Remittances and Reverse Flows in Developing Countries

This paper demonstrates that a significant portion of remittances is no longer available for domestic resource mobilization when they are used for debt servicing, capital flight, or reserve accumulation (reverse flows)

A structural analysis on Gravity of Trade: on removing distance from the model

The Gravity Model is the workhorse for empirical studies in International Economies for its empirical power and it is commonly used in explaining the trade flow between countries; it relies on a function that relates the trade with the masses of the two countries and the distance (as a proxy of the trasport costs) between them. However, the notion that using of distance functions in conventional interaction models effectively captures spatial dependence in international flows has long been challenged. It has been recently fully recognized that a spatial interaction effect exists essentially due to the spatial spillover and the third country effect. This motivates the introduction of the spatial autoregressive components in the so-called spatial gravity model of trade. A so-called weight matrix is used in order to define the set of the spatial neighbors and it is traditionally based on the inverse of the distance. Two issues follow from this standard procedure: the first regards the biasness of the distance if it is used as a proxy of the transport costs in a panel data, the second is related to the collinearity emerging if we use distance twice. So, several attempt were made in the recent literature having the scope of remove the distance. We propose a theoretically consistent procedure based on Anderson, Van Wincoop derivation model, and some ad-hoc tests, relating to this attempt. The empirical results based on a 22-years panel of OECD countries are conforting, and they allow us to estimate the model without the distance, if properly replaced by a set of fixed effects. This article, in addition, fits in the dispute about how to estimate the multilateral resistance terms.Comment: 17 page

On the German Monetary Transmission Mechanism: Interest Rate and Credit Channels for Investment Spending

The transmission channels through which monetary policy affects business investment remain opaque. This paper examines the importance of the interest rate and credit channels on business fixed investment in Germany. We have at our disposal three uniquely rich datasets -- a panel of financial statement data for 6,408 firms (44,345 datapoints) supplemented with user costs of capital and confidential measures of creditworthiness. We uncover a statistically significant interest rate channel. Its economic significance can be sizeable, but depends on auxiliary assumptions. Sorting firms with our direct measure of creditworthiness, we find that credit constraints are important for a subset of firms. Sortings by firm size or dividend payout ratios shed some light on continuing debates in the literature.

Indirect Network Effects in New Product Growth

Indirect network effects are of prime interest to marketers because they affect the growth and takeoff of software availability for, and hardware sales of, a new product. While prior work on indirect network effects in the economics and marketing literature is valuable, these literatures show two main shortcomings. First, empirical analysis of indirect network effects is rare. Second, in contrast to the importance the prior literature credits to the chicken-and-egg paradox in these markets, the temporal pattern – which leads which? – of indirect network effects remains unstudied. Based on empirical evidence of nine markets, this study shows, among others, that: (1) indirect network effects, as commonly operationalized by prior literature, are weaker than expected from prior literature; (2) in most markets we examined, hardware sales leads software availability, while the reverse almost never happens, contradicting existing beliefs. These findings are supported by multiple methods, such as takeoff and time series analyses, and fit with the histories of the markets we studied. The findings have important implications for academia, public policy and management practice. To academia, it identifies a need for new, and more relevant, conceptualizations of indirect network effects. To public policy, it questions the need for intervention in network markets. To management practice, it downplays the importance of the availability of a large library of software for hardware technology to be successful.Chicken-and-Egg;New Product Growth;Indirect Network Effects;Takeoff

Further Evidence On The Relationship Between Firm Investment And Financial Status

The interpretation of the significant relation between business investment spending and cash flow has been controversial. A large body of research has found that investment/cash flow sensitivities are higher for financially constrained firms. This fundamental result underlying the finance constraints hypothesis has been challenged recently by Kaplan, Zingales, and Cleary. The latter author introduces an important new element to this debate by using discriminant analysis, which allows creditworthy firms to be identified using an objective ex-ante criterion based on dividend payouts. Consistent with the Kaplan and Zingales critique, investment/cash flow sensitivities are lower for financially constrained firms. This short paper documents that the use of discriminant analysis does not necessarily lead to lower sensitivities. Our contrasting results are traceable to the use of the firm's creditworthiness as the discriminating variable and appropriate adjustments for endogenous regressors and serially correlated residuals. We document that the investment/cash flow sensitivity is higher for financially constrained firms. -- Die Interpretation der signifikanten Beziehung zwischen unternehmerischen Investitionsausgaben und dem Cash-Flow ist umstritten. Eine größere Anzahl von Forschungsarbeiten kommt zu dem Ergebnis, dass die Sensitivität der Investitionen bezüglich des Cash-Flow bei finanziell beschränkten Unternehmen höher liegt. Dieses für die Theorie finanzieller Beschränkungen grundlegende Resultat wurde in jüngerer Zeit von Kaplan, Zingales und Cleary in Zweifel gezogen. Der letztgenannte Autor führte ein wichtiges neues Element in die Debatte ein: Finanziell beschränkte Unternehmen werden von ihm mit Hilfe eines diskriminanzanalytischen Verfahrens identifiziert, also eines objektiven ex-ante Kriteriums. Im Einklang mit der Kritik von Kaplan und Zingales findet er bei finanziell beschränkten Unternehmen eine geringere Cash-Flow-Sensitivität. Dieses kurze Papier dokumentiert, dass eine diskriminanzanalytische Vorgehensweise nicht notwendigerweise zu einem derartigen Resultat führt. Unsere abweichenden Ergebnisse basieren einerseits auf der Identifikation finanziell beschränkter Unternehmen auf der Basis ihrer Kreditwürdigkeit, andererseits aber auf der Berücksichtigung endogener Regressoren und seriell korrelierter Residuen bei der Schätzung. Wir zeigen auf, dass die Cash-Flow-Sensitivität der Investitionsausgaben bei finanziell beschränkten Unternehmen höher ist.

