democratization and institutional change in mexico the logic of partial insulation this article builds on previous work examining the incentives facing authoritarian elites to use central bank reform to constrain the economic policy choices of future governments it suggests that because creating an autonomous agency is costly authoritarian elites will only cede policymaking powers to an independent body commensurate with the degree of democratic threat that they face when a transition is looming insulation should be complete so as to tie the hands of successor governments to the greatest extent possible but when this risk of replacement is milder incumbent elites will be careful to design rules that continue to afford them some margin of maneuver as long as they remain in office the mexican central bank reform of 1993 is used as an illustration of the partial insulation strategy at work

democracy and economic growth a meta analysis despite a sizeable theoretical and empirical literature no firm conclusions have been drawn regarding the impact of political democracy on economic growth this article challenges the consensus of an inconclusive relationship through a quantitative assessment of the democracy growth literature it applies meta regression analysis to the population of 483 estimates derived from 84 studies on democracy and growth using traditional meta analysis estimators the bootstrap and fixed and random effects meta regression models it derives several robust conclusions taking all the available published evidence together it concludes that democracy does not have a direct impact on economic growth however democracy has robust significant and positive indirect effects through higher human capital lower inflation lower political instability and higher levels of economic freedom democracies may also be associated with larger governments and less free international trade there also appear to be country and region specific democracy growth effects overall democracy s net effect on the economy does not seem to be detrimental

credibility versus control agency independence and partisan influence in the regulatory state there is a natural tension between theories of party government and theories of regulatory politics whereas effective party government requires that politicians have firm control over public polic

optimal control of locusts in subsistence farming areas abstract locust swarms hit subsistence staple crop growing households at random and are not privately controllable an aerial spraying optimal control model that supports the said households livelihood at least expected cost is therefore developed the qualitative properties of the model are analysed under economically plausible but mild assumptions the steady state comparative statics reveal that the locust swarm size and the probability of a household s crop being destroyed by a swarm decrease with the number of households yield per household and the staple crop s replacement price and increase with the marginal cost of spraying and the planner s discount rate a local comparative dynamics analysis is also conducted as it provides the necessary economic intuition behind other ostensibly anomalous steady state comparative statics results

political institutions and central bank independence a cross country analysis using three quantitative measures of central bank independence we apply ols and tsls regression methods to investigate the possible correlation between political liberty political instability and central bank independence for a sample of western democracies and highly democratic developing countries we show that cukierman s legal independence index is positively correlated with political freedom and regime political stability it is negatively correlated with party political stability for a sample of developing countries that excludes dictatorships we show that a special index of legal central bank autonomy is positively associated with political freedom and political stability finally we observe that for the same sample of nations the turnover index of central bank independence is not sensitive to our political variables

why democracies produce efficient results by applying the standard tools of microeconomic analysis i argue that democratic markets work as well as economic markets in particular i show that previous work has greatly exaggerated the existence of principal agent and informational problems in electoral markets and has drawn incorrect conclusions

the two freedoms economic growth and development an empirical study log linear methods are applied to categorical data containing economic freedom political freedom the level of income and the rate of economic growth for a panel of about 100 countries from 1975 to 1992 the main results are given economic freedom the rate of economic growth is independent of political freedom and the level of income given the level of income political freedom is independent of economic freedom and the growth rate the analysis suggests the fundamental effects of economic freedom in fostering economic growth and a high level of income as the condition of a high degree of political freedom

too many cooks committees in monetary policy how many people should decide about monetary policy in this paper we take an empirical perspective on this issue analyzing the relationship between the number of monetary policy decisionmakers and monetary policy outcomes using a new data set that characterizes monetary policy committees mpcs in more than 30 countries from 1960 through 2000 we find a u shaped relation between the membership size of mpcs and inflation our results suggest that the lowest level of inflation is reached at mpcs with about seven to ten members similar results are obtained for other measures such as inflation variability and output growth we also find that mpc size influences the success of monetary targeting regimes in contrast there is no evidence that either turnover rates of mpc members or the membership composition of mpcs affect economic outcomes

central bank transparency and cross border banking abstract we analyze the effect of central bank transparency on cross border bank activities based on a panel gravity model for cross border bank claims for 21 home and 47 destination countries from 1998 to 2010 we find strong empirical evidence that a rise in central bank transparency in the destination country on average increases cross border claims using interaction models we find that the positive effect of central bank transparency on cross border claims is only significant if the central bank is politically independent and operates in a stable economic environment central bank transparency and credibility are thus considered complements by banks investing abroad

political and institutional determinants of fiscal policy in the european community in recent theoretical and empirical research the variation in political and institutional arrangements which may affect the process of national policy formation is examined in order to explain cross country differences with respect to fiscal policies pursued in this paper we build upon this literature and examine whether and how cross country differences in debt accumulation and public sector size of member countries of the european community during the 1980s can be explained we conclude that the growth of government debt is positively related to the frequency of government changes and negatively to sound budgetary procedures in countries with left wing governments the growth of the share of government spending in total output generally tends to be higher

