Difference‐in‐differences when the treatment status is observed in only one period

This paper considers the difference‐in‐differences (DID) method when the data come from repeated cross‐sections and the treatment status is observed either before or after the implementation of a program. We propose a new method that point‐identifies the average treatment effect on the treated (ATT) via a DID method when there is at least one proxy variable for the latent treatment. Key assumptions are the stationarity of the propensity score conditional on the proxy and an exclusion restriction that the proxy must satisfy with respect to the change in average outcomes over time conditional on the true treatment status. We propose a generalized method of moments estimator for the ATT and we show that the associated overidentification test can be used to test our key assumptions. The method is used to evaluate JUNTOS, a Peruvian conditional cash transfer program. We find that the program significantly increased the demand for health inputs among children and women of reproductive age.     

Does China's carbon emissions trading policy improve the technology innovation of relevant enterprises?

China's carbon emissions trading (CET) policy aims to force relevant enterprises to implement low‐carbon technology innovation and address environmental challenges through marketization means. However, how China's CET policy may affect enterprise technology innovation and whether this effect may differ in industries remain to be further investigated. Therefore, based on the panel data of listed enterprises covered by the CET policy in China during 2009–2017, this paper employs the difference‐in‐difference (DID) and DID‐based propensity score matching models to evaluate the effect of CET on technology innovation. The empirical results indicate that the effect of China's CET on the technology innovation of related enterprises is generally not significant during the sample period, but this effect presents evident industrial heterogeneity. Specifically, among the eight CET‐covered industries, the CET policy helps to improve technology innovation for power and aviation enterprises but not in the other six industries (i.e., steel, chemical, building material, petrochemical, nonferrous metals, and paper), which implies that China's CET policy still has great potential for promoting the technology innovation of related enterprises. In addition, the central findings remain robust when the system generalized method of moment and DID‐based coarsened exact matching models are applied to consider the influence of omitted variables, unobservable confounders, and different matching methods.     

The Sorting of Female Careers after First Birth: A Competing Risks Analysis of Maternity Leave Duration

A number of contributions have found evidence that motherhood is a critical life event for women's employment careers. This study presents a detailed analysis for the duration of maternity leave in which young mothers can make a transition into different types of employment, unemployment as well as the next birth. We provide a comprehensive picture of the sorting mechanisms that lead to the differentiation of women's employment careers after birth. Our empirical evidence is derived from large‐linked administrative individual labour market data from Germany for a period of three decades. We obtain unprecedented insights into how women's skills, the quality of the previous job match, firm level characteristics, labour market conditions and leave legislation are related to the length of maternity duration. Expansionary leave policies, e.g. are found to be a key factor for the rising share of women who have their second child out of inactivity.     

THE DEBATE ABOUT THE REVIVED BRETTON‐WOODS REGIME: A SURVEY AND EXTENSION OF THE LITERATURE

This paper surveys the literature dealing with the thesis put forward by Dooley, Folkerts‐Landau and Garber (DFG) that the present constellation of global exchange‐rate arrangements constitutes a revived Bretton‐Woods regime. DFG also argue that the revived regime will be sustainable, despite its large global imbalances. While much of the literature generated by DFG's thesis points to specific differences between the earlier regime and revived regime that render the latter unstable, we argue that an underlying similarity between the two regimes renders the revived regime unstable. Specifically, to the extent that the present system constitutes a revived Bretton‐Woods system, it is vulnerable to the same set of destabilizing forces – including asset‐price bubbles and global financial crises – that marked the latter years of the earlier regime, leading to its breakdown. We extend the Markov switching model to examine the relation between global liquidity and commodity prices. We find an evidence of commodity‐price bubbles in both the latter stages of the earlier Bretton‐Woods regime and the revived regime.     

MEASURING THE EFFECT OF NAPSTER ON RECORDED MUSIC SALES: DIFFERENCE‐IN‐DIFFERENCES ESTIMATES UNDER COMPOSITIONAL CHANGES

This paper measures the effect of Napster on record sales. I treat the introduction of Napster as a technological event that only Internet users experienced, and use a difference‐in‐differences (DD) approach. Because of potential compositional changes in Internet users, I examine identifying assumptions for the DD estimator under compositional changes and develop a test for identifying restrictions. To address potential bias due to compositional changes, I extend DD matching estimators to the case of two‐variate propensity scores. I find evidence suggesting that file sharing is likely to explain 20% of total sales decline, which is driven by households with children aged 6–17. Copyright © 2011 John Wiley & Sons, Ltd.     

