Testing the Uzawa–Lucas model with OECD data

The paper tests the Uzawa–Lucas model of endogenous growth using a modified Granger-causality test and panel data for 20 OECD countries. The results favour the human capital augmented endogenous growth model against both the exogenous growth model à la Solow and endogenous growth models of the AK type.     

A panel data approach to price–value correlations

Resorting to stationary and nonstationary panel data econometrics, we offer tests for “Ricardo’s 93% theory of value” for ten OECD countries over different time ranges. The theory does not find empirical support.     

Urban–rural income polarization and economic growth in China: evidence from the analysis of a dynamic panel data model

Using a dynamic panel data model and the system GMM, this article examines the relationship between urban–rural income polarization and economic growth at the provincial level in the period 1995 to 2010 in China. The estimated results and significant tests indicate that a certain degree of urban–rural income polarization is beneficial to economic growth at the provincial level in both stages for China as a whole, though the contribution of urban–rural income polarization to economic growth is relatively small. Aggravating urban–rural income polarization has a negative impact on economic growth in China. Based on a cluster analysis of regional economic growth at the provincial level, the authors carried out the same analysis separately for two categories of regions too. The results for those two categories of regions show that positive correlations also exist between urban–rural income polarization and economic growth in both stages, which are very similar to the analysis for the whole of China. In addition, a meaningful finding can be derived that the contribution of consumption growth rate to economic growth rate in the second stage is smaller than that in the first stage obviously.     

Testing Okun’s law with Swiss industry data

Okun’s law postulates a stable relationship between quarterly output growth and changes in (un)employment. This proposition has so far been tested with macroeconomic data at the highest level of aggregation. The article goes beyond that in extending the analysis to industry data from Switzerland, applying a method suggested by the International Monetary Fund. Another focus is on whether expansions in production have become more ‘jobless’ over the most recent business cycle compared to earlier ones. This does not seem to be the case in Switzerland, except in the construction industry.     

Do fiscal decentralization and income inequality affect the size of the shadow economy? A panel data analysis for OECD countries

In this article, we study fiscal decentralization and inequality as driving forces of the shadow economy in advanced economies. Our empirical analysis suggests that a reduction in income inequality will contain the shadow economy, whereas expenditure and tax decentralization do not significantly impact it. As decentralization is generally believed to increase government efficiency, this result is indicative of already highly efficient public administrations. Our results further indicate that redistributive policies positively affect the size of the shadow economy, whereas the tax burden does not have any discernible effect on the shadow economy in our sample.     

Can the augmented Solow model explain China’s remarkable economic growth? A cross-country panel data analysis

China’s economy grew at an average annual rate of 9% over the last three decades. Despite the vast empirical literature on testing the neoclassical model of economic growth using data on various groups of countries, very few cross-country regressions include China and none of them particularly focuses on the explanation of China’s remarkable economic growth. We attempt to fill this gap by utilising panel data on 146 countries over the period 1980–2004 to examine the extent to which the rapid growth of China and the huge gap in the growth rate between China and other countries can be explained by the augmented Solow model. Using system GMM estimation techniques, we find that, in spite of the restrictive assumptions involved, the Solow model augmented by both human capital and structural change provides a fairly good account of international variation in economic growth. In particular, China’s relative success in economic growth is due to high physical capital investment, conditional convergence gain, dramatic changes in the structure of employment and output, and low population growth.     

Directional time-varying partial correlation with the Gaussian copula–DCC–GARCH model

This article suggests a directional time-varying partial correlation based on the dynamic conditional correlation (DCC) method. A recent study proposed the copula DCC based on the vine structure. Due to the arbitrary variable selection, their method can produce unnecessary dependence in the multivariate structure, with extra economic and computational burdens. To overcome this limitation, we incorporate directional dependence by copula to track the causal relationship among multiple variables and then extend the copula bivariate DCC method to a directional time varying partial correlation in the multivariate structure. Our proposed method provides a reasonable and efficient conditional dependence structure, without the trial and error process. We offer an application of our method to the U.S. stock market as an illustrated example.     

Intellectual property rights protection and recorded music sales��focus on 26 OECD countries panel data

This thesis mainly studies the relationship between intellectual property rights protection and recorded music sales by use of 26 OECD countries panel data from 2000 to 2007. Following Png and Wang (2006), the production equation of recorded music is developed. Meanwhile, the author introduces other independent variables such as per capita GDP, employment rate and R&D, population and economic openness. The econometric methods consist of two way fixed effects method, Arellano-Bond dynamic panel-data estimation and dynamic panel-data estimation, one-step difference GMM (generalized method of moments) by use of Stata 10.0. The findings are as followings: Intellectual property rights (IPRs) protection exerts positive effect on recorded music sales, and the influencing coefficient is at the range of 0.815 to 0.915. Meanwhile, economic openness also has positive influence. The studying results suggest that IPRs protection can reinforce the sale of recorded music, and it is very urgent to enhance IPRs protection.     

