The real interest parity (RIP) condition combines two cornerstones in international finance, uncovered interest parity (UIP) and ex ante purchasing power parity (PPP). The extent of deviation from ...\{RIP\} is therefore an indicator of the lack of product and financial market integration. This paper investigates whether the nominal exchange rate regime has an impact on RIP. The analysis is based on 15 annual real interest rates and covers a long time span, 1870–2006. Four subperiods are distinguished and linked to fixed and flexible exchange rate regimes: the Gold Standard, the interwar float, the Bretton Woods system and the current managed float. Panel integration techniques are applied to increase the power of the tests, where cross section correlation is embedded via common factor structures. The results suggest that \{RIP\} holds as a long run condition irrespectively of the nominal exchange rate regime. However, adjustment towards \{RIP\} is affected by both the institutional framework and the historical episode. Half lives of shocks tend to be lower under fixed exchange rates and in the first part of the sample. Although barriers to trade and capital controls have been removed, they did not lead to lower half lives during the managed float.
This paper examines the relationship between foreign direct investment (FDI) and income distribution in the host country as measured by the Gini coefficient. After providing some background and ...reviewing the extant literature, it undertakes a panel unit root and cointegration analysis that tests whether FDI has a non-linear impact on income inequality in seven selected Southeast Asian countries over the period 1990 to 2013. The paper finds strong evidence for panel cointegration using the Pedroni Augmented Dickey Fuller (ADF) and Phillips-Perron (PP) tests. Thus, it proceeds to utilize the group-mean fully modified ordinary least squares (FMOLS) procedure to generate long-run estimates that are unbiased and consistent. The FMOLS estimator is also extremely accurate even in panels with very heterogeneous serial correlation dynamics, fixed effects, and endogenous regressors. The results confirm the hypothesis that FDI inflows tend to raise income inequality in the short run but reduce it in the long run. In this study, the Gini index starts decreasing after FDI inflows as a percentage of GDP reaches 5.6. The fact that the Gini coefficient reaches its maximum at a relatively low level of FDI inflows suggests that sample countries are endowed with substantial absorptive capacity. In other words, they will shift into the new technological paradigm quickly, thus supporting pro-globalization claims that, on balance, FDI is more beneficial than harmful.
The article develops a resource drag model based on the endogenous growth theory, and provides fresh empirical evidence to estimate the drags for China by using the recently developed panel model ...with both cross-sectional dependences and structural breaks. The results indicate that there exists a long-run equilibrium relationship between GDP and its inputs, and both the land and water resources have significantly positive impacts on GDP except from some provinces after allowing for cross-sectional heterogeneities and structure breaks. In addition, the study employs the common correlated effects estimators to investigate the resource drags at both the pooled and individual levels. The result shows that the aggregate drag reduces annual growth rate by about 0.016 percentage points in China as a whole while there exist significant differences in both these disaggregate and aggregate drags for the province-groups, suggesting there is a fair amount of geographic clustering for them.
This article attempts to differentiate between the debatable tax and spend, spend and tax, fiscal synchronization and institutional separation hypotheses in order to explore empirically the interplay ...between public expenditures and public revenues in the Economic and Monetary Union (EMU) member states. For this purpose, panel data models are derived to test the validity of the four hypotheses in EMU countries. A notable characteristic of this article is that the four hypotheses are tested by dividing EMU countries into various subgroups and using disaggregated data for government expenditures and revenues. Seeking for the robustness of the empirical evidence, the panel data methods of Generalized Two-Stage Least Squares (GTSLS) and Generalized Method of Moments (GMM) are accordingly applied to identify the relationship between public outlays and taxation receipts. GTSLS and GMM results strongly support the fiscal synchronization hypothesis implying that budget decision-making is significantly influenced by both government expenditures and revenues components.
This article examines the long-run money demand function for 11 OECD countries from 1983Q1 to 2006Q4 using panel data. The distinction between common factors and idiosyncratic components using ...principal component analysis allows for the detection of cross-member cointegration and the determination as to whether national or international sources are responsible for the non-stationarity of money and its determinants. Indeed, the finding that the common factors are
I
(1) while the idiosyncratic components are
I
(0) indicates that cross-member cointegration may exist and non-stationarity in the variables is primarily driven by common international trends. Furthermore, it is found that the impact of income on money demand is positive, whereas it is negative for the interest rate, exchange rate and stock prices. Except for the income elasticity of money demand, all estimated long-run coefficients are larger for the common factors of the variables than for the variables themselves. This article provides evidence that the exchange rate is an important determinant of money demand, whereas the results for the stock prices are ambiguous. Finally, the results of a panel-based error-correction model suggest that several domestic money stocks converge to a common international equilibrium relationship between the common factors.
Panel cointegration techniques applied to pooled data for 50 developed and developing economies for the period 1970–2000 indicate that savings and investment are non-stationary and cointegrated, that ...there are marked differences in saving–retention ratios between different country groups, and that retention ratios have fallen.
The paper examines the behavior of a generalized version of the nonlinear IV unit root test proposed by Chang (
2002
) when the series’ errors exhibit nonstationary volatility. The leading case of ...such nonstationary volatility concerns structural breaks in the error variance. We show that the generalized test is not robust to variance changes in general, and illustrate the extent of the resulting size distortions in finite samples. More importantly, we show that pivotality is recovered when using Eicker-White heteroskedasticity-consistent standard errors. This contrasts with the case of Dickey-Fuller unit root tests, for which Eicker-White standard errors do not produce robustness and thus require computationally costly corrections such as the (wild) bootstrap or estimation of the so-called variance profile. The pivotal versions of the generalized IV tests – with or without the correct standard errors – do however have no power in
-neighbourhoods of the null. We also study the validity of panel versions of the tests considered here.
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