Endogenous growth requires that non-reproducible factors of production be either augmented or eli... more Endogenous growth requires that non-reproducible factors of production be either augmented or eliminated. Attention heretofore has focused almost exclusively on augmentation. In contrast, we study factor elimination. Maximizing agents decide when to reduce the importance of non-reproducible factors. We use a Cobb-Douglas production function with two factors of production, one reproducible ("capital") and one not ("labor"). There is no augmenting progress of any kind, thus excluding the standard engine of growth. What is new is the possibility of changing factor intensities endogenously by spending resources on R&D. The economy starts with no capital and no knowledge of how to use it. By conducting R&D, the economy learns new technologies that use capital, which then is built. There are two possible ultimate outcomes: the economy may achieve perpetual growth, or it may stagnate with no growth. The …rst outcome is an asymptotic version of the AK model of endogenous growth, and the second outcome is the standard Solow model in the absence of any exogenous sources of growth. Which outcome is achieved depends on parameter values of saving and production, and there always is a feasible saving rate that will give the perpetual growth outcome. The model thus provides a theory of the endogenous emergence of a production technology with constant returns to the reproducible factors, that is, one that is capable of supporting perpetual economic growth. The model also allows derivation of the full transition dynamics, which have interesting properties. One especially notable feature is that the origin is not a steady state. An economy that starts with pure labor production becomes industrialized through its own e¤orts. The theory thus o¤ers a purely endogenous explanation for the transition from a primitive to a developed economy, in contrast to several well-known theories. Several aspects of the transition paths accord with the evidence, suggesting that the theory is reasonable. In contrast to almost all the existing endogenous growth literature, neither monopoly power nor an externality is a necessary condition for endogenous growth. It is su¢ cient that …rms be able to appropriate the results of their research and development e¤orts.
Endogenous growth requires that non-reproducible factors of production be either augmented or eli... more Endogenous growth requires that non-reproducible factors of production be either augmented or eliminated. Attention heretofore has focused almost exclusively on augmentation. In contrast, we study factor elimination. Maximizing agents decide when to reduce the importance of non-reproducible factors. We use a Cobb-Douglas production function with two factors of production, one reproducible ("capital") and one not ("labor"). There is no augmenting progress of any kind, thus excluding the standard engine of growth. What is new is the possibility of changing factor intensities endogenously by spending resources on R&D. The economy starts with no capital and no knowledge of how to use it. By conducting R&D, the economy learns new technologies that use capital, which then is built. There are two possible ultimate outcomes: the economy may achieve perpetual growth, or it may stagnate with no growth. The …rst outcome is an asymptotic version of the AK model of endogenous growth, and the second outcome is the standard Solow model in the absence of any exogenous sources of growth. Which outcome is achieved depends on parameter values of saving and production, and there always is a feasible saving rate that will give the perpetual growth outcome. The model thus provides a theory of the endogenous emergence of a production technology with constant returns to the reproducible factors, that is, one that is capable of supporting perpetual economic growth. The model also allows derivation of the full transition dynamics, which have interesting properties. One especially notable feature is that the origin is not a steady state. An economy that starts with pure labor production becomes industrialized through its own e¤orts. The theory thus o¤ers a purely endogenous explanation for the transition from a primitive to a developed economy, in contrast to several well-known theories. Several aspects of the transition paths accord with the evidence, suggesting that the theory is reasonable. In contrast to almost all the existing endogenous growth literature, neither monopoly power nor an externality is a necessary condition for endogenous growth. It is su¢ cient that …rms be able to appropriate the results of their research and development e¤orts.
We introduce a new measure of the extent of federal regulation, the number of pages in the Code o... more We introduce a new measure of the extent of federal regulation, the number of pages in the Code of Federal Regulations, and use it to investigate the relationship between federal regulation and macroeconomic performance in the U.S. We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce it - total factor productivity, physical capital, and labor. In particular, regulation reduces the annual trend rate of growth in output by seven- to nine-tenths of a percentage point, implying a large annual cost (currently $5.4 trillion) in foregone annual output. Regulation also has complicated dynamic effects on all variables. The effects differ across factors of production, implying both dynamic and ultimate effects on resource allocation.
