an analysis of default risk in mobile home credit abstract there are approximately us 22 billion in outstanding receivables and an active secondary market for mobile home credit in the united states this important segment of the financing industry shares some attributes with traditional home mortgage financing and other attributes with consumer credit in this paper we draw on the mortgage literature to postulate the determinants of default risk for mobile home loans using multivariate logit models we investigate the relevance of payment history loan terms borrower characteristics economic conditions and legal constraints in analyzing loan defaults and delinquencies payment history emerges as the overwhelming factor in predicting the likelihood of default

determinants and welfare of the environmental regulatory stringency before and after regulatory capture abstract the enforcement of environmental regulation relies on the willingness and capacity of the regulator the willingness could be disabled by regulatory capture which is widespread and that how many public resources should be invested in environmental regulation is always debatable we develop a 3 stage game to analyze the nonlinear effects and mechanism of regulatory capture and regulatory capacity on environmental regulatory welfare our model suggests that the importance of the regional economy to government the firm size and the customer s disutility on pollution emissions will influence the possibility of regulatory capture furthermore the dynamic research suggests that when the regulatory capture is controlled with the improvement of governmental regulatory capacity the regulator s and customer s welfare continues to grow until the capacity achieves a threshold beyond the threshold the regulatory capacity will be redundant

the effect of environmental regulation on the locational choice of japanese foreign direct investment this article assesses the impact of environmental regulation er in host countries on japanese foreign direct investment fdi decision making it tests the pollution haven hypothesis using data on national er standards and japanese inward fdi in five dirty industries iron and steel industry nonferrous metals industry chemicals industry paper and pulp industry nonmetallic products industry the results do not support the pollution hypothesis on the contrary inward japanese fdi appears to be attracted to countries which have committed themselves to a transparent and stable environment regulatory environment suggesting that the quality of the regulatory framework in terms of its certainty and transparency has a greater influence on foreign investors choice of location than the level of environmental regulatory measures

japanese and u s firms as foreign investors do they march to the same tune during the 1980s u s and japanese multinationals were attracted by some similar country characteristics low wage inflation low country risk good infrastructure and an educated work force both groups of investors displayed a persistence being strongly attracted to locations with significant past investment japanese firms started the decade as somewhat more fluid but as their investment levels surged they became much more persistent overall u s firms were more influenced by domestic market conditions and moved contrary to changes in host country trade intensity japanese investment had a somewhat greater affinity for trade reflecting their long standing interest in east asia some limited evidence suggests that factors driving the two groups of investors converged in the second half of the 1980s

a rentier theory of subnational regimes fiscal federalism democracy and authoritarianism in the argentine provinces levels of subnational democracy vary significantly within countries around the world drawing on fiscal theories of the state the author argues that this variance is often explained by a type of rentierism that is not geographically determined by natural resources but politically created by certain fiscal federalism arrangements he posits that less democratic regimes are more likely in rentier provinces those that receive disproportionately large central government transfers and practically forgo local taxation intergovernmental revenue sharing rules that produce large vertical fiscal imbalances and favor the economically smaller districts provide their incumbents with generous fiscal federalism rents that allow them to restrict democratic contestation and weaken checks and balances statistical evidence from a panel data set of the argentine provinces strongly confirms this expectation even after controlling for standard alternative explanations such as level of development sensitivity analysis shows that this finding is extremely robust to alternative panel estimators qualitative and quantitative evidence suggests that the effect of heavy public spending on the economic autonomy of political actors is the main causal mechanism at work

federalism chinese style the political basis for economic success in china china s remarkable economic success rests on a foundation of political reform providing a considerable degree of credible commitment to markets this reform reflects a special type of institutionalized decentralization that the authors call federalism chinese style this form of decentralization has three consequences first it fosters competition not only in product markets but also among local governments for labor and foreign capital this competition in turn encourages local government experimentation and learning with new forms of enterprises regulation and economic relationships second it provides incentives for local governments to promote local economic prosperity finally it provides a significant amount of protection to local governments and their enterprises from political intrusion by the central government

insider control and the soft budget constraint a simple theory abstract insider control of a firm is shown to be a cause of the soft budget constraint and it has many welfare consequences the implication is that establishing effective corporate governance is a necessary measure to harden budget constraints

mutual empowerment of state and peasantry grassroots democracy in rural china abstract this paper aims to explore alternative pathways to democracy by studying the origins processes and impacts of a recent political development in china within the framework of an authoritarian state the gradual emergence of some genuine grassroots self government especially in rural areas the major argument is that the practice of self government in rural china was promoted by the state to regain the legitimacy and governability it had lost during the economic reforms it is a critical process in which the state and the peasantry are mutually empowering each other by linking peasant demands to state power through the mechanism of grassroots elections and self governing villager committees the chinese case shows that the empowerment of new social forces does not necessarily weaken the capacity of the state to govern society and therefore in the long run a peaceful and orderly democratic transition might be possible

