Showing papers in "Economica in 2001"

Scarring: The Psychological Impact of Past Unemployment

Abstract: This paper considers the psychological impact of past unemployment. Using 11 waves of German panel data, we show that life satisfaction is lower not only for the current unemployed (relative to the employed), but also for those with higher levels of past unemployment. However, the negative wellbeing effect of current unemployment is weaker for those who have been unemployed more often in the past. The panel data also reveal some evidence that those suffering greater falls in wellbeing on entering unemployment are less likely to remain unemployed one year later. Together, these findings offer a psychological explanation of persistent unemployment.

The roots of entrepreneurship and labour demand: individual ability and low risk aversion

Abstract: The topic of entrepreneurship currently experiences a revived interest as is shown by the research agenda of today’s empirical researchers. There are few issues in economics which are backed up by such a rich historical knowledge base as is the case with entrepreneurship. This paper aims to give an overview of some important classic contributions relating to today’s and tomorrow’s empirical research subjects. The overview consists of answers to six research questions by six historical contributors to entrepreneurship research. Together, these questions give some insight into the determinants of successful entrepreneurship. The classic contributors considered are Cantillon, Say, Marshall, Schumpeter, Knight, and Kirzner. Their views are compared to each other as well as to some recent results of empirical research into the determinants of successful entrepreneurship.

Conditional Cash Transfers and Their Impact on Child Work and Schooling: Evidence from the PROGRESA Program in Mexico

Abstract: In this paper we investigate whether a conditional cash transfer program such as the Programa Nacional de EducaciA³n, Salud y AlimentaciA³n (PROGRESA) can simultaneously combat the problems of low school attendance and child work. PROGRESA is a new program of the Mexican government aimed at alleviating extreme poverty in rural areas. It combats the different causes of poverty by providing cash benefits that are targeted directly to households on the condition of children attending school and visiting health clinics on a regular basis. Some of the questions addressed are as follows: Does the program reduce child labor? Does it increase participation in school activities? Does the latter occur at the expense of children's leisure time? And how do the effects of the program vary by age group and gender? Our empirical analysis relies on data from a quasi-experimental design used to evaluate the impact of the program involving a sample of communities that receive PROGRESA benefits (treatment) and comparable communities that receive benefits at a later time (control). We estimate the effect of treatment on the treated" using both double-difference and cross sectional difference estimators. Our estimates show significant increases in the school attendance of boys and girls that are accompanied by significant reductions in the participation of boys and girls in work activities. We also find that the program has a lower impact on the incidence of work for girls relative to boys."

Lending Booms: Latin America and the World

Abstract: Recent theories of crisis put lending booms at the root of financial collapses. Yet lending booms may be a natural consequence of economic development and fluctuations. So are lending booms dangerous? In this paper, we investigate empirically this question using a broad sample of lending boom episodes over 40 years, with a special eye for Latin America. Our results indicate that (1) lending booms are often associated with (i) a domestic investment boom; (ii) an increase in domestic interest rates; (iii) a worsening of the current account; (iv) a declines in reserves; (v) a real appreciation; (vi) a decline in output growth, (2) 'typical' lending booms do not increase substantially the vulnerability of the banking sector or the balance of payments. Comparing Latin America and the rest of the world, we find that Latin America lending booms make the economy considerably more volatile and vulnerable to financial and balance of payment crisis.

Family Matters: Impacts of Family Background on Educational Attainments

Abstract: The analysis uses new data matching parents and their young adult children to study the impact of family background on young people's educational attainments. The data is derived from the first seven years (1991-97) of the British Household Panel Study. Parents' educational attainments are found to be very strongly associated with their children's educational attainments, and for an important part of the population these associations can be given a causal interpretation. In addition, young adults who experience single parenthood as children and those who come from families in the bottom income quartile have significantly lower educational attainments.

