Changes In Relative Prices Research Articles

Karl Marx and Douglass C. North

The Theory of Institutional Change by Douglass C. North traces the long-term economic performance of a nation back to the quality of its institutions because they are able to ensure sustainable reductions in transaction costs. The approach claims to provide an interpretive framework applicable to all of recorded human history. It thus has an undeniably historical dimension. The theory explains institutional change as an induced change in relative prices caused by technological progress, which inverts the existing balance of power between suppliers of the factors of production, thus leading to a renegotiation of the content of the institutional arrangement. By tracing institutions as ideal superstructure back to a negotiating equilibrium between the owners of the factors of production as a material basis, the Theory of Institutional Change includes a materialistic component. For this reason, it is argued that North’s theory should be considered as a variety of Historical Materialism, an idea first formulated by Karl Marx.

Demand for Imports and Components of Final Expenditure: An Empirical Study with Special Reference to the Korean Import Demand Function

This paper presents a detailed empirical investigation of Korea’s demand for imports. In particular, our study provides fresh estimates of partial elasticities of demand for imports with respect to each key component of final expenditure including final consumption expenditure, and expenditure on capital formation. A Johansen multivariate co-integration analysis is employed on the post-global financial crisis quarterly macroeconomic data such as final consumption, gross fixed capital formation, exports and relative import prices for the sample period 2009-2018. In support of the empirical framework used in this study, we have found significant differences to exist between various long-run partial elasticities of demand for imports while import elasticity of demand with respect to expenditure on fixed capital formation is found to be negative. This latter result appears to imply that incremental increases in capital formation can provide an effective mechanism for reducing reliance of Korea on imports in the long run. According to the short-run forecasting model, we have found that the current period changes in the demand for imports are related only to the previous period changes in relative price of imports.

Estimation of Belarus Trade Policy Liberalization Process Following Customs Union

The research assesses the process of liberalization of trade policy of Belarus after the creation of the Customs Union (CU) due to the liberalization of non-tariff barriers. Evaluation is carried out using an error correction model with relative price changes based on the theory of purchasing power parity (PPP). In the first part of the article, a global classification of non-tariff measures developed on the basis of UNCTAD is given, and so are examples of non-tariff restrictions applied by Russia, Belarus, and Kazakhstan. It also describes the research aiming to assess the impact of trade liberalization on wealth and economic growth. The second part contains a theoretical rationale for the model, construction of which is based on purchasing power parity in violation of the “law of one price”. The third part of the work contains a direct econometric estimation of the model. Before estimation the model is applied to prove model assumptions: in particular, the significance of the dummy variable implies liberalization of non-tariff measures, rather than a reduction of the customs tariff; non-tradable sectors are the same in the partner countries, and therefore the change of their prices is not evaluated. The result of the empirical analysis is the revealed inertness of the liberalization of non-tariff barriers in Belarus, as evidenced by the liberalization not since the creation of the Customs Union, but after several quarters. It also revealed the stimulation of consumption of imported products as a result of a decrease in their price due to liberalization.

The Study of Effective Factors on Iran's Pharmaceutical Export Supply and Demand.

The importance of drug as a valuable export product in the global economy becomes clearer every day. Understanding the problems of exports and factors affecting it, can be an important step to keep Iran’s position in the world markets and further export development of this product. In this study, Iranian pharmaceutical exports’ supply and demand functions were calculated using co-integration and error correction techniques through time series quarterly data of 2000-2014 in order to identify the factors affecting pharmaceutical exports (short run and long run relationships among the variables) and price and income elasticities. The long run price elasticity of demand of -2.28 indicates that an increase in Iran’s export price relative to competitor′s export price will have a negative impact on pharmaceutical export volume. Also, the long run income elasticity of foreign demand for pharmaceutical exports of Iran is 1.11. That is an increase in income of foreign countries will have a positive impact on Iran’s pharmaceutical export. On the other hand, the long run price elasticity of export supply is 1.09, indicating that the supply of pharmaceutical export is sensitive to the relative price changes. In other words, an increase in export price relative to domestic price as well as an expansion of the pharmaceutical production capacity will increase its export supply. Being aware of the factors affecting the pharmaceutical exports can prepare the ground to develop the pharmaceutical industry and balance the supply and demand in the long run. Therefore, the results of this study can help Iran′s policymakers and managers to choose a clearer path for the pharmaceutical trade policies.

