Inequality,Democracy, and Persistence: Is There a Political Kuznets Curve?

The aim of this paper is to provide comprehensive empirical evidence on recent theories that link democracy and income inequality for the period 1960–1997. In simple cross-country regressions I find a non-monotonic link between democracy and inequality when using ordinary least squares, instrumental variables, and Eusufzai tests. I also employ dynamic panel data techniques, which control for potential simultaneity and heterogeneity problems. I also find support for the existence of apolitical Kuznets curve. Moreover, it appears that income inequality is unconditionally persistent. Results are robust to different democracy proxies when sensitivity analysis is applied.     

Interdependence between US and European military spending: a panel cointegration analysis (1988-2013)

The aim of this article is to study the interdependence of military spending between US and a panel of European countries in the period 1988–2013. The empirical estimation is based on a: (1) unit root tests and a cointegration analysis and (2) fully modified ordinary least squares and dynamic ordinary least squares estimations. General results highlight that military spending of European countries is: (1) positively associated with US military spending and (2) negatively associated with average military spending of other European countries.     

Time-varying exchange rate exposure and exchange rate risk pricing in the Canadian Equity Market

This paper aims to extend the existing literature on foreign exchange rate risk pricing. Unlike the existing studies on Canada, we use six alternative bilateral and one multilateral exchange rate proxies. Furthermore, using both a two-factor and a three-factor capital asset pricing model (CAPM), we test for the presence of a long-run relationship among exchange rate risk pricing, herding behavior, term structure and the interest rate. The estimated results based on both the ordinary least squares (OLS) and generalized least squares (GLS) estimation techniques confirm that exchange rate risk in the Canadian equity market is priced and that the pricing of this risk is time-varying. This result holds for all seven exchange rate proxies. Our empirical analysis also suggests the presence of a long-run relationship among exchange rate risk pricing, herding behavior, term structure and the interest rate. This relationship is found to be insensitive to variations in the world market return.     

The short- and long-run impacts of financial crises on youth unemployment in OECD countries

The impact of financial crises on the youth unemployment rate (YUR), compared to the total unemployment rate (UR), is estimated for a panel of OECD countries over the period 1981–2009, using bias-corrected dynamic panel data estimators of short- and long-run coefficients. Both YUR and UR are found highly persistent. Also, short- and long-run effects of financial crises on YUR are significantly large, respectively, some 1.9 and 1.5–1.7 times higher than the short- and long-run effects on UR. Similar results are found for the unemployment impacts of GDP growth lagged 1 year and institutional variables. These results are robust to various dynamic specifications.     

Engineering robust instruments for GMM estimation of panel data regression models with errors in variables: a note

Econometricians have long recognized the need to account in some way for measurement errors, specification errors and endogeneity to ensure that the ordinary least squares estimator is consistent. This article introduces a new generalized method of moments estimator that relies on robust instruments to estimate panel data regression models containing errors in variables. We show how this GMM approach can be generalized for the panel data framework using higher moments and cumulants as instruments. The new instruments, engineered for greater robustness, are proposed to tackle the pervasive problem of weak instruments.     

Short and long run democracy diffusion

Does democracy diffuse across borders? If so, how long does it take? Can diffusion cause path dependence, such that if a region is initially democratic (or autocratic), it becomes increasingly so? In this paper I estimate short and long run regional democratic diffusion and account for feedback to and from other countries within the region. Although it is difficult to establish causality, I estimate that when regional democracy in year (t-1) increases, domestic democracy receives or “catches” 40–42% of the increase in the next 5 years, 55–61% in 10 years, and 68–85% in the long run prior to accounting for feedback. When I account for feedback, the average region converges to a unique long-run democracy level regardless of how democratic it is initially. I also provide region-specific and contiguous neighbor estimates, use the model to explain democratization waves, and estimate the alternative V-DEM dataset. In the V-DEM data, democracy diffuses much faster, although the long-run diffusion effects are comparable.     

Human rights protection and foreign direct investment: The case of post‐socialist countries

The main aim of the paper is to evaluate the impact of respect for human rights in post‐socialist countries on the volume of foreign direct investment (FDI). The methodology used in the study consists of the two econometric model specifications–GMM spatial panel Durbin error model and panel gravity ordinary least squares model. The main results indicate a positive and significant relationship between respect for human rights and foreign investment. The outcomes of the spatial model suggest the presence of competition and reinforcement effects of particular kinds of human rights on FDI as well as significance of the ‘human rights distance’.     

