Private consumption behaviour, liquidity constraints and financial deregulation in France: a nonlinear analysis

This paper examines the effect of financial deregulation on consumption expenditure in France during the period 1970–1993. A nonlinear model for consumption which allows for liquidity constraints through a time-varying parameter dependent on a proxy for financial deregulation is estimated using nonlinear instrumental variables. It is concluded that in France financial deregulation has significantly reduced liquidity constraints faced by consumers, allowing a higher percentage of the population to smooth consumption over time. Evidence is also provided that the intertemporal elasticity of substitution is not significantly different from zero at conventional nominal levels of significance. First version received: January 1997/final version received: May 1999     

Growth and export expansion in developing countries: Some empirical evidence

This paper analyzes the empirical relationship between economic growth and export expansion in developing countries as observed through an intercountry cross-section. Employing data from 55 middle income developing countries for the period 1960–1977, bivariate tests revealed significant positive associations between growth and various other economic variables including the growth of manufacturing output, investment, total exports, and manufacturing exports. A production function model was also specified and estimated with the cross-sectional data. The results indicated that export performance was important, along with capital formation, in explaining the intercountry variance in GDP growth rates during the 1960–1977 period.     

Precautionary saving under liquidity constraints: evidence from Italy

I empirically investigate precautionary savings under liquidity constraints in Italy using a unique indicator of subjective variance of income growth to measure the strength of the precautionary motive for saving, and a variety of survey-based indicators of liquidity constraints. The main contribution of the paper is twofold. First of all, I attempt to differentiate between the standard precautionary saving caused by uncertainty from the one due to liquidity constraints using an endogenous switching regression approach, which allows me to cope with endogeneity issues associated with sample splitting techniques. Second, I move one step further with respect to previous studies on consumption behaviour by taking explicitly expected liquidity constraints into account. I eventually found the precautionary motive for savings to be stronger for those households who face binding constraints, or expect constraints to be binding in the future. Indeed, a complementarity relation exists between precautionary savings and liquidity constraints.     

Exports and economic growth:some empirical evidence from the Arab Gulf countries

This paper investigates the relationship between exports and economic growth in four of the Arab Gulf countries, namely, Saudi Arabia, Kuwait, UAE, and Oman for the period 1973–93. The estimates presented indicate a positive and significant relation between the two variables. Also, the statistical adequacy of the models used is supported by the following diagnostic tests. The Bruesch-Godfrey statistic suggests the absence of serial correlation. The Farely-Hinich test fails to reject the null hypothesis that the models are structurally stable. And both the White and Hausman specification tests show that the models are correctly specified.     

Do liquidity constraints generate excess sensitivity in consumption? New evidence from a sample of post-bankruptcy households

Previous work linking liquidity constraints to excessive consumption sensitivity have used household level information on wealth and assets to split the sample into households that are likely to be constrained from those with access to credit and liquidity. In this paper, we use the sample splitting methods of previous authors but refine the criteria by using direct information on whether the household filed for bankruptcy in the last 10 years. Legally, a flag can appear on a bankruptcy filer’s credit report for up to 10 years after bankruptcy. This bankruptcy flag affects an individual’s credit score, and therefore the individual’s access to credit, which may make post-bankruptcy consumers liquidity constrained. Our results indicate that post-bankruptcy consumers exhibit excess sensitivity likely due to the bankruptcy flag. Consistency checks confirm that the source of sensitivity is due to liquidity constraints and not other observationally equivalent behavior.     

Informality,public employment and employment protection in developing countries

This paper proposes an equilibrium matching model for developing countries’ labor markets where the interaction between public, formal private and informal private sectors are taken into account. Theoretical analysis shows that gains from reforms aiming at liberalizing formal labor markets can be annulled by shifts in the public sector employment and wage policies. Since the public sector accounts for a substantial share of employment in developing countries, this approach is crucial to understand the main labor market outcomes of such economies. Wages offered by the public sector increase the outside option value of the workers during the bargaining processes in the formal and informal sectors. It becomes more profitable for workers to search on-the-job, in order to move to these more attractive and more stable types of jobs. The public sector therefore acts as an additional tax for the formal private firms. Using data on workers’ flows from Egypt, we show empirically and theoretically that the liberalization of labor markets plays against informal employment by increasing the profitability, and hence job creations, of formal jobs. The latter effect is however dampened or even sometimes nullified by the increase of the offered wages in the public sector observed at the same time.     

