Knowledge of African countries: production and value of doctoral dissertations

The notion that lack of knowledge undermines the economic performance of African countries is deeply and widely held to be true. Yet quantitative evidence for the basis of that truth is few and far in-between. This article first describes a conventional production function approach to the creation of knowledge of African countries in terms of a relative and indirect measure of the quantity of dissertations (D). Second, it assesses the imputed values of knowledge. In the first instance it finds that relative income (Y), population (N), openness (Z), and technical factors (A) are central to the production of knowledge of African countries. In the second instance, the imputed values of knowledge are positive, but of modest magnitude. The results recommend more investment in the production of knowledge of African countries, improved openness, and especially reduced opportunity cost of knowledge creation which now differs widely across countries, and averages 10.7%. For further research the results suggest that dissertations may be useful proxies for human capital in economic growth regressions.     

NEW INSIGHTS INTO THE STRUCTURE OF THE WORLD ECONOMY*

The United Nations' newly completed study of purchasing power parities covering 34 countries varied in region, income level, and form of economic organization shows the systematic differences between the usual view of the structure of the world economy arising out of international comparisons based upon foreign exchange rate conversions and the structure one sees when actual prices are available. The real per capita GDP of developing countries is understated relative to developed countries when exchange rates are used in converting countries' national income accounts to a common currency, with the degree of understatement for any two countries being inversely related to the per capita income difference between them. The reason for this is that relative prices in the non-traded goods sector are lower relative to traded goods prices in low income countries. The systematic pattern observed in the 1975 data of the 34 countries has been extrapolated over time and space to get estimates of GDP for other years and countries. In the absence of detailed price data, the real shares of final expenditures devoted to particular components of the total can only be estimated as the proportion of own currency total expenditure devoted to the components. The observed differences in the pattern of prices of poor countries relative to rich for different components makes this clearly wrong for international comparisons, and in systematic ways. For example, (i) the relative price of services compared with commodities in poor countries is lower than in rich; so the apparent tendency of the share of services to rise as a country's income rises disappears when real quantities are considered; similarly, (ii) the relative price of capital goods is greater in poor countries compared with rich ones, so the difference in investment ratios out of GDP between rich and poor countries is understated.     

Barriers to Global Free Trade through Bilateral Agreements

This paper examines the formation of bilateral free trade agreements (FTAs) in the context of a dynamic noncooperative bargaining game with a random proposer. We show that global free trade (a grand coalition) does not necessarily occur unless transfer payments among countries are allowed. When transfer payments are possible, bilateral FTAs always achieve global free trade, but the ex‐ante and ex‐post inequalities of social welfare among countries are larger than those when all countries are independent because of the strategic bargaining behavior.     

A contribution to the empirics of convergence in real GDP growth: the role of financial crises and exchange-rate regimes

This paper investigates the convergence in real gross domestic product growth focusing on the impact of financial crises (i.e. banking crises, currency crises and debt crises) and nominal exchange-rate regimes (i.e. fixed, intermediate and flexible) on convergence. To that end, we compute four convergence indicators (σ-convergence, γ-convergence, absolute β-convergence and conditional β-convergence) for 163 countries classified into four income groups during the period 1970–2011. The results suggest that (i) there is evidence in favour of σ-convergence and γ-convergence only for high-income countries; (ii) absolute and conditional β-convergence are present in each of the four income groups of the countries under study; (iii) exchange-rate regimes seem to play some role in upper-middle and lower-middle-income countries; and (iv) financial crises have a negative and significant impact on GDP growth independently of the income level of the countries.     

Power Politics and International Labor Standards

This paper analyzes how a country's commitment to labor standards is affected by the international political power they possess. Powerful countries may be less committed to actual enforcement of certain labor standards since they are unlikely to face significant threats of international sanctions regardless of their actions. The paper introduces an index of international power for 116 countries that is used to examine how power affects the extent to which countries enforce standards relating to freedom of association and collective bargaining. The evidence suggests that, even after controlling for differences in wealth, productivity, and market freedom, powerful countries are significantly less committed to the protection of labor standards than less powerful countries. We wish to thank participants at the International Atlantic Economic conference in Washington, D.C., October 10–13, 2002, the Western Economics Association International conference in Denver, 2003, as well as the numerous suggestions of anonymous referees. Special thanks to David Kucera for supplying us with his dataset.     

PREFERENTIAL TRADE AGREEMENTS AND MULTILATERAL TARIFF COOPERATION*

Are preferential trade agreements (PTAs) building or stumbling blocks for multilateral trade liberalization? I address this question in an infinitely repeated tariff game between three countries engaged in intraindustry trade under oligopoly. The central result is that when countries are symmetric, a free trade agreement (FTA) undermines multilateral tariff cooperation by adversely affecting the cooperation incentive of the nonmember whereas a customs union (CU) does so via its effect on the cooperation incentives of members. However, when countries are asymmetric with respect to either market size or cost, there exist circumstances where PTAs facilitate multilateral tariff cooperation.     

