wto membership and the shift to consumption taxes abstract this paper explores tax policy effects and revenue implications of joining the world trade organization wto and its predecessor the general agreement on tariffs and trade gatt it documents that countries joining gatt wto after 1990 have implemented tariff cum tax reforms lowering tariff rates and raising consumption tax rates in particular through reform or introduction of a value added tax vat employing a panel of 97 developing and transitional countries 31 of which joined gatt wto between 1990 and 2011 using robust difference in difference specifications as well as the synthetic control method we find a statistically and economically significant decline in revenues from import duties this finding supports concerns about revenue losses but also corroborates the efficacy of the late uruguay gatt and the wto trade regimes in promoting free trade among new members regarding consumption taxes we find robust evidence that revenue substitution was successful since revenue losses from import duties were more than compensated for by enhanced revenues from consumption taxes with regard to the timing of the revenue effects our results show that revenue losses in import duties mostly take place at the time of membership or later changes in consumption taxation however exhibit pre membership effects as revenues are increased and vat is adopted often a few years ahead of losses in import duties no such effects are found before the start of the accession negotiations indicating that consumption tax reforms are initiated once a country is on the road to gatt wto membership

a positive effect of human capital on growth abstract recent studies have found that economic growth appears to be unrelated to increases in educational attainment in this note i show that there is a correlation in one dataset but it is typically hidden by unrepresentative observations

guidelines for exploiting natural resource wealth the principles of how best to manage the various components of national wealth are outlined where the permanent income hypothesis the hotelling rule and the hartwick rule play a prominent role as far as managing natural resource wealth is concerned a case is made to use an intergenerational sovereign wealth fund to smooth consumption across generations a liquidity fund for the precautionary buffers to deal with commodity price volatility and an investment fund to park part of the windfall until the country is ready to absorb extra spending on domestic investment capital scarcity implies that a positive part of the windfall should be spent on domestic investment the conclusions highlight the political economy problems that will have to be tackled with these normative proposals for managing wealth the author 2014 published by oxford university press

the concept of natural capital the natural environment is now commonly viewed as a form of capital asset or natural capital also included are ecosystems that provide important goods and services to the economy managing natural capital has consequences for sustainable development however there are contrasting weak versus strong sustainability views which in turn have implications for green accounting natural resource based sovereign wealth funds have emerged as key financial instruments for compensating resource depreciation with greater economy wide investments recent scientific evidence recommends demarcating safe operating spaces to limit exploitation of critical global biophysical subsystems or processes these challenges suggest that the concept of natural capital is pivotal to sound policy

a political economy theory of trade agreements we develop a model where trade agreements in addition to correcting terms of trade externalities help governments to commit vis a vis domestic industrial lobbies the model allows us to explore how the characteristics of the political environment aect the structure of the trade agreement and the extent of trade liberalization the model also highlights the role of intersectoral capital mobility in determining trade liberalization in a dynamic extension of the model we explore the extent to which trade liberalization occurs gradually and how its speed depends on the fundamentals of the problem

historical wealth accounts for britain progress and puzzles in measuring the sustainability of economic growth we thank the leverhulme trust for funding this research under the project history and the future

caveat emptor cross country data on education and the labor force abstract cross country data on education and the labor force frequently are used to describe important dimensions of development and to estimate models of economic growth and growth determinants the impact of education and related phenomena this investigation finds 1 there are serious intertemporal and inter country comparability problems with these data that may importantly affect inferences about labor force size trends and productivity and schooling investments and impact 2 data gaps are systematically related to levels of development and literacy and 3 conclusions about the determinants or consequences of development based on constructed data that have been made available to fill data gaps can be seriously misleading

the value of trade agreements in the presence of political pressures an argument often heard in favor of trade agreements is that by committing to free trade a government can credibly distance itself from domestic lobbies but several existing models of endogenous protection suggest that governments have no interest in foreclosing interest group pressures since governments derive rents from the political process we develop a small country model in which factors are sector specific in the short run but mobile in the long run we show that in this setting a government may be worse off in the political equilibrium than under commitment to free trade and hence it may value a trade agreement

measuring investment in education historic debates about the measurement of capital are even more complicated in the case of education and human capital as extensive research demonstrates education resources are not consistently related to student performance in existing elementary and secondary schools this inefficiency in public schools implies that spending and resource measures do not accurately capture variations in school quality this finding then has clear implications for both education policy and economic research because school inputs are poor policy instruments an alternative policy focus that appears much more productive is performance incentives related to student achievement

is the wto passe the wto has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements ptas should economists see this as an efficient institutional hand off where the wto has carried trade liberalization as far as it can manage and is now passing the baton to ptas to finish the job this paper surveys a growing economics literature on international trade agreements and argues on this basis that the wto is not passe rather and subject to some caveats this survey of research to date suggests that the wto warrants strong support while a more cautious view of ptas seems appropriate

