On the Relationship between Domestic Saving and the Current Account: Evidence and Theory for Developing Countries

We examine the relationship between domestic saving and the current account in developing countries. Our three main findings are that: (i) domestic saving has a small effect on the current account; (ii) domestic saving has a significant positive effect on the trade balance—this effect is much larger than the effect that domestic saving has on the current account; and (iii) domestic saving has a significant negative effect on net-current transfers. We use countries in the SSA region during the period 1980-2009 as a laboratory for an instrumental variables (IV) approach. The IV approach enables to obtain estimates of causal effects. Underlying the IV approach is the significant positive first-stage response of domestic saving to plausibly exogenous annual rainfall: an unanticipated, transitory supply-side shock. We construct a small open-economy DSGE model with debt adjustment costs and endogenous current transfers to match the empirical findings. The model enables to examine the relationship between domestic saving and the current account for different types of shocks. An important message of our paper is that, for developing countries, estimates of the relationship between domestic saving and domestic investment are not informative for answering the question how domestic saving affects a country's accumulation of net foreign assets.     

Does state-level per capita income affect juvenile delinquency? An empirical analysis for Indian states

While average juvenile crime rates across India has dropped in recent decades, juvenile property crime rates (total juvenile crimes divided by state population) has actually gone up from 15% in 2000-01 to about 20% in 2013-14. There is huge variation across states when it comes to juvenile crime rates. The literature on juvenile crime in the Indian context is scant. This paper aims to fill the gap in the literature by undertaking a comprehensive analysis of juvenile delinquency related to property crimes across Indian states. Results show that state income per capita has a non-linear impact on incidences of juvenile crime across Indian states - rising when the income starts growing for relatively poorer states but increasing at a diminishing rate when state income per capita rises further. When a poor state gets relatively richer, both opportunities to commit crime and returns from property crime increases. However, as the state grows even richer, growth of employment and state facilities including rehabilitation and redistribution, improve. Further, we find that states with the lowest income per capita and highest level of adult crime face the steepest increase in juvenile crime rates for a rise in state income per capita.     

Tornado activity,house prices,and stock returns

In this paper we investigate the effects of tornado activity on house prices and stock returns in the US. First, using geo-referenced and metropolitan statistical area (MSA)-level data, we find tornado activity to be responsible for a significant drop in house prices. Spillover tornado effects between adjacent MSAs are also detected. Furthermore, our granular analysis provides evidence of tornadoes having a negative impact on stock returns. However, only two sectors seem to contribute to such a negative effect (i.e., consumer discretionary and telecommunications). In a macro-analysis, which relies on aggregate data for the South, West, Midwest and Northeast US regions, we then show that tornado activity generates a significant drop in house prices only in the South and Midwest. In these regions, tornadoes are also responsible for a drop in income. Tornado activity is finally found to positively (negatively) affect stock returns in the Midwest (South). If different sectors are examined, a more heterogeneous picture emerges.     

Do cash flow imbalances facilitate leverage adjustments of Chinese listed firms? Evidence from a dynamic panel threshold model

This paper investigates the asymmetric impact of cash flow on firms’ leverage adjustments. We use a dynamic panel threshold model and estimate it with a newly-developed first-difference GMM approach, which allows endogeneity in both threshold variable and regressors. Employing data of 1054 Chinese listed firms during 2004–2016, we show that Chinese listed firms have leverage targets, towards which they adjust at an average speed of 25.9%. Moreover, firms with larger absolute cash flow adjust towards their leverage targets significantly faster than those with smaller absolute cash flow. This finding is robust to a post-financial crisis sample period, alternative measures of leverage and cash flow, and the incorporation of an additional control variable. We find evidence that cash flow imbalances facilitate leverage adjustments by reducing adjustment costs, and Chinese listed firms rely more on debt issues. These findings provide new insights on firms’ leverage adjustment and cash flow management.     

