Frontiers of the New Economic Geography

This paper presents an overview of recent development in the new economic geography (NEG), and discusses possible directions of its future development. Since there already exist several surveys on this topic, we focus on the selected features of the NEG which are important yet have attracted insufficient attention, and also on the recent refinements and extensions of the framework.

On the Evolution of the Spatial Economy with Multi-unit/Multi-plant Firms: The Impact of IT Development

This paper examines how the decline of communication costs between management and production facilities within firms and the decrease in trade costs of manufactured goods affect the spatial organization of a two-region economy with multi-unit/multi-plant firms. The development of information technology decreases the costs of communication and trade costs. Thus, the fragmentation of firms is promoted. Our result indicates that, with decreasing communication costs, firms producing low trade-cost products (such as consumer electronics) tend to concentrate their manufacturing plants in low wage countries. In contrast, firms producing high trade-cost products (such as automobiles) tend to have multiple plants serving to segmented markets, even in the absence of wage differentials.

Globalization and the Evolution of the Supply Chain: who gains and who loses?

This paper focuses on two distinct facets of globalization: the decrease in the trade costs of goods and the decline of communication costs between headquarters and production facilities within firms. When the unskilled have about the same wage in the two regions, the decrease of these costs fosters the gradual agglomeration of plants in the core region accommodating the headquarters. By contrast, when the wage gap is significant, the process of integration eventually triggers the re-location of plants into the periphery. In particular, when the process of re-location is driven by falling communication costs, the welfare of all workers living in the core goes down whereas the welfare of those who reside in the periphery rises.

The location of manufacturing firms and imperfect information in transport market

It is well know that transport charges are not symmetric: fronthaul and backhaul costs on a route may differ, because they are affected by the distribution of economic acitivities. This paper develops a two-regional general equilibrium model in which transport costs are determined endogenously as a result of a search and matching process. It is shown that economies or diseconomies of transport density emerge, depending on the search costs of transport firms and the relative importance of the possibility of backhaul transportation. It is found that the symmetry of the distribution of economic activity may break owing to economies of transport density when the additional search costs are small enough.

On the sustainability of a monocentric city : lower transport costs from new transport facilities

This paper proposes a general equilibrium model of a monocentric city based on Fujita and Krugman (1995). Two rates of transport costs per distance and for the same good are introduced. The model assumes that lower transport costs are available at a few points on a line. These lower costs represent new transport facilities, such as high-speed motorways and railways. Findings is that new transport facilities connecting the city and hinterlands strengthen the lock-in effects, which describes whether a city remains where it is forever after being created. Furthermore, the effect intensifies with better agricultural technologies and a larger population in the economy. The relationship between indirect utility and population size has an inverted U-shape, even if new transport facilities are used. However, the population size that maximizes indirect utility is smaller than that found in Fujita and Krugman (1995).

Punctuated equilibrium and linear progression: Toward a new understanding of group development

This study proposes gaining a new understanding of group development by considering the integrative and the punctuated equilibrium models of group development as complementary rather than competing. We hypothesized that we would observe both punctuated equilibrium and linear progression in content-analyzed data from 25 simulated project teams, albeit on different dimensions. We predicted changes in time awareness and in task and pacing activity in line with the punctuated equilibrium model and changes in structure and process on task and socioemotional dimensions in line with the integrative model. Results partially supported predictions for both models.

Műszaki és gazdasági hatékonyság Koopmans termeléselméletében (Technical and economic efficiency in Koopmans' theory of production)

