Neoclassical Theory Research Articles

The Minimum Wage as a Tool for Racial Economic Justice

Participants at the 1963 civil rights march on Washington supported minimum wage laws using arguments of economic justice. Many economists at the time argued against the minimum wage based on efficiency concerns rooted in neoclassical theory. After decades of debate, where does the economics profession stand on the justice and efficiency claims of the minimum wage? We discuss the evolution of the minimum wage literature in economics, focusing on racial justice. We highlight recent empirical papers that overwhelmingly support the position of the marchers on Washington while at the same time showing little to no loss of economic efficiency. (JEL D63, J15, J22, J31, J38, K31)

The Empirical Measurement and Determinants of Intra-Industry Trade for a Developing Country

The analysis computed the trends and determinants of India’s bilateral composite IIT as well as sectoral IIT with select trade partners. In particular, Grubel - Lloyd Corrected (Grubel and Lloyd, 1975; Aquino, 1997) indices have been used for the empirical analysis involving bilateral aggregate and bilateral sectoral IIT respectively. The empirical results provide evidence for a major part of actual IIT to be explained outside the framework of the neoclassical theories of international trade. The major findings are as follows. First, India’s aggregate as well as sectoral IITs in general displayed a positive time trend with the ROW. This signifies that the country’s two-way manufacturing trade in general and its IPN participation with partners in particular has considerably deepened over the period. Second, the regression analysis indicates that several demand-related (e.g., income difference), supply-oriented (e.g., technology difference), friction-led (e.g., distance, trade facilitation, contiguity, language) and sector-specific (e.g., average labour productivity, vertical product differentiation) factors display a strong statistical relationship with IIT as expected. Third, the empirical analysis strongly underlines the importance of trade facilitation measures in enhancing IIT, which needs to be viewed in a wider perspective. As presence of poor connectivity framework raises transport costs and discourage trade in parts and components (i.e., the relatively low value-added items) significantly, the two-way trade (i.e., IIT) in a wide range of manufacturing product segment can be affected. Fourth, as diversification of product baskets (i.e., product differentiation) happens to be a significant driver of IIT, there is a strong case to focus on technological innovation through research and development (R&D), for maintaining intra-sectoral manufacturing trade flows. 

Ronald H. Coase, Friedrich A. Hayek, and the Institutional Structure of Production and Exchange

AbstractThe essay investigates the parallels and connections between Friedrich A. Hayek and Ronald H. Coase. It emphasizes the shared context at the London School of Economics (LSE) in the 1930s within which both authors reacted, in particular the role of the so-called LSE tradition on opportunity cost. We focus attention on the same pattern of institutional reaction to the formal similarity proposition of neoclassical general equilibrium theory exposed in both authors. In “The Nature of the Firm” (1937a), Coase’s pioneer transaction cost argument was decisively constructed and shaped by the controversy around the possibility of rational economic calculation under socialism. This debate was crucial to Hayek’s fundamental reformulation of neoclassical equilibrium analysis in terms of a social coordination problem in “Economics and Knowledge” (1937). In a parallel manner, although focused on the microstructure of production, Coase (1937a) was reacting to the standard general equilibrium theory and its postulates. Traditional microeconomic theory could not explain the decisions to make within the firm or to buy in the market, nor the many hybrid organizational arrangements that lie between the centralized firm and the decentralized market process. In “The Problem of Social Cost” (1960), Coase develops his argument advanced in 1937 to the welfare corollaries of the general equilibrium framework encapsulated in the first and second welfare theorems. In this case, the connection was made through the influential ideas of his long-LSE friend, Abba P. Lerner. Finally, the essay explores Hayek’s instrumental role in the intellectual and institutional foundations of the Law and Economics movement at the University of Chicago.

Do Statist Ideology and State-Sponsored Nationalism Intervene in Pakistan’s China Policy? A Neoclassical Realist Perspective

In its relations with China from 1972 to 2018, Pakistan has endeavored to extract and mobilize its domestic resources while conducting a foreign policy of balancing under systemic pressures and power disparities. Statist ideology and state-sponsored nationalism have been both useful and influential in this process. While there is abundant literature on ideology, nationalism, and Pakistan’s foreign policy using theoretical foundations, a neoclassical realist approach has yet to be made. This paper seeks guidance from neoclassical realist theory as explored in the works of Taliaferro (2006) and Schweller (2004). We argue that Pakistan’s ties with China have been facilitated domestically by an Islamic statist ideology and anti-Indian state-sponsored nationalism. These both have facilitated internal balancing through the extraction and mobilization of natural resources and emulation while externally they justified Pakistan’s balancing efforts aimed at countering a perceived Indian threat. The nation’s military and civil elites therefore agree on the necessity of closer ties with China.

