Stephen P. Davies

Defense spending and economic growth in developing countries: A causality analysis

Abstract Military spending can affect economic growth either negatively, through a crowding out of investment, or positively, through an expansion of aggregate demand. Using Granger causality methods extended to incorporate non-stationary and cointegration, this paper evaluates the causal relations between defense spending and economic growth in 62 developing countries. The results showed that unidirectional causality was found in 23 countries, from either defense expenditures to economic growth or vice versa, while bi-directional causality existed in 7 countries. Causality did not exist in 18 countries that were integrated of the same order, while in 14 countries the data were integrated of differing orders. The long-run effects were distinguished from short-run causality when cointegration existed. Some of the limitations of the methods and results were also discussed.

A subsector approach to small enterprise promotion and research

Abstract This paper introduces a diagnostic research methodology designed to help target small enterprise development efforts in less developed countries. It argues that research should focus on commodity-specific subsectors, which include the competing channels and supporting input and output linkages of small firms. Using this approach, analysts can improve their understanding of small enterprise dynamics, interventions that may promote them at low cost, and policies that constrain small firm growth.

Estimating Market Power And Pricing Conduct In A Product-Differentiated Oligopoly: The Case Of The Domestic Spaghetti Sauce Industry

This paper develops a simultaneous-equations panel data econometric model to obtain point estimates of market power and pricing conduct in a representative product-differentiated, oligopolistic food market. The importance of this class of markets is recognized given its prevalence in the food and fiber system, especially for final consumer food products. The

The effect of seasonal variations in auditor workload on local government audit fees and audit delay

1.3 billion domestic spaghetti sauce industry is featured. Although the results indicate firms exert limited market power, a portion of this power is derived from tacit price collusion. A higher degree of price collusion was found among brands within a market segment than between segments.

The Impact of Specific-Sector Changes in Employment on Economic Growth, Labor Market Performance and Migration

Abstract Prior studies of government audit fees and audit delay (elapsed time from fiscal year end (FYE) to date of the audit report) employ a dichotomous variable to control for seasonality. However, a single variable does not appear to fully capture the effects of seasonality on audit fees or audit delay in the US local government sector. We compare the effects of FYEs commonly observed by US local governments (i.e., June 30, September 30, and December 31) on the audit fees and audit delay of 302 cities and counties for fiscal 1993. Our findings indicate that governments with June FYEs incur lower fees than do governments with either September or December FYEs. We also find that June and December governments sustain equivalent (and maximal) audit delay, and that September governments experience minimal delay. The results show that, in terms of fees and delay, December 31 is the least desirable of the FYE dates commonly found in the US local government arena. Our findings further suggest that audit fees may influence audit delay, when considered in a seasonal context.

The Demand for Nominal and Real Money Balances in a Large Macroeconomic System

It is common in empirical regional economics to use total employment as an explanatory variable while investigating issues such as the level and distribution of income and migration. This paper argues that sector-specific changes in employment and labor market performance can have different effects on economic growth, the collection of tax revenue, migration, and the level and distribution of household income. As such, it is important to model sectors separately. We find that expansions in employment opportunities for a high-wage sector such as computer manufacturing or bioengineering, a medium-wage sector manufacturing, and the lower-wage sector of retailing have differing economic consequences for a small city. We use a data intensive computable general equilibrium model to obtain these results.

The Demand for M1 in a Large Macroeconomic System: Evidence from Cointegration Analysis

Cointegration has become a popular empirical technique used to estimate the existence and stability of money demand relationships. A common approach has been to estimate a single equation system with real money balances (Ml), real income and an interest rate, although Hafer and Jansen [13], Friedman and Kuttner [10] and Stock and Watson [29] find only minimal support for this specification. Baba, Hendry and Starr [6] estimate a more complicated Ml relation by including specific opportunity cost variables and find stronger support for the Ml relation using post WWII data. There have been four reasons put forth to explain the lack of a cointegrating relation between Ml, real income and the interest rate. Stock and Watson [29] conclude that a stable money demand relation exists in data from 1900-89 but not for the post-war period alone. Their explanation is that sufficient variation exists in the longer sample to identify money demand, but excessive multicollinearity among variables during the post-war period prevents unique identification. Baba, Hendry and Starr [6] (BHS) maintain that misspecification of the Ml relation is the reason for poor results. They augment the money demand function with inflation, a measure of long term bond yield and risk, and learning curve weighted yields on newly introduced Ml and M2 assets. BHS claim their specification is able to account for the missing money period of 1975-76, the velocity decline of 1982-83 and the Ml explosion of 1985-86 while standard Ml models cannot. Friedman and Kuttner [10] offer a third reason why the simple money demand equation fails. They estimate a single equation model for several periods and conclude that a money demand vector exists over the 1960.2-79.4 period for Ml. However, when data is included

LOCAL GOVERNMENT AUDIT PROCUREMENT REQUIREMENTS, AUDIT EFFORT, AND AUDIT FEES

Abstract Most cointegration analyses in the literature fail to find support for a simple money demand (M1) relationship. The typical reasons for this lack of support are excessive multicollinearity, misspecification and a general breakdown of the money market. We imbed the money market in a system containing markets for consumption, investment and imports. The gains in efficiency and reduced bias from this full system approach results in a substantial improvement in the performance of the money market. We also find that Federal ReserveAEs targeting of aggregate reserves can lead to disequilibrium in the money market.

Forecasting in a large macroeconomic system

Abstract For several years, Florida local governments have been subject to laws intended to enhance audit quality. Hackenbrack et al. (2000) report that the fiscal 1992 audit fees of Florida local governments exceed those of local governments in surrounding states and conclude that Florida’s audit procurement requirements created an “audit market climate” that promotes audit quality. We extend Hackenbrack et al.’s research by comparing the audit effort (hours) and audit fees associated with selected Florida local governments with the audit effort and fees associated with a nationwide sample of local governments in states other than Florida for fiscal 1996. We find that both audit hours and audit fees are higher in Florida vis-a-vis those of other local governments. Our results provide further empirical support for the premise that Florida’s local government audit procurement laws represent sound public policy.

Understanding the Unique Impacts of Economic Growth Variables

This paper examines the efficiency gains yielded from estimating multiple equation cointegrated systems as compared to their single equation counterparts. In particular, this paper is concerned with the ability of utilizing the cointegrating information to improve forecasting performance. Recently an inability to improve forecasts of real income once money demand error correction terms were introduced has been used to argue that the M2 relationship had broken down during the early 1990s. However, the results suggest that once the underlying responses of variables are more closely investigated, the behaviour of M2 has remained stable.