Factor substitution and taxation in a finance constrained economy

In this paper, we examine the effects of constant-rate factor taxation on macroeconomic stability in the Woodford (1986) model. Our focus is on how the degree of factor substitution, as measured by the elasticity of factor substitution (EOS) in production, affects different balanced-budget tax rules. Analytically, we show that indeterminacy can occur under capital income taxation only when the EOS is very low, whereas indeterminacy under labor income taxation is not subject to the EOS restriction. This finding is robust when we tax all of the factor incomes with equal rates. Thus, in terms of macroeconomic stability, taxing capital income is preferred to taxing labor income.     

FDI in Sub-Saharan Africa: A longitudinal perspective on location-specific factors (2003–2010)

This paper examines the characteristics of Location Specific Factors (LSFs) in Sub-Saharan Africa (SSA) regarding inward Foreign Direct Investment (FDI) by Multinational Enterprises (MNEs). Exploratory Factor Analysis (EFA) of 758 MNEs in 2003, 1216 in 2005 and 2402 in 2010 is used to compare the variability in LSFs in ten, 15 and 19 SSA countries respectively. We find firstly the most powerful factors, influencing the political-economy and trade dynamics of hosts to FDI, stable over time. Secondly, by 2010, production inputs become the most important factor for FDI followed by political-economic stability. This result reflects findings in International Business (IB) literature. Policy implications point to unwavering need by SSA to reduce transaction costs for FDI; increase the predictability of the policy environment; and increase the productivity-adjusted cost efficiency of inputs.     

Nowcasting and forecasting GDP in emerging markets using global financial and macroeconomic diffusion indexes

This paper contributes to the nascent literature on nowcasting and forecasting GDP in emerging market economies using big data methods. This is done by analyzing the usefulness of various dimension-reduction, machine learning and shrinkage methods, including sparse principal component analysis (SPCA), the elastic net, the least absolute shrinkage operator, and least angle regression when constructing predictions using latent global macroeconomic and financial factors (diffusion indexes) in a dynamic factor model (DFM). We also utilize a judgmental dimension-reduction method called the Bloomberg Relevance Index (BRI), which is an index that assigns a measure of importance to each variable in a dataset depending on the variable’s usage by market participants. Our empirical analysis shows that, when specified using dimension-reduction methods (particularly BRI and SPCA), DFMs yield superior predictions relative to both benchmark linear econometric models and simple DFMs. Moreover, global financial and macroeconomic (business cycle) diffusion indexes constructed using targeted predictors are found to be important in four of the five emerging market economies that we study (Brazil, Mexico, South Africa, and Turkey). These findings point to the importance of spillover effects across emerging market economies, and underscore the significance of characterizing such linkages parsimoniously when utilizing high-dimensional global datasets.     

Complementarities between firm-sponsored training and information technology use

In this article, we investigate the presence of possible complementarities between investments in information technology (IT) and firm-sponsored training using economy-wide longitudinal representative workplace-level data. Since information on the firm’s capital stock is often missing in such representative data, we match our workplace records to tax data to construct measures of the firm’s capital stock. We find some evidence of positive complementarities between investments in human capital and IT, suggesting that on-the-job training can also have a positive impact on productivity when complemented with investments in CAD or other technologies.     

Egalitarianism under population change: Age structure does matter

We study the compatibility of the optimal population size concepts produced by different social welfare functions and egalitarianism meant as “equal consumption for all individuals of all generations”. Social welfare functions are parameterized by an altruism parameter generating the Benthamite and Millian criteria as polar cases. The economy considered is in continuous time and is populated by homogeneous cohorts with a given life span. Production functions are linear in labor, (costly) procreation is the unique way to transfer resources forward in time. First, we show that egalitarianism is optimal whatever the degree of altruism in “perpetual youth” model, that is when lifetime span is finite but age structure does not matter: in this case egalitarianism does not discriminate between the social welfare functions considered. Then we show that, when life span is finite but age structure matters, egalitarianism does not arise systematically as an optimal outcome. In particular, in a growing economy, that is when population growth is optimal in the long-run, this egalitarian rule can only hold when the welfare function is Benthamite. When altruism is impure, egalitarianism is impossible in the context of a growing economy. Either in the Benthamite or impure altruism cases, procreation is never optimal for small enough life spans, leading to finite time extinction and maximal consumption for all existing individuals.     

Do housing prices promote total factor productivity? Evidence from spatial panel data models in explaining the mediating role of population density

The issue of what to promote in total factor productivity (TFP) in urban areas has been widely discussed in academia and housing prices and population density are confirmed to be two of the most essential driving factors. However, research into the interaction of housing prices and population density with TFP has been neglected, with no previous studies taking spatial factors into consideration, which may bias the results. From this perspective, using spatial panel data models and employing instrumental variables to solve the endogenous problem, this study examines the impact of housing prices on TFP through the mediating effect of population density for 283 Chinese cities during the period 2000–2013, and confirms that the mediating effect accounts for 18.70 % of the total effect. The results show the positive and significant association of housing prices with TFP and the inverted U-shape of population density. The underlying logic is that housing prices change population density by attracting people with high purchasing power and discouraging those unable to afford housing, whereas increased density helps to promote productivity since the settled inhabitants always have highly developed work skills and are well educated. The influencing mechanism of housing prices on TFP through population density is analyzed, namely the spillover effect. We find that the spillover effect exists in the eastern and central regions, as well as first, second, and third tier cities, while for western regions and fifth tier cities, population mobility and increased in housing prices slows their economic development. There is no evidence of any spillover effect in fourth tier cities. A discussion and suggested policy implications are also provided.     

Firm performance and corporate finance in New Zealand

Low productivity growth in New Zealand has been a paradox. We study New Zealand firms’ profitability, in terms of profit margin and return on assets (ROA), from the viewpoints of productivity enablers using firm-level panel data. We find that tangible fixed investment and a research and development (R&D) tax incentive are associated with higher profitability performance. In addition, the firm size is found to be a key determinant of profit margin. By contrast, we do not find any evidence that intangible investment can improve the profitability. The global financial crisis has not changed the leverage effect on ROA in New Zealand, while the impact of R&D became more prominent after the crisis.     

The relationship between people's activities and values with the protection level and biodiversity

We investigated how people's recreational activities, values, and land use preferences are related to the protection level, biodiversity and cultural heritage values of nature-based tourism areas in northern Finland. We assessed peoples' opinions using a public participation geographic information system (PPGIS) and analyzed the data together with spatial biodiversity and cultural heritage data from the same area. Associations between the PPGIS place markings with the protection level and biodiversity values were quite low, and for the cultural heritage sites they were altogether missing. Negative preferences were often marked in areas with high numbers of sites rated as pleasant and they overlapped with each other, indicating conflicting preferences. Since most activities are not noticeably related to the protection level or biodiversity values of a site they can be planned so as to protect the biodiversity of the area.     

Bear beta

We test whether bear market risk, time variation in the probability of future bear market states, is priced. We construct an Arrow–Debreu security that pays off in bear market states (AD Bear) from traded Standard & Poor’s (S&P) 500 index options and use its returns to measure bear market risk. We find that bear beta (exposure to bear market risk) has a strong relation with expected stock returns that is robust, persistent, and remains strong among liquid and large stocks. Historical bear beta also predicts future bear market risk exposure. We conclude that bear market risk is priced in the cross section of stock returns.