The international trade as the sole engine of growth for an economy

Can international trade act as the sole engine of growth for an economy? If yes, what are the mechanisms through which trade operates in transmitting permanent growth? This paper answers these questions with two simple two-country models, in which only one country enjoys sustained growth in autarky. The models differ in the assumptions on technical change, which is either labour- or capital-augmenting. In both cases, the stagnant economy imports growth by trading. In the first model, growth is transmitted because of permanent increases in the trade volume. In the alternative framework, the stagnant economy imports sustained growth because its terms of trade permanently improve.

The Political Economy of Resource Rent Distribution

I model the link between political regime and level of diversification following a windfall of natural resource revenues. The explanatory variables I make use of are the political support functions embedded within each type of regime and the disparate levels of discretion, openness, transparency, and accountability of government. I show that a democratic government seeks to maximize the long-term consumption path of the representative consumer, in order to maximize its chances of re-election, while an authoritarian government, in the absence of any electoral mechanism of accountability, seeks to buy off and entrench a group of special interests loyal to the government and potent enough to ensure its short-term survival. Essentially the contrast in the approaches towards resource rent distribution comes down to a variation in political weights on aggregate welfare and rentierist special interests endogenized by distinct political support functions.

The Commons and anti-commons problems in the tourism economy

Countries specialised in tourism tend to face two problems with contradictory effects: the commons and the anti-commons, which lead to tourism over- and under-production, respectively. This paper develops a two-period model to analyse the joint effects of both problems on a small and remote tourism economy. Congestion and the complementariness between foreign transport and local tourism services are key features in this type of markets. As a result, direct selling and the presence of foreign tour-operators emerge as possible market arrangements with different implications in terms of welfare and public intervention. Four main results are obtained. First, in the direct selling situation the optimal policy depends on the relative importance of the problems. Second, the existence of tour-operators always leads to tourism over-production. Third, the presence of a single tour-operator does not solve the congestion problem. Lastly, the switch from several tour-operators to a single one is welfare reducing.

Venezuelan economic laboratory. The Case of the altruistic economy of Felipe Pérez Martí

Felipe Pérez Martí, who was the Venezuelan Minister of Planning and Development in the government of Hugo Chávez, proposes an economic model that he calls the altruistic economy or fourth way, which leads cooperative game theory to its logical extremes postulating a pure communism. Here we sustain that, first, it is impossible in the model of Pérez Martí to marginally allocate non-primary goods to those most in need or who most value them, facing a problem of defective economic calculation, and second, in order to achieve equality, he would have to replace his atomic local planners by a central planner, who would be unable to overcome the problem of imperfect and and incomplete information.

Rethinking economy-wide rebound measures: an unbiased proposal

In spite of having been first introduced in the last half of the ninetieth century, the debate about the possible rebound effects from energy efficiency improvements is still an open question in the economic literature. This paper contributes to the existing research on this issue proposing an unbiased measure for economy-wide rebound effects. The novelty of this economy-wide rebound measure stems from the fact that not only actual energy savings but also potential energy savings are quantified under general equilibrium conditions. Our findings indicate that the use of engineering savings instead of general equilibrium potential savings downward biases economy-wide rebound effects and upward-biases backfire effects. The discrepancies between the traditional indicator and our proposed measure are analysed in the context of the Spanish economy.

The size of the underground economy in Germany: A correction of the record and new evidence from the Modified-Cash-deposit-Ratio approach

Based on the Ahumada et al. (2007, Review of Income and Wealth) critique we revise existing estimates of the size of the German underground economy. Among other things, it turns out that most of these estimates are untenable and that the tax pressure induced size of the German underground economy may be much lower than previously thought. To this extent, German policy and law makers have been misguided during the last three decades. Therefore, we introduce the Modified-Cash-Deposit-Ratio (MCDR) approach, which is not subject to the recent critique and apply it to Germany for the period 1960 to 2008. JEL: O17, Q41, C22, Keywords: underground economy, shadow economy, cash-depositratio, currency demand approach, MIMIC approach

A New open economy macroeconomic model with endogenous portfolio diversification and firms entry

This paper provides a new benchmark for the analysis of the international diversi…cation puzzle in a tractable new open economy macroeconomic model. Building on Cole and Obstfeld (1991) and Heathcote and Perri (2009), this model speci…es an equilibrium model of perfect risk sharing in incomplete markets, with endogenous portfolios and number of varieties. Equity home bias may not be a puzzle but a perfectly optimal allocation for hedging risk. In contrast to previous work, the model shows that: (i) optimal international portfolio diversi…cation is driven by home bias in capital goods, independently of home bias in consumption, and by the share of income accruing to labour. The model explains reasonably well the recent patterns of portfolio allocations in developed economies; and (ii) optimal portfolio shares are independent of market dynamics.

