international portfolio reallocation diversification benefits and european monetary union abstract we investigate the determinants of bilateral international equity and bond portfolio reallocation across a large cross section of countries spanning over two sample periods 1997 2001 and 1997 2005 we find that the strongest drivers are the marginal diversification benefits arising from the pure asset component and the initial degree of underweight this evidence suggests that global portfolio reallocations over the asset boom and bust period were determined by optimal diversification considerations we also find that due to economic and monetary union emu the weight assigned by euro area investors to investment in euro area countries increased significantly in equity and fixed income portfolios with a trade diverting effect against the british bond market

corporate social responsibility and socially responsible investing a global perspective this research examines the relationship between corporate social responsibility csr and company stock valuation across three regions of the world after a brief introduction the article gives an overview of the evolving definition of csr as well as a discussion of the ways in which this construct has been operationalized presentation of the potential impact of corporate social performance on firm financial performance follows including investor characteristics the rationale behind their choices and their influence on the marketplace for securities worldwide the unique method used to select socially responsible investments is then provided that also includes a description of the quantitative techniques employed in the analyses results are offered subsequently and the close describes implications for global enterprises as socially responsible investments

the tragedy of the commons and economic growth why does capital flow from poor to rich countries we analyze a differential game in which all interest groups have access to a common capital stock we show that the introduction of a technology that has inferior productivity but enjoys private access may ameliorate the tragedy of the commons we use this model to analyze capital flight in many poor countries property rights are not well defined since safe bank accounts in rich countries the inferior technology are available to citizens of these countries they engage in capital flight we show that the occurrence of capital flight does not imply that opening the capital account reduces growth and welfare

intra industry foreign direct investment we use a new firm level data set that establishes the location ownership and activity of 650 000 multinational subsidiaries close to a comprehensive picture of global multinational activity a number of patterns emerge from the data most foreign direct investment fdi occurs between rich countries the share of vertical fdi subsidiaries which provide inputs to their parent firms is larger than commonly thought even within developed countries more than half of all vertical subsidiaries are only observable at the four digit level because the inputs they are supplying are so proximate to their parent firms final good that they appear identical at the two digit level we call these proximate subsidiaries intra industry vertical fdi and find that their location and activity are significantly different to the inter industry vertical fdi visible at the two digit level these subsidiaries are not readily explained by the comparative advantage considerations in traditional models where firms locate their low skill production stages abroad in low skill countries to take advantage of factor cost differences we find that overwhelmingly multinationals tend to own the stages of production proximate to their final production giving rise to a class of high skill intra industry vertical fdi

on the explanation of the lucas paradox abstract this paper demonstrates that institutional quality provides a full explanation to the lucas paradox when country heterogeneity is controlled furthermore in terms of the explanation of the paradox quantile regression estimates reveal that foreign flows are driven by theoretical explanations at the lower tail despite that they are significantly affected by growth prospects towards the higher tail

the institutional reforms debate and fdi flows to the mena region the best ensemble summary this paper empirically examines the theoretical debate on the adoption of a best approach to reforming institutions identified by rodrik 2008 in the context of property rights protection and fdi flows to eight mena countries the first best approach comprises strengthening domestic institutional functions only while the second best comprises in addition entering into force bilateral investment treaties and the interaction between functions and treaties empirically both approaches to reducing investment expropriation risk encourage fdi flows the positive effect of the second best approach depends on the success of the first best approach suggesting the two approaches are complementary

north south lending and endogenous domestic capital market inefficiencies abstract we develop an open economy model of intertemporal trade under asymmetric information capital market imperfections are endogenous and depend on a country s stage of economic development relative to the perfect information benchmark north south capital flows are dampened and possibly reversed and world interest rates are lower whereas riskless rates are equalized across borders the domestic loan rate is higher in poorer countries the model can be applied to a number of policy issues including the debt overhang problem the indexation of foreign public debts and the effect of income distribution on growth

