Browsing by discipline "Nationalekonomi"

This paper examines the effect of immigration on the native unemployment rate in Finland. A number of different estimations strategies are applied to discover the impact using the data from the 19 regions of Finland over a period of 16 years, from 2000 to 2015. The study also takes advantage of employing the share of foreigners in the population as the instrument in the estimation process. Other variables in the model include GDP per capita, net inter-municipal migration and educational attainment share of the labor force. The results indicate that changes in the share of inflow of immigrants in the labor force has a significant negative effect on the unemployment rates of natives. However, possible limitations, like failure to apply a skill-based approach of analysis, may have produced such results and they are also discussed in the paper.

It is widely discussed in numerous economic and financial literature that the equity risk premium is in close relation with other financial or economic issues. Classical articles mostly focus on developed markets as they start early ensuring long enough time series for doing research. Nowadays, financial markets in emerging countries play a more vital role in global market. I test the degree of integration and find that emerging markets are more and more integrated with global market. Nevertheless, in their early stage some emerging markets behave differently from developed markets. This article mainly focuses on the differences in equity risk premium between 6 emerging markets and 4 developed markets and the difference will be discussed in four parts. The first part is on the discussion about premium puzzle then I use the ERP dominated in both U.S. Dollar and local currencies to test the distribution attributes in both markets and it shows that emerging markets will compensate investors with more returns for more risks their equities contain than developed markets. From their distribution attribution I find the time varying nature of ERP in emerging markets. Then I use CAPM to compare the difference of time varying nature result from global business cycle between emerging and developed markets and figure out that global business cycle can explain the time varying nature of ERP in developed markets better than emerging markets. There is huge effect of local information on ERP in emerging markets so that I add liquidity based on the one-factor model to further my research. Moreover, I use VAR model to exhibit the casual relations between liquidity and ERP.

Implied volatility is the level of dispersion of asset price changes that is embedded in the market prices of option contracts written on that asset. As such, it represents market participants’ consensus on the expected volatility, or uncertainty regarding future returns, over the remaining life of the options. A proxy for aggregate stock market implied volatility is given by Chicago Board Options Exchange’s volatility index, the VIX, which is a practical implementation of the concept of model-free implied volatility that allows for extracting implied volatility directly from observed option prices without the use of a parametric option pricing model. Two well-known features of implied volatility and the VIX in particular are its mean reversion – it tends towards its mean level over time – and a significant negative contemporaneous correlation with returns on the underlying stock index. In this thesis, the time-varying dynamics of the relationship between stock market returns and implied volatility are examined empirically. Theoretical background and the construction methodology of the VIX are thoroughly discussed in order to give the reader an understanding of model-free implied volatility and the VIX. Structural stability of the time series data of the VIX daily levels ranging from January 2004 to December 2011 is tested using the method developed by Bai and Perron (1998;2003a;b;2004) for testing for structural breaks at a priori unknown times. The results suggest that statistically significant structural breaks are present in the data sample, that is, the mean level to which the VIX reverts is found to shift over time. This allows for determining distinct volatility regimes in the sample. The relationship between daily changes in the VIX and the corresponding daily stock index returns during these distinct regimes is studied by examining their cross-correlations and testing for any Granger causality that might exist. A more elaborate study is conducted on the strongly negative contemporaneous relationship by examining the effect of return shocks on volatility as well as by looking for asymmetries in volatility using linear regression. The results strongly suggest the presence of a single statistically significant structural break that coincides approximately with the outbreak of the global financial crisis in late 2007. The sample data is therefore divided into a pre-breakpoint low volatility regime and a post-breakpoint high volatility regime. No statistically significant Granger causality is found in the data, which suggests that VIX changes have no predictive power over stock index returns or vice versa. Closer scrutiny of the contemporaneous volatility-return relationship reveals asymmetries in volatility – increases in the VIX associated with negative stock market returns are found to be higher than decreases associated with positive returns of similar size. The overall inverse relationship appears to be stronger in the high volatility regime. However, the degree of asymmetry in that relationship is in turn stronger in the low volatility regime, i.e. the difference between increases and decreases in the VIX in response to negative and positive returns, respectively, turns out to be higher than in the high volatility regime. The study of structural stability of the VIX mean level provides and update to the study of Guo and Wohar (2006), whose sample period predates that of this thesis. The findings on the asymmetry of the relationship between implied volatility and stock market returns lend further support to the notion that the VIX is rather a measure of investor fear in falling markets than of investor positive sentiment in rising markets, which has earned it the moniker 'investor fear gauge'. In a low volatility regime, investors are more sensitive to any decreases in the stock markets, whereas in a high volatility regime the effects of return shocks are more pronounced regardless of their sign. The VIX constitutes a powerful indicator of investor sentiment, i.e. the expected level of volatility perceived by market participants at any given time.

