cross country evidence on the link between the level of infrastructure and capital inflows the relationship between public infrastructure and international capital flows is empirically investigated out of a sample of 30 countries a cross sectional econometric model is constructed to estimate the effects different components of infrastructure variables are tested in relation to their impact on different kinds of external capital liabilities the results suggest a positive relationship between the level of infrastructure and capital inflows however statistical significance cannot be established for all variables in question

intertemporal pricing and price discrimination a semiparametric hedonic analysis of the personal computer market we apply a smooth coefficient semiparametric model to a unique high frequency data set to examine the intertemporal pricing of personal computers furthermore we test whether firms charge differential component prices for their top performance personal computers and whether premium firms charge both a premium for all their computers and a premium for their top performance ones we find nonlinear effects in the pricing of personal computer components we also find that firms in general do not charge differential prices for the components of their top performance computers in addition high quality firms charge higher premia only for their most advanced products copyright 2006 john wiley sons ltd

transaction costs in the theory of unemployment this paper addresses the problem of accounting theoretically for the persistence of large scale unemployment it briefly reviews some of the well known shortcomings of the keynesian account based upon sticky wages and prices and upon robert clower s 1965 concept of effective demand arguing that these shortcomings can be seen as a failure explicitly to integrate transaction costs into the theory of unemployment the main constructive contribution of the paper is an example of a simple macro model along the lines of robert barro and herschel grossman 1971 in which transaction costs are made explicit an essential part of this example is an externality of the sort suggested by peter diamond 1982 the example provides an account of persistent unemployment with many keynesian features yet without some of the keynesian shortcomings in particular it assumes perfect wage and price flexibility

intra metropolitan variation in earnings and labor market discrimination an econometric analysis of the atlanta labor market one of the most enduring debates concerning racial differences in earnings is whether housing segregation within metropolitan areas adversely affects the employment opportunities of urban blacks two possible negative effects can be listed first the decentralization of lower skilled jobs combined with the suburban residential exclusion of low income households may have caused wage rates within the suburban labor market to rise above those paid within the central city if this is the case and if housing market discrimination restricts the relative ability of blacks to offer their labor supply to suburban employers then at least part of the racial difference in earnings can be attributed to housing segregation second housing segregation may cause private sector labor market discrimination to be more severe within the central city in comparison to suburban areas as suggested by becker s taste for discriminating model 3 a relatively large black labor supply within the central city may require a lower black to white earnings ratio in order to induce prejudiced employers to hire large numbers of black workers with the workforce of most central cities becoming increasingly black this may be an important factor in explaining racial differences in earnings surprisingly while variation in discrimination among occupations regions industries and sectors have been examined in some detail spatial differences in discrimination between the central city and suburbs have largely escaped analysis in this paper the earnings of private sector workers broken down by occupation race and sex are compared between worksite areas encompassing the metropolitan area of atlanta georgia while an extensive literature can be found on interregional differences in earnings little evidence exists on the spatial variation in wage rates within metropolitan regions in fact virtually nothing has been done on this issue since the classic study of the chicago labor market by rees and shultz 19

highway induced development evidence from sri lanka summary when transport investments are made in relatively infrastructure poor newly industrializing regions the consequences extend beyond growth effects to some transformational changes this paper empirically estimates the direction and the magnitude of some of the consequent transformational changes induced via a highway project in sri lanka these changes were estimated at the firm and household level via a series of production function and multivariate analyses in light of the observed results it is likely that traditional impact studies by failing to incorporate transformational shifts i e working under the assumption of a non changing economic structure significantly underestimate project benefits and costs

public capital and long run costs in u k manufacturing a model of u k manufacturing production that incorporates the inputs of public as well as private capital is specified and estimated the model is then used to measure the contribution of public capital to productivity growth over the period 1966 to 1990 it is found that before 1980 the public and private capital contributions were of comparable magnitude after 1980 the contribution of public capital declined significantly copyright 1993 by royal economic society

the role of public capital in production the impact of the stock of public capital on costs of production in the private sector is examined using annual data over the period 1958 89 a translog cost function is estimated and public capital is found to be a significant input the estimates indicate that public capital has positive marginal product and that private and public capital are complements in production rather than substitutes copyright 1992 by mit press

applied general equilibrium models of taxation and international trade an introduction and survey we wish to acknowledge the help of three referees and of john pencavel on several earlier drafts as well as the assistance of the modelers whose work is referred to in the paper they corrected our lack of understanding of their work and provided many other helpful comments excellent research and bibliographical assistance have been provided by debbie fretz radwan shaban and janet stotsky helpful comments have been made by charles ballard michael boskin lans bovenberg sylvester damus harvey galper glenn harrison gordon lenjosek jack mutti serena ng t n srinivasan charles stuart and eric toder the authors also acknowledgefinancial support from the national bureau of economic research the national science foundation international business machines and the social sciences and humanities research council ottawa canada

imperfect competition and the keynesian cross abstract this paper presents a simple general equilibrium model in which the only non walrasian feature is imperfect competition in the goods market the model is shown to exhibit various keynesian characteristics in particular as competition in the goods market becomes less perfect the fiscal policy multipliers approach the values implied by the textbook keynesian cross

business cycles with free entry ruled by animal spirits abstract we approach business cycles on the basis of extrinsic uncertainty related to static indeterminacy of free entry oligopolistic equilibria firms producing under increasing returns to scale compete in prices in contestable markets the number of active firms varies across sectoral equilibria which depend upon correct producers conjectures on competitors actions coordination of these conjectures by some markov chain generates endogenous shocks in markups and productivity consumers expectations may in addition magnify this extrinsic uncertainty as the source of fluctuations does not rely on dynamic indeterminacy the required degree of increasing returns may be arbitrarily small provided goods substitutability within each sector becomes arbitrarily large

