Cambridge Journal of Economics - Advance Access

Does internal finance matter for R&D? New evidence from a panel of Italian firms

Ughetto, E. — 2008-04-22

This paper investigates the relationship between finance and R&D for a panel of more than 1000 Italian manufacturing firms. While Italian firms obtain a significant share of their financing from debt, the results from a unique survey show that firms use virtually no debt to finance R&D. Because Italian firms typically do not receive external equity, the obvious source of innovation financing is internal cash flow. The sensitivity of capital investment to cash flow for small and medium-large firms is estimated, testing for the presence of informational frictions in the credit market for companies performing R&D activities. A GMM method that controls for unobserved firm-specific effects and endogenous explanatory variables is used. Cash flow plays an important role in explaining capital investment, especially for small firms. Interestingly, when the measure of firms' innovative activities is considered, significant differences are found between the sub-samples of small and medium-large firms. While small innovative firms are subject to relevant financing constraints, larger companies investing in R&D have easier access to external financing.

Cross-racial envy and underinvestment in South African partnerships

Haile, D., Sadrieh, A., Verbon, H. A. A. — 2008-04-17

Trust games are employed to investigate the effect of heterogeneity in income and race on cooperation in South Africa. The amount of socio-economic information available to the subjects about their counterparts is varied. No significant behavioural differences are observed when no such information is provided. However, when the information is available, it significantly affects individual trust behaviour. The low income subjects from both racial groups invest significantly less in partnerships with the high income subjects of the other racial group than in any other partnership. We attribute this behaviour to cross-racial envy, which on aggregate may lead to substantial efficiency losses.

Global order and the new economic policy in India: the (post)colonial formation of the small-scale sector

Chakrabarti, A., Chaudhury, A., Cullenberg, S. — 2008-04-17

Using a class focused Marxist approach, we elucidate the adopted position of Indian small-scale sector as a devalued other within the adopted development paradigm that accords primacy to Capital and West. In the background of this understanding of small-scale sector, we demonstrate how the New Economic Policy in the era of globalization could be theorized as a tool to obtain the (post) colonial hegemony of capital over the small-scale sector.

Macroeconomic implications of financialisation

Skott, P., Ryoo, S. — 2008-04-15

A growing literature suggests that ‘financialisation’ may weaken the performance of non-financial corporations and constrain the growth of aggregate demand. This paper uses two alternative approaches—one derived from Skott and one from Lavoie and Godley—and two different settings—a labour-constrained setting and a dual-economy setting—to evaluate some of the claims that have been made. Our analysis, which pays explicit attention to financial stock–flow relations, suggests that the qualitative effects of ‘financialisation’ are insensitive to the precise specification of household saving behaviour but depend critically on the labour market assumptions (labour-constrained versus dual) and the specification of the investment function (Harrodian versus Kaleckian).

Financialisation and capital accumulation in the non-financial corporate sector: A theoretical and empirical investigation on the US economy: 1973-2003

Orhangazi, O. — 2008-04-09

I discuss the impact of financialisation on real capital accumulation in the US. Using data from a sample of non-financial corporations from 1973 to 2003, I find a negative relationship between real investment and financialisation. Two channels can help explain this negative relationship: first, increased financial investment and increased financial profit opportunities may have crowded out real investment by changing the incentives of firm managers and directing funds away from real investment. Second, increased payments to the financial markets may have impeded real investment by decreasing available internal funds, shortening the planning horizons of the firm management and increasing uncertainty.

Les Liaisons dangereuses: a Minskyan approach to the relation of credit and investment in Argentina during the 1990s

Arza, V., Espanol, P. — 2008-04-09

We classify firms according to their financial behaviour in the short term using a Minskyan taxonomy that classifies firms as Hedge, Speculative and Ponzi. We measure financial constraints across that taxonomy using panel-data for Argentina during 1992–2001. After controlling for profitability we find that firms with an oppressed financial structure in the short term had to rely on their internal funds for long-term investment. We interpret this finding from a Minskyan/Keynesian framework arguing that credit allocation followed conventional rules about the quality of borrowers and not necessarily about the quality of the project. Because of being a highly unstable country, Argentinean firms’ quality is defined on a short-term basis.

