Does one size fit all? The impact of cognitive skills on economic growth

This paper tests for heterogeneous effects of cognitive skills on economic growth across countries. Using a new extended dataset on cognitive skills and controlling for potential endogeneity, we find that the magnitude of the effect is about 60% higher for low-income countries compared to high-income countries, and it more than doubles when low TFP countries are compared to high TFP countries. There are also marked differences across geographic regions. Using data on the share of the population with advanced and minimum skill levels, our results also indicate that high-income countries should focus on increasing the number of high skilled human capital, while countries from Sub-Saharan Africa would benefit more by investing in the development of basic skills.     

Purchasing power parity and the long memory properties of real exchange rates: Does one size fit all?

This paper examines the time series behavior of monthly bilateral real exchange rates (RER) on a comprehensive sample of 78 industrialized and developing countries, using the US Dollar, the UK Pound and the German Deutsche Mark as numeraires. We suggest a three step testing procedure based on recently introduced econometric techniques, in order to assess the mean-reverting properties of the RER and to address the question of whether real exchange rates follow a non linear process or a long memory process.The main results are as follows. Firstly, most of the bilateral real exchange rates under study are not mean-reverting. Secondly, the nonlinear ESTAR type adjustment is far from being prominent. Finally, only few bilateral RER exhibit true long memory mean-reverting properties.     

Trade and unions: Does size matter?

Our empirical analysis builds upon the hypothesis that unions are detrimental to a firm's efficiency. Using a rich survey of German manufacturers, we investigate firm-level determinants on the probability of collective wage bargaining with particular focus on the impact of a firm's engagement in foreign markets. An interesting and very robust finding is that exporters are less likely to engage in union wage bargaining. This finding is in line with a pessimistic perception of unions. The negative effect of collective bargaining can be offset by efficiency gains for larger exporters, who can benefit from operation cost saving effects. Size does matter as larger firms export and may find bargaining with a single entity representing the workforce more convenient than bargaining with each worker individually. We are using firm level information on IT investment as instrument for the export dummy and successfully test for the validity of this instrument.     

One size doesn’t fit all: A project designing small-scale economic development projects

The authors describe an innovative active learning strategy for a course on the economics of developing countries—a project designing a small-scale economic development project. Student teams research issues faced by developing countries and identify a specific problem in a specific locale. Students then create a detailed, feasible plan to alleviate the problem. Student plans include five key components: justification, implementation, budget, funding and evaluation. After having implemented this project for six years, the authors believe it has the potential to enhance learning and improve analytical, creative problem-solving and research skills. Results from a spring 2017 survey, where students respond favorably to the project, are discussed.     

The effect of parental background along the sons’ earnings distribution: does one pattern fit for all?

This article sheds light on the differences in the mechanisms generating intergenerational inequality in the four largest Euro Area economies (Spain, Italy, Germany and France) looking at the association between parental background and sons’ earnings along the sons’ distribution. We find that in all countries returns to parental background increase along the sons’ earnings distribution and the probability of ending up in high deciles is significantly correlated with parental background. However, although these findings lend support to the existence of a common mechanism, substantial differences in returns’ steepness question the one-pattern-fits-all story.     

A fresh look at fiscal multipliers: one size fits it all? Evidence from the Mediterranean area

Following the adoption of important fiscal stimuli to fight the recent crisis, a large literature estimated fiscal multipliers. Focusing on an area particularly appealing, given its diversity and the diversity of the response of countries that compose it to the current crisis, namely the Mediterranean area, we unveil major disparities regarding the significance, sign and size of fiscal multipliers depending mainly on the economic characteristics, the type of multiplier, the time span and the type of fiscal stimulus. Evidence of such important heterogeneities highlights the need for better cooperation among countries, particularly regarding the design of fiscal policy. Failing to do so might divert public resources to ineffective fiscal policies in some countries, or, on the contrary, deprive other countries of potentially high benefits of appropriate fiscal policies, including a reliable tool for exiting the current crisis.     

The EKC for SO2: Does firm size matter?

The environmental Kuznets curve hypothesis (EKC) predicts an inverse U-shaped relationship between environmental pollution and per capita income. The literature with respect to the EKC is vast but far from conclusive. This paper adds firm size to the standard EKC reduced form regression and analyses whether firm size matters once income and composition are controlled for. Results suggest that large firm countries are initially associated with higher levels of environmental damage. However, as economies develop, large firm countries find it easier to adopt more stringent environmental legislation. Once environmental damage starts to decrease, the decrease is much larger in large firm countries.     

Crime and moral hazard: Does more policing necessarily induce private negligence?

Even risk-neutral individuals can insure themselves against crimes by combining direct expenditure on security with costly diversification. In such cases — and even when one of these options is infeasible — greater policing often actually encourages private precautions.     

Does default point vary with firm size?

This article aims to improve the predictive ability of KMV model by distinguishing firm size. The evidence suggests that default point would vary with firm size. Using the method of particle swarm optimization, we obtain the optimal default point separately for large firms and small firms. Several statistical tests such as the model confidence set methodology show that our relatively tractable model is more likely to have the strongest predictive ability.     

Does size matter? Implications of household size for economic growth and convergence

We assess the effects of changes in household size on the long‐run evolution of living standards and on cross‐country convergence. When the observed changes in average household size across countries are taken into consideration, growth in living standards is slower throughout the 20th century as compared to a measure based on per capita GDP. Furthermore, the speed of divergence between different countries before 1950 is faster and the speed of convergence after 1950 is slower after adjusting for the evolution in household size.     

