Does international tourism affect international trade and economic growth? The Indian experience

This study attempts to investigate the relationship between international tourism, trade, and economic growth in India over the period from April 1991 to July 2012. To account for potential asymmetries in the relationship, we make use of new asymmetric Granger-causality tests and frequency analysis. We show that there is bidirectional Granger-causality between trade and tourism in positive components, whereas unidirectional Granger-causality runs from tourism to trade for negative components. Moreover, we find evidence of bidirectional Granger-causality between economic growth and tourism in positive components, but unidirectional Granger-causality running from economic growth to tourism for negative components. On the other hand, the results from frequency analysis provide evidence of Granger-causality between trade and tourism, and also between economic growth and tourism, at different frequency bands.     

Does the digital divide across countries lead to convergence? New international evidence

We examine the convergence of information and communication technologies (ICT) among 47 developed and emerging countries using annual data from 2000 to 2012. We construct an ICT development index using a principal component analysis. The results, based on a dynamic panel data model, reveal a divergence in ICT development. This study identifies two factors that drive a country's digitalization divergence level: the growth of per capita income and the ratio of urban to rural population. In addition, ICT divergence is higher in emerging countries than in developed countries.     

Does high labour mobility always promote trade liberalization?

Labour immobility (high adjustment cost) has been regarded as a major obstacle to trade liberalization and it has been argued that higher labour mobility promotes trade liberalization. However, this is not the case when we take into account conflicts of interest between politicians and voters that are inevitable in representative democracy. I construct a simple two‐period model including both elections and sectoral adjustment. Then I show that the non‐monotonic relationship between labour mobility and the equilibrium degree of trade liberalization exists due to the principal–agent relationship. In representative democracy, higher labour mobility prevents trade liberalization in some cases.     

Does democracy affect taxation and government spending? Evidence from developing countries

Focusing on developing countries in three geographical areas (South-East Asia, Latin America and European Union), we explore the relation between political variables and tax revenue, public spending and their structure. We build a new dataset for the 1990–2005 period with fiscal, political and socio-economic variables. Since democracy is a complex and multidimensional concept, we measure it using two variables, the political strength of democratic institutions, and the protection of civil liberties. We perform three sets of estimates: (i) cross-country pooled OLS regressions with region fixed effects, (ii) country fixed effects regressions and (iii) region specific regressions with country fixed effects. While the first model delivers some significant correlations between political variables and tax items, when controlling for country fixed effects we find that tax revenue and tax composition are in general not significantly correlated with the strength of democratic institutions and the protection of civil liberties. The only exceptions are indirect, trade and property taxes. A similar result applies to public spending, with the exception of defense expenditure. Overall, our findings cast some doubt on the exact public policy channels through which political institutions affect economic development.     

Does the exchange rate matter to bilateral trade between Korea and Japan? Evidence from commodity trade data

This study examines the short- and long-run effects of exchange rate changes on trade flows in the context of disaggregating industry data of bilateral trade between Korea and Japan. For this purpose, an autoregressive distributed lag (ARDL) approach is used. Results show that Korea's exports and imports are relatively sensitive to the bilateral exchange rate in the short-run, but less responsive in the long-run. It is also found that income in the two countries has significant impacts on the bilateral trade flows in both the short- and long-run. Finally, exchange rate uncertainty and Japanese FDI to Korea are found to have little impacts on Korea's trade with Japan in the short- and long-run.     

Does international mobility of high-skilled workers aggravate between-country inequality?

This paper analyzes the interaction of international migration of high-skilled labor and relative wage income between source and destination economies of expatriates. We develop an overlapping-generations model with increasing returns which suggests that international integration of the market for skilled labor aggravates between-country inequality by harming those which are source economies to begin with while benefiting host economies. The result is robust to allowing governments to optimally adjust productivity-enhancing investments which could potentially attenuate brain drain. Optimal public investment tends to decrease in response to higher emigration.     

Does trade liberalization and its associated increased economic activity affect permanently the value and pattern of trade flows?

Despite a number of multi-country case studies based on a variety of analytical frameworks and numerous econometric studies using large cross-country data sets that analyse trade openness and its induced economic activities that alters both the volume and value of trade flows, there is still disagreement among economists concerning the nature of this relationship. In this article, we follow a rather unique approach by estimating the density functions of the observed trade flows and the density functions of trade flows generated by tariff removal using an intertemporal global Computable General Equilibrium (CGE) model. Our inquiry is whether or not the trade flows generated by global tariff elimination impact economies in the long-run and alter their historical underlying distributions. If the latter case prevails, it implies that the economies follow a different transitional path into a new steady-state equilibrium. The density functions, estimated parameters and higher moments of the observed trade flow distributions are distinctly different from the parameter estimates of the trade flows generated by the model. In this sense, trade-inducing economic activity as generated by tariff removal and captured by the neoclassical specification of the model is associated with trade flows along a different transitional path from the observed trade flows.     

