current account deficits and debt accumulation in latin america debate and evidence abstract in this paper i examine competing explanations for the behavior of latin america s current account in the 1970s and 1980s after briefly reviewing the focus of various economists on internal or external factors i outline a financial breakdown view which stresses the role of the changing availability of capital during this period of time i then turn to econometric work which 1 establishes the plausibility of viewing capital availability as a constraint on the current account and 2 offers some support for all three views of the determinants of latin america s current account

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

environmental tax policy and intergenerational distribution abstract we study the effects of environmental taxation within the context of an overlapping generations model the quality of the environment is modelled as a durable consumption good introduction of the environmental tax harms old existing generations and benefits young existing generations as well as all future generations increasing the tax in a pareto improving manner is easier the higher the pre existing tax the reverse holds if tax policy is decided by majority rule a suitably designed bond policy can be used to redistribute the efficiency gains due to the internalisation of environmental externalities across the generations

stock markets banks and growth panel evidence this paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976 98 and applying recent gmm techniques developed for dynamic panels on balance we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity omitted variables or unobserved country specific effects

real and monetary determinants of real exchange rate behavior theory and evidence from developing countries abstract this paper develops a dynamic model of real exchange rate rer behavior in developing countries a three goods economy exportables importables and non tradables is considered residents of this country hold domestic and foreign assets and there is a dual exchange rate regime there is a government that consumes importables and non tradables a distinction is made between equilibrium and disequilibrium movements of the rer the determinants of real exchange rate misalignment are studied with emphasis placed on the role of devaluations and balance of payments crises the implications of the model are tested using data for 12 developing countries the results obtained are generally favorable for the model the issue of rer stationarity is also analyzed

the liability insurance market t his paper offers an overview of the u s liability insurance market and the link between its performance and developments in tort law over the last few decades the dominant feature of the insurance market has been the intermittent periods of rapidly rising premiums and cutbacks on the availability of coverage the insurance cycle appears to be increasing in amplitude and since the 1960s has been concentrated increasingly in liability lines an episode of rising premiums in the late 1960s was followed by a six year period of declining and eventually negative growth rates in total liability insurance premiums over the 1975 1977 period the annual growth rate jumped to 30 percent then followed another period of declining real premiums until premiums nearly tripled in 1984 1986 accompanied by cancellations of policies and massive withdrawal of insurers from some lines this crisis had an economic impact beyond the insurance market leading to the withdrawal of many goods and services from u s markets in mid 1987 the market began to turn again with premiums falling by as much as 40 percent for some commercial policies since then aggregate revenue from premiums has been relatively stable the liability insurance market is intertwined with the tort system in addition to providing incentives to avoid accidents the tort system allocates the risks of accident costs in providing compensation for accident victims the modern expansion of liability in tort law as described by priest in this issue represents a shift in the burden of supplying insurance from first party insurance markets to liability or third party insurance markets clearly this shift will

how liable should a lender be the case of judgment proof firms and environmental risk comment recently u s environmental law has shown a tendency toward increased lender liability a model of a potentially judgment proof owner of a firm a lender and a potential victim is developed in which this policy can increase accident frequency and reduce efficiency full partial and zero lender liability rules and a minimum equity requirement are analyzed partial lender liability and an equivalent minimum equity requirement deliver the highest level of efficiency although the former can deliver a higher contribution by the lender to the victim than the latter policy and empirical implications are also discussed copyright 1995 by american economic association

capital flight from latin america abstract this paper focuses on capital flight from latin america during the 1970s and 1980s after estimating the extent of such flight i suggest that capital flight imposes growth costs erodes the tax base and worsens income distribution i then use regression analysis to investigate the causes of capital flight as well as the role of capital controls and imf programs in slowing flight i conclude by criticizing the current policy approach to the capital flight problem and suggesting some new directions

