Instrumental Variable Specifications Research Articles

Gender norms and solar panel energy adoption in Australia: Evidence from a natural experiment

Gender norms and solar panel energy adoption in Australia: Evidence from a natural experiment

Sex crime rate and female labour force participation in South Africa

ABSTRACT South Africa's high violent crime rates and associated fears of victimisation are known to affect residents' everyday decision-making. Rape and sex crimes (which predominantly target women), compounded by social stigma and high HIV-contraction risks, thus plays an influencing factor in a woman's life. At the same time, South Africa's gender participation gap exceeds the Sub-Saharan African average. The first of its kind in the South African context, this study uses panel data to assess the impact of district municipality sex crime rates on female labour force participation (FLFP). It improves on similar studies performed in other country contexts methodologically by highlighting the mediating effect of education in the relationship between sex crime rate and FLFP. The negative significant relationship between district sex crime rates and FLFP is found to be robust to the inclusion of a wide variety of controls and several instrumental variable specifications, with adverse impacts on education emerging as a mediating factor. The analysis points to an underrated cost of sex crimes in South Africa, especially on women. The risk-averting behaviour extends beyond victims themselves to women in the general population who, perceiving a high risk of victimisation, face restricted freedoms, worse educational and economic outcomes.

Capital flight and public health outcomes in Africa.

Motivated by the momentous concerns over the development challenges associated with capital flight and the persistent lack of funding to improve healthcare in Africa, this study investigates the effects of capital flight on public health outcomes. Exploiting regional variations in capital flight stemming from differences in exchange rate regimes across CFA (Communaute Financiere Africaine) zone countries and non-CFA zone countries, I construct ashift-share instrumental variable to infer the causal effect of capital flight on health outcomes in Africa. The results show some headways toward considering capital flight as a potential threat to achieving better public health outcomes. This finding is robust to various robustness tests, including pre-existing trend analysis, falsification tests, heterogeneity analysis, and alternative instrumental variable specifications. The study demonstrates that government spending on health and living standards are the main routes through which capital flight influences public health outcomes.

DOES INDEPENDENT DIRECTOR’S CASH COMPENSATION MATTER? EVIDENCE FROM CORPORATE FRAUD

This study empirically investigates the relationship between independent directors’ cash compensation and the likelihood of corporate fraud. Using data of 2542 Chinese firms and 17239 firm years from 2010 to 2017, the findings of logistic regression, firm-fixed effects, instrumental variable specification, and propensity score matching models show that there is a negative association between cash compensation of independent directors and corporate fraud. Our findings suggest that if independent directors are treated with higher cash compensation, it enhances the board’s independence and makes the effective monitoring over management behaviors and financial reporting process. On contrary to non-SOEs, the findings also document that the negative association between independent directors’ compensation and corporate fraud is pronounced in SOEs. The study not only shows the impact of independent director’s compensation on firm fraud beyond agency and contract theories but also creates policy implications regarding independent director’s compensation in particular scenario of emerging economies.

Timely After-Sales Service and Technology Adoption: Evidence from the Off-Grid Solar Market in Uganda

Problem definition: Adoption and continued use of novel technologies have the potential to significantly accelerate social and economic development in emerging markets. In this paper, we examine to what extent timely after-sales service—that is, faster resolution of repair tasks—impacts technology adoption. In particular, we empirically assess the impact of service wait times on the adoption of solar home systems by first-time users (i.e., adopters of the technology) in off-grid Uganda. Academic/practical relevance: Our study sheds light on a previously understudied driver of technology adoption—customers’ postpurchase experience related to after-sales service. We also provide evidence on how negative word-of-mouth stemming from long service wait times hampers customer acquisition. Methodology: We address our research question using detailed customer-level sales and service data from a leading assembler and distributor of solar home systems in Uganda. We develop a fixed-effects base specification and two instrumental variables specifications that leverage different sources of exogenous geospatial variation—in service-task locations, weather, and road quality. Results: We find that timely after-sales service experienced by existing customers is a strong driver of adoption by first-time users. A one-week increase in average wait time for service decreases adoption by up to 32.4%. The relationship between wait times and adoptions is heterogeneous and depends on the types of pending service cases. We also find that the number of customers acquired through referrals from an existing customer depends on the referring customer’s service wait time. This provides evidence of a strong word-of-mouth channel of information sharing. Managerial implications: Our findings have direct implications for the customer-acquisition strategies of technology firms and for technology investors in emerging markets. Our results are also relevant for policy makers who aim to harness technology to improve the socioeconomic lives of people living in these regions. Importantly, we provide empirical evidence of a direct link between after-sales service and technology adoption, which is of relevance to managers outside of emerging markets as well.

