1993

9342

On the Fluctuations Induced by Majority Voting
Gregory W. Huffman
Abstract: In this paper a dynamic model is constructed in which labor and capital taxes are determined- endogenously through majority voting. The wealth distribution of the economy is shown to influence the voting behavior, and hence the equilibrium levels of the tax rates, which in turn affect the future distribution of wealth. It is shown that the economy exhibits a unique dynamic behavior. Because of the endogenously determined taxes, the asset prices, wealth distribution, and the tax rates can display persistent fluctuations, and even limit cycles, in reaction to exogenous disturbances, or even due to initial conditions. It is also shown that "tax smoothing" does not necessarily appear to naturally arise in such a model, as the economy can display extreme fluctuations in the endogenously determined tax rates.

9341

Are Net Discount Rates Stationary? Some Further Evidence
Joseph H. Haslag, Michael Nieswiadomy, and D. J. Slottje
Published as: Haslag, Joseph H., Michael Nieswiadomy and D.J. Slottje (1994), "Are Net Discount Rates Stationary? Some Further Evidence," The Journal of Risk and Insurance 61 (3): 513-518.
Abstract: Gamber and Sorensen provide evidence suggesting that the net discount ratio experienced a level shift in the mean between 1977 and 1981. If such a shift occurred, the nonlinearity in the data shows up as a failure to reject the null hypothesis that a unit root is present; that is, the series is I(1). In this reply, evidence is presented-the Phillips-Perron test and a univariate version of the Stock-Watson q-test-suggesting that the net discount ratio is stationary. Hence, the mean is constant. In addition, if one extends the analysis to include the 1989 through 1993 period, the net discount ratio appears to be reverting.

9340

A Survey of Measurement Biases in Price Indexes
Mark A. Wynne and Fiona Sigalla
Published as: Wynne, Mark A. and Fiona Sigalla (1996), "A Survey of Measurement Biases in Price Indexes," Journal of Economic Surveys 10 (1): 55-89.
Abstract: This paper reviews the literature on measurement error in the major US price indexes—the Consumer Price Index (CPI), the Producer Price Index (RPI), and the Gross Domestic Product (GDP) deflators. We take as our point of departure Triplett's, 1975, survey and focus on the studies of measurement error that have appeared since then. We review the problems of substitution bias, quality bias, new goods bias, and outlet substitution bias that are generally considered to be the main sources of error in price indexes. The bulk of the paper is devoted to problems in the CPI and PPI, as the GDP deflators tend to be based mainly on the components of these series. We find that there has been surprisingly little work on the problem of overall measurement error in any of these price indexes, and we conclude that there is very little scientific basis for the commonly accepted notion that measured inflation at 2 to 3 percent a year is consistent with price stability.

9339

Searching for a Stable M2-Demand Equation
Evan F. Koenig
Abstract: The Federal Reserve Board's error-correction model of M2 demand fails to explain much of the recent weakness in money growth. By slightly generalizing the Board model, however, its performance both prior to and during the recent episode of "missing money" can be substantially improved. The results suggest that weakness in M2 growth has been primarily due to a long-run trend toward more efficient use of M2 balances together with a normal response to a growing gap between long-term interest rates and M2 deposit rates.

9338

Exchange Rate Uncertainty and Economic Growth in Latin America
Darryl McLeod and John H. Welch

9337

Assessing the Economic Cost of Unilateral Oil Conservation
Stephen P.A. Brown and Hillard G. Huntington
Abstract: This article examines the costs of U.S. oil conservation policy by using parameters from five world oil models used in a recent Energy Modeling Forun study. Variation in the estimated cost of U.S. conservation across the models suggests that taxing oil consumption would better serve economic efficiency than government controls on oil consumption levels. Furthermore, the analysis shows that unilateral U.S. conservation lowers the world oil price and stimulates non-U.S. oil consumption. When this effect is taken into account, the estimated cost of achieving a given level of world oil conservation through unilateral U.S. action can be substantially greater than the cost of achieving the same level of U.S. oil conservation.

