Nonlinearity in real exchange rates: an approach with disaggregated data and a new linearity test

Employing disaggregated real exchange rates from nine European counties in 16 goods categories, we assess in this study the nonlinearity in the real exchange rates. Surprisingly, we find evidence for nonlinearity in only four (10) out of 143 series with the linearity test proposed by Harvey et al. (2008 Harvey, D. I., Leybourne, S. J. and Xiao, B. 2008. A powerful test for linearity when the order of integration is unknown. Studies in Nonlinear Dynamics and Econometrics, 12 Art 8[Web of Science ®] , [Google Scholar]) at the 5% (10%) significance level. This result differs greatly from those of Juvenal and Taylor (2008 Juvenal, L. and Taylor, M. P. 2008. Threshold adjustment of deviations from the law of one price. Studies in Nonlinear Dynamics and Econometrics, 12 Art 8[Web of Science ®] , [Google Scholar]), Imbs et al. (2003 Imbs, J., Mumtaz, H., Raven, M. O. and Rey, H. 2003. Nonlinearities and real exchange rate dynamics. Journal of the European Economic Association, 1: 639–49. [Crossref] , [Google Scholar]), Sarno et al. (2004 Sarno, L., Taylor, M. P. and Chowdhury, I. 2004. Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study. Journal of International Money and Finance, 23: 1–25. [Crossref], [Web of Science ®] , [Google Scholar]) and Berka (2009 Berka, M. 2009. “Non-linear adjustment in law of one price deviations and physical characteristic of good”. In Review of International Economics Vol. 17, 51–73.  [Google Scholar]), who report ample evidence for nonlinearity for the same or similarly disaggregated real exchange rate datasets.     

Globalization and the effects of changes in functional income distribution on aggregate demand in Germany

Germany has experienced a period of extreme nominal and real wage moderation since the mid‐1990s. Contrary to the expectations of liberal economists, this has failed to improve Germany’s mediocre economic performance. However, Germany is now running substantial current account surpluses. One possible explanation for Germany’s disappointing performance is found in Kaleckian theory, which highlights that the domestic demand effect of a decline in the wage share will typically be contractionary, whereas net exports will increase (Blecker 1989 Blecker, R. 1989. International competition, income distribution and economic growth. Cambridge Journal of Economics, 13: 395–412. [Web of Science ®] [Google Scholar]). The size of the foreign demand effect will critically depend on the degree of openness of the economy. This paper aims at estimating empirically the demand side of a Bhaduri and Marglin (1990 Bhaduri, A. and Marglin, S. 1990. Unemployment and the real wage: The economic basis for contesting political ideologies. Cambridge Journal of Economics, 14: 375–93. [Crossref], [Web of Science ®] [Google Scholar]) type model for Germany. The paper builds on the estimation strategy of Stockhammer, Onaran, and Ederer (2009 Stockhammer, E., Onaran, Ö. and Ederer, S. 2009. Functional income distribution and aggregate demand in the Euro area. Cambridge Journal of Economics, 33(1): 139–59. [Crossref], [Web of Science ®] [Google Scholar]) and Hein and Vogel (2008 Hein, E. and Vogel, L. 2008. Distribution and growth reconsidered – empirical results for six OECD countries. Cambridge Journal of Economics, 32: 479–511. [Crossref], [Web of Science ®] [Google Scholar], 2009 Hein, E. and Vogel, L. 2009. Distribution and growth in France and Germany – single equation estimations and model simulations based on the Bhaduri/Marglin‐model. Review of Political Economy, 21(2): 245–72. [Taylor & Francis Online] [Google Scholar]). The main contribution lies in a careful analysis of the effects of globalization. Since Germany is a large open economy by now it is a particularly interesting case study.     

