economic growth and structure of domestic absorption evidence from internationally comparable data abstract using the chenery syrquin models of structural change and internationally comparable data on gdp per capita and shares of consumption investment and government spending for the 1960s and the 1970s a study is conducted of changes in the structure of domestic absorption that accompany economic growth relative to the conventional data real data indicate the fall in the share of consumption to be somewhat lower and the rise in the share of investment to be larger as gdp per capita rises the share of government is observed to decline although most previous studies indicate an increase in government share with economic growth

sudden stops financial frictions and labor market flows evidence from latin america abstract while the aggregate effects of sudden stops and international financial crises are well known the disaggregated channels through which they work are not well explored yet in this paper using job flows from a sectoral panel dataset for four latin american countries we find that sudden stops are characterized as periods of lower job creation and increased job destruction moreover these effects are heterogeneous across sectors we find that when a sudden stop occurs sectors with higher dependence on external financing experience lower job creation in turn sectors with higher liquidity needs experience significantly larger job destruction this evidence is consistent with the idea that dependence on external financing affects mainly the creation margin and that exposure to liquidity conditions affects mainly the destruction margin overall our results provide evidence of financial frictions being an important transmission channel of sudden stops and in the restructuring process in general

tastes and technology in a two country model of the business cycle explaining international trade on international financial markets allows people to insure country specific risk and smooth consumption intertemporally equilibrium models of business cycles with trade on global financial markets typically yield international consumption correlations near one and excessive volatility of investment the authors incorporate nontraded goods in the model and find that the implications for aggregate consumption investment and the trade balance are consistent with business cycle properties of industrialized countries however the model driven by technology shocks alone yields counterfactual implications for comovements between consumption and prices at the sectoral level taste shocks produce price quantity relationships more consistent with the data copyright 1995 by american economic association

relative prices and investment rates abstract we construct a panel for the price of aggregate investment over consumption and report the following observations 1 relative price differences across countries are large over the entire sample period and this conclusion is not affected by excluding non tradable consumption goods 2 relative price dispersion has decreased during the sample period 3 relative price changes are not persistent across periods while average price levels are moreover the persistence in relative price levels is higher for countries at low relative prices we show that the relative price of investment is negatively correlated with investment rates in a cross section of countries the standard one sector growth model is a natural framework to study quantitatively the effects of barriers to capital accumulation since there is a very simple mapping between barriers to investment and relative prices in this environment we simulate a calibrated version of the model in which barriers follow a stochastic process common to all countries and estimated using relative price data and obtain statistics for investment rates that closely resemble what we observe in the data in particular the model accounts for 90 of the 1985 gini index of relative investment rates and the decline in investment rate dispersion over time the model has two limitations as a theory of development first it cannot account for the income disparity in the data unless we assume unmeasured capital with barriers affecting the broad measure of capital second even under these extreme assumptions the model cannot account for the evolution of income disparity over time

absorbing a windfall of foreign exchange dutch disease dynamics abstract the permanent income rule is seldom the optimal response to a windfall of foreign exchange such as that from a resource discovery absorptive capacity constraints require domestic investment and investment in structures requires non traded inputs the supply of which is constrained by the initial capital stock this particularly when combined with intra sectoral capital immobility delays adjustment and creates short run dutch disease symptoms as the real exchange rate sharply appreciates and overshoots its long run value optimal revenue management requires investing in the domestic non traded goods sector and a slow build up of consumption accumulation of foreign assets adjusts to accommodate the time paths of domestic consumption and investment

the costs of financial crises resource misallocation productivity and welfare in the 2001 argentine crisis the costs of financial crises financial crises in emerging market countries appear to be very costly both output and a host of partial welfare indicators decline dramatically the magnitude of these costs is puzzling both from an accounting perspective factor usage does not decline as much as output resulting in large falls in measured productivity and from a theoretical perspective towards a resolution of this puzzle we present a framework that allows us to i account for changes in a country s measured productivity during a financial crises as the result of changes in the underlying technology of the economy the efficiency with which resources are allocated across sectors and the efficiency of the resource allocation within sectors driven both by reallocation amongst existing plants and by entry and exit and ii measure the change in the country s welfare resulting from changes in productivity government spending the terms of trade and a country s international investment position we apply this framework to the argentine crisis of 2001 using a unique establishment level data set and find that more than half of the roughly 10 decline in measured total factor productivity can be accounted for by deterioration in the allocation of resources both across and within sectors we measure the decline in welfare to be on the order of one quarter of one years gdp

international price discrimination the pharmaceutical industry abstract it is generally asserted that price discrimination is a common feature of the international pharmaceutical market resulting in unnecessarily high medical costs to developing countries since it is pharmaceuticals that are the largest component of their health care expenditures however little comprehensive empirical research has been carried out to test this hypothesis this article compares the prices of identical packages of pharmaceutical products for 32 countries for the year 1975 and examines which factors contribute to thehuge price differences a strong positive relationship between price level and per capita gdp is found a 10 increase in per capita income being associated with on average 8 higher drug prices the implementation of direct price control measures by the government results on average in a 20 price reduction while government policies such as bulk purchasing through a centralized government agency promotion of the use of generics and to a lesser extent excluding patent protection seem to be sucessful in lowering the general price level of pharmaceuticals these results suggest that the pharmaceutical industry charges what the market will bear

the revealed preferences of state epas stringency enforcement and substitution abstract the epa suggests states inspect polluters at least once a year and use sampling and nonsampling inspections equally states face two separate pressures in their attempts to comply with these mandates political and budgetary budgetary considerations arise because inspections are costly while political pressures arise because the stringency of enforcement in part determines the cost abatement this study estimates the relative importance of political and budgetary pressures in the stringency with which the clean water act is enforced the results suggest that inspections determined by budgetary concerns and the stringency of inspections is determined in part by political factors

