Hausman-Taylor Estimator Research Articles

Bank stability in the Eurozone: a comprehensive analysis of key determinants (2006–2021)

PurposeBanks are the primary financial institutions that play a crucial role in the financial system, as their stability is essential for a sustained economy. Therefore, this research article aimed to unveil the determinants of bank stability in the Eurozone countries for 2006–2021.Design/methodology/approachMost of the data used in this analysis (i.e. the dependent and independent variables) were obtained from a single credible international source, the Global Economy database. We considered several regression models in this study and concluded that the Hausman–Taylor estimation model was the most appropriate for the data in question.FindingsOverall, the research reliably reported nine independent variables (out of eleven included in the regression analysis equation) that were found to be essential for bank stability, as prescribed by the banking system z-scores. Of course, the Hausman–Taylor model was not a biased choice but a scientifically justifiable one.Research limitations/implicationsThe analysis is limited by data availability and the chosen econometric model, which may affect the generalizability of the findings. Future research should consider a broader set of variables and alternative modeling approaches.Originality/valueThis research provides a novel integration of macroeconomic and bank-specific factors in analyzing bank stability, offering valuable insights for policymakers and regulators in the Eurozone.

The Effect of Decentralisation on Access to Sanitation and Water Services: An Empirical Test using International Data

Decentralisation promises efficiency gains and improved access to public goods and services, especially at the local level. Under a decentralised governance arrangement, regional and environmental peculiarities are considered prominently in delivering public goods and services. Given the impact of the environment in influencing sanitation and water services, particularly water provision, this study examines the effect of decentralisation, as measured by revenue share and expenditure share, on access to improved sanitation facilities and drinkable water. Exploiting the variation in the access to sanitation facilities and drinking water using the Hausman-Taylor estimator, this study suggests a positive impact of decentralisation on the access to sanitation and drinkable water.

Assessing the Relationship between Corporate Social Responsibility and R&D Effectiveness of Firms

Practices of corporate social responsibility often generate synergetic effects and improve financial and overall firm’s performance. However, in the high-tech industries, research and development (R&D) efficiency remains a key element of development strategy, and a shift towards sustainable activities can be considered as a trade-off. This study investigates the empirical link between corporate social responsibility practices and R&D effectiveness in R&D-intensive industries. Specifically, this research assesses the impact of environmental, social, and governance information disclosure, the availability of third-party rating, and long-termism on R&D returns. We employ the Hausman–Taylor estimator to analyze three R&D-intensive industries, namely pharmaceuticals, biotechnology and software, for the period from 2012 to 2019. Empirical results show that, in general, higher values of corporate social responsibility metrics are associated with the weaker R&D returns. The findings of this research might be meaningful for managers in making informed decisions with respect to corporate social responsibility practices.

Trade in value-added in developing countries: Does monetary policy matter?

PurposeThis paper appraises the effects of monetary policy on trade in value-added (TiVA) using a panel of 38 developing countries spanning the period 1990 to 2019. Specifically, the authors subsequently summon the theory of trade in intermediate products within the New Keynesian framework for open economies that comprises price rigidity to verify this relationship and thereon control for robustness by correcting for endogeneity and unbalanced panel effect.Design/methodology/approachThe authors mobilize the within estimator corrected for cross sectional dependence as well as the two-stage-least squares fixed effect estimator which corrects for endogeneity. For robustness, the authors also use the Hausman–Taylor estimator to control for endogeneity and random effects in annualized data and the least squares dummy variable corrected estimator.FindingsResults suggest that the monetary policy instruments such as inflationary gaps and anticipatory inflationary outcomes significantly affect TiVA in developing countries only in the short term with no long-term effect. In addition to contributing to the scanty empirical literature, the authors provide relevant insights on monetary policy tools that can be mobilized in fashioning a global value chain penetration and upgrading strategies.Originality/valueThe authors convoke the theory of trade in intermediate products casted into the New Keynesian framework comprising price rigidity to verify the relationship between TiVA and monetary policy (b) verify for robustness by correcting for endogeneity and unbalanced panel effect.

