factors determining the location decisions of spanish mnes an analysis based on the investment development path on the basis of theoretical assumptions approached via the investment development path idp this study examines the most important factors for and against the location decisions in foreign direct investment taken by multinational enterprises considering host countries at very different stages of economic development latin american and european union countries we carry out different kinds of analysis on a sample of 103 firms belonging to a medium sized country that has recently achieved the status of developed country the results reveal that the importance that home country firm managers give to diverse location factors depends to a certain extent on the stage that each group of host countries has reached in the idp in line with prior research we find that firm managers consider mainly the group of factors associated with strategic asset seeking when deciding to locate their investments in the group of more developed countries european union in contrast our results show that when these firm managers choose the group of less developed countries latin america social and cultural factors play a more determinant role thus suggesting the importance of historical and cultural ties between the home and host countries

the climate for innovation in industry the role of management attitudes and practices in consumer electronics abstract this article explores policy factors that may have systematically influenced the innovative vitality of the u s consumer electronics industry during the post world war ii period a series of successful innovations in electronic equipment that have become the foundation of international rivalry in this industry are examined with a focus on the several factors that might explain the relatively sluggish performance of u s firms in comparison with counterparts from japan and elsewhere the article suggests that the institutional climate for innovation pertaining to considerations that are internal to the firm like management attitudes practices and conventions are predominantly important in explaining the innovative behavior of the industry these tend to dominate the more frequently cited external or macroeconomic factors like inflation industry structure government regulation the propensities to save and invest etc a great potential for improving economic progress lies in opportunities in research and education to provide a better basis for top executives to understand the key role of technology in management and corporate strategy

balanced and unbalanced growth abstract a model is developed that shows how two sectors or regions interact out of steady state through product labor and capital markets and how if the former interaction dominates the growth of one sector pulls along the growth of the other while if the latter interactions dominate one sector or region booms while the other declines it is then shown why liberalization of foreign trade should lead to a transition from a lower to a higher steady state growth rate and why during the course of this transition growth might initially be even slower than before liberalization

erratum to balanced and unbalanced growth journal of development economics 53 1997 41 66 abstract a model is developed that shows how two sectors or regions interact out of steady state through product labor and capital markets and how if the former interaction dominates the growth of one sector pulls along the growth of the other while if the latter interactions dominate one sector or region booms while the other declines it is then shown why liberalization of foreign trade should lead to a transition from a lower to a higher steady state growth rate and why during the course of this transition growth might initially be even slower than before liberalization

a multivariate posterior odds approach to assessing competing exchange rate models a horse race is performed among competing models of bilateral exchange rates between the united states and canada the united kingdom germany and japan the authors compute posterior odds that any of the competing models is true using standard bayes rule formulae the distinguishing feature of this horse race is that the posterior odds incorporate the information contained in the covariances among the forecast errors of competing models it is found in contrast to meese and rogoff 1983 that the random walk model is dominated by one of the dornbusch overshooting model the flexible price monetarist model or the hooper morton model for all bilateral rates for almost all of the sample the authors are able to replicate the random walk dominance results by forcing the posterior odds to ignore covariance information so that in a sense their results encompass those of earlier studies copyright 1991 by mit press

technology structural change and bop constrained growth a structuralist toolbox the latin american structuralism las is a significant part of the heterodox tradition in the theory of long run growth with a focus on the problems of developing economies which started their industrialization process when other regions had already accumulated substantial technological capabilities the emergence of a centre periphery system posed specific problems to growth and distribution in laggard economies which las discusses in a systematic way in this paper we presented a simple model which firstly captures key insights of the las school such as the persistency of technological asymmetries and structural heterogeneity secondly it can be used to analyze the impacts of shocks and policies based on how they affect supply side and demand side parameters of the model thirdly it links more closely post keynesian macroeconomics based on the bop constraint with the evolutionary microeconomics concerned with the dynamics of learning lastly it can be used as a toolbox and a teachable model in the analysis of the interactions between structural change technological catching up and long run growth

the ramsey problem for congestible facilities abstract in recent years a new set of models drawing on vickrey 1969 has been developed to analyze the economics of congestible facilities these models are structural in that they derive the cost function from consumers time of use decisions and the congestion technology standard models in contrast simply assume the general form of the cost function we apply the new approach to analyze the ramsey problem for a congestible facility and show that the solution generally entails cost inefficiency standard models have failed to reveal this result because they treat the cost function as completely determined by technology

why interest rates react to money announcements an explanation from the foreign exchange market abstract when the fed announces a money supply greater than had been expected interest rates rise why one explanation is that the market raises its estimate of the future rates of money growth and inflation and bids up nominal interest rates we offer contrary evidence on such days the dollar appreciates not depreciates an alternative explanation is that the market perceives the change in the money stock as a transitory fluctuation that the fed will reverse in the future the anticipated future tightening raises today s real interest rate causes a capital inflow and appreciates the dollar the result in fact observed

