the relation between price and marginal cost in u s industry a contradiction in a recent article in this journal hall 1988 examined productivity shocks at the industry level derived from constant returns to scale production functions in which firms were assumed to be competitive hall had two important conclusions first he showed that productivity shocks i e solow residuals were correlated with aggregate demand variables implying that the former are not exogenous impulses second his results implied that firms persistently charge prices above marginal costs making inappropriate the constant returns to scale competitive production function assumed in many theoretical frameworks because of the importance of hall s findings the article has led to many extensions evans 1992 confirms the empirical finding of significant correlations between productivity shocks and aggregate demand variables burnside eichenbaum and rebelo 1993 show that this correlation can be explained by introducing labor hoarding into a theoretical model with competitive firms and constant returns to scale production functions the markups above marginal cost are explained by eden and griliches 1991 and galeotti and schiantarelli 1991 by modifying the theoretical production function caballero and lyons 1992 using the hall data and methodology examine the possibility of external economies in the aggregate manufacturing production finally waldmann 199 1 argues in this journal that the

the inverted pyramid a neo ricardian view on the economy environment relationship abstract in ecological economics natural resources which may contribute only a small amount to gdp are viewed as fundamental to the functioning of the economy they are sometimes pictured as sitting at the base of an inverted pyramid with the rest of the economy balanced on top of them in this paper we show that when prices are set by markup a standard heterodox assumption then the inverted pyramid picture of the economy emerges naturally in a neo ricardian model we demonstrate the use of the model with brief applications to biophysical economics the paper is one of a growing number that use heterodox macroeconomics to address questions in ecological economics

competition and corporate performance are people right to think that competition improves corporate performance my investigations indicate first that there are some theoretical reasons for believing this hypothesis to be correct but they are not overwhelming furthermore the existing empirical evidence on this question is weak however the results reported here based on an analysis of around 670 u k companies do provide some support for this view most important i present evidence that competition as measured by increased numbers of competitors or by lower levels of rents is associated with a significantly higher rate of total factor productivity growth

the politics of financial development evidence from trade liberalization incumbents in various industries have different incentives to promote or oppose financial development changes in the relative strength of promoter and opponent industries thus result in changes in the political equilibrium level of financial development we conduct an event study using a sample of 41 countries that liberalized trade during 1970 to 2000 and show that the strengthening of promoter relative to opponent industries resulting from liberalization is a good predictor of subsequent financial development the benefits of developing the financial system are insufficient for financial development and rents in particular hands appear to be necessary to achieve it copyright c 2008 by the american finance association

financial integration credit market imperfections and consumption smoothing abstract contrary to standard theoretical reasoning recent empirical research shows that financial integration is associated with higher consumption volatility in developing countries this paper illustrates how domestic credit market imperfections can alter the standard predictions about the consumption smoothing possibilities under financial autarky and international financial integration i use a two country international real business cycle model where the non traded sector in the small country faces borrowing constraints due to contract enforceability problems if the international risk sharing opportunities are non existent households can secure themselves against the shocks in the non traded sector only by adjusting their labor effort which leads to changes in sectorial output and terms of trade the deterioration of the terms of trade acts as a dampening effect on consumption causing it to be less volatile under financial autarky relative to financial integration under financial integration international financial assets provide the insurance against domestic productivity shocks without affecting the relative prices hence allowing the consumption to react more

are corruption and taxation really harmful to growth firm level evidence exploiting a unique data set containing information about the estimated bribe payments of ugandan firms the authors study the relationship between bribe payments taxes and firm growth in uganda for the period 1995 97 using industry location averages to circumvent the potential problem of endogeneity and to deal with issues of measurement error they find that both the rate of taxation and the rate of bribery are negatively correlated with firm growth for the full data set a one percentage point increase in the bribery rate is associated with three percentage point reduction in firm growth an effect about three times that of taxation moreover after excluding outliers the authors find that bribery has a much greater negative impact on growth and taxation a considerably smaller one this provides some validation of firm level theories of corruption which posit that corruption retards development even more than taxation does

market structure and fiscal policy effectiveness in a monopolistic competition macromodel with endogenous market structure the fiscal multiplier is shown to consist of two components the first depicts the response of output to a fiscal expansion through the conventional channels that disregard the role of market imperfections the second component captures the effects of firms market power as well as the policy induced change in market structure the latter effect which has not been taken into account in existing studies is shown to be quite significant in raising the fiscal multiplier even above unity and in improving consumers welfare when the labour market is competitive

