pwc-archive/papers-with-abstracts huggingface dataset:
Machine Learning and Econometric Approaches to Fiscal Policies: Understanding Industrial Investment Dynamics in Uruguay (1974-2010)
Authors: Diego Vallarino
Date: 2024-09-12 00:00:00

This paper examines the impact of fiscal incentives on industrial investment in Uruguay from 1974 to 2010. Using a mixed-method approach that combines econometric models with machine learning techniques, the study investigates both the short-term and long-term effects of fiscal benefits on industrial investment. The results confirm the significant role of fiscal incentives in driving long-term industrial growth, while also highlighting the importance of a stable macroeconomic environment, public investment, and access to credit. Machine learning models provide additional insights into nonlinear interactions between fiscal benefits and other macroeconomic factors, such as exchange rates, emphasizing the need for tailored fiscal policies. The findings have important policy implications, suggesting that fiscal incentives, when combined with broader economic reforms, can effectively promote industrial development in emerging economies.
Industrial complexity and the evolution of formal employment in developing cities
Authors: Neave O'Clery, Juan Chaparro, Andres Gomez-Lievano, Eduardo Lora
Date: 2024-10-09 00:00:00

What drives formal employment creation in developing cities? We find that larger cities, home to an abundant set of complex industries, employ a larger share of their working age population in formal jobs. We propose a hypothesis to explain this pattern, arguing that it is the organised nature of formal firms, whereby workers with complementary skills are coordinated in teams, that enables larger cities to create more formal employment. From this perspective, the growth of formal employment is dependent on the ability of a city to build on existing skills to enter new complex industries. To test our hypothesis, we construct a variable which captures the skill-proximity of cities' current industrial base to new complex industries, termed 'complexity potential'. Our main result is that complexity potential is robustly associated with subsequent growth of the formal employment rate in Colombian cities.
The Rise of Health Economics: Transforming the Landscape of Economic Research
Authors: Lorenz Gschwent, Björn Hammarfelt, Martin Karlsson, Mathias Kifmann
Date: 2024-10-08 00:00:00

This paper explores the evolving role of health economics within economic research and publishing over the past 30 years. Historically largely a niche field, health economics has become increasingly prominent, with the share of health economics papers in top journals growing significantly. We aim to identify the factors behind this rise, examining how health economics contributes to the broader economic knowledge base and the roles distinct subfields play. Using a combination of bibliometric methods and natural language processing, we classify abstracts to define health economics. Our findings suggest that the mainstreaming of health economics is driven by innovative, high-quality research, with notable cyclicality in quality ratings that highlights the emergence and impact of distinct subfields within the discipline.
Gender politics, environmental behaviours, and local territories: Evidence from Italian municipalities
Authors: Chiara Lodi, Agnese Sacchi, Francesco Vidoli
Date: 2024-10-08 00:00:00

We investigated the impact of female politicians on waste collection in Italian municipalities in different territories observed over the years 2010-2019. We used a staggered difference-in-differences design to obtain a causal interpretation of the estimated effects. We find that the majority of women in the municipal council positively influence pro-environmental individual behaviour. The impact of a female-majority council is heterogeneous by region and more pronounced in areas with lower social capital. Female politicians as catalysts for positive change fade after 5-6 years, likely due to persistent social norms locally, thus stressing the need for additional cultural actions with long-lasting effects.
Free Public Transport: More Jobs without Environmental Damage?
Authors: Mateus Rodrigues, Daniel Da Mata, Vitor Possebom
Date: 2024-10-08 00:00:00

We study the effects of a free-fare transport policy implemented by Brazilian localities on employment and greenhouse gas emissions. Using a staggered difference-in-differences approach, we find that fare-free transit increases employment by 3.2% and reduces emissions by 4.1%, indicating that transport policies can decouple economic activity from environmental damage. Our results are driven by workers transitioning from higher-emission to lower-emission sectors instead of being driven by a decline in private transportation use. Cost-benefit analyses suggest that the costly policy only presents net benefits after considering the tax inflows of the increased economic activity and the benefits of reduced carbon emissions.
Design Information Disclosure under Bidder Heterogeneity in Online Advertising Auctions: Implications of Bid-Adherence Behavior
Authors: Zhu Mingxi, Song Michelle
Date: 2024-10-07 00:00:00
Tasks: counterfactual

