master projects – Page 6

Aspirations and Academic Achievement: The Spillover Effects of Beca 18 on Educational Outcomes of Younger Students

Elena Costarelli, Rosamaría Dasso Arana, and Bárbara Sparrow Alcázar analyze the effect of being near a Beca 18 beneficiary -a new scholarship program for high school students- on the academic achievement of second grade children.

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2016. The project is a required component of every master program.

Authors:
Elena Costarelli, Rosamaría Dasso Arana, Bárbara Sparrow Alcázar

Master’s Program:
Economics

Abstract:

Using administrative data from the Ministry of Education in Peru, we analyze the effect of being near a Beca 18 beneficiary -a new scholarship program for high school students- on the academic achievement of second grade children. Previous literature suggests that information about the potential returns to education plays an important role on students’ achievement. Our hypothesis is that having a fellow nearby might change the perception of younger children and of their parents about returns to education, thus leading them to invest more on it. We use a difference in difference approach to test this hypothesis in a school panel data setting. As we are interested in the effect of information transmission, we use GPS location data to identify which schools are near a Beca 18 beneficiary. We test for several distance specifications with consistent results. Our findings suggest a positive spillover effect of the program on younger children in both reading and math performance.

Introduction:

Access to tertiary education is a well-known motivation for students to perform better at school. Good students are usually the ones that are able to attend better universities which in turn allows them to improve their living conditions. This is true in most developed countries, where access to good quality higher education is a possibility for most students. However, in the case of many developing countries, market failures and government limitations do not allow students to consider this possibility.

When facing the decision of educating their children, many families may consider it to be an unprofitable investment. Little information about the benefits of education in terms of higher future income and the lack of success stories among people close to them may all contribute to this perception. In this regard, the impact of a program that makes access to tertiary education may possibly affect the way people value education in a significant way. If parents and children are aware that been a good student may have a tangible future reward, their investment decisions may change.

Access to tertiary education is greatly limited to children from poor families in Peru. To address this issue, the Peruvian government recently created the Beca 18 program. Beca 18 is a merit/need based scholarship program that targets students applying to higher education institutions such as universities and technical institutes. The program gives selected students the opportunity of attending the best tertiary schools in the country. Before the program existed, even access to public universities was very limited. Beca 18 can be considered as one of the first real opportunities for children of low resources in Peru to access high quality tertiary education.

Current literature suggests that there is a positive relationship between policies that increase the perceived returns of education and educational outcomes among children. There is also evidence that supports that future access to scholarships and merit based programs may encourage better school performance. In this paper, we will analyze the impact of Beca 18 on the school performance of second grade children. To do this, we use test score data from the Ministry of Education and administrative records from the Beca 18 program. Using a difference in difference approach, we were able to identify a positive impact of being near a program beneficiary on both math and reading proficiency outcomes.

Conclusions:

Our results suggest that the Beca 18 program has relevant spillover effects on the educational outcomes of younger children. Guided by our conceptual framework, we would expect this result to be a consequence of the fact that children and parents exposed to Beca 18 beneficiaries update their information about perceived returns to education, leading them to invest more time and resources in obtaining better educational results.

We also find that effects on math test scores are stronger and more robust to several specifications than effects on reading test scores. This result is consistent with findings of other studies suggesting that math scores are more quickly affected by changes in study behavior. We also find that the effect of being near a beneficiary decreases as the distance to the school of the beneficiary increases. This result is consistent with our hypothesis that the improvements in educational outcomes are a result of information transmission.

Another result worth discussing is that we found that the effect of the program is larger when the number of beneficiaries nearby increases. This suggests that investment decisions are affected by how likely it is to get the scholarship. It may also suggest that the investment decision may vary if there are more people acting as role models.

Overall, our results are relevant from a policy perspective. We present evidence that the program has relevant spillover effects that should be considered when evaluating its benefits. As public programs in Peru are under continuous scrutiny, further evidence that supports the program’s effectiveness is of greatly useful to ensure its continuity. Also, as our results suggest that the number of beneficiaries matter for investment decisions, the expansion of the program could lead to even greater spillover effects.

It is still important to note that the effects found here are not the main intended effects of Beca 18: the scholarship program was designed as a supply side policy intervention. Our findings support the idea that this program can have important demand side effects worth considering. We would also expect for these effects to increase over time: the success stories of current beneficiaries in the labor market could lead to an even greater increase of the expected returns of education.

Pulling together or tearing apart? Ethnic heterogeneity, natural shocks and common pool resources in rural Malawi

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2016. The project is a required component of every master program.

