Showing papers in "The Economic Journal in 1994"

Dynamic count data models of technological innovation

Abstract: This paper examines the application of count data models to firm level panel data on technological innovations. The model we propose exhibits dynamic feedback and unobserved heterogeneity. We develop a fixed effects estimator that generalises the standard Poisson and negative binomial models allowing for dynamic feedback through both the firm's stock of knowledge and its product market power. By using the long pre-sample history of innovation information this "entry stock" estimator is shown to control for correlated fixed effects and is compared with an alternative nonlinear GMM estimator. We find evidence of history dependence in innovation activity although variables reflecting the company's economic environment are also found to play a major role. Technological innovation is an inherently dynamic and nonlinear process. Empirical models seeking to track its progress should share these features. Count data models, where the variable of interest is a non-negative integer, are commonly used to analyse innovation headcounts. However, they are not typically formulated to deal with the dynamic feedback that is suggested by theory. In this paper we examine alternative approaches to modelling innovation counts when there are important dynamics and unobservable heterogeneity. We model a count of the number of innovations commercialised by a firm in a year as a function of a firm's market power and its tangible and knowledge capital stock. There is clearly going to be some feedback mechanism between market power and innovation - a successful innovation is likely to lead to an increase in a firm's market share. In addition, any representative sample of companies is likely to display a wide range of innovative activity. The majority of companies make few innovations while a small group are involved in a high level of activity. This difference is unlikely to be solely attributable to observable differences across companies. Unobservable permanent heterogeneity is, therefore, an important feature of any empirical model of innovation activity.

An Overlapping Generations Model of Growth and the Environment

Abstract: This chapter analyses the potential conflict between economic growth and the maintenance of environmental quality in an overlapping generations model. Since environmental damage may outlive its perpetrators, overlapping generations’ models provide an appropriate demographic structure for analysis of environmental externalities. In general, environmental externalities could arise from production or consumption and could affect welfare or productivity. The chapter identifies interior equilibrium without external increasing returns and considers equilibrium with external increasing returns. Increased saving benefits generations through the external increasing returns, and hurts generations through reduced maintenance and greater consumption; higher saving is desirable if the first effect dominates. The dynamics of the economy therefore imply a negative correlation between environmental quality and growth under zero maintenance, in contrast to the positive correlation at interior equilibrium. Agents in economies with little capital or with high environmental quality may choose not to engage in maintenance of the environment.

Asymmetric Price Adjustment and Economic Fluctuations

Abstract: This paper considers a possible explanation for asymmetric adjustment of nominal prices. The authors present a menu-cost model in which positive trend inflation causes firms' relative prices to decline automatically between price adjustments. In this environment, shocks that raise firms' desired prices trigger larger price responses than shocks that lower desired prices. The authors use this model of asymmetric adjustment to address three issues in macroeconomics: the effects of aggregate demand, the effects of sectoral shocks, and the optimal rate of inflation. Copyright 1994 by Royal Economic Society.

The philosophy of social science : an introduction

Abstract: Preface 1. Introduction: problems of structure and action 2. Discovering truth: the rationalist way 3. Positive science: the empiricist way 4. Ants, spiders and bees: a third way? 5. Systems and functions 6. Games with rational agents 7. Understanding social action 8. Self and roles 9. Explaining and understanding 10. A value-neutral social science? 11. Rationality and relativism 12. Conclusion: two stories to tell Bibliography Index.

Making a market : the institutional transformation of an African society

Abstract: 1. A proper marriage: new institutional economic anthropology 2. Transaction costs: the history of trade among the Orma 3. Distribution of the gains from trade 4. Agency theory: patron-client relations as a form of labor contracting 5. Property rights: dismantling the commons 6. Collective action: from community to state 7. Conclusion: ideology and the economy.

