determinants of off farm work and its effects on farm performance the case of norwegian grain farmers limited attention has been given in the literature to the impact of off farm work on farm performance more knowledge about the determinants of part time farming and its effects on farm performance could help policymakers to introduce better targeted rural development policies the aim in this article is to fill part of the above mentioned gaps by analyzing factors that influence the choices of off farm work by either the farmer alone or jointly by both the farmer and partner and simultaneously examining how off farm work influences farm performance these analyses were based on an unbalanced panel data set from norwegian grain farms during 1991 to 2005 among the determinants of off farm work hours we found that in addition to demographic time trend and some regional effects there was a significant negative effect of farm output on farmers off farm work hours the production function results revealed that off farm work had a positive effect on farm output at first increasing but then decreasing with increase in hours spent in off farm work furthermore our analysis revealed no systematic effect of off farm work on farm technical efficiency

calculating and using second order accurate solutions of discrete time dynamic equilibrium models we describe an algorithm for calculating second order approximations to the solutions to nonlinear stochastic rational expectations models the paper also explains methods for using such an approximate solution to generate forecasts simulated time paths for the model and evaluations of expected welfare differences across different versions of a model the paper gives conditions for local validity of the approximation that allow for disturbance distributions with unbounded support and allow for non stationarity of the solution process

the inflation output trade off with downward wage rigidities the macroeconomic implications of downward nominal wage rigidi ties are analyzed via a dynamic stochastic general equilibrium model featuring aggregate and idiosyncratic shocks a closed form solution for a long run phillips curve relates average output gap to average wage inflation it is virtually vertical at high inflation and flattens at low inflation macroeconomic volatility shifts the curve outwards and reduces output the results imply that stabilization policies play an important role and that optimal inflation may be positive and dif fer across countries with different macroeconomic volatility results are robust to relaxing the wage constraint for example when large idiosyncratic shocks arise jel e23 e24 e31 e63

nonfarm employment and poverty in rural el salvador abstract this paper analyzes two complementary data sets to study poverty and the nonfarm sector in rural el salvador we find that rural poverty in el salvador remains acute and significantly higher than in urban areas while the rural poor are mainly agricultural laborers and marginal farmers some nonfarm activities are also of importance to the poor in fact nonfarm activities in el salvador account for a significant share of rural employment and income for both the poor and the nonpoor the poor on the one hand are engaged in last resort nonfarm activities that are not associated with high levels of labor productivity the nonpoor on the other are engaged in productive nonfarm activities which are likely to present a potent force for upward mobility significant correlates of these high productivity occupations include education infrastructure location and gender while most of the analysis is at the household level the data also permit some focus on small scale rural enterprise activities it appears that in el salvador very few rural enterprises report utilizing formal credit in setting up their activities in addition a significant proportion of enterprises are engaged in subcontracting arrangements with some larger often urban based firm

the role of multilateral institutions in international trade cooperation the world trade organization wfo lacks the power to directly enforce agreements it is therefore important to understand what role the wto can play to facilitate international cooperation and whether a multilateral institution can offer distinct advantages over a web of bilateral agreements this paper examines two potential benefits of a multilateral trade institution first verifying violations of the agreements and informing third parties thus facilitating multilateral reputation mechanisms second promoting multilateral trade negotiations rather than a web of bilateral negotiations the model suggests that a multilateral approach is particularly important when there are strong imbalances in bilateral trading relationships

optimum discriminatory tariffs under oligopolistic competition this paper attempts to present a simple cournot model to determine the optimal discriminatory tariff rates when the international market is a homogeneous heterogeneous product market in the model there are two foreign firms located in two different countries competing for sales in a local market when the firms sell a homogeneous product and the home country can impose differential tariffs on imports from different countries then the tariff on the low cost producer should be hgher in particular with constant marginal costs the tariff difference should equal half the cost difference on the other hand if the firms sell differentiated products with symmetric linear demands and technologies then the weaker the degree of product differentiation the greater is the tariff difference compared with the cost difference

