the world bank global keynesianism and the distribution of the gains from growth sir hans singer whom this volume celebrates was a pupil of john maynard keynes at cambridge and in 1945 attended the bretton woods negotiations at which keynes and others designed the institutions which now seek to regulate and stimulate the international economy the world bank the imf and the gatt sir hans has provided ever since that time frequent creative suggestions concerning the way in which all of those institutions separately and in relation to the un system should set about the task of global economic governance with a particular flurry of activity around 1994 5 when the bretton woods institutions celebrated their half century by this time of course the bretton woods institutions had departed from their original articles of agreement and implicated the world bank progressively more deeply in policy based programme lending alongside its original project lending functions this paper attempts a little belatedly to take up some of the concerns aroused by that flurry of activity with particular reference to the world bank which keynes as we saw above saw as having the principal stimulative and entrepreneurial role the concerns have been expressed by sir hans in the following way the shift to programme lending and policy conditionality tied in with three other developments first the withering away of the development functions of the un created a gap into which it was tempting and easy for the world bank to move together with the imf second the debt crisis of the 1980s made the developing countries pliant in accepting conditionality pressures from the bretton woods institutions third in the process of replacing the un as a focus of development policy guidance and in line with trends in the major industrial countries the world bank developed again together with the imf a new washington consensus emphasising government failures market orientation liberalisation privatisation etc now the purpose of this is i am using the language of the imf and world bank now to cut down today but in doing so lay the foundations for subsequent sustainable growth now the fact is that if you cut down today it is just as likely that if you cut investment today that does not lay the foundations for subsequent growth that does exactly the opposite the imf are quite fond of illustrating their policy with the french proverb reculer pour mieux sauter the trouble is that what we have today is that in all too many cases the developing countries stand on the edge of an abyss and therefore by stepping back they don t gain manoeuvring space for moving forward but they fall into the abyss singer 1995 p 469 and 1994 p 55

aid for the poorest some early lessons of uk experience the paper presents an interim review of recent attempts to reach the poorest people in developing countries through aid policy from the viewpoint of one donor the united kingdom it concludes that the uk has achieved a modest increase in the proportion of aid aimed at the poorest between 1974 and 1979 that poverty focused projects are in general more local cost intensive and have lower rates of return than others and that the principal difficulties in the way of successful implementation of poverty focused projects are excessive size an over rapid rate of disbursement inadequate local cost provisions and failure to specify the target group or the repayment strategy with sufficient precision it is argued that there are political obstacles to removing the second and third of these obstacles in donor countries and to removing the fourth in recipient countries also

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

irving fisher on the international transmission of booms and depressions through monetary standards the role of monetary standards in the international transmission of economic fluctuations particularly the role of the gold standard in the depression has attracted considerable recent attention for instance from choudhri and kochin 1980 hamilton 1988 temin 1989 1993 eichengreen 1992 and bernanke 1995 however this literature has overlooked a pioneering precursor irving fisher are booms and depressions transmitted internationally through monetary standards 1935 which has also been neglected in the literature on fisher i examine fisher s contribution in the context of later research on the topic and explore the place of fisher 1935 in fisher s work

could a global marshall plan be successful an investigation using the weep simulation model abstract using the weep simulation model world economic equalization program this research examines the potential impact of a very large scale foreign development assistance program a global marshall plan on the future development of the world economy the benchmark simulations of the model indicate a dramatic reduction in world economic inequality at the cost of a very minor retardation in the economic growth of the rich countries sensitivity analysis demonstrates that with certain key exceptions these optimistic results are reasonably robust against parametric variation

do elites benefit from democracy and foreign aid in developing countries abstract a popular argument for the absence of any beneficial effects of foreign aid is that it is skimmed by political elites in recipient countries however studies also suggest that aid may be more effective in relatively democratic developing countries by exploring data on income quintiles derived from the world income inequality database for 88 developing countries a set of results indicate that foreign aid and democracy in conjunction are associated with a higher share of income held by the upper quintile it thus appears that foreign aid contrary to popular beliefs leads to a more skewed income distribution in democratic developing countries while the effects are negligible in autocratic countries the paper closes with a discussion of potential mechanisms generating this perverse effect

public sector wages and bureaucratic quality evidence from latin america the purpose of this paper is to present evidence on public private wage differential for a sample of latin american countries and to discuss the relationship between public private wage differentials and bureaucratic quality in the region the paper starts by estimating public private wage differentials for a sample of 17 latin american countries covering 88 percent of the population of the region next the paper looks at the relationship between bureaucratic quality and public private wage differentials and finds that while there is no correlation between average public sector wages and bureaucratic quality there is a positive correlation between bureaucratic quality and the degree

the role of the desire for union status in the decision to enter local government job queues the us evidence following a two stage bivariate probit approach this study estimates local government and union job queues in a simultaneous equations framework by relaxing the restrictive assumption of independence between the worker s queuing and the employer s hiring decisions it overcomes a major limitation of most of the earlier job queue estimates the results indicate that the worker s queuing decision for local government jobs in the united states is determined partly by the desire for unionized employment the converse however is not true seniority with the current employer emerges as a significant determinant of both workers queuing and employers hiring decisions furthermore local governments act as model employers by being more likely to hire minorities and females from the pool of job applicants

why federal workers don t quit quit rates in the federal government are abnormally low some economists and the federal government itself have taken this to mean that federal wages are too high this paper provides an alternative explanation it shows that the timing of compensation across a career as well as its level affect quit rates pensions in particular impose large penalties on workers who quit early and the portion of federal pay in the form of pensions is very high this feature of the federal pay structure may explain its abnormally low quit rate as a general proposition quit rates are poor indices for judging pay adequacy

foreign aid and fiscal governance in melanesia summary recent research suggests that foreign aid is effective at spurring economic growth in recipient countries but its effectiveness is likely to depend upon a number of factors arguably the most important factor determining aid effectiveness is how recipient governments mediate foreign aid inflows this paper investigates this issue for the melanesian countries of fiji papua new guinea the solomon islands and vanuatu for the period 1989 2002 results suggest that foreign aid has led to increases in developmental expenditures and to falls in tax revenues and borrowing results also suggest a very different response to aid grants versus loans