The Effect of Online Search on International Trade

ABSTRACT In the literature, search engines are considered as effective tools for obtaining information. However, little attention has been paid to the effect of search engines on international trade even though information (barrier) is very important in international trade. To address this issue, we analyse how online search, proxied by Google Trends Interest by Region (GTIR), affects international trade in a classic gravity model. Our results show that online search intensity between the two countries can significantly promote international trade. This finding is robust to a wide range of tests, including instrumental variable estimation, different specifications and different estimators. Mechanism analysis shows that online search is likely to increase trade by overcoming unfamiliarity and reducing trade risks. Since the role of online search is similar to that of traditional networks, we further conduct extended analysis and find that online search is likely to substitute, rather than complement, migration networks in international trade. Since many traditional networks are broken due to the pandemic, online search is promising to become increasingly important in the future.

Does Independent Director’s Cash Compensation Matter? Evidence from Corporate Fraud

This study empirically investigates the relationship between independent directors’ cash compensation and the likelihood of corporate fraud. Using data of 2542 Chinese firms and 17239 firm years from 2010 to 2017, the findings of logistic regression, firm-fixed effects, instrumental variable specification, and propensity score matching models show that there is a negative association between cash compensation of independent directors and corporate fraud. Our findings suggest that if independent directors are treated with higher cash compensation, it enhances the board’s independence and makes the effective monitoring over management behaviors and financial reporting process. On contrary to non-SOEs, we also find the negative association between independent directors’ compensation and corporate fraud is pronounced in SOEs. Our study not only shows the impact of independent director’s compensation on firm fraud beyond agency and contract theories but also creates policy implications regarding independent director’s compensation in particular scenario of emerging economies.

The effect of mortgage securitization on asset liquidation decisions

We study the effect of securitization on servicers' asset liquidation decisions. Conditional on liquidation, we find houses financed by loans in private label securities were more likely to be liquidated via real estate owned (REO) transactions than houses financed by portfolio loans. We exploit this fundamental relationship in an instrumental variables specification to show each house liquidated via an REO instead of a short sale resulted in an additional 0.19 homeowner defaults within a 0.10-mile radius. Our findings provide new evidence of principal-agent conflicts introduced by securitization while highlighting their second-order effects on nearby default behavior and the real economy.

The Fiscal Cost of COVID-19: Evidence from the States

Abstract: How has the COVID-19 pandemic affected state budgets? Using a quarterly panel of states between 1994 and 2019, we estimate how changes in employment affect tax revenues. We find that a one percentage point (pp) rise in employment is associated with a 1.56pp rise in total tax revenue, which is concentrated among sales taxes (a 1.19pp increase), individual income taxes (a 1.63pp increase), and corporate income taxes (a 4.13pp increase). These results are robust to a wide array of controls, such as state composition and housing price growth, and to instrumental variable specifications. After estimating state-specific elasticities and forecasting counterfactual employment within states using the most recent data, we find that the average state will experience a 6.7% decline in its tax revenues under an optimistic scenario, culminating in $79.9 billion lost in total aggregate revenue for the United States, or a 11.1% decline under a pessimistic scenario, culminating in $125.2 billion lost in total.

The impact of urban form on vehicle fuel consumption in Mexican metropolitan areas

In this study we analyze the impact that two measures of the urban form – residential density and the land use diversity index – have on gasoline consumption in households located in metropolitan areas of Mexico. The econometric specification implemented is a modified two-part model that fits the distribution of gasoline consumption, while mitigating the endogeneity bias resulting from residential self-selection. The results from the instrumental variables specification, suggest that after controlling for household characteristics increasing residential density in the vicinity of the household location could increase gasoline consumption while increasing residential density at the metropolitan scale may reduce gasoline consumption. Interestingly, the land use diversity index does not seem to affect gasoline consumption. Put together, these findings are indicative of the potential risk of not taking advantage of high residential densities to, together with other strategies, reduce gasoline consumption in metropolitan areas in Mexico.

Inequality Affects Long-Run Growth: Cross-Industry, Cross-Country Evidence

The theoretical literature has predicted that inequality affects long-run growth by reducing human and physical capital, particularly in the presence of imperfect credit markets and other contractual frictions. We test these four mechanisms using measures of inequality at the country-level, dating as far back as the 1700s, and the 1800s, and data for 27 manufacturing industries across 88 countries during 1981–2015. Our findings show industries that are more dependent on financial markets experience lower long-run growth in real output, number of firms and real salaries in more unequal countries compared to more egalitarian. Similarly, industries intensive in physical capital experience lower growth in salaries in highly unequal countries. However, there is no evidence that industries intensive in human capital experience any differential growth in output, the number of firms, average number of employees or salaries in unequal countries compared to more egalitarian, suggesting that the progress made in public schooling provision could have lessened the effect of inequality. Moreover, industries with complex contractual arrangements experience lower growth in the number of firms and paradoxically higher growth in the number of employees hired in more unequal countries, in line with the predictions of the theoretical literature. These findings are robust to using contemporaneous indicators of inequality and instrumental variable specifications.