During the last two decades, many municipalities in Finland have attempted to cut costs by closing down small schools. Especially rural schools with low enrollment have been the target of these savings. This continuing tendency has raised many concerns on the effect of school closings on students, and remains a controversial issue in public discourse. The current study examines 600 students from rural schools, who were displaced due to school shut downs during 1999–2000 in the last years of their primary education. Relative to previous literature, where bad school performance has influenced school shut downs, in the setting of the present study only cost savings are used to justify school closings. Additionally, because of the rural setting, the effects of displacement include increases in school trips as well as in school size. To address the non-random displacement of students, the effect of school closures on student grades and high school graduation rates are estimated by comparing the displaced students to control students that are matched based on a number of relevant covariates. I find no adverse effects of school closures on any of the measured outcomes. This implies that negative effects on students' school performance does not have empirical support as an objection to the school closing policies.

Despite nearly six decades of foreign aid being directed to developing countries, there still is no consensus on to extent to which aid affects growth of the recipient economy. One of the ways that donors attempt to influence the effectiveness of aid, or the extent to which it increases the growth of the recipient country’s economy, is to tie aid to public infrastructure projects. In some cases this influences the recipient’s behaviour and attitude towards foreign aid. This thesis looks at aid effectiveness in a situation where aid is tied to public sector infrastructure projects in a developing country. We base the research on a model developed by Kalaitzidakis and Kalyvitis (2008), where part of the recipient country’s public infrastructure spending is financed by foreign aid. We then look at a situation where rent-seeking activities by economic agents affect the effectiveness of aid basing on the Economides, Kalyvitis and Philippopoulos (2008) model. We also summarise empirical work in the research area, and present the most common forms of development aid, and present theoretical approaches to defining aid effectiveness. The thesis is based on theoretical models, and the methodology applied is mathematical. First we examine a case where development aid is used to co-finance public sector infrastructure projects in a developing country. In some cases it is possible that an increase in the level of aid transfers the recipient country’s spending from public investment to consumption. In this case the size of projects partly funded by development aid decreases, and the effectiveness may be mitigated. Next we look at a case where part of the funds are taken away due to rent seeking activities. In this case the impact on the growth rate is mitigated due to rent seeking activities in the economy. One of the key findings of this thesis is that development aid does have an impact on the growth rate of the economy of a developing country in a case where public infrastructure projects are co-financed with domestic taxes aid from abroad. Rent seeking activities have a negative impact on the effectiveness of aid with regards to its growth impact.

The economic theory states that the capital structure of a firm is irrelevant in a perfect frictionless world. Hence when the assumptions of the Modigliani–Miller theorem and the CAPM hold, the question about the optimal source of funding of capital investments is also irrelevant. In practice though, capital leasing is widely used and the decision to lease or own assets is hardly a matter of indifference to firms or individuals. The motivation of this thesis is to identify when and why leasing would be a preferred method of finance. The Modigliani–Miller indifference proposition assumes rational value maximizing agents that have perfect and symmetric information available, and have access to perfect capital markets when making decisions on investments to divisible assets under a neutral tax system. In reality though the future cash-flows from capital investments are almost always uncertain at the time of an investment decision, the access to risk free borrowing is limited and the size of capital investments have technical limitations. The indifference proposition, however, holds even if the future cash flows are uncertain as long as the assumptions of the CAPM are valid. Instead the asymmetry of information is a critical violation of assumptions for the indifference proposition. First asymmetry on information on management performance may induce risk averse management to prefer relatively safe leasing instead of own equipment when there is uncertainty on the future value of the asset. On the other hand the information asymmetry on the usage of the asset may cause an agent–principal problem between the lessor and the lessee increasing the cost of leasing. This in turn may cause an adverse selection problem where only users who cause greater wear and tear on the asset utilize leasing. The indifference proposition also ceases to apply when investments can be made only in fixed quantities and access to risk-free borrowing is limited. A risk-averse investor cannot then diversify the asset specific risk related to owning the asset through the market. Leasing, however, provides a way to de-risk a capital investment since the risk in the residual value of the leased asset is carried by the lessor. Limited access to risk-free credit causes also another problem that creates demand for leasing. Normally 100% debt finance is not possible since repossession of collateralized assets is costly. Therefore lenders require part of the investment to be made with internal funds so that in case of a default the creditor can recover both the loan principal and the repossession costs. Meanwhile in case of leasing the lessor retains the title to the asset and there is no deadweight cost of repossession. For agents with limited internal funds leasing can then offer a way to expand capacity faster than would be possible when financing the investment with internal and borrowed funds. The impact of taxation on the validity of the Modigliani–Miller theorem has been actively researched and widely documented in the context of determining the optimal mix of debt and equity in the capital structure of a firm. Not surprisingly taxation also distorts the indifference proposition in case of lease or buy decision. When there are differences in the marginal tax rates between firms, there exists an opportunity for tax arbitrage when lessee companies with lower marginal tax rates lease assets from lessor companies with higher marginal tax rates.

