which reforms work and under what institutional environment evidence from a new data set on structural reforms abstract are structural reforms growth enhancing is the effectiveness of reforms constrained by a country s distance from the technology frontier or by its institutional environment this paper takes a new and comprehensive look at these questions by employing a novel data set that includes several kinds of real trade agriculture and networks and financial domestic finance banking securities and capital account reforms for an extensive list of developed and developing countries going back to the early 1970s first pass evidence based on growth breaks analysis and on panel growth regressions suggests that on average both real and financial sector reforms are positively associated with higher growth however on several occasions botched reforms resulted in growth disasters more important the positive reform growth relationship is shown to be highly heterogeneous and to be influenced by a country s constraints on the authority of the executive power and by its distance from the technology fro

wage stagnation rising inequality and the financial crisis of 2008 the most widely embraced explanations of the financial crisis of 2008 have centered upon inadequate regulation stemming from laissez faire ideology combined with low interest rates although these widely acknowledged causal factors are true beneath them lie deeper determining forces that have received less notice wage stagnation and a dramatic increase in inequality in the u s over the preceding 35 years wage stagnation and heightened inequality generated three dynamics that made the economy vulnerable to systemic dysfunction the first is that they constrained consumption reducing profitable investment potential in the real economy and thereby encouraging an every wealthier elite to flood financial markets with credit helping keep interest rates low encouraging the creation of new credit instruments and greater indebtedness and fueling speculation the second dynamic is that consumption externalities were generated forcing individuals to struggle harder to find ways to maintain the welfare of their families and maintain their relative social status the consequence was that over the preceding three decades household saving rates plummeted households took on ever greater debt and worked longer hours the third dynamic is that as the rich took larger shares of income and wealth they gained more command over ideology and hence politics reducing the size of government cutting taxes on the rich and reducing welfare for the poor deregulating the economy and failing to regulate newly evolving credit instruments flowed out of this ideology

income inequality capitalism and ethno linguistic fractionalization we examine the relationship between capitalism and income inequality for a large sample of countries using an adjusted economic freedom index as proxy for capitalism our results suggest that there is no robust relationship between economic freedom and gini coefficients based on gross income subsequently we analyze the relationship between income redistribution and ethno linguistic fractionalization we find that the impact of ethno linguistic fractionalization on income redistribution is conditional on the level of economic freedom countries that have a high degree of fractionalization redistribute income less while capitalist countries that have a low degree of fractionalization redistribute income more

the political dynamics of economic growth summary we argue that an understanding of the political drivers of economic growth needs an explanation of the political dynamics around the transition from one growth phase to another and that the political drivers of early stage growth accelerations are different from that of growth maintenance informal institutions are likely to play a role in growth acceleration while formal institutions of credible commitment the provisioning of public goods and the overcoming of co ordination failures will be more important in growth maintenance we present empirical evidence drawn from country case studies and cross country econometric analysis that provides support to our theoretical propositions

environmental taxation inequality and engel s law the double dividend of redistribution empirical evidence shows that low income households spend a high share of their income on pollution intensive goods this fuels the concern that an environmental tax reform could be regressive we employ a framework which accounts for the distributional effect of environmental taxes and the recycling of the revenues on both households and firms to quantify changes in the optimal tax structure and the equity impacts of an environmental tax reform we characterize when an optimal environmental tax reform does not increase inequality even if the tax system before the reform is optimal from a non environmental point of view if the tax system before the reform is calibrated to stylized data and is thus non optimal we find that there is a large scope for inequality reduction even if the government is restricted in its recycling options

the global financial crisis explaining cross country differences in the output impact abstract what explains differences in the crisis impact across developing countries and emerging markets using cross country regressions to assess the factors driving the growth performance in 2009 compared to pre crisis forecasts for that year we find that a small set of variables explain a large share of the variation in the growth impact countries with more leveraged domestic financial systems stronger credit growth and more short term debt tended to suffer a larger effect on economic activity although the relative importance of these factors differs across country groups for emerging markets this financial channel trumps the trade channel for a broader set of developing countries however the trade channel seems to have mattered with more open countries affected more strongly and those exporting food commodities being less hard hit exchange rate flexibility helped in buffering the impact of the shock particularly for emerging markets there is also some evidence that countries with a stronger fiscal position prior to the crisis were impacted less severely we find little evidence for the importance of other policy variables

