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A joint initiative of Ludwig-Maximilians University’s Center for Economic Studies and the Ifo Institute for Economic Research
Bulletin
Volume 17 No. 1
January 2007
INTERNET AND OBFUSCATION
And you had thought that the Internet was the perfect tool for circumventing retailers’ price
tricks, helping you compare prices and find the best bargains. As research by Sara Fischer
Ellison shows, it turns out that retailers have become adept at implementing their age-old
obfuscation techniques on the net as well.
(page 2)
INTERNET AND PUBLICATION
IFO NEWS
Can the longstanding system of peer-reviewed journals remain viable in the Internet era?
Now that every researcher can publish his or her findings online, can good quality be
assured? Glenn Ellison is tackling the thorny electronic publishing issue.
(page 2)
(p. 4-5)
FACULTY NEWS
(p. 6)
MUNICH LECTURES
2007 EEAG REPORT ON THE EUROPEAN ECONOMY
The CESifo Group’s flagship report on the European economy is seeing the light these days.
Together with a comprehensive forecast of economic performance for the coming two years, it
again addresses key European economic issues.
(page 5)
(p. 6)
MUNICH SEMINARS
(p. 6)
FEATURED RESEARCHERS
Alberto Alesina (p. 6)
Axel Dreher (p. 7)
Sara Fisher Ellison (p. 2)
Glenn Ellison (p. 2)
Mark Gradstein (p. 7)
Shoshana Grossbard (p. 8)
Udo Kreickemeier (p. 7)
Chrysovalantou Milliou (p. 8)
Paola Profeta (p. 3)
Horst Raff (p. 6)
Kwanho Shin (p. 7)
Michael Smart (p. 3)
Marcel Thum (p. 5)
PRODUCTIVITY AS A DETERMINANT FOR FDI
FDI is a driver for productivity. Conversely, as Horst Raff’s research suggests, productivity is
itself a key determinant for FDI.
(page 6)
SO MUCH FOR INDEPENDENT VOTING...
Is there a link between temporary membership in the United Nations Security Council and
more favourable treatment by the IMF? You guessed. And Axel Dreher tells you why you
were right.
(page 7)
TAX PLANNING IN A GLOBALISED VILLAGE
Globalisation has given rise to new oportunities for multinationals to engage in international
tax planning. Governments, keen not to lose tax revenue, are taking heed. Michael Smart
has more on this.
(page 3)
GLOBALISATION GOODS AND ILLS
Globalisation means different things to the general public, academics, and policy-makers.
Udo Kreickemier’s research is building brigdes with a common, solid theoretical foundation
between these differing perceptions.
(page 7)
THE GREAT EQUALISER
Education ought to be simultaneously an equalising and a discriminating factor: equalising
across social classes, discriminating in terms of personal talent. But in the real world,
societies often exhibit a so-called mismatch of talents: rich kids with low talent get jobs that
ought to go to kids with high talents. Paola Profeta is doing research on strategies to correct
this unhappy state of affairs.
(page 3)
Online version of this issue available at www.cesifo.de
Vol. 17, No. 1 • January 2007
INTERNET AND OBFUSCATION
S. Ellison
Blessed thing, the Internet. Not until its
advent had consumers had such a handy,
powerful tool at their disposal for comparing prices and finding the best bargains. Pity those retailers who used to
mark-up their prices a bit too enthusiastically: consumers would immediately spot
the overprice. Or would they?
It appears that retailers have also discovered how they can turn the Internet’s
defining technologies to their advantage.
Sara Fisher Ellison, a Senior Lecturer
at the MIT Economics Department, jointly with Glenn Ellison, mined a rich data
source on Internet sales of computer
components to discover evidence that
Internet technologies, once believed to
primarily aid consumers by making price
search much easier, can actually serve
the interests of retailers as well, by making age-old obfuscation strategies easier
and cheaper to implement. The
researchers also document extremely
elastic demand for the products for
which price search is easy. Needless to
say, their findings have received a fair
amount of attention.
authors have a data set provided by a
multinational firm with small offices in
sixty locations, which includes measures
of gender diversity, degree of cooperation
and satisfaction, and outcome measures,
at the office level.
In other research, carried out with
Christopher Snyder, Dr. Ellison empirically investigates the origins of countervailing power using data from the pharmaceutical industry. They test collusion
models and bargaining models of buyer
size effects and find that, in their empirical setting, buyer size effects only
emerge when buyers can credibly threaten to substitute away from a purchase.
