Redefining the Human Development Index to Account for Sustainability

Earlier measures of growth like Gross Domestic Product per capita, or even more recent measures like the Human Development Index (HDI), failed to consider the ‘environmental’ aspect of development. Currently, countries that have accepted the sustainability challenge are finding ways to determine if they are making progress in a sustainable way by addressing the environmental aspect of development. This paper attempts to improve the HDI by adding an ‘ecological footprint to total bio-capacity ratio’ as an indicator of environmental resource use. This new index, the Environmentally Stressed Human Development Index (ESHDI) while trying to account for sustainable development, dramatically alters the original HDI rankings of countries. Some ‘high’ and ‘medium’ income countries are enduring excessive environmental stress to sustain economic development.     

Fiscal Sustainability in the Euro-Zone: Is There A Role for Euro-Bonds?

This paper assesses the fiscal sustainability of ten Eurozone member countries at a national and aggregate level. It is carried out in light of the relevant literature on monetary unions and the framework of the European Monetary Union vis-à-vis the current sovereign debt crisis. The impact of Eurobonds, which are considered as a viable solution, on fiscal sustainability was empirically tested. The results indicate that only three countries appear to be structurally sustainable whereas the majority of the countries are only sustainable in the short-run and two countries are structurally unsustainable. However, the sustainability of the Eurozone is greatly improved when the Eurobonds are used.     

Determinants of software exports from India

Notable accomplishments in export have made India’s software sector conspicuous. This paper attempts to discuss the determinants of software exports from India. The study notes that—besides dynamic elements of economic development across the world—the policy measures and actions of the Indian government have played proactive and facilitating roles in the growth of the software sector. The study uses the autoregressive distributed lag (ARDL) approach to estimate the impact of various explanatory variables on software exports from India. Since causality is found running in both directions for many variables, the study attempts to examine the determinants of software exports from India through the regression equation in first difference. The results suggest that changes in openness index, human capital, and the GDP of high-income OECD countries have exercised positive impact on change in software exports from India. The study finds a stable long run relationship among variables.     

The Questionable Economics of Development Assistance in Africa: Hot-Fresh Evidence, 1996–2010

This paper assesses the aid-development nexus in 52 African countries using updated data (1996–2010) and a new indicator of human development (adjusted for inequality). The effects of Total Net Official Development Assistance (NODA), NODA from the Development Assistance Committee (DAC) and NODA from Multilateral donors on economic prosperity (at national and per capita levels) are also examined. The findings broadly indicate that development assistance is detrimental to GDP growth, GDP per capita growth and inequality adjusted human development. The magnitude of negativity (which is consistent across specifications and development dynamics) is highest for NODA from Multilateral donors, followed by NODA from DAC countries. Given concerns on the achievement of the MDGs, the relevance of these results point to the deficiency of foreign aid as a sustainable cure to poverty in Africa. Though the stated intents or purposes of aid are socio-economic, the actual impact from the findings negates this. It is a momentous epoque to solve the second tragedy of foreign aid; it is high time economists and policy makers start rethinking the models and theories on which foreign aid is based. In the meantime, it is up to people who care about the poor to hold aid agencies accountable for piecemeal results. Policy implications and caveats are discussed.     

Towards More Inclusive Ageing and Employment Policies: The Lessons from France,The Netherlands,Norway and Switzerland

Many countries have carried out over the past decade a series of reforms and measures to encourage longer working lives and to respond to the looming challenges of rapid population ageing. But have these steps gone far enough and have the necessary measures been taken? Much of the focus of this policy action has been on old-age pension reform but, as stressed in the report Live Longer, Work Longer (OECD 2006), a more comprehensive set of reform may be necessary to encourage work at an older age. This includes policy action in three broad areas to: (1) reward work, (2) change employer practices, and (3) improve the employability of workers. The aim of this paper is to provide an overview of recent policy initiatives to give older people better work incentives and choices implemented in France, The Netherlands, Norway and Switzerland since 2006 as well as to identify areas where more could be done, covering both supply-side and demand-side aspects.     