price setting behaviour competition and markup shocks in the new keynesian model abstract this paper shows that firms price setting behaviour determines whether a higher level of competition among firms amplifies or dampens short run inflationary pressures in the new keynesian model when strategic complementarity in pricing decisions prevails the effect of markup shocks is relatively small

rural nonfarm employment and incomes in latin america overview and policy implications abstract rural nonfarm employment rnfe and incomes rnfi are crucial to latin american rural households the 11 rural household income studies in this volume reviewed in this paper use 1990s data and show that rnfi averages 40 of rural incomes rnfi and rnfe have grown quickly over the past three decades the review of evidence provided some surprising departures from traditional images of nonfarm activities of latin american rural households in terms of shares of rural incomes 1 nonfarm wage incomes exceed self employment incomes 2 rnfi far exceeds farm wage incomes 3 local rnfi far exceeds migration incomes 4 service sector rnfi far exceeds manufactures rnfi these findings suggest the need for more development program attention to wage employment in the service sector versus the traditional focus on small enterprise manufactures moreover poor households and zones tend to have higher shares in their incomes but lower absolute levels of rnfi as compared to richer households and zones the rnfe of the poor tend to be the low paid nonfarm equivalent of semi subsistence farming raising the capacity of the poor to participate in the better paid types of rnfe is crucial via employment skills training education infrastructure credit finally rnfe has grown fastest and been most poverty alleviating where there are dynamic growth motors in particular in the agricultural sector but also in tourism links to urban areas mining and forestry this means that developing rnf jobs cannot be done at the expense of programs promoting agricultural development

intersectoral transfer growth and inequality in rural ecuador abstract in this paper we study intersectoral transfer and its impact on the distribution of income in ecuador we find that income shares between farm and nonfarm activities are roughly equal on average although the rich in rural areas typically receive a greater share of income from nonfarm sources thus decomposing inequality by income source reveals that a rise in nonfarm incomes increases inequality drawing on a new method to estimate local level distributional outcomes growth of the high productivity nonfarm sector is observed to have a strong and positive association with average consumption and inequality growth of the low productivity nonfarm sector is associated with little change in either average income or income inequality irrespective of subsector growth of the nonfarm sector is associated with a substantial fall in poverty

discriminatory tariffs and international negotiations abstract recent research has highlighted the efficiency of the mfn principle within the gatt wto structure this paper analyzes the exception made to mfn within article xxiii that allows discriminatory punishment for deviations from the agreement we argue that in the absence of collusion the mfn exception reduces the severity of punishment and thus lowers the level of cooperation that can be achieved by the agreement however discriminatory punishment may still be beneficial as we show that it reduces the problems associated with the potential for renegotiation during the punishment phase finally we argue that our results are also applicable to the question of whether to use trade policy sanctions as a means of enforcing agreements covering domestic policies

an analysis of the mfn clause under asymmetries of cost and market structure we conduct a welfare comparison of mfn and tariff discrimination in an oligopoly model of trade between two exporting countries and one importing country while mfn dominates tariff discrimination from a world welfare perspective when exporting countries are asymmetric with respect to either cost or market structure such need not be the case when both types of asymmetries co exist in particular when high cost exporters are merged and the cost disadvantage of the merged unit relative to competing firms is of intermediate magnitude tariff discrimination can be welfare preferred to mfn even when the average tariff is actually lower under mfn jel classification f13 f12 une analyse de la clause de la nation la plus favorisee npf quand il y a asymetrie des couts et de la structure de marche ce texte fait une comparaison de bien etre de la clause npf et de la discrimination tarifaire dans un modele oligopolistique de commerce international entre deux pays exportateurs et un pays importateur alors que la strategie npf est superieure a celle de la discrimination tarifaire du point de vue du bien etre mondial quand les pays exportateurs sont asymetriques soit dans leurs couts soit dans la structure du marche tel n est pas necessairement le cas quand les deux types d asymetrie coexistent en particulier quand des exportateurs dont les couts sont eleves sont fusionnes et que le desavantage de couts est d une magnitude moyenne la discrimination tarifaire peut etre preferee a la strategie npf et ce meme quand le droit de douane moyen est en fait plus bas dans un regime npf

