DO THE DIAMONDS OF FOREIGN COUNTRIES SHAPE THE COMPETITIVENESS OF FIRMS? A CASE STUDY OF THE SWEDISH ENGINEERING CONSULTING INDUSTRY

This research sought to explore the effect of foreign countries on firms’ competitiveness, using Porter’s Diamond as the framework for the empirical test. The empirical evidence was based on data collected from a sample of Swedish engineering consulting firms. The findings demonstrate that the Swedish Diamond has stronger impact on the competitiveness of Swedish engineering consulting firms than do the Diamonds of the host countries in which these firms are active. The effect of host countries’ Diamond tend to increase as firms mature in their international activity and was found to have weak relation to the psychic distance between Sweden and the host countries.     

WHAT'S TO KNOW ABOUT THE CREDIBILITY OF EMPIRICAL ECONOMICS?

The scientific credibility of economics is itself a scientific question that can be addressed with both theoretical speculations and empirical data. In this review, we examine the major parameters that are expected to affect the credibility of empirical economics: sample size, magnitude of pursued effects, number and pre‐selection of tested relationships, flexibility and lack of standardization in designs, definitions, outcomes and analyses, financial and other interests and prejudices, and the multiplicity and fragmentation of efforts. We summarize and discuss the empirical evidence on the lack of a robust reproducibility culture in economics and business research, the prevalence of potential publication and other selective reporting biases, and other failures and biases in the market of scientific information. Overall, the credibility of the economics literature is likely to be modest or even low.     

FROM INSTITUTIONS TO FINANCIAL DEVELOPMENT AND GROWTH: WHAT ARE THE LINKS?

This paper presents an integrated overview of the literature linking institutions, financial development, and economic growth. From the large body of research on institutional development, the paper first selects those contributions that make it possible to study the role of institutional arrangements in ameliorating/worsening the information frictions and transaction costs that characterize the development of financial markets. The paper then investigates the theoretical mechanisms by which these specific frictions affect economic growth and presents the stock of empirical evidence quantifying the impact of institutions on growth through financial development.     

IS UNIVERSAL SERVICE JUSTIFIED BY THE PUBLIC INTEREST? FROM THE EARLY DAYS TO THE DIGITAL AGE

It is commonly accepted that universal service is clearly justified by reference to the public interest, and this understanding stems from the natural monopoly paradigm. However, telecommunications monopolies have never been ‘natural’, and the alternative to regulation has always been a competitive marketplace. The liberalisation movement had a chance to create a genuinely competitive industry but failed to do so. This article argues that the universal service dogma has played a significant role in the formation of the ordered competition regime of modern telecommunications, and explains this phenomenon in terms of public choice theory.     

WHY ARE SOME PLACES RICH WHILE OTHERS ARE POOR? THE INSTITUTIONAL NECESSITY OF ECONOMIC FREEDOM

We survey perspectives on the economic differences between countries and argue that economic freedom is the key to prosperity. We close by outlining the policy implications. Specifically, removing obstacles to the exercise of economic freedom is an important step towards prosperity.     

WHAT IS THE EFFECT OF HOUSEWORK ON THE MARKET WAGE,AND CAN IT EXPLAIN THE GENDER WAGE GAP?

Abstract Does housework reduce the market wage, and if so, does it have a similar impact for males and females? In this paper, we survey and evaluate the recent and growing empirical literature on the linkages between housework and the wage rate. The review is motivated by unexplained gender wage gaps across studies, which consider personal and market‐related factors. We focus on this less‐studied aspect of wage determination. We consider the required modelling framework, and provide standardized estimated effects of housework on the hourly wage across studies. We evaluate how this literature has addressed potential estimation problems, in particular, the endogeneity of housework, concavity of the housework–wage function, threshold effects and work effort effects. We conclude that the evidence across ordinary least squares, instrumental variable, fixed effects and two‐stage least squares results casts serious doubt on the idea that the negative female housework–wage relationship is only driven by endogeneity bias or individual‐specific characteristics. Yet, much more needs to be done to address modelling and data requirements, and we point out likely and promising future research directions.     

