Trade, Growth, and Economic Policy in Open Economies: Essays in Honour of Hans-Jürgen Vosgerau

397 Pages·1998·12.815 MB·English

by  Sven W. Arndt (auth.), Prof. Dr. Karl-Josef Koch, Prof. Dr. Klaus Jaeger (eds.)

Trade, Growth, and
Economic Policy
in Open Economies
Essays in Honour
of Hans-Jiirgen Vosgerau
Springer
Berlin
Heidelberg
New York
Barcelona
Budapest
Hong Kong
London
Milan
Paris
Santa Clara
Singapore
Tokyo
Karl-Josef Koch· Klaus Jaeger (Eds.)
Trade, Growth, and
Economic Policy
in Open Economies
Essays in Honour of Hans-Jurgen Vosgerau
With 45 Figures
and 7 Tables
Springer
Prof. Dr. Karl-Josef Koch
University of Siegen
Fachbereich 5 Wirtschaftswissenschaften
Volkswirtschaftslehre I
HolderlinstraBe 3
D-57068 Siegen
Germany
Prof. Dr. Klaus Jaeger
Free University of Berlin
Fachbereich 10
GarystraBe 20
D-14195 Berlin
Germany
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Die Deutsche Bibliothek - CIP-Einheitsaufnahme
Trade, growth, and economic policy in open economics: essays in honour of Hans-Jiir
gen Vosgerau; with 7 tables 1 Karl-Josef Koch; Klaus Jaeger (ed.).- Berlin; Heidelberg;
New York; Barcelona; Budapest; Hong Kong; London; Milan; Paris; Santa Clara; Singa
pore, Tokyo: Springer, 1998
ISBN 978-3-662-00425-8 ISBN 978-3-662-00423-4 (eBook)
DOI 10.1007/978-3-662-00423-4
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Preface
This volume is dedicated to Hans-Jiirgen Vosgerau. On the occasion of
his sixty-fifth birthday in May 1996 the Faculty of Economics and Statistics
at the University of Konstanz initiated this collection of essays to pay tribute
to a supportive colleague, distinguished teacher and openminded and serious
scholar.
Thanks to the efforts of Hans-Jiirgen Vosgerau the Faculty of Economics
and Statistics of the University of Konstanz has attained a high level of in
ternational recognition in the field of international economics in teaching and
research. A major role in this success was played by the long-term'research
programme Internationalization of the Economy (SFB 178 funded by the
Deutsche Forschungsgemeinschaft) and its speaker Hans-Jiirgen Vosgerau.
Numerous publications in international journals, a series of highly acclaimed
conferences, and a large number of illustrious guests who came to Konstanz
over the years give evidence of the success of his work.
In the name of his colleagues I would like to take this opportunity to
express deep gratitude to Hans-Jiirgen Vosgerau for his many contributions
to the faculty over many years. Several members of his faculty and a number
of colleagues and friends in the community of economists willingly show their
respect and offer their tribute through this Festschrift.
Hans-Jiirgen Vosgerau's research activities cover a wide range of topics
in the area of economics. Yet, already his doctoral dissertation on Kapi
talimport unterentwickelter Lander and his habilitation entitled Doer opti
males wirlschaftliches Wachstum indicate two fields much of his later work
is related to.
Stimulated by the broadening interest of economists in the neoclassical
theory of economic growth in the late fifties and early sixties he concentrated
his research efforts on this field. He kept up this interest until the renaissance
of the interest in growth theory in the guise of "New Growth Theory" and
beyond. Since the early eighties his publications bear out the deepening of ac
tivities in another major field, in international economics. The great tradition
in theoretical and empirical literature, the application of general equilibrium
theory, as well as the justification for partial equilibrium analysis, and the well
defined interaction of monetary and real aspects must have fascinated him,
The intrinsic motivation to conduct an economic analysis of law and institu
tions, the need to discuss the importance of international policy coordination
and - again - dynamic issues of trade and factor movements, this immense
diversity in the field provided a challenge and a promising opportunity to
Hans-Jiirgen Vosgerau to contribute his experience and his visions.
The volume is divided into four parts which are not free of overlap in
the themes they address. The first part focusses on globalization. Gains from
trade, international competitiveness, labour market issues in open economies,
vi Preface
customs unions, dumping and and intra-firm trade are the topics of this part.
Part Two puts a stronger emphasis on dynamic economics. Again employ
ment issues are considered, and social income, intergenerational transfers,
public pension systems, and bequest and gift motives in overlapping genera
tion models are further topics of intertemporal character. Economic policies
are analysed in Part Three. This includes the relation between wage rigid
ity and migration, several aspects of German financial and monetary policy,
as well as tax competition. The volume concludes with institutional issues of
globalization, a western view on eastern transition, social cost of rent seeking,
and the evolution of social institutions.
