the political economy of clientelism in this paper we argue that the political commitment problem provides an explanation for why much income redistribution takes an inefficient form particularly employment in the public sector a job is a credible way of redistributing when it provides rents such as in situations with moral hazard and employment is optimal ex post moreover a job is selective and reversible and thus ties the continuation utility of a voter to the political success of a particular politician we show that the need to make offers of employment incentive compatible leads to inefficiencies in the supply of public goods we also show that such inefficient redistribution becomes relatively attractive in situations with high inequality and low productivity inefficiency is increased when the stakes from politics are high when inequality is high and when money matters less than ideology in politics

commodity price shocks and civil conflict evidence from colombia how do income shocks aect armed con ict theory suggests two op posite eects if labor is used to appropriate resources violently higher wages may lower con ict by reducing labor supplied to appropriation this is the opportunity cost eect alternatively a rise in contestable income may increase violence by raising gains from appropriation this is the rapacity eect our paper exploits exogenous price shocks in inter national commodity markets and a rich dataset on civil war in colombia to assess how dierent income shocks aect con ict we examine changes in the price of agricultural goods which are labor intensive and natural resources which are capital intensive we focus on coee and oil the two largest exports we nd that a sharp fall in coee prices in the 1990s increased violence dierentially in regions growing more coee by lower ing wages and the opportunity cost of joining armed groups in contrast a rise in oil prices increased violence dierentially in the oil region by in creasing municipal revenue siphoned through rapacity this pattern holds in several other agricultural and natural resource sectors providing robust evidence that price shocks aect con ict in opposite directions depending on the factor intensity of the commodity

the money supply and nominal agricultural prices in the early 1970s food and agricultural prices in the united states rose substantially faster than other prices now early in the 1980s farm prices are depressed relative to other prices in the economy numerous explanations of the behavior of nominal agricultural prices in the past decade have been offered these explanations may be broadly divided into two categories the first is the structuralist explanation it argues that real shocks in selected sectors of the economy such as global crop failures raise prices of certain goods these price increases are later validated or accommodated by expansions in the money supply so that the prices of other goods need not decline in contrast monetarist inflation explanations argue that autonomous increases in the money supply lead or cause the price increases and do not just occur ex post to accommodate real shocks ultimately both explanations recognize that without monetary expansion no long run inflation can occur the fundamental difference is

resource curse or not a question of appropriability this thesis presents three self contained essays focusing on empirical questions in growth and development economics each article addresses specific questions on why countries perform differently in particular i analyse the effect of democracy on economic development the relationship between natural resources and growth and the efficiency of foreign development assistance in the first essay democracy consolidation and growth i analyse the effect of democracy on economic growth in this context i argue that an important aspect to consider is how consolidated political systems are put simply i find that it is not only a question of how democratic countries are but also how long they have been democratic in other words economic performance tends to improve with the duration of uninterrupted democracy the performance of autocracies on the other hand tends to deteriorate over time however for newly established political systems there seems to be a cost of being democratic this implies that democracies only bear their fruit after some time the analysis has important policy implications to overcome initial straits international assistance focused on democratic consolidation may be important and a very good investment in fostering long run development the second essay resource curse or not a question of appropriability together with anne boschini and jesper roine is concerned with the relation between natural resources and economic development for most laymen as well as for most economists it would seem reasonable that countries richly endowed in natural resources also benefit from this wealth however a large literature has found a systematic negative effect of natural resource abundance on economic growth we suggest that this so called resource curse is not determined by resource endowments alone but rather by the interaction between the type of resources a country possesses and the quality of institutions in the country this combination of factors determines what we call the appropriability of a resource the concept of appropriability captures the likelihood of natural resources leading to rentseeking corruption or conflicts which in turn will harm economic development our results suggest that if institutions are good enough the curse may be turned into a blessing this may explain why some countries such as norway and botswana tend to benefit from their resources while others such as angola and sierra leone do not the third and final essay of this thesis foreign sectoral aid fungibility growth and poverty reduction is a contribution to the aid efficiency literature which is concerned with the question of whether aid helps or hinders economic development foreign development assistance is often targeted on specific public expenditure sectors if this aid is not used in the sector for which it was granted e g health education it is said to be fungible and donors may end up financing something completely different from what they intended e g military expenditures the major concern about sectoral fungibility is that the alternative use of aid may be less productive or less socially useful however measuring fungibility is not sufficient to determine whether foreign sectoral aid fungibility is actually harmful what is important is how the funds treated as fungible are used the essay starts by obtaining estimates of fungibility for 57 countries the results suggest that sectoral aid is indeed largely treated as fungible by recipient countries next to assess the economic and health effects of fungibility these estimates are incorporated into an empirical model of aid and growth as well as into a model of aid and infant mortality altogether i find no evidence of more fungible sectoral aid leading to worse performance

