Published ETD Collection
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Browsing Published ETD Collection by Department "Economics, Department of"
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Item Convergence and Divergence of Crude Oil and Natural Gas Prices(2012-12) Romagus, George 1982-; Craig, Steven Gael; Papell, David H.; Murray, Christian J.; Carlton, Amelie B.This research investigates the possibility that WTI crude oil and Henry Hub natural gas prices share a stable link. Economic theory suggests that the two commodities are linked by both supply and demand given that the commodities can be coproduced and many consumers have the ability to switch between the fuels. In general, it would appear that the two commodities support this theory with natural gas prices tracking crude oil prices fairly well until late 2008. However, since the end of 2008 the two price series have diverged and appear to move independently of each other. Reduced fuel switching capabilities in U.S. industry and electric power generation coupled with increased technology and production from shale formations have potentially changed the driving force behind natural gas prices. However, a severe recession has impacted world economies over the same time period making the cause of the disparity between crude oil and natural gas prices unclear. Therefore, this research analyzed the possible long-term link between the two commodities over two timeframes. Using an error correction model that includes exogenous factors affecting the short-run dynamics of natural gas prices over the period January 1999 through September 2008, I find evidence of a long-run cointegrating relationship between natural gas and crude oil prices. Additionally, crude oil prices are found to be weakly exogenous to the system, suggesting causality runs from crude oil to natural gas prices. Extending this series through February 2012 yields much weaker evidence of a cointegrating relationship and provides evidence for the decoupling crude oil and natural gas prices.Item Credit Contract Enforcement and Income Disparities across Indian States(2021-08) Khanna, Kriti; Yi, Kei-Mu; Wang, Fan; Cubas Norando, German; Rubinstein, YonaThis dissertation is comprised of two essays which study the impact of credit contract enforcement in explaining per capita income disparities, by studying its impact on the occupational choices of individuals and the allocation of factors of production (talent, capital, labor) in the economy. In the first essay, I estimate the impact of credit contract enforcement on occupational choices of the working population in India. I consider three broad occupation categories - formal firm owner, informal firm owner, and worker. The identification strategy I use involves the use of difference in differences—I exploit the cross-state variation in the implementation of a major judicial reform in India 2002. The datasets used for the occupational and other characteristics of individuals in the regression exercise are the NSS employment and unemployment surveys for years 2000 and 2005 (which are the pre-year and post-year respectively around the policy reform). I find strongly significant effects of credit contract enforcement on occupational choices, and a more efficient allocation of talent across occupations with improved credit contract enforcement. In the second essay, I develop and calibrate for each state a dynamic, heterogeneous-agents, three-occupation type model with differently-sized firms of formal and informal types. In the model, state-specific ability to enforce credit contracts imposes an endogenous borrowing constraint - which affects the borrowing ability of individuals, the potential size of firms they can run, and the profits they can earn. Combined with the labor market frictions and general equilibrium effects on wages and interest rates, individuals sort into different occupational types between formal firm owner, informal firm owner, and worker. Overall, improved enforcement of credit contracts reduces the misallocation of factors of production entrepreneurial skills, capital, and labor across production units leading to increased aggregate productivity and output per capita. Calibrating the model for each Indian state, with states varying on key parameters of credit enforcement and availability of labor opportunity, I find that the model explains 19.74 percent disparities across Indian states in 2017-18.Item CRUDE OIL PRICE SHOCKS AND GROSS DOMESTIC PRODUCT(2012-08) Hernandez, Jordan; Jiu, Brett; Hirs, Ed; Thornton, Rebecca A.This study uses ordinary least squares estimation to test multivariate models in order to find out whether or not crude oil price shocks are contractionary and negatively impact the macroeconomy. Variables are annual and pertain to different aspects of crude oil and how they affect real gross domestic product (GDP). It is predicted that increases in domestic and imported crude oil prices negatively affect real GDP by decreasing not only energy consumption but the consumption of other goods and services as well. It is found that the initial hypothesis is partially correct. While increases in imported oil prices do decrease real GDP, increases in domestic oil prices actually increase real GDP. Additionally, as predicted, consumption other than energy is affected by crude oil price shocks and causes real GDP to contract.Item Determinants of Firms’ Capital Structure Choice, Their Credit Ratings and the Leverage-Rating Relation(2013-05) Ilgaz, Doruk 1976-; Vollrath, Dietrich; Murray, Christian