While at CES, Dr. Ellison will be working
on a project, jointly with Wallace Mullin
and Jeffrey Greenbaum, that investigates
the effects of diversity in a firm on social
goods provision in that firm as well as
ultimate firm performance. The three
Dr. Ellison is currently a Senior Lecturer
in the MIT Economics Department, and
has previously been the Richard B. Fisher member at the Institute for Advanced
Study, and the Arch Shaw National Fellow at the Hoover Institution.
Her recent research has investigated a
number of questions in industrial organisation, with a focus on the pharmaceutical industry and e-commerce. Her teaching at MIT has included econometrics
and industrial organisation at the Ph.D.
level as well as econometrics at the MBA
and undergraduate levels. She is active
in undergraduate and Ph.D. advising.
She currently serves on the editorial
board of three industrial organisation
journals, IJIO, JIE, and RIO. She also has
consulting experience, providing litigation support and management guidance.
INTERNET AND PUBLICATION
Publish or perish: in scientific research,
publishing success equals career success.
Making it into one of the leading scientific journals greatly expands the chances for
getting grants, while peer-refereeing
processes make sure that only the best gets
published. But will this hold in the Internet
age, when every researcher can publish his
own research online whenever he wants?
Can good quality be assured? These questions are particularly relevant after such
cases as that of the Korean researcher who
published, to much acclaim, findings
based on bogus data. And that was in a
strictly refereed journal.
Good thing, then, that a scientist with vast
experience in the Internet has decided to
tackle this tricky issue. Glenn Ellison,
Professor of Economics at the Massachusetts Institute of Technology, will devote
his time at CES to a project on scientific
publishing that questions whether the
longstanding system of peer-reviewed
journals remains viable in the Internet era.
2
G. Ellison
His study includes both a theoretical analysis of optimal systems for scientific communication and an empirical investigation
of recent trends at economics journals.
A number of his recent research projects
reflect his interests the economics of ecommerce and markets with boundedly
rational agents. This has included work
analysing the conditions under which
online auction markets (and other twosided markets) will tend to tip and be
Bulletin
dominated by a single firm; studies of
search and “obfuscation” in markets in
which search engines play a dominant
role; and an analysis of “add-on” pricing
strategies.
Prof. Ellison is also known for his theoretical work on learning processes. His
work on learning in games introduced
models of interacting agents arranged in
social networks. He has also used models
of learning as a methodology for examining technology adoption and the development of social norms.
Before becoming a Professor of Economics at MIT, he was an Assistant Professor
at Harvard. He has done research in game
theory, industrial organisation, finance,
and economic geography. He has served
as the Editor of Econometrica, on the
National Science Foundation Economics
Panel, and as an Editor of the Rand Journal of Economics. He currently serves on
the editorial board of several journals.
Vol. 17, No. 1 • January 2007
GLOBALISATION AND TAX PLANNING
HOW TO JUMP THE QUEUE
Smart
Profeta
Over the past few decades,
the global economy has
become increasingly integrated, as international trade
and international capital
flows have risen dramatically, and multinational corporations have become key players in the global economy. In
the presence of this process
of globalisation, differences
in business tax systems of
capital importing and exporting countries
have assumed greater importance, and
national governments increasingly
appear to pay heed to international tax
considerations in designing tax policies.
As Michael Smart states, countries seeking to attract and retain mobile investment and the associated tax revenues may
be induced to reduce tax rates below the
levels that would obtain in the absence of
mobility. These concerns notwithstanding, the fears of runaway plants and the
pressures of tax competition may be
overstated. The vast majority of multinational investment takes place between
industrialised countries, where taxes are a
relatively small portion of production
costs, so that tax changes are unlikely to
give rise to major relocations of activity.
At the same time, globalisation has given
rise to new opportunities for multinationals to engage in international tax planning that shifts taxable income from
high-tax to low-tax countries. In a typical
such transaction, a multinational subsidiary in a high-tax country becomes
heavily indebted to one in a tax haven.
Since interest payments are deductible
under most corporate tax systems, the
worldwide tax liabilities of the firm are
substantially reduced.