downward nominal and real wage rigidity survey evidence from european firms downward nominal and real wage rigidity it has been well established that the wages of individual workers react little especially downwards to shocks that hit their employer this paper presents new evidence from a unique survey of firms across europe on the prevalence of downward wage rigidity in both real and nominal terms we analyse which firm level and institutional factors are associated with wage rigidity our results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models e g efficiency wage theory insider outsider theory we also find that wage rigidity depends on the labour market institutional environment collective bargaining coverage is positively related with downward real wage rigidity measured on the basis of wage indexation downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations

investments holdup and the form of market contracts the authors analyze incomplete contracts to induce efficient investment with exogenous switching costs fixed price contracts are efficient generate some rigidity in prices are renegotiated intermittently by possibly small amounts and when inflation is positive generate asymmetric responses to shocks all consistent with evidence on prices and wages with two sided specific investments efficiency requires prices to have sufficient escalator clauses to avoid renegotiation as observed in many long term contracts a third case with one sided specific investments can generate take or pay contracts and explain why firms sometimes pay for specific investments that appear to benefit employees directly

skills schooling and household income in ghana this article examines the impact of cognitive skills on the income of households in ghana it uses scores on mathematics and english tests to measure cognitive skills and estimates the returns to these skills based on farm profit off farm income and total income the article uses powell s censored least absolute deviations and symmetrically trimmed least squares estimators to estimate farm and off farm income in contrast to heckman s two step or the tobit estimator powell s estimators are consistent in the presence of heteroscedasticity and are robust to other violations of normality the results show that cognitive skills have a positive effect on total and off farm income but do not have a statistically significant effect on farm income

non agricultural earnings in peri urban areas of tanzania evidence from household survey data abstract this study draws on purposive survey data of approximately 600 households in peri urban tanzania to describe the degree and nature of non farm diversification in these settings with the exception of relatively dynamic cities such as dar es salaam and arusha overall non farm incomes shares are not unambiguously higher than in rural areas as a whole non farm income shares rise sharply and monotonically with quintiles defined in terms of per capita food consumption in that sense the sector appears to offer an important route out of poverty the evidence suggests that education and access to infrastructure are important determinants of non farm incomes in peri urban areas women appear to be poorly placed vis a vis the non farm sector even after controlling for education age and other characteristics kinship and tribal affinities and time devoted to communal activities appear to deter entrepreneurial activity and non farm employment but trust in officials and public servants and strong heterogeneous village associations are important in stimulating non farm activity

optimal tariffs and the choice of technology discriminatory tariffs vs the most favored nation clause abstract we compare the effects of optimal tariffs on the technology choice of exporters under the discriminatory tariffs regime and the most favored nation mfn clause it is shown that a lower marginal cost mc technology will be chosen in equilibrium under the mfn clause as a result the importing country s long run welfare increases with the adoption of mfn while in most cases the exporting countries welfare decreases however ex post technology choice the importing country prefers discriminatory tariffs this result therefore highlights the role of mfn as a commitment mechanism to resolve a time inconsistency problem facing the importing country

optimal monetary policy in a currency area abstract this paper investigates how monetary policy should be conducted in a two region general equilibrium model with monopolistic competition and price stickiness this framework delivers a simple welfare criterion based on the utility of the consumers that can be used to evaluate monetary policy in a currency area if the two regions share the same degree of nominal rigidity the terms of trade are completely insulated from monetary policy and the optimal outcome is obtained by targeting a weighted average of the regional inflation rates these weights coincide with the economic sizes of the region if the degrees of rigidity are different the optimal plan implies a high degree of inertia in the inflation rate but an inflation targeting policy in which higher weight is given to the inflation in the region with higher degree of nominal rigidity is nearly optimal

partial adjustment without apology econometric partial adjustment models perform relatively well at the aggregate level however many kinds of microeconomic behavior involve discrete and occasional choices analyzing the classic employment adjustment problem we show how a generalized partial adjustment model tractably accommodates both observations by aggregating the actions of heterogeneous producers facing fixed adjustment costs aggregate disturbances cause changes in establishment level target employment and in the measure of establishments actively adjusting to their target whereas aggregate responses exhibit partial adjustment our framework also can be applied in general equilibrium settings with persistent idiosyncratic shocks without forfeiting the convenient use of linear solution methods

