Category Archives: Research

Dr Zaki Wahhaj

Early marriage and the persistence of traditional gender norms

An article based on research by the School’s Dr Zaki Wahhaj, Reader in Economics and his co-author Professor M. Niaz Asadullah from the University of Malaya, has been published in VoxDev titled ‘Research in Bangladesh shows how early marriage contributes towards women expressing more traditional gender attitudes’:

‘Traditional gender norms play a potentially important role in shaping women’s economic opportunities and outcomes. This idea is a key theme in Esther Boserup’s seminal account of women’s role in economic development (Boserup 1970). A growing body of empirical work also provides support for this hypothesis (e.g. Fernandez and Fogli 2009, Alesina et al. 2013). However, how these norms are sustained and recreated in each new generation, and how the cycle may be broken, are not understood nearly as well. In recent work (Asadullah and Wahhaj forthcoming), we present new evidence on a distinct social process for the transmission of traditional gender norms, namely, the experience of adolescent marriage among women. Marriage postponement increases disagreement with these gender norms – expressed, for example, in statements of the form “Boys require more nutrition than girls to be strong and healthy” – even among women who never went to school.’

Read the full article here.

Workshop: Microeconomic Approaches to Development Economics

The School of Economics is hosting a workshop, sponsored by the Royal Economic Society, on Microeconomic Approaches to Development Economics: Organisations, Institutions and the Mind.

The workshop will take place on 24-25 June 2019 at the University of Kent, and will bring together internationally leading and junior academics from the fields of Political Economy, Organisational Economics and Development Economics working on questions relating to identity, norms, motivation, belief formation and their effect on the functioning of institutions and organisations.

Confirmed speakers include Professors Sonia Bhalotra (University of Essex), Maitreesh Ghatak (LSE), Lakshmi Iyer (University of Notre Dame), Gilat Levy (LSE), and Dilip Mookherjee (Boston University).

Research presented at the workshop will include work that touches upon issues of direct policy relevance today, such as the effective functioning of political institutions in developed and developing countries, motivating workers in the public sector, changing cultural practices that entrench social inequality or economic inefficiency.

A call for papers for the workshop is now open. Submissions from early career researchers are especially welcome. Funding for accommodation (up to two nights) and travel (from within Europe) will be provided for one participant per accepted paper. The closing date for submissions is March 15, 2019. Papers should be sent to Amrit Amirapu at A.Amirapu@kent.ac.uk.

For further information, see https://www.kent.ac.uk/economics/research/micro-group/events/workshop-24-25-jun-19.html

Professor Miguel Leon-Ledesma

Miguel appointed Fellow of CEPR

Congratulations to Professor Miguel León-Ledesma on his appointment as Fellow of the Centre for Economic Policy Research (CEPR). The prestigious CEPR is a research network of economists established in 1983 to enhance economic policy making in Europe. Based in London, CEPR’s network of Research Fellows and Affiliates includes over 1,000 of the top economists in the world conducting research on issues affecting the European economy. Miguel has been appointed Fellow of the Macroeconomics and Growth programme area.

Professor Iain Fraser

De-linking final Basic Payments from farming: hardly ‘public money for public goods’

An interesting piece by Professor Iain Fraser in the Food Research Collaboration blog Food Voices on 12 December 2018 on ‘De-linking final Basic Payments from Farming’:

‘In September 2018 the Government published a new Agriculture Bill. It marks a profound change in the design, delivery and rationale of agricultural policy in the UK. It is proposed that farming can only expect to obtain public financial support for the production of public goods, such as the provision of biodiversity, improving soil management and quality, and planting of trees. There is a great deal of emphasis on the environment and the delivery of the promises that have recently been made in the 25 Year Environment Plan. As a result, the most striking aspect of the Bill is the minimal amount of actual agriculture policy in any traditional sense.

What this means for agricultural and rural policy in the UK is that the support payments currently made to farmers under Pillar I of the Common Agricultural Policy (CAP) in the form of the Basic Payment Scheme (BPS) will be removed. These payments are substantial – significantly greater than £200 per hectare in 2017. Although these payments are “decoupled” from historical levels of agricultural production it is difficult to defend them as anything other than a subsidy to farming.’ …

…Read the complete article here.

