Relating the Knowledge Production Function to Total Factor Productivity: An Endogenous Growth Puzzle

The knowledge production function is central to research and development-based growth models. This paper empirically investigates the knowledge production function and intertemporal spillover effects using cointegration techniques. Timeseries evidence suggests there are two long-run cointegrating relationships. The first captures a long-run knowledge production function; the second captures a long-run positive relationship between total factor productivity (TFP) and the knowledge stock. The results indicate that strong intertemporal knowledge spillovers are present and that the long-run impact of the knowledge stock on TFP is small. This evidence is interpreted in light of existing theoretical and empirical evidence on endogenous growth. Copyright 2006, International Monetary Fund

Remittances and Institutions: Are Remittances a Curse?

This paper addresses the complex and overlooked relationship between the receipt of workers’ remittances and institutional quality in the recipient country. Using a simple model, we show how an increase in remittance inflows can lead to deterioration of institutional quality – specifically, to an increase in the share of funds diverted by the government for its own purposes. In a cross section of 111 countries we empirically verify this proposition and find that a higher ratio of remittances to GDP leads to lower indices of control of corruption, government effectiveness, and rule of law, even after controlling for potential reverse causality.Remittances, Institutions, Corruption

A Template for Analyzing and Projecting Labor Market Indicators

This note is a reference guide for the unemployment template, an econometric tool that allows researchers to analyze and project labor market indicators for any country with sufficient data coverage. Section I explains the motivation behind designing a new surveillance tool to study labor markets, and summarizes the key features of the template. Section II details the data inputs needed and their sources. Section III describes the methods used to estimate the employment-growth elasticity, a measure of the extent to which employment responds to output. Section IV outlines the medium-term outlook table and projection charts created by the template once the inputs are customized to generate an appropriate elasticity. Finally, Section V presents a discussion of how to interpret the results produced by the template, and of the issues that arise from projecting labor market indicators

A Template for Analyzing and Projecting Labor Market Indicators

This note is a reference guide for the unemployment template, an econometric tool that allows researchers to analyze and project labor market indicators for any country with sufficient data coverage. Section I explains the motivation behind designing a new surveillance tool to study labor markets, and summarizes the key features of the template. Section II details the data inputs needed and their sources. Section III describes the methods used to estimate the employment-growth elasticity, a measure of the extent to which employment responds to output. Section IV outlines the medium-term outlook table and projection charts created by the template once the inputs are customized to generate an appropriate elasticity. Finally, Section V presents a discussion of how to interpret the results produced by the template, and of the issues that arise from projecting labor market indicators

Frugality

Household savings rates in the United States have recently crept up from all-time lows. Some have suggested that a shift toward frugality will hamper GDP growth-the Keynesian "paradox of thrift." We estimate that households compensate for a fall in their asset income by saving more out of their labor income, dollar-for-dollar. In the wake of the crisis, our model predicts that such primary savings will increase, but only temporarily and modestly, as household assets stabilize. As savings flows gradually accumulate, they help rebuild corporate net worth and hence firms'' capacity to make capital investments. A timely return to pre-crisis levels of capital investment would require that U.S. households save substantially more than the model predicts, starting now. Hence, we should fret that our savings rates may be too low.Economic models;Household credit;Income;Private investment;Private savings;equation, labor income, statistic, disposable income, consumer durables, cointegration, disposable labor income, statistics, equations, household net wealth, household net worth, permanent income, permanent income hypothesis, household consumption, personal disposable income, time series, household wealth, consumption function, standard deviation, investment spending, gross domestic product, government spending, standard errors, significance level, correlation, household income, private consumption, consumption patterns, general equilibrium model, consumer demand, regression analysis, optimization, standard error, consumer behavior, predictions, simulation model, maximum likelihood estimation, consumer spending, monte carlo simulation, consumption smoothing, econometrics, constant term, household budget, probability, capital consumption, constant mean, aggregate demand, statistical analysis, national income, hypothesis testing, general equilibrium

FEER for the CFA franc

We investigate the behaviour of the real effective exchange rates (REER) of the two CFA franc zone monetary unions - CEMAC and WAEMU - vis-a-vis their long-run equilibrium paths. A reduced form of the Edwards' (1989) fundamentals equilibrium exchange rate (FEER) model is estimated using the Johansen's (1995) cointegration methodology, and equilibrium paths and associated misalignments are derived for the period 1970 to 2005. Our results suggest that, for both CEMAC and WAEMU, the fundamentals account for most of the exchange rates' fluctuation: increases in the terms-of-trade, government consumption and productivity tend to appreciate the exchange rate, while increases in investment and openness tend to depreciate it. At end of 2005, we find no evidence that either the CEMAC or WAEMU REERs were significantly over-valued, which suggests that no exchange rate action is currently needed. Our analysis also reveals significant differences in the fundamentals' marginal impact, and speed of reversion to equilibrium following a shock, which may raise questions about the desirability of maintaining the same parity for both monetary unions.

