The impacts of China’s exchange rate regime reform in 2005: A counterfactual analysis

This paper empirically evaluates the impacts of China’s exchange rate regime reform in 2005 on its macroeconomy. We propose to use a new counterfactual policy evaluation method that is robust to the choice of control group. Using the new method, we find that China’s exchange rate regime reform in 2005 mildly reduces the Consumer Price Index, has a substantial damping effect on export, significantly increases employment, and has negligible impact on industrial production.     

Macroeconomic determinants of remittances: evidence from Romania

Given the globalization of the labour market and the promotion of free movement for work, young people are looking for employment opportunities from at least two perspectives – professional careers and socio-economic benefits from employment. In developing countries, such as Romania, the labour market is less attractive, which has led to profound, numerical and structural imbalances, due to external mobility for work. Both new generations of graduates and young people aged up to 40 years, decide to work abroad as a more beneficial individual solution, i.e. remittances. The purpose of this paper is to examine the macroeconomic determinants of remittances to Romania, in order to substantiate public policies on diaspora, to adjust employment policy on the national labour market by promoting incentives to create decent, youth-friendly jobs. Using panel data model we selected several variables with potential influence on remittances level. The results demonstrate that traditional influence’s factors as distance, migration routes diaspora concentration or unemployment rate are, at present, less important than wage gap or tax rate at least for developing origin countries.     

Stability analysis and efficiency determinants: empirical evidence

Efficiency determinants analysis is a main contemporary component in the productive efficiency literature. Two-stage data envelopment analysis (DEA) procedure supposed a turning point in the methodology as the significance of a certain exogenous factor can provide policymakers with accurate information for future strategic decisions, but a deeper scrutiny into the importance of each factor remains unsettled. This article provides a novelty theoretical extension and empirical application for the two-stage DEA bootstrap procedure. We define the stability coefficient (SC) whose magnitude reveals the effect of each exogenous factor in the efficiency estimates. We present empirical evidence to examine the hypothesis that the efficiency of the 17 Spanish tourism regions for the average period data 2005–2013 is determined by a group of contextual variables, illustrating how the SCs strengthen knowledge concerning the significance of each potential attractor. The results help us to classify the significant attractors into strong and weak, accordingly enhancing the public or private decision process, and henceforth avoiding the wastefulness of decision-making units spending.     

Non-core liabilities and interest rate pass-through: bank-level evidence from Indonesia

The policy importance of non-core liabilities (bank liabilities other than equity and retail deposits) has risen to prominence in recent years with a number of studies highlighting it as a useful indicator of financial procyclicality and vulnerability. In this paper, we look at non-core liabilities in relation to its role in the transmission of monetary policy, particularly by examining how the interest rate channel of monetary policy is affected by non-deposit liabilities. We analyse this issue in the context of an emerging economy experience of Indonesia, which in recent years, has seen an increased reliance of its banking sector on non-core funding. Our investigation employs available bank-level data on non-core liabilities and lending rates in Indonesia over the period October 2011 to July 2016. We find that including non-core liabilities in the estimation has an effect, relative to the baseline, of stronger overall and immediate pass-through, albeit with a more sluggish adjustment towards the correction of disequilibrium in the next period. The overall effect is that non-core liabilities make the duration longer for the monetary policy rate to transmit to bank lending rates in Indonesia.     

Mean reverting financial leverage: theory and evidence from Pakistan

Grounding concepts of the two competing theories of capital structure (trade-off theory, pecking order theory) are quite opposite to each other. Trade-off theory claims that there is an optimal (target) capital structure and firms try to achieve that optimal (target) point. Whereas pecking order theory argues that there is no optimal (target) capital structure but the firms follow a specific pattern of financing. Using the two competing theoretic frameworks, this study applies Fisher-type panel unit root test to an unbalanced panel data of 13 115 firm-year observations of nonfinancial firms listed on Karachi Stock Exchange Pakistan spread over 38 years (1973–2010). Overall panel test results, for short-term, long-term, as well as total leverage support trade-off financing behaviour while individual firm results do not. Individual firm results show that only 16% of the firms have short-term target, 25% of the firms have long-term target and 12% of the firms have total target leverage ratio. Further, industry results explain that most of the industries do have target leverage ratios and classification of data into profitable and lossmaking firm-year observations explains that profitable firms clearly follow trade-off financing behaviour while the results for lossmaking firms do not support trade-off financing behaviour. Our study indicates that it is important for the government to ensure policies to develop well-balanced financial markets and to improve accountability systems.     

