2016 Africa Meeting of the Econometric Society
Protea Hotel Kruger Gate, Mpumalanga, South Africa, 25-28 July 2016
TUESDAY, 26 JULY
Breakfast (served from 06:30 - Kujela Restaurant)
08:30 (1.1) Financial Markets & Crises
(1.2) Market Structure
Construction of a Leading Economic Index for
Buyer Power and Dependency in a Model of
Recession Prediction using Vine Copulas - Kajal Lahiri, Negotiations - Roman Inderst, University of
State University New York, Albany, USA
Frankfurt, Germany & Joao Montez, London Business
School, UK
Transmission channels of international financial crises
to African stock markets: The case of the euro
sovereign debt crisis - Sandrine Kablan, ERUDITE,
Université de Paris Est Créteil, IPAG-Lab, Paris France
& Olfa Kaabia, INSEEC Lab, INSEEC Business School,
Paris, France
Forecasting Oil and Stock Returns with a Qual VAR
using over 150 Years of Data - Rangan Gupta,
University of Pretoria & Mark Wohar, University of
Nebraska-Omaha, USA
(1.3) Sector Mobility
Eating Up Productivity: Social Insurance Barriers to
Structural Change - Leandro Magalhaes, University of
Bristol, UK, Raul Santaeulalia, Washington University
St. Louis, USA, Dongya Koh, University of Arkansas,
USA & Yu Zheng, City University of Hong Kong, China
Segmentation versus Agglomeration: Competition
between Platforms with Competitive Sellers - Heiko
Karle, ETH Zurich, Martin Peitz, University of
Mannheim & Markus Reisinger, Frankfurt School of
Finance & Management, Germany
A tale of two sectors: why is misallocation higher in
services than in manufacturing? - Daniel A. Dias,
Board of Governors of the Federal Reserve System
and CEMAPRE, Carlos Robalo Marque, Banco de
Portugal & Christine Richmond, IMF, Washington,
USA
Endogenous market transparency and prduct
Public R&D investment policies and recent trends in
differentiation - Witness Simbanegavi, AERC, Nairobi, inequality and growth - Yoseph Getachew, University
Kenya
of Pretoria, SA
Break
Presidential Address
10:00
10:30
Hard evidence in games and in mechanism design - Eddie Dekel, Northwestern University and Tel Aviv University
Annual General Meeting
11:30
12:00
Lunch
13:00 (1.4) Panel Models
(1.5) Peer Effects
(1.6) Institutions and Stability
Inference on Trending Panel Data - Peter M.
Robinson, London School of Economics, UK
The Importance of Informal Intellectual Collaboration Corruption and growth in Africa - Giorgio D'Agostino,
with Central Colleagues - Co-Pierre Georg, University University Ca' Foscari, Venice, Paul Dunne, University
of Cape Town and Deutche Bundesbank & Michael E. of Cape Town & Luca Pieroni, University of Perugia
Rose, University fo Cape Town, SA
Asymptotic Expansions and Approximate Moments
for Non-Linear Panel Data Models with Separable
Errors , Gubhinder Kundhi, Memorial University of
Newfoundland, Canada & Paul Rilstone, York
University, Toronto, Canada
Military Expenditure, Endogeneity and Economic
Growth - Luca Pieroni, University of Perugia, Italy &
Paul Dunne, University of Cape Town, SA
Peer Effects on Locus of Control - Mauricio Chikitani,
Vladimir Ponczek & Cristine Pinto, São Paulo School
of Economics, Brazil
14:30
15:00 (1.7) Applied Finance
Economic Development and Democracy: The
modernisation hypothesis in sub-Saharan Africa Carolyn Chisadza & Manoel Bittencourt, University of
Pretoria
Estimation of social interaction models using
Socio-Political Instability and Inflationary Dynamics regularization - Guy Tchuente, University of Kent, UK Lardo Stander, Manoel Bittencourt & Rangan Gupta,
University of Pretoria, SA
Break
(1.8) Human Capital & Education
Capital, risk, profitability of WAEMU banks: Do
foreign ownership and cross-border banking matters?
- Désiré Kanga, ENSEA, Abidjan, Ivory Coast, Victor
Murinde, University of Burmingham & Issouff
Soumare, Laval University, Quebec, Canada
School Quality is a Premium – Quantifying the
Advantage in Literacy Skills from Higher-Quality
Schools in South Africa - Annika B. Bergbauer, Ifo
Institute for Economic Research, Munich, Germany
Financial Inclusion and Welfare in Post-Apartheid
South Africa - Elizabeth Lwangan Nanziri, University
of Cape Town, SA
Human Capital and Economic Growth in Uganda Jimmy Alani, Makerere University, Uganda
(1.9) ARCH & GARCH
Asymptotic Normality of the Pseudo Maximum
Likelihood Estimation in ARCH(1) under Dependent
Innovations - Eugene Kouassi, West Virginia
University, USA, Patrice Soh Takam, University of
Yaoundé, Cameroon, Jean Marcelin B. Brou,
University FHB, Abidjan-Cocody, Ivory Coast & Kodje
M. Djiffa, Univerity of Lomé, Togo
The Liquid Hand-to-Mouth: Evidence from a Personal The Association of Parental Education with Childhood An Evaluation of the impact of Monetary Policy
Finance Management Software - Michaela Pagel,
Undernutrition in Low- and Middle-Income Countries: Announcements and Political Events on the Exchange
Columbia Business School, New York, USA & Arna
Comparing the Role of Paternal and Maternal
Rate: The Case of South Africa - Trust R. Mpofu &
Vardardottir, Copenhagen Business School, Denmark Education - Christian Bommer, Sebastian Vollmer & Amos Peters, University of Cape Town, SA
Vera Sagalova, University of Goettingen, Germany
17:00
Game Drive (17:00 to 20:00)
20:00
Dinner (served from 18:30 - Kujela Restaurant)
Consistency of the Pseudo Maximum Likelihood
Estimation in ARCH (1) under Dependent Innovations Eugene Kouassi, West Virginia University, USA, Patrice
Soh Takam, University of Yaoundé, Cameroon, Jean
Marcelin B. Brou, University FHB, Abidjan-Cocody,
Ivory Coast & Kodje M. Djiffa, Univerity of Lomé, Togo
WEDNESDAY, 27 JULY
Breakfast (served from 06:30 - Kujela Restaurant)
08:30 (2.1) Pricing and Equilibrium
When Borch's Theorem does not apply: some key
implications of market incompleteness, with policy
relevance today - Jacques Drèze, CORE, Université
catholique de Louvain, Belgium
(2.2) Models of Risk & Uncertainty
(2.3) Macro Development
GMM estimation of the Long Run Risks model - Nour The Heterogeneous Effects of Transportation
Meddahi, Toulouse School of Economics, France
Investments: Evidence from sub-Saharan Africa 19602010 , Rémi Jedwab, George Washington University,
Adam Storeygard, Tufts University, Medford, USA
Profitability of Pricing Menu - Babu Nahata,
Monetary Policy Uncertainty and Economic
Minorities and Long-run Development: Persistence of
University of Louisville & Sergey Kokovin, Novosibirsk Fluctuations - Drew Dennis Creal & Jing Cynthia Wu, Armenian and Greek Influence in Turkey - Cemal E.
State University, USA
University of Chicago Booth School of Bussiness, USA Arbath, National Research University Higher School of
Economics, Moscow & Gunes Gokmen, New
Economic School, Moscow, Russia
Does Regret Explain Why People Search too little? A Simple moment-based tests for value-at-risk models The Style of Colonial Rule and Economic Growth in
model of Sequential Search with Anticipated Regret
and discrete distributions - Christian Bontemps,
sub-Saharan Africa: A Long-run Perspective - Clinton
and Rejoicing - Zhiquan (Darren) Weng, Beijing
Toulouse School of Economics, France
Joel & Reneé van Eyden, University of Pretoria, SA
Normal U-Hong-King Baptist University, China
Market Foreclosure and Welfare Under Monopolistic Bond Risk Premia in Consumption-Based Models Education and Fertility: Panel Time-Series Evidence
Second-degree Price Discrimination - Yong Chao &
Drew Dennis Creal & Jing Cynthia Wu, University of
from Southern Africa - Manoel Bittencourt,
Babu Nhata, University of Louisville, USA
Chicago, USA
University of Pretoria, SA
10:30
11:00
Break
Invited Lecture
Human Capital, Earnings and Taxation - Richard Blundell, University College London and Institute for Fiscal Studies, London
12:30
Lunch
13:30 (2.4) Health & Social Security
(2.5) Models of Learning
(2.6) Aid & Agriculture
Retirement and memory performance among older
citizens in European Countries - Gulnara Huseynli,
University Ca Foscari of Venice
Top Trading Cycles in Endogenous Information
Acquisition - Annika Johnson, Royal Holloway,
University of London
Does Foreign Aid Play a Role in the Maintenance of
Economic Growth? A Non-Linear Analysis - Nermeen
Harb, Stephen G. Hall, University fo Leichester, UK
The Global Economic Burden of Diabetes: A Cost-ofIllness Study - Christaian Bommer, Esther Heeseman,
Vera Sagalova, Jennifer Manne, Rifat Atun, Till
Bärnighausen, & Sebastian Vollmer, University of
Goettingen, Germany
A Flow Measure of Missing Women by Age and
Disease - Stephen Klassen, Sebastian Vollmer & Vera
Sagalova, University of Goettingen, Germany
Learning in Network Games - Jaromir Kovarik,
University of the Basque Country & Bridge, Friederike
Mengel, University of Essex & Gabriel Romero,
Universidad de Santiago de Chile
Does Foreign Aid Reduce Poverty? A Panel Data
Analysis for Sub-Saharan African Countries - Edmore
Mahembe, University of South Africa & MM
Odhiambo, University of South Africa
Bayesian learning with multiple priors and nonvanishing ambiguity - Alexander Zimper, University
of Pretoria
Return to investment in agricultural cooperatives:
Evidence from natural experiment - Dambala Gelo,
University of Cape Town, SA
15:00
15:30 (2.7) Macroeconomics & Financial Markets
Adverse selection in OTC derivative clearing
collateral: Should government intervention tightly
constrain collateral quality? - Norris L. Larrymore,
New York University, USA
The Global Financial Crisis: Testing for Fractional
Cointegration between US and Nigerian Stock
Markets - Olaoluwa S Yaya, Unviersity of Ibadan,
Nigeria, Luis Gil-Alana, University ofNavarra, Spain &
Olusanya E. Olubusoye, University of Ibadan, Nigeria
Welfare cost of bank capital requirements with
endogenous default - Fernando Garcia-Barragan &
Guangling Liu, Stellenbosch University, SA
Two-Block World Economy, Banking and Financial
Crisis - Ruthira Naraidoo, University of Pretoria, SA
Break
(2.8) Market Equilibrium
(2.9) Labour Market Dynamics
To Share or Not to Share: Adjustment Dynamics in
Sharing Markets - Maryam Razeghian & Thomas
Weber, Ecole Polytechnique Federale de Lausanne,
Switzerland
Multiple Lenders, Strategic Default and Covenants Andrea Attar, Toulouse School of Economics and
University of Roma Tor Vergata, Catherine
Casamatta, University of Toulouse 1, Arnold
Chassagnon, University of Tours & Jean Paul
Decamps, Toulouse School of Economics, France
Public information from a private entity: the case of
credit rating agencies - Julien Trouillet, Université
Paris Dauphine, France
Local labour markets and migration in South Africa Dieter von Fintel & Eldridge Moses, Stellenbosch
University, SA
Assessing Solutions Towards The Unemployment
Volatility Puzzle: The Role of Labor Market
Participation - Christian Haefke, New York University,
Abu Dhabi, UAE & Michael Reiter, Institute for
Advanced Studies, Vienna, Italy
Networks, inflation and labor market dynamics - JeanPaul K. Tsasa Vangu, Laboratoire d'analyse-recherche
en économie quantitative, Kinshasa, DRC
Dynamic Inconsistency, falling cost of capital
Cyclicality of Wages and Union Power - Annaig
relocation and preferential taxation of foreign capital Morin, Copenhagen Business School, Denmark
- Kashaal Kishore, University of Pretoria, SA
19:00
Dinner (Lapa)
THURSDAY, 28 JULY
05:00
Game Drive (05:00 to 08:00)
Breakfast (served from 06:30 - Kujela Restaurant)
09:00 (3.1) African Economic Research Consortium
10:30
11:00
(3.2) Treatment Effects Estimation
(3.3) Wealth Measures & Methods
Do governance institutions matter for trade flows
between sub-Saharan Africa and its trading partners?
- Adeolu Adeuyi, University of Ibadan, Nigeria &
Ebenezer Olubiyi, Ibadan, Nigeria
Inference in Differences-in-Differences with Few
Treated Groups and Heteroskedasticity - Bruno
Ferman & Christine Pinto, São Paulo School of
Economics, Brazil
Do Domestic Firms Learn to Export from Foreign
owned firms? Evidence from Kenya - Bethuel
Kinuthia, University of Nairobi, Kenya
Quantifying Violation of Common Support in
Programme Evaluation - Adeola Oyenubi & Martin
Wittenberg, University of Cape Town, SA
The Consumption, Income, and Wealth of the
Poorest: Cross-Sectional Facts of Rural and Urban SubSaharan Africa for Macroeconomists - Leandro
Machado De Magalhaes, University of Bristol, UK &
Raul Santaeulalia, Washington University St. Louis,
Subjective well-being and reference groups in postapartheid South Africa - Marisa von Fintel & Rulof
Burger, Stellenbosch University, SA
How Facilitating Trade Would Benefit Trade in SubSaharan Africa - Abdoulaye Seck, Cheikh Anta Diop
University, Dakar, Senegal
Specification-Search Possibilities with Synthetic
The resilience of the poor: A Markov chain analysis of
Controls - Vitor Augusto Possebom, Bruno Ferman & subjective poverty dynamics and heterogeneity Christine Pinto, São Paulo School of Economics, Brazil Theophile T. Azomahou & Eleni A. Yitbarek,
Maastricht University And UNU-Merit
Break
Invited Lecture
Closing the Small Open Economy Model: A Demographic Approach - Stephen Turnovsky, University of Washington, Seatle and Victoria University of Wellington,
New Zealand
Lunch
12:30
13:30 (3.4) Macroeconomics & Policy
(3.5) International Economics
How to Design Prudent Debt Targets and Fiscal Rules - Banking Crisis and the Heterogeneous Impact on
Falilou Fall & Jean-Marc Fournier, Economics
Bilateral Trade - Matthew Clance, University of
Department, OECD, Paris, France
Pretoria, SA
The effects of the supply of credit on real estate
prices: Venezuela as policy laboratory - Claire BoeingReicher & David Pinto, Kiel Institute for the Workd
Economy, Kiel, Germany
The Wrong Policy at the Right Time - Joachem
Jungherr, Institut d' Anàlisi Econòmica - CSIC and
Barcelona GSE & David Strauss, Centro de
Investigación y Docencia Económicas (CIDE), Mexico
City, Mexico
Estimating a Phillips Curve for South Africa: A
Bounded Random Walk Approach - Alain Kabundi,
South African Reserve Bank and University of
Johannesburg, SA & Eric Schaling. Wits Business
School, Vrije Universiteit, Amsterdam & Modetse
Some, University of Johannesburg, SA
15:30
16:00
(3.6) Count & Duration Models
Smoothed Maximum Score Estimation of Discrete
Duration Models - Sadat Reza, Singapore University &
Paul Rilstone, York University, Toronto, Canada
A test of the market potential hypothesis: A case for Dynamic conditional score patent count panel data
South Africa - Gibson Mudiriza & Lawrence Edwards, models - Szabolcs Blazsek, Universidad Francisco
Univeristy of Cape Town, SA
Marroquin & Alvaro Escribano, Universidad Carlos III
de Madrid, Spain
Fiscal Policy and Adjustment in a Foreign Exchange
Contraceptive Use and Birth Intervals - Gauthier
Constrained Economy: Evidence from Malawi Tshiswaka-Kashalala & Steve Koch, University of
Bertha C. Bangara & Amos C. Peters, University of
Pretoria, SA
Cape Town, SA
A New Measure of Economic Distance - Eric O'N.