peeling away the layers impacts of durable tariff elimination abstract we demonstrate that durable mfn tariff elimination affects trade patterns through several layers and magnitudes of effects are sizable the wto information technology agreement s ita unique setting allows us to overcome the challenges associated with identifying effects of non discriminatory trade policies due to two reasons i ita constitutes a quasi natural experiment of several passive signatories joining the agreement as an unavoidable part of pursuing a larger policy objective and ii ita s partial coverage of the it sector provides a natural control group for identification based on cross product variation our analysis finds novel nonlinear impacts of tariff liberalization complete tariff elimination results in large additional trade gains over and above tariff reductions especially for intermediate goods the commitment to durable tariff elimination through wto bindings adds another two layers boosting both imports and exports more than equivalent unilateral reforms this commitment spurned development of a downstream it export sector in passive signatories

on the incentive effects of job rotation abstract a new employee may work hard to build his reputation this effect is greatest when he starts the longer he is employed at his job the more the firm will already have learned about his ability the incentives for an employee to influence the firm s perceptions of his ability decrease over time if rotating the employee to a different job leads to new uncertainty about his ability this generates a fresh impulse for effort however job rotation also reduces the employee s time horizon thus reducing future rents from reputation this trade off leads to a unique optimum we derive a simple rule of thumb for an optimal rotation time our main results still hold for cases of complete but imperfect information transmission the incentive effects of job rotation also prevail in a setting in which skills are job specific we study several extensions rotations across multiple employees absence of commitment to a rotation time different bargaining positions discounting over time and learning by doing effects

wto accession and tariff evasion abstract this study documents some unintended consequences of the world trade organization wto membership by providing evidence on displacement of tariff evasion driven by the wto accession process the analysis focuses on the wto customs valuation agreement cva which limits the discretion of customs officials when it comes to assessing the price of imports while prior to the wto accession customs officials are free to use their own judgment or apply minimum or reference prices after their country joined the wto they are mandated to accept the invoice price issued by the exporter if customs officials enjoy discretion with respect to assessing the import price they may assist importers with tariff evasion in exchange for bribes removing such discretion limits their ability to facilitate misrepresentation of import prices using data on 15 countries which joined the wto between 1996 and 2008 we find a positive relationship between underreporting of import prices and the tariff rate which is expected as the incentive to evade increases with the tariff rate importantly this relationship disappears after a country joins the wto this result is consistent with the cva closing one channel for corrupt behavior however we also find that changes to customs valuation procedures induce importers to seek alternative ways of tariff evasion such as underreporting of quantities and product misclassification the overall level of evasion remains unchanged

does schooling cause growth a number of economists find that growth and schooling are highly correlated across countries a model is examined in which the ability to build on the human capital of one s elders plays an important role in linking growth to schooling the model is calibrated to quantify the strength of the effect of schooling on growth by using evidence from the labor literature on mincerian returns to education the upshot is that the impact of schooling on growth explains less than one third of the empirical cross country relationship the ability of reverse causality to explain this empirical relationship is also investigated

generalizations that aren t evidence on education and growth abstract several papers have suggested that the relationship between changes in average schooling and growth is weak in the cross country data this might call into question the relevance of micro estimates of returns to schooling at least for developing countries this paper examines the reliability of some of the aggregate evidence and presents an alternative framework for analysing these questions

wealth and sustainability for economists in 1974 it was a live question whether the exhaustion of natural resources such as oil would necessarily lead to the decline of economic activity solow showed that constant levels of consumption could be sustained in the face of exhaustibility if there is sufficient substitutability between produced and natural factors of production hartwick then proved that underpinning this result is a saving rule set investment in produced capital equal to the value of resource depletion at each point in time a large literature has shown that a comprehensive measure of the change in real wealth net saving plays a central role in determining whether current well being can be sustained in particular current declines in real wealth signal that future well being will also decline a result that has been confirmed empirically using data for developing countries changes in wealth and sustainability are therefore joined at the hip the current composition of wealth serves to define the policy challenges that countries face in achieving sustainable development if substitution possibilities are limited between natural and other factors of production as one might expect then technical progress is a necessary complement to policies for sustainability

savings growth and the path of utility we derive an expression relating the change in instantaneous utility to the growth of net genuine saving in an economy with multiple stocks and externalities that maxi mizes welfare in the utilitarian sense this result is then shown to hold for decentralized competitive efficient economies as well to yield an extension of the hartwick rule instan taneous utility is non declining along a development path if genuine saving is decreasing by way of example the rule is applied as a constant genuine saving rate rule in a simple dasgupta heal solow stiglitzeconomy the rule yields a path with unbounded consump tion and higher wealth than on the standard hartwick constant consumption path jel classification q01 q56 o13

does nnp growth indicate welfare improvement abstract we show that instantaneous increases in real nnp over time are an accurate indicator of true dynamic welfare improvements this highlights a connection between the theory of green or comprehensive national income accounting and the theory of real price indices

