PEGFA Research Seminars: Ugur & Botta

9th Mar 2023 5pm - 6:30pm

Campus

The Institute of Political Economy, Governance, Finance and Accountability invites you to its Research Seminar Series 2023.

Our first Research Seminar will take place on 9 March at 5pm in QA220 and will feature PEGFA speakers Professor Mehmet Ugur and Dr Alberto Botta.

Prof Ugur will talk about his new paper "Inflated TFP growth and falling labour share: OECD evidence on the roles of innovation and market power". Please find the abstract here:

In this paper, we address two issues that have remained below the radars of the growing research on market power and its macroeconomic consequences: (i) simultaneity and reverse causality in the relationship between innovation, market power and macroeconomic outcomes; and (ii) the implications of market power for the invariance property of the total factor productivity (TFP) measure. Using a structural equation modelling approach and EU-KLEMS data on 12 countries and 33 industries from 1995-2019, we report the following: (a) markups always increase with innovation but innovation increases with markups only in industries with high initial markups; (b) the TFP growth measure based on perfect competition will be biased upward and its invariance property will no longer hold under market power; (c) markups always have an adverse effect on labour share directly and indirectly; and (d) the adverse effects of markups on labour share are stronger than the effects of innovation intensity. These findings remain robust to different model specifications, markup measures, and innovation intensity measures. One take-away from our findings is that the TFP growth estimates in use may not be a reliable guide for policy.  The second is that the main determinant of falling share is not technological innovation per se but the extent of market power that allows successful innovators to extract rents.

Dr Botta will present "Financial integration, productive development and fiscal policy space in developing countries". This is the abstract:

This paper offers a simple, tractable post-Keynesian model, which highlights the importance of structural change and productive development in defining the dynamics of the Real Exchange Rate (RER) and foreign debt in a small open developing economy. The argument is that in countries that keep the capital account open and rely on austerity policies to induce a notional surplus in the Balance of Payment, the RER can hardly be used as a tool aimed at smoothing the impacts of changes in international financial markets (as argued in the classical macroeconomic trilemma). In our model, capital flows and fluctuations in the RER endogenously feed back into each other and give rise to cyclical macroeconomic volatility. Fiscal austerity supposedly taming external imbalances exacerbates such instability. More diversified productive structures and stronger non-price competitiveness open more space for expansionary fiscal policies, make the economy more resilient to finance-led macroeconomic cycles, and make external debt more sustainable. Capital controls together with stronger price sensitivity of net exports can further stabilize the economy. The paper carries important policy implications, in particular for the combination of industrial and macroprudential policies in peripheral economies, whose pattern of specialization is highly dependent on a few, low-tech commodities. The adoption of industrial policies to foster non-price competitiveness and diversification is critical to sustain macroeconomic stability, both in the short and the long run.

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