What drives inflation in New Keynesian models?

This paper estimates variants of a small-scale New Keynesian model using observations on inflation, inflation expectations and nominal interest rates. We ask whether those variables alone can tell us something about the time series properties of real marginal costs.     

What drives trade in services? Lessons from the Nordics

This article makes an empirical assessment of the relative importance of non-actionable institutional and cultural factors and actionable policy measures for services market integration, using the Nordic countries as a case study. The Nordics are an ideal case as they are perceived to be a cluster of similar countries, but they have chosen different relations to the European Union (EU) and the rest of the world. First, comparing actionable and non-actionable determinants of services trade, I find that policy-determined free trade agreements (FTAs) boost services trade by 75% and a single market by an additional 45%, while the accumulated effect of all standard non-actionable shared geographical, institutional and cultural features (sharing a land border, language, colonial past and legal origin) almost triples services trade. Having controlled for all these determinants, intra-Nordic trade in services is more than three times the predicted value. An unexplained Nordic bias of this magnitude indicates that full integration of services markets may rely on deeper institutional and cultural factors.     

What Explains the Rise in Executive Pay in Germany? A Panel Data Analysis for 1977–2009

Executive compensation in Germany has become highly controversial since Vodafone's hostile takeover of Mannesmann in 2000. It has again been in the spotlight since the outbreak of the 2008–2009 global financial crisis. Using a unique panel dataset of the 500 largest firms in Germany in the period 1977–2009, we find that executives tend to be rewarded when the sector is doing well rather than the firm they work for. Furthermore, we find that CEO pay and the demand for managers increases in Germany in difficult times when the typical firm size shrinks. Finally, domestic and global competition for managers appear to contribute to the rise in executive pay.     

What drives spreads in the euro area government bond market?

Spreads between euro area government bond yields are related to short-term interest rates, which are in turn related to market liquidity, to cyclical conditions, and to investors' incentives to take risk. In theory, lower interest rates are associated with lower degrees of risk aversion and smaller government bond spreads. Empirically, the Eurosystem's short-term interest rates are positively related to those spreads, which our econometric model finds to include significant and policy-relevant default risk and liquidity risk components.
— Simone Manganelli and Guido Wolswijk     

What drives cross-country differences in export variety? A bilateral panel approach

A worldwide event like the 2020 Coronavirus outbreak can only reinforce the interest in modelling trade diversification as a key factor in countries’ vulnerability to external shocks. This paper adopts a detailed relative framework to study the determinants of product-level export variety in a large bilateral panel of developing and developed economies (16,770 country pairs in the period 1988–2014). We find that country pairs characterized by large differentials in productivity and in the makeup of the labour force differ in export variety patterns. This result holds after controlling for other endowments and for trade costs. Further, productivity plays a significant role in the reduction of export variety dissimilarities between countries belonging to different income groups. Hence, without successful technological convergence the low-income economies will not be able to reduce their exposure to export risk.     

What drives housing dynamics in China? A sign restrictions VAR approach

We study housing dynamics in China using vector autoregressions identified with theory-consistent sign restrictions. We study seven potential drivers: (1) population increases; (2) a relaxation of credit standards, for example, due to the shadow banking system; (3) increasing preferences towards housing, for example, due to a housing bubble, or to housing being a status asset in the marriage market; (4) an increase in the savings rate; (5) expected productivity progress; (6) changes in land supply; and (7) tax policy, a proxy for policy stimulus. Our results show that, even if all shocks play relevant roles, productivity, savings glut, and policy stimulus have been the dominant drivers. When the sample is closer to 2014, housing preferences and credit shocks increase their importance to explain house prices and volume, while population shocks explain a larger share of the dynamics of residential investment. The results show some differences if we use house price indices constructed by the government or by private sources. The official indices show smaller increases in house prices and assign a smaller role to credit and preference shocks.     

Public and Private Investments in Greece: Complementary or Substitute ‘Goods’?

This paper investigates whether government investment spending exerts a positive or a negative effect on private investments. Time-series data for Greece as well as the methodology of cointegration suggest that, over the period 1948-80, public investment spending exerted a positive effect on private investments, while over the period 1981-96, the relationship turned out to be negative. Empirical results indicate that the large increase of the public share in the total investment process tended to crowd out private investments and to jeopardize the growth process of the economy.     

Trade,finance or policies: What drives the cross-border spill-over of business cycles?

In this paper we investigate how income growth rates in one country are affected by growth rates in partner countries, testing for the importance of pairwise country links as well as characteristics of the receiving country (trade and financial openness, exchange rate regime, fiscal variables). We find that trade integration fosters the spill-over of business cycles, both bilaterally and as a country characteristic (trade openness). Results for financial integration are mixed; financial links as pairwise country characteristic are either insignificant or negatively signed (indicating a dampening of cross country spill-overs), but financial openness as characteristic of the receiving country amplifies spill-overs. We find no evidence for a role of the exchange rate regime. Finally, we find that higher government spending and debt reduces countries’ vulnerability to foreign business cycles, presumably through the effect of automatic stabilizers.     

What drives the localization of Spanish multinationals in developing and transition countries?

In this paper, we investigate the location determinants of Spanish multinational firms in developing and transition economies. We pay particular attention to the role played by market potential and agglomeration economies as decisive factors in location. We also analyze whether, beyond the observed attributes, there are any significant differences across regions in terms of attracting foreign affiliates. With this aim, we estimate a mixed logit model, which allows us to endogenously consider the existence of complex substitution patterns among different destinations. Our results confirm that Spanish investment in developing and transition countries depends on market potential and agglomeration externalities. The intensity of these externalities, however, depends on the nationality of competitors, greater rivalry being observed among Spanish‐owned affiliates. Furthermore, our findings show that the location of multinational firms responds both to factors related to the local business environment, including the cost and quality of labor and infrastructures, and to the existence of specific regional effects.     

