Cross-country Panel Regressions Research Articles

Factors Influencing Private Participation in Public Infrastructure Projects: The South Asian Experience in the Global Context

This paper takes a global look at the main reasons why both public and pri-vate entities wish to collaborate on infrastructure projects in the form of public-private partnerships. It uses a cross-country panel regression for five South Asian countries between 1997 and 2018. The study finds that PPPs tend to be more common in countries with higher GDP per capita and larger market size. The study suggests that countries with rising exchange rate and countries where governments suffer from heavy external debt burdens are less likely to have PPPs. Countries with substantial foreign exchange reserves and development aid, are found to be less eager to pursue PPPs. The study provides evidence of the importance of the rule of law and control of corruption. Finally, the financial crisis of 2007–2008 is not proved to have negative effect on PPP flows to South Asian countries, manifesting their strong resilience to financial crisis shocks.

Structural Transformation and Employment Generation in India: Past Performance and the Way Forward.

Historical experience suggests that a sustained rise in per capita incomes and improvement in employment conditions is not attainable without a structural transformation that moves surplus labour from agriculture and other informal economic activities to higher productivity activities in the non-farm economy. In this paper, I analyse India’s performance from a cross-country comparative perspective, estimating the growth semi-elasticity of structural change. Using a cross-country panel regression, I estimate the effectiveness of growth in moving workers away from agricultural and informal activities as compared to other developing countries at similar levels of per capita income. I show that the performance in pulling workers out of agriculture is as expected given its level and growth of GDP per capita, but the same is not true for pulling workers out of the informal sector. I also propose the following five indicators that need to be kept track of when evaluating the growth process: the growth elasticity of employment, the growth semi-elasticity of structural change, the growth of labour productivity in the subsistence sector, the share of the organised sector in total employment and the workforce participation rate. Comparing these indicators across periods, states, regions or countries, allows us to understand which sets of policies have worked better than others to effective improvements in employment conditions. And taken together the indicators allow us to set structural change targets as well as to say whether the current pattern of growth is going to be sufficient to meet those targets.

Public-Private Partnerships in Infrastructure Projects: The Role of Ida Status of a Country

Public-private partnerships (PPPs) are increasingly promoted by advocates as an innovative policy tool for redressing inefficiency in traditional public procurement mechanisms. Governments, operating on razor-thin budgets in many developing countries, also pursue PPPs on the grounds that they will bridge their countries' infrastructure gaps. This paper empirically investigates the main incentives that motivate both public and private entities to pursue PPPs as an infrastructure investment tool, focusing on the International Development Association (IDA) status of a country. This study uses a cross-country panel regression for 36 developing countries over 1990-2019, where the outcome variable is the project count as well as the level of PPP investment (PPI). For the regression of the former the study applies Zero Inflated Poisson (ZIP), while for the latter it uses tobit model. While IDA status is negatively associated with PPPs, GDP per capita, economic growth, market size, M2 money supply and inflation are all positively related with PPPs. While volatile exchange rates discourage risk-averse investors, fuel export and foreign aid encourage them to participate in PPPs. Findings also suggest that private investors are less inclined toward PPPs in highly indebted and effectively governed countries. Although the years of PPP experience initially attract more PPPs, further experiences are proving to be frustrating and discouraging of future PPPs. The size of the market, purchasing power in terms of per capita GDP, and inflation all emerge as the most relevant factors in attracting PPPI. Countries with substantial foreign exchange reserves and higher fuel exports are found to attract greater PPPI. Similarly, crisis-ridden nations also pursue more PPPIs. Finally, government effectiveness is found to exert a negative impact on PPPI. The findings could be useful for governments of these countries to guide the design and implementation of policies conducive to a sound investment environment. The prevalence of PPPs in richer countries and the private sectors' preference for higher inflation and less effective government hint a rent-seeking motive on the part of private entities. Alternatives should, therefore, be investigated before pursuing the PPP route. If governments opt to engage in PPPs, they have to pay attention to certain macro conditions.

