Theo van de Klundert

Imperfect competition, concentration and growth with firm-specific R & D

Abstract The paper presents a model of growth based on innovation. High-tech firms cover the fixed cost of R and D out of operating profits and sell output in a market with imperfect competition. Innovation builds on and contributes to firm-specific knowledge. Moreover, there are spillovers among firms. Growth is higher in a more concentrated market provided that market power of firms is not too high. Economic integration between symmetric countries fosters growth, as profit margins decrease with market shares. Integration of production lines and research efforts by mergers or horizontal integration is conducive to growth.

Growth, Competition and Welfare

The impact of competition on growth and welfare is analyzed by developing a model in which the number of firms, profit margins, and innovation rates are endogenous. Different regimes of oligopolistic competition are distinguished. The tougher the price competition, the lower the profit margins for a given rate of concentration. This reduces the number of firms and product variety in a free entry equilibrium. Consequently, tougher competition implies larger firm size and higher rates of innovation since new technologies can be applied in a larger market. Oligopolistic pricing leads to underinvestment in firm-specific knowledge, even if interfirm spillovers are neglected. Copyright 1997 by The editors of the Scandinavian Journal of Economics.

North-South knowledge spillovers and competition: convergence versus divergence

Abstract Technology spillovers from high-productivity countries in the North allow low-productivity countries in the South to improve productivity in high-tech sectors relatively easy. However, the Souths share in world goods markets for high-tech products is relatively low, which reduces opportunities for learning by doing. Our simple Ricardian endogenous growth model shows how the balance between toughness of competition in trade and the strength of North-South spillovers determines whether productivity levels diverge, partially converge or fully converge in the long run. If convergence prevails, the North is confronted with declining employment in high-tech sectors. Temporary (trade) policy measures can turn a diverging economy into a converging one.

Reconstructing growth theory : A survey

SummaryRecent developments in the theory of economic growth aim at endogenising long-run growth. The paper discusses models in which technological change arises as a by-product of certain economic activities as well as models where some economic actions are explicity aimed at technological improvements. In addition, separate sections are devoted to the specific reconstruction of growth theory by M. Scott and models explaining stages of economic development. For expositional purposes the algebra is kept to a minimum. The focus is on theoretical models for a closed economy. Empirical work is only mentioned in passing.

Loss of technological leadership of rentier economies: a two-country endogenous growth model

Abstract History shows that rich countries may lose their productivity advantage by changing to a rentier economy with large investments abroad. In our two-country two-sector model with firm-specific knowledge and perfect international capital markets, the initially most productive country is being overtaken by the initially backward country. The two countries share the same structural parameters but have different initial knowledge stocks. The larger the initial productivity gap is, the larger is the leader’s productivity loss, which implies path-dependency. The existence of a non-tradables sector drives the result. The leading economy gradually accumulates net foreign assets. Interest receipts are spent on imports and non-tradables. Labor is shifted from tradables production and research to non-tradables.

Tax incidence in a model with perfect foresight of agents and rationing in markets

Abstract This paper examines the incidence of several taxes in a macroeconomic model. Producers and consumers optimize with perfect foresight. Price inertia leads to rationing in the market for goods and for labour. In the long run the system tends towards Walrasian equilibrium. Meanwhile there may be Keynesian Unemployment, Classical Unemployment or Repressed Inflation, with possible switches of regimes. Balanced budget policies are analysed by working through numerical examples.

On socioeconomic causes of 'wait unemployment'

Abstract This paper discusses implications of ‘wait unemployment’ in a two-sector model with a dual labour market. Primary sector firms pay efficiency wages; the wage rate in the secondary sector is determined by labour supply and demand. Most queueing models assume that workers for the primary sector are only recruited from the pool of unemployed. Instead, this paper explains ‘wait unemployment’ by assuming that people care about their relative status in- society. The model is presented in general terms and a closed-form solution is obtained by specifying functional forms. The results emphasize the need for proper manpower policies to reduce structural unemployment.

Employment protection legislation and catching-up

After World War II (WW II), productivity growth in Europe and Japan was driven by catching up with the US. Institutions in Europe were different too and well suited for economic growth through imitation and adaptation of the technology to local circumstances. Catching up is, however, a self defeating process. It ends when the technology frontier is attained or when in case of conditional convergence institutions set a limit to the process of catching up. Once this situation is reached, the existing institutions may no longer be appropriate. Regression analysis on a panel of 21 Organization for Economic Cooperation and Development countries reveals that Employment Protection Legislations (EPL) had a positive impact on productivity growth in the period of rapid convergence in the sixties and seventies. However, from the eighties onwards, the total effect of EPL on labour productivity growth was negative.After WW II productivity growth in Europe and Japan was driven by catching-up with the US. Institutions in Europe were different too and were well suited for economic growth through imitation and adaptation of the technology to local circumstances. Catching up is, however, a self-defeating process. It ends when the technology frontier is attained or when in case of conditional convergence institutions set a limit to the process of catching up. Once this situation is reached, the existing institutions may no longer be appropriate. Regression analysis on a panel of 21 OECD-countries reveals that employment protection legislations (EPL) had a positive impact on productivity growth in the period of rapid convergence in the sixties and seventies. However, from the eighties onwards the total effect of EPL on labour productivity growth was negative.

Crowding out of private and public capital accumulation in an international context

Abstract The paper analyses the impact of government budget deficits in a two-country general equilibrium model with imperfect commodity substitution and imperfect capital mobility. Account is taken of optimizing agents, finite lives, capital accumulation, intertemporal budget constraints for governments and private sectors, current account dynamics and floating exchange rates. The long-run effects of crowding out of private and public capital accumulation are of primary concern in the paper. To satisfy the solvency condition of the governments proportional control rules for taxation and public investment are applied. Numerical methods are used to trace the effects of a unilateral increase in exhaustive government spending.

Reducing external debt in a world with imperfect asset and imperfect commodity substitution

Abstract Three alternatives for eliminating U.S. external debt are analysed. Besides a reduction in government spending, attention is paid to the possibility of eliminating debt by inflating the economy and to a financial crisis in case foreign investors lose confidence. The analysis is performed on the base of a two-country model with a portfolio choice between money, domestic and foreign assets which are imperfect substitutes on the one hand and imperfect commodity substitution on the other hand. The model deals with balance of payments dynamics, government debt dynamics, capital accumulation, monetary growth and exchange rate expectations. A simplified version of the model is solved analytically. The full version is applied by working through numerical exercises.