network models and financial stability abstract systemic risk is a key concern for central banks charged with safeguarding overall financial stability in this paper we investigate how systemic risk is affected by the structure of the financial system we construct banking systems that are composed of a number of banks that are connected by interbank linkages we then vary the key parameters that define the structure of the financial system including its level of capitalisation the degree to which banks are connected the size of interbank exposures and the degree of concentration of the system and analyse the influence of these parameters on the likelihood of knock on defaults first we find that the better capitalised banks are the more resilient is the banking system against contagious defaults and this effect is non linear second the effect of the degree of connectivity is non monotonic i e initially a small increase in connectivity increases the contagion effect but after a certain threshold value connectivity improves the ability of a banking system to absorb shocks third the size of interbank liabilities tends to increase the risk of knock on default even if banks hold capital against such exposures fourth more concentrated banking systems are shown to be prone to larger systemic risk all else equal in an extension to the main analysis we study how liquidity effects interact with banking structure to produce a greater chance of systemic breakdown we finally consider how the risk of contagion might depend on the degree of asymmetry tiering inherent in the structure of the banking system a number of our results have important implications for public policy which this paper also draws out

agglomeration economies and industrial decentralization the wage productivity trade offs abstract this paper examines the industrial location trade offs between the productivity advantages of the metropolitan center and the lower land and the labor costs in outlying regions within the state of sao paulo brazil the results indicate that while plant productivity is enhanced by the considerable agglomeration economies existing within metropolitan sao paulo firms must pay for these benefits in high wages and land costs offsetting labor cost savings can be achieved by locating in outlying regions the evidence presented in this paper suggests that market forces may lead eventually to a spontaneous decentralization of industry

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

bank risk within and across equilibria abstract the global financial crisis highlighted that the financial system can be most vulnerable when it seems most stable this paper models non linear dynamics in banking small shocks can lead from an equilibrium with few bank defaults straight to a full freeze the mechanism is based on amplification between adverse selection on banks funding market and moral hazard in bank monitoring our results imply trade offs between regulators microprudential desire to shield individual weak banks and the macroprudential consequences of doing so moreover limiting bank reliance on wholesale funding always reduces systemic risk but limiting the correlation between bank portfolios does not

economies of scope and economies of agglomeration abstract agglomeration economies are economies external to the firm and plant but internal to a particular location in this paper the notion of agglomeration economies is formally investigated the implications of the concept for urban structure and industrial organization are then traced under specified considerations weak economies of agglomeration as defined in this paper are shown to be necessary for the existence of an urban area

firm location decisions regional grants and agglomeration externalities we examine whether discretionary government grants influence where domestic and multinational firms locate new plants and how the presence of agglomeration externalities interacts with these policy instruments we find that a region s existing industrial structure has an effect on the location of new entrants grants do have a small effect in attracting plants to specific geographic areas but importantly we find that firms are less responsive to government subsidies in areas where there are fewer existing plants in their industry this suggests that these subsidies are less effective in influencing firms location decisions in the face of countervailing co location benefits

search sorting and urban agglomeration studies have suggested that urban agglomeration enhances productivity by facilitating the firm worker matching process this article develops a model that formalizes this notion and demonstrates that when firm capital and worker skill are complementary in production urban agglomeration will tend to generate more efficient yet segregated matches as a result not only will local market size be positively associated with average productivity it will also generate greater between skill group wage inequality and a higher expected return to skill acquisition recent data from the counties and metropolitan areas of the united states is consistent with each of these implications

modeling indian migration and city growth 1960 2000 indian city employment growth experience since 1960 offers some sharp contrasts with most developing countries for most developing countries city employment growth and immigration rates rose across the 1960s reaching a peak in 1973 1974 india however reached a peak in the early 1960s undergoing a city growth slowdown thereafter as a result the overall rate of city growth was somewhat slower in india conventional wisdom claims that indian overurbanization has resulted from 1 manufacturings very poor productivity performance after the successes of the early 1960s and 2 land scarcity in the countryside pushing labor into the cities where they are faced with limited employment opportunities this paper applies a computable general equilibrium model to the indian development experience since 1960 results show that 1 a good share of the lower rates of city growth in india can be explained by the lower rates of labor force growth compared with much of asia and latin america 2 while changing world market conditions did contribute to the city employment growth slowdown they were not a very important source of the slowdown and 3 arable land scarcity played only a trivial role in indian city growth experience the 2 main forces which explain city employment slowdown are 1 productivity slowdown in manufacturing and 2 foreign capital inflows