J.; Papell, David H.; Yerramilli, VijayBoth theory and practice seem to agree that firms adjust their capital structure to stay in close proximity to a target leverage ratio. However, this target leverage ratio is not accounted for as a determinant of leverage in existing empirical work. In the first chapter, I calculate the deviation of actual leverage from target leverage and use it as a determinant of firm’s leverage along with a set of other control variables that are traditionally used in the literature. I find that the addition of deviations from target leverage more than doubles the explanatory power compared to existing empirical specifications. Using standardized regression coefficients I show that the deviation from target leverage ratios is the most important determinant of firms’ capital structure. In the second chapter, I study firms’ credit ratings. Capital structure choice as measured by firms’ leverage ratio is an essential parameter in rating models. The endogeneity of firms’ leverage in rating estimation has recently come to consideration but has not received the attention it should have. My study shows that the corrected impact of leverage is about ten times more than the other determinants. In the final chapter, I study the endogeneity of leverage-rating relation. I estimate leverage-rating relation simultaneously using three-stage least squares. I find that change in rating is the most important factor for change in leverage (two to five times more than the control variables) and vice versa change in leverage is the most important factor for change in rating (three to nine times more than the control variables).Item Determinants of the Expansion in Container Use in U.S. Trade(2020-05) Magames, Eirini; Yi, Kei-Mu; Sorensen, Bent E.; Cubas Norando, German; Wong, M. C. SunnyThis dissertation investigates empirically and quantitatively the determinants of containerization in the United States. Although containers were introduced in international trade in 1966, not all exports that could be containerized are containerized. The containerized share of containerizable exports grew from 61 percent in 2010 to 69 percent in 2018. The majority of this growth is driven by increase in the share of each product that is containerized, rather than a shift from exports of products that are less containerized towards exports of products that are highly containerized. This finding is consistent with supply shocks, such as declining container transport costs, as the driver of growth in containerization. Product-level regressions show that changes in containerized export shares respond negatively to changes in container transport costs caused by technological improvement in the container transport industry. I also find the effects are heterogeneous across products. Finally, to quantify the welfare gains associated with containerization, I develop a multi-country general equilibrium trade model with endogenous transport costs in which heterogeneous firms make both export and transport decisions.Item Direct Regular Flights: Policy Effects on Competition in the Taipei-Hong Kong Market(2013-08) Chuang, Shih-Hsien 1989-; Szabo, Andrea; Thornton, Rebecca A.; Prodan-Boul, RuxandraIn the past few years, there have been significant policy changes involving Taiwan and Mainland China. Since Aug 31, 2009, regular direct flights between Taiwan and China resumed. The paper looks at whether this policy change has an impact on the air passenger service market between Taipei and Hong Kong, a major layover for people traveling from Taiwan to China prior to the policy change. At the industry level, the policy change has led to a decrease in the number of airlines, flights, passengers, total seats available, and the passenger load factor. For individual airlines, results are a mixed. A decrease in the number of flights is estimated for China Airlines. China Airlines and Eva Airways has experienced a decrease in the number of passengers. Cathay Pacific’s increased number of passengers is unexpected. China Airlines has provided less number of total seats. Cathay Pacific has experienced increased passenger load factor.Item Economics of Social Networks in Labor Markets and Education(2023-08) Chung, Weonhyeok; Juhn, Chinhui; Maheshri, Vikram; Friedman, Willa H.; Rubinstein, YonaThis dissertation consists of two studies on social networks in labor markets and education. Social networks play a central role in friendship formation in adolescence, job finding, and long-term labor market outcomes. The first study examines the formation of friendships among adolescents, with a focus on race and achievements. Using a dyadic regression, I initially demonstrate that students tend to form friendships with individuals who possess similar characteristics. Subsequently, I find that the sensitivities to differences in GPA (Grade Point Average) between Black pairs and White pairs of students are comparable. This implies that peer pressure related to academic performance is similar across the two racial groups. Moreover, my findings indicate that these sensitivities are less pronounced in friendships between individuals of different races compared to friendships within the same racial group. Through counterfactual exercises, I ascertain that the lower number of friendships among high-achieving Black students, in comparison to their White peers, can be attributed to the scarcity of minority students rather than differences in GPA. The second study explores the role of referrals on the wages of young workers