DOES FISCAL DECENTRALIZATION AFFECT INFRASTRUCTURE QUALITY? AN EXAMINATION OF U.S. STATES

A transportation network is vital to an economy. However, the U.S. highway infrastructure suffers from insufficient maintenance creating inefficiencies such as increased travel times and increase in accidents. The means to fund the infrastructure and their maintenance is a point of debate. In this paper, we examine the role of political institutions and decision‐making on the quality of highway infrastructure by focusing on the role of fiscal decentralization. Using generalized linear model estimation on state data from 1992 to 2012, we find evidence that fiscal decentralization improves infrastructure quality. These results are robust to the choice of control variables and method of estimation. (JEL D73, H42, H72)     

HOW DOES SKILLS MISMATCH AFFECT REMITTANCES? A STUDY OF FILIPINO MIGRANT WORKERS

In this article, unit record data on Filipino migrants are used to analyze the issue of skills mismatch, its prevalence, and its impact on remittances sent back home. Results obtained using instrumental variable techniques reveal that significant proportions of highly educated Filipino workers are employed in low‐skilled jobs overseas, with systematic variation by gender and by country of work. We find that skills mismatch impacts significantly on the migrant's remittance behavior, with effects that are differentiated between genders. Specifically, where there is mismatch in the migrant's educational attainment and the migrant's job requirement, we find significant reductions in remittances for men but not for women. (JEL J240, J610, O150)     

DO INSTITUTIONS MITIGATE THE RISK OF NATURAL RESOURCE CONFLICTS?

The resource curse, as manifested by an increased likelihood of conflict over rents, can be mitigated by institutions. Lei and Michaels find that discoveries of “giant” oil fields increase the likelihood of violent conflict, but they find no evidence that democratic institutions mitigate this risk. We test whether institutions mitigate the resource curse by reducing the risk of natural resource conflicts. Our results indicate that high quality economic institutions reduce the likelihood of territorial (separatist) conflicts following natural resource rent windfalls. Highly autocratic and highly democratic institutions also reduce the likelihood of territorial conflict after natural resource rent windfalls. (JEL Q34, O13, P48, D74)     

HOW DID EXCHANGE RATES AFFECT EMPLOYMENT IN U.S. CITIES?

We estimate the effects of exchange rate on U.S. employment, exploiting differences in industrial composition across major cities. We find that a 1% depreciation of export‐weighted real exchange rate has a positive 0.98% direct effect on manufacturing employment. Its indirect effect on local nonmanufacturing employment rises with the size of the local manufacturing sector, consistent with the hypothesis that there exists a local spillover from the tradable to the nontradable sector. In cities with heavy concentration of manufacturing employment, the indirect effect is statistically significant and about 60% as large as the direct effect measured by the number of jobs. (JEL F3, F1, J2)     

HOW DO OIL PRICE SHOCKS AFFECT A SMALL NON‐OIL PRODUCING ECONOMY? EVIDENCE FROM HONG KONG

We find no evidence from either in‐sample or out‐of‐sample analyses that an oil price shock would necessarily affect a small non‐oil producing economy such as Hong Kong. In our in‐sample recursive vector autoregressive investigations, oil price does not Granger cause the key macroeconomic indicators. The forecast errors from our out‐of‐sample examination using a vector error correction model with oil shocks, which represents an extension to previous studies, were found to be statistically the same as those from the vector error correction model without these shocks. The analysis leads us to dispel the conventional wisdom that a small non‐oil producing economy is more vulnerable to oil shocks than a larger oil‐producing economy such as the USA.     

ARE FINANCIAL AND SOCIAL EFFICIENCY MUTUALLY EXCLUSIVE? A CASE STUDY OF VIETNAMESE MICROFINANCE INSTITUTIONS

A major debate in microfinance focuses on the existence of a trade‐off between the financial sustainability of microfinance institutions (MFIs) and their outreach to poor clients. This paper adds to this debate by analyzing whether financial and social efficiency are mutually exclusive in a context of implicit subsidies by the state and international donors. We use data from a sample of 28 Vietnamese MFIs and apply Data Envelopment Analysis (DEA) to identify the existence of a trade‐off. Our analysis shows that for Vietnamese MFIs financial and social efficiency are not related. We interpret this as evidence for the fact that there is no support to believe that there is such a trade‐off. Subsidies, based on which most Vietnamese MFIs currently operate, helps them to show high financial efficiency, while at the same time being able to attain their social goals. Nevertheless, this model may not be sustainable in the long‐term.     