count on the growth pole strategy for regional economic growth spread backwash effects in greater central china ke s and feser e count on the growth pole strategy for regional economic growth spread backwash effects in greater central china regional studies this paper investigates spread backwash effects associated with non agricultural gross domestic product and employment growth across 922 cities and counties in central china between 2000 and 2005 simultaneous equation estimates find mixed spread backwash effects from prefecture and higher level cities to comparable or lower level cities and counties spread effects of gross domestic product and employment growths are also indicated between county level cities however county level cities exerted backwash effects on rural counties the paper discusses the implications of these findings in relation to the construction of urban economic growth zones in central china as an important strategy of central rise ke s et feser e devrait on compter sur la strategie de poles de croissance afin d assurer la croissance economique regionale les effets de repartition

unique equilibrium in a model of self fulfilling currency attacks even though self fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals this unique equilibrium depends not only on the fundamentals but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading in contrast to multiple equilibrium models our model allows analysis of policy proposals directed at curtailing currency attacks

estimating dynamic localization economies the inadvertent success of the specialization index and the location quotient estimating dynamic localization economies the inadvertent success of the specialization index and the location quotient regional studies after addressing definitional issues on the concepts of c

deep financial integration and volatility we investigate the relationship between foreign direct ownership of firms and firm and region level output volatility using a novel panel data set for european countries we document a positive highly robust relationship between firm level foreign ownership and volatility of value added this relationship holds cross sectionally and in panels with firm fixed effects where the relationship captures within firm variation over time considering domestic firms with assets in foreign countries we document that it is international diversification rather than the nationality of the owner that explains this positive correlation our results can also be found at the aggregate level where we show that region level volatility is correlated positively with foreign investment in the region we show that this positive relation between aggregate volatility and foreign investment can be explained by the granularity of the firm size distribution and the fact that foreign ownership is concentrated among the largest firms

telecommunications and economic growth an empirical analysis of sub saharan africa we examine the effect of mobile cellular phones on economic growth in sub saharan africa where a marked asymmetry is present between land line penetration and mobile telecommunications expansion this study extends previous research along two important dimensions first we allow for the potential endogeneity between economic growth and telecommunications expansion by employing a special linear generalized method of moments gmm estimator second we explicitly model for varying degrees of substitutability between mobile cellular and land line telephony so that greater expansion of mobile telecommunications can have a different impact whenever the level of land line penetration differs we find that mobile cellular phone expansion is an important determinant of the rate of economic growth in sub saharan africa moreover we find that the contribution of mobile cellular phones to economic growth has been growing in importance in the region and that the marginal impact of mobile telecommunication service

measuring optimal population distribution by agglomeration economies and diseconomies a case study of tokyo this paper presents an empirical study on the optimality of population distribution within the tokyo metropolitan area by taking into account the effects of agglomeration economies and diseconomie

urban rural variations in the structure of manufacturing production this paper demonstrates that recent attempts to explain manufacturing shifts to nonmetropolitan areas can be synthesised into a capital vintage model of production the result is a set of systematic differences between urban and rural production methods which are consistent with the locational implications of the manufacturing process cycle theory the model is supported by the first comprehensive estimation of separate production functions for smsas and nonmetropolitan areas using census data for the us from 1977 only smsas are shown to possess the significant agglomeration economies needed for product development and process innovation cost competitive nonmetropolitan areas show much greater variation in input proportions due to spatial factor price differentials

how large is too large implications of the city size literature for population policy and research in the development literature of the late 1960s and 1970s urbanization and urban problems were often taken to be synonymous both the theories and the preliminary empirical studies of the period appeared to connect urbanization directly with unemployment2 and with crowding congestion social stress and pollution the high visibility of such disamenities coupled with their political implications persuaded developing country governments of the necessity to constrain or even reverse urban growth 3 the antiurbanization perspective achieved its high point in the declarations of the 1974 world population plan of action at bucharest since that time it has gradually been supplanted by more balanced assessments of the contribution made by cities to economic growth 4 even so the potential benefits of urban growth have not yet received the emphasis given to the potential costs whether in policy discussions or in much of the literature on third world urbanization 5 this is unfortunate for it can be argued that agglomeration economies those external returns in production that occur when firms cluster together spatially provide an economic

group specific effects of interregional mobility on earnings a microdata analysis for germany lehmer f and moller j group specific effects of inter regional mobility on earnings a microdata analysis for germany regional studies the paper analyses the relationship between regional mobility and earnings for different groups of workers using a large panel microdata set the authors find negative earnings differentials of movers in the year before migration and strong evidence for significant wage gains through mobility a decomposition of blinder oaxaca type reveals different group specific rewards effects suggesting a positive post mobility wage differential of movers over the incumbent workforce for some groups irrespective of the region of destination the existence of a general wage growth effect of mobility appears to be robust and cannot be explained by the time invariant part of unobserved heterogeneity lehmer f et moller j l impact sur les revenus la mobilite interregionale des groupes specifiques des groupes sur les revenus une analyse des donnees microeconomiques pour l allemagne