Dividing or uniting Europe? Internet usage in the EU

Using Heckman’s sample selection procedure, we first analyse access to the Internet and then specific Internet usage given individual Internet access, across the EU countries using Eurobarometer data for 2004 and 2005. Internet access varies more within countries than between them. But the reverse is the case for Internet usage given access. Two specific country attributes are identified: first gross national income and the rule of law reflecting the extent to which people have confidence in the security of the Internet. Further variables also emphasize the importance of trust.     

Picking “Lemons” or Picking “Cherries”? Domestic and Foreign Acquisitions in Norwegian Manufacturing*

We compare the performance in employment, wages and productivity for domestic plants acquired by new domestic and foreign owners. Prospective foreign owners pick large, high‐wage, high‐productivity plants, while new domestic owners choose average performers of above‐average size. Employment, labour productivity, and total factor productivity decline in domestic acquisition targets before acquisitions; only wages recover afterwards. Employment, wages and labour productivity increase after foreign acquisitions. The sample selection introduced by long‐term comparisons and a focus on unique events introduces a downward bias into the results for domestic acquisitions and an upward bias for the foreign acquisitions.     

What drives investment in the telecommunications sector? Some lessons from the OECD countries

Regulation of telecommunications sector plays a crucial role in the political and economic agenda for both industrial and developing countries. The regulatory efforts of more developing countries in order to attract investments and enhance the level of effective competition in the industry are hindered by the absence of a sound legal framework, the weak level of regulation and the extended state interventionism. The main aim of this study is to examine the regulatory process in the telecommunications industry within the OECD countries and determine the extent to which it has affected the level of investment and economic growth. For this purpose, we use an updated data set for thirty OECD countries covering the period 1988–2010 and panel data econometric techniques. Our analysis reveals that there is a strong and positive relationship between effective regulation and investment.     

The Hidden Costs of Wind Generation in a Thermal Power System: What Cost?

New renewable energy generation in Australia is unambiguously more expensive than thermal plant, at least when comparing direct costs. The federal government claims the 20 per cent renewable energy target will increase electricity tariffs by 4 per cent. Apart from the direct costs, critics of renewables cite additional ‘hidden costs’ arising from the intermittency of wind and the subsequent causation of ‘back‐up plant’ for system security. South Australia, where wind's market share now exceeds 17 per cent, provides a valuable case study to analyse ‘hidden costs’. The evidence is that hidden costs are trivial and the government's claim appears accurate.     

Fair Trade organic coffee production in Nicaragua — Sustainable development or a poverty trap?

This article assesses the impact of Fair Trade organic coffee production on the well-being of small-scale farmers in Nicaragua. Studying the results of organic management is crucial for evaluating the advantages of Fair Trade because approximately half of all Fair Trade coffee is also organically certified. A wide range of farmers, representatives of cooperatives and export companies in Nicaragua were interviewed during seven months of field work between 2005 and 2008. Fair Trade organic production raises farmer income when low-intensity organic farming is an alternative to low-intensity conventional farming. However, low-intensity farming produces very little coffee in the case of the most marginalized farmers, keeping these farmers in poverty. With higher intensities of management, the economic advantages of Fair Trade organic production largely depend on prices in the mainstream market.     

Should income transfers be targeted or universal? Insights from public pension influences on elderly mortality in Canada, 1921–1966

Abstract. We investigate the impact of Canada's means‐tested and universal public pension programs on the mortality rates of age groups eligible for pension benefits for the period 1921–1966. We find that only the universal program significantly reduced pension eligible age group mortality rates. The implied social value of the mortality risk reduction from this program is one‐tenth of the value per statistical life associated with contemporary government policy, meaning that Canadians did not need to place a high value on the life of a senior to justify the higher cost of the universal program. JEL classification: I3, J1     

Measuring lnequality in the Middle East 1990–2016: The World’s Most Unequal Region?

In this paper we combine household surveys, national accounts, income tax data and wealth data in order to estimate income concentration in the Middle East for the period 1990–2016. According to our benchmark series, the Middle East appears to be the most unequal region in the world, with a top decile income share as large as 64 percent, compared to 37 percent in Western Europe, 47 percent in the US and 55 percent in Brazil (see Alvaredo et al. 2018). This is due both to enormous inequality between countries (particularly between oil‐rich and population‐rich countries) and to large inequality within countries (which we probably under‐estimate, given the limited access to proper fiscal data). We stress the importance of increasing transparency on income and wealth in the Middle East, as well as the need to develop mechanisms of regional redistribution and investment.     

What drives inequality and poverty in the EU? Exploring the impact of macroeconomic and institutional factors

Employing panel data techniques, we investigate the macroeconomic and institutional determinants of inequality and poverty in the EU over the period 1994–2008. We pay particular attention to the effects of macroeconomic environment, social protection and labour market institutions. The empirical analysis shows that the social transfers in cash, and principally the transfers that do not include pensions, exert a prominent impact on inequality and poverty. Also significant is the effect of the GDP per capita. The impact of employment on inequality and poverty is not empirically sound. The same holds for the labour market institutions; an exception is the union density, which appears conducive to a less dispersed personal income distribution. Importantly, the results support the view that the social protection system acts as a catalyst in determining the effectiveness of social spending and the distributive role of economic growth and employment.