Wealth inequality and financial inclusion: Evidence from South African tax and survey records

Theoretical models show that financial inclusion reduces wealth inequality. Existing empirical models are restricted to estimates using income inequality because of a lack of cross country wealth inequality data. We used 2010-11 and 2014-5 waves of the National Income Dynamics Study combined with South African tax records to estimate wealth and income inequality. Using Re-centered Influence Function regressions on the micro-level records, we confirmed the negative cross-country relationship between financial inclusion and income inequality. Wealth inequality is different. Financial inclusion improved wealth shares of only the middle class. Because of predatory lending, expansion of credit reduced the wealth share of the poor. Improved savings by the middle class, providing better oversight over financial services targeted at the poor and removing impediments to the small business sector are pre-conditions for financial inclusion to reduce wealth inequality.     

The migrant crisis in the Mediterranean Sea: Empirical evidence on policy interventions

This paper presents a novel set of empirical evidence to explore several hypotheses regarding the migrant crisis in the Mediterranean Sea. The political instability in transit countries, such as Libya, that made pre-existent repatriation policies ineffective, called for several search-and-rescue operations in the Mediterranean, which in turn have been wrongly accused of fostering illegal immigration and increasing deaths at sea. The empirical results show that the main determinants of the departures are several root causes at the departing African countries, underlining the importance of fighting human smuggling networks. The paper suggests a change in migration studies’ perspective, to leave behind the pull-and-push-factors narrative that is open to be politically slanted and to focus instead on the short-term versus long-term horizons of implementation of the policy interventions.     

Race to the top: Does competition in the DSL market matter for fibre penetration?

High speed broadband creates potential productivity gains and has a positive impact on economic growth. Achieving Europe's broadband access objectives will require large scale investment in next generation broadband networks, and it is imperative that an appropriate investment climate is created to encourage fibre network rollout. This study considers whether and how competition in the DSL market affects the incentives of operators to invest in the deployment of high-end fibre optic networks. Most earlier research on the drivers of investment in broadband technology has focused on the effect of mandatory access policies, such as local loop unbundling, or competing infrastructures. We posit that competition in the DSL sector may also influence fibre penetration, possibly to a considerable extent. We find that the relationship between service-based competition and fibre penetration is non-linear: a lack of or severe DSL competition is correlated with a negative effect on fibre penetration, but if a moderate degree of competition is already present in the market, more service-based competition may positively influence fibre penetration. The scale of these effects however varies with the openness of the DSL market: operators' incentives to invest in fibre appear to be more sensitive to changes in DSL competition if there is extensive local loop unbundling.     

Multidimensional financial development,exporter behavior and export diversification

Financial development shapes export sector performance because exporters need external finance and face credit constraints. Previous empirical research has relied largely on single-country studies. The Exporter Dynamics Database (EDD), which features firm-level exports from over 60 countries, reveals differences in the microstructure of the export sector across countries. In this paper, we first provide new evidence that these differences are related to cross-country variation in financial development and structure. Second, we combine the EDD and multidimensional data on financial development with a global database on export diversification. This study is the first to examine how macrolevel export diversification is determined by the microcharacteristics of the export sector. This approach is novel in the empirical literature on export diversification. According to our cross-country analysis, access to domestic financial services positively contributes to export diversification by increasing the number of small exporters, as financial services ease the credit constraints these exporters face.     

Rural electrification in Cambodia: does it improve the welfare of households?

This study uses subsamples of socio-economic surveys from 2004 and 2011 to construct village panel data and apply the difference-in-differences (DID) method to examine the impact of rural electrification on household consumption and children’s education in Cambodia at the village level. Conditional on the DID assumption and observed village and household characteristics, rural electrification increased household consumption by approximately 16.6%. This study also finds that higher-quintile households benefited more. Additionally, rural electrification increased boys’ years of schooling completed by 0.85 and girls’ years of schooling completed by 0.62. It also increased the probability of having ever been enrolled in primary school for boys by approximately 9.7% but did not increase the probability of having ever been enrolled for girls.     

The option to quit: The effect of employee stock options on turnover

We show that in the years following a large broad-based employee stock option (BBSO) grant, employee turnover falls at the granting firm. We find evidence consistent with a causal relation by exploiting unexpected changes in the value of unvested options. A large fraction of the reduction in turnover appears to be temporary with turnover increasing in the third year following the year of the adoption of the BBSO plan. The increase three years post-grant is equal in magnitude to the cumulative decrease in turnover over the three prior years, suggesting that long-vesting BBSO plans delay, instead of prevent, turnover.