Does democracy foster financial development? An empirical analysis

This paper examines whether democracy promotes financial development. While cross-section results show a positive association between democracy and bank development, this relationship disappears in panel regressions. The data also reveals that democracy is not positively related to stock market development.     

When does more aid imply less democracy? An empirical examination

Foreign aid flows have increased considerably during the last decades, targeting, apart from development objectives, goals related to democracy. In this paper we investigate whether aid has affected the political regime of recipient countries. To this end, we use annual data on Net Official Development Assistance covering 64 aid-recipients. Because of data limitations, we cover the 1967-2002 period. We find that aid flows decreased the likelihood of observing a democratic regime in a recipient country. This effect is sensitive to economic and social conditions. The negative relation between aid and democracy is moderated when aid flows are preceded by economic liberalization. Aid from the U.S. has a non-significant effect on the political regime of recipients.     

Does Corruption Persist In Sub-Saharan Africa?

Corruption is said to be characterized by persistence. This conclusion is derived from the theoretical literature, although little empirical evidence exists to support it. Using corruption ratings data from the Political Risk Services Group, International Country Risk Guide on 110 countries from 1984 through 2006, I seek to determine whether or not corruption has actually exhibited persistence over this period. The Markov Transition Chain Matrices were used in the empirical analysis. The calculations show that corruption does persist in more than half of the sample. Next I focus on two regions: Sub-Saharan Africa, the Middle East, and North Africa. The analysis shows these regions to be characterized by persistent corruption.

Does the quality of institutions enhance savings? The case of Sub-Saharan Africa

Over the last three decades, there has been increasing disparity in savings across regions and income groupings globally. In this paper, we investigate whether the quality of institutions explains the saving disparities in Sub-Saharan Africa (SSA). Utilizing comprehensive panel data and spanning the period 1980–2015, we estimate a savings model using the two-step instrumental variable generalized method of moment (2SIV-GMM) estimator. Our results show that the impact of institutions on savings behaviour differs across regions and income groupings, and in SSA, in aggregate. We find that the level and growth of per capita income and terms of trade enhance savings whereas government consumption expenditure, financial sector development and the elderly dependency rate are savings impeding. The findings are robust to alternative model specification and highlight the importance of institutions in influencing savings behaviour in SSA.     

A stable climate or economic growth?

The 2015 UN Paris Agreement reinforced and declared compatible the two goals of avoiding dire climate change and maintaining global economic growth, and it specified that technological innovation is ‘critical’ to this joint achievement. Unfortunately, any confidence that near-term global economic growth is consistent with a stabilized climate is severely undermined by empirical evidence. Despite the rapid increase of alternative energies in recent decades, global GDP growth continues to require burning greater quantities of climate-destabilizing fossil fuels. The dim outlook for sufficiently reducing CO₂ while maintaining economic growth is underscored by global data and Germany specific data on the decoupling of GDP from CO₂. This paper summarizes pertinent climate science, substantiates the dependence of economic growth on fossil fuels, and uses the Kaya identity to demonstrate the unfavorable prospects for reducing CO₂ while maintaining GDP growth.     

Does democracy cause growth? A meta-analysis (of 2000 regressions)

The relationship between democracy and economic growth has been widely debated in the social sciences with contrasting results. We apply a meta-analytical framework surveying 188 studies (2047 models) covering 36 years of research in the field. We also compare the effect of democracy on growth with the effect of human capital on growth in a sub-sample of 111 studies (875 models). Our findings suggest that democracy has a positive and direct effect on economic growth beyond the reach of publication bias, albeit weaker (about one third) of that of human capital. Further, the growth effect of democracy appears to be stronger in more recent papers not surveyed in Doucouliagos and Ulubaşoğlu (2008). Finally, we show that the heterogeneity in the reported results is mainly driven by spatial and temporal differences in the samples, indicating that the democracy and growth nexus is not homogeneous across world regions and decades.     

