financial development and barriers to the cross border diffusion of financial innovation this paper explores the determinants of financial development by focusing on the role played by barriers to the diffusion of financial technology these barriers are measured using human genetic distance from the technology frontier the results based on cross sectional data for 123 countries suggest that genetic distance to the global frontier has an economically and statistically significant effect on financial development in that countries that are genetically far from the technology leader tend to have lower levels of financial development genetic distance is found to have the largest effect even after controlling for other determinants of financial development established in the literature these findings indicate that cultural barriers to the diffusion of financial technology across borders impact financial development by influencing the follower countries ability to adopt and adapt innovations from the frontier

financial factors in economic development financial factors have been assigned strategic importance in economic development but very different factors have been isolated in the respective experiences in asia unrepressed financial markets in mobilizing saving and allocating investment have been given prominence in latin america the central question is the role of inflationary finance the scope for deficits to enhance growth and increasingly the feedback from high and unstable inflation to poor economic performance this paper reviews and contrasts the two approaches and concludes that the strong claims for the benefits of financial liberalization are not supported by evidence financial factors are important but probably only when financial instability becomes a dominant force the scope for inflationary finance is small and the risks are larger than commonly accepted when hyperinflation takes over and foreign exchange crises disrupt the price system and shorten the economic horizon to a week or a month normal economic development is suspended moreover difficult to reverse capital flight puts savings outside the home economy attention should focus on these extreme cases and explore deeper the thresholds at which financial factors become dominant and the channels through which this occurs superior growth performance in this perspective may be more a reflection of adaptability than financial deepening this abstract was borrowed from another version of this item

banking soundness indicators and sovereign risk in time of crisis the case of the european union this study examines the impact of the soundness of the banking sector on sovereign risk of eu member countries during the financial crisis using a selection of financial soundness indicators fsis and the sovereign ratings of the three main rating agencies unlike previous literature that typically focuses on the ability of fsis to foresee banking crises we estimate ordered response models to assess the power of these indicators to explain sovereign risk our results show that evaluations made by the rating agencies are related to the lagged values of core fsis such that an improvement in these indicators leads to improvements in upcoming sovereign ratings hence reinforced banking soundness would reduce the sovereign risk accordingly governments supervisors and central banks should pay close attention to the evolution of certain fsis related to the banking sector in addition to other variables that have traditionally been taken into account in analysing sovereign risk

finance and the sources of growth at various stages of economic development this article studies the effects of financial development on the sources of growth in different groups of countries recent theoretical work shows that financial development may affect productivity and capital accumulation in different ways in industrial versus developing countries this hypothesis is tested with panel data from 74 countries using gmm dynamic panel techniques results are consistent with the hypothesis finance has a strong positive influence on productivity growth primarily in more developed economies in less developed economies the effect of finance on output growth occurs primarily through capital accumulation jel o4 g1

public good provision mechanisms and reciprocity this paper determines optimal public good provision mechanisms in an environment where agents are motivated by reciprocity in a two agent economy we show that the standard pivot mechanism is not strategy proof if at least one agent cares strongly enough about reciprocity truthful reporting maximises a player s own payoff and hence is viewed as selfish by his opponent who retaliates by understating demand for the public good incentive compatibility is restored if the mechanism is implemented sequentially when agents are asked to report their demands in turn a high report by the first mover he may result in him paying an unfairly large share of the provision cost should the second mover she understate her demand hence truthful reporting is not judged as selfish by the second mover who reciprocates by stating her true demand our results alert the institutional designer to the importance of game dynamics when agents are non selfish

government ownership of banks institutions and economic growth we present new cross country evidence that reveals that during 1995 2007 government ownership of banks has been robustly associated with higher long run growth rates we also show that previous results suggesting that government ownership of banks is associated with lower long run growth rates are not robust to conditioning on more fundamental determinants of economic growth

financial reforms and income inequality abstract using a panel of 62 countries for 1973 2005 we assess the impact of financial reforms on income inequality we find that removal of policies towards directed credit and excessively high reserve requirements and improvements in the securities market reduce inequality

aggregate savings financial intermediation and interest rate there has been considerable controversy about the role of financial factors as determinants of savings in developing countries this paper explores the importance of two such factors namely real interest rate and financial intermediation using pooled time series cross section data a model of savings is estimated for asia latin america and for the total sample particular attention is paid to the error structure in estimation the results suggest that pooling is not justified further there is no unequivocal support for the effect of either of the two factors some qualified support is found for asia but none for latin america copyright 1987 by mit press

