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52. Financial Sector Development and Productivity Growth
- Author:
- George Mavrotas and Subal C. Kumbhakar
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Recent years have witnessed important structural changes around the world as a result of the globalization process, the creation of new economic blocks and the liberalization of financial sector in many countries. Responding to these changes many sectors of the industrialized countries have gone through major deregulatory changes to acclimate themselves to new environments. At the same time, many countries have undertaken institutional reforms to build a market-orientated financial system in the hope that transition towards market economy will improve productivity. In the face of uncertainty resulting from changes in regulatory structure and the development of financial institutions to foster market economy, many countries may not be able to achieve their maximum growth potential. In other words, productivity growth is likely to depend on the development of financial institutions and the stage of economic development That is, a less developed country is likely to benefit more (in terms of output growth rate) from the development of financial institutions than a developed economy with well-developed financial system. In this paper we document this by using data covering 65 countries, varying substantially in term s of level of development and geographic location, and spanning the period 1960-1999. Empirical results obtained from the estimation of two different empirical models regarding the measurement of total factor productivity growth seem to confirm a priori expectations about the overall positive influence of financial systems on productivity in line with previous work on this front. Our results remain robust with respect to alternative definitions of financial sector development we tried.
- Topic:
- Development, Economics, Globalization, and International Trade and Finance
53. Diamonds, Foreign Aid, and the Uncertain Prospects for Post-Conflict Reconstruction in Sierra Leone
- Author:
- J. Andrew Grant
- Publication Date:
- 08-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This article examines the external and internal dimensions of post-conflict reconstruction in Sierra Leone. The United Nations, bilateral donors such as the United Kingdom, and transnational non-governmental organizations and aid agencies have been instrumental in providing much-needed external assistance to Sierra Leone during the latter stages of its civil war and in the immediate post-war period. Although foreign aid is a welcome source of external support for reconstruction efforts, it is finite like any other resource. Reconstruction must also address intangible issues such as corruption as well as the healing of society through the Truth and Reconciliation Commission and the Special Court for Sierra Leone. Diamond exports hold potential as an internal source to spur economic growth and reconstruction. However, as the article illustrates, many obstacles remain, ranging from governance weaknesses in terms of capacity and domestic regulatory schemes on diamonds to the existence of illicit mining and smuggling of diamonds to regional instability.
- Topic:
- Foreign Policy, Debt, and International Trade and Finance
- Political Geography:
- Africa and United Kingdom
54. Trade Openness and Vulnerability in Central and Eastern Europe
- Author:
- Pierluigi Montalbano, Alessandro Federici, Umberto Triulzi, and Carlo Pietrobelli
- Publication Date:
- 06-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper offers a substantive contribution to the debate on the role of international trade on the development of emerging countries. The aim is to detect empirically the phenomenon of vulnerability induced by trade openness. The methodology adopts a forward-looking approach and tries to fill a missing link in the theory between trade shocks, volatility, and the wellbeing of countries, distinguishing between 'normal' and 'extreme' volatility.
- Topic:
- Development, Economics, Globalization, and International Trade and Finance
- Political Geography:
- Eastern Europe
55. Financial Sector Structure and Financial Crisis Burden: A Model Based on the Russian Default of 1998
- Author:
- George Mavrotas and Dmitri Vinogradov
- Publication Date:
- 06-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- We consider an overlapping generations model with two production factors and two types of agents in the presence of financial intermediation and its application to the Russian default of August 1998. The paper focuses on the analysis of the consequences of a sudden negative repayments shock on financial intermediation capacity and consequently on the economy as a whole. The model exhibits a 'chain reaction' property, when a single macroeconomic shock can lead to the exhaustion of credit resources and to the subsequent collapse of the whole banking system. To maintain the capability of the system to recover, regulatory intervention is needed even in the presence of the state guarantees on agents' deposits in the banks (workout incentives). We compare the results for an intermediated economy with those derived under the assumption of a market economy, and draw some broad conclusions on the consequences of the crises, which are contingent on the financial sector structure.
- Topic:
- Development, Economics, Emerging Markets, and International Trade and Finance
- Political Geography:
- Russia
56. From Local to Global and Informal to Formal: Entering Mainstream Markets
- Author:
- Reema Nanavaty
- Publication Date:
- 02-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This is a brief sketch of the Self Employed Women's Association's (SEWA) three-decade-long journey from the local to global and informal to formal sector in search of finding work and income for now 720,000 women workers. Though SEWA remains a local and an informal economy workers' organization, its aim has always been to mainstream its issues, hopes, and achievements.
- Topic:
- International Relations, Economics, Emerging Markets, and International Trade and Finance
57. Unlocking Public Entrepreneurship and Public Economies
- Author:
- Elinor Ostrom
- Publication Date:
- 01-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Unlocking human potential requires a rich network of institutional arrangements in both private and public spheres. Opening the private sphere to entrepreneurship and complex market organization is well understood as a key to increasing the level and quality of private goods available to consumers. Opening the public sphere to entrepreneurship and innovation at local, regional, and international levels is also a key to increasing the level and quality of public goods – e.g., peace, safety, and health – available to citizens. This paper reviews studies of urban service delivery that have repeatedly found communities of individuals who have self-organized to provide and co-produce surprisingly good local services. In addition to unlocking individual freedom, we need to unlock the public sector from rigid, top-down, hierarchical organization.
