trade openness tax reform and tax revenue in developing countries this article investigates empirically whether the effect of tax reform involving the progressive replacement of trade tax revenue with domestic tax revenue in developing countries tax revenue performance measured by tax revenue to gdp ratio depends on the degree of trade openness of these countries the analysis has used an unbalanced panel data set of 95 developing countries over the period 1981 2015 and the two system gmm approach results suggest that tax reform is positively and significantly associated with tax revenue performance in developing countries with the magnitude of this positive effect increasing as countries experience a higher development level additionally and more importantly countries that further open up their economies to international trade enjoy a higher positive effect of tax reform on tax revenue than countries that experience a lower degree of trade openness therefore these findings should help dissipate the concerns of policymakers in developing countries that greater openness to international trade would further erode their tax revenue including by lowering their international trade tax revenue in fact the implementation of an appropriate tax reform in the context of greater trade openness would generate higher tax revenue while concurrently allowing countries to reap the well known benefits of international trade

adjustment trade policy and investment slumps evidence from africa abstract this paper presents a model of investment in six african economies over the 1970s and 80s paying particular attention to the impact of the policy reforms which have accompanied structural adjustment programmes a priori the impact of trade reform on investment can be positive or negative in practise there is some evidence that it might be negative

could a monetary base rule have prevented the great depression abstract this paper continues an ongoing investigation of the properties of a policy rule that specifies settings of the monetary base that are designed to keep nominal gnp growing smoothly at a noninflationary rate counterfactual historical simulations for 1923 1941 are conducted with the rule and a small model of nominal gnp determination estimated with u s quarterly data with residuals fed in as estimates of the behavioral shocks that occurred the simulation results indicate that nominal gnp would have been kept reasonably close to a steady three percent path over 1923 1941 if the rule had been in effect

not just the great contraction friedman and schwartz s a monetary history of the united states 1867 to 1960 milton friedman and anna j schwartz published a monetary history of the united states 1867 to 1960 with princeton university press in 1963 to critical acclaim since then the book s reputation has grown and it clearly has become one of the most influential volumes in economics in the twentieth century in this paper we document the extraordinary impact of a monetary history and argue that the key to this success was the use of the narrative approach to the problem of identifying the effects of monetary policy on economic activity

search sticky prices and inflation this paper examines equilibrium in a deflationary environment in a market with free entry where consumers search and firms set prices on individual units of the commodity prices attached to newly produced goods are continuously adjusted prices attached to previously produced goods can only be changed at a cost deflation cuts into the market power created by the need to search for the good thus consumers welfare is inverse u shaped in deflation

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

tariffs and aggregate economic activity lessons from the great depression abstract we argue against the prevailing view that the macroeconomic role of tariffs during the great depression was small to understand the economic channels through which tariffs could have large effects we build a multi sector dynamic equilibrium trade model that captures key features of trade in the 1930s a substantial share of trade was in material inputs and the persistence of the tariff increases had the potential for significant effects on capital accumulation both of these features are important in generating the conclusion that even when trade only represents a small share of output tariffs can have a significant impact on gdp simulation of the model suggests that the global escalation of the tariff war precipitated the collapse of world trade along with declines of several percent in international output and investment

endogenous market participation and the general equilibrium value of money we study the monetary theory implications of fixed costs associated with trade in private assets we show that with heterogeneous endowment profiles it is possible for an endogenous subset of agents to hold currency even when it is dominated in return by a competing asset with respect to positive issues in monetary theory the model implies that changes in the steady state growth rate of the money supply have a negative effect on real interest rates because of endogenous market participation measures on the normative side we show that there may be an equity efficiency trade off from monetary deflation

