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Urbanization and growth of cities are the defining development trends in Uzbekistan, and the country has a unique opportunity to use them as drivers of development. To make the most of the urbanization opportunity, Uzbekistan needs to learn from global experiences, understand the challenges that growing cities face, and act quickly to create favorable conditions for urbanization. While reforms directly affecting urbanization are already underway in Uzbekistan, they can be more effective if they are based on a better understanding of the ongoing urbanization process and its challenges. Government of Uzbekistan initiatives such as the propiska reform, land privatization, and administrative reforms (among others) will have a direct impact on how cities develop, and whether they become drivers of social and economic progress. This report offers an overview of key characteristics of the urbanization process in Uzbekistan and issues associated with it, and thus sets a baseline for detailed work on advancing policy reforms related to urbanization and urban development. The second chapter of the report offers a review of the key outcomes of urbanization in Uzbekistan thus far and opens discussion about the two critical conditions that could be holding Uzbekistan back: factor market distortion and poor urban management. The third chapter presents more detailed analysis of key urbanization trends in Uzbekistan today and demonstrates the channels through which inefficient factor markets and deficient urban management limit the development benefits of urbanization. Chapter 4 digs deeper into these factors that might be causing the inefficient and unsustainable urbanization trends and attempts to identify policy-relevant conditions that might be driving these trends. Finally, chapter 5 discusses key directions for policy reform that are pivotal for effective and sustainable urbanization and urban growth in Uzbekistan.

This paper examines how country environment shapes the relationship between firm intellectual capital and its innovation performance. Using survey data from 649 firms in Finland, Spain and Russia complemented by archival IMD World Competitiveness Ranking data, we find that when country environment is characterised by greater availability of skilled labour and a stronger appropriability regime, a firm’s human and structural capital have a lower impact on its innovation performance. The effect of relational capital does not depend on these contextual variables. This study enriches the intellectual capital-based view of the firm by demonstrating that country-level factors moderate the performance effects of firm-level intellectual capital. It also adds to the strategic management literature by exploring the explanatory power of a combination of country-level variables and firm-level resources in understanding firm-level performance. Our findings can help practitioners focus on the elements of intellectual capital that have the greatest impact in their environment. Publishers version

We investigate whether social structure helps or hinders factor allocation using unusually rich data from the Gambia. Evidence indicates that land available for cultivation is allocated unequally across households; and that factor transfers are more common between neighbors, co-ethnics, and kinship-related households. Does this lead to the conclusion that land inequality is due to flows of land between households being impeded by social divisions? To answer this question, a novel methodology that approaches exhaustive data on dyadic flows from an aggregate point of view is introduced. Land transfers lead to a more equal distribution of land and to more comparable factor ratios across households in general. But equalizing transfers of land are not more likely within ethnic or kinship groups. In conclusion, ethnic and kinship divisions do not hinder land and labor transfers in a way that contributes to aggregate factor inequality. Labor transfers do not equilibrate factor ratios across households. But it cannot be ruled out that they serve a beneficial role, for example, to deal with unanticipated health shocks.

This paper analyses economic integration between two economies; one central, with a large local market, and the other peripheral, with a small local market. Each economy has an imperfectly competitive manufacturing sector. Trade liberalization creates a strong incentive for the imperfectly competitive industry to concentrate in the central region, near the large market. This may cause the direction of net trade to be the opposite of that predicted by factor endowments. This effect may be offset by a lower wage in the periphery than in the centre; we find that in the early stages of integration relative wages in the centre and periphery diverge, with convergence occurring only in the later stages.

The Invisible Hand offers a radical departure from the conventional wisdom of economists and economic historians, by showing that 'factor markets' and the economies dominated by them — the market economies — are not modern, but have existed at various times in the past. They rise, stagnate, and decline; and consist of very different combinations of institutions embedded in very different societies. These market economies create flexibility and high mobility in the exchange of land, labour, and capital, and initially they generate economic growth, although they also build on existing social structures, as well as existing exchange and allocation systems. The dynamism that results from the rise of factor markets leads to the rise of new market elites who accumulate land and capital, and use wage labour extensively to make their wealth profitable. In the long term, this creates social polarization and a decline of average welfare. As these new elites gradually translate their economic wealth into political leverage, it also creates institutional sclerosis, and finally makes these markets stagnate or decline again. This process is analysed across the three major, pre industrial examples of successful market economies in western Eurasia: Iraq in the early Middle Ages, Italy in the high Middle Ages, and the Low Countries in the late Middle Ages and the early modern period, and then parallels drawn to England and the United States in the modern period. These areas successively saw a rapid rise of factor markets and the associated dynamism, followed by stagnation, which enables an in-depth investigation of the causes and results of this process.

The Invisible Hand offers a radical departure from the conventional wisdom of economists and economic historians, by showing that 'factor markets' and the economies dominated by them — the market economies — are not modern, but have existed at various times in the past. They rise, stagnate, and decline; and consist of very different combinations of institutions embedded in very different societies. These market economies create flexibility and high mobility in the exchange of land, labour, and capital, and initially they generate economic growth, although they also build on existing social structures, as well as existing exchange and allocation systems. The dynamism that results from the rise of factor markets leads to the rise of new market elites who accumulate land and capital, and use wage labour extensively to make their wealth profitable. In the long term, this creates social polarization and a decline of average welfare. As these new elites gradually translate their economic wealth into political leverage, it also creates institutional sclerosis, and finally makes these markets stagnate or decline again. This process is analysed across the three major, pre industrial examples of successful market economies in western Eurasia: Iraq in the early Middle Ages, Italy in the high Middle Ages, and the Low Countries in the late Middle Ages and the early modern period, and then parallels drawn to England and the United States in the modern period. These areas successively saw a rapid rise of factor markets and the associated dynamism, followed by stagnation, which enables an in-depth investigation of the causes and results of this process.

This paper examines the role of changes in sectoral productivity gaps over time in accounting for growth realized by countries over the past few decades. To quantify the productivity impact of the sectoral gaps, a simple model of resource allocation is developed in which the gaps arise due to distortions in the form of asymmetrical taxes across sectors. The paper finds a limited role of changes in distortions over time in accounting for actual growth. Implied growth from changes in distortions accounts for less than 2.5 percent of actual growth for the median country. To check if the lower contribution of changes in distortions is because of unrealized gains suggested by high levels of present distortions, productivity gains are estimated when distortions across countries are reduced to the US levels. Barring a couple of cases, the gains in aggregate productivity are modest across the sample of countries.

