Institutions and geography: Empirical test of spatial growth models for European regions

This article provides an empirical assessment of the growth experiences of European regions, during the period 1991–2004, by taking into account the spatial effects due to both institutions and geography. These effects have been modelled by means of specific controls and by using a non-conventional spatial weight matrix. Results favour a model dealing with substantive spatial externalities. Within this framework, the country-specific institutions are strongly and positively related to the regional productivity's growth rate. In addition, the geo-institutional proximity increases the spatial dependence of the regional output per worker and raises the speed of convergence. By contrast, the pure geographical metrics is underperforming, while underestimating the convergence dynamics.     

Similar GDP-inflation cycles. An application to CEE countries and the euro area

In this paper we look at business cycles similarities between CEE countries and the euro area. Particularly, we uncover GDP-inflation cycles by adopting a trend-cycle decomposition model which allows the trend to be either stochastic or deterministic, i.e. of the non-linear type. Once cyclical components are derived, we test for ex post restrictions at both with-in (GDP-to-inflation) and cross-country (CEECs vs. euro area) levels. Allowing for different degrees of cyclical similarity, we find that a similar inflation vs. GDP cycle is not rejected only for Poland, Lithuania, Romania and Estonia (with Latvia and the euro area being at the boundary). Looking at cross-country results, almost all countries feature a fair degree of similarity with respect to the euro area. Exceptions are Poland, Hungary, Latvia and Slovenia because of lack of a similar cycle either occurring in GDP or inflation, yet not in both. Finally, observing how concurrence between each CEECs cycle and the euro area evolved over time, we find that inflation conditional correlation increased stemming from the EU accession of most CEECs and as a result of the commodity price shock preceding 2008. Further, inflation and GDP conditional correlations receded during the course of 2009–2010, possibly resulting from more idiosyncratic adjustments in the aftermath of the crisis on the monetary/fiscal side. Interestingly, Slovenia, Slovakia, Estonia and Bulgaria display a conditional correlation pattern in GDP and inflation which roughly suggest a strong out-of-phase recovery starting from 2005.     

Financial development and long-run growth: is the cross-sectional evidence robust?

In a seminal paper, Levine, Loayza and Beck (LLB, 2000) provide cross-sectional evidence showing that financial development has positive average impact on long-run growth, using a sample of 71 countries. We argue that the evidence is sensitive to the presence of outliers.     

How well does a dynamic Mincer equation fit NLSY data? Evidence based on a simple wage-bargaining model

This article argues that a dynamic Mincer equation can be seen as the solution of a simple wage-bargaining model between a worker and an employer where the unemployment-benefit level, affecting the outside option of the worker, depends on past wages. Further, it shows that this model provides a good fit of the US National Longitudinal Survey of Youth data. The evidence is robust to a number of sensitivity checks.     

Teaching Keynes’s Principle of Effective Demand within the Real Wage vs. Employment Space

This paper reviews several models for teaching Keynes’s principle of effective demand with a special focus on a framework that is familiar to advanced undergraduate students of macroeconomics: the real wage vs. employment space. It is argued that existing approaches to teaching Keynes’s principle of effective demand reflect a tension between two goals: being true to Keynes and translating the effective-demand principle into a story about real wages and employment within a single graphical space. Our main contribution consists of presenting an extended version of a model originally proposed by Lavoie (Rev Radic Polit Econ, 35(2):166–182, 2003), which seems to be a reasonable compromise between these two goals.     

On the Joint Test of the Uncovered Interest Parity and the Ex‐ante Purchasing Power Parity

This study revisits the relation between the uncovered interest parity (UIP), the ex‐ante purchasing power parity (EXPPP) and the real interest parity (RIP) for the UK and Japanese vs US data. The original contribution is on developing some joint coefficient‐based tests, obtained by rewriting the UIP, the EXPPP and the RIP as a set of cross‐equation restrictions in a vector autoregression (VAR) framework. Test results point to a “forward premium” bias in both the UIP and the EXPPP. The latter result is novel in the literature and stems from testing the PPP in expectational terms. Moreover, the results suggest a currency‐dependent pattern for the UIP, contrarily to the EXPPP equation. Finally, it is shown that conditioning the VAR on M3 growth differential has important explanatory power in resolving the aforementioned biases in both the UIP and EXPPP equations for the UK vs US data. At the same time, variables having a strong forward‐looking component (i.e. share prices) help recover a unitary coefficient in the UIP equation.     

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.     

Raising the Bar (3)

This editorial summarizes and comments on the papers published in issue 11(3) so as to raise the bar in applied spatial economic research and highlight new trends. The first paper proposes spatial and a-spatial indicators to describe the networks of airline companies around the world. The second paper sets forth a two-regime gravity-type model with an endogenous threshold parameter to assess the effect of labour market conditions on interregional migration flows. The third paper utilizes micro-data to explain student migration flows to higher education institutions. The fourth paper is among the first to make use of simulation-based location quotients in a multiregional input–output model. Finally, the last paper provides a purely economic–theoretical model on cooperative limit pricing in the context of spatial competition.     

Raising the bar (5)

Raising the bar (5). Spatial Economic Analysis. This editorial summarizes and comments on the papers published in this issue 12(1) so as to raise the bar in applied spatial economic research and highlight new trends. The first paper examines the impact of the level of education on the decision to migrate and finds that it is approximately twice as large if both variables are modelled simultaneously. The second paper is one of the first papers to introduce a spatial component to models of international environmental agreements and to develop an exciting overlap with New Economic Geography. The third paper provides a tool, applied to Beijing, with which urban economic planners can investigate the role of variation and selection mechanisms in cluster development and identify possible paths of growth. The fourth paper contributes to the existing literature on retail geography by examining the role of consumption possibilities as an urban amenity. The fifth paper develops a Bayesian estimator of a linear regression model with spatial lags among the dependent variable, the explanatory variables and the disturbances. Finally, the sixth paper develops a semi-parametric generalized method of moments (GMM) estimator for a spatial autoregressive model with space-varying coefficients of the explanatory variables and a spatial autoregressive coefficient common to all units.     

Beyond the Sovereign Debt Crisis: Alternative Forms of Market-Based Debt Restructuring Schemes

The resolution of the international debt crises has stimulated extensive research onhow to design solutions for countries facing external debt overhang problems. Thispaper analyses the benefits for creditors and debtors of the following `market-based'debt restructuring schemes: (i) issue of collateralised new assets inexchange for the old debt; (ii) automatic roll-over of the debt repayment with astate-contingent penalty rate. The first proposal combines the basic debt conversionscheme proposed by Krugman (1989) with Cline's proposal (1995) of self-enhancementson the new claims as a form of risk-compensation for creditors (seealso Williamson, 1988). Under this scheme the debtor country modifies the streamof the debt service payments by voluntarily exchanging the outstanding debt fornew assets with different debt service characteristics where the principal and/or theinterest rate payment can be fully or partially collateralised. The roll-over schemeentitles illiquid countries to extend the outstanding debt for a specified period at apenalty rate which is contingent on a measure of the country's creditworthiness.This solution has the desirable effect of reducing the future contractual obligationsby lowering the penalty rate on the excess of debt rolled over, thus helping thedebtor country to use additional resources to invest in the economy.