is development path dependent or political a reinterpretation of mineral dependent development in botswana abstract poor management of earnings from valuable natural resources results in a syndrome known as dutch disease characterised by real exchange rate appreciation high labour costs and structural imbalances in economic development often a product of rentier politics dutch disease undermines long term economic performance in resource dependent economies resulting in a resource curse the conventional wisdom argues that institutions and state development at the time of a resource boom lock countries into divergent developmental trajectories i argue that political coalitions lay the foundation for development of state and other institutions and that changes in coalitions drive changes in policy responses to resource booms botswana s experience illustrates the argument botswana has not entirely avoided symptoms of dutch disease but has kept them largely in check despite the fragility of state institutions when diamonds were discovered a broad and stable political coalition during the first decade

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

growth effects of recent structural changes in the canadian economy some empirical evidence a structural change marked by deindustrialization servicization in most western economics and the nature and extent of its influence on economic growth continues to be a major topic of interst the paper rests heavily the presumption of the deindustrilization serviciation hypothesis and focusses on the growth implications of such structural changes using canadian data the paper first explores a casual relationship between goods and service sectors by running granger causality tests it then tests an econometric model to quantify the growth effects of changes in both shares and growth rates of the industrial and the manufacturing sectors the findings based on empirical testing of the model over the period 1961 89 suggest that recent structural changes in canada hava had significant negative implications

international transfers the relative price of non traded goods and the current account this paper considers the role of the relative price of non traded goods and the current account in the adjustment of a small open economy to the receipt of an international transfer the paper shows that the economy s macroeconomic adjustment to the transfer depends upon the relative capital intensities of the traded and non traded sectors of the economy as well as on the duration of the transfer the paper provides a new interpretation of france s current account surplus in the 1870s that accompanied the payment of reparations to germany following the franco prussian war and of germany s trade deficit in the 1920s that accompanied reparations payments associated with the first world war

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

the big push natural resource booms and growth a simple application of big push reasoning suggests that natural resource booms can be important catalysts for development in poorer countries in this paper we present evidence from seven latin american countries that natural resource booms are sometimes accompa nied by declining per capita gdp we present a model with natural resources increasing returns in the spirit of big push models and expectations to clarify some of the reasons this may happen q 1999 elsevier science b v all rights reserved

tourism welfare and de industrialization in a small open economy this paper investigates the effects of an expansion of tourism on welfare output and factor prices in the host country using a general equilibrium international trade model in the absence of taxes foreign ownership and distortions an increase in foreign visitors will increase welfare only if the price of nontradables increases factor mobility and foreign ownership tend to reduce the gains from tourism while commodity taxes tend to increase them conditions under which an increase in tourism can lead to deindustrialization are also discussed copyright 1991 by the london school of economics and political science

immigrant specificity and the relationship between trade and immigration theory and evidence studies routinely document that immigrant employment concentrates in non traded goods sectors and that many immigrants have low inter sectoral mobility we consider these observed characteristics of immigrant employment with regard to the question of how immigration affects a nation s pattern of production and trade we model an economy producing three goods one is non traded domestic labor and capital are domestically mobile but internationally immobile allowing that some new immigrants will become specific to the non traded goods sector the model indicates that the effects of immigration on output and trade depend importantly on the sectoral pattern of employment of both new and existing immigrants empirical investigation in a panel data set of oecd countries supports the model s prediction that immigration raises the output of non traded goods consistent with the model we also find that immigration and trade are complements given its empirical support the model s implications for immigration policy are then discussed

managing commodity booms in botswana abstract many countries have experienced difficulties managing commodity export booms botswana has been an exception by adopting appropriate macroeconomic policies in response to variable diamond receipts botswana has avoided balance of payments crises and associated adjustment costs the policies adopted have included avoiding excessive increases in government expenditure during boom periods instead building up international reserves and government balances at the central bank to be used when the boom ended in addition through management of the nominal exchange rate real exchange rate appreciation has been avoided the benefits of the policies adopted as well as their opportunity costs are discussed

inflation and welfare in a monetary economy it is in everyone s private interest to try to get someone else to hold non interest bearing cash and reserves but someone has to hold it all so these efforts must simply cancel out all of us spend several hours per year in this effort and employ thousands of talented and highly trained people to help us these person hours are simply thrown away wasted on a task that should not have to be performed at all

structural adjustment and the construction sector abstract this paper adds a construction sector to a dynamic dependent economy model equipped with consumer tradeables and non tradeables sectors the model is used to study the response of the production structure relative prices and the trade balance to a favorable terms of trade shock under the benchmark assumptions of perfect intersectoral factor mobility a perfect international capital market and no adjustment costs for realistic relative capital intensities the model predicts a boom in the construction and consumer non tradeables sectors a contraction of the tradeables sector and no relative price changes the implications of relaxing those benchmark assumptions are discussed separately

agricultural productivity and structural transformation evidence from brazil we study the eects of the adoption of new agricultural technologies on structural transfor mation to guide empirical work we present a simple model where the eect of agricultural productivity on industrial development depends on the factor bias of technical change we test the predictions of the model by studying the introduction of genetically engineered soybean seeds in brazil which had heterogeneous eects on agricultural productivity across areas with dierent soil and weather characteristics we nd that technical change in soy production was strongly labor saving and lead to industrial growth as predicted by the model

on high inflation and the allocation of resources abstract this paper formalizes some of the disruptive effects of inflation on the organization of markets rapid inflation induces buyers to speed up purchases which thus inhibits the selection of more adequate trading partners through search this blurs distinctions across firms of different productivities and leads to resource misallocations as inflation causes efficient and inefficient firms to be less distinguishable the incentives to engage in cost reduction are dampened and lower growth results the model could provide a rationale for the large number of bankruptcies and large turnover rates following successful inflation stabilization programs like those of israel bolivia and argentina

