Intermediate Consumption Research Articles

Shift in the Importance of Consumption of Professional Services and Investments (GFCF) for Manufacturing Industries by R&D Intensity in Advanced Economies

The research revealed and analysed a trend, between 1995-2020, of a declining gross fixed capital formation (GFCF) to domestic value added in gross exports (DVA in Gross exports) ratio in manufacturing industries for most Advanced Economies, which occurred on the backdrop of increasing of intermediate consumption of professional services. Our model proves the partial substitution of GFCF with intermediate consumption of professional services in Advanced Economies due to the change of production operating model (value chain management in manufacturing industries), which is evidenced by high influence of the combined factor on the DVA in Gross exports. This substitution facilitates the upgrading of value chain by creation of backward and forward linkages for manufacturing industries, depending on their R&D intensity. Systemic and long-term nature of changes may reflect potential paradigm shift in Advanced Economies' production operating models.

Econometric forecasting of production matrix by total output in the framework of interindustry balance: Evidence from European firms

The paper is devoted to testing the core prerequisite of inter-industry balance methodology which states, that intermediate consumption is strictly proportional to the total output of an industry, or, in other words, production matrix is constant over time. The paper uses standard econometric and statistical tools to test the hypothesis of proportionality of intermediate consumption to the total output. The statistical base of the study is the world input-output tables collected for the period from 2000 to 2022 from European firms. By conducting a rigorous empirical analysis, we find that tested prerequisite cannot be considered as valid. We also propose a methodology of point forecasting of production matrices by total output, which helps to make more accurate forecasts compared to the trivial model, when production matrix is assumed to stay unchanged. The proposed methodology is to extend the input-output methodology by introducing the coefficients of proportionality of changes in intermediate consumption and changes in the total output. Proportionality coefficients are proposed to be obtained by regression equations based on statistical data of input-output tables. The results of this work can be useful for executive authorities in planning large state economic projects, as well as in assessing the impact of external shocks on the country's economy.

Investigating the Relationship Between the Dynamics of the Structure of Intermediate Consumption and Output of Industries: Cross-Country Analysis

This paper examines one of the main prerequisites of the inter-industry balance methodology on the proportional dependence of the output of industries and their intermediate consumption. The statistical base of the study is the world input-output tables collected for the period from 2000 to 2014. According to the results of the work, it was revealed that the prerequisite of a proportional change in the vector of intermediate consumption with a change in output is not consistent. However, significant positive relationships were found between intermediate consumption and the output of industries. On the basis of the identified relationships, we conducted a clustering procedure on industries, where, in particular, clusters with strong, medium, and weak relationships between intermediate consumption and output are distinguished. Thus, the paper proposes to expand the input-output methodology by introducing proportionality coefficients for changes in the intermediate consumption of an industry with a change in its output. Proportionality coefficients are proposed to be obtained on the basis of regression equations built on statistical data from the input-output tables. It should be especially noted that in addition to obtaining point forecasts of intermediate consumption for each industry when its output changes, it is also possible to obtain probability distributions for the gross output of each industry, their value added, wages, taxes, and profits through Monte Carlo simulations based on the constructed regression equations, which will facilitate a scenario analysis of the development of the considered economic system. The results of this work can be useful to executive authorities in planning large state economic projects as well as in assessing the impact of external shocks on the countryʼs economy.

Patterns of ultra-processed foods consumption throughout childhood and trajectories of growth and adiposity

