Research Projects Completed in 2016 at the Faculty
30 March 2017
In 2016 there were 58 research projects (national and international subsidiary: 14 081 474 PLN) conducted at the Faculty of Economic Sciences. Please find the list of the projects completed in 2016 below
Income Redistribution and Public Debt (Statistically-Econometric Approach). Conclusions as Regards Stabilising and Reducing Public Debt
In the theoretical part of the project, it is shown that public debt can be expressed as a function of average social benefit rate and average income tax rate, which are the components of redistributive effect of tax-benefit system. Hence, there exists a link between public debt and tax-benefit system redistributive impact.
The empirical part of the project identifies redistributive effect of social benefits and income tax for the European Union countries in 2004-2014, according to formula introduced by Aronson et al. (1994) and Lambert and Pfähler (1988). The main finding is that, although in all member states both benefits and tax reduce income inequality, countries vary in their levels of overall redistributive effect. There is no correlation between the original income Gini coefficient and redistributive effect of tax-benefit system, that is countries with more unequal original income distribution do not have more (less) redistributive fiscal systems.
Dynamic panel data model of public debt-to-GDP ratio is estimated as well, and it is done in order to capture the extent to which the pre-fiscal income Gini coefficient for the EU countries alters the explanatory variable (the system GMM estimator introduced by Arellano and Bover (1995) and developed by Blundel and Bond (1998) is used). The results reveal that, controlling for lagged dependent variable, government total revenue, non-social government expenditure, GDP per capita, long-term interest rate and country and time specific effects (unobserved), public debt adjusted by the size of the economy is positively and statistically significantly influenced by the pre-government income Gini coefficient (the 0.01 significance level). The conclusion is robust to several model specifications.
Project indicates a need for further research on the links between income inequality, income redistribution, public social spending, public deficit and public debt. In particular, it stresses a need for further studies on different income inequality measures from the point of view of their usefulness in the analysis (the problem of sensitivity of different income inequality measures to income transfers in the bottom part of income distribution).
The project entitled “Poverty and inequality in various dimensions of well-being – the study of distributions of income, happiness and health” was devoted to studying poverty and inequality in terms of incomes, happiness and health. The main results of the project are the following:
Inequality of opportunity for income, understood as the dependence of received incomes on circumstances independent from a given individuals (such as, gender, education and occupation of parents, ethnic group et.) has increased over 2004-2010 in several European countries including Belgium, Greece, Spain, Hungary and Slovakia. In these countries, the largest deterioration in terms of opportunity-deprivation occurred for immigrants, whose fathers worked in low- and medium-skilled occupations. These results can be used in further research on the relation between equality of opportunity and social conflict and radicalization of some social groups with immigrant roots.
The last global economic crisis has increased income inequality in such countries of Central and Eastern Europe as Bulgaria, Estonia, Hungary and Slovenia. For other countries, including Poland, the recession did not have a negative impact on income inequality. An empirical study conducted within the project has shown that the main factor responsible for the growth in income inequality was played by decreasing spending on social benefits, which worsens incomes of people economically inactive. We did not find any evidence that changes in the incidence of temporary jobs had any impact on income inequality in Central and Eastern European countries during the recession.
For some countries, the recent global crisis had also an adverse impact on the incidence of low self-rated health, or self-rated health poverty. The project found that it increased significantly for Denmark, Germany, Finland France, Iceland, Italy, Luxemburg and the UK. Our decomposition analyses have shown that declining real incomes and full time employment rates as well as with growing material deprivation (lack of resources to fulfil material needs) can account for as much as 43-79% of the overall increases in low self-rated health in countries suffering from relatively large increases in low health rates (Denmark, Iceland, Italy and the UK).
The project has also studied trends in self-rated low happiness (or unhappiness) in Poland and Russia during the last 25 years. We have found spectacular declines in unhappiness rates ranging from a 56 % fall for Poland to 46-75% decreases for Russia. The analysis of the determinants of unhappiness reduction have shown that it was mostly driven by income growth, which accounted for about 15% of the total unhappiness-protecting factor, while in Poland in-come has been losing protecting power, so that in overall income had an unhappiness-increasing effect. For Russia, another strong unhappiness-protecting factor was return to employment. In case of Poland, good self-rated health and having children explained between 15 and 20% of the unhappiness reduction.
