the sustainability of south african fiscal policy an historical perspective this article examines the issue of long run fiscal sustainability in south africa by applying a battery of recently developed unit root and cointegration tests to real revenue and spending data for the period 1895 to 2005 the results provide evidence that allowing for structural breaks south african revenue and spending during this period were i 1 series and cointegrated with the estimated long run equilibrium relation supporting the presence of a weak deficit sustainability condition the views expressed in this article are those of the authors and should not be attributed to the international monetary fund

the influence of seasonal adjustment on the canadian consumption function 1947 1991 cointegration tests typically rely on seasonally adjusted data cointegration tests are applied in this paper to seasonally unadjusted data the main objective of the paper is to test the permanent income hypothesis using canadian data the authors find that the unit root at the zero frequency found in seasonally adjusted data is also present in seasonally unadjusted data however there is considerable evidence for the presence of seasonal unit roots although there is support for the permanent income hypothesis for seasonally adjusted data the same hypothesis is rejected for seasonally unadjusted data

how efficiently is capital allocated evidence from the knitted garment industry in tirupur this paper studies the effect of community identity on investment behaviour in the knitted garment industry in the south indian town of tirupur we document very large and systematic differences in both levels of capital stock and the capital intensity of production in firms owned by people from two different community groups we argue that the differences in investment cannot be explained by productivity differences alone we suggest that the most likely explanation is that the two communities differ in their access to capital

group lending repayment incentives and social collateral abstract in this paper we investigate the impact on repayment rates of lending to groups which are made jointly liable for repayment this type of scheme especially in the guise of the grameen bank in bangladesh has received increasing attention we set up and analyze the repayment game which group lending gives rise to our analysis suggests that such schemes have both positive and negative effects on repayment rates the positive effect is that successful group members may have an incentive to repay the loans of group members whose projects have yielded insufficient return to make repayment worthwhile the negative effect arises when the whole group defaults even when some members would have repaid under individual lending we also show how group lending may harness social collateral which serves to mitigate its negative effect

the causality relationship between energy consumption and gdp in g 11 countries revisited abstract this paper explores whether energy conservation policies can be implemented in countries with the same level of development that is is restraining energy consumption without compromising economic growth feasible in all industrialized countries a new granger non causality testing procedure developed by toda and yamamoto 1995 journal of econometrics 66 225 250 is applied to re investigate the relationship if any between energy consumption and income in 11 major industrialized countries the results clearly do not support the view that energy consumption and income are neutral with respect to each other except in the case of the united kingdom germany and sweden where a neutral relationship is found bi directional causality in the united states and uni directional running from energy consumption to gdp in canada belgium the netherlands and switzerland are found this indicates that energy conservation may hinder economic growth in the latter five countries further the causality relationship appears to be uni directional but reversed for france italy and japan which implies that in these three countries energy conservation may be viable without being detrimental to economic growth

spurious rejections by cointegration tests induced by structural breaks the effects on three cointegration tests are examined when the series analysed are independent integrated processes each with a structural break although there are differences in detail among the tests the results indicate in all cases that when structural breaks are neglected in the analysis spurious rejections indicating the presence of cointegration can occur

seasonality and habit persistence in a life cycle model of consumption summary the allocation of non durable consumers expenditure over the four quarters of the year reflects choices made by consumers implying a utility function exhibiting seasonality incorporating such a function the life cycle model fails to explain fully the observed dynamics in uk seasonally unadjusted data seasonal habit persistence effects are introduced and found to be significant although this generalized model stands up well to testing in a univariate context it fails to exclude a predictive role for lagged income changes seasonality is inherent in many economic time series but it is rarely considered to be an issue of interest in econometric model building rather than explicitly investigating the economics underlying seasonal variation modellers typically try to remove its effects either by using seasonally adjusted data or by including seasonal intercept dummies in their equations the former practice is criticized by wallis 1974 who shows that it may distort the relationship between variab le the latter assumes that the function simply shifts up or down with the season however except for degrees of freedom considerations there seems to be no a priori reason why the same parameters or functional form should apply at different times of the year indeed gersovitz and mackinnon 1978 argue that realistic utility cost or production functions result in models in which seasonal influences cannot be separated out in a simple fashion in the present study seasonality is treated as one of the features to be explained within the economic model thus in the particular application to non durable consumers expenditure it is argued that the allocation of expenditure over the year reflects seasonal tastes and hence seasonality in the underlying utility function the implications of this are explicitly investigated the framework for our analysis is the influential paper by hall 1978 who derives a randomwalk model for real non durable consumers expenditure when rational expectations are combined with a life cycle theory of consumption hall does not investigate seasonality at all and employs seasonally adjusted values in his empirical analysis although subsequent us authors have examined many aspects of this theory the type of data used has rarely been

