Showing papers in "Modern Economy in 2012"

Bank Non-Performing Loans (NPLS): A Dynamic Model and Analysis in China

Abstract: In this paper we report on a utility function (loss function) and model that we designed by using optimal control theory based on previous studies. we found that: (1) the Hamiltonian multiplier of the bank NPLs growth rate in the model was obtained using the negative derivitive of the utility (defined as loan function minus non-performing loan function) with respect to the NPLs multiplied by a factor which expresses the rate of change in NPLs over time with respect to the NPLs, the formula is λN=(1/δ)(-vmNm-1)=(1/δ)U'; (2) the model determines the equilibrium value of the saddle point of the bank NPLs; (3) the model can explain the NPLS phenomenon in the Chinese banking system as mainly significant in the state owned banks (SOBS); (4) The paper supports the following hypothesis by considering the situation in China: the equilibrium value of the bank NPLs is dependent on micro-economic factors but influenced by macro-economic factors.

Co-movements of Oil, Gold, the U.S. Dollar, and Stocks

Abstract: This paper examines the comovements of several macro-variables in the world economy over a period of more than twenty years. Long-term co movements are examined by tracking the cointegration, common trend factor and the spiller index over these variables (gold price, stock price, real exchange rate for dollar and the oil price of crude oil). Preminary examination suggests the possibility of cointegration among these variables indicating comovements, although the spillover indices are found to be very small.

Financial Intermediation and Economic Growth in Saudi Arabia: An Empirical Analysis, 1968-2010

Abstract: Long-term sustainable economic growth is manifested in high rates of physical and human capital accumulation It de- pends on the ability of the economy to mobilize financial resources, and to ensure access by people to these productive assets, which should be invested more efficiently This process summarizes the role that financial institutions have played in financial intermediation and growth, namely to mobilize savings and allocate them to the most productive and growth-promoting activities The core argument is that greater financial intermediation gives rise to higher productivity and thus higher national and/or per capita income This paper examined the empirical relationship between economic growth and financial intermediation for Saudi Arabia during the last four decades (1968-2010) To this end, we adopt the autoregressive distributed lag (ARDL) methods to cointegration and the associated error correction model (ECM) Despite the minimal restrictions imposed on the functioning of the domestic financial system with a view to “fighting terrorism”, the results overwhelmingly indicate that financial intermediation has impacted negatively on long-run real GDP These findings are attributed to two sets of factors relating to the dominance of economic activities by the public sector and the characteristics of the institutional environment surrounding the private sector, as well as to some func- tional and structural characteristics of the financial system that have impeded its development

Relationship between Trading Volume and Asymmetric Volatility in the Korean Stock Market

Abstract: We investigated the relationship between return volatility and trading volume as a proxy for the arrival of information to the market, based on Korean stock market (KSM) data from January 2000 to December 2010. We measured the rela- tionship between return volatility and trading volume using the GJR-GARCH and exponential GARCH (EGARCH) models. We found a positive relationship between trading volume and volatility, suggesting that trading volume influ- ences the flow of information to the market. This finding supports the validity of the mixture of distributions hy-pothesis. Considering that trading volume can also explain volatility asymmetry, we conclude that trading volume is a useful tool for predicting the volatility dynamics of the KSM.

Affects of Female Directors on Firms Performance in Pakistan

Abstract: This study examined relationship between board gender diversity and its effect on firm performance, based on evidence from the Pakistan. We use empirical data on KSE 100 Index firms observed in 2008 to 2010. Twenty Five percent (25%) of the sample firms have at least one woman in the boardroom and only 3.33% of the CEOs are female. In order to investigate the rapport of gender diversity in board on firm performance, two-stage least-squares estimation used, using Economic Valued Added (EVA) as performance measurement technique. Our results indicate that there is no significant relationship between board gender diversity on firm performance in Pakistan. This implies that the business case for board gender diversity is not supported for this particular sample.