how labour market flexibility affects unemployment long term implications of the chain reaction theory this paper evaluates two theories of unemployment the natural rate theory whereby unemployment is depicted as fluctuating around a reasonably stable natural rate and the chain reaction theory which views movements in unemployment as the outcome of the interplay between labour market shocks and a network of lagged adjustment processes we show that for labour market systems with two common characteristics lagged endogenous variables and growing exogenous variables lags affect unemployment not only in the short run but in the long run as well the reason is that in the presence of growing exogenous variables the lagged responses are never able to work themselves out entirely in this respect the chain reaction theory contrasts sharply with the natural theory which commonly views unemployment as approaching a natural rate determined solely by the values of the exogenous variables the policy implications of the two theories are quite different as well for an empirical model of the uk market we show that unemployment does not converge to the natural rate as conventionally defined furthermore we show that lagged adjustment processes account for a substantial part of the uk long run equilibrium unemployment rate and for the movement of uk unemployment over the past 15 years this abstract was borrowed from another version of this item

temporary stabilization a stochastic analysis abstract this paper develops a stochastic model of exchange rate based inflation stabilization in which agents have expectations of devaluation driven by a mixed diffusion jump process in a richer stochastic environment where a brownian motion drives the rate of devaluation and a poisson process determines the probability of devaluation we examine consumption and wealth equilibrium dynamics when a stabilization plan is implemented and contingent claims markets are unavailable we also assess the effects of exogenous shocks on consumption and welfare finally we use the proposed model to carry out a simulation experiment of the equilibrium dynamics

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

unions oligopoly and the natural range of employment a simple two sector general equilibrium macromodel is presented wi th oligopolistic price determination in the product market and a unionized labor market in the first stage unions set the nominal wage and in the second stage firms choose outputs given wages by altering the balance of fiscal policy between the two sectors the government can achieve a continuum of aggregate employment levels the natural range of employment a unique natural rate will occur only i f one requires fiscal policy to be the same in both sectors this indicates that the natural rate property of some single or representative sect or macromodels is a special case

strategic complementarity in business formation aggregate fluctuations and sunspot equilibria the extent to which changes in beliefs can be important factors in initiating economic fluctuations has been a prominent area of investigation for macroeconomists the notion that beliefs about the future influence current decisions is a property of almost all dynamic economic systems the more challenging task is identifying economic environments in which changes in beliefs alone influence current choices in such a way that the variations in beliefs are self fulfilling because the resulting fluctuations arise in the absence of variations in fundamental variables such as preferences and technology they are often termed sunspot equilibria apart from suggesting that instability of expectations may be a distinct source of cyclical volatility sunspot equilibria may also explain why apparently small disturbances in fundamentals lead to large change in macroeconomic aggregates in this study we demonstrate the possibility of sunspot equilibria in an overlappinggenerations economy characterized by a plausible form of strategic complementarity as more agents enter as producers in any particular sector of the economy they create an incentive for agents to enter as producers into other sectors as well 2 the basis for this

smallholder production structure and rural roads in africa the case of nakuru district kenya data from a 1998 survey of farming households in kenya is used to estimate the effects of poor rural road infrastructure and high market access costs on the structure of smallholder farm production simultaneous estimation of cost and input share equations reveals rational responses by farmers to high access costs in the expected continued absence of major investments in rural infrastructure in countries such as kenya the policy challenge is to identify and catalyse institutional innovations that reduce a range of transaction costs increase financial liquidity increase social capital and reduce risk

taxes incentives and production the case of turkey abstract this paper investigates the effectiveness of investment incentives and corporate income taxes in influencing production and investment decisions in the turkish electrical machinery non electrical machinery and transportation equipment industries three tax instruments are considered the corporate income tax cit the investment tax allowance ita and the capital cost allowance cca the results show that since there are significant capital adjustment costs it is important to distinguish between the short intermediate and long run effects associated with the tax instruments production decisions are relatively more responsive to changes in the ita rate compared to changes in either the cca or cit rates in each of the runs however the ita and cca rates are equally cost effective in stimulating investment and superior to the cit the cca and ita rates generate investment expenditures of 1 5 to 2 5 times the loss in government revenue thus targeted instruments outperform the general cit instrument in addition although the incentive to invest is enhanced there is little effect on output and employment therefore these tax incentives essentially after production techniques

industry structure and the dynamics of price adjustment using annual us data for gross domestic product originating by sector between 1947 and 1997 it is shown that a negative long run relationship between inflation and the markup is present across the sectors as well as in the aggregate data a preliminary explanation based on industry structure is explored for the relative sizes of the impact of inflation on the markup in the long run for the various sectors

an analysis of the optimal provision of public infrastructure a computational model using mexican data abstract we construct a intertemporal general equilibrium model and use it to examine infrastructure effects on mexican national income we consider three types of infrastructure electricity transportation and communications we then estimate production functions for the 16 major sectors of the economy in which sectoral output depends upon inputs of capital and labor as well as the stocks of the three types of infrastructure we then use these estimates to analyze the optimal level of government spending on the different types of infrastructure despite the fact that the estimated output elasticities with respect to public infrastructure are relatively high increased expenditure on infrastructure has rapidly decreasing benefits some benefits could be achieved by modest increases in capital expenditures although at the cost of significantly higher inflation and real interest rates indeed the increase in real interest rates causes the benefits of enhance infrastructure to be greatly reduced

intrametropolitan variation in wage rates the case of atlanta fast food restaurant workers this paper utilizes a unique data base to provide some rare evidence on wage variation within a metropolitan area positively sloped wage gradients are found for both black and white employees of fast food restaurants in atlanta georgia blacks are found to work on that portion of the gradient where wage rates are lowest evidence on discrimination suggests that consumer prejudice affects the wages paid to black workers as distance from the central business district center increases the positive wage gradient effect is found to strongly dominate the negative effect on wages from greater consumer discrimination copyright 1994 by mit press

