where do we stand on choosing exchange rate regimes in developing and emerging economies the question of what is the best exchange rate regime for a country to adopt has been an important part of the macroeconomic policy debate for as long as here has been a debate about macroeconomic policy it has indeed sometimes been the dominant issue an historical review could easily go back to the nineteenth century and the debate over the gold standard and the bimetallic standard or could go back to the interwar period and the debate over the return to gold and the abandonment of the gold standard in favour of exchange rate flexibility or it could focus on the exchange rate arrangements incorporated into the bretton woods system devised in 1944 and the final collapse of those arrangements in favour of generalised flexible exchange rates in 1973

upgrading in global value chains lessons from latin american clusters it has been shown that clustering helps local enterprises in industrial districts overcome growth constraints and compete in distant markets in advanced and less developed countries nevertheless recent contributions have stressed that more attention needs to be paid to external linkages and to the role played by global buyers to foster upgrading at cluster levels in this study we contribute to this debate focusing on the analysis of the relationships existing between clustering global value chains upgrading and sectoral patterns of innovation in latin america we find that sectoral specificities matter and influence the mode and the extent of upgrading in clusters integrated in global value chains

financial development and economic growth a meta analysis we analyze 1334 estimates from 67 studies that examine the effect of financial development on economic growth taken together the studies imply a positive and statistically significant effect but the individual estimates vary widely we find that both research design and heterogeneity in the underlying effect play a role in explaining the differences in results studies that do not address endogeneity tend to overstate the effect of finance on growth while the effect seems to be weaker in less developed countries the effect decreases worldwide after the 1980s our results also suggest that stock markets support faster economic growth than other financial intermediaries

stabilization and redistribution of coffee revenues a political economy model of commodity marketing boards abstract domestic prices of export crops are important macroeconomic variables in primary exporting countries not only are they key determinants of the business cycle but also play a pivotal role in the resolution of distributive conflicts using a model where producers delegate pricing decisions in a fully optimizing environment this paper explores the relationship between the redistribution and stabilization functions of marketing boards the results of the model as well as the empirical evidence suggest that different institutional arrangements are helpful in explaining differences in macroeconomic performance across countries the analysis is carried out for coffee in colombia costa rica cote d ivoire and kenya

a dynamic model of oligopoly in the coffee export market a linear quadratic dynamic feedback oligopoly model that nests various market structures is used to estimate the degree of competitiveness and the adjustment paths of the two largest coffee exporters brazil and colombia their estimated behavior is relatively competitive this subgame perfect dynamic model is compared to a standard static oligopoly model and the open loop model the dynamic generalization of the standard static model both classical and bayesian tests of open loop and feedback dynamic models are reported

tax base variability and procyclical fiscal policy in developing countries abstract based on a sample of 56 countries we show that fiscal policy in the g7 countries appears to be acyclical while fiscal policy in developing countries is procyclical i e fiscal policy is expansionary in good times and contractionary in bad times to explain this puzzle we develop an optimal fiscal policy model in which running budget surpluses is costly because they create pressures to increase public spending given this distortion a government that faces large fluctuations in the tax base as is the case for developing countries will find it optimal to run a procyclical fiscal policy

a framework to update hofstede s cultural value indices economic dynamics and institutional stability this study offers an update of the hofstede cultural value dimensions we argue that changes in economic conditions are the source of cultural dynamics while the endurance of institutional characteristics provides the foundation for cultural stability it is found that national wealth measured by gdp per capita has a curvilinear relationship with individualism long term orientation and power distance scores relatively speaking uncertainty avoidance and masculinity mainly reflect some rather stable institutional traditions such as language religion climate ethnic homogeneity and legal origin and are less likely to change over time

price dynamics in a vertical sector the case of butter we develop a reduced form model of price transmission in a vertical sector allowing for refined asymmetric contemporaneous and lagged own and cross price effects under time varying volatility the model is used to investigate the wholesale retail price dynamics in the u s butter market the analysis documents the nature of nonlinear price dynamics in a vertical sector it finds strong evidence of asymmetric retail price responses both in the short term and the longer term but only weak evidence of asymmetric wholesale price responses asymmetric retail responses play a major role in generating a skewed distribution of butter prices the empirical results indicate the presence of imperfect competition at the retail level

coffee economic fluctuations and stabilisation an intertemporal disequilibrium model with capital market imperfections abstract this paper develops a two period disequilibrium model of a small open economy under keynesian unemployment to analyse the effects of temporary anticipated and permanent coffee price shocks the model includes a government sector that administers a commodity price stabilisation fund and allows for capital market imperfections the type of capital market imperfection makes an important difference to the results of the model in particular when the government borrows on more favourable terms than individuals the coffee price stabilisation fund reduces the multiplier effects of temporary and permanent shocks not only in the first but also in the second period by contrast when individuals face an upward sloping supply of capital curve the stabilisation fund shifts some of these effects from the first to the second period

the determinants of private saving in india abstract this paper examines the determinants of private saving in the process of economic development in the light of the indian experience it is found that the saving rate rises with both the level and the rate of growth of disposable income the real interest rate on bank deposits has a significant positive impact but the magnitude of the impact is modest public saving seems to crowd out private saving but less than proportionately furthermore the spread of banking facilities in the economy and the inflation rate have a positive impact and changes in the external terms of trade a negative impact on private saving

coffee export booms and monetary disequilibrium some evidence for colombia the theoretical models that analyse the monetary consequences of export booms show that under a regime of fixed exchange rates they affect not only the demand for money via real income but also the money supply via foreign exchange accumulation within this theoretical framework this study proposes an empirical approach to determine whether the coffee booms of the second half of the 1970s and mid 1980s led to excess money supply in the colombian economy the findings provide evidence in favour of a direct association between coffee export booms and excess money supply implying that external disturbances jeopardize the ability of the economic authorities to carry out successful monetary policy

the interest elasticity of savings in developing countries the existing evidence abstract this paper presents a critical analysis of some of the most recent empirical work on the interest elasticity of savings in developing economies supported by a set of empirical results the paper argues that a the real interest elasticity of savings is not easily detected using the existing empirical models which generally yield insignificant interest rate parameters in the seventies b the existing models suffer from serious defects that make if very difficult to interpret the estimated parameters

