A 'Generalised' Version of the Balance-of-Payments Growth Model: An application to neighbouring regions

This paper applies a 'generalised' version of Thirlwall's balance-of-payments (BOP) constrained growth model by testing for long-run relationships between the output growth rates of OECD countries and two neighbouring regions; South Africa (SA) and the rest of the Southern African Development Community (RSADC). The empirical results find strong support for the 'generalised' BOP growth model, which stresses the mutual interdependence of the world economy where one country's growth rate depends on others'. Although the policy implications are not mutually exclusive, they may be viewed from the individual perspectives of SA and RSADC. SA is only BOP constrained with respect to OECD. The message to SA's policy makers is that faster growth rates may be the result of an improvement in the structural demand features of its exports to OECD. RSADC is only BOP constrained with respect to SA. Growth-promoting policies in SA may have a high and positive impact on the whole SADC region. Policy-makers in RSADC, however, are advised to reduce their dependence on SA by improving the structural demand features of their exports to OECD.     

Conspicuous consumption and “race”: Evidence from South Africa

A century ago, Thorstein Veblen introduced socially contingent consumption into the economic literature. This paper complements the scarce empirical literature by testing his conjecture on South African household data and finds that Black and Coloured households spend relatively more on visible consumption than comparable White households. Following the approach of Charles et al. (2009), this paper explores whether the differences in visible expenditures can be explained with a signaling model of status seeking. Moreover, it is assessed to which extent positional concerns motivate conspicuous consumption. Although the socially contingent share in visible consumption increases with income, different incentives to consume conspicuously seem to explain that, at every level of income, Black households spend relatively more on visible consumption than comparable White households. In contrast to the findings of Charles et al. (2009) where differential spending on conspicuous consumption can be found also within each group separately, the model's core hypothesis fails to hold within the group of White South Africans.     

Quantifying South Africa's crude oil import risk: A multi-criteria portfolio model

A major consequence of South Africa's strong economic growth since the democratic dispensation of 1994 is the rapid increase in domestic demand for oil energy. With small amounts of proven oil reserves, the rise in oil demand as an energy source has resulted in South Africa's growing dependence on external sources for its domestic crude oil needs. High oil prices, instability in major oil producing regions and the rise in ‘oil-nationalism’ are major concerns for the security of South Africa's oil supplies. Accordingly, a comprehensive understanding of oil import security risks can serve as a vital guide in formulating any energy policy framework(s) aimed at alleviating the impact of such risks. This study utilises portfolio theory and develops an empirical framework to provide quantitative measures of systematic and specific risks of South Africa's crude oil imports over the period 1994 to 2007. The paper examines the relationship between supply sources diversification and oil energy security risks, and provides an objective evaluation of different import adjustment strategies on South Africa's total crude oil import risks. The results show that a policy of having constant monthly imports from each supply region reduces the specific and systematic risks of the oil import portfolio by an average rate of 71% and 2.9% respectively. Significant reduction in specific risks of South Africa's oil imports is achieved if imports from risky regions (mainly the Middle East) can be diversified to relatively less risky regions of Europe and North America.     

Time-varying money demand and real balance effects

This paper presents an analysis of the stimulants and consequences of money demand dynamics. By assuming that household's money holdings and consumption preferences are not separable, we demonstrate that the interest-elasticity of demand for money is a function of the household's preference to hold real balances, the extent to which these preferences are not separable in consumption and real balances, and trend inflation. An empirical study of U.S. data revealed that there was a gradual fall in the interest elasticity of money demand of approximately one-third during the 1970s due to high trend inflation. A further decline in the interest-elasticity of the demand for money was observed in the 1980s due to the changing household preferences that emerged in response to financial innovation. These developments led to a reduction in the welfare cost of inflation that subsequently explains the rise in monetary neutrality observed in the data.     

A cointegrated structural VAR model of the Canadian economy

This paper implements a cointegrated structural VAR model of the Canadian economy using quarterly data over the period 1964–1994. The dynamic properties of the estimated model are compared to the predictions of a simple textbook macro model. Four long-run equilibrium relationships are tested: (i) consumption–income; (ii) consumption–wealth; (iii) money demand; and (iv) the Fisher equation. The empirical results obtained are generally consistent with the predictions of the textbook model's long-run implications, although level shifts are observed in the consumption/income and the wealth/income ratios. Similarly it is found that there was an increase in the ex post real interest rate, implying a level shift in the Fisher relation, following the Bank of Canada's policy change towards a stable price level target.     

Joint purchasing decisions: a multivariate negative binomial approach

The analysis of household purchasing decisions for understanding consumption behaviour has received much attention recently, mainly because of the measurement error problems that appear when using expenditure data to approximate consumption. This paper discusses some empirical regularities of the household purchasing behaviour based on information about the number of purchases a household has declared having done during the survey period. The concern of this paper is two-fold. First, to show how to recover purchase frequency data from the Spanish Budget Survey (1990–1991). Second, to discuss some empirical regularities of the joint purchasing decisions based on multivariate negative binomial models.     

