Can we declare military Keynesianism dead?

This paper empirically tests the Keynesian hypothesis that government defence spending positively impacts on aggregate output, by using a long-run equilibrium model for the US and the UK.Our contribution, with respect to previous works, is twofold. First, our inferences are adjusted for structural breaks exhibited by the data concerning fiscal and monetary variables. Second, we take into account different dynamics between defence spending on aggregate output, showing that the results are sensitive to sub-sample choices. Though the estimated elasticities in both countries show a lack of significance in the more recent years of the sample, defence-spending priorities addressed to international security may revitalize pro-cyclical effects in the UK, by an industrial policy of defence shared with the EU members.     

Pollutant emissions,energy use and real output in Sub-Saharan Africa (SSA) countries

Industrialisation is pivotal to growth sustainability and this requires intense energy use that may invariably trigger pollutant emissions thereby necessitating some evidence-based policy concerns. This study therefore examines the dynamic connection among pollutant emission, energy use and real output per capita in SSA. Owing to cross-sectional dependence, the Prais-Winsten model with panel-corrected standard error (PCSE) alongside the panel spatial correlation consistent (PSCC) approach is applied and key findings are established. First, the EKC hypothesis holds and this is striking for both oil-rich and oil-poor SSA countries. Second, energy use induces pollutant emissions in oil-rich SSA countries but not in oil-poor SSA countries. Third, pollutant emissions and energy use are real output per capita-enhancing in SSA generally and in oil-poor countries. Thus, policy measures to safeguard efficient optimisation of energy use in ensuring a balance as well as developing SSA’s rich renewable energy sources is imperative for long-run growth.     

The determinants of tobacco control in Europe: A research note

A series of Probit regressions are estimated to assess the determinants of tobacco control laws in a cross-section of European countries. Although significance is sparse amongst several of the variables included in the analysis, we do find a tendency for the probability of tobacco control to be higher in lower income non-EU countries, with larger shares of government health care expenditures.     

Are tariffs bad for growth? Yes,say five decades of data from 150 countries

The empirical evidence on the growth effects of import tariffs is sparse in the literature, notwithstanding strong views held by the public and politicians. Using an annual panel of macroeconomic data for 151 countries over 1963–2014, we find that tariff increases are associated with an economically and statistically sizeable and persistent decline in output growth. Thus, fears that the ongoing trade war may be costly for the world economy in terms of foregone output growth are justified.     

The efficiency of government spending on health: Evidence from Europe and Central Asia

This paper uses data envelopment analysis (DEA) to evaluate health expenditures to demonstrate how productivity has changed over time for 46 selected countries in Europe and Central Asia. Our results show that countries could have increased output by 1.2% given the existing level of inputs. The patterns of efficiency change for the observed countries are further analyzed using the Malmquist productivity index (MPI). Decreased productivity growth is related to technical change. Finally, we regress efficiency scores on a set of environmental variables using a Tobit model. The positive influence of hospital beds and primary schooling on efficiency scores demonstrates that countries with better medical environments and a greater number of educational years may enjoy increased efficiency. In addition, there exists a regional effect between Europe and Central Asia.     

Do Mediterraneans really do it better? Explaining the lower gender wage gap in southern European countries

This article sets out to help provide a more detailed explanation for the narrower gender wage gap in Mediterranean countries. Two explanatory hypotheses are put forward and compared empirically using the European Union Statistics on Income and Living Conditions (EU‐SILC). The most widely accepted hypothesis is that gender wage gaps across countries are negatively correlated with gender employment gaps. The second hypothesis, however, is supported by evidence that the narrower wage gap in Mediterranean countries could be due to the differences in demand for labour in EU countries as a result ultimately of decisions by major corporations concerning the location of the activities in their value chain.     

Half a century of empirical evidence of business cycles in OECD countries

This paper presents evidence regarding the existence of common business cycles in OECD countries. More specifically, the paper examines the extent to which these cycles relate to each other over time. Business cycle components of output are extracted by adopting the Hodrick–Prescott, Baxter–King and the Christiano–Fitzgerald filters. The degree of business cycle co-movements is determined by evaluating the cross-correlation of the cyclical components of output in selected countries. We also implement the bound-testing approach proposed by Pesaran, Shin and Smith (2001) to investigate the long-run and short-run relations among the business cycle components of output. The study covers the period from 1960 to 2010. The empirical results suggest that there are two distinct cycles in the OECD countries: the Euro-area cycle, which includes the business cycles of Germany, France, Italy, Netherlands, Austria and Belgium, and the world cycle, which consists of the business cycles of the United States, Canada and the United Kingdom.     

