What is more important, however, is that the discrepancy can also be interpreted as a question mark about whether rates-of-return estimates measure what they purport to measure. Recall that the estimates are based on R&D intensity rather than R&D capital. In other words, the variable in the numerator of the R&D intensity is a flow variable and not corrected for depreciation. This is unlike the R&D capital variable used for estimating elasticities, which is both corrected for depreciation and takes account of past R&D investments. Thus, and as Griliches and Mairesse (1991a: 389) indicate, the rates-of-return estimates ‘are only very distant reflections of the relevant “rate of return” concept.’ Therefore, the downward bias observed in primary study estimates that take account of double-counting should be interpreted as an indication that further research is required to address the limitations of the rates-of-return estimates in measuring the ‘true’ rate of return on R&D investment. Particularly, it may be necessary to go beyond contemporaneous estimations where return on R&D in the current period is determined solely by R&D investment (or its ratio to output) in that period. It is necessary to model more accurately the lag structure of the R&D investment with respect to the time spans for: (i) completion of R&D projects; and (ii) accrual of the returns on R&D investment.
This paper reports on a large empirical study of corporate rates of return in emerging markets during the 1980's and 1990's. Its main purpose is to analyze changes in corporate profitability and to examine their implications for the dynamics of the competitive process in these countries, and for economic efficiency. Apart from their intrinsic interest, these issues have acquired fresh significance in the context of the current crisis in the East Asian economies. It has been argued that these highly successful economies with an unparalleled sustained record of fast economic growth have come to grief because of fundamental flaws in their corporate, financial and governance systems. Specifically, it is suggested that the crisis was in part caused by over-investment which in turn resulted from a poor competitive environment and disregard for profits in corporate investment decisions. 1 Although this paper does not directly address the question of the East Asian economic crisis, 2 it provides important evidence on the nature and intensity of competition in these economies.
Private lending agreements are typically undisclosed, and the agreed upon rates of return differ between different parties. For this reason, the data used to seed the agent-specific deposit and loan rates of return relied upon a variety of sources and some simplifying assumptions. For most deposit and loan rates in the matrix, quoted lending and borrowing rates collated by the Reserve Bank of Australia (RBA) 4 were used as representative aggregates. The RBA data tracked a variety of indicative deposit and loan rates of return over time. The series were distinguished based on the scale (retail versus wholesale deposits/loans) and type (bank to business versus mortgage broker to individual). In some cases, the various series also identified multiple financial asset agents, e.g., commercial banks versus non-bank financial intermediaries, and distinguished lending rates by financial liability agent, e.g., investor, personal, and business rates were reported, while bank deposit rates offered by the major Australia commercial banks were also summarised. While much of the deposit and loan rates of return were therefore sourced from the RBA data series, we surveyed the big four commercial banks websites and utilised their owner-occupier package 5 variable home loan rates to specify the applicable rate of return on housing sector debt 6 . In addition, the rate of return on foreign deposits was calculated as a weighted average of quoted overseas deposit rates from the U.S. Federal Reserve, European Central Bank (EBC), and Bank of England (BoE). We shall provide agent-specific detail regarding the exact method used to set deposit and loan rates of return in section 2.4.
The present study examines the long-term relationship between aggregate price and dividend data and the corresponding mechanism for short-term error correction using the rational valuation formula and time-varying cointegration and based on Muth's (1961) theory of rational expectations and price movements. The study assumes the variability of asset rates of return and tests the null hypotheses of error- correction mechanisms for time-constant cointegration vectors and inequality between fundamental value and share price. The series used were provided by Shiller (2005) and refer to aggregate price and dividend data for the U.S. stock market over the period 1871 to 2010. The data were analyzed using Johansen’s cointegration models with the use of restricted variables resulting from the combination of the varia- bles studied with the Chebyshev time polynomial, as proposed by Bierens and Martins (2010). The results indicate rejection of the null hypothesis of constancy of cointegration vectors as well as the non-rejection of the null hypothesis of inequality between fundamental va- lue and share price. These results are consistent with those obtained by Bierens and Martins (2010) and do not corroborate Muth's (1961) theory of rational expectations. It is therefore concluded that investors have different expectations of return for different future periods. The results suggest the validation of the model used and that there is a possibility of the occurrence of speculative movements supported by rationality or rational speculative bubbles.