determinants of private savings behaviour in turkey this study investigates the effects on private saving rates of a number of policy and non policy variables the analysis covers the period 1968 1994 the empirical private saving model for turkey is estimated the findings support the hypothesis that private saving rates have strong inertia the evidence indicates that government saving does not tend to crowd out private savings and the ricardian equivalence does not hold strictly income level has a positive impact on private saving rate and growth rate of income is not statistically significant from a policy point of view financial depth and development measures in turkey suggest that countries with deeper financial systems tend to have higher private saving rates private credit and real interest rates try to capture the severity of the borrowing constraints and the degree of financial repression for turkey moreover the negative impact of life expectancy rate lends support to the life cycle hypothesis the precautionary motive for saving is suppor

employer recruitment strategies and the labor market outcomes of new hires i introduction employers and job seekers are brought together for potential matches through their recruitment and job search activities employers may post help wanted signs run newspaper advertisements or seek referrals from private employment agencies job seekers may speak with friends and relatives solicit the aid of the state employment agency or simply walk in and apply these recruitment and search activities help both parties acquire information about each other and the more information they obtain prior to entering an employment agreement the higher the likelihood of a good employment match the crucial role of information in the labor market has been recognized since stigler 1962 but despite a voluminous literature on job matching and organizational behavior in labor markets we know far less about employers recruitment strategies than about job seekers search strategies as granovetter 1995 notes while people are finding jobs employers are finding people to fill them and their behaviors strategies and purposes play a central but often neglected role in the process of matching people to jobs this imbalance in research effort is explained more by a dearth of adequate data describing employer recruitment behavior than by lack of scholarly interest indeed labor economists sociologists psychologists and human resource management specialists have spent the last half century exploiting the meager existing data sets in efforts to learn about employer recruitment behavior in this article i address several empirical questions concerning employer recruitment using the multi city study of urban inequality mcsui a large cross sectional survey of employers in four metropolitan areas of the united states that has not been exploited for a detailed analysis of the relationships among recruitment strategies starting wages and vacancy duration despite the richness of the data set for this purpose the mcsui data contain detailed information on firm and job characteristics and most important for the purpose of this article indicators of the recruitment methods these employers used when hiring the most recently hired worker the data allow a number of interesting questions to be addressed concerning the link between employer recruitment choices and starting wages vacancy duration and the skill levels of new hires because there has been relatively little empirical research done by labor economists on employer recruitment this work with a relatively large representative sample of employers should enhance our understanding of a number of basic questions i consider three of these first i present evidence describing which recruitment methods employers use and how these vary by firm characteristics vacancy characteristics and the skill requirements of jobs i estimate a multivariate probit model with a separate equation for each of 10 recruitment choices in addition to providing information about the relationship of each recruitment method with each of the covariates this method has the attractive feature of allowing for an analysis of the relationships among the unobserved determinants of recruitment choice to my knowledge this methodology is new to the recruitment literature second i present regression evidence showing how vacancy duration varies by recruitment choices some recruitment methods can be expected to be faster than others in generating job applicants however an employer must invest time in screening the applicant pool so the recruitment methods that generate applicants quickly do not necessarily fill vacancies quickly therefore the link between recruitment methods and vacancy durations is an empirical question third i present evidence concerning the relationship between starting wages and recruitment methods in particular i augment standard log wage specifications based on the human capital model with recruitment choices and find that the recruitment variables have explanatory power even in the presence of all of the usual controls

savings and the terms of trade under borrowing constraints the authors examine the extent to which permanent terms of trade shocks have an asymmetric effect on private savings using a simple three period model they show that if households expect to face binding constraints on borrowing in bad states of nature when the economy is in a long trough rather than a sharp peak savings rates will respond asymmetrically to favorable movements in the permanent component of the terms of trade in contrast with the predictions of conventional consumption smoothing models they test the asymmetric effects of terms of trade disturbances using an econometric model that controls for various standard determinants of private savings the results based on panel data for non oil commodity exporters of sub saharan africa for 1980 96 a group of countries for which movements in the terms of trade have traditionally represented a key source of macroeconomic shocks indicate that increases in the permanent component of the terms of trade measured using three alternative filtering techniques indeed tend to be associated with higher rates of private savings

exchange rate regimes in developing and emerging economies and the incidence of imf programs summary the global economic crisis will compel many countries to revise key economic policies including their exchange rate regime the international monetary fund will have significant influence on their choices and has exhibited a bias against intermediate regimes we examine the link between exchange rate regimes and imf program use and find no evidence that countries with intermediate exchange rate regimes require more frequent imf assistance rather they appear somewhat less dependent especially when compared to fixed exchange rates our results suggest that intermediate regimes should remain a viable and possibly desirable exchange rate choice for some countries

the latte revolution regulation markets and consumption in the global coffee chain abstract coffee is a truly global commodity and a major foreign exchange earner in many developing countries the global coffee chain has changed dramatically as a result of deregulation new consumption patterns and evolving corporate strategies from a balanced contest between producing and consuming countries within the politics of international coffee agreements power relations shifted to the advantage of transnational corporations a relatively stable institutional environment where proportions of generated income were fairly distributed between producing and consuming countries turned into one that is more informal unstable and unequal through the lenses of global commodity chain analysis this paper examines how these transformations affect developing countries and what policy instruments are available to address the emerging imbalances

public sector deficits and macroeconomic performance in the 1980s chronic public sector deficits forced countries to undertake fiscal adjustment the need to face hard choices continues in the 1990s but the problem is not a simple and easily diagnosed one with an obvious solution rather public sector deficits have had widely differing consequences high inflation in some countries low inflation but also low investment and growth in others and in still others no evident short term macroeconomic spillovers this book presents the findings of a world bank research project designed to shed light on the complex dynamics of public sector deficits it includes an in depth examination of eight countries argentina chile colombia cote d ivoire ghana morocco pakistan and zimbabwe these cases are analyzed within a comprehensive theoretical framework elaborated for the study and in conjunction with cross country data from a larger set the book draws the following conclusions the ways chosen to finance deficits money creation debt or arrears go far to explain medium term financial and macroeconomic imbalances but in the short term these relations are blurred deficits tend to be bad for growth they increase financial and price instability and crowd out private investment public saving typically reduces private saving only slightly increasing public saving is a very effective policy instrument for raising national saving fiscal adjustment typically leads to a lower trade deficit and a moredepreciated real exchange rate finally the blame for large systemic public deficits must be placed not on bad luck but on unwise policy choices and conversely sound fiscal policies can set a country on a path leading to stability and growth

