aid dispersion measurement in principle and practice summary excessive dispersion of development assistance has been high on the paris agenda on aid effectiveness however there is no agreement in the existing literature on how aid dispersion should be measured and few studies of the extent of the problem we argue for using the theil index for both recipients and donors this relative inequality measure has a major advantage it allows for a perfect decomposition into variation between and within entities exploiting this property we can rank official donors and recipients not only in terms of the total spread but also assess the contributions of geographic and sectoral dispersion we provide a detailed picture of developments along various dimensions globally as well as for countries income groups and regions over 1998 13 we further distinguish between bilateral and multilateral donors consistent with other studies using more limited samples we find little effect of the paris agenda overall aid is more fragmented in sub saharan africa and in the poorest countries globally as well as for most donor and recipient countries between variation is the main driver of the spread lending support to the geographic concentration policies many donor countries have adopted bilateral aid has been somewhat more dispersed than multilateral aid and in both cases the large number of donors controlling similar shares of total funds is a major driver of the total spread the latter suggests that concentration could also be achieved through a reduction of the number of actors on the donor side of the aid industry a perspective that previous studies using other measures have been unable to capture

the interest rate management and sterilization hypotheses for the uk under fixed exchange rates this study uses the vector autoregressive var technique and granger s definition of causality to examine the interest rate management and sterilization hypotheses of uk for the period 1955 i to 1974 iv our findings show that neither the long term government bond yield nor long term treasury bill rate of uk can be considered as a policy determined variable since each is subject to feedback from uk and us monetary and income variables in regard to the sterilization hypothesis our results indicate that the uk domestic credit is an exogenous variable with respect to uk foreign reserves and interest rates this result supports the implication of the monetary approach to the balance of payments that there was no sterilization in the uk during the fixed exchange rate period

on the exclusion of assets from tests of the mean variance efficiency of the market portfolio this paper presents an analysis of the testability of the mean variance efficiency of a market index when the returns on some components of the index itself are not perfectly observable the results are basically not supportive of the notion that mean variance efficiency is testable on a subset of the assets bounding the market share of the missing asset and its expected return is not sufficient to produce a valid test when the variance of the missing asset is bounded and the amount of wealth that might be missing is small it is possible in principle to reject correctly the mean variance efficiency of a market index in his famous critique of the asset pricing theory tests roll 7 concludes that the only testable hypothesis associated with the generalized two parameter asset pricing model of black 1 is that the market portfolio is mean variance efficient it has been emphasized by ross 10 and roll 7 that the mean variance efficiency of the market portfolio is mathematically equivalent to a positive linear relation between expected returns and the betas calculated against such a portfolio roll 7 deduces that the theory capm is not testable unless the exact composition of the market portfolio is known and used in the tests this implies that the theory is not testable unless all individual assets are included in the sample errors of type one or two might occur when a market proxy is used instead of the true market portfolio even if the ex ante true expected returns and the covariance variance matrix of the returns on all the assets are used these errors are the result of the choice of the portfolio and as roll puts it even a small misspecification of the proxy s composition can lead to the wrong conclusion the market proxy might be mean variance efficient while the true market portfolio is not and vice versa in principle however there are cases in which the above two conditions are not both necessary to reject the theory one such exception presented by roll 7 is the case in which no totally positive portfolio is efficient if any totally positive market proxy is used a large sample would reject the null hypothesis unambiguously while the market portfolio identification problem constitutes a severe limitation to the testability of the theory the question of the mean variance efficiency of a particular market index with respect to a subset of assets is a typical problem of statistical inference the mean variance efficiency can be tested directly or by

mimicking portfolios and exact arbitrage pricing we characterize the sets of mimicking positions with returns that can serve in place of factors in an exact k factor arbitrage pricing relation for a set of n assets all of the sets are k dimensional nonsingular linear transformations of each other we interpret three examples of such transformations and discuss empirical considerations we provide conditions under which the mimicking positions can be expressed as portfolios and we characterize the relation between mimicking portfolios and the minimumvariance frontier

