growth effects of public expenditure on the state and local level evidence from a sample of rich governments there is a vast empirical literature investigating the relationship between government size and economic growth but the empirical evidence of growth effects of public expenditure using cross country regressions is still inconclusive according to a number of authors this is not surprising since the negative relationship only applies for rich countries with a large public sector restricting their analysis on rich countries only they can show the predicted negative impact naturally a selection of a sub sample of rich countries is always somewhat arbitrary another possibility is to concentrate on governments within a rich country however only few studies investigate the effect of state and local spending on economic growth this study concentrates on the relationship between public expenditure and economic growth within a rich country using the full sample of state and local governments from switzerland over the 1981 2001 period the general finding is a fairly robust negative relationship between gov

governance and agricultural productivity a cross national analysis abstract in this study we examine the relationship between governance and agricultural performance by employing the world bank s aggregate governance indicators based on a cross country panel sample two methods are employed to test the hypothesis that better governance fosters agricultural productivity the empirical results of both methods support the hypothesis as for the first method the estimation results of the widely used inter country aggregate agricultural production function show that a country with better governance can produce more agricultural outputs given the same amounts of agricultural inputs the same education level and the same climate condition as for the second method the empirical results of a structural equation model reveal that given the same amounts of agricultural capital stock and land an agricultural worker in a country with better governance produces more better governance can indirectly improve agricultural productivity by driving agricultural capital accumulation our empirical work lends support to the claim of hayami and ruttan hayami y ruttan v 1985 agricultural development an international perspective john hopkins university press baltimore that governance is a basic factor explaining the poor economic performance of many developing countries in order to improve the agricultural performance of many developing countries apart from physical and education investments more emphasis should be placed on improving the governance infrastructure of these countries

growth and income inequality in south africa abstract this paper uses a multi region endogenous growth model to analyze the competing claims of income growth and income distribution in south africa the study makes a case for the use of redistributive taxes to offset limited capital mobility between high and low income regions to promote both greater income growth and greater income equality market based capital mobility is limited because low income regions are typically characterized by low levels of both physical and human capital which offer little incentive to outside investors the model estimates annual cross regional convergence rates at

aggregation and pairwise aggregation of demand when the distribution of income is fixed abstract this paper derives necessary and sufficient conditions for pairwise aggregation of the demand functions of a group of consumers conditions under which the mean demand for each pair of consumers satisfies the slutsky restrictions when the distribution of income is fixed the sufficient conditions imply existence of a representative competitive consumer whose demand is the mean demand of the group the necessary conditions imply that such a representative consumer exists for every fixed income distribution only if the consumers have homothetic preferences or alternatively if for each price vector all the consumers income expansion paths lie in the same plane

institutions and the convergence hypothesis the cross national evidence delong and others have shown that cross country convergence in per capita incomes is limited to samples of currently industrialized nations or universal literacy nations in particular income dispersion has failed to decline in groups of ex ante rich nations this study finds strong convergence in per capita incomes among nations with institutions namely secure property rights conducive to saving investing and producing incomes are shown to converge even within ex ante rich samples when measures of institutional quality are held constant

price effects on compound commodities we examine the effect of simultaneous price changes on the total demand for a group of goods which we call a compound commodity specifically we consider unit and proportional cost components e g taxes transportation costs imposed on compound commodities if the unit cost is positive then the proportional cost raises the relative price of the more expensive good and thus induces substitution towards the less expensive good within this group then the substitution effect of the proportional cost for a compound commodity is non negative if and only if the compound commodity and the other goods are on average not strongly substitutable

corruption s direct effects on per capita income growth a meta analysis corruption is a symptom of weak institutional quality and could have potentially adverse effects on economic growth however heterogeneity in reported findings makes it difficult to synthesize the evidence base with a view to test competing hypotheses and or support evidence based policy and practice to address this issue we have extracted 327 estimates of corruption s direct effect on per capita gdp growth from 29 primary studies following a peer reviewed and pre published systematic review protocol precision effect and funnel asymmetry tests indicate that corruption has a negative effect on per capita gdp growth after controlling for publication selection bias and within study dependence however multivariate meta regression analysis results indicate that the overall effect is not robust to inclusion of moderating variables through a general to specific procedure for model specification we report that the marginal effect of corruption on per capita gdp growth is more adverse when the primary study estimates relate to long run growth are based on low income country data only and extracted from journal papers the effect is less adverse in studies that use the international country risk guide corruption perceptions index and in those reporting estimates from two stage least squares estimations

bureaucratic capacity delegation and political reform thecentraltensionmotivatingcontemporarytheories of delegation from politicians to bureaucrats lies in the potential conflict between the value of bureaucratic expertise on one hand and the desire for political control on the other this tension is well known and has been debated at least since weber s classic work on bureaucracy modern bureaucracies are staffed with individuals who by virtue of rational bureaucratic organization are highly skilled policy experts who in principle should be able to help less knowledgeable politicians achieve their goals however the very skills and expertise that bureaucrats enjoy create the possibility that bureaucrats will usurp the rightful role of politicians in policymaking processes because the way this tension is resolved determines the ultimate compatibility of democracy and bureaucracy existing theories of delegation typically focus on understanding how and to what extent politicians can resolve it 1 in many contexts particularly developing democracies bureaucracy does not fit the weberian characteristics that are assumed in the existing delegation literature the bureaucracies may be staffed with individuals who lack the personal capacity to execute orders effectively the organizational structure may lead to breakdowns within bureaucratic hierarchies making it difficult for senior administrators to control their subordinates departments and ministries may lack basic budgets and resources to undertake implementation actions they may suffer from incentives for