external liabilities and crises abstract we examine the determinants of external crises focusing on the role of foreign liabilities and their composition using a variety of statistical tools and comprehensive data spanning 1970 2011 we find that the ratio of net foreign liabilities to gdp is a significant crisis predictor this is primarily due to the net position in debt instruments the effect of net equity liabilities is weaker and net fdi liabilities seem if anything an offset factor we also find that i breaking down net external debt into its gross asset and liability counterparts does not add significant explanatory power to crisis prediction ii the current account is a powerful predictor iii foreign exchange reserves reduce the likelihood of crisis more than other foreign asset holdings and iv a parsimonious probit containing those and a handful of other variables has good predictive performance in and out of sample the latter result stems largely from our focus on external crises sensu stricto

on cross border bank credit and the u s financial crisis transmission to equity markets this paper examines the role played by cross border equity bond and bank credit flows versus international trade in the transmission of the u s financial crisis to equity markets worldwide we estimate vector autoregressive models with exogenous global factors using monthly data on 36 emerging and developed countries the results from an eclectic methodology that includes causality tests generalized impulse responses and forecast error variance decompositions indicate that the crisis is mostly transmitted through bank credit rather than portfolio flows and international trade the results are robust to altering the exogenous versus endogenous vectors of variables to measuring equity prices in u s dollars or local currency to averaging the data across countries versus averaging the parameters from individual country estimation and to redefining the start date of the crisis the findings endorse the use of banking regulation and capital controls as part of the policy toolkit to limit financial vulnerability

government impartiality and sustained growth in sub saharan africa many studies suggest that one of the main reasons for africa s dismal growth performance over most of the 20th century is its degree of ethnic fragmentation yet there is still insufficient knowledge about whether ethnic diversity necessarily entails large economic costs or whether the implications of diversity depend inter alia on the government s approach toward the ethnic question we note that economic growth tends to increase average incomes but it also affects the income distribution then if growth is accompanied by growing economic inequality the perception of the impartiality of the government toward different ethnic groups is likely to be important for whether growth can be sustained or whether sparks of growth will evaporate because of rising political divisions and internal conflicts in this paper we study whether the degree of ethnic impartiality in the government s policies is related to the emergence of sustained growth in sub saharan africa irrespective of the actual content of the policies we measure perceptions about the impartiality of the government with survey data from the afrobarometer covering 20 countries starting in the late 1990 s our main definition of sustained growth is when there is a gdp per capita growth rate of at least 2 for at least five consecutive years our empirical results suggest that countries whose governments are perceived as impartial are more likely to experience sustained growth we conclude that in order to ensure economic development it is not only important to choose the right policies but also to implement these policies in a fair manner

what makes growth sustained abstract we identify structural breaks in economic growth in 140 countries and use these to define growth spells periods of high growth preceded by an upbreak and ending either with a downbreak or with the end of the sample growth spells tend to be shorter in african and latin american countries than elsewhere we find evidence that growth duration is positively related to the degree of equality of the income distribution democratic institutions export orientation with higher propensities to export manufactures greater openness to fdi and avoidance of exchange rate overvaluation favorable for duration and macroeconomic stability

can leading indicators assess country vulnerability evidence from the 2008 09 global financial crisis abstract we investigate whether leading indicators can help explain the cross country incidence of the 2008 09 financial crisis rather than looking for indicators with specific relevance to the recent crisis the selection of variables is driven by an extensive review of more than eighty papers from the previous literature on early warning indicators our motivation is to address suspicions that indicators found to be useful predictors in one round of crises are typically not useful to predict the next round the review suggests that central bank reserves and past movements in the real exchange rate were the two leading indicators that had proven the most useful in explaining crisis incidence across different countries and episodes in the past for the 2008 09 crisis we use six different variables to measure crisis incidence drops in gdp and industrial production currency depreciation stock market performance reserve losses and participation in an imf program we find that the level of reserves in 2007 appears as a consistent and statistically significant leading indicator of who got hit by the 2008 09 crisis in line with the conclusions of the pre 2008 literature in addition to reserves recent real appreciation is a statistically significant predictor of devaluation and of a measure of exchange market pressure during the current crisis we define the period of the global financial shock as running from late 2008 to early 2009 which probably explains why we find stronger results than earlier papers such as obstfeld et al 2009 2010 and rose and spiegel 2009a b 2010 2011 which use annual data