We use modern household data and econometric methods to conduct some of the original tests of the... more We use modern household data and econometric methods to conduct some of the original tests of the Permanent Income Hypothesis (PIH) suggested and used by Friedman (1957). The data and methods are superior to those available to Friedman, allowing us to refine Friedman's tests and perform tests he could not do. The results provide overall but not universal support for PIH.
Economics : the Open-Access, Open-Assessment e-Journal, Nov 10, 2008
A transactions model of the demand for multiple media of exchange is developed. Some results are ... more A transactions model of the demand for multiple media of exchange is developed. Some results are expected, and others are both new and surprising. There are both extensive and intensive margins to currency substitution, and inflation may affect the two margins differently, leading to subtle incentives to adopt or abandon a substitute currency. Variables not previously considered in the literature affect currency substitution in complex and somewhat unexpected ways. In particular, the level of income and the composition of consumption expenditures are important, and they interact with the other variables in the model. Independent empirical work provides support for the theory.
We construct and test a theory of how international trade and endogenous economic growth interact... more We construct and test a theory of how international trade and endogenous economic growth interact to affect the evolution of cross-country differences in GDP. The theory combines a second-generation endogenous growth model with a Ricardian model of trade. The driver of growth is technical progress in improving the quality of intermediate goods.. Intermediates are tradeable, and trade in them allows countries to affect each other's growth rates. The theory describes both balanced growth paths and transition dynamics. Under some conditions trade equalizes countries' growth rates and thus stabilizes their relative GDPs, under other conditions trade does not equalize growth rates initially but brings them into equality eventually, and under still other conditions trade drives countries’ growth rates asymptotically to a constant difference, leaving some countries growing faster than others forever. This last case is consistent with Quah’s (1997) famous empirical "twin peaks....
This article uses the number of pages in the Code of Federal Regulations to investigate the empir... more This article uses the number of pages in the Code of Federal Regulations to investigate the empirical relationship between federal regulation and macroeconomic performance in the U.S. The analysis uses an aggregate production framework to study the co-movement of output and the factors of production that results from regulation. The use of cointegration methodology overcomes some shortcomings of traditional techniques. The results suggest that regulation generally is negatively related to aggregate economic performance in both the short run and the long run. Some specific areas of regulation are also found to have important long-run effects, some positive and some negative
We introduce a new measure of the extent of federal regulation in the U.S. and use it to investig... more We introduce a new measure of the extent of federal regulation in the U.S. and use it to investigate the relationship between federal regulation and macroeconomic performance. We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce it-total factor productivity (TFP), physical capital, and labor. Regulation has caused substantial reductions in the growth rates of both output and TFP and has had effects on the trends in capital and labor that vary over time in both sign and magnitude. Regulation also affects deviations about the trends in output and its factors of production, and the effects differ across dependent variables. Regulation changes the way output is produced by changing the mix of inputs. Changes in regulation and marginal tax rates offer a straightforward explanation for the productivity slowdown of the 1970s.
Friedman's Permanent Income Hypothesis (PIH) predicts that the income elasticity of consumption s... more Friedman's Permanent Income Hypothesis (PIH) predicts that the income elasticity of consumption should be higher for households for which a large fraction of the variation of their income is permanent than for households facing more transitory variations in income. We test this prediction using modern household data from the US Consumer Expenditure Survey. The results offer some support for the PIH. 'Just because something's old doesn't mean you throw it away.' (Geordie to Scotty in 'Relics', Star Trek: The Next Generation)
We introduce a new measure of the extent of federal regulation in the U.S. and use it to investig... more We introduce a new measure of the extent of federal regulation in the U.S. and use it to investigate the relationship between federal regulation and macroeconomic performance. We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce it–total factor productivity (TFP), physical capital, and labor. Regulation has caused substantial reductions in the growth rates of both output and TFP and has had effects on the trends in capital and labor that vary over time in both sign and magnitude. Regulation also affects deviations about the trends in output and its factors of production, and the effects differ across dependent variables. Regulation changes the way output is produced by changing the mix of inputs. Changes in regulation and marginal tax rates also offer a straightforward explanation for the productivity slowdown of the 1970s.