conditional versus unconditional trade concessions for developing countries we consider a small open economy that faces a commitment problem in trade liberalization we examine how the relationship with a large trading partner affects the ability of the small countrys government to sustain free trade through a reputational mechanism if the small country s government is patient enough it can overcome its domestic commitment without the help of the large country unconditional liberalization by the large trading partner has an ambiguous effect on the small country s dynamic incentives liberalization through a reciprocal trade agreement in which the large country lowers its tariffs conditionally on the small country doing the same unambiguously dominates unconditional liberalization by the large country as a way of boosting trade reforms and reinforcing policy credibility in the small country however if capacity in the import competing sector can only be reduced gradually a conditional reciprocal agreement may require an asynchronous exchange of concessions with the large country liberalizing before the small country

one sided sustainability tests with amenities and changes in technology trade and population abstract if an economy with multiple consumption goods including environmental amenities uniquely maximises present value with constant discounting it is unsustainable at some time if either of two measures augmented net investment or the change in augmented green net national product are zero or negative then augmented denotes that time is treated as a productive stock which includes in each measure the value of future exogenous changes in technology or terms of trade adjustments are found to make each measure a test for individual sustainability when population grows exogenously the practical and philosophical rationale for testing sustainability in a present value maximising and therefore fully prescribed development path is discussed

wealth accounting exhaustible resources and social welfare the empirical literature on natural resource accounting uses methods which implicitly or explicitly entail measuring changes in total resource asset value when an exhaustible resource is depleted in contrast the growth theoretic literature on saving social welfare and sustainable development is built upon a central finding that the change in real wealth as measured by net or genuine saving is proportional to the change in social welfare we show that the change in total wealth exceeds the change in real wealth in optimal and non optimal models of resource extracting economies this suggests that the change in social welfare is over estimated when the change in total resource asset value is used as the measure of depletion a simple empirical exercise using world bank data on adjusted net saving reinforces the results from theory

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

capital rationing and organizational slack in capital budgeting this paper reconciles three stylized facts about capital budgeting in firms and shows that they are tied to the presence of asymmetric information among the several members of the firm each with his or her own objectives and decisions the facts of interest are 1 the existence of organizational slack 2 the rationing of resources within organizations 3 the stated cut off rate for accepting capital projects in firms is often greater than the market rate of interest organizational slack is defined as the excess of resources allocated over the minimum necessary to accomplish the tasks assigned resource rationing is defined as the under allocation of resources i e an increase in the amount allocated would generate revenues in excess of its costs rationing and slack are both manifestations of ex post inefficiencies an lp model is used to show that these inefficiencies can occur in ex ante efficient organizational designs when asymmetric information is present the optimal allocation policy involves a hurdle rate criterion in which the hurdle rate is strictly in excess of the cost of capital thus inducing rationing in some states of the world typically resources are optimally allocated such that slack exists in other states the optimal allocation policy trades off these two inefficiencies

net national product as an indicator of sustainability net national product nnp can potentially serve several objectives among others to measure value added and to be an indicator of welfare in the aftermath of the world commission on environment and development however it also seems important to investigate whether the concept of nnp can serve as an indicator of sustainability my point of departure following hicks 1946 ch 14 is therefore to require that nnp should measure what can be consumed in the present period without reducing future consumption possibilities and in line with this to argue that the nnp should equal the maximum per capita consumption level that can be sustained if sufficiently many facilitating assumptions are made then a concept of nnp that serves as an exact indicator of sustainability can easily be constructed for instance for a closed economy with a constant population a stationary technology and with only one capital good it follows that the present does not reduce future consumption possibilities if and only if it does not decrease the stock of the single capital good hence under the assumption that the one capital good k is identical to the one consumption good x nnp defined as y x k measures the maximal sustainable consumption at time t because then x y is equivalent to k the purpose of this note is to establish that with multiple capital goods it is not in general possible to construct an exact indicator of sustainability on the

human capital tangible wealth and the intangible capital residual since income is the return on wealth the total wealth of any given country should be on the order of 20 times its gdp instead the average observed ratio from the balance sheet accounts of the system of national accounts sna is a factor of 2 6 to 6 6 depending on whether natural resource stocks are included in the balance sheet the clear implication is that the sna wealth accounts are incomplete with the most obvious omission being human capital estimating the value of human capital using the lifetime income approach for a sample of thirteen mostly high income countries yields a mean share of human capital in total wealth of 62 four times the value of produced capital and 15 times the value of natural capital but for selected high income countries in the sample there is still an average of 25 of total wealth which is unaccounted it is neither produced nor natural nor human capital this residual intangible wealth is arguably the stock equivalent of total factor productivity the value of assets such as institutional quality and social capital which augment the capacity of produced natural and human capital to support a stream of consumption into the future

