democracy and macroeconomic performance in underdeveloped countries an empirical analysis in this study the author examines how inflation and economic growth differ in more and less democratic regimes and in new and mature democracies the analysis is based on a panel research design featuring annual data from a large sample of underdeveloped countries and two way fixed effects regression analysis the author s central finding is that more democratic countries have higher inflation and slower growth than less democratic countries inflation apparently is higher than more democratic countries mainly because they have higher fiscal deficits and faster wage growth this higher inflation marginally reduces economic growth in these countries the author also finds that new and mature democracies do not have significantly different inflation and growth rates the findings suggest that unrestrained political participation and the resulting demands placed on state officials undermine democratic performance

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

credit market constraints consumption smoothing and the accumulation of durable production assets in low income countries investments in bullocks in india in this paper we formulate and estimate a finite horizon structural dynamic model of agricultural investment behavior that incorporates the major features of low income agricultural environments income uncertainty constraints on borrowing and rental markets and the use of investment assets to generate income and smooth consumption the model is fit to longitudinal indian household data on farm profits bullock stocks and pump sets the estimated structural parameters are used to assess the effects on the life cycle accumulation of bullocks agricultural profits and welfare associated with complete markets and bullock liquidity and with second best policies that provide assured sources of income to farmers and weather insurance

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

role of parental income in educational attainment during the post world war ii era u s governmental policy has often been based on the idea that in the absence of government action access to college and to a lesser extent high school education may be limited because of liquidity constraints the federal and state and local governments have instituted a number of policies to overcome these constraints these policies include the basic opportunity grants loan programs that have been issued at or below market interest rates the expansion of state supported colleges that charge below market tuitions rates and the inception and expansion of local community or county colleges that also charge below market tuition rates while there may be noneconomic reasons that explain these changes or their magnitude economic reasons that rely on differences between private and social costs and benefits can also be advanced these include a wiser societal choices made by a more educated society b recoupment of social costs from higher tax revenues c the reduction of private risks from lending arising from the pooling of risks thereby making the social supply of funds curve available to all individuals at the social discount rate and d state and local economic development reason c implies that in the absence of governmental initiative some children would be restricted from achieving their socially optimal amount of education because parents income and wealth limit their children s choices gary becker 1975 arthur okun 1975 and jere behrman and myself 1985 argue that governmental policy to reduce private borrowing costs to the level of social costs reduces inefficiency while increasing equity a rare result in the realm of economics in this paper i consider why parental income might influence offspring s educational attainment and the policy implications of such an influence

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

child labor and agricultural shocks this paper examines the relationship between household income shocks and child labor in particular we investigate the extent to which transitory income shocks lead to increases in child labor and whether household asset holdings mitigate the effects of these shocks using data from a household panel survey in tanzania we find that both relationships are significant we investigate mechanisms that could account for these results including buffer stocks and borrowing

testing the response of consumption to income changes with noisy panel data this paper tests the rational expectations lifecycle model of consumption against i a keynesian model and ii the rational expectations lifecycle model with imperfect capital markets the tests are based upon the relative responsiveness of consumption to income changes that can be predicted from past information and income changes that cannot he predicted the tests allow for measurement error in income the results reject the keynesian model and generally support the lifecycle model but the results are not sufficiently precise to rule out the possibility that some households are liquidity constrained measurement error has a strong influence on the relationship between consumption and income

intergenerational transfers and liquidity constraints a growing body of evidence indicates that liquidity constraints could affect a substantial proportion of u s consumers but little is known about why these constraints might exist an important but little explored issue is the relationship between inter vivos intergenerational transfers and liquidity constraints these transfers can ease borrowing constraints empirical transfer patterns match those predicted from a model in which transfers are allocated to liquidity constrained consumers in particular the distinction between current and permanent incomes of potential recipients is a key aspect of private transfer behavior the findings have important implications for our understanding of consumer behavior

the economic development democratization relationship does the outside world matter the relationship between economic development and democratization offers a central focus in linking comparative and international politics analysts agree that economic development facilitates democratization but that the relationship is considerably less than perfect should advocates of the democratic peace argument prove to be correct in emphasizing the role of regime type in pacifying international politics an obvious question becomes what else drives democratization besides economic development in this article the authors explore the relationship between domestic development in the form of economic growth and democratization and international conditions they suggest that a number of international factors such as external threat conflict and trade openness can aid or abet democratization and economic growth to systematically analyze one facet of this proposition they use both robust regression and generalized estimating equations and find that the international environment significantly al