International tax planning has likewise
led to concerns about erosion of tax revenues and a race to the bottom in tax
rates. But its implications are more subtle. Tax planning reduces the cost of
investing in high-tax countries and so
tends to make the location of real
investment less responsive to tax rate
differentials, even as taxable income
becomes more elastic. While tax plan-
ning may reduce revenues of
high-tax jurisdictions, therefore, it may have offsetting
effects on real investment
that are attractive to governments. In principle, then, the
presence of international tax
planning opportunities may
allow countries to maintain
or even increase high business tax rates, while preventing an outflow of foreign direct investment.
Early empirical research is suggestive of
the role of international tax planning on
both revenues and investment. In past
research with Jack Mintz, for example,
Mr Smart has shown that reported income
is more responsive to tax differences
among firms organised to take advantage
of tax planning opportunities; however,
the same firms exhibit greater mobility in
the location of their assets as well.
Work by other researchers has shown
that having an affiliate in a tax haven is
associated with greater investment in
neighbouring high-tax countries, which
is suggestive of the mitigating effect of
tax planning on investment.
While visiting CES in January, Professor
Smart will continue his theoretical
research on the implications of tax
havens on the location of multinational
investment and for the evolution of tax
policies of high-tax countries. At the
same time, he will begin quantitative
research on tax planning and offshore
operations of Canadian multinationals.
Michael Smart is Professor of Economics at the University of Toronto, a
Research Fellow of the C.D. Howe
Institute, and a specialist in the economic analysis of government policy. He
has published widely on such subjects
as tax policy design, tax competition
among governments, fiscal federalism
in Canada and abroad, and the politics
of taxation and government spending. A
graduate of Stanford University, he is an
Associate Editor of the Journal of Public Economics and a past Editor-inChief of the journal International Tax
and Public Finance.
Bulletin
Given that education is one of the
vehicles through
which
children
born to poor families can exchange
places with children born to rich
families, it is not
far-fetched
to
assume that parents of different
social classes have
different strategic
incentives to invest in the education of
their offspring. That is the starting point
for research conducted by Paola Profeta,
of Università Bocconi, who is staying at
CES in February.
Education, she asserts, can increase social
mobility. The main idea is that this may
happen because education reduces what
she and her colleague Michele
Bernasconi call the “mismatch of talents”
in society, i.e. individuals with low talent
but coming from rich families being
placed in jobs which should be reserved
to people with high talent (and vice
versa). This “mismatch of talents” is sensitive to public policies, in particular public education may increase the capacity of
a society to correctly recognise the true
talent of individuals, to allocate them to
the correct social classes and, consequently, to increase social mobility.
Thus, strategic behaviours emerge: the
poor prefer high education spending to
reduce the social mismatch and increase
exchange mobility, while the rich prefer
low education spending, provided that
this will stop exchange mobility by maintaining a high mismatch of talents. Profeta finds a political economy equilibrium
of the voting game using probabilistic
voting. When the poor are more politically influential, the economy is characterised by a higher level of education,
growth and social mobility than under
political regimes supported by the rich;
pre-tax inequality is greater in the first
case, but post-tax it is lower.
Paola Profeta, with a PhD in Economics
from Pompeu Fabra University in
Barcelona, is associate professor of Public Economics at Bocconi University of
Milan, and Research Fellow at its Econpubblica research center.
3
Vol. 17, No. 1 • January 2007
IFO NEWS
EURO-ZONE ECONOMIC GROWTH
REMAINS ON STABLE PATH
Real GDP in the euro-zone decelerated
slightly in the third quarter of 2006 (0.5%)
after the strong increase registered in the
first half of the year, but the prospects for
economic growth still remain positive.
Real GDP is expected to rise by 0.7% in
the last quarter of 2006, followed by 0.3%
and 0.5% in the first and second quarters
of 2007, respectively.
Industrial production should continue to
expand, but at lower rates, owing to an
expected slackening in world trade.
Domestic demand is bound to be
resilient. Consumption should remain
robust after a temporary slowdown in Q1
2007 associated with the German VAT
hike. Investment should expand at a constant, strong rate. On the technical
assumption that oil prices stay within a
range of USD 60-65 per barrel of Brent
and that the dollar/euro exchange rate
will fluctuate around 1.30, consumer
price inflation is expected to jump,
reflecting the VAT rise in Germany, to
2.1% in the first quarter of 2007 before
decreasing to 1.7% in the second quarter.
