Master of Arts / Department of Economics / Yang M. Chang / This paper studies economic factors that affect a multinational’s decision between serving a foreign market via foreign direct investment (FDI) and setting up a joint venture (JV) with a local firm in the host country. The factors that we consider include the substitutability of products produced by competing firms, as well as the hotly debated intellectual property rights (IPRs) protection. In a simple North-South framework, we show that JV is the equilibrium market structure when the degree of R&D spillover is moderate, products are considerably substitutable, and IPRs strong. The government of South needs to maintain a minimum level of IRP to encourage an effective JV. For increasing social welfare, the South also needs to have a policy that limits foreign ownership in a JV.

Master of Agribusiness / Department of Agricultural Economics / Christine Wilson / During the past two decades, there has been major consolidation in the grain handling industry. Staying competitive in today’s environment involves finding projects that add value from a strategic geographic standpoint and a revenue generation standpoint. This study examines several economic factors regarding growth opportunities of facility assets that exist in Northern Kansas, and what the associated cost structure would look like based on a business feasibility study. This study researched the county production by volume and acreage devoted to crop production as well as bid structures and freight spreads of competitors currently in the region today. It also involved researching the margin structures, and it considered a strategic decision about the size of facility that could be built on the existing margin opportunity. Several economic theories were used to derive the feasibility of this research and measure the profitability of the project. Farmer sentiment was polled and a focus group was assembled to understand the opportunity that Scoular may have in the region. The results found a region that provides a steady volume of crop production and margins that are typical of those that Scoular is experiencing in other regions of the state. The research also found the farmers of this geography, receptive to more competition entering the market place.

Doctor of Philosophy / Department of Economics / Yang-Ming Chang / Innovation is development of new ideas that leads to better solutions to current problems. From an economic standpoint, innovation is the engine of economic growth. The appearance of innovation is not uniform in the market, and neither are its affects. The development of new products and technology is significant in any industry. As a result, understanding the path of progress within an industry is necessary to maximize the benefit from innovation. The focus of this research is to further understand the relationship between producers, consumers, and the environment, in the context of innovation. Three scenarios are evaluated. First, innovation evaluated in the context technology intensive industries with product differentiation. Using an optimal control approach with product differentiation and firm outlook we examine conditions that maximize social welfare. When firm(s) have the same discount rate regardless of market structure, a monopoly will develop more innovative products. However, it is shown that competition may increase innovation if firms alter their outlook in a duopoly market structure. Next, influence of consumers on producer adoption of clean technology is evaluated. A spatial model is developed to analyze welfare implications of environmental policies in a competitive market with production and consumption heterogeneity. Consumers with heterogeneous preferences choose between non-green and certified green products, while firms with heterogeneous production costs decide whether to engage in green production. In order for green products to be recognized by consumers, firms must join a green club. The number of green firms, environmental standard, and overall welfare under the market solution are all found to be socially sub-optimal. Finally, producer innovation in markets characterized by public policy due to emission concerns is evaluated. Using a dynamic approach, we derive a firm’s optimal R&D investment strategy to develop clean technology. Explicitly allowing for the cumulative nature of R&D shows that emissions per unit of output are lowest when the firms cooperate in R&D, and show that a profit-maximizing merged entity will never choose the most efficient investment strategy in clean technology, which has implications for emission tax policy and environmental innovation to improve overall welfare.

Doctor of Philosophy / Department of Economics / Lance J. Bachmeier / This dissertation consists of three essays in nonlinear macroeconomic modeling and econometrics. In the first essay, we decompose oil price movements into oil demand (stock market) shocks and oil supply (oil-market) shocks, and examine the response of the stock market to these shocks. We find that when oil prices are “net-increasing”, a stock market shock that causes the S&P 500 to rise by one percentage point will cause the price of oil to rise approximately 0.2 percentage points, with a statistically significant positive effect one day after the stock market shock. On the other hand, the response of the stock market to an oil market shock is a decline of 6.8 percent when the price of oil doubles. For other days, the initial response of the oil market to a stock market shock is the same as in the net oil price increase case (by construction). We then analyze the response of monetary policy to the identified stock market and oil market shocks and find that short-term interest rates respond to the stock market shocks but not the oil market shocks. Finally, we evaluate the predictive power of the decomposed stock market and oil shocks relative to the change in the price of oil. We find statistically significant gains in both the in-sample fit and out-of-sample forecast accuracy when using the identified stock market and oil market shocks rather than the change in the price of oil. The second essay revisits the statistical specification of near-multicollinearity in the logistic regression model using the Probabilistic Reduction approach. We argue that the ceteris paribus clause invoked with near-multicollinearity is rather misleading. This assumption states that one can assess the impact of near-multicollinearity by holding the parameters of the logistic regression model constant, while examining the impact on their standard errors and t-ratios as the correlation (\rho) between the regressors increases. Using the Probabilistic Reduction approach, we derive the parameters (and related statisitics) of the logistic regression model and show that they are functions of \rho , indicating the ceteris paribus clause in the traditional account of near multicollinearity is unattainable. Monte carlo simulations in the paper confirm these findings. We also show that traditional near-multicollinearity diagnostics, such as the variance inflation factor and condition number can fail to detect near-multicollinearity. Overall, the paper finds that near-multicollinearity in the logistic model is highly variable and may not lead to the problems indicated by the traditional account. Therefore, unexpected, unreliable or unstable estimates and inferences should not be blamed on near-multicollinearity. Rather the modeler should return to economic theory or statistical respecification of their model to address these problems. The third essay examines the correlations between income inequality and economic growth using a panel of income distribution data for 3,109 counties of the U.S. We examine the non-spatial dynamic correlations between county inequality and growth using a System GMM approach, and find significant negative relationships between changes in inequality in one period and growth in the subsequent period. We show that this finding is robust across different sample sizes. We further argue that because the space-specific time-invariant variables that affect economic growth and inequality can differ significantly across counties, failure to incorporate spatial effects into a model of growth and inequality may lead to biased results.We assume that dependence among counties only arises from the disturbance process, hence the estimation of a spatial error model. Our results indicate that the bias in the parameter for inequality amounts to about 2.66 percent, while that for initial income amounts to about 21.51 percent.

