Capital Controls Re‐examined: The Case for ‘Smart’ Controls

The global financial crisis which began in east Asia in 1997 is not over, neither is the inquest into its implications for adjustment policy. In the wake of this crisis, we focus here on the role of capital controls, which formed a much publicised part of the crisis‐coping strategy in one country (Malaysia) and, less openly, were also deployed by other crisis‐afflicted countries. Evaluation so far has examined different target variables with different estimation methods, generally concentrating on efficiency and stability indicators and ignoring equity measures; it has also typically treated ‘control’ as a one‐zero dummy variable, ignoring the ‘quality’ of intervention and in particular the extent to which efficiency gains are obtained in exchange for controls. Partly because of these limitations, the literature has reached no consensus on the impact of controls; however, it is moving over towards acknowledging that the quality and type of controls is important, as well as their intensity. We propose an approach in which the government plays off short‐term political security against long‐term economic gain; the more insecure its political footing, the greater the weight it gives to political survival, which is likely to increase the probability of controls being imposed. The modelling of this approach generates a governmental ‘policy reaction function’ and an impact function for controls, which are estimated by simultaneous panel‐data methods across a sample of thirty developing and transitional countries between 1980–2003, using, for the period since 1996, the ‘new’ IMF dataset which differentiates between controls by type. We find that controls appear to cause increases in income equality, and are significantly associated with political insecurity and relatively low levels of openness to trade. They do not, in our analysis, materially influence the level of whole‐economy productivity or GDP across the sample of countries examined, although they do influence productivity in particular sectors. But the dispersion around this central finding is wide: the tendency for controls to depress productivity by encouraging rent‐seeking sometimes is, and sometimes is not, counteracted by purposive government policy actions to maintain competitiveness. Whether or not this happens is vital, on both efficiency and equity grounds. We make the case for ‘smart’ capital controls – controls which are time‐limited and contain an inbuilt incentive to increased productivity.     

Aid for trade and export diversification in recipient‐countries

The Aid‐for‐Trade (AfT) Initiative was launched by the Members of the World Trade Organization (WTO) with a view to helping developing countries and the least‐developed countries (LDCs) expand their trade. The current paper contributes to the literature on AfT effectiveness by examining how AfT affects recipient‐countries' export product diversification. The analysis has been carried out on a sample of 104 AfT recipient‐countries over the period 2002–2015 and uses the two‐step system generalised methods of moments (GMM) approach. Results show that AfT flows are conducive to export product diversification in recipient‐countries. In addition, the analysis has shown a positive impact of the cumulative AfT flows on the export product diversification path of these countries. These results apply as well to the subsamples of LDCs and other developing countries. One policy implication of these results is that a scale‐up of AfT would help recipient‐countries to diversify their export products baskets and hence facilitate their greater integration into the global trading system.     

Dangerous Interactions: Problems in Interpreting Tests of Conditional Aid Effectiveness

There is now a substantial empirical literature examining the determinants of aid effectiveness. A large part of this makes inferences based on a regression incorporating aid (as a share of recipient GDP) interacted with some institutional or policy variable. Recently, some authors have questioned the statistical robustness of such regressions, pointing out that results vary according to the way aid is measured and the estimator applied to the data. Moreover, the regression equations used to test hypotheses about the determinants of aid effectiveness are often introduced without any corresponding formal theory. We explore aid‐policy interaction terms in the context of a simple theoretical model, showing how different nonlinearities may be conflated. The resulting difficulties in the interpretation of aid‐growth regressions are illustrated in the context of a seminal paper in the conditional aid effectiveness literature. One simple change in the way that aid is measured – in per capita terms rather than as a fraction of GDP – completely changes the regression results. This indicates that adding interaction terms to otherwise linear regression equations is an inadequate way of capturing the nonlinearities in the growth process. Our aim is to re‐emphasise the importance of grounding.     

Eco‐labelling and the Trade‐Environment Debate

In this paper we consider the effectiveness of eco‐labels as a substitute for alternative, but trade‐restrictive, environmental policies. Specifically, while there are concerns that eco‐labelling requirements increase the cost of international trade, due to their potential for misuse as technical trade barriers, little attention has been given to the environmental benefits of eco‐labelling. We show that incentive problems inherent in eco‐labelling policies make it a very weak tool of environmental policy. Despite this, we argue that eco‐labelling schemes may remain popular, owing to the lack of alternative WTO compliant environmental policies. We also use this framework to consider the economic and political conflicts facing the EU with regard to its policies on genetically modified organisms.     