IFO ECONOMIC FORECAST 2007:
ECONOMIC MOMENTUM REMAINS
STRONG
The world economy again expanded at
an above-average pace in 2006, hitting a
rate of 5%. On the one hand, this is due
to the trend growth rate of world output,
now 4%, one percentage point higher
than at the beginning of the 1990s. This
4
is primarily the result of the integration
into the world economy of the rapidly
growing newly industrialised countries
such as China, India, Russia and the
Eastern European states. On the other
hand, in 2006 the world economy saw its
third year of a global economic upswing.
The expansion of the world economy
will remain buoyant during the forecasting period, with some temporary weakening. Monetary policies will be
neutral to slightly expansive. A convergence in growth in individual
regions will occur. In the United
States, GDP growth will initially
slow down – slightly below the
trend growth rate – but will then
speed up again. Consumption will
remain robust despite the lull in the
real estate market. Investments,
after a temporary flattening, will be
increasingly expansive.
Production in Japan will continue to
grow steadily, albeit somewhat more
slowly. In China, GDP growth will
accelerate, while in the other countries of
eastern Asia, as in Latin America, economic expansion will remain solid but
with some weak spots now and then. In
the newly industrialised countries, economic growth will continue to be buoyant, and in the euro area GDP will increase
noticeably. Consumption will perk up
thanks to the improved situation on the
labour market. Investment will remain
perceptibly expansive.
tion, with a share of 59% of nominal
GDP the most important component on
the expenditure side, expanded for this
first time since 2001. All in all, total economic output in 2006 will grow by 2.5%,
despite fewer working days than the previous year, which had shown a meagre
0.9% growth. Adjusting for this calendar
variation, growth in GDP will amount to
2.7% in 2006. Germany’s budget deficit
for the year will be €42 billion or 1.8%
of GDP. For the first time since 2001,
Germany’s budget deficit will fall below
the ceiling of 3% of GDP stipulated in
the Maastricht Treaty.
A turnaround on the labour market has
also occurred. The number of the seasonal- and calendar-adjusted hours worked
increased strongly in the second and
third quarters of 2006. In the wake of
increasing capacity utilisation, about
350,000 additional jobs (seasonally
adjusted) have been created since the
beginning of the year, leading to a clear
drop in unemployment.
Growth in investment in plant and equipment and in commercial construction
will remain quite robust in 2007, while
the total number of hours worked will
continue to rise. The VAT increase will
dampen consumer spending growth over
the year as a whole to 0.5%. All in all,
real GDP will expand by 1.9% in 2007,
or, after calendar adjustments, by 2.0%.
THE GERMAN ECONOMY
As 2006 came to an end, the German
economy was in the midst of a strong
economic expansion that began early in
2005. The driving force of the boom
continues to be foreign demand, which
has expanded robustly as a result of the
buoyant world economy, despite this
year’s strong revaluation of the euro visà-vis the US dollar. Export growth in
2006 is likely to be around 10.5%, the
largest increase since 2000. But unlike
2005, domestic economic activity is now
also buoyant. Investment in buildings
and equipment has expanded strongly
throughout the year. Private consump-
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The German locomotive gathers steam
The situation on the labour market will
continue to improve. Unemployment
should fall over the course of the year by
around 100,000, which, on average for
Vol. 17, No. 1 • January 2007
2007 EEAG REPORT ON THE EUROPEAN ECONOMY
CESifo, the international platform of Ludwig-Maximilians University’s Center for Economic Studies and the Ifo Institute for Economic Research
the year, means 150,000 fewer unemployed persons.
In 2008 overall capacity utilisation will
continue to increase, although the expansive forces will become somewhat weaker during the year. Real GDP will
increase by 2.3%, or by 2% after calendar adjustments. After the effect of the
VAT increase has run its course, an inflation rate of around 1½% is expected.
The financial position of the state will
continue to ease. A rise in real GDP of
some 2% would, on its own, lead to a
reduction of the budget deficit of around
0.5 percentage points. However, it must
be taken into account that major reform
measures are meant to take effect in
2008, namely corporation tax reform and
health care reform, whose actual design
and financial effects cannot yet be estimated. In addition, there will be perceptible increases in wages for public service employees. Therefore, the general
government financial balance will only
improve by around 0.2 percentage points
to -1.1% of GDP.
CO-OPERATION AGREEMENT
A co-operation agreement has been signed
between the Dresden University of Technology and the Ifo Institute for Economic
Research, aimed at strengthening and
advancing empirical economic research.