forward exchange bias hedging and the gains from international diversification of investment portfolios abstract the gains to the us investor from international diversification of investment portfolios are examined for portfolio strategies that hedge and strategies that do not hedge exchange rate risk via the interbank forward market using the sharpe performance index and stochastic dominance as performance measures almost all the unhedged strategies outperformed the hedged strategies for 1985 1988 the opposite held for 1981 1984 the results are explained by the biasedness of forward rates in predicting future spot rates jel f30

when is foreign aid policy credible aid dependence and conditionality the author studies foreign aid policy within a principal agent framework he shows that one reason for foreign aid s poor overall record may be a moral hazard problem that shapes the aid recipient s incentive to undertake structural reform the model s basic prediction is a two way relationship disbursements of foreign aid are guided in part by the needs of the poor anticipating this recipients have little incentive to improve the welfare of the poor preliminary econometric work shows that the data support this hypothesis in principle conditionality could partly solve this problem but only if the donor can make a binding commitment to increase disbursements in good relative to bad states without such a commitment technology aid disbursements remain guided by the needs of the poor and recipient countries maintain a low effort to reduce poverty contrary to the conventional wisdom found in the aid literature the author shows that the welfare of all parties might be improved by using tied project aid or by delegating part of the aid budget to an international agency with less aversion to poverty

using generalized method of moments to test mean variance efficiency this paper develops tests of unconditional mean variance efflciency under weak distributional assumptions using a generalized method of moments framework these tests are potentially more robust than commonly employed tests which rely on the assumption that asset returns are normally distributed and temporarily i i d using returns for size based portfolios from 1926 to 1988 we show that the conclusion concerning the mean variance effilciency of market indexes can be sensitive to the test considered the application of multivariate statistical techniques in financial economics has become common practice in recent years much of the development has been in the area of testing asset pricing models the assumption that asset returns follow a time invariant multivariate normal distribution permits tests of restrictions on model parameters in a pooled time series cross section framework these tests can be interpreted as tests of the mean variance efficiency of a portfolio or combination of portfolios gibbons 1982 jobson and korkie 1982 stambaugh 1982 shanken 1985 1987 kandel and stambaugh 1987 mackinlay 1987 and gibbons ross and shanken 1989 are examples of work presenting multivariate tests of the capital asset pricing model connor and korajczyk 1988 and lehmann and modest 1988 present multivariate tests of the arbitrage pricing model breeden gibbons and litzenberger 1989 present multivariate tests of the consumption based capm although these papers assume the normality of asset returns little analysis has been conducted to understand the sensitivity of the inferences to violations of this assumption 2 3

choosing to target what types of countries get different types of world bank projects well governed countries are more likely to make use of foreign aid for the purposes of economic development and poverty alleviation therefore if aid agencies are providing funds for the sake of development these countries should receive more aid and categorically different types of aid as compared with poorly governed countries in poorly governed countries aid should be given in forms that allow for less discretion using an original data set of all world bank projects from 1996 to 2002 the author distinguishes programmatic projects from investment projects and national from subnational investment projects if the world bank allows more discretion in well governed countries then it will choose to provide programmatic and national aid for these recipients the author presents evidence that the world bank provides a larger proportion of national investment lending in better governed countries with regard to programmatic lending he finds mixed evidence among counties eligible for international development association ida aid good governance surprisingly is associated with a lower proportion of programmatic aid whereas for international bank for reconstruction and development ibrd borrowers good governance is associated with a higher proportion the author subjects these results to a number of robustness checks although he confirms the existing result in the literature that the world bank provides larger overall amounts of aid to better governed countries his examination of the disaggregated data leads to questioning whether both lending wings of the world bank are designing aid programs in the most prodevelopment way possible

can process conditionality enhance aid effectiveness the role of bureaucratic interest and public pressure can process conditionality enhance poverty reduction in developing countries we address this question in a political economic framework with political distortions on the recipient and the donor side process conditionality is a useful tool only if the international financial institutions hold all necessary information to assess the political situation in recipient countries and to select the true representatives of the poor into a participatory process if they do not hold this information or if bureaucratic interests reduce their incentive to acquire this information process conditionality loses its effectiveness