Rezime: Razvijen je transakcioni model tražnje za raznovrsnim sredstvima razmene. Neki rezultati ... more Rezime: Razvijen je transakcioni model tražnje za raznovrsnim sredstvima razmene. Neki rezultati su ocekivani, a drugi su kako novi, tako i iznenađujuci. Postoje ekstenzivne i intenzivne margine supstitucije valute, a inflacija bi mogla razlicito uticati na te dve margine, sto vodi ka suptilnom podstreku za prihvatanje ili napustanje supstitutivne valute. Varijable koje prethodno u literaturi nisu bile uzimane u obzir se na kompleksne i neocekivane nacine odražavaju na supstituciju valute. Posebno su važni nivo dohotka i struktura izdataka za potrosnju, koji se povezuju i sa drugim varijablama u modelu. Nezavisan empirijski rad teoriji pruža podrsku.
We study Ricardian trade and economic growth in a framework that avoids counterfactual market-siz... more We study Ricardian trade and economic growth in a framework that avoids counterfactual market-size effects and delivers several new results, some contradicting the previous literature. The channel through which trade affects growth is restricted by construction to comparative advantage. Trade, growth, and the economy’s industrial structure interact, each affecting the other two. Trade affects capital exporting and importing countries differently, temporarily but not permanently raising the growth rate of the former and permanently raising the growth rate of the latter. Trade induces shut-down of some industries and an international reallocation of R&D activity. The model can explain the patterns of capital production and R&D activity that we see in the data. Trade leads to “effective technology equalization,” with the capital-importing economy behaving as if it adopts its trading partner’s technology even though no technology transfer actually occurs. It thus offers a new interpreta...
Rezime: Razvijen je transakcioni model tražnje za raznovrsnim sredstvima razmene. Neki rezultati ... more Rezime: Razvijen je transakcioni model tražnje za raznovrsnim sredstvima razmene. Neki rezultati su očekivani, a drugi su kako novi, tako i iznenađujući. Postoje ekstenziv-ne i intenzivne margine supstitucije valute, a inflacija bi mogla različito uticati na te dve margine, što vodi ka suptilnom podstreku za prihvatanje ili napuštanje supstitutivne va-lute. Varijable koje prethodno u literaturi nisu bile uzimane u obzir se na kompleksne i neočekivane načine odražavaju na supstituciju valute. Posebno su važni nivo dohotka i struktura izdataka za potrošnju, koji se povezuju i sa drugim varijablama u modelu. Ne-zavisan empirijski rad teoriji pruža podršku. Ključne reči: Supstitucija valute, Dolarizacija JEL: E41, E42, E31 I. Uvod Supstitucija valute je napuštanje jednog sredstva razmene za drugo pri suočava-nju sa promenama u stimulacijama. To je važan fenomen u zemljama sa visokim stopama inflacije, koji komplikuje predviđanja tražnje za novcem i otežava sprovođenje monetarne politike...
We study the world trading equilibrium when factors of production are themselves produced rather ... more We study the world trading equilibrium when factors of production are themselves produced rather than taken as endowments and are tradeable goods, assumptions that correspond to the fact that three&quarters of international trade is in intermediate and ...
Page 1. DOI 10.1007/s00181-005-0035-4 ORIGINAL PAPER Joseph P. DeJuan . John J. Seater . Tony S. ... more Page 1. DOI 10.1007/s00181-005-0035-4 ORIGINAL PAPER Joseph P. DeJuan . John J. Seater . Tony S. Wirjanto Testing the permanent-income hypothesis: new evidence from West-German states (Länder) Received: 14 September ...