Creative Destruction and the Rise of Inequality

Common wisdom interprets the rise in inequality of the last two decades as the result of a skill-biased labor demand shift. This explanation does not account for two important observations: (i) within-group inequality has also markedly risen, and (ii) the rise of inequality has been accompanied by a rise of the volatility of earnings. This paper argues that a dual labor market structure, where some workers are paid efficiency-wages can account for the empirical regularities, in the absence of skilled biased technological change. The analysis demonstrates that an unbiased innovation, as well as North–South trade, can contribute to the efficiency wage premium, and thus to wage inequality, by increasing labor turnover.     

Empirical Regularities in Cross-Country Alcohol Consumption*

This paper analyses the demand for the three beverages: beer, wine and spirits, within alcohol, at a cross-country level for 10 countries: Australia, Canada, Finland, France, Japan, New Zealand, Norway, Sweden, the UK and the US. A number of empirical regularities were found at the cross-country level. This includes: (i) the demand theory hypotheses, homogeneity and symmetry are generally acceptable; (ii) the additive utility hypothesis is also acceptable even for such narrowly defined commodities; (iii) in nine out of the 10 countries, beer is considered as a necessity, in half of the countries wine is a necessity and in all the countries spirits are a luxury; and (iv)in all the countries, the demand for beer, wine and spirits are price inelastic.     

Endogenous Imitation and Technology Absorption in a Model of North–South Trade

Abstract

This paper considers the transfer of technology from the North to the South that occurs through trade in high-technology goods and explicitly models the ‘reverse-engineering’ process that allows the South to assimilate new technologies. A key finding of this study is that the South's rate of growth is dictated by the size of the country's human capital, which determines its absorptive capacity and its ability to assimilate knowledge from the North. We find that while a Southern country that is poor in human capital can only imitate, Southern countries that possess sufficiently large human capital endowments, beyond a certain threshold, signal the onset of innovation. We also find that the North enjoys a higher rate of innovation and growth with trade than without. North's gains are the highest when it trades with a human-capital ‘poor’ South, because imitation increases South's demand for Northern intermediates. But trade with the Southern countries that are human capital rich (and therefore involved in innovation), dampens their demand for Northern imports, adversely affecting North's growth. The model predicts growth convergence between the North and a South that is well passed the threshold for innovation.     

THE SKILL COMPOSITION OF U.S. CITIES*

This article explores why the fraction of highly educated workers varies across U.S. metropolitan areas. It documents a set of facts that pose challenges for a number of theories. Notably, (i) cities are characterized by industry neutral differences in skilled labor productivity and (ii) the size of the business services sector is strongly correlated with cities' skill compositions. Motivated by these observations, I propose an input sharing model, in which nontraded business services complement skilled labor. I show that the model accounts for all of the empirical regularities documented in the article.     

The structuralist theory of imported inflation: an application to South Africa

This study emphasizes the importance of identifying the origin of inflation in the present context of inflation targeting by many emerging market and transition economies. The analysis shows, based on South African data, how structural (supply) and demand inflation can be distinguished. The results indicate that South Africa's inflation experience between 1973q1 and 1998q4 is characterized by two monetary regimes. During the first regime (1973q1–1984q4) the long-run cause of inflation is demand-pull. The second regime (1987q1–1998q4) represents major changes to structural (‘imported’) and cost-push inflation. The two-year period 1985–1986 signifies structural change from the first to the second regime. Moreover, the results in the second regime remain robust when the inflation model is subjected to ‘new’ out-of-sample data until 2001q2. Evidence of structural (‘imported’) inflation in the second regime suggests that inflation should not entirely be squeezed out of the system nor should it necessarily be kept at the lowest possible level, because some inflation may be regarded as the natural by-product of the growth and development process. South Africa's inflation experience points to several lessons for existing (and potential) emerging market and transition economies with some form of inflation targeting.     

DOES THE GRAVITY MODEL EXPLAIN SOUTH KOREA'S TRADE FLOWS?*

This paper applies the gravity model to explain South Korea's bilateral trade flows and to extract practical trade policy applications. A trade structure and an Asian‐Pacific trade network are included in the gravity equation to characterize the peculiarity of South Korea's trade patterns. The empirical result shows that South Korea's trade follows a Heckscher–Ohlin model more than an increasing returns or a product differentiation model. South Korea has large unrealized trade potentials with Japan and China, suggesting that they are desirable partners for an FTA. North–South Korean trade will expand markedly if bilateral relation normalizes and North Korea participates in APEC.     

Output Variability and Economic Growth: the Japanese Case

We examine the empirical relationship between output variability and output growth using quarterly data for the 1961–2000 period for the Japanese economy. Using three different specifications of GARCH models, namely, Bollerslev's model, Taylor/Schwert's model, and Nelson's EGARCH model, we obtain two important results. First, we find robust evidence that the “in‐mean” coefficient is not statistically significant. This evidence is consistent with Speight's (1999) analysis of UK data and implies that output variability does not affect output growth. In other words, this finding supports several real business cycle theories of economic fluctuations. Second, we find no evidence of asymmetry between output variability and growth, a result consistent with Hamori (2000) .     

