nep-opm New Economics Papers
on Open MacroEconomics
Issue of 2010‒12‒11
twelve papers chosen by
Martin Berka
Massey University, Albany

  1. Is History a Blessing or a Curse? International Borrowing without Commitment, Leapfrogging and Growth Reversals By Raouf BOUCEKKINE; Patrick A. PINTUS
  2. Why Have Economic Reforms in Mexico Not Generated Growth? By Timothy J. Kehoe; Kim J. Ruhl
  3. Theories of Heterogeneous Firms and Trade By Stephen J. Redding
  4. Teams of Rivals: Endogenous Markups in a Ricardian World By Beatriz de Blas; Katheryn Russ
  5. A Simple Model of the Relationship Between Productivity, Saving and the Current Account By Jean-Marc Fournier; Isabell Koske
  6. Immigration and International Prices By Marios Zachariadis
  7. Trends in International Prices By Philippe Andrade; Marios Zachariadis
  8. Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons By Òscar Jordà; Moritz Schularick; Alan M. Taylor
  9. A Reappraisal of the Allocation Puzzle through the Portfolio Approach By Benhima Kenza
  10. Bilateral Trade, Openness and Asset Holdings By Alexandra Peter
  11. External imbalances in a monetary union. Does the Lawson doctrine apply to Europe? By Mariam Camarero; Josep Lluís Carrion-i-Silvestre; Cecilio Tamarit
  12. Globalization and productivity : a survey of firm-level analysis By Hayakawa, Kazunobu; Kimura, Fukunari; Machikita, Tomohiro

  1. By: Raouf BOUCEKKINE (Universite Catholique de Louvain and IRES-CORE, Universite de la Mediterranee and GREQAM); Patrick A. PINTUS (Universite de la Mediterranee and GREQAM-IDEP, Institut Universitaire de France)
    Abstract: We develop a simple open-economy AK model with collateral constraints that accounts for growth-reversal episodes, during which countries face abrupt changes in their growth rate that lead to either growth miracles or growth disasters. Absent commitment to investment by the borrowing country, imperfect contract enforcement leads to an informational lag such that the debt contracted upon today depends upon the past stock of capital. The no-commitment delay originates a history effect by which the richer a country has been in the past, the more it can borrow today. For (arbitrarily) small deviations from perfect contract enforcement, the history effect offsets the growth benefits from international borrowing and dampens growth, and it leads to leapfrogging in long-run levels. When large enough, the history effect originates growth reversals and we connect the latter to leapfrogging. Finally, we argue that the model accords with the reported evidence on growth disasters and growth accelerations. We also provide examples showing that leapfrogging and growth reversals may coexist, so that currently poor but fastgrowing countries experiencing sharp growth reversals may end up, in the long-run, significantly richer than currently rich but declining countries.
    Keywords: Growth Reversals, Leapfrogging, International Borrowing, Open Economies
    JEL: F34 F43 O40
    Date: 2010–11–02
  2. By: Timothy J. Kehoe; Kim J. Ruhl
    Abstract: Following its opening to trade and foreign investment in the mid-1980s, Mexico’s economic growth has been modest at best, particularly in comparison with that of China. Comparing these countries and reviewing the literature, we conclude that the relation between openness and growth is not a simple one. Using standard trade theory, we find that Mexico has gained from trade, and by some measures, more so than China. We sketch out a theory in which developing countries can grow faster than the United States by reforming. As a country becomes richer, this sort of catch-up becomes more difficult. Absent continuing reforms, Chinese growth is likely to slow down sharply, perhaps leaving China at a level less than Mexico’s real GDP per working-age person.
    JEL: F43 O47 P52
    Date: 2010–12
  3. By: Stephen J. Redding
    Abstract: This paper reviews the recent theoretical literature on heterogeneous firms and trade, which emphasizes firm selection into international markets and reallocations of resources across firms. We discuss the empirical challenges that motivated this research and its relationship to traditional trade theories. We examine the implications of firm heterogeneity for comparative advantage, market size, aggregate trade, the welfare gains from trade, and the relationship between trade and income distribution. While a number of studies examine the endogenous response of firm productivity to trade liberalization, modeling internal firm organization and the origins of firm heterogeneity remain interesting areas of ongoing research.
