new issues in corporate finance flow of funds data are used to compare methods of finance in 5 countries over the period 1970 to 1985 many of the problems associated with previous studies are avoided by estimating net instead of gross financing proportions the degree of consolidation of accounts reciprocal arrangements between borrowers and lenders and compensating deposit requirements on borrowers no longer distort financing patterns corrections for inflation are provided by employing flow rather than stock figures and using own aggregation procedures to derive stock measures significant variations in financing emerge these are not readily explained by traditional descriptions of corporate finance in particular taxation as an alternative the paper suggests that relationships between borrowers and lenders establish forms of commitment that are conducive to the provision of long term finance the separation between investment and finance which has been the starting point of corporate finance theory is untenable in a multiperiod context in which terms of finance define future allocation of control

does corruption cause encumbered business regulations an iv approach in this research we attempt to understand the effects of corruption on business regulations measured by number of procedures time and costs involved in satisfying governmental requisites using two stage least squares 2sls methods we lessen the problems associated with endogeneity and uncovered the existence of a robust positive statistically significant and quantitatively large direction channel from corruption to encumbered business regulations these results suggest the need to deter corruption in order to improve business regulations the quest to reduce corruption worldwide acquires new relevancy given the findings of djankov et al 2006 that countries with simple and transparent regulations grow faster

financial intermediary coalitions abstract in this article an environment in which the investment opportunities of agents are private information is studied and it is shown that financial intermediaries arise endogenously within that environment it is established that financial intermediaries are part of an efficient arrangement in the sense that they are needed to support the authors private information core allocations these intermediaries which are coalitions of agents exhibit the following characteristics in equilibrium they borrow from and lend to large groups of agents they produce information about investment projects and they issue claims that have different state contingent payoffs than claims issued by ultimate borrowers

political connections and corporate investments evidence from the recent anti corruption campaign in china abstract taking advantage of corruption scandals in china we construct a natural experiment and identify the ousting of corrupt politicians and firms connected with them through bribery and personal relationships event firms we find that the investment expenditure of event firms declines significantly after the ousting of the politicians compared with that of non event firms especially for non soes we also find that after the ousting of the politicians investment efficiency improves for event soes but declines for event non soes compared with their non event counterparts we also document that the ousting of the politicians influences firm investment decisions more after the recent anti corruption campaign for bribing firms and for firms in more corrupt regions these results are robust to alternative measurements of key variables and specifications

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

the financial development and growth nexus a meta analysis this is the accepted manuscript the final version is available from wiley at http onlinelibrary wiley com doi 10 1111 joes 12086 abstract

corruption s direct effects on per capita income growth a meta analysis corruption is a symptom of weak institutional quality and could have potentially adverse effects on economic growth however heterogeneity in reported findings makes it difficult to synthesize the evidence base with a view to test competing hypotheses and or support evidence based policy and practice to address this issue we have extracted 327 estimates of corruption s direct effect on per capita gdp growth from 29 primary studies following a peer reviewed and pre published systematic review protocol precision effect and funnel asymmetry tests indicate that corruption has a negative effect on per capita gdp growth after controlling for publication selection bias and within study dependence however multivariate meta regression analysis results indicate that the overall effect is not robust to inclusion of moderating variables through a general to specific procedure for model specification we report that the marginal effect of corruption on per capita gdp growth is more adverse when the primary study estimates relate to long run growth are based on low income country data only and extracted from journal papers the effect is less adverse in studies that use the international country risk guide corruption perceptions index and in those reporting estimates from two stage least squares estimations

mixed equilibria are unstable in games of strategic complements in games with strict strategic complementarities properly mixed nash equilibria equilibria that are not in pure strategies are unstable for a broad class of learning dynamics

financial development and intersectoral allocation a new approach this paper uses a new methodology based on industry comovement to examine the role of financial market development in intersectoral allocation based on the assumption that there exist common global shocks to growth opportunities we hypothesize that country pairs should have correlated patterns of sectoral growth if they are able to respond to these shocks consistent with financial markets promoting responsiveness to shocks countries have more highly correlated growth rates across sectors when both countries have well developed financial markets this effect is stronger between country pairs at similar levels of economic development which are more likely to experience similar growth shocks copyright 2004 by the american finance association

