What do we really know about fiscal sustainability in the EU? A panel data diagnostic

We assess the sustainability of public finances in the EU-15 over the period 1970–2006 using stationarity and cointegration analysis. Specifically, we use panel unit root tests of the first and second generation allowing in some cases for structural breaks. We also apply modern panel cointegration techniques developed by Pedroni (Oxf Bull Econ Stat 61(1):653–670, 1999; Econom Theory 20(3):597–625, 2004), generalized by Banerjee and Carrion-i-Silvestre (Cointegration in panel data with breaks and cross-section dependence, European Central Bank, Working Paper 591, 2006) and Westerlund and Edgerton (Econ Lett 97(3):185–190, 2007), to a structural long-run equation between general government expenditures and revenues. While estimations point to fiscal sustainability being an issue in some countries, fiscal policy was sustainable both for the EU-15 panel set, and within sub-periods (1970–1991 and 1992–2006).     

Determinants of pollution: what do we really know?

The recent literature proposes many variables as significant determinants of pollution. This paper gives an overview of this literature and asks which of these factors have an empirically robust impact on water and air pollution. We apply Extreme Bound Analysis (EBA) on a panel of up to 120 countries covering the period 1960–2001. We find supportive evidence of the existence of the environmental Kuznets curve for water pollution. Furthermore, mainly variables capturing the economic structure of a country affect air and water pollution.     

Exchange rates in the modern floating era: what do we really know?

Forecasting nominal exchange rates remains a remarkably difficult task, despite the proliferation of new floating currencies, the maturation of the floating rate period, the deepening of financial markets, and the development of more sophisticated econometric tests that make use of today’s more powerful computing possibilities. Despite these advances, the basic results of Meese and Rogoff in the 1980s stand up remarkably well—it is still extremely difficult to forecast exchange rates. To the extent that there is any forecasting power, the most promising models are those based on purchasing power parity or the current account, although it must be noted that these mainly predict the real exchange rate, rather than the nominal exchange rate. Thus, some of the adjustment takes place in prices. Finally, it should be noted that panel methods help in exchange rate forecasting, albeit mainly by allowing better estimation of nonstructural factors such as shift parameters.

How much can we trust China’s investment statistics?

Abstract

Building upon recent research into the underestimation of China’s official final consumption expenditure, this paper investigates the quality of China’s investment data. We strictly follow the official method to estimate the annual gross fixed capital formation (GFCF) expenditure from 2004 to 2012, and the resulting figures are significantly different from the official statistics. This implies that the ‘total investment in fixed assets’ data, which are the primary source for the estimation of GFCF, grossly exaggerate actual investments, and that the official GFCF figures are not, strictly speaking, independently estimated, as they are purported to be. We deduce that the official gross capital formation figure is more or less a residual item obtained by subtracting final consumption and net exports from the official GDP figure that is calculated based on the production-cum-income approach. As a result, the underestimation of China’s consumption expenditure automatically translates into overestimation of investment expenditure. We conclude that China’s official consumption and investment statistics cannot be trusted as the basis for policy discussions and academic research.     

Challenges to small and medium-size businesses in Myanmar: What are they and how do we know?

We conducted a field survey of owners of small and medium enterprises (SMEs) in Yangon, Myanmar to investigate obstacles to business development in the region. The analysis focuses on access to credit, public services, and electricity. We find that relaxing loan collateral requirements is considered of prime importance, while access to bank loans is seen as problematic (equivalent to a 19 percentage point increase in the interest rate). Yet despite their widespread appeal to governments and donors, SME loans are found to have no discernible impact on perceived access to credit. Access to public services is hampered by cumbersome and time consuming procedures, often necessitating daylong trips to the capital for administrative procedures. Streamlining such procedures could yield annual savings of up to US $4700 per business. With regard to electricity, the biggest problems are installing new connections and the unreliability of supply. For benchmarking of concerns, we showed respondents vignettes describing hypothetical businesses facing a particular difficulty, and asked them to rate the gravity of the problem. Although we find some differences in response scales across socio-economic and ethnic groups, the qualitative conclusions about which problems are most important generally hold. This suggests that broad-based policy intervention aimed at easing a particular difficulty can be implemented.     

How do changes in household economic conditions affect cognitive function?

This study examines the effects of changes in household economic conditions on cognitive function using individual panel data from the National Survey of the Japanese Elderly. This study captures the objective and subjective economic conditions and examines which aspects of economic conditions affect cognitive function. The results demonstrate that deterioration in economic conditions damages cognitive function. In particular, objective economic conditions measured by income affect the cognitive function of Japanese men. This study also assesses possible pathways through which economic conditions affect cognitive function.     

How much did China's WTO accession increase economic growth in resource-rich countries?

