rational versus adaptive expectations in present value models using data on stock price and dividends and on long term and short term interest rates we test an important implication of present value models that current value is a linear function of the conditional expectations of the next period value and the current determining variable this implication combined with rational expectations re is strongly rejected combined with adaptive expectations ae it is accepted the latter model can also explain the observed negative relation between the rate of return and stock price thus the re assumption should be used with caution the ae assumption may be useful in econometric practice

on the dynamics of ethnic fractionalization does fractionalization change over short periods of time if so are there any substantial implications for economic performance to answer such questions we construct a new panel data set with measures of ethnic linguistic and religious fractionalization for 26 former communist countries covering the period from 1989 to 2002 our fractionalization measures show that transition economies became more ethnically homogeneous over such a short period of time although the same did not happen for linguistic and religious diversity in line with the most recent literature there seems to be no effect of exogenous diversity on macroeconomic performance that is on per capita gdp growth however we find that dynamic endogenous ethnic diversity is negatively related to growth although this is still not the case for linguistic and religious diversity these findings are robust to different specifications polarization measures and instrument sets as well as to a composite index of ethnic linguistic religious fractionalization

inequality and the instability of polity and policy we create alternative measures of political instability which capture only movements from dictatorship to democracy and vice versa and unlike older well known measures does not capture government changes that preserve the democratic or dictatorial structure of the country we show that inequality is positively correlated with our measures of political instability as well as with a well known measure used by alesina and perotti but the impact of inequality on the latter is only through components of political instability captured by our measures we show that our measures have significant policy implications political instability increases both fiscal and trade polity volatility

impact of ownership on the international involvement of smes this paper analyses the relationship between the internationalisation strategies of smes and types of ownership different types of ownership affect firms and this in turn will influence the internationalisation strategy adopted using a sample of spanish smes our results show that internationalisation is negatively related to family ownership and positively related to corporate ownership we have also observed that the presence of a corporate blockholder in family firms encourages internationalisation these results support the idea that ownership type influences the decision to internationalise

income distribution political instability and investment abstract this paper successfully tests on a sample of 71 countries for the period 1960 85 the following hypotheses income inequality by fuelling social discontent increases sociopolitical instability the latter by creating uncertainty in the politico economic environment reduces investment as a consequence income inequality and investment are inversely related since investment is a primary engine of growth this paper identifies a channel for an inverse relationship between income inequality and growth we measure socio political instability with indices which capture the occurrence of more or less violent phenomena of political unrest and we test our hypotheses by estimating a two equation model in which the endogenous variables are investment and an index of socio political instability our results are robust to sensitivity analysis on the specification of the model and the measure of political instability and are unchanged when the model is estimated using robust regression techniques

who is afraid of political instability abstract an unstable macroeconomic environment is often regarded as detrimental to economic growth among the sources contributing to such instability much of the blame has been assigned to political issues this paper empirically tests for a causal and negative long run relation between political instability and economic growth but finds no evidence of such a relationship sensitivity analysis indicates that there is a contemporaneous negative relationship but also that in the long run and ignoring institutional factors the group of african countries plays the determining role

sectoral patterns of technical change towards a taxonomy and a theory abstract the purpose of the paper is to describe and explain sectoral patterns of technical change as revealed by data on about 2000 significant innovations in britain since 1945 most technological knowledge turns out not to be information that is generally applicable and easily reproducible but specific to firms and applications cumulative in development and varied amongst sectors in source and direction innovating firms principally in electronics and chemicals are relatively big and they develop innovations over a wide range of specific product groups within their principal sector but relatively few outside firms principally in mechanical and instrument engineering are relatively small and specialised and they exist in symbiosis with large firms in scale intensive sectors like metal manufacture and vehicles who make a significant contribution to their own process technology in textile firms on the other hand most process innovations come from suppliers these characteristics and variations can be classified in a three part taxonomy based on firms 1 supplier dominated 2 production intensive 3 science based they can be explained by sources of technology requirements of users and possibilities for appropriation this explanation has implications for our understanding of the sources and directions of technical change firms diversification behaviour the dynamic relationship between technology and industrial structure and the formation of technological skills and advantages at the level of the firm the region and the country

national scientific capacity and r d offshoring abstract this paper presents new evidence regarding the role of national scientific capacity in driving patterns of r d offshoring using a larger and more comprehensive dataset than has hitherto been used and applying it in a gravity model framework our results unambiguously support the importance of inventor country scientific capacity in attracting offshored r d as expected the home country s scientific capacity is also found to play a positive role we find that in fact on average firms source technology from less technologically advanced nations suggesting that firms offshore to access niche skills

