how do fiscal and technology shocks affect real exchange rates new evidence for the united states abstract using vector autoregressions on u s time series relative to an aggregate of industrialized countries this paper provides new evidence on the dynamic effects of government spending and technology shocks on the real exchange rate and the terms of trade to achieve identification we derive robust restrictions on the sign of several impulse responses from a two country general equilibrium model we find that both the real exchange rate and the terms of trade whose responses are left unrestricted depreciate in response to expansionary government spending shocks and appreciate in response to positive technology shocks

some macroeconomics for the 21st century this note describes a numerical simulation of a model of economic growth a simplified version of robert tamura s 1996 model of world income dynamics based on technology diffusion the model makes predictions for trends in average world income growth and about the evolution of the relative income distribution that accord well with observation the model is used to forecast the course of world income growth and income inequality over the century to come

globalization labor markets and policy backlash in the past the late nineteenth and twentieth centuries have many things in common both periods recorded fast growth convergence and labor market integration between oecd members both periods witnessed intense debate about who gained and who lost from globalization furthermore the earlier period saw a retreat from global liberalism long before the interwar deglobalization disaster did globalization of that time plant seeds of its own destruction are there lessons for the present

a three gap model of foreign transfers and the gdp growth rate in developing countries abstract a simplified macroeconomic framework is developed for the fiscal gap which is considered to be an important stumbling block for adjustment with growth in highly indebted developing countries distinctive characteristics of a fiscally constrained economy are compared with those of economies constrained either by the availability of savings or foreign exchange tentative implications for external conditionality accompanying debt relief measures are derived

aid policy and growth in post conflict societies countries emerging from civil war attract both aid and policy advice this paper provides the first systematic empirical analysis of aid and policy reform in the post conflict growth process it is based on a comprehensive data set of large civil wars and covers 27 countries that were in their first decade of post conflict economic recovery during the 1990s the authors first investigate whether the absorptive capacity for aid is systematically different in post conflict countries they find that during the first three post conflict years absorptive capacity is no greater than normal but that in the rest of the first decade it is approximately double its normal level so ideally aid should phase in during the decade historically aid has not on average been higher in post conflict societies and it has tended to taper out over the course of the decade the authors then investigate whether the contribution of policy to growth is systematically different in post conflict countries and in particular whether particular components of policy are differentially important for this they use the world bank policy rating database the authors find that growth is more sensitive to policy in post conflict societies comparing the efficacy of different policies they find that social policies are differentially important relative to macroeconomic policies however historically this does not appear to have been how policy reform has been prioritized in post conflict societies

the composition of government spending and the real exchange rate we show that the composition of government spending influences the long run behavior of the real exchange rate we develop a two sector small open economy model in which an increase in government consumption is associated with real appreciation while an increase in government investment may generate real depreciation our empirical work confirms that government consumption and government investment have differential effects on the real exchange rate and the relative price of nontradables

aid policies and growth a nonlinear reassessment the association between foreign aid and growth has been controversial for decades and the evidence is quite mixed with results sensitive to data samples and modelling approaches we reassess the re

innovation and inequality in a small world we present a multicountry theory of economic growth and r d driven technological progress in which countries are connected by a network of knowledge exchange technological progress in any country depends on the state of technology in the countries it exchanges knowledge with the diffusion of knowledge throughout the world explains a period of increasing world inequality followed by decreasing relative inequality knowledge diffusion through a small world network produces an extraordinary diversity of country growth performances including the overtaking of individual countries and the replacement of the technologically leading country in the course of world development

on the empirics of foreign aid and growth the present paper re examines the effectiveness of foreign aid theoretically and empirically using a standard olg model we show that aid inflows will in general affect long run productivity the size and direction of the impact may depend on policies deep structural characteristics and the size of the inflow the empirical analysis investigates these possibilities overall we find that aid has been effective in spurring growth but the magnitude of the effect depends on climate related circumstances finally we argue that the collier dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate the usefulness of foreign aid in promoting growth in developing countries has been an area of controversy ever since rosenstein rodan in 1943 advocated for aid to eastern and south eastern europe browsing through successive editions of a leading textbook in development economics provides a telling illustration of how the confidence in aid effectiveness dwindled over the years in the first edition of leading issues in economic development meier 1964 dedicated a full 18 page section to the issue of foreign aid he started out asking how much aid by the time of the sixth edition meier 1995 the treatment of foreign aid had been cut into half and the questions in focus were why official assistance and does aid work in the 2000 edition meier and rauch 2000 foreign aid is not even listed in the index

interregional redistribution and mobility in federations a positive approach the paper studies the effects and the determinants of interregional redistribution in a model of residential and political choice we find that paradoxical consequences of inter jurisdictional transfers arise if people are mobile while self sufficient regions are nec essarily identical with respect to policies and average incomes in our model interregional redistribution always leads to the divergence of regional policies and per capita incomes thus interregional redistribution prevents interregional equality at the same time however transfers may allow for more interpersonal equality among the inhabitants of each region the voting population may therefore in a decision over the fiscal constitution deliberately implement such a transfer scheme to foster regional divergence empirical evidence from panel data from oecd countries and candian provinces is consistent with the theory

intelligence social mobility and growth this study develops a model where the allocation of human resources intergenerational social mobility and technological growth are jointly determined high growth endogenously increases the equilibrium return to innate cognitive ability and makes the allocation of individuals depend more on innate ability and less on social background a social allocation based on innate ability and high growth will thus reinforce each other implying the possibility of multiple endogenous growth equilibria