Towards a knowledge economy

This paper provides a preliminary formulation of a new currency based on knowledge. Through a literature review of alternative currencies, various properties and benefits are selected that we hope will enable such a currency to be created. Nowadays not only money but also knowledge is necessary to do business. For instance, knowledge about markets and consumers is highly valuable but difficult to achieve, and even more difficult to store, transport or trade. The basic premise of this proposal is a knowledge measurement pattern that is formulated as a new alternative social currency. Therefore, it is an additional means of contributing to the worldwide evolution of a knowledge society. It is intended as a currency to facilitate the conservation and storage of knowledge, and its organization and categorization, but mainly its exploitation and transference

Fiscal foresight, forecast revisions and the effects of government spending in the open economy

This paper investigates the effects of government spending on the real exchange rate and the trade balance in the US using a new VAR identification procedure based on spending forecast revisions. I find that the real exchange rate appreciates and the trade balance deteriorates after a government spending shock, although the effects are quantitatively small. The findings broadly match the theoretical predictions of the standard Mundell-Fleming model and differ substantially from those existing in literature. Differences are attributable to the fact that, because of fiscal foresight, the government spending is non-fundamental for the variables typically used in open economy VARs. Here, on the contrary, the estimated shock is fundamental.

Endogenous Credit Cycles and Financial Dampening in an Adverse Selection Economy

We propose an adverse selection framework in which the financial sector has a dual role. It amplifies or dampens exogenous shocks and also generates endogenous fluctuations. We fully characterize constrained optimal contracts in a setting in which entrepreneurs need to borrow and are privately informed about the quality of their projects. Our characterization is novel in analyzing pooling and separating allocations in a context of multi-dimensional screening: specifically, the amounts of investment undertaken and of entrepreneurial net worth are used to screen projects. We then embed these results in a dynamic competitive economy. First, we show how endogenous regime switches in financial contracts may generate fluctuations in an economy that exhibits no dynamics under full information. Unlike previous models of endogenous cycles, our result does not rely on entrepreneurial net worth being counter-cyclical or inconsequential for determining investment. Secondly, the model shows the different implications of adverse selection as opposed to pure moral hazard. In particular, and contrary to standard results in the macroeconomic literature, the financial system may dampen exogenous shocks in the presence of adverse selection.

Structural changes in the US economy: Bad Luck or Bad Policy?

This paper investigates the relationship between time variations in output and inflation dynamics and monetary policy in the US. There are changes in the structural coefficients and in the variance of the structural shocks. The policy rules in the 1970s and 1990s are similar as is the transmission of policy disturbances. Inflation persistence is only partly a monetary phenomena. Variations in the systematic component of policy have limited effects on the dynamics of output and inflation. Results are robust to alterations in the auxiliary assumptions.

The "New Political Economy": Two Recent Books

This paper reviews two recent books on Political Economy by Allan Drazen and Torsten Persson and Guido Tabellini. It discusses some problems of the recent Political Economy literature.

Policy and the Evolution of the US Economy: 1948-2002

This paper investigates the relationship between monetary policy and the changes experienced by the US economy using a small scale New-Keynesian model. The model is estimated with Bayesian techniques and the stability of policy parameter estimates and of the transmission of policy shocks examined. The model fits well the data and produces forecasts comparable or superior to those of alternative specifications. The parameters of the policy rule, the variance and the transmission of policy shocks have been remarkably stable. The parameters of the Phillips curve and of the Euler equations are varying.

The implicit theory of historical change in the work of Alan S. Milward

Alan S. Milward was an economic historian who developed an implicit theory ofhistorical change. His interpretation which was neither liberal nor Marxist positedthat social, political, and economic change, for it to be sustainable, had to be agradual process rather than one resulting from a sudden, cataclysmicrevolutionary event occurring in one sector of the economy or society. Benignchange depended much less on natural resource endowment or technologicaldevelopments than on the ability of state institutions to respond to changingpolitical demands from within each society. State bureaucracies were fundamentalto formulating those political demands and advising politicians of ways to meetthem. Since each society was different there was no single model of developmentto be adopted or which could be imposed successfully by one nation-state onothers, either through force or through foreign aid programs. Nor coulddevelopment be promoted simply by copying the model of a more successfuleconomy. Each nation-state had to find its own response to the political demandsarising from within its society. Integration occurred when a number of nation states shared similar political objectives which they could not meet individuallybut could meet collectively. It was not simply the result of their increasinginterdependence. It was how and whether nation-states responded to thesedomestic demands which determined the nature of historical change.