the elite variable in democratic transitions and breakdowns stable democratic regimes depend heavily on the consensual unity of national elites so long as elites remain disunified political regimes are unstable a condition which makes democratic transitions and democratic breakdowns merely temporary oscillations in the forms unstable regimes take disunity appears to be the generic condition of national elites and disunity strongly tends to persist regardless of socioeconomic development and other changes in mass populations the consensually unified elites that are necessary to stable democracies are created in only a few ways two of the most important of which involve distinctive elite transformations after elaborating this argument we examine the relationship between elites and regimes in western nation states since they began to consolidate after 1500 we show that our approach makes good sense of the western political record that it does much to clarify prospects for stable democracies in developing societies today and that it makes the increasingly elite centered analysis of democratic transitions and breakdowns more systematic

geographic diffusion and the transformation of the postcommunist world since the collapse of communism the states of postcommunist europe and asia have defined for themselves and have had defined for them two primary tasks the construction of viable market economies and the establishment of working institutions of representative democracy the variation in political and economic outcomes in the postcommunist space makes it without question the most diverse region in the world what explains the variation all of the big winners of postcommunism share the trait of being geographically close to the former border of the noncommunist world even controlling for cultural differences historical legacies and paths of extrication the spatial effect remains consistent and strong across the universe of postcommunist cases this suggests the spatially dependent nature of the diffusion of norms resources and institutions that are necessary to the construction of political democracies and market economies in the postcommunist era the authors develop and adduce evidence for the spatial dependence hypothesis test it against rival hypotheses and illustrate the relationships at work through three theoretically important case studies

the informal sector and the macroeconomy a computable general equilibrium approach for peru abstract this paper examines the macroeconomic implications of the informal sector in peru through the use of a structuralist computable general equilibrium model the lack of formal sector employment drives informal activity while formal and informal output are treated as imperfect substitutes simulations show that informal activity reduces the keynesian multiplier and complicates distributional issues as the income of formal workers and informal producers can move in opposite directions a final simulation highlights the limitations of strategies designed to promote the informal sector total output and income of informal producers decline following an increase in productivity in these processes

domestic and foreign disturbances in an optimizing model of exchange rate determination abstract this paper analyzes the effects of various disturbances of domestic and foreign origin in a small open economy under imperfect capital mobility in which the behavioral relationships are divided from optimization by the private sector in this model the domestic economy jumps instantaneously to its new equilibrium following a change in either the domestic monetary growth rate or domestic fiscal policy in response to a disturbance in either the foreign interest rate or inflation rate the economy undergoes an initial partial jump towards its new equilibrium which it thereafter approaches gradually the implications of these results for exchange rate adjustments and the insulation properties of flexible exchange rates are discussed

potato led growth the macroeconomic effects of technological innovations in bolivian agriculture through the use of a computable general equilibrium model we measure the economy wide effects of improving the production technology of relatively non traded staples potatoes maize import crops wheat and export crops soybeans in bolivia the results of the analysis suggest that technological innovations in the production technology of potatoes would benefit the bolivian economy most we discuss the reasons for the limited effects of technological innovations in tradeable crops

alternatives to coca production in bolivia a computable general equilibrium approach pressured and aided by the united states bolivia has reembarked on a program to eradicate the cultivation of coca used for cocaine production over the next three years the united states plans to inject us soo million into bolivia to wean the country from producing drugs and replace the cultivation of coca with other crops and agricultural activities previous research has shown that coca cultivation and cocaine production benefits the bolivian economy de franc0 and godoy 1992 by raising income creating employment and increasing the availability of credit particularly for smallholders and the informal sector melvin and ladman 1991 given that the macroeconomic impact of a reduction in coca leaf production could devastate the economy the bolivian government has little economic or political incentive to eradicate coca a solution could be to find substitute crops and agricultural activities which would provide comparable levels and distribution of income we use a computable general equilibrium cge model to study the effects of alternatives to coca production the model contains 38 sectors and four social classes the model allows for a detailed assessment of the economic feasibility of switching from coca to other crops in the simulations we reduce coca production and allow each substitute to adjust to restore the real income of smallholders which existed before eradication twenty one crops are then ranked by the feasibility of the needed price and output change the effect on gross domestic product gdp inflation and workers real incomes the results of the simulations suggest that sugar cattle forestry and maize are the strongest candidates for a coca substitution program but there are practical complications in implementing each of the substitutes as will be discussed below indeed the results of this study justify the reluctance on the part of the bolivian authorities to fully cooperate with us efforts to eradicate coca section 2 provides the background to bolivia s coca dependence in section 3 we develop the model and in section 4 we present the equations and an explicit closure statement for the model the results of the simulations are discussed in section 5 the conclusion section 6 contains a discussion of the problems likely to surface in implementing alternatives to coca cultivation