fiscal deficits and inflation abstract macroeconomic theory postulates that persistent fiscal deficits are inflationary yet empirical research has had limited success in uncovering this relationship this paper reexamines the issue in light of broader data and a new modeling approach that incorporates two key features of the theory unlike previous studies we model inflation as non linearly related to fiscal deficits through the inflation tax base and estimate this relationship as intrinsically dynamic using panel techniques that explicitly distinguish between short and long run effects of fiscal deficits results spanning 107 countries over 1960 2001 show a strong positive association between deficits and inflation among high inflation and developing country groups but not among low inflation advanced economies

electoral governance matters explaining the quality of elections in contemporary latin america this article provides a systematic cross national analysis of the role of electoral administration in explaining acceptable democratic presidential elections in 19 countries in latin america since the year 1980 or the first pivotal transitional election the authors provide two alternative measures of election administration one focused on the degree of partisanship or professional independence and another on formal legal institutional independence as well as on other key factors to test partial proportional odds ordered logit models predicting the probability of an acceptable flawed or failed electoral process the results show an important positive role for professional independent electoral commissions on electoral outcomes in latin america controlling for other socioeconomic and political factors formal legal independence matters when the rules of the game are likely to be respected in addition low quality elections are found disproportionately where incumbents seek reelection and where vic

who chooses to inflation target abstract in this article we seek what are the factors behind a country s decision to move to inflation targeting we find that high past inflation low debt levels and the absence of a nominal exchange rate anchor increase the probability that a country will end up opting for it

new evidence on the relationship between democracy and economic growth it is often maintained that democracy is a luxury which comes at a price in terms of subsequent slower increases in national living standards however various recent cross section studies on economic growth have found evidence that lack of civil and political liberties is negatively correlated with economic growth using a new measure of democracy which is based upon the number of years that a country can be regarded as a democracy the robustness of this relationship is examined both direct and indirect effects of lack of democratic liberties are analysed our main conclusion is that the relationship between democracy and economic growth is not rubust

does democracy cause innovation an empirical test of the popper hypothesis abstract democratic countries produce higher levels of innovation than autocratic ones but does democratization itself lead to innovation growth either in the short or in the long run the existing literature has extensively examined the relationship between democracy and growth but seldom explored the effect of democracy on innovation which might be an important channel through which democracy contributes to economic growth this article aims to fill this gap and contribute to the long standing debate on the relationship between democracy and innovation by offering empirical evidence based on a data set covering 156 countries between 1964 and 2010 the results from the difference in differences method show that democracy itself has no direct positive effect on innovation measured with patent counts patent citations and patent originality

further evidence on the relationship between economic freedom and economic growth often it is maintained that economic freedom may further high levels of economic growth using various measures of economic freedom constructed by scully and slottje the robustness of this relationship is examined both direct and indirect effects of lack of liberties are analysed our main conclusion is that the link between economic freedom and economic growth depends upon the measure used for some indicators of economic freedom there appears a robust direct relationship while for others there is no such relationship investment is not related to our indicators for economic freedom

market oriented institutions and policies and economic growth a critical survey this paper surveys recent evidence suggesting that market oriented institutions and policies are strongly related to economic growth focusing on studies using the economic freedom ef indicator of the fraser institute this index is critically discussed also various serious shortcomings of empirical studies using this index are identified nevertheless there are strong indications that liberalization i e an increase in the ef index stimulates economic growth this paper also reviews studies on the determinants of ef political liberalization is often found to enhance economic liberalization whereas there is less evidence for causality running in the other direction

political influence on the central bank international evidence political influence on the central bank is measured bere by looking at the probability that a central bank governor will be replaced shortly after a political change of government the governor changes about half the time witbin six months of a nonconstitutional or other radical change of government a military coup or a restoration of democracy the governor is much less likely to change within six months following a routine change in the head of government about one fourth of the time in developing countries and one tenth in industrial countries these indicators vary across countries and correlate statistically with inflation and its variability and with real growth and real interest rates differences in the vulnerability of the central bank to political instability in political instability itself and in central bank turnover in nonpolitical periods seem to be a major part of the explanation for why developing countries have on average higher and more variable inflation than industrial countries do

the effectiveness of monetary policy anchors firm level evidence analyses of monetary policy posit that exchange rate pegs inflation targets and central bank independence can help anchor private sector inflation expec tations yet there are few direct tests of this argument we offer cross national micro level evidence on the effectiveness of monetary anchors in controlling private sector inflation concerns using firm level data from eighty one countries approximately 10 000 firms we find evidence that international anchors exchange rate commit ments correlate significantly with a substantial reduction in private sector concerns about inflation while domestic anchors inflation targeting and central bank inde pendence do not our conjecture is that private sector inflation expectations are more responsive to exchange rate anchors because they are more transparent more con straining and more costly than domestic anchoring arrangements the literature on monetary policy highlights the role of monetary institutions in stabilizing private sector inflation expectations central bank independence cbi inflation targeting it and fixed exchange rates pegs are widely viewed as insti tutions that have the capacity to mitigate private sector concerns that policymak ers will exploit them after they have locked in their price wage and investment decisions while other empirical research explores the institutional correlates of inflation and its variability yielding mixed results we use firm level data in our study to directly assess the impact of monetary anchors on private sector inflation concerns we find evidence that pegs mitigate firm owners concerns with infla tion but that domestic anchors such as it and cbi are uncorrelated with our micro indicators of inflation expectations considerable research has investigated the use of it cbi and pegs as institu tions that establish monetary policy credibility whereas these anchors are expected

