DID INEQUALITY CAUSE THE U.S. FINANCIAL CRISIS?

In his widely discussed book ‘Fault Lines’ (2010), Raghuram Rajan argues that many low and middle income consumers have reduced their saving and increased debt since income inequality started to soar in the United States in the early 1980s. This has temporarily kept private consumption and employment high, but it also contributed to the creation of a credit bubble. This surge in household indebtedness turned out to be unsustainable in the financial crisis starting in 2007. Although Rajan and others emphasize the role of government in promoting credit to those households with declining relative (permanent) incomes, other strands of the literature have focused more explicitly on the implications of rising inequality for aggregate demand and households’ demand for credit. These differences in emphasis may explain why the literature on the inequality‐crisis nexus appears somewhat disparate, even though the various strands are far from mutually exclusive but rather complement each other. We therefore place the ‘Rajan hypothesis’ in the context of competing theories of consumption, and survey the empirical literature on the effects of inequality on household behaviour. We conclude that the empirical evidence calls for a renaissance of the relative income hypothesis of consumption.     

WHAT EXPLAINS THE DIFFERENCE IN THE EFFECT OF RETIREMENT ON HEALTH? EVIDENCE FROM GLOBAL AGING DATA

This paper analyzes the reasons for differences in the estimated effect of retirement on health in previous studies. We investigate these differences by focusing on the analysis methods used by these studies. Using various health indexes, numerous researchers have examined the effects of retirement on health. However, there are no unified views on the impact of retirement on various health indexes. Consequently, we show that the choice of analysis method is one of the key factors in explaining why the estimated results of the effect of retirement on health differ. Moreover, we re‐estimate the effect of retirement on health by using a fixed analysis method controlling for individual heterogeneity and endogeneity of the retirement behavior. We analyze the effect of retirement on health parameters, such as cognitive function, self‐report of health, activities of daily living (ADL), depression, and body mass index in eight countries. We find that the effects of retirement on self‐report of health, depression, and ADL are positive in many of these countries.     

FROM INSTITUTIONS TO FINANCIAL DEVELOPMENT AND GROWTH: WHAT ARE THE LINKS?

This paper presents an integrated overview of the literature linking institutions, financial development, and economic growth. From the large body of research on institutional development, the paper first selects those contributions that make it possible to study the role of institutional arrangements in ameliorating/worsening the information frictions and transaction costs that characterize the development of financial markets. The paper then investigates the theoretical mechanisms by which these specific frictions affect economic growth and presents the stock of empirical evidence quantifying the impact of institutions on growth through financial development.     

WHAT DRIVES CAPITAL FLOWS TO EMERGING MARKETS? A SURVEY OF THE EMPIRICAL LITERATURE

This paper reviews the rapidly growing empirical literature on the drivers of capital flows to emerging markets. The empirical evidence is structured based on the recognition that the drivers of capital flows vary over time and across different types of capital flows. The drivers are classified using the traditional distinction between ‘push’ and ‘pull’ drivers, which continues to serve as a useful framework. Push factors like global risk aversion and external interest rates are found to matter most for portfolio debt and equity flows, but somewhat less for banking flows. Pull factors such as domestic output growth, asset returns and country risk matter for all three capital flows components, but most for banking flows.     

MIGRATION FROM THE NORTHEAST TO THE SOUTHEAST IN BRAZIL:* Do Migrants Succeed?

"In this paper 1980 [Brazilian] Census microdata are used to evaluate the experiences of males who moved from the Northeast to the Southeast in the post- 'miracle' period. Using regression analysis, migrant earnings are compared to those of persons who remain in the Northeast, to estimate the average earnings gain from relocating. These results are then disaggregated by education, age at migration, period of residence, and particular sending and receiving location, to provide more specific information on which groups benefit most. Wide variation in gains is observed, but substantial improvements in earnings are reported in most cases."     

WHAT'S TO KNOW? PUZZLES IN THE LITERATURE ON THE VALUE OF STATISTICAL LIFE

Abstract Notwithstanding the general acceptance of the value of statistical life (VSL) estimates for policy assessment purposes, several important unresolved issues remain. First, the results from revealed preference studies are systematically higher than those from stated preference studies, potentially limiting the usefulness of stated preference studies in generalizing the VSL estimates to different populations and kinds of risks. Second, extrapolating the results of meta‐analyses to project the VSL for different population groups requires that such generalization be reflective of the underlying economic content of what average VSL estimates reflect. Third, government agencies within and across countries place differing emphasis on types of VSL studies as well as differing reliance on individual studies versus meta‐analyses. Usually, there is no justification provided for the chosen approach.     

WHAT HAVE WE LEARNED FROM THREE DECADES OF RESEARCH ON THE PRODUCTIVITY OF PUBLIC CAPITAL?

