finance inflation and employment a post keynesian kaleckian analysis the purpose of this paper is to contribute to the post keynesian kaleckian macroeconomic literature we develop a macroeconomic model that explicitly integrates the role of borrowing and cash payment commitments on outstanding debt interest plus principal repayment into the consumption and investment expenditures as well as into the inflation generating process we explore the way that finance influences the distribution effects of inflation in the demand side of a money credit using economy we suggest a new phillips curve that encapsulates the impact of financial commitments on wage and profit claims we argue that high debt and cash payment commitments are likely to be associated with a positive demand side effect of inflation on the rate of employment and that they might be conducive to a negative supply side effect of employment on the inflation rate the author 2011 published by oxford university press on behalf of the cambridge political economy society all rights reserved

group loyalty and the taste for redistribution interpersonal preferences preferences that depend on the characteristics of others are typically hard to infer from observable individual behavior as an alternative approach this paper uses survey data to investigate interpersonal preferences i show that self reported attitudes toward welfare spending are determined not only by financial self interest but also by interpersonal preferences these interpersonal preferences are characterized by a negative exposure effect individuals decrease their support for welfare as the welfare recipiency rate in their community rises and racial group loyalty individuals increase their support for welfare spending as the share of local recipients from their own racial group rises these findings help to explain why levels of welfare benefits are relatively low in racially heterogeneous states

agriculture in recent development theory abstract this paper is a critical review of recent contributions to the literature on agriculture in development theory it considers and compares the main lines of advance made within neoclassical neo marxian and structuralist approaches recent neo marxian and structuralist studies of agrarian development reveal that traditional agriculture is neither stationary nor efficient that resource allocation cannot be separated from wealth distribution or production organization that forms of surplus appropriation do not necessarily follow the dictates of efficiency that the social relations of production may inhibit accumulation and determine the forms of technological change that the state s role in primitive accumulation is more economic than explicitly coercive political and that political and macroeconomic constraints preclude a simple get the prices right view of the intersectoral terms of trade the thrust of these developments is to challenge both neoclassical and some orthodox marxian formulations of agrarian development issues and add to the insights to be gleaned from a political economy of development

international competition income distribution and economic growth this paper shows that the neo keynesian case for wage led growth does not generally hold in an open economy model wage increases cause a loss of competitiveness that reduces the trade balance if the economy is relatively open to trade and price elasticities satisfy certain restrictions the worsening of the trade balance more than outweighs the increase in workers consumption thus reducing the growth rate the main theoretical innovation is a flexible markup pricing rule that allows changes in unit labor costs and exchange rates to affect profit margins implications for international relations and class conflict are discussed copyright 1989 by oxford university press

on the empirics of foreign aid and growth the present paper re examines the effectiveness of foreign aid theoretically and empirically using a standard olg model we show that aid inflows will in general affect long run productivity the size and direction of the impact may depend on policies deep structural characteristics and the size of the inflow the empirical analysis investigates these possibilities overall we find that aid has been effective in spurring growth but the magnitude of the effect depends on climate related circumstances finally we argue that the collier dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate the usefulness of foreign aid in promoting growth in developing countries has been an area of controversy ever since rosenstein rodan in 1943 advocated for aid to eastern and south eastern europe browsing through successive editions of a leading textbook in development economics provides a telling illustration of how the confidence in aid effectiveness dwindled over the years in the first edition of leading issues in economic development meier 1964 dedicated a full 18 page section to the issue of foreign aid he started out asking how much aid by the time of the sixth edition meier 1995 the treatment of foreign aid had been cut into half and the questions in focus were why official assistance and does aid work in the 2000 edition meier and rauch 2000 foreign aid is not even listed in the index

north south growth and the terms of trade a model on kaldorian lines this paper examines equilibrium growth and stability in the world economy using a north south model in which there is assumed to be surplus labor in both the north and south at an exogenously determined level of real wages the model allows for substitution in consumption between primary commodities and industrial goods in the north and treats the cases of both surplus and scarce land in the south in the case of an exogenous shock to the model the north south terms of trade may overshoot its equilibrium value and or converge to this value along a cyclical path there is no guarantee that the adjustment path is stable