We provide an estimate of China's impact on the growth rate of resource-rich countries after its WTO accession on 11 December 2001. Our empirical approach follows the logic of the differences-in-differences estimator. In addition to temporal variation arising from the WTO accession, which we argue was exogenous to other countries' growth trajectories, we exploit spatial variation arising from differences in natural resource wealth. This allows us to compare changes in economic growth in the post-accession period relative to the pre-accession period between countries that were able to benefit from the surge in demand for industrial commodities brought about by China's WTO accession and countries that were less able to do so. We find that roughly one tenth of average annual post-accession growth in resource-rich countries was due to China's increased appetite for commodities. We use this finding to inform the debate about what will happen to economic growth in resource-rich countries as China rebalances and its demand for commodities weakens.     

What do we need besides trade?

Trade has been shown by many authors to have strong positive impact on productivity. However, we also see some others being more reserved about such an impact. This study intends to investigate whether trade is enough for better economic performance, or rather, whether the impact of trade depends on the quality of local institutions. Using a panel of China's provincial data, empirical estimation results show that the better the quality of local institutions, the stronger the positive impact of trade on total factor productivity. If local institutions did not reach a certain quality level, trade expansion could have a negative marginal effect on total factor productivity.     

Regional wages in industry and labour market integration in Sweden, 1861–1913

Abstract

This study examines the extent to which wages of industrial workers converged during the period of Sweden's industrial breakthrough, thereby relating to the international discussion on market integration. About 350 local wage series for nine regions in Sweden for the period 1861–1913 are used, deflated by regional cost-of-living indices. The main result is that there was a general wage convergence during the period of study. Wage differentials decreased across occupations and regions, but also within occupational groups and regions (sigma-convergence). There was also a general tendency of initially lower wages to grow more quickly than initially higher wages (beta-convergence). The convergence pattern in this respect differed between sub-periods, which may be related to the pattern of industrial and infrastructural development in Sweden. The occurrence of wage convergence may be interpreted as evidence of an integration of the labour market, which corresponds to the integration of product and capital markets presented in other investigations.     

The determinants of increasing equity market comovement: economic or financial integration?

This paper investigates to what extent the substantial increase in exposures of local European equity market returns to global shocks is mainly due to a convergence in cash flows (“economic integration”), to a convergence in discount rates (“financial integration”), or to both. We find that this increased exposure is nearly entirely due to increasing discount-rate betas. This finding is robust to alternative ways of calculating discount-rate and cash-flow shocks.     

Do we really know that trade agreements increase trade?

This study surveys the empirical literature in which the gravity equation has been used to study the effect of economic integration agreements (EIAs) on international trade flows. We show that most studies either focus on improving the methodology to assess regionalism’s overall impact, or on a small set of well-known agreements without necessarily adopting new methodological improvements. We bridge this gap by providing individual estimates for EIAs on world trade, while employing first-differencing techniques to correct for endogeneity bias and account for phase-in effects. Overall, EIAs promote trade by at most 50 %. Surprisingly, more than half of the EIAs investigated have had no discernible impact on trade at all, while only about one quarter of the agreements are trade promoting. Characteristics of these agreements, such as their institutional quality, design, and their members’ involvement in the World Trade Organisation, shed more light on how this variation can be understood.     

What should economists know about the current Chinese hukou system?

This article explains the current hukou system in China and provides the most recent evidence on the impact of the hukou system on the Chinese labor market and economy. By a comprehensive literature survey, this paper shows that the hukou system plays in two major roles in current China. First, workers with different hukou face different costs of living in cities and have different access to government-provided public services and welfare programs in the urban areas. Migrants with rural and non-local hukou working in the Chinese big cities have no or little access to welfare programs provided by local city governments. Second, there exists labor market discrimination against rural hukou holders in cities, especially in the urban high-wage sector such as state-owned enterprises. The current hukou system has a negative impact on rural-to-urban migration in China as well as on economic efficiency and equality by reducing the expected benefits associated with migration.     

How responsive is Chinese export supply to market signals?

This paper studies the behavior of Chinese exporters from the mid-1980s through 2001. Extensive quarterly data on values and quantities of major export products have been taken from Chinese customs statistics to form a panel data set and aggregate export unit price and volume indices. The data are used to estimate export supply price elasticities, including by industry groups. The overall results indicate an increase in the responsiveness of export supply to market price signals in more recent periods following reforms.     

How do consumers determine the safety of milk in Beijing,China?

In asymmetric information markets, consumers often rely on certain extrinsic indictors to assess the safety of food products. This study analyzes how consumers in Beijing determined milk safety when they purchased liquid milk using survey data conducted just before the melamine-contaminated infant formula event was disclosed. The key finding indicates that milk brand and purchase venue, on average, were ranked as the first two important safety indicators in fluid milk purchases, suggesting that China's milk safety regulators should put more monitoring resources toward supervising the safety of milk produced from branded firms and milk sold in ostensibly trustable stores and not allow exemptions to inspections. Meanwhile, the findings of this study indicate that the existing milk safety certification system in China might be significantly inefficient, suggesting potential waste of regulatory resources.     

