Neoclassical Model Research Articles

Keynes and the drunkard under the lamp post: Making sense of Palley

In a recent article, Tom Palley begins his critique of Keynesian economics with the wellknown story of a drunkard who, when searching for his lost keys, looks not in the darkness of the nearby lawn where he misplaced them, but instead under the light cone of a lamp post because, when asked, he replies that’s where the light is. This story serves as a metaphor for the field of economics attempting to understand the workings of the capitalist economy solely through the lens of Keynesian economics. However, this endeavor is ultimately futile as comprehending capitalism requires a different analytical approach: acknowledging social conflict as an essential component of capitalism’s nature better addressed by Kaleckian macroeconomics. We attempt to illustrate that Palley is accurate in emphasizing the paradigmatic differences and even incommensurabilities between Keynes’ monetary production paradigm and the Marxian-Kaleckian social conflict paradigm. This suggests that any classification under the umbrella term “post-Keynesianism” is misleading. However, Palley is mistaken in his assertion that this distinction aligns Keynes’ economics with neoclassical (mainstream) economics, as the acceptance or rejection of social conflict is not the only fault line in terms of ontology. There are other ontological divisions that can exist. Or, to use our metaphor, the lamp post can be moved to different areas of the lawn, indicating different ontological perspectives.

Sustainability scientists’ critique of neoclassical economics

Abstract Non-technical summary Neoclassical economics (NCE) theory and neoliberal economics practice together form one of the principal driving forces of environmental destruction and social injustice. We critically examine ten key hypotheses that form the foundations of NCE, and four other claims. Each fails to satisfy one or more of the basic requirements of scientific practice. Hence, NCE is fundamentally flawed, is irrational in the common meaning of the word, and should not be used as a guide for government policies. Because NCE is socially constructed, it can be replaced with an interdisciplinary conceptual framework that is compatible with ecological sustainability and social justice. Technical summary Neoclassical economics (NCE) is widely regarded as providing theoretical justification for neoliberal notions such as ‘governments should minimize regulation and spending, and hence leave major socioeconomic and environmental decisions to the market’. A large body of literature finds that NCE is largely responsible for environmental destruction and social inequality. As NCE is claimed to be a science and has appropriated terminology (without the content) from physics, we examine critically its basic hypotheses and four other claims from a viewpoint of natural scientists and an ecological economist, each a sustainability researcher. This paper defines NCE in two ways: as a theoretical structure for economics based on (1) the hypotheses of methodological individualism, methodological instrumentalism and methodological equilibration, and (2) the three hypotheses named above together with seven other common hypotheses of NCE. We find that each hypothesis and claim fails to satisfy one or more basic requirements of scientific practice such as empirical confirmation, underlying credible or empirical assumptions, consistency with Earth system science, and internal consistency. Sensitivity analysis is rare and ability to predict is lacking. Therefore, we recommend that neoclassical microeconomics be reformed and neoclassical macroeconomics be abandoned and replaced with a transdisciplinary field such as social ecological economics. Social media summary Conventional economics, a driver of environmental damage and social inequality, fails examination by sustainability scientists.

Classical and neoclassical economic theory: Fundamentals of regulation for the agricultural sector

The work is devoted to the complex issues of the influence of the theoretical assumptions of classical and neoclassical economic theory on the sustainable development of the agricultural sector. The purpose of the work is to substantiate the scientific theoretical foundations of classical and neoclassical economic theory as the basis for regulating the agricultural sector. The methodological basis of the study is an integrated approach, in which the approaches of classical and neoclassical economic theory to the regulation of the agricultural sector are considered. The scientific foundations of classical economic theory are studied from the point of view of three concepts: “economic man”, “natural order”, and equilibrium economics. It is shown that from the point of view of the economic theory classics, the market appears to be a self-regulating mechanism that leads to maximum efficiency in production and allocation of goods, the concept: the state is a “night watchman”. The scientific foundations of neoclassical economic theory are investigated from two major methodological bases: the marginalism principle and descriptive models of economic behavior of people. The automatic mechanism of the best use of market resources is shown and, according to neoclassical theories, the competitive market, without government intervention, is able to lead to the best equilibrium results. Recommendations are given for improving market relations to ensure the economic growth of the agricultural sector in terms of intracompany and intersectoral competition.