short term monitoring of fiscal policy discipline under the maastricht treaty and the stability and growth pact sgp european union eu member states commit themselves to avoid excessive deficits over 3 of gdp and to pursue the medium term objective of budgetary positions close to balance or in surplus the sgp also provides regulation for the surveillance of budgetary positions an analysis of tools for the surveillance of budgetary positions is the focus of this paper in particular it addresses two open issues in the empirical public finance literature which are crucial for monitoring fiscal policy discipline in the eu first the estimation of the structural component of the fiscal balance ratio second the computation when only annual fiscal data are available of quarterly budget balance ratios using relevant information from quarterly measured macroeconomic series an econometric model that addresses both issues is presented and estimated additionally this modelling framework allows us to answer questions such as what is the safety margin that will prevent a particular country from reaching with certain probability a budget deficit that breaches the 3 upper bound copyright 2004 john wiley sons ltd

on central bank independence and the stability of policy targets it is argued that impediments to the establishment of an independent central bank arise in the presence of unstable policy targets changing policy targets may occur with an officemotivated policymaker this differs from politico economic models where targets change depending on the partisanship of the politicians in office in the model the principal faces a tradeoff between the credibility benefits of an independent central bank and the flexibility to pursue shifts in his policy targets allowed by a regime of policy discretion an empirical section addresses the issue of the correlation between central bank independence and the stability of policy targets

reassessing discretionary fiscal policy in 1992 president bush proposed legislation intended to speed up the recovery from the 1990 91 recession congress rejected this proposal for countercyclical fiscal policy stimulus in early 1993 president clinton proposed his own stimulus package but congress rejected this proposal too many reasons were given for deciding against these two discretionary fiscal policy proposals but perhaps the most common one was the large federal budget deficit in the early 1990s with the rapid disappearance of budget deficits in recent years this reason to vote against a discretionary fiscal stimulus is unlikely to be mentioned in the next economic cycle discretionary countercyclical fiscal policy again appears to be a politically feasible option but should america use it after so many years of disuse much has happened in macroeconomics since the 1960s and 1970s when discretionary countercyclical fiscal policy was last considered a serious option in the united states first monetary policy making has changed substantially over the last two decades the federal reserve s interest rate decisions have become more explicit more systematic and more reactive to changes in both inflation and output the fed has placed a greater emphasis on keeping inflation low the experience with this new policy has been very favorable inflation has been low since the early 1980s and the real economy has been more stable the 1980s and 1990s saw two lengthy expansions separated by a relatively short and mild recession in terms of the tradeoff between output variability and inflation

price stability and central bank independence discipline credibility and democratic institutions despite mixed empirical evidence in the past two decades central bank independence cbi has been on the rise under the assumption that it ensures price stability using an encompassing theoretical approach and new yearly data for de jure cbi seventy eight countries 1973 2008 we reexamine this relationship distinguishing the role of printing less money discipline from the public s beliefs about the central bank s likely actions credibility democracies differ from dictatorships in the likelihood of political interference and changes to the law because of the presence of political opposition and the freedom to expose government actions cbi in democracies should be directly reflected in lower money supply growth besides being more disciplinarian it also ensures a more robust money demand by reducing inflation expectations and therefore inflation empirical results are robust and support a discipline effect conditioned by political institutions as well as a credibility effect

the european central bank independence accountability and strategy a review this paper reviews research on central banking and monetary policy with special emphasis on the position of the future european central bank nowadays it is often thought that an independent central bank with an explicit mandate to aim for price stability constitutes an important institutional device to assure price stability indeed the ecb will be one of the most independent central banks as follows from the codings of various indicators measuring legal independence still it does not follow straightforwardly from the literature that the statute of the ecb is optimal it is also argued that the accountability of the ecb is poorly arranged for in comparison with that of several national central banks finally the discussion about the monetary strategy of the ecb is reviewed

variation in central bank independence across countries some provisional empirical evidence in this paper seven hypotheses to explain variation in central bank independence across countries are tested the predictions based upon the theory that delegation of authority by politicians to the central bank is used as a commitment device are not supported central bank independence is not higher the larger the employment motivated inflationary bias the higher political instability or the larger the government debt central bank independence is positively related to historical inflation experience and negatively with political instability we do only find limited support for the view that countries with a universal banking system and countries whose central banks do not regulate financial institutions have more independent central banks

seigniorage and political instability the importance of seigniorage relative to other sources of government revenue differs markedly across countries this paper tries to explain this regularity by studying a political model of tax reform the model implies that countries with a more unstable and polarized political system will have more inefficient tax structures and thus will rely more heavily on seigniorage this prediction of the model is tested on cross sectional data for seventy countries the authors find that after controlling for other variables political instability is positively associated with seigniorage copyright 1992 by american economic association

