international transfers the relative price of non traded goods and the current account this paper considers the role of the relative price of non traded goods and the current account in the adjustment of a small open economy to the receipt of an international transfer the paper shows that the economy s macroeconomic adjustment to the transfer depends upon the relative capital intensities of the traded and non traded sectors of the economy as well as on the duration of the transfer the paper provides a new interpretation of france s current account surplus in the 1870s that accompanied the payment of reparations to germany following the franco prussian war and of germany s trade deficit in the 1920s that accompanied reparations payments associated with the first world war

nontraded goods oil price increases and the current account abstract an intertemporal maximizing model is used to examine the current account response to oil price increases the analysis shows that the introduction of a nontraded goods sector influences the current account response whether the current account worsens or improves depends crucially on relative production technologies in the traded and nontraded goods sectors

modelling the joint determination of household labour supplies and commodity demands in addition to choosing the allocation of total expenditure between commodities households may also be able to make decisions over the allocation of their time between market work and leisure in both theoretical and empirical work it has often been the case that these decisions have been analysed separately in this paper we stress the theoretical attractions of considering the joint determination of the allocation of time between work and leisure and the allocation of total expenditure between commodities in a utility maximising framework using a sample of individual households we attempt to evaluate the empirical importance of the joint determination model over the separate determination of labour supplies and commodity demands our approach follows that of abbott and ashenfelter i976 phlips i978 barnett i979 deaton and muellbauer i980 and atkinson and stern i980 here we pay particular attention to the following four important aspects of household decision making over commodity demand and labour supply the first concerns the commonly assumed restriction on the household s preferences of weak separability between goods and leisure this assumption allows the estimation of commodity demand systems and engel curves that exclude wage rate variables in cross section household budget data with large variation in wage rates across the sample the invalidity of this assumption would involve a serious mis specification any correlation between the excluded wage variable and the included price income and demographic variables would lead to biased parameter estimates and hence biased estimated elasticities similarly this assumption allows the estimation of labour supply curves that exclude relative price variables and its invalidity could produce biased labour supply elasticities a second aspect of household decision making which we wish to highlight arises from the suspicion commonly alluded to in labour economics texts that primary male workers may not be free to choose their hours of work thus we estimate a matched pair of rationed and unrationed systems following the work of neary and roberts i 980 and deaton and muellbauer i 979 the separability restriction is not unrelated to this point since without it we will see that the rationed hours of work enter demand systems in a complex fashion in effect

indices of household welfare and the value of leisure time i introduction a true leisure inclusive welfare index indicates the compensatory change in wage rates goods consumption or nonlabor income required to enable the household to attain some reference period utility given an exogenous change in wage rates and prices although these indices are theoretical constructs for the measurement of individual or household welfare changes empirical analyses of these indices have relied upon aggregate time series data these data provide information on national average changes in wage rates goods consumption and hours worked but do not capture changes in hours worked at the household level due to increased labor market participation while the entry of many new part time workers into the labor market may decrease the national average of hours worked per week there may be a decrease in leisure for many households in addition the aggregate time series approach ignores differences across households in demographic attributes and the occupations and industries in which household members are employed to address these issues two large cross sections of household data the 1972 and 1980 bls consumer expenditure surveys u s bureau of labor statistics 1978 were used to calculate three types of leisure inclusive welfare indices the real wage index goods consumption and nonlabor income indices for each of six household demographic groups households comprising a husband and wife with zero or more dependent non working children were considered as the basic decisionmaking units in this household approach two real wage indices could be constructed that of the husband and that of the wife since the labor services of the two individuals may be valued differently the remainder of the paper is organized as follows in section ii the leisure inclusive welfare indices are developed theoretically the fixed weight bounds on the true indices and the limitations of these indices in the context of a more general but as yet undeveloped intertemporal behavior framework is discussed in section iii the data and empirical results are discussed and analyzed a summary and conclusions follow in section iv along with suggestions for future research