the governance of non governmental organizations in uganda summary using original survey data we document the activities resources and governance structure of ngos operating in uganda the ngo sector is funded primarily by international non governmental organizations and bilateral donors we find large differences in size and funding across ngos with only a few ngos attracting most of the funding most ngos are small and underfunded and focus on raising awareness and advocacy few ngos are faith based most screening and monitoring is done by grant agencies some monitoring is also done internally by members and trustees little monitoring is done by government ngos do not file income tax returns and few respondents are able to provide coherent financial accounts

samaritan agents on the strategic delegation of aid policy abstract should a donor delegate the responsibility for allocating its aid budget to a less inequality averse agent to alleviate the consequences of the samaritan s dilemma it is facing i show that when aid impact differs across recipients the optimal type of agent depends on whether or not committing to a greater share for countries where the productivity of aid is low raises the combined domestic incomes of recipients this is the case for donors too concerned with efficiency ex post they therefore delegate the decision on the discretionary aid allocation rule to agents more sensitive to distributional issues than themselves

international coordination and the effectiveness of aid this paper discusses and seeks to quantify the effects of improved donor coordination on aid effectiveness empirical estimates are first provided of the reductions in transaction costs that can be achieved by better donor coordination via concentration to fewer partner countries and a shift from project aid to programme based approaches further estimates are presented showing how much could be gained in terms of poverty reduction by optimizing aid allocation across countries the potential gains of a coordinated reallocation would be huge but there are severe political implementation constraints still the overall conclusion of the paper is that there are huge potential gains from donor coordination

a panel data analysis of the fungibility of foreign aid the donor community has been increasingly concerned that development assistance intended for crucial social and economic sectors might be used directly or indirectly to fund unproductive military and other expenditures the link between foreign aid and public spending is not straightforward because some aid may be fungible this article empirically examines the impact of foreign aid on the recipient s public expenditures using cross country samples of annual observations for 1971 90 for the base sample of 14 developing countries it finds that aid is not fungible at the aggregate level and there is no associated tax relief increasing the number of countries however makes aid fungible moreover results based on the main sample indicate that aid is fungible in three out of five sectors examined developing country governments receiving earmarked concessionary loans for agriculture education and energy reduce their own resources going to these sectors and use them elsewhere only loans to the transport and communication sector are fully spent on the purposes intended by donors because most aid appears to be fungible the rate of return on a specific donor funded project tells little about the impact of that assistance a better approach may be to tie foreign aid to an overall public expenditure program that provides adequate resources to crucial sectors

money income and sterilization tests for causality in the oil economy of kuwait the purpose of this investigation is to provide some evidence on two widely held hypotheses dominating monetary analysis in the small oil economy of kuwait and other gulf states the first posits that causality should run from money to income while the second emphasizes the neutral impact of external transactions on the domestic money supply

the origins of state capacity property rights taxation and politics economists generally assume that the state has sufficient institutional capacity to support markets and levy taxes this paper develops a framework where policy choices in market regulation and taxation are constrained by past investments in legal and fiscal capacity it studies the economic and political determinants of such investments demonstrating that legal and fiscal capacity are typically complements the results show that among other things common interest public goods such as fighting external wars as well as political stability and inclusive political institutions are conducive to building state capacity some correlations in cross country data are consistent with the theory

