Showing papers in "Empirical Economics in 2012"

Asymmetric causality tests with an application

Abstract: This article argues that there are several logical reasons for the existence of asymmetric causal effects that need to be taken into account but usually are neglected in the literature. It suggests allowing for asymmetry in the causality testing by using the cumulative sums of positive and negative shocks. A bootstrap simulation approach with leverage adjustment is used to generate critical values that are robust to non-normality and time-varying volatility. An application to the efficient market hypothesis in the UAE is provided. The results show that the equity market is informationally efficient with regard to the oil shocks regardless if these shocks are positive or negative.

Mixed logit estimation of willingness to pay distributions: a comparison of models in preference and WTP space using data from a health-related choice experiment

Abstract: Different approaches to modelling the distribution of WTP are compared using stated preference data on Tanzanian Clinical Officers’ job choices and mixed logit models The standard approach of specifying the distributions of the coefficients and deriving WTP as the ratio of two coefficients (estimation in preference space) is compared to specifying the distributions for WTP directly at the estimation stage (estimation in WTP space) The models in preference space fit the data better than the corresponding models in WTP space although the difference between the best fitting models in the two estimation regimes is minimal Moreover, the willingness to pay estimates derived from the preference space models turn out to be very high for many of the job attributes The results suggest that sensitivity testing using a variety of model specifications, including estimation in WTP space, is recommended when using mixed logit models to estimate willingness to pay distributions

Markups in the Euro area and the US over the period 1981–2004: a comparison of 50 sectors

Abstract: This article provides estimates of price–marginal cost ratios or mark-ups for 50 sectors in eight Euro area countries and the US over the period 1981–2004. The estimates are obtained applying the methodology developed by Roger (J Polit Econ 103:316–330, 1995) on the EU KLEMS March 2007 database. Five stylized facts are derived. First, perfect competition can be rejected for almost all sectors in all countries; markup ratios are generally larger than 1. Second, average markups are heterogeneous across countries. Third, markups are heterogeneous across sectors, with services having higher markups on average than manufacturing. Fourth, services sectors generally have higher markups in the euro area than the US, whereas the pattern for manufacturing is the reverse. Fifth, there is no evidence that there is a broad range change in markups from the 1980s to the 1990s.

The role of the log transformation in forecasting economic variables

Abstract: For forecasting and economic analysis many variables are used in logarithms (logs). In time series analysis, this transformation is often considered to stabilize the variance of a series. We investigate under which conditions taking logs is beneficial for forecasting. Forecasts based on the original series are compared to forecasts based on logs. For a range of economic variables, substantial forecasting improvements from taking logs are found if the log transformation actually stabilizes the variance of the underlying series. Using logs can be damaging for the forecast precision if a stable variance is not achieved.

The duration of trade revisited. Continuous-time versus discrete-time hazards

Abstract: The recent literature on the duration of trade has predominantly analyzed the determinants of trade flow durations using Cox proportional hazards models. The purpose of this article is to show why it is inappropriate to analyze the duration of trade with continuous-time models such as the Cox model, and to propose alternative discrete-time models which are more suitable for estimation. In brief, the Cox model has three major drawbacks when applied to large trade data sets. First, it faces problems in the presence of many tied duration times, leading to biased coefficient estimates and standard errors. Second, it is difficult to properly control for unobserved heterogeneity, which can lead to parameter bias and bias in the estimated survivor function. Third, the Cox model imposes the restrictive and empirically questionable assumption of proportional hazards. In contrast, with discrete-time models there is no problem handling ties; unobserved heterogeneity can be controlled for without difficulty; and the restrictive proportional hazards assumption can easily be bypassed. By replicating an influential study by Besedes and Prusa (J Int Econ 70:339–358, 2006b), but employing discrete-time models as well as the original Cox model, we find empirical support for each of these arguments against the Cox model. Moreover, when comparing estimation results obtained from a Cox model and our preferred discrete-time specification, we find significant differences in both the predicted survivor functions and the estimated effects of explanatory variables on the hazard. In other words, the choice between models affects the economic conclusions that can be drawn.