WHAT'S TO KNOW? PUZZLES IN THE LITERATURE ON THE VALUE OF STATISTICAL LIFE

Abstract Notwithstanding the general acceptance of the value of statistical life (VSL) estimates for policy assessment purposes, several important unresolved issues remain. First, the results from revealed preference studies are systematically higher than those from stated preference studies, potentially limiting the usefulness of stated preference studies in generalizing the VSL estimates to different populations and kinds of risks. Second, extrapolating the results of meta‐analyses to project the VSL for different population groups requires that such generalization be reflective of the underlying economic content of what average VSL estimates reflect. Third, government agencies within and across countries place differing emphasis on types of VSL studies as well as differing reliance on individual studies versus meta‐analyses. Usually, there is no justification provided for the chosen approach.     

ARE WOMEN REALLY MORE RISK‐AVERSE THAN MEN? A RE‐ANALYSIS OF THE LITERATURE USING EXPANDED METHODS

While a substantial literature in economics and finance has concluded that ‘women are more risk averse than men’, this conclusion merits investigation. After briefly clarifying the difference between making generalizations about groups, on the one hand, and making valid inferences from samples, on the other, this essay suggests improvements to how economists communicate our research results. Supplementing findings of statistical significance with quantitative measures of both substantive difference (Cohen's d, a measure in common use in non‐Economics literatures) and of substantive overlap (the Index of Similarity, newly proposed here) adds important nuance to the discussion of sex differences. These measures are computed from the data on men, women and risk used in 35 scholarly works from economics, finance and decision science. The results are considerably more mixed and overlapping than would commonly be inferred from the broad claims made in the literature, with standardized differences in means mostly amounting to considerably less than one standard deviation, and the degree of overlap between male and female distributions generally exceeding 80%. In addition, studies that look at contextual influences suggest that these contribute importantly to observations of differences both between and within the sexes.     

HOW PUZZLING IS THE PPP PUZZLE? AN ALTERNATIVE HALF‐LIFE MEASURE OF CONVERGENCE TO PPP

Evidence of lengthy half‐lives for real exchange rates in the presence of a high degree of exchange rate volatility has been considered as one of the most puzzling empirical regularities in international macroeconomics. This paper suggests that the measure of half‐life used in the literature might be problematic and proposes alternative measures with desirable properties. Their focus on the cumulative effects of the shocks distinguishes them from the measures used in the literature. An empirical analysis of bilateral US dollar real exchange rates employing the alternative half‐life measure produces results consistent with theory and indicates that the PPP puzzle is less pronounced than initially thought. Copyright © 2012 John Wiley & Sons, Ltd.     

ARE IMPACTS OF EARLY INTERVENTIONS IN THE SCANDINAVIAN WELFARE STATE CONSISTENT WITH A HECKMAN CURVE? A META‐ANALYSIS

“Early intervention” has been a mantra in recent debates about human capital investment. Strong theoretical models motivate this focus by predicting that investment in children is most cost‐effective when they are young. The “Heckman curve” summarizes this idea visually (Heckman, 2006). However, hardly any reviews scrutinize this hypothesis empirically in modern welfare states such as those in Scandinavia that already invest heavily during early childhood. Any such review is ideally based on interventions conducted as randomized controlled trials (RCTs), set in the same welfare state, and comparable across ages through cost‐standardized effects. This meta‐analysis assembles cost‐standardized effect estimates from 10 RCTs, including a total of 18 intervention arms and 30,578 participants (aged 1.5–24 years), conducted by the same research center in the Scandinavian welfare state of Denmark. These interventions show significant effects relative to their costs, despite the large baseline investment level. Interventions targeted at younger children tend to produce larger effects, consistent with the Heckman curve. However, variation in the effect size within age groups is as large as it is across age groups. This indicates that both the quality and timing of investments matter and that “early interventions” are not necessarily superior to later interventions.     