international redistribution of income summary how do international policies on aid trade and factor movements affect the international distribution of income we calculate the impact by world decile of the actual level of aid flows and the effect on income of merchandise trade restrictions by high income countries we find that aid s distributional impact is equality enhancing extremely small in terms of changes in inequality measures but of some importance for the lowest decile of the distribution we also find that some of this impact is counteracted by lost potential income in the lower deciles from merchandise trade barriers imposed by high income countries

regional welfare disparities the case of the european union the regional welfare distribution in the european union between 1993 and 1998 is examined using several complementary methodologies the results obtained show a reduction in regional welfare disparities over the period analysed it is worth noting in this respect however that regional productivity differences prove to be the main determinant behind observed welfare inequality in the european context moreover there has also been a decline in regional bipolarization over the six year contemplated while the degree of observed intradistributional mobility is relatively low the empirical evidence presented nevertheless reveals the importance of variables such as the national component the spatial location the regional productive structure or the percentage of gdp devoted to investment or to r d expenditure in accounting for the dynamics of the distribution under analysis

aid growth and devolution summary this paper examines whether the degree of fiscal decentralization in aid receiving countries matters in explaining aid effectiveness the decentralization theorem predicts that the devolution of powers should increase aid effectiveness since local decision makers are better informed about local needs thereby decentralization may also have reverse effects e g through coordination problems excessive regulation administrative costs and local capture we use panel data for up to 60 countries and find that aid contributes to economic growth in centralized developing economies whereas it is less effective or even harmful in decentralized countries the cases of indonesia the philippines and uganda support our findings our results imply that donor countries should carefully consider how the two development instruments foreign aid and decentralization interact

is globalization reducing poverty and inequality abstract over the past 20 years or so india china and the rest of east asia experienced fast economic growth and falls in the poverty rate latin america stagnated the former soviet union central and eastern europe and sub saharan africa regressed but what are the net trends the neoliberal argument says that world poverty and income inequality fell over the past two decades for the first time in more than a century and a half thanks to the rising density of economic integration across national borders the evidence therefore confirms that globalization in the context of the world economic regime in place since the end of bretton woods generates more mutual benefit than conflicting interests this paper questions the empirical basis of the neoliberal argument

separating the wheat from the chaff a disaggregate analysis of the effects of public spending in the us in this paper we undertake a systematic disaggregate analysis of the effects of government spending on economic activity in the us the level of disaggregation we consider is the highest available and is unprecedented in the empirical literature more specifically public consumption and public investment are decomposed into various subcategories which are measured at the levels of the federal defence and non defence and state and local governments for each subcategory we estimate a structural vector autoregression that identifies public spending shocks through the conditional heteroskedasticity of the structural disturbances thus relaxing the identifying restrictions commonly used in the literature our analysis reveals significant heterogeneity in the effects of public spending shocks on output both across subcategories and government levels shocks to spending on durables and structures are found to have the largest and most persistent effect on aggregate output with a peak multiplier that exceeds 1 our results also suggest that there is little association between the size of a given category of public expenditures and the magnitude of its effect on output resume separer le bon grain de l ivraie une analyse desagregee des effets des depenses publiques aux etats unis dans ce texte on entreprend une analyse desagregee des effets des depenses gouvernementales sur l activite economique aux etats unis le niveau de desagregation considere est le plus grand possible et est sans precedent dans la litterature empirique plus specifiquement la consommation et l investissement publics sont decomposes en diverses sous categories qui sont mesurees pour le gouvernement federal defense et non defense ainsi que pour les gouvernements des etats et locaux pour chaque sous categorie on estime un vecteur autoregressif structurel qui identifie les chocs de depenses publiques a travers l heteroscedastictite conditionnelle des perturbations structurelles pour ainsi rel cher les restrictions d identification communement utilisees dans la litterature l analyse revele une heterogeneite significative dans les effets des chocs de depenses publiques sur la production agregee selon les sous categories et les niveaux de gouvernement les chocs dans les depenses sur les biens durables et les structures tendent a avoir les effets les plus grands et les plus persistants sur la production agregee avec un effet multiplicateur qui excede 1 les resultats suggerent qu il y a peu de rapport entre la taille d une categorie donnee dans les depenses publiques et l ampleur de l effet sur la production agregee

fiscal stimulus in times of high debt reconsidering multipliers and twin deficits we investigate the impact of fiscal stimuli at different levels of the government debt to gdp ratio for a sample of 17 european countries from 1970 to 2010 this is implemented in an interacted panel var framework in which all coefficient parameters are allowed to change continuously with the debt to gdp ratio we find that responses to government spending shocks exhibit strong nonlinear behavior while the overall cumulative effect of a spending shock on real gdp is positive and significant at moderate debt to gdp ratios this effect turns negative as the ratio increases the total cumulative effect on the trade balance as a share of gdp is negative at first but switches sign at higher levels of debt consequently depending on the degree of public indebtedness our results accommodate long run fiscal multipliers that are greater and smaller than one or even negative as well as twin deficit and twin divergence behavior within one sample and time period from a policy perspective these results lend additional support to increased prudence at high public debt ratios because the effectiveness of fiscal stimuli to boost economic activity or resolve external imbalances may not be guaranteed

the trade balance and fiscal policy in the oecd abstract we explore the short run impact of movements in different components of fiscal policy on the trade balance exports and imports for a panel of oecd countries over 1960 1995 we find that the composition of a shift in fiscal policy and the exchange rate regime matter for its transmission to the external account the strongest result is that an expansion in wage government consumption causes a contraction in exports and a deterioration of the trade balance especially under flexible exchange rates we discuss the implications of our results for fiscal and current account adjustment