how citizens participate in macroeconomic policy international experience and implications for poverty reduction summary many developing and transitioning countries have difficulty sticking to sound macroeconomic policy international donors are pushing recipient countries to forge a public consensus on macroeconomic policy as a means to enhance sustainability and impacts on the poor finance and budget officials central bank staff and economic policymakers however often assume that citizens cannot understand or contribute to macroeconomic policy yet the poor often do not trust the government to make the right decisions for them how can citizen participation help bridge this gap based on a review of international experience the paper explores this question and identifies how development administrators can employ civic participation in macroeconomic policy the discussion highlights where citizens have the greatest options for participation and notes the impacts participation can have on fostering policies and outcomes that target poverty reduction 2003 elsevier science ltd all rights reserved

political regimes and economic growth arguments that relate regimes to growth focus on property rights pressures for immediate consumption and the autonomy of dictators while everyone seems to agree that secure property rights foster growth it is controversial whether democracies or dictatorships better secure these rights the main mechanism by which democracy is thought to hinder growth is pressure for immediate consumption which reduces investment only states that are institutionally insulated from such pressures can resist them and democratic states are not the main argument against dictatorships is that authoritarian rulers have no interest in maximizing total output these views are summarized in turn

the political economy of monetary institutions in recent decades countries have experimented with a variety of monetary institutions including alternative exchange rate arrangements and different levels of central bank independence political economists have analyzed the choice of these institutions emphasizing their role in resolving both the time inconsistency problem and dilemmas created by an open economy this first generation work however suffers from a central limitation it studies exchange rate regimes and central bank institutions in isolation from one another without investigating how one monetary institution affects the costs and benefits of the other by contrast the contributors to this volume analyze the choice of exchange rate regime and central bank independence together and in so doing present a second generation of research on the determinants of monetary institutions the articles incorporate both economic and political factors in explaining the choice of monetary institutions investigating how political institutions democratic processes political party competition and interest group pressures affect the balance between economic and distributional policy objectives

domestic capacity and the implementation gap in regional trade agreements regional trade agreements rtas all over the world share many of the same institutional features from dispute settlement mechanisms to legalized language to escape clauses and espouse many of the same goals but many of those features are unimplemented in different contexts across the world many observers have pointed to an implementation gap in rtas most of which promise much but deliver relatively little but offer no explanation for this gap i argue that this is explained by domestic capacity in countries where the rule of law is weak and infrastructure is insufficient and particularly when those elements interact it is difficult to implement trade agreements this article utilizes expert survey data to demonstrate that member states with poor infrastructure and little respect for the rule of law are unable to carry out the obligations they agree to in their trade agreements domestic capacity both physical and institutional can explain the implementation gap between what agreements promise and wh

central bank reform liberalization and inflation in transition economies an international perspective this paper develops extensive new data on the legal independence of new central banks in 26 former socialist economies fse this data is constructed using the codification system for measuring legal independence developed in cukierman webb and neyapti 1992 and in chapter 19 of cukierman 1992 this makes it comparable with earlier data on central bank independence cbi in the industrial democracies and in non fse developing countries and permits experimentation with alternative indices of cbi like those reviewed in eijffinger and van keulen 1995 the new indices of independence indicate that central bank cb reform in the fse during the nineties has been quite ambitious in spite of the large price shocks induced by the transformation from plan to market reformers in those countries chose to create central banks with levels of legal independence that are substantially higher on average than those of developed economies during the eighties based on data from 1989 through 1998 the evidence in the paper suggests that cbi is unrelated to inflation during the early stages of liberalization but for sufficiently high and sustained levels of liberalization and controlling for variables like price decontrols and wars legal cbi and inflation are significantly and negatively related these findings are consistent with the view that legal cbi no matter how high cannot contain the powerful inflationary impact of wide scale liberalization of formerly controlled prices but once the process of liberalization has gathered sufficient momentum legal independence becomes effective in slowing inflation down and the cumulative liberalization index developed by de melo et al 1996 becomes relatively less important the paper also presents evidence on factors that affect the level of cbi and examines the relation between inflation and cbi within a broader sample composed of the transition and of the developed economies

macro prudential governance and central banks facts and drivers abstract the great crisis has highlighted the importance of establishing macro prudential architectures to address problems of financial stability central banks are always part of macro prudential settings but their role is far from being homogeneous across countries reflecting the fact that according to economic theory there are pros and cons in extending central bank influence to macro prudential supervision the issue is then genuinely empirical are there any meaningful drivers explaining the actual choices made by policymakers about the central bank s role in macro prudential governance we identify three potential drivers micro supervision involvement monetary policy discretion overall institutional independence and test for their relevance by analysing current institutional settings in 31 advanced and emerging market economies we find that central bankers already in charge of micro supervision and less politically independent are more likely to get extended macro prudential powers the same is true if they have low monetary policy discretion being constrained by a monetary stability objective we interpret these results by using a political economy perspective