Inference in difference-in-differences: How much should we trust in independent clusters?

We analyze the challenges for inference in difference-in-differences (DID) when there is spatial correlation. We present novel theoretical insights and empirical evidence on the settings in which ignoring spatial correlation should lead to more or less distortions in DID applications. We show that details, such as the time frame used in the estimation, the choice of the treated and control groups, and the choice of the estimator, are key determinants of distortions due to spatial correlation. We also analyze the feasibility and trade-offs involved in a series of alternatives to take spatial correlation into account. Given that, we provide relevant recommendations for applied researchers on how to mitigate and assess the possibility of inference distortions due to spatial correlation.     

A TIP OF THE ICEBERG? THE PROBABILITY OF CATCHING CARTELS

Reliable estimates of crime detection probabilities could help in designing better sanctions and improve our understanding of the efficiency of law enforcement. For cartels, we only have limited knowledge on the rate at which these illegal practices are discovered. In comparison to previous works, this paper offers a more parsimonious and simple‐to‐use method to estimate time‐dependent cartel discovery rates, while allowing for heterogeneity across firms. It draws on capture–recapture methods that are frequently used in ecology to make inferences on various wildlife population characteristics. An application of this method provides evidence that less than a fifth of cartelising firms are discovered. Copyright © 2013 John Wiley & Sons, Ltd.     

THE EVOLUTION OF STOCK MARKET EFFICIENCY OVER TIME: A SURVEY OF THE EMPIRICAL LITERATURE

Abstract This paper provides a systematic review of the weak‐form market efficiency literature that examines return predictability from past price changes, with an exclusive focus on the stock markets. Our survey shows that the bulk of the empirical studies examine whether the stock market under study is or is not weak‐form efficient in the absolute sense, assuming that the level of market efficiency remains unchanged throughout the estimation period. However, the possibility of time‐varying weak‐form market efficiency has received increasing attention in recent years. We categorize these emerging studies based on the research framework adopted, namely non‐overlapping sub‐period analysis, time‐varying parameter model and rolling estimation window. An encouraging development is that the documented empirical evidence of evolving stock return predictability can be rationalized within the framework of the adaptive markets hypothesis.     

TIME‐VARYING DYNAMICS OF THE REAL EXCHANGE RATE: AN EMPIRICAL ANALYSIS

We use a time‐varying structural vector autoregression to investigate evolving dynamics of the real exchange rate for the UK, euro area and Canada. We show that demand and nominal shocks have a substantially larger impact on the real exchange rate after the mid 1980s. Real exchange rate volatility, relative to fundamentals, also shows a marked increase after this point in time. However, there is some evidence suggesting a closer business cycle co‐movement of the real exchange rate and fundamentals. Simulations from an open‐economy DSGE model show that these results are consistent with a decline in exchange rate pass‐through. Copyright © 2012 John Wiley & Sons, Ltd.     

THE PARADOX OF SLOW-GROWTH HIGH-INCOME REGIONS

We attempt to provide an economic theory and the empirical evidence to explain why slow-growth regions, like Quebec in Canada, enjoy as high living standards as rapidly growing regions. In the long term quantities not prices adjust (except for the price of land, a resource in fixed supply). Despite variations in regional growth rates, real per capita income adjusted for housing costs converge in all regions. The analysis offers important insights into regional development and has far-reaching implications for federalism.     