import price elasticities reconsidering the evidence recent economic geography and trade empirical studies based on monopolistic competition suggest high levels of trade price elasticities between 3 and 1 1 however price elasticity estimations in trade equations using unit values as price proxies usually lead to lower values of around unity we show that those inconclusive results may be due to some misspecification in these equations as well as measurement errors in prices when suit able instrumental variables are used within a panel of industrialized countries we obtain high price elasticities the majority ranging from i to 13 the highest estimates correspond to industries producing homogeneous goods jel classification c2 c3 and f 1

corruption manufacturing plant growth and the asian paradox indonesian evidence summary using panel data from the indonesian manufacturing industry during the suharto era 1975 95 we assess the impact of plant level corruption on output and productivity growth in support of the grease the wheels hypothesis and the view of an asian paradox we find that corruption measured as bribes and indirect tax payments has a positive and statistically significant effect on individual plant growth this effect persists over the entire period which suggests improvements in the efficacy of the bribe system and a strengthening of the long term contract between firms and the government

firm size distributions an overview of steady state distributions resulting from firm dynamics models abstract empirical firm size distributions are the cumulated result of underlying firm dynamics involving entry of new firms and growth decline and exits of incumbent firms in this paper we give an overview of firm size distributions that result as steady states from models differing in the way these firm dynamics are modelled in the process we i derive common results and explain seemingly contradictory results ii propose new functional forms to describe firm size distributions iii give insight in the interrelationships between the distributions in terms of underlying firm dynamics iv give possible firm dynamical interpretations of the parameters of the distributions and v analyse to which extent the steady state approach is able to explain the shape of firm size distributions that are encountered in practice

endogenous markups and the effects of income taxation theory and evidence from oecd countries abstract existing studies on the effects of fiscal policy under imperfect competition typically treat each firm s price cost markup as fixed this paper examines the implications of endogenising the markup in a simple model of income taxation under monopolistic competition it is demonstrated that an increase in income tax reduces the number of firms lessens competition among surviving firms and raises the optimal markups in the new steady state through this channel the effects of income taxation on the key macroeconomic variables as well as on consumer welfare are unambiguously enlarged the simple model prediction is largely supported by cross section regressions with data from oecd countries

reward structures and the allocation of talent as relative rewards that different professions receive are a key factor in the allocation of talent what determines the reward structure of a society is an important question this paper develops an equilibrium model of the allocation of talent between productive and unproductive activities such as rent seeking the existence of rent seeking creates a negative externality on productive agents and implies that relative rewards are endogenously determined the same externality can also lead to the existence of multiple equilibria each with different reward structures in a dynamic setting allocations of past generations as well as expectations of future allocations influence current rewards and the society may get trapped in a rent seeking steady state equilibrium the paper also discusses how the non pecuniary reward structure can be influenced by equilibrium selection and a historical example that suggests the presence of a causal link from the allocation of talent to non pecuniary rewards

why do stocks and consumption imply such different gains from international risk sharing abstract estimates of the gains to international risk sharing based upon stock returns tend to find dramatically higher gains than do estimates from consumption based models in this paper i examine the reasons for these differences using a common theoretical framework for both approaches i find that the differences are largely due to the much higher variability of stock returns and its implied intertemporal substitution in marginal utility also contrary to conventional wisdom the differences in gains from the two approaches do not arise from treating stock returns as exogenous rather than endogenous

commodity trade and international risk sharing how much do financial markets matter abstract this paper evaluates the social gains from international risk sharing in some simple general equilibrium models with output uncertainty a simulation model calibrated to selected moments of u s and japanese data estimates the incremental loss from a ban on international portfolio diversification to be on the order of 0 20 percent of output per year even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology the paper argues that the small magnitude of potential trade gains may help explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility

distinguishing the source of market power structural models used to measure market power though widely employed continue to be criticized we compare alternative market power tests including nonparametric and solow residual based srb tests we develop srb methods that permit nested testing for both monopolistic and monopsonistic market power by the same firm these tests and a set of nonparametric tests are implemented to examine market power exertion by u s cigarette manufacturers from 1977 to 1993 all tests indicate that cigarette manufacturers exerted monopsonistic power in the upstream tobacco market they are mixed on whether monopolistic power exertion was exerted in the downstream market

an equilibrium queuing model of bribery it is sometimes argued that bribery is inefficient because bureaucrats may cause delays for attracting more bribes this hypothesis is examined in the context of a queue where customers having different values of time are ranked by their bribe payments to the queue s server the nash equilibrium strategies of the customers are derived it is shown that the server is unlikely to slow down the allocation process when bribery is allowed the model does not have stringent informational requirements and the equilibrium outcome minimizes the average value of time costs of the queue it also suggests a useful auctioning procedure