political and economic inequality and the environment abstract this paper analyzes and tests the hypothesis that political and economic equality result in lower levels of environmental degradation based on formal statements of the argument put forward by boyce r 1994 ecological economics 11 169 178 i show that equality may or may not be necessary to minimize degradation under some plausible conditions greater inequality may even be conducive to lower degradation actual results depend primarily on the intersection between the distribution of preferences across groups and the institutional rules two cross national empirical tests tend to support the contention that distributional issues do not systematically explain variations in environmental quality the results reinforce the conclusion that assumptions about the structure of preferences and workings of social choice institutions ignore complex interactions which influence the relationship between degradation and equality

testing theories of consumption behavior using information on aggregate shocks income seasonality and rainfall in rural india we develop an integrated framework for testing theories of consumption behavior by examining how agricultural households in rural india respond to anticipated and unanticipated seasonal income fluctuations using information on village level rainfall surprises we estimate idiosyncratic unanticipated income shocks by allowing weather risk to impact households differently depending on observable characteristics in applying our methodology to unique panel data on consumption debt and intrahousehold gift exchanges we address a number of shortcomings in previous tests of theories of consumption behavior yet we find no evidence against the hypothesis that households smooth idiosyncratic fluctuations in their income our approach also uncovers several interesting features of rural credit and insurance markets

the coevolution of economic and political development from monarchy to democracy this article establishes a unified political economy model to analyze the democratization process from monarchy to oligarchy and to democracy in the context of dynamic economic development as the predominant source of wealth evolves from land to physical capital and finally to human capital the relative economic and hence coercive power of land owners capitalists and workers shifts accordingly inducing the transition of the political system where political power is expanded from landlords to capitalists and finally to workers a smooth transition through political compromise facilitates efficient allocation of savings in physical capital followed by efficient investment in human capital

democracy and economic growth a historical perspective recent studies appear to show that democracy has no robust association with economic growth yet all such work assumes that the causal effect of democracy can be measured by a country s regime status in a particular year t which is correlated with its growth performance in a subsequent period t 1 the authors argue that democracy must be understood as a stock rather than a level measure that is a country s growth performance is affected by the number of years it has been democratic in addition to the degree of democracy experienced during that period in this fashion democracy is reconceptualized as a historical rather than a contemporary variable with the assumption that long run historical patterns may help scholars to understand present trends the authors speculate that these secular historical infiuences operate through four causal pathways each of which may be understood as a type of capital physical capital human capital social capital and political capital this argument is tested in a cross country analysis and is shown to be robust in a wide variety of specifications and formats

democracy and national economic performance the preference for stability appear to arise because democracies ameliorate the effects of social cleavages another mechanism that might explain democratic stability when growth and volatility are jointly examined democracies reveal highly favorable economic results oes democracy affect national economic performance and if so how no question is more central to the study of political economics almost all previous work on democracy and economic performance has focused exclusively on growth rates with contradictory and confusing results in this article we argue that to reveal the impact of democratic institutions on economic performance scholars must consider two dimensions of economic performance growth rate and volatility we begin with a novel hypothesis economic policy in democracy is risk avoiding relative to policy in nondemocracies 1 because voters are riskaverse they penalize incumbent governments for economic volatility and democratic governments respond accordingly in nondemocracies we posit that elites are more likely to seek risk that voters would reject consequently autocracies produce systematically more economic volatility than

risk and insurance in a rural credit market an empirical investigation in northern nigeria credit contracts play a direct role in pooling risk between households in northern nigeria repayments owed by borrowers depend on realizations of random shocks by both borrowers and lenders the paper develops two models of state contingent loans the first is a competitive equilibrium in perfectly enforceable contracts the second permits imperfect information and equilibrium default estimates of both models indicate that quantitatively important state contingent payments are embedded in these loan transactions but that a fully efficient risk pooling equilibrium is not achieved the research is based on a year long survey in zaria nigeria conducted by the author

is there a necessary condition for democracy the role of state capacity in postcommunist countries although postcommunist countries share a common past the variability of outcomes in both democracy and economic reform is very large in the region only a few countries have become western type democracies in central and eastern europe and the baltic by contrast the norm is clearly not democracy for other soviet successor states in this article the author attributes this variation to differences in the infrastructural capacity of the state using both quantitative and qualitative analyses within 26 postcommunist countries the author argues that for democracy to flourish the state must first possess the necessary means to maintain law and order and to protect the rights of citizens in other words to ensure the maintenance and delivery of essential public goods the results show that the links between a strong state that has been able to apply a definitive set of rules and democratic institutions are clear

foreign aid and market liberalizing reform market oriented economic policies reflected in limited economic activity by government protection of private property rights sound monetary policy outward orientation regarding trade and efficient tax and regulatory policy have been strongly linked to faster rates of economic growth foreign aid is often provided in the belief that it encourages liberalizing reforms in these areas this paper analyzes the impact of aid on market liberalizing policy reform correcting for the possible endogeneity of aid results indicate that higher aid slowed reform over the 1980 2000 period as measured by a broad index of policies disaggregating policy into five areas aid is significantly linked to slower reform in some policy areas but not in others disaggregating by decade aid s adverse impact on policy reform is much more pronounced for the 1980s than for the 1990s

