Country Size and the Price of Tradeables: is There Any Relationship Beyond Wishful Thinking?

Mantovani, Andrea; Rossini, Gianpaolo; Zanghieri, Paolo Working Paper Country Size and the Price of Tradeables: is There Any Relationship Beyond Wishful Thinking? Quaderni - Working Paper DSE, No. 443 Provided in Cooperation with: University of Bologna, Department of Economics Suggested Citation: Mantovani, Andrea; Rossini, Gianpaolo; Zanghieri, Paolo (2002) : Country Size and the Price of Tradeables: is There Any Relationship Beyond Wishful Thinking?, Quaderni - Working Paper DSE, No. 443, Alma Mater Studiorum - Università di Bologna, Dipartimento di Scienze Economiche (DSE), Bologna, https://doi.org/10.6092/unibo/amsacta/4855 This Version is available at: https://hdl.handle.net/10419/159284 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc/3.0/ Countrysize and theprice oftradeables: isthereany relationship beyond wishfulthinking? AndreaMantovani¤GianpaoloRossiniyPaoloZanghierizx September,2002 Abstract The existence oftransportcostsamongcountriesmakesprices oftradablesdiverge.Whenthemarketstructureisadi¤erentiated oligopolythepricesoftradablesincreaseasacountrygetlarger.and/or richer.Inaframeworkofeconomiesofscale-di¤erentiation-monopolistic competitionaless de…niteresultcan befound,since itall dependson theleveloftransportcostsand thedegree ofopeness. Firstwego throughsometheoreticalaspectsofthesedi¤erent approaches.Then,weprovide empiricalteststhatmaybeableto discriminateamongthetwocompeting approaches. Theresults showthatarelationshipexistsbetweensize,percapita incomesand pricesoftradablesincountries separated bysometransportcost.Asacountryislargerpricesarelower,yet theybecome higherifpercapitaincomeishigher. Keywords:TransportCosts,Oligopoly,MonopolisticCompetition, Trade.JELClassi…cationF12,I00,R40 ¤DepartmentofEconomics,UniversityofBologna,StradaMaggiore,45,I-40125 BolognaItaly,[email protected] CORE,UniversitéCatholiquedeLouvain, 34,Voiedu RomanPays-1348 Louvain-la-Neuve,Belgium,[email protected] yCorrespondingauthor,DepartmentofEconomics,UniversityofBologna,StradaMaggiore,45,I-40125 Bologna,Italy,[email protected] zCEPIICentred’EtudesPerspectivesetd’InformationsInternationales.9rueGeorges Pitard75015 Paris,[email protected] xPapertobepresentedat theETSGconference,Kiel12-15 September2002.Weacknowledgethe…nancialsupportoftheUniversityofBologna and theItalianMinistryof Educationwithinthe60%schemeforacademicyear2002.WealsothankGiordanoMion forusefulsuggestionsand CEPII forkind provisionof facilitiesand empiricalsupport. Theusualdisclaimerapplies. 1 1Introduction The existence oftransportcostsininternationaltradeisoneofthemain sourcesof divergencesinthepricesoftradeableacross countries.Thisissue hasbeenanalyzedsince theverybeginning ofthemoderntradeliterature (Samuelson,1952), yetonly marginally since most trademodelsworkproperly only iftrade costsarenull. Despiteitsfrequentneglect,thequestionof transportcostshasbeenat theheartofmany questions,suchastheactual patternsofspecialization, incomedistributionand pricesoftradeableacross countriesengagedininternationalexchange. Transportcostsusually putawedgebetweentheprice paid byconsumers and therevenuereceived bytheproducerofthegood.Thisgapisone ofthereasonswhythePurchasingPowerParitytendstofail inempirical testsmainly inits strongversion(absolutevalues)ratherthaninitsweak form(variations) (Rogo¤,1996).AccordingtoObstfeldand Rogo¤(2000) theinclusionoftransport-transactioncostscanexplainseveralpuzzlesin