voluntary export restraints and expectations an analysis of export quotas in oligopolistic markets the frequency of export quotas imposed as voluntary export restraints has been increasing this tends to create the expectation that similar export quotas will be imposed in the future even if free trade is allowed now the author analyzes the effect of such an expectation he demonstrates that if a quota is expected to be imposed on foreign exporting firms it intensifies the exporting firms competition in the prequota period this offsets the protection which the export quota as a voluntary export restraint will provide for domestic import competing firms in the future quota period copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

voluntary import expansions with non stationary demand in this paper the effect of voluntary imports expansions vies on welfare in a dynamic game is analysed it is found that 1 there exists a markov perfect nash equilibrium mpne and a unique stable steady state 2 with habit formation in consumption the welfare and output for each firm are higher than that without habit formation and 3 vies can increase an importing country s welfare with raised con sumption and lowered price therefore vies can be voluntary to an importing country

learning behavior and mixed strategy nash equilibria abstract the paper considers whether an adaptive justification like those commonly available for non interactive optimization models can be found for the mixed strategy nash equilibrium although it is known that such a justification is frequently available for pure strategy equilibria it is shown that all members of a wide class of behaviorally plausible learning mechanisms must fail to converge in almost all games in which the equilibrium involves mixed strategies an exact formal analogy is developed which allows these learning mechanisms to be viewed as discrete ta tonnement processes in properly chosen competitive exchange economies in the analogy the instability derives from the independence of excess demand functions except at the boundaries from own prices this independence arises because of the linearity in probabilities of von neumann morgenstern risk preferences and therefore does not extend to pure strategy equilibria in general thus assuming that agents will play equilibrium strategies implicitly assumes more sophistication when the equilibrium involves mixed strategies than when it involves only pure strategies

why don t poor countries catch up a cross national test of an institutional explanation early neoclassical analyses predicted that poor countries would grow faster than wealthy countries because of technological advances and diminishing returns to capital in the latter the reverse has occurred poor countries are falling back rather than catching up we suggest here that deficient institutions underlie this divergence employing various indicators of institutional quality including the rule of law the pervasiveness of corruption and the risk of expropriation and contract repudiation we show that the ability of poor countries to catch up is determined in large part by the institutional environment in which economic activity in these countries takes place jel o00 o10

financial markets financial dependence and the allocation of capital abstract we explore one specific channel through which finance promotes growth the allocation of capital using international industrial data we find that countries with developed financial markets invest more in growing industries and pull out more funds of declining ones most interestingly this pattern is more eminent for those industries more dependent on external financing various robustness checks show that the results are not driven by reverse causality omitted variables specific countries or industries

the stability of price dispersion under seller and consumer learning in many markets it is possible to find rival sellers charging different prices for the same good earlier research has attempted to explain this phenomenon by demonstrating the existence of dispersed price equilibria when consumers must make use of costly search to discover prices we ask whether such equilibria can be learned when sellers adjust prices adaptively in response to current market conditions with consumer behavior fixed convergence to a dispersed price equilibrium is possible in some cases however once consumer learning is introduced the monopoly outcome first found by diamond journal of economic theory3 1971 156 68 is the only stable equilibrium

long run competition in capacity short run competition in price and the cournot model in this article we investigate the nature of equilibrium in markets in which firms choose the scale of operation before they make pricing decisions we analyze a duopoly model in which firms choose their capacities before engaging in bertrand like price competition we demonstrate that the cournot outcome is unlikely to emerge in such markets and that the equilibrium tends to be more competitive than the cournot model would predict in addition our results indicate a tendency toward asymmetric firm sizes and price dispersion that results from the mixed strategies firms use in equilibrium

can good governance lower bank intermediation costs this paper argues that better governance practices can reduce the costs risks and uncertainty of financial intermediation our sample covers 100 high middle and low income countries during 1996

on the learning and stability of mixed strategy nash equilibria in games of strategic substitutes abstract this paper analyzes the learning and stability of mixed strategy nash equilibria in games of strategic substitutes gss complementing recent work done in the case of strategic complements gsc mixed strategies in gss are of particular interest because it is well known that such games need not exhibit pure strategy nash equilibria first we establish bounds on the strategy space which indicate where randomizing behavior may occur in equilibrium second we show that mixed strategy nash equilibria are generally unstable under a wide variety of learning rules multiple examples are given