A Gravity Model Analysis of Forest Products Trade Between Turkey and European Union Countries

The study aimed to understand the determining factors of the trade between Turkey and the European Union (EU) countries in the forest products sector and assess Turkey’s forest product export potential to the EU. The study period was from 2005 to 2020 and focused on HS44, HS47, and HS48 forest product groups. A gravity model was estimated using panel data with the Ordinary Least Squares, Random Effects, and Hausman-Taylor estimation methods. Results indicate that the forest products exports from Turkey to the EU are significantly influenced by the Gross Domestic Product, the population of Turkey and the EU partner, and negatively by the relative forest endowment. The elasticities estimated were then used to predict the export potential of Turkey in the trade of forest products. The findings revealed that the predicted forest export value exceeded Turkey’s actual forest products export to Denmark, France, Italy, Luxembourg, Poland, Slovenia and Spain from 2005 to 2020.

The determinants of inward FDI in India in the 2000s

Purpose Unlike the traditional growth model of emerging markets after economic liberalization, India’s inward foreign direct investment (FDI) surged paralleling its strong economic growth in the 2000s, despite the failure to establish a strong secondary sector. This creates an opportunity to deepen the conceptual and contextual understanding of the pivotal mechanisms that impel foreign multinational enterprises to invest into India and provides a natural setting to better understand the nature of its institutional, political and economic environment. Design/methodology/approach The authors develop a theory contextualized to Indian inward FDI patterns for the 2000–2017 period. The theoretical framework expands upon received investment motives, with explicit consideration given to the idiosyncrasies of developments in India’s recent macro and socioeconomic environment. The authors test the hypotheses using panel data from 134 countries that invested in India, using a Hausman–Taylor estimation. Findings The authors find that India’s transition toward a knowledge economy attracts asset augmenting rather than asset exploiting FDI. Investors appear to target long-term investments by gaining access to India’s digital capabilities, R&D, and growing talent base with a high degree of specialization within analytics, biotechnology, engineering, or pharmaceuticals. Foreign investors do not seem to be notably deterred by infrastructural challenges nor by legal and regulatory restrictions. Originality/value By providing a new perspective on India’s atheoretical economic development and FDI environment, this study offers a distinct point of comparison with regard to established hypotheses within the extant literature on FDI into emerging markets. Rethinking contemporary investment motive theory by introducing an adapted conceptual framework provides further opportunity to inform the understanding of firm strategies in similar environments.

Economic growth through digitalization in Africa: does financial sector development play a mediating role?

PurposeThis paper aims to analyse economic growth in Africa focussing on the role of digitalization and financial sector development.Design/methodology/approachThe authors employ country-level data from 36 African countries over the period 2000–2020 and used fixed effect, random effect and the Hausman–Taylor estimation techniques.FindingsThe study, first finds that, digitalization propels financial sector development in Africa. Building on this, the study further finds that, digitalization conditioned on financial sector development at best does not promote economic growth in Africa. However, results of the net effects suggest that digitalization, overall, improve economic growth in Africa.Social implicationsIn the current environment of a sluggish global economy, digitalization can play an important role in assisting policymakers to spur economic growth. This has attracted the attention of many researchers in the developed world. However, little is done about the subject matter in Africa.Originality/valueThe findings of this paper are novel in the African sub-region with important policy implications.

Geographical determinants of foreign direct investment: evidence from sub-Saharan Africa

This paper investigates time-invariant geographical determinants of FDI in Sub-Saharan African (SSA). To achieve this objective, a panel data model was estimated using the Hausman-Taylor estimation technique. The estimation results show that the coefficients of time-invariant geographical variables, such as geographical size, and area located within the tropics are positive and statistically significant while the coefficient of distance from the sea is negative and statistically significant. We further disaggregated the sample into sub-regions and found consistent evidence to buttress the claim. The study recommends that SSA countries should take advantage of their geographical factors to come out with common market opportunities to maximise the potential for growth in FDI.