how are product demand changes transmitted to the labour market in the traditional keynesian and classical models the transmission of product demand changes to the labor market generally involves wage price sluggishness or countercyclical real wage movements in practice however real wages are often acyclical or procyclical and wages and prices are flexible over periods of several years this paper examines the main channels whereby product demand can affect employment under these conditions the analysis suggests that the effectiveness of demand management policies under wage price flexibility depends significantly on the availability of a limited number of supply side transmission channels copyright 1994 by royal economic society

general equilibrium effects of investment incentives in mexico mexico has experimented with several tax instruments designed to promote private capital formation among such initiatives were general and industry specific tax credits employment tax credits and corporate tax credits the authors examine relative efficacy of such instruments using a dynamic computable general equilibrium model they carry out model simulations using three equal yield investment incentive scenarios increases in investment tax credits increases in employment tax credits and an equivalent reduction in the corporate tax rate the authors present outlines of the tax policy environment with model details and they highlight alternate tax incentives regimes conclusions and summary results are provided by the authors

indeterminacy and sunspots with constant returns recently there has been a renewed interest in the possibility of indeterminacy and sunspots or alternatively put in the existence of a continuum of equilibria that arises in dynamic economies with some market imperfections much of the research in this area has been concerned with the empirical plausibility of indeterminacy in markets with external effects or with monopolistic competition and which exhibit some degree of increasing returns while the early results on indeterminacy relied on relatively large increasing returns and high markups more recently benhabib and farmer 1996a showed that indeterminacy can also occur in two sector models with small sector specific external effects and very mild increasing returns

tax incentives and job creation in the tourism sector of brazil s sudene area summary in recent decades a significant number of developing countries have implemented fiscal incentives programs for the tourism industry as part of their regional development policies the main objective of these programs is to increase local investment and employment as tourism activities are labor intensive little evidence is available however to assess the effect of these policies on job creation in emerging markets in this paper we analyze a program of fiscal incentives introduced by the brazilian federal government in the sudene area in 2002 and in which tourism firms were eligible to participate through a difference in difference estimation we compare the change in the logarithm of local employment in the sudene municipalities before and after 2002 to the change in the same outcome in a group of municipalities that were not affected by the program although our empirical analysis does not measure the efficiency of a similar fiscal policy it is the first one in the literature to show its effectiveness it provides evidence that the fiscal incentives led to a substantial increase in tourism employment in the sudene area we find that over the period 2002 09 municipal tourism employment was on average 30 higher than in the absence of the intervention this result is robust and is not the consequence of either displacement effects or job destruction in neighboring municipalities that had not been targeted by the tax incentives we finally discuss some limitations of our analysis that might open avenues for future research in the field

an intertemporal general equilibrium analysis of financial crowding out a policy model and an application to australia abstract this paper constructs a two period perfect foresight general equilibrium model that analyzes crowding out private investment is debt financed while government deficits are financed by money and debt the existence of equilibrium is demonstrated and the model is applied to australia for 1981 1982 the last years for which australia had a fixed exchange rate a benchmark solution is derived and two counterfactual simulations are carried out small increases in real government spending are found not to lead to crowding out while an increase in the debt financed portion of the government s budget deficit does lead to crowding out

the economic benefits of public infrastructure the impact of the provision of public infrastructure on private economic activity is examined using a flexible functional form of a cost function with public infrastructure as an additional extern

oil prices and rural migration the dutch disease goes south abstract we construct a two period general equilibrium model to evaluate policies affecting agricultural migration and exports the model is applied to mexico for the period 1986 1987 to obtain certain qualitative policy conclusions related to the dutch disease brought about by oil price increases dutch disease phenomena can be brought about both as the result of real exchange rate changes as well as price changes caused by migration out of agriculture in the short run it may be possible to use fiscal policy such as value added subsidies to agriculture to at least partially negate the effects of an oil price increase on agricultural exports jel f31 f41

filling potholes macroeconomic effects of maintenance versus new investments in public infrastructure abstract the maintenance of existing public infrastructure has often been neglected in favor of building new infrastructure in developing countries this paper develops a dynamic general equilibrium model that analyzes the reasons and effects of such neglect first the optimal level of maintenance is shown to depend on the size of new investments as a share of existing public infrastructure and on the productivity of infrastructure second the model is parameterized and solved numerically for a sample of latin american countries quantitative results show that reallocating funds from new infrastructure to maintenance can have positive effects on these countries gdp

infrastructure investment a review essay economists try not to be faddists but they often cannot help themselves while work on a topic should mirror the prospective importance of the topic that situation seems to occur with disappointing frequency instead the usual pattern is that some reasonably important topic will be totally ignored for the longest time then recognized and then the subject of a flurry of work all out of proportion to its likely long run importance nowhere has this speculative bubble of economic research been more clearly illustrated than with infrastructure investment macroeconomists havelong felt that the stock of public capital is an important factor input in the production of total output macroeconomists have known that u s productivity growth slowed dramatically in about 1973 and macroeconomists should have known that united states investment in public capital has been down since the late 1960s yet analysis of the u s productivity slowdown completely ignored infrastructure investment for the first fifteen years of this slowdown concentrating instead on energy prices social regulation the composition of the work force research and development different rates of obsolescence of the private capital stock and any number of other matters the public capital stock was hardly ever even mentioned as a potential factor in the productivity slowdown aschauer changed all that he wrote a series of papers 1989a 1989b 1989c that put these two movements together econometrically infrastructure investment turned down and aggregate productivity turned down slightly later both in the united states and in some other developed countries his work hit the magic button those who had worried about the productivity puzzle for fifteen years welcomed a new suspect those who were worried about low rates of u s national saving welcomed a new way to make their argument even more forcefully than with official figures on saving and investment which do not count infrastructure investment as investment political liberals and liberal politicians saw a way to rescue government spending and projects from the assaults of reaganism and even a way to avoid oth