ADAM SMITH AND THE ROLE OF THE METAPHOR OF AN INVISIBLE HAND

Daniel Klein and Brandon Lucas's ‘In a Word or Two, Placed in the Middle: The Invisible Hand in Smith's Tomes’, following a vague hint by Peter Minowitz (2004) , offers original physical evidence that Smith ‘deliberately placed the phrase “led by an invisible hand”– at the physical centre of both his masterworks’. Further, it suggests that the invisible‐hand paragraphs are a response to Rousseau (1755 ); and that in ‘numerous and rich ways’, centrality holds ‘special and positive significance in Smith's thought’. This paper acknowledges the physical centrality of the invisible‐hand metaphor, but questions whether centrality alone gives weight to wider claims that the ‘invisible hand’ was Smith's ‘central idea’. It draws upon Smith's Rhetoric Lectures (1763), and argues that the invisible‐hand paragraphs in The Theory of Moral Sentiments and Wealth of Nations identify the actual objects of the invisible‐hand metaphor. This paper insists that Adam Smith is the most reliable source for revealing what he meant. In contrast, most modern attributions of special meaning to Adam Smith's use of the metaphor ignore Smith's teaching on the use of metaphors and, instead, make numerous, and often mutually exclusive, claims that Smith had a ‘doctrine’ of ‘an invisible‐hand’.     

IDENTIFYING THE RESPONSE OF FERTILITY TO FINANCIAL INCENTIVES

While using financial incentives to increase fertility has become relatively common, the effects of such policies are difficult to assess. We propose an identification strategy that relies on the fact that the variation in wages induces variation in benefits and tax credits among ‘comparable’ households. We implement our approach by estimating a discrete‐choice model of female participation and fertility using individual data from the French Labor Force Survey and a detailed representation of the French tax–benefit system. Our results suggest that financial incentives have had a significant effect on fertility decisions in France. As an example, we simulate the effects of an additional, unconditional child credit of 150 euros per month. The effects are strongest for the third child. Copyright © 2013 John Wiley & Sons, Ltd.     

THE MULTIDIMENSIONAL EFFECTS OF RELIGION ON SOCIOECONOMIC DEVELOPMENT: A REVIEW OF THE EMPIRICAL LITERATURE

Religion plays a fundamental role in most people's lives with profound implications for socioeconomic development. This survey provides a comprehensive and systematic overview of the causal mechanisms between religion and development discussed and tested in the economics literature, and reviews quantitative empirical evidence on the actual effects of religion on economic and social dimensions of development. We start by disaggregating the concept of religion into four religious dimensions and propose a framework to conceptualize causal mechanisms. Numerous mechanisms are possible but only a few uncontested findings exist. Religion is ambivalent vis‐à‐vis development: although religious ideas can foster certain forms of human capital acquisition and labor market participation, scholars have found a negative relationship between religious dimensions and both income and gender equality as well as innovation activities. Religious identity is also a source of labor market discrimination and has ambivalent effects on economic growth and social cohesion. Methodological challenges refer to the availability of fine‐grained data, especially for developing countries, the use of concepts and definitions, and the lack of causal inference.     

SURVEYING THE ECONOMICS OF PLURAL MODES OF ORGANIZATION

Why do firms concomitantly rely on more than one organizational arrangement to procure/distribute a given input/product? In this paper, we systematically review and discuss the extensive path undergone by the literature exploring this issue: the so‐called plural forms. We address two main questions: how to explain the coexistence (and often the prevalence) of plural forms in many types of businesses? Are plural forms stable or a transitory phenomenon? We describe the most prominent motivations identified in the economics and management literature that drive firms to adopt plural forms and show that their vast majority are related to the mitigation of various types of agency/transaction costs. We also demonstrate that most of the available pieces of empirical evidence suggest the stability of plural forms over time. We conclude by demonstrating the path that has been trailed by the most recent developments.     

RISE OF THE FIDUCIARY STATE: A SURVEY OF SOVEREIGN WEALTH FUND RESEARCH

We survey the literature documenting the rise of sovereign wealth funds (SWFs), which, with assets under management of over $5.4 trillion at year‐end 2014, are a major force in global finance. Research papers have analyzed the evolution of SWFs from stabilization funds to stand‐alone wealth management funds; we both survey this research and show that more than 25 countries have launched or proposed new SWFs since January 2008. The most salient and controversial feature of SWFs is that they are state‐owned; we survey the existing literature on state ownership and discuss what this predicts about the efficiency and beneficence of government control of SWF assets. We discuss the documented importance of SWF funding sources (oil sales revenues versus excess reserves from export earnings) and survey the normative literature describing how SWFs should allocate funds. We then summarize the empirical literature studying how SWFs actually do allocate funds—across asset classes, geographically, and across industries. We document that most SWF equity investments in publicly traded firms involve cross‐border purchases of sizeable minority stakes (median around 20%) in target firms, with a strong preference for investments in the financial sector. Next, we assess empirical studies examining the impact of SWF stock investments on target firm financial and operating performance, and find universal support for a positive announcement period stock price increase of 1–3%. This, however, is significantly lower than the 5% abnormal return documented for stock purchases by comparable privately owned financial investors in recent studies, indicating a “sovereign wealth fund discount.” We conclude by summarizing the lessons of SWF research and pointing out unresolved issues.     