Self–Employment and Windfall Gains in Britain: Evidence from Panel Data

Abstract: Liquidity constraints can prohibit potential entrepreneurs from starting up in business, can restrict the growth of existing entrepreneurial activities and, in the extreme, can result in small business failure. This paper uses British panel data to investigate the effects of relaxing liquidity constraints on self-employment through the unanticipated receipt of windfall gains. It discusses the different impacts the receipt of a windfall payment may have on self- employment. The results suggest that the size of the payment received has a positive and concave effect on the probability of entering self-employment and on the performance of an existing self-employment enterprise, consistent with the liquidity constraint hypothesis. from starting up in business, they can restrict the growth of existing activities and, in the extreme, they can result in the failure of an enterprise. The underlying rationale behind the various government assistance schemes established in the majority of developed economies is the belief that capital markets do not provide adequate funds to finance small enterprises.1 This paper provides new evidence on the impact of windfall gains on: (i) transitions into self-employment, (ii) survival rates in self-employment and (iii) the growth of entrepreneurial activities using British panel data. The use of panel data allows us to overcome the usual problem encountered when investigating liquidity constraints in self-employment-that of endogeneity. Unexpected windfall gains, for example, inheritances or lottery winnings, reduce the liquidity constraints on (potential) entrepreneurs. How this influences subsequent labour market behaviour provides an indirect test of various liquidity constraint hypotheses. Previous evidence on capital constraints and entrepreneurial activities has focused primarily on business start-ups. Evans and Jovanovic (1989) and Evans and Leighton (1989) use US data to show that the probability of entering self-employment increases with family assets, which is consistent with the hypothesis that entrepreneurs face liquidity constraints. Lindh and Olhsson (1996) use Swedish micro data and report that the probability of self- employment increases by 54% if lottery winnings are received and by 27% on receipt of an average sized inheritance. Using VAT registration data for the United Kingdom, Black et al. (1996) produce results consistent with the hypothesis that small-firm formation is restricted by capital constraints. More

Three Meanings of Intergenerational Mobility

Abstract: We axiomatize three different motivations for being concerned about intergenerational mobility: mobility as a description of movement, as an indication of equality of opportunity, and as an indication of equality of life chances. These three motivations are shown to be incompatible. None of the existing measures is acceptable as an indicator of equality of opportunity or equality of life chances. We propose two new measures of intergenerational mobility which more adequately reflect these concerns.

Intergenerational Mobility in Latin America

Abstract: High inequality has long been regarded as one of the main problems facing Latin American countries. To understand better the determinants of inequality and to help guide thinking about policy options, it would be useful to know whether inequality mainly reflects low intergenerational mobility or whether it is driven by differences. In this paper we use five household surveys with questions about parental socioeconomic characteristics for adults, and a set of 112 standard household surveys to examine the intergenerational transmission of schooling and occupational status in Latin America and Unites States. We find that intergenerational mobility is much higher in the United States than in Latin America, that there are sizable differences in mobility within Latin America, and that mobility in Latin America is strongly associated with schooling levels.

Contagion in Latin America: Definitions, Measurement, and Policy Implications

Abstract: This paper analyzes bond and stock markets in Latin America and uses these patterns to investigate whether contagion occurred in the 1990's. It defines shift-contagion' as a significant increase in cross-market linkages after a shock to one country or region. Several coin-toss examples and a simple model show that the standard tests for contagion are biased due to the presence of heteroscedasticity, endogeneity, and omitted-variable bias. Recent empirical work which addresses these problems finds little evidence of shift-contagion during a range of crisis periods. Instead, this work argues that many countries are highly interdependent' in all states of the world and the strong cross-country linkages which exist after a crisis are not significantly different than those during more stable periods. These findings have a number of implications for Latin America.

The Impact of Language Ability on Employment and Earnings of Britain's Ethnic Communities

Abstract: The Fourth National Survey of Ethnic Minorities contains useful information about the language ability of Britain's non–whites as well as a wealth of comparative information for whites. The paper attempts to establish how much of the lower unemployment and higher earnings enjoyed by whites is the result of a comparative advantage in language. Language is shown to contribute to a part of the non–white disadvantage, but after language effects are removed non–whites males still have higher unemployment rates and lower earnings. Language disadvantage among non–white females leads to higher inactivity rates rather than more unemployment.

Fiscal Federalism in Argentina: Policies, Politics, and Institutional Reform

Abstract: Argentine fiscal federalism is considered to be very inefficient by all specialists. Its allocation of tax and spending authorities, and its system of intergovernme ntal transfers do not correspond to any economic criteria and provide all sorts of perverse incentives and obstacles for sound economic policies. Agreeing with the above diagnostic, we attempt to take a step further and to provide an explanation for the many inefficient features of Argentine fiscal federalism. In order to do that, we apply and further develop an approach, presented in Spiller and Tommasi (2000) that tries to explain public policies as the outcome of political transactions. These approach argues that the nature and characteristics of the observed policies will be conditioned by the rules of the political game under which those t / policies are made. Hence, it re focuses “policy recommendations” from the level of policy reform to the level of institutional reforms, with emphasis on political institutions.