income inequality and colonialism this paper proposes that colonialism is a major explanation behind today s differences in income inequality across countries we argue that income inequality has been higher in the colonies where the percentage of european settlers to total population was higher as long as europeans remained a minority the countries where europeans became the majority of the population did not suffer from high inequality these initial differences continue to hold today the empirical evidence we provide strongly supports our thesis

aid and donor trust in recipient country systems abstract the 2005 paris declaration on aid effectiveness sets targets for increased use by donors of recipient country systems for managing aid the target is premised on a view that country systems are strengthened when donors trust recipients to manage aid funds but undermined when donors manage aid through their own separate parallel systems this study provides an analytical framework for understanding donors decisions to trust or bypass country systems empirical tests are conducted using data from three oecd dac surveys designed to monitor progress toward paris declaration goals tests show that use of recipient country systems is positively related to 1 the donor s reputational stake in the country s development as proxied by the donor s share of aid provided to the recipient 2 the trustworthiness or quality of those systems as measured by cross country corruption indicators and 3 donors risk tolerance as proxied by public support for aid provision in donor countries findings are robust to corrections for potential sample selection omitted variables or endogeneity bias

the openness equality trade off in global redistribution the gulf cooperation council gcc countries accept massive numbers of migrants from poor countries and pay wages that dramatically improve over outside options but are meagre by the standards of natives as such they do dramatically more per capita to reduce global inequality than do the fortress welfare states of the organisation for economic cooperation and development oecd countries if oecd countries were to imitate the gcc it would reduce global inequality by more than full equalisation within the oecd would such examples suggest a philosophically disturbing trade off between openness to global inequality reducing migration and internal equality

demand for housing attributes in developing countries a study of pakistan the paper has applied a conventional framework of analysis of implicit markets to determine the characteristics of demand for housing attributes of quantity and quality in the urban areas of a larg

housing markets in third world cities research and policy into the 1990s abstract a review of analyses of urban housing markets is timely to suggest directions for research and policy in the next decade the neoclassical approach to housing economics is contrasted with a political economy framework with respect to the production or supply of housing and consumption or demand an argument is advanced for increased attention to the analysis of citywide housing markets using insights from both theoretical approaches and for research into processes of exchange such analyses should form the basis for policies which focus neither on selected income groups or residential areas in isolation from wider housing market processes nor on housing output targets but primarily on ensuring the provision of essential inputs

building or bypassing recipient country systems are donors defying the paris declaration the 2005 paris declaration on aid effectiveness sets targets for increased use by donors of recipient country systems for managing aid it also calls for donors to be more responsive to the quality of recipient country systems the optimal level of their use in terms of maximizing the development effectiveness of aid is believed to vary with their quality this study investigates the degree to which donors use of country systems is in fact positively related to their quality using indicators explicitly endorsed for this purpose by the paris declaration and covering the 2005 2010 period the results of these tests strongly confirm a positive and significant relationship and show it is robust to corrections for potential sample selection omitted variables or endogeneity bias the result holds even when estimates are informed only by variation over time within each donor recipient pair in use and quality of country systems moreover donor specific tests show that use of country systems varies positively with their quality for the vast majority of donors these findings contradict several other studies that claim there is no relation and imply that donors in this respect are failing to live up to their commitments under the paris declaration the author s interpretation of the available evidence on use of country systems is more favorable donors behavior over the measurement period is largely consistent with their commitments in this area in this respect at least donors appear to have modified their aid practices in ways that build rather than undermine administrative capacity and accountability in recipient country governments

are there negative returns to aid the world bank report assessing aid assumes that an inflow of aid above a certain level starts to have negative effects in this analysis we empirically test this assumption we find evidence for negative returns to aid at high levels of aid inflows however the results are sensitive to both the countries included in the sample and model specification moreover the turning point above which aid starts to have a negative effect on growth seems to be much higher than assumed in the background calculations for assessing aid