What do markets do?: Efficiency tests of the 18th-century London stock market

The implementation of a test of the efficiency of market operation in a historical context raises a number of issues, ranging from the broadly philosophical to the narrowly technical. Here attention is centered on the 18th-century London market for joint stock shares, which possesses a number of attributes advantageous for a discussion of the present value theory of asset prices and variance bound tests of Shiller, LeRoy, and Porter. Empirical results reveal that the market did not behave in a manner suggested by neoclassical theory. A historical explanation of this result (i.e., one which allows for the existence of hysteresis) is contrasted with the neoclassical search for atemporal natural laws.     

How much informal credit lending responded to monetary policy in China? The case of Wenzhou

This study investigates empirically what the major factors are which have driven Wenzhou's informal credit market and how much that market is responsive to monetary policies and the formal banking conditions nationwide. A number of relatively stable factors have been identified from this volatile market through a careful exploration of a monthly survey data set for the period of 2003–2011. The main findings are: (i) Wenzhou's informal credit lending rates are highly receptive to monetary policies; (ii) Wenzhou's market is dominantly demand driven; (iii) Wenzhou's informal lending is substitutive to bank savings in the short run but complementary to banking lending in the long run; and (iv) Wenzhou's market is complementary to excessive investments in the local real estate market.     

How do Chinese industries benefit from FDI spillovers?

Recently, Foreign Invested Enterprises (FIEs) in China have increased their investment in not only production activity but also R&D activity. This paper examines the impact of spillovers from such activities by FIEs on two types of innovations by Chinese domestic firms: Total Factor Productivity (TFP) and invention patent application, using comprehensive industry and province-level data. We evaluate such spillovers according to FIEs' ownership structure, the origin of foreign funds and whether they are from the same industry or from other industries. We find an interesting asymmetry between spillovers to TFP and invention patent applications; while we do not find significant intra-industry spillovers from FIEs but find robust inter-industries spillover related to TFP, we find substantial intra-industry spillovers promoting invention patent applications but no evidence of inter-industries spillovers. Furthermore, whereas spillovers from FIEs to Chinese firms' TFP stem from their production activities, the source of spillovers related to invention patent applications is mostly through their R&D activity. Our findings indicate a need for multidimensional evaluation of the role of FDI in developing countries.     

How much slack was there in the Chinese economy prior to its economic reform of 1978?

The existence of economic slack or inefficiency is a common phenomenon of economies that operate under mandatory central planning. It implies that the economy operates in the interior of its set of production possibilities and not on its frontier. It also implies that output can be increased without any increase in the inputs if the constraints which prevent the economy from operating on the frontier in the first place are removed. Thus, there is “surplus potential output” that is not directly observable and cannot be identified by conventional analysis of the relationship between inputs and output alone. The objective of this study is to attempt to identify and estimate the surplus potential output in the Chinese economy prior to its economic reform in 1978. This will help answer the question of how much of the Chinese economic growth since 1978 can be attributed to the reduction and elimination of the pre-existing economic slack. This question is important because the increase in output due to the reduction or elimination of the economic slack can only take effect once and cannot be continuing. It will also affect the attribution of the sources of Chinese economic growth. Our investigation suggests that a reasonable estimate of the magnitude of the surplus potential output of the Chinese economy on the eve of its reform is approximately 50% of the actual realized output in 1978.     

How does trade affect the labor market? Evidence from Japanese manufacturing

This paper investigates how increased trade has affected labor demand at different levels of skills in Japanese manufacturing since the 1980s. First, the estimated loss of employment in aggregate manufacturing attributable to increased imports between 1980 and 1990 is 4.7 percent of the 1980 level of employment. Second, the rate of change in the relative wage of non-production to production workers attributable to the change in trade between 1980 and 1990 is 2.4 percent or less. These findings suggest that the effect of increased trade on the Japanese manufacturing labor market in the 1980s is not yet very large.     

How should we write the history of twentieth-century economics?

The modern economist looks at a textbook history of nineteenth-centuryeconomics and wonders what, for the twentieth century, willcorrespond to the chapter titles of 'Malthus', 'Ricardo', 'TheMills', 'Marx', and 'The Rise of Marginalism'. Will monetarismsurvive editing? Will game theory rate its own section? WillKeynes be a hero or a goat? Economists look to the historianand wonders how the historian decides what is important, andhow we go about deciding what will go into a future historybook. Eschewing narratives of progress, this paper surveys alternativehistoriographies for constructing a history of twentieth-centuryeconomics, and suggests that the new discipline of science andtechnology studies provides a number of useful frameworks fortelling the story.