on the consequences of sudden stops our analysis shows a number of interesting empirical regularities first when we apply a simple definition of sudden stops we find that they have been a fairly common occurrence at least since the late 1970s second economic performance after a sudden stop can differ dramatically across countries depending on certain country characteristics we show that open economies and those that choose a floating exchange rate regime after a crisis recover fairly quickly from the output contraction that usually comes with the sudden stop whereas countries with liability dollarization recover more slowly these characteristics relate to how the economies adjust exports and imports during the aftermath of a sudden stop open economies that do not show much liability dollarization tend to show higher export growth and less import contraction than highly dollarized economies the paper is organized as follows the next section discusses our definition of sudden stops we then examine the stylized facts associated with sudden stops including their regional coverage and evolution over time a subsequent section proceeds to identify the key factors that explain the nature of the aftermath of a sudden stop in capital flows if sudden stops remain a recurrent feature of emerging market economies in years to come the issue of how to ensure a quick return of growth in the aftermath of a crisis will require attention policy recommendations focused on improving such ex post performance should go hand in hand with traditional prevention measures designed to avoid the crises we elaborate on these conclusions in the final section

true world income distribution 1988 and 1993 first calculation based on household surveys alone the paper derives world income or expenditure distribution of individuals for two years 1988 and 1993 it is the first paper to calculate world distribution for individuals based entirely on household survey data from 91 countries and adjusted for differences in purchasing power parity between the countries measured by the gini index inequality increased from an already very high 63 in 1988 to 66 in 1993 the increase was driven more by rising differences in mean incomes between the countries than by rising inequalities within countries the most important contributors were rising urban rural differences in china and slow growth of rural incomes in south asia compared to several large developed market economies

sudden stops and output drops in recent financial crises and in recent theoretical studies of them abrupt declines in capital inflows or sudden stops have been linked with large drops in output do sudden stops cause output drops no according to a standard equilibrium model in which sudden stops are generated by an abrupt tightening of a country s collateral constraint on foreign borrowing in this model in fact sudden stops lead to output increases not decreases an examination of the quantitative effects of a well known sudden stop in mexico in the mid 1990s confirms that a drop in output accompanying a sudden stop cannot be accounted for by the sudden stop alone to generate an output drop during a financial crisis as other studies have done the model must include other economic frictions which have negative effects on output large enough to overwhelm the positive effect of the sudden stop this abstract was borrowed from another version of this item

user cost and housing tenure in developing countries abstract this paper reports on research conducted at the world bank to increase understanding of developing country housing markets in particular of housing demand behavior the objectives of the paper are 1 to briefly review recent evidence on housing demand parameters in developing countries including new estimates for colombia egypt el salvador ghana india jamaica korea and the philippines and 2 to examine similarities and differences among cities in housing demand the analysis emphasizes differences in housing demand by tenure particularly for renters and owners but also for squatters and non squatters and paralleling the literature in developed countries stresses the importance of accounting for the impact of income and relative prices on housing demand

divergence and convergence in international development a decomposition analysis of inequality in the world system the convergence hypothesis of conventional modernization theory suggests that the nations of the world are becoming more similar critics have argued that nations are diverging and becoming dissimilar over time this paper brings unique data analytic procedures and a world system perspective to bear on this debate we suggest that world system theory provides a framework for explaining the simultaneous occurrence of both convergence and divergence specifically the logic of world system theory suggests that divergence occurs between the three zones of nations core semiperiphery and periphery whereas convergence occurs within them with respect to economic development our analyses indicate that predictions concerning divergence were partially supported and predictions concerning convergence held only for the core trends within the periphery and semiperiphery question the utility of world system theory

economic policy and the relative price of services in ldcs abstract low relative prices of nontraded services are a feature of developing economies recent explanations focus on structural issues such as factor endowments and returns to scale this paper argues that economic policy may also contribute to low ldc service prices in a three sector model with wage differentials financial repression unambiguously depresses both per capita real income and the price of nontraded goods in contrast to most current models tariffs and production subsidies can also depress nontraded goods prices

financial crisis fiscal policy and the 1995 gdp contraction in mexico in 1995 mexico experienced its largest contraction of gross domestic product gdp since the early twentieth century i propose a simple mechanism to partially account for the contraction the effects of changes in fiscal policy the contraction of gdp was preceded by a financial crisis the government responded by raising taxes and reducing spending using a model with taxation and government consumption and the business cycle accounting methodology i measure the impact of fiscal policy fiscal policy accounts for 20 7 of the fall in output

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

trade and structural change nics and next tier nics as transitional economies abstract the paper finds a strong association between rapid change in the sectoral composition of output and exports structural change and rapid export growth in the newly industrializing countries capital formation appears to be encouraged in dynamic economies by the underpricing of investment goods vis a vis consumption and government goods within these economies also the underpricing of investment goods in dynamic economies is relatively greater than in less dynamic economies whereas other research has found low price distortion to be associated with high growth and an outward rather than an inward looking orientation these associations are seriously challenged and more caution is urged in reaching generalized conclusions

nontradable goods prices and per caita income an application to regional korean data pooled time series cross sectional regional data for korea over the period 1985 1991 are used to investigate points which emerged from the united nations international comparison project the results based on a regional analysis are opposite to those of the icp the prices of services do not increase more rapidly in fast growing than in slow growing regions this regional analysis provides constradictory evidence to the widely recognized stylized fact that the prices of nontradables increase with real per capital income by a larger margin than the prices of tradables increase

the potential for cost savings in the sulfur dioxide allowance market empirical evidence from florida since the passage of the 1990 clean air act amendments researchers have hastened to appraise the new market for sulfur dioxide so2 emission allowances as the epa s program moves into its second phase some analysts question whether large enough savings are available to induce widespread market participation this study calculates the shadow prices of emission reductions for power plants that serve florida and compares the actions of utility owners to the actions predicted by the shadow prices the evidence suggests that plant owners have not taken full advantage of the opportunities the allowance market has provided to date

world product and income international comparisons of real gross product the volume reports on the third phase of the united nations international comparison project icp the main results provide comparisons of real gross domestic product gdp per capita for thirty four countries in 1975 quantity and price comparisons are given also for personal consumption capital formation and public consumption and further subdivisions of final expenditures on gdp are estimated

