GROWTH AND CONVERGENCE WHEN TECHNOLOGY AND HUMAN CAPITAL ARE COMPLEMENTS

This article presents a model of endogenous growth, in which a firm's technology and a country's human capital stock are complementary in the production of output. Production technologies are created by costly research and development (R&D) and are owned by firms that can freely choose where in the world to produce. Both production and R&D have a positive effect on a country's human capital stock. While all countries typically grow at the same rate in the long run, they differ in their levels of human capital, per capita output, and the quality of the technologies that are used in production. A country's relative position in terms of productivity is history dependent. Countries that start out with a lower human capital stock or industrialize later end up with a lower per capita GDP in long‐term equilibrium. (JEL O4, O33, O47)     

FOREIGN DIRECT INVESTMENT AND COUNTRY‐SPECIFIC HUMAN CAPITAL

This paper exploits an international bilateral data set over the period 1963–1998 to investigate the relationship between foreign direct investment (FDI) and foreign‐educated labor in an FDI host country. Workers educated abroad acquire country‐specific human capital that is more productive in the host country of study. A foreign subsidiary sharing a parent firm's technology will invest more if it has more foreign‐educated labor, since it can utilize this labor more productively because of the country‐specific human capital. Consistent with our predictions, our empirical findings show that foreign‐educated labor accounted for a sizable portion of growth in FDI flows. (JEL F21, F10)     

EQUIPMENT AND STRUCTURES CAPITAL: ACCOUNTING FOR INCOME DIFFERENCES

In this article, I present comparable measures of equipment capital and structures capital stocks for 119 countries. Cross‐country variation in equipment capital‐output ratio is over twice the variation in structures capital and aggregate physical capital. The dispersion in equipment capital has also increased overtime. Using development accounting that incorporates equipment and structures capital, I offer evidence relevant to the debate on the importance of productivity versus factors in accounting for income differences. The new measures of heterogeneous capital reduce the burden on total factor productivity by up to 5%. (JEL O11, O47, E22)     

DISCONTINUITY OF OUTPUT CONVERGENCE WITHIN THE UNITED STATES: WHY HAS THE COURSE CHANGED?

Has the progress of output convergence changed within the United States? This article examines the output convergence among U.S. states for the last five decades by making several improvements over the extant literature. By applying a battery of convergence tests designed to capture nonlinear transitional dynamics to real output per worker data (i.e., nominal values deflated by state‐level price), we find that output convergence has not been a feature of the continental United States since the 1970s. Instead, output convergence has proceeded among four subgroups within which constituent states have certain characteristics in common. Our regression analysis suggests that state‐level characteristics related to technology and human capital play a crucial role in accounting for the formation and composition of convergence clubs, in agreement with the recent theoretical models of growth and development (e.g., Aghion et al. 2009; Gennaioli et al. 2013b). The level of technology, proxied by patents, turns out to be a consistently significant determinant even after controlling for endogeneity, suggesting that frictions in the diffusion of technology and human capital may have led to clustering of states with different levels of productivity. Our results therefore cast doubt on the common view that diffusion of knowledge and technology across state borders is frictionless. (JEL O47, O51)     

OFFSHORING AND THE POLARIZATION OF THE DEMAND FOR CAPITAL

In the past decades, the importance of different capital goods has gradually changed, which has led to a structural shift in the composition of the demand for capital at the expense of more traditional capital inputs such as machinery and equipment. In this paper, we focus on a novel driver of this development by analyzing the effect of offshoring on the demand for capital by asset class using a rich country-sector panel dataset. Estimating a system of factor demand equations, we document that offshoring reduces the relative demand for non-ICT capital, thereby polarizing the demand for capital. (JEL F14, F62, E22)     

LONGEVITY AND PUBLIC OLD-AGE PENSIONS

Using an overlapping generations model with endogenous but uncertain longevity, this article analyzes the effects of public old-age pensions on longevity choice and capital accumulation. When agents are not altruistic, increases in old-age pensions are longevity-neutral for golden rule economies and longevity-decreasing if interest rates exceed population growth, and saving effects are strictly negative. When agents are altruistic, longevity is independent of old-age pensions regardless of the interest rate–population growth relation. On the other hand, the longevity effect of a price subsidy on longevity extending expenditures or an advance in longevity extending technology is positive.(JEL H5 , J1 )     

The future of adoption for children in foster care: Demographics in a changing socio-political environment