A SURVEY OF THE ECONOMICS OF FAIR TRADE

Fair Trade has spread in developing countries as an initiative aimed at lifting poor smallholder farmers out of poverty by providing them with premium prices, availability of credit, and improved community development and social goods. Fair Trade is also viewed as a niche market for high value products in a context of globalization and trade liberalization policies that affect smallholder farmers in developing countries. This paper provides an overview of the potential effects of Fair Trade, both theoretical and empirical, on small‐scale producers in developing countries. Our review discusses the empirical evidence on prices and income, as well as the importance of limited market access and productivity. We discuss evidence on labor markets and human capital investments as well.     

EVIDENCE ON THE IMPACT OF TARIFF REDUCTIONS ON EMPLOYMENT IN DEVELOPING COUNTRIES: A SYSTEMATIC REVIEW

This paper analyses the evidence on the impact of tariff reductions on employment in developing countries. We carry out a systematic review of the existing empirical literature, and include both, ex post econometric evidence and ex ante Computable General Equilibrium (CGE) simulation studies. The synthesis of results suggests that the effects of tariff reductions on employment are country and trade policy specific. When looking across higher quality econometric studies that control for the endogeneity of tariffs, only a couple of studies have statistically significant results, and these suggest that employment is likely to decrease slightly in the short run following trade liberalization. This is consistent with the notion that there are winners and losers from trade policy reform. These results are in contrast with the CGE findings, which by design incorporate projections of the medium‐run economy‐wide knock‐on effects suggested by economic theory. The synthesis of CGE studies suggests non‐negative effects of trade liberalization on aggregate employment and moderate inter‐sectoral labour reallocation effects.     

Nonresponse and Recall Errors in a Study of Absence because of Illness: An Analysis of Their Effects on Distributions and Relationships

Using administrative data as validating standard, we studied the combined effects of two sources of survey error – nonresponse and recall errors – on distributional and substantive bias in a mail survey of absence because of illness among the employees of a Dutch road building company (response rate 77%). No distributional bias was found in five socio-demographic variables (sex, age, years of service, function, and district), but both nonresponse bias and recall bias occurred in our central dependent variables: frequency and duration of absence because of illness. Nonrespondents were on sick leave more frequently and longer than respondents. Furthermore, the self-reports of absence because of illness of our respondents proved to be rather inaccurate. Underreporting of frequency and duration of sick leave was more common than overreporting. Therefore, both sources of error had a cumulative effect.While nonresponse did not result in biased relationships, recall errors had clearly biasing consequences: seven out of 30 correlation coefficients analyzed were too biased to produce valid outcomes; another six were substantially biased. Multiple regression used for predicting recent absence because of illness among our respondents also led to different outcomes depending on the choice of data source (administration or questionnaire) for our absence variables.     

WHAT IS THE EFFECT OF HOUSEWORK ON THE MARKET WAGE,AND CAN IT EXPLAIN THE GENDER WAGE GAP?

Abstract Does housework reduce the market wage, and if so, does it have a similar impact for males and females? In this paper, we survey and evaluate the recent and growing empirical literature on the linkages between housework and the wage rate. The review is motivated by unexplained gender wage gaps across studies, which consider personal and market‐related factors. We focus on this less‐studied aspect of wage determination. We consider the required modelling framework, and provide standardized estimated effects of housework on the hourly wage across studies. We evaluate how this literature has addressed potential estimation problems, in particular, the endogeneity of housework, concavity of the housework–wage function, threshold effects and work effort effects. We conclude that the evidence across ordinary least squares, instrumental variable, fixed effects and two‐stage least squares results casts serious doubt on the idea that the negative female housework–wage relationship is only driven by endogeneity bias or individual‐specific characteristics. Yet, much more needs to be done to address modelling and data requirements, and we point out likely and promising future research directions.