From Financial Repression to External Distress: The Case of Venezuela

Recent work suggests a connection between domestic debt and external default. We examine potential linkages for Venezuela, where the evidence reveals a nexus among domestic debt, financial repression, and external vulnerability. The financial repression tax (as a share of GDP) is similar to OECD economies, in spite of higher debt ratios in the latter. The financial repression “tax rate” is higher in years of exchange controls and legislated interest rate ceilings. We document a link between domestic disequilibrium and a weakening of the net foreign asset position via private capital flight. We suggest these findings are not unique to Venezuela.     

Raising the bar (4)

This editorial summarizes and comments on the papers published in issue 11(4) so as to raise the bar in applied spatial economic research and highlight new trends. The first paper deals with common factors and spatial dependence in the error term specification of a production function model. The second paper sets forth a New Economic Geography (NEG) model with production activities that vary in their complexity, so as to analyse the impact on specialization patterns across different regions. The third paper measures the efficiency of local public investments using a relatively unknown econometric technique in which the time span over which the variables in the regression equation are measured is increased by one time period every run. The fourth paper adopts a conditional quantile regression approach to determine the impact of people employed in informal jobs on the wage distribution in Colombia and five of its regions. Finally, the last paper proposes and tests two new Bayesian variable selection approaches for spatial econometric models.     

Three Short Stories of Progressive Institutional Change

The process of institutional change is a fundamental theme in institutional economics. There are multiple avenues for forging institutional change — policies, laws, cultural norms, social movements, and social practices. I analyze three examples of progressive institutional change. While there are many to choose from, the three short stories focus on: (i) accounting for measures of housework and care work in GDP; (ii) transforming legal values through adoption of marriage equality in the United States; and (iii) interrogating the fresh-tomatoes food supply chain in order to achieve a penny-a-pound more in earnings for migrant field workers. Each of these examples of progressive institutional change involves changing values, a cumulative process.     

Brazilian retail banking and the 2008 financial crisis: Were the government-controlled banks that important?

We revisit the interest rate pass-through effect using weekly retail banking data from May 2006 to March 2010. Our choice of data avoids caveats of previous studies concerning excessive data aggregation and the estimation of how fast changes in benchmark interest rates impact those charged on short-term loans in Brazil. Our analysis focuses on four large retail banks – two of them privately owned and run, two of them government-controlled – before and after September 2008. They account for 60% of the total credit supplied by retail banks. Results indicate that government control over two of the largest banks, supposedly an asset for crisis management, may have had higher welfare costs than assumed. We find no evidence of asymmetry in adjustments of retail rates charged by private and government-controlled banks.     

Perceived trust in contractual channel dyads: an exploratory investigation of Finnish food retailers

Distributor firms have found long-term contracting an effective means of gaining competitive advantage. To realize these benefits, the alliance should involve trusting others. However, contracts can also be one-sided rather than reciprocal, favouring the larger business partner. Should trust develop naturally where there are formal contracts defining the terms of the relationship? And what inducements should a supplier take to gain retailers' trust? The trade-off is further complicated when the retailers operate in a small market with few suppliers and high barriers to entry. This study focuses on these questions. We use original field data from Finnish food retailers who have signed a written agreement with their focal wholesaler. We find that maintaining autonomy increases trust in the relationship. We also find that regular communication in the dyad and balance between perceived rewards and contributions are associated with higher levels of trust. In turn, intrachannel competition strongly reduces retailers' trust in the dyad.     

How to Tie Equity Compensation to Long-Term Results

Companies, investors, and regulators around the world are now seeking to tie executives' payoffs to long-term results and avoid rewarding executives for short-term gains. Focusing on equity-based compensation, the primary component of top executives' pay, the authors analyze how such compensation should best be structured to provide executives with incentives to focus on long-term value creation.
To improve the link between equity compensation and long-term results, the authors recommend that executives be prevented from unwinding their equity incentives for a significant time period after vesting. At the same time, however, the authors suggest that it would be counterproductive to require that executives hold their equity incentives until retirement, as some have proposed. Instead, the authors recommend that companies adopt a combination of "grant-based" and "aggregate" limitations on the unwinding of equity incentives.
Grant-based limitations would allow executives to unwind the equity incentives associated with a particular grant only gradually after vesting, according to a fixed, pre-specified schedule put in place at the time of the grant. Aggregate limitations on unwinding would prevent an executive from unloading more than a specified fraction of the executive's freely disposable equity incentives in any given year.
Finally, the authors emphasize the need for effective limitations on executives' use of hedging and derivative transactions that would weaken the connection between executive payoffs and long-term stock values that a well-designed equity arrangement should produce.     

Public external debt,informality and production efficiency in developing countries

This paper proposes an alternative approach to investigate the non-linear effect of external debt on growth. In the theoretical part, we develop an endogenous growth model with formal and informal sectors to analyse the effect of the public external debt on the production efficiency. We show that an increase of the public external debt share increases the production efficiency through a positive externality effect. However, it generates an opposite effect via the reduction of the formal sector’s size in favour of a less efficient informal sector. The resultant effect becomes negative beyond an optimal level. Besides, we show that a large stock of public external debt reduces the production efficiency when it leads to a tight fiscal policy which reduces the formal sector size. Empirically, using a stochastic frontier technique with unobserved heterogeneity, for a panel of 27 developing countries for the period of 1970–2005, we confirm that the turning point associated to the effect of the share external public debt is apparent at 84%.     

How to deal with dissent among experts. Risk evaluation of EMF in a scientific dialogue

This article describes the results of a scientific discourse which aimed at exploring the reasons for differences in expert health risk assessment of radio frequency electromagnetic fields of mobile telephony.

It starts with describing the structure of the discourse. Then, the reasons for the conflicting risk assessments are discussed. Differences are due to the selection and evaluation of relevant scientific studies by applying different scientific quality standards, to the methods used for generating a research synthesis and an overall risk evaluation. Consensus could be achieved regarding the selection of and the quality requirements for the scientific studies used for risk assessment as well as their significance for risk evaluation. However, dissent remained about the synthesis of scientific evidence into an overall risk evaluation and about the relevance of the precautionary principle for risk evaluation and its implications for the risk assessment framework.

Based on the analysis of these problems, a transparent, consistent and rational procedure for risk assessment is suggested to facilitate a risk characterization which better meets the demands of policy making and the public for an appropriate risk evaluation.     

Managing reverse logistics to enhance sustainability of industrial marketing

In this paper, a sustainable industrial marketing framework of latest requirement of green and sustainable operation is proposed. When literatures in strategy, marketing and operation have provided insight about the efficiency of reverse logistics and business value for the customer, the interrelationship is still under explored. This raises the question whether manufacturers could determine ecological friendly strategies to address their customer's environmental conscious needs and design the suitable solution to strike the balance between ecology and economics. Based on the case study of a medical product manufacturer, this study addresses this question by investigating how manufacturers identify the problem of reverse logistics; design and develop of sustainable product and service by enhancing the efficiency of operations, and market competencies that add value to their customers' business processes. Within the strategy for designing for effective reverse logistics, these findings contribute to understand the use of information system and technology for reverse logistics to enhance the customer's business process and provide value-added process for customer retention.