Climate and Industrial Policy in an Asymmetric World

Climate change is a phenomenon leading to randomly distributed disasters around the globe. Due to massive economic and technical asymmetry between the advanced North and the developing South efficient climate and industrial policy is particular difficult. Globally efficient policy would need to equip the South with pollution reducing technologies. However, there is a tradeoff between capital accumulation for consumption growth and low-carbon development. The pollution stock affecting today.s climate was historically accumulated by the North, therefore, the .ability-to-pay principal. and the .polluter pays principle. suggest to allocate the main burden of climate change policy to the advanced economies.climate change policy, North-South asymmetries, stock pollution, distribution of burdens

International Integration and Regional Development in China

Concerns about the duration of China?s growth and hence the question of a permanent significant contribution of China to world economic growth relate, amongst other things, to the problem of reducing regional disparity in China. While China?s high average growth is driven by a small number of rapidly developing provinces, the majority of provinces have experienced more moderate development. To obtain broad continous growth it is important to identify the determinants of provincial growth. Therefore, we introduce a stylized model of regional development which is characterized by two pillars: (i) International integration indicated by FDI and/or trade lead to imitation of international technologies, technology spill overs and temporary dynamic scale economies, and (ii) domestic factors indicated by human and real capital available through interregional factor mobility. Using panel data analysis and GMM estimates our empirical analysis supports the predictions from our theoretical model of regional development. Positive and significant coefficients for FDI and trade support the importance of international integration and technology imitation. A negative and significant lagged GDP per capita indicates a catching up, non steady state process across China?s provinces.Highly significant human and real capital identifies the importance of these domestic growth restricting factors. However, other potentially important factors like labor or government expenditures are (surprisingly) insignificant or even negative. Further, in contrast to implications from NEG models indicators for urbanization and agglomeration do not contribute significantly.international integration, regional development, FDI, China

Entrepreneurship and Regional Economic Growth: Towards A General Theory of Start-Ups

Start-ups of new firms are important for economic growth. However, start-up rates differ significantly between countries and within regions of the same country. A large empirical literature studies the reasons for this and attempts to identify the regional determinants of start-ups. In contrast, there is a much smaller theoretical literature that attempts the formal modelling of the start-up process within a region. In this paper, we attempt to contribute to this small literature by introducing a general theoretical model of the entrepreneurial start-up process. The model links start-ups to economic growth and can be applied to understand growth in a regional context. We derive five propositions that fit the stylized facts from the empirical literature: (i) growth in the regional economy is driven by an expansion in the number of start-up firms that supply intermediate goods and services; (ii) improvements in human capital will enhance the rate of start-ups; (iii) improvements in the relative rates of return to entrepreneurs and business conditions will raise start-up rates; (iv) an increase in regional financial concentration will reduce the start-up rate in a region and; (v) increased agglomeration/urbanization in a region has an a priori ambiguous effect on start-up rates.start-ups, entrepreneurship, frictions, economic growth

Regional Growth and Development without Scale Effects – a Simple Model of Endogenous Formation of Regions

We present a semi-endogenous model of regional growth and development without scale effects. In this model of a small developing region the world growth rate of technical progress is given. Regional growth is driven by technological change induced by imitation. Imitation is determined by positive externalities from international trade. Regional factor endowments consist of immobile land and human capital which is perfectly mobile between regions. In order to study the endogenous formation of regions we introduce a second region and analyze a non symmetric decrease in international transaction costs. We find agglomeration in the region with better access to international markets, while the less favored region will realize a drop in income and technological capability. Two reactions can be identified. 1. For given resource endowments, the technological imitation process determines the final relative technological steady state positions. 2. Migration between the regions endogenously determines the final resource endowments of the regions. When reaching the no migration equilibrium, the relative development position, the population size and density of the region, as well as comparative advantages are endogenously determined.semi-endogenous growth, economic development, international trade, agglomeration, regional growth

Entrepreneurship and Human Development: A Capability Approach

We provide a formal model of entrepreneurship in human development. The framework is provided by the capabilities approach (CA). Hence we extend not only the conceptualisation of entrepreneurship in development, but the reach of the CA into entrepreneurship. From a CA view, entrepreneurship is not only a production factor, or a means to an end, as is often taken to be the case by economists, but also an end in itself. Entrepreneurship can be a human functioning and can contribute towards expanding the set of human capabilities through being both a resource and a process. Our model shows, however, that entrepreneurship is not automatically a functioning. Where it is a necessity it stops being a valued functioning. The model also shows that even when entrepreneurship is valued, entrepreneurs may often not match their ideas with suitable opportunities. Policy implications are discussed.capability approach, entrepreneurship, human development