Bidding is a key element of search advertising, but the variation in bidders' valuations and strategies is often overlooked. Disclosing bid information helps uncover this heterogeneity and enables platforms to tailor their disclosure policies to meet objectives like increasing consumer surplus or platform revenue. We analyzed data from a platform that provided bid recommendations based on historical bids. Our findings reveal that advertisers vary significantly in their strategies: some follow the platform's recommendations, while others create their own bids, deviating from the provided information. This highlights the need for customized information disclosure policies in online ad marketplaces. We developed an equilibrium model for Generalized Second Price (GSP) auctions, showing that adhering to bid recommendations with positive probability is suboptimal. We categorized advertisers as bid-adhering or bid-constructing and developed a structural model for self-bidding to identify private valuations. This model allowed for a counterfactual analysis of the impact of different levels of information disclosure. Both theoretical and empirical results suggest that moderate increases in disclosure improve platform revenue and market efficiency. Understanding bidder diversity is crucial for platforms, which can design more effective disclosure policies to address varying bidder needs and achieve their goals through costless information sharing.
Economic growth of cities: Does resource allocation matter?
Authors: Sheng Dai, Timo Kuosmanen, Zhiqiang Liao
Date: 2024-10-07 00:00:00

We study how efficient resource reallocation across cities affects potential aggregate growth. Using optimal resource allocation models and data on 284 China's prefecture-level cities in the years 2003--2019, we quantitatively measure the cost of misallocation of resources. We show that average aggregate output gains from reallocating resources across nationwide cities to their efficient use are 1.349- and 1.287-fold in the perfect and imperfect allocation scenarios. We further provide evidence on the effects of administrative division adjustments and local allocation. This suggests that city-level adjustments can yield more aggregate gain and that the output gain from nationwide allocation is likely to be more substantial than that from local allocation. Policy implications are proposed to improve the resource allocation efficiency in China.
From Global Value Chains to Local Jobs: Exploring FDI-induced Job Creation in EU-27
Authors: Magdalena Olczyk, Marjan Petreski
Date: 2024-10-05 00:00:00

This study explores the differential impacts of global value chain (GVC) participation on foreign direct investment (FDI)-related job creation in EU-27, emphasizing the role of sector-specific and regional factors. The study is based on a rich set of project-level data on FDI-generated jobs. It utilizes a labor demand function estimated through GMM estimator to account for endogeneity. Results indicate that forward GVC participation significantly boosts FDI-related job creation by enhancing domestic value-added and production capacity. However, this effect is moderated by sector-specific characteristics such as productivity or wages. Conversely, backward GVC participation, characterized by reliance on foreign inputs, generally reduces FDI-generated jobs due to lower domestic labor requirements and diminished competitiveness. Despite this, the negative impact of backward GVC participation on employment becomes less significant when regional diversification is considered, highlighting the importance of regional factors like infrastructure and skilled labor. The study also finds that the impact of GVC participation on employment varies with EU membership status and sectoral characteristics, with old EU member states and high-tech sectors benefiting more from forward GVC integration. In contrast, new EU member states and low-tech sectors face greater challenges, particularly with backward GVC participation.
The Mortgage Cash-Flow Channel: How Rising Interest Rates Impact Household Consumption
Authors: Itamar Caspi, Nadav Eshel, Nimrod Segev
Date: 2024-10-03 00:00:00

This study investigates the impact of increased debt servicing costs on household consumption resulting from monetary policy tightening. It utilizes observational panel microdata on all mortgage holders in Israel and leverages quasi-exogenous variation in exposure to adjustable-rate mortgages (ARMs) due to a regulatory shift. Our analysis indicates that when monetary policy became more restrictive, consumers with a higher ratio of ARMs experienced a more marked reduction in their consumption patterns. This effect is predominantly observed in mid- to lower-income households and those with a higher ratio of mortgage payments to total spending. These findings highlight the substantial role of the mortgage cash-flow channel in monetary policy transmission, emphasizing its implications for economic stability and inequality.
Populist Constitutional Backsliding and Judicial Independence: Evidence from Turkiye
Authors: Nuno Garoupa, Rok Spruk
Date: 2024-10-03 00:00:00

The synthetic control method has emerged as a widely utilized empirical tool for estimating the causal effects of public policies, natural disasters, and other interventions on various economic, social, institutional, and political outcomes. In this study, we demonstrate the potential application of this method in empirical comparative law by estimating the impact of the 2010 constitutional referendum in Turkiye on the trajectory of judicial independence. By comparing Turkiye with a salient Mediterranean donor pool of countries that did not experience similar interventions during the period from 1987 to 2021, we provide evidence of a severe breakdown and erosion of judicial independence. This deterioration appears to be a direct response to the populist constitutional backsliding initiated by the government-orchestrated assault on the judiciary, which was carried out under the guise of judicial modernization in 2010, before the additional constitutional reforms in 2017.
Food Without Fire: Nutritional and Environmental Impacts from a Solar Stove Field Experiment
Authors: Laura E. McCann, Jeffrey D. Michler, Maybin Mwangala, Osaretin Olurotimi, Natalia Estrada Carmona
Date: 2024-10-02 00:00:00

