Sectoral FDI cycles in South and East Asia

This study aims to analyze how sectoral foreign direct investment (FDI) inflows in South and East Asian economies respond to changes in the business cycles of the host countries, as measured by their output gaps. We focus on 15 economies during the period 1980–2011 and examine inflows of FDI in extractive industries, manufacturing and services in addition to aggregate FDI by using a dynamic panel Blundell–Bond GMM methodology. We find evidence of countercyclical behavior of services FDI and acyclical behavior of both extractive industries FDI and manufacturing FDI. The coutercyclical behavior of services FDI in South and East Asia has important policy implications.     

Roles of rural non-farm employment (RNFE) in India: Why RNFE,the conveyor of a shock like COVID 19 is also the key to recovery?

We assess the role of Rural Non-Farm Employment (RNFE) in livelihoods and in likely impacts of shocks like COVID 19. In India’s agri-food system, the preponderance of small farmers with low endowments of human and financial capital implies that, RNFE has been the principal source of poverty reduction. Yet, RNFE is also the most adversely affected by shocks like COVID 19 and the measures adopted to prevent disease spread. To assess the roles of RNFE and possible effects of shocks, we uniquely utilize the recent rounds of nationally representative Periodic Labor Force Surveys (PLFS). To assess the “potential impact” of COVID 19 on workers, by using the large dataset, we match similar workers in different states of employment (SOE) where SOE may partly reflect the situation post shock. Job loss, reduction in work hours, movement across types of employment, casualization within RNFE is possible due to shocks to RNFE. We estimate that SOE in RNFE have significant association with poverty and income. With the data on COVID lockdown periods, we then validate the results to pair with the prospectively assessed impacts. Notwithstanding the effect of shocks, RNFE has the unique potential in recovery, being the prime rural income generator and risk mitigator apart from being characterized by comparatively high growth in female employment and in socially disadvantaged groups in India.     

Has China's Housing Production Peaked?

China's real estate has been a key engine of its sustained economic expansion. This paper argues, however, that even before the COVID‐19 shock, a decades‐long housing boom had given rise to severe price misalignments and regional supply–demand mismatches, making an adjustment both necessary and inevitable. We make use of newly available and updated data sources to analyze supply–demand conditions in the fast‐moving Chinese economy. The imbalances are then compared to benchmarks from other economies. We conclude that the real estate sector is quite vulnerable to a sustained aggregate growth shock, such as COVID‐19 might pose. In our baseline calibration, using input–output tables and taking account of the very large footprint of housing construction and real estate related sectors, the adjustment to a decline in housing activity can easily trim a cumulative 5–10 percent from the level of output over a period of years.     

Capital Inflows and Exports Diversification in Sub‐Saharan Africa during the MDGs Era

This paper explores the impact of different forms of capital inflows, including foreign direct investment, foreign aid, portfolio investment, and remittances, on exports diversification in sub‐Saharan Africa during the Millennium Development Goals (MDGs) era. We employ the Generalized Method of Moments (GMM) estimator to deal with the endogeneity issue. Using a sample of 35 countries over the period 2000–15, it shows that the impact of capital inflows on exports diversification depends on the type of capital. We find evidence that foreign aid, foreign direct investment, and remittances have positive effects on exports diversification, while portfolio inflows negatively affect exports diversification. Moreover, we find that the impact of capital inflows on exports diversification differs across the region of destination of the exported products. This study underscores the important role of international cooperation and capital inflows in sub‐Saharan Africa, and lends support to policies aiming to attract foreign capital.     

Capital Flows: The South African Experience

There has been a significant rise in the empirical work distinguishing between episodes of sharp slowdowns and surges in capital inflows. Much of this analysis has centred on gaining a better understanding of the cyclical behaviour of capital flows. This paper continues in this vein by identifying capital flow episodes for South Africa and analyses the nature and main drivers of cross‐border flows during these episodes. This paper makes two major contributions to the empirical work on South African capital flows. First, specific attention is given to some pertinent measurement issues in the identification of capital flow episodes for South Africa. The post capital account liberalisation period (post‐1995‐period) is delineated into a “normal” period (when capital inflows were close to historical averages) and an “abnormal” period (when capital inflows deviated significantly from the historical average). Second, the paper identifies some defining characteristics during these two periods. In this regard, the behaviour of domestic and foreign agents as drivers of capital flows and the probability of capital flow reversals across asset classes are given particular attention. Although these issues have significant policy implications, they have, to date, been given limited attention in the empirical work on South African capital flows.     