Authors:
Andrea Bacilieri, Abhijeet Khanna, Irene Pañeda Fernandez, Jonathan Stern

Master’s Program:
Economics

Abstract:

This paper examines how ethnic heterogeneity may affect the ability of Malawian rural households to solve collective action problems. The collective action challenges are natural shocks -floods, droughts, and irregular rain and availability of common pool resources – an irrigation system, a forest, and common pasture land. We measure household welfare through maize harvest and annual consumption. We find that ethnic polarization and fractionalization are unambiguously bad for maize harvest but, under natural shocks, the size of this negative relationship is reduced. This may be due to the way natural shocks cross ethnic lines and facilitate the overcoming of ethnic differences. The bad effects of polarization remain unchanged in the presence of a shock, suggesting that this is a more intransigent problem. With respect to consumption, we find diminishing returns to increased polarization, becoming negative for high levels of polarization. Results are strongest in the presence of a communal forest. This may be due to the repeated and continuous nature of communal forest management, and the way that polarization may facilitate the formation of coherent bargaining factions.

Summary:

In this paper we explore the effects of ethnic fractionalization and polarization in the presence of natural shocks and common pool resources. By greater fractionalization we mean a smaller probability that any two individuals come from the same ethnic group. Polarization is a related concept which also takes into account the size of the bargaining factions- polarization being highest with two equally sized groups.

Our hypotheses were that ethnic heterogeneity would worsen the impact of shocks, and affect detrimentally the economic benefit derived from common pool resources. We sought to test these hypotheses by constructing a novel dataset for Malawi which combines indices of ethnic fractionalization and polarization calculated at the Territorial Authority level using the 2008 census and the Malawi Integrated Household Panel Survey for the year 2013. We argue for the exogeneity of our heterogeneity indices based on the low level of change in the ethnic makeup of Malawi over the past four years and the low level of migration within the country.

In the first part of our analysis we regress the log of maize harvest on the presence of shocks such as drought, flood and irregular rain interacted with our ethnic heterogeneity indices and a set of agricultural, climate, household and community controls. We find that ethnic polarization and fractionalization are unambigiously bad for maize harvest. Counter to our expectations, we find that fractionalization appears to lessen the impact of a drought or irregular rain on harvest, although the net effect of increases in fractionalization remains bad for harvests. We posit tentatively that the reduction in the effect of fractionalization in the presence of a shock could be due to the way natural shocks may cross ethnic lines and facilitate the overcoming of ethnic diff erences. The bad effects of polarization remain unchanged in the presence of a shock, suggesting that this is a more intransigent problem, and potentially a cause of enduring local level conflict.

In the second part of our analysis we regress the log of consumption on the presence of common pool resources such as forests, irrigation systems and common pasture land. We find no signicant relationship between consumption and fractionalization after testing both linear and quadratic specications. For polarization we find a quadratic relationship with consumption, which is strongest in the presence of a communal forest. This suggests that a certain degree of polarization could help communal forest management, with diminishing returns to increased polarization, becoming negative for high levels of polarization. We posit that this may be due to the repeated and continuous nature of communal forest management, and the way that polarization may facilitate the formation of coherent bargaining factions.

Through an exploration of the correlations between our ethnic heterogeneity indices and a set of community characteristics we find that greater heterogeneity is negatively correlated with school quality and the availability of agricultural inputs. These results cast some doubt on the exogeneity of ethnic heterogeneity. However given that the ethnic indices are slow moving over time, these correlations may also suggest some of the mechanisms by which fractionalization and polarization aff ect economic development in rural Malawi. Further work might seek to explore further these mechanisms, and whether the empirical findings of this paper can be replicated in other countries and contexts.

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Price parity in two-sided markets: a new perspective

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2016. The project is a required component of every master program.

Authors:
Sara Del Vecchio, César Ulate

Master’s Program:

Competition and Market Regulation

Paper Abstract:

Online platforms are believed to be beneficial to consumers in a number of ways. They facilitate consumers’ search and comparison, which in turn fosters competition between sellers. They drive the so called long tail effect that increases the variety of products offered, improving the consumer’s ability to find the right match for their needs. Platforms might adopt some particular measures aimed at protecting their profits, and potentially the viability of their business model. In the past few years, many online platforms have been under the scrutiny of various competition authorities regarding a particular clause they include in their contracts with sellers commonly called ’price parity clause’ or more specifically Across Platform Parity Agreement (APPA), this limits the seller’s ability to set lower prices (or better conditions) on other sale channels. At face value, price parity seems like a restriction on sellers’ pricing abilities which benefits consumers, as they can enjoy increased value service at apparently no additional cost.