does judicial efficiency lower the cost of credit the authors investigate the effect of judicial efficiency on banks lending spreads for a large cross section of countries they measure bank interest rate spreads for 106 countries at an aggregate level and for 32 countries at the level of individual banks the authors find that after controlling for a number of other country characteristics judicial efficiency in addition to inflation is the main driver of interest rate spreads across countries this suggests that in addition to improving the overall macroeconomic climate in a country judicial reforms through a better enforcement of legal contracts are critical to lowering the cost of financial intermediation for households and firms

excess capacity and collusion in this paper the authors analyze a restricted class of equilibria in the dynamic model of j p benoit and v krishna 1987 in which firms choose their scale of operation before engaging in a repeated game of price competition benoit and krishna established that all firms carry excess capacity in all collusive equilibria as the authors are interested in the relationship between excess capacity and collusion in price they examine equilibria in which firms tacitly collude in price but not in investment decisions copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the invisible hand and the grabbing hand evidence from a survey of 105 shop owners in moscow and warsaw shows that the reliance on private protection as well as the burden of regulation and corruption are much greater in moscow the evidence suggests that the invisible hand model of government better fits the warsaw local government and the grabbing hand model is more appropriate for moscow the evidence implies that the singular focus on the speed of economic reforms to understand the success of transition is misplaced and that the quality of government may be as essential this abstract was borrowed from another version of this item

political decentralization and corruption evidence from around the world abstract how does political decentralization affect the frequency and costliness of bribe extraction by corrupt officials previous empirical studies using subjective indexes of perceived corruption and mostly fiscal indicators of decentralization have suggested conflicting conclusions in search of more precise findings we combine and explore two new data sources an original cross national data set on particular types of decentralization and the results of a firm level survey conducted in 80 countries about firms concrete experiences with bribery in countries with a larger number of government or administrative tiers and given local revenues a larger number of local public employees reported bribery was more frequent when local or central governments received a larger share of gdp in revenue bribery was less frequent overall the results suggest the danger of uncoordinated rent seeking as government structures become more complex

does deposit insurance increase banking system stability an empirical investigation based on evidence of 61 countries in 1980 97 the authors find that explicit deposit insurance tends to be detrimental to bank stability the more so where bank interest rates are deregulated and the institutional environment is weak the adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors and where the scheme is funded and run by the government rather than the private sector

strategic complements and substitutes and potential games abstract we show that games of strategic complements or substitutes with aggregation are pseudo potential games the upshot is that they possess nash equilibria in pure strategies ne even if the strategy sets are not convex and that various dynamic processes converge to ne in particular ne exist in cournot oligopoly with indivisibilities in production our notion of aggregation is quite general and enables us to take a unified view of several disparate models

financial intermediation and economic performance historical evidence from five industrialized countries this paper examines the nature of links between the intensity of financial intermediation and economic performance that operated in the united states the united kingdom canada norway and sweden over the 1870 1929 period after describing the coevolution of the financial and real sectors in these countries vector error correction models vecms establish the quantitative importance of long run relationships among measures of financial intensity and real per capita levels of output and the monetary base granger causality tests then suggest a leading role for the intermediation variables in real sector activity while feedback effects are largely insignificant the results suggest an important role for intermediation in the rapid industrial transformations of all five countries

bank fragility money under the mattress and long run growth us evidence from the perfect panic of 1893 abstract this paper examines how the us financial crisis of 1893 affected state output growth between 1900 and 1930 the results indicate that a 1 increase in bank instability reduced output growth by 2 5 a comparison of nebraska which had one of the highest bank failure rates with west virginia which did not experience a single bank failure reveals that disintermediation affected growth through a portfolio change among savers people simply stopped trusting banks time series evidence from newspapers indicates that articles containing the words money hidden significantly increase after banking crises then slowly die out

three problems in learning mixed strategy nash equilibria this paper discusses three problems that can prevent the convergence of learning mechanisms to mixed strategy nash equilibria first while players expectations may converge to a mixed equilibrium the strategies played typically fail to converge second even in 2 2 games fictitious play can produce a sequence of frequency distributions in which the marginal frequencies converge to equilibrium mixed strategies but the joint frequencies violate independence third in a three player matching pennies game with a unique equilibrium it is shown that if players learn as bayesian statisticians then the equilibrium is locally unstable journal of economic literature classification numbers c72 c73 d83

