politically feasible and equitable adjustment some alternatives for ecuador abstract how can a government beholden to agroexporting interests survive while carrying out a stabilization program inimical to other powerful interests how can it reduce the social costs of the program the authors review the ecuadorian experience with these dilemmas and build a real financial cge model to explore alternative approaches to stabilization made necessary by both a reduction in public foreign borrowing and a fall in world oil prices the approaches considered include exchange rate devaluation fiscal austerity directed at current or investment spending and reduced growth of money supply each approach is assessed for its effects on gdp growth on rural and urban poverty and for its political sustainability assessed by changes in utility for politically dominant rural and urban interests the results show that cutting current spending is best for restoring growth and protecting the rural poor but is politically untenable making this approach politically feasible requires complementary economic reforms to increase the flexibility of the economy and raise the share of public investment going to agriculture social programs allowing some leakages in antipoverty transfers toward politically essential nonpoor and political campaigns to increase the relative autonomy of the state lower the social rate of discount whereby the public assesses the outcome of policy and induce the public to compare policy outcomes against the counterfactual scenario of no intervention instead of pre crisis living standards

the imf s role in structural adjustment in the 1980s conditional lending for structural adjustment in developing countries moved the imf beyond its role of macroeconomic crisis management fund supported adjustment programmes have often been flawed by a lack of distributional analysis and by poor sequencing of reforms notably premature financial liberalisation as a result they have caused avoidable hardship in addition the attempt to taper out aid as part of the reform programme leads to avoidable reductions in post stabilisation growth an important role for the fund in poststabilisation environments is to provide credible signals to private investors as macroeconomic crises spread across latin america and africa during the 1980s the imf became much more involved in low income countries whereas following its interventions in developed countries the fund had rapidly withdrawn post crisis in the low income countries its involvement became continuous this was partly because stabilisation often took longer however additionally by the 1980s it was already evident that whereas those poor countries which had adopted market based development strategies were developing those which had adopted inward oriented high regulation strategies were in decline unlike the economic crisis of 1998 the crises of the 1980s were concentrated among the inward orientated hence a reasonable diagnosis was that the crises were not merely manifestations of fiscal imbalance but that many other policies needed reform the task thus went beyond the conventional one of rectifying a crisis to reorienting a development strategy the fund joined with the world bank in an attempt to induce these reforms through sustained conditional lending hence the imf moved beyond its traditional role of short run macroeconomic crisis management fund and bank conditions were linked through cross conditionality but with the fund as the lead agency on many areas of policy this gave the fund a critical role in structural adjustment the fund s instrument for concessional lending in low income countries is its extended structural adjustment facility esaf in 1997 the board of the fund commissioned an external review of its esaf programmes in which we participated the report of the evaluation botchwey et al 1998 suggested three lines of criticism of fund adjustment programmes and these form the basis of our analysis in this paper the first is that through flawed design the programmes have sometimes had adverse consequences for the poor either directly through reducing incomes or indirectly through reductions in social service provision our criticism is of the sequence sometimes adopted by fund

the issue decision of manager owners under information asymmetry a firm must issue common stock in order to undertake a new investment and the firm s manager owners can value the firm more accurately than the market the ability of the manager owners to trade in the firm s shares during the issue a reduces the investments that are foregone because of the market s mispricing the firm s shares b changes the size and direction of the stock price change when the firm announces a new stock issue and c changes the market value of the firm before and after the issue announcement whether or not it decides to issue the focus of this paper is a firm that must issue common stock in order to undertake a new investment there is information asymmetry in the market for the firm s shares in that the firm s managers value its existing assets and the new investment more accurately than the market previous studies that investigated this setting include myers and majluf 11 and leland and pyle 7 myers and majluf use a rational expectations approach to a show the conditions under which the firms forego positive net present value npv investments and b explain why firms stock prices typically decline when they announce that new stock will be issued to finance new investment however they assume that managers do not own or transact in the firm s shares this paper extends their framework to consider the case in which managers are owners the issues examined here are a the extent to which the manager owners ability to trade in the firm s shares can reduce the foregone investments b the impact of manager owners upon the size and direction of the stock price change when the firm announces a new stock issue and c the extent to which the purchases of new stock by manager owners can signal the firm s value to the market the latter subject was examined by leland and pyle leland and pyle examined the case of a new firm whose only resource was an asset in place whereas this paper examines the investment and trading for the insiders of an existing firm this firm has common stock outstanding and an existing asset and is considering issuing new stock and investing in another

