nep-bec New Economics Papers
on Business Economics
Issue of 2009‒06‒17
twenty-six papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Technology Innovation and Diffusion as Sources of Output and Asset Price Fluctuations By Diego A. Comin; Mark Gertler; Ana Maria Santacreu
  2. Wage Dispersion in the Search and Matching Model with Intra-Firm Bargaining By Dale T. Mortensen
  3. Outsourcing versus technology transfer: Hotelling meets Stackelberg By Pierce, Andrea; Sen, Debapriya
  4. Inefficient Worker Turnover By Nicolas L. Jacquet
  5. Trade, Offshoring, and the Invisible Handshake By Bilgehan Karabay; John McLaren
  6. Generalized Agency Problems By Randall Morck
  7. Preemptive Investment Game with Alternative Projects By Michi Nishihara
  8. A New Capital Regulation For Large Financial Institutions By Hart, Oliver; Zingales, Luigi
  9. Labor Market Frictions and the International Propagation Mechanism By Lise Patureau
  10. Comparing Cournot and Bertrand Competition in a Unionized Mixed Duopoly By Choi, Kangsik
  11. Employee Screening: Theory and Evidence By Fali Huang; Peter Cappelli
  12. The Distinct Effects of Information Technology and Communication Technology on Firm Organization By Nick Bloom; Luis Garicano; Raffaella Sadun; John Van Reenen
  13. Unions and Workplace Performance in Britain and France By Alex Bryson; John Forth; Patrice Laroche
  14. Incorporation and Taxation: Theory and Firm-level Evidence By Peter Egger; Christian Keuschnigg; Hannes Winner
  15. Union Mediation and Adaptation to Reciprocal Loyalty Arrangements By Panos, Georgios; Theodossiou, Ioannis
  16. Creative destruction and employee well-being By Böckerman, Petri; Ilmakunnas, Pekka; Johansson , Edvard
  17. The Organization of Firms Across Countries By Nick Bloom; Raffaella Sadun; John Van Reenen
  18. Bailouts, the Incentive to Manage Risk, and Financial Crises By Stavros Panageas
  19. Employee Voice and Private Sector Workplace Outcomes in Britain, 1980-2004 By Alex Bryson; Rafael Gomez; Tobias Kretschmer; P Willman
  20. Overborrowing and Systemic Externalities in the Business Cycle By Bianchi, Javier
  21. US Industry-Level Returns and Oil Prices By Fan, Qinbin; Jahan-Parvar, Mohammad R.
  22. Entry, Exit and Investment-Specific Technical Change, Second Version By Roberto M. Samaniego
  23. A Theory of Total Factor Productivity and the Convergence Hypothesis: Workers’ Innovations as an Essential Element By Harashima, Taiji
  24. Extending Life Cycle Models of Optimal Portfolio Choice: Integrating Flexible Work, Endogenous Retirement, and Investment Decisions with Lifetime Payouts By Jingjing Chai; Wolfram Horneff; Raimond Maurer; Olivia S. Mitchell
  25. Convergence of Firm-Level Productivity, Globalisation, Information Technology and Competition: Evidence from France By Paul-Antoine Chevalier; Rémy Lecat; Nicholas Oulton
  26. Cointegration and asymmetric adjustment: Some new evidence concerning the behaviour of the US current account By Mark J. Holmes; Theodore Panagiotidis

  1. By: Diego A. Comin; Mark Gertler; Ana Maria Santacreu
    Abstract: We develop a model in which innovations in an economy’s growth potential are an important driving force of the business cycle. The framework shares the emphasis of the recent "new shock" literature on revisions of beliefs about the future as a source of fluctuations, but differs by tieing these beliefs to fundamentals of the evolution of the technology frontier. An important feature of the model is that the process of moving to the frontier involves costly technology adoption. In this way, news of improved growth potential has a positive effect on current hours. As we show, the model also has reasonable implications for stock prices. We estimate our model for data post-1984 and show that the innovations shock accounts for nearly a third of the variation in output at business cycle frequencies. The estimated model also accounts reasonably well for the large gyration in stock prices over this period. Finally, the endogenous adoption mechanism plays a significant role in amplifying other shocks.
