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A Simple Model of Growth Slowdown

katsuyuki shibayama 120x120by Dr Katsuyuki Shibayama, University of Kent. Discussion paper KDPE 1813, November 2018.

Non-technical summary:

After the Great Recession around 2007-8, the U.K. has experienced the slowdown of the labour productivity; known as ’productivity puzzle’. Although it is widely recognized as the stagnation of the labour productivity, not surprisingly, it coincides with the flattening of the total factor productivity (TFP). Japan also has experienced a similar but much longer and deeper phenomenon after the bubble burst at the beginning of 1990s. Interestingly, both countries have experienced the growth slowdown after some financial turmoil. This paper aims to explain these growth slowdowns quantitatively in a reasonably realistic economic growth model.

The Effects of Risk and Ambiguity Aversion on Technology Adoption: Evidence from Aquaculture in Ghana

keynes collegeby Dr Christian Crentsil, Dr Adelina Gschwandtner and Dr Zaki Wahhaj, University of Kent. Discussion paper KDPE 1814, December 2018.

Non-technical summary:

Small-scale farmers in developing countries frequently make production decisions in a situation of uncertainty because of the prospect of weather-related shocks, crop failure, price fluctuations, etc. They are often compelled to make choices that reduce consumption risk at the cost of future expected profits. The adoption of productivity-enhancing technologies is a domain where these trade-offs can become particularly important. New technologies may be inherently more risky, or require additional investments that increase the risk exposure of farmers.

In this paper, we study how aversion to risk and ambiguity affects the adoption of new technologies by smallholder aquafarmers in Ghana where, over the years, the government and other development agencies have introduced improved technologies to enhance productivity and profitability in fish production.

Measured Productivity with Endogenous Markups and Economic Profits

anthony savagar 120x120by Dr Anthony Savagar, University of Kent. Discussion paper KDPE 1812, October 2018.

Non-technical summary:

A standard way to measure productivity is to take output growth and subtract input growth. Typically input growth is growth in capital and growth in labor weighted by their share in production. Whatever remains after subtracting is known as total factor productivity (TFP).

Under specific circumstances, this productivity measure also reflects underlying technology growth. This is important for economists because they struggle to measure underlying technology at an aggregate level, but it is a key variable to understand the behaviour of the economy.

However when we diverge from some basic assumptions, such as perfect competition, the TFP measure no longer reflects underlying technology. Therefore using our TFP measure to represent technology could lead to incorrect conclusions.

Endogenous Time-Varying Volatility and Emerging Market Business Cycles

jan philipp dueberby Jan-Philipp Dueber, University of Kent. Discussion paper KDPE 1811, August 2018.

Non-technical summary:

Time-varying volatility plays a crucial role in understanding business cycles in emerging market economies. There is now plentiful empirical evidence that volatility as measured by the standard deviation in macroeconomic data is time-varying and strongly countercyclical. Volatility increases during an economic recession and becomes lower during an economic boom.

In addition, we observe that standard open-economy macroeconomic models widely used for business cycle analysis fail to address the specific characteristics of many emerging market economies. In emerging market economies the net export to output ratio is typically negatively correlated with output i.e. it is countercyclical. However, standard models predict a near perfect positive correlation between the two. Besides that, emerging market economies show a higher fluctuation in consumption data than in data on output. Standard models, however, predict a higher fluctuation in output than consumption. These models are therefore overemphasizing the role of consumption smoothing.

Marriage, Work and Migration: The Role of Infrastructure Development and Gender Norms

keynes collegeby Amrit Amirapu, University of Kent; M Niaz Asadullah, University of Malay; and Zaki Wahhaj, University of Kent. Discussion paper KDPE 1810, September 2018.

Non-technical summary:

Large-scale rural-urban migration and a concurrent shift in employment from agriculture to manufacturing are two common features of countries in the process of economic development. Most of the past theoretical and empirical work in this area has focussed exclusively on understanding the migration and work patterns of men, so that relatively little is known about the potential for and drivers of female migration in developing economies. In traditional societies, prevailing gender norms can restrict female work participation and independent (i.e. without a family) migration, which suggests that women may be more limited than men in their ability to take advantage of economic opportunities in urban non-agricultural industries. On the other hand, it is well-documented that marriage is an important vehicle for female long-distance migration in traditional patriarchal societies, which suggests that the marriage market can provide – and itself be shaped by – growing economic opportunities for women in urban areas.