FEER for the CFA Franc

We apply the fundamentals equilibrium exchange rate (FEER) approach and the Johansen cointegration methodology to investigate the behavior of the real effective exchange rates of the two monetary unions of the CFA franc zone (CEMAC and WAEMU) vis-à-vis their long-run equilibrium paths. For both CEMAC and WAEMU, our results indicate that: (i) the fundamentals account for most of the fluctuation of the real effective exchange rates, with increases in the terms of trade, government consumption, and productivity improvements causing the exchange rate to appreciate, and increases in investment and openness leading to a depreciation; (ii) at end-2005 both the CEMAC and WAEMU real effective exchange rates were broadly in line with their long-run equilibrium values; and (iii) following a shock, reversion to equilibrium is twice as fast in WAEMU than in CEMAC.Exchange rates;Economic models;exchange rate, cointegration, effective exchange rate, real exchange rate, real effective exchange rate, real exchange rates, equilibrium exchange rate, statistic, equation, statistics, effective exchange rates, real effective exchange rates, logarithm, dummy variables, equations, nominal exchange rate, samples, significance level, nominal effective exchange rate, exchange rate adjustment, time series, exchange rates index, fixed exchange rate, econometrics, predictions, exchange rate paths, statistical significance, dummy variable, fixed exchange rate regimes, probabilities, outliers, constant term, exchange rate regimes, statistical methodology, confidence interval, probability, real exchange rate paths, optimization, standard errors, empirical estimation, linear trend, rate of change, standard deviations, exchange rate system, simultaneous equation, exchange rate behavior, random walks, correlation, exchange rate misalignment, exchange rate movements, covariance, exchange rate deviations, fixed nominal exchange rate, dual exchange rate, foreign exchange, current account balance, polynomial, adjustment path, minimization, significance levels, statistical analysis, standard deviation, equilibrium equation, exchange rate action, real exchange rate series, hypothesis testing, sample size, exchange rate policy

Relating the Knowledge Production Function to total Factor Productivity

The knowledge production function is central to R&D-based growth models. This paper empirically investigates the knowledge production function and intertemporal spillover effects using cointegration techniques. Time-series evidence suggests there are two long-run cointegrating relationships. The first captures a long-run knowledge production function; the second captures a long-run positive relationship between TFP and the knowledge stock. The results indicate the presence of strong intertemporal knowledge spillovers and that the long-run impact of the knowledge stock on TFP is small. This evidence is interpreted in light of existing theoretical and empirical evidence on endogenous growth.Production;Productivity;Economic growth;Economic models;r & d, patents, patent applications, equation, cointegration, statistic, statistics, time series, standard errors, total patent applications, number of patent applications, dummy variables, number of researchers, patent office, total patents, patent filings, prediction, empirical model, significance levels, r & d expenditures, standard error, total number of patent applications, number ? of ? patent ? applications, correlations, basic research, dummy variable, equations, outliers, research and development, r & d activities, logarithms, survey, econometrics, functional form, patent ? applications, probabilities, research programs, significance level, constant mean, total ? number ? of ? patent ? applications, research policy, samples, calculus, empirical validity, r & d spillovers, correlation, predictions, random walks, sample size, hypothesis testing, constant term, scientific research personnel, autocorrelation, scientific research, covariance, statistical methodology, patent protection, probability, linear trend, diffusion process, logarithm, r & d resources, surveys

The Impact of Public Capital, Human Capital, and Knowledgeon Aggregate Output

This paper investigates the impact of public capital on private sector output by testing and estimating an aggregate production function for the U.S. economy over the postwar period augmented to include the stock of public capital as an additional factor input. We use patent applications to proxy for knowledge/technology stocks and adjust labor hours for changes in human capital or skill. Using Johansen''s (1988 and 1991) multivariate cointegration analysis, we find a positive and significant long run effect of public capital, private capital, skilladjusted labor, and technology/ knowledge on private sector output. We find that public capital accounts for about half of the post-1973 productivity slowdown, but only plays a minor role in the partial recovery of labor productivity growth since the mid 1980s. The largest contribution to that (partial) recovery comes from the knowledge stock and human capital.Human capital;Economic growth;Public finance;Labor productivity;Economic models;cointegration, equation, statistic, statistics, patent applications, patents, r & d, dummy variables, heteroscedasticity, finite sample, correlation, patent office, logarithms, equations, autocorrelation, time series, dummy variable, survey, standard errors, data analysis, significance level, r & d expenditures, correlations, number of patent applications, econometrics, explanatory power, basic research, total patent applications, samples, total number of patent applications, r & d stocks, sample size, simultaneous equation, standard error, regression analysis, r & d stock, multivariate distribution, causation, covariance, forecasting, normal distribution, patent activity, research policy, instrumental variables, computation, statistical inference, dynamic system, surveys, statistical analysis, logarithm, orthogonality, sample bias, patent applications data, granger causality, maximum likelihood estimation, sensitivity analysis, homoscedasticity, r & d growth, hypothesis testing, statistical methodology

Remittances and Institutions

This paper addresses the complex and overlooked relationship between the receipt of workers'' remittances and institutional quality in the recipient country. Using a simple model, we show how an increase in remittance inflows can lead to deterioration of institutional quality - specifically, to an increase in the share of funds diverted by the government for its own purposes. Empirical testing of this proposition is complicated by the likelihood of reverse causality. In a cross section of 111 countries we document a negative impact of the ratio of remittance inflows to GDP on domestic institutional quality, even after controlling for potential reverse causality. We find that a higher ratio of remittances to GDP is associated with lower indices of control of corruption, government effectiveness, and rule of law.Workers remittances;Economic growth;remittances, remittance, real gdp, gdp per capita, coefficient on remittances, remittance flows, workers ? remittances, remittance inflows, migration, remitter, impact of remittances, private consumption, access to remittance, capital formation, average remittance, effects of remittance, formal remittances, effect of remittance, worker remittances, economic implications of remittances, informal remittances, impact of remittance, immigrant remittance, remittance channel, benefits of remittances, coefficients on remittances, increase in remittance, remittance receipts, remittance-receiving household, effect of remittances, total factor productivity