Three essays on applied macroeconomics
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Date
2019
Authors
Scarlett, Hubert
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Abstract
This thesis consists of three essays that are linked by thread of international economics. The first essay uses a panel vector autoregressive model to study the transmission of economic shocks from the United States (U.S.) to Caribbean economies. Unlike prior studies, this analysis includes remittance and tourism as additional channels of transmission. The results suggest that shutting down the remittance and tourism channels lower the effect of a U.S. economic shock on real GDP. Further, the inclusion of these two channels unearth measurement bias previously attributed to the traditional channels. As such, Caribbean governments should consider these two additional channels when designing countercyclical policies. The second essay investigates if evidence in favour of the J-curve phenomenon depends on a country’s trading partner and, if there is any cross-country evidence of the J-curve. The assessment introduces asymmetric real exchange rate (RER) effects on bilateral trade balance, within an autoregressive distributed lag framework. Introducing asymmetric effects provide greater evidence supporting the J-curve relative to the linear framework, particularly in the annual assessment, where capturing delay in the J-curve is possible. The finding is consistent regardless of the measure of RER or trading partner considered. Unlike the quarterly panel analysis, support for the J-curve is evident in the annual panel but, specific to the country group and RER measure. The results have implications for designing bilateral trade policy if, exchange rate is considered a policy tool to improve trade balance over time. In the final essay, a panel of 45 Emerging Markets and Developing Economies is used to examine if remittances, foreign aid and institutions influence FDI’s effect on economic growth. The results show that the positive effect of FDI on growth as well as on the growth of agriculture and manufacturing value added (VAD) diminishes as the level of institutions increases. The findings also indicate that higher remittances only enhance the marginal effect of FDI in the growth of agriculture VAD. Additionally, FDI’s effect on the growth process is independent of foreign aid and should be treated as such.
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Keywords
Business cycle, Tourism flows, Remittance flows, VARs, Caribbean economies, U.S., J-curve, Bilateral trade, Non-linear ARDL, Real exchange rate, FDI, Economic growth, Foreign aid, Institutions, Emerging markets, Developing economies, Asymmetry effects, Jamaica economy, Economic shocks, Agriculture value added, Manufacturing value added