Keynes College

The Effects of Risk and Ambiguity Aversion on Technology Adoption: Evidence from Aquaculture in Ghana

by Dr Christian Crentsil, Dr Adelina Gschwandtner and Dr Zaki Wahhaj, University of Kent. Discussion paper KDPE 1814, December 2018.

Non-technical summary:

Small-scale farmers in developing countries frequently make production decisions in a situation of uncertainty because of the prospect of weather-related shocks, crop failure, price fluctuations, etc. They are often compelled to make choices that reduce consumption risk at the cost of future expected profits. The adoption of productivity-enhancing technologies is a domain where these trade-offs can become particularly important. New technologies may be inherently more risky, or require additional investments that increase the risk exposure of farmers.

In this paper, we study how aversion to risk and ambiguity affects the adoption of new technologies by smallholder aquafarmers in Ghana where, over the years, the government and other development agencies have introduced improved technologies to enhance productivity and profitability in fish production.

In the present study we consider the adoption of three distinct technologies: (i) Akosombo strain of Tilapia (AST), a fast-growing breed of tilapia fish that offers farmers the potential to harvest twice a year compared to once only for the existing local breed; and the use of (ii) floating cages; and (iii) extruded feed for the fish under cultivation.

Our results show that, for all three technologies, risk aversion accelerates their adoption. This is in contrast with most of the literature which finds that risk aversion delays the adoption of new technologies. We explain this result by arguing that all three technologies under consideration are risk reducing. On the other hand, we find differential effects of ambiguity aversion on the adoption of the three technologies: ambiguity aversion among farmers slows down the adoption of floating cages but has no effect on the rate of adoption of the two other technologies. We attribute this finding to the significantly higher cost of adopting floating cages, which prevents farmers from small-scale experimentation with the technology. Additionally, we find that the presence of other adopters in the locality attenuates the negative effect of ambiguity aversion on the adoption of floating cages.

The results suggest that the implementation of these technologies might provide fish farmers in Ghana with limited access to credit and insurance a means to negotiate an uncertain environment. Moreover, providing practical information about new agricultural technologies with the help of extension agents and existing farmers in neighbouring villages may mitigate the effects of ambiguity and ambiguity aversion on technology adoption. Our findings also suggest that informing farmers about technologies that mitigate the effects of adverse shocks may accelerate the adoption of new agricultural technologies.

You can download the complete paper here.

Dr Katsuyuki Shibayama

A Simple Model of Growth Slowdown

by Dr Katsuyuki Shibayama, University of Kent. Discussion paper KDPE 1813, October 2018.

Non-technical summary:

After the Great Recession around 2007-8, the U.K. has experienced the slowdown of the labour productivity; known as ’productivity puzzle’. Although it is widely recognized as the stagnation of the labour productivity, not surprisingly, it coincides with the flattening of the total factor productivity (TFP). Japan also has experienced a similar but much longer and deeper phenomenon after the bubble burst at the beginning of 1990s. Interestingly, both countries have experienced the growth slowdown after some financial turmoil. This paper aims to explain these growth slowdowns quantitatively in a reasonably realistic economic growth model.

A growth slowdown is a long-lasting, significant decline of growth rate. It is not specific to high-income countries. The economic model developed in this paper also encompasses the “middle income trap”; typical examples include Latin American countries. The standard economic growth theory tells us that low-income countries should grow faster because they tend to accumulate production capital at a faster rate (Solow effect). Actually, many countries has successfully escaped from low income levels, but, out of 101 middle income countries in 1960, only 13 of them is classified as high income countries in 2008; see Larson, Loayza and Woolcock (2016, World Bank).

Extending Romer’s (1990) seminal paper, our model has an additional state variable, which we call the R&D environment, to capture social culture (scientists ’attitudes toward business, etc.), legal system (including patent laws and property rights), R&D infrastructure (such as innovators’ networks and education systems), and so on. We can regard the R&D environment as an intangible social capital, which has the following two properties; (a) society accumulates the R&D environment as an (intangible) asset by conducting R&D; and (b) the R&D activities are more productive when the R&D environment takes a higher value. For (a), an important assumption is such an accumulation of social asset is a positive externality of the R&D activities; i.e., the researchers do not intend to improve the R&D environment, when they engage in R&D. For (b), we want to capture, for example, higher education institutions are better prepared for the commercialization of academic findings when business innovations and inventions are more active.