Fisher, California Polytechnic State University, John
Gilbert, Utah State University, Kathryn G. Marshall &
Reza Oladi, Utah State University, USA
Break
Plenerary Session Panel Discussion:
Research that resonates with policy and practice
18:00
19:00
Gala Dinner (African Conference Centre)
2016 Africa Meeting of the Econometric Society
Protea Hotel Kruger Gate, Mpumalanga, South Africa, 25-28 July 2016
Programme at a glance
TUESDAY, 26 JULY
06:30 – 08:30
08:30 – 10:00
10:00 – 10:30
10:30 – 11:30
11:30 – 12:00
12:00 – 13:00
13:00 – 14:30
14:30 – 15:00
15:00 – 17:00
17:00 – 20:00
20:00 – 22:00
Breakfast
Parallel Sessions 1.1; 1.2 and 1.3
Break
Presidential Address
Annual General Meeting
Lunch
Parallel Sessions 1.4; 1.5 and 1.6
Break
Parallel Sessions 1.7, 1.8 and 1.9
Game Drive
Dinner (Served form 18:30 – Kujela Restaurant)
WEDNESDAY, 27 JULY
06:30 – 08:30
08:30 – 10:30
10:30 – 11:00
11:00 – 12:30
12:30 – 13:30
13:30 – 15:00
15:00 – 15:30
15:30 – 17:00
17:00 – 19:00
19:00 – 21:00
Breakfast
Parallel Sessions 2.1; 2.2 and 2.3
Break
Invited Lecture
Lunch
Parallel Sessions 2.4; 2.5 and 2.6
Break
Parallel Sessions 2.7, 2.8 and 2.9
Dinner (Lapa)
THURSDAY, 28 JULY
05:00 – 08:00
08:30 – 09:00
09:00 – 10:30
10:30 – 11:00
11:00 – 12:30
12:30 – 13:30
13:30 – 15:30
15:30 – 16:00
16:00 – 18:00
18:00 – 19:00
19:00 – 21:00
Game Drive
Breakfast (Served from 06:30 – Kujela Restaurant)
Parallel Sessions 3.1; 3.2 and 3.3
Break
Invited Lecture
Lunch
Parallel Sessions 3.4; 3.5 and 3.6
Break
Plenary Session
Gala Dinner (African Conference Centre)
Extended Programme
TUESDAY, 26 JULY
06:30 – 08:30
Breakfast
Parallel Sessions 1.1; 1.2 and 1.3: 08:30 – 10:00
Session 1.1 - Financial Markets & Crises
1) Construction of Leading Economic Index for Recession Prediction using Vine Copulas - Kajal Lahiri,
State University New York, Albany, USA & Lui Yang, Nanjing University, China.
Abstract: We construct a composite leading index for business cycle prediction based on vine
copulas that capture the complex pattern of dependence among individual predictors over different
regimes. This approach is optimal in the sense that the resulting index possesses the highest
discriminatory power as measured by the receiver operating characteristic (ROC) curve. The model
specification is semi-parametric in nature, suggesting a two-step estimation procedure, with the
second-step finite dimensional parameter being estimated by QMLE given the first-step nonparametric estimate. To illustrate its usefulness, we apply this methodology to optimally aggregate
the ten leading indicators selected by The Conference Board (TCB) to predict economic recessions in
the United States. In terms of both the in-sample and out-of-sample performances, our method is
significantly superior to the current Leading Economic Index proposed by TCB.
Keywords: Leading Economic Index, Receiver operating characteristic curve, Vine copula
Classification Codes: E17
2) Transmission channels of international financial crises to African stock markets: The case of the
euro sovereign debt crisis - Sandrine Kablan, ERUDITE, Université de Paris Est Créteil, IPAG-Lab,
Paris France & Olfa Kaabia, INSEEC Lab, INSEEC Business School, Paris, France
Abstract: The main purpose of this article is to investigate the effects of the European sovereign
debt crisis on African stock markets within a Bayesian shrinkage VAR framework. This method
allows us to consider both North African and Sub-Saharan African stock markets, and provides a
flexible parsimonious specification. The results reveal varying reactions of the impulse response
functions. The most exposed African stock markets are those of Egypt and Mauritius, while the least
affected stock market is, surprisingly, that of Ivory Coast. Our analysis shows that, in addition to
direct transmission, several macroeconomic and market channels, such as commodities, exports,
and exchange rates, are relevant. Specifically, countries with strong commercial links to European
countries will be most impacted by the crisis. The severity of transmission also depends on the
country’s dependence on commodities.
Keywords: African stock markets, European Sovereign debt crisis, transmission effects, Bayesian
vector autoregression.
JEL Classification Codes: F36, F44, E32, O55, C3
3) Forecasting Oil and Stock Returns with a Qual VAR using over 150 Years of Data - Rangan Gupta,
University of Pretoria & Mark Wohar, University of Nebraska-Omaha, USA
Abstract: The extant literature suggests that oil price, stock price and economic activity are all
endogenous and the linkages between these variables are nonlinear. Against this backdrop, the
objective of this paper is to use a Qualitative Vector Autoregressive (Qual VAR) to forecast (West
Texas Intermediate) oil and (S&P500) stock returns over a monthly period of 1884:09 to 2015:08,
using an in-sample period of 1859:10-1884:08. Given that there is no data on economic activity at
monthly frequency dating as far back as 1859:09, we measure the same using the NBER recession
dummies, which in turn, can be easily accommodated in a Qual VAR as an endogenous variable. In
addition, the Qual VAR is inherently a nonlinear model as it allows the oil and stock returns to
behave as nonlinear functions of their own past values around business cycle turning points. Our
results show that, for both oil and stock returns, the Qual VAR model outperforms the random walk
model (in a statistically significant way) at all the forecasting horizons considered, i.e., one- to
twelve-months-ahead. In addition, the Qual VAR model, also outperforms the AR and VAR models
(in a statistically significant manner) at medium- to long-run horizons for oil returns, and short- to
medium-run horizons for stock returns.
Keywords: Vector Autoregressions; Business Cycle Turning Points; Forecasting; Oil and Stock Prices
Session 1.2 - Market Structure
1) Buyer Power and Dependency in a Model of Negotiations - Roman Inderst, University of Frankfurt,
Germany & Joao Montez, London Business School, UK
Abstract: We study bilateral bargaining between several buyers and sellers in a framework that
allows both sides flexibility to adjust trades during (temporary) disagreement. Our bargaining
framework encompasses the outcome of auctions in truthful menus as limiting cases. We find that
following a horizontal merger, the newly formed larger buyer pays a lower per unit price only when
buyers’ bargaining power in bilateral negotiations is sufficiently high, and a higher per unit price
otherwise. An analogous result holds for the formation of larger sellers. We also study the
implications of various production technologies, such as constraints to capacity. Our rich predictions
are explained by how size affects the mutual dependency of buyers and sellers. When sellers’
bargaining power is low, their profits decrease more generally with greater concentration among
buyers, as measured by the HHI.
Keywords: Buyer power, dependency, bargaining.
2) Segmentation versus Agglomeration: Competition between Platforms with Competitive Sellers Heiko Karle, ETH Zurich, Martin Peitz, University of Mannheim & Markus Reisinger, Frankfurt
School of Finance & Management, Germany
Abstract: Two competing non-differentiated platforms bring together sellers and buyers who face
the discrete choice problem which platform to visit. Platforms charge listing fees to sellers for their
service. If competition between sellers is soft, only agglomeration equilibria exist, i.e. all sellers and
buyers locate on one platform. By contrast, if competition between sellers is fierce, in the unique
equilibrium, buyers and sellers segment, and sellers enjoy a monopoly position vis-a-vis buyers. This
allows platforms to obtain strictly positive profits in equilibrium. If competition between sellers is
moderate, in the unique equilibrium, buyers and sellers segment with positive probability. This
equilibrium features dispersion of listing fees. We characterize the equilibrium and extend the
analysis to allow for multi-homing sellers and buyers.
Keywords: intermediation, two-sided markets, price competition, imperfect and perfect
competition
JEL Classification Codes: L13, D43
3) Endogenous market transparency and product differentiation - Witness Simbanegavi, AERC,
Nairobi, Kenya
Abstract: We investigate the implications of informative advertising on product differentiation,
prices and profits under two scenarios: semi-collusion and competition on advertising. We find that
when firms semi-collude on advertising, a reduction in the advertising cost (increase in advertising
intensity) raises firm profits but has no effect on product differentiation and prices. As the
advertising cost decreases, demand increases as more consumers are reached and at the same time
total advertising outlays decrease. A decrease in the advertising cost thus unambiguously raises
welfare. When firms instead compete on advertising, a decrease in the advertising cost is associated
with more advertising, less product differentiation and lower prices and profits. A decrease in the
advertising cost increases the advertising intensity, and thus reduces informational product
differentiation. This increases firms’ incentives to undercut rivals. Consequently, product diversity is
reduced and prices and profits are lower. Thus, when firms compete on advertising, a decrease in
the advertising cost favours consumers.
Keywords: Endogenous market transparency, advertising intensity, exogenous market
transparency, product differentiation
JEL Classification Codes: L13, L15, M37
Session 1.3 - Sector Mobility
1) Eating Up Productivity: Social Insurance Barriers to Structural Change - Leandro Magalhaes,
University of Bristol, UK, Raul Santaeulalia, Washington University St. Louis, USA, Dongya Koh,
University of Arkansas, USA & Yu Zheng, City University of Hong Kong, China
Abstract: We explore the implications of social insurance (SI) for structural change. We pose a
heterogeneous agent structural change (HAST) model in which agents differ in productivity and
asset holdings (land, physical and human capital). Individuals make investment choices and, at a
young age, decide whether to permanently migrate (or not) between rural and urban areas.
Rural and urban areas differ in their production technology, the nature and size of risk, and the
availability of SI mechanisms. In rural areas, SI is achieved through the ex-post redistribution of
agricultural production (τ ) and the ex-ante redistribution of agricultural factor inputs (ω). These
redistribution mechanisms take the form of tax-subsidy schemes that we structurally estimate. Our
findings suggest substantial progressivity in both τ and ω that generates a higher level of SI in
rural areas than in urban areas. SI implies a double taxation on the most productive agents
which lowers factor accumulation, TFP and migration representing a quantitatively important
barrier to the structural change.
2) A tale of two sectors: why is misallocation higher in services than in manufacturing? - Daniel A.
Dias, Board of Governors of the Federal Reserve System and CEMAPRE, Carlos Robalo Marque,
Banco de Portugal & Christine Richmond, IMF, Washington, USA
Abstract: Recent empirical studies documented that the level of resource misallocation in the
service sector is significantly higher than in the manufacturing sector. In this paper, we try to
understand to what extent the documented differences are due to methodological reasons or
whether they reflect structural differences between the two sectors. Our results suggest that
about 50 percent of the original estimated differences can be attributed to methodological
choices, while the other 50 percent can be attributed to differences in the characteristics of the
two sectors. Using the Gelbach omitted variable bias decomposition we find that differences in
the effect and size of productivity shocks explain most of the difference in misallocation
between manufacturing and services that cannot be explained by methodological choices,
while the remainder is explained by differences in the firm productivity and age
distributions. We interpret such results as stemming mainly from higher output-price rigidity,
higher labor adjustment costs and higher informality in the service sector.
Keywords: Misallocation, productivity, firm-level data, structural transformation, Gelbach
decomposition.
JEL Classification Codes: D24, O11, O41, O47
3) Public R&D investment policies and recent trends on inequality and growth - Yoseph Getachew,
University of Pretoria, SA
Abstract: Although widely varied among nations, two different innovation policies are
mainly adopted in developing and advanced economies. Most R&D investments in
developed countries are rather within high-tech industries such as information technology,
biology, communication, and environment industries. In contrast, in most of the developing
world, a significant amount of public R&D investment is made in agriculture, an often lowtech sector dominated by small scale farmers that constitute the majority of the
population. This paper argues that such differences in public policy could play a major role
in ex- plaining high-growth low-inequality trend observed recently in many developing
countries, particularly African economies, and high- or mediocre-growth and high-inequality
trend observed in others. Based on a heterogeneous-agent growth model with in-house
R&D where both growth and inequality are endogenously determined, the paper shows
that a progressive public service provision aggravates inequality, and conversely. However,
the impact on growth is rather ambiguous due to the inverse inequality-growth
relationship. On one hand, a progressive public policy could boost growth via a positive effect
on individual saving and effort; on the other, through a negative distributional impact, it
could hinder long-term growth. Such results hold both during the transition and in the
steady state, given heterogeneity among agents in terms of idiosyncratic productivity or
ability shocks.