monopolistic competition as a foundation for keynesian macroeconomic models a general equilibrium macroeconomic model based on monopolistic competition is presented the model exhibits a traditional multiplier in the short run but due to free entry the multiplier disappears in the long run by construction all agents are fully rational the keynesian results are a consequence of the assumption of monopolistic competition which creates a divergence between optimal private behavior and optimal social behavior

ict and transport infrastructure development an empirical analysis of complementarity abstractthis paper provides an empirical framework to assess the nonlinear complementary linkage effects that arise from the interaction between motorway capital and information and communications

do matching frictions explain unemployment not in bad times this paper models unemployment as the result of matching frictions and job rationing job rationing is a shortage of jobs arising naturally in an economic equilibrium from the combination of some wage rigidity and diminishing marginal returns to labor during recessions job rationing is acute driving the rise in unemployment whereas matching frictions contribute little to unemployment intuitively in recessions jobs are lacking the labor market is slack recruiting is easy and inexpensive so matching frictions do not matter much in a calibrated model cyclical fluctuations in the composition of unemployment are quantitatively large

stabilisation policy targets and unemployment in imperfectly competitive economies this paper argues that the rate of equilibrium unemployment depends on the objectives of the central bank in a model where the central bank uses monetary policy to stabilise the economy we show that unemployment and inflation will be lower with an inflation target than with targets for output money or nominal gdp the intuition for this is that the elasticities of demand in both the product and the labour markets are greater when there is an inflation target we show that this leads to a lower mark up of price over marginal cost and makes wages more sensitive to unemployment

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

the dutch disease a disease after all many third world oil producers are encountering serious problems in building up a diversified export base while west european oil and gas producers netherlands united kingdom are suffering a decline in their traded goods manufacturing sector induced by real wage pressures it is becoming increasingly clear that high but temporary oil revenues may be somewhat ora mixed blessing the quip of the economist notwithstanding the mechanism behind this unbalance is clear enough part of the oil revenues is spent on non traded goods which leads to a real appreciation i e a rise in the relative price of non traded goods in terms of traded goods this in turn draws resources out of the non oil traded sector into the non traded goods producing sector corden and neary 1982 van wijnbergen 1980 one may say that this is an efficient response to the increase in income from oil production the united kingdom mexico egypt simply should move into oil derived industries and non traded goods and forget about their manufacturing sector until oil reserves are exhausted however many developing countries are hesitant to take this advice after all the post world war ii success stories in economic development involve without exception countries that promoted their traded goods sector aggressively moreover it is a well established stylised fact that technological progress is faster in the traded non sheltered sectors of an economy than in the non traded sector balassa 1964 is an early reference considering the hypothesis that technological progress rather than taking place exogenously with the passage of time is a function of accumulated experience the concern of countries like egypt mexico or indonesia is much easier to understand since solow 1957 and denison 1962 it is known that capital accumulation explain only a small part of economic growth if most of economic growth is caused by learning by doing induced technologica

is infrastructure capital productive a dynamic heterogeneous approach this paper offers an empirical evaluation of the output contribution of infrastructure drawing from a large data set on infrastructure stocks covering 88 countries and spanning the years 1960 2000 and using a panel time series approach the paper estimates a long run aggregate production function relating gdp to human capital physical capital and a synthetic measure of infrastructure given by the first principal component of infrastructure endowments in transport power and telecommunications tests of the cointegration rank allowing it to vary across countries reveal a common rank with a single cointegrating vector which is taken to represent the long run production function estimation of its parameters is performed using the pooled mean group estimator which allows for unrestricted short run parameter heterogeneity across countries while imposing the testable restriction of long run parameter homogeneity the long run elasticity of output with respect to the synthetic infrastructure index ranges between 0 07 and 0 10 the estimates are highly significant both statistically and economically and robust to alternative dynamic specifications and infrastructure measures there is little evidence of long run parameter heterogeneity across countries whether heterogeneity is unconditional or conditional on their level of development population size or infrastructure endowments

dynamics of public infrastructure industrial productivity and profitability a restricted equilibrium framework is utilized to estimate the contribution of public investment in infrastructure to private sector profitability a restricted cost function in translog form which treats labor and materials as variable inputs and private capital and public sector capital stock in transportation communications and electricity as quasi fixed inputs is specified a system of non linear equations comprising variable cost function and derived input demand equations is estimated using data from 1970 to 1987 for twenty six mexican three digit manufacturing industries the divergence of private and public capital stocks from their static equilibrium levels is estimated the net rate of return to fixed factors is also calculated estimates of allocative efficiency are derived the study further provides estimates of short run and long run scale economies output elasticity of factors measures of productivity growth and technical change economic significance and policy implications of the findings are also presented copyright 1992 by mit press

endogenous market thinness and stock price volatility thin equity markets cannot accommodate temporary bulges of buy or sell orders without large price movements the resulting volatility can induce risk averse transactors who face transaction costs to desert these markets thus thinness and the related price volatility may become joint self perpetuating features of an equity market irrespective of the volatility of asset fundamentals if however appropriate incentive schemes are adopted to encourage entry by additional investors this vicious circle can be broken eventually shifting the market to a selfsustaining superior equilibrium characterized by a higher number of transactors lower price volatility and larger supply of the asset a number of empirical studies cohen et al 1976 telser and higimbotham 1977 pagano 1986 tauchen and pitts 1983 have found that thin speculative markets are ceteris paribus more volatile than deep ones a plausible explanation for this finding is that thin markets are generally characterized by small numbers of transactors per unit time and thus their prices are more sensitive to the impact of individual traders demand shocks conversely in deep markets transactors are so many that the uncorrelated demand shocks experienced by individual traders tend to offset each other and leave market prices largely unaffected while this suggests a rationale for the observed relationship between market size and price volatility it does so by taking market size as the exogenous factor however the volatility of a speculative market may feed back on its size in the sense that the high liquidation risk implied by very volatile prices can induce potential entrants to keep out of the market this paper shows that in a stock market with transaction costs this interaction between thinness and volatility can produce multiple steady state equilibria some characterized by low trade and high volatility and others by high trade and low volatility whether the market will settle in one equilibrium or another depends entirely on the expectations held by economic agents sections 2 and 3 the existence of these multiple bootstrap equilibria can be explained heuristically as follows each additional trader generates a positive externality for other actual or potential traders by decreasing the riskiness of the stock lower risk in turn tends to attract more investors with the effect of raising stock prices and inducing corporations to issue additional equity we thus have a feedback loop between market size and price volatility where market size is measured both along the dimension of the number of traders and along that of the total stock of equities if however investors face transactions costs in the stock market this positive feedback may fail to be operative if the volume of trade is expected to be small investors with relatively high transaction costs will abstain from trading thus the market

