Wealth inequality and credit markets: evidence from three industrialized countries

Economic theory predicts that changes in the distribution of wealth in an economy affect real interest rates if capital markets are imperfect. We investigate this link for the US, the UK, and Sweden, using multivariate time series analysis that explicitly allows for feedback effects between wealth inequality and real interest rates. Our estimates yield that, over the course of the twentieth century, decreases in wealth inequality led to significant declines in real interest rates. Our results therefore point to the importance of capital market imperfections that arise from moral hazard. They put to question the empirical relevance of a negative interest rate effect of inequality that may arise in variants of these models with high inequality, heterogeneous agents or adverse selection.     

Communications networks and virtual economic integration: The case of three countries

This paper proposes a three-country model of trade that captures the role of communications networks which enhance trade in business services. The interconnectivity of country-specific networks is found to determine the structure of comparative advantage in the good that requires business services provided via networks. In connected countries, producers of that good benefit from the growing connectivity of business services providers. It is also shown that the third country which is unconnected to the interconnected networks may be worse off from trade.The first author is grateful for the support of the Telecommunications Advancement Foundation.     

The establishment-size wage premium: evidence from European countries

This study examines the magnitude and determinants of the establishment-size wage premium in five European countries using a unique harmonised matched employer–employee data set (the 1995 European Structure of Earnings Survey). This data set enables to test the validity of various traditional explanations of the size wage gap (i.e. the labour quality hypothesis, the theory of compensating wage differentials, the role of monitoring and institutions) and of more recent hypotheses (i.e. size differences in job stability and in the concentration of skilled workers). We find some support for traditional explanations, but there remains a significant wage premium for workers employed in large establishments. Further results indicate that the magnitude of this premium fluctuates substantially across countries and appears to be negatively correlated with the degree of corporatism.     

Response of inflation to shocks: New evidence from Sub-Saharan African countries

In this paper, we investigate whether or not the inflation rate of 17 Sub-Saharan African countries can be modelled as a stationary process. We achieve this goal through using univariate and panel stationarity tests for data over the period 1966 to 2002. We use the Kwiatkowski, Phillips, Schmidt and Shin (KPSS, 1992) univariate test and allow for multiple structural breaks. We find that except for Burkina Faso, Burundi and Gambia, the inflation rate is stationary for the rest of the 14 countries. We then apply the panel version of the KPSS test, developed by Carrion-i-Silvestre et al. (2005), which accounts for multiple structural breaks. We find strong evidence of panel stationarity of the inflation rate. However, for a panel consisting of Burkina Faso, Burundi and Gambia, we could not find evidence that the inflation rate is stationary.     

The structure of income mobility: empirical evidence from five UE countries

In this paper we use the European Community Household Panel (ECHP) to assess differences in the level and structure of income mobility in a selected sample of European countries. We adopt recent theoretical proposals for the decomposition of axiomatic and welfare measurements of mobility in exchange, structural and growth components. Decomposition exercises which take into account some type of division of the population and income sources are also performed. We find that cross-country income mobility comparisons largely depend on the type of indices used. The relative positions of the countries considered change when the analysis is based on ethical instead of objective measures of income mobility. Results also show that in most countries income growth has a very limited effect upon aggregate mobility, being the most important determinant the rerankings of individuals, with a little weight for inequality changes. Although some common results exist concerning the delimitation of groups experiencing the greatest income fluctuations, such as individuals belonging to single-parent households or young household heads, the intensity of these results varies greatly across countries. The authors would like to acknowledge financial support from the Ministry of Science and Technology (grant SEJ2004-07373-c03-03) and the Instituto de Estudios Fiscales. We would also like to acknowledge the help given by the European Centre for Analysis in Social Sciences of the University of Essex.     

The fundamentals of sovereign debt sustainability: evidence from 15 OECD countries

We study the sustainability of sovereign debt accumulation in 15 OECD countries using quarterly data from 1980 to 2010 with a focus on how and in what countries debt sustainability changed after the commencement of the Euro Convergence Criteria in 1997 as well as after the financial meltdown in 2007. We define sustainability as the validity of the inter-temporal budget constraint of the government and test a sufficient condition motivated by Bohn (Q J Econ, 113(3):949–963, 1998) using single-country and pooled regressions. We find evidence that the Euro Convergence Criteria contributed to the sustainability of debt accumulation. Further, while the yield spreads suggest the debt crisis is a problem of the southern Euro countries, we find a lack of debt sustainability for Greece, Portugal and France but not for Italy and Spain. In terms of debt sustainability, the crisis adversely affected primarily stand-alone countries rather than members of the European Monetary Union. Nevertheless, yield spreads increased more in the southern countries of the monetary union than in stand-alone countries. Our results support the view that countries within a monetary union are more prone to investors’ sentiments than stand-alone countries.     

