INVESTMENT BEHAVIOUR,CORPORATE CONTROL,AND PRIVATE BENEFITS OF CONTROL: EVIDENCE FROM A SURVEY OF UKRAINIAN FIRMS

We analyse the impact of ownership and corporate control on firms’ investment using the 2001 survey of Yacoub et al. on Ukrainian firms. The model explains investment by output, financial and soft budget constraints, and corporate control (and ownership) categories potentially enjoying private benefits of control. We find that the corporate control model fits better than the ownership model, a negative relationship between state and employee control and firms’ investment, and evidence for the presence of soft budget constraints. A negative relationship between firms’ investment and the relative size of non‐monetary transactions strengthens the conclusion of private benefits of control impacting investment.     

Remote sensing-based detection of agricultural land losses around Greater Cairo since the Egyptian revolution of 2011

Over the last four decades, the loss of agricultural land has been observed in Egypt at high rates. However, the highest rates of losses have occurred since the January 25th revolution in 2011. Greater Cairo (GC), which is the largest metropolitan in Egypt, has witnessed a massive loss of agricultural land since the 2011 revolution. However, until now, no study or official report has revealed the volume of agricultural land losses in this region. This study quantifies agricultural land losses around the GC using Landsat satellite images from 2010 and 2018. Supervised classification was performed using the maximum likelihood algorithm in QGIS software. A post-classification comparison method was applied to detect the land use/land cover changes between the classified images; then, the loss of agricultural land was quantified using Arc GIS software. Visualizations of the gains and losses in agricultural land and the spatial trends of agricultural land losses were created using TerrSet software. The results show that 9600 ha of agricultural land were converted to urban use during 2010–2018, which means that the annual rate of agricultural land loss has tripled and now reaches approximately 1200 ha per year. Decay of executive authority, rapid population growth, real estate market speculation and fragmentation of agricultural land were the main driving factors of agricultural land losses during this period. The results of this research may help decision makers understand the current high rate of agricultural land loss. Hence, appropriate strategies may be adopted to prevent future losses of this valuable land.     

Waste of money or growth opportunity: The causal effect of EU subsidies on Hungarian SMEs

Although EU subsidies aiming at economic development play a pivotal role not only for Hungary but for the entire European Union as well, there is a debate regarding their effectiveness in the literature. This paper investigates the impact of direct economic development subsidies extended in the context of Structural Funds and the Cohesion Fund as part of the 2007–2013 programming period of the European Union on Hungarian micro, small and medium-sized enterprises. Based on a micro database, we evaluate the impact of corporates’ first subsidies on various performance indicators, using a combination of propensity score matching and fixed effects panel regression. According to our results, economic development funds had a significant positive effect on the number of employees, sales revenue, gross value added and, in some cases, operating profit. However, the labour productivity of enterprises was not significantly affected by any of the support schemes. Furthermore, by explicitly comparing non-refundable subsidies (grants) and refundable assistance (financial instruments), we find that there is no significant difference in the effectiveness of the two types of subsidy.     

Does computer penetration increase farmers’ income? An empirical study from China

The diffusion and adoption of modern information technology provide new chance for China to close urban-rural income gap. This paper uses China's provincial panel data from 2002 to 2013 to investigate the effect of computer penetration on rural residents' income. A public program aiming to connect every village with broadband Internet and other rural facilities provides plausibly exogenous variation in rural residents' availability and adoption of the broadband Internet, which is used to explore the instrument variable for rural computer penetration. The results show that rural computer penetration tends to increase rural residents' income over time, but the average effect remains limited. The dynamic panel threshold effects model, which allows for both the threshold variable and other covariates to be endogenous, is further used to explore the constraints of the income-increase effect of rural computer penetration. It shows that the effect is at least doubled over the average effect estimated from instrument variables method, once the digital divide causes are removed. Our findings have important implications for the government to increase rural residents' income and reduce urban-rural income gap by encouraging rural computer usage and removing the digital divide.     