is fiscal consolidation self defeating a panel var analysis for the euro area countries abstract this paper studies the effects of fiscal consolidation on the debt to gdp ratio of 11 euro area countries over the period 2000q1 2012q1 using a quarterly panel var allows us to trace out the dynamics of the debt to gdp ratio following a fiscal shock and to disentangle the main channels through which fiscal consolidation affects the debt ratio we define a fiscal consolidation episode as self defeating if the level of the debt to gdp ratio does not decrease compared to the pre shock level our main finding is that when consolidation is implemented via a cut in government primary spending the debt ratio after an initial increase falls to below its pre shock level when instead the consolidation is implemented via an increase in government revenues the initial increase in the debt ratio is stronger and eventually the debt ratio reverts to its pre shock level resulting in what we call self defeating consolidation

from great depression to great credit crisis similarities differences and lessons the great depression of the 1930s and the great credit crisis of the 2000s had similar causes but elicited strikingly different policy responses while it remains too early to assess the effectiveness of current policy it is possible to analyse monetary and fiscal responses in the 1930s as a natural experiment or counterfactual capable of shedding light on the impact of current policies we employ vector autoregressions instrumental variables and qualitative evidence for 27 countries in the period 1925 39 the results suggest that monetary and fiscal stimulus was effective that where it did not make a difference it was not tried they shed light on the debate over fiscal multipliers in episodes of financial crisis they are consistent with multipliers at the higher end of those estimated in the recent literature and with the argument that the impact of fiscal stimulus will be greater when banking systems are dysfunctional and monetary policy is constrained by the zero bound miguel almunia agustin benetrix barry eichengreen kevin h o rourke and gisela rua

country characteristics and the effects of government consumption shocks on the current account and real exchange rate abstract this paper examines the effects of government consumption shocks on the current account and the real exchange rate as well as the influence of various country characteristics on these effects a dataset of 18 industrial countries is used for the analysis panel var models are estimated for the groups of countries classified by country characteristics the primary empirical findings are as follows first positive government consumption shocks lead if anything to real exchange rate depreciation but the direction of the current account response varies across samples in particular positive government consumption shocks lead to real exchange rate depreciation under a floating exchange rate regime second international capital mobility has a significant impact on the effects of government consumption shocks the depreciation of the real exchange rate and the improvement of current account are larger in countries with low international capital mobility than those with high capital mobility third albeit less robust the depreciation of the real exchange rate and the improvement of the current account are larger in countries under more flexible exchange rate regimes than those under less flexible exchange rate regimes in addition the current account improves more in countries with high trade openness than those with low trade openness standard theories do not fully explain these empirical patterns thus these findings suggest a need for further theoretical development

per capita carbon dioxide emissions convergence or divergence understanding and considering the distribution of per capita carbon dioxide co2 emissions is important in designing international climate change proposals and incentives for participation i evaluate historic international emissions distributions and forecast future distributions to assess whether per capita emissions have been converging or will converge i find evidence of convergence among 23 member countries of the organisation for economic co operation and development oecd whereas emissions appear to be diverging for an 88 country global sample over 1960 2000 forecasts based on a markov chain transition matrix provide little evidence of future emissions convergence and indicate that emissions may diverge in the near term i also review the shortcomings of environmental kuznets curve regressions and structural models in characterizing future emissions distributions

habit formation and fiscal transmission in open economies in this paper we analyze the ability of an open economy version of the neoclassical model to account for the time series evidence on fiscal policy transmission revisiting the evidence we find that i government spending raises output while inducing a simultaneous decline of investment and the current account and ii the responses of output and investment are more muted in more open economies while current account deficits tend to be larger turning to the model we explore the role of habit formation for fiscal policy transmission specifically we show that the model can account for the evidence if consumption behavior is characterized by habit formation and the terms of trade adjust endogenously

the effects of government expenditure on imports in the eurozone reconsidered evidence from panel data abstractthis study examines the impact of government expenditure on imports the empirical analysis is based on annual data of the euro area countries for the period 1995 2015 we employ econometric methods that mitigate heterogeneity and cross sectional dependence we provide empirical indications that the components of expenditure have different impact on imports demand the findings of this study indicate that the import context of government expenditure is lower than the import context of others expenditure components finally we find that an increase in government expenditure leads to an increase in imports this implies that ceteris paribus that it can lead to a deterioration of the trade balance

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

the evolution of regional income distribution in japan using data on per capita income of japan s 47 prefectures between 1955 and 1997 this paper shows that one of the most popular measurements of convergence convergence is not invariant with both transformation and definition of dispersion measured by the standard deviation the actual per capita income has diverged whereas measured by the coefficients of variation it has converged since 1955 the log of per capita income and relative income of all prefectures to tokyo however have converged regardless of the measurement of dispersion in addition through the estimation of density function and transition matrix the intradistribution dynamics of each prefecture s per capita income is identified

the effects of public spending shocks on trade balances and budget deficits in the european union we investigate the consequences of an increase in public spending for trade balances and budget deficits in the european union using a panel var approach whereas the literature tends to treat the trade balance gdp ratio as a single variable we include exports and imports as separate variables this allows us to track in more detail the sources of trade balance movements further we use annual rather than quarterly data this facilitates the interpretation of the shocks and reduces potential anticipation effects of fiscal policy changes however the identification assumptions become stronger and we extensively check their validity according to our baseline estimate a 1 gdp increase in public spending produces a 1 2 on impact with a 1 6 peak rise in gdp rising imports and falling exports are responsible for a fall of the trade balance by 0 5 of gdp on impact and a peak fall of 0 8 in addition the spending increase produces a 0 7 impact and peak budget deficit thereby pointing to the potential relevance of the twin deficits hypothesis for the european union jel e62 h60

