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Monopoly rights can reduce income big time

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Author Info
Herrendorf, Berthold (Universidad Carlos III de Madrid, Departamento de Economía)
Teixeira, Arilton () (Ibmec, Department of Economics)
Abstract

We ask which part of the observed cross-country differences in the level of per capita income can be accounted for by monopoly rights in the labour market. We answer this question in a calibrated growth model with two final goods sectors. The novel feature being that monopoly rights in the capital-producing sector shield insiders from competition by outsiders and permit coalitions of insiders to choose inefficient technologies or working practices. We find that monopoly rights can lead to quantitatively much larger reductions in the level of per capita income than previously demonstrated. This comes about because they do not only reduce TFP in capital-producing sector but also increase the relative price of capital. This reduces the capital-labour ratio in the whole economy. The implied predictions about the price of capital goods relative to consumption goods and the investment share in output are quantitatively consistent with the cross-country facts.

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Paper provided by Bank of Finland in its series Research Discussion Papers with number 7/2004.

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Length: 41 pages
Date of creation: 14 Dec 2004
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Handle: RePEc:hhs:bofrdp:2004_007

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
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Related research
Keywords: cross-country income differences; cross-country productivity differences; monopoly rights; relative price of capital; capital accumulation;

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Find related papers by JEL classification:
E00 - Macroeconomics and Monetary Economics - - General - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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  2. Stephen L. Parente & Edward C. Prescott, 1993. "Changes in the wealth of nations," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-16. [Downloadable!]
  3. Herrendorf, Berthold & Teixeira, Arilton, 2002. "How Trade Policy Affects Technology Adoption and Productivity," CEPR Discussion Papers 3486, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  17. Stephen L. Parente & Edward C. Prescott, 1999. "Monopoly Rights: A Barrier to Riches," American Economic Review, American Economic Association, vol. 89(5), pages 1216-1233, December. [Downloadable!] (restricted)
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  18. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stephen L. Parente & Edward C. Prescott, 2004. "A unified theory of the evolution of international income levels," Staff Report 333, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  2. Pedro S. Amaral & Erwan Quintin, 2005. "Finance Matters," Macroeconomics 0502007, EconWPA. [Downloadable!]
    Other versions:
  3. Berthold Herrendorf & Arilton Teixeira, . "How Barriers to International Trade Affect TFP," Working Papers 2167724, Department of Economics, W. P. Carey School of Business, Arizona State University. [Downloadable!]
    Other versions:
  4. Veloso, Fernando A. & Ferreira, Pedro Cavalcanti Gomes & Pessoa, Samuel de Abreu, 2004. "The evolution of international output differences (1960-2000): From factors to productivity," Economics Working Papers (Ensaios Economicos da EPGE) 548, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
    Other versions:
  5. Pedro Cavalcanti Ferreira & Samuel de Abreu Pessôa & Fernando A. Veloso, 2005. "The Evolution of International Output Differences (1960-2000): From Factors to Productivity," IBMEC RJ Economics Discussion Papers 2005-11, Economics Research Group, IBMEC Business School - Rio de Janeiro. [Downloadable!]
  6. Andres Erosa & Ana Hidalgo, 2007. "On Finance as a Theory of TFP, Cross-Industry Productivity Differences, and Economic Rents," Working Papers tecipa-285, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  7. Harold L. Cole & Lee E. Ohanian & Alvaro Riascos & James A. Schmitz, Jr., 2004. "Latin America in the rearview mirror," Staff Report 351, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
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