Finally, it is my pleasure to thank Herta Kopp, Karin Crawford, James
Brice and Alexander Atkins for their translations, Gundula Hadjiani and
Carsten Buchholz for typsetting in Jb.TEfC and for supporting the editors.
Without their help the completion of this volume would not have been possi
ble. Last but not least I sincerely thank Manfred Timmermann for his efforts
in making possible the generous financial support from the Stiftungsfond
Deutsche Bank.
For the editors, and certainly on behalf of the authors,
Konstanz, April 1997 Karl-Josef Koch
Table of Contents
Preface
v
Part I. International Trade
Globalization and the Gains from Trade
Sven W. Arndt ................................................ 3
1. Introduction................................................. 4
2. Specialization in the Context of Multi-Stage Production . . . . . . . . . . 4
3. Conclusion.................................................. 12
International Competitiveness, Multinational Enterprise
Technology Clubs and the Government Interface
Bernard Michael Gilroy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 13
1. Introduction................................................. 13
2. Free Trade, Competitiveness and the Role of Governments in Inter-
national Markets.. . . .. . . . . .. . . . . . . . . .. . . . . . . .. .. .. .. .. . . .. . .. 14
3. A Brief Primer On Club Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17
4. International Production and Technology Clubs. . . . . . . . . . . . . . . . .. 18
5. Global Federalism versus Centralized Decision Making. . . . . . . . . . .. 22
6. Conclusions................................................. 25
Dual Labour Markets, Unemployment and Trade
Gains/Losses in Developing Countries
Albert G. Schweinberger ........................................ 31
1. Introduction................................................. 31
2. Harris-Todaro and Efficiency Wage Unemployment. . . . . . . . . . . . . .. 33
3. The Equivalence Theorem. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .. 36
4. Unemployment and the Gains from Trade. . .. . . . . . . . . . . . . . . . . . .. 41
viii Table of Contents
Employment Policy and Real Wages
Ronald W. Jones...... ............ .. .... .......... ...... ....... 47
Sectoral Structure and Unemployment in Open Economies
Max Albert and Jiirgen Meckl . . . . . . . . . . . . . . . . . . . .. .. . . . . .. . . . . . .. 53
1. Introduction................................................. 53
2. Efficiency Wages and Unemployment in the Short Run ........... 54
3. Capital Accumulation and Long-Run Unemployment.. . .......... 59
4. Conclusions................................................. 61
Welfare Effects of Trade-Diverting Customs Unions:
A Quantitative Approach
John S. Chipman.. . ... .. .. .... ........ .. .. ... . .... .. .. ... . .. ... 65
1. Introduction................................................. 65
2. The Formal Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 67
3. The Case of CES Utility Functions. . . . . . . . . . . . . . . . . . . . .. . . . . . .. 74
Dumping and Predatory Pricing in an International Duopoly
Thusnelda Tivig . . . . . . . . . . . . . . . . . . . . . . . .. . . .. . . . . . . .. . . . . . . .. . .. 83
1. Introduction................................................. 83
2. The Model ..... '" . ...... ...... .. .... .. .... .. .... ..... . .. . .. 86
3. Conclusions................................................. 91
Intra-Firm Trade and Exchange Rate Risk
Udo BroIl. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .. . .. 93
1. Introduction................................................. 93
2. A Multinational Firm ........................................ 94
3. Intra-Firm Trade and Exchange Rate Risk. .. . . . . .. .. .. .. . . . . . .. 95
4. Concluding Remarks ......................................... 97
Part II. Economic Growth
On the Evaluation of Social Income in a Dynamic Economy:
Generalizations
Murray C. Kemp and Ngo Van Long .............................. 101
1. Introduction ................................................. 101
2. A Closed Economy .................... " ..................... 102
3. Open Economies ............................................. 105
4. A Final Remark ............................................. 110
Table of Contents ix
Intergenerational Transfers, Economic Growth and Income
Distribution
Itzhak Zilcha . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 111
1. Introduction ................................................. 111
2. The Model ............................. " ................... 112
3. Altruism and Economic Growth ............................... 116
4. Altruism and Income Distribution .............................. 118
5. Concluding Remarks ......................................... 120
On the Pareto-Improving Abolition of Unfunded Public
Pension Systems: An Application of Growth Theory
Friedrich Breyer ................................................ 123
1. Introduction ................................................. 123
2. The Basic Framework ........................................ 124
3. The Results ................................................. 126
4. Concluding Remarks ......................................... 134
An Overlapping-Generations Model with Heterogeneous
Bequest and Gift Motives
Klaus Jaeger ................................................... 139
1. Introduction................................................. 139
2. The Model .................................................. 142
3. The Bequest Case ............................................ 147
4. The Gift Case and the Outcome of the Homogeneous- and the
Heterogeneous-Taste Case ..................................... 154
5. Concluding Remarks ......................................... 161
Part III. Economic Policy
Resisting Migration: Wage Rigidity and Income Distribution
Assaf Razin and Efraim Sadka ............... " ................... 167
1. Introduction ................................................. 167
2. Wage Flexibility and Migration ................................ 168
3. The Welfare State and Migration .............................. 175
4. Conclusion .................................................. 178
Effects of Monetary Policy in a Macroeconometric
Disequilibrium Model for the West German Economy
Wolfgang Franz und Klaus Goggelmann ........................... 181
1. Introduction ................................................. 181
2. Theory and Estimation of the Disequilibrium Model:
An Introduction ............................................. 182
x Table of Contents
3. Simulation of an Alternative Monetary Policy ................... 185
4. Conclusions ................................................. 191
Impact of German Discount and Lombard Policy on
Financial Markets
Gunter Franke and Bernd Meyer ............................ 0 0 0 0 0 0 193
1. Introduction. 0 0 0 • 0 0 • 0 • 0 • 0 0 0 0 0 • 0 •• 0 0 0 0 0 0 •• 0 0 • 0 0 0 0 • 0 0 • 0 0 0 •• 0 • o. 193
2. Review of the Literature ....... 0 0 • 0 00 • 0 0 0 0 0 •• 0 194
o •••••• o •••••• o.
