Student Research in Economics: 2006-2007

Angela Agati did her honors research with Dr. Michael Seeborg on The Effects of International Diversification on Portfolio Risk.

ABSTRACT: With the growing global economy, understanding international stock market correlations has become a vital instrument for investors wishing to diversify their portfolios on a global basis. For investors to have effective international portfolio diversification it is important to determine the countries whose stock prices more together, those whose stock prices move in opposite directions and those whose stock prices are unrelated all together. In order to analyze the impact of stock market correlations, this paper will focus on stock market indices in the U.S., Shanghai and the European Union. According to theory, maintaining portfolios primarily in highly positively correlated markets allows for unnecessary portfolio risk due to the presence of diversifiable risk in the portfolio. Through linear regression, results have shown that markets for the most part move together, especially in times of high volatility. Therefore investors should be wary of international diversification.

Benjamin Burry did his honors research with Dr. Margaret Chapman on The Impact of Urban Amenities on Average Wages in Metropolitan Areas.

ABSTRACT: This paper seeks to quantify the impacts of climate, crime, population density, and travel time on median hourly wage in urban areas using the hedonic approach. In accordance with the theory of utility equalization across urban areas, worker skill level, job composition, and intercity cost of living differences are held constant. This study’s sample size consists of thirty-eight metropolitan statistical areas in the continental U.S. (omitting New Orleans) with a population greater than five hundred thousand. Results support a significant impact of urban amenities on wages.

Harley Culbertson did her independent research with Dr. Michael Seeborg on Women’s Wages: The Effects of Motherhood and Education.

ABSTRACT: Determining how women’s educational and fertility choices affect their earnings and whether they enter into a “traditional” job is extremely important in today’s society where women are increasingly entering the labor market. Human Capital Theory suggests that women who receive more education and have fewer children earn more than women who have less education and more children. Using a sample of 3,500 women, a regression analysis is used to test whether education is directly related to earnings, and whether having children is indirectly related to earnings. In addition, the regression analysis tests whether there is an interaction effect between fertility and years of education determining income. The results of this study show that there is a direct correlation between education and earnings, and an indirect effect between fertility and earnings. Also, the results of the regression that include interaction terms show that women with college degrees, who decide to have children, pay a very large earnings penalty. These results suggest that there are severe implications for women when they are making the decision to have children or further their education, as well as for corporations that want to hire more women.

Matthew Goergen did his honors research with Dr. Michael Seeborg on Exploring the Effects of Age at Arrival and Region of Origin on the Earnings of Immigrant Physicians in the U.S.

ABSTRACT: Although the immigration of foreign physicians has increased in recent years, their wages are less than the wages of native-born physicians. Considering the mass influx of foreign physicians into the U.S., it is important to examine what factors are responsible for this wage disparity. Studies of this nature, with the focus particularly on physicians, are in short supply. Previous literature regarding the economic performance of immigrants, as well as the sources of wage differentials between them and natives as a whole, however, is rather abundant. My study expands the previous literature by employing a human capital theoretical framework to shed light on why this wage discrepancy between immigrant and native physicians exists. Using a 5% sample of the 2000 IPUMS data set, a regression is run that explores the effects of country of origin and age at immigration on earnings. The findings of this study indicate that early arrival immigrant physicians, as well as immigrants from regions most similar to the U.S., earn wages comparable to those of natives due to increased U.S.-specific human capital.

Brandin Heidbreder did his independent research with Dr. Michael Seeborg asking Does it Pay to be a High School Athlete?

ABSTRACT: This paper is designed to investigate the effect participation in high school athletics has on a student’s labor market success. Conventional wisdom suggests that participation provides athletes with valuable human capital skills which may not be attainable to those who chose not to participate in athletics. Through regression analysis of the National Longitudinal Survey of Youth, evidence is found in support of the idea that participation in high school athletics yields a wage premium for both men and women. In addition to this wage premium, participants in athletics also receive a greater amount of educational attainment on average. Additional regressions show that a sizeable portion of the wage premium to athletes is a result of educational attainment and indirect characteristics which can be attributed to human capital skills specific to athletic participation.