a structural time series approach to modelling multiple and resurgent meat scares in italy this paper exploits a structural time series approach to model the time pattern of multiple and resurgent food scares and their direct and cross product impacts on consumer response a structural time series almost ideal demand system sts aids is embedded in a vector error correction framework to allow for dynamic effects vec sts aids italian aggregate household data on meat demand is used to assess the time varying impact of a resurgent bse crisis 1996 and 2000 and the 1999 dioxin crisis the vec sts aids model monitors the short run impacts and performs satisfactorily in terms of residuals diagnostics overcoming the major problems encountered by the customary vector error correction approach

non contractible investments and vertical integration in the mexican footwear industry abstract this paper examines patterns of integration among manufacturers and retailers using data from a survey of footwear manufacturers in mexico the property rights framework developed in papers by grossman and hart 1986 j polit econ 94 691 and hart and moore 1990 j polit econ 98 1119 is differentiated from the standard empirical transactions cost framework in the context of this industry the most relevant distinction between the two frameworks is that the property rights framework addresses both the benefits and costs of integration while the transactions cost framework focuses only on variation in the benefits of integration we show that the costs of integration are highest where the retailer s non contractible investment has an important effect on the overall profits from the relationship consistent with the property rights framework the data suggest that integration is less likely in these circumstances

unit roots structural breaks and cointegration in the uk public finances 1750 2004 in this article we report results from several traditional and more recently developed unit root and cointegration tests allowing for structural breaks which indicate that uk government revenue and spending during 1750 2004 were i 1 series and cointegrated and that the uk public finances have been on a consistently sustainable path over the long run

vertical integration and investor protection in developing countries the industrial organization of developing countries is characterized by the pervasive use of subcontracting arrangements among small financially constrained firms this paper asks whether vertical integration relaxes those financial constraints it shows that vertical integration trades off the benefits of joint liability against the costs of rendering the supply chain more opaque to external investors in contrast to the commonly held view that pervasive input and capital market imperfections are conducive to vertical integration the model predicts that the motives for vertical integration are not necessarily higher in developing countries in particular vertical integration is more likely to arise at intermediate levels of investor protection and better contract enforcement with suppliers reduces vertical integration only if financial markets are sufficiently developed evidence supporting both predictions is discussed

a time series test of innovation driven endogenous growth this article finds evidence that ideas and innovation are a key force explaining postwar growth in the u s economy utilizing data on patents issued since 1851 i construct a measure of the growth rate of knowledge capital stock estimates human capital estimates and real gross domestic product per worker growth rates are combined with the knowledge growth series to construct a time series test of endogenous innovation growth models the results support the endogenous innovation approach but suggest that the accumulation of the per worker capital stock and changes in average human capital per worker are at least as important jel 030 c32

can foreign direct investment harness energy consumption in china a time series investigation abstract this study assesses the long run relationship and short run dynamics between foreign direct investment fdi and energy consumption in china applying the bounds testing approach to annual data from 1982 to 2012 we find that a stable fdi energy nexus exists in the long run and a 1 increase in fdi reduces energy consumption by 0 21 however this study shows a positive association between fdi and energy consumption in the short run attributing to the dominance of the scale effect our results remain robust to different measurements and estimators it is suggested that the chinese government shall support the inward fdi in the tertiary and energy sectors and strengthen local absorptive capacities to fully internalize fdi related knowledge spillovers in energy conservation