fiscal policy and the current account are microstates different this article examines the empirical link between fiscal policy and the current account focusing on microstates defined as countries with a population of less than 2 million between 1970 and 2009 this article employs panel regression and panel vector autoregression pvar on 155 countries of which 42 are microstates panel regression results show that a percentage point improvement in the fiscal balance improves the current account balance by 0 4 percentage points of gross domestic product gdp the real effective exchange rate has no significant impact on the current account in microstates but the coefficient is significant in the global sample pvar results show that an increase in government consumption results in real exchange appreciation but the effect on the current account after an initial deterioration dies out quicker in microstates than in the global sample the result implies that fiscal policy has little effect on the current account in microstates beyond its direct impact on imports overa

do tax cuts generate twin deficits a multi country analysis we study the eects of tax shocks on the budget and external deficits for 16 industrialized countries over the post 1975 period our structural approach is based on a tractable small open economy model where a tax cut generates a budget deficit in turn the budget deficit aects the external deficit by two distinct channels the demographic channel works through the overlapping generation structure of the model the forecasting channel works through the dynamic structure of the model our empirical analysis documents that tax shocks generate significant positive comovements between the budget and external deficits we also find that both the demographic and forecasting channels are important to explain the comovements

empirics of health aid education and infant mortality a semiparametric study the present article uses semiparametric regression to capture the impact of foreign aid given for health purposes on the infant mortality rate imr of poor developing countries after controlling for other covariates we also investigate whether education general awareness helps lower imr directly or helps improve effectiveness of health aid in reducing imr in addition the study investigates whether various disaggregated components of health aid for example aid that goes for infectious disease control or nutrition help lower imr we find that although adult education awareness always lowers imr the overall effect of health aid remains insignificant our conclusion is robust to various disaggregated components of health aid as well we also check if health aid has improved prenatal care for expecting mothers but our conclusion regarding the overall ineffectiveness of aid remains unchanged interestingly we find that total health aid as well as nutrition aid may lower imr only after education ex

growth and convergence of the oecd countries a multi sector production frontier approach abstract kumar and russell 2002 henderson and russell 2005 and badunenko henderson and russell 2013 have proposed a production frontier methodology to analyze the economic growth and the convergence of growth rates across countries they see two main advantages to this methodology 1 it reconstructs the world production frontier without relying on any particular typically unverifiable assumptions on any aspects of the growth process and 2 it allows to decompose labor productivity growth into several parts in this paper i extend the previous approach by considering a multi sector setting this setting allows to propose a more realistic and complete country level analysis while keeping the same advantages as with the previous methodology i also tackle the criticism of less reliable data at the sector level than at the country level by showing how the multi sector approach can easily be adapted i apply it to the oecd countries from 1995 to 2008 the results confirm the non neutrality of technological change i also find that capital accumulation plays the biggest role in the increase of output labor productivity while technological change and human capital accumulation also play an important role but it is twice as small as capital accumulation interestingly these results suggest the emergence of two groups eastern and central european countries and the eu15 and korea the two groups seem to diverge over time

can government purchases stimulate the economy this essay briefly reviews the state of knowledge about the government spending multiplier drawing on theoretical work aggregate empirical estimates from the united states as well as cross locality estimates i assess the likely range of multiplier values for the experiment most relevant to the stimulus package debate a temporary deficit financed increase in government purchases i conclude that the multiplier for this type of spending is probably between 0 8 and 1 5 jel e23 e62 h50

strategic interactions of fiscal policies in europe a global var perspective abstract the paper analyses the strategic interactions of fiscal policies in the european union context by modelling the interdependencies arising between public and private sectors saving investment balances in a global vector autoregressive framework we use two empirical specifications to reflect some important differences in the sequencing of the policy decision making process in this setting we draw policy implications with respect to fiscal policy coordination and fiscal policy discretion we highlight the importance of several factors such as global capital flows uncertainty with respect to policy actions and nature of the shocks as key elements defining the dimension of the prevailing policy tradeoffs

does renewable and or non renewable energy consumption matter for total factor productivity tfp growth evidence from the brics abstract studies proved that output growth is mainly associated with the total factor productivity tfp growth and variables that affect the tfp have an important explanatory power on output in this regards the aim of this study is to examine the causal relationship between different types of energy consumption and tfp growth in the brics from 1992 to 2012 a panel bootstrap granger causality test by konya 2006 68 was employed to investigate the direction of possible connection between energy consumption and tfp growth results show that no remarkable causal link exists between renewable energy consumption and tfp growth in the brics however in the case of non renewables energy consumption creates a positive externality that contributes economic development in brazil and south africa by the growth of tfp as well as energy use itself in this respect policies that promote coal and non renewable electricity consumption in south africa and natural gas consumption in brazil may be beneficial for their economic development

could prometheus be bound again a contribution to the convergence controversy abstract this paper presents a neoclassical model of stochastic growth in which the probability of adverse shocks to production is inversely related to the aggregate stock of capital per capita postulating this endogenous relationship justified by empirical evidence the model yields predictions that are largely consistent with the recent findings of cross country club convergence differently from the standard explanation based on multiplicity of steady states this model is also able to yield predictions consistent with observable intra distribution dynamics thus accounting for phenomena such as economic miracles growth disasters and reversals of fortune