Does aggregate uncertainty explain size and value anomalies?

This paper examines the impact of aggregate uncertainty on return dynamics of size and book-to-market ratio sorted portfolios. Using VVIX as a proxy for aggregate uncertainty, and controlling for market risk, volatility risk, correlation risk and the variance risk premium, we document significant portfolio return exposures to aggregate uncertainty. In particular, portfolios that contain small and value stocks have significant and negative uncertainty betas, whereas portfolios of large and growth stocks exhibit positive and significant uncertainty betas. Using a quasi-natural experimental setting around the financial crisis, we confirm the differential sensitivity of small versus big and value versus growth portfolios to aggregate uncertainty. We posit that due to their negative uncertainty betas, uncertainty-averse investors demand extra compensation to hold small and value stocks. Our results offer an uncertainty-based explanation to size and value anomalies.     

Does size asymmetry exacerbate the inefficiency of tax competition?

Many authors demonstrate that the tax gap resulting from tax competition increases with the size asymmetry of the competing countries. Consequently, increasing country-size disparities exacerbates the inefficiency of tax competition. The aim of this note is to show that this classical view has no general validity, if we consider that countries compete not only in taxes, but also in the provision of infrastructure. The simple model we develop for this purpose demonstrates that the effect of size disparity on efficiency depends crucially on the degree of international capital mobility.     

Micro-behaviors and structural properties of knowledge networks: toward a ‘one size fits one’ cluster policy

The economic returns of cluster policies have been recently called into question. Based on a “one size fits all” approach consisting in boosting R&D collaborations and reinforcing network density, cluster policies are suspected to have failed in reaching their objectives. The paper proposes to go back to the micro foundations of clusters in order to disentangle the links between the long run performance of clusters and their structural properties. We use a simple agent-based model to shed light on how individual motives to build knowledge relationships can give rise to emerging structures with different properties, which imply different innovation and renewal capacities. The simulation results are discussed in a micro-macro perspective, and motivate suggestions to reorient cluster policy guidelines towards more targeted public-funded incentives for R&D collaboration.     

Does peer group size influence social preferences and risk taking?

This paper examines whether the ex post relative payoffs of peers as well as the size of the peer group impact an agent's willingness to take risks. For example, persons in a flood plain may be less likely to purchase flood insurance if their neighbors also refrain from purchasing. We generalize the Fehr‐Schmidt (1999) model to allow the intensity of the social preferences to vary with the size of the peer group. Our experiment tests whether subjects are more or less likely to choose a lottery over a fixed payment when others have been assigned either the same lottery or the fixed payment. Using both between and within subject designs, we find risk‐taking behaviour is not responsive to the risks faced by others regardless of the size of peer group.     

Micro‐impacts of the Brazilian Regional Development Funds: Does lending size matter?

This paper evaluates the micro‐impacts of regional development funds in Brazil—the Constitutional Financing Funds (CFF)—using fixed effects panel data models and generalized propensity score between 2000 and 2012. Assessing the industrial and commerce/services sectors using fixed effects models, the results provide weak evidence of a positive and statistically significant impact of the CFF on job creation and no statistically significant impact on labor productivity growth at the firm level. Regarding dose‐response estimates, the results present evidence of nonlinear effects after three years of financing, suggesting that the amount of subsidized credit plays an important role in creating jobs and improving firm productivity.     

Essential health care: affordable for all?

Access to affordable health care has become a national crisis. The uninsured have many faces and many reasons for being uninsured. The nation cannot afford to sustain this broken system; not in terms of resources, nor in terms of the deteriorating health of the public. Universal coverage could offer a promising opportunity to begin to ameliorate the unsustainable use of expensive illness care now substituting for effective low-cost prevention and early detection. A proposal for essential health care coverage, a balance between cost and choice to maximize use of beneficial care, is presented.     

Entrepreneurial drain under moral hazard: A high-yield sector curse?

We describe a two-sector, general-equilibrium model of productive sorting under output risk and incomplete information. Risk-neutral (entrepreneurial) individuals can either produce alone, or - acting as employers/insurers - team up with risk-averse (non-entrepreneurial) individuals. Although the latter option has the potential to generate more surplus, when effort is unobservable and risk is high, the moral hazard problem in mixed matches may be too severe for mixing to be attractive to both risk-aversion types, leading to a segregated equilibrium in which risk-averse individuals select low-risk, low-yield activities. An increase in the profitability of the riskier sector can then trigger a switch from a mixed to a segregated equilibrium and cause aggregate output to fall. Evidence from a panel of non-OECD countries - showing that the presence of uninsured, small-scale mining firms has a negative impact on the relationship between natural resource exports and agrarian productivity - suggests that this ‘high-yield sector curse’ might be present in natural resource-rich, low-income countries.     

The not so dark side of trust: Does trust increase the size of the shadow economy?

This paper reports a negative relationship between the size of the shadow economy and generalized trust, in a sample of countries, both developed and developing. That relationship is robust to controlling for a large set of economic, policy, and institutional variables, to changing the estimate of the shadow economy and the estimation period, and to controlling for endogeneity. It is independent from trust in institutions and from income inequality, and is mainly present in the sample of developing countries. Those findings suggest that the tax compliance effect of trust dominates its role as a substitute for the formal legal system.