The Effect of Regional Trade Agreements on ASEAN Trade Flows

The total number of Regional Trade Agreement (RTA) has increased rapidly over the past 30 years, from 22 in 1990 to 308 in 2020. The association of Southeast Asian Nations (ASEAN) aimed to increase regional integration among members through ASEAN Free Trade Area (AFTA) that came into force in 1993 and broadened its regional integration started in 2005 through trade agreements with China, Japan, Korea, Australia, New Zealand, and India. This paper study the impact of 5 ASEAN RTAs simultaneously to get comprehensive results. The Hausman-Taylor estimator was used to overcome endogeneity problems in the gravity equation without dropping the time-invariant variables which become the advantage of this method. The results show that AFTA increases trade flows between members and promotes imports and exports to the rest of the world. ASEAN regional integration outside the region with six trade partners show positive effect to members and has a minimal negative effect to non-members globally.

Analysis of the factors affecting Vietnam's exports to the EU market

The paper uses the gravity model and panel data to examine the determinants of Vietnam's export to the EU market during the 2007-2017 period. Vietnam is an export-oriented economy. In the context of international economic integration, Vietnam is one of the countries with a very high export growth rate. With a GDP of 18.82 trillion USD, a population of 512 million people (2017), the European Union (EU) is the world's largest economy and is Vietnam's second largest commodity import market. As a result, the urgent requirement from practice is to identify and quantify the factors affecting Vietnam's exports to the EU market and on that basis to give appropriate policy implications to boost exports to increase export turnover and gradually improve the economy. The article uses the Hausman-Taylor estimator for the optimal combination of Fixed-Effects (FE) and Random-Effects (RE) methods. The estimation results indicate that the determinants of Vietnam's export to the EU market include: aggregate population; aggregate GDP per capita; Vietnam's index of infrastructure and aggregate trade openness. Based on these findings, the paper suggests policies to boost Vietnam's export to the EU.

Institutional development in transition economies – the role of institutional experience

ABSTRACT To understand the divergent institutional development in transition economies, we examine the role of institutional experience from the pre-Soviet era in institution-building after the dissolution of the Soviet Union. To measure institutional experience, we construct an index that captures previous experience with independent non-Soviet institutions. A cross-sectional analysis shows that institutional experience is statistically significantly associated with the quality of political, administrative, and legal institutions in transition economies today. To provide a more comprehensive picture and to control for confounding factors, in a second step, we apply a Hausman–Taylor estimator on panel data. This analysis confirms the positive relationship between institutional experience and institutional development. Moreover, the results suggest that the association between institutional experience and political institutions is stronger than the association to the other dimensions of institutions. Overall, the analysis highlights the importance of institutional experience and provides a rationale for the persistency of institutions.

Impacts of Natural Disaster Risk on Farmland Prices: Focusing on the Damage from Storm and Flood

While the frequency and intensity of extreme weather events due to climate change is expected to gradually increase, various industrial groups are exposed to the effects of climate change. In particular, the agricultural sector is very vulnerable to natural disasters, as it causes damage to crops and farmland directly when an extreme event occurs. This study especially focused on the effect of the occurrence of storm and flood on farmland prices in Korea. The materials mainly used in this study are official land value, inundation trace map, and the properties of individual parcels and regions. In addition, Hausman-Taylor estimation method was used considering the endogeneity of the rice yield variable. It is shown that the number of disaster risk zones, inundation in the previous year, cumulative frequency, and the average inundation depth in the last three years have a negative effect on farmland prices. The results imply that the occurrence of natural disasters which can affect both net income from farmland and the value when converted to other uses in the future actually lead to price reduction. The flooding affects not only the production of crops, but also requires the repair cost for damaged farmland. This risk cost can be seen as a result of price internalization.

