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International audience; The magnitude of short run variations in unemployment induced by output shocks is influenced, interalia, by a variety of supply-side characteristics of the economy in question. This paper argues that one important element of those characteristics is a coun- try’s ‘distance’ from the technological frontier. Using both, a panel interaction model and a panel threshold model, we show that the value of the coefficient linking short run vari- ations in unemployment to output changes (often known as the Okun’s Law Coefficient) is influenced by the technological distance of a country to the world efficiency frontier. Specifically, the larger the distance to the frontier, the larger the impact of real GDP movements on unemployment rate variations. Moreover, the magnitude of this impact is both considerable and exhibits wide variation between countries; decomposition of the total derivatives of unemployment with respect to GDP shows that the technology-induced share of this derivative is around 20% for Norway and Denmark countries (close to the frontier) and around 40% for Greece (which has the largest technological gap). Traditional growth enhancing demand side policies should thus go in hand with adequate supply side policies in order to stabilise or reduce the unemployment rate in technologically advanced countries.; Nous utilisons deux techniques de modélisation complémentaires pour analyser l’influence de la distance technologique des pays sur la force de la relation entre les fluctuations de court terme de l’activité et celles du taux de chômage dans la Loi d’Okun. Il apparait que le coefficient d’Okun est positivement corrélé avec la distance technologique des pays. Plus la distance technologique d’un pays par rapport à la frontière mondiale est grande, plus l’impact des variations de court terme du PIB sur les mouvements conjoncturels du taux de chômage est important. La décomposition de cet impact pour chaque pays de l’échantillon montre que l’effet de l’écart technologique sur corrélation entre les mouvements du PIB réel et de ceux du taux de chômage varie entre les différents pays. Cet effet est par exemple proche de 20% pour le Danemark et la Norvège mais plutôt de l’ordre de 40% pour la Grèce.

The magnitude of short run variations in unemployment induced by output shocks is influenced, inter alia, by a variety of supply-side characteristics of the economy in question. This paper argues that one important element of those characteristics is a country’s ‘distance ’ from the technological frontier. Using both, a panel interaction model and a panel threshold model, we show that the value of the coefficient linking short run variations in unemployment to output changes (often known as the Okun’s Law Coefficient) is influenced by the technological distance of a country to the world efficiency frontier. Specifically, the larger the distance to the frontier, the larger the impact of real GDP movements on unemployment rate variations. Moreover, the magnitude of this impact is both considerable and exhibits wide variation between countries; decomposition of the total derivatives of unemployment with respect to GDP shows that the technology-induced share of this derivative is around 20% for Norway and Denmark countries (close to the frontier) and around 40% for Greece (which has the largest technological gap). Traditional growth enhancing demand side policies should thus go in hand with adequate supply side policies in order to stabilise or reduce the unemployment rate in technologically advanced countries.

[Abstract unavailable]

Good land management strategies are known to play an important role in improving agricultural production. There lacks empirical studies that have evaluated the contribution of fence as a productive investment in Kenya. Fencing was treated as a productive input in the production function alongside capital, labour and land. Cross-sectional primary data is used to achieve the objectives of the study. The Cobb-Douglas (CD) specification was used in measuring the contribution of fence to production and in measuring its role in the marginal productivity of labour, land and capital in semi arid Kenya. Ordinary least squares (OLS) regression results indicated that fencing improves agricultural production and that it improves the marginal productivity of land. The policy implication is that since fence has led to a series of positive benefits, there is need for the government to recognize the positive impact of fence and empower those communities who would wish to fence their land.

The paper considers the use of artificial regression in calculating different types of score test when the log-likelihood is based on probabilities rather than densities. The calculation of the information matrix test is also considered. Results are specialised to deal with binary choice (logit and probit) models.

How does technical change influence the size of the Okun’s Law coefficient? Using a nonlinear version of Okun’s Law augmented with technical change and technological distance, we show that the impact of output movements on unemployment variations is influenced by the imitation or innovation origins of technical change

This paper seeks to identify whether there is a representative empirical Okun’s Law coefficient (OLC) and to measure its size. We carry out a meta regression analysis on a sample of 269 estimates of the OLC to uncover reasons for differences in empirical results and to estimate the ‘true’ OLC. On statistical (and other) grounds, we find it appropriate to investigate two separate subsamples, using respectively (some measure of) unemployment or output as dependent variable. Our results can be summarized as follows. First, there is evidence of type II publication bias in both sub-samples, but a type I bias is present only among the papers using some measure of unemployment as the dependent variable. Second, after correction for publication bias, authentic and statistically significant OLC effects are present in both sub-samples. Third, bias-corrected estimated true OLCs are significantly lower (in absolute value) with models using some measure of unemployment as the dependent variable. Using a bivariate MRA approach, the estimated true effects are -0.25 for the unemployment sub-sample and -0.61 for the output-sub sample; with a multivariate MRA methodology, the estimated true effects are -0.40 and -1.02 for the unemployment and the output-sub samples respectively.