Intra‐provincial Revenue Sharing and the Subnational Government's Fiscal Capacity in China: The Case of Zhejiang Province

This study investigates whether the tax‐sharing system has deteriorated the fiscal capacity of subnational governments by analyzing how fiscal revenues are divided between provincial and sub‐provincial governments. Our study of county‐level fiscal data from Zhejiang Province in China during 1994–2007 shows that intra‐provincial revenue‐sharing rules favor county governments in two ways: (i) they improve county governments ‘fiscal autonomy in terms of using their own revenues; and (ii) they enhance county governments ‘fiscal capacity through province‐to‐county general transfers. In addition, we find that intra‐provincial fiscal revenue‐sharing rules and transfers reduce fiscal disparity between counties.     

Are capital inflows expansionary or contractionary in the Philippines?

This paper assesses whether gross capital inflows to the Philippines are expansionary or contractionary in view of the model predictions and multi-country empirical analysis of Blanchard, Ostry, Ghosh, and Chamon (BOGC, 2015). We make use of data for the period 1977–2017, and apply both ordinary least squares and vector autoregressive techniques. The results indicate that total gross inflows are expansionary for both output and credit growth. At a more disaggregated level, we find, consistent with BOGC (2015), that non-bond inflows are expansionary. But contrary to BOGC (2015), we find that bond inflows to the Philippines are also expansionary. Using the Philippine case illustrates the importance of country specific factors in characterizing the macroeconomic effects of capital inflows.     

SOUTH AFRICA'S POST‐LIBERALISED CAPITAL FLOWS AND BUSINESS CYCLE FLUCTUATIONS

This study used Christiano and Fitzgerald filtered correlation analysis to investigate the cyclical relationships between South Africa's post‐liberalised capital flows and domestic business cycle fluctuations. The results show that foreign direct investment inflows are counter‐cyclical and proactive, while the “hot” inflows are acyclical. Thus, South Africa's post‐liberalisation “hot” inflows have not been significantly associated with domestic business cycle fluctuations. In contrast, the capital outflows are found to be consistently procyclical and proactive, suggesting that the outflows are more significantly associated with domestic business cycle fluctuations than the capital inflows. In addition, it is found that the cyclical relationships between the capital inflows and the business cycle components of exports, household consumption and gross fixed investment are generally procyclical, except for portfolio inflows, which have a counter‐cyclical relationship with fixed investment. In contrast, the capital outflows are counter‐cyclically associated with exports and household consumption, and procyclically associated with fixed investment.     

Spatial Spillovers from Foreign Direct Investment: Evidence from the Yangtze River Delta in China

This paper examines the spatial externality from foreign direct investment on domestic firms. Using Chinese firm‐level data for 2004, and after accounting for an endogeneity problem, we find that foreign firms generate a significantly positive spillover effect on the regional productivity of domestic firms in similar counties and industries. Estimating a spatial‐autoregressive model, we further show that such local spillovers could transmit to domestic firms in other counties and industries through interactions among domestic firms. However, these spatial multiplier effects decline with distance, thereby reducing the foreign direct investment spillover effects for domestic firms in distant locations.     

COVID-19, firm exposure,and firm value: A tale of two lockdowns

We study how a public health crisis affects the corporate sector at different phases of outbreak. Using an event study approach, we find significant valuation effects in a sample of Chinese listed firms following two symbolic events in the outbreak of COVID-19: (1) the lockdown of Hubei province; and (2) the containment of the disease in China and its spread to overseas. Market responded negatively (positively) to the first (second) event. Regression analysis further reveals that, following the first event, firms with Hubei (foreign) exposures earned significantly lower (higher) returns. Foreign exposures, however, had significantly negative effects on returns following the second event. The valuation effects of Hubei and foreign exposures also vary across firm ownership and industries. Our results indicate that, in a globalized world, firms' international status, internal networks and input-output linkages all play important roles in determining their exposures to the pandemic.     

