Remittances and financial development: empirical evidence from heterogeneous panel of countries

Remittances are the second largest source of external finance after foreign direct investment in the developing economies. In this study, we analyse the role of incoming remittances on financial development for 57 highest remittance recipient economies. A long run equilibrium relationship is established between remittances and three alternative indicators of financial development. Estimates from the dynamic system-generalized method of moments reflect lower elasticity values for developing countries compared to the developed ones. Our findings are robust across countries, and highlight the necessity for strengthening institutional set-ups to increase the inflow of remittances, which will enhance financial development across countries. The role of foreign direct investment is found to be significant in most cases.     

Finance and inequality: Channels and evidence

We provide a framework to interpret the recent literature on financial development and inequality. In many developing countries, access to funding and financial services by firms and households is still very skewed. Recent evidence suggests that poor access does not only reflect economic constraints but also barriers erected by insiders. Inequality affects the distribution of political influence, so financial regulation often is easily captured by established interests in unequal countries. Captured reforms deepen rather than broaden access, as small elites obtain most of the benefits while risks are socialized. Financial liberalization motivated to increase access may in practice increase fragility and inequality, and lead to political backlash against reforms. Thus financial reforms may succeed only if matched by a buildup in oversight institutions. Journal of Comparative Economics 35 (4) (2007) 748–773.     

A new consensus-based unemployment indicator

In this study we present a novel approach to measure the level of consensus among agents’ expectations. The proposed framework allows us to design a positional indicator that gives the percentage of agreement between survey expectations. While other aggregation methods such as the balance, which is constructed as the difference between the percentages of respondents giving positive and negative replies, explicitly omit the neutral information, the proposed metric allows synthesizing the information coming from all response categories, including the percentage of respondents who do not expect any change. In order to assess the performance of the proposed measure of consensus, we compare its ability to track the evolution of unemployment to that of the balance in eight European countries. With this aim, we scale both measures to generate one-period ahead forecasts of the unemployment rate. We find that the consensus-based unemployment indicator outperforms the balance in all countries except Denmark and Sweden, which suggests that the level of agreement among agents’ expectations is a good predictor of unemployment.     

The relationship between entrepreneurship and unemployment: Is Portugal an outlier?

The present paper examines the relationship between entrepreneurship, as measured by the variation in business ownership rates, and unemployment in Portugal in the period from 1972 to 2002. It concludes that Portugal has been a relative outlier in regard to the effects of entrepreneurship on unemployment when compared with the OECD average. Although the nature of entrepreneurship may be different in the Portuguese case, due to a high proportion of “micro-businesses” created for subsistence which have little impact on growth and employment, this factor does not seem to be the primary reason for the observed discrepancies. The differences between observed levels of unemployment for Portugal and those predicted by a model based on OECD data seem to be mostly associated with macroeconomic fluctuations associated with European business cycles and EU “cohesion” funding, as well as with adjustment costs to new technology adoption which lead to productivity slowdowns, thus increasing the time lag for the effect of entrepreneurship on employment beyond the OECD average.     

金融复杂性与行为金融理论

金融市场是一个复杂性系统,其中市场异象一直是金融界争论的焦点问题,行为金融理论从主观复杂性出发,引入了心理学、社会学的研究成果,以人的有限理性为前提,分析投资者的认知偏差,建立投资者行为模型,对现代金融理论体系形成巨大冲击。通过对金融复杂性的表现、行为金融的微观基础及理论模型的系统研究,可作出展望与评价。     

Union games: technological unemployment

Summary. Given a production economy, we define union games by considering strategic behavior of the suppliers of factors. We refer to the Nash equilibria of this game as union equilibria. We analyze situations where the unemployment of factors is supported as a union equilibrium. The degree of unemployment depends on technological conditions. This allows us to model a source of unemployment which differs from the usual sources provided in the literature. We state a limit result that demonstrates that, as the market power of unions decreases, the corresponding sequence of union equilibria converges to the Walrasian equilibrium, that is, to full employment of factors. We also provide some examples that illustrate the main results.Received: 21 October 2004, Revised: 14 December 2004, JEL Classification Numbers: D51, C72. Correspondence to: Emma Moreno-GarcíaE. Moreno acknowledges financial support from the Research Grant BEC2000-1388-C04-01 (Ministerio de Ciencia y Tecnología and FEDER). G. Fernández de Córdoba and E. Moreno acknowledge financial support from the Research Grant SA091/02 from Junta de Castilla y León. We are indebted to C. Alós-Ferrer, C. Pita, D. Anisi, J. A. Ortega, F. Jimeno, J. P. Torres-Martínez, M. Steinert and C. Hervés for helpful comments and insights. We are particularly grateful to T. Kehoe and an anonymous referee for suggestions that improved this paper.     

