monopolistic competition increasing returns to specialization and output persistence abstract devereux et al economics letters 1993 41 57 61 showed that introducing together imperfect competition and increasing returns to specialization into real business cycle rbc type models results in making output more persistent than the underlying technology shocks we carry out a simple generalization of their model which clearly disentangles the two features and show that the added persistence is actually because of the increasing returns to specialization

interpreting comovements in the trade balance and the terms of trade abstract i examine the relation between the trade balance and the terms of trade in a two country dynamic stochastic exchange economy with complete markets along an equilibrium path for this economy the relation is governed by the substitutability between foreign and domestic goods i find in contrast to non stochastic analyses of the harberger laursen metzler effect that a positive association does not require persistent shocks or non constant rates of time preference this contrast highlights the role played by the structure of asset markets complete and otherwise in generating equilibrium comovements

aggregate fluctuations with national and international returns to scale cyclical movements in aggregate output factor inputs and productivity are all positively correlated across countries this article proposes a model in which positive cross country correlations of these variables result from increasing returns to the world wide variety of intermediate goods even if technology shocks are purely country specific the model also accounts for the observed positive relationship between bilateral trade volume and international comovements positive comovements can also arise with constant returns to variety but only if technology shocks are themselves strongly correlated the combination of constant returns and common shocks however tends to generate procyclical fluctuations of the trade balance

making sense of the competitiveness debate the debate over national competitiveness is marked by some basic misperceptions with few exceptions those who use the term have a crude essentially mercantilist view of world trade in which competition among nations is just like competition between corporations not only do the authors and readers of reports on national competitiveness usually not understand comparative advantage they are unaware of the most basic adding up constraints economists however find it hard to believe that seemingly well informed people can really be this naive and assume that there must be more sophisticated ideas lying behind what they say the rationales offered by economists in turn offer false comfort to the would be sophisticates who like the term competitiveness they believe that they have transcended conventional economic theory when the fact is that they have failed to comprehend it in short the actual level of discussion is lower than any of the participants imagines copyright 1996 by oxford university press

tastes and technology in a two country model of the business cycle explaining international trade on international financial markets allows people to insure country specific risk and smooth consumption intertemporally equilibrium models of business cycles with trade on global financial markets typically yield international consumption correlations near one and excessive volatility of investment the authors incorporate nontraded goods in the model and find that the implications for aggregate consumption investment and the trade balance are consistent with business cycle properties of industrialized countries however the model driven by technology shocks alone yields counterfactual implications for comovements between consumption and prices at the sectoral level taste shocks produce price quantity relationships more consistent with the data copyright 1995 by american economic association

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

variable capital utilization and international business cycles this paper develops a two country international business cycle model with variable capital utilization using a standard depreciation in use technology variable capital utilization significantly reduces the required size of productivity shocks needed to replicate observed output volatility by 20 40 further the model generates positive comovement across countries in wages hours and investment while preserving empirically accurate predictions regarding the relative cross country correlations of output and consumption and the countercyclical behavior of net exports finally accounting for variable capital utilization reduces cross country correlation of true productivity shocks relative to that of the standard solow residual

monopolistic competition increasing returns to scale and the importance of productivity shocks abstract the neoclassical growth model is extended to incorporate monopolistic competition and increasing returns to scale implications for the measurement of productivity change through the solow residual are studied it is found that for this extension productivity fluctuations continue to account for a substantial fraction of output volatility the model cannot account for volatility of employment

competitiveness indices and developing countries an economic evaluation of the global competitiveness report developing countries policy makers worry about national competitiveness and closely watch indices ranking international competitive performance this paper analyzes from a development economics perspective if competitiveness is a legitimate concern and if the leading indices deserve the attention they get it assesses the best known index the global competitiveness report of the world economic forum and finds deficiencies at several levels its definitions are too broad the approach biased and the methodology flawed many qualitative measures are vague redundant or wrong these weak theoretical and empirical foundations reduce the value of the indices for analytical or policy purposes

technology and competitiveness this paper reviews the literature on technology and competitiveness first the concept of the international competitiveness of a country and various theoretical approaches on the relationship between trade and growth are discussed then a number of empirical studies of the impact of technology as evidenced by r d patents etc on exports are examined the final section summarizes the evidence and considers the lessons for policy copyright 1996 by oxford university press

measuring world business cycles using kalman filtering and dynamic factor analysis the authors decompose aggregate output consumption and investment for the g7 countries into factors that are 1 common across all countries and aggregates 2 common across aggregates within a country and 3 specific to each individual aggregate in quarterly data for the period 1970 through 1993 fluctuations in all aggregates contain world and country specific common components that are both statistically significant and quantitatively important the authors find that the world and country specific common components play different roles in different business cycle episodes for each of the seven countries and that either may be dominant during a particular episode copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