- Topic:
- International Relations, Economics, Emerging Markets, and International Trade and Finance
58. A Contract Perspective on the International Finance Facility
- Author:
- George Mavrotas and Tun Lin
- Publication Date:
- 09-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The present paper is a first attempt to develop a theoretical model using a short-term vis-á-vis long-term contract framework within which donor countries' endorsement or rejection decision towards the recently proposed International Finance Facility (IFF) is rationalized. The current foreign aid system is portrayed as being similar to a series of short-term contracts, where donor countries are able to adjust the aid amount to reflect environmental change (broadly defined to take into account changes in public opinion, domestic situation, etc.). The benefit of this system is in its flexibility. Frontloading aid, on the other hand, as proposed by the IFF proposal, has the benefit of smoothing out the flows over time. In the model presented in this paper, donor countries balance these two contract schemes to determine the endorsement or rejection of the IFF proposal. By using historical aid data covering the period 1990-2003 for all DAC donor countries, our empirical analysis shows the payoffs and relative advantages of these two contract schemes.
- Topic:
- Debt, Economics, International Political Economy, and International Trade and Finance
59. Output and Price Fluctuations in China's Reform Years: What Role did Money Play?
- Author:
- Guanghua Wan and Yin Zhang
- Publication Date:
- 08-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The Chinese economy underwent cyclical fluctuations in growth and inflation in the reform period. Contrasting views exist on the role of money in such fluctuations. This paper assesses these views employing structural VEC models based on the exchange equation. It is found that in the long run money accommodates, rather than causes, changes in output and prices. In the short run, price fluctuations are mostly attributable to shocks that have permanent effects on prices and money but not on real output. These shocks also account for a large proportion of fluctuations in money, and strongly influence the movements of output.
- Topic:
- Economics, Emerging Markets, and International Trade and Finance
- Political Geography:
- China and Asia
60. What Accounts for China's Trade Balance Dynamics?
- Author:
- Guanghua Wan and Yin Zhang
- Publication Date:
- 08-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper proposes a structural VAR model which extends the frameworks of Hoffmaister and Roldós (2001) and Prasad (1999). The model is then used to analyse the sources of China's trade balance fluctuations in the period of 1985–2000. Efforts are made to distinguish the forces which underlie the long-run trend in trade balance from those with transitory impacts. The effects of four types of shock are examined—the foreign supply shock, the domestic supply shock, the relative demand shock, and the nominal shock. Among other findings, two emerge as important. First, the movements in China's trade are largely the result of real shocks. Second, the Renminbi is undervalued, yet changes in the exchange rate bear little on the trade balance. Therefore, monetary measures would not suffice to redress China's trade 'imbalance'.
- Topic:
- Economics, Emerging Markets, and International Trade and Finance
- Political Geography:
- China and Asia
61. Multiactor Global Funds: New Tools to Address Urgent Global Problems
- Author:
- Jeremy Heimans
- Publication Date:
- 07-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Multiactor global funds (MGFs) are emerging as important new mechanisms for the financing of development and other global priorities. MGFs like the Global Fund for AIDS, Tuberculosis and Malaria are distinctive because they are administered and financed by multiactor coalitions of governments, international organizations, the private sector and civil society, they operate independently of any one institution and are tied to particular issue or policy areas. This paper considers the desirability of MGFs as instruments for international financial mobilization, resource allocation and as a form of experimentation in global governance. It is argued that MGFs hold considerable promise as focal points for generating additional public and private resources to address urgent global problems and to finance global public goods. They may be more operationally nimble than traditional mechanisms and capture some of the benefits of collaboration among different actors. However, MGFs may also result in a less coherent response to global problems, duplicate existing structures and be weakly democratically accountable.
- Topic:
- International Relations, Economics, International Trade and Finance, and Non-Governmental Organization
62. The Transition from Official Aid to Private Capital Flows: Implications for a Developing Country
- Author:
- Renu Kohli
- Publication Date:
- 07-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- India's capital account displays a sharp swing in external financing from official assistance to private capital transfers in the 1990s. This paper examines the implications of this transition for the country. An analysis of the private resource transfer reveals that unlike official flows, private capital flows are associated with real exchange rate appreciation, expansion in domestic money supply and stock market growth, liquidity and volatility. The paper concludes with a discussion on the implications of the transition for economic policy.
- Topic:
- Economics, International Trade and Finance, and Political Economy
- Political Geography:
- South Asia and India
63. The Characteristics of Macroeconomic Shocks in the CFA Franc Zone
- Author:
- David Fielding, Kevin Lee, and Kalvinder Shields
- Publication Date:
- 03-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- In this paper we fit a VECM in output and prices to data from ten countries of the CFA Franc Zone. This model allows for various cross-country interactions in both the short run and the long run. The VECM parameters are used to estimate persistence profiles of different kinds, in order to identify the degree of homogeneity in the way in which the countries respond to macroeconomic shocks. In this way we can shed light on questions about the likely size of the costs incurred from these countries' membership of a monetary union.