Keynes's Z function: a reply to Hartwig and Brady

Hayes, M. G. — 2008-04-08

Comment: Hayes on Z

Hartwig, J, Brady, M. E. — 2008-04-07

A note of dissent on the 'index number' interpretation of Adam Smith's 'real measure'

Peach, T. — 2008-04-02

This paper offers a critical comment on the interpretation that Adam Smith's ‘real measure of exchangeable value’ was addressed, at least in part, to the index number problem of estimating intertemporal changes in general purchasing power. It is argued that the ‘real measure’ is incapable of performing such a role, that Smith was aware of its limitations in this respect, and that commentators have been misled by his (legitimate) use of the measure in more restrictive contexts.

Ambivalence of class subjectivity: the sharecroppers of the post-bellum southern USA

Kayatekin, S. A. — 2008-03-18

The paper argues that the economic literature on sharecropping uses a modernist notion of subjectivity that fails to explain the complexity of economic behaviour or the social context in which agency is formed. I look at the case of economic subjectivity of southern sharecropping tenants in the post-bellum USA, using non-determinist Marxist class analysis together with the concept of subjectivity drawing from postcolonial theory, in particular the work of Homi Bhabha. I argue that this alternative approach to economic subjectivity, which posits an ambivalent, or contradictory subjectivity provides us with a better analytical grasp of economic agency and a better explanation of the perpetuation or demise of a productive form such as sharecropping.

Corporate debt, variable retention rate and the appearance of financial fragility

Charles, S. — 2008-03-07

This paper develops a formal neo-Kaleckian model of growth and distribution with excess capacity. First, we deal with the stability and uniqueness of equilibrium in the short run and make some comparative static exercises. Then we show the long run behaviour of the model by endogenising the retention rate and the level of debt. Within that framework, we investigate the conditions for multiple equilibria and show the possibility of instability following a series of increases in the rate of interest or as a result of less prudent dividend policies on the part of firms.

Pragmatism and economics: William James' contribution

Barbalet, J. — 2008-02-28

In addition to his treatment of habit, which is widely recognised as contributing to a theory of institutions, William James' discussion of choice and rationality, as well as self-interest, make significant contributions to areas of concern in modern economic theory. James' incisive and insightful analysis of these and related phenomena is achieved in part by including, together with instinct and habit, emotions as a key faculty of human psychology. Each of these themes is discussed in the present paper, and connected with aspects of relevant economic literature, in order to indicate the contribution of James' pragmatism to economic theory.

A critical reconsideration of the foundations of monetary policy in the new consensus macroeconomics framework

Arestis, P., Sawyer, M. — 2008-02-27

Monetary policy has become firmly based on the use of interest rate as the key policy instrument, and in a one instrument–one target framework. The approach to monetary policy is closely associated with the new consensus in macroeconomics (NCM). This paper undertakes a critical appraisal of the role of monetary policy in the context of the NCM. After setting out the main features of the NCM, there is critical discussion of the role of monetary policy and the NCM framework. The discussion covers the nature of the loss function, the role of the ‘natural rate of interest’ and the Phillips' curve. This is followed by a critical evaluation of the IS curve in the NCM and the classical dichotomy. The paper finishes by asking whether interest rates do have the effects claimed for them.

Gender and the stability of consumption: a feminist contribution to post-Keynesian economics

Charusheela, S — 2008-02-27

Alan Coddington critiques post-Keynesians for their use of fundamental uncertainty. He argues that fundamental uncertainty should also affect the consumption function, undermining the case for Keynesian macroeconomic policies. This paper shows how contemporary feminist theory provides post-Keynesians with a compelling response to Coddington. It uses the concept of gender as an effect of heteronormativity to integrate ‘the household’, the institution that undertakes consumption spending, into post-Keynesian economics. This gives us a more robust analysis of the sources of consumption stability in a world marked by the fundamental unknowability of the future.