inflation thresholds and the finance growth nexus abstract the robustness of the cross sectional relationship between the size of a country s financial sector and its rate of economic growth is by now well established in this article we examine whether the strength of this relationship varies with the inflation rate using five year averages of standard measures of financial development inflation and growth for 84 countries from 1960 to 1995 a series of rolling panel regressions show that there is an inflation threshold for the finance growth relationship that lies between 13 and 25 percent when inflation exceeds the threshold finance ceases to increase economic growth we also find that the level of financial depth varies inversely with inflation in low inflation environments and that disinflation is associated with a positive effect of financial depth on growth

financial development and economic growth the case of taiwan this paper examines the relationship between financial development and economic growth in taiwan from 1962 to 1998 using a four variable var model the competing hypotheses of demand following versus supply leading are empirically tested the results from granger causality tests based on vector error correction models vecm suggest unidirectional causality running from financial development measured as the ratio of m2 to gdp to economic growth this result supports the supply leading hypothesis for taiwan this finding highlights the importance of financial development in taiwan s recent growth

revisiting the finance growth nexus the turkish case 1980 2010 abstractin turkey the empirical results on the link between financial development and economic growth are mixed the existing studies do not take into account the fact that turkey has experienced endemic political and economic instabilities over extended periods this study aims to analyse the role of macroeconomic instability and public borrowing on the finance growth nexus in turkey by using time series econometric techniques over the 1980 2010 period in doing so we attempt to extend the existing literature by taking into account the role of macroeconomic instability as well as public borrowing our results reveal that there are additional albeit indirect channels between finance and growth via the effects of macro instability and public borrowing on financial development and economic growth after taking into account the effects of overall instability and public borrowing we found that growth financial development relationship is bidirectional and permanent in other words in turkish case eco

the dutch disease in a developing country oil reserves in cameroon abstract noting that most of the literature on the dutch disease refers to developed countries this paper looks at the impact of an oil boom on a developing country when certain features of developing countries particularly the imperfect substitutability between domestic and imported goods are incorporated one of the standard dutch disease results can be reversed not all the traded goods sectors will contract a simulation with a computable general equilibrium model of cameroon reveals that the agricultural sector is most likely to be hurt whereas some of the manufacturing sectors will benefit this suggests possible areas for government intervention should it be warranted and may explain the differential performance between the agricultural and industrial sectors of oil exporting countries in the post 1973 period

public debt and financial development abstract we examine the role of public debt in financial development the literature has highlighted its supportive role through providing collateral and benchmark we contrast this safe asset view to a lazy banks view developing banking sectors that lend mainly to the public sector may develop more slowly because it could make banks profitable but inefficient results from country level and bank level regressions are more supportive of the lazy banks view but the safe asset view seems to play a role at moderate levels of public debt held by banks there is also evidence of a harmful interaction between public debt and financial repression

external disturbances domestic policy responses and debt accumulation in nigeria abstract this paper provides a case study of the link between external shocks domestic policy responses and external debt accumulation in nigeria the indonesian experience during 1970 1989 is provided as a contrast for policy comparison a significant part of the increase in external debt in the two countries corresponds to financing of capital flight after 1981 current account deficits assumed greater importance in the accumulation of external debt the growth in external debt was caused in part by adverse external conditions the results of this study show that the nigerian debt crisis was exacerbated by inappropriate policy responses indonesia avoided a crisis by applying prudent real exchange rate management and fiscal restraint

financial development and economic growth abstract this paper examines the empirical relationship between long run growth and financial development proxied by the ratio between bank credit to the private sector and gdp we find that this proxy is positively correlated with growth in a large cross country sample but its impact changes across countries and is negative in a panel data for latin america we argue that the latter findings is the result of financial liberalization in a poor regulatory environment our findings also show that the main channel of transmission from financial development to growth is the efficiency rather than the volume of investment

traded and non traded goods an empirical test with nigerian data abstract an income expenditure model is used to describe the relationship between the balance of payments and price inflation of non traded goods real and monetary approaches to the balance of payments suggest different relationships among these variables and compatible elements of the monetary approach are incorporated into the income expenditure model the model is then tested with nigerian data for the period 1960 1979 the pattern of economic growth and conduct of monetary policy make the nigerian economy a convenient test of the empirical significance of these macroeconomic relationships

