Showing papers in "Applied Economics Letters in 2009"
TL;DR: The proof of Proposition I in the work of Modigliani and Miller (1958) is based on the mechanism of arbitrage as discussed by the authors, and it is shown that the amount borrowed is greater than the amount envisaged by MM, and that the proof of proposition I is slightly altered.
Abstract: The proof of Proposition I in the work of Modigliani and Miller (MM) (1958) is based on the mechanism of arbitrage. Two cases are considered: first, the case where the value of the levered firm is larger than that of the unlevered one; second, the case where the value of the levered firm is smaller than that of the unlevered one. The first case involves the investor engaging in personal borrowing. This article shows that the amount borrowed is greater than the amount envisaged by MM, and that the proof of Proposition I is slightly altered.
242 citations
TL;DR: This article investigated the relationship between inequality and intergenerational mobility and found that sons who grew up in countries that were more unequal in the 1970s were less likely to have experienced social mobility by the late 1990s.
Abstract: We investigate the relationship between inequality and intergenerational mobility. Proxying fathers' earnings with using detailed occupational data, we find that sons who grew up in countries that were more unequal in the 1970s were less likely to have experienced social mobility by the late-1990s.
196 citations
TL;DR: This article examined the relationship between founding family control and earnings management, and found that family firms are significantly less likely to manage earnings than non-family controlled firms, and that the unique characteristics of family controlled firms could insulate these firms from pressures to manage profits.
Abstract: Because of concentrated ownership stakes, board composition and longer-investment horizons, founding-family controlled firms provide an interesting setting for examining issues relating to governance and control. Anderson and Reeb (2003a, b, 2004), find that the founding-family controlled structure results in superior stock market and accounting performance and lower cost of debt compared to their nonfamily controlled counterparts. We add to their findings by examining the relationships between founding family control and earnings management. The unique characteristics of family controlled firms could insulate these firms from pressures to manage earnings. Our results support this notion, and find that family firms are significantly less likely to manage earnings.
132 citations
TL;DR: The authors employ a new large German survey of direct individual risk measures to find that first-generation migrants have lower risk attitudes than the native population, which only equalize in the second generation.
Abstract: This article questions the perceived wisdom that migrants are more risk-loving than the native population. We employ a new large German survey of direct individual risk measures to find that first-generation migrants have lower risk attitudes than natives, which only equalize in the second generation.
105 citations
TL;DR: In this paper, the impact of FDI and portfolio investment flows on the economic growth of low-, lower middle-and upper middle-income countries was investigated using a dynamic panel model and a large data set of 126 developing countries.
Abstract: What is the impact of foreign direct investment (FDI) and portfolio investment flows on the economic growth of low-, lower middle- and upper middle-income countries? In this article we address this question using a dynamic panel model and a large data set of 126 developing countries for the period 1985 to 2002. Employing the system-generalized methods of moments (GMM) estimation approach, our findings suggest that only developing countries that have reached a minimum level of economic development and absorptive capacity are capturing the growth-enhancing effects of both forms of investment inflows.
94 citations
TL;DR: The authors empirically tested the impact of the private versus public sector institutions on the resource curse, using cross-country data from Sachs and Warner (1997a) and Polity IV, and the main result is that only improved private sector institutions ameliorate resource curse.
Abstract: Two types of models are dominant in the current resource curse literature. One type of model studies the selection of entrepreneurs into rent-seeking versus productive activities. The other type analyses the use of patronage by politicians seeking re-election. The policy implications of the two models are quite different. The first model suggests that institutions governing the private sector ought to be improved. The second model suggests that institutions governing the public sector should be emphasized. This article empirically tests the impact of the private versus public sector institutions on the resource curse, using cross-country data from Sachs and Warner (1997a) and Polity IV. The main result is that only improved private sector institutions ameliorate the resource curse.