metropolitan development in a transitional socialist economy spatial restructuring in the pearl river delta china the dynamic of globalisation and urban change in europe and north america has been extensively documented relatively little is known about the processes and consequences of spatial restructuring in metropolitan regions within the context of a transitional socialist economy this study investigates economic restructuring and spatial transformation in one of the most dynamic metropolitan regions in china deregulation of the post reform socialist central state has allowed chinese peasants to diversify agricultural production and to industrialise the rural economy according to various personal strengths and the changing market demand despite the rapid commercialisation and industrialisation of the regional economy there has been no growing concentration of population and production facilities in large cities the loci of accelerated economic growth increased population mobility and massive land use transformation have been in the intermediate zones surrounding and between metropolitan centres rapid expa

agglomeration opportunism and the organization of production abstract recent economic analysis of outsourcing has emphasized its international dimension in contrast this paper focuses on local outsourcing the paper specifies and solves a model where the organization of production vertically integrated or not and the location of production agglomerated or not are jointly determined the paper shows that agglomeration reduces opportunism a thick market effect and so serves as a substitute for integration this force will lead firms to agglomerate the paper also shows that the normative properties of equilibrium with local outsourcing are not as clear cut as for international outsourcing since local agglomeration is achieved at the cost of congestion local markets may be too thick which would not be the case for an increase in the thickness of a world market finally the many changes in economic and social circumstance that have been labeled globalization do not impact only vertically integrated firms they also impact cities and industry clusters to the extent that agglomeration is a substitute for vertical integration

productivity and city size a critique of the evidence a critique of two leading articles in the productivity and city size literature results in revised estimates of the productivity advantages of large cities in particular extant estimates of the elasticity of productivity with city size are revised downward by over 100 percent for the manufacturing sector and about 25 percent for the entire urban economy after revision productivity advantages of larger cities are found to be much larger for the nonmanufacturing sector than for the manufacturing sector hence revitalization policies for large cities should be focused on nonmanufacturing sectors

spatial wage disparities sorting matters spatial wage disparities can result from spatial differences in the skill composition of the workforce in non human endowments and in local interactions to distinguish between these explanations we estimate a model of wage determination across local labour markets using a very large panel of french workers we control for worker characteristics worker fixed effects industry fixed effects and the characteristics of the local labour market our findings suggest that individual skills account for a large fraction of existing spatial wage disparities with strong evidence of spatial sorting by skills interaction effects are mostly driven by the local density of employment not controlling for worker heterogeneity leads to very biased estimates of interaction effects endowments only appear to play a small role

a productivity growth interpretation of the labour demand shift share model graham d j and spence n 1998 a productivity growth interpretation of the labour demand shift share model reg studies 32 515 525 this paper proposes modifications to the labour demand shift share model set out in this journal by casler 1989 to allow for its implementation and to extend its use to analyses of regional labour productivity growth the paper begins by briefly outlining the theoretical basis for the shift share method provided in casler s paper and then goes on to present a specific reformulation of the model which incorporates input price and technological growth effects on labour demand these additional effects are defined as productivity components within the shift share model and the empirical and theoretical implications of the modifications made are discussed in the paper an empirical example of the results obtained through the modified labour demand shift share model is then provided for selected british regions the paper concludes by outlining potential uses of the modif

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

rollover risk network structure and systemic financial crises the breakdown of short term funding markets was a key feature of the global financial crisis of 2007 8 combining insights from the literature on global games and network growth we develop a simple model that sheds light on how network topology interacts with the funding structure of financial i nstitutions to determine system wide crises we show how the arrival of bad news about a financial institution leads others to lose confidence in it and how this in tu rn spreads across the entire interbank network the rate of system wide bank failure is rendered endogenous depending crucially on both the rate at which bad news arrives and on the maturity of debt contracts the conditions under which the financial system makes a sharp transition from a dense network of credit relations to a sparse network where credit freezes readily occur are characterized our results also emphasize the role of hysteresis once broken credit relatio ns take a long time to re establish as a result of common knowledge of the equilibrium our findings shed light on the nature of public policy responses both during and after the crisis

information technology consultancy firms economies of agglomeration from a wide area perspective agglomeration economies remains a powerful concept in spatial analysis however in order to keep its full relevance for contemporary urban and regional systems it must be completed in two ways

