Economies, Volume 5, Issue 2 (June 2017) – 11 articles

Revenue generated from tourism taxes constitutes an important financial resource for local governments and tourism authorities to both ensure tourism sustainability and enhance the quality of tourist experiences. In order for tourism policy makers to create an efficient and fair tax system in tourism destinations, it is crucial to understand travelers’ perceptions concerning willingness to pay (WTP), tax rates, and their optimal allocation. The objectives of this paper, therefore, are to evaluate tourism taxes as a compensation tool to cover the costs of tourism and to measure tourists’ WTP. The paper also suggests a fair allocation of tax revenues based on tourists’ perceptions. A qualitative approach was used and data were collected through semi-structured in-depth interviews with international travelers to Istanbul, Turkey. The findings suggest that tourists are more likely to pay an additional amount of tax when this is earmarked for improvements in their experiences, but they are reluctant to take on liability concerning matters relating to destination sustainability. Based on the travelers’ perceptions, the paper also identified areas that need investment to improve tourist experiences. An interesting highlight of this paper is that the majority of surveyed respondents reported that their travel decisions would not be negatively affected even if the total cost of their vacation increased by one third. The findings are expected to offer fresh and much-needed insights into tourist taxation for tourism policy makers and stakeholders. Full article

The main contribution of this article is to examine the productivity spillover effects from India’s inward foreign direct investment (FDI), controlling for trade, in the framework of the cointegrated vector autoregression (CVAR). For this purpose, using the Solow residual approach the aggregate total factor productivity (TFP) in India is estimated to measure FDI-induced spillovers. The results show that the inflow of FDI to India indeed improves TFP growth through positive spillover effects. We also find that trade appears to have a detrimental effect on TFP growth in India. Full article

To help explain the common failure of oil or other natural resource exporting countries to diversify into industry, it has been common to trace this failure to real exchange rate appreciation. This has also been done in Azerbaijan. However, because Azerbaijan has devoted so much of its oil revenues to government investment, Azerbaijan provides a suitable case for examining an alternative link through government investment. This study applies the ARDL cointegration method to quarterly time series data on oil prices, government capital formation, non-oil exports and non-oil GDP to estimate the long run relationships linking oil prices to government investment expenditures and further to generation of non-oil GDP. The results show that despite the massive government investment expenditures, extremely little non-oil production of the tradable type has been generated, calling attention to the need for policy reform. Full article

There is a growing literature studying the effects of economic freedom and democracy on income inequality; nevertheless, the inequality-effects of both factors are apparently studied separately. This paper revisits the income inequality-economic freedom nexus and uncovers the role of political regime in explaining the relationship. Using the latest inequality data from Standardized World Income Inequality (SWIID) version 5.0 for a sample of countries up to 115 over 1970–2014 period, and via dynamic panel GMM estimation method, an inequality model that explicitly captures the interaction effect of economic freedom and democracy is estimated. The findings demonstrate that economic freedom has positive effect on income inequality. The estimated size of inequality-increasing effects of economic freedom is substantial, ranging between 0.3% and 0.5% per annum. Nevertheless, the findings show that the freedom-induced inequality is attenuated in the presence of a democratic regime in the countries under study. Furthermore, freedom of international trade and market deregulation are shown to be the two most consistently significant liberalization policies across the baseline estimations and various sensitivity tests. The paper is concluded with some policy implications. Full article

In this paper, we revisit the relation between institutional factors and foreign direct investment (FDI) inflows in developing countries by employing a dynamic panel methodology, which enables us to deal with the persistency of FDI flows and endogeneity issues. We also contribute to the literature by using various measures of institutions to identify which aspects of institutional quality affect FDI in the developing world. Our empirical findings based on 113 developing countries over the period 2002–2012 show evidence that some institutional factors matter more than others in attracting more FDI flows. We also found that the financial crisis in 2008 and 2009 had a negative impact on FDI flows. Full article

This paper examines the effect of remittances on household expenditure patterns applying propensity score matching methods that allow designing and analyzing observational data and enable reducing selection bias. We use data from the Nepal Living Standards Survey 2010/2011. In general, remittance recipient households tend to spend more on consumption, health and education as compared to remittance non-receiving households. Although the findings do not clearly provide evidence of either the productive or non-productive use of remittances, expenditures on non-food investment categories, such as durable goods, health and education, are more apparent among remittance-receiving households compared to remittance non-receiving households, which signal the prospect of a sustainable long-term welfare gain among the former. Full article

