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Contents

A.

Globalization, Specialization and Innovation Dynamics . . . . . . . . . . .

A.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A.2 Approaches in Modern Macroeconomics . . . . . . . . . . . . . . . . . . . . .

A.3 Human Capital, Physical Capital and Innovations in Open Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A.4 A Critique of the Heckscher–Ohlin–Samuelson Approach . . . . . . .

A.5 Solving the Leontief Paradox? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A.6 Variations on the Solow Model: Some New Insights for a Monetary Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A.6.1 A Generalization of the Solow Growth Model . . . . . . . . . .

A.6.2 Aspects of Empirical Analysis of Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A.7 Technological Progress and the Long-run Price Level . . . . . . . . . . .

A.7.1 Process Innovations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A.7.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A.7.3 Conclusions for Analysis of Process Innovations in a Monetary Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A.7.4 Solow Model and Role of Money for Growth . . . . . . . . . . .

A.7.5 Monetary Growth Model and Tobin Paradox . . . . . . . . . . .

A.7.6 Technological Progress Cycles . . . . . . . . . . . . . . . . . . . . . . .

A.7.7 Equilibrium and Terms of Trade Aspects in a Simple Open-economy Growth Model . . . . . . . . . . . . . . . . . . . . . . .

A.7.8 International Macroeconomics, FDI and Fiscal and Monetary Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A.7.9 Long-run Phillips Curve in a Growing Economy . . . . . . . .

A.7.10 Variable Output Elasticity of Capital . . . . . . . . . . . . . . . . . .

A.8 Foreign Direct Investment and Innovation . . . . . . . . . . . . . . . . . . . . .

A.8.1 Innovation Dynamics and Multinational Companies . . . . .

A.8.2 Modified Multiplier in Macro Model with FDI Outflows .

A.9 Output Dynamics: Interaction of the Demand Side and the Supply Side . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 3 7 11 14 20 20 28 35 35 36 43 43 53 56 58 59 63 65 66 66 78 82

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A.10 Growth Accounting Under Unemployment and Okun’s Law . . . . . 84 A.11 Innovation, Trade and Foreign Investment . . . . . . . . . . . . . . . . . . . . 86 A.12 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Appendix A.1: Aggregation in a Two-Sector Growth Model: A Modified Solow Approach with Cobb–Douglas Production Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Appendix A.2: Two-Sector Model (KHAN/BILGINSOY 1994) . . . . . . . 98 Appendix A.3: Labor Markets with Tradables and Nontradables . . . . . . . 100 Appendix A.4: Product Innovations with Schumpeterian Intermediate Products: A Simple Formula . . . . . . . . . . . . 102 Appendix A.5: Medium-term Output and Wage Policies in an Open Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 B.

C.

D.

Savings, Investment and Growth: New Approaches for Macroeconomic Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B.2 A Medium-term Keynes–Solow Model . . . . . . . . . . . . . . . . . . . . . . .

B.2.1 Capital Accumulation Dynamics and Profit Maximization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B.2.2 Choosing a Consistent Investment Function and a New Consumption Function . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B.2.3 Multiplier Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

B.3 Conclusions and Possible Extensions . . . . . . . . . . . . . . . . . . . . . . . .

Economic Integration, Technological Progress and Growth . . . . . . . .

C.1 Rich Countries vs. Poor Countries and Economic Integration . . . .

C.2 Setup of the Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C.2.1 Convergence in a Hybrid Growth Model with Trade and R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C.2.2 Profit Maximization in the Hybrid Growth Model . . . . . . .

C.3 Asymmetric Foreign Direct Investment in a Two-Country Growth Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

C.4 Policy Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix C.1: Basic Neoclassical Model . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix C.2: General Approach and Simulations . . . . . . . . . . . . . . . . . .

Impact of the Real Exchange Rate on Trade, Structural Change and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

D.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

D.2 Reputation, Market Size and Relative Price Effects: A Quasi–Balassa–Samuelson Effect . . . . . . . . . . . . . . . . . . . . . . . . . .

D.3 Real Exchange Rate Dynamics and Economic Effects . . . . . . . . . . .

D.3.1 Real Exchange Rate and Trade . . . . . . . . . . . . . . . . . . . . . . .

D.3.2 Real Exchange Rate and Structural Change . . . . . . . . . . . .

D.3.3 Real Exchange Rate and Growth . . . . . . . . . . . . . . . . . . . . .

