Aggregate Production Function Research Articles

Economic output, export, fossil fuels, non-fossil fuels and energy conservation: evidence from structural break models with VECMs in South Asia.

The study aims to examine the energy-GDP-exports nexus employing structural break models after testing for co-integration in the form of total/aggregate annual time series data of South Asia region. The novelty of the study rests in dividing the aggregate energy into fossil fuel- and non-fossil fuel-based energy consumptionswith structural break at 2008 considering the global financial crisis into the aggregate production function framework with labor, capital stock, and exports, ceteris paribus. The findings corroborate that in all the three models estimated with aggregate energy, fossil fuel-based energy, and non-fossil fuel-based energy consumptions respectively, there is evidence of long-run linkages among the selected variables. The analyses of long run elasticities estimated demonstrate that labor and capital have positive and significant impact on the real economic output before the break date in all the three models. It is however intriguing that aggregate energy use remains positive before and after the break date while fossil fuel-based energy becomes insignificant after 2008. Likely, non-fossil fuel-based energy corroborates insignificant impact on real economic output after 2008. These findings have important bearings for the energy conservation options in the region of South Asia especially for changing/reducing the fossil fuel share with the non-fossil fuels, ceteris paribus.

Total Factor Productivity and Environmental Efficiency of the Most Important Cereals Crops in Egypt

Purpose of the Study: Egyptian agriculture suffers from many problems related to the use of available economic resources, the most important of which is lack of optimal utilization of resources, wasteful use of agricultural production inputs, reduced efficiency of irrigation water use, and the fertility of agricultural lands are deteriorating, in addition to increasing rates of encroachments on agricultural lands and shifting it from agricultural use to other non-agricultural uses, which limits the agricultural sector ability to achieve high growth rates, especially with the increasing global production of biofuels from crops that individuals consume as food, including wheat and corn, which constitutes an explicit threat to Egyptian food and national security.
 Objectives: The research aimed to:
 
 Estimate the changes in the sources and components of the total productivity of the factors for the main cereal crops in Egypt in the presence and absence of carbon dioxide emissions,
 Environmental impact assessment of changes in the productivity of these crops.
 
 Methods: The study applied analytical approaches to measure changes in productivity, as parameter analysis methods are used as methods of the aggregate production function, and non-parameterized methods of estimation, in addition to (Malmquist, 1953) which is one of the most important indicators of measurement changes in productivity and relies on a Data Envelopment Analysis (DEA) to measure efficiency and changes in TFP productivity and identify the sources of changes in productivity through changes in technical competence and technological change, as the two most important components of the change in total productivity.
 Results: Wheat Crop: Wheat crop by estimating the change in the different efficiencies of the wheat crop with co2 emissions, it was clear that a decrease in technological change (TC) during the study period, and thus a decrease in the average change in the total factor productivity (TFP), while without co2 emissions effect, the average change in the total factor productivity of (TFPc) indicates an increase in the actual wheat efficiency which is low due to the environmental impact of the emissions.
 Rice Crop: Rice crop by estimating the change in the different efficiencies of the rice crop with co2 emissions, it became clear that a decrease in the average technological change (TC), thus increasing the average change in the total factor productivity of the (TFP), whereas, without co2 emissions, it was found that the average change in the total factor productivity of the (TFPc) for the study areas was higher.
 Summer Maize Crop: It was clear that the average technological change (TC) for the summer maize crop with co2 emissions, decreased during the study period, and therefore a decrease in the average change in the total factor productivity of the (TFP), but without co2, an increase in the annual average of the change in technical efficiency (TEC), and a decrease in the average technological change (TC), i.e. in the use of technology, and an increase in the average change in the total factor productivity (TFPc).