Evaluating CPB’s Forecasts

This paper analyzes forecasts, for ten key annually observed economic variables for the Netherlands, created by the Netherlands Bureau for Economic Policy Analysis (CPB) for 1971–2007. These CPB forecasts are all manually modified model forecasts, where the model is a (very) large multi-equation macro model. The CPB forecasts are held against real-time forecasts obtained from simple autoregressive time series models, and for seven of the ten cases, CPB’s forecasts are significantly more accurate. Combining CPB’s forecasts with the real time autoregressive forecasts shows that four of the ten combined forecasts are significantly better than CPB’s forecasts, and seven of the ten are better than the time series forecasts. This suggests that CPB’s manual adjustment efforts could perhaps be directed to modifying simple model forecasts and not the forecasts from the own large macro model.     

A data base with income and assets of new retirees by race and hispanic origin

This study of persons who retired in 1980-81 across groups partitioned by marital status, sex, race, and Hispanic origin reveals sub-stantial differences in income and asset holdings. Data from the New Beneficiary Survey show that (1) median income ranged from $ 11,000 for black couples to $18,000 for white couples, (2) social security payments were the major source of income, (3) pension income was more frequently received by white retirees, but when received, was of comparable value to all races, (4) home ownership was high among all retirees, especially couples, and (5) median assets of black retirees were very low—near zero.     

Racial bloc voting and political mobilization in South Carolina

Over the last quarter century, major changes in Southern social structure have been accompanied by more positive white attitudes on racial issues. Has voting behavior reflected these changes? The question has important consequences. The degree of racial bloc voting and political mobilization often determines outcomes not only of elections but also of voting rights lawsuits. Data from 130 black/white elections in South Carolina were used to determine rates of racial polarization and mobilization. Bloc voting remained high. Other variables had little explanatory power. Some secondary factors helped explain variations in the generally high levels of polarization by race.     

Tales from the Bretton Woods

An analogy has been made between the collapse of the Bretton Woods system in 1971 and the recent Eurozone crisis. The build up of TARGET balances in the Eurosystem of Central Banks after 2007 with the GIPS (deficit countries having large liabilities) and Germany (a surplus country) with large claims is seen as similar to the rising and persistent balance of payments deficits and declining gold reserves by the United States as center country of the BWS gold dollar standard in the 1960s. This paper argues that a better Bretton Woods analogy is between the UK which ran persistent balance of payments deficits reflecting low productivity growth and overly expansionary financial policies (an analogy to the GIPS) countries with West Germany which ran persistent balance of payments surpluses reflecting high productivity and conservative financial policies (analogous to Germany today). However Bretton Woods is very different from the Eurozone in many dimensions. An even better analogy than BWS is a comparison of the clearing mechanism in the U.S..--The Gold Settlement account—with the Target payments mechanism for the Eurozone. In the early 1930s massive gold flows from the interior, hard hit by banking panics, to New York City were similar to the payments imbalances within the Eurozone in the recent crisis. The Federal Reserve did little to accommodate the demands for liquidity leading to a collapse of the payments system in March 1933. By contrast the build up of TARGET reflected full accommodation of the liquidity demands of the member states. TARGET represented an institutional innovation that prevented a repeat of the 1930s payments crisis.     

The exporter productivity premium along the productivity distribution: evidence from quantile regression with nonadditive firm fixed effects

A vast literature on the international activities of heterogeneous firms finds the existence of a positive exporter productivity premium. On average, exporting firms are more productive than firms that sell on the national market only. The Melitz (Econometrica 71:1695–1725, 2003) model, however, has implications for not only mean differences but also differences in the distribution of productivity. Furthermore, exporting firms may be different from non-exporting firms for reasons that are not included in the Melitz model. We believe that conditioning on firm fixed effects and studying the distribution of productivity are both necessary for empirical tests of the Melitz model. This paper is the first to employ a new quantile estimation technique for panel data introduced in Powell (Did the economic stimulus payments of 2008 reduce labor supply? Evidence from quantile panel data estimation. RAND Corporation Publications Department, Santa Monica, 2014). We find that the premium is positive at all productivity levels, but highest at the lowest quantiles. These results support theoretical models which suggest that there is a division in productivity between exporters and non-exporters.     