structural change the real exchange rate and the balance of payments in mexico 1960 2012 this paper estimates a structural model of the balance of payments with disaggregated exports manufactures and other and imports final and intermediate and a reduced form model of the trade balance for the mexican economy the analysis identifies structural changes in the composition of mexico s trade and the parameters that affect it across five subperiods marked by statistical breakpoints the results indicate that a tightening of the balance of payments constraint may account for the post liberalization slowdown in mexico s growth only during certain subperiods and that the impact of real exchange rate changes on the trade balance has diminished most likely as a result of the increasing integration of export industries into global supply chains the results also suggest an asymmetry whereby a country cannot sustain growth above the rate consistent with balance of payments equilibrium as expected but it can grow persistently below that rate when other constraints are more binding

demand and defective growth patterns the role of the tradable and non tradable sectors in an open economy developing countries in the post war period provide a wide range of case studies on successful and unsuccessful or defective growth patterns there are two classes of defective growth patterns the first class fail to generate strong growth at their start a country isolated by policy from the global economy may grow very slowly but high growth is unattainable without the enabling features of the global economy inbound technology transfer and sizeable external demand the second class of defec

good bye financial crash hello financial eclecticism latin american responses to the 2008 09 global financial crisis abstract 1985 saw the publication of carlos diaz alejandro s classic article good bye financial repression hello financial crash 1985 writing in the wake of drastic financial blowups in the southern cone diaz alejandro nonetheless argued that a believable alternative system could be designed avoiding many of the inefficiencies of financial repression and blending both public and private financial agents 18 nearly three decades after the publication of this prescient work there are credible signs that such an arrangement is now emerging within some latin american emerging economies ees just as diaz alejandro studied how the 1982 debt shocks both exacerbated and shed light on financial sector policies and institutions in the southern cone countries we use the 2008 09 global financial crisis gfc as a lens through which to examine the policymaking capabilities of six latin american countries we find that several of the countries successfully weathered the 2008 09 financial shocks and argue that this is due to institutional modernization that facilitated policy learning and a more business friendly climate and to sustainable improvements in income distribution that may have facilitated consensus building these factors we suggest gave policymakers both the expertise and the political space to employ more nuanced fiscal and financial policies

for a few dollars more reserves and growth in times of crises abstract based on a dataset of 112 emerging economies and developing countries this paper addresses the question whether the accumulation of international reserves has effectively protected countries during the 2008 09 financial crisis more specifically the paper investigates the relation between international reserves and the existence of capital controls we find that the level of reserves matters countries with high reserves relative to short term debt suffered less from the crisis particularly when associated with a less open capital account this suggests some degree of complementarity between reserve accumulation and capital controls

what explains the speed of recovery from banking crises abstract while a large body of research has explored the causes and effects of banking crises less is known about what determines recovery from banking crises despite large variations in post crisis performances across countries in order to identify local and global factors that determine the length of recovery i e the time it takes until countries reach their pre crisis level of per capita gdp this exploratory paper employs event history analysis on 138 incidents of banking crises between 1970 and 2012 regarding domestic factors the simultaneous occurrence of currency crises large financial sectors overvalued currencies and large primary deficits are associated with later recovery whereas higher debt to gdp ratios or inflation levels do not exhibit a negative effect on post crisis performances regarding external factors a low growth of world trade as well as indicators of uncertainty in financial markets are correlated with later recovery global interest rate shocks are particularly harmful for the speed of recovery among middle income countries with a strong reliance on external capital the results are similar when using the length of recessions as an alternative indicator of post crisis performances

