Weakness of investment in Portugal: what role do credit supply and fiscal consolidation shocks play?

Portuguese Economic Journal - In order to illustrate how tightened financial conditions have hampered investment in Portugal, we estimate a Factor Augmented Vector AutoRegressive model (FAVAR) with...     

Income inequality among minority farmers in China: Does social capital have a role?

We used recently available household panel data collected by China's National Bureau of Statistics to examine the effects of natural, human, material, and social capital on income inequality among minority farmers in China's Xinjiang Province between 2011 and 2012. Results obtained from panel quantile regression and correlated random effects’ models show that income inequality and the poverty of ethnic farmers have been decreasing to some extent. Results also indicated that human capital exacerbates income inequality among the minorities, whereas the effect of natural capital on income inequality is not evident. Social and material capital reduce income inequality among ethnic minorities. Results from the decomposition of the Gini coefficient indicate that material and social capital contribute to a substantial majority of the income inequality in the region.     

Does money have a role in the inflation process? Evidence from Australia

Inflation, defined as a sustained increase in the price level, is considered a monetary phenomenon, as it can be explained within the framework of money‐demand and money‐supply relationships. In the extant literature, money growth is shown to remain causally related to inflation across countries and over time, irrespective of the exchange rate regime and stability of the money‐demand function. Nevertheless, emerging literature suggests a diminishing role of money in the conduct of monetary policy for price stability, especially under inflation targeting. Monetary policy in Australia under inflation targeting since 1993 is an example of policy that denies a relationship between money growth and inflation. The proposition that money does not matter insofar as inflation is concerned seems odd in both theory and the best‐practice monetary policy for price stability. This paper uses annual data for the period 1970–2017 and quarterly data for the period 1970Q1–2015Q1. It deploys both the Johansen cointegration approach and the autoregressive distributed lag (ARDL) cointegration approach to investigate for Australia whether money, real output, prices and the exchange rate (non‐stationary variables) maintain the long‐run price‐level relationship that the classical monetary theory suggests in the presence of such stationary variables as the domestic and foreign interest rates. As expected, the empirical findings for Australia are consistent with the classical long‐run price‐level relationship between money, real output, prices and the exchange rate. The error‐correction model of inflation confirms the presence of a cointegral relationship among these variables; it also provides strong evidence of a short‐run causal relationship between money supply growth and inflation. On the basis of a priori theoretical predictions and empirical findings, the paper draws the conclusion that the monetary aggregate and its growth rate matter insofar as inflation is concerned, irrespective of the strategy of monetary policy for price stability.     

Does technological innovation undertaken alone have a real pivotal role? Product and marketing innovation in manufacturing firms

This paper investigates the role of non-technological innovation on firms' innovation propensity and performance. We note that emphasis on technological innovation alone is misleading, as a firm's decision to undertake technological innovation brings about a more complex and general process which may involve new attitudes regarding organization and market orientation. We analyse the relationship between product and marketing innovation in manufacturing, focusing specifically on the food industry. We propose a bivariate probit model in which product and marketing innovation are estimated taking into account their reciprocal interactions. This enables us to provide more efficient and realistic estimates of a firm's probability of introducing either a new or improved product or a new marketing technique. In addition, the proposed model provides the determinants of such probabilities.     

Idiosyncratic and international transmission of shocks in the G7: Does EMU matter?

This paper analyzes the transmission of shocks across the Group of Seven industrialized countries (G7) before and after the introduction of the euro. We estimate global vector autoregressive (VAR) models for different periods to investigate changes in the domestic and international adjustment of macroeconomic variables following supply, demand, and nominal shocks. The shocks are identified with robust sign restrictions, which we derive from a small open economy dynamic stochastic general equilibrium (DSGE) model. Specifically, we analyze the adjustment of output, inflation, and the real effective exchange rate following those shocks. Our results indicate that changes in the adjustment are due to global convergence rather than to regional‐specific convergence.     

Women and work: what role do social norms play?

Against the background of the current (economic) research which concentrates particularly on individual and structural factors, this paper examines if and to what extent social norms (in terms of attitudes towards gender roles and work commitment) can make a complementary statement in explaining women’s employment status and number of working hours. The impact is presumed to be enhanced through norms shared by people belonging to the same households, peer groups, and by residents of the same region. The analysis relies on a rich German dataset and employs a probit model with sample selection. The results highlight, among other things, the importance of the ‘relevant others’ (particularly partners living in the same household and peers sharing similar social and work characteristics, but not necessarily geographical proximity) in explaining women’s employment status.     

The gender gap in university enrolment: Do parents play a role beyond investing in skills?