Technical efficiency analysis correcting for biases from observed and unobserved variables: an application to a natural resource management project

Abstract: This article brings together the stochastic frontier framework with impact evaluation methodology to compare technical efficiency (TE) across treatment and control groups using cross-sectional data associated with the MARENA Program in Honduras. A matched group of beneficiaries and control farmers is determined using propensity score matching techniques to mitigate biases stemming from observed variables. In addition, possible self-selection arising from unobserved variables is addressed using a selectivity correction model for stochastic frontiers recently introduced by Greene (J Prod Anal 34:15–24, 2010). The results reveal that average TE is consistently higher for beneficiary farmers than the control group while the presence of selectivity bias cannot be rejected. TE ranges from 0.67 to 0.75 for beneficiaries and from 0.40 to 0.65 for the control depending on whether biases were controlled or not. The TE gap between beneficiaries and control farmers decreases by implementing the matching technique and the sample selection framework decreases this gap even further. The analysis also suggests that beneficiaries do not only exhibit higher TE but also higher frontier output.

The dynamics of entrepreneurship: hysteresis, business cycles and government policy

Abstract: This article estimates two unobserved components models to explore the macrodynamics of entrepreneurship in Spain and the USA. We ask whether entrepreneurship exhibits hysteresis, defined as a macrodynamic structure in which the cyclical component of entrepreneurship has persistent effects on the natural rate of entrepreneurship. We find evidence of hysteresis in Spain, but not the USA, while in Spain business cycle output variations significantly affect future rates of entrepreneurship. The article discusses implications of the findings for the design of entrepreneurship policies.

Global commodity cycles and linkages: a FAVAR approach

Abstract: In this article, we examine linkages across non-energy commodity price developments by means of a factor-augmented VAR model (FAVAR). From a set of non-energy commodity price series, we extract two factors, which we identify as common trends in metals and food prices. These factors are included in a FAVAR model together with selected macroeconomic variables, which have been associated with developments in commodity prices. Impulse response functions confirm that exchange rates and economic activity affect individual non-energy commodity prices, but we fail to find strong spillovers from oil to non-oil commodity prices or an impact of the interest rate. In addition, we find that individual commodity prices are affected by common trends captured by the food and metals factors.

International student migration to Germany

Abstract: The past decades have witnessed an impressive growth of international student mobility. This article presents first empirical evidence on international student migration to Germany, one of the most important destination countries for international students worldwide. While previous research in the field has mainly used data on international trade in educational services, I use a novel approach that analyzes student mobility as a form of migration, using data on international student migrants. An augmented gravity equation is the basis for the theoretical and empirical framework. I also provide extensive sensitivity checks of the empirical results and estimates using both the usual log-linearized and a multiplicative specification of the gravity equation, following recent work by Santos Silva and Tenreyro (Rev Econ Stat 88(4): 641–658, 2006). The results provide evidence for the importance of distance—a familiar result from the empirical migration literature. Unlike for international migration on the whole, the importance of disposable income in the home country does not seem to be too big for students, and student migrant flows from politically unfree countries are significantly lower.

Does domestic financial development enhance the linkages between foreign direct investment and economic growth

Abstract: The study examines the relationship between foreign direct investment (FDI), financial development, and economic growth in a panel of 95 developed and developing countries from 1983 to 2006. The study moves away from the traditional cross-sectional analysis, and focuses on more direct evidence of the channels via which FDI might help or retard economic growth. Using generalized method of moment (GMM) panel data analysis, we find strong evidence of a positive relationship between FDI inflows into a country and its economic performance. We also find evidence that domestic financial system is a significant prerequisite for FDI to have a positive effect on economic growth. Policy implications are clear. Effort should be made to reform and improve the development of domestic financial system in order to benefit more from the presence of FDI.

Does Growth Cause Structural Change, or Is it the Other Way Round? A Dynamic Panel Data Analysis for Seven OECD Countries

Abstract: In economic development, aggregate economic growth is accompanied by structural change among the three main sectors of an economy. Nevertheless, the question whether economic growth causes structural change, or changes in the economic structure cause aggregate growth is still unanswered. To shed more light on this question, this article examines a Granger causality test in a panel environment to determine the relationship of economic growth and structural change, measured either in terms of employment shares or real value added shares. Estimation and analysis of the annual data of seven OECD countries, covering the period from 1960–2004, show that although the causality appears to be heterogeneous among these countries, some general conclusions can be drawn. Aggregate economic growth decelerates structural change in the very short run but accelerates it with some lag in time. The aggregate effect depends on whether structural change is measured in terms of employment or in terms of real value added. Conversely, structural change supports aggregate economic growth, irrespective of which measure of structural change chosen.