social polarization industrialization and fiscal instability theory and evidence this paper is motivated by an important puzzle that arises from the contrasting macroeconomic experience across developing regions in the recent decades in sharp contrast to east asia the fiscal policies in much of latin america and sub saharan africa are characterized by large fiscal deficits and volatilities of fiscal outcomes in order to address both large deficits and volatile fiscal outcomes we develop a simple model of endogenous fiscal policy in which government spending is strategically determined by heterogeneous policymakers in a dynamic game in an economy that is highly polarized due to unequal income distribution a larger fiscal deficit results and the intertemporal fiscal policy path becomes more volatile it is because the polarization of preference leads a policymaker representing each sector to spend more for her favorite sector collectively contributing to large deficits this polarization effect implies that a shock to tax revenue is translated into a more than proportional change in spending econometric evidence provides support for these predictions countries that have suffered from the greatest fiscal instability are those with highly polarized economic societies as measured by indicators of income inequality

new data base on state owned enterprises privatization of state owned assets was a central economic reform of the 1980s and 1990s lack of data has made it impossible to judge the extent to which privatization has diminished the importance of state ownership in the economy or changed the performance of state owned enterprises this article introduces a new data base on state owned enterprises the first since the mid 1980s which partly fills this information gap the bureaucrats in business data base provides time series data for up to eighty eight countries on the share of state enterprises in the overall economy investment employment and internal and external credit as well as their overall surplus or deficit and the size of transfers to and from national treasuries the article presents the rationale for the data base describes its seven measures of state enterprise size and performance and explores possible uses of the information

a note on time preference and the tobin effect abstract this paper proposes an alternative time preference specification to uzawa preferences time preference is modeled as an increasing function of real wealth so that the tobin effect and stability rest on optimizing behavior as opposed to counterintuitive preference assumptions

business cycle fluctuations and household saving in oecd countries a panel data analysis abstract we investigate the cyclicality of the household saving to household disposable income ratio for a panel of 16 oecd countries over the period 1969 2012 we find evidence that the household saving ratio is countercyclical we empirically investigate whether the determinants of saving suggested by a standard buffer stock model of saving can explain this finding the three main determinants of household saving implied by such a model i e unemployment risk household wealth and credit constraints have a significant impact on the household saving ratio while their combined effect completely offsets its countercyclicality the saving regression results are robust to potential endogeneity of the regressors to making use of a reduced sample size that leaves out the period of the great recession and to the one by one addition of variables suggested by alternative theories that also predict a countercyclical saving ratio

fiscal policy expenditure composition and growth in low income countries abstract this paper assesses the effects of fiscal consolidation and expenditure composition on economic growth in a sample of 39 low income countries during the 1990s the paper finds that strong budgetary positions are generally associated with higher economic growth in both the short and long terms the composition of public outlays also matters countries where spending is concentrated on wages tend to have lower growth while those that allocate higher shares to capital and nonwage goods and services enjoy faster output expansion finally initial fiscal conditions also have a bearing on the nexus between fiscal deficits and growth

a survey of recent developments in the literature of finance and growth this paper provides a survey of the recent progress in the literature of financial development and economic growth the survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables although the positive role of finance on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies several key issues unresolved in the literature are highlighted the paper also points to several directions for future research

social polarization fiscal instability and growth abstract we present a dynamic model of fiscal policy in a simple growth framework where social polarization of preferences plays a central role in the evolution of fiscal instability and growth collapse in a highly polarized society a deficit occurs endogenously fiscal spending path becomes more volatile output collapses and economic growth rate is reduced along the transition path to a new lower level of output one novel feature is that the size of fiscal deficit the magnitude of fiscal volatility and the size of reduction in output and growth rate are explicitly shown to be increasing functions of the degree of social polarization this is because of the positive relationship between the polarization of preferences and the incentive for policymakers or socio economic groups to overexploit the government resources in a common pool setting polarization effect thereby we offer a fiscal instability channel that negatively links social polarization and growth which is an alternative yet distinct explanation for the empirical finding that social polarization is harmful to growth moreover we fully distinguish the incentive to engage in such short term policies under political uncertainty from that under polarization polarization and political uncertainty are shown to be distinct yet critical to the dynamic coordination failure in the common pool setting

economic impacts of el nino southern oscillation evidence from the colombian coffee market el nino southern oscillation enso is a naturally occurring phenomenon that affects weather around the world past enso episodes have had severe impacts on the economy of colombia we study the influence of enso on colombian coffee production exports and price our structural econometric specification is consistent with an economic model of the market for colombian coffee which in the short run is characterized by a downward sloping demand curve and by a vertical supply curve we show that el nino i e positive shocks to enso is beneficial for colombian production and exports and decreases the real price of colombian coffee on the contrary la nina i e negative shocks to enso depresses colombian coffee production and exports and increases price however the overall impact of enso shocks is small both in the short run and in the long run shocks to international demand for colombian coffee are more relevant than supply side shocks in colombia in explaining the dynamics of the price of colombian coffee our results suggest that a given coffee price shock can have beneficial detrimental or negligible effects on the colombian economy depending on its underlying cause as a consequence policy responses to coffee price shocks should be designed by looking at the causes of the shocks

banks financial liberalisation and financial crises in emerging markets the east asian financial crisis has raised a series of important issues amongst them is the question of the role of the banking sector and financial liberalisation in contributing to financial crises how do weaknesses in the domestic banking sector when combined with both domestic and international financial liberalisation engender currency crises what is lacking in the literature is a simple conceptual framework within which these connections can be conceptualised and drawn out and in which the role of banks is explicitly discussed this paper seeks to provide just such a framework within it international financial liberalisation can be seen as fuelling a boom in domestic credit which leads to acute balance sheet problems for domestic banks and exposes the country concerned to a currency crisis in the event of a sudden reversal of capital inflows which banking weaknesses may itself trigger

