Showing papers in "Review of World Economics in 1995"
TL;DR: This article examined the determinants of intra-industry trade using longitudinal data for 68 countries for 1970-1987 and found that the extent of IIT appears to be dominated more by preference than by scale differentials, at least among manufacturing countries.
Abstract: Determinants of Intra-Industry Trade: A Longitudinal, Cross-Country Analysis. — This study examines the determinants of intra-industry trade (IIT using longitudinal data for 68 countries for 1970–1987. The analysis distinguishes between manufacturing and nonmanufacturing countries and compares traditional static estimates with dynamic ones. This approach permits distinctions between equilibrium and disequilibrium structures and, similarly, between historical and current sources of IIT. The results are generally supportive of IIT hypotheses, but there are important differences between manufacturing and nonmanufacturing countries and between the static and dynamic structures. Moreover, the extent of IIT appears to be dominated more by preference than by scale differentials, at least among manufacturing countries.
109 citations
TL;DR: In this article, the authors examined the trade effects of foreign direct investment between Taiwan and each of the following four ASEAN countries: Indonesia, Malaysia, Philippines, and Thailand, and found that Taiwan's outward FDI has a significant positive effect on exports to and imports from the host country, whereas no such effects were consistently found for inward FDI from the same country.
Abstract: Trade Effects of Foreign Direct Investment: Evidence for Taiwan with Four ASEAN Countries. —This paper examines the trade effects of foreign direct investment (FDI) between Taiwan and each of the following four ASEAN countries: Indonesia, Malaysia, the Philippines, and Thailand. Regression results show that Taiwan's outward FDI has a significant positive effect on exports to and imports from the host country, whereas no such effects were consistently found for inward FDI from the same country.
72 citations
TL;DR: In this article, the impact of the European Common Market on the growth of its member countries has been examined and it was shown that there has not been a statistically significant difference between the growth rate of EEC countries and the non-EEC developed market economies.
Abstract: The test made here, of the impact of the European Common Market on the growth of its member countries, indicates that there has not been a statistically significant difference between the growth of EEC countries and the non-EEC developed market economies.
60 citations
TL;DR: In this article, a combination of a case study approach and econometric analysis was used to investigate the bilateral intra-industry trade between high income countries and low income countries in the toy industry.
Abstract: Does North-South Horizontal Intra-Industry Trade Really Exist? An Analysis of the Toy Industry. — In a combination of a case study approach and econometric analysis, bilateral intra-industry trade between high income countries and low income countries in the toy industry is investigated. In a number of products there is important bilateral intra-industry trade between both groups of countries. Econometric analysis in which a number of the explanatory variables used were quantified on the basis of the information supplied by the industry-spokesmen yields results which strongly support the view that the bilateral IIT between the high income countries and the low income countries in the toy industry is determined significantly by horizontal product differentiation and economies of scale.
59 citations
TL;DR: In this paper, the authors find evidence of the importance of both roles of human capital and physical capital, and they also find that the relationship between growth and the external effects of human resources vary according to the trade regime.
Abstract: Human Capital, Trade, and Economic Growth. — Human capital, because of its special role in innovative activity and technological progress, has formed the bedrock of the new theories of endogenous growth. However, it not only serves as an engine of growth but also as a productive input along with labor and physical capital. In this study, the authors find evidence of the importance of both roles of human capital. They also find that the relationship between growth and the external effects of human capital vary according to trade regime. When literacy rates are relatively high, open economies grow about 0.65 to 1.75 percentage points more than closed economies.
59 citations
TL;DR: In this article, structural changes in European labour markets and attempts to associate them with the evolution of the ERM as well as with political and institutional developments have been examined and the results indicate that diverging sacrifice ratios, rather than tax wedge and productivity effects may be the strongest impediment to labour market convergence in the transition from ERM to full economic and monetary union.
Abstract: The ERM and Structural Change in European Labour Markets: A Study of 10 Countries. — This paper tests for structural changes in European labour markets and attempts to associate them with the evolution of the ERM as well as with political and institutional developments. The results indicate that diverging sacrifice ratios, rather than tax wedge and productivity effects may be the strongest impediment to labour market convergence in the transition from the ERM to full economic and monetary union. The empirical work indicates that the ERM may have provided some pressure towards more symmetric responses to shocks, but the changes have not been great.