DOES MOTHER'S EDUCATION MATTER IN CHILD'S HEALTH? EVIDENCE FROM SOUTH AFRICA1

Using the 1993 South Africa Integrated Household Survey, this paper studies the effect that mother's education through the knowledge channel has on children's health using height for age Z‐scores as health measure. Under a two‐stage least square methodology we find that an increase in 4 years on mother's education (approximately 1 standard deviation) will lead to an increase of 0.6 standard deviations on her child's height for age Z‐score. We also find, as the medical literature suggests, support for the hypothesis that mother's education is more important for children older than 24 months of age.     

Substance Abuse Treatment and Motor Vehicle Fatalities

The danger of alcohol‐ and drug‐impaired driving implies that policies that reduce substance abuse can save lives. We study this issue in small U.S. counties where access to substance abuse treatment can be measured directly through the presence of treatment facilities. We find that placing an additional treatment clinic in a county reduces the number of alcohol‐related motor vehicle fatalities by 15%. An additional outpatient clinic, which specializes in treating the local population, reduces the overall number of alcohol‐related deaths by 26%. In the counties that we study, this reduction in alcohol‐related accidents saves 0.66 lives per county per year.     

Does School Lunch Fill the “SNAP Gap” at the End of the Month?

This article investigates the relationship between the timing of Supplemental Nutrition Assistance Program (SNAP) benefit payments and participation in school lunch and breakfast using the National Household Food Acquisition and Purchase Survey. An event study approach examines participation over the five‐day window before and after the SNAP payment. We find that school lunch participation decreases by 17–23 percentage points immediately after the SNAP payment among 11–18 year olds while breakfast drops by 19–36 percentage points. The decline begins the day prior to payment. We find no effects for 5–10 year olds. Models examining participation over the full SNAP month using individual fixed effects yield similar findings. Among teenagers, participation in school lunch and breakfast decline in the first two weeks of the SNAP month, increasing afterward. Non‐school meals show the opposite pattern. Overall, results indicate SNAP households rely more on school lunch and breakfast toward the end of the SNAP month.     

Impact of Malaria Control on Late and Early Infant Mortality in Senegal

One of the greatest achievements of the twenty‐first century has been the dramatic decline in malaria prevalence notably in endemic developing countries. In this study, we estimate the impact of recent scale up in malaria control in Senegal on neonatal, postnatal and infant mortality. We exploit natural preintervention variation in malaria prevalence to estimate the impact of recent malaria control policy in Senegal. In a difference in differences design, we find a negative and significant effect on neonatal and infant mortality in malaria endemic regions while the impact on postnatal mortality is inconclusive. We rule out competing explanations such as contemporaneous health campaigns, general improvement in health care delivery and pre‐existing regional time trends. We identify a 26.9% and 16.3% reduction in neonatal and infant mortality, respectively, in malaria endemic regions during 2005–2014. We argue that increase in donor funding for malaria control as well as greater involvement of local communities and civil society organization has proven to be effective. However, the impact of malaria control on mortality may vary substantially depending on early or late infant mortality.     

A New Approach to the Study of Jobless Recoveries

This article is concerned with the measurement of jobless recoveries and the elements that may explain their emergence. We first introduce a measure that maps the various elements that define a jobless recovery into a single number that we label the jobless recovery depth. We then construct a database of 389 state‐level observations and study the cross‐sectional variations that emerge. We find that jobless recoveries in the United States are not a nation‐wide phenomena, but a local event confined within a cluster of states that expands slowly between 1975 and 2015. We find the state‐level evidence to be consistent with theories that link jobless recoveries to unusually long expansionary periods, less dynamic labor markets, and the advent of the great moderation. The evidence is not consistent with theories that link them to decreases in union power, increases in income inequality, or increases in health care costs.     