immaterial rewards and sanctions in a voluntary contribution experiment in this article we compare the causes and effects of immaterial rewards and sanctions on cooperation in a voluntary contribution experiment it appears that both rewards and sanctions increase contributions and that rewards are more effective than sanctions only when subjects interact repeatedly within the same group the effect is however insignificant which could be due to the higher variance in presence of rewards and sanctions furthermore it is evidenced that rewards have some negative effect on the future contribution for both the imposer and the imposed when the partner matching is applied but both rewards and sanctions have mainly positive effects under the stranger matching thus it seems that the recipient of the feedback takes the message as a reliable external evaluation of her contribution only under the stranger matching protocol when the strategic use of feedback can largely be excluded jel c92 h41

financial development economic growth and banking sector controls evidence from india this paper uses newly collected data from the reserve bank of india to examine the effects of various types of banking sector controls on the process of financial deepening with the exception of a lending rate ceiling these controls are found to influence financial deepening negatively independently of the well known effect of the real interest rate exogeneity tests suggest that financial deepening and economic growth are jointly determined thus policies which affect financial deepening may also have an influence on economic growth the role of banking sector controls in the process of economic development has received considerable attention in the literature the traditional approach due to mckinnon i973 and shaw i973 postulates that government intervention in the pricing and allocation of loanable funds dubbed financial repression inhibits financial development by depressing real interest rates see

the relevance of p star analysis to uk monetary policy recent articles have attempted to restore the use of a simple measure of the money supply as an indicator of future price levels p star and to reestablish a causal link from money to prices in this paper we argue that the p star approach is flawed it is certainly more complex than traditional monetarist approaches but the fundamental questions of causality are in no way either affected or resolved we argue that the p star relationship does not have a causal link with prices but rather the causality runs from prices to money we also find that there is some causality running from money to real income so that monetary conditions do seem to have some predictive power for future levels of activity copyright 1994 by royal economic society

note a note on the use of the capm as a strategic planning tool a recent paper by naylor and tapon naylor thomas h francis tapon 1982 the capital asset pricing model an evaluation of its potential as a strategic planning tool management sci 28 1166 1173 showed that the capital asset pricing model capm can be an important strategic planning tool but their specific strategic suggestions were incorrect the proper conclusion to draw from the capm is that a company should purchase a business if its expected return exceeds the expected return in equilibrium of a business in the same risk class in the absence of synergy each potential acquisition should be evaluated on its own merit independent of the other businesses in a company s portfolio when all firms are in equilibrium no gain may be made from merger or takeover

the interest elasticity of savings in developing countries the existing evidence abstract this paper presents a critical analysis of some of the most recent empirical work on the interest elasticity of savings in developing economies supported by a set of empirical results the paper argues that a the real interest elasticity of savings is not easily detected using the existing empirical models which generally yield insignificant interest rate parameters in the seventies b the existing models suffer from serious defects that make if very difficult to interpret the estimated parameters

financial crisis gender and power an analytical framework abstract this paper begins to remedy the neglect of gender aspects of financial crises by exploring a suggestive microfoundational model of unequal gender power and cost bearing in a borrower household this model shows that financial market liberalization can assess women s access to formal sector employment and encourage the growth of household credit both for a household enterprise and for the acquisition of labor saving household assets the price of these gains however is greater household risk because of greater cash flow dependence and financial fragility a financial crisis can force the household to bear heavier adjustment costs than would otherwise be felt and these costs may well be borne disproportionately by women who become more economically vulnerable as a result

group formation and cooperation in social dilemmas a survey and meta analytic evidence abstract we survey the growing literature on group formation in the context of three types of social dilemma games public goods games common pool resources and the prisoner s dilemma the 62 surveyed papers study the effect of different sorting mechanisms endogenous endogenous with the option to play the game and exogenous on cooperation rates our survey shows that cooperators are highly sensitive to the presence of free riders independently of the sorting mechanism we complement the survey with a meta analysis showing no difference in terms of cooperation between studies implementing an endogenous and exogenous sorting what is more we find that it is no more likely for a cooperator to be matched with like minded partners in endogenously formed groups than in exogenously formed groups these observations are related as we show in the survey the success of a sorting method in matching like minded individuals and the levels of cooperation are closely interlinked

the capital asset pricing model an evaluation of its potential as a strategic planning tool in this paper we provide a summary of the capital asset pricing model capm and point out how it might possibly be used as a tool for strategic planning by corporations that own a portfolio of businesses we also point out some of the assumptions underlying the capm which must be satisfied if it is to be used for strategic planning next we include a critical appraisal of the capm as a strategic planning tool finally we state the case for linking competitive strategy models capm models and business simulation models

