Demographic Structure and the Security of Property Rights in Developing Countries – An Empirical Exploration

It is often argued that countries with a high population share of children and young workers should attract large capital inflows from aging industrialized economies. However, many of these countries deter foreign investors by a high risk of creeping or outright expropriation. In this paper we explore whether the correlation between countries’ demographic structure and the perceived security of property rights reflects a causal relationship. We show that, once we control for other potential determinants of expropriation risk, the ratio of young to old workers has a positive effect on the perceived security of property rights in low-income countries. This effect is the stronger the more democratic the political system.International investment; political economy; expropriation risk; demographics

The Demographics of Expropriation Risk

It is often argued that capital should flow from aging industrialized economies to countries with fast-growing populations. However, institutional failures and the risk of expropriation substantially reduce developing economies’ attractiveness for foreign investors. We analyze the influence of a country’s demographic structure on international investment, using a political-economy model in which population growth potentially affects the risk of expropriation. We first explore how redistributive expropriation affects the welfare of different age groups and derive the government’s incentive to expropriate. We then analyze how the relative size of different generations influences the feasible volume of foreign investment

How to Tackle the Gulf of Aden Buccaneers

The surge of maritime piracy in the Gulf of Aden is often related to lawlessness and poverty in Somalia. We set up a simple model to describe the choice of becoming a pirate in a setting with an industrialized and a developing country which both engage in fishing in the same waters. As a result of fishing competition, maritime piracy as an alternative to fishing becomes more attractive in the developing country. We further investigate possible measures for the industrialized country to deal with piracy. --Maritime Piracy,Expropriation,Migration

Demographics and Factor Flows – A Political Economy Approach

We investigate the effect of population aging on international factor flows in a political-economy framework. Political barriers to immigration in developed countries and insecure property rights in developing countries impede factor flows. Taking into account different generations’ conflicting attitudes towards immigration and expropriation, we explore how these policy barriers interact. We find that incentives to expropriate increase as more emigration from the developing country takes place. Meanwhile, the industrialized country admits less immigrants as less capital is allocated to the developing country. Furthermore, the effects of population aging on international factor flows are considerably underestimated if one does not take into consideration the interactions between immigration and expropriation policies.Demographic change; political economy; migration; foreign direct investment

Why Don't Labor and Capital Flow Between Young and Old Countries?

To counter the effects of population aging in rich industrialized countries, raising immigration from and raising capital exports to younger developing countries are often seen as alternative solutions. In this paper, we explicitly account for mobility constraints in the form of immigration restrictions in industrialized countries and expropriation risk in developing countries to investigate whether efficiency gains from factor movements are likely to be realized. We set up a one-period general equilibrium model of two economies with young and old individuals. Emigration from the developing country weakens its young generation's expropriation preferences, permitting more FDI. However, if the bulk of capital is invested abroad, the old investor's utility gain from immigration is low. Our model suggests that large differences in age structures do not unambiguously encourage large factor flows, when the level of factor flows is determined by policy. --Demographic Change,Political Economy,Immigration Policy,International Investment

