Does Leaving the Eurozone Mean Leaving the Euro?

Events in the Eurozone have raised the possibility that a Eurozone member departs the currency union. We devise a simulation to examine whether trading firms in the departed country will continue to invoice their product in the Euro or elect another currency denomination strategy. Because trading firms have flexibility in choosing their invoicing currency, they make an excellent case for studying the currency usage patterns of other economic actors that may emerge after Eurozone departure. Results suggest that greater price discrimination leads to more use of the buyer’s currency while firms that set only one price will tend to denominate that price in the U.S. dollar. Low exchange rate volatility between the exiting country’s new currency and the Euro leads to more Euro usage.     

Is Abe's Fiscal Policy Ricardian? What Does the Fiscal Theory of Prices Mean for Japan?

The second arrow of Abenomics is flexible fiscal policy. However, it does not mean just fiscal stimulus as the Abe administration decided on the fiscal consolidation target of achieving a primary surplus by fiscal year 2020. Improving the primary balance implies making government debt more sustainable. Although the consumption tax rate was raised from 5% to 8% in April 2014, the Abe administration has decided twice to postpone increasing the consumption tax from 8% to 10%. In addition, a fiscal stimulus package was implemented. We use a Fiscal Stance Index to examine fiscal policy from the viewpoint of fiscal sustainability and a Markov switching model to examine fiscal policy from the viewpoint of the fiscal theory of the price level, and find that the Abe's fiscal stance is not Ricardian.     

Fiscal forecast errors: Governments versus independent agencies?

We present evidence pointing to the fact that international agencies' fiscal forecasts were affected to some extent by the same type of problems that the literature widely acknowledges for governmental ones. Informational shortages may lead independent agencies' staff to internalize “political biases” in governmental forecasts when trying to grasp genuine “private information”. Our study is based on a real-time database of EC, OECD and national governments' public deficit forecasts for 15 European countries over the period 1999–2007 and four vintages of projections per forecasted year. Against this background, independent national fiscal institutions might be a natural option, to the extent that they may have better access to inside national information than international organizations. Our results also provide some support to policy positions that claim a closer monitoring of official budgetary projections, in particular as regards transparency requisites, accountability and the threat of sanctions.     

Does progress matter?

This paper, presented as an addresss to the Annual Conference of the European Society for the History of Economic Thought, argues that writing history may be more interesting if progress is not made the leitmotif. Starting from an examination of early causal accounts of the history of political economy, written in the ninteenth century by Marx, Toynbee, Ingram and Leslie, a plea is made for narratives rather than explanations. Consistent with the former historians of economic thought this may be perceived as eavesdropping on conversations of the past. To understand the richness of these conversations they need to perceive their work not just as a sub-discipline of economics but in a wider interdisciplinary setting.     

Does Inequality Foster Corruption?

In this paper, we investigate how inequality affects corruption in the presence of an imperfect credit market. We favor an explanation based on a multimarket framework where corruption in one market (or sector) arises because of imperfections exacerbated by inequality in related markets. We demonstrate that even when an individual's ability to pay bribes and benefit from engaging in corruption are not affected by wealth level, greater (wealth) inequality will lead to an increase in corruption.     

Does democratization spur growth?

Many studies have considered how democratization affects economic growth. We expand this work by allowing short‐ and long‐run effects of democracy upon growth to differ since effects during political transitions need not coincide with those under established democracies. We also allow these short‐ and long‐run effects to differ across world regions since history, demography and geography vary across regions. Using annual, cross‐county data from 1960 to 2010, we find that democratizations increased growth rates in sub‐Saharan Africa both in the short run and in the long run but lowered them in Europe. Effects in other regions appear less strong. Our results suggest that democracy could be most beneficial for growth in poorer, less stable regions. We also do not find any evidence of a transitional cost. Stronger evidence arises that these effects come from rising productivity rather than through greater investment. Finally, some support though mixed suggests that democracy's ability to mitigate the effects of ethnic heterogeneity provides a partial explanation for the cross‐regional heterogeneity.     

Does aid affect inequality?

We show that there was a negative correlation between pro-poor aid and inequality in the period before the mid-2000s. This article provides an explanation for this observed relationship. Using panel data on 34 countries for the period 1996–2014, we test the hypothesis that pro-poor aid has an inequality-reducing effect. To demonstrate that the negative correlation is not spurious, we use dynamic panel techniques with alternative specifications. We show that the share of pro-poor aid has a negative effect on inequality. In addition, we show that the interaction term between the poverty rate and the change in pro-poor aid has a significant effect. These empirical results are consistent with our theoretical predictions. The results imply that aid can reduce inequality by altering the allocation of aid, rather than by increasing the amount of aid.     