a coalition formation approach to equilibrium federations the authors develop a model in which states may choose to form coalitions to capture efficiency gains from policy coordination joining a coalition entails setting the policy variable to maximize the coalition s aggregate payoff at a nash equilibrium against nonmembers and to commit to a transfer scheme to share the gains with two states the unique equilibrium structure is complete federation with more than two states incomplete federation can be the unique equilibrium interpreting this result in terms of custom unions the trend to trading bloc formation may be equilibrium behavior even with cooperation and transfers within customs unions copyright 1997 by american economic association

preferential tariffs and the most favoured nation principle a note abstract the aim of this note is to suggest a simple explanation of the need for an international agreement like the most favoured nation m f n principle concerning the uniformity of import tariffs it is shown that preferential import tariffs can be the optimal outcome of non cooperative behaviour by trading countries and therefore it is argued that the existence of the m f n principle reflects the incentive of each country to otherwise pursue discriminatory tariff policies although the m f n principle is well justified in terms of production efficiency its distributional effects favour the more cost efficient countries

wage rigidity inflation and institutions we study the possible existence of downward nominal wage rigidity dnwr at wage growth rates different from zero in aggregate data even if dnwr prevails at zero for individual workers compositional effects might lead to falling aggregate wages while changes in relative wages combined with dnwr might lead to positive aggregate wage growth we explore industry data for 19 oecd countries over the 1971 2006 period we find evidence for a floor on nominal wage growth at 6 percent in the 1970s and 1980s at 1 percent in the 1990s and at 0 5 percent in the 2000s furthermore we find that dnwr is stronger in country years with strict employment protection legislation high union density centralized wage setting and high inflation

rural nonfarm employment and incomes in brazil patterns and evolution abstract in decades past a large contingent of workers left farms and small towns to move to the large cities of brazil but in the 1990s not only has this flow subsided but one even observes an urbanization of rural areas via a large increase in nonfarm activities in rural areas during the 1980s and 1990s especially in the center west and southeast regions of brazil exclusively agricultural rural households have lower incomes than multiactive households those with activities in both the farm and nonfarm sectors and than nonfarm rural households one even notes a significant reduction in the number of purely farm households over 1992 97 in all regions of the country

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

computing second order accurate solutions for rational expectation models using linear solution methods this paper shows how to compute a second order accurate solution of a non linear rational expectation model using algorithms developed for the solution of linear rational expectation models the result is a state space representation for the realized values of the variables of the model this statespace representation can easily be used to compute impulse responses as well as conditional and unconditional forecasts

multilateral trade negotiations bilateral opportunism and the rules of gatt wto abstract trade negotiations occur through time and between the governments of many countries an important issue is thus whether the value of concessions that a government wins in a current negotiation may be eroded in a future bilateral negotiation to which it is not party we identify rules of negotiation that serve to protect the welfare of governments that are not participating in the bilateral negotiation our main finding is that the two central principles of gatt wto nondiscrimination mfn and reciprocity preserve the welfare of nonparticipating governments and therefore offer a first line of defense against bilateral opportunism

do we really know that the wto increases trade comment in a recent article in the american economic review andrew k rose 2004 finds that countries belonging to the general agreement on tariffs and trade gatt and its successor the world trade organization wto did not trade more than countries that abstained from membership a vast literature on the gatt and the wto presupposes that these organizations were important but until rose there were few systematic efforts to test the assumption that membership increased trade rose s contribution is striking because he assembles a large dataset performs a myriad of analyses and uncovers scant evidence that the gatt and the wto had any impact rose describes his negative findings as an interesting mystery 112 the solution to this mystery lies in understanding who actually participated in the gatt we show that rose has overlooked a large proportion of countries to which the agreement applied and mistakenly classified them as nonparticipants when in fact they had rights and obligations under the agreement this causes a downward bias in his estimates of the gatt s effect on trade because his gravity regressions

