government deficits the real interest rate and ldc debt on global crowding out abstract the paper uses a three regions model of global saving investment balance to present a global crowding out interpretation of present economic trends the model builds on data which point to a possible shortage of savings explosive growth of social expenditures structural public sector deficit in north and south changes of the age pyramid real wage rigidity in many industrial countries

the emergence of iran in the world car industry an estimation of its export potential in the past 10 years iran has been emerging as a major car producer in the world however due to delays in economic reforms iranian car exports have not increased as much as production this paper presents a first estimation of the iranian export potential in the car industry based on new theoretical developments of the gravity equation an empirical bilateral trade model is proposed it includes sectoral variables car production import tariffs as well as other original variables such as expectations and hysteresis we then develop a dataset which includes the 40 major car exporting countries in the world 34 importing countries a 10 year time period as well as four car production groups the model is then estimated by using alternative panel data estimators such as those of hausman and taylor and dynamic estimators as well as transformed variables estimators export potential is finally calculated from the residuals of the model results show that iranian current car exports are about 100 times less than their fitted values this indicates that there is a significant export potential for iran especially toward india china russia as well as smaller neighbours turkey pakistan central asian countries as a result iran could become the major auto supplier in the middle east however this requires the completion and success of ongoing economic reforms

consumer demand and equilibrium unemployment in a working model of the customer market incentive wage economy though not conceived as a constant the natural unemployment rate was taken to be invariant to supply shocks until the late seventies and to real demand shocks until now the largely micro theoretic model here is one in a series deriving the natural rate path from general equilibrium in this model the labor market exhibits generalized real wage rigidity resulting from the use of incentive wages to combat shirking and the asset backing shares is the firms customers arising from customer market friction one finding is that increased consumer demand drives up the natural rate by driving real interest rates up

effects of productivity total domestic product demand and incentive wages on unemployment in a non monetary customer market model of the small open economy a small open economy is studied where the labor market exhibits job rationing owing to the elevated wage induced by the shirking problem with the world product market neoclassical a bad national productivity shock reduces employment and the real wage even in the short run a demand shock is undefined for a country too small to affect price nonnegligibly with the world a customer market employment may rise with the domestic productivity shock before it falls increased foreign demand raises both employment and the relative world price but it does not follow that a general increase of demand raises world employment

an econometric view on the estimation of gravity models and the calculation of trade potentials this paper presents an ar 1 model in the spirit of hausman and taylor zero differences between actual and in sample predicted trade flows large systematic differences between observed and in sample predicted trade flows only indicate model misspecification and econometric problems out of sample predictions make sense if countries of interest are in an early stage of the transformation process the gravity model remains an interesting tool for the calculation of counterfactuals e g the impact of catching up in gdp per capita in the ceec or of the reduction of trade costs via infrastructure investments or tariffs on bilateral trade etc for this line of research the difference between short term and long term influences could provide interesting insights

intra national versus international trade in the european union why do national borders matter the first objective of this paper is to estimate border effects among european union countries in this context the specification of the gravity equation together with the choice of the distance measure are shown to be crucial for assessing the size of the border effect the second objective is to evaluate the determinants of the cross commodity variation in national border effects contrary to previous findings reported in the literature we show that trade barriers do provide an explanation in particular technical barriers to trade together with product specific information costs increase border effects whereas non tariff barriers are not significant our results further suggest that these barriers are not the only cause since the spatial clustering of firms is also found to matter

towards a new trade policy between the usa and middle east countries estimating trade resistance and export potential at the time of the conclusion of free trade areas ftas between the usa and middle east and north african mena countries there is a lack of literature concerning the measurement of the current us export position with regards to these countries and the us export potential in this area from recent developments of gravity models this paper derives an estimable equation which includes various trade resistance variables notably border effects multilateral resistance as well as specific bilateral effects the model is tested in order to scrutinise the impact of these variables on us exports to mena countries as well as the us export potential in this area to that end a selection of panel data specifications is proposed mainly hausman and taylor models as well as arellano and bond dynamic models results unambiguously indicate that as compared to the other oecd countries the usa suffers from a substantial trade integration deficit with mena countries this is reflected by the strongly negative values of the us mena bilateral fixed effects as well as the high bilateral border effects in addition the estimated actual potential us export ratio to these countries is only 0 76 therefore implementing an fta between the usa and mena countries may allow the former to progressively improve its export position in this area this would also help mena countries diversify their supplying sources

the excess sensitivity of layoffs and quits to demand excessive layoffs in bad times and excessive quits in good times both stem from the same weakness in practical employment arrangements the specific nature of worker firm relations creates a situat

persistent trade effects of large exchange rate shocks this paper presents a theoretical basis for the argument that large exchange rate shocks such as the 1980s dollar cycle may have persistent effects on trade flows and the equilibrium exchange rate itself we begin with a partial equilibrium model in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level then we develop a simple model of the feedback from hysteresis in trade to the exchange rate itself here we see that a large capital inflow which leads to an initial appreciation can result in a persistent reduction in the exchange rate consistent with trade balance