democratization and international organizations international organizations ios have become increasingly pervasive features of the global landscape while the implications of this development have been studied extensively relatively little research has examined the factors that prompt states to enter ios we argue that democratization is an especially potent impetus to io membership democratizing countries are likely to enter ios because leaders have difficulty credibly committing to sustain liberal reforms and the consolidation of democracy chief executives often have an incentive to solidify their position during democratic transitions by rolling back political liberalization entering an io can help leaders in transitional states credibly commit to carry out democratic reforms espe cially if the organization is composed primarily of democratic members tests of this hypothesis based on a new data set of ios covering the period from 1965 to 2000 confirm that democratization spurs states to join ios in recent years international organizations ios have become increasingly perva sive features of the global landscape both the number of such organizations and the range of issue areas they cover have grown rapidly the implications of this development have been studied extensively and hotly debated in the field of inter national relations whereas some researchers believe that ios have little effect on state behavior many observers argue that the proliferation of these institutions will facilitate interstate cooperation and help to resolve the interstate conflicts that do arise 1 in contrast relatively little research has been conducted on the factors that prompt states to enter ios this gap in the literature is both surprising and important while many countries have rushed to join ios others participate in few of these organizations what determines the propensity of states to join ios

prices credit markets and child growth in low income rural areas in this paper it is argued that fluctuations in child growth in rural areas of bangladesh during and after severe floods in i988 can provide insight into the structure of credit markets a model of intertemporal resource allocation is developed and euler equations relating growth patterns of children to the cost of borrowing by household are then derived from the model the evidence indicates that although some of the variation in growth patterns over the relevant period may be attributed to variation in illness and the price of rice growth patterns for children in landless households were influenced by credit market imperfections this paper links two prominent strands of research in economic development the first strand examines the extent to which households in poor rural economies are able to protect themselves from the adverse weather and other shocks that importantly influence earnings in underdeveloped areas while it has long been thought that credit market imperfections and other forms of market failure make it difficult for poor individuals in these economies to smooth consumption both within and across years there remains some question about the magnitude and pervasiveness of these imperfections while there is evidence that fluctuations in economic conditions result in inefficient allocation of resources e g morduch 1990 rosenzweig and wolpin i993 some recent papers have emphasised the fact that consumption patterns of households in the same village comove in a manner consistent with the idea that a substantial fraction of idiosyncratic variation in income is effectively

democracy market liberalization and political preferences abstract we estimate the impact of market development and democratization on subjective political preferences we rely on the specific situation of frontier zones and the considerable regional variations in culture and economic development in the countries of the former socialist bloc for identification using a survey conducted in 2006 we find a positive and significant effect of democracy on support for a market economy but no effect of market liberalization on support for democracy hence in contrast with the conventional wisdom concerning the sequencing of political and economic reforms democratization may become a necessary condition to obtain public support for further economic liberalization

incomplete contracts and the product cycle the incomplete nature of contracts governing international transactions limits the extent to which the production process can be fragmented across borders in a dynamic general equilibrium ricardian model of north south trade the incompleteness of international contracts is shown to lead to the emergence of product cycles because of contractual frictions goods are initially manufactured in the north where product development takes place as the good matures and becomes more standardized the manufacturing stage of production is shifted to the south to benefit from lower wages following the property rights approach to the theory of the firm the same force that creates product cycles i e incomplete contracts opens the door to a parallel analysis of the determinants of the mode of organization the model gives rise to a new version of the product cycle in which manufacturing is shifted to the south first within firm boundaries and only at a later stage to independent firms in the south relative to a world with only arm s length transacting allowing for intrafirm production transfer by multinational fi rms is shown to accelerate the shift of production towards the south while having an ambiguous effect on relative wages the model delivers macroeconomic implications that complement the work of krugman 1979 as well as microeconomic implications consistent with the findings of the empirical literature on the product cycle

the structural constraints of the world economy on national political development this study asserts that there are no unilinear patterns of political or economic development common to the states of the world we seek to illustrate using a pooled time series analysis that there are at least three distinct paths of politico economic development these paths correspond to the successive asymmetric integration of different clusters of states into the world economy along each trajectory of development we find that the constellation of internal political and economic relationships is defended by employing an ideology of political or economic democracy

one money one market the effect of common currencies on trade currency unions their dramatic effect on international trade a gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade the panel data bilateral observations for five years during 1970 90 covering 186 countries includes 300 observations in which both countries use the same currency i find a large positive effect of a currency union on international trade and a small negative effect of exchange rate volatility even after controlling for a host of features including the endogenous nature of the exchange rate regime these effects statistically significant imply that two countries sharing the same currency trade three times as much as they would with different currencies currency unions like the european emu may thus lead to a large increase in international trade with all that that entails andrew rose