revisiting the finance growth nexus the turkish case 1980 2010 abstractin turkey the empirical results on the link between financial development and economic growth are mixed the existing studies do not take into account the fact that turkey has experienced endemic political and economic instabilities over extended periods this study aims to analyse the role of macroeconomic instability and public borrowing on the finance growth nexus in turkey by using time series econometric techniques over the 1980 2010 period in doing so we attempt to extend the existing literature by taking into account the role of macroeconomic instability as well as public borrowing our results reveal that there are additional albeit indirect channels between finance and growth via the effects of macro instability and public borrowing on financial development and economic growth after taking into account the effects of overall instability and public borrowing we found that growth financial development relationship is bidirectional and permanent in other words in turkish case eco

note the capital asset pricing model and strategic planning we make two clarifying comments on a recent paper by naylor and tapon naylor t h f tapon 1982 the capital asset pricing model an evaluation of its potential as a strategic planning tool management sci 28 1166 1173 the conclusions of their paper are significantly affected by this

economic reforms fdi and economic growth in india a sector level analysis summary booming foreign direct investment fdi in post reform india is widely believed to promote economic growth we assess this proposition by subjecting industry specific fdi and output data to granger causality tests within a panel cointegration framework it turns out that the growth effects of fdi vary widely across sectors fdi stocks and output are mutually reinforcing in the manufacturing sector whereas any causal relationship is absent in the primary sector most strikingly we find only transitory effects of fdi on output in the services sector however fdi in the services sector appears to have promoted growth in the manufacturing sector through cross sector spillovers

financialisation institutions and financing constraints in developing countries the paper uses a consistent firm level data from the world banks enterprise surveys to explore the impact of financialisation in the economy on firms access to finance in 138 developing countries access to finance reflects survey based firms perceptions of external financing constraints financialisation is proxied by consistent cross country measures of financial depth these proxies capture separately the role of bank based versus market based financing firm sector and country level information is jointly used for the analysis firm specific characteristics and economic and non economic national factors are included as controls the results show that the proxies of financialisation are broadly robust predictors of financing constraints of firms in developing countries however the magnitude of the financialisation effect varies between bank based and market based channels of financing as well as between low and high income countries and it is influenced by social institutional and religious factors

emerging stock markets portfolio capital flows and long term economie growth micro and macroeconomic perspectives abstract the paper examines two major components of financial liberalization stock market development and portfolio capital flows in the context of less developed countries the paper considers microeconomic and macroeconomic perspectives on their implications for long term development and economic growth it concentrates on 1 a the role of stock markets in financing corporate growth 2 b the implications of stock market volatility for resource allocation and productive efficiency and 3 c the interactions between the foreign exchange and stock markets in the context of economic shocks its policy recommendations are that ldcs should promote bank based systems influence the scale and composition of capital inflows and prevent a market for corporate control from emerging

life cycle savings bequest and a diminishing impact of scale on growth the present paper shows that the savings motive critically affects the size and sign of scale effects in standard endogenous growth models if the bequest motive dominates the scale effect is positive if the life cycle motive dominates the scale effect is ambiguous and may even be negative

finance is good for the poor but it depends where you live i examine whether or not the incomes of the poor systematically grow with average incomes and whether financial development enhances the incomes of the poorest quintile following the methodology of dollar and kraay 2002 i find once extending dollar and kraay s data their findings are robust to the lucas critique and economic growth is important for poverty reduction universally however in comparison to other authors work i show financial development aids the incomes of the poor in certain regions whilst it may be detrimental in others this proposes evidence against a one size fits all model adding a further contribution to the literature on financial development and poverty

financial liberalisation stockmarkets and economic development abstract during the 1980s and 1990s many developing countries dcs have been engaged in far reaching reforms of their financial systems liberalising them and making them more market oriented this liberalisation involving inter alia financial de repression has been inspired partly by the work of the mckinnon 1973 and shaw 1973 m s school this paper suggests that in addition to financial de repression there has been a major new element in the development of dc financial systems in recent years the establishment and fast expansion of stockmarkets these markets have played a key role in the internal as well as external financial liberalisation processes in leading dcs further the paper finds that the actual behaviour of these markets in many countries has led to outcomes which undermine the effects of the higher real interest rates arising from financial de repression

rethinking the product portfolio a generalized investment model a generalized financial product portfolio theory is developed based on the underlying economic factors determining product profitability and risk for applications involving the firm s product investment decisions the model developed provides a means for differentiating market related risk and return from firm specific risk and return for each product two hypothetical illustrations of the model are described and the managerial implications are discussed

