We study how stochasticity in the evolution of agricultural productivity interacts with economic and population growth, and the associated demand for food. We use a two-sector Schumpeterian model of growth, in which a manufacturing sector produces the traditional consumption good and an agricultural sector produces food to sustain contemporary population. In addition, sectors differ in that agriculture also demands land as an input, itself treated as a scarce form of capital. In our model both population and sectoral technological progress are endogenously determined, and key technological parameters of the model are structurally estimated using 1960-2010 data on world GDP, population, cropland and technological progress. Introducing random shocks to the evolution of total factor productivity in agriculture, we show that uncertainty optimally requires more land to be converted into agricultural use as a hedge against production shortages, and that it significantly affects both consumption and population trajectories.
An interaction can be observed between a company’s level of exports and its domestic sales. Estimates made using data on French companies show that a 10% increase (decrease) in exports is accompanied, in the same year, by a 1% to 3% increase (decrease) in domestic sales. This strong interaction between sales in different markets can result from short-term funding constraints that make companies more sensitive to changes in their international environment. During the crisis, the sharp contraction in demand recorded in some of the euro area markets could therefore have had a negative impact on the activity of French companies in the domestic market, in particular for the most vulnerable.
We structurally estimate a two-sector Schumpeterian growth model with endogenous population and finite land reserves to study the long-run evolution of global population, technological progress and the demand for food. The estimated model closely replicates trajectories for world population, GDP, sectoral productivity growth and crop land area from 1960 to 2010. Projections from 2010 onwards show a slowdown of technological progress, and, because it is a key determinant of fertility costs, significant population growth. By 2100 global population reaches 12.4 billion and agricultural production doubles, but the land constraint does not bind because of capital investment and technological progress.
Why give aid to resource-rich autocrats? We find that the interaction between natural resources and most forms of international aid results in enhanced political instability in most autocratic countries. Interestingly, some types of government aid (notably humanitarian aid) do not have this effect, indicating that the impact of aid varies with its form. Furthermore, we find that only aid structured in the form of loans (rather than grants) is more likely to flow toward resource-rich autocracies. This combination of loans with any political instability they may induce, can create speculative rights (for the donor) in the resource-riches of the recipient country. This potential claim on resources provides one important strategic reason to give aid to resource-rich autocrats. Aid can act as a form of foreign intervention in the pursuit of regime change, and claims on resources.
The basic tenet of the present policy paper is that economic institutions are the key determinant of economic growth and development, and that policy-makers and developing country governments dealing with trade and finance must concentrate on “getting the institutions right.” In order to be implementable, policy recommendations must correct inefficiencies that the market system will not, implying that correcting market (and institutional) failures constitutes the crux of the policy options. These fall under four headings,informed by the standard list of canonical market failures. First, the widespread existence of externalities and coordination failure imply that: (i) strategic use should be made of official development assistance and blended finance; (ii) domestic resources in developing countries should be better mobilized through stronger domestic tax institutions and a more transparent international tax system; (iii) guidelines should be adopted for broadly-used private standards that affect trade; and (iv) duty-free and quota-free preferences, alongside liberal rules of origin with extended cumulation provisions, should be extended to all least developed countries. Second, standard public goods arguments imply a pressing need for: (i) development-led legal and regulatory reform; (ii) the implementation of a long overdue trade facilitation framework for services; (iii)the realignment of incentives that determine the sectoral allocation of Aid for Trade funds towards the services sector; (iv) ensuring the availability of correspondent banks in all low-income countries which are otherwise largely cut off from the trading system; and (v) contributing to the construction of a global coordination mechanism for trade and supply chain finance. Third, natural monopoly arguments at the regional level call for: (i) enhanced mechanisms for regional regulatory cooperation in general and financial services in particular; and (ii) enhanced regional aid for trade. Fourth, the existence of asymmetric information problems faced both by developing country governments and international investors suggest a pressing need to: (i) improve technical advice on international economic agreements (including public-private partnerships) available to developing country governments; and (ii)adopt model solvency schemes and debt restructuring approaches. The paper concludes with a recommendation on measuring progress on these policy options through the construction of an aggregate index of “institutional readiness.”
How does the market for corporate control reallocate firm ownership in response to adverse aggregate financial shocks? To answer this question, we develop a tractable model of mergers and acquisitions (M&As) where firms facing different degrees of financial constraints acquire ownership of illiquid domestic firms. We show that acquisitions by financially constrained acquirers, on average, involve higher ownership stakes and post-acquisition survival rates when faced with adverse aggregate financial shocks, in comparison to acquisitions by unconstrained firms. This effect operates through two margins: An intensive margin (dominant for constrained acquirers) that works through a higher average productivity of acquirer-target matches, and an extensive margin (dominant for unconstrained acquirers) that operates thorough an increase in the proportion of fire-sale acquisitions in the economy. We provide evidence supportive of the predictions of the model in a large data set of M&As in emerging market economies. Our theoretical results provide insight into our novel empirical findings of a change in the degree of control acquired by and a convergence of survival rates between domestic and foreign acquisitions during financial crises, and point to the existence of a “cleansing effect” in the market for corporate assets.
This paper contributes the on-going debate on income inequality in advanced economies with a proposal aimed at reducing costly investment mistakes that are prevalent among middle-class households. The paper starts by describing how households should invest, compares it with what we know about how households do invest, and highlights discrepancies between the two (investment mistakes). After evaluating the costs of investment mistakes, the paper suggests that they could be reduced by accommodating cognitive biases through a simple process of financial education and appropriate default options. The policy described in this paper is immediately actionable at basically no cost and can have a large effect on the welfare of middle-class households in advanced economies.
The trade linked to international production networks – supply-chain trade for short – is associated with momentous global economic changes. This paper presents a portrait of the global pattern of supply-chain trade and how it has evolved since 1995. The paper draws on a variety of data sources but most heavily on the recent World Input-Output Database. China’s supply-chain trade receives special attention.
