when is external debt sustainable the article empirically examines the determinants of debt distress defined as periods in which countries resort to any of three forms of exceptional finance significant arrears on external debt paris club rescheduling and non concessional international monetary fund lending probit regressions show that three factors explain a substantial fraction of the cross country and time series variation in the incidence of debt distress the debt burden the quality of policies and institutions and shocks the relative importance of these factors varies with the level of development these results are robust to a variety of alternative specifications and the core specifications have substantial out of sample predictive power the quantitative implications of these results are examined for the lending strategies of official creditors

investigating first stage exchange rate pass through sectoral and macro evidence from euro area countries in this paper we evaluate the first stage pass through namely the responsiveness of import prices to the exchange rate changes for a sample of euro area ea countries our study aimed to shed further light on the role of microeconomic factors versus macroeconomic factors in influencing the extent of the exchange rate pass through erpt as a first step we conduct a sectoral analysis using disaggregated import prices data we find a much higher degree of pass through for more homogeneous goods and commodities such as oil and raw materials than for highly differentiated manufactured products such as machinery and transport equipment our results confirm that cross country differences in pass through rates may be due to divergences in the product composition of imports the higher share of imports from sectors with lower degrees of pass through the lower erpt for an economy will be in a next step we investigate for the impact of some macroeconomics factors or common events experienced by ea members on the extent of pass through using the system generalised method of moments within a dynamic panel data model our estimates indicate that decline of import price sensitivity to the exchange rate is not significant since the introduction of the single currency our findings suggest instead that the weakness of the euro during the first 3 years of the monetary union significantly raised the extent of the erpt this outcome could explain why the sensitivity of import prices has not fallen since 1999 we also point out a significant role played by the inflation in the eurozone as the responsiveness of import prices to exchange rate fluctuations tends to decline in a low and more stable inflation environment overall our findings support the view that the extent of pass through is comprised of both macro and microeconomic aspects that policymakers should take into account

the exchange rate pass through to import and export prices the role of nominal rigidities and currency choice abstract using both regression and var based estimates the paper finds that the exchange rate pass through to import prices for a large number of countries is incomplete and larger than the pass through to export prices previous studies have reported similar results which give rise to the puzzle that while local currency pricing is needed to account for incomplete import price pass through it would not imply a lower export price pass through recent explanations of this puzzle have emphasized markup adjustment in response to exchange rate changes this paper suggests an alternative explanation based on the presence of both producer and local currency pricing using a dynamic general equilibrium model the paper shows that a mix of producer and local currency pricing can explain the pass through evidence even with a constant markup the model can also explain the observed variability of key variables as well as the fact that the regression and var estimates tend to be similar

earthquake fatalities the interaction of nature and political economy to say that the level of fatalities resulting from an earthquake is inversely related to a country s per capita level of income is hardly novel what makes our approach novel is that we relate fatalities to both per capita income and the level of inequality that exists within a country through their joint impact on the likelihood of collective action being taken to mitigate the destructive potential of quakes we first develop a theoretical model which offers an explanation as to why in some environments different segments of society prove incapable of arriving at what all parties perceive to be an agreeable distribution of the burden of the necessary collective action causing the relatively wealthy simply to self insure against the disaster while leaving the relatively poor to its mercy following this we test our theoretical model by evaluating 269 large earthquakes occurring worldwide between 1960 and 2002 taking into account other factors that influence a quake s destructiveness such as its magnitude depth and proximity to population centers using a negative binomial estimation strategy with both random and fixed estimators we find strong evidence of the theoretical model s predictions that is while earthquakes themselves are natural phenomena beyond the reach of humankind our collective inaction with respect to items like the creation and enforcement of building codes failure to retrofit structures and to enact quake sensitive zoning clearly plays a part in determining the actual toll that a given quake takes and it is through these and other examples of collective inaction that limited per capita income and inequality couple together with a given quake s natural destructive power in determining the actual fatalities resulting from a quake

the institutional reforms debate and fdi flows to the mena region the best ensemble summary this paper empirically examines the theoretical debate on the adoption of a best approach to reforming institutions identified by rodrik 2008 in the context of property rights protection and fdi flows to eight mena countries the first best approach comprises strengthening domestic institutional functions only while the second best comprises in addition entering into force bilateral investment treaties and the interaction between functions and treaties empirically both approaches to reducing investment expropriation risk encourage fdi flows the positive effect of the second best approach depends on the success of the first best approach suggesting the two approaches are complementary