Real Exchange Rates and Fundamentals: Evidence from 15 OECD Countries

In an extended Balassa–Samuelson model, long-run real exchange rates are determined by relative productivity and terms of trade. We present evidence of systematic long-run relationships between these fundamental variables and real exchange rates in a data set covering 15 OECD countries from 1960 to 1996. High relative productivity is associated with real exchange rate appreciations in most cases. There is less support for the hypothesis that the terms of trade affect equilibrium real exchange rates.     

Determinants of Malaysian Trade Balance: An ARDL Bound Testing Approach

Abstract

This paper examines the short- and long-run relationships between trade balance, real exchange rates, income and money supply in the case of Malaysia. The inclusion of income and money variables in the study is purposely to examine the monetary and absorption approaches to the balance of payments beside the conventional approach of elasticity, using exchange rates. Using the bound testing approach to cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework, we investigate whether a long-run equilibrium relationship exists between trade balance and the determinants. Additionally, we adopt an innovation accounting by simulating variance decompositions (VDC) and impulse response functions (IRF) for further inferences. Using this approach, we find evidence of a long-run relationship between trade balance and income and money supply variables but not between trade balance and real exchange rate. The findings also suggest that Marshall–Lerner condition does not hold in the long-run for Malaysia and for policy wise the Malaysian trade balance/balance of payments should be viewed from absorption and monetary approaches.     

Exchange Rates and the Trade Balance for Dynamic Asian Economies—Does the J-Curve Exist for Singapore,Malaysia, and Korea?

The purpose of this article is to examine the relationship between the real trade balance and the real exchange rate for bilateral trade in merchandise goods between Singapore, Korea, and Malaysia and the USA and Japan on a quarterly basis over the period 1970 to 1996 using the partial reduced form model of Rose and Yellen (1989) derived from the two-country imperfect substitutes model. With the exception of Korean trade with the USA, and in line with recent work using a similar methodology, our findings suggest that the real exchange rate does not have a significant impact on the real trade balance, and for Singapore and Malaysia we can find no persuasive evidence for J-curves. For Korea, however, the data were consistent with some J-curve effects with respect to both Japan and the USA. Moreover, it is possible that for Korea these effects were being masked or muted by small country pricing of exports in foreign currency, but there was no evidence that imports subsequently fell as the lag length on the real exchange rate increased, which would be required to support a strict interpretation of the J-curve.     

Determinants of Malaysian Trade Balance: An ARDL Bound Testing Approach – A Commentary

Abstract

This commentary is served as an additional light both from theoretical and empirical perspectives, on the study by Duasa (Global Economic Review, 2007, 36, pp. 89–102) who examined the short- and long-run relationships between trade balance, real exchange rates, income, and money supply for Malaysia. The final words I would like to make are that the results documented by Duasa require further investigation before it can be generalized.     

Openness and Real Exchange Rate Volatility: In Search of an Explanation

The puzzle that real exchange rates are less volatile in open economies is an important challenge to exchange rate theory. Adjustment of domestic prices to nominal exchange rate movements can account for only a small proportion of this effect. Real and nominal shocks display no obvious correlation with openness. It is shown here that real effective exchange rates are more strongly mean-reverting in more open economies, even after controlling for exchange rate regime effects. This is predicted by the theory of current account sustainability, because of its emphasis on ratios to GDP rather than to trade flows.

PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, Cross-Sectional Dependency and Structural Breaks

The stationarity of OECD real exchange rates over the period 1972?C2008 is tested using a panel of 26 member countries. The methodology followed stems from the need to meet several key concerns: (i) the identification of which panel members are stationary; (ii) the presence of cross-sectional dependence among the countries in the panel; and (iii) the identification of potential structural breaks that might have occurred at different points in time. To address these concerns, we employ a recent test that examines the time series properties of the data within a panel framework, namely the Hadri and Rao (Oxford Bulletin of Economics and Statistics 70: 245?C269, 2008) panel stationarity test. The real exchange rates of the 26 OECD countries are found to be stationary when considered as a panel, but only after allowing for endogenously-determined structural breaks and cross section dependence. We also find that once these structural breaks are removed from the underlying series, the half-life of shocks to the real exchange rate is much shorter than has been calculated in earlier studies.     

