When is Foreign Aid Effective in Fighting Terrorism? Threshold Evidence

Building on the previous literature, we assess when foreign aid is effective in fighting terrorism using quantile regressions on a panel of 78 developing countries for the period 1984–2008. Bilateral, multilateral and total aid indicators are used whereas terrorism includes: domestic, transnational, unclear and total terrorism dynamics. We consistently establish that foreign aid (bilateral, multilateral and total) is effective at fighting terrorism exclusively in countries where existing levels of transnational terrorism are highest. This finding is consistent with our theoretical underpinnings because donors have been documented to allocate more aid towards fighting transnational terrorist activities in recipient countries because they are more likely to target their interests. Moreover, the propensity of donor interest at stake is likely to increase with initial levels of transnational terrorism, such that the effect of foreign aid is most significant in recipient countries with the highest levels of transnational terrorism. Policy implications and future research directions are discussed.     

Foreign Aid,Incentives and Efficiency: Can Foreign Aid Lead to the Efficient Level of Investment?

This paper develops a two‐period model in which the recipient faces borrowing constraint and the donor is a Stackelberg follower to address two important policy questions: (i) whether foreign aid can lead to the efficient level of capital investment in the recipient country and (ii) how does the form (e.g. budgetary transfers, capital transfer) and the timing of aid affect the recipient's financial savings and capital investment. It finds that the disincentive effect of the capital transfer on the capital investment by the recipient is larger than the budgetary transfers. It makes financial savings more attractive relative to the capital investment for the recipient. In the absence of capital transfer, the multi‐period budgetary transfers not only lead to the efficient level of capital investment by the recipient, but also achieve the same allocation as under commitment. The capital transfer can lead to the efficient level of capital investment, but in this case, it completely crowds out the recipient's own capital investment.     

Is Economic Integration the Solution to African Development?

In the African continent, several regional initiatives have been launched or executed. These gave rise to several groupings including COMESA consisting of 19 countries, ECOWAS (15 countries), ECCAS (10 countries), and SADC with 15 countries. These groupings are not exclusive in that several countries belong to more than one regional group. The road to full integration clearly begins with a regional arrangement. The many groupings in Africa had the long term goal of creating an all inclusive African Economic Union. The objective is to promote the African continent’s economic growth, political stability, and good governance. The paper examines the effectiveness of some of these regional grouping in the context of an all-inclusive African club with the aid of the club model. Using data for the period 1986–2005, costs and benefits of membership are evaluated using the gravity Model. The Helpman’s size dispersion index is used to identify a potential anchor for a regional grouping.

Does the Welfare State Destroy the Family? Evidence from OECD Member Countries

We study the effect of the size of the welfare state on demographic trends in OECD member countries. Exploiting exogenous variation in public social spending, due to varying degrees of political fractionalization (i.e., the number of relevant parties involved in the legislative process), we show that an expansion in the welfare state increases fertility, marriage, and divorce rates with a quantitatively stronger effect on the marriage rate. We conclude that the welfare state supports family formation in the aggregate. Further, we find that the welfare state decouples marriage and fertility, and therefore alters the organization of the average family.     

Does Foreign Aid Promote Growth? Exploring the Role of Financial Liberalization

This paper examines the impact of foreign aid on the process of economic development in India by controlling for the degree of financial liberalization. A composite index is constructed using the method of principal component analysis to capture the joint influence of various financial sector policies. The results show that while foreign aid exerts a direct negative influence on output expansion, its indirect effect via financial liberalization is positive. Therefore, an important implication of the findings in this paper is that adequate liberalization in the financial system of the host country is a crucial requirement for effective foreign aid. Our results are robust to a number of control variables and estimation techniques.     

Is the slope of the Phillips curve time-varying? Evidence from unobserved components models

This paper formally tests for time variation in the slope of the Phillips curve using a variety of measures of inflation expectations and real economic slack. We find that time variation in the slope of the Phillips curve depends on the measure of inflation expectations rather than the measure of real economic slack. We find strong evidence in support of the time-varying slopes of the Phillips curve with different measures of inflation expectations. Thus, we conclude that the slope of the Phillips curve is time-varying.     