Purchasing power parity for G-7 countries: panel SURADF tests

In this study, the panel Seemingly Unrelated Regressions Augmented Dickey–Fuller (SURADF) tests advanced by Breuer et al. (2001 Breuer, J. B., McNown, R. and Wallace, M. S. 2001. Misleading inferences from panel unit-root tests with an illustration from purchasing power parity. Review of International Economics, 9: 482–93. [Crossref] , [Google Scholar]) are used to test the validity of Purchasing Power Parity (PPP) for G-7 countries over the period 1980M1 to 2008M5. The empirical results from several panel-based unit root tests indicate that PPP does not hold for G-7 countries under study; however, Breuer et al.'s (2001 Breuer, J. B., McNown, R. and Wallace, M. S. 2001. Misleading inferences from panel unit-root tests with an illustration from purchasing power parity. Review of International Economics, 9: 482–93. [Crossref] , [Google Scholar]) panel SURADF tests unequivocally indicate that PPP is valid for half of the G-7 countries.     

Nonlinear Mean Reversion across National Stock Markets: Evidence from Emerging Asian Markets

This paper seeks empirical evidence of nonlinear mean-reversion in relative national stock price indices for Emerging Asian countries. It is well known that conventional linear unit root tests suffer from low power against the stationary nonlinear alternative. Implementing the nonlinear unit root tests proposed by Kapetanios et al. (2003 Kapetanios, G., Shin, Y. and Snell, A. 2003. Testing for a unit root in the nonlinear STAR framework. Journal of Econometrics, 112: 359–379. [Crossref], [Web of Science ®] , [Google Scholar]) and Cerrato et al. (2009 Cerrato, M., de Peretti, C., Larsson, R. and Sarantis, N. 2009. “A nonlinear panel unit root test under cross section dependence”. Working Papers 28, Department of Economics, University of Glasgow [Google Scholar]) for the relative stock prices of Emerging Asian markets, we find strong evidence of nonlinear mean reversion, whereas linear tests fail to reject the unit root null for most cases. We also report some evidence that stock markets in China and Taiwan are highly localized.     

Underground Economy,Evasion and Inequality

Economic theory is paying increasing attention to a non-observed economy (NOE) and its causes. Recently, a couple of works (Rosser et al., 2000 Rosser, J. B., Rosser, M. V. and Ahmed, E. 2000. Income inequality and the informal economy in transitions economies. Journal of Comparative Economics, 28(1): 156–171.  [Google Scholar], 2003 Rosser, J. B., Rosser, M. V. and Ahmed, E. 2003. Multiple unofficial economy equilibria and income distribution dynamics in systemic transition. Journal of Post Keynesian Economics, 25(3): 425–447. [Web of Science ®] , [Google Scholar]) have claimed that there is a positive relationship between income inequality and the size of NOE. This supposed relationship is not so clear and deserves in-depth analysis. There is a crucial aspect that has been completely avoided in these studies: income inequality is mainly measured using ‘regular’ incomes and this fact could lead to some bias. The existence of a certain size of NOE implies some income evasion that can affect the inequality indexes used in the study of the relationship between NOE and inequality. Including the regional share of NOE in a wage equation, I find that, in the specific case of the Italian private sector employees, the income evasion attached to NOE tends to reduce inequality measured by regular wages statistics.     

Does Higher Education Affect Economic Growth? The Case of Greece

Abstract

The purpose of the study is twofold: first, it presents an extensive review of empirical studies that have examined the relationship between higher education and economic growth. Second, it estimates the effect of higher education on economic growth in Greece over the period 1960–2009. It applies the model introduced by Mankiw, Romer, and Weil (1992 Mankiw, G., Romer, D., & Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107(2), 407–437. doi: 10.2307/2118477[Crossref], [Web of Science ®] , [Google Scholar]) by using the higher enrolment rates as a proxy of human capital. The paper employs cointegration and an error-correction model to test the causal relationship between higher education, physical capital investments and economic growth. The empirical analysis reveals that there is a long-run cointegrating relationship between higher education, physical capital investments and economic growth. The elasticity of economic growth with respect to higher education is 0.52%. The results also suggest that there is evidence of unidirectional long-run and short-run Granger causality running from higher education and physical capital investments to economic growth.     

