Working Papers

Authors: Rabah Arezki, Sambit Bhattacharyya, Nemera Mamo

Jun 2015

The empirical relationship between natural resources and conflict in Africa is not very well understood. Using a novel geocoded dataset on resource discovery and conflict we are able to construct a quasi-natural experiment to explore the causal effect (giant and major) oil and mineral discoveries on conflict in Africa at the grid level corresponding to a spatial resolution of 0.5 x 0.5 degree covering the period 1946 to 2008. Contrary to conventional wisdom, we find no evidence of natural resources triggering conflict in Africa after controlling for grid-specific fixed factors and time varying common shocks. Resource discovery appears to have improved local income measured by nightlights which could be reducing the conflict likelihood. We observe little or no heterogeneity in the relationship across resource type, size of discovery, pre and post conclusion of the cold war, and institutional quality. The relationship remains unchanged at the regional and national levels.

JEL Codes: D72, O11

Keywords: Resource discovery; Conflict onset; Conflict incidence; Conflict intensity

Reference: 159

Individual View

Authors: Julio Martinez-Galarraga, Francisco Beltrán Tapia

Jun 2015

By collecting a large dataset in mid-19th century Spain, this paper contributes to the debate on institutions and economic development by examining the historical link between land access inequality and education. This paper analyses information from the 464 districts existent in 1860 and confirms that there is a negative relationship between the fraction of farm labourers and literacy rates. This result does not disappear when a large set of potential confounding factors are included in the analysis. The use of the Reconquest as a quasi-natural experiment allows us to rule out further concerns about potential endogeneity. Likewise, by employing data on schooling enrolment rates and number of teachers, this paper explores the mechanisms behind the observed relationship in order to ascertain to which extent demand or supply factors are responsible for it. Lastly, the gender composition of the data, which enables distinguishing between female and male literacy levels, together with boys and girls schooling enrolment rates, is also examined.

Keywords: economic history, inequality, land access inequality, education inequality, Spain, Pre-Industrial Spain

Reference: 137

Individual View

Authors: Francesco Zanetti

May 2015

This paper investigates the effect of …financial shocks using an estimated gen-
eral equilibrium model that links the …firm's ‡flows of …financing with labor market
variables. The results show that fi…nancial shocks have sizeable effects on …financial
variables, vacancy posting, unemployment and wages. Shocks to the job destruc-
tion rate are important in describing ‡fluctuations in unemployment. The analysis
also investigates the underlying driving forces of some key comovements in the
data.

JEL Codes: E32, E44

Keywords: Business cycle, labor market frictions, financial shocks.

Reference: Number 746

Individual View

Authors: Robin Winkler

May 2015

How good was the standard of living in pre-war Nazi Germany? Some historians have argued that household food consumption in the 1930s was at least as high as in the Weimar Republic, in spite of militarisation. This article provides new evidence against this view by demonstrating that food price controls significantly distorted consumption patterns. We estimate that involuntary substitution effects cost average working-class households 7% of their disposable income. Consumer welfare in Nazi Germany was thus meaningfully lower than observed consumption levels and prices suggest. Our finding is based on microeconometric welfare analysis of detailed budget data for 4,376 individual German households surveyed in 1927 and 1937.

JEL Codes: N14, N34, D12, D52

Keywords: economic history, economic development, standard of living, consumer welfare, Germany

Reference: 136

Individual View

Authors: Francesco Zanetti, Konstantinos Theodoridis

Apr 2015

We enrich a baseline RBC model with search and matching frictions on the labor market and real frictions that are helpful in accounting for the response of macroeconomic aggregates to shocks.  The analysis allows shocks to have an unanticipated and a new (i.e. anticipated) component.  The Bayesian estimation of the model reveals that the model which includes news shocks on macroeconomic aggregates produces a remarkable fit of the data.  News shocks in stationary and non-stationary TFP, investment-specific productivity and preference shocks significantly affect labor market variables and explain a sizeable fraction of macroeconomic fluctuations at medium- and long-run horizons.  Historically, news shocks have played a relevant role for output, but they have had a limited influence on unemployment.

JEL Codes: E32, C32, C52

Keywords: Anticipated productivity shocks, Bayesian SVAR methods, labour market search frictions

Reference: 745

Individual View

Authors: Pablo Astorga

Apr 2015

This paper presents a new consistent yearly series of gross income (between-group) inequality Ginis for four occupational categories in Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela over the period 1900-2011 using a newly assembled wage dataset.  The approach used differentiates labour by skill level and allows for changing allocation of the labour force over time.  Profits and rents are calculated as a residual.  Our regional Gini shows a changing secular process with a reclined "S" shape with an inflection point around 1940 and a peak in the 1990s.  There are mixed country trends in the early and middle decades, but in most cases inequality was on the rise in the 1960s.  There was also a tendency for narrowing wage inequality in the middle decades of the last century - at the time of the Great Levelling in the developed economies - but whose impact was more than off-set by a rising share of the top group.  Inequality in the 20th century is a story of increased polarisation - particularly post 1970 - amid significant social mobility.