measuring the cost of shelter for homeowners theoretical and empirical considerations recent economic developments have aroused substantial interest in the treatment in the consumer price index cpi of the cost of shelter for homeowners from december 1977 when the latest version of the cpi was introduced until december 1980 the all items cpi increased at an average annual rate of 11 6 while the homeownership component increased at an average annual rate of 16 2 relative to all of the other goods and services in the cpi the homeownership component has increased by 17 5 over the same time period if the relative price of homeownership had remained constant the growth rate of the cpi would have been reduced to 10 1 the question which has been raised is whether the rapid relative increase in the homeownership component which has had such an important impact on the cpi truly reflects changes in the cost of shelter this question is not only important but difficult encompassing many subsidiary questions and auxiliary issues the purposes of this paper are threefold 1 to outline briefly a conceptual framework for the cpi which leads to a straightforward specification of what the shelter component of the cpi should measure 2 to evaluate the theoretical properties of alternative procedures designed to approximate this measurement objective and 3 present empirical evidence on the operational difficulties involved in pursuing a new approach to shelter cost measurement two main conclusions are reached first on both theoretical and empirical grounds a rental equivalence approach to measuring shelter costs for owner occupants is preferred second an estimated rental equivalence measure has grown more slowly over at least the past six years than the official cpi homeownership component given the way in which the cpi is used to escalate both private and public expenditures these results demonstrate that the choice of measurement technique has important distributional implications

investment the current account and the relative price of non traded goods in a small open economy abstract this paper incorporates traded and non traded investment expenditure into an infinite horizon setting with optimizing economic agents extending previous research that has incorporated traded and non traded investment into a two period setting the paper analyzes the dynamic adjustment of the relative price of non traded output the market price of capital and the current account following exogenous shocks to the system the exogenous shocks considered by the paper include permanent transitory and anticipated changes in an income tax and an investment subsidy as well as changes in the level of government purchases of traded and non traded output

structural adjustment and the construction sector abstract this paper adds a construction sector to a dynamic dependent economy model equipped with consumer tradeables and non tradeables sectors the model is used to study the response of the production structure relative prices and the trade balance to a favorable terms of trade shock under the benchmark assumptions of perfect intersectoral factor mobility a perfect international capital market and no adjustment costs for realistic relative capital intensities the model predicts a boom in the construction and consumer non tradeables sectors a contraction of the tradeables sector and no relative price changes the implications of relaxing those benchmark assumptions are discussed separately

current account imbalances and financial integration in the euro area abstract while the current account of the euro area as a whole has remained almost balanced in the past two decades several member countries have sizeable deficits or surpluses in this paper we interpret these imbalances as indicators of net capital flows among the euro area countries we distinguish between balances against the euro zone and the rest of the world and examine these for the eu 15 countries we find that for euro members the net flows follow differences in per capita incomes even before the introduction of the euro our results show further that with the introduction of the common currency the elasticity with respect to per capita incomes of net capital flows within the euro area has increased for the members of the euro zone this increase can neither be observed for the flows between the euro members and the rest of the world nor for the flows between the countries that stayed outside the monetary union and the euro zone we interpret this as evidence for increasing financial integration in the euro area there is also some evidence suggesting that the introduction of the euro has led to some financial diversion

fiscal deficits and inflation abstract macroeconomic theory postulates that persistent fiscal deficits are inflationary yet empirical research has had limited success in uncovering this relationship this paper reexamines the issue in light of broader data and a new modeling approach that incorporates two key features of the theory unlike previous studies we model inflation as non linearly related to fiscal deficits through the inflation tax base and estimate this relationship as intrinsically dynamic using panel techniques that explicitly distinguish between short and long run effects of fiscal deficits results spanning 107 countries over 1960 2001 show a strong positive association between deficits and inflation among high inflation and developing country groups but not among low inflation advanced economies

energy and resource allocation a dynamic model of the dutch disease it is well known that a domestic resource discovery gives rise to wealth effects that cause a squeeze of the tradeable good sector of an open economy the decline of the manufacturing sector following an energy discovery has been termed the dutch disease and has been investigated in many recent studies our model extends the principally static analyses to date by allowing for 1 short run capital specificity and long run capital mobility 2 international capital flows and 3 far sighted intertemporal optimizing behaviour by households and firms the model is solved by numerical simulation

international business cycle co movement the role of fdi this article investigates the relationship between fdi and business cycle synchronization in the period 1982 to 2011 for eight industrialized countries we find that more synchronized business cycles are associated with stronger fdi relations in the period 1995 to 2011 but not before 1995 more intensive fdi links are also associated with a greater vulnerability to lagged output spillovers from abroad our findings suggest that fdi has become a separate channel through which economies may affect each other and that fdi stocks are now an essential aspect of economic interdependence

