Doctor of Philosophy / Department of Economics / Wayne Nafziger / Kuwait is an oil-based economy that adopts an export promotion policy as the fundamental strategy for economic growth. The country has experienced remarkable economic growth and high per capita GDP for the last four decades. The export-led growth (ELG) hypothesis has been commonly used to examine the impact of exports on economic growth. Numerous studies support this hypothesis and found evidence that exports have a significant positive relationship with economic growth. However, it is not yet known how effective the ELG hypothesis is in small oil producing country like Kuwait. The central question addressed is whether the ELG hypothesis is valid in the case of Kuwait. This empirical research investigates the relationship of two components of exports (oil exports and non-oil exports) with economic growth by examining the ELG hypothesis using annual time series data for the Kuwaiti economy over the period 1970-2004. The study applies a number of econometric techniques: unit root test, cointegration test, error correction model (ECM), impulse responds function (IRF), and Granger causality test. The results of this dissertation show that all the variables are stationary in the first difference. Moreover, the cointegration test confirms the existence of the long run relationship among the three variables. The Granger test shows bidirectional causality between oil exports and economic growth, and a unidirectional causality from non-oil exports to economic growth. However, the causality results are consistent with the results reported by the ECM.

Master of Arts / Department of Economics / Tracy M. Turner / The recent housing crisis has highlighted the need to better understand the determinants of mortgage default. Concerns about potential sizable differences in default rates by race and ethnicity as well as reports in the popular press regarding the propensity for rising numbers of homeowners to strategically default motivate a careful study of mortgage delinquency in America post-housing bubble. Using longitudinal data from the Panel Study of Income Dynamics (PSID), we examine borrowers in the years 2005, 2007 and 2009 and, controlling for a number of default-related variables, take a closer look at the characteristics of those delinquent on their mortgage by 2009. We find startling racial and ethnic gaps present as well as strong effects from children, education, and the presence of recourse/non-recourse laws in the state of residence on the likelihood of delinquency. In addition, we find evidence that strategic default plays a role in explaining the likelihood that a homeowner in 2005 will be delinquent on his or her mortgage by 2009.

Master of Arts / Department of Economics / Steven P. Cassou / In this report, I investigate the possibility of a monetary unification among the Arab States. The Gulf Cooperation Council (GCC) states that include Bahrain, Saudi Arabia, Qatar, UAE, Kuwait and Oman are coming together on the basis of common ethnicity, religion, culture, traditions, and monetary issues. This research will discuss different factors upon which the monetary unification and the birth of a new currency depend. For comparison to the Euro, I closely examined different factors such as inflation rates, exchange rates, trade, etc. over the past decade. As stated, this examination was done to see how these factors compare with those of the Euro region to determine if a similar monetary unification among the GCC states is possible. The target date for launching the new GCC currency was January 1, 2010; however that date has long passed. Although the above mentioned factors are favorable to currency unification of the GCC states, ample time is necessary to achieve such a herculean feat. After all, the Europeans did not achieve the unification of the Euro in one night. One hurdle to unification is that the GCC states still need to control the inflation rates in their own economies. Other economic factors, such as trade, have been favorable for all the GCC states, and all the states have been doing well in terms of the U.S. dollar (USD). Although unification may not have met the January 1, 2010 goal, the GCC will still be observing the economic factors and considering other possible scenarios. All the GCC countries vow to achieve this unification.

Doctor of Philosophy / Department of Economics / Steven P. Cassou / This dissertation consists of three chapters. The first chapter surveys recent studies on the stability of the money demand function in selected developing countries. This chapter presents specific details about modeling and estimating the money demand function. Also, reasons behind the mixed results in the literature on the stability of the money demand function are explored as well as providing a guideline for future research on the stability of the money demand function in developing countries. The second chapter empirically investigates the stability of the money demand function in South Korea and Malaysia. The conventional money demand specification and cointegration framework with a single unknown structural break are conducted. The results of the residual-based tests for cointegration reveal that the M1, M2, and M3 demand are stable in the long run in Malaysia. However, there is no evidence of the stability for all three measures of the money demand in South Korea. The results of the residual-based tests suggest that structural breaks in the cointegration vectors are important and need to be accounted for in the specification of the M1, M2, and LF demand in South Korea, where LF includes M2 in addition to the reserves of nonbanking financial institutions and long-term deposits. The third chapter complements the previous chapter. It aims to evaluate the stability of the money demand function in South Korea and Malaysia using a cash in advance model and cointegration framework with one unknown structural break. This theoretical model adds short-term foreign interest rates and real exchange rates in addition to short-term domestic interest rates and real income. Also, the Granger causality and currency substitution analysis are conducted in this chapter. The results of the residuals-based tests indicate that the M2 and LF demand in South Korea, and M1, M2, and M3 demand in Malaysia are stable in the long run. The structural breaks may not be fairly absorbed when a cash in advance model is used for M1 in South Korea. Thus, the residual-based tests suggest that the structural break is still important and needs to be included in the specification of the M1 demand in South Korea.