on the sensitivity of mean variance efficient portfolios to changes in asset means some analytical and computational results tbis paper investigates the sensitivity of meanvariance mv efficientportfolios to changes in the means of individual assets when only a budget constraint is imposed on the investment problem the analytical results indicate that an mv efficient portfolio s weights mean and variance can be extremely sensitive to cbanges in asset means when nonnegativity constraints are also imposed on the problem the computational results confirm that a positively weigbted mv efficient portfolio s weigbts are extremely sensitive to cbanges in asset means but the portfolio s returns are not a surprisingly small increase in the mean of just one asset drives balf the securities from the portfolio yet the portfolio s expected return and standard deviation are virtually uncbanged this paper supersedes should investors hold well diversified portfolios financial support from the natural science and engineering research council of canada is gratefully acknowledged we also acknowledge the most capable assistance of ruth cornale simon ng jean marc potier and frederick shen the paper was presented at simon fraser university and the western finance association meetings in san diego we thank the participants especially stephen brown john herzog john heaney ray koopman and bruce lehmann and the editors jon ingersoll and chester spatt for

quantitative easing and the post crisis surge in financial flows to developing countries abstract this paper examines gross financial inflows to developing countries between 2000 and 2013 with a focus on the potential effects of quantitative easing qe policies in the united states and other high income countries we find evidence for potential transmission of qe along observable liquidity portfolio balancing and confidence channels moreover we find that qe had an additional latent effect over and above these observable channels one that survives an array of robustness tests retains its significance across different types of financial flows and which cannot be attributed to changes in expectations or elasticity our baseline estimates place the lower bound of a qe effect at around 5 percent of gross inflows above trend for the average developing economy which is a magnitude comparable to a one standard deviation change along the traditional channels we also find evidence of heterogeneity among different types of flows portfolio especially bond flows tend to be more sensitive than fdi to our measured qe effects

effects of fdi flows on institutional development does it matter where the investors are from global fdi flows to and from developing countries have increased significantly since the 1990s while developing countries saw this as a positive development many economists and policy makers in developed countries have raised concerns regarding the institutional effects of developing country investments in other developing countries in this paper we explore the effects of bilateral fdi flows on institutional development gaps between countries and whether such effects are conditional on the direction of flows including south south south north north south and north north directions the empirical results using bilateral flows between 134 countries and a variety of institutional development measures during 1990 2009 suggest that the institutional development effects of fdi flows in any direction including the north south or south south directions are not significant in any case we do not find any significant convergence or divergence effect of fdi flows on the institutional distance between host and home countries we also fail to find any significant effect of aggregate north south fdi flows on host country institutions in contrast we find that aggregate south south fdi flows have a significantly negative effect on host country institutions furthermore we find some evidence that south south fdi flows may be harmful to institutional development in natural resource rich countries while the opposite is true for north south flows overall the results suggest that there is no strong evidence of any benevolent or malevolent effects of bilateral fdi flows from developed or developing countries to developing countries

the determinants of cross border equity flows abstract we explore a new panel data set on bilateral gross cross border equity flows between 14 countries 1989 1996 we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions gross transaction flows depend on market size in source and destination country as well as trading costs in which both information and the transaction technology play a role distance proxies some information costs and other variables explicitly represent information transmission an information asymmetry between domestic and foreign investors and the efficiency of transactions the geography of information is the main determinant of the pattern of international transactions while there is weak support in our data for the diversification motive once we control for the informational friction we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings

asset prices news shocks and the trade balance we analyze the relationship between asset prices and the trade balance estimating a bayesian var for a broad set of 38 industrialized and emerging market countries to derive model based identifying restrictions we model asset price shocks as news shocks about future productivity in a two country dynamic stochastic general equilibrium model such shocks are found to exert sizable effects on the trade balance moreover the effects are highly heterogeneous across countries for instance following a news shock that implies on impact a 10 increase in domestic equity prices relative to the rest of the world the u s trade balance will worsen by up to 1 0 percentage points but much less so for most other economies we find that this heterogeneity appears to be linked to the financial market depth and equity home bias of countries moreover the channels via wealth effects and via the real exchange rate are important for understanding the heterogeneity in the transmission

fdi waves waves of neglect of political risk studies of the impact of local political risk on foreign direct investment inflows overlook that worldwide fdi comes in waves using a simple model we show that the impact of political risk on fdi inflows is likely to be weaker the larger the worldwide amount of fdi which may question standard estimates and their policy implications using a large sample of developing and developed economies we estimate the sensitivity of the distribution of fdi inflows across countries to the local political risk we find that it is a decreasing function of the worldwide amount of fdi this finding has been upheld after many robustness checks