is lumpy investment relevant for the business cycle the lumpiness of investment activity at the plant level is a well established fact previous research has suggested that such discrete and occasional adjustments have significant aggregate implications in particular it has been argued that changes in plants willingness to invest in response to aggregate shocks can at times generate large movements in total investment demand in this study i reassess these predictions in a general equilibrium environment specifically assuming nonconvex costs of capital adjustment i derive generalized s s adjustment rules yielding lumpy plant level investment within an otherwise standard equilibrium business cycle model in contrast to previous partial equilibrium analyses model results reveal that the aggregate effects of lumpy investment are negligible in general equilibrium households preference for relatively smooth consumption profiles offsets changes in aggregate investment demand implied by the introduction of lumpy plant level investment as a result

endogenous formation of coalitions the formation of coalitions is a fundamental problem in game theory by a coalition is meant a group of players e g economic or political agents which decide to act together as one unit relative to the rest of the players this includes the instances of syndicates unions cartels blocks political parties parliamentary coalitions etc we would like to emphasize that forming a coalition does not eliminate the individual players as decision makers in all interactions with the other players coalition members act as one unit it may be useful to think of a representative agent taking their place 2 however this arrangement will continue only as long as each player finds it desirable to act this way further bargaining occurs among the members of each coalition on how to divide what they obtained together thus the existence of coalitions implies that the interactions among the players will be conducted on two levels first among the coalitions and second within each coalition most of the existing models in economics and game theory assume that the coalition structure is given exogenously instead we try here to obtain it as an endogenous outcome of our model namely we want to be able to predict which coalitions will in fact form in each given situation 3 our theory combines two kinds of game theoretic concepts value and stability the basic idea is first to evaluate the players prospects in the various coalition structures and then based on these values to find which ones are stable we will call this value coalition structure value or cs value for short the reason we are considering coalition structures i e partitions of the set of players into disjoint coalitions rather than just coalitions is that in general players may find it to their advantage to join forces in some situations and to act separately in others all depending on the way the other participants are organized this implies that both the value and the stability concepts should depend on the entire coalition structure the cs value we analyze in this paper was first developed by owen 7

endogenous trading bloc formation in a north south global economy the majority of the trading blocs to date are between similar countries rather than between developed and developing countries this paper provides a rationale for why trading blocs among similar countries may arise as an equilibrium phenomenon it develops a model of an asymmetric world economy in which there are at least four countries the countries are differentiated with respect to their market size and they choose their trading partners in the coalition proof nash equilibrium either there is global free trade or free trade areas are formed among similar countries la plupart des blocs commerciaux sont formes de pays similaires plutot que de pays developpes et en voie de developpement ce memoire explique pourquoi ce genre de resultat peut emerger en tant que phenomene d equilibre on developpe un modele d economie mondiale asymetrique dans lequel il y a au moins quatre pays les pays different par la taille et la nature de leurs marches et choisissent leurs partenaires commerciaux dans un equilibre libre de coalitions a la nash ou bien il existe un regime global de libre echange ou bien des zones de libre echange entre pays similaires emergent

some macroeconomic and monetary policy implications of new micro evidence on wage dynamics this paper investigates the macroeconomic relevance of new findings regarding nominal wage stickiness wage indexation wage staggering and synchronisation and downward nominal and real wage rigidity in the euro area quantifying the relevance of this evidence for monetary policy remains to be fully resolved but our results suggest that countries with lower indexation and higher wage stickiness for newly hired workers experience higher employment volatility and lower inflation volatility and that wage staggering and synchronisation of wage changes in particular months result in less persistence in real wages and inflation jel e24 e52

wage bargaining and nominal rigidities abstract delays in wage negotiations do not necessarily mean work stoppage production can continue under the terms of the old contract while the parties are bargaining holdout this holdout option is included in a strategic bargaining game in addition to strike and lock out threats integrating the bargaining model in a standard macroeconomic framework it turns out that holdout threats will prevail under certain circumstances in this case wages will be rigid in nominal terms so that an increase in aggregate nominal demand increases aggregate output