Does the stock market cause economic growth? Portuguese evidence of economic regime change

The relationship between stock market and economic growth is tested for Portugal (1993–2011), which is a small open economy dependent on bank financing. The relationship between economic growth and bank financing is also appraised. Using Vector Autoregressive (VAR) modeling, Granger causality, variance decomposition and impulse response function are discussed. The physical replacement of the currency, as a consequence of the integration in the European Monetary Union, proves to be an economic regime change. The effect of the subprime crisis was also proved. There is evidence of Granger bidirectional causality between the stock market and economic growth. Meanwhile, there was no evidence of causality running from bank financing to economic growth.     

How does petty corruption affect tax morale in Sub-Saharan Africa?

Revenues from taxation gain in importance to finance economic development in Sub-Saharan Africa. One obstacle to enhancing the willingness to remit taxes can be the extortion of bribes by public officials. Using micro-level data from the Afrobarometer, we show that petty corruption erodes tax morale. The effect on tax morale is more severe in countries and regions where fewer people are affected by petty corruption and becomes insignificant if extortion of bribes is particularly prevalent. Differing levels of civic participation and potential access to tax funded services are also found to induce heterogeneous reactions to corruption experience. Applying a mediation analysis, we demonstrate that petty corruption not only has a direct effect on tax morale but also diminishes confidence in tax authorities and therefore affects tax morale indirectly. The harmful effects of corruption experience, however, operate mainly through a generally lowered inclination to uphold high levels of tax morale.     

Does corruption impede economic growth in Pakistan?

The present study reinvestigates the impact of corruption on economic growth by incorporating financial development and trade openness in growth model in case of Pakistan. We have used time series data over the period of 1987–2009. We have applied structural break unit root test to test the integrating order of the variables. The structural break cointegration has also been applied to examine the long run relationship between the variables.The long run relationship between the variables is validated in case of Pakistan. We find that corruption impedes economic growth. Financial development adds in economic growth. Trade openness stimulates economic growth. The causality analysis has exposed the feedback effect between corruption and economic growth and same inference is drawn for trade openness and corruption. Trade openness and economic growth are interdependent. Financial development Granger causes economic growth implying supply-side hypothesis in case of Pakistan.     

Does export variety determine economic growth in Pakistan?

This study explores the impact of export variety on economic growth in Pakistan. Export variety is decomposed into export related (within sector) and unrelated variety (between sectors) to examine the long run effect of export related variety and unrelated variety on economic growth. For this purpose, we incorporated export related variety and unrelated variety into the production function. The result of cointegration test shows that variables of the study are cointegrated in the long run. The result of fully modified ordinary least squares confirms the positive and significant effect of export related variety and unrelated variety on economic growth. Furthermore, the long run estimates show that the magnitude of export related variety is more than export unrelated variety. This study also finds the positive and significant effect of human capital on economic growth in the long run. It can be deduced from the results of the study that a specific sector shock will not disturb the economic pace of Pakistan.     

Are voters rationally ignorant? An empirical study of Portuguese local elections

The application of the rational choice postulate to a political context invariably leads to the conclusion that most voters are ill informed when making the decision on whom to vote for. In this paper, the authors conduct an empirical evaluation of the rational ignorance theory, based on the model developed by (Rogoff and Sibert Rev Econ Stud LV:1–16, (1988) and by considering that better informed voters reward political candidates who show better performances. The levels of performance are established through the construction of an empirical frontier using the Data Envelopment Analysis (DEA) methodology. According to our results, based on the 1997 Portuguese local elections, even though swing voters do not necessarily behave as rationally ignorant voters, a large majority of voters are rationally ignorant.

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.     

An empirical analysis of disinvestment policy in India: does ideology matter?

Using panel data estimation for limited dependent variables and sample selection models, we identify political, industry specific, firm specific and macroeconomic variables which influenced the decision to divest central public enterprises in India between 1991–2010. We find that higher partial privatization is driven by a more right-winged coalition, lower ideological spread in the coalition and lower ideological difference between the center and the state in which the public enterprise is located. We also find that after the government selects larger, more experienced and more profitable firms, it divests the relatively less experienced and less profitable firms to a larger extent.     

