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innovate with a probability less than one. A success-ful innovation enables the firm to maintain itsposition relative to the frontier, while failure toinnovate results in the firm moving one step furtherbehind. It is not clear how a non-trivial long-run distribution is achieved. The cited reference(Aghion & Howitt, 2004) contains several featuresof the model that explain this but are not includedin

Competition and Growth

(for example, the motionof firms which start two steps behind the frontier).Despite this the reader can still get a pretty goodappreciation of the intuition behind the model andthe key predictions.

In summary,

Competition and Growth

identifiesand begins to address a substantial gap betweentheory and empirical evidence on an issue that isof enormous policy relevance. The book coversconsiderable ground for its small size, providingthe reader an overview of a wide range of relevantcontemporary research rather than a comprehensivetreatment of every technical detail. The interplaybetween theory and empirical literature makes thebook both accessible and engaging.

Competitionand Growth

would be relevant to anyone with aninterest in economic growth, innovation or competi-tion policy.

R

ussell

T

homson

Australian National University

REFERENCES

Aghion, P. and Howitt, P. (2004), ‘Growth with Quality-Improving Innovations: An Integrated Framework’, inAghion, P. and Durlauf, S. (eds),

The Handbook ofEconomic Growth

, Elsevier, Amsterdam.Dixit, A. and Stiglitz, J. (1977), ‘Monopolistic Competition

and Optimum Product Diversity’,

The American EconomicReview

,

67

, 297–308.Hart, O. (1983), ‘The Market Mechanism as and Incentive

Scheme’,

Bell Journal of Economics

,

14

, 366–82.

March 2006823Reviews

reviewseconomic record

Reviews

Patent Activity and Technical Change in US Indus-tries

, by Michael McAleer and Daniel J. Slottje(with Pei Syn Wee) (Elsevier, Amsterdam,2005), pp. 221.

While all improvements to productivity occurthrough changes to the mode of production, thequestion for economists is whether these areinduced by changes in relative input prices or

through the discovery of new techniques. Thisdata-intensive book goes part of the way toaddressing this issue but using patent applicationdata to represent the incidence of new discoveriesand economy-wide prices to represent variationsin factor scarcities. The authors, McAleer andSlottje, find that new discoveries have mosteffect on the rate of substitution between materialsand energy and the least effect between materialsand labour. There was, however, considerablevariation between industries. The metal and miningindustries have been most affected by technicalchange and, rather surprisingly, chemicals theleast.

The authors, somewhat controversially, converta price-dependent preference-utility function,pioneered in the 1940s by Samuelson, into aproduction function. While a case can be made forincluding prices in a subjective-utility function, itis less clear that a parallel logic can be appliedto the objective-production function. Nonetheless,much of the book is given to details of the resultsfrom estimating the production functions fromthe 35 (mainly manufacturing) US industries,the details of which are too numerous to reporthere.

The authors note that foreign (to the USA) patentsappear to have the greatest impact of the rate oftechnical substitution, probably because only themost valuable patents are filed in overseas jurisdic-tions. However, they also find that unsuccessfulpatent applications have almost the same impactas patents granted, which raises some interestingquestions about the value to industry of legallyenforceable monopoly rights over ideas.

This book will prove a useful resource for peopleresearching the effects of innovation and intellectualproperty on productivity and industry dynamics.

Elizabeth

W

ebster

University of Melbourne

March 2006823Reviews

reviewseconomic record

Reviews

South Asia in the Era of Globalization: Trade Indus-trialization and Welfare

, by Mita Bhattacharya,Russell Smyth and Marika Vicziany (eds) (NovaScience Publishers, New York, 2004), pp. 266.

In the past decade most of the South Asianeconomies have undergone major reforms thatincluded both liberalising their trade policies and

2006 REVIEWS

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deregulating their industries. This book bringstogether a set of 16 papers on South Asia focusingon issues related to globalisation. Although thepapers are diverse in terms of the issues theycover and the methodology they employ, theunderlying theme of the papers is to assess theimpact of globalisation on South Asian econo-mies. Although there have been other papers andbooks on this subject, these have mainly focusedon particular countries or on specific issues. Thisbook on the other hand covers three broad areasof trade, industrialisation and standard of livingissues for South Asian countries. Chapter 1 of thebook sets out the broad themes that the bookaddresses and shows how the rest of the chaptersare related.

