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This paper aims to theoretically find out whether investments could close the formal-informal wage gap in India.
Abstract
Purpose
This paper aims to theoretically find out whether investments could close the formal-informal wage gap in India.
Design/methodology/approach
The paper builds a general equilibrium model of a developing economy with a large informal sector and a capital-intensive formal sector with sector-specific capital and incorporates endogenous demand.
Findings
With homothetic preferences, a small initial wage premium and elastic relative demand, investment in the formal sector is likely to close the wage gap, but the gap persists with non-homothetic preferences. However, investment in the informal sector is unlikely to close the wage gap with either type of preferences.
Originality/value
Though labour market distortions in developing economies leading to a formal-informal wage gap are well-documented in the development literature, little attention has been given to the question of whether such a gap would close over time.
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The chapter reviews and extends the theory of exact and superlative index numbers. Exact index numbers are empirical index number formula that are equal to an underlying…
Abstract
The chapter reviews and extends the theory of exact and superlative index numbers. Exact index numbers are empirical index number formula that are equal to an underlying theoretical index, provided that the consumer has preferences that can be represented by certain functional forms. These exact indexes can be used to measure changes in a consumer's cost of living or welfare. Two cases are considered: the case of homothetic preferences and the case of nonhomothetic preferences. In the homothetic case, exact index numbers are obtained for square root quadratic preferences, quadratic mean of order r preferences, and normalized quadratic preferences. In the nonhomothetic case, exact indexes are obtained for various translog preferences.
Details
Keywords
- exact index numbers
- superlative index numbers
- flexible functional forms
- Fisher ideal index
- normalized quadratic preferences
- mean of order r indexes
- homothetic preferences
- nonhomothetic preferences
- cost of living indexes
- the measurement of welfare change
- translog functional form
- duality theory
- Allen quantity index
Lin Sun, Li Tao Ye and Michael R. Reed
Against the background of the rapid increase of total imported food in China, China's imported high-quality food has increased more than low-quality ones, and China's imported…
Abstract
Purpose
Against the background of the rapid increase of total imported food in China, China's imported high-quality food has increased more than low-quality ones, and China's imported food quality structure has continuously improved. It is a new issue that needs further examination.
Design/methodology/approach
Based on the assumption of non-homothetic preference, this paper apply the method provided by Eaton and Kortum (2002) in a new theoretical model and empirically analyzes the impact of per capita income on the quality structure of imported food by using SYS-GMM with firm import data from Chinese customs.
Findings
The study finds that income is a significant factor which affects the imported food quality structure in China. The higher the per capita income, the higher the imported food quality structure. Furthermore, per capita income has a significant positive impact on the imported food quality structure in different quality groups. The research confirms that China import more food with the highest quality as its per capita income increases.
Research limitations/implications
Chinese policymaker needs to reconsider the role of food imports in improving food quality structure. The aim of the Chinese food industry's supply-side reform should be not only to remove excess capacity but also to produce high-quality products that meet the demand of discriminating consumers.
Originality/value
This paper constructs a new theme for imported food quality structure and investigates import food quality structure improvement from the perspective of demand by incorporating non-homothetic preferences. Another feature of this paper is that it conducts an empirical analysis with unique and highly disaggregated firm import data from Chinese customs to measure imported food quality, which is more refined than the national-product dimension data.
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Extends Mäler′s notion of weak complementarity between aprivate good and a public good to non‐homothetic demand functions whichcan be exactly aggregated. Aggregate demand…
Abstract
Extends Mäler′s notion of weak complementarity between a private good and a public good to non‐homothetic demand functions which can be exactly aggregated. Aggregate demand functions depending on private prices, public good quantities and income distribution statistics can then be used to recover the private individual demand functions which reveal an individual′s willingness to pay for public goods.
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Kaiming Guo, Jing Hang and Se Yan
Economic theories on structural change focus on factors such as fluctuations in relative prices and income growth. In addition, China’s reform and opening up has also been…
Abstract
Purpose
Economic theories on structural change focus on factors such as fluctuations in relative prices and income growth. In addition, China’s reform and opening up has also been accompanied by increasing openness, significant fluctuations in investment rates, and frictions in the labor market. Existing literature lacks a unified theoretical framework to assess the relative importance of all these determinants. The paper aims to discuss these issues.
Design/methodology/approach
To incorporate all of the potential determinants of China’s structural change, the authors build a two-country four-sector neoclassical growth model that embeds the multi-sector Eaton and Kortum (2002) model of international trade, complete input-output structure, non-homothetic preference and labor market frictions. The authors decompose the sectoral employment shares into six effects: the Baumol, Engel, investment, international trade, factor intensity and labor market friction effects. Using the data of Chinese economy from 1978 to 2011, the authors perform a quantitative investigation of the six determinants’ effects through the decomposition approach and counterfactual exercises.
Findings
Low-income elasticity of demand, high labor intensity, and the existence of the switching costs are the reasons for the high employment share in the agricultural sector. Technological progress, investment and international trade have comparatively less influence on the proportion difference of employment in the three sectors.
Originality/value
Therefore, to examine the impact on China’s structural change, in addition to Baumol effect and the Engel effect, it is also necessary to consider the impact of three more factors: international trade, investment and switching costs. Therefore, the authors decompose the factors that may influence China’s structural change into the Baumol, Engel, investment, international trade, factor intensity effect and switching cost effects. The authors evaluate these six effects using the decomposition approach and counterfactual exercises.
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W. Erwin Diewert and Kevin J. Fox
A concise introduction to the normalized quadratic expenditure or cost function is provided so that the interested reader will have the necessary information to understand and use…
Abstract
A concise introduction to the normalized quadratic expenditure or cost function is provided so that the interested reader will have the necessary information to understand and use this functional form. The normalized quadratic is an attractive functional form for use in empirical applications as correct curvature can be imposed in a parsimonious way without losing the desirable property of flexibility. We believe it is unique in this regard. Topics covered include the problem of cardinalizing utility, the modeling of nonhomothetic preferences, the use of spline functions to achieve greater flexibility, and the use of a “semiflexible” approach to make it feasible to estimate systems of equations with a large number of commodities.
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Applies the two‐factor version of the Heckscher‐Ohlin‐Vanek (HOV)theorem. Two hypotheses are derived. The empirical analysis offerssupport for the second but not for the first…
Abstract
Applies the two‐factor version of the Heckscher‐Ohlin‐Vanek (HOV) theorem. Two hypotheses are derived. The empirical analysis offers support for the second but not for the first hypothesis when trade of each Organization for Economic Co‐operation and Development (OECD) country with the rest of the world is analysed. Examines the factor content of net trade with data on foreign trade between the OECD countries and then determines average capital‐labour ratio as the OECD average. Both the hypotheses receive empirical support. Finds that the two‐factor version of the HOV theorem performs well when applied to the environment where it is supposed to apply.
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When the factor endowments of two trading countries do not lie in the same diversification cone, trade in commodities may not reduce the international factor return differentials…
Abstract
When the factor endowments of two trading countries do not lie in the same diversification cone, trade in commodities may not reduce the international factor return differentials. This chapter specifies some conditions of the demand function in a two-factor, infinite-good model that guarantee partial factor price equalization. The wage-rental ratios of two trading countries are convergent if goods farther apart are poorer substitutes than goods closer together in the factor-intensity ranking. This generalizes the result in the literature, which is usually obtained under the assumption of Cobb–Douglas utility and production functions.
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