paying for permanence an economic analysis of epa s cleanup decisions at superfund sites we analyze epa s cleanup decisions at over 100 superfund sites and examine whether and how epa trades off the cost against the permanence of cleanup epa s decisions reveal both a preference for permanent solutions and an aversion to cost for example epa prefers incinerating soils to isolating and containing them in place but not at any price at larger sites epa appears willing to accept additional costs of as much as 40 million to incinerate with regard to environmental equity we find little evidence that epa s cost permanence tradeoff is affected by socioeconomic characteristics in the communities surrounding the sites

comparing the incomes of nations a critique of the international comparison project this article s main purpose is to discuss certain key problems that arise in calculating purchasing power parities ppps when making international comparisons of real product while reviewing partially the work of irving kravis alan heston and robert summers 1982 before beginning the discussion the author wishes to record his opinion that this work of kravis heston and summers carried out and successively published over the past 15 years represents one of the great contributions to applied economics in the article that precedes this one kravis provides a survey of the applications of this type of data but it must be emphasized that any such listing can do only partial justice to the scope of new applications which seem to arise almost every day apart from applications to various aspects of international economic policy there is so much greater international variation in basic economic variables such as real income and relative prices than is usually found in typical intranational intertemporal comparisons that the new data inevitably represent an enormous increment in our science s general capacity for statistical experiment thus the debt owed to this team of research workers by the economics profession at large is immeasurable a ppp is essentially a form of international or interregional price index complicated but not essentially changed by the existence of national currencies for example suppose we found by some kind of index number calculation that the general price level in region a was 10 percent higher than in region b of the same country given a common currency the exchange rate between the money circulating in the two regions is clearly 1 0 but the ppp for region a in comparison with region b is 0 91 this being the number by which it is necessary to multiply a given nominal income in a to give it the same purchasing power as a corresponding income in b it follows that the ppp must be some average of the ratios among individual commodity prices in the two regions in the case of two countries with different currencies one can speak of a commodity ppp as being the rate of exchange between the two currencies which would equalize the price of a given commodity then the general ppp for the two countries is some average of the commodity ppps in international as in intertemporal comparisons there is a duality between the problem of measuring price levels and

short versus long run implications of trade liberalization for poverty in three developing countries the impacts of global trade reform on poverty are a key concern in the current trade negotiations under the doha development agenda the aggregate poverty impacts of trade reform are in turn strongly linked to the impacts of such reforms on the rural population as they constitute the overwhelming majority of the poor in almost all developing countries this paper uses a new micro simulation methodology designed to analyze this critical issue the methodology is first explained and then applied to three developing countries of particular interest chile malawi and vietnam a key feature is the distinction between the short run impacts of reform where many factors most importantly selfemployed labor of the poor tend to be immobile between sectors and the longer run impacts when factors find their highest return regardless of the sector of employment this distinction makes an enormous difference and

real exchange rate fluctuations wage stickiness and tradability when we classify factors of production by their tradability the relative wage of nontraded labour influences the real exchange rate through the relative cost of distribution services we confirm this prediction using monthly data on the sector level us canada real exchange rate and the relative wage of service producing labour the relative wage accounts for 40 of the variability of the real exchange rate at a one month horizon furthermore when we use the effective nontraded labour content to classify goods into nontraded and traded ones the variability of the price of the nontraded goods basket accounts for more than half of the variability of the real exchange rate

are international monetary fund quotas unfavorable to less developed countries a normative historical analysis abstract the international monetary fund criterion of economic size receives normative justification as the determinant of quotas but size must be represented by appropriately measured income reserves and trade the fund s income measure is deficient because it uses exchange rates rather than purchasing power parities to convert figures to a common currency if a favourable quota disparity is defined as an actual quota above the quota predicted by economic size less developed countries had adverse disparities early in imf history but increasingly favorable disparities over time given the inertia of relative quotas members would do well to maximize their initial quota

what impact does the choice of formula have on international comparisons in this paper an empirical comparison of a number of alternative multilateral index number formulae is undertaken the magnitude of the effect of choosing one formula over another is ascertained using an appropriate cross sectional data set constructed under the auspices of the eurostat oecd purchasing power parity programme to this end a new indicator is proposed that facilitates the measurement of the difference between two sets of bloc consumption shares each computed using a different multilateral comparison method jel classification c31 c43 c81 e31 f31 o57 quel impact est ce que le choix des formules a sur les comparaisons internationales ce memoire propose une comparaison empirique d un certain nombre de formules de nombres indices multilateraux on tente de jauger la magnitude de l impact du choix d une formule plutot qu une autre en utilisant une base de donnees transversales appropriee construite sous l egide du programme de parite du pouvoir d achat eurostat ocde on propose un nouvel indicateur qui facilite la mesure de la difference entre deux ensembles de patterns de consommation chacun calculea l aide d une methode de comparaison multilaterale differente

structural change and poverty in africa a decomposition anakysis for cote d ivoire abstract this paper provides evidence that economic destabilization and the absence of managed structural change in an economy can be more harmful to the welfare of the poor than the process of adjustment itself evidence comes from four consecutive years of household survey data from cote d ivoire spanning both a period of adjustment and destabilization these constitute a unique data base in africa to assess the impact of structural change on the poor the analytic methodology used is that of static and dynamic decomposition of poverty measures along policy relevant dimensions

sudden stops sectoral reallocations and the real exchange rate abstract a sudden stop of capital flows into a developing country tends to be followed by a rapid switch from trade deficits to surpluses a depreciation of the real exchange rate and decreases in output and total factor productivity substantial reallocation takes place from the nontraded sector to the traded sector we construct a multisector growth model calibrate it to the mexican economy and use it to analyze mexico s 1994 95 crisis when subjected to a sudden stop the model accounts for the trade balance reversal and the real exchange rate depreciation but it cannot account for the decreases in gdp and tfp extending the model to include labor frictions and variable capital utilization we still find that it cannot quantitatively account for the dynamics of output and productivity without losing the ability to account for the movements of other variables