at the early stages of their careers. Referrals are further categorized as either coming from relatives or non-relatives. Using data from the NLSY 79 (National Longitudinal Survey of Youth 1979), I discover that young male workers who have referrals from relatives receive a wage premium. Interestingly, these workers tend to have lower cognitive scores compared to those without referrals. However, the wage gap between workers referred from relatives and not referred disappear after one-year period. Moreover, workers who are referred by relatives exhibit lower turnover rates. In contrast, I find no significant relationship between referrals from non-relatives and wages. In summary, the findings suggest that favoritism, rather than a signaling mechanism plays a role in the wage advantages associated with referrals from relatives.Item EFFECT OF A TRADE REFORM ON INFRASTRUCTURE SPENDING(2021-05) Verma, Priyam; Yi, Kei-Mu; Chin, Aimee; Cubas Norando, German; Sorensen, Bent E.This dissertation consists of two essays on the effect of a trade reform on infrastructure spending. In the first essay, I empirically study the effect of India's opening up to international trade in the early 1990's on its infrastructure spending policies. To motivate the empirical work, I develop a two period model to show how optimal spending on infrastructure is negatively related to tariffs implying that when countries open up trade, their governments should build more infrastructure. I test this hypothesis using a differences-in-differences approach, exploiting state-level variation from India's trade reform. I find that for 1% reduction in tariff, state governments increased the stock of infrastructure by 0.56%. Transport infrastructure increased three times more than non-transport infrastructure. These findings shows a benevolent behaviour of governments, resulting in a new channel of gains from trade. To understand the mechanisms behind my empirical findings, in the second essay I develop and calibrate a multi-region model of international trade, private capital accumulation, and infrastructure spending, in which each government chooses such spending to maximize their state's welfare. I find if governments choose infrastructure following the reform optimally, infrastructure would have increased by 60% on average. The actual increase, based on my empirical findings, was about 25%. Looking at categories of infrastructure, I find that government's response in transport related infrastructure was 90% of what will be optimal within this model. Counterfactual exercises show that raising aggregate infrastructure towards its optimal following the trade reform will result in state GDP to increase by 7% on average.Item Effects of English Instruction and English Skills on Labor Market Outcomes in Mexico(2023-05-08) Galvez-Soriano, Oscar de Jesus; Chin, Aimee; Juhn, Chinhui; Wang, Fan; Escamilla-Guerrero, DavidIn this dissertation, I examine the labor market returns to English skills in the context of a non-English-speaking country. I study the case of Mexico in two chapters that use distinct empirical strategies and different data sets. In the first chapter, I measure the effect of exposure to English instruction on labor market outcomes. In 2009, Mexico launched the National English Program in Basic Education, and my empirical strategy uses the school by cohort variation in exposure to English instruction generated by this policy change. I construct a novel database connecting the universe of elementary school students to their labor market outcomes more than ten years after they had exposure. I find that English instruction reduces the likelihood that individuals participate in formal sector employment due to exposure increasing school enrollment. Focusing on a sub-sample that is unlikely to be enrolled in school by age 16, I find that English instruction has no effect on wages but shifts workers out of agriculture and construction into manufacturing industries. Furthermore, I find no effects on reading and mathematics test scores, which suggests that my main findings do not reflect changes to general cognitive skills. In the second chapter, I study the prevalence of English skills and the labor market returns to English skills in Mexico. I use individual-level data from the 2014 Subjective Well-being Survey, which unlike other large nationally representative data sets includes a measure of English proficiency. To address the concern that English skills may be endogenous in the wage equation, I take advantage of policy changes in several Mexican states that introduced English instruction in public elementary schools. I find that these state English programs increased the likelihood of speaking English, did not affect wages, and shifted workers out of physically demanding occupations. The results in both chapters point to the same conclusion: English instruction and English skills expand employment opportunities. Workers with exposure to English instruction are not necessarily getting higher wages, however, they are moving to different jobs. The destination jobs appear to have better working conditions and different career paths.Item Effects of Trade Costs and Capital Controls on Trade Imbalances(2020-05) Jung, Heesuk; Yi, Kei-Mu; Papell, David H.; Cubas Norando, German; Wong, M. C. SunnyThis dissertation consists of two essays on the determinants of global trade imbalances. In the first essay, I evaluate the effects of declining trade costs and capital controls on global imbalances using a model-based quantitative