Showing papers in "Oxford Bulletin of Economics and Statistics in 2005"
TL;DR: In this article, the effect of foreign direct investment on productivity growth is investigated in manufacturing sectors where technology-exploiting multinationals are prevalent, and the results point to the presence of nonlinear threshold effects: the productivity benefit from FDI increases with absorptive capacity until some threshold level beyond which it becomes less pronounced.
Abstract: This paper explores whether the effect of foreign direct investment (FDI) on productivity growth is dependent on absorptive capacity using recently developed threshold regression techniques. In manufacturing sectors where technology-exploiting multinationals are prevalent, the results point to the presence of nonlinear threshold effects: the productivity benefit from FDI increases with absorptive capacity until some threshold level beyond which it becomes less pronounced. But there is also a minimum absorptive capacity threshold level below which productivity spillovers from FDI are negligible or even negative. On the contrary, no evidence of productivity spillovers is found in sectors where FDI appears to be motivated by technology-sourcing considerations.
566 citations
TL;DR: The authors examined the effects of work-related training on direct measures of productivity and found that a 1% point increase in training is associated with an increase in value added per hour of about 0.6%.
Abstract: It is standard in the literature on training to use wages as a sufficient statistic for productivity. This paper examines the effects of work-related training on direct measures of productivity. Using a new panel of British industries 1983–96 and a variety of estimation techniques we find that work-related training is associated with significantly higher productivity. A 1% point increase in training is associated with an increase in value added per hour of about 0.6% and an increase in hourly wages of about 0.3%. We also show evidence using individual-level data sets that is suggestive of training externalities.
551 citations
TL;DR: In this article, a new panel unit root test based on the Lagrangian multiplier (LM) principle was proposed and applied to the purchasing power parity (PPP) hypothesis and found strong evidence for PPP.
Abstract: This paper proposes a new panel unit‐root test based on the Lagrangian multiplier (LM) principle. We show that the asymptotic distribution of the new panel LM test is not affected by the presence of structural shifts. This result holds under a mild condition that N/T→k, where k is any finite constant. Our simulation study shows that the panel LM unit‐root test is not only robust to the presence of structural shifts, but is more powerful than the popular Im, Pesaran and Shin (IPS) test. We apply our new test to the purchasing power parity (PPP) hypothesis and find strong evidence for PPP.
420 citations
TL;DR: In this paper, the authors examined the impact of PROGRESA, a Mexican anti-poverty and human resource program, on child nutritional status and found that it had significant and substantial positive impacts in increasing stature.
Abstract: The assessment of the impact of social programs is the subject of lively, sometimes heated debate over whether program evaluation is best conducted either by comparing mean outcomes from a randomized intervention or by using econometric techniques with nonrandom samples. This paper contributes to this debate through an examination of PROGRESA, a Mexican anti-poverty and human resource program, on child nutritional status. PROGRESA was randomly assigned at the locality level. However, a shortage in the availability of one component– a nutritional supplement provided to preschool children –led local administrators to exercise discretion in its delivery, systematically favoring those children with poorer nutritional status. While comparisons of mean outcomes suggest that PROGRESA had no or a negative effect on nutritional status, estimates that control for this heterogeneity using child specific fixed effects find that PROGRESA had significant and substantial positive impacts in increasing stature. The long-term consequences of these improvements are non-trivial; its impact working through adult height alone may result in a 2.9% increase in lifetime earnings.
319 citations
TL;DR: In this paper, the authors present a Journal Article: Oxford Bulletin of Economics & Statistics 67 (4), 517-546, 517.1468-0084.00130.
Abstract: Later version now published as a Journal Article: Oxford Bulletin of Economics & Statistics 67 (4), 517-546. doi: 10.1111/j.1468-0084.2005.00130.x
211 citations
TL;DR: The finite mixture distribution is proposed as an appropriate statistical model for a combined density forecast and its implications for measures of uncertainty and disagreement, and for combining interval forecasts, are described.
Abstract: The finite mixture distribution is proposed as an appropriate statistical model for a combined density forecast. Its implications for measures of uncertainty and disagreement, and for combining interval forecasts, are described. Related proposals in the literature and applications to the U.S. Survey of Professional Forecasters are discussed.
164 citations
TL;DR: In this paper, the authors consider the sensitivity of the estimated order of an autoregression selected using information criteria to the effective number of observations, the estimate of the variance and the penalty for overfitting in relation to the total sample size.
