violence during democratization and the quality of democratic institutions abstract this paper investigates the impact of violent civil conflicts during the process of democratization on the institutional quality of the emerging democracies we propose a theory of endogenous regime transition in which violent conflict can arise in equilibrium peaceful transitions lead to a social contract that provides all groups with political representation and leads to better protection of civil liberties than violent transitions empirical evidence from the third wave of democratization based on a difference in difference methodology supports the theoretical predictions the findings suggest that compared to peaceful transitions violent conflicts during the democratic transition have persistent negative effects on the institutional quality of the emerging democracies

statehood democracy and preindustrial development this paper proposes a growth model linking state history to economic development it considers three state systems non statehood authoritarian statehood and democratic statehood these differ in the way a public good is provided which in turn determines growth rates under certain assumptions democratic states grow faster than authoritarian ones which in turn grow faster than non states all societies start with non statehood and transition into authoritarian statehood at some point but the timing is random when later given the opportunity only those societies that transitioned relatively recently to authoritarian statehood transition to democracy when they do they begin to grow faster eventually overtaking older and still authoritarian states this generates an inversely u shaped cross sectional relationship between development and state history consistent with modern cross country data

how much do rights matter summary do better political rights yield more economic development by addressing the econometric challenges plaguing this question we find support for a positive impact of rights on development for a significant grouping of countries the association is nonlinear the positive impact of rights is particularly strong at low rights levels it is either absent or negative in an intermediate rights range and returns to a moderate positive impact at high levels of rights there is also evidence to suggest that transitions from autocratic political dispensations are associated with significant negative output shocks

partisan competition growth and the franchise we present an argument for changes in the franchise in which an elite split along economic interests uses the suffrage to influence implemented policies through the influence of these policies on the character of industrialization we analyze the effects of franchise changes on economic growth we identify in the social structure of society an explanation for the connection between enfranchisement and growth when 1 there exists an economic conflict among the elite 2 landed classes are not politically strong and 3 there exists a critical mass of industrial workers we observe both growth and democratization the lack of conditions 1 or 2 resolves in stagnant autocracies while the absence of condition 3 drives growth deterring democratic expansions we provide historical support for our argument by analyzing the experience of eleven countries

household s preferences and monetary policy inertia abstract interest rates set by central banks puzzlingly move with a certain inertia we show that household s preferences can be important determinants of the optimal interest rate inertia due to their impact on the efficiency of the monetary policy transmission mechanism

the distribution of earnings in an equilibrium search model with state dependent offers and counteroffers we construct an equilibrium job search model with on the job search in which firms implement optimal wage strategies under full information in the sense that they leave no rent to their employees and counter the offers received by their employees from competing firms productivity dispersion across firms results in wage mobility both within and across firms workers may accept wage cuts to move to firms offering higher future wage prospects equilibrium productivity dispersion across ex ante homogeneous firms can be endogenously generated productivity dispersion then generates a nontrivial wage distribution which is generically thin tailed as typically observed in the data

a differential games solution to a model of competition between a thief and the police this paper contains an extension of an optimal control model considered by sethi sethi s p 1979 optimal pilfenng policies for dynamic continuous thieves management sci 25 6 june 535 542 to a differential game situation it is assumed that sethi s concave thief i e a risk averter plays against the police whose objective function incorporates convex costs of law enforcement a one shot utility at the time of arrest and a continuous utility or cost rate after the thief is arrested the probability that the thief is caught by time t is influenced not only by the pilfering rate as is the case in sethi s model but also by the instrumental variable of the police namely its rate of law enforcement our aim is to analyze noncooperative nash solutions of the differential game sketched above due to the special structure of the hamiltonians a system of two nonlinear differential equations for the control variables of both players can be derived the system is solved explicitly under special assumptions it is shown that the optimal rate of law enforcement of police increases monotonically whereas for the nash optimal pilfering rate three cases may be characterized in which increase decrease or constancy occur thus the nash optimal solutions show in each case monotonic behavior i e changes in trend never occur moreover the dependency of the terminal values of control can be described finally an interpretation of the model as market entrance game is sketched

natural resources democracy and corruption we study how natural resources can feed corruption and how this effect depends on the quality of the democratic institutions our game theoretic model predicts that resource rents lead to an increase in corruption if the quality of the democratic institutions is relatively poor but not otherwise we use panel data covering the period 1980 to 2004 and 124 countries to test this theoretical prediction our estimates confirm that the relationship between resource rents and corruption depends on the quality of the democratic institutions our main results hold when we control for the effects of income time varying common shocks regional fixed effects and various additional covariates they are also robust across different samples and to the use of various alternative measures of natural resources democracy and corruption

income and democracy evidence from nonlinear estimations we test the relation between income and democracy during the postwar period we employ panel estimation methods that explicitly allow for the fact that the primary measures of democracy are censored with substantial mass at the boundaries we find that the statistically significant positive income democracy relationship is robust to the inclusion of country fixed effects

investments holdup and the form of market contracts the authors analyze incomplete contracts to induce efficient investment with exogenous switching costs fixed price contracts are efficient generate some rigidity in prices are renegotiated intermittently by possibly small amounts and when inflation is positive generate asymmetric responses to shocks all consistent with evidence on prices and wages with two sided specific investments efficiency requires prices to have sufficient escalator clauses to avoid renegotiation as observed in many long term contracts a third case with one sided specific investments can generate take or pay contracts and explain why firms sometimes pay for specific investments that appear to benefit employees directly