the effects of property rights on economic performance this study augments the neoclassical growth model proposed by mankiw et al 1992 to analyse the effects of the property rights protection on the levels of economic performance measured by per capita gross domestic product gdp across countries the augmented model predicts that 1 the accumulation of physical and human capital and therefore the level of per capita gdp in a country is positively related with the degree of property rights protection as well as with the saving rates and 2 the effects of the saving rates on the level of per capita gdp in a country are positively related with the degree of property rights protection empirical evidence shows that the predictions of the augmented model are consistent with the variations in the levels of per capita gdp across countries

why don t poor countries catch up a cross national test of an institutional explanation early neoclassical analyses predicted that poor countries would grow faster than wealthy countries because of technological advances and diminishing returns to capital in the latter the reverse has occurred poor countries are falling back rather than catching up we suggest here that deficient institutions underlie this divergence employing various indicators of institutional quality including the rule of law the pervasiveness of corruption and the risk of expropriation and contract repudiation we show that the ability of poor countries to catch up is determined in large part by the institutional environment in which economic activity in these countries takes place jel o00 o10

a new bankruptcy procedure that uses multiple auctions abstract we propose a new bankruptcy procedure that makes use of multiple auctions the procedure is designed to work even when capital markets do not function well for example in developing economies or in economies in transition although it can be used in all economies

corruption inflation and growth abstract we present a model in which the embezzlement of tax revenues by public officials leads the government to rely more on seigniorage to finance its expenditures this raises inflation which depresses investment and growth via a cash in advance constraint

a comparison of bribery and bidding in thin markets abstract this paper compares bribery to competitive bidding in a government purchasing context while competitive bidding is one method of procurement bribery is a common alternative in many third world countries although bribery is often considered to be the ethical antithesis of competitive bidding the analysis shows there is a fundamental isomorphism between bribery and competitive bidding on the supply side of the transaction

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

measuring and explaining the impact of productive efficiency on economic development a limitation of most empirical cross country studies that focus on determinants of gross domestic product gdp is that they fail to distinguish explicitly between inputs used in production and conditions that facilitate production for example physical capital human capital and labor are production inputs whereas the quality of institutions macroeconomic stability and market quality are conditions that facilitate production this article takes this distinction seriously and uses a stochastic frontier approach to study factors affecting economic performance a panel data set of 71 countries for the 1980 98 periods is used to estimate a production frontier with physical capital human capital and labor as inputs the article also analyzes what drives productive efficiency using the institutional framework macroeconomic stability market quality and urbanization as possible explanatory factors urbanization turns out to be an important determinant with the rule of law inflation rate and market quality also affecting productive efficiency

corruption fertility and human capital abstract we build an overlapping generations model in which reproductive households face a child quantity child quality trade off and bureaucrats are delegated with the task of delivering public services that support the accumulation of human capital by integrating the theoretical analyses of endogenous growth corruption and fertility choices we show that the negative relation between fertility and economic development may also be affected by differences in the magnitude of bureaucratic corruption

economic theory in the mathematical mode iif a symbolic date were to be chosen for the birth of mathematical economics our profession in rare unanimous agreement would select 1838 the year in which augustin cournot published his recherches sur les principes mathematiques de la thetorie des richesses students of the history of economic analysis could point out contributions made to mathematical economics as early as the beginning of the eighteenth century they could also point out johann heinrich von thunen s der isolierte staat 1826 a prototypical example of the use of mathematical reasoning in economic theory with little mathematical formalism but cournot stands out as the first great builder of mathematical models explaining economic phenomena among his successors in the nineteenth century and the early twentieth century the highest prominence will be given in this lecture to leon walras 1834 1910 the founder of the mathematical theory of general economic equilibrium to francis y edgeworth 1845 1926 and to vilfredo pareto 1848 1923 all three lived long enough into the twentieth century to have increased for all nobel laureates the value of the economics prize had it like the other prizes been initiated in 1901 if 1838 is the symbolic birthdate of mathematical economics 1944 is the symbolic beginning of its contemporary period in that year john von neumann and oskar morgenstern published the first edition of the theory of games and economic behavior an event that announced a profound and extensive transformation of economic theory in the following decade powerful intellectual stimuli also came from many other directions in addition to von neumann and morgenstern s book wassily leontiefs input output analysis paul samuelson s foundations of economic analysis tjalling koopmans activity analysis of production and george dant

credible commitments and investment does opportunistic ability or incentive matter the more likely it is that the sovereign will alter property rights for his or her own benefit the lower the expected returns from investment and the lower in turn the incentive to invest north and weingast 1989 p 803 i introduction since at least hobbes social scientists have identified external agents as necessary for sustaining efficient outcomes in political economies 1 when such agents are absent efficient collective order is arguably impossible because individuals cannot by themselves coordinate actions to address common dilemmas external agents are thought to resolve this impossibility by credibly threatening to inflict punishments where members of a closed system have no incentive to punish themselves social scientists frequently characterize external agents as supplying incentive aligning services in return for a share of associated efficiency gains this remuneration scheme however provides agents with an incentive to not only create efficiency gains but to opportunistically manipulate the sharing of those gains moreover unless an agent can credibly commit against acting on this incentive potential subjects to its authority have reduced motivation to enter the game hence although external agents can make efficiency enhancing actions incentive compatible i e align individual incentives with group objectives credible commitments against opportunism are necessary for egoistic individuals to subject themselves to an agent s authority i evaluate the potential for two types of institutions to facilitate such commitments the first produces checks on the ability for political agents to act opportunistically to see how such an institution might work suppose that a polity formally diffuses authority among say an executive and legislature given this separation of powers political agents must act collectively to opportunistically expropriate their constituents product if the cost for a nonsingleton set of agents to act exceeds that for an individual then polities that diffuse authority e g establish veto players increase the cost for political agents to play opportunistic actions this increase in turn facilitates credible commitments against opportunism and encourages productive economic activity 2 the second type of institution shapes the planning horizons of external agents so that even egoistic agents have an incentive to build reputations as nonopportunistic types for example political agents who can complete only the term they are serving have relatively little incentive ceteris paribus to build or maintain reputations as nonopportunistic types besley and case 1995 formalize this conjecture to argue that with asymmetric information about politicians types or some imperfect information about the state of the world the reelection mechanism can raise effort or otherwise induce less opportunistic behavior besley and case 1995 p 769 emphasis added 3 interpreted in this light formal restrictions on planning horizons e g binding term limits diminish the capacity for political agents to credibly commit against opportunism and in turn the incentive for economic actors to engage in productive activity to evaluate the empirical relevance of these hypotheses i examine the association between investment and institutions that check the ability or incentive for political agents to play opportunistic actions 4 egoistic individuals allocate resources to investment if they can recognize a sufficient return hence not only are property rights over an investment s product important so is the stability of those rights stability in turn can be stronger when institutions increase the cost of political opportunism if i forgoing benefits from reputation building and ii expending resources to coordinate opportunistic actions are costs of opportunistically altering property rights then investment should exhibit a positive association with institutions that increase such costs

