Market Distortion, Inter-Provincial Factor Misallocation, and Total Factor Productivity

As an emerging economy, market distortions exist in China’s institutional adjustment during its economy transformation. However, the price distortion of capital and labor factors will lead to factor misallocation among provinces. This will eventually reduce the total factor productivity (TFP) at the national level. Based on Hsieh and Klenow’s [1] model framework, this paper aims to measure the degree of misallocation of capital and labor factors among provinces, and estimates the growth potential of China’s TFP by using input-output data from 1993 to 2017. The findings show that: First, the degree of inter-provincial labor misallocation is greater than that of capital. For example, in 2017, the degree of capital (labor) misallocation was 5.77% (10.25%), resulting in China’s TFP loss of 17.23%. Second, due to the factor marketization reforms, the degree of labor misallocation has declined while the degree of capital misallocation has intensified in recent years. Lastly, this paper introduces the time-varying elasticity production function model, finding that using the Cobb-Douglas production function will cause the factor misallocation to be underestimated by 5.91% due to the assumption of constant output elasticity.

Modeling Sustainable Economic Development Using Production Functions

The most popular two-factor production functions used in the process of modeling sustainable economic development are examined. Economic and mathematical characteristics of Cobb-Douglas production functions, CES-function, linear function, Leontief and Allen functions are considered, in particular, type of dependence of labour productivity in relation to capital-labour ratio of commodity production system within mentioned production functions. Their most important economic and mathematical characteristics are presented: factors average and marginal return, demand for production resources, factor substitution, factors marginal rate of technical substitution, output elasticity by factors, elasticity of factors technical substitution, optimal capital-labour ratio according to the criterion of maximum output. Comparative analysis is given to Cobb-Douglas and CES-functions, which are two production functions mostly required in practice.

A Relationship Between the Factor Indivisibility and the Output Elasticity of the Indivisible Factor

The paper puts forth a notion and derives a special type of production function where labour is an indivisible factor and is in the integer space. Thus, Newtonian calculus is not an appropriate method of deriving the marginal value because limit point does not exist. This shows that indivisibility determines the output elasticity. In the first part, the paper propounds a notion regarding how indivisibility determines curvature of the production function. In the second part, the paper incorporates the findings within a production function and derives a new type accordingly. Moreover, it formally derives the standard wage equation considering all the entitlements of labour, namely (a) normal wages, (b) interest and (c) rent of ability. So far, no such mathematical proof is there to support this wage composition. This paper, for the first time, derives this wage equation considering indivisibility of labour. JEL Classifications: J23, J24, J31, D24, C61, E24, L8

Air Pollution and Manufacturing Firm Productivity: Nationwide Estimates for China

We provide nationwide causal estimates of air pollution's effect on short-run labour productivity for China's manufacturing sector from 1998 to 2007. Using thermal inversions as an instrument, we estimate a one $\mu $g/m3 decrease in PM2.5 increases productivity by 0.82% (elasticity of −0.44). Increased hiring attenuates the elasticity to −0.17. Using the differential effect of China's WTO accession on coastal versus inner regions, we estimate a pollution elasticity of 1.43 with respect to output. Simulating a dynamic general-equilibrium model yields an output elasticity of −0.28 with respect to PM2.5. An exogenous 1% decrease in PM2.5 nationwide increases GDP by 0.039%.

Governmental Taxation of Households Choosing between a National Currency and a Cryptocurrency

: A game between a representative household and a government was analyzed. The household chose which fractions of two currencies to hold, e.g., a national currency such as a Central Bank Digital Currency (CBDC) and a global currency such as Bitcoin or Facebook’s Diem, and chose the tax evasion probability for each currency. The government chose, for each currency, the probability of detecting and prosecuting tax evasion, the tax rate, and the penalty factor imposed on the household when tax evasion was successfully detected and prosecuted. The household′s fraction of the national currency, the government’s monitoring probability of the national currency, and the penalty factor imposed on the global currency, increased in the household′s Cobb Douglas output elasticity for the national currency. The household′s probabilities of tax evasion on both currencies increased in the government’s Cobb Douglas output elasticity for the national currency. The government’s taxation on both currencies decreased in the output elasticity for the national currency. High output elasticity for the national currency eventually induced the government to tax that currency more than the global currency. The household′s probability of tax evasion on the global currency increased in the government’s output elasticity for that currency. The household was less (more) likely to tax evade on the national (global) currency if the government valued taxation and penalty on the national (global) currency. The results are illustrated numerically where each of the eight parameter values were varied relative to a benchmark.

