Risk and Return in Village Economies
This paper provides a theory-based empirical framework for understanding the risk and return on productive capital assets and their allocation across activities in an economy characterized by idiosyncratic and aggregate risk and thin formal markets for real and financial assets. We apply our framework to households running business enterprises in Thai villages with extensive networks, taking advantage of panel data: income, assets, consumption, gifts, and loans. We decompose risk and estimate the risk premia faced by households, distinguishing aggregate risk from idiosyncratic, potentially diversifiable risk. This distinction matters for estimating measures of underlying productivity and has important policy implications.
Night Lights, Economic Growth, and Spatial Inequality of Thailand
This paper explains the method using a set of night light imaginary to estimate GPP of Thailand. This method is quite new but widely acceptable in the area of economics because luminosity of night lights is normally based on the amount of economic activities in each area. The results showed a high and significant correlation between the night lights and the GPP growth. Even if the estimation was controlled by some specific factors, such as population density, timing size of agricultural or manufacturing sector, the relationship is still robust. After this relationship is confirmed in the provincial level of Thailand, this research applied the results to show the relationship between economic values and spatial inequality, which indicates new understanding about spatial development patterns.
Simplified Spectral Analysis and Linear Filters for Analysis of Economic Time Series
We develop and simplify spectral analysis of time series. The main focus is on the spectral representation theorem, Bochner’s theorem, and some key results concerning time-invariant linear filters. We then show how to apply these key results to shed some light on various applications including Yule-Slutsky effects, seasonal adjustment and trend estimation. We also show how spectral analysis can indicate appropriateness of certain statistical models when applied with some economic time series.
Welfare Impacts of Index Insurance in the Presence of a Poverty Trap
This paper evaluates the welfare impacts of an index-based livestock insurance designed to compensate for satellite-based predicted livestock mortality in northern Kenya, where previous work has established the presence of poverty traps. We simulate household wealth dynamics based on rich panel and experimental data. The bifurcated livestock dynamics associated with the poverty trap gives rise to insurance valuation that is highly nonlinear in herd size. Estimated willingness to pay among vulnerable groups who most need insurance is, on average, lower than commercially viable rates. Targeted premium subsidization nonetheless appears to offer more cost-effective poverty reduction than need-based direct transfers.
A Market Based Solution for Fire Sales and Other Pecuniary Externalities
We show how bundling, exclusivity and additional markets internalize fire sale and other pecuniary externalities. Ex ante competition can achieve a constrained efficient allocation. The solution can be put rather simply: create segregated market exchanges which specify prices in advance and price the right to trade in these markets so that participant types pay, or are compensated, consistent with the market exchange they choose and that type’s excess demand contribution to the price in that exchange. We do not need to identify and quantify some policy intervention. With the appropriate ex ante design we can let markets solve the problem.
Macroprudential Policy in a Bubble-Creation Economy
This paper analyzes macroprudential policy in the form of loan-to-value (LTV) restriction in a bubble-creation economy of Martin and Ventura (forth- coming). We find that implementation of LTV policy may generate multiple equilibria. Moreover, its effectiveness in terms of investment and size of bubbles depends on the degree of financial friction. In high-capital steady state, low (high) financial friction implies that bubbles originally crowd out (in) investment, so that implementation of LTV policy causes bubbles to decrease (remain unchanged) and enhances (reduces) investment. However, in low-capital equilibrium, the policy has ambiguous effects. LTV policy may help to lower the possibility of sunspot equilibria in two aspects: (1) by destabilizing the low-capital steady state and (2) by confining the set of consistent market sentiments in the presence of high financial friction.
Assessing Tax Incentives for Investment: Case Study of Thailand
Tax incentives for investment are very popular among developing countries but they are costly and unlikely to compensate for other shortcomings. One of the reasons many governments often uses when expanding the tax incentives is that their tax incentives are inferior relative to those of competitors. This study examines the impacts of those tax incentives on the tax competitiveness using the case study of Thailand. It takes into account important tax provisions under both standard and preferential tax treatments, and computes effective average tax rates (EATRs) applied to the country’s focused industries. It then compares Thailand’s EATRs with those of ASEAN peers. Such industry-specific lens is crucial since the tax benefits offered as well as the composition of investment assets can vary substantially between industries. It finds that, Thailand’s investment incentives are broadly comparable to those offered by its ASEAN peers. Under the maximum incentives, the EATRs range from 6-9% depending on the investment intensity in each industry. This suggests that, with the exception of targeted incentives for the biotec industry, the government should refrain from throwing any more tax or monetary incentives and focus on fixing structural shortcomings. The results also indicate that accelerated depreciation and investment tax allowance are two options that may perform better than the tax holiday in term of minimizing the incentive redundancy.
Central Bank Communication and Monetary Policy Effectiveness: Evidence from Thailand
This paper has two main objectives. First, we introduce a novel textual analysis technique for estimating latent policy position in the monetary policy committee (MPC) statement based on word frequencies (so called ‘Wordfish’, developed by Slapin and Proksch, 2008). This method is applied to extract informational content embed in the MPC statements during the first decade of inflation targeting in Thailand. Second, we provide a comprehensive assessment of communication on monetary policy effectiveness in three main aspects, i.e. predictability of short-run policy interest rate, monetary transmission mechanism and the ability to anchoring long-run inflation expectations. Specifically, by augmenting our communication measure with various Taylor-type rule specifications, it is found that monetary policy statements help to improve short-run predictability of policy interest rate. Furthermore, using structural vector autoregression, we find that the impulse responses of policy rate shock on output and inflation are stronger when communication is included, indicating the improved efficacy of the transmission mechanism process. Our econometric results also indicate that the MPC statement exerts its influence over the yields with longer maturities. Finally, an increase in policy interest rate can anchor expected inflation only in the short run, while monetary policy communication provides additional effects to long-term inflation expectations.
