Showing papers by "Kiel Institute for the World Economy published in 2018"

The Transmission of Inequality Across Multiple Generations : Testing Recent Theories with Evidence from Germany

Abstract: This article shows that across multiple generations, the persistence of occupational and educational attainment in Germany is larger than estimates from two generations suggest. We consider two recent interpretations. First, we assess Gregory Clark's hypotheses that the true rate of intergenerational persistence is higher than the observed rate, as high as 0.75, and time-invariant. Our evidence supports the first but not the other two hypotheses. Second, we test for independent effects of grandparents. We show that the coefficient on grandparent status is positive in a wide class of Markovian models and present evidence against its causal interpretation.

Trade linkages and firm value: Evidence from the 2018 US-China trade war

Abstract: On March 22, 2018, Trump proposed to impose tariffs on up to $50 billion of Chinese imports leading to a significant concern over the “Trade War” between the US and China. We evaluate the market responses to this event for firms in both countries, depending on their direct and indirect exposures to US-China trade. US firms that are more dependent on exports to and imports from China have lower stock and bond returns but higher default risks in the short time window around the announcement date. We also find that firms’ indirect exposure to US-China trade through domestic input-output linkages affects their responses to the announcement. These findings suggest that the structure of US-China trade is much more complex than the simplistic view of global trade that engendered Trump’s “Trade War” against China.

Ride with me - Ethnic discrimination, social markets, and the sharing economy

Abstract: We study ethnic discrimination in Europe's largest carpooling marketplace. Using a unique dataset with more than 17,000 rides, we estimate the effects of drivers' perceived name origins on the demand for rides. Carpooling is a novel application for studying ethnic discrimination where consumer choice entails social interaction with the service provider (i.e. driver). We find large discrimination effects for drivers with Arab, Turkish or Persian sounding names. Further analyses support assumptions consistent with statistical discrimination. Our findings broaden the perspective of ethnic discrimination by shedding light on subtle, everyday forms of discrimination in social markets and fuel ongoing discussions about anti-discrimination efforts in an era in which markets increasingly move online.

ECB Interventions in Distressed Sovereign Debt Markets: The Case of Greek Bonds

Abstract: We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable “twist” of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spill-overs to close substitute bonds, CDS markets, or corporate bonds. Hence, our findings attest to the power of central bank intervention in times of crisis, but also suggest that in highly distressed situations, this power may not extend beyond those assets actually purchased.

Disentangling the impact of infrastructure on trade using a new index of infrastructure

Abstract: Making use of considerably improved measures of infrastructure, the study assesses the impact of infrastructure on bilateral trade for a panel of 150 developed and emerging economies during the period 1992–2011. The authors make use of a gravity approach to disentangle the impact of infrastructure on trade and trade costs. Improving infrastructure endowments and quality decreases trade costs and increases international trade flows. Countries with improved infrastructure reduce not only bilateral trade costs but also multilateral trade costs. The decomposition of effects indicates that better infrastructure encourages higher export flows relative to domestic trade flows. Main results of the study prove to be robust, also when considering distinct trade categories (consumption goods, intermediates, and capital goods) for a smaller sample.

Bilateral investment treaties as deterrents of host-country discretion: the impact of investor-state disputes on foreign direct investment in developing countries

Abstract: The recent boom of investor-state disputes filed under international investment agreements has fueled a controversial academic and policy debate We study the impact of these compensation claims on foreign direct investment (FDI) flows to the responding host country Our econometric analysis focuses on differences in the FDI response from BIT-partner and non-partner countries of developing host countries This approach allows us not only to distinguish competing hypotheses about BIT function, but also to address endogeneity concerns in earlier studies We find that BITs stimulate bilateral FDI flows from partner countries—but only so long as the developing host country has not had a claim brought against it to arbitration Our results provide an additional explanation for the policy-changes observed in many states subsequent to their first experience of an investor-state dispute

Determinants of process innovation introductions: Evidence from 115 developing countries

Abstract: This paper examines determinants of process innovation introductions across 115 (mostly) developing countries. Empirical research on process innovations lags behind product innovations. Accounting for firm characteristics, R&D, regulations and taxes, and corruption, results show that sole proprietors and R&D†performing firms were more likely to introduce innovations, whereas greater prosperity made them less likely to do so. Corruption had a greasing effect, whereas firms in island nations were less likely to introduce, ceteris paribus. Effects of regulations and taxes and other firm characteristics were largely insignificant. Finally, some differences existed across manufacturing and service industries and across prevalence of innovation introductions.

