Economic Issues Volume 18

ECONOMIC ISSUES

Volume 18 (2013)

Part 1, March

Please select from the titles below:

S Pressman, Justice and History: the big problem of Wilt Chamberlain, Vol.18, No.1, p.1-16
A H Ahmad, N Aziz and S Rummun, Interest Rate Pass-through in the UK: Has the Mechanism Changed during the Financial Crisis? Vol.18, No.1, p.17-38
E Makedonas and S Tsopoglou, Does Accounting for Foreign Capital Flows Help to Solve the Feldstein and Horioka puzzle? The Case of Norway, Vol.18, No.1, p.39-56
B Philp and D Wheatley, European Work Time Regulation, Surplus-Value and Underemployment among Full-Time Employees: A Cross-Sectional Analysis using the 2009 EU LFS, Vol.18, No.1, p.57-74

Part 2, September

Please select from the titles below:

Part 1, March

Justice and History: the big problem of Wilt Chamberlain (p.1)

by S Pressman

Abstract:It is well-known that income inequality has risen sharply in the US and in other developed countries of late. One obvious economic solution to high and rising inequality, government redistribution, raises philosophical questions regarding ethics or fairness. In Anarchy, State and Utopia, Robert Nozick raises just such questions. He argues that people have the right to acquire things that result from their sweat and their effort, as long as enough remains for others. Once property is acquired, people have the right to transfer it to others. His famous Wilt Chamberlain example gives this argument concreteness. Nozick has us imagine people attending a basketball game and freely giving Wilt $1. In this case, Wilt is legitimately entitled to this money. And what is true of Wilt is true of everyone else. Redistribution by the government is therefore neither fair nor just. This paper provides a four-pronged rebuttal to the Wilt Chamberlain example from an economic perspective. First, the Wilt Chamberlain example begins with an assumption that is not likely to be true in the real world-that initial distributions, stretching back in history, are by-and-large just. Second, there is a sort of fallacy of composition in Nozick's argument that is similar to the adding-up problem in economics. Third, good evidence exists that allowing people to freely contribute to Wilt would not yield fair results and there is further evidence that it would hurt others and likely also hurt Wilt. Finally, for John Locke and for the Wilt Chamberlain example, sufficient things must be left over for others at the time property is acquired. This ignores future generations and whether there will be sufficient property available for them..

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Interest Rate Pass-Through in the UK: Has the Transmission Mechanism Changed During the Financial Crisis? (p.17)

by A H Ahmad, N Aziz and S Rummun

Abstract: Interest rate has been the monetary policy tool used by the modern central banks. For monetary policy to be effective, changes in the policy rate should influence the short-term money market rate and retail rates. Using an error correction methodology, this paper examines the short-run and long-run dynamics
of interest rate pass through from the LIBOR to four different UK retail rates. The results indicate that interest rate pass-through in the UK is incomplete in the short run, but fairly complete in the long-run and the adjustment of retail rates depend on whether they are below or above their respective long-run values. The results also indicate a temporary, but statistically significant change in the interest rate pass-through since the beginning of the financial crisis in 2007.

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Does Accounting for Foreign Capital Flows help to solve the Feldstein and Horioka Puzzle? The Case of Norway (p.39)

by E Makedonas and S Tsopoglou

Abstract: A new proxy variable for the investment part of the initial Feldstein and Horioka model is proposed. We denominate it 'modified gross fixed capital formation'. It is derived by subtracting the imports of fixed assets included in an economy's gross fixed capital formation from the gross fixed capital formation itself. This way, the exclusively domestic part of an economy's investment is isolated. Applying it in the case of Norway, the aforementioned approach significantly reduces or even eliminates the high autocorrelation inherent in the initial Feldstein and Horioka model specification. Norway appears to be characterized by a high degree of international capital mobility.

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European Work Time Regulation, Surplus-Value and Underemployment among Full-Time Employees: A Cross-Sectional Analysis using the 2009 EU LFS (p.57)

by B Philp and D Wheatley

Abstract: This paper investigates surplus-value rates and work time patterns among fulltime workers in five European Union economies — France, Germany, Italy, Spain and the UK — using macroeconomic EUROSTAT data and individual-level data extracted from the 2009 Labour Force Survey. This is considered in terms of the constituent drivers of the rate of surplus-value, in particular working hours. France and the UK are of most interest in terms of work time regulation because of the exceptional nature of their relationship to the European Working Time Directive, 1993 (WTD). The UK is characterised by absolute surplus-value production, whereas we can partially attribute low levels of surplus-value in France to fewer working hours. While this signals some success for workers, evidence indicates the WTD may also have had repercussions for income levels and the family. In the French case reductions in hours may have also depressed real wages (somewhat counteracting the effect of reduced hours in producing low levels of surplus-value), causing underemployment for some, particularly in the 'technicians and associate professionals' and 'all other occupations' categories.