growth distribution and inflation a centennial synthesis microeconomics at harvard a little more than a decade ago having become disenchanted with neoclassical economics i suggested to my students that the very neoclassical course i had just taught provided one way of characterising the workings of a capitalist economy but hardly the only way after a year of utility maximisation partial and general equili brium pareto optimality and the associated agonies of lagrangians hessians jacobians and fixed point theorems my students were able to contain their enthusiasm for this news they had expected not one way of looking at the world but at the very least a magical key to knowledge and wisdom it is probably accurate to say that my message was not received at all i shall always remember the incomprehension etched on their faces the next year the last i was to teach theory in that incarnation i decided to present at least a sketch of an alternative to the neoclassical orthodoxy i soon discovered there were at least two foundations on which to build one going back to marx who died one hundred years ago the other deriving from keynes whose birth centenary we celebrate this year these two approaches it was clear were as different from each other as from the neoclassical approach the analysis of neo keynesian neo marxian and neoclassical theories has been a major focus of my research ever since and provides the framework for these lectures 1

reassessing discretionary fiscal policy in 1992 president bush proposed legislation intended to speed up the recovery from the 1990 91 recession congress rejected this proposal for countercyclical fiscal policy stimulus in early 1993 president clinton proposed his own stimulus package but congress rejected this proposal too many reasons were given for deciding against these two discretionary fiscal policy proposals but perhaps the most common one was the large federal budget deficit in the early 1990s with the rapid disappearance of budget deficits in recent years this reason to vote against a discretionary fiscal stimulus is unlikely to be mentioned in the next economic cycle discretionary countercyclical fiscal policy again appears to be a politically feasible option but should america use it after so many years of disuse much has happened in macroeconomics since the 1960s and 1970s when discretionary countercyclical fiscal policy was last considered a serious option in the united states first monetary policy making has changed substantially over the last two decades the federal reserve s interest rate decisions have become more explicit more systematic and more reactive to changes in both inflation and output the fed has placed a greater emphasis on keeping inflation low the experience with this new policy has been very favorable inflation has been low since the early 1980s and the real economy has been more stable the 1980s and 1990s saw two lengthy expansions separated by a relatively short and mild recession in terms of the tradeoff between output variability and inflation

the demand for housing and permanent income in indonesia this study reports the results and conclusions derived from a data analysis of urban household expenditure on housing in indonesia the urban households were stratified by income group urban size and urban location in these respects this study is unique household expenditures on housing were computed for each income group and subgroup by urban size and location expenditure on housing is increasing at a faster rate than income except in the very low income groups the proportion of income allocated by the average household to housing ranges from less than 15 per cent to close to 25 per cent the latter being found in the upper income group similarly significant variations in household expenditures on housing are observed for urban size and location in jakarta for example the average household expenditure on housing is almost twice as much as in the small urban localities fewer than 20000 inhabitants this observation however must be mitigated by income distribution average household inc

the persistent effect of colonialism on corruption this paper argues that corruption in developing countries has deep historical roots that go all the way back to their colonial experience we substantiate our thesis with empirical evidence where the degree of european settlement during colonial times is a powerful explanatory factor of present day corruption interestingly our mechanism is different from the prevailing view in the literature on institutions and growth where european settlement has only positive effects we argue that european settlement leads to higher levels of corruption for all countries where europeans remained a minority in the population i e for all developing countries

asymmetric information financing constraints and investment the results of a number of theoretical papers lead to the hypothesis that financial variables affect capital sp ending because of asymmetric information in capital markets the auth ors review the relevant theory and test this hypothesis with a large sample of firm data the results show that financial variables such a s cash flow and interest expense add significant explanatory power to investment equations based on dale jorgenson s neoclassical model w ith a capm specification for the firm s cost of capital and a sales accelerator model the analysis therefore links recent theoretical work on capital markets to long standing empirical debates in the inv estment literature copyright 1987 by mit press

aid effectiveness the role of the local elite we study the importance of the local elite as a determinant of the effectiveness of foreign aid in developing countries the local elite serves as an intermediary between aid donors and aid recipients through its control of the government and major firms the likelihood of misusing aid is large if the elite is characterized by extensive economic and political power and little concern for social groups besides itself to determine which countries have this type of elite we use a historically determined variable the percentage of european settlers in total population in colonial times we provide strong empirical evidence that the level of european settlement in colonial times is negatively related to the effectiveness of foreign aid as measured in a growth regression framework our results are robust to the inclusion of a wide set of alternative explanatory factors advanced in the aid effectiveness literature

