workers and unemployed factor price equalization is largely taking place by the creation of dual economies in the developed countries rather than by their eradication in the developing countries while institutional forces are slowing down this equilibrating process strong economic and political forces such as so called thatcherism and reaganomics are threatening these same institutions some preliminary evidence is given in favor of the theory

the effect of financial development on convergence theory and evidence we introduce imperfect creditor protection in a multicountry schumpeterian growth model the theory predicts that any country with more than some critical level of financial development will converge to the growth rate of the world technology frontier and that all other countries will have a strictly lower long run growth rate we present evidence supporting these and other implications in the form of a cross country growth regression with a significant and sizable negative coefficient on initial per capita gdp relative to the united states interacted with financial intermediation in addition we find that other variables representing schooling geography health policy politics and institutions do not affect the significance of the interaction between financial intermediation and initial per capita gdp and do not show any independent effect on convergence in the regressions our findings are robust to removal of outliers and to alternative conditioning sets estimation procedures and measures of financial development

a note on eaton and gersovitz s model of borrowing abstract eaton and gersovitz s model of borrowing with default risk was re estimated using data from 1977 and 1981 the results of the re estimation indicated that the developing countries were less credit constrained in the late seventies early eighties than in the early dseventies however the model did not describe the later sample period as well as the earlier sample period one reason for the reduced explanatory power of their model is that the model does not incorporate many of the changes that occured in the world economy after 1974 and does not reflect the current structure of indebtedness of the developing countries