capital theory and the measurement of sustainable development an indicator of weak sustainability the measurement of sustainable development is not without considerable difficulties yet this should not detract from the positive advances that can be made in this direction in this paper we present one form that a weak sustainability indicator can take derived from a simple but intuitive savings rule it incorporates the idea that the level of overall capital stock should be non decreasing although subject to qualification at this stage some interesting results emerge from the application of the rule to 18 countries

does the global fireman inadvertently add fuel to the fire new evidence from institutional investors response to imf program announcements abstract fighting global financial crises is a primary charge of the imf yet it has often been criticized to have hindered rather than helped the recovery of many countries in a crisis by demanding policy changes that may not be appropriate for them in that particular moment such actions would tend to damage investor confidence using monthly data on investment in 94 developing countries by 168 institutional investors during 1996 2005 this paper re assesses this important question we find that the imf has typically restored rather than reduced investor confidence

multilateral environmental agreements and the wto addressing many environmental problems requires international cooperation however rules under the world trade organization wto may deter participation in multilateral environmental agreements using a partial identification approach we obtain strictly negative bounds for non oecd countries in the wto era

comprehensive versus inclusive wealth accounting and the assessment of sustainable development an empirical comparison abstract this paper compares alternative wealth estimates reported by the world bank and in the inclusive wealth reports although theoretical limitations and shortcomings are widely acknowledged in the literature the extent to which the alternative approaches to wealth accounting matter empirically is not well known comparing the alternative data in levels shares growth rates and monetary sustainability indices derived from them major differences emerge between oecd and non oecd countries for the former the alternative wealth estimates seem complementary but only if a key assumption made in the derivation of inclusive wealth is violated for the latter the data seem much less useful for example depending on which data source is used for the group of low income countries the share of natural capital in total wealth is either 36 8 or 60 4 suggesting that extreme care must be taken if the composition of wealth were to be used to inform policy making neither wealth data set provides a definite guide to economic sustainability but a combination of indices derived from both might be useful in a holistic assessment of sustainability

constant savings rates and quasi arithmetic population growth under exhaustible resource constraints in the dasgupta heal solow stiglitz dhss model of capital accumulation and resource depletion we show the following equivalence if an efficient path has constant gross and net of population growth savings rates then population growth must be quasi arithmetic and the path is a maximin or a classical utilitarian optimum conversely if a path is optimal according to maximin or classical utilitarianism with constant elasticity of marginal utility under quasi arithmetic population growth then the gross and net of population growth savings rates converge asymptotically to constants

taking natural capital seriously the paper sets out a pragmatic case for preserving the aggregate level of natural capital in the face of the declines in biodiversity and the rising population and major increases in consumption that economic growth will bring in this century the accounting framework to achieving this objective is considered focused on the role of asset registers particular attention is paid to renewable assets at risk of falling below critical thresholds these assets are key components of the balance sheet capital maintenance expenditures are required to maintain the value of assets intact since renewable natural assets should not be depreciated but rather treated as assets in perpetuity within the aggregate substitutions with other forms of capital are permitted but only if there is compensation for any detriment to natural capital offsetting is one mechanism for achieving this compensation the case for enhancing the aggregate is considered and the paper shows how a broader national plan over a generation could contribute to the policy objective of leaving the next generation with a richer endowment of natural capital the policy instruments for embedding natural capital into public policy are reviewed

comprehensive wealth and future consumption accounting for population growth economic theory predicts that the current change in national wealth broadly defined to include natural and human capital as well as produced capital genuine savings determines whether the present value of future changes in consumption is positive or negative theoretical research has focused on the effects of population growth on this relation but no rigorous empirical investigation has been conducted panel data for 64 developing countries during 1970 82 are used to test the effects of three adjustments for population growth including one that controls for omitted wealth although the adjustments have substantial impacts on estimates of genuine savings they lead to only limited improvements in the relation between those estimates and subsequent consumption changes even without adjustments for population growth adjustments for natural resource depletion improve the relation significantly policymakers and economists can interpret published estimates of genuine savings as signals of future consumption paths if and only if the estimates include adjustments for natural resource depletion but better estimates of capital stocks are needed before it can be confidently said that adjustments for population growth significantly improve the accuracy of those signals

option value to waiting created by a control problem we study a principal agent model in which there is an option to defer a capital project approval decision a control incentive problem makes the option to wait valuable when it would not have been valuable otherwise deferring the project approval decision has both a cost and a benefit the cost of waiting is that the agent s uncertainty regarding future project cost realizations cannot be exploited however by delaying the first project s approval decision the principal can condition its approval on the agent s cost report of the second project such conditioning can be valuable in the provision of incentives because of a diversification effect

