Emilio Colombo

From Composite Indicators to Partial Orders: Evaluating Socio-Economic Phenomena Through Ordinal Data

In this paper we present a new methodology for the statistical evaluation of ordinal socio-economic phenomena, with the aim of overcoming the issues of the classical aggregative approach based on composite indicators. The proposed methodology employs a benchmark approach to evaluation and relies on partially ordered set (poset) theory, a branch of discrete mathematics providing tools for dealing with multidimensional systems of ordinal data. Using poset theory and the related Hasse diagram technique, evaluation scores can be computed without performing any variable aggregation into composite indicators. This way, ordinal scores need not be turned into numerical values, as often done in evaluation studies, inconsistently with the real nature of the phenomena at hand. We also face the problem of “weighting” evaluation dimensions, to account for their different relevance, and show how this can be handled in pure ordinal terms. A specific focus is devoted to the binary variable case, where the methodology can be specialized in a very effective way. Although the paper is mainly methodological, all of the basic concepts are illustrated through real examples pertaining to material deprivation.

La Dolce Vita: Hedonic Estimates of Quality of Life in Italian Cities

Colombo E., Michelangeli A. and Stanca L. La dolce vita: hedonic estimates of quality of life in Italian cities, Regional Studies. This paper investigates quality of life in Italian cities using the hedonic approach. It analyses micro-level data for housing and labour markets to estimate compensating differentials for local amenities within four domains: weather, environment, services and society. Large compensating differentials in housing markets are found, whereas the effects on wages are relatively small. Quality of life varies substantially across space and is generally better in large and medium-sized cities of the Centre–North. Services and social conditions are strongly related to overall quality of life. It is also found that, across cities, quality of life is positively and significantly related to subjective well-being.

Investment Decisions and the Soft Budget Constraint

This paper investigates the investment behaviour of a large panel of Hungarian firms in the period 1989–99, in order to assess the impact of institutional and regulatory changes on the efficiency of credit allocation. We find that the role of financial factors for investment decisions has changed significantly after the introduction of major financial reforms, and that firms were affected differently depending on their ownership type. Reforms have hardened the budget constraint of private domestic firms, particularly small ones, and reduced informational problems for foreign-owned firms. State-owned firms remained subject to a soft budget constraint. In particular, small state firms became more sensitive to financial conditions, whereas large state firms were unaffected and kept operating under a soft budget constraint.

The impact of training on productivity: evidence from a panel of Italian firms

Purpose - – The purpose of this paper is to investigate the effects of training activity on labor productivity in a panel of Italian firms. Design/methodology/approach - – The use of a large panel data of individual firms allows the author to properly account for the possible endogeneity of training activity and avoid aggregation biases typical in industry-level data. Findings - – The paper finds that training has a positive and significant impact on productivity. While unobserved heterogeneity leads to overestimate the impact of training, failing to account for the endogeneity of training leads to underestimate its effects on productivity. Within occupational groups, training has large and significant effects for blue-collar workers, while the effects for executives and clerks are relatively small. Finally, using a measure of effective training intensity the paper finds that failing to account for training duration may lead to underestimate the effect of training on productivity. Originality/value - – Our data set is unique in terms of size and coverage and overcomes several limitations of previous research using firm-level data. Moreover, besides estimating the overall effect of training on productivity, the paper allows to address some more specific questions. Does the effect of training depend on the type of worker being trained? What is the relevance of effective participation to training activity?

Addressing the Unemployment-Mortality Conundrum: Non-Linearity is the Answer

The effect of unemployment on mortality is the object of a lively literature. However, this literature is characterized by sharply conflicting results. We revisit this issue and suggest that the relationship might be non-linear. We use data for 265 territorial units (regions) within 23 European countries over the period 2000-2012 to estimate a multivariate regression of mortality. The estimating equation allows for a quadratic relationship between unemployment and mortality. We control for various other determinants of mortality at regional and national level and we include region-specific and time-specific fixed effects. The model is also extended to account for the dynamic adjustment of mortality and possible lagged effects of unemployment. We find that the relationship between mortality and unemployment is U shaped. In the benchmark regression, when the unemployment rate is low, at 3%, an increase by one percentage point decreases average mortality by 0.7%. As unemployment increases, the effect decays: when the unemployment rate is 8% (sample average) a further increase by one percentage point decreases average mortality by 0.4%. The effect changes sign, turning from negative to positive, when unemployment is around 17%. When the unemployment rate is 25%, a further increase by one percentage point raises average mortality by 0.4%. Results hold for different causes of death and across different specifications of the estimating equation. We argue that the non-linearity arises because the level of unemployment affects the psychological and behavioural response of individuals to worsening economic conditions.