credible threats in a wage bargaining model with on the job search abstract this note shows that in standard equilibrium search models with strategic wage bargaining and on the job search renegotiation does not require mutual consent if the worker needs a credible threat to trigger renegotiation wages are renegotiated less frequently than in the original model

income and democracy existing studies establish a strong cross country correlation between income and democracy but do not control for factors that simultaneously affect both variables we show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and vari ous measures of democracy we present instrumental variables estimates that also show no causal effect of income on democracy the cross country corre lation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years this pattern is con sistent with the idea that societies embarked on divergent political economic development paths at certain critical junctures jel d7 e 1

reevaluating the modernization hypothesis we revisit and critically reevaluate the widely accepted modernization hypothesis which claims that per capita income causes the creation and the consolidation of democracy existing studies find support for this hypothesis because they fail to control for the presence of omitted variables controlling for these factors either by including country fixed effects in a linear model or by including parameterized random effects in a nonlinear double hazard model removes the correlation between income and the likelihood of transitions to and from democratic regimes in addition the estimated fixed effects from the linear model are related to historical factors that affect both the level of income per capita and the likelihood of democracy in a country this evidence is consistent with the idea that events during critical historical junctures can lead to divergent political economic development paths some leading to prosperity and democracy others to relative poverty and non democracy

growth in post soviet russia a tale of two transitions abstract in the early stages of post soviet russia s economic transition small scale entrepreneurial activity appeared to be a strong engine of growth moreover striking regional variations in initial conditions and adopted policy reforms appeared useful in accounting statistically for observed regional variations in entrepreneurial activity here we investigate whether these relationships have persisted as russia s transition has continued to evolve and find that they have not we then document that the emergence of bank issued credit virtually non existent outside of moscow prior to 2000 has been an important engine of growth since 2000 thus to date russia s post soviet development appears as a tale of two distinct transition paths

spatial spillovers in the development of institutions abstract we examine spatial spillovers in institutional development dependent variables are institutional measures reflecting politics law and governmental administration the explanatory variable of interest is the level of institutions in bordering countries a spatial lag of the dependent variable our spatial model directly leads to the identification strategy for the endogenous spatial lag we implement new results in spatial econometrics to counter missing data problems usually rife in spatial empirics spatial institutional spillovers are statistically significant and economically important a counter factual exercise the non existence of the ussr reveals large direct and indirect spillovers numerous robustness exercises bolster conclusions including yearly cross section regressions fixed effects estimates and adding many extra explanatory variables moreover we provide a new theoretical result showing the robustness of estimates in the presence of omitted variables we extend the core model allowing different effects for better and worse neighbors using inverse distance weights estimating the spatial durbin model and using polity s institutional measure

the coevolution of economic and political development from monarchy to democracy this article establishes a unified political economy model to analyze the democratization process from monarchy to oligarchy and to democracy in the context of dynamic economic development as the predominant source of wealth evolves from land to physical capital and finally to human capital the relative economic and hence coercive power of land owners capitalists and workers shifts accordingly inducing the transition of the political system where political power is expanded from landlords to capitalists and finally to workers a smooth transition through political compromise facilitates efficient allocation of savings in physical capital followed by efficient investment in human capital

income and democracy revisiting the evidence abstract in an influential paper acemoglu et al 2008 find that the positive correlation between income per capita and the level of democracy across countries vanishes once country specific effects are accounted for in this paper we find evidence of a non linear effect from income to democracy even after controlling for country specific effects in particular our findings point to the existence of a positive effect only in low income countries

minimum wage effects on labor market outcomes under search matching and endogenous contact rates building upon a continuous time model of search with nash bargaining in a stationary environment we analyze the effect of changes in minimum wages on labor market outcomes and welfare although minimum wage increases may or may not lead to increases in unemployment in our model they can be welfare improving to labor market participants on both the supply and demand sides of the labor market we discuss identification of the model using current population survey data on accepted wages and unemployment durations and show that by incorporating a limited amount of information from the demand side of the market it is possible to obtain credible and precise estimates of all primitive parameters we show that the optimal minimum wage in 1996 depends critically on whether or not contact rates can be considered to be exogenous and we note that the limited variation in minimum wages makes testing this assumption problematic

understanding the deviation of australian policy rate from the taylor rule this investigation aims to explain and quantify the deviations of the australian policy rate set by reserve bank of australia from the taylor rule a three step econometric procedure designed to reflect the data rich environment in which central banks operate is proposed using information for 229 macroeconomic series this procedure can be applied to data for any economy with inflation targeting monetary rule our application with australian data shows that approximately 65 of australia s policy rate deviation from the taylor rule can be explained systematically with international factors and a domestic factor accounting for 41 9 and 22 5 respectively of the total variation in deviation from the rule

simple solutions to the initial conditions problem in dynamic nonlinear panel data models with unobserved heterogeneity i study a simple widely applicable approach to handling the initial conditions problem in dynamic nonlinear unobserved effects models rather than attempting to obtain the joint distribution of all outcomes of the endogenous variables i propose finding the distribution conditional on the initial value and the observed history of strictly exogenous explanatory variables the approach is flexible and results in simple estimation strategies for at least three leading dynamic nonlinear models probit tobit and poisson regression i treat the general problem of estimating average partial effects and show that simple estimators exist for important special cases copyright 2005 john wiley sons ltd