the incidence and persistence of corruption in economic development abstract economic development and bureaucratic corruption are determined jointly in a dynamic general equilibrium model of growth bribery and tax evasion corruption arises from the incentives of public and private agents to conspire in the concealment of information from the government these incentives depend on aggregate economic activity which in turn depends on the incidence of corruption the model produces multiple development regimes transition between which may or may not occur in accordance with recent empirical evidence the relationship between corruption and development is predicted to be negative

taste change in the united kingdom 1900 1955 a search is made for violations of the axiom of revealed preference in aggregate consumption data for the united kingdom no such violations are found this is taken as evidence that tastes remained constant throughout the period under study the strength of this evidence is estimated within the context of a particular model of taste change

bribery inefficiency and bureaucratic delay abstract we examine bribery in a dynamic setting with a partially honest bureaucracy the presence of honest officials lowers the bribe that a corrupt official can extract from efficient applicants consequently efficient applicants may face delays in receiving licenses or may never receive licenses as inefficient applicants are serviced ahead of them an increase in the proportion of honest officials while directly increasing the incidence of socially optimal decisions can also induce greater inefficiencies misallocation and delay from corrupt officials as a result social welfare may be non monotonic in the proportion of honest officials and small differences in monitoring costs may lead to very different levels of corruption competition between officials can hurt efficiency its desirability depends on the prevalence of applicants ability to pay bribes

a cross country analysis of electricity market reforms potential contribution of new institutional economics abstract the paper explores whether the question of why some countries are able to implement more extensive reforms is closely related to the question of why some countries have better institutions than others we analyze this question by using an empirical econometric model based on poisson regression with cross section data covering 51 states in the us 13 provinces in canada and 51 other countries in the course of the study we check the validity of three important arguments of new institutional economics nie for the power market liberalization process the first argument is the path dependency to test its impact on the reform progress we try to explain whether the background of the chairperson of the regulatory agency when reforms started or that of the governor minister responsible for energy policy at that time has an impact on the subsequent reform progress the second argument is the impact of democracy as an institution on the reform progress we look at the effect of two important indicators of democracy i e civil liberties and political rights on the reform progress the final argument of nie is about transaction costs we concentrate on the level of corruption in a country as one of the key factors that determine transaction costs and try to explore its impact on the reforms the results show that the backgrounds of the chairperson and the minister governor the level of democracy and corruption in a country are significantly correlated with how far reforms have gone in that country the negative relationship between reform progress and civil liberties may indicate that reforms may be limited in democratic countries with strong civil society institutions such as trade unions or other organized structures in the society that may consider reforms as harmful to their self interest

who trusts others community and individual determinants of social capital in a low income country this study presents new evidence on individual and community specific determinants of social trust using data from 96 villages in bangladesh we find perceived institutional trust to be positively correlated with stated inter personal trust at the same time there is significant social distance among various faith groups in our data both hindus and muslims trust their coreligionists more than they trust those from other religions moreover hindus trust christians buddhists and ngo workers more than muslims and are not distrustful of the wider society trust towards non muslims is negatively correlated with islamic school attendance among muslim respondents while religiosity tends not to play any role compared to religion the effects of institutional trust and local economic development are modest these findings are robust to control for a range of individual and community level correlates and enumerator fixed effects

the world bank at the millennium in the aftermath of world war ii and in the wake of the great depression surely one of the underlying causes of the war itself the countries of the world created three international institutions designed to facilitate economic cooperation the general agreement on tariffs and trade gatt the international monetary fund imf and the international bank for reconstruction and development ibrd gatt which has since evolved into the world trade organisation was to work on lowering trade barriers among nations and on preventing the beggar thy neighbour trade policies that were seen as a contributing factor to the breadth and depth of the great depression the imf was to provide liquidity and to sustain the international payments system the gold standard that was reinstituted after the war and the ibrd known more generally as the world bank was primarily to facilitate the reconstruction of war damaged europe and then to reach beyond that to aid in the development of what later became known as the third world it is now more than fifty years since the creation of these institutions over that half century they have evolved enormously especially in response to changing economic circumstances and changing needs the 1971 abandonment of the gold standard by the united states and subsequently by the rest of the world clearly necessitated a change in the functioning and perhaps in the very role of the imf the collapse of the soviet union posed a new set of challenges to the international institutions namely facilitating the transition of the former communist countries to a market economy the fiftieth anniversary of the bretton woods institutions imf and world bank was marked by criticism from a vocal international group dedicated to the notion that fifty years is enough reflecting a view among certain groups that these institutions had done as least as much or more harm than good as the world bank has the views presented here are solely those of the author and not those of any institution with which he is or has heen affiliated the author would like to acknowledge the helpful comments and assistance