    JEL: E2 E3
    Date: 2009–06
  2. By: Dale T. Mortensen
    Abstract: Matched employer-employee data exhibits both wage and productivity dispersion across firms and suggest that a linear relationship holds between the average wage paid and a firm productivity. The purpose of this paper is to demonstrate that these facts can be explained by a search and matching model when firms are heterogenous with respect to productivity, are composed of many workers, and face diminishing returns to labor given the wage paid to identical workers is the solution to the Stole-Zwiebel bilateral bargaining problem. Helpman and Iskhoki (2008) show that a unique single wage (degenerate) equilibrium solution to the model exists in this environment. In this paper, I demonstrate that another equilibrium exists that can be characterized by a non-degenerate distribution of wages in which more productive firms pay more if employed workers are able to search. Generically this dispersed wage equilibrium is unique and exists if and only if firms are heterogenous with respect to factor productivity. Finally, employment is lower in the dispersed wage equilibrium than in the single wage equilibrium but this fact does not imply that welfare is higher in the single wage equilibrium.
    JEL: E24 J3 J64
    Date: 2009–06
  3. By: Pierce, Andrea; Sen, Debapriya
    Abstract: This paper considers a Hotelling duopoly with two firms A and B in the final good market. Both A and $B$ can produce the required intermediate good, firm B having a lower cost due to a superior technology. We compare two contracts: outsourcing (A orders the intermediate good from B) and technology transfer (B transfers its technology to A). First we show that an outsourcing order acts as a credible commitment on part of A to maintain a certain market share in the final good market. This generates an indirect Stackelberg leadership effect, which is absent in a technology transfer contract. We show that compared to the situation of no contracts, there are always Pareto improving outsourcing contracts but no Pareto improving technology transfer contracts. Finally, it is shown that whenever both firms prefer one of the two contracts, all consumers prefer the other contract.
    Keywords: Outsourcing; Technology transfer; Hotelling duopoly; Stackelberg effect; Pareto improving contracts
    JEL: L11 L13 D43
    Date: 2009–06–11
  4. By: Nicolas L. Jacquet (School of Economics, Singapore Management University)
    Abstract: This paper considers the efficiency properties of risk-neutral workers’ mobility decisions in an equilibrium model with search frictions, but no search externalities, when the rent accruing to a match is split through bargaining. Matches are ex ante homogeneous and their true productivity is learnt after the match is formed. It is shown that the efficiency of worker turnover depends on contract enforceability, and that in the absence of complete enforceability the equilibrium fails to be efficient. This is because without complete enforceability firms cannot credibly offer workers contracts that will guarantee them the entire future of all potential future matches.
    Keywords: On-the-Job Search; Learning; Bargaining; Contracts; Enforceability
    JEL: J30 J6
    Date: 2007–09
  5. By: Bilgehan Karabay; John McLaren
    Abstract: We study the effect of globalization on the volatility of wages and worker welfare in a model in which risk is allocated through long-run employment relationships (the 'invisible handshake'). Globalization can take two forms: International integration of commodity markets (i.e., free trade) and international integration of factor markets (i.e., offshoring). In a two-country, two-good, two-factor model we show that free trade and offshoring have opposite effects on rich-country workers. Free trade hurts rich-country workers, while reducing the volatility of their wages; by contrast, offshoring benefits them, while raising the volatility of their wages. We thus formalize, but also sharply circumscribe, a common critique of globalization.