CONNECTING INTERNATIONAL RiD COOPERATION AND TECHNOLOGY SPECIALIZATION IN OECD COUNTRIES

Technology specialization is supported by processes combining inhouse and external innovation. Applying a macroeconomic and international trade theory approach (Linder, 1961), country specialization depends on international RiD cooperation partnerships. External, international RiD cooperation is essential for technology specialization, as it raises awareness of countries’ position on a global technology map. This paper studies international RiD cooperation as a determinant of countries’ technology specialization. Cross-country panel regression was done on a sample of 37 OECD countries for the period 1980-2018. The analysis examined the effect of international RiD cooperation on technology specialization. Data were obtained from the OECD database. Co-patenting with foreign inventors was used to indicate the level of international RiD cooperation. Patent per technology was used to calculate technology specialization based on the Herfindahl index. Results indicate a positive effect of international RiD cooperation on technology specialization. The effect of RiD cooperation on technology specialization is more pronounced when GDP and RiD expenditure were used as control variables. Additionally, the size of the GDP negatively affects technology specialization. This paper identifies international cooperation as a bridge for global information exchange, which results with countries’ technology specialization.

Trade creation and trade diversion effects from Croatia’s CEFTA and EU membership

This paper provides a detailed empirical study of trade creation and trade diversion effects arising from Croatia's two regional trade agreements, the Central European Free Trade Agreement (CEFTA) and the European Union (the EU). It offers a foundation for discussion about future trade policies in terms of benefits and drawbacks from those regional trade agreements. Croatia’s imports, exports and total trade flows with 180 trading partner countries were examined for the period of 2000 – 2016. Cross-country panel regression using gravity model of international trade assessed pooled OLS, fixed and random effects, as well as more robust Tobit and PPML estimator models. The random effects model found positive effects of Croatia-CEFTA integration evident in trade creation in imports, exports and total trade flows. Croatia-EU integration exhibits no significant effect of trade creation in neither imports, exports nor total trade flows. Nonetheless, there is a trade diversion effect in cases of imports and total trade flows. In the Tobit model CEFTA created trade in imports, exports and total trade flows, while the EU diverted trade in imports and total trade flows. Finally, the robust PPML estimator found that: (1) CEFTA membership created trade in imports, exports and total trade flows, and (2) the EU membership diverted trade in imports and exports, and created trade in total trade flows.

Impact of external currency exposures on macroeconomic policies

Based on cross-country panel regressions, the paper analyzes the impact of external currency exposures on monetary policy, exchange rate regime and capital controls. It is determined that positive net external position (which, e.g., is the case for Russia) is associated with a higher degree of monetary policy autonomy, i.e. the national key interest rate is less responsive to Fed/ECB policy and exchange rate fluctuations. Therefore, the risks of cross-country synchronization of financial cycles are reduced, while central banks are able to place a larger emphasis on their price stability mandates. Significant positive impact of net external currency exposure on exchange rate flexibility and financial account liberalization is only found in the context of static models. This is probably due to the two-way links between incentives for external assets/liabilities accumulation and these macroeconomic policy tools.

Social Capital and Economic Growth: Cross-country Panel Regression Analysis

Social Capital and Economic Growth: Cross-country Panel Regression Analysis

Long-Term Growth and Productivity Trends: Secular Stagnation or Temporary Slowdown?