Connective Financing - Chinese Infrastructure Projects and the Diffusion of Economic Activity in Developing Countries

Abstract: How do development projects influence the geographic distribution of economic activity within low-income and middle-income countries? Existing research focuses on the effects of Western development projects on inter-personal inequality and inequality across different subnational regions. However, China has recently become a major financier of economic infrastructure in Africa, Asia, Latin America, the Middle East, and Central and Eastern Europe, and it is unclear if these investments diffuse or concentrate economic activity. We introduce an original dataset of geo-located Chinese Government-financed projects in 138 countries between 2000 and 2014, and analyze the effects of these projects on the spatial distribution of economic activity within host countries. We find that Chinese development projects in general, and Chinese transportation projects in particular, reduce economic inequality within and between subnational localities. Our results suggest that Chinese investments in “connective infrastructure” produce positive economic spillovers that lead to a more equal distribution of economic activity in the localities where they are implemented.

Public debt and economic growth – economic systems matter

Abstract: Most studies on the relationship between public debt and economic growth implicitly assume homogeneous debt effects across their samples. We –in accordance with recent literature– challenge this view and state that there likely is a great deal of cross-country heterogeneity in that relationship. However, other than scholars assuming that all countries are different, we expect that clusters of countries differ. We identify three country clusters with distinct economic systems: Liberal (Anglo Saxon), Continental (Core EU members) and Nordic (Scandinavian). We argue that different degrees of fiscal uncertainty at comparable levels of public debt between those economic systems constitute a major source of heterogeneity in the debt-growth relationship. Our empirical evidence supports this assumption. Continental countries face more growth reducing public debt effects than especially Liberal countries. There, public debt apparently exerts neutral or even positive growth effects, while for Nordic countries a non-linear relationship is discovered, with negative debt effects kicking in at public debt values of around 60% of GDP.

Entrepreneurial career paths: occupational context and the propensity to become self-employed

Abstract: We investigate the relationship between characteristics of an occupation-specific environment and the decision of employees to start an own business. A relatively high occupation-specific unemployment risk and high earnings risk are conducive to opt for self-employment. Also, occupations that are characterized by high self-employment rates foster entrepreneurial choice among their employees. The results suggest that career choices of future entrepreneurs are driven by different motivations than those of non-entrepreneurs. In particular, the expectation of a pronounced financial gain is critical for future entrepreneurs when they make their initial occupational choices in paid employment and it is also relevant for a self-employment choice. We find that when future entrepreneurs enter the labor market, they are more likely to choose occupations that require a relatively high variety of skills.

Cost-effectiveness of caries-preventive fluoride varnish applications in clinic settings among patients of low, moderate and high risk.

Abstract: Objectives The total body of evidence finds fluoride varnish effective to prevent caries. However, most trials were conducted in high-risk populations, with more recent trials on low-risk groups finding a lower efficacy. We aimed to assess the cost-effectiveness of fluoride varnish application in clinic setting in populations with different caries risk. Methods A mixed public-private-payer perspective in the context of German health care was performed using a lifetime Markov model. Effectiveness data were derived from an update of the most recent systematic Cochrane review and synthesized in three different risk groups according to control group caries increment via random-effects meta-analysis. Varnish was assumed to be applied twice yearly between age 6 and 18 years. Teeth with carious defects would be treated restoratively and could experience further follow-up treatments. Costs were deduced from German fee item catalogues. Monte Carlo microsimulations were used for to analyse lifetime treatment costs and caries increment (Euro/Decayed, Missing, Filled Teeth (DMFT)). Results In low-risk groups, fluoride varnish was nearly twice as costly and minimally more effective (293 Euro, 8.1 DMFT) than no varnish (163 Euro, 8.5 DMFT). The incremental cost-effectiveness ratio (ICER) was 343 Euro spent per avoided DMFT. The ICER was lower in medium-risk (ICER 93 Euro/DMFT) and high-risk groups (8 Euro/DMFT). Conclusions Application of fluoride varnish in the clinic setting is unlikely to be cost-effective in low-risk populations. There is the need to either target high-risk groups or to provide fluoride varnish at lower costs, possibly in nonclinic settings.