exchange risk political risk and macroeconomic equilibrium with the advent of increased exchange rate flexibility the role of policy and the transmission of economic disturbances under flexible rates have become topics of considerable interest j marcus fleming 1962 and robert mundell 1963 in their early analysis of the theory of policy in open economies emphasized the importance of the degree of capital mobility subsequently a number of authors have analyzed the implication of the degree of capital mobility for exchange rate and income determination in open economies see for example pentti kouri and michael porter 1974 william branson 1975 1979 lance girton and dale henderson 1976 and turnovsky 1976 the polar case of perfect capital mobility has received most attention capital is perfectly mobile when investors consider domestic bonds denominated in domestic currency and foreign bonds denominated in foreign currency to be perfect substitutes two factors may cause perfect substitutability to break down one is exchange risk the values of the two bonds are defined in terms of different currencies and the exchange rate at the date of maturation is uncertain the second is default risk investors may perceive that foreign bonds are more subject to the risk of default than are domestic bonds for one thing in the event of default the investor must pursue his claim through a foreign legal system which is likely to be costly robert aliber 1973 terms differences in default risk arising from the foreignness of assets as political risk where domestic and foreign securities are assumed to be only imperfect substitutes it is important to distinguish the degree of imperfection due to each of these sources of risk while this distinction has been noted in optimal portfolio models developed by authors such as kouri 1976 and michael alder and bernard dumas 1977 it has not been brought out in the current macro literature the objective of the present paper is to investigate the macroeconomic consequences of this distinction and to show how it may be crucial in assessing the effects of various macroeconomic disturbances under varying degrees of capital mobility we find that well known results about the effects of increased capital mobility on the efficacy of monetary policy are correct when the increased mobility is due to a reduction in exchange risk but not necessarily so when it is due to a reduction in default risk section i formulates a general equilibrium macroeconomic model which embodies the distinction between these two sources of risk we assume that the economy is small so that it treats certain characteristics of the foreign economy as parametric section ii carries out certain comparative static exercises with this model specifically it considers some important relationships between the available policy instruments and endogenous variables and shows how these are affected by the degree of capital mobility in the two senses in which this term is defined in particular we show that as long as there is a possibility of default there exists an independent role for forward market intervention in the limiting case of no default risk yale university and university of illinois respectively see peter kenen 1965 for an early analysis of the forward market incorporating potential default political risk may derive from the threat of exchange controls as well as from the threat of outright debt repudiation in either case the risk may not be the loss of the total net worth of the investment when the threat derives from exchange controls the expected value of net worth may even be preserved but if payment is delayed forward cover obtained for the investment will no longer be appropriate for our purposes it is the risk that repayment not occur on the date for which the forward cover is arranged thereby exposing the investor to exchange risk that is relevant our analysis could easily be modified to incorporate a preservation of some or all net worth in the event of default see eaton and mark gersovitz 1981 for a model in which the probability of default is endogenous

coca dollars and the dollarization of south america a unique data set on the informal loan market in a coca growing region of bolivia is used to explore the hypothesis that the dollarization of this market is related to the coca industry implications are then drawn for other nations where coca or cocaine is an important industry the authors find that loans are significantly more likely to be denominated in dollars in the season of the major coca harvest than at any other time of the year the effects of the term and size of loans is consistent with the financial needs of the drug industry which is highly dollarized copyright 1991 by ohio state university press