the impact of natural resources survey of recent quantitative evidence the cross country empirical evidence for the natural resource curse is ample but unfortunately fraught with econometric difficulties a recent wave of studies on measuring the impact of natural resource windfalls on the economy exploits novel datasets such as giant oil discoveries to identify effects of windfalls uses natural experiments and within country econometric analysis and estimates local impacts these studies offer more hope in the search of quantitative evidence

political foundations of the resource curse a simplification and a comment in this note we show how a considerably simpler model than the one in our original jde 2006 paper generates all the same results we also acknowledge an error in the specification of a utility function in our previous paper

impact of macroeconomic policies upon agricultural trade and international agricultural development international commodity markets in the early 1980s have experienced a severe cyclical downturn high real rates of interest have discouraged stock holding and disinflation has caused asset market participants to shift out of commodities into financial assets this is only the most recent bout of turbulence since we passed from the stable bliss of the 1950s and 1960s the basic question is whether this instability results from a seemingly unending series of shocks or is there a more general basic explanation which transcends individual events

flexible exchange rates and commodity price changes the case of japan although agricultural commodities are often assumed to have flexible prices little has been done to estimate exchange rate pass through perfect commodity arbitrage opportunities imply complete pass through imperfect opportunities could lead to incomplete pass through analysis of commodity price and exchange rate adjustments for five commodities exported to japan by the united states reveals that during the 1970s commodity prices were generally flexible during the 1980s when the dollar was rising price stickiness on the part of exporters importers contributed to inflexible prices and asymmetric exchange rate response specifically an exchange rate increase was passed through for some commodities but not a decline

characteristics of west german demand for international tourism in the northern mediterranean region the purpose of this paper is to establish the economic determinants of west germany s demand for international tourism in six northern mediterranean nations the methodology makes use of the translog utility function homotheticity and additivity restrictions of the utility theory are tested as hypotheses expenditure income own and cross price elasticities are claculated for each of the twenty years from 1966 to 1985

spot and futures prices and the law of one price the law of one price lop is tested for narrowly defined commodities traded in futures markets in different countries during the period 1973 80 although the lop holds as an average tendency for most of the commodities there are instances of large riskless arbitrage returns before transactions costs deviations from the lop tend to be commodity specific rather than due to a common external factor and they tend to be smaller the longer the maturity of the futures contract in this paper we examine how well the law of one price lop holds for commodities traded internationally the answer to this question is important for two reasons the first is that in most modern theories of exchange rates price arbitrage for at least some goods is a necessary condition to determine the level of exchange rates but recent empirical research on the behavior of various price indices casts doubt on the empirical validity of the lop across countries for even the most disaggregated indices if it is not possible to identify any commodities for which the lop works satisfactorily then models incorporating the lop will not provide an adequate description of exchange rates the second reason for studying individual commodities is to gain information on the efficiency and the degree of integration of international commodity markets in efficient markets international commodity arbitrage implies that for a standard commodity prices in two markets expressed in a common currency will not differ but for transport costs

pass through of exchange rates and tariffs in greek us tobacco trade abstract the paper examines the extent to which exchange rate and unit tariff changes are passed through in us import prices of unmanufactured greek oriental tobacco the results indicate partial pass through of exchange rates and tariffs exchange rate pass through is about 0 272 and tariff pass through about 0 185 one possible reason for the partial pass through is oligopoly in tobacco exporting oligopoly would imply that depreciation of the drachma relative to the us dollar benefits tobacco exporters operating in greece a second possible reason is a possible correlation between exchange rates premiums paid to tobacco exporters in previous agricultural policies an important implication of this possible correlation is that greek tobacco prices may be more sensitive to exchange rate changes under the current agricultural policy

