unemployment and economic migration issues resulting from the continents significant demographic increase. Main findings are, in the long-run, population growth will: (1) decrease foreign and public investments in Ivory Coast; (2) increase public and private investments in Swaziland; (3) deplete public investment but augment domestic investment in Zambia; (4) diminish private investment and improve domestic investment in the Congo Republic and Sudan respectively. For policy implications, the positive linkage between population growth and investment growth in the long-term should be treated with extreme caution, unless investment measures are adopted to utilize accruing work force. Family planning and birth control policies could also be considered in countries with little future investment avenues.
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This study also used ORANI to measure the influence of immigration on aggregate output per capita. In addition, it assessed the influence of the skill levels of immigrants on economic performance. However, given the simple set of assumptions underlying the CIE-CAAIP simulations, their results can be reproduced with a very simple aggregate model. The CIE-CAAIP assumptions are: that aggregate private consumption expenditure (C), aggregate investment expenditure (I) and aggregate government expenditure (G) move in the same proportion; that the trade balance is fixed; that exports move proportionally with employment; that capital stocks adjust to maintain industries' relative rates of return; that the real wage adjusts to ensure that employment moves with the labour force; and that immigration-induced employment growth is greater than immigration-induced population growth. The first two assumptions imply that growth in GDP and C, I and G are equal. The first three assumptions ensure the economy experiences balanced growth. The last assumption means that the workforce participation rate of immigrants is higher than that of the pre-immigration population. Given these assumptions, it is inevitable that GDP per capita should increase with immigration.
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terminants of China’s aggregate investment based on a panel data set of 28 provinces and autonomous regions. The empirical results they obtained show the existence of a homogenous equilibrium correction mechanism in China’s aggregate investment process and imply the su- ggestion that it is important to introduce favorable in- vestment incentives in the central and west regions for balancing the economic growth. In  divide the aggre- gate investment in China into business sector investment and government direct investment and separately assess each of them by composing a suitable investment model. Their results suggest that the business sector investment is largely determined by market forces while the govern- ment direct investment is found to bear strong planned features. In  utilize macroeconometric models to mea- sure the validity of the belief that the Chinese economy still follows largely the investment-led growth paradigm growth. By using the post-1990 annual data, they con- firm the relation between investment and economy growth, and suggest that the problem of overinvestment still exists in China.
The link between the price of the Construction commodity, the cost of Housing’s capital and real aggregate consumption is most evident in the ATR experiment for the three years centred around year 12 the year in which the tariff cut is implemented. Although not reported, the rate of growth in price of the Construction commodity between years 11 and 12 is positive. Over this period the tariff cut causes the rate of growth in the price of the Construction commodity to fall but this effect is more than offset by the increase in the rate of growth in the price of the Construction commodity caused by the turn-around in aggregate investment between years 11 and 12 (see chart MR3). In year 11 the sharp decrease in aggregate investment causes the price of the Construction commodity to fall below control while the sharp increase in aggregate investment in year 12 has the opposite effect. This pattern in the price of the Construction commodity generates capital gains for the Housing sector in year 12. These gains allow the rental cost of the Housing sector’s capital stock, and consequently the price of the Housing commodity, to fall below control in year 12. In year 12 the fall in the price of Housing causes the CPI to fall and real consumption to rise.
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The first column in table 5 gives the effects of shifts in export versus domestic technology. Estimates of these shifts are provided in historical simulations and show, with one exception, a twist towards exports for each commodity (column 4 in table 4). This implies naturally an increase in aggregate exports which leads to an appreciation of the Swiss franc. As production is now directed more towards exports, imports rise, induced by evaluation of the exchange rate, to satisfy domestic demand. The largest twist in favour of exports are in manu- facturing products which accounts for 70% of aggregate exports. Because they are labour intensive relative to production of commodities enjoying favourable shifts towards domestic consumption, there is a small reduction in aggregate capital and as well as in aggregate investment.
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To understand the mechanism underlying this model, let us consider a positive pro- ductivity shock on aggregate total factor productivity (TFP). As it is common in other DSGE models, it will improve the productivity of ﬁrms, and it also increases the income of the households. Clearly, the ﬁ rst eﬀect will lead to a decrease in the probability of ﬁ rms becoming bankrupt. Moreover, the increase in household income will lead to an increase in housing demand, and hence an increase in real estate prices. Because the commercial real estate is part of the collateral of ﬁ rms, an increase in real estate prices will further de- press the probability of ﬁrms becoming bankrupt. As a result, less bankruptcy will occur and resources can be used for productive purposes. In other words, the improvement in the aggregate TFP will directly (through the ﬁ rms’ production) and indirectly (through household income and real estate prices) increase the “debt capacity” of entrepreneurs, which tends to encourage investment. As a result, aggregate investment and GDP will be stimulated. Figure 2 summarizes the discussion. Thus, our model provides an unifying framework in which the real estate market, the imperfect capital market and aggregate output are closely linked. 3 The following sections will formalize these intuitions.