Policy tolerance of economic crime? An empirical analysis of the effect of counterfeiting on Italian trade

Some governments seem ambivalent towards economic crime because, on the one hand, there are adverse effects on competition and legal businesses; on the other hand, there are benefits through (shadow) employment and income in less-developed areas, as well as benefits through relations of political clientage. We focus on counterfeiting and its economic effects on trade in Italy during the economic crisis. Using a newly built regional dataset and a dynamic panel model, we find evidence of the dual impact of counterfeiting. The production (and exchange) of fake goods depresses the legal market that relies on intellectual property rights but supports shadow-economic activities for the benefit of illegal workers, criminal organisations, and political clientele. We show that the negative effects outweigh the positive effects.     

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 economic growth benefit the poor? The role of institutions and religions

This paper seeks to explain the difference across countries of the impact of national growth on the growth of the income of the poor. Traditionally, studies attempting to explain such differences investigate only the impact of some additional variables on the income level of the poor. Here, we introduce interaction terms to explain the change in the elasticity of income of the poor to national income. We focus on the role of formal and informal institutions and religions; variables which have rarely been considered in this context. The results show that only formal institutions (i.e., Resistance to corruption) and, to some extent, informal institutions (i.e., Trust all) explain the differences. Religion has no impact. The findings also show that improvements in the Resistance to corruption benefits the extremely poor more than the poor.     

How does the marriage market clear? An empirical framework

Abstract. The paper surveys the Choo and Siow (2006a; CS) marriage matching model and its extensions. CS derives a behavioural marriage‐matching function. The collective model of intra‐household allocations can be integrated into this framework. Spousal labour supplies respond to changing marriage market conditions. Marriage market tightness, the ratio of unmarried type i men to unmarried type j women is a sufficient statistic for marriage market conditions for those types of individuals. The hypothesis that spousal labour supplies vary to equilibrate the marriage market has overidentifying restrictions. The framework extends to a dynamic marriage‐matching environment. Empirically, this paper shows how the famine caused by the great leap forward in Sichuan affected the marital behaviour of famine‐born cohorts. Marriage market tightness is shown to be a useful statistic for summarizing marriage market conditions in the United States. Marriage market conditions in the contemporary United States primarily affect spousal labour force participation rather than hours of work.     

Does the introduction of stock exchange markets boost economic growth in African countries?

We assess whether the introduction of private equity capital markets affects economic growth in African countries. We address this issue by focussing on stock exchange markets as the predominant type of new equity markets, using a Diff-in-Diff regression method. The analysis uses a panel data set from 48 Sub-Saharan countries over the time range of 1970–2018. 23 countries are part of the “treated” group – which introduced international stock exchanges – and 25 “untreated” countries serve as the control group. Our results show that when compared with the time period prior to the introduction of stock exchange markets, GDP per capita rises by the amount of 532 US$ (around 40% of the Sub-Saharan average) after the introduction of equity capital markets in the treated countries. Over the ten years post introduction, the effect is hump-shaped, with effects becoming statistically significant from the first year after implementation, with a peak in the 5th year, and it then becomes statistically insignificant from then onwards.     

Commitment or discretion? An empirical investigation of monetary policy preferences in China

This paper offers a first attempt to estimate the policy preferences of China’s central bank by confronting a small-scale microfounded New Keynesian model in which monetary policy is described by commitment or discretion with the Chinese macroeconomic data over the period from 1992Q2 to 2017Q4. Bayesian model comparison reveals that the data favor discretionary monetary policy. Estimates of the loss function weights under both cases show that the leading policy goal is price stability, followed by output stability and then interest rate smoothing. Finally, through counterfactual analyses we assess how macroeconomic outcomes might improve, had the Chinese central bank been able to commit. These findings shed new light on the opaque Chinese monetary policy, and are robust to subsample analysis.     

Does R&D cooperation facilitate price collusion? An experiment

We examine in a laboratory experiment whether R&D cooperation facilitates tacit price collusion. For two scenarios of technological spillovers, a baseline treatment without binding contract possibilities and a contract treatment where it is possible to credibly commit to an R&D contract, are run. We find that the degree of price collusion in the contract treatments is significantly higher in periods where R&D contracts are made than in periods without contracts, and than in the baseline treatments.