9336

Income Taxes as Reciprocal Tariffs
W. Michael Cox, David M. Gould, and Roy J. Ruffin
Abstract: In this paper we show that there is a formal equivalence between the theory of tariffs in international trade theory and the basic theory of income taxation in a simple neoclassical model that allows for household production. Many insights from international trade theory can thus illuminate important aspects of public finance. Income taxes, which are like international tariff wars, dramatically reduce specialization within an economy. Income taxes (tariffs) hurt low income people (small countries) more than high income people (large countries). As in tariff theory the costs of income taxes are small only if they succeed in rising revenue; thus it really hurts an economy to be on the downward portion of the tax revenue (Laffer) curve. Income taxes (tariffs) have more of a negative welfare impact the larger is the value of market income (trade) compared to total production (GDP) or, that is, the more heterogeneous the society.

9335

Problems of Testing Fiscal Solvency in High Inflation Economies: Evidence from Argentina, Brazil, and Mexico
John H. Welch
Abstract: Most cointegration tests of dynamic government solvency use a measure of seignorage that is significantly biased for high inflation. Using a more appropriate measure, cointegration tests indicate govemment solvency in Argentina, Brazil, and Mexico during the 1980s.

9334

The Inefficiency of Seigniorage from Required Reserves
Scott Freeman
Abstract: Most cointegration tests of dynamic government solvency use a measure of seignorage that is significantly biased for high inflation. Using a more appropriate measure, cointegration tests indicate govemment solvency in Argentina, Brazil, and Mexico during the 1980s.

9333

Wealth Effects, Heterogeneity and Dynamic Fiscal Policy
Zsolt Becsi
Abstract: This paper studies the dynamic effects official policies in a simple perfect foresight model with heterogeneous agents. To obtain an analytical solution, Long and Plosser's (1983) functional form assumptions are combined with heterogeneous wealth levels and consumption/leisure tastes. As a result, the aggregate consumption-leisure ratio depends on the covariance of wealth shares and taste parameters. Policy effects decompose into a "representative agent effect" as in Hall (1971) and Judd (1987) and a "distributional effect" through changes of this covariance. Depending on how the covariance changes, the two effects may have opposite signs. The distributional effect can dominate the representative agent effect even if wealth inequality changes little.

9332

Endogenous Growth and International Trade
Roy J. Ruffin
Published as: Ruffin, Roy J. (1994), "Endogenous Growth and International Trade," Review of International Economics 2 (1): 27-39.
Abstract: This paper clarifies and slightly generalizes the basic endogenous-growth model. I prove the basic theorems without the usual assumption that the distribution of knowledge around the world is irrelevant. Results are stated in terms of lemmas, theorems, and corollaries in order to bring out as clearly as possible the role of each assumption.

9331

The Credibility and Performance of Unilateral Target Zones: A Comparison of the Mexican and Chilean Cases
Raul A. Feliz and John H. Welch

9330

On the Existence of Nonoptimal Equilibria in Dynamic Stochastic Economies
Jeremy Greenwood and Gregory W. Huffman
Published as: Greenwood, Jeremy and Gregory W. Huffman (1995), "On the Existence of Nonoptimal Equilibria in Dynamic Stochastic Economies," Journal of Economic Theory 65 (2): 611-623.
Abstract: The question of the existence of the stationary equilibrium for distorted versions of the standard neo-classical growth model is addressed in this paper. The conditions presented guaranteeing the existence of nontrivial equilibrium for the class of economies under study are simple and intuitively appealing, while the existence proof developed is elementary. Examples are given illustrating that economies with distortional taxation, endogenous growth with externalities, and monopolistic competition can all fit into the framework provided.