why don t poor countries catch up a cross national test of an institutional explanation early neoclassical analyses predicted that poor countries would grow faster than wealthy countries because of technological advances and diminishing returns to capital in the latter the reverse has occurred poor countries are falling back rather than catching up we suggest here that deficient institutions underlie this divergence employing various indicators of institutional quality including the rule of law the pervasiveness of corruption and the risk of expropriation and contract repudiation we show that the ability of poor countries to catch up is determined in large part by the institutional environment in which economic activity in these countries takes place jel o00 o10

are firm specific advantages location specific too much of the research on the role of firm specific advantages on firms subsidiary ownership preferences has been undertaken in the context of advanced country multinationals specifically u s mncs research has found that u s firms derive ownership advantages from their size experience and technological and marketing superiority perhaps having operated in the most developed and sophisticated home market many u s firms generate unique skills that give them absolute advantages over firms in almost all foreign host locations developing country mncs do not have absolute ownership advantages similar to those of the u s firms the relevance of a particular firm specific characteristic for a developing country mnc may be contingent not only upon the home country characteristics as in the case of u s mncs but also upon host country characteristics this study investigates the subsidiary ownership preferences among korean mncs and finds that the influence of three firm specific advantages technological intensity product differentiation and capital intensity on subsidiary ownership levels is contingent upon whether the subsidiary is located in a relatively less developed or a more developed country as compared to the home country although some authors have suggested that the influence of firm specific advantages may be contingent upon the characteristics of both home and host country locations empirical investigations to this effect have been nonexistent

show me the money interjurisdiction political competition and fiscal extraction in china we argue that interjurisdiction competition in authoritarian regimes engenders a specific logic for taxation promotion seeking local officials are incentivized to signal loyalty and competence to their principals through tangible fiscal revenues the greater the number of officials accountable to the same principal the more intense political competition is resulting in higher taxation however too many officials accountable to the same principal leads to lower taxation due to shirking by uncompetitive officials and the fear of political instability using a panel dataset of all chinese county level jurisdictions from 1999 2006 we find strong evidence for an inverse u shaped relationship between the number of county level jurisdictions within a prefecture our proxy for the intensity of political competition and fiscal revenues in most provinces but not so in politically unstable ethnic minority regions the results are robust to various alternative specifications including models that account for heterogeneous county characteristics and spatial interdependence

second generation fiscal federalism political aspects of decentralization and economic development summary this essay contributes to second generation fiscal federalism sgff which traces the implications of incentives created by political and fiscal institutions the approach explores how various forms of fiscal federalism work in the presence of political officials who rather than being benevolent social planners face various forms of political incentives the paper focuses on three sets of positive models first it explores self enforcing federalism that is how federal systems are held together given various tendencies for federal systems to become centralized or fall apart second it considers how specific political institutions such as democracy interact with decentralization finally it studies various political impediments to economic growth again highlighting the interaction with decentralization 2013 elsevier ltd all rights reserved

intellectual property protection market orientation and location of overseas r d activities by multinational enterprises abstract this paper develops an analytical framework to explain the determinants of location of overseas research and development r d by multinational enterprises mnes in terms of the nature and extent of foreign direct investment fdi and host country resources and policy regimes empirical findings for us mnes suggest that mnes prefer to locate their r d activities in countries that are able to offer them among other things larger markets technological resources and infrastructure host market oriented affiliates are more likely to have r d units than the export oriented ones especially in developing countries the relative strength of the patent regime appears to affect the direction rather than the magnitude of r d investments made in a country

racing to the bottom or to the top decentralization revenue pressures and governance reform in china summary china s decentralization has been praised for promoting inter jurisdictional competition that incentivizes local officials to promote economic development the downside of decentralization is that it enables these same local authorities to slow or block implementation of centrally mandated governance reforms especially when these may negatively affect local development goals we suggest that china s fiscal system and promotion system have created mismatched incentives that encourage cash strapped local authorities to disregard central governance reforms specifically we show that cities with weaker revenue bases were slower to implement new centrally mandated environmental transparency regulations additional evidence points to a bifurcation in development strategies in fiscally strong cities increased foreign investment leads to greater compliance in fiscally weak cities foreign investment is associated with decreased disclosure suggesting they aim to promote local development by becoming pollution havens similarly high levels of pollution induce fiscally strong cities to increase pollution disclosures while the opposite holds in fiscally weak cities these findings imply that mismatched decentralization policies can undermine other important governance reforms even ones that might be expected to be complementary to decentralizing initiatives