Equilibrium and -efficient fertility with increasing returns to population and endogenous mortality

AbstractA general equilibrium model that characterizes the gap between optimal and equilibrium fertility and investment in human capital is developed. The aggregate production function exhibits increasing returns to population arising from specialization, but households face a quantity–quality trade-off when choosing their fertility and how much education these children receive. We show that equilibrium fertility is too low and investment per child is too high, in contrast to a current planner who internalizes the externality of current fertility on the next generation's productivity. We next introduce mortality of young adults in the model and assume that households have a precautionary demand for children. Human capital investment lowers next generation mortality. This model endogenously generates a demographic transition but, since households do not internalize the negative effects of human capital on mortality, the equilibrium demographic transition takes place many years later than the efficient solution. We show that ${\rm {\cal A}}$-efficient fertility and human capital investment pair can switch; in high-mortality regimes, ${\rm {\cal A}}$-efficient fertility is lower than equilibrium fertility, and ${\rm {\cal A}}$-efficient human capital investment is higher than equilibrium investment. In the zero mortality regime, however, ${\rm {\cal A}}$-efficient fertility exceeds equilibrium fertility, and ${\rm {\cal A}}$-efficient human capital investment is lower than the equilibrium choice.

Chinese New Housing’s Aggregate Production Function and the Effect of Land Supply Policy Change

China’s land supply system, household’s housing purchasing preference and new housing’s production function are totally different from those in Europe and the United States. As a starting point to study China’s real estate economy from a macro perspective, there is an urgent need to use China’s data to calibrate or estimate a new housing’s aggregate production function with more credible parameters. Therefore, based on a dynamic stochastic general equilibrium (DSGE) model with two production sectors, this paper attempts to do this work.Because we do not pay attention to the short-term fluctuations of China’s macro economy and real estate economy, it is not necessary to establish a large and complex DSGE model that takes into account the monetary and credit financial sectors and various nominal frictions when calibrating or estimating these structural parameters. To this end, this paper follows a common practice of estimating the aggregate production function at home and abroad to construct a fundamental model that does not include these financial and nominal friction factors. The small-scale model in this paper mainly includes six sectors: new housing production, general product production, households, investment products, land resellers and governments.The fundamental model’s estimation finds that in China’s new housing production costs, the shares of land, physical capital and labor are 23%, 67% and 10%, respectively. Obviously, this result is hugely different from Iacoviello and Stefano (2010) about the shares of capital, land and labor of the new housing production function in the United States at approximately 20%, 10% and 70%, respectively. Therefore, we cannot directly borrow the structural parameters in the new housing production function from those countries such as the United States and Europe. In comparison, in the new housing production costs of the first-tier cities such as Beijing and Shanghai, the land’s share is close to 30%, the physical capital’s is slightly over 50%, and the labor’s is 20%.Because capital is basically free to flow in the domestic, the prices of land and labor in the first-tier cities such as Beijing and Shanghai are more expensive than in the other cities, it is reasonable to estimate that the shares of land and labor in the new housing production in the first-tier cities are higher. In addition, Chinese households’ preference parameter for real estate in the first-tier cities such as Beijing and Shanghai is about 1.09, which is significantly larger than the national average of about 0.84.If the model’s setting is basically correct, there may be systematic deviations in the statistics of the Chinese real estate sector, and it is more severe in the national level than in the first-tier cities such as Beijing and Shanghai. The preliminary estimation results show that the sales of new commercial housing in the national level and the first-tier cities such as Beijing and Shanghai are systematically underreported by approximately 8% and 3%, respectively; the land purchasing fees are underreported by about 23% and 6%, respectively; the real estate development investment is overstated by approximately 28% and 23%, respectively.Based on the simulation analysis of the fundamental model, this paper emphasizes that, for the current land supply, local governments should “implement a different policy for those different level cities”: for the third- and fourth-tier cities, they should properly reduce land supply to stabilize land and housing prices in the short-term; for the first- and second-tier cities, they should try to increase land supply to reduce land and housing’ prices in the long-term. On March 12, 2020, the State Council issued the “Decision on Authorization and Entrusted Land Approval Rights” to further deepen the reform of “simplifying administration and decentralization, combining decentralization and management, and optimizing services”, and gave provincial governments greater land autonomy. Obviously, for local governments, this is more conducive to “implement a different land supply policy for those different level cities”, which is demonstrated by this paper.The research method’s contribution is that this paper provides a method for DSGE model’s parameter calibration and Bayesian structure estimation in the case of statistical systematic deviations. This fills the gaps in relevant literature at home and abroad, so it can also be used to study the macroeconomic issues under DSGE framework in the countries with poor statistical data.