9329

Retaliation, Liberalization, and Trade Wars: The Political Economy of Nonstrategic Trade Policy
David M. Gould and Graeme L. Woodbridge
Published as: Gould, David M. and Graeme L. Woodbridge (1998), "The Political Economy of Retaliation, Liberalization and Trade Wars," European Journal of Political Economy 14 (1): 115-137.
Abstract: In this paper, we examine the dynamic process behind protection, retaliation, and trade wars. Consistent with empirical evidence on the development of trade policies, we model policy decisions as an outcome of political contests within two trading nations, rather than as an outcome of a strategic game between two governments. Uncertainty about the incidence and success of retaliation yields a dynamic political equilibrium in which one country imposes a tariff that increases gradually over time. Eventually, the cost of the tariff to the other country's exporting interests induces retaliation. We show that depending on the characteristics of the markets in the two countries, retaliation may encourage liberalization or may cause a trade war.

9328

On the Optimality of Interest-Bearing Reserves in Economies of Overlapping Generations
Scott Freeman and Joseph Haslag
Published as: Freeman, Scott and Joseph Haslag (1996), "On the Optimality of Interest-Bearing Reserves in Economies of Overlapping Generations," European Journal of Political Economy 7 (3): 557-565.
Abstract: Paying interest on required reserves is considered in an overlapping generations model in which the return to capital dominates the return to fiat money. As Smith (1991) showed, financing interest on reserves benefits the initial old at the expense of future generations. We show that the transfer of wealth associated with interest on reserves can be offset by an accommodating open market purchase, so that the payment of interest on reserves is a Pareto improvement. We also show that paying interest on reserves improves welfare even when financed by distorting taxes on capital.

9327

Coal, Natural Gas and Oil Markets after World War II: What's Old, What's New?
Mine K. Yücel and Shengyi Guo

9326

Clearinghouse Banks and Banknote Over-issue
Scott Freeman
Published as: Freeman, Scott (1996), "Clearinghouse Banks and Banknote Over-issue," Journal of Monetary Economics 38 (1): 101-115.
Abstract: The paper presents a model of banks as clearinghouses of private debt where money is used as the means of payment. Implications of the model include: i) the private provision of banknotes or a discount window may be needed to avoid the insufficient debt clearing that results from an inflexible currency stock; and ii) an uncontrolled total money stock may result in a multiplicity of equilibria including an inflationary banknote over-issue.

9325

Growth and Equity with Endogenous Human Capital: Taiwan's Economic Miracle Revisited
Maw-Lin Lee, Ben-Chieh Liu, and Ping Wang
Published as: Lee, Maw-Lin, Ben-Chieh Liu and Ping Wang (1994), "Growth and Equity with Endogenous Human Capital: Taiwan's Economic Miracle Revisited," Southern Economic Journal 61 (2): 435-444.
Abstract: We adopt an endogenous growth model to reexamine the major determinants of economic growth, income distribution, and their dynamic interactions in a newly-industrialized country, Taiwan, 1964-1986. 3SLS estimations from a four-equation system indicate that human capital evolution was crucial in achieving Taiwan's economic miracle: the rapid human capital accumulation enlarged the labor income share, which, coupled with an increased use of progressive labor income taxes, led also to a more equitable distribution of income. This finding therefore supplements, in part, the Kuznets hypothesis in explaining the development processes in several newly industrialized economies in general and Taiwan in particular.

9324

A General Two-Sector Model of Endogenous Growth with Human and Physical Capital: Balanced Growth and Transitional Dynamics
Eric W. Bond, Ping Wang,and Chong K. Yip
Published as: Bond, Eric W., Ping Wang and Chong K. Yip (1996), "A General Two-Sector Model of Endogenous Growth with Human and Physical Capital: Balanced Growth and Transitional Dynamics," Journal of Economic Theory 68 (1): 149-173.
Abstract: We examine a two-sector endogenous growth model with general constant-return-to-scale production technologies governing the evolution of human and physical capital. We prove the existence, uniqueness, and saddle-path stability of the balanced growth equilibrium. A dual approach drawing on techniques from international trade theory is used to provide complete characterization of the transitional dynamics of consumption, goods and education outputs, human and physical capital inputs, and the relative price of human capital investment. We investigate the long-run effects of changes in time preference and factor taxation, and show the emergence of instability or indeterminacy when factor taxes are too distortionary.