good bye financial repression hello financial crash some unintended consequences of financial liberalization in latin america are analyzed in this paper intrinsic imperfectious in financial markets and the policy dilemmas they pose are reviewed first the stylized facts of southern cone experiments in financial liberization are then presented alternative ways of organlzing domestic capital markets under latin american conditions are discussed and an eclectic reform mongering program is proposed

life cycle individual thrift and the wealth of nations this paper provides a review of the theory of the determinants of individual and national thrift that has come to be known as the life cycle hypothesis lch of saving applications to some current policy issues are also discussed part i deals with the state of the art on the eve of the formulation of the lch some 30 years ago part ii sets forth the theoretical foundations of the model in its original formulation and later amendment calling attention to various implications distinctive to it and sometimes counter intuitive it also includes a review of a number of crucial empirical tests both at the individual and the aggregate level part iii reviews some applications of lch to current policy issues though only in sketchy fashion as space constraints prevent fuller discussion this abstract was borrowed from another version of this item

thresholds in the finance growth nexus a cross country analysis thresholds of inflation government size trade openness and per capita income for the finance growth nexus are investigated using five year averages of standard variables for 84 countries from 1965 to 2004 the results suggest that i high inflation crowds out positive effects of financial depth on long run growth ii small government sizes hurt the finance growth nexus in low income countries while large government sizes hurt high income countries iii low levels of trade openness are sufficient for finance growth nexus in high income countries but low income countries need higher levels of trade openness for similar magnitudes of the finance growth nexus and iv catch up effects through the finance growth nexus are higher for moderate per capita income levels

conditional cooperation and voluntary contributions to public goods we compare a partners condition where the same small group of subjects plays a repeated publi c good game to a strangers condition where subjects play this game in changing group formations subjects in the partners conditi on contribute from t he first period on significantly more to the publi c good than subjects in the strangers conditi on in the strangers conditi on contributions show a continual decay whil e in the partners conditi on contributions fluctuate on a high level until t hey decrease in the final periods we interpret subjects behavior in terms of conditional cooperation which is characterized by both future oriented and reactive behavior

overview and summary this symposium analyzes the recent liberalization and stabilization attempts in chile argentina and uruguay attempts remarkable for their speed and coverage to bring these analyses together in one volume seems natural because the three experiences were so similar all three countries started with highly protected economies inflation balance of payments crises widespread government intervention and production systems in considerable disarray all three countries launched liberalization policies that spanned commodity and factor markets and all three followed the same path toward stabilization the battle against inflation was first based on control of the money supply then the exchange rate was used to reduce inflationary expectations the initial results were as remarkable as the reforms inflation was reduced fiscal deficits were controlled and growth was restored but in the early 1980s all three countries were again in crisis the objective of the reforms was to realize the gains from better allocations of resources and investment this objective was to be achieved by moving to market regulated economies one intention was to eliminate the traditional bias against exports and thus to spur the growth of exports which required an increase in the effective exchange rate for exportables and a decrease in that for import competing sectors a second intention was to deregulate interest rates and foreign capital inflows and thus to provide more credit to activities with the highest returns the motive here is to draw the lessons for other developing countries confronting liberalization and stabilization problems why did these unusual experiments fail to what extent did various parts of the packages succeed or fail was the failure due to external events or to bad policies were the institutional arrangements for deregulation appropriate the introduction to part i presents some analytical issues that arise from the experiences of the three countries it addresses the general issue of opening an economy to trade and to flows of foreign capital and the related issues of sequencing and policy coordination it also explores differences in the speed of adjustment in labor and commodity markets and the implications of these differences for the design of macroeconomic policy the other papers in part i explain and evaluate the macroeconomic performance of the liberalization and stabilization policies in each country first each paper describes the reforms and in an appendix provides a chronology of the many reforms perhaps the place to start for the uninitiated reader the descriptions are accompanied by summaries of the authorities intentions when the reforms were launched the approach to implementation is also addressed when it gave rise to policy reversals and conflicting signals second the papers construct stylized analytical frameworks to help interpret the macroeconomic outcome of the liberalization and stabilization policies in each country these frameworks help to draw the stylized outcomes of the reforms the papers in part ii rely on financial statements to analyze the adjustments by firms the data span the period covered by the reforms in each country and provide the basis for simple statistical models groups of firms exporters vs