Economic growth in advanced countries has slowed in successive stages since the 1970s and, since the crisis, has fallen to a historical low compared with the 20th century. This slowdown is mainly attributable to weaker growth in total factor productivity. In emerging countries, the situation varies: in some countries, such as South Korea and Chile, GDP per capita have been converging for several decades; in others, such as Argentina, Brazil and Mexico, relative GDP per capita has stagnated or even declined. While weak long-term growth in these latter countries can be attributed to a lack of appropriate institutions, the widespread slowdown observed in advanced countries is more difficult to interpret. One possible explanation that we explore is the decline in real interest rates since the 1990s. A circular relationship appears to exist between interest rates and productivity: productivity determines long-term returns on capital and thereby interest rates; interest rates in turn determine the minimum productivity expected from investment projects. The decline in real interest rates, which is in part attributable to demographic factors, may have led to a slowdown in productivity by making an increasing number of unproductive companies and projects profitable. We illustrate this circular relationship using a cross-country panel regression. One way of breaking out of the circular relationship would be via a new technological revolution linked to the digital economy, or, in countries where there is still room for convergence, via structural reforms to improve the diffusion of Information and Communication Technologies (ICT).

Testing the validity of the Linder hypothesis for Croatia

Abstract This paper presents empirical evidence on the validity of the Linder hypothesis in the case of Croatia. According to the Linder hypothesis, one of the new theories of international trade, countries with a similar level of income per capita should trade more. In order to investigate the trade pattern of Croatia's international trade, a panel regression model is formulated including 184 Croatia's import partner countries in the period from 2000 to 2016. The Linder effect was displayed and calculated using the Linder variable expressed as an absolute difference between GDP per capita of the importing and the exporting country. The cross-country panel regression model is estimated using Pooled OLS, Fixed and Random effects models. Results of the analysis have shown that the validity of the Linder hypothesis for Croatia cannot be accepted. Instead, the structure of Croatia's trade is in line with the gravity model of international trade.

Drivers of Spain's Export Performance and the Role of the Labor Market Reforms

Spain's export performance strengthened after the global financial crisis, and exports now represent more than a third of GDP. This paper argues that several factors contributed to that achievement: external demand, supported by greater diversification of destination markets; enhanced export orientation of Spanish firms, partly as a response to lower domestic demand after the crisis; and competitiveness gains, reflecting in part changes in the labor market following structural reforms adopted in 2010 and 2012. Based on cross-country panel regressions linking real export growth to employment protection indicators, those labor market reforms are estimated to account for nearly one-tenth to above one-quarter of Spain's total export growth rate from 2010 to 2013.

Drivers of Spain's Export Performance and the Role of the Labor Market Reforms

Spain’s export performance strengthened after the global financial crisis, and exports now represent more than a third of GDP. This paper argues that several factors contributed to that achievement: external demand, supported by greater diversification of destination markets; enhanced export orientation of Spanish firms, partly as a response to lower domestic demand after the crisis; and competitiveness gains, reflecting in part changes in the labor market following structural reforms adopted in 2010 and 2012. Based on cross-country panel regressions linking real export growth to employment protection indicators, those labor market reforms are estimated to account for nearly one-tenth to above one-quarter of Spain’s total export growth rate from 2010 to 2013.

An Investigation into the Impact of Mobile Technologies on Economic Growth and Employment in the Caribbean

The adoption of mobile technologies in developing countries in Africa, the Caribbean and Asia has grown exponentially. People in poor regions are using mobile phones for banking, business transactions, socializing, staying connected and monitor the weather. This has reduced the need for travel, lead to the creation of new businesses, shorten supply chains and boost productivity. Consequently, these technologies can be used to eliminate the time and distance barriers between businesses and their customers. This paper examined the impact of mobile technologies in ten Caribbean countries which are primarily developing countries. It utilized a cross-country panel data and regression analysis to estimate and investigates the impact of mobile technologies on economic growth. Results from the paper showed that all the coefficient of the mobile technology components namely the internet user ratio, mobile-cellular telephone subscriptions and the fixed-telephone subscriptions were all significant and positive across all the regressions. This is because of the belief that they contribute to the knowledge spillover, which consequently enhances economic growth.