The transformation of the Polish economy from a centrally planned to a market economy was characterized by significant changes in employment in the public sector. State-owned enterprises either collapsed or were privatized leading to an outflow of workers. At the same time, the private sector was growing quickly, creating new jobs for workers flowing from public sector (either directly or with an unemployment or inactivity spell). The second important feature of the transformation process of the Polish economy was the significant increase in employment in the service sector, which according to the literature should happen at the expense of reduced employment in manufacturing while at the same time workers should flow to the service sector (Caballero and Hammour, 1996a 1996b). However, the empirical analysis conducted in this project indicates that employment in manufacturing remained relatively stable during 1989-2015. Moreover, data shows that flows of workers during the transition period in Poland are less due to flows from the public to the private sector and from manufacturing to services. The dominant role was played by demographic flows: entry of young people on the labour market after finishing education and exit of elderly people. Similar conclusions can be drawn for labour market flows in all transforming countries of Central and Eastern Europe and the Former Soviet Union (FSU).
One can also suspect that the above described flows are correlated with the business cycle - for example, flows from public to the private sector should decrease during recessions and increase during booms. However, based on research carried out in this project those flows in case of Poland were independent of the economic situation: both periods of faster and slower economic growth did not affect them. Only the trend for these flows is linked to the trend of economic growth. This has far-reaching implications for economic policy, especially labour market policies.
The quantitative analysis of literature (meta-analysis) for labour market flows in Central and Eastern European and FSU countries carried out in this project indicates that these flows had rather small and short-term effects on labour productivity. However, they had an effect on inequality by increasing it. Empirical analysis of the impact of labour market flows in the those countries on wages indicates that these flows increase wage dispersion. However, this dispersion is still smaller than in the case of developed economies.
In case of individual determinants influencing the probability of moving from employment to unemployment or inactivity our research, based on Polish Labour Force Survey data for 1995-2015, shows similar characteristics as those given in the literature. Older individuals, with lower education levels, living in smaller towns and rural areas and with shorter tenure are more likely to move from employment to inactivity. On the other hand, young people with primary or vocational education living in small towns, being single and with shorter tenure are more likely to move from employment to unemployment.
Caballero, R. J., Hammour, M. L. 1996a, On the ills of adjustment, Journal of Development Economics, Vol.51, No.1, pp. 161-192.
Caballero, R. J., Hammour, M. L. 1996b, On the timing and efficiency of creative destruction, The Quarterly Journal of Economics, Vol.111, No.3, pp.805-852.
The topic of this project was the economic transformation from communism to free market – one of the greatest experiments in the history. The aim of the project was to answer some fundamental questions related to the economic and social effects and corruption in the light of privatisation and reforms of the post communism economies. This is one of the most controversial topics of public discussion and the opinions vary as the corruption is on the one hand perceived as the heritage of the previous system, yet on the other hand it is claimed that corruption is the effect of inefficient transformation and due to regulator’s opportunism.
Our project analysed the problem of corruption theoretically and empirically. We showed a causal relations between privatisation, corruption, and other political and social factors. We used a theoretical model to formalise our predictions and verified them empirically.
Our results showed that the corruption is stable over time. It is therefore not surprising that various campaigns to prevent corruption are inefficient. We showed using empirical models based on game theory that corruption strategies are copied by civil clerks and firms that are in contact with corruption. Consequently, we proved that “corruption encourages corruptive behaviour” i.e. in the environment where corruption is common its payoff is high and the probability of being caught and punished is low therefore honest behaviour in the contact with civil clerks is an inefficient strategy. We also showed that post communism countries have high level of corruption, significantly higher than their development level would suggest.
We estimated that corruption poses a significant cost for the economy. Note that the effects of corruption are strengthened through open economy channel as investors are reluctant to invest in highly risky and uncertain economies. We showed also that interaction between privatisation and corruption had an effect on economic growth in post communism countries. The positive effects were only shown in countries that are relatively corruption free (i.e. countries that entered EU). In countries where corruption was common there was no such an effect.
Subsequently, we analysed the determinants of corruption in order to help to establish the policies that fight and prevent corruption. We have showed that post communism countries do not differ from other developing countries in a way that the determinants of corruption are the same. Therefore, the communism inheritance does not have a direct effect other that economic development delay and attachment to personal relations within the economy. These results were confirmed at the firm level fata, We showed that the main determinants of corruption are established by the government such as overregulation and limitations imposed on the firms, too frequent controls in particular if associated with personal contact with civil clerks and lower frequency of those contacts that would have the possibility of lowering the corruption. Therefore, it is key to simplify the regulations in order to minimise the personal contact with the civil clerks. Also, the direct contacts should be replaced by the e-administration.