Keywords: Disproportional public innovation policy, distributional dynamics and equilibrium,
growth, R&D
JEL Classification Codes: D24, D31, E13, 041
10:00 – 10:30
2) Asymptotic Expansions and Approximate Moments for Non-Linear Panel Data Models with
Separable Errors, Gubhinder Kundhi, Memorial University of Newfoundland, Canada & Paul
Rilstone, York University, Toronto, Canada
Break
Presidential Address: 10:30 – 11:30
Hard evidence in games and in mechanism design - Eddie Dekel, Northwestern
University and Tel Aviv University
Annual General Meeting: 11:30 – 12:00
12:00 – 13:00
Lunch
Parallel Sessions 1.4; 1.5 and 1.6: 13:00 – 14:30
Abstract: Third-order stochastic expansions are derived for the fixed and random effects
versions of non-linear panel data models with separable errors. These are used to derive
the approximate bias, mean-squared error, skewness and kurtosis of the estimators. In turn,
these moments are used to derive Edgeworth, saddle-point and related expansions for these
estimators. Illustrations are provided. Simulations are reported indicating the confidence
intervals based on these expansions have substantially better coverage properties than those
based on standard asymptotic results and somewhat better than those provided by the
bootstrap.
3) Military Expenditure, Endogeneity and Economic Growth - Luca Pieroni, University of Perugia,
Italy & Paul Dunne, University of Cape Town, SA
Sessions 1.4: Panel Models
1) Military Expenditure, Endogeneity and Economic Growth - Luca Pieroni, University of Perugia,
Italy & Paul Dunne, University of Cape Town, SA
Abstract: The debate over the economic effects of military spending continues to
develop, with no consensus, but a deepening understanding of the limitations of previous
work. One important issue that has not been adequately dealt with, is the endogeneity
of military spending in the growth equation, mainly because of the difficulty of finding any
variables that would make adequate instruments. This paper considers this issue using an
endogenous growth model estimated on a large sample of 114 countries for the period
1998-2012. The empirical analysis is framed within an instrumental variable setting which
exploits the increase in military spending that occurs when a simmering conflict escalates.
The estimation results show that endogeneity is a crucial issue, with the instrumental
variable estimates providing a larger significant negative effect of military spending on
growth than OLS would. This result is found to be robust to different sources of
endogeneity and different time periods.
Keywords: Military expenditure; economic growth; instrumental variables
JEL Classification Codes: C2; E2; H5; N4; O4
Keywords: Semiparametric panel data modelling, Non-parametrically time- trending
individual effects, Nonparametric cross-sectional correlation and heteroscedasticity, Spatial
model, Parametric fractional dependence, Consistency, Asymptotic normality.
JEL Classification Codes: C12, C13, C23
Abstract: The debate over the economic effects of military spending continues to
develop, with no consensus, but a deepening understanding of the limitations of previous
work. One important issue that has not been adequately dealt with, is the endogeneity
of military spending in the growth equation, mainly because of the difficulty of finding any
variables that would make adequate instruments. This paper considers this issue using an
endogenous growth model estimated on a large sample of 114 countries for the period
1998-2012. The empirical analysis is framed within an instrumental variable setting which
exploits the increase in military spending that occurs when a simmering conflict escalates.
The estimation results show that endogeneity is a crucial issue, with the instrumental
variable estimates providing a larger significant negative effect of military spending on
growth than OLS would. This result is found to be robust to different sources of
endogeneity and different time periods.
Keywords: Military expenditure; economic growth; instrumental variables
JEL Classification Codes: C2; E2; H5; N4; O4
Session 1.5: Peer Effects
1) The Importance of Informal Intellectual Collaboration with Central Colleagues - Co-Pierre Georg,
University of Cape Town and Deutche Bundesbank & Michael E. Rose, University of Cape Town,
SA
Abstract: We examine social network effects in informal intellectual collaboration in financial
economics. We make use of a novel social network connecting 7502 economists that have
collaborated formally or informally on 1895 research papers. While formal collaboration –
co-authoring a paper – is well researched, we focus on informal collaboration, which is the
provision of helpful input and commonly acknowledged in special sections. We hypothesize
that more central individuals have access to more information traversing the network, and
collaborating with these individuals results in higher scientific impact. Treating the assignment
of discussants at major finance conferences as quasi-natural experiment, we establish a
network effect: Commentary from a discussant with a one standard deviation higher network
centrality is associated with 15% more citations over four years for an average paper. This
effect is weaker, however, for the probability of publishing a paper in one of the top three
finance journal
Keywords: Informal intellectual collaboration, social network, scientific impact
JEL Classification Codes: A14, D83, G00
2) Peer Effects on Locus of Control - Mauricio Chikitani, Vladimir Ponczek & Cristine Pinto, São Paulo
School of Economics, Brazil
Abstract: This paper analyzes the role of peer interaction in the determination of the Locus of
Control, a measure of how personally responsible people feel about their life affairs. It
studies this question on an educational setup, using Middle School data in a Brazilian
municipality that includes the Tel Aviv Locus of Control questionnaire. We use two different
identification strategies. Following Lee (2007), we use class size variation to disentangle
between the endogenous and contextual peer effects. In a second approach, we rely on the
panel structure of the data, and use the direct links, i.e., the characteristics of the
classmates of individual A that were not classmates of individual B in the past as
instruments to identify the endogenous peer effects. The idea is that the classmates of
individual A that were not classmates of B may had influenced A, with- out influencing B. Our
estimates show no sign of endogenous nor contextual peer effects.
Keywords: Peer Effects, Non-cognitive skills.
JEL Classification Codes: I20, I21, I29 .
3) Estimation of social interaction models using regularization - Guy Tchuente, University of Kent,
UK
Abstract: This paper uses the regularization techniques to improve the asymptotic efficiency
of the estimators in social interaction models. In social interaction model, the identification
of network effect is based on group size variation (Lee (2007)), structure of the network
(Bramoulle et al. (2009)) or the relative position in the network measured by Bonacich
centrality measure (Liu and Lee (2010)). These identification strategies imply the used of
many instruments or instruments that are very correlated. The use of very correlate
instrument may lead to the weak identification of the parameter and, in finite samples, the
inclusion of an excessive number of moments increases the bias. This paper proposes
regularized versions of the 2SLS and GMM as a solution to these problems. The
regularization is based on three different methods: Tikhonov, Landweber Fridman, and
principal components. The proposed estimators are consistent and asymptotically normal.
Moreover, unlike the 2SLS and GMM the regularized estimators do not have an asymptotic
bias. They are therefore better than Liu and Lee (2010) who need to be bias corrected. A
Monte Carlo study illustrates the relevance of the estimators.
Keywords: High-dimensional models, Social network, Centrality, Spatial autoregressive
model, GMM, 2SLS, regularization methods.
Session 1.6: Institutions and Stability
1) Economic Development and Democracy: The modernisation hypothesis in sub-Saharan Africa Carolyn Chisadza & Manoel Bittencourt, University of Pretoria
Abstract: The modernisation hypothesis advances that economic development is a
condition for democracy. We investigate this hypothesis in 46 sub-Saharan African
countries from 1960 to 2010 using dynamic panel data analysis. The initial results from
widely used development indicators, such as income per capita, education, urbanization
and industrialization, are inconclusive for the modernisation hypothesis. However, when we
combine the common factors from these development indicators into one index using
principle component analysis, we obtain positive and significant results for democracy. This
evidence suggests that economic development is comprised of more than just individual
effects from income per capita or education but requires facets of the development
indicators to work collectively in supporting democracy.
Keywords: economic development, democracy, sub-Saharan Africa
JEL Classification Codes: 010, 043, 055, P16
2) Socio-Political Instability and Inflationary Dynamics - Lardo Stander, Manoel Bittencourt &
Rangan Gupta, University of Pretoria, SA
Abstract: Since 2006, almost 60% of global protest events have been exclusively driven by economic
injustice. Standard determinants of sociopolitical instability reported in the literature, do not fully
explain the effect of monetary and fiscal policy decisions on the intended target audience of those
policy outcomes. We develop an overlapping generations monetary endogenous growth model
characterized by sociopolitical instability, to analyze growth dynamics and specifically, monetary
policy outcomes in the presence of this augmentation. Sociopolitical instability is specified ad hoc as
the fraction of output being lost due to strikes, riots and protests and is positively related to
inequality and inflation, and negatively related to policing expenditure. Interesting, and otherwise
non-existent, growth dynamics emerge, both convergent and divergent, if socio-political instability
is a function of inflation. Subsequently, we provide empirical impetus to this ad hoc theoretical
specification, using a sample of 170 countries over the period 1980-2012. Specifically, we report
empirical evidence in support of our theoretical augmentation, that inflation exacerbates sociopolitical instability across all countries, even after having accounted for country-specific effects and
the role of government. In addition, policing expenditure directed at containing protest events does
not have the desired impact. Our findings also address some endogeneity concerns in the
instability-inflation nexus.
Keywords: Socio-political instability; inflation; economic growth; endogenous fluctuations; policing
expenditure
JEL Classification Codes: C51, E32, O42,
14:30 – 15:00
Break
Parallel Sessions 1.7, 1.8 and 1.9: 15:00 – 17:00
Session 1.7: Micro - Applied Finance
1) Capital, risk, profitability of WAEMU banks: Do foreign ownership and cross-border banking
matters? - Désiré Kanga, ENSEA, Abidjan, Ivory Coast, Victor Murinde, University of Burmingham
& Issouff Soumare, Laval University, Quebec, Canada
Abstract: Using hand-collected bank level data from all West African Economic and Monetary
Union (WAEMU) countries during 2000-2014, we investigate the simultaneous relationship among bank
capital, risk and profitability, taking into account bank ownership and cross-border banking. We split
the WAEMU countries into lower middle-income (LMIs) and low-income (LICs). We find that bank
profitability is sensitive to changes in capital ratio; the effect is much higher in the LICs (-0.39) than the
LMIs (-0.07). In addition, we uncover a negative relationship between risk and capital, consistent
with the moral hazard hypothesis: on average, one unit percentage increase in capital ratio leads to
107 basis points decrease in bank risk; the impact is stronger in LICs than LMIs. Also, we find that
banks’ capital positions tend to be counter-cyclical in LICs as opposed to LMIs, i.e. banks in LICs
accumulate more capital buffer during expansions to be used later during recessions when risk is
high, mimicking Basle III. Foreign bank ownership and cross- border banking do matter: the former
is associated with an increase in capital ratios (0.005) in LICs, while the latter reduces the capital
ratio in LMIs and increases profitability in LICs, and overall, foreign ownership and cross-border
banking reduce risk in the whole banking sector. These findings are generally robust to the use
of alternative measures of capital, risk and profitability.
Keywords: WAEMU banks; bank capital; bank risk; bank performance; Basel accords; cross border banking,
foreign banks
JEL Classification Codes: G21; G28
2) The Liquid Hand-to-Mouth: Evidence from a Personal Finance Management Software - Michaela
Pagel, Columbia Business School, New York, USA & Arna Olafsson, Copenhagen Business School,
Denmark
Abstract: We use a very accurate panel of all individual spending, income, balances, and credit
limits from a financial aggregation app and document significant payday responses of spending
to the arrival of both regular and irregular income. These payday responses are clean, robust, and
homogeneous for all income and spending categories throughout the in- come distribution.
Spending responses to income are typically explained by households’ capital structures: households
that hold little or no liquid wealth have to consume hand-to- mouth. However, we find that few
individuals hold little or no liquidity and also document that liquidity holdings are much larger than
predicted by state-of-the-art models explaining spending responses with liquidity constraints due to
illiquid savings. Given that present liquidity constraints do not bind; we analyze whether
individuals hold cash cushions to cope with future liquidity constraints. To that end, we analyze
cash holding responses to income payments inspired by the corporate finance literature. However,
we find that individuals’ cash responses are consistent with standard models without illiquid
savings and neither present nor future liquidity constraints being frequently binding. Because
these models are inconsistent with payday responses, we feel that the evidence suggests the
existence of households that spend heuristically and call those the “liquid hand-to-mouth.”
JEL Classification Codes: E03, D03, D91, D14.
3) Financial Inclusion and Welfare in Post-Apartheid South Africa - Elizabeth Lwangan Nanziri,
University of Cape Town, SA
Abstract: The socio-economic transformation process in post-apartheid South Africa has
generated research on a wide range of economic issues, in particular inequality and poverty.
Surprisingly, there is limited empirical analysis on financial inclusion. This paper fills this void in
the literature by answering two questions: (i) Does financial inclusion improve welfare? (ii) Is the
benefit from using formal financial services greater than from using non- formal financial services?
The paper uses a unique cross-sectional dataset on use of financial products over the period 2006
– 2011. Two measures of welfare are constructed – a wellbeing index and a wealth index. The
sample is divided into users of formal financial services and users of non-formal financial
services. The focus is on the differences in the welfare of the two groups. This difference in
welfare is then decomposed following the re-centered Influence Function (RIF) approach. Finally,
an OLS regression of the re-centered welfare is estimated across quantiles for each group.
Results show that: (i) overall, using formal financial products is associated with her welfare; (ii)
regardless of the measure of welfare used, the results are qualitatively similar: the wealth index
picks up differences in the top quantiles while the well-being index picks the differences in the
lower quantiles; (iii) welfare disparities are accounted for by the unexplained factors related to
income and education; and (iv) there are welfare gains from using non-formal credit and insurance
products for individuals in the lower quantiles. The results suggest that pursuit of financial
inclusion should be complemented by policies that improve education and incomes especially for
the marginalized.
Keywords: Financial Inclusion; Re-centered Influence Function; South Africa; Welfare
JEL Classification Codes: G2, I3
Session 1.8: Development - Human Capital & Education
1) School Quality is a Premium – Quantifying the Advantage in Literacy Skills from Higher-Quality
Schools in South Africa - Annika B. Bergbauer, University of Goettingen, Germany
Abstract: We use data from the preProgress in International Reading Literacy Study (prePIRLS)
2011 by the International Association for the Evaluation of Educational Achievement (IEA) of
15,744 fourth graders in 341 schools in South Africa. While accounting for a range of socioeconomic student characteristics and school learning inputs – such as infrastructure and teachers –
we isolate an aggregate measure of school quality. For African home language students, the
premium in literacy skills from attending a higher quality, English-instructing school opposed to a
lower quality African- instructing school is 39.21 points (0.433 SD). This relatively large coefficient
equals approximately the effect of one year of schooling (Hill et al. 2008).
