Macroeconomic Evidence Research Articles

A Note on Perry's Reconsideration of Macroeconomic Evidence from New Zealand

Perry in this journal draws on two new sources to challenge claims by Dalziel (2002) and Peetz (2005) about relatively weak labour productivity growth in New Zealand after the introduction of its Employment Contracts Act (ECA) in 1991. While new data raise further research questions, they do not overturn our original conclusions. Whether the ECA contributed to higher labour input growth compared with Australia, it failed to improve labour productivity growth.

Rejoinder to ‘A Note on Perry's Reconsideration of Macroeconomic Evidence from New Zealand’

Australian Economic ReviewVolume 41, Issue 4 p. 394-398 Rejoinder to ‘A Note on Perry's Reconsideration of Macroeconomic Evidence from New Zealand’ L. J. Perry, L. J. Perry School of Finance and Economics, University of Technology, SydneySearch for more papers by this author L. J. Perry, L. J. Perry School of Finance and Economics, University of Technology, SydneySearch for more papers by this author First published: 19 December 2008 https://doi.org/10.1111/j.1467-8462.2008.00510.xRead the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Volume41, Issue4December 2008Pages 394-398 RelatedInformation

Determinants of Bank Profitability: Macroeconomic Evidence from Nigeria

A recent set of banking sector reforms have been introduced in Nigeria to ensure inter alia a strong and reliable banking sector. However, if the historical antecedents of financial sector reforms in Nigeria are anything to go by, the recent reforms may not help to improve bank profitability and stability. Hence, to contribute to the existing knowledge of bank profitability in Nigeria, this study sought to econometrically identify significant macroeconomic determinants of bank profitability. Using a panel data set comprising 1255 observations of 154 banks over the 1980-2006 period and macroeconomic indices over the same period, regression results reveal that real interest rates, inflation, monetary policy, and exchange rate regime are significant macroeconomic determinants of bank profitability in Nigeria. Banking sector development, stock market development, and financial structure are insignificant; and the relationship between corporate tax policy and bank profitability in Nigeria is inconclusive.

Unmeasured Investment and the Puzzling US Boom in the 1990s

For the 1990s, the basic neoclassical growth model predicts a depressed economy, when in fact the US economy boomed. We extend the base model by introducing intangible investment and non-neutral technology change with respect to producing intangible investment goods and find that the 1990s are not puzzling in light of this new theory. There is microeconomic and macroeconomic evidence motivating our extension, and the theory's predictions are in conformity with US national accounts and capital gains. We compare accounting measures with corresponding measures for our model economy and find that standard accounting measures greatly understate the 1990s boom. (JEL E22, E23, O33, O47)

Explaining cross-country differences in job-related training: Macroeconomic evidence from OECD countries

Résumé Cet article présente une analyse empirique des déterminants macroéconomiques du niveau agrégé de formation reliée au travail dans quatorze pays de l’OCDE. Les données de formation proviennent de l’Enquête internationale sur l’alphabétisation des adultes. Nous démontrons que la compression au bas de la distribution des salaires a un effet positif sur la formation agrégée entre pays et groupes d’âge, alors que la compression au haut de la distribution a l’effet opposé. Conformément à l’évidence microéconomique sur l’éducation et la formation, les compétences d’alphabétisation moyenne dans chaque pays et groupe d’âge ont un effet positif sur la proportion d’employés formés. Les taux de chômage, les niveaux de R&D, les taux de syndicalisation et les structures industrielles sont utilisés comme variables de contrôle dans l’analyse. Classification JEL : J24 ; J31.

Do Workplace Contracts Harm Labour Productivity Growth? A Reconsideration of the Macroeconomic Evidence from New Zealand

AbstractThis article reconsiders the argument advanced or endorsed by a large number of leading Australian academics and others that labour productivity growth in New Zealand fell markedly during the period in which New Zealand's Employment Contracts Act 1991 (ECA) was operative—that is, for most of the 1990s. On the one hand, based on total economy estimates developed by The Conference Board and the Groningen Growth and Development Centre, labour productivity growth was unexceptional though a little higher than the New Zealand average of the last three decades or so. On the other hand, based on newly released official estimates of New Zealand's ‘measured sector’ (which accounts for about two‐thirds of the total economy), labour productivity growth was almost identical to that of Australia during the EC A period. This in turn suggests that New Zealand's labour productivity growth rose markedly for the measured sector during the EC A years. All in all, the evidence presented in this article is inconsistent with claims that the period of the EC A was associated with relatively weak New Zealand productivity growth. Selected issues arising from these findings are briefly canvassed.