As the next century unfolds, adoption will be influenced by economic, social, and political factors that will influence the number of children needing adoption and the number of families seeking to adopt. For children in foster care who need adoption, these forces are likely to challenge current policy and practice and place greater demands on the child welfare system to respond to the needs of a growing number of children who cannot be reunited with their birth families. Demographic data and the sociopolitical factors impacting the adoption of children in foster care suggest that adoption demand will increase dramatically in the near future, far outstripping the current, already inadequate supply of adoptive families. While demand is not likely to be amenable to any significant level of change given the poverty-related forces already at work, supply can be more readily effected by policy and practice that embrace creative strategies to recruit and support adoptive families. The dynamics of supply and demand can provide the conceptual framework to support resource reallocation and shape a positive future for the adoption of children in foster care     

ELECTRIC AND PLUG‐IN HYBRID VEHICLE DEMAND: LESSONS FOR AN EMERGING MARKET

Understanding demand in the new plug‐in hybrid electric vehicle (PHEV) market is critical to designing more effective adoption policies. We use stated preference data from an innovative choice experiment to estimate demand for PHEVs relative to battery electric vehicles (BEVs) and to explore heterogeneity in demand for these vehicles. We find the gap between willingness to pay for PHEVs and their price premium over conventional vehicles is on the order of current subsidies, while that of BEVs is an order of magnitude larger. We use a latent class model to show PHEVs draw a different consumer segment into the market. (JEL Q5, R41)     

The output decision of the firm — A behavioural algorithm

The neoclassical or traditional analysis of the firm's output decision is based on assumptions about human behaviour which are far removed from the findings of contemporary psychological research. Despite this the resulting deductive model enjoys pervasive influence. While many economic commentators agree that the behavioural theory of the firm has much analytical merit it is probably fair to say that the behavioural approach to the analysis of the industry is not as popular as it might be if it had produced a generic formal model of the firm's output decision. In this note I present my attempts to construct the basic elements of a deductive model of the firm's output decision based upon behavioural axioms as a step towards redressing this imbalance of theory. The behavioural algorithm I present is intended to parallel the simplicity of the marginal rules adopted by the mythical neoclassical firm.     

FACTOR DEMAND UNDER CONDITIONS OF PRODUCT DEMAND and SUPPLY UNCERTAINTY

The paper develops a theory of factor demand under uncertainty, that encompasses neo-classical factor demand and Keynesian effective factor demand as special cases. The model allows factor demand and output to move positively with product demand, even with a constant product price. This, in turn, permits real wages to move pro-cyclically in response to product demand shocks. In addition the model provides a new perspective on the "adding-up" problem (which posits that total factor payments exceed output if increasing returns to scale exist), and generates positive uncertainty profits that are similar in spirit to those of Frank Knight.     

STRUCTURAL ESTIMATION OF THE OUTPUT GAP: A BAYESIAN DSGE APPROACH

We estimate the output gap that is consistent with a standard New Keynesian dynamic stochastic general equilibrium (DSGE) model, where the output gap is defined as a deviation of output from its flexible‐price equilibrium, using Bayesian methods. Our output gap illustrates the U.S. business cycles well, compared with other estimates. We find that the main source of the output gap movements is the demand shocks, but that the productivity shocks contributed to the stable output gap in the late 1990s. The robustness analysis shows that the estimated output gap is sensitive to the specification for monetary policy rules. (JEL E30, E32, C11)     

DURABILITY, MAINTENANCE AND THE PRICE OF USED ASSETS

This paper considers assets whose service flow decays at a rate determined by built-in durability and the level of maintenance. A cost minimization model determines optimal durability and maintenance and shows how these variables respond to changes in interest rates, the price of maintenance, and the cost of new assets. The price of old assets adjusts so that the cost of services from both old and new assets is the same. The model provides a framework for analyzing data on automobile scrapping rates and repair expenditures. Data for postwar United States show that scrapping rates are sensitive to the price of repairs relative to the price of new cars. The amount of repairs per car also responds to the relative repair price .     

CO-MOVEMENTS IN RELATIVE COMMODITY PRICES AND INTERNATIONAL CAPITAL FLOWS: A SIMPLE MODEL

Suppose a number of countries produce a commodity which employs local labor and a type of capital that is internationally mobile. Within the framework of a specific-factors model the paper argues that there is a presumption about the international movement of capital when the relative price of the industry using that capital rises on world markets. Capital flows towards countries less heavily involved in producing the commodity; internal labor flows contribute toward worldwide industry dispersion; and the volume of international trade in that commodity tends to fall.     