trade barriers and the collapse of world trade during the great depression 1 introduction the contraction in world trade during the first phase of the great depression stands out as the strongest adverse shock to international trade in modern history from 1929 to 1932 world import and export volume in the industrialized nations decreased about 30 however it is not well understood which factors were responsible for the collapse the factors that have been highlighted in the literature are declining demand escalating tariff and nontariff trade barriers increasing bilateral trade agreements and international exchange rate policies the importance attributed to each of these factors has often been controversial pollard 1962 p 200 for instance argues that for britain the fall in total foreign trade as a proportion of home production was a part of a secular trend and may well not have been caused by the tariff as such by contrast khan 1946 p 246 claims that within 12 to 18 months uk nominal imports of manufactures from most of europe and the united states were reduced by something like 60 as a result of the tariff similarly saint etienne 1984 p 29 argues that by the mid 1930 s international trade had become in large proportion barter trade as a result of the tariffs and nontariff barriers empirical studies have examined the effects of trade restrictions on incomes to explain the declining trade for individual countries the studies of crucini and kahn 1996 and irwin 1998 find that the tariffs were influential for the u s imports and exports in his study of nominal imports to the european countries friedman 1974 quantified the effects of trade barriers on nominal imports and ultimately income by means of dummies in periods of significant tariffs and nontariff barriers he found that trade restrictions had a significant impact on trade in a few countries however as friedman himself acknowledges the weakness of this approach is that strong and weak forms of trade barriers are restricted to impact equally on imports in the estimates coupled with the small sample problems that plagued his estimates the trade barrier dummies were unlikely to effectively have captured the effects of trade barriers on imports which explains substantial variations of the estimated effects of the tariffs and the nontariff barriers across countries the study of eichengreen and irwin 1995 is probably the most extensive analysis of trade flows in the interwar period using 561 cross sectional bilateral trade flows over three periods 1928 1935 and 1938 they estimate a gravity model of trade patterns they relate the value of bilateral flows to national income population distance contiguity trade and currency block indicators and exchange rate variability to examine the effects on trade of trade and currency blocks and exchange rate variability they observe a declining marginal propensity to import and export during the depression which they attribute to quotas and other binding trade restrictions but do not formally test their importance this paper seeks to estimate the contribution of income tariffs and nontariff barriers on world trade during the depression using panel data for 17 countries over the period from 1920 to 1938 the panel data approach enables the assessment of the influence on trade of nontariff barriers from estimates of import and export functions by using as an identifying assumption that the nontariff barriers were to some degree simultaneously imposed and relaxed across the industrialized nations during the interwar period the estimates and extensive evidence from the literature suggest that this identifying assumption is valid section 3 in section 4 the changes in world trade in the interwar period are decomposed into income effects tariff effects and nontariff barrier effects the trade effects of the tariff changes are furthermore decomposed into deflation inflation induced tariff changes and discretionary tariff induced changes

cambodia rapid growth in an open post conflict economy this study provides an analytical review of world trade organization trade policy review cambodia the first such report undertaken for the country the report highlights cambodia s rapid economic growth after one of the world s worst cases of genocide in the second half of the twentieth century this growth has been underpinned by open trade and investment policies in the context of dynamic neighbourhood growth effects the trade regime is mainly tariff based with modest intersectoral variations in rates cambodia has limited trade policy space it is a signatory to the 10 nation asean free trade agreement soon to become the asean economic community moreover given its long and porous borders with the much larger dynamic economies of thailand and vietnam any major cross border price differences will quickly result in informal trade with these economies and nearby china most of the country s trade policy challenges are to do with behind the border issues a legacy of its generation of civil war and conflict these include weak bureaucratic capacity high levels of corruption poor infrastructure and limited human capital

inflation and the dispersion of real wages the eects of inflation on real wage dispersion and welfare are studied in a cash in advance economy with a walrasian goods market but a labor market with search friction in which firms enjoy monopsony power in the labor market firms post wages and both the employed and the unemployed workers search among the posted wages in equilibrium a higher inflation rate reduces the dispersion in real wages this result is consistent with both the observed trends in wage dispersion and the inflation rate witnessed in the 1980 s and the 1990 s in the u s and the empirical literature linking reduced inflation to greater wage dispersion while higher inflation always lowers consumption output and employment the optimal inflation rate exceeds the friedman rule

trade policy in burundi reform without political stability this paper evaluates burundi s progress with trade policy reform by comparing earlier analyses of burundi s trade policies undertaken in the 1980s with that of the wto s recent trade policy review since the mid 1980s burundi has been trying to reform its trade and macroeconomic policies against the background of continuous socio political tensions and periodic outbreaks of violent tribal conflict a then and now comparison allows us to assess both the extent of the trade reforms and of the economic return to those reforms it is evident that there has been a significant rationalisation and simplification of trade policy burundi has eliminated most quantitative import restrictions and reduced the average level and range of its tariffs the scope for allocative distortions undesirable redistributive effects and for impediments to investment and growth has been substantially reduced however a return to reform in terms of export growth or diversification and of overall economic growth is not discernible yet this is unsurprising given the scale of the economic disruption sustained socio political stability among other things will be required to induce the investment in human and physical capital needed for a positive return to trade policy reform

