Showing papers in "The Economic Journal in 2018"

Identification and Estimation of Dynamic Causal Effects in Macroeconomics Using External Instruments

Abstract: An exciting development in empirical macroeconometrics is the increasing use of external sources of as-if randomness to identify the dynamic causal effects of macroeconomic shocks. This approach – the use of external instruments – is the time series counterpart of the highly successful strategy in microeconometrics of using external as-if randomness to provide instruments that identify causal effects. This lecture exposits this approach and provides conditions on instruments and control variables under which external instrument methods produce valid inference on dynamic causal effects, that is, structural impulse response functions. These conditions can help guide the search for valid instruments in applications. We consider two methods, a one-step instrumental variables regression and a two-step method that entails estimation of a vector autoregression. Under a restrictive instrument validity condition, the onestep method is valid even if the vector autoregression is not invertible, so comparing the two estimates provides a test of invertibility. Under a less restrictive condition, where multiple lagged endogenous variables are needed as control variables in the one-step method, the conditions for validity of the two methods are the same.

On the International Spillovers of US Quantitative Easing

Abstract: This article analyses the effects of the Federal Reserve's quantitative easing (QE) on global portfolio flows, differentiating across recipient region of the flows, type of flow and QE rounds. Furthermore, the analysis differentiates between the impact of QE expansionary announcements and the actual market operations. The analysis shows that QE1 resulted in (slight) rebalancing towards the US, while QE2 and QE3 resulted in rebalancing towards non-US assets. This suggests that QE increased the pro-cyclicality of flows outside the US, in particular into emerging market equities. The results also suggest a link between US macro-financial conditions and the transmission of QE to portfolio flows.

Management of Bureaucrats and Public Service Delivery: Evidence from the Nigerian Civil Service

Abstract: We study how the management practices bureaucrats operate under relate to the quantity and quality of public services delivered. We do so exploiting data from the Nigerian Civil Service. For 4700 public sector projects, we have hand-coded independent engineering assessments of project completion rates and delivered quality. We supplement this with a survey eliciting management practices for bureaucrats in the 63 civil service organizations responsible for these projects, building on Bloom and Van Reenen [2007]. Management practices matter: a one standard deviation increase in bureaucrat’s autonomy signi…cantly increases project completion rates by 18%; a one standard deviation increase in practices related to incentives/monitoring of bureaucrats signi…cantly lowers project completion rates by 14%. We show the negative impacts of incentive provision/monitoring arise because bureaucrats multi-task and incentives are poorly targeted, and because these management practices capture elements of subjective performance evaluation that leave scope for dysfunctional responses from bureaucrats. To support a causal interpretation of our …ndings, we document the determinants of management practices and examine channels through which organizations might endogenously adjust management practices. Our results provide novel insights into how changes in how bureaucrats are managed can have potentially large impacts on public service delivery in a developing country context. JEL Classi…cation: J33, J38, O20.

Migration, Knowledge Diffusion and the Comparative Advantage of Nations

Abstract: Do migrants shape the dynamic comparative advantage of their sending and receiving countries? To answer this question we study the drivers of knowledge diffusion by looking at the dynamics of the export basket of countries, with particular focus on migration. The fact that knowledge diffusion requires direct human interaction implies that the international diffusion of knowledge should follow the pattern of international migration. This is what this paper documents. Our main finding is that migration, and particularly skilled immigration, is a strong and robust driver of productive knowledge diffusion as measured by the appearance and growth of tradable goods in the migrants' receiving and sending countries. We find that a 10% increase in the stock of immigrants from countries exporters of a given product is associated with a 2% increase in the likelihood that the host country will start exporting that good "from scratch" in the following 10-year period. In terms of ability to expand the export basket of countries, a migrant with college education or above is about ten times more "effective" than an unskilled migrant. The results are robust to accounting for shifts in product-specific global demand, to excluding bilateral trade possibly generated by network effects, as well as to instrumenting for migration using a gravity model.

