Showing papers in "International Review of Applied Economics in 2015"
TL;DR: The authors investigated the association between board size and firm valuation for a sample of 169 firms from 2002 to 2011 in South Africa and found that board size has a positive association with firm valuation, consistent with larger boards providing better access to resources.
Abstract: We investigate the association between board size and firm valuation for a sample of 169 firms from 2002 to 2011 in South Africa (SA). The SA corporate context is interestingly and uniquely characterised by greater urgency to meet affirmative action regulations, such as black empowerment in board appointments, limited qualified and experienced directors, especially black directors, concentrated ownership, weak enforcement of corporate regulations and greater government ownership. These features make SA corporate boards perform a weaker agency (advisory, monitoring and disciplining) role than Western European and US boards, but a stronger resource dependence role, by providing access to resources, such as business contacts and contracts. This suggests that any positive impact of board size on firm valuation is likely to depend on the effective execution of the resource dependence role than the agency role. Our results suggest that board size has a positive association with firm valuation, consistent with larger boards providing better access to resources. Overall, our results support the resource dependence role of boards than their agency role. The results are robust across a raft of econometric models that control for different types of endogeneity, as well as different types of accounting and market-based firm valuation measures.
72 citations
TL;DR: In this article, the authors locate the structural problem in pan-European financial integration, which they locate in the economic ideology guiding the EMU: NAIRU economics, and zoom in on the reasons why NAIRu-based monetary policy deepened the already existing structural heterogeneity in the Eurozone, locking the Southern-European economies up in low and medium-technology activities often in direct competition with China.
Abstract: Intra-Eurozone current-account imbalances (and divergent external debt positions) cannot be attributed to the deterioration of cost (or price) competitiveness in Europe’s periphery vis-a-vis its core. Imbalances were driven by high domestic demand growth in the periphery, which was financed by capital flows from the core. The external finance – following capitalist logic – ended up in non-traded medium-low-tech activities (e.g. construction). This points to a structural problem in pan-European financial integration – which we locate in the economic ideology guiding the EMU: NAIRU economics. We zoom in on the reasons why NAIRU-based monetary policy deepened the already existing structural heterogeneity in the Eurozone, locking the Southern-European economies up in low- and medium-technology activities often in direct competition with China. The only way out is a rethink of Eurozone macroeconomic and industrial policies which – going beyond often-made calls for broad-based fiscal stimulus or a clearing arra...
43 citations
TL;DR: This article examined the relationship between crude oil prices, US dollar exchange rates and 30 selected international agricultural prices and five international fertilizer prices in a panel framework using panel VAR methods and Granger causality tests on panel data sets of agricultural commodity prices.
Abstract: This study examines the relationship between crude oil prices, US dollar exchange rates and 30 selected international agricultural prices and five international fertilizer prices in a panel framework The study uses panel VAR methods and Granger causality tests on panel data sets of agricultural commodity prices (as well as specific agricultural commodity sub-groups) and fertilizer prices with monthly observations of the period from June 1983 to June 2013 The empirical results of the present study indicate that crude oil prices as well as US dollar exchange rates affect international agricultural commodity and fertilizer prices Furthermore, contrary to the findings of several studies in the literature, the present study supports bidirectional panel causality effects between crude oil prices and international agricultural prices as well as between US exchange rates and international agricultural prices
38 citations
TL;DR: In this paper, the authors investigated the impact of government spending on output and the size of the multiplier during periods of output contraction vs. expansion using a panel of 21 advanced countries over the period of 1979-2011.
Abstract: This paper investigates the impact of government spending on output and the size of the spending multiplier during periods of output contraction vs. expansion. It also investigates the impact of spending when the economy hits the nominal zero lower bound. It uses a panel of 21 advanced countries over the period of 1979-2011, applying a TSLS estimation technique. We find a spending multiplier of close to 1 during expansion and values of up to 3 during contractions. However, our results do not indicate a difference in the impact of spending during nominal zero lower bound periods.
37 citations
TL;DR: This article conducted an empirical investigation into the relationship between stock prices and exchange rates for the two largest economies in Sub-Saharan Africa (South Africa and Nigeria) and found that international stock markets are driving both the Nigerian and South African stock markets.