Ce papier évalue le degré d'homogénéité des structures macroéconomiques des pays européens en testant la présence ou l'absence d'un mécanisme de convergence des ratios de sacrifice à l'intérieur de différents groupes de pays européens. Pour cela, une procédure statistique en deux étapes est retenue. La première étape estime la trajectoire des ratios de sacrifice de 17 pays européens à l'aide de régressions roulantes. La deuxième étape teste ensuite la présence d'une tendance à la réduction de la dispersion de ces ratios de sacrifice entre ces pays. Les tests concluent en faveur de la présence d'un phénomène de convergence des ratios de sacrifice entre la fin des années 80 et la fin de l'échantillon à l'intérieur de deux groupes de pays : les pays européens caractérisés par des négociations salariales décentralisées et les pays appartenant au « core group » mis en évidence par Bayoumi-Eichengreen. Les autres regroupements de pays européens font par contre apparaître une absence de convergence voire une divergence des ratios de sacrifice.

This chapter

A large number of papers have considered the question of whether the European Union (EU) is an optimal currency area by analysing either the dispersion (and/or the correlation) of observable variables such as output, output per head, and GDP growth rates or the dispersion (and/or the correlation) of unobservable variables such as demand and supply shocks. This approach typically leads to a division of countries between a core and a periphery. We move to a quantitative approach that focuses on asymmetry stemming from differences in the way countries react to symmetric euro area shocks. Without convergence of macroeconomic “parameters” representative of the nature of adjustment mechanisms, even a common shock to the union can lead to different macro-economic consequences across the EU members and, eventually, to the need for more or less co-ordinated specific policies. In this paper, we test for the presence of convergence of the Okun’s Law coefficient (OLC hereafter). This constitutes one of the main macro-economic parameters underlying the sensitivity of unemployment variations to fluctuations in economic activity.

In this paper, we examine whether evidence is consistent with convergence of the Okun’s Law coefficient (OLC) among several alternative groupings of European economies. A two step empirical strategy is employed. The first step obtains rolling regression estimates of the OLC for individual European countries. In the second step, we examine how the crosscountry variance of the OLC evolves over the decade until 2002 in the selected country groupings. We find evidence consistent with convergence of the OLC among northern European countries, and among countries with centralised wage bargaining, but an absence of convergence in other country groups.

The Environmental Kuznets Curve (EKC) hypothesis – an inverted U-shape relation between various indicators of environmental degradation and income per capita – has become one of the ‘stylised facts’ of environmental and resource economics. This is despite considerable criticism on both theoretical and empirical grounds. Cointegration analysis can be used to test the validity of such stylised facts when the data involved contain stochastic trends. In the present paper, we use cointegration analysis to test the EKC hypothesis using a panel dataset of sulfur emissions and GDP data for 74 countries over a span of 31 years. We find that the data is stochastically trending in the time-series dimension. Given this, and interpreting the EKC as a long run equilibrium relationship, support for the hypothesis requires that an appropriate model cointegrates and that sulfur emissions are a concave function of income. Individual and panel cointegration tests cast doubt on the general applicability of the hypothesised relationship. Even when we find cointegration, many of the relationships for individual countries are not concave. The results show that the EKC is a problematic concept, at least in the case of sulfur emissions.

In the last issue of the Commentary, we forecast that an up-tum in the business cycle (in terms of the seasonally adjusted Scottish output index for production industries, Divisions 1-4 of the 1980 SIC) would occur in the third quarter last year, indicating technically an end to the current recession. This is confirmed by the latest official data, published by the Scottish Office on 11, February 1992. The present forecasting period extends to the second quarter of 1993. In making the Scottish forecasts, the output index series for the UK production industries is used as the exogenous data input. We calculate the UK index for the present forecasting period on the basis of the National Institute's projections. The output equation on which the forecasts are based is re-estimated using the revised and extended official data on the UK and Scottish output series.

This brief article provides an overview of the economic outlook based on the latest economic data. Economic prospects over the last quarter have not improved, and have shown signs of worsening in some areas. Recovery from the persistent and lengthy recession is unlikely to become apparent until the second half of this year. Provisional figures for the fourth quarter of last year indicate that UK gross domestic product fell by 0.3%. Unless subject to an unusually large upward revision, this means that non-oil GDP has fallen for six successive quarters, the longest recession since the Second World War. While still less deep overall than the 1979-81 recession, the extent of the present slump should not be underestimated. For example, in 1991 GDP declined by 2.5%, the largest decline in a single calendar year for sixty years. Investment spending has also been badly hit over the last year; capital expenditure by UK manufacturing industry fell by 15% in 1991, and was still declining in the final quarter of last year. The cumulative amount of outstanding consumer credit (excluding bank loans) has fallen every month from August last year to January, and retail sales are struggling to show any signs of upward movement.