Kuznets meets Lucas: structural change and human capital

Abstract This paper develops a multi-sector growth model with human capital accumulation. In this model, human capital induces structural change through two channels: changes in relative prices and changes in the investment rate of physical and human capital. We show that the specifications of the model give rise to a generalized balanced growth path (GBGP). Furthermore, We show that the model is consistent with (i) the decline in agriculture, (ii) the hump-shaped of manufacturing, (iii) the rise of the services sector, and (iv) the path of human capital accumulation in the US economy during the 20th century. Given the findings, We outline that imbalances between physical and human capital contribute to explain cross-country differences in the pace of structural change.

Macroeconomic implications of switching to process-emission-free iron and steel production in Europe

Climate change is one of the most serious threats to the human habitat. The required structural change to limit anthropogenic forcing is expected to fundamentally change daily social and economic life. The production of iron and steel is a special case of economic activities since it is not only associated with combustion but particularly with process emissions of greenhouse gases which have to be dealt with likewise. Traditional mitigation options of the sector like efficiency measures, substitution with less emission-intensive materials, or scrap-based production are bounded and thus insufficient for rapid decarbonization necessary for complying with long-term climate policy targets. Iron and steel products are basic materials at the core of modern socio-economic systems, additionally being essential also for other mitigation options like hydro and wind power. Therefore, a system-wide assessment of recent technological developments enabling almost complete decarbonization of the sector is substantially relevant. Deploying a recursive-dynamic multi-region multi-sector computable general equilibrium approach, we investigate switches from coke-to hydrogen-based iron and steel technologies in a scenario framework where industry decisions (technological choice and timing) and climate policies are misaligned. Overall, we find that the costs of industry transition are moderate, but still ones that may represent a barrier for implementation because the generation deciding on low-carbon technologies and bearing (macro)economic costs might not be the generation benefitting from it. Our macroeconomic assessment further indicates that anticipated bottom-up estimates of required additional domestic renewable electricity tend to be overestimated. Relative price changes in the economy induce electricity substitution effects and trigger increased electricity imports. Sectoral carbon leakage is an imminent risk and calls for aligned course of action of private and public actors.

Estimated Export Demand and Supply Functions for Pakistan: A Disaggregated Analysis

This study estimates the impact of demand and supply side factors on the export performance of Pakistan. Using unrestricted autoregressive distributed lag (ARDL) model for the period 1971 to 2015, the study analyzes export performance using data both at aggregate and disaggregate levels. The study finds, firstly, that exports are elastic to changes in world income and relative export price at the aggregate level. Secondly, at a disaggregate level, only exports of manufactured goods, leather and cotton cloth are elastic with respect to world income. Similarly, demand for all export categories is inelastic to changes in relative export price. On the supply side, exports at both aggregate and disaggregate levels are significantly elastic to changes in domestic production capacity and relative price. The study concludes that demand and supply side factors are equally important in explaining the export behavior at the aggregate level, whereas at a disaggregated level, the supply side factors exercise relatively high impact on export performance.

Estimating trade elasticities for South Africa’s agricultural commodities for use in policy modelling

ABSTRACTThe computable general equilibrium (CGE) model is often used to analyse the effects of policy changes because of its ability to capture multi-sectoral inter-linkages within the economy. The results of a CGE analysis largely depend on the database, policy shock and elasticities. Trade elasticities, such as the Armington elasticities, play a central role in CGE models to determine the demand substitution between commodities from different sources as a result of changes in relative prices. Because of their role, modellers are keen to know the correct elasticities for use in CGE models. Despite their importance, elasticities for South African agricultural commodities are outdated, leaving researchers to rely on value judgements. We address this limitation by estimating the Armington and export supply elasticities for individual and aggregate agricultural commodities using updated time-series data (1980–2016). The results for the two sets of trade elasticities show that estimates for an aggregate agriculture tend to be inelastic compared to estimates for an individual product, indicating a higher sensitivity of products to relative price changes. The Armington estimates were found to be closer to unity for the majority of products, suggesting that agricultural imports are imperfect substitutes for domestic products. The export supply elasticities for grains were found to be more elastic than for fruit and meat, implying that domestic grain production is relatively more responsive to price changes in the export markets. The long-run estimates for the two sets of elasticities were found to be larger than the short-run estimates for all agricultural products.

An Indirect Evidence of the Physical Constraints in Intake of Food

The physical constraints, newly and recently introduced in economic theory, imply that the quantity of food or calory from food that consumers can take is restricted. Consumers cannot take food without limit, so they have to reduce the intake of other food if they are to take more one food. For example, total calory per person taken from intake of rice and meat has remained between 200,000Kcal and 250,000Kcal since 1970s in Korea, which means that the Korean consumers has decreased the consumption of rice, instead of increasing the consumption of meat. In other words, rice has been in fact substituted for meat. However, the relative price of rice for meat has been in decline, which implies that the substitution between rice and meat cannot be explained by the change in relative prices. Thus, this paper apples the physical constraints to explain the substitution between rice and meat. Applied to the relation between consumptions in rice and meat, the substitution is explained well without economic variables. The results show that there has existed the physical constraints in consumption per person of rice and meat and that consumers has decreased intake of rice by 228.9g when they has taken additional 100g of pork.

