David T. Coe

R&D Spillovers and Global Growth

We examine the growth promoting roles of R&D, international R&D spillovers, and trade in a world econometric model. A country can raise its total factor productivity by investing in R&D. But countries can also boost their productivity by trading with other countries that have large stocks of knowledge from their cumulative R&D activities. We use a special version of MULTIMOD that incorporates R&D spillovers among industrial countries and from industrial countries to developing countries. Our simulations suggest that R&D, R&D spillovers, and trade play important roles in boosting growth in industrial and developing countries.

Are There International R&D Spillovers Among Randomly Matched Trade Partners?: A Response to Keller

Keller (1998) reexamines Coe and Helpman’s (1995) analysis of international R&D spillovers focusing on the weights used to define the foreign R&D capital stock. Keller creates “random” weights and shows that they give rise to positive estimates of international R&D spillovers, casting doubts on the robustness of Coe and Helpman’s findings. We show that Keller’s “random” weights are essentially simple averages with a random error. We derive alternative random weights and present regressions showing that when they are used to define the foreign R&D capital stock, the estimated international R&D spillover estimates are nonexistent, as would be expected.

Does the Gap Model Work in Asia

There is considerable evidence from industrial countries that the output gap is an important determinant of inflation. This paper examines whether the gap model also works in developing, newly industrializing, and industrial Asian economies. The output gaps are based on a nonparametric estimation procedure for trend output that does not require an arbitrary specification of the degree to which the data are smoothed. Simple versions of the gap model are tested in which the change in inflation is related to the output gap, as well as to the money supply. The paper concludes that the gap model works very well in almost all the Asian economies studied.

Capital and Trade As Engines of Growth in France; An Application of Johansen's Cointegration Methodology

An aggregate production function is estimated using recent cointegrating techniques particularly appropriate for estimating long-run relationships. The empirical results suggest that the growth of output in France has been spurred by increased trade integration within the European Community and by the accumulation not only of business sector capital--the only measure of capital included in most empirical studies--but also by government infrastructure capital, residential capital, and research and development capital. Calculations of potential output indicate that trade and capital--broadly defined--account for all of the growth in the French economy during the past two decades.

Structural Determinants of the Natural Rate of Unemployment in Canada

Empirical estimates are presented of the policy and structural determinants of the natural rate of unemployment in Canada. The structural features of the economy that impinge on the adjustment of real wages to their equilibrium level are discussed, and estimates are presented showing how the generosity of the unemployment insurance system is related to past levels of unemployment. The empirical results indicate that government policies have been largely responsible for changes in the natural rate, and, hence, they can contribute to a reduction in the natural rate in the medium term.

Insider-Outsider Influences on Industry Wages: Evidence from Fourteen Industrialized Countries

The persistence of high rates of unemployment in Europe has focused renewed attention on the wage determination process. One aspect which has received particular attention recently is the extent to which wages are determined by insiders, with outsiders having little impact on the wage bargain. If outsiders are disenfranchised in the wage determination process, they may be unable to underbid themselves into employment. The insider-outsider model, and the associated implication of hysteresis, thus provides a possible explanation for persistent involuntary un-employment.Most empirical work on the importance of the insider-outsider model and hysteresis has been done at the aggregate level, either by testing whether wage growth is related to the level or the change in unemployment, or by testing if employment or unemployment follows a random walk. This paper extends both of these lines of analysis to the industry level. Based on a specification which nests alternative models of the wage determination process, estimation results are presented for fifteen industries using annual data for fourteen industrialized countries, and for pooled time-series cross-country data. The paper also tests the hypothesis that only industry-specific variables are important to the determination of industry wages and considers whether differences in industry wage determination might help to understand cross-country differences in unemployment.The results offer considerable support to the insider view of wage determination. Industries in which wages seem to be determined by a natural rate/Phillips curve model — the primary competing model considered in the paper — appear to be the exception rather than the rule. Moreover, at the industry level hysteresis does not appear to characterise wage formation in the high-unemployment European countries to a greater extent than in North America and Japan.

Insider-outsider influences on industry wages

The persistence of high rates of unemployment in Europe has focused renewed attention on the wage determination process. One aspect which has received particular attention recently is the extent to which wages are determined by insiders, with outsiders having little impact on the wage bargain. If outsiders are disenfranchised in the wage determination process, they may be unable to underbid themselves into employment. The insider-outsider model, and the associated implication of hysteresis, thus provides a possible explanation for persistent involuntary un-employment.Most empirical work on the importance of the insider-outsider model and hysteresis has been done at the aggregate level, either by testing whether wage growth is related to the level or the change in unemployment, or by testing if employment or unemployment follows a random walk. This paper extends both of these lines of analysis to the industry level. Based on a specification which nests alternative models of the wage determination process, estimation results are presented for fifteen industries using annual data for fourteen industrialized countries, and for pooled time-series cross-country data. The paper also tests the hypothesis that only industry-specific variables are important to the determination of industry wages and considers whether differences in industry wage determination might help to understand cross-country differences in unemployment.The results offer considerable support to the insider view of wage determination. Industries in which wages seem to be determined by a natural rate/Phillips curve model — the primary competing model considered in the paper — appear to be the exception rather than the rule. Moreover, at the industry level hysteresis does not appear to characterise wage formation in the high-unemployment European countries to a greater extent than in North America and Japan.

North-South RandD Spillovers

We examine the extent to which developing countries that do little, if any, research and development themselves benefit from R&D that is performed in the industrial countries. By trading with an industrial country that has a large “stock of knowledge” from its cumulative R&D activities, a developing country can boost its productivity by importing a larger variety of intermediate products and capital equipment embodying foreign knowledge, and by acquiring useful information that would otherwise be costly to obtain. Our empirical results, which are based on observations over the 1971-90 period for 77 developing countries, suggest that R&D spillovers from the industrial countries in the North to the developing countries in the South are substantial.

Liberating Supply-Fiscal Policy and Technological innovation in a Multicountry Model

This paper examines how endogenizing technological progress in a multicountry macroeconometric model affects the analysis of fiscal policies. It uses an expanded version of the IMFs multicountry model, MULTIMOD, in which total factor productivity (TFP) is endogenized as a function of domestic research and development (R&D) expenditures, R&D expenditures of trading partners, and trade. Compared with the standard version of the model with exogenous TFP, fiscal policies have much larger and long-lived effects on the domestic economy and on other countries.