JEL Codes: N36, O15, O54

Keywords: economic history, economic development, income inequality, Latin America

Reference: 135

Individual View

Authors: Luke Samy

Apr 2015

Data from two different primary sources were used to construct indices of house prices (HPI) and rents (RRPI) of residential property located in London and the Home Counties between 1895 and 1939.  The indices were derived using the hedonics method of price index measurement, which extracts the variation in prices due to differences in the quality of dwellings that form the sample across different time periods.  Both nominal and real HPIs and RRPIs are reported in the paper, as well as simple summary statistics on the levels of house prices and rental values, years purchase and returns on housing for a selected number of boroughs in London over time.

Keywords: housing, rents, inflation, building societies

Reference: 134

Individual View

Authors: Samuel Wills

Mar 2015

How should capital-scarce countries manage their volatile oil revenues? Existing literature is conflicted: recommending both to invest them at home, and save them in sovereign wealth funds abroad. I reconcile these views by combining a stochas- tic model of precautionary savings with a deterministic model of a capital-scarce resource exporter. I show that both developed and developing countries should build an offshore Volatility Fund, but refrain from depleting it when oil prices fall because it cannot be known when, or if, they will rise again. Instead, consump- tion should adjust and only the interest on the fund should be consumed. To do this I develop a parsimonious framework that nests a variety of existing results as special cases, which I present in four principles: for capital-abundant countries, i) smooth consumption using a Future Generations Fund, and ii) build a Volatility Fund quickly, then leave it alone; and for capital-scarce countries, iii) consume, in- vest and deleverage, and iv) invest part of the Volatility Fund domestically, then leave it alone.

JEL Codes: D81, E21,F43,H63,O13,Q32,Q33

Keywords: Natural resources, oil, volatility, sovereign wealth fund, precautionary saving, capital scarcity, anticipation

Reference: 154

Individual View

Authors: Rick Van der Ploeg, Mark Kaga, Cees Withagen

Mar 2015

Industria imports oil, produces final goods and wishes to mitigate global warming. Oilrabia exports oil and buys final goods from the other country. Industria uses the carbon tax to impose an import tariff on oil and steal some of Oilrabia’s scarcity rent. Conversely, Oilrabia has monopoly power and sets the oil price to steal some of Industria’s climate rent. We analyze the relative speeds of oil extraction and carbon accumulation under these strategic interactions for various production function specifications and compare these with the efficient and competitive outcomes. We prove that for the class of HARA production functions the oil price is initially higher and subsequently lower in the open-loop Nash equilibrium than in the efficient outcome. The oil extraction rate is thus initially too low and in later stages too high. The HARA class includes linear, loglinear and semi-loglinear demand functions as special cases. For non-HARA production functions Oilrabia may in the open-loop Nash equilibrium initially price oil lower than the efficient level, thus resulting in more oil extraction and climate damages. We also contrast the open-loop Nash and efficient outcomes numerically with the feedback Nash outcomes. We find that the optimal carbon tax path in the feedback Nash equilibrium is flatter than in the open-loop Nash equilibrium. It turns out that for certain demand functions using the carbon tax as an import tariff may hurt consumers’ welfare as the resulting user cost of oil is so high that the fall in welfare wipes out the gain from higher tariff revenues.

JEL Codes: C73, H30, Q32, Q37, Q54

Keywords: exhaustible resources, Hotelling rule, efficiency, carbon tax, climate rent, differential game, open-loop Nash equilibrium, subgame-perfect Nash equilibrium, HARA production functions

Reference: 155

Individual View

Authors: James Cust, Stevem Poelhekke

Mar 2015

Whether it is fair to characterize natural resource wealth as a curse is still debated. Most of the evidence derives from cross-country analyses, providing cases both for and against a potential resource curse. Scholars are increasingly turning to within-country evidence to deepen our understanding of the potential drivers, and outcomes, of resource wealth effects. Moving away from cross-country studies offers new perspectives on the resource curse debate, and can help overcome concerns regarding endogeneity. Therefore, scholars are leveraging datasets which provide greater disaggregation of economic responses and exogenous identification of impacts.

