Browsing by Author "Haaparanta, Pertti, Prof., Aalto University, Department of Economics, Finland"

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    Endogenous Technological Progress and the Macroeconomy: Stagnation, Low Interest Rates and the Productivity Slowdown
    (Aalto University, 2019) Schmöller, Michaela; Kilponen, Juha, Bank of Finland, Finland; Ripatti, Antti, University of Helsinki, Finland; Välimäki, Juuso, Aalto University, Finland; Taloustieteen laitos; Department of Economics; Kauppakorkeakoulu; School of Business; Haaparanta, Pertti, Prof., Aalto University, Department of Economics, Finland
    This dissertation consists of an introductory chapter and three self-contained essays which share the common theme of endogenous technological progress in macroeconomic models. The first essay presents a model of a currency union with nominal rigidities and endogenous growth in which pessimistic expectations can generate permanent slumps. Stagnation evolves as a growth trap under constraints on the central bank's policy rate: Monetary policy cannot restore full employment since weak growth depresses aggregate demand, pushing the policy rate against the constraint. Growth is low in turn as weak demand reduces firm profits and R&D investment. The currency union can settle in a stagnation steady state at the zero lower bound in which stagnation prevails on the monetary union level. A sufficiently small member state can idiosyncratically face stagnation while the rest of the currency union maintains full employment and sound technology growth when the central bank is constrained by its responsibility for the aggregate. Bilaterally implemented R and D subsidies can prevent stagnation in the currency union. Essay 2 analyses the procyclicality of euro area total factor productivity and its role in business cycle amplification by estimating a medium-scale DSGE model with endogenous technology growth on euro area data. The endogenous TFP mechanism induces a high degree of persistence in the euro area business cycle via a feedback mechanism between overall economic conditions and productivity-enhancing investments. Decelerating innovation due to a fall in R and D efficiency constitutes a key driver of the euro area productivity slowdown pre-crisis. As of 2008, a crisis-induced drop in technology adoption is identified the most important factor. The response of inflation is dampened under endogenous productivity dynamics, helping explain both the negligible fall in euro area inflation during the crises and its sluggish increase in the subsequent recovery. In the third essay, I propose a two-sector endogenous growth model with heterogeneous sectoral productivity and nonlinear hiring costs to analyse the link between stagnant wages, sectoral resource misallocation and low productivity growth. An upward shift in employment, triggered for instance by a labor market reform, raises long-run growth of technology, productivity and real wages. In the initial phase, however, productivity and real wages stagnate as employment increases disproportionally in the low-productivity sector. Due to the inherent growth externality the competitive equilibrium is not efficient as firms fail to internalize the effect of their individual labor allocation on aggregate growth. Subsidies to high-productivity sector production can alleviate welfare losses along the transition path. JEL codes: E20, E22, E24, E32, E40, E52, O30, O42
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    Essays on Informal Practices, Foreign Direct Investment and Economic Development
    (Aalto University, 2019) Parviainen, Sinikka; Ledyaeva, Svetlana, Asst. Prof., Aalto University, Department of Economics, Finland; Gillanders, Robert, Asst. Prof., Dublin City University Business School, Ireland; Nilsson-Hakkala, Katariina, Research Institute of the Finnish Economy, Finland; Taloustieteen laitos; Department of Economics; Kauppakorkeakoulu; School of Business; Haaparanta, Pertti, Prof., Aalto University, Department of Economics, Finland
    This doctoral dissertation is a collection of three essays that study the relationship of informal practices with economic development using both micro- and macro-level approaches. The first essay is solely authored, and the latter two are collaborations. In the first essay, I study the use of non-monetary exchange between firms in Russia with a unique survey data set from the 2000s. The essay analyses whether the use of barter is based on strategic motives such as profit-seeking or dictated by circumstances and pure survival in a hostile business environment using a new econometric approach to the subject. The results indicate that on average, a larger size, private ownership, increased indebtedness and a decreased profit margin for firms in regions with a higher risk of crime are associated with the use of barter and offsets. However, increase in the use of barter is not related to regionalcrime risk but only to firm level indicators. Furthermore, larger firms and those that date prior to the demise of the Soviet Union or the 1990s are more likely to use barter and appear to mitigate falling profitability by utilising barter and offsets while these firms are not loss-making on average; implying that non-monetary exchange is used forstrategic purposes. In the second essay, we study the differences between perception and experience based indicators of corruption and their implied effects on attracting foreign direct investment into a given country. In our analysis, we show that while perceptions of corruption are significantly associated with the amount of foreign direct investment (FDI) that a country attracts, the actual experience on the ground is not significantly linked to attraction of FDI. We also find some evidence that greenfield investment is significantly associated with the experience of corruption while mergers and acquisitions are driven by perceptions. The third essay studies the relationship between corruption and the shadow economy at the sub-national level with firm-level data.  In the essay, we ask whether sub-national regions in which more firms say that corruption is a problem for their operations also have more firms claiming that the practices of informal sector competitors are a problem for their operations. Our finding that regions with a high share of firms holding the perception that corruption is a problem tend to have a high share of firms with the view that the shadow economy is q problem, and vice versa, is in line with the existing cross-country literature. Africa seems to be different, however, in that neither of these findings holds when we restrict our sample to sub-Saharan African countries.