Das RWI-Kurzfristprognosemodell

Dieser Beitrag stellt das Kurzfristprognosemodell vor, welches das RWI zur Prognose der Veränderungsrate des vierteljährlichen BIP in Deutschland verwendet. Es basiert auf einer großen Zahl monatlicher Indikatoren, die nach Maßgabe ihres zusätzlichen Beitrags zur Erklärung des BIP angeordnet werden. Dieser Rangfolge entsprechend, wird die Auswahl von Indikatoren herangezogen, mit der in der Vergangenheit die beste Prognoseleitung erzielt wurde. Auf Quartalsdaten aggregiert, fließen die ausgewählten Indikatoren in ein System von Brückengleichungen ein, bei denen die Veränderungsrate des saisonbereinigten vierteljährlichen BIP entweder auf einen Indikator, oder auf einen Indikator und verzögerte Werte des BIP, oder auf eine Kombination von zwei Indikatoren regressiert werden. Die geschätzten Koeffizienten werden anschließend für die Prognose des BIP verwendet. Am aktuellen Rand fehlende Monatswerte werden unter Berücksichtigung saisonaler Sondereffekte autoregressiv geschätzt. Das Modell generiert eine große Zahl von Einzelprognosen, deren Mittelwert als BIP-Prognose interpretiert wird. Um deren Robustheit zu überprüfen, wird sie mit anderen Prognosen verglichen, die mit Hilfe komplexerer Gewichtungsschemata abgeleitet werden. Für Deutschland zeigt sich, dass eine Auswahl von nicht mehr als 30 Indikatoren von insgesamt 117 getesteten die Prognosegüte des Modells maximiert.This paper introduces the short term forecasting model, which is used as a forecasting tool for the German GDP at the RWI. The model is based on a number of targeted monthly predictors selected from a large set of potential indicators. The selection is conducted by means of a soft-thresholding algorithm, which ranks the whole set of potential indicators according to their marginal predictive power. Based on this order, we evaluate the past forecast precision of various subsets to identify our targeted predictors. In what follows, we set up a system of bridge equations, in which quarterly GDP growth is regressed on quarterly aggregates of the targeted predictors. The regression equations either consist of one indicator, one indicator plus lagged values of GDP, or a combination of two different indicators as explanatory variables. Estimated in sample, the regression coefficients enter the forecast equations. To tackle the ragged edge problem, the respective missing monthly indicator values are forecast by means of autoregressive model, augmented by seasonal information with regards to unusual weather and the scheduling of summer vacation. To pool the plethora of single forecasts, we calculate the mean of them, but check the robustness of mean forecasts with regards to using pooling schemes which account for models' past forecast errors. We find that forecast errors are lowest using less than 30 from the 117 available indicators

The Demographics of Expropriation Risk

It is often argued that capital should flow from aging industrialized economies to countries with fast-growing populations. However, institutional failures and the risk of expropriation substantially reduce developing economies' attractiveness for foreign investors. We analyze the influence of a country's demographic structure on international investment, using a political-economy model in which population growth potentially affects the risk of expropriation. We first explore how redistributive expropriation affects the welfare of different age groups and derive the government's incentive to expropriate. We then analyze how the relative size of different generations influences the feasible volume of foreign investment

Forecasting House Prices in Germany

In the academic debate there is a broad consensus that house price fluctuations have a substantial impact on financial stability and real economic activity. Therefore, it is important to have timely information on actual and expected house price developments. The aim of this paper is to measure the latest price movements in different real estate markets in Germany and forecast near-term price developments. Therefore we construct hedonic house price indices based on real estate advertisements on the internet platform ImmobilienScout24. Then, starting with a naive AR(p) model as a benchmark, we investigate whether VAR and ARDL models using additional macroeconomic information can improve the forecasting performance as measured by the mean squared forecast error (MSFE). While these models reduce the forecast error only slightly, forecast combination approaches enhance the predictive power considerably..House price forecasts; forecast combination; hedonic price index

Why don't labor and capital flow between young and old countries?

In this paper we investigate the twofold effect of demographics on international factor flows in a model with endogenous policy constraints on both foreign direct investment and migration. Factor price differences between industrialized and developing countries create economic incentives for migration to developed countries and for capital flows to less developed countries. However, political barriers to immigration in developed countries and expropriation risks in developing countries impede labor and capital flows. Using a political economy approach that takes into account different generations’ conflicting attitudes towards immigration and expropriation, we explore how these policy restrictions interact. We find that, in the presence of mobility constraints, larger demographic differences between countries need not result in an increase of factor flows

How to Tackle the Gulf of Aden Buccaneers

The surge of maritime piracy in the Gulf of Aden is often related to lawlessness and poverty in Somalia. We set up a simple model to describe the choice of becoming a pirate in a setting with an industrialized and a developing country which both engage in fishing in the same waters. As a result of fishing competition, maritime piracy as an alternative to fishing becomes more attractive in the developing country. We further investigate possible measures for the industrialized country to deal with piracy