Instrumental Variable Approach Research Articles

The influence of grade retention on students' competences in Spain

AbstractGrade retention is at the core of the education debate in Spain, to the extent that its impact on students' competences has not been assessed beyond correlation. Because of that, in the present study, we analyse the influence of grade retention on students' competences, using more than 146,000 students from 6 PISA cycles (2003–2018) and an instrumental variable approach, in order to approach a causal influence. Our results show that repeating a grade in Spain seems to reduce students' competences between 1.5 and 1.7 standard deviations. Based on these results, we conclude that the Spanish educational authorities should find an alternative to grade retention, in order to prevent students from attaining a lower competence level due to repetition.

Influence and mechanisms of perceived information disclosure in shaping public attitudes towards waste disposal facilities: Evidence from China

Waste disposal facilities are an indispensable infrastructure for modern urban development, and increasing public acceptance of such facilities contributes to sustainable urban development. Estimation results using the least squares method, based on widely representative questionnaire data, indicate that perception of government information disclosure has a significant positive impact on enhancing the public’s willingness to accept waste disposal facilities. This finding is further confirmed not only when using instrumental variables approach to address potential endogeneity as well, but also by a series of robustness tests. The results of the heterogeneity analyses show that the positive impact of government information disclosure is present only in the sub-sample of those who have no religious trust and frequency of online socialization. Further findings support the idea that political trust and the perception of the government capacity to ensure public security are two fundamental mechanisms. In particular, trust in county government and perceptions of medical security are more likely to drive this positive effect. This study reveals the role of perceptions about information disclosure in shaping public attitudes toward public programs and provides new insights into facilitating the successful construction of public facilities.

Marketing Outcomes and Shareholder Value: A Review and Research Agenda

One of the most fundamental management questions is how market-based assets affect shareholder value. To provide an answer, we review the extensive literature on marketing outcomes and shareholder value using the Theory, Context, Characteristics, and Methodology (TCCM) framework. The analysis reveals that researchers mainly rely on the efficient market hypothesis, signaling theory, and market-based arguments to theorize the relationship between customer-based market assets and shareholder value. Researchers predominantly collect secondary data and employ event study, persistence methods, and instrumental variables approach to show that marketing actions (such as advertising and brand building) and customer-based market assets (such as customer satisfaction, customer loyalty, and brand equity) positively influence shareholder value. After outlining the findings, future research directions on the relationship between market assets and shareholder value are explored.

Environmental, social and governance (ESG) performance as a moderator in assessing the impact of government subsidies on underinvestment in China

In recent years, underinvestment has become common among subsidised enterprises in China. Stakeholder theory asserts that environmental, social and governance (ESG) performance forces enterprises to prioritise stakeholder needs by incorporating ESG principles into business operations, which in turn influences business investment decision-making. This study examines the impact of government subsidies on firm underinvestment and whether ESG performance plays a moderating role in this direct relationship. A dataset of 17,780 firm-year observations of A-share public firms in China for the period 2011–2021 was employed, and the data were analysed using the ordinary least squares regression model, fixed-effects regression model, propensity score matching difference-in-difference model, and instrumental variable approach. These results indicate that government subsidies mitigate firm underinvestment and tend to reduce underinvestment in firms with higher ESG performance. Moreover, the findings indicate that the performance in ESG factors influences the effect of government subsidies on the lack of investment in state-owned enterprises (SOEs), as opposed to non-SOEs. This effect is more noticeable in heavily polluting industries compared to non-heavily polluting industries. These findings imply that the government should promote the ESG performance of subsidised firms to enhance their overall corporate investment efficiency.

Housing unaffordability and adolescent academic achievement in urban China

ABSTRACT Our study, based on longitudinal data from the 2010–2018 China Family Panel Studies, analyses the effect of housing unaffordability on the academic achievements of Chinese adolescents aged 10–18. To address the inherent endogeneity issues associated with housing unaffordability, we employ a fixed effects instrumental variable approach. Our findings reveal that housing unaffordability leads to a decline in adolescent Chinese performance by an average of 12%. This negative effect is more pronounced for specific groups: school-zoned housing buyers, rural-to-urban migrant families, girls with brothers, families who rent, lower-income households, older adolescents (aged 13–18), and those residing in less developed regions. Moreover, the results suggest that housing unaffordability adversely affects academic performance indirectly by increasing the likelihood of living in poor-quality housing, diminishing extracurricular academic tutoring and household essential spending, such as food, social capital, and education.