the consequences of doubling the minimum wage the case of indonesia minimum wages in indonesia were tripled in nominal terms and doubled in real terms in the first half of the 1990s the author evaluates the effects of this hike on wage earnings wage employment and investment after describing indonesia s minimum wage policy and surveying the literature on the effects of minimum wages the author applies relatively simple statistical tools to individual and aggregate data he visually inspects the wage distribution for full time laborers and employees to assess the extent of compliance with minimum wages he uses regression analysis involving minimalist specifications and data aggregated by province to estimate the elasticity of wage earnings wage employment and investment with respect to the minimum wage a wide dispersion in the ratio of minimum wages to labor productivity across the 27 indonesian provinces can be used to identify the effects of the minimum wage the results suggest that minimum wages have a moderate effect on outcomes in indonesia s labor market taken at face value these results imply that doubling the minimum wage led to a 10 percent increase in average wages a 2 percent decrease in wage employment and a 5 percent decrease in investment the disemployment effect appears to be considerable in small firms but employment may actually increase in large firms

a multiplier decomposition method to analyze poverty alleviation abstract the objective of this paper is to present a multiplier decomposition method focusing on poverty alleviation the decomposition captures the various mechanisms and linkages through which a production sector s output contributes to poverty alleviation within a socioeconomic system represented by a social accounting matrix sam it is shown that a multiplier can be broken down into two multiplicative effects the distributional and interdependency effects the decomposition method is applied to the case of indonesia a key policy implication is that the human capital of the poor needs to be enhanced if they are not to be sealed off from the industrialization process

modeling the effects of adjustment programs on income distribution abstract this paper introduces the general structure of the micro macro economywide simulation model maquette used in several case studies on the impact of adjustment policies on the distribution of income the description of the maquette emphasizes how the short and medium run effects of adjustment packages are incorporated in a general equilibrium model and explains the common structure and variants in the specification and estimation of relationships in product factor financial and foreign exchange markets simulations are used to illustrate the role of differences in assumptions about market adjustment mechanisms e g fix price or flex price closed or open financial system on the effects of adjustment policies on the distribution of income adjustment to an external shock through devaluation or through fiscal retrenchment is then contrasted for an economy with different degrees of financial and foreign trade openness the simulations show that assumptions about macroeconomic closures and behavioral parameters matter a great deal in determining the productive and distributive effects of a shock and a country s adjustment to that shock

the alternative vote and interethnic moderation a reply to fraenkel and grofman the alternative vote av is a preferential electoral system that tends to reward political moderation and compromise fraenkel and grofman have modeled the likely effects of av in severely divided societies in order to impugn av as a tool of interethnic accommodation in this response i show that fraenkel and grofman s model is based on extreme assumptions that bear no relation to party and voter behavior in such societies models based on realistic assumptions about strategic behavior and cross national experience with av both demonstrate that av generally provides centripetal incentives that can contribute to interethnic coalition building and accommodation

macroeconomics financial variables and computable general equilibrium models abstract this paper surveys micro macro computable general equilibrium cge models that incorporate asset markets and product and factor markets recent models are designed to analyze the impact on economic performance and the distribution of income in developing economies of structural adjustment and stabilization programs implemented in response to macro shocks these financial cge models add a loanable funds market incorporating a variety of assets to a cge model that already incorporates flow equilibria in product and factor markets these financial models start from tradefocused cge models and also draw on earlier work with micro and macrostructuralist models in specifying the interactions between financial variables and the real side of the economy the paper also compares these models to dynamic macro models both short run adaptive models with lagged adjustment mechanisms and longer run forward looking models the paper discusses the theoretical problems such models face in reconciling micro focused cge models with macro models incorporating dynamic behavior