DO UNIONS IMPACT EFFICIENCY?: EVIDENCE FROM THE U.S. MANUFACTURING SECTOR

This study investigates the impact of labor unions on productivity and technical inefficiency of the U.S. manufacturing sector, using state‐level panel data on 48 states from 1983 to 1996. The results indicate that while labor unions reduce firms' technical progress, they improve firm efficiency in utilizing the existing technology. The findings also suggest that the decline of unionization rate in the sample period impaired firms' technical efficiency by 2.4 percentage points. (JEL C33, C51, O51, J51)     

DO PERMANENT SHOCKS EXPLAIN INCOME LEVELS? A COMMON CYCLE–COMMON TREND ANALYSIS OF REGIONAL INCOME LEVELS FOR CHINA

Abstract. In this paper, we analyse per capita income levels of China's three main regions: the western region, the eastern region and the central region using common cycle and common trend tests. Our main contribution is that we impose the common cycle and common trend restrictions in decomposing shocks into permanent and transitory components. We find that: (i) there is evidence for two cointegrating relationships and one common cycle; and (ii) the variance decomposition analysis of shocks provides evidence that over short horizons, permanent shocks play a large role in explaining variations in regional per capita incomes.     

DOES THE CLARITY OF CENTRAL BANK COMMUNICATION AFFECT VOLATILITY IN FINANCIAL MARKETS? EVIDENCE FROM HUMPHREY‐HAWKINS TESTIMONIES

By applying readability statistics to the Humphrey‐Hawkins testimonies given by the Federal Reserve Chairman, it is tested whether the clarity of central bank communication affects volatility in financial markets. There are three results. First, when clarity matters, it has a diminishing effect on volatility. Second, clarity of communication matters mostly for volatility of medium‐term interest rates. Third, the effects of clarity vary over time. Clarity mattered especially, but not exclusively during Alan Greenspan's Chairmanship. Overall, the analysis illustrates the importance of transparent communication on monetary policy. (JEL E44, E52, E58)     

TO JOIN OR NOT TO JOIN? DO BANKS THAT ARE PART OF A FINANCIAL HOLDING COMPANY PERFORM BETTER THAN BANKS THAT ARE NOT?

This study compares the performance of banks that are part of a financial holding company (FHC banks) with that of banks that are not (independent banks) using Taiwan data from 2002:Q1 to 2006:Q2. The comparisons are based on 14 performance ratios resulting from the concept of CAMEL (which is an acronym for Capital adequacy, Asset quality, Management efficiency, Earnings ability, and Liquidity sufficiency). To ensure that becoming part of an FHC is a random process, we used four matching methods to select the controlled banks so that the characteristic variables of banks in the two groups are statistically indifferent. By using the data before matching, it was found that FHC banks significantly defeat independent banks, regardless of their performance ratios. Conversely, when the sample was used after the matching, the results changed dramatically. Although FHC banks still beat the independent banks in terms of capital adequacy, asset quality, and liquidity sufficiency, FHC banks and independent banks are found to have equal profitability and management efficiency. Earlier studies that do not consider the endogeneity problem tend to overestimate the joining effect.(JEL C21, G21)     

Do non-citizens affect U.S. Congressional elections?

U.S. citizens against immigration argue that immigrants commit voter fraud and skew election outcomes towards progressive candidates. These arguments have increased in number and severity since the Supreme Court ruled in 2013 that states cannot require photo identification from voters. We examine whether the size of the non-citizen population is related to election outcomes. Previous research indicates that non-citizens sway elections in favour of progressive candidates but only in elections where the victory margin is small. We find no evidence of a relationship between non-citizens and vote outcomes. We find evidence that the percent of the population that is non-white is positively related to percent of votes cast for democratic candidates.     

Did China tire safeguard save U.S. workers?

Although temporary trade barriers are perceived as a feasible policy instrument for securing domestic jobs in the presence of increased globalization and economic downturns, no study has assessed whether such temporary barriers have actually saved domestic jobs. To overcome this deficiency, we evaluate the China-specific safeguard case on consumer tires petitioned by the United States. Contrary to claims made by the Obama administration, we find that total employment and average wages in the tire industry were unaffected by the safeguard. Further analysis reveals that this result is not surprising as we find that imports from China are completely diverted to other exporting countries partly due to the strong presence of multinational corporations in the world tire market.     

Where do the new U.S. immigrants live?