on some international parity conditions an empirical investigation abstract this paper investigates weak semi strong and strong forms of the following international parity conditions a uncovered interest parity b the hypothesis of equal ex ante real interest rates and c ex ante purchasing power parity the main results are as follows using data which roughly cover the 1975 1984 decade we find little evidence in favor of the strong form of the parity conditions under consideration however most test results are consistent with the weak forms finally regarding the semi strong forms the results are mixed

exchange rate dynamics sticky prices and the current account rational expectations exchange rate models have been of two principal types flexible price models and sticky price models the flexible price models may be further divided into those where current account based wealth effects are an important driving force in exchange rate dynamics and those where such effects are ignored 1 notably the literature includes few sticky price models incorporating current account based wealth effects 2 two reasons for the scarcity of such models are a the belief that current accountbased wealth effects are empirically unimportant for exchange rates and b that a model endogenizing exchange rate movements sticky price movements and current account based wealth effects is relatively difficult to analyze we note though that recent empirical work e g meese and rogoff 1983 has called into question the empirical importance of the standard determinants of exchange rates consequently the criterion of empirical relevance has not yet distinguished among models of exchange rates in connection with reason b note that a rational expectations sticky price exchange rate model where current account based wealth

incomplete information and the equilibrium determination of the forward exchange rate abstract in the present paper we embed the forward exchange rate in an equilibrium macroeconomic model incorporating rational expectations and portfolio balance and in which the spot exchange rate the forward exchange rate the expected future spot rate and the domestic interest rate are determined simultaneously the purpose is to examine the impact of alternative macroeconomic disturbances on the spot and forward exchange rates and on the bias in the forward rate as a predictor of future spot rates the rational expectations hypothesis plays a key role in the analysis alternative assumptions made about the information available to agents in the economy are shown to have rather dramatic consequences on the answers obtained

the fourth wave of democracy and dictatorship noncooperative transitions in the postcommunist world the transition from communism in europe and the former soviet union has only sometimes produced a transition to democracy since the crumbling of the berlin wall in 1989 and the collapse of the soviet union in 1991 most of the twenty eight new states have abandoned communism but only nine of these have entered the ranks of liberal democracies the remaining majority of new postcommunist states are various shades of dictatorships or unconsolidated transitional regimes this article seeks to explain why some states abandoned communism for democracy while others turned to authoritarian rule in endorsing actorcentric approaches that have dominated analyses of the third wave of democratization this argument nonetheless offers an alternative set of causal paths from ancien regime to new regime that can account for both democracy and dictatorship as outcomes situations of unequal distributions of power produced the quickest and most stable transitions from communist rule in countries with asymmetrical balances of power the regime to emerge depends almost entirely on the ideological orientation of the most powerful in countries where democrats enjoyed a decisive power advantage democracy emerged conversely in countries in which dictators maintained a decisive power advantage dictatorship emerged in between these two extremes were countries in which the distribution of power between the old regime and its challengers was relatively equal rather than producing stalemate compromise and parted transitions to democracy however such situations in the postcommunist world resulted in protracted confrontation between relatively balanced powers the regimes that emerged from these modes of transitions are not the most successful democracies but rather are unconsolidated unstable partial democracies

expectations and exchange rate dynamics after a decade of floating abstract dornbusch s model of expectations and exchange rate dynamics has been a theoretical success and an empirical failure the premise underlying this paper is that the price and exchange rate dynamics inherent in his model cannot be captured by single equation methods to capture these dynamics we estimate dornbusch s model using constrained maximum likelihood methods which incorporate cross equation restrictions derived from the structural equations and assumption of rational expectations our central result is that the estimation of dornbusch s model is much more successful than single equation methods have led us to believe

