Has Trade Become More Responsive to Income? Assessing the Evidence for US Imports

This study tests the stability of a standard equation for aggregate US imports over the period 1975–2011. It finds evidence of significant parameter instability, though its dating varies with the equation specification and diagnostic. Nonetheless, the analysis finds a significant rise in the long-run income elasticity that is robust across most break dates and specifications. The increase in the long-run income elasticity is consistent with shifts in the composition of aggregate imports toward capital and consumer goods. There is further evidence that vertical specialization may be behind both the structural instability and the apparent rise in the income elasticity of aggregate US imports.     

Does Audit Committee Accounting Expertise Help to Promote Audit Quality? Evidence from Auditor Reporting of Internal Control Weaknesses

In this study, we examine whether audit committee accounting expertise helps to promote audit quality by motivating auditors to conduct diligent internal control audits and make appropriate internal control assessments because audit committee accounting expertise safeguards auditors from dismissal following adverse internal control opinions. Among clients with existing and likely internal control material weaknesses (as proxied by future restatements of audited financial statements), we find a greater likelihood of adverse internal control audit opinions when the audit committee has greater accounting expertise (measured by the proportion of accounting experts on the audit committee). Among all clients, we find a lower likelihood of subsequent auditor dismissal following an adverse internal control audit opinion when the audit committee has greater accounting expertise. In further analyses, we find that this lower likelihood of subsequent auditor dismissal occurs when at least two audit committee members possess accounting expertise. We also find some evidence that CFO influence (but not CEO influence) over the audit committee negates the increased likelihood of adverse internal control opinions when internal control material weaknesses likely exist, as well as the decreased likelihood of auditor dismissal following adverse internal control opinions. These findings have important implications for regulators and corporate nominating committees interested in promoting audit committee effectiveness.     

How Does Trade Openness Affect Regional Demographic Transitions? Evidence from China's Provincial Panel Data

This paper investigates the effect of trade openness and other variables on the demographic transition in China using the instrumental variables regression method based on provincial panel data for the period between 1981 and 2013. The results indicate that trade openness is one of the determinants of China's demographic transition and has two distinct effects: (i) an income effect that accelerated the demographic transition by increasing per capita income; and (ii) a human capital effect that suppressed the demographic transition by reducing human capital accumulation. The effects of trade on demographic transition vary across different regions. This study identifies the important determinants of demographic transition in China's regions, and has rich policy implications for demographic transition and the upgrading of trade structure.     

Has pass-through to export prices risen? Evidence for Japan

This paper investigates the exchange rate response of Japanese export prices over the period 1980 through 2007 using sector-specific measures of the yen’s value relative to invoicing currencies. It finds a significant increase in the response of total export prices to the yen in the late 1990s. The rise in the total export price response is traced to increases in the exchange rate response of two key export sectors. These findings for Japanese exports are consistent with the documented decline in pass-through to OECD import prices and suggest the latter could originate with changes in export pricing behavior.     

Does the WTO Make Trade More Stable?

I examine the hypothesis that membership in the World Trade Organization (WTO) and its predecessor the General Agreement on Tariffs and Trade (GATT) has increased the stability and predictability of trade flows. I use a large data set covering annual bilateral trade flows between over 175 countries between 1950 and 1999, and estimate the effect of GATT/WTO membership on the coefficient of variation in trade computed over 25-year samples, controlling for a number of factors. I also use a comparable multilateral data set. There is little evidence that membership in the GATT/WTO has a significant dampening effect on trade volatility.JEL Classification Number: F13     

Does the Private Sector Help or Hurt the Environment? Evidence from Carbon Dioxide Pollution in Developing Countries

How does the nature of enterprise ownership affect the environment in an economy? Conventional wisdom and theoretical conjectures are split on this important question. In this paper we estimate a reduced-form, random-effects model using data from 44 developing countries over nine years (1987–95) to study for any systematic empirical relationship between the relative level of private sector involvement in an economy and the environmental performance of the economy in terms of its emission of industrial carbon dioxide. We control for both observed and unobserved crosscountry heterogeneity along various institutional and structural dimensions such as the scope of financial market, industrial sector composition and level of foreign direct investment. The regression results indicate that the higher the degree of private sector involvement in a developing economy, the lower is its environmental degradation. In addition, its environmental degradation is likely to be further reduced in presence of a well-functioning domestic capital market and through increased participation by developed economies in its private sector development.     

