Showing papers on "Factor price published in 2020"

Factor price distortion and ecological efficiency: the role of institutional quality

Abstract: There is a lack of studies on whether market distortions inhibit the ecological efficiency. This study introduces the ecological efficiency based on the bootstrap-data envelopment analysis (DEA) method as the indicator of environmental performance in China, uses the transcendental logarithmic production function to calculate factor price distortion, and further identifies whether the factor price distortion has a negative impact on the ecological efficiency using the system generalized method of moments (GMM) method. Meanwhile, institutional quality is considered a threshold variable to examine the relationship between factor price distortion and ecological efficiency based on the threshold model. The result shows that factor price distortion significantly inhibits the improvement of ecological efficiency. Moreover, institutional quality is considered to be the threshold of factor price distortion affecting ecological efficiency. Further investigation of heterogeneity effect suggests that the inhibitory impact of factor price distortion on ecological efficiency is more significant in the central and western regions. This study provides a supplement to the study on environmental performance from the perspective of factor distortions and expands the framework of the influence mechanism of factor price distortion affecting ecological efficiency.

Towards a carbon-neutral economy: The dynamics of factor substitution in Germany

Abstract: This paper investigates the elasticity of substitution between four inputs-capital, labor, energy, and material-with the translog cost approach for a wide range of industries in Germany by incorporating the slow adjustment process in factor substitution. To this end, we take advantage of EU KLEMS database covering a wide range of industries and consider two models. The first is the static model, in which instantaneous and complete substitution adjustments are assumed. The other model, referred to as dynamic, takes into account the slow adjustment process and applies this to the cost share equations which are estimated using Zellner's seemingly unrelated regression. The empirical results suggest that (i) the dynamic models have greater explanatory power than the static models; (ii) the production process at the national or industry level in Germany is mainly characterized by a complementarity or weak substitutability between energy and other inputs, which limits German government's ability to reduce energy use through factor substitution; (iii) among four factor prices, energy demand seems to be more sensitive to changes in the price of material, followed by labor. Hence, an increase in energy prices can be efficient to some extent in order to reduce energy use; (iv) there is a substantial industry heterogeneity in Germany in terms of both input substitution and its adjustment process. Therefore, strategies to mitigate CO2 emissions through input substitution channel should be designed at the industry level based on the industry-specific needs and peculiarities. It is because well-designed comprehensive policies that consider different structures of industries could help to achieve a carbon-neutral economy for Germany.

Dynamic factor demand in the Japanese manufacturing industry

Abstract: This study investigates the dynamic production structure of the Japanese manufacturing industry by using the adjustment cost approach. The study is to shed some light on the unique dynamic structure of the Japanese manufacturing industry. The study attempts to help design and predict industrial policies that are implemented to enhance domestic investments by the Japanese government.,This study obtains a system of dynamic factor demand and output supply equations by applying the dual approach to the intertemporal value function as represented by the Hamilton–Jacobi equation. By using industrial panel data for 1973–2012 of the Japanese manufacturing industry, the study estimates the system of the behavioral equations and corresponding elasticities. The study uses hypothesis tests and dynamic elasticities to investigate the dynamic structure of the Japanese manufacturing industry.,Estimation results show that labor and capital are quasi-fixed variables that adjust about 0.2 percent annually to the long-run optimum levels. Estimated adjustment rates are very slow as often presumed about the Japanese manufacturing industry, which uses lifetime employment practice and slow decision-making process in investment decisions. The results also show that output supply and factor demand elasticities vary greatly depending on time horizon. Factor demand increases when its own price increases in the short run, suggesting that factor adjustment is mostly determined factor prices in the past due to sluggish factor adjustment. However, factor demand becomes a normal downward-sloping curve in the long run as factor adjustment gets completed.,Japanese manufacturing firms hire employees through lifetime contract to exploit the benefits of dynamic learning-by-doing and execute investments carefully considering all the possible impacts. Under the strategy, adjustment costs for changing workers and capital stock are minimized. Dynamic adjustment model is expected to shed some light on the unique dynamic structure of the Japanese manufacturing industry. However, researches regarding the dynamic factor adjustment of the Japanese manufacturing industry are hard to find. This study is expected to fill the research vacuum.