- Topic:
- Economics, International Organization, International Political Economy, and International Trade and Finance
- Political Geography:
- Africa
64. Monetary Policy in the Franc Zone: Estimating Interest Rate Rules for the BCEAO
- Author:
- Anja Shortland and David Stasavage
- Publication Date:
- 02-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper examines to what extent the central bank for the West African Economic and Monetary Union (BCEAO) has used interest rate policy in response to domestic economic developments. We show that while in the long run the BCEAO matches changes in French (Eurozone) interest rates one for one, in the short run it retains freedom to react to domestic economic variables, such as inflation, the output gap, its foreign exchange position and government borrowing.
- Topic:
- Economics, International Organization, International Political Economy, and International Trade and Finance
- Political Geography:
- Africa, France, and West Africa
65. Poverty and Growth in the WAEMU after the 1994 Devaluation
- Author:
- Jean-Paul Azam
- Publication Date:
- 02-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper brings out that poverty increased massively in the wake of the 1994 devaluation of the CFA franc, despite a significant recovery of economic growth. Although this increase affected all the social groups, it fell mostly on the urban poor. An analytical model is presented, which explains this puzzle by the stratification of the labour market, assuming that the formal sector workers are at the same time the investors in the informal sector. Then, capital intensity in the latter increases as the former anticipate the cut in formal sector wages that the long-awaited devaluation brings about. Ex post, they run down their assets for consumption-smoothing purposes, thus de-capitalizing the informal sector firms, with a negative impact on incomes in the (urban) informal sector.
- Topic:
- Economics, International Organization, International Political Economy, and International Trade and Finance
- Political Geography:
- Africa
66. The Impact of Monetary Union on Macroeconomic Integration: Evidence from West Africa
- Author:
- David Fielding and Kalvinder Shields
- Publication Date:
- 02-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- In this paper we use data from 17 African nations in order to investigate the hypothesis that monetary union – represented in this case by the CFA Franc Zone – augments the extent of macroeconomic integration. The paper covers a number of dimensions of integration including the volume of bilateral trade, real exchange rate volatility and the magnitude of cross-country business cycle correlation.
- Topic:
- Economics, International Organization, International Political Economy, and International Trade and Finance
- Political Geography:
- Africa
67. Monetary Policy in the CFA Zone: Country-level Credit Policy
- Author:
- Anja Shortland and David Stasavage
- Publication Date:
- 02-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper examines whether the BCEAO has made use of the various policy instruments at its disposal for steering credit in the individual CFA zone member countries to complement interest rate policy at the zone level. We estimate whether private sector credit has responded systematically to different monetary policy variables using iterated 3-stage least squares regressions for Burkina Faso, Côte d'Ivoire, Mali, Senegal and Togo. If we constrain the coefficient estimates there is some support for the hypothesis that the BCEAO has contracted private sector credit in response to a higher inflation differential with France. However, there seems to be no policy rule to restrict private sector credit in response to increasing government borrowing from the central bank or increased foreign borrowing. If the coefficient estimates are unconstrained, there does not appear to be any systematic policy to control credit expansion at the domestic level.
- Topic:
- Economics, International Organization, International Political Economy, and International Trade and Finance
- Political Geography:
- Africa and France
68. The Costs and Benefits Analysis of CFA Membership: The Choice of an Exchange Rate Regime for the CFA Countries Zone
- Author:
- Mireille Linjouom
- Publication Date:
- 02-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The paper determines an analytical framework defining the choice of an optimal exchange rate regime for a typical CFA country. The policymakers behave strategically to decide to adopt alternative exchange rate regime by minimizing their loss function under specific constraints like economic characteristics and political consideration. One concludes a CFA economy with less inflationary propensity and greater external shocks volatility will tend to select a flexible exchange rate regime. Moreover, the model suggests that a CFA country with a more unstable political system and a higher propensity to apply inflationary policies will prefer a flexible arrangement than a fixed one.
- Topic:
- Economics, International Organization, International Political Economy, and International Trade and Finance
- Political Geography:
- Africa
69. An Aggregate View of Macroeconomic Shocks in Sub-Saharan Africa: A Comparative Study Using Innovation Accounting
- Author:
- Simeon Coleman
- Publication Date:
- 02-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper investigates the impacts and responses of macroeconomic shocks in some domestic economies in Sub-Saharan Africa over the period 1961-99; more specifically, it seeks to answer the question of whether there are any systematic differences in the responses of the CFA franc zones and the non-CFA franc zone countries to macroeconomic shocks. Based on the Blanchard-Quah methodology, we identify shocks to the changes in real exchange rate and output using a structural VAR (SVAR) model for these small open economies. Our finding that the real exchange rate innovations in the CFA franc zones are largely independent of domestic variables suggests that external influence is more important in the CFA zones. There is also some evidence that money demand shocks are more significant in the non-CFA franc zone countries.
- Topic:
- Economics, International Political Economy, and International Trade and Finance
- Political Geography:
- Africa
70. Economic Growth, Income Distribution and Poverty: Time-series and Cross-country Evidence from the CFA-zone Countries of sub-Saharan Africa
- Author:
- Michael Bleaney and Akira Nishiyama
- Publication Date:
- 01-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The causes of the slow growth of CFA countries are investigated. There is little difference in this respect between the CFA and other sub-Saharan African countries. Since 1970, GDP growth in the CFA countries has shown no significant trend but one or two medium-term fluctuations (positive in 1979-83 and negative in 1989-93). Internationally, the income share of the poorest 20 per cent of the population of any country has improved most in poor countries, and there is no evidence that this does not apply to CFA countries also.