internationalmacroeconomics, includedthoserelatedtohomebiases. Nonetheless,theissueoftransportcostshasnotreceivedsu¢cientattentionintheliterature,perhapsbecauseofsteadily decliningcommunication and shipmentcosts.Thepersistence ofmanyhomebiasescon…rmsthat the questionoftransportcostsisnotasecondaryoneand needsfurtherand deeperinvestigations. Ifwego throughtheliteratureand con…neourattentiontorecentcontributionswemaydistinguishtwomainrouteswhich havebeen followed since the1980’sastotrademodelization.Thetwo approachesarebasedon imperfectmarketsand themain di¤erence betweenthemhingesuponthe assumptionsmadeastothemarketstructure. The…rststreamofmodelsisbasedonthemonopolistic competitioneconomiesofscalemodel(Krugman,1980,1979,1981; Fujita-KrugmanVenables,1999;Neary, 2000) thatiscastinageneralequilibriumperspective. Inthisframework, transportcostshavearelevante¤ectonspecialization. Theirexistence givesrisetomanyhomemarkete¤ects.Amongthem,one isthatconsumersinlargercountrieshaveaccess to a broadervarietyof goodsthat translatesintohigherutility. Asfaraspricesoftradeableare concerned,the e¤ectofsize ofacountry istomakepricesof domestically producedtradeablehigher.However,theprice indexofacountry includes alsoimportedgoods,whoseprice intheimportingcountrydependsontransportcosts.Thenwearenotabletoestablishanyrelationship betweenthe 2 size ofacountryand theprice indexoftradeableinthatcountry. Arelationshipmayalsobefound between percapitaincomeand thedomesticprices ofinternally producedtradeable.. However,therelationshipvanishesorbecomesawkwardtosustainwhenwe considerprice indicesincludingimported goods. Thesecond streamofmodelsisbasedonoligopoly and castusually ina partialequilibriumframework. Heretradehasaprocompetitive e¤ectsince itchangesthebasicmarketstructureleadingtoless concentratedmarkets. Thisisane¤ect thatdoesnotappearinthepreviousmodels since inmonopolistic competition,withitslongrun zeropro…tequilibriumcondition,the price level isnotin‡uenced bythenumberof …rms.Inthenewoligopoly context transportcostsproduce fresh homedistortions(Brander,1981;BranderSpencer,1983).Astotheprice oftradeable,theresultisunique:asacountrygetslargertheprice oftradeablebecomeshigher(Lambertini-MantovaniRossini, 2001;Lambertini-Rossini, 2001)and consumersdonotbene…tmuch fromeconomiesofscaleunless thereisasimultaneousincreaseinthe competitiveness ofthemarket, i.e.: newentries. Ouraimistobrie‡ycomparetheoretically thesetwo approachesand subsequently test theirpredictionornon predictionastothelevelof prices oftradeablewheneverwe considercountriesof di¤erentsize and percapita incomeinthepresence oftransportcosts. Wethensketchthemaintheoreticalbackground ofthetwo approaches and their resultsastothepricesoftradeable.. Anempiricaltestisthen undertakentosee whichoneofthetwo approaches seemstobemore capable ofinterpreting actualprices.Theanalysisweundertakemaybe considered asacomplementofalargepartof PurchasingPowerParity(PPP)literature (Rogo¤,1996),since weareindirectly measuringhowmuchtransportcosts drive countriesawayfromPPP and howthedeviation hingesupontheir relativedimension. Our resultwill shedsomefurtherempirical lightontherelationship betweensize,percapitaincomeand pricesoftradeableamongcountries. Inthefollowingsectionwego throughtheoligopoly modeloftradewith transportcosts.Inthethirdsectionweprovideasketchofthetraditional monopolistic competitionwitheconomiesofscaleand tradeInthefourth sectionwego throughthe empiricaltests.Inthe…fthwedrawsome conclusions. 