governance and growth abstract because of its inappropriability protection of property rights is widely recognized as being the state s responsibility moreover recent empirical evidence suggests that it leads to higher investment levels and faster growth nevertheless the extent of property rights protection differs significantly across countries this paper endogenizes the emergence of property rights within a simple growth framework drawing on north north d 1990 institutions institutional change and economic performance cambridge university press a model is presented where economic performance and enforcement of property rights may reinforce each other initial conditions determine the economy s convergence to a high income or a low income steady state the existing empirical evidence offers a tentative support for this theory

a note on competitive bribery games abstract within a competitive bribery game in which each player has incomplete information we show that there exists a unique nash equilibrium which is symmetric similar results hold for another bribery game form that prevails in the literature implications for corrupt practices in relation to economic development are also discussed

a note on small income effects this note provides an alternative sufficient condition for the small income effect result that is first shown by vives small income effects a marshallian theory of consumer surplus and downward sloping demand rev econ stud 54 1 1987 87 103 the condition is stated by ordinal terms only whereas vives assumes cardinal properties of utility representation second as its application we provide a sufficient condition for the preference being asymptotically quasi linear in a two good economy where the second good is a composition of a large number of goods

corruption and allocation efficiency abstract in this paper we investigate the possibility of allocation inefficiencies associated with corrupt practices specifically we consider the case in which two firms compete via bribery of a corrupt government official for a to be awarded project the economy may suffer allocation inefficiencies whenever there is some degree of discrimination given additional assumptions it is shown that the possibility of inefficient allocations increases as the degree of discrimination increases although empirical verification of discrimination is difficult due to the observational equivalence of an alternative imperfect knowledge model two possible explanations for the determination of discrimination coefficients indicate that it is a general phenomenon in competitive bribery games

approaches to economic equilibrium abstract we study mechanisms that help to explain why and how equilibrium may eventually be attained in many economic settings examples include competitive markets and many noncooperative games the main object is an adaptive process reflecting repeated adjustment of individual strategies which under monotonicity conditions leads to equilibrium environmental uncertainty is accommodated but agents need neither know the probability law nor invoke any statistical learning theory nor compute mean values in fact everyone can act perhaps without precedent maybe among strangers within unidentified frames nonetheless we show under reasonable conditions that individual optimality and system equilibrium obtains in the long run

bureaucratic structure and bureaucratic performance in less developed countries abstract we argue that several easily identifiable structural features constitute the key ingredients of effective state bureaucracies and should help to predict ratings of bureaucratic performance competitive salaries internal promotion and career stability and meritocratic recruitment we collect a new dataset on these features for bureaucracies of 35 less developed countries controlling for country income level of education and ethnolinguistic diversity we find that our measure of meritocratic recruitment is a statistically significant determinant of ratings supplied by two of three country risk agencies the importance of competitive salaries and internal promotion and career stability could not be clearly established

excessive public employment and rent seeking traps we propose a model where the size of the public sector and aggregate output are interrelated through the occupational choice of agents who differ in their skill level and degree of public mindedness when the public sector attracts bureaucrats with low degree of public service motivation they will use their position to rent seek by employing an excessive number of unskilled workers this leads to an equilibrium with relatively high unskilled wages which lowers profits and deters entrepreneurship conversely an equilibrium with a lean public sector and greater private economic activity arises when public service motivated agents populate the state bureaucracy these agents exert high effort and employ a limited number of unskilled workers our model also shows that a bloated public sector with high wages may be supported by the unskilled agents

transformations of the commodity space behavioral heterogeneity and the aggregation problem aggregation in exchange markets is studied by imposing restrictions on distributions of the households characteristics approximate bounds for market demand price elasticities that depend upon specific measures of behavioral heterogeneity are provided increasing behavioral heterogeneity makes aggregate expenditures more independent of prices this has strong consequences for the prevalence in the aggregate of the weak axiom of revealed preference of gross substitutability and on uniqueness and stability of the walrasian exchange equilibrium these strong macroeconomic regularities are obtained essentially through distributional assumptions as no rationality requirements are imposed on individual demand functions other than homogeneity and walras law journal of economic literature classification numbers d11 d41 d50 el 1992 academic press lnc there are still quite a few unpleasant gaps nowadays between macroanalysis and microanalysis of socioeconomic systems a leading instance drawn from social choice theory is arrow s celebrated impossibility theorem 1 which states that any attempt to aggregate individual preferences into a consistent social ordering or a collective choice procedure satisfying a few appealing requirements is bound to fail the impossibility arises however only if one insists that the procedure should work for every possible environment or in other words for all distributions of individual preferences a possible resolution of the problem is therefore to identify broad classes of distributions of preferences for which aggrega the bulk of the research reported in this paper was essentially done at yale university during the fall semester of 1990 i thank all my colleagues for their support and comments especially martin shubik herbert scarf and truman bewley i also had very useful conversations with jorgen weibull mike jerison andreu mas colell christian gouri6roux camille bronsard guy laroque bruno jullien and bernard caillaud i am much indebted to ai klevorick for his comments on an earlier draft but my greatest debt is to werner hildenbrand whose pioneering insights and stubborn insistance have over the years kept quite a few of us struggling beyond the fads of the moment with the aggregation problem our profession is fortunate indeed to have him around

debt deflation theory and evidence abstract in the early 1990s the most severe recessions occurred in those countries which had experienced the largest increases in private debt burdens was this an accident of history or did it reflect deeper forces affecting market economies the paper comprises three parts first it presents three stylised facts about debt and its impact on consumption growth in the 1930s and the 1990s second it discusses the reception of irving fisher s work on debt deflation by his contemporaries and argues that it is helpful to think of debt deflation as a real business cycle phenomenon third there is a theoretical discussion of the reaction of debt and consumption to shocks in the context of a model of precautionary saving central to the model is the role of distributional shocks which implies that aggregate demand may be a nonmonotonic function of the price of assets in terms of the consumption good multiple equilibria may exist leading to the possibility of financial instability the analysis of debt deflation requires the construction of real business cycle models without a representative consumer