- Topic:
- Economics, Human Welfare, International Political Economy, and International Trade and Finance
- Political Geography:
- Africa
71. How Does Monetary Policy Affect the Poor? Evidence from the West African Economic and Monetary Union
- Author:
- David Fielding
- Publication Date:
- 01-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The West African Economic and Monetary Union (UEMOA) has a history of monetary stability and low inflation. Nevertheless, there is substantial variation in relative prices within some UEMOA countries, in particular in the price of food relative to other elements of the retail price index (IHPC). Using monthly time-series data for cities within the region, we analyze the impact of changes in monetary policy instruments on the relative prices of components of the IHPC. We are then able to explore how the burden of monetary policy innovations is likely to be shared between the rich and poor.
- Topic:
- Economics, Human Welfare, International Political Economy, and International Trade and Finance
- Political Geography:
- Africa
72. A Development-focused Allocation of the Special Drawing Rights
- Author:
- Ernest Aryeetey
- Publication Date:
- 03-2004
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Efforts to realize the issue of development-focused Special Drawing Rights (SDR) by the International Monetary Fund (IMF) have been on-going for many years. Recently, however, the campaign first gained a new momentum immediately after the Asian financial crises with the new liquidity problems of developing nations following the collapse of private capital markets. Currently the search for financing options towards the achievement of the Millennium Development Goals drives the interest in development-focused SDRs. Extending the uses to which SDR can be put is derived from the growing demands on the international financial system to respond to the development finance needs of poor nations. Apart from the need to provide emergency funds in times of crises and the whole area of crisis prevention, increasingly the facilitation of development in poor countries and assistance to make the best policy decisions is considered crucial.
- Topic:
- Development, Economics, International Political Economy, and International Trade and Finance
- Political Geography:
- Asia
73. Regional or National Poverty Lines? The Case of Uganda in the 1990s
- Author:
- Simon Appleton
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Absolute poverty lines are often derived from the cost of obtaining sufficient calories. Where staples vary across regions, such poverty lines may differ depending on whether they are set using national or regional food baskets. Regional poverty lines are open to the objection that they may be contaminated by income effects. This paper explores this issue by focussing on Uganda, a country where widening spatial inequalities in the 1990s have caused concern. Conflicting results from earlier studies have suggested that the spatial pattern of poverty in Uganda is very sensitive to whether national or regional food baskets are used in setting poverty lines. We confirm this suggestion by comparing the spatial profile of poverty in 1993 using national and regional poverty lines. However, since the regions consuming the more expensive staple sources of calories are also those with higher incomes, using simple regional poverty lines is problematic. Instead, a method of setting regional poverty lines is considered that adjusts for income differentials between regions. Even with this adjustment, the use of regional food baskets implies a markedly different.
- Topic:
- Development, International Trade and Finance, and Poverty
- Political Geography:
- Uganda and Africa
74. Remittances by Emigrants: Issues and Evidence
- Author:
- Andrés Solimano
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Remittances, after foreign direct investment, are currently the most important source of external finance to developing countries. Remittances surpass foreign aid, and tend to be more stable than such volatile capital flows as portfolio investment and international bank credit. Remittances are also an international redistribution from low-income migrants to their families in the home country.
- Topic:
- Development, Economics, International Trade and Finance, and Migration
75. Innovative Sources for Development Finance: Over-Arching Issues
- Author:
- Anthony B. Atkinson
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- In analysing proposals for new sources of development funding, there are several issues that arise across the board. What is the role of new sources in relation to existing overseas development assistance? Should we be seeking new sources that generate a double dividend? Can the key elements of a proposal be achieved by another route? What should be the fiscal architecture? Is there a modern transfer problem? It is with these general concerns that the present paper deals. Its aim is to bring to bear on global public finance the accumulated knowledge in the field of national public finance, and more generally public economics.
- Topic:
- Development, Economics, and International Trade and Finance
76. National Taxation, Fiscal Federalism and Global Taxation
- Author:
- Robin Boadway
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper considers lessons from the practice of fiscal federalism for guidance on new approaches to development finance. Despite the fact that inter-regional redistribution in a federation relies on a central government with strong fiscal powers, the form of that redistribution can be used as a benchmark for international development assistance financing. In a federation, finance for less-developed regions takes the form of equalizing transfers to sub-national governments. The objective of these transfers is to enable sub-national governments to provide comparable levels of public services at comparable tax rates, called fiscal equity, leaving them discretion to implement interpersonal redistribution schemes within their jurisdictions. This same principle of assuming that national governments rather than donor nations are responsible for vertical equity within their borders leads to the view that the ideal form of development assistance is a system of equalizing inter-nation transfers intended to enhance fiscal equity.
- Topic:
- Development, Economics, Government, and International Trade and Finance
77. Environmental Taxation and Revenue for Development
- Author:
- Agnar Sandmo
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper considers the role of global environmental taxes both as instruments for improving the global environment and as a source of revenue for funding economic development. It reviews the general case for environmental taxes and the particular issues that arise for the adoption of such taxes in an international setting without a single jurisdiction. It also discusses the possibilities for political acceptance of such taxes when tax revenue is linked to the goal of economic development. The revenue potential of global environmental taxes is evaluated with special reference to a global carbon tax. It is found that this tax alone has the potential to raise sufficient revenue to finance the United Nations' Millennium Development Goals.