Abstract: The relationship between stock prices and exchange rates has continued to generate interest from both the academia and financial industry players for many years. This study conducts an empirical investigation into the relationship between stock prices and exchange rates for the two largest economies in Sub-Saharan Africa – South Africa and Nigeria. Our methodology accounts for structural breaks in the data and the long-run relationship between stock and foreign exchange markets. The results of multivariate causality tests with structural breaks showed that causality runs from exchange rates to domestic stock prices in Nigeria (flow channel) while in South Africa, no causality exists between domestic stock prices and exchange rates. The results also reveal that there is causality from the London stock market to both countries’ stock markets, thus showing that international stock markets are driving both the Nigerian and South African stock markets.
28 citations
TL;DR: In this article, the authors developed a benchmark stock-flow consistent model that links functional with personal income distribution, which consists of various household groups that receive income from different sources or from the same sources in different proportions.
Abstract: This paper develops a benchmark stock-flow consistent model that links functional with personal income distribution. The model consists of various household groups that receive income from different sources or from the same sources in different proportions. The dynamic linkage between functional and personal income distribution is formulated as part of a complete macroeconomic system. Inequality decomposition techniques are employed to associate income sources with personal income distribution. Simulation exercises are conducted to reveal the various ways through which functional and personal income distribution interact. In the simulations, a rise in the exogenous component of low-skilled workers’ wage share reduces inequality in the short run; in the medium to long run inequality starts increasing due to certain macroeconomic developments, but remains lower than its initial level in almost all cases. A change in functional income distribution due to a rise in the dividend payout ratio of firms increases...
26 citations
TL;DR: In a field experiment investigating age discrimination, pairs of men, aged 27 and 47, inquired about employment as waiters in towns across England, France, Germany and Spain this paper.
Abstract: In a field experiment investigating age discrimination, pairs of men, aged 27 and 47, inquired about employment as waiters in towns across England, France, Germany and Spain. Statistically significant discrimination against the older waiter was found in all four countries, but it was considerably higher in France and Spain than in England and Germany.
24 citations
TL;DR: This paper examined the link between financial openness and financial development through panel data analysis on advanced and emerging market countries and showed that financial openness together with institutional and educational variables explains a large part of the variation in financial development across countries and over time.
Abstract: This paper examines the link between financial openness and financial development through panel data analysis on advanced and emerging market countries. Using indices, financial openness together with institutional and educational variables explains a large part of the variation in financial development across countries and over time. Our analysis demonstrates that different indexing strategies serve to find better measures for financial openness and financial development in comparison with the individual indicators used in the literature. Our principal-component-type financial openness index conveys a positive effect on financial development independent from the lag structure or specifications used.
22 citations
TL;DR: In this paper, the relationship between the functional distribution of income, aggregate demand and growth in the Chinese reform economy is analyzed, and it is argued that Chinese growth has been profit-driven.
Abstract: This paper seeks to analyse the relationship between the functional distribution of income, aggregate demand and growth in the Chinese reform economy. For this purpose, the Bhaduri-Marglin Model is used to indicate the theoretical possibility of both profit-led and wage-led growth regimes. Previously, the principal literature on the evolution of factor shares in China was reviewed. The statistical series for the period 1978–2007 are reconstructed to carry out our analysis of the relations between capital share and investment, on one hand, and labour share and consumption, on the other. Supported by empirical analysis and the model estimations, it is argued that Chinese growth has been profit-driven. Finally, the implications are presented concerning Chinese economic prospects.
21 citations
TL;DR: In this article, the authors studied the correlation of agricultural prices with stock market dynamics and discussed the possible role of financial and macroeconomic factors in driving this time-varying relation, with the aim of understanding what caused positive correlation between agricultural commodities and stocks.
Abstract: This article studies the correlation of agricultural prices with stock market dynamics. We discuss the possible role of financial and macroeconomic factors in driving this time-varying relation, with the aim of understanding what caused positive correlation between agricultural commodities and stocks in recent years. While previous works on commodity-equity correlation have focused on broad commodity indices, we study 16 agricultural prices, in order to assess patterns that are specific to agricultural commodities but also differences across markets. We show that an explanation based on a combination of financialization and financial crisis is consistent with the empirical evidence in most markets, while global demand factors don’t appear to play a significant role. The correlation between agricultural prices and stock market returns tends to increase during periods of financial turmoil. The impact of financial turmoil on the correlation gets stronger as the share of financial investors in agricultural de...