Using Eurostat data extracted from EU SILC dataset for Poland and for other European countries, the research reveals that parenthood is an important factor affecting men’s and women’s labor market performance. The results for Poland suggest that motherhood leads to the reduction in women’s working time by app. 0.5 hour per week and to the drop in their wages of around 8-12%. In the case of men, fatherhood leads to longer working time (0.7 hour per week), but it is not associated with an increase in earnings. The analysis of the other European countries – both Western European, as well as Central and Eastern European countries, for which the research on the labor market effects of parenthood is still limited – reveals that family policies are important policy instruments shaping mothers position in the labor market. While greater childcare availability for children aged 0-3 is found to significantly reduce motherhood employment gap, longer maternity leaves and very long paid parental leaves lead to an increase of the gap. The effect of paid leaves is, however, subject to the degree of child care availability: when the childcare provision is insufficient, the leaves are not found to have as strong negative effects as it is the case when the childcare coverage is relatively high. Moreover, the results indicate that very long paid parental leaves, leading to a long absence from work, are associated with greater wage inequality among mothers and childless women.
This project “Benefits of Employment: Decomposition and Valuation” addresses one of the fundamental issues of labour market economics, i.e. modelling of the supply of labour and economic conditions of a contract between an employer and an employee. In particular, project undertakes the issue of worker’ heterogeneity in terms of their preferences for job characteristics and the impact of the worker’s personal characteristics and employment conditions on the decision to undertake employment. As it is argued in the contemporary labour supply theory, by undertaking job, an employee decides to exchange not only their time for wage (as it was seen by traditional neoclassical theory of labour supply), but rather to provide employer with their effort, skills, commitment, creativity, loyalty etc. in exchange for pecuniary and non-pecuniary benefits bringing them utility gains. This means that in adequate analysis of labour supply determinants, those non-wage benefits should be taken into account.
The study is innovative in two aspects. First, to date there has been no comprehensive study identifying worker preferences for different aspects of employment (comprehensive in terms of both sample size and the number of attributes taken into consideration). Second, this study uses discrete choice experiment (DCE) to analyse the behaviours of the labour market supply. The specificity of transactions in labour market makes this type of choice modelling an appropriate means of analysing behaviours related to accepting employment and employment conditions.
In addition to its academic value, the results of the study may contribute to the development of tools for use in the optimization of contract design and remuneration systems. The survey design allowed to estimate even respondent-specific parameters of utility function and willingness to pay for particular attribute. This might lead to improvements in efficiency of contracts in the labour market by simultaneously reducing employment costs and increasing worker utility.
The world economy is subject to a process of fragmentation, which involves dividing the production process into sub-processes and they can be performed in various countries. In the Central and Eastern Europe and in particular in the new EU member states (EU-10), the economic transformation and trade liberalization occurred together with the integration of their economies in to the international production processes, organized into the so-called global production chains or global value chains (GVC). This project was aimed at the assessment of the position of the new EU member states in the global value chains and the evaluation of the impact of exports and GVC participation on productivity and economic growth.
The project results show that in the analysed period of 1995-2011 in most of the economies of the world, the production has moved further away from final demand, which indicates that the overall number of production stages has increased. In the EU-10 group it has occurred as well, ie. Since the beginning of the 2000s, the distance from final demand has been going up. This growth was, however, slower than in the other economies mostly due to the fall of the importance of exports of natural resources. As a result, by the end of the period of analysis, the average structure of exports (as far as the distance from final demand is concerned), in EU-10 and in EU-15 was very similar. However in some sectors, there was a clear division of tasks. For example, in the production of transport equipment and in the production of machinery and equipment, the new EU member states production was concentrated on intermediate goods that were further away from final demand, while EU-15 production was concentrated closer to the final demand.
Fragmentation leads to an increasing use of intermediate imports in production of goods. It makes the assessment of the contribution of exports to GDP and GDP growth problematic, as only the generated value added contributes to GDP and the value of exports has to be corrected by the value of imports required to produce the exported products. This project uses modern measure of value added in exports in order to assess the importance of exports in economic growth in the analysed countries. The results show that the growth of exports contributes to roughly a half of Polish exports. In other economies (in particular in Czech Republic, Slovakia, and most importantly, in Hungary), the majority of economic growth in the analysed period was due to exports. In most of the analysed economies, around a half of total contribution of exports to GDP was due to exports in intermediate goods.