Instrumental in establishing the close link
between both institutions was Marcel
Thum, who holds the
Chair in Economics for
Public Finance at the
Dresden University of
Technology and heads
the Ifo Institute’s Dresden subsidiary.
The new Report on the European
Economy prepared by the European
Economy Advisory Group at CESifo
(EEAG) is being presented across
Europe in a series of press conferences.
on the European Economy
2007
Published now for the sixth year, the
EEAG Report opens up with a comprehensive economic performance forecast
for the coming two years—prepared with
the backing of the full forecasting
expertise of Germany’s Ifo Institute for
Economic Research, one of Europe’s
foremost empirical research think-tanks.
As in previous editions, the 2007 Report
addresses major European economic
issues with in-depth, thoroughly
researched articles furnished with a
wealth of tables and charts. Chapter 2
analyses macroeconomic adjustment
within the euro area, with a focus on Ireland and Italy.
ECONOMIC OUTLOOK
MACRO ADJUSTMENT IN THE EURO AREA
NEW EU MEMBERS
SCANDINAVIAN MODEL
TAX COMPETITION
ECONOMIC NATIONALISM
Chapter 3 examines the economic performance of the ten member states that
joined the EU in 2004. Chapter 4, in turn,
looks in detail at the macroeconomic
performance of Denmark, Finland and
Sweden, examining whether the Scandinavian economic model represents a role
model for the rest of Europe that is able
to combine economic efficiency with
social justice.
national firms through subsidies or tax
reliefs, creates a source of inefficiency
that reduces European growth.
Chapter 5 analyses corporate taxation
within the EU and asks whether the new
EU states expose the old ones to unfair
tax competition, discussing various policy approaches.
Chapter 6 scrutinises the penchant of
many governments for “economic
nationalism” which, by favouring
@
The EEAG Group is comprised of eight
internationally renowned economists
from eight European countries. Chaired
by Lars Calmfors (Stockholm University), it includes Seppo Honkapohja (Universities of Helsinki and Cambridge),
Giancarlo Corsetti (European University
Institute Florence), Michael P. Devereux
(University of Oxford), Gilles Saint-Paul
(University of Toulouse), Hans-Werner
Sinn (Ifo Institute for Economic
Research and University of Munich),
Jan-Egbert Sturm (KOF Swiss Economic
Institute, ETH Zurich), and Xavier Vives
(IESE Business School).
CHANGES AT CESIFO
Marcel Thum
Common research projects as well as
close co-operation for the promotion of
junior researchers are planned within the
framework of the co-operation. Among
other things, the University of Technology and the Ifo Institute will conduct joint
studies on demographic change and on
the development of the labour market.
Christian Kelders, hitherto Deputy
Director at CESifo, has left to head the
Economic Programmes of Bauhaus Luftfahrt e.V., a project-oriented think-tank set
up in Munich by EADS, MTU Aero
Engines and Liebherr, where he is busily
establishing a nucleus for aerospace-relevant research. Aimed at bringing together
Bulletin
various disciplines in the technical and
economic realms, the research outfit
develops new concepts and visions for
the future of aerospace and is gradually
building up a network of scholars and
specialists in the field. Kelders will be
replaced as Deputy Director by your
Bulletin Editor, Julio C. Saavedra.
5
Vol. 17, No. 1 • January 2007
PRODUCTIVITY AND FDI
MUNICH LECTURES 2006: THE CHICKEN OR THE EGG
Raff
Alesina
Recent research in international economics suggests
that a firm’s productivity
plays an important role in
determining whether a firm
will export or engage in foreign direct investment (FDI).
Examining the link between productivity
and the choice of export/FDI strategies in
more detail was the focus of Horst Raff’s
research while at CESifo.
Public economics witlaw usually reflects the
historical characterisnessed something of a
tics of a society, and
revolution in the early
thus it would be inac1980s. Instead of treatcurate to interpret paring the formulation of
ticular electoral syspublic policy as some(l. to r.) Thomas May, Torsten Persson,
tems as being responthing devised by the
Alberto Alesina, and Hans-Werner Sinn,
sible
for political and
shackle-free
social
during the Munich Lectures 2006
economic outcomes.
planner, economists
began to grapple with the idea that ecoDuverger’s law, for instance, suggests
nomic policy is designed by politicians
that in a first-past-the-post system, only
facing institutional constraints, such as
two parties emerge in equilibrium. But
the prospect of reelection. This approach
what if systems in which there are two
spread like wildfire both within the field
dominant parties opt for a first-past-theof economics and on to disciplines rangpost system because this is the best way
ing from political science to neuroscience.
for them to keep a lock on power?
