The volatility trap: why do big savers invest relatively little?

The more a country saves, the less it invests as a share of saving. We build a “store-or-sow” model of growth with precautionary saving and investment to study the nonlinear relationship between investment and saving. We contend that income volatility is an important variable for explaining saving and investment dynamics. Our results indicate that as permanent volatility increases, both investment and saving increase until a threshold at which point investment plummets while precautionary saving surges. In contrast, with larger volatility of temporary shocks, investment falls and precautionary saving gradually increases. Faced with high permanent volatility, big savers invest relatively little.volatility, precautionary saving, buffer-stock, investment

Public Debt Dynamics and Debt Feedback

We study the dynamics of U.S. public debt in a parsimonious VAR. We find that including debt feedback ensures the stationarity of debt while standard VARs excluding debt may imply an explosive debt path. We also find that the response of debt to inflation or interest shocks is not robust and depends on the policy regime. The recent past suggests that a positive shock to inflation increases debt while the same to interest rate decreases it. Positive shocks to growth and primary surplus unambiguously reduce debt.debt, fiscal policy, growth, VAR, generalized impulse responses

Charting the long-term impact of economic ideas – the rise and fall of growth narratives

The ways in which academics and researchers develop narratives to operationalize key concepts in their field can have significant impacts. Taking the example of economic research, Reda Cherif and Fuad Hasanov explore the formation and diffusion of economic growth narratives and discuss what this reveals about the role of ideas in shaping socio-economic change

La creación de campeones de la industria electrónica en Asia oriental

Sustained and high growth in East Asia was achieved by developing sophisticated export sectors, especially in electronics, spearheaded by national “champions.” Using the experience of four major East Asian semiconductor firms, we argue that four ingredients of state-firm cooperation were instrumental in their success—ambition, autonomy, accountability, and adaptability (4A). This state-firm interaction involved ambitious goals and policies of the state combined with firms’ operational autonomy, strict accountability for the support received, and adaptability to the changing environment. In addition, international and domestic competition, collaboration with multinationals and research consortiums, and own innovation pushed firms toward the technological frontierEn Asia oriental se logró un crecimiento sostenido y elevado mediante el desarrollo de sofisticados sectores de exportación, especialmente en electrónica, encabezados por “campeones” nacionales. Utilizando la experiencia de cuatro importantes empresas de semiconductores de Asia oriental, argumentamos que cuatro ingredientes de la cooperación entre empresas y Estado fueron fundamentales para su éxito: ambición, autonomía, rendición de cuentas y adaptabilidad. Esta interacción entre el Estado y la empresa implicó ambiciosos objetivos y políticas por parte del estado, combinados con la autonomía operativa de las empresas, una estricta rendición de cuentas por el apoyo recibido y la adaptabilidad al entorno cambiante. Además, la competencia nacional e internacional, la colaboración con multinacionales y consorcios de investigación y la innovación propia empujaron a las empresas hacia la frontera tecnológic

Public Debt Dynamics and Debt Feedback

We study the dynamics of U.S. public debt in a parsimonious VAR. We find that including debt feedback ensures the stationarity of debt while standard VARs excluding debt may imply an explosive debt path. We also find that the response of debt to inflation or interest shocks is not robust and depends on the policy regime. The recent past suggests that a positive shock to inflation increases debt while the same to interest rate decreases it. Positive shocks to growth and primary surplus unambiguously reduce debt

The volatility trap: why do big savers invest relatively little?

The more a country saves, the less it invests as a share of saving. We build a “store-or-sow” model of growth with precautionary saving and investment to study the nonlinear relationship between investment and saving. We contend that income volatility is an important variable for explaining saving and investment dynamics. Our results indicate that as permanent volatility increases, both investment and saving increase until a threshold at which point investment plummets while precautionary saving surges. In contrast, with larger volatility of temporary shocks, investment falls and precautionary saving gradually increases. Faced with high permanent volatility, big savers invest relatively little

The volatility trap: why do big savers invest relatively little?

The more a country saves, the less it invests as a share of saving. We build a “store-or-sow” model of growth with precautionary saving and investment to study the nonlinear relationship between investment and saving. We contend that income volatility is an important variable for explaining saving and investment dynamics. Our results indicate that as permanent volatility increases, both investment and saving increase until a threshold at which point investment plummets while precautionary saving surges. In contrast, with larger volatility of temporary shocks, investment falls and precautionary saving gradually increases. Faced with high permanent volatility, big savers invest relatively little

Tourism Specialization and Economic Development: Evidence from the UNESCO World Heritage List

The present paper investigates whether tourism specialization is a viable strategy for development. We estimate standard growth equations augmented with a variable measuring tourism specialization using instrumental variables techniques for a large cross-section of countries for the period 1980–2002. We introduce an instrument for tourism based on the UNESCO World Heritage List. We find that there is a positive relationship between the extent of tourism specialization and economic growth. An increase of one standard deviation in the share of tourism in exports leads to about 0.5 percentage point in additional annual growth, everything else being constant. Our result holds against a large array of robustness checks

Tourism Specialization and Economic Development: Evidence from the UNESCO World Heritage List

The present paper investigates whether tourism specialization is a viable strategy for development. We estimate standard growth equations augmented with a variable measuring tourism specialization using instrumental variables techniques for a large cross-section of countries for the period 1980–2002. We introduce an instrument for tourism based on the UNESCO World Heritage List. We find that there is a positive relationship between the extent of tourism specialization and economic growth. An increase of one standard deviation in the share of tourism in exports leads to about 0.5 percentage point in additional annual growth, everything else being constant. Our result holds against a large array of robustness checks