Neoclassical Framework Research Articles

Public health events and economic growth in a neoclassical framework

Public health events (PHEs) have emerged as significant threats to human life, health, and economic growth. PHEs, such as COVID-19, have prompted a reevaluation for enhanced regular prevention and control (RPC). In this study, we focus on the core concept of prevention and control intensity (PCI), and establish a neoclassical economic growth model from the long-term and macro perspective to balance life protection and economic growth. The model construct the mechanism of PCI on economic growth through population dynamics and capital accumulation under the backdrop of RPC for PHEs. We find the conditions for PCI when the economy achieves steady state, and provides an algorithm establishing the optimal strategy that maximises per capita disposable income based on the optimal PCI and consumption. Simulation result quantifies an inverted U-shaped relationship between PCI and capital per capita, output per capita and consumption per capita in the steady state. The model suggests that, given the PHEs of inducing potential unemployment shock, it is worthwhile to combine the implementation of moderate PCI with coordinated policies of income distribution.

An Austrian Critique of Using Carbon Taxes to Manage Climate Catastrophe Risk

Revising and extending the neoclassical rationale for pollution taxes, some economists have attempted to justify a carbon emissions tax as a way for the state to manage systemic climate risks for society. Deploying an approach to risk management commonly seen in financial markets, they depict a tax on carbon-based energy as a hedge against climate catastrophe. The Austrian school of economics has illuminated the conceptual defects of the neoclassical framework around welfare economics, market failure, negative externalities, and socialist economic planning generally. The risk management rationale for carbon taxes suffers from the same calculation and knowledge problems that encumber other state-centric schemes. This article critiques the proposed use of carbon taxes as climate risk insurance on the grounds that systemic risks are not insurable. Moreover, future climate costs cannot be calculated due to their subjectivity, the passage of time, and the absence of demonstrated preferences regarding property values. Both climate risk models and carbon tax cost-benefit models employ flawed assumptions and utility functions. This article proposes a strategic shrinking of the state’s role in economic affairs and a return to sound money as superior ways to mitigate a society’s climate disaster risks.

The Nature of Labor’s Vulnerability to Exploitation

I identify a hitherto unrecognized contribution of labor to production stemming from an innate sense of psychological ownership of the fruits of one’s labor. This is rooted in the consciousness accompanying all human activities and is distinct from legal ownership. Consciousness is inalienable; it cannot be contracted on. Labor’s psychological ownership generates quasi-rents, which can be appropriated by capitalist firms with market power. Monopsony power, now empirically seen to be ubiquitous in labor markets, has more serious efficiency and equity consequences than recognized. In a neoclassical framework, I also show why labor is uniquely vulnerable to exploitation—reconciling it with Marxian views. If capitalist owners are taken to be unaware of their workers’ psychological ownership, this exploitation occurs even in competitive labor markets. JEL Classification: P12, J22, J3, J42, D41

Matrixed CDR grafting: A neoclassical framework for antibody humanization and developability

Discovery and optimization of a biotherapeutic monoclonal antibody requires a careful balance of target engagement and physicochemical developability properties. To take full advantage of the sequence diversity provided by different antibody discovery platforms, a rapid and reliable process for humanization of antibodies from nonhuman sources is required. Canonically, maximizing homology of the human variable region (V-region) to the original germline was believed to result in preservation of binding, often without much consideration for inherent molecular properties. We expand on this approach by grafting the complementary determining regions (CDRs) of a mouse anti-LAG3 antibody into an extensive matrix of human variable heavy chain (VH) and variable light chain (VL) framework regions with substantially broader sequence homology to assess the impact on complementary determining region-framework compatibility through progressive evaluation of expression, affinity, biophysical developability, and function. Specific VH and VL framework sequences were associated with major expression and purification phenotypes. Greater VL sequence conservation was correlated with retained or improved affinity. Analysis of grafts that bound the target demonstrated that initial developability criteria were significantly impacted by VH, but not VL. In contrast, cell binding and functional characteristics were significantly impacted by VL, but not VH. Principal component analysis of all factors identified multiple grafts that exhibited more favorable antibody properties, notably with nonoptimal sequence conservation. Overall, this study demonstrates that modern throughput systems enable a more thorough, customizable, and systematic analysis of graft-framework combinations, resulting in humanized antibodies with improved global properties that may progress through development more quickly and with a greater probability of success.

