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  • Author: Vincent Bodart, François Courtoy, Erica Perego
  • Publication Date: 01-2021
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: With commodities becoming international financial securities, commodity prices are affected by the international financial cycle. With this evidence in mind, this paper reconsiders the macroeconomic adjustment of developing commodity-exporting countries to changes in world interest rates. We proceed by building a model of a small open economy that produces a non-tradable good and a storable tradable commodity. The difference with standard models of small open economies lies in the endogenous response of commodity prices which -due to commodity storage- adjust to variations in international interest rates. We find that the endogenous response of commodity prices amplifies the reaction of commodity exporting countries to international monetary shocks. This suggests that commodity exporting countries are more vulnerable to unfavourable international monetary disturbances than other small open economies. In particular, because of the existence of the commodity price channel, even those small open commodity-exporting economies that are disconnected from international financial markets can be affected by the international financial cycle.
  • Topic: Economics, International Political Economy, Monetary Policy, Finance, Commodities, Interest Rates, Exports, Price
  • Political Geography: Global Focus
  • Author: Dario Tortarolo, Roman D. Zarate
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)
  • Abstract: We disentangle the extent of imperfect competition in product and labor markets using plant level data. We derive a formula for the ratio between markups and markdowns assuming costminimizing firms that face upward-sloping labour supply and downward-sloping product demand curves. We then separate this combined measure of market power by estimating firm-level labour supply elasticities instrumenting wages with a different set of instruments: including the use of intermediate inputs, input price shocks, and TFP shocks. Our results suggest that both markets exhibit imperfect competition, but the variation is mainly driven by markups. We also estimate the relative gains of removing market power dispersion on allocative efficiency, finding that markups are more important on TFP than markdowns.
  • Topic: Economics, Labor Issues, Finance, Labor Market, Supply Chains, Price
  • Political Geography: Global Focus
  • Author: Victor H. Aguiar, Roy Allen, Nail Kashaev
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Centre for Human Capital and Productivity (CHCP), Western University
  • Abstract: This paper studies nonparametric identification and counterfactual bounds for heterogeneous firms that can be ranked in terms of productivity. Our approach works when quantities and prices are latent rendering standard approaches inapplicable. Instead, we require observation of profits or other optimizing-values such as costs or revenues, and either prices or price proxies of flexibly chosen variables. We extend classical duality results for price-taking firms to a setup with discrete heterogeneity, endogeneity, and limited variation in possibly latent prices. Finally, we show that convergence results for nonparametric estimators may be directly converted to convergence results for production sets.
  • Topic: Economics, Human Capital, Profit, Productivity, Price
  • Political Geography: Canada, Global Focus
  • Author: Elizabeth Caucutt, Lance Lochner, Joseph Mullins, Youngmin Park
  • Publication Date: 08-2020
  • Content Type: Working Paper
  • Institution: Centre for Human Capital and Productivity (CHCP), Western University
  • Abstract: This paper studies the multidimensional nature of investments in children within a dynamic framework. In particular, we examine the roles of parental time investments, purchased home goods/services inputs, and market-based child care services. We first document strong increases in total investment expenditures by maternal education; yet expenditure shares, which skew heavily towards parental time, vary little with parental schooling. Second, we develop an intergenerational lifecycle model with multiple child investment inputs to study these patterns and the impacts of policies that alter the prices of different inputs. We analytically characterize investment behavior, focusing on the substitutability of different investment inputs and the way parental skills affect the productivity of family-based inputs. Third, we develop an estimation strategy that exploits intratemporal optimality conditions based on relative demand to estimate substitutability between inputs, the relative productivity of different inputs, and the role played by parental education. This approach requires no assumptions about the dynamics of skill investment, preferences, or credit markets. We also account for mismeasured inputs and wages, as well as unobserved heterogeneity in parenting skills. We further show how noisy measures of child achievement (measured several years apart) can also be incorporated in a generalized method of moments approach to additionally identify the dynamics of skill accumulation. Fourth, we use data from the Child Development Supplement of the Panel Study of Income Dynamics to estimate the skill production technology for children ages 12 and younger. Our estimates suggest complementarity between parental time and home goods/services inputs as well as between these family-based inputs and market-based child care, with elasticities of substitution ranging from 0.2 to 0.5. We find no systematic effects of parental education on the relative productivity of parental time and other home inputs. Finally, we use counterfactual simulations to explore the extent and sources of variation in investments across families, as well as investment responses to changes in input prices. We find that variation in prices explains 48% of the overall variance in investment expenditures, and differences in wages explain more than half of the investment expenditure gap between college-educated and non-college-educated parents. We further show that accounting for the degree of input complementarity implied by our estimates has important implications for the responses of individual inputs to any price change and for the responses in total investments and skill accumulation to large (but not small) price changes.