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

factor endowments inequality and paths of development among new world economies whereas traditional explanations of differences in long run paths of development across the americas generally point to the significance of differences in national heritage or religion we highlight the relevance of stark contrasts in the degree of inequality in wealth human capital and political power in accounting for how fundamental economic institutions evolved over time we argue moreover that the roots of these disparities in the extent of inequality lay in differences in the initial factor endowments dating back to the era of european colonization we document through comparative studies of suffrage public land and schooling policies systematic patterns by which societies in the americas that began with more extreme inequality or heterogeneity in the population were more likely to develop institutional structures that greatly advantaged members of elite classes and disadvantaging the bulk of the population by providing them with more political influence and access to economic opportunities the clear implication is that institutions should not be presumed to be exogenous economists need to learn more about where they come from to understand their relation to economic development our findings not only contribute to our knowledge of why extreme differences in the extent of inequality across new world economies have persisted for centuries but also to the study of processes of long run economic growth past and present

aid growth and devolution considering aid modality and different types of decentralization in this paper we provide further evidence on the relationship between decentralization and foreign aid effectiveness our previous work has shown that decentralization decreases aid effectiveness i e the impact of aid on economic growth is negative in decentralized countries however our previous work has not taken different types of aid and different types of decentralization into account which is at the heart of our current analysis we consider different measures of decentralization in particular measures of fiscal decentralization derived from government finance statistics and measures of political decentralization that are constructed based on countries constitutional rules in addition we take different types of aid into account grants loans technical assistance total net oda and we distinguish between multi lateral and bi lateral aid in order to consider differences in the donor structure our empirical analysis is based on panel data of up to 53 developing countries in our growth regressions we combine all types of decentralization with the different types of aid we find important differences between different types of decentralization i fiscal decentralization negatively affects aid effectiveness in line with our previous work ii employment decentralization may increase aid effectiveness and iii political decentralization does not hamper aid effectiveness or may even have positive effects

the long run determinants of north south terms of trade and some recent empirical evidence abstract this paper reviews some recent evidence of the long run decline in the terms of trade of primary commodities versus manufactures in the context of north south trade this evidence is evaluated in the light of competing explanations of the sources of the observed long run trends in the context of a model of north south trade which includes a general resource labor and capital in the north and specific factors in a dual economy model of the south changes in factor supply sectoral and factoral bias in technical change biased demand conditions changes in the pattern of protection and institutional elements all play a role in determining the evolution of commodity and factor prices the lewis hypothesis of sectoral bias in the pattern of technical change towards temperate agriculture in the north and against tropical agriculture in the south is then reexamined in the light of the recent empirical evidence on terms of trade movements and some sketchy evidence presented on the patterns of bias in technical change in the north and the south the evidence is not consistent with an absolute technical change bias towards temperate agriculture in the north rather the rate of technical change in temperate agriculture is now comparable to that experienced in manufactures so that engel curve effects now assert the major downward pressure on the long run terms of trade between temperate agriculture commodities and manufactures overriding the effects of diminishing returns to natural resources as northern population expands the empirical evidence onbiased technical change in the south is much more sketchy and the evidence on various components of north south terms of trade is more varied

teaching modern macroeconomics at the principles level ideas taught at the macroeconomics principles level should satisfy two goals first they should be simple enough to be both understandable and memorable for the beginning student second they should be consistent both with the modem economy and with the macroeconomic models of this economy that are used in practice for policy evaluation there is no necessary conflict between these two goals the greater the consistency between the ideas taught in the classroom and the models used in practice the easier the ideas are to understand and the worthier they are of being remembered it would be an exaggeration to say that a consensus now exists in advanced research about how macroeconomics should evolve in the future debates continue for example about the usefulness of models with representative agents or what it means to have a fully articulated model of money nevertheless at the practical level a common view of macroeconomics is now pervasive in policyresearch projects at universities and central banks around the world this view evolved gradually since the rational expectations revolution of the 1970 s and has solidified during the 1990 s it differs from past views and it explains the growth and fluctuations of the modern economy it can thus be said to represent a modem view of macroeconomics 1 the purpose of this paper is to show how this modem macroeconomics can be taught at the principles level i focus on macroeconomic concepts including economic growth and fluctuations and their graphical representation rather than on techniques of delivery whether active learning experiments or the use of new media 2 the teaching ideas are similar to those used by david romer 2000 and taylor 1998 but the purpose of this paper is to show how closely they represent modern macroeconomics