WHICH INDUSTRIES TO BAIL OUT FIRST IN ECONOMIC RECESSION? RANKING US INDUSTRIAL SECTORS BY THE POWER-OF-PULL

There have been intense debates regarding which industrial sectors should be prioritized for receiving bailout in economic recessions. This paper takes a network perspective to rank sectors according to the Power-of-Pull (PoP), i.e. a sector's power to pull the overall economy. An eigenvector method is employed to assess the PoP of sectors in the USA, using input–output data from 1998 to 2010. The results support bailout to the motor vehicle sector, but argue against bailout to public infrastructure, health care and information technologies design and service sectors, and also reveal the continual decline of PoP ranking of computer and electronics manufacturing sector over time. These results confirm some but also show little support to some other economic revival policies of the Obama Administration in the USA.     

IS THE CAPITAL STRUCTURE LOGIC OF CORPORATE FINANCE APPLICABLE TO INSURERS? REVIEW AND ANALYSIS

Since the financial crisis of 2008, next to banks, insurers have received increasing attention from researchers and regulators because of their crucial role in the financial system. A key point for a stable insurer is its capital structure, i.e. the choice between equity, debt and provisions in financing its operations. Based on earlier work a quickly developing literature has directly applied capital structure theories (in particular trade-off and pecking order) from corporate finance to insurers’ financing choices. Corporate finance concepts used herein however, are developed for industrial firms. In this paper we provide an overview of the literature on the capital structure of insurers, but contribute by systematically clarifying how to account for the specificities of insurers when transferring the trade-off and pecking-order logic from an industrial to an insurer context. This way, we add several new insights on an insurer's choice between equity, financial debt and provisions. In particular, we are able to explain why, as compared to industrial firms, insurers use less financial debt, and why insurers focus so strongly on self-financing. Finally, we identify multiple avenues for future research.     

ARE THE CURRENT ACCOUNT IMBALANCES BETWEEN EMU COUNTRIES SUSTAINABLE? EVIDENCE FROM PARAMETRIC AND NON‐PARAMETRIC TESTS

Using parametric and non‐parametric estimation techniques, we analyze the sustainability of the recently growing current account imbalances in the euro area and test whether the European Monetary Union has aggravated these imbalances. Two alternative criteria for the assessment of external debt sustainability are considered: one based on the transversality condition of intertemporal optimization, and the other based on the stationarity properties of the stochastic process of the debt–GDP ratio. Econometric sustainability tests are performed using the pooled mean‐group estimator and panel unit root tests, respectively. Variants of both test procedures with varying coefficients using penalized splines estimation are applied. We find empirical evidence suggesting that the introduction of the euro is associated with a regime shift from sustainability to unsustainability of external debt accumulation for the euro area. Copyright © 2012 John Wiley & Sons, Ltd.     

DOES IT PAY TO BE GREEN? AN EMPIRICAL EXAMINATION OF THE RELATIONSHIP BETWEEN EMISSION REDUCTION AND FIRM PERFORMANCE

Evidence can be marshalled to support either the view that pollution abatement is a cost burden on firms and is detrimental to competitiveness, or that reducing emissions increases efficiency and saves money, giving firms a cost advantage. In an effort to resolve this seeming paradox, the relationship between emissions reduction and firm performance is examined empirically for a sample of S&P 500 firms using data drawn from the Investor Responsibility Research Center's Corporate Environmental Profile and Compustat. The results indicate that efforts to prevent pollution and reduce emissions drop to the ‘bottom line’ within one to two years of initiation and that those firms with the highest emission levels stand the most to gain.     

SPECIAL INVITED SYMPOSIUM ON THE FOUNDATIONS OF NEOCLASSICAL ECONOMICS Jevons and Menger Re-homogenized?: Jaffé After 20 Years

A bstract . Following Jaffé's 1976 argument, the effort to de-homogenize Jevons, Walras, and Menger may have obscured some key similarities between Jevons and Menger. The article argues that Jevons's view of human behavior is more complex than has been allowed, and has much in common with Menger's predisposition for process, uncertainty, mistakes, and the significance of time in decision making. Some of the key features of the Mengerian economic being, features that have often been used to portray him as the odd man out among the triumvirate, also characterize Jevons's decision makers. For both Menger and Jevons, the decision maker is plagued by error, indecision, and information gaps.