net foreign asset com position does financial development matter abstract we investigate the relationship between a country s domestic financial development and the composition of its net foreign asset position using a pooled mean group estimator and data for 50 countries for the 1970 2007 period the results show that financial development reduces a country s long run net foreign asset position in addition financial development leads to higher net equity and lower net debt positions these findings confirm the theoretical predictions of mendoza et al 2009 the results are robust to using different indicators of financial development and inclusion of the level of development of a country in the cointegrating relationship

factor trade and goods trade world equilibria with trade in both goods and some factors are studied when international factor endowment differences are the cause of trade a generalized heckscher ohlin theorem is presented the goods trade patterns with and without factor trade are compared factor trade and goods trade tend to be substitutes complements if traded and non traded factors are cooperative non cooperative

economic development legality and the transplant effect abstract we analyze the determinants of effective legal institutions legality using data from 49 countries we show that the way the law was initially transplanted and received is a more important determinant than the supply of law from a particular legal family countries that have developed legal orders internally adapted the transplanted law and or had a population that was already familiar with basic principles of the transplanted law have more effective legality than countries that received foreign law without any similar predispositions the transplanting process has a strong indirect effect on economic development via its impact on legality while the impact of particular legal families is weaker and not robust to alternative legality measures

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

growth in the shadow of expropriation we propose a tractable variant of the open economy neoclassical growth model that emphasizes political economy and contracting frictions the political economy frictions involve a preference for immediate spending while the contracting friction is a lack of commitment regarding foreign debt and expropriation we show that the political economy frictions slow an economy s convergence to the steady state due to the endogenous evolution of capital taxation the model rationalizes why openness has different implications for growth depending on the political environment why institutions such as the treatment of capital income evolve over time why governments in countries that grow rapidly accumulate net foreign assets rather than liabilities and why foreign aid may not affect growth

global standards and ethical stock indexes the case of the dow jones sustainability stoxx index the increased scrutiny of investors regarding the non financial aspects of corporate performance has placed portfolio managers in the position of having to weigh the benefits of holding the market against the cost of having positions in companies that are subsequently found to have questionable business practices the availability of stock indexes based on sustainability screening makes increasingly viable for institutional investors the transition to a portfolio based on a socially responsible investment sri benchmark at relatively low cost the increasing share of socially responsible investments may play a role in providing incentives towards a continuous upgrading of sustainability standards to the extent that their performance is not systematically inferior to that of the other funds this article examines whether these incentives have been so far detectable with particular reference to the dow jones sustainability stoxx index djssi that focuses on the european corporations with the highest csr scores among those included in the dow jones stoxx 600 index the aim of the article is twofold first we analyse the performance of the djssi over the period 2001 2006 compared to that of the surrogate complementary index sci a new benchmark that includes only the components of the dj stoxx 600 that do not belong to the ethical index to evaluate more correctly the size of possible divergent performances second we perform an event study on the same data set to analyse whether the stock market evaluation reacts to the inclusion deletion in the djssi in both cases the results suggest that the evaluation of the csr performance of a firm is a significant criterion for asset allocation activities

a framework for assessing global imbalances since the mid 1990s and prior to the financial crisis external balances of systemically important economies widened significantly this paper takes a long run perspective and reviews the main determinants of widening global imbalances to this aim we first provide a set of newly derived statistical measures while large external imbalances are not new in economic history their persistence their concentration on one economy the united states and the specific role of emerging market economies make the present episode rather unique second we argue that the observed pattern of imbalances can be mostly understood as a result of various structural changes in the global economy which have allowed a widening trend of external positions three main features set the most recent period apart from past episodes of growing external imbalances i the emergence of new players in particular emerging market economies such as china and india which are quickly catching up with the advanced economies ii an unprecedented wave of financial globalisation with more integrated global financial markets and increasing opportunities for international portfolio diversification also characterised by considerable asymmetries in the level of market completeness across countries and iii the favourable global macroeconomic and financial environment with record high global growth rates in recent years low financial market volatility and easy global financing conditions over a long period of time running until the outburst of the financial crisis during the summer of 2007 these structural changes that have been supplemented by cyclical or policy induced factors ultimately facilitated the sudden disorderly unwinding of global imbalances that is reflected in the current financial crisis

