How remote is the offshoring threat?

Advances in communication technology make it possible for workers in India to supply business services to head offices located anywhere. This has the potential to put high-wage workers in direct competition with much lower paid Indian workers. Service trade, however, like goods trade, is subject to strong distance effects, implying that the remote supply of services remains limited. We investigate this proposition by deriving a gravity-like equation for service trade and estimating it for a large sample of countries and different categories of service trade. We find that distance costs are high but are declining over time. Our estimates suggest that delivery costs create a significant advantage for local workers relative to competing workers in distant countries.     

How credible is the North Korean threat?

We perform event analysis on particular episodes of tension in the Korean peninsula between 2000 and 2008, and investigate the effect of the events on South Korean financial markets (stock markets, bond yield spreads and the exchange rate) given that South Korea would be the first affected by a military aggression from North Korea. Surprisingly, in nearly all cases, these events, which have often been dramatized in the world media, have no significant impact on either of these variables or only a very small one. We also find no significant impact of events on listed firms that would a priori be likely to suffer from increased tension between the two Koreas. Since financial markets often contain better predictions than expert opinions or surveys, these results strongly suggest that the North Korean threat is non‐credible.     

How do business startup modes affect economic growth?

This paper examines researchers’ choices between either collaborating with venture capitalists or going independent when investing in research (e.g., labs, scientists, equipment, perishable materials, etc.) and how their interaction affects long‐run growth in an economy characterized by incomplete contracts and financial market imperfections. We find that venture capital is more likely to be selected by entrepreneurs when startup risks are median to high. A ranking of the welfares associated with each startup mode under different legal and financial environments shows that economic policy and research incentives may not always align as entrepreneurs may not select the mode that provides the highest welfare level.     

How do currency misalignments’ threshold affect economic growth?

Based on panel smooth transition regressions, this paper determines for a large sample of developed and emerging countries, the value of currency misalignments from which we observe a regime shift in economic growth, over the 1980–2009 period. Misalignments, defined as the difference between the current real exchange rate and its equilibrium counterpart, are derived from the behavioural equilibrium exchange rate (BEER) approach. Our estimate relies on recent panel cointegration techniques that allow for heterogeneity and cross-sectional dependencies. We also control for the presence of structural breaks. Our findings show that our misalignments index plays a key role in the reversal of trend growth. Although the undervaluation of their currency acts positively on their growth, emerging countries cannot base their strategy on this finding to promote growth. We relate this result to the adverse effects of depreciation, as in “original sin”. The implications of our findings, in terms of economic policy, clearly emphasise the economic leverage role of undervaluation: it remains a powerful cyclical instrument but has to be, nevertheless, employed with precautionary to be globally and internationally consistent.     

Atypical work: a threat to labour productivity growth? Some evidence from Italy

Various theories suggest the existence of a negative relationship between the use of atypical employment contracts and productivity growth, arguing that firms’ utilisation of atypical contracts may reduce the incentive to innovate and internal training, inducing firms to follow a ‘low-road’ to competitiveness, based upon cost-cutting strategies.

This paper aims to provide new evidence on the occurrence of these effects in the Italian economy, where changes in labour legislation from the mid-Nineties onwards, associated with an ‘institutional’ wage moderation period, have brought about a significant process of job creation, but also an appreciable slowdown in labour productivity.

This issue is investigated using a microeconomic approach, taking a rich source of microdata for firms and estimating a dynamic model for labour productivity on a pseudo-panel of firms for the period 2003-2008.

The results support the hypothesis of a negative impact of external labour flexibility on labour productivity growth at firm level, such effect proving stronger for small and medium than for large enterprises and of varying magnitude for the different atypical contracts.     

How close is Asia already to being a trade bloc?

