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Three Essays on Income Distribution and Economic Growth
Get PDFThis thesis presents three papers on the determination of factor income shares and economic growth.
The aim is to address a topical but often overlooked issue in economics, namely, the functional
distribution of income, i.e., the division of national income amongst factors that concur to its creation
(labor and capital). The relative stability of the labor share of income is a sound foundation in modern
macroeconomic models. However, there is strong empirical evidence suggesting that the global labor
share in advanced economies has remarkably declined since the early 80s, with a generalized fall taking
place in most countries and sectors. Alongside this trend, recent research on the field stresses the macrodimension of income distribution but no theory has emerged yet, thus relegating the topic as a secondary
one. In the first part of the work, we make some technical and statistical considerations on the
measurement and composition of labor share - since not all types of income in the national accounts can
be easily attributed to either capital or labor. Once the issues related to the measurement of selfemployment income have been considered, we will see that there are multiple forces which contribute
to the observed fluctuations of the labor share, and among them there is a significant amount of selfreinforcement. However, what emerges is that, despite the number of insights one can gain from the
empirical literature, these theories alone cannot provide a complete explanation of the current worsening
of income distribution. It is precisely this reason that motivates our work. From a theoretical perspective
- which is crucial to understand the cross-relationships between the economic variables involved - we
further show that the cost of modifying existing models is in some cases low if compared to the benefits
that can be obtained and is especially important in understanding the implications of this phenomenon
on economic growth. In the first paper we show that the CES production function presents at least two
criticalities which are not compatible with the necessity to set up a modern theory of distribution.
Therefore, we present a novel theory on how factor shares are determined at the aggregate level. By using
AMECO data for a set of 20 industrialized countries over a 58-year period we provide empirical evidence
against the CES and develop micro foundations for an aggregate production function that better fits the
data and has the property of a variable elasticity of substitution. Then we relax the assumption of perfect
competition by proposing a time-series calculation of the aggregate price mark-up and provide estimates
of the elasticity of substitution under such a framework of imperfect competition in product markets.
Finally, we test the prediction of the model by means of a numerical simulation. We find that firms’ rising
markups along with biased technological change can account for a significant part of the labor shares’
decline observed in the last 40 years. The results also suggest complementarity between labor and capital
in most of the cases, with the elasticity of substitution σ that has been below unity on average, fluctuating
around 0.7-1.16. In the second paper the focus is shifted to heterogeneous sectors and firms and we study
the micro-Level determinants of factor shares. Existing empirical analysis typically rely on industry or
aggregate macro data, thus strongly downplaying the role of firm-level variables in the determination of
wages. We analyze micro panel data from AMADEUS and seek to understand the dynamics of labor share
in 19 broad sectors of the EU28. More specifically we explore the role of technological change, product
and labor market imperfections. We build on insights from Bentolila and Saint-Paul (2003), Blanchard and
Giavazzi (2003) Azmat et al. (2012), Karabarbounis and Neiman (2014) and econometric techniques from
De Loecker and Warzynski (2012), to propose a model in which firms can be heterogeneous in terms of
capital employed in production, market power and productivity. The core argument of our theoretical
framework is the relationship between the labor share and the capital-output ratio. We show that this
relationship holds also for firms and acknowledge the possible existence of relevant non-linearities. Labor
share’s movement turns out to be driven by a complex interplay of conditions for capital and labor, the
nature of technological progress and imperfect market structures which can shift the curve but also - by
creating a discrepancy between the marginal product of labor and the real wage - cause departures from
it. Broadly confirming results from previous cross-country and industry-level studies, we find that the main
factor decreasing labor shares are connected to capital deepening (a 1% increase in the capital-output
reduce the labor share by -0.03 percentage points) in conjunction with capital-augmenting technical
progress and labor substitution (-0.15). Although institutional factors play a significant role in some
specific industries (like for instance Construction, Manufacturing and Transportation), they appear to be
less important for the aggregate economy. Finally, in the third and last paper we introduce new elements
into a standard macroeconomic growth model and develop a post-Keynesian model which allow us to
acquire valuable insights on the macroeconomic effects of changes in the aggregate distribution of
income. We show, analytically, that: (i) income distribution matters mostly in the medium run; (ii) real
wage restraint policies along with labor market deregulation can depress capital accumulation and
growth; (iii) a decline in EPL may reduce the equilibrium unemployment. Then we test the predictions of
the model by estimating the impact of a change in the labor share on economic growth in a sample of 20
industrialized OECD countries. At the national level, a decrease in the labor share leads to lower growth
in Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan,
Luxembourg, Netherlands, Norway, Portugal, Spain and Sweden; whereas it stimulates growth in
Australia, Canada, Ireland, United Kingdom and the United States. However, a simultaneous decline in the
labor share in all these countries lead to a decline in global growth. Finally, we turn our attention to the
long-run dynamics of the model by means of a structural vector autoregression (VAR). We focus on the
relationship between effective demand, income distribution, labor market regulation, capital
accumulation, labor productivity and unemployment. The VAR model is estimated for France, Germany,
Italy, Spain, the UK and the USA. We find that employment is demand-led, and that income distribution
may influence either demand or employment. Technological progress affects income distribution as well
as employment. The policy conclusions of the paper shed light on the limits of international
competitiveness strategies based on wage competition in a highly integrated global economy
Asymmetries in the euro area and TFP growth: evidence from three major European economies
Get PDFPurpose – In this paper, the authors study the long-run determinants of total factor productivity (TFP) in three
major European economies over the period 1983–2017, namely Germany, France and Italy.