We build a stylized model and we show that platforms can increase welfare and have pro-competitive effects, while price parity clauses are generally harmful for consumers surplus and welfare, nevertheless they can be good if they are indispensable for the platform viability.

Introduction:

The price parity clause included in platforms’ contracts with sellers, can be categorized as narrow or wide according to the scope of the price limitation. As illustrated in the figure below a ‘narrow APPA’ (the purple rectangular in the figure) refers to a clause where the seller is restricted from charging a lower price on their direct channel. By contrast, a ’wide APPA’ (the orange rectangular in the figure) is when the seller is limited from setting a lower price not only on their own website but also on any other competing platform. This will allow the platform to make claims, such as the ’best price guarantee’ as shown in the figure.

chart — Narrow & Wide Across-Platform Parity Agreements

Online platforms often argue that they need to include this constraint on seller’s price, otherwise consumers would just free ride on the platform services, and then complete the transaction on the seller’s own website which offers a lower price. At the same time, such clause in the seller-platform contract might generate anticompetitive effects, In particular, they may raise costs for sellers, which in turn are reflected into higher prices for consumers. Sellers pay a fee to intermediaries, which are insulated from competitive pressure due to the price parity clause itself.

Indeed, in the past few years many online intermediaries have been under the scrutiny of various competition authorities regarding APPAs that they were including in their contracts with sellers. There have been several cases across the world related to this clause, starting from the Apple eBook case in 2013, until the recent series of investigations in Europe regarding the online travel agent Booking.com.

In particular, the Booking.com case shows some inconsistencies in the decisions across Europe, in most of the countries (including UK, France, Italy and Sweden), Booking.com settled by agreeing to allow online travel agents, to offer lower room rates via Booking.com’s competitors, by dropping its wide APPA, restoring competition between online travel agencies. The commitments do allow Booking.com to retain its narrow APPA for prices and booking conditions, ensuring hotels offer the same rates and conditions that are provided on their own direct website. In Germany, instead, the Bundeskartellamt decided also to prohibit the narrow APPA. Nevertheless, in France they recently passed a Law (la Loi Macron) whereby they made APPAs illegal per se, with the aim of liberalising the economy and boosting growth. Furthermore, would be desirable more guidance on how to set out the most appropriate theory of harm in order to have convergence at European level in relation to these clauses.

Modeling Approach:

In this paper we build a stylised model with three different types of rational agents: (i) sellers, (ii) platforms and (iii) consumers. They all take sequential decisions in an infinitely repeated game. We include different search costs for consumers depending on the channel used to search and purchase a product. We focus only on pure strategies that lead to a particular Sub-Game Perfect Nash Equilibrium (SPNE) where all agents participate. We compare this SPNE across different scenarios: from the setting where there is a monopoly platforms, to the setting where we have competing platforms. We look at the equilibrium prices and welfare that arise in each of these scenarios with and without narrow and wide APPAs. Finally, we compare it to the counter-factual where no platform operates in the market.

Findings and Conclusion:

In terms of policy approach towards these clauses, our findings are in line with great part of the literature with respect to wide APPAs. Our model suggests that under no condition this clause can have pro-competitive effects, therefore the current European move towards a prohibition seems economically sound and sensible. With regards to narrow APPAs, instead, we believe the current call in many European countries for an outright ban could be detrimental for welfare, as it overlooks the benefits that platforms bring to the market. Indeed, we find that under some conditions these clauses despite limiting competition, do lead to efficiencies that the authorities should take into account.

We conclude that the existence of a platform is in general good, because as a first order effect it increases the number of transactions and reduces search costs for consumers. However, we find that prices will only be lower if there is effective competition between platforms. Furthermore, if the platform is not able to recover its costs though sales, then the viability of the platform may depend on the existence of the APPA. Hence, as shown the narrow APPA decreases welfare unless it is indispensable for the platform to operate.

Monetary policy effects on inequality: A country state-level analysis for the United States

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2016. The project is a required component of every master program.

