do firms differ much with finn profitability data for a cross section of geographic markets it is possible to determine the relative importance of firm and market effects on profitability analysis of variance from a panel of multihank holditig companies in texas suggests that finn effects are more important than market effects in determining profitability and that the magnitudes of the effects vary over time in a 1985 article schmalensee takes a new approach to analysis of the structure conduct performance paradigm schmalensee chooses a purely descriptive approach to distinguish among the classical tradition of bain 1956 which takes markets as the basic unit of analysis with a particular focus on market concentration the revisionist views of demsetz 1973 and peltzman 1977 who view the observed relation between profitability and concentration as reflecting underlying inter firm profitability differences and the managerial view that profitability is determined by firm wide management practices but not necessarily by differences in market share this descriptive approach has two advantages over a structural analysis a descriptive analysis avoids imposition of the troublesome maintained hypotheses inherent in structural models further as scott and pascoe 1986 point out the explanatory power of structural models is generally only a small fraction of that of descriptive models

interjurisdictional spillovers decentralized policymaking and the elasticity of capital supply a key question in the fiscal federalism literature is whether decentralized policymaking in an economy with spillovers among jurisdictions leads to an efficient outcome see e g oates 1972 a striking example where this question is of particular importance is the current debate on global warming the failure of the copenhagen summit in late 2009 has shown impressively that centralized solutions to the climate change problem are hard to realize one might thus want to know whether a decentralized policy approach where each country chooses its own climate policy without coordinating it with the climate policy of other countries gives hope for an efficient policy outcome further important examples of decentralized decision making in the presence of interjurisdictional spillover effects can be found in the decentralized provision of education and infrastructure at first glance it is hardly imaginable that decentralized policymaking can ever be optimal it is not only the very existence of spillovers that causes doubt the policy instruments themselves also create policy externalities despite this presumption against the efficiency of decentralized policymaking the previous literature provides several studies in which decentralization leads to an undistorted policy choice an important example is the paper of oates and schwab 1988 who argue that the choice of capital taxes in an economy with identical jurisdictions mobile capital and local pollution may indeed be efficient in a remarkable recent paper ogawa and wildasin 2009 extend the analysis to account for transboundary pollution spillovers and asymmetric countries and still get the efficiency result in their model emissions and thus the extent of spillovers generated by a jurisdiction is proportional to capital employed in this jurisdiction the choice of capital taxes is then distorted by the jurisdictions incentives for tax competition and by the jurisdictions disregard of spillover effects but the key argument is that both distortions just neutralize each other and thereby lead to efficient capital tax rates our paper contributes to this literature and points to the important role that the elasticity of aggregate capital supply with respect to the net rate of return to capital plays for the efficiency of decentralized policymaking in accordance with the previous literature we show that under a fixed capital supply zero capital supply elasticity the decentralized policy choice is indeed optimal if the capital supply elasticity is strictly positive however capital tax rates are inefficiently low in the decentralized

the influence of private contractual failure on regulation the case of oil field unitization an analysis of the interdependence between regulation and private contractual failure reveals that the feasible range of regulation is restricted by the same forces that block private agreement the focus of the study is oil field unitization regulation in oklahoma texas and wyoming federal lands from 1948 through 1975 despite large potential gains from unitization private negotiations fail because of lease heterogeneities and information problems regarding lease value estimates in response the federal and state governments have adopted strikingly different policies to encourage unitization with different results only the federal government s regulations are effective because they surmount information problems texas has the least successful regulation the paper argues that the policy differences are due to the political influence of small firms that benefit from nonunitized production 25 references 2 tables

centralized versus decentralized provision of local public goods a political economy approach abstract this paper takes a fresh look at the trade off between centralized and decentralized provision of local public goods it argues that the sharing of the costs of local public spending in a centralized system will create a conflict of interest between citizens in different jurisdictions when spending decisions are made by a legislature of locally elected representatives this conflict of interest will play out in the legislature depending on precisely how the legislature behaves the result may be excessive public spending or allocations of public goods characterized by uncertainty and misallocation across districts the extent of the conflict of interest between districts is affected by spillovers and differences in tastes for public spending thus the relative performance of centralized and decentralized systems depends upon spillovers and differences in tastes for public spending but for different reasons than suggested in the existing literature

designing economic instruments for the environment in a decentralized fiscal system designing economic instruments for the environment when external effects are important markets will be inefficient and economists have considered several broad classes of economic instruments to correct these inefficiencies however the standard economic analysis has tended to neglect important distinctions and interactions between the geographic scope of pollutants the enforcement authority of various levels of government and the fiscal responsibilities of the levels of government for example externalities generated in a particular local area may be confined to the local area or may spill over to other jurisdictions also local governments may be well informed about how best to regulate or enforce pollution control within their jurisdiction but they may not consider the effects of their actions on other jurisdictions finally the existence of locally generated waste emissions affects the appropriate assignment of both expenditure and tax responsibilities among levels of government the standard analysis therefore focuses mainly upon an aggregate or national perspective it typically ignores the possibility that the externality may be created and addressed by local governments and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems this paper examines the implications of decentralization for the design of corrective policies that is how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services as well as to choose tax instruments that can both finance these expenditures and correct the market failures of externalities

does foreign aid increase private investment evidence from panel cointegration this article uses panel cointegration and causality techniques to examine the long run relationship between foreign aid and private investment our main result is that aid has a statistically significant negative effect on private investment this result is robust to outliers different measures and forms of aid sample selection and the sample period in addition we find that long run causality runs in both directions suggesting that an increase in aid reduces private investment and that in turn higher private investment leads to lower aid inflows

uncertainty and growth of the firm using data from a survey of 1 097 small and medium sized non listed dutch firms we investigate the relation between growth of the firm and uncertainty we focus on the impact of sales uncertainty on various types of investment we find that sales uncertainty measured by the conditional variance has a mixed impact on various investment decisions we include an analysis of the relevance of financial structure and firm size on the growth uncertainty relation

management of a transboundary wildlife population a self enforcing cooperative agreement with renegotiation and variable transfer payments abstract this paper characterizes a dynamic contract that allows renegotiation and variable transfer payments vtp between owners of two independently harvested ecologically dependent mammal populations the decision environment is modeled as a two person differential game we develop a recursive efficiency criterion that forms the basis for determining the size of the vtp which makes the bargaining contract renegotiation proof and self enforcing we further show that the vtp is just as pareto efficient as a lump sum or fixed annual transfer payment a nuisance wildlife species management forms a basis for numerical illustration

uncertainty economic reforms and private investment in the middle east and north africa during the 1980s and the 1990s private investment in the middle east and north africa mena has on average shown a decreasing or stagnant trend this contrasts with the situation of the asian economies where private investment has always been more dynamic in this paper it is empirically shown for a panel of 39 developing economies among which four mena countries that in addition to the traditional determinants of investment such as the growth anticipations and the real interest rate government policies explain mena s low investment rate insufficient structural reforms which have most of the time led to poor financial development and deficient trade openness have been a crucial factor for the deficit in private capital formation the economic uncertainties of the region have represented another factor of the firm s decisions not to invest these uncertainties have consisted of the external debt burden and various measures of volatility

a comparative analysis of intertemporal behavior of profits japan and the united states this paper first asks whether the working of market forces in japanese manufacturing industries is unique to them or similar to u s counterparts it is found that autoregressive profit equations for 376 japanese firms over 1964 82 are on average similar to those for 413 u s firms over 1964 80 the paper next asks whether the interindustry pattern of profit adjustments in japan is related to industry traits in a manner analogous to the united states in this case specific national differences between the two countries in the effects of imports industry growth and capital intensity on the profit adjustment process are found copyright 1989 by blackwell publishing ltd

aggregate uncertainty capacity utilization and manufacturing investment theory suggests that the level of uncertainty affects the investment decision for firms although the sigh of the effect is ambiguous a garch m estimator is used to model the conditional variance of gdp as a proxy for uncertainty this measure is then employed in a simple model of the investment decision the results are that the level of aggregate uncertainty has a significant negative effect on manufacturing investment in particular periods there were very large effects on average uncertainty reduces investment by about 5 but in 1974 the effect peacked at 48

natural resource federalism preferences versus connectivity for patchy resources we examine the efficiency of centralized versus decentralized management of spatially connected renewable resources when users have heterogeneous preferences for conservation versus extraction resource mobility induces a spatial externality while spatial preference heterogeneity drives a wedge between users privately optimal extraction rates we first address these market failures analytically and show that the first is most efficiently handled with centralized planning while the second is best tackled with decentralized management except in special cases neither approach will be first best but which arises as second best depends on the relative strength of preference heterogeneity versus spatial mobility of the resource we illustrate the theory and test its robustness with a numerical example

does the optimal size of a fish stock increase with environmental uncertainties we analyze the effect of environmental uncertainties on optimal fishery management in a bio economic fishery model unlike most of the literature on resource economics but in line with ecological models we allow the different biological processes of survival and recruitment to be affected differently by environmental uncertainties we show that the overall effect of uncertainty on the optimal size of a fish stock is ambiguous depending on the prudence of the value function for the case of a risk neutral fishery manager the overall effect depends on the relative magnitude of two opposing effects the convex cost effect and the gambling effect we apply the analysis to the baltic cod and the north sea herring fisheries concluding that for risk neutral agents the net effect of environmental uncertainties on the optimal size of these fish stocks is negative albeit small in absolute value under risk aversion the effect on optimal stock size is positive for sufficiently high coefficients of constant relative risk aversion

optimal harvesting of stochastic spatial resources abstract we characterize the optimal harvest of a renewable resource in a generalized stochastic spatially explicit model despite the complexity of the model we are able to obtain sharp analytical results we find that the optimal harvest rule in general depends upon dispersal patterns of the resource across space and only in special circumstances do we find a modified golden rule of growth that is independent of dispersal patterns we also find that the optimal harvest rule may include closure of some areas to harvest either on a temporary or permanent basis biological reserves reserves alone cannot correct open access but may under sufficient spatial heterogeneity and connectivity increase profits if appropriate harvest controls are in place outside of reserves

partial enclosure of the commons abstract we examine the efficiency distributional and environmental consequences of assigning spatial property rights to part of a spatially connected natural resource while the remainder is competed for by an open access fringe we refer to this as partial enclosure of the commons we obtain sharp analytical results regarding partial enclosure of the commons including 1 while second best it typically improves welfare relative to no property rights 2 all resource users can be made better off 3 positive rents arise in the open access area and 4 the resource maintains higher stocks under spatial heterogeneity we also characterize spatial regions that are ideal candidates for partial enclosure typically society should seek to enclose those patches with high environmental productivity and high self retention but whether high economic productivity promotes or relegates a patch may depend on one s objective

the effectiveness of aid on savings and investment in sub saharan africa do volatility and institutional quality matter abstractthe effectiveness of aid is somewhat subject to its volatility this study investigates the impact of aid volatility especially on savings and investment with a particular focus on the role of institutional quality in 45 sub saharan african ssa countries over the period from 1990 to 2013 we used the generalized method of moments gmm technique combined with a measure of volatility namely an averaged data method involving six 4 year sub periods our results suggest that while aid is positively associated with savings and investment its volatility is harmful to savings and investment however when higher quality institutions exist the volatility of aid has a less negative impact on savings and investment the policy implications are diverse first donors and ssa aid dependent countries need to take into account the diversity of shocks to which aid can respond in mitigating its unpredictability secondly ssa countries should be encouraged to establish the conditions for better quality inst

oil field unitization contractual failure in the presence of imperfect information an empirical analysis of the impact of transaction costs on contracting shows that imperfect in formation can seriously limit the effectiveness of private contracting the case under study is the widespread failure of private crude oil producing firms to use us oil fields to reduce rent dissipation rent dissipation follows as multiple firms compete for migratory oil in common oil pools unitization is the obvious private contractual solution to rent dissipation the authors argue that despite large net gains from unitization imperfect information and information asymmetries among the negotiating parties regarding lease values prevents consensus on unit shares as a result contracts are often not completed or only fragmented units are completed 9 references 1 figure 4 tables

fishing as a supergame abstract this paper considers how cooperative solutions to games of sharing fish resources can be supported by threat strategies with highly mobile fish stocks the number of agents compatible with a cooperative self enforcing solution is not very high for reasonable values of the discount rate but sensitive to changes in the discount rate and costs and to cost heterogeneity with migrating stocks where growth and reproduction depend on how much all agents leave behind after harvesting the likelihood of a cooperative self enforcing equilibrium is increased with a dominant player and a competitive fringe the rents and optimum stock level of the dominant player fall quickly as the share of the competitive fringe increases

trade reform aggregate investment and capital flight on credibility and the value of information abstract in this paper we demonstrate that uncertainty about future policy reversals coupled with irreversible investment confers an option value to foreign exchange and may lead to capital flight and a fall in aggregate investment after a trade reform the analysis focuses on the value of information and the credibility of the policy reform the conclusion points to a potential role for international institutions to prevent such problems

contingent valuation controversies and evidence contingent valuation cv has become one of the most widely used non market valuation techniques cv s prominence is due to its flexibility and ability to estimate total value including passive use value its use and the inclusion of passive use value in benefit cost analyses and environ mental litigation are the subject of a contentious debate this paper discusses key areas of the debate over cv and the validity of passive use value we conclude that many of the alleged problems with cv can be resolved by careful study design and implementation we further conclude that claims that empirical cv findings are theoretically inconsistent are not generally supported by the literature the debate over cv however has clarified several key issues related to nonmarket valuation and can provide useful guidance both to cv practitioners and the users of cv results

macroeconomic uncertainty and private investment abstract this paper provides empirical support for a link between macroeconomic uncertainty and private investment in developing countries cross section regressions with constructed measures of uncertainty confirm that for developing countries uncertainty is negatively correlated with private investment

designing economic instruments for the environment in a decentralized fiscal system when external effects are important markets will be inefficient and economists have considered several broad classes of economic instruments to correct these inefficiencies however the standard economic analysis has tended to neglect important distinctions and interactions between the geographic scope of pollutants the enforcement authority of various levels of government and the fiscal responsibilities of the levels of government for example externalities generated in a particular local area may be confined to the local area or may spill over to other jurisdictions also local governments may be well informed about how best to regulate or enforce pollution control within their jurisdiction but they may not consider the effects of their actions on other jurisdictions finally the existence of locally generated waste emissions affects the appropriate assignment of both expenditure and tax responsibilities among levels of government the standard analysis therefore focuses mainly upon an aggregate or national perspective it typically ignores the possibility that the externality may be created and addressed by local governments and it does not consider the implications of decentralization for the design of economic instruments targeted at environmental problems this paper examines the implications of decentralization for the design of corrective policies that is how does one design economic instruments in a decentralized fiscal system in which externalities exist at the local level and in which subnational governments have the power to provide local public services as well as to choose tax instruments that can both finance these expenditures and correct the market failures of externalities

purposive diversification of r d in manufacturing the r d diversification in manufacturing of large us firms is found to be purposive exploiting complementarities of various research activities and forming groups of related industry categories purposively diversified firms are seen to behave differently than randomly diversified or undiversified firms further the behavioral differences between purposively diversified firms and others result because the former allocate relatively more r d funds to industry categories where appropriability conditions are good and relatively fewer funds to those categories where appropriation of the returns from r d is difficult finally r d expenditure and productivity are more closely linked at the group level than at the industry category level suggesting knowledge spills across industry categories are important

property rights regimes and natural resources a conceptual analysis the term common property resource is an example of a term repeatedly used to refer to property owned by a government or by no one it is also used for property owned by a community of resource users such usage leads to confusion in scientific study and policy analysis in this paper we develop a conceptual schema for arraying property rights regimes that distinguishes among diverse bundles of rights ranging from authorized user to claimant to proprietor and to owner we apply this conceptual schema to analyze findings from a variety of empirical settings including the maine lobster industry

fiscal policy and the duration of financial crises financial systems across the world have all come under pressure due to the on going financial crisis one of the most often asked questions during a collapse is how long and how deep will the decline be as well as what policy initiatives can be employed to shorten the recession this study estimates a model of the duration of financial crises in an attempt to identify whether fiscal policy can reduce the time to recovery the results suggest that fiscal shocks which could provoke an overreaction on the part of markets tend to lengthen crisis duration significant nonlinear effects of government spending are also reported in relation to trade openness and financial openness

the growth profit nexus in this paper we investigate the relative importance of firm and market effects on the profitability of a sample of independent unquoted u k firms over the period 1991 1993 specifically we attempt to isolate the effects of internal governance given that the typical firm is closely held in terms of its shareholdings and has a high degree of owner control our findings suggest that there is no short run growth profit trade off of the type outlined by marris in fact growth and profits move in parallel further there is a significant degree of profits persistence

aggregate uncertainty investment and asymmetric adjustment in the uk manufacturing sector theory suggests that the level of uncertainty facing firms should affect both the rate of adjustment to and the steady state level of investment although there is ambiguity about the sign of the effect a non linear model of investment behaviour incorporating time varying adjustment speeds with threshold effects is estimated for the uk manufacturing sector the most general non linear specification is found to be most congruent with the data uncertainty has a large and significant effect on both levels and rates of adjustment