Young men are far less likely than women to attend university across most OECD countries. I use data from the Youth in Transition Survey (YITS) to investigate this issue in the Canadian context, focusing on how parents might influence this gender gap. In particular, my goal is to isolate the incremental effect of parents’ valuations of education during the teenage years, holding constant the stock of skills acquired up to that point. To estimate this effect, I use a factor model based on a framework developed by Foley et al. (2014). My results confirm the importance of skills in determining the gender gap in university attendance. I also find that differences in the distribution of parental valuations of education account for 22% of the gender gap in the YITS data, pointing toward an important role that parents play, not accounted for in prior work.     

Does GNP have a unit root?: A re-evaluation

Stock and Watson (1986) test the hypothesis that real per capita GNP has a unit root by using a test statistic due to Phillips (1985) which incorporates a non-parametric correction for the serial correlation induced by system and error dynamics. The version of this test that is used by Stock and Watson does not accomodate the presence of a drift, and to compensate, they detrend the series by extracting a 1.5% annual trend growth. We use a version of this class of non-parametric tests, developed by Phillips and Perron (1986), which allows for an estimated drift, and reassess the Stock and Watson findings.     

Rural development in the digital age: Does information and communication technology adoption contribute to credit access and income growth in rural China?

Information and communication technology (ICT) plays an important role in rural livelihoods and household well-being. Therefore, this study examines the impact of ICT adoption on farmers' decisions to access credit and the joint effects of ICT adoption and access to credit on household income using 2016 China Labour-force Dynamics Survey data. Both recursive bivariate probit model and a selectivity-corrected ordinary least square regression model are employed for the analysis. The results show that ICT adoption increases the probability of access to credit by 12.8% in rural China and empowers rural women and farm households in relatively less-developed regions to access credit. ICT adoption and access to credit affect household income differently. ICT adoption significantly increases household income, while access to credit significantly reduces it, primarily because farmers do not use the acquired credit to invest in income-generating farm and off-farm business activities. ICT adoption has the largest positive impact on household income at the highest 90th quantile. Our findings suggest that improving rural ICT infrastructure to enhance farmers' ICT adoption and developing ICT-based financial products to enable households to access sufficient funds can improve rural household welfare.     

Drought and social conflict in rural Zimbabwe: Does the burden fall on women and girls?

Climate change–induced extreme weather events such as drought have occurred with increasing frequency and intensity in Zimbabwe over the past 30 years bringing about pressure on communally owned water resources. Using the Zimbabwe Vulnerability Assessment Committee 2020 survey of rural households in Zimbabwe, this study assesses the impact of drought shock on the occurrence of water point violence. The impact of self-reported drought shock on the likelihood of occurrence of social conflict in the form of water point violence is subject to confounding due to selection bias. Using the doubly robust inverse probability weighted regression adjustment to account for confounding, we investigate gender dimensions of the impact of drought on inducing water point violence in rural Zimbabwe. The study offers three major findings. First, drought shock is associated with increased household propensity to experience water point violence. Second, the severity of the drought shock impact increases the probability of the household experiencing water point violence. Third, drought shock–induced water point violence is only statistically valid for households where the water-fetcher is a woman or girl. The results suggest that the impact of drought shocks on water point violence is gendered and disadvantages women and girls more than men and boys.     

A wait‐and‐see approach to investments: Do elections play a role?

Unlike previous studies on electoral investment cycle—the tendency for firms to reduce investment expenditure during an election year relative to nonelection years—that have primarily focused on developed countries, this study documents cycles in private investments in relation to the timing of national elections across a broader set of African countries. The estimation results indicate that during election years, private investment decreases by an average of 16% relative to nonelection years. The results also reveal that private investment falls in the year leading up to an election and increases in the immediate year after an election, consistent with the view that electoral uncertainty deters investments. These findings suggest that electoral investment cycles apply strongly to African countries.     

Is there a role for caste and religion in food security policy? A look at rural India

This paper finds that factors such as caste and religion influence food security at the regional level. Thus defining affirmative action within food security programs may be necessary as the current practice of designing food security programs around the poverty line is shown to deliver limited results. In this regard, another lack of consideration is region-specific analysis within the rural areas which shows varied influence, thereby cautioning against a ‘one size fits all’ general policy of the central government. Evidence also shows that socio-economic factors and social assistance programs had different impacts on calorie gap depending on one's nutritional status. This nonlinear relationship has been neglected in most studies on food security and thus raises doubt on past assessment and policy implications.     

Does a cap on the carbon price have to be a cap on green investments?