The project results also show an indirect association between international trade as well as participation in GVC with the growth of productivity of production. In the EU-10 countries there is a significant positive relation between productivity growth and intermediate goods imports. There is also a positive relationship between exports and productivity growth, however, in the EU-10 it is stronger further away from final demand. This means that a higher productivity growth is related to exports of intermediate goods than it is in the case of final goods. The productivity growth associated with the presence of foreign direct investment is, on the other hand, concentrated in the production of final goods.
Participation in GVC is also a source of productivity spillovers additional to the productivity spillovers from foreign direct investment. While the foreign firms are substantially more productive than the domestic ones (the productivity difference varies between 35% in Poland to 65% in Hungary), GCV participation is associated with a lower productivity gap. In the analysed new EU member states, the productivity of domestic enterprises goes up with their use of imported intermediates in their export output. In Poland those effects are higher for intermediate exports than in other analysed countries.
Gender equality at the University remains to be a hotly debated topic. While strong gender imbalance persists at the higher levels of academic hierarchy, identifying its causes is an empirical challenge. Thus studies find-tuned to disentangle carious completing explanations by means of experiments and innovative data modelling approaches are in high demand. The current project proposed and implemented several such approaches, proving viability of methods that can continue to be applied in the future to monitor equality of opportunity for males and females pursuing academic careers.
Detailed information about the project can be found at http://grape.org.pl/gendequ/
The question how to compare the standard of living of households with different demographic characteristics has been discussed in economics since the end of the 19th century. Since then, economists have developed many methods how to standard of living of households can be measured in comparable units. But so far none of them has gained universal acceptance. Of the three main methods – demand-based, expert and subjective – first one that uses expenditure data is considered to be the most correct one. However, it is not widely used due to data requirements. In practice, the modified OECD scale is the most commonly applied. The indicators of poverty and income inequalities based on that approach are often reported in the media and by politicians while claiming that “large families” are being the most vulnerable to poverty.
In the 70s and 80s researchers affiliated with the so-called “school Leyden” proposed to calculate and equivalence scale for households using the assessments of income included in surverys. Analysis conducted at that time indicated a large and interesting differences between the structure of subjective poverty and so-called objective poverty obtained by using the OECD scale. Our research confirmed these earlier findings. It turned out that the change of scale does not significantly affect the conclusion about the extent of poverty. The subjective poverty is slightly lower than the objective one in most European countries, regardless of wealth of level of economic development of the country. However, the choice of scale is important for the inference about the structure of poverty. According to the traditional approach (OECD scale) large households (eg. Those with 3 or more children) are the most at risk of relative poverty. A subjective approach indicates that small households, in particular the single person ones, are the most at risk of poverty.
Another form of equivalence scale is the implicit (or regulatory) scale resulting from the tax and benefit rules. Our research showed that the regulatory equivalence scale for the years 2006-2014 was very different to the OECD and subjective scale.
1. Main goals achieved
During the course of the project we have estimated for the first time in Poland regional prices deflators. As a matter of fact, we believe that so detailed price deflators were never estimated elsewhere. Price deflators are indices showing the differentials between prices of goods and services in different regions of the country. Still, we have estimated not only aggregate indices but also indices for main spending categories. Regional price indices can be used to show real differences in income or wages among particular regions. Up to now, that was not possible. Hence, the analyses were based on nominal data that caused some regions to seem richer and other to seem poorer than they really were.
We have also analyzed the impact of European integration on regional price differentials within the Visegard countries. Here we found that all regions of the Visegard countries would grow at slower pace of those countries did not join the EU. We also prove the impact of accession on the evolution of regional income inequalities although its magnitude differs significantly between countries. Among the factors related to the European integration this is the EU Cohesion Policy that really matters from the point of view of macroeconomic impact.
2. Significance of the project
The project seems to be important from the point of view of development of scientific field. Here, its results can be used in many other analyses focused on regional development. On the other hand, regional CGE models can be applied in projects aimed at evaluations of different macroeconomic policies. From the point of view of the society it means the possibility of better preparation of macroeconomic policies, in particular taking into account their regional impact. This in turn seems important taking into account long term macroeconomic strategy being currently prepared for Poland. Here, it seems that issued related to regional development are supposed to occupy one of the most important places in the policy agenda.