is migration important for regional convergence comparative evidence for norwegian and swedish counties 1980 2000 ostbye s and westerlund o 2007 is migration important for regional convergence comparative evidence for norwegian and swedish counties 1980 2000 regional studies 41 901 915 regional convergence studies have relied on net migration data when assessing the impact of migration with heterogeneous labour the implied symmetrical treatment of immigration and emigration cannot be justified a priori because of heterogeneity among migrants gross migration flows may lead to considerable interregional redistribution of human capital even when net migration is zero moreover the effects of regional economic conditions on gross in and out migration flows may not be symmetric in this comparative study of regional growth and migration the net and the gross migration approaches are compared the results confirm ex post that the net approach cannot be justified and despite sweden and norway being similar in many ways migration has very different effects on convergence in these two countries ostbye s et

trade spill overs of fiscal policy in the european union a panel analysis we explore the international spillovers from fiscal policy shocks via trade in europe a fiscal expansion stimulates domestic activity which leads to more foreign exports and hence higher foreign output to quantify this we combine a panel var model in government spending net taxes and gdp with a panel trade model on average a public spending increase equal to 1 of gdp implies 2 3 more foreign exports over the first two years the corresponding figure for an equal size net tax reduction is 0 6 both estimates are statistically significant as far as the effect on foreign activity is concerned a 1 of gdp spending increase net tax reduction in germany on average raises gdp of trading partners by 0 23 0 06 over the first two years these figures are likely to form lower bounds for the actual effects and suggest that it may be worthwhile to further investigate the benefits from coordinated fiscal expansions contractions in response to european wide cyclical downturns upswings

aid policies and growth in developing countries a new look at the empirics the relationship between foreign aid and economic growth has been the subject of much controversy a recent theme suggesting that aid promotes growth but only in a good policy environment has ratcheted up that debate in this paper we assess the importance of policy and aid in generating growth when the aid policy and growth relationship is nonlinear this allows us to examine the varying effects of aid and policy in different data segments which we do without imposing any particular structure on the underlying relationship we find that policy is an important determinant of growth we also find partial corroboration of the view that aid is growth enhancing in a good policy environment and some evidence of diminishing returns to aid these findings suggest that nonlinearities if not appropriately addressed fail to capture the detailed underlying dynamics and thereby mask some key features of the aid policy growth relationship

a fresh look at fiscal multipliers one size fits it all evidence from the mediterranean area following the adoption of important fiscal stimuli to fight the recent crisis a large literature estimated fiscal multipliers focusing on an area particularly appealing given its diversity and the diversity of the response of countries that compose it to the current crisis namely the mediterranean area we unveil major disparities regarding the significance sign and size of fiscal multipliers depending mainly on the economic characteristics the type of multiplier the time span and the type of fiscal stimulus evidence of such important heterogeneities highlights the need for better cooperation among countries particularly regarding the design of fiscal policy failing to do so might divert public resources to ineffective fiscal policies in some countries or on the contrary deprive other countries of potentially high benefits of appropriate fiscal policies including a reliable tool for exiting the current crisis

the effects of government spending shocks on the real exchange rate and trade balance in turkey the aim of this study is to investigate the effects of government spending shocks on the real exchange rate and foreign trade balance in turkey for the period of 2002 01 2012 04 within a structural var framework the analysis shows that a positive shock to the government spending tends to induce real exchange rate appreciation and deterioration in trade balance we also find that the composition of the government spending matters although shocks to the government nonwage consumption generate an appreciation in the real exchange rate and worsening of the trade balance the effects of government investment shocks remain insignificant furthermore the analysis demonstrates that shocks to government spending are associated with a rise in taxes which is indicative of a spending driven tax adjustment process in turkey

immigration and public finances in oecd countries abstract this paper shows that the macroeconomic and fiscal consequences of international migration are positive for oecd countries and suggests that international migration produces a demographic dividend by increasing the share of the workforce within the population the estimation of a structural vector autoregressive model on a panel of 19 oecd countries over the period 1980 2015 reveals that a migration shock increases gdp per capita through a positive effect on both the ratio of working age to total population and the employment rate international migration also improves the fiscal balance by reducing the per capita transfers paid by the government and per capita old age public spending to rationalize these findings an original theoretical framework is developed this framework highlights the roles of both the demographic structure and intergenerational public transfers and shows that migration is beneficial to host economies characterized by aging populations and large public sectors

on aid growth and good policies this study provides a critical analysis of the growth regressions in burnside and dollar 2000 first we analyse the relationship between aid and government expenditure in a modified neo classical growth model one of the main results of the analysis is that while good policies spur growths they may at the same time reduce the effectiveness of foreign aid second we show that the econometric results in burnside and dollar emphasising the crucial role of interaction between aid and good policies in the growth process are fragile as they are extremely data dependent finally we demonstrate that the burnside and dollar data lend support to the idea that the association between aid and growth can be approximated by decreasing returns to aid this finding conforms well to regression results in other recent studies

spatial disparities in the european agriculture a regional analysis this article examines the territorial imbalances in european agriculture during the period 1980 to 2001 by means of the information provided by various methodological instruments which allow us to overcome the drawbacks of conventional convergence analysis the results obtained reveal that the regional distribution of productivity in the agricultural sector is characterized by the presence of positive spatial dependence this fact implies that the european regions in close spatial proximity register similar levels of the variable under study which highlights the relevance of geographical location in this context the empirical evidence presented also shows that regional disparities have remained almost constant during the time interval considered however the increase in density around the european average explains the observed reduction in the degree of bipolarization while intra distribution mobility is relatively limited finally the analysis carried out allows us to assess the role of variables s

