Determinants of wages and labour supply in the UK

We explore characteristics of the UK labour market with special emphasis on explanation of the existing wage inequalities, determinants of participation and variation in the magnitude of hours of labour supplied among individuals. We explain up to 92 percent of variance in the wage rates from the supply side. Accuracy of the model is accounted by a variety of factors relevant to the labour market, such as gender gaps, marital status, on and off the job training, fluency in English and regional characteristics. The study is quite distinct, since it not only incorporates variables pertinent form the economic point of view, but also some quantified qualitative regressors relating to individuals’ opinions and political preferences. Interestingly, we find that the psychological profile of an individual has a very big influence over his decision on whether to participate, but once he joined the labour force his personal beliefs and opinions have no further impact on the probability of finding a job. The chance of being employed once participating depends mainly on the local labour market conditions. We also report unbiased and reliable estimate of labour supply elasticity based on BHPS sample

Growth and income distributions in four EU economies

Dynamic multi-sectoral and multi-household general equilibrium models are constructed to show how the economies of Germany, France, Spain and the United Kingdom will evolve from 2006 to 2090. These models generate dynamic paths of investment and capital accumulations, demand and supply across production sectors, consumption and welfare of households, relative prices of goods and services, revenue and expenditure of governments, exports, imports, and trade balance consistent with the dynamic general equilibrium in these economies. The models show that inequalities in income distribution among households will not decrease but widen if the current mix of direct and indirect taxes continues in all four countries. Growing inequalities in these economies justify further investments in education and skills

Unemployment-inflation trade-offs in OECD countries

© 2016 The Author. Inflation and unemployment reduce welfare of individuals and should be as low as possible in any economy. Cointegration and Granger causality tests suggest that there are long run relations between these two variables among the OECD economies. While rates of unemployment vary significantly among these economies, rates of inflation have stabilised at lower rates as a result of inflation targeting policies adopted in them during the last two decades. The Phillips curve phenomena are still empirically significant for 28 out of 35 of these OECD economies in country specific regressions; in fixed and random effect panel data models and in a panel VAR model for 1990:1 to 2014:4. Country specific supply curves and Okun curves are consistent to thin Phillips curve relations. Leftward shifts in the Beveridge and Phillips curves require labour market reforms balancing between job creations and destructions. Complementing macro stimulations by microeconomic structural and institutional reforms can bring efficiency in bargaining for wages and employment among firms and workers to make unemployment-inflation trade-offs more significant and relevant in these economies

FDI and growth

Multinational corporations [MNCs] usually engage in foreign direct investment [FDI] to take cost advantages of producing abroad to negate the need for licensing or subsidiary production. At the macro level, FDI accounts for significant proportions of MNCs total investment and has discernible impacts on economic growth. This is shown theoretically in the growth model where FDI complements domestic capital. Our model predictions tested favourably against panel data analysis of FDI on growth for thirty OECD countries. This paper also contributes in relating micro and macro aspects of the impact of FDI on economic growth and provides empirical support to the existing literature

Impact of foreign aid on growth and trade

Foreign aid from the donors may or may not raise growth rates in receiving countries. In general they may increase investment but if the amount of aid is associated with conditionality of exports, that will have negative impacts on growth rates. Simulation of the analytical model shows that if TFP grows faster in the recipient countries more than in the donors then DCs can converge in the capital output ratios and investment saving ratios with similar growth patterns as their AC donors over the long horizon. If the resource flows out of the developing countries in return to aid inflows this will have harmful effects in growth of developing economies. Econometric estimates show that investment rather than aid was a factor contributing to growth in DCs. Exports tied to aid have been harmful for growth of recipient countries. British exports to developing Asian countries were more influenced by their level of per capita income than the amount of British aid to those economies

Dynamic CGE model of the Chinese economy for fiscal and financial policy analysis

