• TITLE:

    FOREIGN AID, FDI AND ECONOMIC GROWTH IN EAST EUROPEAN COUNTRIES

    Author(s):

    Kamal P. Upadhyaya, Gyan Pradhal, Dharmendra Dhakal, & Rabindra Bhandari

    Abstract:

    This paper examines the effectiveness of foreign aid and foreign direct investment in the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland. The model includes the labor force, capital stock, foreign aid and foreign direct investment, and is estimated using pooled annual time series data from 1993 to 2002. Before carrying out the estimation, the time series properties of the data are diagnosed and an error-correction model is developed and estimated using a fixed-effects estimator. The results indicate that an increase in the stock of domestic capital and inflow of foreign direct investment are significant factors that positively affect economic growth in these countries. Foreign aid did not seem to have any significant effect on real GDP.

    Keywords:

  • TITLE:

    FOREIGN DIRECT INVESTMENT AND TRANSITION ECONOMIES: EMPIRICAL EVIDENCE FROM A PANEL DATA ESTIMATOR

    Author(s):

    Kamal Upadhyaya

    Abstract:

    This paper identifies the factors that determine FDI inflows in the former socialist countries of Eastern and Central Europe. In our analysis, FDI inflows are modeled as a function of the market size (i.e., real GDP), inflation, the current account balance, the real exchange rate, openness and government regulation -- for the host country. Using data from 1995 to 2004, a panel data estimator suggests that the real exchange rate, openness of the economy and deregulation are the primary factors determining FDI inflows in these countries.

    Keywords:

  • TITLE:

    EXAMINING THE PERFORMANCE OF COMPETITION POLICY ENFORCEMENT AGENCIES: A CROSS-COUNTRY COMPARISON

    Author(s):

    Lesley DeNardis & A. E. Rodriguez

    Abstract:

    An examination of a cross-section of 102 nations reveals marked differences in the performance of their competition policy enforcement agencies. Likely explanatory factors considered include gross domestic product per capita, the intensity of competition, physical size, the level of corruption, national experience with a modern antitrust law and whether the common law prevails. Competition policy agencies operate poorly in jurisdictions characterized by corruption and poor competitive intensity. In fact, differences in levels of corruption and variations in the intensity of competition account for approximately 78 percent of the observed variance in agency performance. Group characteristics, however, vary by region and have varying impact on the observed performance gap. Rather than a generalized approach to the promotion and diffusion of competition policies, our results suggest that distinct policies for each region are likely to be more successful.

    Keywords:

  • TITLE:

    FINANCIAL PERFORMANCE IN CONNECTICUT'S MUNICIPALITIES: A COMPARISON OF MANAGER, MAYOR-COUNCIL AND SELECTMAN FORMS OF GOVERNMENT

    Author(s):

    Lesley DeNardis & A. E. Rodriguez

    Abstract:

    This paper assesses the relative performance of the council-manager versus the two predominant political models of government in Connecticut: Mayor-Council and Selectman forms of government. All three will be assessed in terms of their capability to provide for greater efficiency in Connecticut’s municipalities.

    Keywords:

  • TITLE:

    ASSESSING COMPETITION POLICY PERFORMANCE METRICS: CONCERNS ABOUT CROSS-COUNTRY GENERALISABILITY

    Author(s):

    Lesley DeNardis & A. E. Rodriguez

    Abstract:

    Recent interest in competition policy performance has typically relied on subjective performance metrics that have undergone little direct scrutiny by users. We examine the quality of the popular World Economic Forum's antitrust performance metric and assess whether it is immune from perception-bias. A bias-free metric is required to ensure cross-country consistency in its intended performance assessment.
    We note various instances where the WEF's competition policy performance survey was completed but where there existed neither competition legislation nor an associated enforcement agency at the time. This seeming inconsistency is neither amenable to traditional econometric heterogeneity treatment nor instrumentable; importantly, it is likely to embed non-random error onto the WEF antitrust survey.
    We test and discuss some possible explanations for the observed bias: we find that both halo effects and a nation's modest experience with market institutions may be responsible for the bias. Underscoring these results may be the fact that survey respondents may not share a common understanding of competition policy. We offer some discussion supporting this latter point.
    The presence of these biases may invalidate the usefulness of cross-nationally valid rankings of competition policy performance. On the bright side, however, the results suggest that efforts aimed at enhancing stakeholders' understanding of the objectives and limitations of competition policy might in turn enhance competition policy's impact as well as perceptions of performance.

