URC at UNH

                                    

Last week on Thursday, Undergraduate Research Conference (URC) was held in the Peter T. Paul College of Business and Economics at the University of New Hampshire (UNH). Students participated in one of the largest undergraduate research conferences in the country and shared their research with friends and family, in a professional conference setting. Below are a few abstracts summarizing some of the research projects conducted by ECON B.S. and B.A. students.

Corruption and Inward Foreign Direct Investment: A Panel Analysis in Asia

by Anh Phuoc Thien Nguyen

This research examines the impact of corruption on foreign direct investment inflows, with a panel study in Asian region. Past studies have attempted to investigate different determinants that potentially affect the flow of inward FDI to the recipients; some of them are taxation, infrastructure level, or the fluctuation in the interest rates, to name a few. Besides these economic fundamentals, it is also believed that institutional quality of a host country, particularly corruption and governance quality, plays a significant role in determining the attractiveness of a country to foreign investors. However, although several empirical studies have assessed the relationship between corruption and FDI, there is still not a consensus regarding the direction of corruption’s impact on FDI inflows. On one hand, foreign investors could be disincentivized to invest in a highly corrupt country as corruption, particularly bribery, would act as an additional business cost to entrepreneurs. On the other hand, paying bribes might speed up the bureaucratic process and provide monetary incentive to poorly paid government officials, which would otherwise encourage FDI inflows to a poorly governed country.

To measure the effect of corruption on FDI, the paper uses the gravity model with a panel analysis in 10 Asian countries as host countries. Panel data is preferred instead of cross-sectional data since the former allows higher degrees of freedom and can account for individual heterogeneity. Beside corruption (proxied by the Corruption Perception Index), the econometric model is controlled for GDP of source and host countries, distance between each country pair, trade openness, inflation rate, population, and infrastructure level. Trade openness is measured by trade-to-GDP ratio, and infrastructure level is proxied by fixed telephone subscription by 100 people. The data is derived from the United Nations Conference on Trade and Development (UNCTAD), CEPII, World Bank, and International Transparency.

To check for the coefficients’ robustness, the study uses three estimation methods for panel data, namely the pooled ordinary least square, fixed effects, and random effects estimation. It is found that economic fundamentals such as GDP, trade openness, and infrastructure level are significant determinants of inward FDI; while distance, inflation rate, and population size do not have a significant effect on FDI inflows. In terms of corruption, it is found that corruption has a negative impact on FDI, but there is not a significant evidence to substantiate this negative correlation. One probable explanation is that the impact of corruption is nonlinear, and it depends on the quantiles of FDI stock distribution. For example, foreign investors might be more tolerable to high level of corruption in countries with high FDI stock such as China or India, while being more sensitive to corruption in Bangladesh or Kazakhstan.   

Cap-and-Trade Effectiveness: An Analysis of the California and European Union Emission Permit Trading Markets

by Claire McCarthy 

Climate change is an urgent issue that threatens life as we know it, and incorporating climate change mitigation into economic policy allows us to save our environment and grow economically. Analyzing policies to ensure best practices is important as the world moves forward with climate change mitigation efforts. Policies such as Cap-and-Trade make costs more equalized amongst entities within the system because instead of forcing each entity to lower their emissions a specific amount, entities can trade emission permits amongst each other. This concept originates from the fact that the costs to cut emissions differs between entities. An entity will purchase more permits until the cost of the permit becomes more expensive than the cost of not emitting one more unit of the greenhouse gas. Cap-and-Trade can also be a way for the region utilizing the system to make money, if the permits are sold to entities instead of granted in a free manner.

The purpose of this research is to add to the current analysis of the current Cap-and-Trade systems in place. The question this research addressed is, how do the California and European Union Cap-and-Trade systems compare, and which one is more successful? To answer this question, the policies of both systems were analyzed through government official data, and scholarly journal articles.

The data presented a few major differences between the two policies. First, because determining cost and benefits in climate economics is so difficult and forces major estimations, many believe that price stabilizing mechanisms should be a part of the policy. This ensures that the price doesn’t collapse due to a lack of demand, or raise to a level that hurts the economy. California Cap-and-Trade policy has these stabilizers in place, and the EU system does not. This is evident in the permit price history: California prices are stable and slowly increasing, and the EU permit prices are unpredictable and unstable. The data also shows that the two economies were not hurt by the implementation of these policies, because both GDP levels have increased as the emissions have decreased.

The data above and other data shows that the California system is more successful than the EU Cap-and-Trade system. This is majorly due to the use of price stabilization mechanisms in the policies within California. Results also show that both California and the EU collect large revenues from the sales of these permits which also helps these regions grow. Both systems are similar in many ways and are both effectively lowering emissions which ultimately is the whole purpose.