Products: Bonham, Carl
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The Evolution of the HI Growth Initiative
Supporting innovation as an engine of economic growth is an essential component of the state’s overall economic strategy. The Hawaii Department of Business, Economic Development and Tourism and its attached agencies, the Hawaii Strategic Development Corporation (HSDC), the High Technology Development Corporation (HTDC), and the Natural Energy Laboratory of Hawaii Authority (NELHA) are responsible for advancing innovation-oriented projects that improve the living standards of Hawaii residents by generating opportunities for high-wage job creation.
Forecasting in a Mixed Up World: Nowcasting Hawaii Tourism
We evaluate the short term forecasting performance of methods that systematically incorporate high frequency information via covariates. Our study provides a thorough introduction of these methods. We highlight the distinguishing features and limitations of each tool and evaluate their forecasting performance in two tourism-specific applications. The first uses monthly indicators to predict quarterly tourist arrivals to Hawaii; the second predicts quarterly labor income in the accommodations and food services sector. Our results indicate that compared to the exclusive use of low frequency aggregates, including timely intra-period data in the forecasting process results in significant gains in predictive accuracy. Anticipating growing popularity of these techniques among empirical analysts, we present practical implementation guidelines to facilitate their adoption.
The Growing Importance of Tourism in the Global Economy and International Affairs
For tourism-dependent countries and destinations, tourism’s share of GDP can exceed twice the world average. Today, international tourism receipts exceed $1 billion per year in some 90 nations. Worldwide, domestic tourism is typically several times larger. Tourism truly has become a global economic and social force.
- by Carl Bonham and James Mak
Full Published Article: Bonham, Carl, and Mak, James. "The Growing Importance of Tourism in the Global Economy and International Affairs." Georgetown Journal of International Affairs. Edmund A. Walsh School of Foreign Service, Georgetown University, 22 July 2014.
A Policy Analysis of Hawaii's Solar Tax Credit Incentive
This study uses Hawaii as an illustrative case study in state level tax credits for PV. We examine the role of Hawaii’s tax credit policy in PV deployment, including distributional and tax payer impacts. Hawaii is interesting because its electricity rates are nearly four times the national average as well as has a 35% tax credit for PV, capped at $5,000 per system. We find that PV is an excellent investment for Hawaii’s homeowners, even without the state tax credit. For the typical household, the internal rate of return with the state tax credit is about 14% and, without it, 10%. Moreover, the vast majority of installations are demanded by households with the median income and higher. We estimate that single-family homeowner’s in Hawaii may demand as much as 1,100 MW of PV. There are, however, significant grid constraints. Policy currently limits PV generation to no more than 15% of peak load for any given circuit, or approximately 3% of aggregate electricity demand. Tax credits are therefore not likely to increase the overall deployment of PV, but rather spread the cost of installation from homeowners to taxpayers and accelerate the rate at which Hawaii reaches grid restrictions.
Estimating Demand Elasticities in Non-Stationary Panels: The Case of Hawai‘i Tourism
It is natural to turn to the richness of panel data to improve the precision of estimated tourism demand elasticities. However, the likely presence of common shocks shared across the underlying macroeconomic variables and across regions in the panel has so far been neglected in the tourism literature. We deal with the effects of cross-sectional dependence by applying Pesaran’s (2006) common correlated effects estimator, which is consistent under a wide range of conditions and is relatively simple to implement. We study the extent to which tourist arrivals from the US Mainland to Hawaii are driven by fundamentals such as real personal income and travel costs, and we demonstrate that ignoring cross-sectional dependence leads to spurious results.
Forecasting with Mixed Frequency Factor Models in the Presence of Common Trends
We analyze the forecasting performance of small mixed frequency factor models when the observed variables share stochastic trends. The indicators are observed at various frequencies and are tied together by cointegration so that valuable high frequency information is passed to low frequency series through the common factors. Differencing the data breaks the cointegrating link among the series and some of the signal leaks out to the idiosyncratic components, which do not contribute to the transfer of information among indicators. We find that allowing for common trends improves forecasting performance over a stationary factor model based on differenced data. The common-trends factor model" outperforms the stationary factor model at all analyzed forecast horizons. Our results demonstrate that when mixed frequency variables are cointegrated, modeling common stochastic trends improves forecasts.