Rent‐Sharing and Workers' Bargaining Power: An Empirical Cross‐Country/ Cross‐Industry Panel Analysis

In this paper, we study how rents are shared between capital and labour, using industry‐level panel data for 19 OECD countries from 1988 through to 2007. The first step is an explanation of the rent‐creation process. We provide evidence of a significant impact of regulation on value‐added prices at the industry level relative to the value‐added price for the overall economy (rent). In the second step, we dissect the value‐added sharing process. By running ordinary least‐squares and instrumental variables estimations, we obtain results that confirm the Blanchard–Giavazzi prediction: the impact of rents on the capital share depends on workers' bargaining power.     

A note on S in a spatially correlated error components regression model for panel data

The ordinary least squares based estimator of the disturbance variance in a panel regression model with spatially correlated error component is shown to be asymptotically unbiased and weakly consistent without any restrictions on the regressor matrix.     

Unemployment Hysteresis in Australian States and Territories: Evidence from Panel Data Unit Root Tests

This article tests for hysteresis by applying panel data unit root tests to quarterly unemployment rates for Australian states and territories between 1982:2 and 2002:1. Panel tests proposed by Levin and Lin (1992) using ordinary least squares and O'Connell (1998) using feasible generalised least squares (which assume that under the alternative hypothesis of stationarity, all labour markets revert to the natural rate at the same speed) provide evidence in support of the natural rate hypothesis. However, the panel test proposed by Im, Pesaran and Shin (1997), which does not assume that all cross‐sectional units converge towards the equilibrium value at the same speed under the alternative and is therefore less restrictive than the other two panel tests, finds evidence of hysteresis. Given the advantages of the Im et al. (1997) test over the other two panel tests the results can be interpreted as being consistent with the existence of hysteresis in unemployment     

Wagner’s Law and Fiscal Illusion: An analysis of state government finances in Brazil

The aim of this article is to analyze state‐level public finances in Brazil. We examine the dynamics of governmental spending in a panel of 26 Brazilian states in search of evidence of Wagner’s Law and Fiscal Illusion Hypothesis. For the period ranging from 2002 to 2015, three methodologies are applied: dynamic ordinary least squares (DOLS), fully modified ordinary least squares (FMOLS), and pooled mean group (PMG). The main empirical results found indicate that (1) there is strong evidence of Fiscal Illusion caused by public deficit and by central government transfer grants; (2) there are possible Flypaper Effects; (3) there is no evidence in support of Wagner’s Law; (4) there is low publicness degree of local expenditures; (5) due to Fiscal Illusion, less‐developed Brazilian states tend to be stuck in a public expenditure growth mechanism, especially in expenses related to non‐public goods, which tend to benefit private interests and lobby groups.     

Does oil price variability affect ASEAN exchange rates? Evidence from panel cointegration test

Using panel data, this article investigates the long-run relationship between real oil prices and real exchange rates for selected ASEAN countries by utilizing quarterly data from 1973:Q1 to 2013:Q4. The modelling implementation starts with the determination of the stationarity condition of the variables which are found to be integrated of order one. Using Maddala and Wu’s (1999) panel cointegration test, the article finds evidence of cointegration among the variables. The fully modified OLS (FMOLS) and dynamic OLS (DOLS) are then used to estimate the long-run relationship between the variables, followed by applying Toda–Yamamoto causality test. The findings exhibit bidirectional causality between real oil prices and real exchange rates in the long run, where it is highly significant.     

Has the Feldstein-Horioka puzzle waned? Evidence from time series and dynamic panel data analysis

This objective of this paper is to examine the Feldstein-Harioka puzzle by using both time series analysis that accommodates structural breaks, and dynamic panel error-correction method. Our sample consists of 118 countries over the period 1981–2013. Results from ARDL model suggest that long-run capital is highly mobile in high-income countries (HIC), moderately mobile for both middle- and low-income countries. Our finding of the low long-run saving coefficient for HICs shows that failure to account for a structural break may overstate the long-run saving coefficient. Findings from the pooled mean group estimators suggest that capital is moderately mobile in the middle-income countries, and highly immobile in the high- and low-income countries in the long run. Our findings highlight that ignoring structural break, the type of data (time series/panel), and econometric method used can affect the conclusion about capital mobility. The adjustment coefficient in the time series analysis is comparatively higher than the panel data analysis. We also test whether country size and openness affect the saving–investment correlation. While the effect of country size on the saving coefficient is mixed, the saving estimate is found to be a function of the degree of openness. We also discuss policy implications of our findings on the current account sustainability.     