local market size social capital and outsourcing evidence from emilia romagna based on a unique dataset concerning small firms operating in the machinery and equipment industry in emilia romagna italy we estimate the separate effects of social capital and local market size on the probability to either fully or partially outsource parts of the production process we are able to distinguish 29 different phases of the production cycle from design to early processing to post production our estimates show that 1 social capital influences the full outsourcing of core assembly and post assembly activities while local market size affects the full outsourcing of early processing activities 2 neither social capital nor local market size have a statistically significant effect on the probability of partially outsourcing any step of the production process robustness tests confirm our results vis a vis the endogeneity of the local market size and social capital and the potential modifiable area unit problem relating to local market size

idiosyncratic return volatility cash flows and product market competition over the past 40 years the volatility of the average stock return has drastically outpaced total market volatility thus idiosyncratic return volatility has dramatically increased we estimate this increase to be 6 per year consistent with an efficient market this result is mirrored by an increase in the idiosyncratic volatility of fundamental cash flows we argue that these findings are attributable to the more intense economy wide competition various cross sectional and time series tests support this idea economic competitiveness facilitates reinterpretation of the results from the cross country r2 literature as well as the us idiosyncratic risk literature jel g12 g14

mobile telecommunications and the impact on economic development using annual data from 192 countries over the period 1990 2007 we assess the impact of mobile telecommunications on economic growth we find that this impact is smaller for countries with a low mobile penetration usually low income countries while in low income countries the mobile telecommunications contribution to annual gdp growth is 0 11 for high income countries this is 0 20 the increasing returns from mobile adoption are also emerging when assessing the impact on productivity growth to promote mobile telecommunications penetration liberalization policies along with appropriate regulatory frameworks are recommended such policies should be pursued more forcefully in cases where serious shortcomings exist harald gruber and pantelis koutroumpis

institutional quality and international trade institutions quality of contract enforcement property rights shareholder protection and the like have received a great deal of attention in recent years yet trade theory has not considered the implications of institutional differences beyond treating them simply as different technologies or taxes the purpose of this paper is twofold first we propose a simple model of international trade in which institutional differences are modeled within the framework of incomplete contracts we show that doing so reverses many of the conclusions obtained by equating institutions with productivity institutional differences as a source of comparative advantage imply among other things that the less developed country may not gain from trade and factor prices may actually diverge as a result of trade second we test empirically whether institutions act as a source of trade using data on us imports disaggregated by country and industry the empirical results provide evidence of institutional content of trade institutional differences are an important determinant of trade flows

industrial bases and city sizes away from heavy manufacturing and bluecollar occupations and towards professional activities communications finance insurance real estate and high tech activities should we expect these gains and losses to be spread across cities or are certain cities likely to be gainers and others losers in terms of population are losers likely to experience permanent declines in population or for some will their losses level off or will they rebound if the growth industries of an economy operate best in larger cities while declining industries tend to reside in smaller cities this implies national population will shift from smaller cities to locating in larger cities this increase in urban concentration means there will be changes in other patterns of resource usage efficient levels of per capita resources devoted to urban infrastructure roads sewers parks etc tend to rise with city size and it is a common perception that the magnitudes of certain consumer externalities congestion air and water pollution crime etc rise with city size this has implications for public policies governing the allocation of public investment and governing the regulation of externalities moreover the changes in population allocation between larger and smaller cities itself involves to some extend a painful process of population upheavals and there may be public policies which can alleviate the costs of the adjustment process in this paper i outline a conceptual framework and empirical methodologies from which some of these issues can be examined

telecommunications infrastructure and economic development a simultaneous approach in diesem beitrag wird untersucht welchen einflus die telekommunikations infrastruktur auf die wirtschaftliche entwicklung ausubt diese wichtige frage hat im zusammenhang mit der diskussion um informationsautobahnen aktualitat erlangt in der vorliegenden studie wird der einflus der telekommunikations infrastruktur fur 21 oecdlander fur die vergangenen 20 jahre analysiert es wird ein strukturgleichungsmodell geschatzt in dem investitionen in die telekommunikations infrastruktur als endogene variable erfast werden und in einem mikromodell angebot und nachfrage nach telekommunikations investitionen spezifiziert werden das mikromodell wird dann zusammen mit der makro wachstumsgleichung geschatzt als ergebnis stellen die autoren dann eine positive kausalbeziehung zwischen telekommunikations investitionen und wirtschaftlicher entwicklung fest wenn eine kritische masse an telekommunikations infrastruktur existiert