Imports, Exports, and Employment: India’s Trading Relationship with China

This paper examines the effect of increased import competition and export demand on local labour markets in the context of India’s trading relationship with China. Using an instrumental variables approach, I find that Indian districts exposed to Chinese imports experience decreased manufacturing employment growth relative to their positive pre-existing trend with no offsetting adjustment in services employment or population. The negative employment effect of imports is greater for large establishments. On average, manufacturing employment does not grow in response to export demand shocks, but districts with sufficient development, density, or access to Chinese markets see increased manufacturing employment in response to Chinese export demand.

Why do aging households in agriculture prefer land abandonment to transfer? Evidence from hill plots in Sichuan, China

AbstractIncreased aging of the agricultural population may lead to a reconfiguration of land elements, but existing studies have not analyzed this on a plot level. China's vast hilly and mountainous regions will have a more serious impact on agricultural aging, but this context has still not received enough attention. Based on primary data from 2602 plots and 1080 farm households in the hilly areas of Sichuan, using human capital theory and instrumental variables approach, it is found that aging in agriculture will promote the abandonment of plots in the hilly areas, especially those that are remote, small in size and poor condition. Aging in agriculture will inhibit the out‐migration of plots in the hilly areas, and aging increases the abandonment of plots. In addition, this paper finds that the imperfect development of the land transfer market in hilly areas and the strong farmers' land endowment effect are the main reasons limiting land transfer. However, the inhibitory effect of the endowment effect diminishes with age. This study helps to rationally view the value of abandoned land and provides a new research perspective for parcel redistribution.

Bilateral tax treaties network and global value chain position

This study investigates the effect of bilateral tax treaty (BTT) network centrality on countries’ global value chain (GVC) positions using a panel dataset of 62 economies from 2007 to 2021. Employing an instrumental variable approach, we find that higher BTT network centrality reduces a country's overall GVC position, with heterogeneous effects across sectors and participation types (forward and backward). The results suggest that increased BTT network centrality may facilitate production fragmentation and enable tax planning strategies (treaty shopping), leading to a distortion in the distribution of value-added across countries in GVCs.

Does corporate sustainability performance matter for cash holdings? International evidence

PurposeWe examine the impact of corporate sustainability performance (CSP) on corporate cash holdings, focusing on the moderating impacts of industry’s concentration, financial constraints, and institutional environments.Design/methodology/approachThe empirical analysis is conducted on a sample of 31 countries from 2002 to 2018. We use the pooled OLS regressions controlling for fixed effects. We further address endogeneity issues using an instrumental variable approach, the Difference-in-Differences regression based on an exogenous shock, and the propensity score matching.FindingsWe find that firms with superior CSP hold more cash. This result is valid after a series of tests for robustness and endogeneity issues, suggesting a causal effect of CSP on corporate cash holdings. In the cross section, the positive impact of CSP on cash holdings is more pronounced for firms operating in highly concentrated industries, but attenuated for firms with financial constraints and for those operating in countries with better institutional environments. We further show that CSP affects cash holdings through the channel of financial distress risk.Practical implicationsIn making investment decisions, investors should not only examine corporate financial performance and sustainability profile, but also understand the related cash holding levels and financial distress costs. Corporate managers making decisions on levels of cash holdings should pay more attention to their sustainability behavior, especially for firms operating in concentrated industries and/or facing financial constraints. Governments and authorities can apply regulations to encourage firms to engage more in sustainable activities, as well as establish good institutional environments in the country.Originality/valueUsing a comprehensive international dataset, our paper contributes to two strands of literature: the economic impact of CSP and the driver of cash holdings. We further focus on the moderating role of industry concentration and firms’ financial constraints. Our international sample also allows us to exploit the effect of country-level informal institutions.

Power to choose? Examining the link between contraceptive use decision and domestic violence

Contraception is a crucial tool that empowers women to control their bodily autonomy. Concurrently, domestic violence remains a pressing public health issue, depleting women’s autonomy. We establish a causal link between a woman’s contraceptive use decision and the occurrence of intimate partner violence. We use an instrumental variable approach to estimate our causal effects by utilizing nationally representative data for India. Using exogenous variation in the neighbourhood average of women’s exposure to family planning messages via radio, we find that if a woman independently makes the decision to use contraceptives, she is at a significantly higher risk of physical, sexual and emotional domestic violence. We estimate the bounds of our effects by assuming the IV to be plausibly exogenous, where we relax the exogeneity condition. Our findings underscore the importance of reproductive health in initiatives that reduce domestic violence and targeted policies that provide support to younger and employed women and those from backward caste and rural areas.

