Economics Insights @ CBS

New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from India to investigate the relationship between declines in trade costs, imports of intermediate inputs and domestic firm product scope. We estimate substantial gains from trade through access to new imported inputs. Moreover, we find that lower input tariffs account on average for 31 percent of the new products introduced by domestic firms.

What makes people’s interest in doing an activity increase or decrease? Regulatory fit theory (E. T. Higgins, 2000) provides a new perspective on this classic issue by emphasizing the relation between people’s activity orientation, such as thinking of an activity as fun, and the manner of activity engagement that the surrounding situation supports.

The so-called Fed model postulates that the dividend or earnings yield on stocks equals the yield on nominal Treasury bonds, or at least that they should be highly correlated. Indeed, there is a strikingly high time series correlation between the yield on nominal bonds and the dividend yield on equities. This positive correlation can be traced to the fact that both bond and equity yields comove strongly and positively with expected inflation.

It is now widely accepted that the institutional interventions of states are a foundational influence on the dynamics of organizational forms. But why do states act? In this paper, we apply the behavioral theory of the firm to develop an explanation of state actions based on the fact that they are boundedly rational rivals. The instrument of state competition we examine is the founding of business incubators, a primary tool in the entrepreneurial strategy of economic development.