inequality and democracy why inequality harms consolidation but does not affect democratization under what conditions do democracies emerge and consolidate recent theories suggest that inequality is among the leading determinants of both democratization and consolidation by contrast this article argues that inequality harms consolidation but has no net effect on democratization the author shows that the existing theories that link inequality to democratization suffer from serious limitations 1 they are useful only for understanding transitions from below and thus do not apply to many other transitions that is those from above 2 even for democratization from below their predictions are unlikely to hold since inequality actually has two opposite effects and 3 they ignore collective action problems which reduces their explanatory power however these objections do not affect the relationship between inequality and consolidation in particular while inequality has two opposite effects on the probability of transition to democracy it unambiguously increases the probability of transition away from democracy this article conducts the most comprehensive empirical test to date of the relationship between inequality and democracy it finds no support for the main democratization theories contrary to what they predict estimation suggests neither a monotonic negative nor an inverted u shaped relationship yet inequality increases the probability of backsliding from democracy to dictatorship

the policy implications of the globalisation of innovation abstract the paper develops a taxonomy of the globalisation of innovation based on three categories a the international exploitation of technology produced on a national basis b the global generation of innovations c the global technological collaborations the most evident changes implied by the increasing globalisation of innovation and technology are the tougher and increased competition and the greater collaboration between actors both across and within national boundaries the advantages just as the costs of these tendencies can be substantial leading to a higher risk of winners and losers the paper analyses the different impact that each category might have on the economic and innovative performance of countries and regions with the aim of defining the implications for national policies it is suggested that public policies play a different role in each of the three processes of the globalisation of innovation and that a single strategy does not exist neither from a firm s nor from a government s perspective the paper emphasis that none of the three categories in this taxonomy renders national policy obsolete on the contrary public policies are necessary on a far wider range than those currently implemented in the majority of countries

income distribution and investment abstract after being the subject of a heated debate during the sixties and the seventies the relation between income distribution and growth has received renewed attention in recent years the new literature has focused on three channels whereby this relation can occur imperfections in capital markets voting on fiscal policy and political instability in all these approaches growth in or outside the steady state is the result of investment in physical or human capital therefore these theories can also be stated and tested in terms of the effects of income distribution on investment this has the double advantage of reducing the complexity of a necessarily brief survey and of bringing out more clearly the main elements of novelty in this literature so far empirical implementations of these theories have in general been restricted to reduced form regressions of growth or equivalently investment on income distribution and other variables in this survey i take a step further and test the three approaches by explicitly estimating the role of the imperfections in capital markets of government expenditure and of political instability in mediating the effects of income distribution on investment

the impact of political risk on the volatility of stock returns the case of canada this paper examines the impact of political risk in canada on the volatility of stock returns our results suggest that political news associated with the possible separation of quebec from canada plays an important role in the volatility of stock returns however our evidence indicates that investors do not require a risk premium supporting the idea that political risk is diversifiable we also show that stock return volatility varies with the degree of a firm s exposure to political risk namely the structure of assets and the extent of foreign involvement which indicates that firms most exposed to political risk bear the burden of diversification

long live democracy the determinants of political instability in latin america abstract we investigate the underlying causes of political instability in a panel of 18 latin american countries from 1971 2000 we test whether regime type regime durability factionalism income inequality ethnic diversity ethnic discrimination regional spillover effects urban growth and macroeconomic variables matter for instability we find several important results 1 democracy has a significant negative effect on instability that is robust to several alternative specifications 2 factionalised political systems experience higher instability 3 income inequality ethnic fractionalisation and urban growth have important nonlinear effects on instability and 4 of the macroeconomic variables we study only openness to trade has a significant negative effect on instability

the globalisation of technology a new taxonomy book synopsis international management of research and development brings together the most influential contributions to managing organising and coordinating r d and innovation on a global scale in addition to papers on the fundamental principles trends and drivers of international r d it covers strategies and operations of global r d it also provides an introduction to modern concepts such as knowledge networks open innovation and virtual innovation it is a key reference collection for professors researchers and practitioners