Migrant Networks and Trade: The Vietnamese Boat People as a Natural Experiment

Abstract: The role of migrant networks in reducing the information frictions that inhibit international trade has been discussed extensively. Yet the causality from migration to trade creation has not been conclusively established. This paper provides cogent evidence of the causal pro-trade eect of migrants by drawing upon the exodus of the Vietnamese Boat People to the US. This episode represents an ideal natural experiment as it combines a large immigration shock with a concurrent trade embargo in tandem with an exogenous allocation of Vietnamese migrants across US States. Following the lifting of the trade embargo in 1994, exports to Vietnam were higher and more diversied from those US States with larger Vietnamese populations, itself the result of larger refugee inows 20 years earlier. A 10% increase in a Vietnamese State population is associated with a ratio of export to Vietnam over GDP that is 1.9% higher. Importantly, we nd low-skilled migrants to be as instrumental as the high-skilled in fostering trade.

Intergenerational Wealth Mobility and the Role of Inheritance: Evidence from Multiple Generations

Abstract: This study estimates intergenerational correlations in mid-life wealth across three generations, and a young fourth generation, and examines how much of the parent-child association that can be explained by inheritances. Using a Swedish data set we find parent-child rank correlations of 0.3–0.4 and grandparents-grandchild rank correlations of 0.1–0.2. Conditional on parents’ wealth, grandparents’ wealth is weakly positively associated with grandchild’s wealth and the parent-child correlation is basically unchanged if we control for grandparents’ wealth. Bequests and gifts strikingly account for at least 50 per cent of the parent-child wealth correlation while earnings and education are only able to explain 25 per cent.

Melting ice Caps and the Economic Impact of Opening the Northern Sea Route

Abstract: A consequence of melting Arctic ice caps is the commercial viability of the Northern Sea Route, connecting North-East Asia with North-Western Europe. This will represent a sizeable reduction in shipping distances and a decrease in the average transportation days by around one-third compared to the currently used Southern Sea Route. We examine the economic impact of the opening of the Northern Sea Route in a multi-sector Eaton and Kortum model with intermediate linkages. This includes a remarkable shift of bilateral trade flows between Asia and Europe, diversion of trade within Europe, heavy shipping traffic in the Arctic, and a substantial drop in traffic through Suez. These global trade changes are reflected in real income and welfare effects for the countries involved. The estimated redirection of trade has also major geopolitical implications: the reorganisation of global supply chains within Europe and between Europe and Asia, and the highlighted political interest and environmental pressure on the Arctic.

Climate Change and Labour Allocation in Rural Mexico: Evidence from Annual Fluctuations in Weather

Abstract: This paper evaluates the effects of annual fluctuations in weather on employment in rural Mexico to gain insight into the potential labour market implications of climate change. Using a 28-year panel on individual employment, we find that years with a high occurrence of heat lead to a reduction in local employment, particularly for wage work and non-farm labour. Extreme heat also increases migration domestically from rural to urban areas and internationally to the U.S. A medium emissions scenario implies that increases in extreme heat may decrease local employment by up to 1.4% and climate change may increase migration by 1.4%. This article is protected by copyright. All rights reserved.

Human Capital, Technology Adoption and Firm Performance: Impacts of China's Higher Education Expansion in the Late 1990s

Abstract: We exploit a policy-induced exogenous surge in China's college-educated workforce that started in 2003 to identify the impact of human capital on productivity. Using a difference-in-differences estimation strategy, we find that industries using more human-capital intensive technologies experienced a larger gain in total factor productivity after 2003 than they did in prior years. Exploring the pathways from human capital increases to TFP growth, we find that these industries also accelerated new technology adoption, as reflected in the importation of advanced capital goods, R&D expenditure and capital intensity, as well as employment of more highly skilled individuals. The productivity gains were weaker for domestic private firms than for foreign-owned firms.

New and Improved: Does FDI Boost Production Complexity in Host Countries?

Abstract: This article examines the relationship between the presence of foreign affiliates and product upgrading by Turkish manufacturing firms. The analysis suggests that Turkish firms in sectors and regions more likely to supply foreign affiliates tend to introduce more complex products, where complexity is captured using a measure developed by Hidalgo and Hausmann (2009). This finding is robust to controlling for omitted variables, sample selection and potential simultaneity bias. It is also in line with the view that inflows of foreign direct investment stimulate upgrading of indigenous production capabilities in host countries.