Trade

The trade section consists of four papers thatdiscuss issues related to the political economy ofreforms, intellectual property rights and stockmarket. Chapters 2 and 3 by Mayer and Vicziany,respectively, use interesting case studies to high-light the different path to globalisation chosen bythe South Asian countries, which in turn plays animportant role on whether the process of globalisa-tion succeeds or fails. The next chapter on intel-lectual property rights discusses an extremelyrelevant issue of technological transfers, especiallyfrom subsidiaries of multinational corporations inthese countries to the parent company outside theregion. It is shown that these subsidiaries, whilegenerating new technological breakthroughs, arenot able to capture much of the economic benefitfrom such knowledge creation. Although I gener-ally agree with the methodology used, it seems tome that their empirical analysis is at best, weakand very unclear, especially since some of theparameters in Table 4 (p. 54) remain unexplained.The last chapter in this section (Chapter 5)employs standard techniques to show that SouthAsian capital markets are not correlated withthe Japanese capital markets over the long run.However, I have failed to see how this paper isconnected to the broader issues of the impact ofglobalisation on the capital markets. No attemptwas made to address more interesting issuesabout volatility in the markets due to globalisa-tion, market capitalisation and long-term invest-ments. This section is the most disparate in termsof its contents and it does not address any of thestandard trade issues that one expects in thissection such as terms of trade, foreign directinvestments and so on.

Industrialisation

The next set of six chapters focus mainly onspecific industries such as electricity, tourism,banking, apparel and information technology (IT).Although Chapter 6 is about comparing theperformance of Indian and Australian electricityindustries, it ends up mainly discussing theAustralian case. Chapter 7, on the other hand, isan interesting and detailed discussion of thetourism industry in India in the ‘pre- and post-liberalisation periods’. The policy suggestions focusboth on the supply and demand side issues byemphasising better infrastructure on one hand andhaving better marketing strategies on the other.The chapter on banking (Chapter 8) provides agood summary of the recent statistics of the bank-ing sector in South Asia. Chapter 9 analyses theIndian IT industry’s role both in driving the rapideconomic growth experienced by India and alsothe social changes it brings. The idea of lookingat the IT industry not just as an engine of growthbut also as an engine of social change is noveland stimulating. The next chapter focuses on theapparel industry in South Asia with case studiesfrom India. In an interesting analysis, it discussesthe challenges the industry in South Asia willface, especially when quotas are fully removedunder WTO agreements. Chapter 11, unlike therest of the chapters in this section, focuses on theagriculture sector in Bangladesh and links it toenvironmental issues such as land degradation.

Standard of living

The final broad area is comprised of anotherset of six chapters that investigate the impact ofglobalisation on standard of living indicators.The first chapter in this section (Chapter 12) is aninteresting and technically sophisticated analysisof India’s living standards. Using a non-parametricdensity estimation of the per capita householdexpenditure for multiple time periods, they findthat during the period of reforms, there has beenan improvement in the standard of living. The nextchapter, using measures similar to distribution-sensitive poverty measures, finds that caloriedeficiency for rural households in India hasdecreased. However the subsequent discussion ofthe result is very limited. In fact 18 out of 20 pagesare just tables that record the calorie-deficiencyvalues. Chapter 14 assesses the impact of liberalis-ing the agriculture sector on rural poverty inPakistan. It concludes that policies that enhanceagricultural exports also reduce poverty. The analysisis extremely weak, with no effort at describing

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some of the variables or the equations that arebeing used. I also could not find the time periodsof the data used in Table 2 (p. 228). Chapter 15discusses the importance of having social safetynets in a globalised environment, focusing mainlyon Sri Lanka. The final chapter examines thecausality between female education and fertilityfor South Asia and finds that link to be weakexcept for Sri Lanka.

The broad tone emerging from this book, itseems, is that globalisation so far had a positiveimpact on South Asia. On the whole, the bookbrings together some relevant and alternativeissues related to globalisation, which one may notfind elsewhere. However, one major drawback of

this book is the unevenness in the quality of thechapters. Some of the chapters (such as Chapters2, 9 and 12) are extremely interesting and stimulat-ing while some of the other chapters are weak intheir analysis and leave a lot to be desired. Thisalso leads to a lack of focus. In trying to keeptheir remit broad, the editors of the book haveincluded chapters that may not be directly relevantto the question of the impact of globalisation.Still, readers shall benefit from a selective readingof the chapters in this book.

I

ndranil

D

utta

University of Sheffield, Sheffield, UK