In particular, he wanted to examine how
productivity affects the choice of FDI
mode (new investment versus acquisition of an existing firm) and the choice of
ownership mode (whole ownership of
the foreign affiliate versus a joint venture
with local partners). He also investigated
how improved access to export markets
following trade liberalisation changes
the incentives of firms to undertake
research and development, thereby influencing productivity.
This project builds on several recent
papers Raff has published recently that
use firm-level data on Japanese multinationals to study cross-border mergers and
acquisitions, international joint ventures,
as well as the timing of foreign investment projects.
Horst Raff, now at the Department of
Economics, Christian-Albrechts-Universität, Kiel, obtained his PhD in Economics in 1991 from the University of Western Ontario, Canada.
One aspect that has received a great deal
of attention is the effect of electoral rules
on economic policy. Electoral systems
vary from first-past-the-post, where the
contender who garners the most votes
wins (Anglo-Saxon countries), to proportional representation, where the fraction of
votes cast by the citizens translates roughly into the same fraction of seats in the legislature (Western European countries).
Economists have argued, among other
things, that proportional systems with
large coalition governments produce
larger budgets, indulge in higher spending, and have difficulties in promoting
fiscal stability, while proportional systems have more generous welfare systems. These results are usually arrived at
by taking electoral rules as given.
This is precisely what Alberto Alesina,
the 2006 Distinguished CES Fellow, drew
into question in his Munich Lectures in
Economics. His point is that electoral
MUNICH SEMINARS
Deutschlands große Tageszeitung
Chaired by Hans-Werner Sinn (CESifo) and Marc Beise (Süddeutsche Zeitung)
Monday, 6 pm, CESifo Conference Centre, Ludwig-Erhard-Hall, Poschingerstr. 5, Munich
14 Mai 2007*
Paul Kirchhof
University of Heidelberg
18 June 2007*
Kurt Faltlhauser
Bavarian Minister of State for Finance
04 June 2007*
Sabine Werth
Chairwoman Berliner Tafel e.V.
02 July 2007*
Ferdinand Dudenhöffer
University of Applied Sciences of Gelsenkirchen
* The topic for this seminar is
yet to be announced
6
Bulletin
It is a problem of the chicken or the egg.
Let’s consider the “new political economy” assertion that systems of proportional representation result in a larger welfare
state. Proportionality was introduced in
Europe in the aftermath of the world
wars. After WWI, growing socialist and
communist parties demanded representation and, given their strength, it was in
the best interest of ruling parties to grant
such representation through proportionality in order to avoid defeat. The US, by
contrast, for several reasons did not face
similar pressure from a socialist movement. Not having suffered the kind of
devastation that Europe did during the
wars, there was less predilection for
socialist principles to begin with.
But the effect of proportional representation on the welfare state cannot be understood in a vacuum, and to treat it as
exogenous and in isolation is erroneous.
Alesina showed that institutions in general, and electoral institutions in particular, are endogenous; a deeper understanding of how institutions shape policy
outcomes requires an understanding of
how institutions are shaped in the first
place. This promises to be the new “new
political economy.”
RJ
FACULTY NEWS
• Good-bye party: Reinhard Spree, Professor of Economic and Social History,
will go into retirement at the end of
March. The Economics Faculty of LMU
held a good-bye party for him on January
24, followed by a reception in his honour
organised with the support of the faculty’s Alumni Club.
Vol. 17, No. 1 • January 2007
SO MUCH FOR INDEPENDENT VOTING...
GLOBALISATION GOODS AND ILLS
Dreher
A recent CESifo Working
Paper by Axel Dreher – written jointly with Jan-Egbert
Sturm and James Vreeland –
caused quite a stir and was
much cited in the press. It
examined whether temporary
members of the UN Security
Council (UNSC) receive
favourable treatment from the
IMF. Using panel data for 191
countries over the period 1951 to 2004, it
found a robust positive relationship
between temporary UNSC membership
and participation in IMF programs.
