Showing papers in "Empirical Economics in 2008"

Metafrontier frameworks for the study of firm-level efficiencies and technology ratios

Abstract: This paper uses the concept of a metafrontier to compare the technical efficiencies of firms that may be classified into different groups. The paper presents the basic analytical framework necessary for the definition of a metafrontier, shows how a metafrontier can be estimated using non-parametric and parametric methods, and presents an empirical application using cross-country agricultural sector data. The paper also explores the issues of technological change, time-varying technical inefficiency, multiple outputs, different efficiency orientations, and firm heterogeneity.

Tests for cointegration with two unknown regime shifts with an application to financial market integration

Abstract: It is widely agreed in empirical studies that allowing for potential structural change in economic processes is an important issue. In existing literature, tests for cointegration between time series data allow for one regime shift. This paper extends three residual-based test statistics for cointegration to the cases that take into account two possible regime shifts. The timing of each shift is unknown a priori and it is determined endogenously. The distributions of the tests are non-standard. We generate new critical values via simulation methods. The size and power properties of these test statistics are evaluated through Monte Carlo simulations, which show the tests have small size distortions and very good power properties. The test methods introduced in this paper are applied to determine whether the financial markets in the US and the UK are integrated.

Errors in variables and spatial effects in hedonic house price models of ambient air quality

Abstract: In the valuation of the effect of improved air quality through the estimation of hedonic models of house prices, the potential “errors in variables” aspect of the interpolated air pollution measures is often ignored. In this paper, we assess the extent to which this may affect the resulting empirical estimates for marginal willingness to pay (MWTP), using an extensive sample of over 100,000 individual house sales for 1999 in the South Coast Air Quality Management District of Southern California. We take an explicit spatial econometric perspective and account for spatial dependence and endogeneity using recently developed Spatial 2SLS estimation methods. We also account for both spatial autocorrelation and heteroskedasticity in the error terms, using the Kelejian–Prucha HAC estimator. Our results are consistent across different spatial weights matrices and different kernel functions and suggest that the bias from ignoring the endogeneity in interpolated values may be substantial.

Gender wage gap studies : consistency and decomposition

Abstract: This paper reviews the empirical literature on the gender wage gap, with particular attention given to the identification of the key parameters in human capital wage regression models. This is of great importance in the literature for two main reasons. First, the main explanatory variables in the wage model, i.e., measures of work experience and time-out-of-work, are endogenous. As a result, applying traditional estimators may lead to inconsistent parameter estimates. Second, empirical evidence on the gender wage gap hinges on estimates of the parameters of interest. Accordingly, their economic meaning may be limited by restrictive assumptions included in wage models. This challenges both researchers and policymakers who require precise measures of the gender wage gap in order to create and enforce efficient equality policies.

A class of spatial econometric methods in the empirical analysis of clusters of firms in the space

Abstract: In this paper we aim at identifying stylized facts in order to suggest adequate models for the co-agglomeration of industries in space. We describe a class of spatial statistical methods for the empirical analysis of spatial clusters. The main innovation of the paper consists in considering clustering for bivariate (rather than univariate) distributions. This allows uncovering co-agglomeration and repulsion phenomena between the different sectors. Furthermore we present empirical evidence on the pair-wise intra-sectoral spatial distribution of patents in Italy in 1990s. We identify some distinctive joint patterns of location between different sectors and we propose some possible economic interpretations.

Choice and success of job search methods

Abstract: Job seekers can influence the arrival rate of job offers by the choice of search effort and the search methods they use. In this paper we empirically investigate the contribution of the use of different search methods on the outcome of search. We use unique data on the search behavior of job seekers sampled from the inflow into employment during the year 1997 in Austria, which matches survey information with administrative records. We analyze the quality of job matches in terms of wages and job durations for employed and unemployed workers. Our main finding is that the public employment service specializes in the support of low quality workers. For these workers it is equal in efficiency to the other search channels.