uncertainty in an interconnected financial system contagion and market freezes this paper studies contagion and market freezes caused by uncertainty in financial network structures our model demonstrates that in a financial system where financial institutions are interconnected a negative shock to an individual financial institution could spread to other institutions causing market freezes because of creditors uncertainty about the financial network structure our model also reveals that when both a large creditor and a continuum of small creditors are present the size of the large creditor will affect the severity of market freezes substantially moreover our model is used to examine central bank policies to alleviate market freezes

no place like home relocation capabilities and firm survival in the german machine tool industry after world war ii we explore the extent to which organizational capabilities are location specific by studying the location choices and longevity of east german machine tool producers that relocated to west germany after world war ii relocating firms were similar in performance to experienced west german incumbents they outperformed new entrants without prewar industry experience this suggests they were able to build on capabilities acquired before the war even though relocating firms tended lo locate in industry agglomerations and in urbanized regions we find no evidence suggesting that firm performance benefited from agglomeration economies copyright 2011 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

urbanisation and regional productivity in korean manufacturing as the first study for korea we estimate the effects of urbanisation and localisation economies on the productivity of 19 korean manufacturing industries in 1983 1988 and 1993 based on the observation that material inputs contributed about 60 per cent of productivity growth in korea we consider gross output productivity which is an innovation that distinguishes our study from previous ones we find that localisation economies have been dominant features of korean manufacturing industries whereas korean manufacturing industries did not benefit much from locating in large cities more interestingly there are some indications of quadratic relations between city size and urbanisation economies

economic complexity conceptual grounding of a new metrics for global competitiveness abstract the availability of data corresponding to the products exported by all countries provides an excellent dataset to test economic ideas and extracts new information about the process of economic development the matrix of countries and exported products shows a marked triangular structure instead of the block diagonal structure expected from ricardian arguments of specialization this observation points to the fact that diversification is instead the dominant effect in the globalized market we discuss how to define a suitable non monetary metrics for the value of diversification and the effective complexity of products we discuss in detail the previous proposed approaches to assess this challenge and their limitations we introduce a new approach to the definition of these metrics which seems to overcome the previous problems and we test it in a series of model systems

asset commonality debt maturity and systemic risk we develop a model in which asset commonality and short term debt of banks interact to generate excessive systemic risk banks swap assets to diversify their individual risk two asset structures arise in a clustered structure groups of banks hold common asset portfolios and default together in an unclustered structure defaults are more dispersed portfolio quality of individual banks is opaque but can be inferred by creditors from aggregate signals about bank solvency when bank debt is short term creditors do not roll over in response to adverse signals and all banks are ine ciently liquidated this information contagion is more likely under clustered asset structures in contrast when bank debt is long term welfare is the same under both asset structures

dynamic debt runs we develop a dynamic model of debt runs on a rm which invests in an illiquid asset by rolling over staggered short term debt contracts i e dierent contracts mature at dierent times we derive a unique threshold equilibrium in which creditors coordinate their asynchronous rollover decisions based on the rm s publicly observable and time varying fundamental the coordination problem ampli es the creditors concerns about the rm s future rollover risk created by its time varying fundamental and causes each maturing creditor to run ahead of others even when the current fundamental is substantially higher than its liability our model provides a set of implications on the roles played by volatility illiquidity and debt maturity in driving debt runs as well as on rms capital adequacy standards and credit risk

telecommunications and economic growth a panel data approach telecommunication investment is increasingly identified as one with a strong potential to improve economic productivity and growth the objective of this study is to investigate the long run relationship between telecommunications infrastructure and economic growth using data from 22 oecd countries a dynamic panel data method is used for estimation which corrects for omitted variables bias of single equation cross section regression the fixed effects specification accounts for country specific differences in aggregate production functions the results show a significant and positive correlation between telecommunications infrastructure and growth after controlling for a number of other factors

marshall s scale economies and jacobs externality in korea the role of age size and the legal form of organisation of establishments this paper revisits the concept of agglomeration economies by estimating the effects of localisation urbanisation and local competition on labour productivity using establish ment level data in korean manufacturing industries it is found that when an establish ment locates in a more localised specialised more urbanised diversified and more competitive area its workers become more productive due to external benefits from agglomeration issues of self selection bias and omitted variable bias are addressed by instrumenting the variables measuring localisation economies and controlling for the fixed effects of establishments location and industries year however the external effects from the spatial proximity of other establishments vary across the categories of industry type age size and legal form of organisation of establishments establishments in traditional heavy manufacturing industries receive more external benefits in a less diversified area while those in transport equipment manufacturing industries enjoy the largest benefits from localisation externalities exist for establishments aged between 2 and 7 years having at least 10 workers being corporate and having multiplants or not being headquarters establishments in relatively young industries rely more on diver sified environments while establishments in relatively old industries receive greater external benefits in the same industry cluster this result supports the product life cycle location theory of duranton and puga