What drives academic patentees to bypass TTOs? Evidence from a large public research organisation

Abstract: This paper provides insights into the behavior of academic patentees who choose to bypass in-house Technology Transfer Offices (TTOs). TTOs have gained favor in recent years as academic institutions have tried to increase commercialization of their inventions. Using a large sample of researchers at a leading German public research organisation (PRO), results show that patentees in physical and life sciences, those with doctoral degrees, and those with greater job experience are more likely to bypass TTOs. Different forms of industry interactions, including working in industry, industry cooperation and industry consulting, all make TTO-bypassing more likely, with some interesting differences across gender. Further, as expected, academics favoring free public access to their research are less likely to bypass TTOs. On the other hand, internal leadership position as a research group leader, German citizenship and risk attitudes do no exert significant influences. Implications for technology transfer policies are discussed.

Foreign direct investment and entrepreneurship: gender differences across international economic freedom and taxation

Abstract: Using recent cross-national data, this paper examines the impact of foreign direct investment (FDI) on entrepreneurship activity. The impact of FDI on entrepreneurship is not clear a priori, with possibilities of both a negative effect (crowding out) and a positive effect (synergy or complementarity via spillovers). Results find support for the crowding out effect; however, this effect varies across nations with different prevalence of entrepreneurship. Another focus of this work is on gender differences. The crowding out effect is stronger for the full sample rather than the subsample of female entrepreneurship. This finding stands up to a battery of robustness checks. Policy implications are discussed.

Social identity mediates the positive effect of globalization on individual cooperation: Results from international experiments.

Abstract: Globalization is defined for individuals as their connectivity in global networks. Social identity is conceptualized as attachment and identification with a group. We measure individual involvement with global networks and local, national, and global social identity through a questionnaire. Propensity to cooperate is measured in experiments involving local and global others. Firstly, we analyze possible determinants of global social identity. Overall, attachment to global identity is significantly lower than national and local identity, but there is a significant positive correlation between global social identity and an index of individual global connectivity. Secondly, we find a significant mediating effect of global social identity between individual global connectivity and propensity to cooperate at the global level. This is consistent with a cosmopolitan hypothesis of how participation in global networks reshapes social identity: Increased participation in global networks increases global social identity and this in turn increases propensity to cooperate with others. We also show that this model receives more support than alternative models substituting either propensity to associate with others or general generosity for individual global connectivity. We further demonstrate that more globalized individuals do not reduce contributions to local accounts while increasing contributions to global accounts, but rather are overall more generous. Finally, we find that the effect of global social identity on cooperation is significantly stronger in countries at a relatively low stage of globalization, compared to more globalized countries.

Corruption and the shadow economy: One-way or two-way street?

Abstract: This paper attempts to bring some resolution to the relation between corruption and the shadow economy. While previous research focuses on the static relationship between the two, we account for dynamics using a panel vector autoregression model and consider influences from the official economy and institutional quality. Using cross‐national panel data for 108 countries over the period 1984–2006, results show a bidirectional relationship with initial complementarity, and substitution over time. Thus, the nature of the two‐way street is shown to change over time and our consideration of dynamics reveals the complementarity–substitution switch.