FTA bilateral and regional negotiations in Asia have developed quickly in the past decade moving Asia ever closer to an economic union. This paper uses a fifteen-country global general equilibrium model with trade costs to numerically calculate Debreu distance measures between the present situation and potential full Asia integration in the form of a trade bloc. Our results reveal that these large Asia economies can be close to full integration if they act timely in agreements through negotiation. All Asia countries will gain from Asia trade bloc arrangements except when the Asia FTA can only eliminate tariffs. These countries’ gain will increase as bilateral non-tariff elimination deepens. Larger countries will gain more than small countries. Asia FTA, Asia Union and RCEP will benefit member countries more than ASEAN+3. Global free trade will benefit all countries the most.     

Are government transfers harmful to economic growth? A meta-analysis

A common perception is that government transfers are harmful to economic growth. However, existing empirical evidence on this point is mixed. Potential reasons for these conflicting results include differences in the level of economic development of the countries studied, different estimation methods and different measures of government transfers. By conducting a meta-analysis of 149 estimates reported in 23 studies, we sought to understand if – and if so, to what extent – government transfers are harmful to economic growth, as well as how important the abovementioned reasons are in explaining different findings in the literature. We found that government transfers are more detrimental to economic growth in developed countries compared to less-developed countries because such transfers can have a non-monotonic effect on growth. When government transfers are substantial, as they are in developed countries, they tend to reduce growth. We also found that the growth effects of government transfers are sensitive to the measurement of the transfers, i.e., studies that use unemployment benefits instead of social security tend to report a stronger negative growth effect.     

How private is private information? The ability to spot deception in an economic game

We provide experimental evidence on the ability to detect deceit in a buyer–seller game with asymmetric information. Sellers have private information about the value of a good and sometimes have incentives to mislead buyers. We examine if buyers can spot deception in face-to-face encounters. We vary whether buyers can interrogate the seller and the contextual richness. The buyers’ prediction accuracy is above chance, and is substantial for confident buyers. There is no evidence that the option to interrogate is important and only weak support that contextual richness matters. These results show that the information asymmetry is partly eliminated by people’s ability to spot deception.     

Too much of a good thing? On the growth effects of the EU's regional policy

The European Union (EU) provides grants to disadvantaged regions of member states from two pools, the Structural Funds and the Cohesion Fund. The main goal of the associated transfers is to facilitate convergence of poor regions (in terms of per-capita income) to the EU average. We use data at the NUTS3 level from the last two EU budgetary periods (1994–1999 and 2000–2006) and generalized propensity score estimation to analyze to which extent the goal of fostering growth in the target regions was achieved with the funds provided and whether or not more transfers generated stronger growth effects. We find that, overall, EU transfers enable faster growth in the recipient regions as intended, but we estimate that in 36% of the recipient regions the transfer intensity exceeds the aggregate efficiency maximizing level and in 18% of the regions a reduction of transfers would not even reduce their growth. We conclude that some reallocation of the funds across target regions would lead to higher aggregate growth in the EU and could generate even faster convergence than the current scheme does.     

Does democracy facilitate economic growth or does economic growth facilitate democracy? An empirical study of Sub-Saharan Africa

This paper examines the relationship between democracy and economic growth in 30 Sub-Saharan African countries. As our proxy for democracy we first use the democracy index constructed by Freedom House and then check the sensitivity of our findings using, as an alternative proxy for democracy, the Legislative Index of Electoral Competitiveness (LIEC). We find support for the Lipset hypothesis - in the long run, real GDP Granger causes democracy and an increase in GDP results in an improvement in democracy - in Botswana and Niger with both datasets, for Chad with the Freedom House data only and for Cote d'Ivoire and Gabon with the LIEC data only. Support for the compatibility hypothesis - in the long run democracy Granger causes real income and an increase in democracy has a positive effect on real income - is found for Botswana with the Freedom House data and for Madagascar, Rwanda, South Africa and Swaziland with the LIEC data. Support for the conflict hypothesis - in the long run democracy Granger causes real income and an increase in democracy has a negative effect on real income - is found for Gabon with the Freedom House data and Sierra Leone with the LIEC data.     

Determinants of economic growth: Different time different answer?

