Negative rebound and disinvestment effects in response to an improvement in energy efficiency in the UK economy

This paper uses a computable general equilibrium (CGE) framework to investigate the conditions under which rebound effects may occur in response to increases in energy efficiency in the UK national economy. Previous work for the UK has suggested that rebound effects will occur even where key elasticities of substitution in production are set close to zero. The research reported in this paper involves carrying out a systematic sensitivity analysis, where relative price sensitivity is gradually introduced into the system, focusing specifically on elasticities of substitution in production and trade parameters, in order to determine conditions under which rebound effects become a likely outcome. The main result is that, while there is positive pressure for rebound effects even where (direct and indirect) demands for energy are very price inelastic, this may be partially or wholly offset by negative income, competitiveness and disinvestment effects, which also occur in response to falling energy prices. The occurrence of disinvestment effects is of particular interest. These occur where falling energy prices reduce profitability in domestic energy supply sectors, leading to a contraction in capital stock in these sectors, which may in turn lead to rebound effects that are smaller in the long run than in the short run, a result that runs contrary to the predictions of previous theoretical work in this area.

Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty

The paper studies the interaction between cyclical uncertainty and investment in a stochastic real option framework where demand shifts stochastically between three different states, each with different rates of drift and volatility. In our setting the shifts are governed by a three-state Markov switching model with constant transition probabilities. The magnitude of the link between cyclical uncertainty and investment is quantified using simulations of the model. The chief implication of the model is that recessions and financial turmoil are important catalysts for waiting. In other words, our model shows that macroeconomic risk acts as an important deterrent to investments.

International Capital Flows to Emerging and Developing Countries: National and Global Determinants

This paper examines international capital flows to emerging and developing countries. We assess whether commonalities exist, the permanence of shocks to commonalities and their determinants. Also, we consider individual country coherence with global capital flows and we measure the extent of co-movements in the volatility of capital flows. Our results suggest there are commonalities in capital inflows, although aggregate or disaggregate capital flows respond differently to shocks. We find that the US long run real interest rate is an important determinant of global capital flows, and real commodity prices are relevant but to a lesser extent. We also find a role for human capital in explaining why some countries can successfully ride the wave of financial globalisation.

Social capital formation across space: proximity and trust in European regions

An extensive economics and regional science literature has discussed the importance of social capital for economic growth and development. Yet, what social capital is and how it is formed are elusive issues, which require further investigation. Here, we refer to social capital in terms of civic capital and good culture , as rephrased by Guiso, Sapienza and Zingales (2010) and Tabellini (2010). The accumulation of this kind of capital allows the emerging of regional informal institutions, which may help explaining diff erences in regional development. In this paper, we take a regional perspective and use exploratory space and space-time methods to assess whether geography, via proximity, contributes to the formation of social capital across European regions. In particular, we ask whether generalized trust, a fundamental constituent of social capital and an ingredient of economic development, tends to be clustered across space and over time. From the policy standpoint, the spatial hysteresis of regional trust may contribute to the formation of spatial traps of social capital and act as a further barrier to regional economic development and convergence.

Economic Booms, Trade Deficits, and Economic Policy

Many economic booms have been accompanied by real exchange rate appreciations, large trade defcits -which have sometimes persisted after the return to the initial exchange rate parity- and a deteriorating traded sector. Those circumstances have typically raised the question of the de-sirability of some stabilization policy. We show that the dynamics induced by an expected productivity shock in an economy where the capital stock is non-mobile across sectors, match those circumstances. Furthermore, we obtain that credit market imperfections tend to exacerbate trade deficits, and to cause an inefficient capacity reduction in the traded sector. Some stabilization policies are explored.

