Bias Correction in the Dynamic Panel Data Model with a Nonscalar Disturbance Covariance Matrix

By using asymptotic expansion techniques approximation formulae are developed for the bias of ordinary and generalized Least Squares Dummy Variable (LSDV) estimators in dynamic panel data models. Earlier results on bias approximation in first-order stable dynamic panel data models are extended to higher-order dynamic models with general disturbance covariance structure. The focus is on estimation of both short- and long-run coefficients. The results show that proper modelling of the disturbance covariance structure is indispensable. The bias approximations are used to construct bias corrected estimators which are then applied to quarterly data from 14 European Union countries. Money demand functions for M1, M2 and M3 are estimated for the EU area as a whole for the period 1991:I-1995:IV. The empirical results show that in general plausible long-run effects are obtained by the bias corrected estimators. Moreover, bias correction can be substantial underlining the importance of more refined estimation techniques. Also the efficiency gains by exploiting the heteroscedasticity and cross-correlation patterns between countries are considerable.

The impact of customer-specific marketing expenses on customer retention and customer profitability

We study the effects of customer-specific marketing expenses on customer retention and customer profitability in a business-to-business setting. Using data from a company providing hygiene services, we look at the impact of a hitherto unstudied type of expense targeted at individual customer relationships: the offering of free equipment to customers. The data allow tracking the activities performed in more than 4,500 customer relationships over a period of 4 years. Retention rates are higher for customers targeted with free equipment, but this effect results from an interaction with customer size. First-order dynamic panel data analyses show that the impact of targeted marketing expenses on customer dollar profit is positive for large customers, but there is no effect for smaller customers. Thus, targeted marketing expenses seem to be a tool for relationship maintenance rather than customer development: they help in retaining large customers that generate more profit, but they do not seem to work in developing new customers into larger, more profitable ones

The Perfect Finance Minister: Whom to Appoint as Finance Minister to Balance the Budget?

The role and influence of the finance minister within the cabinet are discussed with increasing prominence in the recent theoretical literature on the political economy of budget deficits. It is generally assumed that the spending ministers can raise their reputation purely with new or more extensive expenditure programs, whereas solely the finance minister is interested to balance the budget. Using a dynamic panel model to study the development of public deficits in the German states between 1960 and 2009, we identify several personal characteristics of the finance ministers that significantly influence budgetary performance. Namely her professional background seems to affect budget deficits. During times of fiscal stress, our results can guide prime ministers in the nominating of finance ministers in order to assure sound budgeting

Aid on Demand: African Leaders and the Geography of China's Foreign Assistance

This article investigates whether China’s foreign aid is particularly prone to political capture by political leaders of aid-receiving countries. Specifically, we examine whether more Chinese aid is allocated to the political leaders’ birth regions and regions populated by the ethnic group to which the leader belongs, controlling for indicators of need and various fixed effects. We have collected data on 117 African leaders’ birthplaces and ethnic groups and geocoded 1,650 Chinese development finance projects across 3,097 physical locations committed to Africa over the 2000-2012 period. Our econometric results show that current political leaders’ birth regions receive substantially larger financial ows from China than other regions. On the contrary, when we replicate the analysis for the World Bank, our regressions with region-fixed effects show no evidence of such favoritism. For Chinese and World Bank aid alike, we also find no evidence that African leaders direct more aid to areas populated by groups who share their ethnicity, when controlling for region-fixed effects