monetary policy homeostasis and the transmission mechanism philip howrey 1967 william poole 1970 and john kareken 1970 initiated a formal debate over monetary policy using some variant of an is lm model thomas sargent and neil wallace 1975 extend this work by incorporating a lucas type aggregate supply function and rational expectations in spite of the effort spent in following up on the seminal work by howrey poole and kareken little progress has been made in resolving the debate the central theme of this paper is that the lack of progress is the result of ignoring homeostasis and the nature of the transmission mechanism in order to illustrate the importance of homeostasis and the transmission mechanism this paper extends the standard is lm framework in two ways first it introduces a homeostatic mechanism that generates shortrun responses which correspond to standard is lm behavior and long run responses which reflect full employment second it provides for alternative transmission mechanisms by dropping the assumption that markets clear continuously the paper is organized as follows the model is developed in the next section the following section examines the role of homeostasis and the transmission mechanism in the debate over policy the final section presents the conclusions

information constrained optima with retrading an externality and its market based solution this paper studies the efficiency of competitive equilibria in environments with a moral hazard problem and unobserved states both with retrading in ex post spot markets the interaction between private information problems and the possibility of retrade creates an externality unless preferences have special restrictive properties the externality is internalized by allowing agents to contract ex ante on market fundamentals determining the spot price or interest rate over and above contracting on actions and outputs then competitive equilibria are equivalent with the appropriate notion of constrained pareto optimality examples show that it is possible to have multiple market fundamentals or price islands created endogenously in equilibrium

correctly analysing the balance of payments constraint on growth the balance of payments constrained growth bpcg model provides an interesting hypothesis regarding economic growth the main implication is that world demand places the dominant constraint to which individual country growth adjusts i discuss this implication and argue that tests of the bpcg model have essentially been tests of the hypothesis that trade is balanced over the long run a plausible hypothesis but one that need not hold mainly through responses to world demand as transmitted via income elasticities i then discuss the role of relative prices and investment point out logical inadequacies in the traditional bpcg framework and suggest an alternative theoretical framework to investigate its robustness our theoretical and empirical explorations suggest that traditional tests of the bpcg model may be misleading including investment as a proxy for the capacity to export and addressing endogeneity issues for example noticeably weakens the influence of world demand the evidence presented contributes to reconciling evidence supporting the bpcg hypothesis with recent work that consistently finds an important role for the level of the real exchange rate and investment independently of world demand

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

deposit insurance reform what are the issues and what needs to be fixed abstract the current problems in the commercial banking industry have led to widespread calls for reform of the deposit insurance contract on the grounds that it promotes moral hazard we review the empirical evidence for the significance of moral hazard as an important cause of the present crisis we then evaluate various reform proposals grouped into two broad classes proposals that seek to impose greater discipline on bank stockholders and proposals to increase the disciplinary role of bank debtholders finally we identify some issues that have received inadequate attention in the literature on bank regulation

the vanishing liquidity effect of money on interest analysis and implications for policy this paper seeks to re examine the effects of money on interest rates the earlier literature on this topic determined fairly well the pattern of response of interest rates to changes in money growth the notable studies of cagan 1972 cagan and gandolfi 1969 and gibson 1970 served to establish the professions stylized pattern as presented in section i section ii presents new evidence on the subject and finds that the old empirical generalizations no longer hold specifically the results suggest that the initial liquidity effect of faster money growth is likely to be offset within the month following the monetary policy change sections iii and iv investigate the reasons for the changing pattern of monetary effects on interest rates and discuss the policy implications of the new pattern

the diffusion and production of numerically controlled machine tools with special reference to argentina abstract despite the low wages for skilled labor prevailing in developing countries user firms are willing to adopt ncmts for reasons more linked to changes in the product mix to be machined rather than to substitute capital for labor however user firms are only able to amortize the higher investment if they have a substantial aggregate volume of production in addition to firms in taiwan south korea and brazil that have managed to enter into the production of ncmts argentine firms have been taking advantage of a more conducive environment in the domestic market and the export possibilities open in brazil and in other markets to increase the production volume of ncmts to strengthen their design teams and to plan new investments to consolidate their entry into this dynamic segment of the machine tool industry

technological regimes catching up and leapfrogging findings from the korean industries abstract this paper examines the experiences of selected industries in korea to identify the stylized facts in the process of technological capability building and thereby to sort out the conditions for the catching up to occur to explain the process we have built a model of technological and market catching up a special attention has been given to the question of whether there has been a case of leapfrogging in any industry in korea and if so what are the conditions for its incidence in our framework we first measure the degree of catching up in terms of market shares in the world then we focus on catching up in technological capabilities in explaining the different record and prospects of korean industries in market catching up in the model technological capability is determined as a function of both technological effort and the existing knowledge base as determinants of technological effort we look at the technological regimes of the industries such as cumulativeness of technical advances fluidity predictability of technological trajectory and the properties of knowledge base using this model we explain the different technological evolution of the selected industries in korea including the d ram automobile mobile phone consumer electronics personal computer and machine tool industries we find three different patterns of catching ups path creating catching up cdma mobile phone path skipping catching up d ram and automobile and path following catching up consumer electronics personal computers and machine tools we interpret the first two case of catching up as leapfrogging unlike the argument by perez and soete perez c soete l 1988 catching up in technology entry barriers and windows of opportunity in dosi et al eds technical change and economic theory pinter publishers london we find that important r d projects except automobiles where only private r d was involved involved both private and public capacities and that entry was not driven by endogenous generation of knowledge and skills but by collaboration with foreign companies

