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on Business Economics |
| By: | John B. Donaldson; Natalia Gershun; Marc P. Giannoni |
| Abstract: | We consider a simple variant of the standard real business cycle model in which shareholders hire a self-interested executive to manage the firm on their behalf. Delegation gives rise to a generic conflict of interest mediated by a convex (option-like) compensation contract which is able to align the interests of managers and their shareholders. With such a compensation contract, a given increase in the firm's output generated by an additional unit of physical investment results in a more than proportional increase in the manager's income. We find that incentive contracts of this form can easily result in an indeterminate general equilibrium, with business cycles driven by self-fulfilling fluctuations in the manager's expectations. These expectations are unrelated to fundamentals. Arbitrarily large fluctuations in macroeconomic variables may possibly result. |
| JEL: | E32 J33 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15165&r=bec |
| By: | Harald Oberhofer |
| Abstract: | Based on the empirical firm growth literature and on heterogeneous (microeconomic) adjustment models, this paper empirically investigates the impact of European industry fluctuations and domestic business cycles on the growth performance of European firms. Since the implementation of the Single market program (SMP) the EU 27 member states share a common market. Accordingly, the European industry business cycle is expected to become a more influential predictor of European firms' behavior at the expense of domestic fluctuations. Empirically, the results of a two-part model for a sample of European manufacturing firms reject this hypothesis. Additionally, subsidiaries of Multinational Enterprises (MNEs) constitute the most stable firm cohort throughout the observed business cycle. |
| Keywords: | Firm growth, industry dynamics, domestic business cycle, multinational enterprises, two-part model |
| JEL: | L11 L16 L25 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2009-18&r=bec |
| By: | Vasyl Golosnoy; Jens Hogrefe |
| Abstract: | The dates of U.S. business cycle are reported by NBER with a considerable delay, so an early notion of turning points is of particular interest. This paper proposes a novel sequential approach designed for timely signaling these turning points. A directional cumulated sum decision rule is adapted for the purpose of on-line monitoring of transitions between subsequent phases of economic activity. The introduced procedure shows a sound detection ability for business cycle peaks and troughs compared to the established dynamic factor Markov switching methodology. It exhibits a range of theoretical optimality properties for early signaling, moreover, it is transparent and easy to implement |
| Keywords: | Business cycle; CUSUM control chart; Dynamic Factor Markov switching models; Early signaling; NBER dating |
| JEL: | C44 C50 E32 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1528&r=bec |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16270&r=bec |
| By: | S. BALCAEN; J. BUYZE; H. OOGHE |
| Abstract: | This paper provides new insights on the determinants of firm exit after distress. Using nested logit models and a sample of 6118 distress-related exits from Belgium, we analyze the impacts of available and potential slack and the relative efficiency of voluntary liquidation, compared to acquisition and merger, on the type of exit. It appears essential to examine the type of exit outcome as a two-stage process. The first stage considers the fundamental distinction between voluntary and involuntary exit, the latter being the least favorable and most avoided exit strategy. In this situation, high levels of available and potential slack resources, as reflected by large cash holdings, strong group relations and low current leverage, increase the probability of voluntary exit. High slack allows distressed firms to avoid bankruptcy and decide on their exit process. In the second stage, and provided that exit is voluntary, voluntary liquidation is compared to restructuring exit (acquisition, merger or split). In this stage, a higher relative efficiency of voluntary liquidation compared to a restructuring exit, as indicated by absence of group relations, small firm size, high secured debt level and large cash holdings, increase the likelihood of voluntary liquidation and reduce the probability of a restructuring exit. |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:09/598&r=bec |
| By: | Gianmarco I.P. Ottaviano (Bocconi University, FEEM and CEPR); Alireza Naghavi (Università di Bologna) |