state capacity and long run economic performance we present new evidence about the long run relationship between state capacity the fiscal and administrative power of states and economic performance our database is novel and spans 11 european countries and 4 centuries from the old regime to world war i we argue that national governments undertook two political transformations over this period fiscal centralization and limited government we find a significant direct relationship between fiscal centralization and economic growth furthermore we find that an increase in the state s capacity to extract greater tax revenues was one mechanism through which both political transformations improved economic performance our analysis shows systematic evidence that state capacity is an important determinant of long run economic growth

international commodity prices growth and the outbreak of civil war in sub saharan africa to learn more about the effect of economic conditions on civil war we examine whether sub saharan civil wars are more likely to start following downturns in the international price of countries main export commodities the data show a robust effect of commodity price downturns on the outbreak of civil wars we also find that sub saharan countries are more likely to see civil wars following economic downturns in their main oecd export destinations

the rise of europe atlantic trade institutional change and economic growth the rise of western europe after 1500 is due largely to growth in countries with access to the atlantic ocean and with substantial trade with the new world africa and asia via the atlantic this trade and the associatedcolonialism affected europe not only directly but also indirectly by inducing institutional change where initial political institutions those established before 1500 placed significant checks on the monarchy the growth of atlantic trade strengthened merchant groups by constraining the power of the monarchy and helped merchants obtain changes in institutions to protect property rights these changes were central to subsequent economic growth

income and democracy evidence from system gmm estimates abstract does higher income cause democracy accounting for the dynamic nature and high persistence of income and democracy we find a statistically significant positive relation between income and democracy for a postwar period sample of up to 150 countries our results are robust across different measures of democracy and instrumentation strategies

credit constraints and growth gains from governance this paper contributes to the governance literature by analyzing the specific mechanisms through which governance affects economic growth the credit channel specifically it investigates the grow

workers of the world unite franchise extensions and the threat of revolution in europe 1820 1938 abstract we test the hypothesis that the extension of the voting franchise in europe was related to the threat of revolution we contend that international diffusion of regime contention and information about revolutionary events happening in neighboring countries generate the necessary variation in the perceived threat of revolution using two samples of european countries covering the period from 1820 to 1938 we find robust evidence which is consistent with the threat of revolution hypothesis we also find some evidence that war triggered suffrage reform

institutional traps and economic growth this article s point of departure is that low quality institutions concentration of political power and material wealth and underdevelopment are persistent over time its analytical model views an equal distribution of political power as a commitment device to enhance institutional quality thereby promoting growth the politically powerful coalition contemplates relinquishing of its power through democratization weighing this advantageous consequence against the limit on own appropriative ability that it entails the possibility of two developmental paths is exhibited with concentration of political and economic power low quality institutions and slow growth and a more equal distribution of political and economic resources high quality institutions and faster growth

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

taylor rules omitted variables and interest rate smoothing in the us abstract we test for the presence of interest rate smoothing in forward looking taylor rules in first differences we also consider financial and asymmetric preferences indicators we find that interest rate smoothing is not induced by an omitted variable bias

job search bargaining and wage dynamics this article constructs and estimates a model of wage bargaining with on the job search to explore three different components of wages general human capital match specific capital and outside options as the workers find better job opportunities the current employer has to compete with outside firms to retain them this between firm competition results in wage growth even when productivity remains the same the model is estimated by a simulated minimum distance estimator and data from the 1979 national longitudinal study of youth the results indicate that the improved value of the outside option raises wages by 14 16 in the first 5 years

do natural resources fuel authoritarianism a reappraisal of the resource curse a large body of scholarship finds a negative relationship between natural resources and democracy extant cross country regressions however assume random effects and are run on panel datasets with relatively short time dimensions because natural resource reliance is not an exogenous variable this is not an effective strategy for uncovering causal relationships numerous sources of bias may be driving the results the most serious of which is omitted variable bias induced by unobserved country specific and time invariant heterogeneity to address these problems we develop unique historical datasets employ time series centric techniques and operationalize explicitly specified counterfactuals we test to see if there is a long run relationship between resource reliance and regime type within countries over time both on a country by country basis and across several different panels we find that increases in resource reliance are not associated with authoritarianism in fact in many specifications we generate results that suggest a resource blessing

policy regime changes judgment and taylor rules in the greenspan era this paper investigates policy deviations from linear taylor rules motivated by the risk management approach followed by the fed during the greenspan era we estimate a nonlinear monetary policy rule via a logistic smoothing transition regression model where policy makers judgment proxied by economically meaningful variables drives the transition across policy regimes we find that ignoring judgment induced nonlinearities while estimating taylor rules has remarkable costs in terms of fit above 250 bps in 10 quarters although linear taylor rules describe well the broad contours of monetary policy they fail to detect relevant policy decisions driven by policy makers judgment

does public support help democracy survive it is widely believed that democracy requires public support to survive the empirical evidence for this hypothesis is weak however with existing tests resting on small cross sectional samples and producing contradictory results the underlying problem is that survey measures of support for democracy are fragmented across time space and different survey questions in response this article uses a bayesian latent variable model to estimate a smooth country year panel of democratic support for 135 countries and up to 29 years the article then demonstrates a positive effect of support on subsequent democratic change while adjusting for the possible confounding effects of prior levels of democracy and unobservable time invariant factors support is moreover more robustly linked with the endurance of democracy than its emergence in the first place as lipset 1959 and easton 1965 hypothesized over 50 years ago public support does indeed help democracy survive