Addressing four persistent problems, namely human-induced environmental change, financial instability, inequality and unemployment has now become an urgent necessity. To better grasp complex interactions between technological, financial and energy systems, I proposed in the project a formal behavioral-evolutionary macroeconomic model. It described the coevolution of four populations, namely of heterogeneous consumers, producers, power plants and banks, interacting through interconnected networks. I examined how decisions by all these economic agents affect financial stability, the direction of technological change and energy use. The approach generated non-trivial, event surprising insights, such as that brand loyalty, captured by a network externality on the demand side, could increase the likelihood of bankruptcies of banks. Cascades of such bankruptcies were found to be more likely under greater income inequalities and higher electricity prices. I employed the model of assess macroeconomic impacts of sustainability policies along three dimensions: environmental effectiveness, financial stability and socio-economic consequences. The model generated novel insight into how sustainability policies affect the relationship between financial and electricity markets. For instances, it revealed conditions under which the concentration of large loans to energy companies in few banks could undermine financial stability. These effects have not been studied so far in the literature. Yet, they are of paramount importance for policymakers concerned with transitions to a low carbon economy. Moreover, an empirical study conducted in the project revealed that structural changes in the industry drove changes in the energy mix over 1950-2010, providing the evidence on the coevolution between energy and technological systems. Finally, and experimental study showed that intergroup cooperation could prevent collapse of the common-pool resources, which offered novel insight into the literature on the governance of commons, while illustrating the importance of the coevolution between resources and institutions. All in all, the evidence gathered in this project showed that without understanding of complex coevolutionary processes between technology, behaviors, resources, financial and energy system, our ability to steer their dynamics towards more sustainable path can be unnecessarily limited.
In the framework of conducted research project analiyses of occupational nad ectoral segregation of women and the Polish labour market were carried out. We analysed also wage disparties between men and woman in Poland among occupational groups, sectors and regions and the factors that determine them. To the bet of our knowledge, studies on the relationship between masculinization ratio and the degree of wage discrimination across occupational groups and on the relationship between the level of competition on regional labour markets and the degree of wage discrimination were the to the first time conducted for the Polish economy.
The comparative analyses of the characteristics of individuals on the basis of three publicly available databases (Labour Force Survey, Structure of Wages and Salaries by Occupation and the Household Budget Survey) allowed for the identification of differences between the databases and also for their explanation. Empirical studies carried out in the project have shown that theres affect that estimates of wage equation.
In order to improve the quality of data on wages of individuals in the Polish economy and important socio-demographic characteristics was created. Studies on the regional wage disparities between men and woman in Poland have confirmed that harmonized data allows for a more precise estimation of the size of a gender wage gap both in the whole country and at the regional level.
The analyses carried out in the project indicated that the degree of competition on the local labour market contributes to the most important factors determining the wages of men and women in Poland. It also affects the size of the gender wage gap. In more urbanized regions the differences in wages between men and woman are significantly lower than in rural areas.
Another important factor which determines the wage level in Poland is the level of education. Analyses conducted in the project indicated that a significant improvement in the level of education of women and the increase in their participation among managers and professional workers is one of the most important factors that may be responsible for a significant reduction in gender wage gap in Poland in the recent years.
Strong occupational and sectorial segregation in Poland is another important factor which differentiates wages of men and woman. The structure of employment in Poland indicates the dominance of woman in occupations and sections that are considered to be more feminine (health care and education) and the dominance of men in occupations and sectors that require more physical effort (construction). The analyses conducted in the project show an increase in concentration of female employment in female-dominated occupational groups over the past several years.
An important factor influencing the level of wages of individuals in Poland is also ownership sector. The research carried out in the project indicated that men employed in the private sector receive higher wages regardless of their income level. In the case of women, it turned out that for those with lowest income the benefits associated with employment are higher in the public sector; for women with higher income employment in the private sector was more profitable.
A major factor influencing the level of wages of men and women in Poland is the degree of masculinization of the occupational group. The lowest salaries are observed in the strongly female-dominated occupations and in those with almost balanced employment structure. In these occupational groups the differences in wages between men and women were also the lowest.
Among the tangible results of the project we can mention: six articles, four of which have been already published in international or national journals. The results of the analyses were also presented at seven international conferences, four national conferences and two seminars.