financial crisis in southeast asia dispelling illusion the minskyan way this paper extends minsky s financial instability hypothesis to the case of the open liberalised economy making it possible to put forward a specifically minskyan account of the road to the financial crisis in southeast asia 1997 1998 the analysis suggests that the threats to growth and employment emanating from the financial sector which minsky identified in the closed economy setting are much intensified in open liberalised developing economies financial liberalisation is an important key factor in this process rival explanations of the crisis are examined and rejected in favour of the extended minskyan explanation the policy implications are derived and discussed copyright 2002 oxford university press

south korea s 1980s financial reforms good bye financial repression maybe hello new institutional restraints abstract south korea s financial reforms in the 1980s have been consistent with high rates of savings and financial deepening but they have not followed liberal reform lines the korean financial system operates under the umbrella of an industrial policy and economic goals have been attained by means of investments in institutions rather than by exclusive reliance on the price mechanism

obviously strategy proof mechanisms what makes some strategy proof mechanisms easier to understand than others to address this question i propose a new solution concept a mechanism is obviously strategy proof osp if it has an equilibrium in obviously dominant strategies this has a behavioral interpretation a strategy is obviously dominant if and only if a cognitively limited agent can recognize it as weakly dominant it also has a classical interpretation a choice rule is osp implementable if and only if it can be carried out by a social planner under a particular regime of partial commitment i fully characterize the set of osp mechanisms in a canonical setting with one dimensional types and transfers a laboratory experiment tests and corroborates the theory

financial restraints and private investment evidence from a nonstationary panel we employ recently developed panel data methods to estimate a model of private investment under nancial restraints for 20 developing countries using annual data for 1972 2000 we show that the qualitative nature of the results varies depending on whether we take into account cross country eects when we allow for cross sectional dependence investment displays more sensitivity to world capital market conditions and exchange rate uncertainty a perhaps even more surprising result is the nding that countries that managed to suppress domestic real interest rates without generating high in ation enjoyed higher levels of private investment than those that would have been obtained under liberalised conditions

finance and inequality the case of india although theory emphasizes the role of financial market frictions in explaining income inequality there is little empirical research exploring how financial development and financial sector reforms influence the evolution of income inequality this article examines how finance impacts income inequality in india using annual time series data for over half a century the results indicate that while financial development helps reduce income inequality financial liberalization seems to exacerbate it the results are robust to the use of different measures for financial development and financial liberalization although the relationship between financial development and economic growth has been extensively studied in the literature see for example king and levine 1993 demetriades and hussein 1996 arestis and demetriades 1997 levine loayza and beck 2000 bell and rousseau 2001 ang and mckibbin 2007 little is known about how finance impacts income inequality the importance of the finance inequality relationship has recently been highlighted in an insightful survey article by claessens and perotti 2007 they indicate that while financial development can help reduce income inequality financial liberalization captured by established interests may do the opposite the theoretical predictions of the effects of finance on income inequality are controversial rajan and zingales 2003b argue that improvements in the formal financial sector primarily benefit the rich greenwood and jovanovic 1990 predict a nonlinear relationship between financial development and income inequality where it is hypothesized that income inequality first increases with the degree of sophistication in the financial systems then stabilizes and eventually declines others propose that the presence of financial market imperfections deters the poor from borrowing adequately to invest in human and physical capital implying that financial development helps alleviate income inequality banerjee and newman 1993 galor and zeira 1993 aghion and bolton 1997 mookherjee and ray 2003 2006 given that theories provide ambiguous predictions regarding the effects of finance on the distribution of income it is useful to approach the issue at the empirical level this could facilitate our understanding of the relationship between finance and inequality and help us to assess the validity of each theoretical model despite the important role of financial market frictions in the theories of poverty and income inequality researchers so far have not adequately addressed whether financial

on the rationale of bank lending in pre crisis thailand evidence from credit files is provided to examine bank lending determinants of thai commercial banks their lending practice follows reasonable patterns as a standard set of variables including indirect risk variables explains much of the variance in interest rate spread reflecting institutional differences with mature markets we find a higher importance of relationship banking and risk control via credit availability information about later default reveals prudent relationship lending however banks could have made better use of available information about borrowers riskiness these findings do not support a general verdict of bad banking but indicate room to improve lending decisions

the financial repression liberalization debate taking stock looking for a synthesis financial repression and liberalization became the object of fierce debates between academics and policy makers since the early 1970s as of the late 1980s financial liberalization became also part of the structural adjustment programs sponsored by the international monetary fund and the world bank however the literature on financial repression and liberalization remains controversial on its theoretical conclusions and policy implications given its importance for both the theory and policy of economic development and growth this paper looks for a possible synthesis after reviewing the theoretical contributions and empirical studies under the headings of the mckinnon shaw and new structuralists models the survey concludes that a new synthesis might be found in the post keynesian attempt to take an institutional perspective within a globalised financial and economic environment