externalities information costs and social benefit cost analysis for economic development an example from telecommunications the analytics of achieving a socially optimal allocation of investment resources has been a continuing problem in the field of economic development early work on this subject focused on externalities and on the need to include in the analysis a project s indirect promotional effects later research in what came to be called social benefit cost analysis sbca has added an emphasis on shadow prices on uncertainty and increasingly on income distribution effects 2 in principle these diverse concerns of social benefit cost analysis are complementary rather than competitive in the conditions of a less developed country ldc an investment project s side effects on income creation can be very significant 3 similarly an investment project s indirect impact on income distribution may also be substantial consequently an analysis incorporating externalities is necessary to take indirect social benefits and costs into account in practice however the more recent concerns of sbca have sometimes been accompanied by diminished interest in externalities 4 this paper presents an example that illustrates the importance of including externalities in considering both the efficiency and the equity consequences of investment choice our example analyzes the welfare effects of investment in telecommunications primarily telephone facilities in developing countries 5 investments that make available additional telephones in ldcs are often viewed as having welfare effects similar to increased availability of consumer durables like color television or air conditioning those goods are primarily an added convenience for the upper classes and their availability enlarges further the

globalization and the skilled city abstract the location of economic activity both across and within countries has undergone dramatic shifts over the last five decades three key trends stand out first cross country inequality has declined as many developing countries have grown rapidly second economic geography within countries has instead grown more unequal in both the developed and the developing world third within country spatial disparities have grown mainly because of the disproportionate success of skilled cities in this paper i develop a model that jointly explains these patterns as a consequence of deepening international economic integration my model explains the faster population and output growth of skilled cities as well as their tendency to increase their initial skill advantage consistent with the evidence my theory predicts a non monotonic path of urban growth in developed countries the model predicts a future shift in worldwide urban hierarchies as some developing world cities overtake unskilled cities in industrialized countries along global supply chains

fear of fire sales illiquidity seeking and credit freezes is there any need to clean up a banking system in the midst of a crisis for instance by closing some weak banks and forcing others to sell bad assets or can one wait till the crisis is over we argue that an overhang of impaired banks that may be forced to sell assets in the future can increase the private returns to holding illiquid assets sufficiently that weak banks have no interest in selling them anticipating a potential future fire sale cash rich buyers have high expected returns to holding cash which also reduces their incentive to lock up money in term loans the potential for a worse fire sale than necessary as well as the associated decline in credit origination could make the crisis worse which is one reason it may make sense to clean up the system even in the midst of the crisis we discuss alternative ways of cleaning up the system and the associated costs and benefits

on the origins of comparative advantage this paper proposes a simple theory of international trade with en dogenous technological dierences across countries the core of our analysis lies in the determinants of the division of labor we consider a world economy comprising two large countries with a continuum of goods and one factor of production labor each good is characterized by its complexity de ned as the number of tasks that must be per formed to produce one unit there are increasing returns to scale in the performance of each task which creates gains from specialization and uncertainty in the enforcement of each contract which create transac tion costs the trade obetween these two forces pins down the size of productive teams across sectors in each country under free trade the country where teams are larger specializes in the more complex goods in our model it is the country where the product of institutional qual ity and human per worker capital is larger hence better institutions and more educated workers are complementary sources of comparative advantage in the more complex industries

optimal investment choice for developing countries rational theory and rational decision making abstract this paper analyzes a key feature of the conceptual process that governments use for making major investment choices in the developing countries both through their direct investment activities and through the special incentives e g credit foreign exchanage and tax subsidies they provide governments typically play a large role in the allocation of investment resources in ldc s consequently the public investment choice process has significant effects on the efficiency of capital formation and on economic growth in developing countries although the feature of the investment choice process on which we focus has important theoretical and practical implications it has so far received little analytical attention

agricultural biotechnology and poverty reduction in low income countries summary while biotechnology innovation is concentrated in high income tier i countries international diffusion of innovations to improve the diet health and incomes of the poorest will be largely driven by tier ii innovators such as china and brazil adoption of beneficial biotechnologies in tier ii and tier iii countries will increase as more transgenic versions of conventionally grown varieties become available and as costs decline which in turn will depend upon regulatory approvals being needed only once for each transformation event and transaction costs for accessing technologies being minimized investments in higher education and intellectual property clearinghouse institutions can greatly facilitate technology transfer