Population Aging, Government Policy and the Postwar Japanese Economy

keynes collegeby Keisuke Otsu, Keio University and University of Kent; and Katsuyuki Shibayama, University of Kent. Discussion paper KDPE 1809, July 2018.

Non-technical summary:

The Japanese economy has gone through important transitions during the postwar period such as the gradual slowdown in economic growth and the steady increase in the share of people aged above 65 years old among the adult population. In this paper we construct a parsimonious neoclassical growth model to quantitatively assess the impact of population aging and various government policies on output growth in Japan over the 1975-2015 period.

We consider several interactions between government policies and population aging. First, labor income tax has been rising steadily as the social security burden of the working age population has increased. Next, population aging tends to decrease employment and increase hours worked per worker in exchange; the workweek reduction policy introduced in the late 1980s is crucial to account for the decline in hours worked per worker during this period. Finally, the composition of fiscal spending has shifted from public investment to medical expenditure as the demand for health care services has risen.

The Missing Link: Monetary Policy and The Labor Share

miguel leon ledesma 120x120by Cristiano Cantore, University of Surrey; Filippo Ferroni, Federal Reserve Bank of Chicago; and Miguel A. León-Ledesma, University of Kent. Discussion paper KDPE 1808, June 2018.

Non-technical summary:

The mechanisms through which monetary policy (MP) affects inflation and real economic activity are central to macroeconomics. During the past few decades, New Keynesian models have constituted the dominant view of that transmission mechanism. In those models, MP affects inflation and real economic activity through the effect of interest rate changes on firms' mark-ups over marginal costs of production. Changes in mark-ups have a redistributive effect between labour and profits. The essence of that mechanism in its simplest version is as follows: when prices cannot adjust immediately, a monetary policy contraction that reduces demand implies that prices are too high relative to optimal because firms cannot lower prices to adjust to the fall in demand; since prices are above optimal, firms are charging a higher mark-up after the contractionary MP surprise. Since mark-ups rise, the labour share of income falls and the profit share (mark-ups) increases. Thus, we would expect that, after a MP contraction, cyclically, the labour share would fall.

Technology key to making food origin labels useful

iain fraser 120x120Any move to force food producers to provide information on the origin of ingredients in products will require the use of technology to help consumers use and benefit from this information, according to research.

In a new paper Professor Iain Fraser, from the University's School of Economics, examined the potential for mandatory country of origin labelling (COOL) information and how it could be best implemented.

Currently only a small number of products in the European Union legally require COOL information, such as for wine, eggs, beef and fruit and vegetables. For beef, this labelling must also differentiate between place of birth and where it is reared and slaughtered.

Effects of population ageing

keynes collegeThe School's Dr Katsuyuki Shibayama (Principal Investigator), Professor Miguel León-Ledesma, and Dr Keisuke Otsu (Keio University and Honorary Lecturer at Kent) have received funding from the Murata Foundation in Japan for 2 million Yen for a project entitled: A quantitative analysis of population ageing on economic growth and income inequality.

The project aims at understanding the consequences of population ageing for the joint dynamics of growth and income distribution. Its objective is to construct a model of overlapping generations where families choose the number of children and their level of education. The model will then be used to analyse the effect of different "anti-ageing" policies on growth and income distribution, namely: female employment support, child-care support, and higher education subsidies.

Dr Penélope Pacheco-López contributes to recent UNIDO publication

keynes collegeDr Penélope Pacheco-López, Associate Lecturer in Economics, has made a major contribution to a recent UNIDO publication on Structural Change for Inclusive and Sustainable Industrial Development. She wrote three chapters "Manufacturing and Economic Development: An Introduction", "Patterns of Manufacturing Development" and "Inclusive Manufacturing Development". The publication is accessible at https://www.unido.org/resources/publications/latest-publications