search inflation and capital accumulation abstract this paper constructs a model to integrate the search monetary theory into a neoclassical growth model with divisible goods and money the model is used to examine the relationship between money growth and capital accumulation the framework uncovers a distinct extensive effect that an increase in the money growth rate increases the frequency of successful trades by increasing the number of agents in the market this positive extensive effect on the number of trades can dominate the conventional negative intensive effects of money growth on individuals labor input and real money balance in which case increasing the money growth rate increases aggregate capital and output

a divisible search model of fiat money this paper extends the kiyotaki wright search model of fiat money to allow for divisible money and goods the extension allows me to examine the standard issues in monetary economics such as the neutrality and superneutrality of money by severing the artificial link in the kiyotaki wright model between the money supply and the number of money holders it is shown that money is neutral but not superneutral money growth generates a trading opportunity effect it changes the fraction of different agents in the economy and hence changes the probability with which agents have a successful match in addition money growth has a negative effect on the real money balance that is familiar in walrasian monetary models the balance of the two effects can imply a positive optimal money growth rate

labor productivity during the great depression abstract during the 1929 1933 contraction labor productivity was countercyclical in several manufacturing sectors evidence consistent with the view that large negative demand shocks pushed the economy down a static neoclassical production function this evidence does not readily square with explanations for the contraction emphasizing labor hoarding and increasing returns

fiscal composition and aid effectiveness a political economy model summary in the long run tax effort we argue determines the effectiveness of aid and this relationship operates simultaneously with the negative link in the opposite direction observed by brautigam and knack 2004 and others tax effort and the ability of the state to diversify its taxation structure we find are significantly linked to growth and poverty indicators the key message for policy is that a broadening of the tax structure in low income countries is crucial in order to enable those countries to escape from the weak state low tax trap and to make aid effective

tax revenue performance and vulnerability in developing countries this paper addresses vulnerability of revenue to external shocks using export composition to capture economic structure and differentiating countries according to income levels resource endowments and political regimes this gives a richer characterization than previous studies lower income countries are vulnerable to shocks especially in terms of trade associated with the greatest revenue loss democratic regimes seem to be less vulnerable to revenue losses due to shocks than non democracies whereas revenue in resource rich is more vulnerable to shocks except natural disasters than non resource rich countries we find a negative relationship between manufacturing exports and revenue in lower income countries

the link between increased trade openness and the terms of trade an empirical investigation abstract despite the fairly widespread move towards more open trade policies in developing countries relatively little attention has been paid to the effect of these policies on the terms of trade using a large sample of countries this paper tries to assess empirically the validity of the small country assumption which underlies the washington consensus on development strategies our evidence suggests that there is a sizable group of countries ldcs and non ldcs for which the assumption of exogenous traded goods prices can be rejected one implication is that terms of trade considerations should be included in the assessment of trade liberalization policies these effects might rise considerably when several countries liberalize simultaneously

asian growth and trade poles india china and east and southeast asia summary using a global general equilibrium trade model this study analyzes the impact on developing countries of 1 the dramatic expansion of trade by india china and an integrated east and southeast e se asia trade bloc and 2 productivity growth in the region china is an integral member of the e se asia bloc with strong links through value chains and trade in intermediate inputs while india is not a part of any trade bloc the analyses consider the importance of their different degrees of integration into regional and global economies focusing on potential complementarities and competition with other developing countries

how friedman and schwartz became monetarists during the late 1940s and the early 1950s milton friedman favored a rule under which fiscal policy would be used to generate changes in the money supply with the aim of stabilizing output at full employment he believed that the economy is inherently unstable because of endogenous movements in money supply under a fractional reserve banking system in her work anna schwartz downplayed the role of monetary factors in business cycles and the role of monetary policy as a stabilization tool we show how the joint work of friedman and schwartz from 1948 to 1958 led friedman to view money as the primary mover of the business cycle and underpinned his shift to a rule based on money growth so that discretionary monetary policy would not act as a source of destabilizing shocks the decisive factor in the evolution of friedman s thinking was the empirical confirmation that the great depression had been both initiated and deepened by the fed the largely neglected influence of clark warburton on the evolution of friedman s thinking provides a missing but crucial link in explaining friedman s recognition of the role of monetary factors in the great depression and of the fed s ability to offset the destabilizing effects produced by shifts from deposits into currency under a fractional reserve banking system

