Economic Issues Volume 10

ECONOMIC ISSUES

Volume 10 (2005)

Part 1, March

Please select from the titles below:

Part 2, September

Please select from the titles below:

K Aristotelous, Do Currency Unions Affect Foreign Direct Investment Evidence from US FDI Flows into the European Union
G Di Pietro, On Migration and Unemployment: Evidence from Italian Graduates
M Salehizadeh, Foreign Direct Investment Inflows and the US Economy: An Empirical Analysis
Y Georgellis, J G Sessions and N Tsitsianis, Self-Employment Longitudinal Dynamics: A Review of the Literature

Part 1, March

On the Welfare Effect of an Equivalent Tariff and Quota (p.1)

by L-S Fan and C-M Fan

Abstract: Over many years, the comparison of tariffs and quotas has retained an important place in the study of trade restrictions. This note shows that there are substantial differences in the welfare effects of an equivalent tariff and quota designed to achieve identical import restrictions. When there is an increase in demand, the deadweight loss from an import quota will be greater than that of a tariff. Geometric presentations are executed by way of comparative static analyses for a small open economy. Moreover, measurements of welfare effects in terms of the demand elasticity and the supply elasticity are explicitly derived algebraically. A case involving monopoly is also explored to highlight the relative merit of a tariff as a means of import restriction.

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Fiscal Policy and Growth: The Case of the Spanish Regions (p.9)

by D Martínez-López

Abstract: This paper studies the effects of several fiscal variables on the regional growth of labour productivity in Spain over the period 1965-1997. Panel estimates are reported for this sample. The results show that public consumption affects growth negatively whereas public investment exerts a positive (but not always significant) effect on the productivity growth rate. Public investment in education has a positive impact on the dependent variable, while the opposite is true for public investment in health. Our findings also detect that taxes and social benefits are growth-impeding. Estimates dealing with specification problems are considered.

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A Monetary Model of Exchange Rate and Balance of Payments Adjustment (p.25)

by A J Makin

Abstract: This article proposes an alternative monetary model for examining the effects of domestic monetary shocks on the exchange rate and the balance of payments. Using an output-expenditure framework, it shows that domestic monetary shocks can drive a wedge between national expenditure and production and generate incipient current account imbalances with exchange rate and balance of payments implications. Contrary to previous monetary approaches, the model suggests a new chain of causality that runs from domestic money to the exchange rate to the price level, rather than from money to the price level to the exchange rate. It also shows that under fixed rates external adjustment is consistent with money market equilibrium and price level stability.

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Stock Market Growth: An analysis of cointegration and causality (p.37)

by K A El-Wassal

Abstract: This paper examines the relationship between stock market growth and economic growth, privatization; stock returns in 12 emerging economies from 1988 to 2000. Using monthly data, both the Johansen Cointegration and Granger Causality tests are employed. Results from cointegration tests suggest a long run relationship between stock market liquidity and size and real activity, privatization, and stock returns in five countries, India, Korea, Malaysia, the Philippines and Zimbabwe. The results of Granger causality tests indicate that there is a bi-directional relationship between stock market growth indicators and real economic activity, privatization, and stock returns for most of these countries. These results seem to validate the co-existence of both the supply-leading and demand-following hypotheses in the intermediate stages of the economic development i.e., the existence of a bi-directional relationship between finance (stock markets) and economic growth.

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In Memoriam: Robert L Heilbrone- the continuing relevance of the Worldly Philosophy

by M Forstater

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Part 2, September

Do Currency Unions Affect Foreign Direct Investment Evidence from US FDI Flows into the European Union (p.1)

by K Aristotelous

Abstract: This paper investigates the effect of EMU on US FDI flows into the European Union using panel data from fifteen EU countries for the period 1966-2003. The empirical findings suggest that EMU had a positive and statistically significant impact on US FDI flows into the twelve countries that adopted the euro as their national currency. The increase in US FDI flows into the EU-12 was not accompanied, however, by a decrease in US FDI flows into the three EU countries that opted out of adopting the euro as their national currency.

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On Migration and Unemployment: Evidence from Italian Graduates (p.11)

by G Di Pietro

Abstract: This paper examines the impact of the unemployment rate on the decision to migrate among recent Italian graduates. A fixed-effects approach is used to avoid potential omitted variable problems. This method allows us to account for unobservable location-specific characteristics that are likely to be correlated with the unemployment rate and the probability that an individual migrates. The empirical results highlight the importance of controlling for location-specific effects and show that lower employment opportunities are likely to encourage people to migrate if they do not have a job, but exert no influence on those who are employed.

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Foreign Direct Investment Inflows and the US Economy: An Empirical Analysis (p.29)

by M Salehizadeh

Abstract: Over the last two decades, the U.S. has attracted more inflows of foreign direct investment (FDI) than any other country. General indications have pointed to FDI inflows as being a positive contributing factor to key US macroeconomic indicators. This study examines two categories of macro variables over the period 1980-2003. First, various employment and wage measures of the US affiliates of foreign firms are analyzed. The results show a rising share of the American labour force as being employed by these affiliates, and that FDI inflows favour high-wage industries and sectors. Second, regression estimates confirm the existence of a positive and significant relationship between FDI and US economic growth rates. In light of the expected rise in economic interdependence among countries, it is becoming increasingly critical for the U.S. to maintain its living standards and advantages vis-à-vis others through sustained economic growth. The findings reported here imply that, as an economy lacking enough domestic savings and running ever-rising current account deficits, it is imperative for the U.S. to continue to attract foreign capital, especially FDI.

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Self-Employment Longitudinal Dynamics: A Review of the Literature (p.51)

by Y Georgellis, J G Sessions and N Tsitsianis

Abstract: We review longitudinal studies on self-employment dynamics, classifying studies into those that examine transitions into self-employment, and those that examine self-employment exit and survival. A number of hypotheses from both the economic and social-psychological literatures are examined vis. the effects on self-employment dynamics of financial, human and social capital, intergenerational effects, and labour market hardships.

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