Repercussions of exchange rate depreciation on the economy of Pakistan: Simulation analysis using macroeconometric model

Expansionary and contractionary effects of exchange rate shock in developing economies has been the subject of an extensive debate but the results are inconclusive. This study has been conducted to examine the repercussions of unexpected exchange rate depreciation in the Pakistan economy. Unlike the previous literature, this study utilizes a fairly large macroeconometric model constructed on the basis of Cowles Commission structural approach. The study explores that expansionary effect of exchange rate depreciation explained by the traditional theories of open economy macroeconomics persists only for one fiscal year but these theories don’t work in the long-run as contractionary phase starts in the subsequent years. Monetary and fiscal authorities are not neutral and contractionary policy is taken in response to depreciation which pushes the economy into recession. Stagflationary effects are clearly observed. However, improvement in foreign sector prolongs for a number of years and policy makers would have to face a trade-off between opposite response of output and current account balance. Hence, unexpected depreciation generates sharp cyclical fluctuations on demand which immediately transmit to supply side of the economy. In line with the views of “New Structuralists”, exchange rate depreciation may be considered as a source of shock rather than shock absorber in the case of Pakistan economy. Although this study is specifically estimated for the Pakistan economy, authors believe that their methodological contributions and results are of wider importance for policy makers in developing countries.     

Financial efficiency and accounting quality: The impact of institutional micro-factors on FDI

In this paper, we explore whether factors such as financial markets and accounting qualities contribute to foreign direct investment (FDI). We use a unique data source: the survey data from World Economic Forum, to measure the efficiency of the financial markets and the quality of accounting standards. With this unique data, we demonstrate that financial markets and accounting quality are important factors of FDI inflow into a country. In particular, FDI is positively correlated with the strength of financial audits and reporting standards and venture capital availability for all countries. We also show that accounting quality measures are more important for developing and emerging countries than for developed countries. On the other hand, financial market measures, especially the access to venture capital, have a bigger impact in attracting FDI flow into developed countries. These results support the hypothesis that local financial markets and accounting quality affect FDI. The results have strong policy implications for governmental regulatory agencies.     

International Trade and the Urbanization of Developing Countries: Evidence from Asia

Abstract

A grain surplus and the grain trade are closely related to the urbanization of developing countries. However, existing literature has not given adequate attention to this issue. Our paper develops a theoretical model to explain the mechanisms whereby changes in the grain surplus constrain the level of urbanization in a closed economy context and the grain trade affects the level of urbanization by acting on the grain surplus in an open economy context. A test of the theoretical model applied to some developing countries in Asia during the period 1993-2010 shows that international trade is generally negatively correlated with level of urbanization. However, cereal and non-cereal trade vary in terms of their relation to urbanization: whereas the former is positively correlated with level of urbanization, the latter is negatively correlated with it. Since the net import of cereals relaxes the constraint imposed on the level of urbanization by the domestic grain surplus, it can have a marked positive effect on the course of urbanization. Our research findings show that provided grain production or grain security is guaranteed, developing countries may adopt a policy of importing an appropriate amount of grain to increase their level of urbanization.     

Multicountry dynamic multipliers under fixed and floating exchange rates: An econometric analysis

The present paper attempts to analyze the dynamic multiplier effects of fiscal monetary policies for developed countries in a consistent framework of a global econometric model under both fixed and flexible exchange rate regimes. The paper first discusses the estimation of exchange rate functions for eight developed countries with special reference to “fundamentals” in economic performance such as international gaps in inflation, productivity, expected real rate of return, and so on. The results are then incorporated into the global model to derive and compare dynamic multipliers under both fixed and flexible exchange rate regimes. “Insulation effects” are observed in most cases in terms of both output and inflation, though this differs according to the country. Policy implications are discussed at the end.     

The End of the Rollercoaster? Growth,Inequality and Poverty in Central Asia and the Caucasus

This paper examines the impact of a decade of transition on living standards and welfare in Central Asia and the Caucasus. Following independence in 1991 all countries suffered a sharp decline in GDP per capita, with levels in some countries falling to below a quarter of the pre‐transition level. Since then, all countries have experienced positive economic growth. The key questions are whether this growth has been accompanied by declines in inequality and poverty and, if so, how sustainable are these improvements. There is some evidence that recent growth has benefited the poor. However, at the start of the new century, an estimated 39 million people in Central Asia and the Caucasus were living in poverty, of whom over 14 million were living in extreme poverty. Moreover, there is evidence of growing inequalities in terms of access to health and education services, with implications for future human development. Continuing poor governance within the region represents a major barrier to future poverty reduction.     

Housing and the business cycle in South Africa

This paper examines the housing-output growth nexus in South Africa by accounting for the time variation in the causal link with a bootstrapped rolling Granger non-causality test. We use quarterly data on real gross domestic product, real house prices, real gross fixed capital formation and number of building plans passed. Our data span 1971Q2–2012Q2. Using full sample bootstrap Granger causality tests, we find a uni-directional causality from output to number of building plans passed; a uni-directional causality from real house price to output and a bi-directional causal link between residential investment and output. However, using parameter stability tests, we show that estimated VARs are unstable, thus full-sample Granger causality inference may be invalid. Hence, we use a bootstrap rolling window estimation to evaluate Granger causality between the housing variables and the growth rate. In general, we find that the causality from housing to output and, vice versa, differ across different sample periods due to structural changes. Specifically speaking, house price is found to have the strongest causal relationship with output compared to residential investment and number of building plans passed, with real house price showing predictive ability in all but one downward phase of the business cycle during this period.     

