London School of Economics and Political Science

About: London School of Economics and Political Science is a education organization based out in London, United Kingdom. It is known for research contribution in the topics: Politics & Population. The organization has 8759 authors who have published 35017 publications receiving 1436302 citations.

Comparative advantage and heterogeneous firms

Abstract: This paper examines how country, industry, and firm characteristics interact in general equilibrium to determine nations’ responses to trade liberalization. When firms possess heterogeneous productivity, countries differ in relative factor abundance, and industries vary in factor intensity, falling trade costs induce reallocations of resources both within and across industries and countries. These reallocations generate substantial job turnover in all sectors, spur relatively more creative destruction in comparative advantage industries than in comparative disadvantage industries, and magnify ex ante comparative advantage to create additional welfare gains from trade. The improvements in aggregate productivity as countries liberalize dampen and can even reverse the real-wage losses of scarce factors. How do economies respond to trade liberalization? Neoclassical trade theory, with its emphasis on comparative advantage, stresses the reallocation of resources across industries and countries as well as changes in relative factor rewards but provides no role for firm dynamics. More recent research on heterogeneous firms emphasizes the relative growth of high-productivity firms within industries but ignores comparative advantage by considering just a single factor and industry. Until now, very little has been known about how these two sources of reallocation combine in general equilibrium. This paper derives new—and more realistic—predictions about trade liberalization by embedding heterogeneous firms in a model of comparative advantage and analysing how firm, country, and industry characteristics interact as trade costs fall. We report a number of new and often surprising results. In contrast to the neoclassical model, we find that simultaneous within- and across-industry reallocations of economic activity generate substantial job turnover in all sectors, even while there is net job creation in comparative advantage industries and net job destruction in comparative disadvantage industries. We show that steady-state creative destruction of firms also occurs in all sectors but find that it is more highly concentrated in comparative advantage industries than in comparative disadvantage industries. We demonstrate that the relative growth of high-productivity firms raises aggregate productivity in all industries, but this productivity growth is strongest in comparative advantage sectors. The price declines associated with these productivity increases inflate the real-wage gains of relatively abundant factors while dampening, or even potentially overturning, the real-wage losses of relatively scarce factors. Finally, we

Inequality and Unemployment in a Global Economy

Abstract: This paper develops a new framework for examining the determinants of wage distributions that emphasizes within-industry reallocation, labor market frictions, and differences in workforce composition across firms. More productive firms pay higher wages and exporting increases the wage paid by a firm with a given productivity. The opening of trade enhances wage inequality and can either raise or reduce unemployment. While wage inequality is higher in a trade equilibrium than in autarky, gradual trade liberalization first increases and later decreases inequality.

Handcuffs for the Grabbing Hand? Media Capture and Government Accountability

Abstract: It has long been recognized that the media play an essential role in government accountability. However, even in the absence of censorship, the government may in‡uence news content by maintaining a “cozy” relationship with the media. This paper develops a model of democratic politics in which media capture is endogenous. The model o¤ers insights into the features of the media market that determine the ability of the government to exercise such capture and hence to in‡uence political outcomes.

Causality Tests for Cross-Country Panels: a New Look at FDI and Economic Growth in Developing Countries

Abstract: The remarkable increase in FDI flows to developing countries over the last decade has focused attention on whether this source of financing enhances overall economic growth We use a mixed fixed and random (MFR) panel data estimation method to allow for cross country heterogeneity in the causal relationship between FDI and growth and contrast our findings with those from traditional approaches We find that the relationship between investment, both foreign and domestic, and economic growth in developing countries is highly heterogeneous and that estimation methods which assume homogeneity across countries can yield misleading results Our results suggest there is some evidence that the efficacy of FDI in raising future growth rates, although heterogeneous across countries, is higher in more open economies

The firm as a communication network

Abstract: This paper analyzes how organizations can minimize costs of processing and communicating information. Communication is costly because it takes time for an agent to absorb new information sent by others. Agents can reduce this time by specializing in the processing of particular types of information. When these returns to specialization outweigh costs of communication, it is efficient for several agents to collaborate within a firm. It is shown that efficient networks involve centralization, that individuals delegate tasks to subordinates only if they are overloaded, and that the number of transits to the top tends to be equalized across individual information items.