the effect of taxation on human capital this study finds a significant negative effect of proportional income taxation on human capital of the few earlier studies to address this issue most suggested a negligible effect of taxation on investment in human capital this earlier conclusion is shown to be incorrect by using a model that is more general in several respects than the models used previously

borrowing constraints and progress through school evidence from peru this paper investigates the effect of borrowing constraints on the timing of human capital investment in a developing country by looking at how quickly children with different family backgrounds progress through the primary school system in peru the main findings are that children start withdrawing from school earlier as indicated by repetition of grades in households with lower income and durable good holdings and when children are more closely spaced behavior also differs as predicted between children from households that appear to be borrowing constrained and those that appear unconstrained copyright 1994 by mit press

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

consumption and income seasonality in thailand many households in developing countries rely on seasonal agriculture for their incomes this paper investigates whether household consumption expenditure tracks income across seasons using data from thailand i contrast the seasonal consumption patterns of households with different seasonal income patterns and estimate the responsiveness of seasonal consumption to seasonal income i find little evidence that consumption tracks income over the course of the year the findings suggest that observed seasonal consumption patterns are the result of seasonal variations in preferences or prices common to all households rather than an inability of households to use savings behavior to smooth consumption

the political economy of growth democracy and human capital democracy is more than just another brake or booster for the economy we argue that there are significant indirect effects of democracy on growth through public health and education where economists use life expectancy and education as proxies for human capital we expect democracy will be an important determinant of the level of public services manifested in these indicators in addition to whatever direct effect democracy may have on growth we predict an important indirect effect through public policies that condition the level of human capital in different societies we conduct statistical investigations into the direct and indirect effects of democracy on growth using a data set consisting of a 30 year panel of 128 countries we find that democracy has no statistically significant direct effect on growth rather we discover that the effect of democracy is largely indirect through increased life expectancy in poor countries and increased secondary education in nonpoor countries t he relationship between democracy and economic growth has received considerable attention in recent years as yet however there is no consensus among analysts on the relationship between these two widely studied variables sound theoretical positions have been advanced suggesting that democracy is both an impediment and facilitator of growth careful quantitative tests of the relationship have produced contradictory results in our view existing studies fail to develop an adequate political theory of growth and as a result their empirical models are typically misspecified with competing arguments on both sides of the question many analysts merely add a variable for democracy to existing economic models and then look at the sign of the coefficient and its significance this is inadequate democracy is more than just another brake or booster for the economy we argue that there are important indirect effects of democracy on growth that are manifested through public health and education where economists typically use life expectancy and secondary school enrollment as proxies for human capital we expect that democracy will itself be an important determinant of the level of public services captured in these indicators thus in

the enduring impact of the american dust bowl short and long run adjustments to environmental catastrophe the 1930 s american dust bowl was an environmental catastrophe that greatly eroded sections of the plains analyzing new data collected to identify low medium and high erosion counties the dust bowl is estimated to have immediately substantially and persistently reduced agricultural land values and revenues during the depression and through at least the 1950 s there was limited reallocation of farmland from activities that became relatively less productive agricultural adjustments such as reallocating land from crops to livestock recovered only 14 to 28 of the initial agricultural cost the economy adjusted predominately through migration rather than through capital inows and increased industry

income smoothing and consumption smoothing one way that risk averse households protect consumption levels is to borrow and use insurance mechanisms another way common in low income economies is to diversify economic activities and make conservative production and employment choices households thus tend toward limiting exposure only to shocks that can be handled with available credit and insurance typically both types of mechanisms are studied independently but much more can be learned by studying them together first we obtain a more complete picture of risks costs and insurance possibilities second it opens the way to considering biases in standard tests of credit and insurance

backward induction normal form perfection and explicable equilibria a weakening of d kreps and r wilson s 1982 notion of sequential rationality is presented the motivation stems from the difficulty in justifying sequentially rational behavior in subgames reachable only through a violation of sequential rationality although the present notion of weak sequential rationality is based upon extensive form considerations it bears a close relation to r selten s 1975 normal form perfect equilibria backward induction outcomes can be achieved in generic games of perfect information with additional restrictions on beliefs an example with imperfect information shows that sequential rationality is not the consequence of equilibrium play and the absence of incredible threats copyright 1992 by the econometric society

weather shocks agriculture and crime evidence from india we use detailed crime agriculture and weather data from india during the years 1971 2000 to conduct a systematic analysis of the relationship between weather shocks and multiple categories of crime we find that drought and heat exert a strong impact on virtually all types of crimes that the impact on property crimes is larger than for violent crimes and that this relationship has been relatively stable over three decades of economic development we then use seasonal and geographical disaggregations of weather and agricultural cultivation to examine the prevailing hypothesis that agricultural income shocks drive the weather crime relationship in developing countries the patterns we find are consistent with this hypothesis in the case of rainfall shocks but suggest additional mechanisms may play an important role in driving the heat crime relationship consistent with evidence from industrialized countries