2) The Association of Parental Education with Childhood Undernutrition in Low- and Middle-Income
Countries: Comparing the Role of Paternal and Maternal Education - Christian Bommer, Sebastian
Vollmer & Vera Sagalova, University of Goettingen, Germany
Abstract: Background: Most existing research on the association of parental education with
childhood undernutrition focuses on maternal education and largely ignores paternal
education. We systematically investigate differences in maternal and paternal education and their
association with childhood undernutrition. Methods: 178 Demographic and Health Surveys from
62 countries done between 1990 and 2014 were analyzed. We used logistic regression models to
estimate the association between childhood undernutrition, measured as stunting, wasting and
underweight, and differences in paternal and maternal education. Models were adjusted for
primary sampling unit fixed effects, clustering, and demographic and socioeconomic covariates
for the child, mother, and household. Results: Both higher maternal and paternal education are
associated with lower childhood undernutrition. In the unadjusted regressions the association
is much stronger for maternal education than for paternal education. In the fully adjusted
models the odds ratios for higher educational attainment of the mother and higher educational
attainment of the father are very similar and all confidence intervals overlap. Higher paternal
years of schooling compared to maternal years of schooling are associated with lower
childhood stunting and underweight and the association is statistically insignificant for wasting.
However, the magnitude of the odds ratios is close to one. Conclusions: We find that paternal
education matters just as much for reducing childhood undernutrition as maternal education.
Policy that solely focuses on maternal education and neglects paternal education is misguided.
The benefits of parental education for reducing childhood undernutrition will only be realized if
both paternal and maternal education receive similar attention.
Keywords: child undernutrition, parental education, stunting, wasting, underweight
3) Human Capital and Economic Growth in Uganda - Jimmy Alani, Makerere University, Uganda
Abstract: The overall objective of this article is to investigate the effect of human capital on the
economic growth of Uganda during the period of 1995 to 2013. The study examined the
contribution of health and education components of human capital to economic growth in Uganda.
It applied data on Uganda to the growth accounting model built to examine the transmission
mechanism of human capital from labour productivity or capital productivity to capital or labour;
and from capital or labour to GDP. Thus growth of GDP was specified as a function of labour
and capital; labour or capital was specified as a function of productivity; and human capital in the
labour or health sector as a function of productivity. Based on the econometric and statistical
analyses human capital in both the education and health sectors were found to have a negative
influence on economic growth in the long run. Also human capital in both the education and
health sectors were found to have a negative influence on labour or capital in the long run. But
human capital was found to have a positive effect on capital productivity, labour productivity and
technological progress. The influence of human capital on economic growth could be negative
because when one form of capital becomes very productive and renders other inefficient forms
of capital to be squeezed out of the productive process. Likewise, when the productivity of capital
rises it causes work schedules at home or industries to be accomplished by fewer amounts of
labour, causing some labour to be squeezed out of the productive process. Thus, due to depletion of
inputs growth in productivity end up causing reduction in economic growth. Otherwise, human
capital could have a positive effect on economic growth through its positive influence on
technological progress.
Session 1.9: Econometric Theory - ARCH & GARCH
1) Asymptotic Normality of the Pseudo Maximum Likelihood Estimation in ARCH(1) under Dependent
Innovations - Eugene Kouassi, West Virginia University, USA, Patrice Soh Takam, University of
Yaoundé, Cameroon, Jean Marcelin B. Brou, University FHB, Abidjan-Cocody, Ivory Coast & Kodje
M. Djiffa, Univerity of Lomé, Togo
Abstract: In this paper, one makes use of the technique of martingales to establish the asymptotic
normality under dependent innovations of the pseudo-maximum likelihood estimator (PMLE) of
the univariate ARCH (1) model. Contrary to previous approaches encountered in the statistical
literature, the pseudo-likelihood function used the general form of the density laws of the
quadratic exponential family.
Keywords: Pseudo-maximum likelihood estimator, univariate ARCH (1) model, asymptotic
normality, dependent innovations, quadratic exponential family.
JEL Classification Code: G60
2) An Evaluation of the impact of Monetary Policy Announcements and Political Events on the
Exchange Rate: The Case of South Africa - Trust R. Mpofu & Amos Peters, University of Cape Town,
SA
Abstract: This paper analyses the short run behavior of the South African Rand using daily
data over the period 1March 2000-31 December 2014. The study contributes to the
literature by using an event studies approach of Campbell, Lo & MacKinlay (1997) to answer
two re- search questions: What is the impact of South African monetary pol- icy
announcements and political events on South African Rand. The advantage of event studies
is that they are able to quantify systematically the abnormal or unexpected impact of an
economic or political event on asset prices. The results finds 8 out of 12 significant cumulative
abnormal returns for monetary policy announcements. The study also finds significant
cumulative abnormal returns for all the three ex- change rates following the Marikana
massacre on 16 August 2012 and the release of Nelson Mandela banknotes on 6 November
2012. The ANC elective conferences only have significant cumulative abnormal returns using
the Rand/US dollar in 2007 and 2012. These results suggest that the Rand is not only
influenced by demand and supply flows but by news as well.
Keywords: Event study; Exchange rate volatility; Cumulative abnormal returns; Monetary policy
JEL Classification Codes: E52, E58, F31, G14.
3) Consistency of the Pseudo Maximum Likelihood Estimation in ARCH (1) under Dependent
Innovations - Eugene Kouassi, West Virginia University, USA, Patrice Soh Takam, University of
Yaoundé, Cameroon, Jean Marcelin B. Brou, University FHB, Abidjan-Cocody, Ivory Coast & Kodje
M. Djiffa, Univerity of Lomé, Togo
Abstract: In this paper, one first considers the pseudo maximum likelihood estimation of the
univariate ARCH (1) model and derives the underlying estimator. Then, one makes use of the
technique of martingales to establish the consistency of the obtained pseudo-maximum
likelihood estimator (PMLE). Contrary to previous approaches encountered in the statistical
literature, the pseudo-likelihood function used the general form of the density laws of the
quadratic exponential family and the innovations are here allowed to be dependent, which is
indeed a quite realistic assumption.
Keywords: Pseudo-maximum likelihood estimator, univariate ARCH (1) model, consistency,
quadratic exponential family.
JEL Classification Codes: G60
17:00 – 20:00
Game Drive
20:00 – 22:00
Dinner (Served form 18:30 – Kujela Restaurant)
Abstract: By relaxing most of the traditional assumptions, we show that supplementing any
existing pricing menu using a usage-based pricing with a flat-fee option is profit improving
when the savings from transactions costs and/or from eliminating dead- weight loss from using
a flat fee exceed the additional production costs. Further, whenever it is profit-improving, it is
also Pareto-improving. Our formulation leads to classification of markets that are only suitable
for usage-based pricing, flat-fee only, or for a combination of both. Sometimes for flat-fee
option to be profitable, a "critical mass" of adopters of flat fee may be needed. Most
conclusions not only hold for a flat-fee supplement, but also for any new tariff plan
supplementing the existing pricing menu.
Keywords: usage-based pricing, nonlinear pricing, pricing menu, self-selection, flat-fee
pricing, buffet pricing, second-degree price discrimination.
3) Does Regret Explain Why People Search too little? A model of Sequential Search with Anticipated
Regret and Rejoicing - Zhiquan (Darren) Weng, Beijing Normal U-Hong-King Baptist University,
China
WEDNESDAY, 27 JULY
06:30 – 08:30
2) Profitability of Pricing Menu - Babu Nahata, University of Louiville & Sergey Kokovin, Novosibirsk
State University, USA
Breakfast
Parallel Sessions 2.1; 2.2 and 2.3: 08:30 – 10:30
Session 2.1: Pricing and Equilibrium
1) When Borch's Theorem does not apply: some key implications of market incompleteness, with
policy relevance today - Jacques Drèze, CORE, Université catholique de Louvain, Belgium
Abstract: Markets are incomplete when the assets available to the agents do not span the
space of future contingencies. In that case, competitive equilibria on the markets for assets
and commodities fail (generically) to be “constrained efficient”. Pareto-superior al- locations
can be implemented through price/wage rigidities and quantity constraints. But nominal
rigidities are conducive to multiple equilibria, implying endogenous macroeconomic
uncertainties that compound the primitive (exogenous) uncertainties. This paper defines a
Temporary General Equilibrium (TGE) for which there exists a set of equilibria defining an
inflation – unemployment locus. Various policy implications are drawn, with relevance to the
current crisis.
Keywords: temporary equilibrium, constrained efficiency, price rigidities, multiple equilibria,
coordination failures
JEL Classification Codes: D50, D52, D82
Abstract: This paper models how regret and rejoicing arise when consumers (or workers)
sequentially search for lower prices (or higher wages). It shows that the anticipation of
regret and rejoicing can explain why in search experiments people are found to "search too
little" as compared to the theoretical benchmark. Anticipated regret and rejoicing are
embedded into optimal sequential search based on the formal regret theory of Loomes &
Sugden (1982) and Bell (1982). Because the observed price distribution is truncated by the
final acceptance price, one can only regret "search too much" but never "search too little".
Due to this fundamental asymmetry, the model predicts: First, if people feel more sensitive
towards regret than towards rejoicing, it is optimal to "search too little". Second, if additional
feedback is offered so that people expect to see what the price would have been had they
continued to search, search behaviors become observationally indistinguishable from the
benchmark case. In addition, if people's sensitivities towards future regret or rejoicing are
strengthened after recently experiencing regret or rejoicing, the model also explains why
people occasionally recall past prices whereas standard model predicts no recall. An
empirical investigation of 673 separate searches from an experimental dataset confirms that
people's (latent) reservation prices do shift with the experiences of regret and rejoicing
during search as the model prescribes. Within a single search task, regret about the last
search attempt being unsuccessful increases the probability of stopping in the current round
from 183 to 313. Competing explanations, namely, risk aversion and satisficing behaviors,
are evaluated and are rejected in favor of anticipated regret/rejoicing.
One policy
implication of the model is that enhancing post-purchase price transparency may induce
consumers to search more efficiently in
the first place.
JEL Classification Codes: C91, D03, D11, D12, D83
4) Market Foreclosure and Welfare Under Monopolistic Second-degree Price Discrimination - Yong
Chao & Babu Nhata, University of Louisville, USA
Abstract: Compared to uniform pricing, second-degree price discrimination not only can result in a
market foreclosure, but also such foreclosure can increase the total surplus. On the contrary, when
all markets are served under second-degree price discrimination and at least one market will always
be served with socially efficient quantity, the total surplus can still be lower.
Keywords: market foreclosure, welfare effects, second-degree price discrimination
JEL Codes: D42, D61, L11.
Session 2.2: Models of Risk & Uncertainty
estimation uncertainty. This transformation is valid for some extended families of non-differentiable
moments that are of great interest in the case of discrete distributions. We compare this strategy
with the one in which parameter uncertainty is corrected by considering the power function under
local alternatives. The special example of back testing of value-at-risk (VaR) forecasts is treated in
detail, and we provide simple moments that have good size and power properties in Monte Carlo
experiments. Additional examples considered are discrete counting processes and the geometric
distribution. We finally apply our method to back testing of VaR forecasts derived from a TGARCH(1,1) model estimated using foreign exchange-rate data.
Keywords: moment-based tests; parameter uncertainty; discrete distributions; value at risk; back
testing.
JEL Classification Codes: C12, C15
1) GMM estimation of the Long Run Risks model - Nour Meddahi, Toulouse School of Economics,
France
4) Bond Risk Premia in Consumption-Based Models - Drew Dennis Creal & Jing Cynthia Wu,
University of Chicago, USA
Abstract: In this paper, we propose a GMM estimation of the structural parameters of the
Long Run Risk model that allows for the separation between the consumer optimal
decision’s frequency and the frequency by which the econometrician observes the data. Our
inference procedure is also robust to weak identification. The key finding is that the Long
Run Risk model adapts well to the data but could not be so good at forecasting or telling
the true story about what drives the evolution of asset prices. Indeed, the model is able to
reproduce the qualitative behavior of targeted moments in the long run when the
corresponding estimates of the structural parameters are used for simulations, but it also
faces an urge tension in keeping in track with all the observed moments considered.
Abstract: The literature on recursive preference attributes all the time variation in bond risk
premia to stochastic volatility. We introduce another source: time-varying prices of risk that
co-move with inflation and consumption growth through a preference shock. We find that a
time-varying price of risk driven by inflation dominates stochastic volatility in contributing to
time variation in term premia. Once preference shocks are present, term premia are
economically the same with or without stochastic volatility.
Keywords:
consumption-based model; term structure of interest rates; recursive
preferences; term premia; stochastic volatility.
2) Monetary Policy Uncertainty and Economic Fluctuations - Drew Dennis Creal & Jing Cynthia Wu,
University of Chicago Booth School of Business, USA
Abstract: We investigate the relationship between uncertainty about monetary policy and
its transmission mechanism, and economic fluctuations. We propose a new term structure
model where the second moments of macroeconomic variables and yields can have a firstorder effect on their dynamics. The data favors a model with two unspanned volatility
factors that capture uncertainty about monetary policy and the term premium.
Uncertainty contributes negatively to economic activity. Two dimensions of uncertainty
react in opposite directions to a shock to the real economy, and the response of inflation
to uncertainty shocks vary across different historical episodes.
Keywords: uncertainty; monetary policy; term premium; macroeconomic fluctuations;
affine term structure models; stochastic volatility; Bayesian estimation.
Session 2.3: Macro Development
1) The Heterogeneous Effects of Transportation Investments: Evidence from sub-Saharan Africa
1960-2010, Rémi Jedwab, George Washington University, Adam Storeygard, Tufts University,
Medford, USA
3) Simple moment-based tests for value-at-risk models and discrete distributions - Christian
Bontemps, Toulouse School of Economics, France
Abstract: This paper documents the effect of road construction on city population growth in
sub-Saharan Africa 1960-2010, through the channel of increasing market access. Using
changes in market access due to foreign or otherwise distant road construction as a source
of exogenous variation in overall market access, we estimate a 30-year elasticity of city
population with respect to market access of 0.05 to 0.20, larger than OLS estimates of 0.03–
0.05, but somewhat smaller than estimates for other contexts. The effect is concentrated in
the 30 years after road construction. Some evidence suggests that it is stronger for cities
closer to coasts and borders, and those farther from a country’s largest cities.