Adapting Risk Management for Profit and Loss Sharing Financing of Islamic Banks

Abstract: The low level of participation of the Islamic banks in profit and loss sharing (mudharabah and musharakah) financing models has become one of the problems in the development of the industry. These arrangements are unique to Islamic banking and account for its superiority over conventional banking on grounds of ethics and efficiency, but the majority of Islamic banks have limited themselves to less risky trade-financing assets, that tend to be a shorter maturity. This paper intends to analyzes why Islamic banks are reluctant to indulge in mudharabah and musharakah financing. Finally, it explores the risk management concept that might solve the problems.

The Effect of R&D Investment on Firms' Financial Performance: Evidence from the Chinese Listed IT Firms

Abstract: Technological innovation by R&D is at the core of business strategy for firms to compete in the competitive market. This paper tests the correlation between firms R&D investment intensity and the one-year lagged performance of Chinese Listed IT firms, and suggests that firms with an intensive investment strategy in R&D will have significantly larger financial performances in the following year.

The Failure of Economic Theory. Lessons from Chaos Theory

Abstract: The crisis that was being shaken the world economy should push economists to wonder about the approach used to analyse economic phenomena. The motivations that have generated it, describing a whole of interdependencies, interacttions, are clear and convincing. But a question remains: if the situation is so clear a posterior why economists have not been able to foresee it? What is happening to economic science if it is not able to recognize an economic crisis before it “steps on it“? How is it possible that the economic science was caught off guard yet again? Besides, what is the implication for the status of economics as a science if it is not able to successfully deal with real economic problems? The aim of the paper is to show the weakness of traditional economic theory and what improvements in terms of description and foresight could be obtained applying chaos theory to the study of economic phenomena.

Malaysia's Food Manufacturing Industries Productivity Determinants

Abstract: This study attempts to fill the gap in existing research on the drivers of total factor productivity growth (TFPG) in Malaysian food industries by employing a parametric statistical method and applying it to the country’s food-manufactur- ing sector. Based on the model, the factors affecting output growth in Malaysian food industries are individual contributions of capital, labour, and materials, as well as the combined contributions of the quality of these inputs expressed as TFPG. Our results for the food-manufacturing sector depict characteristically low productivity levels. The contribution of TFP growth for 13 out of 27 food industries was negative during the full period of analysis (1971-2000) and the sub-period 1987-2000. Eleven industries were found to have contributed negatively to TFPG over 1971-1979 and 1980- 1986. What explains our findings is the low quality of inputs into these food industries, which are input-driven rather than TFPG-driven.

EVA as Superior Performance Measurement Tool

Abstract: Prior to the East Asian financial crisis scholars found the necessity of a true financial performance measure in Malaysia. After more than one decade of the crisis Malaysian firms still stick with the conventional performance measures, which are criticised due to general accepted accounting principles. In this vein, this study aims to study a value based financial performance measure which can be adopted by the Malaysian firms over the conventional measures currently used. Economic Value Added (EVA) was introduced and advocated by Stern Stewart and Co. in 1982. This study intended to identify why EVA should be used as financial performance measure over the conventional measures and any added value or added advantage in EVA compare to conventional methods. EVA has been able to gain attention of the corporate giants like Coca-Cola, Sprint Corporation and Quaker Oats, as it is able to depict the true profitability of the company, however, there have been very little research conducted on EVA in Asian countries including Malaysia.

Labor Productivity Parity vs Trend of Exchange Rate

Abstract: Translation, understood as a process of restating the value from a particular currency to another currency, is based on the market exchange rate. So in practice, almost every value in terms of goods, assets, liabilities, and wages is converted to US dollars according to the current exchange rate. A fundamental method of translation was originated by Balassa and Samuelson in 1964 who explained that the main driver of the exchange rate is productivity, which is higher in developed countries and lower in poor countries. That is why these differences must be eliminated in order to make the exchange rate useful. However, different research verifying the Balassa-Samuelson approach, especially in the long run, had revealed some inconsistencies. Recently the Balassa-Samuelson theory has been enriched by more precise determination of productivity; specifically, an appropriate ratio for the translation procedure has appeared labor productivity Q defined as quotient of real GDP to cost of labor. The main aim of the paper is to present statistical verification of labor productivity parity as the main driver of the exchange rate. In the research, there will be an estimation of parameters of linear function in which the dependent variable represents the average exchange rate for the period between a particular country and the USA, and the independent variable is the average hourly pay quotient modified by labor productivity parity. If the linear function parameters describe the y = x relation, the theory of labor productivity as the determinant of exchange rate behavior will be confirmed.