is corruption grease grit or a gamble corruption increases variance of productivity across countries the effect of corruption on economic growth has attracted interest in empirical development economics the conventional view of corruption as impediment for growth has been challenged by the grease on the wheels hypothesis we take a new perspective on the issue and suggest corruption as macro risk referred to as a gamble hypothesis using cross country data and two alternative indicators of corruption we find corruption to be a significant driver of heteroscedasticity in total productivity this supports the new gamble hypothesis we also note some misleading interpretations in the previously published frontier applications to avoid these shortcomings we apply a flexible semi nonparametric estimator

the comparative politics of corruption accounting for the east asian paradox in empirical studies of corruption growth and investment abstract numerous empirical studies demonstrate that corruption reduces investment and or slows growth but how robust are these relationships this question is answered by conducting a series of crosscountry regression tests using four different corruption datasets we find that corruption slows growth and or reduces investment in most developing countries particularly small developing countries but increases growth in the large east asian newly industrializing economies the latter finding provides solid empirical support to a country case literature that explains the east asian paradox the combination of high corruption and high growth in terms of stable and mutually beneficial exchanges of government promotional privileges for bribes and kickbacks

cyclical productivity in europe and the united states evaluating the evidence on returns to scale and input utilization this paper studies procyclical productivity growth at the industry level in the united states and three european countries france germany and the netherlands industry specific demand side instruments are used to examine the prevalence of non constant returns to scale and unmeasured input utilization for the aggregate us economy unmeasured input utilization seems to explain procyclical productivity however this correction still leaves one in three us industries with procyclical productivity this failure of the model can also be seen in europe and is mostly concentrated in services industries

consumer myopia imperfect competition and the energy efficiency gap evidence from the uk refrigerator market abstract the empirical literature on the energy efficiency gap concentrates on demand inefficiencies in the energy using durables markets and finds evidence that consumers underestimate future energy costs when purchasing a new appliance we take a broader view and also consider the impact of imperfect competition using data on the uk refrigerator market 2002 2007 we find that the average energy consumption of appliances sold during this period was only 7 2 higher than what would have been observed under a scenario with a perfectly competitive market and non myopic consumers one reason for this small gap is that market power actually reduces energy use

rent seeking and resource booms abstract this paper develops a model of rent seeking in which the opportunity cost of rent seeking is foregone entrepreneurship it provides conditions under which resource booms tend to lead to an increase in rent seeking activity and those in which they induce entrepreneurship we identify an important difference between the two activities which leads resource booms to bias gains in favour of rent seeking over entrepreneurship but we also show that this bias depends on the nature of the initial equilibrium

treatment effect heterogeneity in theory and practice instrumental variables iv methods identify internally valid causal effects for individuals whose treatment status is manipulable by the instrument at hand inference for other populations requires homogeneity assumptions this paper outlines a theoretical framework that nests causal homogeneity assumptions these ideas are illustrated using sibling sex composition to estimate the effect of childbearing on economic and marital outcomes the application is motivated by american welfare reform the empirical results generally support the notion of reduced labour supply and increased poverty as a consequence of childbearing but evidence on the impact of childbearing on marital stability and welfare use is more tenuous

measurement of the market power of firms the japanese case in the 1990s this article presents a new simple econometric framework for the estimation of individual firms markup over their marginal cost taking account of firm heterogeneity demand driven cyclical price changes and the limited availability of firm level information the framework is applied to study markup of japanese firms in manufacturing and wholesale retail trade for 1994 2002 the results indicate that on average the japanese markets become more competitive in the 1990s than before even in non manufacturing industries we also find sizable heterogeneity and non negligible pro cyclicality in the markup of the japanese firms copyright 2009 the author 2009 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

structural change and financing constraints abstract in a multi industry growth model firms need external funds for productivity enhancing r d and face financing constraints the cost of research differs across industries so financing constraints hinder industry productivity growth unevenly equilibrium industry dynamics map into a differences in differences regression specification where industry growth depends on the interaction between country financial development and industry r d intensity the paper provides a framework for interpreting several empirical results that rely on industry growth data in terms of r d induced technology transfer and identifies a new channel for finance to encourage aggregate growth the reallocation of resources towards sectors with rapidly expanding technological frontiers