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

the political economy of resource driven growth abstract in recent decades resource poor countries have out performed resource abundant ones a stylised facts model of competitive industrialisation describes the long run development of a resource poor country with a political state that is developmental only minor change is required to adapt the model to trace the development trajectory of a resource abundant country with a similar political state however most resource abundant countries engender a political state that is factional or predatory and distorts the economy in the pursuit of rents a staple trap model describes the development trajectory under these conditions the model predicts a growth collapse from which recovery is protracted especially for small economies that lack a niche trade link with a large economy

the effects of mongolia s booming mining industry on its agricultural sector a test for dutch disease dutch disease occurs when currency strengthening associated with a booming sector of an economy crowds out a lagging trade dependent sector in this study a keynesian style model is specified to deduce hypotheses about how increased foreign direct investment fdi aimed at mongolia s mining sector affects its agricultural sector a key finding is that while econometric results suggest the increased fdi strengthened mongolia s currency its adverse effect on mongolia s trade sensitive agricultural sector is not sufficiently strong to cause the sector to decline although dutch disease was not detected the posited mechanism clearly is important specifically when currency strengthening is ignored the reduced form elasticity of agricultural value added with respect to fdi is 2 7 times larger than when currency strengthening is taken into account 0 103 vs 0 038 also fdi induced currency strengthening causes the keynesian multiplier y g to drop from 2 40 to 2 00 and the fdi multiplier y fdi to drop from 3 05 to 1 89

resource curse or not a question of appropriability this thesis presents three self contained essays focusing on empirical questions in growth and development economics each article addresses specific questions on why countries perform differently in particular i analyse the effect of democracy on economic development the relationship between natural resources and growth and the efficiency of foreign development assistance in the first essay democracy consolidation and growth i analyse the effect of democracy on economic growth in this context i argue that an important aspect to consider is how consolidated political systems are put simply i find that it is not only a question of how democratic countries are but also how long they have been democratic in other words economic performance tends to improve with the duration of uninterrupted democracy the performance of autocracies on the other hand tends to deteriorate over time however for newly established political systems there seems to be a cost of being democratic this implies that democracies only bear their fruit after some time the analysis has important policy implications to overcome initial straits international assistance focused on democratic consolidation may be important and a very good investment in fostering long run development the second essay resource curse or not a question of appropriability together with anne boschini and jesper roine is concerned with the relation between natural resources and economic development for most laymen as well as for most economists it would seem reasonable that countries richly endowed in natural resources also benefit from this wealth however a large literature has found a systematic negative effect of natural resource abundance on economic growth we suggest that this so called resource curse is not determined by resource endowments alone but rather by the interaction between the type of resources a country possesses and the quality of institutions in the country this combination of factors determines what we call the appropriability of a resource the concept of appropriability captures the likelihood of natural resources leading to rentseeking corruption or conflicts which in turn will harm economic development our results suggest that if institutions are good enough the curse may be turned into a blessing this may explain why some countries such as norway and botswana tend to benefit from their resources while others such as angola and sierra leone do not the third and final essay of this thesis foreign sectoral aid fungibility growth and poverty reduction is a contribution to the aid efficiency literature which is concerned with the question of whether aid helps or hinders economic development foreign development assistance is often targeted on specific public expenditure sectors if this aid is not used in the sector for which it was granted e g health education it is said to be fungible and donors may end up financing something completely different from what they intended e g military expenditures the major concern about sectoral fungibility is that the alternative use of aid may be less productive or less socially useful however measuring fungibility is not sufficient to determine whether foreign sectoral aid fungibility is actually harmful what is important is how the funds treated as fungible are used the essay starts by obtaining estimates of fungibility for 57 countries the results suggest that sectoral aid is indeed largely treated as fungible by recipient countries next to assess the economic and health effects of fungibility these estimates are incorporated into an empirical model of aid and growth as well as into a model of aid and infant mortality altogether i find no evidence of more fungible sectoral aid leading to worse performance

