CO2 Emissions and Income Dynamics: What Does the Global Evidence Tell Us?

This paper analyzes the co-evolution of two major determinants of social welfare, namely, income and carbon emissions. In particular, by using a distribution dynamics approach based on Markov chains, we investigate the shape and behavior of the joint distribution of per-capita income and carbon dioxide emissions. We arrive at several interesting conclusions, especially in the context of international negotiations on climate change. First, evidence does not support theoretical models predicting the existence of a poverty-environment trap. Specifically, in the long-run two main groups of countries will emerge: poor versus polluting countries. Second, the typical development path leads initially to high emission levels and, subsequently, to high income. Third, the convergence process towards the stationary distribution is very slow. Finally, for carbon emissions, whenever it is observed, the environmental Kuznets curve seems to be only a transitory phenomenon.     

What Does Dynamic Panel Analysis Tell Us About Life Satisfaction?

Static fixed effects estimation of life satisfaction often gives rise to serial correlation in the residuals, indicating omitted dynamics. Rather than correcting the standard errors, “to make them robust,” this study explores dynamic panel analysis to incorporate the otherwise omitted dynamics into the estimation of life satisfaction models. The analysis utilizes the System General Method of Moments approach to dynamic analysis. The results indicate that overall life satisfaction is largely (though not wholly) contemporaneous; correspondingly, the persistence of satisfaction from previous periods is limited. This finding is robust to a variety of different specification choices. Accordingly, the issue of omitted dynamics in a life satisfaction context is a minor one. This use of dynamic panel analysis, therefore, offers support for the ongoing use of static models (like fixed effects), even though they omit dynamics. Given the highlighted challenges of dynamic panel analysis, static fixed effects analyses will often be preferred.     

Causality Between Exports and Economic Growth: What do the Econometric Studies Tell Us?

This paper contains an assessment of major econometric studies that have estimated the causality between exports and economic growth. These studies have used a variety of methodological approaches, such as Granger causality, cointegration with multivariate error correction models, exogeneity and structural invariance, VAR models with variance decomposition, and impulse response functions. The assessment in this paper refers both to the methodologies employed as well as to the empirical findings. A major conclusion is that empirical support for the export‐led growth in both the developed and the developing countries is considerably weaker than was estimated on the basis of earlier correlation and production function studies.     

Does economic freedom increase income inequality? Evidence from the EU countries

This paper examines the relationship between economic liberalization and income inequality in the EU using panel data for the 2000s. The empirical evidence suggests that economic freedom is strongly related to income inequality. However, not all areas of economic freedom affect income distribution similarly. Government size is robustly associated with inequality, and also when controlling for potential endogeneity in a dynamic panel data analysis. Regulation is linked to income inequality as well, whereas legal system and sound money have no significant effects on income distribution. In the case of freedom to trade internationally, the relationship differs between old (EU-15) and new (former socialist) EU countries.     

Does the Canadian economy suffer from Dutch disease?

We argue that the failure to disentangle the evolution of the Canadian currency from the U.S. currency leads to potentially incorrect conclusions regarding the case of Dutch disease in Canada. We propose a new approach that is aimed at extracting both currency components and energy- and commodity-price components from observed exchange rates and prices. We first analyze the separate influence of commodity prices on the Canadian and the U.S. currency components. We then estimate the separate impact of the two currency components on the shares of manufacturing employment in Canada. We show that between 33 and 39 per cent of the manufacturing employment loss that was due to exchange rate developments between 2002 and 2007 is related to the Dutch disease phenomenon. The remaining proportion of the employment loss can be ascribed to the weakness of the U.S.     

Is productivity diverging in the EU? Evidence from 11 Member States

An argument that received a lot of attention in the political and economic discussion surrounding the recent crisis in the EU is that diverging trends in productivity across member countries will undermine the viability of the common currency. This article examines the issue of convergence in multifactor productivity using sector-level data from 11 EU Member States. A state-space model is developed, and formal Bayesian model comparisons are performed to infer whether productivity is diverging, both at the aggregate level and at a sector-by-sector basis. The data point toward diverging productivity at the aggregate level, but suggest the opposite for many individual sectors.     

Does the EU Financing System Contribute to Shadow Economic Activity?