56 citations
TL;DR: In this article, the authors apply fractional cointegration to shed some light on the validity of purchasing power parity as a long-run equilibrium condition, using the Taiwan/US dollar exchange rate.
Abstract: A Fractional Cointegration Approach to Empirical Tests of PPP: New Evidence and Methodological Implications from an Application to the Taiwan/ US Dollar Relationship. —This paper applies a relatively new concept of fractional cointegration to shed some light on the validity of purchasing power parity as a long-run equilibrium condition, using the Taiwan/US dollar exchange rate. Findings suggest that, while standard tests of cointegration fail to support cointegration between nominal exchange rates, domestic and foreign prices, the fractional cointegration analysis permits deviations from equilibrium to follow a fractionally integrated process and hence captures a much wider class of parity or mean-reversion behaviour. The paper concludes by indicating areas in which fractional cointegration will be a particularly appropriate technique to unearth previously unfounded temporal characteristics.
38 citations
TL;DR: The effect of foreign competition on UK employment and wages was investigated in this article, where the authors found that foreign competition has a negative effect on both wages and on employment in the manufacturing sector.
Abstract: The Effect of Foreign Competition on UK Employment and Wages: Evidence from Firm-Level Panel Data. —This paper contributes to the sparse empirical literature on the effects of foreign competition on domestic employment and wages. The authors estimate a structural labour demand equation on UK firm-level panel data between 1982 and 1989 and several wage equations. When they restrict the sample to the manufacturing sector only, they find for the unionized firms that foreign competition has a negative effect on both wages and on employment. However, when UK manufacturing firms face only a few rivals, foreign competition has a positive effect on wages, but no effect on employment.
38 citations
TL;DR: In this paper, the authors have shown that ESACs unprecedented emergence in world trade and capital transactions has been accompanied by a growing share of intra-area transactions, and that the driving forces of fast growing intra area transactions were basically internal conditions, such as geographical and cultural proximity, size, and complementarity in resource endowment and production structure.
Abstract: The analyses have shown that ESACs unprecedented emergence in world trade and capital transactions has been accompanied by a growing share of intra-area transactions. At least for the goods sector, the evidence is clear. Intra-area transactions grew faster than those to the rest of world, and the latter rose faster than world trade. Given this “double growth” performance, there was no trade diversion in the static zero sum meaning. Driving forces of fast growing intra-area transactions were basically internal conditions, such as “natural” trading partnership (geographical and cultural proximity, size, and complementarity in resource endowment and production structure), rising income levels fostering intra-industry trade, the economic opening of China, and unilateral liberalisation of trade and capital transactions on a non-discriminatory basis. It cannot be denied that external factors as protectionism and recession in non-Asian OECD countries have also contributed to this performance. Yet, it seems safe to assume that even without the US and European recession in the early eighties and early nineties and without the spread on non-tariff barriers, intraarea transactions would have received sufficient fuels from the internal factors to grow more rapidly than transactions with the rest of the world.17 Furthermore, a base effect of a low initial level of intra-area trade cannot be neglected.
31 citations
TL;DR: In this paper, a simple model based on the assertion that the efficacy of on-the-job training, as well as the productivity of skills, depends on the social stock of capital is presented.
Abstract: On-the-Job Training as a Cause of Brain Drain. —This paper presents a simple model based on the assertion that the efficacy of on-the-job training, as well as the productivity of skills, depends on the social stock of capital. It shows that as the degree of this dependency of on-the-job training upon capital stock increases, the problem of brain drain becomes more severe and more difficult to correct. The model may explain why the failure of foreign-educated students to repatriate is a more prevalent form of brain drain than outright migration of skilled labor. It is consistent with the repatriation pattern of Taiwanese students who received post-secondary education in Japan.
28 citations
TL;DR: In this article, a multivariate error-correction framework is applied to three European economies (France, Germany, and Italy) to evaluate whether the interest rate spread contains any additional predictive power if the model includes the money stock.