agroclimatic shock income inequality and poverty evidence from burkina faso abstract this paper examines the impacts of agroclimatic shock on income inequality and poverty using household farm data from three agroecological zones of burkina faso together with income source decompositions of the gini coefficient and the foster greer thorbecke poverty index before and after a severe drought our findings reveal that because the poor lack acces to off farm income off farm income increases inequality and fails to shield poor households against agroclimatic risks the direction of the empirical relationship between changes in inequality and poverty after the drought depends critically on environmental variables and on apparent constraints on income diversification at different points in the income distribution

the merits of neo downsian modeling of the alternative vote a reply to horowitz in professor horowitz s rejoinders 2004 2006 to fraenkel and grofman 2004 2006a he mischaracterizes our formal results retreats from previous claims about the conditions for the alternative vote electoral system to generate centripetal outcomes renders explicit his dubious assumptions about voter behavior in divided societies and greatly exaggerates the global evidence in support of pro moderation outcomes under the alternative vote here we respond to horowitz s 2004 criticism in this journal of the formal model of fraenkel and grofman 2004 and to the broader defense in horowitz 2006 of majoritarian vote pooling arrangements as means of mitigating ethnic conflict in deeply divided societies

risky debt investment incentives and reputation in a sequential equilibrium the agency relationship of corporate insiders and bondholders is modeled as a dynamic game with asymmetric information the incentive effect of risky debt on the investment policy of a levered firm is studied in this context in a sequential equilibrium of the model a concept of reputation arises endogenously resulting in a partial resolution of the classic agency problem of underinvestment the incentive of the firm to underinvest is curtailed by anticipation of favorable rating of its bonds by the market this anticipated pricing of debt is consistent with rational expectations pricing by a competitive bond market and is realized in equilibrium some empirical implications of the model for bond rating debt covenants and bond price response to investment announcements are explored

poverty and income distribution during adjustment issues and evidence from the oecd project drawing lessons from country studies the authors examine the effects of adjustment policies on the distribution of income in chile cote d ivoire ecuador indonesia malaysia and morocco after analyzing the issues that must be confronted in designing adjustment programs with a focus on poverty they synthesize the main conclusions of the different country studies with simulation exercises they explore the effects of the design of the adjustment packages on poverty and on the sustainability of the measures undertaken in these countries these exercises show considerable diversity in the evolution of income distribution during adjustment they also expose the fatal flaws of narrowly designed adjustment programs adjustment programs whether focused on efficiency or on welfare will fail when they do not recognize the interdependence of the three criteria of efficiency welfare and political feasibility adjustment programs must be carefully packaged to fit country circumstances taking into account both the political and economic environments

methods for including income distribution in global cge models for long term climate change research abstract the consequences of climate policy and the impacts of climate change vary among different types of households depending on their income level expenditure pattern and other socioeconomic characteristics global economy environment models that are used to assess climate change issues traditionally do not distinguish households by income or other attributes to facilitate progress in this area we review and assess literature on methods to include household heterogeneity in global long term computable general equilibrium cge models we distinguish among three categories of approaches 1 the explicit modeling of multiple household types within the cge framework 2 micro simulation modeling and 3 direct modeling of income distribution for each of these approaches we describe the method key assumptions limitations and several prominent examples from the literature moreover we discuss data needs including the contents of household survey data their availability and processing we conclude with an overview of what each method could provide for global long term climate related research

is the locus of poverty changing abstract urbanization is now a dominant demographic phenomenon in low and middle income countries by the year 2000 half of the world s population will live in urban areas of this half two thirds will be in developing countries predominantly in asia whether there will be a corresponding shift of poverty from rural to urban areas is the central question of this analysis evidence from cross sectional time series and case data indicates that the percent of poverty in urban areas is dependent on income levels income growth and income distribution the evidence also indicates that the number of poor in rural areas will exceed those in urban areas well into the 21st century these poverty and urbanization trends are significant politically and important also with respect to food policy and required investments in agriculture