9323

Retaliation, Liberalization, and Trade Wars: The Political Economy of Nonstrategic Trade Policy
David M. Gould and Graeme L. Woodbridge
Published as: Gould, David M. and Graeme L. Woodbridge (1998), "The Political Economy of Retaliation, Liberalization and Trade Wars," European Journal of Political Economy 14 (1): 115-137.
Abstract: In this paper, we examine the dynamic process behind protection, retaliation, and trade wars. Consistent with empirical evidence on the development of trade policies, we model policy decisions as an outcome of political contests within two trading nations, rather than as an outcome of a strategic game between two governments. Uncertainty about the incidence and success of retaliation yields a dynamic political equilibrium in which one country imposes a tariff that increases gradually over time. Eventually, the cost of the tariff to the other country's exporting interests induces retaliation. We show that depending on the characteristics of the markets in the two countries, retaliation may encourage liberalization or may cause a trade war.

9322

Recessions and Recoveries in Real Business Cycle Models: Do Real Business Cycle Models Generate Cyclical Behavior?
Nathan Balke and Mark A. Wynne
Published as: Balke, Nathan and Mark A. Wynne (1995), "Recessions and Recoveries in Real Business Cycle Models," Economic Inquiry 33 (4): 640-663.
Abstract: We evaluate the ability of a simple real business cycle model to generate business cycles in the classical NBER sense of the term, where recessions are periods of absolute declines in economic activity. We use the "phase" classification of Burns and Mitchell [1946] to determine the "shape" of the business cycle and to look for asymmetries between expansions and contractions. We show that such a model can generate business cycles of plausible duration and depth, but cannot match the actual "shape" of the business cycle. Nonlinear models, such as Friedman's [1993] “plucking” model may more closely match the observed shape.

9321

Should Bond Funds be Included in M2?
John V. Duca
Abstract: In the early 1990s, U.S. M2 growth has been weaker than estimated while bond mutual funds have experienced large inflows. This study assesses whether adding bond funds to M2 would yield a monetary aggregate that is more explainable using a standard error correction model of money. Results indicate that it is important to net out institutional and IRA/Keogh assets from bond funds (as is done for M2) and that adding such a bond fund series to M2 results in an aggregate that is somewhat more explainable than M2.

9320

The Output Effects of Government Consumption: A Note
Mark A. Wynne
Abstract: This paper presents a simplified analysis of the effects of government consumption in the context of the neoclassical growth model. The analysis complements the recent paper of Aiyagari, Christiano and Eichenbaum (1992), and provides a simpler demonstration of one of their main results that there is an analog to the Keynesian multiplier in such a model.

9319

Allocative Inefficiency and Local Government: Evidence Rejecting the Tiebout Hypothesis
Lori L. Taylor
Published as: Taylor, Lori L. (1995), "Allocative Inefficiency and Local Government," Journal of Urban Economics 37 (2): 201-211.
Abstract: . K. Brueckner (Journal of Public Economics, 19, 311-331, 1992; 11, 223-245, 1979) demonstrated that hedonic estimates of property values can be used to test for allocative efficiency in local Government. However, previous applications of his technique have incorporated data from multiple labor markets, introducing the possibility that governmental amenities might have been capitalized into wages differentials rather than property values. This analysis applies his approach to data from a single metropolitan area. The estimation suggests that local governments do not systematically overprovide any public services and may underprovide highway services.

9318

Why the Composite Index of Leading Indicators Doesn't Lead
Evan F. Koenig and Kenneth M. Emery
Published as: Koenig, Evan F. and Kenneth M. Emery (1994), "Why the Composite Index of Leading Indicators Does Not Lead," Contemporary Economic Policy (12) 1: 52-66.
Abstract: This paper assesses the real-time performance of the Commerce Department's composite index of leading indicators. The authors find that the composite leading index has failed to provide reliable advance warning of cyclical turning points. One reason for this failure is that the leading index's transition from expansion to contraction generally is not very sharp. Consequently, discerning real-time cyclical peaks in the index is difficult. Transitions from contraction to expansion on average are sharp. However, cyclical troughs in the leading index often precede cyclical troughs in the economy by only a few months. Thus, even timely recognition of troughs in the leading index fails to provide advance warning of turnarounds in the general level of economic activity.

