Fixed Effects Estimation Research Articles

Promoting sustainability in developing Countries: A Machine Learning-based approach to understanding the relationship between green investment and environmental degradation

The main objective of this study is to examine the impact of green investment on environmental degradation in developing countries using machine learning-based estimation combined with robustness tests of static and dynamic panel data modeling techniques. The scope of this study covers 30 developing countries for 2009–2019. This study introduces a new index of environmental degradation that uses the entropy method and includes green gas emissions and deforestation. The study addresses trade openness, the quadratic shape of economic growth, and urbanization in the context of the Environmental Kuznets Curve Hypothesis (EKC) and the Ecological Modernization Theory (EMT), in addition to green investment. This study considers the kernel-based regularized least squares (KRLS) approach, the static panel technique Driscoll & Kraay standards error method, and a dynamic panel technique system generalized moment techniques. The empirical findings from the machine learning method show that green investment significantly reduces environmental degradation with a higher coefficient resulting from the static fixed effect estimation. The study also reveals that the main hypotheses, such as EKC and EMT, are confirmed by all estimation techniques. Based on the results, the study recommends that policymakers take pragmatic steps toward green investments and increase the financing of green energy initiatives to combat environmental degradation.

Selling by contributing: the monetization strategy of individual content providers in the light of human brand

PurposeThe integration of social media and e-commerce has resulted in a rising phenomenon among individual content providers (ICPs), who used to offer free content, to provide consumers with paid content, such as online courses, Q&As or consultations. Despite the prevalence of ICPs’ content monetization, empirical research has rarely studied its underlying mechanism. This paper examines how the characteristics of free content contributed by ICPs on social media platforms influence their paid content sales, focusing on the perspective of human brand.Design/methodology/approachThe empirical setting is an online knowledge exchange platform, where users are allowed to provide free content (e.g. answers) on the social media platform and launch paid content (e.g. lectures) on the e-commerce platform. A machine learning technique is employed to construct measures for the characteristics of free content, and fixed-effects estimation is presented to confirm which factors have a significant influence on the sales of paid content.FindingsThe empirical results show that the quality, diversity and expertness of free content have a significant positive impact on the sales of the ICP-paid content, with the brand popularity of ICP playing a mediating role.Originality/valueThis study is the first attempt to demystify the relationship between content contribution and ICPs’ content monetization from the perspective of human brand. The findings validate the effectiveness of the “Selling by Contribution” strategy and provide valuable insights for ICPs and social media platforms.

A Pretest Estimator for the Two-Way Error Component Model

For a panel data linear regression model with both individual and time effects, empirical studies select the two-way random-effects (TWRE) estimator if the Hausman test based on the contrast between the two-way fixed-effects (TWFE) estimator and the TWRE estimator is not rejected. Alternatively, they select the TWFE estimator in cases where this Hausman test rejects the null hypothesis. Not all the regressors may be correlated with these individual and time effects. The one-way Hausman-Taylor model has been generalized to the two-way error component model and allow some but not all regressors to be correlated with these individual and time effects. This paper proposes a pretest estimator for this two-way error component panel data regression model based on two Hausman tests. The first Hausman test is based upon the contrast between the TWFE and the TWRE estimators. The second Hausman test is based on the contrast between the two-way Hausman and Taylor (TWHT) estimator and the TWFE estimator. The Monte Carlo results show that this pretest estimator is always second best in MSE performance compared to the efficient estimator, whether the model is random-effects, fixed-effects or Hausman and Taylor. This paper generalizes the one-way pretest estimator to the two-way error component model.

Hockey babies: National Hockey League outcomes and short-term fertility spikes in Canada

Previous research shows that mood-altering events, such as sports results, elections outcomes and natural disasters, impact fertility, crime rate, and investor behaviour. In this paper, we use recent Canadian Birth Statistics and the National Hockey League (NHL) results to examine the link between sports events and short-term fertility spikes. In addition, using betting odds, we differentiate among unexpected wins, unexpected losses, and expected outcomes, as a test for the relevance of the Prospect Theory to this context. Our dataset is a daily panel, following all the seven Canadian Census Metropolitan Areas with a team in the NHL, from 2008 to 2019. In our panel fixed effects estimations, we account for the day of the week and all statutory federal and provincial holidays of Canada. In the estimations with raw NHL results, the coefficients of interest ultimately lose their statistical significance. In the specifications accounting for expectations, we find a statistically significant association with fertility for unexpected wins, and statistically insignificant coefficients for unexpected losses as well as expected NHL outcomes. In light of the results, we propose the greater likelihood of pre-game social gatherings on sports nights and celebratory sex after the euphoria of an unexpected win, as the possible channels of impact.