Abstract: Money, Interest Rate Spreads, and Economic Activity. —Numerous empirical studies for industrial countries have shown that the term structure of interest rates is a good indicator for future output growth. This paper analyzes whether the interest rate spread contains any additional predictive power if the model includes the money stock. A multivariate error-correction framework is applied to three European economies — France, Germany, and Italy. Granger causality tests are performed for various monetary aggregates and the term structure. The evidence concerning the marginal information content is mixed: For France and Italy, the term structure does not improve the results of the basic model whereas it is significant for Germany.
TL;DR: In this paper, the authors show that the German monetary union not only had an impact on the stability of the narrow money demand in Germany, but also on the aggregate demand for money in two larger European currency areas, consisting of three and seven EMS countries.
Abstract: The Stability of Narrow Money Demand in Germany and Aggregate Money Demand in the EMS: Impact of German Unification. —This paper shows that the German monetary union not only had an impact on the stability of the narrow money demand in Germany but also on the stability of the aggregate demand for money in two larger European currency areas, consisting of three and seven EMS countries. However, the impact was only of a temporary nature. The empirical results show that the close link between real money, output, and the interest rate still exists. In a European Monetary Union, narrow money thus remains a potential candidate as an indicator and/or intermediate target for the European Central Bank.
TL;DR: In this paper, empirical analysis gives clear evidence of regional convergence in West Germany: poorer regions tend to grow faster than richer ones, and the pattern of a deceleration of the speed of convergence in recent years is similar to the developments found in these two regions (Barro and Sala-i-Martin 1991).
Abstract: The empirical analysis gives clear evidence of regional convergence in West Germany: poorer regions tend to grow faster than richer ones. In the period 1957–88, the speed of convergence was around 4 percent per year, implying a halving of the difference between actual and steady-state income every 16 years. While our empirical findings on convergence are of a similar magnitude as found by studies for the US and Europe by Barro and Sala-i-Martin (1991) and Mankiw et al. (1990), they indicate however a somewhat faster speed of adjustment for Germany. Also the pattern of a deceleration of the speed of convergence in recent years is similar to the developments found in these two regions (Barro and Sala-i-Martin 1991).
TL;DR: In this article, a computable general equilibrium model was used to analyze the regional, sectoral and macroeconomic dimension of Brazil's "deforestation problem" and it was shown that macroeconomic reform is not in conflict with conservation policies.
Abstract: Stopping Deforestation in the Amazon: Trade-off between Ecological and Economic Targets? —Using a computable general equilibrium model the paper analyzes the regional, sectoral and macroeconomic dimension of Brazil’s “deforestation problem”. It is shown that macroeconomic reform is not in conflict with conservation policies. Therefore, there is no need for compensation payments but rather for improving the effectiveness of conservation policies by macroeconomic reform. The analysis also shows that regional conservation policies are generally superior to sectoral conservation policies.
TL;DR: The relationship between U.S. and Eurodollar interest rates in futures contracts was analyzed in this article, showing that yields on U. S. Treasury bill and Euro dollar futures are cointegrated with the TED spread as the cointegrating vector for the period January 1987-July 1993.
Abstract: The Relationship between U.S. and Eurodollar Interest Rates: Evidence from the Futures Market. — This paper analyzes the lead/lag relationship in the Granger-cause sense between U.S. and Eurodollar interest rates in futures contracts. It shows that yields on U.S. Treasury bill and Eurodollar futures are cointegrated with the TED spread as the cointegrating vector for the period January 1987–July 1993. The error correction model indicates that the U.S. market leads the Eurodollar market. However, the presence of this unidirectional causality does not improve the forecasting of Eurodollar yields. Other evidence given in the paper suggests that the hypothesis of contemporaneous relationships, at least on daily base, is not rejected.
TL;DR: In this article, the authors find significant evidence supporting the hypothesis of long-run equilibrium relationships between inflation rates in countries which participate in the ERM and show that the German inflation rate cannot be considered weakly exogenous.
