Search

In maximum likelihood methods, the three classical tests statistics are often unreliable for inference in small samples, even under the correct model specification. In this article, I discuss how likelihood ratio and Wald test statistics can be combined to obtain highly improved parameter inference in regression models with small samples. I consider modifications obtained from both the Barndorff-Nielsen and the Lugannani and Rice likelihood approximations, and I show how they can produce highly accurate parameter inference in a general (possibly non linear) regression model with possibly non spherical disturbances. I discuss the underlying theory and provide Monte Carlo simulations demonstrating the superior accuracy of the proposed procedures over the first-order classical likelihood methods (i.e., the signed log-likelihood ratio test and the Wald test). An empirical application to a regression model of mobile money ("M-pesa") adoption in Kenya is provided as an illustration of the usefulness of these methods in practice. [ABSTRACT FROM AUTHOR]

The informal economy absorbs a large share (more than 80%) of the labour force in sub-Saharan Africa (SSA). We examine whether a high level of informality tends to exacerbate the spread of the COVID-19. Using publicly available data for a cross-section of 46 SSA, we find evidence that confirms this hypothesis. [ABSTRACT FROM AUTHOR]

This paper presents and estimates a partial equilibrium model of informality and entrepreneurship using data from Cameroon. The model accounts for institutional factors such as registration costs, probability of detection of informal activity, credit constraints, and taxes in the formal sector. I show that the propensity to formalize increases with skills only after a critical threshold corresponding to secondary school completion in the data. This is because high formalization costs are affordable only to the most productive entrepreneurs, who are typically those with higher skills. The estimated model is used to simulate the counterfactual impact of changes in registration costs, taxation, and enforcement, which are found to substantially affect formalization, aggregate income, and government revenues. However, none of these policies is able to reduce the size of informality to less than 20%–30%. This suggests that alternative policies beyond these standard formalization schemes should be considered to address informality in Africa. [ABSTRACT FROM AUTHOR]

In the absence of a public safety net, wealthy Africans have the social obligation to share their resources with their needy relatives in the form of cash transfers and inefficient family hiring. We develop a model of entrepreneurial choice that accounts for this social redistributive constraint. We derive predictions regarding employment choices, productivity, and profitability of firms run by entrepreneurs of African versus non‐African origin. Everything else equal, local firms are overstaffed and less productive than firms owned by non‐locals, which discourages local entrepreneurship. Using data from the manufacturing sector, we illustrate the theory by structurally estimating the proportion of missing African entrepreneurs. Our estimates, which are suggestive due to the data limitation, vary between 8% and 12.6% of the formal sector workforce. Implications for the role of social protection are discussed. [ABSTRACT FROM AUTHOR]

This paper studies risk premia in the foreign exchange market when investors entertain multiple models for consumption growth. Investors confront two sources of uncertainty: (1) individual models might be misspecified, and (2) it is not known which of these potentially misspecified models is the best approximation to the actual data-generating process. Following Hansen and Sargent (Hansen, L. P., and T. J. Sargent. 2010. "Fragile Beliefs and the Price of Uncertainty." Quantitative Economics 1 (1): 129–162.), agents formulate "robust" portfolio policies. These policies are implemented by applying two risk-sensitivity operators. One is forward-looking, and pessimistically distorts the state dynamics of each individual model. The other is backward-looking, and pessimistically distorts the probability weights assigned to each model. A robust learner assigns higher weights to worst-case models that yield lower continuation values. The magnitude of this distortion evolves over time in response to realized consumption growth. It is shown that robust learning not only explains unconditional risk premia in the foreign exchange market, it can also explain the dynamics of risk premia. In particular, an empirically plausible concern for model misspecification and model uncertainty generates a stochastic discount factor that uniformly satisfies the spectral Hansen-Jagannathan bound of Otrok et al. (Otrok, C., B. Ravikumar, and C. H. Whiteman. 2007. "A Generalized Volatility Bound for Dynamic Economies." Journal of Monetary Economics 54 (8): 2269–2290.). [ABSTRACT FROM AUTHOR]

This article examines the impact that misreporting adoption status has on the identification and estimation of causal effects on productivity. In particular, by comparing measurement error-ridden self-reported adoption data with measurement-error-free DNA-fingerprinted adoption data, we investigate the extent to which such errors bias the causal effects of adoption on productivity. Taking DNA-fingerprinted adoption data as a benchmark, we find 25% "false negatives" and 10% "false positives" in farmers' responses. Our results show that misreporting of adoption status is not exogenous to household characteristics, and produces a bias of about 22 percentage points in the productivity impact of adoption. Ignoring inherent behavioral adjustments of farmers based on perceived adoption status has a bias of 13 percentage points. The results of this article underscore the crucial role that correct measurement of adoption plays in designing policy interventions that address constraints to technology adoption in agriculture. [ABSTRACT FROM AUTHOR]

This paper empirically tests how formal retail entrepreneurs’ perception about the business environment in Cameroon affects the performance of the retail sector. I use business owners’ responses from the 2009 Enterprise Survey to estimate an econometric model that corrects for heteroscedasticity. The results show that regulation costs, corruption, credit constraints, and lack of infrastructure negatively affect the gross margins of firms. In contrast, the competition of the informal sector – perceived by many formal entrepreneurs as a major constraint – is positively associated with the gross margins of formal firms. Policy implications are discussed. [ABSTRACT FROM PUBLISHER]

This article develops a procedure to obtain highly accurate confidence interval estimates for the stress-strength reliabilityR=P(X>Y) whereXandYare data from independent normal distributions of unknown means and variances. Our method is based on third-order likelihood analysis and is compared to the conventional first-order likelihood ratio procedure as well as the approximate methods of Reiser and Guttman (1986) and Guo and Krishnamoorthy (2004). The use of our proposed method is illustrated by an empirical example and its superior accuracy in terms of coverage probability and error rate are examined through Monte Carlo simulation studies. [ABSTRACT FROM AUTHOR]