Adapting innovation capabilities in emerging economies: the role of learning and cultural and institutional distance in MNC subsidiaries in Korea

Purpose The rise of emerging economies in the innovation landscape has often been attributed to the positive spillovers of innovation capabilities from multinational corporations (MNCs). However, it is less certain that their innovative capabilities imported from the home country function effectively in the host country from the outset. This study examines the performance of the innovation capabilities of MNC subsidiaries in emerging economies over time by considering the gradual process of their learning about host countries.Design/methodology/approach We employed stochastic frontier analysis to measure innovation capabilities, our focal construct. For regression analysis, we applied the Mundlak estimator, a variant of the fixed-effects panel estimator, to a sample comprising subsidiaries of MNCs from technologically advanced nations operating in Korea between 2006 and 2016.Findings Our results indicate that the innovation capabilities of MNC subsidiaries initially underperform those of local firms but improve over time, eventually surpassing the capabilities of their local counterparts. Furthermore, our findings reveal that institutional distance amplifies the underperformance of the innovation capabilities of MNC subsidiaries.Originality/value This study contributes to the literature by extending both theoretical development and empirical measurement of innovation capabilities in cross-national settings. Additionally, it deepens our understanding of whether and how MNC subsidiaries adapt their innovation capabilities to the local market environment.

Technological diversification and innovation performance: the moderating effects of organizational slack and ownership in Chinese listed firms

PurposeThe purpose of this study is to examine the impact of technological diversification (TD) on enterprise innovation performance, meanwhile focusing on the moderating effects of various organizational slack (i.e. absorbed and unabsorbed slack) and ownership types (i.e. state-owned or privately-owned) in the context of Chinese listed firms.Design/methodology/approachThis study formulates five hypotheses based on organization and agency theories. Our empirical analysis employs a fixed-effect regression estimator with a unique panel dataset of Chinese-listed manufacturing firms and 13,566 firm-year observations over 9 years from 2012 to 2020.FindingsOur findings show that an inverted U-shaped relationship exists between TD and innovation performance, varying with different types of organizational slack and ownership. In state-owned enterprises (SOEs), unabsorbed slack negatively moderates the inverted U-shaped relationship; however, in privately-owned enterprises (POEs), this relationship is positively moderated. Although absorbed slack has negative moderating effects in both SOEs and POEs, its impact is only significant for POEs.Practical implicationsOur results imply that organizational slack has a contrasting impact on the relationship between TD and innovation performance when the type of ownership varies. Therefore, the managers that intend to achieve optimal innovation performance through TD should understand how organizational slack can be leveraged.Originality/valueThis study contributes to the existing literature by applying the relationship between TD and innovative performance to the transition economy, as well as examining the double-edged sword impact of state ownership on firm innovation performance.

Analyzing the impact of eco-friendly bonds on economic growth and environmental sustainability

In recent decades, a noticeable uptick has been seen in the issuing of eco-friendly bonds across green, social, and sustainable categories. The study examines their intersection with economic expansion and sustainability using panel data from 82 countries analyzed through robust fixed-effects estimators. The results reveal a significant positive correlation between the issuing of eco-friendly bonds and economic growth. Interestingly, a negative relationship emerges between bond performance and growth, suggesting that the mere issuing of bonds may not be enough to ensure sustainable economic expansion. The importance of refined valuation methods for these bonds is emphasized, along with the risk of economic imbalance caused by the uneven distribution of bond investments across sectors, akin to the "Dutch disease." The need to align investment strategies with both economic and environmental objectives to address challenges like persistent carbon emissions is also stressed. The authors advocate the integrating of considerations of bond issuance and performance into long-term sustainability strategies. Despite holding potential for positive environmental impact, eco-friendly bonds may not consistently drive economic growth as initially anticipated, particularly when balancing the development and carbon-reduction objectives.