30 The Bundesbank's Policy ......... 0 0 •• 0 0 • 0 0 • 0 0 ••••••••••••••• 0 196
4. Hypotheses and Test Methodology ............................. 198
5. Empirical Analysis .... 0 •••••••••• 0 •• 0 •• 0 •••••••••••••••• 204
o ••••
6. Conclusion ...................... 0 •••• 0 ••••••••••••••• 0 •••••• 216
Bank Behavior, an Options View of Rediscount Quotas, and
the Theory of Money Supply
Nikolaus K.A. Laufer ............ 0 ••• 0 •• 0 ••••• 0 ••• 0 •••••••••• 0 ••• 219
1. Introduction ..................... 0 ••••••••••••••••••••••••••• 219
2. Theoretical Framework ....................................... 221
3. Main Comparative Static Results .. 0 ••••••••••••••• 0 ••••••••••• 231
4. Further Extensions and Comments . 0 ••• 0 •••••••••• 0 0 • • • • • • • • • • • 233
50 Macro-theoretical and Policy Implications .... 0 0 0 0 0 • 0 0 • 0 0 0 0 o. 0 0 • 236
6. Conclusion ... 0 0 0 • 0 • 0 0 • 0 •• 0 ••••••• 0 ••• 0 ••• 0 0 •• 0 •• 0 0 • 0 • 0 •••• 0 • 238
70 Mathematical Appendix 0000000000000.00000000000.00000000 ••• 0 239
Global Capital Movements, Exchange Rate Risks and
Monetary Policy
Bernd Braasch and Helmut Hesse . 0 0 0 0 0 • 0 • 0 0 0 0 0 0 0 0 0 0 0 • 0 0 •• 0 0 0 0• 0 • 0 249
1. The Change in the Monetary Environment .. 0 0 0 • 0 • 0 0• 0 0 0 0 0 0 0 0 0 0 0 249
2. Difficulties for National Monetary Policy 0 0 0 0 0 • 0 0 • 0 0 • 0 0 0 0 • 0 0000. 0 251
30 Monetary Policy and " Asset Price Inflation" ..... 0 • 0 0 0 0 0 0 0 0 • 0 0 0 0 • 258
40 Requirements of Monetary Policy .. 0 0 0 0 •• 0 ••• 0 • 0 • 0 0 0 0 0 0 0 0 0 0 0 • 0 • 261
50 Final Conclusions 0 • 0 • 0 • 0 0 0 • 0 • 0 • 0 0 0 0 0 • 0 0 0 0 0 • 0 • 0 0 0 0 0 0 0 0 0 0 •• 0 0 0 0 265
Tax Policy and the Location Decision of Firms
Bernd Genser and Andreas Haufler 0 •• 0 0 0 ••• 0 0• ••• 0 0 • 0 0 0 0 0 • 0 0 0 0 0 0 0 269
1. Introduction 0 0 0 • 0 0 0 0 0 •••• 0 0 0 0 0 0 • 0 0 0 • 0 • 0 0 • 0 • 0 0 0 • 0 0 0 0 0 0 0 0 0 • 0 •• 0 269
2. An Optimal Taxation Model for a Small Open Economy 0 0 0 0 0 • 0 • 0 0 271
30 The Optimal Tax Structure ... 0 • 0 0 0 0 •• 0 0 0 0 0 0 •• 00000.00000000.0 275
40 Trade Balance and Labour Market Effects 0 0 0 0 0 0 0 0 0 • 0 0 0 •• 0 • 0 0 0 0 0 0 277
50 Conclusions 0 0 0 0 •• 0 • 0 0 0 0 0 0 0 0 • 0 0 000 • 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 • 0 0 0 0 0 0 0 0 0 0 278