decentralization of governance and development all around the world in matters of governance decentralization is the rage even apart from the widely debated issues of subsidiarity and devolution in the european union and states rights in the united states decentralization has been at the center stage of policy experiments in the last two decades in a large number of developing and transition economies in latin america africa and asia the world bank for example has embraced it as one of the major governance reforms on its agenda for example world bank 2000 burki perry and dillinger 1999 take also the examples of the two largest countries of the world china and india decentralization has been regarded as the major institutional framework for the phenomenal industrial growth in the last two decades in china taking place largely in the nonstate nonprivate sector india ushered in a landmark constitutional reform in favor of decentralization around the same time it launched a major program of economic reform in the early 1990s on account of its many failures the centralized state everywhere has lost a great deal of legitimacy and decentralization is widely believed to promise a range of benee ts it is often suggested as a way of reducing the role of the state in general by fragmenting central authority and introducing more intergovernmental competition and checks and balances it is viewed as a way to make government more responsive and efe cient technological changes have also made it somewhat easier than before to provide public services like electricity and water supply relatively efe ciently in smaller market areas and the lower levels of government have now a greater ability to handle certain tasks in a world of rampant ethnic cone icts and separatist movements decentralization is also regarded as a way of diffusing social and political tensions and ensuring local cultural and political autonomy these potential benee ts of decentralization have attracted a very diverse range

recent theoretical work on the soft budget constraint the soft budget constraint is a syndrome that was identified and studied by janos kornai in his analysis of centrally planned economies see kornai 1980 the syndrome is said to arise when a seemingly unprofitable enterprise is bailed out by the government or the enterprise s creditors in other words the enterprise is not held to a fixed budget but finds its budget constraint softened by the infusion of additional credit when it is on the verge of failure kornai viewed the soft budget constraint as a crucial ingredient for explaining the salient features of socialist economic performance in particular the pervasiveness of shortages one interesting puzzle is why centrally planned economies have been particularly susceptible to the influence of the soft budget constraint the capitalist world is hardly immune as the recent financial crisis in asia attests but on the whole it has proved less vulnerable indeed the very origin of the soft budget constraint and the mechanism by which it gives rise to shortages and other undesirable effects are also obviously important questions although kornai s work has long been well known and appreciated answers to these associated theoretical questions have been hazarded only recently in maskin 1996 i surveyed some of the initial efforts in this direction including mathias dewatripont and maskin 1995 which argues that centralization of credit can give rise to soft budget constraints because it facilitates the refinancing of

a multinomial logit analysis of problem loan resolution choices in banking this paper presents a conceptual framework of problem loan resolution choices that is a function of the combined borrower and lender decisions a bank will choose a workout option if its expected value is greater than the outcome under a no workout plan for the borrower if the reputational penalty due to a default is less than the opportunity cost of the best new alternative the borrower will have an incentive to default if the reverse holds then the borrower will be better off with a loan workout using a unique data set composed of borrower lender and economic factors we empirically examine the problem loan resolution choices the results provide support for our conceptual framework that problem loan choices are based on combined borrower lender variables copyright 1995 by ohio state university press

the economics of workout lending lenders are forced to consider a workout loan when a borrower loses access to financial markets and must seek loans from existing creditors to continue servicing outstanding loans a model of the loan decision is developed that distinguishes socially useful from socially wasteful workout loans the analysis is extended to examine two collective action problems that may arise when many lenders have claims on a troubled borrower the paper concludes with a consideration of the implications of the model for the establishment of prudential lending limits and of policies to stimulate new lending to troubled debtor countries copyright 1989 by ohio state university press

fiscal decentralization and economic growth abstract fiscal decentralization may indeed have a direct impact on economic growth but the theoretical underpinnings for this relationship remain largely undeveloped a fair summary of the empirical search for a direct relationship between fiscal decentralization and economic growth is that it remains an open question much less attention has been devoted in the literature to the indirect channels through which fiscal decentralization may affect economic growth we argue that much work remains to be done before policy advisors and decision makers can formulate and implement decentralization programs on the basis of improving the rate of economic growth

institutions investment and growth new cross country and panel data evidence this paper outlines the alternative channels through which institutions affect growth and studies the empirical relationship between institutions investment and growth the empirical results indicate that i free market institutions have a positive effect on growth ii economic freedom affects growth through both a direct effect on total factor productivity and an indirect effect on investment iii political and civil liberties may stimulate investment iv an important interaction exists between freedom and human capital investment v milton friedman s conjectures on the relation between political and economic freedom are correct vi promoting economic freedom is an effective policy toward facilitating growth and other types of freedom jel o17 o40 p51