the effects of financialization on investment evidence from firm level data for the uk this paper estimates the effects of financialization on physical investment in the uk using panel data based on balance sheets of publicly listed non financial companies supplied by worldscope for the period 1985 2013 we find robust evidence of an adverse effect of not only financial payments interests and dividends but also financial incomes on the rate of accumulation the negative impacts of financial incomes from interests and dividends are particularly strong for the pre crisis period our findings support the financialization thesis that the increasing orientation of the non financial sector towards financial activities is ultimately leading to lower physical investment hence to stagnant or fragile growth as well as long term concerns for productivity

post independence india a case of finance led industrialization abstract this paper examines whether financial intermediaries have played a leading role in influencing india s economic performance after describing the evolution and functions of the financial sector we construct a set of vector autoregressive var and vector error correction models vecm to evaluate the strength and direction of the links between measures of formal intermediation and various economic aggregates the results suggest that i the financial sector was instrumental in promoting aggregate investment and output but also in the steady shift toward industry that has characterized india s development ii the operative channel was one of debt accumulation rather than improvements in total factor productivity and iii its contributions went beyond the passive support of fiscal policy

stock markets corporate finance and economic growth an overview the research presented here focuses on four issues first it constructs more measures or criteria of stock market development than any previous study it compares liquidity concentration volatility institutional development and international integration across forty four industrial and developing countries from 1976 to 1993 besides identifying general characteristics of these measures and defining stock market development empirically these data facilitate further research into the relationship between stock market development and financial intermediaries corporate finance decisions and economic growth these measures ranked for each country can be used for inter country comparisons of the level of stock market development in addition the data provide a basis for gauging the success of capital market development projects using objective criteria second with these new data the research investigates the relationships between stock markets and financial intermediaries third the research analyzes the relationship between stock market development and long run economic growth fourth the research studies the ties between stock market development and financing choices of firms this overview puts this research in context and reviews the main results of the study section i provides a brief review of the role of stock markets in economic development and documents the evolution of debt and equity markets during the growth process section ii defines stock market development and presents summary data on the development of financial intermediaries and stock markets section iii presents evidence on the effect of stock market development on economic growth section iv summarizes the empirical results on how stock market development affects firm financing decisions section v concludes by discussing policy implications

on the role of domestic and international financial cyclical factors in driving economic growth abstractwe investigate the effects of domestic and international financial cyclical factors on the us business cycle over the period 1890 2013 using an augmented stochastic version of the neoclas

infrastructure finance and industrial takeoff in england that financial matters did not constrain industrial takeoff in the uk is generally accepted in the historical literature in contrast contemporary empirical analyses have found evidence that financial development can be a causal determinant of economic growth we look to reconcile these findings by concentrating on a particular aspect of industrializing uk where inefficiencies in finance could have had bite the finance of physical infrastructures we document the historical record and develop the importance of spatial disaggregation and spillovers in both technological and financial development we develop a simple model that captures the nature of infrastructure finance within a theory of endogenous growth where financial costs are endogenous we argue that the conception of the finance growth nexus as a largely static aggregative phenomenon misses out a good deal of complexity and we relate that complexity to a number of implications for regulation of both financial systems and the emergence of infrastructures

monetary and exchange rate policies during eastern europe s transition some lessons from further east over the past three years eastern europe has embarked upon a transition from state ownership and central planning to a market system with pri vate ownership and enterprise this transition is now taking place in the former soviet union monetary institutions and policies as well as trade and exchange regimes played a major role in the collapse of the old system through open and hidden inflationary pressures and inefficiency insulated from world trade competition not surprisingly they now constitute the centrepiece of this radical transformation

ambiguous beliefs and mechanism design abstract this paper develops a payoff equivalence theorem for mechanisms with ambiguity averse participants with preferences of the maxmin expected utility meu form gilboa and schmeidler 1989 we use our payoff equivalence result to explicitly characterize the revenue maximizing private value auction mechanism for agents with arbitrary forms of ambiguous beliefs we also show that the revenue ranking between first and second price auctions is sensitive to the form of ambiguity aversion our payoff equivalence techniques allow us to study the constrained efficient budget balanced bilateral trade mechanism and show that increased ambiguity improves the efficiency of the mechanism in addition we characterize the revenue maximizing efficient bilateral trade mechanism and show that heightened ambiguity lowers ex ante budget deficits

