Browsing by discipline "Economics"

I have introduced the notion of absorptive capacity into an innovation-driven growth model. The model features firms with heterogeneous size and innovation capability. The economy`s aggregate output growth rate is driven by the growth of the productivity index of firm`s intermediate goods. There are firms already operating at least one active product line and potential entrants not owning a product line, but engaged in research in order to innovate and enter the economy. Each firm engages in R&D activities to improve upon existing intermediate good or to discover a completely new one. An incumbent firm may exit the economy exogenously and more importantly endogenously due to creative destruction or due to obsolescence. The consideration of the firm`sabsorptive capacity in Cohen and Levinthal`s sense shaped the specifications of the innovation production functions for entrants and incumbents. I have set a proxy for the firm`s absorptive capacity that considers the quality level of active product lines owned by the firm, their number and their closeness. Then, incumbent firm`s absorptive capacity confers to the it an innovation efficiency advantage compared to potential entrant, in improving upon its own product lines or in innovating in a product line not existing in its portfolio. For potential entrants, the average quality level of intermediate good in the economy acts as an extra difficulty they must overcome since the did not participate in building that economy`s average level of quality, and lack then the absorptive capacity that an average incumbent firm in the economy would possess. Although the general structure of the equilibrium growth rate obtained is the same as in the basis model (Acemoglu et al. 2013), however, the content of incumbents` rate of innovation and the rate of entry for potential entrants is different and more likely to deliver different values in equilibrium. This framework may be useful in studying empirically the effects of R&D subsidies on economic growth and lead to different results obtained by the main reference article, that found that subsidies to incumbents`R&D are pervasive for the growth of the economy.

This thesis researches empirically, whether variables that are able to reliably predict Finnish economic activity can be found. The aim of this thesis is to find and combine several variables with predictive ability into a composite leading indicator of the Finnish economy. The target variable it attempts to predict, and thus the measure of the business cycle used, is Finnish industrial production growth. Different economic theories suggest several potential predictor variables in categories, such as consumption data, data on orders in industry, survey data, interest rates and stock price indices. Reviewing a large amount of empirical literature on economic forecasting, it is found that particularly interest rate spreads, such as the term spread on government bonds, have been useful predictors of future economic growth. However, the literature surveyed suggests that the variables found to be good predictors seem to differ depending on the economy being forecast, the model used and the forecast horizon. Based on the literature reviewed, a pool of over a hundred candidate variables is gathered. A procedure, involving both in-sample and pseudo out-of-sample forecast methods, is then developed to find the variables with the best predictive ability from this set. This procedure yields a composite leading indicator of the Finnish economy comprising of seven component series. These series are very much in line with the types of variables found useful in previous empirical research. When using the developed composite leading indicator to forecast in a sample from 2007 to 2009, a time span including the latest recession, its forecasting ability is far poorer. The same occurs when forecasting a real-time data set. It would seem, however, that individual very large forecast errors are the main reason for the poor performance of the composite leading indicator in these forecast exercises. The findings in this thesis suggest several developments to the methods adopted in order to produce more accurate forecasts. Other intriguing topics for further research are also explored.

