Category: 2019

Distinguishing Self-interest from Greed: Ethical Constraints and Economic Efficiency

2019, Authors, Steve Suranovic, Working Papers

October 2019

Steven Suranovic

IIEP working paper 2019-17

Abstract: This paper demonstrates that economic efficiency is enhanced when market participants adhere to certain ethical constraints. These ethical constraints are implicit in the neoclassical economics models, but are rarely emphasized by the economics discipline in standard texts. Avoidance of this issue has contributed to many misunderstandings including the role that individual self-interest plays in promoting economic success. This paper applies the ethical principles identified here to establish a definition for greedy behavior and to distinguish it from enlightened self-interest, which is the mode of behavior required of homo economicus. The paper offers numerous examples that show that many of the negative impressions people have about economic and business activity arise largely when market participants act greedily and therefore are not conforming to the necessary ethical restrictions on homo economicus.

JEL Codes: A2, B4, P1

Key Words: Ethics, efficiency, greed, homo economicus, self-interest, economics, business ethics

Numerological Preferences, Timing of Births and the Long-term Effect on Schooling

2019, Cheng Huang, Working Papers

October 2019

Cheng Huang, Xiaojing Ma, Shiying Zhang, Qingguo Zhao

IIEP working paper 2019-16

Abstract: Cultural beliefs may affect demographic behaviors. According to traditional Chinese astrology, babies born on auspicious days will have good luck in their lifetime, whereas those born on inauspicious days will have bad luck. Using administrative data from birth certificates in Guangdong, China, we provide empirical evidence on the short-term effects of such numerological preferences. We find that approximately 3.9% extra births occur on auspicious days and 1.4% of births are avoided on inauspicious days. Additionally, there is a higher male/female sex ratio for births on auspicious days. Since such manipulation of the birthdate is typically performed through scheduled C-sections, C-section births increase significantly on auspicious days. Moreover, we use a second dataset to examine the long-term effect of numerological preferences and find that people born on auspicious days are more likely to attend college.

Keywords: Numerological preferences. Birthdate . Timed births. Chinese astrology

JEL: I21 . Z10 .J13 . D19

Search for Yield in Large International Corporate Bonds: Investor Behavior and Firm Responses

2019, Authors, Global Governance, Tomas Williams, Working Papers

November 2019

Tomas Williams, Charles W. Calomiris, Mauricio Larrain, Sergio L. Schmukler

IIEP working paper 2019-15

Abstract: Emerging market corporations have significantly increased their borrowing in international markets since 2008. We show that this increase was driven by large denomination bond issuances, most of them with face value of exactly US$500 million. Large issuances are eligible for inclusion in important international market indexes. These bonds appeal to institutional investors because they are more liquid and facilitate targeting market benchmarks. We find that the rewards of issuing index-eligible bonds rose drastically after 2008. Emerging market firms were able to cut their cost of funds by more than 76 basis points by issuing bonds with a face value equal to or greater than US$500 million relative to smaller bonds. Firms contemplating whether to take advantage of this cost saving faced a tradeoff after 2008: they could benefit from the lower yields associated with large, indexeligible bonds, but they paid the potential cost of having to hoard low-yielding cash assets if their investment opportunities were less than US$500 million. Because of the post-2008 “size yield discount,” many companies issued index-eligible bonds, while substantially increasing their cash holdings. We present evidence suggesting that these post-2008 behaviors reflected a search for yield by institutional investors into higher-risk securities. These patterns are not apparent in the issuance of investment grade bonds by firms in developed economies.

JEL Classification Codes: F21, F23, F32, F36, F65, G11, G15, G31

Keywords: benchmark indexes, bond issuance, corporate financing, emerging markets,
institutional investors

Emerging Trade Battlefield with China: Export Competition and Firms’ Coping Strategies

2019, Global Governance, US-China, Yao Pan

October 2019

Yao Pan, Katariina Nilsson Hakkala

IIEP working paper 2019-14

Abstract: This paper analyzes how intensified Chinese export competition affects the exports and product ranges of Western firms. Using a novel identification strategy that exploits changes in Chinese export policies, we find that Chinese export competition reduces aggregate product level exports of Finland. Firm-level analysis using administrative data further shows that Chinese competition leads to substantial price cuts to retain market shares, especially for homogeneous products. In addition, we also discover that firms respond to the increased level of Chinese export competition by dropping their marginal products. Taken together, these results highlight the importance of export competition with China for developed countries.