rent seeking and international commodity agreements the case of coffee although quotas are known to create opportunities for rent seeking such effects have not been examined in the context of international commodity agreements we hypothesize that export quotas imposed by the international coffee agreement ica by creating quota rents in coffee exporting countries encourage directly unproductive dup behavior by domestic groups seeking to capture such rents such behavior can cause substantial economic waste and undesirably alter income distribution the allocational and distributional effects of even moderate rent seeking behavior could be sufficient to transform a coffee exporting country s expected welfare gain from ica quotas into a welfare loss an understanding of these effects and a measure of their magnitude is crucial to any evaluation of the ica the classic analyses of international commodity agreements have focused on how such agreements affect the commodity terms of trade and export revenue instability 2 surprisingly little work exists on the welfare effects of commodity agreements within exporting countries particularly on the income distribution effects or dup activity the agreements might engender 3 the papers by g mcmahon and h dick and colleagues are partial exceptions 4 mcmahon shows that kenya s response to ica quotas the government banned new coffee plantings in an effort to control output was inefficient and had regressive income effects dick and colleagues compare the effects of buffer stocks and export quotas on a domestic economy using a general equilibrium model and find that quotas are better because they shift resources from

the impact of the international coffee agreement on producing countries the main objective of this article is to analyze the impact of the international coffee agreement s export system on the world coffee market focusing on increases in real export revenues transfer benefits and reductions in income variability risk benefits in each exporting country over the recent period of operation of the international coffee agreement s export quota system the authors find that the quota system had a stabilizing effect on world coffee prices the quotas reduced real export revenues for most small exporting countries but large producers gained most small countries gained however in terms of risk reduction if a brief suspension of the quota occurs from time to time caused for example by adverse weather which results in a shortfall in world supply the quota system works like a buffer stock scheme on average producing countries as a whole lose transfer benefits but gain risk benefits

household saving in developing countries first cross country evidence although most studies have relied on domestic or private sector saving data this article uses household data available from the u n system of national accounts for a sample of 10 countries household saving functions are estimated using combined time series and cross country observations in order to test households responses to income and growth rates of return monetary wealth foreign saving and demographic variables the results show that income and wealth variables affect saving strongly and in ways consistent with standard theories inflation and the interest rate do not show clear effects on saving which is also consistent with their theoretical ambiguity foreign saving and monetary assets have strong negative effects on household saving which suggests the importance of liquidity constraints and monetary wealth in developing countries

market power in international commodity trade the case of coffee this paper studies the impact of market power on international commodity prices i use a standard oligopoly model and exploit historical variations in the structure of the international coffee bean market to assess the impact of a cartel treaty on coffee prices and its global welfare consequences the results suggest that the international coffee agreement ica 1965 89 raised its price by 75 above the cournot competitive level annually transferring approximately 12 billion from consumers to exporting countries and its lapse in 1989 explains four fifths of the subsequent price decline that is the coffee crisis

do coffee roasters benefit from high prices of green coffee abstract the german coffee industry has repeatedly made the puzzling statement that it would prefer higher prices of green coffee its main input likewise it supported the maintenance of the coffee tax in this paper an oligopoly model with differentiated products is used to illustrate the possibility of profit raising cost increases the relationship between prices and costs of roasted coffee in germany is estimated and the hypothesis of overshifting is tested in addition the demand for coffee is studied however the empirical analysis does not confirm that increasing costs lead to higher profits alternative explanations for the coffee industry s statements based on long term considerations are also discussed

rising power clusters and the challenges of local and global standards this paper explores the intersection between three processes associated with globalisation first the rise of emerging economies like china brazil and india the so called rising powers and their potential to define the contours of globalisation global production arrangements and global governance in the twenty first century second the importance of corporate social responsibility csr goals in the shaping of global trade rules and industrial practices third the significance of small firm clusters as critical sites of industrial competitiveness some of the most significant examples of successful innovative and internationally competitive small firm clusters from the developing world are located in the rising powers and cluster promotion is a core element of national industrial policy in some of these countries there is also evidence of engagement by clustered actors with corporate social responsibility goals around labour and environmental impacts while these three processes have been separately studied there has been no attempt to explore their intersections this paper addresses this gap through a comparative analysis of secondary data and a detailed reading of the literature on csr and clusters in brazil china and india it assesses the evidence on small firm clusters in the rising power economies and considers how these rising power clusters engage with csr goals pertaining to labour social and environmental standards it argues for a greater focus on the formal and informal institutional context termed the social contract in explaining divergent experiences and practices observed across these countries this raises important questions for future academic and policy research on clusters csr and the rising powers the paper concludes by outlining a research agenda to explore the local and global consequences of the relationship between rising power clusters and international labour and environmental standards

the income distribution effects of the kenyan coffee marketing system abstract in order to meet its obligations to the international coffee agreement kenya regulated output from 1964 1972 and 1981 1985 by banning the planting of new coffee trees with the use of a large dynamic computable general equilibrium model we attempt to show that kenya suffered significant income losses due to the inefficiency of its internal quota system more importantly as coffee has been the most lucrative crop in kenya over the last 30 years the restriction of coffee expansion resulted in very large distributional effects the use of a coffee tax coupled with an increased expansion of coffee hectarage in the quota years would likely have significantly reduced the incidence of poverty in kenya by redistributing income towards farmers in coffee zones who historically did not grow coffee farmers in non coffee zones and landless rural labourers

trust social capital and economic development many argue that elements of a society s norms culture or social capital are central to understanding its development however these notions have been difficult to capture in economic models here we explore ap ossible role for trustworthiness as corresponding to social capital individuals are trustworthy when they perform in accordance with promises even if this does not maximize their payoffs the usual focus on incentive structures in motivating behaviour plays no role here instead we emphasize more deep seated modes of behaviour and consider trustworthy agents being socialized to act as they do to model this socialization we borrow from a process of preference evolution pioneered by bisin and verdier 2001 the model developed endogenously accounts for social capital and explores its role in the process of economic development it captures in a simple formal way the interaction between social capital and the economy s productive processes the results obtained caution against rapid reform and provide an explanation for why late developing countries may not easily be able to transplant the modes of production that have proved useful in the west

the messy reality of agglomeration economies in urban informality evidence from nairobi s handicraft industry summary this paper investigates intermediate input effects and labor pooling in the context of urban informality examining the handicraft industry of nairobi kenya the paper tests if conditions found in informality interfere with transition pathways in production clusters 102 semi structured interviews were conducted with industry participants including 69 production firms findings confirm the existence of important agglomeration economies but those benefits are curtailed due to constraints of informality on firms especially location constraints in urban space at the same time informality also introduces particular diseconomies of agglomeration that undermine the value of proximity of firms to each other particularly within clusters

