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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]

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]

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 examines the dynamic implications of international trade in a two-sector overlapping-generations economy with endogenous growth. It analyses the global dynamics of this model for both a closed economy and a two-country world economy. It shows how international trade can cause the world economy to sort itself out into groups of fast and slow-growing economies and can also cause one country to catch up and overtake another's growth rate. U thus provides theoretical support for empirical papers which find that the world distribution of income is diverging. [ABSTRACT FROM AUTHOR]

This paper considers an overlapping generations model of economic growth populated by two types of individuals. Competitive types compare future consumption (i.e. wealth) with the mean. Self-sufficient types derive utility simply from their own consumption and do not compare themselves with others. I derive a condition under which the utility (happiness) of both types increases when the economy is populated by a larger share of competitive types. I show that a sufficiently high share of competitive types in a society can be inevitable for long-run economic growth to exist. [ABSTRACT FROM AUTHOR]

This paper studies the relationship between geographic patterns of industry and economic growth without scale effects. Facing transport costs and imperfect knowledge diffusion, firms locate production, process innovation and product development in their lowest cost regions, leading to the partial concentration of production and full agglomeration of innovation in the region with the largest market. An increase in industry concentration raises knowledge spillovers from production to innovation, causing a fall (rise) in market entry, if labour productivity improves more for process innovation (product development). The rate of economic growth rises or falls, depending on how industry concentration affects market entry. [ABSTRACT FROM AUTHOR]

This paper studies how airports affect economic growth in US metropolitan areas. The main finding is that airport size has a positive effect on local employment, with an elasticity of 0.04. The effect appears to be mostly due to a positive effect on services employment and to be concentrated in parts of the metropolitan area nearer the airport. To further understand how an airport affects the local economy, the effects on several other variables are estimated. Airport size is found to have positive effects on the number of firms, the population size, the rate of employment, and GDP in the local area. The magnitudes of the effects on population and employment suggest that airport expansion creates jobs for both existing residents and migrants to the area. The estimation uses a novel technique to identify the effects of airport infrastructure. It applies instruments for changes in airport size that are calculated from overall changes in air traffic in a set of categories: the airlines, the types of aircraft, or the distances flown. The technique could be adapted to study the effects of other types of infrastructure. [ABSTRACT FROM AUTHOR]

Empirical evidence suggests that poorer countries have larger amounts of predation. We formulate a neoclassical growth model in which agents devote time to either produce or predate. When the elasticity of substitution between labour and capital is lower than one, the labour share rises with capital, reducing the incentive to predate and increasing the incentive to produce throughout the transition. Consequently, a feedback process between capital accumulation and predation arises, which amplifies income differences generated by differences in productivity. This paper helps to explain why differences between countries have remained stable and the key role that institutions play in development. [ABSTRACT FROM AUTHOR]

This paper is concerned with the estimation of an econometric model designed to test the Modigliani-Miller (henceforth MM) hypothesis. The primary interest is not in the theoretical validity of the hypothesis. The major sources of theoretical disagreement with Modigliani and Miller arise from the key role they impute to the arbitrage process and the effect of leverage on the expected value of the returns to equity through the increased probability of bankruptcy. These issues have occasioned a number of important contributions in recent years (see especially [2] and [23]). The first section of the paper provides a skeletal outline of the MM hypothesis and discusses the problems of formulating an appropriate econometric model. In the second section an econometric model is developed, which, while drawing on the ideas of several
1 This study is part of a continuing program of research into company financial behavior financed by a grant from the Social Science Research Council. I am indebted to Mrs. Eileen Sutcliffe of the Institute of Social and Economic Research, University of York, and Milton Chen of New York University for assistance with data collection and computer processing, and to the personnel of the SRC Atlas Computer, Chilton, the University of York Computer Center and the New York University School of Commerce Computer Center.
2 References in square brackets are listed on pp. 161-2, below.
3 In terms of the implicit aggregation procedures, the old Liquidity-Preference/ Loanable-Funds controversy has yet to be satisfactorily resolved.
different writers, has certain elements of originality in the way it seeks to incorporate growth and leverage. Finally, in the third section the results of the econometric tests are evaluated. [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]

Output growth, investment and the real interest rate in long-run evidence tend to be negatively affected by inflation. Theoretically, inflation acts as a human capital tax that decreases output growth and the real interest rate, but increases the investment rate, opposing evidence. This paper resolves this puzzle by requiring exchange for investment as well as consumption. Inflation then decreases the investment rate, and still decreases both output growth and real interest up to some moderately high rate of inflation, above which increasingly low investment finally causes capital to fall relative to labour, and the real interest rate to rise. [ABSTRACT FROM AUTHOR]