Measuring the Profit Rate in an Inflationary Context: The Case of Brazil, 1955–2008

A debate in Marxist literature concerns the methodology for measuring the profit rate. This paper investigates this question computing the rate of profit at historical cost, current cost, constant prices, and constant GDP price for Brazil in the 1955–2008 period. Like many developing countries, Brazil experienced medium to high inflation during this period. Inflation determined the trend and cyclical movements of the profit rate at historical cost. It increased in years of rising, and declined in years of falling, inflation. The profit rate at historical cost was at odds with Brazilian economic history. The profit rate at current costs remained unaffected by the inflation rate, and its movements correspond to the historical phases of the Brazilian economy. The same is true for the profit rate at constant prices and at constant GDP price. However, the profit rate at constant prices does not account for changes in relative prices, while the profit rate at constant GDP price is computed using a weighted average of the current and past relative prices. JEL Classification: E01, B51

The Welfare Effects of Trade With Labour Market Risk

This paper evaluates the welfare effects of trade in a setting with risk averse workers and uncertainty in labour market outcomes. We provide conditions under which a small change in relative prices due to trade reduces welfare in both a static as well as a dynamic economy. Finally, we develop a quantitative model to examine the effect of large price changes due to trade and show that for a realistic calibration that gains from trade exist for reasonable changes in relative prices but the gains are smaller than in a world with risk neutral individuals.

The role of regional and sectoral factors in Russian inflation developments

This paper examines the relative roles of region-specific and commodity-specific developments in the consumer price setting in Russia. For this purpose, we estimate a dynamic hierarchical factor model using inflation rates across regions and sectors. We found little evidence of association between region-specific factors and inflation developments, although there are several regions (mostly located in the Far East and North Caucasus) where the idiosyncratic component may contribute substantially. Conversely, the role of cross-commodity relative price changes in inflation developments in Russia is substantial.

Crowding Out or Knowledge Spillovers from the Wind Power Industry: The Effect on Related Energy Machinery

There is a risk that if a government adopts a R&D spending policy directed towards wind power technology crowding out of other technologies might occur due to fiscal constraints and changes in relative prices. The purpose of this paper is to provide a backward-looking analysis of how the accumulation of wind energy patents and public R&D spending affected the domestic and neighboring country output of granted patents in the “related energy machinery field”. The econometric analysis, a Poisson fixed-effects estimator based on the Hausman, Hall and Griliches (1984) method, relies on a data set consisting of eight countries in Western Europe with the highest rates of patent production in the field of wind power between 1978 and 2008. The results show that an accumulation of a national wind power stock is a statistically significant negative determinant of a country’s related energy machinery patenting outcomes. However, no crowding out effects of public R&D spending were found.

An exploratory experimental analysis of path-dependent investment behaviors

In an experimental setting designed to cleanly partition the disposition effect and various wealth effects, we find evidence that such path-dependent behaviors are related in the sense that those subject to one effect are more or less likely to exhibit another. For example, those subject to the disposition effect are more likely to be subject to the break-even effect. A prospect-theory utility function dominated by curvature rather than loss aversion could account for this finding. There are also significant gender differences in path-dependent behaviors. Notably, males are more likely to make portfolio adjustments in response to changes in relative prices.

The effects of crop-to-beef relative prices on deforestation: evidence from the Tapajós Basin

AbstractThis paper examines the impact of changes in agricultural land use on deforestation at the local level in the Tapajós Basin in the Brazilian Amazon. It uses exogenous variation in crop-to-beef relative prices to investigate the effects of pasture-to-cropland conversion on deforestation. The findings indicate that increases in crop-to-beef relative prices increase the rate of pasture-to-cropland conversion and reduce the rate of deforestation. The magnitude of the effects implies that land conversion reduced deforestation at the local level by 5,300 square kilometers from 2002 to 2012. This reduction is the equivalent of almost 15 per cent of the total deforestation observed in the region during this period. These results are consistent with a land use model in which cattle ranching and crop cultivation have different input-intensities and there is imperfect mobility of productive factors between municipalities. This model highlights the fact that changes in relative prices affect deforestation through its effect on input prices.

