This thesis consists of three chapters that explore the estimation and identification of networks from observable outcomes and covariates only. This problem is equivalent to estimating the spatial neighbouring matrix from a spatial econometric model. Under three settings, I show how the networks can be recovered entirely from observable non-network data. In the first chapter, networks are treated as a source of unobserved heterogeneity and dealt with data collected from observing many groups in one period of time. The proposed method estimates the probability that pairs of individuals form connections, which may depend on exogenous factors such as common gender. I derive a maximum likelihood estimator for network effects that is not conditional on network observation, accomplished with recourse to a spatial econometric model with unobserved and stochastic networks. I apply the model to estimate network effects in the context of a program evaluation. The second chapter assumes the observation of one group over many periods of time and estimates the networks as a collection of pairwise links. We estimate the spatial neighbouring matrix with recourse to the Adaptive Lasso. Non-asymptotic Oracle inequalities, together with the asymptotic sign consistency of the estimators, are presented and proved. The third chapter shows how the procedure developed in the preceding paper can be used to classify individuals into groups based on similarity of observed behavior. We propose a Lasso estimator that captures the block structure of the spatial neighboring matrix. The main results show that off-diagonal block elements are estimated as zeros with high probability. We correctly identified US Senate’s blocks based on party affiliation using only voting data. Empirical research on social and economic networks has been constrained by the limited availability of data regarding such networks. This collection of papers may therefore provide an useful tool for applied research.

My thesis studies aspects related to international trade, labour markets and productivity. The first chapter analyses how countries adjust to the rise of China considering that labour markets are imperfect. I provide a theoretical framework to structurally quantify the impact of trade shocks and I find that China’s integration generates overall gains worldwide. However, in low-tech manufacturing industries in the UK and in the US, which face severe import competition from China, workers’ real wages fall and unemployment rises. The second chapter studies the recent boom in commodities-for-manufactures trade between China and other developing countries. Brazilian census data show that local labour markets more affected by Chinese import competition experienced slower growth in manufacturing wages and in-migration rates between 2000 and 2010. However, locations benefiting from rising Chinese demand experienced higher wage growth and positive effects on job quality. The third chapter suggests a possible explanation for poor productivity after the “Great Recession” in the UK: Low growth in the effective capital-labour ratio. This is likely to have occurred because there has been a fall in real wages and increases in the cost of capital due to the financial crisis. After accounting for (simulated) changes in the capital-labour ratio, the evolution of total factor productivity appears much more similar to earlier severe recessions and possibly related to underutilised resources. The last chapter shows that there is almost no “net decoupling” (the difference in growth of GDP per hour and average compensation, both deflated by the GDP deflator) over the past 40 years in the UK, although there is evidence of “gross decoupling” (the difference in growth of GDP per hour deflated by the GDP deflator and median wages deflated by a measure of consumer price inflation) in the US and, to a lesser extent, in the UK.

Risk is central in the study of rural development. To cope with risk, smallholder farmers rely on a range of formal and informal insurance mechanisms: an extensive literature has explored their interactions. Yet, our understanding of the implications of these interactions for smallholder farmers’ decision-making is incomplete. This thesis addresses this scholarly gap by shedding new light on the risk-related decisions of smallholder farmers and the mechanisms through which networks affect these decisions. To do so, it relies on a combination of experimental and non-experimental economic analyses. The first chapter draws on a framed field experiment in Gujarat, India to explore the effect of selling weather index insurance to groups (as opposed to individuals) on the investment decisions of the insured. The analysis reveals that group pressure reduces risk taking among individuals with group insurance in contexts with perfect information about peer investment decisions. Group insurance thus suffers from the same potential pitfall as group microcredit. The second chapter examines the extent to which informal transfers can explain take-up of individual weather index insurance. It aims to disentangle two channels through which informal transfers influence decisions to purchase insurance: (i) informal risk sharing and (ii) moral hazard. As in the first chapter, the study draws on a framed field experiment in Gujarat. The main finding of this experiment is that redistribution norms reduce take-up: moral hazard leads to lower levels of insurance coverage. The final chapter builds on these results with a nonexperimental analysis of panel data from a rural household survey in India. It examines how cultural obligations to redistribute within networks affect investments in selfprotection. The empirical evidence suggests that increases in individual income lead to higher investments, but increases in network income lead to lower investments due to moral hazard. Collectively, the three papers nuance our understanding of how redistribution norms affect the risk-related decisions of the rural poor. While not negating their consumption smoothing benefits, this thesis indicates that networks also affect decision-making via group pressure and moral hazard. Such externalities could be forestalled by targeting insurance in rural areas with weaker redistributive norms or modifying insurance policy designs. Further research on the welfare implications of such approaches is thus recommended.