Productivity and the welfare of nations

We show that the welfare of a representative consumer can be related to observable aggregatedata. To a first order, the change in welfare is summarized by (the present value of) the Solowproductivity residual and by the growth rate of the capital stock per capita. We also show thatproductivity and the capital stock suffice to calculate differences in welfare across countries, withboth variables computed as log level deviations from a reference country. These results hold forarbitrary production technology, regardless of the degree of product market competition, and applyto open economies as well if TFP is constructed using absorption rather than GDP as the measureof output. They require that TFP be constructed using prices and quantities as perceived byconsumers. Thus, factor shares need to be calculated using after-tax wages and rental rates, andwill typically sum to less than one. We apply these results to calculate welfare gaps and growthrates in a sample of developed countries for which high-quality TFP and capital data are available.We find that under realistic scenarios the United Kingdom and Spain had the highest growth ratesof welfare over our sample period of 1985-2005, but the United States had the highest level ofwelfare.

Human capital, the structure of production and growth

Do high levels of human capital foster economic growth by facilitating technology adoption? If so, countries with more human capital should have adopted more rapidly the skilled-labor augmenting technologies becoming available since the 1970 s. High human capital levels should therefore have translated into fast growth in more compared to less human-capital-intensive industries in the 1980 s. Theories of international specialization point to human capital accumulation as another important determinant of growth in human-capital-intensive industries. Using data for a large sample of countries, we find significant positive effects of human capital levels and human capital accumulation on output and employment growth in human-capital-intensive industries.

The macroeconomic effects of German unification: Real adjustments and the welfare state

We study the effects of German unification in a model with capital accumulation, skill differences and a welfare state. We argue that this event is similar to a mass migration of low-skilled agents holding no capital into a foreign country. Absent a welfare state, we observe an investment boom, depressed output and employment conditions. Capital owners and high-skilled agents are willing to give up to 4% of per-capita consumption to favor unification. When a welfare state exists the investment boom disappears and the recession is prolonged. Now, with unification, capital owners and high-skilled agents lose 4% of per-capita consumption.

Crossing the Rio Grande: Migrations, business cycles and the welfare state

In this paper we study the macroeconomic effects of an inflow oflow-skilled workers into an economy where there is capital accumulation and two types of agents. We find that there are substantial dynamic effects following unexpected migrations with adjustments that resemble those triggered by a sudden disruption of the capital stock. We look at the interrelations between these dynamic effects and three different fiscal systems for the redistribution of income and find that these schemes can change the dynamics and lead to prolonged periods of adjustments. Theaggregate welfare implications are sensitive to the welfare system: while there are welfare gains without redistribution, these gains may be turned into costs when the state engages in redistribution.

Gross capital flows: Dynamics and crises

This paper analyzes the behavior of international capital flows by foreign and domestic agents,dubbed gross capital flows, over the business cycle and during financial crises. We show thatgross capital flows are very large and volatile, especially relative to net capital flows. Whenforeigners invest in a country, domestic agents invest abroad, and vice versa. Gross capital flowsare also pro-cyclical. During expansions, foreigners invest more domestically and domesticagents invest more abroad. During crises, total gross flows collapse and there is a retrenchmentin both inflows by foreigners and outflows by domestic agents. These patterns hold for differenttypes of capital flows and crises. This evidence sheds light on the sources of fluctuations drivingcapital flows and helps discriminate among existing theories. Our findings seem consistent withcrises affecting domestic and foreign agents asymmetrically, as would be the case under thepresence of sovereign risk or asymmetric information.

Deficit, human capital and economic growth dynamics

Long-run economic growth arouses a great interest since it can shed light on the income-path of an economy and try to explain the large differences in income we observe across countries and over time. The neoclassical model has been followed by several endogenous growth models which, contrarily to the former, seem to predict that economies with similar preferences and technological level, do not necessarily tend to converge to similar per capita income levels. This paper attempts to show a possible mechanismthrough which macroeconomic disequilibria and inefficiencies, represented by budget deficits, may hinder human capital accumulation and therefore economic growth. Using a mixed education system, deficit is characterized as a bug agent which may end up sharply reducing the resources devoted to education and training. The paper goes a step further from the literature on deficit by introducing a rich dynamic analysis of the effects of a deficit reduction on different economic aspects.Following a simple growth model and allowing for slight changes in the law of human capital accumulation, we reach a point where deficit might sharply reduce human capital accumulation. On the other hand, a deficit reduction carried on for a long time, taking that reduction as a more efficient management of the economy, may prove useful in inducing endogenous growth. Empirical evidence for a sample of countries seems to support the theoretical assumptions in the model: (1) evidence on an inverse relationship betweendeficit and human capital accumulation, (2) presence of a strongly negative associationbetween the quantity of deficit in the economy and the rate of growth. They may prove a certain role for budget deficit in economic growth

