Estimation of nonparametric inefficiency effects stochastic frontier models with an application to British manufacturing

The purpose of this paper is to propose a simple stochastic frontier model with a non-parametric specification for covariates affecting the mean of technical inefficiency. We derive a simple two-step semiparametric estimation procedure to estimate the frontier parameters as well as the mean of the technical inefficiency. The consistency of the estimator and its asymptotic normality are shown. The proposed method is illustrated using a large panel data set of British manufacturing firms.     

The nonlinear dynamic relationship of exchange rates: Parametric and nonparametric causality testing

The present study investigates the linear and nonlinear causal linkages among six currencies denoted relative to United States dollar (USD), namely Euro (EUR), Great Britain Pound (GBP), Japanese Yen (JPY), Swiss Frank (CHF), Australian Dollar (AUD) and Canadian Dollar (CAD). The data spans two periods between 3/20/1991 and 3/20/2007. We apply a new nonparametric test for Granger non-causality by Diks and Panchenko [Diks, C., Panchenko, V., 2005. A note on the Hiemstra–Jones test for Granger noncausality. Studies in Nonlinear Dynamics and Econometrics 9 (art. 4); Diks, C., Panchenko, V., 2006. A new statistic and practical guidelines for nonparametric Granger causality testing. Journal of Economic Dynamics & Control 30, 1647–1669] and the linear Granger test on the return time series. To detect strictly nonlinear causality, we examine the pairwise VAR-filtered residuals as well as in a six-variate formulation. We find remaining significant bi- and uni-directional causal nonlinear relationships in the series. Finally, we investigate causality after controlling for conditional heteroskedasticity using a GARCH–BEKK model. Whilst the nonparametric test statistics are smaller in some cases, significant nonlinear causal linkages persisted even after GARCH filtering during both periods. This indicates that currency returns may exhibit asymmetries and statistically significant higher-order moments.     

Spatial shift-share analysis versus spatial filtering: an application to Spanish employment data

The aim of this work is to analyse the influence of spatial effects in the evolution of regional employment, thus improving the explanation of the existing differences. With this aim, two non-parametric techniques are proposed: spatial shift-share analysis and spatial filtering. Spatial shift-share models based on previously defined spatial weights matrix allow the identification and estimation of the spatial effects. Furthermore, spatial filtering techniques can be used in order to remove the effects of spatial correlation, thus allowing the decomposition of the employment variation into two components, respectively related to the spatial and structural effects. The application of both techniques to the spatial analysis of regional employment in Spain leads to some interesting findings and shows the main advantages and limitations of each of the considered procedures, together with the quantification of their sensitivity with regard to the considered weights matrix.     

South Africa's post-apartheid microcredit experiment: moving from state-enforced to market-enforced exploitation

The international donor community arrived in post-apartheid South Africa in the early 1990s to restructure the economy along neoliberal lines. One of the most important of the interventions it promoted was microcredit, which was widely seen as one of the principal self-help solutions to the exceptionally high levels of unemployment and poverty that prevailed in the Black South African community. In spite of an early ‘boom-to-bust’ episode in the early 2000s and worrying evidence it was actually further impoverishing far more Black South African's than it was actually helping escape from poverty and unemployment, the microcredit model did not lose its international support: if anything, this support was expanded as the international development community desperately sought to ensure the survival of the microcredit model and therefore also the centrality of self-help and individual entrepreneurship as the only way out of poverty for the poor. This article shows how and why the microcredit model was supported so strongly by the international development community and South African financial community in spite of its manifestly calamitous impact on Black South African community. Overall, I conclude, microcredit can be viewed as South Africa's own sub-prime-style disaster which, like the original US version, has mainly served to benefit a tiny financial elite working within and around the microcredit sector, whilst simultaneously destroying many of the most important pillars of the economy and society.     

Measuring input substitution and output expansion effects: A nonparametric approach with application

A simple framework is developed for measuring input substitution and output expansion effects. These measures are nonparametric in the sense that specification and/or estimation of any parametric functions are not resquired. Monte Carlo experiments performed in the paper demonstrate the superiority of the proposed approach. An empirical application to Japanese manufacturing data yields results which satisfy a priori expectations.     

Interpreting budget deficits in Latin America: the methods with application to Argentina

Fiscal policy in Latin American countries is too often evaluatedon the basis of raw deficit figures. This study demonstrateshow the effects of inflation on the deficit must be removedin order to derive the discretionary component of fiscal policy.Once this correction is made, fiscal policy can be evaluatedby testing the movement of the deficit with respect to alternativepolicy targets. As an illustration I employ Argentine data inorder to decompose the deficit and determine the degree to whichit is a reflection of budget endogeneity versus populism/socialconflict.     