financial liberalization bureaucratic corruption and economic development abstract we study the effect of international financial integration on economic development when the quality of governance may be compromised by corruption our analysis is based on a dynamic general equilibrium model of a small economy in which growth is driven by capital accumulation and public policy is administered by government appointed bureaucrats corruption may arise due to the opportunity for bureaucrats to embezzle public funds an opportunity that is made more attractive by financial liberalization which at the same time raises efficiency in capital production our main results may be summarized as follows 1 corruption is always bad for economic development but its effect is worse if the economy is open than if it is closed 2 the incidence of corruption may itself be affected by both the development and openness of the economy 3 financial liberalization is good for development when governance is good but may be bad for development when governance is bad and 4 corruption and poverty may coexist as permanent rather than just transitory fixtures of an economy

demand aggregation and integrability of the hoglex demand function abstract we find indirect utility and expenditure functions and the implications of slutsky symmetry for the hoglex demand function x p y y p b p yc p these implications restrict the usefulness of the hoglex function in the theory of preference aggregation unless is constant

on a market demand function satisfying the weak but not the strong axiom of revealed preference abstract hildenbrand 1983 states conditions under which the market demand function satisfies the weak axiom of revealed preference an example is provided which shows that in general this market demand function does not satisfy the strong axiom of revealed preference

the effectiveness of aid on savings and investment in sub saharan africa do volatility and institutional quality matter abstractthe effectiveness of aid is somewhat subject to its volatility this study investigates the impact of aid volatility especially on savings and investment with a particular focus on the role of institutional quality in 45 sub saharan african ssa countries over the period from 1990 to 2013 we used the generalized method of moments gmm technique combined with a measure of volatility namely an averaged data method involving six 4 year sub periods our results suggest that while aid is positively associated with savings and investment its volatility is harmful to savings and investment however when higher quality institutions exist the volatility of aid has a less negative impact on savings and investment the policy implications are diverse first donors and ssa aid dependent countries need to take into account the diversity of shocks to which aid can respond in mitigating its unpredictability secondly ssa countries should be encouraged to establish the conditions for better quality inst

approximate aggregation under uncertainty abstract for a collection of agents with von neumann morgenstern preferences a price independent income distribution and identical probability beliefs there exists a von neumann morgenstern approximate aggregator the risk tolerance of the approximate aggregator is equal to the sum of the individual agent risk tolerances at prices which yield constant risk free contingent consumption the application of the approximate aggregator to standard asset pricing models in finance is discussed briefly

development and social capital abstract this paper examines social capital and its relation with economic development we focus on the role that interpersonal relationships play in social exchange whether through the market or through the provision of public goods by facilitating search and trust social capital can increase the efficiency of social exchange where formal institutions are weak but the benefits from social capital are likely to be unequally distributed given these features documenting empirically the benefits of social capital is complicated by the presence of negative and positive externalities and by the existence of leadership and group effects lessons for development policy are drawn at the end

taxation as a social choice problem the scope of the laffer argument abstract this paper studies the form of the tax equilibrium set in simple diamond mirrlees models and characterizes the corresponding laffer curves the curves need not ever slope downward and can have multiple local maxima local information about them is thus not sufficient to place restrictions on optimal choice among tax systems in this simple framework the problem of choice among tax systems is shown to have no more structure than an abstract social choice problem

aid dependence and the quality of governance cross country empirical tests aid dependence can potentially undermine the quality of governance and public sector institutions by weakening accountability encouraging rent seeking and corruption fomenting conflict over control of aid funds siphoning off scarce talent from the bureaucracy and alleviating pressures to reform inefficient policies and institutions analyses of cross country data in this paper provide evidence that higher aid levels erode the quality of governance as measured by indices of bureaucratic quality corruption and the rule of law these findings support the need for donors to develop less costly and less intrusive ways of disseminating state of the art knowledge on public sector reform in developing countries

global trade integration and economic convergence of developing countries gerschenkron hypothesized that lower income countries would tend to grow more rapidly than higher income countries and therefore that their average incomes would converge since that time the record indicates that the industrialized nations have had relatively slow growth rates while many less developed countries ldcs have had relatively rapid rates of growth although many others have had slower rates of growth and some have been negative furthermore the rates of growth have varied considerably during the four and one half decades since 1952 both among countries and within a country from one year to the next thus convergence remains an issue among development economists and others interested in the topic with frequent concern being expressed about a growing gap between average incomes in the moreand less developed economies of the world in this article we examine convergence and divergence due to differential rates of growth factors that affect growth the role of international trade in the process the policy frameworks that enhance or detract from growth and the research needs and opportunities for agricultural and resource economists a controversial aspect is the influence of trade on the process since most development economists tend to believe that more

comparative politics and environmental taxation abstract in this paper we take a step towards understanding the role of democratic institutions on the level of pollution taxation persson et al j polit economy 108 2000 1121 argue that presidential congressional regimes set lower taxes than parliamentary regimes this conclusion results from the checks and balances built into the former and the higher degree of legislative cohesion in the latter we test this prediction on gasoline and diesel prices using the method of propensity score matching along with data from 86 democratic countries the empirical evidence is consonant with the theory we find that ceteris paribus the average price of super gasoline is 0 14 0 20 less per liter in presidential congressional systems the average price of diesel gasoline is 0 11 0 14 less per liter