Deficit, human capital and economic growth dynamics

Long-run economic growth arouses a great interest since it can shed light on the income-path of an economy and try to explain the large differences in income we observe across countries and over time. The neoclassical model has been followed by several endogenous growth models which, contrarily to the former, seem to predict that economies with similar preferences and technological level, do not necessarily tend to converge to similar per capita income levels. This paper attempts to show a possible mechanismthrough which macroeconomic disequilibria and inefficiencies, represented by budget deficits, may hinder human capital accumulation and therefore economic growth. Using a mixed education system, deficit is characterized as a bug agent which may end up sharply reducing the resources devoted to education and training. The paper goes a step further from the literature on deficit by introducing a rich dynamic analysis of the effects of a deficit reduction on different economic aspects.Following a simple growth model and allowing for slight changes in the law of human capital accumulation, we reach a point where deficit might sharply reduce human capital accumulation. On the other hand, a deficit reduction carried on for a long time, taking that reduction as a more efficient management of the economy, may prove useful in inducing endogenous growth. Empirical evidence for a sample of countries seems to support the theoretical assumptions in the model: (1) evidence on an inverse relationship betweendeficit and human capital accumulation, (2) presence of a strongly negative associationbetween the quantity of deficit in the economy and the rate of growth. They may prove a certain role for budget deficit in economic growth

Investments and value creation Case pulp and paper industry

Tämä tutkimus analysoi 49 sellu- ja paperiteollisuusyrityksen investointistrategioiden ja yrityksen arvon välistä yhteyttä vuosien 1996 ja 2005 välillä. Teoriaosa luo katsauksen arvonmääritysmenetelmiin ja investointien vaikutuksesta yrityksen arvoon ja arvonluontiin. Empiirinen osa on sekä kuvaileva, että selittävä. Yrityksen arvon kehittyminen mitataan vuosittain lisäarvomallilla (EVA®). Toteutetussa analyysissa yritykset on ryhmiteltyjoko liiketoimintaorientaation tai maantieteellisen alueen mukaan. Yritysten investointistrategiat jaoteltiin kasvumallin mukaisesti T&K:hon käyttöomaisuusinvestointeihin ja yritysostoihin. Kasvumallin tulokset ovat raportoitu yritystasolla. Tulokset osoittavat, että harvat sellu- ja paperiteollisuusyritykset ovetpystyneet arvonluontiin. Arvonluonti riippuu merkittävästi talouden suhdanteista. Yritysten investointistrategiat ovat olleet hyvin identtisiä tarkastelujaksonaikana ja alan suurimpien yritysten investointistrategiat kuvaavat hyvin koko toimialan kehitystä. Pienempien yritysten investointistrategiat eroavat valtavirran toimista. Jatkoanalyysi osoitti, että investoinnit käyttöomaisuuteen parantavat kannattavuutta, mitattuna EBITDA-%:lla ja yritysostot heikentävät sitä. Mitattaessa arvonluontia EVA®:lla käyttöomaisuusinvestoinneilla on positiivinen vaikutus arvonluontiin, kun taas yritysostot tuhoavat arvoa. Havainnot tukevat aikaisempia empiirisiä tutkimustuloksia.

Does social capital reinforce technological inputs in the creation of knowledge? Evidence from the Spanish regions

In this paper we seek to verify the hypothesis that trust and cooperation between individuals, and between them and public institutions, can encourage technological innovation and the adoption of knowledge. Additionally, we test the extent to which the interaction of social capital with human capital and R&D expenditures improve their effect on a region’s ability to innovate. Our empirical evidence is taken from the Spanish regions and employs a knowledge production function and longitudinal count data models. Our results suggest that social capital correlates positively with innovation. Further, our analysis reveals a powerful interaction between human and social capital in the production of knowledge, whilst the complementarity with R&D efforts would seem less clear.