A related project with Jan-Egbert Sturm
empirically analysed the influence of the
IMF and the World Bank on voting patterns in the UN General Assembly. The
results showed countries receiving
adjustment programs and larger nonconcessional loans from the World Bank
voting more frequently in line with the
average G7 country. The same is true for
countries obtaining non-concessional
IMF programs.
A further project measured globalisation
and entailed creating the so-called KOF
EURO IMPACT
Shin
Kwanho Shin is Professor of Economics at
Korea University. He
received his M.A. in
economics from Seoul
National University and
PhD in economics from
UCLA. He was Assistant
Professor at the University of Kansas for four
years and occasionally taught at UCLA,
Claremont Graduate University and Claremont Mckenna College as a visiting professor. He has published widely on business
cycles, labour economics and international
finance in a number of academic journals
and is currently an Associate Editor for the
International Economics Journal.
While visiting CES, Shin plans to study the
impacts of the euro on trade and financial
linkages in euro countries. Recently he has
been studying the impacts of exchange rate
regimes on trade and financial linkages. He
is also interested in determinants of business cycle co-movements across countries.
Kreickemeier
Index of Globalisation. It
measures the economic, social
and political dimensions of
globalisation on a yearly basis
over a large number of countries and more than 30 years:
Available for 122 countries
over the period 1970-2004, it
is calculated on the basis of 25
variables.
The
method
employed in the calculations
allows direct comparison of a specific
country’s degree of globalisation over
time, showing, for instance, that globalisation increases economic growth, weakens trade unions, but does not substantially affect inequality.
Axel Dreher is a post-doc researcher at
KOF and the Chair for Applied Macroeconomics at ETH Zurich. He has been
lecturer and researcher at the Universities
of Mannheim, Exeter, and Konstanz, and
Visiting Professor at the Economics Education and Research Consortium at the
National University of Kyiv-Mohyla
Academy. He is editor of the Review of
International Organizations and has published extensively in refereed journals.
INSTITUTIONAL QUALITY AND
ECONOMIC DEVELOPMENT
Gradstein
Mark Gradstein is a
Professor and Chair,
Department of Economics, Ben Gurion University, with previous visiting positions at the Universities of Toronto,
Pennsylvania, and Virginia, as well as at the
Research Department of the World Bank.
His current research deals with the political economy of institutions in their relation to economic development. Recent
work studies how political bias and
income inequality interact to subvert institutional choices and emphasises the
importance of a more egalitarian factor
distribution as the means of ensuring the
emergence of good governance. One of
the empirical implications of this line of
research – that income inequality and
poor institutional quality mutually feed
each other – was tested in a panel of countries. The findings indicate the validity of
the mechanism.
Bulletin
The policy debate
on globalisation in
industrialised
economies is mainly driven by the
concern
over
domestic job losses, reflecting the
views of the general public on this
issue. In contrast,
the academic literature has so far focused
on the effect globalisation has on welfare
on the one hand and on relative factor
rewards on the other, using models that
feature full employment in equilibrium.
In his research, Udo Kreickemeier
aims to bridge the gap between the policy debate and the theoretical analysis
by introducing labour market imperfections that lead to involuntary unemployment into models of international trade.
In a recent paper with Hartmut Egger, he
shows how globalisation affects welfare, the wage distribution and aggregate unemployment in a trade model
that takes into account firm heterogeneity within a sector. Globalisation leads
to a self-selection of highly productive
firms into export markets, while unproductive firms succumb to import competition and shut down. Aggregate productivity increases, and hence so do aggregate output and welfare. Crucially,
however, not everyone gains, since
aggregate unemployment increases as
well. These results are derived in a
framework with only one type of labour
and symmetric countries.
While at CES, Kreickemeier plans to
continue this strand of research by
delving into the analysis of extended
versions of this framework that allow
for country asymmetry and multiple
factors of production. The latter modification would lead to a framework that
allows for the simultaneous analysis of
globalisation effects on the intra-group
as well as the inter-group wage distribution – both of which have changed
substantially in many countries.
Udo Kreickemeier is an Associate Professor of Economics at the University
of Nottingham. He holds a doctoral
degree in Economics from the University of Mainz.