consumer activism producer groups and production standards we examine competition between groups of producers when consumers prefer costly ethical production technologies consumers are unable to identify or monitor production technologies producers can freeride on their group s reputation by substituting cheaper unethical technologies when an ethical technology is pareto optimal social pressures within competing producer groups can ensure long run dominance of groups relying most heavily on the ethical technology even if social pressures cannot support the choice of the ethical technology in the long run competition between producer groups can increase the average level of adoption of the ethical technology for an arbitrarily long period of time

the dynamics of aid and political rights using cross country panel data we explore the extent to which the variation over time in measures of democracy and political rights can be explained by changes in aid inflows thus providing direct evidence on the impact of innovations in donor policy on the quality of recipient governance we distinguish between the short run and long run effects of changes in aid our results are very different from those based on cross country variation in aid inflows we find evidence of large differences between the effect of aid for political reform and the effect of other types of aid in aggregate these effects also depend on the recipient country s initial level of political development there is no evidence that aid intended for political reform has achieved its objective and in some countries it may be counterproductive however aggregate aid can have a beneficial effect on political rights

an empirical investigation of the determinants of democracy trade aid and the neighbor effect empirical investigation by dynamic panel data models of the determinants of democracy shows a strong positive neighbor effect foreign aid is stabilizing but not inducing democratic development while there is no significant relationship to openness to trade and income

persistence of power elites and institutions we construct a model to study the implications of changes in political insti tutions for economic institutions a change in political institutions alters the distribution of de jure political power but creates incentives for investments in de facto political power to partially or even fully offset change in de jure power the model can imply a pattern of captured democracy whereby a democratic regime may survive but choose economic institutions favoring an elite the model provides conditions under which economic or policy outcomes will be invariant to changes in political institutions and economic institutions them selves will persist over time jel d02 d72 the domination of an organized minority over the unor ganized majority is inevitable the power of any minority is irresistible as against each single individual in the majority who stands alone before the totality of the organized minor ity at the same time the minority is organized for the very reason that it is a minority

poverty and civil war revisiting the evidence abstract previous research has interpreted the correlation between per capita income and civil war as evidence that poverty is a main determinant of conflict in this paper we find that the relationship between poverty and civil war is spurious and is accounted for by historical phenomena that jointly determine income evolution and conflict in particular the statistical association between poverty and civil wars disappears once we include country fixed effects also using cross section data for 1960 to 2000 we find that once historical variables like european settler mortality rates and the population density in 1500 are included in civil war regressions poverty does not have an effect on civil wars these results are confirmed using longer time series from 1825 to 2000

stochastic competitive entries and dynamic pricing abstract how should firms price new products when they do not know the timing nor the nature of the next competitive entry to guide managers pricing decisions in such contexts we propose a dynamic pricing model with two types of randomly timed entry i e imitative and innovative the characterization of the equilibrium strategies reveals how optimal prices vary with the manager s knowledge about the timing of future competitive entries we show that price skimming is not always optimal when entry dates are unknown to managers everything else equal we demonstrate that the randomness of competitive entries make forward looking managers to choose constant prices even though the characteristics of the market would have justified skimming the demand in the normal course moreover we show that the constant pricing policy remains optimal even when the incumbent s optimal pricing strategy influences the probability of facing a competitive entry finally we find that uncertainty does not necessarily hurt firms profits

likelihood based estimation of dynamic panels with predetermined regressors this article discusses the likelihood based estimation of panel data models with individual specific effects and both lagged dependent variable regressors and additional predetermined explanatory variables the resulting new estimator labeled as subsystem limited information maximum likelihood ssliml is asymptotically equivalent to standard panel generalized method of moment as n for fixed t but tends to present smaller biases in finite samples as illustrated in simulation experiments simulation results also indicate that the estimator is preferred to other alternatives available in the literature in terms of finite sample performance finally to provide an empirical illustration i revisit the evidence on the relationship between income and democracy in a panel of countries using the proposed estimator

oligarchic versus democratic societies this paper develops a model to analyze economic performance under different political regimes an oligarchic society where political power is in the hands of major producers protects their property rights but also tends to erect significant entry barriers against new entrepreneurs democracy where political power is more widely diffused imposes redistributive taxes on producers but tends to avoid entry barriers when taxes in democracy are high and the distortions caused by entry barriers are low an oligarchic society achieves greater efficiency because comparative advantage in entrepreneurship shifts away from the incumbents the inefficiency created by entry barriers in oligarchy deteriorates over time the typical pattern is one of rise and decline of oligarchic societies an oligarchic society may first become richer but later fall behind a similar democratic society i also discuss how democracies may be better able to take advantage of new technologies how within elite conflict in oligarchies might cause a transition to democracy and how the unequal distribution of income may keep inefficient oligarchic institutions in place jel p16 o10

does high income promote democracy the authors construct a statistical model with which to test whether the regularity that democracy is more commonly found among wealthy countries stems from a democratizing effect of high income or is due entirely to other factors such as the historical context various features of the institutional setting and simultaneity with the process of leadership change even after correcting for these many other influences the democratizing effect of income remains as a statistically significant factor promoting the emergence of democratic political institutions the authors go on to find that leaders risks of losing power rise during their time in office and that these risks are higher in more democratic countries the authors confirm the finding by burkhart and lewis beck that the democracy promoting effect of income is stronger among the european countries they suggest that high income has a more powerful democratizing effect among the southern european countries because it interacts with pressure from major trading partners to democratize this suggests a revaluation of policies designed to foster the replacement of authoritarian regimes by democratic ones through free trade