external effects in u s procyclical productivity abstract in this paper we highlight a new dimension of the aggregate procyclical productivity phenomenon we show that estimates of the degree of returns to scale are larger for manufacturing as a whole than for two digit industries since this difference must be due to factors that are only internalized at the most aggregate level we term it an external effect this result rules out explanations based on own input variation such as true increasing returns and unmeasured factor utilization tied to own activity as the sole explanations for aggregate procyclical productivity we explore several potential explanations of this external effect

measuring macroeconomic performance in the oecd a comparison of european and non european countries abstract we study the macroeconomic performance of 19 oecd countries over the period 1970 1990 performance is defined in terms of the ability of a country s macroeconomic managers to provide four services to their citizens a high level of real gdp per capita a low rate of inflation a low rate of unemployment and a favorable trade balance we use linear programming techniques to construct a best practice macroeconomic performance frontier and to measure the performance of each country in each year relative to the frontier we then add two environmental disamenities carbon and nitrogen emissions to the service list and repeat the analysis to see if the performance rankings change throughout the analysis emphasis is placed on a comparison of the performance of 14 european oecd countries with that of five non european oecd countries we find that performance rankings do change and that the relative performance of the european countries declines when the environmental disamenities are added to the service list

global business cycles convergence or decoupling we analyze the evolution of the degree of global cyclical interdependence over the period 1960 2008 using a dynamic factor model we decompose macroeconomic fluctuations in output consumption and investment into a global factor factors specific to country groups and country specific factors we find that during 1985 2008 there is some convergence of business cycle fluctuations among industrial economies and among emerging market economies surprisingly there is a concomitant decline in the relative importance of the global factor we conclude that there is evidence of business cycle convergence within each of these two groups of countries but divergence or decoupling between them

market entry and international propagation of business cycles abstract in this paper pro cyclical market entry acts as an international transmission mechanism for business cycle shocks in an imperfectly competitive dynamic equilibrium model an expansion in one open economy leads to additional business formation in a parallel large open economy through demand spillovers business formation causes a decline in markups leading to an expansion in employment production and investment in both economies the modeling of the entry decision is critical only when the entry game is modelled as sequential with incumbents enjoying a first mover advantage are markups sufficiently elastic to cause international comovement

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

on the methodology of the world competitiveness report abstract a nation with its natural resources human capabilities research and educational institutions government organizations financial systems and cultural and social values provides an environment in which firms are created organized and managed the competitive environment a nation provides influences the performance of its firms at home and abroad therefore it is of prime importance for both governments and firms to study the competitive environment of a country in comparison with those of the others the world competitiveness report wcr a report annually produced by the institute for management development imd and the world economic forum wef both based in switzerland is a study that rates and ranks the competitiveness of a certain group of countries oecd plus 15 newly industrialized countries and is a widely quoted study in the international media although some essence of its methodology is given for a general understanding details are not provided perhaps for proprietary reasons since the report is a commercial enterprise itself the objective of this paper is to uncover the methodology used by the wcr for this purpose the methodological information provided in the wcr is used to the fullest extent however for the steps where the information is missing or when different interpretations are possible an approach based on mathematical programming is employed to guess the methodology

measuring the national competitiveness of southeast asian countries national competitiveness is a measure of the relative ability of a nation to create and maintain an environment in which enterprises can compete so that the level of prosperity can be improved this paper proposes a methodology for measuring the national competitiveness and uses the 10 southeast asian countries for illustration the basic idea is to deconstruct the complicated concept of national competitiveness to measurable criteria the observations data on the criteria are then aggregated according to their importance to obtain an index of national competitiveness for data collected from questionnaire surveys a calibration technique has been devised to alleviate bias due to personal prejudice in data aggregation the importance is expressed by both a priori weights and a posteriori weights these two types of weights consistently show that singapore malaysia and thailand have the highest national competitiveness while myanmar cambodia and laos are the least competitive countries the performance of each country in every criteria measured also provides directions for these countries to make improvements and for investors to allocate resources

limited participation in international business cycle models a formal evaluation in this paper we study the role of limited asset market participation lamp for international business cycles we show that when limited participation is introduced into an otherwise standard model of international business cycles the performance of the model improves signi cantly especially in matching cross country correlations to perform formal evaluation of the models we develop a novel statistical procedure that adapts the test of vuong 1989 to dsge models and accounts for the possibility that models are misspeci ed based on this test we show that the improvements brought out by lamp are statistically signi cant leading a model with lamp to outperform a representative agent model furthermore when lamp is introduced a model with complete markets is found to do better than a model with no trade in nancial assets a well known favorite in the literature our results remain robust to the inclusion of investment speci c technical change

