Current Research

Alvin Etang, David Fielding and Stephen Knowles

Trust and social distance in Cameroon

In this research we use experimental data collected in rural Cameroon to quantify the extent to which people are more trusting of people in their own village than they are of people in a neighbouring village. Trust is measured using the Trust Game. To test for the possibility that Senders in the Trust Game may be motivated by unconditional kindness, Senders also play a Triple Dictator Game. In addition, to test for the possibility that Senders are motivated by attitudes to risk, Senders also play a Risk Game.

Daniel Farhat

Endogenous Labour Supply, International Trade and Macroeconomic Dynamics

This paper shows that the way labour supply is determined in a model of international business cycle transmission affects how well the model can replicate business cycle co-movement and match the empirical regularities of the labour market. Using a popular model (Ghironi and Melitz, 2005) and incorporating endogenously determined labour supply, the model is able to match many stylized facts in the presence of frictionless asset trade when there are mild income effects present in labour supply. When there are high costs to buying foreign assets, labour supply without income effects is shown to be vital in producing international co-movement.

Daniel Farhat

Capital Accumulation, Non-traded Goods and International Macroeconomic Dynamics with Heterogeneous Firms

This paper incorporates capital accumulation into a popular international business cycle model (Ghironi and Melitz, 2005) by adding capital inputs to final, non-traded goods production. The model shows that shocks to the production of traded intermediate inputs are not sufficient to replicate the dynamic features of imports, exports, the terms of trade and the real exchange rate. When shocks to final goods production are present, the model can better replicate both international co-movement and the volatility of international trade.

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Daniel Farhat and Viktoria Kahui

Virtual Boundaries in New Zealand Waters: An Agent-based Model of Fishing Quota Value

This study identifies the impact of marine protected areas (MPAs) on holders of fishing quotas in New Zealand by constructing a virtual environment populated by agents with individual characteristics and private information. Based on imposed behavioural rules, individuals interact with each other and react to the world around them, generating emergent aggregate market patterns. This model is intended to show how individuals respond to policies that do not yet exist and to predict potential impacts to the market for fishing quotas.

Daniel Farhat

Virtual Scientific Practice and the Rise and Fall of Research Programmes

This study constructs a virtual environment populated by scientific researchers, each with individual abilities and private information. Based on simple rules, scientists choose how much of their natural ability to spend on emerging research, how closely they follow established scientific practices (i.e. adhere to existing scientific research programmes) and how much to interact with other scientists in their field. The model is intended to show how scientific research programs rise and fall and determine whether or not a “true”, unique scientific approach will exist.

David Fielding (with S. Torres, Ministry of Industry, Uruguay, and M. McGillivray, Deakin University and AusAID)

Structural models of social and economic development

This project extends existing work on inequality and economic development by developing structural models to identify bi-directional relationships between income inequality and other indicators of social and economic development. Overall, lower inequality is associated with improvements in other development indicators, but this is the result of several complex interactions. The most striking feature of the structural model is the insight it provides into the reasons behind the negative "Africa dummy" in previous cross-country growth studies.

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David Fielding (with A. Shortland, University of Leicester)

1. The civil war in Peru

This project looks at the factors influencing changes in the intensity of the civil war in Peru over the period 1982-1997. We look at the ways in which Peruvian government and rebel forces respond to actions by the enemy, to economic conditions and to economic and military interventions by foreign governments.

2. The economics of insurgency and political repression in Egypt

This project looks at the different ways in which the intensity of state-insurgent conflict in Egypt interacts with economic factors. It includes studies of the impact of the conflict on different sectors of the Egyptian economy, focussing particularly on the financial sector and on tourism.

David Fielding (with K. Shields, University of Melbourne)

Distributional consequences of monetary policy

This project looks at the impact of monetary policy on disaggregated prices and unemployment in several different monetary areas. Prices are disaggregated both by commodity type and by region within the monetary area. In this way we can see the extent to which the impact of policy on the poor (with a greater risk of unemployment and a different consumption profile) differs from the impact on the rich, and whether there is any regional heterogeneity in these effects.

David Fielding and Stephen Knowles

Aid per capita or aid as a share of GDP: What matters for economic growth?

An influential paper by Burnside and Dollar argues that aid leads to higher rates of economic growth, but only in countries with good economic policies. We argue that this result hinges crucially on whether aid is measured as a ratio of GDP, or as aid per capita.