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 Abrams curve of government size and unemployment: evidence from panel data

This study investigates the long run relationship between government size and unemployment rate, the Abrams curve, using ten European countries over the period 1961–1999. To this end, panel cointegration analysis and estimation techniques appropriate for heterogeneous panels are made use of. The results support the idea that there is an Abrams curve, and the relation between government size and the unemployment rate is positive.     

Redistribution and employment policies with endogenous unemployment

We study optimal redistribution policy in an economy with three types of unemployed persons: those unable to work, the voluntarily unemployed, and the involuntarily unemployed. Both voluntary and involuntary unemployment are endogenous. Voluntary unemployment arises because individuals have different preferences, while involuntary unemployment results from frictions in the labour market or from an efficiency wage. We consider the employment policies of a well-informed government when it can and cannot commit to its policies. The model is simple, yet rich enough to reflect real-world policies, including transfers to the disabled, welfare for non-working employables, unemployment insurance, employment subsidies, and taxes on workers and firms.     

Renewable energy and unemployment: A general equilibrium analysis

Using a three-sector general equilibrium model, the impact of renewable electricity support policies on the rate of equilibrium unemployment is analyzed. In a simple two-factor version of the model, the paper shows analytically that renewable electricity support policies lead to an increase in the rate of unemployment. A numerical analysis is conducted with an expanded three-factor model. In this version, most scenarios analyzed also lead to an increase in equilibrium unemployment. However, the paper identifies conditions in which renewable energy support policies can decrease the rate of equilibrium unemployment. In particular, when the elasticity of substitution between capital and labor is low, when capital is not mobile internationally, and when the labor intensity of renewable generation is high relative to conventional generation, renewable electricity support policies may reduce the rate of equilibrium unemployment. The model is parameterized to represent the US economy, such that the magnitudes of quantities can be observed. Although there is some variation in the results depending on parameters, the findings suggest in general that reducing electricity sector emissions by 10% through renewable electricity support policies is likely to increase the equilibrium unemployment rate by about 0.1–0.3 percentage points.     

Renewable energy and unemployment: A general equilibrium analysis

Using a three-sector general equilibrium model, the impact of renewable electricity support policies on the rate of equilibrium unemployment is analyzed. In a simple two-factor version of the model, the paper shows analytically that renewable electricity support policies lead to an increase in the rate of unemployment. A numerical analysis is conducted with an expanded three-factor model. In this version, most scenarios analyzed also lead to an increase in equilibrium unemployment. However, the paper identifies conditions in which renewable energy support policies can decrease the rate of equilibrium unemployment. In particular, when the elasticity of substitution between capital and labor is low, when capital is not mobile internationally, and when the labor intensity of renewable generation is high relative to conventional generation, renewable electricity support policies may reduce the rate of equilibrium unemployment. The model is parameterized to represent the US economy, such that the magnitudes of quantities can be observed. Although there is some variation in the results depending on parameters, the findings suggest in general that reducing electricity sector emissions by 10% through renewable electricity support policies is likely to increase the equilibrium unemployment rate by about 0.1–0.3 percentage points.     

A new test for analysing hysteresis in European unemployment

This article proposes a new unit root test to analyse unemployment hysteresis. The test is able to incorporate cross-sectional dependence, unattended nonlinearity and unknown structural breaks in the time-series data. This study used data on unemployment in five European countries. The findings indicated that conventional unit root tests failed to reject the null hypothesis of hysteresis for all countries. However, the newly proposed unit root test was able to reject the null hypothesis for the Spanish unemployment rate.     

Directed credit,financial development and financial structure: theory and evidence

The recent initiative of the RBI in reviving the policy of directed credit allocation in a period dominated by the neoliberal philosophy necessitates reconsideration of the role of policy-directed credit allocation process on financial development and financial structure of firms. Introducing certain policy parameters, the paper attempts to model how financial development-financial structure interlinkage is influenced by the liberalization policies of the government. The theoretical construct is empirically verified using both aggregated and disaggregated (firm-level) data comprising a panel of 932 Indian manufacturing firms. Findings reveal that following the liberalization measures in the early 1990s, there has been a structural shift in the debt–equity ratio of firms, with equity market activities assuming prominence over time. As regards financial development, it has been observed that the withdrawal of DFIs specialized in term-lending activities in the early 2000s led to a significant increase in the degree of financing constraints faced by the manufacturing firms. This contradicts the basic premise of financial liberalization. The paper argues that under certain conditions, government intervention in the form of directed credit programmes would not only act as an effective instrument in ushering financial development, but also provide important guidelines in ensuring sustainability of institutions.     