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

consumption pollution tradeoffs in an environment vulnerable to pollution related catastrophic collapse abstract this paper considers the consequences of an avoidable risk of irreversible environmental catastrophe for society s optimal long run consumption pollution tradeoffs the risk is assumed to be a nondecreasing function of pollution concentration which evolves as a dynamic environmental renewal process the main objective of the paper is to derive qualitative insights regarding the effects of such risk on optimal management

the role of macroeconomic instability in public and private capital accumulation and growth the case of turkey 1963 1999 this study investigates the empirical relationship s between macroeconomic instability public and private capital accumulation and growth in turkey over the period 1963 1999 time series econometric techniques such as cointegration and impulse response analysis are used the results of this paper suggest that the chronic and increasing macroeconomic instability of the turkish economy has seriously affected her capital formation and growth furthermore the turkish experience indicates that chronic macroeconomic instability seems to be a serious impediment to public investment especially to its infrastructural component and shatters or even reverses the complementarity between public and private investment in the long run

dividends safety and liquidation when liabilities are long term and stochastic abstract this paper investigates the optimal management of a firm faced with a long term liability that occurs at a random date three issues are analysed the optimal dividend policy optimal expenditure on safety to delay the occurrence of the liability and the optimal liquidation date of the firm an owner faced with dynamic unlimited liability never liquidates and therefore accumulates capital to the golden rule level for long term liabilities dividend payments and safety expenditure are non decreasing over time the owner protected by limited liability may liquidate the firm in finite time in order to avoid paying the liability if this is the case then it accumulates less capital than the dynamic unlimited liability owner and may decrease dividend payments and safety expenditure over time the paper shows that a finite liquidation date is more likely to be optimal when the arrival rate of the liability occurrence increases over time

real exchange rate behavior and economic performance in ldcs in recent years policy discussions have included increasing references to real exchange rate rer stability and correct exchange rate alignment as crucial conditions to improve economic performance in less developed countries ldcs 1 evidence from latin american asian and african countries is often quoted to support the view that the link between rer behavior and economic performance is strong it is argued that while unstable rers inhibited export growth in some of latin america their stability was fundamental in promoting east asian expansion in many african countries on the other hand persistently misaligned local currencies harmed the development of agriculture reducing domestic food supply 2 but in spite of its importance no empirical work has been attempted either to test the relationship between rer behavior and performance indicators at a broad multicountry level or to investigate the sources of rer variability and misalignment in ldcs the theoretical literature on rer determinants has been recently surveyed by sebastian edwards 3 he distinguishes between equilibrium and disequilibrium rers and between external and domestic rer determinants although domestic policies are often said to account for significant rer variations empirical work has only concentrated on the effect of nominal devaluations4 or speculative crises arising from expansionary monetary policies in a system of fixed ex

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

agriculture in an export boom economy a comparative analysis of policy and performance in indonesia mexico and nigeria abstract the 1970s oil boom was accompanied for most developing country exporters by stagnating agricultural production high rural emigration and high levels of food imports this paper evaluates the experiences of indonesia mexico and nigeria dutch disease and other macroeconomic phenomena had important effects on agricultural performance but equally if not more important were microeconomic factors including agricultural price policies changing patterns of food demand based on distribution of petroleum income and public investment structural characteristics of the agricultural sector factor intensity of different subsectors labor availability and migration patterns and geographical concentration of agricultural activity and strategies of agricultural development and investment

institutional causes macroeconomic symptoms volatility crises and growth countries that have pursued distortionary macroeconomic policies including high inflation large budget deficits and misaligned exchange rates appear to have suffered more macroeconomic volatility and also grown more slowly during the postwar period does this reflect the causal effect of these macroeconomic policies on economic outcomes one reason to suspect that the answer may be no is that countries pursuing poor macroeconomic policies also have weak institutions including political institutions that do not constrain politicians and political elites ineffective enforcement of property rights for investors widespread corruption and a high degree of political instability this paper documents that countries that inherited more extractive institutions from their colonial past were more likely to experience high volatility and economic crises during the postwar period more specifically societies where european colonists faced high mortality rates more than 100 years ago are much more volatile and prone to crises based on our previous work we interpret this relationship as due to the causal effect of institutions on economic outcomes europeans did not settle and were more likely to set up extractive institutions in areas where they faced high mortality once we control for the effect of institutions macroeconomic policies appear to have only a minor impact on volatility and crises this suggests that distortionary macroeconomic policies are more likely to be symptoms of underlying institutional problems rather than the main causes of economic