89 citations
TL;DR: In this article, a dynamic model to estimate the impact of adjustment costs on the productivity of investment in R&D is presented, and the model is estimated by means of instrumental variables (IV) using a panel of Spanish companies.
Abstract: This article constructs a dynamic model to estimate the impact of adjustment costs on the productivity of investment in R&D. In order to take into account the possible endogeneity of adjustment costs, the model is estimated by means of instrumental variables (IV), using a panel of Spanish companies. The results show that the elasticity of the productivity of R&D investment with regard to adjustment costs is high, with a value close to −1 (−0.96). This confirms that it is essential to include adjustment costs in the empirical analysis of R&D productivity, as suggested by Jones and Williams (1998) and Comin (2002, 2004).
87 citations
TL;DR: This article used ordered logit and probit plus random effects ordered probit approaches to study the determinants of sovereign debt ratings and found that the last procedure is the best for panel data as it takes into account the additional cross-section error.
Abstract: Using ordered logit and probit plus random effects ordered probit approaches, we study the determinants of sovereign debt ratings. We found that the last procedure is the best for panel data as it takes into account the additional cross-section error.
84 citations
TL;DR: In this paper, the determinants of foreign direct investment inflows are examined by applying extreme bounds analysis to a cross-sectional sample encompassing data on 18 Middle Eastern and North African countries.
Abstract: The determinants of foreign direct investment inflows are examined by applying extreme bounds analysis to a cross-sectional sample encompassing data on 18 Middle Eastern and North African countries. With the gross domestic product growth rate serving as the free variable, eight potential explanatory variables are tried as the variables of interest in combination with three other variables. The results reveal that only one variable is robust when traditional EBA is used. However, when restricted EBA is used, the results based on the 60% of the regressions with the highest R 2 reveal three more robust variables. Some explanations for the results are put forward.
73 citations
TL;DR: The authors found that inflation does not unanimously decrease savings in the US during the postwar period, and this result is puzzling as it contradicts the implications of most monetary general equilibria models.
Abstract: We find that inflation does not unanimously decrease savings in the US during the postwar period. This result is puzzling as it contradicts the implications of most monetary general equilibrium models.
72 citations
TL;DR: In this paper, the authors examined the holiday effect in Australian daily stock returns at the market and industry level and for small capitalization stocks from Monday 9 September 1996 to Friday 10 November 2006.
Abstract: This note examines the holiday effect in Australian daily stock returns at the market and industry level and for small capitalization stocks from Monday 9 September 1996 to Friday 10 November 2006. The eight annual holidays specified are New Years Day, Australia Day (26 January), Easter Friday and Easter Monday, ANZAC Day (25 April), the Queen's Birthday (second Monday in June), Christmas Day and Boxing Day. A regression-based approach is employed. The results indicate that the Australian market overall provides evidence of a pre-holiday effect in common with small cap stocks. However, the market level effect appears to be solely the result of a strong pre-holiday effect in the retail industry. No evidence is found of a post-holiday effect in any market or industry.
TL;DR: This article examined the volatility spillover effects among six Asian country stock markets using bivariate vector autoregression-generalized autoregressive conditional heteroskedasticity [VAR(p)-...
Abstract: This article examines the volatility spillover effects among six Asian country stock markets using bivariate vector autoregression-generalized autoregressive conditional heteroskedasticity [VAR(p)-...
TL;DR: The authors investigated whether government budget deficits and real interest rates have a long-run relationship with the current account of the balance of payments in 23 Organization for Economic cooperation and development (OECD) countries.
Abstract: We investigate the question of whether or not government budget deficits and real interest rates have a long–run relationship with the current account of the balance of payments in 23 Organization for Economic cooperation and Development (OECD) countries. Such an investigation is important, since large and persistent budget deficits may impose strains on the foreign exchange markets and are considered by some to be one of the main causes of crises in international financial markets. We permit regime shifts in the cointegration analysis, which extends empirical modelling relative to existing studies. We find that the admission of regime shifts substantially influences the empirical conclusions: we find a long-run relationship between budget deficits, real interest rate and current account deficit in 13 out of 23 countries, whereas the number of countries with apparent long-run relationships is dramatically reduced when regime shifts are not permitted. We argue that, when structural breaks are taken into ac...