Human Capital and Macroeconomic Development: A Review of the Evidence

Abstract The role of human capital in facilitating macroeconomic development is at the center of both academic and policy debates. Through the lens of a simple aggregate production function, human capital might increase output per capita by directly entering in the production process, incentivizing the accumulation of complementary inputs, and facilitating the adoption of new technologies. This paper discusses the advantages and limitations of three approaches that have been used to evaluate the empirical importance of these channels: cross-country regressions, development accounting, and quantitative models. The key findings in the literature are reviewed and some of them are replicated using updated data. The bulk of the evidence suggests that human capital is an important determinant of cross-country income gaps, especially when its measurement is broadened to go beyond simple proxies of educational attainment. The paper concludes by highlighting policy implications and promising avenues for future work.

Economic growth, exports, and role of energy conservation: Evidence from panel co-integration-based causality models in South Asia

This study examines the relationship among energy use, real gross domestic product, and exports and thereby the impact of energy conservation for the quest of a sustainable environment-gross domestic product growth in the panel of five South Asian countries. The aggregate production function framework is estimated by employing first/second generational panel co-integration-based models for the panel data covering the years 1980–2014. The empirical findings demonstrate a statistically significant panel error correction mechanism among real gross domestic product, capital, labor, and energy use in both export-added and export-excluded models. The findings of panel causality test depict a significant causal relationship running from export and energy use towards gross domestic product in the long run. Furthermore, a significant feedback relationship between energy use and gross domestic product and between exports and gross domestic product has been found in the short run. These findings of vector error correction model-based panel causality test imply that reducing/cutting the extant aggregate energy use (fossil fuel dominant) via conservation policies are somewhat wanting and could be implemented at the cost of lower gross domestic product and export growths, ceteris paribus. Therefore, for reducing the level of carbon emissions arising from fossil fuel-based energy use and for a sustainable aggregate energy use to the production sector per se, there is an immense need of developing environment friendly/green sources of energy in the region. These consolidated and concerted strides of developing and substituting environment friendly energy options into the extant aggregate energy use will, inter alia, ensure the sustainability of environment-gross domestic product growth in South Asia.

A Note on Technical Change, Skill Formation, and Economic Instability*

Skill formation in advanced capitalism is a theme that has long been the subject of economic theory. The contention here is that neither the orthodoxy nor heterodoxy allows for a consistent theory of skill formation germane to capitalism proper. Neoclassical theory treats labor and thus skills along the “aggregate production function”/factor-of-production theory. Neo-Marxian view (á la Braverman) identifies skills with crafts and thus aims at deskilling. Nevertheless, despite the elegant mathematical style ascribed to the former and the sophisticated rhetoric accredited to the latter, these competing schools had not yet offered a sui generis notion of skill formation aimed at corporeality of capitalism. This article, by allowing for technical change and through the synthesis of “creative destruction and “destructive creation,” offers an indispensable theory of skill formation, away from Braverman’s craft-centric method, and beyond eclecticism, skillset fetishism, and human-capital essentialism omnipresent in both orthodox and heterodox literature.

Modeling Trade Tensions: Different Mechanisms in General Equilibrium

In this paper, we investigate the mechanisms through which import tariffs impact the macroeconomy in two large scale workhorse models used for quantitative policy analysis: a computational general equilibrium (CGE) model (Purdue University GTAP model) and a multi-country dynamic stochastic general equilibrium (DSGE) model (IMF GIMF model). The quantitative effects of an increase in tariffs reflect different mechanisms at work. Like other models in the trade literature, in GTAP higher tariffs generate a loss in terms of output arising from an inefficient reallocation of resources between sectors. In GIMF instead, as in other DSGE models, tariffs act as a disincentive to factor utilization. We show that the two models/channels can be broadly interpreted as capturing the impact of tariffs on different components of a country’s aggregate production function: aggregate productivity (GTAP) and factor supply/utilization (GIMF). We discuss ways to combine the estimates from these two models to provide a more complete assessment of the macro effects of tariffs.