Elite Consensus and Balancing: A Neoclassical Realist Perspective on Pakistan–China Ties

Classical realism believes in the primacy of systemic pressures as independent variable and suggests states to choose appropriate balancing policies as dependent variable. However, this complex causal chain requires the role of intervening variables, which the neoclassical realist theory offers. This article employs the neoclassical realist perspective to the unexplored case of Pakistan–China ties from 1972 to 2018 presenting a causal chain that explains elite consensus as the intervening variable between the perceived Indian threat and the preference of Pakistani decision-makers for strong Pakistan–China bond. This article presents the theoretical perspective, perceived Indian threat, the balancing options available to Pakistan and elite typology. We conclude by presenting the contribution of elite consensus in Pakistan’s choice for forging closer ties with China as an appropriate balancing strategy against the perceived Indian threat specifically and external threats in general.

Accessing the Usefulness of Neoclassical Economics Theory

This research shows a review of the Neoclassical Economics theory with a view of discovering or disputing the claim – where possible – that the neoclassical theory is dead and worthless. This paper plagiarizes from the outcome of previous and relevant study conducted on this same proposition and uncovers the existence of a huge controversy in the literature – both old and new – of the effectiveness of the neoclassical economics. Given the lack of consensus on the neoclassical economics debate, the author of this manuscript then shows that while the Neoclassical theory is may not be dead; its effectiveness and efficiency given its entire underlying hypothesis that may be well within doubt. Furthermore the paper found that requesting the death of a model can only occur when the primary assumptions or hypothesis of that model is conducted and still the model fails to deliver valuable results. In the case of the neoclassical economics model; the only criticism can be that the fundamental assumptions nor hypothesis cannot embrace in a real world situation. Therefore declarations of its death cannot stand firm in an authorized argument – its efficiency maybe; but certainly not death. The author does however try to provide a brief assessment of the various extensions and alternatives of the neoclassical model that have evolved in a bid to augment its supposed failings

The African Continental Free Trade Area and informal cross border trade: implications on socio-economic development in Africa

ABSTRACTThe setting up by the African Union of the African Continental Free Trade Area (AfCFTA), which should govern matters relating to, inter alia, trade in goods and services, investment, trade facilitation, intellectual property rights, and competition policy is a step in the right direction. However, this paper argues that the limited inclusion of informal economy actors such as informal cross border traders (ICBTs) appears to undermine the potential of the AfCFTA as the architecture for inclusive socio-economic development in Africa. The paper advances the need for African countries to craft policies which are sensitive to and respond to the circumstances of ordinary people on the ground and not a wholesale application of policies such as neoclassical integration theory, the outcome of which deserts ordinary people. Such policies must be transcendental to the extent of being informed by views from the ground, which does not appear to be the case with the AfCFTA on the score of ICBTs.

Sustainable development in China? A nonparametric decomposition of economic growth

China has undergone significant deviations from the command economy established in 1949, achieving unprecedented success in sustaining high growth. Consequently, numerous scholars have devoted their attention to studying China's economic development. In this study, we contribute to this literature using a new technique to examine China's economic development. This technique utilizes nonparametric directional distance function in the framework of neoclassical growth theory. It avoids the assumptions imposed on parametric production functions that are often short of practical justifications. Our analysis shows that capital and energy inputs account for 75.7% and 20.8% of China's GDP growth during 1985–2020. These figures characterize a capital-driven growth model that is unlikely to be sustainable by conventional wisdom. However, our empirical evidence, obtained through an interactive-fixed effects model, indicates that it is not unreasonable to say that growth in China is government-led rather than capital-driven; the former could be sustained by desirable reforms under strong national leadership while the latter is not.