Immiserizing Growth and the Metzler Paradox in the Ricardian Model

Conditions for the occurrence of immiserizing growth and the Metzler paradox are analysed in the Ricardian model when consumers in the foreign country have Leontief preferences while consumers in the home country have Cobb-Douglas preferences. By using specific functional forms, the conditions for the occurrence of the two paradoxes are defined in terms of the exogenous parameters of the model rather than endogenous variables such as the foreign import demand elasticity in the conditions of Bhagwati (1958) Bhagwati, J. N. 1958. Immiserizing growth: a geometrical note. Review of Economic Studies, 25: 201–205. [Crossref], [Web of Science ®] , [Google Scholar] and Metzler (1949a Metzler, L. A. 1949a. Tariffs, the terms of trade and the distribution of national income. Journal of Political Economy, 57: 1–29. [Crossref], [Web of Science ®] , [Google Scholar], b Metzler, L. A. 1949b. Tariffs, international demand, and domestic prices. Journal of Political Economy, 57: 345–351. [Crossref], [Web of Science ®] , [Google Scholar]). It is shown that the simultaneous occurrence of both paradoxical results is possible for some parameter values.     

A Note on Forecasting the Euro: Do Forecasters Have an Asymmetric Loss Function?

Based on the approach advanced by Elliott, Komunjer, and Timmermann (2005 Elliott, G., Komunjer, I., & Timmermann, A. (2005). Estimation and testing of forecast rationality under flexible loss. Review of Economics Studies, 72, 1107–1125. doi: 10.1111/0034-6527.00363[Crossref], [Web of Science ®] , [Google Scholar]), we analyzed whether the loss function of a sample of exchange-rate forecasters is asymmetric in the forecast error. Using forecasts of the dollar/euro exchange rate, we found that the shape of the loss function varies across forecasters. Some forecasters appear to make forecasts under an asymmetric loss function, while a symmetric loss function seems to describe well the loss function of other forecasters. Accounting for an asymmetric loss function does not necessarily make forecasts ‘look’ rational.     

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.     

Relationships between oil price shocks and stock market: an empirical analysis from Greater China

Although a lot of empirical research has studied the relationship between changes in oil price and economic activity, it is surprising that little research has been conducted on the relationship between oil price shocks and the Greater China region (China, Hong Kong and Taiwan). Therefore, the main goal of this article is to apply detailed monthly data from 1997/7 to 2008/9 to fill this gap. Compared to the effect of US stock market returns described by Kilian (2009 Kilian, L. 2009. Not All oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review, 99: 1053–69. [Crossref], [Web of Science ®] , [Google Scholar]) and Kilian and Park (2009 Kilian, L. and Park, C. 2009. The impact of oil price shocks on the US stock market. International Economic Review, 50: 1267–87. [Crossref], [Web of Science ®] , [Google Scholar]), we found that the impact of oil price shocks on stock prices in Greater China has been mixed. First, the impact of oil price shocks on Taiwan's stock market is very similar to that on the US stock market. Additionally, all three shocks have had significantly positive impacts on Hong Kong's stocks, partially in contrast to the effects on the US stock market. However, in contrast to the effect in the US stock market, we found that only global oil supply shock has a significantly positive impact on China's stock returns, but global oil demand shock and the oil specific demand shock have no significant impacts. The reason for the lack of significant impacts is that the positive expectation effect of China's fast economic growth may be just offset by the negative effect of a precautionary demand-driven effect. This result is also consistent with the previous empirical findings that the segmented and integrated China stock market is mixed, and it implies that the China stock market is ‘partially integrated’ with the other stock markets and oil price shocks.     

What (if any) are the returns to computer use?