terms of trade shocks and optimal investment another look at the laursen metzler effect conventional analyses of the effect of terms of trade shocks provide a misleading view of their impact on investment and the current account because capital goods imports are excluded from the analytical framework the author argues that such an exclusion is both arbitrary and unrealistic the author reexamines the consequences of permanent and transitory changes in terms of trade in a rational expectations model of a small open economy with intertemporally optimizing agents and with trade in both consumption and capital goods in this framework the responses to a permanent terms of trade improvement in unambiguous the long run capital stock and thus investment must rise and the current account must deteriorate exactly the opposite of the laursen metzler effect a transitory improvement in the terms of trade raises saving but has an uncertain effect on investment so the impact on the current account is generally ambiguous and is shown to depend on three factors the import contents on consumption and investment the duration of the windfall and the degree of intertemporal substitutability in both consumption and investment

international business cycles what are the facts abstract modern business cycle theory involves developing models that explain stylized facts for this strategy to be successful these facts should be well established in this paper we focus on the stylized facts of international business cycles we use the generalized method of moments and quarterly data from twenty industrialized countries to estimate and test hypotheses concerning pairwise cross country correlations of macroeconomic aggregates a remarkable common feature emerges these correlations are mostly positive not very high and of a similar order of magnitude the most important discrepancy with the theory is the low cross country correlation of consumption

can the standard international business cycle model explain the relation between trade and comovement abstract recent empirical research finds that pairs of countries with stronger trade linkages tend to have more highly correlated business cycles we assess whether the standard international business cycle framework can replicate this intuitive result we employ a three country model with transportation costs we simulate the effects of increased goods market integration under two asset market structures complete markets and international financial autarky our main finding is that under both asset market structures the model can generate stronger correlations for pairs of countries that trade more but the increased correlation falls far short of the empirical findings even when we control for the fact that most country pairs are small with respect to the rest of the world the model continues to fall short we also conduct additional simulations that allow for increased trade with the third country or increased tfp shock comovement to affect the country pair s business cycle comovement these simulations are helpful in highlighting channels that could narrow the gap between the empirical findings and the predictions of the model

on economics a review of why nations fail by d acemoglu and j robinson and pillars of prosperity by t besley and t persson the purpose of this essay is to review the books why nations fail by daron acemoglu and james robinson and pillars of prosperity by timothy besley and torsten persson the essay briefly discusses the main contributions of the books and the role of politics for economic performance the review then discusses these contributions in the light of recent research on organizational economics particularly the modern theory of the firm jel d23 d72 o10 o47 o57

dynamics of the trade balance and the terms of trade the j curve the authors provide a theoretical interpretation of two features of international data the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements they document the same properties in a two country stochastic growth model in which trade fluctuations reflect in large part the dynamics of capital formation the authors find that their general equilibrium perspective is essential the relation between the trade balance and the terms of trade depends critically on the source of fluctuations copyright 1994 by american economic association

school subsidies for the poor evaluating the mexican progresa poverty program abstract this paper evaluates how the progresa program which provides poor mothers in rural mexico with education grants has affected enrollment poor children who reside in communities randomly selected to participate in the initial phase of the progresa are compared to those who reside in other control communities pre program comparisons check the randomized design and double difference estimators of the program s effect on the treated are calculated by grade and sex probit models are also estimated for the probability that a child is enrolled controlling for additional characteristics of the child their parents local schools and community and for sample attrition to evaluate the sensitivity of the program estimates these estimates of program short run effects on enrollment are extrapolated to the lifetime schooling and the earnings of adults to approximate the internal rate of return on the public schooling subsidies as they increase expected private wages

economic fluctuations market power and returns to scale evidence from firm level data recent research on aggregate fluctuations coupled with ongoing work in industrial organization has renewed interest in the existence magnitude and cyclical pattern of market power and the extent of increasing returns to scale by exploiting restrictions from dynamic theory and information from financial markets we present a framework for generating quantitative evidence on market power and returns to scale tailoring the econometric model to firm level panel data we calculate the percentage differential between price and marginal cost the lerner index in terms of the parameters from the econometric system results for firms in eleven industries indicate that there is a great deal of heterogeneity in the extent of market power industries with significantly positive lerner indices tend to have substantial increasing returns in the production technology we find that there is only a modest relation between our estimated lerner indices and traditional measures of market power and that when market power varies temporally it is usually procyclical thus variations in the markup of price over marginal cost may help dampen aggregate economic fluctuations

