The London Business School with Gower Publishing

Collapsing oil prices and a falling dollar set the background to a Budget in which the Chancellor, hamstrung by lower oil revenues, was seen as having little room for manoeuvre. In fact the sharp fall in the sterling price of oil has provided him with the perfect excuse for not making significant cuts in personal income tax that were largely irrelevant to the needs of the economy. Instead of a boost to household demand we have had, thanks to OPEC, a transfer to companies in the form of a reduction in costs. This should enable them to expand output against a background of falling inflation. Our post-Budget assessment of macroeconomic prospects (Section I), made on the Treasury's assumption of a $15 oil price, shows output growing by 2 1/2 per cent this year and inflation falling below 3 per cent in 1987. We are thus less optimistic than the Treasury about output but more optimistic about inflation. How was the Chancellor able, within the confines of the Medium-Term Financial Strategy, to give anything away having lost so much oil revenue? A detailed analysis of the PSBR forecast (Section II) reveals good reasons why non-oil tax revenues should be some £3 1/2n higher than forecast this time last year. But, because we still expect public spending to be above the official figures, our PSBR forecast is £1bn higher than the Treasury's. Although the macroeconomic impact of the Budget was small (especially in relation to that of the fall in oil prices which preceded it), it continued the process of tax reform. We focus, in Section III, on the new proposals to deal with the problem of the pension fund surpluses to which we drew attention in the November issue of Financial Outlook. We conclude that the proposed measures could have a larger effect on tax revenues in the longer term than is indicated by the Treasury's Budget estimates.     

Residential development in an open city

This paper investigates the residential development process using a dynamic model of an open city. The model is used to analyze how the density and timing of development at various sites respond to changes in exogenous trajectories and functions. In particular, the impact of income and equilibrium utility trajectory variations as well as transportation and construction cost changes are evaluated for the general model with no specific functional forms assumed. Sufficient conditions for predicted responses are derived and interpreted.     

Spatial heterogeneity and interregional spillovers in the European Union: Do cohesion policies encourage convergence across regions?

Using a spatial econometric perspective, the speed of convergence for a sample of 163 regions of the European Union (EU) over the period 1981–1996 is estimated. For this purpose, we use a specification strategy which allows an explicit modeling of both spatial heterogeneity and spatial autocorrelation found in the analyzed sample. The estimated final model combines groupwise heterocedasticity, the identification of two spatial regimes and spatial dependence. Our results show how an appropriate consideration of the role of spatial effects can shed new insights into the European convergence process. We find that regions in the EU cohesion-fund countries (Ireland, Greece, Portugal and Spain) are converging separately from the rest of regions of the EU. Our estimations indicate that over the analyzed period, there was a faster conditional convergence in relative income levels of the regions belonging to Cohesion countries (5.3%) than in the rest of the regions of the EU (3.3%). Therefore, our results contrast with other evidence that points to the fact that the convergence process in Europe has weakened or even has stopped at the beginning of the 1980s. Moreover, our work shows clear evidence of separate spatial convergence clubs among EU regions.     

WORLDOUTLOOK

German monetary unification is expected to result in a major expansion in autonomous demand from East Germany. In economic terms this is equivalent to a fiscal shock to West Germany broadly similar to that experienced in the US in the early years of Mr. Reagan's Presidency. Led by the Bundes bank, the monetary authorities' response is again likely to be a tightening of policy, leading to several years of high real interest rates. Overall, the combined monetary-fiscal shock should strengthen growth with only moderate increases in inflation. Germany is expected to grow very rapidly in the -per cent range for several years, with only a slight upturn in inflation. Japan, after a pause over the next year, should be able to return to its under lying growth path fairly quickly. However the US situation is more precarious. FUN adjustment from the previous Reagan shock has not yet taken place, leaving the US vulnerably dependent on increasingly scarce imported capital. In the absence of a significant *peace dividend: the result is the necessity of continued tight policy and sluggish growth in the American economy. US growth stays around 2 per cent, but this allows a substantial reduction in the current account deficit.     