foreign aid taxes and public investment abstract using time series data for india we test the foreign aid public investment hypothesis behavioral equations derived from a maximizing framework are estimated after correcting for econometric and data inadequacies of earlier models the results confirm earlier findings regarding the negative relationship between taxes and government investment in the presence of aid however in contrast to the earlier work we find that grants and loans generally go into development projects with no leakages into consumption moreover bilateral aid actually pulls resources out of consumption and puts them into development projects

the impact of milton friedman on modern monetary economics setting the record straight on paul krugman s who was milton friedman abstract paul krugman s essay who was milton friedman seriously mischaracterizes friedman s economics and his legacy in this paper we provide a rejoinder to krugman on these issues in the course of setting the record straight we provide a self contained guide to milton friedman s impact on modern monetary economics and on today s central banks we also refute the conclusions that krugman draws about monetary policy from the experiences of the united states in the 1930s and of japan in the 1990s

does foreign aid increase private investment evidence from panel cointegration this article uses panel cointegration and causality techniques to examine the long run relationship between foreign aid and private investment our main result is that aid has a statistically significant negative effect on private investment this result is robust to outliers different measures and forms of aid sample selection and the sample period in addition we find that long run causality runs in both directions suggesting that an increase in aid reduces private investment and that in turn higher private investment leads to lower aid inflows

two who called the great depression an initial formulation of the monetary origins view the consensus view in the economics profession today is that the genesis of the great depression was the tightening of policy by the fed in 1928 and 1929 mainly to stem the stock market boom nevertheless monetary historians have not provided evidence that any economist writing prior to the stock market crash of october 1929 foresaw that the fed s actions would lead to a major depression this paper shows that two economists william foster and waddill catchings co authored a paper in july 1929 containing arguments strikingly similar to the present consensus view their critique of fed policy supports the view that the genesis of the great depression had monetary origins and was preventable

changes in the cyclical sensitivity of wages in the united states 1891 1987 the conventional wisdom that nominal wages became less sensitive to the business cycle and more autocorrelated after world war ii is reexamined here by considering whether these properties are artifacts of the methods used to construct prewar wage series a replication based on these methods is more cyclically sensitive and exhibits less autocorrelation than the postwar data aggregation using variable instead of fixed employment weights also greatly exaggerates the cyclicality of prewar wages these biases imply that wages are just as sensitive to the cycle today as one hundred years ago perhaps even more so copyright 1992 by american economic association

the economics of development a survey i the subject our definition of the subject will be the use of economic analysis to understand the economies of poor or developing countries this includes in particular how standards of living in the population are determined and how they change over time and further how policy can or should be used in the influence of these processes the definition contains in principle much or most of analytical methods in economics insofar as they can be put to use in the examination of the issues of interest this is as it should be but it poses a problem for a survey in a journal a comprehensive treatment is infeasible so we shall follow a different route the survey will focus on what i take to be the major themes and approaches which characterise the productive aspects of the subject there is therefore no pretence at being exhaustive the purpose is rather to highlight some of the advances many of these have been of real substance there are a number of possible purposes for a survey and it is important to be clear at the outset for whom it is intended what it is and what it is not this survey is addressed to economists and students of economics who know the tools of their trade but not necessarily how they have been applied to and fashioned for the analysis of the economics of developing countries it is a description of the ways in which problems can be productively formulated and approached in terms of examples chosen for their intrinsic importance and interest the vastness of the subject means that we have to be highly selective it does not seek to provide a summary evaluation of the current view of the appropriate response to immediate policy questions it is not a history of thought nor a research manifesto nor an attempt to adjudicate or settle the major debates where they arise naturally from the major purpose some judgements on these subjects will be offered but they do not themselves constitute the primary intent of this survey there are three lines of enquiry or sets of questions which have i suggest been distinctive of the most fruitful work in development economics they will

effects of stabex on acps economic growth further evidence the paper deals with the economic growth of the open and small developing countries which signed the lome convention henceforth acps results showing that earnings instability damages their economic performance can be used to support the eu policy of guaranteeing financial aid to those countries suffering reductions in export proceeds the second section of the paper analysing the workings of stabex however highlights certain weaknesses in the effectiveness of stabex transfers when their impact on economic growth is considered the general conclusion is that if the current eu acp negotiations for lome v are to be successful then some aspects of the scheme eligibility criteria and use of funds will have to be radically changed

reinventing foreign aid for inclusive and sustainable development kuznets piketty and the great policy reversal this survey essay reviews over 200 papers in arguing that in order to achieve sustainable and inclusive development foreign aid should not orient developing countries towards industrialisation in the perspective of kuznets but in the view of piketty abandoning the former s view that inequality will fall with progress in industrialisation and placing more emphasis on inequality in foreign aid policy will lead to more sustainable development outcomes inter alia mitigate short term poverty address concerns of burgeoning population growth train recipient governments on inclusive development fight corruption and mismanagement and avoid the shortfalls of celebrated kuznets conjectures we discuss how the essay addresses post 2015 development challenges and provide foreign aid policy instruments with which discussed objectives can be achieved in summary the essay provides useful policy measures to avoid past pitfalls output may be growing and yet the mass of the people may be becoming poorer lewis 1955 lewis led all developing countries to water proverbially speaking some african countries have so far chosen not to drink amavilah 2014 piketty 2014 has led all developing countries to the stream again and a challenging policy syndrome of our time is how foreign aid can help them to drink