†	Brian Jbara did his honors research with Dr. Robert Leekley on Exploring the Causality between the Pollution Haven Hypothesis and the Environmental Kuznets Curve.

ABSTRACT: In recent years, increased economic development, globalization, and liberalization of international trade have been linked by economists and environmental scholars as possible causes for specific trends in pollution. One of the most studied and controversial hypotheses surrounding this topic is the Environmental Kuznets Curve Hypothesis (EKC), which states that a country’s pollution concentrations rise with development and industrialization up to a certain point, after which it falls again as the country uses its increased affluence to reduce pollution concentrations again. If true, plotting pollution concentrations against income per capita will yield an inverted U – the EKC. Another controversy is the manner in which the more affluent countries reduce their pollution concentrations. Two possibilities are likely: One is that the more developed countries adopt cleaner technologies to produce their goods. The other less hopeful possibility is that developed countries simply specialize more and more in the production of products of cleaner industries, which the less affluent or developing countries take over production of products from dirtier industries. This suggests that the cleaner environment in developed countries comes at the expense of a dirtier environment in developing countries. This is the essence of the Pollution Haven Hypothesis (PHH).

This paper looks for evidence of an EKC across 36 countries over time. It also looks for evidence as to whether these changes over time are consistent with the PHH. Sulfur Dioxide (S02) is used as a measure of pollution concentrations for the EKC, while five dirty manufacturing industries are used to measure the level of dirty production in the developed and developing countries. Linear regression models and descriptive statistics are utilized in finding and explaining results. Overall, there is very little evidence to suggest that an EKC exists. The signs of the coefficients are correct, which means that the EKC seems to have an inverted U shape. However, the results are not significant, and therefore no conclusions can be made. There is no evidence to support the PHH. This suggests that developing countries may not be increasing their production of products of dirtier industries after all, and therefore are not as likely to be “pollution havens” in the world economy.

Todd Kumler did his honors research with Dr. Illaria Ossella-Durbal on The Impact of Foreign Aid on Development and Aggregate Welfare in Developing Countries.

ABSTRACT: Across the globe, over one billion people live in extreme poverty, struggling to survive on less than one U.S. dollar per day. Persistently low levels of development in developing countries have recently caught the attention of many politicians and social observers, prompting many to call on developed countries and multinational organizations to increase development assistance to these impoverished countries. However, would increased foreign aid effectively raise human development in developing countries? While many studies have analyzed the impact of development aid on economic growth in developing countries, few have addressed the impact of development aid on more comprehensive measures of development. Analyzing data on 88 developing countries from 1980 to 2000, this study employs two-stage least squares regression to evaluate the impact of foreign aid on the Human Development Index (HDI), a composite index of development, while controlling for the level of pro-poor public expenditure within a developing country. In addition, an interaction term between foreign aid and a measure of macroeconomic policies will be utilized to determine if economic policy has an impact on the effectiveness of development assistance.

Biniv Maskay did his honors research with Dr. Margaret Chapman on Analyzing the Relationship Between Change in Money Supply and Stock Market Prices.

ABSTRACT: This paper examines the relationship between change in the money supply and stock prices. This paper also dichotomizes change in the money supply into anticipated and unanticipated change and analyzes each of their relationships with stock market prices. Competing theories exists on how change in the money supply affects stock prices. The Keynesian economists argue that change in the money supply and stock prices are positively related, whereas the real activity theorists argue otherwise. This study finds a positive relationship between change in the money supply and stock prices, agreeing with the Keynesian economists. Economists also debate on the relationship of anticipated and unanticipated change in the money supply with the stock market prices. The proponents of Efficient Market hypothesis (EMH) argue that anticipated change in money supply would not have a significant impact on stock prices and only unanticipated change in the money supply would matter, whereas the opponents of EMH argue that anticipated change in the money supply would matter too in determining the stock prices. This paper finds that anticipated change in money supply matters more than unanticipated change, concluding that EMH does not persist.

†	Indicates papers presented at the Midwest Economics Association Annual Meeting.