This dissertation exhibits the variety of factor market distortions that are caused by different types of business taxation. Each of the three chapters is devoted to a specific empirical application. However, all chapters have three elements in common. First, they all analyse taxes that have recently been at the centre of the policy debate in Europe. Second, all chapters rely on micro data on firm or community level. Third, they employ micro-econometric methodology that allows to control for unobserved heterogeneity or to simulate firm and asset heterogeneity. Chapter 2 estimates the effect of a change in the user cost of capital on firms’ investment. Chapter 3 assesses the impact of changes in transaction costs in financial markets on the value of collateral pledged to the Eurosystem by financial institutions. Chapter 4 is devoted to the effects of municipal business taxation on the local level of employment. Each of the three empirical applications of business taxation yields its individual methodological and economic results. Above and beyond those specific findings, three overarching results can be derived from this doctoral thesis as a whole. First, the dissertation confirms prior findings that effects of business taxation on factor markets are sizeable and – as an innovation – are even bigger than those ensuing from previous empirical studies where they exist. Second, the thesis gives rise to new evidence that confirms concerns about the applicability of estimated average effects of a tax on a factor market due to strong heterogeneity at the micro level. Finally, the dissertation deals with empirical applications that display that minor details in the design of a specific tax can fundamentally influence the incidence of that tax through factor market distortions. At the least, the conclusions constitute yet another rejection of the hypothesis that the incidence of capital taxation is born by capital owners., Diese Dissertation stellt die Vielfalt der von Unternehmensteuern erzeugten Verzerrungen auf Faktormärkten dar. Die drei Kapitel der Arbeit sind jeweils einer spezifischen Einzelfalluntersuchung in empirischen Kontext gewidmet. Die drei Kapitel verfügen über drei verbindende Elemente: Erstens behandeln sie alle konkrete Steuervorhaben oder Reformen, die kürzlich Gegenstand der politischen Debatte waren oder es noch immer sind. Zweitens nutzen und untersuchen alle Kapitel Mikrodaten auf Firmen- oder Gemeindeebene. Drittens verwenden alle Kapitel mikro-ökonometrische Methoden, die es erlauben unbeobachtete Heterogenität auszuschließen oder Mikro-Heterogenität zu simulieren. Über diese Gemeinsamkeiten hinaus leistet jedes Kapitel seinen eigenen Beitrag zur Forschung. Die Analysen der Unternehmensbesteuerung in den Kapiteln 2 bis 4 liefern jeweils eigenständige methodische und volkswirtschaftliche Beiträge und Lehren. Jenseits dieser spezifischen Ergebnisse lassen sich drei allgemeinere Ergebnisse aus dieser Doktorarbeit als Ganzes ableiten. Zunächst bestätigen alle drei Kapitel die Befunde vorheriger Studien, dass die Auswirkungen der Unternehmensbesteuerung auf Faktormärkte erheblich sind und – das ist neu – sogar noch größer als in vorherigen Untersuchungen. Zweitens liefert die Arbeit neue Belege dafür, dass die praktische Relevanz von geschätzten Durchschnittseffekten einer Steuer auf Faktormärkte aufgrund der starken Mikroheterogenität der Marktteilnehmer begrenzt ist. Und schließlich befassen sich alle Kapitel mit empirischen Anwendungen, die verdeutlichen, dass vermeintlich kleine Details in der Ausgestaltung einer spezifischen Steuer oder ihres wirtschaftlichen Umfelds starken Einfluss auf die Inzidenz dieser Steuer haben können. In diesem Sinne bekräftigen die Schlussfolgerungen dieser Arbeit auch die Ablehnung der Hypothese, dass Kapitaleigentümer die Hauptträger der Last von Unternehmensteuern sind.

This paper establishes that the rise in the income share of information and communication technology accounts for half of the decline in labor income share in the United States. This decline can be decomposed into a sharp decline in the income share of “routine” labor—which is relatively more prone to automation—and a milder rise in the non-routine share. Quantitatively, this decomposition suggests large effects of information and communication technology on the income distribution within labor, but only moderate effects on the distribution of income between capital and labor. A production structure calibrated to match these trends suggests modest aggregate welfare gains from automation.

As part of a national experiment in 2008, Chengdu prefecture implemented ambitious property rights reforms, including complete registration of all land together with measures to ease transferability and eliminate migration restrictions. A triple difference approach using the Statistics Bureau’s regular household panel suggests that the reforms increased consumption and income, especially for less wealthy and less educated households, with estimated benefits well above the cost of implementation. Local labor supply increased, with the young shifting toward agriculture and the old toward off-farm employment. Agricultural yields, intensity of input use, and diversity of output also increased. Improving property rights in peri-urban China appears to have increased investment and diversification.

The contribution of women to labor in African agriculture is regularly quoted in the range of 60 to 80 percent. Using individual-disaggregated, plot-level labor input data from nationally representative household surveys across six Sub-Saharan African countries, this study estimates the average female labor share in crop production at 40 percent. It is slightly above 50 percent in Malawi, Tanzania, and Uganda, and substantially lower in Nigeria (37 percent), Ethiopia (29 percent), and Niger (24 percent). There are no systematic differences across crops and activities, but female labor shares tend to be higher in households where women own a larger share of the land and when they are more educated. Controlling for the gender and knowledge profile of the respondents does not meaningfully change the predicted female labor shares. The findings question prevailing assertions regarding substantial gains in aggregate crop output as a result of increasing female agricultural productivity.