agglomeration economies localization or urbanization i estimate localization and urbanization economies with a methodology and data different from those of henderson and nakamura after demonstrating the problems associated with using a single agglomeration variable i present my estimates as nakamura found for japanese cities i find evidence of both localization economies and urbanization economies but i also find evidence of urbanization diseconomies in some industries as did henderson my evidence for localization and urbanization economies in american cities is stronger than henderson s evidence finally i show that the pattern of agglomeration economies by industry is consistent with observed patterns of industrial location

does product complexity matter for firms output volatility abstract with this paper we provide the first micro level evidence on the linkage between firm complexity and volatility by defining product complexity a la hausmann and hidalgo 2009 we find that a higher complexity level of a firm s product basket is associated to a reduction of its output fluctuations this evidence is robust to the control for omitted variables sample selection and to the use of alternative volatility and complexity indicators across similar firms active in different sectors and regions both technological factors and product market conditions explain the effect of complexity on volatility however within narrowly defined sectors and locations the complexity volatility nexus fully reflects the role of the human capital content of firms product baskets

urbanization in a developing country city size and population composition abstract in developing countries typically there is a very high correlation between city size and educational attainment of the local population which is less pronounced or even absent in developed countries such as canada the u s a or the u k two explanations are examined first the types of goods produced in larger cities require relatively high skill labor inputs second public and perhaps private services demanded by higher skill people are only offered in larger cities the paper econometrically tests these hypotheses for brazil estimating the elasticities of substitution or typically complementarity between high and low skill labor and the bright lights effect for high versus low skill labor

agglomeration effects in foreign direct investment and the pollution haven hypothesis does environmental regulation impair international competitiveness of pollution intensive industries to the extent that they relocate to countries with less stringent regulation turning those countries into pollution havens we test this hypothesis using panel data on outward foreign direct investment fdi flows of various industries in the german manufacturing sector and account for several econometric issues that have been ignored in previous studies most importantly we demonstrate that externalities associated with fdi agglomeration can bias estimates away from finding a pollution haven effect if omitted from the analysis we include the stock of inward fdi as a proxy for agglomeration and employ a gmm estimator to control for endogenous time varying determinants of fdi flows furthermore we propose a difference estimator based on the least polluting industry to break the possible correlation between environmental regulatory stringency and unobservable attributes of fdi recipients in the cross section when accounting for these issues we find robust evidence of a pollution haven effect for the chemical industry

comparative advantage complexity and volatility abstract less developed countries tend to experience higher output volatility a fact that is in part explained by their specialization in more volatile sectors this paper proposes theoretical explanations for this pattern of specialization with the complexity of the goods playing a central role specifically less developed countries with lower institutional ability to enforce contracts or alternately with low levels of human capital will specialize in less complex goods which are also characterized by higher levels of output volatility we provide novel empirical evidence that less complex industries are indeed more volatile

export diversification what s behind the hump hy should export diversification be taken as a policy objective per se there are two reasons that it should not first according to ricardo countries should specialize not diversify second the heckscher ohlin model implies that export patterns are largely determined by endowments so if anything we should worry about factor accumulation not diversification yet export diversification is a constant preoccupation of policymakers in developing countries as de ferranti et al 2002 note a recurrent preoccupation of latin american policymakers is that their natural riches produce a highly concentrated structure of export revenues which then leads to economic volatility and lower growth p 38 the notion that export patterns are fully determined by endowments is of course naive the relationship of endowments trade and growth is a complex and imperfectly understood one intra industry trade models showed long ago that many factors other than endowments including market failures and policies can affect trade patterns more recently hausmann hwang and rodrik 2007 argued that export patterns can display path dependence in the presence of externalities

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

credit contagion and aggregate losses abstract credit contagion refers to the propagation of economic distress from one firm to another this article proposes a reduced form model for these contagion phenomena assuming they are due to the local interaction of firms in a business partner network we study aggregate credit losses on large portfolios of financial positions contracted with firms subject to credit contagion in particular we provide an explicit gaussian approximation of the distribution of portfolio losses this enables us to quantify the relation between the volatility of losses and the determinants of credit contagion we find that contagion processes have typically a second order effect on portfolio losses they induce additional fluctuations of losses around their averages whose size depends on the number of business partners of the firms

cross country evidence on the link between volatility and growth this paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations in a sample of ninety two countries as well as a sample of oecd countries the authors find that countries with higher volatility have lower growth the addition of standard control variables strengthens the negative relationship the authors also find that government spending induced volatility is negatively associated with growth even after controlling for both time and country fixed effects copyright 1995 by american economic association