    JEL: F10 F16
    Date: 2009–06
  6. By: Randall Morck
    Abstract: Agency problems in economics virtually always entail self-interested agency exhibiting "insufficient" loyalty to principal. Social psychology also has a literature, mainly derived from work by Stanley Milgram, on issues of agency, but this emphasizes excessive loyalty -- people undergoing a so-called "agentic shift" and forsaking rationality for loyalty to a legitimate principal, as when "loyal" soldiers obey orders to commit atrocities. This literature posit that individuals experience a deep inner satisfaction from acts of loyalty -- essentially a "utility of loyalty" -- and that this both buttresses institutions organized as hierarchies and explains much human misery. Agency problems of excessive loyalty, as when boards kowtow to errant CEOs and controlling shareholders, may be as economically important in corporate finance as the more familiar problems of insufficient loyalty of corporate insiders to shareholders. Overt conflict between rival authorities is shown to reverse the "agentic shift" -- justifying institutions that formalize argumentation such as the adversary system in Common Law courts; the Official Opposition in Westminster democracies; discussants and referees in academia; and independent directors, non-executive chairs, and proxy contests in corporate governance.
    JEL: D02 D72 D87 G3 K0 P37
    Date: 2009–06
  7. By: Michi Nishihara (Graduate School of Economics, Osaka University)
    Abstract: This paper derives a preemptive equilibrium in strategic investment in alternative projects. The problem is formulated in a real options model with a multidimensional state variable that represents project-specific uncertainty. The proposed method enables us to evaluate the value of potential alternatives. The results not only extend previous studies with a one-dimensional state variable but also reveal new findings. Preemptive investment takes place earlier and the project value becomes lower if the numbers of both firms and projects increase by the same amount. Interestingly, a strong correlation among profits from projects, unlike in a monopoly, plays a positive role in moderating preemptive competition.
    Keywords: strategic real options, preemption, alternative projects, stopping game.
    JEL: C73 G13 G31
    Date: 2009–06
  8. By: Hart, Oliver; Zingales, Luigi
    Abstract: We design a new, implementable capital requirement for large financial institutions (LFIs) that are too big to fail. Our mechanism mimics the operation of margin accounts. To ensure that LFIs do not default on either their deposits or their derivative contracts, we require that they maintain a capital cushion sufficiently great that their own credit default swap price stays below a threshold level. If this level is violated the LFI regulator forces the LFI to issue equity until the CDS price moves back below the threshold. If this does not happen within a predetermined period of time, the regulator intervenes. We show that this mechanism ensures that LFIs are solvent with probability one, while preserving the disciplinary effects of debt.
    Keywords: banks; Capital requirement; too big to fail
    JEL: G21 G28
    Date: 2009–06
  9. By: Lise Patureau (Université de Cergy-Pontoise, THEMA, F-95000 Cergy-Pontoise)
    Abstract: The paper investigates the determinants of international business cycle comovement in a two-country Dynamic Stochastic General Equilibrium (DSGE) model featured by monopolistic competition and nominal price rigidity, following so the New Open Economy Macroeconomy (NOEM) literature. Within this framework, we assess the role of labor market search and matching frictions in the international propagation of supply and monetary shocks. Our results show that labor market frictions improve the ability of the New Open Economy Macroeconomy framework to account for international business cycles comovement. In particular, the NOEM model with labor market search is consistent with the international propagation mechanism of monetary shocks identified in the data. Through their impact on labor market dynamics, labor market institutions affect the magnitude of international comovement. Business cycle synchronization is thus found to increase with the generosity of the unemployment benefits system, whereas it decreases with the strictness of employment protection.
    Keywords: International business cycles, Search, Labor market institutions, Wage bargaining, International transmission of shocks
    JEL: E24 E32 F41
    Date: 2009
  10. By: Choi, Kangsik
    Abstract: We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities by facing a union bargaining process. For the case of a unionized mixed duopoly, only the public firm is able to choose a type of contract irrespective of whether the goods are substitutes or complements in the equilibrium. Thus, we show that social welfare under Bertrand competition is always determined by the public firm's dominant strategy, wherein the Bertrand competition entails higher social welfare than the Cournot competition. Moreover, there are multiple Nash equilibria in the contract stage of the game. Finally, our main results hold irrespective of the nature of goods, with the exception of when a sufficiently large parameter of complements is employed, the ranking of private firm's profit is not reversed, which is contrast to the standard findings.