- Topic:
- Development, Economics, Environment, and International Trade and Finance
78. Which Types of Aid Have the Most Impact?
- Author:
- George Mavrotas
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The paper uses an aid disaggregation approach to examine the impact of different types of aid on the fiscal sector of the aid-recipient country. It uses time-series data on different types of aid (project aid, programme aid, technical assistance and food aid) for Uganda, an important aid recipient in recent years, to estimate a model of fiscal response in the presence of aid which combines aid disaggregation and endogenous aid. The empirical findings clearly suggest the importance of the above approach for delving deeper into aid effectiveness issues since different aid categories have different effects on key fiscal variables—an impact that could not be revealed if a single figure for aid was employed. More precisely, project aid and food aid appear to cause a reduction in public investment whereas programme aid and technical assistance are positively related to public investment. The same applies for government consumption. A negligible impact on government tax and non-tax revenues, and a strong displacement of government borrowing are also found.
- Topic:
- Economics, International Trade and Finance, and Poverty
- Political Geography:
- Uganda and Africa
79. Loan Processing Costs and Information Asymmetries - Implications for Financial Sector Development and Economic Growth
- Author:
- George Mavrotas and Salvatore Capasso
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The paper presents a model in which credit-constrained firms might delay the adoption of new and more productive technologies because of the very high external financing costs they face. Our point of departure is that the efficiency of the banking system can have a profound impact on real resource and investment allocation not only directly, by reducing the amount of resources channelled to the credit market, but also indirectly by affecting entrepreneurs' investment decisions. Along these lines of reasoning we develop a model of information asymmetries in the credit market in which high costs of processing bank loan applications might obstruct investments in high-tech projects and favour, instead, low-return, self-financed investments in mature sectors. The result is that these kinds of costs have a negative impact on the average capital productivity and on the rate of economic growth. In specific circumstances, the combination of these costs and the dynamics of capital accumulation can be such that the economy incurs in a 'technology trap', in which new technologies, even if readily available, will never be adopted because of high frictions and inefficiencies in the credit market, a situation that seems to be relevant to many developing countries.
- Topic:
- Development, Economics, and International Trade and Finance
80. The Revenue and Double Dividend Potential of Taxes on International Private Capital Flows and Securities Transactions
- Author:
- Ilene Grabel
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper explores two proposals to tax financial flows in developing economies—the package of policies implemented to various degrees by Chile and Colombia during the 1990s, widely referred to today as the Chilean model—and securities transactions taxes (STTs). I find that each provides a viable mechanism to raise revenue in some developing countries. Both can be introduced unilaterally (with the prospect of multilateral coordination in the future); both are progressive in their incidence, and in the case of the STT, represents an administratively manageable form of revenue collection. I also find that each entails double dividends that manifest in greater domestic and international macroeconomic stability.
- Topic:
- Development, Economics, and International Trade and Finance
81. Private Donations for International Development
- Author:
- John Micklewright and Anna Wright
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Charitable donations by private individuals and firms can help fund the Millennium Development Goals. What are the prospects for increasing donations for international development, whether from small-scale donors, the super-rich (as in the recent gifts by Bill Gates and Ted Turner), or the corporate sector? The paper starts by reviewing how large are the sums currently given in OECD countries (including gifts of time) and the problems development has in competing with domestic causes. It then looks at possibilities for the future, including tax deductions, the new 'global funds', corporate social responsibility and 'cause-related marketing', the use of the Internet, and long-term donor education.
- Topic:
- Development, International Cooperation, International Trade and Finance, and Third World
82. Revenue Potential of the Currency Transaction Tax for Development Finance: A Critical Appraisal
- Author:
- Machiko Nissanke
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The paper assesses the potential of currency transaction taxes (CTT, widely known as the Tobin tax), to raise revenue for global development. Though Tobin proposed and others assessed CTTs in terms of reducing exchange rate volatility and improving macroeconomic policy environments, this paper considers the CTT first and foremost from the standpoint of revenue. With a view of establishing a 'permissible' range of tax rates to obtain realistic estimates of revenue potential, it first reviews the debate over the effects of CTT on market liquidity and the efficiency of foreign exchange markets, and assesses the Spahn proposal for a two-tier currency tax. It then moves to a discussion of the technical and political feasibility of CTT, followed by an evaluation of several new proposals, such as those advanced by Schmidt and Mendez. The paper presents revenue estimates from CTT in light of recent changes in the composition and structure of foreign exchange markets.
- Topic:
- Development, Economics, Globalization, and International Trade and Finance
83. A Global Lottery and a Global Premium Bond
- Author:
- Tony Addison and Abdur R. Chowdhury
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The world lottery market now amounts to at least US$126 billion in sales. World market sales for all gaming products (public, charitable and commercial) total some US$1 trillion, of which Internet gambling accounts for US$32 billion. This paper assesses the prospects for harnessing this large and growing market for the purposes of development finance by means of a global lottery and a global premium bond (with the successful UK scheme providing a model for the latter). Each has different strengths: the global lottery can add to the supply of grant finance for development, while the global premium bond could be an attractive savings instrument for ethical investors. The paper concludes that global versions of both a lottery and a premium bond are viable and complementary in mobilizing more development finance.