a stagnationist model of economic growth in an economy subject to persistent excess capacity demand related factors will play a key role in determining patterns of secular change this thesis has a long history in econ omics sometimes in the underworld and occasionally at the height of fashion as recounted by rowthorn 1982 recent manifestations in the first world are the theories of monopoly capitalism of baran and sweezy 1966 and steindl 1952 who in turn follow kalecki 1971 hobson 1902 luxemburg 1951 and the marx of realisation crises and reproduction schemes in volume ii of capital other radicals such as boddy and crotty 1975 add a profit squeeze explanation of the cycle which underlays the dynamics of the growth model specified here in developing countries difficulties in both realisation and sectoral proportions are emphasised as obstacles to growth witness lustig s 1980 review of latin american structuralist theory and dutt s 1984 model which formalises an ongoing controversy in india about how income redistribution might affect prospects for industrialisation all these authors are stagnationist in assuming that both the growth rate and the level of capacity utilisation can be different under different conditions of income distribution and or macroeconomic policy their preferred policies will presumably lead to greater equality increase utilisation or step up growth they typically ask two analytical ques tions how does output respond in the short run to shifts in the income distribution how do output adjustments feed back into distributional dynamics especially under conditions when price and wage inflation rates may be influenced by employment levels productivity changes and conflicting income claims in what follows we set out a simple model to address these questions and explore the implications for macroeconomic policy of the answers that arise since the approach is not familiar to economists with a standard training a verbal description of the growth model is given first those who wish to jump directly into a formal presentation can proceed to section 1 output x is assumed to meet demand in an instantaneous short run we measure activity as the ratio of firms net cash inflow to the value of capital stock i e the rate of profit r during the short run the price level p is fixed by a mark up rule p 1 x wb where r is the mark up rate w the money wage and b the labor output ratio with this rule the share of profits or mark up income in the value of output is r l t let u stand for the output capital ratio or capacity utilization xik by simple identity

does foreign aid corrupt abstract we estimate the impact of foreign aid on corruption using geographical and cultural distance to the donor countries as instrumental variables to assess causality aid decreases corruption our results are statistically and economically significant and robust to different controls

housing consumption and permanent income in developing countries estimates from panel data in el salvador the estimation of the parameters of housing demand equations occupies a prominent place in the urban economics literature of developed countries see de leeuw 4 and mayo 20 for thorough reviews of the state of the empirical art most research has focused on income and price elasticities of housing demand using both aggregated and micro level data the main conclusions of those studies which do not suffer from aggregation or other biases seem to be that a on average for a large segment of the population including both renters and owners permanent income elasticities are well below one b permanent income elasticities for owners ranging mostly from 0 5 to 0 7 in mayo s review are slightly higher than estimates for renters which ranged mostly from 0 3 to 0 5 c as predicted by the theory the permanent income demand elasticity generally exceeds that of current

an empirical analysis of the demand for housing attributes in a third world city this paper presents estimates of the demand for a set of housing attributes using data drawn from the renter and owner occupier housing submarkets for ibadan nigeria the empirical analysis based on an adaptation of rosen s two step model reveals that the most important determinants of the demand for housing attributes are income price of the attribute in question household size and the occupational status of the head of household the paper further indicates that the demand for housing attributes is inelastic since all estimated coefficients are below unity