the snakes and ladders of twenty first century trade unionism trade unions in the advanced countries face a difficult future their core membership bases in manufacturing industry and public services have become declining sectors of employment keynesian demand management on which they depended for tight labour markets has collapsed most industrial relations activity has shifted to the enterprise level which they often find difficult to penetrate precarious employment which makes union membership difficult is growing on the other hand certain advantages offset these weaknesses for a number of different recent economic and political elites often need the support of trade unions for national social pacts also employment conditions continue to create new social problems for working people which only unions can express unions in different countries encounter these combinations of favourable and unfavourable prospects in very different ways which is likely to produce increasing diversity among the emerging national patterns copyright 2000 by oxford university press

monetary news in the united states and business cycles in emerging economies abstract this paper identifies anticipated news and unanticipated surprise shocks to the u s fed funds rate using fed funds futures contracts and assesses their propagation to emerging economies anticipated shocks are identified as the expected change in the fed funds rate orthogonal to expected u s business cycle conditions while unanticipated shocks are the one step ahead forecast error anticipated shocks explain around half of the narrative series of u s monetary policy shocks to identify the effects of both shocks i estimate a panel var using a sample of emerging economies an anticipated 25 basis points contractionary u s interest rate shock induces a fall of 0 5 in gdp from its trend two quarters before the shock materializes both anticipated and unanticipated changes in the u s interest rate cause significant and quantitatively similar effects the increase of the u s baa corporate spread in response to both shocks significantly exacerbates the response of emerging economies after accounting for anticipation u s interest rate shocks explain 14 of business cycle fluctuations in emerging economies

the political economy of market based environmental policy the u s acid rain program the u s acid rain program enacted in 1990 gave valuable tradable sulfur dioxide emissions permits called allowances to electric utilities we examine the political economy of this allocation though no senate or house votes were ever taken hypothetical votes suggest that the actual allocation would have beaten plausible alternatives while rent seeking behavior is apparent statistical analysis of differences between actual and benchmark allocations indicates that the legislative process was more complex than simple models suggest the coalition of states that produced and burned high sulfur coal both failed to block acid rain legislation in 1990 and received fewer allowances than in plausible benchmark allocations some of these states may have received additional allowances to cover 1995 99 emissions by giving up allowances in later years and some major coal producing states seem to have focused on benefits for miners and on sustaining demand for high sulfur coal

public open access and private timber harvests theory and application to the effects of trade liberalization in mexico a common popular assertion is that trade liberalization encourages deforestation but whether this is true depends on how trade policies affect the allocation of land among competing uses and how they influence illegal cutting of public forests a model is presented that allows for forests to be either public or private and public forests are divided into protected or managed and threatened categories effects of price changes are shown on each part of the forest an empirical version of the model is applied to the case of mexico with nafta most scenarios considered show that nafta will have positive long run effects on forest cover in mexico but that this is net of losses on private lands

sudden stops financial frictions and the banking sector abstract financial crises typically feature a large fall in total factor productivity tfp in emerging economies about 40 of domestic credit is provided by banks theories have largely focused on how exogenous changes in domestic interest rates impact the economy in this paper i explore the role of banks intermediation in exacerbating allocative inefficiency i build a small open economy model in which banks are the only domestic agents with access to international capital markets during sudden stops a shock to the world interest rate decreases banks credit supply and raises the domestic interest rate on loans firms with working capital financing needs experience an increase in the cost of production this worsens the misallocation and generates an endogenous fall in tfp and output the model is calibrated to mexico before the 1995 crisis the model predicts a 6 9 fall in tfp and a 5 fall in investment to gdp ratio which closely matches the effects observed in the data

emissions trading electricity restructuring and investment in pollution abatement this paper analyzes an emissions trading program that was introduced to reduce smog causing pollution from large stationary sources using variation in state level electricity industry restructuring activity i identify the effect of economic regulation on pollution permit market outcomes there are two main findings first deregulated plants in restructured electricity markets were less likely to adopt more capital intensive environmental compliance options as compared to regulated or publicly owned plants second as a consequence of heterogeneity in electricity market regulations a larger share of the permitted pollution is being emitted in states where air quality problems tend to be more severe jel l51 l94 l98 q53 q58 when the us federal government first began regulating major sources of air pollution in the 1960s the conventional approach to meeting air quality standards involved establishing maxi mum emissions rates or technology based standards for regulated stationary sources however economists have long maintained that an emissions permit market could more efficiently coor dinate pollution abatement activities provided a series of assumptions are met over the past few decades market based cap and trade cat approaches to regulating emissions from industrial point sources have become a centerpiece of environmental regulation in the united states in the theoretical first best permit market equilibrium the total social cost of meeting an emis sions cap is minimized each firm chooses a level of pollution abatement such that its marginal cost of reducing pollution is set equal to the social marginal benefit from emissions reduction in practice preexisting distortions in product markets that are subject to cat regulation may interfere with the emissions permit market s ability to operate efficiently this paper studies the effects of electricity market regulation on permit market outcomes in the context of a major us emissions trading program the nox budget program the recent wave of electricity industry restructuring in the united states has resulted in significant interstate variation in economic regulation consequently facilities in the same cat program face very different economic regu lation and investment incentives in their respective electricity markets whereas rate base regu lated plants are guaranteed to earn a rate of return on prudent investments in pollution abatement equipment deregulated plants operating in restructured electricity markets are offered no such

extending the sample size in cross country demand analysis abstract results from different phases of the international comparison project and from different sets of countries are compared and combined

default risk sectoral reallocation and persistent recessions abstract sovereign debt crises are associated with large and persistent declines in economic activity disproportionately so for nontradable sectors this paper documents this pattern using spanish data and builds a two sector dynamic quantitative model of sovereign default with capital accumulation recessions are very persistent in the model and more pronounced for nontraded sectors because of default risk an adverse domestic shock increases the likelihood of default limits capital inflows and thus restricts the ability of the economy to exploit investment opportunities the economy responds by reducing investment and reallocating capital toward the traded sector to support debt service payments the real exchange rate depreciates a reflection of the scarcity of traded goods we find that these mechanisms are quantitatively important for rationalizing the experience of spain during the recent debt crisis