- Topic:
- Development, Economics, International Cooperation, and International Trade and Finance
- Political Geography:
- United Kingdom
84. The International Finance Facility: The UK HM Treasury-DFID Proposal to Increase External Finance to Developing Countries
- Author:
- George Mavrotas
- Publication Date:
- 12-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The paper discusses the International Finance Facility (IFF), a joint HM Treasury-DFID proposal to increase development aid substantially for the Millennium Development Goals to be achieved by 2015. The main conclusion of the paper is that the proposed IFF is a promising, forward-looking and creative proposal for it implies a substantial increase in fresh, predictable and stable aid as well as a robust financial structure. However, there are a number of concerns about potential shortcomings of the proposal, namely its underlying assumptions about continuous commitment on behalf of the donor community towards the implementation of the IFF during the life of the Facility and most importantly its heavy reliance on political coordination among donor countries participating in the proposed scheme. Potential absorptive capacity constraints in IFF aid-recipient countries may be also relevant. Achieving its huge political task as well as alleviating the crucial constraints regarding its successful implementation seem to be the main challenges this innovative proposal needs to deal with in the near future.
- Topic:
- Development, International Cooperation, and International Trade and Finance
- Political Geography:
- United Kingdom and Europe
85. Some Welfare Implications of 'Who Goes First?' in WTO Negotiations
- Author:
- Basudeb Guha-Khasnobis
- Publication Date:
- 09-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- We envisage a logical framework to explain why some trade negotiations are delayed because parties differ on who should 'go first'. In our model, there are substantive welfare implications depending on which party sets tariff rates (or subsidies) first in a strategic optimization exercise. When knowledge about cost levels are incomplete or missing, and hence must be guessed with a probability, the chances of conflict regarding who goes first are extremely high in the situation modeled in this paper. As an institution with some power to set the rules of negotiations, the WTO should be able to anticipate such conflicts in upcoming negotiations. It can then set the rule (in this case, dictate who should go first) depending on whose interest it wants to protect. There is a wide range of choices for the WTO in this regard: OECD consumer's surplus, OECD producers' loss, net exports of developing countries, firm profits, or even, world welfare as the sum of all these components.
- Topic:
- Development, International Organization, International Political Economy, and International Trade and Finance
86. Who Gains from Tariff Escalation?
- Author:
- Basudeb Guha-Khasnobis
- Publication Date:
- 09-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- With the help of a simple model of production and trade, we examine the differential impact of tariff escalation on skilled and unskilled wages in an economy. Our findings provide a lobbying-based explanation of the prevalence of tariff escalation in developed countries. It also predicts the possible response of a developing country and shows how similar lobbying activity in that country can slow the pace of liberalization of service sector trade.
- Topic:
- Development, Economics, and International Trade and Finance
87. International Trade, Location and Wage Inequality in China
- Author:
- Songhua Lin
- Publication Date:
- 09-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Models of economic geography predict that transportation costs directly affect demand for goods and the supply of intermediate inputs. One of the reasons that international trade is concentrated in the coastal provinces of China is that they have lower transportation costs in transporting goods to other countries than do provinces in the interior. This paper examines the relationship between the provincial wage rate and each province's access to international markets, and to suppliers of intermediate inputs. A gravity equation is first estimated to construct these 'market access' and 'supplier access' variables. In the second stage, the effect of market access and supplier access on the wage rate is estimated. It is found that about one quarter of the provincial wage differences in the coastal provinces and 15 per cent of the wage differences in the interior provinces can be explained by these economic geography variables.
- Topic:
- Industrial Policy and International Trade and Finance
- Political Geography:
- China, Israel, and East Asia
88. Economic Polarization Through Trade: Trade Liberalization and Regional Growth in Mexico
- Author:
- Andrés Rodríguez-Pose and Javier Sánchez-Reaza
- Publication Date:
- 09-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The paper analyses the impact trade liberalization and economic integration have had on regional growth and regional disparities in Mexico over the last two decades. It is highlighted that the passage from an import substitution system to membership of the General Agreement on Tariffs and Trade (GATT) first, and to economic integration in the North American Free Trade Agreement (NAFTA) later, has been associated with greater concentration of economic activity and territorial polarization. The analysis also shows that these changes herald a period of transition between two growth models. Regional growth in the final stages of the import substitution period was mainly characterized by convergence and linked to the presence of oil and raw materials and proximity to Mexico City. Economic liberalization and regional integration in NAFTA has been related to regional divergence, a reduction of the importance of Mexico City as the main market and to the emergence of an economic system in which the endowment of skilled labour starts to play a more important role.
- Topic:
- Economics and International Trade and Finance
- Political Geography:
- North America and Mexico
89. Regional Output Differences in International Perspective
- Author:
- Alan Heston and Bettina Aten
- Publication Date:
- 08-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Accurate regional estimates of output are desired as an indicator of level of development and as a variable used to explain internal migration, demand patterns, fertility and other aspects of behaviour. This chapter explores one often neglected aspect of regional income differences, namely that due to price differences or regional purchasing power parities. When nominal regional income measures are adjusted for these price level differences they are termed real regional incomes. The preferred method of estimating regional purchasing power parities by detailed price comparisons is discussed for Brazil, the United States and the European Union. The empirical thrust of the chapter is an investigation of different methods for estimating regional real incomes based on PPP data for 167 countries and nominal regional incomes and other data for about 870 administrative areas at the subnational level. Even in their present form we believe the real income estimates provided for the geographical units present opportunities for understanding the world economic structure.