Keywords: Transportation Infrastructure; Trade Costs; Roads; Urbanization; Cities; Africa;
Market Access; Highways
JEL Classification Codes: F15, O18, R11, R12, R4
Abstract: In this paper, we develop moment-based tests for parametric discrete distributions.
Moment-based test techniques are attractive as they provide easy-to-implement test statistics. We
propose a general transformation that makes the moments of interest insensitive to the parameter
2) Minorities and Long-run Development: Persistence of Armenian and Greek Influence in Turkey Cemal E. Arbath, National Research University Higher School of Economics, Moscow & Gunes
Gokmen, New Economic School, Moscow, Russia
Abstract: Mass deportations and killings of Ottoman Armenians during WWI and the GreekTurkish population exchange after the Greco-Turkish War of 1919-1922 were the two major
events of the early 20th century that permanently changed the ethno-religious landscape of
Anatolia. These events marked the end of centuries-long coexistence of the Muslim
populations with the two biggest Christian communities of the region. These communities
played a dominant role in craftsmanship, manufacturing, commerce and trade in the Empire.
In this paper, we empirically investigate the long-run contribution of the Armenian and
Greek communities in the Ottoman period on regional development in modern Turkey. We
show that districts with greater presence of Greek and Armenian minorities at the end of the
19th century are systematically more densely populated, more urbanized and exhibit
greater economic activity today. These results are qualitatively robust to accounting for an
extensive set of geographical and historical factors that might have influenced long-run
development on the one hand and minority settlement patterns on the other. We explore
two potential channels of persistence. First, we provide evidence that Greeks and
Armenians might have contributed to long-run economic development through their legacy
on human capital accumulation at the local level. This finding possibly reflects the role of
inter-group spillovers of cultural values, technology and know-how as well as the selfselection of skilled labor into modern economic sectors established by Armenian and Greek
entrepreneurs. Second, we show some evidence supporting the hypothesis that minority
assets were also instrumental in the development of a modern national economy in Turkey.
Keywords: Persistence; Economic Development; Minorities; Ethnicity; Armenians; Greeks.
JEL classification codes: O10, O43, P48, N40, Z12
3) The Style of Colonial Rule and Economic Growth in sub-Saharan Africa: A Long-run Perspective Clinton Joel & Reneé van Eyden, University of Pretoria, SA
Abstract: We exploit differences in the style of colonial rule by European imperial rulers to
estimate the casual effect of colonial rule on economic growth, through four channels:
human capital, trade openness, institutional, and demographic channels. Imperial rulers
colonised sub-Saharan African countries with a similar motivation of expanding the imperial
powers footprint in the global economy, however the style of colonial rule differed. History
suggests direct colonial rule was less successful at integrating African colonies into the world
capitalist economy. Using panel data on 29 sub-Saharan African countries, we capture economic
conditions at pre-independence; and then analyse how the economic conditions have faired for
the period fifty years’ post-independence. The results suggest that indirect colonial rule was
marginally more effective than direct colonial rule in expanding GDP per capita, through the
implementation of long lasting policies in human capital, trade openness and demographics.
Keywords: Within estimator, random effects estimator, Hausman-Taylor estimator, colonial rule,
human capital, trade openness, institutional quality, demographics, sub-Saharan Africa
4) Education and Fertility: Panel Time-Series Evidence from Southern Africa - Manoel Bittencourt,
University of Pretoria, SA
Abstract: In this paper I investigate whether secondary school enrolment has played any role
on total fertility rates in the fifteen countries of the Southern African Development
Community (SADC) between 1980 and 2009. The results, based on panel time-series analysis
(I use the Pooled OLS, Fixed Effects, Mean Group, Common Correlated Effects and Fixed
Effects with Instrumental Variables estimators to deal with statistical endogeneity,
heterogeneity, cross-section dependence and re- verse causality in thin panels), robustly
suggest that secondary enrolment has reduced fertility in the community, or that the
community is already trading-off quantity for quality of children. The results are important
because lower fertility, caused by secondary enrolment, implies more capital per worker,
higher productivity and therefore higher growth rates, and also because--in accordance with
unified growth theory--they suggest that southern Africa is experiencing its own transition
from the Malthusian epoch into sustained modern growth.
Keywords: Education, fertility, Africa.
JEL Classification Codes: I20, J13, O55
10:30 – 11:00
Break
Invited Lecture: 11:00 – 12:30
Human Capital, Earnings and Taxation - Richard Blundell, University College London
and Institute for Fiscal Studies, London
12:30 – 13:30
Lunch
Parallel Sessions 2.4; 2.5 and 2.6: 13:30 – 15:00
Session 2.4: Health & Social Security
1) Retirement and memory performance among older citizens in European Countries - Gulnara
Huseynli, University Ca Foscari of Venice
Abstract: The policy makers became increasingly concerned with the stability of the social security
systems, which led to changes in public retirement provisions. However, many scholars point out
that since retirement is a major life transition, the retirement age may have strong effect on
the health of retirees, which should be taken into account. In this research I studied effect of
retirement on cognition among Europeans, using cross-country survey data from eleven
European countries. I found that using the OLS regression the retirement is highly negatively
correlated with the memory performance only for the male subsample. In addition, when I used
the IV approach separately for subsamples of physically demanding and undemanding jobs, I found
that the effect of the retirement on memory in both subsamples is negative. At the next step, I
divided my sample into 2 groups of countries with high or low memory performance. This analysis
led to the finding that in countries characterized by high memory performance the effect of the
retirement on cognition is positive and highly significant. I interpreted this finding as the memory
performance of retirees in high-memory level countries declines at slow rate.
2) The Global Economic Burden of Diabetes: A Cost-of-Illness Study - Christian Bommer, Esther
Heeseman, Vera Sagalova, Jennifer Manne, Rifat Atun, Till Bärnighausen, & Sebastian Vollmer,
University of Goettingen, Germany
Abstract: Background: Despite a plethora of cost-of-illness (COI) studies, which have
considerably advanced our understanding of the costs of diabetes in selected countries,
differences in methodologies, included costs and data sources complicate international
comparisons. Consequently, little is known about the global economic burden of diabetes. To fill
this gap, this study provides internationally comparable estimates and quantifies the economic
costs of diabetes on a global level. Methods: We consider direct and indirect costs of diabetes.
Direct costs are taken from the 2015 IDF Diabetes Atlas. To estimate indirect costs, we conduct a
meta-analysis of past studies on the labour market consequences of diabetes and combine the
results with recent prevalence, mortality and GDP per capita data. Results: Considering data from
185 countries, we estimate the global economic burden of diabetes to be US-$ 1.949 trillion or
2.33% of world GDP. In almost all countries, indirect costs, especially temporary and permanent
inability to participate in the labour market, are the main driver of economic burden. Moreover,
beside the United States and other high-income countries (HICs), China, Brazil, Russia and India
are among the ten largest contributors to total diabetes-related costs. Relative to GDP, the
Marshall Islands are most strongly affected by diabetes. Interpretation: The results indicate a
substantial global economic burden of diabetes. While our estimates should be interpreted with
some caution, given a number of data limitations in low- and middle-income countries (LMICs),
we find that indirect costs contribute the major share to the burden, especially in the developing
world.
3) A Flow Measure of Missing Women by Age and Disease - Stephen Klassen, Sebastian Vollmer &
Vera Sagalova, University of Goettingen, Germany
Abstract: In a recent paper in the Review of Economic Studies, Anderson and Ray (AR) develop a
new ‘flow’ measure of missing women in developing countries by comparing actual agesex- specific mortality rates with 'expected' ones. Contrary to the existing literature on
missing women, they find that gender bias in mortality is much larger than previously found
(4-5 million excess female deaths per year), is as severe among adults as it is among children
in India, is larger in Sub-Saharan Africa than in China and India. We show that the findings of
AR are entirely dependent on a highly implausible reference standard from rich countries
that is inappropriately applied to settings in developing countries; the attempt to control for
differences in the disease environment does not correct for this problem and fails basic
plausibility checks. When a more appropriate reference standard is used, most of the new
findings of AR regarding the regional and age composition of missing women disappear.
Keywords: Missing women, gender bias, mortality, disease, age, Sub-Saharan Africa, China, India
JEL Classification Codes: J16, D63, I10
Session 2.5: Models of Learning
1) Top Trading Cycles in Endogenous Information Acquisition - Annika Johnson, Royal Holloway,
University of London
Extended Abstract: Consider a unilateral matching problem in which each agent is endowed
with an indivisible object that may be exchanged with other such agents. In theory this is
known as a house matching problem but here I use the terminology of one of the most
prominent applications: kidney exchange [Roth et al., 2004]. When a person requires a new
kidney a number of cases may arise. It might be that the patient has no donor at all or
they are successful in finding a compatible donor. This model focusses on the final case in
which patients can find only an incompatible donor. Patients may be able to exchange their
incompatible donor kidneys between each other in order to receive a compatible organ. An
obvious candidate mechanism for organising such an exchange is Gale’s Top Trading cycles
(GTT) [Shapley and Scarf, 1974]. In this environment it is the unique strategy proof, Pareto
optimal and individually rational mechanism [Ma, 1994]. This means that it is a dominant
strategy for all agents to reveal their truthful preferences over the available kidneys and
that no agent can lose their incompatible endowment without receiving a compatible
kidney in exchange. It is clear, however, that in order for an exchange between two or more
agents to take place, the kidney must first be tested. A kidney can never be safely
transplanted without first confirming its compatibility with the patient. This requirement
means that the conventional GTT mechanism must be modified to account for a stage in
which test results are acquired. Furthermore, although testing a kidney before transplant is
compulsory itis also infeasible for all patients to test all kidneys. In this paper I examine the
impact of restricting each patient to learning the value of only one kidney on both the
equilibrium and the market designer’s role in influencing learning. The introduction of
learning means that each agent must do two things. Firstly, he must choose which kidney to
learn about and secondly he must report his ex-post preferences in the Gale’s Top Trading
cycle mechanism. Since GTT is strategy proof, I assume that all agents truthfully report their
ex-post preferences. With this assumption each agent has to take only one decision: which
kidney to test. An agent’s ex-post preferences are formed after learning. Before testing an
agent has only limited information about possible donor kidneys. Each agent knows that
he is incompatible with his own endowment and that any untested kidney is unavailable
to him for transplant. Agents are aware that the possible donor kidneys are heterogeneous.
For example, it is clear that one organ comes from a healthy twenty year-old while
another is classified as coming from extended donor criteria and is an older, less reliable
kidney that may fail sooner. After testing, the agent learns whether a tested kidney is
compatible or not and therefore whether he prefers it to his own endowment. In addition, an
agent’s value for a given kidney is independent of any other agents’ learned values. Since
untested kidneys cannot be transplanted, it is without loss of generality for the agent to
also value these below his own endowment. Agents are matched using their ex-post
preferences and so the agents’ learning decision affects which exchanges are possible. A
learning cycle forms if there is a set of agents such that agent 1 chooses to learn the value
of agent 2’s endowment, agent 2 learns the value of agent 3’s endowment and so on until
there is some agent i that learns the value of agent 1’s endowment. The exchange of donor
kidneys can only take place between agents in the same learning cycle. If an exchange
does take place, then each agent in the cycle will receive the kidney he tested.
2) Learning in Network Games - Jaromir Kovarik, University of the Basque Country & Bridge,
Friederike Mengel, University of Essex & Gabriel Romero, Universidad de Santiago de Chile
Abstract: We report the findings of experiments designed to study how people learn in
network games. Network games offer new opportunities to identify learning rules, since on
networks (compared to e.g. random matching) more rules differ in terms of their
information requirements. Our experimental design enables us to observe both which
actions participants choose and which information they consult before making their
choices. We use these data to estimate learning types using finite mixture models. There is
substantial heterogeneity in learning types. How- ever, the vast majority of our participants’
decisions are best characterized by reinforcement or (myopic) best-response learning. We
also find that participants in more complex environments (with more network neighbours)
tend to resort to simpler rules compared to those with only one network neighbour.
Keywords: Experiments, Game Theory, Heterogeneity, Learning, Finite Mixture Models,
Networks.
JEL Classification Codes: C72, C90, C91, D85.
3) Bayesian learning with multiple priors and non-vanishing ambiguity - Alexander Zimper,
University of Pretoria
Abstract: The existing models of Bayesian learning with multiple priors by Marinacci (2002) and by
Epstein and Schneider (2007) formalize the intuitive notion that ambiguity should vanish through
statistical learning in a one-urn environment. Moreover, the multiple priors decision maker of these
models will eventually learn the `truth'. To accommodate non-vanishing violations of Savage's
(1954) sure-thing principle, as reported in Nicholls et al. (2015), we construct and analyze a model
of Bayesian learning with multiple priors for which ambiguity does not necessarily vanish. Our
decision maker only forms posteriors from priors that pass a plausibility test in the light of the
observed data in the form of a γ-maximum expected loglikelihood prior-selection rule. The
"stubbornness" parameter γ≥1 determines the magnitude by which the expectation of the
loglikelihood with respect to plausible priors can differ from the maximal expected loglikelihood.
The greater the value of γ, the more priors pass the plausibility test to the effect that less ambiguity
vanishes in the limit of our learning model.
Keywords: Ambiguity, Bayesian Learning, Misspecified Priors, Berk's Theorem, Kullback-Leibler
Divergence, Ellsberg Paradox
Session 2.6: Development: Aid & Agriculture
1) Does Foreign Aid Play a Role in the Maintenance of Economic Growth? A Non-Linear Analysis Nermeen Harb, Stephen G. Hall, University of Leichester, UK
Abstract: Should donors keep scaling up foreign aid or be more cautious because of the limited
absorptive capacity of the recipient country? Two points of views dominate the debate in the
literature, big push and limited capacity constraints. This paper investigates the non-linearity
hypothesis between foreign aid and economic growth for 25 developing countries during the
period 1984-2008. We provide a new estimation approach for Panel Smooth Transition
Regression model (PSTR), as we will specify the PSTR model in the form of state space system
in order to estimate the threshold level of foreign aid endogenously. For upper middle countries,
we recognize the positive impact of aid flows on economic growth but with diminishing
returns, while lower middle and least developed countries support the big push concept. A
higher threshold level (27.19% of GDP) of aid has been observed only for LDCs beyond, which aid
has non-significant impact on economic growth.
Keywords: foreign aid, economic growth, non-linear, PSTR model.
JEL Classification Codes: C24, C32, O42.
