Neo-Schumpeterian Simulation Models

The use of simulation modelling techniques by neo-Schumpeterian economists dates back to Nelson and Winter’s 1982 book “An Evolutionary Theory of Economic Change”, and has rapidly expanded ever since. This paper considers the way in which successive generations of models have extended the boundaries of research (both with respect to the range of phenomena considered and the different dimensions of innovation that are considered), and while simultaneously introducing novel modelling techniques. At the same time, the paper will highlight the distinct set of features that have emerged in these neo-Schumpeterian models, and which set them apart from the models developed by other schools. In particular, they share a distinct view about the type of world in which real economic agents operate, and a invariably contain a generic set of algorithms. In addition to reviewing past models, the paper considers a number of pressing issues that remain unresolved and which modellers will need to address in future. Notable amongst these are the methodological relationship between empirical studies and simulation (e.g. ‘history friendly modelling’), the development of common standards for sensitivity analysis, and the need to further extend the boundaries of research in order to consider important aspects of innovation and technical change.macroeconomics ;

Modeling and Forecasting the Malawi Kwacha-US Dollar Nominal Exchange Rate

This study develops a blended version of the monetary and portfolio models for the MK/USD exchange rate, and assesses the forecasting performance of the model against a simple random walk. The results indicate that the model performs better than the simple random walk on the 6, 12 and 24 months forecasting horizons. However, the model does not perform well on the 3-month horizon, which is supported by theory suggesting that exchange rate movements are not driven by fundamentals in the short term. We also add a variable drift term to the random walk process and compare its performance against both the simple random walk and the fundamental model. The results show that random walk (with a variable drift) performs better than the other models in out-of-sample process at both short term and long term horizons. This result suggests that this (the random walk with a drift) process might be the best tool for exchange rate forecasting on all the forecast horizons. When it comes to exchange rate forecasting in the long term, a fundamental model might still be the best alternative. Regarding the structural model (with fundamental determinants of nominal exchange rate), the empirical results indicate that a worsening current account balance and decreases in net external flows result the depreciation of exchange rates. This is in line with practical experience. On the other hand, higher domestic interest rates have an insignificant impact on exchange rate. In an economy with several structural bottlenecks and poor infrastructural services, high interest rates cannot be expected to induce capital flows. A rise in domestic inflation is associated with a deprecated exchange rate. Lastly, consistent with theoretical expectations, another significant finding is that an easing in monetary policy (increase in money supply growth) is associated with a depreciation of the exchange rate. These findings lead us to make the following conclusions. Developments in the current account balance have implications on the exchange rate market. Measures aimed at improving the current account position, for example through exports, are also instrumental in stabilizing the exchange rate – through appreciation. Considering that Malawi has been traditionally depending on tobacco as its chief foreign exchange earner, and taking into account the anti-smoking campaign militating against the crop amidst low prices, it is imperative that Malawi should diversify into other foreign exchange earner (for instance tourism) in order to ensure macroeconomic stability, which itself is a pre-requisite for economic growth and therefore poverty reduction. Thus, policies that influence exports and imports of goods and services also determine exchange rate movements. Likewise, prospects concerning funding for a donor aid dependent economy like ours may influence the direction of market forces in determining the exchange rate movements. Big swings in external funding could cause instability Therefore, government’s credibility regarding the use of external public funds and implementation of related reforms is important in as far as stability of the foreign exchange market and overall macroeconomic stability are concerned. The insignificant impact of higher domestic interest on attracting capital flows calls for the need for government to address some structural bottlenecks. For instance, infrastructure services such road network and utilities (electricity and water supply) require improvement. Otherwise, currently, Malawi needs lower interest rates in order to reduce the cost of credit necessary for private sector development. The general picture from the results is that developments in the external sector of the economy, which are not under the ambit of domestic authorities, probably contributed more to fluctuations of the Malawi kwacha. If indeed the above diagnosis is accurate, the policy implications of government’s ability in influencing the behavior of the exchange rate is limited. This is because the ability of a small economy like that of Malawi to fully insulate itself from external shocks is constrained. It will mainly be confined to limiting the contributions of inconsistencies in domestic policy and administering some confidence building measures, at least in the short-term-to medium term It is worthy to note that divergent opinions exist as to the usefulness of devaluation (or depreciation) as a policy tool. There are those that believe devaluation as a policy tool can boost exports and so crate jobs. It should be noted however that since the kwacha was floated in 1994, it has been on a depreciating trend almost continuously without corresponding gains from the export sector. Without losing sight of the interest of exporters, it should be noted that a depreciated kwacha has implications in terms of increased import expenditures (oil import bill), government debt service, domestic inflation and cost of imported intermediate inputs. In the short term, what we should strive as a nation is to have a stable Malawi kwacha exchange rate. In the long run, the viable option is in ensuing a competitive export market is increased productivity among exporting firms. This may include export diversification and implementing measures to limit market imperfections