- Topic:
- Development, Economics, and International Trade and Finance
- Political Geography:
- United States, Europe, and Brazil
90. Impact of Trade Liberalization on Returns from Land: A Regional Study of Indian Agriculture
- Author:
- Ghosh Nilabja
- Publication Date:
- 06-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Trade liberalization, by aligning domestic prices with world prices, is envisaged to bring welfare gains to a country. In the case of Indian agriculture, owing to the vastness and diversity of the sector, the impact is likely to be profoundly unequal across regions especially when liberalization is double-edged, acting on both output and input sides. This paper views returns from land resource as a primary determinant of farmers' economic well-being and production incentive and considers paddy both as the dominant support for the rural population and as a product with comparative advantage, as most studies have demonstrated. Working with state and sub-state level data and taking account of the differences in technologies, productivities and transport costs, the paper finds that the gains vary regionally and may not be positive in all cases when both output and input prices are globally aligned.
- Topic:
- Development, Economics, and International Trade and Finance
- Political Geography:
- South Asia and India
91. The EU's Everything But Arms Initiative and the Least-developed Countries
- Author:
- Lucian Cernat, Sam Laird, Luca Monge-Roffarello, and Alessandro Turrini
- Publication Date:
- 06-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Using a computable general equilibrium simulation model and partial equilibrium simulations, based on the SMART model, the paper attempts to assess the aggregate worldwide distribution of gains and losses of the EU's Everything But Arms (EBA) initiative for both LDCs and third developing countries under different scenarios.
- Topic:
- Development and International Trade and Finance
- Political Geography:
- Europe
92. Developed Country Trade Barriers and the Least Developed Countries: The Economic Results of Freeing Trade
- Author:
- Jon D. Haveman and Howard J. Shatz
- Publication Date:
- 06-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The Doha Ministerial Declaration emphasized that priority should be given to improving market access for products originating in the Least Developed Countries (LDCs). In this paper, we analyze the importance of this proposition with respect to market access in the Triad economies. We first present a brief history of non-reciprocal preferences granted by the Triad. This covers Generalized System of Preference (GSP) programmes in each, and further preferences granted to African, Caribbean and Pacific countries by the EU and preferences granted to Caribbean Basin, Andean, and African countries by the US. This history is followed by an assessment of trade generated by these preferences in the year 2000, and of the extent to which LDC exports might be expected to increase should the preferences be made comprehensive. Preferences in 2000 are shown to have led to an increase of US$3.5 billion in LDC exports, while a complete duty-free treatment could expand LDC exports by as much as US$7.6 billion, 90 per cent of which will be absorbed by the US. As this represents a doubling of LDC exports to these countries, we interpret these results as an endorsement of this priority in the Doha Round of negotiations.
- Topic:
- Development, Economics, and International Trade and Finance
- Political Geography:
- Africa, United States, and Caribbean
93. The New Global Determinants of FDI Flows to Developing Countries: The Importance of ICT and Democratization
- Author:
- Tony Addison and Almas Heshmati
- Publication Date:
- 05-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Foreign direct investment (FDI) has increased dramatically in recent years. However, the distribution of FDI is highly unequal and very poor countries face major difficulties in attracting foreign investors. This paper investigates the determinants of FDI inflows to developing countries, with a particular emphasis on the impact of the 'third wave of democratization' that started in the early 1980s and the spread of information and communication technology (ICT) that began in the late 1980s. These two global developments must now be taken into account in any explanation of what determines FDI flows. Using a large sample of countries, together with panel data techniques, the paper explores the determinants of FDI. The causal relationship between FDI, GDP growth, trade openness and ICT is investigated. The main findings are that democratization and ICT increase FDI inflows to developing countries. The paper concludes that more assistance should be given to poorer countries to help them to adopt ICT and to break out of their present 'low ICT equilibrium' trap.
- Topic:
- Democratization, Development, Economics, and International Trade and Finance
94. Inflation, Output and Perfectly Enforceable Price Controls in Orthodox and Heterodox Stabilization Programmes
- Author:
- George Mavrotas and Mario Reyna-Cerecero
- Publication Date:
- 05-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The paper deals with the success of price controls in stabilizing high inflation rates and their effects on the real economy under an imperfect competition setting derived by optimal maximization. Our model builds on Helpman's work of price controls and imperfect competition, and incorporates inflation inertia through adaptive expectations. The model predicts that under these circumstances price controls can be an effective method of curving inflation when they accompany an orthodox monetary restriction programme; incomes policies alone cannot curve inflation substantially. Efforts where monetary growth is decreased gradually and price controls are implemented to achieve zero inflation result in the boom-recession cycle observed in many real life programmes. When monetary growth is curved immediately and price controls are implemented to achieve zero inflation, there follows a recession and not a boom. Orthodox money-based stabilization programmes implemented on their own need more time to control inflation and always produce a recession.