Trade liberalization in textiles: Policy effects in an import-competing industry

I trace the dynamic impact of removal of textile quotas in the US on output, employment and plant closure in that industry. A dynamic theoretical model of firm-level decision-making is estimated with US Census manufacturing data and with industry-level demand-side data. Simulations performed with the estimated model provide a decomposition of the historical record into parts attributable to import competition, to technological progress, and to a secular real-wage increase. Plant closure and a fall in domestic prices are largely associated with technological progress, while downsizing, layoffs and reduction in domestic market share are associated with trade liberalization. The market-clearing domestic price of textiles is identified as a crucial channel in transmitting technology or import price shocks to layoffs and plant closure.     

The prospects for higher domestic savings rates in Latin America

This paper analyzes the prospects for raising domestic saving rates to permit increased investment and/or reduced dependence on foreign-capital inflow in Latin America. We analyze the question of rising saving rates by applying a random-coefficients approach: treating the parameters estimated in time-series analysis for individual countries as observations drawn from an international cross-section of savings behavior. Correlation analysis is then applied to clarify the conditions associated with international differences in savings parameters across a sample of 21 Latin American countries.     

Ranking Rates of Return to Education: Legitimacy and an Explicit Diagnostic

Rankings of internal rates of return to education have significantly influenced education expenditures within developing countries and lending priorities of multilateral institutions. It is widely suspected, however, that estimated education returns are subject to systematic bias. The direction and magnitude of this bias are hotly contested. This paper demonstrates that in the presence of systematic bias, idiosyncratic properties of the internal-rate-of-return mapping may cause a ranking reversal. An explicit analytical test of return-ranking legitimacy is developed and applied to select African and Asian countries.     

Popularity and Social Preference in Chinese Adolescents: Associations with Social and Behavioral Adjustment

This study examined the characteristics associated with popularity and social preference in 769 14‐year‐old adolescents (54 percent boys) from mainland China. Consistent with findings from other countries, popularity and social preference were moderately correlated and overt aggression was positively correlated with popularity but negatively correlated with social preference. Prosocial behavior, athletic skill, dating, academic achievement, and mutual friends were positively associated with both popularity and social preference, with the effects for prosocial behavior, athletic skill, and dating greater for popularity than for social preference. The strong correlations between popularity and prosocial behavior are consistent with Confucian ideas of moral leadership and the obligations of high status individuals toward others. Cultural values are also reflected in the association of popularity with academic achievement. The inconsistent findings from China regarding the relation between aggression and popularity may stem from multiple factors including the absence of a suitable Chinese translation for popularity.     

Does inflation targeting matter for output growth? Evidence from industrial and emerging economies

This paper examines the effects of inflation targeting (IT) on output growth over the “globalization years” of 1986-2004. Employing static panel data methods that control for traditional growth determinants, trade openness and financial globalization, the paper finds that the adoption of a fully fledged IT regime results in higher output income per capita for industrial and emerging economies. However, under dynamic model specifications, the estimated long-run output impact of inflation targeting for emerging market economies is found to be lower than in the case of static models. We argue that this might be due to the long lags until the full effects of greater credibility are felt in the real economy and the fact that emerging market economies adopted the regime much later than industrial economies.     

Prospects for trade in manufactured goods between industrial and developing countries, 1978–1990

This paper examines prospective changes in trade in manufactured goods between the industrial and the developing countries. Assuming the continuation of the policies followed by the industrial countries, it is projected that the manufactured imports of these countries from the developing countries would rise at an average annual rate of 12.5% between 1978 and 1980 while their manufactured exports would increase 9 7% a year. Nonetheless, the export surplus of the industrial countries in trade in manufactured goods would rise, contributing to the growth of industrial output. The expansion of their exports of manufactured goods would also contribute to economic growth in the developing countries, and both groups of countries would benefit from specialization according to comparative advantage.     

Globalization and income inequality: Implications for intellectual property rights

This paper examines the impact of globalization on income inequality for a cross-section of 62 developing countries over a period of 17 years (1985–2001). The results of the study indicate that globalization explains only 15% of the variance in income inequality. More specifically, the results show that (1) strengthening intellectual property rights and openness are positively correlated with income inequality; (2) foreign direct investment is negative and significantly correlated with income inequality but this is not robust to different model specifications; (3) the institutional infrastructure is negatively correlated with income inequality. The study's findings and the review of the literature suggest that globalization has both costs and benefits and that the opportunity for economic gains can be best realized within an environment that supports and promotes sound and credible government institutions, education and technological development.