optimal capital accumulation and the allocation of investment between traded and nontraded sectors in oil producing countries how should oil exporting countries allocate revenues from the production of oil over capital accumulation and consumption how should investment be allocated over traded and nontraded sectors most oil exporting countries are confronted with the problem of maintaining or developing a nonoil traded goods sector because higher oil revenues lead to a high real exchange rate thereby pulling resources into the nontraded sector the so called dutch disease the optimal savings response and investment allocation to temporary and permanent increases in oil revenues are derived in this paper

capital market imperfections and the theory of optimum currency areas this paper studies how within and cross country capital market imperfections affect the welfare effects of forming a currency union the analysis considers a bank only world where intermediaries compete in cournot fashion and monitoring and state verification are costly the first part determines the credit market equilibrium and the optimal number of banks prior to joining the union the second part discusses the benefits from joining a currency union a competition effect is identified and related to the added monitoring costs that banks may incur when operating outside their home country through an argument akin to the brander krugman reciprocal dumping model of bilateral trade however in our framework whether joining a union raises welfare of the home country is ambiguous it depends on the relative strength of investment creation and intermediation diversion effects

foreign direct investment and the euro the first five years this paper assesses the main influences on foreign direct investment fdi flows between the major economies in the first five years of economic and monetary union emu using previously unpublished data specially provided by eurostat it concludes that the huge wave of fdi that reached the eurozone after emu was largely a manifestation of the end of century takeover boom a global phenomenon of which the euro was only a subsidiary cause but much of the boom in euro economies fdi disappears if flows to and from the belgium luxembourg economic union bleu dominated by transhipment via luxembourg are removed on that basis intra zone fdi turns out to have been weak after emu both in relation to previous trends and as a share of major economies global fdi flows however the euro appears to have given a modest stimulus to inflows from other major investing economies while the uk share of the latters outflows has fallen moderately in the post emu period the policy implications are discussed

financial development financial fragility and growth the authors study the apparent contradiction between two strands of the literature on the effects of financial intermediation on economic activity on the one hand the empirical growth literature finds a positive effect of financial depth as measured by for instance private domestic credit and liquid liabilities for example levine loayza and beck 2000 on the other hand the banking and currency crisis literature finds that monetary aggregates such as domestic credit are among the best predictors of crises and their related economic downturns for example kaminski and reinhart 1999 the authors account for these contrasting effects based on the distinction between the short and long run impacts of financial intermediation working with a panel of cross country and time series observations they estimate an encompassing model of short and long run effects using the pooled mean group estimator developed by pesaran shin and smith 1999 their conclusion from this analysis is that a positive long run relationship between financial intermediation and output growth coexists with a mostly negative short run relationship the authors further develop an explanation for these contrasting effects by relating them to recent theoretical models by linking the estimated short run effects to measures of financial fragility namely banking crises and financial volatility and by jointly analyzing the effects of financial depth and fragility in classic panel growth regressions

capital goods imports the real exchange rate and the current account conventional aggregate models of open economies typically rule out trade in capital goods but capital goods account for a major share of the world trade in 1990 they represented more than 40 percent of u s merchandise exports and more than 30 percent of its imports in the same year capital goods imports represented an average of roughly 30 of total imports for 82 industrial and developing countries and almost 9 percent of their gdp this report shows that the presence of imported capital goods greatly changes the short and long run effects of macoreconomic policies and external shocks on key macroeconomic variables using a rational expectations aggregate model with intertemporally optimizing agents and with trade in both consumption and capital goods it finds that the long run equilibrium of the economy displays a negative relationship between the real exchange rate and real output that is a real appreciation is associated with an increase in long run output and the capital stock with investment subject to adjustment costs the response to unanticipated permanent disturbances involves a changing real exchange rate and a non zero current account the author analyzes the macroeconomic consequences of changes in fiscal policy and of transfers of wealth from abroad he show that both have well defined long run effects on the capital stock and real output fiscal expansion in particular may have a long run crowding in effect on investment by constrast the impact of disturbances on the current account is ambiguous the author shows that it depends critically on the degree of intertemporal substitutability in both consumption and investment with the latter measured by the magnitude of investment adjustment costs

real wage indices this paper examines real wage measures that include leisure and nonlabor income in consumption decisions with respect to the advantages and disadvantages of partial versus complete welfare orderings and of utility based versus utility free wage indices in addition we argue that the usefulness of a real wage measure beyond welfare comparison has been ignored to test the robustness of utility based indices these real wage measures are calculated for two different utility function specifications the indirect addilog system and the linear expenditure system further comparisons are made against index bounds that are independent of the functional form for preferences