Almost all studies that use Bayesian model averaging to identify robust growth determinants focus on the growth period between 1960 and the 1990s. We apply Bayesian Model Averaging to a rolling time window of 20 and 35 years using a newly compiled dataset with 37 growth determinants for the years 1960 to 2010. Our findings indicate instabilities in the inferences on growth determinants across growth periods. In line with prior research, we find support for robust ambiguity in early growth periods, that is, cross-country growth regressions provide little support for some growth determinants being more important than others. However, determinants related to demography, education, trade, investment and to some extent religion seem to matter in the subsequent growth periods with education and demography being most important in recent growth periods.     

Canadian economic growth: random walk or just a walk?

This paper analyses the role of shocks in Canadian economic growth since 1870. It uses a nonparametric technique to evaluate the degree of presistence of an innnovation in long-run GNP. It is found that a one percent shock to Canadian GNP changes the long-run forecast of this variable by appproximately the same amount, which is characteristic of a random walk process. It is also shown that in important periods of Canadian economic growth its GNP evolved as a random walk with constant drift. With the exception of the period 1929–42, no evidence of business cycles is found. These results lead to the conclusion that movements and oscillations in the GNP of Canada since 1870 have been primarily driven by the accumulation of shocks rather than by cyclical movements.     

Does the stock market cause economic growth? Portuguese evidence of economic regime change

The relationship between stock market and economic growth is tested for Portugal (1993–2011), which is a small open economy dependent on bank financing. The relationship between economic growth and bank financing is also appraised. Using Vector Autoregressive (VAR) modeling, Granger causality, variance decomposition and impulse response function are discussed. The physical replacement of the currency, as a consequence of the integration in the European Monetary Union, proves to be an economic regime change. The effect of the subprime crisis was also proved. There is evidence of Granger bidirectional causality between the stock market and economic growth. Meanwhile, there was no evidence of causality running from bank financing to economic growth.     

How is β related to asset returns?

Existing empirical evidence for the relevance of the β in modelling asset returns is mixed. Drawing on conditional tests of β first proposed by Pettengill, Sundaram and Mathur (1995) and extended by Bollen (2010), empirical evidence employing monthly data is presented that indicates that β is highly related to variability of asset returns but not to the level of asset returns. This result is consistent with the predictions of the market model but not with the predictions of the CAPM. It is concluded that β remains a useful construct in financial economics but may have a differing role in financial economics than the conventional wisdom asserts.     

What is in a surname? The role of ethnicity in economic decision making

This article reports results from two experiments that investigate possible incidence of discrimination against people with foreign backgrounds in Sweden. In the first experiment, participants played the trust game and the dictator game with co-players of different ethnic affiliation. The family name of the players was exposed to their co-players. Results for the trust game showed no significant discrimination against co-players with foreign backgrounds. On the other hand, the results for the dictator game showed a statistically significant discriminatory behaviour by men against co-players with non-European backgrounds. The discriminatory behaviour was solely a male phenomenon. In the second experiment, the dictator game was replicated to check the stability of the results in the first experiment. The second experiment also examined whether people with foreign backgrounds discriminate against other people with foreign backgrounds; that is, the purpose was to discover whether discrimination is systematic. The observations in the second experiment underlined the results found in the first experiment: foreign co-players are discriminated against by Swedish players. However, we did not find that people with foreign backgrounds discriminated against other people with foreign backgrounds.     

A stable climate or economic growth?

The 2015 UN Paris Agreement reinforced and declared compatible the two goals of avoiding dire climate change and maintaining global economic growth, and it specified that technological innovation is ‘critical’ to this joint achievement. Unfortunately, any confidence that near-term global economic growth is consistent with a stabilized climate is severely undermined by empirical evidence. Despite the rapid increase of alternative energies in recent decades, global GDP growth continues to require burning greater quantities of climate-destabilizing fossil fuels. The dim outlook for sufficiently reducing CO₂ while maintaining economic growth is underscored by global data and Germany specific data on the decoupling of GDP from CO₂. This paper summarizes pertinent climate science, substantiates the dependence of economic growth on fossil fuels, and uses the Kaya identity to demonstrate the unfavorable prospects for reducing CO₂ while maintaining GDP growth.