The Effect of Community Size on Electoral Preferences: Evidence from Post-Wwii Southern Germany

Populous communities often prefer more government involvement than less populous communities, but does community size per se affect citizens' preferences for government? Endogeneity commonly prevents testing for causal effects because (i) people can select into communities while (ii) government structures can affect community size (e.g., by en- or discouraging migration and fertility decisions). This paper studies a plausibly exogenous setting from post-WWII Baden-Wurttemberg (located in Southern Germany), in which the French occupation zone prevented the entry of German expellees after 1945, whereas the U.S. occupied zone did not. Consequently, municipalities on the U.S. side, just across the border from the French zone, experienced large and relatively homogenous population shocks. Studying voting patterns in the 1949 national- and 1952 state-level elections for 828 municipalities, we find more populous municipalities systematically preferred the SPD (Sozialdemokratische Partei Deutschlands), the party advocating for greater government involvement in virtually all areas of policymaking, over the CDU (Christlich Demokratische Union), the major conservative party that emphasized free markets. Our results hold when accounting for a host of potential confounding factors, county-fixed effects, pre-WWII vote shares, employing fractional response models and alternative instrumental variable specifications. Our benchmark estimates imply that a one standard deviation increase in population size (equivalent to ≈4,000 citizens) raised the SPD vote share by more than 11 percentage points.

The Fiscal Cost of Covid-19: Evidence from the States

Abstract: How has the COVID-19 pandemic affected state budgets? Using a quarterly panel of states between 1994 and 2019, we estimate how changes in employment affect tax revenues. We find that a one percentage point (pp) rise in employment is associated with a 1.56pp rise in total tax revenue, which is concentrated among sales taxes (a 1.19pp increase), individual income taxes (a 1.63pp increase), and corporate income taxes (a 4.13pp increase). These results are robust to a wide array of controls, such as state composition and housing price growth, and to instrumental variable specifications. After estimating state-specific elasticities and forecasting counterfactual employment within states using the most recent data, we find that the average state will experience a 6.7% decline in its tax revenues under an optimistic scenario, culminating in $79.9 billion lost in total aggregate revenue for the United States, or a 11.1% decline under a pessimistic scenario, culminating in $125.2 billion lost in total.

Timely After-Sales Service and Technology Adoption: Evidence from the Off-Grid Solar Market in Uganda

Adoption and continued use of novel technologies has the potential to significantly accelerate social and economic development in emerging markets. In this paper, we examine to what extent timely after-sales service — i.e., fast resolution of repair tasks — impacts technology adoption in emerging markets. We address this question using detailed customer-level sales and service data from a leading solar distribution company operating in Uganda. We develop a fixed effects base specification and two instrumental variables specifications that leverage different sources of geo-spatial variation — in service task locations, weather and road quality. We find that timely after-sales service experienced by existing customers is a strong driver of adoption by first-time users. A one week increase in average wait time for service decreases adoption by 5.3% to 32.2%. The relationship between wait times and adoptions is highly non-linear. The longer customers have been waiting, the greater the negative consequences of an incremental increase in wait time. We also find that the number of customers acquired through referrals from an existing customer depends on the referring customer's service wait time. This provides evidence of a strong word-of-mouth channel of information sharing. Our findings have direct implications for the customer acquisition strategies of technology firms and for technology investors in emerging markets. Our results are also relevant for policy makers who aim to harness technology to improve the socio-economic lives of people living in these regions.

Immigration and Work-Related Injuries: Evidence from Italian Administrative Data

There is growing evidence that foreign-born workers are over represented in physically demanding and dangerous jobs with relatively higher injury hazard rates. Given this pattern, do increasing inflows of foreign-born workers alleviate native workers' exposure to injuries? This paper provides evidence of the effects of immigration on the incidence and severity of workrelated accidents. We combine administrative data on work-place accidents in Italy with the Labour Force Survey from 2009 to 2017. Our approach exploits spatial and temporal variation in the distribution of foreign-born residents across provinces. Using province fixed-effects and an instrumental variable specification based on historical settlements of immigrants, we show that inflows of foreign-born residents drive reductions in the injury rate, paid sick leave, and severity of impairment for natives. Next, we investigate potential underlying mechanisms that could drive this effect, such as increased unemployment and selection of the workforce, and the sorting of native workers into less physically demanding jobs. Our results rule out that decreased injuries are driven by higher native unemployment. We find that employment rates are positively associated with immigration, in particular for workers with higher education. While not statistically significant at conventional levels, we also find that average occupational physical intensity for natives is lower in provinces that receive larger foreign-born inflows.