way down in the hole adaptation to long term water loss in rural india worsening environmental conditions threaten to undermine progress in reducing rural poverty little is known however about the prospects for farmer adaptations to mitigate this threat in particular through opportunities for income diversification presented by recent non agricultural growth we study the effects of increasing water scarcity in india using quasi random geologically determined differences in access to groundwater the drying up of wells results in a precipitous and persistent decline in farm income and wealth with little evidence of agricultural adaptation however labor reallocation to off farm employment appears successful in maintaining overall income particularly in locations with a more developed manufacturing sector

returns to schooling implicit discount rates and black white wage differentials a simple econometric model of investment in schooling is developed and estimated the measure of individual discount rates implicit in their educational investment decisions suggests no difference between individuals from different socioeconomic backgrounds differences in individual speeds of educational attainment which do vary with background explain most of the variation in levels of attainment that is attributable to family background

a dynamic theory of the transition to democracy abstract a model of the transition to democracy is presented within a dynamic general equilibrium framework we demonstrate that democratic transitions occur endogenously in the course of economic growth or with economic contraction being fundamentally driven by the economic position of the middle class democratic transitions can occur rapidly or slowly because the autocrat faces an informational asymmetry regarding the effect of his policies on the political economic environment the model shows that the primary factors affecting the speed of democratic transitions are inequality the planning horizon of the autocrat the autocrat s perceived legitimacy and the rate of economic growth

the international diffusion of democracy the idea that democracy is contagious that democracy diffuses across the world map is now well established among policy makers and political scientists alike the few theoretical explanations of

what do we learn from the weather the new climate economy literature a rapidly growing body of research applies panel methods to examine how temperature precipitation and windstorms influence economic outcomes these studies focus on changes in weather realizations over time within a given spatial area and demonstrate impacts on agricultural output industrial output labor productivity energy demand health conflict and economic growth among other outcomes by harnessing exogenous variation over time within a given spatial unit these studies help credibly identify i the breadth of channels linking weather and the economy ii heterogeneous treatment effects across different types of locations and iii nonlinear effects of weather variables this paper reviews the new literature with two purposes first we summarize recent work providing a guide to its methodologies datasets and findings second we consider applications of the new literature including insights for the damage function within models that seek to assess the potential economic effects of future climate change jel c51 d72 o13 q51 q54

foreign aid and statehood in africa has foreign aid destroyed state institutions in africa african states depend on development assistance to conduct basic government operations yet few of these states are well governed or effective at providing public goods the two trends mounting foreign aid and static or diminishing state performance raise an obvious question is aid dependency contributing to misrule and state failure in africa many critics argue the two phenomena are related i find they are not my analysis fails to show a negative association between aid receipts and two measures of democracy and economic freedom instead the evidence is consistent with a small positive relationship between aid and these indicators of state performance since the international community seems bent on reducing foreign aid an important issue is how african states can maintain and improve their performance with less foreign assistance

comparative democracy the economic development thesis in comparative politics an established finding that economic development fosters democratic performance has recently come under challenge we counter this challenge with a dynamic pooled time series analysis of a major but neglected data set from 131 nations the final generalized least squares autoregressive moving averages estimates n 2 096 appear robust and indicate strong economic development effects dependent in part on the nation s position in the world system for the first time rather hard evidence is offered on the causal relationship between economics and democracy according to granger tests economic development causes democracy but democracy does not cause economic development overall the various tests would seem to advance sharply the modeling of democratic performance

reversal of fortunes democratic institutions and foreign direct investment inflows to developing countries does increased democracy promote or jeopardize foreign direct investment fdi inflows to less developed countries we argue that democratic institutions have conflicting effects on fdi inflows on the one hand democratic institutions hinder fdi inflows by limiting the oligopolistic or monopolistic behaviors of multinational enterprises facilitating indigenous businesses pursuit of protection from foreign capital and constraining host governments ability to offer generous financial and fiscal incentives to foreign investors on the other hand democratic institutions promote fdi inflows because they tend to ensure more credible property rights protection reducing risks and transaction costs for foreign investors hence the net effect of democracy on fdi inflows is contingent on the relative strength of these two competing forces our argument reconciles conflicting theoretical expectations in the existing literature empirical analyses of fifty three developing countries from 1982 to 1995 substantiate our claims we find that both property rights protection and democracy related property rights protection encourage fdi inflows after controlling for their positive effect through property rights protection democratic institutions reduce fdi inflows these results are robust against alternative model specifications statistical estimators and variable measurements