Behavioural Economics: Appropriate Framework for Studying the Life Insurance Market

This article rests on establishing a unique standpoint that life insurance products (unlike other financial assets) are purchased for protection, not as an investment for return. This aims at identifying the most suitable theoretical framework to study the life insurance market and to suggest appropriate tools of analysis. Economic and financial theories starting from neo-classical economics, going up to behavioural economics (BE) have been studied vis-à-vis life insurance markets. A distinction has been drawn between BE and behavioural finance (BF). Accordingly, neo-classical economics, standard theory of finance and BF have been found to be inappropriate to understand life insurance as a market. The main theoretical edifice of BE, with a blend of transaction-cost approach and information theoretic approach, is argued to be the right theoretical framework to study the life insurance market, given the idiosyncrasies involved. A novel attempt has been made to create a ‘construct’ to depict how the BE framework is most relevant. It is hypothesised that bounded rationality is adversely influenced by emotions, search costs, intermediaries and socio-psychological influences, to embed behavioural biases and heuristics into life insurance purchase decisions. Combinedly, this leads to demand and supply distortions that create an incomplete market. To test this framework, it has been suggested that Heuristic z-test; Murthy’s Index of Rank Dominance (MIrd & MRird); and logistic regression, be harnessed. These tools would help in measuring market inefficiency and underperformance. Policymakers, the regulator, insurers and buyers alike would benefit from a better understanding of the market.

Человеческий капитал региона: ретроспективный анализ концептуальных положений теории

The article substantiates the relevance of the concept of human capital in economic science, taking into account the transformation of economic processes in the planning and implementation of regional policy of sustainable and balanced development of socio-economic systems (within the framework of some strategic and program-target doctrinal documents). The paper retrospectively analyzes the evolution of the formation and development of key concepts (three stages are conditionally distinguished: from inception to modernity), which determined the «hard core» of the theory of human capital within the framework of classical and neoclassical economic theory. Based on the analysis of fundamental and modern research works, the main postulates of the role of human capital in the development of regions were identified and structured. In general, human capital is one of the key factors determining the success of economic development of the region. It represents the accumulated knowledge, skills and abilities possessed by people living in a particular region. This resource is strategically important and affects various spheres of the economy, including production, innovation and competitiveness.

Testing classical and neo-classical models on banks in Africa

Testing classical and neo-classical models on banks in Africa

Testing classical and neo-classical models on banks in Africa

Testing classical and neo-classical models on banks in Africa

THE THEORY OF WELFARE ECONOMICS AND TAX REGULATIONS: AN EMPIRICAL EXAMPLE OF PIGOUVIAN TAXES

The aim of this paper is to present the impact of the economic theories and empirical studies on the contemporary tax laws and regulations in numerous jurisdictions, based on a case study of the economic concept of Pigouvian taxes which stems from the neoclassical theory of welfare economics. The author presents the theoretical concept of the Pigouvian taxation and its econometric verification and tries to demonstrate that the empirical examples of the implementation of such fiscal instruments have proved to be effective based on the quantitative assessment. However, serious deficiencies in the methodology of empirical studies on this phenomenon can also be identified, which affects the possibility of assessing the potential practical implications of introducing such mechanisms. Nevertheless, as the author demonstrates by referring to the World Bank data, the discussed concept significantly influences contemporary tax law in many countries and is a source of inspiration for many tax jurisdictions. The analysis carried out in this paper indicates that not every implementation and post-hoc evaluation of economic theory implemented into tax systems can be effectively studied with the use of economic analysis of law; when analysing regulations introduced to influence the behaviour of individuals, it is also necessary to take into account the research in other disciplines, for example psychology and sociology, even if the inspiration for the regulations in question was well-grounded and developed in economic theories. For this reason, it can be argued that economic analysis of law, also referred to as law and economics, although a valuable cognitive approach, should never be the only basis of analysis, even if a regulation in question has a strictly economic origin.