The ageing population of the developed world questions the financial sustainability of the pay-as-you-go pension system, which redistributes income from the current working population to the retirees. The development has spurred a debate in the public and in academia regarding the future of the system. This thesis analyzes the political support of the pension system and the potential for reform, with a focus on the conflict of interest between young and old generations. The political support of the pension system is analyzed by surveying the two main theoretical modelling approaches of pension systems, and by analyzing one model of each approach in detail. In the majority voting approach, a pension system arises when at least half of the population has economic reasons to support it. Conde-Ruiz and Galasso (2005) model a pension system as the result of the support of retirees and low-income workers. The latter support the system because of its redistributive component that redistributes from rich to poor. The interest group approach focuses explicitly on the political competition between groups in society. If the elderly lobby is powerful enough, pension transfers that redistribute from young to old emerge as a result. In the model of Mulligan and Sala-i-Martin (1999), a pension system arises as the result of time-intensive competition. As the young are likely to become old and the old have lower labour productivity, the old have a larger incentive to use their time for political competition. An alternative interpretation is that the elderly are more single-minded, i.e. they have less diverse political goals. In addition to analyzing the two models above, the paper discusses them from an empirical and methodological point of view. Specifically, the controversial issue of applying economic methodology on political science is discussed. Finally, the thesis surveys political economy models that focus on the political sustainability of pension system reforms. Although the predictions on the potential for reform are pessimistic, recent empirical research suggests that the outlook may not be as gloomy as the models predict. Sources: Conde-Ruiz, J.I., Galasso, V., 2005: Positive arithmetic of the welfare state. Journal of Public Economics, 89, 933-955. Mulligan, C.B., Sala-i-Martin, X., 1999: Gerontocracy, Retirement, and Social Security. NBER working paper 7117, National Bureau of Economic Research. citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.200.5865&rep=rep1&type=pdf. Date: 26.4.2012.

Evolving technology, improvements in production co-ordination and new communication tools enable companies to offshore parts of their value chain to foreign locations with lower factor costs. Literature seems to highlight two effects of offshoring: the productivity effect, which stems from the gains from trade, and the terms-of-trade effect, which is linked with the vanishing effect of distance on wages. To examine the role of wages in both the offshoring and receiving parties, I choose two approaches, the static Heckscher-Ohlin model and the static and dynamic Ricardian model. With the dynamic version of the Ricardian model, I will consider the long-run effects. I will be using the dynamic Ricardian model to consider the long-run effects. In the HO-model there are two inputs, skilled and unskilled labour, and two countries: North, which has a technical advantage with skilled labour, and South, which has a technical advantage with unskilled labour. With offshoring, the activity without advantage can be transferred abroad. With sufficiently high differences in factor endowments, the countries specialize and the wages for both skilled and unskilled labour are higher in the country with comparative advantage in skilled labour. If both countries continue diversifying instead of specialising, the unskilled labour wages in the North eventually fall below those in the South. The Ricardian model examines the short and long-run effects of decentralized production (offshoring). Technology levels are fixed in the short-run version but endogenous in the long-run version of the Ricardian model. In the short run, a sufficiently large and unexpected increase in offshoring is harmful to the wealthy country (North) and beneficial to the poor country (South). However, in the long run, the adverse effects in the wealthy country could be overcome through reallocating resources into research. The negative short run terms-of-trade effect is weaker in the long run. Whether the long-run total effect is positive or negative to the rich country depends on the efficiency of the reallocation of labour from production into research, relative to the pace at which production is decentralized. Moreover, we see that in the long run, the poor country is worse off due to its focus on offshore production and services instead of research. Its benefit then depends only on the global efficiency effect though increased trade volumes.