corruption in a model of growth political reputation competition and shocks the article tries to incorporate political corruption toplevel corruption into economic growth analysis we propose amicroeconomic framework an agent of the public sector who wantsto optimize his cash flow resulting from budget misappropriations will be highly sensitive to the instability related to his office the natural equilibrium for the politician will be to fall into a high political instability low growth trap in whichcorruption appears endemic however the control of corruption bysociety will be possible we consider a model in which alternativepoliticians compete with the incumbent politician but benefit from a common political reputation it is shown that this situation leads to dynamic collective reputation which should restrain misappropriationpractices this theoretical framework will be useful in defining a sustainable degree of political competition and inunderstanding the asymmetric effects of extrinsic shocks on thegrowth process

global implications of self oriented national monetary rules author s obstfeld maurice rogoff kenneth abstract it is well known that if international linkages are relatively small the potential gains to international monetary policy coordination are typically quite limited but what if goods and financial markets are tightly linked is it then problematic if countries unilaterally design their institutions for monetary stabilization are the stabilization gains from having separate currencies largely squandered in the absence of effective international monetary coordination we argue that under plausible assumptions the answer is no unless risk aversion is very high lack of coordination in rule setting is a second order problem compared to the overall gains from monetary policy stabilization

international financial integration and national price levels the role of the exchange rate regime abstract this paper proposes a new perspective on systematic deviations from purchasing power parity panel evidence for oecd countries shows that international financial integration increases the national price level under managed exchange rate regimes and lowers the price level under floating exchange rates an open economy sticky price model reproduces these findings by relating them to the possibility of insurance against consumption losses in internationally integrated financial markets the utilization of insurance is reflected by relative price adjustments which manifest themselves in changes of the national price level the direction of relative price adjustments however depends on the extent to which insurance is used under different exchange rate regimes under a peg financial integration raises the national price level under a float however financial integration lowers the national price level

are economic rents good for development evidence from the manufacturing sector abstract are rents or excess profits good for development rents could induce firms to lobby or bribe governments to preserve the status quo on the other hand rents may promote growth by giving firms the needed funds to make investments in fixed capital or research and development to test this question empirically we use a panel of manufacturing data at the industry country year level and measure rents by the mark up ratio we find that the relationship between rents and growth is strongly negative with the results being primarily driven by the poorer countries or those with worse institutions in the sample this result holds when we instrument for mark up using the average mark up in other industries in the country even in industries with high external financing needs and countries with less developed financial sectors precisely the places where excess profits could be used to drive growth we find that rents are especially harmful consistent with the rent seeking mechanism we highlight we find that high rents are associated with a slower reduction in tariffs we also test for the most likely alternative mechanism that higher rents cause slower growth through the channel of allowing managerial slack we find that controlling for management has little impact on our estimate of the impact of mark up on productivity growth

can imperfect competition explain the difference between primal and dual productivity measures estimates for u s manufacturing it is well known that under the assumptions of constant returns to scale perfect competition and the absence of factor hoarding primal and dual productivity measures should be highly correlated the apparent lack of correlation is usually attributed to fixed factors of production in this paper i propose an alternative explanation by relaxing the assumption of perfect competition by controlling for the presence of a markup component i demonstrate that both productivity measures are in fact highly correlated for u s manufacturing the analysis also provides an alternative method of estimating a markup of prices over marginal cost that avoids certain difficulties inherent in some existing methods of estimation

a policy analysis of china s wheat economy this paper examines the impacts of china s historical and anticipated future reforms on its domestic wheat economy and how it affects the import demand for wheat using a stochastic coefficient regression method the results strongly support the hypothesis that producers and consumers in the post reform era were responsive to a less controlled economy furthermore the higher import forecasts indicate that china will interact more with the world wheat market

directly unproductive profit seeking dup activities this paper propses directly unproductive profit seeking dup activities as a general concept that embraces a wide range of recently analyzed economic activities including the subset of rent seeking activities considered by krueger it then proceeds to provide a synthesis and generalization of the welfare theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the dup activity thus a unification and overview of the subject are achieved

financial liberalisation stockmarkets and economic development abstract during the 1980s and 1990s many developing countries dcs have been engaged in far reaching reforms of their financial systems liberalising them and making them more market oriented this liberalisation involving inter alia financial de repression has been inspired partly by the work of the mckinnon 1973 and shaw 1973 m s school this paper suggests that in addition to financial de repression there has been a major new element in the development of dc financial systems in recent years the establishment and fast expansion of stockmarkets these markets have played a key role in the internal as well as external financial liberalisation processes in leading dcs further the paper finds that the actual behaviour of these markets in many countries has led to outcomes which undermine the effects of the higher real interest rates arising from financial de repression