Resistive instabilities in general toroidal plasmas with neoclassical bootstrap currents

In this work, linear neoclassical resistive instabilities are investigated in general toroidal plasmas using standard perturbation theory. Using a neoclassical fluid model, we derive the singular layer equations modified by bootstrap currents and also obtain the dispersion relation of the resistive interchange mode and the neoclassical tearing mode (NTM), respectively. Additionally, we determine the stability criteria DRbs and Δcbs for bootstrap current-modified resistive modes. The resistive interchange mode is stable when DRbs<0 and the NTM is stable when Δ′<Δcbs, where Δ′ is the stability index of the tearing mode. It is found that, in tokamak plasmas with a positive magnetic shear, bootstrap currents have a destabilizing effect on resistive interchange modes, which not only increases the value of the stability criterion (DRbs) but also enhances the growth rate. In addition, bootstrap currents have a stabilizing effect on the growth rate of the NTM in a low growth rate region. However, bootstrap currents can also decrease the critical value Δcbs. In plasmas with negative magnetic shear, the opposite holds. Furthermore, the coupling effect between bootstrap currents and Pfirsch–Schlüter currents via magnetic field curvature is determined for the first time in this work. This coupling always has a stabilizing influence on the resistive interchange mode and can increase the value of Δcbs. The coupling is also independent of the sign of the magnetic shear and can be enhanced in low-aspect-ratio tokamaks (such as spherical tokamaks) or in plasma regions with low magnetic shear (as used in ITER hybrid scenarios). Our results are valid for low-n resistive instabilities in toroidal plasmas with arbitrary aspect ratios and β, where n is the toroidal mode number and β represents the ratio of the plasma pressure to the toroidal magnetic pressure. Overall, this investigation has broad parametric applications and deepens our understanding of the physical mechanisms underlying the influence of neoclassical effects on resistive instabilities.

Effect of Renewable Energy Consumption on Economic Growth in Kenya

Despite Kenya having a massive generating capacity of renewable energy, its consumption levels remain significantly low. The low supply levels have driven the costs of production upwards leading to high energy prices thereby slowing economic activity occasioned by inadequate investments in the energy sector. However, there are conflicting results on the existing link between economic growth and renewable energy consumption in the developing world. This study purposed to establish the effect of renewable energy consumption on economic growth in Kenya. This study was anchored on the Neo-Classical Solow-Swan growth model. This study adopted the correlational research design and used time series data for the period 1980-2017 to determine the nature of the existing linkages. Capital and labour were incorporated as control variables. The granger causality results established the existence of a bidirectional and feedback relationship existing between renewable energy consumption and economic growth in Kenya. Vector Error Correction Model results showed that a unit increase in total renewable energy consumption led to a gross domestic product rise by 13,340 million dollars in the second year. Therefore, both the granger causality and Vector Error Correction Model (VECM) tests advocate for investment in the consumption of renewable energy if desired levels of economic growth are to be attained. Therefore, investment in modern energy generation and supply technologies and demonopolisation of the generation and supply of renewable energies to encourage private investments are recommended as the necessary measures to increase the level of renewable energy consumption, which in turn accelerates the rate of economic growth. Interventions such as tax exemptions on renewable energy equipment may encourage more uptake and consumption of renewable energies. This study may assist the government in the formulation of sustainable energy policies. This study may assist the government in the formulation of sound and sustainable energy policies for industrial and economic growth.