9317

An Alternative Neo-Classical Growth Model with Closed-Form Decision Rules
Gregory W. Huffman
Published as: Huffman, Gregory W. (1993), "An Alternative Neo-Classical Growth Model with Closed-Form Decision Rules," Economics Letters 42 (1): 59-63.
Abstract: A version of a representative agent model is constructed in which closed-form decision rules are produced for rather general production technologies. Agents trade in capital, and the decision rules can be used to characterize the volume of this trade.

9316

Price Stabilization, Output Stabilization and Coordinated Monetary Policy Actions
Joseph H. Haslag
Abstract: This paper examines the effects that monetary policy actions have on prices and output when the monetary authority uses open market operations in conjunction with changes in reserve requirements. Both anecdotal and empirical evidence suggest that the Fed uses open market opertions to accommodate changes in the reserve requirements. In this paper, I derive separate accommodation schemes in which the monetary authority stabilizes prices and stabilizes output. The paper, thus, describes what the monetary authority can accomplish by coordinating their policy actions. Furthermore, the description may be helpful in terms of judging past monetary policy behavior.

9315

Output, Inflation, and Stabilization in a Small Open Economy: Evidence from Mexico
John H. Rogers and Ping Wang
Published as: Rogers, John H. and Ping Wang (1995), "Output, Inflation, and Stabilization in a Small Open Economy: Evidence from Mexico," Journal of Development Economics 46 (2): 271-293.
Abstract: We study the sources of fluctuation in output and inflation for Mexico, considering fiscal, real, money growth, exchange rate, and asset market disturbances, which are identified using an estimable equilibrium model incorporating important features of high-inflation economies. Changes in inflation are influenced by all shocks, while output growth is explained by real, fiscal, and asset shocks. The results lend strong support to the fiscal view of inflation, and to a lesser degree support the balance of payments view. We also find that higher inflation and higher budget deficits cause each other to spiral upward.

9314

Technological Unemployment
W. Michael Cox

9313

Default Risk, Dollarization, and Currency Substitution in Mexico
William Gruben and John Welch
Published as: Gruben, William and John Welch (1996), "Default Risk and Dollarization in Mexico," Journal of Money, Credit and Banking 28 (3, Part 1): 393-401.
Abstract: Most empirical evidence of dollarization in Latin America accords with the theoretical claim that increases in expected devaluation increase dollarization. But John H. Rogers (1992) finds that, between 1978 and 1982, relative holdings of Mexdollars were negatively related to expected devaluation. Expected returns on Mexdollar deposits, however, depended on the solvency of the banking system. The authors investigate these links. They find that banking system insolvency decreases Mexdollar deposit demand and increases peso deposit demand. Once these effects are controlled for, Mexdollar demand increases with expected devaluation, even between 1978 and 1982.

9312

Borrowing Constraints, Household Debt, and Racial Discrimination in Loan Markets
John V. Duca and Stuart Rosenthal
Published as: Duca, John V. and Stuart Rosenthal (1993), "Borrowing Constraints, Household Debt, and Racial Discrimination in Loan Markets," Journal of Financial Intermediation 3 (1): 77-103.
Abstract: Two-step selection methods are applied to the 1983 Survey of Consumer Finances to examine the extent to which borrowing constraints restrict household access to debt and the manner in which lenders vary debt limits across borrowers. Results indicate that 30% of young families are credit constrained, and that roughly half of these families would hold at least $12,000 (1982 dollars) more debt if borrowing constraints were relaxed. Debt limits increase with income and wealth, and are relaxed for families with a good credit history. In addition, minorities face tighter debt limits and are more likely to be credit constrained than white families.

