André Varella Mollick

Human Capital Development, War and Foreign Direct Investment in Sub-Saharan Africa

The authors use a panel data fixed effect model to identify the determinants of foreign direct investment (FDI) for a large sample of 29 sub-Saharan African countries from 1980 to 2003. They test whether human capital development, defined by either literacy rates or economic freedom, and the incidence of war affect FDI flows to these countries. Combining these explanatory variables to several widely used control variables, it was found that the literacy rate (human capital), freedom (political rights and civil rights) and the incidence of war are important FDI determinants. The results confirm our expected signs: FDI inflows respond positively to the literacy rate and to improvements in political rights and civil liberties; war events, by contrast, exert strong negative effects on FDI. For robustness, the model is estimated for religious groupings of sub-Saharan African countries.

The real exchange rate in Brazil Mean reversion or random walk in the long run

Abstract This paper studies the behavior of the real exchange rate in Brazil over the longest possible period for which data are available: 1855–1990. Does the real exchange rate follow a random walk or does it revert to its mean, possibly nonstationary, level? The evidence is mixed. Formal tests can not reject the hypothesis of nonstationary behavior, although the judgement is borderline. However, time-series identification favors a stationary interpretation, and simple autoregressive processes for the real exchange rate yield extremely robust and satisfactory estimates.

The Rise of the Skill Premium in Mexican Maquiladoras

Abstract The wage premium between skilled and unskilled workers in Mexican maquiladoras has moved up, from 4.14 in January 1990 to 4.79 in March 2006. This 16 per cent increase in wage differentials favouring skilled workers is contrasted to a measure of relative labour supplies within a model of skill-biased technical change (SBTC). Estimating how this skill premium responds to technology (captured by either a time trend or the capital-expenditure share) and to relative labour supplies, we find support for theoretical models in which the skill premium increases in the long-run under strong technology effects. Error correction models confirm fast adjustment to long-run equilibrium, within about four months.

Employment determination at Mexican maquiladoras: Does location matter?

Abstract This paper develops a microeconomic model of employment at Mexican maquiladoras using panel data from border and non‐border states. Employment estimates for industry output are always positive, while wage increases depress employment only for the border panel. External factors, such as positive changes in U.S. output, contribute to maquiladora employment, while real effective exchange rate depreciations reduce employment, notably for border firms. Real exchange rate appreciations make imported inputs cheaper and create an output effect: exports fall, real wages fall, and employment increases. The NAFTA dummy variable carries a dual effect: employment rises in border firms and falls in interior firms.

Government Size and Output Growth: the Effects of “Averaging out”

Panel data studies typically average out the error terms to be five calendar years apart such that they are less influenced by business cycle fluctuations. Using dynamic growth equations over the globalization years of 1986-2004, we provide an examination of the role of government expenditures to GDP (G/Y) in long-run growth. While the yearly time span is actually not prone to serious serial correlation problems, more powerful implications follow: We do observe strong negative long-run effects of G/Y on output growth in yearly time spans, while the averaged-out 5-year panels suggest the long-run economic impact of G/Y is muted.

ASSESSING RETURNS TO EDUCATION AND LABOR SHOCKS IN MEXICAN REGIONS AFTER NAFTA

This article examines Mexicos (real) wage movements across its 32 subnational entities for post�?North American Free Trade Agreement years. Employing dynamic panel data methods, we obtain the following results. First, education (or labor productivity) has slightly higher wage effects in the Border�?North region. Second, allowing for foreign capital and labor to respond to wages, returns to education have higher effects in South�?Center Mexico, the region with (average) lower education levels. Third, convergence rates become lower with endogenous foreign capital and migration flows: wages move faster in the South�?Center region than in Border�?North. Overall, migration flows have greater effects on wages than foreign direct investment inflows.

Intra-industry trade effects on Mexican manufacturing productivity before and after NAFTA

This paper examines the effects of intra-industry imports on total factor productivity (TFP). Employing a new sample of 25 Mexican manufacturing industries with annual data from 1984 to 2000, interesting panel data results emerge. First, we find the positive impact of intra-industry imports on productivity to be substantially larger after NAFTA. Second, relatively labor-intensive industries have benefited the most from these spillovers. Third, these results are very robust to business cycle controls and estimation methods. Our findings suggest that the expansion of technology in differentiated products has increased the technology spillovers from the US and Canada into Mexico.

Capital and labor in thelong-run: evidence fromTobin's q for the US

This paper assesses different measures of Tobins q on the US labor market over 1948--2002. We find a negative long-run relationship between the unemployment rate and Tobins q, which is consistent with capital and labor being complements in production.

Relative wages, labor supplies and trade in Mexican manufacturing: Evidence from two samples

How do relative wages (between skilled and unskilled workers) respond to technical progress and to relative supply shifts? An empirical model of the wage premium for Mexican manufacturing is employed on two monthly data samples: one, from 1987 to 1995, displays the well-documented rising trend in wages right after Mexico joined GATT; the other, from 1994 to 2007, suggests slightly decreasing wages. The model provides support for skill-biased technical change (SBTC) and yields plausible elasticity of substitution for the first sample (σ = 1.03) and higher elasticity for the second (σ = 1.71). Allowing export intensity and the real exchange rate to modify the factor augmenting technology ratio, negative relationships are found for the earlier sample: the higher the export intensity or real exchange rate the lower relative wages. The error correction methodology and the bounds approach confirm these results. Combining trade and SBTC, this study supports the view that trade considerations have an impact on wage premiums at the very beginning of trade liberalization. In contrast, the benchmark model seems a more adequate representation when NAFTA and a market-oriented peso help consolidate Mexico in its path towards sustainable growth.

Financial Development and Economic Growth in Africa

ABSTRACT We revisit in this paper the debate between financial development and economic growth. In contrast to previous studies examining banking related measures, we focus on the capital account and the depth of African stock markets. We examine 15 African countries from 1995 to 2010 and employ both static and dynamic panel data methods. While the former suggest weak results overall, portfolio flows and Foreign Direct Investment (FDI) have consistently positive effects on economic growth under endogenous stock market capitalization. These findings reinforce the view that African countries should open their equity markets to international investors and encourage FDI.