Drawing on a new set of nationally representative, internationally comparable household surveys, this paper provides an overview of key features of structural transformation—labor allocation and labor productivity—in four African economies. New, micro-based measures of sector labor allocation and cross-sector productivity differentials describe the incentives households face when allocating their labor. These measures are similar to national accounts-based measures that are typically used to characterize structural changes in African economies. However, because agricultural workers supply far fewer hours of labor per year than do workers in other sectors, productivity gaps disappear almost entirely when expressed on a per-hour basis. What look like large productivity gaps in national accounts data could really be employment gaps, calling into question the prospective gains that laborers can achieve through structural transformation. These employment gaps, along with the strong linkages observed between rural non-farm activities and primary agricultural production, highlight agricultures continued relevance to structural change in Sub-Saharan Africa.

This paper empirically studies the dynamics of labor market adjustment following the Brazilian trade reform of the 1990s. The paper uses variation in industry-specific tariff cuts interacted with initial regional industry mix to measure trade-induced local labor demand shocks and examines regional and individual labor market responses to those one-time shocks over two decades. Contrary to conventional wisdom, the analysis does not find that the impact of local shocks is dissipated over time through wage-equalizing migration. Instead, it finds steadily growing effects of local shocks on regional formal sector wages and employment for 20 years. This finding can be rationalized in a simple equilibrium model with two complementary factors of production, labor and industry-specific factors such as capital, that adjust slowly and imperfectly to shocks. Next, the paper documents rich margins of adjustment induced by the trade reform at the regional and individual levels. Workers initially employed in harder hit regions face continuously deteriorating formal labor market outcomes relative to workers employed in less affected regions, and this gap persists even 20 years after the beginning of trade liberalization. Negative local trade shocks induce workers to shift out of the formal tradable sector and into the formal nontradable sector. Non-employment strongly increases in harder hit regions in the medium run, but in the longer run, non-employed workers eventually find re-employment in the informal sector. Working age population does not react to these local shocks, but formal sector net migration does, consistent with the relative decline of the formal sector and growth of the informal sector in adversely affected regions.

I develop a method to measure and separate the production misallocation caused by failures in factor markets versus financial markets. When I apply the method to rice farming villages in Thailand I find surprisingly little misallocation. Optimal reallocation would increase output in most villages by less than 15 percent. By 2006 most misallocation comes from factor market failures. I derive a decomposition of aggregate growth that accounts for misallocation. Declining misallocation contributes little to growth compared to factor accumulation and rising farm productivity. I use a government credit intervention to test my measures. I confirm that credit causes a statistically significant decrease in only financial market misallocation.

Cross-country panel data are used to assess the effect of free-trade agreements on flows of Foreign Direct Investment (FDI). Free-trade agreements are found to have a significant positive effect on FDI flows, and free-trade agreements are found to matter more for the smaller members of the agreement. For example, the North American Free-Trade Agreement's (NAFTA) effect on FDI flows into Mexico is much larger than its effect on flows into the United States. These cross country results are used to assess NAFTA's effect on FDI flows into Mexico. After controlling for a set of other factors such as an increase in worldwide FDI flows the trade agreement is found to generate FDI flows nearly 60 percent higher than they would have been without the agreement.