Pro gradu on suoraa jatkoa kandidaatintutkielmalle, jonka tutkimustulosten mukaan metropolialueella on yhteensä noin 63 000 aseiden hallussapitoon oikeutettua henkilöä sekä noin 170 000 ampuma-asetta. Lukuihin perustuen voitiin todeta, että ampumaratojen määrä ja saavutettavuus eivät ole missään suhteessa riittävät ampuma-aseen hallussapitoon oikeutettujen henkilöiden ja aseiden lukumäärään nähden tällä alueella. Pro gradu -tutkimus pyrkii tuottamaan uutta lisätietoa metropolialueen ampumaratakeskusten saavutettavuudesta, niiden kilpailullisista vaikutusalueista ja suhteellisista sijainneista, jotta ampumaratakeskuksia koskevia sijainti-, investointi- ja kehittämispäätöksiä voidaan tehdä riittävin tiedollisin perustein. Potentiaalisen käyttäjäkunnan sijainti- ja saavutettavuustiedot tuottavat osaltaan perusteita ampumaratakeskusten kysynnän arvioinnille. Tutkimus tarkastelee saavutettavuuden teoriataustaa sekä palvelukohteen maantieteellistä saavutettavuutta useasta eri näkökulmasta ja kehittää tarkoitukseen soveltuvia uusia teknisiä arviointimenetelmiä. Tutkimuksen empiirisessä osassa tarkastellaan metropolialueen ampumaratakeskusten eri maksimimatka-aikoihin perustuvia saavutettavuusvyöhykkeitä sekä väestön ja potentiaalisen käyttäjäkunnan vastaavia saavutettavuuskertymiä ja vertaillaan näitä toisiinsa. Tämän lisäksi vertaillaan tutkimusta varten kehitettyjä, kunkin ampumaratakeskuksen ulkoisiin käytettävyysrajoitteisiin perustuvaa kilpailullista saavutettavuutta ja suhteellista sijaintia toisiinsa nähden. Ampumaratakeskusten käytettävyyskerroin eli yhtäaikainen käyttäjäkapasiteetti, vuotuiset käyttöajat ja ampumaratavalikoiman monipuolisuus otetaan mallissa huomioon asiakkaiden palvelukohteen valinnan päätösperusteena matkakustannusten lisäksi. Käytettävyyskertoimen tavoitteena on kuvata ampumaratakeskuksen käyttäjilleen tuottamaa hyötyä. Tutkimuksessa hyödynnetään valtakunnallisen aseluparekisterin tietoja aseluvanhaltijoiden sekä ampuma-aseiden määristä, laadusta ja sijainnista kunnittain metropolialueella. Karttaesitysten toteutuksessa on käytetty Maanmittauslaitoksen Kuntajako-aineistoa, sekä Tilastokeskuksen Ruututietokanta 2012 -väestöaineistoa. Lisäksi on muodostettu erillinen saavutettavuusaineisto laskemalla todelliset matka-ajat ja maantie-etäisyydet jokaisesta karttaruudusta jokaiseen ampumaratakeskukseen. Tutkimustulosten julkista, ajasta ja paikasta riippumatonta raportointia ja jakamista varten on tutkimukselle rakennettu internet-julkaisualusta osoitteessa www.saunalahti.fi/villemai/. Tarkastellut viisi ampumaratakeskusta muodostavat tutkimuksen metropolialueen kokonaisuuden. Ampumaratakeskusten verkosto muodostuu keskusten ja niiden potentiaalisen käyttäjäkunnan sijainneista sekä näiden välisistä matkakustannuksista ja eri keskusten tarjoamasta käytettävyydestä. Tätä kokonaisuutta on nyt ensimmäistä kertaa mahdollista tarkastella matemaattisten saavutettavuusmallien avulla laskettujen tulosten pohjalta. Tutkimuksella on pystytty tuottamaan eri näkökulmista tärkeää uutta ja ennen julkaisematonta tietoa metropolialueen ampumarataverkostosta. Uusimpaan saavutettavuusteoriaan perustuen tutkimus käsittelee kaikkia neljää saavutettavuuden eri komponenttia. Maankäytön komponentti huomioidaan sekä potentiaalisten asiakkaiden että ampumaratakeskusten määrän, laadun ja sijainnin suhteen. Näiden lisäksi huomioidaan kysynnän ja tarjonnan kohtaaminen kapasiteettirajoitusten vallitessa. Liikenteellisen komponentin matkakustannukset otetaan huomioon maantie-etäisyyksien ja ajoaikojen muodossa. Ajallinen komponentti sisältää ampumaratakeskusten aukioloaikojen aiheuttamat rajoitteet saavutettavuudelle. Yksilöllistä komponenttia tarkastellaan virka-ajan asettamina ajankäytön rajoitteina. Tutkimustulokset osoittavat kiistatta Helsingin Kivikon urheilupuistoon suunnitellun suursisähallin vahvimmaksi ampumaratakeskukseksi nyt vertailtujen olemassa olevien ja suunniteltujen keskusten joukossa metropolialueella. Tähän on monia syitä, joista tärkeimmät ovat keskuksen paras sijainti suhteessa sen potentiaalisiin käyttäjiin ja tieverkkoon sekä paras tehokkuus eli hyötykerroin laajaan ympärivuotiseen aukiolomahdollisuuteen perustuen. Ampumarataverkostoon kohdistuvat laajennukset sekä olemassa olevien kohteiden edelleen kehittäminen on metropolialueella välttämätöntä. Uusinvestoinnit ja olemassa olevien keskusten kehitystoimet on syytä asettaa tärkeysjärjestykseen hankkeiden tuottaman tehokkuuden ja vastaavasti lisääntyvien käyttöhyötyjen perusteella. Väistämättä rajallinen rahoitus on syytä kohdistaa edellä mainituin perustein, koko metropolialueen tasapainoinen maantieteellinen saavutettavuus huomioiden.