the impact of china s economic reforms on agricultural productivity growth this paper presents a method for assessing the relative importance of price increases and strengthened individual incentives due to the introduction of the responsibility system for the post 1978 increase in china s agricultural productivity data on post 1978 chinese agricultural performance suggest that a little over three quarters of the measured productivity increase is due to payment system changes and the remainder to price increases we also use our method to calculate incentive indices giving an estimate of the fraction of their marginal product that peasants received under the pre 1978 regime

welfare effects of financial innovation in incomplete markets economies with several consumption goods abstract we show that in almost every incomplete markets economy with more than one consumption good and with sufficiently many uninsured states of nature at any general equilibrium of this economy it is possible to arbitrarily perturb the equilibrium utilities merely by introducing the appropriate asset making for example all agents worse off this result demonstrates that the examples given by hart on the optimality of equilibrium when the market structure is incomplete j econ theory11 1975 418 443 and others are actually general phenomena and is in sharp contrast to the intuition that innovation since it expands financial opportunities should benefit all agents journal of economic literature classification numbers d52 d60 g10

how big are potential welfare gains from international risksharing abstract there is extensive evidence that risksharing across countries is far from perfect some have attributed this to small benefits from risksharing gains from riskpooling that have been reported range from negligible to enormous this paper documents to what extent the results are sensitive to the parameterization of preferences the stochastic process of the endowment and its measurement we find that gains from risksharing are quite sizable for realistic assumptions about the underlying factors for oecd countries they are equivalent to a permanent increase in tradables consumption in the range of 1 1 to 3 5 for a 50 year horizon and 2 5 to 7 4 for a 100 year horizon

officials versus thieves is public or private expropriation more harmful to small firms abstractcorruption and crime are factors that regularly affect firms yet few papers compare the two impacts this is largely due to a lack of data something i overcome using recent surveys of microenterprises in mexico after instrumenting for individual firm level incidence i find that thieves are much more harmful to microenterprises than officials the incidence of robbery and extortion is associated with declines in income and employees while the incidence of bribery and fines are associated with increases in both this highlights that crime can be a larger deterrent to firm growth than corruption in certain environments

reforms the weather and productivity growth in china s grain sector we use disaggregate county level production data to study the effects of economic reform on china s grain production between 1980 and 1990 china s grain production area is divided into five regions based on geographic agronomic and meteorological criteria regional grain production functions are estimated and weather is explicitly modeled the institutional impact of economic reform was found to explain about 38 of the production growth from 1980 to 1985 this is lower than the estimates reported in many previous studies regional differences in efficiency gains from economic reform and in the effects of weather on grain production are found to be significant

does corruption boost or harm firms performance in developing and emerging economies a firm level study in the last decade a growing number of studies have addressed the ongoing debate about whether corruption sands or greases the wheels of business at the firm level this study revisits this debate and proposes a comprehensive theoretical framework to test whether corruption harms or boosts firm performance as well as the extent to which this relationship is mediated by the countries institutional settings the size and strategic behaviour of the firms and market competition based on a sample of 21 250 firms located in 117 emerging and developing countries and resorting to instrumental variable iv estimations three main results were found a regardless of the proxy used for corruption and firm performance the former clearly harms the latter b corruption greases the wheels of business for african firms but it sands the wheels for firms in latin america the caribbean eastern europe central asia and southern asia and c the negative impact of corruption on performance is mitigated for larger and exporting firms

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

estimation of the depreciation rate of physical and r d capital in the u s total manufacturing sector i introduction numerous studies on production and cost the sources of productivity and endogenous growth have recognized the pivotal role of the physical capital stock studies at various levels of aggregation over assets and industries have emphasized the crucial role of investment in plant and equipment in the growth of demand and productive capacity it is clearly recognized by economists and policymakers that knowledge capital approximated by rd 1986 to measure the depreciation rates of the stock of rd 1980 in the literature on dynamic demand models such an approach was first adopted by epstein and denny 1980 and more recently by kollintzas and choi 1985 for a single capital good and on a theoretical level in bernstein and nadiri 1987a 1987b the paper is organized as follows the specification of the model is presented in section ii section iii is devoted to a discussion of the data and to the presentation of the parameter estimates of the model in section iv we present the empirical results for the depreciation rates for physical and r d capital and compare them with those reported in the literature we compare the physical capital stock estimates generated by our model with the official capital stock estimates produced by u s department of commerce bureau of economic analysis in this section we also present our estimates of the decomposition of gross investment into replacement and expansion investment for both physical and r d capital these decompositions are important from the vantage point of public policy analysis

scale effects time varying markups and the cyclical behaviour of primal and dual productivity this paper presents estimates of the degree of returns to scale using nonparametric measures of primal and dual productivity for 2 digit us manufacturing industries as part of the analysis the cyclical behaviour of primal and dual productivity measures are considered time varying markups are allowed for and the small sample properties of the instrumental variables estimator used to derive the estimates from the primal and dual relations examined both the primal and dual estimates indicate the existence of increasing returns to scale for the durable goods industries the simulation results indicate there is a slight tendency for the dual equation estimates to overestimate the degree of returns to scale however small sample bias appears to be most severe for the non durable goods industries

corruption and development a review of issues in this paper we start with a discussion of some of the different denotations of the problem of corruption we then consider the ways in which the damaging consequences of corruption operate in a developing economy while not ignoring its possible redeeming features in some cases we pursue the question of why corruption is perceptibly so different in different societies and also persistent finally we examine the feasible policy issues that arise in this context

eight questions about corruption this paper will discuss eight frequently asked questions about public corruption 1 what is corruption 2 which countries are the most corrupt 3 what are the common characteristics of countries with high corruption 4 what is the magnitude of corruption 5 do higher wages for bureaucrats reduce corruption 6 can competition reduce corruption 7 why have there been so few recent successful attempts to fight corruption 8 does corruption adversely affect growth

rational contagion and the globalization of securities markets this paper argues that globalization may promote contagion by weakening incentives for gathering costly information and by strengthening incentives for imitating arbitrary market portfolios in the presence of short selling constraints the gain of gathering information at a fixed cost may diminish as markets grow moreover if a portfolio manager s marginal cost for yielding below market returns exceeds the marginal gain for above market returns there is a range of optimal portfolios in which all investors imitate arbitrary market portfolios and this range widens as the market grows numerical simulations suggest that these frictions can have significant implications for capital flows in emerging markets

market structure and price cost margins in a paper that has become a standard reference in the structure conductperformance approach to industrial economics cowling and waterson 1976 developed a theoretical rationale for expecting industry profitability to be positively correlated with the level of concentration their model based on a simple algebraic description of oligopoly behaviour has been interpreted as providing a justification for the common empirical practice of cross industry regression analysis of price cost margins in terms of concentration levels in the present paper we show that on further examination this model implies a joint determination of margins and concentration this provides some interesting comparative static results of relevance to inter industry differences in concentration levels equally however it leads to various cautionary insights concerning the meaning of price cost margin versus concentration regressions

corruption and market competition evidence from post communist countries summary this paper empirically examines whether market competition is associated with greater bribe payments we use firm level data from the business environment and enterprise performance surveys since market competition could be endogenous and some firms report zero bribes we employ a tobit estimation methodology instrumenting for market competition we find that greater market competition increases the amount of bribes paid results are robust across several measures of market competition however market competition is less strongly associated with bribes in the presence of other obstacles of doing business that could also lead to more bribes

rural reforms and agricultural growth in china this paper employs province level panel data to assess the contributions of decollectivization price adjustments and other reforms to china s agricultural growth in the reform period decollectivization is found to improve total factor productivity and to account for about half of the output growth during 1978 84 the adjustment in state procurement prices also contributed positively to output growth its impact came mainly from the responses in input use the effect of other market related reforms on productivity and output growth was very small reasons for slowdown in agricultural growth after 1984 are also analyzed copyright 1992 by american economic association

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

spatial dispersion of retail margins evidence from turkish agricultural prices the farmer share of retail prices is shown to be about 16 percent corresponding to about 84 percent of a distribution share on average across agricultural products and regions within turkey the share of transportation costs in retail prices is only about 7 percent while the share of retail margins is about 77 percent of retail prices the dispersion of retail prices across regions is shown to be mostly due to local wages and variable markups while the contribution of traded input prices is relatively small accordingly the high dispersion of farmer prices across locations is not reflected in the dispersion of retail prices due to the high contribution of retail margins these retail margins are also shown to account for about one third of the consumer welfare dispersion across regions and more than half of the consumer welfare dispersion across products

patience persistence and welfare costs of incomplete markets in open economies abstract we investigate the welfare implications of alternative financial market structures in a two country endowment economy model we obtain an analytic expression for the expected lifetime utility of the representative household when sovereign bonds are the only internationally traded asset and we compare this welfare level with that obtained under complete asset markets the welfare cost of incomplete markets is negligible if agents are very patient and shocks are not very persistent but this cost is dramatically larger if agents are relatively impatient and shocks are highly persistent for realistic cases in which agents are very patient and shocks are highly persistent the welfare cost of incomplete markets is highly sensitive to the specific values of these parameters