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

alternative closures again a comment on growth distribution and inflation marglin 1984a b has recently made a most valuable contribution to the study of econ omic growth and income distribution by showing that the neoclassical neo keynesian and neo marxian approaches can be interpreted as providing alternative rules which close an underdetermined system comprising a production equation and a price equation this exercise provides simple models illustrating the essence of each tradition and allows easy comparison to be made between them however a problem with the exercise of which marglin is aware is that those partial to particular traditions may find his reading of the essence of their approach to be inadequate some of those who may loosely be identified as belonging to the neo marxian and neo keynesian tradition in particular will find some central elements of their theories having no place in marglin s models perhaps the most important concerns the possible stimulative effects of greater income equality on growth a higher real wage could increase the level of consumption in the economy increase effective demand induce firms to invest more and raise the rate of growth of the economy 1 such a story cannot be told by marglin s models in which the relationship between growth measured by the rate of growth of output and income distribution measured by the real wage is inverse criticisms of this type may imply that there may be problems inherent in marglin s comparative method or in the way his exercise is conducted i shall argue that the latter is the case and suggest how it can be rectified without damaging the nature of the exercise the problem lies in marglin s slipping in without acknowledgement strong econ omic asumption in his underdetermined model which supposedly has minimal economic

the assessment macroeconomic policy this paper describes the emerging consensus about the reaction function approach to macroeconomic policy the first section of the paper describes the historical emergence of this consensus as a synthesis of pre keynesian keynesian and monetarist ideas the theoretical part of the paper presents the basic framework of the approach and explains a number of extensions including finding the optimal reaction function avoiding the problem of inflation bias the relevance of the taylor rule forward looking expectations extensions to the open economy and the interconnections between monetary and fiscal policy the later parts of the paper contain a detailed discussion of some of the practical and institutional issues involved in the implementation of this new framework

bargaining power effective demand and technical progress a kaleckian model of growth following the kaleckian tradition this paper presents a demand led growth model in which the distribution of income is fully endogenised this is done by introducing claims on income by workers and firms the bargaining power of these two groups affects through distribution the patterns of accumulation and inflation in turn the bargaining power of workers is affected by the rate of change of employment the paper discusses the model s static and dynamic implications including the effects of exogenous and induced technical progress the model confirms all the typical kaleckian results including the fact that increases in real wages may lead to accelerating accumulation as well as inflation it also produces a new result it is possible that an increase in the rate of change of labour productivity may not lead to an increase in the rate of change of employment

on aid growth and good policies this study provides a critical analysis of the growth regressions in burnside and dollar 2000 first we analyse the relationship between aid and government expenditure in a modified neo classical growth model one of the main results of the analysis is that while good policies spur growths they may at the same time reduce the effectiveness of foreign aid second we show that the econometric results in burnside and dollar emphasising the crucial role of interaction between aid and good policies in the growth process are fragile as they are extremely data dependent finally we demonstrate that the burnside and dollar data lend support to the idea that the association between aid and growth can be approximated by decreasing returns to aid this finding conforms well to regression results in other recent studies

aid to the services sector does it affect manufacturing exports this paper evaluates the impact of foreign aid to five service sectors transportation information and communications technologies energy banking financial services and business services on exports of downstream manufacturing sectors in developing countries to address the reverse causality between aid and exports the analysis relies on an original identification strategy that exploits i the variation of aid flows to service sectors and ii the variation of service intensities across industrial sectors and countries using input output data the authors find a positive effect of aid to services in general on downstream manufacturing exports of developing countries across regions and income level groups

comparative evaluation of post keynesian interest rate rules income distribution and firms debts for macroeconomic performance this article investigates the macroeconomic effects of firms debts and income distribution on economic growth and inflation under three different post keynesian interest rate rules the kansas city rule the smithin rule and the pasinetti rule by setting up a dynamic post keynesian model after reviewing debates on the post keynesian interest rate policies this article evaluates the relative merits of the three rules in their relationship with economic growth regimes and inflation dynamics accordingly this article explicitly shows that i a policy rule works effectively under some economic growth and inflation patterns but not necessarily under other patterns ii a policy rule contributing to high economic growth may not always be compatible with stabilisation of economic growth and iii the macroeconomic effects of debt and income distribution on economic growth and inflation are closely related to the choice of interest rate rule