3 2Pricesinaninternationalduopolywithtransportcosts Hereweadoptapartialequilibriumapproach(Brander,1981;Branderand Spencer,1983)and consideraCournotdi¤erentiated duopoly inasimple twocountriesframework. Each …rmisbasedinonesingle countryand sells in bothofthemadi¤erentiated productusing a technologywitha…xedcost and aconstantvariable cost. Wethen havetwocouplesofinversedemand functions,twoforeach nationalmarket.Thepreferencesembodiedinthosedemand functionsare ofthekind utilizedin Singhand Vives(1984)and Lambertiniand Rossini (1998). Weassumethatcountriesareseparated bynaturalgeographical barriersgivingrisetotransportcostsonly whenshipping abroad.Tothis purposeweadopt thetraditional iceberg approach devised bySamuelson (1952)and extensively usedintheliterature. Thedemand functionsinthehomemarketare: phh =a¡hh ¡°tf(1) pf=a¡°hh¡tf(2) wherehh indicatesthequantityofthegood producedand soldathomeat price phh;fisthequantityproducedabroad bytheforeign …rmand shipped tohomemarketwhereitis soldatprice pf,°2[0;1]measuresproduct substitutabilitybetweendomesticand foreigngoods,aisthereservationprice ofthehomemarketproxyingeithersize orpercapitaincomeofacountry; t2[0;1]isthefractionoftheforeigngoodthatreaches…naldestination, since (1¡t)meltsdown duringtransportation. Similarly, thedemand functionsintheforeignmarketare: pff =e¡ff ¡°th(3) ph=e¡°ff ¡th(4) whereff indicatesthegood producedand soldintheforeignmarket, histhequantityproducedathomebythedomestic…rmand sentabroad, whileeisthereservation price oftheforeignmarket. Pro…tfunctionsof homeand foreign …rmsarerespectively: 4 ¼h=(phh ¡c)hh+(pht¡c)h¡k(5) ¼f=(pff ¡c)ff +(pft¡c)f¡k(6) wherekisa…xedcostand cthemarginalcost. Optimal quantitiesmaybederivedfromfour…rstorderconditions1(FOCs): ff¤=t(2c¡2e+°e)¡°c (°2¡4)t(7) hh¤=t(2c¡2a+°a)¡°c (°2¡4)t(8) h¤=t(°e¡2e¡°c)+2c (°2¡4)t2(9) f¤=t(a°¡2a¡°c)+2c (°2¡4)t2(10) Equilibriumpricesare: p¤ ff =°2ct¡2(c+e)t+°(et¡c) (°2¡4)t(11) p¤ hh =°2ct¡2(a+c)t+°(at¡c) (°2¡4)t(12) p¤ h=(°¡2)et+c(°2¡°t¡2) (°2¡4)t(13) p¤ f=a(°¡2)t+c(°2¡°t¡2) (°2¡4)t(14) We can nowsee the e¤ectofthesize ofacountryon prices,simply byevaluatingthesignof partialderivativesof priceswithrespect tothe dimensionofthemarket: 1Weshouldspecifynon negativityconditionsonequilibriumquantities.In particular, ff ¸0fort¸°+c e°+2c+2e,hh ¸0fort¸°+c a°+2c+2a,f¸0fort¸2c 2a+°c¡a°and h¸0for t¸2c 2e+°c¡°e. 5 @phh @a=1 2+°>0(15) @ph @e=1 2+°>0(16) Similar resultshold for@pff=@eand @pf=@a: Thereforewe can deriveasimple Remark1Thepricesoftradeable gethigherasthesize,and/ormarginal willingness to pay,ofthe countryincreases. Thesameresultcan bederivedinaparallelBertand environmentwith di¤erentiatedgoods. 3Amonopolistic competitionenvironment Inthis sectionwego througha generalequilibrium monopolistic competition model, closely followingKrugman(Krugman,1980,1981),tosee whetherthe size ofacountrya¤ectsthepricesoftradablemanufacturedgoodsfaced by consumersofthatcountry. We considertwocountries,asinthepreviouscase.However,therearenh manufacturedgoodsproducedathomeand nfgoodsproducedintheforeign country. Preferencesofconsumersin bothcountriesarealike,showalovefor varietyand arerepresented by: Uf;h=§nf ic¾ i+§nh jc¾ jwith0·¾·1(17) wherei=1:::nh;numberofgoodsproducedathome;j=1:::nf;number ofgoodsproducedabroadand ci;jisthe consumptionofgoodi;j: Productiontakesplace in …rmsthatcompeteinamonopolistically competitive environment.Labouristheonly factorof production.Thereare economiesofscalethatcan berepresented bythefollowingcostfunction: li=®+¯(hi+hhi)with®(…xedcost);¯(marginalcost) ¸0(18) whereliistheamountoflaborusedintheproductionofquantityhi+hhi ofgoodi:Asimilarcostfunctioncan bewritten fortheforeigncountry. 