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

business cycle convergence in emu a first look at the second moment we analyse the dynamics of the standard deviation of demand and supply shocks as well as of the demand component of gdp across countries in the european monetary union emu this analysis allows us to evaluate the patterns of cyclical comovement in emu and compare them the cyclical performance of the new members of the eu and other oecd countries we make use of sigma convergence methods to identify synchronization patterns in business cycles the eurozone has converged to a stable lower level of dispersion across business cycles during the end of the 80s and the beginning of the 90s the new eu members have also experienced a strong pattern of convergence from 1998 to 2005 when a strong divergence trend appears an enlargement of the emu to 22 members would not significantly decrease its optimality as a currency area there is evidence for some europe specific characteristics as compared to global comovements in business cycles authors abstract

sectoral adjustment costs and real exchange rate dynamics in a two sector dependent economy abstract this paper develops a two sector model in which intersectoral capital movements involve adjustment costs expressed as capital lost in the transformation process these costs have important consequences for the dynamics of capital accumulation and particularly for real exchange rate dynamics persistent deviations of the real exchange rate from its equilibrium are derived and for plausible values of the adjustment cost parameters are consistent with the observed degree of real exchange rate persistence for low adjustment costs the dynamics are qualitatively similar to those of the standard heckscher ohlin technology for high adjustment costs the model converges to the specific factors model thus our framework includes these two standard models as polar extremes

inter industry wage differentials in eu countries what do cross country time varying data add to the picture this paper documents the existence and main patterns of inter industry wage differentials across a large number of industries for 8 eu countries belgium germany greece hungary ireland italy netherlands and spain at two points in time in general 1995 and 2002 and explores possible explanations for these patterns the analysis uses the european structure of earnings survey ses an internationally harmonised matched employer employee dataset to estimate inter industry wage differentials conditional on a rich set of employee employer and job characteristics after investigating the possibility that unobservable employee characteristics lie behind the conditional wage differentials a hypothesis which cannot be accepted the paper investigates the role of institutional industry structure and industry performance characteristics in explaining inter industry wage differentials the results suggest that inter industry wage differentials are consistent with rent sharing mechanisms and that rent sharing is more likely in industries with firm level collective agreements and with higher collective agreement coverage jel classification j31 j41 j51

optimal monetary policy in the euro area in the presence of heterogeneity abstract this paper examines the optimal design of monetary policy in the european monetary union in the presence of structural asymmetries across union member countries it derives analytically an optimal interest rate rule under commitment and studies the dependence of its coefficients on the parameters of the structural model of each economy the central bank s preferences for inflation and output stabilization as shown in its loss function and the relative size of each country based on a two country forward looking general equilibrium model which is estimated for two euro area countries germany and france we show that there are gains to be achieved by the ecb taking into account the heterogeneity of economic structures this finding appears to be robust under alternative weights given by the central bank to the stabilization of the target variables although the implementation of the proposed rule involves difficulties relating to data and estimation constraints as well as risks of accommodating structural divergences it is important that the ecb takes into consideration national characteristics in formulating its monetary policy especially in view of more countries joining the european monetary union in the future however as monetary and financial integration advances the welfare benefits of monetary policy responding to individual countries variables may become less significant

deterioration of the terms of trade and capital accumulation a reexamination of the laursen metzler effect abstract this paper analyzes the effect of both a permanent and a temporary deterioration in the terms of trade on a small open economy the model based on intertemporal optimization emphasizes the labor leisure choice and the role of capital accumulation the transitional dynamics is shown to depend upon the long run response of the capital stock to the terms of trade shock this consists of a negative substitution effect together with a positive income effect whether or not the laursen metzler effect holds depends upon whether the income effect dominates the substitution effect