on the form of transfers to special interests an important question in political economy concerns the form of transfers to special interests the chicago view is that political competition leads politicians to make such transfers efficiently the virginia position is that lack of information on the part of voters leads politicians to favor inefficient sneaky methods of redistribution this paper analyzes the form of transfers in a model of political competition in which politicians have incentives to make transfers to special interests it shows that when voters have imperfect information about both the effects of policy and the predispositions of politicians inefficient methods of redistribution may be employed

linking of u s monetary policy and exchange rates to world soybean markets abstract the linkage between macroeconomic policies and agricultural commodity trade has become an important research issue of agricultural economists this paper investigates the macroeconomic linkage of soybean trade competition between the exporting countries of the united states brazil and argentina in the ec 12 and japan import markets it is argued that u s monetary growth may have important impacts on the competitive position of u s soybean exports through exchange rates two relationships are investigated a the effects of u s monetary growth on the agricultural trade weighted exchange rates and b the responsiveness of agricultural commodity prices and u s exports to exchange rate movements results indicate that a weak dollar increases imports of soybeans and soymeal significantly which serves to increase the equilibrium world price and increase both u s and brazil argentina exports in the long run however during periods of more expansionary u s monetary policy there is little evidence of significant increases in market share position for u s soybeans and soymeal in world markets

commodity prices and growth an empirical investigation whereas empirical evidence on the effect of higher commodity prices on the long run growth of commodity exporters is ambiguous time series analyses using vector autoregressive var models have found that commodity booms raise income in the short run in this paper we adopt panel error correction methodology to analyze global data for 1963 to 2008 to disentangle the short and long run effects of international commodity prices on output per capita our results show that commodity booms have unconditional positive short term effects on output but non agricultural booms in countries with poor governance have adverse long term effects which dominate the short run gains our findings have important implications for non agricultural commodity exporters with poor governance especially in light of the recent wave of resource discoveries in low income countries

fiscal decentralization and economic growth reconsidered recent studies examining the relation between fiscal decentralization and economic growth have failed to take account of the extent of the independent taxing powers available to sub national governments and thus have substantially overstated the degree of effective decentralization results from a cross section study of 19 oecd member countries suggest that when the measure of fiscal decentralization is limited to the revenues over which sub national governments have full autonomy its impact on economic growth is not statistically significant

the local impact of mining on poverty and inequality evidence from the commodity boom in peru summary this paper studies the impact of mining activity on socioeconomic outcomes in local communities in peru in the 1990s and 2000s the value of peruvian mining exports grew by 15 times and since the early 2000s one half of fiscal revenues from mining have been devolved to local governments has this boom benefitted people in local communities using the district level poverty map of 2007 the latest available with accurate data on consumption poverty and inequality together with district level data on mining production and fiscal transfers to local governments we present some evidence to answer this question we find that mining districts have larger average consumption per capita and lower poverty rates than otherwise similar districts these positive impacts however decrease drastically with administrative and geographic distance from mining centers moreover consumption inequality within mining districts is higher than in comparable nonproducing districts this dual effect of mining is accounted for by first the better educated immigrants required and attracted by mining activity and second the jobs that some community natives obtain in industries and services related to mining the inequalizing impact of mining both across and within districts may help explain the social discontent with mining in peru despite its enormous revenues an area for future research highlighted in the paper regards the usefulness of fiscal transfers to local governments the mining canon a key component of the fiscal decentralization reform of 2002 we find neither a detrimental nor a beneficial effect from the mining canon in peru whether this is explained by our early measurement of results 5 years into the decentralization program or by the lack of implementation capacity of local governments remains to be answered

imperfect competition and exchange rate pass through in the food processing sector imperfect competition has become an important dimension of international trade theory helpman and krugman product differentiation and economies of scale are explicitly incorporated in the new trade theory policy prescriptions following from these models hinge critically on underlying assumptions particularly the form of strategic firm behavior competitive cournot or bertrand unfortunately these models do not lend themselves easily to empirical testing also little empirical information exists on the strategic behavior of firms in international markets thus various models and tests on different aspects of imperfect competition in trade have been proposed and implemented one form of imperfect competition in international trade that has received attention re

