Cardiff Business School

The welsh institute for research in economics and development

The Institute's Aims and objectives

The Institute undertakes research and policy initiatives of particular relevance to Wales but also of more general interest to the UK, the rest of Europe, and the wider world. Employment, SME growth, economic development, tax policy, public expenditure, education and health policy are all examples of areas where the Institute works. Our activities will, we hope, benefit the political and business community of Wales and provide a valuable stimulus to research and other joint activity for all the many established researchers and units working on Welsh issues. In particular, we aim to build upon and extend the widely appreciated work of the Welsh Economy Research Unit, which forms a component of the Institute.

Current Projects

Supply Side Economic Modelling of Wales

(James Foreman-Peck, Patrick Minford, Laurian Lungu and David Meenagh)

Traditional regional policy has emphasised temporarily subsidising specific footloose manufacturing firms together with indigenous start-up enterprises to reduce unemployment, to raise incomes and to boost productivity. How these and other implicit or explicit economic policies- such as higher government spending, or the exercise of devolved tax powers, effect the well being of an economy such as Wales, is problematic. Subsidies and government spending may displace private sector output and employment, and some subsidised activity might have taken place anyway. Judgements about these magnitudes have been made by recipients of subsidies themselves, or by official rules of thumb. By explicitly modelling the supply side it is possible to offer more evidence-based conclusions about the true impact of public policy on the Welsh economy. Following on from the time series econometric model of Wales, to be published in Applied Economics, the current research is focused on a CGE model.

Fiscal Devolution in a Small Open Regional Economy

Dr Laurian Lungu graduated in electrical engineering from the University of Transylvania, subsequently being awarded an MBA by the University of Quebec and an MA in economics from the University of Liverpool. He has worked for Coopers & Lybrand in Romania. He has published a paper based on his Cardiff Business School PhD in the Manchester School. In addition to regional economic modeling, his research interests include monetary economics and international macroeconomics

SME Policy: Growth of Small and Medium Enterprises in Wales

(Tom Nicholls)

A small proportion of SMEs, perhaps 2-3%, are 'gazelles', fast growers, whose characteristics are likely to be concealed by sector averages. Possibly these high growth, higher productivity SMEs tend to exit through being acquired. If this is so, the acquiring firms are headquartered outside Wales, and there is a subsequent tendency to move the assets of the acquired SME outside Wales, then there is a contributory explanation for a persistent SME productivity gap between Wales and the rest of the UK. The appropriate policies then are likely to concern the cost and availability of finance. Developing earlier WIRED research on Welsh SMEs, published in Regional Studies, (40.4, 307-319, June 2006) Tom Nicholls is using the Business Structure Database to test the hypothesis that in any region takeovers are 'skimming the cream' off the SME sector and taking it elsewhere. If the chances of takeover increase with productivity (other things being equal) and are focussed on younger (implicitly fast growing firms when size is controlled) then this constitutes evidence of cream skimming.

Peripherality and the Impact of SME Takeovers

 

 

 

Economic Policy for Schools

(James Foreman-Peck and Lorraine Foreman-Peck)

The forecasted decline in numbers of school age children in Wales offers an opportunity to reduce school sizes. Policy has instead been concerned where possible to create larger schools because of their apparently lower financial costs. Yet large schools present problems of impersonality and effective management. Extending WIRED research that suggested the average Welsh secondary school was too large for the best exam results, (published in Economics of Education Review 25,. 2,. 157-71 April 2006), the Longtitudinal Study of Young Persons in England (LSYPE) is being analysed for evidence of school 'control loss' and its determinants, including size. The LSYPE wave 1 surveyed more than 15000 students in over 600 schools. Students' and parents' interview responses can be linked to school data. Questions pertinent to control loss include the proportion of lessons disrupted by misbehaviour or trouble making. Some of the questions allow checks on the significance of answers to other questions. For example, parents are asked similar questions about students' experiences as are students.

 

Deterring Violence in Cardiff: Penalties, Probabilities, Perceptions or Personalities?

James Foreman-Peck and Simon Moore

Policies to deter crime are often based on the assumption that the potential offender knows the chances of conviction and the penalty. Such a person is supposed to weigh these against the advantages of crime in deciding whether to offend. Demands for heavier penalties and 'more police on the beat' in order to reduce crime are based upon this understanding of crime. This 'objective rational offender' approach has some empirical support in aggregate econometric and other tests of the determinants of offences. On the other hand psychological theories of rational action have drawn attention to general perceptual and framing biases that raise questions about the objective approach to choice under uncertainty. If people do not know, or systematically underestimate or overestimate risks and payoffs in crime, then a policy of objective deterrence may be less effective than one of altering perceptions. This project, based on Cardiff street surveys and surveys of offenders selected by the Probation Service, aims to identify risk attitudes, time discount rates, perceived chances of conviction for street violence and awareness of penalties, that distinguish offenders from non-offenders.