Published Version: Peter Fuleky and Carl S. Bonham (2015). FORECASTING WITH MIXED-FREQUENCY FACTOR MODELS IN THE PRESENCE OF COMMON TRENDS. Macroeconomic Dynamics, 19, pp 753-775. doi:10.1017/S136510051300059X.
Brief: Should we increase Hawaii's minimum wage?
A higher minimum wage is unlikely to accomplish the stated goal of raising the living standards of the working poor. And given Hawaii’s highly service oriented economy, the negative impact of an increased minimum wage may have a larger impact than in other states.
Tax Credit Incentives for Residential Solar Photovoltaic in Hawai‘i
Solar photovoltaic (PV) tax credits are at the center of a public debate in Hawai‘i. The controversy stems largely from unforeseen budgetary impacts, driven in part by the difference between the legislative intent and implementation of the PV tax credits. HRS 235-12.5 allows individual and corporate taxpayers to claim a 35% tax credit against Hawaii state individual or corporate net income tax for eligible renewable energy technology, including PV. The policy imposes a $5,000 cap per system, and excess credit amounts can be carried forward to future tax years. Because the law did not clearly define what constitutes a system or restrict the number of systems per roof, homeowners have claimed tax credits for multiple systems on a single property. In an attempt to address this issue, in November 2012, temporary administrative rules define a PV system as an installation with output capacity of at least 5 kW for a single-family residential property. The new rule does not constrain the total number of systems per roof, but rather defines system size and permits tax credits for no more than one sub-5 kW system. In other words, it is possible to install multiple 5 kW systems and claim credits capped at $5,000 for each system. There is an additional 30% tax credit for PV capital costs at the federal level. There is no cap for the federal tax credit and excess credits can be rolled over to subsequent years.
The Contribution of the University of Hawai‘i at Manoa to Hawai‘i’s Economy in 2012
Although one can think of the UHM as if it were one of many businesses or industries in Hawai‘i, an important difference between UHM and most private businesses is that UHM gets a substantial part of its funding from taxpayers. In FY2012, UHM and the supporting RCUH (Research Corporation of the University of Hawai‘i) spent a total of $878 million in support of its education mission; the State General Fund paid $198 million of the total. Adding money spent by the privately funded UH Foundation, spending by students, out-of-town visitor spending related to UHM sponsored professional meetings and conferences brings total UHM-related expenditures to $1.40 billion in FY2012, 90% of which was spent locally.
Overall, the $1.40 billion of education-related expenditures attributable to UHM generated $2.45 billion in local business sales, $735 million in employee earnings, $131 million in state tax revenues, and slightly under 20,000 jobs in Hawai‘i in FY2012. This represented approximately 3.4% of total jobs, 2.5% of worker earnings, and 2.2% of total state tax revenues.
Looking to the future, the university’s Hawai‘i Innovation Initiative ( HI2 ) plans to more than double the UH system’s current level of extramural research funds from less than $500 million to an ambitious $1 billion per annum. If the HI2 successfully doubles research expenditures, our analysis suggests more than 5,000 new jobs would be created from the ripple effects of the research spending alone, independent of any technology transfer and other jobs created as a direct result of the research.
Economic Impact of the NELHA Tenants
The Natural Energy Laboratory Hawaii Authority (NELHA) contracted the University of Hawaii Economic Research Organization (UHERO) to estimate its economic impact on the State of Hawaii. NELHA currently accommodates 41 tenants ranging from companies bottling deep sea water to solar and biofuel companies. These tenants pay close to $4 million in rent, royalties and pass through expense directly to NELHA. In addition, they employ hundreds of people, purchase goods and services from local businesses, and invest in capital improvements at NELHA.
Chinese Saving Dynamics: The Impact of GDP Growth and the Dependent Share
China’s national saving rate rose rapidly in the 2000s after declining through the late 1990s. These dynamics are not explained by precautionary motives, the institutional distribution of income, or reform related processes in general. Rather, we find a compelling explanation lies with GDP growth fluctuations and movement in the dependent share in population. We estimate a vector autoregressive model for the period 1978-2008, then generate in-sample simulations that successfully replicate the 2000s run-up in the saving rate. Our out of sample forecasts show the saving rate dropping in the 2010s as the dependency share falls and GDP growth moderates.