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To confirm this intuition, figure 9 also shows the impulse response functions for the same variables at the posterior mode, when the model is re-estimated under the assumption that wages are perfectly flexible (blue solid lines). 29 As in the case of sticky wages, the reduction in labor demand translates into lower equilibrium wages and hours worked. Simultaneously, lower real wages translate into higher mark-ups for the monopolistic firms and the increase in firms’ profits. This generates a positive income effect for households that allows them to reduce their labor supply. The equilibrium outcome shows a larger negative adjustment in the wage rate relative to the benchmark sticky wages model, while hours worked drop by a lower amount. Households’ wage bill falls, but they are able to keep a smoother consumption profile with respect to the sticky wages case by relying on both a sustained equilibrium level of hours worked and higher profits from the monopolistic firms. As a consequence, the drop in households’ consumption is not large enough to drive aggregate consumption down in response to a financial intermediation shock. Consumption and investment move in opposite direction in the short run and the financial shock loses its ability to generate an empirically plausible recession.
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to their capital policies, i.e. replacement vs. scrapping. But in the richer modeling environ- ment of this paper the differences in the useful lives arise also because the two firms operate in markets with different elasticities of demand and different rates of embodied technical change. Thus, as soon as the attention turns from microeconomics to macroeconomics, the analysis confronts the question of how to aggregate the two durables, since: a) they are not sub- stitutes and hence their physical quantities cannot be translated into an index of homogeneous units; b) older vintages differ from newer vintages because the latter embody the more recent ad- vances in technology, and c) depending on the elasticities of demand for electricity and tennis rackets, the rates of embodied technological change, and other market parameters, the durables of firm X may last longer than those of firm Y. To tackle it, the investigation starts from the realiza- tion that at the sectoral level the quantities of the two durables are expressed in uniform monetary values of constant prices. This implies that, if they did not differ in any other respect, adding their purchase values would give an index of the quantity of “capital-in general”. But the two durables differ also in quality as well as durability and this approximation would be open to serious objec- tions from both the theoretical and the empirical standpoints. Therefore, taking into consideration that the useful lives of the two durables account endogenously for the differences in their quality, the model is endowed with a Haavelmo (1960, 95-102) type mechanism, which, by expressing the two durables in units of standard durability, permits their aggregation in a consistent manner. Moreover, drawing on the results from a comparative evaluation of the traditional and the pro- posed approach to aggregation, it is established that insisting on the former may be responsible for significant biases in the estimates of the economy-wide capital stock.
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This paper incorporates Rational Inattention as de…ned by Sims (2003a) to a traditional RBC model with multiple sources of uncertainty. Our model distinguishes between transitory and permanent labor and relative investment productivity shocks. The introduction of information frictions works as an endogenous adjustment cost: given the model parameters, the degree of sluggishness of endogenous variables in response to shocks is op- timally determined. In practical terms, Rational Inattention increases the volatility and the contemporaneous correlations with output of consump- tion and decreases those of investment and hours. Moreover, it generates a trade-o¤ between short-run and long-run shock variances. We believe these e¤ects might have important welfare implications and can provide an analytical understanding on the links between business cycle ‡uctuations and the long-run performance of an economy.
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Ahmed, Alam and Butt (2003) examine the effect of openness in Pakistan economy by considering the trade and FDI relationship using time series data during the period from 1972 to 2001. They discuss that increasing international trade (export and imports) is not only indicator of openness but also foreign direct investment. They argue that no study has been done to test the existence of any causal relationship between FDI, exports and domestic output using Toda and Yamamoto test 2 over these period. The results indicate that there is a long run
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We conclude by highlighting that the household fallacy is hard-wired into the infinitely-lived representative agent model. This is because, on the one hand, the representative agent is the only counterparty to government borrowing and so more debt makes her richer. On the other hand, the government can only service higher debt by levying more taxes on the representative agent which exactly offsets any positive effects. As a consequence, bond demand is infinitely elastic, implying a vertical aggregate demand schedule S(·) and ensuring that real rates are no longer free to stabilize government debt.
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of European investors of movements in the value of U.S. assets and the dollar against European currencies has grown sharply over this period. “In terms of the overall international investment position, the United States accounted for only 17 percent of the aggregate cross- border holdings of Europe in 2004, reflecting the predominance of intra-European cross-holdings in the total. However, the United States is easily the most important extra-European destination for European investors: for instance, according to ECB data, it accounted in 2004 for 39 percent of the foreign equity holdings of euro area investors and 34 percent of the foreign bond holdings (the shares for FDI and other investment are lower at 22 percent and 14 percent respectively).”(Lane and Milesi-Ferretti 2006: 8-9 ).