the role of labor markets for euro area monetary policy in this paper we explore the role of labor markets for monetary policy in the euro area in a new keynesian model in which labor markets are characterized by search and matching frictions we first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy we find that while a lower degree of wage rigidity makes monetary policy more effective i e a monetary policy shock transmits faster onto inflation the importance of other labor market rigidities for the transmission of shocks is rather limited second having estimated the model by bayesian techniques we analyze to which extent labor market shocks such as disturbances in the vacancy posting process shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations in sum the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy

downward wage rigidities and optimal monetary policy in a monetary union this paper analyses the implications of heterogeneity in the type of downward wage rigidity nominal or real for optimal monetary policy in a monetary union with asymmetric wage adjustment costs indexation in one region of the union reduces optimal grease inflation in the presence of common productivity shocks large common shocks may have sizeable and persistent effects on the intra union terms of trade whereby the region characterized by downward real wage rigidity adjusts with a persistent loss of competitiveness in response to asymmetric productivity shocks there is no role for grease inflation because relative price changes facilitating the real wage changes dominate the adjustment mechanism

optimal monetary and fiscal policy in a currency union we lay out a tractable model for the analysis of optimal monetary and fiscal policy in a currency union the monetary authority sets a common interest rate for the union whereas fiscal policy is implemented at the country level through the choice of government spending in the presence of country specific shocks and nominal rigidities the policy mix that is optimal from the viewpoint of the union as a whole requires that inflation be stabilized at the union level by the common central bank whereas fiscal policy has a country specific stabilization role one beyond the efficient provision of public goods

on the emergence of an mfn club equal treatment in an unequal world motivated by gatt we endogenize the formation of a club whose members have to abide by the mfn principle of non discrimination the underlying model is that of oligopolistic intraindustry trade while an mfn club does not alter average tariff levels across countries it increases aggregate world welfare makes non members worse off and can immiserize its high cost members these results imply that i core wto rules such as mfn are valuable even if multilateral negotiations deliver limited trade liberalization and ii the distributional effects of mfn maybe one reason why developing countries have been granted special and differential treatment at the wto jel classification f13 f10 f15

how strong is the macroeconomic case for downward real wage rigidity we explore the existence of downward real wage rigidity drwr at the industry level based on data from 19 oecd countries for the period 1973 1999 the results show that drwr compresses the distributions of industry wage changes overall as well as for specific geographical regions and time periods but there are not many real wage cuts that are prevented more important however drwr attenuates larger real wage cuts thus leading to higher real wages there is stronger evidence for downward nominal wage rigidity than for drwr real wage cuts are less prevalent in countries with strict employment protection legislation and high union density

multi lateral trade negotiations and the most favored nation clause abstract this paper considers the interaction between private information and the most favored nation clause in trade negotiations it demonstrates that by aggregating uncertainty over a number of trading partners the most favored nation clause may offer a welfare improvement over a set of bilateral trade negotiations this improvement is shown to be most pronounced when a large number of countries are involved in negotiations

asymmetric labor market institutions in the emu and the volatility of inflation and unemployment differentials how does the asymmetry of labor market institutions affect the adjustment of a currency union to shocks to answer this question this paper sets up a dynamic currency union model with monopolistic competition and sticky prices hiring frictions and real wage rigidities in our analysis we focus on the differentials in inflation and unemployment between countries as they directly reflect how the currency union responds to shocks we highlight the following three results first we show that it is important to distinguish between different labor market rigidities as they have opposite effects on inflation and unemployment differentials second we find that asymmetries in labor market structures tend to increase the volatility of both inflation and unemployment differentials finally we show that it is important to take into account the interaction between different types of labor market rigidities overall our results suggest that asymmetries in labor market structures worsen the adjustment of a currency union to shocks