introduction aid and development the debate on the impact of aid on the economies of developing countries is a rapidly evolving one early studies by e g papanek 1972 reported a positive impact of aid on growth within a multiple regression context this conclusion allowed policy makers to entertain the possibility that poverty across the world could be largely eradicated that countries could be moved out of poverty through the allocation of aid and that the following of successful policies would allow them to generate increased prosperity from their own resources unfortunately after some thirty years the poor are still with us poverty shows relatively little signs of disappearing and until recently enthusiasm for aid amongst donors had declined the papers in this symposium examine the effectiveness of aid in the past and its potential in the future a number of economic studies help explain this apparent failure mosley et al 1987 found it impossible to establish any significant relationship between aid and the growth rate of developing countries they suggested that this might be because of the possibility of leakages into non productive expenditure in the public sector and the transmission of negative price effects to the private sector they also argued for the targeting of aid i e its allocation to countries where it would be used most effectively boone 1996 concluded that aid does not significantly increase growth nor benefit the poor it did however increase the size of the government but again the message was not entirely negative in terms of what aid could achieve and argued for the targeting of aid this time at liberal democratic regimes as they appeared more effective in for example reducing infant mortality hence until recently the dominant view within economics had become pessimistic with respect to the past effectiveness of aid but somewhat optimistically perhaps held out the hope for improvement on the basis of aid targeting more recently however work by burnside and dollar 2000 was to put forward a more optimistic view of the former they concluded that aid had a positive impact on growth for developing countries with good fiscal monetary and trade policies in place but had little impact for those countries who were following poor policies this therefore partially at least provided an explanation of why aid had been found to have little positive impact on growth in previous empirical work it also provided specific criteria for targeting aid this was then built upon by collier and dollar 2001 2002 who calculated a poverty efficient allocation of aid which focused on those countries with a combination of most poverty and best policies they suggested that targeting of aid in this manner would almost double its effectiveness in reducing poverty this work has had an extraordinary impact upon policy and easterly 2003 as well as dalgaard hansen and tarp dht in this symposium document how it

union nonunion wage differentials in the public administration educational and private sectors 1970 1983 over the past thirty years union membership and bargaining activity in the united states has been declining in the private sector and rising in the public sector the authors use two large micro databases to estimate changes in the union wage premium among public administration education and private sector workers for the decade of the 1970s and early 1980s their empirical analysis indicates that the union relative wage effects continue to be lower in the public sector than in the private sector despite the relative gains in public sector union membership and bargaining activities copyright 1987 by mit press

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

the ups and downs of capitalism ben bernanke is a leading macroeconomist who has contributed extensively to the literature on business cycles monetary policy the role of financial markets in economic fluctuations inflation targeting and the economics of the great depression he is one of the six economists who form the nber business cycle dating committee a group that determines the dates of recessions in the us in this article interview professor bernanke discusses issues relating to the great depression of the 1930s and problems relating to inflation in the latter half of the twentieth century

foreign aid taxes and public investment a further comment abstract the paper in this journal by gang and khan 1991 employed heller s 1975 fiscal response model to demonstrate that aid to india has all been used to finance government investment this conclusion is shown to be a misinterpretation of the model s results which actually suggest that aid has had no impact on government investment at all however the reported parameters are determined by the estimation procedure adopted by gang and khan and not by the indian government s fiscal behaviour

could stable money have averted the great contraction i introduction although over fifty years have elapsed since the onset of the great contraction controversy still swirls about the factors responsible for its depth and long duration a basic issue is the hypothesis due to friedman and schwartz 1963 that the great contraction would have been attenuated had the federal reserve not allowed the money stock to decline although the validity of the hypothesis has been a subject of much debate there is little empirical evidence directly addressing it a direct test of the friedman and schwartz hypothesis requires simulating the behavior of output under a counterfactual policy of stable money that approach was adopted by warburton 1966 friedman 1960 and modigliani 1969 none of whom constructed a model of the economy on the basis of which to conduct his test recently mccallum 1990 has used simulations from a macro model to show that his base rule with feedback would have avoided the severe decline in nominal income that occurred between 1929 and 1933 1 the extent to which his rule would have improved the behavior of nominal income depends on the value of the feedback coefficient mccallum s simulations however do not address the issue considered here of how a stable money rule would have performed in this paper we present simulations that focus on the stable money counterfactual our model is based on mccallum s but we use a more general framework than his that a estimates separate relations for output and the price level and b places no prior restrictions on the feedback from output and the price level to money our stable money counterfactual does not change the long term rate of money growth from that actually experienced and thus involves only short run changes in the behavior of the money supply we assume that dynamics embedded in the output and price relation are not especially sensitive to this type of policy change we simulate two variants of milton friedman s 1960 constant money growth rule the first a strong form of the rule assumes that the fed could quickly offset changes in the money multiplier by changes in high powered money and thus keep the money stock on the constant growth rate path in each quarter the second a weaker form of the rule assumes that the money multiplier is observed with a one quarter lag and the fed can only set the expected rate of growth of money conditional on last period information equal to the constant rate our basic simulation is derived from a model estimated for the 1921 1 1941 4 interwar period the results of this simulation buttress the views of friedman and schwartz had a constant money growth rule with an annual rate equal to the average 1921 41 rate of 2 95 percent been followed throughout the interwar period the great contraction would have been avoided real output would have declined from 1929 3 to 1933 1 but the order of magnitude of the cumulative change 11 1 to 21 6 percent and the annual rate of change 3 3 to 6 6 percent when the actual cumulative change was 36 2 percent and the annual rate of change was 12 1 percent would have been comparable to other recessions in the nineteenth and twentieth centuries in the basic simulation we assume that the output and price relations remained stable over the entire interwar period the extraordinary economic conditions of the great contraction could have arguably shifted the output and price relations thus we also present an alternative simulation that uses estimates of these relations based on the 1920s data this simulation shows that a constant money growth rule with an annual rate equal to the 1921 29 average of 3 29 percent would have prevented even a mild recession during the great contraction period section ii contains a brief survey of the continuing debate over the cause and propagation mechanism of the great contraction and its implications for the stable money hypothesis

real business cycle models of the great depression a critical survey recent years have witnessed a revival of interest in the great depression of the 1930s among the differing new interpretations the real business cycle rbc approach is particularly significant it represents an outstanding methodological innovation in trying to cast the great depression within an equilibrium framework this paper critically reviews the rbc interpretation of the great depression clarifying its theoretical and methodological foundations and paving the way for future assessments of its validity