Authors:
Carola Ebert, Sigurdur Olafson, and Hannah Pfarr

Master’s Program:

Macroeconomic Policy and Financial Markets

Paper Abstract:

Our project focuses on the assessment of a potential relationship between monetary policy actions and economic inequality in form of the Gini index. The analysis is conducted for the United States on a country- as well as on a state-level. Lack of quality and comparability of inequality data is a major empirical challenge in the research on inequality in general. Thus, we use different methodology for the data on the Gini index to ensure the robustness of the main results on the country level. Moreover, the main contribution of this work is the analysis on a more dis-aggregated level, i.e. the state level and a regional level. The state- and region- level analysis provide a further line of investigation with respect to the relationship between monetary policy and inequality. When considering monetary policy effects on inequality on an aggregated country level, one cannot be sure whether potentially heterogeneous reactions of inequality within the country are washed away by the aggregation over states. Therefore, this paper does not only analyse the relation between monetary policy and inequality on the aggregate country level, but also on the state level. Furthermore, as a first step in the direction of investigating potential transmission channels of monetary policy into inequality, further tests with regards to the initial wealth levels across states are conducted.

Main Conclusion:

In this paper we analyzed the implication of a monetary policy shock for inequality on a country-level, regional-level and (on a) state-level (as well). The results are largely consistent across different model specifications and considering different geographic levels, implying that a contractionary monetary policy shock seems to raise inequality on impact. Although the effect is small, it is consistently positive across states and regions. Already the fact that we find that there is an effect of monetary policy on inequality is a contribution in itself.

chart

Our benchmark model using OLS leads to the conclusion that a contractionary monetary policy shock leads to an increase of inequality. This finding holds for richer as well as poorer states. The contemporaneous impact stays positive over the considered time horizon. We have run several robustness checks using different model specification for OLS as well as a VAR approach. These checks have confirmed the earlier findings.

Outlook:

However, we have stressed that there is room for further investigation to shed light in this area.One potential way to go would be to expand the analysis by using alternative inequality measures. We conducted our analyses using the Theil and Atkinson indices obtained from Frank’s website. However, since the results obtained by using these two measures do not add anything to the analysis, we have not included them in the paper.

Furthermore, some authors stress the relevance of the top income and low income distribution when analyzing the effects of inequality. Therefore, one might think about controlling for the share of top incomes within the states to asses to what extent the reaction to monetary policy would change. We already tried capturing parts of these potential dynamics using the simple mean comparison tests for wealth dependence.

We find evidence that (seems to) suggest that monetary policy has a stronger impact on wealthy states and regions compared to poorer states and regions. Those results are obtained using simple mean-comparison tests and should be viewed as preliminary, as further research on the issue is necessary to concretely conclude whether the initial wealth-level of states and regions is relevant for the transmission mechanism from monetary policy on inequality.

After our results show that there is an effect of monetary policy on inequality, the next step in this line of research could be the investigation of the actual transmission mechanism. One could include a more elaborate analysis of the potential channels through which monetary policy affects inequality.

As a last remark, we want to point out that we were originally interested in investigating this topic for the European Monetary Union member states. This, however, is not possible due to data limitations. Firstly, across European countries there is no uniform definition and measurement of inequality. Secondly, the monetary union is fairly new and the data of a unitary monetary policy shock would be too short to conduct our analysis. Nevertheless, we do believe this is an interesting path for future research and, as pointed out in the literature review, the finding of a robust relationship between monetary policy and inequality backs this claim.

Misallocation Dynamics in Europe: Germany versus South

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2016. The project is a required component of every master program.

Authors:

Alexandros Georgakopoulos, Sampreet Singh Goraya, Viraj Rajeev Jorapur, Barrett William Owen, Jurica Zrnc

Master’s Program:

Economics

Motivation:

After the start of the Great Recession in Europe, the countries of the South (e.g. Spain) entered into a protracted stage of negative growth, amounting to an average decline in output of 1.6 perecent between 2008 and 2013, while Germany grew 0.8 percent on average in the same period. Furthermore, the decline in economic growth was accompanied by the under performance of total factor productivity growth in the South (-2.3%) relative to almost stagnant productivity growth in Germany (-0.5%). This points to some underlying factors which are not solely attributable to the demand shocks and the financial crisis.

KEY FINDINGS

Data and Measurement of Misallocation

Using a rich firm-level dataset we calculate various dispersion measures of marginal revenue products of production factors. We find that marginal revenue product of capital was increasingly more dispersed in the South, but not in Germany. A large part of this increase can be explained by the weakening link between capital and productivity. This implies that capital was increasingly allocated to less productive firms.