resource development and inequality in indigenous societies concern has been expressed both by indigenous people and by academic analysts that large scale resource development may sharpen inequality in what are relatively egalitarian indigenous societies much of the academic literature suggests that resource development does indeed have this effect but such claims are usually based on very limited empirical evidence in addition the literature is lacking in conceptual frameworks which allow the concept of inequality to be adequately specified take into account the quite different forms of income which resource development can generate explain rather than simply document specific changes in income distribution and on this basis provide grounds for policy prescription this article seeks to develop such a framework

adjustment and social costs in chile during the 1980s abstract traditional analysis of adjustment programs tends to underestimate the welfare costs because it assumes that a contraction of nontradable production will close the expenditure income gap while the resulting excess supply of tradables will automatically be exported in chile however tradable output contracted sharply falling almost two thirds as much as nontradable output the conventional analysis also ignores the effect of adjustment on unemployment rates and on real wages this paper argues that the adjustment measures of the 1980s were regressive even though the government was successful in targeting its expenditures toward the very poor during the period of fiscal retrenchment among the regressive adjustment measures were the subsidies to holders of dollar denominated debt provided by the central bank in addition policies to reduce expenditures raised the unemployment rate over 26 reduced real wages by 20 for almost five years and reduced health housing and education budgets by 20 per capita finally the required real devaluation raised the cost of living for the poor

the macro dimensions of food security economic growth equitable distribution and food price stability abstract rather than asking how to cope with hunger and famine the question might be how to escape their threat altogether important in this regard is recognizing that agriculture and the rural economy are greatly influenced by policies and outcomes in the rest of the economy strategies include economic growth with unchanging income distribution and growth with redistribution the latter encourages balanced growth to create non farm employment opportunities while investing in rural infrastructure

positive information from equity issue announcements abstract the myers and majluf 1984 model predicts a nonpositive price reaction to an announcement of a new issue of equity this paper shows that the myers and majluf result is a direct outcome of their assumption that all potential projects facing the firm have a nonnegative net present value refining the myers and majluf model by allowing for the realistic possibility of potential projects having negative net present values leads to different predictions the refined model predicts positive as well as negative stock price responses consistent with recent empirical evidence concerning the stock price effects of new stock issues

measuring changes in poverty a methodological case study of indonesia during an adjustment period analysis of the effects of policy changes on the poor is often hindered by the difficulties inherent in measuring poverty and comparing levels of poverty before and after policy changes this article outlines two techniques which can overcome many of these measurement problems stochastic dominance conditions which can facilitate a robust poverty ranking of distributions of living standards and a decomposable poverty index which allows measured changes in aggregate poverty to be disaggregated into their various components such as the changes among population subgroups and growth and redistributive components these techniques can be applied to a wide range of indicators of economic well being and poverty lines and to assumptions about the poor the approaches are illustrated using household survey data from indonesia before and after external shocks and the subsequent structural adjustment program in the mid 1980s the study finds that favorable initial conditions and pro poor pattern of growth enabled indonesia to maintain its momentum in poverty alleviation during the period

how robust is a poverty profile comparison of poverty such as when poverty is greatest typically matter far more for policy choices than do aggregate measures of poverty such as how many people are deemed poor the authors examine alternative methods for constructing poverty profiles focusing on their internal consistency and appropriateness for guiding policy none is perfect but some methods appear to be preferable to others when the aim is to inform policies for fighting absolute consumption poverty a case study on indonesia reveals that the country s regional and sectoral poverty profile is highly sensitive to some aspects of measurement but quite robust to others

centripetal and centrifugal incentives in electoral systems this paper investigates how electoral laws affect the position taking incentives of parties and candidates it seeks to extend the finding presented in the classical median voter theorem to a wide class of electoral systems or to show the limits of such extension the factors examined are the district magnitude the electoral formula the number of votes each voter is allowed to cast whether voters can cumulate their votes and whether voters can partially abstain i suggest a crude division of electoral systems into those producing predominantly centripetal incentives and those producing predominantly centrifugal incentives among the factors found to produce centripetal incentives at least in noncumulative systems are the following increases in the number of votes per voter outlawry of partial abstention and decreases in the district magnitude in systems allowing the cumulation of votes matters are a bit different