Koopmans gyakorlati problémák megoldása során szerzett tapasztalatait általánosítva fogott hozzá a lineáris tevékenységelemzési modell kidolgozásához. Meglepődve tapasztalta, hogy a korabeli közgazdaságtan nem rendelkezett egységes, kellően egzakt termeléselmélettel és fogalomrendszerrel. Úttörő dolgozatában ezért - mintegy a lineáris tevékenységelemzési modell elméleti kereteként - lerakta a technológiai halmazok fogalmán nyugvó axiomatikus termeléselmélet alapjait is. Nevéhez fűződik a termelési hatékonyság és a hatékonysági árak fogalmának egzakt definíciója, s az egymást kölcsönösen feltételező viszonyuk igazolása a lineáris tevékenységelemzési modell keretében. A hatékonyság manapság használatos, pusztán műszaki szempontból értelmezett definícióját Koopmans csak sajátos esetként tárgyalta, célja a gazdasági hatékonyság fogalmának a bevezetése és elemzése volt. Dolgozatunkban a lineáris programozás dualitási tételei segítségével rekonstruáljuk ez utóbbira vonatkozó eredményeit. Megmutatjuk, hogy egyrészt bizonyításai egyenértékűek a lineáris programozás dualitási tételeinek igazolásával, másrészt a gazdasági hatékonysági árak voltaképpen a mai értelemben vett árnyékárak. Rámutatunk arra is, hogy a gazdasági hatékonyság értelmezéséhez megfogalmazott modellje az Arrow-Debreu-McKenzie-féle általános egyensúlyelméleti modellek közvetlen előzményének tekinthető, tartalmazta azok szinte minden lényeges elemét és fogalmát - az egyensúlyi árak nem mások, mint a Koopmans-féle hatékonysági árak. Végezetül újraértelmezzük Koopmans modelljét a vállalati technológiai mikroökonómiai leírásának lehetséges eszközeként. Journal of Economic Literature (JEL) kód: B23, B41, C61, D20, D50. /===/ Generalizing from his experience in solving practical problems, Koopmans set about devising a linear model for analysing activity. Surprisingly, he found that economics at that time possessed no uniform, sufficiently exact theory of production or system of concepts for it. He set out in a pioneering study to provide a theoretical framework for a linear model for analysing activity by expressing first the axiomatic bases of production theory, which rest on the concept of technological sets. He is associated with exact definition of the concept of production efficiency and efficiency prices, and confirmation of their relation as mutual postulates within the linear model of activity analysis. Koopmans saw the present, purely technical definition of efficiency as a special case; he aimed to introduce and analyse the concept of economic efficiency. The study uses the duality precepts of linear programming to reconstruct the results for the latter. It is shown first that evidence confirming the duality precepts of linear programming is equal in value, and secondly that efficiency prices are really shadow prices in today's sense. Furthermore, the model for the interpretation of economic efficiency can be seen as a direct predecessor of the Arrow–Debreu–McKenzie models of general equilibrium theory, as it contained almost every essential element and concept of them—equilibrium prices are nothing other than Koopmans' efficiency prices. Finally Koopmans' model is reinterpreted as a necessary tool for microeconomic description of enterprise technology.

Economic reform, allocative effiency and terms of trade

It has widely been agreed that the distorted price system is one of the causes of inefficient ecooomic decisions in centrally planned economies. The paper investigates the possible effect of a price reform on the allocation of resources in a situation where micro-efficiency remains unchanged. Foreign trade and endogenously induced terms-of-trade changes are focal points ín the multisectoral applied general equilibrium analysis. Special attention is paid to some methodological problems connected to the representation of foreign trade in such models. The adoption of Armington's assumption leads to an export demand function and this in turn gives rise to the question of optimal export structure, different from the equilibrium one-an aspect so far neglected in the related literature. The results show, that the applied model allows for a more flexible handling of the overspecialization problem, than the linear programming models. It also becomes evident that the use of export demand functions brings unwanted terms-of-trade changes into the model, to be avoided by a suitable reformulation of the model. The analysis also suggests, that a price reform alone does not significantly increase global economic efficiency. Thus the effect of an economic reform on micro-efficiency appears to be a more crucial factor. The author raises in conclusion some rather general questions related to the foreign trade practice of small open economies.