WIRED Associate Dr Simon Moore, of the Violence and Society Research Group, Cardiff University School of Dentistry, is a psychologist with research interests that include substance misuse, particularly alcohol and the affective responses associated with its consumption; the subjective costs of crime and fear of crime; and behavioural, social, mind and brain interactions.

 

Human Capital and Economic Growth

Qaisar Abbas and James Foreman-Peck

This project is examining the institutional determinants of the supply of human capital and how they influence the growth of the economy. Dr Abbas is visiting WIRED for the academic year 2006/7 to work on this project, funded by the Pakistani government. He is Associate Professor Department of Management Sciences Comsats Institute of Information Technology (CIIT), Islamabad. He was awarded his Ph.D degree by Nankai University Tianjin China and holds M.Sc. and M.Phils in Economics from Quaid-e-Azam University Islamabad. His previous positions include Research Officer and Assistant Chief in the Planning & Development Board, Punjab .

Human Capital and Economic Growth: Pakistan, 1960-2003

The Mincer Human Capital Model in Pakistan: Implications for Education Policy

 

Completed ProjectS

The Economics of Devolution Workshop 19th June 2003

Welsh Economic Policy Colloquium 17th May 2004

Programme and Papers are available here.

 

Real Option Appraisal for Public Sector Projects: A Report to the Department of Trade and Industry

The private sector is more commonly now employing real option appraisal of projects. The DTI should consider following suit for projects where an initial investment decision opens up the possibility of further real investment opportunities. These subsequent investments will be appraised by more information than is available in the base period. Earlier stages, such as Research and Development, may directly contribute to information about the payoffs of later stages. Or it may be that information about the payoffs to later stages arrives independently, for example as levels of demand for the project output become clearer. Acknowledging that future decisions may be conditioned on more information than is available today can enhance the viability of projects. The opportunity for termination under specified conditions can raise a project.s value. This type of project may be particularly prevalent in the development of science, technology and innovation.

The most robust approach to analysing such projects is initially with a decision tree that identifies the timing and nature of decisions, as well as what will be known at the point the decision is made. Then the sequential project can be valued from the viewpoint of the decision-taker in the base period. The decision-taker considers the expected present value of each stage at each decision point, starting with the last (the one most distant in the future). The expected values of earlier stages are dependent on those of later stages.

For the full report see http://www.dti.gov.uk/files/file14793.pdf

 

Valuing the Wales Millennium Centre

The purpose of this report is to provide a rationale for the amount of support appropriate for the Wales Millennium Centre, consistent with Treasury guidelines. Appreciation of the arts is desirable in itself and generally encourages creativity and wellbeing, but requires experience. Many people are too impatient to invest in that experience and are worse off as a result. A subsidy to offset their inordinately high time preference and encourage cultivation of tastes for the arts can be justified. The high proportion of fixed costs in total costs for many arts organisations, and for the Wales Millennium Centre (WMC) in particular, can be a second reason for arts subsidies. The lack of opportunities for pricing so as to capture the full audience benefit, as measured by willingness to pay, can mean that arts activities that are warranted on cost grounds, are nonetheless unable to generate sufficient revenue to cover their costs without a subsidy. An illustrative calculation for WMC, based on travel costs, shows a subsidy of perhaps up to £6.75 million could be warranted. The more appreciators of the arts from a given subsidy, the more effective is the subsidy, other things being equal. Another approach is to take the spending figure from the Arts Council of Wales report for 2004/5, which suggests an average subsidy of almost £8 a head in that year. Applying this subsidy rate to WMC implies a payment of around £4.7 million in 2004/5, very substantially more than received at present. Across a sample of British cities, there is a significant association between the density of theatres and affluence. Cardiff would not score well in this cultural comparison, were it not for the Wales Millennium Centre.

See the full report (pdf).

Costing Babel: the Contribution of Language Skills to Exporting and Productivity in the UK

This economic analysis of language skills offers two pieces of empirical evidence that Britain under-invests in languages. The first is an analysis of exporting by a sample of European SMEs. Controlling for investment in language skills, where the UK might justifiably put in less than the continental European average, there is actually a negative UK impact on export propensities. The implication is that greater export orientation by British firms is constrained by foreign language investment. The second item of evidence is that the effect of a common language on trade is significant for the whole world and significantly larger for Britain. This common language effect means both that some British trade is diverted from non-English speaking economies and that some is completely prevented, because foreign language costs act like a tax on trade. Given that non-native English speakers have a stronger incentive to learn English, there should be a smaller common language effect for English-speaking countries than for the rest of the world, with optimum investment, rather than the larger effect actually found. The trade results imply that the consequences of British relative under-investment in languages amount to the equivalent of between a three and a seven percent tax on British exports. Since exports are about one quarter of GDP, the effect is substantial, for it is equivalent to a similar cut in productivity; At stake in 2005 was at a minimum £9 billion. It would be worth spending almost up to this sum on improving language skills if the outlay brought British proficiency to the world average by reducing language-induced trade cost.

See the full report (pdf).

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