Using North American data, we revisit the question first broached by Krueger (1993 Krueger, AB. 1993. How computers have changed the wage structure: evidence from microdata. Quarterly Journal of Economics, 108: 33–60. [Crossref], [Web of Science ®] , [Google Scholar]) and re-examined by DiNardo and Pischke (1997 DiNardo, JE and Pischke, J-S. 1997. The returns to computer use revisited: have pencils changed the wage structure too?. Quarterly Journal of Economics, 112: 291–303. [Crossref], [Web of Science ®] , [Google Scholar]) of whether there exists a real wage differential associated with computer use. Employing a mixed effects model with matched employer–employee data to correct for the fact that workers and workplaces that use computers are self-selected, we find that computer users enjoy an almost 4% wage premium over nonusers. Failure to correct for worker and workplace selection effect leads to a more than twofold overestimate of this premium.     

Purchasing power parity for East-Asia countries: further evidence based on panel stationary test with multiple structural breaks

In this article, we re-investigate the validity of Purchasing Power Parity (PPP) for a sample of 10 East-Asia countries over the period of January 1987 to June 2005, using a recently developed econometric technique of the panel stationary test with multiple structural breaks, proposed by Carrion-i-Silvestre et al. (2005 Carrion-i-Silvestre, JL, Del Barrio, T and López-Bazo, E. 2005. Breaking the panels: an application to the GDP per capita. Econometrics Journal, 8: 159–75. [Crossref], [Web of Science ®] , [Google Scholar]). This test considers multiple structural breaks positioned at different unknown dates and a different number of breaks for each individual. Empirical evidence shows that the PPP holds true for half of 10 East-Asia countries during the research period. Our results have important policy implications for these 10 East-Asia countries under study.     

Does debt market timing increase firm value?

Survey evidence indicates that firm managers try to time debt markets when choosing the maturity of new debt issues, but we do not know whether these strategies increase firm value. This research examines differences in value across nontimers and timers, where timers are defined as firms that follow either a naïve strategy of choosing long-term debt when the term premium is low or a strategy from Baker et al. (2003 Baker, M, Greenwood, R and Wurgler, J. 2003. The maturity of debt issues and predictable variation in bond returns. Journal of Financial Economics, 70: 261–91. [Crossref], [Web of Science ®] , [Google Scholar]) based on the predictability of future excess bond returns. After controlling for various determinants of firm value, the research finds no differences in value across timers and nontimers. It also documents that the timing strategies do not increase firm value and do not affect announcement effects of long-term debt offerings. The results suggest that corporate debt markets are efficient and well integrated with equity markets.     

PATTERNS OF INNOVATION IN THE SERVICE SECTOR: SOME INSIGHTS FROM THE SPANISH INNOVATION SURVEY

Although the attention of innovation studies has traditionally been focused on manufacturing, the differential features of innovation activities carried out by services are gaining more and more relevance in innovation research. The aim of this paper is to thoroughly analyse the data from the Spanish Innovation Survey 2000, the first large-scale innovation survey that included service activities in Spain, in order to identify the main patterns of innovation in Spanish services. The results of our investigations confirm that a high degree of heterogeneity, in relation to innovation patterns, exists among service firms and among service industries as well. Nevertheless, important similarities are found between pioneer classifications, such as the theoretical taxonomy of service industries by Soete and Miozzo (1989) Soete, L. and Miozzo, M. 1989. “Trade and Development in Services: A Technological Perspective”. The Netherlands: MERIT Research Memorandum, 89-031. MERIT.  [Google Scholar] or the classification of service firms elaborated by Hollenstein (2003) Hollenstein, H. 2003. Innovation modes in the Swiss service sector: a cluster analysis based on firm-level data. Research Policy, 32(5): 845–863. [Crossref], [Web of Science ®] , [Google Scholar], and the taxonomy we obtained by applying multivariate analysis.     