Effect of Financial Depth on Output and Economic Growth

A lot of theoretical insights have been provided on the relationship between the financial and real sectors of the economy. The emerging theoretical postulations, which are devoid of consensus, have since been the subject of empirical investigations in respect of which, again, there is no consensus, not to talk of unanimity. Thus, this state of lack of consensus in the findings of the existing empirical studies calls for further studies that are aimed at resolving the contradictions. This informs the objective of the study, which is to examine the effect of financial depth on output and economic growth across African countries spanning from 1980 to 2019. The theoretical background rests on neo-classical theory and the supply-leading hypothesis. The study employed the dynamic fixed effect (DFE) estimation technique. The result reported that the three alternative proxies for the level of financial depth have positive effects on both overall economic growth and sectoral output growth. Also, each of the seven conditioning variables has the expected effects on economic growth. Based on the findings, the study therefore recommends that policymakers take measures aimed at deepening the level of the different forms of finance in order to promote economic growth.

The Role of Digitalization of Financial Inclusion in Reducing Income Gaps: an Empirical Study at 33 Provinces in Indonesia

One of the problems faced by developing countries, including Indonesia, is income inequality. It is hoped that digitalization of financial inclusion can solve this problem. Increasing financial inclusion is expected to make financial services more accessible to everyone, especially for poor groups who previously did not have access to financial services. This research aims to analyze the role of digitalization of financial inclusion in reducing income gaps using empirical evidence from 33 provinces in Indonesia during the 2013-2022 period, using the fixed effects estimation method. The results of this study indicate that financial inclusion has a negative and significant impact on the Williamson index. This means that increasing financial inclusion can reduce income inequality. The decomposition results for each dimension show that the access dimension has a significant effect on reducing income inequality in Indonesia, while the usage dimension shows a positive influence on income inequality, but the presence of the SNKI policy in Indonesia in 2016-2022 has a negative influence on income inequality in Indonesia.

Housing prices and environmental hazards: the effects of industrial park openings in Korea

ABSTRACT We explore an empirical examination on the effects of industrial park openings on housing prices in Korea under under hedonic framework. First, the availability of multiple transactions within apartment complexes enables fixed-effects estimation and addresses unobserved heterogeneity across apartment complexes. Second, we trace the effect on housing values from the announcement stage to actual operation stage of industrial parks. Our results indicate housing prices positively respond to an announcement of industrial park opening, but less in areas close to the industrial park. Furthermore, housing prices in close proximity to industrial parks decline when industrial parks begin operation.

Digital transformation and governance heterogeneity as determinants of CSR disclosure: insights from Chinese A-share companies

PurposeIn this fast-changing world, digitization has become crucial to organizations, allowing decision-makers to alter corporate processes. Companies with a higher corporate social responsibility (CSR) level not only help encourage employees to focus on their goals, but they also show that they take their social responsibility seriously, which is increasingly important in today’s digital economy. So, this study aims to examine the relationship between digital transformation and CSR disclosure of Chinese A-share companies. Furthermore, this research investigates the moderating impact of governance heterogeneity, including CEO power and corporate internal control (INT) mechanisms.Design/methodology/approachThis study used fixed effect estimation with robust standard errors to examine the relationship between digital transformation and CSR disclosure and the moderating effect of governance heterogeneity among Chinese A-share companies from 2010 to 2020. The whole sample consists of 17,266 firms, including 5,038 state-owned enterprise (SOE) company records and 12,228 non-SOE records. The whole sample data is collected from the China Stock Market and Accounting Research, the Chinese Research Data Services and the WIND databases.FindingsThe regression results lead us to three conclusions after classifying the sample into non-SOE and SOE groups. First, Chinese A-share businesses with greater levels of digitalization have lower CSR disclosures. Both SOE and non-SOE are consistent with these findings. Second, increasing CEO authority creates a more centralized company decision-making structure (Breuer et al., 2022; Freire, 2019), which improves the negative association between digitalization and CSR disclosure. These conclusions, however, also apply to non-SOE. Finally, INT reinforces the association between corporate digitization and CSR disclosure, which is especially obvious in SOEs. These findings are robust to alternative HEXUN CSR disclosure index. Heterogeneity analysis shows that the negative relationship between corporate digitalization and CSR disclosures is more pronounced in bigger, highly levered and highly financialized firms.Originality/valueDigitalization and CSR disclosure are well studied, but few have examined their interactions from a governance heterogeneity perspective in China. Practitioners and policymakers may use these insights to help business owners implement suitable digital policies for firm development from diverse business perspectives.