Most empirical work on sources of economic growth for different countries lack country-specific empirical evidence to guide policy choices in individual developing countries and previous studies of factor productivity tend to focus on the entire economy or a single sector. This provides fewer insights about a country’s structural evolution. Unlike previous studies, our study builds on this by taking a more comprehensive approach in estimating Zambia’s sources of economic growth by sectors—agriculture, industry, and service—in a systematic manner that yields insights into the country’s sources of structural transformation. We use recently developed growth accounting tools to explicitly determine sources of economic growth at both national and sectoral levels in Zambia between 1970 and 2013. We use data from World Development Indicators and Zambia’s Central Statistical Office. Results indicate that, on average, total factor productivity (TFP) contributes about 5.7% to economic growth. Sectoral analysis shows that agriculture contributes the least to GDP and that, within each sector, factors that contribute to growth differ. Structural transformation has been slow and contributed to the observed inefficiency. We outline the implications of the observed growth and provide recommendations. Full article

The official data in relation to salaries paid in Spain from 1999 to 2014 has been analyzed. The inadequate data format does not reflect the whole salary distribution. Fréchet distributions have been fitted to the data. This simple distribution has similar accuracy in relation to the data when compared to other distributions (Log-Normal, Gamma, Dagum, GB2). Analysis of the data through the fitted Fréchet distributions reveals a tendency towards more balanced (i.e., less skewed) salary distributions from 2002 to 2014 in Spain. Full article

Undoubtedly, oil prices play a crucial role in the macroeconomic performances of oil-exporting developing countries. In this regard, the exchange rate is one of the key macroeconomic indicators worthy of investigation. Existing literature shows that world oil prices play an important role in the appreciation of the exchange rates of oil-exporting developing countries. However, only a few studies have examined this issue by considering all three oil-exporting countries of the Commonwealth Independent States, namely Azerbaijan, Kazakhstan and Russia, together. In order to fill this gap and given the increasing importance of these economies in the world’s energy markets, this paper examines the role of oil prices in the movement of real effective exchange rates of the above-mentioned CIS countries. We applied the autoregressive distributed lag bounds testing method with a small sample bias correction to the data of these countries over the 2004Q1–2013Q4 period. The estimation results indicate that oil prices are certainly a main driver behind real effective exchange rate appreciation in the selected economies. Moreover, estimations show that productivity, to some extent, can also lead to the appreciation. The policy implication of this research is that an appreciation of the real exchange rate is harmful for the exports of non-oil goods and services in these countries. Since oil prices lead to the appreciation mainly through higher domestic prices, which is a result of tremendous public spending, decision-makers should reconsider the prevailing fiscal policy to make it much more counter-cyclical. Full article

A 2011 survey of Mexico City’s households revealed that families prefer alternative sources of drinking water instead of relying in the city’s quality supply services. These include the purchase of bottled water, installation of filtration devices, and other means of water purification. The demand for better water quality was tested by estimating the household’s willingness to pay (WTP), using a contingency valuation (CV) experiment through an open-format questionnaire and by estimating a censored econometric (Tobit) model. The econometric study revealed that the WTP for better water quality is influenced by variables related with distrust of the water quality provided by the City and the organoleptic characteristics of the water supply, as well as spending on bottled water or water purification technologies. The average WTP surcharge for better potable water quality is US$3.1 or 4.7% of the bimonthly water bill, which is about 0.22% of the average family income in Mexico City. The percentage of WTP to income is bigger in poor families. This suggests that improving water quality is of greater importance for lower income families. Findings are consistent with previous studies that estimated the WTP for improvements in the services that supply water to households in the city. These include reduction of inefficiency and intermittency of the supply along with water quality, improve measuring water meters, reducing the obsolescence of the infrastructure and increasing adequate maintenance. Our research is the first to estimate the WTP for better water quality in Mexico City and constitutes a reference point for those that address the problem of water quality and its impact on the welfare and income of families. Full article

This paper contributes to the literature concerning the natural resource curse by exploring the role of banking development in reducing the resource curse in a natural resource-based country, Yemen. Using time series data over the period 1980–2012, we find that natural resource dependence is negatively related to productivity, and this relationship depends on the level of banking development. Increasing this level reduces the negative consequences of the natural resource curse. Therefore, policymakers should proactively encourage credit to enable the banking sector to play a more efficient intermediary role in mobilizing domestic savings and channeling them to productive investments. This will help to accumulate permanent productive wealth to enhance any diversification effort and compensate for the decline in natural resource production. Full article