Does trust promote growth?

We examine the effect of generalized trust on long-term economic growth. Unlike in previous studies, we use Bayesian model averaging to deal rigorously with model uncertainty and attendant omitted variable bias. In addition, we address endogeneity and assess whether the effect of trust on growth is causal. Examining more than forty regressors for nearly fifty countries, we show that trust exerts a positive effect on long-term growth and, based on the posterior inclusion probabilities, suggest that trust is an important driver of long-term growth. Our results also show that trust is key for growth in countries with a weak rule of law.     

New Challenges to Urbanization in China

With reform, Chinese urbanization makes an obvious progress. The urban quantity, urban scale, and urban population become more and more. Urban economy has ：become a more important component of the national economy. However, the process of urbanization is either in theory or in practice continually faced with serious new challenge. It is a focus on urban development in China.     

Does money impede convergence?

Inspired by Clower’s conjecture that the necessity of trading through money in monetised economies might hinder convergence to competitive equilibrium, and hence, for example, cause unemployment, we experimentally investigate behaviour in markets where trading has to be done through money. In order to evaluate the properties of these markets, we compare their behaviour to behaviour in markets without money, where money cannot intervene. As the trading mechanism might be a compounding factor, we investigate two kinds of market mechanism: the double auction, where bids, asks and trades take place in continuous time throughout a trading period; and the clearing house, where bids and asks are placed once in a trading period, and which are then cleared by an aggregating device. We thus have four treatments, the pairwise combinations of non-monetised/monetised trading with double auction/clearing house. We find that: convergence is faster under non-monetised trading, implying that the necessity of using money to facilitate trade hinders convergence; that monetised trading is noisier than non-monetised trading; and that the volume of trade and realised surpluses are higher with the double auction than the clearing house. As far as efficiency is concerned, monetised trading lowers both informational and allocational efficiency, and while the double auction outperforms the clearing house in terms of allocational efficiency, the clearing house is marginally better than the double auction in terms of informational efficiency when trade is through money. Crucially we confirm the conjecture that inspired these experiments: that the necessity to use money in trading hinders convergence to competitive equilibrium, lowers realised trades and surpluses, and hence may cause unemployment.     

Does the star power matter?

This study investigates the role of superstars in the Korean movie industry. We apply a two-step approach: the first step is to test the significance of the star power during 1988–1999 in Korea; the second step is to estimate the magnitude of star power. The appearance of a star actor increases the probability of a hit or success by 15–19% and star power is higher than a director power. A domestic award is associated with positive performance. We find that the top 15 players among 68 actors and actresses significantly impacts on the success of movies.     

Does trade weaken product standards?

We investigate the effects of trade on national minimum quality standards for a product whose quality is unobservable to consumers prior to purchase. Two standard‐setting regimes are considered: (1) where the regulatory authority takes the trade share as given; and (2) where the regulatory authority takes full account of its ability to influence the trade share. We find that standards are not a protectionist instrument in this model, the usual gains from trade apply if standards are maintained at their autarky values, trade can cause private standards to be adjusted in a welfare reducing way, and the welfare of a country is higher if its regulatory authority adopts regime (2) rather than (1).     

Does war influence individual expectations?

We analyse the effect of mass violent conflict on individual expectations in Northern Uganda. We find that the expectations of the future economic situation are negatively affected by recent conflict while the effect on broadly defined welfare is less robust.     

Does automation technology increase wage?

This paper examines the relationship between automation technology and wages. In the model, producers either choose automation or non-automation technology, whichever is more profitable. Furthermore, when producers introduce automation technology, they must pay fixed costs, which differ between industries. The main results of this paper indicate that the increased productivity of automation technology promotes automation, decreases labor income share, and also decreases wages when the level of automation diffusion is sufficiently high.     

Does Globalization Foster Economic Growth?

This article examines the effects of globalization, by especially focusing on the relaxation of local equity requirements (LERs) in developing countries. By constructing an endogenous growth model, where profit leakage to the South through LERs plays a key role, we obtain the following results. First, the relaxation of LERs in the South drives the relocation of firms from the North to the South, yielding a U‐shaped growth rate. Second, our numerical simulations suggest that a sufficient relaxation of LERs is beneficial for the South, although the shared profit of joint ventures is maximized through the use of LERs.