Modern-day economics is increasingly biased towards believing that institutions matter for growth, an argument that has been further enforced by the recent economic crisis. There is also a wide consensus on what these growth-promoting institutions should look like, and countries are periodically ranked depending on how their institutional structure compares with the best-practice institutions, mostly in place in the developing world. In this paper, it is argued that 'non-desirable' or 'second-best' institutions can be beneficial for fostering investment and thus providing a starting point for sustained growth, and that what matters is the appropriateness of institutions to the economy’s distance to the frontier or current phase of development. Anecdotal evidence from Japan and South-Korea is used as a motivation for studying the subject and a model is presented to describe this phenomenon. In the model, the rigidity or non-rigidity of the institutions is described by entrepreneurial selection. It is assumed that entrepreneurs are the ones taking part in the imitation and innovation of technologies, and that decisions on whether or not their projects are refinanced comes from capitalists. The capitalists in turn have no entrepreneurial skills and act merely as financers of projects. The model has two periods, and two kinds of entrepreneurs: those with high skills and those with low skills. The society’s choice of whether an imitation or innovation – based strategy is chosen is modeled as the trade-off between refinancing a low-skill entrepreneur or investing in the selection of the entrepreneurs resulting in a larger fraction of high-skill entrepreneurs with the ability to innovate but less total investment. Finally, a real-world example from India is presented as an initial attempt to test the theory. The data from the example is not included in this paper. It is noted that the model may be lacking explanatory power due to difficulties in testing the predictions, but that this should not be seen as a reason to disregard the theory – the solution might lie in developing better tools, not better just better theories. The conclusion presented is that institutions do matter. There is no one-size-fits-all-solution when it comes to institutional arrangements in different countries, and developing countries should be given space to develop their own institutional structures that cater to their specific needs.

This thesis examines the potential fungibility of foreign assistance to the Government of Nepal using two methods: an econometric model and a modified ORANI-G, a Computable General Equilibrium (CGE) model. I use the econometric model to corroborate the findings of the CGE model and to determine whether such a model can produce credible empirical evidence on aid fungibility. Both models indicate presence of general and categorical fungibility, and non-additionality in the use of aid in Nepal. I begin with a partial equilibrium econometric model to estimate government expenditures using a Seemingly Unrelated Regression (SUR). At the sectoral level, categorical aid is prone to reshuffling generating overall negative development investments in most of the sectors. At the aggregate level, a unit of aid produces a meagre 0.33 units of additional development expenditures in the Nepalese government budget. In addition, aid partially finances non-development expenditures, but only slightly enhances the governments’ own revenue effort. Next, I utilize the ORANI-G model with a Klein-Rubin functional form for government behaviour, rigidities in the labour market, and some additional parameters to study aid fungibility in Nepal. This produces results that are analogous to the econometric model. Foreign assistance to Nepal exhibits a high level of general and categorical fungibility, with an insignificant increase in revenue collection. Overall, a unit of aid stimulates only a 0.45 units of additional development expenditures in the Nepalese government budget. In using the CGE model to study fungibility, this thesis develops a new method of analyzing the research question whereas, previous studies use models in a partial equilibrium setting, failing to account for decision-making processes of the government. This thesis is an attempt to expand on the existing literature by introducing CGE models in the study of aid fungibility and to motivate further study into fungibility using CGE modelling.