In our model, there are two stable balanced growth paths (BGPs, long-run equilibria); one with positive R&D activities and the other without them. This is intuitively because of vicious and virtuous cycles. Around the BGP with no R&D, there is a vicious cycle; once R&D becomes inactive, it deteriorates the R&D environment, which itself discourages the R&D activities. Similarly, there is a virtuous cycle in the good BGP.

If there are no shocks (or only small shocks) in the model, then the fate of an economy depends on its initial condition. In our model, depending on the initial state, its final destiny – good BGP or bad BGP – is predetermined. Note importantly that in our model, even an economy moves toward the bad BGP, still it grows at a faster rate in early periods through the capital accumulation (Solow effect); it fails to switch from the capital accumulation as a growth engine to the R&D driven growth. We argue that countries that successfully transited from the middle-income level have had a R&D environment good enough to attain this transition; such as Japan and West Germany after the WWII. This is the explanation of the middle-income trap in our model.

If there are some shocks in the model, even if they are temporary, still they can have long-run effects. We assume that after a successful innovation, innovators can set up a firm, meaning that the firm value is the reward to innovations. Like Comin and Gertler (2003, AER), because the firm value is the present value of the current and future profits, R&D is more active in booms. Unlike Comin and Gertler’s ’medium cycle’ effects, however, business cycle fluctuations can have very persistent effects in our model; this is because a shock may push out an economy from one BGP to the other. For example, if an economy experiences a bad external shock, output, firm profit and firm value decline, which in turn discourages innovations. If such a bad shock is large enough and lasts long enough, the dormant R&D activities during the recession may deteriorate significantly, which hampers R&D even after the end of the negative external shock. In our model, this is the mechanism behind the growth slowdown in Japan and the U.K.

There are several policy implications. First, to help escape from the middle-income trap and the long-lasting growth slowdown, we need a ’big push’. For example, a large scale ODA as a positive external shock may be required. Second, however, the type of ODA matters. In our model, improving production efficiency and increasing final goods demand do not help escape from the low BGP, because there are two effects that offset each other. On the one hand, these shocks increase the firm profit and firm value, which stimulates the R&D activities. However, on the other hand, the production sector and the R&D sector compete each other in the factor market (labour market in our model). Hence, in our model, if the production efficiency improves, the production sector absorbs more labour, squeezing out the R&D sector from the labour market. There is anecdotal evidence of type of phenomenon; e.g., Wall Street and City have taken many scientists from universities and other research institutes such as NASA. In addition, this story is in parallel with the leading exposition about the natural resource curse; if the extraction of natural resources are very profitable, the natural resource sectors absorb too much production factors such as labour, squeezing out high productivity growth sectors such as manufacturing. Hence, if they only improves production efficiency, building bridges, roads and power plants, for example, has little effect in total. Third, our numerical experiments suggest that the financial sector efficiency has a strong effect. If the financial market is malfunctioning, the firm value may be discounted unduly. In our model, because the firm value is the reward to successful R&D, such a mispricing of the firm value discourages the R&D efforts. This is reminiscent of the fact that the U.K. and Japan have experienced the growth slowdown after the financial market turmoil.

In conclusion, this paper asserts that a sort of intangible social assets such as culture, legal system, etc. are important for R&D. Our model has multiple BGPs. Even though an economy has experienced a rapid growth via capital accumulation (Solow effect), it may fail to switch to the R&D driven growth (middle-income trap). In addition, even though a country successfully achieved a high-income level, it could slip down from the good BGP, particularly if it suffers from deep and long financial turmoil (like Japan and the U.K.). To regain the sustainable R&D environment, the model suggests the following policy prescriptions; (i) policy measures that directly affect the R&D productivity such as the subsidy to higher education and R&D tax credit and (ii) policies to improve the efficiency in the financial market.

You can download the complete paper here.