sources of growth a reconsideration and general equilibrium application to indonesia abstract a computable general equilibrium cge model of indonesia is developed in which total factor productivity growth in manufacturing is endogenously determined productivity growth is conceptualized as human and social capital accumulation mediated by learning and institutional development stimulated by the trade regime these factors are modeled as externalities determined by export growth and capital equipment imports the model is used to analyze the gains deriving from the externalities and subsidies that amplify their effects leading indonesia to acquire korea like institutions sooner the growth and fiscal implications of such counterfactual simulations are analyzed in a realistic general equilibrium framework with a fully articulated public sector

urban rural cost of living differentials in a developing economy abstract casual observations suggest that the cost of living is substantially greater in urban than rural areas of developing economies with implications for sectoral welfare comparisons an aids demand model for housing and foodgrains is estimated on a household level data set for java after adjusting housing rents for heterogeneity in quality the retrieved cost function indicates that the cost of utility at the urban price vector exceeds its rural value although the differential has been substantially overestimated in the past the relative cost of urban living is found to increase as reference rural income increases

sectoral growth and poverty alleviation a multiplier decomposition technique applied to south africa abstract how does an increase in a sector s output affect poverty alleviation in this paper a multiplier decomposition for a socioeconomic system represented by a social accounting matrix sam is used to study this linkage the decomposition applied to south africa reveals that growth in agriculture services and some manufacturing sectors can alleviate poverty for the black african population for sectoral growth to be effective however the need for appropriate skill acquisition for the poor must be addressed directly only long term policies geared towards improving both economic growth and the human capital stock of the poor can lead to significant poverty alleviation

where have all the parties gone fraenkel and grofman on the alternative vote yet again the alternative vote av is a preferential electoral system that tends to reward political moderation and compromise fraenkel and grofman 2004 2006a 2006b have repeatedly attempted to show that av is not conducive to interethnic moderation in severely divided societies in this response to their latest attempt i point out that neither political party coordination of the vote nor strategic voting plays any part in their analysis in contrast i explain how moderate parties of one ethnic group are able to induce their supporters to cast ballots for moderate parties supported by voters of another ethnic group i also explain why the incentives for parties to arrange interethnic vote transfers are much greater under av than they are under systems such as the single transferable vote which is in use in northern ireland and i show that fraenkel and grofman s interpretations of av s operation in australia fiji sri lanka and papua new guinea are contrary to the evidence

the gender dimensions of economic adjustment policies potential interactions and evidence to date abstract many developing countries have implemented stabilization and structural adjustment programs over the last 20 years the success of these programs depends critically on individual level responses to changing economic incentives access to control of and an ability to move productive economic resources between sectors is determined in part by gender if an individual s gender impedes their ability to fully participate in the economic adjustment process by inhibiting resource access control or movement adjustment will be impaired this paper discusses the potential gender dimensions of structural adjustment policies and examines the evidence to dale

distributional effects of adjustment policies simulations for archetype economies in africa and latin america for developing countries the 1980s was a decade of external shocks whose adverse effects were compounded by domestic macroeconomic imbalances and structural inefficiencies the performance of developing countries during this decade however was not uniform the effects of terms of trade and interest rate shocks are simulated for two model economies one representing an average latin american economy and the other representing an average african economy in addition to the effects of the shocks the effects of different adjustment policies are examined as expected identical shocks and adjustment packages yield different outcomes for growth poverty and income distribution in the two economies the differences in results can be traced to specific features of the models and to the extent that the archetypes created are representative of real economies have implications for adjustment policy prescriptions

the sectoral structure of poverty during an adjustment period evidence for indonesia in the mid 1980s the authors examine the structure of poverty in indonesia by sector of employment and how it changed during the adjustment period 1984 to 1987 they find that while aggregate poverty decreased during the period the gains to the poor were quite uneven across regions and sectors gains to the rural sector in key regions were quantitatively important to indonesia s success in alleviating poverty they found most poverty exists and most gains in alleviating poverty were made in the rural farming sector these gains were associated with crop diversification and continued growth in off farm employment the government s adjustment program favored rural areas and were crucial to indonesia s evident success at maintaining momentum in alleviating poverty however one should not underrate the favorable conditions in indonesia when adjustment started