The Determinants of Interest Rate Spreads in Nigeria: An Empirical Investigation

Abstract: The paper examines the determinants of interest rate spreads in Nigeria using a panel of 12 commercial banks for the period 1986-2007. The results suggest that cash reserve requirements, average loans to average total deposits, remuneration to total assets and gross domestic product have positive effect on interest rate spreads. However, non-interest income to average total assets, treasury certificate and development stocks have negative relationship with interest rate spreads. In general, the findings that suggest a reduction in cash reserve ratio, high bank overhead costs amongst others will help to moderate the high interest rate spreads in Nigeria.

Venture Capital and Innovation in Europe

Abstract: In this paper we search for evidence signifying whether VC activity is demand or supply stimulated. Namely, we examine whether innovation and entrepreneurship are fostered by Venture Capital (VC) investments or whether innovative entrepreneurship is a precondition of a VC involvement. Based on a European panel of VC investments, we test the direction of causality between VC and innovation (proxied by annual patent applications at the European Patents Office). We present evidence indicating that causality runs from patents to VC suggesting that, in Europe, innovation seems to create a demand for VC and not VC a supply of innovation. In this sense, innovative ideas seem to lack more than funds in Europe. We explain our findings on the basis of information asymmetry issues and irreversibility considerations of VC investments.

An Estimation of the Capital Growth Rate in Business Activities

Abstract: The aim of the paper is to empirically assess whether capital growth rates (defined as in the paper) realized by companies constituting Standard & Poor’s indices: S&P 600, S&P 400 and S&P 500 were higher in years prior to crisis, i.e. in years: 2007, 2006, 2005 than the average growth rates in preceding 5-year periods, i.e. in periods: 2002-2006, 2001-2005 and 2000-2004. A statistical test concerning the differences between means was used as a research method. In order to achieve that 9 hypotheses were tested in total. The further purpose of this paper is to estimate capital growth rates for every index in each of the years from 2000 up to 2007, as well as in 5- and 8-year periods. In total 40 confidence intervals for capital growth rates were constructed in order to achieve that goal. M. Dobija’s theory of capital was used as a background for a research. According to that theory capital is an abstract ability to perform labor. Homogeneous capital is embodied in heterogeneous assets. Capital is subdued to a number of laws: 1) the conservation principle and 2) the dispersion principle. These laws form the fundamentals of the theory of capital. The concentration of capital in any particular time moment is described in the form of the equation, where initial capital is influenced by the three factors: a natural potential of growth, a spontaneous diffusion and an inflow of capital by human labor and management. The natural potential of growth may be estimated by a properly defined ROA index. Realized ROA by a single company in a particular time period is a random number. However, in a large sample of companies, the average ROA index over a long time period concentrates around the natural potential for growth. The research shows that in most cases the capital growth rates were statistically higher in years prior to crisis than the average growth rates in preceding 5-year periods. Similarly—in most cases—the average rate of return on assets in each of the indices was increasing from year to year in nominal terms. That increased return on assets might strengthen the believes of investors that higher and higher profits are achievable on a regular basis. However, it seems that investors did not acknowledge that returns will float towards the average ultimately as the theory of capital describes.

Switch to Devalued Drachma and Cost-Push Inflation: A Simple Input-Output Approach to the Greek Case

Abstract: This paper uses simple dynamic input-output price models to estimate the effects of a switch to devalued drachma on the cost-inflation rate in the Greek economy. The findings suggest that the inflationary “pressures” are not too high and, therefore, there is room for trade-balance improvement.