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    Essays on Programme Impacts, Vulnerability and Welfare Measurement
    (Aalto University, 2018) Nyyssölä, Milla; Pirttilä, Jukka, Prof., University of Tampere, Finland; Taloustieteen laitos; Department of Economics; Kauppakorkeakoulu; School of Business; Haaparanta, Pertti, Prof., Aalto University, Department of Economics, Finland
    This dissertation consists of three essays on programme impacts poverty and vulnerability. The first essay examines the impacts of a conditional cash transfer program on vulnerability to poverty. The second essay studies the effects of development aid program on the poor in Mozambique, while the third essay develops an alternative vulnerability measure that incorporates aspects of Prospect Theory and in this setting, brings forth a new way to measure and compare social welfare empirically. The first essay explores for the first time, the impacts of the Mexican conditional cash transfer programme 'Progresa' on vulnerability to expected ultra-poverty (less than US$0.5 per day) using consumption and income. Different from traditional ex-post poverty measures, the paper explores the Vulnerability as Expected Poverty model (VEP) ex-ante that yields probability statements regarding vulnerability, the risk that an individual will suffer from poverty in the future. The results indicate that the treated population has lower levels of vulnerability to ultra-poverty (20 percentage points) and higher levels of expected consumption (17 log-percent) and income in the future (over 50 log-percent, when including transfers) compared to their untreated counterparts in the control group. Treatment effects on disadvantaged groups are even larger. This paper suggests that the expectations for better future livelihood of the treated people have clearly changed after the launch of the cash transfer programme. The second essay evaluates the impact of an intervention to improve farming techniques and food security in the Gaza area of rural Mozambique. We examine the impact of a group-based approach to technology adoption in subsistence agriculture, using panel data collected by our research team on over 200 households from treatment and control villages from 2008-10. The intervention was successful in encouraging vulnerable households to participate in farmers' groups, and the impacts on farming techniques, such as fertilizer use, are significant in the first treatment year. The impact on food security is mixed across indicators but similar in both treatment years and cannot be attributed to whether or not households adopted new technologies. The third essay examines the measurement of social welfare, poverty and inequality taking into account features that have been found to be important welfare determinants for people. Most notably, we incorporate reference-dependence, loss aversion and diminishing sensitivity – aspects emphasized in Prospect Theory – to social welfare measurement. We suggest a new notion of equivalent income, the income level with which the individual would be as well off, evaluated using a standard concave utility function, as he actually is, evaluated with a reference-dependent utility function. We examine the differences between standard poverty and inequality measures based on observed income and measures that are calculated based on equivalent income. These differences are illustrated using household-level panel data from Russia and Vietnam.
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    Essays on public economics
    (Aalto University, 2018) Paukkeri, Tuuli; Haaparanta, Pertti, Prof., Aalto University, Finland; Sarvimäki, Matti, Asst. Prof., Aalto University, Finland; Zinovyeva, Natalia, Asst. Prof., Aalto University, Finland; Pan, Yao, Assist. Prof., Aalto University, Finland; Pirttilä, Jukka, Prof., University of Tampere, Finland; Taloustieteen laitos; Department of Economics; Kauppakorkeakoulu; School of Business; Haaparanta, Pertti, Prof., Aalto University, Department of Economics, Finland
    This doctoral thesis is a collection of four essays in public economics that look at various public policies and their impacts on low-income and otherwise vulnerable individuals. The essays share the general aim of studying the effectiveness of public policies in achieving their stated goals. The first essay is single-authored by the candidate, and the latter three are collaborations with one or more co-authors. In the first essay, I use a unique dataset compiled from Finnish registers and surveys to provide a comprehensive characterisation of the take-up behaviour of Finnish welfare benefits (housing allowance and social assistance) using descriptive methods. I provide various stylised facts on take-up and discuss how income dynamics matter for understanding take-up and benefit targeting. The second essay focuses on the impact of information on benefit takeup. We study the information campaign in the context of the introduction of the guarantee pension program in Finland in 2011 and find that receiving a mailed information letter and application form significantly increased take-up compared to non-recipients. In the the third essay, we analyse the impact of employers’ disability insurance (DI) contributions on the incidence of disability pensions among their workers. Experience rating is used in DI in Finland in order to increase employers’ incentives to prevent disabilities among their workers. We use detailed data and an empirical strategy that allows us to identify the causal effect of experience rating on disability inflow. Our analysis finds that the policy is not effective in reducing disabilities. The fourth essay uses a theoretical framework to provide optimal tax and transfer rules for poverty reduction in developing countries. We modify the standard optimal tax framework by restricting tax instruments to be linear, which are more feasibly implemented in countries with a lower administrativecapacity. We show that when we change from the standard objective of welfare maximisation to that of poverty minimisation, which better depicts the concrete objectives of such countries, the optimal tax and transfer rules are changed.