Grant success for Amrit and Zaki

Congratulations to Amrit Amirapu and Zaki Wahhaj who have obtained a research grant from the UK Department of International Development’s EDI research programme to study peer effects in traditional marriage customs. In developing countries, where the state often has a weak capacity to enforce laws, social pressures and expectations can play an important role in hindering or accelerating behaviour proscribed by marriage laws. The project will build on an ongoing EDI project in Bangladesh to test these ideas, using an experimental design that exploits a recent change in child marriage laws. They are partnering in this research with the University of Malaya in Kuala Lumpur and the research firm Data Analysis and Technical Assistance in Bangladesh.

The image is taken from a psychological test designed to measure the impact of the new law on attitudes towards early marriage practices among men and women in rural Bangladesh.

Measured Productivity with Endogenous Markups and Economic Profits

by Dr Anthony Savagar, University of Kent. Discussion paper KDPE 1812, October 2018.

Non-technical summary:

A standard way to measure productivity is to take output growth and subtract input growth. Typically input growth is growth in capital and growth in labor weighted by their share in production. Whatever remains after subtracting is known as total factor productivity (TFP).

Under specific circumstances, this productivity measure also reflects underlying technology growth. This is important for economists because they struggle to measure underlying technology at an aggregate level, but it is a key variable to understand the behaviour of the economy.

However when we diverge from some basic assumptions, such as perfect competition, the TFP measure no longer reflects underlying technology. Therefore using our TFP measure to represent technology could lead to incorrect conclusions.

In this paper I show that when we recognize the slow adjustment of firms to arbitrage profits and the effect that slowly entering firms have on competition, the relationship between our measure of TFP and technology becomes much more complex. In fact, when we observe changing TFP, it will compose changing technology, changing profits and changing markups. This decomposition allows us to understand how we can get a true measure of underlying technology from our calculated TFP measure. It emphasizes that the composition of profits and markups vary in importance as firm entry takes place.

You can download the complete paper here.

Jan-Philipp Dueber

Endogenous Time-Varying Volatility and Emerging Market Business Cycles

by Jan-Philipp Dueber, University of Kent. Discussion paper KDPE 1811, August 2018.

Non-technical summary:

Time-varying volatility plays a crucial role in understanding business cycles in emerging market economies. There is now plentiful empirical evidence that volatility as measured by the standard deviation in macroeconomic data is time-varying and strongly countercyclical. Volatility increases during an economic recession and becomes lower during an economic boom.

In addition, we observe that standard open-economy macroeconomic models widely used for business cycle analysis fail to address the specific characteristics of many emerging market economies. In emerging market economies the net export to output ratio is typically negatively correlated with output i.e. it is countercyclical. However, standard models predict a near perfect positive correlation between the two. Besides that, emerging market economies show a higher fluctuation in consumption data than in data on output. Standard models, however, predict a higher fluctuation in output than consumption. These models are therefore overemphasizing the role of consumption smoothing.

This work is motivated by the above empirical observations. We augment a standard small-open economy model and introduce time-varying volatility to the interest rate and total factor productivity. In our model the interest rate and total factor productivity automatically turn more volatile when the economy becomes more indebted or when output declines in response to a negative total factor productivity shock. Once we introduce time-varying volatility into a standard open-economy model, the model becomes able to significantly better match emerging market economy data. After the introduction of a time-varying interest rate and total factor productivity we are able to present a model where net exports are strongly negatively correlated with output and consumption shows a higher variation than output as observed in the data. By choosing different parameter values for the time-varying volatility the model is able to characterize both, emerging market and developed economies, or an economy that is in transition to a developed economy.

Although we are not the first to address the problems of macroeconomic models for emerging market economies, our approach is especially simple and does not rely on shocks to the permanent component of total factor productivity or to shocks in the level of the interest rate. Compared to other research in this area our approach only requires one source of external variation, the widely used shock to total factor productivity. From a policy point of view our model can be especially useful for economists and policy makers in emerging market economies as our model now better fits the economic cycle in those countries.

You can download the complete paper here.

School holds workshop on Networks in Economics

On Friday 12 October 2018, The School of Economics hosted the second Kent Workshop on Networks in Economics. Organised by Nizar Allouch and Bansi Malde, it featured leading researchers from across the UK and Europe, including Francis Bloch (Paris School of Economics), Christian Ghiglino (Essex), Mich Tvede (UEA), Pau Milan (UAB, MOVE and Barcelona GSE), Anja Prummer (Queen Mary) and Luis Candelaria (Warwick). The workshop program can be found here.