intertemporal output and employment effects of public infrastructure capital evidence from 12 oecd economies this paper utilises an intertemporal optimisation framework to study the effects of public infrastructure capital on output supply and input demands in 12 oecd countries we find that in all 12 countries i public capital has positive long run effects on both output supply and input demands ii its mean short run rates of return are fairly low while the corresponding long run rates are much higher but declining over time these findings underscore important under investment gaps in infrastructure during the 1970s and 1980s these gaps however narrowed down significantly in a few cases completely by the early 1990s

long term unemployment and macroeconomic policy this paper bears a simple double message when incumbent workers have some power in wage determination then a there may be no natural rate of unemployment and b both supply side and demand side policies may have lasting effects on the unemployment rate however our analysis implies that demand side policies in the produet market may be mueh less reliable and opera te through more complex ehannels than the traditional keynesians envisaged

optimal labour contracts and imperfect competition a framework for analysis this paper examines the macroeconomic properties of imperfectly competitive economies by modeling the labor market from the perspective of optimal contract theory the point is to demonstrate that important properties of imperfectly competitive economies such as underemployment equilibria multipliers and the prospect of coordination failures are not the consequence of arbitrary labor relations but can emerge with privately optimal labor contracts

financing urban infrastructure knowns unknowns and a way forward improved urban infrastructure is widely believed to be essential in facilitating economic growth and in improving the lives of urban dwellers both in developed and in developing countries this paper focuses on several dimensions of urban infrastructure finance finance for major infrastructure improvements in major economic centers finance for expansion of basic municipal services in secondary cities and towns and intergovernmental systems for financing investments with impacts beyond jurisdictional limits it reviews what is known about current practices in these areas using international evidence and case studies and summarizing international best practices it also indicates areas in which knowledge gaps remain despite these unknowns there are avenues by which our understanding of infrastructure schemes can be enhanced and some suggestions for a research agenda on financing urban infrastructure are offered in the concluding section

cooperation harassment and involuntary unemployment an insider outsider approach the authors present a theory of involuntary unemployment which explains why the unemployed workers outsiders are unable or unwilling to find jobs even though they are prepared to work for less than the prevailing wages of incumbent workers in siders the outsiders do not underbid the insiders since were the y to do so the insiders would withdraw cooperation from them making their work unpleasant with harassment and thereby reducing the prod uctivity and increasing the reservation wages of the underbidders th e resulting labor turnover costs create economic rent which the insid ers tap in wage setting and as a result involuntary unemployment ma y arise copyright 1988 by american economic association

the role of infrastructure in mexican economic reform this article estimates the relationship between the provision of public infrastructure and private output in sixteen sectors in mexico the sector specific cost functions depend on wages the cost of capital and the nominal values of the stocks of three types of infrastructure electricity transport and communications the article concludes that infrastructure in electricity and communications generally reduces the cost of sectoral production but transportation infrastructure tends to increase costs of sectoral production it appears that mexican public expenditure on electricity and communications has enhanced the productivity of private production but expenditure on transport may actually have had a detrimental effect on private output in addition although in general labor and infrastructure are substitutes in the case of electricity and communications infrastructure capital and infrastructure are complements in the case of transport infrastructure these conclusions are reversed copyright 1995 by oxford university press

job access employment and earnings outcomes for welfare leavers in a us urban labour market this article examines the effect of job access on employment outcomes for welfare recipients in cleveland ohio leaving assistance during 1998 2000 a rich longitudinal dataset is employed combining administrative and survey data with multiple measures of access to and competition for jobs the focus is on both a population and a range of measures of employment outcomes not previously studied in this context empirical ambiguity in the existing literature has resulted from the difficulty of modelling causality when employment and residential location are jointly determined in this study labour market outcomes are related to the residential locations of welfare leavers prior to employment thus overcoming much potential endogeneity virtually no evidence is found that job access influences labour market outcomes for this population

can an oil discovery lead to a recession a comment on eastwood and venables in a recent paper in this journal eastwood and venables ev present an analysis of the macroeconomic consequence of an oil discovery in an open economy model which assumes perfect international capital mobility rational exchange rate expectations and sluggish adjustment of domestic goods prices in this note the authors attempt to reconcile this apparent contradiction in the literature in particular the authors show that ev s results hinge crucially on their failure to allow for a direct impact of higher oil wealth on money demand even when all the oil revenue accrues to the government this should raise private sector wealth through the anticipated reduction in future tax liabilities in any case the authors find it difficult to conceive a situation in which an oil discovery will raise spending but leave money demand permanently unaffected the purpose of this note is to show the important implications of this observation for the effects of an oil discovery when appropriate monetary accommodation does not take place

public sector capital and the productivity puzzle a number of studies have suggested a quantitatively important relationship between public sector capital accumulation and private sector productivity with the most compelling evidence derived from analyses of state level data estimates herein of production functions that use standard techniques to control for unobserved state specific characteristics however reveal essentially no role for public sector capital in affecting private sector productivity only estimates of state production functions that do not include such controls find substantial productivity impacts this result reconciles existing econometric estimates with the findings of hulten and schwab based on growth accounting techniques as such techniques effectively control for state specific effects region level estimates are essentially identical to those from state data suggesting no quantitatively important spillover effects across states copyright 1994 by mit press

inflation employment and the dutch disease in oil exporting countries a short run disequilibrium analysis the author uses nontraded goods and labor shortages in the gulf countries the decline of the traded goods sector in oil producers dutch disease and the absence of employment benefits of higher oil revenues in latin american oil producers higher oil revenues can be likened to a transfer putting pressure on non oil traded nt goods prices and drawing resources out of the t sector the slope of the wage indexation line determines whether classical unemployment or repressed inflation results various policy measures are analyzed 3 references 8 figures