long memory and persistence in aggregate output abstract we examine persistence in u s aggregate output by estimating fractionally integrated arima models these models provide better low frequency approximations to the wold representation than previous stochastic specifications and earlier results on the importance of a permanent component emerge as special cases we find evidence of long memory which induces persistence though this long memory need not be associated with a unit root our point estimates indicate that macroeconomic shocks while persistent are distinctly less persistent than many earlier studies suggest however confidence intervals associated with the long run response are quite wide

making a market mass privatization in the czech and slovak republics the author assesses the czechoslovak mass privatization program for speed equity and corporate governance the program transferred claims on assets in 1 491 enterprises assets worth about 10 7 billion to the 8 5 million citizens who participated in the scheme the entire cycle of project preparation public information and nationwide simultaneous bidding took 14 months this was equivalent to privatizing more than three medium scale and large scale enterprises on average per day equity objectives were achieved by transferring equal claims equivalent to about 1 250 per person to all participants and by putting in place a transparent and decentralized process the government s role was simple to provide a framework and a set of rules for potential firms managers and shareholders to find each other the scheme s design based on simultaneous sequential bidding rounds worked to put information about enterprise values into the public domain by allowing increasingly informed bidders to interact the structure of ownership that emerged will have very different implications for corporate governance enterprises in the czech republic and those that sold for high prices in the bidding rounds are characterized by a greater concentration of shareholdings those in the slovak republic and those that sold for lower prices have more diffuse ownership structures the mass privatization scheme served to quickly differentiate the enterprises with favorable prospects from those with unfavorable prospects under current conditions but enterprises that could have survived in some form if they had been restructured before privatization or enterprises that could have been viable but lacked effective governance were sacrificed for the sake of speed and decentralization

transitory and permanent disturbances and the current account an empirical analysis in the intertemporal framework the intertemporal models of current account determination demonstrate that in the analysis of the current account balance of a country it is important to distinguish between transitory and permanent disturbances in income and relative prices this paper attempts to decompose the observed data on income and real exchange rate into transitory and permanent components and then uses the decomposed series to test the empirical validity of the predictions of the intertemporal models evidence from the united states and japan provide very limited support for the intertemporal models in terms of the effects of transitory and permanent changes in income on current account balance for both us and japan the study finds that permanent changes in real exchange rate have significant effects on the current account balance statistical tests find no evidence of hysteresis in the trading relations of the two countries

the demand for tourism in north east england with special reference to northumbria an empirical analysis abstract this paper examines the trends of tourism in north east england in particular we focus on the area of northumbria to show the potential of tourism for economic development in the region within this analysis we concentrate on the demand for tourism in the region and in particular we are concerned with tourism by uk residents in northumbria domestic tourism the long run relationship between domestic tourism demand and a number of economic factors effecting this demand is considered using the johansen and juselius 1990 1992 multivariate cointegration analysis an error correction model is then proposed for short run forecasting of domestic demand for tourism in northumbria

lm cointegration tests allowing for an unknown number of breaks implications for the forward rate unbiasedness hypothesis abstractthis article extends the lagrange multiplier lm cointegration test proposed by westerlund and edgerton we 2007 by allowing for an unknown number of breaks monte carlo simulations provide two main results first a loss of power in the lm cointegration tests is detected when potential multiple breaks are ignored second the modified testing procedures do not affect the asymptotic distribution and major properties of the tests of we under the null but noticeably increase their testing power in presence of multiple breaks we also provide empirical applications of the proposed tests for the forward rate unbiasedness hypothesis fruh the results reveal that the fruh does hold when the effects of the multiple structural breaks are taken into account

in kind finance a theory of trade credit it is typically less profitable for an opportunistic borrower to divert inputs than to divert cash therefore suppliers may lend more liberally than banks this simple argument is at the core of our contract theoretic model of trade credit in competitive markets the model implies that trade credit and bank credit can be either complements or substitutes among other things the model explains why trade credit has short maturity why trade credit is more prevalent in less developed credit markets and why accounts payable of large unrated firms are more countercyclical than those of small firms