TL;DR: In this article, the authors analyse the empirical fulfilment of purchasing power parity (PPP) in a number of Central and Eastern European countries and find that PPP holds in most of these countries once account has been taken of nonlinear deterministic trends and smooth transitions.
Abstract: The aim of this article is to analyse the empirical fulfilment of purchasing power parity (PPP) in a number of Central and Eastern European countries. For this purpose we apply two different unit root tests in order to control for two sources of nonlinearities, i.e. Bierens (1997) and Kapetanios et al. (2003). We find that PPP holds in most of these countries once account has been taken of nonlinear deterministic trends and smooth transitions.
TL;DR: In this paper, the impact of the change in the high-tech export share on economic growth in OECD countries is investigated and it is shown that business R&D intensity is more important than the share of hightech exports in explaining GDP per working age population.
Abstract: The present article provides new evidence on the impact of the change in the high-tech export share on economic growth in OECD countries. We estimate a dynamic growth model on panel data for 22 OECD countries for 1980–2004, in which the data is measured as 5-year averages. Using the system GMM panel estimator, which corrects for simultaneity, we find that both business R&D intensity and the share of high-tech exports are significantly positively related to the GDP per working age population. The estimated elasticities are rather sizable but the magnitude suggests that business R&D intensity is more important than the share of high-tech exports in explaining GDP per working age population.
TL;DR: In this paper, the relationship between emigration, immigration and the bilateral foreign direct investments (FDI), inward and outward, between Italy and 51 foreign countries was studied, and it was shown that the networks of Italian emigrants abroad significantly promote both inward and external bilateral FDI.
Abstract: This article studies the relationship between emigration, immigration and the bilateral foreign direct investments (FDI), inward and outward, between Italy and 51 foreign countries. The results suggest that the networks of Italian emigrants abroad significantly promote both inward and outward bilateral FDI. The overall influence of immigrants is weaker. Their role is positively dependent on distance for FDI inward, only.
TL;DR: In this paper, the authors analyse whether tests of PPP exhibit erratic behaviour, even when homogeneity and proportionality restrictions are not imposed, and trivariate cointegration (stage-three) tests between the nominal exchange rate, domestic and foreign price levels are carried out.
Abstract: We analyse whether tests of PPP exhibit erratic behaviour (as previously reported by Caporale et al., 2003) even when (possibly unwarranted) homogeneity and proportionality restrictions are not imposed, and trivariate cointegration (stage-three) tests between the nominal exchange rate, domestic and foreign price levels are carried out (instead of stationarity tests on the real exchange rate, as in stage-two tests). We examine the US dollar real exchange rate vis-a-vis 21 other currencies over a period of more than a century, and find that stage-three test statistics are also somewhat erratic, though less than stage-two ones.
TL;DR: In this paper, the home-country self-employment hypothesis on immigrants in Sweden was tested and the results showed that the selfemployment rates vary between different immigrant groups but they find no support for the home country self employment hypothesis using traditional estimation methods.
Abstract: This article tests the home-country self-employment hypothesis on immigrants in Sweden. The results show that the self-employment rates vary between different immigrant groups but we find no support for the home-country self-employment hypothesis using traditional estimation methods. However, when applying quantile regression method we find such evidence when testing results from the 90th quantile. This indicates that home-country self-employment traditions are important for the self-employment decision among immigrant groups with high self-employment rates in Sweden. Furthermore, the result underlines the importance of utilizing robust estimation methods when the home-country self-employment hypothesis is tested.
TL;DR: The authors explored the nonlinear linkage between financial risk tolerance and demographic characteristics, including age, income, and number of dependents, and found that the non-linear role of demographic characteristics in financial risk-tolerance was not well understood.