Can cohort data be treated as genuine panel data?

If repeated observations on the same individuals are not available it is not possible to capture unobserved individual characteristics in a linear model by using the standard fixed effects estimator. If large numbers of observations are available in each period one can use cohorts of individuals with common characteristics to achieve the same goal, as shown by Deaton (1985). It is tempting to analyze the observations on cohort averages as if they are observations on individuals which are observed in consecutive time periods. In this paper we analyze under which conditions this is a valid approach. Moreover, we consider the impact of the construction of the cohorts on the bias in the standard fixed effects estimator. Our results show that the effects of ignoring the fact that only a synthetic panel is available will be small if the cohort sizes are sufficiently large (100, 200 individuals) and if the true means within each cohort exhibit sufficient time variation.The authors thank Bertrand Melenberg, Robert Moffitt, Guglielmo Weber, seminar participants at Texas A & M University, Rice University and the Conference on The Econometrics of Panels and Pseudo Panels (Venice, October 1990) and two anonymous referees for helpful comments. Rob Alessie and Pim Adang kindly provided the data. Financial support by the Royal Netherlands Academy of Arts and Sciences (K.N.A.W.) and the Netherlands Organization for Scientific Research (N.W.O.) is gratefully acknowledged.     

The Feldstein–Horioka puzzle in groupings of OECD members: A panel approach

This paper investigates the relationship between investment and savings in 26 OECD countries and demonstrates that the relationship changes when the countries under consideration in the selected panel vary. Accordingly, panel estimations using annual data for the period from 1970 to 2008 have been made for various groupings of developed countries, specifically the OECD as a whole, the EU15, NAFTA and the G7. Additionally, the paper examines changes in investment savings relationships when the presence of structural shifts in developed countries – where such exist – are taken into account. Recently developed panel techniques are employed to examine the investment savings relationship and estimate saving-retention coefficients. The empirical findings reveal that the Feldstein–Horioka puzzle exists only in the panel of G7 countries, wherein the saving-retention coefficient is estimated as 0.754 and 0.864 (for the full sample of G7 countries and for stable G7 countries, respectively). The estimated saving-retention coefficient for unstable G7 countries is 0.482, which indicates a higher level of capital mobility in unstable countries with respect to stable ones. This conclusion is further supported by the estimations for OECD countries and the EU15.     

Non-linearity in the inflation–growth relationship in developing economies: Evidence from a semiparametric panel model

Using data on developing economies, we estimate a flexible semiparametric panel data model that incorporates potentially nonlinear effects of inflation on economic growth. We find that inflation is associated with significantly lower growth only after it reaches about 12 percent, which is notably lower than the comparable estimate obtained from a threshold model. Our results also suggest that models with restrictive functional form assumptions tend to underestimate marginal effects of inflation on economic growth. We also document significant variation in the effect of inflation on growth across countries and over time.     

Does growth cause structural change, or is it the other way around? A dynamic panel data analysis for seven OECD countries

In economic development, aggregate economic growth is accompanied by structural change among the three main sectors of an economy. Nevertheless, the question whether economic growth causes structural change, or changes in the economic structure cause aggregate growth is still unanswered. To shed more light on this question, this article examines a Granger causality test in a panel environment to determine the relationship of economic growth and structural change, measured either in terms of employment shares or real value added shares. Estimation and analysis of the annual data of seven OECD countries, covering the period from 1960?C2004, show that although the causality appears to be heterogeneous among these countries, some general conclusions can be drawn. Aggregate economic growth decelerates structural change in the very short run but accelerates it with some lag in time. The aggregate effect depends on whether structural change is measured in terms of employment or in terms of real value added. Conversely, structural change supports aggregate economic growth, irrespective of which measure of structural change chosen.     

Do stock market returns predict changes to output? Evidence from a nonlinear panel data model

Recent empirical work suggests a predictive relationship between stock returns and output growth. We employ quarterly data from a panel of 27 countries to test whether stock returns as useful in predicting growth. Unlike previous research, our approach allows for the possible non-linear effect of recessions on the growth-return relationship. There is strong evidence to suggest that a linear model would be misspecified and provide potentially misleading inference. Using a switching regression approach, we find evidence that returns are most useful in predicting growth when the economy is in recession.First version received: November 2002/Final version received: April 2003This paper benefited greatly from discussions with Kalvinder Shields, Mark Harris, Pete Summers, and Vance Martin. Two anonymous referees provided useful comments on an earlier version of the paper for which we are grateful. The usual disclaimer applies to any errors and omissions. Funding from The University of Melbourne greatly assisted in the completion of this paper.     