20 citations
TL;DR: In this paper, the Consejo Nacional de Investigaciones Cientificas y Tecnicas (CICTE) and the University of General Sarmiento (UniGSA) of Argentina presented a study of the effects of the use of DNA sequencing.
Abstract: Fil: Maurizio, Roxana del Lujan Consejo Nacional de Investigaciones Cientificas y Tecnicas; Argentina Universidad Nacional de General Sarmiento; Argentina
TL;DR: This paper applied a modified Heckman selection model to Indian National Sample Survey data on informal manufacturing enterprises (2005-2006) and found that home-based, relatively asset-poor, and female-owned firms are more likely to be in a subcontracting relationship.
Abstract: There are two divergent perspectives on the impact of subcontracting on firms in the informal sector. According to the benign view, formal sector firms prefer linkages with relatively modern firms in the informal sector, and subcontracting enables capital accumulation and technological improvement in the latter. According to the exploitation view, formal sector firms extract surplus from stagnant, asset-poor informal sector firms that use cheap family labour in home-based production. However, direct, firm-level evidence on the determinants and impact of subcontracting is thus far lacking in the literature. We apply a modified Heckman selection model to Indian National Sample Survey data on informal manufacturing enterprises (2005–2006). We find that home-based, relatively asset-poor, and female-owned firms are more likely to be in a subcontracting relationship. Further, we perform selectivity-corrected Oaxaca-Blinder Decomposition and calculate treatment effects to show that subcontracting benefits smalle...
TL;DR: In this article, the authors combine a data-set of Italian firms with some meso regional and sectoral variables and apply a cross-classified model that allows for a clear distinction between firm, region-specific and sector-specific effects.
Abstract: Sectoral and territorial specificities affect a firm’s capabilities of being productive. While there is a wide consensus on this, a quantitative measure of these effects has been lacking. To this end, we combine a data-set of Italian firms with some meso regional and sectoral variables and apply a cross-classified model that allows for a clear distinction between firm, region-specific and sector-specific effects. After observing a marked TFP heterogeneity across firms, the paper addresses the issue of understanding how much differences in firms’ productivity depend on regional localisation and sector specificities. Results refer to 2004–2006 and have three aspects. First, they confirm that the main source of firm variety is mostly due to differences revealed at individual level. Secondly, we find that the sector is more important than location in explaining firms’ TFP. Lastly, the results show that firm TFP increases when it belongs to more innovative sectors. Similarly, companies get benefits from belong...
TL;DR: In this article, the authors compare the stock and housing wealth effects on consumption and find evidence that the stock market wealth effect is generally larger than the housing wealth effect, with stronger and more persistent effects from positive asset wealth shocks.
Abstract: We provide new evidence on the comparison between the stock and housing wealth effects on consumption. Using a panel VAR approach applied to OECD data, we find evidence that the stock market wealth effect is generally the larger. However, with regard to the evolution of asset wealth effects over time, our findings show that the housing wealth effect has outweighed the share market wealth effect in the last decade. We further find that asset wealth has asymmetric effects on consumption, with stronger and more persistent effects from positive asset wealth shocks. Our results have important monetary policy implications for both stock and real estate markets, and offer timely insights into the desirability of current proposals to reduce house price volatility, such as through macro prudential regulations.
TL;DR: In this article, a positive and significant connection was found between top income shares and the profit share, with the main reason for the stagnation of labor earnings derives from a clear shift in national income away from labor towards capital.
Abstract: The last 40 years has seen slow growing earnings and income for the middle class, as well as rising overall inequality. In contrast, the early postwar period witnessed rapid gains in wages and family income for the middle class and a moderate fall in inequality. The ‘booming’ 1990s and the first decade of the 2000s did not bring much relief to the middle class, with median income growing by only 2% (in total) between 1989 and 2012. The stagnation of middle class living standards since 1973 or so is attributable to the slow growth in earnings. While average earnings almost doubled between 1947 and 1973, it advanced by only 22% from 1973 to 2012. The main reason for the stagnation of labor earnings derives from a clear shift in national income away from labor towards capital, with overall profitability rising either back to previous postwar highs or to new highs by 2012. Based on regression analysis, a positive and significant connection is found between top income shares and the profit share. The unionizat...