This thesis studies the momentum effect in the UK stock market. The momentum effect is found to be a persistent yet not fully stable phenomenon in the UK stock market and its dynamics is at least partially conditional on the stability of the stock market. When the stock market is stable, momentum trading strategies tend to have rather reliable and good performances whereas when the stock market is in turmoil, momentum trading strategies tend to suffer losses in the near future. We construct a threshold regression model to analyse this relationship between the momentum effect and the stock market stability. We propose that there are two regimes in the short run for shares that have had extreme past performances, the momentum and the reversal regime, and that the switch from one regime to the other is governed by the stock market volatility. Our estimation results confirm this significant role of the stock market volatility. Moreover, the stock market volatility has a negative impact on a momentum trading strategy’s return in both regimes in most cases. Apart from the stock market volatility, we also find that a momentum portfolio’s ranking period return has a significant inverse relationship with its holding period return in the momentum regime, i.e., the magnitude of the momentum effect during its holding period. This negative relationship suggests that the reversal can occur in the short term even in the momentum regime when the ranking period return is sufficiently large. A new type of trading strategies is designed to take advantage of the predictability of the momentum effect dynamics, in particular, the switch between the momentum and the reversal, and our results show that they outperform momentum trading strategies with higher returns and lower risks. Indeed, following the indication of the threshold regression model, these new trading strategies can exploit not only the momentum effect but also the contrarian effect. More importantly, they are able to generate economically significant profits net of transaction costs even when momentum trading strategies fail to do so. The predictability of the dynamics of the momentum effect and the superior performance of our new trading strategies create an even bigger anomaly than the momentum effect itself in the stock market.

This thesis investigates whether government policy had a causal impact on UK output and productivity growth between 1970 and 2009. Two policy-driven growth hypotheses are considered: first that productivity growth is systematically determined by the tax and regulatory environment in which firms start up and operate, and second that productivity is determined by direct subsidies to business R&D. Each growth hypothesis is embedded within an open economy Dynamic Stochastic General Equilibrium (DSGE) model calibrated to the UK experience; the agents optimality conditions imply a reduced form linear relationship between policy and short-run productivity growth. Each model is tested by an Indirect Inference Wald Test, a simulation-based test which formally compares the data generated from the model with the observed data, using an unrestricted auxiliary model; the method has good power against general miss -speciation. Identi�fication is assured for the DSGE model by the rational expectations restrictions; therefore the direction of causation in the model is unambiguously from policy to productivity. Both models are also estimated by Indirect Inference. Estimation results show that the tax and regulatory policy environment did have a causal effect on productivity and output in the 1970-2009 period, when policy is proxied by an index combining top marginal income tax rates and a labour market regulation indicator. The results are robust to changes in this proxy. Likewise, the hypothesis that productivity is driven by direct subsidies to business R&D is upheld in a 1981-2010 sample, though the results are weaker. This study offers unambiguous empirical evidence that temporary changes in policies underpinning the business environment can have long-lasting effects on economic growth.

This thesis studies the production of public goods by economic agents that are not only motivated by monetary incentives, but also by intrinsic or altruistic concerns. Each of the three chapters has conflict over social goals at their heart. In the first paper the conflict is between two donors, in the second between an NGO and its donors, in the last between a social planner and a bureaucrat. The conflicts have diverse but overlapping origins. It identifies policy solutions adapted to the context. In the first chapter, we conclude that the more motivated bureaucrats are by social gains, the less they should be subject to monitoring and the more discretion they should be given to manage a budget or quota themselves. We show that contracts using discretion can screen between more and less pro-socially motivated bureaucrats. We show that the limits of bureaucratic efficiency highlighted by Prendergast (2003) can be exceeded when the planner can choose to grant bureaucrats discretion. In chapter two, we study mission conflict between donors and recipients and provide an explanation as to why it may take place. We show that the Busan declaration’s recommendation that the aid recipient’s mission should be chosen, regardless of donor preferences, can sometimes lower social welfare, as it can distort donation levels and entry decisions. In the third chapter we identify fixed costs, mission uncontractibilities and income inequality as driving an inefficiently fragmented charitable sector. We demonstrate that, in the absence of granting a donor unilateral control over a mission, either progressive tax incentives for giving or covering the fixed costs of charities through taxation can make the second best achievable.