a comparison of saving rates microdata evidence from seventeen latin american and caribbean countries using microdata on expenditure and income for seventeen latin american and caribbean countries this paper presents stylized facts on saving behavior by age education income and place of residence counterfactual saving rates are computed by imposing the saving behavior the population distribution or the income distribution of two benchmark economies the united states and korea the results suggest that the difference in national saving rates between latin america and caribbean and the benchmark economies can mainly be attributed to differences in saving behavior of the population and to a lesser extent to differences in the distribution of the population by education levels other demographic or income distribution differences are not quantitatively important as explanations of saving rates

collective efficiency growth path for small scale industry this study is concerned with the growth of small local industry in developing countries and explores one particular route for understanding and fostering such growth it focuses on the clustering of firms and the competitive advantage which they derive from local external economies and joint action captured in the concept of collective efficiency following a conceptual discussion the article explores the economic and institutional conditions which enhance or hinder collective efficiency this includes a case study which suggests that responding to opportunity and crisis requires shifting from mere reliance on external economies to joint action and from ascribed to earned trust

why do more polarized countries run more procyclical fiscal policy abstract we study the cyclical behavior of fiscal policy to explain why some countries exhibit procyclical fiscal policy stances being expansionary in good times and contractionary in bad times we develop a model that links the polarization of preferences over fiscal spending to the procyclicality bias we then present evidence that social polarization as measured by income inequality and educational inequality is consistently and positively associated with fiscal procyclicality even after controlling for other determinants from existing theories we also find a strong negative impact of fiscal procyclicality on economic growth

fiscal deficits and growth in developing countries this paper examines the relation between fiscal deficits and growth for a panel of 45 developing countries based on a consistent treatment of the government budget constraint it finds evidence of a threshold effect at a level of the deficit around 1 5 of gdp while there appears to be a growth payoff to reducing deficits to this level this effect disappears or reverses itself for further fiscal contraction the magnitude of this payoff but not its general character necessarily depends on how changes in the deficit are financed through changes in borrowing or seigniorage and on how the change in the deficit is accommodated elsewhere in the budget we also find evidence of interaction effects between deficits and debt stocks with high debt stocks exacerbating the adverse consequences of high deficits

growth and barriers to growth among nairobi s small and medium sized garment producers abstract few of nairobi s small and medium sized garment enterprises actually grow understanding why this should be so requires recognition both of their common problems and of the variations in their organization and market relations two factors appear critical for the growth of all of the producers demand for new clothing and the firm s initial capital other growth constraints differ according to the type of firm space constraints are highlighted as especially important for businesses presently operating in market stalls the design of policy and donor interventions needs to consider both the commonalities and the differences among firms

long live democracy the determinants of political instability in latin america abstract we investigate the underlying causes of political instability in a panel of 18 latin american countries from 1971 2000 we test whether regime type regime durability factionalism income inequality ethnic diversity ethnic discrimination regional spillover effects urban growth and macroeconomic variables matter for instability we find several important results 1 democracy has a significant negative effect on instability that is robust to several alternative specifications 2 factionalised political systems experience higher instability 3 income inequality ethnic fractionalisation and urban growth have important nonlinear effects on instability and 4 of the macroeconomic variables we study only openness to trade has a significant negative effect on instability

signaling and screening of workers motivation abstract this paper develops a model in which workers are heterogeneous in their intrinsic motivation to work at a firm we characterise optimal incentive schemes and examine how the firm can attract and select highly motivated workers to fill a vacancy when workers motivation is private information while posting a higher wage increases the probability of filling the vacancy it decreases the expected average quality of job applicants because less motivated workers are induced to apply the optimal wage scheme entails a trade off between the probability of filling the vacancy the rents left to the worker and the expected worker s motivation

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

institutions and savings in developing and emerging economies domestic savings are an important prerequisite for capital formation and growth in this paper we analyze a new channel through which institutions influence aggregate savings and economic development whereas research in the field of savings decisions concentrates largely on the level of the individual the literature on institutions and growth as well as on aggregate savings formation focuses on the aggregate national level first we develop a framework that brings together both lines of reasoning arguing that institutions may influence the individual savings decision as well as national savings in aggregate this potential for institutional quality to influence economic performance has been neglected so far second we build upon the empirical literature on aggregate savings formation and provide results supporting our hypothesis that better economic institutions drive aggregate savings formation upwards by contrast we do not find such effects in the case of the political environment our findings are robust when checked against a number of changes in explanatory variables estimation methods and the treatment of instruments

international evidence on how income inequality and credit market imperfections affect private saving rates abstract this paper empirically examines the hypothesis that income distribution exerts an independent effect on private saving rates across countries and tests particular channels for income inequality to affect private saving rates cross sectional and panel regression results show that inequality has a robust positive effect on private saving rates that depends on financial market development and credit available to the private sector the paper thus identifies credit market imperfections as the likely reason for the inequality private saving link the data provide no evidence supporting a subsistence channel for inequality to affect private saving as suggested by nonhomothetic utility functions

does income inequality raise aggregate saving this paper reviews analytically and empirically the links between income distribution and aggregate saving consumption theory brings out a number of direct channels through which income inequality can affect overall household saving positively in most cases however recent political economy theory points toward indirect negative effects of inequality through firm investment and public saving on aggregate saving on theoretical grounds the sign of the saving inequality link is therefore ambiguous this paper presents new empirical evidence on the relationship between income distribution and aggregate saving based on a new and improved income distribution database for both industrial and developing countries the empirical results using alternative inequality and saving measures and various econometric specifications on both cross section and panel data provide no support for the notion that income inequality has any systematic effect on aggregate saving these findings are consistent with the theoretical ambiguity q 2000 elsevier science b v all rights reserved

selective spatial closure and local economic development what do we learn from the argentine local currency systems summary this paper discusses local currency systems as an instrument of selective spatial closure to mitigate impacts of externally induced changes and to promote endogenous local economic development drawing on data collected in argentina it was found that local currency systems provided relatively protected economic spaces thus enabling poor households and especially women to launch micro enterprises and diversify income sources they also supported existing enterprises by offering an emergency market outlet and when combined with other measures by building local trading and production networks following recent theory on local economic development the argentine case represents an example of local economic regeneration

coffee market liberalisation and the implications for producers in brazil guatemala and india the standard approach to modelling the relationship between world and producer prices of coffee does not incorporate the effects of changing government policies and market structures these changes have led to large structural breaks in the relationship between the prices implying the standard estimates are biased we model coffee prices in brazil guatemala and india allowing for the structural breaks and show that the liberalisation of coffee markets has benefited producers substantially both in terms of a higher share of the world price of coffee and higher real prices this suggests that calls to re regulate coffee markets may be misplaced