Tasks, technology, and factor prices in the neoclassical production sector

Abstract: This paper introduces tasks into the neoclassical production sector. Competitive firms choose the profit-maximizing amounts of factor-specific tasks that determine their factor demands and output supplies. We show that the effect of factor-augmenting technical change on relative and absolute factor prices can be decomposed into a productivity effect and a task-demand effect of opposite sign. These effects appear since the novel task-based approach distinguishes between the demands for tasks and the demands for factors. This perspective provides a new intuition for the emergence of relative and absolute factor biases and the role of the elasticity of substitution.

Endogenous task-based technical change—factor scarcity and factor prices

Abstract: This paper develops a static model of endogenous task-based technical progress to study how factor scarcity induces technological progress and changes in factor prices. The equilibrium technology is multi-dimensional and not strongly factor-saving in the sense of Acemoglu (2010). Nevertheless, labour scarcity induces labour productivity growth. There is a weak but no strong absolute equilibrium bias. This model provides a plausible interpretation of the famous contention of Hicks (1932) about the role of factor prices and factor endowments for induced innovations. It may serve as a microfoundation for canonical macro-economic models. Moreover, it accommodates features like endogenous factor supplies and a binding minimum wage.

The Threshold Effect of Factor Price Distortion on Technological Content of Exports: Evidence from China

Abstract: Using panel data from 31 provinces in China, covering the period from 2003 to 2017, this article analyzes the threshold effect of factor price distortion on the technological content of exports. The results show that factor price distortion does not necessarily impede improvement in the quality of the technological content of exports. Instead, the adverse effect can be weakened when the value of per capita GDP is higher than RMB13,154 or the value of FDI goes beyond RMB480.9 billion. This is because a high regional economic development level alleviates the adverse effect of factor price distortion on the technological content of exports. Our results are robust when the dependent variable and sample years are changed. This article also addresses the endogeneity issue. We also consider the underlying mechanism through which factor price distortion affects the technological content of exports.

Endogenous Task-Based Technical Change - Factor Scarcity and Factor Prices -

Abstract: This paper develops a static model of endogenous task-based technical progress to study how factor scarcity induces technological progress and changes in factor prices. The equilibrium technology is multi-dimensional and not strongly factor-saving in the sense of Acemoglu (2010). Nevertheless, labor scarcity induces labor productivity growth. There is a weak but no strong absolute equilibrium bias. This model provides a plausible interpretation of the famous contention of Hicks (1932) about the role of factor prices and factor endowments for induced innovations. It may serve as a micro-foundation for canonical macro-economic models. Moreover, it accommodates features like endogenous factor supplies and a binding minimum wage.

The Influence of Factor Price Distortions on Economic Structure – Based on Time-Varying Elasticity Production Function Model

Abstract: Based on the time-varying elasticity production function model, we calculate factor price distortions, and study their influence on the rationalization and optimization of industrial structure. We find that the impact coefficient of capital, and labor factor price distortions on the rationalization of industrial structure are −1.2087 and −0.3147 respectively. Additionally, the impact coefficients on the optimization of industrial structure are −0.2333 and −0.0718 respectively. These results demonstrate that capital and labor factor price distortions are significantly negative for the rationalization and optimization of industrial structure. Therefore, it is imperative to reduce factor price distortions, and support industrial structure upgrades to promote supply-side structural reform.