real exchange rates and macroeconomics a selective survey the paper discusses real exchange rate issues of industrial and of developing countries for real exchange rates among the key industrial countries we ask what is the best conceptual framework to shed light on this question we look at alternative theoretical approaches and at empirical evidence on the relation among interest rates expectations and depreciation the discussion of developing countries real exchange rates focuses on the link between real exchange rates real wages and the profitability of capital the model highlights the discrepancy between the mobility of capital including in the long run physical capital and

the structure of open economy macro models abstract the objectives here include a rigorous investigation of a walras law in an open economy b the generality or non generality of the monetary approach to the balance of payments c the logical consistency of the traditional keynesian models of the balance of payments d the relationship if any between a government budget imbalance and the balance of payments and e perhaps most importantly the underlying cause s of a non zero balance of payments many of the conclusions differ from the conventional wisdom

currency fluctuations in the post bretton woods era the international monetary landscape that has emerged since the felling of bretton woods is characterized by a hybrid exchange rate system that lies somewhere between the textbook polar cases of a gold standard and a pure float this system has relatively flexible exchange rates between major countries active central bank intervention in the market for the major currencies and predominantly fixed exchange rates relative to the dollar or to some basket of currencies for less developed countries and newly industrializing nations the majority of research on currency markets since the early 1970s has focused on the characteristics of flexible exchange rates under this hybrid regime my thesis is that this research has been unsuccessful the proportion of monthly or quarterly exchange rate changes that current models can explain is essentially zero even after the fact forecasts that use actual values instead of forecasted values of the explanatory variables cannot explain major currency movements over the post bretton woods era this result is quite surprising since exchange rate changes would be entirely unpredictable only in very special cases of the theoretical models discussed as the discussion below will argue it is not a general implication of market efficiency that exchange rates follow a random walk process 1

was it real the exchange rate interest differential relation over the modern floating rate period in this paper we explore the relationship between real exchange rates and real interest rate differentials in the united states germany japan and the united kingdom contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant we find little evidence of a stable relationship between real interest rates and real exchange rates we consider both in sample and out of sample tests one hypothesis that is consistent with our findings is that real disturbances such as productivity shocks may be a major source of exchange rate volatility this paper investigates the empirical relationship between major currency real exchange rates and real interest rates over the modern post march 1973 flexible rate experience the exchange rates examined here include the dollar mark dollar yen and dollar pound rates our two major findings are as follows first the data do not indicate a strong correspondence between real interest rate differentials short term or long term and real exchange rates this finding appears to conflict with the predictions of most monetary and portfolio balance models of exchange rate determination though the conflict can be substantially reconciled if aggregate disturbances are primarily real in nature i e changes in productivity tastes etc it is true that in many cases the sign of the estimated exchange rate interest rate differential relationship is consistent with the possible predominance of financial market disturbances but the relationship is not stable enough to be statistically significant second although one does find some evidence of a unit root in both real exchange rates and long term but not shortterm real interest differentials these two series do not appear to be linearly cointegrated hence the nonstationarity or near nonstationarity in the two series cannot be attributed to the same factor in section i we briefly describe a class of small scale monetary models of exchange rate determination the importance of this class of models for empirical work derives from its strong predictions about how the exchange rate will move

monetary analysis the equilibrium method and keynes s general theory compared with the work of his contemporaries keynes s general theory represented a radical change in theoretical method from sequence analysis to the method of equilibrium the nature of this change is discussed together with its implications for the substance of keynes s message and for the subsequent development of macroeconomics

sources of fluctuations in real and nominal exchange rates this paper attempts to distinguish empirically real versus nominal sources of fluctuations in real and nominal exchange rates the distinction is obtained by imposing the following restriction on the bivariate vector autoregression of real and nominal exchange rates over the current flexible rate period nominal shocks are required to have no permanent effect on the level of the real exchange rate given this identification scheme the author analyzes the dynamic effects and relative importance of real and nominal shocks with regards to exchange rates the findings indicate that real shocks dominate nominal shocks for both exchange rate series over short and long frequencies copyright 1992 by mit press

the loanable funds fallacy saving finance and equilibrium the loanable funds controversy cannot be settled without prior agreement on the meanings of income and equilibrium the essential claim of loanable funds theory is that disequilibrium in the goods market affects the rate of interest this paper introduces financial accounting concepts and a new understanding of the principle of effective demand to clarify that loanable funds theory relies on a concept of income other than current income namely yesterday s income in the case of robertson or full employment equilibrium income in the case of hicks in robertson s case this is a matter of bad accounting a confusion between an income statement and a balance sheet in hicks s more subtle case it is about the inapplicability of walras law to a monetary economy keynes s principle embodies a marshallian concept of system equilibrium under which the goods market is treated as never in disequilibrium in the sense required by loanable funds theory copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