Design/methodology/approach – The authors focus on the capital misallocation effects, scale effects and
labor misallocation effects. To this end, the authors study how real interest rate shocks, real exchange rate
shocks, real wage shocks and changes in labor regulation affected TFP in major European countries over the
last decades. The authors employ a theoretical and an empirical model to investigate the issue. The empirical
results are obtained using a VAR model for estimation.
Findings – A stripped-down model of labor market in open economy with technology progress allows to
identify the relevant variables affecting TFP. On the empirical ground, the authors find a positive relationship
between TFP and real interest rate in the long run. Importantly, the authors detect a positive relationship
between TFP and real exchange rate. Further, the authors show that the TFP can respond positively to a
stricter labor market regulation and to a higher real compensation per employee. The results provide support to
the idea that TFP has a positive relation with prices in the long run, while it may be biased along the cycle
because of price rigidity.
Research limitations/implications – The present model is stylized and may not capture all of the details of
reality. The analysis should be extended to a larger number of countries. Technology progress could be proxied
using different variables, as the R&D expenditure or the number of patents. Micro data, for specific sectors and
industries, can improve the quality of the empirical investigation.
Practical implications – Mainly the authors find that TFP has a positive relationship with price changes in
the long run, while it may be biased along the cycle because of price stickiness. Capital misallocation and labor
misallocation can negatively affect TFP. Thus, the observed divergences in European TFP can be traced back
to the misallocation effects attributable to the decrease of real interest rate and real wages, together with the
raising labor flexibility. Mainly, the authors detect a positive long-run relationship between TFP and real
exchange rate. This outcome strengthens the supply-side view of the relationship between productivity and
real exchange rate.
Social implications – The authors believe that the present setup can be helpful to reflect critically on the
nodes at the core of the productivity slowdown and asymmetries in the eurozone. The aim is to implement
renewed policies in order to favor economic growth, convergence and stability in the euro area.
Originality/value – This research addresses the issue of asymmetries among European economies by
focusing on the role played by real prices in the long run. Traditionally, the dynamics of TFP have been
attributed only to technological components, human capital and knowledge. This work shows that the
dynamics of prices such as the real interest rate, the real exchange rate and the real wage can also influence the
technological process by pushing the production system toward choices that are not always optimal for
economic growth. An interesting result of this research concerns the positive relationship between real
exchange rates and TFP in the long term, evidence of an important supply-side effect on the technological
process
The Trade Deficit Delusion: Why Tariffs Will Not Make America Great Again.
Get PDFThis study analyses the protectionist trade policies of the Trump Administration, focusing
on tariffs’ impact on the US trade deficit and broader economic consequences for its trade
partners. By highlighting five stylised facts characterising the US economy, the analysis
shows that the trade deficit primarily arises from the persistent gap between national saving
and domestic investment, rather than unfair foreign trade practices. Using open economy
accounting, the study demonstrates that tariff policies are ineffective for correcting trade
imbalances and could exacerbate them, negatively affecting both US and European economies
through disrupted trade flows, increased economic uncertainty, and instability in financial
markets. The study also explores several possible scenarios resulting from these policies and
suggests that protectionist measures represent an “impossible theorem” for rebalancing trade
deficits and pose significant risks also for the economic stability of US trade partners
What drives TFP long-run dynamics in five large European economies?