The international impact of productivity shocks

Even though many studies have confirmed the Feldstein-Horioka (1980) finding that savings and investment rates are highly correlated, there is no consensus on the major reason for this correlation. The purpose of this dissertation is to develop theoretical models and calibrate and simulate these to compare their implications to explain the observed time-series comovement between savings and investment in an attempt to show that this high correlation may stem from technological shocks.^ The dissertation is comprised of three studies. The first two studies construct overlapping-generations, two-economy models of saving and investment under conditions of perfect international capital mobility. The second study differs from the first by endogenizing the labor supply. Employing simulations, the models are used to generate time-series for savings and investment. These are then compared with the actual data for specific economies. The models show that productivity shocks produce a high correlation between savings and investment. Further, while the model with exogenous labor supply displays monotonic adjustment, the economy with endogenous labor supply adjusts cyclically.^ The third model, on the other hand, constructs a general equilibrium model for a small open economy. The study is based on two important elements: adjustment costs in investment and endogenous, recursive time preferences. Again, the simulation results show that the model generates, at least in a significant part of the adjustment path, a positive correlation between domestic savings and investment in response to a supply shock. ^

Essays in open economy macroeconomics

Research macroeconomists have witnessed remarkable methodological developments in mathematical, statistical, and computational tools during the last two decades. The three essays in this dissertation took advantage of these advances to analyze important macroeconomic issues. ^ The first essay, “ Habit Formation, Adjustments Costs, and International Business Cycle Puzzles” analyzes the extent to which incorporating habit formation and adjustment costs in investment in a one-good two-country general equilibrium model would help overcome some of the international business cycle puzzles. Unlike standard results in the literature, the model generates persistent, cyclical adjustment paths in response to shocks. It also yields positive cross-country correlations in consumption, employment, investment, and output. Cross-country correlations in output are higher than the ones in consumption. This is qualitatively consistent with the stylized facts. These results are particularly striking given the predicted negative correlations in investment, employment, and output that are typically found in the literature. ^ The second essay, “Comparison Utility, Endogenous Time Preference, and Economic Growth,” uses World War II as a natural experiment to analyze the degree to which a model where consumers' preferences exhibit comparison-based utility and endogenous discounting is able to improve upon existing models in mimicking the transitional dynamics of an economy after a shock that destroys part of its capital stock. The model outperforms existing ones in replicating the behavior of the saving rate (both on impact and along the transient paths) after this historical event. This result brings additional support to the endogenous rate of time preference being a crucial element in growth models. ^ The last essay, “Monetary Policy under Fear of Floating: Modeling the Dominican Economy,” presents a small scale macroeconomic model for a country (Dominican Republic) characterized by a strong presence of fear of floating (reluctance to have a flexible exchange rate regime) in the conduct of monetary policy. The dynamic responses of this economy to external shocks that are of interest for monetary policy purposes are analyzed under two alternative interest rate policy rules: One being the standard Taylor rule and another that responds explicitly to deviations of the exchange rate with respect to its long-term trend. ^

Essays on exchange rate economics

Exchange rate economics has achieved substantial development in the past few decades. Despite extensive research, a large number of unresolved problems remain in the exchange rate debate. This dissertation studied three puzzling issues aiming to improve our understanding of exchange rate behavior. Chapter Two used advanced econometric techniques to model and forecast exchange rate dynamics. Chapter Three and Chapter Four studied issues related to exchange rates using the theory of New Open Economy Macroeconomics. ^ Chapter Two empirically examined the short-run forecastability of nominal exchange rates. It analyzed important empirical regularities in daily exchange rates. Through a series of hypothesis tests, a best-fitting fractionally integrated GARCH model with skewed student-t error distribution was identified. The forecasting performance of the model was compared with that of a random walk model. Results supported the contention that nominal exchange rates seem to be unpredictable over the short run in the sense that the best-fitting model cannot beat the random walk model in forecasting exchange rate movements. ^ Chapter Three assessed the ability of dynamic general-equilibrium sticky-price monetary models to generate volatile foreign exchange risk premia. It developed a tractable two-country model where agents face a cash-in-advance constraint and set prices to the local market; the exogenous money supply process exhibits time-varying volatility. The model yielded approximate closed form solutions for risk premia and real exchange rates. Numerical results provided quantitative evidence that volatile risk premia can endogenously arise in a new open economy macroeconomic model. Thus, the model had potential to rationalize the Uncovered Interest Parity Puzzle. ^ Chapter Four sought to resolve the consumption-real exchange rate anomaly, which refers to the inability of most international macro models to generate negative cross-correlations between real exchange rates and relative consumption across two countries as observed in the data. While maintaining the assumption of complete asset markets, this chapter introduced endogenously segmented asset markets into a dynamic sticky-price monetary model. Simulation results showed that such a model could replicate the stylized fact that real exchange rates tend to move in an opposite direction with respect to relative consumption. ^