iylm a general theory compatible replacement for islm the islm model introduced in 1936 37 to provide interpretations of keynes s general theory subsequently emerged in its hicks hansen form as the workhorse and trained intuition of post war macroeconomists however islm is an essentially orthodox model based on neoclassical foundations and fails completely as an adequate representation of central elements of keynes s macroeconomic thought this article proposes iylm as a replacement for islm the new model being general theory compatible in that it is grounded only on key propositions in that work its purpose is to contribute within the constraints of a two market framework to the resuscitation of keynes s macroeconomics as an alternative to the inadequacies of much current macroeconomics the first part of the article derives the model and argues that those sympathetic to the general theory can accept the iylm framework whilst simultaneously rejecting islm the second part shows that hicks hansen islm is based on an income augmented form of orthodox loanable funds theory

asymptotic efficiency in large exchange economies with asymmetric information the authors provide conditions on an exchange economy with asymmetric information that guarantee that when the economy is replicated sufficiently often there will be an allocation that is incentive compatible individually rational and nearly efficient the main theorem covers both the case in which aggregate uncertainty remains when the economy is replicated and the case in which replication eliminates aggregate uncertainty in addition the authors demonstrate how their theorem does or does not apply to standard asymmetric information problems such as the buyer s bid double auction problem akerlof s lemons problem and insurance with asymmetric information copyright 1992 by the econometric society

state led technological development a case of china s nanotechnology development summary we analyze nanotechnology patent applications filed in china from 1998 to 2008 and find that the extraordinary pace of nanotechnology development achieved over that period has been promoted primarily by the public sector rather than being driven by industry and market forces this finding implies that developing countries such as china with public research capacity and commitment to technological development can make rapid progress in basic research in emerging technologies but it remains uncertain whether and when local industry can benefit from public r d investment enough to enable active development of indigenous innovation

estimated output price interest rate and exchange rate linkages amongcountries this article provides quantitative estimates from an econometric model of the output price interest rate and exchange rate linkages among a number of countries the linkages are examined by changing various policy variables and observing the resulting changes in the endogenous variable the model is also used to estimate what is called the exchanging rate effect on inflation one of the ways in which monetary and fiscal policies may affect a country s inflation rate is by first influencing its exchange rate which in turn influences import prices which in turn influence domestic prices the model allows this exchange rate effect on inflation to be estimated

the loanable funds theory and the dynamics of exchange rates the mundell model revisited abstract this paper shows that mundell s model of perfect capital mobility is logically consistent only in the framework of the loanable funds theory it then develops a loanable funds version of the mundell model and shows that exchange rate overshooting or undershooting naturally occurs in this corrected version of the mundell model

the financial cycle and macroeconomics what have we learnt abstract it is high time we rediscovered the role of the financial cycle in macroeconomics in the environment that has prevailed for at least three decades now it is not possible to understand business fluctuations and the corresponding analytical and policy challenges without understanding the financial cycle this calls for a rethink of modelling strategies and for significant adjustments to macroeconomic policies this essay highlights the stylised empirical features of the financial cycle conjectures as to what it may take to model it satisfactorily and considers its policy implications in the discussion of policy the essay pays special attention to the bust phase which is less well explored and raises much more controversial issues

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

international competitiveness technical change and the state the machine tool industry in taiwan and japan abstract it is widely accepted that the growth performance of japan and the asian newly industrialized countries hong kong singapore south korea and taiwan is partly the result of the international competitiveness they have achieved in a number of export industries it remains however to explain how this competitiveness was achieved in the first part of the paper an attempt at such an explanation based on the theory of comparative advantage is critically examined it is argued that while this explanation does have some explanatory power it does not deal adequately with a the role of technical and productivity change b the causal mechanisms underlying economic growth and c the role of the state the rest of the paper examines the case of machine tools in taiwan and japan showing the importance of these three factors as well as a number of others as determinants of international competitiveness the paper ends with a discussion of policy dilemmas relating to international competitiveness in the taiwanese machine toot industry

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

collective efficiency growth path for small scale industry this study is concerned with the growth of small local industry in developing countries and explores one particular route for understanding and fostering such growth it focuses on the clustering of firms and the competitive advantage which they derive from local external economies and joint action captured in the concept of collective efficiency following a conceptual discussion the article explores the economic and institutional conditions which enhance or hinder collective efficiency this includes a case study which suggests that responding to opportunity and crisis requires shifting from mere reliance on external economies to joint action and from ascribed to earned trust

employment with asymmetric information in an economy without informational and other distortions entrepreneurs and workers can write labor contracts that support a pareto optimal allocation of resources this paper is an attempt to characterize contracts when enterpreneurs are better informed about the state of nature than are their workers asymmetric information generally results in a suboptimal allocation of both risk and worker effort in particular if consumption and leisure are perfect substitutes employment will be less than fully pareto optimal in all but the most favorable states of nature

jointly optimal regulation of bank capital and liquidity in an economy with financial frictions banks endogenously choose excessive leverage and maturity mismatch in equilibrium as they fail to internalize the risk of socially wasteful fire sales macroprudential regulators can achieve efficiency with simple linear constraints which require less information than pigouvian taxes the liquidity coverage and net stable funding ratios of basel iii can implement efficiency additional microprudential regulation of leverage is required when bank failures are socially costly micro and macroprudential rules are imperfect substitutes optimally macroprudential policy reacts to systematic risk and credit conditions over the cycle while microprudential policy reacts to systematic and idiosyncratic risk