social security and private saving new time series evidence in an important article in the journal of political economy martin feldstein 1974 estimated that the introduction of the social security system had reduced personal saving by 50 percent with serious consequences for capital formation and output his conclusion was based on a consumer expenditure function estimated with u s time series data and incorporating a social security wealth variable of his construction this paper presents new evidence that casts considerable doubt on feldstein s conclusion first the social security wealth variable used by feldstein was seriously flawed as a result of a computer programming error simply correcting this error substantially changes the estimated effect of social security on saving second the statistical evidence depends upon assumptions which are embedded in the construction of the social security wealth variable assumptions that are not demonstrably preferable and are in some cases inferior to alternative assumptions these assumptions relate first to how individuals form their expectations about the social security benefits they expect to receive and the social security taxes they expect to pay and second to estimates of the number of workers dependent wives and surviving

aggregate consumption function and public social security the first time series study for a developing country turkey this article is the first attempt in the literature to investigate the effects of public social security on aggregate consumption in a time series setting for a developing country turkey that has one of the most generous social security systems in the organization for economic cooperation and development oecd region in order to quantify the social security variable this article uses the social security wealth ssw series calculated for turkey in a separate study this study indicates that ssw is the largest part of the household wealth in turkey and therefore should not be ignored in the aggregate consumption studies the results show that its effect on consumption is positive and robust

population ageing and pension reform in a small open economy with non traded goods in this paper we study the implications of population ageing in an economy with a sizeable non traded goods sector to this effect a highly stylized micro founded macro model is constructed in which the age structure of the population plays a non trivial role the model distinguishes separate birth and death probabilities thus allowing for net population change allows for age dependent labour productivity thus mimicing life cycle saving and includes a rudimentary pension system thus allowing for intergenerational redistribution the model is used to analytically study demographic and pension shocks

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

profits markups and entry fiscal policy in an open economy in this paper we develop a general model of an imperfectly competitive small open economy there is a traded and non traded sector whose outputs are combined in order to produce a single final good that can be either consumed or invested we make general assumptions about preferences and technology and analyze the impact of fiscal policy on the economy we find that the fiscal multiplier is between zero and one and provide sufficient conditions for it to be increasing in the degree of imperfect competition we also are able to compare the multiplier under free entry and with a fixed number of firms and welfare a simple graphical representation of the model is developed

saving and investment in an open economy with non traded goods the authors examine a model of a small open economy in which there is free international mobility of financial capital investment in capital goods and a nontraded good such an environment is rich enough to explain several phenomena that are inexplicable in other models the authors explain why a high saving country may nonetheless borrow from abroad to finance investment they suggest an explanation of why saving and investment may be correlated even with no restrictions on trade in assets the authors also provide an optimizing model of stages in the balance of payments copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

welfare gains from international risksharing abstract this paper uses consumption data to compute yet unexploited welfare gains that can be achieved through risksharing among twenty oecd countries there is both aggregate national consumption risk and nondiversifiable individual specific risk countries engage in an optimal risksharing arrangement to pool risk associated with the aggregate consumption endowment streams welfare gains are associated with reduced consumption variability and with the international pricing of the consumption streams of individual countries the paper considers the standard vnm time additive preferences as well as nonexpected utility and habit formation preferences large unexploited gains are found under all sets of preferences leading to an international risksharing puzzle

estimating the parameters of a household production function with joint products by estimating the parameters of a production function whose inputs consist of family time and market goods the authors offer some new microeconomic estimates of the value of production that takes place in the home and also examine the concept of joint production that is the degree to which time devoted to home production simultaneously serves as leisure they find evidence of substantial jointness between home production time and leisure the degree of which is greater for wives than for husbands and that both husband and wife possess human capital skills more productive in market work than in home work

productivity shocks non traded goods and optimal capital accumulation this paper considers the interaction of saving and investment in determining the current account for a small open economy subjected to productivity shocks by emphasizing the distinction between traded and non traded goods the analysis highlights the crucial role of the real exchange rate in macroeconomic adjustment our results demonstrate the importance of intertemporal substitution for determining the response of investment to anticipated productivity disturbances we also show how the correlation of movements in saving and investment following an anticipated disturbance depends critically on relative sectoral factor intensities

structural adjustment to a terms of trade disturbance the role of relative prices abstract this paper investigates the impact of a terms of trade disturbance on a small economy which responds gradually to changes in relative prices the key intertemporal link is as in dornbusch 1983 between the price of nontraded goods the real interest rate savings and the current account if the traded and nontraded goods are bad substitutes in consumption then an improvement in the terms of trade leads to a transitory current account surplus and conversely international capital mobility reduces the impact of a terms of trade disturbance on relative prices and also reduces the speed with which the economy adjusts to the disturbance