An empirical analysis of economic growth in countries exposed to coastal risks: Implications for their ecosystems

Using a novel database on countries exposed to coastal risks (CR), this paper estimates an augmented neoclassical growth model that encompasses eight other new growth models. To account for uncertainty related to the number of models and choice of growth determinant proxies, we use a Bayesian averaging of classical estimates (BACE) approach. A preliminary examination of the data reveals that a country that faces coastal risks is likely to be a former British colony characterized by a common law legal framework, a parliamentary political system, a high degree of international trade openness, little language and ethnic fractionalization, a low level of public sector corruption, and a high rate of fertility. The BACE-based model selection procedure shows that, in CR countries, the growth determinant proxies typically used in the neoclassical, macroeconomic policy, natural resources, and institutions theories are significantly correlated with growth. These results suggest two implications related to these countries’ coastal ecosystems. First, because they are heavily dependent on natural resources and have high fertility rates, these countries might seek short-term economic gains at the expense of deterioration in their ecosystems. Second, these countries’ good institutions and low levels of ethnic division might be conducive to sustainable management of these ecosystems.

The confrontation between European secularisation and Russian Orthodox fundamentalism: Main causes and consequences for modern society

The relevance of the subject under study lies in the problem of church-state relations in the struggle for power at the national and international levels. In this regard, the purpose of this study was to investigate the negative and positive impact of religious factors on the international environment and within individual states. To fulfil this purpose, phenomenological and hermeneutical research methods were used. The findings of this study suggest that the fundamentalist movement emerged as an alternative to modernity, which was widespread in European countries in the early 20th century; the origin of religious fundamentalism from traditional conservatism was proved, and modernist and postmodernist forms of Orthodox fundamentalism were covered. It was proved that Orthodox fundamentalism, as a utopian ideology, emerged due to the transformation of theories of science about the system of views and ideas regarding the existence of the world. It was proved that one of the reasons for the popularisation of Orthodox fundamentalism was the unification of the Orthodox in the post-Soviet space. Fundamentalist ideas were used as a political and ideological technology to mobilise social groups to support secular and church authorities. The neoclassical theory of secularism, which argued that religion would gradually disappear from people’s lives with the development of science and technology, was highlighted. It was proved that spirituality and divinity for Europeans is a rational choice of religion. A comparative characterisation of the specifics of European secularisation and Russian Orthodox fundamentalism in the modern world was carried out. The study found that in European countries believers assess the religious influence on their lives as low, while believers in countries where Russian Orthodox fundamentalism is professed believe that the influence of religion on their lives is high. The practical significance of the study is to create conditions for internal reflection and reproduction of one’s own religious identity separately from the state. In addition, the study of religious processes demonstrated in this paper can be used in the comparative analysis of other religious ideologies between which there is a confrontation

Globalization, foreign direct investment, and child mortality: A cross-national analysis of less-developed countries, 1990–2019

Social scientists have long debated the impacts of foreign investment for developing countries. However, the relationship between foreign investment and child mortality is still heavily contested among comparative international social scientists despite decades of research. I bring new cross-national evidence to bear on this contested debate, where the competing arguments of neoclassical economic theory and foreign investment dependency theory are evaluated using fixed effects, dynamic, and two-stage least squares panel regression models. I find that inward foreign direct investment stock exerts a beneficial effect on child mortality in less-developed countries, net of relevant statistical controls. These results are also robust to a variety of regression diagnostics and alternative choices of econometric specification. These findings contribute to a growing body of literature finding that traditional sociological measures of foreign direct investment—in some cases—generate beneficial effects in less-developed countries.

When opposites attract—Impact of cultural distance and polarised success in the future of economic unions

Aggregations between nations may be originated from many reasons: military, political, religious and especially economic. Basing ourselves on neoclassical economic theory and identity theory (i.e. local versus global), the aim of this research is to focus on international economic unions. Thus, we consider as economic polarizations, to investigate the levels of cultural homogeneity within the single polarization, to verify: i) whether in the single aggregation there is, in addition to economic harmonization, also cultural homogeneity and ii), if cultural homogeneity goes hand in hand with the economic success of the aggregation, with the help of Hofstede Model on 5 international economic unions. We also determine the crucial weight of cultural heterogeneity on the success of economic unions. The results also offer relevant theoretical and managerial implications for future aggregations.