testing oligopolistic behavior abstract this paper develops an empirical model of short run pricing behavior for firms in a homogeneous product oligopoly it is based on the variable profit function and related output supply and factor demand equations and is used to analyze the behavior of firms in the coffee roasting industry a parametric test of the dominant firm model is developed and applied the hypothesis of dominant firm behavior and cournot behavior are rejected the hypothesis of price taking behavior is rejected for the largest two firms in the industry but is not rejected for all other firms using the estimated pattern of firm behavior an index of overall industry performance is constructed

the relation between savings and growth cointegration and causality evidence from asia the direction of causality between savings and growth remains unclear even though it is of critical importance for development policy in this paper granger causality analysis is undertaken for seven asian countries using the vecm engle and granger and var procedures we find that in most cases the direction of causality runs primarily from growth or income to savings although in some countries there is also evidence of a feedback effect from savings to income and growth thus development policy should focus less on promoting high savings rates and more on promoting high growth rates estimation of the savings functions are presented using engle and granger s static ols and stock and watson s dynamic ols dols procedures where appropriate the high savings rates in asia are found to be due to the high rate of growth of income per capita declining shares of dependent population and some special institutional features such as the high central provident fund rates in singapore interest rates ar

what drives private saving around the world the authors investigate the policy and non policy factors behind saving disparities using a large panel data set and an encompassing approach including several relevant determinants of private saving they extend the literature in several dimensions by 1 using the largest data set on aggregate saving assembled to date 2 using panel instrumental variable techniques to correct for endogeneity and heterogeneity 3 performing robustness checks on changes in estimation procedures data samples and model specification their main empirical findings a private saving rates show considerable inertia are highly serially correlated even after controlling for other relevant factors b private sector rates rise with the level and growth rate of real per capita income so policies that spur development are in indirect but effective way to raise private saving rates c predictions of the life cycle hypothesis are supported in that dependency ratios generally have a negative effect on private saving rates d the precautionary motive for saving is supported by the finding that inflation conventionally taken as a summary measure of macroeconomic volatility has a positive impact on private saving holding other facts constant e fiscal policy is a moderately effective tool for raising national saving f the direct effect of financial liberalization are largely detrimental to private saving rates greater availability of credit reduces the private saving rate financial depth and higher real interest rates do not increase saving

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

understanding domestic savings an empirical approach abstractthere are two unusual and important features in the evolution of the savings rate in chile first the economy increased the average savings rate by 11 percentage points in the period 1985

regional heterogeneity in the relationship between fiscal imbalances and foreign exchange market pressure summary the relationship between fiscal imbalances and other macroeconomic variables is complex and multifaceted however it remains important to understand it not least in order to facilitate the design of appropriate policy one central issue is whether the relationship varies across countries or groups of countries if it does an implication is that policy will also have to be differentiated this paper empirically explores the relationship between fiscal imbalances and pressures in the foreign exchange fx market in latin america caribbean lac and east asia the pacific eap regions using panel data over 1970 2000 it finds that fiscal imbalances have a significant effect on fx pressures in lac but not in eap

productivity wages and intrinsic motivations there is a long standing debate in labour economics on the impact of workers intrinsic motivations on equilibrium wages one direction in economic theory suggests that intrinsically motivated workers are willing to accept lower wages and donate work for example in terms of unpaid overtime the donative labour hypothesis in the other direction intrinsic motivations are expected to increase worker productivity and in turn wages the intrinsic motivation productivity hypothesis using a new database of a sample of workers in the cooperative non profit sector we find that consistently with the motivation productivity hypothesis more motivated workers earn significantly higher wages which signals higher productivity evidence supporting the donative labour hypothesis is weaker even though a generally positive connection between motivations and work donation is confirmed we interpret these findings by arguing that the impact of the donative labour effect is dominated by the intrinsic motivation productivity effect

innovation performance and embeddedness in networks evidence from the ethiopian footwear cluster this study focuses on innovation in a cluster of informal shoemaking firms in ethiopia namely the mercato footwear cluster it examines how differently those firms are embedded in networks and how heterogeneous they are in absorptive capacity and how this heterogeneity affects their innovation performance business interactions with buyers suppliers and other producers are the major channels through which knowledge flows into the cluster these business networks are mainly built on trust and long term relationships and tend to be selective the study reveals that despite homogeneity in social background the firms in the cluster behave and perform differently based on econometric analysis we document a positive and strong effect of local network position and absorptive capacity on innovation performance

responding to the coffee crisis what can we learn from price dynamics an econometric model of coffee price dynamics is specified and estimated to capture the evolution of coffee prices at the farm wholesale and retail levels it investigates the historical influence of the international coffee agreement ica through its effects on yield and planting decisions in the short run the ica caused brazilian farm prices to become disconnected from international prices the ica helped coffee producers to better incorporate current world price information into planting decisions this created a price cycle that did not exist in non ica periods the low coffee prices experienced since the disintegration of the ica are consistent with low supply response to price information asymmetric price transmission at the retail level helped roasters and retailers benefit from upstream price interventions our results urge caution when considering future coffee price interventions