positive time preference the case for positive time preference is absolutely compelling unless there is an infinite time horizon with the expectation of unending technological advance combined with what we call drastically diminishing marginal utility this finding holds both in the positive and normative senses a corollary is that savings are interest elastic

information institutions and banking sector development in west africa i introduction banks and other financial intermediaries can perform an important developmental function especially in africa where alternative sources of finance are limited or nonexistent by providing firms with essential finance they help them to take advantage of productive investment opportunities which may not otherwise materialize by screening loan applicants they can help to address adverse selection in the credit market and channel funds toward productive uses by monitoring borrowers they can contain moral hazard behavior for example excessively risky investment activity that could undermine a borrower s ability to repay a loan through long term bank borrower relationships well established banks can address both adverse selection and moral hazard this not only helps banks to remain solvent but also ensures that bank finance is channeled toward productive and sound investments there is a large body of empirical evidence which suggests that the development of banking systems goes hand in hand with economic development see e g levine 2004 although the evidence on causality is mixed see e g demetriades and hussein 1996 there is broad consensus that well functioning banking systems promote economic growth demetriades and andrianova 2005 it is therefore a puzzle that so many countries remain financially underdeveloped this is particularly true of sub saharan africa which remains one of the most financially under developed regions in the world a recent study by the world bank has shown that african banking systems lack depth compared to other regions in the world but are also excessively liquid honohan and beck 2007 according to the world bank banks themselves complain that there is a lack of creditworthy borrowers while at the same time households and firms find finance to be a major constraint the evidence presented by the world bank also suggests that the least developed banking systems are also the most liquid suggesting that excess liquidity is a common feature of financial under development this article aims to shed light on these features of financial under development in africa utilizing a panel data set comprising the banks operating in the west african economic and monetary union uemoa during 2000 2005 the uemoa provides a uniform financial system across eight countries the structure of this system has changed little in the last 15 years therefore we can be sure that the variations in bank behavior we observe within the uemoa are not because of variations in the nature of public financial institutions which the banks face this makes feasible the identification of the institutional sources of the variations in bank behavior which are not correlated with variations in the quality of public financial institutions our data set includes balance sheet information on each bank in the uemoa including bank characteristics such as age and ownership type profitability and the number of urban and rural branches we also utilize country level data on loan defaults which provides information on the average quality of borrowers we use this as a proxy for the severity of information problems faced by banks in the credit market we combine this information with macroeconomic data including institutional quality indices constructed by the world bank our data set enables us to examine the extent to which informational and institutional factors and interactions between different factors can explain a bank s loans to assets ratio which is an inverse measure of bank liquidity our data set is also used to examine the microeconomic and macroeconomic determinants of the total volume of assets of an individual bank which is a good micro level indicator of overall banking sector development our results suggest that to a large extent financial under development including excess liquidity and low banking sector development can be attributed to severe informational problems

note the capital asset pricing model and strategic planning response to wernerfelt a response to wernerfelt b 1983 the capital asset pricing model and strategic planning unpublished paper graduate school of business administration university of michigan october

rational cooperation in the finitely repeated prisoner s dilemma experimental evidence this paper presents experiments designed to examine the sequential equilibrium reputation hypothesis in the finitely repeated prisoner s dilemma the authors test the hypothesis by controlling the subjects ability to build reputations and by manipulating their beliefs that their opponent is irrational or altruistic the responses of subjects strongly support the sequential equilibrium prediction the results also suggest an important role for homemade altruism that is a natural tendency to cooperate that subjects bring to the experiment from the outside the authors find that there may be no difference between the beliefs that an opponent is altruistic and the actual chance it is so copyright 1993 by royal economic society

incomplete information models of guilt aversion in the trust game in the theory of psychological games it is assumed that players preferences on material consequences depend on endogenous beliefs most of the applications of this theoretical framework assume that the psychological utility functions representing such preferences are common knowledge however this is often unrealistic in particular it cannot be true in experimental games where players are subjects drawn at random from a population therefore an incomplete information methodology is needed we take a first step in this direction focusing on guilt aversion in the trust game in our models agents have heterogeneous belief hierarchies we characterize equilibria where trust occurs with positive probability our analysis illustrates the incomplete information approach to psychological games and can help to organize experimental results in the trust game this paper was accepted by uri gneezy behavioral economics