International labour migration and the many forms of poverty

Abstract The discourse on migration and poverty has largely shown that international labour migration reduces monetary poverty for the migrant-sending households. With the international consensus that poverty is multidimensional and goes beyond income alone, many studies evaluate the nexus between migration and non-monetary aspects of life, such as education and health. These show mixed evidence. Far fewer studies assess whether suffering from simultaneous deprivations in multiple indicators of well-being is affected by migration—which would be a full multidimensional poverty analysis at the household level. To assess the value-added of the latter, we empirically compare three approaches to measure poverty and the effect of migration on the three. These are (1) a solely monetary approach, (2) a dashboard approach that considers several non-monetary well-being deprivations, and (3) a counting approach that evaluates whether the multiple deprivations manifest themselves jointly. Using household panel data for rural Bangladesh, we assess how the association between international labour migration and poverty among the stay-behind household members changes in light of the three approaches. The endogenous nature of migration in this connection is explicitly addressed by applying a Hausman–Taylor estimation procedure. We corroborate that poverty is related to a lower likelihood of being monetary poor, but we do not find that it is associated with an increased likelihood of exiting multidimensional poverty altogether. However, we do find that it is associated with a lower likelihood of facing simultaneous deprivations in terms of sanitation, electricity, and asset-ownership among those who live in multidimensional poverty.

Family, teacher, and student ability development in China

We investigate the impact of family and teacher human capital on the development of cognitive and noncognitive abilities of Chinese middle school students. Our cognitive ability is measured by a standard cognitive ability test, and our noncognitive ability indicators include confidence, college intentions, perseverance, and behavior problems. We specifically solve the endogeneity issue caused by nonrandom sorting by employing Hausman–Taylor estimation method. Our results indicate that family characteristics such as family size, income, and parental relationship are highly predictive of both cognitive and noncognitive abilities. We also find that teachers’ educational background and experience significantly affect the development of cognitive and noncognitive abilities.

The Impact of Structural Reforms and Regulations on the Demand Side in the Railway Industry

Abstract The main purpose of this study is to evaluate factors affecting passenger rail demand, with special attention to the effects of structural reform/regulation and competition. In order to do this, we use data obtained from 30 OECD countries for the 24 years from 1990 to 2013. As structural reform/regulation and competition variables, we take the OECD’s five kinds of regulatory indices: (i) overall, (ii) entry, (iii) public ownership, (iv) vertical integration, and (v) market structure; and for competition variables, we take (vi) rail passenger-freight ratio, (vii) rail share, and (viii) high-speed train ratio. As estimation methods, both the fixed effect model and the Hausman-Taylor estimation model are used. The major findings are as follows. First, competition as competitiveness (i.e. the share of rail, passenger over freight ratio) increases passenger demand. And the existence of high-speed trains increases passenger demand. Second, overall, entry regulation, and market structure have no significant effect on demand. Third, public ownership affects passenger demand positively. Last, vertical integration reduces passenger demand.

Do Free Trade Agreements Affect International Trade Volume? An Empirical Analysis for Vietnam

Free Trade Agreements (FTAs) are among the driving forces in motivating countries to trade together and become wealthier. However, with the changing political dynamics in the United States (U.S) and the United Kingdom (UK), free trade agreements and their positive roles in trade are increasingly being questioned by many countries, especially their impacts on developing countries, and this issue is the primary motivation of this research. Using the Hausman–Taylor estimation technique for the balanced panel data covering the period 2005–2015 for Vietnam, we apply a gravity model in the analysis of bilateral trade to analyze Vietnam’s trade with its trading partners. We find that the trade between Vietnam and partner countries will be lower because of the FTAs, which is in contrast with some previous literature. These results also show that applying the gravity model could examine the impacts of income and distance from partner countries in the Vietnam situation.

Innovation and employment in manufacturing and service firms in Ghana

While the importance of innovation as a primary source of economic growth has never been in dispute, its impact on employment has remained indeterminate. On one hand, the pessimists indicate that firm innovation destroys jobs because of the immediate indirect labour-saving nature of the effect of innovation, while the optimists argue that there are several compensation mechanisms that are known to counterbalance the initial effect of innovation and render the final effect indeterminate. Using data on a panel of 421 firms in Ghana, the paper investigates the relationship between innovation introduced at the firm level and employment. Relying on the panel fixed effects and Hausman-Taylor estimation techniques, this study finds a robust statistically significant positive impact of product innovation on employment but not for process innovation. In terms of policy relevance, this finding reemphasizes the need for policy makers in Ghana to intensity efforts in promoting technology diffusion particularly through FDI. This study thus contributes to the literature on innovation in Africa by providing evidence on why technological innovation in the form of product innovation can be a panacea to alleviating employment challenges in Ghana.