However, we also document increasing dispersion in marginal revenue product of labor, albeit of much smaller magnitude. This points to the possibility of common drivers behind the changes in both meassures. We argue that the common factor might be increased dispersion of TFP shocks during the recession. Similarly to Bloom et al. (2012) we interpret this as an increase in uncertainty. Furthermore, we calculate the potential gains by equalizing marginal revenue products of factors of production across firms in sectors, following Hsieh and Klenow (2007) methodology. Supporting our previous analysis, we find that gains from reallocation of resources increased considerably in the South but remained flat in Germany.

Determinants of Misallocation

In the next section, we explore different determinants of misallocation and relate it to different trends in South and Germany. First, we pool the data for six countries to explore general determinants of misallocation dynamics during the recession. Results point towards the importance of rising uncertainty during the recession, public sector influence and financial frictions in explaining the increase in misallocation during the recession. Furthermore, we find that sectors characterized with more business dynamism experienced more misallocation during the recession. This result is in accordance with Foster et al. (2014) which find that the intensity of reallocation fell rather than rose during the recent financial crisis in the US.

Secondly, we explore the differences between Germany and the South. We find that sectors with larger financial intensity were characterized by higher misallocation in the South, while not in Germany. This points to larger financial frictions in the South being important to explain the increase in misallocation. We find evidence that sectors prone to cronyism saw increased misallocation of capital in the South, while not in the North. We also find some evidence of benefits from product market reforms during recession in the South. We perform a number of robustness checks which generally support our results, although in some specifications, some parameters are not significant.

The Impact of Syrian Refugees on the Lebanese Labor Market

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2016. The project is a required component of every master program.

Authors:
Nagham Abdel Ahad and Gleb Bychkov

Master’s Program:

Macroeconomic Policy and Financial Markets

Paper Abstract:

In the light of the Syrian crisis which erupted in March 2011 and which is still on-going, many outcomes were and are still being produced. In this paper, we show particular interest in the refugee crisis that developed after the fast-tracked evolution of events in Syrian. More precisely, we shed light on the case of Lebanon, the small country on the Mediterranean, having an estimated native population of 4.55 million and hosting, at present, an estimated 1.15 million Syrian refugees on its territories, that is, more than 25% of its original population.

Our study focuses more specifically on the negative spillovers of the Syrian refugee inflow on the Lebanese labor market. Our objective is to build a model which we use to determine both the steady state in the Lebanese labor market prior to the Syrian refugee crisis and the equilibrium in the Lebanese labor market post the escalation of the refugee crisis. We therefore approach the dynamics of the labor market observing its reaction to the positive labor supply shock generated by the refugee influx. After calibrating the model, we watch closely the changes in our main variables of interest, namely, unemployment rates and wage levels, before and after the crisis.

In addition, we compare the results and the values our model gives for our variables of interest with the actual figures and data published or predicted by international reputable institutions, such as The World Bank and the Food and Agriculture Organization of the United Nations, for these same variables. Accordingly, we evaluate our model showing how far it succeeds in reflecting the reality of the situation and thus in predicting and generating figures as close as possible to the actual and true ones.

Conclusion:

Refugee inflows into host countries and communities can have significant impacts on these hosts on many levels. In our paper, we approach this issue from an economic perspective. More specifically, we focus on labor economics and labor market dynamics. In this context, we consider the case of the Lebanese labor market invaded by Syrian refugees who have fled to Lebanon because of the on-going war in Syria. We build a model, we calibrate it, we get the results, and we discuss them and use them to evaluate the performance of our model.

While The World Bank estimates a 20 percent unemployment rate in Lebanon post-crisis (almost double the rate pre-crisis), our model estimates an approximate 6.68 percent.

We proceed afterwards with a thorough discussion centered around these contradictory observations and we also go over a couple of limitations our model has, all of which might be able to account to some extent to the inconsistency in figures. This idea is interesting as it opens horizons and broadens the scopes for this work as one might expand the model so as to include an informal sector or additional distinctions between Lebanese native workers and Syrian migrant workers. We did not engage in doing this activity given the time constraints that we had. However, such expansions of the model can add great value to this work and can pave the way for further understanding and more successful outcomes.

We view our paper as a first step towards developing a flexible quantitative model that integrates opposing forces and that allows for a proper welfare analysis. More analysis is clearly welcome.

Re-examining the Global Liquidity-Asset Prices Linkage: Case of G7

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2016. The project is a required component of every master program.