The Globalization-Deglobalization Policy Conundrum

Abstract: The dynamic process of economic globalization and deglobalization has been occurring in “waves” over the past 250 years. Diffusion models reveal how globalization policies occupy the policy-centre stage when the global economy is booming and is cast on the back-burner when the global economy nose-dives into a slump. According to the diffusion models, when the global economy is booming the nodes that establish crucial linkages in the economy exceed the social optimum generating negative externalities thereby eroding social welfare in such a context policy intervention is justified to reduce the linkages that facilitate the spread of negative shocks or contagion that reduce the capacity for risk- sharing. The globalization-deglobalization policy conundrum also resurfaces in relation to trade flows, cross-border capital mobility, current account sustainability and technology diffusion. The latter has exacerbate the “digital divide” that has accompanied the revolutionary changes in information and communication technology (ICT) revolution by overcoming the “tyranny of distance”. The recurrent global financial crises and speculative attacks on the currency peg have ignited the debate for reshaping the international financial architecture in order to reduce the vulnerability of the domestic economy to the disruptive effects of the global financial crises.

Corporate and State Social Responsibility: A Long-Term Perspective

Abstract: Companies have caught the changes in consumer perceptions and have developed corporate social responsibility (CSR) as long run survival strategy. The CSR signals that companies are overcoming the logic of the short term. The question is whether an evolution towards something similar that we call State social responsibility (SSR) is possible. State social responsibility is exerted when the State, in absence (or in case of ineffectiveness) of a formal supranational law, protects the rights of current and future generations of its citizens and citizens of other states and/or raises the current generations’ awareness regarding the opportunities reduction generated in space and time by meta-externalities. States would signal the tendency to overcome their short-sighted logic if the meta-externalities became a crucial question in their agenda.

On Revealed Preference and Indivisibilities

Abstract: We consider a practical market model in which all commodities are inherently indivisible and thus are traded in integer quantities, or consumption choices are available only in discrete quantities. We ask whether a finite set of price-quantity observations satisfying the Generalized Axiom of Revealed Preference (GARP) is consistent with utility maximization. Due to the absence of perfect divisibility and continuity, the existing argument and also familiar assumptions such as non-satiation cannot be used in the current discrete model. We develop a new approach to deal with this problem and establish a discrete analogue of Afrita’s celebrated theorem. We also introduce a new concept called tight budget demand set which is a natural refinement of the standard notion of demand set and plays a crucial role in the current analysis. Exploring network structure and a new and easy-to-use variant of GARP, we propose an elementary, simple, combinatorial and constructive proof for our result.

Evaluation of Sustainability of Current Account Deficits in Turkey

Abstract: Sustainability of the current account deficits in Turkey was evaluated according to the macroeconomic fundamentals together with discussing the composition of current account deficit and the way of financing to have insights about the future path of current account balance. Problem about current account deficits were considered as structural since they were caused by foreign trade deficits largely as an outcome of dependence of production and exports on imported intermediate goods. Furthermore, there were negative developments about the way of financing in last years that share of debt instruments in financing has increased against Foreign Direct Investment. As a result, it has seen that Turkey would continue to have current account deficits in the next years and sustainability of these deficits has become increasingly difficult.

Audit Committee Mechanism to Improve Corporate Governance: Evidence from a Developing Country

Abstract: Nowadays, an audit committee (AC) is being looked upon as a distinct culture for CG and has received a wide-publicity across the globe. Government authorities, regulators and international bodies all have indicated that they view an AC as a potentially powerful tool that can enhance the reliability and transparency of financial information. Being mandatory under Security Exchange and Board of India (SEBI’s) Clause 49 of the Listing Agreement, an AC can be of great help to the board in implementing, monitoring and continuing “good” CG practices to the benefit of the corporation and all its stakeholders. This study performs a “content” analysis on the AC reports of the top 500 listed companies in India during 2005 to 2008 to determine the information content of these reports and the extent to which these reports conform to the Clause 49 requirements of the SEBI. Also, discussed are the various trends about an AC characteristics viz., size, composition, activity, as well as, the extent of non-audit services provided by auditors in the top 500 listed Indian companies. No doubt, it is essential for the Indian corporations to accept and continue with the CG reforms that are “demarcated” by the challenges of the “new” millennium.