Evolutionary Economics and Technology Policy

Abstract: In this brief paper I propose to explore the economics of technology policy from an evolutionary perspective. As with any evolutionary argument the central concern is with the mechanisms of economic change, in this case in relation to the development of new technologies and patterns of organisation, and their spread into the wider economic system. In this sense we build upon one of the major stylized facts of modern growth, structural change at all levels from the microeconomic to the macroeconomic. To any observer of the policy making process let alone a practitioner, the contrast between the theory which underpins policy and the implementation of policy will seem acute. As Nelson and Winter (I982) have rightly insisted, research into policy is shaped by policy questions not by an agenda relating to how economic theory can be developed to deal with innovation. Setting priorities, designing instruments and evaluating outcomes do not link easily with the general ideas dealt with below. Among the general points we will stress, two will be of critical importance. First that the innovation activities of firms involve a wider range of other institutions supplying the knowledge and skills which underpin the efforts of individual firms. We term this the systems perspective on innovation (Nelson, I993). Secondly, it is not helpful to treat innovation and the diffusion of innovation as separate categories, in fact they are inseparable, with feedback from diffusion being one of the critical elements shaping how a technology is developed. We begin with a brief review of the familiar market failure perspective on policy and build from this into a brief overview of the evolutionary approach. The paper concludes with an outline of the systems perspective on technology policy. It is taken as read that virtually any economic policy can have implications in principle for the process of innovation. However, we treat technology policy in a narrow sense even though it spills over into questions of education policy, science policy and competition policy.

Estimating Aid-Allocation Criteria with Panel Data

Abstract: In 1990, the net amount of economic aid, or official development assistance, to all recipients from all multilateral and bilateral sources was about $62 billion, an amount that exceeded the GDPs of Greece and Portugal. Despite the size of this yearly transfer there has been no rigors modeling and estimation of the criteria by which it occurs. As a result, there is little agreement about the extent to which ODA is allocated according to the needs of the recipient countries. The purpose of this paper is to develop a rigorous theoretical model of ODA allocation that can be used to provide consistent estimates of the importance of recipient needs. Copyright 1994 by Royal Economic Society.

Consumer confidence and rational expectations: are agents' beliefs consistent with the theory?

Abstract: Consumer confidence is found to have predictive content for a wide range of macroeconomic variables including consumption growth, contrary to standard REPIH. We find that on UK data the REPIH is rejected due to the predictive content of consumer confidence, and not labour income. We explain this finding in terms of precautionary behaviour. Extending the Hansen and Singleton Consumption CAPM model to allow a conditional variance we find a high level of confidence is associated with both greater optimism about the level of consumption and greater uncertainty about the forecaster variance. Once allowance is made for time aggregation the over identifying restrictions implied by this model are accepted. We estimate a small but statistically significant intertemporal elasticity of substitution.

Technology Diffusion and Public Policy

Abstract: A useful typology of technological change is provided by the Schumpeterian trilogy: invention (the generation of new ideas), innovation (the development of those ideas through to the first marketing or use of a technology) and diffusion (the spread of new technology across its potential market). Until recently, policy schemes in most OECD countries have tended to focus predominantly on the invention and innovation, or science and R&D, end of this technology spectrum (see e.g. Limpens et al., I 992). Although it is generally realised that it is the process of diffusion, or use of technology that creates productive potential and competitiveness, policy initiatives have largely bypassed opportunities to improve the diffusion process. If this may seem misplaced emphasis, it does in fact reflect the state of the academic literature which is wide ranging and extensive as it relates to policies on R&D, but small and fragmented as regards policies on diffusion. Currently a gradual reorientation of policy direction toward diffusion seems to be taking place. The US and UK governments, for example, have recently proposed major technology policy initiatives that, despite differences in emphasis, both stress the importance of creating an infrastructure conducive to a rapid spread of awareness and knowledge of innovations. We argue that, although sensible in themselves, such policies may be too limited in scope and that a broader policy stance may be needed. This paper has two main objectives. The first is to provide an overview of why policy intervention in the diffusion process may be desirable and what form it might take. This discussion is rather long, since to the best of our knowledge there is no published systematic synthesis of the diffusion policy literature (though see Stoneman (I987) for an earlier attempt). The second aim is to look at actual diffusion policies and their impacts. To make the task manageable we are restricting this paper to a discussion of the diffusion of new process technologies. Although similar issues apply to new consumer technologies these are not explicitly addressed. We also consider diffusion policy only within the context of a given institutional and macroeconomic environment. Although it may well be that the supply of skilled manpower, the nature of the capital market, animal spirits and entrepreneurship, fiscal and monetary policies will all impact upon the diffusion path, improvements in these areas will also impact upon a whole host of other aspects of the economy's performance. To use a plea for diffusion policy as a rationale for changes in such areas would be equivalent to the tail wagging the dog, and thus they fall outside the remit of this paper.