demographic transition in resource rich countries a blessing or a curse summary this study argues that resource wealth is a key factor for understanding income effects of demographic transition we develop a simple model highlighting how the income effect of increased labor supply may depend on resource rents and provide empirical evidence that support the theoretical predictions using panel data covering the period from 1982 to 2006 for more than 120 countries we find a negative interaction effect between resource wealth and demographic transition on national income moreover the negative interaction effect does not depend on institutional quality and is found also across different samples

the effect of government expenditure on the environment an empirical investigation abstract this paper examines the impact of government spending on the environment using a panel of 77 countries for the time period 1980 2000 we estimate both the direct and indirect effects of government spending on pollution the indirect effect in particular operates through the impact of government spending on income and the subsequent effect of the income level on pollution to take into account the dynamic nature and the potential endogeneity in the relationships examined appropriate econometric methods are used for so2 government spending is estimated to have a negative direct impact on per capita emissions while the direct effect is insignificant on co2 pollution the indirect effect on so2 is negative for low income levels and becomes positive as income increases while it remains negative for co2 for the most part of the sample range the resultant total effects follow the patterns of the indirect effects which dominate their respective direct ones for each pollutant policy implications from the results vary depending on the income level of the considered countries

income and democracy comment acemoglu et al 2008 document that the correlation between income per capita and democracy disappears when including time and country fixed effects while their results are robust for the full sample we find evidence for significant but heterogeneous effects of income on democracy negative for former colonies but positive for non colonies within the sample of colonies we detect heterogeneous effects related to colonial history and early institutions the zero mean effect estimated by acemoglu et al 2008 is consistent with effects of opposite signs in the different subsamples our findings are robust to the use of alternative data and estimation techniques jel d72 o17 o47

how does the european central bank react to oil prices monetary policy may constitute a short term explanation of the non linearity in the relationship between oil prices and output the role of oil prices in the ecb reaction is thus investigated with an extended taylor rule including several oil prices indicators

effects of international food price shocks on political institutions in low income countries evidence from an international food net export price index we examine the effects of variations in the international food prices on political institutions in low income countries our empirical analysis exploits that the economic impact of changes in the international food prices differs across countries depending on whether countries are net food importers or exporters we construct an international food net export price index that captures this heterogeneity our panel fixed effects analysis yields that in low income countries within country variations in the international food net export price index are significantly negatively related to democratic institutions we further explore the mechanisms driving this relationship along the economic and the conflict dimensions

inflation targeting in emerging economies panel evidence abstract this paper shows there is no evidence that the inflation targeting regime it improves economic performance as measured by the behavior of inflation and output growth in developing countries the control of common time effects results in less negative and less significant it impacts on inflation inflation volatility and output growth volatility than previously found in the literature additionally our analysis shows robust evidence of lower output growth during it adoption on balance although lower long run mean inflation signals that the central banks of emerging economies with inflation targeting are more inflation averse the costs of disinflation have not been lower than under other monetary regimes

determinants of democracy a panel study of over 100 countries from 1960 to 1995 finds that improvements in the standard of living predict increase in democracy as measured by a subjective indicator of electoral rights the propensity for democracy rises with per capita gdp primary schooling and a smaller gap between male and female primary attainment for a given standard of living democaracy tends to fall with urbnization and with a greater reliance on natrual resources democracy has little relation to country size but rises with the middle class share of income the apparently strong relation of democracy to colonial heritage mostly disappears when the economic variables are held constant similarly the allowance for these economic variables weakens the interplay between democracy and religious affiliation however negative effects from muslim and non religious affiliations remain intact

the impact of sanitary and phytosanitary measures on market entry and trade flows in an attempt to disentangle the impact of sanitary and phytosanitary sps measures on trade patterns we estimate a heckman selection model on the hs4 disaggregated level of trade we find that aggregated sps measures constitute barriers to agricultural and food trade consistently to all exporters but conditional on market entry trade flows are positively affected by sps measures additionally we find that sps measures related to conformity assessment hamper market entry and trade flows while sps measures related to product characteristics pose an entry barrier but increase bilateral trade flows conditional on meeting the standard

optimal management of fringe entry over time abstract in this paper we investigate the problem of a dominant company facing entry of a competitive fringe smaller competitor or fringe of smaller competitors we seek to identify pricing and advertising or other promotional strategies that maximize long term profits for the dominant firm under possible reactions of the competitive fringe two main situations are considered the firms in the fringe are price takers but they advertise the firms in the fringe are not price takers and advertise the possibility of a passive reaction in the case of a very small fringe is considered as a particular case we assume that the rate of change of fringe sales is dynamically related to the current sales price and advertising efforts of both the dominant firm and the fringe the higher the dominant firm price the faster fringe entry the higher dominant firm advertising effort the slower fringe entry fringe advertising and pricing may counterbalance these effects formulating a dynamic game with the dominant firm as a leader and the fringe as a follower we present a new methodology for providing time invariant feedback stackelberg equilibrium the methodology relies on finding the relationship between the co state variables and the state variable the equilibrium solution is obtained in an implicit form by solving a set of two backward differential equations to show the applicability of our solution to real situations we use data from the u s long distance market and find optimal decision rules for at t facing the entry of mci and sprint during the 1980 1990 period the feedback equilibrium indicates that while at t s price is decreasing when fringe mci and sprint sales increase the fringe price is increasing at t s advertising is increasing with fringe sales while the fringe s advertising increases and then decreases the comparison with actual behavior indicates that at t has adhered closer to the optimal solution in both price and advertising than the fringe