esther duflo 2010 john bates clark medalist esther duflo winner of the 2010 john bates clark medal has made extraordinary contributions to development economics she exemplifies and has played a vital role in the renaissance of development economics over the past decade she has erected and inspired a research apparatus all over the developing world that integrates large scale field experiments with economic theory to yield important insights for development policy and our understanding of behavior and institutions in developing countries i ll divide my discussion of esther s work into four categories educational production the economic lives of the poor women as decisionmakers and a broad category of market and policy failures i will then offer some thoughts on esther s role as a scholar activist

thinking small poor economics a radical rethinking of the way to fight global poverty review essay in poor economics abhijit banerjee and esther duflo eschew grand theorizing about poverty reduction in favor of an approach in which intelligently designed and tested small interventions based on a scientific understanding of the lives of the poor marginally improve their welfare in so doing they describe the findings from the recent large literature describing the behavior and institutions of the poor and the consequences of policy and experimental interventions targeted to poverty populations in this review i assess whether thinking small with its associated policy regime of transfers subsidies and nudges is both a practical and effective policy prescription for fighting poverty and whether the set of studies that have focused on populations that have not escaped poverty has improved our fundamental understanding of both the consequences and causes of poverty jel i32 i38 o15

heterogeneous preferences and equilibrium trading volume abstract the representative agent lucas model stresses aggregate risk and hence does not allow us to study the impact of agents heterogeneity on the dynamics of equilibrium trading volume in this paper we investigate under what conditions non informational heterogeneity i e differences in preferences and endowments leads to nontrivial trading volume in equilibrium we present a non informational no trade theorem that provides necessary and sufficient conditions for zero equilibrium trading volume in a continuous time lucas market model with heterogeneous agents multiple goods and multiple securities we explain in detail how no trade equilibria are related to autarky equilibria portfolio autarky equilibria and peculiar financial market equilibria which play an important role in the literature on international risk sharing

the assessment international competitiveness the concept of international competitiveness as applied to national economies is a popular one politicians businessmen and economists alike re fer to it in day to day discussion when looking at the external export import market share or trade balance performance of different countries indi cators are produced showing changes in or levels of various countries competitiveness e g the relative price or cost indices regularly published by the imf and the oecd or the absolute measures produced by organizations such as the geneva world economic forum and the lausanne institute for management development governments of ten instigate research on the matter as for instance in the case of the 1993 us competitiveness policy council orthe 1995 eu competitiveness advisory group yet it has recently been argued by paul krugman that competitiveness is a meaningless word when applied to national economies and the obsession with competitiveness is both wrong and dangerous krugman 1994 p 44 apositionkrugman forcefully reaffirms in his contribution to this issue of the oxford review of economic policy

unilateral facilitation does not raise international labor migration from the philippines significant income gains from migrating from poorer to richer countries have motivated unilateral source country policies facilitating labor emigration however their effectiveness is unknown the authors conducted a large scale randomized experiment in the philippines testing the impact of unilaterally facilitating international labor migration the most intensive treatment doubled the rate of job offers but had no identifiable effect on international labor migration even the highest overseas job search rate that was induced 22 percent falls far short of the share initially expressing interest in migrating 34 percent the paper concludes that unilateral migration facilitation will at most induce a trickle not a flood of additional emigration

international transmission of the business cycle in a multi sector model abstract standard multi country models do not replicate important features of the international transmission of business cycles predicting cross country correlations of output and consumption which are respectively too low and too high in this paper we modify the supply side of a two country model by adding multiple sectors and trade in intermediate goods the model generates a higher cross country correlation of output than standard one sector models it also predicts cross country correlations of employment and investment that are closer to the data we analyze the relative impact of multiple sectors trade in intermediate goods imperfect substitution between domestic and foreign goods home preference capital adjustment costs and capital depreciation in order to pinpoint the features which move the model s predictions closer to the data

schooling and labor market consequences of school construction in indonesia evidence from an unusual policy experiment between 1973 and 1978 the indonesian government engaged in one of the largest school construction programs on record combining differences across regions in the number of schools constructed with differences across cohorts induced by the timing of the program suggests that each primary school constructed per 1 000 children led to an average increase of 0 12 to 0 19 years of education as well as a 1 5 to 2 7 percent increase in wages this implies estimates of economic returns to education ranging from 6 8 to 10 6 percent

understanding the evolution of world business cycles abstract this paper studies the changes in world business cycles during the period 1960 2003 we employ a bayesian dynamic latent factor model to estimate common and country specific components in the main macroeconomic aggregates output consumption and investment of the g 7 countries we then quantify the relative importance of the common and country components in explaining comovement in each observable aggregate over three distinct time periods the bretton woods bw period 1960 1 1972 2 the period of common shocks 1972 3 1986 2 and the globalization period 1986 3 2003 4 the results indicate that the common g 7 factor explains on average a larger fraction of output consumption and investment volatility in the globalization period than it does in the bw period

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite