the effect of financial repression and enforcement on entrepreneurship and economic development abstract a general equilibrium model with heterogeneous agents with respect to wealth and ability shows that differences across countries in intermediation costs and enforcement generate differences in occupational choice firm size credit output and income inequality counterfactual experiments are performed for latin american european transition and high growth asian countries with empirical estimates of each country s financial frictions and united states values for all other parameters the results isolate the quantitative effect of these financial frictions in explaining the performance gap between each country and the united states and depend critically on whether a general equilibrium factor price effect is operative

the vcg auction in theory and practice abstract we describe two auction forms for search engine advertising and present two simple theoretical results concerning i the estimation of click through rates and ii how to adjust the auctions for broad match search we also describe some of the practical issues involved in implementing a vcg auction

borrowing constraints human capital accumulation and growth abstract borrowing constraints increase aggregate savings and therefore may increase growth this paper argues however that by reducing human capital accumulation borrowing constraints also have negative effects on growth these effects are discussed in an overlapping generations model with endogenous growth empirical evidence for oecd and developing countries lend support to the main predictions of the model

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

inflation financial markets and long run real activity abstract empirical evidence suggests that real activity the volume of bank lending activity and the volume of trading in equity markets are strongly positively correlated at the same time inflation and financial market activity are strongly negatively correlated in the long run as are inflation and the real rate of return on equity inflation and real activity are also negatively correlated in the long run particularly for economies with relatively high rates of inflation we present a monetary growth model in which banks and secondary capital markets play a crucial allocative function we show that at least under certain configurations of parameters the predictions of the model are consistent with these and several other observations about inflation finance and long run real activity

financial development and financing constraints international evidence from the structural investment model this article provides evidence that financial development impacts growth by reducing financing constraints that would otherwise distort efficient allocation of investment the financing constraints are inferred from the investment euler equation by assuming that the firm s stochastic discount factor is a function of the firm s financial position specifically the stock of liquid assets the magnitude of the changes in the cost of capital is twice as large in a country with a low level of financial development as in a country with an average level of financial development the size effect business cycles and legal environment effects are also considered copyright 2003 oxford university press

can enforcement constraints explain the patterns of capital flows after financial liberalizations abstract a standard small open economy model would have problems accounting for the pattern of capital flows into capital poor economies that open to the rest of the world such types of models would predict extremely large and very sudden capital flows putting these predictions at odds with the data while the bulk of the literature has focused on the role of inputs frictions to produce slower capital flows this article presents an exploration into the role of financial frictions in particular enforcement constraints to produce endogenously slow capital flows we are left with three main findings first enforcement constraints are helpful frictions for producing slow capital flows however these flows do not exhibit the degree of persistence observed in the data finally when we extend our model to mimic declining values of financial autarky the model is able to produce more persistent capital inflows that are more in line with the data although these deficits revert into surpluses more quickly than in the data we are left with a finding that leads to a promising line of research models that include endogenously increasing costs of defaulting are better suited to reproduce the patterns of capital flows into opening economies

risk taking global diversification and growth this paper develops a continuous time stochastic model in which international risk sharing can yield substantial welfare gains through its effect on expected consumption growth the mechanism linking global diversification to growth is an attendant world portfolio shift from safe low yield capital to riskier high yield capital the presence of these two types of capital captures the idea that growth depends on the availability of an ever increasing array of specialized hence inherently risky production inputs calibration exercises using consumption and stock market data imply that most countries reap large steady state welfare gains from global financial integration copyright 1994 by american economic association

bank ownership and performance does politics matter this paper uses a new dataset to reassess the relationship between bank ownership and bank performance providing separate estimations for developing and industrial countries it finds that state owned banks located in developing countries tend to have lower profitability and higher costs than their private counterparts and that the opposite is true for foreign owned banks the paper finds no strong correlation between ownership and performance for banks located in industrial countries next in order to test whether the differential in performance between public and private banks is driven by political considerations the paper checks whether this differential widens during election years it finds strong support for this hypothesis

expressive voting and electoral equilibrium there are two rival accounts of rational voting in the public choice tradition the mainstream instrumental account that sees the vote as a revelation of preference over possible electoral outcomes essentially analogous to a market choice and the expressive account that sees the vote as expressing support for one or other electoral options rather like cheering at a football match this paper attempts to lay out some of the implications of the expressive account of voting for the issue of who votes as well as for the nature of political equilibrium and to compare these implications with those derived from the instrumental account we also identify and discuss the alternative views of the domain of electoral politics associated with the instrumental and expressive accounts of voting and sketch a route towards the integration of expressive and instrumental ideas in the analysis of rational electoral politics

sharing default information as a borrower discipline device abstract creditors often share information about their customers credit records besides helping them to spot bad risks this acts as a disciplinary device if creditors are known to inform one another of defaults borrowers must consider that default on one lender would disrupt their credit rating with all the other lenders this increases their incentive to perform however sharing more detailed information can reduce this disciplinary effect borrowers incentives to perform may be greater when lenders only disclose past defaults than when they share all their information in some instances by fine tuning the type and accuracy of the information shared lenders can raise borrowers incentives to their first best level

agency and optimal investment dynamics agency problems limit firms access to capital markets curbing investment firms and investors seek contractual ways to mitigate these problems what are the implications for investment we present a theory of a firm s investment dynamics in the presence of agency problems and optimal long term financial contracts we derive results relating firms investment decisions current and past cash flows firm size capital structure and dividends among the results optimal investment is increasing in current and past cash flow and optimal investment is positively serially correlated over time after controlling for investment opportunities these results hold for a range of agency problems jel g30 g31 g32 g35 d82 d86 d92 copyright 2007 oxford university press

the evolution of aquaculture in african rural and economic development abstract in africa aquaculture has developed only recently and so far has made only a small contribution to economic development and food security we review developments and identify constraints to the expansion of aquaculture in economic and rural development at the continental national and farm levels past development initiatives failed to achieve sustainable increases in production in contrast a growing number of smallholder farmers in many countries have been adopting and adapting pond aquaculture to their existing farming systems and slowly increasing their production efficiency an evolutionary approach that builds on a fusion of local and outside participation in technology development and transfer appears more likely to produce fish production systems that are more productive and more environmentally and socially sustainable in the long term

asymmetric information and loan contracts in a neoclassical growth model the authors consider a neoclassical growth model with risky investment projects in which a borrower s an investor s risk type is private information their innovation is to determine jointly the equilibrium loan contract and the economy s growth path and the steady state capital stock the authors show that as capital accumulates credit rationing may fall as an increasing number of lenders choose to acquire costly information to separate borrowers as to type this transition from credit rationing to screening in turn results in a higher capital accumulation path and a higher steady state capital stock they also investigate the effects of a decrease in the cost of information on the economy s capital accumulation path and steady state capital stock the authors show that the cost of information must fall below a threshold level before the economy moves from a credit rationing equilibrium to a screening one thus a threshold must be crossed before the steady state capital stock is increased with a decrease in the cost of information copyright 1997 by ohio state university press

bank commercial loan markets and the role of market structure evidence from surveys of commercial lending abstract this paper seeks to test two tenets that underlie the current practice of antitrust analysis in banking the first is the view that bank commercial loan markets are local in nature and the second is the view that banks in more concentrated markets are more likely to engage in some form of noncompetitive behavior tests of both of these tenets are conducted using an extensive set of loan specific survey information not previously employed to address these issues results consistent with the existence of local banking markets and the dominance of competitive differences as an explanation for observed differences in loan rates are found

religious beliefs gambling attitudes and financial market outcomes this study investigates whether geographic variation in religion induced gambling norms affects aggregate market outcomes we conjecture that gambling propensity would be stronger in regions with higher concentrations of catholics relative to protestants consistent with our conjecture we show that in regions with higher catholic protestant ratios investors exhibit a stronger propensity to hold lottery type stocks broad based employee stock option plans are more popular the initial day return following an initial public offering is higher and the magnitude of the negative lottery stock premium is larger collectively these results indicate that religion induced gambling attitudes impact investors portfolio choices corporate decisions and stock returns

world agricultural futures regional sustainability and ecological limits there is a wide spectrum of views on possible futures for world agriculture with a clear division between neoclassical and ecological economics approaches to the issue an incremental approach characteristic of neoclassical economics focuses on steady yield increases as a result of technological progress and increased input use in this view there are no inherent limits to growth and therefore an optimistic view tends to be taken of future production potential by contrast an analysis based on the concept of carrying capacity emphasizes environmental limits to system growth this paper reviews estimates of carrying capacity as well as trends in land use yields and environmental impacts of agriculture demand projections are made for the year 2025 based on population momentum and a slow rate of increase in per capita consumption the global system is seen to be approaching carrying capacity limits over the next 30 years with more severe stresses at a regional level and widening food deficits in developing nations strong yield growth in china south asia africa north america and europe will be necessary to avert global shortfalls but resource and environmental factors pose serious constraints in all these areas the pressure to increase yields is therefore in conflict with the requirements of long term sustainability this indicates the need for regional models of sustainable agro ecosystems which balance yield requirements with ecological constraints in addition demand side issues of population policy efficiency in consumption and distributional equity become increasingly important in a world of constrained agricultural growth

farming fish for profits a small step towards food security in sub saharan africa abstract in addition to volatile fluctuations due to seasonal or regional factors food security has two main components access and availability this paper presents a diagrammatical model to indicate how aquaculture particularly private sector aquaculture can contribute to these components of food security in sub sahara africa food accessibility is increased when commercial aquaculture generates employment without such employment the poor might never translate their need for food into effective demand food availability is increased either immediately when aquaculture output is sold in the domestic market or later when the foreign exchange earned from aquaculture exports is used to import food this paper does not argue that commercial aquaculture will eliminate poverty within sub sahara africa the sector is too marginal however it can be one small step among others moreover driven by the private sector commercial aquaculture does not need onerous public or donor funding it therefore should not be ignored by policy makers at the local level the impact on communities can be dramatic this is illustrated in the kariba area of zimbabwe where commercial tilapia farms provide jobs and incomes in an impoverished region these incomes enable workers and their families to purchase food in addition the farms supply the local population with whole fish and fish heads which are a source of protein some policy options are suggested to promote private investment in the sector with an emphasis on polices that incur few government expenditures

endogenous communication among lenders and entrepreneurial incentives if banks have an informational monopoly about their clients borrowers may curtail their effort level for fear of being exploited via high interest rates in the future banks can correct this incentive problem by committing to share private information with other lenders the fiercer competition triggered by information sharing lowers future interest rates and future profits of banks but provided banks retain an initial informational advantage their current profits are raised by the borrowers higher effort this trade off determines the banks willingness to share information their decision affects credit market competition interest rates volume of lending and social welfare article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

solving the feldstein horioka puzzle with financial frictions unlike the prediction of a frictionless open economy model long term average savings and investment rates are highly correlated across countries a puzzle first identified by feldstein and horioka 1980 we quantitatively investigate the impact of two types of financial frictions on this correlation one is limited enforcement w here contracts are enforced by the threat of default penalties the other is limited spanning where the only asset available is noncontingent bonds we find that the calibrated model with both frictions produces a savings investment correlation and a volume of capital flows close to the data to solve the puzzle the limited enforcement friction needs low default penalties under which capital flows are much lower than those in the data and the limited spanning friction needs to exogenously restrict capital flows to the observed level when combined the two frictions interact to endogenously restrict capital flows and thereby solve the feldstein horioka puzzle

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

the disciplinary role of takeovers this paper presents a theory of the disciplinary role of takeovers based on an explicit model of managerial incentive problems stemming from asymmetric information it is argued that an informed raider can reduce incentive problems by making managerial compensation more sensitive to information unavailable to shareholders the paper also highlights the importance of specifying the source of contractual inefficiencies when analyzing the effect of takeovers on incentives

the direction of causality between financial development and economic growth abstract this paper employs the geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth the paper finds that 1 financial development generally leads to economic growth 2 the granger causality from financial development to economic growth and the granger causality from economic growth to financial development coexist 3 financial deepening contributes more to the causal relationships in the developing countries than in the industrial countries 4 the longer the sampling interval the larger the effect of financial development on economic growth 5 financial deepening propels economic growth through both a more rapid capital accumulation and productivity growth with the latter channel being the strongest

the coevolution of the real and financial sectors in the growth process the role of debt and equity changes over time and with the level of development what are these changes and why should they systematically occur across different countries and time periods this article characterizes financial innovation as a dynamic process that both influences and is influenced by the development of the real sector it focuses on the emergence and development of equity markets using a model that allows for growth and for capital accumulation that is financed externally through a combination of debt and equity as an economy develops the aggregate ratio of debt to equity will generally fall yet debt and equity remain complementary sources for the financing of capital investments the results suggest how various government policy actions might affect capital accumulation and equity market activity

from institutions to financial development and growth what are the links this paper presents an integrated overview of the literature linking institutions financial development and economic growth from the large body of research on institutional development the paper first selects those contributions that make it possible to study the role of institutional arrangements in ameliorating worsening the information frictions and transaction costs that characterize the development of financial markets the paper then investigates the theoretical mechanisms by which these specific frictions affect economic growth and presents the stock of empirical evidence quantifying the impact of institutions on growth through financial development

public debt and financial development abstract we examine the role of public debt in financial development the literature has highlighted its supportive role through providing collateral and benchmark we contrast this safe asset view to a lazy banks view developing banking sectors that lend mainly to the public sector may develop more slowly because it could make banks profitable but inefficient results from country level and bank level regressions are more supportive of the lazy banks view but the safe asset view seems to play a role at moderate levels of public debt held by banks there is also evidence of a harmful interaction between public debt and financial repression

lowering the cost of pollution control versus controlling pollution a comment dwight lee 1999 shows that thecollectivity may be better not worse off when a technically inefficient pollutionabatement technology is adopted thepurpose of this note is twofold first toshow that once rent seeking is incorporatedinto the analysis lee s qualified supportfor a technically inefficient pollutionabatement technology is at bestproblematic and at worst flawed second to demonstrate that it is possible to makea less problematic normative case in favourof the adoption of the technicallyinefficient abatement policy

property rights and finance which is the tighter constraint on private sector investment weak property rights or limited access to external finance from a survey of new firms in post communist countries we find that weak property rights discourage firms from reinvesting their profits even when bank loans are available where property rights are relatively strong firms reinvest their profits where they are relatively weak entrepreneurs do not want to invest from retained earnings

social interaction and stock market participation we propose that stock market participation is influenced by social interaction in our model any given social investor finds the market more attractive when more of his peers participate we test this theory using data from the health and retirement study and find that social households those who interact with their neighbors or attend church are substantially more likely to invest in the market than non social households controlling for wealth race education and risk tolerance moreover consistent with a peer effects story the impact of sociability is stronger in states where stock market participation rates are higher

financial development and economic growth the role of stock markets utilizing time series methods and data from five developed economies we examine the relationship between stock market development and economic growth controlling for the effects of the banking system and stock market volatility our results support the view that although both banks and stock markets may be able to promote economic growth the erects of the former are more powerful they also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross country growth regressions

financial dependence and growth revisited we revisit an earlier highly influential paper on financial dependence and growth by rajan and zingales 1998 we re examine their assumptions and the robustness of their results to alternative theories and interpretations we first show that they may be implicitly testing whether financial intermediaries allow firms to better respond to global shocks to growth opportunities rather than the extent that financial intermediaries allow firms to grow in industries with an inherent technological financial dependence we propose a more direct measure of growth opportunities if u s capital markets are perfect then actual growth in the u s is a good proxy for global growth opportunities we test this directly by including u s industry growth in rajan and zingales s original specification and find that our direct growth measure outperforms their financial dependence measure and is less vulnerable to controlling for outliers and level of development this still suggests an important role for finance in the allocation of resources but shifts the emphasis from financial dependence to global growth opportunities jel f3 g1 o4

financial development and economic growth evidence from panel unit root and cointegration tests abstract in this paper we investigate the long run relationship between financial depth and economic growth trying to utilize the data in the most efficient manner via panel unit root tests and panel cointegration analysis in addition we use threshold cointegration tests and dynamic panel data estimation for a panel based vector error correction model the long run relationship is estimated using fully modified ols for 10 developing countries the empirical results provide clear support for the hypothesis that there is a single equilibrium relation between financial depth growth and ancillary variables and that the only cointegrating relation implies unidirectional causality from financial depth to growth

financial markets development and economic growth tales of informational asymmetries abstract the development of financial systems is very often characterised by the development of innovative financial contracts which allow a more efficient allocation of resources and a higher level of capital productivity and economic growth by exploiting the microeconomic theory of the optimal financial contract under asymmetric information economists have recently managed to shed new light on the well studied issue of the relationship between financial market development and economic growth this paper reviews the most recent progress of this literature which shows that the amount of information asymmetry in the credit market and the degree of heterogeneity between borrowers typically firms and lenders typically workers or savers determine the nature of the financial system differences in endowments and in the level of information distribution can give rise to very different financial contracts which affect and in turn are affected by capital accumulation and growth