the optimal public expenditure financing policy does the level of economic development matter i introduction does the growth effect of public expenditures depend on the way these expenditures are financed over the years a substantial volume of theoretical and empirical research has been directed toward identifying the elements of public expenditure at its aggregated and disaggregated level that bear significant association with economic growth in contrast only a handful of studies have paid particular attention to examine the extent to which the growth effect of public expenditures depends on the method of financing such expenditures e g de gregorio 1993 miller and russek 1997 palivos and yip 1995 the consensus appears to be that the two primary modes of financing income taxation and seigniorage are distortionary opinions however are divided as to their relative merits for example according to palivos and yip 1995 income tax financing is more detrimental to growth than seigniorage financing at the same time de gregorio 1993 suggests that as long as the rate of return on indexed bonds is substantially responsive to changes in the rate of inflation seigniorage financing of public expenditure is more growth reducing pecorino 1997 on the other hand prescribes a mix of both modes of financing despite these differences the above mentioned studies share a common characteristic the optimal mode of financing public expenditure in these studies is viewed as being not contingent on the stages of economic development accordingly there remains little understanding of the process by which public expenditure financing policies shape the prospect of economic growth for developing vis a vis developed countries the primary objective of this paper is to bridge this gap in the existing literature it is a long standing belief among development experts that outcomes of public expenditures and revenue policies are conditional on the state of an economy recent evidence supports such belief for example miller and russek 1997 suggest that for developing countries a deficit financed increase in public expenditure retards economic growth and a tax financed increase leads to higher growth for developed countries a deficit financed increase in government expenditure does not affect economic growth and a tax financed increase leads to a lower growth in light of these findings and in light of the theoretical controversy about the relative merits of seigniorage versus tax finance it is meaningful to ask the following question does the relative merit of seigniorage vis a vis tax financing of public expenditure depend on the stage of economic development this paper seeks an answer to this question using both theoretical and empirical analyses the theoretical framework developed in this paper shares many of the characteristics of the models proposed by espinosa vega and yip 1999 2000 and schreft and smith 1997 in particular we consider a two period overlapping generations model where agents are subjected to stochastic relocations shocks which act like shocks to their portfolio preferences these shocks have the same consequence as liquidity preference shocks as in diamond and dybvig 1983 and create a role for financial intermediaries who take deposits and make a portfolio decision on behalf of the households in addition there is a government that relies on two alternative sources of revenue seigniorage and tax revenue to finance its exogenously given expenditure sequence the results that we derive are shaped by the portfolio decision of the financial intermediaries in particular at each point in time financial intermediaries are required to allocate their portfolios between a nonproductive liquid asset money and a productive illiquid asset the illiquid asset takes the form of financing risky investment projects which in turn generate productive capital stock for the economy the financial intermediaries optimal portfolio allocation rules depend on the relative rate of return of the two available assets

competitive storage and commodity price dynamics by buying cheap and selling dear risk neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand commodity prices are variable and strongly positively correlated from one year to the next the variability is often explained by supply factors and the autocorrelation by the activities of speculators we show that this explanation is not consistent with the evidence speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence but not to the high levels that are observed in the data

taxation and savings a neoclassical perspective this paper discusses recent neoclassical analyses of taxation and savings contrary to the popular view that fiscal policy has highly ambiguous impacts on savings neoclassical models admit a host of policies with clear and potentially quite powerful affects on the accumulation of wealth the paper considers four fundamental types of fiscal policies and compares their quantitative affect on savings the essential elements of these policies involve inter and intragenerational redistribution marginal and intra marginal taxation and the level of government consumption conventional accounting measures of taxes spending and deficits provide at best little guide to changes in underlying fiscal instruments and at worst precisely opposite indicators of the direction of such changes indeed the continued use of and concern with conventional fiscal measures is symptomatic of wide spread fiscal illusion these points are developed within the context of certainty models the paper also considers the role of fiscal policy in both mitigating and exacerbating economic risks facing the private sector since precaution is a major motivation for saving governments can greatly influence wealth accumulation either by using fiscal policy to pool private risks or by making fiscal policy itself highly uncertain this abstract was borrowed from another version of this item

capital mobility in developing countries some measurement issues and empirical estimates an economy s financial integration with the outside world the extent of capital mobility across its borders is a key determinant of some of its most important macroeconomic properties yet little is known about this characteristic of many developing economies an important stumbling block in the empirical assessment of financial integration openness is the many approaches to measuring it the author describes and evaluates different tests of capital mobility surveys existing evidence and applies four tests of capital mobility to assess the degree to which the many developing countries tested have achieved integration with the world financial markets the four tests are the 1 magnitude of gross capital flows 2 uncovered interest rate parity 3 strength of saving investment correlations and 4 behavior of domestic consumption over time the evidence suggests that most developing countries can be considered to be financially open in only 18 of the 57 developing countries classified did the data fail to show financial openness and that many countries may be experiencing an increased degree of integration with world financial markets

bureaucrats in business the roles of privatization versus corporatization in state owned enterprise reform abstract this article provides evidence from a sample of 12 developing countries that countries which improved state owned enterprise performance the most followed a comprehensive strategy of reforms including a combination of privatization and corporatization further evidence that corporatization works better in combination with ownership and other reforms is provided through an analysis of government contracts with public managers private managers and private owners contracts with private managers and owners did better than contracts with public managers in part because the property rights of the former gave them a larger stake in the outcomes the article analyzes the political economy of state enterprise reform and finds that privatization and corporation have similar political costs and tend to succeed or fail together where reform was politically desirable politically feasible and credible countries privatized and corporatized successfully when countries were not politically ready to reform alternative ownership strategies were not successful in improving performance

coping with the upheavals of globalization in the shea value chain the maintenance and relevance of upstream shea nut supply chain organization in western burkina faso summary market globalization has had only a weak impact on the regional shea nut supply chain in western burkina faso despite the boom in the shea trade and the arrival of leading foreign firms we show that despite the fact that wholesalers have kept the shea chain locked in an oligarchic organization for the last 50 years they still play an important role in the smooth functioning of the chain and in profit sharing down the chain to the rural poor we suggest that development actors should consider shea traders and their role in the coordination of the chain more carefully 2014 the authors published by elsevier ltd this is an open access article under the cc by nc sa license http creativecommons org licenses by nc sa 3 0

saving in developing countries theory and review in the literature on economic development much of the interest in saving has been focused on the relation between saving and growth but saving is not only about accumulation it is about smoothing consumption in the face of volatile and unpredictable income and helping to ensure the living standards of poor people whose lives are difficult and uncertain this paper develops a model of households which cannot borrow but which accumulate assets as a buffer stock to protect consumption when incomes are low such households dissave as often as they save do not accumulate assets over the long term and have on average very small asset holdings but their consumption is markedly smoother than their income much of the evidence is as consistent with this view of saving as it is incosistent with standard views of smoothing over the life cycle and with explanations of the link between saving and growth in terms of life cycle saving behavior consumption smoothing is also a useful way of thinking about government policy where volatility in the world prices of taxed commodities can generate sharp fluctuations in government revenues as well as reallocations of revenue between the private and public sectors many important policy issues in developing countries hinge on issues of consumption and smoothing and research on these issues is currently likely to be more productive than work on the relation between saving and growth