The Influence of Factor Price Distortion on the Optimization of Foreign Trade Structure

Abstract: The state of the factor market is the objective context of corporate decision-making Faced with a factor market where prices are distorted, the factor input decisions made by companies based on this will be biased From the perspective of trade structure optimization, enterprise factor input decision-making under the constraint of factor price distortion is an important factor that shows the characteristics of stickiness, imbalance, and inefficiency in the optimization of foreign trade structure Through the measurement of factor price distortion, this paper adopts the structural equation model to focus on the influence path of factor price distortion on the optimization of foreign trade structure The research results show that factor price distortions have a significant impact on the structure of foreign trade, and under the action of a dynamic feedback mechanism, the two will form a relatively stable reverse convergence relationship in the long-term development process

Education Spending, Fertility Shocks and Generational Consumption Risk

Abstract: This paper develops a model with overlapping generations to show that human capital formation can potentially attenuate factor price movements in response to fertility shocks if education spending per child is inversely related to the size of the generation subject to the fertility shock. The degree of attenuation depends on the effectiveness of education spending in producing human capital. We also find this attenuation effect concentrates generational consumption risk around the generation subject to the fertility shock. The combination of these two results suggest that there is an inverse relationship between the degree of factor price movements and lifetime consumption profiles in response to fertility shocks. Relatively larger generations will experience larger drops in lifetime consumption and relatively smaller generations will experience larger increases in lifetime consumption the less factor prices move in response to generational size. Thus, factor price smoothing does not necessarily translate into welfare smoothing across all generations.

Time Zone Differences, Service Trade and Implications for Factor Prices

Abstract: In this chapter we illustrate, with a simple two-factor (skilled and unskilled labor) model, how a time-saving improvement in business-services trade benefitting from differences in time zones can have an impact on factor markets. In doing so, we attempted to capture the situation where the night-shift work in one country is replaced by the day-shift work in another country. In other words, it has been proved that, trade with time zone differences will result in shifts of the relative supplies and demands for skilled labor around the globe. It is further shown that, via increased specialization, aggregate real income will be increased by trade with time zone differences.

Government Policy, Factor Market Distortion and Structural Transformation

Abstract: Demand-driven economic structural transformation is mainly realized through the Engel Effect, and different consumption has different income elasticity. This article attempts to explain the effects of taxation, technological progress and factor price distortions on economic structure by introducing government policies and capital labor price distortions into the multi-sectorial model. The results showed that the share of agricultural labor decrease when the tax rate decreased or technological progress occurred and the share of service labor increased when the non-homothetic of utility function was stronger. Similarly, the distortion of capital and labor factor prices will also affect the structural transformation, and the relationship between the two is opposite. When the distortion of manufacturing sector factor prices increases, the structural transformation will be accelerated. However, the structural transformation slows down as the distortion of factor prices in service industry increases.

In the Interest of Time: Psychological Theory of Interest and Rent

Abstract: This chapter discusses the theory of rent and interest developed by Frank Fetter and Irving Fisher that pushes the application of subjective and marginalist theory of distribution one step further. Irving Fischer and Frank Fetter independently developed the pure time preference theory of interest, purging it of all the remnants of the old productivity analysis inherited from Bohm-Bawerk. The chapter reviews classical Ricardian theory of rent, with Marshallian limited revision, and continues with Fetter’s criticisms of both Marshall and Ricardo and his positive theory of rent. This theory abolishes the division of income into three categories and redefines rent as a unit price of a factor service, offering a unified theory of factor pricing and erasing the economic difference between land and capital. Any durable good that will earn income in the future is paid its full rental price, discounted by the social rate of time preferences (which is the pure or “originary” interest rate). This way Fetter developed a theory of rent as a theory of factor price determination, embracing all three factors of production within it (land, labor and capital). Fetter’s analytical separation of rent as a consequence of marginal factor productivity (where Bohm’s roundaboutness is relevant) and interest as a consequence of marginal time evaluation (where it is not) are emphasized throughout the chapter, as well as Fischer’s early pure time preference theory, unfortunately abandoned in his later works.

Time Zone Differences Induced Trade, Factor Prices and Skill Formation

Abstract: Time Zone difference induced changes in trade and factor prices are relatively new concerns in trade literature as we repeatedly mentioned before. Here in this chapter we formulate yet another trade model capturing the issue of Time Zone difference and communication technology revolution together to show that due to these developments skilled workers benefit. Though wage inequality between skilled and unskilled workers is widened under reasonable and, of course, sensible condition. Return to capital goes down while educational capital gets relatively high return. These changes also attract educational capital from abroad and eventually alter the sectoral composition of the economy in favor of more skill based one.