do we really know that the wto increases trade comment in a recent article in the american economic review andrew k rose 2004 finds that countries belonging to the general agreement on tariffs and trade gatt and its successor the world trade organization wto did not trade more than countries that abstained from membership a vast literature on the gatt and the wto presupposes that these organizations were important but until rose there were few systematic efforts to test the assumption that membership increased trade rose s contribution is striking because he assembles a large dataset performs a myriad of analyses and uncovers scant evidence that the gatt and the wto had any impact rose describes his negative findings as an interesting mystery 112 the solution to this mystery lies in understanding who actually participated in the gatt we show that rose has overlooked a large proportion of countries to which the agreement applied and mistakenly classified them as nonparticipants when in fact they had rights and obligations under the agreement this causes a downward bias in his estimates of the gatt s effect on trade because his gravity regressions

constant per capita consumption paths with exhaustible resources and decaying produced capital abstract we introduce decay in produced capital and exogenous technical progress to the recent solow model of asheim et al with population growth and observe the possible collapse of the economy given too high a rate of decay enough technical progress can restore sustainable per capita consumption

sustaining wealth simulating a sovereign wealth fund for the uk s oil and gas resources past and future abstract exhaustible resources and the revenues they generate present a number of broad problems for macroeconomic management for example tax revenues can be large and highly volatile and the stream of revenues is finite an increasing number of countries now view resource funds and or fiscal rules for resource revenues as the answer to these challenges in this paper we explore the consequences for the uk if past revenues arising from the depletion of subsoil assets had been channelled into a sovereign wealth fund we show that had a decision been made to establish such a fund in 1975 this could have been substantial in size by 2018 about gbp 354 billion and moreover would have had a number of benefits such as a reduction in volatility of resource revenues flowing to the treasury crucially the fund s value would have substantially boosted the size of the government balance sheet yielding corresponding fiscal benefits we argue this missed opportunity is underlined further by considering the current debate about shale gas development in the uk notwithstanding considerable uncertainties favourable and optimistic projections for key parameters are required for any shale based fund to match what we simulate based on past experience for conventional subsoil assets

effects of wto accession on policy making in sovereign states preliminary lessons from the recent experience of transition countries one of the most remarkable success es of the world trade organization in recent years has been the expansion of wto membership and the continued stream of applications of countries to accede to the wto of the 43 countries that have applied to accede the wto under article xii since january i 1995 approximately one half are countries in the process of trans ition from a planned to a market economy ten of the 14 countries that have already completed their accession process and between 9 and 13 countries depending on whether east asian countries are included or not of the 28 countries negotiating their accession are trans ition countries clearly the wto represents a powerful attraction for countries in transition cit which treat their wto membership as a stamp of approval of their policies and the admission into the international community a feat quite important for crt that have been isolated from world markets for more 50 years

project assignments when budget padding taints resource allocation this paper shows that rotation programs can be an effective response to concerns of employee budget padding rotation programs naturally create a portfolio of assignments for each manager and the resulting diversification can reduce the downside of resource rationing in particular the production versus rents trade off linked with adverse selection problems can be more efficiently carried out when the firm faces two managers with average information advantages rather than one with a large advantage and one with a small advantage roughly stated rotation of project assignments is a way of smoothing information across managers on the other hand if a firm places a premium on treating different types of projects in distinct ways specialized assignments can be preferred due to the ability to confine project types to individual managers

anniversary article a perspective on asymmetric information incentives and intrafirm resource allocation the paper asymmetric information incentives and intrafirm resource allocation by harris kriebel and raviv was published in the june 1982 issue ofmanagement science in this article written as part of this journal s 50 year anniversary celebration we highlight the significance of the harris et al paper for research in managerial accounting we first formulate and solve a continuous version of the harris et al model to illustrate the key assumptions and findings of their paper we then review several strands of the resource allocation literature in managerial accounting that have taken their inspiration either directly or indirectly from the work of harris et al

constant utility paths and irreversible global warming this paper shows that the hartwick rule for sustainable utility with depletable resources still applies to the case of the greenhouse effect from fossil fuel carbon emissions although a carbon tax is necessary for sustainable utility it is sufficient that the sum of net energy rents and carbon tax revenues is invested in reproducible capital examination of recent savings rates and energy cost shares suggests that this may be difficult to achieve with current global savings rates jel classification q32

asymmetric information incentives and intrafirm resource allocation this paper considers the question how should a firm allocate a resource among divisions when the productivity of the resource in each division is known only to the division manager obviously if the divisions as represented by their managers are indifferent among various allocations of the resource the headquarters can simply request the division managers to reveal their private information on productivity knowing that the managers have no incentive to lie the resource allocation problem can then be solved under complete or at least symmetric information this aspect is a flaw in much of the recent literature on this topic i e there is nothing in the models considered which makes divisions prefer one allocation over another thus although in some cases elaborate allocation schemes are proposed and analyzed they are really unnecessary in the model we develop a division can produce the same output with less managerial effort if it is allocated more resources and effort is costly to the manager we further assume that this effort is unobservable by the headquarters so that it cannot infer divisional productivity from data on divisional output and managerial effort given these assumptions we seek an optimal resource allocation process our results show that certain types of transfer pricing schemes are optimal in particular if there are no potentially binding capacity constraints on production of the resource then an optimal process is for each division to choose a transfer price from a schedule announced by the headquarters division managers receive a fixed compensation minus the cost of the resource allocated to them at the chosen transfer price resources are allocated on the basis of the chosen transfer prices if there is a potentially binding constraint on resource production a somewhat more complicated but similar scheme is required