reaching out access to and use of banking services across countries the authors 1 present new indicators of banking sector penetration across 99 countries based on a survey of bank regulatory authorities 2 show that these indicators predict household and firm use of banking services 3 explore the association between the outreach indicators and measures of financial institutional and infrastructure development across countries and 4 relate these banking outreach indicators to measures of firms financing constraints in particular they find that greater outreach is correlated with standard measures of financial development as well as with economic activity controlling for these factors the authors find that better communication and transport infrastructure and better governance are also associated with greater outreach government ownership of financial institutions translates into lower access while more concentrated banking systems are associated with greater outreach finally firms in countries with higher branch and atm penetration and higher use of loan services report lower financing obstacles thus linking banking sector outreach to the alleviation of firms financing constraints

the macroeconomic sources of systemic risk in the banking sectors of five new eu member states abstract rapid credit growth has been one of the most pervasive developments in recent years in central and eastern europe our estimates support the hypothesis that the growth of credit and the amount of available finance might harm banking performance and deteriorate non performing loans npl dynamics most probably due to the overheating of economies in the five nmss the procyclicality of banking sector performance and high economic activities growth is a signal of an economy overheating and therefore a slowdown in economic activity is likely to accelerate the growth of the npl ratio

property rights and finance which is the tighter constraint on private sector investment weak property rights or limited access to external finance from a survey of new firms in post communist countries we find that weak property rights discourage firms from reinvesting their profits even when bank loans are available where property rights are relatively strong firms reinvest their profits where they are relatively weak entrepreneurs do not want to invest from retained earnings

financial development environmental quality trade and economic growth what causes what in mena countries this paper examines the relationship between financial development co2 emissions trade and economic growth using simultaneous equation panel data models for a panel of 12 mena countries over the period 1990 2011 our results indicate that there is evidence of bidirectional causality between co2 emissions and economic growth economic growth and trade openness are interrelated i e bidirectional causality feedback hypothesis is validated between trade openness and financial development neutrality hypothesis is identified between co2 emissions and financial development unidirectional causality running from financial development to economic growth and from trade openness to co2 emissions is identified our empirical results also verified the existence of environmental kuznets curve these empirical insights are of particular interest to policymakers as they help build sound economic policies to sustain economic development and to improve the environmental quality

corruption and development a review of issues in this paper we start with a discussion of some of the different denotations of the problem of corruption we then consider the ways in which the damaging consequences of corruption operate in a developing economy while not ignoring its possible redeeming features in some cases we pursue the question of why corruption is perceptibly so different in different societies and also persistent finally we examine the feasible policy issues that arise in this context

financial and legal constraints to growth does firm size matter using a unique firm level survey database covering 54 countries we investigate the effect of financial legal and corruption problems on firms growth rates whether these factors constrain growth depends on firm size it is consistently the smallest firms that are most constrained financial and institutional development weakens the constraining effects of financial legal and corruption obstacles and it is again the small firms that benefit the most there is only a weak relation between firms perception of the quality of the courts in their country and firm growth we also provide evidence that the corruption of bank officials constrains firm growth

when arm s length is too far relationship banking over the credit cycle we conduct face to face interviews with bank ceos to classify 397 banks across 21 countries as either relationship or transaction lenders we then use the geographic coordinates of these banks branches and of 14 100 businesses to analyze how the lending techniques of banks in the vicinity of firms are related to credit constraints at two contrasting points of the credit cycle we find that while relationship lending is not associated with credit constraints during a credit boom it alleviates such constraints during a downturn this positive role of relationship lending is stronger for small and opaque firms and in regions with a more severe economic downturn moreover our evidence suggests thatrelationship lending mitigates the impact of a downturn on firm growth and does not constitute evergreening of loans

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

legal environment finance channels and investment the east african example abstract how do legal environments and finance affect investments by firms in the east african community property rights external and internal finance channels key conduits of the transmission mechanism from legal environment to investment individually and interactively affect firms decision to invest firms that perceive secure property rights are more likely to invest in fixed capital the interactions suggest governments in this community would do well to pursue investment growth policies that slant heavily towards financial markets deepening while not ignoring enhancement of legal infrastructures overall property rights external finance internal finance firm size and an export orientation are important determinants of the investment decision

