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Applying Burgstaller's Ricardian two-sector growth model to the two-country open economy, this paper shows that the long-run Heckscher–Ohlin theorem holds also in a Ricardian world. In addition it is shown that, if two Ricardian countries that are different only in their demand parameters open trade, comparative advantage and the corresponding trade pattern at trade opening continue in the long run after the opening of trade. [ABSTRACT FROM AUTHOR]

This paper revisits the UK productivity puzzle using new data on outputs and inputs and clarifying the role of output mismeasurement, input growth and industry effects. Our data indicate an implied labour productivity gap of 13 percentage points in 2011 relative to the productivity level on pre‐recession trends. We find that: (a) the labour productivity puzzle is a TFP puzzle, since it is not explained by the contributions of labour or capital services; (b) the reallocation of labour between industries deepens rather than explains the puzzle (i.e. there has been a reallocation of hours away from low‐productivity industries and toward high productivity industries); (c) capitalization of R&D does not explain the productivity puzzle; (d) assuming increased scrapping rates since the recession, a 25% (50%) increase in depreciation rates post‐2009 can potentially explain 15% (31%) of the productivity puzzle; (e) industry data show that 35% of the TFP puzzle can be explained by weak TFP growth in the oil & gas and finance sectors; and (f) cyclical effects via factor utilization could potentially explain 17% of the productivity puzzle. Continued weakness in finance would suggest a future lowering of TFP growth to around 0.8% p.a. from a baseline of 0.9% p.a. [ABSTRACT FROM AUTHOR]

This paper studies the effectiveness of debt relief to stimulate economic growth in the most heavily indebted poor countries. We develop a neoclassical framework with a conflict of interest between the altruistic donor and the recipient government, and model conditionality as an imperfectly enforceable dynamic contract. In contrast to the recent practice of fully cancelling debt, optimal incentive‐compatible conditionality is accompanied by a concessionality level that implies a combination of subsidized loans and outright grants. The optimal concessionality level depends on the recipient's access to international financial markets and on the strength of the conflict of interest. Incentive‐compatible transfers with optimal concessionality levels generate substantial welfare gains. If the donor does not implement the optimal concessionality level and provides subsidized loans only, then the effectiveness of transfers decreases in the long run with severe welfare implications. In contrast, transfers are less effective in the short run if the donor offers outright grants only. [ABSTRACT FROM AUTHOR]

Empirical evidence is scarce on whether firms set profit‐maximizing prices, as these typically depend delicately on details of difficult‐to‐observe strategic interactions. To avoid this problem, this paper provides a detailed case study of the Swedish Tobacco Monopoly's pricing with data from 1916 to 1959. Prices are found to be below those that maximize the expected net present value of profits. However, the difference between actual and optimal price diminishes over time, and towards the end of the period the two are almost indistinguishable. The net present value of actual profits is approximately 60% of what could have been obtained. Overall, the pricing patterns appear more consistent with the firm learning about demand conditions than being the result of maximization of something other than profits. [ABSTRACT FROM AUTHOR]

This paper evaluates the impact of water sector privatization in Colombia on access, price and water quality, as well as health outcomes using differences-in-differences methodology. The main findings of the impact of water privatization are: (i) an improvement in the quality of water and an increase in the frequency of the service in privatized urban municipalities for the lower quintiles; (ii) a positive effect on health outcomes in both urban and rural areas; (iii) a negative effect on payment for the lower quintiles; and (iv) strong negative effects on access to water in rural areas. Some of these effects appear in municipalities with better technical capacity. [ABSTRACT FROM AUTHOR]

The economics literature typically uses counts of casualties as a measure of conflict intensity despite the fact that the units of observation vary considerably in population size. When analysing the impact of conflict on economic growth, the use of counts relies on the assumption that a given number of casualties affects large and small populations in the same way. Using within- and between-country evidence, this paper demonstrates that this standard assumption can be rejected. A per capita model of conflict intensity that captures local effects of violence provides a more consistent empirical framework for both between-country and within-country studies. [ABSTRACT FROM AUTHOR]

