Debasis Bandyopadhyay

What drives the cross-country growth and inequality correlation ?

We present a neo-classical model that explores the determinants of growth-inequality correlation and attempts to reconcile the seemingly conflicting evidence on the nature of the growth-inequality relationship. The initial distribution of human capital determines the long-run income distribution and the growth rate by influencing the occupational choice of the agents. The steady-state proportion of adults that innovates and updates human capital is path dependent. The output elasticity of skilled-labour, barriers to knowledge spillovers, and the degree of redistribution determine the range of steady-state equilibria. From a calibration experiment we report that a skill-intensive technology, low barriers to knowledge spillovers, and high degrees of redistribution characterize the industrial countries with a positive growth-inequality correlation. A negative correlation between growth and inequality arises for the group of non-industrial countries with the opposite characteristics.

Redistributive Tax and Growth in a Model with Discrete Occupational Choice

An optimal redistributive tax-subsidy formula is derived for a growth model where inequality is endogenously driven by an adults choice of occupation between work and management. The human capital or knowledge is the only engine of growth and there is externality associated with human capital B la Lucas (1988) and Romer (1990). How much available knowledge would be exploited in the economy depends on the proportion of innovators who are called managers in our model. A redistributive tax reform directly impacts this proportion of managers by influencing the occupational choice. A growth maximizing redistributive scheme involves an educational subsidy to the innovators financed by taxing workers. Such an optimal educational subsidy is, however, path dependent. An economy with excessively high proportion of managers warrants lesser educational subsidy.

The industry premium: What we know and what the New Zealand data say

Earning regressions often reveal time‐invariant industry premiums. Competitive theories explain them by referring to unobservable characteristics or compensating differentials. Non‐competitive theories do the same by using efficiency wage, insider‐outsider and rent sharing hypotheses. Those theories appear inadequate for explaining what one observes from the New Zealand data: employees receive industry premiums; but so do their self‐employed counterparts; among those with no formal education industry premiums from employment are smaller than those from self‐employment; but as the cohorts education level increases the premium differential increases and becomes positive. To explain those observations I propose a new hypothesis that measures an industrys total factor productivity and the corresponding industry premium.

Why haven't economic reforms increased productivity growth in New Zealand?

Productivity, measured by output per hour, grew by less than one percent per annum in post reform New Zealand. During the same period productivity grew at a rate two times faster in relatively protected Australia and one and half time faster in the “free market” economy of the US. This spectacular failure of economic reforms in boosting productivity growth to the international standard calls for an explanation. Unfortunately, nobody has yet offered a theoretical model of economic growth to respond to that call. This paper is an attempt to start that process within the academic discipline established by Solow, Lucas and Prescott, the only three growth economists who are Nobel Laureates. It offers an endogenous growth model with endogenous rent seeking, which adversely affects the economys total factor productivity (TFP). The model determines TFP as a function of economic policy and not as unexplainable residuals, unlike most previous studies. In particular, it provides explicit formulas for measuring TFP and rent‐seeking activity in an economy. The paper argues that well intended economic reforms could nonetheless lead to an endogenous skill shortage that may ironically turn innovators into rent‐seekers and in turn, retard productivity growth. Future research may apply this model or a modified version of it to determine if the above argument sheds some light in explaining the productivity puzzle of the post reform era in New Zealand.

On the model selection to represent human capital distribution—an empirical study

The distribution of human capital is a recent addition to the list of fundamental determinants of growth. This paper addresses an important problem of how to utilize recently available data on the highest educational attainment of adults in the labor force to represent the human capital distribution of a country by a smooth probability density function. Using the data of Barro and Lee, over-dispersed Poisson and negative binomial distributions are selected to fit the distribution of the number of years of school. Our empirical investigations suggest that these standard discrete probability distributions are too smooth to account for properties of the data, i.e., schooling is more likely to be terminated at the completion of a level of attainment (e.g., primary, secondary, and higher education) than in the middle of one, an important feature contained in the frequency distribution of highest educational attainment. Future research should focus on more complex models which account for these spikes in the data.