DSGE-MODEL FOR RUSSIAN ECONOMY WITH BANKS ANDFIRM-SPECIFIC CAPITAL IN CORONAVIRUS PANDEMIC

The article presents a dynamic stochastic general equilibrium model (DSGE-model) for the Russian economy. The model describes the behavior of the following macroeconomic agents: households, real sector, banking sector, Central Bank, as well as the interactions between them and the world. Household modeling uses the external habit formation approach to account for the inertia of preferences. To model the real sector, we abandoned the most common approach which assumes that the decision on investments is made by the households as the owners of production factors. Instead, we took the firm-specific capital approach which assumes that the decision on investment is made by the firms themselves. The study also considers that in Russia, fixed assets are mostly invested from the firms' own funds. To account for the investment inertia in the fixed asset in a real sector model, the expenditures are transferred to the commissioning of new facilities, the Calvo model is applied to describe the price setting under the monopolistic competition. A banking sector which defines the loan and debt interest rates to the key Central Bank interest rate is chosen to be a link between the households and firms in the model. The Taylor equation is used to describe the monetary policy of the Bank of Russia under the inflation targeting, while an inertia factor is included into the equation with the uncovered interest parity for the budget rule which regulates the purchases (or sales) of the currency by the National Welfare Fund. The final linearized model is a system of 23 difference equations with rational expectations. Based on the proposed model, calculations were made and key macroeconomic indicators were forecasted for 2020–2021 on a quarterly basis for the Russian economy. The calculations account for the relevant recessionary factors: oil price fall, oil production cut in OPEC+ deals, quarantine measures aimed to prevent the spread of the corona virus infection, anti-recessionary measures of the RF Government. The findings show that the economic downturn in 2020 can be from 5 to 7% under COVID-19 pandemic. Growth in 2021 is estimated to be within 3–5%. The developed model can be used for scenario projecting for the Russian economy, upgrading the monetary policy of the Bank of Russia, and for developing applied quarterly projection models (QPM). The model could be further modified by including more elements: decomposing the household sector into the Ricardian and non-Ricardian ones, identifying the resources industries and industries in the real sector which manufacture the invested goods, including the key taxes and budget expenses into the model. One more promising area is to analyze the equilibrium of the interest rates when large firms could accumulate their own financial resources. This prerequisite decreases the demand for the bank loans from the real sector and, thus, leads to lower, including the negative, interest rates. The proposed approach enhances the quality of a DSGE model as a predictive tool for making the political and managerial decisions. Keywords mathematical modeling of economy, structural macroeconometrics, dynamic stochastic general equilibrium models, DSGE models, rational expectations, inflation targeting, monetary policy, budget rule, Taylor equation, scenarios projection, COVID-caused crisis, COVID-19 pandemic. Acknowledgements The author thanks A.B. Polbin, the Deputy Head of the Macroeconomic Modeling Department in Gaidar Institute for Economic Policy for valuable comments and recommendations during the model development.

Does the form of the Aggregate Production Function Matter for Modelling Business Cycle Fluctuations? Lessons for Bulgaria (1999-2018)

Does the form of the Aggregate Production Function Matter for Modelling Business Cycle Fluctuations? Lessons for Bulgaria (1999-2018)

Ageing and Productivity

The Portuguese labour force is ageing rapidly, corresponding to an increase in the share of older cohorts in the workforce, and there are no prospects that this situation will slow down. This study carries out an empirical analysis of the impact of workforce ageing on labour productivity in the Portuguese economy considering data for the period 1971-2017. We investigate the main channels through which these demographic changes affect labour productivity, the accumulation of factors of production, physical or human capital, and total factor productivity (TFP), based on a Cobb-Douglas production function. The results from the estimation of our VAR model defined according to the aggregate production function that includes the capital-output ratio, educational attainment, TFP and an indicator of workforce ageing, and the corresponding impulse-response functions analysis do not allow us to identify any impact of the growth rate in the proportion of older workers on the growth rate of labour productivity. For the time being it thus seems that workforce ageing has not posed a serious threat to the Portuguese economy, but this situation could rapidly change in the near future given the dismal demographic forecasts that project that the Portuguese population will decrease from 10.5 millions of people in 2012 to 8.6 millions in 2060 (INE 2014).