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David Fielding

Aid allocation and governance

Using panel data on aid to individual developing countries, this project examines the recipient characteristics that motivate donor aid allocations. When aid is disaggregated by sector (for example, when we look at health aid or emergency relief), it appears that relative deprivation is one of the factors influencing aid allocations. However, recipient country political characteristics also matter. Some – but by no means all – of these are characteristics that impact on aid effectiveness.

David Fielding (with S. Adrianova, University of Leicester, B. Baltagi, University of Syracuse and P. Demetriades, University of Leicester)

Excess liquidity in African banking

In this project we develop a theoretical model to explore the reasons why African banks have much higher liquidity ratios than banks in other parts of the world. The model focuses on the types of moral hazard and adverse selection that are likely to be a particular feature of credit markets in Africa. The predictions of the model are tested using panel data on the characteristics and asset choices of individual African banks.

Arlene Garces-Ozanne (with Maria Varua, University of Western Sydney)

Short-run Macroeconomic Determinants and Impact on the Philippine Economy of Remittances

This paper examines the macroeconomic determinants of remittance flows to the Philippines over the period January 1989 to March 2008, including other potential macroeconomic determinants of remittances like natural disasters and the political situation in the remittance receiving country that other studies have not previously included in the analysis. This paper also examines carefully the time series properties of the relevant variables as well as the short-run and long-run relationships among the variables of interest. We also estimate an error correction model (ECM) with time-varying parameters (TVP) to allow for the probability that some coefficients may be time-varying.

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Arlene Garces-Ozanne and Stephen Knowles (with Carlyn Dobson, Nottingham Trent University)

A Meta-analysis of Government Expenditure and Economic Growth

This paper aims to examine the literature on the impact of government expenditure on economic growth.

Arlene Garces-Ozanne (with Rukmani Gounder, Massey University)

The effects of overseas workers’ remittances and foreign aid on the economic growth of developing countries, using panel data

This research will examine remittances and economic growth in developing countries, highlighting possible interactions between remittances and two important factors: exchange rate volatility and timing of remittances, and how these interactions affect not only economic growth but also other dimensions of growth, in particular, poverty levels in the developing countries. This research uses panel data and time-series analyses.

Arlene Garces-Ozanne (with Binevenido Oplas, Minimal Government Movement, Philippines)

Flat is beautiful

This paper examines the feasibility of a flat personal tax in the Philippines and how this could potentially contribute to higher economic growth.

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Murat Genç (with Murray D. Smith, University of Aberdeen)

Wage gaps in the New Zealand Labour Market

Using data from the Statistics New Zealand’s 2003 CURF (Confidentialised Unit Record File) data set, we estimate wage regressions taking account of sample selection bias arising from the exclusion of individuals with no market income. We use the copula approach in the specification of sample selection models. We find evidence of a statistically and economically significant female/male differential. Ethnicity, however, is found to matter for certain groups only, not for Maori.

Murat Genç

Migration and Tourism Flows to New Zealand

This project uses the most commonly used specification in empirical trade research, the gravity equation, to establish the determinants of tourism flows to New Zealand. It estimates a gravity model by using an unbalanced panel data set consisting of more than 190 countries that New Zealand has traded with between the years 1981 and 2006. The estimation technique employed is based on a panel Poisson model.

Murat Genç (with Jacques Poot, University of Waikato, Peter Nijkamp and Masood Gheasi, VU University in Amsterdam)

Immigration and Trade: A Meta-Analysis

The aim of this research is to analyse the effect of immigrants on trade flows by means of a meta-analytic evaluation of various econometric studies that have incorporated the number of immigrants as an explanatory variable in regression models they used.

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Chris Hajzler

1. Expropriation of Foreign Direct Investments: Sectoral Patterns from 1993 to 2006

In this paper I document expropriation of foreign direct investment (FDI) in all developing countries for the 1993-2006 period, building on previous work by Kobrin (1984) and Minor (1994). This unique data set on worldwide expropriation by industry between 1960 and 2006 is used to highlight several (potentially interrelated) stylized facts. First, we find that, although expropriations occur less often today when compared to the 1970s, the number of takings has been rising over the past decade. Second, foreign firms appear to be more vulnerable to expropriation in resource-based sectors, particularly in mining and petroleum. Third, we find that the timing of expropriation coincides with fluctuations in mineral output price levels. Finally, sector FDI stock estimates are also constructed for a large sample of developing countries and, comparing the sectoral distribution of FDI of recent expropriating countries to that of non-expropriating countries, we find that expropriating countries have a higher average share of aggregate FDI located in resources. However, this difference is not reflected in average sector production shares. This last fact is puzzling given that natural resource-based FDI has traditionally been considered high risk.