Spatial growth and convergence in Indian agriculture

AbstractThe economic growth convergence between advanced nations and the rest of the world has been found to reduce global income inequality. However, less is known about convergence within nations, especially in developing economies with substantial regional heterogeneities. Using the neoclassical framework, this study tests for farm income convergence in India, where agriculture employs over 200 million workers. Household farm income is estimated in 599 districts using three pan‐India situation assessment surveys (2003, 2013, and 2019). The conditional convergence model—augmented to capture spatial spillovers—shows farm incomes are converging across Indian districts but at slower rates in recent years and among farmers in the left‐tail of the income distribution. Irrigation infrastructure, crop diversification, and distance to the urban market explain farm income growth, and hence, spatial income disparities. Returns to these factors are high for middle‐income farmers than for the rich or poor. Spatial spillovers, likely from technological change, captured in residuals also had a positive impact on farm incomes. Results remain unchanged when farm income was replaced by its value added. Connecting the poorest to the markets, strengthening infrastructure and promoting diversification for the middle‐income groups, and nudging high‐income farmers toward value chains could help equitable economic development.

Technology Adoption under Negative External Effects

Abstract This paper shows that, in the presence of negative production external effects (e.g., waste, pollution), market-driven technology adoption is socially inefficient. Two distinct market structures are considered within the neoclassical framework: perfect competition and monopoly. In both cases, there is a range of cost structures under which firms prefer the adoption of inferior technologies. A number of policy instruments are considered in terms of their welfare enhancing properties.

Bottom-Up Convergence? Explaining Uneven Income Growth in the New South

abstract: The southeastern United States has experienced rapid economic and population growth relative to the stagnation and decline of established manufacturing regions. The Rust Belt-Sun Belt literature has relied on a range of factors to explain southern growth (e.g., low wages, regional amenities, technological advances, market proximity, and the Civil Rights Movement). More recent work has cast growth in terms of bottom-up convergence and providing a conceptual framework consistent with the region's experience as the recipient of northern capital seeking a low-cost region. Within the region, uneven development remains. While the neoclassical framework can explain regional capital inflows, questions remain regarding how local and spatial contexts influence the trajectories of individual southern economies. To address these issues, this paper utilizes a conditional convergence model to explain southeastern county-level growth from 1990 to 2018 to understand how the balance of neoclassical processes and localized factors have affected the region's growth. Results highlight a transition away from low-cost manufacturing toward an increased importance of new, knowledge economy sectors. While new economy sectors are identified as significant drivers, results also suggest future challenges for sustained growth due to a suburbanized growth pattern, weak spillover effects, and a lack of urbanization economies.

Transmission of housing bubbles among industrial sectors

We find that housing bubbles are accompanied by sluggish demand in non-housing-related sectors both currently in China and previously in Japan. To explain this, we construct a theory to model the differential impact of housing bubbles on housing-related and non-housing-related industrial sectors by combining the neoclassical framework of general equilibrium with the input–output table. We also find that the housing bubble increases investments and output prices in housing-related sectors (crowding-in effect) while simultaneously reducing investments and output prices in non-housing-related sectors (crowding-out effect). Our theoretical findings could explain the negatively significant correlation between housing or land prices and the Consumer Price Index (CPI) during China and Japan’s bubble economy eras. Hence, this paper provides new insights into why and how the housing bubble distorts the economy differentially, for different industrial sectors.

A spatial theory of urban segregation

AbstractWe provide a competitive equilibrium theory of urban segregation in a linear city. Households demand consumption and housing along the city and are exposed to neighborhood externalities. We show that equilibria that are robust to small coalitional deviations are segregated. Our results explain urban segregation in a standard neoclassical framework and shed new light on the difficulties faced by authorities to integrate cities.

Public Health Events and Economic Growth in a Neoclassical Framework

Public Health Events and Economic Growth in a Neoclassical Framework

Impact of Public and Private Investment on Economic Growth in Nigeria

The contention in the literature is the relative contribution of private and public investment on economic growth and whether the relationship is linear or non-linear. In addition, there is the issue of whether the impact of investment on economic growth changes depending on public and private investment Purpose. The study examines the relationship between investment (public and private) and economic growth in Nigeria over the period 1970-2016. Design/Methodology/Approach. The study employs Markov regime-switching approach developed by Hamilton (1989, 1990). Specifically, a multivariate dynamic Markov-switching model is estimated using maximum likelihood estimation techniques. The study employs annual time-series sourced from Central Bank of Nigeria, Statistical Bulletin and World Bank, World Development Indicator. Findings/Implications. The results show that the relationship between investment and economic growth is non-linear. Also, both public and private investments have a significant positive impact on economic growth. However, private investment contributes more to economic growth than public investment during the period of expansion. The reverse is the case during the period of contraction. The results support the basic neoclassical framework, with emphasis on savings and investment for analyzing long-term growth performance. Also, it is crucial to make a distinction between the impact of investment (public and private) on growth in two stages of growth. Originality. Government needs to be innovative by spending more during period of slump as more public investment will be required to pump prime the economy for increased private investment.