government employment and the provision of fringe benefits this study uses individual level data from the united states to examine the influence of government employment on the provision of five major fringe benefits four of the five benefits are more likely to be provided to government workers than to their private sector counterparts unlike wage comparisons which typically find substantial overpayment only for federal workers the findings suggest that past wage differentials underestimate the true compensation advantage enjoyed by government workers

impact of foreign aid on the fiscal behavior of ldc governments abstract the purpose of this paper is to examine the impact of foreign aid on the behavior of the recipient governments specifically we look at a sample of less developed countries in south and southeast asia and study their response to foreign aid received their response is measured in terms of their public investment and consumption as well as taxation our paper attempts to make two new contributions to the literature first we try to estimate the impact of foreign aid on a sample of five south and southeast asian countries secondly we improve on the earlier method of a combination of single equation and two step least squares by estimating the whole system with a nonlinear three step least squares method the results confirm the hypothesis that aid does affect consumption investment and taxation of these governments but they also show that the relationship is a complex one in particular grants and loans have different effects on investment and taxation

aid and growth regressions this paper examines the relationship between foreign aid and growth in real gdp per capita as it emerges from simple augmentations of popular cross country growth specifications it is shown that aid in all likelihood increases the growth rate and this result is not conditional on good policy there are however decreasing returns to aid and the estimated effectiveness of aid is highly sensitive to the choice of estimator and the set of control variables when investment and human capital are controlled for no positive effect of aid is found yet aid continues to impact on growth via investment we conclude by stressing the need for more theoretical work before this kind of cross country regressions are used for policy purposes

the macroeconomics of the great depression a comparative approach recently research on the causes of the great depression has shifted from a heavy emphasis on events in the united states to a broader more comparative approach that examines the interwar experiences of many countries simultaneously in this lecture i survey the current state of our knowledge about the depression from a comparative perspective on the aggregate demand side of the economy comparative analysis has greatly strengthened the empirical case for monetary shocks as a major driving force of the depression an interesting possibility suggested by this analysis is that the worldwide monetary collapse that began in 1931 may be interpreted as a jump from one nash equilibrium to another on the aggregate supply side comparative empirical studies provide support for both induced financial crisis and sticky nominal wages as mechanisms by which nominal shocks had real effects still unresolved is why nominal wages did not adjust more quickly in the face of mass unemployment this abstract was borrowed from another version of this item

does foreign aid promote the expansion of government building on the literature on public finance i seek to advance our understanding of variations in government size by exploring the impact of official development assistance on fiscal policy i hypothesize that foreign aid operates in accordance with the flypaper effect systematically generating incentives and opportunities for the expansion of government spending results from a time series cross sectional regression analysis of growth in government spending over the 1970 99 time period are consistent with the hypothesis for middle and lower income nations aid represents an important determinant of government expansion looking at the tax and revenue side of the equation however reveals a more perverse pattern of response aid promotes not only increased spending but also reduced revenue generation the results have important implications from both a theoretical and policy perspective inter alia they point to the potentially self defeating nature of efforts to promote market oriented programs of state retrenchment via development assistance as well as to the importance of incorporating international transfers into future research on government spending

fiscal composition and aid effectiveness a political economy model summary in the long run tax effort we argue determines the effectiveness of aid and this relationship operates simultaneously with the negative link in the opposite direction observed by brautigam and knack 2004 and others tax effort and the ability of the state to diversify its taxation structure we find are significantly linked to growth and poverty indicators the key message for policy is that a broadening of the tax structure in low income countries is crucial in order to enable those countries to escape from the weak state low tax trap and to make aid effective

international aspects of the great depression and the crisis of 2007 similarities differences and lessons we focus on two international aspects of the great depression financial crises and international trade and try to discern lessons for the current economic crisis both downturns featured global banking crises which were generated by boom slump macroeconomic cycles during both crises world trade collapsed faster than world incomes and the trade decline was highly synchronized across countries during the depression income losses and rises in trade barriers explain trade s collapse owing to vertical specialization and more intense trade in durables today s trade collapse is due to uncertainty and small shocks to trade costs hitting international supply chains so far the global economy has avoided the global trade wars and banking collapses of the depression perhaps owing to improved policy even so the global economy remains susceptible to large shocks owing to financial innovation and technological

rethinking development effectiveness development effectiveness has become a recurring theme in today s international development discourse the expression is largely selfexplanatory it simply refers to the effectiveness of foreign aid in fostering development however as the priority of development has evolved so has the meaning and content of development effectiveness that international development agencies seek to achieve the initial focus of development assistance in the 1940s was the reconstruction of the war torn economies of europe and japan with rapid progress of the postwar reconstruction work the focus of development assistance shifted to what has now come to be known as the developing world at first the goal was to increase the income of these countries however it was soon realized that this was a limited goal owing to the complex conflation of population growth and changing income distributions it was observed that economic growth does not necessarily translate into higher standards of living for the general population by the 1960s and 1970s the focus of the development agenda was on the twin objectives of economic growth and poverty reduction and subsequently shifted gradually toward the basic needs of the population by the 1990s reduction of absolute poverty became a priority in the international development institutions

establishment size public administration and government wage differentials abstract this study presents new and more comprehensive estimates of government wage differentials they improve on previous estimates by including the influence of establishment size and by estimating separate differentials for public administrators and non administrators these improvements result in a more complex set of differentials and a more sophisticated understanding of government wage patterns

does foreign aid distort incentives and hurt growth theory and evidence from 75 aid recipient countries foreign aid transfers can distort individual incentives and hence hurt growth by encouraging rent seeking as opposed to productive activities we construct a model of a growing small open economy that distinguishes two effects from foreign transfers i a direct positive effect as higher transfers allow the financing of infrastructure ii an indirect negative effect as higher transfers induce rent seeking competition by self interested individuals in this framework the growth impact of aid is examined jointly with the determination of rent seeking behavior we test the main predictions of the model for a cross section of 75 aid recipient countries there is evidence that aid has a direct positive effect on growth which is however significantly mitigated by the adverse indirect effects of associated rent seeking activities this is especially the case in recipient countries with relatively large public sectors