Economic and Socio-Political Determinants of de Facto Monetary Institutions and Inflationary Outcomes

In this paper we estimate a model where inflation, a measure of de facto central bank independence and an index of de facto exchange rate regime are simultaneously determined by a set of economic, political and institutional variables. De facto central bank independence is hampered by socio-political turbulence and benefits from the balance of powers between the executive and the parliament. Inflation is explained by de facto central bank independence, by the level and volatility of public expenditure and by the de facto exchange rate regime. Openness (real and financial) affects inflation through the exchange rate regime channel. Success in controlling inflation, in turn is crucial to sustain central bank independence and exchange rate stability.

The Role of Financial Markets in the Transition Process

1 Financial Markets and Transition.- 1.1 Introduction.- 1.2 Theoretical Background.- 1.3 Empirical Evidence.- 1.4 Financial Market Imperfections in Eastern Europe.- 1.5 The Aim of this Volume.- References.- 2 The Order of Financial Liberalisation: Lessons from the Polish Experience.- 2.1 Introduction.- 2.2 Institutions and Sources of Finance.- 2.3 Privatisation, Restructuring and Enterprise Finance.- 2.4 Conclusions.- References.- 3 Economic and Financial Transition in Hungary.- 3.1 Introduction.- 3.2 Macroeconomic Developments and Transition Progress.- 3.3 Financial Developments.- 3.4 Issues in Financial Development.- 3.5 Challenges Ahead.- References.- 4 Endogenous Startups, Financial Conditions, and Capital Accumulation.- 4.1 Introduction.- 4.2 The Basic Model.- 4.3 Public Expenditure Financed by Labor Income Taxes.- 4.4 An Open Economy in a Fixed Exchange Rate Regime.- 4.5 Conclusions.- References.- 5 Wealth Distribution, Occupational Choice and the Behaviour of the Interest Rate.- 5.1 Introduction.- 5.2 Model Economy.- 5.3 Equilibrium Conditions and Factor Prices.- 5.4 Market Equilibrium Dynamics.- 5.5 Development and Inequality.- 5.6 Some Empirical Evidence in Eastern Europe.- 5.7 Conclusions.- References.- 6 Financial Instability in the Transition Economies: Lessons from East (Asia) for (East) Europe.- 6.1 Introduction.- 6.2 Is the Diamond-Dybvig Approach Relevant for Banking Policy in Transition Economies?.- 6.3 The Model.- 6.4 The Social Planner Problem.- 6.5 The Role of the Banking System.- 6.6 Liquidity Requirements as a Means to Preserve Financial Stability.- 6.7 Financial Instability and External Shocks: The Case of Foreign Interest Rate Shocks.- 6.8 Conclusions.- References.- 7 Foreign Direct Investment in the Banking Sector: Experiences and Lessons from CEECs.- 7.1 Introduction.- 7.2 FDI in the Banking Sector: Are Transitional Economies Special?.- 7.3 Data on FDI in TE Banking Sectors.- 7.4 Impact of FDI in the Banking Sector.- 7.5 Determinants of FDI Localization in the Banking Sector.- 7.6 Conclusions.- References.- 8 Corporate Capital Structure in Transition: Evidence from Hungarian and Czech Firms.- 8.1 Introduction.- 8.2 Determinants of Leverage in TEs: Theoretical Issues.- 8.3 Data Set and Descriptive Statistics.- 8.4 Empirical Analysis.- 8.5 Conclusions.- References.- 9 Financing Patterns in Hungary - as Seen from Balance Sheets and from Interviews.- 9.1 Introduction.- 9.2 Analysis of Financial Accounts of Companies.- 9.3 Survey Findings.- 9.4 Summary and Lessons.- References.

Financial Markets and Transition

The analysis of the development and evolution of financial markets and in particular of their imperfections, has become one of the most important topics for scholars investigating the determinants of macroeconomic performance of emerging and developing countries. In particular during the recent years the literature has shifted its focus towards the macroeconomic effects of financial development and away from the traditional emphasis on microeconomic effects on banks and financial intermediaries. The aim of this chapter is to introduce the issues that are deepened in the subsequent chapters setting out the theoretical and empirical framework that will be used.

Corporate Capital Structure in Transition: Evidence from Hungarian and Czech Firms

We investigate the capital structure of Hungarian and Czech firms using a cross-section and a panel data approach. We find evidence of imperfections that constrain firms in the achievement of their optimal capital structure, but also some positive signs and in particular the indication that there are no distortions typical of the planned system. From the analysis it emerges also that Hungarian firms seem to respond better to market incentives signals in their capital structure choice, with respect to their Czech counterparts.

Restructuring as a Signal: a Simple Formalization

Several studies stressed that contrary to the initial expectations, state-owned firms at the beginning of the transition, undertook painful measures to adjust to the new economic environment. This paper investigates this behaviour in a simple game theoretic framework. It is argued that the massive amount of lay-offs created by state-owned firms during the initial phase of the transition can be interpreted as a signal directed to the banking sector in order to obtain more favourable financing conditions for the subsequent process of restructuring.