on the measurement of poverty official statistics in the united states and the united kingdom show a rise in poverty between the 1970 s and the 1980 s but scepticism has been expressed with regard to these findings in particular the methods employed in the measurement of poverty have been the subject of criticism this paper re examines three basic issues in measuring poverty the choice of the poverty line the index of poverty and the relation between poverty and inequality one general theme running through the paper is that there is a diversity of judgments which enter the measurement of poverty and that it is necessary to recognize these explicitly in the procedures adopted there is likely to be disagreement about the choice of poverty line affecting both its level and its structure in this situation we may only be able to make comparisons and not to measure differences and the comparisons may lead only to a partial rather than a complete ordering the first section of the paper discusses the stochastic dominance conditions which allow such comparisons illustrating their application by reference to data for the united states the choice of poverty measure has been the subject of an extensive literature and a variety of measures have been proposed in the second section of the paper a different approach is suggested considering a class of measures satisfying certain general properties and seeking conditions under which all members of the class which includes many of those proposed give the same ranking those sceptical about measures of poverty often assert that poverty and inequality are being confounded the third section of the paper distinguishes four different viewpoints and relates them to theories of justice and views of social welfare

strategy takes a holiday fraenkel and grofman on the alternative vote the alternative vote av is an electoral system that tends to produce centripetal effects it therefore has some potential to foster interethnic compromise and coalition in severely divided societies fraenkel and grofman s attempt to show that av will not necessarily and uniformly produce moderate results refutes a proposition that has not been advanced and does so on the basis of assumptions contrary to those specified by proponents of av s generally moderating propensities fraenkel and grofman s examination of two elections under av in fiji is based on perverse interpretations of the data and embodies a serious underestimate of the extent to which strategic behavior can support interethnic moderation

anatomy of poverty during adjustment the case of the philippines recent discussions of development policy have emphasized the need for macroeconomic adjustment programs that give attention to poverty and social concerns conventional adjustment programs applied in developing countries are considered to have no human face as they focus almost exclusively on promoting economic efficiency and bringing an economy to a stable and sustainable growth path in particular observers have claimed that the poor have disproportionately borne the pain of transitional costs of adjustment especially when the transition has been longer than initially expected indeed increases in poverty as well as sharp cuts in government expenditures on social services including health nutrition education and infrastructure programs benefiting the poor have accompanied the implementation of adjustment policies in a number of less developed countries ldcs on the other hand country cases where the transition apparently has not been antipoor even in the short run also exist indonesia s experience with adjustment in the 1980s for example appears to be one such case 2 in general the available evidence indicates that changes in living conditions in the short run do not appear to be systematically related to the presence or absence of adjustment programs 3 the lack or the poor quality of data especially on social and human development indicators in ldcs hampers the analysis of the link between adjustment policies and poverty alleviation moreover because the transition in many countries is an ongoing process the impact of the adjustment is still in the making thus available information gives only a partial and possibly even misleading picture of the full effects of adjustment policies on the poor s standard of living even when reliable data are available the analysis has to move beyond simple correlations and establish counterfactual situations specifi

adjustment growth and income distribution in indonesia during the decade of the 1970s and until 1982 the growth performance of the indonesian economy was very good with gdp growing at 7 2 percent per annum oil exports provided the major engine of growth for the entire economy during that period in addition within agriculture growth was fueled by the boom in paddy production which converted indonesia from the largest rice importing country in the world to virtual self sufficiency by the mid 1980s paddy production increased at an annual rate of 7 1 percent between 1978 80 and 1983 4 the two oil price booms of 1973 and more particularly 1979 fueled a major expansion of the economy which lasted until the crisis the predominant role of the oil sector is clearly revealed by recalling that earnings from crude oil and petroleum products accounted for two thirds of all export earnings one fourth of total gnp and 70 percent of government domestic revenues in 1982 oil prices peaked in 1982 and revenues from this sector started to contract reducing drastically the basis and prospects for economic growth