funding self sustaining development the role of aid fdi and government in economic success this article challenges a long held development policy assumption that aid and foreign direct investment fdi serve as substitutes or complements in accelerating the development of the world s poorer countries we show both theoretically and empirically that aid and fdi affect development differently aid contributes powerfully to both economic growth and human development and the higher the level of human capital in a country the more aid contributes by contrast fdi at best has no effect on economic growth and actually slows the rate of human development in less developed countries we find no evidence that the degree of democratic responsiveness in government conditions the effectiveness of either aid or fdi although we do find that democracy independently increases human development in all but the most developed countries our results demonstrate that fdi and aid are not and cannot be substitutes in the development of the world s poorer countries nor even can they be thought of as complements certainly not at mid to low levels of development in the end poor countries need democracy and aid not fdi we are extremely grateful to susan rose ackerman gustav ranis frances rosenbluth kenneth scheve and participants at the leitner political economy seminar at yale university in december 2003 for very helpful comments we also received valuable suggestions from two anonymous reviewers stephen kosack would like to thank the national science foundation for the support of a graduate research fellowship

some determinants of foreign aid to india 1960 1985 abstract using a unique data set of aid to india from all sources 1960 1985 we discuss the magnitude and composition of aid and present a principal components analysis of aid giving we then attempt to get at the underlying patterns and causes of aid giving using factor analytic techniques and explain the level of foreign aid by employing a partial adjustment model we find that latent motivations to classify the donor countries into four convenient groups each with different political and economic motivations we also find that the latent variables capturing the motivations of the united states western european countries eastern european countries as well as last year s aid and the balance of trade but not gdp growth are significant determinants of the level of aid

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

golden fetters the gold standard and the great depression barry eichengreen oxford university press new york 1992 pp xix 448 39 95

male female supply to state government jobs and comparable worth the proportion of women in state government jobs and applicant pools is well explained by a model emphasizing supply side factors relative to men women s supply is least sensitive to wages in predominantly male jobs and most sensitive to wages in predominantly female jobs these results suggest that comparable worth policies that shift relative pay toward traditionally female jobs and away from traditionally male jobs will increase the proportion of females in male dominated female dominated and total state government jobs the implication is that supply side responses need not prevent comparable worth pay adjustments from raising total female compensation

aid poverty reduction and the new conditionality the paper examines the effect of aid on poverty rather than on economic growth we devise a pro poor public expenditure index and present evidence that together with inequality and corruption this is a key determinant of the aid s poverty leverage after presenting empirical evidence which suggests a positive leverage of aid donors on pro poor expenditure we argue for the development of conditionality in a new form which gives greater flexibility to donors in punishing slippage on previous commitments and keys aid disbursements to performance in respect of policy variables which governments can influence in a pro poor direction

the new deal and modern memory summary economists and other social scientists may never be able to explain fully why the greatdepression happened when it did or why it initially was so severe numerous hypotheses havebeen advanced as we have seen and each of them contributes important insights into thecauses of the macroeconomic calamity in which most of the world was mired in 1929 1933 if however one is forced to adopt a monocausal theory it must center on the actions of america scentral bank which presided over an extraordinary expansion in bank credit in the mid to late1920s and then took the punch bowl off the table for the purposes of this article though the key question is why did the great depressionlast longer in the united states than it did in any other nation the answer as laid out in thenext section is presidential politics 23 there will come seven years of great plenty throughout all the land of egypt but after them will arise seven years offamine and all the plenty will be forgotten in the land of egypt the famine will consume the land genesis 41 29 30 nkjv

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

aid the public sector and the market in less developed countries a reply the article in this journal by mosley et al i987 concludes its analysis of aid effectiveness as demonstrating inability of development aid over more than twenty years to provide a net increment to overall growth in the third world p 636 this note purports to show that this conclusion which is ostensibly distressing as the authors claim is not warranted the section of the study which is the basis of the conclusion cited and the subject of this note is a cross section regression analysis full details of which are shown in mosley et al table 3 the note is concerned with the relation between the dependent variable specified as the growth rate of real gdp per cent per annum hereafter gdp and aid specified as a percentage of gdp hereafter aid the aid results with only two significant positive coefficients in one subsample certainly give no basis for claiming aid effectiveness in terms of gdp growth the intention in this note is to interpret the results which are assumed to be valid this is made possible by the fact that the authors have helpfully provided the full input set of mean values derived from the raw data from this it is possible to calculate the gdp aid relationship for each country for the second and third period the procedure for deriving these relationships is as follows for each country the mean values of the time series of gdp and aid are extracted from the data for i 960 70 and for i 970 80 using i 960 70 as the base the signs of the change in the levels of the gdp and aid mean values between periods are recorded this is repeated for i980 4 with i970 80 mean values as the base the relationship between the two signs is an indication of the effect of aid on gdp in the period in which the change in levels is effected thus in the case of an increase in aid being combined with a decrease in gdp the latter must have fallen relatively to the former and aid effectiveness is negative mutatis mutandis for the other three sign combinations thus generating the appropriate gdp aid relationship for each country in each period a frequency distribution of the four sign combinations relating to the full sample is presented in table i since the signs of the changes in the levels of gdp and aid are derived by making explicit the arithmetic relationship implicit in the data they form a valid base from which to draw conclusions without requiring any test of

a behavioral explanation for nominal wage rigidity during the great depression nominal wages in manufacturing were left unchanged by the large decline in nominal demand that marked the first two years of the great depression this rigidity in nominal wages is explained using the tools of the behavioral theory of the firm the emphasis is on the reasons firms changed their decision rules linking fluctuations in final sales to changes in nominal wages

wage theory new deal labor policy and the great depression were government and unions to blame a growing number of economists blame the length and severity of the great depression on factors that rigidified wage rates raised production costs and interfered with the market allocation of labor the target of their critique is president franklin roosevelt s new deal labor program which they portray as creating a series of large negative supply shocks through encouragement of unions minimum wages unemployment insurance and other anticompetitive industrial relations practices the author uses a combination of institutional and keynesian theory to present the other side of the story drawing principally from the works of j r commons and j m keynes he develops both a spending and productivity rationale for stable wages during the great depression and demonstrates that the new deal s interventionist labor program was on balance necessary and beneficial he also highlights the neglected macroeconomic dimension of industrial relations theory and policy

exploring the present through the past claudia goldin is one of the world s leading economists and economic historians and has made a series of outstanding and original contributions particularly to the cliometric or the new economic history literature in this interview professor goldin discusses with brian snowdon who first provides a background introduction several important issues relating to her research on economic history and cliometrics the economics of slavery us economic history corruption in america the role of human capital and education in us economic development wage inequality female labour force participation and the quiet revolution the influence of the contraceptive pill women s surnames the reversal of the college gender gap and women in the economics profession