| Abstract: | We develop an endogenous growth model to study the long run consequences of offshoring with firm heterogeneity and incomplete contracts. In so doing, we model offshoring as the geographical fragmentation of a firm’s production chain between a home upstream division and a foreign downstream one. On the positive side, we show that, when contracts are incomplete, the possibility of offshoring has favorable implications for economic growth. Yet, offshoring induced by a higher bargaining power of the upstream division can hamper growth: while there is always a positive correlation between upstream bargaining weight and offshoring activities, there is a non-monotonic relationship between these and growth. Whether offshoring with incomplete contracts also increases consumption depends on firm heterogeneity. On the normative side, we show that, whereas with complete contract efficiency is restored through a subsidy to R&D only, with incomplete contracts a production subsidy to offshored upstream divisions is needed too. |
| Keywords: | Offshoring, Heterogeneous Firms, Incomplete Contracts, Growth, Industry Dynamics |
| JEL: | D23 F23 L23 O31 O43 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.54&r=bec |
| By: | Etienne Billette de Villemeur (Toulouse School of Economics, IDEI & GREMAQ, 21 allée de Brienne, 31000 Toulouse, France); Laurent Flochel (Charles River Associates International, 27 Avenue de l’opéra, 75001 Paris, France); Bruno Versaevel (EMLYON Business School & CNRS, GATE, 69134 Ecully cedex France) |
| Abstract: | Collusion sustainability depends on ï¬rms' aptitude to impose suffciently severe punishments in case of deviation from the collusive rule. We characterize the ability of oligopolistic ï¬rms to implement a collusive strategy when their ability to punish deviations over one or several periods is limited by a severity constraint. It captures all situations in which either structural conditions (the form of payoff functions), institutional circumstances (a regulation), or ï¬nancial consider- ations (proï¬tability requirements) set a lower bound to ï¬rms' losses. The model speciï¬cations encompass the structural assumptions (A1-A3) in Abreu (1986) [Journal of Economic Theory, 39, 191-225]. The optimal punishment scheme is characterized, and the expression of the lowest discount factor for which collusion can be sustained is computed, that both depend on the status of the severity constraint. This extends received results from the literature to a large class of models that include a severity constraint, and uncovers the role of structural parameters that facilitate collusion by relaxing the constraint. |
| Keywords: | Collusion, Oligopoly, Penal codes |
| JEL: | C72 D43 L13 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0909&r=bec |
| By: | Anusha Chari (University of North Carolina); Wenjie Chen (University of Michigan); Kathryn M.E. Dominguez (University of Michigan) |
| Abstract: | This paper examines the recent upsurge in foreign acquisitions of U.S. firms, specifically focusing on acquisitions made by firms located in emerging markets. Neoclassical theory predicts that, on net, capital should flow from countries that are capital-abundant to countries that are capital-scarce. Yet increasingly emerging market firms are acquiring assets in developed countries. Using transaction-specific acquisition data and firm-level accounting data we evaluate the post-acquisition performance of publicly traded U.S. firms that have been acquired by firms from emerging markets over the period 1980-2007. Our empirical methodology uses a difference-in-differences approach combined with propensity score matching to create an appropriate control group of non-acquired firms. The results suggest that emerging country acquirers tend to choose U.S. targets that are larger in size (measured as sales, total assets and employment), relative to matched non-acquired U.S. firms before the acquisition year. In the years following the acquisition, sales and employment decline while profitability rises, suggesting significant restructuring of the target firms. |
| Keywords: | fdi, foreign direct investment, |
| JEL: | F21 F23 G34 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:mie:wpaper:590&r=bec |
| By: | S. DOBBELAERE; J. MAIRESSE |
| Abstract: | Embedding the efficient bargaining model into the R. Hall (1988) approach for estimating price-cost margins shows that both imperfections in the product and labor markets generate a wedge between factor elasticities in the production function and their corresponding shares in revenue. This article investigates these two sources of discrepancies both at the industry level and the firm level using an unbalanced panel of 10646 French firms in 38 manufacturing industries over the period 1978-2001. By estimating standard production functions and comparing the estimated factor elasticities for labor and materials and their shares in revenue, we are able to derive estimates of average price-cost mark-up and extent of rent sharing