Abstract: As in Caporale and Pittis, this paper finds significant evidence supporting the hypothesis of long-run equilibrium relationships between inflation rates in countries which participate in the ERM. However, the results differ in several important respects. First, the evidence rejects a dynamic specification in terms of inflation differentials against Germany and in at least one important case, Table 5, it is clear that imposing this restriction may lead to invalid inferences on the role of the ERM as a mechanism to achieve inflation convergence. Second, on the issue of German leadership the results given in Tables 4 and 5 suggest that the German inflation rate cannot be considered weakly exogenous. Rather it shares a long-run relationship with inflation in both ERM and non-ERM economies and responds to deviations from these equilibria. Finally, as these results also hold for a sample period twice the length of that used by Caporale and Pittis they cast considerable doubt on their assertion that cointegrating relationships are unlikely to be detected when “the dynamic process of convergence is still going on”.
TL;DR: In this article, the change in exchange rate uncertainty between the Bretton Woods and floating exchange rate periods was examined and both the unconditional variance and the conditional variance of the DM/dollar exchange rate under each exchange rate regime were estimated on the basis of the coefficient of variation and a GARCH model.
Abstract: This paper examines the change in exchange rate uncertainty between the Bretton Woods and floating exchange rate periods. We estimate both the unconditional variance and the conditional variance of the DM/dollar exchange rate under each exchange rate regime. The former is estimated on the basis of the coefficient of variation and the latter on the basis of a GARCH model. Our GARCH results show that the unconditional variance greatlyunderstates the change in exchange rate uncertainty that resulted from the switch to a flexible exchange rate regime.
TL;DR: In this paper, an extended dynamic investment model, which includes adjustment costs for capital and revision costs for investment, is presented, which is specified according to the east German economy and analyzed numerically by an optimization method based on direct collocation.
Abstract: Eastern Germany and the Conflict between Wage Adjustment, Investment, and Employment: A Numerical Analysis — In this paper, some light is shed on the dynamics of the adjustment process in eastern Germany by studying the linkages between the dynamics of wage adjustment, investment, and employment An extended dynamic investment model, which includes adjustment costs for capital and revision costs for investment, is presented This model is specified according to the east German economy and analyzed numerically by an optimization method based on direct collocation Results are obtained for the time horizon of adjustment and for the implications of different wage strategies on the path of investment and employment
TL;DR: In this article, the authors measure trade openness by the rate of growth of the share of exports in GDP, and argue that once the possibility of outliers for trade share growth is considered, a close relationship between exports and growth emerges that works mainly through improved efficiency.
Abstract: Trade, Efficiency and Growth in a Cross Section of Countries. —Some cross-country studies of the determinants of growth suggest only a modest role for trade policy. This study, measuring trade openness by the rate of growth of the share of exports in GDP, argues that once the possibility of outliers for trade share growth is considered, a close relationship between exports and growth emerges that works mainly through improved efficiency. This relationship proves to be robust to the inclusion of a set of commonly used right-side variables as well as the corresponding import variable.
TL;DR: The authors quantitatively assess the consequences of Hungary for three types of policies: removing quantitative import restraints in agriculture, both for all of agriculture and for each of five separate agricultural products, removing the export subsidy program in agriculture; and adopting a European Community type common agricultural policy (CAP) system in Hungary.
Abstract: The authors quantitatively assess the consequences of Hungary for three types of policies: removing quantitative import restraints in agriculture, both for all of agriculture and for each of five separate agricultural products; removing the export subsidy program in agriculture; and adopting a European Community type common agricultural policy (CAP) system in Hungary. The authors estimate the consequences of all policies by using a small open economy computable general equilibrium model for Hungary, calibrated to the year 1990. They estimate the tariff equivalent of the import licenses through a detailed study of price comparisons, the first of its kind for Hungary. Imposing a CAP system they find, would be a costly step backward for Hungary, especially as the long run trend in Hungarian agricultural policy has been toward less intervention and more reliance on the market. A CAP system would significantly increase the government's fiscal problems. Import protection and export subsidies are costly, inefficient policies. The most important policy conclusion they contend, has to do with the piecemeal sequencing of reforms in the presence of both export subsidies and import licenses. Removing import licenses while export subsidies remain would generate byproduct distortions in the export market and little gain in welfare. The piecemeal removal of export subsidies, however, would not generate byproduct distortion, so substantial gains could be expected - but at the expense of greater adjustment costs. To facilitate understanding of this commonly used type of general equilibrium model, the authors explain the results by using supply and demand style graphs of the agricultural sector.