Master of Arts / Department of Economics / Lloyd B. Thomas Jr / The European sovereign debt crisis has had a profound impact on the rest of the world. The “debt crisis” refers to the rapid accumulation of debt within some struggling euro-zone countries. This debt accumulation has resulted in a variety of financial bailouts made to various countries within the European Union and a debt default by the country of Greece. The results of this crisis have changed the way of life for many living within the struggling economies. Division within the euro zone, on both policy and ideology, has begged the question of whether the euro will be able to survive in the long term. The purpose of this report is to investigate the buildup and evolution of this crisis, as well as to highlight various responses and proposed solutions of the future.

Master of Arts / Department of Economics / Lloyd B. Thomas / A negative-sloped Treasury curve is often cited in financial news articles and by Federal Reserve economists as a predictor of recessions. This report reviews previously published research examining the reliability of yield curves predicting recessions. Findings show that the yield curve inverts two or more quarters before recessions, with short-term interest rates rising above long-term interest rates. Probit regression has proven a reliable method for generating estimated probabilities of future recessions that, in turn, are useful for both monetary policy and asset allocation decision-making.

This thesis consists of three empirical chapters related to distributional outcomes, such as poverty and inequality, in three different contexts. Chapter 1 outlines a class of statistical procedures that permit testing of a broad range of multidimensional stochastic dominance hypotheses. We apply the procedures to data on income and leisure hours for individuals in Germany, the UK, and the USA. We find that no country first-order stochastically dominates the others in both dimensions for all years of comparison. Furthermore, while in general the USA stochastically dominates Germany and the UK with respect to income, in most periods Germany stochastically dominates with respect to leisure hours. Finally, we find evidence that bivariate poverty is lower in Germany than in either the UK or the USA. On the other hand, poverty comparisons between the UK and the USA are sensitive to the subpopulation of individuals considered. Chapter 2 provides a detailed description of the evolution of income inequality in Vietnam between 1993 and 2006. We construct consistent estimates of annual household income using five nationally representative household surveys. Our main finding is that Vietnam’s rapid growth was accompanied by a reduction in inequality between 1993 and 2002 and an unchanged level of inequality between 2002 and 2006. We find that strong growth in employment income and robust growth of cropping income played an important role in decreasing rural inequality, while the growth of wage income and the stagnation of household business income similarly contributed to the reduction in urban inequality. Chapter 3 examines the impacts of the 2001 U.S.-Vietnam Bilateral Trade Agreement on provincial poverty level in Vietnam. My main finding is that provinces that were more exposed to the U.S. tariff cuts experienced faster decreases in poverty between 2002 and 2004. I subsequently explore three labour market channels from the trade agreement to poverty alleviation. Provinces that were more exposed to the tariff cuts experienced (1) increases in provincial wage premiums for low-skilled workers, (2) faster movement into wage and salaried jobs for low-skilled workers, and (3) more rapid job growth in formal enterprises.