the big problem of forecasting small change the united states mint recently reviewed approaches to forecasting the demand for new coin this paper reports on methods used to determine fundamental attributes of the data and uses these to help better determine appropriate model specification in order to better plan coin production in particular the debate regarding trend versus difference stationarity in macroeconomic trending data is considered the interest in the present paper is limited to applying a well known unit root test procedure to an untested macrodata set changes in us coin demand to see whether the test is useful in guiding the specification to improved forecast performance it is found that the forecast results are somewhat sensitive to the way in which the data are seasonally adjusted and lessons learned from this case study indicate that unit root tests are useful in guiding model specification

financial and legal constraints to growth does firm size matter using a unique firm level survey database covering 54 countries we investigate the effect of financial legal and corruption problems on firms growth rates whether these factors constrain growth depends on firm size it is consistently the smallest firms that are most constrained financial and institutional development weakens the constraining effects of financial legal and corruption obstacles and it is again the small firms that benefit the most there is only a weak relation between firms perception of the quality of the courts in their country and firm growth we also provide evidence that the corruption of bank officials constrains firm growth

abatement and allocation in the pilot phase of the eu ets we use historical industrial emissions data to assess the level of abatement and over allocation that took place across european countries during the pilot phase 2005 2007 of the european union emission trading scheme using a dynamic panel data model we estimate the counter factual business as usual emissions scenario for eu member states comparing this baseline to allocated and verified emissions we find that both over allocation and abatement occurred along with under allocation and emissions inflation over the three trading years of the pilot phase we find over allocation of approximately 280 million euas and total abatement of 247 mt co2 however we calculate that emissions inflation of approximately 73 mt co2 also occurred possibly due to uncertainty about future policy design features

do emerging markets matter in the world oil pricing system evidence of imported crude by china and india abstract this paper provides empirical evidence on the changing structure of world oil price system by identifying an additional driver emerging market factor we choose china and india as a representative of emerging markets to examine if the quantity of crude oil imported by china and india is significant in the existing oil pricing system kaufmann et al 2004 our data starts from january 2002 and ends in march 2010 which includes the oil shock of 2007 2008 we utilize cointegration and error correction model framework developed by engle granger 1987 and gregory hansen 1996 in the analysis our results indicate that demand from emerging markets has become a significant factor in the world oil pricing system since 2003 this result is significant as it lends empirical support to the widely held conjecture that the oil shock of 2007 2008 is a demand led shock hamilton 2009 our result also has significant policy implications that go beyond the oil shock the emerging market factor is there to stay and reflects the changing power between emerging and developed economies in the world economic system as a result of decades of fast economic development in the former it will certainly influence policy issues related to oil and beyond

joint liability lending and the rise and fall of china s township and village enterprises abstract we present a new explanation for the rise and fall of collectively owned enterprises based on the changing lending preferences of banks until the mid 1990s bank loans to collective firms exhibited the key features of joint liability lending supported by the sanctioning ability of local government leaders however subsequent changes in collateral firm performance interest rates and financial competition led banks to prefer individual lending to private firms this explanation is supported by empirical analysis of the determinants of bank lending preferences the involvement of township leaders in lending and the ability of firms to obtain loans

a multivariate cointegration analysis of the role of energy in the us macroeconomy abstract this paper extends my previous analysis of the causal relationship of gdp and energy use in the usa in the post war period a majority of the relevant variables are integrated justifying a cointegration analysis the results show that cointegration does occur and that energy input cannot be excluded from the cointegration space the results are plausible in terms of macroeconomic dynamics the results are similar to my previous granger causality results and contradict claims in the literature based on bivariate models that there is no cointegration between energy and output

estimating saving investment correlations evidence for oecd countries based on an error correction model abstract saving investment correlations are important stylized facts in open economy macroeconomics and indicators of capital mobility they are best estimated by an error correction model ecm because an ecm is consistent with intertemporal general equilibrium models the ecm is a synthesis of previous approaches applying the ecm to the oecd countries we find that in general saving and investment are cointegrated the ecm is more powerful in detecting cointegration than the two step engle granger procedure estimates of the saving investment correlation are robust with respect to overdifferencing we find evidence of a large country effect and an increase in capital mobility within the oecd area