The UK Consumption Boom of the Late 1980s: Aggregate Implications of Microeconomic Evidence

Abstract: Two competing explanations of the UK consumer boom in the late 1980s are the financial liberalisation-imperfect housing market hypothesis of Muellbauer and Murphy and the expectations hypothesis of King. We use 15 years of Family Expenditure Surveys, and cohort analysis, to investigate to what extent these two hypotheses agree with observed changes in consumption patterns. We find that the housing markets explanation accounts for much of the increase by older cohorts, but cannot be reconciled with the marked rise in expenditure levels of younger households. A simple simulation exercise shows instead that the expectations hypothesis can generate increases of expenditure by young consumers of the magnitude observed in our data.

Uneven growth between interdependent economies : an evolutionary view on technology gaps, trade and growth

Abstract: Preface. Part One. Theory and empirics of international growth rate differentials and technology gaps. Chapter 1. Technology, growth and welfare: a historical perspective. 1.1. The search for welfare and the role of technology. 1.2. Aim of the book. 1.3. Organisation of the rest of the book. Notes. Chapter 2. The literature on economic growth and technological change. 2.1. A brief overview. 2.2. The traditional literature on economic growth. 2.3. New neoclassical growth models: endogenous innovation. 2.4. The role of technological change. 2.5. Explaining growth rate differentials. Notes. Chapter 3. An evolutionary theory of economic growth and technological change: the basics. 3.1. Economic growth as an evolutionary process: a macroeconomic interpretation. 3.2. Economic growth as an evolutionary process: a microeconomic interpretation. 3.3. Towards an evolutionary theory. Notes. Chapter 4. Technology and growth in an international perspective, 1960-1990: an impressionistic approach. 4.1. Economic growth and structural change. 4.2. Technology. 4.3. Technology and growth: catching up or falling behind? A global issue. 4.4. Summary and conclusions. Appendix IV.1. Postwar economic welfare and the selection of country samples. Appendix IV.2. The 3-digit ISIC sector classification (revision 2). Appendix IV.3. On measuring and graphing structural differences between countries. Appendix IV.4. Some tests for the influence of multicollinearity on the regressions in section 4.2. Notes. Part Two. Technology spillovers between interdependent economies: catching up or falling behind?. Chapter 5. A model of catching up or falling behind. 5.1. Description of the model. 5.2. Solving the model. 5.3. The outcomes of the model under varying parameter restrictions. 5.4. Conclusions of the model. Notes. Chapter 6. An empirical test of the model. 6.1. Testing procedure and data sources. 6.2. Result. 6.3. Interpreting the results. 6.4. Summary and some policy conclusions. Appendix VI.l. A description of the data. Appendix VI.2. The calculation of the N-statistic. Notes. Part Three. Technological change, international trade and economic growth. Chapter 7. An evolutionary model of technological change, specialisation and economic growth. 7.1. A descriptive interpretation. 7.2. The model. 7.3. Simulation results. 7.4. Summary and conclusions. Appendix VII.1. Initial values of the simulation runs for the 3-country 2-sector case. Appendix VII.2. Some mathematical details of the selection equation in discrete time. Notes. Chapter 8. An empirical view on the evolution of trade and technology. 8.1. Patents as indicators of innovation. 8.2. Summarising some known correlations. 8.3. Trade and technology: a dynamic evolutionary framework. 8.4. Estimation of the replicator equation. 8.5. Some further tests on the robustness of the replicator estimates. 8.6. Explaining the results for the patent variables. 8.7. Summary and conclusions.

Estimating a Wage Curve for Britain 1973-90

Abstract: Following A. W. Phillips's (1958) original work on the United Kingdom, applied research on unemployment and wages has been dominated by the analysis of highly aggregated time-series data sets. However, it has proved difficult with such methods to uncover statistically reliable models. This paper adopts a different approach. It uses macroeconomic data on 175,000 British workers from 1973 to 1990 to provide evidence for the existence of a negatively sloped relationship linking the level of pay to the local rate of unemployment. The paper casts doubt on standard ideas in macroeconomics, regional economics, and labor economics. Copyright 1994 by Royal Economic Society.