the double edged sword of legitimacy in base of the pyramid markets as compared to developed countries a much higher proportion of entrepreneurs within base of the pyramid bop markets operate unregistered businesses prior research has suggested that the primary cause of such informal activity in these settings is the general failure of weak institutions to provide sufficient resources to warrant formalization we attempt to extend such thinking by deconstructing the discrete and inter related effects of formal business registration on the level of resources obtained by entrepreneurs from financial labor and legal institutions within bop markets using a multi method approach involving 299 entrepreneurs within guatemala city our results suggest that being seen as a legitimate registered business can actually lead to both increased resource provision and resource appropriation more specifically adhering to the norms and rules prescribed by regulatory institutions within weak legal environments can convey positive signals of stability and profitability that both attract the desired attention from formal institutional actors as well as unwanted attention from criminals

african enterprise clusters and industrialization theory and reality abstract using six case studies from africa this paper examines the theoretical argument that geographic and sectoral clustering enables enterprises to overcome constraints to growth and development findings were both theoretical and practical theoretically the study underscored the strength of the collective efficiency framework but found that certain anomalies could only be explained by other contextual variables grouping the six case studies revealed important differences among them and showed that each group plays its own part in the industrialization process groundwork clusters prepare the way industrializing clusters begin the process of specialization differentiation and technological development and complex industrial clusters produce competitively for wider markets the paper concludes with practical implications for african governments donors and the business community

international commodity agreements design and performance abstract this article traces the design and performance of the five currently or recently active international commodity agreements icas in cocoa coffee natural rubber sugar and tin following detailed discussion of each of these the author makes three observations that icas can only be successful provided that they command a consensus in their industries that existing agreements are not robust enough with regard to exchange rates and that existing agreements are poorly drafted the author argues that the collapse of the tin agreement in october 1985 may have marked the end of the postwar chapter in the commodity intervention story he finds it improbable that new icas will emerge and suggests instead that more of the existing agreements will lapse

inequality saving and global imbalances a new theory with evidence from oecd and asian countries global imbalances are attributable to savings deficiency in some economies and savings glut in others the recent global crisis has triggered widespread social conflict over income inequality the inequality saving link has again become a pressing issue needing serious attention we present a new theory to explain why the link between inequality and saving is negative in oecd countries but positive in emerging asia we also offer an econometric analysis of differences in inequality saving links between those economies we find that aggressive financial services lead to a negative link by creating income illusion for overconsumption but imperfect financial markets contribute to a positive link by interacting with industrial policies as part of growth strategies while ignoring liquidity constraints on consumption

how does trade openness influence budget deficits in developing countries abstract this paper analyses the effects of trade openness on budget balances by distinguishing the effects of natural openness from those of trade policy revealed indicators of natural openness and trade policy are computed using gmm system estimator the econometric analysis focuses on 66 developing countries over 1974 98 the results show that trade openness increases a country s exposure to external shocks this enforces the negative impact on budget balances of terms of trade instability additionally trade openness influences budget balances through several other channels corruption income inequalities etc then natural openness and trade policy have opposite effects the former deteriorates budget balances whereas the latter enhances them

financial market fragmentation and reforms in ghana malawi nigeria and tanzania this article reports the findings from surveys of formal and informal institutions and their clients in ghana malawi nigeria and tanzania it investigates the hypothesis that reforming financially repressive policies would not be sufficient to overcome fragmentation of financial markets because of structural and institutional barriers to interactions across different market segments the four countries have substantially fragmented financial markets with weak linkages between formal and informal segments and interest rate differentials that cannot be adequately explained by differences in costs and risks nevertheless the relatively low transaction costs and loan losses of informal institutions indicate that they provide a reasonably efficient solution to information transaction cost and enforcement problems that exclude their clients from access to formal banking services the findings imply that financial liberalization and bank restructuring in the african context should be accompanied by complementary measures to address institutional and structural problems such as contract enforcement and information availability and to improve the integration of informal and formal financial markets

why are latin america s savings rates so low an international comparative analysis abstract this paper presents a theoretical and empirical assessment of the determinants of savings rates with special emphasis on latin american savings rates the study is based on international comparisons using data from 36 countries for 1970 1992 a distinction is made between private and public savings the later are endogenously determined by economic and political variables per capita income growth is the most important determinant of private and public savings public savings are lower in countries with higher political instability public savings crowd out private savings but less than proportionately low latin american savings are due to the magnitudes of their determinants rather than structural differences

the modern history of exchange rate arrangements a reinterpretation we develop a novel system of reclassifying historical exchange rate regimes one key difference between our study and previous classifications is that we employ monthly data on market determined parallel exchange rates going back to 1946 for 153 countries our approach differs from the imf official classification which we show to be only a little better than random it also differs radically from all previous attempts at historical reclassification our classification points to a rethinking of economic performance under alternative exchange rate regimes indeed the breakup of bretton woods had less impact on exchange rate regimes than is popularly believed

effects of transitory shocks to aggregate output on consumption in poor countries this paper provides instrumental variables estimates of the response of aggregate private consumption to transitory output shocks in poor countries to identify exogenous unanticipated idiosyncratic and transitory variations in national output we use year to year variations in rainfall as an instrumental variable in a panel of 39 sub saharan african countries during the period 1980 2009 our estimates yield a marginal propensity to consume out of transitory output of around 0 2 to explain this result we show using instrumental variables techniques that there is a significant negative effect of transitory output shocks on net current transfers and a significant positive and quantitatively large effect on the trade balance an important implication is that frictions to private financial flows do not necessarily imply large effects of transitory shocks to aggregate output on private consumption in poor countries

thirty years of currency crises in argentina external shocks or domestic fragility participation has been quite volatile in the early 1800s in the midst of the lending boom fueled by the end of the napoleonic wars argentina and many other countries in latin america were able to issue bonds in london to finance their wars of independence and the civil wars that followed this lending boom ended in the summer of 1825 when the bank of england raised the discount rate to stop the drain in its reserves the tightening of liquidity was followed by stock market crashes banking problems and recessions in england and on the continent within months the crisis also spread to latin america argentina defaulted in 1827 in the midst of what is known as the first latin american debt crisis only resuming payments in 1857 similar international capital flow booms to emerging markets occurred in 1867 72 1880 90 1893 1913 and 1920 29 fueled by an easing monetary stance in the financial centers of those times and by the financial needs of railway expansion urbanization and development of the banking sector of countries in the periphery while argentina was heavily involved in all these capital flow bonanzas its participation was quite volatile with financial crises often following booms 1