Firms’ human capital, R&D and innovation: a study on French firms

Abstract: This article investigates the effects of human capital and technological capital on innovation While the role of technological capital as measured by research and development (R&D) expenditure has been intensively investigated, few studies have been made on the effect of employee training on innovation This article explores the relationship between innovation and firm employee training Our methodological approach contributes to the literature in three ways We propose various indicators of firm employee training We build a count data panel with a long time-data series to deal with the issue of firms’ heterogeneity We propose a dynamic analysis Using dynamic count data models on French industrial firms over the period 1986–1992, we find positive and significant effects of R&D intensity and training on patenting activity Whatever the indicators of training our results show that the firm employee training has a positive impact on technological innovation

Nowcasting Norwegian GDP: The Role of Asset Prices in a Small Open Economy

Abstract: This article finds that asset prices on Oslo Stock Exchange is the single most important block of data to improve estimates of current quarter GDP in Norway. We use an approximate dynamic factor model that is able to handle new information as it is released, thus the marginal impact on mean square nowcasting error can be studied for a large number of variables. We use a panel of 148 non-synchronous variables. The high informational content in asset prices is explained by reference to the small size of companies on Oslo Stock Exchange and the small and open nature of the Norwegian economy.

Estimating the long-run relationship between income inequality and economic development

Abstract: There are several theories describing the effect of income inequality on economic growth. These theories usually predict that there exists some optimal, steady-state growth path between inequality and development. This study uses a new measure of income distribution and panel data cointegration methods to test for the existence of such a steady-state equilibrium relation. It is shown that there is a long-run equilibrium relationship between the variables, and that this relationship is negative in developed economies.

A new targeting: a new take-up?

Abstract: We present first estimates of rates of non-take-up for social assistance in Germany after the implementation of major social policy reforms in 2005. The analysis is based on a microsimulation model, which includes a detailed description of the German social assistance programme. Our findings suggest a moderate decrease in non-take-up compared to estimates before the reform. In order to identify the determinants of claiming social assistance, we estimate a model of take-up behaviour which considers endogeneity of the benefit level. The estimations reveal that the degree of needs, measured as the social assistance benefit level a household is eligible for, and the expected duration of eligibility are the key determinants of the take-up decision, while costs of claiming seem to play a minor role.

Bank–firms topology in Italy

Abstract: An empirical analysis of the Italian system of banks and firms is carried out using the network theory. The emerging architecture of this economic network shows peculiar behaviors: (i) Multiple lending is very widespread; (ii) Small firms are preferentially financed by small banks; (iii) Large firms are financed by many banks; (iv) the ratio between loans and deposits is much higher for large banks than for small banks, while (v) strong size heterogeneity appears among co-financing banks, and (vi) the spanning-tree is very hierarchical.

Heterogeneity in health responses and anchoring vignettes

Abstract: In this article we employ the tool of anchoring vignettes to analyze gender differences in self-assessments of health in Europe. We propose and estimate an extension of the basic vignette model for correcting the lack of interpersonal comparability of self-assessments on a categorical scale. Our extension allows for potential correlation in the self-assessments of health on different domains by including an unobservable individual effect, common to all domains but different across individuals, in both the thresholds and the equations for the latent health problems. After applying this model to the SHARE data, we find that vignettes help narrow gender differences in self-assessments of health, although these differences are not entirely eliminated.

Estimation of a dynamic model of weight

Abstract: The ongoing debate about the economic causes of obesity has focused on the changing relative prices of diet and exercise. This paper uses a model that explicitly includes time and spatially varying community-level urbanicity and price measures as instruments to obtain estimates of the effects of diet, physical activity, drinking, and smoking on weight. The instruments control for bias due to unobservables that may be common determinants of weight and these explanatory variables. We apply a dynamic panel system GMM estimation model to longitudinal (1991–2006) data from China to model weight and find that among adult men in China, about 5.4% of weight gain was due to declines in physical activity and 2.8–3.1% was due to dietary changes over this period. Combined, changes in physical activity and diet only explain around 8% of the short run gain in weight and about 11% of the long-run gain in weight among Chinese men.

The ‘trendiness’ of sleep: an empirical investigation into the cyclical nature of sleep time

Abstract: Using Canadian time use data, we exploit variation in local unemployment rates to investigate the cyclical nature of sleep time and show that for both men and women, sleep time decreases when the economy is doing relatively better. Our results suggest that in a recession Canadians sleep an average of 3 h more per week, or 26 min more per day. Given the importance of even small changes in sleep time on measures of cognitive functioning such as reaction time and concentration, our findings may help explain the countercyclical nature of mortality. Further, as we find that sleep is affected by the same economic variables (notably the unemployment rate) that affect market work time, our results also contribute to the limited literature that shows that sleep time should not be treated as exogenously determined, but, like any other resource, determined by its relative cost.