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

firm inventory behavior and the returns from highway infrastructure investments abstract the debate in public and macro economics over the returns from infrastructure spending has largely ignored transportation economics which has documented substantial inefficiencies created by highway policy and motivated researchers to explain how infrastructure spending produces economic benefits this paper develops a theoretical argument that highway infrastructure investments generate benefits by lowering firms inventories and provides empirical estimates of returns based on this mechanism we find that annual returns from highway investments have fallen to less than 5 percent during the 1980s and 1990s and suggest that a partial explanation may be the rising cost of inefficient transportation infrastructure policy

underemployment equilibrium with rational expectations in this paper i use some recent work in the microeconomics of imperfect information to construct a macro model the microeconomic theory suggests that atomistically competitive firms face kinked demand curves in this model there is a range of aggregate equilibria consistent with correct information i then show that individual firms can face a free rider problem in trying to move from one equilibrium to another by changing the price level monetary policy is not subject to this problem even if the policy is fully anticipated

the spatial distribution of black employment between the central city and the suburbs i introduction smock 1968 kain 1968 and leonard 1987 have shown that the share of jobs held by blacks is smaller in the suburbs in comparison to the central city little is known concerning the factors accounting for this skewness in the spatial distribution of black employment because of the absence of suitable data a number of possible factors can be suggested first there may be no incentive to commute to the suburbs if wages are no higher or jobs no more available than within the central city that is the alleged spatial mismatch that has presumably created a surplus of less educated workers living in the central city and a shortage of these workers living in the suburbs may in fact not exist second the distances to jobs in the suburbs may make commuting to these jobs prohibitively costly and may limit the information readily available to urban blacks on suburban job opportunities third becker type consumer and or employer discrimination may cause employers to prefer hiring blacks in the central city or prefer hiring whites in suburban areas or both finally in comparison to central city jobs fewer suburban jobs are within walking distance of a public transit stop and many central city blacks do not own automobiles 1 from a policy perspective it is crucial to determine the relative importance of the above explanations for black employment segregation for example based upon a belief in the spatial mismatch hypothesis kasarda 1989 orfield 1985 hughes 1989 skinner 1989 and wilson 1992 have recommended that improved public transportation be provided to reverse commuters however on its own this strategy may not be particularly effective if blacks encounter greater hiring discrimination outside the central city and or know little about suburban jobs to shed some light on the spatial distribution of black employment between the central city and the suburbs this paper 1 provides some evidence on whether the central city labor market is tighter or looser than the suburban labor market for less educated workers 2 develops and estimates a model which explains the racial composition of firms workforces and 3 uses the parameter estimates from this model to investigate the relative importance of the aforementioned factors as explanations for black employment segregation the data come from a survey which we conducted of the managers of 102 fast food hamburger restaurants in the atlanta georgia metropolitan area the results yield three conclusions first expected wages the probability of employment times the wage rate are higher in the suburbs than within the central city which lends support to the spatial mismatch hypothesis and reinforces the need to understand the spatial distribution of black employment second the manager s race the percentage of the restaurant s customers who are white distance from the central business district and the proximity of the restaurant to mass transit are all found to have an important influence on the racial composition of the restaurant s crew third all of these variables are found to play an important role in explaining the difference in black employment share between central city and suburban restaurants of particular interest is that approximately 36 percent of this difference can be attributed to the fact that suburban restaurants are less frequently served by public transit the next section reviews the literature on the spatial mismatch hypothesis and relates this hypothesis to black employment segregation section iii describes the data evidence is presented on the quality and availability of suburban in comparison to central city jobs in section iv a model of the racial mix of the restaurant s crew is developed in section v the results from estimating this model are discussed in section vi policy implications and suggestions for future research conclude the paper ii the spatial mismatch hypothesis and black employment segregation the last half of the 1980s witnessed a revival of interest in the old idea that the suburbanization of jobs and involuntary housing market segregation have acted together to create a surplus of workers relative to the number of available jobs in inner city neighborhoods where blacks are concentrated

the effects of a natural gas boom on employment and income in colorado texas and wyoming improvements in technology have made it profitable to tap unconventional gas reservoirs in relatively impermeable shale and sandstone deposits which are spread throughout the u s mostly in rural areas proponents of gas drilling point to the activity s local economic benefits yet no empirical studies have systematically documented the magnitude or distribution of economic gains i estimate these gains for counties in colorado texas and wyoming three states where natural gas production expanded substantially since the late 1990s i find that a large increase in the value of gas production caused modest increases in employment wage and salary income and median household income the results suggest that each million dollars in gas production created 2 35 jobs in the county of production which led to an annualized increase in employment that was 1 5 of the pre boom level for the average gas boom county comparisons show that ex ante estimates of the number of jobs created by developing the fayetteville and marcellus shale gas formations may have been too large