on the jensen measure and marginal improvements in portfolio performance a note the marginal performance contribution made by new assets in a portfolio is identified the maximum change in a portfolio s sharpe performance from the addition of new assets is a simple function of a generalized jensen index and the unexplained covariances from a multivariate market model deviations from a higher dimension market line may be used to rank the desirability of asset additions to an existing portfolio statistical tests for the equality of the performance contributions by new assets is possible the portfolio performance measures of treynor 11 and jensen 12 are based on the systematic or beta measure of risk when originally developed it was advocated that these measures of performance were useful for comparing and ranking performances of various portfolios after many years of use in this area it was demonstrated by roll 7 and ross 8 that it is theoretically inappropriate to use these performance measures for this purpose since differences in portfolios performance indicate only inefficiency in the index used for the computation of beta dybvig and ross 1 subsequently proved that a portfolio can be improved by adding or shorting a small investment in another asset if the asset lies above or below the security market line a potentially important use of the market line was therefore preserved the purpose of this note is the development of a procedure which identifies the exact performance contribution made by one or more assets when they enter the investor s optimal portfolio of assets it is demonstrated that the change in squared sharpe 10 performance is a simple function of a generalized jensen index and the unexplained covariances from a multivariate market model new assets may be ranked according to the magnitude of their performance contribution the improvements in a portfolio are easily computable from the same linear regression employed to calculate an asset s jensen measure thus the appeal of the security market line as a useful financial tool may be preserved the first section briefly establishes the efficient set algebra required to develop the marginal contribution made by new assets in a portfolio section ii presents the performance contribution dependent on the number of new assets and whether partial or full optimal adjustment of the portfolio weights are permitted section iii concludes the note

motivations to remit evidence from botswana in this article a theory of motivations to send remittances is described and tested with data from botswana altruism is one of the motivations tested and found to be an insufficient explanation for remittances among migrants in botswana a refinement of the model stipulates a modified altruism or enlightened self interest in this model the relationship between the migrant and family is tempered by an implicit understanding of mutual benefit the household strategy may be to encourage some members to migrate as a means of spreading risk and sharing gains the household strategy is similar to an insurance policy where migration is to places where market potential is high the risks incurred might be high the example is given of migration during a drought in botswana migrant remittances were greater in households with more cattle or households with more to lose drought alone was not statistically related to remittances increases in remittances were related to increased levels of education it is suggested that repayment was the motive for parents investment in migrants education migrants gains are identified as the potential for an inheritance the security of channeling investments through a trusted family member and security in having a home to return to it is pointed out that the altruism and family remittances from urban migration were strategies that bridged the simple dynamic of either urban development or rural development impacting on family welfare it is suggested that household models of economy adopt some measure to express the relationship of household wealth to remittances from urban migrants

monetary interdependence among g 3 countries this paper uses vector autoregressions to investigate the interdependence of the monetary policies of the central banks of germany japan and the united states granger sims causalities and innovation accounting mechanisms suggest that tri lateral linkages are strong and complex the results imply that the influence of foreign central banks policies limit each central bank s capacity to determine an independent domestic policy

why conditional aid does not work and what can be done about it abstract this paper studies a simple reform that introduces ex post incentives for the donor to reward good policies contrary to existing practices instead of committing aid to each recipient ex ante and making aid conditional on reform the donor centralizes the disbursement decision by committing aid to a group of countries the actual amount disbursed to each individual country would depend on its relative performance this explicit linkage of the allocation and disbursement decisions has two important advantages as compared to present practices first it raises the opportunity cost of disbursing aid ex post thereby giving the donor stronger incentives to reward good policies second competition among recipients allows the donor to make inferences about common shocks which otherwise conceal the recipient s choice of action this enables the donor to give aid more efficiently

budget support versus project aid a theoretical appraisal should donors interested in the effectiveness of developmental programmes rely on conditional budget support or on project aid to answer this question we present a model in which only a subset of developmental expenditures can be subject to conditionality we show that budget support is preferable to project aid when the preferences of donors and recipients are aligned and when assistance is small relative to the recipients own resources furthermore when donors cannot observe the recipient s type they may impose higher levels of conditionality to separate committed governments from uncommitted ones