Cohort, age and time effects in alcohol consumption by Italian households: a double-hurdle approach

Abstract: This paper describes the life-cycle alcohol consumption patterns of Italian households by decomposing gender, cohort, age and time effects and estimates the importance of demographic characteristics using a double-hurdle model. The application is based on ISTAT households expenditure survey for the period 1997–2002 organized in cohorts. As expected, cohort and age effects are significant in both participation and consumptions. The significance of gender and geographic differences suggests important policy implications.

Trust and growth: A shaky relationship

Abstract: We conduct an extensive robustness analysis of the relationship between trust and growth by investigating a later time period and a bigger sample than in previous studies In addition to robustness tests that focus on model uncertainty, we systematize the investigation of outlier influence on the results by using the robust estimation technique Least Trimmed Squares We find that when outliers (especially China) are removed, the trust-growth relationship is no longer robust On average, the trust coefficient is half as large as in previous findings

A spatially filtered mixture of β-convergence regressions for EU regions, 1980–2002

Abstract: Assessing regional growth and convergence across Europe is a matter of primary relevance. Empirical models that do not account for structural heterogeneities and spatial effects may face serious misspecification problems. In this work, a mixture regression approach is applied to the β-convergence model, in order to produce an endogenous selection of regional growth patterns. A priori choices, such as North–South or centre-periphery divisions, are avoided. In addition to this, we deal with the spatial dependence existing in the data, applying a local filter to the data. The results indicate that spatial effects matter, and either absolute, conditional, or club convergence, if extended to the whole sample, might be restrictive assumptions. Excluding a small number of regions that behave as outliers, only a few regions show an appreciable rate of convergence. The majority of data show slow convergence, or no convergence at all. Furthermore, a dualistic phenomenon seems to be present inside some States, reinforcing the “diverging-convergence” paradox.

Spatial analysis of urban growth in Spain, 1900–2001

Abstract: The purpose of this paper is to improve the knowledge of the Spanish urban system. We study the evolution of population growth among the group of 722 municipalities included in the Spanish urban areas over the period 1900–2001. A spatial SUR model is estimated for Zipf’s law and shows the existence of two main phases: divergence (1900–1980) and convergence (1980–2001). Then, the cross-sectional distribution of urban population is characterized by means of nonparametric estimations of density functions and the growth process is modeled as a first-order stationary Markov chain. Spatial effects are finally introduced within the Markov chain framework using regional conditioning. This analysis shows a low interclass mobility, i.e., a high-persistence of urban municipalities to stay in their own class from one decade to another over the whole period, and the influence of the geographical environment on urban population dynamism.

A generalized method of moments estimator for a spatial model with moving average errors, with application to real estate prices

Abstract: This paper proposes a new GMM estimator for spatial regression models with moving average errors. Monte Carlo results are given which suggest that the GMM estimates are consistent and robust to non-normality, and the Bootstrap method is suggested as a way of testing the significance of the moving average parameter. The estimator is applied in a model of English real estate prices, in which the concepts of displaced demand and displaced supply are introduced to derive the spatial lag of prices, and the moving average error process represents spatially autocorrelated unmodelled variables.

Are subjective evaluations biased by social factors or connections? An econometric analysis of soccer referee decisions

Abstract: Many incentive contracts are based on subjective evaluations and contractual disputes depend on judges’ decisions. However, subjective evaluations raise risks of favouritism and distortions. Sport contests are a fruitful field for testing empirically theories of incentives. In this paper the behaviour of the referees in the Italian soccer (football) league (“Serie A”) is analyzed. Using data on injury (or extra) time subjectively assigned by the referee at the end of the match and controlling for factors which may influence it (players substitutions, yellow and red cards, penalty kicks, etc.), we show that referees are biased in favour of home team, in that injury time is significantly greater if home teams are losing. The refereeing bias increases greatly when there is no running track in the stadium and the crowd is close to the pitch. Following the 2006 “Serie A” scandal we test whether favouritism emerges towards teams suspected of connections with referees finding that these teams obtain favourable decisions. Social pressure by the crowd attending the match however appears to be the main cause of favouritism.