parameters. For manufacturing as a whole, our estimates of these parameters are of an order of magnitude of 1.17 and 0.44 respectively. Our industry-level results indicate that industry differences in these parameters and in the underlying estimated factor elasticities and shares are quite sizeable. Since firm production function, behavior and market environment are very likely to vary even within industries, we also investigate firm-level heterogeneity in estimated mark-up and rent-sharing parameters. To determine the degree of true heterogeneity in these parameters, we adopt the P.A. Swamy (1970) methodology allowing to correct the observed variance in the firm-level estimates from their sampling variance. The median of the firm estimates of the price-cost mark-up ignoring labor market imperfections is of 1.10, while as expected it is higher of 1.20 when taking them into account and the median of the corresponding firm estimates of the extent of rent sharing is of 0.62. The Swamy corresponding robust estimates of true dispersion are of about 0.18, 0.37 and 0.35, showing indeed very sizeable within-industry firm heterogeneity. We find that firm size, capital intensity, distance to the industry technology frontier and investing in R&D seem to account for a significant part of this heterogeneity. |
| Keywords: | Rent sharing, price-cost mark-ups, production function, panel data |
| JEL: | C23 D21 J51 L13 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:09/586&r=bec |
| By: | Canton, E.J.F.; Verheul, I. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University) |
| Abstract: | This paper explores the role of social interactions at the work floor for understanding gender pay differences in the EU. Using data from the Fourth European Working Conditions Survey, we find that sex similarity of subordinate and supervisor decreases the pay disadvantage for women in non-managerial occupations, though working for a female boss is associated with a lower wage than working for a man. This may point at a ‘discrimination-for-pay’ effect. Female workers can avoid part of the discrimination against them by working for a woman and accepting lower pay. And when they face stronger discrimination in the situation of a male supervisor, they are ‘bribed’ by being offered a higher salary. Different results are obtained for managerial workers where sex similarity of worker and superior actually puts women at a further disadvantage. In addition to effects of vertical gender segregation, we examine whether wage formation is influenced by the proportion of women per sector (i.e., horizontal segregation), but find only weak support for the so-called social bias theory. Our main message is that while the traditional human capital model tends to study the wage formation process in isolation, gender pay differentials can also be seen as a social phenomenon, stemming from social interactions in labor markets. |
| Keywords: | gender pay differences;wages;European Union |
| Date: | 2009–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:eureri:1765016215&r=bec |
| By: | INABA Masaru; KOBAYASHI Keiichiro |
| Abstract: | Do large fluctuations arise from small shocks through financial frictions? In previous literature it is shown that a collateral constraint on intertemporal debt for consumption smoothing does not have a quantitatively significant effect on the response of output to unexpected shocks. We additionally focus on the collateral constraint on intratemporal debt for wage payments and examine the amplification of output. We find that output is significantly amplified in a standard functional form and parameter region. We also find that the region of the parameters for which the output is amplified is wider than that of previous literature. |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:09035&r=bec |
| By: | Bronwyn H. Hall (Department of Economics, University of California at Berkeley); Francesca Lotti (Bank of Italy); Jacques Mairesse (CREST (ENSAE, Paris)) |
| Abstract: | Innovation in SMEs exhibits some peculiar features that most traditional indicators of innovation activity do not capture. Therefore, in this paper, we develop a structural model of innovation which incorporates information on innovation success from firm surveys along with the usual R&D expenditures and productivity measures. We then apply the model to data on Italian SMEs from the “Survey on Manufacturing Firms” conducted by Mediocredito-Capitalia covering the period 1995-2003. The model is estimated in steps, following the logic of firms’ decisions and outcomes. We find that international competition fosters R&D intensity, especially for high-tech firms. Firm size, R&D intensity, along with investment in equipment enhances the likelihood of having both process and product innovation. Both these kinds of innovation have a positive impact on firm’s productivity, especially process innovation. Among SMEs, larger and older firms seem to be less productive. |