Policy makers and economists are discussing a regulatory ceiling for carbon prices, acting as a “safety valve” for the protection of regulated businesses from unexpected price surges. While the pros and cons of such a regulatory feature are widely discussed in the literature, the optimal design of such a cap and the attendant economic and environmental consequences have yet to be subjected to quantitative analyses. We employ a Monte Carlo simulation/dynamic programming approach to investigate the impact of different carbon price cap designs on an individual firm in the energy generation industry. Specifically, we model the firm’s choice between a pulverized coal combustion plant and a combined cycle gas turbine plant, a large hydropower plant, a solid biomass plant and an on-shore wind farm. Our results show that the effects of a maximum carbon price set by the regulator is largely independent of its exact characteristics, albeit not of its level. A higher cap favors low-carbon technologies in general. However, due to differences in their cost structures, a price cap has different impacts on the relative attractiveness of the specific alternative technologies investigated.     

Long-run money demand in OECD countries: what role do common factors play?

This article examines the long-run money demand function for 11 OECD countries from 1983Q1 to 2006Q4 using panel data. The distinction between common factors and idiosyncratic components using principal component analysis allows for the detection of cross-member cointegration and the determination as to whether national or international sources are responsible for the non-stationarity of money and its determinants. Indeed, the finding that the common factors are I(1) while the idiosyncratic components are I(0) indicates that cross-member cointegration may exist and non-stationarity in the variables is primarily driven by common international trends. Furthermore, it is found that the impact of income on money demand is positive, whereas it is negative for the interest rate, exchange rate and stock prices. Except for the income elasticity of money demand, all estimated long-run coefficients are larger for the common factors of the variables than for the variables themselves. This article provides evidence that the exchange rate is an important determinant of money demand, whereas the results for the stock prices are ambiguous. Finally, the results of a panel-based error-correction model suggest that several domestic money stocks converge to a common international equilibrium relationship between the common factors.     

The adoption and termination of profit sharing for employees: does management’s attitude play a role?

Examinations on the determinants of profit sharing usually focus on objective firm characteristics. Using data from manufacturing firms in Germany, this study shows that managers’ subjective attitudes towards profit sharing also play an important role in the adoption and termination of this payment scheme. Positive management attitudes are associated with an increased likelihood of adopting profit sharing. While to some extent this entails failed experimentation, positive managerial attitudes also substantially contribute to a sustained use of profit sharing. The pattern of results holds even when controlling for a variety of objective firm characteristics.     

Does corporate governance play an important role in BHC performance? Evidence from the U.S.

This study explores the relationship between the operating performance and corporate governance of bank holding companies (BHCs) in the U.S. The modified data envelopment analysis (DEA) is utilized to integrate the five rating indicators of CAMEL (Capital Adequacy, Asset Quality, Management, Earnings, and Liquidity) so as to estimate the BHCs' performance. This study also employs the modified tiered DEA to categorize 68 BHCs into three Tiers. Additionally, the truncated-regression is employed to discuss whether or not the corporate governance would affect the performance of BHCs. The empirical results present the trade-off relationship with CAMEL indicators in the Tier1—Efficient BHCs. Moreover, it has been found that there are negative impacts on BHC's performance from board size, outside directors, the average age of directors and CEO/Chairman duality, while there are positive impacts from the number of committee and Big-4 auditors. The results further prove that corporate governance is important for the operating performance of BHCs.     

Does capital and financing structure have any relevance to the performance of microfinance institutions?

This paper aims to explore the impact of capital and financing structure on the performance of microfinance institutions (MFIs) from an agency theoretic standpoint. GMM and IV estimations with instruments have been performed using a panel dataset of 782 MFIs in 92 countries for the period 2000–2007. Results confirm the agency theoretic claim that an increase in leverage raises profit-efficiency in MFIs. The study also finds that cost efficiency deteriorates with decreasing leverage. Likewise, the negative significant impact of leverage on depth of outreach can also be explained. However, the study finds that capital structure does not have any noticeable impact on breadth of outreach and neither is it significantly related with women’s participation as loan clients.     

Is energy consumption sensitive to foreign capital inflows and currency devaluation in Pakistan?

This study investigates the relationship between foreign capital inflows and energy consumption by incorporating economic growth, exports and currency devaluation in energy demand function for the case of Pakistan. The long-run and short-run effects are examined via ARDL bounds testing procedure. Foreign capital inflows and currency devaluation (economic growth and exports) decrease (increase) energy consumption in long-run. The results confirm a feedback effect between foreign capital inflows and energy consumption. These findings would be helpful to policy makers in designing comprehensive economic and energy policies for utilizing foreign capital inflows as a tool for optimal use of energy sources to enhance economic development in long run.