The interaction between capital controls and exchange rate regimes: evidence from developing countries

Abstract

This paper provides an empirical analysis of the interaction between capital controls and exchange rate policies in developing countries in the 1980s and 1990s. We estimate a simultaneous-equations panel mixed logit model for the joint determination of two decisions. We find strong influences from de jure exchange rate regimes on capital account policies but somewhat weaker feedback impacts. With de facto exchange rate regimes the influences in both directions are similar to each other.     

Looking at the determinants of efficiency in banking: evidence from Italian mutual-cooperatives

Italy has experienced a restructuring and consolidation process in the banking industry since the 1990s that is expected to foster efficiency and competition. Despite the reforms, a peculiarity of the industry is the persistence of small mutual-cooperative banks (Banche di Credito Cooperativo, BCCs) active in narrow markets. The scope of this paper is to analyze the determinants of BCCs’ efficiency in the 2006–2011 period. In the first step of the study, a stochastic cost frontier is used to yield bank efficiency. Then the cost efficiency becomes the dependent variable of fixed and random effect models. The reference market of BCCs is the province (NUTS3). We find that BCC cost efficiency is positively affected by market concentration and demand density and inversely related to branching. Importantly, these results are robust to any sample restriction anchored to the distribution of efficiency. While the evidence regarding the credit quality is inconclusive for all BCCs, the sensitivity analysis shows that the risk in local markets is a source of BCC cost inefficiency.     

The hot hand fallacy re-examined: new evidence from the English Premier League

Previous studies have illustrated human misperceptions of randomness and resultant suboptimal decision-making with reference to the ‘hot hand’ or momentum effect in sport, the notion of serial dependency between outcomes. However, issues of omitted variables bias have plagued many due to a reliance on nonparametric techniques or basic regression models. This article examines across-game and within-game momentum in the English Premier League (EPL) football competition using fixed effects regressions to control for time-invariant heterogeneity in conjunction with traditional nonparametric techniques. Although the results show evidence of performance reversal following winning streaks, no such evidence is found for streaks of draws or losses or in goal-scoring performance within games. This suggests that momentum is better suited as a post hoc label of performance than a robust causal phenomenon.     

Exports,productivity and innovation: new firm level empirical evidence

This article examines the determinants of Portuguese exports, applying data from 277 manufacturing firms for the period 2006–2010. In 2010, these firms accounted for about 47% of total Portugal’s exports. Both the static and dynamic results of the estimated models confirm the positive influence of productivity on variations in exports. The dynamic estimations also suggest that exports in the previous period hold a positive effect on contemporaneous exports, confirming the Roberts and Tybout (1997) sunk cost hypothesis for exports. In the dynamic analysis, the labour costs and the size of the firm do not have a statistically significant effect on Portuguese exports with the findings also pointing to increased expenditure on research and development (R&D) generating no statistically significant effect on exports. The lagged R&D expenditure was also insignificant in explaining the change of Portuguese exports. Thus, these results suggest that applying a product or process innovation measure returns better results than indirect measures such as R&D expenditure.     

Firm size and debt maturity as indirect determinants of capital structure: evidence form European panel data

The study aims at verifying whether the firm size and debt maturity affect the relationship between capital structure and its main determinants. Using panel data models, the impact of the primary factors on leverage is compared across three size groups of firms and for different measures of debt in order to identify the size effect and the debt maturity effect in these relationships. The study covers 11 EU countries during the period 2000–2013. Findings provide evidence that financing choices of small firms provide more support for the pecking-order theory, whereas medium and large-sized firms tend to follow the trade-off predictions on leverage. It also appears that the trade-off theory is more applicable for short-term debt, while pecking order – for long-term debt.     

Capital-enhanced equilibrium exchange rate: evidence from India

This article examines the validity of the capital-enhanced equilibrium exchange rate (CHEER) approach using quarterly data ranging from 1993Q1 to 2016Q2. Using unit root break test and structural break cointegration technique, our overall results indicated that the CHEER is invalidated once a structural break is accounted for in the cointegration relationship. The rejection of the validity could be attributed to the asymmetry in the capital flows and exchange rates being not fully flexible.     

Public expenditures and the unemployment rate in the American states: panel evidence

We reexamine the Unemployment Rate (UR) – government expenditure nexus in a panel of 50 State and Local Governments (SLGs) over the period 1977–2006 to provide new pre-recession empirical evidence that helps put the expectations on the effects of the federal relief to SLGs in a broader context. We found that: (1) per capita real public spending (total and capital, assistance and subsidies, wages and salaries, and social insurance categories) was part of a cointegrating relationship with UR and real per capita state personal income. (2) With the exception of social insurance, other spending variables, when statistically significant, actually had a depressing effect on UR. The magnitude of this effect, however, was generally small. UR was most sensitive to increases in wages and salaries. (3) Long-term causality analysis based on panel error-correction coefficients provided consistent evidence of a causal effect from spending to UR, but less consistent evidence of such effect in the opposite direction. Social insurance, however, drove UR. (4) The size of the error-correction coefficients suggested a slow response of UR to deviations from the cointegrating relationship. (5) The marginal effect of spending on UR increased with the amount of the federal grants received. Our results suggest that public spending may not serve as a quick fix in relation to UR. They also seem to favour allocation of the federal funds to wage and salaries and assistance and subsidies, but not to capital and social insurance expenditures to lower UR.     