unemployment getting the questions right in my opinion the form and conception of this conference exemplifies the right instinct for modern macroeconomics there is a fact a big unmistakable unsubtle fact essentially everywhere in the modern industrial capitalist world unemployment rates are much higher than they used to be two or three decades ago why is that if macroeconomics is good for anything it ought to be able to understand and explain that fact we should be able to produce a fairly convincing analytical account of the occurrence and persistence of unusually high unemployment rates you might think that to be a mere commonplace to what other sort of end would anyone organize a conference my experience however is that most high powered academic conferences are stimulated by purely technical developments or less often by ideological or political promotion rather than by the need to deal with an outstanding fact i do not blame anyone for this state of affairs we may not be blessed with many significant observations too big to be quibbled over and technical innovations do need to be thrashed out by experts anyway it is good to be faced by a brute fact that needs explanation it is what macroeconomics ought to be about i compliment the organizers also on a second aspect of the agenda the country by country organization of the papers we can all hope to learn something from cross country comparisons one of the few good ways we have to test analytical ideas is to see whether they can make sense of international differences in outcomes by appealing to international differences in institutional structure and historical environment the right place to start is within each country separately studied by someone who knows the peculiarities of its history and its data you might think that this too ought to be obvious but in fact the usual approach is just the opposite more often than not we fail to take institutional differences seriously one model is supposed to apply everywhere and always each country is just a point on a cross section regression or one among several essentially identical regressions leaving only grumblers to worry about what is exogenous and what is endogenous and whether simple parametrizations do justice to real differences in the way the economic mechanism functions in one place or another i have no way of knowing whether this organized effort will get anywhere in explaining high unemployment but it seems to be set up to give itself the best chance for better or worse probably for the better theoretical and empirical work are closely intertwined in macroeconomics scratch a macro theorist and you find a casual econometrician scratch a macro econometrician and you find a casual theorist usually you do not have to scratch very hard thus the discussion of the issues central to the conference has already hardened into certain characteristic forms there are questions already lying on the table that the individual country papers will be trying to answer i suspect that some

is public expenditure productive abstract this paper considers the relationship between aggregate productivity and stock and flow government spending variables the empirical results indicate that i the nonmilitary public capital stock is dramatically more important in determining productivity than is either the flow of nonmilitary or military spending ii military capital bears little relation to productivity and iii a core infrastructure of streets highways airports mass transit sewers water systems etc has most explanatory power for productivity the paper also suggests an important role for the net public capital stock in the productivity slowdown of the last fifteen years

international aspects of public infrastructure investment m odelling infrastructure as an international public good in a two country m odel of trade where each country s social planner behaves strategically we show that the equilibrium levels of infrastructure are sub optimal from a global perspective utilising an appropriate econom etric fram ework and data from 16 european countries over the period 1987 95 we find evidence that accords well with the m ain predictions of our theory thus we are able to offer a plausible theoretical explanation why public capital m ay be undersupplied as suggested by previous em pirical literature

public infrastructure and the productive performance of canadian manufacturing industries this article examines the effects of public infrastructure on the productive performance of 12 two digit canadian manufacturing industries a flexible cost function incorporating public capital infrastructure is estimated for each industry separately using annual time series data for 1961 1995 the effects of public infrastructure on productivity are measured in terms of both cost saving dual and output augmenting primal measures we also investigate how public capital influences the input demand and cost structure in each industry and calculate the rate of return to public capital the empirical results provide strong evidence of the important role public infrastructure plays in the productivity of manufacturing industries the public capital serves as a substitute for both private capital and labor in most industries the rates of return to public capital are significant and vary over the years

roads out of poverty assessing the links between aid public investment growth and poverty reduction the authors develop a macroeconomic framework that captures links between aid public investment growth and poverty public investment is disaggregated into education infrastructure and health and affects both aggregate supply and demand dutch disease effects are captured by accounting for changes in the relative price of domestic goods the authors assess the impact of policy shocks on poverty by linking the model to a household survey they calibrate the model for ethiopia and simulate the changes in the allocation of aid and public investment the authors also calculate the amount by which foreign aid should increase to reach the poverty targets of the millennium development goals

the spatial mismatch hypothesis what has the evidence shown this paper reviews 20 years worth of empirical evidence on the spatial mismatch hypothesis after briefly surveying the relevant models from urban and labour economics and recent trends in employment and population suburbanisation the empirical evidence on spatial effects is examined this literature includes evidence on the effects of residential segregation residential suburbanisation and employment suburbanisation and direct measures of access such as travel times the most recent evidence suggests that spatial mismatch is relevant for explaining black white employment differences though the magnitudes of these effects remain unclear

foreign capital inflows and welfare in an economy with imperfect competition abstract this paper examines the resource allocational and welfare effects of exogenous inflows of foreign capital in a general equilibrium model with oligopolistic competition and unemployment although the welfare impact for the short run is ambiguous and dependent upon the strength of excess profits and scale economies relative to unemployment in manufacturing in the long run additional inflows of foreign capital always improve national welfare with capital mobility hence attracting foreign capital remains a sound policy for economies characterized by imperfect competition scale economies and regional unemployment

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

measuring the contribution of public infrastructure capital in sweden the authors purpose is to examine ways of evaluating and measuring the contribution of public infrastructure capital to private sector output and productivity growth in sweden they do this by specifying and implementing empirically a number of alternative econometric models using annual data for sweden from 1960 to 1988 applying a dual cost function approach they find that increases in public infrastructure capital ceteris paribus reduce private sector costs the authors compute that amount of public infrastructure capital that would rationalize the cost savings incurred by the private business and manufacturing sectors and find that the amount that can be rationalized in this manner is less than what was in fact available in 1988 but that the extent of excess public infrastructure capital has been falling in the 1980s copyright 1992 by the editors of the scandinavian journal of economics

the mechanisms of spatial mismatch the spatial mismatch hypothesis smh argues that low skilled minorities residing in us inner cities experience poor labour market outcomes because they are disconnected from suburban job opportunities this assumption gave rise to an abundant empirical literature which is rather supportive of the smh surprisingly it is only recently that theoretical models have emerged which probably explains why the mechanisms of spatial mismatch have long remained unclear and not properly tested this article presents relevant facts reviews the theoretical models of spatial mismatch confronts their predictions with available empirical results and indicates which mechanisms deserve further empirical tests

