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With a panel of 18 OECD countries, 1980–2005, we investigate the determinants of export performance, in particular the effects of the size of government and institutional features. In a model of endogenous extent of domestically-produced goods, government size has a non-linear effect on export performance; the export-maximising size of government (tax receipts) is around 40–45% of GDP; the best size of productive government spending is around 16% of GDP. Product market and labour market-related rigidities affect negatively the export performance both on their own and via a negative effect on the effectiveness of R&D and slow down the speed of adjustment. Among traditional variables, relative unit labour cost, R&D shares in GDP, TFP growth and human capital show up significantly and with the expected signs.

We develop a growth model with human capital accumulation to study the effects of status-driven motivation on individuals' choice between public or private education. This choice interacts with and exacerbates the effects of status, with implications for growth and distribution. More motivated individuals work harder and choose private education. In a majority voting/median voter setup, individuals choose a public education size for which there is no trade-off between long-term growth and inequality. We also highlight the conflict of interest between individuals with respect to the size of the public education sector and the tax rate that supports it. We thus highlight important interactions between the macroeconomy, social attitudes and educational institutions and derive results of interest in a variety contexts. We end by drawing policy conclusions among which, the idea that in democracies, higher growth and lower inequality are mutually compatible when the government promotes public education.

With a panel of 18 OECD countries, 1980–2005, we investigate the determinants of export performance, in particular the effects of the size of government and institutional features. In a model of endogenous extent of domestically-produced goods, government size has a non-linear effect on export performance; the export-maximising size of government (tax receipts) is around 40–45% of GDP; the best size of productive government spending is around 16% of GDP. Product market and labour market-related rigidities affect negatively the export performance both on their own and via a negative effect on the effectiveness of R&D and slow down the speed of adjustment. Among traditional variables, relative unit labour cost, R&D shares in GDP, TFP growth and human capital show up significantly and with the expected signs.

This paper investigates how the presence of social capital affects the externality arising from status-seeking preference as a parable for inefficient antagonistic behavior. It is assumed that the stock of social capital accumulates through the strategic interaction among rational, infinitely-lived, individuals of a finite number. Using a differential game, we show that there are two types of Markov perfect equilibrium strategies, of which one leads a society to zero social capital, while the other leads to the satiation level of social capital. When there is an unstable interior steady state, there is a threshold: with any initial stock of social capital above (below) that, society is able to build social capital (correspondingly, get stuck in a poverty trap of null social capital). In the latter case, the intervention of governments is called upon, because social welfare in the poverty trap is less than that in the social capital-rich society. JEL classification: C72; D91; Z13

Understanding what determines Foreign Direct Investment (FDI) inflows remains a primary concern of economists and policy makers; yet the uncertainty surrounding FDI theories and empirical approaches has created ambiguity regarding the determinants of FDI. This paper applies Extreme Bounds Analysis to identify the robust determinants of FDI using panel data covering 168 countries from 1970 to 2006. We consider 58 potential economic, geographic and political determinants and find that almost one-third are robust, including: openness, education, government spending, corporate tax rate, infrastructure, experience of conflict, democratic governance, natural resources, geographic location, number of borders, coastal location and language.