the microfoundations project in general equilibrium theory the author 1 argues that the long lived microfoundations project based on general equilibrium models has come to an end and 2 shows that non walrasian models intended to provide microfoundations for macroeconomics are inadequate the arguments are derived from the sonnenschein mantel debreu smd demonstration of the arbitrariness of aggregate excess demands in general equilibrium models of the walrasian arrow debreu mckenzie type the issues raised have significance for the proper method of modeling macroeconomic phenomena for instance the smd results have led a growing number of general equilibrium theorists to make assumptions concerning macroeconomic structure in order to analyze other regularities at the macro level these points validate the position that systematic macroeconomic phenomena are intrinsically macroeconomic copyright 1994 by oxford university press

corruption and competition in procurement abstract we consider a procurement problem in which the procurement agent is supposed to allocate the realization of a project according to a competitive mechanism that values bids in terms of the proposed price and quality potential bidders have private information about their production costs since the procurement agent is also in charge of verifying delivered quality in exchange for a bribe he can allow an arbitrary firm to be awarded the realization of the project and to produce a quality level lower than that announced we compute equilibrium corruption and we study the impact on corruption of the competitiveness of the environment and in particular of i an increase in the number of potential suppliers of the good or service to be procured and ii an increase of competition in the market for procurement agents we identify the effects that influence equilibrium corruption and show that contrary to conventional wisdom corruption may well be increasing in competition

effective property rights conflict and growth abstract this paper shows how the interaction between conflict and growth can give rise to a nonmonotone relationship between property rights and social welfare this interaction is illustrated in a model of endogenous growth in which equilibrium diversion of resources is the cost of securing effective property rights a symmetric equilibrium allocation associated with more secure property rights and faster growth can be pareto dominated by one associated with poorer property rights and slower growth faster growth can exacerbate the problem of diversion whenever property rights are sufficiently poor these results call for caution before a society decides to pursue economic growth independently of the institutional structure of property rights furthermore if this structure is inappropriate piecemeal reform might not be in the interest of society and a substantial reform might be necessary if it is to be welfare improving

do we see convergence in institutional quality a cross country analysis abstractdifferences in the quality of institutions may explain differences in per capita income yet we know relatively little on how institutions evolve this paper contributes to such knowledge by testing for convergence in legal bureaucratic and administrative institutional quality using cross section and panel methods on a large sample of countries from the 1970s to 2010 we find that countries with initially poor institutions tended to slowly catch up both when they shared the same initial conditions and when they did not however the convergence process seems to be a temporary effect following the end of the cold war

sovereignty credible commitments and economic prosperity on american indian reservations abstract american indian reservations are islands of poverty in a sea of wealth because this poverty cannot be explained solely by natural resource physical and human capital constraints institutions are likely to be part of the explanation one of the institutional variables is the sovereign power of tribes which allows tribal governments to act opportunistically the potential for such opportunistic behavior can thwart economic development if tribes are unable to make credible commitments to stable contract enforcement one avenue for credible commitments is public law 280 which required some tribes to turn judicial jurisdiction over civil disputes to the states in which they reside using data for 1969 99 we find that per capita income for american indians on reservations subject to state jurisdiction grew significantly more than it did for indians who were not

market excess demand in exchange economies with identical preferences and collinear endowments in this paper we show that up to an arbitrary small neighbourhood of the boundary of the set of prices any given excess demand function can be considered as the excess demand of an economy with any large enough but finite number of individuals having identical preferences moreover the individual endowments can be chosen collinear and in such a way that they yield any arbitrary price independent distribution of relative wealth one of the most striking results in economic theory is that developed by sonnenschein 1972 1973 and perfected by debreu 1974 the question posed by sonnenschein and answered in the affirmative was given any excess demand function f is there a finite number of consumers satisfying all the standard assumptions on preferences whose excess demands sum to f debreu showed that indeed one only needs 1 consumers where 1 is the number of goods in the economy question this result may be considered as extremely negative since it suggests that the standard assumptions on consumer preferences imply no restrictions on the class of excess demand functions that may be observed indeed the hope that by restricting even further our assumptions on individuals we may restrict the class of market excess demand functions seems vain mantel 1974 has shown for example that even if one requires consumers to have homothetic preferences debreu s result still holds a standard objection to this type of result is that in constructing the economy which has f as its excess demand function one may be obliged to choose individuals with very different characteristics if then one restricts the dispersion of preferences or endowments in some way one might reduce the class of possible excess demand functions it has also been suggested that it may be that the initial resources of the individuals have to be chosen so that the income distribution for the economy is highly price dependent hence to confine one s attention to economies with a fixed price independent income distribution might severely restrict the class of resultant excess demand functions taking these points one at a time

social composition social conflict and economic development this article investigates how the existence of non cooperative social groups that appropriate resources either peacefully or through contest affects economic growth when property rights are unenforceable for symmetric groups it shows that economic growth is generated only in peaceful societies for the case of asymmetric groups rebel equilibria are investigated in which a large majority behaves peacefully although challenged by an aggressive minority the article explains how conflict intensity and the rate of economic growth depend on social fractionalisation general productivity of the economy power of social elites and the ease at which resources are appropriated

distribution and development in a model of misgovernance abstract this paper presents an analysis of bureaucratic corruption income inequality and economic development the analysis is based on a dynamic general equilibrium model in which bureaucrats are appointed by the government to implement a redistributive programme of taxes and subsidies designed to benefit the poor corruption is reflected in bribery and tax evasion as bureaucrats conspire with the rich in providing false information to the government in accordance with empirical evidence the model predicts a positive relationship between corruption and inequality and a negative relationship between corruption and development

corruption and the composition of government expenditure abstract this paper asks whether predatory behavior by corrupt politicians distorts the composition of government expenditure corruption is found to reduce government spending on education in a cross section of countries