Inclusionary Zoning: Implications for Oahu's Housing Market
This report describes Oahu’s housing market and summarizes results from an analysis of the effect of inclusionary zoning (“IZ”) on this market. Inclusionary Zoning policies have failed in other jurisdictions, and are failing on Oahu. IZ reduces the number of “affordable” housing units and raises prices and reduces the quantity of “market- priced” housing units.
Financial Integration in the Paciﬁc Basin Region: RIP by PANIC Attack?
We exploit advances in panel data econometrics to test whether real interest parity holds in the Paciﬁc Basin region. We test for a unit root in the difference between either the US, Japanese or Euro area real interest rate and the real interest rates from a panel of eleven Paciﬁc Basin economies. Unlike extant studies which test for RIP using panel data, we use Bai and Ng’s (2004) PANIC test which allows for a very general model of cross-section dependence, including the possibility of cross-unit cointegration. Ignoring the possibility of cross-unit cointegration can lead to severe size distortions and to an over-rejection of the null hypothesis of a unit root. We overturn earlier ﬁndings based on ﬁrst generation panel tests, and demonstrate that cross-unit cointegration lead to incorrect conclusions. We ﬁnd that RIP holds in the Paciﬁc region. Real interest rates converge to the US rate. We ﬁnd no support for the hypothesis that Paciﬁc Basin real interest rates converge to either the Japanese or Euro area rates.
Published: “Financial Integration in the Pacific Basin Region: RIP by PANIC Attack?” with Somchai Amornthum, Journal of International Money and Finance, Vol. 30, October 2011, 1019-1033.
Collusive Duopoly: The Economic Effects of Aloha and Hawaiian Airlines’ Agreement to Reduce Capacity
In the aftermath of the terrorist attacks on September 11, 2001 (9/11), Congress passed the Aviation and Transportation Security Act (ATSA). Section 116, Air Transportation Arrangements in Certain States, provided a foundation for Aloha Airlines and Hawaiian Airlines to obtain temporary antitrust immunity for their agreement to coordinate a reduction in passenger seat capacity on routes between Hawaii’s five major interisland airports. While the provision did not apply only to Hawaii, it applied only to intrastate flights, and only Hawaiian and Aloha Airlines, among U.S. airlines, took advantage of this statute to jointly reduce passenger capacity in the wake of sharply declining demand for air travel after 9/11. The limited antitrust exemption provides a rare opportunity to examine the economic effects of collusively reducing capacity in a duopolistic market. We present an economic analysis of the agreement, and advance the testable hypothesis that capacity reduction will result in fare increases. We also demonstrate empirically that reductions in passenger capacity under the agreement did contribute to sharply rising airfares in Hawaii’s interisland air travel market. Our analysis suggests that explicit agreement is more effective in reducing competition than tacit collusion in a tight oligopoly. Moreover, our empirical findings indicate that, following the expiration of the agreement, tacit collusion may have been sufficient to enable the parties to continue their supra-competitive pricing. We also document the entry of a third interisland carrier following the increase in interisland fares, and the price war that followed. Finally, our empirical results provide an economic foundation for the policy implications that we advance in our concluding section.
Published: “Collusive Duopoly: The Effects of the Aloha and Hawaiian Airlines” Agreement to Reduce Capacity,” with James Mak and Roger Blair, Antitrust Law Journal, Vol. 74, No. 2, 2007, 409-38.
Staff Support at UH Manoa: A Comparative Analysis
This study provides a comparative analysis of the staff support at the University of Hawai’i at Mānoa (UHM), its peer group (Peer), and all 4-year public Doctoral/Research-Extensive Universities (DREU).i To evaluate whether UHM is providing too little or too much staff support to students and faculty, we compare the ratio of full-time equivalent (FTE) staff to FTE enrollment and the ratio of FTE staff to FTE faculty across the three groups of schools. In addition to aggregate staff comparisons, we also evaluate specific support staff categories: executive, administrative, and managerial; other professional (support/service); technical and paraprofessional; clerical and secretarial; skilled crafts; and service/maintenance.