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532. Capital Flight from Africa and Development Inequality: Domestic and Global Dimensions
- Author:
- Léonce Ndikumana
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Over the past decades African economies have exhibited two stunning paradoxes: growth acceleration coexisting with stubbornly high poverty rates; increasing capital flight along with widening development financing gaps. There has been no attempt to link the two in the literature. This paper attempts to fill the gap; it suggests that the implications of capital flight for the inequality-growth-poverty nexus may be the key. Specifically, the paper proposes to shift attention to conceptual and empirical analysis of the implications of capital flight for inequality along income lines and inequality in development both within African countries and between Africa and advanced economies. The evidence presented in the paper indicates that Africa may be more unequal along human development dimensions than along income, and points to the possibility that capital flight may be one of the factors behind the observed limited poverty reduction gains from growth and persistent development gap between African countries and advanced economies.
- Topic:
- Development, Government, Politics, History, Economies, Inequality, Finance, Microeconomics, Capital Flight, and Trade
- Political Geography:
- Africa
533. The Prince('s) Rules: Economic Theories and Political Struggle in Europe
- Author:
- Orsola Costantini
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- The Cyclically Adjusted Budget (CAB) is the estimated size of the public budget at some previously defined level of output which may represent the ‘normal’ output or a policy target and that usually is considered to be unaffected by business fluctuations or cycles. Such an estimate is supposed to isolate the automatic movements of revenues and expenditures, given the current structure of tax and transfers, from discretionary fiscal interventions and indicate the “impact” and sustainability of fiscal action. But this definition hardly does justice to the long and contentious history of this fateful estimate, which has been differently named, interpreted and calculated over the years and played a crucial role in many of the most important controversies in macroeconomics and public policy. This paper traces the evolution of the concept through time, tying it to the history of economic thought as well as economic history and policymaking. The reconstruction illustrates the important role the distribution of power plays in the evolution of economic theory and policy as the historical forms of the state-market relationship evolve. Here, however, we will focus mainly on the case of the European Union and Eurozone.
- Topic:
- Government, Politics, Science and Technology, History, Inequality, and Innovation
- Political Geography:
- Europe
534. Social investment for inclusive growth: a Southern European perspective
- Author:
- Annamaria Simonazzi
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Inequality has emerged as a major economic issue: sharp increases in the share of income going to those at the very top of the income distribution, a rising share of income going to profits, stagnant real wages, and a fall in median family income have raised concern over the sustainability of our economies and societies.
- Topic:
- Science and Technology, Inequality, Investment, Innovation, and Social Investment
- Political Geography:
- Southern Europe
535. Towards a Sovereign Debt Restructuring Framework
- Author:
- Richard A. Conn Jr.
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Initiatives to improve sovereign debt restructuring (“SDR”) began long before recent Argentine bond decisions but were redoubled in the aftermath of these rulings. At first glance, these cases identify problematic contract language that could be rectified by re-drafting critical boilerplate provisions such as the pari passu and collective action clauses (“CAC”). But given the effects of disorder, costs and delays in restructuring foreign sovereign debt upon debtor countries, creditors, and the bond market itself, it is understandable that some are uncomfortable leaving such matters solely in the hands of private parties to contracts without a framework that assists in minimizing damage to contracting and non-contracting parties alike. The creation of an agreed upon framework that facilitates the interaction among private and public parties is a good alternative to the status quo if this approach can provide greater stability and efficiency in the restructuring process while allowing for sufficient flexibility and certainty (traditional benefits of the iterative development of contract language) for market participants. There are a broad variety of options to consider and analyses to be performed, particularly relating to political feasibility, before proposing a framework. As discussed herein, given the historic context of SDR, a framework that focuses upon consensual procedures seems to be a logical starting point since it could add value to the restructuring process without treading on the political terrain of sovereigns.
- Topic:
- Government, Politics, History, Inequality, Finance, and Sovereign Debt
- Political Geography:
- Global Focus
536. Gordian knot: A panoramic perspective on stemming illicit financial flows from Africa
- Author:
- Melvin Ayogu
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Pushing this strand of research brings a certain feeling of trepidation. It comes from recognizing that by openly elaborating on how to catch or deter a criminal, you thereby confer an undue advantage on the criminal through forewarning. Obtaining a head start in the race to prevail, they (criminals) are able to consider and possibly devise an effective circumvention strategy. But if the criminal must not see it coming then, what aspects of how to stop a thief shall we and shall we not reveal or discuss openly amongst all? There are no easy answers to the conundrum. For instance, one has to consider the signaling value of openly engaging in discussions on how to stop criminal activities and then, balance that benefit against the paradox of empowerment. The balancing act is important because some aspects of the preventive remedies can unintentionally enable the very thing which society is striving to prevent.