Background & aimsUltra-processed foods (UPF) consumption has been associated with unhealthy outcomes. However, the literature lacks robust longitudinal studies considering its cumulative effect, particularly in young populations. This study aimed to evaluate the relationship between UPF consumption patterns throughout childhood with growth and adiposity trajectories. MethodsGeneration XXI population-based birth cohort (Porto, Portugal) participants were included. Food frequency questionnaire items at 4, 7 and 10 years were classified according to the processing degree using NOVA. UPF consumption patterns based on total quantity were identified using a probabilistic Gaussian mixture model using participants with complete data and predicting for the total sample (n=8647). To assess whether the outcome trajectories from 4 to 13 years [body weight (kg), height (cm), body mass index (BMI) z-score, waist circumference (WC) (cm) and fat mass (FM) (%)] depend on UPF patterns, a mixed-effects model with linear and quadratic terms for age adjusted for confounders was used. Participants with at least 2 measurements at 4, 7, 10 or 13 years were included in this study (n range: 5885-6272). ResultsFour UPF consumption patterns were identified: constantly lower consumption (15.4%), constantly intermediate consumption (56.4%), transition from low to high consumption (11.2%), and constantly higher consumption (17.1%). Compared to the constantly lower UPF consumption, the constantly higher consumption pattern was associated with greater acceleration in body weight (β: 0.119; 95%CI: 0.027;0.212), BMI z-score (β: 0.014; 95%CI: 0.004;0.023), WC (β: 0.232; 95%CI: 0.144;0.319) and FM% (β: 0.200; 95%CI: 0.092;0.308) and with lower acceleration in height (β: -0.063; 95%CI: -0.111;-0.015). The constantly intermediate UPF consumption pattern was associated with greater acceleration in body weight (β: 0.123; 95%CI: 0.043;0.203), WC (β: 0.120; 95%CI: 0.045;0.195) and FM% (β: 0.146; 95%CI: 0.054;0.238). ConclusionConstantly higher and constantly intermediate UPF consumption throughout childhood were associated with worse growth and adiposity trajectories until adolescence.

Association of adverse childhood experiences with dietary patterns of school-age children: evidence from the birth cohort Generation XXI

BackgroundAdverse Childhood Experiences (ACEs) have been associated with health-risk behaviors and several chronic diseases in adulthood. However, the relationship between exposure to ACEs and dietary patterns at school age is unknown. ObjectivesTo investigate the association between ACEs and dietary patterns of 10-year-olds. MethodsThe study included 5034 children from the Generation XXI cohort, recruited in 2005/2006 in Porto, Portugal. ACEs were assessed through a self-administered questionnaire covering the first 10 years (y) of life, quantified and grouped into 5 dimensions: “abuse,” “school problems,” “death/severe disease,” “life changes,” and “household dysfunction.” Dietary patterns were identified by latent class analysis using data collected with a validated food frequency questionnaire. Five dietary patterns were studied: “low consumption,” “energy-dense foods,” “snacking,” “intermediate consumption,” and “healthier” (used as reference). Multinomial regression analyses were conducted, adjusted for the child’s sex, household income, family structure, and mother’s age [odds ratio (OR) and 99% confidence intervals (CIs)]. ResultsMost children were exposed to ≥1 ACE (96%), and ∼27% had reported 6 or more ACEs throughout life. Those reporting 4–5 and ≥6 ACEs were more likely to follow the “Energy-dense foods” dietary pattern compared with those with no ACEs (OR: 2.41; 99% CI: 1.00, 5.77 and OR: 2.65; 99% CI: 1.10, 6.39, respectively). Children exposed to “abuse” in the first 10 y showed 28% higher odds of following the “low consumption” dietary pattern when compared to children with no reported ACEs and using the “healthier” dietary pattern as a reference (OR: 1.28; 99% CI: 1.00, 1.63). ConclusionsExposure to ACEs was associated with less healthy dietary patterns in school-aged children. Results suggest a cumulative effect of the adverse experiences resulting in a dietary pattern higher in energy-dense foods. Children with ACEs reported under the dimension of “abuse” seemed to have reduced food consumption.