2) Does Foreign Aid Reduce Poverty? A Panel Data Analysis for Sub-Saharan African Countries Edmore Mahembe, University of South Africa & MM Odhiambo, University of South Africa
Abstract: The main objective of this study is to examine the effect of official development aid on
poverty in Sub-Saharan Africa (SSA) countries over the period 1981-2011. The study uses three
different panel estimation techniques, including those methods which deal with endogeneity
and simultaneity concerns. To test the robustness of the results, the study also uses three
different proxies for poverty, and five proxies for foreign aid. The main findings of the study are
that foreign aid does not seem to have a statistically significant effect on poverty in SSA. The
results are consistent across all the three poverty proxies. The disaggregation of aid by source
and type does not change the results. The study also found that economic growth is good for
poverty reduction. On average, a 1 per cent increase in GDP per capita is estimated to lead to
around 40 per cent reduction in poverty in SSA. Furthermore, investment in education and the
building of democratic institutions were found to have poverty-reducing effects. The implication
of these findings are that although poverty reduction should remain as one of the main objectives
of official development assistance, the allocation to SSA countries should be focused on those
channels which have a poverty-reducing effect, such as economic growth, education and skill
development and the building of quality and democratic
institutions.
Keywords: official development aid; foreign aid; poverty; economic growth; developing
countries; dynamic panel data analysis; system GMM
JEL Classification Codes: O40.F21.C01.C23.
3) Return to investment in agricultural cooperatives: Evidence from natural experiment - Dambala
Gelo, University of Cape Town, SA
Abstract: In an effort to increase small holders participation in commodity markets World Food
Program (WFP) has recently implemented a five years pilot project of Purchase for Progress (P4P) in
20 countries. The projects involved investing in physical and human capitals (capacities) of farmer’s
organization (FO) to aggregate commodities and add value as well as creating additional market by
locally purchasing food aid from the same. In this study, using the Ethiopian survey data, we
estimated a causal welfare and distributional effect of Ethiopian P4P intervention among
smallholders. Using a semi-parametric difference-in-difference model, we find that P4P
interventions have raised per capita consumption of average smallholder exposed to P4P
intervention. Estimates of the treatment effect from alternative specification of our preferred
models ranged between ETB188.3 and ETB248.6 (15.10% and 19.93%). Moreover, our quantile
treatment effect analysis suggests heterogeneous treatment effect along welfare distribution.
Policy implications are discussed.
Keywords: P4P, welfare effect, distributional bias, semi-parametric DID
JEL Classification Codes: D23, Q02, D02
15:00 – 15:30
Break
Parallel Sessions 2.7, 2.8 and 2.9: 15:30 – 17:00
Session 2.7: Macro Economics & Financial Markets
1) Adverse selection in OTC derivative clearing collateral: Should government intervention tightly
constrain collateral quality? - Norris L. Larrymore, New York University, USA
Abstract: This paper addresses whether government policy should impose tight regulatory
constraints on collateral quality required by clearing houses in the over-the-counter
market. The adverse impact of tighter collateral regulation is constrained liquidity.
Bernanke (1990) categorizes clearing houses as financial intermediaries that are likened
to insurance companies, by drawing an analogy between some functions common to
both. Similar to the way Einav, Finkelstein, and Cullen (2010) uses graphical illustration of
adverse selection to provide an economic rationale for government intervention in
insurance markets, this study employs graphical illustration of adverse selection to analyze
the justification of government regulation in the over-the-counter (OTC) derivatives
markets. Specifically, this study focuses on estimation of the welfare cost of inefficient
pricing, as measured by the willingness of investors at the trade entry stage to post a
prescribed collateral value into their margin account, and the perceived costs associated
with the protection provided by clearing houses.
2) Welfare cost of bank capital requirements with endogenous default - Fernando Garcia-Barragan
& Guangling Liu, Stellenbosch University, SA
Abstract: This paper presents a tractable framework with endogenous default and
evaluates the welfare implications of bank capital requirements. We analyze the social
welfare response to a negative technology shock under different capital requirements
with and without default. We show that, under some parameters, including default as
an additional indicator of capital requirements is welfare improving. The credit- tooutput gap is a better candidate than output gap for the implementation of capital
requirements in terms of welfare. In general, a more aggressive reaction of Basel II and
Basel III with credit-to-output can more effectively mitigates the negative welfare effect of
the shock.
Keywords: Bank Capital Requirements, Default, Welfare.
JEL Classification Codes: E44, E47, E52, E53, E58.
3) Two-Block World Economy, Banking and Financial Crisis - Ruthira Naraidoo, University of Pretoria,
SA
Abstract: Following the world-wide financial crisis of 2007 to 2009 that was triggered by large
banking sector losses associated with housing prices falling in the US after rising continuously for
a long period of time. This caused bankruptcy and bank failure since many such loans were
spread across banks over the US and Europe. Recent empirical evidence suggests that this
simultaneous drop in output was strongest in countries with greater financial ties to the US
economy. This paper develops a two-country framework to allow for banking structures within
a standard New Keynesian model. The banking structure across countries is modelled using the
production approach to financial intermediation. We allow both countries' banks to be able to
take deposits both locally and internationally. We analyze the transmission mechanism of
banking sector productivity shocks and the extent to which the financial exposure of the
banking sector affects the transmission of these shocks. In our model, we find that firstly, as
customary in models with financial frictions, a fall in banking productivity leads to an increase in
credit spread, which in turn causes an overall downfall in the economy. Secondly, the model
shows that contrary to the puzzle in IRBC literature, there is a synchronized movement in main
variables and credit spread following a banking productivity shock in one country. Thirdly,
greater openness in trade causes higher correlations in output and other variables across
countries. Lastly, the greater is financial globalization, the more synchronized are international
business cycles.
Keywords: Open Economy Macroeconomics, DSGE, Financial Intermediation, Bank Productivity
JEL Classification Codes: E32, E44, F15, F36
4) The Global Financial Crisis: Testing for Fractional Cointegration between US and Nigerian Stock
Markets - Olaoluwa S Yaya, University of Ibadan, Nigeria, Luis Gil-Alana, University of Navarra,
Spain & Olusanya E. Olubusoye, University of Ibadan, Nigeria
Abstract: The recent global financial crisis which began in the US affected the global economy
adversely, and since then, the financial experts have developed interests in studying the effect of
this global shocks on the financial assets. This work considers the effect of the global shocks
on the Nigerian economy, and how it was affected when the crisis began and during the crisis.
The US stock markets examined are the monthly S&P500, Nasdaq and Dow Jones industrial stock
indices, and each one is examined in a long run equilibrium with the All Share Index (ASI) of
the Nigerian Stock Exchange. Fractional integration and cointegration methods are employed.
The results first indicate that the ASI and the three US stock indices display similar orders of
integration, which are all very close to 1. Testing for cointegration, we do not find any significant
evidence of a long run equilibrium relationship between the two markets; though we find a
significant positive relationship between the ASI and the US stocks at some lags such as lags1, 8
and 11, which may suggest an influence of the US stock market on the Nigerian stock market.
Keywords: Dow Jones industrial; Nasdaq; Nigerian stock market; Standard and Poors 500, Fractional
cointegration
JEL Classification Codes: C10, C22
Session 2.8: Market Equilibrium
1) To Share or Not to Share: Adjustment Dynamics in Sharing Markets - Maryam Razeghian &
Thomas Weber, Ecole Polytechnique Federale de Lausanne, Switzerland
Abstract: To aid in the description and estimation of the tremendous recent growth in the
collaborative economy, we provide a model for the dynamics of sharing, subject to fixed costs and
imperfect price formation. The sharing economy comprises a set of infinitely lived, heterogeneous
suppliers, who take recurring decisions about entering or leaving the market. We provide a closedform solution for the nonlinear evolution of the equilibrium in the sharing economy, typically resulting
in an S-curve diffusion pattern. In general, the sharing economy can evolve in a non-monotonic way,
with downward adjustments followed either by a steady state or by a positive diffusion towards a
steady state. The conversion costs produce a decision hysteresis for potential sharers. Unless these
costs are so large that the economy rests in steady state (almost) immediately, the adjustment
process does not con- verge in finite time. The study implies viability conditions for the sharing
economy in the presence of an intermediary. The qualitative results are shown to be robust with
respect to changes in the assumptions about price formation and hold even in the limiting case of a
frictionless economy with almost immediate price updates.
Keywords: Adjustment Dynamics, Collaborative Consumption, Diffusion Process, Equilibrium Search,
Hysteresis, Peer-to-peer Markets, Sharing Economy.
JEL Classification Codes: C72, D43, D47, L13, L14, O18, R31.
2) Multiple Lenders, Strategic Default and Covenants - Andrea Attar, Toulouse School of Economics
and University of Roma Tor Vergata, Catherine Casamatta, University of Toulouse 1, Arnold
Chassagnon, University of Tours & Jean Paul Decamps, Toulouse School of Economics, France
Abstract: We study capital markets subject to moral hazard when investors cannot prevent side
trading, thereby facing an externality if firms raise funds from multiple sources. We analyze
whether investors’ ability to design financial covenants that may include exclusivity clauses
mitigates this externality. Following covenant violations, investors can accelerate the repayment of
their loan, adjust its size, or increase interest rates. Enlarging contracting opportunities generates
a severe market failure: with covenants, equilibria are indeterminate and Pareto ranked. We show
that an investors-financed subsidy scheme to entrepreneurs alleviates the incentive to over
borrow and sustains the competitive allocation as the unique equilibrium one.
Keywords: Side Trading, Financial Covenants, Nonexclusive Competition, Strategic Default.
JEL Classification Codes: D43, D82, G33.
3) Public information from a private entity: the case of credit rating agencies - Julien Trouillet,
Université Paris Dauphine, France
Abstract: Credit rating agencies (hereafter CRA) have recently been under a lot of scrutiny. The
recent literature aims at studying the conflict of interest arising from their business model, where
the rated pay for its grade. However, CRA argues that reputation is their main asset thus they can't
engage themselves in any devious behavior. The recent literature has shown that reputation isn't
powerful enough to cancel the conflict of interest. Moreover, I consider the situation is a little
different, why is important for an issuer is not exactly the reputation of the agency but its impact on
the market. Thus the added-value of a rating would be higher in an environment where investors
are not very-well informed. Moreover, ratings have also a strong impact because they represent a
public signal. As shown in Morris and Shin (2002), the social value of public signal may be
ambiguous as investors, playing also a beauty contest in the sense of Keynes, give too much weight
on the public signal in their decision. The CRA represents a private entity giving a public signal. As a
public signal, I consider that CRA has the possibility of giving incentive for investors no to get
informed by being very accurate at first. The CRA being the only agent informed, the impact of its
rating are higher even though the accuracy of ratings decrease. This could provide an explanation in
the creation of bubbles, where a common pattern shows accurate ratings first followed by a
deterioration.
Keywords: Credit Rating Agencies, Public information
4) Dynamic Inconsistency, falling cost of capital relocation and preferential taxation of foreign
capital - Kaushal Kishore, University of Pretoria, SA
Abstract: When capital is sunk after it is invested, a host government facing heterogeneous
investors has a strong incentive to adopt preferential tax regime and offer lower taxes
over time in order to attract less eager investors. This induces investors to wait rather
than invest in the initial period, and leads to loss of tax revenue. We show that this
dynamic in- consistency can be fully resolved through non-preferential taxation of foreign
capital when the cost of capital relocation does not fall considerably over time. When cost
of capital relocation falls considerably over time, the host government as well as investors
have incentives to wait in order to gain from lower cost of capital relocation which leads
to preferential taxation of foreign capital preferred over non-preferential taxation.
JEL Classification Codes: F21, H21, H25, H87
Session 2.9: Labour Market Dynamics
1) Local labour markets and migration in South Africa - Dieter von Fintel & Eldridge Moses,
Stellenbosch University, SA
Abstract: South Africa's 1913 Land Act and the 1950 Group Areas Act limited the ability of
(especially) African individuals to settle in regions based on individual economic choices, restricting
permanent residence to the former apartheid homelands. Historically, the regions which were
eventually demarcated as homelands were already densely populated by Africans at the beginning
of the 20th century. Yet, the industrialisation of the economy should have (in the absence of
settlement restrictions) resulted in permanent movements of the population towards new urban
centres. Instead, circular temporary migration of populations between cities and rural areas
resulted, with permanent residences remaining in rural homelands regions. This pattern persists to
this day (Posel, 2010), despite the abolition of apartheid settlement restrictions. While substantial
permanent internal migration has occurred, the new, post-apartheid spatial equilibrium does not
reflect predicted behaviour: populations remain most concentrated in former homelands regions,
which also have the highest unemployment rates. This paper tests whether spatial variation in
implicit labour migration costs also explains the ability of individuals to permanently move from
their regions of origin to areas with better economic opportunities. Existing evidence (Kerr, 2015)
shows that transport costs and commuting times, in particular, place a large burden on the urban
working poor. This study, however, estimates inter-regional differences in costs. We estimate
implicit labour migration costs using Labour Force Survey data from 2001 and 2011. First we
estimate separate regressions for each region that can be identified in the data, relating the ratio of
the average wage of that region and all other regions (respectively) to the distance between the
region and all others. Coefficients represent the minimum regional wage premium a potential
worker would accept to cover the explicit and implicit costs of travelling a particular distance to
relocate. Hence, these quantities serve as a proxy for migration costs (Anderson et al, 2008). These
regressions also control for differentials in regional unemployment rates, so that distance
coefficients do not measure wage differences that arise from spatial variations in expected
employment probabilities. This procedure is akin to a geographically weighted regression, which
assumes that the data generating process is location-specific. Secondly, each of these implicit
migration costs is linked with the full set of sending regions in the country in census data (of 2001
and 2011). Movements of people between locations are also recorded (in other words, how many
people relocated from every sending region in the country to every other receiving region in a time
before the census was conducted). These regional pairs are then studied in a dyadic regression
context, where we relate movements across space to implicit migration costs of sending regions.
We firstly test whether migration costs remain higher in former apartheid homelands than in other
rural regions of the country. Secondly, we distinguish between the magnitude of costs by gender
and race: primarily African men formed part of the migrant labour system in the former apartheid
era, so that implicit migration costs may still remain highest for women in former homelands.
Thirdly, we illustrate for which groups the implicit migration costs explain actual population
movements best: this allows us to assess whether intra-regional labour market conditions really do
explain why people move, or whether other, historical factors are more persistent in this decision.