Wage Bargaining Structure, Employment and Economic Integration

Abstract: It is widely believed that the integration of European economies will have little impact on labor mobility. This does not mean, however, that European labor markets will be unaffected by the process of economic integration. In this paper, the authors show that, with increased competition resulting from closer economic integration, the hump-shaped pattern summarizing the relationship between economic performance and the degree of centralization in wage bargaining flattens out. As a consequence, the importance of where a particular economy stands on the wage bargaining scale diminishes. Copyright 1994 by Royal Economic Society.

Free Trade: Old and New Challenges

Abstract: The paper analyses the old and new challenges to the theory and policy of Free Trade. The old challenges have sought to undermine the case for Free Trade by citing one or another type of market imperfection. Thus, the postwar period has seen two such challenges: factor market imperfections were analysed in the 1950S to 197os, product market imperfections in the I980S. The new challenges are twofold. One comes from the demands for Fair Trade as a precondition for Free Trade; the other, from the concern that Free Trade, while efficient, immiserises the unskilled in the richer countries. Having given a Harry Johnson Lecture four years ago in London, I was startled to be invited to give yet another one today. But then I recalled his unmatched productivity: his articles continued to be published even after his death, the pipelines in several journals being full of them. It is only appropriate then that he be honoured many times over. Also, in these days of preoccupation with increasing returns to scale, such a proliferation of lectures in the memory of a great economist is doubly fitting. Since Harry Johnson was in the English tradition of taking his theory from the real world's problems and then taking it back to talk penetratingly about them, I thought it appropriate to address the earlier Johnson Lecture to the threats posed currently to the multilateral trading system by increasing resort

The Relevance of P-Star Analysis to UK Monetary Policy

Abstract: Recent articles have attempted to restore the use of a simple measure of the money supply as an indicator of future price levels, P[star], and to reestablish a causal link from money to prices. In this paper we argue that the P[star] approach is flawed. It is certainly more complex than traditional monetarist approaches but the fundamental questions of causality are in no way either affected or resolved. We argue that the P[star] relationship does not have a causal link with prices but rather the causality runs from prices to money. We also find that there is some causality running from money to real income, so that monetary conditions do seem to have some predictive power for future levels of activity. Copyright 1994 by Royal Economic Society.

Buying greenhouse insurance : the economic costs of carbon dioxide emission limits

Abstract: In recent years a growing concern that the increasing accumulation of greenhouse gases will lead to undesirable changes in global climate has resulted in a number of proposals, both in the United States and internationally, to set physical targets for reducing greenhouse gas emissions. But what will these proposals cost? Based on the authors' earlier ground-breaking work, Buying Greenhouse Insurance outlines a way to think about greenhouse-effect decisions under uncertainty. It describes an insightful model for determining the economic costs of limiting carbon dioxide emissions produced by burning fossil fuels and provides a solid analytical base for rethinking public policy on the farreaching issue of global warming.Manne and Richels present region-by-region estimates of the costs that would underlie an international agreement. Using a computer model known as Global 2100, they analyze the economic impacts of limiting C02 emissions under alternative supply and conservation scenarios. The results clearly indicate that a reduction in emissions is not the sole policy response to potential climate change.Following a summary of the greenhouse effect, its likely causes, and possible consequences, Manne and Richels take up issues that concern the public at large. They provide an overview of Global 2100, look at how the U.S. energy sector is likely to evolve under businessas-usual conditions and under carbon constraints, and describe the concept of "greenhouse insurance." They consider possible global agreements, including an estimate of benefits that might result from trading in an international market in emission rights. They conclude with a technical description directed toward modeling specialists.Alan Manne is Professor of Operations Research at Stanford University. Richard Richels is Director of the Energy Analysis and Planning Department at the Electric Power Research Institute.

Equilibrium and evolution : an exploration of connecting principles in economics

Abstract: Economic theory and economic problems the organization of knowledge economic organization firms markets innovation.