analysis. I develop a multi-country general equilibrium trade model in which trade imbalances are endogenously determined. Declines in trade costs and capital controls imply that fundamental shocks, such as productivity shocks, propagate more strongly to trade imbalances. I calibrate the model to 25 countries by exploiting data on bilateral trade flows, aggregate prices, net exports and measures of capital controls. I conduct counterfactual exercises where I fix trade costs or capital controls at the 1970's level. The results show that the decline in trade costs accounts for 42 percent of the trade imbalances that occurred between 1970 and 2007, while the decline in capital controls explains 22 percent of the imbalances. I also find the effects are heterogeneous across countries. Finally, my model suggests that welfare implications from lowering trade costs and capital controls are quite different. A reduction in trade costs leads to positive welfare gains for all countries, but a decrease in capital controls does not necessarily bring positive welfare gains. In the second essay, I address the empirical relationship between trade imbalances, trade costs and capital controls. In particular, the model suggested in the first essay predicts that lower trade costs and capital controls amplify the effects of productivity shocks on trade imbalances. I test this propagation mechanism by taking three empirical approaches; a fixed effects regression with panel data, a 2-country dynamic regression, and a 2-country vector autoregression (VAR). The results of the fixed effects regression show that trade imbalances respond negatively to productivity growth, and a decrease in capital controls makes this effect more negative. The model's implication for the propagation role of trade costs, however, is not supported by this approach. In the 2-country dynamic regression, trade costs and capital controls amplify the effects of productivity growth on trade imbalances in some countries, but not in others. Finally, the 2-country VAR(1) does not provide any evidence that is consistent with the model's prediction. In sum, there is mixed evidence on the propagation role of trade costs and capital controls.Item Effects of Trade Liberalization on Gender Inequality: Empirical Evidence from India(2015-05) Gupta, Ashmita; Juhn, Chinhui; Chin, Aimee; Liu, Elaine M.; Kumar, SantoshThis dissertation is composed of two essays. In the first essay, using a panel of establishments from the Annual Survey of Industries (ASI), I study the impact of the 1991 trade liberalization episode in India on the employment share of women. Contrary to the predictions of a taste-based discrimination model, I find that establishments exposed to larger output tariff reductions and import competition reduced the share of female workers. I also find that input tariff reductions neither raised nor reduced female employment share. The negative association between output tariff reductions and female employment appears to be driven by two factors. First, establishments facing larger output tariff declines engaged in more skill-upgrading which worked against women (who are less skilled in terms of measured education). Second, establishments facing larger tariff declines increased the number of shifts per worker. Since women in India are prohibited by law from working long hours and night shifts, this hours-constraint appears to have reduced relative employment of women. I find this effect to be particularly large among ``big and private'' establishments. In the second essay, using household data from The Indian Human Development Survey (IHDS), 2005, I look at the effect of trade liberalization on education attainment in India. I find that there is an increase in education inequality which is mainly driven by females. Young cohorts in districts which had more employment in industries losing tariff protection experienced lesser increase in primary school and college education. However, I find an increase in secondary level of education for males who completed earlier levels. I also find trade liberalization alters the quality of education.Item Essay on Dollarization in Emerging Markets(2023-05-12) Mendoza Perez, Liu Anibal; Cubas Norando, German; Paluszynski, Radek; Pinto, Pablo M.; Sorensen, Bent E.This dissertation investigates financial dollarization in low-inflation emerging economies, linking high dollarization levels with past inflation history. High inflation episodes are typically associated with large fiscal deficits financed by money creation. This results in the loss of value of the local currency against goods and other currencies, which leads to high inflation levels and a significant depreciation of the domestic currency. High inflation undermines the local currency's ability to serve as money, making transactions, pricing, and saving challenging. In this context, access to a foreign currency that maintains its real value over time, typically the US dollar or the Euro, leads to dollarization: economic agents start saving, setting prices, and conducting transactions in this currency. Based on vast literature showing the adverse effects of dollarization on monetary policy effectiveness and financial stability, several dollarized economies implemented measures to reduce their dollarization levels. However, de-dollarization proved elusive despite macroeconomic reforms leading to low and stable inflation levels. Current literature struggles to understand why dollarization, especially savings dollarization, remains high in low-inflation