dynamic optimal pricing and possibly advertising in the face of various kinds of potential entrants abstract several nonlinear stochastic models are developed for a dynamic profit maximizing firm with respect to its price and possibly advertising decisions under threat of entry the optimal price advertising policies for these models are characterized by the use of the maximum principle while the optimal policy will depend on the assumed functional forms it is shown that under certain plausible assumptions the optimal policy is to increase profit by charging a higher price and decrease the resulting threat of entry by a higher level of advertising

from education to democracy the conventional wisdom views high levels of education as a prerequisite for democracy this paper shows that existing evidence for this view is based on crosssectional correlations which disappear once we look at within country variation in other words there is no evidence that countries that increase their education are more likely to become democratic

term structure evidence on interest rate smoothing and monetary policy inertia abstract numerous studies have used quarterly data to estimate monetary policy rules or reaction functions that appear to exhibit a very slow partial adjustment of the policy interest rate the conventional wisdom asserts that this gradual adjustment reflects a policy inertia or interest rate smoothing behavior by central banks however such quarterly monetary policy inertia would imply a large amount of forecastable variation in interest rates at horizons of more than 3 months which is contradicted by evidence from the term structure of interest rates the illusion of monetary policy inertia evident in the estimated policy rules likely reflects the persistent shocks that central banks face

strategic entry before demand takes off in developing industries firms have to decide whether and when to enter the market depending on the state of demand existing firms in the industry and the firm s capabilities this paper investigates a model of increasing demand in which firms decide when to enter the market anticipating the strategic behavior of other potential entrants and the effects of entry on future potential entrants this paper shows that the ability of early entry to deter future competitors entry leads firms to enter the market at a rate faster than demand is expanding if there is the potential for many firms to enter the market firms may be less likely to enter because of future competitor entry to correct any market opportunities if firms enter the market depending on their fixed capabilities rather than depending on the firm s circumstances at each moment in time firms end up entering the market at a faster rate in the early periods

income and democracy a smooth varying coefficient redux summary acemoglu et al american economic review 2008 98 808 842 find no effect of income on democracy when controlling for fixed effects in a dynamic panel model work by moral benito and bartolucci economics letters 2012 117 844 847 and cervellati et al american economic review 2014 104 707 719 suggests that the original model might have been misspecified and proposes alternative specifications instead we formally test these parametric specifications by implementing lee s journal of econometrics 2014 178 146 166 dynamic panel test of linear parametric specifications against a general class of nonlinear alternatives robustly and reject all these specifications however using a more flexible model proposed by cai and li econometric theory 2008 24 1321 1342 we find that the relationship between income and democracy appears to be mediated by education but results are not statistically significant copyright 2016 john wiley sons ltd

why did the west extend the franchise democracy inequality and growth in historical perspective during the nineteenth century most western societies extended voting rights a decision that led to unprecedented redistributive programs we argue that these political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution political transition rather than redistribution under existing political institutions occurs because current transfers do not ensure future transfers while the extension of the franchise changes future political equilibria and acts as a commitment to redistribution our theory also offers a novel explanation for the kuznets curve in many western economies during this period with the fall in inequality following redistribution due to democratization i introduction the nineteenth century was a period of fundamental political reform and unprecedented changes in taxation and redistribution britain for example was transformed from an oligarchy run by an elite to a democracy the franchise was extended in 1832 and then again in 1867 and 1884 transferring voting rights to portions of the society with no previous political representation the decades after the political reforms witnessed radical social reforms increased taxation and the extension of education to the masses moreover as noted by kuznets inequality which was previously increasing started to decline during this period the gini coefficient for income inequality in england and wales had risen from 0 400 in 1823 to 0 627 in 1871 but fell to 0 443 in 1901 two key factors in the reduction in inequality were the increase in the proportion of skilled workers williamson 1985 and the redistribution of income toward the poorer segments of the society for example taxes rose from 8 12 percent of national product in 1867 to 18 8 percent by 1927 and the progressivity of the tax system increased substantially see lindert 1989

sorting through global corruption determinants institutions and education matter not culture abstract identifying the robust determinants of corruption among cultural economic institutional and geographical factors has proven difficult from a policy perspective it is important to know whether inherent largely unchangeable attributes are responsible or if institutional and economic attributes are at work accounting for model uncertainty we use bayesian model averaging bma to analyze a comprehensive list of 36 potential corruption determinants across 123 countries covering 87 percent of the world population the bma methodology sorts through all 68 719 476 736 possible model combinations 2 36 in order to carve out the robust correlates we then take a step toward alleviating endogeneity concerns in an instrumental variable bma framework our results indicate that cultural factors are largely irrelevant whereas particular economic and institutional characteristics matter the rule of law emerges as the most persistent predictor with a posterior inclusion probability pip in the true model of 1 00 whereas we find strong evidence for government effectiveness pip of 0 88 urbanization 0 85 and the share of women in parliament 0 80 as meaningful determinants of lower corruption levels in developing countries the extent of primary schooling enters as a powerful factor with a pip of 1 00