Keywords: Migration, Labour, Spatial econometrics
JEL Classification Codes: R23, C21
2) Assessing Solutions Towards The Unemployment Volatility Puzzle: The Role of Labor Market
Participation - Christian Haefke, New York University, Abu Dhabi, UAE & Michael Reiter, Institute
for Advanced Studies, Vienna, Italy
Abstract: Over the past decade several approaches have been brought forward to deal with the
unemployment volatility puzzle that had originally been documented by Shimer (2005) and Costain
and Reiter (2008). In order to prevent wages from responding too strongly, Hagedorn and
Manovskii (2008) propose a small surplus calibration, such that the main component of the wage
is dependent on a sluggish worker outside option. Gertler and Trigari (2009); Hall (2005); Hall and
Milgrom (2005) propose various mechanisms that lead to wage rigidity of newly hired workers, and
finally, Coles and Moghaddasi Kelishomi (2014) demonstrate that job destruction shocks and longlived vacancies can solve the puzzle, too. All three approaches succeed in generating
unemployment volatility of realistic magnitudes. We extend each of these models to allow for an
endogenous labor market participation decision and compare each models prediction to US data.
Even though matching both high unemployment volatility and low participation volatility over the
business cycle turns out to be a challenge for all proposed solutions to the unemployment volatility
puzzle, consistent with the findings of Veracierto (2008), the small sur- plus calibration and the job
destruction channel can be calibrated to match the business cycle facts.
3) Networks, inflation and labor market dynamics - Jean-Paul K. Tsasa Vangu, Laboratoire d'analyserecherche en économie quantitative, Kinshasa, DRC
Abstract: This note discusses persistent and hump-shaped U.S. inflation responses to
monetary shocks in a standard matching model. Recently, Acemoglu et al. (2015, AAK) argue
that the propagation of macroeconomic shocks through networks and industry interlinkages
can be a powerful driver of macroeconomic fluctuations. I propose a simple model with
this new evidence on the production networks structure. Then, I show how my model can
account inertial behavior and hump-shaped responses of U.S. inflation to monetary policy
shocks.
Keywords: Networks, inflation dynamics, Labor market.
JEL Classification Codes: E24, E32, E64
4) Cyclicality of Wages and Union Power - Annaïg Morin, Copenhagen Business School, Denmark
Abstract: This paper examines how trade unions shape the volatility of wages over the
business cycle. I present a dynamic stochastic model of the labor market that integrates
two main features: search frictions and trade unions. Because of search frictions, each
job match yields an economic surplus that is shared by the bargained wage. Therefore, I
can decompose the volatility of wages into two components: the volatility of the match
surplus and the volatility of the worker share of the surplus. Starting from the unions’
objective function, I demonstrate that, under collective wage bargaining, the worker
share is endogenous and countercyclical. Consequently, when the economy is hit by a
shock, the dynamics of the worker share partially counteract the dynamics of the match
surplus and this mechanism delivers endogenous wage rigidity. The model thus sheds new
insights into two business cycle features: the union wage premium fluctuates counter
cyclically, and employment is more cyclically sensitive but less persistent when wages are
collectively bargained.
Keywords: Search and matching; Trade unions; Cycles
JEL Classification Codes: J64; J51; E32
17:00 – 19:00
-
19:00 – 21:00
Dinner (Lapa)
THURSDAY, 28 JULY
05:00 – 08:00
Game Drive
08:30 – 09:00
Breakfast (Served from 06:30 – Kujela Restaurant)
Parallel Sessions 3.1; 3.2 and 3.3: 09:00 – 10:30
Session 3.1: African Economic Research Consortium
1) Do governance institutions matter for trade flows between sub-Saharan Africa and its trading
partners? - Adeolu Adeuyi, University of Ibadan, Nigeria & Ebenezer Olubiyi, Ibadan, Nigeria
This study analyses the role of governance institutions in trade involving Sub-Saharan Africa (SSA)
and its trading partners. Specifically, the objectives of this study are to: investigate the effect of
institutions on trade patterns of SSA with its trading partners; and examine whether governance
institutions matter for trade in SSA resource-poor countries (or non-mineral products) than for
trade in resource-rich countries (or mineral products). Based on a combination of the strands of
literature on the subject matter, we employ a modified gravity model to analyse the objectives
highlighted above. Using data spanning 1996 to 2012, empirical analysis involves estimating variants
of gravity equations using the modified Poisson pseudo maximum likelihood estimation approaches.
Empirical results show that, governence institutions matter for SSA’s trade, at both aggregate and
regional levels. It also reveals that, governence institutions matter more for trade in the resourcerich than in the resource-poor. For instance, a 1.0% improvement in the control of corruption in the
partner countries will engender an increase in exports of both the mineral-based economies and
the non-mineral based countries by 0.53% and 0.11% respectively. In the same vein, improvement
in the law and order in the two SSA group will prompt a fall in their exports. Also,a 1.0%
improvement in the control of corruption in both the mineral-based and non-mineral based
countries will speed up their imports by 0.84% and 0.46% respectively. Further, a 1.0%
improvement in the law and order in the two SSA groups will harm imports of the mineral-based
economies by 0.61%, but promote imports of the non-mineral based by 0.14%. Based on the
foregoing, it is recommened that, the qaulities of governance be improved significantly in all SSA
counries.
2) Do Domestic Firms Learn to Export from Foreign owned firms? Evidence from Kenya - Bethuel
Kinuthia, University of Nairobi, Kenya
Attracting foreign direct investment (FDI) inflows has been a major concern of most governments in
developing countries. The rationale for this is that FDI is believed to bring many benefits to the host
countries in terms of productivity, employment, and technology among others. This paper
investigates export spillovers in Kenya for the period 2000-2005 using firm level data. More
specifically export spillovers in the manufacturing industry and the channels of transmission of such
spillovers are analyzed. Using a probit model, the results show that foreign owned firms positively
affect domestic owned firms’ decision to export through the demonstration effects. However, there
is little evidence of significant export spillover across the sectors. Foreign firms are found to more
likely become exporters compared to domestic firms, which has important policy implications for a
developing country like Kenya.
3) How Facilitating Trade Would Benefit Trade in Sub-Saharan Africa - Abdoulaye Seck, Cheikh Anta
Diop University, Dakar, Senegal
Despite a significant trade expansion that has been above the world average in the recent period,
Sub-Saharan Africa still remains relatively marginalized in the world trading system. This paper sets
out to analyze the extent to which various elements of the trade cost landscape in the subcontinent may have contributed to shape trade patterns both within the region and with the
outside world. Various trade facilitation measures such as border efficiency, physical infrastructure,
regulatory environment, information and communication technology, and the World Bank's
Logistics Performance Index are related to bilateral trade flows in a gravity framework. The results
based on the Poisson pseudo-maximum likelihood indicate that raising the sub-continent to the
level of the world average would generate significant export gains that amount to reducing bilateral
distance by 1.8 to 4.5 percent, or reducing ad-valorem bilateral tariff by 1.8 to 12.8 percentagepoints. The extent of the gains varies greatly across the trade facilitation measures, commodity
sectors, export destinations, and depends on which trading partner undertakes the corresponding
reforms. These results offer a strong basis for designing targeted trade facilitation reforms that
would improve Africa's international trade position in the wake of the recent success of WTO's
trade negotiations.
Session 3.2: Treatment Effects Estimation
1) Inference in Differences-in-Differences with Few Treated Groups and Heteroskedasticity - Bruno
Ferman & Cristine Pinto, São Paulo School of Economics, Brazil
Abstract: Differences-in-Differences (DID) is one of the most widely used identification
strategies in applied economics. However, how to draw inferences in DID models when
there are few treated groups remains an open question. We show that the usual inference
methods used in DID models might not perform well when there are few treated groups
and errors are heteroskedastic. In particular, we show that when there is variation in the
number of observations per group, inference methods designed to work when there are few
treated groups tend to (under-) over-reject the null hypothesis when the treated groups
are (large) small relative to the control groups. This happens because larger groups tend to
have lower variance, generating heteroskedasticity in the group x time aggregate DID model.
We provide evidence from Monte Carlo simulations and from placebo DID regressions with
the American Community Survey (ACS) and the Current Population Survey (CPS) datasets to
show that this problem is relevant even in datasets with large numbers of observations per
group. We then derive an alternative inference method that provides accurate hypothesis
testing in situations where there are few treated groups (or even just one) and many
control groups in the presence of heteroskedasticity. Our method assumes that we know
how the heteroskedasticity is generated, which is the case when it is generated by variation
in the number of observations per group. With many pre-treatment periods, we show that
this assumption can be relaxed. Instead, we provide an alternative application of our
method that relies on assumptions about stationarity and convergence of the moments of
the time series. Finally, we consider two recent alternatives to DID when there are many
pre-treatment groups. We extend our inference method to linear factor models when
there are few treated groups. We also propose a permutation test for the synthetic control
estimator that provided a better heteroskedasticity correction in our simulations than the
test suggested by Abadie et al. (2010).
Keywords: differences-in-differences; inference; heteroskedasticity; clustering; few clusters;
bootstrap; synthetic control; linear factor model
JEL Classification Codes: C12; C21; C33
2) Quantifying Violation of Common Support in Programme Evaluation - Adeola Oyenubi & Martin
Wittenberg, University of Cape Town, SA
researcher. However, an important limitation of the SC method is that it does not provide clear
guidance on the choice of predictor variables used to estimate the SC weights. We show that such
lack of specific guidance provide significant opportunities for the researcher to search for
specifications with statistically significant results, undermining one of the main advantages of the
method. Considering six alternative specifications commonly used in SC applications, we show in
Monte Carlo simulations that the probability of funding a statistically significant result at 5% in at
least one specification can be as high as 20% when there are 12 pre-intervention periods. This
probability decreases very slowly with the number of pre-intervention periods, suggesting that the
SC method provides substantial opportunities for specification searching even with a large number
of pre-intervention periods.
Keywords: inference; synthetic control; publication bias
JEL Classification Codes: C12; C21; C33
Session 3.3: Wealth Measures & Methods
Abstract: The treatment effect literature uses various econometric techniques in recovering a
treatment effect estimate. However, the key strategy of these techniques is that they separate
observations into treatment and control group. The control group is used to stand in for the
counterfactual distribution (what would have happened if the treatment group had not been
treated). The assumption is that the control group approximates the outcome of the treated
group had they not been treated. For this to be true one must assume that there is no
violation of the Conditional Independence and Common Support assumption (CIA and CSA
hereafter). There are ways to assess the CIA but the literature is relatively silent as to how to
assess CSA or how much CSA violation is too much. Rigorous definition of CSA requires two
components i.e. Shape violation and Support violation. We concentrate on the implication that
the violation of the shape component of CSA has on treatment effect estimate in terms of bias
and robustness. We show that when the outcome varies over the support of the conditioning
variables the violation of shape component (or difference in shape of characteristic distributions )
alone may result in bias and lack of robustness under any Programme Evaluation methodology. To
track this shape violation, we introduce a novel way of consistently quantifying CSA violation. This
method quantifies CSA violation as the entropic distance between the distributions of
characteristics. Our result shows that differences in characteristics distribution in terms of shape as
captured by the entropic distance measure provides a good signal for the existence of bias when
the untreated outcome varies over the support. We establish this result by simulation for cases
when the conditioning variable is a single variable and when we have a multivariate conditioning
set. The multivariate case involves using Propensity Score Matching (PSM).
Keywords: Causal inference, Non-experimental methods, programme evaluation
JEL Classification Codes: C18, C21
3) Specification-Search Possibilities with Synthetic Controls - Vitor Augusto Possebom, Bruno Ferman
& Christine Pinto, São Paulo School of Economics, Brazil
Abstract: The synthetic control (SC) method has been recently proposed as an alternative method
to estimate treatment effects in comparative case studies. Abadie et al. [2010] and Abadie et al.
[2015] argue that one of the advantages of the SC method is that it imposes a data-driven process
to select the comparison units, providing more transparency and less discretionary power to the
1) The Consumption, Income, and Wealth of the Poorest: Cross-Sectional Facts of Rural and Urban
Sub-Saharan Africa for Macroeconomists - Leandro Machado De Magalhaes, University of Bristol,
UK & Raul Santaeulalia, Washington University St. Louis, USA
Abstract: This paper provides new empirical insights on the joint inequality of consumption,
income, and wealth (CIW) in three of the poorest countries in the world – Malawi, Tanzania, and
Uganda – all located in sub-Saharan Africa (SSA). Our first finding is that while income
inequality is similar to that of the United States, wealth is much less disperse – by one-third –
than in the US. Similarly, while the top of the income distribution (1-10%) earns a similar share
of total income in SSA as in the United States, the share of total wealth accumulated by the
income-rich in SSA is one-fifth of its US counterpart. Our main contribution is to i) document this
dwarfed transmission from income to wealth that suggest that SSA households face a larger inability
to save and accumulate wealth compared with US households; and ii) document a lower
transmission from income to consumption inequality that suggests the presence of powerful
institutions that favor consumption insurance in detriment of saving. These features are more
relevant for rural areas, which represent roughly four-fifths of the total population. We identify
the few successful pockets of the SSA population that are able to accumulate wealth by exploring
sources of inequality such as age, education, migration, borrowing ability, and societal systems.
JEL Classification Codes: E20; E21; I32; O11; O15; O18; O55; Q12; R2; Z1
2) Subjective well-being and reference groups in post-apartheid South Africa - Marisa von Fintel &
Rulof Burger, Stellenbosch University, SA
Abstract: Previous studies on the determinants of subjective well-being concur on the importance
of relative income, acknowledging the fact that individuals evaluate their own well-being in light of
the performance of a well-defined reference group. Research using data from South Africa during
apartheid has found that reference groups were greatly divided along racial lines, with same-race
relative standing being much more important than the relative standing vis-a-vis other race groups.
Using data from the first wave of the National Income Dynamics Study in 2008, this paper updates
and expand these previous findings in order to come to a better understanding of the appropriate
definition of reference groups within a divided society such as South Africa. It makes use of a
nonlinear model in which various parameters are estimated using maximum likelihood in order to
determine the weight placed on the well-being of individuals in the same race group as the
respondent versus all the other race groups living in one of three specified geographic areas. The
main methodological innovation of this approach is that it allows the various parameters to interact
within the utility function and also takes a more flexible approach in the estimation of the weight
placed on others who are of the same race, allowing it to take a range of values. The findings seem
to suggest that reference groups have shifted away from a racial delineation to a more inclusive one
subsequent to the country's first democratic elections in 1994. Although most of the weight is still
placed on same-race relative standing, the estimates suggest that weight is also placed on
individuals from other race groups. The paper also examines the spatial variation of reference
groups and finds evidence that the relative standing of close others (such as neighbours) enter the
utility function positively while individuals who live further away (strangers) enter the utility
function negatively. The robustness of these findings is tested with alternative specifications and
income measures.