genuine savings leading indicator of sustainable development abstract the world bank recently began publishing estimates of countries genuine savings a comprehensive measure of net investment across all forms of capital natural and human as well as produced this article presents the first empirical investigation of the consistency of the bank s estimates with the hypothesis that net investment should equal the difference between a country s average future consumption and its current consumption results show that the bank s estimates are consistent only with weak versions of this hypothesis and then only for developing countries moreover a simple autoregressive integrated moving average arima model outperforms any net investment measure comprehensive or conventional as a predictor of the difference between current and future consumption in sum the bank s net investment estimates tend to move in the same direction as the difference between current and average future consumption in developing countries but they have little value for predicting the mag

the economics of global health an assessment the international community through the millennium development goals and now the sustainable development goals has long recognized the critical role of improved global health in achieving social and economic development this edition of the oxford review of economic policy explores whether this importance has been mirrored in the field of economics it does so by bringing together the voices of 28 economists working on widely varying aspects of global health economics to confront three key policy questions how do we build better more equitable health systems how are global commons health problems to be overcome and how might we improve evaluation and priority setting in global health this assessment considers the degree to which these questions have been answered and extracts the key thrusts of a research agenda it suggests that as in global health itself while much has been achieved many challenges and potential achievements await in the field of global health economics

a new database on human capital stock in developing and industrial countries sources methodology and results abstract the paper describes the techniques and data adopted for the construction of a new series of estimates of the stock of education in 85 countries over 28 years 1960 1987 the series are built from enrollment data using the perpetual inventory method adjusted for mortality estimates are corrected for grade repetition among school goers and country specific drop out rates for primary and secondary students enrollment data series used start as far back as 1930 for most countries and even earlier for others this reduces the need for backward extrapolation of enrollments to provide the initial estimates of the investment inventory

education and income growth implications for cross country inequality this paper examines the extent to which patterns of human capital convergence can account for observed patterns of income inequality between countries to do this i decompose national income into three components one due to education levels one reflecting the return to education and a residual component i then examine in turn the contribution of each of them to changes in income dispersion among the developed countries convergence in education levels has resulted in a reduction in income dispersion however for the world as a whole incomes have diverged despite substantial convergence in education levels this is a result of increases in the return to education that favor the developed countries at the expense of the less developed countries

green growth degrowth and the commons the concepts of green growth and degrowth occupy central positions in the public debate on the relationship between economic growth and the environment while proponents of the former approach claim that environmental measures can promote growth by for example more efficient use of natural resources proponents of the latter maintain that environmental integrity can only be upheld by slowing down growth this paper argues that both approaches constitute inadequate foundations for public policy as they fail to appropriately conceptualize social welfare we show how policy aimed at social welfare can be understood as managing a portfolio of capital stocks some of which exhibit the characteristics of commons i e common pool resources and public goods we then propose a programme of welfare diagnostics which aims at establishing minimum thresholds for capital stocks essential to welfare as a guide for real world policy formulation and discuss the role of appropriation of natural resource rents for its practical implementation we conclude by highlighting the central role of scientific policy advice in determining how different conceptions of welfare would be reflected in setting targets and choosing the means to achieve them

spatial aggregation and the value of natural capital abstract location matters for the value of capital assets the value of changes in natural capital wealth can depend on whether natural capital asset prices are measured locally and then aggregated or whether average values are applied over aggregate representative areas spatial heterogeneity of resource characteristics and institutions impact approximations of the intertemporal welfare function and accounting price function because when spatial aggregation precedes valuation it implies greater arbitrage opportunities leading to more inelastic shadow accounting price functions than when valuation is done locally and then aggregated aggregation of observed values across varying resource and institutional characteristics can lead to omitted variables bias we illustrate these results in the context of groundwater in the kansas high plains aquifer and demonstrate that the accounting price function is less elastic when the accounting price is measured locally failure to measure locally and then aggregate could lead to undervaluing scarce resources and overvaluing plentiful ones which biases wealth accounts in favor of passing the non declining wealth sustainability test

natural resources national accounting and economic depreciation abstract the current value hamiltonian in an aggregate optimal growth problem with heterogeneous capital stocks including exhaustible renewable and environmental stocks is the nnp function routine substitutions reveal that the using up of natural resource stocks is representable as easy to interpret economic depreciation magnitudes we obtain true nnp inclusive of natural resource stock diminution implications for actual national accounting practices are also discussed