debt relief for poor countries conditionality and effectiveness this paper studies the effectiveness of debt relief to stimulate economic growth in the most heavily indebted poor countries we develop a neoclassical framework with a conflict of interest between the altruistic donor and the recipient government and model conditionality as an imperfectly enforceable dynamic contract in contrast to the recent practice of fully cancelling debt optimal incentive compatible conditionality is accompanied by a concessionality level that implies a combination of subsidized loans and outright grants the optimal concessionality level depends on the recipient s access to international financial markets and on the strength of the conflict of interest incentive compatible transfers with optimal concessionality levels generate substantial welfare gains if the donor does not implement the optimal concessionality level and provides subsidized loans only then the effectiveness of transfers decreases in the long run with severe welfare implications in contrast transfers are less effective in the short run if the donor offers outright grants only

cross holdings estimation issues biases and distortions cross holding occurs when listed corporations own securities issued by other corporations we analyze the effect of cross holdings on market capitalization and return measures as well as implications for econometric testing of asset pricing theories we show that cross holdings generally distort standard market return and risk measures the magnitudes of such distortions are calculated for simulated economies by using a variety of crossholding patterns in addition cross holdings are shown to induce nonstationarity in the covariance matrix of security returns we examine the effect of this nonstationarity for estimating efficient frontiers and factor structures we also discuss the implications for risk return estimates in equilibrium asset pricing models article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

potential performance and tests of portfolio efficiency abstract the potential performance of an asset set may be obtained by choosing the portfolio proportions to maximize the sharpe 1966 performance measure if a portfolio has a sharpe measure equivalent to the potential performance of the underlying set of assets then it is efficient multivariate statistical procedures for comparing potential performance and testing portfolio efficiency are developed and then evaluated using simulations two likelihood ratio statistics are then used to compare stock and bond indices against sets of 20 and 40 portfolios the procedures are also compared to the gibbons 1982 methodology for testing financial models

the dynamics of incentive contracts the paper studies a simple two period principal agent model in which the principal updates the incentive scheme after observing the agent s first period performance the agent has superior information about his ability the principal offers a first period incentive scheme and observes some measure of the agent s first period performance cost or profit which depends on the agent s ability and unobservable first period effort the relationship is entirely run by short term contracts in the second period the principal updates the incentive scheme and the agent is free to accept the new incentive scheme or to quit the strategies are required to be perfect and updating of the principal s beliefs about the agent s ability follows bayes rule the central theme of the paper is that the ratchet effect leads to much pooling in the first period first for any first period incentive scheme there exists no separating equilibrium second when the uncertainty about the agent s ability is small the optimal scheme must involve a large amount of pooling the paper also gives necessary and sufficient conditions for the existence of partition equilibria and looks at the effect of cost uncertainty

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

trade preferences to small developing countries and the welfare costs of lost multilateral liberalization the proliferation of preferential trade liberalization over the past 20 years has raised the question of whether it slows down multilateral trade liberalization recent theoretical and empirical evidence indicates this is the case even for unilateral preferences that industrial countries provide to small and poor countries but there is no estimate of the resulting welfare costs to avoid this stumbling block effect the authors suggest replacing unilateral preferences by a fixed import subsidy they argue that this scheme would reduce the drag of preferences on multilateral liberalization and generate a pareto improvement more important the authors provide the first estimates of the welfare cost of preferential liberalization as a stumbling block to multilateral liberalization by combining recent estimates of the stumbling block effect of preferences with data for 170 countries and over 5 000 products they calculate the welfare effects of the united states european union and japan switching from unilateral preferences to the developing countries to the import subsidy scheme even in a model with no dynamic gains to trade the authors find that the switch produces an annual net welfare gain for the 170 countries 4 354 million and for each group the united states european union and japan 2 934 million the developing countries 520 million and the rest of the world 900 million

effectiveness of selective credit policies alternative framework of evaluation abstract consequent upon the general criticisms of the conventional approaches used in evaluating the effectiveness of selective credit controls we have suggested other approaches the most emphasized of these is then applied to quarterly data for nigeria over the period 1970 i to 1983 ii the focus is on the selective credit controls on export supply import demand manufacturing production and mining production the controls are found to be effective in influencing only manufacturing production