Financial contributions to the EU budget depend basically on official GDP. This means that countries with higher shadow economic activity contribute less than they should contribute in a system based on actual GDP and therefore could reduce their incentive to fight against such activities. In this paper we investigate if the EU financing system really has an influence on the intensity with which governments in EU member states fight against shadow economic activity. We find that the EU net contributors significantly fight more intensively against shadow economic activity while EU net receivers fight less. As a result, shadow economic activity is higher in net receiver and lower in net contributor countries than it were in comparison with a scenario of nationally balanced EU funding. Quantitatively and averaged over the time period 2001–2007, the diagnosed effect amounts to a stimulation of hidden economic activity by almost 10% for particular economies.     

Does the inequality-credit-crisis nexus exist? An empirical re-examination

ABSTRACT

Rajan claims that rising inequality led to financial crises through credit booms in the U.S. Kumhof and Ranciere provide a theoretical formulation for this hypothesis. However, their assertions are not supported by cross-country evidence found in the work of Bordo and Meissner. A few subsequent empirical studies, albeit inspired by this pioneering work, find new evidence not in line with its conclusion but with the Rajan hypothesis. To clarify this controversial issue, we base our study on the B-M framework, resort to different estimators, and employ more model specifications by incorporating the role of deindustrialization. We find strong evidence for the inequality-credit-crisis nexus as modelled by Kumhof et al.     

Does consumption buy happiness? Evidence from the United States

We examine the association between various components of consumption expenditure and happiness in the Health and Retirement Study (HRS), a nationally representative sample of older Americans. We find that only one component of consumption is positively related to happiness—leisure consumption. In contrast, consumption of durables, charity, personal care, food, health care, vehicles, and housing are not significantly associated with happiness. Second, we find that leisure consumption is associated with higher levels of happiness partially through its effect on social connectedness, as indexed by measures of loneliness and embeddedness in social networks. On one hand, these results counter the conventional wisdom that “material goods can’t buy happiness.” One the other hand, they underscore the importance of social goods and social connectedness in the production of happiness.     

Key drivers of EU budget allocation: Does power matter?

We examine the determinants of the EU budget allocation among Member States. In line with the analysis by Kauppi and Widgrén (2004) we test two alternative explanations: political power vs. “needs view” . To do so, we extend the original data set (1976–2001) up to 2012 and introduce alternative econometric specifications. We also put forward the nucleolus as a measure of political power in the distributive context. Our results demonstrate that both power and “needs” are important factors in explaining EU budget allocation. Political power matters, but not as much as previous studies have shown. We also conclude that the nucleolus is a good alternative to the Shapley–Shubik index which was used previously. Power is more balanced with needs under the specifications based on the nucleolus.     

Does the Law of One Price Hold within the EU? A Panel Analysis

This paper empirically tests the law of one price by applying unit root tests to three panels consisting of data on 90 consumer price indices for the EU-25, the EU-15 and the 10 new EU member countries that joined the EU in 2004. The four major findings of this paper are: (1) panel unit root tests find evidence of price convergence for about 70% of all product groups, (2) the results are sensitive to the choice of the numeraire country implying that any conclusions must be based on all bilateral combinations, (3) the average half life across all product groups is 2.0 years, (4) the overall evidence for the law of one price is weaker in the 10 new EU member countries than in the EU-15.

What drives the reversal of the gender education gap? Evidence from Germany

We study the mechanisms that are associated with the gender education gap and its reversal in Germany. We focus on three outcomes, graduation from upper secondary school, any tertiary education and tertiary degree. Neither individual and family background nor labour market characteristics appear to be strongly associated with the gender education gap. There is some evidence that the gender gap in upper secondary education reflects the rising share of single parent households which impacts boys’ attainment more than girls’. The gender education gap in tertiary education is correlated with the development of class sizes and social norms.     

Does travel inspire? Evidence from the superstars of modern art

This paper investigates whether travel increases the value of paintings produced by modern visual artists. The analysis is based on the 214 most prominent modern visual artists born between 1850 and 1945 and auction records of their paintings over the past 20 years. We find that artworks produced in the year of a journey are 7% more valuable than paintings produced in periods with no travel. We attribute this effect to human capital investments, knowledge spillovers and inspiration from the travel destination itself. There are persistent, but declining benefits to travel over the subsequent 4 years. The analysis shows that the impact of travel is smaller for later periods as modern art becomes more abstract. The effect on the value of paintings differs depending on the purpose of a journey: work-related, recreational and politically motivated journeys have a positive contemporaneous effect on value, whereas educational journeys have a negative effect. In addition, we find that France, Germany and the United States are the most frequently visited destinations for modern artists and also yield considerable benefits during times of strong innovation.     