The Consequences of Audit‐Related Earnings Revisions

In this study, we investigate the consequences that auditors and their clients face when earnings announced in an unaudited earnings release are subsequently revised, presumably as a result of year‐end audit procedures, so that earnings as reported in the 10‐K differ from earnings as previously announced. Specifically, we examine whether the likelihood of an auditor “losing the client” is greater following such revisions, and whether the likelihood of dismissal is influenced by revisions that more negatively impact earnings, that cause the client to miss important earnings benchmarks, by greater local auditor competition, or by auditor characteristics. We also examine audit pricing subsequent to audit‐related earnings revisions for evidence of pricing concessions to retain the client. Finally, we examine whether client executives experience a greater likelihood of turnover following an audit‐related earnings revision. Consistent with expectations, we find that auditor dismissals are more likely following audit‐related earnings revisions. We also find that dismissals are more likely when revisions cause clients to miss important benchmarks and when there is greater local auditor competition. Among nondismissing clients, we find that future audit fees are lower when the effect of the revision on earnings is more negative, consistent with auditors offering price concessions to retain clients when revisions are more displeasing. We also find a greater likelihood of future chief financial officer (CFO) turnover as the effect of the revision worsens. Our findings offer important insights into the consequences that auditors face when balancing their responsibility for high audit quality and client satisfaction, as well as into the consequences that CFOs face when releasing inflated but not fully audited earnings.     

The COVID‐19 Pandemic and Its Impact on the Global Economy: What Does It Take to Turn Crisis into Opportunity?

The COVID‐19 pandemic broke out at a time when there were heightened uncertainties in the global economy. Understanding these uncertainties provides an important background for analyzing the impact of the pandemic on the global economy, assessing the effectiveness of policy measures in combating the pandemic and reviving the global economy, and predicting the trajectory of the economic recovery in the post‐pandemic era. We analyze how COVID‐19 would likely deepen an existing malaise in the global economy, and what could be done to address these problems while managing the economic recovery. We argue that three fundamental factors that could lead to a solid recovery in the post pandemic era are structural reform, new technology and re‐integration. They could be managed by instituting a new “global social contract.” Supported by strong public policies at all levels, especially at national level, these three factors could bring about the salvation of the global economy as it recovers or re‐emerges from the pandemic crisis.     

Inward-looking policies,finite change,and employment: The capital reallocation effect

It is well recognized that there emerged a trend of inward-looking trade policies even before the COVID pandemic crippled the world. These were reflected in both BREXIT and US-China trade conflicts. As countries become inward-oriented, usually local prices start rising. With this backdrop, this paper explores how rising local prices are likely to affect employment in the short and long runs when we accommodate for the finite change in a general equilibrium structure whereby sectors not only contract but might also close down altogether due to the capital reallocation effect following a price incentive.     

Pregnancy outcomes for medicaid patients in mandatory managed care: The Pennsylvania HealthChoices program

A number of states have adopted mandatory managed care to provide health services to Medicaid patients, raising concerns that the care provided may be of lower quality than care provided under traditional fee‐for‐service arrangements. In this article, we study the effect of Pennsylvania's mandatory managed care program, HealthChoices, on health outcomes and the cost of care for pregnant Medicaid patients. Using difference‐in‐differences, we find evidence that the adoption of managed care resulted in fewer preventable complications, particularly for more severely ill mothers, but no general reduction in costs except in the highest decile of the cost distribution.     

Are Indian Subcontinent remittance markets connected to each other?

Indian subcontinent countries are some of the largest exporters of labor, and thus, largest receivers of remittances. Having many characteristics in common, their labor markets may be connected due to labor substitution and complementarity. We study the interactions of remittance inflows into India, Pakistan, Bangladesh and Sri Lanka via the Diebold-Yilmaz method. We find a low degree of spillovers across countries. In other words, the dynamics of remittance inflows in each country are largely explained by internal factors, not due to spillovers from other countries. That indicates that international remittance inflows in countries in the Indian Subcontinent that we consider in this study are essentially independent. We also find that the dynamic connectedness tends to fall over time in the aftermath of the 2008–2010 financial crisis, which is reversed after 2014. The initial decline probably happened due to the recovery in the labor receiving economies whereas the increase after 2014 probably reflects the jitters felt in all economies. We conclude that spillover of four countries’ remittance inflows is time-varying.