Factors of Exports Dynamics and Import Substitution after the Sharp Exchange Rate Depreciation

The article deals with the problem of finding out factors promoting high export growth rates and successful import substitution after the sharp real exchange rate depreciation, which took place in Russia. The share of domestically-produced goods and services in domestic demand based on current prices, as well as the growth rate of the domestic demand covered by domestic production, are used as indicators for import substitution. Following the results of cross-country panel regressions, it is demonstrated that Russia’s positive net foreign assets position is favourable for export growth after the depreciation. On the other hand, the share of imported components in Russian non-oil-and-gas exports is close to the world average, so it cannot be stated that Russia’s export structure is favourable from the viewpoint of the magnitude of the depreciation’s positive impact. The analysis of Russia’s non-oil-and-gas exports dynamics measured in constant prices, shows that in recent years, the growth rates undershot the modeled ones. According to the net exports dynamics, in 2014–2015, this discrepancy was offset by the fact that the import contraction rates were significantly higher than the modeled ones. In 2016, however, the contribution of “additional” (as compared to the model) net exports fell to zero. The analysis also demonstrates that in the medium term, low quality of the institutional environment in Russia hinders maintaining momentum for exports and import substitution associated with the depreciation. Thus, despite the significance of the currently in-progress measures promoting non-commodity exports and import substitution, they should be complemented by constant efforts aimed at reducing investment risks, enhancing quality of governance, and safeguarding competition.

Explaining Ethiopia’s Growth Acceleration—The Role of Infrastructure and Macroeconomic Policy

Summary Ethiopia has experienced an impressive growth acceleration over the past decade. This was achieved on the back of an economic strategy emphasizing public infrastructure investment supported by heterodox macro-financial policies. This paper identifies the drivers of Ethiopia’s recent growth episode and examines the extent to which they were typical or unique. It combines country-specific information with the results of a cross-country panel regression model. We find that Ethiopia’s growth is explained well by factors correlating with growth in a broad range of countries in recent decades, including public infrastructure investment, restrained government consumption, and a conducive external environment. On the other hand, we argue that the policy mix that supported very high levels of public investment in Ethiopia was, to some extent, unique. Interestingly, macroeconomic imbalances due to this heterodox policy mix only moderately held back growth which helps explain why Ethiopia was able to grow so fast in spite of their presence: their negative effects were quantitatively much less important than the positive growth drivers they helped to achieve. The results suggest that “getting infrastructure right” may outweigh moderate shortcoming in the macro framework at early stages of development. We further relate this country-specific finding to the recent growth literature.

Breaking the Cycle? How (Not) to Use Political Finance Regulations to Counter Public Procurement Corruption

There are widespread perceptions and countless documented cases of tight-knit networks of politicians and businessmen colluding for allocating public procurement contracts in return for political party donations. In the absence of systematic evidence, neither the magnitude of the problem nor the effectiveness of policies curbing such corruption is well-understood. In order to advance our understanding of these phenomena, this paper tests whether political financing regulations can contribute to controlling corruption in public procurement. We utilize aggregated official micro-level data on almost 3 million contracts awarded across 29 European countries in 2009-2014 to measure the risk of high-level institutionalised corruption using novel proxy indicators. Legislation regulating political finances are directly measured by coding national laws in 2009-2014. In cross-country panel regression and difference-in-difference models, we find that introducing additional political financing restrictions does not have a measurable negative impact on public procurement corruption risks. In fact, the observed effect is positive in most models. The observed relationship remains the same for most constitutive components of political financing regulations. Several challenges remain for a conclusive judgement of political party financing regulations’ effectiveness to curb corruption such as measuring implementation rather than legislation, allowing for longer lead-time for regulatory impact, or considering institutional inter-dependencies.