Service innovation and the proximity-concentration trade-off model of trade and FDI

This paper introduces service innovation in the proximity-concentration trade-off model of trade and foreign direct investments (FDI) [Helpman, E., M. Melitz, and S. R. Yeaple 2004 Helpman, E., M. Melitz, and S. R. Yeaple. 2004. “Export Versus FDI with Heterogeneous Firms.” American Economic Review 94 (1): 300–316. doi: 10.1257/000282804322970814[Crossref], [Web of Science ®] , [Google Scholar]. “Export Versus FDI with Heterogeneous Firms.” American Economic Review 94 (1): 300–316]. The idea is that innovation will have two main effects on service firms’ choice between exports and FDI. First, innovative firms will on average have higher productivity levels than non-innovative enterprises. Secondly, innovators will have to pay a higher relational distance cost for undertaking export activities, and they will, therefore, prefer to avoid (or reduce) these costs by choosing an FDI strategy instead. We test the empirical relevance of this idea on a new survey data set for a representative sample of firms in all business service sectors in Norway. The results show that firms are more likely to choose FDI rather than export the greater their productivity level and the higher the relational distance costs they face.     

Rudderless in a Sea of Yellow: The European Political Economy Impasse for Renewable Transport Energy

Faced with the twin challenges of anthropogenic climate change and ‘peak oil’, the need for an urgent and radical transformation of transport energy has been widely recognised. Adopting a neo-Polanyian economic sociology approach, this article asks what conditions European governance capacity to respond to these challenges, at either national or regional levels, using biofuels as a case study. It asks if the complexity of its political institutions, and the heterogeneity of interests and economic organisations, present ‘the biggest obstacle of all’ (Cohen 2007 Cohen, B. J. 2007. Enlargement and the International Role of the Euro. Review of International Political Economy, 14: 746–73. (doi:10.1080/09692290701642630)[Taylor & Francis Online], [Web of Science ®] , [Google Scholar]) to reduce fossil fuel dependency. By examining the European Commission level and comparing five countries, evidence is produced for a political failure in terms of continued fossil fuel dependency. Incumbent interests in the agricultural sector and a distinctively European legacy of a transport fleet dependent on fossil diesel, have led to a marriage of convenience between rapeseed farmers and vehicle manufacturers. As a consequence, rather than escaping from the path dependency on fossil fuels (Unruh 2000 Unruh, G. C. 2000. Understanding Carbon Lock-in. Energy Policy, 28(12): 817–30. (doi:10.1016/S0301-4215(00)00070-7)[Crossref], [Web of Science ®] , [Google Scholar]), Europe has gone down a cul-de-sac of rapeseed biodiesel inherently limited in scope, and with the low levels of greenhouse gas emissions savings. Ironically this outcome is in part an unintended consequence of opposition to biofuels from environmentalist groups and politics.     

Structural changes and regional disparity in China's inflation: a revisit

The study re-examined the time series properties and regional disparities in Chinese inflation by extending the work of Chong, Zhang, and Feng (2011 Chong, Tai-Leeung, Terence, Ning Zhang and Feng, Qu. 2011. Structural Changes and Regional Disparity in China's Inflation. Economics Bulletien, 31(1): 572–583.  [Google Scholar]). For this purpose we employed the Lagrange Multiplier (LM) unit root test with one structural break and two structural breaks suggested by Lee and Strazicich (2003 Lee, Junsoo, Mark, C. and Strazicich. 2003. Minimum LM Unit Root Test with Two Structural Breaks. Review of Economics and Statistics, 85(4): 1082–1089. [Crossref], [Web of Science ®] , [Google Scholar], 2004 Lee, J. and Strazicich, M. 2004. Minimum LM unit root test with one structural break. Working Paper 04–17, Boone, North Carolina: Department of Economics, Appalachian State University.  [Google Scholar]) and a recently developed ADF type unit root test with two structural breaks of Narayan and Popp (2010 Narayan, Paresh Kumar and Stephan Popp. 2010. A New Unit root test with Two Structural Breaks in Level and Slope at Unknown Time. Journal of Applied Statistics, 37(9): 1425–1438. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]). We found that national, urban and rural series of the overall inflation series, clothing, and food, national series of education and residence and the rural series of residence and education are stationary. We also found regional disparity in Chinese inflation, but the disparities existed only in education inflation series.     

