Search results

An aggregate production function has been used in macroeconomic analysis for a long time, even though it seems that it is conceptually confusing and problematic. The purpose of this paper is to argue that the measurement problem related to the heterogenous capital input that exists in macroeconomics is also relevant to microeconomic market situations.

The author constructed a microeconomic market model to address both the problems of the measurement of the physical capital and of substitutability between labor and capital in the short run using two types of technologies: labor neutral and labor reducing. The author proposed that labor and physical capital inputs are complementary in the short run and can become substitutes only in the long run when the technology advances.

The author found that even if the technology improves at a fast rate over time, there are then diminishing returns of profits to technology and an upper limit to profits. Moreover, the author showed that under the labor-reducing technology, labor class earns more initially as technology improves, but their incomes start declining after some threshold level of passage of time.

The author cautioned the applied researcher that the estimated labor and capital coefficients of generalized Cobb–Douglas and constant elasticity of substitution of types of production functions could not be interpreted as partial elasticities of labor and capital if in reality the data come from fixed-proportions types of processes.

This study estimated total import demand elasticities concerning income, import prices and domestic prices. A high propensity to import constitutes a significant obstacle to economic growth in Mexico since the benefits of increased exports or any other aggregate demand expansion leak to the rest of the world.

This paper estimated a Vector Error Correction Model of the total import demand elasticities concerning income, import prices and domestic prices. Total imports are a dependent variable, while Gross Domestic Product (GDP) and import and domestic prices are the independent variables.

The principal finding is that an increase of 1 peso in the Mexican GDP leads to a rise of 0.50 pesos in Mexican imports; the elasticity of import demand for prices is low. Still, the elasticity of import demand for domestic prices is 2.14 times greater than that for import prices. These results have significant economic policy implications, such as promoting the expansion of the domestic market and the national content of exports.

It is tempting to estimate the import demand function for the entire 1993–2019 period since such data is available. But by doing so, the authors would overestimate the propensity to import, given that from 1993 to 2019, the proportion of imports as a percentage of GDP went from 11.37 in 1993 to 29.66 in 2019. Therefore, it makes more sense to estimate the import demand function from 2000 to 2019, a period with a stable proportion of imports to GDP.

A high level of imports in developing countries means that much of their aggregate demand is filtered abroad. Therefore, the low impact of its exports on GDP is related to the Mexican economy’s high imports. The authors calculate this relationship with new data and methods.

In the early 1930s, Nicholas Kaldor could be classified as an Austrian economist. The author reconstructs the intertwined paths of Kaldor and Friedrich A. Hayek to disequilibrium economics through the theoretical deficiencies exposed by the Austrian theory of capital and its consequences on equilibrium analysis.

The author approaches the discussion using a theoretical and historical reconstruction based on published and unpublished materials.

The integration of capital theory into a business cycle theory by the Austrians and its shortcomings – e.g. criticized by Piero Sraffa and Gunnar Myrdal – called attention to the limitation of the theoretical apparatus of equilibrium analysis in dynamic contexts. This was a central element to Kaldor’s emancipation in 1934 and his subsequent conversion to John Maynard Keynes’ The General Theory of Employment, Interest, and Money (1936). In addition, it was pivotal to Hayek’s reformulation of equilibrium as a social coordination problem in “Economics and Knowledge” (1937). It also had implications for Kaldor’s mature developments, such as the construction of the post-Keynesian models of growth and distribution, the Cambridge capital controversy, and his critique of neoclassical equilibrium economics.

The close encounter between Kaldor and Hayek in the early 1930s, the developments during that decade and its mature consequences are unexplored in the secondary literature. The author attempts to construct a coherent historical narrative that integrates many intertwined elements and personas (e.g. the reception of Knut Wicksell in the English-speaking world; Piero Sraffa’s critique of Hayek; Gunnar Myrdal’s critique of Wicksell, Hayek, and Keynes; the Hayek-Knight-Kaldor debate; the Kaldor-Hayek debate, etc.) that were not connected until now by previous commentators.

The European Union (EU) has notified its revised Generalized System of Preference (GSP) on 31 October, 2012 which will come into effect from 1 January, 2014. The EU is also in the process of, or contemplating, to sign Free Trade Agreements (FTAs) with many developing countries. Recently, EU has officially announced initiation of FTA negotiations with USA. Such preferential tariff arrangements could lead to significant erosion of preferences enjoyed currently by the Least Developed Countries (LDCs). In this backdrop, the main objective of the present study is to investigate the economic impacts originating from preference erosion in the EU market which could potentially affect LDCs in general, Bangladesh in particular. In this context, a dynamic computable general equilibrium (CGE) analysis has been developed by using the Global Trade Analysis Project (GTAP) model and database to explore the aggregate impact of the preferential erosion as well as sectoral implications for which different partial equilibrium analyses were used. The analysis evince that if the EU eliminates all tariffs for Pakistan, India and Vietnam, Bangladesh's real GDP could decrease by 0.27 percent whilst welfare loss could be to the tune of US$ 54 million. Total exports to the EU will be reduced by 0.18 percent; consequently, Bangladesh’s terms of trade and exports of textiles and clothing could be fall by about 1 percent. The product level disaggregated analysis using RCA and unit price of major items also indicate that a number of products including textiles and clothing will be confronted with formidable market access difficulties in the EU.

This paper aims to examine the effects of interest-free and interest-based monetary policy on inflation and unemployment rates for two groups of countries where in one group, interest-free monetary policy (IFMP) was pursued, while in the other group, interest-based monetary policy (IBMP) was followed.

This study involves a sample of 23 developed countries divided into two groups. The authors measure economic performance by misery index (MI), and MI is calculated as unemployment rate plus inflation rate. A group of countries, where MI is lower, performs better compared to the other group where MI is relatively higher.