Keywords: Subjective well-being, reference groups, poverty, South Africa, maximum likelihood
JEL Classification Codes: I30, I31, D60
institutions, raises the probability of downward mobility of poverty. The overall results of
our study imply that subjective poverty measures encompass other poverty attributes for
which prices are missing or unreliable. We argue that subjective welfare data can provide
useful information that is not available in objective poverty measures for development
policies that aims to improve welfare.
Keywords: Subjective poverty transition; human and social capital; Markov chain, frame-ofreference bias
JEL Classification Codes: I32; R20; C23
10:30 – 11:00
Invited Lecture: 11:00 – 12:30
Closing the Small Open Economy Model: A Demographic Approach - Stephen
Turnovsky, University of Washington, Seatle and Victoria University of Wellington,
New Zealand
12:30 – 13:30
3) The resilience of the poor: A Markov chain analysis of subjective poverty dynamics and
heterogeneity - Theophile T. Azomahou & Eleni A. Yitbarek, Maastricht University And UNU-Merit
Abstract: We consider a Markov chain framework to study the dynamics of subjective
poverty in urban Ethiopia using a panel of 1,500 households over a decade. We measure
subjective poverty as three points ordinal scales defining three states: rich, borderline
and poor. Our framework allows alter- native specifications of unobserved heterogeneity
as a random effect dependent on: households and poverty departure state, household
and transition poverty profile (depending on both arrival and departure states), and
household heterogeneity only. Our preferred specifications involve heterogeneity
confirming the existence of ‘frame-of-reference’ bias in subjective poverty measures. This
cast a doubt in some of the conclusions that are drawn from existing subjective welfare
studies. However, some our findings are in line with the bulk of the existing evidence.
Own consumption have imperfect but strong positive effect on upward transitions of selfassessed poverty. Unemployment increases subjective poverty at a given income. We also
find little evidence of relative depravation effects on subjective poverty, this is consistent
with the findings of studies that has done for developing countries. Further, human capital
(household head educational attainment) is a strong determinant of upward poverty
transition. It displays intensity effect: the higher the level of education, the lower the
probability of downward transition of poverty. On the other hand, we document a
number of results that do not overlap with the existing evidence. First, our result don’t
support that larger households enjoy greater economies of scale in developing countries.
This finding clearly corroborates a fact already known in the literature that uses objective
poverty measure. We also don’t find evidence to support the role of positive income
trajectories in rating self-welfare. Households on positive consumption trajectories are
not likely to rate their welfare higher, but initial level of poverty is an important
determinant of future poverty. Finally, social capital, membership in volunteer
Break
Lunch
Parallel Sessions 3.4; 3.5 and 3.6: 13:30 – 15:30
Session 3.4: Macroeconomics & Policy
1) How to Design Prudent Debt Targets and Fiscal Rules - Falilou Fall & Jean-Marc Fournier,
Economics Department, OECD, Paris, France
Abstract: The sharp rise in debt experienced by most OECD countries raises questions about the
prudent debt level countries should target. It also raises questions about the fiscal frameworks
needed to reach them and to accommodate cyclical fluctuations along the path to converge
towards a prudent debt target. The objective of this paper is to define long-run prudent debt
targets for OECD countries and country-specific fiscal rules. To this end, a semi-structural
macroeconomic model for OECD countries and their primary balance reaction functions are
estimated. The shocks derived from these estimations are used to assess uncertainties
surrounding the development of macroeconomic variables. Then, the model is simulated up to 2040
to derive the prudent debt target for each country and design country-specific fiscal rules.
Keywords: Macroeconomics, Debt, Fiscal Policy
JEL Classification Codes: E27, E61, E62, H62, H68
2) The effects of the supply of credit on real estate prices: Venezuela as policy laboratory - Claire
Boeing-Reicher & David Pinto, Kiel Institute for the Workd Economy, Kiel, Germany
Abstract: While there is already some cross-sectional evidence from the United States on the
effects of the supply of credit on house prices, it is somewhat harder to identify these effects
using aggregate time-series data. To fill this gap, we use the credit- targeting regime of
Venezuela as quasi-natural experiment or as a policy laboratory, in order to identify the effects
of the supply of housing credit on time path of house prices (or housing markups). We find a
large effect, with an elasticity of housing markups with respect to credit of about 0.23
under our baseline specification, and similar results under a set of alternative
specifications. These estimates are extremely close to cross-sectional estimates for the
United States, which suggests that these estimates capture similar phenomena.
Keywords: House prices, credit supply, Venezuela, credit targeting.
3) The Wrong Policy at the Right Time - Joachem Jungherr, Institut d' Anàlisi Econòmica - CSIC and
Barcelona GSE & David Strauss, Centro de Investigación y Docencia Económicas (CIDE), Mexico
City, Mexico
Abstract: We develop a model of financial frictions to study optimal competition policy of a
benevolent government. Limited competition has two effects in our model. First, it generates the
standard static deadweight-loss which is beared exclusively by the workers as firms hire a less then
efficient amount of labor due to the impact of labor demand on wages. Second, it leads to an
increase in firms’ profits and next period wealth. Therefore, employed capital raises due to financial
frictions and complementarities between capital and labor lead to dynamic gains for workers. We
show that in early stages of development the dynamic gains always out- weigh the static losses for
workers. Thus, a government will always choose to limit competition in early stages of development,
independently of the relative weight it assigns to worker utility. We then calibrate our model to
the Korean economy to analyze whether the Korean politics in the 1960s which reduced
competition to favor the so-called “Chaebol” (Hyundai, Samsung, etc.) was in line with optimal
policy.
Keywords: financial frictions, market power, development policy transition policy
JEL Classification Codes: E02, O11, O16, O25
4) Estimating a Phillips Curve for South Africa: A Bounded Random Walk Approach - Alain Kabundi,
South African Reserve Bank and University of Johannesburg, SA & Eric Schaling. Wits Business
School, Vrije Universiteit, Amsterdam & Modetse Some, University of Johannesburg, SA
Abstract: In this paper we estimate a Phillips curve for South Africa using a bounded
random walk model. Central bank credibility, the slope of the Phillips curve, the natural
rate of unemployment and the central bank's inflation target band are time-varying. We find
that the slope of the Phillips curve has flattened since the mid 2000s - particularly after
the Great Recession - which is in line with the findings in most advanced countries. Our
results do not lend support to the hypothesis that the ability of the SARB to hit its inflation
target has decreased. With respect to the faith in the IT regime as measured by the degree
to the extent of which inflation expectations are anchored to the target our results indicate
that the SARB's credibility has decreased from 1994 to 2001, remained constant from 2001
to 2008, and eventually increased around 2008. This pattern is different from that of
advanced countries where expectations have become better anchored relatively early in the
IT regime. Moreover, we find that the increased stability of inflation expectations after 2008
- which coincides with the Great Financial crisis - is not only a result of good policy but also of
"good luck".
Keywords: Monetary Policy, Inflation Targeting, Inflation Expectations, Bounded Random Walk
Model.
JEL Classification Codes: C51, E52, E58.
Session 3.5: International Economics
1) Banking Crisis and the Heterogeneous Impact on Bilateral Trade - Matthew Clance, University of
Pretoria, SA
Abstract: The financial crisis that began in 2007 and intensified in the following years renewed
interest in the effect of financial crises on international trade. Research has been primarily focused
on the most recent crisis and has typically used a single country's disaggregated exports and/or
imports in its analysis. This paper will use a large panel of countries over the time period 1976-2010
for the analysis of banking crises on trade. The estimation will use the procedures described in Head
and Mayer (2013) to approximate the multilateral resistance terms and separate the exporter and
importer effect of banking crises on trade. Using Baier, Bergstrand, and Feng (2014) decomposition
of trade, the paper will also include an analysis of the impact of banking crises on the margins of
trade. Much of the research focusing on single country’s imports and/or exports has shown a
heterogeneous effect across sector and firm size in response to a financial crisis. The paper will also
investigate the heterogeneous impact of banking crises on the margins of trade employing a Mixed
model assuming the heterogeneity is country-pair specific. It is possible that heterogeneity in
results claiming the importance of different margins of trade in the various single country studies
could be explained by country-pair specific factors influencing variable and fixed costs differently.
Keywords: International trade, banking crisis, gravity equation
JEL Classification Codes: F1, G21
2) A test of the market potential hypothesis: A case for South Africa - Gibson Mudiriza & Lawrence
Edwards, University of Cape Town, SA
Abstract: Regional income disparities are a constant concern for many developing countries. The
New Economic Geography (NEG) models offers theoretical bases for explaining the emergence
and persistence of such disparities. While this theory has largely been tested for developed
economies, the present paper provides an empirical validation of the theory in the context of a
developing country. We depart from previous studies by using a non-linear least squares to
empirically analyse the relationship between market potential and regional income per worker
between 1996 and 2011 in South Africa. The results suggest that regional income per worker is
positively correlated with market potential, and regions with high market potential tend to have
high income per worker on average. It is evident from the revealed structural parameter
estimates that transport costs, scale economies and consumer love-of-variety are the channels
driving regional disparities in income per
worker.
Keywords: New economic geography, market potential, regional income distribution.
JEL-Classification: F12; R32, R12.
3) Fiscal Policy and Adjustment in a Foreign Exchange Constrained Economy: Evidence from Malawi Bertha C. Bangara & Amos C. Peters, University of Cape Town, SA
Abstract: The recent literature analysing the adjustments of macroeconomic variables to
fiscal policy shocks rely on the inclusion of non-Ricardian households to generate a positive
response of consumption to an increase in government spending. This paper examines the
dynamic effects of government financing behaviour in a foreign exchange constrained low
income economy on output, consumption, wages and labour supply among other variables.
Using a DSGE model with Ricardian house- holds calibrated on Malawian data, we find that
consumption, wages and labour supply increase with increased government expenditure.
This is contrary to popular arguments that government expenditure is inversely associated
with private consumption of intertemporal optimizing households in DSGE models due to
the effect of increased taxation that reduces labour income. We argue that the positive
response of consumption to increased government expenditure arise from the inclusion of
aid in the government budget since government expenditure in low income economies may
rise with increases in aid inflows and not taxes only. A positive shock to aid relaxes the foreign
exchange constraint and improves the economy although it induces an appreciation of the
real exchange rate.
4) A New Measure of Economic Distance - Eric O'N. Fisher, California Polytechnic State University,
John Gilbert, Utah State University, Kathryn G. Marshall & Reza Oladi, Utah State University, USA
Abstract: This paper defines a new measure of economic distance. Using consistent cross-country
data, we estimate local unit costs for 35 sectors in 40 countries. The distance between two
countries is the largest percentage difference in unit costs among all sectors. If all goods are
traded, this distance is the smallest uniform ad valorem tariff that shuts down bilateral trade. The
network induced by the closest 10% of these distances has one large component, consisting
primarily of the advanced industrial economies. China, India, and several other countries are
isolated components, indicating that their unit costs are idiosyncratic. We also introduce a new
measure of revealed comparative advantage.
JEL Classification Codes: F1
Session 3.6: Micro: Count & Duration Models
1) Smoothed Maximum Score Estimation of Discrete Duration Models - Sadat Reza, Singapore
University & Paul Rilstone, York University, Toronto, Canada
Abstract: Misspecified parametric estimators of discrete duration models can lead to
inconsistent estimates. Extensions of established binary choice semiparametric estimators to
the duration context can also be inconsistent when the standard mean-variance restrictions
on the unobserved heterogeneity do not hold. This paper develops an estimator in this case
by extending Horowitz’ Smoothed Maximum Score Estimator to discrete duration models.
The asymptotic distribution is derived. Monte Carlo simulations using various data
generating processes with varying sample sizes, error distributions and shapes of hazard rate
are conducted to examine the finite sample properties of the estimator. The bias corrected
estimator is able recover the true parameter with reasonable sample sizes. The estimator is
applied to an unbalanced panel data on Canadian strike lengths from 7,112 strikes
from1985-2007.
2) Dynamic conditional score patent count panel data models - Szabolcs Blazsek, Universidad
Francisco Marroquin & Alvaro Escribano, Universidad Carlos III de Madrid, Spain
Abstract: We propose a new class of dynamic patent count panel data models that is based on
dynamic conditional score (DCS) models. We estimate multiplicative and additive DCS models, MDCS
and ADCS respectively, with quasi-ARMA (QARMA) dynamics, and compare them with the finite
distributed lag, exponential feedback and linear feedback models. We use a large panel of 4,476
United States (US) firms for period 1979 to 2000. Related to the statistical inference, we
discuss the advantages and disadvantages of alternative estimation methods: maximum
likelihood estimator (MLE), pooled negative binomial quasi-MLE (QMLE) and generalized method
of moments (GMM). For the count panel data models of this paper, the strict exogeneity of
explanatory variables assumption of MLE fails and GMM is not feasible. However, interesting
results are obtained for pooled negative binomial QMLE. The empirical evidence shows that the
new class of MDCS models with QARMA dynamics outperforms all other models considered.
Keywords: patent count panel data models, dynamic conditional score models, quasi-ARMA
model, research and development, patent applications. JEL Classification Codes: C33, C35, C51,
C52, O3.
3) Contraceptive Use and Birth Intervals - Gauthier Tshiswaka-Kashalala & Steve Koch, University of
Pretoria, SA
Abstract: We develop a model linking contraceptive efficiency to birth spacing decisions
that incorporates the costs and benefits of child-rearing on the potential mother, as well
as the stochastic process surrounding human reproduction. The model fits within the realm
of optimal stopping-time problems, which naturally leads to the development of a First Hit
Time duration model that we estimate using data from the Democratic Republic of Congo.
Increased contraceptive efficacy is found to in- crease time to first birth. Furthermore, the
results are consistent with the hypothesis that children are normal goods, in that both
income and child-related benefits are associated with decreased durations to childbirth.
JEL Classification Codes: C41, J13
15:30 – 16:00
Break
Plenary Session: 16:00 – 18:00
Research that resonates with policy and practice
18:00 – 19:00
-
19:00 – 21:00
Gala Dinner (African Conference Centre)