Endogenous growth requires that non-reproducible factors of production be either augmented or eli... more Endogenous growth requires that non-reproducible factors of production be either augmented or eliminated. Attention heretofore has focused almost exclusively on augmentation. In contrast, we study factor elimination. Maximizing agents decide when to reduce the importance of non-reproducible factors. We use a Cobb-Douglas production function with two factors of production, one reproducible ("capital") and one not ("labor"). There is no augmenting progress of any kind, thus excluding the standard engine of growth. What is new is the possibility of changing factor intensities endogenously by spending resources on R&D. The economy starts with no capital and no knowledge of how to use it. By conducting R&D, the economy learns new technologies that use capital, which then is built. There are two possible ultimate outcomes: the economy may achieve perpetual growth, or it may stagnate with no growth. The …rst outcome is an asymptotic version of the AK model of endogenous growth, and the second outcome is the standard Solow model in the absence of any exogenous sources of growth. Which outcome is achieved depends on parameter values of saving and production, and there always is a feasible saving rate that will give the perpetual growth outcome. The model thus provides a theory of the endogenous emergence of a production technology with constant returns to the reproducible factors, that is, one that is capable of supporting perpetual economic growth. The model also allows derivation of the full transition dynamics, which have interesting properties. One especially notable feature is that the origin is not a steady state. An economy that starts with pure labor production becomes industrialized through its own e¤orts. The theory thus o¤ers a purely endogenous explanation for the transition from a primitive to a developed economy, in contrast to several well-known theories. Several aspects of the transition paths accord with the evidence, suggesting that the theory is reasonable. In contrast to almost all the existing endogenous growth literature, neither monopoly power nor an externality is a necessary condition for endogenous growth. It is su¢ cient that …rms be able to appropriate the results of their research and development e¤orts.
Endogenous growth requires that non-reproducible factors of production be either augmented or eli... more Endogenous growth requires that non-reproducible factors of production be either augmented or eliminated. Attention heretofore has focused almost exclusively on augmentation. In contrast, we study factor elimination. Maximizing agents decide when to reduce the importance of non-reproducible factors. We use a Cobb-Douglas production function with two factors of production, one reproducible ("capital") and one not ("labor"). There is no augmenting progress of any kind, thus excluding the standard engine of growth. What is new is the possibility of changing factor intensities endogenously by spending resources on R&D. The economy starts with no capital and no knowledge of how to use it. By conducting R&D, the economy learns new technologies that use capital, which then is built. There are two possible ultimate outcomes: the economy may achieve perpetual growth, or it may stagnate with no growth. The …rst outcome is an asymptotic version of the AK model of endogenous growth, and the second outcome is the standard Solow model in the absence of any exogenous sources of growth. Which outcome is achieved depends on parameter values of saving and production, and there always is a feasible saving rate that will give the perpetual growth outcome. The model thus provides a theory of the endogenous emergence of a production technology with constant returns to the reproducible factors, that is, one that is capable of supporting perpetual economic growth. The model also allows derivation of the full transition dynamics, which have interesting properties. One especially notable feature is that the origin is not a steady state. An economy that starts with pure labor production becomes industrialized through its own e¤orts. The theory thus o¤ers a purely endogenous explanation for the transition from a primitive to a developed economy, in contrast to several well-known theories. Several aspects of the transition paths accord with the evidence, suggesting that the theory is reasonable. In contrast to almost all the existing endogenous growth literature, neither monopoly power nor an externality is a necessary condition for endogenous growth. It is su¢ cient that …rms be able to appropriate the results of their research and development e¤orts.
We introduce a new measure of the extent of federal regulation, the number of pages in the Code o... more We introduce a new measure of the extent of federal regulation, the number of pages in the Code of Federal Regulations, and use it to investigate the relationship between federal regulation and macroeconomic performance in the U.S. We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce it - total factor productivity, physical capital, and labor. In particular, regulation reduces the annual trend rate of growth in output by seven- to nine-tenths of a percentage point, implying a large annual cost (currently $5.4 trillion) in foregone annual output. Regulation also has complicated dynamic effects on all variables. The effects differ across factors of production, implying both dynamic and ultimate effects on resource allocation.