Uncertainty,Learning and Heterogeneity in International Environmental Agreements

This paper concerns the formation of International Environmental Agreements under uncertainty about environmental damage with different models of learning (complete learning, partial learning or no learning). The results of the existing literature are generally pessimistic: the possibility of either complete or partial learning generally reduces the level of global welfare that can be achieved from forming an IEA relative to no learning. That literature regards uncertainty as a parameter common to all countries, so that countries are identical ex ante as well as ex post. In this paper we extend the literature to the case where there is no correlation between damage costs across countries; each country is uncertain about a particular parameter (in our case the benefit-cost ratio) drawn from a common distribution but, ex post, each country’s realized parameter value is independently drawn. Consequently, while countries remain identical ex ante, they may be heterogeneous ex post. We show that this change reinforces the negative conclusions about the effects of partial learning on international environmental agreements, but, under certain conditions, moderates the negative conclusions about the effects of complete learning.     

Is the environmental performance of industrialized countries converging? A ‘SURE’ approach to testing for convergence

In this paper, we test for convergence in the environmental performance of a sample of OECD countries, with data ranging from 1971 to 2002. First, we use Data Envelopment Analysis (DEA) to compute two environmental performance indicators (EPIs) in the production theory framework. Second, we propose the use of a sequential multivariate approach to test for convergence in environmental performance. These tests allow us to reconcile the time series literature with the cross-sectional dimension, which is basic when testing for convergence in regional blocs. The SURE technique is used, which allows for the existence of correlations across the series without imposing a common speed of mean reversion. The empirical results show that the group of countries as a whole, as well as the majority of countries considered on an individual basis (results for some countries vary between EPIs), are catching-up with Switzerland (the benchmark country).     

DEMOCRATIC AID AND THE DEMOCRATIZATION OF RECIPIENTS

We investigate whether democratic aid flows, which are directed toward the democratization of recipients by covering democracy‐related programs and government and civil society activities, affect the future political regime of recipient countries. We introduce a multinomial multivariate logit model and we use 5‐yr averaged data covering the period 1972–2004 for 59 democracy aid‐recipient countries categorized into three broad classes according to the prevalent political regime. We find strong evidence that democratic aid flows are positively associated with the likelihood of observing a partly democratic or a fully democratic political regime in democratic aid‐recipient countries and that this result is robust to the potential endogeneity of democratic assistance.(JEL D70, F35, C25)     

Some empirics of the bivariate relationship between average subjective well-being and the sustainable wealth of nations

The World Bank's Millennium Capital Assessment (MCA) has provided per capita estimates of total wealth and its major subcategories for a large number of countries. In this article, these macro-level estimates are used to explore bivariate cross-country ‘wealth–happiness’ relationships, focussing on issues of appropriate functional form, parameter stability and outliers. For comparative purposes, ‘income–happiness’ relationships are also explored. Total wealth turns out to be strongly related to Gross National Income (GNI) per capita, due to the importance of produced and intangible capital, but not to natural capital. In contrast, when the most natural capital intensive countries are excluded as outliers, a strong relationship emerges between Subjective Well-Being (SWB) and natural capital, especially amongst high income countries. In these countries, natural capital seems to be an important wealth correlate of SWB, despite accounting for only a very small proportion of total wealth.     

Empirical Regularities in Cross-Country Alcohol Consumption*

This paper analyses the demand for the three beverages: beer, wine and spirits, within alcohol, at a cross-country level for 10 countries: Australia, Canada, Finland, France, Japan, New Zealand, Norway, Sweden, the UK and the US. A number of empirical regularities were found at the cross-country level. This includes: (i) the demand theory hypotheses, homogeneity and symmetry are generally acceptable; (ii) the additive utility hypothesis is also acceptable even for such narrowly defined commodities; (iii) in nine out of the 10 countries, beer is considered as a necessity, in half of the countries wine is a necessity and in all the countries spirits are a luxury; and (iv)in all the countries, the demand for beer, wine and spirits are price inelastic.     

BANKING SYSTEM CONCENTRATION AND LABOR MARKET PERFORMANCE IN INDUSTRIAL COUNTRIES

Using data on 21 industrial countries from the period 1987 to 2009 and a large number of controls, this paper finds that a more concentrated banking sector is likely to raise the unemployment rate and reduce the employment rate. The magnitude of these effects appears to be moderate. The results are robust to potential endogeneity of the bank concentration variable as well as to numerous variations in specification. They are important because, as a consequence of the recent global financial crisis, many industrial countries have experienced both an increase in banking system concentration and a deterioration in labor market performance. (JEL E24, G21, J64, L16)     

How elastic are national corporate income tax bases in OECD countries? The role of domestic and foreign tax rates

Abstract To what extent do reductions in corporate income tax (CIT) rates attract foreign tax bases? What are the revenue implications of a unilateral tax reduction when tax bases are internationally mobile? These questions are explored using annual data from 17 OECD countries spanning the period 1982 to 2005. Controlling for fixed country effects, year effects, and country time trends, and subjecting our results to an extensive robustness analysis, we find (i) a country’s aggregate reported corporate profits are negatively and significantly affected by CIT rate reductions in neighbouring countries; (ii) a unilateral reduction in the domestic CIT rate results in lower domestic CIT revenues.     

