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Globalization is posing major challenges to the southern euro area (SEA-5) countries2—new products of better quality can be an alternative to increase their competitiveness. In this context, the main finding of this chapter is that product quality has not shown a marked improvement over the last decade. This slow progress appears associated with a loss of market share.

Imports increase consumer choices, exert competitive pressures on domestic producers, and facilitate industrial restructuring. In studies of cross-country differences in external performance, imports have drawn considerably less attention than exports, and typically have been assigned a passive role. For example, Allard, et al (2005) found imports to be largely determined by final demand while competitiveness has been playing a minor role. However, the benefits of imports are well known: they increase the supply of goods and services available to meet final demand, enable a national economy to bring forward consumption and investment, offer an enlarged product variety, and facilitate the global division of labor. This chapter looks at the role of imports in restructuring the economies of the five southern euro area (SEA-5) countries—France, Greece, Italy, Portugal, and Spain—and, for the purpose of comparison, the euro area average and Germany.

Mr. Jahangir Aziz and Mr. Graham Hacche

The standard growth accounting framework, which weights various inputs by their factor shares to measure their contributions to output growth, is known to underestimate the contribution of inputs in the presence of externalities and increasing returns. This paper develops a model in which, in the absence of such departures from the standard neoclassical framework, growth can occur through either embodied technological progress or firms replication of existing technology. The standard growth accounting framework fails to distinguish between these contrasting development processes. This failure thus reveals another limitation to the use of growth accounting in identifying the processes of economic developments.