A Stock Flow Ecological Model from A Latin American Perspective

Abstract

This study aims to develop an ecological stock-flow consistent (SFC) model based on the Latin American–stylized facts regarding economic, financial, and environmental features. We combine the macro-financial theoretical framework by Pérez-Caldentey et al. (2021, 2023) and the ecological modeling of Carnevali et al. (2020) and Dafermos et al. (2018). We discuss two scenarios that test exogenous climate-related shocks. The first scenario presents the case in which international regulation on commodity trade becomes more stringent due to environmental concerns, thus worsening the balance-of-payment constraint of the region. The second scenario concerns the increase in frequency and intensity of adverse climate events in the region. Both scenarios show that the financial external constraint that determines the growth path of Latin American economies may be further exacerbated due to environmental-related issues.

JEL: Q54; Q43; E12; N16

Growth trajectories and political economy in a Structuralist open economy model

Abstract

This paper presents a set of growth and distribution models for open developing economies under different political economy regimes. These regimes give rise to different institutional frameworks which in turn shape macroeconomic outcomes. We focus on three cases: (1) a pure developmentalist state, (2) conflicting claims between workers and government, and (3) an open capital account under a Neoliberal coalition. The equilibrium growth rate is defined by the Balance-of-Payments (BOP) constraint. Cumulative causation à la Kaldor in periods in which the depreciation of the real exchange rate temporarily raises the equilibrium growth rate allows (under certain conditions) for a process of learning that transforms the income elasticity of exports and hence the BOP-constrained rate of growth in the long run. The model produces a variety of outcomes that explains some of the contradictory results reported in the empirical literature in terms of different constellations of power and institutions .

JEL: O33; O40; O41

Financial integration, productive development and fiscal policy space in developing countries

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 medium-term 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 sustaining macroeconomic stability, both in the short and the long run. 

JEL: O30; F32; F38

Beyond Job Guarantee: The Employer of Last Resort Program as a Tool to Promote the Energy Transition

Abstract

We argue that a careful design of a program of direct employment and public provision by the state can have permanent effects and promote the structural and environmental transformation of the economy. Starting from this point, we develop a multisectoral stock-flow consistent model to study the long-run effects of the implementation of a job guarantee program, both in the original formulation of Minsky and in its recent version put forward as part of the ‘Green New Deal’ (GND) policy package. We also assess the impact of both ‘green’ and ‘brown’ standard fiscal expenditures, as well as a policy mix including industrial, environmental and employment measures. Results from our simulations point out that, in order to pursue the twin targets of full employment and environmental sustainability, the government should invest in gross fixed capital formation while both reducing energy consumption and acting as an employer of last resort in order to absorb the workforce expelled from the energy sector. 

JEL: B52; J68; Q43

Working Paper No. 1013 | January 2023 

The Economic and Environmental Effects of a Green Employer of Last Resort. A Sectoral Multiplier Analysis for the United States

Abstract

We assess the sectoral impact of the implementation of a “green” employer of last resort (ELR) program in the US, based on an environmental modification of an extended Kurz’s (1985) multiplier framework and data from OECD Input-Output tables. We use these multipliers to estimate the impact of an “optimal” ELR, designed to maximize the impact on both output and employment while minimizing both imports and carbon emissions. We then test several alternative policy scenarios based upon different compositions of US government expenditure. We provide evidence that (1) investing in the optimal sectors in terms of output, employment, Co2, and import multipliers does not always deliver optimal results in the aggregate; (2) ecological sustainability for the US economy also fosters import sustainability; (3) a rebounding effect in Co2 emissions may be tamed if the ELR satisfies the abovementioned optimality condition, though this undermines its success in terms of output and employment.  

JEL: B52; C67; D57; J68; Q43

Abstract

Recent contributions to the literature on industrialization and development have confirmed that manufacturing continues to play a key role as a driver of economic development. As a corollary, these contributions highlight the importance of premature industrialization as a barrier to economic development and as one of the main sources of the middle-income trap. In this paper, we analyze the factors that may have hindered industrial development in the past four decades. In particular, we focus on the role of (non-Foreign Direct Investment) net capital inflows as a potential source of premature deindustrialization. We consider a sample of 36 developed and developing countries from 1980 to 2017, with major emphasis on the case of emerging and developing economies (EDEs) in the context of increasing financial integration. We show that periods of abundant capital inflows may have caused a significant contraction of manufacturing share to employment and GDP, as well as the decrease of the economic complexity index. We also show that the phenomena of “perverse” structural changes are significantly more relevant in EDE countries than in advanced ones and that they may similarly occur across EDE countries, regardless of structural differences in the way manufacturing contributed to their development. Based on such evidence, we conclude with some policy suggestions highlighting capital controls and external macroprudential measures taming international capital mobility as useful policy tools for promoting long-run productive development on top of strengthening (short-term) financial and macroeconomic stability.

JEL: F32, F38, O14, O30