Recent criticism from different sides has expressed the view that, with scarce resources, there is little justification for massive public funding of higher education. Central to the debate is the ...conjecture that colleges and universities use their resources inefficiently and focus insufficiently on their mission to expand students' human potential. Our aim in this paper is to examine the theoretical premises of this conjecture in a small open economy and uncover the conditions under which public investment in higher education is efficient and desirable. We analyze non-stationary equilibria of an OLG economy, characterized by perfect capital mobility, intergenerational transfers and a hierarchical education system. The government uses income tax revenues to finance basic education and support higher education that generates skilled labor. Given this, the following issues are considered: (a) the impact of education and international markets on the equilibrium number of low-skilled and skilled workers in each generation; (b) the economic efficiency of public subsidies to higher education in generating skilled human capital; (c) the endogenous support for a government's educational policies found in a political equilibrium.
•Open economy: higher wage-rental ratio enhances skill formation.•In hierarchical education: increasing funding for higher education increases the aggregate stock of human capital.•In certain cases no public funding for higher education dominates the full public funding.•We characterize cases where in political equilibrium public subsidies for higher education are approved.
In the struggle between the forces of free trade and the restrictive influence of insularism the latter recently seems to have the upper hand. This is illustrated by the referendum of June 23, 2016 ...where the United Kingdom (UK) voted to leave the European Union (EU). In this paper we evaluate the consequences of this event for EU integration. In particular, we analyze how the extent of EU economic integration would change once the UK leaves the Union. To that end we develop an integration benchmark that consists of the steady state production equilibrium characterized by arbitrage pricing and perfect factor mobility. We apply metrics to measure the distance between this benchmark and the data. We find that the integration in the EU is incomplete and its trend is non-linear while Brexit would not bring negative consequences to its development.
We examine an export game where two (home and foreign) firms produce vertically differentiated products. The foreign firm is more R&D efficient and is based in a larger and richer market. The unique ...(risk-dominant) Nash equilibrium exhibits intra-industry trade, and the foreign producer manufactures a higher-quality product. When transport costs are low, unilateral dumping by the foreign firm arises; otherwise, reciprocal dumping occurs. For some parameters, a domestic antidumping policy leads to a quality reversal in the international market whereby the home firm becomes the quality leader. This policy is desirable for the implementing country, though world welfare decreases.
•We study a trade game between a foreign firm and a home government.•We derive conditions under which a foreign firm chooses to export tainted products.•Conditions are obtained under which goods are ...imported though harmful to health.•We identify self-correcting mechanisms and aggravating activities.•Parameter regions of each Nash equilibrium are numerically simulated.
This paper examines international trade and inspection involving tainted products in a model of quality choice, facing fears that globalization is the cause of numerous food incidents. Particularly, we ask the following questions: (i) What are the conditions under which foreign firms choose to produce tainted goods? (ii) Does globalization via freer trade lower product safety? (iii) Why are goods imported even though they are known to be harmful? We show the existence of a free trade Nash equilibrium characterized by production and trade of high-quality non-tainted products. However, free trade cannot prevent the export of tainted goods, because the foreign firm may deviate under different combinations of parameters. We identify self-correcting mechanisms such as nationalism and a political-economy re-allocation of public resources in favor of customs authorities. Nevertheless, we also uncover activities that exacerbate tainted production like errors of testing and sabotage by rival firms.
The trade and FDI effects of EMU enlargement Brouwer, Jelle; Paap, Richard; Viaene, Jean-Marie
Journal of international money and finance,
03/2008, Letnik:
27, Številka:
2
Journal Article
Recenzirano
Odprti dostop
This paper considers the nature and the distribution of trade and FDI effects of a potential enlargement of the European Monetary Union (EMU) to the 10 countries that obtained EU membership in 2004. ...One-way and two-way error component gravity models are estimated using a data set of unbalanced panel data that combine bilateral trade flows among 29 countries and the distribution of outward FDI stocks among these countries. The results reveal a complementarity between trade and investment and a relationship between trade and exchange rate volatility that depend on the sign of bilateral trade balances. Using a simulation-based technique, we find that estimates of FDI effects of EMU range between 18.5% for Poland and 30% for Hungary.
The paper offers a unified way to examine several puzzles on inequality dynamics. It focuses on differences in the education technology and their effects on income distributions. Our overlapping ...generations economy has the following features: (1) consumers are heterogenous with respect to ability and parental human capital; and (2) intergenerational transfers take place via parental direct investment in education and, public education financed by taxes (possibly, with a level determined by majority voting). We explore several variations in the production of human capital, some attributed to 'home-education' and others related to 'public-education', and indicate how various changes in education technologies affect the intragenerational income inequality along the equilibrium path.
ABSTRACT A belief that EU integration is incomplete is often predicated on a comparison to U.S. states. Yet, with low barriers to trade and factor mobility between EU countries, is this belief ...correct? To address this question, we develop three theoretical predictions regarding the distribution of output and factors across members of an integrated economic area with harmonized policies and free movement of goods and factors. Empirical tests strongly support these predictions for U.S. states and 14 EU countries. Constructing a measure of integration, we find that EU integration rose from the 1960s to equal that of U.S. states by 2000.
How integrated is the world economy? Bowen, Harry P.; Munandar, Haris; Viaene, Jean-Marie
Review of world economics,
09/2010, Letnik:
146, Številka:
3
Journal Article
Recenzirano
Odprti dostop
This paper develops a methodology to measure the degree of economic integration between nations that are members of an integrated area. We show that a fully integrated economic area (IEA) is ...characterized by three properties regarding the distribution of member shares of total IEA output and total IEA stocks of physical and human capital. We then show that the expected distribution of member shares within a fully IEA is a harmonic series, with the share distribution depending only on the number of IEA members. This property is then used to develop a composite indicator of the degree of economic integration within an IEA that indicates the distance between the theoretical and actual distribution of shares: the closer is the actual distribution to the expected distribution, the greater the degree of integration. We empirically compute our degree of integration for US states, and alternative regional trading agreements (e.g., EU countries, MERCOSUR, Bangkok Agreement, etc.) and a "world" comprising 64 countries.
Trade policy and quality leadership in transition economies are analyzed in a duopoly model of trade and vertical product differentiation. We first show that the incidence of trade liberalization is ...sensitive to whether firms in transition economies are producers of low or high quality. Second, we find that neither free trade nor the absence of a domestic subsidy are optimal: Both a tariff and a subsidy increase price competition and while the former extracts foreign rents the latter results in quality upgrading. Third, there exists a rationale for a government to commit to a socially optimal policy to induce quality leadership by the domestic firm when cost asymmetries are low. Finally, we establish an equivalence result between the effects of long-run exchange rate changes and those of trade policy on price competition (but not on social welfare).
The paper considers a two-country model of overlapping generation heterogenous economies with intergenerational transfers carried out in the form of bequest and investment in human capital. We ...examine in competitive equilibrium the transitory and long-run effects of capital markets integration. First, we explore how the regime of public education affects the dynamics of the integrated economy. Second, we study the effects of capital markets integration, in equilibrium, on the intragenerational income distribution in both the host and investing country.
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