Financial Globalization: A Reappraisal

The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years, but along many disparate channels and with a variety of apparently conflicting results. For instance, there is still little robust evidence of the growth benefits of broad capital account liberalization, but a number of recent papers in the finance literature report that equity market liberalizations do significantly boost growth. Similarly, evidence based on microeconomic (firm- or industry-level) data shows some benefits of financial integration and the distortionary effects of capital controls, while the macroeconomic evidence remains inconclusive. We attempt to provide a unified conceptual framework for organizing this vast and growing literature. This framework allows us to provide a fresh synthetic perspective on the macroeconomic effects of financial globalization, in terms of both growth and volatility. Overall, our critical reading of the recent empirical literature is that it lends some qualified support to the view that developing countries can benefit from financial globalization, but with many nuances. On the other hand, there is little systematic evidence to support widely cited claims that financial globalization by itself leads to deeper and more costly developing country growth crises.

Policy Volatility and Growth

A growing body of recent macroeconomic evidence suggests that volatility is detrimental to economic growth. The channels through which volatility affects growth, however, are less clear; substantive evidence based on disaggregate data is almost non-existent. This paper offers a framework in which policy volatility has an adverse effect on firms' entry into productive industries, thereby affecting economic growth. Empirical support for this relationship is based on a detailed dataset of thousands of firms from some 80 countries. Additional evidence is provided on the channels through which volatility affects firm growth, showing that institutional obstacles magnify the effect.

Does food aid Really have disincentive effects? New evidence from sub-Saharan Africa

Summary Limited empirical evidence exists either to refute or confirm the pervasive belief that food aid has significant disincentive effects on recipient food production. Using household-level data from rural Ethiopia, we demonstrate that while simple descriptive statistics appear consistent with the disincentive effects hypothesis, once one controls properly for the endogeneity of food aid receipt, no empirical support remains for the hypothesis that food aid creates disincentive effects among recipient households. The macro economic evidence yields similar findings. Applying vector autoregression methods to national-level data, controlling for possible confounding variables, we find that food aid has no disincentive effect on food production.

Globalisation vs Skill‐Biased Technological Change: Implications for Unemployment and Wage Inequality

Globalisation and skill-biased technological change have emerged as alternative explanations for the increase in US wage inequality since 1980. We investigate the static and dynamic effects of these shocks on unemployment across skill classes using a model of search unemployment. Although we confirm that globalisation and skill-biased technological change both lead to increases in wage inequality, we show that these shocks may have different effects on unemployment. We also show that labour market institutions play a role in determining the size of shocks, which formalises an argument in Krugman (1994) about the labour market experiences of the US and Europe since 1980. Globalisation and skill-biased technological change (hereafter, SBTC) have emerged as alternative explanations for the increase in US wage inequality since 1980. Relatively little attention has been devoted to the effects of these shocks on unemployment across skill classes. We investigate this issue in this paper. In particular, we make four contributions. First, we link search unemployment - the leading unemployment model in the macroeconomics literature - with trade theory. In our model, relative factor endowments determine comparative advantage, and relative prices act as the transmission mechanism between countries. Second, although we confirm that globalisation and SBTC both lead to increases in wage inequality, we show that these shocks may have different effects on unemployment. Third, we show that labour market institutions play a role in determining the size of shocks. In so doing, we formalise an argument in Krugman (1994) about the labour market experiences of the US and Europe since 1980. Finally, we examine macroeconomic evidence for the US and Europe and ask how well globalisation, SBTC and other explanations in the literature fit the facts.

Eurosclerosis or Financial Collapse: Why Did Swedish Incomes Fall Behind?