This paper surveys the literature on these studies of local and regional effects of natural resource extraction. We discuss data availability and quality, recent advances in methodological tools, and summarize the main findings of several areas of research. These include the direct impact of natural resource production on local labor markets and welfare, the effects of government spending channels resulting from mining revenue, and regional spillovers. Finally, we take stock of the state of the literature and provide suggestions for future research.

Keywords: survey, mining, Dutch disease, identification, spillovers

Reference: 156

Individual View

Authors: Andrew Mell, Simon Radford, Seth Alexander Thevoz

Mar 2015

Trust in political institutions has declined across developed democracies.  One of the main reasons cited for this lack of trust in public opinion polls has been the role of money in politics.  The Supreme Court decisions in Citizens United and McCutcheon, amongst others, have increased the political salience of potential campaign finance reforms, and the Great Recession has reinvigorated a public debate on regulatory capture by Wall Street.  So too scholars have taken up the topic with renewed vigor.  Political scientists have tried to tackle the issue in two main steps: firstly, by showing that money can buy access to legislators; and secondly, that legislators are thereby more responsive to the wishes of donors when writing and voting on laws.  Researchers have used experiments and other techniques to show that Congressional staffs are more responsive to requests from donors compared to others, and have also shown aggregate trends in responsiveness to the preferences of the wealthier. In this paper we try and go one step further: to show that donors can become legislators.  We do this by looking at a novel example: the United Kingdom's appointed Second Chamber, the House of Lords.  Compiling an original dataset of large donations and nominations for "peerages" that allow them to take a seat in the Lords, the authors show that, when the "usual suspects" for a position, like former MPs and party workers, are accounted for, donations seem to play an outsize role in accounting for the remaining peers.  Given the widespread concern at undue influence accorded to large donors, understanding the extent of how donations influence politics and evaluating proposals for democratic renewal should be a major concern of political scienes.

JEL Codes: K42, P48

Keywords: Illegal Behaviour, IlIicit Trade

Reference: 744

Individual View

Acceleration of global warming resulting from a future carbon tax is large if the price elasticities of oil demand are large and that of oil supply is small. The fall in the world interest rate weakens this weak Green Paradox effect, especially if intertemporal substitution is weak. Still, social damages from greenhouse gases drop if the fall in oil supply and cumulative emissions is strong enough. If the current carbon tax is set too low, the second-best future carbon tax is set below the first best too to mitigate adverse Green Paradox effects. Unilateral second-best optimal carbon taxes exceed the first-best taxes due to an import tariff component. The intertemporal terms of trade effects of the future carbon tax increase current and future tariffs and those of the current tax lower the current tariff. Finally, carbon leakage and globally altruistic and unilateral second-best optimal carbon taxes if non-Kyoto oil importers price carbon too low are analysed in a three-country model of the global economy.

JEL Codes: D62, D90, H22, H23, Q31, Q38, Q54

Keywords: unilateral carbon taxes, intertemporal terms of trade, tax incidence, Green Paradox, asset tax, carbon leakage, second best, global altruism, unburnt fossil fuel

Reference: 157

Individual View

Authors: Beata Javorcik, Esther Ann BolerKaren Helene Ulltveit-Moe

Mar 2015

While the impact of globalization on income inequality has received a lot of attention, little is known about its effect on the gender wage gap (GWG).  This study argues that there is a systematic difference in the GWG between exporting firms and non-exporters.  By the virtue of being exposed to higher competition, exporters require greater commitment and flexibility from their employees.  If commitment is not easily observable and women are perceived as less committed workers than men, exporters will statistically discriminate against female employees and will exhibit a higher GWG than non-exporters.  We test this hypothesis using matched employer-employee data from the Norwegian manufacturing sector from 1996 to 2010.  Our identification strategy relies on an exogenous shock, namely, the legislative changes that increased the length of the parental leave that is available only to fathers.  We argue that these changes have narrowed the perceived commitment gap between the genders and show that the initially higher GWG observed in exporting firms relative to non-exporters has gone down after the changes took place.

JEL Codes: F10, F14, F16, J16

Keywords: Exporters, Globalization, Gender Wage Gap

Reference: 743

Individual View

Authors: Sara Horrell, Deborah Oxley

Mar 2015

Gender bias against girls in nineteenth-century England has received much interest but establishing its existence has proved difficult.  We utilise data on heights of 16,402 children working in northern textile factories in 1837 to examine whether gender bias was evident.  Current interpretations argue against any difference.  Here our comparisons with modern height standards reveal greater deprivation for girls than for boys.  But this result cannot be taken at face value.  We query whether modern standards require adjustment to account for the later timing of puberty in historical populations and develop an alternative.  Gender discrimination remains, although its absence amongst younger children precludes an indictment of culturally-founded gender bias.  The height data must remain mute on the source of this discrimination but we utilise additional information to examine some hypotheses: occupational sorting, differential susceptibility to disease, poorer nutrition for girls, disproportionate stunting from the effects of nutritional deprivation, and type and amount of work undertaken, specifically labour additional to paid work in the domestic sphere.  Of these, we favour housework as the main culprit, factory girls undertook more physical labour than factory boys and this was reflected in disproportionate stunting.  The 'double burden' was, and remains, a form of gender discrimination.