holding on ethnic divisions political institutions and the duration of economic declines abstract we analyze the duration of large economic declines and provide a theory of delayed recovery we show theoretically that uncertain post recovery incomes lead to a commitment problem which limits the possibility of cooperation in ethnically heterogeneous countries strong constraints on the executive solve this problem by reducing the uncertainty associated with cooperative behavior we test the model using standard data on linguistic heterogeneity and detailed data on ethnic power configurations our findings support the central theoretical prediction countries with more constrained political executives experience shorter economic declines the effect is large in ethnically heterogeneous countries but virtually non existent in homogeneous societies our main results are robust to a variety of perturbations regarding the estimation method the estimation sample measures of heterogeneity and measures of institutions

progressive tax and inequality in a unionized economy in this paper we develop a heterogeneous agent endogenous growth model of a unionized economy with distinct progressive tax schedules on labor and capital income with time preference heterogeneity the effective labor force balanced growth and income inequality are endogenously determined and these interact with each other a reduction in the degree of progressive labor tax yields a double dividend in terms of reducing income inequality and boosting economic growth while capital income progressivity displays the usual growth inequality trade off particularly the double dividend effect becomes more pronounced when unionization is declined or trade unions become more wage oriented leading to the so called cheshire cat phenomenon

democracy diversification and growth reversals there exists convincing evidence that democratic countries are less volatile this conclusion is usually reached with respect to volatility as measured by the standard deviation of annual growth rates of per capita gdp which includes both low and high frequency fluctuations however recently several studies have documented that significant changes in trend growth such as growth accelerations that last a decade or similar periods of negative growth are quite common in this paper we ask whether democracy also has a stabilizing effect on trend volatility i e whether more democratic countries experience fewer and milder swings of trend growth we find a common phenomenon medium term reversals of growth that is periods of exceptionally high growth are on average followed by periods of exceptionally low growth and vice versa the propensity to experience large swings of trend growth is not uniform across countries less democratic countries are more susceptible to it when compared with factors commonly associated with volatility such as measures of quality of institutions macroeconomic policies and financial development we find that democracy is the most robust predictor of a country s propensity for growth reversals we construct a model in which non democracies have high barriers of entry for new firms this leads to less sectoral diversification fewer sectors are operated but more resources are channeled to each in an uncertain environment this leads to infrequent but large growth accelerations when one of the few sectors operated is successful however these accelerations are followed by large declines when fortunes change in favor of the missing sectors we present empirical evidence that confirms the positive relationship between democracy and industrial diversification

social identity and inequality the impact of china s hukou system abstract we conduct an experimental study to investigate the causal impact of social identity on individuals performance under incentives we focus on china s household registration hukou system which favors urban residents and discriminates against rural residents in resource allocation our results show that making individuals hukou identity salient significantly reduces the performance of rural migrant students relative to their local urban counterparts on an incentivized cognitive task and consequently significantly lowers their relative ranking in the earnings distribution under the piece rate regime however the impact of hukou identity salience is insignificant in the tournament regime suggesting that its negative effect on migrant students performance may be mitigated when competition is introduced the results demonstrate the impact of institutionally imposed social identity on individuals economic performance and potentially on inequality

empirics of hills plateaus mountains and plains a markov switching approach to growth abstract most economic growth research has been aimed at explaining cross country differences in average growth rates however it is well known that growth experiences differ over time within a country almost as much as they differ among countries this paper builds on pritchett s 2000 pritchett lant understanding patterns of economic growth searching for hills among plateaus mountains and plains world bank economic review may 2000 14 2 221 250 observation that the growth process can be thought of as transitions between different growth regimes and proposes a framework for systematic analysis of such regimes and the dynamics of the transitions i estimate a markov switching regression to characterize four distinct growth regimes and transitions between them the results show that countries switch among regimes of stable growth miracle catch up stagnation and crisis with the transition probabilities determined by the quality of institutions better institutions appear to improve long run growth by making episodes of fast growth more persistent low average growth rates in countries with weak institutions are a result of these countries spending more time in stagnation regimes rather then being incapable of fast growth at all weak institutions do not rule out growth takeoffs but limit their sustainability the approach directs attention to shifts in growth performance and highlights the fact that identical average growth rates can mask very distinct growth paths