Endogenous Government Expenditure: A Test of Wagner's Hypothesis For Hong Kong

In the last two decades a revival of interest in wagner's thesis of an endogenous public sector has led to a series of empirical tests of its validity. In its barest essentials, this paper attempts to find efficient estimates of income elasticities of demand for real total government expenditure as well as for its disaggregated functional groups as a means of verifying Wagner's expectation for the Hong Kong economy. Our empirical estimates indicate that Hong Kong's public finance setting is a synchronization of a worldwide tendency for public sector expansion according to the Wagnerian expectation. These findings lead us to raise a number of policy questions concerning the financial sustainability of Hong Kong's budget system over time. [320]     

A peculiar archaeology: Searching for Mr Giffen's behaviour

Abstract

It has been claimed that references to ‘Giffen behaviour’ constituted a single research project, driven by attempts to establish whether an initial ‘conjecture’ by Alfred Marshall had empirical validity. There is no stable basis for that claim because Marshall's discussion was contradictory and Robert Giffen rejected a key assumption made by Marshall. By the mid-1920s, discussion of an upward-sloping demand curve attached no particular significance to a Marshallian story. The formulation of the Irish famine Giffen exemplar by P.A. Samuelson illustrates how Giffen behaviour was stabilised as the single possible exception to the law of demand in the 1960s.     

Out of Africa? Locational determinants of South African cross-border mergers and acquisitions

South Africa is the Africa’s biggest source of outward foreign direct investment. This study examines the principal locational motives of cross-border mergers and acquisitions CBMA by South African firms for the 1990–2014 period. The role of inter-country cultural and economic linkages is also studied. Firm-level data of South African merger and acquisition activities in 74 host countries are used to estimate a number of model specifications that control for host-country economic, geographical, cultural and institutional characteristics. Estimations are carried out using random-effects negative binomial panel model. Capturing the host-economy market and enhancing efficiency are found to be the two major motives driving South African corporations’ CBMA activities. Natural resources acquisition seems a less important motive, while strategic assets such as patents and technology do not appear to be attractive. The role of cultural and economic linkages between the home and the host country is found to be substantial. South African firms prefer investing in Africa, particularly in countries bordering South Africa. In light of the study’s findings, South African CBMA activities can be compared with those from other emerging economies.     

Information shocks and cigarette addiction: views from dynamic panels with common structural changes

In this article we attempt to evaluate the impact of various information shocks on cigarette consumption. In contrast to the existing studies, we do not impose any break points a priori. We use recently developed techniques for sample splitting in the data on US cigarette demand, and find that using a time index as a transition variable can cluster cigarette demand into four distinct regimes. In the past four decades a myopic-to-rational switch in cigarette consumption behaviour was observed in response to various anti-smoking information events. In particular, we find strong evidence in support of the rational addiction model in the 1980s and 1990s. Moreover, in line with the theoretical prediction, our estimate of the long-run elasticity is twice as large as the short-run elasticity. Our empirical framework should improve policy makers' understanding of the dynamics of cigarette consumption in response to various anti-smoking campaigns, and stress the role of sound policy making in improving smoking control measures.     

Housing demand in Russia: Rationing and reform1

In a number of articles Alexeev (1988a) and (1988b) shows that in the former Soviet Union the administrative rationing of housing was partially replaced by market forces acting through the second economy. This paper uses a much richer dataset to update his analysis for Russia to consider housing demand in 1992, the last year of the administrative allocation system. Almost immediately after the survey used for this analysis Russia began to privatize the housing stock as part of its movement towards a market economy. The questions we ask are: Were households really able to beat the system, as argued by Alexeev and, if so, were they still able to do so in 1992? Our answer to the second question is that in 1992 households were not able to beat the system. Income had no observable effect on housing demand. Furthermore, we do not think that the difference in our empirical results and Alexeev's is due only to the broader economic changes that occurred since his estimation or the richer dataset available to us. Indeed, our answer to the first question is that there are good reasons for arguing that Alexeev's estimates of the income elasticity of housing demand are biased upwards.     

Impacts of meat product recalls on consumer demand in the USA

The impact of meat product recall events on consumer demand (beef, pork, poultry, and other consumption goods) in the USA is tested empirically. Beef, pork, and poultry recall indices are constructed from both the Food Safety Inspection Service's meat recall events and from newspaper reports over the period 1982–1998. Following previous product recall studies, recall indices are incorporated as shift variables in consumers’ demand functions. Estimating an absolute price version of the Rotterdam demand model, findings indicate that Food Safety Inspection Service's meat recall events significantly impact demand, and newspaper reports do not. Moreover, although elasticities related to recall events are significant they are small in magnitude relative to price and income effects. Any favourable effects on the demands of meat substitutes for a recall are offset by a more general negative effect on meat demand. The general negative effect indicates a shift out of meat to non-meat consumption goods.     

Evidence of Wagner's law from Indian states

In this paper, we test for Wagner's law for 15 Indian states. We consider nine panels of states based on geography and level of economic development. Using panel unit-root, panel-cointegration, and panel-Granger causality analysis, we unravel strong evidence of Wagner's law. However, we find that the Wagner's law relationship is consumption rather than capital expenditure driven. This is a fresh revelation and our results are robust to different model specifications.