Authors:
Ryan Jacildo and Ekaterina Rezepina

Master’s Program:

Macroeconomic Policy and Financial Markets

Paper Abstract:

Research concerning the linkage between global liquidity and domestic economic affairs is hardly new. Interestingly, however, it never gets old mainly because of its policy significance. The welfare impact of shocks to capital flows (may it be short or long-term) is by and large the bottom line of all the discussions. Inquiries about other pertinent issues such as global financial imbalance and asset price bubbles, international financial stability and global financial safety nets, and economic early warning systems are in one way or the other broadly tied with global liquidity. Indeed, the impact of shocks to global liquidity can be systemically disruptive. And because international financial landscape constantly changes (i.e. degree of linkages estimated in one period may not hold in the subsequent periods), regular spot checks are important. The aftershocks of the global financial crisis (GFC) in 2007/2008, for instance, re-emphasize the significance of understanding the consequences of fluxes in capital movement and the extent of these consequences in various settings and time periods.

Motivation:

The main motivation behind this study is to contribute to empirical literature on cross-border liquidity spillover effects on asset prices in light of broadening global economic integration. We decided to focus on the case of the Group of 7 (G7) economies (e.g. Canada, France, Germany, Italy, Japan, United Kingdom, and United States) and follow closely the earlier work of Darius and Radde (2010) – henceforth D&R. For the same set of economies, D&R looked at the relationship of global liquidity and asset prices before and after the “Great Moderation” period. In an attempt to provide an account of what happened after 2007, this study examines the behavior of the same variables until end of 2015 and checks whether there are significant changes to the magnitude of the pass though effects of global liquidity, particularly on the equity and property prices in recent years.

Conclusions:

In light of the developments in the past decade that led central banks to flood the international financial system with liquidity, we deem it relevant to empirically re-examine the linkage between global liquidity and asset prices in large economies. To do the econometric analysis, we used available data from 1984q1 to 2015q4 and employed a VAR model following the specification suggested by D&R.

In the global analysis, we found that global liquidity has a positive significant impact on commodity prices using the sample from 1984q1 and 2015q4 but insignificant impact on equity prices. However, in our subsample analysis using the data from 1984q1 to 2007q4, our results showed that the impulse responses of both the CRB and the MSCI were positively significant and persistent while the impulse response function of house prices remained insignificant. Interestingly, D&R, which also used 1984q1 to 2007q4 as its Great Moderation subsample, found that the responses of commodity and equity prices to a liquidity shock were insignificant. In terms of the house prices, the results we obtained differed from those of D&R for periods from 1984q1 to 2007q4 in a sense that we found significantly negatively response to global liquidity albeit with a substantial lag of 16 quarters.

jacildo-rezpina1

In our spillover analysis, we extended the model of D&R by adding the local stock prices to the model. For each economy, we ran the regression using data from 1984q1 to 2015q4 as well as from 1984q1 to 2007q4 (to serve as our pre-GFC subsample). The results of this exercise convey that the positive effect of a global liquidity shock on house prices in Japan obtained using data from 1984q1 to 2015q period disappears when only pre-GFC period is considered. In the full sample analysis both global and domestic liquidity did not affect stock prices in Japan, whereas the effect of global liquidity turned out to be positive for the pre-GFC period.

Notwithstanding the sample used (may it be full or pre-GFC), the effect of global liquidity on house prices in France stays significant and negative, while the negative impact of global liquidity on stock prices obtained using full sample disappears in pre-GFC subsample. In the case of the latter, the stock prices turned out to be significantly positively affected by local liquidity, while the inclusion of post crisis years made this response negatively significant with a substantial lag.

Lastly, the result of the pre-GFC subsample analysis involving the UK reveals that the effect of local liquidity shock on stock prices is not significant as opposed to full sample estimation when the effect was positive. Moreover, the variance decomposition dictates that global GDP growth rate explains the largest proportion of the volatility of stock prices in the UK.

Moving forward, one way to get a better understanding of the results would be to properly assess the country-level intertemporal idiosyncratic factors just like in the global analysis. Certainly, the nature and timing of these structural shifts can vary from one country to another. We likewise suggest trying different proxies for the global liquidity or run the model for the monthly data without house prices that are available only quarterly and the monthly proxy for GDP. Using monthly data would allow a closer analysis of dynamics in the post-GFC period. It would also be interesting to extend the scope of this exercise to emerging economies.

The Italian Productivity Slump: A Tale of Zombies

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2016. The project is a required component of every master program.