    Keywords: Wage Bargaining; Union; Cournot-Bertrand Competition; Mixed Duopoly.
    JEL: J51 L13 D43 C72 H44
    Date: 2008–09–25
  11. By: Fali Huang (School of Economics, Singapore Management University); Peter Cappelli (The Wharton School, University of Pennsylvania)
    Abstract: Arguably the fundamental problem faced by employers is how to elicit effort from employees. Most models suggest that employers meet this challenge by monitoring employees carefully to prevent shirking. But there is another option that relies on heterogeneity across employees, and that is to screen job candidates to find workers with a stronger work ethic who require less monitoring. This should be especially useful in work systems where monitoring by supervisors is more difficult, such as teamwork systems. We analyze the relationship between screening and monitoring in the context of a principal-agent model and test the theoretical results using a national sample of U.S. establishments, which includes information on employee selection. We find that employers screen applicants more intensively for work ethic where they make greater use of systems such as teamwork where monitoring is more difficult. This screening is also associated with higher wages, as predicted by the theory: The synergies between reduced monitoring costs and high performance work systems enable the firm to pay higher wages to attract and retain such workers. Screening for other attributes, such as work experiences and academic performance, does not produce these results.
    Keywords: Employee Screening, Monitoring, Work Ethic, High Performance Work Practices, Principal-Agent Model.
    JEL: M51 M54 J30
    Date: 2007–09
  12. By: Nick Bloom; Luis Garicano; Raffaella Sadun; John Van Reenen
    Abstract: Empirical studies on information communication technologies (ICT) typically aggregate the"information" and "communication" components together. We show theoretically and empirically thatthese have very different effects on the empowerment of employees, and by extension on wageinequality. If managerial hierarchies are devices to acquire and transmit knowledge and information,technologies that reduce information costs enable agents to acquire more knowledge and 'empower'lower level agents. Conversely, technologies reducing communication costs substitute agent'sknowledge for directions from their managers, and lead to centralization. Using an original dataset offirms in the US and seven European countries we study the impact of ICT on worker autonomy, plantmanager autonomy and spans of control. Consistently with the theory we find that better informationtechnologies (Enterprise Resource Planning for plant managers and CAD/CAM for productionworkers) are associated with more autonomy and a wider span of control. By contrast, communicationtechnologies (like data networks) decrease autonomy for both workers and plant managers. Ourfindings are robust to using exogenous variation in cross-country telecommunication costs arisingfrom differential regulatory regimes.
    Keywords: organization, delegation, information technology, communication technology, the theoryof the firm
    JEL: O31 O32 O33 F23
    Date: 2009–05
  13. By: Alex Bryson; John Forth; Patrice Laroche
    Abstract: Using nationally representative workplace surveys we examine the relationship between unionization and workplace financial performance in Britain and France. We find that union bargaining is detrimental to workplace performance in Britain and that this effect is larger when unionization is endogenized. In France, union bargaining is associated with poorer workplace performance but the effect disappears once unionization is treated as endogenous. However, high levels of union density do have a negative impact on workplace performance in France. In Britain the union effect does not rise with union density.