An epidemic and economic growth. A medium-term perspective

The described model of economic growth under conditions of an epidemic does not directly refer to the social and economic situation in the years 2020 and 2021, i.e. to the COVID-19 pandemic. It is aimed to identify the consequences of any epidemic leading to severe social losses (high percentages of the infected and dead, limited interpersonal contacts as a result of lockdown, a lowered level of general individual and social well-being) and economic losses (a fall in production as a result of the collapse of aggregate demand and a reduction in the supply capacity of the economy, and consequently a decreased rate of capital accumulation). The described epidemiological-economic model combines the SIR epidemiological model from 1927 (with its modification proposed in 2020 by Bärwolff) and the neoclassical growth model proposed by Solow in 1956. The authors expanded the concept by lockdown restrictions with various levels of their severity, considering specific rules for their implementation, and by guidelines for scenario analyses of changes in the value of social and economic activity index, in the value of aggregate production, in the capital stock accumulated in the economy and in social utility. The effect of an epidemic on medium-term economic growth was also considered, for various levels of economic development (measured by the distance of input capital stock from that formed in a long-term equilibrium in the Solow model). The principal conclusions drawn from the discussion are listed below. First, the introduction of the same restrictions imposed on social and economic activity throughout the territory of a country poses a considerable risk of error in assuming a uniform spread of the epidemic. Second, a rapid introduction of lockdown measures has a stronger effect on accumulated social and economic activity than a continual process of gradual imposing and lifting restrictions on that activity. Third, a scenario of a rapidly imposed severe lockdown has the most drastic consequences for the economy, causing both the sharpest drop in production, the longest time of remaining on the path of relatively lowest growth, and the most dramatic expected accumulated decrease in production. Similar conclusions are drawn as to the changes in social utility.

Сценарная оценка макроэкономических эффектов прогрессивного налогообложения в России

The purpose of the study is to assess the impact of alternative options of progressive taxation on Russia’s macroeconomic performance. For quantitative assessments, a neoclassical general equilibrium model with heterogeneous households subject to idiosyncratic income shocks was used. Three groups of scenarios were analyzed, setting a threshold progressive tax scale with thresholds of 30, 50, and 70 thousand rubles, under which state income tax revenues (1) grow, (2) remain unchanged, and (3) decline. The maximum personal income tax rate in the analyzed scenarios was 25%. Steady states and transitions were calculated for the scenarios. According to the quantitative estimates, the first reform leads to a loss of 0.3% to 1.3% of GDP in the long run, depending on the assumed rates and threshold. Despite the increase in lump-sum transfers, aggregate household consumption decreases by 0.5–1.7% in all cases. The second reform leads to a loss of 0.2% to 0.6% of GDP in the long run. The third reform leads to insignificant fluctuations of GDP within 0.1%: GDP increases at the threshold of 30 thousand rubles and decreases at other thresholds. The scale of inequality reduction, as measured by the Gini coefficient, increases with an increase in the top tax rate. However, as the threshold increases, the depth of the Gini index reduction first increases and then decreases. In the short run, there is upward pressure on wages and prices. This is because a decrease in labor supply with unchanged capital in the short run leads to an increase in wage rates (a shift along the labor demand curve), and an increase in wage rates means an increase in marginal costs for firms, leading to higher prices.

Myopic households on a stable path: the neoclassical growth model with rule-based expectations

Myopic households on a stable path: the neoclassical growth model with rule-based expectations

The effect of health on economic growth: A production function approach for Turkey

Until the Augmented Neo-Classical Growth Model developed by Mankiw, Romer and Weil, growth theories have ignored the human capital factor. This study aims to investigate the impact of health on economic growth in Turkey between 1960-2014 through a production function that includes human capital. Health and education are included in the production function as the two main components of human capital. The Multivariate Auto-Regressive Distributed Lag (ARDL) Bounds Test was conducted for empirical analysis. As a result, a significant long-term cointegration relationship was found between the variables. The results also indicate that a 1% increase in life expectancy at birth leads to a 0.67% increase in GDP, a 1% increase in the number of students per teacher in vocational and technical secondary education leads to a 0.21% decrease in GDP, and a 1% increase in the number of students per teacher in tertiary education leads to a 0.21% increase in GDP.

