Keith Blackburn

A theory of growth, financial development and trade

This paper presents an analysis of the joint determination of real and financial development. Privately informed designers obtain external finance for their research projects through incentive-compatible loan contracts. Contracts are enforced through costly monitoring activity which lenders may either undertake themselves, or delegate to a financial intermediary. The analysis establishes a positive, two-way causal relationship between growth and financial development. In addition, using a multicountry version of the model, it is shown how both financial and trade liberalization can accelerate the development of intermediation; only trade liberalization has a direct positive effect on growth, however. Copyright 1998 by The London School of Economics and Political Science

A model of longevity, fertility and growth

Economic and demographic outcomes are determined jointly in a dynamic general equilibrium model of longevity, fertility and growth. Reproductive agents in overlapping generations mature safely through two periods of life and face an endogenous probability of surviving for a third period. Given this probability, each agent maximises her expected lifetime utility by choosing consumption and the number of children. Child-bearing is costly in the sense that time must be spent on child-rearing activities rather than on production or education. The model produces multiple development regimes which yield different predictions about life expectancy, fertility, timing of births and educational investment depending on initial conditions. These predictions accord strongly with the empirical evidence on demography and development.

Can Stabilisation Policy Reduce Long-Run Growth?

This paper presents an analysis of the long-run implications of short-term stabilization policy. The analysis is based on a simple, stochastic model of an imperfectly competitive economy with nominal rigidities and an endogenous technology. By virtue of the latter, temporary shocks have permanent effects such that the cyclical and secular properties of output are related. In particular, smoother cyclical fluctuations may be associated with flatter secular trends, implying a trade-off between short-term stabilization and long-term growth.

Endogenous Corruption in Economic Development

This paper presents an analysis of the joint determination of bureaucratic corruption and economic development. The analysis is based on a simple neo-classical growth model in which bureaucrats are employed as agents of the government to collect taxes from households. Corruption is reflected in bribery and tax evasion as bureaucrats conspire with households to provide false information to the government. Costly concealment of this activity leads to a loss of resources available for productive investments. The incentive for an individual bureaucrat to accept a bribe depends on the number of other bureaucrats who are expected to accept bribes. This strategic interaction in bureaucratic decision making produces multiple (frequency-dependent) equilibria associated with different incidences of corruption. The predictions of the model accord strongly with recent empirical evidence.

Research, Development and Human Capital Accumulation

We develop an endogenous growth model that integrates research and development (RD it is independent of research activity which, itself, is driven by human capital accumulation. In accordance with recent empirical evidence, the model implies that long-run growth is both independent of scale effects and invariant to a wide range of policies.

Growth, Volatility and Learning

This paper presents a simple stochastic growth model in which productivity improvements are the result of both internal (deliberate) and external (serendipitous) learning behaviour. The model is used to illustrate how these different mechanisms of endogenous technological change can lead to different implications for the correlation between output growth and output variability.

Corruption and Development: Explaining the Evidence

This paper presents a theoretical account of some empirical observations about the relationship between public sector corruption and economic development. These observations include both important regularities and notable anomalies which indicate that there is rather more to this relationship than one is often led to believe. The paper brings together some previous work for the purpose of providing a unified account of the issues involved within the context of a single analytical framework. These include the causality between corruption and development, the persistence of corruption and poverty, the diversity of corruption across countries and the differential impact of corruption in different economies.

Market fundamentals versus speculative bubbles: a new test applied to the German hyperinflation

We develop and apply a method of testing for speculative bubbles. The method is designed to overcome two well-known problems in the identification of bubble phenomena--the problem of distinguishing any type of bubble from an expected future change in market fundamentals and the problem of detecting a periodically-collapsing bubble when the residuals of the fundamentals regression are integrated. We propose the strategy of estimating a switching regime model of market prices, partialling out expected changes in fundamentals and carefully analysing the properties of the residuals. Extending our analysis, we also propose a more direct test for bubbles, based on the estimation of the general (fundamentals-plus-bubble) solution for market prices. We apply our methodology to the study of German hyperinflation in the 1920s. We find evidence consistent with the existence of a bubble during that hyperinflation. Copyright @ 1996 by John Wiley & Sons, Ltd. All rights reserved.

Exponential smoothing and spurious correlation: a note

Exponential smoothing can introduce spurious auto-correlation in detrended data. The extent of this depends on the length of lag, the value of the smoothing parameter and the nature of the input process. The most widely-used version of exponential smoothing is the Hodrick-Prescott low-frequency filter.

Endogenous growth and trade liberalization

We develop an endogenous growth model in which trade liberalization has a positive effect on growth. This effect does not depend on marginal re-allocations nor on knowledge-spillovers. Rather, it is due solely to the increase in market size following the integration of product markets. Our result contradicts a widely-help view that trade on physical goodsper sehas no consequences for long-run growth.[F15]