Gender Biased Institutions and the Wealth of Nations

I examine how economic institutions which exhibit a socio-cultural bias against women may reduce the wealth of a nation and undermine its economic wellbeing. In particular, I explore the origin of various types of gender gaps in a society and their impact on its economic welfare. My hypothesis is that the economic factors that cause gender gaps in an economy comes only partly from the market economy and largely from the underlying social norm and that economic welfare varies inversely with gender gaps. In a dynamic general equilibrium model of economic growth with optimizing men and women, I characterize non-trivial effects of gender-biased institutions and technology on the endogenously developed gender gaps in (a) the labor force participation rate, (b) returns to parental investment in education and (c) human capital. The model produces an explicit analytical relationship for doing growth empirics, relating the growth rate of GDP and gender gaps of various kinds. That analytical relationship among the relevant economic variables helps us to organize the newly developed dataset on crime against women by the UN, for conducting a meaningful empirical exercise. The objective of the exercise is to uncover necessary evidence for the models hypothesis, regarding the negative effect of a gender biased society on the wealth of the nation which it embeds. Empirical results are consistent with the models prediction that a society which generates a larger gender bias also lowers its per capita GDP.

Monetary Policy with Phillips Curve: Lessons from Disinflation in New Zealand

Despite the transparency and independent operations of the central bank, the costly disinflation in the early nineties and the apparent lack of contemporaneous correlation between inflation and unemployment in the subsequent periods brings into question the validity of the Phillips curve hypothesis for the New Zealand economy. Nevertheless, drawing on an empirical exercise built on a narrative history, I argue that the hypothesis remains a valid view of the interaction between the real and nominal sides of the economy if we interpret that history with theories of credibility to account for the dynamics of inflation expectations. Between 1987 and 2015, the survey data of inflation expectations identifies, through either a new classical or a new Keynesian representation, the changing location of the Phillips curve, illustrating how inflation expectations directly affect both inflation and unemployment, without undermining their theoretical relationship. Findings suggest that a credible regime between 1993 and 1999 precipitated a stable manifold of relatively flat Phillips curves. However, probably the loss of credibility in the post-1999 era left the policymakers with a steeper Phillips curve with unstable locations. Use of the nontradable component of the consumer price index (CPI) rather than the CPI as a whole strengthens the policy conclusions based on the Phillips curve hypothesis.

Endogenous Growth Without Patents

This paper constructs an analytically tractable model of endogenous innovation with a special focus on the effects of barriers to entry, namely patents. Conventional models of endogenous growth rely on the existence and enforcement of intellectual property rights with patents. Those legal rights are seen as necessary evils, required to encourage innovation by ensuring successful innovators are rewarded with monopoly rents. This paper takes a different approach. By integrating Aghion, Harris, and Vickers (1997) and the Boldrin and Levine (2003) framework into a conventional vintage capital growth model such as Greenwood, et al (1997), the paper characterizes economic conditions under which patents may decrease the growth rate. The model is calibrated to the US economy to match its long run time series of GDP per hour. Simulations of that calibrated model provide important insights regarding growth-promoting policies. The model also provides an explicit numerical algorithm to measure cross-country differences in total factor productivity due to barriers to technology adoption.

Linking Cross-Country Disparity in the Long Run Growth Rates to the Initial Disparity in the Human Capital Distribution

This paper aims to provide a theoretical explanation for understanding the cross-country disparity of long-run economic growth rates based on the diversity in the initial conditions. In particular, it argues that the disparity in the inequality of human capital and income, as well as the industry structure of the economy prior to the emergence of endogenous growth, plays an important role in determining its long-run growth rate. The initial distribution of human capital and the share of agriculture characterize the initial state of the economy. I present a model of endogenous growth that generates cross-country diversity of long-run growth rates of per capita income as functions of path dependent history of human capital distribution. The model’s predicted growth rate explains up to fifty-three percent of the observed variation in growth rates across countries. The results of the econometric estimation of the equilibrium restriction of the model on the data answer an important question regarding why two countries with the same average stock of human capital may have different total factor productivity (TFP). The results support the hypothesis that the diversity in the relative proportion of innovators due to differences in the historical distribution of human capital and the redistributive tax regimes induce significant heterogeneity in the level of TFP as well as its growth rates across countries.

Endogenous Emigration of Skilled Labour

There is an increasing trend in the pattern of world migration of educated and skilled individuals leaving developing countries for developed ones. This has created much concern about a so-called “brain drain”. As the name suggests, the brain drain was believed by early commentators to be unequivocally harmful to those countries which suffered from it. More recent literature does not directly refute this belief but puts it under closer scrutiny, and finds the possibility of many different mechanisms through which the negative effects of the brain drain may be mitigated. This paper aims to illuminate by surveying the literature on the brain drain. It does so by exploring the brain drain in the current context of globalisation and by making comparisons to previous periods of globalisation, by examining the theoretical analyses of migration and the brain drain, by exploring an economic model of the brain drain, and by analysing the particular case of New Zealand, a developed country with a high rate of skilled and educated emigration.