Authors:
Andrea Fabiani, Enrico Frezzini, Federico Morescalchi, Willy Scherrieble, and Ugur Yesilbayraktar

Master’s Program:

Economics

Paper Abstract:

During periods of low productivity and stagnation, banks develop incentives to renew loans at subsidized rates to firms that would otherwise be insolvent. Proliferation of these firms, which we label as Zombies, have ramifications on the economy. Theoretical models predict that industries with a large share of zombies should experience productivity slowdowns in conjunction with lackluster employment and investment trends.

In this paper, we try to document whether this form of capital misallocation prevails between 2007-2014, by analyzing balance sheet data for more than 19,000 non-financial companies from the AMADEUS database. In fact, Italy’s productivity growth has been ailing since the early 2000’s and the volume of non-performing loans increased dramatically after the 2008 financial crisis. Moreover, prevalence of relationship banking and lack of loan loss provisioning in the country created a breeding ground for zombie lending. We identify zombies by comparing the yearly interest rate payments for the companies in our sample with those implied by a weighted average of Italian sovereign yields.

Our main contribution to the literature is to extend the seminal work by Caballero et al. (2008) to Italy, so to quantify the statistical association between zombie lending and several indicators of economic performance. Up to our knowledge, we are the first to carry a similar exercise for an economy different from Japan, whose experience in the 1990’s gave rise to the literature on zombie lending.

The descriptive analysis of our data reveals the increasing trend in the number of zombies in the aftermath of the financial crisis of 2008; this phenomenon appears to be widespread across different sectors of economic activity.

Figure 1: Pre and post-crisis average fraction of zombies (Overall economy)

Figure 2: Pre and post-crisis average fraction of zombies (Asset weighted – Industry-level)

Furthermore, by means of OLS regressions, we show that TFP is lower and more unequally distributed in sectors with a relatively higher fraction of zombie firms, in accordance with theoretical predictions. However, the same exercise hints to a positive partial correlation between employment in healthy firms and zombie-lending, at odds with the theory.

We call for future research to explain this finding, either by enriching the underlying theoretical model so to account for realistic features of labor market or by testing the same hypothesis for other countries.

The Persistent Effect of Exposure to Civil Conflict on Political Beliefs and Participation: Evidence from the Peruvian Civil War

This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2015.

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2015. The project is a required component of every master program.

Authors:
Benjamin Anderson and Ramiro Antonio Burga

Master’s Program:
Economics of Public Policy

Paper Abstract:

This paper provides empirical evidence of the persistent effects of exposure to civil conflict on political beliefs and participation. We exploit the variation in geographic incidence of conflict and birth cohorts to identify the long-term effects of exposure to violence on belief in democracy, trust in institutions, opinions in support of civil rights, voting turnout and casting of blank ballots, and participation in civic organizations. Conditional on being exposed to violence, the average person exposed to violence during certain sensitive stages of life still holds slightly more negative opinions about the value of democracy and are less likely to participate in civic / political organizations in the long-run.

Presentation Slides:

[slideshare id=53321203&doc=civil-conflict-political-beliefs-peru-150929115151-lva1-app6892]

About the paper

Motivation:

Political preferences heavily dictate the role of the government, the policy making processes that emerge, and potentially even the institutional framework, itself (Besley and Case, 2003; Aghion et al., 2004). Furthermore, consequential effects of various forms of political institutions is a primary focus of Political Economy, and justifiably so, for the array of welfare implications encompassed within, including, economic growth, inequality, health outcomes, and many others (Acemoglu et al., 2001; 2002). In countries where citizens have been exposed to violence during sensitive periods of life, it may be more difficult for governments to gain trust and build support for democratic processes and good institutions.

Pathways/mechanisms:

There are many logical pathways which one could speculate that civil conflict might affect citizens’ political beliefs; perhaps the most conspicuous of which being trust. Lack of protection, safety, and government accountability could lead to a decrease or lack of trust in the government, while exposure to violence, fear tactics, and other criminal behavior could result in distrust toward other members of society (Jaeger and Paserman, 2008; Rohner et al., 2013). Secondarily, residual effects of civil conflict in the form of fear, in particular for safety, could dissuade citizens from various forms of political participation (Salamon and Evera, 1973).

Summary of findings:

We examine the effect of exposure to conflict during sensitive developmental periods of life on persistent changes to various measures of political beliefs and participation. The results show that the average person exposed to conflict during the age range 13 to 17 will have slightly more negative opinions about democracy well over a decade after the conclusion of the violence. Very minor long-term effects are also present for participation in civic organizations. Our results show that the average person exposed to conflict during the age range of 7 to 12 has a decreased likelihood of participating in civic organizations of approximately 3% to 6% for each additional year that the individual experienced violence in his/her district during this period of life. While these effects are economically small, it is notable that any long-term effect is detected given the likely presence of strong attenuation bias as discussed in our threats to identification. We find that the most sensitive stages of life for the formation of political beliefs, with respect to exposure to conflict, are the pre-teen and teenage years. Contrary to the effects of violence exposure on human capital and labor market outcomes, we do not find effects occurring at the earliest life stages.

