Causality tests of budget and current account deficits: Cross-country comparisons

This study attempts to determine the causal relationship between budget and current account deficits as well as the direction of such causality. A selected sample of some developed and developing countries with annual time series data is used and cointegration techniques are applied to bring evidence regarding this important issue. Our results do not support any long-run relationship between the two deficits for developed countries while the data for developing countries do not reject such a relationship. However, our results suggest a causal relationship between the two deficits for most of the sample countries. First version received: November 1996/final version received: September 1998     

Competitive procurement with ex post moral hazard

Unlike standard auctions, we show that competitive procurement may optimally limit competition or use inefficient allocation rules that award the project to a less efficient firm with positive probability. Procurement projects often involve ex post moral hazard after the competitive process is over. A procurement mechanism must combine an incentive scheme with the auction to guard against firms bidding low to win the contract and then cutting back on effort. While competition helps reduce the rent of efficient firms, it exacerbates the problem due to moral hazard. If allocative efficiency is a requirement, limiting the number of participants may be optimal. Alternatively, the same incentives can be optimally provided using inefficient allocation rules.     

Do Enclaves Help or Hinder the American Dream?

A sizable proportion of United States Hispanics live in segregated communities. The rising Hispanic population in the United States and the negative association of enclave-residence with earnings have given rise to the concern that a large part of the current and future labor force, native and immigrant Hispanics, may struggle to improve social mobility and integration into the mainstream United States population. However, the causal effect of enclave-residence on earnings of Hispanics in the United States remains an open question given that previous studies have not addressed the non-random distribution of individuals into and out of enclaves. Using a longitudinal data set I address the non-random location decision of individuals to identify a causal link between enclave-residence and earnings of Hispanics. I find a much larger negative impact of enclave-residence on earnings than previous studies. However, the results also show that enclave-residence is associated with longer durations of employment. Second generation immigrant Hispanics appear to be immune from the wage penalty that is associated with enclaves.     

The impact of Universal Service Obligations and International Cross-subsidies on the dispersion of telephone services in developing countries

This paper re-evaluates the telecommunication policies often applied to create regional dispersion of services in developing countries. We observe that failure to consider the complexities of the regional telecommunication systems in creating policies and investment strategies has increased the telecom gap between urban and rural regions worldwide. In particular, the teledensities of rural telecommunications in developing countries have remained very low in spite of support through universal service obligation fees and cross-subsidization from international services. As traditional methods for economic analysis and modeling have failed to identify mechanisms that improve telephone dispersion in these countries, we use a system dynamics modeling approach to deal with complexities of the situation in order to evaluate how Universal Service Obligations (USOs) and International Cross-Subsidy (ICS) policies affect telephone densities. We demonstrate that these policies may be counterproductive due to the structure of the telecom system itself. We also show that, when market-clearing pricing is combined with USOs once the urban telephone density reaches a minimum threshold, the dispersion of rural telecommunications can be considerably improved.     

The evolving role of agricultural technology indicators and economic growth in rural poverty: has the ideas machine broken down?

The objective of the study is to examine the impact of technical progress in agriculture on changes in rural poverty in Pakistan by using annual data from 1975–2011. Data is analyzed by the set of sophisticated econometric techniques i.e., cointegration theory, Granger causality test and variance decomposition, etc. The results reveal that agricultural technology indicators act as an important driver to alleviate rural poverty in Pakistan. Granger causality test indicate that causality runs from technological indicators to rural poverty but not vice versa. However, agricultural irrigated land and industry value added, both does not Granger cause rural poverty, which holds neutrality hypothesis between the variables. Variance decomposition analysis shows that among all the technological indicators, agricultural machinery in form of tractors have exerts the largest contribution to changes in rural poverty in Pakistan. The study concludes that agricultural technology indicators are closely associated with economic growth and rural poverty in Pakistan. Technology in Pakistan has a low pace but still old technology continuously contributed towards poverty reduction. The question whether idea machine is broken down or not? Still need further exploration.     

Group discussions: A misunderstood technique

Group discussions are probably one of the most frequently used research techniques in social science. However, this popularity has still not managed to reduce the misconceptions expressed in the general literature about its use.

This article is an attempt to reduce some of these misconceptions. To achieve this, the underlying characteristics of the technique are discussed, followed by an examination of the many reasons, cited by researchers, for its use. This is then followed by a discussion of its advantages and disadvantages as well as the variants to be found in practice. Finally, the article examines a number of considerations that are based on the collective experience of various researchers and which, if followed, are said to provide a better chance of success.

The article concludes that, contrary to the general perception that the technique is governed largely by subjectivity, it requires its user to give careful thought and planning to the dynamic process.     

The European Single Currency and MENA's Exports to Europe

The paper investigates future exchange rate policy of the Middle East and North African (MENA) countries vis‐à‐vis the euro aimed at fostering their manufactured exports towards Euroland. The exchange rate policy is captured through three different indicators: the real effective exchange rate changes, volatility, and misalignment. The investigation is conducted for 11 sectors over the period 1970–1997. The sample includes four North African countries (Algeria, Morocco, Tunisia, Egypt) and Turkey. The results show that exchange rate management plays a crucial role in providing incentives for manufactured exports toward Euroland. The food sector is weakly responsive to real exchange rate changes while the textile sector is highly responsive. Four growing sectors (electronic, electrical, mechanical, and vehicles) were also found to be highly sensitive to exchange rate changes. The results suggest that policymakers should be more concerned with misalignment than with volatility.     

Use it or lose it

We examine the optimality of budget policies imposed by a funding authority on a bureaucrat who operates under a fixed budget. In particular, we study a “use‐it‐or‐lose‐it” (UILI) policy under which the bureaucrat has to return any unspent budget without being able to “roll over” any part to the next period. Instead of returning the unspent budget, the bureaucrat can go on a spending spree and engage in policy drift, which is inversely related to his motivation. The bureaucrat's motivation represents how well matched he is with the bureaucracy's mission. We show that a UILI policy is complementary to motivation as it has stronger ex ante positive incentive effects on more motivated bureaucrats. Such ex ante positive effects can overcome the ex post inefficiency of the policy and make a UILI policy optimal when the bureaucrat is well matched with the bureaucracy's mission or when its budget is large.