macroeconomic policy in an oil exporting economy with foreign exchange controls the sudden and sharp increases in oil prices during the past decade and the discovery and extraction of oil in the north sea have recently contributed to a renewal of interest in the macroeconomic problems of oil exporting countries in general and those of industrialized and semi industrialized oilexporting countries such as the uk and mexico in particular the economic implications of the north sea oil revenues for the british economy have been hotly debated by forsyth and kay 1980 1981 worswick 1980 barker 1981 corden 1981 and byatt et al 1982 the effects of oil and gas revenues on the economies of canada mexico the netherlands norway and the uk have also been the subject of analysis and discussion in barker and brailovsky 1981 despite their important contribution these studies fall short of formulating a comprehensive theoretical framework for the study of macroeconomic policy in oil exporting countries in general the resurgence of interest in the macroeconomics of oil exporting economies and the lack of a satisfactory theoretical framework emphasize the need for the explicit introduction of an oil sector into macroeconomic models of the open economy the more recent studies by buiter and purvis 1983 eastwood and venables 1982 corden and neary 1982 and neary and purvis 1982 have gone some way towards meeting this need but they are better suited to the study of macroeconomic policy in developed oil exporting countries such as the united kingdom where highly developed financial markets already exist 1 without exception all these studies assume that the economy under consideration operates with a floating exchange rate and that the private capital is internationally mobile they also invariably ignore the short term and the long term financial repercussions of changes in oil income that operate via the government budget constraint and the asset position of the private sector these assumptions are however inappropriate for most oil exporting countries in the middle east africa and latin america the purpose of this paper is to examine the short run and long run macroeconomic consequences of an increase in oil revenues in an oil exporting country characterized by strict foreign exchange controls on private capital flows we attempt to do this in the context of a keynesian underemployment model of the type analysed for example by turnovsky and kaspura 1974 branson 1976 and argy and salop 1979 but with domestic prices set according to a mark up rule along the lines advocated for example by fetherston and godley 1978 1981 unlike argy and salop but in line with other recent contributions to the macroeconomic theory of open economies the present paper explicitly allows for the existence of the government budget constraint and analyses the macroeconomic effects of changes in oil revenues both in the short run when

the effects of oil price shocks on the iranian economy abstract the iranian economy is highly vulnerable to oil price fluctuations this paper analyzes the dynamic relationship between oil price shocks and major macroeconomic variables in iran by applying a var approach the study points out the asymmetric effects of oil price shocks for instance positive as well as negative oil price shocks significantly increase inflation we find a strong positive relationship between positive oil price changes and industrial output growth unexpectedly we can only identify a marginal impact of oil price fluctuations on real government expenditures furthermore we observe the dutch disease syndrome through significant real effective exchange rate appreciation

business cycles in an oil economy abstract the recent oil price fall has created concern among policy makers regarding the consequences of terms of trade shocks for resource rich countries this concern is not a minor one the world s commodity exporters combined are responsible for 15 20 of global value added we develop and estimate a two country new keynesian model in order to quantify the importance of oil price shocks for norway a large prototype petroleum exporter domestic supply chains link mainland non oil norway to the off shore oil industry while fiscal authorities accumulate income in a sovereign wealth fund oil prices and the international business cycle are jointly determined abroad these features allow us to disentangle the structural sources of oil price fluctuations and how they affect mainland norway the estimated model provides three key results first oil price movements represent an important source of macroeconomic volatility in mainland norway second while no two shocks cause the same dynamics conventional trade channels make an economically less significant difference for the transmission of global shocks to the oil exporter than to oil importers third the domestic oil industry s supply chain is an important transmission mechanism for oil price movements while the prevailing fiscal regime provides substantial protection against external shocks

inflation output and welfare this paper studies the effects of anticipated inflation on aggregate output and welfare within a search theoretic framework we allow money holders to choose the intensities with which they search for trading partners so inflation affects the frequency of trade as well as the quantity of output produced in each trade we consider the standard pricing mechanism for search models i e ex post bargaining as well as a notion of competitive pricing if prices are bargained over the equilibrium is generically inefficient and an increase in inflation reduces buyers search intensities output and welfare if prices are posted and buyers can direct their search search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates the friedman rule achieves the first best allocation and inflation always reduces welfare even though it can have a positive effect on output for low inflation rates

inflation tax in the lab a theoretical and experimental study of competitive search equilibrium with inflation in this paper we measure the effect of the inflation tax on economic activity and welfare within a controlled setting to do so we develop a model of price posting and monetary exchange with inflation and finite populations the model which provides a game theoretic foundation to rocheteau and wright 2005 s competitive search monetary equilibrium is used to derive theoretical propositions regarding the effects of inflation in this environment which we test with a laboratory experiment that closely implements the theoretical framework we find that the inflation tax is harmful with cash holdings production and welfare all falling as inflation rises and that its effect is relatively larger at low inflation rates than at higher rates for instance for inflation rates between 0 and 5 welfare in the two markets we consider 2 seller 2 buyer and 3 2 falls by roughly 1 percent for each percentage point rise in inflation compared with 0 4 percent over the range from 5 to 30 our findings lead us to conclude that the impact of the inflation tax should not be underestimated even under low inflation

policy adjustments to the oil boom and their evaluation the dutch disease in indonesia abstract this paper analyzes the effects of two policy adjustments namely exchange rate devaluation and the accumulation of budget surpluses to the oil export boom in indonesia by using a simple simulation model our results indicate that exchange rate adjustment had a significant impact on expansion of tradable sectors especially the manufacturing sector by reversing the real exchange rate while officially maintaining the balanced budget principle the government exercised delicate operations whereby the budget surpluses were covertly accumulated as government deposits such operations were executed as a necessary demand management policy to ensure that the effect of devaluation was persistent these policy adjustments were consistent from a macroeconomic management point of view and have contributed to avoiding the dutch disease that indonesia otherwise might have suffered because of its oil bonanza