Corruption and Economic Growth: The Case of Portugal

In this paper we investigate the impact of corruption on economic growth in Portugal over the period 1980-2018. The empirical approach makes use of a VAR model inspired by the standard Cobb-Douglas aggregate production function. The VAR model includes the capital stock, hours worked, total factor productivity and the corruption perceptions index (CPI) of Transparency International. The CPI combines several sources of information on the level of corruption in each country. The scale of this index goes from 0, the highest level of corruption, to 10, the lowest level. The magnitude of the estimated effect of corruption on economic growth in the unrestricted VAR model is large (and positive), but statistically not significantly different from zero. However, the results from the estimation of a structural VAR model with economically plausible long-run restrictions indicate modest gains from reducing corruption.

The Impact of Vagaries of Nature and Institutions on Fastening Agricultural Economic Growth in Ethiopia

The main objective of this study is to estimate the production function of Ethiopian’s Agriculture sector and identify key factors that plays role in the economy using 1965 – 2014 data. Are there impacts of institutional transformation from public to private ownership of resources in improving agricultural growth? What are the sources of Agricultural productivity growth? Are there productivity changes in the performance of the agriculture sector during the period of 1965 – 2014. Aggregate production functions are specified by different economists for estimation. The major are CES and Cobb-Douglas. Cobb-Douglas production function is used to estimate the aggregate production of Ethiopian agricultural sector. In estimating aggregate production function for a country, it is better to consider the co-integration of variables in a time series analysis. In this empirical work, after determining the order of the vector autoregressive, co-integration test is conducted. Thereafter the structural long-run relationships of the variables are identified using vector error correction model. To this end a neoclassical and structuralist model of production function is developed. The result confirms that the variables are co-integrated at polynomial rank of order (2). The variables of production function are non-stationary at their level but stationary after differencing. The Engle Granger causality modeling shows that agricultural labor and Price of agricultural goods to non-agricultural goods Granger Cause agricultural productivity, Capital inputs in agriculture and Price of agricultural goods to non-agricultural goods Granger Cause agricultural labor, Rainfall Granger Cause ratio of Price of agricultural goods to non-agricultural goods and finally ratio of Price of agricultural goods to non-agricultural goods Granger Cause institutional capability. From the vector error correction model result, the coefficient of the co-integrating equation tells that about 45 percent of disequilibrium corrected each year by change in aggregate agricultural production. The overall performance of the model is well fitted, because the 64% of total variation of the dependent variable is explained by the independent variables included in the model. Moreover, the model selection criteria indicated the model is adequate to represent the real world and manageable to predict agricultural production behavior in Ethiopia. Vector error correction modeling of the sector shows that the Ethiopian agricultural sector is mainly dependent up on institutional capability, price ratio and rainfall in the long run. In the short run, it is determined by agricultural labor, previous agricultural production and rainfall. Finally, forecasting of the agricultural production and its associated sources of growth has been made to provide solution in future values. To circumvent the poverty trap in the country, therefore, the government needs to invest on human capital and irrigation development to reduce its dependence on vagaries of nature. Moreover, competent private-public partnership in increasing the capability of institutions on coordination and cooperation of resource use is also vital. There should be a tradeoff between private-public ownership and likewise between efficiency -equity in improving public welfare in Ethiopia. Keywords: Error correction model, Cointegration, Aggregate production function, Short and Long run, Ethiopia. DOI : 10.7176/JESD/10-23-01 Publication date: December 31 st 2019

J. M Keynes Was Never a ‘Chapter 12’ Keynesian: The Claim That He Was a ‘Chapter 12’ Keynesian Was Manufactured by Joan Robinson and G. L. S. Shackle After His Death by Changing Keynes’s Definition of Uncertainty to Radical Uncertainty