economic openness democracy and income inequality an empirical analysis scholars have studied effects of economic openness and democracy on national income inequality in two literatures in democracy studies scholars agree democracy reduces inequality but empirical evidence is ambiguous in globalization studies effects of economic openness on inequality are debated but have not been rigorously examined this article is the first systematic statistical study of the effects of both economic openness and democracy on income inequality these effects need to be studied together the authors measure national income inequality from a comprehensive gini coefficient data set economic openness is measured from trade flows foreign direct investment inflows and financial capital inflows the period studied is 1960 to 1996 the unit of analysis is a country decade and the sample includes 69 countries the authors find that democracy and trade reduce income inequality foreign direct investments increase income inequality and financial capital does not affect income inequality policy implications are discussed

does high income promote democracy the authors construct a statistical model with which to test whether the regularity that democracy is more commonly found among wealthy countries stems from a democratizing effect of high income or is due entirely to other factors such as the historical context various features of the institutional setting and simultaneity with the process of leadership change even after correcting for these many other influences the democratizing effect of income remains as a statistically significant factor promoting the emergence of democratic political institutions the authors go on to find that leaders risks of losing power rise during their time in office and that these risks are higher in more democratic countries the authors confirm the finding by burkhart and lewis beck that the democracy promoting effect of income is stronger among the european countries they suggest that high income has a more powerful democratizing effect among the southern european countries because it interacts with pressure from major trading partners to democratize this suggests a revaluation of policies designed to foster the replacement of authoritarian regimes by democratic ones through free trade

pass through of exchange rates and competition between floaters and fixers this paper studies how a rise in the share of u s imports from china or any country with a fixed exchange rate could disproportionately lower pass through of exchange rates to u s import prices we develop a theoretical model showing how changes in the competitive environment induce exporters from other countries to lower markups in response to a dollar depreciation thereby moderating pass through the model indicates that a particular local bias condition is necessary for this effect and that free entry amplifies it the model also produces an approximately log linear structural equation for pass through regressions including the china share panel regressions over 1993 2006 indicate that the rising share of trade from china or from all countries with fixed exchange rates can explain a decline in pass through by about onefifth of its size

boon or bane reassessing the productivity of foreign direct investment we assess the effects of foreign and domestic capital on economic growth using the latest data and better models of economic growth than those previously used we explicitly consider the role of human capital in the process of economic development we find no evidence that foreign direct investment harms the economic prospects of developing countries the flow of foreign capital from 1980 to 1991 spurred growth in gross domestic product per capita while the level of foreign stock or foreign penetration had no discernible effect indeed new foreign investment was more productive dollar for dollar than was capital from domestic sources previous suggestions that foreign investment flows are less beneficial than domestic ones were based on a misinterpretation moreover foreign direct investment stimulates investment from domestic sources consequently developing countries have no reason to eschew foreign capital as dependency theorists urge

the political foundations of post communist regimes marketization agrarian legacies or international influences this article explores the causes of differing post communist regime transitions in eastern europe and the former soviet union emphasizing the increasingly prominent thesis that economic liberalization promotes political democratization we explore this argument in light of findings from other regions that have emphasized modernization agrarian class structure and international influences our results are based on a multilevel design strategy first analyzing data on 26 post communist countries over a 7 to 9 year period using time series cross sectional methods and then turning to a comparative analysis of four purposively selected cases to explore the causal mechanisms implied but not tested in the quantitative analysis our results suggest that faith in economic liberalization as a cause of democratization may be misplaced however there is support for the notion that large agrarian sectors are unfavorable to democratic development whereas positive democratic conditionality from outside agents can p

using weather variability to estimate the response of savings to transitory income in thailand this paper measures the extent to which farmers are able to use savings and dissavings to smooth consumption in response to unexpected shocks to income time series information on regional rainfall is used to construct estimates of transitory income due to rainfall shocks the relationship between these measures of transitory income and savings indicates that farm households save a significantly higher fraction of transitory income than nontransitory income jel d91 016 the incomes of farm households in developing countries are notorious for being both low and uncertain policies that increase the incomes of farmers may well be different

full insurance in the presence of aggregate uncertainty this paper tests implications of full consumption insurance the object is to determine how much mileage can be obtained from a model with complete markets with such features as private information or liquidity constraints omitted the implication exploited is that individual consumption responds to aggregate risk but not to idiosyncratic risk the test involves regressing the change in household consumption onto the change in aggregate consumption and other right hand side variables such as the change in household income and change in employment status all variables other than the change in aggregate consumption are predicted to be insignificant in explaining the change in household consumption with observations on consumption and income for 10 695 households from the consumer expenditure survey the results are mixed the results for one specification exponential utility are mostly consistent with full consumption insurance the results for the other specification power utility are not

