International finance

Loukas Karabarbounis, Brent Neiman, 25 November 2014

The share of compensation to labour in gross value added has declined in recent decades for most countries and industries around the world. Recent work has also used the share of compensation to labour in net value added as a proxy for inequality. This column discusses that gross and net labour shares have declined together for most countries since 1975 – an outcome consistent with the worldwide decline in the relative price of investment goods.

Atsuyuki Kato, 25 November 2014

A large literature shows the importance of firm heterogeneity in determining trade patterns. This column discusses policy implementation issues related to the ‘new new trade theory’. The nature of an export good – be it consumption or production oriented – influences the importance of firm productivity in the export decision. The relationship between productivity and markups also varies across industries; pro-export policies must take account of this, lest they exacerbate distortion.

Valentina Bosetti, Jeffrey Frankel, 24 November 2014

Many countries have announced emissions targets for 2020. To evaluate which countries are doing their fair share, this column proposes a ‘scorecard’ approach based on three principles of fairness in climate change mitigation: latecomer catch-up, progressivity, and cost. The authors find that most countries’ targets, including those of China and the US, are in line with what such a scorecard would suggest.

Atsushi Inoue, Chun-Hung Kuo, Barbara Rossi , 24 November 2014

The Great Recession uncovered the difficulties that economic structural models have in explaining the data. This column proposes a methodology that can help identify the sources of mis-specification by introducing exogenous processes. These exogenous processes are not structural shocks but processes that can improve the fit. The results indicate that including more labour and asset frictions in economic models could improve their performance.

Masayuki Morikawa, 23 November 2014

The appropriate level of public sector wages is debated frequently in every country, and the debate has intensified in the wake of the global financial crisis. This column presents evidence that regional wage differentials in Japan are greater in the private sector than in the public sector. In regions where public sector wages are relatively high, skilled individuals may self-select into public sector jobs. At the same time, public sector employers in metropolitan regions such as Tokyo may have difficulty in hiring high quality employees.

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