is financial inclusion good for bank stability international evidence abstract financial inclusion has become an important public policy priority following the recent global financial crisis yet we know very little of how it impacts soundness of the providers of financial services using an international sample of 2635 banks in 86 countries over the period 2004 12 we find that higher level of financial inclusion contributes to greater bank stability the positive association is particularly pronounced with those banks that have higher customer deposit funding share and lower marginal costs of providing banking services and also with those that operate in countries with stronger institutional quality the results are robust to instrumental variables analysis controlling for bank fixed effects alternative measures of financial inclusion among several other robustness tests our results highlight that the importance of ensuring inclusive financial system is not only a development goal but also an issue that should be prioritised by banks as such a policy drive is good for their stability

institutional framework and economic development international evidence this paper examines the effect of quality of the institutional framework on economic development our empirical results support the hypothesis that good institutions improve efficiency and accelerate growth the positive effect of institutional quality is more pronounced with mutually reinforcing support of economic freedom our results also indicate that good institutions help developing countries grow faster to achieve conditional convergence we infer from the results that economic development requires not only physical and human capital formation but also freedom to choose and institutional support

local financial development and growth using a unique sample of net domestic product data for districts in india i investigate the connection between banking sector development human capital and economic growth at the sub national level using disaggregate data avoids many of the omitted variable problems that plague cross country studies of the finance growth connection and facilitates an instrumentation strategy the findings show that the growth of many districts in india is financially constrained due to lack of banking sector development and that the relationship between finance and growth may be non linear for the districts in the sample moving from the 75th percentile of credit net domestic product to the 25th percentile implies an average loss of 4 percent in growth over the 1990s this indicates that the gains from increased banking sector outreach may be large the analysis shows that human capital deepening can reduce the effect of the financial constraint and help decouple growth from financial development in a district at the 25th literacy percentile the implied growth loss due to a constrained banking sector is twice as large as in a district at the 75th literacy percentile thus higher levels of human capital may activate alternative growth and production channels that are less finance intensive

asymmetric information in competitive bribery games abstract in this paper competitive bribery games with incomplete information about the nature of the potential bribee are considered given a common uniform cost distribution function we characterize the closed form nash equilibrium some properties of the equilibrium are derived therein

the monotonicity of individual and market demand this paper studies the monotonicity of individual and market demand with the aid of the indirect utility function we identify sufficient and in a sense necessary conditions on an agent s indirect utility which will guarantee that he has a monotonic demand function our conditions also point to a natural way of extending the result of hildenbrand 1983 hildenbrand showed that market demand is monontonic if the income distribution has a downward sloping density even though individual agents demand function might violate monotonicity using the indirect utility function we introduce a measure of violations of individual monotonicity that allows us to identify a larger class of density functions that will generate a monotonic market demand

periodograms on fiscal illusion discussing the cycle lengths of public finances in european countries in this article we study the duration of public finance cycles in 12 european countries since 1960 we applied periodogram techniques on the levels of fiscal illusion found for these established democracies and tested the statistical significance of the fourier frequency peaks our empirical efforts revealed that most of the cycles in these countries could be characterized as long term cycles approximately 30 years embodying subcycles of approximately 15 years these findings show that in addition to the commonly studied electoral cycles or real business cycles our democracies demonstrate extended public finance cycles that extend over various legislative tenures ruled by different political parties

globalisation institutional reforms and financial development in east asian economies this study investigates the dynamic effects of globalisation on institutions and financial development in east asian economies using panel data tests our empirical results demonstrate that globalisation has a significant influence on institutional quality and that institutional reforms in turn facilitate and support financial development in particular the development of the banking sector in east asia globalisation is also found to have a favourable direct impact on stock market development without passing through an institutional quality channel

demand for differentiated products discrete choice models and the characteristics approach we propose a specific characteristics framework in order to construct linkages between alternative conceptual approaches to modelling product differentiation first it is shown that a demand system which satisfies the gross substitutes property imposes specific requirements on the locations of products in particular the dimension of the characteristics space must be larger than or equal to the number of products minus one we then identify a method for casting a given demand system subject to certain restrictions into our characteristics framework this is illustrated for the logit probit and linear probability models of discrete choice theory finally we find a characteristics representation of the ces representative consumer

initial human capital or the rule of law what matters for the income convergence of poor countries the article analyses conditional convergence among the low income countries using a panel data framework covering the period 1960 to 2008 the estimation of conditional income convergence is based on the augmented solow model with system gmm technique for the dynamic panel data more importantly the article assesses the role of initial human capital stock and the rule of law in the income convergence of poor countries by considering further categorizations of the poor countries based on these two variables this is the first study on the comparative properties of human capital and the rule of law in the income convergence of poor countries utilizing a dynamic panel framework the full sample of low income countries does not show any evidence of conditional income convergence the categorizations on the basis of initial human capital stock do not alter the conclusion of no income convergence however the subsample of low income countries with a better rule of law exhibits positive evidence of convergen

governance infrastructure and us foreign direct investment this paper examines the statistical importance of governance infrastructure as a determinant of us foreign direct investment fdi in broad terms governance infrastructure represents attributes of legislation regulation and legal systems that condition freedom of transacting security of property rights and transparency of government and legal processes our econometric analysis uses a two stage estimation procedure in the first stage the probability that a country is an fdi recipient is estimated the results indicate that countries that fail to achieve a minimum threshold of effective governance are unlikely to receive any us fdi countries that receive no us fdi are typically countries that do not promote free and transparent markets that have ineffective governments and that often have legal systems that are not rooted in english common law in the second stage the analysis is restricted to those countries that did receive fdi flows the estimated equations focus on the determinants of the amount of fdi received given that a country is a recipient of us fdi governance infrastructure including the nature of the legal system is an important determinant of the amount received