the distribution of money balances and the nonneutrality of money recent monetary models with explicit microfoundations are made tractable by assuming that agents have access to centralized markets after one round of decentralized trade given quasi linear preferences this makes the distribution of money degenerate which keeps the models simple but precludes the discussion of distributional effects of monetary policy we generalize these models by assuming two rounds of trade before agents can readjust their money holdings to study a range of new distributional effects analytically we show that unexpected symmetric lump sum money injections may increase short run output and welfare whereas asymmetric injections may increase long run output and welfare

natural resources and the quality of economic development abstract are natural resources a blessing or a curse for human development this article attempts to answer the question by distinguishing between a dependence on natural resources and an abundance of the same dependence is measured in terms of exports of metals and fuel while resource abundance is calculated on the basis of the subsoil assets per square kilometre and per capita results show the existence of a negative correlation between metals and ore exports and human development while subsoil assets measures are rather positively related these effects are particularly significant in countries with a comparatively lower institutional quality the cases of botswana the democratic republic of congo and equatorial guinea briefly examined suggest however that the effects of natural resources on human and economic development can be very different and strictly related to specific national political and institutional characteristics

liquidity redistribution and the welfare cost of inflation abstract the long run welfare costs of inflation are studied in a micro founded model with trading frictions and costly liquidity management by modelling the liquidity management decision the model endogenizes the responses of velocity output the degree of market segmentation and the distribution of money compared to the traditional estimates based on a representative agent model the welfare costs of inflation are significantly smaller due to distributional effects of inflation the welfare cost of increasing inflation from 0 to 10 is 0 62 of consumption for the us economy furthermore the welfare cost is generally non linear in the inflation rate

dutch disease government policy and import demand in nigeria the effects of sectoral changes and government policies on import demand in nigeria are examined in the context of the oil shocks of the 1970s and 1980s a two equation model is estimated to determine real import demand and the real exchange rate the results show that import demand increased significantly in response to the boom induced squeeze on the agricultural sector furthermore by inducing and sustaining real exchange rate overvaluation expansionary government policies contributed to higher import demand even after the collapse in oil prices

money in search equilibrium in competitive equilibrium and in competitive search equilibrium we compare three market structures for monetary economies bargaining search equilibrium price taking competitive equilibrium and price posting competitive search equilibrium we also extend work on the microfoundations of money by allowing a general matching technology and entry we study how equilibrium and the effects of policy depend on market structure under bargaining trade and entry are both inefficient and inflation implies first order welfare losses under price taking the friedman rule solves the first inefficiency but not the second and inflation may actually improve welfare under posting the friedman rule yields the first best and inflation implies second order welfare losses

the dutch disease a disease after all many third world oil producers are encountering serious problems in building up a diversified export base while west european oil and gas producers netherlands united kingdom are suffering a decline in their traded goods manufacturing sector induced by real wage pressures it is becoming increasingly clear that high but temporary oil revenues may be somewhat ora mixed blessing the quip of the economist notwithstanding the mechanism behind this unbalance is clear enough part of the oil revenues is spent on non traded goods which leads to a real appreciation i e a rise in the relative price of non traded goods in terms of traded goods this in turn draws resources out of the non oil traded sector into the non traded goods producing sector corden and neary 1982 van wijnbergen 1980 one may say that this is an efficient response to the increase in income from oil production the united kingdom mexico egypt simply should move into oil derived industries and non traded goods and forget about their manufacturing sector until oil reserves are exhausted however many developing countries are hesitant to take this advice after all the post world war ii success stories in economic development involve without exception countries that promoted their traded goods sector aggressively moreover it is a well established stylised fact that technological progress is faster in the traded non sheltered sectors of an economy than in the non traded sector balassa 1964 is an early reference considering the hypothesis that technological progress rather than taking place exogenously with the passage of time is a function of accumulated experience the concern of countries like egypt mexico or indonesia is much easier to understand since solow 1957 and denison 1962 it is known that capital accumulation explain only a small part of economic growth if most of economic growth is caused by learning by doing induced technologica

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

genuine savings and sustainability genuine savings gs has emerged as the leading economic indicator of sustainable economic development at the country level it derives from the literatures on weak sustainability wealth accounting and national income accounting we discuss the theoretical underpinnings of gs focusing on the relationship between changes in a nation s extended capital stock and the future path of consumption the indicator has entered widespread use propelled by the world bank s publications despite its varying performance as a predictor for future consumption notwithstanding the extensive body of literature reviewed promising future research avenues are identified

commodity price volatility with endogenous natural resources abstract natural resource reserves are exogenous in models of small commodity exporters changes in the stock of reserves play no role in the macroeconomy including in business cycle volatility trade dynamics or exchange rate volatility we consider richer supply dynamics and model exploration and depletion we show that an endogenous supply of reserves is important for capturing the stylised facts associated with commodity price shocks including a commodity currency the crowding out of non commodity activity dutch disease and a volatile business cycle we also consider how exploration and depletion affect the ranking of optimal monetary and taxation policies when natural resource reserves are held fixed monetary policy is an efficient tool for stabilising the effects of commodity price shocks however when exploration and depletion are accounted for using interest rates to stabilise the effects of commodity price changes becomes inefficient using taxes on the resource sector specifically an ad valorem royalty remains efficient

