So you want to run an experiment,now what? Some simple rules of thumb for optimal experimental design

Experimental economics represents a strong growth industry. In the past several decades the method has expanded beyond intellectual curiosity, now meriting consideration alongside the other more traditional empirical approaches used in economics. Accompanying this growth is an influx of new experimenters who are in need of straightforward direction to make their designs more powerful. This study provides several simple rules of thumb that researchers can apply to improve the efficiency of their experimental designs. We buttress these points by including empirical examples from the literature.     

What do you want to know? Information acquisition and learning in experimental Cournot games

This paper presents an experiment designed to study firms’ behavior and market dynamics, when information about the market structure and opponents’ actions is difficult to acquire and process. Our experimental software controls the information acquisition process of the subjects. Paying attention not only to what players do, but also to what they know, it is possible to better understand the cognitive processes guiding their choices and, consequently, the impact of the informational structure on their behavior. According to our results, Best-Response Dynamics is the main component of subjects’ learning process. We also find that, when subjects look at the strategies individually adopted by their competitors, they tend to imitate the most successful behavior, which drives the market towards a more competitive outcome.     

Has the EMU reduced wage growth and unemployment? Testing a model of trade union behavior

Grüner (2010) argues that the introduction of the European Monetary Union (EMU) led to lower wage growth and lower unemployment in participating countries. According to Grüner, monetary centralization increases the amplitude of national business cycles, which leads to higher unemployment risk. In order to counter-balance this effect, trade unions lower their claims for wage mark-ups, resulting in lower wage growth and lower unemployment. This paper uses macroeconomic data on OECD countries and a difference-in-differences approach to empirically test the implications of this model. Although we come up with some weak evidence for increased business cycle amplitudes within the EMU, we neither find a significant general effect of the EMU on wage growth nor on unemployment.     

Is trade liberalization a solution to the unemployment problem?

This paper examines how trade liberalization affects the growth rate of sectoral employment in developed and developing countries. The estimation results imply that trade openness in the form of higher trade volumes has not been successful in generating jobs in developing countries. The overall weak, negative employment response to trade volumes may be explained by the negative output response to trade openness in these countries. Our estimates also indicate that higher trade volumes have adverse effect on industrial employment in developed countries. Moreover, while they have positive effect on employment in industry and services in developing countries, trade barriers have adverse effect on employment growth in services for developed countries. Our overall results imply that while trade barriers have relatively little adverse effects and/or in some case a positive effect on employment both in developing and developed countries, higher trade volumes have an adverse effect on industrial employment in developed economies. Thus, trade openness is not in itself a solution to the unemployment problems of developing countries and yet it has not been the prime factor to blame for the lower employment levels in developed countries.     

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.     

With whom do you trade? Defensive innovation and the skill‐bias

Abstract We examine whether increased trade with countries with ineffective protection of intellectual property has contributed to the skill‐deepening of the 1980s. We construct an index of effective protection of intellectual property at the country level, combining data on protection of patents and rule of law. Next, we construct an industry‐specific version of this index, using as weights each country's trade share in the total trade of the industry. We find a decline in this trade‐weighted index, owing to a rise in trade with countries with low effective protection of intellectual property, which explains 29% of the rise in within‐industry skill‐intensity.     

A Takayama–Judge activity model applied to the analysis of allocation and trade in Sweden

The purpose of this article is to formulate a numerical general equilibrium model of the Swedish economy, and to use the model for a quantitative evaluation of the pattern of comparative advantages. The model is essentially a Leontief type of input-output model, extended with linear demand functions for final commodities, foreign trade activities and capacity and resource constraints. Due to the linearity the model can easily be reformulated and solved as a quadratic programming model. The evaluation of the pattern of comparative advantages of the Swedish economy is carried out as an analysis of the choice between inport and domestic production in a temporary equilibrium framework with exogenously given world market prices, exports and domestic production capacities.     

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.     

Do we need a global VAR model to forecast inflation and output in South Africa?

This study determines whether the global vector autoregressive (GVAR) approach provides better forecasts of key South African variables than a vector error correction model (VECM) and a Bayesian vector autoregressive (BVAR) model augmented with foreign variables. The article considers both a small GVAR model and a large GVAR model in determining the most appropriate model for forecasting South African variables. We compare the recursive out-of-sample forecasts for South African GDP and inflation from six types of models: a general 33 country (large) GVAR, a customized small GVAR for South Africa, a VECM for South Africa with weakly exogenous foreign variables, a BVAR model, autoregressive (AR) models and random walk models. The results show that the forecast performance of the large GVAR is generally superior to the performance of the customized small GVAR for South Africa. The forecasts of both the GVAR models tend to be better than the forecasts of the augmented VECM, especially at longer forecast horizons. Importantly, however, on average, the BVAR model performs the best when it comes to forecasting output, while the AR(1) model outperforms all the other models in predicting inflation. We also conduct ex ante forecasts from the BVAR and AR(1) models over 2010:Q1–2013:Q4 to highlight their ability to track turning points in output and inflation, respectively.     

You say you want a (Rose) Revolution? The effects of Georgia's 2004 market reforms

After Georgia declared its independence from the Soviet Union, it experienced civil war and strife for more than a decade. In late 2003, the peaceful Rose Revolution installed a new government that began a series of radical market‐liberal reforms. However, the effectiveness of these reforms was controversial. We offer a rigorous evaluation of these reforms via the synthetic control method which creates a credible counterfactual. Compared to the synthetic controls, we find that the reforms enacted after the Rose Revolution led to significant improvements in Georgia's social and economic development, albeit with temporary side effects and argue that this case provides some support for the effectiveness of rapid, multidimensional reform.     

Preferential trade agreements and manufactured goods exports: does it matter whom you PTA with?

This article explores two questions. First, do preferential trade agreements (PTAs) affect manufactured goods exports of developing countries? Second, does it matter for developing countries whom they sign the PTAs with? We find that the answer to both questions is yes. Using bilateral manufactured goods exports data from 28 developing countries during 1978–2005; we find that South–South PTAs have a significantly positive effect on manufactured goods exports. In contrast, no such effect is detected in the case of South–North PTAs. We confirmed the robustness of these findings to estimation methodology, sample selection, time period, zero trade flows and multilateral trade resistance.     

Does a bank's business model affect its capital and profitability?

We use a data-driven classification of systemically important European banks into business models based on confidential granular supervisory data and investigate whether banks following different models differ with respect to their capitalisation and profitability. Our aim is to locate the banks' business model in a risk-return space. Using an instrumental variables approach, our econometric methodology addresses potential endogeneity issues. Overall, we find that wholesale funded and securities holding banks are positioned on a relatively high risk-return trade-off plane compared with commercial banks. On the other hand, traditional commercial banks earn lower returns with moderate risk.