The main aim of the paper is to evaluate the rates of return to investments in education at individual and society level as well. The task of the paper is to provide detailed analysis and estimation of the variables which impact the private and social rates of return. It is based on Professor Angel de la Fuente methodology complemented by Mincer earnings function and non-parametric DEA (Data Envelopment Analysis) method to estimate world technological frontier and the technological gap. For this purpose the authors build the matrix with respective years of schooling depending from level of schooling and birth of year taking into account the differences in schooling system since 1940ties. The authors have used the data of Labour Force Survey of Central Statistical Bureau of Latvia data 2010 for Mincer rate of return selecting the figures corresponding to the criteria of 6148 records, to estimate other variables the authors used mainly Eurostat data base and AMECO data base to obtain net capital stock to GDP at constant market prices. The methodology involves the estimation of several variables – net replacement ratio of unemployment benefits, employment levels of employees with secondary and tertiary education and increase of employment level from one additional year of schooling, average years of schooling based on R. Barro and J.W. Lee’s methodology, average retirement age based on D.Latulippe’s methodology, productivity growth from one additional year of schooling, taxes and unemployment level of youth.
Investment decisions may be evaluated via several different metrics/criteria, which are func- tions of a vector of value drivers. The economic significance and the reliability of a metric depend on its compatibility with the Net Present Value (NPV). Traditionally, a metric is said to be NPV-consistent if it is coherent with NPV in signalling value creation. This paper makes use of Sensitivity Analysis (SA) for measuring coherence between rates of return and NPV. In par- ticular, it introduces a new, stronger definition of NPV-consistency that takes into account the influence of value drivers on the metric output. A metric is strongly NPV-consistent if it signals value creation and the ranking of the value drivers in terms of impact on the output is the same as that provided by the NPV. The degree of (in)coherence is calculated with Spearman’s (1904) correlation coefficient and Iman and Conover’s (1987) top-down coefficient. We focus on the class of AIRRs (Magni 2010, 2013) and show that the average Return On Investment (ROI) enjoys strong NPV-consistency under several (possibly all) methods of Sensitivity Analysis.
The Chi-square obtained from Wald test performed on IR when ROR is the dependent variable is 5.9496 and significant at 5%. The chi-square value for ROR when IR is the dependent variable is 26.3851 which is significant at 1%. This means that there is short run bidirectional causality running between ROR and IR. There is also long-run causality running between ROR and IR as the coefficient of ECT (−1) for ROR model is −0.87313 and that of IR model is −0.48814 which are significant at 5% and 1% respectively. ECT (−1) indicates the speed at which residuals adjust to the long run equilibrium. This therefore, means that in addition to the existence of a long-run relationship between ROR and IR, as confirmed by bound test, ROR and IR could granger-cause each other in Malaysian banking sector. This suggests that the players in both the Islamic and conventional segments of the Malaysian banking sector do respond to changes in IR and rates of return on the deposit accounts of the customers of each other. This means that deposit customers of banks in Islamic banking sector react to and are influenced by IR movements in the conventional segment of the banking sector. Similarly, deposit customers of banks in the conventional segment also respond to and are also influenced by the circulation of the ROR in the Islamic banking segment. Similarly, the result of the short run and long run causality tests to determine the pairwise causal relationship between ROR, IR LRM and INF in Indonesia, as presented in Table 3 shows the same trend as in Malaysia. The short and long run causal relationship tests between ROR and IR in particular also show a bidirectional relationship running from ROR to IR as well as from ROR to IR. Likewise Malaysia and Indonesia, the short and long run causal relationship between ROR and IR in Bahrain is also bidirectional. This is because, the Chi-square obtained from the Wald tests Table 2: Result of bound test
In this regard, the aim of this work is to analyze which is the required average real return that Latin American mandatory DC pension funds should achieve, in order to provide a reasonable pension at retirement, according to each system parameters; and to discuss if those required returns are feasible in the current economical context, or if any changes in the pensions designs are necessary. In order to do so, the structure of this paper is as follows: In section 2 we review the historical background of the pension reforms in Latin America, with the purpose to examine the general context of the pensions systems within the region; in section 3 we describe our methodology and the outcomes of the research; and finally, in section 4 we discuss our conclusions and implications of the results.
The equalisation of profit rates does not mean equality of profit rates in a mathematical sense or a general equilibrium, but rather tendential equalisation manifested in the long-term and based on turbulent fluctuation and crisscrossing of individual industries’ profit rates around the average profit rate, with positive or negative deviations from the mean being offset in the long-run. The points where profit rate differentials dissipate are thereby not equilibrium states, but rather centres of gravity or points of attraction (Semmler, 1984), the tendential equalisation being thus synonymous with gravitation (Shaikh (2016: 260) indicates that centres of gravity may be moving over time as well). In contemporary economic theory, this classical conceptualisation of competition as a dynamic process is adopted in the Schumpeterian, evolutionary, and Austrian schools (Schumpeter, 1934, 1950; Nelson, Winter, 1982; Kirzner, 1978; 1987), which place entrepreneur and entrepreneurship as agents in charge of innovation and exploitation of profit opportunities.
