ON BRÓDY'S CONJECTURE: THEORY,FACTS AND FIGURES ABOUT INSTABILITY OF THE US ECONOMY

Bródy's conjecture regarding the instability of economies is submitted to an empirical test using input–output flow tables of varying size for the US economy, for the benchmark years 1997 and 2002, as well as for the period 1998–2011. The results obtained using input–output tables of various dimensions lend support to the view of increasing instability (in the sense of Bródy) of the US economy over the period considered. Furthermore, our analysis shows that only a few vertically integrated industries are enough to shape the behaviour of the entire economy in the case of a disturbance. These results may usefully be contrasted with those derived in a parallel literature on aggregate fluctuations from microeconomic ‘idiosyncratic’ shocks.     

DOES THE IMPACT OF INSTITUTIONAL QUALITY ON ECONOMIC GROWTH DEPEND ON INITIAL INCOME LEVEL?

The aim of this paper is to determine the most adequate institutional variables to introduce into a growth model, depending on the income levels of countries. The results show that, for rich countries, the rule of law is fundamental while, for poor countries, it is control of corruption. This has important implications for any agenda of institutional reform in either type of country.     

LONG DARK SHADOWS OR INNOVATIVE SPIRITS? THE EFFECTS OF (SMOOTHING) BUSINESS CYCLES ON ECONOMIC GROWTH: A SURVEY OF THE LITERATURE

Abstract It is argued that fiscal policy can play a part in preventing a possible downward spiral or be instrumental in achieving a higher long‐term path of growth. Never before has this argument been advanced as frequently as in the current economic crisis. However, the economic literature – an overview of which is given here – does not provide an unambiguous answer, either theoretically or empirically, to the question of the relationship between (the smoothing of) cyclical fluctuations and long‐term growth. In this context, two main contrasting explanatory paradigms can be identified: Schumpeter’s concept of creative destruction and the learning by doing hypothesis. Even if it were possible to identify the relationship more clearly on this basis, it is important not to lose sight of the problems associated with the real‐time assessment of the current economic situation, time lags and political economic incentives even in difficult times.     

THE ‘REST OF THE WORLD’ – ESTIMATING THE ECONOMIC STRUCTURE OF MISSING REGIONS IN GLOBAL MULTI-REGIONAL INPUT–OUTPUT TABLES

Incomplete data for the economic structure of numerous countries hamper the compilation of global multi-regional input–output (MRIO) tables. By themselves, most of these countries are of only limited importance for the global economy and incumbent environmental issues. Hence, in most recent global MRIO tables these countries are either roughly estimated or summarised in one rest of the world (RoW) region. Combining a wide range of countries, this RoW region may play a significant role in global economic and environmental accounts. We conceptualise the importance of RoW in several environmental footprint accounts and present algorithms to estimate the structure of RoW. The approach utilises the information of the economic structure within known parts of the MRIO table to estimate the unknown structure. Using this method, global warming potential and employment footprints remain stable irrespective of the chosen initial estimates, whereas natural land use footprints and individual product impacts vary significantly.     

WHAT'S TO KNOW? PUZZLES IN THE LITERATURE ON THE VALUE OF STATISTICAL LIFE

Abstract Notwithstanding the general acceptance of the value of statistical life (VSL) estimates for policy assessment purposes, several important unresolved issues remain. First, the results from revealed preference studies are systematically higher than those from stated preference studies, potentially limiting the usefulness of stated preference studies in generalizing the VSL estimates to different populations and kinds of risks. Second, extrapolating the results of meta‐analyses to project the VSL for different population groups requires that such generalization be reflective of the underlying economic content of what average VSL estimates reflect. Third, government agencies within and across countries place differing emphasis on types of VSL studies as well as differing reliance on individual studies versus meta‐analyses. Usually, there is no justification provided for the chosen approach.     

TOWARDS A SYNTHESIS OF ISLAM AND THE MARKET ECONOMY? THE JUSTICE AND DEVELOPMENT PARTY'S ECONOMIC REFORMS IN TURKEY

Turkey has some unique characteristics, one of which is that it is the only Muslim country seeking to join the European Union. Internally, it has been going through a new and challenging experience in recent years: implementing free-market economic policies under a 'Conservative Democrat' government, the leadership of which comes from moderate Islamism. Many observers think that Turkish experience shows how Islam and the market economy are compatible. This article critically evaluates these reformist economic policies implemented since late 2002 and highlights the major factors behind Turkey's success story.     

ON THE (POLITICAL) ORIGIN OF ‘CORPORATE GOVERNANCE’ SPECIES

Although economies, business practices and living standards have converged since WWII, corporate structures continue to differ among the advanced economies of the world. Looking at the diversity of corporate structures of large-sized firms around the world (and over time) would fascinate Charles Darwin. This work develops a critical review of the literature on political determinants of corporate governance through the Darwinian theory (including some Lamarckian aspects). As Darwin, in his work On the Origin of Species, explicates the diversity of species of tortoises, finches and iguanas of the Galapagos Islands, so Darwinism may contribute in understanding the origin and the persistence of corporate diversity. In particular, this paper takes into account politics-driven variations, their inheritances, and the subsequent selection of advantageous ‘corporate’ attributes.     