The Impact of Alcohol Consumption on Occupational Attainment in England

Abstract: In this study we provide evidence on the effect of alcohol consumption on occupational attainment in England. To do this we use samples of employees from the Health Survey for England between 1992 and 1996. We find that, owing to the endogenous nature of alcohol consumption, OLS estimates may provide a biased picture of the impact of alcohol consumption on occupational attainment. Using various sets of instrumental variables, we find positive and significant returns to moderate levels of drinking for male and female employees which drop off rapidly as consumption increases.

The Role of American Depositary Receipts in the Development of Emerging Markets

Abstract: Using a sample of 28 stock markets, this chapter presents an empirical exploration of the effect of American Depositary Receipts (ADRs) on emerging market development. We examine the role of ADRs on three aspects of market development: openness, defined as the degree of market transparency and reliability; liquidity, a measure of market activity; and growth, which attempts to measure the market’s ability to foster the formation of new enterprises and encourage economic growth. The preliminary evidence from the study is mixed. ADRs are instrumental in increasing openness, but negatively impact both liquidity and the ability of the local market to foster economic growth. Also, the effect of large firms listing ADRs is detrimental to the development of the local market.

Efficiency Gaps, Love of Variety and International Trade

Abstract: We develop a general equilibrium monopolistic competition model of trade with technical heterogeneity among firms and countries. With free entry, technical asymmetries between firms result in the endogenous determination of the equilibrium average efficiency of the industry. We show that trade reduces (increases) the minimum efficiency required to survive in the more (less) efficient country. This has important welfare implications: (1) Contrary to the constant elasticity of substitution homogeneous-firms model, trade affects welfare even when there is no love of variety. (2) There are circumstances in which trade liberalization leads to a loss of consumer welfare.

Wars and Markets: How Bond Values Reflect the Second World War

Abstract: Historical events are reflected in asset prices Based on a unique data-set, we analyse government bond prices of Germany and Austria traded on the Swiss bourse during the Second World War Some war events generally considered crucial are clearly reflected in government bond prices; this holds, in particular, for the official outbreak of the war and the loss and gain of national sovereignty Other events to which historians attach great importance are not reflected in bond prices, most prominently Germany’s capitulation in 1945 The analysis of financial markets provides a fruitful method for evaluating the importance contemporaries attached to historical events

De la informalidad a la modernidad

Abstract: Este trabajo busca recoger algunos aportes de estudios realizados por la OIT entre 1995 y 2001 sobre las regulaciones que afectan a las microempresas y al sector informal en varios paises de la region. Se senala inicialmente que el consenso existente sobre la conveniencia de prestar atencion al sector informal, tanto por su importancia en relacion con el empleo como respecto a la pobreza, es limitado pues no existe una vision estrategica compartida, situacion que se explica por la carencia de un diagnostico comun. Las diversas interpretaciones y la heterogeneidad de las actividades informales derivan en estrategias diferentes. Se indica luego que la perspectiva regulatoria asimila informalidad con ilegalidad y precariedad laboral, dos caracteristicas vinculadas a ella, pero conceptualmente distintas. Finalmente se exploran las opciones estrategicas para regular la informalidady se propone lineamientos para formalizar las actividades informales, facilitando asi su incorporacion plena al proceso de modernizacion.---This work reviews come contributions of studies carried out by the ILO between 1995 and 2001 on the regulations affecting microenterprises and informal sectors inseveral countries of the region. It is pointed out initially that the consensus achieved on the benefits of paying more attention to informality, because of its importance in relation to employment and poverty, is limited, because of the absence of a common strategic vision, situation that is explained by the lack of a common diagnostic. The diverse interpretations and the heterogeneity of informal activities derive in diverse strategies. It is then indicated that the regulatory approach equates informality with illegality and precarious jobs, two attributes related to informality, but conceptually different. Finally, the strategic options to regulate informality are explored, and outlines to achieve the formalization of informal activities, facilitating its incorporation to the process of modernization, are proposed.

Learning and Earning: Do Multiple Training Events Pay? A Decade of Evidence from a Cohort of Young British Men

Abstract: This paper estimates the impact of work-related training on wage growth over the period 1981-91, using longitudinal data from the National Child Development Study, a cohort of young men aged 23 in 1981. A hurdle Negbin model is used to control for training endogeneity. We find that training incidence has a significant positive effect on wage growth. We also find that young men with a higher level of education are not only more likely to be trained, but are also more likely to experience substantially higher wage growth as a result.