TL;DR: The authors show that US net fiscal transfers, measured as the difference between gross federal revenues and federal expenditures per state, are enormous and run panel regressions that suggest their dependence on relative GDP and relative GDP growth during crisis periods.
Abstract: Net fiscal transfers are commonly seen as a possible means to ensure the well-functioning of a currency area. We show that US net fiscal transfers, measured as the difference between gross federal revenues and federal expenditures per state, are enormous. Moreover, we run panel regressions that suggest their dependence on relative GDP and relative GDP growth during crisis periods, evidence of net fiscal transfers from relatively rich to relatively poor states (redistributive effect) and to states with an underperforming economic development (stabilization effect). The Euro-zone (EZ) lacks a system of fiscal federalism, which raises the question of whether it should be established in the medium- and long-run. If so, which should be the magnitude of net fiscal transfers? We calculate these transfers hypothetically for 1999–2010, using a relative volume comparable to the one in the USA.
TL;DR: In this article, the authors investigated the dynamic relationship among income distribution, debt ratio and capital accumulation in the Brazilian economy in the 1990s and 2000s, and concluded that the Brazil economy since the economic opening presents a debt-burdened pattern of capital accumulation.
Abstract: This paper investigates the dynamic relationships among income distribution, debt ratio and capital accumulation in the Brazilian economy in the 1990s and 2000s. One explanation for the relatively slow growth of the Brazilian economy is the relatively low rate of investment. The paper presents an econometric model, based on Nishi, to investigate the causes of instability in investment in the period. It concludes that the Brazilian economy since the economic opening presents a debt-burdened pattern of capital accumulation.
TL;DR: In this paper, the authors investigated the relationship between domestic investment and foreign aid and found that foreign aid enhances domestic investment in the presence of a stable political climate, but there is a diminishing return to aid.
Abstract: While past studies had conflicting conclusions regarding the impact of foreign aid on growth and development of a nation, recent studies have tried to delve deeper into the question, ‘what makes aid work?’ This paper tests how political stability (vis-a-vis political instability) affects the relationship between domestic investment and foreign aid. Applying dynamic panel estimators, our results show that political stability affects aid’s effectiveness on domestic capital formation. The paper considers alternative measures of political stability (vis-a-vis instability), focusing on the political characteristics of a system that have the potential to make a nation stable. Political stability affects policy selection by the government positively and, thus, public resources like foreign aid are put to the desired use. The estimated marginal impacts show that foreign aid enhances domestic investment in the presence of a stable political climate, but there is a diminishing return to aid.
TL;DR: This article examined the effectiveness of the Canadian tax incentive system for charitable giving while attempting to deal with two persistent methodological problems in past research and found that the effect of the tax credit systematically increases with an increase in donation expenditure suggesting that the higher tax credit for larger donations is more effective than the lower tax incentive for smaller donations.
Abstract: This research examines the effectiveness of the Canadian tax incentive system for charitable giving while attempting to deal with two persistent methodological problems in past research. The Heckman selection model and the ordered probit model are used to examine the Canadian tax incentive system with 2010 survey data. The results imply that the effect of the tax credit systematically increases with an increase in donation expenditure suggesting that the higher tax credit for larger donations is more effective than the lower tax credit for smaller donations. While the results suggest that the current tax policy is effective, socio-economic characteristics, such as wealth, household income, and university education, appear to have a greater impact on donations.
TL;DR: In this article, the effectiveness of the Federal Reserve's policy under different levels of transparency was examined empirically by using a dynamic and continuous market-based index proposed by Kia (2011) on inflation volatility and output volatility.
Abstract: This paper examines empirically the effectiveness of the Federal Reserve’s policy under different levels of transparency by using a dynamic and continuous market-based index proposed by Kia (2011) on inflation volatility and output volatility. In theory, the more transparent the monetary policy, the less volatile the money market will be with fewer disturbances and thus the more stable will be the economy. First, a bivariate VAR-BEKK-GARCH(1,1) model is estimated for inflation and output variables in the US economy in order to produce conditional variances and covariance over the period October 1982 to December 2011. Second, by incorporating conditional variances and transparency in a VAR model, impulse response functions reveal that after a positive shock in the Federal Reserve’s transparency (i.e. market participants consider the Federal Reserve’s actions to be more transparent), there is a statistically significant decrease in both inflation volatility and output volatility. Our results reveal the dyna...