6 Full employmentisassumed.Therefore: Lh=§nh ili(19) whereLhstandsforthetotalamountoflaboravailableathome.Asimilar equation holdsfortheforeigncountry. Iftherearetransportcosts,opening oftradeputsawedgebetweenthe price paid byconsumersfortheimportedgoodand theunitrevenuereceived bytheforeign producer.Therefore, ifwe considertheprice oftheimported goodin homemarketwehavetotakeinto account the e¤ectoftransport costs. Thenetprice paid byconsumersathomefortheimportedgoodisthen: T pf=pf=t;(20) Similarly, thenetprice paid byconsumersintheforeigncountryforthe importedgoodis: T ph=ph=t:(21) Pro…tofarepresentative…rmbelongingtohome countryand sellingin bothcountriesisthengiven by: ¼h=phhh+T phth¡(®+¯(hh+h))wh(22) Thedomesticlaborwageisgiven bywh:Analogouspro…tfunctionsmay bewritten for…rmsoftheforeigncountry. Longrun equilibriumoftheautarchicmonopolisticmarketsisfound by imposingthetraditionaltangencysolutionthatimplieszeropro…ts.Athome: hh+h=® ph wh¡¯=®¾ ¯(1¡¾)(23) since the elasticityofindividualdemand isassumedconstantand independentofthenumberofgoods, i.e.: 1=(1¡¾): Assumingsymmetryacross countries,hh+h=ff +f,becauseall parametersarethesamein bothcountries. However,thenumberofgoodsproducedineachcountry isdetermined bythesize ofthe country. Fromthefull employmentconditionweget: nh=Lh ®+¯(h+hh):(24) 7 Opening oftradehasthe e¤ectofincreasingthenumberofgoodsavailable toconsumers.Toseethee¤ectofthesize ofacountryonthepricesconsumers face inthatcountrywehavetocalculateanindexthatgroupstogetherthe pricesof homeproducedgoodsand importedgoods. Pricesinthetwocountriesofrespectively homeproducedgoodsare: ph=®wh+(h+hh)¯wh h+hh (25) pf=®wf+(f+ff)¯wf f+ff (26) Tosee therelationship betweenthepricesofthetwocountrieswehave togothroughthe equilibriumconditionsfortheworldeconomy. De…neas¾htheratio of demand byhomeresidentsforforeign products overthedemand forhomeproducts,and ¾fthe correspondingratioforthe foreigncountry.: ¾h=(ph pf)1 1¡µtµ 1¡µ(27) ¾f=(ph pf)¡1 1¡µtµ 1¡µ:(28) Wenow writethebalance oftradeas: B=¾fnh ¾fnh+nf wh wfLf¡¾hnf ¾hnf+nh wh wfLh(29) EquilibriumrequiresthatB=0:Thenwemusthave: ¾f ¾fLh+Lf=¾h ¾hLf+Lh;(30) bysubstituting(27)and (29)weobtain: Ãph pf !¡1 1¡µ2 4Lh+Lf Ãph pf !1 1¡µtµ 1¡µ 3 5=(31) = Ãph pf !1 1¡µ2 4Lf+Lh Ãph pf !¡1 1¡µtµ 1¡µ 3 5 8 3) Dependent Variable: LCP3_3 (average over 3 years of ln deflator) (1966-68) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C1.915055 0.142286 13.45919 0.0000 LGDP3_3 -0.005260 0.027244 -0.193079 0.8488 R-squared 0.001861 Mean dependent var 1.887807 Adjusted R-squared -0.048046 S.D. dependent var 0.083096 S.E. of regression 0.085069 Akaike info criterion -2.004196 Sum squared resid 0.144735 Schwarz criterion -1.905010 Log likelihood 24.04616 F-statistic 0.037280 Prob(F-statistic) 0.848844 4) Dependent Variable: LCP3_4 (average over 3 years of ln deflator) (1969-72) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.068213 0.140331 14.73810 0.0000 LGDP3_4 -0.017200 0.026558 -0.647659 0.5246 R-squared 0.020542 Mean dependent var 1.978036 Adjusted R-squared -0.028431 S.D. dependent var 0.080925 S.E. of regression 0.082068 Akaike info criterion -2.076035 Sum squared resid 0.134702 Schwarz criterion -1.976850 Log likelihood 24.83639 F-statistic 0.419462 Prob(F-statistic) 0.524571 5) Dependent Variable: LCP3_5 (average over 3 years of ln deflator) (1973-75) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.131544 0.171426 12.43418 0.0000 LGDP3_5 -0.022576 0.032250 -0.700048 0.4920 R-squared 0.023917 Mean dependent var 2.012449 Adjusted R-squared -0.024887 S.D. dependent var 0.097748 S.E. of regression 0.098956 Akaike info criterion -1.701766 Sum squared resid 0.195848 Schwarz criterion -1.602580 Log likelihood 20.71942 F-statistic 0.490068 Prob(F-statistic) 0.491961 6) Dependent Variable: LCP3_6 (average over 3 years of ln deflator) (1976-78) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.195619 0.178737 12.28411 0.0000 LGDP3_6 -0.025435 0.033370 -0.762216 0.4548 R-squared 0.028229 Mean dependent var 2.060396 Adjusted R-squared -0.020360 S.D. dependent var 0.101036 S.E. of regression 0.102059 Akaike info criterion -1.640026 Sum squared resid 0.208320 Schwarz criterion -1.540840 Log likelihood 20.04028 F-statistic 0.580973 Prob(F-statistic) 0.454827 7) Dependent Variable: LCP3_7 (average over 3 years of ln deflator) (1979-82) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.027115 0.159947 12.67365 0.0000 LGDP3_7 -0.011858 0.029746 -0.398642 0.6944 R-squared 0.007883 Mean dependent var 1.963817 Adjusted R-squared -0.041723 S.D. dependent var 0.088516 S.E. of regression 0.090344 Akaike info criterion -1.883876 Sum squared resid 0.163241 Schwarz criterion -1.784690 Log likelihood 22.72264 F-statistic 0.158916 Prob(F-statistic) 0.694381 8) Dependent Variable: LCP3_8 (average over 3 years of ln deflator) (1983-85) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C1.875465 0.184221 10.18050 0.0000 LGDP3_8 0.007534 0.034053 0.221241 0.8271 R-squared 0.002441 Mean dependent var 1.915927 Adjusted R-squared -0.047437 S.D. dependent var 0.101515 S.E. of regression 0.103894 Akaike info criterion -1.604375 Sum squared resid 0.215881 Schwarz criterion -1.505189 Log likelihood 19.64813 F-statistic 0.048948 Prob(F-statistic) 0.827148 9) Dependent Variable: LCP3_9 (average over 3 years of ln deflator) (1986-88) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.099535 0.207608 10.11299 0.0000 LGDP3_9 -0.012323 0.038094 -0.323491 0.7497 R-squared 0.005205 Mean dependent var 2.032859 Adjusted R-squared -0.044535 S.D. dependent var 0.114122 S.E. of regression 0.116635 Akaike info criterion -1.373020 Sum squared resid 0.272076 Schwarz criterion -1.273834 Log likelihood 17.10322 F-statistic 0.104647 Prob(F-statistic) 0.749681 10) Dependent Variable: LCP3_10 (average over 3 years of ln deflator) (1989-91) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.151297 0.204537 10.51786 0.0000 LGDP3_10 -0.014707 0.037354 -0.393706 0.6980 R-squared 0.007691 Mean dependent var 2.071350 Adjusted R-squared -0.041925 S.D. dependent var 0.112710 S.E. of regression 0.115048 Akaike info criterion -1.400428 Sum squared resid 0.264721 Schwarz criterion -1.301242 Log likelihood 17.40471 F-statistic 0.155004 Prob(F-statistic) 0.697964 5YEARS SAMPLE MEAN 1) Dependent Variable: LCPI5_1 (average over 5 years of ln deflator) (1960-65) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C1.979005 0.167650 11.80440 0.0000 LGDP5_1 -0.022076 0.033198 -0.664970 0.5137 R-squared 0.021631 Mean dependent var 1.868472 Adjusted R-squared -0.027287 S.D. dependent var 0.101028 S.E. of regression 0.102397 Akaike info criterion -1.633403 Sum squared resid 0.209704 Schwarz criterion -1.534218 Log likelihood 19.96744 F-statistic 0.442185 Prob(F-statistic) 0.513665 2) Dependent Variable: LCPI5_2 (average over 3 years of ln deflator) (1966-70) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.063954 0.154802 13.33285 0.0000 LGDP5_2 -0.032460 0.030005 -1.081817 0.2922 R-squared 0.055282 Mean dependent var 1.897869 Adjusted R-squared 0.008046 S.D. dependent var 0.093477 S.E. of regression 0.093100 Akaike info criterion -1.823772 Sum squared resid 0.173353 Schwarz criterion -1.724587 Log likelihood 22.06149 F-statistic 1.170328 Prob(F-statistic) 0.292206 3) Dependent Variable: LCPI5_3 (average over 5 years of ln deflator) (1971-75) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.012729 0.138251 14.55855 0.0000 LGDP5_3 -0.012813 0.026262 -0.487877 0.6309 R-squared 0.011761 Mean dependent var 1.945813 Adjusted R-squared -0.037651 S.D. dependent var 0.079916 S.E. of regression 0.081406 Akaike info criterion -2.092216 Sum squared resid 0.132540 Schwarz criterion -1.993030 Log likelihood 25.01438 F-statistic 0.238024 Prob(F-statistic) 0.630942 4) Dependent Variable: LCPI5_4 (average over 5 years of ln deflator) (1976-80) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.147359 0.174253 12.32323 0.0000 LGDP5_4 -0.021965 0.032693 -0.671868 0.5094 R-squared 0.022072 Mean dependent var 2.031169 Adjusted R-squared -0.026824 S.D. dependent var 0.098945 S.E. of regression 0.100264 Akaike info criterion -1.675522 Sum squared resid 0.201055 Schwarz criterion -1.576336 Log likelihood 20.43074 F-statistic 0.451407 Prob(F-statistic) 0.509355 5) Dependent Variable: LCPI5_5 (average over 5 years of ln deflator) (1981-85) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.039712 0.160350 12.72038 0.0000 LGDP5_5 -0.012194 0.029809 -0.409076 0.6868 R-squared 0.008298 Mean dependent var 1.974595 Adjusted R-squared -0.041287 S.D. dependent var 0.088834 S.E. of regression 0.090649 Akaike info criterion -1.877129 Sum squared resid 0.164346 Schwarz criterion -1.777944 Log likelihood 22.64842 F-statistic 0.167343 Prob(F-statistic) 0.686832 6) Dependent Variable: LCPI5_6 (average over 5 years of ln deflator) (1986-90) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.026133 0.199058 10.17861 0.0000 LGDP5_6 -0.006010 0.036614 -0.164156 0.8713 R-squared 0.001346 Mean dependent var 1.993692 Adjusted R-squared -0.048587 S.D. dependent var 0.109326 S.E. of regression 0.111951 Akaike info criterion -1.455004 Sum squared resid 0.250660 Schwarz criterion -1.355819 Log likelihood 18.00505 F-statistic 0.026947 Prob(F-statistic) 0.871256 10YEARS SAMPLE MEAN 1) Dependent Variable: LCP10_1 (average over 10 years of ln deflator) (1960-70) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.024240 0.159907 12.65883 0.0000 LGDP10_1 -0.027766 0.031304 -0.886990 0.3856 R-squared 0.037849 Mean dependent var 1.883592 Adjusted R-squared -0.010259 S.D. dependent var 0.096374 S.E. of regression 0.096867 Akaike info criterion -1.744454 Sum squared resid 0.187663 Schwarz criterion -1.645268 Log likelihood 21.18899 F-statistic 0.786751 Prob(F-statistic) 0.385626 2) Dependent Variable: LCP10_2 (average over 10 years of ln deflator) (1970-80) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.081325 0.151520 13.73632 0.0000 LGDP10_2 -0.017108 0.028597 -0.598264 0.5564 R-squared 0.017581 Mean dependent var 1.991375 Adjusted R-squared -0.031540 S.D. dependent var 0.086742 S.E. of regression 0.088099 Akaike info criterion -1.934200 Sum squared resid 0.155229 Schwarz criterion -1.835014 Log likelihood 23.27619 F-statistic 0.357920 Prob(F-statistic) 0.556379 