nep-opm New Economics Papers
on Open MacroEconomics
Issue of 2009‒08‒22
five papers chosen by
Martin Berka
Massey University

  1. A Simple Model of an Oil Based Global Savings Glut – The “China Factor” and the OPEC Cartel By Ansgar Belke; Daniel Gros
  2. Productivity Growth and Capital Flows: The Dynamics of Reforms By Francisco J. Buera; Yongseok Shin
  3. International business cycles and the relative price of investment goods By Parantap Basu; Christoph Thoenissen
  4. Globalization, Financial Depth, and Inequality in Sub-Saharan Africa By Hisako KAI; Shigeyuki HAMORI
  5. A Welfare Analysis of Global Patent Protection in a Model with Endogenous Innovation and Foreign Direct Investment By Hitoshi Tanaka; Tatsuro Iwaisako; Koichi Futagami

  1. By: Ansgar Belke; Daniel Gros
    Abstract: The purpose of this contribution is to illustrate the mechanism by which higher oil prices might lead to lower interest rates in the context of a simple model that takes into account the global external savings equilibrium. The simple model has interesting implications for how one views the huge US current account deficit and how the emergence of China’s savings surplus and oil supply shocks impact the global economy.We show that the new equilibrium is located at a lower interest rate but also at a lower income level than without the China effect. Moreover, we argue that the lower real interest rates resulting from excess OPEC savings have facilitated the adjustment to the subprime crisis.
    Keywords: China factor, current account adjustment, interest rate, oil prices, saving glut
    JEL: E21 E43 F32 Q43
    Date: 2009–07
  2. By: Francisco J. Buera; Yongseok Shin
    Abstract: Why doesn’t capital flow into fast-growing countries? In this paper, we provide a quantitative framework incorporating heterogeneous producers and underdeveloped domestic financial markets to study the joint dynamics of total factor productivity (TFP) and capital flows. When an unexpected once-and-for-all reform eliminates non-financial distortions and liberalizes capital flows, the TFP of our model economy rises gradually and capital flows out of it. The rise in TFP reflects efficient reallocation of capital and talent, a process drawn out by frictions in domestic financial markets. The concurrent capital outflows are driven by the positive response of domestic saving to higher returns, and by the sluggish response of domestic investment to the higher TFP—the latter being another ramification of domestic financial frictions. We use our model to analyze the welfare consequences of opening up capital accounts. We find that the marginal welfare effect of capital account liberalization is negative for workers and positive for entrepreneurs and wealthy individuals.
    JEL: E44 F21 F32 F43 O16
    Date: 2009–08
  3. By: Parantap Basu; Christoph Thoenissen
    Abstract: Is the relative price of investment goods a good proxy for investment frictions? We model this relative price in a flexible price international economy with two fundamental shocks, namely the total factor productivity (TFP) shock and the investment specific technology (IST) shock. The paper argues that the one-to-one correspondence between investment friction and the relative price of investment goods breaks down in an international economy because of the short run correlation between the terms of trade and the relative price of investment goods. The data congruent negative correlation between the investment rate and the relative price of investment goods thus does not necessarily reflect decline in investment frictions (rise in IST) as suggested by many studies. A calibration experiment with the US data demonstrates that such an inverse relation between rate of investment and the relative price of investment goods basically reflects the positive effect of TFP on the terms of trade for a broad range of econ mies where the home bias in consumption exceeds investment and there is a sizable adjustment cost of investment. A regression experiment with major OECD countries provided empirical support of the fact that terms of trade effect on the relative price of investment is important
    Keywords: Investment frictions, investment specific technological progress, total factor productivity, relative price of investment goods terms of trade
    JEL: E22 E32 F41
    Date: 2009–09
  4. By: Hisako KAI (Graduate School of International Cooperation Studies Kobe University); Shigeyuki HAMORI (Faculty of Economics Kobe University)
    Abstract: This paper examines the relationship between globalization, financial deepening, and inequality in sub-Saharan Africa between 1980 and 2002. We provide the first detailed econometric analysis in this regard covering the entire sub-Saharan African region; such an analysis has hardly been conducted owing to the lack of relevant data. We find that while globalization deteriorates inequality, its disequalizing effect depends on the level of development of the country. Further, this paper confirms that globalization deteriorates the equalizing effect of financial depth, although the latter helps to reduce inequality. We conclude that in sub-Saharan Africa, as a result of globalization, the rich have become richer and the poor have become poorer.
    Keywords: Globalization, Financial Depth, Inequality, Sub-Saharan Africa
    JEL: F40 O10
    Date: 2009–08
  5. By: Hitoshi Tanaka (Faculty of Economics, Hokkai Gaku-en University); Tatsuro Iwaisako (Graduate School of Economics, Osaka University); Koichi Futagami (Graduate School of Economics, Osaka University)
    Abstract: This paper constructs a North-South quality ladder model in which foreign direct investment (FDI) is determined by the endogenous location choice of firms and examines analytically how strengthening patent protection in the South affects welfare in the South. Strengthening patent protection increases the Southfs welfare by enhancing innovation and FDI, but also allows the firms with patents to charge higher prices for their goods, which decreases welfare. However, the model shows that the former positive welfare effect overcomes the latter negative one, and introducing the strictest form of patent protection in the South, that is, harmonizing patent protection in the South with that in the North, may maximize welfare in the South as well as in the North.
    Keywords: foreign direct investment, innovation, intellectual property rights protection, welfare analysis
    JEL: F43 O33 O34 O40
    Date: 2009–08

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