rural nonfarm activities and poverty in the brazilian northeast abstract this paper combines two complementary data sets to present a disaggregated spatial profile of poverty in the brazilian northeast and to investigate the importance of nonagricultural activities for its rural dwellers we present both univariate and multivariate profiles of nonagricultural employment and discuss its determinants while the main occupational difference between the rural poor and the rural nonpoor in brazil seems to be the greater reliance of the former on paid agricultural employment vis a vis own cultivation rather than access to nonagricultural activities the evidence nevertheless suggests that diversification into this growing sector provides both an important complement to the budgets of the poor and possibly a self insurance mechanism against negative shocks despite the substantial heterogeneity of the sector two general findings are robust returns to education are comparatively high and location in relation to urban areas is an important determinant of both employment and earnings in rural nonagricultural activities

optimal monetary policy and downward nominal wage rigidity in frictional labor markets empirical evidence suggests that nominal wages in the u s are downwardly rigid this paper studies the optimal long run inflation rate in a labor search and matching framework under the presence of downward nominal wage rigidity dnwr in this environment optimal monetary policy targets a positive inflation rate the annual long run inflation rate for the u s is around 2 percent positive inflation greases the wheels of the labor market by facilitating real wage adjustments and hence it eases job creation and prevents excessive increase in unemployment following recessionary shocks these findings are related to standard ramsey theory of wedge smoothing by following a positive inflation policy under sticky prices the monetary authority manages to reduce the volatility and the size of the intertemporal distortion significantly the intertemporal wedge is completely smoothed when prices are fully flexible since the optimal long run inflation rate predicted by this study is considerably higher than in otherwise neoclassical labor markets the nature of the labor market in which dnwr is studied can be relevant for policy recommendations

tariffs and the most favored nation clause abstract in an n country oligopoly model of intraindustry trade n 3 this paper explores the economics of the most favored nation mfn principle under the non cooperative tariff equilibrium each country imposes higher tariffs on low cost producers relative to high cost ones thereby causing socially harmful trade diversion mfn adoption by each country improves world welfare by eliminating this trade diversion under linear demand mfn adoption by the country with the average production cost is most desirable high cost countries refuse reciprocal mfn adoption with other countries and also lose even if others engage in reciprocal mfn adoption amongst themselves

downward nominal and real wage rigidity survey evidence from european firms it has been well established that the wages of individual workers react little especially downwards to shocks that hit their employer this paper presents new evidence from a unique survey of firms across europe on the prevalence of downward wage rigidity in both real and nominal terms the authors analyse which firm level and institutional factors are associated with wage rigidity the results indicate that it is related to workforce composition at the establishment level in a manner that is consistent with related theoretical models e g efficiency wage theory insider outsider theory the analysis also finds that wage rigidity depends on the labour market institutional environment collective bargaining coverage is positively related with downward real wage rigidity measured on the basis of wage indexation downward nominal wage rigidity is positively associated with the extent of permanent contracts and this effect is stronger in countries with stricter employment protection regulations

negotiating free trade we develop a dynamic bargaining model in which a leading country endogenously decides whether to sequentially negotiate free trade agreements with subsets of countries or engage in simultaneous multilateral bargaining with all countries at once we show how the structure of coalition externalities shapes the choice between sequential and multilateral bargaining and we identify circumstances in which the grand coalition is the equilibrium outcome leading to worldwide free trade a model of international trade is then used to illustrate equilibrium outcomes and how they depend on the structure of trade and protection global free trade is not achieved when the political economy motive for protection is sufficiently large furthermore the model generates both building bloc and stumbling bloc effects of preferential trade agreements in particular we describe an equilibrium in which global free trade is attained only when preferential trade agreements are permitted to form a building bloc effect and an equilibrium in which global free trade is attained only when preferential trade agreements are forbidden a stumbling bloc effect the analysis identifies conditions under which each of these outcomes emerges

do wto members have more liberal trade policy abstract this paper uses 68 measures of trade policy and liberalization to ask if membership in the world trade organization wto and its predecessor the general agreement on tariffs and trade gatt is associated with more liberal trade policy almost no measures of trade policy are significantly correlated with gatt wto membership trade liberalizations when they occur usually lag gatt entry by many years and the gatt wto often admits countries that are closed and remain closed for years the exception to the rule is that wto members tend to have slightly more freedom as judged by the heritage foundation s index