- Topic:
- Development, Economics, and International Trade and Finance
95. The 'Pull' and 'Push' Factors in North-South Private Capital: Conceptual Issues and Empirical Estimates
- Author:
- Matthew Odedokun
- Publication Date:
- 05-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper is an attempt to rectify some of the problems that characterize most earlier studies that seek to explain private capital flows to developing countries or, at least, to examine the subject from a different and complementary perspective. To accomplish this, we propose a model framework that approaches the issue from the perspective of a capital-exporting developed country and which also takes cognizance of developments in other industrialized countries that could be competing with developing countries for private capital flows. The model is operationalized and estimated with annual panel data over 1970-2000 for 19 capital-exporting developed countries. Specifically, we estimate equations for total private flows, FDI, total portfolio capital flows (PCF) and various categories of PCF. We also test for the effects of a number of factors, each of which has its own 'push' and 'pull' components. The specific explanatory factors are the level of per capita income, interest rate, economic growth, the prevailing phase of economic cycle, the degree of openness of the economy in the balance-of-payment capital account, macroeconomic imbalances, and external debt burden. The empirical findings confirm the posited effects of the 'push' and/or 'pull' component of each of the above factors.
- Topic:
- Development, Economics, Emerging Markets, and International Trade and Finance
96. Export Dynamism and Market Access
- Author:
- Jörg Mayer
- Publication Date:
- 04-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Market access liberalization has influenced product-specific growth of world exports and contributed to the shift in the structure of world exports of manufactures towards electrical and electronic goods (including parts and components), goods that require high R expenditures, and labour-intensive products such as clothing. Multilateral trade liberalization has strongly improved market access conditions for manufactures and partly explains why manufactures have experienced particularly strong growth in exports. The increased importance of vertical international production sharing and the associated preferential trading arrangements between geographically close countries with significantly different wage rates have been a key determinant of differences in export-value growth across individual manufactured products, as well as of the distribution of market shares for some of these products among developing countries. Projections based on a standard trade model suggest that moving to full trade liberalization would lead to an increase in the share of agricultural products in total world trade by almost two percentage points and give greater weight to the textile, clothing and automotive sectors within manufactured exports.
- Topic:
- Development, Economics, Emerging Markets, and International Trade and Finance
97. If People were Money: Estimating the Potential Gains from Increased International Migration
- Author:
- Jonathon Moses and Bjørn Letnes
- Publication Date:
- 04-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- In this paper we elaborate on the findings produced by an applied equilibrium model that is used to calculate the annual efficiency gains from free international migration. These findings suggest that we can expect significant gains from liberalizing international labour flows. In particular, we expand on two implicit aspects of the estimates: the actual number of migrants being generated by the various counter-factual scenarios, and the per-migrant cost/benefits associated with each. These estimates are then compared with contemporary migration flows and the findings of studies that analyse their economic impact. In light of these comparisons, we conclude that our original findings are not unreasonable.
- Topic:
- Development, Economics, International Trade and Finance, and Migration
98. E-business Model Innovation and Capability Building
- Author:
- Stéphane Gagnon
- Publication Date:
- 04-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- A firm's business model describes the way in which it creates, delivers, and appropriates value. In the debate about the ongoing demise of several e-commerce ventures, only a few analysts have looked at the relative sanity of innovative e-business Models, relying mostly on static environmental variables and the inherent economic logic of each industry. Our study sheds new light on this debate by concentrating on a set of more complex factors, namely the relative difficulty to build new capabilities, whether by creating or acquiring them. We interviewed 60 e-commerce ventures between 2 and 3 years old, both independent and corporate ones, in order to measure their performance, the innovativeness of their e-business model, their obstacles to capability building, and their exploitable resource base. By performing cluster, discriminant, and regression analyses, we demonstrate that a number of typical obstacles to capability building can significantly affect the relative success or failure of innovative e-business models, but that a richer resource base may alleviate this relationship. We end with a discussion of the implications for the e-business model literature, and point out to some new directions to explain how various e-commerce firms, whether 'pure-play' or 'click-and-mortar', can successfully innovate despite rampant capability building difficulties.
- Topic:
- Economics, Emerging Markets, and International Trade and Finance
99. 'Looking at the Other Side of the Coin': The Relationship between Classical Growth and Early Development Theories
- Author:
- Maiju Perälä
- Publication Date:
- 04-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper extends the history of thought narrative on Allyn Young to recognize the close relationship that the classical growth theory has with the early development theory, as Young's externalities-fuelled, cumulative growth process influenced the theoretical thought of the early development theory pioneers, Paul Rosenstein-Rodan and Ragnar Nurkse. The conditions that prevent the development of underdeveloped regions, indivisibilities and inelasticities of supplies and demands, represent the breakdown of the conditions that Young highlights as necessary for self-sustaining growth to occur. Hence, Young's cumulative growth process underlies the view of these early development theorists, though their focus is on the malfunctioning and restarting of this process.
- Topic:
- Development, Economics, Emerging Markets, International Trade and Finance, and Poverty
100. Aid, Debt Burden and Government Fiscal Behaviour: A New Model Applied to Côte d'Ivoire
- Author:
- Mark McGillivray and Bazoumana Ouattara
- Publication Date:
- 04-2003
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper examines the impact of foreign aid on public sector fiscal behaviour in Côte d'Ivoire. A special interest is the relationship between aid, debt servicing and debt, given that Côte d'Ivoire is a highly indebted country. The theoretical model employed differs from those of previous studies by highlighting the interaction between debt servicing and the other fiscal variables. This model is estimated using 1975–99 time series data. Key findings are that the bulk of aid is allocated to debt servicing and that aid is associated with increases in the level of public debt.
- Topic:
- Debt, Development, Economics, and International Trade and Finance
- Political Geography:
- Africa
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