Non-linearity in the determinants of capital structure: evidence from UK firms

Abstract: We demonstrate that, by exploiting more fully the distribution of leverage, conditional quantile regression methods yield new insights into the choice of leverage ratio. For UK listed companies we find that not only is the estimated effect of the explanatory variables different at different quantiles of the distribution, but also that the effect of a variable changes sign between low leveraged and high leveraged firms.

PISA: What makes the difference?

Abstract: The huge difference in the level and variance of student performance in the 2000 PISA study between Finland and Germany motivates this paper. It analyses why Finnish students performed so much better by estimating educational production functions for both countries. The difference in the reading proficiency scores is assigned to different effects, using Oaxaca-Blinder and Juhn-Murphy-Pierce decomposition techniques. The analysis shows that German students have on average a more favorable background except for the lowest deciles, but experience much lower returns to these background characteristics in terms of test scores than Finnish students. The results imply that early streaming in Germany penalizes students in lower school types and leads to a greaterinequality of educational achievement. It remains unclear, however, if this can be attributed to the effect of school types per se or student background and innate ability that determine the allocation process of students into school types. Overall, the variation in test scores can be explained much better by the observable characteristics in Germany than in Finland.

Spatial shift-share analysis versus spatial filtering: an application to Spanish employment data

Abstract: The aim of this work is to analyse the influence of spatial effects in the evolution of regional employment, thus improving the explanation of the existing differences. With this aim, two non-parametric techniques are proposed: spatial shift-share analysis and spatial filtering. Spatial shift-share models based on previously defined spatial weights matrix allow the identification and estimation of the spatial effects. Furthermore, spatial filtering techniques can be used in order to remove the effects of spatial correlation, thus allowing the decomposition of the employment variation into two components, respectively related to the spatial and structural effects. The application of both techniques to the spatial analysis of regional employment in Spain leads to some interesting findings and shows the main advantages and limitations of each of the considered procedures, together with the quantification of their sensitivity with regard to the considered weights matrix.

Graphical causal models and VARs: an empirical assessment of the real business cycles hypothesis

Abstract: This paper assesses the empirical plausibility of the real business cycle view that shocks to real variables are the dominant sources of economic fluctuations and that monetary policy shocks play an insignificant role in determining the behavior of real variables I reconsider the vector autoregressive model of King et al (Am Econ Rev 81:819–840, 1991), but propose an alternative identification method, based on graphical causal models This method selects the contemporaneous causal structure using the information incorporated in the partial correlations among the residuals The residuals orthogonalization which follows and the study of the impulse response functions confirm the results of King et al (Am Econ Rev 81:819–840, 1991): permanent productivity shocks are not the dominant sources of aggregate fluctuations in US economy

R&D spillovers and firms’ performance in Italy

Abstract: Using a translog production function we estimate the impact of R&D spillovers on the output performance of Italian manufacturing firms over the period 1998-2003. Technological flows are measured through an asymmetric similarity index that takes also into account the geographical proximity of firms. Results show that R&D spillovers positively affect firms production and that geography matters in determining the role of the external technology. Moreover, we find that the effect of R&D spillovers is high in the Centre-South of Italy and that the stock of R&D spillovers is Morishima complement to the stock of R&D own-capital.

The impact of decentralization and inter-territorial interactions on Spanish health expenditure

Abstract: This paper examines the determinants of regional public health expenditure in a decentralised health system. Unlike previous studies we take into account possible policy and political interactions among authorities, as well as unobserved heterogeneity. Our emprirical contribution lies in running a spatial panel specification using a dataset of all Spanish region states on aggregated and disaggregated health expenditures (pharmaceuticals, inpatient and primary care). Results are consistent with some degree of interdependence between neighboring regions in spending decisions. Empirical evidence of long term efficiency effects of health care decentralisation, suggests that a specific spatial-institutional design might improve the health system efficiency as well as regional cohesion. Political and scale effects are consistent with theoretical predictions.