effects of social security on personal saving abstract to fill a gap in literature we formulate and estimate a simultaneous equation model to separately measure the substitution and retirement effects of social security on personal saving taking explicit account of the influence of pension saving

social security and private saving reply i am embarrassed by the programming error that dean leimer and selig lesnoy uncovered but grateful to them for the care with which they repeated my original study feldstein 1974 they set an admirable example of the tradition of replication on which all scientific work ultimately rests as economic research increasingly involves large and complex computer programs to analyze macroeconomic data sets or to simulate models that cannot be solved analytically replication studies like that of leimer and lesnoy social security and private saving new time series evidence in this issue should become increasingly important in their comment leimer and lesnoy also suggest a variety of modifications to the social security wealth variable to incorporate alternative employee perceptions and actuarial assumptions as i explain below i have strong doubts about the appropriateness of these modifications i therefore do not agree with their conclusion that the time series evidence does not support the hypothesis that the introduction of social security has substantially reduced personal saving in the united states more specifically as i show in this reply correcting the computerprogramming error and reestimating the original equation for the original sample period produces results that are not substantially different from the results that were originally published in 1974 the point estimate of the coefficient of social security wealth implies that the level of social security wealth in the final year of the sample 1971 depressed personal saving by an amount equal to 44 percent of the actual personal saving in that year although the estimated coefficient of the social security wealth variable is smaller than in the original version and its standard error larger the conventional statistical test

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

dynamic hours of work functions for husbands wives and single females hours of work equations are derived from the constrained maximization of a utility function that is not separable over time and that varies with a household s demographic structure these equations are fitted to observations on wage rates nonlabor income and other variables for husbands wives and unmarried women the dependence of each household s current work and consumption behavior upon its work and consumption behavior in the past is examined closely and different interpretations of the relationship are confronted with the data

fdi trade and spillover efficiency evidence from china s manufacturing sector using firm data from the 1995 third industrial census of china this paper finds that the presence of foreign ownership has a positive and significant effect on domestic firms productivity moreover trading with more advanced countries helps china gain access to new technology and information which improves its productivity and enables it to compete in international markets it is found that china s imports from oecd and the four asian tigers and exports to oecd have positive effects on domestic firms productivity by dividing industries into high technology gap and low technology gap groups it is found that the spillover effects of fdi are larger for the low technology gap group than for the high technology gap group however the estimation results of the trade induced technology spillover effect support the technology gap learning theory and the significance of importing appropriate technology

european market integration through technology driven m as merger and acquisitions m as have been an important tool for reorganizing the european market since the establishment of european economic and monetary union this article suggests that european integration helped and encouraged european firms to source technology across national borders in europe establishing european innovative firms the figures confirm that once barriers impeding the free movement of capital goods and labour had fallen european firms used m as intensively to enter foreign european markets enhancing technology competencies is found to be one of the main motives for cross border acquisitions in the 1990s but is not a factor in domestic acquisitions over the same period

the theory of real wage indices recently in this review john pencavel and p j lloyd have given insights into the measurement of real wages their work is an application of the concepts of true cost of living indices to a joint labor supply and commodity demand decision pencavel 1977 and lloyd 1979 offer several forms of real wage indices which are derived from explicit functional forms for utility this paper examines the theory of real wage indices in a more general setting and derives bounding indices which are independent of the functional form for utility

adjustment and structural change under supply shocks the resource boom effect and the input price effect of raw material price changes are analyzed within a two period two sector plus resource industry open economy framework diagrammatic exposition is used to study the dutch disease and in particular the distinction between the short term wealth effects causing a real appreciation and a movement of variable factors from tradeable to nontradeable industries and the long run effects on total investment its sectoral allocation and its finance by foreign borrowing the framework further enables analysis of the different allocational effects of temporary versus permanent raw material price increases when the two sectors differ in material use the effects of changes in the world interest rate on factor allocation and foreign borrowing and the allocational effects of government intervention in the case of temporary real wage rigidity are also discussed