To compare the rates of return to human capital of Lithuania to other countries, we first need to estimate the rates of return to investment in human capital. The rate of return to human capital (education) has been widely studied since the late 1950s (Card, 1999; Psacharopoulos & Patrinos, 2004, Warunsiri & McNown, 2009). Estimates of the rate of return to investment in human capital can be arrived at using different methods, but, according to Psacharapoulos & Ch.Ng (1992) the method adopted by various authors is often dictated by the nature of the available data. For example, Stark (2007) stating, that there are three main methods of estimating rates of return to investments in human capital (education), highlights Mincers’ (1974), econometrical earnings function estimation, ratio of discounted net benefits to discounted total costs, and internal rate of return associated with the investment in education that is calculated in almost the same way as the profitability of financial asset. Psacharopoulos, 1994; Psacharopoulos & Ng, 1992; Psacharopoulos & Patrinos, 2004) also identifies three techniques that could help to asses return on investment in human capital: the Full Discounting or Elaborate Method, the Short-Cut Method, and the Earnings Function or Mincerian wage equation Method.
Table (6) displays the estimated private rates of return for the four levels of education. It is shown clearly that secondary education is the best educational level for individual investment in education since it yields the highest rate of return (15,03%). Then it is surprisingly found that primary education is more profitable for individual investment in education than tertiary education; such a result which is inconsistent with most empirical studies. By contrast, middle education is the less profitable investment in education for individuals.
In a couple of respects, the treatment of local ownership of local capital in the modified Horridge extension leaves room for improvement. A minor concern is that the treatment of the aggregate capital stock in the theoretical structure of the modified Horridge extension is inconsistent with the original reason for the treatment. The original reason for introducing flow-based shares was that in equilibrium rates of return would be equated across industries. Clearly, in the fiscal ORANI context, the rates which should be equated are post-tax rates of return, not pre-tax rates augmented by property taxes. Equating these pre-tax rates implies that post-tax rates of return are not uniform across industries.
This paper assesses exchange rate development and volatility in six new EU member states (Cyprus, Czech Republic, Hungary, Poland, Slovakia, and Slovenia) during the period November 1996 - April 2006. The study is motivated by the unavoidable participation of the new member states’ currencies in the Exchange Rate Mechanism II and fulfillment of the exchange rate stability convergence criterion. The development of exchange rates is examined by the calculation of various rates of return and the exchange rate volatility is analyzed using moving average standard deviations of the annualized daily returns of the nominal bilateral exchange rates. The results suggest that the dilemma of “participation or non-participation in ERM II” have been solved properly so far by all countries analyzed. The three ERM II participating currencies (SIT, CYP, SKK) entered into the mechanism at the optimal time of stable exchange rate development and low volatility. On the other hand, the admissible fluctuation band ± 2.25 % seems to be still too narrow for the remaining three currencies (CZK, HUF, PLN), thus the currencies should remain out of ERM II for some time.
Islamic banking has emerged as a mainstream alternative to conventional finance in a growing number of countries. 2 Along with the global expansion of conventional modes of financing, the Islamic banking industry has grown significantly since its inception in the early 1970s and moved beyond the confines of a niche market, largely due to greater financial liberalization and an unprecedented inflow of petrodollars to the Middle East (Imam and Kpodar, 2010). The combined balance sheets of Islamic banks grew from $150 billion in 1990 to about $1 trillion in 2010, with more than 300 sharia-compliant institutions operating in 80 countries. While the share of Islamic banking is still small compared to conventional finance at about 1 percent of the global banking system, there is growing interest in sharia-compliant institutions and instruments. Some researchers have argued that Islamic financial institutions are a viable alternative to promote economic growth and are better-suited to absorb macro-financial shocks because of structural advantages over the conventional banking model (Dridi and Hasan, 2010; Ebrahim and Safadi, 1995; Khan, 1986; and Mills and Presley, 1999). On the other hand, El-Gamal (2005) and others have concluded that Islamic finance simply seeks to replicate the functions of conventional financial instruments and is primarily a form of rent-seeking legal arbitrage. The purpose of this study is to offer an empirical analysis of the behavior of conventional bank deposit rates and the rate of return on retail sharia-compliant profit-and-loss sharing (PLS) investment accounts in two countries where both systems operate. 3
This paper analyzes the dynamic process of the spillover effects among major eleven exchange rate markets. The period spanning from 2000 to 2014 includes several financial crises and Chinese monetary reforms. By the vector auto regression framework, the evidence presents strong spillover effects in terms of return and volatility among USD and several currencies, especially for HKD. High scores of the return and volatility indices are found spilling from ten currencies to HKD.