The claim that Keynes regarded himself as a “Chapter Keynesian is inaccurate and misleading. Keynes’s chapter 12 discussion and definition of uncertainty in the General Theory is simply a footnote to his much more general theoretical discussion about uncertainty made in chapter 26 of the A Treatise on Probability in 1921 pages 309-312 which concentrated on economics specifically. This was demonstrated in the 1937-38 Keynes-Townshend correspondence, where there is no discussion of the 1937 QJE article or radical uncertainty. Keynes had two interrelated and interconnected models in the General Theory. They were the D-Z model, which dealt with expected aggregate demand, D, and the IS-LM(LP) model, which dealt with actual or realized aggregate demand, Y. Keynes incorporated uncertainty and expectations into his D-Z model of chapters 20 and 21 after having provided readers of the General Theory with a very brief introduction to the Theory of Effective Demand in Chapter 3 of the General Theory. Keynes’s use of his IS-LM(LP) model in chapter 15 (pp.199-209) provided a brief introduction to the final, complete presentation of his IS-LM(LP) model in Chapter 21 where Keynes brought all of the elements that made up the IS-LM(LP) model together in Section Four of Chapter 21. This analysis incorporated the LM(LP) equation from the classical and neoclassical model of the rate of interest (r) that Keynes had demonstrated to Harrod, in his letter of August 27th,1935, was only a single downward sloping curve in (r,Y) space that intersected nothing, so that the existence of a quantitative determinate equilibrium in classical and neoclassical theory was an impossibility in (r,Y) space. Harrod capitulated completely in his letter to Keynes of August 30th,1935 and acknowledged that Keynes had indeed come up with a very important equation and had made a major advance in economic theory. Keynes incorporated his August 27th analysis, using a version of Harrod’s original diagram, in chapter 14 of the General Theory on pages 179-182. Keynes showed diagrammatically that the classical and neoclassical theory of the rate of interest amounted to a single IS curve in (r,Y) space that intersected nothing. Data (in his February, 1937 QJE article, he reverts to a missing equation” characterization) was that could only be provided by the LM(LP) curve in order to have a quantitative, determinate, unique equilibrium as stated explicitly by Keynes on page 299 of the General Theory. These interrelated and interconnected models work in harmony together with each other. It is quite impossible to use one without the other and expect to fully grasp Keynes’s mathematical, technical analysis. The D-Z model incorporated expectations and uncertainty in order to analyze the anticipated or expected amount of Effective Demand, D. Based on this analysis, a specific actual or realized amount of Effective Demand, Y, results. Keynes then combines Y with r to show why monetary policy can be completely neutralized if liquidity preference becomes absolute in the highly elastic range of the LM(LP) curve. Keynes decided to present this result on pp.207-208 of the General Theory, as well as in his reply to Viner in the February, 1937 QJE article. Hicks’s version of Keynes’s IS-LM analysis has no foundation in any type of D-Z model and hence is incomplete, as it provided no microfoundations in the theory of the firm, aggregate production function, labor market or necessary and sufficient first and second order conditions for optimality as provided by Keynes in chapter 20 explicitly.

JEEA-FBBVA Lecture 2018: The Microeconomic Foundations of Aggregate Production Functions

AbstractAggregate production functions are reduced-form relationships that emerge endogenously from input–output interactions between heterogeneous producers and factors in general equilibrium. We provide a general methodology for analyzing such aggregate production functions by deriving their first- and second-order properties. Our aggregation formulas provide nonparametric characterizations of the macroelasticities of substitution between factors and of the macrobias of technical change in terms of microsufficient statistics. They allow us to generalize existing aggregation theorems and to derive new ones. We relate our results to the famous Cambridge–Cambridge controversy.

Capital Theory 1873–2019 and the State of Macroeconomics

The current understanding of capital theory suffers from insufficient clarity about the logic of the marginal/neoclassical approach. A central point remained unclear throughout the Cambridge controversies: the traditional versions of that approach needed a given ‘quantity of capital’ not because assuming an aggregate production function ‒ they were fully disaggregated ‒ but because aiming to determine long-period equilibria, centres of gravitation of time-consuming adjustments, and accordingly left the relative endowments of the several capital goods to be determined endogenously, but then needed a given ‘quantity of capital’ to render the equilibrium determinate. A simple model confirms this fact.This clarification allows further insights. Walras was simply contradictory because aiming at determining a long-period equilibrium while taking the endowments of the several capital goods as given. The derivation of the traditional interest-elastic investment function from the demand-for-‘capital’ function needs the continuous full employment of labour; without this assumption investment is indeterminate. The current reference to intertemporal equilibria as the microfoundation of mainstream macro is a smokescreen, hiding a continuing faith in the traditional marginalist adjustments refuted by reswitching. Finally, the neoclassical approach operates as blinkers, blinding mainstream economists to the adaptability of production to demand, which makes it obvious that output and growth are governed by aggregate demand.