2. Resource-based FDI and Expropriation in Developing Economies

Expropriation of foreign direct investment (FDI) is more likely to occur in resource extraction than in other sectors. Despite the higher risk of expropriation, countries viewed as more likely to expropriate (having expropriated in the recent past) also have a disproportionate share of FDI in the resource sector. In this paper I develop an incomplete markets model of FDI that can account for this puzzle. In one sector of the economy, a resource sector, the government manages a stock of mineral rights. The type of government regime is stochastic, with low-penalty regimes facing a relatively low, exogenous cost of expropriating FDI. The key innovation of the model is that the government, before the regime type is known, is able to charge different prices to domestic and foreign investors for the rights to extract the mineral. Granting cheap access raises FDI while reducing the country’s share of resource rents, increasing the temptation to expropriate ex post. When the penalty faced in the low-penalty regime is very small (the country is high-risk), a subsidy to resource FDI increases the total value of output by raising investment, and the net gains from expropriating in a low penalty regime outweigh the rents foregone under a high-penalty one. Furthermore, when the resource output price is stochastic, relatively low-risk countries instead restrict FDI inflows to the resource sector: “windfall profits” in the resource sector raise incentives to expropriate when prices are high, yet minimization of the ex ante risk of expropriation is preferred owing to the high cost of expropriating. These results imply a higher average share of resource-based FDI in countries most likely to expropriate, while resources account for a high share of expropriated assets compared to the sector’s global share of FDI.

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Chris Hajzler (with James MacGee, University of Western Ontario)

Retail Price Differences across U.S. and Canadian Cities during the Interwar Period

Recent studies using detailed goods prices across geographical locations have found that distance, shipping costs, and nominal rigidities are important in explaining the size and persistence of price dispersion both within and across countries. This literature has also identified a sizeable “border effect”. Examining a panel of retail food prices in 69 Canadian and 51 U.S. cities during the Interwar period, we find that average relative price dispersion across cities is very similar to estimates for the postwar period, and distance is equally important for explaining relative price differences. We also find that changes in exchange rate regime have a large impact on the estimated border effect.

Alfred Haug (with P. Siklos, Wilfrid Laurier University)

The Role of Alternative Empirical Taylor Rule Specifications

The project evaluates the conduct of monetary policy based on different implementations of so-called Taylor rules, including the monetary policy of the Reserve Bank of New Zealand. Various alternative models for the time series processes of the variables involved are studied.

Alfred Haug (with S. Basher, Central Bank of Qatar and Perry Sadorsky, York University)

Oil price movements and financial markets in emerging economies

This project examines the relationship between oil prices, exchange rates and emerging stock markets. A structural vector-autoregression (SVAR) is designed for this purpose. The model fits well and supports stylised facts regarding contemporaneous and dynamic relations between oil prices, exchange rates, and emerging stock markets. Various extensions are considered in order to assess the role of oil price shocks for financial markets in emerging economies.

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Alfred Haug (with William G. Dewald, Ohio State University, and Andreas Beyer, European Central Bank)

Interest rates and inflation

This research studies the long-term relationship between inflation expectations and how they are reflected in nominal interest rates. The first part of the project tests the so-called Fisher hypothesis in the presence of structural change. The second part takes an historical perspective with data that extend back to 1880.

Alfred Haug (with Andreas Beyer, European Central Bank)

Inference on cointegrating vectors under structural breaks: Monetary policy in the Euro area

This research examines the role of monetary aggregates in relation to the interest rate, income and the housing market. The stability of such relationships is tested with break tests that allow for multiple structural changes at unknown points in time, in the presence of unit roots and cointegration.

Alan King (with Carlyn Dobson, Nottingham Business School, Nottingham Trent University)

The income convergence hypothesis

This research investigates whether per capita income levels in OECD economies are converging with that of the United States using linear and nonlinear unit root tests.

Alan King (with Michael Beenstock, Department of Economics, Hebrew University of Jerusalem)

The Taylor rule

This research considers how well the Taylor rule describes monetary policy in New Zealand since the mid-1990s.

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Alan King

US trade in tourism

This research estimates equilibrium-correction models of US imports and exports of tourism. A particular focus of the study is on estimating the short- and long-run effects of 9/11 (and the subsequent War on Terror) on US trade in tourism.