tinpots totalitarians and democrats an empirical investigation of the effects of economic growth on civil liberties and political rights ronald wintrobe 1990 1998 has recently provided atheoretical foundation for estimating equations that attemptto explain the dependence of civil liberties and politicalrights in non democratic regimes on the history of economicgrowth this theory suggests that data from different kinds ofnon democratic countries should not be pooled without allowingcoefficients to vary with regime type it also placesinteresting restrictions on the signs of the coefficients ofeconomic growth in equations explaining freedom in the typesof regimes wintrobe identifies in this paper we employ theserestrictions to test wintrobe s theory some additionalhypotheses about the difference between democratic andnon democratic regimes and about the role of education notconsidered by wintrobe are also investigated the results indicate clearly that the relationship between thedegree of freedom as measured by the sum of the gastilindexes of civil liberties and political rights andeconomic growth varies significantly across all types ofregimes totalitarians that attempt to maximize power areclearly different than tinpots that just attempt to maintainpower in this respect and non democratic regimes differ fromdemocracies other aspects of the theory are partiallyconfirmed in particular in totalitarian regimes positivegrowth reduces freedom and negative growth increases it insome specifications the theory predicts the opposite patternfor tinpots and we do find that negative growth reducesfreedom in tinpot regimes however positive growth in tinpotsalso appears to reduce freedom in some cases which is not inaccord with the theory secondary schooling has a positive effect on freedom as inprevious empirical work a result that is shown here to holdeven when each type of regime is considered separately butthe effect of primary schooling is different in tinpot andtotalitarian regimes but not in democracies primaryschooling is associated with reduced freedom

the institutional framework and economic development the compound growth rates of per capita output and farrell type efficiency measures for 115 market economies over the period 1960 80 were compared with measures of political civil and economic liberty it was found that the institutional framework has significant and large effects on the efficiency and growth rate of economies politically open societies which subscribe to the rule of law to private property and to the market allocation of resources grow at three times the rate and are two and one half times as efficient as societies in which these freedoms are abridged

what will take the con out of econometrics the paper begins with the question of whether leamer s extreme bounds analysis eba really does take the con out of econometrics by analytically demonstrating that the extreme bounds are simply functions of the f statistic for the deletion of variables from a regression we conclude that the information provided by eba represents no advance over that available from traditional methods furthermore there is a degree of arbitrariness in eba which exactly parallels the selective reporting of regressions it was designed to supplant the last part of the paper attempts a positive response to its title by following a well defined series of modelling steps we maintain that cooley and le roy s eba derived conclusions concerning the interest elasticity of money demand owe more to a faulty methodology than to the data this abstract was borrowed from another version of this item

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

length of compulsory education and voter turnout evidence from a staged reform this study estimates the impact of education on voter turnout the identification relies on a reform which increased the length of compulsory schooling in norway from seven to nine years the impact is measured both at the individual and the municipality level both sets of analysis suggest that additional education has no effect on voter turnout the impact of education on various measures of civic outcomes is also estimated of these only the likelihood of signing a petition is found to be positively affected by education

two fallacies concerning central bank independence this paper takes issue with two basic conclusions prevalent in the literature on central bank behavior first the paper argues that it is inappropriate to presume that central banks will in the absence of any precommitment technology necessarily behave in a discretionary fashion that implies an inflationary bias since there is no functional connection between average rates of money creation or inflation and policy responsiveness to cyclical disturbances it is entirely feasible for the bias to be avoided in other words there is no necessary tradeoff between flexibility and commitment second to the extent that the absence of any absolute precommitment technology is nevertheless a problem it will apply to a consolidated central bank plus government entity as well as to the central bank alone thus contracts between governments and central banks do not overcome the motivation for dynamic inconsistency they merely relocate it this abstract was borrowed from another version of this item

inflation and central bank independence a meta regression analysis using 59 studies we perform a meta regression analysis of studies examining the relationship between inflation and central bank independence cbi the studies considered are very different with respect to the cbi indicator used the sample of countries and time periods covered model specification estimators used and publication outlet we conclude that there is a significant publication bias however we also find a significant genuine effect of cbi on inflation differences between studies are not caused by differences in cbi indicators used

explaining fiscal policies and inflation in developing countries abstract in this paper we investigate empirically the determinants of inflation seigniorage and fiscal deficits in developing countries we first test the optimal taxation theory of inflation for a group of 21 lcds we find that the implications of this theory are rejected for all these countries we then proceed to implement a number of tests based on the new political economy approach to macroeconomic policies we deal with some of the implications of a credibility and reputation model and of a strategic government behavior model we find that the data support the most important predictions of the political economy view of fiscal policy our measures of political instability and political polarization play an important role in explaining cross country differences in seigniorage inflation government borrowing and fiscal deficits we end by discussing directions for future research

inflation government transfers and optimal central bank independence abstract the problem of monetary policy delegation is formulated as a two stage non cooperative game between the government and the central bank the solution to this policy game determines the optimal combination of central bank conservatism and independence the results show that the optimal institutional design always requires some degree of central bank independence and that there is substitutability between central bank independence and conservatism the results also show that partial central bank independence can be optimal and that there are circumstances under which it is optimal for the government to appoint a liberal central banker