global networks and domestic policy convergence a network explanation of policy changes national economies are embedded in complex networks such as trade capital flows and intergovernmental organizations igo s these globalization forces impose differential impacts on national economies depending on a country s network positions this article addresses the policy convergence divergence debate by focusing on how networks at the international level affect domestic fiscal monetary and regulatory policies the author presents two hypotheses first similarity in network positions induces convergence in domestic economic policies as a result of peer competitive pressure second proximity in network positions facilitates policy learning and emulation which result in policy convergence the empirical analysis applies a latent space model for relational dyadic data and indicates that position similarity in the network of exports induces convergence in fiscal and regulatory policies position similarity in the network of transnational portfolio investments induces convergence in fiscal policies and position proximity in igo networks is consistently associated with policy convergence in fiscal monetary and regulatory policies

heterogeneity biases distributional effects and aggregate consumption an empirical analysis using stratified microdata using stratified microdata from the canadian famex 78 86 surveys this paper investigates whether observed heterogeneity in marginal propensities to consume across strata actually hinders the aggregation process despite significant heterogeneity in marginal responses the divergences between aggregate predicted consumption and the predictions from a model that uses average strata responses are found to be small whenever the strata demands are approximatively linear at the mean and the commodity group considered is not a luxury good on the other hand some cross sectional estimates obtained by pooling the strata are shown to be contaminated by unwanted cross moments further the analysis reconciles the fact that while there exists significant heterogeneity in consumer demands the related distributional effects in the aggregate equation have not been found to be important

governance and growth a simple hypothesis explaining cross country differences in productivity growth cross country evidence shows that a subset of developing countries isgrowing very rapidly taking advantage of opportunities to catch up atthe same time that other developing countries are growing slowly we arguethat this is due to differences in the quality of governance inparticular we show that productivity growth is higher in better governedcountries

are financial development and corruption control substitutes in promoting growth abstract while financial development and corruption control have been studied extensively their interaction has not we develop a simple model in which low corruption and financial development both facilitate the undertaking of productive projects but act as substitutes in doing so the substitutability arises because corruption raises the need for liquidity and thus makes financial improvements more potent conversely financial underdevelopment makes corruption more onerous and thus raises the gains from reducing it we test this substitutability by predicting growth of countries and industries using measures of financial development lack of corruption and a key interaction term both approaches point to positive effects from improving either factor as well as to a substitutability between them the growth gain associated with moving from the 25th to the 75th percentile in one factor is 0 63 1 68 percentage points higher if the second factor is at the 25th percentile rather than the 75th the results show robustness to different measures of corruption and financial development and do not appear to be driven by outliers omitted variables or other theories of growth and convergence

inequality and institutions abstract this paper presents theory and evidence on the relationship between inequality and institutional quality we exhibit a model in which the two may dynamically reinforce each other and set to test this relationship with a broad array of institutional measures the double causality between institutional strength and a more equal distribution of income is empirically established using dynamic panel and linear feedback analysis

social fractionalization endogenous appropriation norms and economic development we investigate how social composition affects competitive and cooperative behaviour in a linear growth model without secure property rights if a society is homogeneous or highly fractionalized it is in the self interest of people to cooperate the first best allocation is enforced through trigger strategies and growth is independent from social structure if a society is polarized i e if it consists of a small number of groups the first best solution can turn out to be unenforceable and groups will follow an exploitative strategy in this case the rate of growth is monotonously decreasing in the degree of fractionalization

international business responses to institutional voids for nearly two decades scholars in international business and management have explored the implications of institutional voids for firm strategy and structure although institutional voids offer both opportunities and challenges they have largely been associated with firms efforts to avoid or mitigate institutional deficiencies and reduce the transaction costs associated with operating in settings subject to those institutional shortcomings the goal of this special issue is to advance scholarship on this topic by a exploring institutional voids that are new to the literature b providing a deeper assessment of the different ways in which firms respond to these voids and c utilizing diverse disciplines and theoretical approaches to do so in this introduction we first review and synthesize extant research on institutional voids tracking the evolution of institutional void scholarship since the inception of the concept khanna palepu journal of economic literature 45 2 331 372 1997 and providing our perspective on its contributions and limitations we then summarize the contributions of the articles included in this special issue in addition to identifying an array of institutional voids economic and social the articles highlight four different strategies for responding to them internalization substitution borrowing and signaling drawing on these we develop new insights on the implications of institutional voids for firm behavior we conclude with suggestions for future research

why not africa growth and welfare effects of secure property rights this paper presents the long run equilibrium and developmentdynamics in the neoclassical growth model and a simple modelof endogenous growth when property rights are absent theresults are compared to the outcome in a corresponding modelwith secure property rights the main findings are that thereexists a considerable gain in level and growth of consumptionfrom establishing secure property rights that economicperformance without property rights worsens with an increasingnumber of competing social groups and that the existence orabsence of property rights explains conditional convergence

timing of entry in international market an empirical study of u s fortune 500 firms in china this study attempts to explain the timing of entry of firms in international markets based on the existing literature we propose a framework that consists of firm specific factors industry market factors and host country factors empirical results based on the entry information of u s fortune 500 firms in china between 1979 and 1996 show that larger firms with greater level of internalization and scope economies are likely to enter this foreign market earlier in addition non equity modes competitors behavior in the product market and lower levels of country risk are significantly associated with early entry

global foreign direct investment flows the role of governance infrastructure abstract it is widely argued that a country s economic performance over time is determined to a great extent by its political institutional and legal environment we refer to these institutions and policies as the governance infrastructure of a country we utilize newly developed indices to examine the effects of governance infrastructure on both foreign direct investment fdi inflows and outflows for a broad sample of developed and developing countries over 1995 97 in addition we examine the role of other forms of infrastructure including human capital and the environment the results clearly indicate that governance infrastructure is an important determinant of both fdi inflows and outflows investments in governance infrastructure not only attract capital but also create the conditions under which domestic multinational corporations emerge and invest abroad it would appear that investments in governance infrastructure are subject to diminishing returns so that the benefits in terms of inflows are most pronounced for smaller and developing economies