search limited participation and monetary policy a model is developed that employs recent developments in the literature on search models of money to capture the distributional effects of monetary policy in a tractable way deterministic and stochastic versions of the model are studied money is not neutral and these nonneutralities persist whether or not the change in the money supply is anticipated or unanticipated at the optimum monetary policy is geared to correcting distortions in the search sector of the economy while correcting for the persistent effects of past monetary policy actions there is no consensus among macroeconomists concerning the role of monetary policy in the short run however an influential idea is that limited participation in financial markets is an important mechanism behind the short run macroeconomic effects of central bank actions that is there is a component of economic activity that is centralized and interconnected this economic activity involves financial transactions among banks and other financial intermediaries and the agents who hold the assets and liabilities of these financial intermediaries when the central bank injects outside money into the economy or withdraws it the economic agents who are immediately affected by the monetary injection or withdrawal are the participants in these centralized transactions other economic agents who are engaged in more decentralized and less interconnected transactions will not be affected directly by the first round effects of central bank actions thus there will be a distributional effect of monetary injections and withdrawals as first captured in heterogeneous agent models by grossman and weiss 1983 and rotemberg 1984 this distributional effect will matter in interesting ways for the price level nominal interest rates aggregate output foreign exchange rates and the distribution of consumption across the population the grossman weiss and rotemberg models are not analytically tractable because of the difficulty in tracking the distribution of wealth over time however lucas 1990 fuerst 1992 and alvarez and atkeson 1997 among others

external disturbances domestic policy responses and debt accumulation in nigeria abstract this paper provides a case study of the link between external shocks domestic policy responses and external debt accumulation in nigeria the indonesian experience during 1970 1989 is provided as a contrast for policy comparison a significant part of the increase in external debt in the two countries corresponds to financing of capital flight after 1981 current account deficits assumed greater importance in the accumulation of external debt the growth in external debt was caused in part by adverse external conditions the results of this study show that the nigerian debt crisis was exacerbated by inappropriate policy responses indonesia avoided a crisis by applying prudent real exchange rate management and fiscal restraint

industrial policy and exchange rate scepticism the aim of the present paper is to put in historical perspective the development thinking on the relationship between industrial and exchange rate policies the first section focuses on the thought of the so called pioneers of development economics specifically their preference for protectionism and their belated recognition that an exchange rate policy could act as a substitute to it in the second one we analyze the exchange rate skepticism that arises out of the theories that identify a foreign constraint to growth in addition to the one revealed by the pioneers the third section briefly complements the previous discussion with reference to macroeconomic formulations that allow for short run contractionary effects of a devaluation reinforcing the skepticism in question in the fourth section we discuss the revival of development thinking in the 1980s and its discussion about east asian trajectories a literature that placed great emphasis on industrial policy finally in the fifth section we discuss the new historical facts and the new development macroeconomics models that are putting an end to exchange rate skepticism

on the timing of production decisions in monetary economies in most macroeconomic models inflation tends to be harmful in this paper we show that by simply changing the timing of production decisions by firms from on demand to in advance some inflation can boost welfare as long as goods are sufficiently perishable the main conclusion from this research is that by effectively hiding the strategic interaction between supply and demand assuming production on demand is not without loss of generality

the evolution of walrasian behavior consider an evolutionary context where a given number of quantity setting oligopolists tend to mimic successful behavior occasionally experimenting with some small probability in this context it is shown that the unique long run outcome of the process has all firms playing walrasian i e choosing an output that maximizes profits when taking the market clearing price as given

money and price posting under private information abstract we study price posting with undirected search in a search theoretic monetary model with divisible money and divisible goods ex ante homogeneous buyers experience match specific preference shocks in bilateral trades the shocks follow a continuous uniform distribution and the realizations of the shocks are private information we show that there exists a unique monetary equilibrium for generic values of the inflation rate in equilibrium each seller posts a continuous pricing schedule that exhibits quantity discounts buyers may spend nothing a fraction or all of their money holdings depending on their preference shock realizations inflation reduces the extent of non linear pricing the model captures the hot potato effect of inflation along both the extensive margin as an increase in the trading probability and the intensive margin as higher fractions of money being spent

south african manufacturing industries catching up or falling behind this article argues that intra industry trade with developed countries is an important source of technology transfer south africa has an industrial structure that is suited to such trade but high costs and weak social capacity to assimilate new technology therefore reintegration into the world economy is likely to reinforce dependence on resource intensive industries in the short run this need not adversely affect economic growth but unless the quality and quantity of education and training are improved the prospects for rebuilding the technological capacity and catch up with oecd countries are bleak

savings growth and the resource curse hypothesis an important connection between recent attempts to understand the determinants of economic growth and the measurement of sustainability is the finding of a negative and significant relationship between natural resource abundance and economic growth this is the so called resource curse hypothesis using cross country regressions we offer evidence that the curse may itself be a manifestation of the inability of governments to manage large resource revenues sustainably in particular these results offer another perspective on the resource curse hypothesis the countries where growth has lagged are those where the combination of natural resource macroeconomic and public expenditure policies have led to a low rate of genuine saving net saving adjusted for resource depletion