Productivity and Learning‐by‐exporting: A Firm‐level Analysis of Indian Manufacturing

In this paper, we examine whether firms become productive by learning through exporting. To this end, we estimate the production function using microdata of Indian manufacturing firms operating in the period 1991–2001. In contrast to studies on developed countries, our results provide evidence that Indian manufacturing firms are experiencing a rise in productivity through entering export markets and thus experience the learning effect. We also find that there is a productivity rise prior to exporting. Therefore, our results also support the self‐selection mechanism for exporting.     

Borrowing Capacity and Financial Decisions of Low‐to‐Moderate Income First‐Time Homebuyers

This study documents the extent to which first‐time homebuyers seeking a mortgage accurately estimate their borrowing capacity and how this is associated with their decisions regarding mortgage debt and the take‐up of a free offer of financial coaching. We find that consumers who underestimate their nonmortgage debt (31.5% of the sample) also take out larger mortgages relative to income. Consumers who underestimate or overestimate their total debt as well as their monthly debt payments are more likely to accept the offer of financial coaching. Moreover, overconfidence in financial matters reduces the take‐up of financial coaching. These biases in perceived financial status appear to be systematically related to behavior among a group of relatively inexperienced consumers. These findings suggest that efforts to extend homeownership may need to include debiasing mechanisms to help less informed consumers accurately assess their current debt levels and ability to make ongoing mortgage payments.     

Rent‐to‐Own Pricing: Theory and Empirical Evidence

The rent‐to‐own (RTO) industry given its emphasis on subprime or, at least, financially constrained consumers is often seen as exploitative with excessive financing costs. This paper develops a rational‐expectations competitive equilibrium model to explore the pricing mechanism of an RTO agreement. The model accounts for the contract's embedded options and several bundled services. Using detailed transactional data, we infer how customers exercise these options to calibrate our model for several product categories, contractual lengths and payment periodicity. The resulting predictions provide a justification for the high financing costs observed in the marketplace.     

Problem‐Solving Orientations,Financial Self‐Efficacy,and Student‐Loan Repayment Stress

Using data acquired from a four‐time longitudinal survey, we tested a model linking two measures of self‐agency, i.e., problem‐solving orientations and financial self‐efficacy, to student‐loan repayment stress. Of those participants who responded at Wave 4 (N = 855) of a longitudinal study, 396 who had acquired student loans were included in our structural equation model's Mplus analysis. After we controlled for gender, college financial education, ethnicity, and participant annual income, we found that both financial self‐efficacy and negative problem‐solving orientation were related to perceived difficulty. More specifically, those participants with a greater financial self‐efficacy at Wave 4 perceived less difficulty in paying off their loans, while those with a more negative problem‐solving orientation perceived more difficulty in paying off their loans. We also found perceived difficulty to be directly related to the actual difficulty of repaying a loan, and this perceived difficulty was, in turn, associated with loan‐specific stress. We provide implications for financial education.     

ON THE DYBVIG‐INGERSOLL‐ROSS THEOREM

The Dybvig‐Ingersoll‐Ross (DIR) theorem states that, in arbitrage‐free term structure models, long‐term yields and forward rates can never fall. We present a refined version of the DIR theorem, where we identify the reciprocal of the maturity date as the maximal order that long‐term rates at earlier dates can dominate long‐term rates at later dates. The viability assumption imposed on the market model is weaker than those appearing previously in the literature.     

Competence‐based management development in small and medium‐sized enterprises: a multi‐stakeholder analysis

Small and medium‐sized enterprises (SMEs) are considered increasingly important for economic growth (Wilson, 1995) and effective management of them is regarded as essential for their survival and success (Jennings and Beaver, 1995). This study adopted a multi‐stakeholder perspective in order to explore the promotion, via Training and Enterprise Councils (TECs); provision and (potential for) purchase of competence‐based management training and development (MTD) in the SME sector in the United Kingdom. Survey data from (551) and interviews with (12) SMEs; plus interviews (6) with TECs and interviews (29) with providers of MTD are reported. ‘Product’ deficiencies in competence‐based MTD are identified and recommendations for promotion made.     

