Growth, migration and unemployment across Swedish municipalities

Fundamental questions in economics are why some regions are richer than others, why their economic growth rates vary, whether their growth tends to converge and the key factors that contribute to the variations. These questions have not yet been fully addressed, but changes in the local tax base are clearly influenced by the average income growth rate, net migration rate, and changes in unemployment rates. Thus, the main aim of this paper is to explore in depth the interactive effects of these factors (and local policy variables) in Swedish municipalities, by estimating a proposed three-equation system. Our main finding is that increases in local public expenditures and income taxes have negative effects on subsequent local income growth. In addition, our results support the conditional convergence hypothesis, i.e. that average income tends to grow more rapidly in relatively poor local jurisdictions than in initially “richer” jurisdictions, conditional on the other explanatory variables.

Essays on growth and environment

This thesis consists of a summary and four self-contained papers. Paper [I] Following the 1987 report by The World Commission on Environment and Development, the genuine saving has come to play a key role in the context of sustainable development, and the World Bank regularly publishes numbers for genuine saving on a national basis. However, these numbers are typically calculated as if the tax system is non-distortionary. This paper presents an analogue to genuine saving in a second best economy, where the government raises revenue by means of distortionary taxation. We show how the social cost of public debt, which depends on the marginal excess burden, ought to be reflected in the genuine saving. We also illustrate by presenting calculations for Greece, Japan, Portugal, U.K., U.S. and OECD average, showing that the numbers published by the World Bank are likely to be biased and may even give incorrect information as to whether the economy is locally sustainable. Paper [II] This paper examines the relationships among per capita CO2 emissions, per capita GDP and international trade based on panel data spanning the period 1960-2008 for 150 countries. A distinction is also made between OECD and Non-OECD countries to capture the differences of this relationship between developed and developing economies. We apply panel unit root and cointegration tests, and estimate a panel error correction model. The results from the error correction model suggest that there are long-term relationships between the variables for the whole sample and for Non-OECD countries. Finally, Granger causality tests show that there is bi-directional short-term causality between per capita GDP and international trade for the whole sample and between per capita GDP and CO2 emissions for OECD countries. Paper [III] Fundamental questions in economics are why some regions are richer than others, why their growth rates differ, whether their growth rates tend to converge, and what key factors contribute to explain economic growth. This paper deals with the average income growth, net migration, and changes in unemployment rates at the municipal level in Sweden. The aim is to explore in depth the effects of possible underlying determinants with a particular focus on local policy variables. The analysis is based on a three-equation model. Our results show, among other things, that increases in the local public expenditure and income taxe rate have negative effects on subsequent income income growth. In addition, the results show conditional convergence, i.e. that the average income among the municipal residents tends to grow more rapidly in relatively poor local jurisdictions than in initially “richer” jurisdictions, conditional on the other explanatory variables. Paper [IV] This paper explores the relationship between income growth and income inequality using data at the municipal level in Sweden for the period 1992-2007. We estimate a fixed effects panel data growth model, where the within-municipality income inequality is one of the explanatory variables. Different inequality measures (Gini coefficient, top income shares, and measures of inequality in the lower and upper part of the income distribution) are examined. We find a positive and significant relationship between income growth and income inequality measured as the Gini coefficient and top income shares, respectively. In addition, while inequality in the upper part of the income distribution is positively associated with the income growth rate, inequality in the lower part of the income distribution seems to be negatively related to the income growth. Our findings also suggest that increased income inequality enhances growth more in municipalities with a high level of average income than in municipalities with a low level of average income.

High-growth firms : Not so vital after all?

High-growth firms have received considerable interest recently since they create most of the new jobs in the economy. The purpose of our paper is to investigate the characteristics of high-growth firms prior to their growth period, and whether these characteristics differ across industries. Using data on a large sample of limited liability firms in Sweden for the period 2007-2010, we find that high-growth firms do not have the characteristics that we typically associate with successful firms. On the contrary, our results indicate that high-growth firms have low profits and a weak financial position. This might explain why studies have found that high-growth firms are seldom capable of sustaining their high growth rates in subsequent periods, and thus question policies that are targeted towards these companies.