Short-run and Long-run Dynamics of Growth,Inequality and Poverty in the Developing World

Growth, inequality, and poverty are central elements of the development process. However the mutual effects and directions of causality have been, and remain, one of the most controversial issues. After introducing a simple theoretical framework we derive some fundamental relations between growth, inequality and poverty. In the empirical part we test for unit roots and coin- tegration and apply GMM techniques on an error correction model (ECM) to estimate the pairwise short-run and long-run dynamics for income growth and changes in inequality and poverty in a panel of 114 developing countries and six regional subpanels for 1981 to 2005. The results confirm the relations of the theoretical framework; the evidence shows that in nearly all cases the vari- ables exhibit a short-run and long-run relationship. The findings reveal positive bidirectional causality between growth and inequality as well as between in- equality and poverty, and negative bidirectional causality between growth and poverty. Furthermore, the evidence shows that the level of development affects the poverty-reducing effect of growth, and that growth has benefited the poor regions far less. In summary, we show that growth, income distribution and poverty reduction are strongly inter-related, so a sucessful development strat- egy requires effective, country-specific combinations of growth and distribution policies.poverty, inequality, growth and development, panel cointegration, panel causality

When to Start a New Firm?: Modelling the Timing of Novice and Serial Entrepreneurs

The success of new start-up firms often depends on timing. It is valuable for the potential entrepreneur to wait for the right moment before starting a new firm. In this paper we provide a theoretical model to determine the optimal time for starting a new firm. We integrate insights from the real option theory with the theory on entrepreneurial market entry. An important and novel feature of our model is that it allows the start-up timing decisions of novice and serial entrepreneurs to be distinguished.entrepreneurship, serial entrepreneurship, start-ups, real options, stochastic optimal control

China’s provincial disparities and the determinants of provincial inequality

The paper explains the growth — inequality nexus for China’s provinces. The theoretical model of provincial development consists of two regions and studies the interactions of a mutually depending development process. Due to positive externalities, incoming trade and FDI induce imitation and hence productivity growth. The regional government can influence the economy by changing international transaction costs and providing public infrastructure. Due to mobile domestic capital, disparity effects are reinforced. The implications of the theoretical model are tested. As the central intention of the paper is to explain provincial disparity we directly relate income disparity (indicated by the contribution to the per capita income Theil index) to the disparity of selected income determining factors (indicated by the contribution to every other Theil index of the determinants). We examine the determinants of income and inequality for 28 Chinese provinces over the period 1991-2004 and apply a fixed effects panel estimation. Our analysis is based on revised GDP and investment data from Hsueh and Li (1999) and various sources of Chinese official statistics provided by the National Bureau of Statistics (NBS). The results confirm the theoretical framework and suggest a direct linkage between the factors that determine regional income and regional disparity. More specific, it is apparent that trade, foreign and domestic capital and government expenditure have an impact on the provincial inequality. Moreover, it is the success of the coastal regions and hence potentially geography with the low international transaction costs that drives the provincial inequality of China.regional development, FDI, international integration, China

Entrepreneurship, Structural Change and a Global Economic Crisis

Building on a Lewis-type model of structural change and entrepreneurship we show how a global economic crisis consisting of a financial and a trade shock can undermine structural change in developing countries via the start-up and innovation activities ofentrepreneurship, global economic crisis, structural change

Financial Deepening, Trade Openness and Economic Growth in Latin America and the Caribbean

This contribution investigates the direct and indirect causal interactions between financial deepening, trade openness and economic growth for 13 Latin American and Caribbean countries. Using a rather general approach to identify indicators for financial deepening and to detect Granger causality within a VAR/VECM framework, we find almost no evidence for the popular hypothesis of finance-led growth. Evidence of bidirectional finance-growth causality is stronger but mostly unstable in the long run. Most results indicate a demand-following or insignificant relationship between finance and growth in Latin America. This finding seems to be consistent with regard to the weakness and deficiencies of the region's financial systems. Further, there is no evidence that finance indirectly and unilaterally induces growth via the channel of trade openness. Thus, policies that prioritize financial and trade liberalization cannot be supported by this study. Instead, a holistic policy approach seems to be preferable that promotes the determinants of both real sector growth and financial development. As a result, financial factors may positively and significantly contribute to economic development in the region.Financial Markets, Economic Growth, Openness, Hsiao’s Granger Causality, Latin America and Caribbean