Institutional Quality and Labour Productivity: Evidence from the Economic Community of West African States Countries

This study investigates how institutional quality influences labor productivity in West Africa. Thus, a panel of 15 Economic Community of West African States (ECOWAS) member states over the period 2005-2017 was considered. The panel was analyzed for the primary, secondary, and tertiary sectors. For the empirical analysis, a panel fixed effect regression was conducted based on a neoclassical framework. Results show that institutional quality improvement is overall associated with higher levels of productivity, regardless of the sector. Some specificities were also observed at the sectoral levels. Furthermore, the econometric analysis reconfirms a positive effect of investment and human capital on productivity. Therefore, improving institutional quality would be helpful for productivity growth in this sub-region. This event could enable ECOWAS member states to reap greater benefits from the implementation of the African Continental Free Trade Area agreement.

Employment Support and COVID-19: Is Working Time Reduction the Right Tool?

The main objectives of this study are to take into account the effects of COVID-19 on labor market functioning, and to evaluate the effects of policies regarding working time reduction, in terms of both containing the spread of infection and economic activity. Accordingly, we describe a macroeconomic model wherein we test the effects of reducing working hours in the Keynesian unemployment framework, which comprises a fixed prices and wages regime, and a consumption demand that is dependent on salaries and autonomous demand components. Moreover, we also describe a neoclassical unemployment framework, wherein the labor market is only governed by dynamic demand forces. Theoretical results show that, according to the epidemiological phase, a reduction in working hours may be a good policy for containing the virus and improving employment in the Keynesian framework when established conditions are maintained. In the neoclassical framework, a work sharing policy will fail if some conditions do not occur, and it could cause an increase in the spread of the virus when a reduction of epidemic containment measures occurs. Employment will increase when the pandemic ends. A numerical simulation confirms that a reduction in working hours could reduce virus diffusion, but only under established, constrained parameters in both frameworks.

Profit- and loss-sharing partnership: the case of the two-tier mudharaba in Islamic banking

PurposeThe purpose of this study is to understand the profit-sharing structure at equilibrium of the two-tier mudharaba contract in a pure Islamic banking system and then in a dual banking system.Design/methodology/approachThis paper aims to better understand the profit-sharing structure at the equilibrium of the two-tier mudharaba. It first assumes a purely Islamic banking system and then introduces a risk-free asset to simulate trade-off opportunities in a dual banking system.FindingsFirst, by using a model inspired from a neoclassical framework and assuming that the Islamic banks are the only channel for financing the economy, the results suggest that the profit-sharing structure built up by the three parties, the bank, the depositor and the entrepreneur, at the time of signing the Mudharaba contract has to be drawn up in the way that, at the ex post, the remuneration of each necessary production factor, capital and labor, should equal its marginal productivity. Second, the authors relax the hypothesis of a purely Islamic financial system and introduced a risk-free asset in favor of the depositor. Thereby, the authors are able to apprehend the financial balance of the two-tier mudharaba contract by simulating the trade-offs that can occur in a dual banking system. The findings suggest that the profit-sharing structure is not the same whether we are at the level of bank assets (bank–entrepreneur relationship) or liabilities (bank–depositor relationship). For the asset side, an increase (respectively decrease) in the expected profit of the mudharaba implies a decrease (respectively increase) in the share of the bank, whereas an increase (respectively decrease) in the return of the risk-free asset and/or the risk underlying the project implies an increase (respectively decrease) of the bank’s share in the expected profit.Originality/valueTheoretical work that has studied the determinants of the ratio of profit sharing between capitalists and entrepreneurs in the context of mudharaba has omitted that this contract should be assessed at both asset and liability sides of the bank. To overcome this theoretical gap, this paper aims to better understand the structure of profit sharing at the equilibrium of the two-tier mudharaba, while taking into account the contractual specificities between the different stakeholders.

Clarifications on democracy and economic planning: an engagement with Robin Hahnel

Models developed by Robin Hahnel and Pat Devine both claim to rest on democratic planning in an ecosocialist society. Whereas Hahnel depends on a neoclassical framework (commensurability of goods, assumption of homo economics, reliance on marginal costs-benefits), Devine relies on knowledge in different forms as articulated at the individual, institutional, and societal levels by the social owners at each level and incorporates a transformatory dynamic through which particular interests are negotiated into a socially constructed general interest. This paper is part of the “Democratic Economic Planning” theme.

