Diana Weinhold

Causality Tests for Cross-Country Panels: A New Look at FDI and Economic Growth in Developing Countries

The remarkable increase in FDI flows to developing countries over the last decade has focused attention on whether this source of financing enhances overall economic growth. We use a mixed fixed and random (MFR) panel data estimation method to allow for cross country heterogeneity in the causal relationship between FDI and growth and contrast our findings with those from traditional approaches. We find that the relationship between investment, both foreign and domestic, and economic growth in developing countries is highly heterogeneous and that estimation methods which assume homogeneity across countries can yield misleading results. Our results suggest there is some evidence that the efficacy of FDI in raising future growth rates, although heterogeneous across countries, is higher in more open economies.

The effect of the Internet on international trade

The Internet stimulates trade. Using a gravity equation of trade among 56 countries, we find no evidence of an effect of the Internet on total trade flows in 1995 and only weak evidence of an effect in 1996. However, we find an increasing and significant impact from 1997 to 1999. Specifically, our results imply that a 10 percent increase in the relative number of web hosts in one country would have led to about 1 percent greater trade in 1998 and 1999. Surprisingly, we find that the effect of the Internet on trade has been stronger for poor countries than for rich countries, and that there is little evidence that the Internet has reduced the impact of distance on trade. The evidence is consistent with a model in which the Internet creates a global exchange for goods, thereby reducing market-specific sunk costs of exporting.

The Internet and International Trade in Services

The scope for growth of trade in services is vast. Although services currently make up over 60 percent of world production, they account for only about 20 percent of world trade. A primary reason why international trade in services has been limited is that the performance of many services necessitates physical contact between producers and consumers, a condition that renders service provision to distant locations infeasible. New technology, in particular, the Internet, provides a medium of exchange that overcomes such historical trading hurdles for many services, effectively reducing transport costs from infinity to virtually nothing. There is ample anecdotal evidence that the Internet is having just this sort of an effect on services trade. The accounting firm Netlink maintains the books for 6,000 employees in Reyanosa, Mexico, from their offices in Manhattan. Infosys of India provides softwareconsulting services to international clients, including Apple Computers, Lucent Technologies, and Microsoft. A medical-transcription company in South Africa, ITS, receives digital recordings from abroad electronically and returns a transcribed text file the next day. Still, the question remains as to whether electronic sharing of information is an important enough development to alter significantly the geography of service provision. Indeed, many services need to be tailored to the consumer’s needs and monitored for quality, and these are likely to be more effective if the provider is close by and speaks the same language. In addition, in the event of a dispute, resolution will be less complicated if both parties are subject to the same legal system. Finally, there may be security concerns with allowing foreign access to some documents or systems. Thus, for some services, especially those where familiarity, communication, and non-standardization contribute to quality, the Internet would not be expected to have a large impact on international trade. To determine whether the Internet has significantly affected international service provision in practice, we estimate a general model of services trade across countries and examine whether the inclusion of data on Internet penetration, as measured by the number of Internet hosts in a country, is statistically significant. Overall, our results offer evidence that the Internet is related to growth in services trade. After controlling for GDP and exchange-rate movements, we find that a 10-percent increase in Internet penetration in a foreign country is associated with about a 1.7-percentage-point increase in export growth and a 1.1-percentagepoint increase in import growth. The results are robust to a number of alternative specifications.

The dynamics of deforestation and economic growth in the Brazilian Amazon

Amulti-disciplinary team of authors analyze the economics of Brazilian deforestation using a large data set of ecological and economic variables. They survey the most up-to-date work in this field and present their own dynamic and spatial econometric analysis based on municipality-level panel data spanning the entire Brazilian Amazon from 1970 to 1996. By observing the dynamics of land-use change over such a long period the team is able to provide quantitative estimates of the long-term economic costs and benefits of both land clearing and government policies such as road building. The authors find that some government policies, such as road paving in already highly settled areas, are beneficial both for economic development and for the preservation of forest, while other policies, such as the construction of unpaved roads through virgin areas, stimulate wasteful land uses to the detriment of both economic growth and forest cover.