Detecting discrimination in the hiring process: evidence from an Internet-based search channel

Abstract: This article uses data from an Internet-based CV database to study how job searchers’ ethnicity, employment status, age, and gender affect how often they are contacted by firms. Since we know which types of information that are available to the recruiting firms, we can handle some of the problems with unobserved heterogeneity better than many existing discrimination studies. We find that searchers who have non-Nordic names, are unemployed or old get significantly fewer firm contacts. Moreover, this matters for the hiring outcome: searchers who get more contacts have a higher probability of getting hired.

Benchmarking and firm heterogeneity: a latent class analysis for German electricity distribution companies

Abstract: In January 2009, the German Federal Network Agency introduced incentive regulation for the electricity distribution sector based on results obtained from econometric and nonparametric benchmarking analysis. One main problem for the regulator in assigning the relative efficiency scores is unobserved firm-specific factors such as network and technological differences. Comparing the efficiency of different firms usually assumes that they operate under the same production technology, thus unobserved factors might be inappropriately understood as inefficiency. To avoid this type of misspecification in regulatory practice, estimation is carried out in two stages: in the first stage observations are classified into two categories according to the size of the network operators. Then separate analyses are conducted for each subgroup. This article shows how to disentangle the heterogeneity from inefficiency in one step, using a latent class model for stochastic frontiers. As the classification is not based on a priori sample separation criteria it delivers more robust, statistically significant, and testable results. Against this background, we analyze the level of technical efficiency of different subgroups from a sample of 200 regional and local German electricity distribution companies for a balanced panel data set (2001–2005). Testing the hypothesis if larger distributors operate under a different technology than smaller ones, we assess if a single step latent class model provides new insights to the use of benchmarking approaches within the incentive regulation schemes.

Estimation of TFP growth: a semiparametric smooth coefficient approach

Abstract: This article uses a semiparametric smooth coefficient model (SPSCM) to estimate TFP growth and its components (scale and technical change). The SPSCM is derived from a nonparametric specification of the production technology represented by an input distance function (IDF), using a growth formulation. The functional coefficients of the SPSCM come naturally from the model and are fully flexible in the sense that no functional form of the underlying production technology is used to derive them. Another advantage of the SPSCM is that it can estimate bias (input and scale) in technical change in a fully flexible manner. We also used a translog IDF framework to estimate TFP growth components. A panel of U.S. electricity generating plants for the period 1986–1998 is used for this purpose. Comparing estimated TFP growth results from both parametric and semiparametric models against the Divisia TFP growth, we conclude that the SPSCM performs the best in tracking the temporal behavior of TFP growth.

Competition and price asymmetries in the Greek oil sector: an empirical analysis on gasoline market

Abstract: This article attempts to investigate the issue of asymmetries in the transmission of shocks to input prices and exchange rate onto the wholesale and retail price of gasoline respectively. For this purpose, we utilise the error-correction methodology in the Greek gasoline market. The sample consists of monthly data covering the period of January 1988 to June 2006. We also try to analyse by using impulse response functions the effect of competition on the dynamic adjustment of gasoline price to which has been paid scant attention in the past. The results favour the common perception that retail gasoline prices respond asymmetrically to cost increases and decreases both in the long and the short-run. At the wholesale segment, there is a symmetric response of the spot prices of gasoline towards the adjustment to the short-run responses of the exchange rate. Lastly, after the deregulation, wholesale prices of gasoline tend to gradually restore equilibrium triggered by a price shock compared to the regulated period.

Approximation and decomposition of Gini, Pietra–Ricci and Theil inequality measures

Abstract: Two related problems are dealt with in this article, concerning some popular inequality indices proposed by Gini, Pietra–Ricci and Theil: (1) the calculation of the index when only a frequency distribution is available, thus needing some kind of approximation; and (2) a reasonable decomposition of the index calculated for a mixture, with components related to ‘within’ and ‘between’ inequalities, and possibly to the separate contributions of each group to the overall inequality. Beside the proposals arising from the specific structure of each inequality index, a general approach for identifying the within component is utilized, which is based on the fixation of a given number of fictitious individuals (called aggregate units), common to every group. Regarding the Gini index, a general expression is obtained for the approximation problem, while the within inequality is more easily managed by the recourse to aggregate units. The decomposition of the Pietra–Ricci index displays three components, clearly ascribable to within inequality, to a mixture effect and to a mean effect. Regarding the Theil index, some simple and very accurate approximation formulae are obtained. An application of all the indices and their decompositions has been made for the 2004 income distribution for Italy (Bank of Italy Survey).