    Keywords:

    international competition policy; performance index; world economic forum survey

  • TITLE:

    CAN ALLOCATION BY SORTITION RESOLVE THE CONNECTICUT EDUCATION-FINANCING IMPASSE?

    Author(s):

    A. E. Rodriguez & Lesley DeNardis

    Abstract:

    It has been over 40 years since Connecticut amended its Constitution to ensure citizens a right to a free public education. Despite the constitutionally prescribed right, dramatic inequities in educational conditions continued to characterize the state's K-12 educational system, especially between suburban/rural white and urban minority school districts. In the 1970s plaintiffs challenged the prevailing mechanism for allocating education funds with a host of court cases that tackled the thorny question of how much financial responsibility the state should assume to equalize the spending disparities between school districts. Prodded by court decisions, many formulas and approaches have been proposed by the Connecticut General Assembly in response to the various legal challenges yet the state has never fully funded the cost sharing formula nor lived up to the 50-50 cost sharing arrangement envisaged by some policymakers. The situation remains at an impasse with the latest court action, CCJEF v. Rell (2005), to be resolved no sooner than 2014 by most accounts. Our aim here is to offer an analysis of the decision-making environment that explains the current impasse. We contend that by applying the dual-error framework popular in other social policy settings, it is possible to understand the competing views and beliefs of those groups arrayed in opposition. We claim that the individual and political understanding and policy responses are prone to cognitive heuristics in the manner popularized by Sunstein, Schadke and Kahneman, and Kuran and Sunstein (Kuran & Sunstein, 1999; Sunstein C. , Cognition and Cost-Benefit Analysis, 2000; Schkade & Kahneman, 1998). This analytical approach entails a recognition that many policy makers fail to make decisions via the normative model of rational decision-making but rather rely subjectively on emotion, intuitions, biases, character traits, and social and cultural norms in a manner that diverges systematically from the rational model. We argue that differing subjective appraisals of the role of individual agency in the observed achievement gap is at the core of the debate. There are, of course, other inputs into the educational process. But it is this perception of agency that heavily influences the general population's political choices. The existing institutional framework appears to have cemented this worldview in a situation that has little chance of a meaningful resolution. We note the perplexing conundrum in which Connecticut finds itself and conclude that the problem is a social dilemma in which the parties involved are individually powerless to resolve. Sortition mechanisms - allocation by lottery - have been known to effectively resolve social dilemmas in other domains. We examine the possibility of relying on lots to resolve the allocation of educational monies.

    Keywords:

    school financing; behavioral economics; sortition; heuristics and biases; dual-error framework

  • TITLE:

    ANOTHER EMPIRICAL LOOK AT THE THEORY OF OVERLAPPING DEMANDS

    Author(s):

    Dharmendra Dhakal,
    Gyan Pradhan, &
    Kamal Upadhyaya

    Abstract:

    Linder’s theory of overlapping demands suggests that international trade in manufactured goods will be stronger between countries with similar per capita income levels. In this paper, we test the Linder hypothesis for five East Asian countries using panel data for five years. In addition to including bilateral trade data for these countries, we include their bilateral trade data with their other major trading partners. A modified gravity model is developed for this purpose. The model is first estimated for each year in the sample. In addition, a panel data set is constructed and estimated using a fixed-effects estimator. The overall results of our estimations are quite robust and do not provide support for Linder’s hypothesis.

    Keywords:

  • TITLE:

    ON THE NONLINEAR CAUSALITY BETWEEN INFLATION AND ITS UNCERTAINTY IN G-3 COUNTRIES

    Author(s):

    Esin Cakan, Zeynel Abidin Ozdemir, & Mehmet Balcilar

    Abstract:

    This study examines the dynamic relationship between monthly inflation and inflation uncertainty in Japan, the US and the UK by employing linear and nonlinear Granger causality tests for the 1957:01-2006:10 period. Using a generalised autoregressive conditional heteroskedasticity (GARCH) model to generate a measure of inflation uncertainty, the empirical evidence from the linear and nonlinear Granger causality tests indicate a bi-directional causality between the series. The estimates from both the linear vector autoregressive (VAR) and nonparametric regression models show that higher inflation rates lead to greater inflation uncertainty for all countries as predicted by Friedman (1977). Although VAR estimates imply no significant impact, except for Japan, nonparametric estimates show that inflation uncertainty raises average inflation in all countries, as suggested by Cukierman and Meltzer (1986). Thus, inflation and inflation uncertainty have a positive predictive content for each other, supporting the Friedman and Cukierman-Meltzer hypotheses, respectively. JEL classification codes: C22, E31.