Privatization and capital formation in developing countries: an empirical analysis

The spur for privatization and its impact on economic performance have been analysed from many perspectives, including microeconomics, macroeconomics, and institutional economics. Previous research has focused on efficiency reasons for privatization at the level of the firm, and the relative performance of state‐owned enterprises and privately owned firms. This article investigates the macroeconomic facet of privatization with particular attention paid to the relation between privatization and capital formation in developing countries. Our study uses recent World Bank data on privatization for 105 countries over the time period 1988–2003. We explore the impact of privatization on capital formation by conducting two‐stage least squares and ordinary least squares estimations within three time frames. Our findings indicate that the effect of privatization on capital formation varies across regions and time frames. In general, privatization is neutral with regard to investment.     

Growth,inequality, and poverty reduction in developing countries: Recent global evidence

The study presents comparative global evidence on the transformation of economic growth to poverty reduction in developing countries, with emphasis on the role of income inequality. The focus is on the period since the early-mid-1990s when growth in these countries as a group has been relatively strong, surpassing that of the advanced economies. Both regional and country-specific data are analyzed for the $1.25 and $2.50-level poverty headcount ratios using World Bank Povcalnet data. The study finds that on average income growth has been the major driving force behind both the declines and increases in poverty. The study, however, documents substantial regional and country differences that are masked by this ‘average’ dominant-growth story. While in the majority of countries, growth was the major factor behind falling or increasing poverty, inequality, nevertheless, played the crucial role in poverty behavior in a large number of countries. And, even in those countries where growth has been the main driver of poverty-reduction, further progress could have occurred under relatively favorable income distribution. For more efficient policymaking, therefore, idiosyncratic attributes of countries should be emphasized. In general, high initial levels of inequality limit the effectiveness of growth in reducing poverty while growing inequality increases poverty directly for a given level of growth. It would seem judicious, therefore, to accord special attention to reducing inequality in certain countries where income distribution is especially unfavorable. Unfortunately, the present study also points to the limited effects of growth and inequality-reducing policies in low-income countries.     

Poverty, political freedom, and the roots of terrorism in developing countries: An empirical assessment

We find that political freedom has a significant and non-linear effect on domestic terrorism, but has no statistically significant effect on transnational terrorism. Geography and fractionalization limit a country’s ability to curb terrorism, while strong legal institutions deter terrorism.     

Fiscal policy and private consumption in industrial and developing countries

This paper empirically studies the effects of fiscal policy shocks on private consumption. Further, it investigates if the initial financing needs of the government or previous fiscal deficits affect that relationship. We use yearly data between 1970 and 2000 for 40 countries, of which 19 are industrialized and 21 are developing countries. In general, the estimation results seem to indicate that government consumption shocks have Keynesian effects for both industrial and developing countries. In the case of tax shocks, the evidence is mixed. Furthermore, there is no evidence that favors the hypothesis of expansionary fiscal consolidations.     

Industrial structure in US telecommunications: some empirical evidence

The telecommunications industry in the US is re-assessed using a methodology which incorporates new developments in time-series analysis. The issue of natural monopoly is re-considered with a view to the validation of the use of applied econometry in the fields of divestiture and industrial policy. Recent developments in US telecommunications are considered and incorporated into the model.     

Uninsured idiosyncratic risk, liquidity constraints and aggregate fluctuations

Summary. I study the role played by uninsured idiosyncratic risk and liquidity constraints in the propagation of aggregate fluctuations. To this purpose, I compare the aggregate fluctuations of two model economies that differ in their insurance technologies only. In one of these model economies liquidity constrained households vary their holdings of a nominally denominated asset in order to buffer an uninsured idiosyncratic shock to their individual production opportunities. In the other economy every idiosyncratic component of risk can be costlessly insured. I find that the limited insurance technology implies fluctuations in output that are 20% larger, fluctuations in hours relative to output that are 9% larger, fluctuations in consumption relative to output that are 18% smaller, and a correlation of hours and productivity that is 15% smaller than those that obtain under the full insurance technology. Received: March 6, 1996; revised version August 15, 1996     