TL;DR: In this paper, the authors used an integrated and consistent data system of trade and financial flows, called the World Accounting Matrix (WAM), to analyze trade and finance linkages between countries and regions.
Abstract: Regional Blocs or Global Markets? A World Accounting Approach to Analyze Trade and Financial Linkages. —Do we live in a world of globalized capital and commodity markets or do regional networks dominate trade and financial linkages between economies? This paper addresses the question, using an integrated and consistent data system of trade and financial flows, called the World Accounting Matrix (WAM). This framework overcomes many of the data discrepancies and shortcomings in official statistics sources. Simple descriptive parameters are derived from the WAM to define the degree of trade and financial linkages between countries and regions. It is found that regional ties continue to be a predominant feature of the structure of the world economy.
TL;DR: In this paper, the effects of divergence from central parity on the smoothness of the volatility are discussed within the framework of a TGARCH model, and it is shown that, for various EMS rates, the divergence indicator has a statistically significant effect on volatility smoothness.
Abstract: Divergence Indicators and the Volatility Smoothness in Semi-Fixed Exchange Rate Regimes. —Fixed or semi-fixed exchange rate regimes have volatility paths that are in general less smooth than their free floating counterpart. Moreover, there tends to be a correlation between the lack of smoothness and the weakness of the currency. In this article, the effects of divergence from central parity on the smoothness of the volatility are discussed within the framework of a TGARCH model. It is shown that, for various EMS rates, the divergence indicator has a statistically significant effect on the smoothness of the volatility path.
TL;DR: In this paper, a critical note published in this issue of Weltwirtschaftliches Archiv Thorn (1995) reconsiders the results reported in an earlier paper of ours (Caporale and Pittis 1993) on inflation convergence in the EMS, and questions our conclusion that there is some evidence supportive of the German Leadership Hypothesis.
Abstract: a critical note published in this issue of Weltwirtschaftliches Archiv Thorn (1995) reconsiders the results reported in an earlier paper of ours (Caporale and Pittis 1993) on inflation convergence in the EMS, and questions our conclusion that there is some evidence supportive of the German Leadership Hypothesis (GLH). Thorn criticizes the fact that we specify the system in terms of inflation differentials rather than inflation rates, without testing the validity of this restriction by means of homogeneity tests. How is our analysis affected by the way the model was formulated? It can be easily shown that if inflation differentials are cointegrated so will inflation rates. For the sake of simplicity, let us consider only three inflation rates, nl , n2, and n3, and let us assume that the two inflation differentials are 1(1), but there exists a linear combination which is stationary, i.e., that the following relationship holds:
TL;DR: In this article, the authors investigate the relationship between technology, trade, and growth in agriculture and find that technological gaps affect trade shares in a significant way, and that technology gaps are correlated with trade shares.
Abstract: Technology Gaps and Trade in Agriculture. —Linkages between technology, trade, and growth have recently been scrutinized by international trade theorists. By relaxing conventional assumptions such as constant returns to scale and perfect competition, the “new trade theory” literature explains how technology affects trade flows. Using dynamic modeling, technological gaps are found to affect trade shares in a significant way.
TL;DR: In this article, a money demand function was introduced into the P-Star approach to account for the downward trend of velocity in Germany and a wealth variable was incorporated into the money demand model.
Abstract: I. Reply to Thomas Mayer P-Star approach (Hallman et al. 1991) offers a simple yet flexible framework to study the relationship between money and prices. We have introduced a money demand function into the model to account for the downward trend of velocity in Germany. Mayer further extends the model by incorporating a wealth variable into the money demand function. While this should be a potentially useful extension, there are several problems with this approach, concerning (1) the distinction between actual and equilibrium wealth, (2) the relationship between income and wealth, and (3) cointegration between the actual and the derived equilibrium price level. (1) Mayer postulates a long-run money demand function with real wealth (w) as an additional explanatory variable (equation 3) and correctly defines equilibrium velocity as a function of nominal money (m), potential output (y*) and equilibrium wealth (w*). The resulting price gap, generalizing our equation (10), now also depends on the wealth gap:
TL;DR: In this article, Todter and Reimers applied the notion of P-Star as a link between money and prices in Germany, which combines the well-known quantity theory of money and the idea of partial adjustment of one variable to its equilibrium level.