fiscal decentralization a political theory with latin american cases theories of fiscal federalism explain the efficiency and other economic gains from decentralization but do not explain its extent and nature in practice the authors develop a political theory of decentralization that focuses on the lines of political accountability between politicians at different levels of government the more accountable central level politicians presidents and legislators are to subnational politicians the greater the extent of decentralization and the more it will conform to the preferences of subnational politicians for example with respect to the degree of the center s discretion the model is tested on five latin american countries that although formally decentralized in fact exhibit wide differences in the distribution of spending and revenue responsibilities the theory also helps explain a number of problems governments have encountered in decentralizing including subnational debt crises and a mismatch between responsibilities and resources

tribe or nation nation building and public goods in kenya versus tanzania this article examines how government policies affect ethnic relations by comparing outcomes across two nearby districts one in kenya and one in tanzania using colonial era boundary placement as a natural experiment despite similar geography and historical legacies governments in kenya and tanzania have followed radically different language education and local institutional policies with tanzania consistently pursuing more serious nation building the evidence suggests that nation building has allowed diverse communities in rural tanzania to achieve considerably better local public goods outcomes than diverse communities in kenya to illustrate while kenyan communities at mean levels of diversity have 25 percent less local school funding than homogeneous communities on average the comparable figure in the tanzanian district is near zero the kenya tanzania comparison provides empirical evidence that serious reforms can ameliorate social divisions and suggests that nation building should take a place on policy agendas especially in africa

grassroots democracy and local governance evidence from rural china summary this paper studies the impacts of village elections on the accountability of the village committee local fiscal sharing and state taxation in rural china using data of 48 villages for the period of 1986 2002 elections are found to substantially increase the share of public expenditures in the village budget but reduce the shares of administrative costs and income handed to the township government these findings suggest that elections have enhanced the accountability of the village committee but weakened local fiscal sharing and the state s grip no strong evidence is found that state taxation is affected by elections nor is it found that the role of a more competitive election is different from that of a closed election

trust and inter firm relations in developing and transition economies the role of trust in facilitating economic growth has been highlighted in previous contributions to this journal in order to take this debate forward this article argues 1 that more attention needs to be given to the relationship between sanctions and trust and 2 that it is worth distinguishing between the minimal trust for making markets effective and the extended trust required for deeper kinds of inter firm co operation to work the article goes on to ask why minimal trust is lacking and so hard to construct in the republics of the former soviet union it then examines how extended trust grows or can be made to grow in industrial supply chains and clusters in developing countries

joint ventures and offshore oil lease sales alternative explanations of joint bidding for offshore oil tract leases are examined the models suggest that firms undertake joint bids 1 to reduce risk by spreading ownership across tracts 2 to share technical expertise including information and 3 to ameliorate financial constraints these hypotheses are examined empirically using the multiple logit technique and other tests with data constructed from the baltimore canyon sale of 1976 the results suggest that firms behaviors are consistent with the explanations of diversification and sharing of expertise explanations based on financial constraints are shown to be consistent with the data in the risk averse case but not in the risk neutral case implications of these results for research and policy are discussed

credit and efficiency in centralized and decentralized economies we study a credit model where because of adverse selection unprofitable projects may nevertheless be financed indeed they may continue to be financed even when shown to be low quality if sunk costs have already been incurred we show that credit decentralization offers a way for creditors to commit not to refinance such projects thereby discouraging entrepreneurs from undertaking them initially thus decentralization provides financial discipline nevertheless we argue that it puts too high a premium on short term returns the model seems pertinent to two issues soft budget constraint problems in centralized economies and differences between anglo saxon and german japanese financing practices

hardening the budget constraint the experience of the post socialist countries abstract the study surveys the typical manifestations of the softness of the budget constraint such as state subsidies soft taxation non performing loans the accumulation of trade arrears between firms and the build up of wage arrears in the various post socialist countries it was widely maintained at the outset of the post socialist transition that the holy trinity of liberalization privatization and stabilization would suffice to produce an efficient market economy since then it has become clear that hardening the budget constraint needs to be given equal priority with these unless this occurs the effects of privatization will fall short of expectations as they have in russia