Population pressure is speeding the rate of deforestation in Sub-Saharan Africa, increasing the cost of biomass cooking fuel, which over 80 percent of the population relies upon. Higher energy input costs for meal preparation command a larger portion of household spending which in turn induces families to focus their diet on quick cooking staples. We use a field experiment in Zambia to investigate the impact of solar cook stoves on meal preparation choices and expenditures on biomass fuel. Participants kept a detailed food diary recording every ingredient and fuel source used in preparing every dish at every meal for every day during the six weeks of the experiment. This produces a data set of 93,606 ingredients used in the preparation of 30,314 dishes. While treated households used the solar stoves to prepare around 40 percent of their dishes, the solar stove treatment did not significantly increase measures of nutritional diversity nor did treated households increase the number of dishes per meal or reduce the number of meals they skipped. However, treated households significantly reduced the amount of time and money spent on obtaining fuel for cooking. These results suggest that solar stoves, while not changing a household's dietary composition, does relax cooking fuel constraints, allowing households to prepare more meals by reducing the share of household expenditure that goes to meal preparation.
AI Persuasion, Bayesian Attribution, and Career Concerns of Doctors
Authors: Hanzhe Li, Jin Li, Ye Luo, Xiaowei Zhang
Date: 2024-10-01 00:00:00
Tasks: Anomaly Detection, Attribute, Diagnostic

This paper examines how AI persuades doctors when their diagnoses differ. Disagreements arise from two sources: attention differences, which are objective and play a complementary role to the doctor, and comprehension differences, which are subjective and act as substitutes. AI's interpretability influences how doctors attribute these sources and their willingness to change their minds. Surprisingly, uninterpretable AI can be more persuasive by allowing doctors to partially attribute disagreements to attention differences. This effect is stronger when doctors have low abnormality detection skills. Additionally, uninterpretable AI can improve diagnostic accuracy when doctors have career concerns.
A Run on Fossil Fuel? Climate Change and Transition Risk
Authors: Michael Barnett
Date: 2024-10-01 00:00:00

I study the dynamic, general equilibrium implications of climate-change-linked transition risk on macroeconomic outcomes and asset prices. Climate-change-linked expectations of fossil fuel restrictions can produce a ``run on fossil fuels'' with accelerated production and decreasing spot prices, or a ``reverse run'' with restrained production and increased spot prices. The response depends on the expected economic consequences of the anticipated transition shock, and existing climate policies. Fossil fuel firm prices decrease in each case. I use a novel empirical measure of innovations in climate-related transition risk likelihood to show that dynamic empirical responses are consistent with a ``run on fossil fuel.''
Age and Cognitive Skills: Use It or Lose It
Authors: Eric A. Hanushek, Lavinia Kinne, Frauke Witthoeft, Ludger Woessmann
Date: 2024-10-01 00:00:00

Cross-sectional age-skill profiles suggest that workers' cognitive skills start declining by their thirties if not earlier. If accurate, such age-driven skill losses pose a major threat to the human capital of societies with rapidly aging populations. We estimate actual age-skill profiles from individual changes in skills at different ages. We use the unique German longitudinal component of the Programme of the International Assessment of Adult Competencies (PIAAC-L) that retested a large representative sample of adults after 3.5 years. Two main results emerge. First, correcting for measurement error, average skills increase into the forties before decreasing slightly in literacy and more strongly in numeracy. Second, skills decline at older ages only for those with below-average skill usage. White-collar and higher-educated workers with above-average usage show increasing skills even beyond their forties. Women have larger skill losses at older age, particularly in numeracy.
How has the war in Ukraine affected Russian sentiments?
Authors: Mikael Elinder, Oscar Erixson, Olle Hammar
Date: 2024-10-01 00:00:00

Using individual-level data from Gallup World Poll and the Levada Center, we provide an in-depth analysis of how Russia's invasion of Ukraine has affected sentiments in the Russian population. Our results show that after the invasion, a larger share of Russians expressed support for President Putin, optimism about the future, anti-West attitudes, and lower migration aspirations. The 2022 mobilization and the 2023 Wagner rebellion had only short-lived and no effects on sentiments, respectively. Regions with low pre-war support for Putin displayed stronger rally effects, higher casualty rates, and increased incomes, suggesting a recruitment strategy that maximizes political support. Taken together, our results suggest strong public support for the war, except among Russians abroad who became more critical of Putin in line with global views.
Global Stock Market Volatility Forecasting Incorporating Dynamic Graphs and All Trading Days
Authors: Zhengyang Chi, Junbin Gao, Chao Wang
Date: 2024-09-06 00:00:00
Tasks: All, Decision Making, Graph Neural Network