Abstract: We consider issues related to the order of an autoregression selected using information criteria. We study the sensitivity of the estimated order to (i) whether the effective number of observations is held fixed when estimating models of different order, (ii) whether the estimate of the variance is adjusted for degrees of freedom, and (iii) how the penalty for overfitting is defined in relation to the total sample size. Simulations show that the lag length selected by both the Akaike and the Schwarz information criteria are sensitive to these parameters in finite samples. The methods that give the most precise estimates are those that hold the effective sample size fixed across models to be compared. Theoretical considerations reveal that this is indeed necessary for valid model comparisons. Guides to robust model selection are provided.
113 citations
TL;DR: In this article, the authors present an empirical analysis of the determinants of labour cost in OECD countries, with particular reference to the impact of labour market institutions from 1960 to 1994.
Abstract: We present an empirical analysis of the determinants of labour cost in OECD countries, with particular reference to the impact of labour market institutions from 1960 to 1994. The main contribution of the paper is to show that labour market regulations can explain a large part of labour cost rise in OECD countries in the last decades once we control for productivity. These results are consistent with the findings of a companion paper (Nickell et al., 2001) where the effects of institutions on unemployment are examined. The model controls for macroeconomic shocks, and include the possibility of interactions among institutions. We present also a discussion of the potential problems encountered when estimating a macro pooled model like ours. We focus, among other things, on the hypothesis of poolability and on the cointegration properties of the model, suggesting a two way fixed effects specification in GLS form that corrects for heteroskedasticity and serial correlation. The explanatory power of the model is finally tested by means of a series of by country dynamic simulations.
111 citations
TL;DR: In this article, the authors used a rich regional data set to obtain a statistical characterization of the relationship between entrepreneurial activity and economic growth within post-Soviet Russia, and found that entrepreneurial activity exhibits a statistically and quantitatively significant relationship with subsequent economic growth.
Abstract: We use a rich regional data set to obtain a statistical characterization of the relationship between entrepreneurial activity and economic growth within post-Soviet Russia. Russia is a useful laboratory for evaluating links between entrepreneurial activity and growth because of the striking variation in initial conditions, the adoption of policy reforms, and entrepreneurial activity observed across its large number of regions in the early stages of transition. Russia has also experienced striking regional variation in subsequent growth. Conditional on variations in initial conditions and policy reform measures, regional entrepreneurial activity exhibits a statistically and quantitatively significant relationship with subsequent economic growth.
108 citations
TL;DR: In this paper, the authors search for evidence that the effect of this foreign technology varies according to the level of absorptive capacity and physical distance and find evidence that both factors help to explain differences in productivity across countries.
Abstract: Recent literature on international technology diffusion has demonstrated the positive effect in foreign country productivity on the domestic economy. Using a sample of Organization for Economic Co-operation and Development (OECD) manufacturing industries we search for evidence that the effect of this foreign technology varies according to the level of absorptive capacity and physical distance. We find evidence that both help to explain differences in the level of productivity across countries, but that absorptive capacity is quantitatively more important. Physical distance had a greater effect at the start of the time period and in industries in which trade is local and technology is high-tech.
108 citations
TL;DR: In this article, the role of a set of variables as leading indicators for Euro-area inflation and GDP growth is evaluated, and three different approaches to combine the information from several indicators.
Abstract: In this paper, we evaluate the role of a set of variables as leading indicators for Euro-area inflation and GDP growth. Our leading indicators are taken from the variables in the European Central Bank's (ECB) Euro-area-wide model database, plus a set of similar variables for the US. We compare the forecasting performance of each indicator ex post with that of purely autoregressive models. We also analyse three different approaches to combining the information from several indicators. First, ex post, we discuss the use as indicators of the estimated factors from a dynamic factor model for all the indicators. Secondly, within an ex ante framework, an automated model selection procedure is applied to models with a large set of indicators. No future information is used, future values of the regressors are forecast, and the choice of the indicators is based on their past forecasting records. Finally, we consider the forecasting performance of groups of indicators and factors and methods of pooling the ex ante single-indicator or factor-based forecasts. Some sensitivity analyses are also undertaken for different forecasting horizons and weighting schemes of forecasts to assess the robustness of the results.
TL;DR: In this article, the effects of cross-sectional disturbance correlation in a homogeneous panel data unit root test were investigated and a previously known estimator was used to reduce the size distortions.
Abstract: In this paper, we investigate the effects of cross-sectional disturbance correlation in a homogeneous panel data unit root test. As reported by other authors, the unit root test has incorrect size in the presence of cross-sectional correlation. We suggest that a previously known estimator can be used to reduce the size distortions. We supply response surface estimates for critical values and study the size characteristics of the proposed test. We find that the suggested estimator performs well in small-sample homogeneous panel data unit root tests. The reduction in size distortion comes at a small cost of lower power against a stationary alternative.