WHAT HAVE WE LEARNED FROM THREE DECADES OF RESEARCH ON THE PRODUCTIVITY OF PUBLIC CAPITAL?

The last three decades have witnessed a great deal of research effort devoted to measuring the private output elasticity of public capital. The wide range of available estimates have precluded any consensus so far, however. This paper reconciles the empirical findings of the literature by quantitatively analyzing a sample of 578 estimates collected from 68 studies for the 1983–2008 period. Using meta‐regression analysis, we show how study design characteristics and publication bias can explain a large fraction of the variation across estimates. We find a short‐run output elasticity of public capital supplied at the central government level of 0.083, which increases to 0.122 in the long run. If, in addition, only core infrastructure at a regional/local level of government is considered, these estimates are almost doubled. The average output elasticity of public capital amounts to 0.106. Our results suggest that public capital is undersupplied in OECD economies.     

WHY ARE SOME PLACES RICH WHILE OTHERS ARE POOR? THE INSTITUTIONAL NECESSITY OF ECONOMIC FREEDOM

We survey perspectives on the economic differences between countries and argue that economic freedom is the key to prosperity. We close by outlining the policy implications. Specifically, removing obstacles to the exercise of economic freedom is an important step towards prosperity.     

TIME IS OF THE ESSENCE? AN EMPIRICAL APPLICATION OF THE COROLLARY OF THE COASE THEOREM

Applying the corollary of the Coase Theorem to the development market developed in Lai et al. (2007a) , we evaluate the proposition that procedural steps to use resources are not contingent on property rights assignment, unless the associated transaction costs are positive or property rights are ambiguous. Using aggregate statistics regarding planning applications for residential use, property prices, construction costs, share prices, interest rates, and application success rates in Hong Kong from 1985 to 2005, we evaluated, using regression techniques, the null hypothesis that there was no change in the relationship between readiness for submission of planning applications and property prices in response to changes in the time limits imposed on planning permissions . The relationship was more pronounced or strengthened (less obvious or weakened) when time limits were first imposed and shorter (longer). This can be explained in terms of the transaction costs of switching resource allocation according to the time limit.     

WHAT EXPLAINS THE DIFFERENCE IN THE EFFECT OF RETIREMENT ON HEALTH? EVIDENCE FROM GLOBAL AGING DATA

This paper analyzes the reasons for differences in the estimated effect of retirement on health in previous studies. We investigate these differences by focusing on the analysis methods used by these studies. Using various health indexes, numerous researchers have examined the effects of retirement on health. However, there are no unified views on the impact of retirement on various health indexes. Consequently, we show that the choice of analysis method is one of the key factors in explaining why the estimated results of the effect of retirement on health differ. Moreover, we re‐estimate the effect of retirement on health by using a fixed analysis method controlling for individual heterogeneity and endogeneity of the retirement behavior. We analyze the effect of retirement on health parameters, such as cognitive function, self‐report of health, activities of daily living (ADL), depression, and body mass index in eight countries. We find that the effects of retirement on self‐report of health, depression, and ADL are positive in many of these countries.     

WHAT IS THE EFFECT OF HOUSEWORK ON THE MARKET WAGE,AND CAN IT EXPLAIN THE GENDER WAGE GAP?

Abstract Does housework reduce the market wage, and if so, does it have a similar impact for males and females? In this paper, we survey and evaluate the recent and growing empirical literature on the linkages between housework and the wage rate. The review is motivated by unexplained gender wage gaps across studies, which consider personal and market‐related factors. We focus on this less‐studied aspect of wage determination. We consider the required modelling framework, and provide standardized estimated effects of housework on the hourly wage across studies. We evaluate how this literature has addressed potential estimation problems, in particular, the endogeneity of housework, concavity of the housework–wage function, threshold effects and work effort effects. We conclude that the evidence across ordinary least squares, instrumental variable, fixed effects and two‐stage least squares results casts serious doubt on the idea that the negative female housework–wage relationship is only driven by endogeneity bias or individual‐specific characteristics. Yet, much more needs to be done to address modelling and data requirements, and we point out likely and promising future research directions.     

A TIP OF THE ICEBERG? THE PROBABILITY OF CATCHING CARTELS

Reliable estimates of crime detection probabilities could help in designing better sanctions and improve our understanding of the efficiency of law enforcement. For cartels, we only have limited knowledge on the rate at which these illegal practices are discovered. In comparison to previous works, this paper offers a more parsimonious and simple‐to‐use method to estimate time‐dependent cartel discovery rates, while allowing for heterogeneity across firms. It draws on capture–recapture methods that are frequently used in ecology to make inferences on various wildlife population characteristics. An application of this method provides evidence that less than a fifth of cartelising firms are discovered. Copyright © 2013 John Wiley & Sons, Ltd.     

