Davide Fiaschi

Distribution Dynamics and Nonlinear Growth

This paper extends the distribution dynamics approach to the study of the shape of the growth process of a cross-section of countries. We first identify some empirical implications of a nonlinear Solovian growth model with multiple equilibria. These implications are then tested by a novel definition of the state space, which jointly considers income and growth rate. The main findings are that nonlinearity is a salient feature of the overall picture, and that the cross-section dynamics is compatible with the existence of multiple equilibria. We also discuss how the hypothesis of conditional convergence may be challenged in the light of our results.

Growth and inequality in an endogenous fiscal policy model with taxes on labor and capital

Abstract I study an economy where individuals have different initial endowments and fiscal policy is decided by majority voting. Public investment is financed by two flat rate taxes, one on labor income and the other one on capital income. The model shows a positive (negative) correlation between growth and the tax rate on labor (capital) income and a negative (positive) correlation between the tax rate on labor (capital) income and inequality. The results reconcile the theory with empirical evidence.

Growth and Coalition Formation

In this paper we analyse a growth model where agents have different factor endowments and form coalitions to produce output. Economic growth is the result of the accumulation of human capital. The latter in turn is a by-product of the production activity within a coalition. The maximum rate of growth is obtained when the grand coalition forms. However, if endowments are heterogeneous and the rule governing the division of the coalitional output states an equal sharing among the members of a coalition, agents with better endowments may not be willing to coalesce with poorly endowed agents. Indeed richer agents tend to form coalitions among themselves and the poor ones cannot benefit of the positive externalities of coalescing with the richest agents. This determines both a lower output and a lower long-run growth rate.

The Interrupted Power Law and the Size of Shadow Banking

Using public data (Forbes Global 2000) we show that the asset sizes for the largest global firms follow a Pareto distribution in an intermediate range, that is “interrupted” by a sharp cut-off in its upper tail, where it is totally dominated by financial firms. This flattening of the distribution contrasts with a large body of empirical literature which finds a Pareto distribution for firm sizes both across countries and over time. Pareto distributions are generally traced back to a mechanism of proportional random growth, based on a regime of constant returns to scale. This makes our findings of an “interrupted” Pareto distribution all the more puzzling, because we provide evidence that financial firms in our sample should operate in such a regime. We claim that the missing mass from the upper tail of the asset size distribution is a consequence of shadow banking activity and that it provides an (upper) estimate of the size of the shadow banking system. This estimate–which we propose as a shadow banking index–compares well with estimates of the Financial Stability Board until 2009, but it shows a sharper rise in shadow banking activity after 2010. Finally, we propose a proportional random growth model that reproduces the observed distribution, thereby providing a quantitative estimate of the intensity of shadow banking activity.

BRIC companies seeking legitimacy through Corporate Social Responsibility

BRIC countries have generally gone through a process of liberalization and rapid economic growth that has allowed their major companies to acquire increasing weight in the global marketplace. However, they are still striving to achieve full legitimacy in the international arena. In a bid to close this legitimacy gap, BRIC firms are making efforts to align with the Environmental, Social and Governance (ESG) global norms of doing business, and recently have adopted a portfolio of Corporate Social Responsibility (CSR) initiatives. In this paper we provide a deeper exploration into the factors that relate to BRIC firms’ adoption of different types of CSR initiatives — i.e. social policies (philanthropic projects favoring different stakeholders); publication of CSR reports; adoption of GRI standards; adherence to and financial support for the UN Global Compact. We carry out an empirical analysis on 60 large public BRIC companies, and find support for the idea that different kinds of CSR initiatives may be subject to different pressures and may serve different legitimization strategies.

An Empirical Analysis of Growth Volatility: a Markov Chain Approach

This paper studies the determinants of growth rate volatility, focusing on the effect of level of GDP, structural change and the size of economy. First we provide a graphical analysis based on nonparametric techniques, then a quantitative analysis which follows the distribution dynamics approach. Growth volatility appears to (i) decrease with per capita GDP, (ii) increase with the share of the agricultural sector on GDP and, (iii) decrease with the size of the economy, measured by a combination of total GDP and trade openness. However, we show that the explanatory power of per capita GDP tends to vanish when we control for the size of the economy.

The social irresponsibility of international business: A novel conceptualization

Abstract Purpose This chapter develops a novel conceptualization of corporate social irresponsibility (CSI) and identifies possible avenues for further research in the international business (IB) and related fields. Design/methodology/approach A conceptual chapter examining the existing definitions of CSI and proposing a classification of irresponsible behaviours using an international law approach. Findings The concept of CSI has been weakly conceptualized and measured so far. We improve this by distinguishing between unethical conduct bearing no direct impact on human rights and those behaviours that do entail a human rights impact. Next, we classify human rights abuses in two categories based on whether they entail the violation of a derogable or a non-derogable human right. Finally, we make a distinction between direct and indirect irresponsible actions. These distinctions are also illustrated empirically. Originality/value This chapter bridges the gap between IB, management and international law research on human rights or else defined irresponsible behaviours. Our novel conceptualization of CSI can help to better address unanswered questions about factors driving CSI in IB firms.

Growth Volatility and the Structure of the Economy

The aim of the chapter is twofold: (i) to propose a methodology to compute the growth rate volatility of an economy and (ii) to investigate the relationship between growth volatility and economic development through the lenses of the structural characteristics of an economy. We study a large cross-section of countries in the period 1970–2009, controlling for the stability of the estimates in two subperiods: 1970:1989 (Period I) and 1990:2009 (Period II). Our main findings are (i) the degree of trade openness has a destabilizing effect, while the degree of financial openness has not a significant effect; (ii) the size of the public sector displays a U-shaped relationship with growth volatility, but only in Period II; and (iii) the level of financial development has a negative effect on growth volatility, but only in Period I. Therefore, the dominant policy orientations in the recent decades contained emphasis on potential sources of instability, for example, on the increase in openness and on the reduction of the size of the public sector.

Coalition Formation with Boundedly Rational Agents

We analyse the process of coalition formation in which agents’ expectations evolve through repeated interactions in a large population setting. The selection of equilibrium outcomes strongly depends on agents’ initial beliefs and individual learning speed; the efficient coalition structure is reached starting from a very limited set of initial beliefs.

Production Partnerships Formation with Heterogeneous Agents: a Simulation in SWARM

This paper analyzes the organization of an economy where agents with heterogeneous endowments of (human and/or physical) capital and labor can join and form partnerships in order to produce an outputs. We suppose that the formation of a partnership is the result of a common willingness of a (sub)set of agents to pool and contribute their resources to a production process that takes place within the partnership that has been formed, without any externality onto or from other partnerships. The members of a partnership agree to divide the output among themselves according to an exogenously given distributive rule.