An Application of an Integrated Transport Network– Multiregional CGE Model: a Framework for the Economic Analysis of Highway Projects

This paper develops a framework for the economic analysis of highway projects that is then used to estimate the dynamic economic effects of a highway project on the economic growth and the regional disparity in Korea. The framework is composed of a transport model and a multiregional Computable General Equilibrium (CGE) model. The transport model measures a change in interregional shortest distances and the accessibility due to the highway project. The CGE model estimates the spatial economic effects of the project on GDP, the price, exports, and the regional distribution of wages and population. The simulation allows policy makers to determine which highway development deserves the priority for investment, based on consideration of economic growth and regional economic equity in the long run. The simulation found that all the highway projects have positive effects on GDP and export growth as well as regional equity in terms of wage and population.     

Effect of university heritage and reputation on attitudes of prospective students

• This study examines the impact of heritage and reputation of nonprofit universities on attitudes of prospective students. Data were collected from 208 community college (preuniversity) students in the USA. Results from structural equations modeling indicate that university heritage positively impacts university reputation, potential students' attitudes, and intentions to pay a tuition premium as well as to recommend the university. Students' nationality moderates the relationships between university heritage, reputation, and attitudes. International students from Asian nations with a long‐term orientation exhibit stronger relationships between these variables than domestic students from the USA. These findings add to the nascent and emerging literature on branding of nonprofit higher education institutions and will be of interest to administrators and marketing managers of universities to nurture and extol their university heritage in student recruitment programs, especially in promotional materials targeting international students.

Copyright © 2014 John Wiley & Sons, Ltd.     

Measurement in Financial Reporting: Half a Century of Research and Practice

The paper explores developments in the choice of measurement method in financial reporting over the half century that has elapsed since the foundation of Abacus in 1965. The discussion is confined to the specific problem of measuring individual assets and liabilities, rather than the wider problems of the choice of measurement unit (as in inflation accounting) or capital maintenance (as in income measurement). Changes in financial reporting practice and standards are considered in relation to developments in academic research. This has been a two‐way process: research has been stimulated by problems of practice, and practice, particularly as embodied in standards, has been influenced by the results of research. Both have been influenced by significant events in the world economy, notably the inflation of the 1970s and the global financial crisis that started in 2007. Historical cost has retained its position as the predominant measurement technique in practice, but considerable progress has been made in the implementation and understanding of current value measurements, although the principles for choosing between alternative current values (particularly ‘entry’ values as opposed to ‘exit’ values) require further exploration by standard setters, assisted by academic research.     

Creative destruction Zhu Jia Jiao, China

Chinese water towns have experienced tourism investment since the adoption of the Open Door Policy in 1978. These river-based settlements offer an ancient small-town atmosphere, historic architecture, and a diversity of heritage commodities. The implications of this development in one such town, Zhu Jia Jiao, are examined through application of the model of creative destruction. Data collected on investments, tourist numbers, and resident attitudes reveal that this destination is in the model’s second stage of advanced commodification, which may be maintained if limits are placed on arrivals. Findings should be beneficial to other communities which are basing their development on marketing small-town heritage.     

What is Different about Socially Responsible Funds? A Holdings-Based Analysis

Using samples from the U.S. and Puerto Rico, we examine cross-cultural differences in cultural value dimensions, and relate these to act and rule utilitarian orientations, and ethical decision making of business professionals. Although these places share the same legal environment, culturally they are distinct. In addition to tests of between-group differences, a model in which utilitarian orientation mediates the influence of cultural values on ethical decisions was evaluated at the individual level of analysis. Results indicated national culture differences on three cultural values, but no between-group differences on utilitarian orientations and ethical decisions. Significant indirect effects were found; act utilitarian orientation mediated the effects of two values activity orientation and universalism on ethical decision making. Implications for international management practices and business ethics are discussed.