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

fringe benefits and labor mobility interindustry factor mobility is a crucial determinant of the income distribution effects of exogenous changes in relative commodity prices this examination of interindustry variation in wages and profits using data from manufacturing industries from

the nation in depression t he economic cataclysm of the 1930s was an international phenomenon experienced by countries in all parts of the globe countries as diverse as the united states germany chile and japan all experienced significant depressions in the 1930s thus the title of charles kindleberger s classic book the world in depression 1973 captures an important feature of the great depression these international aspects especially the importance of the gold standard in causing the downturn and transmitting depression from one country to another have been emphasized in recent years in excellent books by peter temin 1989 and barry eichengreen 1992 these books have rightly received widespread attention and have successfully changed the focus of much analysis of the great depression from the united states to the world economy while such a change from american provincialism is surely healthy and warranted adopting an international perspective on the great depression risks losing sight of the many ways in which the u s depression differed in timing and severity from depressions elsewhere more important it may obscure the many uniquely american causes of america s great depression this paper examines the ways in which the u s experience during the 1930s resembled that of other countries in some regards and fundamentally differed in other aspects i also evaluate the evidence on the causes of the great depression in the united states and the sources of the eventual recovery i suggest that the path of american output and unemployment before 1931 can be explained quite well with only domestic factors even after 1931

financial frictions and employment during the great depression abstract we provide new evidence that a disruption in credit supply played a quantitatively significant role in the unprecedented contraction of employment during the great depression using a novel hand collected dataset of large industrial firms our identification strategy exploits preexisting variation in the need to raise external funds at a time when public bond markets essentially froze local bank failures inhibited firms ability to substitute public debt for private debt which exacerbated financial constraints we estimate a large and negative causal effect of financing frictions on firm employment we find that the lack of access to credit likely accounted for a substantial fraction of the aggregate decline in employment of large firms between 1928 and 1933

aid nontraded goods and the transfer paradox in small countries this paper constructs a model of the transfer paradox for a small open economy with nontraded goods it demonstrates that increased production of nontraded goods can change their domestic price so as to offset the otherwise beneficial effect of aid and under certain conditions to create a transfer paradox even in a small country the model is estimated with time series data for 44 aid dependent countries for the period 1970 90 the results support the model and show that the nontraded goods expansion effect is more likely to cause immiserization than harry g johnson s 1967 tariff distorting export displacement effect

foreign aid and government fiscal behaviour in low income south asian countries the major purpose of this study was to analyse the relationship between foreign aid and government fiscal behaviour using a pooled sample of three low income south asian countries pakistan india and sri lanka a simultaneous equation system was developed and estimated using nonlinear three stage least squares procedure the results confirm the hypothesis that foreign aid affects both the expenditure and the revenue side of the recipient government budgets both grants and loans are used for consumption as well as for investment purposes however grants leak into consumption more than loans thus if the purpose of aid is to generate investment it is more helpful if donors extend loans to the developing countries than by giving grants the results also indicate that both grants and loans increase the taxation effort multilateral aid actually pulls resources out of consumption and places them into investment projects thus the results confirm the assertion that a shift from bilateral to multilateral ai

measuring and predicting heterogeneous recessions this paper examines the usefulness of a more refined business cycle classification for monthly industrial production ip beyond the usual distinction between expansions and contractions univariate markov switching models show that a three regime model is more appropriate than a model with only two regimes interestingly the third regime captures severe recessions contrasting the conventional view that the additional third regime represents a recovery phase this is confirmed by means of markov switching vector autoregressive models that allow for phase shifts between the cyclical regimes of ip and the conference board s leading economic index lei the timing of the severe recession regime mostly corresponds with periods of substantial financial market distress and severe credit squeezes providing empirical evidence for the financial accelerator theory

monetary intervention mitigated banking panics during the great depression quasi experimental evidence from a federal reserve district border 1929 1933 the federal reserve act divided mississippi between the 6th atlanta and 8th st louis districts during the great depression these districts policies differed atlanta championed monetary activism and the extension of aid to ailing banks st louis eschewed expansionary initiatives during a banking crisis in 1930 atlanta expedited lending to banks in need st louis did not outcomes differed across districts in atlanta banks survived at higher rates lending continued at higher levels commerce contracted less and recovery began earlier these patterns indicate that central bank intervention influenced bank health credit availability and business activity

the macroeconomic impact of development aid a critical survey the early literature explained aid s macroeconomic impact in the context of the dual gap model showing a clear link between aid and growth many now believe that the empirical evidence shows there to be no such relationship this paper critically reviews the different theoretical perspectives the dual gap model the savings debate recipient fiscal response and aid as dutch disease and the empirical debates on aid savings and growth the basis for denying a relationship between aid and growth is shown to be weak though more recent areas of research offer promising directions for future work

the effect of unionism on fringe benefits this study analyzes the impact of unionism on fringes paid to production workers using data on individual establishments it compares fringe expenditures in establishments having the same level of compensation per hour and finds that unionism raises the share of compensation allotted to fringes particularly to pensions vacation pay and life accident and health insurance in addition since unionism also raises the straight time wage rate itself a prime determinant of expenditures on fringes unionism has a very sizeable impact on total fringe expenditures as well as on the fringe share of compensation the union fringe effect exceeds in percentage terms the union wage effect and is sufficiently large to suggest that standard union wage studies understate the union effect on total compensation the study also compares the fringe expenditures of production and non production workers within the same establishment controlling for within establishment pay policies the findings suggest that the pres

