Creator: Kehoe, Timothy Jerome, 1953- and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 453 Abstract:
Following its opening to trade and foreign investment in the mid-1980s, Mexico’s economic growth has been modest at best, particularly in comparison with that of China. Comparing these countries and reviewing the literature, we conclude that the relation between openness and growth is not a simple one. Using standard trade theory, we find that Mexico has gained from trade, and by some measures, more so than China. We sketch out a theory in which developing countries can grow faster than the United States by reforming. As a country becomes richer, this sort of catch-up becomes more difficult. Absent continuing reforms, Chinese growth is likely to slow down sharply, perhaps leaving China at a level less than Mexico’s real GDP per working-age person.
Subject (JEL): E23 - Macroeconomics: Production, F14 - Empirical Studies of Trade, E65 - Studies of Particular Policy Episodes, O20 - Development Planning and Policy: General, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, and O10 - Economic Development: General
Creator: Asturias, Jose, Hur, Sewon, Kehoe, Timothy Jerome, 1953-, and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 544 Abstract:
Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.
Keyword: Entry costs, Entry, Exit, Productivity, and Barriers to technology adoption Subject (JEL): O10 - Economic Development: General, E22 - Investment; Capital; Intangible Capital; Capacity, O38 - Technological Change: Government Policy, and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Creator: Kehoe, Timothy Jerome, 1953- and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 414 Abstract:
A sudden stop of capital flows into a developing country tends to be followed by a rapid switch from trade deficits to surpluses, a depreciation of the real exchange rate, and decreases in output and total factor productivity. Substantial reallocation takes place from the nontraded sector to the traded sector. We construct a multisector growth model, calibrate it to the Mexican economy, and use it to analyze Mexico's 1994–95 crisis. When subjected to a sudden stop, the model accounts for the trade balance reversal and the real exchange rate depreciation, but it cannot account for the decreases in GDP and TFP. Extending the model to include labor frictions and variable capital utilization, we still find that it cannot quantitatively account for the dynamics of output and productivity without losing the ability to account for the movements of other variables.
Keyword: Developing country crisis, Real exchange rate, Sudden stop, Mexico, Nontradable, Tradable, and Total factor productivity Subject (JEL): E21 - Macroeconomics: Consumption; Saving; Wealth, F21 - International Investment; Long-term Capital Movements, F32 - Current Account Adjustment; Short-term Capital Movements, F34 - International Lending and Debt Problems, O54 - Economywide Country Studies: Latin America; Caribbean, O41 - One, Two, and Multisector Growth Models, F43 - Economic Growth of Open Economies, and O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence