Economic Issues Volume 13

ECONOMIC ISSUES

Volume 13 (2008)

Part 1, March

Please select from the titles below:

D Andrén and E Palmer, The Effect of Sickness History on Earnings in Sweden
M Bahmani-Oskooee and M Kovyryalova, The J-Curve: Evidence from Industry Trade Data between US and UK
Q M Ahmed and M. Haider Hussain, Estimating the Black Economy through a Monetary Approach: A Case Study of Pakistan
D Evans, Social Project Appraisal and Discounting for the Very Long Term
P K Narayan and S Narayan, Estimating the Demand for Money in an Unstable Open Economy: The Case of the Fiji Islands

Part 2, September

Please select from the titles below:

Part 1, March

The Effect of Sickness History on Earnings in Sweden (p.1)

by D Andrén and E Palmer

Abstract: This study examines whether sickness history affects annual earnings and/or hourly wages in Sweden. If poor health makes people less productive, previous sickness is expected to have a negative effect on hourly wages. If poor health reduces people's working capacity, but not their productivity, it is expected to decrease the hours worked, which implies lower annual earnings and no change in their hourly wage. The results indicate that people who are healthy in the current year but have a longer spell of sickness in previous years have lower earnings than persons who have no record of long-term sickness, and that the effect goes through hours of work rather than the wage rate.

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The J-Curve: Evidence from Industry Trade Data between US and UK (p.25)

by M Bahmani-Oskooee and M Kovyryalova

Abstract: Previous research seeking to assess the short-run and long-run effects of currency depreciation on the UK trade balance has employed either aggregate trade data between U.K. and the rest of the world or bilateral trade data between U.K. and one of its major trading partners, the US. Neither group of studies was able to discover any significant relation beween the two variables. In this paper we disaggregate the trade data between the US and UK at the commodity level and try to assess the impact of changes in the real dollar-pound bilateral rate on the trade balance of each industry. Using the bounds-testing approach to cointegration and error-correction modeling we show that 107 of 177 industries' trade balance respond to a real depreciation in the British pound in the short-run. The short-run effects last into the long-run only in 66 industries, supporting a new definition of the J-Curve.

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Estimating the Black Economy through a Monetary Approach: A Case Study of Pakistan (p.45)

by Q M Ahmed and M. Haider Hussain

Abstract: In recent years, the black economy has held enormous appeal for policy makers. Presence of black economy creates critical misrepresentation of macroeconomic variables in official estimates that lead to the false determination and delusional impact of economic policies. Similarly, black economy represents the unrecorded potential of the economy vis-à-vis resource generation and mobilization. The Economy of Pakistan underwent several minor tax reforms since 1960’s. However, the tax and tariff reform of 1990’s, committed under international pressure, was the first comprehensive exercise and therefore it becomes highly desirable to gauge its impact on the black economy and tax evasion practices. This paper, with some modifications, uses the standard monetary approach to obtain the latest estimates of the size of black economy and its macroeconomic implications thereof.

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Social Project Appraisal and Discounting for the Very Long Term (p.61)

by D Evans

Abstract: This paper considers the issue of discounting in relation to the appraisal of very long-term social projects. This is an increasingly important matter given the growing concerns over the environmental and safety impacts of many projects on future generations. Standard discounting practice trivialises the welfare impacts of projected costs and benefits on future populations, so a credible alternative procedure is required to avoid this 'write-off'. The British Treasury bases its published long-term discount factors on uncertainty concerning the value of the discount rate, although the factor values it has published seem inappropriate. The nature of this problem is examined and an alternative set of discount factors is presented for consideration. Additionally, a further set of factors is proposed for possible policy application in developed countries in cases where social project welfare impacts are not related to income. This new set is based only on uncertainty in the utility discount rate.

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Estimating the Demand for Money in an Unstable Open Economy: The Case of the Fiji Islands (p.71)

by P K Narayan and S Narayan

Abstract: In this paper, we estimate Fiji's money demand function for the period 1971-2002 based on the bounds testing approach to cointegration, which is applicable irrespective of whether or not the underlying variables are non-stationary. We estimate models with and without a time trend and for lag lengths ranging from 1-3, but fail to find any evidence for a long-run relationship. Moreover, our structural break analysis suggests that the unstable nature of Fiji's money demand may be due to atypical events, such as coups; the implementation of policies, such as devaluations and value added tax; and the onset of trade liberalisation policies over the last two decades.

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Part 2, September

Going ‘Absent’, Then Just ‘Going’? A Case Study Examination of Absence and Quitting (p.1)

by D Cassidy and J Sutherland

Abstract: This paper makes use of personnel data to examine absence, variously defined, and quitting in a call centre. It seeks to examine the hypothesis that absence and quitting are related, both being indicative of a lack of commitment on the part of the worker but offering different adjustment strategies to this problem. In the case study, absence is seen to be positively correlated with tenure, occupation and type of employment contract and negatively correlated with gender and age. The impact of the individual's operations manager is not without significance. For example the inclusion of this set of variables reduces absence, however defined, for certain occupational groups and grades. Quitting is seen to be negatively correlated with age, tenure and type of employment contract. There is a positive correlation between quitting and an individual's absence record prior to making the decision to leave, although the results are not statistically significant and the quantitative effects of the relationships are negligible.

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Financial Development in Kenya: a Dynamic Test of the Finance-led Growth Hypothesis(p.21)

by N M Odhiambo

Abstract: This study examines the direction of causality between financial development and economic growth in Kenya using a dynamic Granger causality model. The study has been motivated by the current debate on the inter-temporal causal relationship between financial development and economic growth in developing countries. The thrust of this debate has been whether there exists a finance-led growth response or a growth-led finance response between the two variables. To this end the study uses three proxies of financial development against real GDP per capita (a proxy for economic growth). The empirical results reveal that, although the causality between financial development and economic growth in Kenya is sensitive to the choice of measure for financial development, on balance the demand following response tends to predominate. The study, therefore, concludes that the argument that financial development unambiguously leads to economic growth can only be taken with a pinch of salt.

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A Dynamic Efficiency-Wage Model with Continuous Effort and Externalities (p.37)

by M Guerrazzi

Abstract: This paper provides a general equilibrium efficiency-wage model in which employment evolves according to the rules of the Shapiro-Stiglitz’s (1984) shirking model. The proposed framework allows us to endogenise in a continuous manner the effort decision undertaken by the individual worker and it may resolve the indeterminacy arising from a model with exogenous (and constant) effort. Moreover, by exploiting an externality argument, we allow the model to capture different local dynamic patterns in which are found convergent fluctuations and persistent cycles. Finally, we show that in our framework unemployment may actually act as a worker discipline device, i.e., equilibria with higher (lower) unemployment rates are also characterised by higher (lower) effort levels.

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The Evolution of Electricity Prices in The EU since the Single European Act (p.59)

by T Robinson

Abstract: The development of a single European market for electricity has been a goal of EU policy makers since the Single European Act of 1986. This paper considers the impact of EU Directives on the evolution of electricity prices. Three empirical tests for convergence are applied to prices for ten EU countries; a simple test for ß-convergence; a cointegration test; and Nahar and Inder's (2002) test. Although mixed, the results suggest that convergence did occur for most of the countries in the sample over this period.

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