Keywords: Trade Flows, Export Competition, Firm-level, Product Mix, China

JEL Classification: F14, F61, L25

Cities of Workers, Children or Seniors? Age Structure and Economic Growth in a Global Cross-Section of Cities

2019, Development Economics, Remi Jedwab, Uncategorized

August 2019

Remi Jedwab, Daniel Pereira, and Mark Roberts

IIEP working paper 2019-13

Abstract: A large literature documents the positive influence of a city’s skill structure on its rate of economic growth. By contrast, the effect of a city’s age structure on its economic growth has been a hitherto largely neglected area of research. We hypothesize that cities with more working-age adults are likely to grow faster than cities with more children or seniors and set out the potential channels through which such differential growth may occur. Using data from a variety of historical and contemporary sources, we show that there exists marked variation in the age structure of the world’s largest cities, both across cities and over time. We then study how age structure affects economic growth for a global cross-section of mega-cities. Using various identification strategies, we find that mega-cities with higher dependency ratios – i.e. with more children and/or seniors per working-age adult – grow significantly slower. Such effects are particularly pronounced for cities with high shares of children. This result appears to be mainly driven by the direct negative effects of a higher dependency ratio on the size of the working-age population and the indirect effects on work hours and productivity for working age adults within a city.

JEL: R10; R11; R19; J11; J13; J14; O11; N30

Keywords: Urbanization; Cities; Age Structure; Dependency Ratios; Children; Ageing; Demographic Cycles; Agglomeration Effects; Human Capital; Growth; Development

Divorce among European and Mexican Immigrants in the U.S

2019, Barry Chiswick, Development Economics, Ultra Poverty, Working Papers

August 2019

Barry Chiswick and Christina Houseworth

IIEP working paper 2019-12

Abstract: This paper analyzes the status of being currently divorced among European and Mexican immigrants in the U.S., among themselves and in comparison to the native born of the same ancestries. The data are for males and females age 18 to 55, who married only once, in the 2010-2014 American Community Surveys.

Among immigrants, better job opportunities, measured by educational attainment, English proficiency and a longer duration in the U.S. are associated with a higher probability of being divorced. Those who married prior to migration and who first married at an older age are less likely to be divorced. Those who live in states with a higher divorce rate are more likely to be divorced. Thus, currently being divorced among immigrants is more likely for those who are better positioned in the labor market, less closely connected to their ethnic origins, and among Mexican immigrants who live in an environment in which divorce is more prevalent.

Key Words: Marriage, Divorce, Minorities, Immigrants, Gender, Human Capital

JEL Codes: J12, J15, J16, J24

How Should We Measure City Size? Theory and Evidence Within and Across Rich and Poor Countries

2019, Anthony Yezer, Anthony Yezer, Development Economics and Poverty Alleviation Events, Remi Jedwab, Working Papers

August 2019

Remi Jedwab, Prakash Loungani, and Anthony Yezer

IIEP working paper 2019-11

Abstract: It is obvious that holding city population constant, differences in cities across the world are enormous. Urban giants in poor countries are not large using measures such as land area, interior space or value of output. These differences are easily reconciled mathematically as population is the product of land area, structure space per unit land (i.e., heights), and population per unit interior space (i.e., crowding). The first two are far larger in the cities of developed countries while the latter is larger for the cities of developing countries. In order to study sources of diversity among cities with similar population, we construct a version of the standard urban model (SUM) that yields the prediction that the elasticity of city size with respect to income could be similar within both developing countries and developed countries. However, differences in income and urban technology can explain the physical differences between the cities of developed countries and developing countries. Second, using a variety of newly merged data sets, the predictions of the SUM for similarities and differences of cities in developed and developing countries are tested. The findings suggest that population is a sufficient statistic to characterize city differences among cities within the same country, not across countries.