Global economic–biophysical assessment of midterm scenarios for agricultural markets—biofuel policies, dietary patterns, cropland expansion, and productivity growth

Abstract: Land-use decisions are made at the local level They are influenced both by local factors and by global drivers and trends These will most likely change over time eg due to political shocks, market developments or climate change Hence, their influence should be taken into account when analysing and projecting local land-use decisions We provide a set of mid-term scenarios of global drivers (until 2030) for use in regional and local studies on agriculture and land-use In a participatory process, four important drivers are identified by experts from globally distributed regional studies: biofuel policies, increase in preferences for meat and dairy products in Asia, cropland expansion into uncultivated areas, and changes in agricultural productivity growth Their impact on possible future developments of global and regional agricultural markets are analysed with a modelling framework consisting of a global computable general equilibrium model and a crop growth model The business as usual (BAU) scenario causes production and prices of crops to rise over time It also leads to a conversion of pasture land to cropland Under different scenarios, global price changes range between −42 and +4% in 2030 compared to the BAU An abolishment of biofuel targets does not significantly improve food security while an increased agricultural productivity and cropland expansion have a stronger impact on changes in food production and prices

Labor market opportunities for women in the digital age

Abstract: Digitalization offers a variety of opportunities for female empowerment and for a more equal female participation in labor markets, financial markets, and entrepreneurship. Currently, digitalization seems to favor female labor force, since women face on average lower risk of being replaced by machines, as compared to men. Women's often superior social skills represent a comparative advantage in the digital age, and this is particularly so when social skills are complemented with higher education and advanced digital literacy. However, the same barriers and deficits that obstruct women's current advancement in many countries may deprive them from many beneficial opportunities in the digital age, including new entrepreneurial opportunities. Major efforts by policy makers are required to invalidate these barriers. New digital technologies should be used more decisively to achieve the goal of gender equality.

Adult training in the digital age

Abstract: Digital technologies will both create new jobs and replace existing ones. To cope with increasing labor market dynamics in the digital age, workers will have to become more mobile across jobs, occupations, and industries. The relative importance of their job-specific skills will decrease while that of their general skills applicable to various occupations will increase. The [Group of Twenty] G20 should establish national adult training programs that focus on improving workers' general skills, specifically their theoretical, non-cognitive, and digital skills. These general skills will enable workers to work with technology instead of competing with it, thereby increasing their job mobility and employability.

Deflating asset price bubbles with leverage constraints and monetary policy

Abstract: We develop an experimental production economy to study the general equilibrium and welfare effects of speculation and stabilization policies. Participants playing the role of household-investors interact in labor, output, and, in some treatments, asset markets. Without the ability to trade assets, participants over-supply costly labor to acquire saving. The presence of asset markets improves welfare by allowing investors to substitute labor income for speculative gains. Asset prices deviate substantially from fundamental value. Leverage constraints that prevent investors from borrowing for speculation are ineffective at stabilizing asset prices. Households often circumvent the constraints by excessively supplying labor and generating increased wealth which can be used for speculation. Wealth inequality is worsened due to endogenously higher interest accumulated by borrowers and savers. An asset inflation targeting policy fuels initial asset price growth but, as interest rates rise rapidly, effectively deflates asset price deviations. With learning, the policy stabilizes asset prices and consequently interest rates, which enhances welfare and reduces inequality. We develop a model of heterogeneous expectations to rationalize our experimental findings.

Integrated Assessment of Carbon Dioxide Removal

Abstract: To maintain the chance of keeping the average global temperature increase below 2 degrees C and to limit long-term climate change, removing carbon dioxide from the atmosphere (carbon dioxide removal, CDR) is becoming increasingly necessary. We analyze optimal and cost-effective climate policies in the dynamic integrated assessment model (IAM) of climate and the economy (DICE2016R) and investigate (1) the utilization of (ocean) CDR under different climate objectives, (2) the sensitivity of policies with respect to carbon cycle feedbacks, and (3) how well carbon cycle feedbacks are captured in the carbon cycle models used in state-of-the-art IAMs. Overall, the carbon cycle model in DICE2016R shows clear improvements compared to its predecessor, DICE2013R, capturing much better long-term dynamics and also oceanic carbon outgassing due to excess oceanic storage of carbon from CDR. However, this comes at the cost of a (too) tight short-term remaining emission budget, limiting the model suitability to analyze low-emission scenarios accurately. With DICE2016R, the compliance with the 2 degrees C goal is no longer feasible without negative emissions via CDR. Overall, the optimal amount of CDR has to take into account (1) the emission substitution effect and (2) compensation for carbon cycle feedbacks.