| Keywords: | R&D, innovation, productivity, SMEs, Italy |
| JEL: | L60 O31 O33 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_718_09&r=bec |
| By: | J. BRUNEEL; B. CLARYSSE; M. WRIGHT |
| Abstract: | The growth of young, technology-based firms has received considerable attention in the literature given their importance for the generation and creation of economic wealth. Taking a strategic management perspective, we link the entrepreneurial strategy deployed by young, technology-based firms with firm growth. In line with recent research, we consider both revenue and employment growth as they reflect different underlying value creation processes. Using a unique European dataset of research-based spin-offs, we find that firms emphasizing a product and hybrid strategy are positively associated with growth in revenues. The latter strategy also has a positive influence on the creation of additional employment. Contrary to expectation, however, we find that firms pursuing a technology strategy do not grow fast in employment. Our study sheds new light on the relationship between entrepreneurial strategy and firm growth in revenues and employment. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:09/571&r=bec |
| By: | Alberto Behar; Benjamin D. Nelson |
| Abstract: | We present a gravity model that accounts for multilateral resistance, firm heterogeneity and country-selection into trade, while accommodating asymmetries in trade flows. A new equation for the proportion of exporting firms takes a gravity form: the extensive margin is also affected by multilateral resistance. If all countries reduce their trade frictions, the impact of multilateral resistance is so strong that bilateral trade falls in many cases. This is despite the larger trade elastictiies implied by firm heterogeneity. For isolated bilateral changes in trade frictions, ultilateral resistance effects are small for most countries, but are large when big importers are involved. |
| Keywords: | Gravity models, Multilateral resistance, Firm heterogeneity |
| JEL: | F10 F12 F14 F17 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:440&r=bec |
| By: | Thomas, Y. MATH€ (CENTRAL BANK OF LUXEMBOURG, Economics and Research Department); Olivier, PIERRARD (CENTRAL BANK OF LUXEMBOURG, Economics and Research Department and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | Empirical evidence suggests thatmost firms operate in imperfectly competitivemarkets. We develop a search-matching model between wholesalers and retailers. Firms face search costs and formlong-termrelationships. Price bargain results in both wholesaler and retailer markups, depending on firmsÕ relative bargaining power. We simulate themodel to explore the role of product market search frictions in business cycles. We show that the way search costs are modelled is crucial to provide a realistic picture of firmsÕ business environment and improve the cyclical properties of an otherwise standard real business cycle model. |
| Keywords: | Business cycle, Frictions, Product market, Price bargain |
| JEL: | E10 E31 E32 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2009019&r=bec |
| By: | Sergio Vergalli (University of Brescia); Laura Poddi (University of Ferrara) |
| Abstract: | Over the last two decades in OECD countries increasingly more firms are certifying as Socially Responsible (CSR is the acronym for Corporate Social Responsibility). This kind of certification is assigned by private companies that guarantee that a certain firm’s behaviour is environmentally and sociologically correct. Some papers (including Preston and O’Bannon, 1997; Waddock and Graves, 1997; McWilliams and Sieger, 2001; Ullman, 1985) tried to establish if there exists a link between Social Responsibility certification and the performance of firms. Their results were ambiguous and did not show any common connection. This ambiguity depends mainly on the static nature of their analyses and on the problem of whether performance is affected more by certification costs or by increasing sales due to an effect on reputation. Our work would like to discover whether certain performance indicators are affected by a firm’s social responsible behaviour and their certifications by looking at panel data. The novelty of our analysis is due to its dynamic aspect and from a CSR index that intersects two of the three main international indices (Domini 400 Social Index, Dow Jones Sustainability World Index, FTSE4Good Index), to be objective and obtain a representative sample. The main results seem to support the idea that CSR firms which are more virtuous, have better long run performance. They have some initial costs but obtain higher sales and profits due to several causes reputation effect, a reduction of long run costs and increased social responsible demand. |