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Part 2, September

Schooling, BMI, Height and Wages: Panel Evidence on Men and Women (p.1)

by A M Kedir

Abstract: While the link among wage, BMI, height and schooling has often been estimated based on US data, this study investigates this relationship using panel data for a developing country — Ethiopia. Controlling for endogeneity of schooling and BMI, our findings indicate that wage is significantly affected by education, height and BMI for the overall sample. Disaggregation by gender shows the absence of wage penalties due to higher BMI. Height is found to be a significant factor affecting men’s wage but not of women. Returns to schooling are significant, but more beneficial for women than men. We provide policy implications of our findings.

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Globalisation and Income Gap between Rich and Poor Nations (p.19)

by K Elmawazini and S Nwankwo

Abstract: Set against the background of initial relatively low cross-country income and considerable poverty and deprivation in Sub-Saharan Africa (SSA), the question of whether globalisation is associated with a 'catching up' in terms of real income growth, in absolute and relative terms, is both relevant and important. This paper contributes to the empirical literature by investigating globalisation as a channel of income gap reduction between SSA and developed countries. We employ Globalisation Indexes from the Konjunkturforschungsstelle (KOF) and the Centre for the Study of Globalisation and Regionalisation (CSGR) in an Arellano-Bond dynamic panel GMM specification to test the hypothesis that globalisation has reduced the income gap between SSA and developed countries. We find no evidence that globalisation is associated with a reduction between SSA and developed countries over the period 1980-2009. This result is consistent with previous studies on country's absorptive capacity. An implication of this result for policy theorists is that structural features of SSA output require a more heterodox approach to all dimensions of human development.

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Unconventional Monetary Policy in the UK: A Modern Money Critique (p.41)

by T Sharpe and M Watts

Abstract: The ongoing Global Financial Crisis (GFC) has posed a growing challenge to the implementation of monetary stimulus measures in both sovereign (e.g. US, UK, Japan) and non-sovereign (eurozone) economies. With the policy rate close to the zero nominal bound, the UK has relied on quantitative easing, ostensibly to improve market liquidity and/or stimulate economic activity, despite being freed from the policy constraints of a non-sovereign economy. The evidence regarding the macroeconomic effects of quantitative easing is, however, largely inconclusive. Meanwhile, UK growth forecasts have been revised downwards but, at the time of writing, the government remains committed to its fiscal austerity programme. In this paper we explore the origins of quantitative easing, its underlying objectives, the theoretical arguments for its use and the empirical evidence concerning its impact. Our analysis focuses on the policies of the Bank of England since the advent of the GFC, and is informed by the principles of Modern Monetary Theory.

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Market power, stability and performance in the Chinese banking industry (p.65)

by Y Tan and C Floros

Abstract: The recent financial crisis has led to a reduction in credit granted, a decreased volume of activity in international financial markets and an increase in risk-taking behaviour. Several rounds of banking reforms in China have aimed to improve the efficiency, enhance the financial stability and decrease the market power of Chinese banks. The aim of this study is to investigate whether an increase in the risk-taking behaviour of Chinese banks increases market power; we also examine whether efficiency improvement enhances Chinese banks' market power. Using data on 101 Chinese commercial banks over the period 2003-2011, our empirical results suggest that Chinese banks with higher volumes of non-traditional activities have lower market power, while the technical efficiency improvement of Chinese banks increases their market power. We find no significant evidence with regards to the impact of risk on market power. These results are highly recommended to bank managers and financial analysts.

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Output volatility in the OECD: Are the member states becoming less vulnerable to exogenous shocks? (p.91)

by J M Andraz and N M Norte

Abstract: This paper analyses the vulnerability of OECD member states to external shocks by estimating the degree of asymmetric effects from positive and negative shocks. We use asymmetric conditional heteroscedasticity models with endogenously determined regime changes in a context of progressive moderation in both moments. The results suggest that recessions are associated with higher volatility and significant leverage effects. The estimated impacts of negative and positive shocks amount to 0.961 and 0.028 respectively. The disaggregated analysis over different periods reveals an increasing pattern of these asymmetries, as well as huge differences among the countries. The country-specific analysis suggest an increasing vulnerability to negative exogenous shocks in Australia, Denmark, Finland, Japan, Mexico, the Netherlands, Turkey and the United Kingdom, although with different levels, and decreasing vulnerability in Canada, Greece, Italy and New Zealand. Finally, some economies seem to have developed higher levels of immunity to external shocks by reaching balanced effects from positive and negative shocks. Among these are the largest European economies, together with the northern economies, the United States and the wealthiest economies of Luxembourg and Switzerland.

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