We used a field experiment to investigate exchange asymmetries in productive assets among poor rural respondents in Ethiopia. Farmers were randomly allocated two types of productive assets or cash, with a choice to keep the productive asset (cash) or exchange it for cash (productive asset). To introduce productive asset variation, a durable asset (farm tool) and a short-term input (fertilizer) were randomly allocated and combined with a random amount of cash. Loss aversion was proxied with a separate experiment and was used to assess the importance of endowment effect theory to explain exchange asymmetries. A greater exchange asymmetry was found for the more popular tool than for fertilizer. Loss aversion could explain a small but significant part of the exchange asymmetry in tools, but experience did not reduce the exchange asymmetry. Compared to the female respondents, the male respondents exhibited greater exchange asymmetries and more non-linear price responses with declining elasticities as prices increased. Key words: exchange asymmetry, endowment effect, loss aversion, factor markets, productive assets, input demand elasticities, field experiment. JEL codes

This paper reconstructs the organization and development of factor markets in early medieval Iraq. It shows that from the late Sasanian period on, and accelerating in the early Islamic period, there was a relatively unrestricted functioning of markets for goods, labour, and capital. This stimulated market exchange, associated with growing monetization of the economy, especially in the towns, but also in the countryside, even though coercion remained more pronounced there. We hypothesize that these developments brought economic dynamism but simultaneously increased inequality and furthered the rise of new, powerful elite groups, causing the decline of the same markets.

One objective of Computable general equilibrium (CGE) models is the analysis of economy-wide effects of policy measures. The focus of the Factor Markets project is to analyse the functioning of factor markets for agriculture in the EU-27, including the Candidate Countries. While agricultural and food markets are fully integrated in a European single market, subject to an EU-wide common policy, the Common Agricultural Policy (CAP), this is not the case for the agricultural factor markets capital, labour and land. There are partly serious differences with regard to member state regulations and institutions affecting land, labour and capital markets. The presentation of this heterogeneity of factor markets amongst EU Member States have been implemented in the CGE models to improve model-based analyses of the CAP and other policy measures affecting agricultural production. This final report comprises the outcome of a systematic extension and improvement of the Modular Applied GeNeral Equilibrium Tool (MAGNET) model starting from an overview of the current state of the art to represent factor markets in CGE models to a description of work on labour, land and capital in MAGNET.

This study evaluates the degree of segmentation of the market for agricultural machinery and equipment in the EU. We focus on agricultural tractors, the most common and biggest investment in machinery and equipment in the agricultural sector. By using country price data for individual tractor models, we test the law of one price, i.e. the existence of a common price for tractors across EU member states. We find that significant price differences exist, yet unlike most other studies we find that large price deviations are penalised within a short time. The study also shows that transport costs are an important source of price differences, as domestic production leads to lower prices on the domestic market and as price convergence is negatively correlated with distance. Finally, price differences should not solely be understood from a geographical perspective, as evidence supports the idea that farmers’ buying power is significant in explaining price differences within countries.

The inter-sectoral migration of agricultural labour is a complex but fundamental process of economic development largely affected by the growth of agricultural productivity and the evolution of the agricultural relative income gap. Theory and some recent anecdotal evidence suggest that as an effect of large fixed and sunk costs of out-farm migration, the productivity gap between the agricultural and non-agricultural sectors should behave non-monotonically or following a U-shaped evolution during economic development. Whether or not this relationship holds true across a sample of 38 developing and developed countries and across more than 200 EU regions was empirically tested. Results strongly confirm this relationship, which also emphasises the role played by national agricultural policy.

The classical problem of agricultural productivity measurement has regained interest owing to recent price hikes in world food markets. At the same time, there is a new methodological debate on the appropriate identification strategies for addressing endogeneity and collinearity problems in production function estimation. We examine the plausibility of four established and innovative identification strategies for the case of agriculture and test a set of related estimators using farmlevel panel datasets from seven EU countries. The newly suggested control function and dynamic panel approaches provide attractive conceptual improvements over the received ‘within’ and duality models. Even so, empirical implementation of the conceptual sophistications built into these estimators does not always live up to expectations. This is particularly true for the dynamic panel estimator, which mostly failed to identify reasonable elasticities for the (quasi-) fixed factors. Less demanding proxy approaches represent an interesting alternative for agricultural applications. In our EU sample, we find very low shadow prices for labour, land and fixed capital across countries. The production elasticity of materials is high, so improving the availability of working capital is the most promising way to increase agricultural productivity.