    Keywords: Trade union, firm performance, France, Britain
    JEL: J51 L25
    Date: 2009–04
  14. By: Peter Egger (Ifo Institute, University of Munich, WIFO and CESifo); Christian Keuschnigg (University of St. Gallen (IFF-HSG)); Hannes Winner (University of Salzburg)
    Abstract: This paper provides a theory and firm-level evidence on the incorporation decision of entrepreneurs in a model of taxes and corporate governance. The theory explains how the incorporation decision of entrepreneurs is driven by taxation (corporate and personal income taxes), corporate transparency, access to external capital and limited liability. We estimate features of this model using a large cross-section of more than 540, 000 firms in European manufacturing. We find that higher personal income tax rates favor incorporation while higher corporate tax rates reduce the probability to incorporate. These findings are robust to the inclusion of other economic and institutional determinants of external financing and choice of organizational form.
    Keywords: Incorporation, governance, taxes, discrete choice models
    JEL: H25 H73 F23 C21
    Date: 2009
  15. By: Panos, Georgios; Theodossiou, Ioannis
    Abstract: This study evaluates behavioural differences between union and non-union workers in their preferences regarding reciprocal loyalty in the employment relationship. It uses a vignettes approach to elicit preferences and a novel dataset with unusually rich information on semi-skilled employees from four European countries. It focuses on reciprocal employer-employee arrangements stating that if the employee exerts higher effort, the employer reciprocates by offering higher job security. Such reciprocal arrangements are found to be valued more highly by unionized workers. The evidence suggests that the norm-enhancing role of union membership is the key candidate explanation of this pattern. Union workers are also found more likely to exercise the ‘voice’ rather than the ‘exit’ option in their current job.
    Keywords: Trade Union; Loyalty; Reciprocity; Adaptation; Conjoint Analysis; Exit; Voice
    JEL: J51 J28 J52
    Date: 2009–05–27
  16. By: Böckerman, Petri; Ilmakunnas, Pekka; Johansson , Edvard
    Abstract: We examine the effects of establishment- and industry-level labor market turnover on employees’ job satisfaction and perceived job insecurity. Our linked employer-employee panel data contain both information on employees’ subjective well-being and register-based information on job and worker flows. The results show that job destruction and worker outflow measures reduce job satisfaction and, especially, perceived security. These effects are much weaker when the individual-specific fixed effects are taken into account. The evidence also reveals that the establishment-level job and worker flows do not translate into higher wages. These findings speak against the existence of compensating wage differentials for job uncertainty.
    Keywords: job flows; worker flows; job satisfaction; perceived security; job instability
    JEL: J63 J28
    Date: 2009–05–27
  17. By: Nick Bloom; Raffaella Sadun; John Van Reenen
    Abstract: We argue that social capital as proxied by regional trust and the Rule of Law can improve aggregateproductivity through facilitating greater firm decentralization. We collect original data on the decentralization ofinvestment, hiring, production and sales decisions from Corporate Head Quarters to local plant managers inalmost 4,000 firms in the US, Europe and Asia. We find Anglo-Saxon and Northern European firms are muchmore decentralized than those from Southern Europe and Asia. Trust and the Rule of Law appear to facilitatedelegation by improving co-operation, even when we examine "bilateral trust" between the country of originand location for affiliates of multinational firms. We show that areas with higher trust and stronger rule of lawspecialize in industries that rely on decentralization and allow more efficient firms to grow in scale.Furthermore, even for firms of a given size and industry, trust and rule of law are associated with moredecentralization which fosters higher returns from information technology (we find IT is complementary withdecentralization). Finally, we find that non-hierarchical religions and product market competition are alsoassociated with more decentralization. Together these cultural, legal and economic factors account for fourfifthsof the cross-country variation in the decentralization of power within firms.
    Keywords: decentralization, trust, Rule of Law, social capital, theory of the firm
    JEL: L2 M2 O32 O33
    Date: 2009–06
  18. By: Stavros Panageas
    Abstract: A firm's termination leads to bankruptcy costs. This may create an incentive for outside stakeholders or the firm's debtholders to bail out the firm as bankruptcy looms. Because of this implicit guarantee, firm shareholders have an incentive to increase volatility in order to exploit the implicit protection. However, if they increase volatility too much they may induce the guarantee-extending parties to "walk away". I derive the optimal risk management rule in such a framework and show that it allows high volatility choices, while net worth is high. However, risk limits tighten abruptly when the firm's net worth declines below an endogenously determined threshold. Hence, the model reproduces the qualitative features of existing risk management rules, and can account for phenomena such as "flight to quality".