Consequences of Bank Loan Growth: Evidence from Asia
When an increase in bank loans does not immediately lead to a hike in non-performing loans, bank loan officers (and/or bank managers) whose compensation is based on the value/amount of loans granted have incentives to grant more loans to (potentially lower credit quality) borrowers, which should increase the banks’ profits (and their personal compensation) in the short run. Using a sample of publicly listed banks in 18 countries in Asia during the period 1990-2014, I show that banks’ loan growth rate has a negative short-run effect on their nonperforming loans and a positive short-run effect on their profitability. While the loan growth rate does not increase non-performing loans in the short run, there is some evidence to suggest that it increases non-performing loans in the long run. The results further indicate that banks’ profitability is not affected by the level of loans but by the loan growth rate.
Currency Wars: Who Gains from the Battle?
We study the growth effects of currency undervaluation when countries employ active exchange rate management policies or impose capital controls, using a panel dataset of 185 countries. Applying two-stage regressions, we find that changes in undervaluation driven by exchange rate management and capital control policies have no significant impact on economic growth. Undervaluation that leads to higher growth mainly stems from policies that lower government consumption, reduce inflation and increase domestic savings. However, these policies are good for growth by themselves, with only limited additional growth effects through increased currency undervaluation. In sum, we find no evidence that battling in the currency depreciation war significantly increases a country’s growth rate.
Bank Systemic Risk and Corporate Investment
We develop a simple three-period model in which a bank’s investment is influenced by short-term financing and a probability of a financial crisis. The presence of moral hazard problems in banks and firms causes (1) banks to take on riskier loans, (2) bank systemic risk to increase, and (3) firms to invest in riskier projects. We measure “bank systemic risk” using three measures that capture (1) bank funding maturity and (2) bank asset commonality. We document that in a sample of firms in 10 emerging markets and advanced economies bank systemic risk is positively associated with the firm-level investment ratio after controlling for the country’s cross-sectional mean ratio of total loans to total assets of banks, country-level and firm-level variables until the start of the financial crisis of 2007. The effect becomes negative after 2007. We show that bank systemic risk strengthens the sensitivity of corporate investment to growth opportunities.
Does Money Make People Right-Wing and Inegalitarian? A Longitudinal Study of Lottery Winners
The causes of people’s political attitudes are largely unknown. We study this issue by exploiting longitudinal data on lottery winners. Comparing people before and after a lottery windfall, we show that winners tend to switch towards support for a right-wing political party and to become less egalitarian. The larger the win, the more people tilt to the right. This relationship is robust to (i) different ways of defining right-wing, (ii) a variety of estimation methods, and (iii) methods that condition on the person previously having voted left. It is strongest for males. Our findings are consistent with the view that voting is driven partly by human self-interest. Money apparently makes people more right-wing.
Firm Productivity in Thai Manufacturing Industries: Evidence from Firm-level Panel Data
Using firm-level panel data from the Manufacturing Industry Survey of Thailand between 1999 and 2003, this paper estimates the production function and examines the determinants of total factor productivity (TFP) for manufacturing firms in Thailand. Controlling for industry, region, and year fixed effects, production function coefficients and TFP measures are obtained through various estimation techniques including ordinary least squares (OLS), fixed effects, random effects, and the Levinsohn and Petrin (2003) for comparison. For production function estimation, the results illustrate the biases introduced in traditional TFP estimates and we discuss the performance of alternative estimators. For the determinants of TFP, the results show that firm size is associated with firm TFP, with smaller firms being more productive than larger ones. Firm age and TFP are negatively correlated, indicating that newer firms tend to exhibit higher TFP. Firms with a more skilled workforce also show a higher level of production. Moreover, firm TFP benefits from integration into world markets: foreign-owned firms and exporters have significantly higher TFP. The results further reveal that firm TFP varies with the form of organization, with private firms (in terms of legal organization) and Head-Branch typed firms (in terms of economic organization) having higher TFP. Our findings draw attention to some key areas of policy relevance in which policies promoting labor quality may have important benefits for firm TFP. Furthermore, development in the international integration of firms into world markets through their participation in export markets and attraction of foreign capital is also likely to have large payoffs in terms of TFP for Thai manufacturing.
Capital flows and the current account: Taking financing (more) seriously
This paper questions the appropriateness of popular analytical frameworks that focus on current accounts or net capital flows as a basis for assessing the pattern of cross-border capital flows, the degree of financial integration and the vulnerability of countries to financial crises. In the process, it revisits the Lucas paradox, the Feldstein-Horioka puzzle and the notion of sudden stops. It argues that, in a world of huge and free capital flows, the centrality of current accounts in international finance, and hence in academic and policy debates, should be reconsidered.
Observability and Endogenous Organizations
This paper establishes a relationship between the observability of common shocks and optimal organizational design in a multiagent moral hazard environment. We consider two types of organizations, namely relative-performace and cooperative regimes, and show that, with sufficient information regarding common shocks, a cooperative organization can be optimal even if outputs are highly correlated. The model is then embedded in a Walrasian general equilibrium model in which choices regarding organizations and investment in information on common shocks are jointly determined. Numerical results reveal that both cooperative and relative-performance regimes can coexist in equilibrium but only cooperative organizations invest in full observability of common shocks. Changes in the cost of information and aggregate wealth can affect substantially the types of organizations operating and the matching patterns of heterogeneous agents in these organizations. General equilibrium effects are key in determining how information costs impact the way production is organized.