Growth and changes in economic structure: a straightforward statistical approach with an application to the Italian economy

Andreopoulos, G. C. — 2008-02-25

The paper presented here, part of my PhD dissertation written under Professor Brian Reddaway's guidance, is offered as an example of his approach to applied economics as well as a tribute to his legacy. The scope of this paper is to suggest an operational approach to the analysis of growth, an approach that allows us to grasp immediately the most important changes that might occur in the structure of an economy. This procedure is applied to the Italian economy over the period of its most rapid growth (1960–79) to see whether some of the most important results established in the literature on modern economic growth are confirmed.

Minsky's 'induced investment and business cycles'

Toporowski, J. — 2008-02-25

This paper reviews the recently published PhD thesis of Hyman P. Minsky, summarising its main contributions to methodology and microeconomics. These are aspects of economics with which Minsky is not usually associated, but which lie at the foundation of his later work. They include critical remarks on Cambridge economics. The paper then draws out some antecedents of Minsky's ideas in the work of Henry Simons, and highlights the Marshallian monetary analysis that he adopted. It is argued that this analysis is incompatible with the Kaleckian theory of profits that Minsky was later to adopt.

Explaining modern economics (as a microcosm of society)

Bigo, V. — 2008-02-25

The persistence of mainstream economists with methods of mathematical-deductive modelling that, most agree, do not perform well is something of a puzzle. Here I show this phenomenon to be a special case of (gendered) tendencies in play in society at large, and I offer a psychological explanation.

Trust, institutions and the 'generally speaking question': a reply to Uslaner

Beugelsdijk, S. — 2008-02-06

In his critical reply on my article, Uslaner points to several issues, amongst others the lack of observations in the principal components analysis, and the fundamental relationship between micro and macro trust on the one hand and institutions on the other hand. Of these two I hold the second one to be most important and I will therefore focus on this issue. I will also use this opportunity to position our trust discussion in the broader context of contemporary economic research on culture.

Newton's real influence on Adam Smith and its context

Montes, L. — 2008-01-23

While Newton's influence on Adam Smith has been widely acknowledged, there is scant research on the actual nature of this influence. This paper sums up a line of investigation delving into this issue. After a short introduction, it is argued that Newton's methodology is more complex than a merely positivistic interpretation. Then the context of Newton's influence during the turn of the seventeenth century and the eighteenth century is assessed. It will be suggested that a British (and particularly Scottish) interpretation of Newton diverges from the French reading of his legacy. The final section analyses Smith's understanding of Newton, arguing that the father of economics was a sophisticated interpreter. The intellectual context of what the Scottish Enlightenment made of Newton, and how he was interpreted, may have played a major role in explaining how Smith understood Newton's legacy.

Can globalisation stop the decline in commodities' terms of trade?

Mollick, A., Faria, J., Albuquerque, P. H., Leon-Ledesma, M. A. — 2008-01-19

In this paper we address the following question: would a fully integrated world economy eliminate the widely reported decline in the terms of trade of primary commodities? We address the question by looking at the terms of trade within the US (a highly integrated economy). Our findings show two results. First, US internal real commodities' terms of trade over the 1947–1998 period experienced slowly declining but significant trends. Second, once we control for the effect of US prices on international terms of trade, we find a long-run relationship between the US and international relative prices. These findings support the view that the decline of commodities' terms of trade bears no relationship with the process of globalisation. This seems to indicate that, if world terms of trade behaved as the US terms of trade, neither increased integration nor protectionist measures would eliminate this trend.

The organisational morphology of rural industries and its dynamics in liberalised India: a study of West Bengal

Maiti, D. — 2008-01-03

The paper presents an empirical investigation into alternative forms of organisation of rural industries and their dynamics in the post-reform period of India by means of a field survey carried out in the state of West Bengal in 2001–02. The selected industries (handloom, brassware, hornware, clay works, conchshell and lac works) all belong to traditional crafts. The major organisational forms are ‘independent units’ and ‘tied units’, the latter being tied to traders and/or master enterprises for raw materials and work-orders, each of which account for more than 40% of our sample units. The third form, ‘cooperative units’, is clearly in the decline. Tied units appear to define the upcoming trend bringing the forces released by ‘liberalisation’, e.g., the growth of exports, drawn to the level of village-artisans. In particular, the system appears to be a vehicle for product-differentiation and innovation, both of which are very much evident in our study area.