Poverty Traps and Human Capital Accumulation

Abstract: In this paper I show that persistent inequality in the distribution of human capital and a negative relation between initial inequality and steady-state aggregate output may follow from the fact that the poor require relatively higher returns to increase expenditure on education. Moreover, I show that poverty traps emerging in models where individual transitions do not depend on aggregate dynamics, though not robust to the introduction of idiosyncratic uncertainty, may still be relevant observationally, if idiosyncratic shocks occur with low probability. In this context, I also analyse the implications of introducing a public education system.

Modelling Business Cycle Movements in the UK Economy

Abstract: This paper models the phases of the UK business cycle using GDP data with a time-varying transition probabilities (TVTP) Markov-switching regime model and exogenous leading indicator variables. Single indicators in linear models are compared with the TVTP framework, with logistic and exponential functions used in the latter. The Markov-switching models capture the major recessions of the sample, but the use of leading indicators through the TVTP framework can improve this regime recognition. Finally, a forecast comparison shows that the TVTP models perform relatively well in predicting during the 1990s, particularly when nominal interest rates are used to generate the regime-switching probabilities.

Industrial Concentration and Market Integration in the European Union

Abstract: Unlike previous cross-section studies which test predictions from the theory of industrial structure, we do not make an ex ante assumption about the geographical market at which competition takes place. We develop an econometric technique that endogenously determines whether the EU or member state is the appropriate market level for each industry, while also estimating a structural model of concentration and market size. Another novelty is that we use European national as well as aggregate EU data. Strong support is found for the importance of endogenous fixed costs in the theory of market structure.

Public Sector Wages and Bureaucratic Quality: Evidence from Latin America

Abstract: The purpose of this paper is to present evidence on public-private wage differential for a sample of Latin American countries and to discuss the relationship between public-private wage differentials and bureaucratic quality in the Region. The paper starts by estimating public-private wage differentials for a sample of 17 Latin American countries covering 88 percent of the population of the Region. Next, the paper looks at the relationship between bureaucratic quality and public-private wage differentials and finds that, while there is no correlation between average public sector wages and bureaucratic quality, there is a positive correlation between bureaucratic quality and the degree

Non‐transitive Choice: Event‐Splitting Effects or Framing Effects?

Abstract: Recent studies have examined possible causes of the robust empirical failure of the transitivity axiom of expected utility theory by pitting regret aversion against alternative explanations such as event-splitting effects. These tests show that cycles replicate when the latter are controlled, but are sensitive to changes in problem representation. The control for event-splitting effects, however, does not rule out their contribution to cyclical choices in some circumstances. An experiment is reported which investigates this possibility. Cyclical choices are observed that cannot be due to event-splitting effects, but appear attributable to within-event and between-act evaluations of decision problems plus framing effects.

Spatial Search, Migration and Regional Unemployment

Abstract: The dominant explanation of spatial unemployment in the literature assumes that workers must live in an area in order to be able to access job offers. This gives rise to 'compensating variations' in local wages and unemployment. However, for many occupations search is clearly conducted over longer distances from a home base. In the model presented in this paper, migration and unemployment are analysed both when the optimal search field is local, as in the traditional model, and when search is conducted over longer distances. I compare equilibria in these two regimes, and discuss the implications for regional policy.

Full Dollarization: The Case of Panama

Abstract: This paper analyzes the case of Panama, one of the largest countries currently adopting the dollar as its legal tender, and evaluates some of the predictions of the theory on the costs and benefits of full dollarization. The main conclusions drawn from the case of Panama are that on one hand, dollarization does not guarantee fiscal discipline, the elimination of currency risk does not preclude default risk or the high volatility of sovereign spreads, and that dollarization may increase slightly GDP growth volatility. On the other hand, a dollarized economy delivers delivers an impressive inflation performance and may even reduce the impact of external confidence shocks, although not external real shocks. Finally, it is not clear whether the low interest rates in Panama are a consequence of the dollarization regime or the competitive internationalized banking system.