The recession in non-oil GDP has continued for six quarters with the real value of output falling by just under 4% since the second quarter of 1990. The present recession is therefore the longest since the Second World War, although the fall is still not as rapid, or as deep, as in the 1979-81 recession where the decline in non-oil GDP from peak to trough occurred over five quarters and amounted to 6.2%. Considerable uncertainty exists over the course of demand over the next few months, with consumption unlikely to exhibit strong growth. The likely outturn for GDP growth during 1992 is for an increase of no more than 1%. Macroeconomic trends, earnings and productivity, and unemployment levels are also analysed.

This detailed article provides an analysis of key Scottish economic trends based on recent data. The forecast of quarterly movements in the seasonally-adjusted Scottish output index for production industries (Divisions 1-4 of the 1980 SIC) is based on the short-term model of the Scottish economy, details of which are contained in the Briefing Paper in the September issue of the Commentary. Note that here the classification of production industries excludes construction but includes SIC Class 13 (oil and gas). As a reminder, the current Scottish output is modelled as driven by the current and past UK outputs, and also by the past Scottish output. In making the Scottish forecasts, the exogenous data on the UK output index for the forecast period are derived from the National Institute's projections. Since the quarterly forecasts for the UK output beyond the fourth quarter of 1992 are not yet available, the present forecasting period remains the same as that in the last issue. However, the output equation is reestimated using the revised official data on the UK and Scottish output series. Therefore, the difference between the present forecasts and that in the last issue is totally due to data revision.

With the provisional estimate of a 0.3% increase in GDP in the third quarter the recession has technically come to an end. However, the upturn is very weak and hesitant. The rate of recovery over the next two quarters will be largely governed by the extent to which consumers raise spending by taking on new credit.

This brief article provides an analysis of key world economic trends based on recent data. In the second quarter of 1991 there was a further sharp decline in GDP growth among the leading industrialised countries. Comparing the second quarter of 1991 with the corresponding period last year, average growth in the G7 countries was 0.6%, compared with 1.1% in the year to the first quarter. A sharp decline in GDP growth was recorded in Germany, and the UK continued to perform most poorly among its G7 counterparts. Individual country growth rates were as follows (Q2 1991 on Q2 1990): Canada -1.5%; US -0.9%; Japan 5.0%; France 1.6%; Germany 4.2%; Italy 0.7% (year to March); UK - 3.6%. Despite the continuing slackness in GDP growth, there is some evidence that industrial production in the industrialised countries picked up in the second quarter following a very sluggish first quarter. In the year to July industrial production in the OECD declined by 0.3%, and by 0.5% for the G7 countries. In both cases this is a considerably slower rate of decline than in the year to April. The most striking feature, however, is the virtual stagnation of industrial output in Japan and its rapid slowing in Germany, while most other G7 countries unproved their rate of industrial output. Individual countries as follows (year to July unless otherwise stated): Canada -4.4%; US -2.1% (August); Japan 0.3% (August); France 0.2%; Germany 2.0% (August); Italy - 3.6%; UK -1.8%.

In common with its UK counterpart, the Scottish economy appears to have reached a turning point during the third quarter of this year. However, the indications are that recovery, particularly in manufacturing, will be very sluggish, with little evidence of a clear recovery until well into 1992. In the second quarter of 1991 the index of production and construction for Scotland fell by 0.3%, resulting in an annual decline of 4.0% compared with 3.7% for the UK. In manufacturing, the decline in the Scottish index during the quarter was 0.4% compared with 0.7% for the UK, the third successive quarter in which the fall in Scottish manufacturing output has been less than that of the UK. Nevertheless, Scottish manufacturing output fell by 7.5% in the year to June while that of the UK declined by only 3.9%; this is a result of the sharp peak and slump which apparently occurred in Scotland between the first and second halves of 1990.

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As this commentary reveals, economic growth continued to decrease for most major industrialised countries in the second quarter of 1990. GDP growth in the G7 countries in the year to June actually accelerated fractionally to 2.8% (from 2.6% in the year to March), but this was almost totally due to the very rapid growth of the Japanese economy; year on- year growth in Japan stood at 7.5% in June. Most other G7 countries saw growth slow quite sharply in the second quarter. This was especially the case in the US, where annual growth slowed to 1.6%, barely half the level achieved in 1989. Growth rates for the remaining G7 countries (excluding Italy) were as follows: Canada 1.4; France 2.1%; Germany 3.4%; UK 2.6%. Industrial production in the major industrialised countries showed a fairly sharp rise in the second quarter of 1990, increasing at an annual rate of 2.2% for both the G7 and the OECD as a whole.