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

eight questions about corruption this paper will discuss eight frequently asked questions about public corruption 1 what is corruption 2 which countries are the most corrupt 3 what are the common characteristics of countries with high corruption 4 what is the magnitude of corruption 5 do higher wages for bureaucrats reduce corruption 6 can competition reduce corruption 7 why have there been so few recent successful attempts to fight corruption 8 does corruption adversely affect growth

the big push deja vu a review of jeffrey sachs s the end of poverty economic possibilities for our time jeffrey sachs s new book the end of poverty economic possibilities for our time penguin press new york 2005 advocates a big push featuring large increases in aid to finance a package of complementary investments in order to end world poverty these recommendations are remarkably similar to those first made in the 1950s and 1960s in development economics today as then the big push recommendation overlooks the unsolvable information and incentive problems facing any large scale planning exercise a more promising approach would be to design incentives for aid agents to implement interventions piecemeal whenever they deliver large benefits for the poor relative to costs

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

investor protection and corporate governance recent research has documented large differences among countries in ownership concentration in publicly traded firms in the breadth and depth of capital markets in dividend policies and in the access of firms to external finance a common element to the explanations of these differences is how well investors both shareholders and creditors are protected by law from expropriation by the managers and controlling shareholders of firms we describe the differences in laws and the effectiveness of their enforcement across countries discuss the possible origins of these differences summarize their consequences and assess potential strategies of corporate governance reform we argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank centered and market centered financial systems

voluntary import expansions and voluntary export restraints in an oligopoly model with capacity constraints in a three country generalization of the kreps scheinkman 1983 duopoly model with price competition and capacity constraints the author analyzes the effects of discriminatory voluntary import expansions and voluntary export restraints on equilibrium capacity and pricing decisions voluntary export restraints are shown to be bad for the exporting country contradicting recent results in the literature by r harris 1985 and k krishna 1989 voluntary import expansions are shown to decrease competition cases are analyzed where voluntary import expansions may actually lead to import contraction or to increases in efficiency in the home country

consumption smoothing channels in open economies abstract many intertemporal open economy macro models imply a theory of consumption smoothing channels thus we build an empirical model to analyze the intertemporal smoothing role of saving components fixed investments inventories and trade balance through the use of var impulse responses to different types of shocks we find that for the oecd countries the bulk of intertemporal smoothing has been carried out domestically via gross fixed investments and inventories but the trade balance has also played a relevant albeit volatile smoothing role we also characterize the dynamic behavior of each component the trade balance and inventories are mostly used as short run smoothing tools while fixed investment provides more and more smoothing over time we can also address some empirical puzzles such as the excess sensitivity of investment anomaly glick r rogoff k 1995 global versus country specific productivity shocks and the current account journal of monetary economics 35 159 192 and the saving investment correlation puzzle feldstein m horioka c 1980 domestic saving and international capital flows economic journal 90 314 329

keiretsu and relationship specific investment implications for market opening trade policy abstract this paper considers the implications of relationship specific investment within keiretsu for policies aimed at opening the japanese market for intermediate goods such as auto parts both vies applied to parts and vers restricting japanese exports of autos cause the keiretsu to import a wider range of parts but of a relatively unimportant type such as seat covers since keiretsu investment and output fall the total value of us parts exports may actually fall for a given value of these exports a vie is less costly for us consumers and japanese producers but a ver is preferred by us automakers

do lenders favor politically connected firms rent provision in an emerging financial market corruption by the politically connected is often blamed for economic ills particularly in less developed economies using a loan level data set of more than 90 000 rms that represents the universe of corporate lending in pakistan between 1996 and 2002 we investigate rents to politically connected rms in banking classifying a rm as political if its director participates in an election we examine the extent nature and economic costs of political rent provision we nd that political rms borrow 45 percent more and have 50 percent higher default rates such preferential treatment occurs exclusively in government banks private banks provide no

learning in games with unstable equilibria we propose a new concept for the analysis of games the tasp which gives a precise prediction about non equilibrium play in games whose nash equilibria are mixed and are unstable under fictitious play like learning we show that when players learn using weighted stochastic fictitious play and so place greater weight on recent experience the time average of play often converges in these unstable games even while mixed strategies and beliefs continue to cycle this time average the tasp is related to the cycle identified by shapley l s shapley some topics in two person games in m dresher et al eds advances in game theory princeton university press princeton 1964 the tasp can be close to or quite distinct from nash equilibrium

