Search

Investment is an important contributor to aggregate demand, and it is critical to fostering productivity and fueling innovation. Absent from the existing literature on business investment is the recognition that the determinants of investment have changed over time in fundamental ways. Using quarterly data from 1953–2016, we estimate an augmented accelerator function of U.S. business investment and present evidence of a structural change in the year 2000. Our findings suggest that while the accelerator and crowding-out effects have weakened over time, the sensitivity of investment growth to cost of capital, risk spread, cash flows, and economic policy uncertainty have increased in recent years. In light of these results, we highlight and evaluate several recent hypotheses regarding structural changes in the U.S. economy. In particular, we argue that our results are not consistent with the secular stagnation hypothesis, but are more closely connected to long-term trends in demographics, market concentration, financialization, and the inter-industry reconfiguration of firms away from traditional manufacturing.

Recent regulations increased minimum capital standards for bank holding companies. We test the effectiveness of this action in preventing bank failures during the sub-prime mortgage crisis. We find that while holding company capital is the most influential variable in the failures of banks affiliated with multi-bank holding companies, this is not the case for banks affiliated with a one-bank holding company. For these banks, the bank's own characteristics are more influential than group capital, meaning the established standards may not be universally effective.

When faced with the fear of low-quality tap water, households are motivated to seek out and use alternatives. This study investigated the role of quality perception and aesthetics on choices among three modes of household water usage: unfiltered tap water, filtered tap water, and bottled water. The data were based on a telephone survey of randomly selected households in Jacksonville, FL, conducted during March 2016. As the three modes of water usage were not mutually exclusive, a multivariate probit model was fitted and simultaneous parameter estimates were generated for each of three binary equations. The key results suggest that concerns regarding safety, contamination and sickness linked to unfiltered tap water are associated with increased bottled water usage in the home, but they have no effect on water filter usage. By contrast, complaints about foul-smelling water are associated with increased usage of water filters. In addition, the evidence implies that while water filter usage increases with household income, bottled water usage appears insensitive to changes in income. Finally, African-American households have a higher probability than other racial groups of using bottled water in the home, all else equal.

The importance of information and communications technology (ICT) for economic growth and development is widely researched and seemingly well understood, but the effect of such investments on incom...

Rapid economic growth propelled China to become South Africa's largest trade partner, and the recent economic slowdown in China and collapse of commodity prices threatens to reverse this trend. Previous estimations of South Africa's bilateral trade functions document strong income effects on trade, but evidence for the effects of the exchange rate and its volatility are decidedly mixed. In this paper we argue that this ambiguity is due in part to the omission of information about the level and volatility of commodity prices. We note that South Africa's exports to China are heavily concentrated in metal ores, and the practice of deflating the nominal exchange rate by either a consumer price index or deflator is a poor proxy for the commodity price movements that matter for exporters. In this paper we use quarterly data from the period 1993-2014 to estimate South Africa's bilateral export function with China using Chinese GDP, the real bilateral exchange rate, exchange rate volatility, iron ore and precious metals price indices, and their respective volatilities. We specify an error-correction model designed to model departures from, and adjustment to, the long-run equilibrium, and thereby distinguish short-run and long-run effects, and we employ the bounds testing approach of Pesaran, Shin and Smith (2001) to test for long-run cointegration among the variables. The baseline model results in large and statistically significant estimates for income and real exchange rate elasticities that are in the expected direction. The elasticity estimate for exchange-rate volatility suggests a negative but statistically insignificant effect. This ambiguity resonates with much of the literature. In our augmented models we include separate variables to capture the effects of iron ore and precious metals prices and their volatility, resulting in considerable improvement in model fit in both a static and dynamic sense. In the long run, the positive price elasticity is consistent with an upward-sloping export supply curve, and the negative and relatively elastic effect of commodity price volatility suggests an uncertainty effect that reduces exports. Importantly, the inclusion of the commodity price variables improves the precision of other estimates, increasing our confidence in a similar uncertainty effect emanating from volatility in the bilateral exchange rate. Our results highlight South Africa's continued vulnerability to the commodity price cycle. To escape this boom and bust cycle, South Africa's government must emphasize public investment and embrace structural reforms aimed at diversifying its export sector.

The recent growth in the globalization of medical services has attracted broad attention from scholars and policymakers. The intimacy and risk associated with many medical services makes these markets especially sensitive to trade barriers, transaction costs and asymmetric information. This paper uses a gravity model to investigate the factors associated with the global pattern of bilateral trade in medical services. Using data from the United Nations International Trade in Services Database, we differentiate between trade flows in which the recipient travels to the service provider, ‘medical tourism,’ and those trade flows in which the service is delivered to the recipient, ‘other health services.’ Our findings indicate that, after controlling for various economic, historical and geographic linkages, linguistic proximity and international accreditation are not significant predictors of the bilateral pattern of medical tourism, though they are associated with greater trade in other health services. We argue the key difference is that trade in other health services, including medical transcription, diagnostic analysis and laboratory services, is akin to trade in intermediate inputs. The medical service providers contracting for these services are especially sensitive to risk and have strong incentives to monitor quality. By contrast, medical tourism is a market in which patients do not have strong incentives to engage in costly monitoring or information gathering. Providers seeking to market their services to patients abroad have mitigated the effects of linguistic dissimilarity and asymmetric information by exploiting the strong complementarities between medical and non-medical tourism services.

A surprising number of U.S. cities have drinking water with unhealthy levels of chemicals and contaminants. The city of Jacksonville (Florida), the location for this study, owns the dubious distinction of being ranked among the worst major American cities in water quality according to water quality tests conducted between 2005 and 2009 by the Environmental Working Group (EWG). This report of toxic chemicals in the Jacksonville water supply generated considerable negative publicity and coincides with a frequent and common complaint among residents of foul-smelling water. System revenues from water supply and program subsidies from government are often inadequate in mitigating the problems, perceived or real, with water quality. Therefore, this paper investigates how much residents will be willing to pay for improvements in the quality of tap water. The commonly known economic metric willingness-to-pay (WTP) is applied to estimate any possible rate hikes public utility can assess in any effort to improve real or perceived water quality. The study shows that the estimated weighted average of WTP is $6.22, which can be added to the regular water bill without eliciting much negative reaction from residents. Evidence shows that factors such as trust in authorities, health concerns, family structure, and education significantly impact the WTP.

This two-volume original reference work provides a comprehensive overview of development economics and comprises contributions by some of the leading scholars working in the field. Authors are drawn from around the world and write on a wide range of topics.