Reference: 133

Individual View

Authors: Bary S.R. Pradelski

Feb 2015

Individual behaviors such as smoking, fashion, and the adoption of new products is influenced by taking account of others' actions in one's decisions.  We study social influence in a heterogeneous population and analyze the long-run behavior of the dynamics.  We distinguish between cases in which social influence arises from responding to the number of current adopters, and cases in which social influence arises from responding to the cumulative usage.  We identify the equilibria of the dynamics and show which equilibrium is observed in the long-run.  We find that the models exhibit different behaviour and hence this differentiation is of importance.  We also provide an intuition for the different outcomes.

JEL Codes: C62, C70, D70, G00

Keywords: social influence, imitation, equilibrium selection

Reference: 742

Individual View

Authors: Dominik Karos

Feb 2015

We provide a model of coalitional bargaining with claims in order to solve games with non-transferable utilities and externalities.  We show that, for each such game, payoff configurations exist which will not be renegoiated.  In the original game derived from these payoff configurations, we can find a partition in which no group of players has an incentive to jointly change their coalitions.  For games without externalities this partition and the corrresponding payoffs constitute a strong Nash equilirium in a strategic form game with complete information.  We use our model to provide a common framework for a variety of solutions for cooperative games, bargaining problems and bankruptcy problems.

JEL Codes: C71, C78, G34

Keywords: Games with non-transferable utilities in partition function form, Bargaining with claims, Ordinal games, Core stable partitions, Non-cooperative coalition formation

Reference: 741

Individual View

Authors: Michel Beine, Serge Coulombe, Wessel Vermeulen

Jan 2015

This paper evaluates whether immigration can mitigate the Dutch disease effects associated with booms in natural resource sectors. We derive predicted changes in the size of the non-tradable sector from a small general-equilibrium model `a la Obstfeld-Rogoff. Using data for Canadian provinces, we find evidence that aggregate immigration mitigates the increase in the size of the non-tradable sector in booming regions. The mitigation effect is due mostly to interprovincial migration and temporary foreign workers. There is no evidence of such an effect for permanent international immigration. Interprovincial migration also results in a spreading effect of Dutch disease from booming to non-booming provinces.

JEL Codes: F22, O15, R11, R15

Keywords: Natural Resources, Dutch Disease, Immigration, Mitigation Effect

Reference: 151

Individual View

Authors: Yehuda Levy

Jan 2015

Mertens and Parthasarathy (1987) proved the existence of sub-game perfect equilibria in discounted stochastic games.  Their method involved new techniques in dynamic programming, which were presented in a very general framework, with no expense spared in highlighting versatility and scope.  This paper presents the fundamentals of their technique which are necessary, as well as identifies and elaborates on the components of their method, hence giving the core of the proof in a much more concise, direct, and illuminating manner.

JEL Codes: C62, C65, C73

Keywords: Stochastic Games, Equilibrium Existence, Subgame-Perfect Equilibrium

Reference: 739

Individual View

Authors: Ying-Ying Lee

Jan 2015

We study the role of the propensity scores in estimating treatment effects for the treated with a multi-valued treatment.  Assume assignment to one of the multiple treatments is random given observed characteristics.  Valid causal comparisons for the subpopulation who has been treated a particular treatment level are based on two propensity scores - one for the treatment level and one for the counterfactual level.  In contrast to the binary treatment case, these two propensity scores do not add up to one.  This is the key feature that allows us to distinguish different roles of the propensity scores and to provide new insight in well-known paradoxes in the binary treatment effect and missing data literature.  We formally show that knowledge of the propensity score for the treated level decreases the semiparametric efficiency bound, regardless of knowledge of the propensity score for the counterfactual level.  We propose efficient kernel regression estimators that project on a nonparametrically estimated propensity score for the counterfactual level and the true propensity score for the treated level.  A surprising result is implied for the binary treatment effect for the treated: when the propensity scores are known, using one estimated propensity score is not efficient.  Our efficient estimator regresses on a normalized propensity score that utilizes the information contained in the nonparametrically estimated and the true propensity scores.