cost minimizing regulation of sulfur emissions regional gains in electric power environmental regulations set maximum allowable rates for sulfur dioxide emissions from electric utilities by ignoring firm differences in marginal abatement costs and preventing emissions trading these standards do not minimize the cost of reducing einissions this paper estimates marginal abatement cost functions for 56 utilities for 1973 79 marginal costs vary substantially across firms due to differences in the price of low and high sulfur fuels and the intensity of regulation the potential savings from a cost minimizing reallocation of abatement resources are estimated for five regions current expenditures are found to be 47 higher than cost minimizing levels i mplementation of the 1970 clean air act amendments relies extensively on technology based emission standards economists long have recognized that these standards can result in an inefficient allocation of pollution control resources engineering based restrictions ignore or oversimplify differences in abatement costs among polluters limited empirical research suggests that current standards result in substantially higher costs as much as ten times higher than a cost minimizing regulatory scheme 2 these studies however are based on engineering estimates of marginal abatement costs the models often assume that all polluters adopt control technologies that are required only for new plants and that have been largely unadopted by polluting firms 3 the impact of changing factor prices on marginal abatement costs typically is ignored the difficulty is that the resulting estimates of the cost of regulation neither adequately reflect the range of control options available to polluters nor take into account how polluters actually have responded to environmen

the social costs of higher food prices some cross country evidence abstract this paper uses cross country data from 34 developing countries to examine the correlation between the real cereal price paid by consumers aggregate calorie intake and the infant mortality rate the results suggest that higher cereal prices across countries are associated with higher infant mortality the elasticity is between 0 2 and 0 6 however this correlation does not exist using time series data for individual countries the results require further investigation nevertheless they suggest that although the short run costs of higher farm prices may not immediately be evident there may be important long run social costs

sudden stops and financial frictions evidence from industry level data the nature of the microeconomic frictions that transform sudden stops in output collapses is not only of academic interest but also crucial for the correct design of policy responses to prevent and address these episodes and the lack of evidence on this regard is an important shortcoming this paper uses industry level data in a sample of 45 developed and emerging countries and a differences in differences methodology to provide evidence of the role of financial frictions for the consequences of sudden stops the results show that consistently with financial frictions being important industries that are more dependent on external finance decline significantly more during a sudden stop especially in less financially developed countries the results are robust to controlling for other possible mechanisms including labor market frictions the paper also provides results on the role of comparative advantage during sudden stops and on the usefulness of various policy responses to attenuate the consequences of these shocks

financial liberalization structural change and real exchange rate appreciations abstract the last twenty years have witnessed periods of sustained appreciations of the real exchange rate in emerging economies the case of mexico between 1988 and 2002 is representative of several episodes in latin america and central and eastern europe in which countries opening to capital flows experienced large appreciations accompanied by a significant reallocation of workers towards the non tradable sector we account for these facts using a two sector dynamic general equilibrium model of a small open economy with frictions to labor reallocation and two driving forces i a decline in the cost of borrowing in foreign markets and ii differential productivity growth across sectors these two mechanisms account together for 60 of the decline in the domestic relative price of tradables in mexico and for a large fraction of the observed reallocation of labor across sectors the decline in the interest rate faced by mexico in international markets is quantitatively the most important channel our results are robust to the inclusion of terms of trade into the model

financial development and the price of services this article explores the links between financial development and the low relative price of services in less developed countries ldcs the empirical phenomenon of services priced lower in ldcs than in developed countries dcs is now quite thoroughly documented in the data gathered by i kravis a heston and r summers in their important work with the united nations international comparison project following r mckinnon and e shaw recent work emphasizes the importance of financial development in successful economic growth 2 we use a simple three sector model with nontraded goods to trace causal connections between financial policies and the structure of relative prices using data on relative prices from the international comparison project study we show that the extent of financial repression is a significant predictor of the spread of relative service goods prices across nations at differing stages of development as well as among ldcs alone the term financial repression describes a set of policies that aim to extract revenue from the financial system and to use the financial system to funnel resources into specific sectors of the economy 3 governments can extract revenue via forced sales of government debt to the banking system this is usually accomplished through a variety of reserve requirements which in many ldcs exceed 50 of deposits 4 interest rate controls on both loan rates and deposit rates are used to channel credit to politically worthy sectors or to specific projects so that the implicit subsidy does not appear on the government s balance sheet rates of monetary growth inconsistent with sta

currency crises and the labour share this paper analyses the impact of currency crises on the labour share and identifies two main types of channel within and across sector effects first crises erode the bargaining power of workers so that within sectors crises lower the labour share nevertheless structural changes occurring during currency crises may change the aggregate level of the labour share if sectors differ in their capital intensities we perform estimations on manufacturing sectoral panel data for 20 countries we conclude that currency crises lower the aggregate manufacturing labour share by around 2 percentage points and that this decline reflects mostly changes within manufacturing subsectors

computation of standard errors for geary khamis parities and international prices a stochastic approach one of the areas receiving little attention in the past in index number theory is providing standard errors for the index number estimates recently clements and izan and selvanathan used the stochastic approach to index numbers to derive standard errors for the rate of inflation and laspeyres and paasche index numbers in this article we use this approach to compute standard errors associated with purchasing power parities computed using geary khamis aggregation procedure in the international comparisons project of the united nations we assess the quality of the standard errors using efron s bootstrap technique

estimating consumer demands across the development spectrum maximum likelihood estimates of an implicit direct additivity model abstract this paper characterizes consumer demand patterns across the development spectrum using elasticity estimates from a demand system possessing non linear engel effects demands for six broadly defined goods are then projected under the assumption that per capita expenditure growth rates differ across the development spectrum such projections illustrate the extent to which non linear income effects generate more plausible demand responses estimated marginal budget shares for food decline in a logistical manner and range from about 0 5 for ethiopia to less than 0 05 for the usa engel elasticities for food range from 0 95 for ethiopia to less than 0 1 for the usa

emerging market fluctuations what makes the difference aggregate fluctuations in emerging countries are quantitatively larger and qualitatively different in key respects from those in developed countries using data from mexico and canada this paper decomposes these differences in terms of shocks to aggregate efficiency and shocks that distort the decisions of households about how much to invest consume and work in a standard model of a small open economy the decomposition exercise suggests that most of these differences are explained by fluctuations in aggregate efficiency distortions in labor decisions over the business cycle and most importantly fluctuations in country risk other distortions are quantitatively less important

policy concertation in europe understanding government choice this article focuses on the european governments decision to involve unions and employers in the design and implementation of public policy based on new measures of the phenomenon the authors argue that between 1974 and 2003 no convergence on a pluralist model of policy formation is visible they then use these measures to identify and analyze the clearest cases of adoption or demise of concertation namely the contrasting responses of the british and irish governments to wage policy and of the austrian and italian governments to pension reform they argue that governments are willing to share their policy making prerogatives when they are politically weak and when unions while still representing a credible threat to policy implementation have been declining in the recent past a combination of partisanship and policy learning reinforces the push for change