According to the authors knowledge, the results obtained in the project are of great importance for the development of the economy. A universal method of estimation wage equations which has been developed and a unique database of harmonized data on individual’ wages for the Polish economy, which has been created allowed for more precise estimates of rates of return on education and other factors determining wages of individuals.
The results of the project are a good basis for recommendations for the labour market policy and education system in Poland. The results of the project show that taking action to reduce occupational segregation of men and woman in Poland and strengthening of competition on the local labour markets may translate into a reduction in gender wage gap. The use of a harmonized database in forthcoming projects and its extension will allow to formulate further recommendations for economic policy.
The research project provided the detailed analysis of the impact of EU enlargement on the international trade performance of Visegard countries. Namely, we have examined trade geography of V-4, main destination of V-4 export flows, structure of the trade and the impacts of RTAs and CCP preceding as wheel as following the EU accessions in 2004.
Our analysis showed that EU enlargement had the positive impact on the trade performances of V-4. While revisiting the hypothesis of Richard Baldwin (1994) predicting formation of hub-and-spokes model and implying marginalization of V-4, our research showed quite opposite. Namely we have found that integration within the EU was quite beneficial for V-4 without giving the origin neither to their peripherisation nor to the loss of markets of the natural trade partners. Moreover, our analysis highlighted that V-4 broadly benefited from AAs and RTAs preceding 2004, and from CCP following the EU accession in 2004. Therefore our research underlined that EU enlargement hand significantly increased trade flows of V-4.
Additionally, while research on V-4 natural trade partners is not conducted systematically, we have elaborated the trade geography of Visegard countries by the closer look to the post-Soviet states. These countries are considered as the natural trade partners of V-4 since they share the common historical background. In the direction, our research provided significantly contribution in the literature by outlining that joining the EU did not distort V-4 from trading with their natural trade partners. Thus, our analysis indicated that despite the fact that due to CCP adoption V-4 could not keep any agreement with post-Soviet states, Visegard countries still maintained their trade relations with their natural trade partners.
Furthermore, together with keeping natural trade partners, V-4 not kept closed trade relations among themselves but intra V-4 trade moreover has boosted since the EU accession. Namely, our analysis demonstrated that since 2004, intra V-4 trade has been increasing much more than V-4 trade with other EU countries. Therefore, despite no active free trade area among V-4 (such as CEFTA), intra V-4trade was further accelerated due to the EU enlargement.
Moreover, our analysis of the trade structure highlighted that V-4 mainly gain comparative advantage in consumer goods and transport equipment. However, while analyzing export performances in high-tech sectors, our research showed that V-4 lag behind the EU 15: they mainly export products which are not human capital intensive and neither required high R&D spending. Therefore our analysis suggested that in order to catch up with the EU 15 in high-tech export performances, V-4 needs to increase investment in human capital and in R&D. Additionally in order to shift exports from low-income countries to the high-income countries, V-4 should also increase physical capital accumulation. This will ensure that in the long-run physical capital endowment of V-4 will be high enough to benefit from the trade with the advanced and innovator countries.
Our project begins with reimplementing and subsequent extension of classic multifactor asset pricing models in the global setting in an innovative way. These models have been estimated on a new sample, consisting of 81 investable equity indices from 81 countries (each corresponding to one country). Each individual index has been treated as a separate investment asset and has specifically been included in the sample on the ground of existence of an easy way to gain exposure to this index (e.g. through futures contract, opinion of ETF certificate). That is why our results can influence actual asset management and investment practice especially focused on asset allocation.
In our article, “Cross-sectional returns from diverse portfolio of equity indices with risk premia embedded”, we started from analysis of the four-factor Carhart model, which consisted of the following risk factors: market risk factor (calculated as an equally-weighted portfolio of 81 indices), value investing premium factor (premium from buying cheap indices according to book value relative to capitalization and selling the expensive ones), premium for investing in indices with small capitalization, and momentum factor (calculated as buying winners and selling losers). We found that while the four-factor model explains large portion of variability of returns of developed indices, at the same time its explanatory power is much weaker in case of indices from emerging markets, and the results are much more dispersed. In addition to that, the determination coefficients are generally lower even for developed countries that those found in the literature researching performance of multifactor models on US and international single stocks.