TL;DR: In this paper, the authors provide empirical evidence on the relative price effects of a notional shift in total productivity using data from ten Symmetric Input-Output Tables of five European economies.
Abstract: This paper provides empirical evidence on the relative price effects of a notional shift in total productivity using data from ten Symmetric Input–Output Tables of five European economies. The results suggest that the direction of the price-movements is, more often than not, governed by the (traditional) labour cost condition and this could be connected to the effective ranks of the matrices of the relative shares of the capital goods.
TL;DR: In this article, it is argued that the reasons that explain the long Italian decline, and partly also the deeper recession today, as well as the lack of recovery from the current crisis, can be found in the past reforms of the labour market.
Abstract: The objective of this paper is to show that the current global economic crisis, into which Italy also fell in 2008, represents just the last step of a long declining path for the Italian economy which began in the 1990s, or to be more precise in 1992 and 1993. It is argued that the reasons that explain the long Italian decline, and partly also the deeper recession today, as well as the lack of recovery from the current crisis, can be found in the past reforms of the labour market. In particular, the labour flexibility introduced in the last 15 years had, along with other policies introduced in parallel, cumulative negative consequences on the inequality, on the consumption, on the aggregate demand, on the labour productivity and on the GDP dynamics.
TL;DR: In this paper, the authors investigated the Feldstein-Horioka coefficients and evaluated the degree of international capital mobility for ten newly industrialized countries (NICs) over the different sub-periods from 1970 to 2010.
Abstract: This paper investigates the Feldstein-Horioka coefficients and evaluates the degree of international capital mobility for ten newly industrialized countries (NICs) over the different sub-periods from 1970 to 2010. By applying the Pedroni and Westerlund cointegration tests, we find that saving and investment are indeed cointegrated. The estimated FH coefficients using FMOLS and DOLS are 0.24 and 0.33, respectively, for the period 1970–1980. Furthermore, the estimated FH coefficients reduce from 0.80 (FMOLS) in 1991–2000 to 0.36 (FMOLS) in 1970–1980. The small FH coefficients suggest that international capital mobility increased in the NICs during the sub-periods 1970–1980 and 2001–2010.
TL;DR: The authors investigates the impact on exchange rate determination of two recent changes in developing and emerging countries' financial integration: first, the rising volume and heterogeneity of short-term portfolio flows; second, foreign investors' increased exposure to domestic rather than foreign currency assets.
Abstract: This paper investigates the impact on exchange rate determination of two recent changes in developing and emerging countries’ financial integration: first, the rising volume and heterogeneity of short-term portfolio flows; second, foreign investors’ increased exposure to domestic rather than foreign currency assets. In its analysis of Brazil, the paper shows that both changes have potentially destabilizing implications for the exchange rate and may create the risk of self-feeding bubble dynamics leading to large and sudden swings in exchange rates. The results have important implications for the regulation of international capital movements and choice of exchange rate regime.
TL;DR: The authors used a time-varying parameter model that better captures the effects of the heterogeneity in different exchange rate regimes and capital mobility restrictions on monetary policy independence over time, allowing a more accurate test of the macroeconomic trilemma.
Abstract: This paper tests the autonomy of domestic monetary policy in the context of the macroeconomic policy trilemma for a large data-set of developing and developed countries covering three different time periods characterized with different exchange rate regimes and capital controls. The existing literature uses fixed coefficient methodologies to examine monetary policy independence; whereas we show that the coefficients of interest are unstable as countries switch between different exchange rate regimes and/or capital controls over time. The contribution is in using a time-varying parameter model that better captures the effects of the heterogeneity in different exchange rate regimes and capital mobility restrictions on monetary policy independence over time, allowing a more accurate test of the macroeconomic trilemma.
TL;DR: In this paper, the authors studied the operation of the real exchange rate's profitability channel in the manufacturing sector of Mexico and found that the positive effect of the RER on investment, observed in previous studies that omitted the profit margin, reflects indirectly the positive link of RER with the profit margins, supporting the existence of a profitability channel.