Stephen Knowles (with Hari Bansha Dulal and Roberto Foa, World Bank)

Social capital and cross-country environmental performance

This research empirically analyses whether countries with higher levels of social capital perform better environmentally. Although there is a substantial literature on the effects of social capital on the environment using community level data, previous empirical work on the effects of social capital on measures of environmental outcomes across countries has been limited by data on social capital only being available for a relatively small number of countries. This paper makes use of a new World Bank data set, measuring different dimensions of social capital for a much larger number of countries, to analyse the relationship between social capital and the environment across countries.

Dorian Owen (with Liam Lenten, La Trobe University)

Competitive balance and competition design in sports leagues

Competitive balance (CB), how evenly teams are matched, is a central concept in the economic analysis of sports leagues. This study develops measures of CB that take into account key characteristics of competition design (especially the nature of playing schedules, draws worth different proportions of a win, bonus points, and ‘multiple prizes’ in a single league), features generally ignored in commonly used CB measures. Econometric analysis of different sports is used to reveal which of these measures are most relevant for fans’ interest and the implications for competition design are considered.

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Dorian Owen

Dynamic within-season measures of competitive balance in sports leagues

Most measures of within-season competitive balance (CB) focus on end-of-season outcomes such as final win percentages. This study examines the evolution of CB as the season progresses and the implications for fans’ interest in individual matches and overall interest in the league.

Dorian Owen (with Nick King and Rick Audas)

Playoff uncertainty, match uncertainty and attendance at Australian National Rugby League matches

The 'uncertainty of outcome hypothesis' (UOH) postulates that a positive relationship exists between spectator interest and the uncertainty of outcome of individual matches and of the overall competition. This study develops a simulation-based measure of playoff uncertainty and investigates the effects of both match uncertainty and playoff uncertainty on match attendance using Australian National Rugby League data.

Dorian Owen

Fundamental determinants of economic development

Several recent influential empirical studies have used simple models to attempt to identify the fundamental factors that underpin long-term growth and development. The main emphasis in the existing literature is on examining the effects of the quality of a country’s institutions and its geographical characteristics on GDP per capita. This project examines a wider range of measures of economic development, considers informal as well as formal institutions, and applies recent advances in the methodology of econometric model selection and instrumental variables estimation to test which fundamental factors matter most.

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Dorian Owen

Health and economic growth

Theoretical and micro-level studies suggest that improved health status has a positive effect on productivity. However, recent work by Acemoglu and Johnson (2007) argues that, even though health improvements may directly enhance welfare, their effect on economic growth at the aggregate level does not significantly increase per capita income. This research project analyses different aspects of the two-way aggregate relationship between improvements in health status and economic growth using cross-section, time-series and panel data methods.

Paul Thorsnes (with Robert Alexander, University of the Sunshine Coast)

Housing market effects of exogenous urban amenities

We take advantage of an unusual house-sales data set to estimate the short-run effects on sale prices and long-run effects on house and neighbourhood characteristics of local variation in natural and historical amenities.

Paul Thorsnes (with Rob Lawson and John Williams, University of Otago Department of Marketing)

Residential response to time-of-use electricity pricing

We analyse survey and electricity usage data from a sample of Auckland households who participated in a one-year experiment with static daily peak/off-peak electricity pricing.

Paul Thorsnes (with Rob Lawson, University of Otago Marketing, Gerry Carrington, University of Otago Physics, Janet Stephenson, University of Otago Centre for Sustainable Agriculture, Food and Environment, and Barry Barton, University of Waikato Law)

Energy cultures: barriers to household adoption of energy efficient technologies and practices

With funding from the Foundation for Research, Science and Technology we take an inter-disciplinary approach to gain insight into householder decision-making with respect to adoption of energy efficient space and water heating technologies and practices.

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Paul Thorsnes (with Colin Smithies, Tim Bishop and Ben Wells)

Combining market with survey data to estimate willingness to pay for heating-efficiency improvements

With funding from a University of Otago research grant we measured heating efficiency and improvements in a sample of houses that sold in 2005. The householders completed a choice modelling exercise to provide data for estimation of demand parameters.

Tarja Viitanen

Parental divorce and trust

This paper examines the effect of parental divorce during childhood on generalised trust later on in life The analysis is conducted using pooled probit and pooled IV probit to account for possible endogeneity issues. The results indicate that men are 20% less likely to trust in people in general. The results are not significant for women for whom parental divorce does not have a significant effect on their expressed level of generalised trust.