smoothing consumption by smoothing income hours of work responses to idiosyncratic agricultural shocks in rural india while research has demonstrated that farm households in developing economies are able to protect consumption from idiosyncratic crop shocks little evidence shows how this is achieved this paper examines the extent to which labor markets allow households to shift labor from farm to off farm employment and the extent to which such a shift explains the observed lack of correlation between consumption and idiosyncratic crop shocks the empirical analysis uses a novel measure of the idiosyncratic crop income shock which utilizes information on start of season cropping choices to more accurately estimate household expectations of weather

household choices in equilibrium this paper is an empirical investigation of equilibrium restrictions on household consumption and male labor supply it exploits a simple factor structure rationalized by two assumptions that household allocations are pareto optimal and that the labor market is competitive the paper estimates household preferences and tests how well this parsimonious factor structure represents panel data on married couples and time series data on asset returns most of the estimates are roughly comparable to those found in previous work no evidence against the simple factor representation is found and the intertemporal capital asset pricing model is not rejected copyright 1990 by the econometric society

a simple test of consumption insurance are consumers effectively insured against idiosyncratic shocks to income or wealth either by formal institutions such as charities private insurance and government programs or by informal mechanisms such as gifts and loans from relatives friends and neighbors under full insurance consumption growth should be cross sectionally independent of idiosyncratic variables that are exogenous to consumers this proposition is tested by cross sectional regressions of consumption growth on a variety of exogenous variables full insurance is rejected for long illness and involuntary job loss but not for spells of unemployment loss of work due to strike and an involuntary move

risk financial markets and human capital in a developing country this paper explores the link between financial market incompleteness and human capital accumulation we examine how child school attendance responds to seasonal fluctuations in the income of agrarian households using panel data from rural india to pinpoint market imperfections we study responses to aggregate and idiosyncratic as well as to anticipated and unanticipated income shocks our main finding is that seasonal fluctuations in school attendance are a form of self insurance but one which does not result in a substantial loss of human capital on average

inequality and party support positional economic voting or a new dimension of valence economic growth helps governments get re elected but does growth as a valence issue exhaust the possibilities for the economic vote this paper shows via an examination of 318 elections in esta

shadow wages and peasant family labour supply an econometric application to the peruvian sierra a striking feature of developing economies is the large proportion of the work force that is self employed lack of widespread labor market participation in the agricultural sector can pose a major obstacle to the empirical implementation of economic models of the peasant household whether because wage data are simply not available or because the assumptions required to make use of wage data stretch the bounds of credulity this paper develops a methodology for estimating a structural labor supply model for primarily self employed peasant households which holds under a general agricultural technology and set of labor market conditions the unique feature of the approach is that the opportunity cost of time or shadow wage of household workers is explicitly estimated from an agricultural production function and is subsequently used to identify a set of structural labor supply parameters recent household survey data from rural peru is employed to estimate and perform various diagnostic tests on the model the empirical findings lend support to the hypothesis that peasant households allocate their members time as if to maximize a family utility function and moreover demonstrate the tractability of the shadow wage methodology and its usefulness in estimating more elaborate time allocation models

clear and clean the fixed effects of the liberal peace in their article in this issue donald p green soo yeon kim and david h yoon claim contrary to liberal theory and extensive evidence that neither joint democracy nor economic interdependence significantly reduces the frequency of militarized interstate disputes in pooled time series analyses when dyadic fixed effects are taken into account similarly their fixed effects analyses contradict theory and previous evidence that democracies have higher levels of trade with one another than do other types of states our reexamination however refutes both claims and reinforces previous findings their fixed effects analyses of disputes produces distorted results because they consider a relatively short time period 1951 92 in which variation in the binary dependent variable and the key independent variables democracy and trade is limited when we analyze a longer period 1886 1992 the results confirm liberal theory the differences between our analyses of bilateral trade and those of green kim and yoon primarily arise from a seemingly minor methodological decision a more reasonable method confirms that democracies do have higher levels of trade than expected on purely economic grounds though we do not advocate a fixed effects model for analyzing these data and have serious reservations about its general usefulness our findings provide additional confirmation of liberal theories of international relations

liberalizing autocracies in the gulf region reform strategies in the face of a cultural economic syndrome from an international comparative perspective the stability of autocratic regimes in the countries of the gulf region is striking this paper presents historical cultural as well as economic explanations and proposes that the interaction of both factors constitutes a cultural economic syndrome accounting for the persistence of authoritarianism macro quantitative analyses demonstrate the significant influence of this syndrome which operates through a mechanism of mutual reinforcement and substitution departing from this diagnosis potential remedies are discussed political and economic reform measures pursued in the 1990s are explored and the gulf monarchies are classified according to four ideal typical combinations of reform strategies

economics and elections revisited the economics and elections connection has been heavily investigated although mostly through single country studies the first comparative survey based research on economic voting by lewis beck