    JEL: G32 G33
    Date: 2009–06
  19. By: Alex Bryson; Rafael Gomez; Tobias Kretschmer; P Willman
    Abstract: Non-union direct voice has replaced union representative voice as the primary avenue for employeevoice in the British private sector. This paper provides a framework for examining the relationshipbetween employee voice and workplace outcomes that explains this development. As exit-voicetheory predicts, voice is associated with lower voluntary turnover, especially in the case of unionvoice. Union voice is also associated with greater workplace conflict and poorer productivity. Nonunionvoice is associated with better workplace financial performance than other voice regimes.
    Keywords: employee voice, trade unions, productivity, industrial action, quits, labor-managementrelations
    JEL: J24 J51 J52 J53 J63
    Date: 2009–04
  20. By: Bianchi, Javier
    Abstract: Credit constraints that link a private agent's debt to market-determined prices embody a systemic credit externality that drives a wedge between competitive and (constrained) socially optimal equilibria, which induces private agents to ``overborrow". We quantify the effects of this externality in a two-sector DSGE model of a small open economy calibrated to emerging markets. Debt is denominated in units of tradable goods, and is constrained not to exceed a fraction of income, including nontradables income valued at the relative price of nontradables. The externality arises because agents fail to internalize the price effects of their individual borrowing, and hence the adverse debt-deflation amplification effects of negative income shocks that trigger a binding credit constraint. Quantitatively, the credit externality causes a modest increase in average debt, of about 2 percentage points of GDP, but it triples the probability of financial crises and doubles the average current account and consumption reversals caused by these crises.
    Keywords: Financial Crises; Business Cycles; Amplification Effects; Sudden Stops; Systemic Externalities
    JEL: D62 F20 E32 F32 F30 F41
    Date: 2009–04–28
  21. By: Fan, Qinbin; Jahan-Parvar, Mohammad R.
    Abstract: This paper takes a closer look at the puzzle uncovered by Driesprong et al. (2008) and finds empirical support for the "oil effect" in equity returns. Using forty nine US industry-level returns series and changes in oil spot and future prices, we address whether industry-level returns are predictable. We find that using changes in oil spot prices, the answer is yes; but for just under a fifth of industries in our sample. We find weak support for the predictability of industry-level returns based on changes in oil futures prices. Our findings are consistent with the delayed reaction to new information, a variant of Hong and Stein (1996)'s "underreaction" hypothesis.
    Keywords: Industry-level returns; Oil prices; Return predictability; Underreaction
    JEL: G14 G11 G12
    Date: 2009–05
  22. By: Roberto M. Samaniego (Department of Economics, George Washington University)
    Abstract: Using European data, this paper finds that (1) industry entry and exit rates are positively related to industry rates of investment-specific technical change (ISTC); (2) the sensitivity of industry entry and exit rates to cross-country differences in entry costs depends on industry rates of ISTC. The paper constructs a general equilibrium model in which the rate of ISTC varies across industries and new investment-specific technologies can be introduced by entrants or by incumbents. In the calibrated model, equilibrium behavior is consistent with stylized facts (1) and (2), provided the cost of technology adoption is increasing in the rate of ISTC.
