Asian Journal of Applied Economics

Fiscal Policy Effects on Shadow Economy: Empirical Evidence from Developing Countries

Waqar Ahmad — 2023-09-03

In most developing countries, the large size of the shadow economy is often attributed to ineffective macroeconomic policies, particularly fiscal policy. Additionally, any empirical analysis of the shadow economy, as well as policy recommendations that disregard the role of fiscal policy, would be incomplete and potentially misleading. Therefore, this present study empirically examines the impact of fiscal policy on the shadow economy in developing countries. Utilizing an annual panel dataset spanning 127 selected developing countries from 2002 to 2018, the study employs panel data estimation methods including fixed effects and system GMM. Overall, the study reveals that expansionary fiscal policy tends to reduce the size of the shadow economy, whereas contractionary fiscal policy increases it. Specifically, tax revenue contributes to the growth of the shadow economy, while government expenditure reduces its size. Furthermore, the study identifies a stronger impact of tax revenue compared to government expenditure on the shadow economy. The findings of this study imply that governments in developing countries can influence the size of the shadow economy through expansionary fiscal policies, with a particular emphasis on the structure of taxation. However, the effective utilization of government spending also proves to be a viable strategy for controlling the size of the shadow economy.

Does Trustworthiness Matter for the Actual Lending-Deposit Spread and Perceived Financial Service Affordability?

Savinee Suriyanrattakorn — 2023-09-03

Trustworthiness in financial systems is widely recognized as a crucial factor in fostering financial market efficiency. This research delves into the influence of trustworthiness in financial markets on both the perceived and actual costs of the financial system, drawing upon an eleven-year panel (2007-2017) encompassing 136 countries. The data was obtained from the Global Financial Development (GFD) and World Economic Forum Global Competitiveness Index (GCI). The study assesses the cost of financial systems through two key indicators: the bank lending-deposit spread and the perception of affordability in financial services. Additionally, this paper introduces a novel trustworthiness index from the GCI for estimation purposes. Three methodologies - fixed effect model, random effect model, and two-stage procedure - are applied. The findings reveal that trustworthiness shows an insignificant negative relationship with the bank lending-deposit spread. However, trustworthiness in financial systems positively impacts the perception of the cost of financial services across the overall sample, as it aids in cost reduction for financial transactions and enhances the affordability of financial services. As evident, enhancing trustworthiness within financial systems can effectively reduce the perceived cost of financial services. Policymakers should direct their efforts towards fostering trustworthiness in financial systems by implementing measures that prioritize transparency and accountability practices.

Financial Development and Income Inequality: A U-shaped Relationship

Sheraz Mustafa Rajput — 2023-09-03

This paper investigates how changes in financial development may affect income inequality. We apply the ordinary least squares method, controlling for time and country fixed effects, to an international panel dataset consisting of 195 countries and covering the period from 1990 to 2021. The findings reveal a U-shaped relationship between financial development and income inequality. The development of financial institutions initially lowers income inequality. However, any further advancement, once societies attain a certain threshold of fair distribution, leads to a worsening of income distribution. This is an interesting result as previous literature discusses positive, negative, or inverted U-shaped relationships between financial development and income inequality. For a decomposed sample of strong versus weak democracies and high- versus low-income countries, the finding of a U-shaped relationship firmly holds for strongly democratic and high-income countries.

Dependence Between Foreign Direct Investment and Carbon Dioxide Emissions in East Africa: Bivariate Distributional Copula Regression Technique

Twahil Shakiru — 2023-09-03

Environmental concerns have become more prominent as the global economy has grown faster, impeding sustained economic growth at high standards. Cross-border foreign direct investment (FDI) has played a pivotal role in economic growth, but it has also significantly contributed to environmental pollution in many host nations. Linear regression models have limitations in capturing the complex bi-directional transmission pathways involved. Various factors, including economic growth, electricity consumption, urban population, labor force, exports, and imports, can influence the relationship between carbon dioxide emissions and foreign direct investments. This research employs distributional copula models to ascertain the conditional relationship between FDI and carbon dioxide emissions. The study analyzes data from six East African countries from 1989 to 2020 to quantify their impacts. The findings indicate that FDI is associated with reduced CO2 emissions. Furthermore, the study investigates how economic growth moderates this relationship, utilizing the feasible generalized least squares (FGLS) method. The findings reveal that carbon emissions in East Africa tend to increase with economic expansion, while FDI shows a negative correlation with CO2 emissions. These results underscore the importance of encouraging and incentivizing investments that prioritize environmental sustainability, such as those in renewable energy and energy-efficient infrastructure.