JEL Codes: C01, C14, C21

Keywords: propensity score, multi-valued treatment, semiparametric efficiency bound, unconfoundedness, generated regressor

Reference: 738

Individual View

Authors: Alan Beggs

Jan 2015

This paper studies learning in monotone Bayesian games with one-dimensional types and finitely many actions. Players switch between actions at a set of thresholds.  A learning algorithm under which players adjust their strategies in the direction of better ones using payoffs received at similar signals to their current thresholds is examined.  Convergence to equilibrium is shown in the case of supermodular games and potential games.

JEL Codes: C72, D83

Keywords: bayesian games, monotone strategies, learning, stochastic approximation, supermodular games

Reference: 737

Individual View

Authors: Alexander Naumov

Jan 2015

We propose a simple structural model of the upstream sector in the oil industry to study the determinants of costs with a focus on its relationship with the price of oil. We use the real oil price, data on global drilling activity and costs of drilling to estimate a three-dimensional VAR model. We use short run restrictions to decompose the variation in the data into three structural shocks. We estimate the dynamic effects of these shocks on drilling activity, costs of drilling and the real price of oil. Our main results suggest that (i) a 10% increase (decrease) in the oil price increases (decreases) global drilling activity by 4% and costs of drilling by 2% with a lag of 4 and 6 quarters respectively; (ii) positive shocks to drilling activity affect the oil price negatively; (iii) shocks to costs of drilling do not have a permanent effect on the price of oil.

JEL Codes: Q31

Keywords: Natural Resource Extraction, Crude Oil Price, Upstream Cost

Reference: 152

Individual View

Authors: Rabah Arezki, Valerie A Ramey, Liugang Sheng

Jan 2015

This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ̶ the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time.

JEL Codes: E00, F3, F4

Keywords: news shocks, current account, saving, investment, employment, oil, discovery

Reference: 153

Individual View

Authors: Rebecca K Scott

Dec 2014

A recent surge of literature on tax salience has included studies that use tax type as a proxy for salience.  The relationship between tax type and salience is not always apparent, however, nor is salience the only feature by which taxes differ.  In fact, taxes' behaviour over time suggests an alternative explanation for consumers' tax sensitivity: rational habits or forward-looking investment.  Consumers affected by these intertemporal issues will be more responsive to price components that carry stronger signals about future prices-price components such as the specific taxes posited to be particularly salient.  This paper develops a model to disentangle and test for tax salience and rational habits effects.  Differentiating the two effects is important, as they carry vastly different policy implications: tax salience implies that publicity and nominal incidence matter; rational habits imply all that matters is an instrument's effects on price behaviour.  Examining the case of beer demand, I find evidence that favours a rational habits mechanism over a salience effect.  Examining the case of gasoline demand, I find rational habits to be the more plausible explanation for consumers' sensitivity to specific taxes, though a salience effect cannot be ruled out definitively.

JEL Codes: D12, Q41, H30

Keywords: gasoline demand, tax salience, rational habits, price elasticity

Reference: 736

Individual View

Authors: David Hendry, Jurgen A. Doornik

Dec 2014

Big Data offer potential benefits for statistical modelling, but confront problems like an excess of false positives, mistaking correlations for causes, ignoring sampling biases, and selecting by inappropriate methods.  We consider the many important requirements when searching for a data-based relationship using Big Data, and the possible role of Autometrics in that context.  Paramount considerations include embedding relationships in general initial models, possibly restricting the number of variables to be selected over by non-statistical criteria (the formulation problem), using good quality data on all variables, analyzed with tight significance levels by a powerful selection procedure, retaining available theory insights (the selection problem) while testing for relationships being well specified and invariant to shifts in explanatory variables (the evaluation problem), using a viable approach that resolves the computational problem of immense numbers of possible models.

JEL Codes: C51, C22

Keywords: Big Data, Model Selection, Location Shifts, Autometrics

Reference: 735

Individual View

Authors: Erik Mohlin, Robert Ostling, Joseph Tao-yi Wang

Nov 2014

We exploit a unique opportunity to study how a large population of players in the field learn to play a novel game with a complicated and non-intuitive mixed strategy equilibrium.  We argue that standard models of belief-based learning and reinforcement learning are unable to explain the data, but that a simple model of similarity-based global cumulative imitation can do so.  We corroborate our findings using laboratory data from a scaled-down version of the same game, as well as from three other games.  The theoretical properties of the proposed learning model are studied by means of stochastic approximation.

JEL Codes: C72, C73, L83

Keywords: Learning, imitation, behavioral game theory, evolutionary game theory, stochastic approximation, replicator dynamic, similarity-based reasoning, generalization, mixed equilibrium

Reference: 734

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