Military Spending and Economic Growth

This paper proposes to test the relationship between military expenditure and economic growth by including the impact of the share of military and civilian components of government expenditure in an economic growth model with endogenous technology. In this framework, we empirically consider the hypothesis of a nonlinear effect of military expenditure on economic growth. The comparison between costs and benefits of defence sector has traditionally explained the nonlinear relationship. This paper suggests that shocks to insecurity may also be a source of nonlinearity as they determine a re-allocative effect within government expenditure. While parametric partial correlations are in line with empirical findings, the robustness of estimations is tested by using a nonparametric approach. The negative relationship between military expenditure and growth in countries with high levels of military burden predicted by theory becomes significant only after including a proxy for re-allocative effects in the growth equation.Economic growth, military burden, cross-section estimations

How Strong is the Relationship between Defence Expenditure and Private Consumption? Evidence from the United States

A long run conditional demand model is specified to provide empirical evidence on the relationship between government defence expenditure and private consumption in the United States. By assuming that government defence expenditure is exogenously determined with respect to private consumption decisions, the empirical results show a significant impact on the utility function of households and substitutable or complementary effects for specific categories of private expenditure. The findings are in line with the evidence that in aggregate it is possible to obtain a weak impact of defence expenditure on consumption.Military Expenditure; Consumption; crowding out/in;

Food Prices and Overweight Patterns in Italy

In this paper we examine the role of relative food prices in determining the recent increase in body weight in Italy. Cross-price elasticities of unhealthy and healthy foods estimated by a demand system provide a consistent framework to evaluate substitution effects, when a close association is assumed between unhealthy (healthy) foods and more (less) energy-dense foods. We used a dataset constructed from a series of cross-sections of the Italian Household Budget Survey (1997-2005) to obtain the variables of the demand system, which accounts for regional price variability. The relative increase of healthy food prices was found to produce nontrivial elasticities of substitution towards higher relative consumption of unhealthy foods, with effects on weight outcomes. In addition, these changes were unevenly distributed among individuals and were particularly significant for those who were poorer and had less education.Household Survey Data, Healthy and Unhealthy Foods, Overweight and Obesity, Elasticity of Substitution.

Innovations and Labour Market Institutions: An Empirical Analysis of the Italian Case in the middle 90’s.

In this paper a dynamic panel data specification is used to assess the relationship between labour market flexibility and innovation activities by distinguishing different technological regimes of activities and geographical areas of the Italian economy. In order to estimate the previous relationship, regional patents are included as a proxy of the innovation, while job turnover and wages represent labour market indicators. The results show that higher job turnover has a significant and negative impact on patent activities only in regional sectors of Northern Italy, while a positive and significant impact of blue and white collar wages has been generally found.Labour market flexibility, Innovation, Dynamic panel data, Endogeneous relationship.

Cointegration Rank Test and Long Run Specification: A Note on the Robustness of Structural Demand Systems

Private demand systems provide a practical application for analyzing identification issues in cointegration analysis. The paper conducts Montecarlo simulation experiments of cointegrated demand systems by assuming non-separability of government consumption. This framework enables further to test the robustness of models under alternative empirical specifications in which the homogeneity restriction is assumed to hold. The results highlight that separability of utility function with respect to government spending and the over-inclusion of lagged dependent variables introduce important bias in identifying the long run demand system, while the model specification with homogeneity restriction perform better when the theoretical hypothesis is contained in the data.Length: 34 pagesNon-separable structural models, Demand systems, Homogeneity.

A Competing Risk Model for Health and Food Insecurity in the West Bank

This paper explores the interactions between the risk of food insecurity and the decision to health insure in the Palestinian Territories. The risk of adverse health conditions is insurable; the risk of food insecurity is a background risk and no market insurance exists. The vulnerability to food insecurity influences the individual utility from health insuring. We present a competing risk model to reveal this interdependence. We specify the empirical model as a bivariate probit model and evaluate the impact of food insecurity on the household decision to health insure. We find evidence of significant complementarity between the risk of food insecurity and the propensity to health insure. The predicted conditional probabilities reveal that the propensity to health insure is higher in presence of food insecurity among Palestinian households. This study shows that, in presence of a background risk, there are complementarities among risks that policy should be mindful of.Food insecurity; Health insurance; Competing risks; Bivariate Probit