The size and growth of banks: evidence from four European countries

This paper tests for mimicry in local tax setting, by using a panel data set of the English non-metropolitan districts in the 1980s — when property tax rate variability across districts was highest. The results confirm the presence of large and significant spatial interactions among districts. Even after allowing for district-specific and time effects, a district appears to be significantly affected by its neighbours' policies. A 10% increase in the local property tax rate of a district's neighbours leads to an increase of 4–5% in its own property tax rate. On the other hand, the absence of correlation in tax rates between lower tier (district) authorities and upper tier (county) authorities suggests that the spatial pattern in district tax rates is not simply driven by spatially auto-correlated shocks.     

The election cycle in the inflation bias: evidence from the G-7 countries

This paper derives and evaluates empirical implications which separate the naive voters view [Nordhaus, W.D., 1975. The political business cycle. Review of Economic Studies 42, 169–190.] from the rational-voters view [Barro R., Gordon, D., 1983. Rules, discretion, and reputation in a model of monetary policy. Journal of Monetary Economics 12, 101–121.] under rational expectations. The observational equivalence of the two approaches obtained under a natural rate vanishes as output persistence is introduced. An analysis of inflation in the G-7 countries reveals election patterns supporting the joint hypothesis that demand shocks persist and that monetary policy courts retrospective voters. Patterns turn weaker as central banks become more independent, but do not disappear. Reducing inflationary bias not only requires more central bank independence, but as well less persistence.     

Towards solving the PPP puzzle: evidence from 113 countries

Several different approaches have been followed by researchers to test the validity of Purchasing Power Parity (PPP). Since the introduction of the unit-root tests, researchers have applied a battery of these tests to determine whether the real exchange rates are stationary. If the answer is in the affirmative, PPP is validated. While application of the standard augmented Dickey–Fuller test has not provided much support for PPP, a test that incorporates nonlinearity in the rates has. Under both tests, however, the null of nonstationary is tested against the alternative of stationarity. In this article, when we switch the null with the alternative and apply Kwiatkowski et al. (1992 Kwiatkowski, D, Phillips, PCB, Schmidt, P and Shin, Y. 1992. Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics, 54: 159–78. [Crossref], [Web of Science ®] , [Google Scholar]) test, we provide relatively more support for the theory, getting closer and closer towards solving the PPP puzzle.     

Nonlinearity and stationarity of inflation rates: evidence from the euro-zone countries

Earlier studies hardly reject the hypothesis of a unit root in inflation. Few studies have examined the possibility of nonlinearity in inflation and tested nonlinear stationarity of the inflation rates. This study thus intends to fill the gap. This study utilizes the tests for nonlinearity along with the unit root tests that allow for nonlinearity in the variables to examine the stationarity of inflation rates of 12 European countries that formed the Euro Zone (EZ) later in the sample period. The results suggest that the majority of these countries’ inflation rates can be characterized by mean reversion during the floating exchange rate period. Many of them appear to be nonlinear stationary. This finding is essential in conducting applied economic studies for these countries, when constructing models whose validity relies on whether or not inflation is stationary. The results of this study also imply that shocks to inflation have a transitory effect on inflation in the euro area. Therefore, it would be less costly in exercising the policies of disinflation for the monetary authorities of the euro area than for those of the countries with nonstationary inflation.     

Capital Flight from Beautiful Places: the case of three Caribbean countries

This paper examines capital flight from Barbados, Jamaica, and Trinidad and Tobago, for the period 1971–87. A simple OLS model is used to investigate econometrically the causes of Caribbean capital flight. External debt, real interest rate differentials and the level of social instability are found to be significant causes of capital flight.     

Economic growth and carbon emissions: evidence from CIVETS countries

ABSTRACT

This paper examines whether a long-run relationship exists between CO₂ emissions and selected variables: real gross domestic product per capita, inward stock of foreign direct investments, gross fixed capital formation, industry, value added and energy use per capita for Colombia, Indonesia, Viet Nam, Egypt, Turkey and South Africa countries in the period of 1989–2016. We used panel unit root testing, followed by panel cointegration tests and panel causality. The results clearly prove the existence of a bidirectional long-run causal relationship between all the variables except between CO₂ emissions and GDP and CO₂ emissions and GFCF. Major finding of the short-run causality analysis is that CO₂ emission in the short run does not result in changes of other variables. On the other hand, all variables except foreign direct investments (FDI) cause the changes in the CO₂ emissions, and there is a positive bidirectional causal relationship between GDP and FDI, between GFCF and FDI, and between GFCF and IVA. Finally, positive unidirectional causal relationship also exists, running from GDP to IVA, GDP to ENUSE, IVA to FDI and ENUSE to FDI.     