Abstract: The paper estimates different versions of an equation for private investment in Mexico during the post-liberalization period 1988–2013, with the aim of studying the operation of the recently discussed real exchange rate’s profitability channel. During this period, the real exchange rate (RER) was broadly positively correlated with the Mexican price/wage ratio and the Mexican/US relative profit margin in the manufacturing sector, particularly so when the RER experienced large fluctuations, before the end of disinflation in the early 2000s. In the estimations, the effect of the profit margin appears to be ‘deeper’, wiping out the effect of the RER when the two variables are included together in the investment equation. From this, the paper argues that the positive effect of the RER on investment, observed in previous studies that omitted the profit margin, reflects indirectly the positive link of the RER with the profit margin, supporting the existence of a profitability channel in Mexico.
TL;DR: In this article, the ability of a demand-driven search model with self-fulfilling expectations to match the behavior of the US economy over the last 30 years was investigated.
Abstract: In this paper, we implement Bayesian econometric techniques to analyze a theoretical framework built along the lines of Farmer’s micro-foundation of the General Theory. Specifically, we test the ability of a demand-driven search model with self-fulfilling expectations to match the behaviour of the US economy over the last 30 years. The main findings of our empirical investigation are the following. First, all over the period, our model fits data very well. Second, demand shocks are the most relevant in explaining the variability of concerned variables. In addition, our estimates reveal that a large negative demand shock caused the Great Recession via a sudden drop of confidence. Overall, those results are consistent with the main features of the New `Farmerian’ Economics as well as to latest demand-side explanations of the finance-induced recession.
TL;DR: A review article on Thomas Piketty's "Capital in the twenty-first century" as mentioned in this paper opens with a discussion of the trends in income and wealth inequality reported by the author and his co-workers and concludes that an excess of savings out of return on wealth over the rate of output growth is unsustainable.
Abstract: This review article on Thomas Piketty’s ‘Capital in the twenty-first century’ opens with a discussion of the trends in income and wealth inequality reported by Piketty and his co-workers. The significance of the rising trends of inequality after 1980 in contrast to the pre-1980 trends is elaborated. It is noted that rising inequality has been accompanied by slower growth. Piketty identifies the relationship between the rate of return on wealth and the rate of growth as a major issue. It is argued here that an excess of savings out of return on wealth over the rate of output growth is unsustainable. It may lead, following Piketty, to rising wealth inequality, but we argue the difference would be deflationary and cause high levels of unemployment. While Piketty favours high income and wealth taxation to address that difference (from which we do not differ), there are additional ways such as enhanced worker power, corporation tax on a coordinated basis to reduce tax competition.
TL;DR: This article examined the arguments and assertions of Baran's and Sweezy's Monopoly Capital: An Essay on the American Economic and Social Order (1966) by assessing the degree of economic efficiency or inefficiency in how surplus value and economic surplus were created by 16 major capitalist economies during the 2000s using data envelopment analysis (DEA).
Abstract: This paper examines the arguments and assertions of Baran’s and Sweezy’s Monopoly Capital: An Essay on the American Economic and Social Order (1966) by assessing the degree of economic efficiency or inefficiency in how surplus value and economic surplus were created by 16 major capitalist economies during the 2000s using data envelopment analysis (DEA). After assigning a score to the degree of economic efficiency/inefficiency for each country, one can then assess which factors influence the degree of efficiency/inefficiency. This paper finds empirical support for many of the arguments put forth by the authors, Baran and Sweezy, as well as others regarding the inefficiency of the use of some forms of economic activity to help absorb economic surplus and to create surplus value.
TL;DR: In this article, the evolution of gross and net income differences in Germany is analyzed and compared with the developments in other countries, showing that top incomes and top income shares in Germany have increased in the recent past.
Abstract: During the few last years, several studies have revealed that income differences have increased in a number of OECD countries. While most of the corresponding empirical analyses have focused on general trends and poverty in the past, this paper emphasizes the highest income groups. A strong increase in top income shares has recently been well documented for several English-speaking countries, especially for the United States. The present paper is mainly concerned with the developments in Germany in the past years. Using a mixture of different data, the evolution of gross and net income differences is analysed and compared with the developments in other countries. It is shown that top incomes and top income shares in Germany have increased in the recent past. Finally, some possible explanations for these developments are discussed.