optimal monetary interventions in credit markets in an environment based on lagos and wright 2005 but with two rounds of pairwise meetings we introduce imperfect monitoring that resembles operations of unsecured loans we characterize the set of implementable allocations satisfying individual rationality and pairwise core in bilateral meetings we introduce a class of expansionary monetary policies that use the seignorage revenue to purchase privately issued debts we show that under the optimal trading mechanism both money and debt circulate in the economy and the optimal in ation rate is positive except for very high discount factors under which money alone achieves the rstbest our model captures the view that unconventional monetary policy encourages lending while it may create in ation

the narrow moving band the dutch disease and the competitive consequences of mrs thatcher notes on trade in the presence of dynamic scale economies abstract this paper presents a model of trade in which comparative advantage instead of being determined by underlying attributes of countries evolves over time through learning by doing in this model arbitrary patterns of specialization once established tend to become entrenched over time the model sheds light on three widely held views that do not make sense in more conventional models first is the view that temporary protection of selected sectors can permanently alter the pattern of comparative advantage in the protecting country s favor second is the view that seemingly favorable developments such as the discovery of exportable natural resources may lead to a permanent loss of other sectors and reduce welfare in the long run third is the possibility that a temporary overvaluation of a currency due to tight money can lead to a permanent loss of competitiveness in some sectors

aid the real exchange rate and why policy matters the cases of morocco and tunisia abstractevery form of foreign exchange inflow including aid can potentially cause real exchange rate appreciation with adverse consequences for the production of tradables dutch disease whether it does so depends on the policy response to the inflow this paper investigates the issue for morocco and tunisia over 1980 2009 we find that aid led to a real appreciation in morocco but had no effect on tunisia s real exchange rate this confirms the importance of the macroeconomic framework in which aid is provided and the key role for infrastructure and other supply side improvements in determining the final real economy impact of aid and other inflows

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

the varieties of resource experience natural resource export structures and the political economy of economic growth many oil mineral and plantation crop based economies experienced a substantial deceleration in growth following the commodity boom and bust of the 1970s and early 1980s this article illustrates how countries dependent on point source natural resources those extracted from a narrow geographic or economic base such as oil and minerals and plantation crops are predisposed to heightened economic and social divisions and weakened institutional capacity this in turn impedes their ability to respond effectively to shocks which previous studies have shown to be essential for sustaining rising levels of prosperity analysis of data on classifications of export structure controlling for a wide array of other potential determinants of governance shows that point source and coffee and cocoa exporting countries do relatively poorly across an array of governance indicators these governance effects are not associated simply with being a natural resource exporter countries with natural resource exports that are diffuse relying primarily on livestock and agricultural produce from small family farms do not show the same strong effects and have had more robust growth recoveries

imitation and the evolution of walrasian behavior theoretically fragile but behaviorally robust a well known result by vega redondo implies that in symmetric cournot oligopoly imitation leads to the walrasian outcome where price equals marginal cost in this paper we show that this result is not robust to the slightest asymmetry in fixed costs instead of obtaining the walrasian outcome as unique prediction every outcome where agents choose identical actions will be played some fraction of the time in the long run we then conduct experiments to check this fragility we obtain that contrary to the theoretical prediction the walrasian outcome is still a good predictor of behavior

endogenous growth with a limited fossil fuel extraction capacity campbell 1980 and following authors have discussed a limited resource extraction capacity as an augmentation of the well known hotelling model we integrate a limited extraction capacity and related investments in the endogenous growth model of tsur and zemel 2005 to study its effect on economic development the capacity constraint gives rise to three effects on the one hand higher energy costs and the reallocation of production towards capacity investments decrease production available for consumption research and or capital investments energy costs and reallocation effect on the other hand research investments may increase which boosts available production research effect depending on the capital endowment and the strength of the effects long run consumption may be boosted or depressed in particular the capacity constraint may render everlasting consumption growth non optimal in a resource rich economy furthermore we find that capacity investments may be postponed to later points in time if the capital endowment is high

economic environment and agricultural development the importance of macroeconomic policy abstract this article explores the ways in which the macroeconomic balance of the economy and related policies impinge on agriculture in developing countries and considers implications for the design of policies it argues that the extent of macroeconomic balance and the quality of the policies influencing that balance to a large extent define the scope for effective agricultural policies the avoidance of severe balance of payments deficits and rapid inflation are seen as a necessary condition for the promotion of agricultural growth they also have an important influence on the nature and range of agricultural policy options available to governments

price dispersion inflation and welfare we examine the implications of inflation for both price dispersion and welfare in a monetary search economy in our economy if the degree of buyers incomplete information about prices is fixed both price dispersion and real prices are increasing in inflation as the inflation rate approaches the friedman rule both price dispersion and welfare losses vanish if households choose the number of prices to observe then the optimal inflation rate may exceed the friedman rule as inflation induces search and up to a point raises welfare by eroding market power

the effects of a natural gas boom on employment and income in colorado texas and wyoming improvements in technology have made it profitable to tap unconventional gas reservoirs in relatively impermeable shale and sandstone deposits which are spread throughout the u s mostly in rural areas proponents of gas drilling point to the activity s local economic benefits yet no empirical studies have systematically documented the magnitude or distribution of economic gains i estimate these gains for counties in colorado texas and wyoming three states where natural gas production expanded substantially since the late 1990s i find that a large increase in the value of gas production caused modest increases in employment wage and salary income and median household income the results suggest that each million dollars in gas production created 2 35 jobs in the county of production which led to an annualized increase in employment that was 1 5 of the pre boom level for the average gas boom county comparisons show that ex ante estimates of the number of jobs created by developing the fayetteville and marcellus shale gas formations may have been too large