Three essays on labor liberalization and its effects on world economy

This dissertation consists of three theoretical essays on immigration, international trade and political economy. The first two essays analyze the political economy of immigration in developed countries. The third essay explores new ground on the effects of labor liberalization in developing countries. Trade economists have witnessed remarkable methodological developments in mathematical and game theoretical models during the last seventy years. This dissertation benefits from these advances to analyze economic issues related to immigration. The first essay applies a long run general equilibrium trade model similar to Krugman (1980), and blends it with the median voter ala-Mayer (1984) framework. The second essay uses a short run general equilibrium specific factor trade model similar to Jones (1975) and incorporates it with the median voter model similar to Benhabib (1997). The third essay employs a five stage game theoretical approach similar to Vogel (2007) and solves it by the method of backward induction. The first essay shows that labor liberalization is more likely to come about in societies that have more taste for varieties, and that workers and capital owners could share the same positive stance toward labor liberalization. In a dynamic model, it demonstrates that the median voter is willing to accept fewer immigrants in the first period in order to preserve her domestic political influence in the second period threatened by the naturalization of these immigrants. The second essay shows that the liberalization of labor depends on the host country's stock and distribution of capital, and the number of groups of skilled workers within each country. I demonstrate that the more types of goods both countries produce, the more liberal the host country is toward immigration. The third essay proposes a theory of free movement of goods and labor between two economies with imperfect labor contracts. The heart of my analysis lies in the determinants of talent development where individuals' decisions to emigrate are related to the fixed costs of emigration. Finally, free trade and labor affect income via an indirect effect on individuals' incentives to invest in the skill levels and a direct effect on the prices of goods.

Essays in Open Economy Macroeconomics

Research macroeconomists have witnessed remarkable methodological developments in mathematical, statistical, and computational tools during the last two decades. The three essays in this dissertation took advantage of these advances to analyze important macroeconomic issues. The first essay, “ Habit Formation, Adjustments Costs, and International Business Cycle Puzzles” analyzes the extent to which incorporating habit formation and adjustment costs in investment in a one-good two-country general equilibrium model would help overcome some of the international business cycle puzzles. Unlike standard results in the literature, the model generates persistent, cyclical adjustment paths in response to shocks. It also yields positive cross-country correlations in consumption, employment, investment, and output. Cross-country correlations in output are higher than the ones in consumption. This is qualitatively consistent with the stylized facts. These results are particularly striking given the predicted negative correlations in investment, employment, and output that are typically found in the literature. The second essay, “Comparison Utility, Endogenous Time Preference, and Economic Growth,” uses World War II as a natural experiment to analyze the degree to which a model where consumers' preferences exhibit comparison-based utility and endogenous discounting is able to improve upon existing models in mimicking the transitional dynamics of an economy after a shock that destroys part of its capital stock. The model outperforms existing ones in replicating the behavior of the saving rate (both on impact and along the transient paths) after this historical event. This result brings additional support to the endogenous rate of time preference being a crucial element in growth models. The last essay, “Monetary Policy under Fear of Floating: Modeling the Dominican Economy,” presents a small scale macroeconomic model for a country (Dominican Republic) characterized by a strong presence of fear of floating (reluctance to have a flexible exchange rate regime) in the conduct of monetary policy. The dynamic responses of this economy to external shocks that are of interest for monetary policy purposes are analyzed under two alternative interest rate policy rules: One being the standard Taylor rule and another that responds explicitly to deviations of the exchange rate with respect to its long-term trend.