Chinese Bilateral Intra-Industry Trade: A Panel Data Study for 50 Countries in the 1992–2001 Period

This study examines the features and determinants of Chinese intra-industry trade during the 1992–2001 transition period for 50 of China’s trade partners. We disentangle total intra-industry trade (TIIT) into vertical intra-industry trade (VIIT) vis-à-vis horizontal intra-industry trade (HIIT), using data at the four-digit SITC level. The findings indicate that Chinese bilateral intra-industry trade, particularly VIIT, increased significantly during this transition period. VIIT appears to be positively related to differences in consumer patterns. HIIT is negatively related to these differences. In addition, we find that FDI has played an important role in determining IIT, especially VIIT. Other significant intra-industry trade drivers are geographical distance, economic size, trade openness and trade composition. Finally, the impact of China’s liberalization policies and the special role of Hong Kong are demonstrated. We discuss a number of important business and political implications that can be drawn from our findings. JEL no. F14     

Does Aid for Roads Attract Foreign or Domestic Firms? Evidence from Cambodia

Less developed countries have received substantial foreign aid for transport infrastructure, making its quantitative assessment important. To investigate the effect of aid for road infrastructure on the location of foreign and domestic firms, this study employs the first comprehensive census on all business establishments in Cambodia for 2011 and measures the geographical distribution of aid disbursements in roads. Estimating a negative binomial model, we find that aid disbursements in roads have little influence on the entry of foreign and domestic firms across communes. Compared with the aid effect, the location of firms is more strongly influenced by other determinants such as population size, electricity access, and labor supply.     

Does Membership Homogeneity Matter for Group-based Financial Services? Evidence from the Gambia

This paper examines the effect of membership composition on the components of group design to provide financial services, and on the performance of these groups. Regression results based on data from RoSCAs in the Gambia show that gender homogeneity is less likely to affect components of group design than is homogeneity in income generating capacity of members. Membership homogeniety does not directly affect the repayment performance of the members but only indirectly through the components of the group design. — Cet article examine l’incidence de la composition sur les composantes et la performance des groupes constitués en vue de la fourniture de services financiers. Selon les résultats d’une analyse de régression basée sur les données de “RoSCA” en Gambie, il apparaît que l’homogénéité du genre influe moins sur les composantes de la conception des groupes que l’homogénéité de la capacité des groupes à générer des revenus. En ce qui concerne la performance en matière de remboursement, l’incidence de l’homogénéité de la composition n’est pas directe mais indirecte au travers des composantes de la conception des groupes.     

Can Market Potential Explain Regional Disparities in Developing Countries? Evidence from Turkey

Regional disparity is one of the important characteristics of the Turkish economy. This study examines the impact of market potential on the regional differences in Turkey by investigating wages in the manufacturing industry for 1987 and 2000. Evidence suggests that market potential is an important determinant of inequality in Turkey. In addition, public–private decomposition reshapes the dispersion of wages supportive of rising heterogeneity in the private manufacturing industry. This increases the explanatory power of market potential, which is observed to be high in western Turkey and diminishes toward eastern Turkey. Our findings highlight that during the postliberalization era of the 1980s, Turkey's regional inequality concern transformed into a structural problem which can be explained by provincial market potential. Moreover, our results underline that the modern geography framework, which has been tested for developed economies, is able to elucidate the regional differences in a developing country suffering from persistent imbalances.     

Does financial development help to align growth opportunities with growth? Evidence from industry-level data

Financial institutions are expected to play a crucial role in reallocating resources in favor of industries facing greater global and local shocks to growth opportunities. Fisman and Love, in their paper entitled “Financial development and intersectoral allocation: A new approach”, argue that growth opportunities are unobservable and propose a new methodology to test the capital allocation hypothesis. The methodology is based on correlations in the patterns of intra-industry growth between two countries and similarities in the level of financial development and income. This paper extends their methodology by proposing direct and forward-looking measures of local and global growth opportunities, obtained by interacting the country’s patterns of industrial specialization with industry-level price-earnings ratios, as in the paper “Global growth opportunities and market integration” by Bekaert et al. The results, obtained in a cross-section framework including 37 developed and developing countries over the period 1992–2006, confirm the relevance of financial development to promote economic growth and to help industries in taking advantage of global and local growth opportunities. They also show that the methodology developed by Fisman and Love can be extended to include direct measures of growth opportunities.     

Marginal Distance: Does Export Experience Reduce Firm Trade Costs?