bargaining and the value of money abstract search models of monetary exchange have typically relied on nash 1950 the bargaining problem econometrica 18 155 162 bargaining or strategic games that yield an equivalent outcome to determine the terms of trade by considering alternative axiomatic bargaining solutions in a search model with divisible money we show that the properties of the bargaining solutions do matter both qualitatively and quantitatively for questions of first degree importance in monetary economics such as i the efficiency of monetary equilibrium ii the optimality of the friedman rule and iii the welfare cost of inflation

avoiding the inflation tax i study the effects of inflation on the purchasing behavior of buyers in the lagos wright monetary economy the standard framework fails to capture the long standing intuition that when inflation increases agents try to spend their money holdings speedily i propose a simple realistic extension in which buyers can rebalance their money holdings only sporadically i e not every period i show that in such a case higher inflation can induce buyers to spend their money faster by frontloading their consumption and searching more intensively for transactions these trade distortions have traditionally been associated with the economic costs of inflation

oil and women a re examination abstract in a seminal article ross 2008 reports a negative correlation between oil production and women s representation in the labour force and politics across countries this article re examines these relationships exploiting variations in oil endowments to address endogeneity concerns we confirm that oil production causes decline in women s representation additionally we show that consistent with dutch disease effects oil production decreases women s employment in the traded sector however it also leads to an increase in women s employment in the nontraded sector we explore some social consequences of oil production and show that it results in women marrying earlier and having more children

dutch disease and the mitigation effect of migration evidence from canadian provinces this article evaluates whether immigration can mitigate the dutch disease effects associated with booms in natural resource sectors we derive predicted changes in the size of the non tradable sector from a small general equilibrium model a la obstfeld rogoff using data for canadian provinces we find evidence that aggregate immigration mitigates the increase in the size of the non tradable sector in booming regions the mitigation effect is due mostly to interprovincial migration and temporary foreign workers there is no evidence of such an effect for permanent international immigration interprovincial migration also results in a spreading effect of dutch disease from booming to non booming provinces

a unified framework for monetary theory and policy analysis search theoretic models of monetary exchange are based on explicit descriptions of the frictions that make money essential however tractable versions of these models typically make strong assumptions that render them ill suited for monetary policy analysis we propose a new framework based on explicit micro foundations within which macro policy can be studied the framework is analytically tractable and easily quantifiable we calibrate the model to standard observations and use it to measure the cost of inflation we find that going from 10 percent to 0 percent inflation is worth between 3 and 5 percent of consumption much higher than previous estimates

cooperation in symmetric duopolies with demand inertia abstract we present an experiment on a price setting duopoly with demand inertia and symmetric costs subjects gain experience in the game by playing it twice in the first play we observe prices above the subgame perfect equilibrium solution all markets show considerable price instability in the second play the price level is higher than in the first play about half of the markets exhibit price instability while the remaining markets are characterized by high stable prices comparing these results with those of a similar duopoly with asymmetric costs we conclude that markets with symmetric costs show significantly more cooperative behavior

international redistribution of income summary how do international policies on aid trade and factor movements affect the international distribution of income we calculate the impact by world decile of the actual level of aid flows and the effect on income of merchandise trade restrictions by high income countries we find that aid s distributional impact is equality enhancing extremely small in terms of changes in inequality measures but of some importance for the lowest decile of the distribution we also find that some of this impact is counteracted by lost potential income in the lower deciles from merchandise trade barriers imposed by high income countries

resource boom wages and unemployment theory and evidence from the norwegian petroleum experience the effects of norwegian petroleum activities on nominal wages and the rate of unemployment are analyzed in this paper the theoretical model is based on standard theory of segmented labor markets increased nominal wages in the petroleum sector will unambiguously increase the wage level and the rate of unemployment increased petroleum employment will under realistic assumptions also raise the wage level the effect on the rate of unemployment in this case is ambiguous the empirical model is embedded in reduced forms of the theoretical model and the estimated parameters are consistent with the theoretical results

macro policy responses to natural resource windfalls and the crash in commodity prices policy prescriptions for managing natural resource windfalls are based on the permanent income hypothesis none of the windfall is invested at home and saving in an intergenerational swf is dictated by smoothing consumption across different generations furthermore with dutch disease effects the optimal response is to intertemporally smooth the real exchange rate smooth public and private consumption and limit sharp fluctuations in the intersectoral allocation of production factors we show that these prescriptions need to be modified for the following reasons first to cope with volatile commodity prices precautionary buffers should be put in a stabilisation fund second with imperfect access to capital markets the windfall must be used to curb capital scarcity invest domestically and bring consumption forward third with real wage rigidity consumption must also be brought forward to mitigate transient unemployment fourth the real exchange rate has to temporarily appreciate to signal the need to invest in the domestic economy to gradually improve the ability to absorb the extra spending from the windfall fifth with finite lives the timing of handing back the windfall to the private sector matters and consumption and the real exchange rate will be volatile finally with nominal wage rigidity we show that a taylor rule is a better short run response to a crash in commodity prices than a nominal exchange rate peg