how to get the snowball rolling and extend the franchise voting on the great reform act of 1832 this paper suggests a new approach to analyzing the causes of franchise extension based on a new dataset it provides a detailed econometric study of the great reform act of 1832 in the united kingdom the analysis yields four main results first modernization theory receives limited support second the reform enjoyed some measure of popular support third the threat of revolution had an asymmetric impact on the voting behavior of the pro reform whigs and the anti reform tories while the threat might have convinced reluctant reformers among the whig politicians and among their patrons to support the bill it seems to have hardened the resistance to reform among the tories fourth ideology played a critical role nevertheless it also appears that self interest and political expedience explained the votes of many members of parliament

self enforcing democracy author s fearon james abstract if democracy is to have any of the good effects said to justify it it must be self enforcing those who control the government must want to hold regular competitive elections for the highest offices and all parties must be willing to comply with the results i consider a model in which citizens can always protest or rebel against the current ruler but can unseat the ruler only if enough people rebel when individuals privately observe a signal of the government s performance e g their own welfare they face a difficult problem of how to coordinate to pose a credible threat of rebellion necessary to keep the ruler from stealing further if the signals are noisy inefficient rebellions must occur in equilibrium to keep the ruler honest allowing for the possibility of elections makes for equilibria that eliminate both problems the convention of holding elections at particular times provides a public signal for coordinating rebellion in the event that elections are suspended of blatantly rigged the electoral results themselves aggregate private information about the ruler s performance providing the ruler an incentive to stick to the terms int he case of noisy signals of government performance the electoral results act as a cheap talk signal that allows the public to commit to rebel if a losing ruler does not step down avoiding the need for costly rebellions these arguments pose an explanation for self enforcing democracy whereas the several models in the literature do not because they do not explain why anyone would want to use elections to allocate power

family ties and socio economic outcomes in high vs low income countries abstractalesina and giuliano illustrate that strong family ties lead to lower geographical mobility and reduced labour force participation of young and female individuals we extend their analysis by arguing that the effect of strong family ties on economic outcomes depends on a country s level of economic and institutional development this cross country heterogeneity arises because strong family ties not only foster traditional family values which have disruptive effects on economic outcomes but also provide economically valuable social networks especially in societies characterised by weak institutions and limited market access empirical evidence using the european and world value surveys evs wvs are supportive of our theoretical argument

does the version of the penn world tables matter an analysis of the relationship between growth and volatility the penn world tables pwt are an important data source for cross country comparisons in economics the pwt have undergone several revisions over time this paper documents how countries output growth rates change across four publicly available versions of the pwt we show that for some countries the magnitude of the differences is significant and or the sign of the growth rates changes across versions using as an example ramey and ramey 1995 who found growth volatility has a significant negative effect on growth we demonstrate that conclusions based on one version of the pwt may not hold under another version les tableaux mondiaux de penn penn world tables ou pwt sont une source importante de donnees comparatives entre pays dans le monde economique les pwt ont subi plusieurs revisions dans le temps ce memoire montre d abord comment les taux de croissance du produit des pays changent selon les quatre versions des pwt disponibles au public on montre que pour certains pays la taille des differences est significative et que meme le signe de ces taux change d une version a l autre utilisant comme exemple ramey et ramey 1995 qui ont montre que la volatilite de la croissance a un effet negatif sur la croissance les auteurs montrent que les conclusions fondees sur une version des pwt peuvent ne pas etre fondees dans une autre version

world welfare is rising estimation using nonparametric bounds on welfare measures abstract i take a new approach to measuring world inequality and welfare over time by constructing robust bounds for these series instead of imposing parametric assumptions to compute point estimates i derive sharp bounds on the atkinson inequality index that are valid for any underlying distribution of income conditional on given fractile shares and gini coefficients while the bounds are too wide to reject the hypothesis that world inequality may have risen i show that world welfare rose unambiguously between 1970 and 2006 this conclusion is valid for alternative methods of dealing with countries and years with missing surveys alternative survey harmonization procedures alternative gdp series or if the inequality surveys used systematically underreport the income of the very rich or suffer from nonresponse bias

does one size fit all a taylor rule based analysis of monetary policy for current and future emu members this article uses the taylor rule to examine the appropriateness of european central bank ecb interest rate policy for the initial european monetary union emu members and the 10 new emu member states some of whom are expected to join the eurozone in 2006 2007 specifically it addresses three questions 1 are there differences between the interest rate aggregated from the taylor interest rates of individual member states in the euro area and the interest rate set by the ecb 2 for which countries do the desired interest rates according to the original taylor rule and the interest rate of the euro area differ most and in which respect 3 the last question is whether the interest rate gaps change over time we find that the ecb s policy does not fit individual emu members equally well and this result is unlikely to be changed with the addition of the 10 new members which will have only a marginal effect on the ecb interest rate stance

on the job search and strategic bargaining abstract this paper studies wage bargaining in a simple economy in which both employed and unemployed workers search for better jobs the axiomatic nash bargaining solution and standard strategic bargaining solutions are inapplicable because the set of feasible payoffs is nonconvex i instead develop a strategic model of wage bargaining between a single worker and firm that is applicable to such an environment i show that if workers and firms are homogeneous there are market equilibria with a continuous wage distribution in which identical firms bargain to different wages each of which is a subgame perfect equilibrium of the bargaining game if firms are heterogeneous i characterize market equilibria in which more productive firms pay higher wages i compare the quantitative predictions of this model with burdett and mortensen s 1998 wage differentials employer size and unemployment international economic review 39 257 273 wage posting model and argue that the bargaining model is theoretically more appealing along important dimensions