government and economic growth in the less developed countries an empirical study for 1960 1980 adam smith founded modern economics with a powerful argument that free markets are the best route to prosperity and economic growth his conclusion has been studied and debated by economists ever since including nobel prize winners friedman hayek kuznets lewis myrdal and schultz whatever economists have concluded since world war ii the majority of the less developed countries seem to have opted for extensive government regulation of the private sector and for a large public sector has the large government role slowed or accelerated the growth of ldcs obviously this is an important issue this study looks at government expenditure revenue raising and regulation greater emphasis is put on expenditure because 1 the revenue raised is presumably a function of the level of expenditure and 2 there are few internationally comparable measures of regulation there are virtually no empirical studies of the general impact of government on economic growth an extensive literature search turned up only three papers gemmell analyzed the impact of nonmarket sector growth on various measures of macroeconomic performance for 27 ldcs and developed countries for 1960 and 1970 he drew no general conclusions about the relation between the size of the nonmarket sector and economic growth marsden found a negative relation between tax gdp ratios and economic growth for a cross section of 20 ldcs and developed countries for the 1970 79 period 2 i found a negative relationship between the share of government consumption expenditure in gdp and the growth of per capita gdp for a cross section of 96 ldcs and developed countries over various time periods between 1961 and 1976 3 this paper extends the approach used in my 1983 article

the economic threshold with a stochastic pest population a real options approach using real options this paper formulates an optimal stopping model for applying pest control measures when the density of a pest population varies randomly a delay between successive pesticide applications is introduced to analyze the farmer s expected marginal cost of reentry this model is applied to the control of a foliar pest of apples via a pesticide and solved numerically a sensitivity analysis shows that the pest density that should trigger pesticide use can vary significantly with the pest density volatility incorporating pest randomness into simple decision rules may thus help better manage the chemicals applied to soils and crops

central bank independence and growth a sensitivity analysis in this paper the levine renelt robustness test is employed to examine the robustness of the empirical relationship between growth and various proxies for central bank independence experiments are made with a wide variety of the most comprehensive systematic measures of central bank independence currently available the levine renelt test implies that growth is not robustly correlated with central bank independence

how robust is the relationship between economic freedom and economic growth using various indicators for economic freedom it is shown that increases in economic freedom are robustly related to economic growth this conclusion holds even if the impact of outlying observations is taken into account the level of economic freedom is not related to growth

losers and winners in economic growth this paper examines the growth rates in 116 economies from 1965 to 1985 it finds that the lowest quintile had an average growth rate of real gross domestic product gdp per capita of 1 3 percent whereas the highest quintile averaged 4 8 percent the authors isolate five influences that discriminate reasonably well between slow and fast growers a conditional convergence effect whereby a country grows faster if it begins with lower real gdp per capita in relation to its initial level of human capital in the forms of educational attainment and health a positive effect on growth from a high ratio of investment to gdp although this effect is weaker than that reported in some previous studies a negative effect from excessively large government a negative effect from government induced distortions of markets and a negative effect from political instability overall the fitted growth rates for eighty five economies for 1965 85 had a correlation of 0 8 with the actual values the authors also find that female educational attainment has a pronounced negative effect on fertility whereas female and male attainment are each positively related to life expectancy and negatively related to infant mortality

optimal central bank conservativeness in an open economy this paper develops a graphical method to determinethe optimal degree of central bank conservativeness inan open economy unlike rogoff 1985a the upper andlower bounds of the interval containing the optimaldegree of conservativeness are expressed in terms ofthe structural parameters of the model it is shownthat optimal central bank conservativeness is higher the higher the natural rate of unemployment thegreater the benefits of unanticipated inflation theless inflation averse society the smaller thevariance of productivity shocks the smaller realexchange rate variability and the smaller the opennessof the economy these propositions are tested fornineteen industrial countries for the period1960 1993 in testing the model we employ a latentvariables method lisrel in order to distinguishbetween actual and optimal monetary regimes

freedom and growth do constitutions matter this paper uses an augmented solow model with cross section data to measure the effect on per capita income of a the entrenchment of various rights in a country s constitution and b the level of economic freedom in a country broadly construed the results suggest that entrenchment per se of any single right seldom has a significant general economic effect while the effect of economic freedom is significant and substantial the paper then considers whether such evidence could support the proposition that constitutions do not matter while it concludes otherwise it does caution against incurring excessive negotiation costs to obtain entrenchment of a comprehensive wish list of rights

the political economy of development a cross national causality test of development democracy growth hypothesis the empirical investigation of the development democracy growth hypothesis estimates positive correlations and causal associations between development and democracy and democracy and growth among the preconditions for the emergence of democracy market and culture show strong and highly significant positive effects which are largely transmitted directly development affects democracy directly and indirectly via education and investment the positive causal association between democracy and growth is transmitted both directly and indirectly via labor and welfare accordingly the hypothesized compatibility between economic development and political democracy is confirmed while rejecting the trade off between political democracy and economic growth

political freedom economic freedom and income convergence do stages of economic development matter in the literature theory and empirical evidence on the nexus of political freedom economic freedom and economic growth are mixed in this paper we test the hypothesis that the effect of political freedom on promoting economic growth is realized and detectable at later stages of social and economic development using panel data for a sample of 104 countries between 1970 and 2003 we find strong support for our hypothesis while economic freedom has greater effects on income convergence in the oecd countries political freedom clearly promotes the convergence among those oecd countries

decentralization and inflation commitment collective action or continuity do political and fiscal decentralization make it easier or harder to control inflation statistical analysis of average annual inflation rates in a panel of 87 countries in the 1970s and 1980s found no clear relationship between decentralization and the level of inflation political decentralization however does appear to reduce change in countries relative inflation rates over time by creating additional veto players federal structure may lock in existing patterns of monetary policy whether inflationary or strict among the mostly developed countries that started with low inflation inflation tended to increase more slowly in federations than in unitary states among the mostly developing countries that started with high inflation inflation tended to increase faster in the federations there is evidence that political decentralization locks in a country s degree of practical central bank independence whether high or low and the relative hardness or softness of budget constraints on subnational governments