growth and risk sharing with private information abstract we examine the impact of incomplete risk sharing on growth and welfare the source of market incompleteness in our economy is private information a household s idiosyncratic productivity shock is not observable by others risk sharing between households occurs through long term contracts with intermediaries we find that incomplete risk sharing tends to reduce the rate of growth relative to the complete risk sharing benchmark numerical examples indicate that the welfare cost and the growth effect of private information are small

information sharing and lending market competition with switching costs and poaching abstract we analyze information sharing with repeated banking competition in the presence of switching costs we find that information sharing renders poaching more profitable in future rounds of competition since the poaching activities can be targeted towards more creditworthy borrowers we find that information sharing reduces relationship benefits and therefore relaxes competition for initial market shares information sharing introduces a welfare tradeoff by promoting equilibrium profits at the expense of talented entrepreneurs whenever market power persists in credit market whereas it is a matter of indifference without market power thus information sharing may induce exclusion of creditworthy borrowers from credit markets

limited enforcement financial intermediation and economic development a quantitative assessment we present a model of economic development where the importance of financial differences caused by limited enforcement can be measured economies where enforcement is poor direct less capital to the production sector and employ less efficient technologies calibrated simulations reveal that the resulting effect on output is large furthermore the model correctly predicts that the average scale of production should rise with the quality of enforcement finally we find that the importance of limited enforcement rises with the importance of capital in production

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

lowering the cost of pollution control versus controlling pollution economists have long argued that the market incentive approach to pollution control would achieve that control at least cost the political rejection of the market incentives approach and embrace of the far more costly command and control approach has been explained in terms of the tendency in the political process to favor the interests of organized groups over those of the unorganized public but because of this tendency it may be that a move to the market based approach to pollution control would result in less pollution control and be less efficient than the existing command and control approach

targeting agricultural research and extension for food security and poverty alleviation a case study of fish farming in central cameroon over 5 years of participatory on farm research market access profitability farming systems productivity and economic sustainability were compared on 100 small scale farms in central cameroon integration technology based on the use of agricultural by products as fishpond inputs was the driver for intensification over all farms fishpond productivity increased from 498 kg to 1609 kg fish ha 2145 kg ha yr during the project period the number of active fish farmers increased from 15 to 192 including 55 farms which participated only through information exchange over all farms net returns from aquaculture increased by 5 times over pre project levels productivity intensity and profitability increased more significantly in periurban areas with good market access compared to rural areas among farmers with good market access average net income from the aquaculture enterprise rose from 118 up to 1485 research extension team ret support cost an average of 61 300 per year over 5 years rural farmers recaptured 23 of the relevant ret investment compared to 442 by periurban farmers likewise increase in production attributable to ret intervention was higher for periurban 253 compared to rural 11 3 fish farmers within 3 years of the end of extension support rural farmers had returned to pre project production levels whereas periurban farms had better maintained their productivity and profitability findings indicate that in areas with little or no access to markets the number of fishponds and fish farmers can be increased and yields improved increasing local food supplies but sustainability in the absence of extension subsidies is questionable to achieve either of the two principal goals for the sector food security and or poverty alleviation investments need to be made in improving the availability of quality technical assistance to targeted farmers and finding means of reducing social conflict arising from perceived inequalities in the accrual of the benefits of development

welfare gains from international risksharing abstract this paper uses consumption data to compute yet unexploited welfare gains that can be achieved through risksharing among twenty oecd countries there is both aggregate national consumption risk and nondiversifiable individual specific risk countries engage in an optimal risksharing arrangement to pool risk associated with the aggregate consumption endowment streams welfare gains are associated with reduced consumption variability and with the international pricing of the consumption streams of individual countries the paper considers the standard vnm time additive preferences as well as nonexpected utility and habit formation preferences large unexploited gains are found under all sets of preferences leading to an international risksharing puzzle

institutions and economic growth an historical introduction abstract in this essay the interdependence of political and economic institutions is examined against premises in neoclassical theories of economies which maintain that population and savings are the principal determinants of economic growth that institutions matter in the development of economies is the difference in assumptions i examine i look at the institutional frameworks that preceded adoption of the united states constitution and the northwest ordinance in early america i then trace the precedents of these american institutions to the evolution of common law in england where interests unconcerned with the crown coalesced to form competing political units i then contrast england s institutional development with the comparatively centralized enforcement mechanisms of spain to examine the hypothesis that institutional differences produce economic consequences

optimal bankruptcy law and firm specific investments in this paper we characterize an optimal bankruptcy law that takes into consideration the incentives of managers to invest in firm specific human capital we show that the optimal bankruptcy law is biased towards the management team and may be implemented by the use of a restricted auction mechanism in which creditors have the right to refuse bankruptcy but are not allowed to bid for the firm the bankruptcy law is needed as a commitment device to implement the optimal outcome

manufacturing growth and financial development evidence from oecd countries recent theoretical models conjecture that the development of the financial sector is essential for economic growth we investigate this hypothesis from a time series perspective and find that financial sector gdp is cointegrated for many oecd countries not so much with manufacturing gdp but mostly with manufacturing total factor productivity moreover this relation is in some instances characterized by long run causality in the sense of granger and lin however even within this homogeneous group of countries the variety of results suggests a more complex picture than is apparent from cross sectional evidence

courts and banks effects of judicial enforcement on credit markets the cost of enforcing contracts is a key determinant of market performance we document this point with reference to the credit market in a model of opportunistic debtors and inefficient courts according to the model improvements in judicial efficiency should reduce credit constraints and increase lending with an ambiguous effect on interest rates that depends on banking competition and on the type of judicial reform these predictions are supported by panel data on italian provinces in provinces with longer trials or large backlogs of pending trials credit is less widely available

should central banks respond to movements in asset prices in recent decades asset booms and busts have been important factors in macroeconomic fluctuations in both industrial and developing countries in light of this experience how if at all should central bankers respond to asset price volatility we have addressed this issue in previous work bernanke and gertler 1999 the context of our earlier study was the relatively new but increasingly popular monetary policy framework known as inflation targeting see e g bernanke and frederic mishkin 1997 in an inflation targeting framework publicly announced medium term inflation targets provide a nominal anchor for monetary policy while allowing the central bank some flexibility to help stabilize the real economy in the short run the inflation targeting approach gives a specific answer to the question of how central bankers should respond to asset prices changes in asset prices should affect monetary policy only to the extent that they affect the central bank s forecast of inflation to a first approximation once the predictive content of asset prices for inflation has been accounted for there should be no additional response of monetary policy to assetprice fluctuations in use now for about a decade inflationtargeting has generally performed well in practice however so far this approach has not often been stress tested by large swings in asset prices our earlier research employed simulations of a small calibrated macroeconomic model to examine how an inflation targeting policy defined as one in which the central bank s instrument interest rate responds primarily to changes in expected inflation might fare in the face of a boom and bust cycle in asset prices we found that an aggressive inflationtargeting policy rule in our simulations one in which the coefficient relating the instrument interest rate to expected inflation is 2 0 substantially stabilizes both output and inflation in scenarios in which a bubble in stock prices develops and then collapses as well as in scenarios in which technology shocks drive stock prices intuitively inflation targeting central banks automatically accommodate productivity gains that lift stock prices while offsetting purely speculative increases or decreases in stock values whose primary effects are through aggregate demand conditional on a strong policy response to expected inflation we found little if any additional gains from allowing an independent response of central bank policy to the level of asset prices in our view there are good reasons outside of our formal model to worry about attempts by central banks to influence asset prices including the fact that as history has shown the effects of such attempts on market psychology are dangerously unpredictable hence we concluded that inflationtargeting central banks need not respond to asset prices except insofar as they affect the inflation forecast in the spirit of recent work on robust control the exercises in our earlier paper analyzed the performance of policy rules in worst case discussants robert shiller yale university glenn rudebusch federal reserve bank of san francisco kenneth rogoff harvard university

the legal environment banks and long run economic growth this paper examines the relationship between the legal system and banlding development and traces this connection through to long run rates of per capita gdp growth capital stock growth and productivity growth the data indicate that countries where the legal system 1 emphasizes creditor rights and 2 rigorously enforces contracts have better developed banks than countries where laws do not give a high priority to creditors and where enforcement is lax furtherrnore the exogenous component of banking development the component defined by the legal environment is positively and robustly associated with per capita growth physical capital accumulation and productivity growth this paper addresses two questions first do crosscountry differences in the legal rights of creditors the efficiency of contract enforcement and the origin of the legal system explain cross country differences in the level of banking development second do better developed banks cause faster economic development that is is the component of banking development defined by the legal environment positively associated with long run rates of economic growth capital accumulation and productivity growth examining the relationship between the legal system and banking development is valuable irrespective of issues associated with long run growth first banks may influence the level of income per capita and the magnitude of cyclical fluctuations bernanke and gertler 1989 1990 second many economists stress that understanding the evolution of legal and financial systems is essential for understanding economic development north 1981 engerman and sokoloff 1996 consequently quantitative information on the relationship between the legal environment and banks will improve our understanding of business cycles and the process of economic development furthermore examining the causal links between banks and economic growth has both conceptual and policy implications on the conceptual front a long literature debates the importance of banks in economic development starting as early as bagehot 1873 economists have argued that better banks banks that are better at identifying creditworthy firms mobilizing savings pooling risks and facilitating transactions

investor protection and corporate governance recent research has documented large differences among countries in ownership concentration in publicly traded firms in the breadth and depth of capital markets in dividend policies and in the access of firms to external finance a common element to the explanations of these differences is how well investors both shareholders and creditors are protected by law from expropriation by the managers and controlling shareholders of firms we describe the differences in laws and the effectiveness of their enforcement across countries discuss the possible origins of these differences summarize their consequences and assess potential strategies of corporate governance reform we argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank centered and market centered financial systems

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

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

volatility and growth credit constraints and the composition of investment abstract how does uncertainty and credit constraints affect the cyclical composition of investment and thereby volatility and growth this paper addresses this question within a model where firms engage in two types of investment a short term one and a long term one which contributes more to productivity growth because it takes longer to complete long term investment has a relatively less cyclical return but it also has a higher liquidity risk the first effect ensures that the share of long term investment to total investment is countercyclical when financial markets are perfect the second implies that this share may turn procyclical when firms face tight credit constraints a novel propagation mechanism thus emerges through its effect on the cyclical composition of investment tighter credit can lead to both higher volatility and lower mean growth evidence from a panel of countries provides support for the model s key predictions

economic growth liquidity and bank runs abstract we construct an endogenous growth model in which bank runs occur with positive probability in equilibrium in this setting a bank run has a permanent effect on the levels of the capital stock and of output in addition the possibility of a run changes the portfolio choices of depositors and of banks and thereby affects the long run growth rate these facts imply that both the occurrence of a run and the mere possibility of runs in a given period have a large impact on all future periods a bank run in our model is triggered by sunspots and we consider two different equilibrium selection rules in the first a run occurs with a fixed exogenous probability while in the second the probability of a run is influenced by banks portfolio choices we show that when the choices of an individual bank affect the probability of a run on that bank the economy both grows faster and experiences fewer runs

costly monitoring loan contracts and equilibrium credit rationing this paper develops a model with asymmetrically informed agents and costly monitoring of loan contracts where an equilibrium can exhibit credit rationing borrowers are identical ex ante but some receive loans and others do not in contrast to existing credit rationing theories rationing does not occur here due to inflexible prices adverse selection or moral hazard optimizing behaviour produces a standard debt contract in equilibrium the aggregate quantity of loans and equilibrium interest rates respond differently depending on whether there is rationing in equilibrium

institutions for financial development what are they and where do they come from abstract among the fundamental causes of long run economic performance differences in institutions have received considerable attention in recent years at the same time a large body of theoretical and empirical work shows that financial development can have a big effect on economic performance this raises the more fundamental question as to why some countries have developed financial markets while others do not this paper reviews the theoretical and empirical research on this issue and shows that one of the channels whereby better institutions may have an effect on economic development is through the consolidation of larger and better financial markets an issue that is left aside in this paper relates to what regulations and policies lead to better functioning capital markets at some level one can think of regulations and policies as particular types of institutions nonetheless institutional problems are deeper causes leading to poor economic performance bad policies might simply be part of the channels through which they influence performance thus addressing the question of what determines the emergence of good institutions i e institutions that promote financial development seems particularly important recent research providing some answers to this question is also reviewed

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

bureaucrats or politicians part i a single policy task this paper investigates the normative criteria that guide the allocation of a policy task to an elected politician versus an independent bureaucrat the bureaucrat is preferable for technical tasks for which ability is more important than effort or if there is great uncertainty about whether the policymaker has the required abilities the optimal allocation of redistributive tasks is ambiguous and depends on how the bureaucrat can be instructed but irrespective of the normative conclusion the politician prefers not to delegate redistributive policies

the regulation of labor author s botero juan djankov simeon la porta rafael lopez de silanes florencio shleifer andrei abstract we investigate the regulation of labor markets through employment collective relations and social security laws in 85 countries we find that the political power of the left is associated with more stringent labor regulations and more generous social security systems and that socialist french and scandinavian legal origin countries have sharply higher levels of labor regulation than do common law countries however the effects of legal origins are larger and explain more of the variation in regulations than those of politics heavier regulation of labor is associated with lower labor force participation and higher unemployment especially of the young these results are most naturally consistent with legal theories according to which countries have pervasive regulaory styles inherited from the transplantation of legal systems

creditor protection and credit response to shocks this article studies the relationship between creditor protection and credit responses to macroeconomic shocks using a data set on legal determinants of finance in a panel of data on aggregate credit growth for 79 countries during 1990 2004 it is shown that credit is more responsive to external shocks in countries with weak legal creditor protection and weak enforcement the results are statistically and economically significant and robust to alternative measures of creditor protection to the inclusion of variables that reflect different stages of economic development to the restriction of the sample to only developing economies to the controls for systemic crises to alternative shock measures and to vector autoregressive specifications

graduate education in ecological economics abstract interest in graduate education in ecological economics is increasing however no formal plan of study for a phd in ecological economics has been disseminated the lack of a formal plan is problematic as the field of ecological economics matures interest grows and new programs are being developed this paper attempts to fill a void by creating a program of study addressing the proficiencies a graduate student in ecological economics should have upon completion of his her phd based on the us educational system the plan of study presented in this paper has been developed to make the graduate of an ecological economics program as competitive on the labor market as students awarded traditional economics degrees the plan i describe is created to meet the requirements necessary for a phd in ecological economics further fields of specialization are suggested to complement the core of an ecological economics program to enhance the education process and to give the student with an ecological economics degree a higher level of marketability

information sharing in credit markets we present a model with adverse selection where information sharing between lenders arises endogenously lenders incentives to share information about borrowers are positively related to the mobility and heterogeneity of borrowers to the size of the credit market and to advances in information technology such incentives are instead reduced by the fear of competition from potential entrants in addition information sharing increases the volume of lending when adverse selection is so severe that safe borrowers drop out of the market these predictions are supported by international and historical evidence in the context of the consumer credit market a large body of literature on credit markets has shown that asymmetric information may prevent the efficient allocation of lending leading to credit rationing e g jaffee and russell 1976 stiglitz and weiss 1981 or to a wedge between lending and borrowing rates e g king 1986 in this literature informational asymmetries are taken to be exogenous lenders fail to observe some relevant characteristic or action of potential borrowers and have no way of learning about it in some countries however lenders can improve their knowledge about new customers by exchanging information with other lenders through information brokers generally known as credit bureaus the latter collect file and distribute the information voluntarily supplied by their members and operate on the principle of reciprocity lenders who do not provide data are denied access to the bureau s files in other countries instead these institutions do not exist the literature offers no guide to identify the factors that lead to endogenous communication between lenders this paper is an attempt to fill the gap information sharing is important for a number of reasons it may increase the degree of competitiveness within credit markets vives 1990 improve

environmental sustainability in agriculture diet matters abstract there is no agreement that diet matters for environmental sustainability in the agriculture sector much current agriculture is unsustainable and worsening the environmental impact of agriculture degrades natural capital e g loss of topsoil waste and pollution of water nutrient loss extinction of species cattle raising is one of the most damaging components of agriculture livestock now eat about half of global grain production there is limited scope for improving food supply and what scope there is will further damage the environment all means to improve nutrition especially for the poor will be needed as population increases one such means is to improve diets of the rich by eating lower down the food chain while most people in the world thrive on mainly grain based diets carnivory is high in oecd and is increasing in ldcs in order to reduce food wastage and to improve health and food availability a food conversion efficiency tax is proposed the least efficient converters pork beef would be highly taxed more efficient converters poultry eggs dairy would be moderately taxed most efficient converters ocean fish would be taxed lowest grain for human food would not be taxed while coarse grains might be modestly subsidized non food agriculture also would be taxed highest on tobacco and on starches destined for alcoholic beverages produced from land suitable for food production

consumption patterns and their effects on land required for food abstract vast amounts of land are required for the production of food but the area suitable for growing crops is limited in this paper attention is paid to the relationship between food consumption patterns and agricultural land requirements land requirements per food item that were determined in a previous study are combined with data on the per capita food consumption of various food packages varying from subsistence to affluent leading to information on land requirements for food large differences could be shown in per capita food consumption and related land requirements while food consumption expenditure and the physical consumption of specific foods change rapidly over time a difference of a factor of two was found between the requirements for existing european food patterns while the land requirement for a hypothetical diet based on wheat was six times less than that for an existing affluent diet with meat it is argued that in the near future changes in consumption patterns rather than population growth will form the most important variable for total land requirements for food trends towards the consumption of foods associated with affluent lifestyles will bring with them a need for more land lifestyle changes changes in consumer behavior on a household level can be considered as powerful options to reduce the use of natural resources such as agricultural land

the nature of agricultural systems food security and environmental balance abstract global food security in the future will depend on growth in production in those areas of the world with favourable soils adequate water resources and high yields from wheat and rice cropping because the area devoted to rice and wheat cultivation in these favourable conditions has been stagnant or declining since the 1980s with little prospect for reversing the trend increases in grain production must come from increases in yield per hectare to achieve the needed increases in yields of basic food grains a broad range of constraints facing existing production systems must be removed additional inputs for crop production are needed and new technologies which have yet to be developed are essential for managing crop nutrients pests and diseases under normal economic conditions optimal farm management of high intensity agriculture produces grain yields that approach 80 of the technical ceiling achieved on experimental plots as asian farmers approach this 80 limit pushing out the technical yield ceiling will be crucial for maintaining growth in cereal yields into the 21st century if management practices focus on short run profitability rather than on long run sustainability the challenge to scientists seeking to raise yield potential becomes more complex because of the deteriorating soil environment in which crops are grown most of the agricultural land in the developing world has less favourable endowments of soil and water resources than do the high productivity farming areas of asia these regions are home to the majority of the world s poor developments in production ecology suggest that significant improvement is possible in the management of biological processes that govern the efficiency and sustainability of the agricultural systems that dominate in these poorly endowed areas but a substantial investment in research for crop production will be required

transactions costs technological choice and endogenous growth abstract hicks a theory of economic history clarendon press oxford 1969 argues that an important aspect of industrial development is the adoption of technologies requiring highly illiquid capital investments the adoption of such technologies becomes economically viable in the presence of low cost financial markets that provide liquidity to investors this observation provides a mechanism by which the costs of transacting in financial markets affect the equilibrium choice of technology productive efficiency and by implication growth we analyze how the costs of financial market transactions affect the set of technologies in use and the equilibrium growth rate transactions cost reductions may depending on the capital structure enhance or reduce growth journal of economic literature classification numbers d90 e13 g14

capital control liberalization and stock market development the authors address two questions what happens to stock market size liquidity volatility and integration with world capital markets after capital controls are liberalized and what is the relationship between those indicators of stock market development and regulations about information disclosure accounting standards and investor protection an analysis of data on stock markets in 16 developing countries suggests the following a stock markets become larger more liquid more integrated internationally and more volatile after controls on capital and dividend flows are liberalized b easy access to information about firms is positively associated with the size and liquidity of stock markets and c countries that officially establish internationally accepted accounting standards and laws to protect investors do not have substantially better functioning stock markets than countries that do not adopt those official standards

capital mobility in developing countries some measurement issues and empirical estimates an economy s financial integration with the outside world the extent of capital mobility across its borders is a key determinant of some of its most important macroeconomic properties yet little is known about this characteristic of many developing economies an important stumbling block in the empirical assessment of financial integration openness is the many approaches to measuring it the author describes and evaluates different tests of capital mobility surveys existing evidence and applies four tests of capital mobility to assess the degree to which the many developing countries tested have achieved integration with the world financial markets the four tests are the 1 magnitude of gross capital flows 2 uncovered interest rate parity 3 strength of saving investment correlations and 4 behavior of domestic consumption over time the evidence suggests that most developing countries can be considered to be financially open in only 18 of the 57 developing countries classified did the data fail to show financial openness and that many countries may be experiencing an increased degree of integration with world financial markets

on finance as a theory of tfp cross industry productivity differences and economic rents we develop a theory of capital market imperfections to study how the ability to enforce contracts affects resource allocation across entrepreneurs of different productivities and across industries with different needs for external financing the theory implies that countries with a poor ability to enforce contracts are characterized by the use of inefficient technologies low aggregate tfp large differences in labor productivity across industries and large employment shares in industries with low productivity these implications are supported by the empirical evidence the theory also suggests that entrepreneurs have a vested interest in maintaining a status quo with low enforcement

culture openness and finance abstract differences in culture proxied by differences in religion and language cannot be ignored when examining why investor protection differs across countries we show that a country s principal religion predicts the cross sectional variation in creditor rights better than a country s natural openness to international trade its language its income per capita or the origin of its legal system catholic countries protect the rights of creditors less well than protestant countries a country s natural openness to international trade mitigates the influence of religion on creditor rights culture proxies are also helpful in understanding how investor rights are enforced across countries