Economic Reform and Regional Development of Laos

Abstract: The main purpose of this paper is to identify some reasons behind the economic performance of regions in Laos, especially the impacts of economic transformation from a central-planned economy to market-oriented under New Economic Mechanisms (NEMs) reform in 1986, the impact of reform has pursued significant economic growth, particularly the regional economic performance Firstly, the growth was faster in big city with better infrastructure and then the growth extension from central to rural region by improving the infrastructure and information network Moreover, the new policy to open the country leads to increase in the international cooperation and attractive foreign direct investment (FDI) Laos has successfully developed amicable relations with regional states, being a members of many international organization, particularly, a member of ASEAN is necessary for Laos in respect of its economic progress both regional and global procedure

FDI and Employment by Industry: A Co-Integration Study

Abstract: The relationship between high levels of FDI and of employment has been of enduring interest in the development literature, particularly in the context of economy as China which has enjoyed exceptional inflows of foreign capital as well as huge amount of working population. Aiming at exploring the specific relations between FDI and employment of three strata industries in china, EG cointegration method and Granger causality test is applied to identify the long-run relations and short-run linkages between FDI and employment in each of the industry via distributed lag model; moreover, first-order and second-order ECMs are created to assess the short-term deviation. Findings indicate that, in secondary and tertiary industry, growth of FDI in the long run would promote employment, and it is especially true for tertiary industry, where bidirectional linkage between FDI and employment exists; in the short term FDI has limited and even negative impetus on employment, with the latter indirectly increasing the former.

The Effect of Federal Government Size on Long-Term Economic Growth in the United States, 1791-2009

Abstract: We consider whether there is statistical evidence for a causal relationship between federal government expenditures and growth in real GDP in the United States, using available data going back to 1791. After studying the time-series properties of these variables for stationarity and cointegration, we investigate Granger causality in detail in the context of a Vector Error Correction Model. While we find causal evidence that faster GDP growth leads to faster growth in government spending, we find no evidence supporting the common assertion that a larger government sector leads to slower economic growth.

Defining Economics in the Twenty First Century

Abstract: Economics as a subject matter has been given a variety of definitions over the last 200 years, however all the definitions have a similar concept that they lean towards, a general principle one can say. The definitions are not wrong, this paper does not seek to prove that they are wrong, but only to show they where right for their time, a subject matter like economics, though studied over the centuries only formally became a discipline in its own right in the last two centuries, and as such is fairly young and as we know more there perhaps is a time to seek a definition for economics for the twenty first century. This paper seeks to give such a definition in light of the increased understanding of economics or at the least we have access to greater information concerning the discipline economics than say Adam Smith, Alfred Marshall or Hayek. Take the definition by Samuelson, “Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people”, though correct, is the definition sufficient for the twenty first century and beyond, that is all this paper seeks to answer, for it is the definition of a discipline that guides the readers thoughts. The objective of this paper is to simply reaffirm the modern definition of what is economics given we know so much more than 100 years ago.

An Analysis of Income Inequality and Education Inequality in Bahrain

Abstract: This research investigates the income inequality and education inequality that still capture the interest of economists, socialists and politicians for its clear impact on all fields in the national economy. The main findings of the research are: first there is a positive association between the level of education of the head of the family and family income. Second, income inequality leads to education inequality between income-classes, which leads to widen the income gap between future generations. The third is inequality in education attainment in Bahrain had been declined during the period 1980-2006. Finally, the result stated that the main sources of education inequality in Bahrain are disparities in education costs, availability of private schools in different governorates, and in spending on education. The paper recommends that the policy-makers in Bahrain should pay more attention to distribution of private schools among governorates and education cost among these schools to improve the education inequality and income inequality situation in Bahrain.