emerging economies. Using a portfolio-choice model with heterogeneous agents, inflation and nominal depreciation shocks, and access to dollar deposits, I study dollarization hysteresis in low-inflation emerging economies and the distributional consequences of de-dollarization policies. The novel feature in my model is that households exhibit fear of inflation: despite current low inflation levels, the possibility of future high inflation episodes triggers a precautionary demand for dollar deposits to insure against this risk. The key to this result is that inflationary crises come hand-in-hand with currency crashes. I show that a small probability of high inflation can explain large and persistent dollarization levels. My model generates a positive correlation between wealth and dollarization, as in the data. This result arises because the relative importance of inflation shocks for poorer households is lower than the income shocks they face. Finally, I show that de-dollarization strategies restricting access to foreign currency deposits, widely implemented in emerging economies, might reduce welfare. Instead, de-dollarization strategies should focus on reducing the probability of returning to high inflation or high depreciation episodes.Item Essays in Empirical Economics: Bank Access and New Technology Adoption and States' Management of Unemployment Insurance Finance(2012-05) Mukherjee, Satadru; Chin, Aimee; Sorensen, Bent E.; Liu, Elaine M.; Prakash, NishithThis dissertation is composed of three essays. The first essay examines the effect of bank branch expansion on High Yielding Variety (HYV) seed adoption by Indian households using the Additional Rural Incomes Survey (ARIS) and Rural Economic and Demographic Survey (REDS) Indian household panel data, and bank branch data from the Reserve Bank of India. I use the Indian government's social banking policy to provide exogenous variation in district bank access. This policy, in effect 1977 to 1990, forced banks to open more branches in financially less developed areas. I find that districts with lower initial financial development experienced significantly more branch openings during the social banking period (1977-1990). Moreover, I find that households in financially less developed districts were more likely to adopt HYV seeds during the social banking period consistent with the view that access to credit is a major determinant of new technology adoption. In the second essay, following the empirical strategy developed in the first essay, I examine the effect of bank branch expansion on High Yielding Variety (HYV) seed adoption by Indian districts. I use the Indian government's social banking policy to provide exogenous variation in district bank access. This policy, in effect 1977 to 1990, forced banks to open more branches in financially less developed areas. Using data on district HYV use from the Evenson and McKinsey India Agriculture and Climate dataset, and bank branch data from the Reserve bank of India, I find that financially less developed districts increased HYV seed adoption during the social banking period, consistent with the view that access to credit is a major determinant of new technology adoption. In the third essay (co-authored with Steven Craig, Wided Hemissi and Bent Sorensen), we study how state governments manage the finances of their Unemployment Insurance (UI) programs. The operation of the UI programs is separate from states' general budgets with clearly specified rules of saving (in a trust fund operated by the treasury) and spending, although spending includes a large discretionary component. Using a panel of US states we find that UI program spending and taxes are not described well by the PIH or by the Barro tax smoothing model. Instead, we find that states increase spending when their trust fund balance is high, and that trust fund balances seem to be clearly mean reverting. This pattern suggests that the data may be explained by a buffer stock model with forward looking but impatient politicians as suggested by Carroll (1997) for consumers. We split UI benefits spending into a compulsory part (explained by unemployment) and a discretionary part. Considering taxes as income and discretionary benefits as consumption, we calibrate and simulate a version of Carroll's buffer stock model. We find that the simulation results of the buffer stock model match well our data, where politicians adjust policy to stay close to the target level of savings as shown by simulation matching the covariance condition where consumption and savings move with differences from the target level of savings.Item Essays in Empirical Law and Economics(2014-05) Best, Jason; Chin, Aimee; Tiede, Lydia B.; Lehmann, Jee-Yeon K.; Szabo, AndreaFederal judicial vacancies are an ever increasing issue in the public sphere with 14% of federal judgeship positions currently unfilled concurrently with increases in aggregate levels of caseloads. Despite concerns as to the adverse consequences of judicial vacancies, research about their effects has remained scant due to the difficulties of specifying the causal mechanism between vacancies and judicial decision-making. Consequently, courts are left with a lower supply of the necessary tools to handle the increased demand for services. In my first chapter, I examine the effect of judicial vacancies on sentencing outcomes in district courts in the United States of America. I make use of an instrumental variables strategy in order to estimate a causal relationship. Specifically, the first instrument