Economists frequently make judgments about economic welfare, but there is today little discussion of the foundations of welfare economics. It is assumed either that there is unanimity of interests, or that there is general acceptance of utilitarianism. This means that economics cannot address many key policy issues and that important differences in ethical views cannot be recognized. This paper argues that it is a legitimate exercise of economic analysis to examine the consequences of different ethical positions, taking case studies of employment as a macroeconomic objective, and the role of capabilities in the measurement of economic performance. [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]

This paper introduces and partially develops a new model of endogenous technological change, viewed as the product of a class of problem-solving producers. The model, based on earlier work by Eaton and Kortum, is built up from the premise that all knowledge resides in the head of some individual person and the knowledge of a firm, or economy, or any group of people is simply the knowledge of the individuals that comprise it. The model is applied to an economy with a cohort structure. A calibration of the model using cross-section earnings data, in addition to aggregate GDP growth, is considered. [ABSTRACT FROM AUTHOR]

This paper provides a framework that decomposes aggregate total factor productivity ( TFP) into a component reflecting relative efficiency across sectors, and another component that reflects the absolute level of efficiency. A development accounting analysis suggests that as much as 85% of the international variation in aggregate TFP can be attributed to variation in relative efficiency across sectors. Estimation results show that recent findings highlighting the importance of strong protection of property rights, financial development and geographical advantage for the level of TFP, can be explained by their impact on relative efficiency. [ABSTRACT FROM AUTHOR]

Data from 19 African nations is used to investigate the hypothesis that monetary union—represented in this case by the CFA Franc Zone—augments the extent of macroeconomic integration. The paper covers two key dimensions of integration: the volume of bilateral trade, and the magnitude of cross-country business cycle correlation. Restricting our attention to a part of the world in which (for historical reasons) monetary union membership is exogenous to economic characteristics, we can test whether the large single-currency effects claimed by A. Rose apply within a sample of less developed countries. [ABSTRACT FROM AUTHOR]

The paper studies the realignments induced by inflation within an endogenous growth monetary economy. Accelerating inflation raises the ratio of the real wage to the real interest rate, and so raises the use of physical capital relative to human capital across all sectors. We find cointegration evidence for the US and UK economies consistent with a general equilibrium, Tobin-type, effect of inflation on input prices and capital intensity, even while the growth rate of output is reduced by inflation. [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]

Although a number of studies published in the economic history literature discuss the development, organization and function of the London Stock Exchange, there is little quantitative evidence on how well this market functioned. This is a significant omission, since the finance literature provides a well developed set of criteria against which the performance of capital markets may be judged. In particular, the finance literature emphasizes the importance of the efficient impounding of information into market prices. So-called 'weak-form efficiency' is the least demanding version and is therefore the logical starting point. This paper reports the results of weak-form efficiency tests of the London market for 3 per cent Consols from 1821 to 1860. The tests are based on over 10,000 daily price changes, The evidence presented here is similar to that found in contemporary markets, suggesting that the market for 3 per cent Consols was efficient in the weak-form sense. From a finance perspective, this market is of interest, given the institutional differences between it and contemporary markets. From an economic history perspective, this security is of special interest, given its frequent use in economic history analyses. [ABSTRACT FROM AUTHOR]

This article presents an analysis of the dynamic effects of monetary shock on the level of output of a small and open economy. The adjustment path following monetary expansion is characterized by rising wages and prices which contribute to a rising real wage for labour as it returns to its previous long-run level, increasing output. As prices rise, the rate of inflation falls. Thus, the adjustment path is characterized by falling inflation and rising output. This analysis is significant as a contribution towards integrating modern labour market theory with exchange rate and balance of payments work. Expectations are important in the dynamic analysis of the paper. It is desirable that expectations be endogenous as they should be affected by recent and current disturbances. The domestic country is large enough in the market for the domestic good to affect its price but it is small in the market for the foreign good leaving foreign currency prices exogenous to domestic activity. Domestic wages and prices are assumed to adjust slowly to their long-run equilibrium values implying short-run disequilibrium in goods and labour markets. Output is assumed to be determined by the minimum of demand and supply.