alternative hypotheses and the volume of trade the gravity equation and the extent of specialization we examine why the gravity equation works and the implications for its use first we demonstrate that the gravity equation as a statistical relationship can be generated from a model with incomplete specialization and trade costs second we analyse the predominance of zero bilateral trade values as a puzzle broadly inconsistent with the complete specialization models typically used to derive the gravity equation but consistent with the alternative hypothesis of incomplete specialization third we demonstrate that the explanation for why the gravity equation works has considerable relevance for how the gravity equation is interpreted and used and how we view bilateral trade diverses hypotheses et le volume du commerce l equation de gravite et le degre de specialisation les auteurs examinent comment fonctionne l equation de gravite et les implications de son usage on propose trois contributions d abord on montre que l equation de gravite en tant que relation statistique et non pas en tant que prediction specifique de commerce bilateral peut etre produite a partir d un modele avec specialisation incomplete et couts de transaction ensuite on analyse la predominance de valeurs zero dans les commerces bilateraux en tant qu enigme generalement incompatible avec les modeles de specialisation complete utilises habituellement pour deriver l equation de gravite mais compatible avec l hypothese de rechange de specialisation incomplete enfin on montre que les raisons pour lesquelles l equation de gravite fonctionne ont un impact sur la facon de l interpreter et de l utiliser et sur notre facon de concevoir le commerce bilateral

trade as the engine of growth in developing countries revisited economic growth in developed countries since the mid 1970s the only way to keep the engine of ldc growth beating at a satisfactory rate so the argument goes is to turn to an alternative source of fuel this lewis argues lies in trade among the developing countries which he asserts can take up the slack left by mdcs more developed countries as mdcs slow down 1980 p 560 pessimism about demand for ldc exports in developed countries markets is a recurrent theme in the development literature also familiar is the approach taken by lewis to dismiss past successes of ldcs in world trade by declaring the alleged engine of past growth to be no longer operating satisfactorily the intellectual foundations of the import substitution strategy laid in the 1950s by prebisch myrdal and most importantly nurkse rested on similar grounds arguing that the demand for periphery countries exports in the 20th century is far weaker than it was in the 19th century trade was dismissed as an engine of growth a function nurkse alleged it had served in the 19th century the solution prescribed in the 1950s was to look inward in effect to scrap the trade engine altogether lewis remedy coming two decades later when most importsubstitution possibilities in many ldcs have been all but exhausted retains the trade engine but seeks an alternative source of fuel to drive it the classic critique by irving kravis 1970 of nurkse s thesis of trade as a faltering engine of growth showed that export expansion did not serve in the nineteenth century to differentiate successful from unsuccessful countries p 850 this followed from two findings first that successful 19th century countries showed few signs of export dominated growth second that unsuccessful periphery countries enjoyed export expansion in the second half of the 19th century of the same order of magnitude as the temperate regions of recent settlement this led kravis to conclude that a more warranted metaphor

savings investment and foreign capital flows have capital markets become more integrated how mobile is capital across countries does the expansion of world financial markets in the 1970s and 1980s reflect a tendency towards one integrated world capital market accessible for both industrialised and developing countries or alternatively are savings and investment rates for each economy closely tied because of international capital market imperfections this article critically assesses recent studies that have tested these hypotheses empirically for industrialised countries presents new evidence and expands data analysis to include the group of developing countries contrary to recent studies it is concluded that across industrialised countries domestic investment and savings are now much less closely linked than in the 1960s but the larger capital market integration does not extend to the group of developing countries despite their increased use of funds from international financial markets to finance domestic investment the exploratory nature of the data analysis only permits to draw s

reassessing the government s discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility abstract the paper reexamines the government s discount rate policy in the context of new evidence on international capital mobility the relationship between deficits and interest rates the relationship between consumer interest rates and the consumer s rate of time preference and intergenerational compensation it concludes that the approximate discount rate for government decisions will differ depending on the policy problem and that the government s borrowing rate is appropriate in some cases and in others the private rate should be used for long term policies the benefit cost rationale for discounting breaks down and must be reestablished on principles incorporating intergenerational equity

measuring internal trade distances a new method applied to estimate provincial border effects in canada in this paper we suggest an improved methodology for comparing the intensity of trade across and within national and provincial boundaries earlier efforts to assess border effects for provinces or for countries without internal trade statistics made fairly arbitrary assumptions about average distances for internal trade flows we improve on earlier efforts by taking more complete account of the distribution of population within each province or country internal distance is estimated as a population weighted average of intra city and intercity distances as well as distances to and within rural areas we find higher estimates of internal distances and hence border effects than found in previous studies

explaining the volume of north south trade much of the recent literature on scale economies has been motivated by the large volume of trade among the industrialized countries relative to north south trade this paper presents theoretical and empirical analyses of two alternative hypotheses one based on differences in north versus south gnp and one based on higher protection levels in the south counter factual experiments using a numerical general equilibrium model support the hypotheses that north south trade is relatively small because the south is poor and highly protected copyright 1990 by royal economic society