We use modern household data and econometric methods to conduct some of the original tests of the... more We use modern household data and econometric methods to conduct some of the original tests of the Permanent Income Hypothesis (PIH) suggested and used by Friedman (1957). The data and methods are superior to those available to Friedman, allowing us to refine Friedman's tests and perform tests he could not do. The results provide overall but not universal support for PIH.
Economics : the Open-Access, Open-Assessment e-Journal, Nov 10, 2008
A transactions model of the demand for multiple media of exchange is developed. Some results are ... more A transactions model of the demand for multiple media of exchange is developed. Some results are expected, and others are both new and surprising. There are both extensive and intensive margins to currency substitution, and inflation may affect the two margins differently, leading to subtle incentives to adopt or abandon a substitute currency. Variables not previously considered in the literature affect currency substitution in complex and somewhat unexpected ways. In particular, the level of income and the composition of consumption expenditures are important, and they interact with the other variables in the model. Independent empirical work provides support for the theory.
We construct and test a theory of how international trade and endogenous economic growth interact... more We construct and test a theory of how international trade and endogenous economic growth interact to affect the evolution of cross-country differences in GDP. The theory combines a second-generation endogenous growth model with a Ricardian model of trade. The driver of growth is technical progress in improving the quality of intermediate goods.. Intermediates are tradeable, and trade in them allows countries to affect each other's growth rates. The theory describes both balanced growth paths and transition dynamics. Under some conditions trade equalizes countries' growth rates and thus stabilizes their relative GDPs, under other conditions trade does not equalize growth rates initially but brings them into equality eventually, and under still other conditions trade drives countries’ growth rates asymptotically to a constant difference, leaving some countries growing faster than others forever. This last case is consistent with Quah’s (1997) famous empirical "twin peaks....
This article uses the number of pages in the Code of Federal Regulations to investigate the empir... more This article uses the number of pages in the Code of Federal Regulations to investigate the empirical relationship between federal regulation and macroeconomic performance in the U.S. The analysis uses an aggregate production framework to study the co-movement of output and the factors of production that results from regulation. The use of cointegration methodology overcomes some shortcomings of traditional techniques. The results suggest that regulation generally is negatively related to aggregate economic performance in both the short run and the long run. Some specific areas of regulation are also found to have important long-run effects, some positive and some negative
We introduce a new measure of the extent of federal regulation in the U.S. and use it to investig... more We introduce a new measure of the extent of federal regulation in the U.S. and use it to investigate the relationship between federal regulation and macroeconomic performance. We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce it-total factor productivity (TFP), physical capital, and labor. Regulation has caused substantial reductions in the growth rates of both output and TFP and has had effects on the trends in capital and labor that vary over time in both sign and magnitude. Regulation also affects deviations about the trends in output and its factors of production, and the effects differ across dependent variables. Regulation changes the way output is produced by changing the mix of inputs. Changes in regulation and marginal tax rates offer a straightforward explanation for the productivity slowdown of the 1970s.
Friedman's Permanent Income Hypothesis (PIH) predicts that the income elasticity of consumption s... more Friedman's Permanent Income Hypothesis (PIH) predicts that the income elasticity of consumption should be higher for households for which a large fraction of the variation of their income is permanent than for households facing more transitory variations in income. We test this prediction using modern household data from the US Consumer Expenditure Survey. The results offer some support for the PIH. 'Just because something's old doesn't mean you throw it away.' (Geordie to Scotty in 'Relics', Star Trek: The Next Generation)
We introduce a new measure of the extent of federal regulation in the U.S. and use it to investig... more We introduce a new measure of the extent of federal regulation in the U.S. and use it to investigate the relationship between federal regulation and macroeconomic performance. We find that regulation has statistically and economically significant effects on aggregate output and the factors that produce it–total factor productivity (TFP), physical capital, and labor. Regulation has caused substantial reductions in the growth rates of both output and TFP and has had effects on the trends in capital and labor that vary over time in both sign and magnitude. Regulation also affects deviations about the trends in output and its factors of production, and the effects differ across dependent variables. Regulation changes the way output is produced by changing the mix of inputs. Changes in regulation and marginal tax rates also offer a straightforward explanation for the productivity slowdown of the 1970s.