exchange rate pass through into import prices revisited what drives it a large sample of developed and emerging economies is utilized to investigate import exchange rate pass through panel models reveal that various economic aspects of the destination country can explain about one third of the total variation in pass through elasticities and the remaining variation comes largely in the form of unobserved country specific effects inflation exchange rate volatility openness and relative wealth play a clear role as drivers of emerging markets pass through whereas the output gap and protectionism appear influential more generally nonlinearity regarding large versus small changes in the exchange rate is quite pervasive our evidence challenges the widely held view that pass through has been universally falling in developed markets and that it is higher for emerging markets the economic drivers are shown to play a role as out of sample predictors of pass through the findings confirm pricing to market theories and have implications for the optimal conduct of monetary policy

deep impact geo simulations as a policy toolkit for natural disasters adverse post natural disaster outcomes in low income regions like elevated internal migration levels and low consumption levels are the result of market failures poor mechanisms for stabilizing income and missing insurance markets which force the affected population to respond and adapt to the shock they face in a spatial environment with multiple locations with independent but inter connected markets these transitions quickly become complex and highly non linear due to the feedback loops between the micro individual level decisions and the meso location wise market decisions to capture these continuously evolving micro meso interactions this paper presents a spatially explicit bottom up agent based model to analyze natural disaster like shocks to low income regions the aim of the model is to temporally and spatially track how population distributions income and consumption levels evolve in order to identify low income workers that are food insecure the model is applied to the 2005 earthquake in northern pakistan which faced catastrophic losses and high levels of displacement in a short time span and with market disruptions resulted in high levels of food insecurity the model is calibrated to pre crisis trends and shocked using distance based output and labor loss functions to replicate the earthquake impact model results show how various factors like existing income and saving levels distance from the fault line and connectivity to other locations can give insights into the spatial and temporal emergence of vulnerabilities the simulation framework presented here leaps beyond existing modeling efforts which usually deals with macro long term loss estimates and allows policy makers to come up with informed short term policies in an environment where data is non existent policy response is time dependent and resources are limited

does rising income increase or decrease damage risk from natural disasters abstract recent empirical literature has found a negative relationship between income per capita and measures of risk from natural disaster supportive of logic that higher incomes allow countries to mitigate disaster risk we argue that behavioral changes at the micro level in response to increasing income such as location choice and extent of costly abatement activity may lead to a non linear relationship between aggregate incomes and disaster damages where the risks increase with income before they decrease in a country year panel data set we show that disaster risk associated with flooding landslides and windstorms increases with income up to gdp per capita levels of 5044 3360 and 4688 per year respectively and decrease thereafter such non linear impacts are absent for other disaster types such as extreme temperature events and earthquakes where the links between human behavioral choices and exposure to risk are not as strong from a policy perspective this suggests that for the least developed countries the dual goals of disaster risk prevention and economic development cannot be assumed to be complementary for all forms of natural disaster in addition to allocating resources to manage disaster risk the poorest nations may have to be more proactive in enacting policies that alter the behavioral choices of citizens that impact a country s exposure to natural disaster risk

low inflation pass through and the pricing power of firms abstract recently there has been a significant decline in the degree to which firms pass through changes in costs to prices a decline that is frequently characterized as a reduction in the pricing power of firms the decline appears to be associated with the decline in inflation in many countries the decline has important implications for monetary policy because it affects both forecasts of inflation and the effects of changes in monetary policy on inflation some have argued that the decline in pricing power helped to keep inflation low in the face of apparently strong demand pressures in the united states in the late 1990s this paper puts forth the view that the decline in pass through or pricing power is due to the low inflation environment that has recently been achieved in many countries first a microeconomic model of price setting is used to show that lower pass through is caused by lower perceived persistence of cost changes evidence is then presented showing that inflation is positively correlated with persistence of inflation suggesting that the low inflation itself has caused the low pass through an economy wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways but can disappear quickly if monetary policy and expectations change

globalisation pass through and the optimal policy response to exchange rates abstract in this paper we examine how monetary policy should respond to nominal exchange rates in a new keynesian open economy model that allows for a non trivial role for sterilised intervention the paper develops the argument against the backdrop of the evolving policy making environment of asian economies sterilised intervention can be a potent tool that offers policymakers an additional degree of freedom in maximising global welfare we show that the gains to sterilised intervention are greater when goods market integration is low and exchange rate pass through is high however increased financial internationalisation reduces the effectiveness of sterilised intervention as the international policy trilemma becomes more relevant unsterilised intervention may also have a role to play although the potential welfare gains from this are generally smaller most central banks in asia have actively used sterilised foreign exchange intervention as a policy tool to smooth exchange rates but over time declining exchange rate pass through and the increasing international integration of financial and goods markets will tend to reduce the efficacy of sterilised intervention given the limited effectiveness of unsterilised intervention our model implies that the role of exchange rate movements in the optimal setting of monetary policy in asia is decreasing