An Economic Analysis of Anti-Profiteering Law in Malaysia

In Malaysia, the Price Control and Anti-Profiteering Act 2011 contains both price control and anti-profiteering provisions. A profiteering offence is committed when a seller makes an ‘unreasonably high profit’ which is further defined as exceeding a mark-up percentage or margin percentage from a baseline profit on the first day of the financial year or calendar year of business. Neoclassical microeconomic theory teaches that regulatory control over prices is inefficient and harms consumers more than does any good. Violations of the anti-profiteering provision are challenging to detect as prices may increase due to increased costs. Contrary to the rationale for anti-gouging laws, allowing businesses to increase prices due to a shortage of supply may save consumers from unnecessary searches for the illusive low-price controlled products and further incentivise sellers to seek alternative sources of supply. In a competitive market, market discipline by consumers is sufficient to deter businesses from raising prices beyond competitive market prices. Competition law and mandatory price marking law should be used to address uncompetitive market conditions. Perhaps, for these reasons, there are no more new reported cases of enforcement of the anti-profiteering law in the news since 2016 despite having a reported appeal decision in 2020.

Trade-Productivity-Institutional Nexus

Main task of this survey of literature to discuss satisfactory theoretical explanation over two questions: one is does trade policy cause productivity? Two is does institutional set-up of economic governance cause productivity? By taking Indonesian experiences, this paper tries to seed the light of international trade and productivity, based on the neoclassical and new institutional economic theory. In order to address main task of this survey, it elaborates recent literatures that emphasizes on two strands. First part comes from trade policy which focuses to the strategic importance of firms, as main source of research data and main point of discussion. Besides that, this paper also reviews political institutions play their role in shaping the rule of games, broadly defined as institution and how the interest group influences trade policy, to protect special interest pro-free trade or pro-protectionist measures. Second part sheds light from the productivity literatures that cover the firm level and sector level productivity. Finally, this essay offers conclusions to sum up main argument of the paper.

Manufacturing Export Performance, Public Capital and Proximity to the Technological Frontier of Countries*

The paper seeks to understand the pattern of manufacturing exports in 35 developed and developing countries and 99 industrial sectors over the period 1999-2013 using a methodological approach that relies on propositions of the neoclassical trade theory. Next to the impact of traditional factors such as the endowment of public capital, we look at the importance of accounting for public capital heterogeneity, by distinguishing countries based on their proximity to the technology frontier. We consider public capital as a non-rival factor, which has a property of “creation of atmosphere” in a model that treats factor intensity as a mechanism of industrial development. We use the system GMM technique to estimate the elasticities of public capital. Our results show that public capital plays a differentiated role in the capacity to export industrial goods depending on whether countries are far or close to the technological frontier.

Gyrokinetic simulations of neoclassical electron transport and bootstrap current generation in tokamak plasmas in the TRIMEG code

For magnetic confinement fusion in tokamak plasmas, some of the limitations to the particle and energy confinement times are caused by turbulence and collisions between particles in toroidal geometry, which determine the “anomalous” and the neoclassical transport, respectively. Neoclassical effects are also responsible for the intrinsically generated bootstrap current, and only the self-consistent modeling of neoclassical and turbulent processes can ultimately give accurate predictive results. In this work, we focus on the implementation of neoclassical physics in the gyrokinetic code TRIMEG, which is a TRIangular MEsh-based Gyrokinetic code that can handle both the closed and open field line geometries of a divertor tokamak. We report on the implementation of a simplified Lorentz collision operator in TRIMEG. For comparison with neoclassical theory, the calculation of flux surface averages is necessary. Since the code uses an unstructured mesh, a procedure for calculating the flux surface averages of particle and energy fluxes and the bootstrap current is derived without relying on the poloidal coordinate, which is useful also for other simulations in unstructured meshes. With the newly implemented collision operator, we study electron transport and bootstrap current generation in a plasma with a finite density gradient but uniform temperature for various simplified and realistic geometries. Compared with neoclassical theory, good agreement is obtained for the large aspect ratio case regarding the particle and energy fluxes as well as the bootstrap current. However, some discrepancies are observed at moderate aspect ratio and for a case with the realistic geometry of the ASDEX Upgrade tokamak. These deviations can be explained by different treatments and approximations in theory and simulation. In this paper, we demonstrate the capability to calculate the electron transport and bootstrap current generation in TRIMEG, which will allow for the self-consistent inclusion of neoclassical effects in gyrokinetic simulations in the future.