    Keywords:

    inflation; inflation uncertainty; Granger-causality; nonlinear Granger-causality

  • TITLE:

    THE BUSINESS CYCLE AND IMPACTS OF ECONOMIC NEWS ON FINANCIAL MARKETS

    Author(s):

    Esin Cakan

    Abstract:

    By jointly modeling returns and volatilities, we find that unemployment news has no significant impact on U.S. stock market returns, but instead on stock market volatility. There is also a significantly positive relation between the long-term bond return and unemployment news during economic expansions, indicating that U.S. government bonds might be a hedge against unemployment news. Inflation news affects both stock and bond market returns negatively during expansions. Both unemployment and inflation news surprises also have more impact on volatility during economic recessions than during expansions.

    Keywords:

    new surprises; stock price returns; bond market; GARCH; volatility

  • TITLE:

    REMITTANCES, FDI, AND ECONOMIC GROWTH IN South Asia: EVIDENCE FROM PANEL DATA

    Author(s):

    Kamal P. Upadhyaya, Dharmendra Dhakal, & Samanta Thapa

    Abstract:

    This paper estimates the effect of FDI and remittances on economic growth in South Asia using an aggregate production function model. Time series data from 1976 to 2010 for India, Pakistan, Bangladesh and Sri Lanka is used to create the panel data. Time series properties of the panel data are diagnosed using panel unit root and panel cointegration tests and an error correction model is developed. The model is estimated using fixed effects estimator. The findings suggest that FDI has a positive effect on economic growth but remittances have a negative effect. A decrease in exports due to the Dutch Disease, a decrease in the labor force participation of the remittance receiving family, and public moral hazard problems could be possible reasons for the negative effect of remittances on economic growth.

    Keywords:

  • TITLE:

    INCOME POLARIZATION AND INCOME INEQUALITY IN CONNECTICUT DURING THE GREAT RECESSION

    Author(s):

    A. E. Rodriguez & Scott J. Lane

    Abstract:

    In this paper, using Bureau of the Census family income data we formally examine the income polarization hypothesis for the State of Connecticut. We ask and answer two questions. First, did the polarization of income deteriorate over the Great Recession years of 2007-2009? If the observed clustering around two opposite poles that existed in Connecticut prior to the Great Recession increased between the years immediately prior to the recession and immediately after (2006-2010) it would be consistent with the perception that the size of the middle class decreased over this period. Second, have income polarization and income inequality fared significantly differently during this period in the state? Income polarization and income inequality, albeit related, are generally distinct features of income distributions. There was no statistically significant change in the polarization of Connecticut’s income over the recent recessionary period. We also find that income inequality and income polarization followed distinct and different trajectories over the time period examined.

    Keywords:

    polarization; Wolfson Index; inequality; income distribution; Connecticut

  • TITLE:

    ON THE RELATIONSHIP BETWEEN EXCHANGE RATES AND STOCK PRICES: EVIDENCE FROM EMERGING MARKETS

    Author(s):

    Esin Cakan & Demissew D. Ejara

    Abstract:

    This study examines dynamic linkages between the exchange rates and stock prices for twelve emerging market countries for the period from May 1994 to April 2010 by using linear and non-linear Granger causality tests. Our empirical results show that stock prices and exchange rates have linear and non-linear bi-directional causality in most cases. The exceptional countries are Brazil, Poland and Taiwan, in that there is no evidence for a non-linear Granger causality from stock prices to exchange rates. The results support both the portfolio balance and the goods market theories for eight out of twelve countries. JEL Classifications Codes: F30, G15.

    Keywords:

    change rate; stock prices; emerging markets; non-linear Granger causality; linear Granger causality; dynamic linkages

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