the effects of government purchases shocks review and estimates for the eu in this article we review the theoretical consequences of government purchases shocks for both closed and open economies followed by a discussion of the empirical literature next we provide our own estimates for the eu countries we find that an increase in government purchases raises output consumption and investment and reduces the trade balance however the stimulating effect is weaker and the trade balance reduction is larger for the more open eu economies consistent with larger leakage effects further we show that government purchases shocks in large eu economies have non negligible consequences for economic activity in the main trading partners

on the size of government spending multipliers in europe this article compares the size of government spending multipliers in europe by applying a panel structural vector autoregression analysis on 11 eurozone and 8 non eurozone countries using quarterly data from 1991q1 to 2012q4 we find that i spending multipliers are smaller in eurozone compared to non eurozone countries ii across the euro area the impact of government spending on gdp has been higher before than after the introduction of the euro iii spending multipliers are larger in the eurozone periphery than in the core countries and iv since the beginning of the recent financial crisis spending multipliers have become larger both for eurozone and for non eurozone countries we relate these results to an emerging theoretical literature linking the size of fiscal multipliers to the monetary policy stance we also discuss the implications of our findings for the effectiveness of fiscal policy in europe

market power and fiscal policy in oecd countries we compute average markups as a measure of market power throughout time and study their interaction with fiscal policy and macroeconomic variables in a var framework from impulse response functions the results with annual data for a set of 14 oecd countries show that the markup i depicts a pro cyclical behaviour with productivity shocks and ii a counter cyclical behaviour with fiscal spending shocks we also use a pvar increasing the efficiency in the estimations which confirms the country specific results

fiscal stimulus with spending reversals abstract the short run effects of fiscal policy depend not only on current tax and spending choices but also on expectations about future policy adjustment while general equilibrium models typically restrict medium term adjustment to taxation we highlight the importance of government spending dynamics first we provide time series evidence for the united states suggesting that an exogenous increase in government spending prompts a rise in public debt followed over time by a reduction in spending below trend second we show how expected spending reversals alter the short run impact of fiscal policy in a new keynesian model bringing it closer in line with the evidence

globalization returns to accumulation and the world distribution of output abstract this paper examines the extent to which the process of globalization can explain the observed widening in the cross country distribution of output per worker on the theoretical front the model highlights why when the labor market is subject to a holdup problem the opening up of trade will cause an increase in the dispersion of income across countries similar to that observed in the data the increase in dispersion in the model arises due to the emergence of a discrepancy between the private and social returns to capital accumulation that favors capital abundant countries on the empirical front we document the relevance of the model by examining whether growth patterns decomposition exercises and specialization patterns support the model s predictions overall we find that over 50 of the recently observed increase in income dispersion across countries can be accounted for by the mechanism exemplified by the model

the effect of measurement error on the estimated shape of the world distribution of income abstract this note examines the robustness that two modes exist in the world s density of per capita income our results suggest that this bimodal feature is robust and are arrived at using recently developed nonparametric deconvolution techniques

human capital and convergence a production frontier approach using nonparametric production frontier methods we decompose labor productivity growth into components attributable to technological change shifts in the world production frontier technological catch up movements toward or away from the frontier and physical and human capital accumulation movements along the frontier we find that 1 technological change is decidedly nonneutral 2 productivity growth is driven primarily by physical and human capital accumulation 3 the increased international dispersion of productivity is explained primarily by physical capital accumulation and 4 international polarization the shift from a unimodal to a bimodal distribution is brought about primarily by efficiency changes technological catch up

on the evolution of the world income distribution the post world war ii period has seen substantial changes in the distribution of gdp per worker around the world in the upper half of the distribution a number of countries have exhibited large increases in income relative to the richest countries in the bottom half several countries have seen incomes fall relative to the richest countries the net result of these changes is a movement in the shape of the world income distribution from something that looks like a normal distribution in 1960 to a bi modal twin peaks distribution in 1988 projecting these changes into the future suggests a number of interesting ndings first it seems likely that the united states will lose its position as the country with the highest level of gdp per worker second growth miracles have been more common in recent decades than growth disasters if these dynamics continue the future income distribution will involve far more rich countries and far fewer poor countries than currently observed

government spending shocks in quarterly and annual time series government spending shocks are frequently identified in quarterly time series data by ruling out a contemporaneous response of government spending to other macroeconomic aggregates we provide evidence that this assumption may not be too restrictive for annual time series data

do all countries grow alike abstract this paper investigates the driving forces of output change in 77 countries during the period 1970 2000 a flexible modeling strategy is adopted that accounts for i the inefficient use of resources and ii different production technologies across countries the proposed model can identify technical efficiency and input change for each of three endogenously determined regimes membership in these regimes is estimated rather than determined ex ante this framework enables explorations into the determinants of output growth and convergence issues in each regime