capital flight and the uncertainty of government policies this paper shows that policy uncertainty measured by the uncertainty of budget deficits tax payments government consumption and the inflation rate has a statistically significant positive impact on capital flight this result remains robust after having applied stability tests

contestable markets and the theory of industry structure a review article contestable markets and the theory of industry structure is a comprehensive integration expansion and application of the ideas of william j baumol elizabeth e bailey john c panzar robert d willig edward zajac and their associates on contestability theory in 16 chapters baumol panzar and willig 1982a try to make precise especially in a multiproduct context ideas related to the chicago school approach to industrial organization to argue forcefully that potential entry disciplines monopoly and at the same time to offer a product more directly useful to the policymaker than the more abstract mathematical writings on increasing returns there are at least five basic ideas presented here first under certain structural conditions on technology and certain technical requirements on demands frictionless entry and exit together with equal access to technology lead to a type of competitive equilibrium with desirable welfare consequences even though there may be only one active firm in equilibrium a market with the foregoing characteristics of frictionless reversible entry and equal access to technology is called a perfectly contestable market by baumol et al 1982a the market for air travel between two cities serves as a canonical example such a market may support only one airline but the active airline must price at cost to prevent a price cutting rival airline from flying in and skimming off customers the authors conclude that the presence of such shadow entrants will force competition like behavior by the incumbent even though the market may be a natural monopoly second baumol et al 1982a define natural monopoly as a situation where the technology is characterized by a subadditive cost function that is to say c l7 yt l c y for any collection of output

economic liberalization and price response of aggregate private investment time series evidence from india this paper presents evidence on the effects of economic liberalization of 1991 on the price responsiveness of aggregate private investment in india the wide ranging reforms are expected to increase the price response of private investment due to i the le chatelier effect ii a higher price elasticity of demand for final goods and iii possible relaxation of the credit constraint the empirical results based on alternative specifications estimation methods and sample periods show a dramatic increase in the price response the elasticity of investment with respect to the relative cost of capital has increased five times after the dismantling of the licence raj ce texte examine les effets de la liberalisation de 1991 sur la reponse des prix de l investissement prive agrege en inde on aurait pu s attendre a ce que ces reformes importantes accroissent la reponse des prix de l investissement privea cause i de l effet le chatelier ii de la plus forte elasticite de la demande de biens finaux et iii de la relaxation possible de la contrainte financiere les resultats empiriques fondes sur des specifications des methodes d estimation et des periodes d echantillonnage differentes suggerent un accroissement dramatique dans la reponse des prix l elasticite de l investissement par rapport au cout relatif du capital s est accru par un facteur de 5 apres le demantelement du regime raj

optimal institutional arrangements for transboundary pollutants in a second best world evidence from a differential game with asymmetric players abstract this paper uses a dynamic model with asymmetric players to explore the question in a second best world should environmental regulations for transboundary pollutants be carried out locally or centrally we find that combined payoffs are larger with decentralized control if payoffs are sufficiently heterogeneous and initial pollution stocks are sufficiently small this result is obtained because the central authority applies one shadow price to pollution i e it uses uniform standards whereas local authorities use different shadow prices and therefore different standards

a metapopulation model with private property and a common pool abstract a metapopulation illustrated by barnacles has a spatial distribution and a two stage life cycle in the model developed here space limits expansion introducing a profitable harvest activity of adults leads to harvest at only one site a solution driven by biological increasing returns the model is of interdisciplinary interest because the natural resource has common property characteristics in its larval stage but a private property character in its adult stage the model permits economic valuation of lost habitat

do markets differ much this essay reports the results of a crosssection study of differences in accounting profitability that sheds light on some basic controversies in industrial economics most previous cross section studies in this field have been concerned with testing hypotheses about structural coefficients in models meant to apply to essentially all markets as we have learned more about the difficulties of constructing such general models and of performing tests on their structural parameters properly structural cross section analysis has fallen out of fashion in contrast to most of the cross section literature the analysis reported here is fundamentally descriptive it does not attempt directly to estimate or to test hypotheses about structural parameters i hope to show by example that one can perform illuminating analysis of cross section data without a host of controversial maintained hypotheses cross section data can yield interesting stylized facts to guide both general theorizing and empirical analysis of specific industries even if they cannot easily support full blown structural estimation one can view the sort of search for stylized facts conducted here as either a replacement for or an input to interindustry structural estimation depending on one s feeling about the long run potential of that research approach this study also departs from much of the cross section literature by being fundamentally concerned with the importance of various effects not just with coefficient signs and t statistics in particular this essay provides estimates of the relative importance of firm market and market share differences in the determination of business unit divisional profitability in u s manufacturing using 1975 data from the line of business program of the u s federal trade commission ftc i find support neither for the existence of firm effects nor for the importance of market share effects moreover while industry effects apparently exist and are important they appear to be negatively correlated with seller concentration in these data section i relates firm market and share effects to current issues and controversies in industrial economics and thus supplies the motivation for our empirical analysis the remainder of the essay treats the data and