Does antidumping use contribute to trade liberalization in developing countries?

Abstract .  Some supporters of antidumping have argued that this procedure serves as a kind of 'safety valve' for protectionist pressure. In this paper, we investigate whether there is empirical evidence that the use of antidumping actions has contributed to ongoing tariff reductions over the period 1988 to 2004 in a sample of 23 developing countries, some of which have become aggressive users of antidumping in recent years. The evidence is not supportive of the safety valve argument for these countries. Instead, evidence suggests that past use of antidumping may have led to less rather than more trade liberalization.     

Does time difference between countries reduce bilateral trade? An application of the correlated random effects method using panel data

This article implements the correlated random effects (CRE) panel data technique in a gravity framework to analyse the effect of time difference between countries on bilateral trade. One major advantage of the CRE approach over the fixed-effects approach is that it is able to estimate the effect of variables that remain unchanged within panel clusters (e.g. time difference between countries), while these variables get dropped from regressions that use fixed-effects methods. Regression results based on the CRE Poisson pseudo-maximum likelihood estimator indicate statistically significant negative effect of time difference between countries on bilateral trade. An additional hour of time difference between countries is found to reduce bilateral merchandise exports by approximately 8%, even after controlling for the effect of distance in the regressions.     

Does the trust game measure trust?

Could altruism explain observed choices in the standard trust game? With dominant altruism, trustors would give more to poor trustees. However, we find trustors to give no more to poor than to rich trustees, confirming trust as the dominant motivation for “trust like” choices.     

Does the role of observer countries in the regional trade agreement matter for intra-regional trade ?

This article investigates the effects of trade by observed economies on the intra-regional trade by South Asian Association for Regional Cooperation (SAARC) members using Poison pseudo maximum likelihood estimator (PPML) gravity models with panel data over the period 2008–2014. Eight SAARC members and eight observed countries, including the EU, are analysed in capturing the trade effect of observed economies on intra-regional trade in SAARC. This article provides an empirical measure of observers’ trade, FDI and Official development assistance (ODA) with SAARC if the exports and imports of observers to/from SAARC have positive or negative signs for intra-regional exports and imports. The results show that the exports and imports of observers to SAARC members have positive effects on bilateral exports among the members. The FDI of observers reduces the bilateral intra-imports in SAARC and ODA also has a negative effect on bilateral exports among the members. These results imply that the imports by SAARC members from observer countries increase intra-regional trade in the region. The FDI and ODA increase and decrease intra-regional trade in SAARC, respectively, implying that the policies for both FDI inflow from observers and efficient aid management are needed to increase regional welfare. The study also recommends that trade between SAARC members and its observers help to increase intra-regional trade in SAARC.     

Does political instability affect exchange rates in Arab Spring countries?

This article investigates the dynamic relationship between political instability and exchange rates in five Arab Spring countries over the period 1992Q1–2016Q4. We include macroeconomic fundamentals to identify the transmission channels through which political instability may affect exchange rates. Based on VAR and ARDL models, our results report that political instability is associated with a significant drop in the value of domestic currencies of these countries. Economic growth is found to be the key mechanism channel. We find also that the dependence between variables is more emphasized in the short run than in the long run.     

Does eliminating international profit shifting increase tax revenue in high-tax countries?

We analyze under what conditions initiatives intended to eliminate profit shifting (such as the OECD BEPS action plan and the more recent European implementation of the ATAD) can be successful, given that these actions may induce multinational companies to relocate activities to low-tax countries. We demonstrate that removing tax-motivated profit shifting increases tax revenue in the onshore region if the low-tax jurisdiction is not too efficient in providing attractive infrastructure. This outcome is more easily achieved when the high-tax country is able to counter the shifting of international activity using infrastructure investment to compete with the tax haven rather than being passive. International regulations aimed at combating aggressive tax avoidance should anticipate the adverse effects induced by the resulting emergence of other forms of base erosion.     

Does the quality of political institutions affect intra-industry trade within trade blocs? The ASEAN perspective

There has been a renewed resolve for deeper integration and cooperation within ASEAN. Intra-industry trade (IIT) is often viewed as a way of achieving economic as well as political integration. This article tests for the effect that political regime and governance may have on the intensity of IIT. We particularly examine if quality of political institutions which includes corruption and democracy indices as well as economic factors comprising corporate tax rate, regional FDI flow, flexibility of exchange rate regime, size of the market, economic distance affect the intensity of horizontal and vertical IIT. The study finds that control of corruption and good governance both increase the vertical IIT but not the horizontal IIT. The study further finds that intra-economy FDI flow, stable exchange rate regime, market size and proximity positively affect IIT within the trade bloc. However the negative effect of corporate tax rate suggests that if countries were to coordinate their tax policies, they could avoid harmful tax competition and promote IIT across their borders. The findings regarding the effect those economic and political factors have on the intensity of IIT certainly warrants the attention of policy makers and researchers alike.     

