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The dynamics of economic convergence: The role of alternative investment decisions

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Author Info

  • Bruha, Jan
  • Podpiera, Jirí

Abstract

In this paper we evaluate how various investment decisions explain the macroeconomic dynamics of European transition countries. We introduce quality investment decisions into a model with other two standard investment margins assumed in the advanced trade literature, i.e., investment in new varieties and in export eligibility. We show that the standard investment margins are not sufficient to simultaneously match the dynamics in the macroeconomic variables, especially the export performance and the real exchange rate. In contrast, the extended model with quality investment provides reconciliation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 35 (2011)
Issue (Month): 7 (July)
Pages: 1032-1044

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Handle: RePEc:eee:dyncon:v:35:y:2011:i:7:p:1032-1044

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Two-country modeling Convergence Real exchange rate;

References

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  1. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
  2. Fabio Ghironi & Marc J. Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," NBER Working Papers 10540, National Bureau of Economic Research, Inc.
  3. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
  4. Karen Dury & Özlem Oomen, 2007. "The real exchange rate and quality improvements," Bank of England working papers 320, Bank of England.
  5. Halpern, László & MacDonald, Ronald & Égert, Balázs, 2005. "Equilibrium Exchange Rates in T ransition Economies: T aking Stock of the Issues," Working Papers 106, Oesterreichische Nationalbank (Austrian Central Bank).
  6. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
  7. Henning Ahnert & Geoff Kenny, 2004. "Quality adjustment of European price statistics and the role for hedonics," Occasional Paper Series 15, European Central Bank.
  8. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  9. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
  10. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  11. Ashoka Mody & Deniz Igan & Stefania Fabrizio, 2007. "The Dynamics of Product Quality and International Competitiveness," IMF Working Papers 07/97, International Monetary Fund.
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Citations

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Cited by:
  1. Jaromir Baxa & Michal Franta & Tomas Havranek & Roman Horvath & Miroslav Plasil & Marek Rusnak & Borek Vasicek, 2013. "Transmission of Monetary Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 11, number rb11/1 edited by Jan Babecky & Roman Horvath.
  2. Jaromir Tonner & Jiri Polansky & Osvald Vašíèek, 2011. "Parameter Drifting in a DSGE Model Estimated on Czech Data," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(5), pages 510-524, November.
  3. Jan Babecky & Alena Bicakova & Alexis Derviz & Tomas Havranek & Roman Horvath & Lubos Komarek & Zlatuse Komarkova & Jakub Mateju & Ke Pang & Renata Pasalicova & Zuzana Prelcova & Marie Rakova & Pierre, 2011. "Macro-Financial Linkages: Theory and Applications," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 9, number rb09/2 edited by Jan Babecky.
  4. Katerina Arnostova & Jozef Barunik & Jan Filacek & Michal Franta & David Havrlant & Roman Horvath & Filip Novotny & Marie Rakova & Lubos Ruzicka & Branislav Saxa & Katerina Smidkova & Peter Toth, 2012. "Macroeconomic Forecasting: Methods, Accuracy and Coordination," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 10, number rb10/1 edited by Jan Babecky.
  5. Jose Peydro Alcalde & Sona Benecka & Alexis Derviz & Adam Gersl & Tomas Holub & Roman Horvath & Petr Jakubik & Narcisa Liliana Kadlcakova & Dorota Kowalczyk & Ivana Kubicova & Steven Ongena & Jakub Ry, 2012. "Financial Stability and Monetary Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 10, number rb10/2 edited by Jan Babecky & Roman Horvath.
  6. Robert Ambrisko & Vitezslav Augusta & Jan Babecky & Michal Franta & Dana Hajkova & Petr Kral & Jan Libich & Pavla Netusilova & Milan Rikovsky & Jakub Rysanek & Pavel Soukup & Petr Stehlik & Vilem Vale, 2013. "Macroeconomic Effects of Fiscal Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 11, number rb11/2 edited by Jan Babecky & Kamil Galuscak.

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