2020, Macroeconomic Dynamics
Co-authored with Óscar Afonso and Sandra T. Silva
Abstract: Understanding the causes of the Industrial Revolution, namely the process of transition from a Malthusian equilibrium to modern economic growth, has been the subject of passionate debate. This paper contributes to insights into the process of industrialization and the demographic transition that followed. We present a model that proposes a mechanism behind the claim that landed elites had strong incentives to block education reforms. By applying the theory of interest groups to landownership, landowners could delay education. However, they could not prevent its introduction indefinitely since gains for the landed elites derived from education would at some moment surpass the costs associated with them. We also sustain that improvements in agricultural productivity prior to the Industrial Revolution may have induced a positive impact on the landowners’ decision to educate the population, which led to an earlier introduction of education reforms. The conclusions fit the patterns of the late boom of industrialization and demographic transition and help explain why some countries (e.g., Britain and The Netherlands) had accelerated education reforms and a faster process of industrialization than most continental countries. A theoretical model is presented, and numerical simulations are exhibited to illustrate our claims.
2019, Economic Modelling
Co-authored with Óscar Afonso and Sandra T. Silva
Abstract: We propose a North-South model that reconciles trade and production strategies, flows of innovators and the path of economic divergence, or convergence, between countries. We explain the mechanisms behind these forces and show how the technological and economic gaps can be reversed if southern countries stop imitating northern goods and, instead, produce complementary goods. Such a strategy of complementarity on production yields the necessary incentives to innovators to engage in research in southern countries, which enhances the catching-up process between countries. It is also shown that migratory movements of unskilled labor between countries are also relevant to understand the dangers and benefits of different trade strategies for economic growth. This paper suggests a positive (negative) correlation between technological innovation in the North (South) and the level of substitutability in production, while under complementarity, technological innovation catches up in the South, therefore fostering the economic catching up process. A positive correlation between inflows of skilled and unskilled labor and substitutability of production between countries is also verified.
2018, Economics Letters
Co-authored with Axel Börsch-Supan and Klaus Härtl
Abstract: In response to the challenges of increasing longevity, many countries have introduced “flexibility reforms” for their public pension systems. A key measure of these reforms is the abolishment of earnings tests. It is claimed that these reforms increase labor supply and therefore the financial sustainability of pension systems. We build a simulation model to show that abolishing an earnings test may indeed create more labor supply but simultaneously reduce the average claiming age when adjustments remain less than actuarial, as is the case in most European pension systems. Flexibility reforms may therefore worsen rather than improve the sustainability of public pension systems.
2018, Review of Development Economics
Co-authored with Axel Börsch-Supan and Klaus Härtl
Abstract: Pension economics has traditionally guided pension policy with the help of formal models based on individuals who think in a life‐cycle context with perfect foresight, full information, and in a time‐consistent manner. Associated macro models were mostly based on a single country. This paper sheds light on several aspects of pension economics when these assumptions do not hold using—to our knowledge—the first multi‐country model of procrastinating households. Our focus is on the interaction between the share of procrastinators in a country, the speed and extent of population aging, and the size of an existing PAYG‐DB pension system. Starting from the insight that procrastination reduces the volume of savings, we focus on three questions that are particularly relevant for the quickly aging Asian economies: What are the consequences for the balance between pay‐as‐you‐go and fully funded pension systems? Where will retirement savings be invested in a globally linked world with very different pension systems and demographics? How large are global spillover effects of pension reforms in one region for the other regions in the world?
2014, Journal of Economic Surveys
Co-authored with Sandra T. Silva and Óscar Afonso
Abstract: Institutions crucial for the analysis of how agents deal with uncertainty have been gaining increasing relevance on the economic research agenda. In this paper, we analyze the institutional literature aiming to explain why this perspective obtains better results than others in development economics. In particular, we stress the relevance of New Institutional Economics as an adequate framework for a broad understanding of development issues.
2019, 20 years of European Economic and Monetary Union , European Central Bank conference proceedings
Co-authored with Axel Börsch-Supan and Johannes Rausch
This paper describes how population aging will shape long run economic development in the euro zone. We argue that the extent of the demographic changes is dramatic and will deeply affect future labor, financial and goods markets. The expected strain on public budgets – especially public pension, health and long-term care systems – has received prominent attention, but population aging poses many other economic challenges that threaten productivity and growth if they remain unaddressed, thereby also putting central banks under pressure.
While aging is global, there are marked differences in the underlying causes, speed and extent of aging across countries, even within the euro zone. These differences will generate different growth paths and change the international pecking order. Thanks to the globalization of labor, financial and goods markets, however, these differential demographic developments can be exploited together with higher capital intensity and digitalization. This offers large chances during the aging process.
2016, Handbook of the Economics of Population Aging
Co-authored with Axel Börsch-Supan and Klaus Härtl
Abstract: When the challenges of population aging are being debated, the uncertain future of pension systems is a topic of high priority and large controversy. The aim of this chapter is not to provide a “consensus view” on social security and public insurance in aging populations but to put structure on these debates. We formulate a large set of models which we use for simulation exercises to make the challenges and controversies more transparent. The chapter begins with an institutional view of pension systems and population aging which defines the fundamental accounting restrictions which population aging imposes on individual behavior and policy actions. We also provide a brief survey of pension systems in the real world. We then take a behavioral view and study saving and labor supply decisions in an aging population. The third viewpoint is from macroeconomics and focuses on the feedback effects that occur in general equilibrium. We demonstrate that market reactions to population aging significantly reduce the burden of parametric or systemic pension reform. The chapter ends with a short summary of the main lessons and an outlook where further research is most urgently needed.
2011, Adaptation and Value Creating Collaborative Networks
Co-authored with Pedro Campos and Isabel Mota
Abstract: In this study, we analyze firms’ membership in R&D (Research and Development) cooperation networks trough simulation methods. Our main research hypothesis is that the membership in cooperation networks is related to the degree of the knowledge spillover. The approach has two scenarios: cost symmetry and cost asymmetry. We first develop an analytical model with three stages: firstly, firms decide whether to participate in a cooperative research network; secondly they simultaneously choose the level of R&D output, and finally they choose the level of output. Then we proceed with computational simulations to verify our hypothesis. From our results, we were able to conclude that cooperation leads to an improvement on RJV firms’ position in the market as they produce more than others with the same production conditions. Additionally, cooperating firms have to spend fewer resources on research, which turns the network a tremendous success on the productive efficiency level.
2016, European Court of Auditors Special Report
Co-authored with Audit Chamber IV auditors team
Abstract: The excessive deficit procedure (EDP) is a key element of economic governance in the EU. It is used where necessary to correct the trajectory of deficit and debt in the Member States. For this audit we examined the quality of the EDP in the difficult recent economic climate, from the data underlying decisions to initiate the procedure through to the final results. We found that effective implementation is still a work in progress, but that the Commission is committed to continuing with the necessary improvements.