Chi Keung Marco Lau

A more powerful panel unit root test with an application to PPP

Applying the new panel unit root test developed in this article, we can overcome the pitfalls of old-fashioned panel unit root tests making it possible for researchers testing individual series for a unit root while taking contemporaneous cross- sectional dependence into account. The proposed test is indeed more powerful than univariate Augmented Dickey–Fuller (ADF) test in rejecting false I(1) time series. The long-run purchasing power parity (PPP) hypothesis on four OECD countries was tested between year 1950 and 1995. Evidence in favor of long-run PPP was absent when using single ADF and traditional panel data unit root test, however, when using the new test developed in this article we find strong evidence in favour of long-run purchasing power parity for three out of four OECD countries. The finite sample performance of the new test is examined though Monte Carlo Simulation, and was superior as compared to that of single ADF unit root test.

Hedging with Chinese Aluminum Futures: International Evidence with Return and Volatility Spillover Indices Under Structural Breaks

This paper examines the hedging performance of the Shanghai futures market, with the London futures market acting as the channel for volatility spillover. Taking into consideration structural change, basis effects, and return and volatility spillover effects, the authors find that the estimated hedging performance is not improved. Their findings suggest that the effectiveness of the hedging performance of aluminum futures contracts in China is not affected by the magnitude or direction of return and volatility spillovers. Therefore, even when the magnitude and direction of volatility spillover from other markets can be correctly predicted, the hedging performance of a futures contract cannot be significantly improved. This paper uses precise measures of return spillovers and volatility spillovers based directly on the framework of vector autoregressive variance decompositions. The study also includes an analysis of both crisis and noncrisis episodes, with modeling on bursts in spillovers.

DETERMINANTS OF INNOVATIVE ACTIVITIES: EVIDENCE FROM EUROPE AND CENTRAL ASIA REGION

Recent studies in the innovation literature show that Foreign Direct Investment (FDI) enhances innovations in recipient countries through spill-over effects. In this paper we extend the existing literature by incorporating the corruption index in the estimation procedure. Using a cross-country analysis from the Europe and Central Asia (ECA) region, covering 57 countries over the period of 1995–2010, we find no evidence of FDI spill-over effects on innovations, when corruption is endogenously modelled in the regression. Interestingly, we find that corruption and expenditure on education sector are positively related to the number of patents applications, suggesting anti-corruption programs encourage innovations that promote economic growth. Our study shed light on the national innovations and anti-corruption programs.

A Nonlinear Model of Military Expenditure Convergence: Evidence From Estar Nonlinear Unit Root Test

The paper builds a model to empirically test military expenditure convergence in a nonlinear set up. We assert that country A chooses a military strategy of catching up with the military expenditure of its rivals, subject to public spending constraints on public investments, including health and education, leading to decrease in long-term economic welfare. This implies nonlinear convergence path: only when the military expenditure gap between countries reaches the threshold level, will it provide incentives to catch up with rival’s military expenditures. We test this nonlinear catching up hypothesis for 37 countries spanning from 1988 to 2012. Results from individual nonlinear cross-sectionally augmented Dickey–Fuller (NCADF) regression indicate that 53% of countries converge to world’s average military expenditure: where 39% of countries converge to Germany; 33% of countries converge to China; 22% of countries converge to the USA, and 11% of countries converge to Russia. Interestingly, USA does not exhibit nonlinear military expenditure convergence toward world’s average level. For panel NCADF regression, the result suggests that on average, there is evidence for countries converging to USA’s military expenditure at 10% significance level. For the convergence to the world’s average, the statistical significance is at the 1% significance level.

Technology transfer and enterprise performance: a firm-level analysis in China

This paper attempts to explore the relationship between openness and a Chinese firms productivity using 1999–2002 panel data on 26 industries covering 2400 enterprises. The current literature has focused mainly on the relationship between productivity and exports, using country-level data, leaving a gap in the relationship between imports and productivity unfilled, in particular at the firm specific level. However, our study complements the existing literature by using the latest set of data, and more importantly, by examining the effects of exports and importing machinery on the firms performance. Using the dynamic panel data econometrics technique, we find evidence that firms can improve productivity by importing more capital good and utilizing foreign technologies from technologically advanced economies. Finally the effects of importing capital goods on productivities and that of exporting activities are compared.