Doctor of Philosophy / Department of Agricultural Economics / Vincent Amanor-Boadu / Allen M. Featherstone / Estimation of cost functions can provide useful economic information to producers, economists, and policy makers. From the estimation of a cost function, it is possible to calculate cost efficiency, economies of scope, and economies of scale. Economic theory specifies the cost function as a frontier since firms cannot operate at lower cost than the cost minimizing input/output bundle. However, traditional parametric estimation techniques often violate economic theory using two sided-error systems. The stochastic frontier method has allowed the estimation of a frontier but continues to restrict the technology through functional assumption. Nonparametric frontier estimation is an alternative approach to estimate a cost frontier by enveloping the data which by its construct, conforms to economic theory. This research expands the economic information available by deriving multi-product scale economies and product-specific scale economies from the nonparametric approach. It also tests its ability to accurately recover these important economic measures under different assumptions of the cost function, and cost inefficiency distributions. Next, this new method is compared to other methods used to estimate cost functions and associated economic measures including a two-sided error system, stochastic frontier method, and an OLS model restricting the errors to take on only positive values. Finally, the nonparametric approach with the new measures is applied to a sample of Kansas farms. The nonparametric approach is able to closely estimate economies of scale and scope from estimation of a cost frontier. Comparison reveals that the nonparametric approach is closer to the “true” economic measures than some parametric methods and that it is better able to extrapolate out of sample when there are no zero output firms. Finally, the nonparametric approach shows that potential cost savings from economies of scale and economies of scope exist for small Kansas farms. However, cost savings from economies of scale become exhausted when farms exceed gross annual revenues of $500k, while economies of scope also diminish as farms grow larger. Results also show from annual frontier estimations that estimates of economies of scale, scope, and cost efficiency have remained relatively stable from 2002 to 2011.

Doctor of Philosophy / Economics / Steven P. Cassou / The increase in commodity prices that has taken place in the past decade or so has resulted in renewed interest in the debate about the macroeconomic consequences of such price increase. Previous studies tend to assume that all commodity price shocks are alike and advocate a “one size fit all” policy response by monetary authorities, either by means of contractionary monetary policy to alleviate inflationary pressures or doing nothing, since these shocks are believed to have insignificant economic impact. This dissertation analyses the impact of fluctuations in commodity prices on the South African economy. The first chapter studies the impact of shocks to prices of four commodities on monetary policy variables. Results show that shocks to different commodity prices have different effects on the monetary policy variables, hence rejecting the “one size fits all” policy response by monetary authorities, as some researchers have suggested. Chapter two investigates the sectorial effects of commodity price shocks. The Dutch Disease hypothesis suggests that a boom in the natural resource sector shrinks the manufacturing sector through crowding out and appreciation of the real exchange rate. South Africa is a major exporter of a large number of commodities. Using a structural VAR framework this chapter analyzes the impact of shocks to different commodity prices on the production and employment levels in the manufacturing and mining sectors in South Africa. The results show that the commodity price boom has had a positive impact on both sectors, hence the manufacturing sector did not experience signs of the Dutch disease. Chapter three examines the volatility transmission between commodity prices and nominal exchange rate in South Africa. This chapter uses conditional and realized volatility models to estimate volatility in exchange rate, gold, platinum, oil, palladium and silver prices and then employs Granger-causality, Impulse Response analysis, Variance Decomposition and Ordinary Least Squares to analyze the volatility transmission from the commodity prices to the nominal exchange rate. The results show that there is volatility transmission from commodity prices to the nominal exchange rate, hence knowing the volatility in commodity prices would improve investor’s ability to manage risk in South Africa.