national competitive advantage and the roles of economic and political freedom evidence from hong kong the equivocal interrelationships between economic performance and the institu tions of respectively economic and political freedom are examined using data from firms op erating in hong kong an economy where both an erstwhile paramount international business reputation for competitiveness and the institutional basis on which it was predicated have come into question in recent years it is hypothesized that i both economic and political freedom declines will be associated with a proxy for future economic performance competitiveness decline but that ii the correlation of economic freedom declines with competitiveness de cline will be mediated by political freedom declines hierarchical regression analyses tend to support these hypotheses although results vary by firm origin

selling labor low wage responses to productivity shocks in developing countries productivity risk is pervasive in underdeveloped countries this paper highlights a way in which underdevelopment exacerbates productivity risk productivity shocks cause larger changes in the wage when workers are poorer less able to migrate and more credit constrained because of such workers inelastic labor supply this equilibrium wage effect hurts workers in contrast it acts as insurance for landowners agricultural wage data for 257 districts in india for 1956 87 are used to test the predictions with rainfall as an instrument for agricultural productivity in districts with fewer banks or higher migration costs the wage is much more responsive to fluctuations in productivity

the democratic peace and a sequential reciprocal causal arrow hypothesis one of the democratic peace puzzles is the question of whether and to what extent the democracy peace relationship underestimates the possibility that peace precedes democracy the reversed causal arrow hypothesis from a war making state making perspective democratization needs to be viewed as a partial function of external threat and domestic power concentration all three variables are found to be interrelated as predicted and related in turn to the external conflict behavior of major powers from 1816 to 1992 these monadic findings however do not appear to negate the dyadic relationship between democratization and selectively reduced conflict behavior in sum there is substantial support for the reversed causal arrow hypothesis but it does not render the regime type conflict behavior relationships spurious rather it enriches the understanding of the context in which democratization has emerged to have some effect on international politics

revisiting the modernization hypothesis longevity and democracy summary modernization theory claims that changes in economic fundamentals like e g income per capita and education levels affect the political structure of a country in a causal way as an important marker of development life expectancy can also be conjectured to have a direct effect on political structures in this paper we estimate the impact of improvements in life expectancy on democracy for the purpose of identification we use data from the international epidemiological transition to construct an instrument for life expectancy we find a statistically and economically significant positive causal effect of improvements in life expectancy on democracy

a successful accident recollections and speculations about the cea as originally conceived the president s council of economic advisers would have a unique relation with the president using keynesian analysis to advise him on maintaining full employment after fifty years the council has evolved into being a useful cog in a large decision making apparatus dealing with the whole range of federal problems of economic policy and bringing to bear whatever economics has to say the initial keynesian predisposition has faded the council has participated in some mistakes but it has made a valuable contribution primarily by persistent representation of the value of the free market

sovereignty relinquished explaining commitment to the international human rights covenants 1966 1999 this article examines whether the content of the international human rights covenants and the costs associated with their ratification influence the decision of countries to join the author evaluates three theoretical perspectives rationalism world polity institutionalism and the clash of civilizations with data for more than 130 countries between 1966 and 1999 rationalists contend that treaty ratification is tightly coupled with internal sovereignty arrangements human rights practices and ideological commitments all of which become more important as treaty enforcement strengthens world polity institutionalists expect ratification to be loosely coupled with a country s conduct or its political ideological or cultural commitments although this gap narrows as compliance is more effectively enforced a civilizations approach predicts tight coupling between ratification and cultural values regardless of the mechanisms in place for enforcing compliance results lend partial support to rationalism a

testing whether unemployment represents intertemporal labour supply behaviour in the lucas rapping 1969 model of the labour market fluctuations in unemployment represent individuals optimally adjusting their labour supply behaviour in response to fluctuations in wage rates over the business cycle in this paper i propose and implement a misspecification test of the lucas rapping treatment of unemployment as labour supply behaviour using panel data this test extends previous such work with micro data by simultaneously allowing for intertemporal substitution uncertainty and endogenous unemployment using the standard specification of intertemporal labour supply behaviour i find strong evidence against this interpretation of unemployment there are two possible interpretations of the test results the first is that it is necessary to turn to alternative models of the labour market in which unemployed workers are off a supply function the second is that the test results indicate the necessity of moving to more complex models of intertemporal substitution however given current econometric techniques and data sets these alternative models of intertemporal substitution will be extremely difficult to test

democracy property rights and economic growth what does the global surge in democracy and capitalism portend for economic growth the shift toward popular government is predicted by some to accelerate growth by others to retard it often left out of the equation is property rights as a factor distinct from democratic rule using recent data on 59 less developed and transitional countries this article explores the relationship among institutional factors and growth in the 1980s and early 1990s democratic freedoms and property rights are associated with the dependent variable suggesting that national income in poor countries stands to gain from recent efforts to implant these institutions

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