Tarja Viitanen

The wage gap of motherhood revisited

This paper examines the impact of children on female wages in the UK using the National Child Development Study. It improves on previous empirical studies by simultaneously correcting for the selection effects associated with fertility and labour force participation. Assuming no such selection bias, we confirm previous studies and estimate the wage differential between women without children and women with children to range between 19% and 22%. However, the results indicate substantial non-random selection into employment. The previous estimates are thus biased. Accounting for selection effects, the estimated wage differential between mothers and childless women is reduced to 10%-13%.

Tarja Viitanen

Public policy and eldercare in Europe

This paper demonstrates that increasing government expenditure on formal residential and home-help for the elderly can significantly increase the labour force participation rates of women across Europe by relieving their informal care burden. Allowing for country fixed-effects and country-specific trends and correcting for attrition, the estimates - based on the European Community Household Panel - imply that a 1000 Euro increase in the government expenditure on formal residential care and home-help services for the elderly decreases the probability of informal care-giving outside of the caregiver’s household by 6 percentage points. Formal care substitutes for informal care that is undertaken outside of the carer’s own household, but does not substitute for intergenerational household formation. A simulation exercise shows that an increase in government formal care expenditure is a cost-effective way of increasing the labour force participation rates.

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Tarja Viitanen (with Libertad Gonzalez, Universitat Pompeu fabra)

Long-term effects of legalizing divorce on children

This paper estimates the effect of divorce legalization on the long-term well-being of children, by exploiting the different timing of divorce legalization across Europe. We compare the adult outcomes of cohorts raised when divorce was banned with those of cohorts raised after divorce was legalized in the same country. We also have “control” countries where all cohorts were exposed (or not exposed) to legal divorce as children. We find that women who grew up under legal divorce have lower earnings and income and worse health as adults compared with women who grew up under illegal divorce. These negative effects are not found for men.

Tarja Viitanen (with Arnaud Chevalier, Royal Holloway University of London)

Partial versus general equilibrium effects of a voucher program

This paper uses a unique setup to compare the partial and the general equilibrium effects of a voucher program. The voucher was initially adopted as an experiment, provided to be used towards the payment for private childcare, in an economy with a universal, low-cost public care option. After three years, the private care voucher was adopted nationally. In this paper, the initial experiment provides the usual program evaluation method to analyze the partial equilibrium effect of the voucher on labor supply and characteristics of the childcare market. The general equilibrium effect, on the other hand, is analyzed as the private care voucher was adopted in the rest of the country.

Niven Winchester (with Ashley Dunstan, Reserve Bank of New Zealand)

Firm heterogeneity and the border effect

Chaney (2006) finds that, for a given trade cost, the border effect is greater when there is a large number of small firms than when a sector is dominated by a small number of large firms. This study contributes to the border effect literature by conducting an alternative empirical test of Chaney’s hypothesis that is novel in two ways. First, our study evaluates the contribution of firm heterogeneity to the border effect using a larger number of variables thought to influence international trade than considered by Chaney. Second, we construct a measure of firm heterogeneity using production data sourced from all countries included in our cross section rather than relying on data from a single country.

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Niven Winchester

1. Implicit trade costs and New Zealand’s bilateral negotiations

Like most developed nations, New Zealand has energetically pursued bilateral trade agreements in recent years. This project evaluates welfare changes resulting from various trade agreements involving New Zealand by considering reductions in tariff and non-tariff barriers (NTBs), such as technical, administrative and regulatory standards and customs clearance procedures, in a computable general equilibrium model. We use a series of gravity equations to estimate tariff equivalents of NTBs.

2. Computerisation and the polarisation of UK wages

This project provides an empirical test of Autor, Katz and Kearney’s (2006) model of computerisation and wages where computers complement highly paid workers, directly substitute for middle-wage jobs and have little impact on low-wage jobs. This is done by identifying several labour types and four capital assets in a UK-focused computable general equilibrium model. We shock the model by imposing observed changes in employment and capital stock shares (accounting for quality improvements in computers) and compare simulated and observed changes in the UK wage distribution.

3. The optimal allocation of Super Rugby competition points

This project evaluates the appropriateness of the allocation of competition points in Super Rugby. We do this by building a model to predict the outcome of Super Rugby matches that includes relative team strength as an explanatory variable. By constructing strength indexes based on Super Rugby competition points earned by each team and choosing competition points endogenously so as to minimise prediction errors, we determine the allocation of Super Rugby competition points that provides the best measure of team strength.

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