Tutkimus tarkastelee työnhakua ja työllistymistä suomalaisilla työmarkkinoilla; eri työnhakutapojen käyttöä, työnhakuahkeruutta ja näiden vaikutusta työllistymistodennäköisyyteen. Työllistymistä tarkastellaan niin työllisten kuin ei-työllisten työnhakijoiden kohdalla. Näin ollen työllistymisellä tarkoitetaan uuden työn löytämistä. Tieto työnhakutapojen käytöstä ja niiden merkityksestä työllistymisen kannalta antaa uutta tietoa työmarkkinoiden toimivuudesta Suomessa. Taloustieteellisesti tutkimusaiheeni sijoittuu työn talous- ja etsintätaloustieteeseen. Teoreettisena lähtökohtana on Holzerin (1988) työnetsintämalli, jossa kullakin työnhakutavalla oletetaan olevan toisistaan poikkeavat kustannukset. Henkilö valitsee teorian mukaan ne työnhakutavat, jotka tuottavat suurimman odotetun hyödyn yli ajan. Oletus, että henkilö käyttää hänelle tehokkaimpia, ja siten hyötyä maksimoivia, työnhakutapoja ei saa vahvaa tukea tämän tutkimuksen tuloksista. Empiirinen tarkastelu tehdään Tilastokeskuksen työvoimatutkimuksen aineistolla vuosilta 2004–2006. Aineisto on pitkittäisaineisto, jossa kutakin haastateltavaa on pyritty haastattelemaan viisi kertaa. Haastateltavat ovat iältään 15–74-vuotiaita. Työvoimatutkimuksen aineisto rajataan tässä tutkimuksessa niihin henkilöihin, jotka ovat jollakin haastattelukerralla ilmoittaneet hakeneensa töitä. Aineisto on aiempiin työnhakuun liittyviin tutkimuksiin verrattuna varsin kattava. Tilastollisista menetelmistä työssä käytetään binääristä ja järjestysasteikollista logit -estimointia. Tutkimuksessa havaitaan, että erityisesti iällä ja kotiseudulla on merkitystä työnhakukäyttäytymisen ja työllistymisen kannalta; nuoret ja pääkaupunkilaiset hakevat töitä ahkerammin ja myös työllistyvät todennäköisemmin. Kansainvälisesti poikkeavaa on, että sosiaalisten verkostojen käyttö työnhaussa ei ole tulosten mukaan yleisin tapa hakea töitä. Tässä viitatut lähteet: Holzer, Harry J. 1988. Search Method Use by Unemployed Youth. Journal of Labor Economics, 6(1), s. 1–20.

In this thesis I want to use Monte Carlo simulation to get profits data of different power plants in America to help investors to make investment decisions. Because now electricity market already has changed into a new period which can be called liberalization. During liberalization electricity market investors must face investment risks themselves. Investors cannot give investment risks to consumers any more (Ropues, Nuttall & Newbery, 2006, p.3), which they can do before liberalization. So it is necessary to find a new way that can analyze variable risks properly. I choose nuclear power plant, natural gas power plant and coal power plant. First step I use sensitivity analysis to find out the biggest factors which can influence the values of the NPV of the three power plants. Second step I get the three power plants’ distributions of NPV. Third step I get the distributions of PI of the three power plants. During the Monte Carlo simulations of NPV analysis I make a conclusion that in the case of 10% discount rate natural gas power plant is the best choice and at 5% discount rate it is unclear natural gas or nuclear is the best choice. During Monte Carlo simulations of PI analysis I find that at 5% discount rate it is unclear which of the three power plants is the best choice and at 10% discount rate it is unclear coal or natural gas is best choice. Then I make portfolios analysis. The last part I analyze risk factors of investing in coal, natural gas and nuclear power plants. So the investors who want to invest in American power plants get a very good help from my analysis. They can do the final investment decision according to their own risk appetite on the base of my analysis.