Abstract: We explore the nonlinear linkage between financial risk tolerance and demographic characteristics. Our tests support the nonlinear role of age, income and number of dependents.
TL;DR: In this paper, the authors analyzed trends in occupational segregation by race and ethnicity in the USA over the period 1983 to 2002 and found that almost all the changes in racial and ethnic segregation were due to the racial or ethnic composition effect.
Abstract: This article analyses trends in occupational segregation by race and ethnicity in the USA over the period 1983 to 2002. During this period, racial segregation markedly declined, while there was a fairly sizable increase in ethnic segregation. Almost all the changes in racial and ethnic segregation were due to the racial or ethnic composition effect. This finding is important since the composition effect truly measures the change in racial or ethnic segregation by eliminating the effect of changes in the size of occupations. During the period 1983–2002, the service, managerial, sales, operators and professional specialty occupations contributed the most to the decline in segregation between Blacks and NonBlacks, while the service, production and farming occupations contributed the most to the increase in segregation between Hispanics and NonHispanics.
TL;DR: In this paper, the authors used the data on attacks against vessels reported between 1996 and 2005 merged with data on the total world merchant fleet to investigate whether acts of piracy are a truly random occurrence and found that both flag of registry and type of vessel are significant factors in explaining maritime piracy.
Abstract: Far from being an extinct phenomenon, piracy still exists in the modern world and is a growing menace to the security and safety of shipping. Using the data on attacks against vessels reported between 1996 and 2005 merged with the data on the total world merchant fleet, this article inquires whether acts of piracy are a truly random occurrence. Results show that both flag of registry and type of vessel are significant factors in explaining maritime piracy.
TL;DR: This paper examined the role of microenterprises in US economic growth using a panel of the 48 lower US states from 1977 to 1997, using an expanded Carlino-Mills type model of growth Microenterprises are defined as having between one and four employees.
Abstract: In this study, we examine the role of microenterprises in US economic growth Using a panel of the 48 lower US states from 1977 to 1997, we estimate an expanded Carlino–Mills type model of growth Microenterprises are defined as having between one and four employees Results suggest that a higher share of goods producing firms that are microenterprises tend to be associated with lower levels of population, employment and income growth, while a higher share of service producing firms classified as micro are associated with higher levels of growth These results suggest that care must be taken when promoting microenterprises as a major engine of economic growth
TL;DR: In this paper, econometric developments for the estimation of gravity model, which allow to get convergent parameter estimates even when a correlation exists between the explanatory variables and the specific unobservable characteristics of each individual.
Abstract: This article deals with econometric developments for the estimation of gravity model, which allow to get convergent parameter estimates even when a correlation exists between the explanatory variables and the specific unobservable characteristics of each individual. We implement panel data econometric techniques to characterize bilateral trade flows between heterogeneous economies. Our econometric results based on a sample of 4 Central and Eastern European countries (CEEC-4) and 19 OECD countries over a 18-year period highlight the importance by taking into account the unobservable heterogeneity to obtain a robust empirical specification and unbiased coefficients.
TL;DR: The authors used the pooled mean group estimator and an extended annual dataset to examine the effectiveness of aid on growth and found that there is a significant long-run impact of aid and good policy on growth, but conditioning aid on good policy reduces the long run growth rate.
Abstract: This article uses the pooled mean group estimator and an extended annual dataset to examine the effectiveness of aid on growth. The results indicate a significant long-run impact of aid and ‘good’ policy on growth, but conditioning aid on ‘good’ policy reduces the long-run growth rate.
TL;DR: In this article, a general empirical model that allows consistent estimation of the conduct parameter that is robust to efficient collusion is presented. But the model is not robust to collusion and the model does not consider the effect of efficient collusion.
