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Firm dynamics, dynamic reallocation, variable markups and productivity Behaviour

Dr Anthony Savagarby Anthony Savagar, discussion paper KDPE 1713, August 2017.

Non-technical summary:

Traditionally macroeconomists assume that the number of firms in an economy adjusts instantaneously to arbitrage profits. This assumption ignores ‘slow’ fluctuations in firm entry and exit over the business cycle. This paper develops a model of firm dynamics in the macroeconomy with sunk costs that cause firms to respond slowly to economic shocks, hence entry and exit decisions are non-instantaneous. The resulting firm adjustment towards zero profit causes endogenous fluctuations in profits, competition and business allocation that helps to explain business cycle productivity dynamics.

Automation will not lead to fewer jobs…

Dr Christian SiegelResearch by Christian Siegel from the School of Economics featured in an article in The Guardian on Sunday 20 August on the rise of robots and automation: ‘Robots will not lead to fewer jobs – but the hollowing out of the middle class’ by Larry Elliott. 

Read the full article here.

An empirical validation protocol for large-scale agent-based models

sylvain barde 120x120A new discussion paper by Sylvain Barde and Sander van der Hoog, KDPE 1712, July 2017.

Non-technical summary

Despite recent advances in bringing agent-based models (ABMs) to the data, the estimation or calibration of model parameters remains a challenge, especially when it comes to large-scale agent-based macroeconomic models. Most methods, such as the method of simulated moments (MSM), require in-the-loop simulation of new data, which may not be feasible for models that are computationally heavy to simulate. Nevertheless, because ABMs are becoming an important tool for policy making it is a relevant issue to be able to validate them properly, so that they can be compared to other policy-related models.

Cash for votes: Evidence from India

anirban mitraA new discussion paper by Anirban Mitra, Shabana Mitra and Arnab Mukherji, KDPE 1711, June 2017.

Non-technical summary

Campaigning in elections is costly. In countries without public funding of election campaigns, such financing necessarily relies on donations by private corporations and individuals. If, furthermore, such donations are subject to restrictive legal limits – which is often the case in several developing nations – then it suggests that election campaigns must be frugal. However, in reality elections in such contexts are rarely low-key: there exists ample anecdotal evidence of voters being bribed with cash or actual consumption goods prior to elections.

The determinants of international migration in early modern Europe

alex klein 120x120A new discussion paper by Alexander Klein and Jelle van Lottum, KDPE 1710, June 2017.

Non-technical summary

Migration was a common feature of pre-industrial societies. Because the vast majority of migrations took place within the confines of a country, a province or even a parish, in most cases such moves occurred over relatively short distances. However, long-distance migrations, involving moves of hundreds of kilometres or more, often of individuals entering foreign territories, were hardly rare (Page Moch 2003; Manning 2005; Van Lottum 2007; Bade et al. 2013). Recent estimates show that international mobility levels increased strongly after the medieval period, peaking in the late seventeenth century.

Industry volatility and international trade

miguel leon ledesma 120x120A new discussion paper by Adina Ardelean, Miguel León-Ledesma and Laura Puzzello, KDPE 1709, June 2017.

Non-technical summary

In modern theories of economic fluctuations, shocks that drive macroeconomic uncertainty are transformed into business cycles through a propagation mechanism. One such propagation mechanism can be inter-industry linkages: volatility at the industry level can translate into aggregate macroeconomic volatility. For this reason, understanding the sources of risk at the industry level is important. This is even more important in open economies, where industries are exposed to shocks arising in industries located in other countries.

Why did socialist economies fail? The role of factor inputs reconsidered

alex klein 120x120A new discussion paper by Tamás Vonyó and Alexander Klein, KDPE 1708, April 2017.

Non-technical summary

The role of institutions features prominently in comparative studies of economic development. Eastern Europe after 1945 provides a textbook case, where relative decline in income per head and productivity has been linked to institutional failure. The inefficiency of central planning compared to the market economy is well established both theoretically and empirically. The socialist system, it has been argued, was relatively successful in mobilizing resources but stifled innovation and entrepreneurship. Planned economies thus achieved ‘a satisfactory productivity performance in the era of mass production, but could not adapt to the requirements of flexible production technology’ (Broadberry and Klein 2011, p. 37).

Lost in the storm: The academic collaborations that went missing in Hurricane Isaac

keynes collegeA new discussion paper by Raquel Campos, Fernanda L. L. de Leon and Ben McQuillin, KDPE 1707, April 2017.

Non-technical summary

When an academic participates in a large conference, her likelihood of subsequently writing a paper with at least one participant at the conference increases by one-sixth (close to 18%). Moreover, it seems that conferences improve the quality of matching among co-authors, leading to papers that are published in higher-ranked journals.

Justice delayed is growth denied: The effect of slow courts on relationship-specific industries in India

Dr Amrit AmirapuA new discussion paper by Amrit Amirapu, KDPE 1706, February 2017.

Non-technical summary

Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular administration of justice, ... in which the faith of contracts is not supported by law... Adam Smith, The Wealth of Nations, Book V, Chapter III

Are well-functioning formal judicial institutions important for growth and development? Some - including Adam Smith - have argued that they are needed to ensure efficient contract enforcement. Others have argued that informal contracting arrangements such as relational contracts, social norms or kinship networks can provide workable substitutes (Acemoglu and Johnson(2005)).

Politician's pain is poor man's gain: Income distribution in close-election constituencies

Dr Anirban Mitra“Studies have highlighted the role of electoral competition in directing the flow of public funds. Analysing data from India, this column finds lower income inequality and polarisation in tightly contested constituencies, implying that the poor gain more from electoral competition relative to the rich.

Accountability is central to the concept of democracy. Elected politicians are answerable to their constituencies. Moreover, they have the authority and wherewithal to affect the economic conditions of the citizens in the constituencies. This is because political power necessarily comes with some control of the purse strings: targeting of government schemes (be it welfare or employment generation or poverty alleviation), and provision of local public goods and services (health facilities, schools, road construction, public lighting, etc.). While the former can directly influence the economic prosperity of citizens, the latter does so in more indirect and subtle ways…”