on the sign of the investment uncertainty relationship understanding the effects of uncertainty over any decision variable has fascinated economists for a long time risk aversion and incomplete markets are likely to make the investment uncertainty relationship negative e g roger craine 1989 joseph zeira 1989 what happens in the absence of risk aversion and incomplete markets is however ambiguous richard hartman 1972 and andrew b abel 1983 1984 1985 found that in the presence of symmetric convex costs of adjustment mean preserving increases in price uncertainty raise investment of a competitive firm as long as the profit function is convex in prices on the other hand the recent literature on irreversible investment e g robert s pindyck 1988 giuseppe bertola 1988 has shown that increases in uncertainty lower investment all these results have been derived under either risk neutrality or complete markets intuition suggests that the explanation for such a difference lies with the asymmetric nature of adjustment costs in the irreversible investment case as compared with the symmetry of the adjustment cost mechanisms proposed by abel and hartman although this intuition is confirmed in this paper asymmetric adjustment costs are shown not to be sufficient to explain why the results differ in fact a more hidden but at least as important difference between these two literatures is that the former assumes perfect competition and constant returns to scale whereas the latter assumes either imperfect competition or decreasing returns to scale or both 2 the purpose of this paper is to highlight the role of the decreasing marginal return to capital assumption due to either imperfect competition or decreasing returns to scale or both in determining the effects of adjustment cost asymmetries on the sign of the response of investment to changes in uncertainty under risk neutrality for this the paper develops a simple model with a cost of adjustment mechanism general enough to consider both symmetric convexity and irreversibility as special cases one of the most important findings is the lack of robustness of the negative relationship between investment and uncertainty under asymmetric adjustment costs3 to changes in the degree of competition in fact when firms are nearly competitive the conclusion of hartman and of abel holds no matter how asymmetric adjustment costs are studying adjustment cost mechanisms has a central role in understanding the dynamics of investment and its business cycle implications but conclusive results about the sign of the instantaneous relationship between uncertainty and investment should not be department of economics columbia university new york ny 10027 i am grateful to giuseppe bertola prajit dutta glen hubbard anil kashyap richard lyons and the referees for their useful comments 1the financial literature on investment has considered risk aversion through a premium in the discount rate determined by the capm capital asset pricing model intertemporal capm or consumption capm however often this discount rate is left unchanged when studying the response of investment to uncertainty changes e g pindyck 1988 pp 974 5 thereby omitting the effect of changes in uncertainty on investment due to risk aversion and incomplete markets 2in the typical version of the irreversible investment problem there is no cost of upward adjustments thus imperfect competition and or decreasing returns to scale are required to bound the size of the firm 3in this paper asymmetric adjustment cost refers to the case in which it is more expensive to adjust downward than upward certainly the opposite case is a trivial extension of the case studied in this paper

aggregate investment and political instability an econometric investigation although in theory the long run effect of uncertainty on investment is ambiguous available econometric evidence widely supports a negative association between aggregate investment and political instability a shortcoming of this body of evidence is that it has failed to investigate the existence and direction of causality between these two variables this paper fills this gap by testing for such causal and negative long run relationship between political instability and investment we find there is a causal relation going from instability to investment but it is positive and particularly strong in low income countries this finding is robust to various sensitivity checks

is there a core of practical macroeconomics that we should all believe with emphasis on the adjective practical and the normative verb should my answer to the question of this session is a resounding yes indeed i spent a good deal of time between january 1993 and january 1996 acting on the belief that there is such a core macro model so i certainly hope it exists this believable core model falls well short of perfection leaves many questions unanswered and is subject to substantial stochastic errors nonetheless it is both useful and extensively used in policy analysis where contact with reality is a necessity and you cannot beat something with nothing it also closely resembles but does not quite match the way macroeconomics is taught to beginning and intermediate but not to graduate students in this short presentation i will describe briefly the main practical elements that i think we should agree on without worrying too much about their theoretical underpinnings then i will turn to two critical failings of the standard macro model which cry out for theoretical and empirical repair my organizing principle is the textbook exposition that has been standard though not universal in teaching intermediate macroeconomics for years the question is how does it differ from the core model used in policy analysis

why did the west extend the franchise democracy inequality and growth in historical perspective during the nineteenth century most western societies extended voting rights a decision that led to unprecedented redistributive programs we argue that these political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution political transition rather than redistribution under existing political institutions occurs because current transfers do not ensure future transfers while the extension of the franchise changes future political equilibria and acts as a commitment to redistribution our theory also offers a novel explanation for the kuznets curve in many western economies during this period with the fall in inequality following redistribution due to democratization i introduction the nineteenth century was a period of fundamental political reform and unprecedented changes in taxation and redistribution britain for example was transformed from an oligarchy run by an elite to a democracy the franchise was extended in 1832 and then again in 1867 and 1884 transferring voting rights to portions of the society with no previous political representation the decades after the political reforms witnessed radical social reforms increased taxation and the extension of education to the masses moreover as noted by kuznets inequality which was previously increasing started to decline during this period the gini coefficient for income inequality in england and wales had risen from 0 400 in 1823 to 0 627 in 1871 but fell to 0 443 in 1901 two key factors in the reduction in inequality were the increase in the proportion of skilled workers williamson 1985 and the redistribution of income toward the poorer segments of the society for example taxes rose from 8 12 percent of national product in 1867 to 18 8 percent by 1927 and the progressivity of the tax system increased substantially see lindert 1989