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

economic performance through time prize lecture to the memory of alfred nobel december 9 1993 this abstract was borrowed from another version of this item

institutional causes macroeconomic symptoms volatility crises and growth countries that have pursued distortionary macroeconomic policies including high inflation large budget deficits and misaligned exchange rates appear to have suffered more macroeconomic volatility and also grown more slowly during the postwar period does this reflect the causal effect of these macroeconomic policies on economic outcomes one reason to suspect that the answer may be no is that countries pursuing poor macroeconomic policies also have weak institutions including political institutions that do not constrain politicians and political elites ineffective enforcement of property rights for investors widespread corruption and a high degree of political instability this paper documents that countries that inherited more extractive institutions from their colonial past were more likely to experience high volatility and economic crises during the postwar period more specifically societies where european colonists faced high mortality rates more than 100 years ago are much more volatile and prone to crises based on our previous work we interpret this relationship as due to the causal effect of institutions on economic outcomes europeans did not settle and were more likely to set up extractive institutions in areas where they faced high mortality once we control for the effect of institutions macroeconomic policies appear to have only a minor impact on volatility and crises this suggests that distortionary macroeconomic policies are more likely to be symptoms of underlying institutional problems rather than the main causes of economic

why does capital flow to rich states abstract the magnitude and the direction of net international capital flows do not fit neoclassical models the fifty u s states comprise an integrated capital market with very low barriers to cap

what drives long term capital flows a theoretical and empirical investigation abstract what drives capital inflows in the long run this paper illustrates how capital movements conform surprisingly well to the predictions of a neoclassical model with credit constraints the most intriguing prediction of this class of models is that contrary to a pure neoclassical model domestic saving should act as a complement rather than a substitute to capital inflows nevertheless this class of models keeps the neoclassical prediction that capital should flow to countries where it is most scarce using foreign debt data from 1970 to 1998 i find qualitative and quantitative evidence that supports these predictions

money and growth revisited abstract conventional wisdom is that if public policy can affect the growth rate of the economy the welfare implications of alternative policies will be large in this paper a stochastic dynamic general equilibrium model with endogenous growth and money is examined in this setting inflation lowers growth through its effect on the return to work however the welfare costs of higher inflation are modest the endogenous labor supply is important in producing this result

the external wealth of nations measures of foreign assets and liabilities for industrial and developing countries abstract although capital flows are closely monitored surprisingly little is known about the accumulated stocks of foreign assets and liabilities held by various countries especially in the developing world this paper constructs estimates of foreign assets and liabilities and their equity and debt subcomponents for a sample of 67 industrial and developing countries it characterizes the stylized facts of international balance sheets and asks whether there are trends in net foreign asset positions and shifts in debt equity ratios over time finally it explores the sensitivity of estimated stock positions to the treatment of valuation effects not captured in balance of payments data

institutions and the external capital structure of countries abstract a widespread view holds that countries that finance themselves through foreign direct investment and portfolio equity rather than bonds and loans are less prone to crises but what determines countries external capital structures in a cross section of advanced economies emerging markets and developing countries we find that equity like liabilities as a share of countries total external liabilities are positively and significantly associated with indicators of educational attainment openness natural resource abundance and especially institutional quality these relationships are robust to attempts to control for possible endogeneity suggesting that better institutional quality may help improve countries external capital structures

transitional dynamics and economic growth in the neoclassical model neoclassical transitional dynamics are a central element of standard macroeconomic theory quantitative experiments with the fixed savings rate models of the 1960s showed lengthy transitions thus potentially rationalizing sustained differences in growth rates across countries the authors investigate quantitative transitional dynamics in various neoclassical models with intertemporally optimizing households lengthy transitions occur only with very low intertemporal substitution generally when one tries to explain sustained economic growth with transitional dynamics there are extremely counterfactual implications these result from the fact that implied marginal products are extraordinarily high in the early stages of development copyright 1993 by american economic association

the management of political risk we explore a long standing prediction in the international business literature that managers subjective perceptions of political risk not just the level of risk are important for how firms manage political risk the importance attributed to political risk by corporate executives has increased over the last 15 years and our results show that political risk is now considered more important than commodity input risk our analysis suggests that nearly 50 of firms avoid not simply reduce foreign direct investment because of political risk using a unique survey based psychometric evaluation of manager risk aversion we show that firms with risk averse executives are more likely to avoid investment in politically risky countries a key implication of behavioral models this relation is economically stronger when agency problems are more likely to be severe for example when executives are less aligned with shareholder value maximization and when executives are younger and therefore might put their personal career concerns in front of shareholders interests while numerous studies have shown that political risk affects foreign direct investment using objective measures of such risk electoral uncertainty conflicts etc our study documents that executives subjective perceptions of political risk are also important for political risk management