Tutkimus käsittelee asuntojen hintojen muodostumista pääkaupunkiseudulla vuoden 2016 asuntokauppa-aineiston avulla. Hintoja tarkastellaan aluksi koko pääkaupunkiseudun tasolla, jonka jälkeen siirrytään vertailemaan hintojen muodostumista kaupunkien välillä. Pääkaupunkiseudulla on Helsingin keskustan lisäksi useita pienempiä kaupunkikeskuksia, joten asunnot on jaettu lähimmän kaupunkikeskuksen mukaan alueisiin. Etäisyysmuuttujat lähimpään kaupunkikeskukseen ja Helsingin keskustaan on luotu julkisen liikenteen ja henkilöauton matka-ajan keskiarvoa käyttäen. Etäisyys kaupunkikeskukseen antaa koko pääkaupunkiseudun tasolla ristiriitaisia tuloksia, joten tarkastelin, kuinka eri kaupunkikeskukset ja niiden etäisyys vaikuttaa asuntojen hintoihin. Tulokset osoittavat, että kaupunkikeskuksen laatua voidaan tarkastella etäisyysmuuttujan kertoimen perusteella, sillä parempien kaupunkikeskuksien läheisyydessä asunnot ovat kalliimpia ja hinnat laskevat etäisyyden kasvaessa keskustaan. Heikommissa kaupunkikeskuksissa tilanne on päinvastainen. Syitä tälle ovat kaupunkikeskuksien positiivisten ja negatiivisten vaikutusten nettoarvo. Löysin kuitenkin merkittävän havainnon sosioekonomisista muuttujista. Teorian mukaan ihmiset muuttavat asuinalueelle, jossa asuu heidän itsensä kaltaisia ihmisiä. Muodostin sosioekonomisista muuttujista eli tuloista, työttömyysasteesta ja koulutusasteesta mittarin, joka kuvastaa kaupunkikeskuksen sosioekonomista sijoitusta. Tulosten perusteella Tapiola ja Helsingin keskus ovat korkeimmilla sijoilla, kun taas Koivukylä ja Hakunila ovat viimeisillä sijoilla. Lähimmän kaupunkikeskuksen etäisyysmuuttujan kerroin korreloi erittäin voimakkaasti sosioekonomisen sijoituksen kanssa. Muutamia poikkeuksia selittivät keskustan ulkopuolelle rakennetut uudet asunnot, jolloin rakennusvuoden merkitys on näissä tapauksissa sosioekonomista asemaa voimakkaampi. Helsingin keskustan etäisyyden merkitys on teorian ja tulosten perusteella erittäin suuri. Tuloksien perusteella ydinkeskustan välittömässä läheisyydessä asuntojen hinnat ovat noin 60 prosenttia kalliimpia kuin yli 45 minuutin etäisyydellä. Tuloksien perusteella Helsingin keskustaan 1990-luvulla liittyneet negatiiviset ulkoisvaikutukset ovat vähentyneet tai mieltymykset ydinkeskustassa asumiseen ovat muuttuneet, koska ydinkeskusta-asuntojen arvostus on kasvanut suhteellisesti eniten pääkaupunkiseudulla 1990-luvulta. Rakennusvuoden vaikutus on myös erittäin merkittävä asunnon hintaan. Hinnan ja rakennusvuoden välinen suhde ei ole lineaarinen vaan muistuttaa enemmän U-muotoa, koska vanhimmat ja uusimmat asunnot ovat kaikkein kalleimpia. Tulosten perusteella hinnat ovat matalimmat 1960- ja 1970-luvuilla rakennetuissa asunnoissa. Vuonna 1997 tehdyn tutkimuksen mukaan matalimmat hinnat vastaavalla aineistolla löytyivät 1940-luvulta, vaikka 1960- ja 1970-luvun asuntoja pidettiin jo silloin heikkolaatuisina ja arkkitehtuurisesti merkityksettöminä. Teorian mukaan 1940-luvun asuntojen hinta selittyi rakennusmateriaalien heikolla laadulla, ihmisten mieltymyksillä ja arkkitehtuurilla. Aikakauden asuntojen arvostus on kasvanut, mutta tulosten perusteella suurin selittävä tekijä löytyy suurista peruskorjauksista ja putkiremonteista. Putkiremontti tehdään keskimäärin 50 vuoden välein, jolloin 1990-luvulla tehdyn tutkimuksen ajankohtana putkiremontit kohdistuivat juuri 1940-luvulla rakennettuihin asuntoihin ja tällä hetkellä remontit kohdistuvat 1960- ja 1970-luvuilla rakennettuihin asuntoihin.