9311

Real Effects of Money and Welfare Costs of Inflation in an Endogenously Growing Economy with Transactions Costs
Ping Wang and Chong K. Yip
Abstract: This paper studies the real effects of anticipated inflation in a monetary endogenous growth nodel where money is introduced via a transactions cost technology. Through a reduction in real balances per unit of consumption, an increase in the money growth rate raises transaction time and lowers the endogenous labor-augmenting technical progress, thus suppressing the growth rate of the econony. The main driving force of this non-superneutral result is that money affects the engine of growth directly. Quantitatively, the adverse non-superneutral effect on econonlc growth is unsubstantial, but the welfare loss of anticipated inflation is not negligible.

9310

Does It Matter How Monetary Policy Is Implemented?
Joseph H. Haslag and Scott Hein
Published as: Haslag, Joseph H. and Scott Hein (1995), "Does It Matter How Monetary Policy Is Implemented," Journal of Monetary Economics 35 (2): 359-386.
Abstract: In the U.S., existing monetary base measures add an adjustment factor for changes in reserve requirement ratios to high powered money. Implicitly, the monetary base assumes that the economic effects of changes in reserve requirements are identical to those due to changes in high-powered money. Theory, however, does not generally support the prediction that the two policy tools will have the same economic effects. Structural VARs are estimated to compare the short-run paths of inflation and output growth under two different types of policy shocks. In doing so, this analysis gives one a measure of the costs associated with this implicit equivalence assumption. The evidence is consistent with the hypothesis that the Federal Reserve at least partially offsets reserve requirement changes with open market operations and the hypothesis that dynamic explanations of macroeconomic variables are improved by separating reserve requirement changes from other monetary policy moves.

9309

The Algebra of Price Stability
Nathan S. Balke and Kenneth M. Emery
Published as: Balke, Nathan S. and Kenneth M. Emery (1994), "The Algebra of Price Stability," Journal of Macroeconomics 16 (1): 77-97.
Abstract: In this paper, we propose two definitions of price stability that encompass the interpretations of price stability found in the economic literature. To determine the conditions under which monetary policy can achieve price stability, we examine several well-known classes of monetary rules including the targeting of monetary aggregates, nominal GNP, prices, and interest rates. In addition, we use a linear rational expectations model to explore the degree to which price stability constrains short-term stabilization policy. We find that price stability does not necessarily prevent the monetary authority from pursuing short-term stabilization goals.

9308

On Quantity Theory Restrictions and the Signalling Value of the Money Multiplier
Joseph Haslag
Abstract: This paper examines the issue of which money measure is most closely related to prices. The contribution of this paper lies in examining the appropriate interpretation of results indicating that the money multiplier is siqnificantly related to inflation. The analysis forwarded in this paper provides some indirect evidence as to what interpretation — either broader categories of indebtedness are related to prices or the money multiplier signals shocks to the demand for base money — is appropriate. The evidence bears on the predictions posited in Sargent and Wallace's (1982) paper in which base money is the money measure most highly correlated with prices when quantity theory restrictions are present.

9307

Money Demand and Relative Prices During Episodes of Hyperinflation
Ellis W. Tallman and Ping Wang
Published as: Tallman, Ellis W. and Ping Wang (1995), "Money Demand and the Relative Price of Capital Goods in Hyperinflation," Journal of Monetary Economics 36 (2): 375-404.
Abstract: We investigate dynamic interactions between relative price movements and money demand behaviors during hyperinflations, viewing relative price changes as resulting primarily from real disturbances. We develop a general equilibrium model with heterogeneous consumption and capital goods to illustrate how monetary shocks may produce real effects through the relative price channel. This motivates the design of long-run restrictions to identify a structural vector autoregression, employing data from the post-WWI Germany and the post-WWII Chinese hyperinflationary episodes. The empirical results support the contention that both real and nominal shocks have important effects on the relative price and money demand during hyperinflations.