Profit shifting and tax-rate uncertainty

Using firm-level data for 1,084 parent firms in 24 countries and for 9,497 subsidiaries in 54 countries, we show that tax-motivated profit shifting is larger among subsidiaries in countries that have stable corporate tax rates over time. Our findings further suggest that firms move away from transfer pricing and toward intragroup debt shifting that has lower adjustment costs. Our results are robust to several identification methods and respecifications, and they highlight the important role of tax-rate uncertainty in the profit-shifting decision while pointing to an adjustment away from more costly transfer pricing and toward debt shifting.     

Mass media and preferences for redistribution

This paper investigates how mass media potentially act on preferences for redistribution. Our hypothesis is that media contribute to shaping the value system of a person, which affects support for redistribution. A theoretical model is proposed which combines demand- and supply-driven media bias. On the demand side, the model considers two types of individuals: non-partisan, whose values are influenced by the media, and partisan, who have strong opinions not affected by the media. We assume that although partisan individuals prefer unbiased information, they hold beliefs that they like to be confirmed; therefore, they tend to consume media with an ideological position similar to theirs. On the supply side, we focus on interest groups’ pressure on media coverage. Our results suggest that the anti-equality lobby is willing to pay more than the competing lobby. Moreover, we show that media bias is a decreasing function of the advertising revenues and an increasing function of the relative weight of ideology vs pluralism in individuals’ demand for media. Adding a second media outlet reduces the likelihood of media bias but not its extent. Finally, if both lobbies are active, the two outlets’ ideological positions are polarised.     

Capital accumulation through studying abroad and return migration

This paper examines the interplays among studying abroad, return migration and capital accumulation, in a dynamic general equilibrium model featuring heterogeneous ability. Households invest in education and make two migration decisions: whether to study abroad and subsequently whether to return home. The model predicts that the highest, middle and lowest-ability people choose respectively permanent migration, return migration and no migration. More interestingly, we find a novel migration cycle: returnees bring back learned-knowledge and over time, capital accumulates, attracting more return migration. Further, the usual “brain drain” in the literature can be turned into “brain gain”, by providing a subsidy to studying abroad and returning home.     

Mortgage market credit conditions and U.S. Presidential elections

Voters punish incumbent Presidential candidates for contractions in the county-level supply of mortgage credit during market-wide contractions of credit, but do not reward them for expansions in mortgage credit supply in boom times. Our primary focus is the Presidential election of 2008, which followed an unprecedented swing from very generous mortgage underwriting standards to a severe contraction of mortgage credit. Voters responded to the credit crunch by shifting their support away from the Republican Presidential candidate in 2008. That shift was large and particularly pronounced in states that typically vote Republican, and in swing states. Without it McCain would have received half the votes needed in nine crucial swing states to reverse the outcome of the election. We extend our analysis to the Presidential elections from 1996 to 2012 and find that voters only react to contractions, not expansions, of credit, and reactions are similar for Democratic and Republican incumbent parties.     

Identifying Price Reviews by Firms: An Econometric Approach

Price reviews are a potentially costly activity. A significant fraction of unchanged prices may stem from firms not reviewing prices, rather than from obstacles to changing prices per se, such as menu costs. In this paper, we disentangle these two causes of price stickiness by estimating an inflated ordered probit model on a panel of French manufacturing firms. The results point to a low frequency of price reviews, suggestive of the relevance of information costs as a determinant of the observed price stickiness. In view of the “inattentive producers” literature, pointing that the source of price rigidity matters, this is suggestive of a large real effect of monetary policy.     

The provision of long-term credit and firm growth in developing countries

Do small and young firms benefit from an increase in the provision of long-term loans? By combining firm-level data from 62 countries (over the period 2006–2016) with a new database on short-term and long-term credit provided to the private sector, this article shows a higher provision of long-term credit does not stimulate growth of small and young firms. On the contrary, an increase in the availability of short-term credit spurs firm growth. The main explanation of this (counter-intuitive) result is the differential impact of short-term and long-term credit provision on small and young firms’ access to credit. Young and small firms are able to take advantage of an increase of short-term loans, which allow them to switch from informal finance to bank loans. However, a higher level of long-term credit does not alleviate credit constraints faced by opaque firms because these funds are allocated towards transparent borrowers.