| Keywords: | Corporate Social Responsibility, Growth |
| JEL: | M14 C23 O10 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2009.52&r=bec |
| By: | Marc Schiffbauer (ESRI); Iulia Siedschlag (ESRI); Frances Ruane (ESRI) |
| Abstract: | This paper examines the causal relationship between foreign mergers and acquisitions and firm productivity in the UK over the period 1999-2007. Our results raise questions about the existence of aggregate effects of foreign ownership on TFP in the longer-run. However, we find significant heterogeneity in the TFP effects of foreign M&A at the industry level. Overall, we uncover a systematic pattern of post-acquisition TFP effects that is consistent with the most recent theoretical models of firm heterogeneity and cross-border mergers and acquisitions as mode of foreign entry. Furthermore, we find positive aggregate effects on labor productivity due to capital deepening but not due to changes in TFP. |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:wp305&r=bec |
| By: | Herciu, Mihaela; Ogrean, Claudia; Belascu , Lucian |
| Abstract: | The idea that the value of the firm is given by its financial capital and its intellectual capital is generally accepted. But, what is changing nowadays is the importance/weight that each one of these two components claims to have regarding the value of the firm – based on the dynamics of the changes and the intensity of the competition within an industry, on one hand, and on the measure of connection/networking to the knowledge-based economy of the given industry, on the other hand. So, we are the witnesses of: (1) a repositioning into the dynamics of the financial capital – intellectual capital binomial relationship regarding the value creation process of a firm and (2) the need to reformulate the sustainable value creation strategies by firm management. But no value creation strategy is complete until it is transposed into the firm’s managerial processes, in models and indicators, and proofs itself viable in time. By this paper we would like to emphasize the changes and the tendencies which are taking place into the content and structure of the market value of the firm, and to propose a guideline framework of an integrative model of analysis. |
| Keywords: | caotal financier; capital intellectuel;valeur de marche; societe basee sur la connaissance |
| JEL: | L25 D80 D00 |
| Date: | 2009–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16305&r=bec |
| By: | Qi Li (SPIRe and Geary Institute); Patrick Paul Walsh (SPIRe and Geary Institute) |
| Abstract: | We construct a theoretical model of the dynamic processes (firm entry, growth, decline, and exit) that underpin the determination of a limiting firm size distribution (FSD). In particular, we model such dynamic processes using key structural parameters; sunk cost, exogenous entry constraints, and opportunity values of finite duration. The limiting FSD we derive, in steady state, turns out to be a combination of a Logarithmic and Zipf distribution. We estimate these structural parameters using long periods of Irish company data for defined cohorts of firms, in terms of trade orientation, within narrowly defined industries. Within non-exporting and exporting samples of companies our model fits the actual FSD well with a good return to the Zipf distribution in the upper tail, that is less dependent on the estimated structural parameters, and a good return at the lower tail, where the Logarithmic effects are endogenously driven by firm heterogeneity in estimated structural parameters. |
| JEL: | L11 F15 |
| Date: | 2009–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:200920&r=bec |
| By: | Guido Cazzavillan (Department of Economics, University Of Venice Cà Foscari); Krzysztof Olszewski (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | In this paper skill-biased technological change is linked with endogenous labor supply which allows for unemployment. This is a novel approach, as the literature on skill-biased technological change considers inelastic labor supply. Elastic labor supply allows us to explain how the observed increasing unemployment of unskilled workers is caused by skill-biased technological change. Our numerical analysis shows that if the skill-biased technological change is not followed by the growth of total factor productivity, then output, physical capital stock and consumption decline. Using empirical data on wages and education, we construct a time series for skill-biased technological change for Poland and the US. The empirical relevance of the model is tested by calibrating it to empirical data for Poland over the period 1996-2006 and US over the period 1992-2008. With only two necessary inputs, share of skilled workers in total population and the technology adopted by firms, this model allows to simulate the future behaviour of the labor market. |