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

a fundamental theory of exchange rates and direct currency trades in this paper we construct a two country search model to determine the nominal exchange rate between two fiat monies our model allows agents to use any currency to trade for goods in all countries however search frictions restrict agents opportunities for instantaneous arbitrage and hence make the nominal exchange rate determinate the nominal exchange rate depends on the two countries economic fundamentals including the stocks and growth rates of the two monies direct exchanges between currencies are essential and they imply a nominal exchange rate that is different from the relative price between the two currencies in the goods markets there are persistent violations of the law of one price and purchasing power parity in equilibrium despite the fact that prices are perfectly flexible and all goods are tradeable between countries nominal and real exchange rates can move together in the steady state in response to money growth shocks

on inflation as a regressive consumption tax abstract evidence on the portfolio holdings and transaction patterns of households suggests that the burden of inflation is not evenly distributed we build a monetary growth model consistent with key features of cross sectional household data and use this framework to study the distributional impact of inflation at the aggregate level our model economy behaves similar to standard monetary growth models within the representative agent abstraction inflation has however important distributional effects since it is effectively a regressive consumption tax thus neglecting the distributional consequences of inflation may prove misleading in assessing the effects of inflation in our economy

search for a monetary propagation mechanism abstract this paper examines a monetary propagation mechanism in an economy where exchanges in goods and labor markets involve costly search it is shown that an increase in the money growth rate increases steady state employment and output when the money growth rate is low but reduces steady state employment and output when the money growth rate is already high the model produces persistent hump shaped responses in employment and output to money growth shocks even when the shocks have no persistence the model also generates desirable features in job vacancy sales inventory and the velocity of money all these features emerge here in an economy with perfectly flexible prices and wages journal of economic literatureclassification numbers e40 e30

trade policy issues in a small african economy the trade policy review of the gambia 2004 the gambia displays many of the classic characteristics of a small open economy with the vulnerabilities that implies the sum of its imports and exports are around 100 per cent of gdp with a limited number of export commodities and a wide variety of imports including some key staple foods the trade policy review of the gambia 2004 provides a very helpful review and assessment of current trade patterns and policies the latter rely predominantly on import and export taxes while quite substantial trade reform measures have been implemented recently these have led to only a very small reduction in the average tariff rate and trade policy displays a substantial anti export bias other important issues highlighted by the trade policy review include serious capacity constraints relating to trade policy and a failure to discuss connections between trade policy and growth and poverty reduction again common characteristics of many small economies

liquidity loanable funds and real activity abstract this paper develops a general equilibrium model of two traditional explanations of the monetary black box linking money and real activity the liquidity effect and the loanable funds effect these effects are modeled with a monetary production economy in which central bank injections of cash are funnelled into the economy through the credit market since only borrowers have direct access to the newly injected cash monetary injections cause nominal interest rates to fall if firms are borrowers then monetary injections also increase current and future real activity

trade policy adjustment in ldcs a short run view the article deals with the role of tariff protection and exchange rate policies in ldcs after a terms of trade shock has occurred and a new equilibrium is to be attained constraints concerning the domestic foreign and public sectors are specified it is shown that the optimal response to the shock depends on the domestic features of the economy as well as on its trade openness in particular protectionist attitudes may well be justified and anti trade policies may be helpful to ease adjustment

measuring the equilibrium effects of unemployment benefits dispersion we analyze the impact of unemployment benefits and minimum wagesusing an equilibrium search model which allows for dispersion ofbenefits and productivity levels job to job transitions andstructural and frictional unemployment the estimation method usesreadily available aggregate data on marginal distributions ofunemployment durations as well as wages and benefit levels different causes of structural and frictional unemployment areinvestigated we investigate the efficiency of the imposition of asingle benefit level for all household types and the introductionof an earned income tax credit

liberalization and the terms of trade in turkey a causal analysis there has been extensive trade liberalization in developing countries in recent decades several liberalization episodes have been completed in turkey in this paper we evaluate the relationship between trade liberalization in turkey and the terms of trade has liberalization preceded changes in the terms of trade or vice versa using causality analysis we investigate several hypotheses and conclude that in this case trade liberalization follows a terms of trade change a finding which is consistent with the trade shocks hypothesis

assessing indirect tax reform in a tourism dependent developing country summary the paper investigates the effects of reform of the current structure of indirect taxes in mauritius a relatively tourism dependent economy it uses a computable general equilibrium model to explore the relative efficiency of changing sales tax rates on tourism and nontourism related sectors and allowing for equity considerations the efficiency of tax reforms are also distinguished for cases where tourist arrivals are exogenously set and where they endogenously adjust to changes in relative prices the simulation results show that the tourism sectors are currently undertaxed additionally taxing tourism sectors is found to be the most socially efficient means of raising tax revenue