How to Turn an Industry Green: Taxes versus Subsidies

Environmental policies frequently target the ratio of dirty to green output within the same industry. To achieve such targets, the green sector may be subsidized or the dirty sector be taxed. We show that in a monopolistic competition setting, the two policy approaches have different welfare effects, depending on the design of the instrument (ad valorem versus unit instrument) and the initial situation (size of the dirty sector). For a strong green policy (a severe reduction of the dirty sector) a tax is the dominant instrument. If initially the dirty sector is important, then for moderate policy targets a subsidy may be the superior tool. These findings have implications for policies such as the Californian Zero Emission Bill.This paper benefited from the comments of Wilhelm Althammer, Michael Kohlhaas, Michael Pflüger, Thomas Ziesemer, participants at the EEA Annual Congress 2003, Stockholm, at the WEAI Annual Conference 2004, Vancouver, and two anonymous referees. The authors are responsible for any remaining errors.     

Taxonomy methods in credit risk evaluation

In their bid for integration with the European Union, the countries of Central and Eastern Europe are faced with the need to introduce numerous significant improvements to their economic systems. A highly important role in this process is to make changes in the existing banking systems. The credit risk evaluation method presented here, using taxonomic measures to plot so-called credit risk maps, may be used to develop sound principles of credit policies. It is a proposition that could solve one of the many problems arising in the course of adaptation of banking systems in Central and Eastern Europe to conditions of market economy.     

Estimating the surplus in the periphery: an application to Turkey

This note discusses how the economic surplus concept can beused to analyse the constraints the world system imposes oneconomic development. An estimation of the surplus for Turkeyfor 1980–96 utilises Köhler's unequal exchange analysisto measure the transfer of surplus abroad and the official minimumwage to calculate essential private consumption. The estimationyields the allocation of the surplus between non-essential consumption,investment and unrequited transfers abroad. The note assessesLippit's argument that the main obstacle to development is themisuse of the surplus in the domestic economy and not transfersabroad.     

Measures of potential output: an application to Israel

This paper reconsiders information in the US T-bill term structure for predicting movements in real monthly industrial production. It is shown that although T-bill spreads contain little or no predictive content, increases in term premia estimated from a GARCH-M model of the term structure do. Since these estimated premia are linear functions of the conditional variance of excess returns, the implication is that increases in interest rate variability are associated with reductions in industrial production. This evidence is robust to the inclusion of the spread between the 10-year Tbond yield and one-month-T-bill yields. The T-bill term structure therefore contains information which is independent of the long-end of the term structure.     

A comparison of two methods for estimating income uncertainty with an application to aggregate consumption behaviour

Econometric theory now provides various techiniques for estimating the variance of a variable for which only a single. Observation is available at each sample point. This paper compares the autoregressive conditional heteroskedastic (ARCH) and linear moment (LM) estimated of the variance of disposable labour income as measures of income uncertainty. Consumer theory postulates a negative relationship between uncertainty about future income and current consumption. Using quarterly post-world war II data with income modelled as a random walk with drift, both ARCH and LM estimates of the variance of income are included in a standard specification of the consumption function. It is found that while noth the ARCH and LM estimates of income uncertainty provide essentially the same predicted reduction in consumption growth as uncertainty increases the LM estimates yield a statistically significant influence on consumption while the ARCH estimated do not. However, both uncertainty measures provide a statistically significant imporvement in the specification of the consumption function relative to estimating the equation in the absence on an uncertainty measure. Thus, recent advances in estimation techniques, for post-world waf II data, show that the uncertainty theorists of over two decades ago were correct, that is estimation of a consumption function in the absence of an uncertainty measure relults in an equation with a biased estimate of the marginal propensity to consume as well as biased estimates of coefficients for all other included variables (see e.g. Leland, 1968, PP. 470-472).     