Is retention beneficial to low-achieving students? Evidence from Portugal

The role of retention as an educational tool to overcome under-achievement is a hotly debated issue, especially given that the results in the literature are not consensual. The Portuguese case is particularly well suited to study this issue: all students must take standardized national exams at specific grades. Moreover, the available dataset tracks the performance of students over time. Therefore, we are able to measure the impact of students’ retention on their subsequent academic performance since we can control for each student’s initial level of ability at the moment of retention. We use a propensity score matching approach, in which retained and promoted 4th grade students are matched according to their socioeconomic characteristics and the scores obtained in national exams. To address potentially remaining endogeneity biases, we also use the culture of retention at school level as an instrumental variable. The results suggest that in some situations retentions may have on average a positive impact on future achievement. However, in the cases where statistically significant impacts are found, the estimated magnitudes are relatively small. Our results are relevant for countries with high retention rates that are considering alternative educational policies to promote students’ achievement.     

Can International Climate Cooperation Induce Knowledge Spillover to Developing Countries? Evidence from CDM

Environmental and Resource Economics - Under the Kyoto Protocol, the Clean Development Mechanism (CDM) expects to facilitate the North-South knowledge spillovers for climate-friendly...     

Does Foreign Environmental Policy Influence Domestic Innovation? Evidence from the Wind Industry

This paper analyses the relative influence of domestic and foreign demand-pull policies in wind power across OECD countries on the rate of innovation in this technology. We use annual wind power generation to capture the stringency of the portfolio of demand-pull policies in place (e.g., guaranteed tariffs, investment and production tax credits), and patent data as an indicator of innovation activity. We find that wind technology improvements respond positively to policies both home and abroad, but the marginal effect of domestic policies is 12 times greater. The influence of foreign polices is reduced by barriers to technology diffusion, in particular lax intellectual property rights. Reducing such barriers therefore constitutes a powerful policy leverage for boosting environmental innovation globally.     

Is the value of an environmental public good sensitive to the providing institution?

In this paper we examine whether stated preferences and Willingness To Pay estimates, obtained in a choice experiment, are sensitive to the institutional context in which the good under evaluation is provided. Specifically, we examine the effects on valuation from employing two different institutions, an authority under the supervision of the National government and an authority under the supervision of an international body, the European Commission, as responsible for the design and implementation of a forest restoration project following a split sample approach. We find that coefficients of the utility model and Willingness To Pay estimates for all attributes are not statistically different between the two treatments. This is so despite the significant differences in the trust levels reported for the two institutions. We speculate that our results reflect the significance of the environmental good to the citizens given its local nature and the sheer size of the fire disaster.     

Is the median voter decisive? Evidence from referenda voting patterns

This paper examines whether the voter with the median income is decisive in local spending decisions. Previous tests have relied on cross-sectional data while we make use of a pair of California referenda to estimate a first difference specification. The referenda proposed to lower the required vote share for passing local educational bonding initiatives from 67 to 50% and 67 to 55%, respectively. We find that voters rationally consider future public service decisions when deciding how to vote on voting rules. However, the empirical evidence strongly suggests that an income percentile below the median is decisive for majority voting rules, especially in communities that have a large share of high-income voters with attributes that suggest low demand for public services. Based on a model that explicitly recognizes that each community contains voters with both high and low demand for public school spending, we also find that an increase in the share of low demand voters is associated with a lower decisive voter income percentile for the high demand group. This two type model implies that our low demand types (individuals over age 45 with no children) have demands that are 45% lower than other voters. Collectively, these findings are consistent with high-income voters with weak preferences for public educational services voting with the poor against increases in public spending on education.     

Do Current Account Forecasters Herd? Evidence from the Euro Area and the G7 Countries

Data from the Consensus Economics Forecast Poll is used to analyze how current account forecasters form expectations. The results suggest that forecasts do not satisfy traditional unbiasedness and orthogonality criteria for forecast rationality. In addition, this paper finds anti‐herding behavior among forecasters for the euro area and G7 countries. It also shows that the cross‐sectional heterogeneity with regard to anti‐herding is associated with cross‐sectional heterogeneity in forecast accuracy. More specifically, this paper finds some evidence indicating that forecasters who tend to herd provide more accurate forecasts than their colleagues who follow an anti‐herding strategy.     