"Analyzing the location choices of the post-1964 U.S. immigrants results in three main findings: (1) these immigrants are more geographically concentrated than natives of the same age and ethnicity and reside in cities with large ethnic populations; (2) education plays a key role in location choice, reducing geographic concentration and the likelihood of being in cities with a high concentration of fellow countrymen and increasing the probability of changing locations after arrival in the United States; (3) internal migration within the United States occurs more frequently among immigrants than natives and facilitates the process of assimilation for the more educated individuals."     

Has the Fed improved U.S. economic performance?

This paper finds that U.S. economic performance has not generally improved under the Federal Reserve, with the possible exception of the Great Moderation. We analyze the Fed and pre-Fed periods in terms of the rates and volatilities of inflation and real GDP growth. Comparing the pre-Fed periods to the post-World War II period and the Great Moderation, we find that real GDP growth has been lower under the Fed, while inflation has been higher. The volatilities of inflation and GDP growth have both declined under the Fed, but the reductions occurred mostly during the Great Moderation.     

Do Energy Prices Affect U.S. Investor Sentiment?

The current literature has examined the effect of investor sentiment on energy prices, but no study ever has explored the validity of the reverse question. Therefore, this article explore whether energy prices (i.e., crude oil and natural gas prices) affect U.S. investor sentiment, using the methodology of quantile regression. The empirical results document that controlling for a number of U.S. macroeconomic and financial factors, there exists a statistically significant association between oil and natural gas prices and investor sentiment. However, only natural gas prices appear to retain their statistical significance over the majority of quantiles. These findings received robust support under alternative measures of the investor sentiment index.     

Do immigrants affect the profile of U.S. exporters?

We highlight that an increase in the stock of immigrants corresponds with greater numbers of U.S. firms that engage in exporting to foreign markets. Our results are obtained from the estimation of a multi-level mixed effects model. Overall, the effect of immigrants is relatively larger among small- and medium-sized enterprises and is smaller among large-sized enterprises. There are, however, considerable differences, both in the magnitude and in nature of the observed effects of immigrants on manufactured and non-manufactured goods exporters of comparable size categories. Similarly, heterogeneity is found in the effects of immigrants on the numbers of small-, medium-, and large-sized exporters across home country cohorts that are grouped by World Bank income classifications and by broad regional classifications of destination markets. These findings imply that immigration has the potential to alter the profile of domestic firms involved in exporting.     

What keeps long-term U.S. interest rates so low?

U.S. government indebtedness and fiscal deficits increased notably following the Global Financial Crisis. Yet long-term interest rates and U.S. Treasury yields have remained remarkably low. What keeps long-term interest rates so low? This paper relies on a simple model, based on John Maynard Keynes’ view that the central bank's actions are the key drivers of long-term interest rates, to explain the behavior of long-term interest rates in the U.S. The empirical findings confirm that short-term interest rates are the most important determinants of long-term interest rates in the U.S. Contrary to conventional wisdom, higher government indebtedness has a negative effect on long-term interest rates, particularly on a long run basis. However, in the short run, higher government indebtedness has a positive effect on long-term interest rates. These are relevant for contemporary policy debates and macroeconomic theory.     

U.S. Welfare Reform: What's Relevant for Europe?

This paper reviews the U.S. welfare reform efforts over the1990s and the effects of these reforms to date. Seven "lessons"of potential interest to European observers are discussed, withparticular attention to the conclusions of more recent research.Such research indicates, for example, that more effective programscontain both positive and negative incentives, utilise work-firstas well as job training programs, and provide some importantsupports beyond just job and work skills. The paper ends withsome speculations about why European policy-makers are becomingmore interested in U.S. welfare reform experiments than theyhave been in the past. (JEL I3, J2, H1)     

U.S. EXTERNAL ADJUSTMENT: IS IT DISORDERLY? IS IT UNIQUE? WILL IT DISRUPT THE REST OF THE WORLD?

This article focuses on the historical experience with U.S. external adjustment, that is, narrowings of the trade deficit. Using data from the past 35 years, we compare economic performance in episodes during which the U.S. trade balance declined against episodes during which it rose. We find that trade balance adjustment has been generally benign: U.S. real gross domestic product growth tended to fall but not to a statistically significant extent; housing construction slumped; inflation generally rose modestly; and although nominal interest rates tended to rise, real interest rates fell. The article then compares these outcomes to those in foreign industrial economies. We find that the economic performance of the United States during periods of external adjustment is remarkably similar to the foreign experience. Finally, we also examine the performance of the foreign industrial economies during the periods when the U.S. trade deficit widened and narrowed. Contrary to concerns that U.S. adjustment will prove injurious to foreign economies, our analysis suggests that the foreign economies fared reasonably well during past periods when the U.S. trade deficit narrowed. ( JEL F32, F41)