Sweden represents an archetypal welfare state economy, with extensive government safety nets. Some scholars have attributed a decline in its per capita income ranking since 1970 to eurosclerosis or sluggish growth caused by distortionary policies. This paper argues rather, that the permanent loss in output following Sweden's banking crisis in the early 1990s explains the decline in its per capita GDP ratings. The paper finds no macroeconomic evidence that welfare state policies have deterred growth. The results warn that empirical growth analyses should distinguish between trend output growth and permanent output loss associated, for example, with financial crises.

Eurosclerosis or Financial Collapse: Why Did Swedish Incomes Fall Behind?

Sweden represents an archetypal welfare state economy, with extensive government safety nets. Some scholars have attributed a decline in its per capita income ranking since 1970 to eurosclerosis or sluggish growth caused by distortionary policies. This paper argues rather, that the permanent loss in output following Sweden's banking crisis in the early 1990s explains the decline in its per capita GDP ratings. The paper finds no macroeconomic evidence that welfare state policies have deterred growth. The results warn that empirical growth analyses should distinguish between trend output growth and permanent output loss associated, for example, with financial crises.

Eurosclerosis or Financial Collapse: Why Did Swedish Incomes Fall Behind?

Sweden represents an archetypal welfare state economy, with extensive government safety nets. Some scholars have attributed a decline in its per capita income ranking since 1970 to eurosclerosis or sluggish growth caused by distortionary policies. This paper argues rather, that the permanent loss in output following Sweden's banking crisis in the early 1990s explains the decline in its per capita GDP ratings. The paper finds no macroeconomic evidence that welfare state policies have deterred growth. The results warn that empirical growth analyses should distinguish between trend output growth and permanent output loss associated, for example, with financial crises.

What Do Unions Do at the Large Scale? Macro-Economic Evidence from a Panel of OECD Countries

This paper investigates the long-run relationship between trade unionism and productivity using a panel data set comprising of 18 OECD economies. Much of the existing evidence on this issue derives from micro-economic studies, with limited attention paid to long-run dynamics and economy-wide effects. Using the mean group and pooled mean group estimation techniques on cross-country panel data, the paper offers support to the “productivity-increasing face of unionism” hypothesis, revealing a positive relationship between trade union density and per worker output.

Capital Controls: Mud in the Wheels of Market Discipline

Widespread support for capital account liberalization in emerging markets has recently shifted to skepticism and even support for capital controls in certain circumstances. This sea-change in attitudes has been bolstered by the inconclusive macroeconomic evidence on the benefits of capital account liberalization. There are several compelling reasons why it is difficult to measure the aggregate impact of capital controls in very different countries. Instead, a new and more promising approach is more detailed microeconomic studies of how capital controls have generated specific distortions in individual countries. Several recent papers have used this approach and examined very different aspects of capital controls - from their impact on crony capitalism in Malaysia and on financing constraints in Chile, to their impact on US multinational behavior and the efficiency of stock market pricing. Each of these diverse studies finds a consistent result: capital controls have significant economic costs and lead to a misallocation of resources. This new microeconomic evidence suggests that capital controls are not just sand, but rather mud in the wheels of market discipline

Wage formation during economic transformation: macroeconomic facts and firm survey evidence from Slovenia

This article provides macroeconomic stylised facts on wage comparisons and microeconomic evidence on how institutional changes, competitive pressures in firms' output markets, human capital and efficiency wage payment affect wage formation during the early stages of transformation. Wages in Slovenia are higher than in other transition Central and Eastern European countries and higher than labour productivity. We use a firm survey panel dataset of Slovenian enterprises to investigate labour cost adjustment and its policy relevance. The results reveal that transformation was not a uniform process as it has induced different labour cost adjustments and wage responses to transformation shocks over time. The hypothesis that labour productivity and competitive pressures in firms' output markets were important for wage formation was not supported. We confirm that rent seeking increased wages in insider, management and employee-owned enterprises in anticipation of privatisation. The effect of human capital was modest and efficiency wage payment was found not to be significant. The hypothesis of unionisation in Slovenian enterprises was not supported.