did sunspot forces cause the great depression abstract we apply a dynamic general equilibrium model to the period of the u s great depression in particular we examine a modification of the real business cycle model in which the possibility of indeterminacy of equilibria arises in other words agents self fulfilling expectations can serve as a primary impulse behind fluctuations we find that the model driven only by these measured sunspot shocks can explain well the entire depression era that is the decline from 1929 to 1932 the subsequent slow recovery and the recession that occurred in 1937 1938

effective aid how democracy allows development aid to improve the quality of life abstract research into foreign aid has mostly focused on its ability to affect economic i e gdp per capita growth conclusions have been mixed i consider aid s effectiveness differently by its ability to improve quality of life i find that though aid does not affect quality of life in the aggregate it is effective when combined with democracy and ineffective and possibly harmful in autocracies the results suggest that aid would be more effective if it were combined with efforts to encourage democratization

the great crash and the onset of the great depression this paper argues that the collapse of stock prices in october 1929 generated temporary uncertainty about future income which led consumers to forgo purchases of durable goods that the great crash generated uncertainty is evidenced by the decline in surety expressed by contemporary forecasters that this uncertainty affected consumer behavior is shown by the fact that spending on consumer durables declined drastically in late 1929 while spending on perishable goods rose slightly this effect is confirmed by the fact that there is a significant negative relationship between stock market variability and the production of consumer durables in the prewar era

government wage differentials a sample selection approach this paper uses the econometrics of sample selection to estimate the net wage differential between workers in the public and private sectors of the united states the results indicate workers self select by systematically locating in the sector which offers them the higher expected wage as a consequence previous research based on the assumption of random allocation between sectors is subject to serious specification bias the present estimation indicates government workers are slightly underpaid taking into account their observed characteristics and the selection process

real business cycle views of the great depression and recent events a review of timothy j kehoe and edward c prescott s great depressions of the twentieth century this book collects essays most of which were published earlier into an advertisement for real business cycle rbc analysis half of the essays discuss the great depression half discuss events of the 1980s and 1990s they all use the general equilibrium model of economic growth to analyze short run fluctuations in the rate of economic growth of various countries i find that the use of closed economy models without frictions is not useful for the analysis of short run variations in the rate of economic growth almost all of these essays end by claiming that variations in the rate of gdp growth were due to changes in the rate of total factor productivity tfp growth they do not provide any explanation for fluctuations in the rate of tfp growth leaving the reader no closer to understanding these periods of depression and slow growth i discuss in turn the essays on the great depression the essays on more recent fluctuations and the definition of great depressions used in this volume

aid policies and growth comment in an extraordinarily influential paper craig burnside and david dollar 2000 p 847 find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies but has little effect in the presence of poor policies this finding has enormous policy implications the burnside and dollar 2000 henceforth bd result provides a role and strategy for foreign aid if aid stimulates growth only in countries with good policies this suggests that 1 aid can promote economic growth and 2 it is crucial that foreign aid be distributed selectively to countries that have adopted sound policies international aid agencies public policy makers and the press quickly recognized the importance of the bd findings this paper reassesses the links between aid policy and growth using more data the bd data end in 1993 we reconstruct the bd database from original sources and thus 1 add additional countries and observations to the bd data set because new information has become available since they conducted their analyses and 2 extend the data through 1997 thus using the bd methodology we reexamine whether aid influences growth in the presence of good policies given our focus on retesting bd we do not summarize the vast pre bd literature on aid and growth we just note that there was a long and inconclusive literature that was hampered by limited data availability debates about the mechanisms through which aid would affect growth and disagreements over econometric specification see gustav f papanek 1972 robert cassen 1986 paul mosley et al 1987 peter boone 1994 1996 and henrik hansen and finn tarp s 2000 review since bd found that aid boosts growth in good policy environments there have been a number of other papers reacting to their results including paul collier and jan dehn 2001 carljohan dalgaard and hansen 2001 patrick guillaumont and lisa chauvet 2001 hansen and tarp 2001 robert lensink and howard white 2001 and collier and dollar 2002 these papers conduct useful variations and extensions some of which had already figured in the pre bd literature such as introducing additional control variables using nonlinear specifications etc some of these papers confirm the message that aid only works in a good policy environment while others drive out the aid policy interaction term with other variables this literature has the usual limitations of choosing a specification without clear guidance from theory which often means there are more plausible specifications than there are data points in the sample we differentiate our paper from these others by not deviating from the bd specification thus we do not test the robustness of the results to an unlimited number of variations but instead maintain the bd methodology this paper conducts a very simple robustness check by adding new data that were unavailable to bd thus we expand the sample used over their time period and extend the data from 1993 to 1997 easterly department of economics new york university 269 mercer street new york ny 10003 center for global development and national bureau of economic research e mail william easterly nyu edu levine department of finance carlson school of management university of minnesota 321 19th avenue south minneapolis mn 55455 and national bureau of economic research e mail rlevine csom umn edu roodman center for global development 1776 massachusetts avenue nw washington dc 20036 e mail droodman cgdev org we are grateful to craig burnside for supplying data and assisting in the reconstruction of previous results without holding him responsible in any way for the work in this paper thanks also to francis ng and prarthna dayal for generous assistance with updating the sachs warner openness variable and to three anonymous referees craig burnside and henrik hansen for helpful comments 1 see for instance the world bank 1994 2001 2002 the u k department for international development 2000 president george w bush s speech march 16 2002 the announcement by the white house on creating the millennium challenge corporation white house 2002 as well as a washington post editorial february 9 2002 a financial times column by alan beattie march 11 2002 and the economist march 16 2002

the anarchy of numbers aid development and cross country empirics the recent literature contains many stories of how foreign aid affects economic growth aid raises growth in countries with good policies or with difficult economic environments or outside the tropics or on average but with diminishing returns the diversity of the results suggests that many are fragile seven important aid growth papers are tested for robustness using 14 minimally arbitrary tests deriving mainly from differences among the studies themselves this approach investigates the importance of potentially arbitrary specification choices while minimizing the arbitrariness in testing choices all of the results appear fragile especially to sample expansion