explaining the reductions in us corn ethanol processing costs testing competing hypotheses abstract the processing costs of us corn ethanol have declined by 45 since 1983 as production volumes have increased seventeen fold we investigate the role of various factors that could explain this including economies of scale cumulative experience induced innovation in response to rising input prices an autonomous technological change and trade induced competition from imported ethanol using data on dry mill ethanol processing costs over the 1983 2005 period we find evidence to show that us corn ethanol production exhibited decreasing returns to scale that learning by doing played an important role in reducing these processing costs with a learning rate of 0 25 and that sugarcane ethanol imports contributed to making the corn ethanol industry more competitive other factors such as the rising prices of energy and labor did induce lower processing costs but the effect is not statistically significant the inclusion of these competing explanations for the reduction in processing costs of us corn ethanol lead to a significantly higher learning rate than otherwise and this learning rate is found to be robust across specifications

uneven growth between interdependent economies an evolutionary view on technology gaps trade and growth preface part one theory and empirics of international growth rate differentials and technology gaps chapter 1 technology growth and welfare a historical perspective 1 1 the search for welfare and the role of technology 1 2 aim of the book 1 3 organisation of the rest of the book notes chapter 2 the literature on economic growth and technological change 2 1 a brief overview 2 2 the traditional literature on economic growth 2 3 new neoclassical growth models endogenous innovation 2 4 the role of technological change 2 5 explaining growth rate differentials notes chapter 3 an evolutionary theory of economic growth and technological change the basics 3 1 economic growth as an evolutionary process a macroeconomic interpretation 3 2 economic growth as an evolutionary process a microeconomic interpretation 3 3 towards an evolutionary theory notes chapter 4 technology and growth in an international perspective 1960 1990 an impressionistic approach 4 1 economic growth and structural change 4 2 technology 4 3 technology and growth catching up or falling behind a global issue 4 4 summary and conclusions appendix iv 1 postwar economic welfare and the selection of country samples appendix iv 2 the 3 digit isic sector classification revision 2 appendix iv 3 on measuring and graphing structural differences between countries appendix iv 4 some tests for the influence of multicollinearity on the regressions in section 4 2 notes part two technology spillovers between interdependent economies catching up or falling behind chapter 5 a model of catching up or falling behind 5 1 description of the model 5 2 solving the model 5 3 the outcomes of the model under varying parameter restrictions 5 4 conclusions of the model notes chapter 6 an empirical test of the model 6 1 testing procedure and data sources 6 2 result 6 3 interpreting the results 6 4 summary and some policy conclusions appendix vi l a description of the data appendix vi 2 the calculation of the n statistic notes part three technological change international trade and economic growth chapter 7 an evolutionary model of technological change specialisation and economic growth 7 1 a descriptive interpretation 7 2 the model 7 3 simulation results 7 4 summary and conclusions appendix vii 1 initial values of the simulation runs for the 3 country 2 sector case appendix vii 2 some mathematical details of the selection equation in discrete time notes chapter 8 an empirical view on the evolution of trade and technology 8 1 patents as indicators of innovation 8 2 summarising some known correlations 8 3 trade and technology a dynamic evolutionary framework 8 4 estimation of the replicator equation 8 5 some further tests on the robustness of the replicator estimates 8 6 explaining the results for the patent variables 8 7 summary and conclusions

externalities in economies with imperfect information and incomplete markets this paper presents a simple general framework for analyzing externalities in economies with incomplete markets and imperfect infonnation by identifying the pecuniary effects of these externalities that net out the paper simplifies the problem of determining when tax interventions are pareto improving the approach indicates that such tax interventions almost always exist and that equilibria in situations of imperfect information are rarely constrained pareto optima it can also lead to simple tests based on readily observable indicators of the efficacy of particular tax policies in situations involving adverse selection signaling moral hazard incomplete contingent claims markets and queue rationing equilibria traditional discussions of externalities have emphasized the distinction between technological externalities in which the action of one individual or firm directly affects the utility or profit ofanother and pecuniary externalities in which one individual s or firm s actions affect another only through effects on prices while the presence of technological externalities imply in general that a competitive equilibrium may not be pareto efficient pecuniary externalities hy themselves are not a source of inefficiency the fact that prices change has of course important consequences there are both distributional and allocational effects but the distribution effects net out gains for example hy firms whose prices increase are precisely offset by losses e g to individuals who must pay higher prices and there are no welfare losses from the allocation effects as long as the price changes involved are small if firms are maximizing profits and individuals are maximizing utility both facing prices that correctly refiect opportunity costs then standard envelope theorem arguments imply that changes in profits or utility induced by changes in allocations resulting from any small change in prices are negligible