The effects of low-cost countries on Portuguese manufacturing import prices

This paper estimates the direct effect of low-cost countries on Portuguese manufacturing import prices, using detailed data both by product and by geographical market for the period 1997-2006. The results point to a negative but modest direct effect when compared with studies available for other countries. This is understandable given the lower share of low-cost countries in Portuguese imports. However, besides this direct effect, import prices were influenced by several other factors, some also related to the increasing presence of low-cost countries in international markets. Overall, this lower direct effect was not reflected in a differentiated evolution of manufacturing import prices in Portugal as its evolution was very close to the average of the euro area countries

The Gender Wage Gap in Portugal: Recent Evolution and Decomposition

Using data from the Personnel Records (Quadros de Pessoal) for the period 1985-2000, we analyse the gender wage gap in Portugal. We estimate wage discrimination and endowment differentials using four decomposition methods. Our main concern is to analyse the key factors that lie behind the persistent gender pay gap despite the deep changes that characterise the recent evolution of the Portuguese labour market and the high female participation rate that exists in the country. Moreover, using the Neumark methodology, we discuss the relative contribution of different factors in explaining the gender pay gap. The results suggest that, in accordance with previous international research, the measured discrimination differential dominates the estimated endowment differential. Over time, a relevant discrimination gap persisted and it didn’t show any tendency to decrease. Results are also consistent in showing that the most important difference in attributes to explain the gender pay gap is the way how males and females are distributed by sector of industry. As to human capital variables, their relative importance to the explanation of the gender pay gap has reduced sharply, particularly along the 90’s.Labour market; discrimination; wage differential; gender

The impact of China's exports on global manufactures prices

This paper analyses the impact of China's exports on the prices of exports from other countries using disaggregated import data in the US, EU and Japan over the 1989-2006 period. Findings from this study suggest that China's exports have affected not just those countries whose competitiveness is largely based on low wages but all country groups in certain products sectors, destination markets and during different time periods. The middle income countries are the most affected by China's export expansion through price competition particularly after the late 1990s as a consequence of China's market expansion, its WTO entry and exchange rate variation. The influence on high-income countries is only in low-technology product sectors and appears to lose its significance in the post-1997 period. The impact on low-income countries is only significant in the medium- and high-tech sectors mostly in the pre-1997 period and this effect weakened over time

Performance and strategy:simultaneous equations analysis of long-lived firms

A simultaneous equations model of performance, strategy and size is tested using fieldwork evidence on long-lived firms in Scotland. Estimation is by I3SLS, with correction for sample selection bias. The contributions of this paper are that it: (a) grounds estimation on fieldwork evidence; (b) calibrates performance and competitive strategy; (c) tests and models endogeneity; and (d) computes robust trade-off elasticities between firm size and performance. It shows how this trade-off provides the entrepreneur with two strong incentives: (i) to seek greater efficiency typically by an increase in the human capital of the ‘core’ workforce; (ii) to achieve higher levels of performance by adopting more diverse competitive strategies