Does trust promote growth?

We examine the effect of generalized trust on long-term economic growth. Unlike in previous studies, we use Bayesian model averaging to deal rigorously with model uncertainty and attendant omitted variable bias. In addition, we address endogeneity and assess whether the effect of trust on growth is causal. Examining more than forty regressors for nearly fifty countries, we show that trust exerts a positive effect on long-term growth and, based on the posterior inclusion probabilities, suggest that trust is an important driver of long-term growth. Our results also show that trust is key for growth in countries with a weak rule of law.     

International factor mobility,environmental pollution and skilled–unskilled wage inequality in developing countries

This paper establishes a static three-sector general equilibrium model by accommodating environmental pollution to investigate the impact exerted by skilled immigrants and foreign direct investment on the skilled–unskilled wage inequality. Environment is treated as an input for agricultural production. The production process of the urban low-skill sector generates environmental pollution, which deteriorates the rural environment and thereby influences agricultural production. The present paper highlights the role of environmental pollution in the determination of the skilled–unskilled wage inequality due to skilled immigrants and foreign direct investment.     

Does trust extend beyond the village? Experimental trust and social distance in Cameroon

In this paper we use experimental data from rural Cameroon to quantify the effect of social distance on trust and altruism. Our measure of social distance is relevant to everyday economic interactions: subjects in a Trust Game play with fellow villagers or with someone from a different village. We find that significantly more money is sent when the players are from the same village. Other factors that influence transfers at least as much as the same-village effect are gender, education and membership of rotating credit groups. To test whether Senders are motivated by altruism, they also play a Triple Dictator Game. Senders transfer significantly more money on average in the Trust Game than in the Triple Dictator Game. However, there is also a social distance effect in the Triple Dictator Game. Results from a Risk Game suggest that Trust Game transfers are uncorrelated with attitudes to risk.     

How much do immigration and trade affect labor market outcomes?

"This paper provides new estimates of the impact of immigration and trade on the U.S. labor market.... We examine the relation between economic outcomes for native workers and immigrant flows to regional labor markets.... We...use the factor proportions approach to examine the contributions of immigration and trade to recent changes in U.S. educational wage differentials and attempt to provide a broader assessment of the impact of immigration on the incomes of U.S. natives." Comments and discussion by John DiNardo, John M. Abowd, and others are included (pp. 68-85).     

Does trust favor macroeconomic stability?

This paper investigates the relationship between trust and macroeconomic volatility. An illustrative model rationalizes the relationship between trust and volatility. In this model, trust relaxes credit constraints and diminishes investment’s procyclicality. I provide empirical evidence for the basic predictions of the model. Then, I show that higher trust is associated with lower macroeconomic volatility in a cross section of countries. This relationship persists when various covariates are taken into account. I use inherited trust of Americans as an instrumental variable for trust in their origin country to overcome reverse causality concerns. Using changes in inherited trust over the 20th century, I do not find clear evidence that increasing trust is also associated with decreasing volatility across time at the country level.     

Investigating the twin-deficit phenomenon among oil-exporting countries: Does oil really matter?

This study empirically investigates the existence of twin deficits—the impact of fiscal policy on the current account—among selected major oil-exporting countries. Given the huge effects of the oil proceeds on these economies, the study separates the effects of oil on the fiscal balance from its effect on the current account balance. The investigation took a further step by grouping these countries—based on their fiscal policy actions over the period of years under review—into pro-cyclical and counter-cyclical fiscal countries. In line with the existing literature, the impact of fiscal balance on the current account balance takes into consideration the contemporaneous effects brought about by exchange rate fluctuations, the growth in GDP, rate of openness and the growth in money supply. The models are estimated based on a panel of 31 oil-exporting countries over the period 1984–2013, using the two-stage least squares estimation techniques. The results from all countries estimations reveal the existence of twin-deficit in the total economy. In the non-oil economy, on the other hand, the evidence of twin-deficit disappears. This evidence is also reported in the counter-cyclical fiscal countries. Results from pro-cyclical fiscal countries indicated the total opposite, revealing the existence of twin-deficit in the non-oil economy, while this evidence does not occur in the total economy. The indisputable conclusion is that oil dominance continues to blur the existence of twin deficits among the oil-exporting countries.