investor protection optimal incentives and economic growth does investor protection foster economic growth to assess the widely held affirmative view we introduce investor protection into a standard overlapping generations model of capital accumulation better investor protection implies better risk sharing because of entrepreneurs risk aversion this results in a larger demand for capital this is the demand effect a second effect the supply effect follows from general equilibrium restrictions better protection i e higher demand increases the interest rate and lowers the income of entrepreneurs decreasing current savings and next period s supply of capital the supply effect is stronger the tighter are the restrictions on capital flows our model thus predicts that the positive effect of investor protection on growth is stronger for countries with lower restrictions cross country data provide support for this prediction as does the detailed examination of the growth experiences of south korea and india

the effect of financial development on convergence theory and evidence we introduce imperfect creditor protection in a multicountry schumpeterian growth model the theory predicts that any country with more than some critical level of financial development will converge to the growth rate of the world technology frontier and that all other countries will have a strictly lower long run growth rate we present evidence supporting these and other implications in the form of a cross country growth regression with a significant and sizable negative coefficient on initial per capita gdp relative to the united states interacted with financial intermediation in addition we find that other variables representing schooling geography health policy politics and institutions do not affect the significance of the interaction between financial intermediation and initial per capita gdp and do not show any independent effect on convergence in the regressions our findings are robust to removal of outliers and to alternative conditioning sets estimation procedures and measures of financial development

carrying capacity in agriculture global and regional issues abstract much of the debate over world agricultural futures centers on the issue of yield growth optimists in the field base their analyses on a technology and input driven rate of increase in yields which they argue has outpaced population growth and will continue to do so leaving a margin for steady increase in per capita incomes those who are sometimes classified as pessimists we prefer the term ecological realists see practical limits to global and regional carrying capacity in agriculture and maintain that the world is close to or may even have passed these limits projections for world agriculture in the first half of the twenty first century vary widely largely depending on assumptions on yield growth we investigate the pattern of yield growth for major cereal crops and present evidence that the growth pattern is logistic not exponential this pattern is consistent with ecological limits on soil fertility water availability and nutrient uptake projections for supply and demand in the twenty first century based on a logistic rather than an exponential model of yield growth imply that the world is indeed close to carrying capacity in agriculture and that specific resource and ecological constraints are of particular importance at the regional level a supply side strategy of increased production has already led to serious problems of soil degradation and water overdraft as well as other ecosystem stresses this implies that demand side issues of population policy and efficiency in consumption are crucial to the development of a sustainable agricultural system

reassessing the law finance and growth nexus after the recent great recession abstract the paper provides a reassessment of the relationship between financial structure financial development and economic growth conducting cross section and panel econometric analyses for a sample of 62 countries over 1980 2016 in line with the traditional literature we confirm the existence of a positive cross country relationship between the legal system financial development and growth even including the experience of the recent great recession in addition when jointly assessing the effect of financial structure and financial development on growth it emerges that a more bank oriented economy enjoys higher benefits in terms of long run real gdp per capita growth than a market oriented one when we consider variations across countries and over time we find that both financial structure and financial development affect growth but in an opposite way as the cross section analysis in particular when we control for their joint effect on growth we observe a positive impact of market based financial systems and a negative impact of the overall financial development we also provide evidence of the existence of a positive and significant relationship between economic growth and shadow banking during the 2002 2016 period highlighting the crucial role played by non bank financial intermediation in complementing traditional banking and in affecting the real economy

coase versus the coasians who should enforce laws or contracts judges or regulators many coasians though not coase himself advocate judicial enforcement we show that the incentives facing judges and regulators crucially shape this choice we then compare the regulation of e nancial markets in poland and the czech republic in the 1990s in poland strict enforcement of the securities law by a highly motivated regulator was associated with a rapidly developing stock market in the czech republic hands off regulation was associated with a moribund stock market i introduction at the heart of economists traditional skepticism about government regulation is the coase theorem coase 1960 the theorem states that when property rights are well dee ned and transaction costs are zero market participants will organize their transactions in ways that achieve efe cient outcomes when they can do so it is not necessary for the government to engage in corrective actions through taxes regulations or even legal rules financial markets are often used to demonstrate the coase theorem s case against regulation advocates of the regulation of these markets point to a variety of potential failures such as the ability of security issuers to expropriate both potential and existing investors through misrepresentation or proe t diversion investors fear of such expropriation prevents e rms from raising external funds and keeps efe cient projects from being undertaken not so reply the coasians they point out that most securities transactions take place between sophisticated adults and that both the buyers and the issuers of securities have available to them a vast range of private arrangements to achieve efe ciency including contracts such as corporate charters certie cation by intermediaries and various forms of bonding such contracts render most laws and regulations unnecessary stigler 1964 easterbrook and fischel 1991

ex ante costs of violating absolute priority in bankruptcy a basic question for the design of bankruptcy law concerns whether value should be divided in accordance with absolute priority research done in the past decade has suggested that deviations from absolute priority have beneficial ex ante effects in contrast this paper shows that ex post deviations from absolute priority also have negative effects on ex ante decisions taken by shareholders such deviations aggravate the moral hazard problem with respect to project choice increasing the equityholders incentive to favor risky projects as well as with respect to borrowing and dividend decisions

financial development and openness evidence from panel data abstract this paper addresses the empirical question of whether trade and financial openness can help explain the recent pace in financial development as well as its variation across countries in recent years utilising annual data from developing and industrialised countries and dynamic panel estimation techniques we provide evidence which suggests that both types of openness are statistically significant determinants of banking sector development our findings reveal that the marginal effects of trade financial openness are negatively related to the degree of financial trade openness indicating that relatively closed economies stand to benefit most from opening up their trade and or capital accounts although these economies may be able to accomplish more by taking steps to open both their trade and capital accounts opening up one without the other could still generate gains in terms of banking sector development thus our findings provide only partial support to the well known rajan and zingales hypothesis which stipulates that both types of openness are necessary for financial development to take place