109 109 111 112 115 117 125 129 129 132 134 137 138 141 141 142

145 145 147 149 149 150 151

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D.4 Real Effective Exchange Rate (p/ep∗ ) Dynamics in Selected EU Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

D.5 Wages, Prices and the Real Exchange Rate . . . . . . . . . . . . . . . . . . . .

D.6 Towards an Integrated Macroeconomic Approach . . . . . . . . . . . . . .

D.7 Medium-Term Approach to Product Innovations, Output and the Exchange Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

D.8 Economic Catching-up and Long-Term Real Exchange Rate Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

D.9 Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E.

F.

Macroeconomic Aspects of Opening up, Unemployment, Growth and Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E.2 Growth, Trade and Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E.2.1 New Production Function for Open Economies . . . . . . . . .

E.2.2 Foreign Direct Investment . . . . . . . . . . . . . . . . . . . . . . . . . . .

E.3 Growth, Resource Dynamics, Balassa–Samuelson Effects and Unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E.3.1 Growth, Natural Resources and EconomicWelfare . . . . . .

E.3.2 The Balassa-–Samuelson Effect, Unemployment and Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E.3.3 Wage Bargaining as Inherent Source of Unemployment? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

E.4 Product Innovation and Macroeconomic Developments: Schumpeter and the Mundell–Fleming Model . . . . . . . . . . . . . . . . .

E.4.1 The Role of Risk and Innovation . . . . . . . . . . . . . . . . . . . . .

E.4.2 Endogenous Product Innovations in Countries with Similar Development Levels . . . . . . . . . . . . . . . . . . . .

E.5 Conclusions and Policy Implications . . . . . . . . . . . . . . . . .

Appendix E.1: Maximization of Total Quasi-Income of Workers through Trade Unions (labor supply L0 is exogenous, parameter 0 ≤ α ≤ 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix E.2: Mathematical Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix E.3: Reflections on EU Eastern Enlargement . . . . . . . . . . . . . .

Appendix E.4: Fiscal Multiplier in a Hybrid Approach . . . . . . . . . . . . . . .

Appendix E.5: Reconsidering Aggregate Output in a Two-Sector Approach . . . . . . . . . . . . . . . . . . . . . . . . . .

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157 157 158 164 169 174 177 177 180 180 183 188 188 190 193 198 198 199 200

201 204 206 212 213

Productivity Shocks, Innovations, Stock Market Dynamics and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 F.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 F.2 Traditional and New Approaches to the Exchange Rate and Stock Market Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221

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F.2.1

Stylized Facts of Exchange Rates and Stock Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F.2.1 Short-Term Analysis of Financial Market Dynamics and Technology Shocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F.3 Hybrid Model: Combining Interest Parity and Augmented Money Market Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F.4 Capital Asset Pricing Model and Product Innovations . . . . . . . . . . .

F.5 Consumption, Volatility and Growth . . . . . . . . . . . . . . . . . . . . . . . . .

F.6 Policy Issues and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix F.1: Slope of Equilibrium Lines . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix F.2: International Bonds Market Integration, Interest Rates and Stock Market Volatility . . . . . . . . . . . . . . . . . . .

G.

H.

Innovation Dynamics and Optimum Growth . . . . . . . . . . . . . . . . . . . . .

G.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

G.2 Endogenous Growth, Innovation and Maximum Consumption per Capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

G.2.1 Optimum Endogenous Growth . . . . . . . . . . . . . . . . . . . . . . .

G.2.2 Optimum Growth and Endogenous Growth Modeling in Open and Closed Economies . . . . . . . . . . . . . . . . . . . . . .

G.2.3 Biased Technological Progress and Optimum Growth . . . .

G.2.4 Efficient vs. Optimal International Specialization . . . . . . .

G.3 Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix G.1: Optimum Quantity of Money . . . . . . . . . . . . . . . . . . . . . . .

Appendix G.2: Specialization, Technological Progress and Factor Price Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix G.3: Endogenous Progress in the Capital Goods Sector . . . . . .

Appendix G.4: Simple Differential Equation and Bernoulli Differential Equation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix G.5: The Macroeconomic Foundation of Microeconomics . . .

Trade, Structural Change and Growth in an Open Monetary Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

H.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

H.2 Exchange Rate Dynamics, Relative Prices, Employment and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

H.2.1 Nominal Exchange Rate, Real Exchange Rate and True Long-Run Money Market Equilibrium . . . . . . . .

H.2.2 Real Exchange Rate, Growth Path and Steady State . . . . .