This dissertation consists of three essays in Macroeconomics. The first essay assesses the impact of offshoring on aggregate productivity and on labour market outcomes by developing a dynamic general equilibrium model in which workers acquire task-specific human capital. The dynamic nature of the model allows for differentiation between short and long run effects. While the welfare effects are unambiguously positive and independent of the skill-content of the offshored and inshored tasks, the distribution of the gains from trade critically depends on the time horizon. Workers with human capital specific to the inshored tasks gain over those performing offshored tasks in the short term. In the long run, the gains from trade are equally distributed among ex-ante identical agents. The model is calibrated to the U.S. economy; welfare gains from increased offshoring are found to be substantial even after taking into account losses in specific human capital for workers in the offshored occupations along the transition path. The second essay integrates the insight that exporting firms are typically more productive and employ higher skilled workers into a directed search model of the labour market. The model generates a skill premium as well as residual wage inequality among identical workers. Trade liberalization will cause a reallocation of workers both within and across industries, which will affect both types of inequality in a way that is consistent with findings from the empirical literature on trade and inequality. A calibrated version of the model can account for much of the effect of the Canada-U.S. Free Trade Agreement on the Canadian labour market. The final essay incorporates a distortionary tax into the microfoundations of money framework and revisits the optimum quantity of money. An optimal policy may consist of both a positive tax rate and a positive nominal interest rate: if the buyer's surplus share is inefficiently small, the intensive margin is distorted and the constrained optimal policy combines a sales tax with a money growth rate above that prescribed by the Friedman rule. Monetary, but not fiscal, policy alters the agent's bargaining position, leaving a special role for a deviation from the Friedman rule.

This thesis examines the income-shifting behaviour of multinational corporations when they are facing international corporate income tax rate differentials. Multinational corporations may apply tax-planning strategies in order to shift their pre-tax profits from a high-tax country to a low-tax country; therefore, the same amount of money would be subject to a lower tax rate. By doing so, multinational corporations minimize their global tax liabilities without changing their total income. The first essay develops a simple general equilibrium model by which to explore the effect of tax planning on the host country in terms of social welfare and optimal taxation. We endogenize multinational corporations’ investment decisions by allowing the user cost of capital to be affected by shifting decisions. We find that if tax rates are not excessively high, then an increase in tax planning activity causes a rise in optimal corporate tax rates, and a decline in multinational investment. Thus, fears of a “race to the bottom” in corporate tax rates may be misplaced. Also, we find that the residents in high-tax countries may be better off with (some) income shifting. We prove that there is an interior optimal thin capitalization rule (a restriction on the debt-to-equity ratio) that is lower than the degree of tax planning preferred by multinational firms. The second essay empirically examines the evidence of income-shifting behaviour of Canadian multinational corporations. The results are consistent with the income-shifting hypothesis that multinationals are inclined to shift their pre-tax profits to low-tax jurisdictions. I find that having non-arm’s length transactions with related parties in tax-haven countries has a significant negative impact on the taxable income that is reported in Canada. Further, I compare the different roles between small havens and large havens and find that the effect of having transactions with small havens is significantly negative, while the effect of having transactions with large tax havens is not significant. Also, I find that if Canadian corporations control their foreign-related corporations with whom they had non-arm’s length transactions, then they are more likely to report lower taxable incomes in Canada than are those that have other types of relationships with their foreign-related corporations.

This thesis consists of three empirical chapters related to distributional outcomes, such as poverty and inequality, in three different contexts. Chapter 1 outlines a class of statistical procedures that permit testing of a broad range of multidimensional stochastic dominance hypotheses. We apply the procedures to data on income and leisure hours for individuals in Germany, the UK, and the USA. We find that no country first-order stochastically dominates the others in both dimensions for all years of comparison. Furthermore, while in general the USA stochastically dominates Germany and the UK with respect to income, in most periods Germany stochastically dominates with respect to leisure hours. Finally, we find evidence that bivariate poverty is lower in Germany than in either the UK or the USA. On the other hand, poverty comparisons between the UK and the USA are sensitive to the subpopulation of individuals considered. Chapter 2 provides a detailed description of the evolution of income inequality in Vietnam between 1993 and 2006. We construct consistent estimates of annual household income using five nationally representative household surveys. Our main finding is that Vietnam’s rapid growth was accompanied by a reduction in inequality between 1993 and 2002 and an unchanged level of inequality between 2002 and 2006. We find that strong growth in employment income and robust growth of cropping income played an important role in decreasing rural inequality, while the growth of wage income and the stagnation of household business income similarly contributed to the reduction in urban inequality. Chapter 3 examines the impacts of the 2001 U.S.-Vietnam Bilateral Trade Agreement on provincial poverty level in Vietnam. My main finding is that provinces that were more exposed to the U.S. tariff cuts experienced faster decreases in poverty between 2002 and 2004. I subsequently explore three labour market channels from the trade agreement to poverty alleviation. Provinces that were more exposed to the tariff cuts experienced (1) increases in provincial wage premiums for low-skilled workers, (2) faster movement into wage and salaried jobs for low-skilled workers, and (3) more rapid job growth in formal enterprises.