  • Topic: Economics, Labor Issues, Children, Human Capital, Economic Mobility, Credit, Productivity, Skilled Labor, Price
  • Political Geography: Global Focus
  • Author: Cécile Couharde, Carl Grekou, Valérie Mignon
  • Publication Date: 10-2020
  • Content Type: Working Paper
  • Institution: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
  • Abstract: This paper describes the new CEPII-MULTIPRIL database on Multilateral Price Levels (MPL) introduced in 2020. The MULTIPRIL database covers a wide sample of 178 countries over the 1990-2018 period, and includes relative price level series computed vis-à-vis two sets of trading partners (177 and the top 30) according to three different trade-weighting schemes. It also contains MPL-based currency misalignments series for 156 countries over the 1991-2018 period. MULTIPRIL offers the potential to improve the coverage and quality of worldwide price-competitiveness comparisons. By focusing on price level data, it usefully complements the EQCHANGE database on equilibrium exchange rates and currency misalignments derived from series in indices. Its multilateral setting provides a more comprehensive picture of relative price levels and currency misalignments compared to existing bilateral measures.
  • Topic: Economics, International Political Economy, Exchange Rate Policy, Trade, Database, Price
  • Political Geography: Global Focus
  • Author: Kalipso Chalkidou, Adrian Towse
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Center for Global Development
  • Abstract: spending on pharmaceuticals and other healthcare commodities is high and makes up a large proportion of healthcare spending in rich and poorer markets alike. A popular response to the problem of escalating drugs budgets has been transparency of drug pricing within and across borders. In a rare alignment of policy priorities, the Trump administration, the US Senate, and the World Health Organisation are calling for more transparency of the prices paid for prescription drugs as a means of tackling the ever-growing pharmaceuticals bill. Recently Italy’s health minister joined in, calling for a World Health Assembly resolution which would mandate WHO to “provide governments with a forum for sharing information on drug prices, revenues, research and development costs, public sector investments and research and development subsidies, marketing costs and other related information.” But is price transparency really the answer to healthcare systems’ fiscal sustainability challenges as they strive to expand access to new technologies or even merely sustain provision within strained public budgets? Well, it depends!
  • Topic: Transparency, Medicine , Pharmaceuticals , Price
  • Political Geography: Global Focus
  • Author: Kalipso Chalkidou, Adrian Towse, Richard Sullivan
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Center for Global Development
  • Abstract: Criticising cancer medicine pricing as too high is what football fans know as an "open goal"—a target that is hard to miss. Yet somehow the World Health Organization (WHO) Technical Report on Cancer Pricing manages to do just that with a paper to the WHO Executive Board calling for price and cost transparency. The assumption goes that transparency will reduce the prices and costs of cancer medicines, a mantra that has united the Trump administration, the US Congress, and the Italian health minister with many NGOs who have called for “greater cost and price transparency”—a sentiment echoed by KEI, which states that “international action is required to improve transparency in reporting the costs of R&D and production, including public sources of funding.”
  • Topic: World Health Organization, Health Care Policy, Medicine , Cancer, Price
  • Political Geography: Global Focus
  • Author: Pierre Dubois, Yassine Lefouili, Stephane Straub
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Center for Global Development
  • Abstract: We use data from seven low and middle income countries with diverse drug procurement systems to assess the effect of centralized procurement on drug prices and provide a theoretical mechanism that explains this effect. Our empirical analysis is based on exhaustive data on drug sales quantities and expenditures over several years for forty important molecules. We find that centralized procurement of drugs by the public sector allows much lower prices but that the induced price reduction is smaller when the supply side is more concentrated.
  • Topic: Drugs, Medicine , Centralization, Price
  • Political Geography: Global Focus
  • Author: Emma Boswell Dean
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Center for Global Development
  • Abstract: With the goal of driving down drug costs, governments across the globe have instituted various forms of pharmaceutical price control policies. Understanding the impacts of such policies is particularly important in low- and middle-income countries, where lack of insurance coverage means that prices can serve as a barrier to access for patients. In this paper, we examine the theoretical and empirical effects of one implementation of pharmaceutical price controls, in which the Indian government placed price ceilings on a set of essential medicines. We find that the legislation resulted in broadly declining prices amongst both directly impacted products and competing products. However, the legislation also led to decreased sales of price-controlled and closely related products, preventing trade that would have otherwise occurred. The sales of small, local generics manufacturers were most impacted by the legislation, seeing a 14.5 percent decrease in market share and a 5.3 percent decrease in sales. These products tend to be inexpensive, but we use novel data to show that they are also of lower average quality. We provide evidence that the legislation impacted consumer types differentially. The benefits of the legislation were largest for quality-sensitive consumers, while the downsides largely affected poor and rural consumers, two groups already suffering from low access to medicines.
  • Topic: Medicine , Pharmaceuticals , Price, Price Control
  • Political Geography: Global Focus
  • Author: Sophie van Huellen
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: School of Oriental and African Studies - University of London
  • Abstract: A recent debate over the financialisation of commodity markets has stimulated the development of approaches to price formation which incorporate index traders as a new trader category in commodity futures markets. I survey these new approaches by retracing their emergence to traditional price formation models and show that these new models arise from a synthesis between commodity arbitrage pricing and asset pricing theories in the tradition of Keynesian inspired hedging pressure models. Based on these insights, I derive testable hypotheses to provide guidance for a growing literature that seeks to empirically evaluate the effects of index traders on price discovery and risk management in commodity futures markets.
  • Topic: Markets, Finance, Investment, Commodities, Price
  • Political Geography: Global Focus