There are over 100 billion searches on Google every month. This thesis examines whether Google search queries can be used to predict the present and the near future unemployment rate in the US. Predicting the present and near future is of interest, as the official records of the state of the economy are published with a delay. To assess the information contained in Google search queries, the thesis compares a simple predictive model of unemployment to a model that contains a variable, Google Index, constructed from Google data. In addition, descriptive cross-correlation analysis and Granger non-causality tests are performed. To study the robustness of the results, the thesis considers state-level variation in the unemployment rate and Google Index using a fixed effects model. Furthermore, the sensitivity of the results is studied with regard to different search terms. The results suggest that Google searches contain useful information on the present and the near future unemployment rate. The value of Google data for forecasting purposes, however, tends to be time specific, and the predictive power of Google searches appear to be limited to short-term predictions. The results demonstrate that big data can be utilized to forecast economic indicators.

The aim of this empirical study is to analyse whether announcements by Moody’s, Standard and Poor’s and Fitch Ratings regarding the credit rating of Ukraine and Russia can explain the movements in the yield spreads on their government bonds during 1st January 2010 – 6th February 2015. The motivation for this research question derives from the results of previous empirical studies, which have found that announcements by the three credit rating agencies regarding the sovereign rating of a country impact the country’s borrowing costs. Particularly negative rating news, concerning either a downgrade or the assignment of a negative outlook to the rating, have been found to impact yield spreads, leading to increased borrowing costs for the country. Against this background, this study analyses whether the many negative announcements from the credit rating agencies regarding the Ukrainian and Russian sovereign ratings can explain the large increases in the countries’ government bond yield spreads since 2010. The methodology used in the empirical study is based on regression analysis, which incorporates an event study through the use of dummy variables. The overall findings indicate that announcements from the rating agencies affect the government borrowing costs of the country concerned, as the results show a statistically significant impact of the announcement events on the country’s bond yield spreads. However, as the impact of the events on the yield spreads is considerably smaller in magnitude than the movements in the spreads, the results indicate that factors other than the rating agency announcements are driving the large increases in the Ukrainian and Russian borrowing costs. The conclusion of the study is therefore that although some of the announcements are found to be statistically significant, the rating events alone cannot explain the movements in the yield spreads on the countries’ government bonds during 1st January 2010 – 6th February 2015. Contrary to previous studies, the results show no clear evidence that negative events affect yield spreads to a greater extent than positive events. There is also no considerable difference in the impact on the yield spreads between announcements by the different agencies. In terms of the magnitude of the impact of rating events on yield spreads, the results of this study are largely in line with previous findings in the literature. The analysis of the relationship between credit rating announcements and government bond yield spreads for Ukraine and Russia since 2010 presented in this paper is divided into five chapters, which approach the research question from different perspectives. Chapter one provides the necessary background for the analysis and offers a theoretical explanation for why announcements by the rating agencies may impact the yield spreads on a country’s government bonds. Chapter two presents an overview of the empirical literature on the topic; three previous papers which use event study analysis to investigate the impact of rating agency announcements on government yield spreads are discussed and evaluated. Against this background, chapter three describes the empirical methodology used in this paper to study the relationship between Ukrainian and Russian credit rating announcements and yield spreads; the data set on which the analysis is based is introduced in chapter four. The results of the analysis are discussed in chapter five, followed by concluding remarks.