This paper uses an instrumental variables approach to estimate the relationship between trade openness and economic growth in Sub-Saharan Africa. Instrumental variables estimates show that economic growth has a significant negative contemporaneous effect on trade openness, while trade openness has a significant positive effect on economic growth. A 1 percentage point increase in the ratio of trade over GDP is associated with a short-run increase in growth of approximately 0.5% in a given year; the cumulative long-run effect on the level of GDP per capita is larger, reaching about 2%. [ABSTRACT FROM AUTHOR]

This paper examines the effect of humanitarian aid on fertility and economic growth. In an overlapping generations model, where health status in adulthood depends on health in childhood, adult agents allocate their time to work, leisure and childrearing activities. Humanitarian aid influences the probability of survival to adulthood, health in childhood, and the time that adults allocate to childrearing, giving rise to an ambiguous effect on both fertility and growth. An empirical investigation for the period 1973-2007 suggests that humanitarian aid has on average a zero effect on the rates of fertility and of per capita output growth. [ABSTRACT FROM AUTHOR]

Robbins argues that the fundamental propositions of microeconomic theory are deductions from the assumption that individuals act on consistent preferences; this ‘indisputable fact of experience’ does not need to be validated in controlled experiments. While recognising that some neoclassical pioneers based the theory on psychological hedonism, Robbins claims that his own approach of ‘pure theory’ belongs to a parallel and sounder tradition exemplified by Menger and Wicksteed. This paper argues that Robbins' methodological defence of pure theory is incoherent, and that his claim to find an intellectual lineage in the works of Menger and Wicksteed overlooks important discontinuities. [ABSTRACT FROM AUTHOR]

This paper examines Lionel Robbins' critical attitude towards formal empirical work from the standpoint of modern econometrics. It argues that his attitude towards empirical work rested on indefensible assumptions and that he failed to realise that the role he saw for empirical work undermined his belief in the primacy of economic theory. This matters because Robbins' attitudes are echoed in modern economics, best exemplified by the calibration methodology of Kydland and Prescott, which is vulnerable to similar criticisms. [ABSTRACT FROM AUTHOR]

In a monetary version of the Uzawa (1965)-Lucas (1988) model of endogenous growth, this paper illustrates how a credible policy of rapid disinflation can induce temporary declines in employment and output, with the former exhibiting a significant degree of persistance; however, these temporary declines in employment and output are not associated with any nominal rigidities in the economy, and therefore do not represent dead-weight losses that occur along the transition path, but are instead a part of an optimal response to the policy change. The measured welfare benefits of disinflation are seen to be higher when the transition path is taken into account. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to model the role of trade dependency in determining the access of a developing economy to the international credit market, and its desirable growth strategy. With full integration of capital markets, the choice with respect to the inwardness of a technology is irrelevant; investment will be channeled to the more productive sectors, independently of their trade inwardness. With limited capital market integration, a given investment will generate two effects. The first is the standard, direct productivity effect that is associated with the change in future output. The second is the trade dependency externality, generated by the change in future bargaining outcomes arising from the change in the trade dependency of the nation. With partial integration, investment that increases trade dependency is desirable. If the credit markets are disjoint owing to partial defaults, greater trade dependency is disadvantageous. Thus, greater trade dependency generates a positive externality with partial integration of capital markets, and a negative externality with disjoint credit markets. We show that credit market integration is determined by the size of the indebtedness relative to the trade dependency, as reflected by the repayment burden that is supported by the bargaining outcome. The repayment bargaining outcome is determined by the sectoral composition of the economy and by the effective size of the developing and the developed economies. [ABSTRACT FROM AUTHOR]

The paper formally integrates Ricardo's two-sector growth model with his theory of comparative advantage. Differences with conventional representations of Ricardian trade theory, as well as with Heckscher-Ohlin-Samuelson theory, are noted. It is shown that the Ricardian equilibrium terms of trade are fully determinate, as against the standard Millian view. Also, trade may, depending on direction of specialization, inhibit rather than promote growth and lead to a net contraction of the world economy. [ABSTRACT FROM AUTHOR]