Functional income distribution and growth in Thailand: A post Keynesian econometric analysis

The aim of this article is to analyze the effect of the income distribution between labor and capital on the growth performance of Thailand from a post Keynesian view. It rests on the theoretical model of Bhaduri and Marglin (1990 Bhaduri, A., and Marglin, S. “Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies.” Cambridge Journal of Economics, December 1990, 14 (4), 375–393.[Crossref], [Web of Science ®] , [Google Scholar]) to see if an increase in the labor income share has a sufficient positive effect on consumption to offset a negative effect on investment and export demand. In order to investigate the question empirically we adopt and develop the approach of Stockhammer, Onaran, and Ederer (2009 Stockhammer, E.; Onaran, Ö.; and Ederer, S. “Functional Income Distribution and Aggregate Demand in the Euro-area.” Cambridge Journal of Economics, 2009, 33 (1), 139–159.[Crossref], [Web of Science ®] , [Google Scholar]). Several measures of the labor income share are calculated to take into account the fact that wage labor represents only half of the total labor force and check the robustness of our results. We also introduce a new treatment of external trade to better integrate the price competitiveness of Thailand. The econometric investigation shows that the growth regime is profit-led over the period 1970–2011, which shows that rebalancing the Thai economy will be difficult and requires an overall change of strategy going beyond a simple prolabor policy.     

Estimation of SEs for heteroscedastic and cross-sectionally correlated data

This study develops SE estimators for heteroscedastic and cross-sectionally correlated data. The new estimators are a cross-sectional version of the White and Domowitz (1984 White, H and Domowitz, I. 1984. Nonlinear regression with dependent observations. Econometrica, 52: 143–61. [Crossref], [Web of Science ®] , [Google Scholar]) and Newey and West (1987 Newey, W and West, K. 1987. A simple positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix. Econometrica, 55: 703–8. [Crossref], [Web of Science ®] , [Google Scholar]) estimators, and therefore, consistent in the presence of heteroscedasticity and cross correlation of unknown form. Unlike the estimators in the literature, these estimators can control for cross correlation even for single-period cross-sectional data.     

The Political Power of Big Business: A Response to Bell and Hindmoor

There has been a recent resurgence of interest in debates about the power of business (Culpepper 2011 Culpepper, P. (2011). Quiet Politics and Business Power: Corporate Control in Europe and Japan, Cambridge: Cambridge University Press. [Google Scholar]; Bell 2012 Bell, S. (2012). The Power of Ideas: The Ideational Mediation of the Structural Power of Business. International Studies Quarterly, 56(4), 661–73. doi: 10.1111/j.1468-2478.2012.00743.x[Crossref], [Web of Science ®] , [Google Scholar]) and Bell and Hindmoor (2013 Bell, S., Hindmoor, A. (2013). The Structural Power of Business and the Power of Ideas: The Strange Case of the Australian Mining Tax. New Political Economy, ,forthcoming. Available from: http://dx.doi.org/10.1080/13563467.2013.796452 [19 (3), pp. 470–486, cross-references updated] [Google Scholar]) make an important, theoretically informed, but empirically rooted, contribution to that debate. In this response, we address both aspects of their contribution, arguing that their treatment of Lindblom is partial and, consequently, so is their explanation of the case. As such, we largely rely on their narrative of the evolution of the Australian mining tax, focusing first on critically examining Bell and Hindmoor's theoretical position, before turning to their analysis of the case.