Attracting FDI in middle-skilled supply chains

Abstract: While popular opinion often pictures FDI flowing in search of lowest-wage, lowest-skilled activities in emerging markets, actual FDI to such countries increasingly addresses medium to high-skilled manufacturing sectors. Such FDI might be called 'Quality FDI' that contributes to the creation of decent and value-adding jobs, enhancing the skill base of host economies, facilitating transfer of technology, knowledge and know-how, boosting competitiveness of domestic firms and enabling their access to world-wide markets, as well as operating in a socially and environmentally responsible manner. To attract such quality FDI, host countries need mindfully tailored policies. Recent research offers evidence for strategies in developing countries that successfully turned FDI into such quality FDI.

Amalgam Alternatives: Cost-Effectiveness and Value of Information Analysis.

Abstract: We aimed to assess the cost-effectiveness of amalgam alternatives-namely, incrementally placed composites (IComp), composites placed in bulk (BComp), and glass ionomer cements (GIC). In a sensitivity analysis, we also included composite inlays (CompI) and incrementally placed bulk-fills (IBComp). Moreover, the value of information (VOI) regarding the effectiveness of all strategies was determined. A mixed public-private-payer perspective in the context of Germany was adopted. Bayesian network meta-analyses were performed to yield effectiveness estimates (relative risk [RR] of failure). A 3-surfaced restoration on a permanent molar in initially 30-y-old patients was followed over patients' lifetime using a Markov model. Restorative and endodontic complications were modeled; our outcome parameter was the years of tooth retention. Costs were derived from insurance fee items. Monte Carlo microsimulations were used to estimate cost-effectiveness, cost-effectiveness acceptability, and VOI. Initially, BComp/GIC were less costly (110.11 euros) than IComp (146.82 euros) but also more prone to failures (RRs [95% credible intervals (CrI)] were 1.6 [0.8 to 3.4] for BComp and 1.3 [0.5 to 5.6] for GIC). When following patients over their lifetime, IComp was most effective (mean [SD], 41.9 [1] years) and least costly (2,076 [135] euros), hence dominating both BComp (40.5 [1] years; 2,284 [126] euros) and GIC (41.2 years; 2,177 [126] euros) in 90% of simulations. Eliminating the uncertainty around the effectiveness of the strategies was worth 3.99 euros per restoration, translating into annual economic savings of 87.8 million euros for payers. Including CompI and IBComp into our analyses had only a minimal impact, and our findings were robust in further sensitivity analyses. In conclusion, the initial savings by BComp/GIC compared with IComp are very likely to be compensated by the higher risk of failures and costs for retreatments. CompI and IBComp do not seem cost-effective. All alternatives are likely to be inferior to amalgam. The VOI was considerable, and future studies may yield significant economic benefits.

Is it the Gums, Teeth or the Bite? Effectiveness of Dimensions of Enforcement in Curbing Corruption

Abstract: Adding a new dimension to determinants of corruption, this paper examines the effectiveness of enforcement in reducing corruption. We compare the influences of latent enforcement (police, judicial, and prosecutorial employment) versus actual enforcement (conviction rates) and enforcing institutions. Results based on data for more than 80 countries show that piecemeal enforcement to combat corruption by increasing enforcement employment is ineffective, rather comprehensive improvements in institutions by strengthening the rule of law or regulatory quality bear greater results. Thus, when it comes to corruption control, strong gums (institutions) are more effective than showing teeth (enforcement employment) or the bite (conviction rates).