Jobs specialization versus unemployment: more on the productivity effect of unemployment benefits

We use the Marimon and Zilibotti (Econ J 109: 266–291, 1999) circle model and we endogenize the choice of the degree of specialization of jobs. We show that an increase in unemployment benefits not only reduces the mismatch of talents (as in Marimon and Zilibotti), but it also raises the degree of specialization of jobs. This reinforces the productivity enhancing effects of unemployment benefits.      

The beneficial effects of generous unemployment benefits on profits and employment

Theories of the labor market generally predict that high unemployment benefits put upward pressure on wages, thus diminishing the profitability of employing labor and exacerbating unemployment. It remains to be explained why firms agree to contribute to generous schemes (replacement rates for general schemes in Europe and US are in the range 50–85%) that they are often willing to supplement (with sector- or firm-specific schemes that may involve even 100% replacement and long benefit duration). An answer can be found by including in the shirking–efficiency wage model, the hypotheses that workers are risk-averse and that those discharged for misconduct are not eligible to benefits. It is then optimal for risk-neutral firms (and for employment) to introduce an insurance scheme with full income coverage and with a duration limited only by the workers' participation constraint (there is no trade-off between level and duration of benefits). The more difficult it is to detect and fire shirkers, the higher is the rent workers enjoy above the competitive wage and the longer is the benefit duration consistent with the participation constraint. This result can be interpreted as a complementarity between the strictness of employment protection legislation (EPL) and the duration of benefits, which seems to conform with broad patterns observed in primary vs. secondary employment and in continental Europe vs. Anglo-Saxon countries.     

金融结构、金融生态与农村金融体系的建构——来自江苏农村地区的案例解析

本文从金融交易需求主体、金融结构和金融体系的互动关联关系入手,探讨我国现阶段农村金融体制改革和制度设计的内在机理.分析的结果表明,由于我国农村经济发展的内在不平衡性和显著微观区域化特征,导致了金融生态呈现出区域差异化、多样化和层次化特性,这就从根本上决定了一个多样化、因地制宜、灵活性的农村金融制度安排是我国现阶段农村金融体系建构的根本取向.通过对两个典型农村地区的实证调查分析,验证了经济发展水平,产业结构差异化对农村金融结构、金融体系变迁的决定性作用机制.政府作为金融外在制度的设计者与供给者,其制度安排应是与农村社会内在制度变迁的协调,是与农村经济发展状态的协调.     

Life expectancy and human capital: long-run evidence from a panel of countries

This article examines the long-run impact of life expectancy on human capital investment for a panel of 14 countries over the period 1870–2010. Using recently developed panel time series techniques, we find (i) that life expectancy at birth has a statistically significant long-run effect on schooling and (ii) that long-run causality is unidirectional from life expectancy to schooling.     

Finance and inequality: a study of Indian states

Although a large literature exists on finance and economic growth, few studies have empirically examined the relationship between finance and inequality. Using grouped national household sample survey data on monthly household consumption expenditure at the sub-national level for the years 1999–2000 to 2006–2007, we examine the relationship between Financial Development (FD) and rural and urban inequality in India. The results indicate that FD is associated with a reduction in inequality, but only in the urban areas. Further, inequality is found to be higher in the richer states compared to less developed and low income states, and as state income increases, inequality also increases both in the rural and urban areas. Finally, our results show that increase in population per bank branch leads to higher inequality in urban areas but decline in rural areas.     

Sources of German unemployment: a structural vector error correction analysis

In this paper we analyze the sources of German unemployment within a structural vector error correction model (SVECM) framework. For this purpose we estimate a VECM model using data for unified Germany. The cointegration analysis reveals a long-run relationship between real wages, productivity and unemployment which is interpreted as a wage setting relation. Based on a reduced form subset VECM we identify structural shocks and assess their importance for unemployment by impulse response analysis, forecast error variance and historical decompositions. In contrast to previous studies for West Germany, we find that productivity, labor supply and labor demand shocks are important sources of unemployment in the long-run.

Long-term unemployment, the invention of 'hysteresis' and the misdiagnosis of structural unemployment in the UK

This paper investigates the empirical basis for the belief thatunemployment makes people less ‘employable’, andthat the existence of a pool of long-term unemployed peopleis therefore in itself a barrier to full employment. Drawingon data for Great Britain from the 1940s to the present day,it shows that this idea has arisen through misinterpretationsof the statistical evidence. The resulting policies, besidesdiverting resources from the demand-side programmes appropriateto the true situation of structural unemployment, appear tohave created a problem of the kind they were intended to address,by encouraging unemployed people to move onto sickness benefits.