Hassan Molana

On the causal relationship between trade-openness and government-size: evidence from OECD countries

The compensation hypothesis predicts a positive causation from international economic openness to the size of the public sector, as governments step in to perform a risk mitigating role to counterbalance the increasing exposure to external risk and the economic dislocations caused by growing international openness. We use time series data from 22 OECD countries over the period 1955-2003 and examine the statistical significance of both long-run and short-run causality channels in each country separately. Our findings fail to provide an overwhelming support for this hypothesis, with only five countries showing some evidence in its favour.

Development of standardized methods for analysis of changes in antibacterial use in hospitals from 18 European countries: the European Surveillance of Antimicrobial Consumption (ESAC) longitudinal survey, 2000–06

OBJECTIVES Our objective was to develop and test standardized methods for collection and statistical analysis of longitudinal data on hospital antibacterial use from different countries. METHODS We collected data on monthly supply of antibiotics from pharmacies in one hospital from each of 18 European countries. We applied a standardized method to classify drugs, measure use in defined daily doses and compare the effect of using occupied bed-days (OBDs) or admissions as denominators for longitudinal analysis. RESULTS Antibiotic use increased in 14 (78%) hospitals and decreased in 4 hospitals. For 16 (89%) hospitals, adjustment of antibiotic use with OBDs resulted in larger changes over time than adjustment with admissions. Inclusion of all hospital clinical activity variables (admissions, length of stay and OBDs) in multivariate time series analysis identified distinct hospital groups. Nine (50%) hospitals had statistically significant changes in antibiotic use (six increasing and three decreasing) that were not explained (n = 3) or only partially explained (n = 6) by change in clinical activity. Three (17%) hospitals had no significant change in antibiotic use. In the remaining six hospitals, apparent changes in antibiotic use were largely explained by changes in clinical activity. CONCLUSIONS This is the first study to use a standardized method for data collection and longitudinal analysis of antibiotic use in different hospitals. These data suggest that determination of changes in antibiotic exposure of hospital patients over a period of time is unreliable if only one clinical activity variable (such as OBDs) is used as the denominator. We recommend inclusion of admissions, OBDs and length of stay in statistical, time series analysis of antibiotic use. This model is also relevant to longitudinal analysis of infections in hospitals.

Market structure, cost asymmetries, and fiscal policy effectiveness

Abstract Imperfectly competitive macroeconomic models typically assume a symmetric equilibrium with identical firms, despite the fact that most industries are characterised by substantial degrees of firm heterogeneity. We examine how inter-firm efficiency gaps affect fiscal policy effectiveness under monopolistic competition.

Constructing a social accounting matrix for Libya

The lack of coherent time series data for Libya is a serious obstacle for applied research on its economy. An alternative to econometric analysis is to use a social accounting matrix (SAM) in conjunction with an appropriately specified computable general equilibrium (CGE) model to address policy questions. We constructed a SAM for Libya for the year 2000, which integrates national income, input-output, flow-of-funds and foreign trade statistics into a comprehensive and consistent matrix. First, a macro-SAM was constructed to capture the macroeconomic framework of the economy. The macro-SAM was then disaggregated into a micro-SAM incorporating the accounts for activities, factors of production and main economic institutions (households, government and the rest of the world). Finally, the micro-SAM was balanced using a cross-entropy procedure in a general algebraic modelling system (GAMS). This matrix facilitates the numerical calibration of large analytical models to provide a suitable vehicle for policy experiments.

Subsidies as Optimal Fiscal Stimuli

In the theoretical macroeconomics literature, fiscal policy is almost uniformly taken to mean taxing and spending by a ‘benevolent government’ that exploits the potential aggregate demand externalities inherent in the imperfectly competitive nature of goods markets. Whilst shown to raise aggregate output and employment, these policies crowd-out private consumption and hence typically reduce welfare. In this paper we consider the use of ‘tax-and-subsidise’ instead of ‘tax-and-spend’ policies on account of their widespread use by governments, even in the recent recession, to stimulate economic activity. Within a static general equilibrium macro-model with imperfectly competitive good markets we examine the effect of wage and output subsidies and show that, for a small open economy, positive tax and subsidy rates exist which maximise welfare, rendering no intervention as a suboptimal state. We also show that, within a two-country setting, a Nash non-cooperative symmetric equilibrium with positive tax and subsidy rates exists, and that cooperation between trading partners in setting these rates is more expansionary and leads to an improvement upon the non-cooperative solution.

The Relationship between Output and Unemployment with Efficiency Wages

Abstract We construct a stylised model of the supply side with goods and labour market imperfections to show that an economy can rationally operate at a low-effort state in which the relationship between output and unemployment is positive. We examine data from the G7 countries over 1960-2001 and find that only German data strongly favour a persistent negative relationship between the level of output and rate of unemployment. The consequence of this is that circumstances exist in which market imperfections could pose serious obstacles to the smooth working of expansionary and/or stabilisation policies and a positive demand shock might have adverse effects on employment.

Consumption and Fiscal Policy: UK Evidence from a Cointegration Approach on Substitution between Private and Public Spending on Goods and Services

This paper uses the life-cycle approach to derive an equilibrium intratemporal efficiency condition which relates the marginal utility of consumption of nondurable goods and services to the marginal utility of consumption of services from durable goods. Given this condition and the assumption that marginal utilities are affected by the level of public spending, a long-run relationship between components of private consumption and public expenditure is then postulated. The application of cointegration analysis to UK data supports the existence and uniqueness of such a long-run relationship, and estimates based on the error correction approach produce results which suggest that (i) a change in public spending has different effects on components of private consumption in the short-run, and (ii) the entire burden of long-run substitution falls on nondurable consumption.

Competitive selection, trade, and employment: The strategic use of subsidies

Within a heterogeneous‐firms model with endogenous labor supply, intra‐industry competitive selection is shown to affect the impact of wage (and entry) subsidies. Optimal uniform wage subsidies are always positive even though, by reducing industry selectivity, they lower average productivity. Because of international selection and fiscal externalities, noncooperative policies entail under‐subsidization of wages. Targeted (domestic‐only or export) wage subsidies are dominated from a welfare point of view by a uniform subsidy. While always having an opposite effect on average productivity, an optimal entry subsidy is shown to be less effective than an optimal uniform wage subsidy in raising employment and welfare.

Fiscal policy and the composition of private consumption: some evidence from the U.S. and Canada

This paper develops a generalised version of the life-cycle model in which consumers’ preferences are defined over components of consumption and are affected by the level of public expenditure on goods and services. The model implies that the crowding out of private consumption could in fact be a direct demand side phenomenon caused by the way preferences respond to a change in public spending. Evidence from the U.S. and Canadian data for the period 1935-1995 confirms this theoretical conjecture as well as implying that in both countries demand for durable goods is likely to show relatively large swings which may undermine the stability of the sector and harm the supply side.

Returns to scale, imperfect competition and aggregate demand and trade policy effects in a two-country model

This paper constructs a simple general equilibrium two-country model with flexible exchange rates, specialization in production, and oligopolistic firms. The model is simulated in order to investigate how returns to scale and imperfect competition influence the process through which the aggregate demand and trade policy effects are transmitted internationally. The possibility that aggregate demand and trade policies enacted by one country can have “beggar my neighbor” effects on the other country cannot be excluded.