exogenous shocks and growth crises in low income countries a vulnerability index summary this paper develops a new index which provides early warning signals of a growth crisis in the event of large external shocks in low income countries lics multivariate regression analysis and a univariate signaling approach are used to map information from a parsimonious set of underlying policy structural and institutional indicators into a composite vulnerability index both the in sample and out of sample predictive power of the index are high in particular it explains well the growth crises observed in lics during the global financial crisis

does fdi actually affect income inequality insights from 25 years of research while there are 25 years of empirical research on how fdi may affect income inequality there is surprisingly no consensus on this issue in this paper we conduct a meta analysis on the effect of fdi on inequality using 543 empirical studies from 1995 to 2019 among various factors we find that the development level of the study country has the strongest influence on the direction in which fdi affects income inequality when the primary studies are sorted into three groups based on the gdp per capita of their sample areas the within group estimates on the effect of fdi on income inequality become strongly consistent with each other particularly we find that fdi is associated with higher inequality for the low income group has no statistically significant effect for the middle income group and is associated with lower inequality for the high income group this observation suggests that fdi may increase income inequality as a country initially develops but reduce inequality as development deepens

the rising resilience of emerging market and developing economies summary economic performance in many emerging market and developing economies emdes improved substantially over the past 20 years in the past decade emdes spent more time in expansion and had smaller downturns than advanced economies for the first time we document the history of emdes resilience over the past 60 years and investigate what factors have been associated with it we find that their improved performance since the 2000s is accounted for by both good policies and a lower incidence of external and domestic shocks better policies account for about three fifths of their improved resilience while less frequent shocks account for the remainder

exchange rate policies in asia in an era of financial globalisation an empirical assessment ebbs and flows of capital have complicated macroeconomic policy management for all emerging market and developing economies emdes regardless of whether they have adopted flexible or managed exchange rate regimes in the light of the renewed interest in the trilemma versus dilemma debate we contribute to the related literature by presenting an empirical analysis of exchange rate flexibility and intervention for selected asian emdes over the time period 2001 2016 in addition to estimating augmented frankel wei regressions we employ a generalised auto regressive conditional heteroscedasticity garch model to assess the extent of foreign exchange fx intervention and whether there exist any asymmetries in the way countries intervene our results show that although there is greater flexibility in exchange rates there is evidence of some countries potentially using fx intervention to manage currency movements we also find evidence of asymmetry in intervention where exchange rate volatility responds more emphatically to fx sales than purchases

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

history lessons institutions factor endowments and paths of development in the new world the explanations offered for the contrasting records of long run growth and development among the societies of north and south america most often focus on institutions the traditional explanations for the sources of these differences in institutions typically highlight the significance of national heritage or religion we in contrast argue that a hemispheric perspective across the wide range of colonies established in the new world by the europeans suggests that although there were many influences factor endowments or initial conditions had profound and enduring effects on the long run paths of institutional and economic development followed by the respective economies

public policies and the art of catching up matching the historical evidence with a multicountry agent based model in this paper we study the effects of industrial policies on international convergence using a multi country agent based model which builds upon dosi et al 2019b the model features a group of microfounded economies with evolving industries populated by heterogeneous firms that compete in international markets in each country technological change is driven by firms activities of search and innovation while aggregate demand formation and distribution follows keynesian dynamics interactions among countries take place via trade flows and international technological imitation we employ the model to assess the different strategies that laggard countries can adopt to catch up with leaders market friendly policies industrial policies targeting the development of firms capabilities and rd protectionist policies focusing on tariffs only we find that markets cannot do the magic in absence of government interventions laggards will continue to fall behind on the contrary industrial policies can successfully drive international convergence among leaders and laggards while protectionism alone is not necessary to support catching up and countries get stuck in a sort of middle income trap finally in a global trade war where developed economies impose retaliatory tariffs both laggards and leaders are worse off and world productivity growth slows down

brother can you spare some time sustaining prosperity and social inclusion in america s metropolitan regions understanding the factors and processes that help regions sustain economic growth has become a topic of increasing interest in recent years we examine factors associated with the length of growth spells for the 184 largest regions in the united states from the period 1990 2011 we find that growth duration is positively related to a number of factors one might expect including lower levels of reliance on manufacturing and a higher proportion of the population with middle education levels however we also find that the length of growth spells is strongly related to lower levels of metropolitan income inequality and to measures of social and spatial segregation suggesting that more equitable and more integrated regions are better able to sustain growth