Value orientations toward wild meat in Guyana are determined by gender, ethnicity, and location

IntroductionUnderstanding what drives differences in values toward wild meat is important for developing legislation and behavioral change campaigns that promote sustainable use. Value orientations (VOs) underly behavior. VOs are influenced by personal (e.g., gender, generation), social (e.g., media, family), location (e.g., rural versus urban), and experience determinants. In Guyana, an ethnic diverse nation in South America, the national hunting laws have recently been instated. The wildlife management agency is rolling out a behavioral change campaign in collaboration with a sustainable use initiative. To support this campaign, we evaluated VOs toward wild meat across Guyana.MethodsApplying Multiple Correspondence Analysis and generalized linear models to data from interviews, we examined location, personal, and societal determinants for their influence on these VOs and explored how VOs translated into behavior, specifically wild meat consumption frequency.ResultsLocation (Indigenous and coastal: rural, town, urban), intertwined with ethnicity, and gender showed the strongest associations with variation in VOs. Respondents from Indigenous territories expressed mostly positive VOs compared to coastal Guyanese. Women expressed more neutral or negative, and more negative biocentric VOs compared to men, and this difference was largest among Indigenous but non-existent in urban sites. Negative anthropocentric VOs toward wild meat consistently grouped together and dominated among those not consuming wild meat. Highest consumption was seen among those expressing positive materialistic VOs. Positive anthropocentric VOs were associate with intermediate consumption frequencies and most typical for men. Those expressing negative values toward wild meat based on biocentric orientations toward wildlife consumed wild meat, but rarely.DiscussionOur results direct behavioral change efforts to men on the coast who consume wild meat for enjoyment at bars, restaurants, or family events. Based on our study, positive messaging promoting the coexistence between consumption of mostly resilient species and caring about wildlife would be well-received to support sustainable use policies.

Optimization of the structure of the manufacturing industry of Ukraine according to the criteria of increasing the technology level of manufacturing operations and reducing their import dependence

Abstract The post-war reconstruction of Ukraine's economy should be based on new development priorities. First of all, we are talking about the structural transformation of the manufacturing industry, as a key segment of the economy, in the direction of increasing the weight of manufacturing operations with higher added value, socio-economic efficiency, the functioning of which will ensure the restoration of intersectoral relations, the reduction of import dependence, the improvement of the technical defence capability of the country and the social standards of life of the population. The purpose of the article is to optimize the structure of output and the structure of gross added value (GVA) of the manufacturing industry of Ukraine and the structure of intermediate consumption (in terms of domestic and imported components) of manufacturing operations. On the basis of the study of the relationships between the indicators of the economic efficiency of the Ukrainian manufacturing industry and the technological structure of its production (across 16 manufacturing operations), it was established that during the years 2013-2021, under the influence of non-economic factors, there was a significant decrease in the share of medium-high-tech industries (primarily chemical and machine-building) in the output of industry with a simultaneous decrease in the share of GVA in the output of these industries. On the basis of the obtained analytical information, using the author's methodical tools and the experience of previous studies, the optimization of the structure of output and GVA of the Ukrainian manufacturing industry was carried out according to the criterion of increasing the technology level. The objective function of such optimization was chosen to increase the efficiency of the manufacturing industry of Ukraine (expressed as an indicator of the share of GVA in output) to the level of Poland. According to the results of a detailed correlation analysis of the relationships between the values of indicators of import dependence and the economic efficiency of Ukrainian manufacturing operations, a number of negative features of the functioning of the latter were revealed, in particular: the deepening of import dependence of basic and strategic segments of industry, the increase in the volume of production of products based on give-and-take raw materials, etc. Based on the criterion of reducing import dependence of all manufacturing operations, but above all medium-high-tech ones, such a structure of intermediate consumption (in terms of imported and domestic components of costs) of manufacturing is modelled, under which the indicator of the share of GVA in the output of the manufacturing industry of Ukraine will correspond to the level of Poland. The modelling results form a scientific basis for strategic planning and forecasting the development of the manufacturing sector of the national economy. Prospective author's research in this direction will be aimed at the development of models for optimizing the structure of Ukrainian industry according to the criteria of increasing the innovativeness of industrial products and ensuring the socio-economic development of the country in the period of post-war recovery. Keywords industry, production, technology level, output, gross added value, efficiency, import dependence, intermediate consumption, optimization