Are the costs of exporting to a market reduced if a firm has experience of exporting to a neighbouring market? If so, does this effect operate through reducing entry barriers or by increasing sales once the firm is operating in the market? This paper examines linkages between current export destinations and entry, sales and exit for new markets. We find that measures of exporting experience in geographically nearby markets increase the probability of entry into a market and reduce the probability of exit. However, these same measures have very limited effect on the firm’s export sales in the market. The effect of related experience on sales tends to be negative for recently entered firms. We interpret this result in the context of the Melitz heterogeneous-firm model of trade by showing that lower fixed costs reduce the entry threshold, but this lower threshold has the effect of allowing lower-sales marginal firms to be present in the market.     

Does Information Asymmetry Matter to Equity Pricing? Evidence from Firms’ Geographic Location*

The scarcity of suitable proxies for asymmetric information has impeded empirical research from providing reliable evidence on whether information risk shapes equity pricing. In reexamining this unresolved question, we rely on firms’ geographic distance from financial centers to gauge information asymmetry. We provide strong, robust evidence supporting the prediction that equity financing is cheaper for firms nearer central locations, implying that investors rationally require more compensation when information asymmetry is worse. The equity pricing role of geographic proximity is economically large, with our coefficient estimates translating into firms located within 100 kilometers of the city center of the nearest of six major financial centers, or in their metropolitan statistical areas, enjoying equity financing costs that are seven basis points lower. Our inferences are insensitive to measuring both the cost of equity capital and distance in several ways, controlling for corporate governance quality, and addressing endogeneity. Collectively, our analysis suggests that investors discount the price that they pay for their securities to reflect the greater information asymmetry that ensues when firms are far from major financial centers.     

Does Intra‐regional Trade Matter in Regional Stock Markets? New Evidence from the Asia‐Pacific Region

We provide new evidence on the relationship between bilateral trade and stock market returns across the Asia‐Pacific region. Using three country blocs in this region, including the Far Eastern bloc, the Chinese bloc and the Australian bloc, we examine whether trade linkages between countries affect their stock returns. Incorporating two distinct dynamic properties of regime shifting and cointegration in intra‐regional trade and stock market returns, we employ the newly suggested multivariable smooth transition autoregressive vector error correction model (STAR‐VECM). A series of estimations reveals evidence that bilateral trade significantly Granger‐causes stock returns in the Asia‐Pacific region, with effects that are asymmetric depending upon the stock market regime and the country pair. Among the three blocs, the Far Eastern bloc displays a more pronounced positive effect of bilateral trade growth on stock returns than do the other blocs.     

Does Corruption Affect suicide? Econometric Evidence from OECD Countries

The question to what extent corruption influences suicide still remains unanswered. This paper examines the effect of corruption on suicide using a panel data approach for 24 OECD countries over the period 1995?C2004. Our results show that suicide rates are lower in countries with lower levels of corruption. We also find evidence that this effect is approximately three times larger for males than for females. It follows from these findings that corruption has a detrimental effect on societal well-being and its effect differs based on the social position of genders.     

Does Aid Unpredictability Weaken Governance? Evidence from Developing Countries

This paper examines the effects of aid on governance from a different perspective by asserting that aid unpredictability can potentially increase corruption in recipient countries by providing incentives to risk‐averse and corrupt political leaders to engage in rent‐seeking activities. Analyses of data from 80 developing countries over the period 1984–2004 offer evidence that higher aid unpredictability is associated with more corruption as measured by a synthetic index. We also find further evidence that this latter impact is more severe in countries with weak initial institutional conditions. These findings are a supplementary advocacy for the need for better management and better predictability of aid flow in developing countries.     

Exchange Rates and the Trade Balance for Dynamic Asian Economies—Does the J-Curve Exist for Singapore,Malaysia, and Korea?

The purpose of this article is to examine the relationship between the real trade balance and the real exchange rate for bilateral trade in merchandise goods between Singapore, Korea, and Malaysia and the USA and Japan on a quarterly basis over the period 1970 to 1996 using the partial reduced form model of Rose and Yellen (1989) derived from the two-country imperfect substitutes model. With the exception of Korean trade with the USA, and in line with recent work using a similar methodology, our findings suggest that the real exchange rate does not have a significant impact on the real trade balance, and for Singapore and Malaysia we can find no persuasive evidence for J-curves. For Korea, however, the data were consistent with some J-curve effects with respect to both Japan and the USA. Moreover, it is possible that for Korea these effects were being masked or muted by small country pricing of exports in foreign currency, but there was no evidence that imports subsequently fell as the lag length on the real exchange rate increased, which would be required to support a strict interpretation of the J-curve.