Productivity and per capita GDP growth: the role of the forgotten factors

Average hourly productivity has often been used to draw conclusions on long run per capita GDP growth, based on the assumption of full utilization of labour resources. In this paper, we argue that a failure to recognize the potentially significant wedges among the two variables – even in the long run - can be misleading. By applying both time series and panel cointegration techniques on data on 19 OECD countries, we fail to reject the hypothesis of absence of a long run common stochastic trend among the two variables in the period 1980-2005. Furthermore, we apply a simple decomposition of GDP growth into five variables, included some related to the supply-side and demographics, so to verify the single contributions to income growth and variance over our period of interest. We conclude that variables that have been so far absent in the growth literature have indeed a non-negligible role in explaining the dynamics of long run per capita GDP growth. In particular, these “forgotten factors” (that we identify with the employment and the activity rates and a demographic ratio) matter more in better performing economies, where we also highlight that productivity has been less important in determining GDP growth than in relatively bad performers.Growth accounting; productivity; panel cointegration; demographics.

Unit Root Tests for Panels in the Presence of Short-run and Long-run Dependencies: Nonlinear IV Approach with Fixed N and Large T

An IV approach, using as instruments nonlinear transformations of the lagged levels, is explored to test for unit roots in panels with general dependency and heterogeneity across cross-sectional units. We allow not only for the cross-sectional dependencies of innovations, but also for the presence of cointegration across cross-sectional levels. Unbalanced panels and panels with differing individual short-run dynamics and cross-sectionally related dynamics are also permitted. Panels with such cross-sectional dependencies and heterogeneities appear to be quite commonly observed in practical applications. Yet, none of the currently available tests can be used to test for unit roots in such general panels. We also more carefully formulate the unit root hypotheses in panels. In particular, using order statistics we make it possible to test for and against the presence of unit roots in some of the individual units for a given panel. The individual IV t-ratios, which are the bases of our tests, are asymptotically normally distributed and cross-sectionally independent. Therefore, the critical values of the order statistics as well as the usual average statistic can be easily obtained from simple elementary probability computations. We show via a set of simulations that our tests work well, while other existing tests fail to perform properly. As an illustration, we apply our tests to the panels of real exchange rates, and find no evidence for the purchasing power parity hypothesis, which is in sharp contrast with the previous studies.

Export diversification and resource-based industrialization: the case of natural gas

For resource-rich economies, primary commodity specialization has often been considered to be detrimental to growth. Accordingly, export diversification policies centered on resource-based industries have long been advocated as effective ways to moderate the large variability of export revenues. This paper discusses the applicability of a mean-variance portfolio approach to design these strategies and proposes some modifications aimed at capturing the key features of resource processing industries (presence of scale economies and investment lumpiness). These modifications help make the approach more plausible for use in resource-rich countries. An application to the case of natural gas is then discussed using data obtained from Monte Carlo simulations of a calibrated empirical model. Lastly, the proposed framework is put to work to evaluate the performances of the diversification strategies implemented in a set of nine gas-rich economies. These results are then used to formulate some policy recommendations

Modeling the determinants of exports and imports: assessment of the Macedonian competitive performances

So far Macedonia has undergone an unsuccessful attempt to transition, distinguished by low growth rates, high unemployment, extensive poverty, balance of payments unfavorable position, technological lag etc. The external sector, as a core element to growth perspectives of a small open economy is critically dependant upon the export competitiveness. Consequently, this paper will address some critical points of the Macedonian economy, particularly the vulnerability of the external sector alongside with the price and trade liberalization. The set of analyses is to be carried out to explore the foreign trade structure, current account developments, as well as the major aspects of qualitative competitiveness. In addition, we have examined the impact of macroeconomic variables on exports and imports within the selected timeframe. We have therefore applied a comprehensive approach of dynamic modeling based upon a vector - autoregression model determined to control for endogeneity and set to estimate the long - run equilibrium relations, as well as the short-run dynamics of the key variables.exports, imports, competitiveness, vector - autoregression model

Seasonal cointegration and the stability of the demand for money

Studies on money demand in both developed and developing countries coincide in reporting systematic over predictions of monetary aggregates, non-robust estimated parameters and out-of-sample forecast variances that are too large to guide monetary policy. Several explanations have been given for these failures, including dynamic misspecification, omitted variables such as financial innovations, and non observed components. This paper explores an alternative, simpler way to approach the instability of money demand using seasonal-cointegration techniques. Using Chilean data we find that seasonal cointegrating vectors exist and, when omitted from the estimation, account for a substantial fraction of the observed instability in money demand functions. Because seasonal cointegrating vectors act as additional long-run restrictions, they can substantially reduce the variance of forecast errors. The estimated demand for money in Chile is remarkably stable in spite of the profound structural and financial reforms carried out throughout the 1977-2000 period, parameters are robust and similar to those suggested by economic theories.

Exchange rate arrangements and misalignments: contrasting words and deeds

The paper studies the misalignment2-exchange rate regime linkages by pursing three avenues. First, does misalignment vary across alternative de jure and de facto exchange rate systems? Second, can these misalignment-effects be explained by different probabilities of undervaluation and overvaluation episodes? Lastly, does delivering the promised exchange rate regime pay off? The regression analysis reveals that misalignment is larger in fixed systems, with middle income and the CFA countries displaying the largest effect. This result likely stems from more (less) frequent overvaluation (undervaluation) episodes. Intermediate regimes are found to be associated with a smaller misalignment in middle income countries and a larger misalignment in low and high income countries. But only in the latter does this misalignment-impact appear to result from more frequent overvaluation episodes. In the other groups of countries it may come from over and undervaluation episodes with different magnitudes.equilibrium real exchange rate; misalignment; exchange rate regimes

Effects of financial and non-financial information disclosure on prices’ mechanisms for emergent markets: The case of Romanian Bucharest Stock Exchange

The issuance of the European Union Regulation (EC) 1606/2002 and the 2007 adoption of the Markets and Financial Instruments Directive in Romania determined us to sett the goal of the present study at investigating the impact of public information disclosure on market values in the case of the Romanian companies listed on Bucharest Stock Exchange. Our focus is mainly on comparing the value relevance of Internet disclosed information provided by annual and interim financial reports and other non-financial news in the decision making process of investors. Consistent with the literature, we anticipate a positive and significant incremental relevance of such information items, even if an important non-uniformity of prices’ adjustments can be expected. In order to have a benchmark for our results, we compare these with the ones specific to a more developed market, the Madrid Stock Exchange. Empirical tests support our research hypothesis according to which there will be a relative incremental value of a higher volume and a better quality of information, reflecting prices’ overreactions even in the case of a market with imperfect trading mechanisms.KEY WORDS Disclosure, Valuation, Bucharest Stock Exchange, Madrid Stock Exchange