7
Vol. 17, No. 1 • January 2007
MARRIAGE MARKET MATTERS
GOING VERTICAL
Grossbard
Milliou
Until recently, it was standard practice to focus on
monetised transactions when
calculating the value of an
economy, and to overlook all
non-profit sectors. In recent
decades, this has been corrected in the area of government and large non-profit
organisations. But the tiniest
non-profit
organisations,
households, are typically
overlooked by macro-economists. Such
oversight is particularly regrettable
because the participants in these small
non-profits frequently interact in ‘marriage markets’ when forming a productive partnership, and these markets often
establish implicit or explicit prices. Consequently, economists can use price theory to shed more light on many household behaviours.
Shoshana Grossbard, from San Diego
State University, views households as partnerships in which individuals produce private and household public goods, together
or individually. Since her 1984 paper in
Economic Journal, she assumed that in
many instances one spouse pays quasiwages to the partner in charge of marital
household production, and that sex ratios
(the ratios of men to women in a marriage
market) influence the value of time in
household production and labour force participation. At CES she will present her latest empirical paper on women’s labour
supply and sex ratios, a collaboration with
her colleague Catalina Amuedo-Dorantes.
Grossbard’s theory of marriage is a
Demand-and-Supply model similar to
one of the models that her mentor, Nobel
laureate Gary Becker, presented in his
very influential Treatise on the Family. In
one of the three lectures that she will
present at CES, she will explain that
Becker’s Treatise contains two basic theories of marriage, and she will analyse
the evolution of Becker’s ideas on mar-
Bulletin
riage. In recent years, Grossbard has been writing on the
macro-economic effects of
marital institutions and marriage markets. Some of these
ideas are found in Marriage
and the Economy, a book she
edited that also contains
chapters on marriage and
savings, marriage and personal finance, marriage and
taxes, and marriage and
parental labour supply.
While at CES, Grossbard intends to better
explain the similarities and differences
between various economic theories of
marriage, comparing Demand-and-Supply
models with matching models and cooperative models such as those of Patricia
Apps and Ray Rees, Pierre-Andre Chiappori and Martin Browning, and Marjorie
McElroy. She will also be working on her
response to an article on household property rights that was recently published in
the Yale Law Journal; the response will
provide the material for her third lecture at
CES. She has recently worked on other
papers on the law and economics of marriage, including an article with Bertrand
Lemennicier. With Olivia Ekert-Jaffe she
has been examining how laws on the division of property at divorce appear to be
related to out-of-couple births, using data
from a number of European countries.
Shoshana Grossbard, a Belgium native, is
a professor of economics at San Diego
State University, founding editor of
Review of Economics of the Household,
published by Springer since 2003, past
Fellow at the Center for Advanced Studies
in the Behavioral Sciences at Stanford, and
a former visiting scholar at Columbia University. Her books include On the Economics of Marriage (Westview Press,
1993), The Expansion of Economics (M.E.
Sharpe, 2002), and Jacob Mincer, A Pioneer of Modern Labor Economics
(Springer, 2006).
“Vertical contracts” signed
among firms that
operate at different stages of a
supply
chain,
such as among
input producers
and final good
manufacturers,
take a variety of
forms. A standard assumption
in the literature is that the determination
of vertical contracts is exclusively in the
hands of upstream firms. However, in
reality downstream firms are in many
cases large players, actively involved in
shaping their contracts with their suppliers. Chrysovalantou Milliou, together
with Emmanuel Petrakis and Nikolaos
Vettas, departs from the literature by considering the active participation of downstream firms in vertical contracting
through the introduction of bargaining in
the determination of both the form and
terms of vertical contracts. They find that
bargaining plays an important role in vertical trading not only because it affects
the terms of trade but, more importantly,
because it can also affect the form of
trade emerging in different industries.
Her current research explores the incentives of firms to protect their R&Dinvestments from spilling over to their competitors. In contrast to the standard view,
she finds not only that R&D investments
can be higher in the presence than in the
absence of spillovers, but also that, even
if protection is costless, sometimes firms
prefer to not protect their investments.
While at CES she intends to continue
working on firms’ R&D protection incentives as well as on the analysis of horizontal mergers in vertically related industries in the presence of R&D investments.
Chrysovalantou Milliou is an Assistant
Professor at the Department of Economics of the Universidad Carlos III de
Madrid. She moved to Madrid from Florence in 2003 after obtaining her PhD.
Munich Society for the Promotion of Economic Research (Münchener Gesellschaft zur Förderung der
Wirtschaftswissenschaft, CESifo GmbH) is the international platform of Ludwig-Maximilians University and the Ifo
Institute for Economic Research.
President and CEO: Hans-Werner Sinn
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