Urban water demand for manufacturing, construction and service industries: a microdata analysis

This study analyses the industrial demand for urban water using a panel dataset of firms operating in the city of Zaragoza (Spain) and looking at three sectors (manufacturing, construction and services) disaggregated on 24 subsectors. Evidence in favour of using the marginal price rather than the average price is obtained, and the selection of the price is found to influence the value of the elasticities. Based on a translog cost function, the direct price elasticity of water (−0.86), the output elasticity (0.73) and the cross-price elasticities between water and capital, labour and supplies (being all of them substitutes) were estimated. By subsectors, the influence of price is only significant in those with a higher share of water in the total production cost. These results indicate that pricing can be used as a tool for managing water demand by promoting conservation of the resource. However, these results also indicate that the simultaneous use of other instruments is advisable to reinforce the impact of pricing policy on water consumption.

Assessing the Sensitivity of Main Crop Yields to Climate Change Impacts in China

Quantitatively assessing the spatial divergence of the sensitivity of crop yield to climate change is of great significance for reducing the climate change risk to food production. We use socio-economic and climatic data from 1981 to 2015 to examine how climate variability led to variation in yield, as simulated by an economy–climate model (C-D-C). The sensitivity of crop yield to the impact of climate change refers to the change in yield caused by changing climatic factors under the condition of constant non-climatic factors. An ‘output elasticity of comprehensive climate factor (CCF)’ approach determines the sensitivity, using the yields per hectare for grain, rice, wheat and maize in China’s main grain-producing areas as a case study. The results show that the CCF has a negative trend at a rate of −0.84/(10a) in the North region, while a positive trend of 0.79/(10a) is observed for the South region. Climate change promotes the ensemble increase in yields, and the contribution of agricultural labor force and total mechanical power to yields are greater, indicating that the yield in major grain-producing areas mainly depends on labor resources and the level of mechanization. However, the sensitivities to climate change of different crop yields to climate change present obvious regional differences: the sensitivity to climate change of the yield per hectare for maize in the North region was stronger than that in the South region. Therefore, the increase in the yield per hectare for maize in the North region due to the positive impacts of climate change was greater than that in the South region. In contrast, the sensitivity to climate change of the yield per hectare for rice in the South region was stronger than that in the North region. Furthermore, the sensitivity to climate change of maize per hectare yield was stronger than that of rice and wheat in the North region, and that of rice was the highest of the three crop yields in the South region. Finally, the economy–climate sensitivity zones of different crops were determined by the output elasticity of the CCF to help adapt to climate change and prevent food production risks.

Growth and Elasticity of Output of MSMEs in India

In the last few years, the phenomenon of a marked slowdown in the growth of employment has been noticed in many countries across the world including India. An important objective of development planning in India has been to provide for increasing employment opportunities not only to meet the backlog of the unemployed but also the new additions to the labour force. Micro, small and medium enterprises (MSMEs), including khadi and village industries generate the highest rates of employment growth and account for a significant share of industrial production and exports. The core objective of the present paper is to analyse the growth and elasticity output in the MSMEs sector. Extended Cobb Douglas Production Function has been utilized based on the secondary data. The study reveals that the output elasticity of employment during the study period is very low as compared to the output elasticity of export.

Assessing the 2010–2018 financial crisis in Greece, Portugal, Ireland, Spain, and Cyprus

PurposeThe article develops a model to interpret the 2010–2018 financial crisis in Greece, Portugal, Ireland, Spain and Cyprus, and the loan programs from the IL (International Lender; i.e. the European Union, the European Commission, and the International Monetary Fund).Design/methodology/approachFor each country, an isoelastic utility with constant relative risk aversion is assumed. For the IL a Cobb Douglas utility is assumed with consumption, the GDP (Gross Domestic Product) to debt ratio, and market stability as inputs, accounting for time discounting. This article applies two methods to assess the empirics. The first method considers the IL's strategy as a whole over the 2010–2018 period. The second method assumes that the IL maximizes its utility in one period to determine its optimal loan, accounting for the empirics in that period, and the debt in the previous period.FindingsFor the first method, when the output elasticity in the IL's Cobb Douglas utility is high favoring consumption, the IL prefers offering a higher loan than its actual loan. Otherwise the IL prefers to offer no loan. The output elasticity at which the IL prefers to offer a loan is lowest for Greece, second lowest for Cyprus, third lowest for Portugal, and highest for Ireland and Spain. A high loan to Greece over a larger range of the output elasticity for Greece's consumption is supported by Greece being prioritized through the loan program. For the second method, the IL prefers to offer no loan to Greece which is too burdened with debt. Thus, the first method seems preferable, considering the entire duration of the crisis holistically.Originality/valueThe article offers a novel perspective of how to assess debt crises, enabling the IL to weigh various factors such as consumption, GDP, loan offered, and each country's debt to credit markets.