international risk sharing and economic growth international risk sharing which diversifies away income risk will reduce saving with constant relative risk aversion if growth arises from the external effects of human capital accumulation then reducing saving will reduce growth welfare also may fall with risk sharing because endogenous growth with external effects of capital accumulation typically implies a competitive equilibrium growth rate already less than the optimal growth rate we demonstrate these results in a standard representative agent economy diversifying away rate of return risk also will reduce saving and growth rates if relative risk aversion exceeds one but this diversification always increases welfare this paper studies the effects of international risk sharing portfolio diversification in a world economy in which growth rates of income are endogenous growth is based upon the spillover effects of human capital accumulation as in lucas 1988 and romer 1986 there are positive economy wide spillovers of human capital intensity on individual labour productivity in section 2 we construct a multi country growth model with an infinitely lived representative agent in each country each country faces income risk but there is no aggregate uncertainty at the world level we focus on two market structures in the first structure there are no markets which allow for international diversification of country specific income risk in the second structure there are complete international markets for risksharing with no aggregate world uncertainty this completeness allows full diversification of country specific risk the paper has two central results first growth rates in all countries are lower in the equilibrium with full diversification second in this same structure welfare of each country may be lower than in an equilibrium without risk sharing the reasoning is as follows with external effects of capital accumulation the compet

a theory of misgovernance this paper tries to explain why government bureaucracies are often associated with red tape corruption and lack of incentives the paper identifies two specific ingredients that together can provide an explanation the fact that governments often act precisely in situations where markets fail and the presence of agency problems within the government we show that these problems are exacerbated at low levels of development and in bureaucracies dealing with poor people we also argue that we need to posit the existence of a welfare oriented constituency within the government in order to explain red tape and corruption

labor hoarding and the business cycle this paper investigates the sensitivity of solow residual based measures of technology shocks to labor hoarding behavior using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption we estimate the fraction of the variability of the solow residual that is due to technology shocks our results support the view that a significant proportion of movements in the solow residual are artifacts of labor hoarding behavior specifically we estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models in addition our results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate u s output

corruption types of corruption and firm financial performance new evidence from a transitional economy using a nationwide survey of provincial institutional quality and a sample of private manufacturing small and medium scale enterprises the smes this paper contributes to the literature by considering for the first time the effects of corruption on the financial performance of vietnamese private smes interestingly contrary to previous findings we find that corruption when measured by a dummy variable does not affect firms financial performance after controlling for heterogeneity simultaneity and dynamic endogeneity however the intensity of bribery and the majority of the forms of corruption were found to have negative impacts on firms financial performance hence a typical approach using only a dummy variable for bribery might not adequately evaluate the impact of bribe intensity or even ignores the negative impacts of some types of bribes on firms financial performance the findings suggest that anti corruption measures are vital for the development of the vietnamese private smes

product market reforms labour market institutions and unemployment we analyze the impact of product market competition on unemployment and wages and how this depends on labour market institutions we use differential changes in regulations across oecd countries over the 1980s and 1990s to identify the effects of competition we find that increased product market competition reduces unemployment and that it does so more in countries with labour market institutions that increase worker bargaining power the theoretical intuition is that both firms with market power and unions with bargaining power are constrained in their behaviour by the elasticity of demand in the product market we also find that the effect of increased competition on real wages is beneficial to workers but less so when they have high bargaining power intuitively real wages increase through a drop in the general price level but workers with bargaining power lose out somewhat from a reduction in the rents that they had previously captured

productivity shocks and real business cycles abstract productivity shocks play a central role in real business cycles as an exogenous impulse to macroeconomic activity however measured solow prescott residuals do not behave as an exogenous impulse rather econometric evidence provided in this paper indicates that 1 money interest rates and government spending granger cause these impulses and 2 a substantial component of the variance of these impulses between one quarter and one half is attributable to variations in aggregate demand these results are robust to a number of econometric issues including measurement errors specification of the production function and certain forms of omitted real variables

raw materials profits and the productivity slowdown a factor price frontier framework is used to clarify the analogy of an increase decrease in raw material prices with autonomous technological regress progress factor price profiles are estimated for the manufacturing sector of the united states the united kingdom germany and japan the production model in conjunction with estimates obtained from the factor price frontier attributes much of the slowdown in manufacturing productivity to the rise in relative raw material prices part of the apparent productivity riddle may have to do with the use of double deflated national accounting measures of value added which have an inherent measurement bias