Wealth effects on money demand in the euro area

Abstract: We investigate the determinants of money demand (M3) in the euro area, considering that this variable remains an important co-determinant of monetary policy making by the European Central Bank. Regressing the real stock of M3 on real GDP, interest rates and wealth variables (real housing and stock prices) within an error-correction framework provides evidence of positive wealth effects on money demand in the long run. Correcting for this wealth effect, money demand in the euro area has grown almost exactly in line with the official reference value of 4 1/2% per annum.

Scale and efficiency measurement using a semiparametric stochastic frontier model: evidence from the U.S. commercial banks

Abstract: In this paper, we use the local maximum likelihood (LML) method proposed by Kumbhakar et al. (J Econom, 2007) to estimate stochastic cost frontier models for a sample of 3,691 U.S. commercial banks. This method relaxes several deficiencies in the econometric estimation of frontier functions. In particular, we relax the assumption that all banks share the same production technology and provide bank-specific measures of returns to scale and cost inefficiency. The LML method is applied to estimate the cost frontiers in which a truncated normal distribution is used to model technical inefficiency. This formulation allows the cost frontier, inefficiency effects and heteroskedasticity in both noise and inefficiency components to be quite flexible.

R&D spillovers and firms' performance in Italy Evidence from a flexible production function

Abstract: Using a translog production function we estimate the impact of R&D spillovers on the output performance of Italian manufacturing firms over the period 1998�2003. Technological flows are measured through an asymmetric similarity index that takes also into account the geographical proximity of firms.Results show that R&D spillovers positively affect firms production and that geography matters in determining the role of the external technology. Moreover, we find that the effect of R&D spillovers is high in the Centre-South of Italy and that the stock of R&D spillovers is Morishima complement to the stock of R&D own-capital.

Patents, R&D and lag effects: evidence from flexible methods for count panel data on manufacturing firms

Abstract: This paper investigates the relationship between patents and research and development expenditures using new longitudinal patent data at the firm level for the U.S. manufacturing sector from 1982 to 1992. The paper also develops a new class of count panel data models based on series expansion of the distribution of individual effects. Estimation results from various distributed lag and dynamic multiplicative panel count data models show that the contemporaneous relationship between patenting and R&D expenditures continues to be strong, accounting for over 60% of the total R&D elasticity. The lag effects are higher than have previously been found for the 1970s data.

Forecasting inflation with an uncertain output gap

Abstract: The output gap is a crucial concept in the monetary policy framework, indicating demand pressure that generates inflation. However, its definition and estimation raise a number of theoretical and empirical questions. This paper evaluates a series of univariate and multivariate methods for extracting the output gap in Norway, and compares their value added in predicting inflation. We find that models including the output gap have better predictive power than models based on alternative indicators, and they forecast significantly better than simple benchmark models. Furthermore multivariate measures of the output gap perform better than the univariate gaps.

Price convergence across regions in India

Abstract: The paper attempts to examine whether there is price convergence across various regions in India. Using panel unit root tests that are robust to cross-sectional dependence, it is found that relative price levels among various regions in India are mean-reverting. Further, we decompose each series into a set of common factors and idiosyncratic components. The decomposition enables us to test stationarity and estimate half-lives of the common factors and the idiosyncratic components separately. Both these components are found to be stationary. Idiosyncratic price shocks, however, are found to be more persistent as compared to the common factor. Results also indicate that transportation cost proxied by distance can explain a part of the variation in prices between two locations in India.