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

the contribution of nonhomothetic preferences to trade abstract this paper estimates the economic significance of preference nonhomotheticity in international trade tastes are assumed to be identical but budget shares depend on per capita income a linear expenditure system is estimated for 34 countries over 11 commodity aggregates a counterfactual exercise is conducted to estimate the volume of trade caused by deviations from homotheticity the results indicate that nonhomothetic preferences may account for as much as one quarter of interindustry trade flows

welfare implications of trade liberalization and fiscal reform a quantitative experiment abstract this paper studies the welfare implications of revenue neutral trade liberalization and fiscal reform programs for developing economies using a multi sector dynamic general equilibrium model of a small open economy we analyze how different combinations of tariffs on imported consumption goods intermediate inputs and capital goods and taxes on consumption labor income and capital income affect the transitional and long run welfare we report three main findings first trade liberalization programs financed by consumption and labor income taxes tend to result in substantial welfare gains but financing the lost tariff revenue through capital income taxes can have an adverse impact on welfare second a significant fraction of welfare changes is due to transitional effects stemming from the allocation of resources in response to changes in tariffs and taxes third trade liberalization and fiscal reform programs often translate into much larger welfare gains in countries that are more open to international financial markets

an interim evaluation of sulfur dioxide emissions trading ide iv of the 1990 clean air act amendments established the first large scale long term environmental program to rely on tradable emissions permitscalled allowances in this program to control pollution this program was designed to cut acid rain by reducing sulfur dioxide so2 emissions from electric generating plants to about half their 1980 level beginning in 1995 it is of interest both as a response to an important environmental issue and as a landmark experiment in environmental policy this experiment comes at a particularly important time since emission trading is under serious consideration with strong u s backing for use to deal with global climate change by curbing emissions of carbon dioxide co2 the economic stakes in climate change surpass those in acid rain by several orders of magnitude intergovernmental panel on climate change 1996 this article summarizes the results to date of our ongoing empirical analysis of compliance costs and allowance market performance under the u s acid rain program

clearing the air the effects of gasoline content regulation on air quality this paper examines the effects of u s gasoline content regulations on groundlevel ozone pollution these regulations are costly and have been shown to fragment gasoline markets and raise prices paid by consumers we provide the first comprehensive empirical estimates of the regulations air quality benefits we exploit the fact that gasoline regulations vary by time and place of introduction using both difference in difference and regression discontinuity designs we show that federal regulations targeting the emissions of volatile organic compounds vocs one of the two main precursors to ozone do not substantially improve air quality this outcome is driven by the response of refiners to the regulation minimizing the cost of abatement involves removing a type of voc from gasoline that is not an important determinant of ozone pollution in california however we show that precisely targeted regulations requiring the removal of vocs particularly prone to forming ozone caused a significant improvement in air quality

quantitative implications of a debt deflation theory of sudden stops and asset prices abstract this paper shows that the quantitative predictions of an equilibrium asset pricing model with financial frictions are consistent with key features of the sudden stop phenomenon foreign traders incur costs in trading assets with domestic agents and a collateral constraint limits external debt to a fraction of the market value of domestic equity holdings when this constraint does not bind standard productivity shocks cause typical real business cycle effects when it binds the same shocks cause strikingly different effects depending on the leverage ratio and asset market liquidity with high leverage and a liquid market the shocks force fire sales of assets and fisher s debt deflation mechanism amplifies the responses of asset prices consumption and the current account precautionary saving makes these sudden stops infrequent in the long run

environmental crime and punishment empirical evidence from the german penal code u s and e u environmental policy employ criminal sanctions to enforce compliance recent moves toward revising their use are based on little empirical evidence as to their effectiveness this paper exploits a unique dataset to study the deterrent effect of criminal enforcement the dynamic panel data analysis leads to three findings first criminal sanctions do provide the intended deterrent effects second standing trial provides one of the most significant deterrents rather than the probability of conviction or the magnitude of fines third public preferences regarding environmental quality and political economy variables affect reported environmental crime

regional effects of exchange rate fluctuations we exploit differences across u s states exposure to trade to study the effects of changes in the exchange rate on economic activity across states trade weighted exchange rate depreciations are associated with increased state exports reduced state unemployment and higher state hours worked the effects are particularly strong during periods of economic slack a multiregion model with interstate trade and labor flows calibrated to match state level trade data and migration flows replicates the empirical relationship between exchange rates and unemployment the high degree of interstate trade plays an important role in transmitting shocks across states in the first year whereas interstate migration shapes cross sectional patterns in later years we use the model to study the regional effects of tariffs in the united states the model suggests that a 25 chinese import tariff on u s goods would be felt throughout the united states even in states with small direct linkages to china raising unemployment rates by 0 2 to 0 7 percentage points in the short run

the heterogeneity of the consumer s preferences over time a system wide analysis of discrete panel data abstract the paper uses the individual and overall tests of heterogeneity for two complete piglog models of expenditure equations fitted to discrete survey data to investigate a possible change in the consumer s preferences in australia between 1975 76 and 1983 84 the evidence lends support to the hypothesis of significant behavioral change and also indicates that this change is attributable mainly to the convolution of the consumption patterns in current housing costs and food