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This thesis considers three cases in which trade in natural resources and other raw materials can inform us about wider questions of economic development. The first chapter, “Capturing the Value Chain: The Persistence of Trade Policy in China After WTO Accession”, considers whether in the GATT/WTO era, developing countries are still able to actively conduct trade policy. In this study, I show that after China’s entry into WTO, required import tariff reductions on downstream sectors have been partly offset by an alternative policy with similar effects: export restrictions on raw materials. I also find that larger rises in Chinese raw materials export taxes after WTO accession have been associated with greater downstream export growth. The second chapter, “Winners and Losers from a Commodities-for-Manufactures Trade Boom”, examines two contrasting outcomes of the ‘de-industrialization’ associated with rising trade between China and other developing countries. In particular, this chapter compares changes in labour market outcomes in Brazilian regions stimulated by rising demand from China for raw materials, with Brazilian regions whose manufacturing sectors have been harmed by Chinese import competition. While there was slower growth in manufacturing wages and greater rises in local wage inequality in ‘loser’ regions between 2000 and 2010, ‘winner’ regions experienced higher wage growth, lower takeup of cash transfers and positive effects on job quality. The third chapter,“Access to Raw Materials and Local Comparative Advantage: The Effects of India’s Freight Equalization Policy”, considers the importance of access to raw materials for industrial development. It does so by looking at the effects of a Indian policy that aimed to remove regional comparative advantages associated with proximity to raw materials, by equalizing prices of steel across India. The results suggest that in practice, this policy may have had only a limited effect on access to raw materials across Indian states.

This thesis consists of three chapters that fall under the broad banner of applied microeconomics. The first chapter analyses the role of the 2008 amendment to the USA Lacey Act in combatting international trade in illegal timber. Comparing US timber imports over time and across countries and products, I show that the US timber imports fell after the introduction of the Lacey Act. I find the fall in timber imports is accompanied by a fall in illegal trade as measured by the difference between importer and exporter reported statistics. Finally, using the case of Indonesia, I provide suggestive evidence in favor of a reduction in deforestation as a result of the policy. The second chapter analyzes the effect of a year long rolling blackout in Colombia on mothers’ short and long run fertility behavior and socioeconomic outcomes. We use an extensive period of power rationing in Colombia throughout 1992 as a natural experiment and exploit exogenous spatial variation in the intensity of power rationing as an instrumental variable. We show that power rationing induced a “mini baby boom” nine months later. In particular, it increased the probability that a mother had a baby by five percent. Women who were exposed to the shock and had an additional child find themselves in worse socio-economic conditions more than a decade later. The third chapter documents the way in which the types of people who are admired has changed, arguing that the responses to this question tells us something about the way in which society has been evolving - the 65 years of data are probably the longest consistent series on social attitudes. We present robust correlations between admiration and trust, allowing us to provide information on trends in trust on a consistent basis back to the late 1940s, earlier than most other data sources.

What role does politics play in financial crises and how does this affect economic outcomes? This thesis employs a political economy framework to examine the effect politics has on the causes, containment, and resolution of financial crises. The first paper examines the development of Irish financial regulation and supervision in the context of the politics of financial services policy. It argues that domestic politics prior to the crisis in Ireland played a significant contributing role in fostering a permissive banking environment which allowed the build up of financial imbalances. The second paper, with Christopher Gandrud, aims to understand why policymakers may end up choosing sub-optimal financial crisis containment strategies when taking decisions under uncertainty. We develop a signalling model of financial crisis management to enhance our understanding of the interactions between bureaucrats and decision-makers and to show how asymmetries of information can have significant implications for policy choice. The third paper, with Alessio Terzi, uses cross-country econometric evidence to examine the impact that political and party systems have on the fiscal cost of financial sector intervention. The results of our empirical analysis suggest that there is a systematic relationship between political economy factors and the fiscal cost of financial sector intervention in banking crises. We find that governments in presidential systems are associated with lower fiscal costs when managing banking crises. Looking further at crisis containment strategies, we show that these governments are are less likely to employ costly bank guarantees and bank recapitalisations which expose the state to significant contingent and direct fiscal liabilities, and are more likely to impose losses on depositors. The fourth paper analyses reform of the framework for crises management in the EU from a political economy perspective, following the 2007 financial and subsequent sovereign debt crisis. It explains how the limits of coordination and unprecedented public support led to the proposal for the establishment of a harmonised framework for bank resolution across the EU. However, the distributional consequences of financial sector support and the establishment of the Single Supervisory Mechanism led to deeper integration for euro area Member States and agreement on the Single Resolution Mechanism. It analyses in detail the negotiations on the financing structure for future resolution, decision-making procedures and crisis management tools and demonstrates how the power of certain Member States and distributive conflict with regard to legacy assets shaped the new architecture. It also highlights the important role the European Parliament played in the negotiations. This thesis makes a number of substantive contributions to political economy. The new theoretical and empirical findings will help foster a better understanding as to how governments may react to future financial crises and show what factors lead to and shape reform. It also has a number of policy implications. It stresses the need for a robust regulatory and supervisory architecture which creates the appropriate incentives for bureaucrats to provide timely and accurate information to decision-makers. It also highlights the need for a more intrusive approach to supervision.