Economics and Finance Student Work
This collection contains exemplary work from the Economics and Finance senior seminar and capstone course, ECO490/FIN490.
Does income inequality negatively affect GDP growth? A panel studyRicardo’s Distribution theory (1817) proposes that, as the economy faces diminishing profits/returns on capital, there would be an increasing shortage of investments. Income inequality exacerbates this problem, by causing income not to be reinvested back in production timely. Therefore, the result is a stagnant economy, where economic growth is significantly slowed down. Literatures on the relationship between income inequality or overall inequality, and economic growth, which is usually measured by GDP growth, have revealed different and robust results. Forbes, 2000 and Partridge, 1997 found a significantly positive correlation between income inequality and GDP growth. However, Tabellini et al, 1994 produced a significant and negative correlation. Interestingly, Squire et al, 1998 found no significant relationship between aggregate inequality and GDP growth, but a significantly negative relationship between poverty and GDP growth. More recently, Brueckner and Lederman, 2017 found a significantly negative impact of income inequality on GDP transitional growth in countries with high initial incomes. Nonetheless, overall, recent literature has been leaning towards the hypothesis that the relationship between income inequality and GDP growth is non-linear. This paper is going to empirically study 146 countries in the world over 27 years from 1992 to 2018, to confirm that the relationship between income inequality and GDP growth is non-linear as suggested in recent literature. Moreover, this research will show that the effects of income inequality on GDP growth is heterogeneous; the impact of income inequality on economic growth is more positive on high income countries than on lower income countries. The method used is regression that aims to explain the GDP movements of countries, in terms of consumption, export, capital formation, poverty, and GINI coefficient. This research is at preliminary level; there can be further improvements to the model.
The effects of short selling on market efficiencyUsing monthly data instead of daily data, I investigate the dynamic relationship between the short selling activity, market return, illiquidity and volatility of the NASDAQ 100 from February 2000 to December 2020. The findings suggest that high level of short selling can lower illiquidity and volatility. This relationship weakens during the financial crisis of 2008. The finding also suggests that the idea that short selling destabilizes the market is unfounded.
Effect of electric vehicle sales on the price of oilThe primary goal of this study is to observe the relationship between the fluctuation of the oil price and the increasing number of sales of electric vehicles based on data from 20 developed and developing countries. As the number of electric vehicles on the market is growing, the demand in the world oil market is declining slightly and, as a result, oil prices are also declining due to several factors. Consumer theory tells us that oil prices could decline due to a rise in the number of electric vehicles sold. Electric vehicles can minimize carbon dioxide emissions and pollutants even when considering indirect emissions from power production and battery generation. Soon, the world may start banning regular gasoline vehicles as a part of the solution to climate change which has already started in Norway. The result shows us there is a slight negative relationship between the oil price and sales of electric vehicles. I can expect that the sales of electric vehicles will keep increasing and after a certain time, it will become a perfect substitute for regular gasoline vehicles.