a survey of some recent econometric methods this survey is written mainly for the applied economist though we hope that the specialist econometrician will find something of interest too our aim has been to try to bring the applied worker as up to date as possible and in the process to improve the quality of applied work by providing access to the latest ideas in econometrics we have tried to describe and explain in a relatively non technical way the main developments that have taken place in the last ten years partly for reasons of space the survey is by no means exhaustive but it does cover a wide range of topics in both time series and cross section analysis among the subjects covered are the followoing the nature of data including integrated and fractionally integrated data four estimation methods maximum likelihood method of moments m estimators and non parametric estimation inference with stationary and integrated regressors a comparison of various model evaluation principles the formulation of models including dynamic specification cointegration and conditional expectations in mean and variance copyright 1989 by royal economic society

cointegration and unit roots this paper provides an updated survey of a burgeoning literature on testing estimation and model specification in the presence of integrated variables integrated variables are a specific class of non stationary variables which seem to characterise faithfully the properties of many macroeconomic time series the analysis of cointegration develops out of the existence of unit roots and offers a generic route to test the validity of the equilibrium predictions of economic theories special emphasis is put on the empirical researcher s point of view

growth and the welfare state in the eu a causality analysis in this paper we test for causality between gdp growth andsocial protection expenditure in the european union to that end we apply hsiao s 1981 sequential procedure to data for twelveeu countries along the 1970 1994 period our results suggestthat for belgium germany ireland luxembourg the netherlands portugal and spain causality runs only from social protectiongrowth to gdp growth while for denmark france greece italy and the united kingdom no causality is found between socialprotection growth and gdp growth

public debt in brazil sustentability and its implications abstract this paper tests sustainability of brazilian public debt in the period 1991 to 2009 and analyzes implications of requiring that the brazilian fiscal policy be primarily committed to the sustainability of the public debt the retrospective analysis utilizes a set of unit root tests and avoids some of the criticism leveled at previous studies by using data which has not previously been used for this purpose and concludes that the public debt was sustainable in the period we consider the prospective analysis is based on the dsge model proposed by jodi gali et al 2007 calibrated for brazil using the conclusions of the retrospective analysis for the fiscal parameters the scenarios produced with the help of the model show that maintaining the sustainability of the public debt is consistent with the monetary policy of inflation targeting we also conclude that it is possible to reduce interest rates to levels below those prevalent at the end of 2010 simultaneously maintaining the stability of the trajectory of the public debt

on the economic determinants of oil production theoretical analysis and empirical evidence for small exporting countries abstract in this paper decisions regarding production in oil exporting countries are studied by means of theoretical analysis and empirical investigation in particular we aim at describing the relationship between oil production levels and changes in the world oil demand and prices intertemporal production decisions by a representative oil producer are modeled by means of a partial equilibrium model in this theoretical model oil producers are subject to exogenous shocks in world oil consumption and prices oil companies can change output levels only by incurring a fixed cost results from the simulation of this model show a strong relationship between oil production and changes in world oil consumption on the contrary the effects of changes in real oil prices on oil production decisions seem to be much lower results from the simulation of the theoretical model are then empirically investigated using time series econometric techniques the empirical evidence supports the hypothesis that oil producing countries are characterized by different responses to changes in world oil demand and in real oil prices for many countries production rapidly adjusts to changes in consumption whereas responses of oil production to innovations in real oil prices are found to be not statistically significant in addition when non linearities in the relationship between world oil demand prices and output levels are allowed for evidence of asymmetric effects of shocks to exogenous variables on output levels is found for some countries

the contractual nature of the firm for their helpful comments i am grateful to armen a alchian yoram barzel keith leffler john s mcgee and dean worcester 1 ronald h coase the nature of the firm 4 economica 386 1937 the paper however was written several years earlier see note 3 infra 2 the social sciences citation index provides the following information breaking down the period of 1966 80 into three five year periods the total citations of coase s firm paper for each subperiod are 1966 70 17 citations 1971 75 47 citations and 1976 80 105 citations