Inferences:

The detection of effects in both belief and action variables not only helps to validate one another, but it also suggests that beliefs indeed translate to actions. This connection provides some evidence that changes in political perception also corresponds with political behavioral change.
Even though the effects we detect are relatively small, they might have been severe during and shortly following the civil war.
Although we are unable to further analyze heterogeneous effects, the effects could be quite large for certain individuals who may have been exposed to more extreme amounts or types of violent acts.

Policy Implications:

Knowledge of the size and temporality of these consequential effects of civil conflict on political beliefs and participation as well as mechanisms which drive these changes would be invaluable. This would allow policy makers to develop targeted strategies to help combat the destructive effects of violence on citizens’ political beliefs and behavior that could undermine the healthy growth, development, and stability of society.

On the experience:

The thesis was almost certainly the most fun and rewarding assignment of the year, despite the imposing time constraint. Having received rigorous training to acquire the tools needed for such a project, and having discovered and nurtured our own interests via exposure to a multitude of prominent literature in various applied topics throughout the year, it was exciting to unleash the knowledge we had gained and apply some of our empirical techniques to a new and interesting research question of our own.

Throughout the program, but especially during the thesis, we were fortunate to have access to the knowledge and support of professors. Aided by some enthusiastic and accomplished mentors, we evolved our expectations of ourselves. Their expertise in areas related to those of our paper – conflicts, violence and political economy – optimized the quality of feedback and constructive critique we received in the process. The final presentation to our directors, professors and peers was another valuable component. It served as a welcome challenge that exercised essential communication skills, not only for conveying complex ideas to an audience, but adroitly and favorably reacting to questions and criticism.

The feeling of accomplishment derived from materializing a quality piece of empirical work is great motivation to build on for the future. Just one year ago, not only would this project have been impossible to execute, even the vision of it coming together was unfathomable. By the final term, we knew that we were prepared; now, we carry forth these tools, creativity, and confidence in our abilities.

On working with a coauthor:

At the outset, the thought of working with a coauthor for the thesis did not sound ideal, but ultimately, it had many advantages. It offered another opportunity to gain from the international and cultural diversity of one another and to develop these working and personal relationships; it was an invaluable intangible experience for which we will be forever thankful. Our complimentary skillsets and working styles prevented this beast from ever becoming a burden. We are proud of what we were able to achieve given the constraints, and ended up with a final project that far surpassed anything that we could have done independently within the same amount of time.

Legislative Quota, Women Empowerment and Development: Evidence from Tanzania

Master project by Gregory Raiffa, Ericka Sánchez, Jan Stübner, Feodora Teti, and Andreas Wohlhüter. Barcelona GSE Master’s in International Trade, Finance, and Development

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2015. The project is a required component of every master program.

Authors:
Gregory Raiffa, Ericka Sánchez, Jan Stübner, Feodora Teti, and Andreas Wohlhüter

Master’s Program:
International Trade, Finance and Development

Paper Abstract:

This paper analyzes whether the legislative women’s quota implemented in Tanzania has helped to reduce the existing gender gap in that country. We focus on a set of development indicators indicated by the literature and an analysis of female political activity. We exploit the variation in the number of female representatives across the 131 districts of Tanzania, employing a Difference and Differences approach including ﬁxed effects and controlling for a number of socioeconomic variables.

Our analysis indicates that the legislative women’s quota in Tanzania has led to signiﬁcant reductions in the gender gap and improvements for women. The quota has effectively increased political participation in accordance with its goals, and the level of female representation continues to rise. We find evidence that the quota has reduced the gender gap in education for certain age groups, and we ﬁnd indications of small improvements to female empowerment. In accordance with previous ﬁndings in other countries, we ﬁnd that the increased female representation has led to substantial investments in water infrastructure that has greatly increased the number of people with access to clean water. While we do not ﬁnd signiﬁcant health impacts, this may be due to limitations in our dataset.

Read the paper or view presentation slides:

[slideshare id=51097405&doc=legislative-quota-women-empowerment-slides-150730114914-lva1-app6892]