The Cost of Registering Property: Does Legal Origin Matter?

Abstract: There is a large literature that finds that common law countries perform better than civil law countries in various aspects of the institutional environment. The present paper extends these findings to the cost of registering property. In a sample of 121 countries, the authors find that the cost of registering property is lower by 22 percent of the world average in common law compared with civil law countries, a result largely driven by differences in non-notary costs of registering property. The authors also find that GDP per capita and presidential as opposed to parliamentary political system are highly correlated with lower registration costs. The authors provide plausible explanations for these findings.

Medical technology and the production of health care

Abstract: This article investigates the factors that determine differences across OECD countries in health outcomes, using data on life expectancy at age 65, over the period 1960 to 2007. We estimate a production function where life expectancy depends on health and social spending, lifestyle variables, and medical innovation. Our first set of regressions include a set of observed medical technologies by country. Our second set of regressions proxy technology using a spatial process. This article also tests whether in the long-run countries tend to achieve similar levels of health outcomes. Our results show that health spending has a significant and mild effect on health outcomes, even after controlling for medical innovation. However, its short-run adjustments do not seem to have an impact on health care productivity. Spatial spill overs in life expectancy are significant and point to the existence of interdependence across countries in technology adoption. Furthermore, nations with initial low levels of life expectancy tend to catch up with those with longer-lived populations.

Democracy, size of bureaucracy, and economic growth: evidence from Russian regions

Abstract: This article considers the impact of sub-national political systems on economic growth by applying the case of Russian regions from 2000 to 2004. It investigates two dimensions of the sub-national systems. First, it studies the influence of democracy on economic performance, providing evidence of a non-linear relationship between democracy and economic growth. Regions with high levels of democracy, as well as strong autocracies, perform better than hybrid regimes. Second, this article considers the influence of the size of the bureaucracy on economic outcomes and confirms the “grabbing hand” view on bureaucracy rather than the Weberian idea. Increasing the size of the bureaucracy is associated with a decline in economic performance. In addition, this article analyzes the potential interaction between these two characteristics of sub-national politics as factors of economic growth, but does not establish any robust results.

Causation between health and income: a need to panic

Abstract: This article tests whether health has improved income or income has improved health in OECD countries over the last 50 years. A theoretical framework for both directions of causation is first outlined. A panel time-series approach is then taken and, unlike similar work, common shocks across countries (‘cross-sectional dependence’) are taken into account in the analysis using the PANIC (Panel Analysis of Non-stationarity in Idiosyncratic and Common components) approach of Bai and Ng. It is found that better health improves income more generally while income in turn also affects health. This finding is shown to be robust to dynamic specification.

Convergence patterns in financial development: evidence from club convergence

Abstract: This article analyzes the degree of convergence of financial development for a panel of 50 countries. We apply the methodology of Phillips and Sul (Econometrica 75:1771–1855, 2007) to various indicators of financial development to assess the existence of convergence clubs. We consider ten alternative indicators of financial development that various researchers use to proxy for the degree of financial development in countries. Overall, the results do not support the hypothesis that all countries converge to a single equilibrium state in financial development. Nevertheless, strong evidence exists of club convergence. Countries demonstrate a high degree of convergence in the sense that in the majority of financial indexes they form only two or three convergence clubs, depending on the measure of financial development used. We also apply the Phillips and Sul method to two real variables, per capita output and fixed capital investment to GDP, and find strong evidence of five and four distinct convergence clubs, respectively. Finally, we compare the various convergence clubs associated with financial development indicators to those clubs for per capita output and fixed capital investment to GDP. We conclude that strong evidence supports the correspondence between the convergence clubs for financial development and those two real variables.

Convergence in income inequality? evidence from panel unit root tests with structural breaks

Abstract: This paper empirically tests whether there is evidence of convergence in income inequality, as predicted by several versions of the neoclassical growth model, using a large panel of annual data for the 48 contiguous states in the US over the 1916–2005 period. By implementing the panel LM unit root test developed by Im et al. (Oxford Bull Econ Stat 67:393–419, 2005, Panel LM unit-root tests with trend shifts, Mimeo, 2010) that allows for the presence of structural breaks and heterogeneity in the panel, we find overwhelming evidence in support of convergence in income inequality. In addition, the results are robust to alternative inequality indicators used, different notions of stochastic convergence defined, and additional cross-sectional correlation considered.