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Essays in international and development macroeconomics

Hassan, Fadi (2013) Essays in international and development macroeconomics. PhD thesis, London School of Economics and Political Science.

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The thesis comprehends four chapters: the first chapter concerns with the positive correlation between cross-country price level and per-capita income, which is generally regarded as a stylized fact renowned as the Penn-Balassa-Samuelson effect. The chapter provides evidence that the price-income relationship is actually non-linear and that it turns negative in low income countries. The result is robust along both cross-section and panel dimensions. The main contribution of this chapter is to uncover a new empirical regularity such that the price level firstly decreases and then increases along the development process. The second chapter argues that, in order to capture the non-monotonicity of the price-income relationship, we need a modified Balassa-Samuelson framework that accounts for the fact that low-income and high-income countries have very different economic structures and are at different stages of development. Particular emphasis needs to be put on the relevance of the agricultural sector in poor countries and for . The contribution of this chapter is to show that a model linking the price level to the process of structural transformation captures the non-monotonic pattern of the data. The third chapter departs from the Balassa-Samuleson framework and analyses the price-income relationship in a multisector Eaton-Kortum model of trade. The chapter shows that also within this framework a negative-price income relationship emerges. This provides further support to the empirical result shown in the first chapter and additional insights on the determinants of such relationship. The fourth chapter focuses on the relationship between foreign capital flows and income inequality in emerging countries. Developing countries experience a prolonged period of real exchange rate overvaluation after they have opened their capital and current account. This real exchange rate overvaluation is associated with rising income inequality within a country. The chapter provides evidence of a significant positive correlation between net capital flows and the Gini coefficient. The chapter presents also a model connecting the dynamics of the balance of payments with a search and matching model of the labor market. This provides a useful analytical framework to disentangle the mechanisms that can link foreign capital flows to income inequality through the impact of real exchange rate adjustment on the price of labor and quantity of employment.

Item Type: Thesis (PhD)
Additional Information: © 2013 Fadi Hassan
Library of Congress subject classification: H Social Sciences > HB Economic Theory
J Political Science > JA Political science (General)
J Political Science > JZ International relations
Sets: Departments > International Development
Supervisor: Ngai, Rachel and Guimaraes, Bernardo and Wade, Robert Hunter

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