rollover risk and market freezes the debt capacity of an asset is the maximum amount that can be borrowed using the asset as collateral we model a sudden collapse in the debt capacity of good collateral we assume short term debt that must be frequently rolled over a small transaction cost of selling collateral in the event of default and a small probability of meeting a buy to hold investor we then show that a small change in the asset s fundamental value can be associated with a catastrophic drop in the debt capacity the kind of market freeze observed during the crisis of 2007 to 2008 one of the many striking features of the crisis of 2007 to 2008 was the sudden freeze in the market for the rollover of short term debt from an in stitutional perspective the inability to borrow overnight against high quality but long term assets was a market failure that effectively led to the demise of a substantial part of investment banking in the united states more broadly it led to the collapse in the united states the united kingdom and other countries of banks and other financial institutions that had relied on signifi cant maturity mismatch between assets and liabilities and in particular on the rollover of short term wholesale debt in the asset backed commercial paper abcp and overnight sale and repurchase repo markets in this paper we are interested in developing a model of a sudden collapse in the ability to borrow short term against long lived assets in the absence of obvious problems of asymmetric information or fears about the value of col lateral we refer to this phenomenon as a market freeze more precisely a market freeze occurs when the debt capacity the maximum amount of collat eralized borrowing that can be supported by an asset is a small fraction of the fundamental value the economic value measured by the net present value npv of the stream of future returns an extreme form of a market freeze occurs when the fundamental value is close to the maximum possible value of the asset whereas the debt capacity is close to the minimum possible value of the asset

precautionary demand and liquidity in payment systems in large value real time gross settlement payment systems banks rely heavily on incoming funds to finance outgoing payments such reliance necessitates a high degree of coordination and synchronization we construct a model of a payment system calibrated for the u s fedwire system and examine the impact of realistic disruptions motivated by the recent financial crisis in such settings individually cautious behavior can have a significant and detrimental impact on the overall functioning of the payment system through a multiplier effect our results quantify the mutually reinforcing nature of greater caution and allow comparative statics analysis of shifts in key parameters

fixed costs sunk costs entry barriers and sustainability of monopoly this paper shows that i fixed costs of sufficient magnitude assure the existence of a vector of sustainable prices for the products of a natural monopolist prices making him invulnerable against entry ii nevertheless fixed costs do not constitute barriers to entry that is they need not have undesirable welfare consequences iii indeed in market forms that we call perfectly contestable large fixed costs are completely compatible with many desirable attributes of competitive equilibrium iv sunk costs do however constitute barriers to entry and v finally the profit and welfare consequences of entry barriers are described formally in this paper it is shown that i fixed costs of sufficient magnitude assure the existence of a vector of sustainable prices a set of product prices that make a natural monopolist invulnerable against successful entry ii nevertheless costs that are truly fixed do not constitute barriers to entry that is they do not have the welfare consequences normally attributed to barriers to entry iii indeed there are markets of a form which we call perfectly contestable markets and whose properties may be approximated in practice in which large fixed costs are completely compatible with many if not most of the desirable attributes of competitive equilibrium iv sunk costs do however constitute barriers to entry and v finally the resource allocation problems that stem from fixed costs are formally identical with those that accompany public goods both their sources and their character are the same thus the rationale for public supply of public goods may be no different from that pertaining to nationalization of natural monopolies

worker turnover industry localization and producer size abstract empirically large employers have been shown to devote greater resources to filling vacancies than small employers following this evidence this paper offers a theory of producer size based on labor market search whereby a key factor in the determination of a producer s total employment is the ease with which workers can be found to fill jobs that are periodically vacated since the geographic localization of industry has long been conjectured to facilitate the search process the model provides an explanation for the observed positive association between average producer size and the magnitude of an industry s presence within local labor markets

manufacturing productivity and city size in canada 1975 and 1985 does population matter this paper analyses the relationship between manufacturing productivity and city size based on canadian data for 1975 and 1985 the results differ in some respects from those of us studies in particular in canada city size appears to have a weaker impact on manufacturing productivity and an impact which is diminishing over time these findings may be a consequence of several differences in the characteristics of canadian and us firms as well as differences between the two urban systems urbanisation economies in canada may also have been weakened by regional development policies there are at the same time some striking similarities in the industries which show positive urbanisation economies in the us and canada there is also a tendency in canada for both industries with smaller firms and industries with higher rates of domestic ownership to exhibit greater urbanisation economies

the division of labor coordination costs and knowledge this paper considers specialization and the division of labor a more extensive division of labor raises productivity because returns to the time spent on tasks are usually greater to workers who concentrate on a narrower range of skills the traditional discussion of the division of labor emphasizes the limitations to specialization imposed by the extent of the market we claim that the degree of specialization is more often determined by other considerations especially emphasized are various costs of coordinating specialized workers who perform complementary tasks and the amount of general knowledge available