Experience in Measuring Estimates of Russian GDP Dynamics Using Double Deflation Approach

When constructing estimates of gross domestic product (GDP) and gross value added (GVA) at constant prices, three approaches or a combination of them are used: extrapolation, simple deflation and double deflation. The latter approach is considered preferable, but is not yet used in Russian statistics. The article is devoted to the issues of constructing estimates of GDP and GVA dynamics for the Russian Federation using double deflation. The interest in constructing such estimates is due to the possibility of taking into account the dependence of production on domestic and import supplies, which the other two approaches lack. Received for the period from 2011 to 2016 estimates were compared with official indicators for the overall economy, the service sector, and for mining and manufacturing.From 2011 to 2016 alternative estimates of the physical volume indices of GDP and GVA showed lower growth rates compared to official indicators. This is due to the faster growth of alternative estimates of intermediate consumption compared to official ones. In the structure of intermediate consumption, domestic intermediate products were replacing imported analogues. The current dynamics of indicators, to a first approximation, shows signs of localization of production, which may be associated with the transition of enterprises to domestic outsourcing and the implementation of an import substitution policy.At the same time, the presence of measurement problems in the use of double deflation is obvious, most clearly manifested when moving to the analysis of indicators of lower levels of aggregation. The analysis shows in favor of conducting additional research related to the introduction of the double deflation technique in the official methodology.

The impact of public infrastructure investment on South Africa’s economy: evidence from social accounting matrix and computable general equilibrium-based approaches

This paper assesses the general equilibrium impacts of public infrastructure investment in the South African economy, as a case of an emerging economy, by making use of complementary general equilibrium models, such as the social accounting matrix (SAM) multiplier, the Structural Path Analyses (SPA) and the Computable General Equilibrium (CGE) models. Contrary to studies that use partial equilibrium models, this paper shows the importance of an economy-wide model to analyse the effects of public infrastructure investment in an emerging economy. The results of the analysis, based on the SAM and CGE analyses using a 2015 SAM for South Africa, indicate that increasing public economic infrastructure can be an effective way of stimulating the economy in a way that has a positive impact on labour. SPA shows that the leading and most important path of influence is the direct influence of the public infrastructure investment on each formal labour category. However, because the public infrastructure investment does not employ informal labour, this labour account is only indirectly connected via intermediate consumption of the output of the construction sector. These results suggest that an increase in public economic infrastructure could help address the unemployment problem that exacerbates poverty in South Africa.

Аналіз функціонування та розвитку ІТ-секторів критичної інфраструктури в економіці країни та регіонів

The aim of the article is to develop approaches to the analysis and assessment of the functioning and development of the IT sectors of critical infrastructure in the economy of the country and its regions. The functioning of the IT sectors of critical infrastructure in the national economy is analyzed on the basis of data from the system of national accounts on indicators of output, intermediate consumption, gross value added, wages of employees, other taxes, gross profit, mixed income, the share of the sector in the country’s GDP, the number of employees in the sector, and volumes of exports. The regional activity of the IT sectors of critical infrastructure is analyzed. Based on the results of the carried out analysis, it can be determined that in 2017–2021 there is also some instability by several indicators: the negative dynamics of the functioning of the IT sectors of critical infrastructure in the national economy, the share of the IT sector in the economy of Ukraine is insignificant. The pre-war period of the functioning of the critical infrastructure IT sector in the national economy is characterized by a certain decline in the sector. Martial law gave a new impetus to the development of the IT sector in regions distant from hostilities. The authors have allocated the factors of development of IT sectors of critical infrastructure that support and strengthen such characteristics as functionality, rapid adaptability to turbulent operating conditions, continuity in work, sustainable confrontation and rapid recovery after any impact of threats, increasing the sustainability of the national economy. Prospects for further research are the elaboration of issues of an effective financial and economic mechanism for the development of critical infrastructure, public-private partnership, multi-channel financing.