The last three decades have witnessed a great deal of research effort devoted to measuring the private output elasticity of public capital. The wide range of available estimates have precluded any consensus so far, however. This paper reconciles the empirical findings of the literature by quantitatively analyzing a sample of 578 estimates collected from 68 studies for the 1983–2008 period. Using meta‐regression analysis, we show how study design characteristics and publication bias can explain a large fraction of the variation across estimates. We find a short‐run output elasticity of public capital supplied at the central government level of 0.083, which increases to 0.122 in the long run. If, in addition, only core infrastructure at a regional/local level of government is considered, these estimates are almost doubled. The average output elasticity of public capital amounts to 0.106. Our results suggest that public capital is undersupplied in OECD economies.     

CAN THE CARBONIZING DRAGON BE DOMESTICATED? INSIGHTS FROM A DECOMPOSITION OF ENERGY CONSUMPTION AND INTENSITY IN CHINA, 1987–2007

China has relied on energy to stimulate its booming economy. As a result, its share of world energy consumption rose to 17.3% in 2009 from 7.9% in 1978. Somewhat surprisingly, through 2000 its rate of energy consumption was about half its rate of economic growth. This trend changed after 2001 as energy consumption rose about 1.3 times more rapidly than did gross domestic product through 2005. Through heavy governmental influence, energy intensity subsequently reduced through 2007, but just marginally. This paper uses the structural decomposition approach to understand key drivers behind changes in China's energy intensity and its energy consumption from 1987 to 2007. In our model, energy intensity change was decomposed into five factors: changes in energy efficiency, changes in share of value added, changes in input structure, changes in consumption structure, and changes in consumption volume. This paper provides insights into how changes in China's economic structure, technology, urbanization, and lifestyle affect energy intensity and energy consumption.     

A TIP OF THE ICEBERG? THE PROBABILITY OF CATCHING CARTELS

Reliable estimates of crime detection probabilities could help in designing better sanctions and improve our understanding of the efficiency of law enforcement. For cartels, we only have limited knowledge on the rate at which these illegal practices are discovered. In comparison to previous works, this paper offers a more parsimonious and simple‐to‐use method to estimate time‐dependent cartel discovery rates, while allowing for heterogeneity across firms. It draws on capture–recapture methods that are frequently used in ecology to make inferences on various wildlife population characteristics. An application of this method provides evidence that less than a fifth of cartelising firms are discovered. Copyright © 2013 John Wiley & Sons, Ltd.     

DO CRISES INDUCE REFORM? A CRITICAL REVIEW OF CONCEPTION,METHODOLOGY AND EMPIRICAL EVIDENCE OF THE ‘CRISIS HYPOTHESIS’

The notion that economic crises induce the adoption of reform ranks among the most widely accepted concepts in the political economics literature. However, the underlying mechanism of the so‐called ‘crisis hypothesis’ has yet to be fully understood. This paper provides a comprehensive survey of the relevant empirical evidence to date, and scrutinizes the operationalization of the hypothesis’ key concepts: crisis, reform and the political mediation of reform during crises. We argue that the social perception of both crises and the subsequent cost of reform requires consideration of how these concepts are operationalized. As a product of the broader economic and institutional environment, social perceptions largely determine the manner in which the political mediation of reform during crises works. Present‐day methodological approaches fail to adequately reflect social perceptions and consequently compromise the determination of what constitutes both crisis and the cost of reform in the context of the crisis hypothesis. Most notably, the identification of crises by fixed thresholds constructed around macroeconomic variables impedes the interpretation of the hypothesis’ underlying mechanism. A fuller treatment of social perception within the operationalization of the hypothesis’ key concepts can enhance our understanding of how economic crises influence political dynamics in bringing about reform.     

WILL BUSINESS CYCLES IN THE EURO AREA CONVERGE? A CRITICAL SURVEY OF EMPIRICAL RESEARCH

Abstract.  This survey of business cycle synchronization in the European monetary union focuses on two issues: have business cycles become more similar, and which factors drive business cycle synchronization. We conclude that business cycles in the euro area have gone through periods of both convergence and divergence. Still, there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased. Higher trade intensity is found to lead to more synchronization, but the point estimates vary widely. The evidence for other factors affecting business cycle synchronization is very mixed.     

THE ‘REST OF THE WORLD’ – ESTIMATING THE ECONOMIC STRUCTURE OF MISSING REGIONS IN GLOBAL MULTI-REGIONAL INPUT–OUTPUT TABLES

Incomplete data for the economic structure of numerous countries hamper the compilation of global multi-regional input–output (MRIO) tables. By themselves, most of these countries are of only limited importance for the global economy and incumbent environmental issues. Hence, in most recent global MRIO tables these countries are either roughly estimated or summarised in one rest of the world (RoW) region. Combining a wide range of countries, this RoW region may play a significant role in global economic and environmental accounts. We conceptualise the importance of RoW in several environmental footprint accounts and present algorithms to estimate the structure of RoW. The approach utilises the information of the economic structure within known parts of the MRIO table to estimate the unknown structure. Using this method, global warming potential and employment footprints remain stable irrespective of the chosen initial estimates, whereas natural land use footprints and individual product impacts vary significantly.     