dynamics of export specialization in the regions of the italian mezzogiorno persistence and change guerrieri p and iammarino s 2007 dynamics of export specialization in the regions of the italian mezzogiorno persistence and change regional studies 41 933 947 during the 1980s and 1990s the italian southern economy displayed signs of transformation in production and export structures accompanied by sharp geographical differentiation debate on these changes mainly spurred by growing international pressure has given rise to different views and expectations on the opportunities for endogenous growth on the italian periphery the aim of this paper is to contribute to this ongoing debate by looking at the evolution of sectoral export specialization patterns i e relative comparative advantage structures in the mezzogiorno regions in the period 1985 2000 focusing on inter provincial comparisons the analysis concentrates on the extent of persistence versus change in the evolution of provincial specialization patterns shedding light on the relationship between export structure and performance

a technology gap interpretation of growth paths in asia and latin america abstract this paper presents a north south technology gap model which combines the schumpeterian approach to technical and structural change with the keynesian perspective on effective demand and the balance of payments bop constraint as drivers of growth three are the contributions of the paper first it develops a model in which the technology gap relative productivity and relative wages co evolve and may generate different paths of convergence or divergence between south and north depending on the parameters of the model second the parameters of the model are associated with different types of policies which allows for discussing how these policies may change the growth path finally the model is used to discuss the contrasting experiences of asia and latin america since 1970 convergence in asia and divergence in latin america have been extensively debated topics in the literature on comparative economic development which highlights the crucial role of industrial policy it is argued that the results of the technology gap model are consistent with the findings of this literature and helps understand the forces behind convergence and divergence

public policies and the art of catching up matching the historical evidence with a multicountry agent based model in this paper we study the effects of industrial policies on international convergence using a multi country agent based model which builds upon dosi et al 2019b the model features a group of microfounded economies with evolving industries populated by heterogeneous firms that compete in international markets in each country technological change is driven by firms activities of search and innovation while aggregate demand formation and distribution follows keynesian dynamics interactions among countries take place via trade flows and international technological imitation we employ the model to assess the different strategies that laggard countries can adopt to catch up with leaders market friendly policies industrial policies targeting the development of firms capabilities and rd protectionist policies focusing on tariffs only we find that markets cannot do the magic in absence of government interventions laggards will continue to fall behind on the contrary industrial policies can successfully drive international convergence among leaders and laggards while protectionism alone is not necessary to support catching up and countries get stuck in a sort of middle income trap finally in a global trade war where developed economies impose retaliatory tariffs both laggards and leaders are worse off and world productivity growth slows down

liquidity preference as behavior toward risk is a demand for short term securities not money in 1958 james tobin generalized the keynesian theory of liquidity preference by means of his famous portfolio model in which the demand for money narrowly defined is treated as behavior towards interest risk whatever merit this theory may have had then has long since been questionable the reason is the existence of a large set of substitutes for money typically short term money market instruments which can be regarded as riskless or virtually so and which pay substantial interest the availability of these instruments would appear to make tobin s theory that money is held to cope with interest risk resemble a scenario without a recognizable cast of actors in the literature on monetary theory other authors have also expressed misgivings about the tobin theory by noting that savings and nontransferable time deposits have the same risk properties as money but pay interest see for example robert barro and stanley fischer 1976 although correct the allusion to these deposits is simplistic it is true that while both types mimic money s freedom from interest risk in the conventional sense of capital loss time deposits are still exposed to a kind of interest risk because they can be liquidated before maturity only with interest penalty more important business firms are either denied access to savings deposits or as in the united states can hold a maximum of 150 000 per account at commercial banks thereby effectively eliminating large firms as holders furthermore although business firms can own most time deposits they typically do not except for negotiable cds a money market instrument they are loath to tie up funds in long term maturities and they can usually obtain the same or higher yields on other types of short term debt instruments that are also negotiable in the united states households have long accounted for about one third of demand deposits business firms owning most of the rest therefore any effort to rest a case against the tobin theory of money demand on the existence of savings and time deposits gets at only a small part of the problem this stricture extends to so called now and ats accounts these interest bearing demand deposits disguised under other names are also denied to business firms for them the short term instruments of the money market are the principal alternative to money in asset portfolios

towards a loanable funds amended liquidity preference theory of the exchange rate and interest rate abstract the objective is to develop a unified theory of the exchange rate and interest rate using a loanable funds amended liquidity preference approach in order to provide a new perspective on many puzzling facts associated with the post bretton woods international economy it is shown that i a monetary expansion can initially raise the interest rate but depreciate the home currency ii real demand shocks can cause interest rate and exchange rate overshooting iii an infinite interest elasticity for capital flows cannot cause exchange rate overshooting if an extended marshall lerner condition holds iv the home currency can appreciate when the current account is negative if the extended marshall lerner condition is not satisfied and v changes in the disequilibrium regime will cause instability in the estimates of reduced form coefficients

sustainability in a post keynesian growth model for an open economy the paper expands the bop constraint growth model and kaldorian regimes productivity and demand regimes in order to include some of the concerns raised by ecological economics in post keynesian models for open economies the demand regime is modified by taking into account porter s hypothesis which suggests that environmental innovations spurred by environmental policies can foster competitiveness as a result the equilibrium bop constrained rate of growth increases leading to a different version of thirlwall s law which opens room for analyzing the impact of environmental innovations on convergence between developing and developed economies the productivity regime in turn considers the growth and employment implications of innovations in labor productivity standard innovations and environmental efficiency environmental innovations it is argued that the fiscal policy and composition of public expenditure matter for long run growth employment and sustainability