Changing Dynamics of Indian Edible Oil Industry

Till 1990's the dominant edible oil produced and consumed in India were rapeseed-mustard and groundnut. The technological, economic and policy changes thereafter induced dynamics in consumer demand for food, including edible oils. The possible reason for these shifts are increased urbanization (changing lifestyles), increased awareness, availability of oils in packet form in varied quantities even in remote rural areas, change in relative prices of oils, and increased income levels of households. The results revealed that presently, the dominant edible oil consumed in India is palm oil 50 of the total consumption followed by the soybean and sunflower oil. Rice Bran Oil market in India is still at its nascent stage. In last five years there has been an increase of 20-30 per cent in RBO consumption. The groundnut oil and the mustard/rapeseed oil which was traditionally consumed by households, has been replaced by soybean oil, implying the need for appropriate changes in the production.

English

The tea sector plays an important role in the Kenyan economy mainly through employment, contribution to Gross Domestic Product (GDP) and foreign exchange earnings. However, the sector faces a number of risks including but not limited to production, technological, price and market risks, legal and personal risks. Price and exchange rate volatility is one of the main sources of risk in the agribusiness sector. This paper sought to determine if foreign income, exchange rate, relative prices, price and exchange rate volatility have effects on Kenya’s black tea export demand. The study used panel data from World Bank and Central Bank of Kenya statistical bulletins for the period 1997 to 2010. Price and exchange volatility cannot be observed directly and were thus computed using Moving Average Standard Deviation (MASD) method. Sixteen major importer countries of Kenya’s tea were considered in the study. Im Peseran and Shin (IPS) unit root tests were used for testing the variables for the presence of unit roots. The study employed dynamic heterogeneous panel techniques developed by Peseran and Shin using autoregressive distributed lag (ARDL) model in the error correction form. The empirical model was estimated using pooled mean group (PMG) estimator. The study found that growth in foreign income and changes in price and exchange rate volatility were significant in the long and short run. Proportional changes in relative prices and foreign exchange rate were insignificant in the long run and short run. Key words: Price volatility, exchange rate volatility, Kenya’s black tea exports, autoregressive distributed lag (ARDL) model, pooled mean group (PMG) estimation.

THE DRIVERS OF STRUCTURAL CHANGE

AbstractThe main goal of this paper is to provide an integrated survey of the literature devoted to identifying the drivers of structural change, broadly defined as the process of reallocation of economic activity across the three broad sectors agriculture, manufacturing and services. Using the GGDC 10‐Sector Database, this paper first presents the empirical facts associated with structural change in different regions of the world – that is Europe and the USA, Asia, Latin America, and Africa – then reviews four determinants of structural change: (i) changes in income, (ii) changes in relative (sectoral) prices, (iii) changes in input–output linkages and (iv) changes in comparative advantage(s) via globalization and trade.

The quotient of normal random variables and application to asset price fat tails

The quotient of random variables with normal distributions is examined and proven to have power law decay, with density fx≃f0x−2, with the coefficient depending on the means and variances of the numerator and denominator and their correlation. We also obtain the conditional probability densities for each of the four quadrants given by the signs of the numerator and denominator for arbitrary correlation ρ∈[−1,1). For ρ=−1 we obtain a particularly simple closed form solution for all x∈R. The results are applied to a basic issue in economics and finance, namely the density of relative price changes. Classical finance stipulates a normal distribution of relative price changes, though empirical studies suggest a power law at the tail end. By considering the supply and demand in a basic price change model, we prove that the relative price change has density that decays with an x−2 power law. Various parameter limits are established.

Monetary Policy and the Interest Rate: Reflections on Allan Meltzer's Contributions to Monetary Economics

The monetary framework developed by Karl Brunner and Allan Meltzer emphasized the interaction between the supply and demand for money and the supply and demand for credit. In a general equilibrium setting, the money market and the credit market jointly determine the short term interest rate and the price level of real assets. Open market operations change the composition of assets and, in turn, the price level of real assets and the interest rate. The effect of monetary policy on real activity depends on both the change in the interest rate and the change in the price level of real assets. The Brunner-Meltzer model therefore emphasizes the role of changes in relative prices of financial and real assets in response to changes in monetary policy. In recent years, the Federal Reserve has moved to a system that uses the interest rate on reserves as the primary tool of monetary policy. In doing so, the Federal Reserve has implicitly accepted the idea that monetary policy is entirely transmitted through the short term nominal interest rate. In this paper, I present Brunner and Meltzer's view of monetary transmission and their critique of monetary models that exclusively focus on the interest rate. In addition, I argue that the lack of evidence in support of the interest rate channel in conjunction with the change in the Federal Reserve's operating procedures presents an opportune time to revisit the Brunner-Meltzer critique.