3) Dependent Variable: LCP10_3 (average over 10 years of ln deflator) (1980-90) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.030987 0.177049 11.47133 0.0000 LGDP10_3 -0.008617 0.032732 -0.263245 0.7951 R-squared 0.003453 Mean dependent var 1.984718 Adjusted R-squared -0.046374 S.D. dependent var 0.097586 S.E. of regression 0.099823 Akaike info criterion -1.684322 Sum squared resid 0.199294 Schwarz criterion -1.585137 Log likelihood 20.52755 F-statistic 0.069298 Prob(F-statistic) 0.795055 WHOLE SAMPLE (1960-90) Dependent Variable: LCPT Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C2.051181 0.150998 13.58413 0.0000 LGDPT -0.014253 0.028365 -0.502481 0.6208 R-squared 0.012467 Mean dependent var 1.975881 Adjusted R-squared -0.036910 S.D. dependent var 0.085395 S.E. of regression 0.086957 Akaike info criterion -1.960305 Sum squared resid 0.151229 Schwarz criterion -1.861120 Log likelihood 23.56336 F-statistic 0.252488 Prob(F-statistic) 0.620817 RESULTS OF SPECIFICATION WITH PERCAPITA INCOME WHOLE SAMPLE MEANS (1960-90) Dependent Variable: LCPT (1960-90) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C0.275735 0.401344 0.687030 0.5004 LGDPT -0.042899 0.020992 -2.043598 0.0551 LGDPPCT 0.486780 0.106078 4.588877 0.0002 R-squared 0.531599 Mean dependent var 1.975881 Adjusted R-squared 0.482293 S.D. dependent var 0.085395 S.E. of regression 0.061443 Akaike info criterion -2.615281 Sum squared resid 0.071730 Schwarz criterion -2.466502 Log likelihood 31.76809 F-statistic 10.78175 Prob(F-statistic) 0.000743 TEN YEARS SAMPLE MEANS 1) Dependent Variable: LCP10_1 (1960-70) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C0.996607 0.413581 2.409705 0.0263 LGDP10_1 -0.052883 0.029067 -1.819366 0.0847 LGDPPC1 0.303353 0.114847 2.641371 0.0161 R-squared 0.296263 Mean dependent var 1.883592 Adjusted R-squared 0.222185 S.D. dependent var 0.096374 S.E. of regression 0.084996 Akaike info criterion -1.966311 Sum squared resid 0.137261 Schwarz criterion -1.817533 Log likelihood 24.62942 F-statistic 3.999353 Prob(F-statistic) 0.035514 2) Dependent Variable: LCP10_2 (1970-1980) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C0.403240 0.470708 0.856667 0.4023 LGDP10_2 -0.046240 0.023762 -1.945955 0.0666 LGDPPC2 0.462045 0.125415 3.684144 0.0016 R-squared 0.426949 Mean dependent var 1.991375 Adjusted R-squared 0.366627 S.D. dependent var 0.086742 S.E. of regression 0.069033 Akaike info criterion -2.382333 Sum squared resid 0.090546 Schwarz criterion -2.233554 Log likelihood 29.20566 F-statistic 7.077921 Prob(F-statistic) 0.005045 3) Dependent Variable: LCP10_3 (1980-90) Method: Least Squares Variable Coefficient Std. Error t-Statistic Prob. C-0.419989 0.473843 -0.886346 0.3865 LGDP10_3 -0.041053 0.022109 -1.856852 0.0789 LGDPPC3 0.647365 0.121414 5.331882 0.0000 R-squared 0.600784 Mean dependent var 1.984718 Adjusted R-squared 0.558761 S.D. dependent var 0.097586 S.E. of regression 0.064822 Akaike info criterion -2.508207 Sum squared resid 0.079837 Schwarz criterion -2.359429 Log likelihood 30.59028 F-statistic 14.29665 Prob(F-statistic) 0.000163 NOTES CP = deflator of private consumption computed in PPP from Penn World Tables.(2001)2 GDP =: GDP in dollars 1990 at PPP3. LGDP = Ln GDP GDPPC = per capita GDP, LGDPPC = Ln GDPPC 2 Alan Heston, Robert Summers and Bettina Aten, Penn World Tables Version 6.0, Center for International Comparisons at the University of Pennsylvania (CICUP), December 2001. 3 Source Data bank CHELEM, property of CEPII.