shifts in foreign trade competitiveness and growth potential from baltics to bal techs abstract the collapse of socialism and the ensuing transition process have revealed the position of estonia latvia and lithuania in an international economic perspective data presented in this paper suggest that the baltics are competitive in sectors that generate little value added as a result of their inferior level of technology relative to their trade partners mainly oecd europe this raises questions about the income levels attainable in these countries the question with respect to future economic growth is whether there is any potential in the baltic countries to increase the level of technology this paper argues that the socialist past especially the separation of research and development from production is an important obstacle to technological progress in the baltics in order to integrate research and production socialist institutions need to be transformed or abolished while new ones have to be created this will take considerable time and effort

international competitiveness in post keynesian growth theory controversies and empirical evidence a fundamental starting point for post keynesian theory concerning growth in open economies is succinctly expressed in the following statement by kaldor t he main autonomous factor governing both the level and the rate of growth of effective demand of an industrial country is the external demand for its exports and the main factor governing the latter is international competitiveness which in turn depends on the level of its industrial cost relatively to other industrial exporters kaldor 1971 p 7 italics added moreover thanks to increasing returns in manufacturing export expansion and international competitiveness would interact so as to create vicious or virtuous circles of cumulative causation a few years later kaldor having found a positive correlation between the time changes of the main industrial countries relative manufacturing export shares and that of their relative unit costs a correlation that became known as the kaldor paradox dismissed his original cumulative causation theory and adopted a version close to harrod s foreign trade multiplier the purpose of this paper is to reaffirm the kaldorian cumulative causation theory in its original version by providing a firmer analytical basis and showing that contrary to the kaldor paradox time changes in export performance must be explained by levels rather than by changes in unit costs

keeping up with the technology pace a dns curve and limit cycle in a technology investment decision problem abstract in order to keep up with its economic environment a firm should respond to new technological developments in this paper we establish the optimal technology investment decision within a dynamic model in which the baseline technology level rises over time the problem is analyzed by designing a two state optimal control model it turns out that in the state space a dechert nishimura skiba dns curve can be determined that separates different long run outcomes viz zero investment constant positive investment or a cyclical sequence of zero and positive investment

sharecropping and the interlinking of agrarian markets one of the often noted features of less developed agrarian economies is the existence of interlinkages among the land labor credit and product markets the landlord is often the supplier of credit he frequently purchases and markets the output of the tenant farmers and often sells raw materials and even consumption goods to his tenant farmers how can this phenomenon be explained what are the welfare consequences of attempts to restrict these practices which often seem to constitute restraints on free trade these are the questions to which this paper is addressed a general set of arguments applicable to both competitive and noncompetitive environments are presented to situations where all the terms of the contract are determined in an optimal way as well as to situations where many of the terms are specified institutionally section i examines interlinked credit and tenancy contracts section ii examines interlinked marketing and tenancy contracts section iii points out the possible interlinking between labor contracts and consumption goods markets and section iv presents the different equilibrium frameworks discussed in the paper such as monopoly monopsony competition and equilibria with surplus labor

trade flow lags monetary and fiscal policy and exchange rate overshooting abstract in this paper model a is constructed that combines trade slow lags with the model in the appendix to dornbusch s seminal paper on exchange rate dynamics here output is free to vary and inflation is determined by a simple phillips curve mechanism it turns out that because of the trade slow lags monetary expansion causes interest rates to decline but the exchange rate need not oveshoot as one would expect whereas fiscal policy always produces overshooting it follows that monetary policy may be a less important source of exchange rate variability than is commonly believed and fiscal policy more important

the loanable funds fallacy exercises in the analysis of disequilibrium this essay analyses the core proposition of loanable funds theory that changes in technology and time preferences directly and immediately affect interest rates applying what may be seen as a generalised financial buffers approach to the analysis of disequilibrium we find that loanable funds theory is flawed and should therefore be abandoned a challenge to the neo walrasian general equilibrium approach to monetary theory remains that of justifying the idea that by some mechanism intertemporal prices correctly reflect technology and time preferences copyright 2001 by oxford university press

how significant are externalities for development if one man starts a new idea it is taken up by others and combined with suggestions of their own and thus it becomes the source of further new ideas and presently subsidiary trades grow up in the neighbourhood supplying it with implements and materials marshall 1920 p 225

can taiwan s second movers upgrade via branding abstract taiwan one of the best performers among latecomers has successfully entered mature high tech from the 1980s but has yet to close the technological gap with the west the paper examines why most of the successful second movers in taiwan do not pursue r d intensive and own brand strategies to catch up and whether they may do so in the future it is argued here that the second mover expands by relying upon accumulated organizational capabilities based on subcontracting manufacturing hence implying likely path dependence in development thus the strategy of choice for most will be upgrading subcontracting cross industry subcontracting and then own brand manufacturing in that order among the structural factors affecting the firm s strategic choice the industrial policy has been a crucial one south korea has produced some successful global brands supported by the state s national champion policy and long term commitment to the chaebol the emerging china has also adopted a highly ambitious national champion strategy the fact that the government in taiwan has never adopted a national champion strategy helps to partly explain the evolutionary path of taiwan s second movers and attests to the importance of industrial policy unless taiwan s policy environment changes significantly the current trend may continue in the foreseeable future