On Accumulation of the Budget Deficit: Spirit of MMT Through Mathematical Analysis

It is said that public finance must be balanced at least in the long run. According to the so-called MMT (Modern Money Theory or Modern Monetary Theory) approach, however, this is not true. It is often pointed out that MMT lacks the mathematical analysis used in ordinary economic discussions. The purpose of this paper is to present a brief theoretical and mathematical basis to the backbone of the MMT argument, while maintaining the basics of the neoclassical microeconomic framework, such as maximizing consumer utility through utility functions and budget constraints, and equilibrium between demand and supply of goods under perfect competition with constant returns to scale technology. Using a simple overlapping generations (OLG) model that includes economic growth due to technological progress, we present the following results. The budget deficit equals the increase in people's savings, and the accumulated budget deficit equals people's savings. The budget deficit is a cause and the savings is a consequence, not the other way around. Deficits are created by the government, which determines income, which determines savings. Deficits create savings, not savings finance deficits. Reducing the budget deficit will reduce savings, income, and consumption.

Spatial Convergence of Carbon Productivity: Theoretical Analysis and Chinese Experience.

Based on the neoclassical framework, we propose the convergence hypothesis of carbon productivity under sustainable growth and prove the different effects of knowledge spillover and technology diffusion on convergence. The convergence hypothesis is tested using China’s provincial spatial dynamic panel data from 1995 to 2019. The results show that China’s provincial carbon productivity has conditional convergence and club convergence characteristics. The convergence speed of dynamic panel regression estimation is greater than that of cross-sectional regression. The convergence rate of dynamic spatial panel regression estimation is faster depending on the spatial spillover difference between the two technologies. In the early stage, the provincial spatial dependence of China’s carbon productivity is mainly knowledge spillover, and the convergence rate is lower than that of the closed economy. Over the past decade, the spatial spillover, dominated by low-carbon technology diffusion, has become the dominant force. The convergence rate is significantly faster than that of a non-spatial-dependent economy. In addition, the mechanism test found that the development of energy efficiency dominates the spatial transfer of technology, so the overall convergence of carbon productivity in China mainly comes from the apparent convergence of energy efficiency in provinces and cities. Our conclusion provides a new reference for the emission reduction actions of countries worldwide because the spatial knowledge spillover carried by capital flows is not conducive to the pursuit of carbon productivity in less developed regions. On the contrary, the dissemination and diffusion of low-carbon technologies can significantly reduce carbon equivalent input in the production process, accelerating the pursuit of developing countries or regions.

Introduction to the symposium on institutional analysis, market processes, and interdisciplinary social science

Abstract Heterodox economic approaches such as Austrian economics and market process analysis rely upon a less formalistic approach to rationality than neoclassical frameworks. We argue such looser formalism provides a unique opportunity for interdisciplinary engagement to investigating and understanding social institutions, outcomes and complex phenomenon. This introduction briefly summarizes the contents of this invited issue as effective examples of such interdisciplinarity.

Boosting Taxes for Boasting About Houses? Status Concerns in the Housing Market

There is empirical evidence that households use residential houses as status goods. Their visibility qualifies them as an excellent signaling device of the relative income and wealth position, in contrast to less visible financial assets. To this end we introduce a residential housing sector and status concerns for housing into a neoclassical framework. In the model, households derive utility from the absolute amount of housing and from comparing their stock of housing to a reference stock, which is composed of the current or past level of housing of their peers. We analyze how status concerns affect household behavior and find that they increase housing demand and labor supply. Furthermore, we find that status concerns exert a negative externality and elevate housing to inefficiently high levels. We derive a (state contingent) optimal tax that establishes the first-best allocation along the transition path and at the steady state. Calibrating the model to the US we quantify the optimal tax on residential housing to 1.8%. Introducing the optimal tax entails a considerable welfare gain of 0.29% measured in consumption equivalents.

In the ‘Shadow’ of the EU: Perceptions of China and Strategic Considerations in Poland and Ukraine

The European Union (EU) has continuously extended its presence in the post-communist neighbourhood through the offer of membership and/or closer political and economic association. Meanwhile, the growing competition among various powers in the region brings a potential of new divisions in Europe, as Ukraine’s crisis demonstrates. Furthermore, while the presence of such powers as the United States (US) or Russia is somewhat traditional for the region, China’s growing economic engagement with post-communist states reveals its potential to become an equally important actor. This article examines this potential of China on the examples of Poland and Ukraine, as both countries share geographic and historical similarities but differ in their Europeanization progress. We believe that this convergence with the EU may affect the way Ukraine and Poland perceive and accordingly engage with China and test this hypothesis within the neoclassical realist framework. We find that the perceptions of China in the two countries affect the intensity of their engagement with China, especially when the EU is concerned. Moreover, the effectiveness of the relationship-building with China, in line with neoclassical realism, depends on the extent to which their political decisions are guided by strategic considerations as opposed to perceptions of international affairs. This is true for the dynamics of China’s relations with the two countries not only in the long run but also in light of the most recent developments in the international arena. perceptions, China, the EU, Poland, Ukraine, Russia