Rezime: Razvijen je transakcioni model tražnje za raznovrsnim sredstvima razmene. Neki rezultati ... more Rezime: Razvijen je transakcioni model tražnje za raznovrsnim sredstvima razmene. Neki rezultati su ocekivani, a drugi su kako novi, tako i iznenađujuci. Postoje ekstenzivne i intenzivne margine supstitucije valute, a inflacija bi mogla razlicito uticati na te dve margine, sto vodi ka suptilnom podstreku za prihvatanje ili napustanje supstitutivne valute. Varijable koje prethodno u literaturi nisu bile uzimane u obzir se na kompleksne i neocekivane nacine odražavaju na supstituciju valute. Posebno su važni nivo dohotka i struktura izdataka za potrosnju, koji se povezuju i sa drugim varijablama u modelu. Nezavisan empirijski rad teoriji pruža podrsku.
We study Ricardian trade and economic growth in a framework that avoids counterfactual market-siz... more We study Ricardian trade and economic growth in a framework that avoids counterfactual market-size effects and delivers several new results, some contradicting the previous literature. The channel through which trade affects growth is restricted by construction to comparative advantage. Trade, growth, and the economy’s industrial structure interact, each affecting the other two. Trade affects capital exporting and importing countries differently, temporarily but not permanently raising the growth rate of the former and permanently raising the growth rate of the latter. Trade induces shut-down of some industries and an international reallocation of R&D activity. The model can explain the patterns of capital production and R&D activity that we see in the data. Trade leads to “effective technology equalization,” with the capital-importing economy behaving as if it adopts its trading partner’s technology even though no technology transfer actually occurs. It thus offers a new interpreta...
Rezime: Razvijen je transakcioni model tražnje za raznovrsnim sredstvima razmene. Neki rezultati ... more Rezime: Razvijen je transakcioni model tražnje za raznovrsnim sredstvima razmene. Neki rezultati su očekivani, a drugi su kako novi, tako i iznenađujući. Postoje ekstenziv-ne i intenzivne margine supstitucije valute, a inflacija bi mogla različito uticati na te dve margine, što vodi ka suptilnom podstreku za prihvatanje ili napuštanje supstitutivne va-lute. Varijable koje prethodno u literaturi nisu bile uzimane u obzir se na kompleksne i neočekivane načine odražavaju na supstituciju valute. Posebno su važni nivo dohotka i struktura izdataka za potrošnju, koji se povezuju i sa drugim varijablama u modelu. Ne-zavisan empirijski rad teoriji pruža podršku. Ključne reči: Supstitucija valute, Dolarizacija JEL: E41, E42, E31 I. Uvod Supstitucija valute je napuštanje jednog sredstva razmene za drugo pri suočava-nju sa promenama u stimulacijama. To je važan fenomen u zemljama sa visokim stopama inflacije, koji komplikuje predviđanja tražnje za novcem i otežava sprovođenje monetarne politike...
We study the world trading equilibrium when factors of production are themselves produced rather ... more We study the world trading equilibrium when factors of production are themselves produced rather than taken as endowments and are tradeable goods, assumptions that correspond to the fact that three&quarters of international trade is in intermediate and ...
Page 1. DOI 10.1007/s00181-005-0035-4 ORIGINAL PAPER Joseph P. DeJuan . John J. Seater . Tony S. ... more Page 1. DOI 10.1007/s00181-005-0035-4 ORIGINAL PAPER Joseph P. DeJuan . John J. Seater . Tony S. Wirjanto Testing the permanent-income hypothesis: new evidence from West-German states (Länder) Received: 14 September ...
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