second best institutions the focus of reforms in the developing world has moved from getting prices right to getting institutions right this reflects the recognition that markets are unlikely to work well in the absence of a predictable and legitimate set of rules that support economic activity and dis pense its fruits governance reforms have become the buzzword for bilateral donors and multilateral institutions in much the same way that liberalization privatization and stabiliza tion were the mantras of the 1980s but what kind of institutions should reform ers strive to build it is easier to list the func tions that good institutions perform than it is to describe the shape they should take desirable institutions provide security of property rights enforce contracts stimulate entrepreneurship foster integration in the world economy maintain macroeconomic stability manage risk taking by financial intermediaries supply social insurance and safety nets and enhance voice and account ability but as the variety of institutional forms that prevail in the advanced countries themselves suggests richard freeman 2000 peter hall and david soskice 2001 each one of these ends can be achieved in a large number of different ways rodrik 2007a

natural disasters impact factors of resilience and development a meta analysis of the macroeconomic literature abstract we systematize 64 primary studies published in 2000 2013 on the macroeconomic impact of natural disasters by providing ols and generalized ordered probit meta analyses for 1858 and 1991 regressions respectively we investigate how the reported results in the primary studies are influenced by the empirical design the estimation technique and or publication bias we analyze primary studies on disaster direct costs and indirect costs separately according to our meta analysis disasters on average have a negative impact in terms of direct costs and an insignificant impact in terms of indirect costs mst and fat pet peese estimates motivate the meta analyses showing the need for a multivariate approach to consider strong systematic research heterogeneity time based characteristics of the data and publication bias strongly impact on the results of the primary studies thus implying the need for authors to carefully consider the selection of time period and for research institutions to understand the sources of selection bias in disseminated results we argue that further research is necessary on the heterogeneity of results of indirect cost studies and suggest that future studies on the macroeconomic impact of disasters should explore more often the mitigation role of education investment and openness by including these as explanatory variables

the impact of bilateral investment treaties on fdi dynamics this paper investigates the impact of bilateral investment treaties bits on foreign direct investment fdi in transition countries fdi stocks are characterised by sluggish adjustment and a dynamic pattern this leads to biased estimates of the contemporaneous impact of bits on fdi in static models in our application the contemporaneous short run impact of bits amounts to 4 8 per cent and the long run effect to 8 9 per cent in the preferred model copyright 2007 the authors journal compilation blackwell publishing ltd 2007

modelling the interaction between flooding events and economic growth abstract socio hydrology describes the interaction between the socio economy and water recent models analyze the interplay of community risk coping culture flooding damage and economic growth di baldassarre et al 2013 viglione et al 2014 these models descriptively explain the feedbacks between socio economic development and natural disasters like floods contrary to these descriptive models our approach develops an optimization model where the intertemporal decision of an economic agent interacts with the hydrological system in order to build this first economic growth model describing the interaction between the consumption and investment decisions of an economic agent and the occurrence of flooding events we transform an existing descriptive stochastic model into an optimal deterministic model the intermediate step is to formulate and simulate a descriptive deterministic model we develop a periodic water function to approximate the former discrete stochastic time series of rainfall events due to the non autonomous exogenous periodic rainfall function the long term path of consumption and investment will be periodic

is exchange rate pass through symmetric evidence from us imports this study addresses the question of whether exchange rate pass through into the import price is symmetric between appreciation and depreciation of the home currency the dramatic increase of the dollar in the early 1980s and the subsequent decline provided a necessary setting for testing whether there was a structural change in the exchange rate pass through examining import price data for 98 disaggregated sic industries in the us manufacturing sector and the us import price for all commodities mixed evidence is found regarding the stability of exchange rate pass through

the pecking order of cross border investment abstract is there a pecking order of cross border investment in that countries become financially integrated through some types of investment rather than others using a novel database of bilateral capital stocks for all types of investment fdi portfolio equity securities debt securities as well as loans for a broad set of 77 countries we show that such a pecking order indeed exists the paper focuses on two key determinants of this pecking order information frictions and the quality of host country institutions overall we find that in particular fdi and to some extent also loans are substantially more sensitive to information frictions than investment in portfolio equity and debt securities we also show that the share as well as the size of fdi that a country receive are largely insensitive to institutional factors in host countries while portfolio investment is by far the most sensitive to the quality of institutions this provides new evidence in favor of some hypotheses but contradicts others put forward in the literature on trade in financial assets