a ricardian excursion to bermuda an estimation of mixed strategy equilibrium while there is a rich theoretical literature on mixed strategy equilibria there has long been doubt with regard to the actual prevalence of scuh equilibria the objective of this paper is to empirically demonstrate a mixed strategy equilibrum in a model of ricardian rent generation the oligopolistic resort hotel industry in bermuda is used as the illustrative case

institutions and the resource curse countries rich in natural resources constitute both growth losers and growth winners we claim that the main reason for these diverging experiences is differences in the quality of institutions more natural resources push aggregate income down when institutions are grabber friendly while more resources raise income when institutions are producer friendly we test this theory building on sachs and warner s influential works on the resource curse our main hypothesis that institutions are decisive for the resource curse is confirmed our results contrast the claims of sachs and warner that institutions do not play a role

currency substitution and instability in the world dollar standard comment myron ross correctly points out in his comment that u s price inflation is better predicted by the american money supply mlus than by the broader ten country world money supply mlw over the whole statistical time series from 1960 to 1980 provided in mckinnon s 1982 article specifically he showed that american price inflation is more highly correlated with mlus lagged one or two years than with mlw similarly lagged however mckinnon s present tense assertion that in general growth in the world money supply is a better predictor of american price inflation than is american money growth applies only to the weak dollar standard of the 1970 s and early 1980 s as his preceding discussion intended but failed to indicate clearly only in this later period of volatile exchange rates and price level instability in the united states do alternative hard currencies such as the yen and deutsche mark become competitive as international stores of value and units of account hence international currency substitution associated with the ebb and flow of speculation against or for the dollar significantly destabilized the demand for mlus in the 1970 s and 1980 s and only in this later period might one expect the sum of these internationally substitutable monies ml to predict world and perhaps even american price inflation better than does mlus in contrast during the strong dollar standard of the 1950 s and 1960 s the dollar was unchallenged as international money exchange rates were by and large convincingly fixed speculation for or against the dollar was incapable of substantially altering u s interest rates or of directly affecting the demand for mlus because cyclical international influences did not then destabilize the demand for dollars mlus was by itself a fairly efficient predictor of american prices thus ross s statistical results for the period 1960 to 1980 show somewhat greater predictive strength in mlus compared to ml because the 1960 s data outweigh the dissimilar data of the 1970 s let us instead partition the sample of imf data around the year 1970 whence began the transition from fixed to fluctuating exchange rates and the maturation of alternative monetary systems in europe and japan after applying similar statistical correlation procedures to those used by ross we show a striking structural shift in the world s monetary system the explanatory power of mlw increases sharply as that of mlus declines moderately tan 1982 for the early period of 1960 to 1970 table 1 shows simple correlation coefficients between annual percentage changes in money supplies and changes in american and world wholesale price indices the mlus provides a good explanation of u s prices and of world prices one to two years hence whereas the broader definition of mlw in which mlus enters with a 50 percent weight does surprisingly poorly being insignificantly correlated with american or world prices apparently money growth in industrial countries other than the united states was not then an independent source of worldwide inflationary pressure during the strong dollar standard table 2 shows the same simple correlations between percentage changes in prices and money for the weak dollar standard of stanford university please note that a typographical error giving the last word in the original title as market appeared on the cover of the june 1982 issue of this review the title was correct in the table of contents and on the article

an analysis of consumption behaviour of foreign tourists in ireland the objective of this article is to analyse the consumption behaviour of foreign tourists in ireland based on the almost ideal demand system five demand systems are estimated four representing the major source markets of tourists to ireland namely from britain north america mainland europe and rest of the world and one aggregate model based on a pooled sample each system included six commodity aggregates representing the major consumables of tourists estimated models were statistically significant and the derived elasticities are theoretically consistent and empirically plausible while there are some variations in the consumption patterns of tourists from different source markets reflecting differences in consumer preferences and consumption habits in general tourist demand for the various irish tourism goods and services is found to be price inelastic this finding is consistent with a priori expectations as tourists are obliged to consume whatever is available at the destination they visit