What Is the Recent Evidence on an Excess Supply of Legal Qualifications in Australia?

This article considers the Australian evidence on whether there has been an excess supply of law graduates. There is evidence of a strong growth in demand for legal services over the past 15 years. It is also shown that the number graduating from Australian universities with a law degree grew by 3.5‐fold between 1989 and 2007. Evidence on employment rates and starting salaries for law graduates does not suggest that the labour market has been unable to absorb this increase in supply. There is, however, some evidence from the 2006 Census of a decline in the median salary of law graduates.     

Is the efficient market hypothesis day-of-the-week dependent? Evidence from the banking sector

In this article, we propose a new hypothesis: that the efficient market hypothesis is day-of-the-week-dependent. We apply the test to firms belonging to the banking sector and listed on the NYSE. We find significant evidence that the efficient market hypothesis is day-of-the-week-dependent. Overall, for only 62% of firms, the unit root null hypothesis is rejected on all the five trading days. We also discover that when investors do not account for unit root properties in devising trading strategies, they obtain spurious profits.     

Is fixed-mobile substitution strong enough to de-regulate fixed voice telephony? Evidence from the Austrian markets

In this paper, we estimate own-price elasticities for fixed network voice telephony access and national calls services for private users as well as cross-price elasticities to mobile services using time series data from 2002 to 2007 from the Austrian markets. Using instrumental variable estimates and considering cointegration, we find that access is inelastic while calls are elastic. We conclude that the retail market for national calls of private users can probably be deregulated due to sufficient competitive pressure from mobile. Access-substitution on the other hand does not seem to be strong enough to justify de-regulation.     

Is the value of environmental goods sensitive to the public funding scheme? Evidence from a marine restoration programme in the Black Sea

In this paper, we conduct choice experiments in Turkey and Ukraine on the valuation of a marine restoration programme in the Black Sea, to examine whether the value of environmental goods is sensitive to the source of public financing. We contribute to the debate on the optimal composition of public expenditure, an issue that can be controversial in times of financial crises. We discriminate between two funding regimes through the reallocation of public spending. The first proposes financing the marine restoration programme by reducing public expenditure for investments in renewable energy, and the second by reducing public expenditure for civil servants’ training. The results reveal that the marginal value of public money depends on the funding source. Furthermore, attribute values are sensitive to the trade-off implied by the funding scheme. The magnitude of the results differs in the two countries considered, because of their heterogeneity in political and cultural dimensions.     

How Large Is the Cost of Business Cycles in Developing Countries?

This study measures the cost of business cycles in developing countries. The business‐cycle component of consumption is extracted by employing a detrending filter adjusted for the length of a subject country's business cycles, rather than a standard detrending filter, and the cost of business cycles using the extracted component is extracted. Estimated costs in developing countries based on the adjusted filter are found to be significantly different from those based on the standard filter. Hence, in measuring the costs of business cycles in developing countries, we should be careful about the choice of a detrending filter. The results also indicate the following findings: 1) in developing countries, there is probably more room to improve the cost of non‐business‐cycle fluctuations than that of business‐cycle fluctuations, and 2) the cost of business cycles is not strikingly large, even when it is estimated from a model strongly disfavoring business cycles.     

Is productivity diverging in the EU? Evidence from 11 Member States

An argument that received a lot of attention in the political and economic discussion surrounding the recent crisis in the EU is that diverging trends in productivity across member countries will undermine the viability of the common currency. This article examines the issue of convergence in multifactor productivity using sector-level data from 11 EU Member States. A state-space model is developed, and formal Bayesian model comparisons are performed to infer whether productivity is diverging, both at the aggregate level and at a sector-by-sector basis. The data point toward diverging productivity at the aggregate level, but suggest the opposite for many individual sectors.     

Is the consumption-income ratio stationary in African countries? Evidence from new time series tests that allow for structural breaks

This article examines whether the consumption-income ratio is stationary in 50 African countries. We use the residual augmented least squares (RALS-LM) unit root test that allows for structural breaks. The empirical evidence shows that the consumption income ratio is stationary around structural breaks in most (44 out of 50) African countries. This is consistent with the predictions of most economic theories. The general finding of mean reversion implies that (policy) shocks are likely to have only temporary effects on the consumption-income ratio in most African countries .