DO THE DIAMONDS OF FOREIGN COUNTRIES SHAPE THE COMPETITIVENESS OF FIRMS? A CASE STUDY OF THE SWEDISH ENGINEERING CONSULTING INDUSTRY

This research sought to explore the effect of foreign countries on firms’ competitiveness, using Porter’s Diamond as the framework for the empirical test. The empirical evidence was based on data collected from a sample of Swedish engineering consulting firms. The findings demonstrate that the Swedish Diamond has stronger impact on the competitiveness of Swedish engineering consulting firms than do the Diamonds of the host countries in which these firms are active. The effect of host countries’ Diamond tend to increase as firms mature in their international activity and was found to have weak relation to the psychic distance between Sweden and the host countries.     

AGGREGATION VERSUS DISAGGREGATION IN INPUT–OUTPUT ANALYSIS OF THE ENVIRONMENT

Analysts carrying out input–output analyses of environmental issues are often plagued by environmental and input–output data existing in different classifications, with environmentally sensitive sectors sometimes being aggregated in the economic input–output database. In principle there are two alternatives for dealing with such misalignment: either environmental data have to be aggregated into the input–output classification, which entails an undesirable loss of information, or input–output data have to be disaggregated based on fragmentary information. In this article, I show that disaggregation of input–output data, even if based on few real data points, is superior to aggregating environmental data in determining input–output multipliers. This is especially true if the disaggregated sectors are heterogeneous with respect to their economic and environmental characteristics. The results of this work may help analysts in understanding that disaggregation based on even a small amount of proxy information can improve the accuracy of input–output multipliers significantly. Perhaps, these results will also provide encouragement for preferring model disaggregation to aggregation in future work.     

TESTING ASSUMPTIONS MADE IN THE CONSTRUCTION OF INPUT–OUTPUT TABLES

Product input–output (IO) tables are mainly constructed on the basis of product and/or industry technology assumptions. The choice is not trivial and deserves empirical analysis using input and output data at the level of establishments. This paper offers input–output compilers econometric tests to facilitate the construction of tailored hybrid technology-based product IO tables. We provide weighted likelihood ratios of the product and industry technology assumptions. Although the proposed econometric tests are aimed to be used ex ante, we construct four variants of hybrid technology-based product IO tables using establishment data from Andalusia (Spain) and contrast them to the official product IO table and the pure product and industry technology-based tables. Our econometric tests are not valid for industry IO tables.     

ON THE ENVIRONMENTAL IMPACT OF CONSUMER LIFESTYLES – USING A JAPANESE ENVIRONMENTAL INPUT–OUTPUT TABLE AND THE LINEAR EXPENDITURE SYSTEM DEMAND FUNCTION

In this study, we undertake some hypothetical experiments and predict the environmental effects of some changes in consumer behavior, using the Japanese Input–Output Table and the Family Income and Expenditure Survey for 2000. We estimate the demand function in a linear expenditure system (LES) and attempt to determine how changes in consumer behavior affect the environmental load induced by household consumption, using the ‘willingness to pay’ concept. Furthermore, we define an index to show the eco-efficiency of consumer behavior. Through such a study, we can determine what action is appropriate for a ‘sustainable consumption’ society. If some change of consumer behavior greatly improved utility while increasing the environmental load, then technological progress to reduce the environmental load must be stimulated. However, if other changes in consumer behavior increase the environmental load while not improving utility very much, then such changes should be strongly discouraged.     

FINANCIAL LIBERALIZATION IN SUB‐SAHARAN AFRICA: WHAT DO WE KNOW?

Abstract Beginning from the early 1980s countries in Sub‐Saharan Africa embarked on financial liberalization policies with a view to reversing the ill‐effects of financial repression. This paper provides a survey of financial liberalization in Sub‐Saharan African countries over the period 1980 to 2004. Our review of empirical studies showed that financial liberalization has had diverse and contrasting effects on savings, investment and economic growth. Most studies found a significant positive effect of financial liberalization on investment whereas its effect on savings has been largely insignificant. The evidence on the effect on economic growth is inconclusive as different studies find contrasting results. It is found that financial liberalization policies have not had the desired and expected results as both financial and macroeconomic variables have not improved following financial liberalization in these countries. This calls for a rethinking of financial liberalization in Sub‐Saharan African countries. It is important that financial liberalization is carried out in a stable macroeconomic environment. In addition to this, there should be a building and reform of institutions and the strengthening of prudential regulation. Following this, financial liberalization can be embarked upon but it must be properly sequenced and not rushed.