an equilibrium model of health insurance provision and wage determination we investigate the effect of employer provided health insurance on job mobility rates and economic welfare using a search matching and bargaining framework in our model health insurance coverage decisions are made in a cooperative manner that recognizes the productivity effects of health insurance as well as its nonpecuniary value to the employee the resulting equilibrium is one in which not all employment matches are covered by health insurance wages at jobs providing health insurance are larger in a stochastic sense than those at jobs without health insurance and workers at jobs with health insurance are less likely to leave those jobs even after conditioning on the wage rate we estimate the model using the 1996 panel of the survey of income and program participation and find that the employer provided health insurance system does not lead to any serious inefficiencies in mobility decisions

democracy foreign direct investment and natural resources abstract empirical studies that examine the impact of democracy on foreign direct investment fdi assume that the relationship between democracy and fdi is the same for resource exporting and non resource exporting countries this paper examines whether natural resources in host countries alter this relationship we estimate a linear dynamic panel data model using data from 112 developing countries over the period 1982 2007 we find that democracy promotes fdi if and only if the value of the share of minerals and oil in total exports is less than some critical value we identify 90 countries where an expansion of democracy may enhance fdi and 22 countries where an increase in democratization may reduce fdi we also find that the effect of democracy on fdi depends on the size and not the type of natural resources

revisiting the modernization hypothesis longevity and democracy summary modernization theory claims that changes in economic fundamentals like e g income per capita and education levels affect the political structure of a country in a causal way as an important marker of development life expectancy can also be conjectured to have a direct effect on political structures in this paper we estimate the impact of improvements in life expectancy on democracy for the purpose of identification we use data from the international epidemiological transition to construct an instrument for life expectancy we find a statistically and economically significant positive causal effect of improvements in life expectancy on democracy

risk management driven policy rate gap abstract we employ real time data available to the us monetary policy makers to estimate a taylor rule augmented with a measure of financial uncertainty over the period 1969 2008 we find evidence in favor of a systematic response to financial uncertainty over and above that to expected inflation output gap and output growth however this evidence regards the greenspan bernanke period only focusing on this period the risk management approach is found to be responsible for monetary policy easings for up to 75 basis points of the federal funds rate

sorting by search intensity abstract in this paper i characterize matching in an on the job search model with endogenous search intensity heterogeneous workers and firms and match surplus is shared between workers and firms through bargaining i provide proof of existence and uniqueness of steady state equilibrium given equally efficient matched and unmatched search the worker skill conditional distribution of firm productivity over matches is stochastically increasing decreasing in worker skill if the production function is supermodular submodular i also show that this strong notion of sorting does not obtain everywhere for the firm productivity conditional match distribution

natural resources and the tradeoff between authoritarianism and development abstract why do african and middle eastern countries seem cursed by an abundance of natural resources yet usa australia and norway seem blessed a growing literature has argued that the benevolence or malignance of natural resources depends upon the quality of institutions this paper offers a new explanation based on associational freedom and its interaction with the political system the model predicts that natural resources have an adverse impact on economic performance and transition to democracy in authoritarian regimes but not in democracies it also predicts that repression of associational freedom will be increasing in natural resources in authoritarian regimes i test the model s predictions using fixed effects regressions on an international panel from 1975 to 2000 and find support

money and monetary stability in europe 1300 1914 abstract this paper investigates the determinants of monetary stability in europe from the late medieval era until world war i through this period the anchor for monetary policy was the silver or gold value of the monetary unit states however frequently abandoned this anchor some depreciating their monetary units against silver and gold less than 10 fold and others more than 10 000 fold between 1500 and 1914 to understand the determinants of these differences we compile a new and comprehensive monetary history dataset for all major states in europe and test alternative theories we find strong evidence that political factors and in particular fiscal capacity political regime and warfare explain patterns of monetary stability this finding is robust to addressing endogeneity controlling for the instability induced by the mechanics of the monetary system and accounting for the impacts of new monetary technologies and the advent of fiat standard

canadian interest rate setting the information content of canadian and u s central bank communication we explain canadian target rate decisions using macroeconomic variables as well as bank of canada and federal reserve communication indicators econometrically we employ an ordered probit model of a taylor rule to explain and predict 60 target rate decisions between 1998 and 2006 we find that communications especially speeches and testimony by canadian governing council members provide a significant and robust explanation of canadian target rate decisions however prior to the introduction of fixed announcement dates canadian communications contained more information on upcoming policy moves finally communications by the u s federal reserve bank which are much more frequent outperform our canadian communication indicators in explaining canadian interest rate decisions

on the job search productivity shocks and the individual earnings process individual labor earnings observed in worker panel data have complex highly persistent dynamics we investigate the capacity of a structural job search model with i i d productivity shocks to replicate salient properties of these dynamics such as the covariance structure of earnings the evolution of individual earnings mean and variance with the duration of uninterrupted employment or the distribution of year to year earnings changes specifically we show within an otherwise standard job search model how the combined assumptions of on the job search and wage renegotiation by mutual consent act as a quantitatively plausible internal propagation mechanism of i i d productivity shocks into persistent wage shocks the model suggests that wage dynamics should be thought of as the outcome of a specific acceptance rejection scheme of i i d productivity shocks this offers an alternative to the conventional linear arma type approach to modelling earnings dynamics structural estimation of our model on a 12 year panel of highly educated british workers shows that our simple framework produces a dynamic earnings structure which is remarkably consistent with the data