This paper investigates both aggregate and distributional impacts of the trade integration of China, India, and Central and Eastern Europe in a quantitative multi-country multi-sector model, comparing outcomes with and without factor market frictions. Under perfect within-country factor mobility, the gains to the rest of the world from trade integration of emerging giants are 0.37%, ranging from -0.37% for Honduras to 2.28% for Sri Lanka. Reallocation of factors across sectors contributes relatively little to the aggregate gains, but has large distributional effects. The aggregate gains to the rest of the world are only 0.065 percentage points lower when neither capital nor labor can move across sectors within a country. On the other hand, the distributional effects of the emerging giants' trade integration are an order of magnitude larger, with changes in real factor returns ranging from -5% to 5% across sectors in most countries. The workers and capital owners in emerging giants' comparative advantage sectors such as Textiles and Wearing Apparel experience greatest losses, while factor owners in Printing and Medical, Precision and Optical Instruments normally gain the most.

Among the different production factors, land is the one that most often limits farm development and one of the most studied. The connection between policy and other context variables and land markets is at the core of the policy debate, including the present reform of the Common Agricultural Policy. The proposal of the latter has been published in October 2011 and in Italy it will include the switch of the payment regime from an historical to a regional basis. The authors’ objective is to simulate the impact of the proposed policy reform on the land market, particularly on land values and propensity to transaction. They combine insights and data from a farm household investment model revised and extended in order to simulate the demand curve for land in different policy scenarios and a survey of farmers stated intention carried out in the province of Bologna (Italy) in 2012. Based on these results, the authors calibrate a mathematical programming model of land market exchanges for the province of Bologna and use this model form simulation. The results of the model largely corroborate the results from the survey and both hint at a relevant reaction of the land demand and supply to the shift from the historical to the regionalised payments. As effect, the regionalisation would result in increased rental prices and in a tendency to the re-allocation of land.

There is increasing evidence suggesting that climate change will negatively impact agricultural production in South Asia. Decreased domestic production may make South Asian countries more dependent on imports. The extent to which South Asia will need to increase its imports as a result of climate change will presumably depend on the degree to which the latter will affect domestic output. The effects of climate change on agriculture may well differ substantially for individual South Asian countries and indeed for regions within a given country which can be approximated by food production units. This calls for an analysis of climate change effects on trade flows under alternative trade policy regimes both for agriculture and non-agricultural sectors. The specific objectives of the paper include the following: analyze the extent to which agricultural production in South Asia and elsewhere in the world may be affected by different scenarios regarding climate change; analyze the extent to which changes in domestic production in South Asia resulting from climate change will lead to increased demand for imports by South Asian countries; analyze the effects of increased import demand in South Asia and changing exportable surpluses elsewhere on world market prices of major agricultural commodities consumed in South Asia; to the extent that South Asian governments allow transmission of changes in world market prices to domestic prices, analyze the potential welfare effects of changes in the latter; analyze if, and to what extent, worldwide trade liberalization and implementation of South Asian Free Trade Area (SAFTA) will dampen the effects of climate change on domestic agricultural prices in South Asia. In this context, the report is organized as follows: chapter one gives introduction. Chapter two describes the methodology used - with particular attention to how different models and modeling techniques are linked to produce an as accurate as possible assessment based on state-of-the-art knowledge. Chapter three provides an up-to-date analysis of trade flows and policies, and production patterns for key food products in South Asia to explain the context in which climate change is taking place. Chapter four describes the climate change scenarios and illustrates their consequences for crop yields at a global level and for South Asia - and in particular shows the vulnerability of the region to these changes. Baseline design, simulations, and results are discussed in chapter five. The final chapter six provides a short summary, discusses the limitations of the analysis, and derives suggestions and guidelines for future research.