TIME‐CONSISTENT AND MARKET‐CONSISTENT EVALUATIONS

We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically involves combining actuarial techniques with methods from mathematical finance. We propose to extend standard actuarial principles by a new market‐consistent evaluation procedure which we call “two‐step market evaluation.” This procedure preserves the structure of standard evaluation techniques and has many other appealing properties. We give a complete axiomatic characterization for two‐step market evaluations. We show further that in a dynamic setting with continuous stock prices every evaluation which is time‐consistent and market‐consistent is a two‐step market evaluation. We also give characterization results and examples in terms of g‐expectations in a Brownian‐Poisson setting.     

BUY‐LOW AND SELL‐HIGH INVESTMENT STRATEGIES

Buy‐low and sell‐high investment strategies are a recurrent theme in the considerations of many investors. In this paper, we consider an investor who aims at maximizing the expected discounted cash‐flow that can be generated by sequentially buying and selling one share of a given asset at fixed transaction costs. We model the underlying asset price by means of a general one‐dimensional Itô diffusion X , we solve the resulting stochastic control problem in a closed analytic form, and we completely characterize the optimal strategy. In particular, we show that, if 0 is a natural boundary point of X , e.g., if X is a geometric Brownian motion, then it is never optimal to sequentially buy and sell. On the other hand, we prove that, if 0 is an entrance point of X , e.g., if X is a mean‐reverting constant elasticity of variance (CEV) process, then it may be optimal to sequentially buy and sell, depending on the problem data.     

How On‐the‐Job Embeddedness Influences New Venture Creation and Growth

This study aims to answer why some employees choose to start their own ventures, whereas others choose to seek jobs in other organizations after leaving their current employment. Drawing insights from knowledge‐based view and social capital theory, we examine the impact of on‐the‐job embeddedness on the decision of employee entrepreneurship, industry choice, and new venture growth. We argue that on‐the‐job embeddedness provides key resources for employees to start new ventures and grow them. We test our hypotheses with Panel Study of Entrepreneurial Dynamics (PSED) data. Our results show that on‐the‐job embeddedness increases the probability of employees becoming entrepreneurs. Once they decide to become entrepreneurs, those employees with high on‐the‐job embeddedness are more likely to start new ventures in the industry in which they worked before. Moreover, employees' on‐the‐job embeddedness has a positive impact on new venture growth.     

An Assessment of Environmentally‐ related Non‐tariff Measures

International trade can affect the environment in different ways. This may justify the introduction of border measures by the importing countries. In addition to various dispositions in the GATT, GATS, TRIPs agreements, as well as in the Agreement on Agriculture, this issue is regulated by the agreements on Technical Barriers to Trade (TBT) and on the application of Sanitary and Phyto‐sanitary standards (SPS). Despite these rules, abuse of environmental arguments for protectionist reasons remains an open issue. In order to disentangle protectionism from dispositions justified on the grounds of true environmental concerns, we systematically review notifications of SPS and TBTs by importing countries at the tariff line level. Trade is considered as being potentially affected when an environmental SPS/TBT is notified on grounds of environmental concerns. Affected trade is defined as imports by countries notifying such barriers. Protectionist use of environmental barriers is likely when only a limited number of countries impose an environmental obstacle on the imports of a given product. Considering data for 2001, we find that 88 per cent of the value of world trade is in products potentially affected by such measures, while 39 per cent of the value of world imports is potentially subject to a protectionist use of such measures. Agriculture, the automobile industry, the pharmaceutical industry and many other sectors are concerned.     

Attitude toward Risk and Risk‐Taking Behavior of Business‐Owning Families

Using data from the 1995 Survey of Consumer Finances, this study found that family business owners are more risk tolerant than nonowners. Among family business owners, age, race, net worth, and the number of employees in the business affect risk‐taking attitudes and behavior. In addition, the following factors are associated with risk‐taking behaviors: number of years of ownership, gross sales, who started the business, and sole proprietorship. Education influences risk‐taking attitudes.