capital account liberalisation and poverty how close is the link the literature on the theoretical and empirical aspects of the relationship between finance and economic growth is both substantial and extensive the same cannot be said on the relationship between financial development and poverty reduction an equally important aspect in this study we visit the theoretical arguments and conduct an empirical analysis of the relationship between the capital account dimension of financial liberalisation and poverty for developing countries for the period 1985 2005 in particular we employ the system gmm technique to test whether capital account liberalisation has helped alleviate poverty and also whether the extent to which capital account liberalisation affects poverty depends on the quality of institutions we also use ols and iv techniques to verify our findings our findings indicate that there is no statistically significant relationship between the degree of capital account liberalisation during the period and the poverty rate developing countries with higher institutional quality have lower poverty rates but the effect has low statistical significance a higher degree of capital account liberalisation is associated with a lower income share for the poor

finance and development the korean approach during the last three decades the korean economy has recorded a remarkable growth the rapid growth of the korean economy started with the government s aggressive development strategy in the early 1960s the government set up a sequence of comprehensive five year economic development plans starting in 1962 and has implemented them through various fiscal and financial incentives it was directly involved in arranging finance for de velopment projects in the process the government strongly controlled the financial system it owned all major commercial banks as well as specialized banks it administered interest rates and it directed a large proportion of intermediaries credit alloca tion

organizational considerations in the evaluation of capital assets toward a resource based view of strategic investment by firms during the last three decades sophisticated techniques for analysis of market investment have been developed by financial economists at the same time however concepts and methods for analysis of resource allocation within firms have lagged behind market theory the analysis of investment within firms has been based primarily on applications of economic theory that exhibit serious weaknesses the special problems associated with analysis of investment in firms have become an important concern of strategic management recent resource based approaches to strategy have developed valuable insights into the limitations of economic analysis of the firm although the resource based work has not yet provided formal methods comparable to the capital asset pricing model it has made important progress in building foundations for an alternative analysis of economic organization this paper explores weaknesses in the financial economic analysis of the firm and examines alternative perspectives in the work on resource based strategy the paper focuses on problems associated with use of market models such as the capm for capital allocation within firms working from basic premises of transaction cost economics the paper identifies important flaws in financial economic techniques for defining hurdle rates for capital projects the paper discusses underlying logical problems associated with the application of market theory to complex organizations and examines ways that alternative approaches to resource allocation have begun to evolve within the field of strategic management

public goods games and psychological utility theory and evidence abstract we consider a theoretical model of a public goods game that incorporates reciprocity guilt aversion surprise seeking and the attribution of intentions behind these emotions in order to test our predictions we implement the induced beliefs method and a within subjects design using the strategy method we find that all our psychological variables contribute towards the explanation of contributions guilt aversion is pervasive at the individual level and the aggregate level and it is relatively more important than surprise seeking our between subjects analysis confirms the results of the within subjects design

explaining ethiopia s growth acceleration the role of infrastructure and macroeconomic policy summary ethiopia has experienced an impressive growth acceleration over the past decade this was achieved on the back of an economic strategy emphasizing public infrastructure investment supported by heterodox macro financial policies this paper identifies the drivers of ethiopia s recent growth episode and examines the extent to which they were typical or unique it combines country specific information with the results of a cross country panel regression model we find that ethiopia s growth is explained well by factors correlating with growth in a broad range of countries in recent decades including public infrastructure investment restrained government consumption and a conducive external environment on the other hand we argue that the policy mix that supported very high levels of public investment in ethiopia was to some extent unique interestingly macroeconomic imbalances due to this heterodox policy mix only moderately held back growth which helps explain why ethiopia was able to grow so fast in spite of their presence their negative effects were quantitatively much less important than the positive growth drivers they helped to achieve the results suggest that getting infrastructure right may outweigh moderate shortcoming in the macro framework at early stages of development we further relate this country specific finding to the recent growth literature

international capital flows identifying the gender dimension abstract this paper explores the main issues involved in examining the gender impact of international capital flows to developing countries it argues that at the macroeconomic level women lose more than men from slow and or unstable economic growth financial crises and meltdowns and even more so the longer and deeper the economic downturn because without a social security system the family and women have many additional burdens women should formulate an agenda of their own with respect to international monetary reform and some proposals are outlined in this respect including those involving capital controls

financial sector reforms in developing countries the indian experience this study is based on the premise that the success failure of financial sector reforms depends heavily on country specific factors and makes an attempt to examine these factors in the indian context the financial sector reforms analysed in this paper include the deregulation of interest rates increasing competition and foreign ownership and the introduction of financial supervision we argue that an economic rationale for a gradualist approach to financial reform is that it is stability enhancing furthermore we suggest that india s complex political economy has resulted in a gradual approach to reform and this approach has been successful along the dimension of banking stability