interrelationships between monetary instruments and agricultural commodity trade during the last decade agricultural economists have devoted increasing attention to the macroeconomic aspects of agricultural problems indeed a recent presidential address to the american agricultural economics association tweeten centered on the macroeconomics of agriculture given the currency of the monetary approach to macroeconomics it is not surprising therefore that there is also a growing interest in the effects of monetary instruments and monetary phenomena on agricultural commodity trade in this paper i shall discuss what i feel are some of the most pertinent issues that researchers must address in this area before we proceed too far with our discussion it is important to define what i mean by a monetary instrument perhaps arbitrarily i reserve the term monetary instrument for those macroeconomic variables which are primarily determined within domestic or international monetary markets obvious examples are the level of the money supply interest rates and exchange rates i justify the term instrument by noting that as far as the agricultural sector is concerned these variables are by and large predetermined for example the levels of the money supply and interest rates in the united states are to a large extent determined by the policy of the federal reserve similarly the price of the currency the exchange rateis ultimately determined by the demand and the supply for the currency and thus at least partially by governmental policy the first step in any attempt to outline research needs and goals is an identification of what has been done in the past although the literature on the macroeconomics of agriculture is farily large and rapidly expanding eckstein and heien lamm schuh 1976 and tweeten are important examples relatively li tl attention has been given to the effect of monetary instruments on agricultural trade what attention has been given to this area of resea ch has revolved mainly around the role of exchange rates in determining agricultural exports and prices thus it is logical to start our discussion with a brief survey of the literature on exchange rates and agriculture

political foundations of the resource curse in this paper we argue that the political incentives that resource endowments generate are the key to understanding whether or not they are a curse we show 1 politicians tend to over extract natural resources relative to the efficient extraction path because they discount the future too much and 2 resource booms improve the efficiency of the extraction path however 3 resource booms by raising the value of being in power and by providing politicians with more resources which they can use to influence the outcome of elections increase resource misallocation in the rest of the economy 4 the overall impact of resource booms on the economy depends critically on institutions since these determine the extent to which political incentives map into policy outcomes countries with institutions that promote accountability and state competence will tend to benefit from resource booms since these institutions ameliorate the perverse political incentives that such booms create countries without such institutions however may suffer from a resource curse

export pricing flexible exchange rates and divergence in the prices of traded goods abstract a model of firm pricing where customers adjust slowly to price differences is extended to an exporting firm under flexible exchange rates the foreign currency price the firm sets determines both current net revenue and the rate of investment in market share real exchange rate changes lead to price revisions but the protracted adjustment of customers prompts a smaller price response to transitory changes in the real exchange rate the model accounts for observed variations in traded goods prices across countries and the failure of exporting firms to pass through exchange rate changes but in contrast to static models does not predict frequent reallocation of traded goods production

tourism demand for italy and the business cycle this study provides a strategy for modelling the effect of the business cycle on tourism demand under the rationale that tourism cycles are heavily influenced by lagged effects of the overall business cycle using quarterly data on overnight stays in italian hotels both domestic and inbound between 1985 and 2004 we adopt a structural time series approach to evaluate two alternative models the first with a latent cycle component lcc and the second based on specific economic explanatory variables xcv the two models are compared in terms of explanatory power best fit residual diagnostics and forecasting ability the results show similar performances the policy implication is that the xcv model can be used for calibrating countercyclical interventions in tourism policy

the resource curse and its potential reversal several recent papers suggest that the negative association between natural resource intensity and economic growth can be reversed if institutional quality is high enough we try to understand this result in more detail by decomposing the resource measure using alternative measures of both resources and institutions and by studying different time periods while an institutional reversal is present in many specifications only ores and metals interacted with the icrg measure of institutional quality consistently have a negative growth effect but a positive interaction that turns the curse around when institutions are good enough

does the law of one price really hold for commodity prices in spite of the empirical failure of the law of one price it is usually assumed that commodity prices are perfectly arbitraged at least in the long run this paper argues that this assumption is counterfactual and that much of the empirical evidence provided to support it is flawed and affected by econometric shortcomings spurious regressions nonstationarity in the data inappropriate use of first differences an alternative methodology co integration by which a long run relationship between nonstationary series can be tested is proposed tests of nonstationarity and co integration for a group of commodities show quite uniformly that the law of one price as a long run relationship fails and that deviations from the pattern are permanent