volatility of sales expectation errors and inventory investment firm level evidence abstract this paper tests whether demand uncertainty which is measured by the volatility of sales affects inventory investment based on the accelerator buffer stock inventory model using a panel of dutch listed firms in the period 1984 1996 we find that the estimated coefficient of the speed parameter of adjusting inventories increases vastly when the volatility of sales is used as the proxy for unexpected sales in the stock adjustment equation dutch firms on average overstate future sales leading firms to accumulate inventories partially due to the concern of avoiding stock out in case of highly unexpected demand

aid instability as a measure of uncertainty and the positive impact of aid on growth this article contributes to the literature on aid and economic growth we posit that uncertainty measured as the instability of aid receipts will influence the relationship between aid and investment how recipient governments respond to aid and will capture the fact that some countries are especially vulnerable to shocks when we account for uncertainty which is negative and significant we find that aid has a significant positive effect on growth largely due to its effect on the volume of investment the finding that uncertainty of aid receipts reduces the effectiveness of aid is robust when the regression is estimated for the sub sample of african countries these findings hold although the effectiveness of aid appears weaker than for the full sample

sharing clams tragedy of an incomplete commons abstract a dispersive phase is part of the reproductive cycle of most living organisms when economic agents are limited to harvesting a renewable resource from a fixed geographical area dispersion of the resource creates a tragedy of the commons a dynamic optimization problem is constructed where economic agents control fixed areas the growth of the resource occurring in each area disperses it is shown that the desired stock size for maximizing agents in their own area decreases inversely with the amount of leakage the degree to which the resource is common the socially optimal stock in each region is a function of the marginal profit for all areas that receive dispersing organisms and may be greater than the privately optimal stock for an area if that area captured all of its own resource growth this effect is enhanced if the dispersal rate is stock dependent possibly creating a double tragedy in a source and sink situation the socially optimal solution may involve eliminating all harvesting in the source region

product innovation and the decision to invest in fixed capital assets evidence from an sme survey in six european union member states abstract this work explores the relationship between product innovation and the decision to invest in fixed capital assets among a sample of smes in six european union countries located in both peripheral and more central areas we find that the presence of product innovation reduces the probability to invest a firm s size exerts a direct inverted u shape effect on the probability to invest and an indirect effect through the linear effect of size on the probability to innovate the gap in the probability to invest between innovative and non innovative firms increases with size

beyond firm and industry effects on profitability in imperfect markets the federal trade commission s line of business data imply that the effect of an industry s seller concentration on profitability has been misinterpreted because it has not been conditioned on capital intensity conclusions that market share rather than seller concentration is the primary structural determinant of profitability and that mutual dependence recognized among oligopolistic sellers is less important than superiority effects of large share firms appear unwarranted significant firm effects exist and explanatory power for a conventional model of structure and performance is found to be small relative to that of the general linear model within which the conventional model is nested

political variables in cross country growth analysis the recent boom in cross country growth analysis has renewed the empirical interest in political sources of economic growth a large number of studies have tested political variables in growth regressions and a very heterogenous set of variables has been proposed to measure economically relevant differences in the political systems of countries this paper distinguishes five categories of relevant political variables democracy government stability political violence policy volatility and subjective perception of politics for each of these categories the specification testing method and results of the most relevant studies are presented and are critically discussed the paper concludes that measures of democracy are least successful and measures of policy volatility and subjective perception of politics most successful as explanatory variables in cross country growth regressions

policy uncertainty and long run investment and output across countries i present a model economy where policy uncertainty creates short term bias in investment and leads to a higher capital price and lower long run investment and output i conduct a calibration exercise using a set of industry level investment data across countries between the lowest income and the highest income countries policy uncertainty can account for capital price and investment level differences by a factor of about 3 and for the output level difference by a factor of about 2 copyright economics department of the university of pennsylvania and the osaka university institute of social and economic research association