Determinants of non-life insurance expenditure in developed and developing countries: an empirical investigation

The determinants of non-life insurance expenditure in a panel data set covering 36 developed countries and 31 developing countries for the period 2000–2011 are analysed. Results of our instrumental variable analysis indicate that economic freedom, income, bank development, urbanization, culture and law systems are the key drivers of the non-life insurance expenditure across countries. However, their impacts differ significantly between the groups of developed and developing countries, suggesting that the heterogeneity among countries in terms of the level of development plays an important role. The global financial crisis is also found to influence the direction of those effects, especially in developed countries. The article yields useful policy and economic implications for governments and multinational non-life insurance companies with regard to the development of the non-life insurance sector, an important engine for economic growth and prosperity.     

Financial innovation and demand for money: some empirical evidence

Recent criticism of money growth targets has been based on the implications of spreading financial innovation, since the latter has been considered to undermine monetary policy effectiveness both by bringing about an increase in the interest elasticity of money demand and by producing instability of the money demand function. The empirical results presented in this paper – focusing on a single and specific case of financial innovation particularly suited to study the isssue at stake – falsify both hypotheses.     

Portuguese emigration 1958-1985: some empirical evidence

Supplying work in the home country or abroad must be seen as the result of the same decisional process. If that is true, the same set of variables should be used to explain the participation in the labor market and the emigration rates.Based upon empirical results, we discuss some of the traditional conclusions of the economic literature. Our empirical results, for example, show that: 1) there is a strong support for considering home wages and the wages in the country of destination asymmetrically, 2) imperfections in the capital markets seem to play an important role when workers must pay for their moving expenses and 3) there is a differential in coefficients between the period before 1974 and after that date, as 1974 is the year most of the Central European countries changed their immigration policies.     

Innovation and weak labour disposability: some theoretical and empirical evidence

This paper envisages theoretically and empirically the weak labour disposability and the ability of labour to innovate in a poor-capital, surplus-labour economy. Therefore, a production function where the marginal product can become zero or even negative has been derived and estimated using data from Suden over the period 1968–88, with quarterly interpolation. Thus, unlike neoclassical specifications of endogenous growth theory, labour withdrawal may have minimal effect on output. The results indicate the presence of weak disposability of labour. The existence of a discernibly low capital–saving technical relationship between labour and capital has been verified using cointegration techniques.     

R&D and productivity in Danish firms: some empirical evidence

The aim of the paper is to examine the relationship between R&D capital and productivity using microdata for Danish manufacturing firms. The influence of factors such as ownership, innovative characteristics and source of funding accounted for. The return to accumulated R&D capital is estimated to be in the neighbourhood of 9–12%, whereas the short-run effect of R&D is insignificant. Furthermore, the direct influence from foreign ownership, source of funding accounted for, innovative characteristics and ownership dispersion on productivity are analysed. However, none of the factors seem to have an impact on firm productivity. The same is the case for the indirect influence coming from interaction with accumulated R&D capital.     

Measuring subjective expectations in developing countries: A critical review and new evidence

The majority of economic decisions are forward-looking and thus involve expectations of future outcomes. Understanding the expectations that individuals have is thus of crucial importance to designing and evaluating policies in health, education, finance, migration, social protection, and many other areas. However, the majority of developing country surveys are static in nature and many do not elicit subjective expectations of individuals. Possible reasons given for not collecting this information include fears that poor, illiterate individuals do not understand probability concepts, that it takes far too much time to ask such questions, or that the answers add little value. This paper provides a critical review and new analysis of subjective expectations data from developing countries and refutes each of these concerns. We find that people in developing countries can generally understand and answer probabilistic questions, such questions are not prohibitive in time to ask, and the expectations are useful predictors of future behavior and economic decisions. The paper discusses the different methods used for eliciting such information, the key methodological issues involved, and the open research questions. The available evidence suggests that collecting expectations data is both feasible and valuable, suggesting that it should be incorporated into more developing country surveys.