Political instability and inflation in Pakistan

This study investigates the effects of political instability on inflation in Pakistan. Applying the Generalized Method of Moments technique and using data from 1951 to 2007, we examine this link through two different models. The results of the ‘monetary’ model suggest that the effects of monetary determinants are rather marginal and that they depend upon the political environment of Pakistan. The ‘nonmonetary’ model's findings explicitly establish a positive association between political instability and inflation. This is further confirmed through analysis based on interactive dummies that reveal political instability significantly leading to high (above average) inflation.     

Is Trade Liberalisation Pro-Poor in Pakistan? Evidence from Large-Scale Manufacturing

This article aims to analyse the impact of industry-level trade liberalisation (measured through industry-specific tariff rates) on poverty in Pakistan. Combining data for tariff rates with the Labour Force Survey of Pakistan, we use quantile regression analysis to estimate the impact of changes in tariff rates on workers’ wages (associated with the manufacturing sector of Pakistan) that are at different points of the income distribution. Our findings meaningfully signal that trade liberalisation helps to reduce poverty in the economy. Based on these results, this study provides policy recommendations to reap maximum benefits from trade liberalisation.     

Investment shocks and the comovement problem

Recent work based on sticky price-wage estimated dynamic stochastic general equilibrium (DSGE) models suggests investment shocks are the most important drivers of post-World War II US business cycles. Consumption, however, typically falls after an investment shock. This finding sits oddly with the observed business cycle comovement where consumption, along with hours-worked and investment, moves with economic activity. We show that this comovement problem is resolved in an estimated DSGE model when (i) the cost of capital utilization is specified in terms of increased depreciation of capital, as originally proposed by Greenwood et al. (1988) in a neoclassical setting, or (ii) there is no wealth effect on labor supply. The data, however, favors the first channel. Traditionally, the cost of utilization is specified in terms of forgone consumption following Christiano et al. (2005), who studied the effects of monetary policy shocks. The alternative specification we consider has two additional implications relative to the traditional one: (i) it has a substantially better fit with the data and (ii) the contribution of investment shocks to the variance of consumption is over three times larger. The contributions to output, investment, and hours, are also relatively higher, suggesting that these shocks may be quantitatively even more important than previous estimates based on the traditional specification.     

Asymmetric effect of exchange rate volatility on India's cross‐border trade: Evidence from global financial crisis and multiple threshold nonlinear autoregressive distributed lag model

This paper examines the asymmetric effect of exchange rate volatility on India's cross‐border trade with its major trading partners: Japan, Germany, the United States, and China. We extend previous studies in two ways. First, we examine whether global financial crisis changes the asymmetric effect of exchange rate volatility on India's cross‐border trade. Next, we divide exchange rate volatility into quintiles and examine the effect of each quintile on cross‐border trade by using the multiple threshold nonlinear autoregressive distributed lag (MTNARDL) model. Our findings from standard nonlinear ARDL (NARDL) indicate that the asymmetric relationship between exchange rate volatility and cross‐border trade changes as a result of global financial crisis. In addition, findings from MTNARDL indicate that in short‐run, exchange rate volatility symmetrically affects India's cross‐border trade with all sample countries whereas in long‐run it asymmetrically affects cross‐border trade. Overall, these findings are very important for policy implications and open a new dimension to exchange rate volatility and trade flows.     

Productivity impacts of infrastructure development in Asia

This study investigates the impact of infrastructure capital on total factor productivity in selected Asian countries. The scope of the assessment is broadened by exploring the effect of infrastructure development on sectoral differences in total factor productivity. The study calculated the total factor productivity over the period 2006–2016 for 16 manufacturing industries in 19 Asian countries. Further, the impact of lagged infrastructure and endowment is also explored with an eye toward improving different infrastructural measures. The empirical findings show that lagged infrastructure and endowment exert a positive and significant impact on infrastructural improvement. The impact of telecommunications, road, and power infrastructure on sectoral productivity is investigated by applying the fully modified ordinary least squares estimation technique to control the endogeneity problem associated with infrastructure provision. Overall, the empirical findings show that infrastructure provision, particularly the provision of telecommunications and power, is an important factor for explaining patterns of comparative advantage, whereas the provision of roads is important to explain patterns of absolute advantage. The results further indicate that road infrastructure is more important for low technology-intensive industries, while power infrastructure is crucial for high technology-intensive industries.     

Globalization and female labor force participation: The role of trading partners

This paper uses industrial level data from 21 developing and emerging economies over the period of 1995–2013, to analyze the impact of globalization, in particular, trade orientation of industries onto female employment share. The fractional probit estimation reveals that taking cumulative measures of export and import share often camouflages the impact of trade on female employment. The disintegration of export and import share according to their trading partners reveals that exports and imports from the developed world alone contribute to higher female employment. Moreover, it is the low-tech exports to developed countries and high-tech imports from developed countries which results in an increase in female employment. These findings call for the strengthening of trade ties with the developed world, especially when it comes to promoting low-tech exports and high-tech imports. Our results also reveal that the trading links with the developed world can further enhance female employment if developing country possesses a greater pool of educated female labor force.     

Foreign direct investment and its impact on real wages: evidence from Turkish micro-level data

This paper analyzes the role of foreign direct investment (FDI) on wages, using Turkish firm-level data from 2003 to 2010, a period which coincides with significant FDI inflows both in manufacturing and service sector firms in the region. We explore the possibility of increased foreign presence translating into shifts in either labor demand or supply curves thereby resulting in changing the total wage bill or wage per worker in the host country. To empirically test this relationship we employ a dynamic specification of the wage equation. After addressing endogeneity concerns, the results reveal that foreign presence measured in terms of intra- and inter-sectoral linkages is related to higher wage bills in the host economy, hence strengthening the argument for attracting greater foreign investment to enhance labor welfare.     

Momentum in stock returns: evidence from an emerging stock market

This study examines the presence and sources of momentum profits in the Dhaka stock exchange (DSE). Although the short-term reversal and intermediate-term momentum are found to be evident, short-term reversal is not as consistent and significant as intermediate-term momentum. Further examination shows that momentum profits in the DSE cannot be explained by the rational source like market factor but can be explained by the size factor. We argue that presence of large number of small stocks and lack of arbitrage opportunity could be the possible causes of momentum effect in the DSE.