On the Speed and Sequencing of Privatisation and Restructuring

Abstract: This paper examines aspects of speed and sequencing of restructuring and privatization in economies in transition. It is argued that because of political constraints, restructuring is more likely to be gradual. Because of the political constraints on restructuring, a very fast and non-differentiated approach to privatization may lead to renationalization and general delays in restructuring. A more gradual policy of privatization may allow for the screening of good from bad firms, allow the emergence of a sound financial sector and give credibility to a policy of gradual restructuring and hardening of budget constraints in the state sector. (This abstract was borrowed from another version of this item.)

Parametric equivalence scales and scale relativities

Abstract: We respond to Banks and Johnson's (1994) Comment on Coulter et al. (1992) drawing on a more general discussion of parametric equivalence scale and scale relativity issues and new empirical results. We show that criticisms of our earlier work are unfounded. When the McClements scale is properly characterised, the scale does indeed provide lower estimates of poverty and inequality levels than most other scales. We reiterate our conclusion that relationships between scale relativities and inequality and poverty indices may be index-specific. Moreover the picture about distributional trends may differ from that about levels.

Central Bank Independence and Monetary Control

Abstract: ing from details, these conclusions imply that inflation is lower the higher is CBI and that, given independence, countries that pre-announce monetary policy have even lower rates of inflation. Furthermore, there is no evidence that CBI retards growth or investment. As a matter of fact, for LDCs, the evidence points in the opposite direction. Low independence is associated with lower growth and investment. Some economists feel that excessive independence may interfere with the potential stabilisatory function of monetary policy. Since fluctuations in the growth rate of the economy are found to be unrelated to CBI, this does not appear to be the case. III. COMMITMENT VIA CENTRAL BANK INDEPENDENCE AND

What Should Central Banks Do? What Should Be Their Macroeconomic Objectives and Operations?

Abstract: Before turning to the normative question of what Central Banks (hereafter CBs) should do, we need to deal with the contentious issue of what CBs actually can do in the field of monetary control. One might think that this should be a relatively straightforward matter of fact. Instead, there is a yawning chasm of mutual misunderstanding, which has persisted for decades, between economists and those working in CBs, which has bedevilled the subject. Virtually every monetary economist believes that the CB can control the monetary base (hereafter Mo), and, subject to errors in predicting the monetary multiplier, the broader monetary aggregates as well. After all, Mo (apart from some relatively unimportant qualifications about coins from the Mint), represents the liabilities of the CB, and the CB should be able to control its own liabilities by open market operations. Hence the normal assumption is that Mo is controllable within a narrow margin. If the Central Bank should fail to do so, it must be because it has chosen some alternative operational guide for its open market operations, e.g. holding interest rates constant at some level, which operational rule is frequently decried as sub-optimal. Assuming that CBs can, almost perfectly, control Mo, economists have constructed several simulated schemes of how an optimal rule for so doing might be set up; McCallum (I993a, b) provides good recent examples. Almost all those who have worked in a CB believe that this view is totally mistaken; in particular it ignores the implications of several of the crucial institutional features of a modern commercial banking system, notably the need for unchallengeable convertibility, at par, between currency and deposits, and secondly that commercial bank reserves at the CB receive a zero, or belowmarket, rate of interest. The first means that fluctuations in the public's demand for cash, which are both strongly seasonal and somewhat unpredictable, must be accommodated. The second means that commercial banks will not willingly hold free reserves at the end of each day (assuming for this purpose that a stated reserve ratio has to be held on each day, rather than averaged over, say, a couple of weeks) beyond that needed to meet late fluctuations in the demand for cash after the money market has closed, or become thin. Only if interest rates fall to the very low levels of the I930s, and/or risks of interest rate variability or late-in-the-day cash runs increase, would commercial banks increase their desired free reserves. Thus, given the