Export Conditions of the Chinese Textile Industry: An Analysis in Comparison with Selected ASEAN Countries

This paper provides a comprehensive and disaggregated set of elasticity estimates, to date, in the face of MFA abolishment. The estimates made here are at a detailed level of disaggregation and should provide researchers with opportunities for future analysis. We used the gravity model to estimate the trade elasticity of China’s apparel cottons in the US market for the period between 1989 and 2009. From the gravity model, two phenomena are observed. First, there exists a unique long-run equilibrium relationship among the import quantity demand, the import price and the US GDP per capita. Second, import price and income elasticity are significant with the expected signs, conditions of which are significant for performing trade—policy analyses.

Effects of trade cost on the textile and apparel market: evidence from Asian countries

Abstract Global textile and apparel industry has since the 1950s been subjected to various forms of trade policy measures. Well noted among these are tariffs and non-tariff barriers (NTB)/policy indicators. Understanding the dynamics in such relevant policy indicators and the implications they yield for trade is a vital step toward informing relevant policy formulation and agribusiness investment decisions. With the textile and apparel industry being the primary grounds on which development in most Asian countries is founded, we for the first time in literature assess effects of various trade cost indicators on global textile and apparel imports from 37 Asian countries using a ‘cost-incorporated’ gravity model for the period 1988–2004. Estimates from this study affirm theory-based associations between trade, distance, cultural linkage, tariffs, and non-tariffs barriers. We however discovered quite interesting associations regarding effects of tariff increments and existence of NTB. Although both are primarily imposed/instilled to restrict trade flow, effect of tariff increments was consistently negative across all models, but that for NTB was consistently positive, although significant only in the case of apparel imports. Plausible reasons behind the implications for tariffs and NTB are elaborated on in this article. A keen discovery from this study, however, is that imports of apparels are more responsive than textile imports to dynamics in various trade-related cost, geographic and economic indicators.

Effects of Export Concentration on CO2 Emissions in Developed Countries: An Empirical Analysis

This paper provides the evidence on the short- and the long-run effects of the export product concentration on the level of CO2 emissions in 19 developed (high-income) economies, spanning the period 1962–2010. To this end, the paper makes use of the nonlinear panel unit root and cointegration tests with multiple endogenous structural breaks. It also considers the mean group estimations, the autoregressive distributed lag model, and the panel quantile regression estimations. The findings illustrate that the environmental Kuznets curve (EKC) hypothesis is valid in the panel dataset of 19 developed economies. In addition, it documents that a higher level of the product concentration of exports leads to lower CO2 emissions. The results from the panel quantile regressions also indicate that the effect of the export product concentration upon the per capita CO2 emissions is relatively high at the higher quantiles.

U.S. Fiscal Policy and Asset Prices: The Role of Partisan Conflict

Fiscal policy shocks exert wide-reaching effects, including movements in asset markets. U.S. politics have been characterized historically by a high degree of partisan conflict. The combination of increasing polarization and divided government leads not only to significant Congressional gridlock, but also to spells of high fiscal policy uncertainty. This paper adds to the literature on the relationships between fiscal policy and asset prices in the U.S. economy, conditional on the degree of partisan conflict. We analyze whether a higher degree of partisan conflict (legislative gridlock) reduces the efficacy of the effect and response of fiscal policy on and to asset price movements, respectively. We find that partisan conflict does not significantly affect the relationships between the fiscal surplus to GDP and housing and equity returns. Rather, if important, partisan conflict affects the actual implementation of fiscal policy actions.

Price and Volatility Spillovers Across the International Steam Coal Market

We examine the degree of integration of the global steam coal market. Using a variety of measures, we show that the Australian market remains the dominant force in setting world coal prices, followed by Mozambique and South Africa. We find little evidence of asymmetric price and volatility transmission. In fact, most markets react to both positive and negative shocks in a symmetric manner. The coal market displays a significant degree of integration, although this varies over time. While China provides a major source of volatility to the global coal market, it is relatively insigni�?cant in terms of price transmission.