The gravity model analysis: an application on MERCOSUR trade flows

This paper explores the determinants of bilateral trade flows between Mercosur countries. To this aim, a gravity model is applied to annual bilateral exports between 75 countries in 1980–2008. The model is augmented with variables that are relevant in determining the volume and direction of international trade using two alternative estimation methods; pooled ordinary least squares and panel fixed effects. The results reveal that the influence of the agreement on trade has been positive but moderate. As a whole, Mercosur has had positive effects, and this agreement can be reinforced with the deepening of their relationships and the entry of new members.     

The influence of demand and supply side pressures on the quantity and quality of inventive activity

This article arguments the literature on the demand for professional team sports by estimating a demand function for attendance at home matches in the Malaysian Semi-Pro Football League (MSPFL) between 1989 and 1991. A single-equation demand (attendance) function based on a pooled cross-section and time-series panel data set of 399 games is estimated by ordinary least squares, a fixed effects dummy variable covariance model and an error components model. Our findings confirm the importance of market size and championship prospects for the home team (but not the visiting team), as well as divisional status and ‘star’ players. The first match of the season and derby matches also increased attendance.     

Analysing money demand relation for OECD countries using common factors

This article investigates the existence of a long-run money demand relation for a panel data consisting of 13 OECD countries. The analysis is based on the most recent data. The existence of a long-run money demand relation is tested with two new meta-analytic panel cointegrating rank tests which are robust to cross-sectional dependence. Cross-sectional dependency in the data generating process is modelled by unobserved common factors. The observed data are decomposed into idiosyncratic and common components, and these two components are analysed separately to find out the driving forces of the long-run stationary relationship. The evidence shows that the long-run money demand relation is driven by the cross-unit cointegration. Finally, the long-run relation is estimated by taking the common factors into account.     

Impacts of star-rated hotel expansion on inbound tourism development: evidence from China

This article applies heterogeneous firm trade theory, developed for the manufacturing sector, to the hotel and tourism industry to detect expansion among star-rated hotels in the context of inbound tourism development at the macro level. This article adopts both a traditional ordinary least squares (OLS) panel model and a threshold panel model using data from 31 administrative regions (provinces) in China during the 2004–2013 period. The results reveal remarkable and significant nonlinear relationships between star-rated hotel expansion and inbound tourism development, thereby offering sound evidence supporting the research hypotheses. Star-rated hotel expansion in most provinces clusters in the standardized threshold between 0.48 and 0.83, while only a few hotels have realized ‘leapfrog development’ thus far. In addition, as in the particular case of star-rated hotels, inbound tourism development should be promoted through investments in human resources rather than through the exploitation of natural tourism resource endowments. The implications of our results are that rational development plans can be made according to different expansion levels of star-rated hotels in corresponding regions, when both hotel labour productivity and macro tourism environment are considered.     

Does productivity in Africa benefit from advanced countries’ R&D?

This study employs dynamic ordinary least squares and panel co-integration to estimate advanced countries’ R&D spillover effects on labour productivity in 28 Sub-Saharan African countries over the period 1992–2011. Results show that African countries that import and receive (technical and non-technical) development aid from advanced countries experience an increase in labour productivity, suggesting that trade and aid are transmitters of foreign R&D. However, the extent to which labour productivity responds to R&D spillovers varies based on the country of origin, where spillovers from the USA have a greater impact compared to those from other advanced countries.     

Forecasting Inflation Using Constant Gain Least Squares

This paper assesses the usefulness of constant gain least squares when forecasting inflation. An out‐of‐sample forecast exercise is conducted, in which univariate autoregressive models for inflation in Australia, Sweden, the United Kingdom and the United States are used. The results suggest that it is possible to improve the forecast accuracy by employing constant gain least squares instead of ordinary least squares. In particular, when using a gain of 0.05, constant gain least squares generally outperforms the corresponding autoregressive model estimated with ordinary least squares. In fact, at longer forecast horizons, the root mean square forecast error is reliably lowered for all four countries and for all lag lengths considered in the study.     

The long-run effect of foreign direct investment on total factor productivity in developing countries: a panel cointegration analysis

This paper examines the long-run effect of the level of foreign direct investment (FDI) on the level of total factor productivity (TFP) for 49 developing countries for the period 1981–2011 using panel cointegration and causality techniques. It is found that (i) FDI has, on average, a negative long-run effect on TFP in developing countries, (ii) long-run causality runs in only one direction, from FDI to TFP, (iii) in the short run, TFP has a negative effect on FDI, and (iv) the long-run effect of FDI of TFP differs between selected groups of countries: While the estimated long-run FDI–TFP coefficients are always relatively large, negative, and significant for countries with lower levels of human capital, financial development, and trade openness, the estimated effects are relatively small, insignificant, or even significantly positive for subgroups of countries with higher levels of human capital, financial development, and trade openness.