The results reveal that in group of 12 countries where IFMP is adopted, the MI is lower and thus performs better compared to a group of countries where IBMP is pursued.

The findings of this study have profound implications for the policymakers and government leaders who look for a solution to maintain both low inflation and unemployment rates. The findings in this study clearly portray that such ideal situations can only be achieved by pursuing IFMP. No wonder the countries which have been historically pursuing IFMP such as Japan, Switzerland, Sweden, the Netherlands and Denmark have been able to contain both inflation and unemployment rates compared to their counterparts among the English-speaking countries.

This is one of the most recent tests on the differences in economic performance between IFMP and IBMP. These results have significant value for policymakers and central bankers who have been struggling to maintain lower MI for decades.

The purpose of this study is to explore the link between aggregate production efficiency and the extent of linguistic clustering in Indonesia.

The author draws on the stochastic frontier model and applies it to the data on Indonesian provinces to compute the effects of various determinants on these provinces' aggregate production efficiency. The key determinant is the spatial index of linguistic clustering that the author believes has never been applied before in this context.

Linguistic clustering is an important determinant of aggregate production efficiency. Linguistic diversity is positively associated with productive efficiency if members of a specific linguistic group are not clustered beyond a certain level.

To the best of the author’s knowledge, this is the first study that links the spatial index of linguistic clustering (because of Massey and Danton) to production efficiency. In other words, the contribution of this study is to introduce a geographical dimension to the mainstream analysis of the association between ethnic diversity and economic performance.

The purpose of this paper is to generalize the traditional risk evaluation methods and to specify a multi-level risk evaluation framework, in order to prepare customized risk evaluation and to enable effectively integrating the elements of risk evaluation.

A real case study of an electric motor manufacturing company is presented to illustrate the advantages of this new framework compared to the traditional and fuzzy failure mode and effect analysis (FMEA) approaches.

The essence of the proposed total risk evaluation framework (TREF) is its flexible approach that enables the effective integration of firms’ individual requirements by developing tailor-made organizational risk evaluation.

Increasing product/service complexity has led to increasingly complex yet unique organizational operations; as a result, their risk evaluation is a very challenging task. Distinct structures, characteristics and processes within and between organizations require a flexible yet robust approach of evaluating risks efficiently. Most recent risk evaluation approaches are considered to be inadequate due to the lack of flexibility and an inappropriate structure for addressing the unique organizational demands and contextual factors. To address this challenge effectively, taking a crucial step toward customization of risk evaluation.

The author augments an otherwise standard business-cycle model with a rich government sector and adds monopolistic competition in the product market and rigid prices, as well as rigid wages a la Calvo (1983) in the labor market.

This specification with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999–2018), allows the framework to reproduce better observed variability and correlations among model variables and those characterizing the labor market in particular.

As nominal wage frictions are incorporated, the variables become more persistent, especially output, capital stock, investment and consumption, which help the model match data better, as compared to a setup without rigidities.

The findings suggest that technology shocks seem to be the dominant source of economic fluctuations, but nominal wage rigidities as well as the monopolistic competition in the product market, might be important factors of relevance to the labor market dynamics in Bulgaria, and such imperfections should be incorporated in any model that studies cyclical movements in employment and wages.

The computational experiments performed in this paper suggest that wage rigidities are a quantitatively important model ingredient, which should be taken into consideration when analyzing the effects of different policies in Bulgaria, which is a novel result.

The purpose of this paper is to analyze the credit channel effects on investment behavior for the US and the Euro area.

This paper uses the dynamic stochastic general equilibrium model and calibrates a version of the Carlstrom and Fuerst’s (1997) agency cost model of business cycles with time-varying uncertainty in the technology shocks that affect capital production. To highlight the differences between the US and European financial sectors, the paper focuses on two key components of the lending channel: the risk premium associated with bank loans and the bankruptcy rates.

This paper shows that the effects of minor differences in the credit market translate into large, persistent and asymmetric fluctuations in real and financial variables and depend on the type of shocks. The results imply that the Euro areas supply elasticities for capital are less elastic than that of the USA following a technology shock. Finally, the authors find that the adverse impact of uncertainty shocks is heterogeneous across countries and amplified by the steady-state bankruptcy rate and risk premium.

This paper quantifies the effects of uncertainty shocks when there is a credit channel due to asymmetric information between lenders and borrowers for the Euro area countries, and then compares the results to that of the USA. This paper shows that financial accelerator mechanism could potentially play a significant role in business cycles in the Euro area. This result directly lends one to conclude the following: the credit channel that affects the financial sector does indeed matter for macroeconomic behavior, and that policy makers should be attentive in smoothing out uncertainties if the economic policies are to lower the business and financial cycle volatilities.

The authors analyse a growth model to explain how economic fluctuations are primarily driven by productive capacities (i.e. capacity utilization driven by innovations and know-how) and productive inefficiencies.

This study’s methodology consists of the combination of the economic growth model, à la Solow–Swan, with a sigmoidal production function (in capital), which may explain growth, poverty traps or fluctuations depending on the relative levels of inefficiencies, productive capacities or lack of know-how.

The authors show that economies may experience economic growth, poverty traps and/or fluctuations (i.e. cycles). Economic growth is reached when an economy experiences both a low level of inefficiencies and a high level of productive capacities while an economy falls into a poverty trap when there is a high level of inefficiencies in production. Instead, the economy gets in cycles when there is a large level of the lack of know-how and low levels of productive capacity.

The authors conclude that more capital per capita (greater savings and investment) and greater productive capacity (with less lack of know-how) are the economic policy keys for an economy being on the path of sustained economic growth.