how democracy affects growth abstract this paper introduces a new methodology to examine the empirical relationship between democracy and economic growth democratic institutions are assumed to affect growth through a series of channels we specify and estimate a full system of equations determining growth and the channel variables results suggest that democracy fosters growth by improving the accumulation of human capital and less robustly by lowering income inequality on the other hand democracy hinders growth by reducing the rate of physical capital accumulation and less robustly by raising the ratio of government consumption to gdp once all of these indirect effects are accounted for the overall effect of democracy on economic growth is moderately negative our results indicate that democratic institutions are responsive to the demands of the poor by expanding access to education and lowering income inequality but do so at the expense of physical capital accumulation

inflation and central bank independence revisited abstract king and ma economics letters 72 2001 95 claim that evidence which they report for a sample of 42 countries shows that central bank independence cbi and inflation are not significantly related the present paper argues that this putative failure of cbi to affect inflation is due to king and ma s use of an econometric methodology that does not account for the inaccuracy of their proxy for cbi employing an alternative econometric methodology that tackles the measurement error problem directly this paper finds a strong negative relationship between cbi and inflation

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

preschool education in brazil does public supply crowd out private enrollment this paper examines whether an expansion in the supply of public preschool crowds out private enrollment the paper uses rich data for municipalities in brazil from 2000 to 2006 where federal transfers to local governments change discontinuously with given population thresholds the results from a regression discontinuity design reveal that larger federal transfers lead to a significant expansion of local public preschool services but show no evidence of crowding out of private enrollment this finding is consistent with a theory in which households differ in their willingness to pay for preschool services and private suppliers optimally adjust prices in response to an expansion of lower quality free of charge public supply

the debt crisis structural explanations of country performance abstract this paper develops a cross country statistical model of debt rescheduling and the secondary market valuation of ldc debt which links these variables to key structural characteristics of developing countries such as the trade regime the degree of income inequality and the share of agriculture in gnp our most striking finding is that higher income inequality is a significant predictor of a higher probability of debt rescheduling in a cross section of middle income countries we attribute this correlation to various difficulties of political management in economies with extreme inequality we also find that outward orientation of the trade regime is a significant predictor of a reduced probability of debt rescheduling

the great retrenchment international capital flows during the global financial crisis the current crisis saw an unprecedented collapse in international capital flows after years of rising financial globalization we identify the stylized facts and main drivers of this development the retrenchment in international capital flows is a highly heterogeneous phenomenon first across time being especially dramatic in the wake of the lehman brothers failure secondly across types of flows with banking flows being the hardest hit due to their sensitivity of risk perception and thirdly across regions with emerging economies experiencing a shorter lived retrenchment than developed economies our econometric analysis shows that the magnitude of the retrenchment in capital flows across countries is linked to the extent of international financial integration its specific nature with countries relying on bank flows being the hardest hit as well as domestic macroeconomic conditions and their connection to world trade flows gian maria milesi ferretti and cedric tille

the effects of income distribution and fiscal policy on aggregate demand investment and the budget balance the case of europe this paper develops a multi country post kaleckian model that incorporates the role of the government one key novelty of the model is that it integrates cross country effects of both changes in income distribution and fiscal policy the model is used to estimate econometrically the effects of income distribution and fiscal policy on the components of aggregate demand and the budget balance in eu15 countries the results show that a simultaneous increase in the wage share in all eu15 countries would increase demand and the primary budget balance in all countries a simultaneous increase in government spending turns out to boost economic activity in all the eu15 countries indicating the positive economic effects of expansionary fiscal policy moreover a progressive tax policy that would be implemented simultaneously at the eu level would lead to an increase in output in all countries