The aim of this paper is to re-appraise the significance of the "real" as distinct from the "monetary" aspect of Smith's international trade theory. It will be argued that Smith's theory of foreign trade is so closely interwoven with his theory of domestic economic development that the two have to be considered together. This means that Smith's trade theory should not be treated simply as a static cross-section analysis of the existing pattern of trade based on the allocation of the given resources with the given productivity; rather it should be considered as an attempt to study the longer-run mutual interaction between foreign trade and domestic economic development, essentially involving an increase in the total volume of the resources and a rise in their productivity. [ABSTRACT FROM AUTHOR]

This article investigates the role of anticipated monetary growth in economic growth. The common feature of endogenous growth is that the engine of growth comes from the model itself rather than from exogenous technical progress or population growth. Such an innovation contributes to understanding of the role of economic policies in influencing the rate of economic growth. The key factor in determining adjustment patterns of the economy to anticipated monetary changes is the degree of relative risk aversion. However, changes in the rate of monetary growth do not affect the rate of long-run growth regardless of the degree of relative risk aversion. Through employing the channel where a reduction in real balances arising from an increase in the rate of monetary growth raises transaction time, they establish a negative correlation between inflation and the long-run growth rate. In contrast to the aforesaid literature on money and endogenous growth, with its emphasis on the role of an unanticipated monetary policy, this paper makes a first attempt to examine the long run and transitional responses of the rate of economic growth to an anticipated permanent increase in the money growth rate.

We develop an augmented Olley-Pakes (OP) decomposition that allows us to examine how entering and exiting firms contribute to the popular OP covariance measure of allocative efficiency. Applying the decomposition to a comprehensive micro-level data, we find that a large part of the OP covariance component can be attributed to entrants and exiting firms. We also build a model of firm dynamics that is consistent with our main empirical results. In the model economy, the standard OP covariance component tends to increase with certain type of distortions because of endogenous changes in firm entry and exit. [ABSTRACT FROM AUTHOR]

This article presents information on a study which examined the dynamics of business cycles in the G7 countries. To study growth over the cycle, researchers estimate single-country equations and then a pooled regression that takes into account the important interactions of international business cycles. The results confirm the steepness asymmetry of the growth cycles and show that growth varies systematically within upturns and downturns. These are consistent with the notion of deepness asymmetry which implies that contractions are more pronounced in the later stages of a downturn whereas expansions are stronger immediately after troughs. There are several explanations as to why business cycles may be asymmetric. Recent theories from the industrial organization literature have shown how exit from an industry is less costly than entry and as a result production can fall rapidly and expand only slowly. In addition, the relative ease with which a firm may cut production below full capacity when orders decline, compared with the difficulty of increasing production when capacity constraints are present, will also result in asymmetric cycles.

The wage in agriculture may be equal to the average product in agriculture, not the marginal product. Furthermore, not only may the marginal product be below the average product and hence the agricultural wage, it might even be zero, the latter being the familiar surplus labour case. In Figure 1 one might then draw an average product curve (not actually drawn) above AA'. Equilibrium would be attained at the point where the Harris-Todaro curve cuts this average product curve and hence would be at a higher level of agricultural output and lower level of urban unemployment.
One would have both income sharing in agriculture (the Lewis model) and potential income sharing in manufacturing (the Harris-Todaro model). The first, on its own, keeps too many people in the agricultural sector; the second, also on its own, draws too many people into the urban sector. Given the minimum wage situation that gives rise to the Harris-Todaro effect, income-sharing in agriculture will thus have a beneficial effect in reducing urban unemployment and increasing aggregate output.
Most of the analysis in Section I and II would remain unaltered, but the policy analysis in Section III would have to be amended. The likelihood of a gain from subsidizing labour in manufacturing will be greater (since the loss of agricultural output will be less, the agricultural marginal product being lower relative to that in manufacturing), and the extent of a gain from subsidizing labour in agriculture less. As long as the marginal product of labour in agriculture is positive and there remains some urban unemployment, the subsidization of agriculture must yield some gain, since labour will be moved out of a zero productivity pool into positive productivity employment. This conclusion must be amended if the labour would come out of the urban services sector; one must then compare marginal productivity in that sector with marginal productivity in agriculture. Furthermore, if there is surplus... [ABSTRACT FROM AUTHOR]