investment composition and international business cycles abstract this paper studies a two country model with traded and nontraded sectors in which sector specific capital goods as in practice are produced by combining inputs from all sectors the model also includes nontraded distribution services employed in retailing traded goods to consumers the results show that the model with capital goods comprising multisectoral inputs outperforms the standard model in which sectoral output also serves as its capital in particular it substantially improves a the movements of trade balance and relative prices b within country comovements of sectoral and aggregate quantities c cross country comovements of output vis a vis consumption the results change only marginally when distribution services are removed from the model

income induced expenditure switching abstract this paper shows that an income effect can drive expenditure switching between domestic and imported goods we use a unique latvian scanner level dataset covering the 2008 2009 crisis to document several empirical findings first expenditure switching accounted for one third of the fall in imports and took place within narrowly defined product groups second there was no corresponding within group change in relative prices third consumers substituted from expensive imports to cheaper domestic alternatives these findings motivate us to estimate a model of nonhomothetic consumer demand which explains two thirds of the observed expenditure switching estimated switching is driven by income not changes in relative prices jel e21 f14 f31 f32 i11 l81

the quality of consumption some australian evidence abstract the paper reports new estimates of theil s index of the quality of consumption for four age groups and at two levels of affluence income for australian households over the period 1975 iv to 1982 iv with special emphasis on the role played by energy and non energy commodity groups the evidence reveals an improvement in the quality of consumption of energy and energy related goods and a quality deterioration in food clothing and rent at all income levels and for all four age groups

conversion factor instability in international comparisons of health care expenditure parkin mcguire and yule 1987 hereafter pmy report that a regression of per capita health care expenditure on per capita income using different conversion factors exchange rates gdp ppps health ppps gave rise to different results in this note we apply updated data to the same empirical relationship in contrast to pmy we find no noticeable conversion factor instability in that relationship either with respect to the health care income elasticity or with the magnitude of multiple correlation coefficient

the left and organized labor in low inflation times this article presents fresh empirical data showing that policy alignment between center left governments and trade unions was a sustained feature of european politics between 1974 and 2005 this contradicts expectations of a wide delinkage between the electoral left and labor as a consequence of globalization deindustrialization and unionization decline however structural economic change has altered the policy field so that sustained policy alignment can no longer be explained by existing theoretical frameworks based on a theoretical argument and a multivariate empirical test the article contends that policy alignment is likelier to occur if labor plays an important role in economic management at the microlevel and the industry level and if unions are politically cohesive agents thanks to powerful confederation leadership supported by democratic decision making practices in making its case the article bridges the literatures on comparative capitalism and party politics in order to account for change and continuity in policy making processes

financial repression and the relative price of non traded goods abstract the financial structure of ldcs affects differences in relative prices among nations we show empirically that financial repression depresses the relative price of non traded goods

a comparative study of national price levels agricultural prices and exchange rates abstract this paper attempts a comparison of national price levels agricultural prices and exchange rates across countries and over the years 1975 and 1980 using recently produced results from the united nations statistical office and the food and agriculture organization this paper suggests that in most developing countries official exchange rates are more overvalued relative to gdp based purchasing power parities ppps but less overvalued relative to agricultural output based ppps gdp based ppps in most developed countries are however closer to official exchange rates hence conventional opinion as to the existence of significantly lower agricultural output prices in most developing countries is not supported by this study at the same time protection afforded farmers in terms of higher agricultural output prices is indicated in many developed countries it is also observed that in asia agricultural output prices relative to nonagricultural prices have declined over the period 1975 1980 whereas the opposite trend seems to be the case in africa no distinct trend differences over the period are evident for the european experience however agricultural output prices in asia in 1980 were still higher than in africa a few policy implications of these observations are discussed briefly at the conclusion of the paper

the relationship between investment and large exchange rate depreciations in dollarized economies abstract we use a simple financial friction in an economy with high degree of liability dollarization and currency mismatch to show that the negative balance sheet effect of an exchange rate depreciation may be observable only if the magnitude of the depreciation is large enough this result justifies the difficulty to find strong empirical evidence for balance sheet effects and suggests the convenience of including a large depreciation term in empirical analyses we review some of the related empirical literature and provide some new evidence of this large depreciation effect

the turkish current account deficit during the 2011 2015 period turkey s current account deficit as a percentage of gross domestic product gdp was one of the largest among the organization for economic co operation and development countries in this paper we examine if this deficit can be considered optimal using the engel and rogers s approach in this framework the current account of a country is determined by the expected discounted present value of its future share of world gdp relative to its current share a country whose income is anticipated to rise relative to the rest of the world is expected to borrow now and run a current account deficit our findings suggest that turkey s current account deficit in 2015 may be considered optimal if the turkish economy s share in the world economy could continue to grow at rates similar to the past or to the predictions from professional forecasts the same approach however indicates that the current account deficit in 2011 at its peak was unlikely to be optimal jel f32 f41 f43

capital flows and real exchange rate fluctuations following spain s entry into the european community abstract spain s 1986 entry into the european community was followed by a dismantling of restrictions on international capital flows initial trade deficits and real exchange rate appreciation were followed by trade surpluses and real exchange rate depreciation this paper analyzes spain s financial liberalization using a dynamic general equilibrium model with a traded and nontraded good where a capital poor country opens itself to its capital rich neighbors a carefully calibrated model has trouble accounting for the large changes in relative prices observed given the small changes in quantities variants of the model with frictions in factor mobility between sectors fare better

the benefits of spatially differentiated regulation the response to acid rain by u s states prior to the acid rain program location is a crucial driver of both the marginal abatement and damage costs of sulfur dioxide emissions by u s coal fired power plants before the start of the acid rain program in 1995 old boilers were subject to emission rate standards set by individual states we investigate how individual states adjusted their sulfur regulation laws in response to acid rain and whether they accounted for differences in marginal abatement costs vulnerability to agricultural damages special industry interests or inter state externalities the welfare gain compared to a uniform reduction in emission rate standards is estimated to be 21 million in 1995 dollars annually

