Is there a “reform fatigue” in the euro area?

The absence of monetary policy within a currency union increases the need for structural reforms that make the participating economies more flexible. However, the absence of exchange rate risk with respect to the other members of the union may reduce the urgency for such reforms. A number of other considerations also suggest that theory is ambiguous about the impact of participating in a currency union on progress in structural reforms. This paper addresses this issue empirically for the euro area. The results suggest that reforms in the euro area seem to have decelerated following the introduction of the euro, but from a fast pace. The paper discusses a number of possible explanations, including “reform fatigue,” the absence of “market punishment,” and “good-times” complacency. Estimates from an empirical growth model suggest that the slowing of reforms may slow down annual output growth by up to 0.2%. However, the results are preliminary and depend on the area of reform considered. Furthermore, the reform dynamics may change with the euro area starting slowing at the end of 2007.     

Do the world’s largest cities follow Zipf’s and Gibrat’s laws?

We examine whether the size distribution and the growth process of the world’s largest cities follow Zipf’s law and Gibrat’s law. The parametric results of the size distribution analysis reject Zipf’s law for all sample sizes and also show the Zipf exponent systematically declines as the sample size increases. The growth process analysis confirms Gibrat’s law and yields a local Zipf exponent of one for cities with a normalized population less than 0.53%, which includes about 95% of the total observations. The deviations from Zipf’s law occur at the extreme upper tail and are likely a result of restricted mobility of population across countries. However, given that Gibrat’s law holds, we can expect the size distribution to converge to Zipf’s law with a decline in the barriers to immigration.     

A comment on ‘Is the spurious regression problem spurious?’

McCallum (2010) presented evidence that the spurious regression problem can be solved by standard means. We show using finite-sample evidence that the spurious regression problem cannot always be fixed using standard autocorrelation correction procedures and remains, therefore, a not-so-spurious problem.     

Did the Hartz Reforms Speed‐Up the Matching Process? A Macro‐Evaluation Using Empirical Matching Functions

Abstract. Starting in January 2003, Germany implemented the first two so-called Hartz reforms, followed by the third and fourth packages of Hartz reforms in January 2004 and January 2005, respectively. The aim of these reforms was to accelerate labor market flows and reduce unemployment duration. Without attempting to evaluate the specific components of these Hartz reforms, this paper provides a first attempt to evaluate the overall effectiveness of the first two reform waves, Hartz I/II and III, in speeding up the matching process between unemployed and vacant jobs. The analysis is conceptually rooted in the flow-based view underlying the reforms, estimating the structural features of the matching process. The results indicate that the reforms indeed had an impact in making the labor market more dynamic and accelerating the matching process.     

Do Political Factors Cause the Regional Inequality in the Reform‐Era China?

We construct a political variable—the number of ministers of all national government departments born in each province weighted by provincial population—to examine its effect on economic growth in China during 1981–2010. We find that the lagged per capita political variable has a significant, positive effect on economic growth in both ordinary least squares (OLS) estimation and system generalized method of moments (GMM) estimation. We also find that the lagged per capita political variable has a significant, positive effect on financial deregulation policies distributed across provinces, which offers a possible mechanism for the political variable to impact growth.     

Let the Data Speak? On the Importance of Theory‐Based Instrumental Variable Estimations

In absence of randomized‐controlled experiments, identification is often aimed via instrumental variable (IV) strategies, typically two‐stage least squares estimations. According to Bayes’ rule, however, under a low ex ante probability that a hypothesis is true (e.g. that an excluded instrument is partially correlated with an endogenous regressor), the interpretation of the estimation results may be fundamentally flawed. This paper argues that rigorous theoretical reasoning is key to design credible identification strategies, the foremost, finding candidates for valid instruments. We discuss prominent IV analyses from the macro‐development literature to illustrate the potential benefit of structurally derived IV approaches.     

On Britain's Return to the Gold Standard: Was there a ‘Pigou–McKenna School’?