oil nontax revenue and the redistributional foundations of regime stability nontax revenues make up a substantial amount of government revenue around the world though scholars usually focus on individual sources of such revenue for example foreign aid and state owned oil companies using a theory of regime change that builds on recent models of the redistributional foundations of dictatorships and democracies i generate hypotheses regarding all nontax revenue and regime stability i argue that an increase in nontax revenue should be associated with less taxation of elites in democracies more social spending in dictatorships and more stability for both regime types i find support for all three of these hypotheses in a cross sectional time series analysis covering all countries and years for which the necessary data are available significantly i show that the particular source of nontax revenue does not make a difference they all act similarly with regard to regime stability and the causal mechanisms

determinants of expenditure decentralization evidence from china summary this study is the first attempt to examine the determinants of expenditure decentralization at sub provincial levels in china the chinese central government gives detailed guidelines to local governments on public finance but ironically their expenditure assignment is far from being well regulated differences in fiscal decentralization on the expenditure side are enormous among local governments employing a panel dataset of 1995 2006 we provide empirical evidence that transfer dependency negatively affects expenditure decentralization in chinese local governments it suggests that intermediate governments i e provincial governments may have grabbed central grants for self interests

second generation fiscal federalism the implications of fiscal incentives abstract first generation fiscal federalism fgff studies the performance of decentralized systems under the assumption of benevolent social planners second generation fiscal federalism sgff studies performance based on the fiscal and political incentives facing subnational officials the paper focuses on three aspects of sgff first it considers the design of intergovernmental transfers while fgff emphasizes correcting vertical and horizontal equity sgff emphasizes the importance of fiscal incentives for producing local economic prosperity sgff extends fgff approaches by showing how non linear transfer systems can produce both equalization and high marginal fiscal incentives to produce local economic growth second the paper raises the fiscal incentive approach showing how different tax systems produce different fiscal incentives for political officials to choose policies third the paper discusses the interaction of democracy and fiscal federalism

policy and non policy determinants of u s equity foreign direct investment this study examined the effects of policy and non policy variables on the location of new u s direct investment abroad as distinct from reinvested earnings of existing affiliates using 1977 and 1982 benchmark data the data revealed statistically significant effects for investment incentives positive performance requirements negative and host country effective tax rates negative with interesting differences between the two time periods and between developed versus developing countries significance was also found for non policy variables such as political stability cultural distance gdp per capita and infrastructure

international investment location decisions abstract in international location tournaments governments compete for foreign investment with tax and other short run incentives such tournaments can be won if agglomeration economies are sufficiently powerful to overcome investors desire to spread investments as a hedge against risk we focus on manufacturing investments by u s multinationals in the 1980s our econometric results suggest that agglomeration economies are indeed the dominant influence on investor calculations paradoxically short run incentives have limited apparent impact on location choice we conclude that high cost tournament play is unnecessary for countries with good infrastructure development specialized input suppliers and an expanding domestic market

institutional impact of foreign direct investment in china summary we provide firm level empirical evidence that the presence of foreign direct investment fdi has positively affected the institutional quality of the host regions in china specifically chinese domestic firms located in regions with a higher level of fdi tend to enjoy a lower level of tax and fee burdens less arbitrariness in such burdens as well as better legal protection to address the potential issue of endogeneity we adopt the instrumental variable approach in addition we explore the specific mechanisms through which the institutional impact is materialized and provide various extensions of the empirical findings that offer further support for the fdi induced institutional improvement argument

politics economics and investment abstract few economists or laypeople would deny that political events can have an important sometimes even overwhelming impact on economic decisions in general and investment decisions in particular the first goal of this paper is to integrate a number of political and non traditional economic variables into the standard theory of investment based on the maximization of the expected value of the firm the second goal is to test this generalized investment theory on a particularly fertile field for gauging the interaction of political and economic factors the plant and equipment spending of foreign manufacturing affiliates of us multinationals in argentina brazil and mexico the results of these tests show that the generalized theory is far superior to the traditional alternatives in explaining the real investment of the sample for the 1958 1989 period

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

global foreign direct investment flows the role of governance infrastructure abstract it is widely argued that a country s economic performance over time is determined to a great extent by its political institutional and legal environment we refer to these institutions and policies as the governance infrastructure of a country we utilize newly developed indices to examine the effects of governance infrastructure on both foreign direct investment fdi inflows and outflows for a broad sample of developed and developing countries over 1995 97 in addition we examine the role of other forms of infrastructure including human capital and the environment the results clearly indicate that governance infrastructure is an important determinant of both fdi inflows and outflows investments in governance infrastructure not only attract capital but also create the conditions under which domestic multinational corporations emerge and invest abroad it would appear that investments in governance infrastructure are subject to diminishing returns so that the benefits in terms of inflows are most pronounced for smaller and developing economies