The effects of exchange rate volatility on exports: evidence from Armenia

The article examines how the volatility of exchange rate affected Armenia’s export to its main trading partner, Russia, in the period from January 2007 to February 2016. Along with real foreign income and competitiveness, the exchange rate volatility is considered as a determinant of real export. The estimation results indicate that the exchange rate volatility has negative significant effects on real export both in the long run and in the short run.     

Monetary policy surprises and firm-level stock return predictability: evidence from a new panel-based approach

We employ a new panel-based testing procedure that is robust to the uncertain persistence of regressors, time-varying volatility and cross-sectional error dependence in studying the predictive dynamics between conventional US monetary policy surprises and firm-level stock returns. We find that accounting for cross-sectional dependence by means of (estimated) factors considerably alters the predictive significance of monetary policy surprises depending on the sample period being studied. Concretely, during the period 1990–2000, monetary policy has no influence on future stock returns when cross-sectional dependence is accounted for by means of common factor augmentation. By contrast, the predictive power of monetary policy is even boosted when introducing common factors into the model when the period of analysis covers 2002–2007.     

Environmental performance,corruption and economic growth: global evidence using a new data set

This study investigates the relationship between environmental performance, corruption and economic growth using panel data of 87 countries covering the period from 2002 to 2012. The Environmental Performance Index is used for the first time to evaluate the environmental quality on economic growth. By employing both ‘static’ and ‘dynamic’ panel models, we find that environmental performance is positively related to economic growth and is more significant in non-Organization for Economic Cooperation Development (OECD) countries. Moreover, when corruption is incorporated, the empirical estimation results indicate that although lower corruption helps economic growth in non-OECD countries, the negative coefficients of the three interactive terms show that the positive effect of environment performance on economic growth will drop, while greater environmental performance combined with natural resource abundance inevitably leads to inefficient bureaucracies and hence disadvantageous economic growth. As a result, policymakers in non-OECD countries should carefully ensure better government quality when they exhibit strong environmental performance so as to avoid any disadvantageous impact upon economic growth.     

SME credit constraints in Asia’s rising economic star: fresh empirical evidence from Vietnam

This study provides a fresh look at the SME sector’s economic backbone vis-à-vis credit constraint dichotomy in Vietnam—Asia’s rising economic star. The study uses data from the Survey of Manufacturing SMEs in Vietnam from 2005 to 2013 and adopts a two-step Heckman modelling strategy to single out firms with formal financing needs that are credit constrained. Results show that several characteristics—including firm size, investment, financial assets, leverage, equity, registration, gender of owner, age, and education—significantly affect the likelihood of either credit constraints or demand. The main results do not change even when the issue of endogeneity is dealt with. Particularly, we provide evidence that unobserved factors that increase the probability of debt demand also increase the probability of being constrained. Policy implications are discussed.     

Renewable energy consumption and unemployment: evidence from a sample of 80 countries and nonlinear estimates

This article contributes to the discussion on the dynamic nexus of renewable energy consumption and unemployment by incorporating nonlinear cointegration and causality analysis. Using a sample of 80 countries spanning the period 1990–2013 and the advanced generation of unit root, cointegration and nonlinear Granger causality methodological approaches in panel data, we obtain mixed results about the impact of renewable energy consumption on unemployment. Although the total findings document a positive impact of renewable energy consumption on unemployment, disaggregated data across specific regions, such as Asia and Latin America, highlight the favourable effect on unemployment, implying that the effect of renewable energy consumption on jobs creation depends on the cost of adopting renewable energy technologies and energy efficiencies that seem to vary across the regions under investigation.     

Manufacturing FDI and economic growth: evidence from Asian economies

Previous empirical studies on inward foreign direct investment (FDI) and economic growth generate mixed results. This article suggests that the ambiguous results might be caused by the use of total FDI. We study the heterogeneous effects of different sector-level FDI inflows on host country's economic growth. Data from 12 Asian economies over the period of 1987 to 1997 are employed. Strong evidence shows that FDI in manufacturing sector has a significant and positive effect on economic growth in the host economies. FDI inflows in nonmanufacturing sectors do not play a significant role in enhancing economic growth. Furthermore, without the decomposition of total FDI inflows, the effect of manufacturing FDI on host country's economic growth is understated by at least 48%.