    JEL: F1 L80
    Date: 2010–12
  4. By: Beatriz de Blas; Katheryn Russ
    Abstract: We show that an ostensibly disparate set of stylized facts regarding firm pricing behavior can arise in a Ricardian model with Bertrand competition. Generalizing the Bernard, Eaton, Jenson, and Kortum (2003) model allows firms' markups over marginal cost to fall under trade liberalization, but increase with FDI, matching empirical studies in international trade, generate the existence of pricing-to-market and imperfect pass-through, and capture stylized facts regarding the frequency and synchronization of price adjustment across markets. The result is a well specified distribution for markups that previously could only be seen numerically and a way to quantify endogenous pricing rigidities emerging from a market structure governed by fierce competition among rivals.
    JEL: F0 F1 F4
    Date: 2010–12
  5. By: Jean-Marc Fournier; Isabell Koske
    Abstract: This paper uses a simple dynamic stochastic general equilibrium model to explore the qualitative impact of productivity shocks on current account positions via their impact on the saving behaviour of households. The analysis shows that the direction of the impact is ambiguous from a theoretical point of view. This impact depends in particular on consumer’s willingness to shift consumption over time relative to their willingness to shift consumption between different types of goods, on whether they believe the shock to be temporary or permanent, and on the sector in which the shock occurs.<P>Un modèle simple reliant la productivité, l'épargne et la balance courante<BR>Cet article explore l’effet qualitatif de chocs de productivité sur la balance courante, via leur impact sur le comportement d’épargne des ménages, avec un modèle d’équilibre général stochastique simple. Cette analyse montre que le sens de l’effet est théoriquement ambigu. Cet effet dépend de la propension des consommateurs à modifier le niveau de leur consommation au cours du temps comparée à leur propension à modifier leur panier de biens, de la croyance par les agents que le choc est permanent ou temporaire, ou encore du secteur dans lequel le choc se produit.
    Keywords: productivity, current account adjustment, saving, productivité, épargne, ajustement de la balance courante
    JEL: E21 F32 O40
    Date: 2010–11–23
  6. By: Marios Zachariadis
    Abstract: This paper considers the relation between immigration and prices for a large number of cities across the world over the period from 1990 to 2006. Aggregate immigration ratios are shown to have a negative impact on international relative prices. The evidence is consistent with demand-side and supply-side considerations both being relevant for the price-reducing effect of immigration, with the latter offering a more likely explanation at annual frequencies during this period. Our findings regarding the inverse relation of immigration and prices and the channels via which this operates across international cities, are broadly consistent wih Lach (2007) and Cortes (2008) who investigate the same relation within Israel and for the US respectively.
    Keywords: Immigration, prices, inflation, international price differences
    Date: 2010–02
  7. By: Philippe Andrade; Marios Zachariadis
    Abstract: We exploit the panel dimension of a price levels dataset for more than one hundred product items across 140 cities in 90 countries for the period from 1990 to 2009 in order to improve our understanding of international price dispersion and the evolution of prices over time. We consider a panel data model with exchangeable units that allows for the possibility of common components for different dimensions of the panel. This allows one to gauge the contribution of each dimension of the data to total variation and to disentangle the sources of potential non-stationarity. It also allows us to identify differences in the speed of convergence for different time-varying components in response to location-specific, product-specific, and idiosyncratic shocks. Finally, we proceed to identify the economic determinants of different components to show that particular dimensions of the data are more suited for examining particular theories.
    Keywords: Price levels, Variance decomposition, Convergence, Non-stationarity, International price dispersion
    Date: 2010–01
  8. By: Òscar Jordà; Moritz Schularick; Alan M. Taylor
    Abstract: Do external imbalances increase the risk of financial crises? In this paper, we study the experience of 14 developed countries over 140 years (1870-2008). We exploit our long-run dataset in a number of different ways. First, we apply new statistical tools to describe the temporal and spatial patterns of crises and identify five episodes of global financial instability in the past 140 years. Second, we study the macroeconomic dynamics before crises and show that credit growth tends to be elevated and natural interest rates depressed in the run-up to global financial crises. Third, we show that recessions associated with crises lead to deeper recessions and stronger turnarounds in imbalances than during normal recessions. Finally, we ask if external imbalances help predict financial crises. Our overall result is that credit growth emerges as the single best predictor of financial instability, but the correlation between lending booms and current account imbalances has grown much tighter in recent decades.