Trade, firm Selection and innovation: the competition channel

Abstract: The availability of rich …rm-level data sets has recently led researchers to uncover new evidence on the eects of trade liberalization. First, trade openness forces the least produc- tive …rms to exit the market. Secondly, it induces surviving …rms to increase their innovation eorts and thirdly, it increases the degree of product market competition. In this paper we propose a model aimed at providing a coherent interpretation of these …ndings. We intro- ducing …rm heterogeneity into an innovation-driven growth model, where incumbent …rms operating in oligopolistic industries perform cost-reducing innovations. In this framework, trade liberalization leads to higher product market competition, lower markups and higher quantity produced. These changes in markups and quantities, in turn, promote innovation and productivity growth through a direct competition eect, based on the increase in the size of the market, and a selection eect, produced by the reallocation of resources towards more productive …rms. Calibrated to match US aggregate and …rm-level statistics, the model predicts that a 10 percent reduction in variable trade costs reduces markups by 1:15 percent, …rm surviving probabilities by 1 percent, and induces an increase in productivity growth of about 13 percent. More than 90 percent of the trade-induced growth increase can be attributed to the selection eect.

The Transmission of Inequality Across Multiple Generations : Testing Recent Theories with Evidence from Germany

Abstract: This article shows that across multiple generations, the persistence of occupational and educational attainment in Germany is larger than estimates from two generations suggest. We consider two recent interpretations. First, we assess Gregory Clark's hypotheses that the true rate of intergenerational persistence is higher than the observed rate, as high as 0.75, and time-invariant. Our evidence supports the first but not the other two hypotheses. Second, we test for independent effects of grandparents. We show that the coefficient on grandparent status is positive in a wide class of Markovian models and present evidence against its causal interpretation.

Political budget cycles with informed voters:evidence from Italy

Abstract: I exploit a reform that required Italian municipalities to disclose their balance sheetsbefore elections to study whether having more informed voters aects the political budgetcycle. To start, inve ...

Credit Risk in the Euro Area

Abstract: We construct credit risk indicators for euro area banks and non-financial corporations. These indicators reveal that the financial crisis of 2008 dramatically increased the cost of market funding for both banks and non-financial firms. In contrast, the prior recession following the 2000 US dot-com bust led to widening credit spreads of non-financial firms but had no effect on the credit spreads of financial firms. The 2008 financial crisis also led to a systematic divergence in credit spreads for financial firms across national boundaries. Credit spreads provide substantial predictive content for real activity and lending measures for the euro area as a whole and for individual countries.

Competition for Advertisers and for Viewers in Media Markets

Abstract: Standard models of advertising-financed media assume consumers patronise a single-media platform, precluding effective competition for advertisers. Such competition ensues if consumers multi-home. The principle of incremental pricing implies that multi-homing consumers are less valuable to platforms. Then entry of new platforms decreases advertisement prices, while a merger increases them, and advertisement-financed platforms may suffer if a public broadcaster carries advertisements. Platforms may bias content against multi-homing consumers, especially if consumers highly value overlapping content and/or second impressions have low value.

Identifying Uncertainty Shocks Using the Price of Gold

Abstract: We propose an instrument to identify uncertainty shocks in a proxy structural vector autoregressive model (SVAR). The instrument equals the variations in the price of gold around events associated with unexpected changes in uncertainty. These variations correlate with uncertainty shocks because gold is perceived as a safe haven asset. To control for news‐related effects associated with the events we identify uncertainty and news shocks jointly, developing a set‐identified proxy SVAR. We find that the popular recursive approach underestimates the effects of uncertainty shocks and delivers responses for economic activity and monetary policy that have more in common with news shocks than with uncertainty shocks.

Good Jobs and Recidivism

Abstract: I estimate the impact of employment opportunities on recidivism among 1.7 million offenders released from a California prison between 1993 and 2008. The institutional structure of the California criminal justice system as well as location, skill, and industry-specific job accession data provide a unique framework for identifying a causal effect of job availability on criminal behaviour. I find that increases in construction and manufacturing opportunities at the time of release are associated with significant reductions in recidivism. Other types of opportunities, including those characterised by lower wages that are typically accessible to individuals with criminal records, do not influence recidivism.