The Impact of Remittance on Economic Growth of Ethiopia

The purpose of this study was to investigate whether or not international remittances enhance economic growth in Ethiopia. Data for the period 1984-2017 from World Development Indicator and Ethiopia Ministry of Education annual statistical Bulletin was used. To investigate the impact international inflow remittances, foreign direct investment net inflow, inflation, general government final consumption expenditure, gross fixed capital formation, openness to international trade, human capital and population growth were also included. The study employed an aggregate Cobb-Douglas production function. Augmented Dickey Fuller tests were used to test for non Stationarity of the variables. It was found that all variables were integrated of order one. In addition, Johansen Cointegration test was employed to determine whether or not the variables were cointegrated. Error correction model was employed to estimate short – run and long run relationship using ordinary least square technique. The study found that in the long run General government final consumption expenditure, openness to international trade, human capital and Population growth where as in short run foreign direct investment net inflow had both positive and significant impact on economic growth. Additionally in the long run Inflow remittances, Inflation and foreign direct investment net inflows and in the short run inflation, Openness to international trade and Human capital (secondary school enrolment) had both negative and significant. This was in contrast with the expected result of positive and significance impact on economic growth rate. Gross fixed capital formation in long run where as remittance inflow, general government final consumption expenditure and human capital (secondary school enrolment) were found to be insignificant and no impact economic growth. Keywords: Remittances, Economic growth, Error Correction Model (ECM), Augmented Dickey Fuller (ADF) test DOI : 10.7176/JESD/10-17-01 Publication date :September 30 th 2019

Interest Rates and the Rise of Superstar Firms

We examine how the rise of leading companies of this age affects real interest rates. We define “superstar firms” as firms with higher productivity growth and less investment relative to their value-added, and we construct analytic and quantitative overlapping generations models in which superstar firms replace other firms. We show that technological changes that benefit superstar firms decreases the interest rate and can make the economy dynamically inefficient. The result is fundamentally different from the result obtained from the constant elasticity of substitution aggregate production function under which the factor-augmenting technological progress would not decrease the interest rate. Moreover, in our framework, the consequences of technological change that benefits superstar firms are consistent with other stylized facts such as the change in factor shares and the increase in household inequality. Finally, in a quantitative life-cycle model, we show that the rise of superstar firms accounts for 8.4% of the entire decline in the natural rate of interest in the United States from 1970 to 2015.

How Saline Is the Solow Residual?

In a 1957 paper, Robert Solow exploited the mathematical properties of the aggregate production function to isolate the role of disembodied “technical change” in economic growth. Solow’s method allowed economists to disentangle the role of technical change from that of production factors, with the residual serving as a measure of total factor productivity growth. His method and results were met equally with praise and criticism. The interrogations around the residual gave rise to an abundant literature from the late 1950s which made it possible to improve the technique of calculation and refine the results. The Solow residual inspired a surge of interest (and criticism) in the 1980s when used by Finn Kydland and Edward Prescott to justify empirically the concept of technology shocks. In this paper, I argue that the resulting debates were not essentially different from those that took place—within the National Bureau of Economic Research already—in the 1950s and 1960s. Though they have been accompanied by a change in the “epistemic status of shocks” (Duarte and Hoover 2009, 228) in economics, which redesigned the Solow residual from a source of secular growth to be quantified to the initial impulse of short-term economic fluctuations. From then on, they entailed a choice among competing models of business cycles. I allege that the Solow residual, highly malleable and easily decomposable from both a theoretical and an empirical point of view, turned to be a clear-cut—although porous over time—demarcation line within the freshwater/saltwater spectrum (according to Hall’s 1976 metaphor) between economists who believed the business cycle was mostly driven by supply-side versus demand-side factors, and a formidable weapon in the battle that divided them.

Permanent and temporary workers in a matching framework

This paper investigates on a theoretical level the underlying causes of recent trends in decision of firms to hire temporary and permanent labour when workers and firms meet through a frictional directed search technology. Temporary workers differ from permanent workers in that they have a lower bargaining weight but look for a permanent job while on the temporary job. The findings are that permanent arrangements are more prevalent the more productive the aggregate production function is, i.e. also in the less productive phases. More efficient matching has an inverse U shaped impact, it first increases the prevalence of temporary arrangements and then decreases it. Bargaining weights have an ambiguous impact.