technology and the demand for imports in the pure theory of international trade traded goods are generally viewed as finished products this is in sharp contrast with the fact that the bulk of world trade is in intermediate products to reconcile theory with facts a number of models of trade in intermediate products have been proposed in recent years most of these models have been used to investigate the validity of well known trade theorems in the presence of intermediate products 2 hence most of these models are rather complex generally allowing for two factors of production and two final goods as well as for one or two pure intermediate products 3 another feature common to most of these models and that is borrowed from standard trade theory is the assumption that production is nonjoint in input quantities 4 this assumption leads to a number of remarkable theoretical results but it also greatly increases the number of possible patterns of production and of interindustry flows and it thus adds to the complexity of the models furthermore if the number of goods is larger than the number of factors nonjointness leads to indeterminacy unless additional assumptions are made 6 these assumptions typically are that some goods are not produced domestically 7 or that some goods are not traded internationally 8 this further multiplies the number of possible cases and it explains perhaps why none of the models proposed so far has emerged as the benchmark model much in the same way as for

housing market interventions and mobility an international comparison government interventions in housing markets usually have a strong side effect of lowering residential mobility interventions tend to raise the price of owner occupied dwellings and to lower rents compared with household incomes an index of these two tendencies is calculated for major conurbations of 16 countries among these switzerland south korea sri lanka and the former german democratic republic are of particular interest the rank order correlation of the index with residential mobility appears to be strong 0 962 and with an elasticity of 0 815 three quarters of the variance is explained no correlation was found with the home ownership rate in so far as lower mobility impairs housing welfare market interventions should be avoided but it is recognised that such interventions primarily reflect concern for equity and externalities

economic information versus quality variation in cross country data data quality in the penn world tables varies systematically across countries that have different growth rates and are at different stages of economic development thus intro ducing measurement error correlated with variables of economic interest we explore this problem with three examples from the literature showing that the problem appears to be minor in growth convergence regressions but serious in estimating the effect of income volatility on growth and in a cross country lest of the permanent income hypothesis the results suggest at the least a need for performing appropriate sensitivity tests before draw

a formalisation and test of the factor productivity explanation of international differences in service prices this paper extends and integrates previous models of the determinants of international differences in the prices of services relative to tradable commodities the authors provide a model capable of identifying the effects of differences in total factor productivity on service price differences separately from the effects of factor endowment differences they propose a method for measuring these factor productivity difference effects and apply this to a sample of sixty countries in 1980 the authors results provide support both for the endowment difference and productivity difference explanations suggesting that in this context at least the two hypotheses are complements rather than competitors copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

international financial shocks in emerging markets abstract the present paper investigates how an emerging market economy is affected when it suddenly faces a higher risk premium on international capital markets we study this question empirically for five latin american economies over the period 1994 2007 within a structural panel vector autoregression and analyze theoretically the transmission mechanism using a dynamic stochastic general equilibrium model dsge of a small open economy the financial shock is modeled by an unexpected increase in the risk premium of firms foreign currency debt in response the adverse shock is amplified by a feedback mechanism between currency depreciation adverse balance sheet and risk premium effects the theoretical model is used to study different monetary policy responses we find that an exchange rate targeting rule that strikes a balance between exchange rate and inflation targeting allows the monetary authority to stabilize inflation and output more effectively than under a pure inflation targeting rule

wealth varying intertemporal elasticities of substitution evidence from panel and aggregate data abstract this paper constructs and estimates a model of consumer preferences in which the intertemporal elasticity of substitution ies of consumption expenditure rises with the level of wealth the purpose of this paper is to measure the effect that systematic variation in the ies of poor and rich consumers has on the ies of aggregate consumption expenditure we find economically significant differences in the ies of poor and rich consumers in indian panel data on the consumption of individual households we also find economically significant differences in the ies measured in aggregate time series data for the u s and india

the market for sulfur dioxide emissions the 1990 clean air act amendments initiated the first large scale use of the tradable permit approach to pollution control the theoretical case for this approach rests on the assumption of an efficient market for emission rights the authors empirical analysis shows that the emission rights market created by the 1990 amendments had become reasonably efficient by mid 1994 they also show that the auctions specified in the amendments to jump start trading had become a small part of the overall market finally the authors demonstrate that the strategic bidding behavior discussed in the literature has had no effect on market prices copyright 1998 by american economic association

factor endowments nontradables prices and measures of openness abstract the familiar dollar index of country openness is obtained essentially by attempting to remove the influence of nontradables prices from data on country price levels with residual price differences hypothesised to measure trade impediments differences in nontradables prices are in turn hypothesised to reflect differences in factor endowments which dollar proxies by gdp per capita this paper examines both the theoretical and empirical biases introduced to estimates of nontradables prices by using this proxy we show that while the approach provides a reasonable approximation on average relatively agricultural land or labour abundant countries are particularly poorly captured by gdp per capita

hedging in coal contracts under the acid rain program tradable permit schemes introduce uncertainty into the cost of regulatory compliance due to the permits uncertain price regulated firms can hedge this uncertainty through their contracts for fuel procurement data on coal contracts are used to estimate how the option not to be delivered higher sulfur coal is priced results show that under a tradable permit scheme coal prices are reduced for an increase in the sulfur bound controlling for reductions in price due to higher delivered sulfur content jel q48 q53

testing theories of agency behavior evidence from hydropower project relicensing decisions of the federal energy regulatory commission theories of agency behavior are examined via an application to hydropower project relicensing by the federal energy regulatory commission ferc in the relicensing of each project fish and wildlife agencies submit recommendations to ferc ferc then enters a twostage deliberation process for each recommendation econometric analysis of these decisions covers 933 recommendations made for 72 projects relicensed during 1980 96 a new law the electric consumers protection act substantially altered ferc s decisions while a new administration the clinton administration exerted a mixed effect both events influenced the number of recommendations per project made by the fish and wildlife agencies

privatization and economic growth an empirical investigation from a sample of developing market economies this paper explores the economic determinants of privatization programmes and the macroeconomic impact of this institutional reform on the growth rate of the gdp a sample of thirty five developing market economies is considered over the 1988 92 period probit and tobit models are used to identify the determinants of successful privatization programmes then regressions are run where probabilities probit and expected values tobit are successively included as additional regressors beside the potential influence of other economic policy variables a significant positive effect is highlighted giving evidence of the importance of divestiture the economic effect is found to be stronger when this institutional reform took place in industry or infrastructure