a structural var approach on labour taxation policies this paper presents a structural var analysis on the employment and output effects of labour tax policies in six european countries for the period 1974 1997 by considering impulse response functions it turns out that on average a shock to the total personal income tax revenues is positively correlated to employment whereas there is mixed evidence on the output effect moreover the quantitative impact of these effects especially those related to the output appears to be quite small however by introducing explicitly four labour tax parameters namely the marginal and average tax rates for the personal income tax and the payroll tax it turns out that these effects are not negligible after all for some countries it is possible to conceive labour taxes as policy instruments favouring more employment and a better economic performance however the empirical support on the sign of the output and employment effects is mixed suggesting that the same domestic fiscal policy does not produce the same im

do global co2 emissions from fossil fuel consumption exhibit long memory a fractional integration analysis abstractin this article we use an autoregressive fractionally integrated moving average approach to measure the degree of fractional integration of aggregate world co2 emissions and its five components coal oil gas cement and gas flaring we find that all variables are stationary and mean reverting but exhibit long term memory our results suggest that both coal and oil combustion emissions have the weakest degree of long range dependence while emissions from gas and gas flaring have the strongest with evidence of long memory we conclude that transitory policy shocks are likely to have long lasting effects but not permanent effects accordingly permanent effects on co2 emissions require a more permanent policy stance in this context if one were to rely only on testing for stationarity and non stationarity one would likely conclude in favour of non stationarity and therefore that even transitory policy shocks have permanent effects our fractional integration analysis highlights that this i

real convergence in some central and eastern european countries this article examines the real convergence hypothesis in some central and east european countries both towards the german and the us economies by means of using time series techniques during the period 1950 to 2003 no evidence is found of real convergence for the whole period however when one allows for structural breaks evidence is found of a catch up process during the 1990s to 2003 period for poland the czech republic and hungary towards germany and only for poland towards the us economy

forecasting the car penetration rate cpr in china a nonparametric approach with strong economic growth the auto industry has made great breakthroughs in recent years and has become a backbone industry in china while cars play an increasingly important role and are now the principal part of the auto industry both china s government and academic circles take strong interest in the prediction of cpr i e car penetration rate or cars per thousand people which will be the main guidance for the future industry policy we summarize the existing problems in recent research and propose to use nonparametric methods to estimate the cpr and its elasticity with respect to gdp per capita gdppc the results indicate that the nonparametric methods provide a much better fit than the conventional ols method and more importantly it captures the nonlinearity of the elasticity of cpr with respect to gdppc finally we predict future cpr in china

do firm boundaries matter in his famous article the nature of the firm ronald coase 1937 raised two fundamental questions that have spawned a large body of research do firm boundaries affect the allocation of resources and what determines where firm boundaries are drawn while the first of these questions has received some theoretical attention notably oliver williamson 1975 1985 benjamin klein et al 1978 and sanford grossman and oliver hart 1986 it has largely been ignored empirically instead the empirical work in this area discussed in the other articles in this session has addressed the second question by analyzing the determinants of vertical integration thus while we know something about the forces that determine firm boundaries we know relatively little about how these boundaries affect actual firm behavior this is a major limitation in our understanding of the nature of the firm to begin to assess how firm boundaries affect behavior we analyze whether there are differences between integrated and nonintegrated chemical manufacturers in their investments in production capacity we focus on producers of vinyl chloride monomer vcm the sole use of which is in the production of the widely used waterproof plastic polyvinyl chloride pvc vcm is a homogenous commodity and is traded in relatively liquid markets moreover there is no obvious production link between vcm and pvc other than that one is an input into the other for example pvc is not a byproduct of vcm production nevertheless twothirds of vcm producers in our sample are integrated downstream into pvc the existing literature would ask why we observe this degree of integration we ask instead whether integrated and nonintegrated vcm producers invest differently in production capacity

contracts hold up and exports textiles and opium in colonial india trade and export it is argued spur economic growth this paper studies the microeco nomics of exporting we build a heuristic model of transactions between exporters and producers and relate it to east india company operations in colonial bengal our model and the historical record stress two difficulties the exporter and its agents might not uphold payment agreements and producers might not honor sales contracts the model shows when procurement succeeds or fails highlighting the tension between these two hold up problems we analyze several cases including the east india company s cotton textile venture the famous opium monopoly and present day contract farming