Greenhouse gases can be considered as negative externalities that harm the climate. Externalities can be internalized by setting a tax equal to the marginal damage from the externality; a lesson taught by Pigou already a hundred years ago. Carbon pricing has long been seen as the most prominent tool to fight climate change. In recent decades there have been efforts to agree on a global carbon emission reductions. Although international agreements have been implemented, most of those have lacked either effective quantity goals or adopting of global carbon price. The failure of global agreements is ambiguous, but a tendency to trust on countries altruism in agreeing on costly emission reductions has hardly helped. There are already numerous scientists who have suggested that adopting a single global carbon price would be both relatively easily agreed and sufficient as a tool to restrict global carbon emissions. By adopting a mutual price for carbon, the national authorities would be left with implementing the emission reductive policies. As some countries and unions have adopted carbon pricing schemes, knowledge on the effectivity of those instruments are beginning to emerge. Carbon taxes and cap and trade systems are common mechanisms to implement carbon pricing and in optimal settings, the outcomes of the instruments will be identical. Nevertheless, in practise the outcomes of the instruments depend on the regulative authority’s capability in estimating an effective level for the tax or the emission cap. It is suggested that it is easier to reach an international agreement of a price rather than quantity measure. Although a global single carbon price would likely represent a compromise, having a shadow value of carbon can help in knowing price ranges given by modern models that combine climate science with economical approaches. With carbon taxes the national authorities gain tax revenue, which is a specific benefit with taxes over emission caps. This revenue recycling makes interactions of carbon taxes and specifically labor taxes especially important to investigate. This study goes through the backgrounds of carbon pricing in the perspectives of international agreements, efficiency, modern integrated assessment models and their estimates for the social cost of carbon. Further, we will go through a simple model which shows the interactions of environmental taxation and the economy. The guiding light of the study is especially Weitzman’s (2014) idea of the single carbon price. The study aims on combining the knowledge on carbon pricing and pointing to the urgency for emission mitigative actions to be made.

The cross-country co-movements of economic variables have been documented in the macroeconomic research. This phenomenon has puzzled researchers in the field of dynamic stochastic general equilibrium (DSGE) models because the early DSGE models have had challenges in replicating the co-movements of outputs. The thesis approaches the cross-country co-movements of output cycles in DSGE models by introducing correlation to technology shocks. The objective is to study if the correlation in the technology shocks enhances the model's ability to capture the cross-country correlations of empirical data. The thesis presents a two-country DSGE model that is constructed using the results of Galí and Monacelli (2005). The original model of Galí and Monacelli is a small-country model, and in the thesis it is demonstrated how the model is re-constructed as consisting of two large economic regions. Another important modification to the original model is that the thesis presents a distinctive shock process that allows the technology shocks to correlate. This is done by adding a foreign technology shock variable to the domestic technology shock process. The final model is presented as a system of thirteen equations and, as a solution to the system, the dynamics of the model are observed. The results from the model show that the two-country model with correlated shock processes is able to replicate the cross-country correlations of empirical data well. This result is compared to the benchmark model with no shock correlations and the comparison reveals that although the benchmark model succeeds in replicating the cross-country correlations between inflations and nominal interest rates, it does not produce as high output gap correlation as the model with correlated shock processes. The difference between these models is caused by the distinctive shock processes. The technology shocks affect directly the potential output and the real output adjusts slowly as a response to the changes in the expectations. This causes the dynamics in the output cycle. The results of the thesis show evidence that introducing correlation between country-specific technology shocks can enhance the models ability to produce realistic cross-country output co-movements. This result should apply to other models that follow the framework of Galí and Monacelli. The generalization of the results could still be studied further. In addition, including new features to the model would allow for examination of wider variety of shocks.