In the next step, we proposed a series of extensions to the basic carhart model, hoping that these will improve the results for developed countries’ indices as well as close the difference between models’ explanatory power in case of developed and emerging markets. In the article “Cross-sectional returns with volatility regimes from diverse portfolio of emerging and developed equity indices” we constructed a new factor, intending to capture volatility risk premium. We have also added dynamic aspects to the models by including binary variables, aiming at identification of turbulent market periods, and finally by applying the markov switching model with two volatility regimes. As expected, the results improved significantly, in particular in the case of Markov switching model, however the gap between estimations for emerging and for developed markets has still persisted both in degree and its character. Subsequent extensions with new factors and macroeconomic variables as external regressors, presented in “Applying exogenous variables and regime switching to multifactor models on equity indices” also contributed only to proportional increase in explanatory power, at the same time sacrificing the simplicity of previous approaches.
Another innovative aspect of our research can be found in the article “Do multifactor models produce robust results? Econometric and diagnostic issues in equity risk premia study”. We investigated whether analysed models meet all the assumptions of the classic OLS model and then we showed that the estimations that are robust to deviations from them do not yield significantly different results. It is important to note that the diagnostic issues are practically nonexistent in the literature.
Finally, we present a practical aspect of our research, both employing the constructed models and the risk factors in the process of investment strategies construction. In “Can we invest based on equity risk premia and risk factors from multifactor models?” we found that explanatory power of the model does not translate to profitability of trading signals generated by divergence between estimated and actual equity risk premia. However, treating each risk factor as an investable asset (in a “smart beta” manner) and applying Markowitz portfolio selection algorithms yields significantly positive risk-adjusted returns that is higher than each factor individually and the equally-weighted portfolio of all factors.
- Summary of project results
The project aimed at finding out if widely contemplated cross-border co-operation in management and governance of the transboundary nature protected areas (NPAs) indeed is an economically optimal and socially desirable strategy; in economic wording, if transboundary NPAs are international public goods according to people’s preferences. As a result, the main hypothesis has been rejected. The survey scenario based upon ideas of passive protection and rewilding of human transformed forest ecosystems has been developed together with an appropriate survey questionnaire. Valuation studies of the two transboundary NPAs located at the EU outer borders – the Białowieża Forest in between Poland and Belarus and Fulufjellet in between Norway and Sweden – have been conducted following the discrete choice experiment methodology. With this purpose, surveys of the representative samples of the four countries involved comprising at least 1000 interviews each have been conducted and yielded four country-specific datasets. People’s stated preferences towards transboundary NPAs, their passive protection and cross-border co-operation as well as their possible drivers have been scrutinised. Results of their econometric analyses, following the Random Utility Modelling methods have been communicated to the professional community, stakeholders and general public, so the economically optimal management of the sites under consideration can be achieved/maintained. The current low level of cross-border co-operation for transboundary NPAs appeared an economically optimal and socially desirable strategy. Preferences in Scandinavia, where the difference in regulations (including border regime) are much lower as compared with the EU eastern border, the preferences appeared mutually co-operative. On the contrary, both Poles and Belarusians derive "disutility" out of prospects of bilateral conservation action. While spatial extension of the domestic passive protection appeared socially desirable in Poland, Belarusians seem to be satisfied with the current status quo. If the transboundary co-operation is still a desirable option contemplated by experts, an appropriate effort should be made in order to inform general people and convince them of desirability of cross-border co-operation in favour of transboundary NPAs.
- Summary of bilateral results
The bilateral partnership has allowed for running two site-specific choice experiments within a similar general approach, for two cases of transboundary NPAs. This, in turn, has made possible to compare related preferences of EU and non-EU citizens. This is important because the phenomenon of transboundary NPAs is one of global nature and implications of research can be of interest for institutions of both in and outside Europe.
Project partners’ relevant contextual knowledge about the sites under study were key to promptly identify the challenges of developing a scenario that could be applied at both case study sites.
The level of knowledge exchange, including joint scientific meetings, seminars, workshops and visitation of the sites under study would not have been possible without the funds obtained through the bilateral programme. Although no future projects (except for professional publications) have been planned, collaboration within the TRANPAREA project has contributed to build up links between the project partners and other stakeholders involved as well as to set up the basis for future knowledge exchange. The consideration of different perspectives in the scenario and survey development was facilitated by varied and wide expertise of project’s partners and their respective professional networks. This contributes also to the dissemination of the projects’ results among a wider audience and stakeholders who hold different interests when it comes to the protection of nature.
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