That the extent of misuse of "scarce" capital is greater in less-developed economies than in advanced countries opens wide the question of why that should be the case. Two answers that naturally follow from the preceding analysis are (1) that distortions in the factor prices are such that they do not reflect real scarcities or (2) that perversities or rigidities in managerial response are such that production decisions do not respond to those prices. The comprehensive analysis of this subject, however, is left to a separate study. (Another issue which is not discussed has to do with the ratio of the firm's fixed to working capital. Several aspects of this subject have been examined in other contexts: Kim, 1968.)
In this paper the hypothesis that there is under-utilization of capital in less-developed economies has been defended on the basis of the sectoral output-capital ratios (Kim, 1969) and direct estimates from earlier studies (Jorgenson and Griliches, 1967; Kim and Kwon, 1973; Winston, 1971, 1974d). We now hope that, given the plausibility of the hypothesis as suggested here, others may also carry out further studies for other economies in order to measure the degree of utilization directly. [ABSTRACT FROM AUTHOR]

A random walk with drift is a good univariate representation of US GDP. This paper shows, however, that US economic downturns have been associated with predictable short-term recoveries and with changes in long-term GDP forecasts that are substantially smaller than the initial drop. To detect these predictable changes, it is important to use a multivariate time series model. We discuss reasons why univariate representations can miss key characteristics of the underlying variable such as predictability, especially during recessions. [ABSTRACT FROM AUTHOR]

In this paper we evaluate empirically the impact of fiscal policy on two key determinants of long-term growth, i.e., private investment and productivity growth. We mostly focus on a panel of 20 OECD economies from 1970 to 2009, although we also present some estimates based on data for 80 developing economies. Our findings suggest that high public debt adversely affects both aggregate investment spending and productivity growth, through distortions related to the size of the public sector. We also find weak evidence of some non-linear effects on productivity, with government debt becoming more detrimental in advanced economies when above 85-90% of GDP. [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 argues that corruption in developing countries has deep historical roots that go all the way back to their colonial experience. We substantiate our thesis with empirical evidence where the degree of European settlement during colonial times is a powerful explanatory factor of present-day corruption. Interestingly, our mechanism is different from the prevailing view in the literature on institutions and growth, where European settlement has only positive effects. We argue that European settlement leads to higher levels of corruption for all countries where Europeans remained a minority in the population, i.e. for all developing countries. [ABSTRACT FROM AUTHOR]

This paper suggests that the weak empirical effect of human capital on growth in existing cross-country studies is partly the result of an inappropriate specification that does not account for the different channels through which human capital affects growth. A systematic replication of earlier results from the literature shows that both initial levels and changes in human capital have positive growth effects, while in isolation each channel often appears insignificant. The results suggest that the effect of human capital is likely to be underestimated in empirical specifications that do not account for both channels. [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]

Much of the change in individual earnings has occurred at the top. This paper provides new evidence about the earnings distribution in the UK. The evidence is new in that it provides detail about what has happened within the top 10%, covering groups such as the top 1% and the top 0.5%. The aim is to set the recent rise in top earnings in historical perspective, and to make international comparisons. The evidence is new in that it covers the whole of the postwar period, allowing a contrast to be drawn with the 'golden age' of the 1950s. [ABSTRACT FROM AUTHOR]

We use two variants of Markov switching models to assess changes in output synchronization since the creation of the euro. Out of eight eurozone countries investigated, only one—the Netherlands—has synchronization increased since euro adoption, supporting the ‘endogenous optimal currency area’ argument of Frankel and Rose. However, in three other cases, business cycle synchronization actually fell since the euro's creation. Thus the ‘endogeneity’ of the optimal currency area criteria can go both ways—adopting a common currency may increase synchronization for nations ready for a common currency, but it can lower synchronization for nations that are far from synchronized before monetary unification. [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]

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 the effects of the expansion of the water network in urban shantytowns in Argentina. We find large reductions in the presence, frequency and severity of diarrhoea episodes among children reached by network expansions relative to a control group. Moreover, expanded connections induce savings in water expenditures, as these families are able to substitute piped water for more expensive and distant sources of water provision. These health and savings effects are also important for households that previously had clandestine self-connections to the water network, which were free but of low quality. [ABSTRACT FROM AUTHOR]

One factor limiting aid effectiveness is its volatility. We examine aid volatility in 66 countries over 1975–2004, paying particular attention to the characteristics of ‘difficult partnership countries’ and making a distinction between sector aid and total aid. We explore whether weak recipient institutions and policies are associated with greater volatility, allowing for differences in donor characteristics. Institutional quality and macroeconomic stability affect the stability of all kinds of aid, as does reliance on a small number of donors. However, the relative importance of these effects varies across different aid types. [ABSTRACT FROM AUTHOR]