TL;DR: The authors examined the relationship between aggregate investment and exchange rate uncertainty in the G7, using panel estimation and decomposition of volatility derived from the components generalized autoregressive conditionally heteroscedastic (GARCH) model.
Abstract: We examine the relationship between aggregate investment and exchange rate uncertainty in the G7, using panel estimation and decomposition of volatility derived from the components generalized autoregressive conditionally heteroscedastic (GARCH) model. Our dynamic panel approach takes account of potential cross-sectional heterogeneity, which can lead to bias in estimation. We find that for a poolable subsample of European countries, it is the transitory and not the permanent component of volatility which adversely affects investment. To the extent that short-run uncertainty in the CGARCH model characterizes higher frequency shocks generated by volatile short-term capital flows, these are most deleterious for investment.
TL;DR: In this paper, the authors use plant-level employer-employee data in production functions and wage equations to examine whether wages are based on productivity, and they use a stepwise procedure to find out how the results are influenced by the kind of data that is available.
Abstract: We use plant-level employer–employee data in production functions and wage equations to examine whether wages are based on productivity. We use a stepwise procedure to find out how the results are influenced by the kind of data that is available. The models include shares of employee groups based on age, level and field of education, and sex. The gap between the age-related wage and productivity effects increases with age. Education increases productivity, but wage under-compensates productivity especially for those with the highest level of non-technical education. For women the results depend greatly on the specification and method used.
TL;DR: In this paper, a simple residual-based panel CUSUM test of the null hypothesis of cointegration is proposed, which has a limiting normal distribution that is free of nuisance parameters and is robust to heteroskedasticity.
Abstract: This paper proposes a simple residual-based panel CUSUM test of the null hypothesis of cointegration. The test has a limiting normal distribution that is free of nuisance parameters, it is robust to heteroskedasticity and it allows for mixtures of cointegrated and spurious alternatives. Our Monte Carlo results suggest that the test has small-size distortions and reasonable power. In our empirical application to international RTD spillovers, we present evidence suggesting that total factor productivity is heterogeneously cointegrated with foreign and domestic RTD capital stocks.
TL;DR: In this article, another counterfactual experiment in the vector autoregressive model is presented to interpret the coefficients of an identified cointegrating relation, which can be used to implement a long-run change by changing the current values.
Abstract: Regression coefficients are interpreted by a counterfactual experiment. For simultaneous equations this experiment can be implemented if the coefficients are identified, and throws some light on the role of instruments and the method of indirect least squares. This paper discusses another counterfactual experiment in the vector autoregressive model in order to interpret the coefficients of an identified cointegrating relation. The dynamics of the model is used to implement a long-run change by changing the current values. The counterfactual experiment can be conducted precisely when the cointegrating relation is identified.
TL;DR: Although out-of-sample forecast performance is often deemed to be the 'gold standard' of evaluation, it is not in fact a good yardstick for evaluating models in general.
Abstract: Although out-of-sample forecast performance is often deemed to be the ‘gold standard’ of evaluation, it is not in fact a good yardstick for evaluating models in general. The arguments are illustrated with reference to a recent paper by Carruth, Hooker and Oswald [Review of Economics and Statistics (1998), Vol. 80, pp. 621��628], who suggest that the good dynamic forecasts of their model support the efficiency-wage theory on which it is based.
TL;DR: In this article, an alternative generalized least squares (GLS) system estimator was proposed for cointegration parameters in vector error correction models. But it was found that the GLS estimator can indeed be an attractive alternative to ML estimator.
Abstract: Johansen's reduced-rank maximum likelihood (ML) estimator for cointegration parameters in vector error correction models is known to produce occasional extreme outliers. Using a small monetary system and German data we illustrate the practical importance of this problem. We also consider an alternative generalized least squares (GLS) system estimator which has better properties in this respect. The two estimators are compared in a small simulation study. It is found that the GLS estimator can indeed be an attractive alternative to ML estimation of cointegration parameters.
TL;DR: In this paper, Monte Carlo evidence is provided that including a plethora of indicators need not distort model selection, permitting the use of many dummies in a general-to-specific framework, and a possible modification to impulse ‘intercept corrections’ is considered.