The behaviour of producer prices: evidence from French PPI micro data

Abstract: This paper provides some new empirical findings for how French producers set prices. We used the micro data that composes the producer and business-service price indices from 1994 to 2005. First we address how producer prices are collected. Then we present the main characteristics of how producers change their prices: they are modified infrequently and in small amounts. Also, a behavioural heterogeneity across sectors is observed. Business-service prices change less often than industrial producer prices. The data corroborates both time and state-dependent model predictions. Taylor contracts are not unusual, but a firm’s prices will also react to its economic situation. Nevertheless, the most relevant models, to explain producer price rigidity, are time-dependent. Tucker (1938)

The structure of income mobility: empirical evidence from five UE countries

Abstract: In this paper we use the European Community Household Panel (ECHP) to assess differences in the level and structure of income mobility in a selected sample of European countries. We adopt recent theoretical proposals for the decomposition of axiomatic and welfare measurements of mobility in exchange, structural and growth components. Decomposition exercises which take into account some type of division of the population and income sources are also performed. We find that cross-country income mobility comparisons largely depend on the type of indices used. The relative positions of the countries considered change when the analysis is based on ethical instead of objective measures of income mobility. Results also show that in most countries income growth has a very limited effect upon aggregate mobility, being the most important determinant the rerankings of individuals, with a little weight for inequality changes. Although some common results exist concerning the delimitation of groups experiencing the greatest income fluctuations, such as individuals belonging to single-parent households or young household heads, the intensity of these results varies greatly across countries.

Regional evidence on financial development, finance term structure and growth

Abstract: The finance-growth nexus is a classic source of debate among economists. This paper offers regional evidence on this issue in order to determine whether it can fit the data on a 147-year-old economic union, Italy. By means of this approach the pooling of developed and developing countries in the same sample can be avoided. Both cross-sectional and panel data estimates appear to show that more finance generates more growth. Endogeneity does not bias the results to a significant extent, and the finance-growth nexus is robust to spatial unobserved heterogeneity. Spatial correlation in the residuals is rejected by the data. Economic growth appears to be favoured more by short-term than by long-term credit.

On PPP, unit roots and panels

Abstract: In this paper we use a combination of time series unit root and cointegration analysis and the Bai and Ng (Econometrica 72:1127–1187, 2004) factor model approach to assess the purchasing power parity hypothesis for four real exchange rate panels. Our main findings are twofold: First, we find robust evidence for nonstationary common components in the real exchange rate panels and hence no evidence for PPP. Second, the presence of nonstationary common components is consistent with rejections of the unit root null hypothesis when applying a battery of first and second generation panel unit root tests, which are known to be adversely affected in the presence of common nonstationary components.

GMM estimation of a structural demand model for yogurt and the effects of the introduction of new brands

Abstract: The demand structure for yogurt is assumed to be properly described by a one level nested logit model that is applied to aggregate market data. Given the presence of endogenous regressors, suitably lagged endogenous variables (Arellano and Bover in J Econom 68:29–51, 1995; Blundell and Bond in J Econom 87:115–143, 1998) are proposed as instrumental variables. The validity of this set of instruments is discussed and price elasticities and marginal costs are recovered from the demand estimates. Total welfare gains associated to the introduction of two new brands by the same manufacturer are finally computed. Prices and profits decreased and total welfare increased.

Consumption, wealth and business cycles in Germany

Abstract: This paper studies the long-run relationship between consumption, asset wealth and income—the consumption–wealth ratio—based on German data from 1980 to 2003. We find that departures from this long-run relationship mainly predict adjustments in income. The German consumption–wealth ratio also contains considerable forecasting power for a range of business cycle indicators, including the unemployment rate. This finding is in contrast to earlier studies for some of the Anglo-Saxon economies that have shown that the consumption–wealth ratio reverts to its long-run mean mainly through subsequent adjustments in asset prices. While the German consumption wealth ratio contains little information about future changes in German asset prices, we report that the U.S. consumption–wealth ratio has considerable forecasting power for the German stock market. One explanation of these findings is that in Germany—due to structural differences in the financial and pension systems—the share of publicly traded equity in aggregate household wealth is much smaller than in the Anglo-Saxon countries. We discuss the implications of our results for the measurement of a potential wealth effect on consumption.