some political economy aspects of macroeconomic linkages with agriculture though the political process leading to the 1985 farm bill has shunned proposals for significant policy change commentators on u s food and agricultural policy continue to characterize the current policy environment as arriving at a turning point where fundamental realignment of policy is possible among the factors indicating a need for change macroeconomic linkages have been singled out as primary sources of increasing difficulty in agricultural policy management implicit in this view is the idea that a heightened importance of macroeconomic factors represents a structural change in long term patterns of development for the sector that has rendered current policies anachronistic to advance such an idea is to ignore the historical record macroeconomic disturbances and their links to the agriculture sector are central in any historical account of the policy developments leading to direct federal government intervention in the agriculture sector for example the organized agricultural interest groups that emerged during the populist protest of the late nineteenth century were motivated in part in response to the monetary restriction associated with the greenback period and the return to fixed exchange rates under the gold standard in 1879 friedman and schwartz continued price deflation into the mid 1890s and real interest rates that are estimated to have averaged 8 5 in the period 1870 89 summers p 212 proved particularly burdensome to debtridden farmers the demands of the various farmer movements thus consisted of easy money or an elastic currency created by government action government funds for farm mortgages and the subtreasury scheme for creation of government paper money with stored crops as collateral the discontent voiced by farmers over the macroeconomic policies of the nineteenth century can be associated with later institutional changes that organized the federal reserve in 1913 and created the federal land banks in 1916 agricultural price support through provision of loans against crops was not achieved until 1933 with the creation of the commodity credit corporation reiter and hughes pp 1415 16 that policy change along with other provisions for federal government intervention included in the agricultural adjustment act followed a farm crisis that had its origins in macroeconomic adjustments after world war i exports of agricultural products had expanded rapidly in the united states to supply the wartime needs of europe rapid inflation accompanied the export expansion and land prices and farm mortgage debt increased this exacerbated farm sector adjustments when production was restored in europe and when world liquidity was restricted as u s lending to europe was curtailed overcapacity in world primary product markets persisted and the combination of raw material overproduction and monetary deflation that occurred has been cited as a factor generating the broader economic collapse of the 1930s kindleberger pp 98 107 unified political activity by farmers was also intense in the aftermath of world war i the congressional farm bloc coalition of republicans and democrats came into existence in 1921 and sponsored legislation e g the capper volstead act of 1922 and the agricultural credit acts of 1923 aimed at improving farm conditions through promotion of cooperatives and expansion of credit however as the relative purchasing power of farmers continued to decline through the 1920s the farm lobby organized around the theme of equality for agriculture and demanded more margaret s andrews is a resident fellow national center for food and agricultural policy resources for the future gordon rausser is a professor department of agricultdral and resource economics university of california berkeley giannini foundation paper no 785

natural resources democracy and corruption we study how natural resources can feed corruption and how this effect depends on the quality of the democratic institutions our game theoretic model predicts that resource rents lead to an increase in corruption if the quality of the democratic institutions is relatively poor but not otherwise we use panel data covering the period 1980 to 2004 and 124 countries to test this theoretical prediction our estimates confirm that the relationship between resource rents and corruption depends on the quality of the democratic institutions our main results hold when we control for the effects of income time varying common shocks regional fixed effects and various additional covariates they are also robust across different samples and to the use of various alternative measures of natural resources democracy and corruption

does oil corrupt evidence from a natural experiment in west africa abstract this paper explores the oil discovery announcements in sao tome and principe 1997 1999 to assess the role of natural resources in determining corruption for this purpose we use a natural experiment framework which contrasts sao tome and principe to cape verde a control west african country sharing the same colonial past and important recent economic and political shocks our measurement is based on tailored household surveys we conducted in both island countries the unique survey instrument was retrospective and used personal histories to elicit memories from the respondents we analyze changes in perceived corruption across a wide range of public services and allocations we find clearest increases on vote buying education namely in the allocation of scholarships and customs ranging from 31 to 40 of the subjective scale we interpret these findings as symptoms of increased competition for core state resources