Flow of non-Newtonian Fluids in Converging-Diverging Rigid Tubes

A residual-based lubrication method is used in this paper to find the flow rate and pressure field in converging-diverging rigid tubes for the flow of time-independent category of non-Newtonian fluids. Five converging-diverging prototype geometries were used in this investigation in conjunction with two fluid models: Ellis and Herschel-Bulkley. The method was validated by convergence behavior sensibility tests, convergence to analytical solutions for the straight tubes as special cases for the converging-diverging tubes, convergence to analytical solutions found earlier for the flow in converging-diverging tubes of Newtonian fluids as special cases for non-Newtonian, and convergence to analytical solutions found earlier for the flow of power-law fluids in converging-diverging tubes. A brief investigation was also conducted on a sample of diverging-converging geometries. The method can in principle be extended to the flow of viscoelastic and thixotropic/rheopectic fluid categories. The method can also be extended to geometries varying in size and shape in the flow direction, other than the perfect cylindrically-symmetric converging-diverging ones, as long as characteristic flow relations correlating the flow rate to the pressure drop on the discretized elements of the lubrication approximation can be found. These relations can be analytical, empirical and even numerical and hence the method has a wide applicability range.Comment: 36 pages, 14 figures, 5 table

Derivation of a cost model to aid management of CNC machine tool accuracy maintenance

Manufacturing industries strive to produce improved component accuracy while not reducing machine tool availability or production throughput. The accuracy of CNC production machines is one of the critical factors in determining the quality of these components. Maintaining the capability of the machine to produce in-tolerance parts can be approached in one of two ways: run to failure or periodic calibration and monitoring. The problem is analogous to general machine tool maintenance, but with the clear distinction that the failure mode of general machine tool components results in a loss of production, whereas that of accuracy allows parts to be produced, which are only later detected as non-conforming as part of the quality control processes. This distinction creates problems of cost-justification, since at this point in the manufacturing chain, any responsibility of the machine is not directly evident. Studies in the field of maintenance have resulted in cost calculations for the downtime associated with machine failure. This paper addresses the analogous, unanswered problem of maintaining the accuracy of CNC machine tools. A mathematical cost function is derived that can form the basis of a strategy for either running until non-conforming parts are detected or scheduling predictive CNC machine tool calibrations. This is sufficiently generic that it can consider that this decision will be based upon different scales of production, different values of components etc. Therefore, the model is broken down to a level where these variables for the different inputs can be tailored to the individual manufacturer

Instrumental variables quantile regression for panel data with measurement errors

This paper develops an instrumental variables estimator for quantile regression in panel data with fixed effects. Asymptotic properties of the instrumental variables estimator are studied for large N and T when Na/T ! 0, for some a > 0. Wald and Kolmogorov-Smirnov type tests for general linear restrictions are developed. The estimator is applied to the problem of measurement errors in variables, which induces endogeneity and as a result bias in the model. We derive an approximation to the bias in the quantile regression fixed effects estimator in the presence of measurement error and show its connection to similar effects in standard least squares models. Monte Carlo simulations are conducted to evaluate the finite sample properties of the estimator in terms of bias and root mean squared error. Finally, the methods are applied to a model of firm investment. The results show interesting heterogeneity in the Tobin’s q and cash flow sensitivities of investment. In both cases, the sensitivities are monotonically increasing along the quantiles

Export, FDI and Productivity – Evidence for French Firms

The decision of companies to enter international markets, either via exports or foreign direct investment (FDI), has been postulated by the self-sorting model of Helpman, Melitz and Yeaple (HMY, 2004). In the strict sense, the theoretical predictions of HMY only apply to firms that become engaged in marketdriven (horizontal) FDI. Hence, in this paper we apply more precise methodologies to test the HMY hypothesis. First, we classify MNEs according to the underlying motives for investing abroad (market-driven vs. resource-driven FDI). Second, we highlight the role of productivity growth in the post-entry period.Our findings suggest that productivity affects the FDI decision considerably whereas expected feedback and learning effects of FDI on productivity are remarkably lower.We further detect that more market-driven MNEs exhibit a higher productivity than comparatively less market-driven MNEs.Foreign direct investment, horizontal and vertical FDI, multinational enterprises, productivity