METROPOLITAN HOUSE PRICES IN SOUTH AFRICA: DO THEY CONVERGE?

The question this paper investigates is whether or not different metropolitan areas each constitute a separate housing market or whether or not there is a single South African housing market. Theory on the Law of One Price suggests that if products or geographic areas belong in the same market, their absolute prices must converge, so that their relative prices are stationary. By using cross-sectional time series data of five metropolitan areas, the paper tests for the Law of One Price by applying the Im, Pesaran and Shin panel unit root test. The paper finds strong evidence of convergence in large middle-segment house prices and weaker support for convergence in medium middle-segment house prices. In addition, the paper finds no evidence for convergence in small middle-segment house prices. This suggests the existence of a national market for large and possibly middle-segment houses in metropolitan areas, but separate metropolitan markets for small middle-segment houses. In addition, the paper estimates the speed of convergence and finds that large middle-segment house prices converge within two to seven quarters, while the speed of convergence for medium middle-segment house prices in three of the five areas is five to eight quarters.     

Are the Best Small Companies the Best Investments?

Previous research finds that large companies previously judged to be excellent growth companies have subsequently been poor investments. We examine small companies selected by Business Week on the basis of multiple criteria used in annual articles featuring highly rated growth companies. We study the investment performance over the three years before eleven annual Business Week publications and the three years after publication. We find positive excess returns in the pre‐publication period, but negative excess returns in the post‐publication period. This reversal in investment performance appears to be due to a mean‐reversion tendency in operating performance, in which the earnings and the past rates of return on capital of such companies subsequently decrease significantly.     

Advertising,Price and Quality in Self–regulating Professions: A Survey

This paper surveys the theoretical and empirical literature on the relationship between advertising, fees and quality in the self–regulating professions. Much of the literature is derived from the perspective of advertising as an information–enhancing device, helping to reduce the information asymmetry between professional and client. This is consistent with the majority of the empirical studies which suggest that advertising tends to have a downward effect on professional fees, with little if any adverse effect on quality. There are, however, important issues of method and measurement which may lessen the force of this conclusion     

Moore's Law and the Semiconductor Industry: A Vintage Model*

In this paper we develop a vintage model to gain a better understanding of the semiconductor industry and its role in recent U.S. productivity gains. Unlike previous work, in our model the observed price declines of individual chips are driven by the introduction of better vintages rather than by learning economies. Dominated chips, nonetheless, continue to be produced, for a time, due to sunk investments in chip‐specific production equipment. The model lends partial support to Jorgenson's hypothesis that an exogenous increase in Moore's Law could have generated the more rapid price declines, and faster productivity growth, seen after 1995.     

Regulatory reform of the UK gas market: The sase of the storage auction

The UK gas industry has undergone major changes since it was privatised in 1986 as a fully integrated monopoly. The most significant of these has occurred not as a result of the privatisation legislation but by the intervention of the ordinary competition authorities in support of an active industry regulator. While price capping continues to be used as the primary instrument for welfare protection against the still substantial monopolistic powers of the incumbent, new competition (which has been positively encouraged) has had the greater impact on prices and choice. Recently, however, the regulator has encouraged the use of auctions for the sale of storage capacity. This paper considers the merits of auctions and makes a tentative evaluation of their effectiveness. Further use of auctions is recommended but reserve prices are considered inappropriate where monopoly power still remains.     

Intertemporal Equity and Hartwick's Rule in an Exhaustible Resource Model*

In a standard exhaustible resource model, it is known that if, along a competitive path, investment in the augmentable capital good equals the rents on the exhaustible resource (known as Hartwick's rule), then the path is equitable in the sense that the consumption level is constant over time. In this paper, we show the converse of this result: if a competitive path is equitable, then it must satisfy Hartwick's rule.     

Multinational Companies,Technology Spillovers and Plant Survival*

How does the presence of multinational companies affect plant survival in the host country? We postulate that multinational companies can impact positively on plant survival through technology spillovers. We examine the nature of the effect of multinationals using a Cox proportional hazard model, which we estimate using plant‐level data for Irish manufacturing industries. Our results show that the presence of multinationals has a life‐enhancing effect only on indigenous plants in high‐tech industries, suggesting the presence of technology spillovers. In contrast, multinationals compete with each other in low‐tech sectors in the host country.     

Liquidity shocks and equilibrium liquidity premia

We study an equilibrium in which agents face surprise liquidity shocks and invest in liquid and illiquid riskless assets. The random holding horizon from liquidity shocks makes the return of the illiquid security risky. The equilibrium premium for such risk depends on the constraint that agents face when borrowing against future income; it is insignificant without borrowing constraint, but can be very high with borrowing constraint. Illiquidity, therefore, can have large effects on asset returns when agents face liquidity shocks and borrowing constraints. This result can help us understand why some securities have high liquidity premia, despite low turnover frequency.     

FACTORS THAT AFFECT THE LONG‐TERM SURVIVAL OF MICRO,SMALL AND MEDIUM ENTERPRISES IN ETHIOPIA

There is an increasing recognition of the potential importance of micro, small and medium enterprises (MSMEs) for employment, income and poverty reduction in Ethiopia. Although the MSME sector contributes significantly to the national economy, the high failure rate among well established small businesses and enterprises is a matter of major concern. A random sample of 500 small businesses and enterprises selected from five major cities in Ethiopia were followed up for 6 years in order to assess the impact of influential factors that affect the long‐term survival and viability of small enterprises. Hazard ratios estimated from the Cox Proportional Hazards Model were used to quantify the impact of key predictors of survival. Businesses that ceased operation were characterised by inadequate finance (61%), low level of education (55%), poor managerial skills (54%), shortage of technical skills (49%), and inability to convert part of their profit to investment (46%). The study shows that participation in social capital and networking (iqqub schemes) was critically helpful for long‐term survival. Businesses that did not participate in iqqub schemes regularly were found to be 3.25 times more likely to fail in comparison with businesses that did. Results of the study have implications that could be used for developing policy initiatives that are aimed at fostering long‐term growth in small businesses and enterprises.     

A flight to Q? Firm investment and financing in Korea before and after the 1997 financial crisis

We examine investment behavior among exchange-listed Korean manufacturing firms before and after the 1997 financial crisis using firm-level panel data. Starting with the standard Q-theory of investment, we augment it by allowing for a sales accelerator and the possibility of cash constraints, categorizing firms based on their age, size and affiliation to an industrial conglomerate (i.e., chaebol). We find that Tobin’s Q is a robust determinant of investment in a pooled sample for 1992–2001, but that it became more important for small firms and less important for chaebol-affiliated firms after the crisis. Investment by chaebol firms also became more sensitive to the availability of internal cash balances after the crisis. We interpret this as reflecting a shift in the Korean economy to a stronger market orientation after the crisis and to a business climate in which the quality of potential projects became more important relative to capital market imperfections in determining the destination of investment funds.