an econometric analysis of coca eradication policy in colombia abstract we estimate an econometric model of coca production in colombia our results indicate that coca eradication is an ineffective means of supply control as farmers compensate by cultivating the crop more extensively the evidence further suggests that incentives to produce legal substitute crops may have greater supply reducing potential than eradication

perspectives on positive political economy this volume serves as an introduction to the field of positive political economy and the economic and political processes with which it is concerned this new research tradition is distinct from both normative and historical approaches to political economy grounded in the rational actor methodology of microeconomics positive political economy is the study of rational decisions in a context of political and economic institutions more analytical than traditional approaches it is concerned with the derivation of principles and propositions against which real world experience may be compared its focus is on empirical regularities and its goal is theoretical explanation the field has focused on three main areas of research models of collective action constraints on competitive market processes and the analysis of transaction costs developments in all of these areas are covered in the book the first part of the volume surveys the field while the second part displays positive political economy at work examining a variety of subjects the final part contains essays by leading political economists on the theoretical foundations of the field

cointegration and exchange rate dynamics abstract we utilize systems methods of estimation which impose the unit root structure to estimate both the long run equilibrium relationship the cointegrating vector and the short run dynamics of an open economy macroeconomic model in which the exchange rate and the domestic price level are endogenously determined for the united states the model is estimated over the flexible exchange rate period and over two sub periods chosen by structural change tests on the exchange rate both rational and theories consistent expectations are utilized the models with theories consistent expectations outperform those with rational expectations

covered interest parity uncovered interest parity and exchange rate dynamics a number of macroeconomic models of open economies under flexible exchange rate assume a strong version of perfect capital mobility which implies that currency speculation commands no risk premium if this assumption is dropped a number of important results no longer obtain first the exchange rate and interest rate cannot be in steady state unless both the government deficit and current account equal zero not simply their sum as would otherwise be the case second even in steady state the domestic interest rate can deviate from the foreign interest rate by an amount which de ends upon relative domestic asset supplies finally introducing risk aversion on the part of speculators can reduce the response on impact of the exchange rate to changes in domestic asset supplies in this sense rational speculators if they are less risk averse than other agents can destabilize exchange markets this abstract was borrowed from another version of this item

real exchange rate overshooting and the output cost of bringing down inflation implementing a gradualist policy of monetary contraction in an open economy with a freely floating exchange rate but with nominal inertia in domestic labor costs can lead to prompt and substantial changes in the nominal and real exchange rate one of the virtues claimed for such exchange rate overshooting however is its immediate effect on the price level and so on domestic wage and price inflation in this paper we show that in a model which is super neutral and has nominal inertia in both the level of labor costs and their trend or core rate of growth this early overshooting of the exchange rate does not succeed in cutting the output costs of reducing steady state inflation those output and unemployment costs which are initially avoided by over valuing the currency have to be paid later when this overvaluation is corrected relative to other policies which achieve the same effect on steady state inflation exchange rate overshooting brings inflation down more quickly this abstract was borrowed from another version of this item

colombia s income from the drug trade abstract we estimate the net dollar proceeds that colombia receives from the drug trade making use of production data recently compiled by us authorities care is taken in assuring that our estimations are consistent with previous research on cocaine consumption in the united states and production in bolivia and peru we show that net dollar proceeds which used to represent around 7 of gdp and 70 of exports in the early 1980s now represent around 3 of gdp and 25 of exports these numbers though significant pale in comparison with those suggested in the popular press according to which colombia s economy has been all but overtaken by the drug trade

exchange rate dynamics under gradual portfolio and commodity price adjustment abstract this paper studies exchange rate dynamics within the context of a model that allows for gradual portfolio and commodity price adjustment the model encompasses as a special limiting case the orthodox portfolio balance model wherein portfolio adjustment is instantaneous the focus of the paper is on the process of adjustment to a once and for all open market operation under a bond financed government budget deficit the generalized portfolio balance model which we formulate generates a varied menu of adjustment paths for the exchange rate and the aggregate price level which are more successful than the orthodox instantaneous portfolio equilibrium models in accomodating the divergent experiences of various countries