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on Post Keynesian Economics |
| By: | Jesus Felipe; J. S. L. Mc Combie |
| Abstract: | This paper provides evidence of a problem with the influential testing and assessment of Solow's (1956) growth model proposed by Mankiw et al (1992). It is shown that when the assumption of a common rate of technical progress is relaxed in the neoclassical model, the goodness of fit of Mankiw et al's equation improves dramatically. However, and more inportantly, it is shown that this result, as well as the magnitude of estimates obtained, merely reflects a statistical artifact. This has serious implications for the possibility of actually testing Solow's growth model. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2004-09&r=pke |
| By: | Jesus Felipe; J. S. L. McCombie |
| Abstract: | This paper considers the implications of the conceptual difference between the rental price of capital, embedded in the neoclassical cost identity (output equals the cost of labour plus the cost of capital), and used in growth accounting studies; and the profit rate, which can be derived from the national income and product accounts (NIPA). The neoclassical identity is a "virtual" identity in that it depends on a series of assumptions (constant returns to scale and perfectly competitive factor markets). The income side of the NIPA also provides an accounting identity for output as the sum of the wage bill plus the surplus. This identity, however, is a "real" one, in the sense that it does not depend on any assumptions and thus it holds always. It is shown that because the neoclassical cost identity and the income accounting identity according to the NIPA are formally equivalent expressions, estimations of aggregate production functions and growth accounting studies are tautologies. Likewise, the test of the hypothesis of competitive markets using Hall's (1988) framework gives rise to a null hypothesis that cannot be rejected statistically. |
| JEL: | O47 E22 E25 B41 |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2004-10&r=pke |
| By: | Jesus Felipe; J. S. L. McCombie |
| Abstract: | This paper addresses the question of whether or not a theory of total factor productivity (TFP) is needed in order to explain the documented large per capita income differences across countries. As the argument that it is needed has been reached by calculating TFP empirically, we show that the way the estimates of TFP have been computed is not an innocuous issue. To prove our point, we discuss how two well-known textbooks on growth theory present the arguments and the problems associated with these expositions. We conclude that the tautological nature of the estimates of TFP lies at the heart of an important question that the empirical literature on economic growth has been dealing with during current years. Hence, our arguments cast doubt on the need for a theory of TFP. |
| JEL: | O11 O16 O47 O53 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2004-12&r=pke |
| By: | Jesus Felipe |
| Abstract: | This paper shows that unit labor costs (ulcs), the most widely used measure of competitiveness, can be interpreted as the labor share in output multiplied by a price-adjustment factor. This has three main implications. First, ulcs are not just a technical concept since they embody the social relations that affect the distribution of income between the social classes. Secondly, lower ulcs should not necessarily be interpreted as implying that an economy is more competitive, ie, that it will grow faster, and vice versa. In wage-led growth economies, an increase in the wage share leads to an increase in the equilibrium capacity utilization rate, which leads to an increase in the growth rate of the capital stock. Hence it is possible to find that the countries with fast-growing ulcs are the ones registering faster growth in exports or in GDP. Once one analyzes ulcs taking into account their functional distribution dimension, "Kaldor's paradox" ceases to be an anomalous result. Finally, one can define the concept of unit capital cost as a measure of competitiveness and shift the burden of lack of growth or loss of market share to capital. |
| JEL: | E25 F02 O47 O53 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-06&r=pke |
| By: | Carolina Castaldi; Giovanni Dosi |
| Abstract: | - |
| Keywords: | Path dependence, irreversibility, increasing returns, learning, lock-in. |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2003/02&r=pke |
| By: | Raghbendra Jha |
| Abstract: | This paper argues that both from an efficiency point of view (maintaining support for an economic reform promising rapid economic growth) and an equity viewpoint (shielding the poor from the worst effects of a downturn) it is important to append a pro-poor fiscal policy to an economic stabilization program. The paper outlines the basic contours of such a strategy and argues that although the fiscal deficit in many developing countries appears to be unsustainable, a policy package involving tax and expenditure reforms when the economy is not in crisis can help reduce the risk from high fiscal deficits. Furthermore, such tax and expenditure reforms can also be fine tuned to help the poor. The paper also discusses policy measures to shield the poor in anticipation of a downturn and also the contours of a pro-ppor fiscal adjustment once it becomes necessary to have macroeconomic adjustment. Given the wide heterogeneity among developing countries, the paper makes policy prescriptions for specific contexts and countries. Finally, the paper considers some policy measures that can be taken at the international level to provide support to developing countries in their efforts to make pro-poor adjustment feasible. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2004-08&r=pke |
| By: | Dan Ariely; George Loewenstein; Drazen Prelec |
| Abstract: | This paper challenges the common assumption that economic agents know their tastes. After reviewing previous research showing that valuation of ordinary products and experiences can be manipulated by non-normative cues, we present three studies showing that in some cases people do not even have a pre-existing sense of whether an experience is good or bad – even when they have experienced a sample of it. |
| Keywords: | Microeconomics |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:05-10&r=pke |
| By: | Philippe Martin; Hélène Rey |
| Abstract: | This paper develops a theory of financial crisis based on the demand side of the economy. We analyze the impact of financial and trade globalizations on asset prices, investment and the possibility of self-fulfilling financial crashes. In a two-country model, we show that financial and trade globalizations have different effects on asset prices, investment and income in the emerging market and in the industrialized country. Whereas trade globalization always has a positive effect on the emerging market, financial globalization may not, especially when trade costs are high. For intermediate levels of financial transaction costs and high levels of trade costs, pessimistic expectations can be self-fulfilling and may lead to a collapse in demand for goods and assets of the emerging market. Such a crash in asset prices is accompanied by a current account reversal, a drop in income and investment and more market incompleteness. We show that countries with lower income are more prone to such demand-based financial crashes. Our model can replicate the main stylized facts of financial crashes in emerging markets. Our results strongly suggest that emerging markets should liberalize trade in goods before trade in assets. |
| JEL: | F3 F4 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11550&r=pke |