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ECONOMIC ISSUES

Volume 24 (2019)

Part 1, March

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Part 1, March

Spillover Effects of Foreign Direct Investment: Evidence from the West Midlands of England (p.1)

by C Li and Y Luo

Abstract: This paper investigates the spillover effects of inward foreign direct investment (FDI) on firm-level productivity growth in the West Midlands of England for 2,198 firms operating in 75 industries over the period 2004–2011. In contrasts to earlier literature that emphasises the importance of backward linkages in both advanced and emerging market economies, our empirical analysis suggests there are strong forward spillovers from FDI taking place, through the linkages between foreign affiliates and their local consumers in downstream sectors in the West Midlands. However, we only find zero or weak positive spillover effects through backward and horizontal linkages.

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Income and Ethnic Fractionalisation: Evidence from British Microdata (p.21)

by S A Churchill

Abstract: Are income levels of a population affected by the degree of ethnic diversity in the population? This study attempts to answer this question, contributing to both the literature on the determinants of income, and the debate on the implications of ethnic diversity. Specifically, we examine the effects of ethnic diversity on household income. We argue that variations in the degree of ethnic diversity across British neighbourhoods can explain a substantial part of the differences in income levels. Using data from the European Values Study, we measure diversity using indices of ethnic fractionalisation for British neighbourhoods, and measure income using household income. We adopt econometric methods that account for endogeneity and find evidence of a negative effect of ethnic diversity on income. We further propose several potential channels that link ethnic fractionalisation to income. Specifically, we explore trust, social capital, discrimination and inequality as important channels through which ethnic diversity influences income. Results are robust to several sensitivity checks.

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Voting Behaviour and the Economy: Evidence from Greece (p.35)

by E Goulas, C Kallandranis and A Zervoyianni

Abstract: This paper examines the relationship between Greek voters’ behaviour and the economy, paying particular attention to the effect on two non-traditional, antisystemic parties, Syriza and Golden Dawn. We use data based on actual vote shares across 13 Greek peripheries from four general elections over the period 2004–2012. Our results are in accordance with the prediction of the punishmentsanctioning model, namely that incumbents are supported by voters in good times, whereas voters punish them during bad times. In this vein, we document that worsening economic conditions since 2008 have led the Greek electorate to reduce support for traditional parties and move to non-traditional populist parties, like the left-wing Syriza and the ultra-right-wing Golden Dawn. Yet we find an asymmetry between these two non-systemic parties: while electoral support for Syriza is found to be strongly influenced by changes in per-capita GDP growth and unemployment, this is not the case for Golden Dawn. Indeed, our estimates suggest that the increased electoral support for Golden Dawn has been related mainly to the forced fiscal deficit cuts associated with Greece’s bailout programme. This suggests that the Greek electorate does not believe that Golden Dawn can effectively address the country’s economic problems.

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Does the Impact of Aid for Trade on Export Product Diversification depend on Structural economic policies in Recipient-Countries (p.59)

by S K Gnangnon

Abstract: This paper examines the extent to which Aid for Trade interventions interact with long-term structural economic policies in recipient countries, to affect these countries’ export product diversification path. These include trade policy, international financial policy and domestic financial development. We additionally consider institutional and governance quality which, by contributing to the promotion of a supportive business environment, could also alter countries’ path of export product diversification. The analysis focuses on 112 countries over the period 2002–2015 and uses the system Generalised Method of Moments approach. Results suggest that Aid for Trade is conducive to export product diversification in countries that implement greater trade policy liberalisation, or have greater financial openness, or better institutional and governance quality. However, Aid for Trade tends to enhance export product concentration in countries with higher levels of financial development.

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