H.2.3 Investment, Real Exchange Rate and Employment . . . . . .

H.2.4 Technology, Exchange Rate Changes and the Relative Tradable Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

H.3 Real Exchange Rate Dynamics and Economic Effects . . . . . . . . . . .

Appendix H.1: Statistical Measures of Structural Change . . . . . . . . . . . . .

Appendix H.2: Indicators Measuring Structural Change . . . . . . . . . . . . . .

221 228 232 234 238 240 242 243 247 247 250 250 256 261 262 264 266 267 268 270 271 273 273 275 275 280 284 286 290 292 294

Contents

I.

J.

K.

Innovations in the Digital Economy: Promotion of R&D and Growth in Open Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I.2 Innovations and New Economic Structures in the Digital Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I.2.1 Selected Innovation Traits in OECD Countries . . . . . . . . .

I.2.2 Innovation System and Innovation Record . . . . . . . . . . . . .

I.2.3 High Technology, ICT Growth and Modernization of the Economic System . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I.3 Theory of Innovation Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I.3.1 The Standard Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I.4 Policy Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I.4.1 General Policy Conclusions for Innovation Policy in Open Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I.4.2 Specific Policy Conclusions for Germany . . . . . . . . . . . . . .

Appendix I.1: Optimum Product Innovation under Uncertainty . . . . . . . .

Appendix I.2: Product Innovations and Network Effects in a Simple Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix I.3: NACE (EU classification) rev. 1.1 Classification at the 2-Digit Level (in Parts) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix I.4: Market Entry of Digital Good Producers in a General Equilibrium Model . . . . . . . . . . . . . . . . . . . . .

EU Innovation Policy: Analysis and Critique . . . . . . . . . . . . . . . . . . . . .

J.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

J.2 Innovation Policy in the EU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

J.3 Innovation Dynamics in OECD Countries . . . . . . . . . . . . . . . . . . . . .

J.3.1 Innovation, Specialization and Growth: Empirical Analysis for EU-15 and USA . . . . . . . . . . . . . . .

J.3.2 Comparative Innovation Dynamics . . . . . . . . . . . . . . . . . . .

J.3.3 Acceleration of Innovation Dynamics . . . . . . . . . . . . . . . . .

J.3.4 Specialization in Innovation and ICT Network Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

J.4 Recommendations for Future EU Innovation Policy . . . . . . . . . . . .

Financial Market Integration, Interest Rates and Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

K.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

K.2 Financial Market Integration in the EU . . . . . . . . . . . . . . . . . . . . . . .

K.2.1 From Basic Theory to Endogenous Growth Approaches . .

K.2.2 Current Account Dynamics: A New Approach . . . . . . . . . .

K.2.3 Monetary Integration, Financial Market Integration and Welfare Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

K.3 Integration of Financial Markets in the Euro Zone and Global Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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295 295 298 298 302 311 320 320 329 329 330 334 336 339 340 347 347 349 350 350 350 355 358 363

367 367 373 373 377 380 384

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K.4 Policy Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

K.5 FDI and Information and Communication Technology in the Dornbusch Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

K.5.1 Basics of the Dornbusch Model . . . . . . . . . . . . . . . . . . . . . .

K.5.2 The Modified Dornbusch Model . . . . . . . . . . . . . . . . . . . . .

K.5.3 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix K.1: Aspects of Transition and Trend Growth in a Setup with Technology Shifts . . . . . . . . . . . . . . . . . . .

Appendix K.2: Uncertainty, Savings and Product Innovations . . . . . . . . .

Appendix K.3: A Macro-Model with Unemployment and Endogenous Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

L.

386 388 388 389 398 400 400 402

Natural Resources, Oil Prices and Innovation Dynamics . . . . . . . . . .

L.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

L.2 Theory of Natural Resource Pricing . . . . . . . . . . . . . . . . . . . . . . . . . .

L.2.1 Technological Progress in the Oil Industry . . . . . . . . . . . . .

L.2.2 Non-Stationarity of Oil Prices? . . . . . . . . . . . . . . . . . . . . . .

L.2.3 Which Interest Rate Is Relevant? . . . . . . . . . . . . . . . . . . . . .

L.2.4 Long-term Macroeconomic Aspects of Oil Price Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

L.3 Oil Price Regression Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

L.4 Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

L.5 Sustainability Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix L.1: Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

405 405 409 410 413 415 417 419 423 425 430

M.

Portfolio Modeling and Growth in Open Economies . . . . . . . . . . . . . .