Импортоемкость регионов российской экономики

In the pre-sanction period, foreign economic relations in Russia were growing in importance. While the country’s gross domestic product increased by 1.75 times in 2013 compared to 2000, imports increased by 5.7 times in comparable prices during this period. Despite actual and potential effects of comparative advantages, the growing dependence on foreign markets also had negative consequences. The study assesses the demand for imported goods, considering the existing interindustry relations in the Russian economy. The paper describes the first stage of comparison of direct and total costs for the Russian economy and presents mathematical tools used to calculate indicators of its import dependence. In the future, we are planning to extend this approach to examine the spatial economy of two macrozones, namely, the European and Asian parts of Russia. Statistics show that the direct import intensity of the Russian economy is approximately 6 %, which is less than the global average. The vertical specialisation index of about 11 % indicates a relatively low dependence of the export of domestic goods on imports. In 2014–2020, total import costs reduced the most in the pulp and paper industry (-5 %) and vehicle manufacturing industry (-3 %) mainly due to a decline in their import intensity. In general, the impact of forced import substitution turned out to be negative for most regions after 2013. The proposed methods can be used to forecast the trade balance and consequences of implementing various import substitution policies. Since that intermediate consumption flows are included in indirect and total costs, it is advisable to develop a methodology accounting for investment goods.

Aquatic insects balance growth with future supply of algal food resources

Many consumers depend on the contemporaneous growth of their food resources. For example, Tanytarsus gracilentus midges feed on algae, and because midge generation time is much longer than that of algae, individual midges benefit not just from the standing stock but also from the growth of algae during their lifespans. This implies that an intermediate consumption rate maximizes midge somatic growth: low consumption rates constrain midge growth because they do not fully utilize the available food, whereas high consumption rates suppress algal biomass growth and consequently limit future food availability. An experiment manipulating midge presence and initial algal abundance showed that midges can suppress algal growth, as measured by changes in algal gross primary production (GPP). We also found a positive relationship between GPP and midge growth. A consumer–resource model fit to the experimental data showed a hump‐shaped relationship between midge consumption rates and their somatic growth. In the model, predicted midge somatic growth rates were only positively associated with GPP when their consumption rate was below the value that optimized midge growth. Therefore, midges did not overexploit algae in the experiment. This work highlights the balance that consumers which depend on contemporaneous resource growth might have to strike between short‐term growth and future food availability, and the benefits for consumers when they ‘manage' their resources well.

Love of variety and gains from trade

We show analytically and quantitatively how gains from trade depend on love of variety, defined as the extent to which an additional product variety generates benefits in either final or intermediate consumption. To do this, we use a multi-country, multi-sector heterogeneous-firm gravity trade model where love of variety is parameterized separately from product substitutability using a generalized CES demand function. Counterfactual simulations based on a calibrated version of this model show that the gains from trade commonly vary by a proportion of one to three depending on the value of the love-of-variety elasticity. Trade war simulations also point to the strong sensitivity of the assessed impacts. We conclude that love of variety may be an important determinant of the gains from trade, an aspect that has so far been overlooked for the sake of convenience in the modeling framework and due to lack of empirical estimates.

Development of Mechanical Engineering in the Conditions of Globalization (Experience of EU Countries)

The study was carried out with the aim of evaluating and substantiating the key systemic problems of the functioning of the national engineering industry of various countries in the conditions of economic globalization. In order to achieve the goal, development trends and key relative indicators of Polish and German mechanical engineering were analyzed during and under the influence of increased economic globalization. It is analytically substantiated that during the period of economic globalization, absolute indicators increased, in particular the volume of production and the number of employees of the Polish mechanical engineering industry, but instead, its innovativeness and technology decreased significantly, and dependence on foreign enterprises increased. It was revealed that the German engineering industry, in particular the automobile industry, has undergone significant destructive changes under the influence of increased economic globalization. First of all, this is a tendency to decrease the number of cars, and a significant decrease in the share of innovative products in the volume of sold industrial products of the production of motor vehicles, trailers and semi-trailers. It is concluded that the identified destructive changes are the result of an irrational, one-sided perception of economic globalization by the main business entities of these countries. In particular, this is the failure to take into account the systemic effects of foreign enterprises and TNCs, excessive export-orientation of products, offshoring, auto-sourcing on the activities of mechanical engineering and the socio-economic development of countries in general.
 The obtained results of the study became the basis for the formation and analytical and theoretical-philosophical substantiation of the hypothesis that compliance with a high level of provision of production processes by national, not controlled from the outside, products of intermediate consumption and an optimal level of export-orientation of machine-building industries, along with a decrease in the level of monopolization in high-tech segments of the global economy, in the long term, will contribute to the satisfaction of the interests of both national economies (in particular, entrepreneurship and the social sphere), and TNCs.