The ‘theory of law and finance’ argues that the common law system provides a better framework for financial development and economic growth than the civil law tradition. This paper identifies a number of problems that cast doubt on the soundness of the empirical basis of this literature. However, this analysis supports the idea that the legal tradition is a major factor in shaping corporate law. In particular, while there is not much evidence that common law countries protect financial investors better than civil law countries I find support for the assumption that financial investors are treated differently across legal families. [ABSTRACT FROM AUTHOR]

This paper derives new results on the welfare effects of employment protection. Using data from 17 OECD countries, we show that there exists an inverse U-shape relationship between employment protection and economic growth. Using a simple theoretical model with non-contractible specific investments, we show that over some range increasing employment protection does indeed raise welfare. We also show that the optimal level of employment protection depends on other labour market features, such as the bargaining power of workers and the existence of wage rigidities like the minimum wage. [ABSTRACT FROM AUTHOR]

This paper investigates the relationship between inflation (the rate of monetary expansion) and economic growth in a monetary version of Benhabib and Farmer's (Journal of Economic Theory , 63 , 19–41, 1994) one-sector endogenous growth model, in which money reduces transaction costs or shopping time. It is shown that when labour externalities are large there may be dual steady states, one of which is indeterminate and the other is determinate, and that the Tobin effect in the growth rate sense (i.e. higher rates of inflation increase the growth rate of the economy) always emerges in either of the steady states depending on the properties of a transaction cost technology. [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 implications of variable returns to scale (VRS) have been extensively studied by trade theorists (e.g. Batra, 1968; Jones, 1968; Kemp and Negishi, 1970; and Eaton and Panagariya, 1979). It is, however, notable that virtually no efforts have been made to examine the welfare implications of growth for an open economy in the presence of VRS. The only exception is a recent study by Eaton and Panagariya (1982). They derived sufficient conditions for growth, rising either from factor accumulation or technical progress, to improve the welfare of a small country characterized by VRS.[1]
The purpose of this paper is to analyse the welfare implications of economic growth, identified specifically with Hicks-neutral technical progress, for a small as well as a large country in the presence of VRS. We obtain several alternative sufficient conditions for growth to be welfare-increasing. In addition, the effects of growth on the terms of trade in the case of a large country, as well as the effect of technical progress in both countries on the terms of trade, are examined.
We have examined the welfare implications of Hicks-neutral technical progress for a small as well as a large country characterized by variable returns to scale. For a small country, technical progress improves welfare if it occurs in the industry in which external economies are greater or external diseconomies are smaller in the two-sector model. However, technical progress occurring in the other industry need not improve welfare. It is also shown that technical progress taking place in the exportable industry necessarily results in a deterioration in the terms of trade of the home country regardless of the returns to scale in both industries. In addition, the welfare effects of Hicks-neutral technical progress are not clear-cut in the case of a large country with variable returns to scale. If e > e, an induced deterioration in the terms of trade is necessary for growth to be... [ABSTRACT FROM AUTHOR]

Technological change bias in agriculture has important effects on and is affected by other changes in an economy. labor-saving technological change, for example, enables more farm labor to migrate to the non-farm sector (Kako, 1978). A land-using bias, on the other hand, may stimulate efficiency differentiation among farm groups and lead to a rise in farm land prices (Lee 1980a), while a machinery-using bias accelerates the rate of investment in agricultural machinery. All of these affect the income distribution as well as the economic growth path of the economy.
In spite of its importance, there are relatively few empirical studies of biases in technological change. The purpose of this paper is to present, first, an empirical method of measuring technological change biases in many-factor production with an application to postwar Japanese agriculture, and then to investigate the factors that guided the evolution of biases in agriculture.
Sources of biases have been one of the critical concerns of growth economics. Relative factor prices have been asserted to be the prime motivator of biases. However, land size per farm, output price and innovation lags are also important factors affecting technological change biases. The fundamental method used here to test these hypotheses is to measure the biases in four regions among which economic variables have been different or have moved at different rates, and then to examine the relationship between the measured biases and the economic variables. Since the Japanese agriculture sector has undergone substantial technological changes in the rapid economic growth since the Second World War, it provides an ideal case study which is of considerable relevance to similar but less developed countries in Southeast Asia. [ABSTRACT FROM AUTHOR]