Customers’ Cue Utilization in Delivery Restaurant Selection and Its Changes With Different Health Risks

Amid Covid-19, restaurant customers have substantially turned to delivery services. Given that table service and ambience are absent in the delivery service mode, cue utilization for restaurant delivery could be different from that in dine-in consumption. Furthermore, increased hygiene and health concerns may lead to changes in cue utilization patterns after the pandemic. Therefore, we explored how restaurant type and its interactions with brand and review rating affected delivery sales and whether their sales effects changed according to the severity of infection risk. Fixed-effects estimation and marginal analysis were employed to investigate 579,858 observations from 193,286 restaurants in China between 2019 and the second quarter of 2020. The findings revealed that full-service and/or branded restaurants had higher delivery sales than other groups. Interaction effects between restaurant type and brand as well as restaurant type and review rating were also found. Theoretical and practical implications for effective cue utilization are discussed.

The performance of human capital in relationship with economic growth

In this paper I examine the impact of human capital on the economic growth for the OECD countries during the period 1990-2022 employing fixed effects estimator. My contribution to the literature comes from the chosen variables, as the proxies selected were not yet used by other researchers in the same formula. The indicators selected are tertiary enrollment, spending on health, life expectancy and population growth. The data was constructed into a panel of 38 countries over the period 1990-2022. Results surprisingly show that only tertiary enrollment, life expectancy and population growth have a significant impact on economic growth. Therefore, my recommendations are focusing on improving the quality of life.

Strategic behaviours in a labour market with mobility-restricting contractual provisions: evidence from the National Hockey League

Abstract We follow workers’ performance along an unbalanced panel dataset over multiple years and study how performance varies at the end of fixed-term contracts, in a labour market where some people face a mobility-restricting clause (i.e. a noncompete clause). Focusing on the labour market of the National Hockey League, we analyse players’ performance data and contracts with a fixed-effects estimator to address empirical limitations in previous studies. We find that, on average, National Hockey League players’ performance does not vary. However, our estimations detect substantially heterogeneous behaviours, depending on tenure, perceived expected performance, and mobility. Only younger players (i.e. restricted free agents) with high expected mobility but low expected performance tend to behave strategically and perform better. Differently, older players (i.e. unrestricted free agents) with high expected mobility tend to underperform, as the option of moving back to European tournaments is more appealing.

Intergenerational Transmission of Welfare Benefit Receipt: Evidence from Germany

We study the intergenerational transmission of welfare benefit receipt in Germany. We first describe the correlation between welfare receipt experienced in the parental household and subsequent own welfare receipt of young adults. In a second step, we investigate whether the observed correlations reflect causal effects of past welfare experience. We use family fixed effects estimations and Gottschalk's (1996) approach and take advantage of the long‐running German Socio‐Economic Panel Survey to contribute to a sparse literature. We find strong positive correlations between parental and own welfare receipt. These patterns do, however, not persist after controlling for unobserved heterogeneities. Therefore, our results suggest that the strong intergenerational correlation of welfare benefit receipt is determined by family background rather than by the experience of parental welfare benefit receipt.

Uncertainty and cash holdings: the moderating role of political connections

PurposeThis paper aims to investigate the relationship between uncertainty and corporate cash holdings with the moderating role of political connections.Design/methodology/approachWe employ fixed effects estimation on a panel dataset of 669 Vietnamese listed firms over the 2010–2020 period, with one- and two-way standard error clustering. We conduct various robustness tests, including two-stage least squares/instrumental variable and generalized method of moments regressions, alternative cash holding measure, and additional controls for macroeconomic conditions and ownership types.FindingsThe effect of uncertainty on cash holdings is weakened for firms with political connections relative to those without the connections. Although general firms depend on cash flows to adjust their cash holding behavior when uncertainty increases, our findings suggest that politically connected firms do not rely on internal cash flows to accumulate cash when confronted high uncertainty.Practical implicationsOur findings on the role of political connections in moderating the relationship between cash holding and economic policy uncertainty have practical implications for policymaking. Since political connections serve as a buffer for a firm’s liquidity, firms may want to seek those connections, which can, in turn, lead to increasing informal costs and unfair business environment.Originality/valueThis is the first study investigating the role of political connections to the nexus of cash, cash flow and uncertainty, providing novel evidence regarding the less dependence on internal cash flows to save cash by politically connected firms. Second, the paper enriches the literature on the motives of cash holdings by proposing a modified agency view in the context of weak investor protection. Therefore, our findings strengthen the explanation for the positive effect of uncertainty on firms’ cash holdings in emerging markets.