ASSESSMENT OF THE PROFITABILITY OF INNOVATIVELY ACTIVE ENTERPRISES OF UKRAINE

The article proposes a methodology for assessing the profitability of innovatively active enterprises of Ukraine. The evaluation of the actual annual profit of the business using the indicator of economic added value (economic profit) is argued, since the accounting profit is not a qualitative characteristic of innovative development. An important remark in the context of this study is the assessment of innovative development, more specifically, the innovative activity of enterprises – in a relatively stable economic time that preceded the war in Ukraine. Because it is clear that a return to the previous indicators and surpassing them is possible only in a relatively stable economic environment. It remains obvious that the increase in the added value of products can be achieved by reducing the volume of intermediate consumption, with the help of improving integration processes, in the creation of chains of added value of products, renewal of production assets, scalability of enterprises, increasing the level of technical and technological equipment of Ukrainian enterprises. Proposals have been made regarding the general system of assessing the business value of innovatively active enterprises of Ukraine. This study is designed to outline the main prospects for the development of innovatively active enterprises of Ukraine. It is emphasized that for the analysis of the mutual influence of innovative activity and indicators of economic efficiency, it is worth applying more progressive indicators for profit, such as economic added value, market added value, managerial added value, a balanced system of indicators.

The common agricultural policy subsidies and the technical efficiency of Hungarian wine farms

PurposeThe literature argues on ambiguous impacts of different types of the common agricultural policy (CAP) subsidies on farm technical efficiency (TE). The purpose of this paper is to estimate and analyse the TE and the impact of the CAP subsidies on the TE of wine farms in Hungary using the farm accountancy data network data set in the period 2013–2019.Design/methodology/approachThe authors use stochastic frontiers analysis (SFA) models to estimate the TE scores for the Hungarian wine farms with four wine farm-level inputs in terms of agricultural land, labour, capital and intermediate consumption. The TE scores are explained by the CAP subsidies and economic wine farm size. The different SFA models were applied with robustness tests to investigate the drivers of the TE values of wineries.FindingsLike for Hungarian farms in general, the distribution of the wine farm structure is a dual with a greater number of smaller wine farms and a smaller number of bigger wine farms. The agricultural land, capital and intermediate consumption are significantly positively associated with the wine farm TE. With higher capital intensity wine farm TE increase. The results imply that the CAP subsidies decrease the TE of the Hungarian wine farms, whereas economic farm size increase.Originality/valueTo the best of the authors’ knowledge, this is one of the first specific efficiency studies on the wine sector in the Central and Eastern European region and the first one for Hungary to evaluate the TE at wine farm level and to assess the impact of CAP subsidies and economic farm size on wine farm (in)efficiency to apply production technologies and use farm resources. This study is among the first that applied the fixed-effects stochastic frontier model at the wine farm level to measure the drivers of the TE scores.