JEL Codes: R13; R14; R31; R41; R42; O18; O2; O33

Keywords: Urbanization; Cities; Urban Giants; Population; Standard Urban Model; Measurement; Urban Technology; Building Heights; Sprawl; Housing; Transportation

The Economics of Missionary Expansion: Evidence from Africa and Implications for Development

2019, Remi Jedwab, Working Papers

May 2019

Remi Jedwab, Felix Meier zu Selhausen, and Alexander Moradi

IIEP Working Paper 2019-10

Abstract: How did Christianity expand in sub-Saharan Africa to become the continent’s dominant religion? Using annual panel data on all Christian missions from 1751 to 1932 in Ghana, as well as cross-sectional data on missions for 43 sub-Saharan African countries in 1900 and 1924, we shed light on the spatial dynamics and determinants of this religious diffusion process. Missions expanded into healthier, safer, more accessible, and more developed areas, privileging these locations first. Results are confirmed for selected factors using various identification strategies. This pattern has implications for extensive literature using missions established during colonial times as a source of variation to study the long-term economic effects of religion, human capital and culture. Our results provide a less favorable account of the impact of Christian missions on modern African economic development. We also highlight the risks of omission and endogenous measurement error biases when using historical data and events for identification.

JEL Codes: N3, N37, N95, Z12, O12, O15

Keywords: Economics of Religion; Religious Diffusion; Path Dependence; Economic Development; Compression of History; Measurement; Christianity; Africa

The Average and Heterogeneous Effects of Transportation Investments: Evidence from sub-Saharan Africa 1960-2010

2019, Remi Jedwab, Working Papers

March 2019

Remi Jedwab and Adam Storeygard

IIEP Working Paper 2019-8

Abstract: Previous work on transportation investments has focused on average impacts in high- and middle-income countries. We estimate average and heterogeneous effects in a poor continent, Africa, using roads and cities data spanning 50 years in 39 countries. Using changes in market access due to distant road construction as a source of exogenous variation, we estimate an 30-year elasticity of city population with respect to market access of 0.06–0.18. Our results suggest that this elasticity is stronger for small and remote cities, and weaker in politically favored and agriculturally suitable areas. Access to foreign cities matters little.

JEL Codes: R11; R12; R4; O18; O20; F15; F16

Keywords: Transportation Infrastructure; Paved Roads; Urbanization; Cities; Africa; Market Access; Trade Costs; Highways; Internal Migration; Heterogeneity

Boom-Bust Capital Flow Cycles

2019, Authors, Graciela Laura Kaminsky, Working Papers

May 2019

Graciela Laura Kaminsky

IIEP Working Paper 2019-7

Abstract: This paper examines the new trends in research on capital flows fueled by the 2007-2009 Global Crisis. Previous studies on capital flows focused on current-account imbalances and net capital flows. The Global Crisis changed that. The onset of this crisis was preceded by a dramatic increase in gross financial flows while net capital flows remained mostly subdued. The attention in academia zoomed in on gross inflows and outflows with special attention to cross border banking flows before the crisis erupted and the shift towards corporate bond issuance in its aftermath. The boom and bust in capital flows around the Global Crisis also stimulated a new area of research: capturing the “global factor.” This research adopts two different approaches. The traditional literature on the push-pull factors, which before the crisis was mostly focused on monetary policy in the financial center as the “push factor,” started to explore what other factors contribute to the comovement of capital flows as well as to amplify the role of monetary policy in the financial center on capital flows to the periphery. This new research focuses on global banks’ leverage, risk appetite, and global uncertainty. Since the “global factor” is not known, a second branch of the literature has captured this factor indirectly using dynamic common factors extracted from actual capital flows or movements in asset prices.

Keywords: The Global Crisis, Capital flow cycles, global banks, “push” and “pull” factors, corporate borrowing, global factors, dynamic latent factor models.