Evaluating Innovation and Labour Market Relationships: The Case of Italy

In this paper the link between labour market flexibility and innovation is analysed, paying particular attention to the different technological regimes of economic activities and the different geographical areas of the Italian economy. A dynamic panel data specification is used to assess the endogenous relationship between patents, included as a proxy of the innovation, and job turnover and wages which represent labour market indicators. The results show that higher job turnover only has a significant and negative impact on patent activities in regional sectors of Northern Italy, while a positive and significant impact of blue and white collar wages has been generally found.Labour market flexibility, Innovation, Dynamic panel data, Endogeneous relationship

Habits, Complementarities and Heterogenenity in Alcohol and Tobacco Demand: A Multivariate Dynamic Model

In this paper we test the existence of rational habit formation in a multivariate model for alcohol and tobacco consumption. The theoretical framework, based on a dynamic adjustment cost model with forward-looking behaviour, is enhanced to include the intertemporal interactions between the two goods. The analysis of the within-period preferences completes the intertemporal model, allowing to evaluate the static substitutability/complementarity relationships. The empirical strategy consists in a two step estimation procedure. In the first stage, the parameters of the demand system are obtained, while in a second stage Euler equations are estimated by a dynamic fixed-effects panel data model. Estimation results, based on a cohort dataset constructed from a series of crosssections of the ISTAT Italian Household Budget Survey, reveal a significant complementarity relationship between alcohol and tobacco. The Euler system estimation does not reject the hypothesis of intertemporal dependence, providing support for a forward-looking behaviour in alcohol and tobacco consumption. Moreover, we find significant intertemporal interactions for tobacco adjustments, while alcohol consumption seems to follow only its own adjustment dynamics.alcohol and tobacco consumption, cohort data, adjustment cost model, intertemporal interactions, GMM.

Aluminium market and the macroeconomy

We propose and test a structural model of the interaction between the aluminium market and the macroeconomy incorporating the rational expectations hypothesis. Based on a competition à la Cournot, our model predicts that aluminium spot price and inventories will respond to macroeconomic shocks to line up supply to the demand level. The model also includes incomplete adjustments to shocks that occur near the delivery date of futures contracts with the implication of a likely high persistence in the aluminium spot price. Estimation results show that the aluminium price is significantly affected by the real exchange rate, while the influence of the real interest rate is small. We argue that this result is largely expected once we consider the peculiar features of the aluminium market. Further support to this view is provided by the large persistence of the aluminium price response to its own shock and by the negligible contribution of stockholdings innovations to the price forecast error variance. Finally, macroeconomic shocks explain on the whole a relevant share of the aluminium market variables forecast error variance.Metal commodities, Monetary transmission mechanism, Rational Expectations Hypothesis test, SVAR

Regional Differences in Growth Rates: A Microdata Approach

The aim of the present study is to analyse the dynamics of regional consumption and income to explain two significant empirical evidences that have characterized Italian economy in the last two decades: (i) the fall in private saving rate; (ii) the persistence of a wide gap between consumption and income levels of Central-Northern and Southern areas of Italy. The theoretical framework adopted to investigate the effects of economic growth on saving is based on the life cycle hypothesis (LCH) (Modigliani and Brumberg, 1954). As highlighted by recent empirical works, the effect of economic growth on individual saving rates strictly depends on how labour income is affected by growth (Deaton and Paxson, 2000). In this study, we provide a measure of the impact of productivity changes across generations both at the aggregate level and among regions, by tracking income and consumption behaviours of cohorts of households. Moreover, working with household rather than individual data, we adopt an appropriate equivalence scale in order to account for the different resources and needs of each family member; this problem is particularly significant for countries like Italy, in which the presence of multigenerational household is common. The empirical analysis is based on a series of repeated cross-sections of the Bank of Italy’s Survey of Household Income and Wealth (SHIW) for the period 1989-2002 and consists in the decomposition of the cohort, age and time effects of household’s income and consumption along the line of the works of Attanasio (1998), Jappelli and Modigliani (1998), Jappelli (1999) and Kapteyn et al. (2005). The results obtained in the benchmark model show an increase in the productivity of younger generations in the Central and Northern regions together with a positive and increasing age profile for consumption, while in the South the results are floating. The basic model is successively extended by including the demographic and socio-economic characteristics of the household. From the sensitivity estimations, it clearly emerges that household composition, working status and education levels significantly affect income fluctuations in the South, playing an active role in determining the persistency of growth rate differences among regions.