This study introduces a global stock market volatility forecasting model that enhances forecasting accuracy and practical utility in real-world financial decision-making by integrating dynamic graph structures and encompassing the union of active trading days of different stock markets. The model employs a spatial-temporal graph neural network (GNN) architecture to capture the volatility spillover effect, where shocks in one market spread to others through the interconnective global economy. By calculating the volatility spillover index to depict the volatility network as graphs, the model effectively mirrors the volatility dynamics for the chosen stock market indices. In the empirical analysis, the proposed model surpasses the benchmark model in all forecasting scenarios and is shown to be sensitive to the underlying volatility interrelationships.
Academic Knowledge: Does it Reflect the Combinatorial Growth of Technology?
Authors: W. Benedikt Schmal
Date: 2024-09-30 00:00:00

I explore the concept of growth being rooted in the recombination of existing technology as an explanation for the remarkable growth witnessed during the Industrial Revolution as it was recently proposed by Koppl et al.(2023). I adapt their combinatorial growth theory to assess its applicability in generating academic knowledge within universities and research institutions, particularly in the field of economics. The central question is whether significant combinatorial growth can also be anticipated in academia. The current career structures discourage the recombination of ideas, theories, or methods, making it more advantageous for early career researchers to stick to the status quo. I employ machine-learning-based natural language analysis of the top 5 journals in economics. The analysis reveals limited correlations between topics over the past three decades, suggesting the presence of isolated topic islands rather than productive recombination. This confirms the theoretical considerations beforehand. Overall, the institutional order of academia makes combinatorial growth at the research frontier unlikely.
The College Melting Pot: Peers, Culture and Women's Job Search
Authors: Federica Meluzzi
Date: 2024-09-30 00:00:00

Gender norms are widely recognized as key determinants of persistent gender gaps in the labor market. However, our understanding of the drivers of gender norms, and their implications for preferences, remain lacking. This paper addresses this gap by examining how cultural assimilation from college peers influences women's early-career labor market decisions. For identification of causal effects, I exploit cross-cohort idiosyncratic variation in peers' geographical origins within Master's programs, combined with unique administrative and survey data covering the universe of college students in Italy. The main finding is that exposure to female classmates originating from areas with more egalitarian gender culture significantly increases women's labor supply, primarily through increased uptake of full-time jobs. A one standard deviation increase in peers' culture increases female earnings by 3.7%. The estimated peer effects are economically significant, representing more than a third of the gender earnings gap. Drawing on comprehensive data on students' job search preferences and newly collected data on their beliefs, I shed novel light on two distinct mechanisms driving peer influence: (1) shifts in preferences for non-pecuniary job attributes, and (2) social learning, particularly on the characteristics of the job offer distribution.
Uniform price auctions with pre-announced revenue targets: Evidence from China's SEOs
Authors: Shenghao Gao, Peyman Khezr, Armin Pourkhanali
Date: 2024-09-29 00:00:00

This study explores the performance of auctions in China's seasoned equity offering (SEO) market, both theoretically and empirically. In these auctions, issuers must commit to a pre-announced revenue target and a maximum number of shares available for auction. We use a common value framework to analyze this auction mechanism, detailing its operation, share allocation, and pricing. The theoretical findings suggest that when buyers bid truthfully, the seller's optimal strategy is to set the total share quantity equal to the target revenue divided by the reserve price. We demonstrate that committing to a target revenue results in a higher level of truthful bidding compared to a standard uniform-price auction without any revenue commitment. We empirically test our theoretical findings using data from China's SEO markets. First, we assess the impact of various issuer strategies on firm-level SEO discounts, categorizing scenarios based on share availability and target revenue. We find that the scenario where the reserve price times the share quantity matches the target revenue is the most optimal for sellers. Second, we examine bidding behavior and auction performance, showing that China's SEO uniform price auction performs exceptionally well. Specifically, the actual issue prices are only 0.029 below the truthful case prices, indicating that the revenue raised is still close to what would have been achieved with truthful bids.
Save the Farms: Nonlinear Impact of Climate Change on Banks' Agricultural Lending
Authors: Teng Liu
Date: 2024-09-28 00:00:00

The agricultural sector is particularly susceptible to the impact of climate change. In this paper, I investigate how vulnerability to climate change affects U.S. farms' credit access, and demonstrates that such impact is unequally distributed across farms. I first construct a theoretical framework of bank lending to farms faced with climate risks, and the model helps discipline ensuing empirical analyses that use novel panel datasets at county and at bank levels. I find that higher exposure to climate change, measured by temperature anomaly, reduces bank lending to farms. Such impact is persistent, nonlinear, and heterogeneous. Small and medium farms almost always experience loss of loan access. In comparison, large farms see less severe credit contraction, and in some cases may even see improvement in funding. While small banks carry the burden of continuing to lend to small farms, their limited market share cannot compensate for the reduction of lending from medium and large banks. These results suggest that factors such as farm size and bank type can amplify the financial impact of climate change.