JEL Codes: F30, F34, F65

 

Drug Money and Bank Lending: The Unintended Consequences of Anti-Money Laundering

2019, Development Economics, International Finance, Tomas Williams

March 2019

Tomas Williams, Pablo Slutzky, and Mauricio Villamizar-Villegas

IIEP Working Paper 2019-5

Abstract: We explore the unintended consequences of anti-money laundering (AML) policies. For identification, we exploit the implementation of the SARLAFT system in Colombia in 2008, aimed at controlling the flow of money from drug trafficking into the financial system. We find that bank deposits in municipalities with high drug trafficking activity decline after the implementation of the new AML policy. More importantly, this negative liquidity shock has consequences for credit in municipalities with little or nil drug trafficking. Banks that source their deposits from areas with high drug trafficking activity cut lending relative to banks that source their deposits from other areas. We show that this credit shortfall negatively impacted the real economy. Using a proprietary database containing data on bank-firm credit relationships, we show that small firms that rely on credit from affected banks experience a negative shock to investment, sales, size, and profitability. Additionally, we observe a reduction in employment in small firms. Our results suggest that the implementation of the AML policy had a negative effect on the real economy.

JEL Classification: K42, G18, G21

Keywords: money laundering; organized crime; financial system; bank lending; liquidity; economic growth

Agricultural extension, intra-household allocation and malaria

2019, Development Economics, Yao Pan

March 2019

Yao Pan and Saurabh Singhal

IIEP Working Paper 2019-4

Abstract: Can agricultural development programs improve health-related outcomes? We exploit a spatial discontinuity in the coverage of a large-scale agricultural extension program in Uganda to causally identify its effects on malaria. We find that eligibility for the program reduced the proportion of household members with malaria by 8.9 percentage points, with children and pregnant women experiencing substantial improvements. An examination of the underlying mechanisms indicates that an increase in income and the resulting increase in the ownership and usage of bednets may have played a role. Taken together, these results signify the importance of financial constraints in investments for malaria prevention and the potential role that agricultural development can play in easing it.

Keywords: Malaria, Intra-household Allocation, Agricultural Extension, Regression Discontinuity, Uganda

JEL Classification: I15, I12, D13, O12, Q16.

Do Constraints on Women Worsen Child Deprivations? Framework, Measurement, and Evidence from India

2019, Stephen C. Smith, Working Papers

March 2019

Stephen C. Smith, Alberto Posso and Lucia Ferrone

IIEP Working Paper 2019-2

Abstract: This paper provides a framework for analyzing constraints that apply specifically to women, which theory suggests may have negative impacts on child outcomes (as well as on women). We classify women’s constraints into four dimensions: (i) domestic physical and psychological abuse, (ii) low influence on household decisions, (iii) restrictions on mobility, and (iv) limited information access. Each of these constraints are in principle determined within households. We test the impact of women’s constraints on child outcomes using nationally representative household Demographic and Health Survey data from India, including 53,030 mothers and 113,708 children, collected in 2015-16. Outcomes are measured as multidimensional deprivations, utilizing UNICEF’s Multidimensional Overlapping Deprivation Analysis index, incorporating deficiencies in children’s access to water, sanitation, housing, healthcare, nutrition, education and information. Our preferred specification follows Lewbel, constructing internal heteroskedasticity-based instruments; and we present an array of additional econometric strategies and robustness checks. We find that children of women who are subjected to domestic abuse, have low influence in decision making, and limited freedom of mobility are more likely to be deprived. Specifically, our causal analysis uncovers a robust impact of women experiencing constraints in emotional abuse, restrictions on the use of household earnings, and freedom of movement to access health facilities, on child deprivation. We conclude that societal changes that relax constraints on women may have potential complementary benefits for their children. We recommend that analyses showing welfare gains of relaxing constraints on women account for potential additional intra-household benefits, examining other channels through which they operate.