liability and large scale long term hazards this paper analyzes the application of liability to large scale long term hazards the key features distinguishing such hazards are the long temporal separation between exposure to a hazard and disease and the large damages when injuries finally emerge the large scale of damages creates a strong incentive to avoid liability payments and the long temporal separation creates numerous avenues through which parties can avoid paying possible damage awards the analysis focuses on the incentive to avoid paying damages by vertically divesting production tasks associated with serious occupational risks such divestiture can lower liability costs if the small firm operating the risky stage goes out of business before latent injuries emerge or has insufficient assets to pay damages and declares bankruptcy when suits are filed the paper then presents an empirical regression analysis of small firm entry into the u s economy between 1967 and 1980 the period in which liability laws were changing the point estima

nigeria during and after the oil boom a policy comparison with indonesia nigeria and indonesia provide an interesting contrast with regard to performance and policy during and after the oil boom roughly a decade after the first oil shock nigeria is faced with several economic problems including a serious decline in its agricultural sector and a deteriorating external debt situation while some decline in the nonoil traded goods sector reflects efficient adjustment to the oil boom policy with regard to public expenditure exchange rates pricing and the trade regime could exacerbate such decline and impede readjustment as the boom subsides the links between oil prices deficits inflation and real exchange rate appreciation are analyzed and nigerian and indonesian fiscal and exchange rate and agricultural and foreign borrowing strategies are compared it is concluded that with the exception of cuts in the deficit since 1984 nigerian policy following the boom has not been conducive to adjustment to the current period of low oil prices and high real interest rates corrective measures and policy options are discussed

terms of trade shocks and structural adjustment in a small open economy abstract a three sector three factor general equilibrium model of dutch disease is developed providing yet another explanation for the expansion of the manufacturing sector in most of the oil exporting countries and the concurrent decline in their agricultural sectors in the 1970s the sectoral structure of the oil exporting small open economy is altered by an increase in its national income the spending effect and in the world price of manufactured goods relative to agricultural products the world price effect while both effects undermine the agricultural sector the world price effect may offset the negative impact of the spending effect on the manufacturing sector resulting in its expansion the short run analysis is of the standard jones specific factors model in the long run the capital rental and the price of the non traded good are determined by world prices and the transfer argument for the dutch disease real appreciation the rise in the relative price of the non traded good due to higher income completely disappears also demand effects alter non traded and manufacturing output but have no impact on the agricultural sector the world price effect is the sole cause of the decline in the agricultural sector in the long run

an analysis of external debt positions of eight developing countries through 1990 abstract this paper traces the accumulation of large external debts by eight developing countries since 1973 it presents a framework that provides a useful measure of the economic burden of the external debts of these countries simulations based on data from the eight countries are reported

financial liberalization financial sector development and growth evidence from malaysia abstract the objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of malaysia using time series data from 1960 to 2001 we conduct cointegration and causality tests to assess the finance growth link by taking the real interest rate and financial repression into account the empirical evidence suggests that financial liberalization through removing the repressionist policies has a favorable effect in stimulating financial sector development financial depth and economic development are positively related but contrary to the conventional findings our results support robinson s view that output growth leads to higher financial depth in the long run

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

financial markets in development and the development of financial markets what is the relationship between markets and development it is argued that markets promote growth and that growth in turn encourages the formation of markets two models with endogenous market formation are presented to analyze this issue the first examines the role that financial markets banks and stock markets play in allocating funds to the highest valued use in the economic system it is shown that intermediation will arise under weak conditions the second focuses on the role that markets play in supporting specialization in economic activity the consequences of perfect competition in market formation are highlighted