Abstract: Ordinary least squares estimation of an impulse-indicator coefficient is inconsistent, but its variance can be consistently estimated. Although the ratio of the inconsistent estimator to its standard error has a t-distribution, that test is inconsistent: one solution is to form an index of indicators. We provide Monte Carlo evidence that including a plethora of indicators need not distort model selection, permitting the use of many dummies in a general-to-specific framework. Although White's (1980) heteroskedasticity test is incorrectly sized in that context, we suggest an easy alteration. Finally, a possible modification to impulse ‘intercept corrections’ is considered.
TL;DR: In this paper, the authors propose a method to solve the problem of homonymity of homophily in the context of homomorphic data, and no abstracts are available.
Abstract: No abstract available.
TL;DR: In this paper, the authors adapted Uhlig's [2005] sign restriction identification methodology to investigate the effects of UK monetary policy using a structural vector autoregression (VAR).
Abstract: This paper adapts Uhlig's [Journal of Monetary Economics (2005) forthcoming] sign restriction identification methodology to investigate the effects of UK monetary policy using a structural vector autoregression (VAR). It shows that shocks which can reasonably be described as monetary policy shocks have played only a small role in the total variation of UK monetary and macroeconomic variables. Most of the variation in UK monetary variables has been due to their systematic reaction to other macroeconomic shocks, namely non-monetary aggregate demand, aggregate supply, and oil price shocks. We also find, without imposing any long run identifying restrictions, that aggregate supply shocks have permanent effects on output.
TL;DR: In this article, monetary policy reaction functions are estimated for the UK over three periods (1985-90, 1992-97 and 1997-2003) in order to disentangle two effects: the switch from an emphasis on exchange rate stabilization to inflation targeting, and the introduction of instrument-independence in 1997.
Abstract: Monetary policy reaction functions are estimated for the UK over three periods – 1985–90, 1992–97 and 1997–2003 – in order to disentangle two effects: the switch from an emphasis on exchange rate stabilization to inflation targeting, and the introduction of instrument-independence in 1997 The external factors considered include US as well as German interest rates, and this leads to the identification of ‘domestic’ and ‘international’ models of the reaction function The results suggest that it is the changes in the institutional arrangements rather than those in the targeting regime which have been decisive in the development of policy in this period
TL;DR: In this paper, a cross-sectional distribution of per capita (log) GDP across the European Union regions from 1977 to 1996 is analyzed, showing a multimodal structure of the distribution during the 1970s and early 1980s, and a tendency towards unimodality since the mid-1980s.
Abstract: Cross-sectional distribution of per capita (log) GDP across the European Union regions from 1977 to 1996 is analysed. Kernel density estimates reveal a multimodal structure of the distribution during the 1970s and early 1980s, and a tendency towards unimodality since the mid-1980s. The distribution is further analysed by a mixture of normal densities. A two well-separated component mixture fits the distributions in the 1970s and early 1980s. These two clusters tend to converge, supporting the idea of a process of catching up. In the mid-1990s, a small group of very rich regions is generated by a separated component.
TL;DR: In this paper, the effects of temporary help agencies (THA) on occupational mobility by performing an empirical comparison of the job-to-job upgrading chances of agency and regular workers in Spain is analyzed.
Abstract: This paper analyses the effects of Temporary Help Agencies (THA) on occupational mobility by performing an empirical comparison of the job-to-job upgrading chances of agency and regular (non-agency) workers in Spain We estimate a switching regression model to allow for self-selection into agency work because of, for instance, more motivated workers being more likely to search for jobs through a THA We find evidence in favour of the existence of self-selection in all qualification groups considered Concerning mobility, we find that agency workers in intermediate qualification levels are less likely to experience demotions than regular workers THA increase the probability of high-skilled workers achieving a permanent contract in Spain
TL;DR: In this article, the authors present an unbiased correction procedure and apply it to the models reported by Feenstra and Hanson (1999) and Haskel and Slaughter (2002) for the estimation of the sector bias of skill-biased technological change.
Abstract: Feenstra and Hanson [NBER Working Paper No. 6052 (1997)] propose a procedure to correct the standard errors in a two‐stage regression with generated dependent variables. Their method has subsequently been used in two‐stage mandated wage models [Feenstra and Hanson, Quarterly Journal of Economics (1999) Vol. 114, pp. 907–940; Haskel and Slaughter, The Economic Journal (2001) Vol. 111, pp. 163–187; Review of International Economics (2003) Vol. 11, pp. 630–650] and for the estimation of the sector bias of skill‐biased technological change [Haskel and Slaughter, European Economic Review (2002) Vol. 46, pp. 1757–1783]. Unfortunately, the proposed correction is negatively biased (sometimes even resulting in negative estimated variances) and therefore leads to overestimation of the inferred significance. We present an unbiased correction procedure and apply it to the models reported by Feenstra and Hanson (1999) and Haskel and Slaughter (2002).
