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

  • Bruha, Jan
  • Podpiera, Jirí

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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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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  1. Balázs �gert & László Halpern & Ronald MacDonald, 2006. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues ," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 257-324, 04.
  2. Fabio Ghironi & Marc Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," 2004 Meeting Papers 451, Society for Economic Dynamics.
  3. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
  4. 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.
  5. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
  6. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October.
  7. Martin Cincibuch & Jiri Podpiera, 2004. "Beyond Balassa - Samuelson: Real Appreciation in Tradables in Transition Countries," Working Papers 2004/09, Czech National Bank, Research Department.
  8. repec:oup:qjecon:v:126:y:2011:i:1:p:417-474 is not listed on IDEAS
  9. Ashoka Mody & Deniz Igan & Stefania Fabrizio, 2007. "The Dynamics of Product Quality and International Competitiveness," IMF Working Papers 07/97, International Monetary Fund.
  10. Henning Ahnert & Geoff Kenny, 2004. "Quality adjustment of European price statistics and the role for hedonics," Occasional Paper Series 15, European Central Bank.
  11. 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.
  12. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
  13. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 865-915.
  14. Karen Dury & Özlem Oomen, 2007. "The real exchange rate and quality improvements," Bank of England working papers 320, Bank of England.
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