natural disasters and labor markets abstract while it is clear that natural disasters have serious welfare consequences for affected populations less is known about how local labor markets in low income countries adjust to such large shocks combining data from the indonesia family life survey the desinventar database the u s geological survey and district level employment indicators this paper explores how a large earthquake in indonesia affected labor market outcomes in particular the evolution of wages across sectors i find that the earthquake had a positive effect on wage growth for workers who were employed in the agricultural sector at baseline i propose two mechanisms for this result a higher growth rate of the price of rice and a downward shift in the supply of workers in the agricultural sector i show that evidence mainly supports the latter labor shifted out of the agricultural sector into the construction sector raising the marginal product of labor in agriculture

inflation and welfare in the steady state this is a paper on expected inflation and welfare in steady state equilibrium the demand for money is an inventory demand with an endogenous payment period the clower constraint is not imposed higher inflation reduces welfare by reducing consumption as people devote more of their real income to maintaining lower average money holdings high inflation does not necessarily promote an increase in the capital stock the mundell tobin effect is absent the policy conclusion is standard deflate at the rate of time preference because capital is held socially optimal consumption falls short of its golden rule level if inside money is allowed it drives out fiat money and welfare is again at a maximum

feedback and dynamics in public good experiments in this paper we study the effects of providing additional feedback about individual contributions and or earnings on contributions and the dynamics of contributions in a repeated public good game we include treatments where subjects can freely choose whether to obtain additional information about individual contributions or individual earnings we find that in the aggregate contributions are lower when feedback on earnings is provided compared to when feedback on contributions is provided we also find that there exist substantial but intuitively appealing differences in the way individuals react to feedback particularly individuals with a high propensity to contribute tend to imitate the highest contributor more often and are more inclined to obtain feedback about individual contributions compared to individuals with a lower propensity to contribute

liquidity a new monetarist perspective this essay surveys the new monetarist approach to liquidity work in this literature strives for empirical and policy relevance plus rigorous foundations questions include what is liquidity is money essential in achieving desirable outcomes which objects can or should serve in this capacity when can asset prices differ from fundamentals what are the functions of commitment and collateral in credit markets how does money interact with credit and intermediation what can and should monetary policy do the research summarized emphasizes the micro structure of frictional transactions and studies how institutions like monetary exchange credit arrangements or intermediation facilitate the exchange process

social learning in market games abstract our experiments test the effect of different information settings on firms behaviour in duopoly price and quantity games we find that when players have full information on their rivals choices the imitation rule prevails and such learning behaviour induces more competitive outcomes in the cournot market designs by the same token when information on the average industrial profit is provided there is evidence of an increase in cooperation and the majority of players experiment with new strategies when their payoff falls below the average profit palomino f vega redondo f 1999 dixon h d 2000

oil windfalls and export diversification in oil producing countries evidence from oil booms abstract this paper examines the factors behind export diversification in oil countries specifically we investigate the impact of oil booms on export diversification through an empirical framework the paper finds that economy s export structure before the oil boom determines whether oil windfalls might affect the diversification process thus an oil boom negatively affects export diversification only if countries initially exhibit low levels of diversification in countries with a high level of diversification before the boom an oil boom has no impact on diversification these results are based on a large sample of 134 countries and are robust to various sensitivity analyses they are corroborated with data from the manufacturing sector which show that oil booms only reduce diversification in countries with a small manufacturing sector prior to the boom

multiplicity of monetary steady states abstract we investigate a monetary model in which the centralized market opens once but the decentralized markets open twice in each period we show that there may be multiple stationary equilibria

the making of a rentier class wealth accumulation and political control in senegal political and economic dynamics set in motion by efforts to consolidate post colonial regimes have contributed to the continuing weakness of indigenous bourgeoisies throughout much of post colonial africa this article suggests that state power has been used to foster private rent seeking rather than productive local private investment in order to promote and sustain the political cohesion of ruling classes the political consolidation of dominant rentier classes forged through state patronage and clientelist mechanisms of control creates obstacles to the emergence of local class strata interested in or capable of using state power to promote the expanded accumulation of capital be it local or foreign a study of senegal illustrates this point

booms and slumps in world commodity prices abstract this paper examines the duration and magnitude of cycles in world commodity prices cycles are a dominant feature of commodity prices and dealing with the economic consequences of booms and slumps in prices continues to be one of the most challenging issues facing policymakers in commodity exporting developing countries we find that there is an asymmetry in commodity price cycles as price slumps last longer than price booms how far prices fall in a slump is found to be slightly larger than how far they tend to rebound in a subsequent boom in addition for most commodities the probability of an end to a slump boom in prices is independent of the time already spent in the slump boom

commodity currencies and the real exchange rate abstract this paper shows that a change in the terms of trade of a commodity exporting country could cause the relative price of nontraded goods to rise or fall depending on the strength of income and substitution effects

taxing tourism and subsidizing non tourism a welfare enhancing solution to dutch disease abstract using a combined analysis of a general equilibrium and a partial equilibrium this study models the impacts of a combined policy tool based on taxing tourism and subsidizing non tourism in a tourism dependent destination the results suggest that such a policy tool while widely discussed in economics literature may not be suitable for a tourism destination as it might have adverse effects on local welfare