The Econometrics of panel data : handbook of theory and applications

Abstract: Preface. 1. Formulation and Estimation of Econometric Models for Panel Data M. Nerlove, P. Balestra. Part I: Linear Models. 2. Introduction to Linear Models for Panel Data P. Balestra. 3. Fixed Effect Models and Fixed Coefficient Models P. Balestra. 4. Error Components Models L. Matyas. 5. Random Coefficients Models Cheng Hsiao. 6. Linear Dynamic Models P. Sevestre, A. Trognon. 7. Simultaneous Equations J. Krishnakumar. 8. Panel Data with Measurement Error E. Biorn. 9. Specification Issues B.H. Baltagi. Appendix: Matrix Algebra for Linear Models. Part II: Nonlinear Models. 10. Introduction to Nonlinear Models C. Gourieroux. 11. Logit and Probit Models Cheng Hsiao. 13. Incomplete Panels and Selection Bias M. Verbeek, T. Nijman. 14. Pseudo Panel Data M. Verbeek. 15. Point Processes J.-P. Florens, D. Fougere. Part III: Selected Applications. Introduction to the Applications Z. Griliches. 16. Dynamic Labour Demand Models G. Bresson, F. Kramarz, P. Sevestre. 17. Econometric Models of Company Investment R. Blundell, S. Bond, C. Meghir. 18. Consumption Dynamics and Panel Data: a Survey J.-M. Robin. 19. Estimation of Labour Supply Functions Using Panel Data: a Survey F. Laisney, W. Pohlmeier, M. Staat. 20. Individual Labour Market Transitions D. Fougere, T. Kamionka. 21. Modelling Companies' Divident Policy Using Account Panel Data J.-F. Malecot. 22. Software Review P. Blanchard. Index.

An Investment Model for the Supply of Training by Employers

Abstract: This paper explores the incentives faced by employers for supplying general training of the type given to craft apprentices. An investment model is developed in which the employer's return takes the form of reduced recruitment costs for skilled labor. An empirical model is derived and fitted to apprentice recruitment data for the British engineering industry, 1966-88. The model succeeds in predicting the collapse of apprentice training in the 1980s; important explanatory variables are the real interest rate and an index of skill shortages. Copyright 1994 by Royal Economic Society.

Seasonality in Dynamic Regression Models

Abstract: This paper examines the implications of treating seasonality as an unobserved component which changes slowly over time. This approach simplifies the specification of dynamic relationships by separating non-seasonal from seasonal factors. We illustrate this approach using the consumption model of Davidson et al (1978) and estimate a stable error correction model between consumption, income and prices over the period 1958-92. More generally, we argue that autoregressive models are unlikely to successfully model slowly changing seasonality, and may confound seasonal effects with the dynamic responses of prime interest. Our approach can be used in a wide range of cases and we show that there is little loss in efficiency even if seasonality is deterministic.

Unemployment Dynamics and Duration Dependence in France, the Netherlands and the United Kingdom

Abstract: This paper analyzes unemployment dynamics in the French, Dutch, and U.K. labor market. It presents a method to distinguish between the effects of duration dependence and unobserved heterogeneity on the exit rate out of unemployment. It turns out that for British male unemployed there is strong genuine negative duration dependence. For French unemployed, there is no strong duration dependence during the first year of unemployment, while for Dutch unemployed there is nonmonotonic duration dependence. For all groups of French and Dutch individuals, significant unobserved heterogeneity is found. For U.K. male unemployed, heterogeneity seems to be empirically unimportant. Copyright 1994 by Royal Economic Society.

The economics of the profit rate : competition, crises, and historical tendencies in capitalism

Abstract: Part 1 The profit rate: the economics of the profit rate - a summary definitions and measures of the profit rate. Part 2 Competition and prices of production: prices of production long-term equilibrium in classical and Walrasian models the classical analysis of competition convergence? Part 3 General disequilibrium: a general disequilibrium model development of the basic model proportions and dimension in the short and long terms out of the mainstream. Part 4 Stability and business fluctuations: the real and monetary determinants of macro (in)stability the impact of the profit rate on the macroeconomy business fluctuations in other paradigms. Part 5 Technology and distribution - a historical perspective: the historical profile of the profit rate historical tendencies accumulation and growth profitability trends. Part 6 History: profitability and management a chronological overview the historical dynamics of capitalism.

Islamic Economics: The Emergence of a New Paradigm

Abstract: The authors illustrate the potential impact of the Islamic doctrine on Western economic relationships by focusing on the prohibition of interest (riba) in Islamic economics. They show that the alternate method of financier remuneration (i.e., mudarabah profit-and-loss sharing) will, under certain conditions, enhance capital investment on account of its ability to act as an efficient revelation device. By applying ideas developed in the Western contract literature, the authors show that a mudarabah contract between the manager of a project and a syndicate of investors may permit a more efficient revelation of any informational asymmetries between the two. Copyright 1994 by Royal Economic Society.