infrastructure endowment and corporate income taxes as determinants of foreign direct investment in central and eastern european countries this paper analyses the importance of taxes on corporate income and production related tangible infrastructure as determinants of foreign direct investment fdi in central and eastern european countries ceecs we operationalise taxes using effective average tax rates on the bilateral level and employ indices derived from principal component analysis as a proxy for the infrastructure endowment in the empirical analysis we control for a possible interrelation between taxes and infrastructure as determinants of fdi an issue usually neglected in the literature specifically a favourable infrastructure endowment may compensate for relatively high taxes hence higher taxes may not deter fdi the results from our panel econometric analysis of bilateral outward fdi flows of seven home countries in eight ceecs for the 1995 2004 period in an augmented gravity model setting show that i both taxes and infrastructure play a role in the location decisions made by multinational enterprises ii telecommunication and transport infrastructure are of special significance to fdi and iii the tax rate sensitivity of fdi indeed decreases with the level of infrastructure endowment copyright 2009 the authors journal compilation 2009 blackwell publishing ltd

the effect of the euro on foreign direct investment abstract in this paper the recent effect of the european monetary union on inward fdi flows is examined using a difference in differences approach the estimated results show that the introduction of the euro raised inward fdi flows by approximately 16 within the euro area by approximately 11 to non members and weakly by around 8 from non member countries into the euro area moreover the geographical effects of the euro are explored the results show partial agglomeration tendencies for the euro area there are also some indications of increased importance of vertical specialization in the sample

fiscal policy and the real exchange rate abstract this paper reconsiders some conventional notions about fiscal policy under flexible exchange rates using an extended version of the dornbusch overshooting model the extension allows for a long run link between output and the real exchange rate unanticipated permanent fiscal policy affects both current and long run output while the long run effect is always in the expected direction it is possible that the current effect is perverse both fiscal and monetary policy must cause either nominal exchange rate overshooting or perverse domestic interest rate effects the results suggest that real shocks are a potential source of high exchange rate variability

fdi in space spatial autoregressive relationships in foreign direct investment abstract there are a number of theoretical reasons why foreign direct investment fdi into a host country may depend on the fdi in proximate countries such spatial interdependence has been largely ignored by the empirical fdi literature with only a couple recent papers accounting for such issues in their estimation this paper conducts a general examination of spatial interactions in empirical fdi models using data on us outbound fdi activity we find that estimated relationships of traditional determinants of fdi are surprisingly robust to inclusion of terms to capture spatial interdependence even though such interdependence is estimated to be significant however we find that both the traditional determinants of fdi and the estimated spatial interdependence are quite sensitive to the sample of countries one examines

real interest rates home goods and optimal external borrowing the paper investigates the optimal time path of consumption and external borrowing in the dependent economy model the small country faces given world prices and a given world real interest rate the presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home goods the paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption and the trade balance in particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in the world interest rate

does the single currency affect foreign direct investment does the creation of the euro partly explain the sharp increase in european investments to address this question we derive a simple gravity like model for bilateral foreign direct investment fdi using this model we find that the economic and monetary union emu has increased intra emu fdi stocks on average by around 30 percent this effect varies over time and across emu members it is found to be larger for the outward investments of the less developed emu members moreover contrary to early expectations of fdi diversion effects emu countries have invested more in non emu countries since the launch of the euro

outsourcing in a global economy we study the determinants of the location of subcontracted activity in a general equilibrium model of outsourcing and trade we model outsourcing as an activity that requires search for a partner and relationship specific investments that are governed by incomplete contracts the extent of international outsourcing depends inter alia on the thickness of the domestic and foreign market for input suppliers the relative cost of searching in each market the relative cost of customizing inputs and the nature of the contracting environment in each country

external asymmetries in the euro area and the role of foreign direct investment soon after the introduction of the common currency a divide emerged between two groups in the euro area one comprised of the north european countries achieving external surpluses and the other of the south european countries with large external deficits this paper shows that different patterns of foreign direct investment fdi inflows across the euro area countries contributed to this divergence our theoretical framework shows that if the economy is relatively capital intensive in the production of traded non traded output fdi will be channeled in greater proportions to the traded non traded sector thus improving deteriorating the trade balance focusing on ten euro area countries over the period 1980 2009 we establish a positive negative long run effect of fdi inflows on the trade balance in the north south in the north the positive effect stems from the traded sector fdi inflows that were significantly higher in comparison to the south both before and after the emu in contrast in the south the increased fdi inflows in the post emu era were dominated by investments in the non traded sector when industry level data are employed a positive negative long run effect of manufacturing non manufacturing fdi inflows on the trade balance in the north south is further established