9306

Constructing an Alternative Measure of Changes in Reserve Requirement Ratios
Joseph H. Haslag and Scott E. Hein

9305

Money, Output, and Income Velocity
Theodore Palivos and Ping Wang
Published as: Palivos, Theodore and Ping Wang (1995), "Money, Output, and Income Velocity," Applied Economics 27 (11): 1113-1125.
Abstract: This paper attempts to assess empirically the contribution of three structural shocks — monetary, institutional (financial and fiscal), and technological — to output and velocity fluctuations in the national bank era and the post-1973 period. To identify these shocks we impose only long–run restrictions, derived from a monetary growth model. We find that higher money growth increases (decreases) velocity in the first (second) period, depending crucially on the resulting changes in the transactions frequency. Credit–enhancing financial or expansionary fiscal shocks have a permanent positive effect on velocity and a himp–shaped effect on output, whereas technological shocks cause velocity to decrease in the short run and output to move to a permanently higher level.

9304

The Political Economy of School Reform
S. Grosskopf, K. Hayes, L. Taylor, and W. Weber
Abstract: Despite ali the rhetoric about school reform, there are few signs of substantive change. One source of the delay in changing the system may be opposition by interest groups that do not expect to gain from reform. The authors use distance function methodology to simulate deregulation of urban school districts in Texas and thereby identify the probable winners and losers of educational reform. The simulation indicates that parents and students in school districts that are poor and have a relatively high proportion of minority students have little to gain from deregulation because they are already using their inputs more efficiently than wealthier school districts with fewer minority students. Furthermore, the potential gains from deregulation increase as property wealth and expenditures per student increase. The simulation also indicates that many education professionals are extracting rents (in terms of excess employment) from the current system, and that deregulation and incentives for increased efficiency would lead nany school districts to substitute teacher aides for teachers, administrators, and professional staff.

9303

A General Two Sector Model of Endogenous Growth with Human and Physical Capital
Eric Bond, Ping Wang, and Chong K. Yip
Published as: Bond, Eric W., Ping Wang and Chong K. Yip (1996), "A General Two-Sector Model of Endogenous Growth with Human and Physical Capital: Balanced Growth and Transitional Dynamics," Journal of Economic Theory 68 (1): 149-173.
Abstract: We examine a two-sector endogenous growth model with general constant-return-to-scale production technologies governing the evolution of human and physical capital. We prove the existence, uniqueness, and saddle-path stability of the balanced growth equilibrium. A dual approach drawing on techniques from international trade theory is used to provide complete characterization of the transitional dynamics of consumption, goods and education outputs, human and physical capital inputs, and the relative price of human capital investment. We investigate the long-run effects of changes in time preference and factor taxation, and show the emergence of instability or indeterminacy when factor taxes are too distortionary.

9302

The New Face of Latin America: Financial Flows, Markets, and Institutions in the 1990s
John Welch
Published as: Welch, John (1993), "The New Face of Latin America: Financial Flows, Markets, and Institutions in the 1990s," Journal of Latin American Studies 25 (1): 1-24.
Abstract: The gains and difficulties Latin American countries face from financial market development and liberalisation have received much attention in current economic literature. Nevertheless, significant issues have received little or no attention, even though the success of these efforts depends upon them. The purpose of this article is to explore the benefits from open and developed — two words that are not necessarily synonymous — financial and capital markets in Latin America and possible important obstacles which will be faced in the remainder of the 1990s.

9301

Human Capital Externalities, Trade, and Economic Growth
David Gould and Roy J. Ruffin
Abstract: Human capital, because of its special role in innovative activity and technological progress, has formed the bedrock of the new theories of endogenous growth. Human capital, however, not only serves as an engine of growth, but also as a productive input along with labor and physical capital. In this study, we distinguish between these two roles of human capital and find evidence of the importance of both. We also find that the relationship between growth and the external effects of human capital vary according to trade regime. When literacy rates are relatively high, open economies grow about 0.65 to 1.75 percentage points more than closed economies.