how does corruption affect public debt an empirical analysis summary this paper investigates the relationship between corruption the shadow economy and public debt it additionally examines whether the shadow economy increases the adverse effects of corruption on public debt the model is empirically tested for 126 countries over 1996 2012 using ordinary least squares ols fixed effects system generalized method of moments gmm and instrumental variable estimation and two measures of corruption the transparency international corruption perceptions index and the kaufmann et al corruption index results confirm that increased corruption and a larger shadow economy lead to an increase in public debt results additionally indicate that the shadow economy magnifies the effect of corruption on public debt suggesting that they act as complements results also suggest that a larger shadow economy reduces tax revenues and thus increases public debt similarly higher government expenditure enhances the effects of corruption on government debt hence reducing corruption should be a primary policy goal of governments given the complementarity detected between corruption and the shadow economy reducing corruption would also lead to a fall in the size of the shadow economy and public debt reducing corruption will also minimize the adverse effects of corruption on government debt through government expenditure

panel evidence on finance institutions and economic growth this article investigates whether the level of institutional development affects the link between financial development and economic growth using a range of cross sectional and panel approaches we find that the positive effect of banking development on growth is reduced as the level of institutions e g rule of law lack of corruption increases we do not however find a similar result when we examine the joint effect of institutional level and stock market development on economic growth we attribute these results to the ability of banks to perform functions similar to those provided by well operating institutions whereas stock markets do not perform such comparable functions

corruption and microenterprises in russia abstract in russia compliance with the rules and regulations that govern almost all aspects of economic life has created a hostile environment for microenterprises more serious than the regulations per se however is the potential niche they create for opportunistic behavior by regulatory authorities in russia the regulatory state has created a corrupt cadre of government bureaucrats who frequently engage in rent seeking behavior while enforcing regulations firms are not uniformly affected by corruption however this paper shows empirical evidence of differential incidence of extortion based on firm and entrepreneurial characteristics corruption in russia is similar to a regressive tax and acts as a disincentive to innovation and growth it may induce technologically inefficient production decisions and can dilute economies of scale and scope

tax rights in transition economies a tragedy of the commons abstract this paper develops the concept of tax rights to analyze the impact of fiscal institutions on economic development in transition economies a government s tax rights are poorly defined when it and other governments and agencies can unilaterally levy taxes on the same tax base existing evidence suggests that chinese local governments have gained more clearly defined tax rights than their russian counterparts using the big push model of industrialization murphy k shleifer a vishny r 1989 industrialization and the big push journal of political economy 95 1003 1026 within a common property resource framework we show that this difference in tax rights helps explain why china has been significantly more successful than russia

venture capital and new business creation abstract using a comprehensive database of firms from 21 european countries over the period 1998 2008 we find that venture capital investment has a positive effect on the rate of new business creation this is especially true in countries with higher entry costs higher protection of intellectual property rights and lower taxes on capital gains our results suggest that controlling for country and industry characteristics venture capital is beneficial to bringing new ideas to the marketplace in the shape of new companies

law endowments and property rights while scholars have hypothesized about the sources of variation in property rights for over 2500 years it is only very recently that researchers have begun to test these theories empirically this paper reviews both the theory and empirical evidence supporting and refuting the law and endowment views of property rights the law view holds that historically determined differences in national legal traditions continue to shape cross country differences in property rights the endowment view argues that during european colonization differences in climate crops the indigenous population and the disease environment influenced long run property rights

local financial development and growth using a unique sample of net domestic product data for districts in india i investigate the connection between banking sector development human capital and economic growth at the sub national level using disaggregate data avoids many of the omitted variable problems that plague cross country studies of the finance growth connection and facilitates an instrumentation strategy the findings show that the growth of many districts in india is financially constrained due to lack of banking sector development and that the relationship between finance and growth may be non linear for the districts in the sample moving from the 75th percentile of credit net domestic product to the 25th percentile implies an average loss of 4 percent in growth over the 1990s this indicates that the gains from increased banking sector outreach may be large the analysis shows that human capital deepening can reduce the effect of the financial constraint and help decouple growth from financial development in a district at the 25th literacy percentile the implied growth loss due to a constrained banking sector is twice as large as in a district at the 75th literacy percentile thus higher levels of human capital may activate alternative growth and production channels that are less finance intensive