JEL Classifications: I15, I25 I32, O15

Key Words: child deprivations, MODA, child health, child nutrition, education, bargaining, empowerment, domestic abuse, mobility restrictions, information access, gendered constraints, multidimensional measurement, Lewbel estimation, instrumental variables, matching

Works Councils and Workplace Health Promotion in Germany

2019, Development Economics, Global Governance, Stephen C. Smith, Working Papers

February 2019

Stephen C. Smith, Uwe Jirjahn and Jens Mohrenweiser

IIEP Working Paper 2019-1

Abstract: From a theoretical viewpoint, there can be market failures resulting in an underprovision of occupational health and safety. Works councils may help mitigate these failures. Using establishment data from Germany, our empirical analysis confirms that the incidence of a works council is significantly associated with an increased likelihood that the establishment provides more workplace health promotion than required by law. This result also holds in a recursive bivariate probit regression accounting for the possible endogeneity of works council incidence. Furthermore, analyzing potentially moderating factors such as collective bargaining coverage, industry, type of ownership, multiestablishment status and product market competition, we find a positive association between works councils and workplace health promotion for the various types of establishments examined. Finally, we go beyond the mere incidence of workplace health promotion and show that works councils are positively associated with a series of different measures of workplace health promotion.

JEL Classification: I18, J28, J50, J81.

Keywords: Non-union employee representation, works council, occupational health and safety, workplace health promotion.

A mHealth Voice Messaging Intervention to Improve Infant and Young Child Feeding Practices in Senegal

2019, Development Economics, Stephen C. Smith, Ultra Poverty

February 2019

Shauna Downs, Jessica Fanzo, Jozefina Kalaj, Joachim Sackey, and Stephen C. Smith

IIEP Working Paper 2019-6

Abstract: Mobile health (mHealth) interventions have the potential to improve infant and young child feeding (IYCF) practices; however, gaps in the literature remain regarding their design, implementation and effectiveness. The aims of this study were to: design a mHealth voice messaging intervention delivered to mothers and fathers targeting IYCF practices and examine its implementation and impact in households with children 6-23 months in three rural villages in Senegal. We conducted focus groups (n=6) to inform the intervention development. We then conducted a pilot study (n=47 households) to examine the impact of the intervention on IYCF practices of children 6-23 months. Voice messages were sent to the children’s mothers and fathers over a period of four weeks (2 messages/week; 8 messages in total), and 24-hour dietary recalls and food frequency questionnaires (FFQs) were conducted before and immediately after the implementation of the mHealth intervention to examine its impact on IYCF practices. Overall, 3 of the 8 behaviors increased and one decreased. There was a significant increase in the number of children that consumed fish (60% vs 94%; p=0.008) as measured by the 24-hour recall after the completion of the intervention. We also found significantly higher frequency of egg (p=0.026), fish (p=0.004) and thick porridge (p=0.002) consumption in the previous 7-days measured by the FFQ. Our findings suggest that voice messaging IYCF interventions in Senegal have the potential to improve IYCF behaviors among young children in the short term. Future research should entail scaling-up the intervention and examining its sustainability over the long-term.

JEL Classification: I15, O15; Q12

Keywords: Infant and young child feeding, mHealth, behavior change communication, nutrition, horticulture, farming groups

Pandemics, Places, and Populations: Evidence from the Black Death

2019, Climate Adaptation, Development Economics, Remi Jedwab

February 2019

Remi Jedwab, Noel D. Johnson, and Mark Koyama

IIEP Working Paper 2019-3

Abstract: The Black Death killed 40% of Europe’s population between 1347-1352, making it one of the largest shocks in the history of mankind. Despite its historical importance, little is known about its spatial effects and the effects of pandemics more generally. Using a novel dataset that provides information on spatial variation in Plague mortality at the city level, as well as various identification strategies, we explore the short-run and long-run impacts of the Black Death on city growth. On average, cities recovered their pre-Plague populations within two centuries. In addition, aggregate convergence masked heterogeneity in urban recovery. We show that both of these facts are consistent with a Malthusian model in which population returns to high-mortality locations endowed with more rural and urban fixed factors of production. Land suitability and natural and historical trade networks played a vital role in urban recovery. Our study highlights the role played by pandemics in determining both the sizes and placements of populations.

JEL: R11; R12; O11; O47; J11; N00; N13

Keywords: Pandemics; Black Death; Mortality; Path Dependence; Cities; Urbanization; Malthusian Theory; Migration; Growth; Europe

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