Profit Margins,Adjustment Costs and the Business Cycle: An Application to Spanish Manufacturing Firms*

The objective of this paper is to investigate the cyclical behaviour of mark‐ups, using a panel of Spanish manufacturing firms over the period 1990–1998. Margins are estimated from the optimal conditions derived from the firm's optimisation problem, which assumes that labour inputs are subject to adjustment costs. A number of results emerge from the estimations. First, we find positive and asymmetric adjustment costs for permanent labour inputs. Second, price‐cost margins are markedly procyclical. Our estimates suggest that labour adjustment costs more than double the variability of average margins with respect to Lerner indexes. Third, we find differences in the parameters of the adjustment technology across industries which make markups of intermediate and production good industries more cyclical than consumer good industries. Finally, industry‐specific price‐cost margins are higher in more concentrated industries.     

Work‐Related Migration and Poverty Reduction in Nepal

Using two rounds of nationally representative household survey data in this study, we measure the impact on poverty in Nepal of local and international migration for work. We apply an instrumental variables approach to deal with nonrandom selection of migrants and simulate various scenarios for the different levels of migration comparing observed and counterfactual household expenditure distribution. Our results indicate that one‐fifth of the poverty reduction in Nepal occurring between 1995 and 2004 can be attributed to higher levels of work‐related migration and remittances sent home. We also show that while the increase in international work‐related migration was the leading cause of this poverty reduction, domestic migration also played an important role. Our findings demonstrate that strategies for economic growth and poverty reduction in Nepal should consider aspects of the dynamics of domestic and international migration.     

Unveiling user-generated content: Designing websites to best present customer reviews

Online customer reviews are an important type of user-generated content, through which consumers share their experiences with products and services in order to help others make informed purchasing decisions. In this article, we discuss the goals of online customer reviews and develop practical, actionable principles that can be used to improve the presentations of customer reviews. We identify four goals—two ultimate, and two intermediate—of online customer reviews. The two ultimate goals are: (1) to assist consumers in making accurate choices, and (2) to reduce the cognitive costs of making such choices. The two intermediate goals are: (1) to help consumers form an unbiased understanding of the product, and (2) to construct a set of evaluative criteria. Drawing on the constructive view of consumer judgment and choice, we present a conceptual model of online-review based consumer judgment and choice. We report principles that will improve the presentation of reviews, and discuss the benefits of the new design over the traditional presentation of online reviews.     

The impact of regulations on the FDI-growth nexus within the institution-based view: A nonlinear specification with varying coefficients

The impact of Multinational Enterprise (MNE) activities on economic development and poverty reduction constitute a specific field of study within International Business (IB) scholarship during the last decade. Extending the institution-based view that “institutions matter”, we shift the focus of interest on the effect of institutions in the FDI-growth nexus which, surprisingly, have been overlooked by respective literature. A profound understanding of the FDI impact on economic growth cannot neglect institutions that shape the macro environment where MNEs operate. Within this rationale, this paper examines the effect of FDI on growth under different formal institutions placing emphasis to credit and labour market regulatory systems in both advanced and developing countries. Most empirical studies stemming mainly from the economics perspective, assume that the FDI growth effect is linear and incorporate specific functional forms for their regression relationships. We rely on more advanced econometric methods that allow for the regression coefficients to vary as smooth functions of other variables, allowing for more plausible empirical results. Our findings strongly support our suggestion that the host institutional context shape the strategies, structures and competitiveness of MNEs’ activities which they then affect differently economic growth. We thus provide useful insights regarding the long-lasting debate on the FDI-growth nexus.     

How will growth in China and India affect the world economy?

China and India are rapidly growing, labor-abundant economies with very different export mixes. China is more integrated into global production sharing for manufactures, while services exports are more important for India. Even assuming India integrates more comprehensively into global production chains, there will be opportunities for rapid growth in both countries. Improvement in the range and quality of their exports can create substantial welfare benefits for the world, and for China and India, and can offset the terms-of-trade losses otherwise associated with rapid export growth. Most countries will need to respond to increased competition in some sectors, and to greater opportunities in others.     

Externalities, consumption constraints and regular economies

We consider a general model of pure exchange economies with consumption externalities. Households may have different consumption sets and each consumption set is described by a function called the possibility function. Utility and possibility functions depend on the consumptions of all households. Showing by means of an example that basic assumptions are not enough to guarantee generic regularity, we provide sufficient conditions for generic regularity in the space of endowments and possibility functions.     

Exploring corporate entrepreneurship in privatized firms

This paper reports an analysis of whether state-owned enterprises (SOEs) increase their levels of corporate entrepreneurship after privatization. The study uses agency theory to discuss why SOEs display little entrepreneurial behavior and how privatization may alter this situation by changing firms’ systems of controls and incentives. The study also uses a sample of Spanish firms for its empirical research. Data on these firms were available for three years before and after privatization. The findings show that corporate entrepreneurship increases after privatization when firms are in highly competitive industries, either because competition was greater after privatization or because the firm was already in a highly competitive industry. In summary, corporate entrepreneurship in privatized firms seems to be favored by two factors, a change of ownership and competition.     

The economics of education and policy: Ideas for a principles course

There are many aspects of the “economics of education” that would make excellent examples for introductory economics students. The author presents two topics that are central to the economics of education and to human capital theory: the economic benefit (or “returns”) to schooling and educational attainment as an investment. There are two key concepts the author hopes students get from this discussion. The first is that there are both private and social benefits of schooling whence we derive the rationale for government intervention. The second is that educational attainment is an investment decision with both costs and benefits, and some risk.     

Optimal educational choice and redistribution when parental education matters

Higher education plays an important role in determining lifetimeearnings. In turn, the decision to become educated depends toa large extent on family characteristics, such as wealth andeducation. In this paper, we focus on the interaction betweenfiscal policies and educational choices when parental educationmatters. We derive optimality conditions for a linear incometax and a lump-sum subsidy for education in a dynamic frameworkin which generations are linked by educational background. Thefactors that determine their sign and magnitude include concernsfor redistribution, efficiency, and the educational externalityon future generations.