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

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

humanitarian aid fertility and economic growth this paper examines the effect of humanitarian aid on fertility and economic growth in an overlapping generations model where health status in adulthood depends on health in childhood adult agents allocate their time to work leisure and childrearing activities humanitarian aid influences the probability of survival to adulthood health in childhood and the time that adults allocate to childrearing giving rise to an ambiguous effect on both fertility and growth an empirical investigation for the period 1973 2007 suggests that humanitarian aid has on average a zero effect on the rates of fertility and of per capita output growth

the demand for housing in developing countries empirical estimates from household data cities in developing countries are growing at extraordinary rates often compressing into decades the urbanization process that has taken centuries in developed countries in coping with this growth public authorities have devised a wide range of policy instruments to influence the rate and character of city expansion to meet the needs of people for shelter and urban services and to allocate resources in ways that redistribute both the costs and benefits of urban growth ideally such policy formulation should be informed by a careful understanding of the behavior of urban markets in fact little information on market behavior is available to the policymakers of developing countries such basic information is needed for improved project design and even more important for improved sector wide policies this paper reports on research conducted at the world bank to increase understanding of developing country housing markets in particular of housing demand behavior while the overall project examines both the demand for housing characteristics and the demand for housing as a composite good this paper addresses only the latter the objectives of this paper are 1 to review briefly previous evidence on housing demand parameters in developing countries 2 to present new evidence on housing demand parameters based on application of standardized models and comparable variable definitions in 16 cities in eight developing countries colombia egypt el salvador ghana india jamaica korea and the philippines and 3 to examine similarities and differences among cities in housing demand and in a preliminary way offer explanations for place to place differences limited comparisons are also made to two u s cities in order to begin comparison of developing and developed country market behavior

theory and estimation in the economics of housing demand the main purpose of this paper is to review recent theoretical and empirical developments in the economics of housing demand in particular we ask what is known concerning the permanent income elasticity of housing demand vis a vis the current or measured income elasticity what is known concerning price elasticities what is the appropriate functional form for housing demand equations what is the role of demographic variables what is known concerning dynamic aspects of housing demand what appear to be the major sources of bias in existing estimates of demand equations

macroeconomics without the lm curve an alternative view this paper develops a fully articulated post keynesian alternative to the new consensus macroeconomic model based on explicitly post keynesian hypotheses about the inflation process the income generating process and the appropriate conduct of monetary policy the paper demonstrates how the equilibrium configuration of this model can be manipulated by non monetary policy interventions including fiscal policy and incomes policy one perhaps surprising result that emerges from the analysis is that in the context of the proper policy environment inflation targeting can have a positive impact on real economic performance

a joint model of tenure choice and demand for housing in the city of karachi the paper estimates a joint model of tenure choice and demand for housing for the city of karachi pakistan using a two stage estimation procedure permanent income and demographic variables are included in the analysis the study uses data collected at the household level in the city in 1987 88 results show that ownership rates are high in karachi ownership is more likely with increases in permanent income age household size and residence in the unauthorised areas permanent income transitory income age and education of the head significantly affect the consumption of housing both for renter and owner households results of the analysis and the estimated income elasticities of demand are comparable and consistent with those reported for other developing countries

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

some instability puzzles in kaleckian models of growth and distribution a critical survey we tackle the issue of the possible instability of the kaleckian distribution and growth model distinguishing between keynesian and harrodian instability we review various mechanisms that have been proposed by critics of the kaleckian model to tame harrodian instability while bringing back the rate of utilisation to its normal rate we find that the mechanisms that have been suggested are far from convincing therefore we conclude that it may be premature for the critics of the kaleckian model to dismiss the endogeneity of the rate of capacity utilisation in long run growth equilibrium copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

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

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

aid and performance a reassessment two visions of aid effectiveness and allocation are compared the first corresponding to the new aid paradigm argues that aid is only effective if domestic policies are appropriate the second in contrast argues that aid effectiveness depends on the external and climatic environment the worse this environment or the more vulnerable the recipient countries the greater the effectiveness of aid cross sectional econometric tests related to gdp growth on two 12 year pooled periods clearly favour the second view the two views can be reconciled through the principle of performance based aid allocation where performance is defined as outcomes adjusted for the impact of environmental factors performance can then be measured in several manners which are subject to comparison one approach would lead one to allocate more aid the worse the external environment is for a given policy and the better the policy is for a given environment