which is used in this paper uses judge deaths while the second instrument makes use of a judge’s eligibility for senior status in order to explain the vacancy rate. My findings show that for a district with ten allocated judgeship positions, a vacancy present throughout the length of a case will result in sentence lengths that are 2 months longer on average due to a 4% decrease in downward departures and a 4% increase in sentences at the Guideline minimum. Moreover, for defendant characteristics which predict recidivism, here age, gender and criminal history, the effect is even larger. These effects highlight the problems associated with persistent vacancies at the district level. To assess one of the policies adopted in order to handle vacancies which might have especially deleterious effects on federal district courts, I evaluate the effect of designating a vacancy as an “emergency” on durational and judge quality outcomes in my second chapter. Here I make use of a policy rule to find causal estimates with a regression discontinuity strategy. Estimating the duration of vacancies slightly above and below the cutoff rule I find no effects of the cutoff on durational outcomes. Furthermore, there are effects on judge quality measures in that judges above the cutoff have slightly worse law school rankings on average while maintaining marginally higher American Bar Association qualification scores. These results suggest that the policy is not having the intended effects of reducing the duration of vacancies.Item Essays in political economy and applied econometrics(2014-05) Garofalo, Pablo Javier; Ujhelyi, Gergely; Sorensen, Bent E.; Juhn, Chinhui; Cantu, FranciscoThis dissertation is comprised of two essays in political economy and one in micro-econometrics. Each of them proposes an alternative methodology to improve on the estimation of a specific economic phenomenon. The first essay studies the political allocation of US federal resources to localities taking into consideration that the states are also actively involved in allocating resources to localities. I found that federal funds are biased towards localities within states that are not represented by the same party as the one that represents the federal government. This finding implies that a strategic federal government takes into account that non-aligned states have different spending priorities. These results suggest that past research on the allocation of federal resources to localities has shown biased estimates when the political allocation of resources is not studied in the context of a multi-layered government environment. The second essay exploits the existence of extended interlude periods (i.e., time between elections and government change date) from Latin American countries to identify a causal effect of a change in the probability of electoral defeat on a change in the budget deficit. Theoretical studies on the strategic use of debt argue that governments issue more debt when facing a higher probability of electoral defeat. Testing this hypothesis has proven challenging since measures of that probability are potentially endogenous. Since my identification strategy is focused on identifying the effects of electoral surprises, I provide a plausible source of exogenous variation. I find that the higher the increase in the probability of electoral defeat (victory), the larger the increase (decrease) in the deficit. The third essay studies the properties of a maximum likelihood estimator (MLE) of dynamic panel data models with fixed effect when difference GMM methods suffer from weak identification. While previous studies propose moments to solve the weak identification under difference GMM for stationary processes only, this study shows that MLE solves the weak identification issue not only when the process is stationary, but also when it is not.Item Essays in State Funding for Higher Education(2013-12) Topal, Senay Dzhelal 1983-; Craig, Steven Gael; Liu, Elaine M.; Maheshri, Vikram; Kirkland, Justin H.This thesis is a combination of two papers studying the effect of state funding for higher education on the price of education and student enrollment at institutions. The first paper evaluates the effectiveness of student aid in decreasing the price of higher education by investigating what portion of student aid dollars reach targeted students and what portion are absorbed by the state and universities through decreasing existing aid or increasing tuition. I find no evidence that either the state government or universities absorb student aid funds, suggesting that a dollar in state scholarships reduces a student's price of attending university by that dollar. I also find that state student aid increases resident student enrollment at both public and private universities and crowds non-resident students out of public universities. While the first paper demonstrates the effectiveness of state funding for higher education, the second paper studies the importance of the format of funding in decreasing students' price of enrollment and increasing enrollment at institutions. States can reduce the price of higher education by funding students directly, or by funding public institutions, which in turn charge lower in-state tuition. I compare funding public institutions to funding student directly and find that the format of funding has an important impact on the price of education and student enrollment across institutions. I find that redistributing state funding from public institutions into the hands of students reduces the