A Generic Neoclassical Growth Model with Endogenous Technical Change and Endogenous Labor Participation

A Generic Neoclassical Growth Model with Endogenous Technical Change and Endogenous Labor Participation

INCENTIVISE HOUSEHOLDS TO ADOPT PROPER WASTE MANAGEMENT AND WATER CONSERVATION METHODS VIA BLOCKCHAIN TECHNOLOGY

Nobel Laureates, Richard Thaler and Cass R. Sunstein, in their Nobel Prize winning work, Nudge: Improving Decisions about Health, Wealth, and Happiness, introduced the idea that ‘governments can help people make better decisions while respecting their freedom of choice.’ This upended the neo-classical economic theory that believed that “people make rational economic decisions on the basis of complete Information.” 1 Drawing inspiration from the work of Nobel Laureate Richard Thaller, our plan is to nudge and incentivise households to adopt proper waste management and water conservation methods communities across India to choose sustainable sources of energy and be conscious of their resource consumption.

An Open Economy Neoclassical Model of Growth and Income Distribution

An Open Economy Neoclassical Model of Growth and Income Distribution

Political Enlightenment in the Context of the Soviet Identity Project Based on Materials of Altai Krai (1945–1955)

This article examines the communicative strategies of the formation of civic identity by the system of political education institutions in Altai in the ideological space of 1945–1955 based on regional materials. The authors employ the concept of constructing the phenomenon of Soviet society relevant to the modern neoclassical model of science. The source base consists of normative documents of the Central Committee and the Altai Krai Committee of the Communist Party of the Soviet Union, office materials of the propaganda and agitation bodies of the region from the funds of the State Archive of Altai Krai. The authors compare the reports of party committees with the information and analytical data of inspections of political and educational work in Altai. Materials of the All-Union and regional educational and instructional and methodical literature, and regional press were used to analyse discursive propaganda practices. Based on the theoretical and methodological approaches of social design and intellectual history, the article identifies the goals of creation, ideological and semantic motifs, symbolic components, and examples of normative behaviour spread among citizens. It is demonstrated that the production of standards of collective identification of the inhabitants of the region was based on the national-state narrative that rehabilitated the “Homeland” chronotope. The implementation of the all-Union project of social consolidation and support of the Soviet government in Altai Krai focused on the consistent inclusion of the official version of the past in the individual life experience by teaching political literacy, oral, and visual propaganda in schools and school clubs. A feature of the rear region was the construction, first of all, of identification samples of labour heroism. An important technology for involving the population in large-scale activities to restore the economic and socio-cultural potential of the USSR after the Great Patriotic War was the motivation of the feat as a mechanism for personal perpetuation in the memory of descendants.

Impact of Foreign Direct Investment on Economic Growth

Foreign direct investment (FDI) is a force of economic growth. FDI fills the gap between demand for capital and supply of capital that rise the productive investment and economic growth within the country. This paper aims to investigate the impact of FDI on economic growth of the country. Engel-Granger cointegration test is used by employing the time series data of 1995/96—2021/22 and error correction model. Neo-classical growth model is the main basis single equation model whereas real FDI is explanatory variable and GDP is the proxy for economic growth. Cointegration results confirms FDI makes the positive impact on economic growth in short-run as well as in long-run. The error correction term (0.67) indicates the disequilibria of GDP move towards the equilibrium at the speed of 65% in successive year. Therefore, this paper concludes to raise the FDI flows within the country. The Government should make the favorable environment — control money supply, direct remittance towards productive sector—for foreign investors which leads to rise economic growth within the country.

Comprehensive Review of the Literature on Human Capital in the Context of Economic Development

This work aims to explore the relationship between human capital and economic growth. The study looks at previous research on the connection between economic growth and human capital, analyses datasets from other studies, and draws some conclusions. The paper summarises articles on human capital with respect to (i) the new endogenous theory, (ii) the neo-classical growth model, (iii) the the economist growth production-function, (iv) the conceptual framework of economic growth theory, and (v) empirical evidence on the relationship and causal connection between human capital and economic growth. Assessing the corpus of research on human capital and economic growth will yield an extensive literature guide for creating short- and long-term developmental goals for any region, as well as for creating and carrying out policies.