M.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

M.2 Combining the Portfolio Model and Growth Analysis . . . . . . . . . . .

M.3 Oil Price Dynamics in a Double Perspective . . . . . . . . . . . . . . . . . . .

M.4 Stock Market Analysis and Hybrid Portfolio Growth Model . . . . . .

M.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

431 431 433 436 439 445

N.

Transatlantic Banking Crisis: Analysis, Rating, Policy Issues . . . . . .

N.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

N.2 The Dynamics of the Banking Crisis . . . . . . . . . . . . . . . . . . . . . . . . .

N.3 Banking Crisis and Critical Reform Proposals . . . . . . . . . . . . . . . . .

N.4 Theoretical Aspects of Sustainable Financial Market Globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

N.5 Macroeconomic Modeling Aspects . . . . . . . . . . . . . . . . . . . . . . . . . .

N.5.1 A Macro Model with Foreign Direct Investment and Rating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

N.5.2 Multiplier Analysis and Key Conclusions on Ratings . . . .

N.6 The Effects of a Banking Crisis in a Hybrid Macroeconomic Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

N.7 Policy Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

447 447 452 459 467 474 475 478 481 491

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O.

P.

Q.

R.

International Banking Crisis and Innovation . . . . . . . . . . . . . . . . . . . .

O.1 The Effects of a Banking Crisis in a Hybrid Macroeconomic Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

O.2 Financial Innovations, Banking Crises, and Schumpeterian Growth Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

O.2.1 Introduction: Financial Innovations Dynamics versus Industrial Innovations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

O.2.2 Financial Innovations and Growth . . . . . . . . . . . . . . . . . . . .

O.2.3 Policy Issues: Financial Innovations and Government R&D Support? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

New MARSHALL–LERNER Condition and Economic Globalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

P.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

P.2 FDI, the External Balance and the Real Exchange Rate . . . . . . . . .

P.3 Policy Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix P.1: Macro Model with FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trade, Innovation and Output Dynamics . . . . . . . . . . . . . . . . . . . . . . . .

Q.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q.2 Trade and the Production Function: Growth in Open Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q.2.1 Alternative Asymmetric Model for Trade and Growth . . . .

Q.2.2 Quasi Economies of Scale in a Simple Two-Country Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q.2.3 Open Economies Growth Model: The Role of Technological Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q.2.4 Growth Modeling of Open Economies: Technology Spillovers and the Role of Trade . . . . . . . . . . . . . . . . . . . . .

Q.3 The Gravity Equation in a Long-Term Analytical Perspective . . . .

Q.3.1 Towards a Consistent Long-Run Gravity Trade Model . . .

Q.3.2 Combining the Gravity Equation and Growth Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q.3.3 Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q.4 Growth, Optimum Taxation, and Innovation Policy . . . . . . . . . . . . .

Q.4.1 A New Optimum Taxation Approach . . . . . . . . . . . . . . . . . .

Q.4.2 Optimum FDI Policy in an Open Economy with Subsidiaries from Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . .

Q.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

New Open Economy Policy Perspectives: Modified Golden Rule and Hybrid Welfare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

R.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

R.2 From the Traditional Model Toward a New Approach . . . . . . . . . . .

R.3 Endogenous Population Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

xxi

495 495 504 504 506 510

515 515 518 523 525 531 531 535 543 546 547 549 552 554 555 559 560 560 562 563

565 565 569 572

xxii

Contents

R.4 Economic Welfare, Golden Rule and CO2 Emissions in the Context of a Modified Growth Model . . . . . . . . . . . . . . . . . . . 573 R.5 Open Economy and Economic Growth . . . . . . . . . . . . . . . . . . . . . . . 577 R.6 A Broader View on the Golden Rule and Innovation in Open Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 582 S.

T.

Employment in the R&D Sector, Economic Policy and the Golden Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

S.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

S.2 Towards a New Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

S.3 Policy Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Some Remarks on Growth Analysis on the Basis of CES . . . . . . . . . .

T.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

T.2 Neoclassical Growth Model with CES: Ambiguous Role of the Savings Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

T.3 Two-country Macro Model with CES Functions . . . . . . . . . . . . . . .

T.4 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix T.1: Further Considerations on CES . . . . . . . . . . . . . . . . . . . . . .

Appendix T.2: The Role of Domestic and Foreign Sovereign Debt in a Simple Medium-term Macro Model with Flexible Exchange Rates . . . . . . . . . . . . . . . . . . . . . . .

587 587 589 595 607 607 607 611 614 615

615

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619