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ECONOMIC ISSUES

Volume 6 (2001)

Part 1, March

Please select from the titles below:

Part 2, September

Please select from the titles below:

Part 1, March

The Appearance of Knowledge in Growth Theory (p.1)

by O Olsson

Abstract: The paper analyzes the appearance of knowledge in growth theory in relation to some fundamental notions in epistemology and the philosophy of science. Based on a brief account of epistemological theory, I discuss the treatment of knowledge in growth models starting from Solow (1956). My results suggest that although some important insights have been made - for instance the distinction between propositional and procedural knowledge and between knowledge gained by experience and by education - there are still confusions in the literature regarding the vital difference between the known and the knowing. Growth theorists have also largely overlooked that knowledge tends to be uncertain and evolves in a discontinuous fashion. Future growth modeling might benefit from empirical patent research at the micro level.

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English Language Fluency and the Ethnic Wage Gap for Men in England and Wales (p.21)

by NC O’Leary, PD Murphy, SJ Drinkwater and DH Blackaby

Abstract: Using data from the Fourth National Survey of Ethnic Minorities, English language fluency is shown to have an important influence over the level of earnings that ethnic minorities are able to command within the employee labour market. There is also evidence to suggest that language fluency has some role to play in describing the difference in average weekly earnings between white and ethnic minority workers, but it does not emerge as a major determinant. Indeed, it would appear that the concentration of ethnic minorities in local enclaves with their high levels of unemployment has a greater influence over the level of ethnic earnings disadvantage.

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In Search of a Nominal Anchor (p.33)

by M J Oliver

Abstract: Since the break-up of the Bretton Woods fixed exchange rate system in the early-1970s, there has been a protracted search for a credible nominal anchor. This article examines the experiences of several industrial countries who have experimented with monetary targets, exchange rate targets and more recently, inflation targets. While it is acknowledged that the results of inflation targeting have been very encouraging so far, the article concludes by arguing that for the UK at least, inflation targets need to be combined with targets for the monetary base to prevent the central bank from acting dynamically inconsistently.

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A Reassessment of the Long-Run Validity of the Flexible Price Monetary Exchange Rate Model (p.47)

by A Abbott and G de Vita

Abstract: In this article we employ the Pesaran and Shin (1999) structural cointegrating VAR methodology to reassess the monetary approach to exchange rate determination. This recently developed technique allows us to test directly the over-identifying restrictions of the long-run structural relations underlying the flexible price monetary model of the exchange rate. Using data for the German Mark-U.S. dollar and the Japanese Yen-U.S. dollar, we find for both exchange rates, that structural identification is rejected by the data, results that raise further doubts about the long-run validity of the monetary model.

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Testing for Unit Roots: Threshold Autoregression and Asymmetric Trend Stationarity (p.59)

by S Cook

Abstract: In recent research Enders and Granger (1998) have extended the Augmented Dickey-Fuller statistic to allow the unit root hypothesis to be tested against an alternative of stationarity with asymmetric adjustment. In this paper the threshold autoregressive (TAR) and momentum-threshold autoregressive (MTAR) unit root tests proposed by Enders and Granger are applied to data on UK investment. It is found that the TAR, MTAR and standard Augmented Dickey-Fuller tests fail to reject the unit root hypothesis. In contrast, an alternative modified TAR unit root test is proposed which rejects non-stationarity using specifically derived Monte Carlo critical values. Further testing rejects the null hypothesis of symmetric adjustment, with the form of asymmetry detected supporting recent theoretical predictions for investment behaviour presented by Gale (1996). The results obtained show the form of asymmetry incorporated within the Enders-Granger test to critically influence the resulting inferences drawn.

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The Problem of Front-end Loading and Disorder in the Housing Market  (p.67)

by D Leslie

Abstract: The paper asks why indexation of debits is not typically observed in the UK housing market. Indexation ensures that real debits change only if the real rate of interest alters and eliminates the problem of front end loading or the tilt. The typical British repayment mortgage and the index linked alternative are just two special cases of a more general repayment schedule. A measure of front end loading, which compares the real value of debt with the index linked alternative over the term of the loan, is described. Neither of the two special cases need correspond to the ideal degree of front end loading.