Episodes of Financial Deepening: Credit Booms or Growth Generators

One strand of the economics literature addresses financial deepening as a precursor to economic growth. Another views it as a cause of financial crises. We examine historical data for 17 economies from 1870 to 1929 to distinguish episodes of growth induced by financial deepening from crises induced by credit booms. Cross-country panel regressions with five-year averages indicate that deepening episodes, defined as increases of more than thirty percent (and alternatively more than twenty percentage points) in the ratio of M2 to GDP over a ten year period, significantly enhanced the standard finance-growth dynamic, while deepening associated with financial crises sharply hindered it. We then describe some specific episodes of financial deepening in our sample.

Breaking the Cycle? How (Not) to Use Political Finance Regulations to Counter Public Procurement Corruption

There are widespread perceptions and countless documented cases of tight-knit networks of politicians and businessmen colluding for allocating public procurement contracts in return for political party donations. In the absence of systematic evidence, neither the magnitude of the problem nor the effectiveness of policies curbing such corruption is well-understood. In order to advance our understanding of these phenomena, this paper tests whether political financing regulations can contribute to controlling corruption in public procurement. We utilize aggregated official micro-level data on almost 3 million contracts awarded across 29 European countries in 2009-2014 to measure the risk of high-level institutionalised corruption using novel proxy indicators. Legislation regulating political finances are directly measured by coding national laws in 2009-2014. In cross-country panel regression and difference-in-difference models, we find that introducing additional political financing restrictions does not have a measurable negative impact on public procurement corruption risks. In fact, the observed effect is positive in most models. The observed relationship remains the same for most constitutive components of political financing regulations. Several challenges remain for a conclusive judgement of political party financing regulations’ effectiveness to curb corruption such as measuring implementation rather than legislation, allowing for longer lead-time for regulatory impact, or considering institutional inter-dependencies.

The nutrition transition and indicators of child malnutrition

This study examines how the nutrition transition, which involves a westernization of diets and increased consumption of calorie-dense, processed foods, affects child malnutrition in developing countries. It is often assumed that the nutrition transition affects child weight but not child growth, which could be one reason why child underweight decreases faster than child stunting. But these effects have hardly been analyzed empirically. Cross-country panel regressions show that the nutrition transition reduces child underweight, while no consistent effect on child overweight is found. Against common views, our results also suggest that the nutrition transition reduces child stunting. Further research is required to confirm these findings.

Financialization Is Marketization! A Study of the Respective Impacts of Various Dimensions of Financialization on the Increase in Global Inequality

In this article, I study the impact of financialization on the rise in inequality in 18 OECD countries from 1970 to 2011 and measure the respective roles of various forms of financialization: the growth of the financial sector; the growth of one of its subcomponents, financial markets; the financialization of non-financial firms; and the financialization of households. I test these impacts using cross-country panel regressions in OECD countries. I show first that the share of the finance sector within the GDP is a substantial driver of world inequality, explaining between 20 and 40 percent of its increase from 1980 to 2007. When I decompose this financial sector effect, I find that this evolution was mainly driven by the increase in the volume of stocks traded in national stock exchanges and by the volume of shares held as assets in banks’ balance sheets. By contrast, the financialization of non-financial firms and of households does not play a substantial role. Based on this inequality test, I therefore interpret financialization as being mainly a phenomenon of marketization, redefined as the growing amount of social energy devoted to the trade of financial instruments on financial markets.

Interrelation between Growth and Inequality

Inclusive growth should ensure “broad-based” economic growth which characterizes the pattern of growth. Beyond simple association identification implied by the Kuznets curve and cross-country panel regression analyses, this study attempts to shed light on the dynamic causality relationship and impact channel between economic growth and inequality — using vector error correction model (VECM) and vector autoregression (VAR) models for individual economies. If growth has a negative impact on inequality, renewed attention should be paid to curbing inequality. Those economies experiencing inclusive growth can further promote growth with less risk of sacrificing equity. This also provides useful implications for development interventions through designing and monitoring projects and programs. Given the growing challenges of reducing inequality, economies could create a proper inequality target as a binding constraint in pursuing economic growth, instead of using a growth–first and redistribution–later strategy.