Immigration and Self-Reported Well-Being in the UK

Much recent research suggests that immigration has had little, if any, negative impact on the labour market outcomes of natives. In this study we focus on ascertaining the effect of immigration on subjective as opposed to objective indicators of native well-being. Our analytical approach exploits spatial and temporal variation in the net inflows of foreign-born individuals across local areas in England. We find using both a fixed effects and instrumental variable specification that net inflows of foreign-born individuals are associated with modest negative subjective well-being effects for the population as a whole, but that there is a notable degree of heterogeneity in this relationship. Specifically, relatively older individuals (60 ), those with below average household incomes, the unemployed and finally those without any formal educational qualifications experience much more pronounced well-being losses than their younger, financially better-off and employed counterparts. These observed well-being differentials across social groups are similar to voting patterns evident in the recent UK referendum on EU membership. We put forward perceived labour market competition as one of the mechanisms underpinning these results. In support of this premise, we find that the negative relationship between inflows of foreign-born individuals and the subjective well-being of the native-born population in England is much more substantive when macroeconomic conditions are relatively less favourable.

Does corporate hedging attract foreign institutional investors? Evidence from international firms

We study how corporate hedging affects the demand of foreign institutional investors. We collect measures of foreign exchange hedging and interest rate hedging for a comprehensive sample of international companies. We document a strongly positive relationship between foreign institutional demand and corporate hedging. The effect of hedging is concentrated in the demand of non-bank-affiliated investors, whereas bank-affiliated investors are less sensitive to it. The impact of hedging on foreign institutional ownership is higher for less transparent countries, and a low quality of corporate governance amplifies the effect of lower transparency. We address the potential endogeneity of hedging with an instrumental variable specification that exploits the changes in hedging induced by changes in the asset quality of relationship banks. We also show that the pre-IPO hedging policy is positively related to international investor demand after the IPO.

Eco-labelling of marine recreation services: the case of Blue Flag price premium in Croatia

ABSTRACTEco-labels or eco-certifications communicate to the public and tourists that a business is employing one or more environmentally friendly practices. A successful label provides incentives for industry to participate by allowing for further product differentiation, leading to increased price premia. This paper examines whether the Blue Flag eco-label has a positive influence on prices of tourism services associated with marinas and beaches in coastal Croatia. For this purpose, panel data regression models are employed, and they explicitly address endogeneity of the eco-label variable arising from selection of firms adopting the label. Treatment effects and instrumental variables specifications are estimated, and results suggest positive impacts of the Blue Flag label on marina slip rental, sailboat charter, and hotel services, with price premia ranging between 18% and 72%. These results may be of use to businesses, governmental, and non-governmental organisations interested in pursuing such certification.

Recruiting abroad: an empirical analysis

Purpose– In many European countries labor markets became more and more demand oriented. However, the average use of recruiting abroad is still low. From a firm perspective, recruiting abroad comes at substantial costs and risks. The purpose of this paper is to identify mechanisms leading to the use of recruiting from abroad.Design/methodology/approach– Effects are retrieved from simple OLS regressions as well as from demand-sided instrumental variable specifications applied to a large German establishment-level dataset.Findings– The share of foreign workers in the contemporary work force enhances recruiting abroad, which is in line with theoretical considerations that foreigners indicate of successful international assignments. The results also indicate that internationally operating businesses more likely recruit from abroad. Furthermore, the author finds that market forces are relevant for the strategy to recruit abroad. Both, the regional scarcity of labor and a high demand for skilled labor affect the employer’s decision to recruit abroad.Social implications– The results indicate that internationally oriented businesses more likely recruit abroad. Furthermore, labor market mechanisms, such as scarcities, are functional and foster the use of foreign labor markets.Originality/value– This study adds to the literature by providing first empirical evidence on recruiting abroad, which is the use of foreign labor markets.

Banking Crises, External Crises and Gross Capital Flows

In this paper, we study the relationship between banking crises, external financial crises and gross international capital flows. First, we confirm that banking and external crises are correlated. Then, as we explore the role of gross capital flows, we find that declines of external liabilities in the balance of payments – a proxy for foreign capital repatriation we call gross foreign investment reversals (GIR) – predict banking as well as external crises. Finally, we estimate the effects of GIR-associated banking crises on the risk of currency and sudden stop crises in an instrumental-variables specification. In developing countries, GIR-associated banking crises increase the onset risk for currency and sudden stop crises by 39-50 and 28-30 percentage points per year respectively. For OECD countries, we show an increase in the currency crisis risk by 33-45 percentage points.