HOME BIAS: EVIDENCE FROM THE STOCK EXCHANGE

This paper deals with issues connected to the home bias, which is a tendency of investors to keep more domestic assets versus foreign ones. We use annual data on the value of share trading of 68 stock exchanges in 68 countries for the period of 2003-2015 to find out if home bias exists given domestic and foreign shares are traded under the same regulatory framework, with the same transaction costs and rules for information availability applied; and if it does, then what factors are responsible for it. We find that the home bias increases in periods of crisis and becomes lower in periods of relative stability. In addition, home bias tends to be smaller in countries with better control of corruption and that are more open to investments. A Hausman-Taylor estimation confirms this result and suggests that countries with better institutional environments tend to have smaller home bias. Moreover, countries that are more open to investments have more foreign companies listed on their stock exchanges.

THE HETEROGENEOUS TAX BURDEN: EVIDENCE FROM FIRM-LEVEL DATA IN CHINA

Firms’ behaviors are not only affected by their taxation burden level, but also their differences from each other. In this paper, we use Chinese Industrial Enterprises Database (CIED) to investigate the relationship between firms’ heterogeneity of tax burden and firms’ characteristics, such as size, ownership, exportation and location. We measure a firm’s tax burden in three ways, the value-added tax (VAT) burden, the corporate income tax (CIT) burden, and the total tax burden. By using a Hausman–Taylor estimation, we find: (1) The CIT burden is positively correlated to the size, while other two tax burdens are not; (2) Both the VAT burden and the total tax burden of SOEs are significantly heavier than those of non-SOEs, while the CIT burden shows the exactly opposite effect; (3) Exporters have a remarkably lower tax burden than non-exporters for all three tax burden measures; and (4) The western region and particularly the central region have lighter tax burden than the eastern region for all three tax burden measures. We also provide empirical evidence and policy suggestions for continuing to proceed with the structural tax reduction and the structural fiscal reform in China.

Port wine exports: a gravity model approach

PurposeThe purpose of this paper is to empirically examine the macroeconomic determinants of Port wine exports, taking into account the diversity and various quality levels associated with this product.Design/methodology/approachPort wine is a fortified wine only produced in Portugal. In the period 2006-2014, an extended gravity model is applied to data on the exports of the top 20 importing countries, accounting for 94 per cent of total exports. The authors base their empirical strategy on the Hausman–Taylor estimator (1971), overcoming endogeneity and accounting for time invariant variables. They estimate the impact of several factors on the total trade of Port wine, namely: gross domestic product (GDP), GDP per capita, tariffs, exchange rates, distance from original supplier, mutual language familiarity, landlockedness, wine consumption per capita and presence of Portuguese emigrants, all measured in volume and value terms, and for each of the four categories (Standard, High Standard, Vintage and Aged).FindingsThe findings show that the quantity and value of total Port wine exports are positively determined by overall GDP per capita, the presence of a Portuguese emigrant community (which implies that to some degree a common language and culture are shared), while exports are negatively influenced by landlockedness. In contrast to the traditional gravity model, distance from the source of supply does not appear to be a significant determinant, a fact explained by the specific and singular nature of Port wine and by the long tradition of this product in international markets. In addition, the results revealed specific determinants for specific product categories – such as GDP for aged Port and wine consumption per capita for high standard, vintage and aged Port, suggesting that Portugal needs to increase its exports of high-quality Port wine to markets that exhibit a tendency towards increased wine consumption per capita and are coming to be considered large and fast-growing economies.Originality/valueThis paper extends the literature, by respecifying the typical gravity model for aggregate goods to permit the analysis of wine exports. There has been relatively little application of this model to assess the determinants of the wine trade, and when it has been used, generally it has been in studies focusing on aggregate wine trade between countries. This paper seeks to fill this gap by focusing on the determinants of exports of a specific wine – Port wine, which is an internationally recognised product, with a clear internal product differentiation according to distinct quality levels – and in this regard provides new insights into the international patterns of trade in wine.