Integration, Interdependence, and Regional Goods: An Application to Mercosur

Abstract: The paper is organized as follows. The next section presents some stylized facts on Mercosur, documenting the evolution of trade in goods within member countries and then highlighting the characteristics of the trade agreement that make smaller Mercosur economies vulnerable to macroeconomic developments in Brazil. The subsequent section presents the main empirical contribution of the paper. Specifically, we develop empirical definitions of regional goods and then measure the extent of trade in regional goods by estimating intraregional trade in services, identifying the commodity items that can relatively easily find alternative markets, and calculating three alternative indicators of export exposure. The following section formally incorporates the concept of regional goods into a model of an intertemporal open economy. This model is used to assess Afonso Bevilaqua, Marcelo Catena, and Ernesto Talvi 159 the main channels of the transmission of shocks to the price of regional goods, to perform sensitivity analysis to ascertain the main factors behind vulnerability, and to set the stage for meaningful policy discussions. In the final section, we discuss the policy implications.

Income Risk, the Tax-benefit System and the Demand for Children

Abstract: Because children represent an irreversible commitment, parents might hedge against higher income risk by having fewer children. We show that, under plausible assumptions, recent increases in income risk might have reduced prudent parents' desired fertility. Responses to this via the tax-benefit system are considered. Introducing an expected revenue-neutral transfer-cum-child-benefit system under proportional taxation, which lets the government share the household's income risk, increases desired fertility for parents who would choose to have small families in this system's absence. Pound for pound, the targeted child benefit enhances fertility more than the lump-sum transfer.

The Impact of Advanced Technology Adoption on Wage Structures: Evidence from Taiwan Manufacturing Firms

Abstract: We examine the impact of advanced technology adoption on wage and employment structures in Taiwan. Using a survey of manufacturing firms that provides direct information on the use of advanced technologies, we find that firms using more advanced technologies pay higher wages to both non-production and production workers and employ higher fractions of non-production workers. Controlling for the possible endogeneity of technology adoption suggests that the estimated impact of new technologies on wages is downward-biased and that the effect on production workers’ wages may be minimal.

The relationship between two indicators of insider trading in british racetrack betting

Abstract: This paper examines whether a measure of insider trading in betting markets derived from the Shin (1993) model is significantly related in samples of horse and greyhound races to an alternative, independently derived, indicator of insider activity suggested by Crafts (1985), namely plunges in the odds offered against a particular competitor on the day of a race. The analysis suggests that there is a significant relationship.

O comportamento fiscal dos estados brasileiros e seus determinantes políticos

Abstract: The objective of this paper is twofold. The first is to identify and describe the fiscal stance of the Brazilian state governments during the period 1985-97. The second objective is to analyze the political determinants of this fiscal behavior in the context of the redemocratization process. In order to attain the first purpose, two measures was constructed for the evaluation of the fiscal stance: the observed fiscal impulse (change in the primary balance) and the Blanchard modified fiscal impulse measure that includes cyclical fluctuations and the inflationary acceleration. With this two measures, the main inferences can be summarized in: i) it is possible to observe symmetry between expansionist and contractionist fiscal stances; ii) generally, state governments adopted stop-and-go polices, expansion years was followed by contraction years and veceversa; iii) the number of expansionist episodes in electoral years is significantly greater than in normal years iv) expenditure-side polices was predominantly used by state governments both in expansions and in contractions. To analyze the influence of the partisan system characteristics on the state fiscal policies, the second part asks the following questions: i) there exists political electoral cycles? ii)electorate participation determines the fiscal stances and in which direction? ii) competitiveness of the political system explains the fiscal behavior?; iv) fragmentation of the representative system leads to expansionist stances?; v) ideology is important in the definition of fiscal stance? And vi) coincidence between state and federal administrations leads stronger expansionist stances? With panel data econometric techniques, the answers for the questions placed above were the following: i) there are political cycles?; ii) voter’s participation is a factor that disciplines the fiscal behavior of state governments; iii) competitiveness of the political system do not explain fiscal stances; iv) on the other side political fragmentation determines expansionist bias, v) left- wing governments tend to adopt more expansionist policies, for right and center parties the results are not clear; finally, vi) there are no evidences of expansionist effects of political solidarity between state and federal governments.

Dynasties and destiny: On the roles of altruism and impatience in the evolution of consumption and bequests

Abstract: We study the joint role of altruism and impatience, and the impact of evolution in the formation of long-term time preferences and in the determination of optimal consumption and optimal bequests. We show how the consumption paths of dynasties relate to altruism and to impatience and we reason that long-lived dynasties will be characterized by a higher degree of altruism and a lower degree of impatience than short-lived dynasties.;