Food Calorie Intake under Grain Price Uncertainty in Rural Nepal

This study evaluated the effects of grain output price uncertainty on the farm income of rural households and, consequently, how this uncertainty influenced caloric intake through changes in farm income. Using a national rural household survey data set in Nepal, augmented with output price uncertainty measures calculated from historical time-series data, we found that grain output price uncertainty (especially for rice and wheat) tends to decrease crop production income of rural households. In addition, we found that lower crop income from production decreases calorie intake of rural households. Taken together, these results suggest that output price uncertainty during the production process tends to reduce caloric intake of rural Nepalese households. The price uncertainty seemed to reduce the crop income households need to buy calorie-rich staple foods.     

HAS PRODUCTION MANAGEMENT IMPROVED SINCE 1984?

The growth rate of GDP stabilized around 1984, and improvements in production management have been cited as a possible cause. This article examines this rationale with two‐digit SIC manufacturing data. The empirical questions are whether there is evidence of structural change in industry output around 1984 and, if so, did output track demand more closely following the change? The results indicate that only two industries exhibited structural change in the 1982–86 period. There is evidence that output has tracked demand more closely in recent years, but this is because demand shocks have become less persistent. (JEL C15, D21, E22)     

OUTPUT EFFECTS OF INFLATION WITH FIXED PRICE– AND QUANTITY–ADJUSTMENT COSTS

This article examines how the aggregate production varies with inflation when there are fixed price– and quantity–adjustment costs. It shows that such variation is determined by the elasticity of the firms’ marginal real revenue with respect to demand. The aggregate production decreases with inflation if this elasticity always exceeds minus unity, whereas the aggregate production increases with inflation if the elasticity is always less than minus unity. The aggregate production is independent of inflation in the special case that the elasticity always equals minus unity. The latter occurs if demand is derived from a log‐quadratic utility function. (JEL E31)     

DOES ECONOMIC FREEDOM AFFECT THE PRODUCTION FRONTIER? A SEMIPARAMETRIC APPROACH WITH PANEL DATA

This paper applies a multistep semiparametric stochastic production frontier estimator to investigate the effects of economic freedom (EF) on the production frontier and technical efficiency. We allow output elasticities and technical efficiency to depend on EF, estimate a smooth coefficient stochastic production frontier, and compare with parametric alternatives. Our results highlight the flexibility of semiparametric approaches as we find parametric approaches are too restrictive in estimating marginal productivity. Output elasticities of labor, human capital, and physical capital vary with the level of EF and our average efficiency estimates are at least 20% higher than those obtained from parametric counterparts. (JEL C14, O43)     

Profits and incentive compensation in nonprofit firms

Incentive contracts based on profit sharing, cost reduction, or other measures of performance no longer need to endanger a nonprofit firm's tax exemption; such measures have been urged for adoption in the nonprofit sector. However, the nonprofit differs from the for-profit sector in that contracts have side effects on the solicitation and offering of donations and on the character of those who choose to work in the nonprofit sector. In addition, it is more difficult in the nonprofit sector to obtain an appropriate output measure for use in calculating bonuses.     

DISINFLATION,INEQUALITY, AND WELFARE IN A TANK MODEL

We investigate the redistributive and welfare effects of disinflation in a two-agent New Keynesian model characterized by limited asset market participation and wealth inequality. We highlight two key mechanisms driving our long-run results: (1) the cash in advance constraint on firms working capital; (2) dividends endogeneity. These two channels point in opposite directions. Lower inflation softens the cash in advance constraint and, by raising labor demand, lowers inequality. But disinflation also raises dividends and this increases inequality. The disinflation is always welfare-improving for asset holders. We obtain ambiguous results for non-asset holders, who suffer substantial consumption losses during the transition. (JEL E31, E5, D3, D6)     

THE COLLAPSE AND RECOVERY OF THE CAPITAL SHARE IN EAST GERMANY AFTER 1989

After the 1990 unification, East Germany's capital income share plunged to 15.2% in 1991, then increased to 37.4% by 2015. To account for these large changes in the capital share, I model an economy that gains access to a higher productivity technology embodied in new plants. As existing low productivity plants decrease production, the capital share varies due to the nonconvex production technology: plants require a minimum amount of labor to produce output. Two policies—transfers and government‐mandated wage increases—have opposite effects on output growth, but contribute to lowering the capital share early in the transition. (JEL E20, E25, O11)