European Monetary Integration and Aggregate Relative Deprivation: The Dull Side of the Shiny Euro

Drawing on the premise that the integration of economies revises people's social space and their comparators, we quantify social stress by aggregate relative deprivation, ARD; we calculate the effect of monetary mergers on ARD; and we document the validity of the superadditivity property of ARD for successive adoptions of a common currency by European countries. One feature of monetary unification, which replaces diverse currencies with a common currency, is that it brings about a change in the comparison environment, expanding the reference space of individuals in a given country to encompass individuals from the joining countries. Overall, calculations regarding six enlargements of the Economic and Monetary Union between 1999 and 2011 reveal an increase of ARD on six occasions when we hold incomes constant, and on five when we take into consideration changes in incomes. In addition, we observe an uneven distribution of the costs and benefits from monetary integration among the participating countries when these costs and benefits are measured in terms of ARD.     

Inflation Volatility and Forecast Accuracy

We examine the statistical properties of inflation in a sample of inflation‐targeting (IT) and non‐IT countries. It is hard to distinguish in which monetary regime inflation is less volatile. Inflation became easier to forecast in both groups of countries after the introduction of IT. The improvement was greater for IT countries, but forecast errors remain smaller for non‐IT countries. Our analysis is based on a stochastic volatility model proposed by Stock and Watson and its novel modification. Forecasts from the modified model are generally superior to both simple benchmarks and the original Stock and Watson model.     

The Solow growth model: vector autoregression (VAR) and cross-section time-series analysis

The paper examines whether the Mankiw et al. results regarding the Solow model are specific tothe statistical methodology used. Therefore, instead of using cross-section data, annual data were used and the Solow model was investigated using a Vector AutoRegression (VAR) analysis for the G7 countries, and cross-section time-series data for the G3 countries. Analysis shows that, in both cases, the Mankiw et al. results generally hold. It also shows that the use of annual data can play an important and complementary role in revealing the differences in the growth process between individual countries.     

TRADE,STRUCTURAL REFORM,AND INSTITUTIONS IN SUB‐SAHARAN AFRICA

Sub‐Saharan African countries have traditionally lagged the rest of the developing world in terms of overall trade relative to gross domestic product. But, there is growing interest among these countries to initiate trade policies and improve quality of institutions as a way to promote trade and boost foreign direct investment. This article extends the gravity model of trade to include proxies for trade reform policy and institutional quality among the 15 countries of the Economic Community of West African States (ECOWAS) for data spanning 1984–2006. Alternative methods of estimation based on ordinary least squares, Heckman two‐step procedure, and Poisson pseudo‐maximum likelihood produce predictions that are consistent with the standard gravity model. They further highlight the evidence of restrictive trade policies and weak institutions that contribute to the failure of ECOWAS countries to boost bilateral trade. (JEL F13, F15, O19, O55)     

Does transition make you happy?1

This paper analyses life satisfaction in transition countries using evidence from the World Values Survey. The paper demonstrates that individuals in transition economies on average record lower values of self‐reported satisfaction with life compared with those in non‐transition countries. A comparison across time for a smaller sample of countries shows that life satisfaction levels have returned close to pre‐transition levels in most cases, after a dip in the mid‐1990s. The socio‐economic groups that exhibit relatively higher levels of happiness include students, people with higher levels of education and those on higher incomes. Happiness declines with age until the early‐50s and is slow to recover afterwards. Self‐employed people in transition countries show a level of satisfaction as high as, or higher than, full‐time employees, in contrast to evidence from non‐transition countries. In addition, satisfaction levels are highest in those countries where standards of economic governance are most advanced and where inequality is lower.     

Factor Price Equalization in a World of Many Trading Countries

Conditions sufficient for factor price equalization within any non‐trivial subset of trading countries are provided. The conditions are that (a) the factor endowment ratios of countries in the subset are all bounded by the factors‐in‐use ratios in an equilibrium of the hypothetical world economy in which factors are perfectly mobile within the subset, and that (b) in dimensions higher than two, either the rank of the factors‐in‐use matrix is 2 or products do not outnumber factors and the factors‐in‐use matrix is of full rank.     

DOES BIG GOVERNMENT HURT GROWTH LESS IN HIGH‐TRUST COUNTRIES?

Social trust is linked to both public sector size and to economic growth, thereby helping to explain how some countries combine high taxes with high levels of economic growth. This paper examines if social trust insulates countries against the negative effects of public sector size on growth, documented in several studies. We note that the effect is theoretically ambiguous. In panel data from 66 countries across 40 years, we find no robust evidence of insulation effects: when excluding countries with uncertain trust scores, our results suggest that big government hurts growth also in high‐trust countries, and that the mechanism is by lowering private investments. (JEL H10, O11, P16, Z10)