growth in africa does the source of investment financing matter this paper examines empirical evidence for 11 sub saharan african countries on the relationship between economic growth and three principal sources of investment funds foreign aid foreign direct investment and domestic saving in light of the shortcomings of traditional cross section analyses the time series approach is used instead modern time series methods are rigorously applied beginning with unit root tests and followed by model specifications that reflect the revealed temporal behaviours of the variables in each of the 11 countries domestic saving seems to play a somewhat more important role in generating economic growth than foreign direct investment or foreign aid however the mixture of results across the 11 countries implies that in general it is not possible to rank one source of investment financing ahead of any other

a new approach to the allocation of aid among developing countries is the usa different from the rest summary this paper attempts to explain the factors that determine the geographical allocation of foreign aid its novelty is that it develops a rigorous theoretical model and conducts the corresponding empirical investigations based on a large panel dataset we run regressions for different major donors united states canada france italy japan united kingdom and multilateral organizations with the explicit objective of establishing whether the united states in light of its geopolitical hegemony behaves differently from others we find that all the donors respond to recipient need in their allocation of aid but that the united states puts less emphasis on this than the other donors with the exception of japan we also find that the united states puts more emphasis on donor recipient linkages than do the other donors suggesting that the united states attaches greater importance to issues of donor interest for example geopolitical commercial and other links with specific recipients

aid instability as a measure of uncertainty and the positive impact of aid on growth this article contributes to the literature on aid and economic growth we posit that uncertainty measured as the instability of aid receipts will influence the relationship between aid and investment how recipient governments respond to aid and will capture the fact that some countries are especially vulnerable to shocks when we account for uncertainty which is negative and significant we find that aid has a significant positive effect on growth largely due to its effect on the volume of investment the finding that uncertainty of aid receipts reduces the effectiveness of aid is robust when the regression is estimated for the sub sample of african countries these findings hold although the effectiveness of aid appears weaker than for the full sample

is increased price flexibility stabilizing this paper uses john taylor s model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing because of the mundell effect while lower prices increase output the expectation of falling prices decreases output simulations based on realistic parameter values suggest that increases in price flexibility might well increase the cyclical variability of output in the united states copyright 1986 by american economic association

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

monetary factors in the great depression this paper examines the role of monetary policy in the early stages of the great depression and considers the mechanism whereby this policy may have affected real activity i conclude that the depression was preceded by a dramatic shift towards a highly contractionary monetary policy the economic impact of this policy seems unlikely to have come through the conventional keynesian channels of a shortage of liquidity and high ex ante real interest rates but instead may have operated through unanticipated deflation and after 1930 through the disruption of financial intermediation as a consequence of the banking panics

donor bias towards small countries an overlooked factor in the analysis of foreign aid and economic growth the consensus of the literature is that international cross sectional data do not reveal a stable relationship between foreign aid and economic growth a conclusion which weakens the case for giving aid however previous econometric analysis has not made allowance for the fact that larger countries grow faster but receive less aid in this paper it is demonstrated that when due allowance is made for the effects of country size a positive and significant relationship between aid and growth can be shown to exist

is foreign aid fungible the case of indonesia this paper considers whether foreign aid given for specific categories of expenditure is fungible among them and whether aid reduces tax effort by the recipient government models developed to analyze the fiscal relations among different levels of government in the united states are applied to analysis of the impact of foreign aid econometric analysis of data for indonesia reveals that aid is largely spent as the donors intended that aid does not lead to a reduction in tax effort and that aid is not diverted to nondevelopment current expenditures copyright 1990 by royal economic society

aid growth and devolution summary this paper examines whether the degree of fiscal decentralization in aid receiving countries matters in explaining aid effectiveness the decentralization theorem predicts that the devolution of powers should increase aid effectiveness since local decision makers are better informed about local needs thereby decentralization may also have reverse effects e g through coordination problems excessive regulation administrative costs and local capture we use panel data for up to 60 countries and find that aid contributes to economic growth in centralized developing economies whereas it is less effective or even harmful in decentralized countries the cases of indonesia the philippines and uganda support our findings our results imply that donor countries should carefully consider how the two development instruments foreign aid and decentralization interact

foreign aid and the question of fungibility this paper analyzes whether the foreign assistance provided for specific categories of expenditure is shifted among them contrary to the wishes of donors it also considers whether aid reduces the tax effort of recipient governments econometric results are presented for the dominican republic that show that the fungibility of aid has resulted in a thwarting of the intentions of donors an attempt is made to account for the observed differences in behavior of individual countries in altering expenditures copyright 1993 by mit press

the impact of monetary policy in the midst of big shocks abstract this paper studies the impact of federal reserve policies that created the largest deviations from price stability during the fed s first 100 years the post world war i deflation the deflation of the great depression the inflation of world war ii and the great inflation of the 1970s in terms of their macroeconomic impacts i find that deflation was uniquely depressing in the 1930s because of cartel policies that prevented nominal prices and wages from adjusting to clear markets and not because deflation is generically depressing i find that the biggest impact of monetary policy during world war ii was in debasing debt through inflation i find that the main drivers of the 1970s economy were long run changes in productivity and the labor market and that there may have been little that the fed could have done at this time to expand employment and output more broadly i find that macroeconomic performance would have been better over the fed s first century had the fed followed a monetary policy to deliver stable prices

the fungibility of u s military and non military assistance and the impacts on expenditures of major aid recipients abstract this paper examines the impact of u s military and non military assistance on the allocation of public and private sector spending for eight major recipients over the 1972 1987 period the model assumes that an aid recipient s effective post assistance budget constraint is a priori unknown and must be estimated two versions of the model are tested in version a the data is converted into real u s dollars using official exchange rates in version b the data is converted using purchasing power parity exchange rates provided by summers and heston 1991 major findings are the same for both versions u s aid is highly fungible with a significant portion channeled to the private sector where it finances current consumption relatively more than investment