resource depletion and sustainability in small open economies abstract exogenous price changes affect the amount that a small country exporting natural resource commodities must invest to sustain its consumption level the necessary amount is given by the difference between hotelling rent and the discounted sum of future terms of trade effects capital gains the latter term is found to be large relative to the former in the case of petroleum depletion in indonesia this suggests that resource rich countries will need to invest more than previously expected to sustain their consumption levels if natural resource prices continue their long term historical decline

green growth an assessment green growth is almost tautologically required for global welfare to rise in the long run economic growth is desirable not least because over 1 billion people still live in conditions of poverty undermining the ecological basis for human civilization will damage human welfare and further undermine economic growth there are large adverse environmental externalities from economic activity that affect human welfare directly and indirectly through lower measured output finding ways to tackle these externalities will enhance wellbeing and allow continued growth of gdp while preserving aggregate natural capital however achieving this goal presents societies with major challenges the composition of gdp is likely to have to change significantly with more emphasis on new ideas and less on increased material throughputs the role of the state in a green growth transition will have to go beyond internalizing externalities to get prices right the necessary transformation will be large system wide and structural so the state must also provide at the least overall strategic direction innovation will be central to any successful strategy as will be dealing with the distributional consequences of stronger environmental policies particularly in developing countries organizing the appropriate collective action at the right levels in the face of inadequate information while ensuring that the appropriate governance arrangements are in place will not be easy policy experimentation is needed with more rigorous ex post evaluation and where successful rapid dissemination of the results

specifying human capital a review of the measures of the stock of human capital used in empiricalgrowth research including adult literacy rates school enrollmentratios and average years of schooling of the working age population reveals that human capital is mostly poorly proxied the simple use ofthe most common proxy average years of schooling misspecifies therelationship between education and the stock of human capital based onhuman capital theory the specification of human capital is extended toallow for decreasing returns to education and for differences in thequality of a year of education the different specifications give riseto hugely differing measures of the stock of human capital acrosscountries and development accounting results show that misspecifiedhuman capital measures can lead to severe underestimation of thedevelopment effect of human capital

on the welfare significance of green accounting as taught by parable abstract green nnp is a national accounting concept that subtracts off from gnp not just depreciation of capital but also depletion of environmental assets for a time autonomous technology green nnp has a rigorous welfare interpretation as an exact measure of the economy s future power to consume the present paper extends the standard framework to cover the case of labor augmenting technological progress for this special case of time dependence a powerful conceptual parable applies it is as if the conclusion from a simple minded welfare story told by the standard neoclassical one sector growth model covers a far more general situation involving any number of different types of capital any convex production possibilities set and fully optimizing behavior implications and applications are discussed

human capital vs signalling explanations of wages increases wages by directly increasing the worker s productivity this learning explanation is usually associated with human capital theory however it seems unlikely that learning explains all the wage differences associated with schooling and work history better educated workers are not a random sample of workers they have lower propensities to quit or to be absent are less likely to smoke drink or use illicit drugs and are generally healthier it is unlikely that employers make full use of differences in propensities to quit or to be absent or sick when hiring workers these characteristics are often not directly observed and the americans with disabilities act precludes firms from using either poor health or the likelihood of future sickness as a hiring criterion unless it is directly related to job performance however if low levels of education are associated with these unfavorable employee characteristics and employers are allowed to take education into account when hiring workers we would expect employers to favor better educated workers as a means of reducing their costs of sickness and job turnover in turn students will take these hiring criteria into account when deciding how long to stay in school students will choose a length of schooling to signal their ability to employers and employers will demand a minimum level of schooling

a theory of socialistic internal capital markets abstract we develop a model of a two division firm in which the strong division has on average higher quality investment opportunities than the weak division we show that in the presence of agency and information problems optimal effort incentives are less powerful and thus managerial effort is lower in the strong division this leads the firm to bias its project selection policy against the strong division the selection bias is more severe when there is a larger spread in the average quality of investment opportunities between the two divisions

the value of making commitments externally evidence from wto accessions abstract this paper studies the value of external commitment to policy reforms in the case of wto gatt accessions the accessions often entail reforms that go beyond narrowly defined trade liberalization and have to overcome fierce resistance in the acceding countries as reflected in protracted negotiations we study the growth and investment consequences of wto gatt accessions with attention to a possible selection bias we find that the accessions tend to raise income but only for those countries that were subject to rigorous accession procedures policy commitments associated with the accessions were helpful especially for countries with poor governance

ethics of the discount rate in the stern review on the economics of climate change any comparison of the costs and benefits of climate change is dominated by the chosen discount rate but although the stern review emphasises the ethical nature of the parameters entering into its choice of a relatively low discount rate its discussion of the pure time preference parameter is unbalanced in particular no consideration is given to the role of agent relative ethics which i has a wellestablished philosophical pedigree going back to david hume ii is likely to correspond closely to world wide public attitudes towards intergenerational welfare and iii would entail discounting a unit of welfare accruing to future generations compared to an equal unit accruing to people alive today at a positive rate the authors also discuss the other ethical parameter upon which the discount rate depends namely the elasticity of marginal utility with respect to consumption in the conventional model this simultaneously reflects different aspects of inequality aversion as well as risk aversion which complicates its interpretation finally they discuss the divergence between market rates of discount and the low rate chosen in the review and the limitations on the one hand on the normative significance of market rates as well as the danger on the other hand of relying on rates chosen by elites or philosopher kings