It is common to refer to the ‘Keynes–McKenna school’ in opposition to Britain's return to the gold standard. However, after considering A.C. Pigou's reading of Sir Reginald McKenna's testimony to the Chamberlain–Bradbury Committee and the influence of that reading on Pigou's draft of the Committee's report to the British government, the case is made for the ‘Pigou–McKenna school’ as a policy school that was supportive of a return to the gold standard but against doing so prematurely. This is perhaps more meaningful than reference to the ‘Keynes–McKenna school’, which incorrectly implies that McKenna was opposed to Britain returning to gold.     

U or Inverted‐U? That Is the Question

Fields ( The Economic Journal , vol. 103, 1993, pp. 1228–35) provides a forceful argument in favor of a U-shaped path for inequality during a period of high-income-sector enlargement in a dual-economy model. This paper explores the assumptions necessary to derive Fields's controversial result and demonstrates that in fact a U-shaped pattern is possible using the Atkinson index, but some bizarre assumptions about inequality aversion are required.     

Progressive Lending in Microfinance—What about the Farmers?

Dynamic incentives have become a common measure in microfinance institutions (MFI) to counteract the risk of default and to strengthen the borrower's identification with his micro‐lender. This article focuses on progressive lending over the course of the bank–borrower relationship. As the agricultural sector is increasingly important for Azerbaijan's economy, this study differentiates between the lending policies faced by farmers and non‐farmers, and matches the findings with the repayment performances of both client groups. By means of a rich data set spanning from 2007 through 2012 provided by an MFI in Azerbaijan, it can be demonstrated that farmers face a higher degree of loan volume rationing that cannot be justified by our findings on repayment performances. Moreover, we find that repeated borrowing increases the default probabilities of both client groups. In conclusion, we deduce that the MFI and borrowers could benefit from reconsidering the current lending policies.     

Need,Merit, or Self‐Interest—What Determines the Allocation of Aid?

Previous studies of aid allocation have concluded that foreign aid is allocated not only according to development needs but also according to donor self‐interest. We revisit this topic and allow for donor‐ as well as recipient‐specific effects in our analysis. In addition to comments on the statistical significance of our results we assess the relative economic importance of recipient need, merit, and donor self‐interest. Our results indicate that all bilateral donors allocate aid according to their self‐interest and recipient need. However, most bilateral donors seem to place little importance on recipient merit. Less than 1% of the variance of aid is accounted for by merit, ceteris paribus. The UK and Japan are exceptions: they allocate more aid to countries with higher growth, higher democracy scores, and fewer human rights abuses.     

Reverse causality in the R&D–patents relationship: an interpretation of the innovation persistence

Starting from the failure of the R&D–patents traditional relationship, when time-series and/or within-industry dimensions are included in the empirical analysis, the present work tries to contribute to the empirical literature from two directions. First, it performs a Granger causality test based on the theoretical presumption of a reverse patents→R&D link as an explanation for the failure of the traditional relationship. Second, assuming the reverse patents–R&D causality, we test and interpret the lag structure of such a relationship which shows the effective patent life that firms can expect within the two Schumpeterian patterns of innovations they belong to. In the light of the effective patent life, we offer a further explanation of innovation persistence which overturns the findings of the existing literature on persistence.     

Who pays taxes? Liturgies and the <Emphasis Type="Italic">Antidosis</Emphasis> procedure in Ancient Athens

Ancient Athens developed a constitutional democracy. A core, time invariant political economy problem is that of providing public services when wealth is imperfectly know. I model theoretically a unique institution developed in Ancient Athens known as the Antidosis. It allowed a citizen on the list of tax-payers to challenge a citizen not contributing to replace him and make the public goods contribution. The challenged citizen, rather than allow the claim to go before a jury trial, could choose to swap wealth with the accusing tax payer. I argue this acts as a screening mechanism and improves upon the asymmetric information problem the government has in identifying who is indeed those who have the highest wealth to provide the tax revenue to finance the public services.