profitability of export restraint this paper analyzes the effect of quotas or voluntary export restraints upon each producer s profits in the case of an oligopoly with one foreign producer in this oligopoly all producers including the foreign producer can get greater profits under some protective quotas than under no restraints furthermore the optimal export restraint for the foreign producer with a low marginal cost is smaller than his optimal export under no restraints accordingly export restraints may be sought by the foreign producer as a strategic behavior to increase profits

the real effect of banking crises finance or asset allocation effects some international evidence abstract this paper analyzes whether the decline in economic growth that follows a banking crisis occurs because of a reduction in the amount of credit available finance effect or a worsening in the allocation of investable resources asset allocation effect we use a sample of more than 2500 industrial firms in 18 developed and developing countries that experienced 19 systemic banking crises between 1989 and 2007 the results indicate that banking crises negatively affect firms intangible investments which intensifies the economic downturn the negative growth effect produced by the worsening of the investment allocation is stronger in countries with highly developed financial systems and institutions

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

bureaucratic corruption and endogenous economic growth there appears to be significant diversity in the incidence of bureaucratic corruption across countries at different stages of economic development and under different political and economic regimes little theoretical or empirical analysis has been offered however on the link between corruption government and growth the paper attempts to fill the void through equilibrium models of endogenous growth balanced growth is derived as a balancing act between accumulating human capital which engenders growth and accumulating political capital which mainly assures bureaucratic power the analysis focuses on the interplay between investment in these two types of capital and its implications for long term growth under alternative political regimes some propositions are tested and confirmed empirically

bank supervision and corruption in lending abstract which commercial bank supervisory policies ease or intensify the degree to which bank corruption is an obstacle to firms raising external finance based on new data from more than 2500 firms across 37 countries this paper provides the first empirical assessment of the impact of different bank supervisory policies on firms financing obstacles we find that the traditional approach to bank supervision which involves empowering official supervisory agencies to monitor discipline and influence banks directly does not improve the integrity of bank lending rather we find that a supervisory strategy that focuses on empowering private monitoring of banks by forcing banks to disclose accurate information to the private sector tends to lower the degree to which corruption of bank officials is an obstacle to firms raising external finance in extensions we find that regulations that empower private monitoring exert a particularly beneficial effect on the integrity of bank lending in countries with sound legal institutions

who owns the media the authors examine patterns of media ownership in 97 countries around the world they find that almost universally the largest media firms are controlled by the government or by private families government ownership is more pervasive in broadcasting than in the printed media government ownership is generally associated with less press freedom fewer political and economic rights inferior governance and most conspicuously inferior social outcomes in education and health the adverse effects of government ownership on political and economic freedom are stronger for newspapers than for television the adverse effects of government ownership of the media do not appear to be restricted solely to instances of government monopoly the authors present a range of evidence on the adverse consequences of state ownership of the media state ownership of the media is often argued to be justified on behalf of the social needs of the disadvantaged but if their findings are correct increasing private ownership of the media through privatization or by encouraging the entry of privately owned media can advance a variety of political and economic goals especially those of meeting the social needs of the poor

learning mixed equilibria we study learning processes for finite strategic form games in which players use the history of past play to forecast play in the current period in a generalization of fictitious play we assume only that players asymptotically choose best responses to the historical frequencies of opponents past play this implies that if the stage game strategies converge the limit is a nash equilibrium in the basic model plays seems unlikely to converge to a mixed strategy equilibrium but such convergence is natural when the stage game is perturbed in the manner of harsanyi s purification theorem journal of economic literature classification number c72

are financial development and corruption control substitutes in promoting growth abstract while financial development and corruption control have been studied extensively their interaction has not we develop a simple model in which low corruption and financial development both facilitate the undertaking of productive projects but act as substitutes in doing so the substitutability arises because corruption raises the need for liquidity and thus makes financial improvements more potent conversely financial underdevelopment makes corruption more onerous and thus raises the gains from reducing it we test this substitutability by predicting growth of countries and industries using measures of financial development lack of corruption and a key interaction term both approaches point to positive effects from improving either factor as well as to a substitutability between them the growth gain associated with moving from the 25th to the 75th percentile in one factor is 0 63 1 68 percentage points higher if the second factor is at the 25th percentile rather than the 75th the results show robustness to different measures of corruption and financial development and do not appear to be driven by outliers omitted variables or other theories of growth and convergence