resource nationalism meets the market political risk and the value of petroleum reserves this paper investigates the effect of resource nationalism on the value of petroleum crude oil and natural gas reserves we develop a framework for treating resource nationalism as political risk and utilize data on reserve transactions from john s herold and political risk ratings from international country risk guide and institutional investor for the period 2000 2006 controlling for other factors that affect reserve value we demonstrate the value destruction of political risk and estimate the political risk discount for 37 countries the paper contributes to both the international business literature and practitioner approaches to political risk analysis in demonstrating use of publicly available market data from real asset transactions to measure the cost of political risk we also show that the discount depends on market conditions the higher expected future petroleum prices are the larger is the discount at any level of political risk this insight adds a new dimension to analysis of political risk which is typically measured and examined without regard to market conditions

does sustainability investment provide adaptive resilience to ethical investors evidence from spain although sustainable and responsible investment sri has quite recently become a hot research topic scarcely any systematic research has been paid to the performance of this non conventional approach to investment during the financial crisis that emerged in mid 2008 when the resilience of the financial markets was sorely tested such real world resilience in practice is the subject of the current research which tests whether environmental social and governance screens provides ethical investors with adaptive resilience in bull and bear market conditions by focussing on the sri equity index of one of the most active markets in europe in terms of ethical investment the ftse4good ibex in spain multivariate generalized autoregressive conditional heteroskedasticity m garch analysis indicates that ethical investors in the equity market examined with evidence that greater resilience in severe business cycle shocks could be attributable to sri by companies although limited to a single country study the results have implications for investors seeking resilience in crisis when individual values and beliefs towards sustainability tie with personal investment strategy the end result is adaptive financial resilience social well being and environmental defence

determinants of biofuel oriented land acquisitions in sub saharan africa abstract the recent surge of investors interest for african land has triggered the debate about the drivers and effects of the so called land grabbing after a review of the relationship between investment in land and biofuel development in sub saharan africa we contribute to the existing literature in four dimensions we use the updated version of land matrix whose potentialities are currently underexploited we concentrate on land deals for cultivating biofuel crops which are emblematic of the food land energy nexus we focus on fdi to the african continent the most targeted region for land grabbing finally we delve deeper into the influence of institutional quality by testing the role of different institutional dimensions we find that abundance of water resources and general business conditions security and regulatory quality facilitate the investment in land for biofuels as for land governance what matters is the strength and security of land tenure rights rather than the type of tenure system

what lies beneath the euro s effect on financial integration currency risk legal harmonization or trade abstract although recent research shows that the euro has spurred cross border financial integration the exact mechanisms remain unknown we investigate the underlying channels of the euro s effect on financial integration using data on bilateral banking linkages among twenty industrial countries in the past thirty years we also construct a dataset that records the timing of legislative regulatory harmonization policies in financial services across the european union we find that the euro s impact on financial integration is primarily driven by eliminating the currency risk legislative regulatory convergence has also contributed to the spur of cross border financial transactions trade in goods while highly correlated with bilateral financial activities does not play a key role in explaining the euro s positive effect on financial integration

fdi productivity and financial development this paper examines the effect of foreign direct investment fdi on growth factor accumulation physical and human capital does not seem to be the main channel through which countries benefit f rom fdi instead we f ind that countries with well developed financial markets gain significantly

improving diversification opportunities for socially responsible investors socially responsible investment sri has grown enormously and has expanded globally in recent years it allows sri investors to reduce their portfolio risk assumptions through international diversification in this context the aim of this paper is twofold i to examine price and volatility linkages among the most representative sri indexes for north america europe and asia pacific employing a multivariate approach and ii to provide the out of sample performance of an optimal portfolio constructed on the basis of time varying return and volatility forecasts from this specification approach our overall results show that using this technique it is possible to reduce risk and out perform the naive rule which is usually employed in this type of investment these findings are relevant not only for academics but also for practitioners especially for professional managers of sri portfolios

why is capital so immobile internationally possible explanations and implications for capital income taxation the evidence on international capital immobility is extensive including the lack of international portfolio diversification real interest differentials across countries and the high correlation between domestic savings and investment the authors develop a model with asymmetric information between countries that helps rationalize all the above observations and then examine the implications of this model for optimal domestic tax policy without asymmetric information past work showed that small open economies should not impose corporate income taxes with asymmetric information the optimal policy instead involves government subsidies to capital imports some omitted factors that argue against subsidizing capital imports are explored briefly copyright 1996 by american economic association