China is to become the largest economy in the world by 2020 according to the IMF forecasts. Annual growth rates of output remained around 9.3 percent on average during 1980 to 2015. It was made possible by the accumulation capital with steady flows of investment on average around 49.5 percent of GDP, increase in the human capital index from 1.8 to 2.6 in the country that has the largest population among all countries. Current account surplus stood around 3.4 percent of GDP. Such growth rates were possible due to macroeconomic stability. Market friendly growth strategy however has led to a sharp increase in the income and consumption inequality. Inequality is deeper in the rural areas than in the urban areas. A representative household in the richest quintile earns eight times more than an average household in poorest quintile. This is five times more in urban areas. The Gini coefficient was around 0.48. By this measure China has become the most unequal economy in the world. Similar disparities remain across provinces of China; per capita income of Tianjin was 99,600 Yuan compared to 22,921 Yuan of Guizhou. Chinese government has used public spending to create economic infrastructure and public services. The share of public spending and revenue has reached around 30 percent of GDP in China in recent years. Share of local government has risen steadily over years from 53 percent to 86 percent in 2013. Efficiency in the local governance thus is essential for correcting economic and social problems in China. VAT, corporation tax, business tax, consumption tax and income tax and tariffs are important sources of revenue. In 2013, these contributed to 26, 20, 16, 7, 6 and 2 percents of total revenue respectively. Compared to advance countries Chinese tax system still seems very regressive as the income tax contributes to the very small proportion of the total revenue. It is welcome to see that the share of VAT decreased from 36 to 26 percent and tax in corporate income tax rose from eight to 20 percent but the very low income tax that accounts about 6 percent of total revenue, has caused income inequality to deteriorate. The adverse consequences of tax composition are to some extent mitigated by a more reasonable structure of public spending. Education, social safety, agriculture, public services, community, transport and health had 18, 12, 11, 11, 10 seven and 7 percent of public spending respectively

Financial deepening and economic growth

The core of Shapley-Shubik games and general equilibrium models with a Venn diagram is applied for a theory on the role of real finance in economic growth among advanced economies. Then the dynamic computable general equilibrium (DCGE) models for Germany, France, UK, Japan and USA are constructed to assess the validity of the over financing hypothesis that reappeared after the financial crisis of 2008. Actual financial deepening ratios observed in the non-consolidated balance sheet of the OECD exceeded by factors of 3.5, 2.4, 5.1, 11.6 and 4.8 to the optimal financial deepening ratios implied by DCGE models respectively in these countries because of excessive leveraging and bubbles up to 19 times of GDP which were responsible for this great recession. Containing such massive fluctuations for macroeconomic stability and growth in these economies is not possible in conventional fiscal and monetary policy models and requires a DCGE analysis like this along with adoption of separating equilibria strategy in line of Miller-Stiglitz-Roth mechanisms to avoid asymmetric information problems in process of financial intermediation so that the gap between actual and optimal ratios of financial deepening remain as small as possible

Welfare and distributional impacts of financial liberalization in an open economy : lessons from a multi-sectoral dynamic CGE model for Nepal

By equalizing rates of return across sectors, financial liberalization improves efficiency and equalizes the distribution of income. Efficiency gained in the allocation of resources increases capital usage more in previously heavily repressed sectors such as agriculture and textile, allowing up to a 19 percent expansion in production and employment. The savings and investment responses, degree of factor substitutions, are higher in the complete liberalization than in partial or piecemeal liberalization. Income, consumption, utility and overall welfare of rural and urban households increase. Liberalization is not effective if savings are used in accumulations of unproductive assets i.e. gold, jewelry, urban land, and foreign exchange. Financial liberalization improves the distribution of income by raising the wage rate of rural labour than for urban labour as rural labour-intensive sectors invest more with increased access to financial institutions and demand more labour to complement additional capital employed in these sectors

Strategic And General Equilibrium Models In Poverty Measurement Studies

Incentive compatibility in poverty alleviation game for the most efficient and just allocation of resources and maximisation of social welfare requires cooperation from both rich and poor households, governments and the global community. Noncooperation among them only deepens poverty with socially, economically and morally unacceptable magnitudes of malnutrition, hunger-disease-illness, tensions and conflicts, illiteracy and lack of education and skills. Scientific analyses and systematic implementation of poverty reduction initiatives require strategic and multihousehold general equilibrium models to compliment standard Booth-Rowntree, Sen- Atkinson and FGT or Jenkins-Lambert type absolute, relative, chronic or intensity measures of poverty in order to evaluate dynamic impacts actions taken for alleviation of poverty. Bad game results in poverty and good game results in prosperity. No analyses of poverty can be considered complete without evaluating income and substitution effects on welfare of these households based on the price mechanism and allocation of resources in the wider economy.poverty, redistribution, dynamic model

Economic growth and public debt

Abstract There is a controversy in the literature about the economic contribution of public deficit. Keynesian economists generally argue that by spending more on goods and services and infrastructure possible budget deficit is helpful to create more jobs, reduce unemployment rate and raise the rate of economic growth of an economy. Neoclassical economists are worried about the adverse consequences of public deficit on capital accumulation and economic growth rate. Under classical Ricardian equivalence proposition private savings offsets public dis-saving thus budget deficit does not matter in the long run. Development economist often warn against the adverse consequences of budget deficit on inflation, current account balances and redistribution of income. Empirical evidence is found for a positive or a negative or no effect of debt on growth. Debt promote growth if it is used for investment and harms growth if it is used for consumption. Whether debt is more for investment or consumption depends on economic and political circumstances of a country