- Topic:
- Development, Government, Politics, History, Inequality, Finance, Microeconomics, and Trade
- Political Geography:
- Africa
537. Severing the Innovation-Inequality Link: Distribution Sensitive Science, Technology and Innovation Policies in Developed Nations
- Author:
- Amos Zehavi and Dan Breznitz
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Innovation is essential to economic growth. However, it appears that the ways in which we pursue innovation policies have aggravated inequality. Inequality is an increasingly contentious political issue in both wealthy and emerging economies. Yet, it is becoming clear that use of traditional state instruments to alleviate inequality by redistributive means, is no longer sufficient. For those reasons, in this paper we consider other state instruments that are rarely associated with distributive goals. Specifically, we inquire whether we can successfully devise and employ Distributive-Sensitive Science and Technology and Innovation Policies focused on disadvantaged groups of users and consumers of technology. Following an exploratory theoretical approach, the paper first develop four types of such programs, and then utilize a comparative approach to analyze existing programs that fit into these categories, first, in Israel, and then, in the United State, Germany, and Sweden. We conclude by arguing that although these programs are currently driven primarily by economic efficiency concerns and not by distributive ones, they show the promise of our approach of utilizing innovation policy to reach social policy goals.
- Topic:
- Development, Environment, Science and Technology, Inequality, Economic Growth, and Innovation
- Political Geography:
- Israel, Germany, Sweden, and United States of America
538. Leveraging the network: a stress-test framework based on DebtRank
- Author:
- Stefano Battiston, Guido Caldarelli, Marco D'Errico, and Stefano Gurciullo
- Publication Date:
- 02-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- We develop a novel stress-test framework to monitor systemic risk in financial systems. The modular structure of the framework allows to accommodate for a variety of shock scenarios, methods to estimate interbank exposures and mechanisms of distress propagation. The main features are as follows. First, estimate and disentangle not only first-round effects(i.e. shock on external assets) and second-round effects (i.e. distress induced in the interbank network), but also a third-round effect induced by possible fire sales. Second, monitor at the same time the impact of shocks on individual or groups of financial institutions as well as their vulnerability to shocks on counterparties or certain asset classes. Third, estimate loss distributions, thus combining network effects with familiar risk measures such as VaR and CVaR. Fourth, in order to do robustness analyses and cope with incomplete data, generate sets of networks of interbank exposures coherent with the total lending and borrowing of each bank. As an illustration, we carry out a stress–test exercise on a dataset of listed European banks over the years 2008-2013. We find that second-round and third-round effects dominate first-round effects, therefore suggesting that most current stress-test frameworks might lead to a severe underestimation of systemic risk.
- Topic:
- Debt, Science and Technology, Inequality, Finance, and Innovation
- Political Geography:
- Global Focus
539. Pseudo-wealth Fluctuations and Aggregate Demand Effects
- Author:
- Martin Guzman and Joseph E. Stiglitz
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- This paper presents a theory of pseudo-wealth in a model that displays aggregate demand externalities. With heterogeneous beliefs and a market for exploiting those differences in beliefs, pseudo-wealth will be created–i.e. the sum of expected wealth of all the individuals will be larger than what it is feasible for the society. Under some conditions, those perceptions will lead to larger levels of consumption of (tradable and non-tradable) goods, leisure, and borrowing than in a world with common beliefs. If those differences in beliefs disappear, pseudo-wealth will disappear, leading to adjustments in behavior that amplify the initial decrease in expected wealth. That is, we provide a simple general equilibrium model in which the destruction of pseudo-wealth amplifies the effects of the initial disturbance, leading to large decreases in economic activity. Importantly, this downturn is not associated with any change in the state variables that describe the economy. More generally, the paper shows that completing markets (in this case by creating a market for bets) may imply lower output both in the present and in the future, raising unsettling questions on criteria for welfare analysis.
- Topic:
- Markets, Inequality, Finance, Macroeconomics, Welfare, and Wealth
- Political Geography:
- Global Focus
540. Board Gender Diversity, Audit Fees and Auditor Choice
- Author:
- Judy Tsui
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- Using a sample of U.S. firms spanning 2001-2011, we examine whether female directors (female audit committee members) affect audit quality in terms of audit effort and auditor choice. After correcting for endogeneity and other board, firm and industry characteristics, we find that firms with gender-diverse boards pay higher audit fees and are more likely to choose specialist auditors compared to their peers. Our findings suggest that boards with female directors are likely to demand higher audit quality, ceteris paribus.
- Topic:
- Economics, Gender Issues, Race, Culture, Inequality, Diversity, Private Sector, and Audit
- Political Geography:
- Global Focus