WHAT ELUDES INTERNATIONAL AGREEMENTS ON CLIMATE CHANGE? THE ECONOMICS OF GLOBAL PUBLIC GOODS

This paper provides an analysis of global warming policy as the provision of a global public good. Using a regional model composed of thirteen world regions, the paper shows how disparate incentives among the regions hinder a shift from a Business As Usual (BAU) policy to a Globally Optimal Policy (GOP). In the BAU scenario, there will be large variations in impacts from warming across the regions, meaning some countries have little incentive to participate in collective agreements. Under the GOP scenario, negative impacts from global warming will be significantly reduced in some regions resulting in strong incentives for these regions to press for action. The paper finds that an optimal regulation could save Europe, India, and Africa hundreds of billions of dollars per year by the end of this century, but would cause additional costs to China, Russia, Canada and the USA. Under the optimal regulatory framework, higher levels of abatement are required for developing countries, worsening the existing climate equity problem.     

ON THE ACCURACY OF CGE FORECASTS IN EXPANSION AND RECESSION: SPAIN 1990–1997

A recursive dynamic disaggregated computable general equilibrium model of the Spanish economy is used to compare the model predictions of endogenous variables with their observed values over the period 1991–1997. It includes 12 producers, 12 households, government and 2 external sectors. There are four types of labour and real wages that depend on unemployment rates. Private investment is determined by private savings and public and external surpluses. Domestic products and imports are imperfect substitutes. All exogenous variables and tax parameters are updated every year with the best available information. The model provides rather accurate predictions in 1991, a normal year, but it underestimates the intensity of the 1992–1993 recession. It also predicts dramatic reversals of trade balances in response to devaluations. These results suggest both that investment savings-driven models provide useful insights in the medium term but underestimate the consequences of downturns, and that Armington's elascitities typically assumed may be too large.     

HOW DO YOU CAPTURE LIQUIDITY? A REVIEW OF THE LITERATURE ON LOW-FREQUENCY STOCK LIQUIDITY

Researchers have various ways to measure liquidity but most of them come with both merits and demerits. This study provides a literature review of low-frequency liquidity measures with a primary focus on liquidity measurement as well as its implication on asset pricing. Based on the dimension it captures, a range of existing low-frequency measures are divided into four categories of liquidity proxies including transaction cost, volume, price impact, and multidimension-based measures. We review some well-established liquidity proxies, a new bid–ask spread estimator and price impact ratios proposed recently. Finally, we discuss how good low-frequency liquidity measures are at capturing standard liquidity benchmarks, which are constructed from high-frequency intraday data.     

DO THE DIAMONDS OF FOREIGN COUNTRIES SHAPE THE COMPETITIVENESS OF FIRMS? A CASE STUDY OF THE SWEDISH ENGINEERING CONSULTING INDUSTRY

This research sought to explore the effect of foreign countries on firms’ competitiveness, using Porter’s Diamond as the framework for the empirical test. The empirical evidence was based on data collected from a sample of Swedish engineering consulting firms. The findings demonstrate that the Swedish Diamond has stronger impact on the competitiveness of Swedish engineering consulting firms than do the Diamonds of the host countries in which these firms are active. The effect of host countries’ Diamond tend to increase as firms mature in their international activity and was found to have weak relation to the psychic distance between Sweden and the host countries.     

IS ECONOMIC RECOVERY A MYTH? ROBUST ESTIMATION OF IMPULSE RESPONSES

We estimate the impulse response function (IRF) of GDP to a banking crisis using an extension of the local projections method. We demonstrate that, though robust to misspecifications of the data‐generating process, this method suffers from a hitherto unnoticed bias which increases with the forecast horizon. We propose a correction to this bias and show through simulations that it works well. Applying our corrected local projections estimator to the data from a panel of 99 countries observed between 1974 and 2001, we find that an average banking crisis yields a GDP loss of just under 10% in 10 years, with little sign of recovery. Like the original local projections method, our extension of it is widely applicable. Copyright © 2013 John Wiley & Sons, Ltd.     

DO WATER-RICH REGIONS HAVE A COMPARATIVE ADVANTAGE IN FOOD PRODUCTION? IMPROVING THE REPRESENTATION OF WATER FOR AGRICULTURE IN ECONOMIC MODELS

With growing demand for fresh water and uncertain supplies, there is an increasing concern about future water scarcity. Since most freshwater withdrawals are for agriculture, reliance on water embodied in imported food (trade in ‘virtual water’) is a possible strategy to provide food to water-stressed regions while conserving their scarce supply for other purposes. To evaluate this proposition, we extend a model of interregional trade by (1) defining endowments of water that cannot be exceeded, (2) allowing simultaneous operation of rainfed and irrigated agriculture, and (3) distinguishing sub-regional endowments within a larger economic region. An application to the Mexican economy compares region-specific water abundance with economic comparative advantage under alternative scenarios. We conclude that the water-rich regions of Mexico are relatively high-cost producers of food and that they do not pick up the slack even when the lowest-cost Mexican regions are constrained by binding water constraints.