the cyclicality of price cost margins in banking an empirical analysis of its determinants i introduction in this paper we study the cyclical behavior of price cost margins in banking calculated as the difference between the interest rate on loans and deposits using time series quarterly data for the period 1979 2005 in the united states this cyclical behavior of banks price cost margins a key fact about business fluctuations has received little attention before dueker and thornton 1997 find evidence that in cyclical downturns banks opt for a relatively high price cost margin however they focus exclusively on the markup of the bank prime lending rate over the marginal cost of funds for banks mandelman 2006 presents evidence on the cyclicality of margins for a large sample of countries and uses foreign bank penetration to explain the behavior of margins 1 in olivero 2005 aliaga diaz 2006 and aliaga diaz and olivero 2010a we document the countercyclicality of banks price cost margins in the united states in that paper we do so using an atheoretical methodology based on var forecast errors to measure comovement between variables 2 in this paper we build on this atheoretical evidence and take a step further by constructing an empirical model of the determinants of the cyclical behavior of margins here we take a theory based approach to decide on the inclusion of the relevant regressors that belong to this model doing so allows us to contribute to the literature by providing potential explanations for the previously documented countercyclical nature of margins monetary policy and credit risk could be suggested as the main and potentially the only determinants of the cyclical behavior of margins on the one hand the bank lending channel of monetary transmission predicts that the federal funds rate as a monetary policy indicator and margins are directly related therefore if policy rates exhibit a particular cyclical behavior not controlling for monetary policy could bias the estimations on the cyclical behavior of margins on the other hand credit risk is expected to be countercyclical and to raise margins so that default should help explain the countercyclicality of the latter based on these two observations our empirical methodology consists of two steps in a first step we test whether the negative and significant contemporaneous sample correlations between margins and a business cycle indicator are robust to the inclusion of controls related to monetary policy default risk and banking regulation results show it is so that there seems to be other channels through which fluctuations in the economy give rise to the observed countercyclicality of margins in a second step we look for these channels and offer several potential explanations for the observed behavior interest rate risk the economy s financial depth banks liquidity and capitalization and the share of total assets held by large banks all exert a significant impact on the behavior of margins over the business cycle these conclusions are consistent across alternative definitions of the margins and the business cycle indicator our work is linked to two strands of research in macroeconomics first our countercyclicality results are linked to the large literature on countercyclical markups in goods markets and its effects on aggregate demand started by rotemberg and saloner 1986 and rotemberg and woodford 1992 second price cost margins that vary endogenously and countercyclically in response to the state of the economy are a necessary condition for the existence of a financial accelerator as an amplifier of business fluctuations see for example bernanke and gertler 1989 and bernanke gertler and gilchrist 1998 therefore the countercyclical nature of price cost margins that we study here provides empirical support to the large body of literature in macroeconomic theory on this financial accelerator with price cost margins in the market for credit being countercyclical credit becomes more expensive in bad times firms may delay investment and production as a result and recessions may be exacerbated

institutions and concentration abstract in a new dataset of 1 3 million firms from over 100 countries i establish a number of regularities in cross country differences in economic concentration concentration of sales and employment is substantially higher in smaller countries and in less developed countries these two factors alone explain roughly half the cross country variation in concentration nevertheless a number of institutional factors offer additional explanatory power for concentration concentration is higher in countries with higher entry costs for new firms in countries with weaker antitrust policy in countries with less financial development in countries with weaker rule of law and in countries with more burdensome regulation weak institutions are associated with higher concentration especially in industries that do not have naturally high levels of concentration in addition the relationships between institutions and concentration are more pronounced in nontradable and investment intensive industries suggesting that natural barriers to competition facilitate the monopolization of sectors especially when institutions are weak

competing for ownership we study how the internal organization of firms specifically the allocation of ownership of assets and the distribution of profi ta mong the firm s managers is determined in a competitive market we ask how scarcity of assets skills or liquidity in the market translates into ownership and control allocations within organizations firms will be more integrated when the terms of trade are more favorable to the short side of the market when liquidity is unequally distributed among existing firms and when there is a positive uniform shock to productivity the model identifies a price like mechanism whereby local liquidity or productivity shocks propagate and lead to widespread organizational restructuring