does central bank independence really matter new evidence for developing countries using a new indicator abstract this paper provides a new indicator for central bank independence cbi based on the turnover rate of central bank governors for 82 developing countries over the period 1980 1989 using this new indicator it is concluded that this proxy for cbi is related to inflation only if the high inflation countries are included in the sample the view that both cbi and inflation are caused by effective opposition towards inflation is not supported using both the extreme bound analysis and sala i martin s method we do not find evidence that cbi is robustly related to economic growth

fiscal discipline and the budget process the critical economic policy issue for many oecd countries developing countries and transition economies currently is fiscal consolidation and the maintenance of long run fiscal balance two related components underlie this general goal first several countries face the issue of deficit reduction particularly those countries with high debt gdp ratios second it is becoming increasingly apparent that major reforms of the welfare system and specifically of social security systems are critical ingredients of a long lasting fiscal consolidation see alesina and perotti 1995a in the case of monetary policy a constructive discussion has generated a widespread consensus about the benefits of different monetary institutions relatively few economists dispute the benefits of a certain amount of central bank independence even though different commentators and policymakers may disagree on the optimal degree of independence also a contracting approach has highlighted the benefit of inflation targeting and of certain institutional relationships contracts between the executive and the central bank a similar theoretical and empirical discussion on the role of budget procedures and budget institutions is just beginning in this paper we ask the following two questions i do budget procedures matter for the determination of the budget balance and its composition ii are there certain institutional reforms that one should feel comfortable in recommending based on the relatively scarce empirical evidence available we tentatively answer yes to the first question budget procedures matter on the second question we suggest that the two critical areas of reform are first more transparency second a strengthening of the roles of the executive branch vis a vis the legislature and of the treasury minister vis a vis the rest of the executive branch in order to achieve a centralized and top bottom approach to the budget process

political sources of growth a critical note on measurement this note critically reviews the research on the link between political systems and economic growth empirical attempts to capture this patent relationship have been met with mixed success we conclude that the political variables used in these studies i e democracy and political instability do not adequately reflect the investors problem we suggest that a political variable that encompasses all kinds of potential discretionary state interventions would be more effective in explaining cross country differences in economic growth

checks and balances and the supply of central bank independence abstract the paper analyzes the institutional conditions under which policymakers can credibly commit to an independent central bank and thereby mitigate the well known time consistency problem in monetary policy it is shown theoretically that granting independence via a statute is only credible for legislative systems with at least two heterogeneous decision making bodies which both have veto rights for example bicameral systems this thesis is supported by empirical evidence the legal independence of central banks is significantly higher in those oecd countries whose legislative processes are characterized by extensive checks and balances furthermore the negative relation between legal independence and inflation is larger in countries with checks and balances than in countries without checks and balances

the political economy of growth a critical survey of the recent literature this article reviews the recent literature on the political economy of growth focusing on the research that has developed at the intersection of the endogenous growth literature and the new political economy it explores the relationship among four key variables economic growth and capital accumulation political instability political freedom and democratic institutions and income inequality

globalization pressures and the state the worldwide spread of central bank independence the authors examine the impact of globalization on state structures in the specific instance of the central bank following the world system world society and neoinstitutional perspectives in sociology they assume that states are in cultural political and economic competition with each other thereby seeking to maintain their position and status frequently by adopting organizational forms or practices that make them isomorphic with their environment the authors predict that countries boost the independence of their central bank from the political power as their exposure to foreign trade investment and multilateral lending increases they also model the cross national dynamic process of diffusion of central bank independence by examining the impact of cohesive and role equivalent trade relationships between countries they find support for their hypotheses with information on 71 countries between 1990 and 2000

replacing a disobedient central bank governor with a docile one a novel measure of central bank independence and its effect on inflation this paper identifies two mechanisms that empirical papers on central bank independence assume to be embedded in the yardstick measure of turnover rate of central bank governor i the removal of a governor who is perceived as a challenger by the government and ii whether his her replacement is an ally of the government we identify the first mechanism with premature exits of central bankers and the second by examining whether or not the incoming governor is drawn from the ranks of the executive branch of the government we find that only premature exits and replacements with government allies increase inflation

the economics of reentry regulation of pesticides government agencies frequently try to protect the public from industrial hazards by separating the two in time and or space this paper develops a methodology for one such policy reentry regulation of pesticides re entry regulation is shown to provide a rational incentive for preventive applications of pesticides a practice usually attributed to risk aversion or inadequate information the tradeoffs between farm worker poisonings and lost grower revenue are shown to be substantial weather dependent location specific reentry regulation appears superior to the uniform regulation now in effect