aid policies and growth comment in an extraordinarily influential paper craig burnside and david dollar 2000 p 847 find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies but has little effect in the presence of poor policies this finding has enormous policy implications the burnside and dollar 2000 henceforth bd result provides a role and strategy for foreign aid if aid stimulates growth only in countries with good policies this suggests that 1 aid can promote economic growth and 2 it is crucial that foreign aid be distributed selectively to countries that have adopted sound policies international aid agencies public policy makers and the press quickly recognized the importance of the bd findings this paper reassesses the links between aid policy and growth using more data the bd data end in 1993 we reconstruct the bd database from original sources and thus 1 add additional countries and observations to the bd data set because new information has become available since they conducted their analyses and 2 extend the data through 1997 thus using the bd methodology we reexamine whether aid influences growth in the presence of good policies given our focus on retesting bd we do not summarize the vast pre bd literature on aid and growth we just note that there was a long and inconclusive literature that was hampered by limited data availability debates about the mechanisms through which aid would affect growth and disagreements over econometric specification see gustav f papanek 1972 robert cassen 1986 paul mosley et al 1987 peter boone 1994 1996 and henrik hansen and finn tarp s 2000 review since bd found that aid boosts growth in good policy environments there have been a number of other papers reacting to their results including paul collier and jan dehn 2001 carljohan dalgaard and hansen 2001 patrick guillaumont and lisa chauvet 2001 hansen and tarp 2001 robert lensink and howard white 2001 and collier and dollar 2002 these papers conduct useful variations and extensions some of which had already figured in the pre bd literature such as introducing additional control variables using nonlinear specifications etc some of these papers confirm the message that aid only works in a good policy environment while others drive out the aid policy interaction term with other variables this literature has the usual limitations of choosing a specification without clear guidance from theory which often means there are more plausible specifications than there are data points in the sample we differentiate our paper from these others by not deviating from the bd specification thus we do not test the robustness of the results to an unlimited number of variations but instead maintain the bd methodology this paper conducts a very simple robustness check by adding new data that were unavailable to bd thus we expand the sample used over their time period and extend the data from 1993 to 1997 easterly department of economics new york university 269 mercer street new york ny 10003 center for global development and national bureau of economic research e mail william easterly nyu edu levine department of finance carlson school of management university of minnesota 321 19th avenue south minneapolis mn 55455 and national bureau of economic research e mail rlevine csom umn edu roodman center for global development 1776 massachusetts avenue nw washington dc 20036 e mail droodman cgdev org we are grateful to craig burnside for supplying data and assisting in the reconstruction of previous results without holding him responsible in any way for the work in this paper thanks also to francis ng and prarthna dayal for generous assistance with updating the sachs warner openness variable and to three anonymous referees craig burnside and henrik hansen for helpful comments 1 see for instance the world bank 1994 2001 2002 the u k department for international development 2000 president george w bush s speech march 16 2002 the announcement by the white house on creating the millennium challenge corporation white house 2002 as well as a washington post editorial february 9 2002 a financial times column by alan beattie march 11 2002 and the economist march 16 2002

the anarchy of numbers aid development and cross country empirics the recent literature contains many stories of how foreign aid affects economic growth aid raises growth in countries with good policies or with difficult economic environments or outside the tropics or on average but with diminishing returns the diversity of the results suggests that many are fragile seven important aid growth papers are tested for robustness using 14 minimally arbitrary tests deriving mainly from differences among the studies themselves this approach investigates the importance of potentially arbitrary specification choices while minimizing the arbitrariness in testing choices all of the results appear fragile especially to sample expansion

financial market globalization symmetry breaking and endogenous inequality of nations this paper investigates the effects of financial market globalization on the inequality of nations the world economy consists of inherently identical countries which differ only in their levels of capital stock each country is represented by the standard overlapping generations model modified only to incorporate credit market imperfection an integration of financial markets affects the set of stable steady states as it changes the balance between the equalizing force of the diminishing returns technology and the unequalizing force of the wealth dependent borrowing constraint the model is tractable enough to allow for a complete characterization of the stable steady states in the absence of the international financial market the world economy has a unique steady state which is symmetric and stable in the presence of the international financial market symmetry breaking occurs under some conditions that is the symmetric steady state loses its stability and stable asymmetric steady states come to exist in the stable asymmetric steady states the world economy is endogenously divided into the rich and poor countries the borrowing constraints are binding in the poor but not in the rich the world output is smaller the rich are richer and the poor are poorer in any of the stable asymmetric steady states than in the unstable symmetric steady state

twin deficit or twin divergence fiscal policy current account and real exchange rate in the u s abstract in spite of concerns about twin deficits fiscal and the current account deficits for the united states economy empirical evidence suggests that twin divergence is a more usual feature of the historical data i e when fiscal accounts worsen the current account improves and vice versa this paper empirically studies the effects of fiscal policy government budget deficit shocks on the current account and the real exchange rate during the flexible exchange rate regime period based on var vector auto regression models we identified exogenous fiscal policy shocks after controlling for business cycle effects on fiscal balances in contrast to the predictions of most theoretical models the u s results suggest that an expansionary fiscal policy shock or a government budget deficit shock improve the current account and depreciate the real exchange rate increases in private savings and declines in investment contribute to the current account improvement while a nominal exchange rate depreciation as opposed to a relative price level change is mainly responsible for the real exchange rate depreciation the twin divergence of fiscal balances and current account balances is also explained by the prevalence of output shocks i e output shocks more than fiscal shocks appear to drive the co movements of the current account and the fiscal balance

idiosyncratic production risk growth and the business cycle we introduce a neoclassical growth economy with idiosyncratic production risk and incomplete markets each agent is an entrepreneur operating her own technology with her own capital stock the general equilibrium is characterized by a closed form recursion in the cara normal case incomplete markets introduce a risk premium on private equity which reduces the demand for investment as compared to complete markets the steady state can thus have both a lower capital stock due to investment risk and a lower interest rate due to precautionary savings furthermore the anticipation of high real interest rates in the future feeds back into high risk premia and low investment in the present thus slowing down convergence to the steady state our results highlight the importance of private risk premia for capital accumulation and business cycles