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Second, in terms of the structure of production, China’s share of industry in GDP, at close to 40 percent, is still relatively large. Given typical development patterns, this share is likely to fall. Since industry has a relatively high ratio of capital to output, a reduction in the relative size of industry should lower the investment rate and put downward pressure on the capital- output ratio. Within industry, technological upgrading and technological progress are likely to lead to changes in the relative shares of different industrial sectors in industrial value- added. The Chinese government is furthering these developments through its industrial policies, including its promotion of specific industries through industrial policies and its promotion of job creation in services. What one can expect to see in the coming years then is not ‘more of the same,’ i.e., straight-out capital accumulation, distributed across sectors as before, but an adjustment of investment across sectors towards the use of capital in ways most conducive to economic growth.
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of the income gap is observed. The optimal solution implied by the conditions 1 2 and 1 2 is * ( t ) 0 , t [ 0 T ] . Thus, irrespective of the productivity differences between regions, a simultaneous reduction of regional inequalities and maximisation of aggregate output is possible. In terms of the analysis by Intriligator (1964) this is feasible only if v 1 v 2 and 1 2 .
between time oscillations of rate of growth of macro Investment on one hand and simple model of interactions between Assets-Liabilities and Revenue-on-Assets macro transactions and their disturbances waves on e-space on the other hand. Thus we show that relations between macro variables like Investment, Assets, Credits and etc., treated as functions of time can be determined by complex interactions between conjugate macro transactions as functions of time and coordinates on e-space R 2n . Macro financial variables at point x are determined by complex interactions of transactions between agents with risk ratings x and y on e-space. Equations on financial field disturbances admit wave solutions and can describe exponential growth of wave amplitudes in time.
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Productive investments refer to financial resources committed to projects that produce a stable and a return high enough to cover the high cost of borrowing. Productive investments can be long-term projects that concentrate either in industrial output, exports or infrastructure that will contribute to growth of the real economy. At a considerable high interest rate, only projects with a return higher than the interest rate will be able to acquire the loans. Given that interest rate is a screening device, the high cost of borrowing would encourage productive investment, and at the same time eliminate the low return investments, financial resources will thus be left available to productive investments.
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and then foreign firms would rise the overall concentration as well. This further increases the size of the place; cost of production will decrease and the overall potential of the place will increase for the households and businesses. The process of agglomeration will the congestion of the people. Krugman (1991) points out that economics of agglomeration has become the main part of the geographical economics. Therefore, economics of agglomeration generates huge number of economic activities for national as well as international businesses. Moreover, the rising agglomeration creates localization among economies. Foreign direct investment is playing a vital role in the procedure of economic integration among the nations (OECD, 2007; Baldwin and Martin, 1999). The process of liberalization provides root to the development of new markets, the emergence of services sector and constraints of capital movement are diminished. These trends create friendly conditions for higher foreign direct investment. France is one of the big developed countries which has a huge amount of inflow and outflow of foreign direct investment. This type of study is hardly available in the case of France. This is why the study will be a healthy contribution towards respective literature.
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For the asset return to be derived endogenously, one need a model beyond the exchange economy environment, specifically, one need a general equilibrium model with a nontrivial production sector. Rouwenhorst (1995) introduces the nontrivial production sector into the standard CCAPM. Unlike in an exchange economy, consumption and dividend in PCAPM are determined endogenously. But this effort is less successful in the explanation of the equity premium. Rouwenhorst (1995) finds that his model’s asset pricing implication is even worse than that from models of exchange economy. This is not a surprising finding since in a model with one sector and frictionless investment, an agent can easily and instantaneously alter the production plan to reduce fluctuations in his consumption. As a result, consumption becomes even smoother than in an exchange economy. A smooth consumption causes SDF to fluctuate less. This is the source of puzzling asset pricing implication arising in these models.
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Our modelling strategy, in which we use the GTAP results to drive the PRCGEM model, requires us to summarise the changes in China’s trading environment as movements in the import supply and export demand schedules confronting China. This is done by turning off in GTAP the Chinese response to the APEC trade liberalisation and determining the percentage deviations in the foreign-currency prices of imports (c.i.f.) at the pre-APEC levels of Chinese imports, and in Chinese export volumes at the existing levels of foreign-currency prices (fob) of Chinese exports. To turn off the Chinese response we must also fix Chinese investment and savings. This is because in GTAP each region interacts with each other region not only via trade in goods and services, but also via contributions to global savings and calls on global savings for investment funds.
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covers nearly all of Latin America and Asia, as well as many countries in Africa. They …nd that an increase of a dollar in the volume of capital in‡ows is associated with an increase in domestic investment of about 50 cents. (In the regression, both capital in‡ows and domestic investment are expressed as percentages of GDP). This result, however, masks signi…cant di¤erences among di¤erent types of in‡ows. FDI appears to bring about a one-for-one increase in domestic investment; there is virtually no discernible relationship between portfolio in‡ows and investment (little or no impact); and the impact of loans falls between those of the other two. These results hold both for the 58-country sample and for a subset of 18 emerging markets. Boresztein, De Gregorio, and Lee (1998) …nd that FDI increases economic growth when the level of education in the host country - a measure of its absorptive capacity - is high. 9 Similarly, Razin (2004) …nds strong evidence for the dominant posi-
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