self insurance against natural disasters abstract expenditures on self insurance to mitigate the effects of natural disasters on the value of private assets are examined in a model where individuals are partially insured against financial loss by a public relief program and where private insurance is unavailable the model predicts that optimal private expenditures on self insurance will be excessive or insufficient according to the nature of the technology by which individuals protect their assets the comparative static effects of variations in the level of public compensation individual wealth and attitudes toward risk and the degree of environmental uncertainty on self insurance expenditures and on the magnitude and frequency of public compensation are also characterized and their implications for remedial government policies are examined

the effects of adaptation measures on hurricane induced property losses which fema investments have the highest returns abstract this paper evaluates the relative effectiveness of fema expenditures on hurricane induced property losses we find that spending on fema ex ante mitigation and planning projects leads to greater reductions in property losses than spending on ex post adaptation programs specifically a one percent increase in annual spending on ex ante risk reduction and warning projects reduces damages by 0 21 percent while a one percent increase in ex post recovery and clean up spending reduces damages by 0 12 although both types of program spending are effective we find the marginal return from spending on programs that target long term mitigation and risk management to be almost twice that of spending on ex post recovery programs with the predicted increases in the frequency and severity of north atlantic hurricanes in the future our findings suggest there are important potential gains that could be realized from the further diversification of fema spending across project categories

united arab emirates fdi outlook fdi is important in building a sustainable and diversified knowledge based uae economy the stock of fdi grew at an average annual growth rate of 45 3 percent over the past decade reaching us 95 billion or nearly 27 percent of gdp in 2012 fdi flows have not recovered from the global financial crises most fdi stock is concentrated in finance construction and real estate recent greenfield fdi is concentrated in construction while more than half of top m a deals took place in finance transportation communications and utilities the list of top oecd home countries for fdi flows to the uae include italy germany chile united kingdom luxembourg france united states and belgium though uae investment policy limits foreign investment and reduces competition the government has undertaken reforms and contracted investment treaties that have encouraged investment efforts are under way to speed up the ratification of a new foreign investment law which removes several of the current legal barriers to fdi and offers foreign investors similar rights to those of uae nationals the uae has high fdi potential with plenty of room for improving fdi performance and benefiting the economy

economic development and losses due to natural disasters the role of hazard exposure abstract our contribution is to show that the relationship between wealth and disasters is mainly formed by the exposure to disaster hazard we first build a simple analytical model that demonstrates how countries that face a low hazard of disasters are likely to see first increasing losses and then decreasing ones with increasing economic development at the same time countries that face a high hazard of disasters are likely to experience first decreasing losses and then increasing ones with increasing economic development we then use a cross country panel dataset in conjunction with a hazard exposure index to investigate whether the data is consistent with the predictions from the model in line with our model we find that the relationship of losses with wealth crucially depends on the level of hazard of natural disasters faced by countries

investigating geography and institutions as determinants of foreign direct investment in africa using panel data this article uses a cross country econometric approach to identify the determinants for foreign direct investment fdi in africa the contribution is 3 fold firstly we recognize that the estimation techniques used elsewhere such as ordinary least squares may be flawed we therefore use a dynamic one step generalized method of moments gmm estimator due to arellano and bond 1991 the gmm estimates identified a number of robust determinants of fdi namely government consumption inflation rate investment governance political stability accountability regulatory burden rule of law and initial literacy it is concluded that geography does not seem to have a direct influence on fdi flows to africa neither market seeking nor re exporting motives of fdi seem to dominate with different policy instruments being significant in the different specifications this does not discount the importance of good policies but probably indicates the importance of good policies made by good institutions institu

institutions and the external capital structure of countries abstract a widespread view holds that countries that finance themselves through foreign direct investment and portfolio equity rather than bonds and loans are less prone to crises but what determines countries external capital structures in a cross section of advanced economies emerging markets and developing countries we find that equity like liabilities as a share of countries total external liabilities are positively and significantly associated with indicators of educational attainment openness natural resource abundance and especially institutional quality these relationships are robust to attempts to control for possible endogeneity suggesting that better institutional quality may help improve countries external capital structures

risky business political instability and greenfield foreign direct investment in the arab world which foreign direct investments are most affected by political instability analysis of quarterly greenfield investment flows into countries in the middle east and north africa during the period from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non resource tradable sectors by contrast investments in natural resource sectors and non tradable activities appear insensitive to such shocks political instability is thus associated with increased reliance on non tradables and aggravated resource dependence