the buffer stock notion in monetary economics not the least of harry johnson s contributions to our discipline was the series of survey papers on aspects of monetary economics which he produced during the 1960s and 1970s it is no exaggeration to say that the way in which the literature of monetary economics is organised even now follows the design which johnson first set out in 1962 and built on in the subsequent decade nevertheless the subject has not stood still and one of the more interesting developments of the last few years has involved the introduction of what has been variously described as the disequilibrium money shock absorber or as i prefer to call it the buffer stock notion into monetary economics the development of this line of thought was getting underway before johnson s untimely death much of it indeed under the auspices of his own research programme at the lse even so this did not happen early enough for the relevant ideas to be put in their proper niche by johnson himself and the buffer stock approach is not yet fully integrated into the mainstream of monetary economics much of the relevant literature is empirical concerned with modelling particular aspects of the monetary experience of specific countries hence it is fragmented and contains few papers which attempt a coherent account of just what this approach is and how it relates to other approaches to monetary analysis although essays by goodhart 1982a b and judd and scadding 1982a contain important discussions of these issues to the best of my knowledge only jonson 1976a and knoester 1979a have devoted entire papers solely to this central issue and these are relatively inaccessible and hence less widely known than they deserve to be in this lecture i shall attempt to give a brief account of the essentials of this approach first i shall sketch out its microeconomic background and then i shall discuss those theoretical characteristics which differentiate it from the neo austrian analysis of robert e lucas jr and his associates as well as from the conventional keynesian approach to monetary economics last but by no means least i shall argue that it yields simple theoretical insights into important empirical and policy related issues which are troublesome for alternative approaches in short my tribute to harry

firm level knowledge accumulation and regional dynamics two bodies of literature have contributed significantly to our insight into the forces driving competitiveness and economic growth regional agglomeration studies emphasise the favourable impact of geographical proximity on regional economic performance particularly through knowledge spillovers however the firms that constitute those agglomerations largely remain black boxes in contrast studies dealing with technological learning explain economic performance at firm level without systematically taking account of the effects of geographical proximity the aim of the paper is to propose a possible way to bridge this gap this contributes to our understanding of the determinants of economic growth in industrial clusters an empirical illustration of a capital goods cluster is elaborated

wage structure as implicit insurance on human capital in developed versus underdeveloped countries abstract this paper explores the role of wage structure as implicit insurance on human capital it illustrates how smaller wage differentials in the developed world can be welfare enhancing by acting as implicit insurance while larger wage differentials in underdeveloped countries make investments in human capital riskier in other words with smaller wage differentials the students in a developed country are insured against poor educational outcomes through the existence of well paid alternative employments which are not present in the economy of a less developed country this result arises as multiple equilibria in a general equilibrium model when there are no insurance markets for human capital

economic reform in developing countries some conceptual issues abstract this paper is an effort to show that the outcome of stabilization and structural adjustment policies largely based on the neoclassical economic rationale was justifiable neither in terms of the analytical nor the historical literature the very ideological nature and the inherent contradictions of policies inhibited successful implementation and accentuated poverty and inequity in developing countries by drawing on the views of various contemporary schools of economic thought the paper also questions the validity of the international financial institutions claims of consensus on development policy the paper emphasizes that in social science research and more so in policy prescriptions the search for consensus may in fact be futile

continental national and sub national innovation systems complementarity and economic growth the purpose of this paper is to discuss the relevance of innovation systems to economic growth rates over the last two centuries the focus is on complementarity or lack of it between sub systems of society and on models of active learning in catching up economies the paper discusses variations in rates of growth of economic regions and the extent to which variations may be attributed to innovation systems the analysis is applied to britain in the 18th century the united states in the second half of the 19th century and the innovation systems of catching up countries in the 20th century

on the keynesian notion of equilibrium and dynamics harrod had always maintained that keynes s treatise was much more amenable for dynamic analysis than the general theory however in much of the later work on keynesian dynamics the general theory became the foundation in this paper i argue that recent developments in neoclassical general equilibrium theory have the effect of undermining the conventional keynesian conception of dynamics based on the general theory and recasting keynes as a coarse precursor of modern general equilibrium analysis opposing this renewed orthodox reinterpretation of keynes might require a reconsideration of the treatise as the foundation for an alternative keynesian dynamics 1996 academic press limited

democracy the market and the logic of social choice this article compares the types of knowledge democracy and the market require to rationally allocate resources i argue that high levels of public ignorance and voters inability to compare the effects of different parties policies make it difficult for parties and elections to rationally allocate resources markets mitigate these problems because the simultaneous existence of multiple firms products facilitates comparisons that mimic the conditions of scientific experimentation the economy of knowledge involved in such comparisons indicates there are epistemic advantages to using firms and markets instead of political parties and elections to allocate scarce resources however in contrast to arguments that markets merely provide better information than political decisions i argue markets epistemic advantages are derived from the way they facilitate comparisons that minimize decision makers need for knowledge or understanding