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

international dimensions of optimal monetary policy abstract this paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities an inward looking policy of domestic price stabilization is not optimal when firms markups are exposed to currency fluctuations such a policy raises exchange rate volatility leading foreign exporters to charge higher prices vis a vis increased uncertainty in the export market as higher import prices reduce the purchasing power of domestic consumers optimal monetary rules trade off a larger domestic output gap against lower consumer prices optimal rules in a world nash equilibrium lead to less exchange rate volatility relative to both inward looking rules and discretionary policies even when the latter do not suffer from any inflationary or deflationary bias gains from international monetary cooperation are related in a non monotonic way to the degree of exchange rate pass through

the impact of grain self sufficiency regime on regional welfare and agricultural productivity in china the nineties agricultural reforms in china that were aimed at deregulating the agricultural market eventually resulted in a huge drop in agricultural production and a high rate of inflation in agricultural input prices this apparently motivated the government to introduce the grain self sufficiency regime in 1998 we examine how and to what extent this reform affected the productivity and welfare of grain farmers in china at the regional level we find that the price regulations that destroyed the incentive to exert more effort adversely affected the growth in agricultural productivity but contributed to the growth in farmers welfare although the price regulations resulted in short term improvement in welfare across all the regions in the long run such regulations can potentially result in larger drop in agricultural production because of its negative impact on the incentives to produce more

the rise and decline of rent seeking activity in the brazilian coffee sector lessons from the imposition and removal of coffee export quotas summary brazil the world s largest coffee exporter encouraged efforts in the 1960s to form the international coffee agreement ica which restricted total coffee exports via country export quotas the quotas led to significant domestic quota rents in producing countries this paper analyzes the effects of rent seeking in brazil the brazilian institute of coffee ibc which was responsible for coffee policy was the focus of rent seeking the paper models the policy instruments used by the ibc shows how rent seeking affected policy industry efficiency and the distribution of rents explains the causes and effects of ibc reforms in the late 1980s and draws lessons from the experience

accounting for u s real exchange rate changes this study measures the proportion of u s real exchange rate movements that can be accounted for by movements in the relative prices of nontraded goods the decomposition is done at all possible h

the welfare effect of international asset market integration under nominal rigidities abstract this paper assesses the impact of integrating international asset markets when segmented markets are not the only distortion using a two country general equilibrium model with nominal rigidities and monetary shocks we show that integration is not universally beneficial instead the welfare impact depends on the degree to which exchange rate fluctuations are passed through to consumer prices while the integration is welfare neutral in the polar cases of complete or zero pass through this is not the case when pass through is partial when shocks are equally volatile in both countries integration can be detrimental or beneficial depending on the degree of pass through when shocks are more volatile in one country it benefits from integration compared with the more stable country

implausible results or implausible data anomalies in the construction of value added data and implications for estimates of price cost markups in a recent article in this journal robert hall 1988 argued that many american industries charge prices well above marginal costs suggesting either that firms fail to maximize profits or that the possession of substantial market power by firms is the rule rather than the exception hall found price exceeding marginal cost not only in manufacturing where high concentration and the plausible existence of important economies of scale suggest the importance of market power but in relatively unconcentrated nonmanufacturing industries as well subsequent research has confirmed hall s claim that price exceeds marginal cost in u s manufacturing industries domowitz hubbard and petersen 1988 applied hall s method to a more detailed and complete manufacturing data set and rejected the null of price equal to marginal cost at high levels of significance hall however analyzes nonmanufacturing industries as well since theories of the causes of markups can be tested more easily with a larger sample of industries and since further work to uncover the determinants and welfare effects of the market power apparently possessed by u s firms would

government spending composition technical change and wage inequality in this paper we argue that government spending played a significant role in stimulating the wave of innovation that hit the u s economy in the late 1970s and in the 1980s as well as the simultaneous increase in inequality and in education attainments since the late 1970s u s policymakers began targeting commercial innovations more directly and explicitly we focus on the shift in the composition of public demand toward high tech goods which by increasing the market size of innovative firms functions as a de facto innovation policy tool we build a quality ladders non scale growth model with heterogeneous industries and endogenous supply of skills and show that an increase in the technological content of public spending stimulates r d raises the wage of skilled workers and at the same time stimulates human capital accumulation a calibrated version of the model suggests that government policy explains between 12 and 15 of the observed increase in wage inequality in the period 1976 1991 jel e62 j31 o33 o41

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research