why real interest rates were so low in the 1970 s the economic turmoil of the 1970 s resulted in record postwar increases in inflation unemployment and nominal interest rates yet it was declines that were hardest to explain the average real value of a share of common stock plummeted productivity growth evaporated real interest rates measured as the spread between nominal interest rates and the inflation rate turned negative see table 1 over the past decade an explosion has occurred in the amount of attention paid to the relationship between nominal and thus real interest rates and expected inflation rates a good deal of this effort has been directed toward empirical analysis of the fisher neutrality hypothesis that nominal rates respond one for one with expected inflation rates most empirical tests of the fisher hypothesis have been bivariate interest rates were regressed on a constant and on actual or expected inflation measures estimates of the impact of inflation on interest rates in these and even in extended models are often significantly below one are often statistically imprecise and tend to be unstable over time the middle column of table i reflects this the coefficient of inflation on nominal interest rates there drops from 0 78 to 0 59 in the latter 1970 s another branch of work on nominal interest rates has concentrated on the institutional impediments to the fisher hypothesis robert mundell and james tobin demonstrate that nominal rates change by a smaller amount than the expected inflation rate does when a real balance effect exists and money pays no interest michael darby and martin feldstein on the other hand argue that nominal rates should exhibit a greater thanunity response to expected inflation due to the nature of u s income tax laws 2 here i estimate the relation between interest rates expected inflation and real forces such estimates are required for evaluating the effects of inflation on saving investment the distribution of income and the redistribution of wealth to generate estimates of the net impact of these various factors on interest rates and to avoid the identification and simultaneity problems masked but not often remedied by instrumental variables techniques i employ only exogenous regressors to buttress the argument i examine the individual links in the chain which are summarized in the reduced form the novel aspect of the model presented in section i is its addition of aggregate supply shocks to the determination of interest rates i trace the reduction in the supply of complementary factor inputs in the 1970 s to a decline in the demand for capital and therefore in real interest rates the inclusion of this supply force along with expected inflation allows one to distinguish between two offsetting effects on interest rates the depressing effect on real rates through lower investment demand and the elevating effect on nominal rates of higher expected inflation the results in section ii not only strongly support the economic and statistical importance of supply shocks on real interest rates but also resolve some longstanding interest rate puzzles allowing for the impact of factor supply produces a significant estimated response to expected inflation for a sample that ends prior to late 1960 s the magnitude assistant professor school of business administration university of california berkeley i would like to thank george akerlof robert j gordon robert a meyer joe peek janet yellen the members of the economic analysis and policy seminar at berkeley participants at the nber conference on inflation and financial markets and anonymous referees for helpful comments data resources supplied data and computational services financial support was provided by the berkeley program in finance and nsf grant ses8109093 linda pacheco supplied able research assistance errors of omission or commission are my responsibility see william gibson david pyle john carlson and thomas cargill and robert meyer 2maurice levi and john makin derive the reducedform effect of expected inflation on nominal interest rates as a function of the structural parameters

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

intertemporal incentives under loss aversion this paper studies the intertemporal allocation of incentives in a repeated moral hazard model with reference dependent preferences as in k oszegi and rabin 2009 besides consumption utility the agent experiences utility from the change in his beliefs about present and future eort and income when eort plans are rational the prospect of being disappointed by the outcome realization equals that of being pleasantly surprised and hence the loss averse agent is on net hurt by news in contrast to the prediction with classical preferences but consistent with real world contracts if consumption utility is not too concave and news about present income carries suciently larger weight in utility than news about future income a contract setting a current

national borders and international trade evidence from the european union in this paper the impact of national borders on international trade within the european union is considered using a gravity model i find that averaged over all eu countries intranational trade is about ten times as high as international trade with an eu partner country of similar size and distance this relatively strong home bias suggests that even within the european union national borders still have a decisive impact on trade patterns jel classification f02 f14 f15 o52 ce memoire examine l impact des frontieres nationales sur le commerce international a l interieur de l union europeenne on montre que en moyenne pour tous les pays de l union europeenne le commerce intranational est a peu pres dix fois plus important que le commerce international avec un pays partenaire de l union europeenne de meme taille et a meme distance ce degre relativement important de preference nationale suggere que meme dans le cadre de l union europeenne les frontieres nationales ont encore un impact determinant sur les patterns de commerce

the social efficiency of fixed wages this paper analyzes a model in which fixed wages and layoffs may be the most efficient way to organize employment contracts when wages fluctuate to reallocate labor among firms workers must make costly decisions and may undertake excessive search in contrast if all firms reallocate labor with layoffs and new hires at fixed wages only those workers laid off will have decisions to make the lower decision costs of the fixed wage contract may more than compensate for the resource cost of the unemployment it causes a novel feature of the model is the result that the socially optimal contract when chosen by all firms may not be the privately optimal contract