Coal Smoke and Mortality in an Early Industrial Economy

Abstract: Air pollution was severe in the 19th century, yet its health consequences are often overlooked due to a lack of pollution data. We offer a new approach for inferring local coal use levels based on local industrial structure and industry specific coal use intensity. This allows us to provide the first estimates of the mortality effects of British industrial coal use in 1851-1860. Exploiting wind patterns for identification, we find that a one standard deviation increase in coal use raised infant mortality by 6-8% and that industrial coal use explains roughly one-third of the urban mortality penalty observed during this period. This article is protected by copyright. All rights reserved.

What Do We Know So Far about Multigenerational Mobility

Abstract: “Multigenerational mobility” refers to the associations in socioeconomic status across three or more generations. This article begins by summarizing the longstanding but recently growing empirical literature on multigenerational mobility. It then discusses multiple theoretical interpretations of the empirical patterns, including the one recently proposed in Gregory Clark’s book The Son Also Rises.

Global Collaborative Patents

Abstract: We study the prevalence and traits of global collaborative patents for U.S. public companies, where the inventor team is located both within and outside of the United States. Collaborative patents are frequently observed when a corporation is entering into a new foreign region for innovative work, especially in settings where intellectual property protection is weak. We also connect collaborative patents to the ethnic composition of the firm's U.S. inventors and cross-border mobility of inventors within the firm. The inventor team composition has important consequences for how the new knowledge is exploited within and outside of the firm.

Multiple Measures of Historical Intergenerational Mobility: Iowa 1915 to 1940

Abstract: Was intergenerational economic mobility high in the early twentieth century in the US? Comparisons of mobility across time are complicated by the constraints of the data available. I match fathers from the Iowa State Census of 1915 to their sons in the 1940 Federal Census, the first state and federal censuses with data on income and years of education. I can estimate intergenerational mobility between 1915 and 1940 based on earnings, education, occupation, and names. Across all these measures, I document broad consensus that rates of persistence were low in Iowa in the early twentieth century.

Carbon prices for the next hundred years

Abstract: This paper examines the socially optimal pricing of carbon emissions over time when climate-change impacts are unknown, potentially high-consequence events. The carbon price tends to increase with income. But learning about impacts, or their absence, decouples the carbon price from income growth. The price should grow faster than the economy if the past warming is not substantial enough for learning the true long-run social cost. It grows slower than the economy as soon as the warming generates information about events that could have arrived but have not done so. A quantitative assessment shows that the price grows roughly at the rate of the economy for the next 100 years.

Resetting the Urban Network: 117-2012

Abstract: Do locational fundamentals such as coastlines and rivers determine town locations, or can historical events trap towns in unfavorable locations for centuries? We examine the effects on town locations of the collapse of the Western Roman Empire, which temporarily ended urbanization in Britain, but not in France. As urbanization recovered, medieval towns were more often found in Roman-era town locations in France than in Britain, and this difference still persists today. The resetting of Britain’s urban network gave it better access to naturally navigable waterways when this was important, while many French towns remained without such access.

Targets of Violence: Evidence from India's Naxalite Conflict

Abstract: This paper considers how shocks to rural incomes intensify violence in India’s Naxalite insurgency. Using variation in annual rainfall in a panel of district level fatal incidents between 2005 and 2011, I find that deficient rainfall generally spurs targeted violence against civilians, but the number of Maoist attacks against security forces only increases in mining districts. This finding consistent with the idea that the relationship between income shocks and conflict depends on the type of targets and the revenue sources of the rebels. In particular, the fighting capacity of rebel groups against government forces could benefit more from negative rural income shocks if the group’s resources are sufficiently independent from the agricultural economy, as is the case in mining areas.

Grandfathers Matter(ed): Occupational Mobility Across Three Generations in the US and Britain, 1850–1911

Abstract: Nearly all intergenerational mobility studies focus on fathers and sons. The possibility that the process is more than simply two‐generational (AR(1)) has been difficult to assess because of the lack of the necessary multi‐generational data. We remedy this shortcoming with new data that links grandfathers, fathers and sons in Britain and the US between 1850 and 1910. We find that grandfathers mattered: even controlling for father's occupation, grandfather's occupation significantly influenced the occupation of the grandson. For both Britain and the US in this time period, therefore, assessments based on two‐generation estimates significantly overstate the true amount of social mobility.

