The Political Economy of Middle‐Income Traps: Is South Africa in a Long‐Run Growth Trap? The Path to “Bounded Populism”

The current literature on middle‐income traps has been dominated by economists who have relied on economic explanations mainly around stages of development and the structural transformation of economies. But there is an equally vigorous literature from political science which speaks to the political economy of transitions. We look at the dynamics of how economic modernisation triggers structural changes with winners and losers and how this is reflected in the polarisation of the political sphere amongst middle‐income countries. This paper asks the question of whether South Africa is an archetypical example of a country stuck in a trap and how this has affected the policy choices that it has made. South Africa needs to move up the value chain with a viable value proposition, and this requires a very different policy set and human capital plan.     

Improving time series forecasting: An approach combining bootstrap aggregation,clusters and exponential smoothing

Some recent papers have demonstrated that combining bagging (bootstrap aggregating) with exponential smoothing methods can produce highly accurate forecasts and improve the forecast accuracy relative to traditional methods. We therefore propose a new approach that combines the bagging, exponential smoothing and clustering methods. The existing methods use bagging to generate and aggregate groups of forecasts in order to reduce the variance. However, none of them consider the effect of covariance among the group of forecasts, even though it could have a dramatic impact on the variance of the group, and therefore on the forecast accuracy. The proposed approach, referred to here as Bagged.Cluster.ETS, aims to reduce the covariance effect by using partitioning around medoids (PAM) to produce clusters of similar forecasts, then selecting several forecasts from each cluster to create a group with a reduced variance. This approach was tested on various different time series sets from the M3 and CIF 2016 competitions. The empirical results have shown a substantial reduction in the forecast error, considering sMAPE and MASE.     

Crypto-assets portfolio optimization under the omega measure

Abstract

Crypto-currencies, or crypto-assets, represent a new class of investment assets. The traditional portfolio analysis approach of Markowitz is not appropriate for use with portfolios containing crypto-assets, as the model requires that the investor have a quadratic utility function or that the returns be normally distributed, which isn’t the case for crypto-assets. We develop a portfolio optimization model based on the Omega measure which is more comprehensive than the Markowitz model, and apply this to four crypto-asset investment portfolios by means of a numerical application. The results indicate that these portfolios should favor traditional market assets over crypto-assets. In the case of portfolios formed only by crypto-assets, there is no clear preference in favor of any crypto-asset in particular.     

Cross‐country evidence on the determinants of inclusive growth episodes

Widening income disparities and slow productivity growth in most advanced and several emerging‐market economies have rekindled interest in the empirical analysis of the determinants of inclusive growth, defined in this paper as episodes of increases in GDP per capita without a concomitant deterioration in the distribution of household disposable income. The empirical analysis is based on a chronology of inclusive growth episodes between 1980 and 2013 for a sample of 78 countries. Logit and multinomial probit estimations show that human capital accumulation, the redistributive potential of tax‐benefit systems, increases in multifactor productivity and labor force participation, as well as trade openness and a range of institutional factors, including political system durability and electoral regimes, are important determinants of the probability of occurrence of inclusive growth. This empirical evidence contributes to the policy debate about how countries can deal with efficiency–equity tradeoffs.     

Multiples’ Valuation: The Selection of Cross-Border Comparable Firms

We studied whether mean industry multiples are similar in Brazil and in the United States. Using multilevel models (hierarchical linear model and additive crossed random-effects model), we concluded that there exists significant variability within firms from the same industry and significant variability between countries (Brazil and United States). The same tests were applied to firms grouped in clusters by similarity of economic fundamentals and we concluded that part of the variability shifts from (a) the variability within firms from the same industry and the variability between countries to (b) the variability between clusters, which is desirable in multiples’ valuation.     

Capital requirements,risk-taking and welfare in a growing economy

Journal of Regulatory Economics - The effects of capital requirements on risk-taking and welfare are studied in an overlapping generations model of endogenous growth with banking, limited...     

Renegotiation in Public–Private Partnerships: An Incentive Mechanism Approach

Game theory is an important analytical tool for measuring problems caused by behaviors that deviate from contractual ethics. However, the PPP literature still does little to explore this research topic. This paper analyzes and improves the equilibrium conditions of a renegotiation model of PPPs by introducing the asymmetry of information in the contract. To achieve this goal, the Mechanism Design Theory is used to demonstrate how the correct tracking of the investor directly influences the payoffs of the renegotiation. The study concludes that the lack of incentive constraints in the bidding document, as an ex ante condition, does not provide sufficient information on investor management capability. In this way, this information is only revealed in the renegotiation phase. Consequently, this contract failure results in high political costs to the government due to excessive subsidies.     

What type of cooperation with suppliers and customers leads to superior performance?

This research evaluates cooperation with key suppliers and customers, correlating cooperation to financial performance. Four cooperative behaviors represent cooperation as a multidimensional concept and the research explores the effect of each of these different dimensions of cooperation on performance. Results show that not all cooperative behaviors have similar and positive impacts on performance. Flexibility has no significant effect while shared problem solving has a negative effect. The other two cooperative behaviors, information exchange and restraint in the use of power, have positive impacts on performance. Results also indicate that cooperation with customers affects mostly firm growth while cooperation with suppliers affects firm profitability. Based on a survey of 124 packaging manufacturers, the analysis uses CFA (Confirmatory Factor Analysis) to validate the measurement of constructs and multiple regressions to analyze the relationships between the cooperative behaviors and financial performance.     

Migration and Regional Trade Agreements: A (New) Gravity Estimation

This paper investigates the role of regional trade agreements (RTAs) on bilateral international migration. Building on a gravity model for migration, our econometric strategy controls for the multilateral resistance to migration and solves the zero migration flows problem by using a censored quantile regression approach. Further, the endogeneity problem of RTAs in migration settlement is addressed by using instrumental variable censored quantile regression. Our results suggest that the presence of a RTA stimulates the migration stocks among member countries. The pro‐migration effect of RTAs is magnified if the agreement includes also provisions easing bureaucratic procedures for visa and asylum among member countries. Finally, we find an asymmetric effect of RTAs across the quantiles of the distribution of migration settlements.