Essays on Exchange Rate Economics

Exchange rate economics has achieved substantial development in the past few decades. Despite extensive research, a large number of unresolved problems remain in the exchange rate debate. This dissertation studied three puzzling issues aiming to improve our understanding of exchange rate behavior. Chapter Two used advanced econometric techniques to model and forecast exchange rate dynamics. Chapter Three and Chapter Four studied issues related to exchange rates using the theory of New Open Economy Macroeconomics. Chapter Two empirically examined the short-run forecastability of nominal exchange rates. It analyzed important empirical regularities in daily exchange rates. Through a series of hypothesis tests, a best-fitting fractionally integrated GARCH model with skewed student-t error distribution was identified. The forecasting performance of the model was compared with that of a random walk model. Results supported the contention that nominal exchange rates seem to be unpredictable over the short run in the sense that the best-fitting model cannot beat the random walk model in forecasting exchange rate movements. Chapter Three assessed the ability of dynamic general-equilibrium sticky-price monetary models to generate volatile foreign exchange risk premia. It developed a tractable two-country model where agents face a cash-in-advance constraint and set prices to the local market; the exogenous money supply process exhibits time-varying volatility. The model yielded approximate closed form solutions for risk premia and real exchange rates. Numerical results provided quantitative evidence that volatile risk premia can endogenously arise in a new open economy macroeconomic model. Thus, the model had potential to rationalize the Uncovered Interest Parity Puzzle. Chapter Four sought to resolve the consumption-real exchange rate anomaly, which refers to the inability of most international macro models to generate negative cross-correlations between real exchange rates and relative consumption across two countries as observed in the data. While maintaining the assumption of complete asset markets, this chapter introduced endogenously segmented asset markets into a dynamic sticky-price monetary model. Simulation results showed that such a model could replicate the stylized fact that real exchange rates tend to move in an opposite direction with respect to relative consumption.

DEVELOPMENT OF ION EXCHANGE MODELS FOR WATER TREATMENT AND APPLICATION TO THE INTERNATIONAL SPACE STATION WATER PROCESSOR

The International Space Station (ISS) requires a substantial amount of potable water for use by the crew. The economic and logistic limitations of transporting the vast amount of water required onboard the ISS necessitate onboard recovery and reuse of the aqueous waste streams. Various treatment technologies are employed within the ISS water processor to render the waste water potable, including filtration, ion exchange, adsorption, and catalytic wet oxidation. The ion exchange resins and adsorption media are combined in multifiltration beds for removal of ionic and organic compounds. A mathematical model (MFBMODEL™) designed to predict the performance of a multifiltration (MF) bed was developed. MFBMODEL consists of ion exchange models for describing the behavior of the different resin types in a MF bed (e.g., mixed bed, strong acid cation, strong base anion, and weak base anion exchange resins) and an adsorption model capable of predicting the performance of the adsorbents in a MF bed. Multicomponent ion exchange ii equilibrium models that incorporate the water formation reaction, electroneutrality condition, and degree of ionization of weak acids and bases for mixed bed, strong acid cation, strong base anion, and weak base anion exchange resins were developed and verified. The equilibrium models developed use a tanks-inseries approach that allows for consideration of variable influent concentrations. The adsorption modeling approach was developed in related studies and application within the MFBMODEL framework was demonstrated in the Appendix to this study. MFBMODEL consists of a graphical user interface programmed in Visual Basic and Fortran computational routines. This dissertation shows MF bed modeling results in which the model is verified for a surrogate of the ISS waste shower and handwash stream. In addition, a multicomponent ion exchange model that incorporates mass transfer effects was developed, which is capable of describing the performance of strong acid cation (SAC) and strong base anion (SBA) exchange resins, but not including reaction effects. This dissertation presents results showing the mass transfer model's capability to predict the performance of binary and multicomponent column data for SAC and SBA exchange resins. The ion exchange equilibrium and mass transfer models developed in this study are also applicable to terrestrial water treatment systems. They could be applied for removal of cations and anions from groundwater (e.g., hardness, nitrate, perchlorate) and from industrial process waters (e.g. boiler water, ultrapure water in the semiconductor industry).