price of attending both public and private institutions and increases student enrollment enrollment at private institutions. These findings suggest that funding students is more effective at decreasing the price of higher education and increasing student enrollment at institutions than funding public institutions.Item Essays in Time Series Analysis and Applied Macroeconomics(2016-12) Du, Bocong; Sorensen, Bent E.; Murray, Christian J.; Cubas Norando, German; Nikolsko-Rzhevskyy, AlexThis dissertation is composed of two essays on time series analysis and applied macroeconomics. The first essay extends the Zero-Information-Limit Condition (ZILC) theory to the Generalized ZILC, and shows how the Generalized ZILC applies in the GARCH(1,1) model theoretically and empirically. In the theoretical part, under the Generalized ZILC theory proposed in the essay, the estimated information of the GARCH coefficient in the GARCH(1,1) model is overestimated; the estimated variance and estimated standard error of the GARCH coefficient is too small relative to the true value. Therefore, the actual size of the t-statistics of the GARCH estimate is too large. When sample size increases, this problem still exists. Because of the underestimated variance, it would be too often to reject the true null hypotheses. This essay proposes an empirical application strategy, by constructing the ZILC zone and safe zone for the GARCH(1,1) model. In the application part, this paper uses Value-at-Risk analysis in the risk management, to show that, if we fail to pay attention to the Generalized ZILC issue, the risk calculated by Value-at-Risk methodology using the GARCH(1,1) model, would be underestimated. At last, this paper proposes a Parametric Bootstrapping strategy, to generate a ratio and correct the underestimated variance of the GARCH coefficient in the GARCH(1,1) model. In the second essay, I estimate the extent to which shocks to "animal spirits" can have an effect on real economic outcomes at business cycle frequencies. Recent advances in rational expectations models that formalize a role for animal spirits shocks (or "sentiments" shocks) motivate an empirical examination of this question. I use monthly data on consumer confidence and coincident economic activity indexes at the level of U.S. states in a structural Vector AutoRegression (SVAR) model with long run restrictions to identify shocks to animal spirits and to economic fundamentals (which we refer to as "news" shocks). Specifically, I assume that animal spirits shocks cannot have an effect on the level of output in the long run. I find that, although most variation in the level of output (in the short run and in the long run) can be explained by innovations in news, animal spirits do have statistically and economically significant effects at business cycle frequencies. Two years after a positive innovation in animal spirits, the level of output is about three percent higher than it was before the shock. Significant effects can also be observed on retail sales, non-farm payrolls, the unemployment rate, and aggregate wages and salaries.Item ESSAYS IN URBAN ECONOMICS AND LOCAL LABOR MARKETS: THE ROLE OF CONCENTRATIONS OF EMPLOYMENT(2012-05) Perdue, Adam; Craig, Steven Gael; Kohlhase, Janet E.; Imberman, Scott A.; Rogers, Jerry R.This dissertation consists of two essays exploring the often noted dispersion of economic activity within cities. Focusing in particular on the phenomenon of polycentricity, these essays explore the relationship between employment centers and spatial and economic outcomes of cities. The first essay explores the implications of two common proposed criteria for identifying an employment center. Does the area represent a local concentration of employment? Does the area affect the local population density of the city? Using data on both place of employment and place of residence, I propose a new method for testing the relationship between concentrations of employment and population density within a metropolitan area. First a recently developed statistical method is used to identify concentrations of employment using data on place of employment. Second, I propose two methods for estimating the extent of the radius of influence for an employment center, using the relationship between tract of employment and tract of residence. Third, I propose a new specification for the entrance of distance into the polycentric regression. This new specification allows the impacts of the concentrations of employments on density to be positive, following the theoretical hypothesis. I use this new specification to jointly estimate the local gradients of 21 identified concentrations of employment in the Houston metropolitan area on their local population density. I find that not all identified employment concentrations have the expected significant positive gradients, and thus do not qualify as employment centers. I also find that the estimated gradients are sensitive to estimates for the radius of influence for each employment concentration, and that the level of employment in an employment concentration, alone, is not a strong predictor of significant local impact on population density or on the size of the estimated gradient. The second essay tests for the theoretically predicted relationships between the number of employment centers in a city, and the city’s transport costs and wages. Urban area vehicle miles travelled rise with an increase in the number of employment centers in an urban area, while commute times are unaffected. These findings