Governance and Poverty Reduction in Thailand

Abstract: The objective of this study is to find out how Thailand achieves her economic growth along with poverty reduction without good governance practice. The relationships among economic growth, poverty indicators and governance indi- cators are computed by using Pearson’s correlation. The computed results show that the poverty reduction in Thailand is achieved through populist policies which are exercised with low quality of governance, not through growth. It sup- ports general belief that the “pro-poor growth” policy alone without good governance performance is insufficient for enhancing poverty reduction equally. A strategy for reducing poverty and income inequality for Thailand is not to en- hance economic growth but to promote major improvements in governance especially in variable that reflect the per- ception in three governance composite indicators namely Voice and Accountability, Political Stability and Absence of Violence, and Rule of Law.

A Comparative Study on Consumer Right to Privacy in E-Commerce

Abstract: The number of electronic commerce (e-commerce) transactions has grown extraordinarily with widespread Internet usage. The right to privacy is particularly important in e-commerce. Recently, the privacy protection for consumer transactions has become more and more important in e-commerce. This paper aims to develop the study on the legislation of e-commerce consumer rights protection. It is a comparative study on relevant regulations of the right to privacy in European Union, the United States, and Japan. The most representative policy might be the Data Protection Directive in the EU, which not only regulates the principle for e-commerce consumer right to privacy protection, but also lays out specific criteria to be abided. The current status and existing problems in China are also analyzed and some suggestions are made to improve the legal system of right to privacy. The paper identifies directions for the future development of the privacy protection from a legal perspective.

Aid Effectiveness and Capacity Development: Implications for Economic Growth in Developing Countries

Abstract: In this paper, we present a stylized model for understanding the relationship between capacity strengthening and eco-nomic growth in an endogenous growth framework. Endogenous growth theory provides a novel starting point for combining individual, organizational, and enabling environmental issues as part of attaining the capacity-strengthening goal. Our results indicate that although donors can play an important role in aiding countries to develop their existing capacities or to generate new ones, under certain conditions, the potential also exists for uncoordinated and fragmented donor activities to erode country capacities. From the policy exercises, we demonstrate that improving economy-wide learning unambiguously increases the rate of growth of output, technology, capital stock, and capacity. Moreover, a donor’s intervention has the maximum impact on the above variables when the economy’s capacity is relatively low. In contrast, donor intervention can lead to “crowding-out effects” when the economy’s capacity is moderately high. Under such a situation, the economy never reaches a new steady state. Our results not only lend support to diminishing returns to aid but also to an S model of development aid and country capacity relationship.

State Based Determinants of Inward FDI Flow in the US Economy

Abstract: Inward foreign direct investment (FDI) represents an integral part of the US economy. The flow of international capital has been a key factor expanding economy. The inward US FDI constitutes important factor contributing to output growth in the US economy. This paper investigates factors affecting the inward FDI flow among fifty states of the United States. The analysis uses annual data for the period from 1997 to 2007. The study identifies several state-specific determinants of FDI and investigates the changes in their importance during the study period. Our results show that among the major determinants, the real per capita income, real per capita expenditure on education, FDI related employment, research and development expenditure, and capital expenditure are found to have a significant positive impact on FDI inflows. There is also evidence that the share of scientists and engineers in the workforce exerts a small positive impact on inward FDI flow. In addition, per capita state taxes, unit labor cost, manufacturing density, unionizetion, and unemployment rate exert a negative impact on FDI inflows.

Stock Prices, Home Prices, and Private Consumption in the US: Some Robust Bilateral Causality Tests

Abstract: We perform robust bilateral Granger causality tests for the US stock prices, home prices, and private consumption. The robust test procedures involve the use of recently developed time series analysis of non-stationary data with possible structural breaks. We find the underlying data to be generally non-stationary and non-cointegrated. The empirical results indicate the presence of bilateral causality between stock prices and home prices and between stock prices and consumer spending. The results show unilateral causality from home prices to consumer spending. Our findings support the reinforcing effects of stock and home price movements on private consumption, as well as the feedback effect of consumer spending on stock prices.