Road tax interactions among local governments: a spatial panel data analysis of the French case over the period 1984–2000

This article contributes to the literature on local tax interactions. Its novelty lies in its focus on the interactions of local governments via an indirect local tax on vehicles such as the road tax sticker and its analysis of interactions between direct and indirect local taxation. The main purpose of this article is to provide an empirical analysis of the reaction of road tax policy in a given French ‘department’ to changes in road tax policy in other ‘departments’. The analysis uses a novel panel data set covering the 96 French metropolitan ‘departments’ for the period from 1984 to 2000. First, the results confirm the presence of significant spatial interactions between French ‘departments’ due to the road tax sticker. Second, the estimation results also show that the business tax rate and/or the property tax rate on developed land are complements to the road tax sticker, whereas the residence tax rate and/or the property tax rate on undeveloped land are substitutes to the road tax instrument. Finally, I find that ‘departments’ with a larger, younger and older population set higher rates for the road tax sticker. The results are robust regarding alternative weight matrices.     

Optimal taxation in the Uzawa–Lucas model with externality in human capital

In this paper we study the optimal policy in the Uzawa–Lucas model with externality in human capital when agents value both consumption and leisure. We find that the government pursuing the first best can achieve its goal by a subsidy which depends on foregone earnings while studying and which is financed through a lump sum tax. Anyway, the optimal policy, that should be designed to provide incentives for agents to devote more time to schooling and cut both on leisure and working, is not unique. There exists an infinite number of combinations of consumption, capital income, labor income and lump sum taxes that can decentralize the first best.     

Testing the validity of the Feldstein–Horioka puzzle for Australia

This article presents the details of an investigation into the relationship between investment and savings in Australia over the period 1960 to 2007. Using five time series techniques our results reveal that the Feldstein–Horioka puzzle exists in a weak form, with a lower saving retention coefficient. Granger causality tests illustrate that savings Granger causes investment, both in the short and long runs. Our results suggest Australia could effectively adopt policies that focus on increasing investment through increasing domestic savings.     

Is there a unit root in the inflation rate? New evidence from panel data models with multiple structural breaks

In this article, we examine whether or not the inflation rate for 17 OECD countries can be modelled as a stationary process. We find that (1) conventional univariate unit root tests without any structural breaks generally reveal that the inflation rate contains a unit root; (2) the KPSS univariate test with multiple structural breaks reveals that for 10 out of 17 countries inflation is stationary; and (3) the KPSS panel unit root test reveals strong evidence for stationarity of the inflation rate for panels consisting of countries which were declared nonstationary by univariate tests.     

Study on the industrial Eco-Efficiency in East China based on the Super Efficiency DEA Model: an example of the 2003–2013 panel data

The article uses the panel data of six provinces and one chartered city in East China from 2003 to 2013 as an example, constructs the input–output indicators system of Eco-Efficiency, calculates each region’s industrial Eco-Efficiencies throughout the 11 years by the Super Efficiency DEA Model, carries out dynamic studies on the efficiencies by using the Malmquist Index and analyses the factors influencing the efficiencies by the Tobit model. The empirical studies suggest the following: the regions in East China have relatively high industrial Eco-Efficiencies, and the efficiencies turn out a downward then upward trend; there are disparities among the regions as Shanghai, Zhejiang and Jiangsu are regions of relatively high industrial Eco-Efficiencies; the region all have Tfpch (productivity changes) greater than 1, of which the average is 7.2%, and the industrial Eco-Efficiencies are mainly driven by technology advancement; research and development, foreign capital and industrial structure each has a positive relationship with the industrial Eco-Efficiencies, and research and development has a significant influence, while industrial structure has an insignificant influence, and environment governance has a negative and significant influence.     

Testing for PPP: Should we use panel methods?

A common finding in the empirical literature on the validity of purchasing power parity (PPP) is that it holds when tested for in panel data, but not in univariate (i.e. country-specific) analysis. The usual explanation for this mismatch is that panel tests for unit roots are more powerful than their univariate counterparts. In this paper we suggest an alternative explanation. Existing panel methods assume that cross-unit cointegrating relationships, that would tie the units of the panel together, are not present. Using simulations, we show that if this important underlying assumption of panel unit root tests is violated, the empirical size of the tests is substantially higher than the nominal level, and the null hypothesis of a unit root is rejected too often even when it is true. More generally, this finding warns against the automatic use of panel methods for testing for unit roots in macroeconomic time series.First version received: November 2001/Final version received : October 2003