Since the beginning of 1990 the Scottish economy has shown a marked resilience to the downturn which has recently become so marked in the southern part of the United Kingdom. Arguments about the reliability of certain data notwithstanding, there is a considerable array of appropriate statistics which make a strong case when considered together. Despite an apparent slump in the second quarter, the Scottish index of production and construction showed annual growth in the year to June of 4.8%, almost five times that of the UK. In manufacturing, provisional estimates indicate annual growth of 6.2% compared with UK growth of 1.6%. Evidence from the Scottish Chambers' Business Survey and from more anecdotal evidence indicate that throughout much of the year consumer spending in Scotland has remained more buoyant than for the UK as a whole, and house prices have continued to show modest gains in Scotland compared with marked falls in southern Britain. However, perhaps the most impressive performance has come in the labour market, an area in which Scotland has traditionally fared relatively poorly. Scottish unemployment has continued to decline modestly for fully seven months after UK unemployment began to rise in April, and while UK vacancies fell by one-third in the year to October the corresponding Scottish decline in vacancies was only 5%. Scottish unemployment was still 1.9 percentage points above that of the UK in October, but the gap has narrowed considerably over the last year.

The growth of Gross Domestic Product slowed rapidly for the major industrialised countries in the last quarter of 1989. As this paper describes, GDP growth for the G7 countries averaged just 0.5 between October and December; for the whole of 1989 growth averaged 3.3% compared with 4.5% in 1988. Most rapid growth during 1989 was experienced in Japan (4.9%), with the lowest being the UK (2.1%). The remaining G7 countries (excluding Italy) were as follows: France 3.4%; West Germany 3.9%; Canada 2.87%; USA 3.0%. There was also some slowing down in industrial production in the last quarter of 1989, and for the year as a whole OECD countries averaged 2.6% growth. In January industrial production fell in four of the G7 countries and was static in another; only France and Japan showed slight increases. The result of this was that industrial production in the G7 countries rose by just 1.3% in the year to January, just half the annual rate of the year to October 1989. In the twelve months to January growth rates among the G7 varied from West Germany and Japan at 4.6% and 3.4% respectively to Canada at -0.2%.

The growth of demand is almost certainly still too high in relation to supply for there to be much improvement in both the rate of inflation and the balance on current account over the next few months. Interest rates are in consequence likely to remain high and at present levels for the remainder of this year, unless a decision to enter the exchange rate mechanism of the EMS is taken within the next few months.

With the continuation of a policy of high interest rates as a method of reducing consumer demand, Scotland continues to show clear signs of outperforming the UK. Confidence in manufacturing, and especially in retailing, has recovered over recent months because the expected downturn has failed to become reality as quickly as had been expected. The UK economy remains more resilient to high interest rates than expected by the Government, and increasingly worries about recession are giving way to concerns over the underlying rate of inflation.

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It is not the intention of this paper, to investigate the consequences of global warming. I assume on the basis of the best information available (represented by the papers of the 1988 Toronto Conference, for example) that the human welfare costs of unhindered global warming will be so high (if not for this generation, then certainly for the next and later ones), that action will have to be taken both to prevent some additional warming and to adapt to warming that will already have occurred. Furthermore, the magnitude of global warming damage costs will be so high that the majority of technically feasible solutions (or at least ameliorative measures) will generate positive net returns to society. If these axioms are correct, then there is no need to assess each policy proposal for economicviability. That does not mean, however, that every feasible project to limit global warming should be undertaken. Such projects are costly, and so it is important to choose a package of measures that is the least costly for achieving any target level of limitation. In other words, we should choose cost effective measures. One aim of this paper is to provide some insight into how this cost effectiveness may be assessed.

The rate of growth of output continues to decline but the rate of slowdown of domestic demand appears to have eased. Prospects for inflation have worsened. A tightening of fiscal policy offers the best guarantee of minimising further inflationary pressure, allowing base rates to come down sooner than presently appears to be likely.

The economies of the major industrialised countries have proved quite resilient to the steady tightening of monetary conditions which occurred during 1988 and 1989. Growth in the OECD countries is now expected to be just below 3% for 1990, with Japan and West Germany being the main growth economies. There is some concern about underlying inflationary pressure, however. Although OECD inflation is expected to remain relatively steady at around 4.5% during 1990, large wage settlements could undermine this projection. The prospect of widening trade surpluses in West Germany and Japan, coupled with the recent weakness of the Yen is an area of some concern, especially if there is any hint that disruption in the financial markets could spread beyond Japan.

[Abstract unavailable]