TL;DR: In this paper, the authors assess the possibility of producing unbiased forecasts for fiscal variables in the Euro area by comparing a set of procedures that rely on different information sets and econometric techniques, including autoregressive moving average models, vector autoregressions, small-scale semistructural models at the national and Euro area level, institutional forecasts (Organization for Economic Co-operation and Development), and pooling.
Abstract: In this paper, we assess the possibility of producing unbiased forecasts for fiscal variables in the Euro area by comparing a set of procedures that rely on different information sets and econometric techniques. In particular, we consider autoregressive moving average models, Vector autoregressions, small-scale semistructural models at the national and Euro area level, institutional forecasts (Organization for Economic Co-operation and Development), and pooling. Our small-scale models are characterized by the joint modelling of fiscal and monetary policy using simple rules, combined with equations for the evolution of all the relevant fundamentals for the Maastricht Treaty and the Stability and Growth Pact. We rank models on the basis of their forecasting performance using the mean square and mean absolute error criteria at different horizons. Overall, simple time-series methods and pooling work well and are able to deliver unbiased forecasts, or slightly upward-biased forecast for the debt–GDP dynamics. This result is mostly due to the short sample available, the robustness of simple methods to structural breaks, and to the difficulty of modelling the joint behaviour of several variables in a period of substantial institutional and economic changes. A bootstrap experiment highlights that, even when the data are generated using the estimated small-scale multi-country model, simple time-series models can produce more accurate forecasts, because of their parsimonious specification.
TL;DR: This study presents an alternative to direct questioning and randomized response approaches to obtain survey information about sensitive issues based on a logit model that can be used when survey data on the dependent variable are misclassified.
Abstract: This study presents an alternative to direct questioning and randomized response approaches to obtain survey information about sensitive issues. The approach used here is based on a logit model that can be used when survey data on the dependent variable are misclassified. The method is applied to a direct survey of undergraduate cheating behaviour. Student responses may not always be truthful. In particular, a student claiming to be a non-cheater may actually be a cheater. The results indicate that the incidence of cheating in our sample is approximately 70% rather than the self-reported value of 51%.
TL;DR: Monte Carlo simulation results assess the null and non-null rejection frequencies of the RETINA and PcGets model selection algorithms in the presence of nonlinear functions.
Abstract: The paper describes two automatic model selection algorithms, RETINA and PcGets, briefly discussing how the algorithms work and what their performance claims are. RETINA's Matlab implementation of the code is explained, then the program is compared with PcGets on the data in Perez-Amaral, Gallo and White (2005, Econometric Theory, Vol. 21, pp. 262–277), ‘A Comparison of Complementary Automatic Modelling Methods: RETINA and PcGets’, and Hoover and Perez (1999, Econometrics Journal, Vol. 2, pp. 167–191), ‘Data Mining Reconsidered: Encompassing and the General-to-specific Approach to Specification Search’. Monte Carlo simulation results assess the null and non-null rejection frequencies of the RETINA and PcGets model selection algorithms in the presence of nonlinear functions.
TL;DR: In this article, the authors enumerate the various possible model selection strategies and, based on simulation and empirical evidence, recommend using these tests to improve the specification of an initial general vector autoregression model.
Abstract: Unit-root testing can be a preliminary step in model development, an intermediate step, or an end in itself Some researchers have questioned the value of any unit-root and cointegration testing, arguing that restrictions based on theory are at least as effective Such confusion is unsatisfactory Needed is a set of principles that limit and define the role of the tacit knowledge of the model builders In a forecasting context, we enumerate the various possible model selection strategies and, based on simulation and empirical evidence, recommend using these tests to improve the specification of an initial general vector autoregression model
TL;DR: In this paper, the authors investigate a test for structural change in the long-run persistence in a univariate time series, and propose a Lagrange multiplier-type test, a test with the quasi-differencing method, and demeaned versions of these tests.
Abstract: In this paper, we investigate a test for structural change in the long-run persistence in a univariate time series. Our model has a unit root with no structural change under the null hypothesis, while under the alternative it changes from a unit-root process to a stationary one or vice versa. We propose a Lagrange multiplier-type test, a test with the quasi-differencing method, and ‘demeaned versions’ of these tests. We find that the demeaned versions of these tests have better finite-sample properties, although they are not necessarily superior in asymptotics to the other tests.