Abstract: Todter and Reimers (T&R) applied the conception of "P-Star as a link between money and prices in Germany" in this journal. This conception combines the well-known quantity theory of money and the idea of partial adjustment of one variable to its equilibrium level. Before commenting on their conception a simple model will be discussed, afterwards it will be expanded in order to show the ideas behind their conception, and finally some decisive limitations of their analysis will be shown.
TL;DR: In this paper, the authors examine the effects of various types of capital controls imposed by authorities on the official spot and forward exchange markets and examine the degree of insulation provided by a dual exchange market cum capital controls in face of a speculative crisis.
Abstract: Capital Controls and International Trade Finance in a Dual Exchange Rate Regime: The Belgian Experience Post-Mortem. — The purpose of the paper is to model “leads and lags” capital flows on the official segment of a dual exchange market and to examine the effects of various types of capital controls imposed by authorities on the official spot and forward exchange markets. The focus of the analysis is the degree of insulation provided by a “dual exchange market cum capital controls” in face of a speculative crisis. The crucial variables in this respect are the deviation from covered interest parity and the forward risk premium. Results of the theoretical model are confronted with empirical evidence over the 1975–85 period.
TL;DR: In this article, the authors explain differences among OECD countries in the evolution of taxes on labour during the last two decades and show that these taxes are to an important extent structurally and institutionally determined.
Abstract: Institutions and the Rise of Taxes on Labour in the OECD. —The aim of this paper is to explain differences among OECD countries in the evolution of taxes on labour during the last two decades. Its main message is that these taxes are to an important extent structurally and institutionally determined. Tax rates on labour are shown to have risen more strongly in countries where: (i) government has been controlled mainly by leftist parties; (ii) taxes (in general) are decided and collected mainly by central government (fiscal centralization); (iii) coalition and minority governments are frequent; (iv) the partisan composition (political colour) of these coalitions is unstable; (v) the labour market is neither centralized nor decentralized.
TL;DR: In this paper, T6dter and Reimers show a convincing application of the P-Star measure to Germany and show that when wealth effects on the demand for money are taken into account, inflationary pressures as measured by the so-called price gap at times differ from those estimated with the simple P-star model.
Abstract: T he paper by T6dter and Reimers shows a convincing application of the P-Star measure to Germany. The main difference of their model to that developed by Hallman et al. (1989, 1991) for the U.S. is an extension to account for the long-term decline of velocity observed in Germany, which the authors attribute to, among other things, wealth effects. If wealth influences the demand for money, and income and wealth are cointegrated, T6dter and Reimers' model indeed represents the reduced form of a more comprehensive model. However, if income and wealth are not cointegrated, their empirical estimates are likely to be suboptimal. Empirical evidence presented in the following suggests that there is reason to doubt the cointegration of income and wealth in Germany, and that a wealth variable should be explicitly incorporated into the P-Star model. When wealth effects on the demand for money are taken into account, inflationary pressures as measured by the so-called price gap at times differ from those estimated with the simple P-Star model. Unfortunately, application of the extended P-Star model for policy purposes is more cumbersome. At the same time, however, the German monetary authorities' claim that the distinction between "money" and wealth has become blurred recently makes an explicit modelling of wealth effects important. In the absence of such an extended framework, policymakers may not be able to resist the temptation to make notional adjustments for wealth effects to their monetary targets.
TL;DR: The role of natural resources in trade patterns among the US, Japan, and Other Countries in the Asian Pacific Rim was investigated in this paper, showing that natural resources continue to play a critical role in explaining the more recent bilateral trade patterns.
Abstract: The Role of Natural Resources in Trade Patterns among the US, Japan, and Other Countries in the Asian Pacific Rim. —The paper investigates the role natural resources play in shaping the trade patterns of both the US and Japan in trading with each other and with country groups in the Asian Pacific Rim. It has been argued that it is the US’s effective exploitation of natural resource endowment which was instrumental in that country’s rise to economic preeminence at the turn of this century. Given that the US relative resource abundance has diminished after the Second World War, one would expect to see the declining role of resources in American exports. Using data for 1973, 1982, and 1991, the empirical results indicate clearly that natural resources continue to play a critical role in explaining the more recent bilateral trade patterns.