fiscal dependence on trade taxes and economic development additional results and a reconciliation of the empirical evidence using brazilian data spanning the period 1910 75 new evidence is presented on the hypothesis that a country s fiscal dependence on trade taxes is inversely related to her level of economic development at least once the latter passes a certain threshold unlike previous studies this study uses methods which highlight the dynamic and temporal nature of the underlying relationships the results indicate strong support for the hypothesis and also suggest that the conflicting time serious evidence can be reconciled

fiscal dependence on trade taxes and the level of economic development a comment 1993 fiscal dependence on trade taxes and the level of economic development a comment applied economics vol 25 no 11 pp 1393 1397

a dynamic economy with costly price adjustments this paper studies a general equilibrium model of a dynamic economy with menu costs each firm s productivity is exposed to idiosyncratic and aggregate productivity shocks around a trend and the money supply to monetary shocks around a trend all consumption pricing and production decisions are based on optimizing behavior there exists a staggered markov perfect equilibrium with prices determined by a two sided s s markup strategy the paper analyzes the optimal markup strategy and investigates the dynamics of the price index and the aggregate output the welfare consequences of the uncertain aggregate productivity and money supply are also examined

review of a history of the federal reserve volume i 2003 by allan h meltzer abstract this is a book review of a history of the federal reserve volume i 2003 by allan h meltzer

search price setting and inflation a model of monopolistic competition in an inflationary environment is developed which embodies optimal sequential search price dynamics and entry on the part of consumers and firms respectively equilibrium price strategies are s s these bounds increase continuously with consumer search costs and so does price dispersion indeed the whole equilibrium varies smoothly from the competitive bertrand to the monopolistic diamond 1971 end of the spectrum the latter s paradoxical result is explained as a limiting case where frictions on firms side of the market price adjustment costs but not on buyers search costs tend to zero a positive relationship between smooth and perfectly anticipated inflation and price dispersion or uncertainty is established

a contribution to the pure theory of money abstract this article analyzes a general equilibrium model with search frictions and differentiated commodities because of the many differentiated commodities barter is difficult in that it requires a double coincidence of wants and this provides a medium of exchange role for fiat currency we prove the existence of equilibrium with valued fiat money and show it is robust to certain changes in the environment rate of return dominance liquidity and the welfare implications of fiat money are discussed

money and prices a model of search and bargaining abstract this paper makes commodities divisible and incorporates bargaining into the search theoretic model of money to determine the purchasing power of money or price it is shown that two monetary equilibria always coexist where fiat money is universally accepted the two equilibria differ in price output welfare and the velocity of money sunspot monetary equilibria exist in which money is universally accepted in all states of the economy multiplicity has novel implications on the effectiveness of currency substitution and exchange market intervention journal of economic literature classification numbers c78 e40

inflation and efficiency in search markets this paper examines how inflation affects efficiency and output in monopolistically competitive search markets it formalizes the conventional wisdom linking higher inflation price dispersion and increased resources devoted to search it also brings to light the induced exit of arms which reduces rent dissipation but the most important effect of inflation is how it alters the distribution of real transactions prices whether this reduces or promotes efficiency and output is shown to depend critically on preferences and market structure and especially on whether search costs are large or small relative to consumer surplus

sri lanka s trade policy reverting to dirigisme the paper surveys recent development in sri lankan trade policy with an emphasis on emerging protectionist tendencies using sri lanka s trade policy review 2010 by the world trade organisation as a reference point the sri lankan experience for over the three decades following the liberalisation reforms stated in 1977 has clearly demonstrated that an outward oriented policy regime can yield a superior development outcome compared to a closed economy regime even under severe strains of a protracted ethnic conflict and macroeconomic instability viewed against this backdrop recent developments in the sri lankan policy scene do not seem to augur well for the future of the sri lankan economy