No full textThe aim of this paper is to study the long-run cointegrating relationship of TFP in a panel of five large European economies, namely France, Germany, Italy, Spain, and UK. We test whether TFP is determined by the so-called “capital misallocation effects, scale effects, and labor market effects”. By considering aggregate data, over the period 1983–2017, we employ dynamic panel cointegration techniques to identify the long-run component of TFP. We get two main results. First, the interest rate, the real compensation and the real exchange rate have a positive impact on TFP. Then, the incidence of temporary employment (a proxy of labor market flexibility) has a negative effect on TFP. Moreover, for robustness, we run a panel VECM to check for causalities among the variables. Notably, this further excercise confirms the existence of a strong and positive long-run relationship between TFP and prices. We conclude that coordinated policies on the issue of interest rate, exchange rate, labour cost and regulation, may allow to reassemble the productivity slowdown puzzle and strengthen the European economic structure
Green Investment Challenges in European Firms: Internal vs. External Resources
Get PDFThis paper examines the impact of internal and external resources on the adoption of eco-efficiency actions by European firms. The empirical analysis is based on an ordered logit model on data from the fifth wave of the Flash Eurobarometer survey (2021) for a sample of 9158 firms. We obtain three main results. First, we show that internal and external financial resources are positively correlated with firm eco-innovations, but the association with the former is stronger. Second, we observe a high degree of complementarity between public and private funds. Finally, besides financial resources, both in-house technical expertise and external non-financial assistance seem to play an important role for the implementation of eco-efficiency actions at the firm level. These findings have some relevant policy implications. European policy-makers should increase opportunities for public co-financing, while providing support to firms for developing the necessary competencies to enable green investments
How capital intensity affects technical progress: An empirical analysis for 17 advanced economies
Get PDFIn this paper we present a model of economic growth with endogenous technical progress. We test if the neoclassical growth model accepts the assumption that capital intensity affects Total Factor Productivity (TFP) in the long run. Our view takes inspiration from Kaldor's growth model of 1957 in which the Technical Progress Function (TPF) responds to the joint behavior of capital intensity and inventiveness. We find that “movements along a production function cannot be distinguished from shifts in this function” as formalized by the TPF. The model is tested using a Structural VAR for 17 advanced economies, over the period 1980–2020. On impact, when capital intensity improves, TFP increases sharply. This response is large and persistent over time and explains about half as much as of measured TFP. It confirms that capital intensity is an omitted variable in the traditional scheme used to estimate technical progress. Notably, the standard neoclassical growth model is not consistent with this evidence. Our analysis also shows that demand shocks can have permanent effects on output and unemployment. Finally, monetary policy helps to stabilize the business cycle, but loses its effectiveness in the long run
Going Beyond Counting First Authors in Author Co-citation Analysis
Get PDFThe present study examines one of the fundamental aspects of author co-citation analysis (ACA) - the way co-citation
counts are defined. Co-citation counting provides the data on which all subsequent statistical analyses and mappings
are based, and we compare ACA results based on two different types of co-citation counting - the traditional type that
only counts the first one among a cited work's authors on the one hand and a non-traditional type that takes into
account the first 5 authors of a cited work on the other hand. Results indicate that the picture produced through this non-traditional author co-citation counting contains more coherent author groups and is therefore considerably clearer. However, this picture represents fewer specialties in the research field being studied than that produced through the traditional first-author co-citation counting when the same number of top-ranked authors is selected and analyzed. Reasons for these effects are discussed
Variations on the Author
Get PDF“Variations on the Author” discusses two of Eduardo Coutinho’s recent films (Um Dia na Vida, from 2010, and Últimas Conversas, posthumously released in 2015) and their contribution to the general question of documentary authorship. The director’s filmography is characterized by a consistent yet self-effacing form of authorial self-inscription: Coutinho often features as an interviewer that rather than express opinions propels discourses; an interviewer that is good at listening. This mode of self-inscription characterizes him as an author who is not expressive but who is nonetheless markedly present on the screen. In Um Dia na Vida, however, Coutinho is completely absent form the image, while Últimas Conversas, on the contrary, includes a confessional prologue that moves the director from the margins to the center of his films. This article examines the ways in which these works stand out in the filmography of a director who offers new insights into the notion of cinematic authorship
Appropriate Similarity Measures for Author Cocitation Analysis
Get PDFWe provide a number of new insights into the methodological discussion about author cocitation analysis. We first argue that the use of the Pearson correlation for measuring the similarity between authors’ cocitation profiles is not very satisfactory. We then discuss what kind of similarity measures may be used as an alternative to the Pearson correlation. We consider three similarity measures in particular. One is the well-known cosine. The other two similarity measures have not been used before in the bibliometric literature. Finally, we show by means of an example that our findings have a high practical relevance.information science;Pearson correlation;cosine;similarity measure;author cocitation analysis
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