Effect of healthcare‐acquired infection on length of hospital stay and cost

OBJECTIVE To estimate the independent effect of a single lower respiratory tract infection, urinary tract infection, or other healthcare-acquired infection on length-of-stay and variable costs and to demonstrate the bias from omitted variables that is present in previous estimates. DESIGN Prospective cohort study.Setting. A tertiary care referral hospital and regional district hospital in southeast Queensland, Australia. PATIENTS Adults aged 18 years or older with a minimum inpatient stay of 1 night who were admitted to selected clinical specialities. RESULTS Urinary tract infection was not associated with an increase in length of hospital stay or variable costs. Lower respiratory tract infection was associated with an increase of 2.58 days in the hospital and variable costs of AU

A social and ecological assessment of tropical land uses at multiple scales: the Sustainable Amazon Network

24, whereas other types of infection were associated with an increased length of stay of 2.61 days but not with variable costs. Many other factors were found to be associated with increased length of stay and variable costs alongside healthcare-acquired infection. The exclusion of these variables caused a positive bias in the estimates of the costs of healthcare-acquired infection. CONCLUSIONS The existing literature may overstate the costs of healthcare-acquired infection because of bias, and the existing estimates of excess costs may not make intuitive sense to clinicians and policy makers. Accurate estimates of the costs of healthcare-acquired infection should be made and used in appropriately designed decision-analytic economic models (ie, cost-effectiveness models) that will make valid and believable predictions of the economic value of increased infection control.

Model Evaluation and Causality Testing in Short Panels: The Case of Infrastructure Provision and Population Growth in the Brazilian Amazon

Science has a critical role to play in guiding more sustainable development trajectories. Here, we present the Sustainable Amazon Network (Rede Amazônia Sustentável, RAS): a multidisciplinary research initiative involving more than 30 partner organizations working to assess both social and ecological dimensions of land-use sustainability in eastern Brazilian Amazonia. The research approach adopted by RAS offers three advantages for addressing land-use sustainability problems: (i) the collection of synchronized and co-located ecological and socioeconomic data across broad gradients of past and present human use; (ii) a nested sampling design to aid comparison of ecological and socioeconomic conditions associated with different land uses across local, landscape and regional scales; and (iii) a strong engagement with a wide variety of actors and non-research institutions. Here, we elaborate on these key features, and identify the ways in which RAS can help in highlighting those problems in most urgent need of attention, and in guiding improvements in land-use sustainability in Amazonia and elsewhere in the tropics. We also discuss some of the practical lessons, limitations and realities faced during the development of the RAS initiative so far.

Estimating the loss of agricultural productivity in the Amazon

In this paper we examine the relationship between infrastructure growth and population growth in the Amazon using a panel of 293 municipalities over the period from 1975 to 1985. Contemporaneous cross-section analysis confirms a strong positive correlation between infrastructure and urban population but does not indicate direction of causality. Thus, we employ a modified form of the traditional Granger causality tests to suit the short time series that we have available. Based on out-of-sample forecasting tests we conclude that the empirical evidence supports the hypothesis that growing urban populations lead to more infrastructure development, rather than vice versa. Copyright 2001 Blackwell Publishers

THE HAPPINESS‐REDUCING COSTS OF NOISE POLLUTION

We propose a procedure to obtain a general estimate of the rate at which agricultural productivity declines on newly cleared land in the Brazilian Amazon. This estimated parameter has two advantages over conventional estimates. First, it is a general, average estimate that can be used in macro-scale economic analysis. Second, the estimate is derived from regional data accessible to economists rather than from remote scientific stations. In the first stage a model is estimated that tracks the transition of land use from period to period for each municipality, allowing the process to vary according to different characteristics of each municipality and time period. From this land use transition model the percentage of crop land in each municipality that is recently cleared, 5-years old, 10 years old or previously used for other purposes is calculated. These land vintage estimates are used with labor as inputs in a Cobb–Douglas production function which is estimated using GLS. The estimated elasticities are allowed to vary by relevant municipality characteristics and are then converted into a measure of productivity for each land vintage. It is shown that the productivity of land drops in the first 5-years after clearing land and stabilizes thereafter. Several economic arguments are given to support the empirical results.

Smoking status and subjective well-being

This analysis examines the costs of everyday residential noise pollution using a series of “happiness regressions.” We control for both the possibility that an unobservable characteristic may cause omitted variable bias, as well as for the possibility of endogeneity bias if “effort” is not adequately taken into account. We find perceived noise pollution to exert a negative and highly significant effect on happiness. We then calculate the required income transfer to compensate for the noise and find the costs of noise pollution to be on the order of €172 per month per household.