politics and the effectiveness of foreign aid abstract critics of foreign aid programs have long argued that poverty reflects government failure in this paper i test predictions for aid effectiveness based on an analytical framework that relates aid effectiveness to political regimes i find that aid does not significantly increase investment nor benefit the poor as measured by improvements in human development indicators but it does increase the size of government the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive but liberal political regimes and democracies ceteris paribus have on average 30 lower infant mortality than the least free regimes this may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs an implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs

on the measurement of σ convergence abstract we demonstrate that two popular measures of inequality related to the discussion of convergence lead to different conclusions when used on data from penn world table the reason is that the measures assign different weights to individual countries growth performance

us regional income convergence a spatial econometric perspective rey s j and montouri b d 1999 us regional income convergence a spatial econometric perspective reg studies 33 143 156 this study reconsiders the question of us regional economic income convergence from a spatial econometric perspective recently developed methods of exploratory spatial data analysis provide new insights on the geographical dynamics of us regional income growth patterns over the 1929 94 period strong patterns of both global and local spatial autocorrelation are found throughout the study period and the magnitude of global spatial autocorrelation is also found to exhibit strong temporal co movement with regional income dispersion a spatial econometric analysis of the familiar baumol specification reveals strong evidence of misspecification due to ignored spatial error dependence because of this dependence shocks originating in one state can spillover into surrounding states potentially complicating the transitional dynamics of the convergence process rey s j et montouri

the effects of discretionary fiscal policy on macroeconomic aggregates a reappraisal fiscal stimuli to recover a cascade of academic and layman articles debate the effectiveness of fiscal policy in stimulating the economy backed up by different economic models and empirical support this essay surveys the theoretical predictions and recent empirical vector autoregression var evidence on the short run effects of discretionary fiscal policy on macroeconomic aggregates

aid and growth regressions this paper examines the relationship between foreign aid and growth in real gdp per capita as it emerges from simple augmentations of popular cross country growth specifications it is shown that aid in all likelihood increases the growth rate and this result is not conditional on good policy there are however decreasing returns to aid and the estimated effectiveness of aid is highly sensitive to the choice of estimator and the set of control variables when investment and human capital are controlled for no positive effect of aid is found yet aid continues to impact on growth via investment we conclude by stressing the need for more theoretical work before this kind of cross country regressions are used for policy purposes

estimating the effects of coordinated fiscal actions in the euro area abstract we estimate spillover effects of a fiscal shock in one member country in the euro area on outputs of the rest of the members using a global vector autoregression gvar model we compare the effects of a domestic fiscal shock with those of a similar size area wide shock expressed as a weighted average of the fiscal shocks across all member countries according to our estimates the impact of an area wide fiscal shock on output of a member country tends to be positive and larger than that of a domestic shock since the cost of participating in the area wide shock is lower than the cost of a similar size domestic shock our finding indicates the importance of coordinated fiscal actions in the euro area

nonlinear economic growth some theory and cross country evidence abstract this paper aims to test the existence of different growth regimes that is of different relationships between growth rate and income level we propose a simple nonlinear growth model and test its empirical implications by estimating markov transition matrices and stochastic kernels we show that growth is indeed nonlinear a first phase of slow or zero growth is followed by a take off and finally by a phase of deceleration we discuss the relevance of these results with respect to the issue of convergence and reversibility of development in the light of models of structural change and technological diffusion

twin deficits squaring theory evidence and common sense in this paper we reconsider the twin deficit hypothesis that fiscal shocks generating budget deficits also worsen external trade both from a theoretical point of view and by analyzing data for australia canada the uk and the us first we assess the joint dynamics of budget and trade deficits along the business cycle uncovering a strikingly recurrent s shaped relation between the two the correlation is actually negative suggesting twin divergence this observation however cannot rule out the possibility that government spending expansions and or tax cuts may cause trade deficits as the overall correlation is likely to be dominated by cyclical factors second we reconsider the transmission of government spending in a standard two country two good model we find that openness and the persistence of fiscal shocks are major determinants of the magnitude or even sign of the response of the trade balance to fiscal shocks for a given persistence of the fiscal shock the closer an economy the larger the crowding out effect on investment the lower the deterioration of the trade balance third we take this insight to the data investigating the transmission of fiscal shocks in a var framework in the four countries in our sample our empirical findings tend to support our view in the us and australia which are relatively less open than canada and the uk and where government spending shocks are less persistent we find that the external impact of fiscal policy is rather limited instead private investment responds substantially the reverse is true for canada and the uk these findings confirm and put into perspective earlier results whereas fiscal expansions in the us are found to have on average a negligible effect on the country s trade balance however we emphasize that these results are consistent with a call for a us fiscal retrenchment to address global imbalances the impact of budget cuts on the us external trade is muted by their positive effect on domestic investment strengthening the us ability to generate resources against future interest and debt repayment

aid and performance a reassessment two visions of aid effectiveness and allocation are compared the first corresponding to the new aid paradigm argues that aid is only effective if domestic policies are appropriate the second in contrast argues that aid effectiveness depends on the external and climatic environment the worse this environment or the more vulnerable the recipient countries the greater the effectiveness of aid cross sectional econometric tests related to gdp growth on two 12 year pooled periods clearly favour the second view the two views can be reconciled through the principle of performance based aid allocation where performance is defined as outcomes adjusted for the impact of environmental factors performance can then be measured in several manners which are subject to comparison one approach would lead one to allocate more aid the worse the external environment is for a given policy and the better the policy is for a given environment