Debdulal Mallick

International business cycles and remittance flows

Abstract In this paper, we study the macroeconomic determinants of remittance flows. We place particular attention to fluctuations in remittance flows over the international business cycles. Estimating a dynamic panel data model using the system-GMM method over the period 1970–2007, we document that remittance inflows decrease with home country volatility. Contrarily, remittance inflows increase with the volatility in host countries, especially for middle-income countries. Lower interest rates in host countries lead to larger remittance outflows. Trade and capital account openness are the most important factors that determine both remittance inflows and outflows. We conclude that macroeconomic factors of both home and host countries are important for understanding remittance flows.

FINANCIAL DEVELOPMENT, SHOCKS, AND GROWTH VOLATILITY

This paper argues that studying the effect of financial development and shocks on aggregate growth volatility will not be informative because they affect growth volatility through its different components. Volatility declines either a consequence of a change in the nature of shocks or a change in how the economy reacts to shocks. If two economies differ only in terms of volatility of shocks experienced, the GDP growth spectrum of one economy will lie proportionately below that of another at all frequency ranges so that both business cycle and long-run variances will be lower. Conversely, if change in volatility is due to propagation mechanism such as financial development, a country having developed financial markets will have disproportionately lower variance at the business cycle than at other frequencies relative to that of a country having less developed financial markets. Therefore, the variance at only the business cycle frequency range will be influenced by financial development. The novelty of this paper is that different components of growth volatility are extracted using spectral method. Empirical evidence provides qualified support for both hypotheses. Higher private credit, which is used as proxy of financial development, dampens business cycle volatility but not the long-run volatility. Shocks, as measured by changes in the terms of trade, affect both business cycle and long-run volatility negatively. These results are robust to alternative market-based measure of financial development, and corrections for reverse causality. These results have important implications for growth theory as they shed lights on the factors causing permanent and transitory deviations from the steady state.

Social Capital and Hygiene Practices among the Extreme Poor in Rural Bangladesh

Abstract We investigate the effect of social capital on hygiene practices pertaining to lives of the extreme poor in rural Bangladesh. Analysing a unique survey dataset for 5,600 extreme poor households, we document a significant positive effect of social capital on sanitary latrine use and wearing shoes/sandals at home for hygiene. We account for the endogeneity of social capital by instrumental variable estimation. Our findings emphasise the role of social capital in preventing common diseases through improving hygiene practices for the extreme poor, who usually lack access to medical services in the event of illness, which has important policy implications.

The role of capital‐labour substitution in economic growth

Purpose - Although the importance of the elasticity of substitution between capital and labour (s) has been recognized in many areas in economics, this parameter has not received enough attention in economic growth. The purpose of this paper is to review the recent development in the importance of s in economic growth. Design/methodology/approach - This paper specifically reviews the possibility of perpetual growth and slowdown, and the asymptotic behaviour of the balanced growth path for different values of s. It also reviews the determinants of the aggregate s. Findings - Based on the empirical evidence that the value of s significantly departs from the Cobb-Douglas value of unity, the paper recommends employing the constant elasticity of substitution (CES) production function in both theoretical and empirical growth research. Originality/value - This paper offers a new perspective on the elasticity of substitution between capital and labour due to its evaluation of various factors, methods and approaches.

Group Dynamics in Development of the Poor: Experience from BRAC

The groups deliberately formed by nongovernmental organizations to organize the poor for their development are often subgrouped for better performance. In this connection, the study investigates the extent subgroups contribute to group performance, the mechanisms that lead to the contribution of subgroups to group performance, and changes in the contribution of subgroups to the performance of a group. Altogether 239 Bangladesh Rural Advancement Committee groups, i.e., village organizations (VOs), with and without subgroups were investigated. The VOs with subgroups performed better than those without subgroups. The performance of the VOs with subgroups, however, declined over time. One of the reasons why effectiveness of VOs with subgroups declined was the belief that pursuing subgroup responsibilities would not bring any personal gain for members.

The New Keynesian Phillips Curve in a Small Open Economy: Empirical Evidence from Australia

This study estimates the new Keynesian Phillips curve (NKPC) of Gali and Monacelli for a small open economy using Australian data. Our detailed investigation hinges on estimating the structural parameters in five different variants of the Gali–Monacelli NKPC, which relates the inflation process to terms of trade and the real exchange rate; the marginal cost and output gap as proxies for real economic activity and the hybrid version incorporating both forward‐ and backward‐looking inflation expectations. The analysis and extensive robustness checks overwhelmingly establish that the Gali–Monacelli NKPC cannot explain the dynamics of inflation and is rejected by the Australian data.

Persistence, Capital Account Openness, and Financial Sector Health in Exchange Rate Regime Choice

This paper investigates empirically the persistence in exchange rate regimes as well as the role of capital account openness and financial sector health (measured by financial development and financial sector fragility) in exchange rate regime determination for a panel of 143 countries covering the post-Bretton Woods period. The results demonstrate that while low- and high-income countries exhibit highly persistent exchange rate regimes, middle-income countries display relatively lower persistence. For middle-income countries, capital account openness and the level of financial development play important roles in exchange rate regime choice. The fragility of the financial sector does not affect the exchange rate regime determination.

The growth-volatility relationship redux: what does volatility decomposition tell?

Abstract This paper revisits the empirical relationship between volatility and long-run growth, but the key contribution lies in decomposing growth volatility into its business-cycle and trend components. This volatility decomposition also accounts for enormous heterogeneity among countries in terms of their long-run growth trajectories. We identify a negative effect of trend volatility, which we refer to as long-run volatility, on growth, but no effect of business-cycle volatility. However, if long-run volatility is omitted, there would be a spurious (negative) effect of business-cycle volatility. Our results draw attention to a crucial question about different volatility measures and their implications in macroeconomic analyses.