suicide bombing as inter generational investment a simple model of terrorism is presented where the current generation is linked to the next one by some altruism as in standard dynastic family models bombing today some target increases the probability of the benefit of some public good accruing to the next generation the model is used to discuss the fact that suicide bombers of the hezbollah in particular have been found by krueger and maleckova 2002 to come disproportionately from wealthy families and have an above average education level while the latter could be expected to increase the opportunity cost of investing in such a suicide it is suggested that it probably increases also the sensitivity to the future generation s welfare the latter effect might offset the deterrent effect of the former

international investment restrictions and closed end country fund prices some closed end country funds trade at large premiums relative to their net asset values this paper examines whether international investment restrictions raise country fund price net asset value ratios by segmenting international capital markets we test whether a relation exists between announcements of changes in investment restrictions and changes in these ratios using weekly data from may 1981 to january 1989 the results provide evidence that some foreign markets are at least partially segmented from the u s capital market

an examination of the empirical relationship between the dividend and investment decisions a note this paper empirically examines the separation principle which asserts that investment decisions are not influenced by dividend decisions existing empirical evidence on this proposition is inconclusive in this paper we employ causality tests to examine whether investment decisions are in fact statistically exogenous with respect to dividend decisions these tests are undertaken using both firm specific and aggregate data the results indicate no causal relationship from dividends to investment which provides support for the separation principle as an empirical proposition miller and modigliani 12 m m have demonstrated that in perfect capital markets the value of a firm is independent of the way the firm chooses to finance its investments one implication of this theorem is that investment decisions should not be influenced by dividend decisions although dividend decisions may or may not be influenced by investment decisions fama and miller 6 chapter 4 term this result the separation principle although extant capital markets are not perfect the validity of the separation principle as an empirical proposition has some natural appeal the empirical evidence on the subject is limited two of the better known studies dhrymes and kurz 4 and fama 5 use two stage least squares to estimate explicit models of the dividend and investment decisions dhrymes and kurz find that dividend investment decisions affect investment dividend decisions while fama concludes that no significant relationship exists between the two decisions fama suggests that the difference in results arises because dhrymes and kurz omitted certain lagged variables constrained the parameters of the dividend and investment models to be equal for all firms and chose inappropriate deflators fama admits however that his own results may be influenced by sampling errors that obscure the true relationship between dividends and investment thus the existing empirical evidence must be considered inconclusive

the roles of foreign aid and education in the war on terror this paper presents a theoretical framework and some empirical results showing that the level of foreign aid received reduces the supply of terrorist attacks by recipient countries as does the recipient country s level of education due account is taken of endogeneity problems in producing these results they suggest that western democracies which are the main targets of terrorist attacks should invest more funds in foreign aid with a special emphasis on supporting education

an empirical analysis of the stock price volume relationship abstract this paper investigates the empirical relationship between absolute stock price changes and trading volume in the stock market using granger causality tests we find that there is a significant causal relationship between absolute price changes and volume at the firm level and that this relationship is stronger in periods surrounding earnings announcements we view this as suggesting that information arrival follows a sequential rather than a simultaneous process although the results do not support an extreme version of either information arrival model

aid fragmentation and effectiveness what do we really know summary aid fragmentation is widely recognized as being detrimental to development outcomes we reinvestigate the impact of fragmentation in the context of growth bureaucratic policy and education focusing on a number of conceptually different indicators of fragmentation and paying attention to potentially heterogeneous effects across countries sectors and channels of influence our systematic and detailed reexamination of existing empirical studies shows that this differentiation is crucial in some sectors such as primary education donor concentration or limiting donor numbers appear to be detrimental rather than beneficial for development outcomes in other areas we find the expected negative effect but only when we conceptualize fragmentation as a lack of lead donors too limited concentration rather than in terms of donor numbers in all cases sufficient initial administrative capacity in recipient countries prevents the negative and reinforces the positive effects of fragmentation this stresses the importance of questioning the sweeping conclusions drawn by much of the previous literature based on what we currently know generalizing judgments about the effect of aid fragmentation may be misleading