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Part 2, September

The Investment Multiplier and the Aggregate Rate of Return: a Post-Keynesian View (p.1)

by G Hill

Abstract: This paper outlines a Post-Keynesian theory of the ‘aggregate rate of return,’ which recognizes the change in aggregate profits brought about by the investment multiplier and the income and demand externalities to which it gives rise. The paper analyzes the effect of an increase in investment spending on the aggregate rate of return under three scenarios: 1) imperfect competition; 2) ‘pure competition’ with diminishing returns; and 3) a full-employment economy where there is an increase in the investment-to-output ratio. Finally, the paper contends that the investment multiplier, which pushes the aggregate return above the private return, comes into play because there is no mechanism for pre-reconciling saving and investment plans before commitments are made.

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Regional Inequalities in Contemporary China Measured by GDP and Consumption (p.13)

by Z Zhang and S Yao

Abstract: This paper presents a comprehensive picture of China’s regional inequality from 1952 to 1999 using newly released data on consumption and gross domestic product (GDP) at the provincial level. Although there are many studies on regional inequality in China, this paper is the first attempt to evaluate regional inequalities before and after the economic reforms for a time span of almost half a century. Our results show that inter-regional inequality widens over time, either measured by per capita GDP or consumption expenditures, and either in the pre-reform or the post-reform period. The results also show that the choice of GDP or consumption as an indicator of economic welfare matters in regional inequality analysis. Per capita GDP is more unequally distributed than per capita consumption.

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Finite-sample critical values of the Augmented Dickey-Fuller statistic: a note on lag order (p.31)

by S Cook

Abstract: The lag order dependence of finite-sample Augmented Dickey-Fuller (ADF) critical values is examined via a comparison of the response surface specifications of Cheung and Lai (1995) and MacKinnon (1991). Theoretical, Monte Carlo and empirical evidence show failure to incorporate lag order effects reduces the power of the ADF test to reject the unit root null hypothesis.  

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Core and Periphery in EMU: A Cluster Analysis (p.47)

by M J Artis and W Zhang

Abstract: The paper looks for inhomogeneities in the actual and prospective membership of the EMU by applying techniques of cluster analysis to a set of variables suggested by the theory of Optimal Currency Areas (OCA). The analysis reveals that the member countries may be divided into those belonging to the core (Germany, France, Austria, Belgium and the Netherlands) or to one of two peripheries, Northern or Southern (respectively, the Scandinavian countries, the UK, Ireland and Finland; and Spain, Italy, Portugal and Greece). These groups appear to be relatively well-defined; if the criteria of OCA theory are taken seriously this correspondingly implies a potential problem of ‘fit’ of the single monetary policy to the needs of the member countries. 

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Cultural Influences on Economic Thought in India: Resistance to diffusion of neo-classical economics and the principles of Hinduism (p.59)

by J Cameron and T P Ndhlovu

Abstract: This paper analyses the reasons why, despite the ascendancy of ‘liberalising’ neo-classical economics in the 1980s, many Indian economists have remained determinedly resistant to the IMF/World Bank pro-stabilisation and structural adjustment arguments that so dominate global political economic thinking. We argue that part of the objection to economic ‘global liberalisation’ in India is explicable from the significant, but not exclusive, role played by Hinduism and caste in producing a distinctive form of society in India. Caste arguably gives deep cultural legitimation to socio-economic perspectives grounded on non-individualism, ones with a strong sense of collective peer group awareness, albeit segmented into hierarchial distributional sub-groups. Despite the glaring inequalities and corruption in Indian society, the concept of dharma is still consistent with an ideal of a strong civil society which has high levels of trust and confidence, and which appears to offer security and certainty. We contend that there is a deep-rooted, ‘national’ ideological predisposition in India to a position in economic thought which is broadly consistent with western neo-Ricardianism and some versions of the new institutional economics, albeit one in which caste to some degree plays the theoretical role of class. This coherent body of a broader socio-cultural thought arguably explains some of India's continued resistance to the economics of ‘global liberalisation’. 

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The Research Output of United Kingdom Economics Departments: Some League Tables (p.79)

by D J Smyth and A J Smyth

Abstract: This article presents three league tables for the research output of United Kingdom economics departments. We base these tables on the numbers of articles published, each table with different emphasis. The first table values all published articles equally; the second table is based on the publications in core journals only; the third table weighs articles in core journals more heavily than other articles. Notable results include the finding that the London School of Economics heads the league in all the tables, and that several 'new universities' outperform some of the older universities. 

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