Government spending and unemployment : An empirical study on Sweden, 1994-2012

The aim of the study was to see if any relationship between government spending andunemployment could be empirically found. To test if government spending affectsunemployment, a statistical model was applied on data from Sweden. The data was quarterlydata from the year 1994 until 2012, unit-root test were conducted and the variables wheretransformed to its first-difference so ensure stationarity. This transformation changed thevariables to growth rates. This meant that the interpretation deviated a little from the originalgoal. Other studies reviewed indicate that when government spending increases and/or taxesdecreases output increases. Studies show that unemployment decreases when governmentspending/GDP ratio increases. Some studies also indicated that with an already largegovernment sector increasing the spending it could have negative effect on output. The modelwas a VAR-model with unemployment, output, interest rate, taxes and government spending.Also included in the model were a linear and three quarterly dummies. The model used 7lags. The result was not statistically significant for most lags but indicated that as governmentspending growth rate increases holding everything else constant unemployment growth rateincreases. The result for taxes was even less statistically significant and indicates norelationship with unemployment. Post-estimation test indicates that there were problems withnon-normality in the model. So the results should be interpreted with some scepticism.

Essays on firm dynamics in the Swedish wholesale trade sector

This thesis consists of a summary and five self-contained papers addressing dynamics of firms in the Swedish wholesale trade sector. Paper [1] focuses upon determinants of new firm formation in the Swedish wholesale trade sector, using two definitions of firms’ relevant markets, markets defined as administrative areas, and markets based on a cost minimizing behavior of retailers. The paper shows that new entering firms tend to avoid regions with already high concentration of other firms in the same branch of wholesaling, while right-of-the-center local government and quality of the infrastructure have positive impacts upon entry of new firms. The signs of the estimated coefficients remain the same regardless which definition of relevant market is used, while the size of the coefficients is generally higher once relevant markets delineated on the cost-minimizing assumption of retailers are used. Paper [2] analyses determinant of firm relocation, distinguishing between the role of the factors in in-migration municipalities and out-migration municipalities. The results of the analysis indicate that firm-specific factors, such as profits, age and size of the firm are negatively related to the firm’s decision to relocate. Furthermore, firms seems to be avoiding municipalities with already high concentration of firms operating in the same industrial branch of wholesaling and also to be more reluctant to leave municipalities governed by right-of-the- center parties. Lastly, firms seem to avoid moving to municipalities characterized with high population density. Paper [3] addresses determinants of firm growth, adopting OLS and a quantile regression technique. The results of this paper indicate that very little of the firm growth can be explained by the firm-, industry- and region-specific factors, controlled for in the estimated models. Instead, the firm growth seems to be driven by internal characteristics of firms, factors difficult to capture in conventional statistics. This result supports Penrose’s (1959) suggestion that internal resources such as firm culture, brand loyalty, entrepreneurial skills, and so on, are important determinants of firm growth rates. Paper [4] formulates a forecasting model for firm entry into local markets and tests this model using data from the Swedish wholesale industry. The empirical analysis is based on directly estimating the profit function of wholesale firms and identification of low- and high-return local markets. The results indicate that 19 of 30 estimated models have more net entry in high-return municipalities, but the estimated parameters is only statistically significant at conventional level in one of our estimated models, and then with unexpected negative sign. Paper [5] studies effects of firm relocation on firm profits of relocating firms, employing a difference-in-difference propensity score matching. Using propensity score matching, the pre-relocalization differences between relocating and non-relocating firms are balanced, while the difference-in-difference estimator controls for all time-invariant unobserved heterogeneity among firms. The results suggest that firms that relocate increase their profits significantly, in comparison to what the profits would be had the firms not relocated. This effect is estimated to vary between 3 to 11 percentage points, depending on the length of the analyzed period.