| Keywords: | Skill-biased technological change, Endogenous labor supply, Transition Economies |
| JEL: | O11 O3 O41 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2009_12&r=bec |
| By: | Toshihiko Mukoyama (University of Virginia and CIREQ (E-mail: tm5hs@ virginia.edu)) |
| Abstract: | This paper compares the establishment-level dynamics of the United States and Japan. I find that there are substantial differences in entry and exit behavior, the average size of establishments, and the amount of job reallocation. First, entry and exit rates are much lower in Japan. Second, the average size of establishments is much smaller in Japan, while the average size of opening/closing establishments are similar in the U.S. and Japan. Third, the amount of job creation and job destruction is much smaller in Japan, especially for continuing establishments. I first examine whether these differences are accounted for by sectoral compositions, and find that the differences in sectoral composition do not explain these facts. Then I construct a general equilibrium industry dynamics model and explore the roles of various frictions in generating these differences. The model experiments suggest that in Japan, there may be important impediments for establishment entry/exit and there may be factors impeding productive establishments from growing larger. |
| Keywords: | Establishment Dynamics, Sectoral Composition, Industry Dynamics Model, Reallocation |
| JEL: | E23 H25 J62 L25 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:09-e-16&r=bec |
| By: | Olivier Gervais; Ilan Kolet |
| Abstract: | The dramatic reduction in global demand, and the decline in the spot price of crude oil in the second half of last year, may have significant implications for the future supply of oil. Investments in conventional methods of extraction have been constrained, since easily accessible oil reserves are typically concentrated in countries with geopolitical uncertainty and/or state-run oil companies. Moreover, nearly half of all global oil production, and roughly 75 per cent of proven reserves, are accounted for by the Organization of the Petroleum Exporting Countries (OPEC). In this paper, the authors assess the implications of recent developments for the future supply of oil. They find that (i) the OPEC cuts announced in December 2008 could provide important support for prices in the coming year, and (ii) low prices have depressed, and may continue to depress, oil infrastructure investment, and thus could amplify existing supply constraints. |
| Keywords: | Business fluctuations and cycles; Inflation and prices; International topics |
| JEL: | Q41 Q43 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:09-9&r=bec |
| By: | Matilde Bombardini (University of British Columbia, CIFAR, NBER and RCEA); Giovanni Gallipoli (University of British Columbia and RCEA); Germán Pupato (University of British Columbia) |
| Abstract: | Is skill dispersion a source of comparative advantage? While it is established that a country's aggregate endowment of human capital is an important determinant of comparative advantage, this paper investigates whether the distribution of skills in the labor force can play a role in the determination of trade flows. We develop a multi-country, multi-sector model of trade in which comparative advantage derives from (i) differences across sectors in the complementarity of workers' skills, (ii) the dispersion of skills in the working population. First, we show how higher dispersion in human capital can trigger specialization in sectors characterized by higher substitutability among workers' skills. We then use industry-level bilateral trade data to show that human capital dispersion, as measured by a standard international metric, has a signi cant effect on trade flows. We nd that the effect is of a magnitude comparable to that of aggregate endowments. The result is robust to the introduction of several controls for other proximate causes of comparative advantage |
| JEL: | F12 F16 J82 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:wp20_09&r=bec |
| By: | Colin Busby (C.D. Howe Institute); William P.B. Robson (C.D. Howe Institute) |
| Abstract: | After trailing the average performance of G7 countries for 15 years, Canada’s relative business investment performance stands out in a promising light for 2009 and 2010. Amid the recession, new capital spending on tools for workers, in the form of machinery, equipment or buildings, has held up better in Canada than in many other countries, and particularly the United States. Investment per worker in Canada for 2010 should surpass that in other G7 and OECD countries. |
| Keywords: | economic growth and innovation, business investment, capital investment |
| JEL: | E2 E22 O51 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:cdh:ebrief:83&r=bec |