ownership agency and wages an examination of franchising in the fast food industry this paper estimates the difference in compensation between company owned and franchisee owned fast food restaurants the contrast is of interest because contractual arrangements give managers of company owned outlets less of an incentive to monitor and supervise employees estimates based on two data sets suggest that employee compensation is slightly greater at company owned outlets than at franchisee owned outlets the earnings gap is 9 percent for assistant and shift managers and 2 percent for full time crew workers furthermore the tenure earnings profile is steeper at company owned restaurants these findings suggest that monitoring difficulties influence the timing and generosity of compensation

exogenous shocks contagion and bank soundness a macroeconomic framework abstract in a model where all banks are initially solvent an exogenous shock affects confidence causing a flight from deposits into domestic and foreign currency real interest rates increase unexpectedly affecting firms and raising the share of the banks nonperforming assets this contagion causes a bank run simulations show that compensatory monetary policy mitigates the bank run but causes macroeconomic imbalances combining compensatory monetary policy with tight fiscal policies slows the bank run and mitigates insolvency a devaluation combined with compensatory monetary policy reduces insolvencies and increases the growth of real income but at the cost of increased inflation

productiveness and welfare implications of public infrastructure a dynamic two sector general equilibrium analysis abstract this paper develops a dynamic general equilibrium model that provides an internally consistent micro foundations framework where various effects of infrastructure policy changes can be studied devoting additional resources to infrastructure investment can payoff in terms of sizable increases in gdp and private investment in addition to this the model also makes predictions concerning changes in the welfare of agents resulting from additional infrastructure investment specific policy recommendations that attain highest welfare gains are computed the recommendation is that on average an additional 4 of gdp per year should be devoted to public investment in the latin american countries in the sample

testing the rank of engel curves with endogenous expenditure abstract we find that the endogeneity of consumer expenditure tends to increase the estimated rank of engel curves this result based on nonparametric procedure is in line with previous results obtained in the context of parametric specifications

bank failures and fiscal austerity policy prescriptions for a developing country abstract this work employs a dynamic general equilibrium model to evaluate the causes and implications of bank insolvencies we apply the model to stylized data from bangladesh a country whose banking system is currently suffering from large stocks of non performing assets the model is used to derive positive conclusions about alternative policy instruments designed to alleviate the impact of these insolvencies a benchmark case is simulated using historical exogenous parameters we then generate a bank failure by assuming that firms cannot service their debt if their interest obligations rise above their anticipated return on capital the public withdraws deposits from the banking system in reaction to worries about defaulting bank assets if banks optimize by restricting credit to risky borrowers these failures can be partially avoided such bank behavior is often prohibited in developing countries so we investigate an active monetary policy that compensates banks for withdrawn deposits the resulting outcome indicates that such a policy can slow the pace of bank failures although at the cost of certain macro imbalances our final simulation imposes a reduction in public spending in order to tighten fiscal policy and thereby reduce budgetary pressure the resulting decline in interest rates eliminates all investor defaults and bank failures we conclude that the combination of compensating monetary policy and restrictive fiscal policy may offer the best way of responding to a bank crisis

public infrastructure and productivity growth in greek agriculture recent research has focused on the effect of public infrastructure on economic performance in this paper a model of greek agriculture s technology and behaviour is constructed based on the dual cost function framework the model provides a decomposition of productivity growth into the components technical change returns to scale and public infrastructure the empirical estimates indicate that public infrastructure investment provides a significant return to agriculture and augments productivity growth over the period 1960 1995 the impact of public infrastructure on productivity growth in livestock and crop production is found to be positive although it has been declining since the late 1970s these results strongly suggest that a decline in public infrastructure investment can partly explain the observed decline in the productivity growth of greek agriculture in the 1980s

multiplicity of equilibria and fluctuations in dynamic imperfectly competitive economies this paper investigates two aspects of the macroeconomic consequences of market participation decisions of imperfectly competitive firms first can there exist multiple pareto ranked nash equilibria indexed by the level of market participation that is can there exist both thin and thick market equilibria second can the variations in the degree of competition that stem from shocks to preferences and technologies help to understand observed fluctuations in the macroeconomy this paper is part of an ongoing research program intended to understand the macroeconomic implications of the coordination of economic activities in model economies without complete and or competitive markets in such environments the fundamental theorems of welfare economics do not apply and it is quite possible for the economy to have multiple pareto ranked equilibria low welfare equilibria represent situations in which individual agents acting noncooperatively are unable to successfully coordinate their activities and reach a preferred equilibrium this is termed a coordination failure in equilibria of this type there are 100 bills lying on the sidewalk but it takes the effort of more than one individual i e coordination to reap these gains our model relates to two important strands of the literature on coordination failures first are model economies in which the deviation from the arrow debreu paradigm arises from the market power of sellers see for example oliver hart 1982 in these models the number of active firms is usually taken to be exogenous our contribution is in part to allow the number of firms to be determined by the costs and benefits of market participation this allows us to relate the degree of competition in the economy to variations in fundamentals like technology and preferences in addition to exogenous but self fulfilling variations in expectations second our model represents another example of a participation externality in which the gains to participating in an activity such as entering a market depend on the number of other agents participating as well the papers by peter diamond 1982 chatterjee 1988 and m pagano 1987 1988 explore market participation externalities of a different variety in diamond s work these externalities arise through the matching process while chatterjee and pagano 1987 explore the risk reducing effects of large markets similar externalities are found in the industrial organization literature on networks as in michael katz and carl shapiro 1985 the model explored in this paper highlights a participation externality arising from the interaction of imperfectly competitive firms 1 tdiscussants robert e hall stanford university peter diamond mit olivier j blanchard mit

taxing tourism and subsidizing non tourism a welfare enhancing solution to dutch disease abstract using a combined analysis of a general equilibrium and a partial equilibrium this study models the impacts of a combined policy tool based on taxing tourism and subsidizing non tourism in a tourism dependent destination the results suggest that such a policy tool while widely discussed in economics literature may not be suitable for a tourism destination as it might have adverse effects on local welfare