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

mobile capital domestic institutions and electorally induced monetary and fiscal policy the literature on global integration and national policy autonomy often ignores a central result from open economy macroeconomics capital mobility constrains monetary policy when the exchange rate is fixed and fiscal policy when the exchange rate is flexible similarly examinations of the electoral determinants of monetary and fiscal policy typically ignore international pressures altogether we develop a formal model to analyze the interaction between fiscal and monetary policymakers under various exchange rate regimes and the degrees of central bank independence we test the model using data from oecd countries we find evidence that preelectoral monetary expansions occur only when the exchange rate is flexible and central bank independence is low preelectoral fiscal expansions occur when the exchange rate is fixed we then explore the implications of our model for arguments that emphasize the partisan sources of macroeconomic policy and for the conduct of fiscal policy after economic and monetary union in europe

sprayed to death path dependence lock in and pest control strategies theoretical literature on the economics of technology has emphasized the effects on technological trajectories of positive feedbacks in a competition among technologies that all perform a similar function the presence of increasing returns to adoptions can force all but one technology from the market furthermore the victor need not be the superior technology this paper provides an empirical study of one technological competition which illuminates this theoretical work it uses theoretical results to explain why chemical control of agricultural pests remains the dominant technology in spite of many claims that it is inferior to its main competitor integrated pest management copyright 1996 by royal economic society

the consequences of regime type for public policy outputs most research has shown little association between regime type and public policy outputs in this article we employ a multivariate model and year by year data from 1960 1980 in latin america to analyze the relationship among regime type regime age and public policy the analysis shows regime type to be significantly associated with policy in five areas with regime age have an additional independent effect in several of these areas

combining time variation and mixed frequencies an analysis of government spending multipliers in italy summary in this paper we propose a time varying parameter vector autoregression var model with stochastic volatility which allows for estimation on data sampled at different frequencies our contribution is twofold first we extend the methodology developed by cogley and sargent drifts and volatilities monetary policies and outcomes in the post wwii u s review of economic studies 2005 8 262 302 and primiceri time varying structural vector autoregressions and monetary policy review of economic studies 2005 72 821 852 to a mixed frequency setting in particular our approach allows for the inclusion of two different categories of variables high frequency and low frequency into the same time varying model second we use this model to study the macroeconomic effects of government spending shocks in italy over the 1988 q4 2013 q3 period italy as well as most other euro area economies is characterized by short quarterly time series for fiscal variables whereas annual data are generally available for a longer sample before 1999 our results show that the proposed time varying mixed frequency model improves on the performance of a simple linear interpolation model in generating the true path of the missing observations second our empirical analysis suggests that government spending shocks tend to have positive effects on output in italy the fiscal multiplier which is maximized at the 1 year horizon follows a u shape over the sample considered it peaks at around 1 5 at the beginning of the sample it then stabilizes between 0 8 and 0 9 from the mid 1990s to the late 2000s before rising again to above unity during the recent crisis copyright 2015 john wiley sons ltd

political and monetary institutions and public financial policies in the industrial countries institutions and policies vittorio grilli donato masciandaro and guido tabellini why do countries as similar as the industrialized oecd countries go through such different experience in terms of public deficits and debts or in terms of inflation the answer cannot come from macroeconomic policy responses to different disturbances nor from the principles of optimal taxation but rather from politics this article focuses on the role that particular institutions exert in providing constraints and incentives which shape the actions of policymakers the electoral process and political traditions affect the ability of governments to deal with deficits and mounting debts what seems to matter most it is found is the effect of the durability of governments governments with short horizons act myopically and never quite tackle the hard choices such governments typically exist in countries with an electoral system favouring many small political parties central bank independence promotes low inflation with no apparent costs in terms of real economic performance irrespective of the political institutions in fact there is no link between monetary and fiscal discipline these findings carry powerful implications for countries facing high indebtedness or stubborn inflation but also for the construction of the european economic and monetary union

private investment and democracy in latin america abstract this paper argues that the deterioration of latin american private investment in the 1980s may have been largely due to debt difficulties and not the concurrent wave of democratization after reviewing why more political systems may actually be conducive to investment we test an investment function for seven countries over 1973 1986 that includes traditional economic factors two debt measures and several political variables including measures of democracy worker power international monetary fund support and risk the results are quite congenial for our hypothesis under several reasonable alternative specifications for the economic determinants our democracy measure is positively signed and significant

do central bank law reforms affect the term in office of central bank governors in this paper we confirm the hypothesis that central bank independence reforms reduce the likelihood that a central bank governor will be replaced however the strength of this effect depends on the rule of law and the degree of political polarization c 2009 elsevier b v all rights reserved

who is afraid of political instability abstract an unstable macroeconomic environment is often regarded as detrimental to economic growth among the sources contributing to such instability much of the blame has been assigned to political issues this paper empirically tests for a causal and negative long run relation between political instability and economic growth but finds no evidence of such a relationship sensitivity analysis indicates that there is a contemporaneous negative relationship but also that in the long run and ignoring institutional factors the group of african countries plays the determining role

dollarization exchange rate regimes and government quality abstract the dollarization of the domestic banking system represents a source of vulnerability for emerging market countries and a debate has emerged over whether the exchange rate regime has an impact on dollarization this paper argues that the regime is far less important than the literature has previously claimed unofficial dollarization results from a lack of faith in the domestic currency which ultimately stems from the belief that the government will not follow policies that promote long run currency stability empirical results indicate that improved government quality reduces unofficial dollarization while the exchange rate regime plays no direct role in promoting dollarization