Emigration and tax revenue

The World Migration Report 2020 shows that the number of international migrants increased from 84 million in 1970–272 million in 2019, accounting for 3.5% of the world’s population. This paper investigates the aggregated effect of emigration on the tax revenue of sending countries with a focus on developing nations. Using a gravity approach, we construct a time-varying exogenous instrument out of measures of changes in transportation technology from geographic time-invariant dyadic characteristics. Then, we follow an instrumental variable approach where we use our predicted emigration rate as an instrument of the observed migration rate. The results show that the predicted emigration rate is a good instrument of the current emigration rate for developing countries, and that there is a positive aggregated effect of emigration on tax revenue of sending countries. The results vary depending on the type of tax: emigration increases goods and services tax revenue, but it decreases income, profit, and capital gains tax revenue.

Agglomeration and the Italian North–South divide

Abstract This article offers new evidence on agglomeration economies by examining the link between total factor productivity (TFP) and employment density in Italy. We investigate whether and how the TFP–density nexus contributes to explaining a relevant share of the marked productivity gap between the northern and the southern Italian regions. We estimate TFP for a large sample of manufacturing firms and then aggregate it at the level of local labour market areas. We tackle the endogeneity issues stemming from the presence of omitted covariates and reverse causation with an innovative set of diagnostic tests and an instrumental variable approach that relies on geological and historical data. Our estimate of the TFP elasticity to the spatial concentration of economic activities is about 0.045, a magnitude comparable to those measured for other developed countries. We also show that no significant heterogeneity emerges in the intensity of agglomeration economies across the country and that the positive TFP difference in favour of the firms located in the North is not due to the tougher competition taking place in those areas.

The impact of labor force aging on agricultural total factor productivity of farmers in China: implications for food sustainability

IntroductionThe rapid aging of the labor force has serious implications for socioeconomic development and poses challenges to food sustainability. Existing studies have focused on the impact of labor force aging on land productivity, but little attention has been paid to the comprehensive capacity of agricultural production, namely the total factor productivity of agriculture.MethodsWe estimate the impact of labor force aging on total factor productivity in agriculture using data from 170,506 sample farm households from the National Fixed Point Survey data from 2003 to 2020. We estimate the results using a panel fixed effects approach and mitigate the endogeneity problem using an instrumental variables approach to ensure the robustness of the estimates.Results and discussionThe results show that labor force aging has an adverse effect on the agricultural total factor productivity of farm households and remains robust after addressing endogeneity and substituting explanatory variables. The aging effect shows significant heterogeneity across different food functional areas with different types of farm households. The negative impact of labor force aging on total factor productivity in agriculture is mainly concentrated in the main grain-production and grain-producing and marketing-balanced areas. We also find that the negative impact of labor force aging is more significant among large-scale farmers. The mechanism analysis finds that the aging of the labor force adversely affects the agricultural total factor productivity by inhibiting technological progress and reducing the efficiency of agricultural resource allocation. These insights, when considered in the light of global trends towards agricultural labor aging, suggest that policy interventions aimed at promoting technological adoption, enhancing resource allocation efficiency, and supporting the transitioning of older farmers may hold promise for maintaining food sustainability and addressing the challenges posed by an aging agricultural workforce in numerous developing nations.

Green innovation and corporate default risk

We investigate the impact of green innovation on default risk for the period 2003–2020. Using 15,015 firm-year observations from 2301 unique U.S. firms and a firm-fixed effects regression model, we find that firms with higher green-innovation experience lower default risk as measured by the distance-to-default, probability of default, and CDS spreads. We find robust evidence addressing potential endogeneity in the association between green innovation and default risk by applying three different approaches: the propensity score matching approach, the instrumental variable approach, and the difference-in-differences technique. Our channel analysis results show that high green innovation reduces cashflow volatility and managerial risk-taking, which translates into lower default risk. The influence of green innovation on default risks is contingent on various firm characteristics. It is more pronounced in firms with greater institutional ownership, a younger age, and more carbon-intensive operations.

Managerial ability and tax avoidance adjustment toward the optimal level

ABSTRACT Highlighting managerial ability as a moderator of tax adjustment behaviour, this study finds that firms led by more capable managers exhibit slower adjustment speed of tax avoidance towards the optimal level. Furthermore, our findings remain robust after employing the propensity score matching and instrumental variable approaches. Cross-sectional analysis reveals that the negative association between managerial ability and tax avoidance adjustment speed is stronger for firms facing larger transaction costs and more complex operations. This implies that competent managers are more inclined to avoid incurring costs related to unwinding previous tax strategies, even when their firms deviate from the optimal level of tax avoidance.