Real capital market integration in the EU: How far has it gone? What will the effect of the euro be?

Much effort has been devoted to the study of financial market integration in Europe. Little is known, however, about real capital market integration – the degree to which plants and equipment move to take advantage of locally high returns. This paper looks at the evidence. An analysis of flows of foreign direct investment in Europe shows that integration was quite limited in the early 1980s, but has increased considerably since then. Another analysis looks at rates of return of a large number of firms. It reveals that country-specific factors play a significant role in explaining corporate returns, even after taking risk into account. This finding is incompatible with the CAPM definition of market integration. The view that integration is limited in Europe is further strengthened when the same approach is carried out for the USA and Canada. Part of the national specificity appears to be related to labour and goods market regulations, which harm firms profitability. If, by introducing more transparency and eliminating currency risk, EMU strengthens competition on the real capital market, one obvious economic benefit will be a more rational and efficient use of capital, but the most important potential consequences are political. Special-interest regulations of an exclusively national nature will not survive. They will either fall in a wave of internationalist liberalization, or become embedded in 'harmonized' regulations at the federal level. A reduction in excessive regulatory burdens, notably in the labour market, could lead to substantial and shared productivity gains.     

Does FDI Facilitate Domestic Entry? Evidence from the Czech Republic

This paper analyzes the impact of FDI on domestic firm entry and firm size distributions in the Czech Republic during 1994–2000. We find that larger foreign presence stimulates the entry of domestic firms within the same industry, indicating the existence of positive horizontal spillovers from FDI. We also find evidence of significant vertical entry spillovers—FDI in downstream (upstream) industries initiates entry in upstream (downstream) sectors. Our results also show that entry spillovers through vertical linkages are stronger than horizontal spillovers and that while service industries benefit from both horizontal and vertical spillovers, manufacturing industries do not experience significant positive entry spillovers of any kind. We also find that country of origin of FDI matters—horizontal spillovers are driven by FDI from the EU countries. The right skewness of the firm size distributions in industries without FDI further emphasizes an important role of FDI presence for overall industry dynamics.     

Does the Welfare State Destroy the Family? Evidence from OECD Member Countries

We study the effect of the size of the welfare state on demographic trends in OECD member countries. Exploiting exogenous variation in public social spending, due to varying degrees of political fractionalization (i.e., the number of relevant parties involved in the legislative process), we show that an expansion in the welfare state increases fertility, marriage, and divorce rates with a quantitatively stronger effect on the marriage rate. We conclude that the welfare state supports family formation in the aggregate. Further, we find that the welfare state decouples marriage and fertility, and therefore alters the organization of the average family.     

Shipping the good fish out? An empirical study on the EU seafood imports under the EU’s Generalized System of Preferences

The impact of the EU (European Union) Generalized System of Preference (GSP) on the relative EU’s demand for seafood quality was evaluated in the study. We first explored the theoretical Alchian–Allen result of change in ad valorem tariffs in an n–good world, and then tested this result in the empirical study. The theoretical analysis suggests that whether a reduced ad valorem tariff in an n–good case raises the relative demand for high-value goods depends not only on the substitutability between high-value and low-value goods but also on the substitutability between these similar goods with their weak substitutes. In the empirical sections, we first estimated the elasticities of the substitutions and then used these elasticities to evaluate the quality composition of the EU’s seafood imports from the beneficiary countries. The empirical results in general confirm the occurrence of ‘shipping the good fish out’ due to the reduced tariff rates under the EU’s GSP arrangements.     

Oil,Growth, and Health: What Does the Cross‐Country Evidence Really Show?*

We show that previous results from the body of literature on the resource curse have primarily been driven by the collapse in oil prices during the mid‐1980s. By exploiting cross‐country variations in the size of initial oil endowments and the timing of oil discoveries, we find that there is a stable positive relationship between oil abundance and long‐run economic growth. Using dynamic panel data methods, we also find that there is no evidence that higher oil rents hinder growth. However, to focus on material gain means that the welfare gain from oil is understated, because oil‐rich countries benefit more by the reduction in infant mortality and the gain in longevity. Interestingly, such oil‐led health improvements are more pronounced in non‐democratic countries, where initial heath conditions were poor and oil wealth is concentrated among the ruling elites.