Relationship between Energy and Economic Growth: Evidence from a Panel Nonlinear ARDL Model

In this article, we study the heterogeneous relationship among energy consumption and economic growth by incorporation gross fixed capital formation, foreign direct investment, international trade and finance development as control variables in a selected sample of 11 countries of the Middle East and North Africa over the period 1980-2020 using a panel nonlinear autoregressive distributed lag model. Empirical results show the presence of an asymmetric long run relationship between energy consumption and economic growth in the group of countries. The Pooled Mean Group estimates indicate that positive and negative changes in energy consumption have positive and significant effects on output growth in the long term, whereas both Mean Group and Difference Fixed Effect estimates report that only negative changes in energy consumption have positive and significant effect on long-term economic growth in the selected sample of countries. In addition, the short run individual effects of energy use on economic growth are positive and significant for only three countries (Jordan, Saudi Arabia, and Tunisia). These results are very important for the design of energy policies and sustainable economic growth. Energy-saving policies are suitable for long-run economic growth for the entire sample, while they are only suitable for eight countries out of eleven in the short-run.

Does household’s food and nutrient acquisition capacity predict linear growth in children? Analysis of longitudinal data from rural and small towns in Ethiopia

Nutritious foods are unaffordable to the majority of households in lower-income countries. Hence, starchy staples tend to be the main source of diets for men, women, and children, implying poor diet quality and deficiency in key nutrients that are crucial for child’s physical growth and cognitive development. Much of existing studies on child linear growth or stunting examined the impact of current dietary consumption on physical growth even though the effect of diets and nutrition would only be observed with time lag. This study examined the associations between sustained consumption of animal sourced foods (ASFs) and adequate nutrient intakes (measured by the mean nutrient adequacy (MPA)) and linear growth differences among children in rural and small towns in Ethiopia. Using nationally representative longitudinal data, results of fixed effects estimations suggested that a standard deviation increase in the household MPA was associated with a 10–11% increase in the height-for-age z-score; and a 10% increase in the household MPA was associated with a 3.2 – 5.6% reduction in stunting rate in children 6–59 months of age. Results also indicated some associations between past ASFs consumption and current linear growth outcomes in younger children. The gap in the household MPA was over 41%, indicating the need for nutrient-dense ASFs in the household diets despite the sustainability concerns around ASFs. Key implication is that policies and interventions aimed at improving linear growth outcomes of children in rural and small towns in Ethiopia should improve household’s access to ASFs and nutrient acquisition capacity.

The Investment development path theory: Evidence from developing countries' agricultural sector.

We examined the investment development path (IDP) through the perspective of developing countries' agricultural sector. Our analytical approach indirectly accounts for interactions among countries regarding cross-border resource transfers. Aside from providing knowledge on testing the IDP by inferential statistics, the information would be relevant for policymaking. Identifying the stage(s) in the IDP not only highlights the global appeal of agriculture but also guides firms seeking to expand beyond borders. This information is essential for developing an effective economic strategy. We employed data from 1991 to 2021 for 55 countries from the Food and Agriculture Organization Corporate Statistical Database (FAOSTAT) and applied a fixed effects estimator corrected for serial correlation and non-constant variances. We found that agriculture in developing countries is currently in stages I and II of the IDP. Broadly, agricultural production requires policies that would increase outward foreign direct investment and inward foreign direct investment. Domestic agricultural businesses in developing countries must develop capacity by learning from foreign multinationals. This would enable agricultural businesses to invest abroad. Such a move would lead to an increase in outward FDI. As this would have resulted from increased GDP per capita, it will lead to movement from the existing stage to higher ones.

Measuring returns to experience using supervisor ratings of observed performance: The case of classroom teachers

AbstractWe study the returns to experience in teaching, estimated using supervisor ratings from classroom observations. We describe the assumptions required to interpret changes in observation ratings over time as the causal effect of experience on performance. We compare two difference‐in‐differences strategies: the two‐way fixed effects estimator common in the literature, and an alternative which avoids potential bias arising from effect heterogeneity. Using data from Tennessee and Washington, DC, we show empirical tests relevant to assessing the identifying assumptions and substantive threats—e.g., leniency bias, manipulation, changes in incentives or job assignments—and find our estimates are robust to several threats.