risky business political instability and greenfield foreign direct investment in the arab world which foreign direct investments are most affected by political instability analysis of quarterly greenfield investment flows into countries in the middle east and north africa during the period from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non resource tradable sectors by contrast investments in natural resource sectors and non tradable activities appear insensitive to such shocks political instability is thus associated with increased reliance on non tradables and aggravated resource dependence

dictators development and the virtue of political instability a large body of literature stresses the benefits of regime stability for economic growth in poor countries this view however discounts the gains from threats to regime security when populations living under dictatorial regimes cannot benefit from the disciplining of political competition available to voters in democracies this paper applies a model of economic growth to study the sources of the differences in economic performance and repression policy among dictatorships as well as the parallel in dictatorial regimes of the benefits achieved through political competition in democracies threats to the security of dictatorial regimes are shown to be a means of benefiting the population through the responses of the regime

growth distribution and politics we start by arguing that to understand growth differences across countries and time one needs to understand differences in public policies that affect the incentives for productive accumulation of capital human capital or technically useful knowledge and to understand policy differences one needs to understand how political institutions aggregate conflicting interests into public policies we then survey some recent work along these lines which argues that more inequality leads to slower growth next we illustrate some of the basic ideas of this work by help of a simple model of taxation we also present some econometric cross country evidence which is largely supportive of the basic ideas we end by suggestions for further work this abstract was borrowed from another version of this item

what are the categories of geopolitical risks that could drive oil prices higher acts or threats abstract this study characterizes the oil market as a nonlinear switching phenomenon and examines its dynamics in response to changes in geopolitical risks over low and high risk scenarios we separate the shocks due to geopolitical acts from those due to geopolitical threats to address whether the serious effects of geopolitical risks are mostly due to increased threats of adverse events or to their realization as acts while we find the acts to generate a positive and strong impact on oil price dynamics the effect of threats appears to be moderate or non significant imperfect information in the oil price determination the history of oil supply disruptions emanating from geopolitical events the continued rise in populism in the world oil market volatility multifractility and the time varying degree of weak form efficiency have been advanced to explain the unforeseen responses of oil prices to geopolitical threats to accommodate recent oil related events we construct a composite geopolitical risk indicator by accounting for contemporaneous sources of geopolitical risks namely global trade tensions us china relation risks us iran tensions saudi arabia s uncertainty and venezuela s crisis the combined effects have an outsized impact on oil prices

large firms in the production of the world s technology an important case of non globalisation us patenting by 686 of the world s largest manufacturing firms shows that their share of the world s production of technology is less than their share of r d activities and varies greatly amongst sectors in most cases the technological activities of these large firms are concentrated in their home country the characteristics of which influence the volume and trends in their technological activities much more strongly then the international component of these activities at the same time these large firms are major elements in the volume and the pattern of sectoral specializations in their home countries technological activities

modelling political instability and economic performance israeli investment during the intifada i construct a model of investment in israel that incorporates both standard economic factors and indicators of political instability and unrest the model is used to estimate both the extent to which the intifada has depressed israeli investment in different kinds of capital good and the size of the corresponding peace dividend

patterns of internationalization of spanish innovatory firms abstract the aim of this paper is to contribute to the debate about the factors determining the growing internationalization of small and medium firms originating from intermediate countries the reason for selecting the spanish innovating firms consists of the interest they have for analysing the interaction between the characteristics they have as innovatory agents and their behaviour regarding the global economy the paper is developed from the following hypothesis first in the case of firms of countries with a more recent history of opening up to the international economy the patterns of overseas expansion combine different kinds of elements such as factors included in the eclectic theory and tacit components of the company advantages second in the trajectories followed by those firms some accumulative learning patterns can be found the starting point of this research is a previous one carried out on the patterns of technological innovation of spanish innovatory firms on this basis i have combined two sources for obtaining relevant data the first consists of the creation of a data bank of innovatory firms with 814 innovating companies the second source is a survey carried out with those firms the statistical analysis is made through the application of discriminant analysis and logit models they are good tools for systematic comparison between clusters and allow me to follow a stepwise method for a close study of increasing complex international activity

cross country evidence on the link between volatility and growth this paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations in a sample of ninety two countries as well as a sample of oecd countries the authors find that countries with higher volatility have lower growth the addition of standard control variables strengthens the negative relationship the authors also find that government spending induced volatility is negatively associated with growth even after controlling for both time and country fixed effects copyright 1995 by american economic association

volatility and investment interpreting evidence from developing countries we uncover a significant negative correlation between various volatility measures and private investment in developing countries even when adding the standard control variables no such correlation is uncovered when the investment measure is the sum of private and public investment spending indeed public investment spending is positively correlated with some ineasures of volatility these findings suggest that the detrimental impact of volatility on investment may be easier to detect using disaggregated data we provide several possible interpretations for our findings nonlinearities in preferences or budget constraints can cause volatility to have first order negative effects on private investment