Assessing the determinants of Soviet postwar economic growth has proven to be an enticing but elusive pursuit. Various aggregate production function studies carried out with both official Soviet and Western data have yielded results that raise as many questions as they clarify (principally Weitzman, 1970, subsequent comments on his study, and the studies of Desai, 1976, and Gomulka, 1974). In addition to sundry interpretive difficulties of a purely technical sort, deep problems of valuation continue to obscure the analytic significance of any parametric estimation of postwar Soviet economic growth. This paper seeks to illuminate these issues by testing the CES specification of Soviet growth in adjusted factor cost prices, which more closely approximate the neoclassical opportunity cost norm than do valuation schema employed in previous studies. A two-step estimation technique is utilized for estimation purposes, the results of which reveal that the rate of neutral technical change has been greater, and the degree of capital utilization less, than formerly supposed, while the elasticity of substitution remains essentially unchanged from the already low estimates reported by others for this important parameter. Moreover, in the broader perspective of Soviet economic development, our analysis suggests that the Soviets may be more firmly shackled to their traditional growth model than recent scholarly speculation indicates. Before proceeding to a detailed consideration of postwar Soviet growth valued in adjusted factor cost prices, however, fundamental problems of aggregation raised by the peculiar nature of Soviet price formation must be addressed. [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]

Paul Samuelson [5] [6] and Peter Diamond [2] have developed growth models in which the attempt by each economic unit to maximize its utility does not lead to a social optimum. It would be possible for all generations to consume more per capita, if economic growth were directed by an omniscient social planner. Their models are free from the usual sources of inefficiency encountered in price theory. They explicitly assume perfect competition, perfect foresight and no external economies or diseconomies. The purpose of this paper is to introduce government institutions which may have little foresight, which will not engage in central planning or use direct controls but whose existence will guarantee that the equilibrium solution will be optimal. I am interested in determining the minimal amount of government which is sufficient to produce long-run optimality.
Diamond's long-run ratio of capital to labor k (in Figure 1) could yield an interest rate above or below the growth rate. Capital at time t+1 is equal to current savings of workers which depend upon the current wage W[k(t)]. This wage was determined by the savings of the previous generation of workers and the size of the current labor force. No saver has an influence on his wage, which determines the present value of his consumption, since he has no effect upon the current stock of capital. His saving decision affects both his retirement income and the next generation's stock of capital. Only the retirement income, however, concerns him. He has no interest in the real wage of the next generation of workers. If he values current consumption highly, he will 1 r=(1+n)/(1-)(1-) in his model [2].
save little and the resulting interest rate next period will be "high". On the other hand, if he values future consumption highly, he will save a lot and the resulting interest rate will be "low" in the next period. There is no reason why the equilibrium interest rate should equal the... [ABSTRACT FROM AUTHOR]

The bulk of the world's extreme poor work in subsistence agriculture. Diversification out of this activity is often seen as the sine qua non of economic development. We evaluate whether the roll‐out of a mainstay development intervention—microfinance—into poor, agricultural and largely unbanked populations in rural Uganda helps borrowers to diversify into non‐agricultural labour activities. The new microfinance product is targeted to women, and differs from existing sources of formal and informal credit in that it allows them to borrow larger amounts but has inflexible repayment dates and the use of funds is monitored. We find that the arrival of microfinance enables women to diversify out of agriculture and into service‐based activities such as small‐scale trading. This low‐level structural change, however, is not transformative in that it does not lead—at least after two years—to significant uplifts in earnings, consumption, savings, investment and overall wealth. [ABSTRACT FROM AUTHOR]

Output growth volatility has negative effects on growth, poverty and welfare. The empirical literature has therefore searched for country-specific factors affecting volatility and focused on financial development, policy distortions, trade and financial openness. Using the same empirical framework, we focus on migrants' remittances that can help to reduce output growth volatility thanks to their size, stability and low procyclicality. In a cross-section of about 60 emerging and developing economies over the period 1980-2003, we show that indeed remittances are negatively correlated to output growth volatility. Instrumental variable estimation suggests that the effect of remittances is of a causal nature. [ABSTRACT FROM AUTHOR]

A framework is developed in which inflation biases with different target variables are compared. A nominal growth target measured in consumer prices may yield less stabilization bias than a nominal income growth target. Exchange rate and inflation targets result in less stabilization bias than an income growth target the more important the terms-of-trade stabilization. Persistence in output causes excessive stabilization of productivity shocks and of shocks to the terms of trade under discretion. An inflation-weight conservative central bank is more likely under an inflation target than under an exchange rate target, and less likely under a nominal income growth target. [ABSTRACT FROM AUTHOR]