contradict the common hypothesis that additional employment centers lower transport costs by allowing workers to live closer to work. Instead, it appears that if transport costs are falling they do so through a fall in per unit distance price. I find that urban area average wages fall with an increase in the number of employment centers. I also find that average wages increase as a larger share of employment locates within employment centers. These two findings support the belief in the presence of agglomeration economies within employment centers that increases in concentration. In a competitive equilibrium the formation of additional employment centers have externalities in both the costs and benefits, thus it is not clear if the efficient number of employment centers will be formed within an urban area. This is explored through an investigation of the determinants of the share of urban area employment that locates in employment centers. I find that the predicted employment share maximizing number of employment centers increases with urban area size.Item Essays in Urban Economics: Agglomeration Economies in the Manufacturing Sector and Land Constraints in Housing Markets(2017-05) Dong, Yilin; Kohlhase, Janet E.; Sorensen, Bent E.; Maheshri, Vikram; Kirkland, Justin H.This dissertation focuses on the study of urban development. The first chapter explores whether agglomerative forces can explain the location decisions of new manufacturing firms in the face of declining manufacturing activity in the United States over the time period 2004-2011. I find that labor market pooling and input-output linkages have the largest effects, positively influencing firm location. Moreover, corporate taxes discourage firm activity but the effects are weaker in more geographically concentrated industries. I then investigate whether negative macro shocks would change how firm location decisions respond to agglomeration forces. The results indicate that the workings of agglomeration economies have become more pronounced after the Great Recession. New firms may become more risk averse after large negative shocks and that become more likely to choose the place where industry relations are strong. The second chapter examines the influence of land supply on housing markets in urban China. The extent to which geographical and man-made land constraints influence housing prices and quantities is explored. Using a sample of 35 cities in China from 2003 to 2012, I find that cities with less naturally available land have experienced greater price appreciation and the quantity response is less in those places. The results imply that geography matters in Chinese housing markets where land is discretely allocated by the government. In cities where there is more land naturally available, the government may be less concerned about the loss of arable land and be more permissive with development. Moreover, my findings imply that the allocation of land use via government decision in China is quasi-exogenous to changes in housing price and quantity, suggesting that decisions by governments about land supply may not be dependent on housing prices.Item Essays of Political and Cultural Institutions(2015-05) Bostashvili, David; Ujhelyi, Gergely; Liu, Elaine M.; Craig, Steven GaelThis dissertation comprises two essays. The first examines the role of a bureaucratic institution—the civil service system—in dampening political budget cycles across U.S. state governments. Using new data on state-specific civil service reforms throughout the twentieth century enables me to account for cross-state institutional heterogeneity, as well as to exploit within-state variation in the precise timing of reforms. I uncover sizable electoral cycles before a state replaces its patronage system with a system of merit-based recruitment and civil service protections for state government employees. Once the civil service system is introduced, the cycles diminish significantly or disappear completely. Reform-induced heterogeneity in budget cycles is especially pronounced in expenditure categories with high voter appeal. For example, states with the patronage system spend, on average, 27.5 dollars more per capita on roads and highways (an increase of 8.5 percent relative to the sample mean) during the two years prior to gubernatorial elections compared to the two years following the elections, whereas states with the civil service system do not exhibit such cycles. The evidence suggests that reformed bureaucracies exert considerable influence on politicians’ spending decisions. The second essay examines the role of a cultural trait—individualism-collectivism—in shaping microeconomic preferences at the individual level. I adopt the “priming” method from social psychology to exogenously vary the salience of individualism and collectivism in laboratory settings. The findings indicate that subjects primed on collectivism make less risky and more patient financial choices, and report lower self-confidence than subjects primed on individualism. Findings from a supplemental experiment indicate that making collectivism salient does indeed strengthen subjects’ collectivistic perceptions, lending support to the interpretation of the main results as the effects of collectivism. Finally, I find that Hispanics and blacks are especially sensitive to being primed on collectivism, while Asians and whites are the least sensitive. This result is consistent with the evidence that Asian and white subjects in the sample are the most and the least group-oriented, respectively.