Preferences and Consumer Choices: A Case of Polish Markets for Goods and Services

Aneta Oleksy-Gebczyk — 2023-09-03

The study aims to investigate the consumer preferences of Polish individuals in both the goods and services markets. The research methodology employs a range of methodological approaches, including analysis and synthesis, inductive and deductive reasoning, abstraction, statistical analysis, and a systematic approach. Data from 694 respondents were collected through Computer Assisted Web Interviewing (CAWI) between November and December 2021. The T hierarchy analysis method was used for data processing and priority determination. The findings of the study reveal significant changes in consumer behavior among Poles, which can be attributed to shifting social attitudes, economic uncertainties, and an increased focus on ethical consumption. The study identifies several key factors that influence consumer choice and trends in the markets of goods and services among Polish consumers. These factors include shifting social attitudes, economic uncertainties, the rise in online shopping, the importance of innovation and product offerings, the emphasis on customer experience, the significance of sustainability and ethical considerations, the role of digital marketing and engagement, and the value of market research and consumer insights. Overall, the study provides valuable insights into the evolving consumer behavior of Polish individuals and highlights the various factors that shape their preferences in the goods and services markets.

Does Human Capital Reinvigorate the Relationship Between Financial Development and Economic Growth: Evidence from Pakistan

Rameez Tariq — 2023-10-02

This study examines the threshold level of human capital necessary for the finance-growth nexus in Pakistan. For a deeper understanding of the finance-growth relationship, we have disaggregated financial development into financial institution development and financial market development. To achieve this, we have employed the threshold regression model over the period from 1980 to 2018. The results of this study indicate that economic growth responds negatively to overall financial development when the level of human capital surpasses the threshold of 1.489. Similarly, when financial market development falls below the aforementioned threshold, its impact on economic growth is found negative. This suggests that financial market development does not contribute favorably to economic growth. However, the development of financial institutions contributes positively and significantly to economic growth when conditioned on the level of human capital. Among the other variables, physical capital, trade openness, and government expenditure exert a positive impact on economic growth. In contrast, the inflation rate has an insignificant impact on economic growth. The findings of this study suggest the need for further reforms in the financial sector policies in alignment with international best practices. These policies should also take into consideration the importance of redesigning and strengthening the human capital skills necessary to stimulate the finance-growth nexus.

Home Court Advantage and Referee Bias: Evidence from NBA Games Amid the COVID-19 Pandemic

Pei-An Liao — 2023-10-26

In response to the heightened risk of COVID-19 transmission, the National Basketball Association (NBA) implemented a no-fans policy following months of suspending the 2019-20 season. This study aims to assess the impact of the no-fans policy on home court advantage and referee bias. Utilizing game-level data spanning from the 2015-16 to the 2020-21 seasons and leveraging the COVID-19 outbreak as a natural experiment, our findings indicate that both home and guest teams achieved higher scores in individual games after the implementation of the no-fans policy. However, home teams earned fewer points, implying that the absence of fans reduces home court advantage. Furthermore, in games played without an audience, referee bias decreases, while home teams' fouls increase. These results carry implications for understanding the influence of social pressure and crowds on the neutrality of decisions.

Editorial Note

Waleerat Suphannachart — 2023-09-03

This Volume 30, No. 2 (July-December 2023) marks the inaugural online-only publication for the Asian Journal of Applied Economics (AJAE), formerly known as the Applied Economics Journal (AEJ). This alteration in nomenclature serves to sharpen its focus, endowing it with greater distinctiveness, and aligning it with the novel ISSN criteria outlined by the TCI, designed to raise Thai journals to a global standard. Our web presence and Facebook page remains unaltered. However, kindly note that our contact email address has been updated to [email protected]. Please don't hesitate to reach out if you have any inquiries regarding our journal. Kindly note that our focus and scope have undergone slight modifications, outlined below:

The Asian Journal of Applied Economics is dedicated to the application of economic theories, concepts, and methodologies in analyzing well-defined research issues. It encourages empirical analysis, simulation, prediction, and forecasting research. While its primary focus is on Asian economies, the journal also welcomes articles that address global issues. The journal seeks submissions in applied economics and related fields that are pertinent to policy decisions and provide practical solutions to real-world problems. This includes, but is not limited to, topics such as agricultural productivity and innovation, climate change and climate risk, population and human health, poverty and inequality, sustainable development, trade and commerce, banking and financial innovation, as well as all other micro and macro aspects of applied economics.

In this July-December 2023 issue, a collection of articles presents a range of empirical findings within the field of applied economics. The initial four articles delve into significant research matters employing cross-country panel data, carrying intriguing ramifications for policymakers in Asian economies. For instance, they explore methods to manage the scope of the shadow economy, examine how trust can mitigate financial service expenses, analyze the impact of financial development on income inequality, and investigate the relationship between foreign direct investment (FDI) and CO2 emissions. The remaining articles adopt case-specific empirical analyses, spotlighting vital implications across diverse subjects such as consumer preferences, human capital and financial development, and the basketball no-fan policy and referee bias. The summaries of these articles are shown in the PDF.