Sanctions Pressure on the Russian Economy: Ways to Overcome the Costs and Benefits of Confrontation within the Framework of Import Substitution

The sustainable development of the national economy, taking into account the creation of mechanisms for ensuring economic security, technological sovereignty and preventing threats to the localization of import supplies of final and intermediate consumption goods, is one of the priority directions of economic policy in the conditions of systemic restrictions formed under the pressure of sanctions. In this regard, the study of the key externalities generated within the framework of the sanctions confrontation is an extremely popular task, both for science and practice. In this paper, the authors pay attention to both the actualization of the problem posed and an overview of some of the costs and benefits that can be extracted in the new reality for the national economic system of the Russian Federation. The main purpose of the study is to systematize and analyze the key parameters of economic growth in the Russian Federation under the sanctions pressure of the 2022 model and substantiate the policy of intensification of import substitution as a key mechanism for ensuring sustainable development in the medium and long term in the new reality. The subject of the study is the restrictions imposed by a number of Western countries in relation to the Russian economy, the costs they generate and the opportunities for building a new model of economic growth. As the main results of the study, it is necessary to highlight the systematization of sanctions and restrictions imposed on Russia in 2022; identified trends in the formation of key macroeconomic parameters of the Russian economy, revealing the features of labor market development, GDP formation, investment and business activity, etc.; systematization of risks and prospects of economic growth, including the projection of theoretical models of economic dynamics (IS-LM, AD-AS) on the received estimates; identification of the dependence of the national economy of the Russian Federation on the import of technologies and intermediate/final consumption goods, followed by justification and development of a model to stimulate the policy of import substitution within the framework of the activation of NTR.

Resource efficiency and pricing policy of industries the sustainable development context

In the article, the authors analyzed the theoretical foundations of sustainable economic growth based on the research of modern foreign and domestic scientists. It is proved that the economy of the linear type has exhausted itself due to the effect of scale. That is why, today, one of the foreground of research areas among leading domestic and foreign scientists is the concept of sustainable development which should be based on cyclical or circular economy principles. One of the directions of development is working out methods of products price formation taking into account resource-efficient strategies. The article presents price equilibrium scenarios developed by the authors, which were implemented in the oil and gas industry based on business activities for 2015-2020. These scenarios were developed by the authors using Leontiev’s cross-industry model, which explores how do these changes can impact the performance of resource use, based on changes in direct cost ratios, value added ratios and intermediate consumption ratios.

Factor Misallocation and Optimization in China’s Manufacturing Industry

Factor allocation has an important impact on production efficiency, and this study discusses factor misallocation and proposes an optimized method that could improve efficiency and reduce factor inputs. Under a multi-industry competitive equilibrium model, by introducing distortion tax that represents frictions on factor inputs (capital, labor, energy, and other intermediate consumption), we define factor price distortion indexes to measure factor misallocation and set the standardized comprehensive distortion index at the optimal value of one to obtain optimized allocation of each factor. Using actual and optimized inputs, we compute input-oriented efficiencies separately by employing a slack-based measurement data envelopment analysis (SBM-DEA). The superiority of the new allocation method is tested by comparing changes in efficiency and input redundancy before and after optimization. An empirical test based on China’s manufacturing sector during 1999–2016 shows that, under the optimized reallocation, on average, efficiency is improved by 43.40%, capital, labor, energy, and other intermediate consumption are reduced by 18.06%, 16.34%, 30.91%, and 31.24%, respectively, and the total carbon emission is reduced by 55.22% from 2000 to 2016. Our results imply that factor misallocation causes losses in efficiency and excessive input of factors, and factor allocation needs to be further optimized for sustainable development.

Borrowing into debt crises

Quantitative models of sovereign default predict that governments reduce borrowing during recessions to avoid debt crises. A prominent implication of this behavior is that the resulting interest rate spread volatility is counterfactually low. We propose that governments borrow into debt crises because of frictions in the adjustment of their expenditures. We develop a model of government good production, which uses public employment and intermediate consumption as inputs. The inputs have varying degrees of downward rigidity, which means that it is costly to reduce them. Facing an adverse income shock, the government borrows to smooth out the reduction in public employment, which results in increasing debt and higher spread. We quantify this rigidity using the OECD Government Accounts data and show that it explains about 70% of the missing bond spread volatility.