The great divide: 'ruralisation' of poverty in Russia

Gerry, C. J., Nivorozhkin, E., Rigg, J. A. — 2008-01-03

Using data from the Russian Longitudinal Monitoring Survey for the period 2000–2004 we investigate poverty trends in Russia. We find that urban poverty declines at twice the rate of rural poverty so that by 2004 poverty in Russia had become a largely rural phenomenon for the first time since transition began. This finding does not stem from changing population characteristics or shares, is not dependent on the use of a particular poverty line nor is it driven by the rapid expansions that have occurred in Moscow, St Petersburg or other urban areas. Our findings flesh out those of Ravallion and colleagues, who, in contrast to other regions, ‘find signs’ of a ruralisation of poverty in Eastern Europe and the former Soviet Union. We attribute some of the differential to the labour market.

Mutual productivity spillovers between foreign and local firms in China

Wei, Y., Liu, X., Wang, C. — 2008-01-03

The existing literature treats advanced technology sourcing as the only cause of reverse productivity spillovers from local to foreign firms and implies that mutual spillovers between foreign and local firms can only happen in the developed world. This paper argues that the diffusion of indigenous technology and local knowledge helps the productivity enhancement of multinationals, so that there can be mutual spillovers even in a developing country. The results from a large-sample firm-level econometric analysis and a comparative case study of seven companies in Chinese manufacturing support this new argument, as mutual spillovers are identified between local Chinese firms and overseas Chinese or OECD-invested firms.

Feminist and post-Keynesian economics: challenges and opportunities

Austen, S., Jefferson, T. — 2007-11-23

There are significant areas of difference between feminist and post-Keynesian economics. Some feminist contributions to discussions about ontology and critical realism suggest strong reluctance to adopt realist philosophies and these provide a marked contrast with post-Keynesians' frequent appeals for economics to reflect ‘reality’. At the same time, however, some post-Keynesians are calling for a more inclusive, pluralist approach to economic research, a discussion that has areas of commonality with various feminist discussions of epistemology. Continued productive dialogue between the two traditions may be facilitated through an understanding of their contrasting ontological and epistemological debates. It may be further accommodated by growing recognition of the potential advantages of utilising plural methods to address specific research questions.

Moral sentiments and economic practices in Kyrgyzstan: the internal embeddedness of a moral economy

Sanghera, B., Satybaldieva, E. — 2007-09-17

In The Theory of Moral Sentiments, Adam Smith notes that moral sentiments, emotions and feelings affect economic and social practices. In the literature on social embeddedness of the economy, sentiments and emotions are neglected, and more attention is given to rules, norms and institutions, which are seen as being instrumental in reducing transaction costs and creating social cohesion. By examining the transformation of Kyrgyzstan to a market economy, the authors show how emotions can motivate individuals to pursue ultimate concerns and commitments. Furthermore, it is argued that without moral emotions and institutional safeguards, economic practices and relationships can be distorted.

Market institutions, trust and norms: exploring moral economies in Nigerian food systems

Lyon, F., Porter, G. — 2007-06-01

Informal market institutions and small-scale traders are responsible for feeding Nigerian cities. This study analyses a range of economic relationships and institutions that have evolved in the context of inadequate formal institutions such as banks and legal contracts. Through examining both personal relationships and institutional based trust, the paper explores the role of moral norms. Trust is shown to be related to sanctions, information on other parties and a range of norms that are drawn on both calculatively and habitually. The perceived moralities of different forms of institution (such as credit systems, trader associations and commission agents) are also examined.

On data: a case study of the evolution of income inequality across time and across countries

Atkinson, A. B., Brandolini, A. — 2006-06-12

This paper takes income distribution as a case study of the role of data in economics. After describing the transformation which has taken place with regard to the availability of data on income inequality, it discusses how the comparability of these estimates is brought into question by differences in methodology that cannot be eliminated by simple adjustments. Recent analyses of the relationships between income inequality and growth or globalisation are shown to be based on time series plagued by discontinuities which can seriously affect regression results. The paper concludes by calling for greater attention to data quality in applied economics.