money income and causality in the united kingdom an empirical reexamination since the reduced form econometric exercises of friedman and meiselman 2 considerable research has been undertaken to determine the nature of the relationship running from money to income as well as the importance of reverse causation from income to money using an empirically testable defintion of causality proposed by granger 4 sims 7 developed an econometric technique to test for unidirectional causality in a two variable system in an application to u s nominal gnp and money data from 1949 iii to 1968 iv he reported that the main empirical finding is that the hypothesis that causality is unidirectional from money to income agrees with the postwar u s data whereas the hypothesis that causality is unidirectional from income to money is rejected 7 p 540 to examine the generality of sims s results williams goodhart and gowland 8 w g g undertook a similar study using u k data from 1958 i to 1971 iii a period when the bretton woods fixed exchange rate system prevailed they found that neither the causal relationship from money to income nor reverse causality from

political conditionality and foreign aid this article argues that a new generation of political conditionalities has emerged during the last decade this requires an expansion of the original definition and research agenda beyond the traditional questions of use and effectiveness however there is also a need to dig deeper into the dynamics surrounding political conditionalities particularly the bargaining processes and outcomes along the aid chain from domestic donor politics donor harmonization fora policy dialog spaces to the political economy of recipient institutional reform and donor coping strategies because they influence the set up use follow up purpose and effectiveness of pcs

omitted variables in equations relating prices to money this paper considers some of the conditions under which an estimated reduced form equation relating retail prices solely to past values of sterling m3 would provide a reliable guide to the past relationship between these two variables the equation does not appear to be biased by innovations in real output however when overseas variables are included in the reduced form the estimated relationship between money an prices chages significantly this suggests that the estimated parameters in a price equation based on money alone suffer form omitted variable bias

the theory of moral hazard and unobservable behaviour part i principal agent models are studied in which outcomes conditional on the agent s action are uncertain and the agent s behaviour therefore unobservable for a model with bounded agent s utility conditions are given under which the first best equilibrium can be approximated arbitrarily closely by contracts relating payment to observable outcomes for general models it is shown that the solution may not always be obtained by using the agent s first order conditions as constraint general conditions of lagrangean type are given for problems in which contracts are finite dimensional 1 the moral hazard situation

gradualism in aid and reforms abstract dynamic strategic interaction between an international donor and a recipient government is analyzed to review the efficacy of aid conditionality for governance reforms in ldcs it is shown that irrespective of whether the donor can fully commit to the aid program or not for maximal improvement in governance the aid should be disbursed in increments with each subsequent tranche being conditional on prior reforms demonstrating aid gradualism while the attraction of future aid incentivizes authorities to push through reforms these reforms in turn also make aid diversion less feasible further under full commitment the optimal aid package may involve offering scope for interim aid diversion to the elite for long term improvement in governance with such aid diversion being more likely to happen when the total aid budget is large with only partial commitment so that time consistency requires the donor to reconfigure aid in each round it is shown that a interim aid diversion is no longer viable and b both aid and reforms exhibit strong gradualism or what is known as the starting small and grow later principle in commitment models

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

block holding and keiretsu in japan the effects of capital markets liberalization measures on the stock market abstract long term block holding among large industrial corporations and financial institutions is prevalent in japan little is known about the implications of such business practice on portfolio returns we document the portfolio relationships of parent firms sub firms and specific industry portfolios and we hypothesize that these relationships have changed substantially in japan using certain measures for evaluating portfolios and mean variance spanning we test the hypothesis our empirical results suggest that market efficiency and integration of the japanese stock market may have been greatly enhanced by the japanese government s capital markets liberalization measures implemented in the 1970s and early 1980s

contracting for aid abstract foreign aid is analyzed as a contract where the north gives a transfer to the south in return for poverty reduction regarded as an international public good the issue of conditionality is first discussed in a moral hazard framework and then under asymmetric information about the degree of altruism of the government of the south additional actors like local ngos and multilateral aid institutions are then added to the model the optimal contracts to avoid free riding or collusion are then presented