do weak institutions prolong crises on the identification characteristics and duration of declines during economic slumps this paper studies periods of prolonged contractions in output per capita in a sample of 145 countries from 1950 to 2014 economic slumps are defined as abrupt interruptions of a period of growth by several regime switches slumps start with a sharp contraction along with a trend break which is followed by another switch when growth stabilizes again the paper then analyzes the correlates of these slumps focusing on the length and depth of the contraction from the beginning of the slump to its trough the results establish three new stylized facts i weak political institutions predate crises whereas political reforms tend to follow them ii the length and depth of economic declines are robustly correlated with executive constraints and ethnic heterogeneity and iii there is a robust interaction between these two variables suggesting that institutions constraining leaders are important for stabilizing growth this is particularly relevant for sub saharan africa where politics are often ethnic and decision makers are comparatively unconstrained

rational and self fulfilling balance of payments crises speculative attacks on a pegged exchange rate must sometimes occur ifasset price paths are to be free of abnormal profit opportunities suchattacks are fully rational as they reflect the market s response to aregime breakdown that is inevitable the authors shows that under someexpectations about policy balance of payments crises can also be purely self fulfilling events in such cases even a permanently viableregime may collapse and the economy will possess multiple equilibriacorresponding to different subjective assessments of the probability ofa crisis the behavior of the domestic interest rate will naturally reflect the possibility of a speculative attack copyright 1986 by american economic association

aid dutch disease and manufacturing growth abstract we examine the effects of aid on the growth of manufacturing using a methodology that exploits the variation within countries and across manufacturing sectors and corrects for possible reverse causality we find that aid inflows have systematic adverse effects on a country s competitiveness as reflected in the lower relative growth rate of exportable industries we provide some evidence suggesting that the channel for these effects is the real exchange rate appreciation caused by aid inflows we conjecture that this may explain in part why it is hard to find robust evidence that foreign aid helps countries grow

foreign reserve management during the global financial crisis this paper examines how countries managed their foreign currency reserves during the global financial crisis evidence based on changes in reserve stocks suggests that many governments even those with high levels of pre crisis reserves were reluctant to use them during the crisis as a consequence a number of recent studies of cross country experiences during the crisis find little evidence of a positive role for reserves in macroeconomic crisis management this paper examines whether this assessment of the non role of reserves during the crisis is justified while the reserve stock data indicates stable reserve levels for many countries during the crisis distinguishing between reserve changes that occurred due to interest income and valuation changes on existing assets and asset purchases and sales indicates that many emerging economies actively depleted reserves further the data indicate that countries whose pre crisis reserve levels were in excess of what can be explained by standard models of reserve accumulation were the most likely to sell reserve assets during the crisis

financial instability reserves and central bank swap lines in the panic of 2008 in this paper we connect the events of the last twelve months the panic of 2008 as it has been called to the demand for international reserves in previous work we have shown that international reserve demand can be rationalized by a central bank s desire to backstop the broad money supply to avert the possibility of an internal external double drain a bank run combined with capital flight thus simply looking at trade or short term debt as motivations for reserve holdings is insufficient one must also consider the size of the banking system m2 here we show that a country s reserve holdings just before the current crisis relative to their predicted holdings based on these financial motives can significantly predict exchange rate movements of both emerging and advanced countries in 2008 countries with large war chests did not depreciate and some appreciated meanwhile those who held insufficient reserves based on our metric were likely to depreciate current account balances and short term debt levels are not statistically significant predictors of depreciation once reserve levels are taken into account our model s typically high predicted reserve levels provide important context for the unprecedented u s dollar swap lines recently provided to many countries by the federal reserve this abstract was borrowed from another version of this item

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

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research

real income stagnation of countries 1960 2001 abstract this paper examines the phenomenon of real income stagnation in which real income growth is uninterruptedly negligible or negative for a sizable sequence of years we analyse data for four decades from a large cross section of countries real income stagnation is a conceptually distinct phenomenon from low average growth and other features of the growth sequence that have been previously considered we find that real income stagnation has affected a significant number of countries 103 out of 168 and resulted in substantial income loss countries that suffered spells of real income stagnation were more likely to be poor in latin america or sub saharan africa conflict ridden and dependent on primary commodity exports stagnation is also very likely to persist over time countries that were afflicted with stagnation in the 1960s had a likelihood of 75 per cent of also being afflicted with stagnation in the 1990s