Human Capital and Career Success: Evidence from Linked Employer‐Employee Data

Abstract: Denmark’s registry data provide accurate and complete career history data along with detailed personal characteristics (e.g., education, gender, work experience, tenure and others) for the population of Danish workers longitudinally. By using such data from 1992 to 2002, we provide rigorous evidence for the first time for the population of workers in an entire economy (as opposed to case study evidence) on the effects of the nature and scope of human capital on career success (measured by appointments to top management). First, we confirm the beneficial effect of acquiring general human capital formally through schooling for career success, as well as the gender gap in career success rates. Second, broadening the scope of human capital by experiencing various occupations (becoming a generalist) is found to be advantageous for career success. Third, initial human capital earned through formal schooling and subsequent human capital obtained informally on the job are found to be complements in the production of career success. Fourth, though there is a large body of the literature on the relationship between firmspecific human capital and wages, the relative value of firm-specific human capital has been rarely studied in the context of career success. We find that it is more beneficial to broaden the breadth of human capital within the firm than without, pointing to the significance of firmspecific human capital for career success. (JEL codes: J24 and M5)

Location, search costs and youth unemployment: experimental evidence from transport subsidies

Abstract: Do high search costs affect the labour market outcomes of jobseekers living far away from jobs? I randomly assign transport subsidies to unemployed youth in urban Ethiopia. Treated respondents increase job search intensity and are more likely to find good, permanent, jobs. Subsidies also induce a short‐term reduction in temporary work. I use a high‐frequency phone call survey to track the trajectory of search behaviour over time to show that the subsidies significantly increased job search intensity and the use of formal search methods. The evidence suggests that cash constraints cause young people to give up looking for good jobs too early.

Paid Parental Leave and Children's Schooling Outcomes

Abstract: This article investigates whether schooling outcomes at age 15 are affected by the duration of maternity leave, i.e. the time mothers spend at home with their new‐born before returning to work. We exploit an unanticipated reform in Austria which extended the maximum duration of paid and job protected parental leave from 12 to 24 months for births as of 1 July, 1990. Using PISA data from the cohorts 1990 and 1987, we find no significant overall impact of the parental leave extension on standardised test scores. However, subgroup analyses reveal strong heterogeneity by maternal education and child gender.

Communication Costs and the Internal Organisation of Multi-Plant Businesses: Evidence From the Impact of the French High-Speed Rail

Abstract: We document the impact of travel time between affiliates and headquarters of geographically dispersed corporate groups on the management of such business organizations. Theory suggests that the easier circulation of managers might facilitate the transmission of information between production plants and headquarters, thus fostering growth and functional specialization (on production activities) at remote affiliates and decreasing operational costs at the group level. We test these predictions on the population of French corporate groups, using the expansion of the High Speed Rail network as an arguably exogenous shock on internal travel times. Results are most pronounced in the service industries, where information to be transmitted is arguably softer (Petersen and Rajan, 2002): we estimate that HSR induced the creation of one production job for the average affiliate in these industries (against 0.2 job in retail, trade or manufacturing industries), and the shift of around one managerial job from affiliate to HQ. These results are robust to alternative identification strategies addressing the problem of the endogenous placement of the HSR infrastructure (use of high-dimensional fixed effects controlling for local and affiliate-level shocks as in Giroud, 2013 and evidence from un-realized lines as in Donaldson, 2014). At the group level, descriptive regressions suggest that the impact on the operational profit margin is around 0.5 percentage points in most industries.

Higher Education and Prosperity: From Catholic Missionaries to Luminosity in India

Abstract: This paper estimates the impact of completed higher education on economic prosperity across Indian districts. To address the endogeneity of higher education, we use the location of Catholic missionaries circa 1911 as an instrument. Catholics constitute a very small share of the population in India and their influence beyond higher education has been limited. Our instrumental variable results find a positive effect of higher education on development, as measured by light density. The results are robust to alternative measures of development, and are not driven by lower levels of schooling or other channels by which missionaries could impact current income. This article is protected by copyright. All rights reserved.