Daniel J. Slottje

Exchange-Rate Volatility and Foreign Trade: Evidence From Thirteen LDC's

This article investigates empirically the impact of real exchange-rate volatility on the export flows of 13 less developed countries (LDCs) over the quarterly period 1973–1996. Estimates of the cointegrating relations are obtained using Johansens multivariate procedure. Estimates of the short-run dynamics are obtained for each country using the error-correction technique. The major results show that increases in the volatility of the real effective exchange rate, approximating exchange-rate uncertainty, exert a significant negative effect on export demand in both the short-run and the long-run in each of the 13 LDCs. These effects may result in significant reallocation of resources by market participants.

Ranking economic liberty across countries

ConclusionsWe have constructed a number of summary indexes of economic liberty based on principal component and hedonic weighting techniques. While overall these indexes are related to each other in a statistical sense, there are sufficient differences among them to impact the rankings of the individual countries. Because the liberty indicators currently available for use are fairly coarse, the differences that these weighting techniques yield in the summary liberty indexes are understated. As research on liberty yields finer measures of the liberty indicators, the choice of the weighting technique will become more crucial in defining an overall measure of economic liberty. As Table 3 indicates, the simple overall ranking index we created summarizes the information content of all the other indexes (based on hedonic, data variance, etc. rationale) and appears to be very robust with respect to all of them. In addition, all the rankings indicate that economic growth and RGDP are positively correlated with the level of economic liberty within a nation.

An ordered family of Lorenz curves

Abstract A general method for building parametric-functional families of Lorenz curves, generated from an initial Lorenz curve (which satisfies some regularity conditions) is presented. It is shown that these families can be ordered in a manner which leads to a hierarchy of Lorenz curves. The method starts from a generating Lorenz curve L 0 ( p ) and builds the family by increasing the number of parameters, which can be easily interpreted in terms of the elasticities of L 0 ( p ). The method is applied to a family we term the Pareto family, since they use the Pareto Lorenz curves as their generating curves. The family is shown to contain an important number of classical Lorenz curves used in the existing literature. Several properties of this family are analyzed, these include the population function, inequality measures and Lorenz orderings. A general method for the estimation of these family is given and applied to the Pareto family. Finally, an application is presented for data from various countries. The results are very robust across data sources. The Pareto models fit very well in a number of applications.

Cluster analysis for measuring welfare and quality of life across countries

Abstract The dream of a multiattribute approach to empirical welfare analysis is coming closer to reality because of significant advances in both theoretical and measurement areas. In this paper we propose statistical cluster analysis methods to explore different ways and levels for clustering of 23 diverse attributes such as political rights, civil liberties, life expectancy, literacy, real domestic product, etc. Several key attribute categories are identified which should be very helpful in dealing with the problem of ‘double counting’ in multidimensional analyses. Aggregate measures of welfare are computed for many countries, and the sensitivity of several key inequality measures with respect to clustering and degrees of aggregation is studied.

Cross Country Comparisons

In a recent paper, Hayes, Molina and Slottje (1988) examined the question of preference variation across North America. As the economy of the United States becomes a more open economy and less immune to fluctuations in international markets, the impact of relative price changes of foreign commodities on domestic economic well-being will be of increasing interest. Earlier studies have focused on the welfare impact of foreign price changes (cf Thursby (1981)). In this chapter, potential secondary utility effects of foreign prices are examined, the chapter follows Hayes, Molina and Slottje (1988).

A new method to estimate the level and distribution of household human capital with application

Abstract This study introduces a new approach that enables, for the first time, the estimation of national and personal human capital (HC) in money value. National HC is estimated on the basis of the life cycle mean earned income by age using sample survey data which are smoothed with local linear filters. Personal HC is treated as a dimensionless latent endogenous variable. The estimation of each economic unit HC as a latent variable is benchmarked by the estimation of the average national HC in order to obtain estimates in money value. A model is fitted to study the distribution of personal HC. This new approach is illustrated using data from the U.S. Federal Reserve Board sample survey on income and wealth distributions. The new theoretical developments and empirical results provide the framework to advance socioeconomic policies on issues of endogenous economic growth with economic efficiency and social equity, hence, to deal with the problems of poverty and socially unacceptable inequality. This study is integrated with a discussion and evaluation of alternative methods of HC estimation proposed in the literature, i.e. the prospective, retrospective, and educational stock. It includes a brief comment on the contributions of the Chicago School which specifies an earning income function within the HC conceptual framework, without dealing with HC estimation.

A general functional form for approximating the Lorenz curve

Abstract The purpose of this paper is to present several descriptive approximations of empirical Lorenz curves. Each of these hypothetical forms is less restrictive than those considered before. We compare these alternative forms by goodness of fit, F -tests of nested forms, and measurement of the Gini coefficient.

Two flexible functional form approaches for approximating the Lorenz curve

Abstract This paper introduces two flexible form approaches to approximate Lorenz curves. The first approach expands the inverse function of an income distribution in an exponential polynomial series and derives the Lorenz curve from it. The required convexity condition can be imposed using a Bayesian method. The second approach approximates the Lorenz curve with a sequence of Berstein polynomial functions. The required convexity condition is automatically established in this approach. We compare these approaches with other well-known fixed functional form approaches. We evaluate the performance of these functional forms by comparing approximation errors, maximum error, and the estimates of the Gini coefficient produced by various approaches.

Inequality aversion and the natural rate of subjective inequality

Abstract This paper analyzes inequality aversion across countries and identifies factors which explain the empirical heterogeneity observed across these countries. We do this by hypothesizing a ‘natural rate’ of subjective inequality across countries and solving for the explicit country-specific value of the inequality aversion parameter that is consistent with the hypothesized natural rate. We present evidence consistent with the existence of a natural rate of subjective inequality by verifying that countries with low (high) tolerance for inequality have low (high) inequality as measured by the Gini coefficient as well. Finally, we explore the socio-economic factors that are consistent with observed differences in inequality aversion across these countries, finding important effects of female empowerment, public education expenditures, per capita income, economic growth, and population size.

Estimating worklife expectancy: an econometric approach

This paper presents new estimates of worklife expectancy and introduces a new methodology for estimating the transition probabilities necessary to derive the worklife estimates. Our procedures incorporate significantly more information into the labor supply decision and result in more precise estimates of worklife expectancy.