Extreme weather exposure and corporate carbon emissions management: Evidence from forty countries

Utilizing survey data for firms from 40 countries, we explore the impact of extreme weather exposure on corporate carbon emissions management. Our findings indicate that firms manage their carbon emissions better if they have suffered losses due to extreme weather events. These results persist after considering endogeneity concerns, including placebo tests, the Heckman two-stage method, propensity score matching, the instrumental variables approach, and other robustness tests. Cross-sectional analyses reveal that this impact is more pronounced for firms located in developed countries and in countries with superior climate protection and lower levels of carbon emissions. Furthermore, the effect of extreme weather exposure is more significant for firms with foreign ownership and political connections and those subject to an energy tax. Finally, improved management of carbon emissions accompanied by extreme weather exposure can lead to increased corporate capacity utilization and reduced production costs.

Overtime work and Chinese workers' physical and mental health: The mediating role of social support and work value awareness.

China was once called the world's factory. Chinese workers had long weekly working hours. However, the empirical results of the relationship between overtime work and workers' health are mixed and remain inconclusive. This study aimed to investigate how overtime work influenced workers' physical and mental health and the role of lifestyles, social support, and work value awareness. Data from the China Labor-force Dynamics Survey 2016 (N = 14,205) was used. The instrumental variable approach was employed to overcome the endogeneity problem between overtime work and workers' health. The bootstrapping method was conducted to elicit the role of lifestyles, social support, and work value awareness. The results indicated that overtime work significantly and negatively influenced Chinese workers' physical and mental health. The results of the bootstrapping suggested that workers' social support and work value awareness partially mediated the relationship between overtime work and their physical and mental health. However, the mediating role of lifestyles was insignificant. Through using big data with national representativeness, this study suggests that overtime work negatively influences Chinese workers' physical and mental health. Our findings provide policy implications for improving workers' health rights and well-being in emerging economies.

Bridging the credit gap: The influence of regional bank structure on the expansion of peer-to-peer lending

This paper investigates the extent to which the regional credit market structures, characterized by the presence and lending capacity of traditional banks, shape the growth of online lending marketplaces using peer-to-peer (P2P) lending data. Using an instrumental variables (IV) approach, our study suggests that areas underserved by traditional banks witness more significant growth in P2P lending. This impact is more pronounced in regions with a lower presence of small bank outreach. Furthermore, we find that an increase in P2P lending is associated with a reduced risk of borrower default. Our findings also show that the expansion of online lending marketplaces positively impacts borrowers’ financial well-being by improving their credit scores.

Does Aid Induce Foreign Direct Investment: Updated Evidence from a Quasi-Experiment

Abstract While the catalytic effect of aid on foreign direct investment (FDI) has long been an implicit consensus among many policymakers and practitioners, assessments of this causal relationship remain limited and are not always reliable. To mitigate this evidence gap, this study applies an instrumental variable approach that leverages the graduation of the International Development Association (IDA) income threshold as a quasi-experiment to identify the causal linkage between foreign aid and FDI. The analysis reveals that a 1 percent drop in the ratio of aid to gross national income leads to a decline in FDI relative to gross domestic product by 0.9 percent in 42 developing countries from 1987 to 2019. In face of the aid shock induced by IDA graduation, governments in recipient countries restrict their financial policy openness, through which aid could significantly impact subsequent foreign private investment. Results emphasize the necessity of concerted policy interventions to mitigate this negative aid shock.

Effects of anti-corruption campaigns on cesarean section rate: evidence from China

The excessive utilization of cesarean section (CS) has become a global concern, given the potential short-term and long-term detrimental effects for mothers and infants. Worldwide, the rate of CS continues to rise, but efforts to curtail unnecessary CS procedures have yielded limited success. By combining data from three resources, this study aims to estimate the effects of anti-corruption campaigns under the Xi administration on CS rates. We focus on Shanxi Province, a major coal-producing province in north-central China, with notoriety for the collusion between local politicians and business elites. Using the data from the China Corruption Investigation Dataset and data from publicly listed firms between 2013 and 2016, we found that anti-corruption campaigns significantly changed the social environment as firms’ business entertainment spending experienced substantial reductions. Using discharge records from 137 public hospitals, we adopted an instrumental variable (IV) approach and found that the anti-corruption campaigns led to significant reductions in unnecessary CS rates. The reductions are bigger among patients with second or later deliveries. We also find that the anti-corruption campaigns changed behaviors of attending and resident physicians. Our results provide insights into strategies to reduce corrupt practices within the healthcare sector and implementing interventions to minimize the occurrence of CS among healthy women and newborns.