the dynamic instability of dispersed price equilibria abstract we adopt an evolutionary framework to explain price dispersion as a time varying phenomenon by developing a finite strategy analogue of the burdett and judd 1983 price dispersion model we show that all dispersed price equilibria are unstable under the class of perturbed best response dynamics instead numerical simulations using the logit dynamic show that price dispersion manifests itself as a limit cycle we verify that limit cycles persist even when the finite strategy model approaches the original continuous strategy model for a particularly simple case of the model we prove the existence of a limit cycle

does one size fit all a reexamination of the finance and growth relationship abstract recent research has found a strong positive effect of a country s financial development on economic growth we propose that this relationship may vary according to the level of financial development divided in three regions in the low region countries with very low levels of financial development additional improvements in financial markets have an uncertain effect on growth in the intermediate region financial development has a large positive effect on growth finally in the high region the effect is positive but smaller we examine a panel of 74 countries using generalized method of moments gmm dynamic panel techniques and find support for the different regions

how national and international financial development affect industrial r d abstract we examine the impacts of both domestic and international financial market development on r d intensities in 22 manufacturing industries in 18 oecd countries for the period 1990 2003 we take account of such industry characteristics as the need for external financing and the amount of tangible assets multiple forms of domestic financial development are important determinants of r d intensity but only foreign direct investment is significant among alternative measures of international financial development we find the strongest effects for private bond market capitalization while fdi private credit by banks and stock market capitalization have similar effects in terms of magnitude

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

the effect of financial development on convergence theory and evidence we introduce imperfect creditor protection in a multicountry schumpeterian growth model the theory predicts that any country with more than some critical level of financial development will converge to the growth rate of the world technology frontier and that all other countries will have a strictly lower long run growth rate we present evidence supporting these and other implications in the form of a cross country growth regression with a significant and sizable negative coefficient on initial per capita gdp relative to the united states interacted with financial intermediation in addition we find that other variables representing schooling geography health policy politics and institutions do not affect the significance of the interaction between financial intermediation and initial per capita gdp and do not show any independent effect on convergence in the regressions our findings are robust to removal of outliers and to alternative conditioning sets estimation procedures and measures of financial development

coase versus the coasians who should enforce laws or contracts judges or regulators many coasians though not coase himself advocate judicial enforcement we show that the incentives facing judges and regulators crucially shape this choice we then compare the regulation of e nancial markets in poland and the czech republic in the 1990s in poland strict enforcement of the securities law by a highly motivated regulator was associated with a rapidly developing stock market in the czech republic hands off regulation was associated with a moribund stock market i introduction at the heart of economists traditional skepticism about government regulation is the coase theorem coase 1960 the theorem states that when property rights are well dee ned and transaction costs are zero market participants will organize their transactions in ways that achieve efe cient outcomes when they can do so it is not necessary for the government to engage in corrective actions through taxes regulations or even legal rules financial markets are often used to demonstrate the coase theorem s case against regulation advocates of the regulation of these markets point to a variety of potential failures such as the ability of security issuers to expropriate both potential and existing investors through misrepresentation or proe t diversion investors fear of such expropriation prevents e rms from raising external funds and keeps efe cient projects from being undertaken not so reply the coasians they point out that most securities transactions take place between sophisticated adults and that both the buyers and the issuers of securities have available to them a vast range of private arrangements to achieve efe ciency including contracts such as corporate charters certie cation by intermediaries and various forms of bonding such contracts render most laws and regulations unnecessary stigler 1964 easterbrook and fischel 1991

corruption in bank lending to firms cross country micro evidence on the beneficial role of competition and information sharing abstract building on the important study by beck demirguc kunt and levine 2006 bank supervision and corruption in lending journal of monetary economics 53 2131 2163 we examine the effects of both borrower and lender competition as well as information sharing via credit bureaus registries on corruption in bank lending using the unique world bank data set wbes covering more than 4 000 firms across 56 countries with information on credit bureaus registries assembled by djankov mcliesh and shleifer 2007 private credit in 129 countries journal of financial economics 84 299 329 and bank regulation data collected by barth caprio and levine 2006 rethinking bank regulation till angels govern cambridge university press new york to measure bank competition and information sharing we find strong evidence that both banking competition and information sharing reduce lending corruption and that information sharing also helps enhance the positive effect of competition in curtailing lending corruption we also find that the ownership structure of firms and banks legal environment and firm competition all exert significant impacts on lending corruption