Determinants of microcredit repayment in Portugal: analysis of borrowers,loans and business projects

Microcredit programs in Portugal represent a unique case for studying the microcredit repayment determinants in a developed country, as it experienced a financial hardship in 2008–2009, with economic and social consequences that led to unemployment crisis. This research examined the determinants of microcredit loan repayment based on a sample of 752 microcredit loans granted in Portugal by the National Association for the Right to Credit, adopting individual lending mechanisms and granting loans through partnerships with several credit institutions. This is the first study to ascertain the influence that a set of factors – grouped into three categories: borrowers’ individual characteristics; loan characteristics; and characteristics of business projects implemented by borrowers – has on the repayment ability of microcredit programs, in a developed country of the Eurozone. Moreover, this is the first study using an ordered logistic regression (OLR) in estimating the determinants of microcredit loan repayment. Similar to previous studies, married borrowers tend to repay loans faster as they tend to be more responsible than single borrowers. Nationality seems to be an issue as foreigners tends to default the repayment loans. Finally, those involved in manufacturing activities perform better than those involved in service activities in repaying their loans. This clearly indicates that in developed countries special attention needs to be provided to minority groups as well as market/supply conditions, which are not normally considered in less favored economic countries.     

The pricing of risk in emerging credit markets: Bonds versus loans

Much of the volatility in emerging markets in the 1990s stems from the fact that the major form of foreign investment is the bond rather than the bank loans which predominated until the debt crisis of the 1980s. Bondholders are too dispersed to negotiate with during a liquidity shortfall. Thus, a shortage of reserves becomes a full-blown crisis. This was not the case in the 1980s when banks, as the major creditors, often lent to countries in arrears. The risk to a loan is therefore rescheduling, while the risk to a bond is default. Empirically pricing loans and bonds as assets reveals that bonds incorporate the greater risk of default into their spreads. Debentures are thus riskier credit than loans. As developing countries now obtain most finance through these risky instruments, the volatility of the 1990s is better understood.     

Asymmetry and uncertainty in capital formation: an application to oil investment

Theories of irreversible investment suggest a negative relation between investment and uncertainty, and nonlinear adjustment costs open for asymmetries in the adjustment of fixed capital. We propose an econometric modelling approach to estimate and test the key predictions of modern investment theory, including asymmetric dynamics and various uncertainty indicators. Our application on a data set from the oil industry offers empirical support for both asymmetric dynamics and uncertainty in oil and gas investment.     

Herding in Chinese stock markets: a nonparametric approach

The paper reports new evidence of herding in the Chinese A-type and B-type markets by employing nonparametric kernel regression. We find statistically significant evidence of herding in A-type market under both extreme high and low market returns. Herding in B-type market, which predominantly consists of foreign investors, indicates only weak evidence of herding. We do not find any statistically significant evidence of herding in the pre-2001 sample of B-type market, when only foreign investors could do the trading. Lack of knowledge and experience of local investors may be attributed to the presence of herd behaviour in the Chinese markets.     

Games of strategic complementarities: an application to Bayesian games

This paper provides an introduction to the theory of games of strategic complementarities, considers Bayesian games, and provides an application to global games. This paper is based on the Spanish Economic Review lecture given at the Simposio de Análisis Económico, Alicante, December 2001. Support from the Spanish Ministry of Education and Science (project SEJ2005-08263) is gratefully acknowledged.     

Standard and seasonal long memory in volatility: an application to Spanish inflation

The historical series of many economic variables, such as inflation, are characterized by a strong persistent behaviour in the form of long memory, not only in the long run or at zero frequency but often also at seasonal frequencies. In financial series, long memory is not apparent in levels but strong persistence in higher order moments such as volatility has been proven to be a stylized fact in stock returns. Interest in economic time series has, however, focused on the persistence of levels and little attention has been paid to higher order dependence, which can be important for assessing the stability of the series. We propose a semiparametric analysis of the standard and seasonal persistence of the volatility of a monthly Spanish inflation series. The conclusions can be summarized in three main results. First volatility shows strong persistence implying an unstable trend in prices, but its structure depends on the proxy used, the absolute values, the squares or the logarithms of squares. Second, the structure of the persistence of volatility changed with the first oil crisis in 1973, with a persistent trend in both periods, in contrast with levels. Third, the Taylor effect, which is well documented in financial series, does not apply in this series.     

Microeconometric decompositions of aggregate variables: an application to labour informality in Argentina

This article illustrates the use of microeconometric decomposition techniques to characterize changes in aggregate variables. In particular, it studies the effect of changes in the employment structure on the labour informality rate for salaried workers in the greater Buenos Aires area (Argentina). To that aim it computes the difference between the informality rate at moment t and the rate that results from combining the population at moment t with the parameters estimated at moment t that link observable individual characteristics to the informality decision. The article concludes that the deep change of the employment structure in Argentina during the 1980s and the 1990s has had a significant but minor effect on the labour informality rate.