hartwick s rule in open economies to sustain constant consumption the hartwick rule prescribes reinvesting all resource rents in reproducible capital this paper shows that the rule does not apply to open economies since the underlying stationary technology assumption is violated when gains from trade are taken into account a correct analog to the hartwick rule for open economies is developed and applied to a model of capital accumulation and resource depletion la regle de hartwick dans les e conomies ouvertes pour maintenir la consommation constante la regle de hartwick prescrit qu il faut reinvestir toutes les rentes des ressources dans du capital reproductible ce me moire montre que la regle ne s applique pas dans le cas d economies ouvertes parce que le postulat d une technologie stationnaire n9est pas satisfait quand on tient compte des gains engendres par le commerce international l auteur developpe une version correcte pour les economies ouvertes dans 1 esprit de la regle de hartwick et l applique a un modele d accumulation de capital et d epuisement des ressources

the inclusive wealth index a critical appraisal abstract among recent high profile propositions to revise national accounts and to provide new indicators of sustainability and well being the inclusive wealth framework and the related inclusive wealth index iwi undoubtedly stand out as one of the most promising endeavours built up at the confluence of welfare development and sustainability economics the indicator has been designed to bring information about the wealth of nations and their sustainability in a comprehensive way the inclusive wealth framework is nevertheless fraught with limitations due to questionable theoretical assumptions gaps in data availability unrealistic assumptions about the future and inability to account for distributional issues we propose a non exhaustive critical appraisal of the index and its underlying framework we conclude that these limitations undermine its capacity to fulfil the requirements of a satisfactory sustainability indicator we argue that most problems lie in the substantial discrepancy between the inclusive ambition of the indicator and the scarce means to implement it whereas the interconnectedness of the various assets that constitute wealth as well as their complex evolution through time are acknowledged by the proponents of inclusive wealth the way the iwi is computed is rather a mere addition of layers of actuarial like monetary values for a not inclusive yet range of capital assets caution is thus warranted while using such an approach and shorter range alternatives to pursue similar goals are proposed

investing exhaustible resource rents and the path of consumption we set out dollar valued net national product for an economy with a wasting essential stock oil deposit we take up maintaining capital intact and locally unchan ging consumption the percentage change in net investment or genuine savings relative to the market rate of interest denotes whether current consumption is rising

choices and the value of natural capital sustainability requires maintaining opportunities for future generations so they can meet their needs opportunities are passed to future generations through a set of capital assets nature provides an important class of these assets but markets seldom reveal the marginal value of natural capital rather the marginal social worth or asset price must be imputed based on intertemporal exchange in the context of assessing whether intertemporal allocation rules lead to sustainable development appropriate asset prices must be based on the actual allocations and trade offs society makes therefore measuring economic programmes that enable the measurement of asset prices is an important empirical task we review the theory of measuring natural capital asset prices and discuss the key elements of measuring economic programmes that enable the measurement of natural capital asset prices we place the measurement of economic programmes and natural capital asset prices in the context of wealth based sustainability metrics

returns to investment in education a global update the author updates compilations of rate of return estimates to investment in education published since 1985 and discusses methodological issues surrounding those estimates some key patterns among the three main levels of education primary education continues to exhibit the highest social profitability in all world regions private returns are considerably higher than social returns because of the public subsidization of education the degree of public subsidy increases with the level of education which is regressive social and private returns at all levels generally decline by the level of a country s per capita income overall the returns to female education are higher than those to male education but at individual levels of education the pattern is more mixed the returns to the academic secondary school track are higher than the vocational track since unit cost of vocational education is much higher and the returns for those who work in the private competitive sector of the economy are higher than in the public noncompetitive sector and the returns in the self employment unregulated sector of the economy are higher than in the dependent employment sector controversies in the literature are discussed in the light of the new evidence the undisputable and universal positive correlation between education and earnings can be interpreted in many ways the causation issue on whether education really affects earnings can be answered only with experimental data generated by randomly exposing different people to various amounts of education given the fact that moral and pragmatic considerations prevent the generation of such pure data researchers have to make do with indirect inferences or natural experiments some have been attempted the author looks at the research on overeducation or surplus schooling the conclusions reinforce earlier patterns they confirm that primary education continues to be the number one investment priority in developing countries they also show that educating females is marginally more profitable than educating males that the academic secondary school curriculum is a better investment than the technical vocational tract and that the returns to education obey the same rules as investment in conventional capital that is they decline as investment is expanded