Abstract: I address a recent critique by Corts (1999) who finds that traditional approaches in New Empirical Industrial Organization to estimate the competitive conduct in an oligopoly market can yield inconsistent estimates of the conduct parameter if firms are engaged in efficient collusion. This article derives a general empirical model that allows consistent estimation of the conduct parameter that is robust to efficient collusion.
TL;DR: The seminal work of Gerschenkron (1962) stated that latecomers borrow advanced technology from their predecessors, resulting in convergence of productivity among nations as mentioned in this paper, and the diffusion of technology among developing nations has been fulfilled not only directly from developed nations but also from surrounding nations through local spillovers such as learning from others.
Abstract: The seminal work of Gerschenkron (1962) stated that latecomers borrow advanced technology from their predecessors, resulting in convergence of productivity among nations. Additionally, the diffusion of technology among developing nations has been fulfilled not only directly from developed nations but also from surrounding nations through local spillovers such as learning from others. Recently, the disparity in national football performance among the nations appears to have improved, and it is evident that talented players are mobilized from developing nations to developed ones. The present article attempts to apply the framework of development economics, as introduced earlier, to the case of international football. An empirical examination of FIFA's world ranking points considered as reflecting nations' performances was conducted, applying panel data to control for unobserved nations' specific effects (Baltagi 2005). The results indicate that both technology transfer and the local information spillover pl...
TL;DR: In this article, the authors analyzed the bilateral commuting flows across border regions of four European Union countries and found that aggregate cross-border commuting increases as the asymmetries in income per capita and the unemployment rate increase.
Abstract: This article analyses the bilateral commuting flows across bordering regions of four European Union countries. The results suggest that aggregate cross-border commuting increases as the asymmetries in income per capita and the unemployment rate increase. Commuting time or distance and language differences between the bordering regions impede cross-border commuting.
TL;DR: In this article, the authors examined the time series dynamics between US aggregate state and local government receipts and expenditures in differentiating between four hypotheses related to the revenueexpenditure nexus: tax-spend, spend-tax, fiscal synchronization and institutional separation hypotheses.
Abstract: This study examines the time series dynamics between US aggregate state and local government receipts and expenditures in differentiating between four hypotheses related to the revenue-expenditure nexus: tax-spend, spend-tax, fiscal synchronization and institutional separation hypotheses. Unlike previous research at the state and local level, the possibility of asymmetries in the budgetary process is explored using the threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) cointegration framework of Enders and Siklos (2001). The results indicate the absence of any asymmetries (TAR or MTAR) in the adjustment towards budgetary equilibrium. The symmetric error correction model provides support for the spend-tax hypothesis.
TL;DR: In this article, the extent of the negative effects of violence in the Basque Country on the financial and economic activity of the region was analyzed using long memory regression models, with the Spanish stock market index and an index for violence employed as weakly exogenous regressors.
Abstract: We analyse the extent of the negative effects of violence in the Basque Country on the financial and economic activity of the region. We use daily data of the Basque stock market index and employ long memory regression models, with the Spanish stock market index and an index for violence employed as weakly exogenous regressors. The results show that violence significantly reduces the stock market returns in the area. On the other hand, the volatility processes are positively correlated with violence, though not statistically significant.
TL;DR: In this paper, the authors introduced the newly developed generalised propensity score (GPS) methodology to the literature of individual firms' export behaviour, which allows for continuous treatment, that is, different levels of the firms' exports activities.
Abstract: The relationship between individual firms' export behaviour and firm performance has been studied extensively in the economic literature. However, most studies from the field of economics only distinguish between exporting and non-exporting companies, using the firms' export status as a binary treatment variable and comparing the performance of exporting and non-exporting firms. This paper introduces the newly developed generalised propensity score (GPS) methodology to the literature of individual firms' export behaviour. Instead of a binary treatment variable, the GPS method allows for continuous treatment, that is, different levels of the firms' export activities. Based on the GPS methodology, a dose-response function is estimated, depicting the relationship between the firms' pre-treatment export-sales ratio and their subsequent sales growth rate as a measure of firm performance.