Peer Reviewed Articles

  • Cruz, M.D. (2023). Labor Productivity, Real Wages, and Employment in OECD Economies. Structural Change and Economic Dynamics 66, pp. 367-382.  PDF

Abstract: This work investigates the relationship between labor productivity (LP), real wage (RW), and employment (EMP).  The paper's main goal is to test competing theories of growth and income distribution. Standard theory predicts that RW should increase following increases in LP.  Alternative theories and efficiency wage theories suggest that the distribution causes changes in LP.  Theory delivers ambiguous predictions regarding the ultimate effects on EMP, which can be either negative if factor substitution prevails or positive if higher RW and LP generate additional aggregate demand and, therefore, EMP.  I study a panel of 25 OECD economies by performing single and multi-equation approaches.  My first key result is a positive two-way association between LP and RW, supporting the induced technical change and efficiency wages theories over the marginal productivity theory.  My second relevant finding is that EMP is weakly exogenous, suggesting that OECD countries have been labor-constrained for the period under analysis..
  • Cruz, M.D., & Tavani, D. (2023). Secular Stagnation: a Classical-Marxian View. Review of Keynesian Economics 11(4), pp. 554-584.  PDF

Abstract: We study a model of secular stagnation, income and wealth distribution, and employment in the classical-Marxian (CM) tradition, with the purpose of drawing a contrast with established neoclassical accounts of the topic (Piketty, 2014; Gordon, 2015). In these explanations, which assume full employment of labor at all times, an exogenous reduction in the growth rate g increases the difference with the endogenous rate of return to capital r. The capital-income ratio rises, and if the elasticity of substitution is above one, the wage share falls. Our explanation does not presuppose full employment and features a crucial tension between profit-driven capital accumulation and wage-driven labor-augmenting technical change: both these features are defining for CM economics and have been emphasized in recent heterodox macro literature. Institutional or technological shocks that lower the wage share initially foster capital accumulation —which is profit-driven— and increase wealth inequality. However, the effect on long-run growth is negative because a reduction in the wage share lessens the incentives by firms to introduce labor-saving innovation, which is wage-driven. The capital-income ratio must rise in order to restore balanced growth and stabilize employment in the long run, and the increase in wealth inequality is permanent. The ultimate effect on long-run employment depends on the relative strength of the response of technical change vs. real wage growth to labor market institutions: we identify a simple condition that delivers either a wage-led or a profit-led long-run employment regime. We then test the model using time-series data for the US (1960-2019): impulse responses from VECM estimators lend support to the main predictions of our model and point to the employment-population ratio being wage-led.
  • Cruz, M.D., Jha, C.K., Kırşanlı, F., Sedai, A.K. (2023). Corruption and FDI in Natural Resource: The Role of Economic Downturn and Crises. Economic Modelling 119, 106122. PDF

Abstract: This study adds to largely non-existent literature on corruption and foreign direct investment (FDI) in natural resources by examining the association between the two using a panel of 20 Latin American and Caribbean countries from 1995 to 2020. We find that higher levels of corruption are associated with lower levels of FDI in natural resources, supporting the “grabbing hand” or “sand-the-wheel” hypothesis. Further, we argue that during economic downturns and crises, corrupt agents are likely to use the prevalence of corruption to disregard laws to attract greater FDI in natural resources to compensate for the adversity brought about by hard times. Consistently, we find that while still detrimental to resource FDI, corruption’s diminishing effects on resource FDI are much less pronounced during economic downturns and fiscal crises, with the latter measured by credit events leading to a reduction in the present value of the sovereign debt.

Working Papers

  • Cruz, M.D. and Sedai, A.K. (2021). The Effect of Corruption on Foreign Direct Investment in Natural Resources: A Latin American Case Study.  CAMA Working Papers No. 98/2021  PDF

Abstract: This study looks at the relationship between corruption and foreign direct investment (FDI) in natural resources using a panel of 20 Latin American countries from 1995-2019. We find that lower levels of corruption have a positive and significant impact on resource FDI supporting the grabbing hand hypothesis. A one-point increase in the Corruption Perception Index (CPI) is associated with an increase between 52-57 million dollars across models with varying controls. Results also show a nonlinear relationship between CPI and resource FDI, suggesting that when a country becomes less corrupt and improves its economic, social and political performance, it usually attracts more resource FDI. The analysis is robust to alternate measures of corruption (CPI, ICRG, and WGI) and different specifications of the dynamic panel model. Finally, the study highlights significant precautions and pre-conditions required to increase economic development when attracting natural resource-based FDI.

  • Perez, E., & Cruz, M.D. (2017). Monitoring the Evolution of Latin American Economies Using a Flow-of-Funds Framework. ECLAC-Financing for Development Series No. 265.  PDF

Abstract: Flow-of-funds accounting permit to monitor the financial sector in terms of flows and stocks and to analyze its relationship with the real sector. These show inter-sectoral financial flows, capture balance sheet positions and all financial transactions by instrument, type and economic sector. The construction of flow-of-funds accounts has been traditionally spearheaded by the central banks of developed nations including the Federal Reserve, the European Central Bank and the Bank of Japan. In spite of its usefulness, flow-of-funds accounting has not experienced a parallel development for developing countries including for those of Latin American, In order to start filling this gap we undertook the construction of a data base of flow-of-funds account matrices for six Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico and Peru) that consider only flows for the period 1980-2015 using yearly and quarterly data when available. As a basis for comparison we also carried out the same exercise for four Asian countries (Malaysia, Philippines, South Korea, and Thailand). The construction of flow-of-funds account matrices follows the methodology proposed by Dawson (2004). In this paper we explain the methodology for the construction of flow-of-funds accounts and we exemplify their use for two source cases of study: the Mexican Crisis (1994-1995) and the Asian Crisis (1997-1998). Using similar sources of data, the same methodology and approach for the construction of all the flow-of-funds matrices allow comparisons among countries relating to the impact, manifestations of these crisis episodes and policy reactions to confront their effects. The use of homogeneous data and methodology also permits to trace contagion effects between countries.

Works in Progress

  • Cruz, M.D., & Tavani, D. Income Distribution, Wealth Inequality, and Growth in Labor Abundant Economies: A Classical Model
  • Cruz, M.D. & Jha, C.K.: Financial Stability and FDI in Natural Resources
  • Cruz, M.D., & Sedai, A.K: Changes in Income Distribution in India: Contribution of its Main Determinants
  • Cruz, M.D.: Aggregate Demand and Secular Stagnation