Employment Intensity of Economic Growth in Southern Europe: Evidence from Multidimensional Panel Data

This paper examines the employment intensity of economic growth in Southern Europe during the so-called “post-crisis” recovery years. A labor demand estimation model based on multidimensional panel data from 2010 to 2019 was utilized. Findings from our macroeconomic analysis of eight different industries refute the predictions of neoclassical labor theory in the region. The results further indicate the presence of jobless growth in the areas of overall employment, fulltime employment, and overall employees. They also signal that economic growth may have created job opportunities in part-time and youth employment, and among temporary employees, rather than full-time jobs. The paper links these findings to particular characteristics of the regional labor market, discusses their implications for understanding unemployment and formulates recommendations for future policy.

Analysis of Turkey’s Foreign Policy Towards the 1956 Suez Crisis from the Perspective of Neoclassical Realist Theory

Bu çalışma Türkiye’nin 1956 Süveyş krizi konusunda yürüttüğü dış politikayı neoklasik realist teori çerçevesinde analiz etmektedir. Bu doğrultuda, bir bağımlı değişken olarak “1956 Süveyş krizine yönelik Türk dış politikasını” analiz etmek için, çalışmanın metodolojisi gereği, “uluslararası sistemsel faktörler” bir bağımsız değişken ve “yerel faktörler” bir ara değişken olarak ele alınmaktadır. Çalışmada 1956 Süveyş krizine yönelik Türk dış politikası yapımı sürecinde belirleyici/sınırlandırıcı bir etkiye sahip olduğu öne sürülen uluslararası sistemin yapısı, Soğuk Savaş döneminde süper güçler arasındaki ideolojik karşıtlık ve nükleer rekabeti ifade eden iki kutupluluk ile ilişkilendirilerek açıklanmaktadır. “Caydırıcı askeri kapasite ihtiyacı”, “Türk dış politikası geleneğindeki Batıcılık eğilimi”, “ekonomik teşvik gereksinimi” ve “karar alıcıların bölgesel liderlik çabası” gibi çeşitli faktörler ise uluslararası sistemin belirleyici/sınırlandırıcı etkilerini yorumlayıcı nitelikteki yerel filtreler olarak ele alınmaktadır. İki farklı analiz düzeyinin kullanıldığı bu çalışmada hem 1956 Süveyş krizine yönelik Türk dış politikasının sistemsel etkilere dayanan “sürekliliği” hem de yerel dinamiklerden kaynaklanan “değişim eğilimi” ortaya konulmaktadır.

Neoliberalism, Strong State and Democracy

The article serves to clarify the concept of the "strong state" in neoliberal thinking and its relationship to democracy. It is argued that the move away from neoclassical market theory has paved the way for the specifically neoliberal conception of the state and democracy. As a result, neoliberalism has at least a strained, sometimes even hostile, relationship with democracy when it comes to ensuring the efficiency and stability of the capitalist system. The article analyses Carl Schmitt's "authoritarian liberalism" and Friedrich A. Hayek's "dethronement of politics", the latter leading to various concepts of governance by "experts" at national, regional, and global levels who act as non-political "well-meaning dictators". The practical implications of this idea are then illustrated by the architecture of the European Union and its central bank. Finally, the neoliberal position on the state and democracy is confronted by Keynesianism, which is considered the archenemy of neoliberals.

The economic growth effects of foreign direct investment in developing countries, 1980–2019

The foreign investment and economic growth relationship in developing countries have attracted considerable attention in comparative international sociology. However, despite nearly fifty years of research, this relationship is still not well understood. I bring new cross-national evidence to bear upon this issue with analyses that improve upon previous research on the foreign direct investment and economic growth nexus in developing countries. I analyze cross-national longitudinal data using panel regression models with fixed effects and instrumental variables to account for possible endogeneity. Foreign capital penetration appears to be positively associated with economic growth in developing countries, which supports the expectations of neoclassical economic theory. Rather than critiquing any particular theoretical paradigm, this research hopefully serves to help reinvigorate scholarly discussion amongst comparative international social scientists regarding the economic growth effects of foreign direct investment in developing countries.