the design of fiscal reforms in revenue constrained developing countries while generalisation is perilous there are many especially small developing countries for which sales taxes and turnover taxes are fairly negligible as revenue sources and for which import duties and export taxes particularly the former are leading revenue sources for evidence from the early i980s see tanzi i987 and greenaway and milner i990 this observation is unsurprising when account is taken of the administrative constraints to which many developing countries are subject sales taxes can be difficult to collect not to mention a complex tax like vat income tax is largely infeasible and often has to take a simple form such as a payroll tax confined in practice to public and large company employment some taxes which would be assumed to be eminently feasible in industrial economies may not generate as much revenue as might be supposed in a developing country for instance tax disks which the law may require heavy goods vehicles to carry may generate a flow of bribes to police and other officials if these are wise enough to set the bribe at a modest level making it cheaper to pay bribes than to buy a disk a cynic might say that the bribes are an unofficial source of revenue if their existence enables the state to get away with paying its officials absurdly low salaries one would have to hope if that argument is accepted that the officials do something socially useful apart from stopping heavy goods vehicles such considerations make it interesting to consider the design of public finance for a country severely constrained in its choice of what musgrave called tax handles that is types of tax instrument which it may practically employ the existing literature for which newbery and stern i987 provides an excellent review throws some light on this issue but the problem is seldom treated explicitly an exception would be dreze and stern i985 whose highly abstract and general treatment of cost benefit analysis theory can be seen to incorporate principles of public finance which fully cover the restricted policy choices which i have in mind because the approach of these authors is so general however it is not easy to extract conclusions for tax design in specific cases this is no criticism of the paper of course as the argument is addressed to cost benefit analysis generally speaking theory has developed in the direction of sophisticated and complex tax systems the next section discusses why this is so from the point of view of theory yet ideal tax systems would be difficult to implement in many developing countries as i shall treat tariffs as a highly feasible revenue

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

liberalising foreign trade through rose tinted glasses the foreign trade sector has a crucial role to play in economic development trade has variously been described as the engine or handmaiden of growth this key role has stimulated a great deal of interest in the links between trade and growth with the links between trade orientation and exports and exports and growth receiving particularly close attention alongside this time series work there have been a number of multi country studies of trade policy in developing countries those of krueger i 98 i and balassa i 982 are perhaps the best known most of this work has been directed at two questions first what does the structure of protection look like in a given developing country second are there clear links between the structure of protection trade orientation and economic performance it is widely believed in developing countries that the major lending agencies the world bank in particular perceive a clear link between trade orientation and economic performance and that this explains why around three quarters ofall conditions which attach to structural adjustment loans sals feature reform of trade policy the editors of liberalising foreign trade demetrious papageorgiou michael michaely and armeane choksi all of whom are on the world bank staff clearly believe this to be the case judging from their opening statement the benefits of open trading have by now been sufficiently demonstrated and described by economic historians and analysts in this study we take them for granted and turn our minds from the whether to the how vol i p vii in other words it is the timing phasing and sequencing involved in the design and implementation of a trade liberalisation policy that forms the subject matter of the present study vol 7 p i liberalising foreign trade is a world bank organised study which describes and evaluates 36 liberalisation episodes in i 9 countries during the period i950 i982 the study is ambitious in scale28 authors 3 editors 7 volumes and almost 3 ooo pages of text it is the most comprehensive cross country analysis of liberalisation episodes undertaken from a policy perspective a study of this scale is potentially of considerable interest given the liberalisations

fiscal dependence on trade taxes and trade policy reform the article focuses on fiscal implications of structural adjustment loans sals from an a priori standpoint and by reference to the experience of five countries three of these countries have had revenue enhancement after trade policy reforms and the other two cases experienced revenue depletion the central point which emerges from the study is that it is not clear that trade liberalisation leads to fiscal enhancement or fiscal depletion both a priori the orising and country analyses demonstrate that a range of outcomes is possible depending upon initial conditions and the components of any reform package

a life s work on trade and development this paper reflects on the career contributions of professor chris milner to the literature on international trade and economic development as such it not only provides an overview of a life s work but also sets the context for the nine papers which follow all of these were specially written for this special issue of the world economy and all relate to different areas that professor milner worked in

tax revenue instability with particular reference to sub saharan africa this article examines the temporal instability of tax revenues across a sample of developed and less developed countries it is shown that instability is especially high in ldcs and is highest in open economies with low per capita income high output variance and inflationary problems even allowing for these factors revenue instability appears to be particularly high in sub saharan africa revenue instability can be expected via the government budget constraint to be associated with expenditure instability and or instability in the sources of deficit finance cross section evidence for ldcs confirms that countries with high tax revenue instability tend also to have high expenditure instability time series evidence for six african countries however suggests that revenues and expenditures do not move together in a uniform manner and the direction of causality is generally ambiguous there is some evidence however that foreign borrowing is used more to finance expenditure increases than to counteract

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association