    Keywords: Entry, exit, turnover, investment-specific technical change, entry costs, vintage capital, embodied technical change, lumpy investment
    JEL: D92 L26 O33 O41
    Date: 2008–04–02
  23. By: Harashima, Taiji
    Abstract: A theory of total factor productivity (TFP) is needed to explain why substantial differences in international income have been observed. This paper presents a theory of TFP that incorporates workers’ innovations. Because workers are human and capable of creative intellectual activities, they can create innovations even if these innovations are minor. The creative activities of ordinary workers have been almost entirely neglected in economics even though the importance of workers’ learning activities has been emphasized by the theories of learning-by-doing and human capital. I examine this creative element and show that innovations created by ordinary workers are indispensable for efficient production. A production function incorporating workers’ innovations is shown to have a Cobb-Douglas functional form with a labor share of about 70%. The production function offers a microfoundation of the Cobb-Douglas production function and more importantly indicates that heterogeneous parameter values with regard to workers’ innovations are essential factors of the currently observed substantial income difference across economies.
    Keywords: Innovation: Total factor productivity; Experience curve effect; Convergence hypothesis; Cobb-Douglas production function
    JEL: O11 E23 J24 D24 O31 O14
    Date: 2009–05–31
  24. By: Jingjing Chai; Wolfram Horneff; Raimond Maurer; Olivia S. Mitchell
    Abstract: This paper derives optimal life cycle portfolio asset allocations as well as annuity purchases trajectories for a consumer who can select her hours of work and also her retirement age. Using a realistically-calibrated model with stochastic mortality and uncertain labor income, we extend the investment universe to include not only stocks and bonds, but also survival-contingent payout annuities. We show that making labor supply endogenous raises older peoples' equity share; substantially increases work effort by the young; and markedly enhances lifetime welfare. Also, introducing annuities leads to earlier retirement and higher participation by the elderly in financial markets. Finally, if we allow for an age-dependent leisure preference parameter, this fits well with observed evidence in that it generates lower work hours and smaller equity holdings at older ages as well as sensible retirement age patterns.
    JEL: D01 D11 D14 G11 G22 G23 H31 H55 J14 J26
    Date: 2009–06
  25. By: Paul-Antoine Chevalier; Rémy Lecat; Nicholas Oulton
    Abstract: Studies of firm-level data have shown that there is a huge dispersion of productivity across firms evenwhen industries are narrowly defined. So there is a significant opportunity for the least productivefirms to catch up to the most productive. The formers' convergence could therefore constitute animportant part of productivity growth at the macroeconomic level. This article sheds light on thisconvergence process in the 1990s and the 2000s in France and on some of the factors which canexplain it. Productivity convergence was stronger for labour productivity than for total factorproductivity. But most importantly the speed of convergence has slowed during the course of the1990s, a fact which is explained principally by the acceleration of the productivity of firms on thetechnological frontier. Three possible explanations of these stylised facts are considered:globalisation, information technology, and competition. Globalisation and information technologymay have benefited the most productive firms more and the growth of competition may at the sametime have stimulated the productivity of firms at the frontier while discouraging the convergence ofthe least productive firms.
    Keywords: Convergence, productivity, TFP, globalisation, ICT, competition
    JEL: D24 D40 F10 J24 L11 O33
    Date: 2009–03
  26. By: Mark J. Holmes (Department of Economics, Waikato University); Theodore Panagiotidis (Department of Economics, University of Macedonia)
    Abstract: This study conducts an investigation into the extent of cointegration between imports and exports and asymmetries in the adjustment of the US current account over the study period 1960Q4-2007Q2. We find evidence in favour of cointegration through the application of the standard Johansen methodology. Employing the Trace test procedure recursively, two distinct regimes are identified according to whether or not imports and exports are cointegrated. We also consider the Breitung (2002) and Breitung and Taylor (2003) nonparametric cointegration test procedures that do not assume linear short-run dynamics. Further analysis of the asymmetric short-run dynamics reveals that adjustment towards long-run equilibrium is primarily driven by US exports responding to current account deficits.
    Keywords: US Current Account, Sustainability, Cointegration, structural changes, nonparametric cointegration, recursive Trace test statistic, recursive betas, asymmetric error correction..
    JEL: C5 F1 F4
    Date: 2009–05

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