A threshold in inflation dynamics: evidence from emerging countries

Using monthly data over the period January 1976–November 2002, the present paper detects significant threshold non-linearities in the inflation rates of three emerging countries, namely India, Singapore and South Africa. A two-regime self-exciting threshold autoregressive (SETAR) model of inflation, constituting a significant improvement over the corresponding linear AR model, is estimated for these countries. Singapore is shown to have a much lower implied equilibrium inflation rate than India, while there is a possibility of seasonal inflation equilibria for South Africa.     

The markup and inflation: evidence in OECD countries

In this paper we evaluate the dynamic inconsistency argument put forth by Kydland and Prescott (1977) and Barro and Gordon (1983) as an explanation for differences in the average inflation experience across OECD countries. The focus is on the empirical evidence relating the overall degree of competition among firms, as measured by the markup of price over marginal cost, and inflation over the 1973–88 period. The prediction is that higher markups raise the monetary authority's incentive to increase output, leading to higher equilibrium rates of inflation. We find that the markup does well in explaining cross-country differences in average inflation. JEL Classification: E31, E58, D43
L'écart du prix par rapport au coût marginal et l'inflation: résultats pour les pays de l'OCDE. Ce mémoire examine l'argument mis de l'avant par Kydland et Prescott (1977) et Barro et Gordon (1983) pour expliquer les différences dans le taux moyen d'inflation entre les pays de l'OCDE. On porte une attention spéciale aux résultats empiriques qui relient le degré général de concurrence entre les entreprises, mesuré par l'écart du prix par rapport au coût marginal, et le niveau d'inflation entre 1973 et 1988. La prédiction est que des écarts prix/coût marginal plus élevés augmentent l'incitation des autorités monétaires à accroître le niveau de production, ce qui entraîne des taux d'inflation d'équilibre plus élevés. Il s'avère que l'écart du prix par rapport au coût marginal tend à expliquer bien les différences dans le niveau moyen d'inflation entre pays.     

Measuring the impact of violence on macroeconomic instability: evidence from developing countries

Portuguese Economic Journal - Uncertainty induced by various economic and non-economic factors instigates macroeconomic instability. Macroeconomic instability, further, reduces predictability of a...     

The effects of foreign direct investment on private domestic investment: evidence from developing countries

The main objective of this study is to make a contribution to the empirical literature of investment by examining the effects of FDI inflows on private investment in developing host countries. We employ panel data for 91 developing host countries over the period 1970–2000 and estimate our model by a means of system generalized method of moments. The results show that FDI stimulates private domestic investment which supports the “crowd-in-hypothesis”. Moreover, after grouping countries based on their level of income, we find that the positive effects of FDI on private investment in low-income countries depend on the availability of human capital.     

The effects of economic and political integration on fiscal decentralization: evidence from OECD countries

Abstract .  This paper examines the impact of economic and political integration on the vertical government structure. It argues that, by increasing the market size and the benefits of decentralized provision of public goods, integration triggered the recent process of decentralization in OECD countries. A panel analysis relates the degree of fiscal decentralization to economic and European integration, controlling for interregional heterogeneity, economies of scale, and institutions. The results mostly support a decentralizing effect of economic integration in general and of European integration in particular for heterogeneous EU countries, whereas participation of subnational governments in national decision-making is associated with more centralization.     

Exports and economic growth:some empirical evidence from the Arab Gulf countries

This paper investigates the relationship between exports and economic growth in four of the Arab Gulf countries, namely, Saudi Arabia, Kuwait, UAE, and Oman for the period 1973–93. The estimates presented indicate a positive and significant relation between the two variables. Also, the statistical adequacy of the models used is supported by the following diagnostic tests. The Bruesch-Godfrey statistic suggests the absence of serial correlation. The Farely-Hinich test fails to reject the null hypothesis that the models are structurally stable. And both the White and Hausman specification tests show that the models are correctly specified.     

Growth-returns nexus: Evidence from three Central and Eastern European countries

Using a sample of monthly data from January 1996 to December 2012, we provide new evidence on the unidirectional Granger causality from real stock market returns to real economic activity in three Central and Eastern European countries: the Czech Republic, Hungary, and Poland. By employing the Granger causality tests of Cheung and Ng (1996) and Hong (2001), we show evidence of short-term (up to 6 months), medium-term (up to 12 months) and long-term (up to 24 months) causality for the Czech Republic and Hungary. In the case of Poland, only medium-term and long-term causality is found. Using rolling-correlation analysis, we find that although the growth–returns relationship is positive during the examined period, there is an apparent variability in the strength of this relationship that is particularly visible during the period of the financial crisis in the late 2000s. Consequently, we find that the predictive power of stock markets in the CEE-3 countries increases during periods of high market volatility and decreases during periods of economic recovery.