The exchange rate and the trade balance

Exchange rate flexibility is commonly justified as an efficient method for adjusting the trade balance to some desirable net international capital flow. In this orthodox view, fluctuations in a country's terms of trade or its saving-investment balance would continually upset its balance of payments equilibrium if the nominal exchange rate remained rigid.But this prevailing doctrine favoring exchange flexibility is only correct when economies are insular, ie. have limited trade and financial arbitrage with the outside world. With the spread of exchange controls and trade restrictions in the 1930s into the 1950s, the industrial countries became somewhat insulated from each other. A devaluation could then have the conventional effect of reducing a trade deficit because monetary and exchange rate policy were separable.Among the open industrial economies of the 1980s, however, financial arbitrage is uninhibited and trade is fairly free. Monetary policy, both current and prospective, now dominates what happens to the exchange rate. Because a devaluation today reflects an easier money policy in the present, or an expected easing in the future, it no longer has any predictable impact on the monetary value of the net trade balance. Exchange rate flexibility loses its usefulness in controlling net exports while becoming highly disruptive to the economy's macroeconomic stability.For example, the American dollar's downard float over the past three years should not be (have been) expected to improve the U.S. current account. However, allowing the dollar to depreciate below its purchasing power parity greatly increases the inflationary potential in the Americian economy.     

Exchange rate volatility and agricultural trade under policy reforms in South Africa

Decades of government intervention have helped develop the South African agriculture sector to its present state. Policy reforms have included trade and exchange rate policies to increase the country's international competitiveness, reduce poverty and promote economic growth. These reforms are facilitating the growth in agricultural trade and South Africa's reintegration into the global economy. Annual agricultural exports and imports have increased. This paper uses annual data and a vector error-correction model to investigate the supply and demand relationships for agricultural trade flows in South Africa during the past four decades. The results show that prices, real exchange rates, domestic production capacity and real incomes have significant impacts on the country's agricultural trade. In particular, exchange rate volatility has negative impacts. This cannot be viewed solely as an exogenous source of macroeconomic instability in South Africa, as domestic policies play a crucial role in influencing the movement of exchange rates.     

Exchange Rates and Trade Balance Adjustment: A Multi-Country Empirical Analysis

This study assesses the response of the trade balance to exchange rate fluctuations across a large number of countries. Fixed-effects regressions are estimated for three country groups (industrial, developing and emerging markets) on annual data for 87 countries from 1994 to 2010. The trade balance improves significantly after a real depreciation, and to a similar degree, in the long run for all countries, but the adjustment is significantly slower for industrial countries. Emerging markets and developing countries display relatively fast adjustment. Disaggregation into exports and imports shows that the delayed adjustment in industrial countries is almost entirely on the export side. The rate of adjustment in emerging markets is slowing over time, consistent with their eventual graduation to high-income status. The ratio of trade to GDP is also highly sensitive to the real effective exchange rate, with a real depreciation of 10 % raising the trade/GDP ratio across the sample by approximately 4 %. This result, which presumably reflects movements in the prices of tradables relative to non-tradables, raises questions about the widespread use of the trade/GDP ratio as a trade policy indicator, without adjustment for real exchange rate effects.     

Short-run and long-run effects of exchange rate change on trade balance: Evidence from China and its trading partners

As one of largest exporting countries in the world, China has experienced a large amount of trade surpluses for the past decade. However, a growing criticism has been focused on the manipulation of Chinese Yuan (RMB) exchange rate by the Chinese government. While China implemented the exchange rate reform policy in July 2005, the question, whether its currency is undervalued remains as a debatable issue. Different from previous studies by focusing on individual trading partners, this paper tests the short-run J-Curve hypothesis and long-run trade balance effect of real exchange rate between China and its eighteen major trading partners using a panel dataset over the 2005–2009 period. We adopt the methodologies of panel cointegration test, fully modified OLS for heterogeneous cointegrated panel (panel FMOLS) and panel error correction model (panel ECM) to investigate the above examination. Our empirical results lend support to the inverted J-curve hypothesis between China and its trading partners. However, we find that a real appreciation of RMB has a decreasing long-run effect on China's trade balance in only three of the eighteen trading partners, while it has an increasing long-run effect in five of the eighteen trading partners. These mixed findings, therefore, lead to the empirical evidence that the real appreciation of RMB has no overall long-run impact on China's trade balance.