    JEL: C14 C52 E51 F32 F42 N10 N20
    Date: 2010–12
  9. By: Benhima Kenza
    Abstract: Paradoxically, high-investment and high-growth developing countries tend to experience capital outflows. This paper shows that this allocation puzzle can be explained simply by introducing uninsurable idiosyncratic investment risk in the neoclassical growth model. Using a sample of 67 countries between 1980 and 2003, we show that the model predicts accurately the allocation of capital flows in this sample. This is because the model accounts for two main facts: (i) TFP growth is positively correlated with capital outflows in a sample including creditor countries; (ii) the long-run level of capital per efficient unit of labor is positively correlated with capital outflows.
    Keywords: capital flows; global imbalances; investment risk
    JEL: F36 F41 F43
    Date: 2010–05
  10. By: Alexandra Peter
    Abstract: This paper analyzes the relationship between bilateral trade flows, trade openness, and asset holdings in a three-country stochastic general equilibrium model. The threecountry model set-up enables me to disentangle and separate the effects bilateral trade flows and trade openness have on bilateral portfolio patterns. I find that both factors independently influence bilateral asset holdings. Higher bilateral trade as well as higher trade openness lead to a higher bilateral foreign asset position. Furthermore, the two factors show an interaction effect, where increasing trade openness diminishes the influence of bilateral trade flows on asset holdings. I provide supporting empirical evidence for these theoretical findings using a data set on the geographical composition of international portfolio holdings.
    Keywords: International Portfolio Holdings, Bilateral Trade Flows, Trade Openness
    JEL: F10 F30 F41
    Date: 2010–12
  11. By: Mariam Camarero (Jaume I University); Josep Lluís Carrion-i-Silvestre (University of Barcelona); Cecilio Tamarit (University of Valencia)
    Abstract: A monetary union raises new economic questions about the interpretation and the implications of high current account de?cits for the economic performance of its members in the medium term. Recent literature has argued that conventional measures of external sustainability are misleading because they omit capital variations on net foreign asset positions. In this paper we analyze external sustainability making use of the database developed by Lane and Milesi-Ferretti (2007a) that incudes these valuation effects. The sample period studied covers from the launching of the monetary integration process in Europe (the creation of the ?European Snake? in 1972) up to 2007. The econometric methodology used accounts for the increasing cross-section dependence among EMU countries as well as possible structural breaks endogenously determined. The results point to the need of abrupt adjustments, either led by the markets or promoted by pro-active policy measures in order to o¤set external disequilibria. The lack of these timely interventions together with the rigidities and institutional imperfections of the present EMU are on the ground of the excessive cost in terms of growth and employment of the current crisis.
    Keywords: Current account imbalances, EMU, panel stationarity, structural breaks, cross-section dependence
    JEL: F32 F41 C23
    Date: 2010–12
  12. By: Hayakawa, Kazunobu; Kimura, Fukunari; Machikita, Tomohiro
    Abstract: Recent empirical studies which utilize plant- or establishment-level data to examine globalization's impact on productivity have discovered many causal mechanisms involved in globalization's impact on firms' productivity. Since these pathways have been broad, there have been few attempts to summarize the several and detailed mechanisms of self-selection and learning at the same time. This paper examines seven pathways so that the clear-cut consequences of the broad picture of globalization become visible. This strategy is useful for detecting missing links within and across the existing studies as well as for finding possible synergy effects among different mechanisms. Insightful policy implications may be derived from the comprehensive comparisons between the seven different pathways of globalization.
    Keywords: Firm-level data, Globalization, Productivity, International trade, Foreign investments, Developing countries, Developed countries
    JEL: F15 F23
    Date: 2010–08

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