Business responses to crisis in Indonesia: the 1930s and the 1990s

This article looks at the responses of foreign business firms to crisis in a comparative historical perspective. The focus is on Indonesia in the 1930s and the late 1990s. The main approach is one of case studies in order to gain an insight into strategies of adjustment to deteriorating business conditions. For the late 1990s, such information is supplemented by macroeconomic evidence covering a wider range of firms. The article reaffirms a basic resilience of foreign direct investment in times of economic crisis even when there is an overall economic decline, as in Indonesia in the 1990s. The capacity of foreign firms in Indonesia to adjust successfully was considerable both in the 1930s and the late 1990s. Yet, prospects for a swift recovery are far better in the latter case than in the former period, reflecting the different nature of the two crises.

New Macroeconomic Evidence on Monetary Policy Transmission in the Euro Area

This paper presents some new macroeconomic evidence on the transmission mechanism of monetary policy in the euro area. The evidence is drawn from a number of collaborative research projects undertaken by the ECB and the National Central Banks (NCBs) of the euro area and utilises a variety of national and euro area aggregate VAR and structural macroeconomic models. A qualitatively similar pattern of results following a monetary policy shock is observed across models, with the maximum output effect typically occurring after 1-2 years. Price effects are somewhat slower to materialise and are more persistent. According to both sets of results, investment is the main (domestic) contributor to the drop in real GDP. This contrasts with findings for the US where consumption plays a dominant role in the transmission process. In addition, if it assumed that the exchange rate moves in line with an Uncovered Interest Parity (UIP) condition, the short run output and price effects are largely driven by this channel in the structural macroeconomic models. JEL classifications: C50, C52, E52, E17, E5

Corporate Control and the Politics of Finance

In this paper I explore the effects of politics on corporate finance, including the determinants of capital structure and the regulatory and legal factors governing the market for corporate control. I examine the effects and consequences of the active corporate control market of the 1980s, then I outline the enormous political controversy and inaccurate media portrayals that ensued, and contrast them to the results obtained from intensive study of the phenomena by academic economists. First, I review new macroeconomic evidence on changes in productivity in American manufacturing that is dramatically inconsistent with popular claims that corporate control transactions were crippling the industrial economy in the 80s. Second, I show how the restructuring movement of the 1980s reflected the re-emergence of active investors in the U.S. and how restructuring addressed the conflict between management and shareholders over control of corporate free cash flow. Third, I summarize my conception of LBO associations as new organizational forms that overcome the deficiencies of large public conglomerates. I also discuss the similarity between LBO associations and Japanese business financing networks known as keiretsu. Fourth, I argue that the highly-leveraged financial structures of the 1980s should lead to a Japanese-style privatization of bankruptcy (i.e., out-of-court reorganization). Fifth, I present a theory of boom-bust cycles in venture markets that explains why many companies involved with late-1980s leveraged transactions encountered financial distress. Sixth, I argue that misguided changes in the tax and regulatory codes and in bankruptcy court decisions have distorted the normal economic incentives for out-of-court reorganizations, resulting in increased costs of financial distress and a sharp rise in the number of Chapter 11 filings. Seventh and last, I propose a set of changes in the Chapter 11 process designed to reduce the costs of financial distress and thus maximize the total value of the firm to all investors.

Business Environment and Investment in Africa: an Overview

Despite more than a decade of reforms in many African countries, investment and growth rates are still far below the levels required for sustainable development. This article provides an overview of the papers published in the present issue, which analyse the business environment as well as the determinants of investment. The overview focuses on: (i) an analysis of macroeconomic factors explaining private investment experiences across developing countries, with particular implications for Africa; (ii) macroeconomic evidence on manufacturing investment based on surveys from several Sub‐Saharan African (SSA) countries; (iii) a macro‐and micro‐assessment of investment productivity using cross‐country production–function estimation based on a sample of SSA countries and a case study of the Tanzanian manufacturing sector; and (iv) an analysis of the business environment, featuring ‘networking’ markets as a primary resource allocation mechanism in Africa.