why doesn t capital flow from rich to poor countries an empirical investigation we examine the empirical role of difierent explanations for the lack of ows of capital from rich to poor countries the lucas paradox the theoretical explanations include difierences in fundamentals across countries and capital market imperfections we show that during 1970i2000 low institutional quality is the leading explanation for example improving peru s institutional quality to australia s level implies a quadrupling of foreign investment recent studies emphasize the role of institutions for achieving higher levels of income but remain silent on the speciflc mechanisms our results indicate that foreign investment might be a channel through which institutions afiect long run development

risk sharing and industrial specialization regional and international evidence the authors provide empirical evidence that risk sharing enhances specialization in production to the best of their knowledge this well established and important theoretical proposition has not been tested before the empirical procedure is summarized as follows first the authors construct a measure of specialization in production and calculate an index of specialization for each of the european community ec and non ec oecd countries u s states canadian provinces japanese prefectures latin american countries and regions of italy spain and the united kingdom then they estimate the degree of capital market integration a measure of risk sharing within each of these groups of regions the ec countries the non ec oecd countries the united states canada japan italy spain and the united kingdom and rely on another author s estimate for latin america finally they perform a regression of the specialization index on the degree of risk sharing controlling for relevant economic variables they find a positive and significant relation between the degree of specialization of individual members of a group of countries provinces states or prefectures and the amount of risk that is shared within the group the authors perform regressions using variables such as shareholder rights and the size of the financial sector relative to gdp as instruments for the amount of inter regional risk sharing these regressions confirm that risk sharing facilitated by a favorable legal environment and a developed financial system is a direct causal determinant of industrial specialization this abstract was borrowed from another version of this item

modeling asymmetric comovements of asset returns existing time varying covariance models usually impose strong restrictions on how past shocks affect the forecasted covariance matrix in this article we compare the restrictions imposed by the four most popular multivariate garch models and introduce a set of robust conditional moment tests to detect misspecification we demonstrate that the choice of a multivariate volatility model can lead to substantially different conclusions in any application that involves forecasting dynamic covariance matrices like estimating the optimal hedge ratio or deriving the risk minimizing portfolio we therefore introduce a general model which nests these four models and their natural asymmetric extensions the new model is applied to study the dynamic relation between large and small firm returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

effects of transitory shocks to aggregate output on consumption in poor countries this paper provides instrumental variables estimates of the response of aggregate private consumption to transitory output shocks in poor countries to identify exogenous unanticipated idiosyncratic and transitory variations in national output we use year to year variations in rainfall as an instrumental variable in a panel of 39 sub saharan african countries during the period 1980 2009 our estimates yield a marginal propensity to consume out of transitory output of around 0 2 to explain this result we show using instrumental variables techniques that there is a significant negative effect of transitory output shocks on net current transfers and a significant positive and quantitatively large effect on the trade balance an important implication is that frictions to private financial flows do not necessarily imply large effects of transitory shocks to aggregate output on private consumption in poor countries

what drives international financial flows politics institutions and other determinants abstract this paper uses a large panel of financial flow data from banks to assess how institutions affect international lending first employing a time varying composite institutional quality index in a fixed effects framework the paper shows that institutional improvements are followed by significant increases in international finance second cross sectional models also show a strong effect of initial levels of institutional quality on future bank lending third instrumental variable estimates further show that the historically predetermined component of institutional development is also a significant correlate of international bank inflows the results thus suggest that institutional underdeveloped can explain a significant part of lucas lucas robert e 1990 why doesn t capital flow from rich to poor countries american economic review papers and proceedings 80 2 92 96 1990 paradox of why doesn t capital flow from rich to poor countries the analysis also does a first step towards understanding which institutional features affect international banking

public choice when services are costs the divergent case of assessment administration despite a strong body of empirical support many political scientists remain suspicious of public choice theory that suspicion is often focused on the tendency of public choice proponents to generalize an ideal institutional structure to nearly every policy area they examine this arises in part because public choice analysts tend to study goods and services that can be characterized by a single specification of self interest this paper applies public choice analysis to property tax assessment administration a local government service with political characteristics quite unlike those commonly examined to assess the flexibility of the model and the generalizability of its usual recommendations on institutional stucture surprisingly application of public choice theory in this case leads to a set of institutional recommendations similar to those associated with traditional reform theory