exchange rate pass through abstract the resilience of trade balances of the major industrialized economies to changes in their exchange rates has evoked interest in the exchange rate pass through relationship so far there has not been a comprehensive survey of this literature the paper aims to fill this gap in two ways first it pieces together the theoretical literature on exchange rate pass through second it provides a critical survey of the empirical literature on exchange rate pass through emphasis is placed on the data and methodology employed in previous work this is done in order to guide future work in this growing area of research

economic development and the impacts of natural disasters abstract we use disaster impact data over time to examine the degree to which the human and economic losses from natural disasters are reduced as economies develop we find that countries with higher income higher educational attainment greater openness more complete financial systems and smaller government experience fewer losses

revisiting the pass through of exchange rate in the transition economies new evidence from new eu member states abstract this paper revisits the exchange rate pass through erpt for a set of transition economies namely for 10 new eu member states nms over the period 1996 2015 as the transition process has entailed a deep transformation in their economies and institutions the extent of pass through is expected to be regime dependent on this changing macroeconomic environment we propose to implement a nonlinear panel smooth transition regression pstr approach where transitional factors related to eu accession are captured properly from the data our empirical results suggest that the inflation regime is the main macroeconomic driver of the extent of erpt when inflation levels exceed the threshold of 4 56 i e within a high inflation environment the degree of pass through is higher and reaches a full erpt however with the shift towards a stable and low inflation regime i e when inflation levels are below a threshold of 4 56 the extent of pass through significantly declines in the nms group our findings shed further light on how the credibility gained through the commitment to euro area membership is beneficial and would ensure better control of inflation

an empirical study of the determinants of green party voting i empirically study the determinants of individuals green voting behavior for this i make use of three datasets from germany a panel dataset and two cross sectional datasets the empirically strongest determinants are the voters attitude or distance to nuclear sites the level of schooling and net income i show that those voters with deviant attitudes or alternative world views are more likely to vote green a result of the fact that the green party has always had the position of a protest party i find little role for demographic variables like gender marital status or the number of children this is in contrast to the stated preference literature age plays a role for explaining voting behavior only insofar as it proxies for health

informing climate adaptation a review of the economic costs of natural disasters abstract this paper reviews the empirical literature on the economic impacts of natural disasters to inform both the modeling of potential future climate damages and climate adaptation policy related to extreme events it covers papers that estimate the short and or long run economic impacts of weather related extreme events as well as studies identifying the determinants of the magnitude of those damages including fatalities the paper also reviews the small number of empirical papers on the potential extent of adaptation in response to changing extreme events

why doesn t capital flow from rich to poor countries an empirical investigation we examine the empirical role of difierent explanations for the lack of ows of capital from rich to poor countries the lucas paradox the theoretical explanations include difierences in fundamentals across countries and capital market imperfections we show that during 1970i2000 low institutional quality is the leading explanation for example improving peru s institutional quality to australia s level implies a quadrupling of foreign investment recent studies emphasize the role of institutions for achieving higher levels of income but remain silent on the speciflc mechanisms our results indicate that foreign investment might be a channel through which institutions afiect long run development

naturally negative the growth effects of natural disasters abstract growth theory predicts that natural disasters should on impact lower gdp per capita however the empirical literature does not offer conclusive evidence most existing studies use disaster data drawn from damage records of insurance companies we argue that this may lead to estimation bias as damage data and the selection into the database may correlate with gdp we build a comprehensive database of disaster events and their intensities from primary geophysical and meteorological information in contrast to insurance data our geomet data reveal a substantial negative and robust average impact effect of disasters on growth the worst 5 disaster years come with a growth damage of at least 0 46 percentage points that average effect is driven mainly by very large earthquakes and some meteorological disasters poor countries are more strongly affected by geophysical disasters rich more by meteorological events international openness and democratic institutions reduce the adverse effect of disasters

trade linkages and the globalisation of inflation in asia and the pacific abstract some observers argue that increased real integration has led to greater co movement of prices internationally we examine the evidence for cross border price spillovers among economies participating in the pan asian cross border production networks starting with country level data we find that both producer price and consumer price inflation rates move more closely together between those asian economies that trade more with one another ie that share a higher degree of trade intensity next using a novel data set based on the world input output database wiod we examine the importance of the supply chain for cross border price spillovers at the sectoral level we document the increasing importance of imported intermediate inputs for economies in the asia pacific region and examine the impact on domestic producer prices of changes in costs of imported intermediate inputs our results suggest that real integration through the supply chain matters for domestic price dynamics in the asia pacific region