the effect of regime shifts on the long run relationships for swedish money demand when the possibility of an unknown structural break is allowed and it is taken into account we find a significant long run relationship between swedish money demand and its determinants that is not found when no break is considered the estimated elasticities show that money demand is more responsive to its determinants in the period after the break than before possible underlying reasons for the occurrence of this break and its implications are explained

when do firms generate evidence on in house electricity supply in africa this paper attempts to identify the underlying causes and costs of own generation of electric power in africa rigorous empirical analysis of 8483 currently operating firms in 25 african countries shows that the prevalence of own generation would remain high at around 20 even if power supplies were perfectly reliable suggesting that other factors such as firms size emergency back up and export regulations play a critical role in the decision to own a generator the costs of own generation are about three times as high as the price of purchasing subsidized electricity from the public grid however because these generators only operate a small fraction of the time they do not greatly affect the overall average cost of power to industry the benefits of generator ownership are also substantial firms with their own generators report a value of lost load of less than us 50 per hour compared with more than us 150 per hour for those without nevertheless when costs and benefits are considered side by side the balance is not found to be significantly positive

electricity shortages and firm productivity evidence from china s industrial firms unreliable inputs to production particularly those that are difficult to store can significantly limit firms productivity leading them to react in a number of ways this paper uses a panel of 23 000 energy intensive chinese firms from 1999 to 2004 to examine how firms responded to severe power shortages in the early 2000s our results suggest that in response to electricity scarcity chinese firms re optimize among inputs to production by substituting materials for energy both electric and non electric sources a shift from make to buy of intermediate inputs to production while outsourcing can be costly chinese firms were able to avoid substantial productivity losses by doing so as a result of the increase in electricity scarcity from 1999 onward we find that unit production costs increased by eight percent

infrastructure and development a critical appraisal of the macro level literature this survey reviews the existing macro level empirical literature on the link between infrastructure and development outcomes in a critical light after providing a general framework that casts the relevant terms of the controversy on the real effect of infrastructure on growth in the context of an aggregate production function it signals what are the relevant empirical questions to be addressed this guides the systematic review of a number of empirical studies and the discussion of the main econometric challenges to the identification of the effect of infrastructure on output and productivity finally building on related research in particular in contract theory and political economy the paper spells out several promising research avenues

returns to rural electrification evidence from bhutan abstract rural electrification re is a core component of the sustainable development goals and a major focal point of the global development community despite this focus more than one billion people worldwide lack access to electricity and electrification rates need to more than quadruple to meet international goals we believe that lack of progress is partly driven by a know do gap a misalignment between academic research and the information needs of policy makers most studies measuring the impacts of electrification focus on precise estimation of a few outcomes specifically health education and productivity impacts other important impacts e g environmental have remained largely unstudied as a consequence quantifying the full set of costs and benefits of expanding electricity access is difficult and rarely done when cost benefit analyses are done they are often incomplete and conclusions are highly susceptible to unavailable or uncertain parameters we illustrate these arguments in the case of bhutan where re rates have expanded rapidly in the past few decades we show that re via grid extension had positive impacts related to fuelwood consumption education and employment but we do not find an effect on health we then use these impact estimates to conduct cost benefit analyses for the cost benefit parameters not available from our impact evaluation we transfer reasonable estimates from related contexts to acknowledge the uncertainty induced by this process we conduct monte carlo analyses and confirm that while the private npv calculations are robust to alternative parameter values the social returns are sensitive to estimates of the social cost of carbon and costs of grid operation and maintenance based on this exercise we highlight research gaps that persist and that preclude 1 careful cost benefit analysis of re more generally and 2 financial investment in the sector

a firm level analysis of outage loss differentials and self generation evidence from african business enterprises abstract this study examines the outage loss differential between firms that engage in backup generation and those that do not unmitigated outage losses were estimated to be us 2 01 23 92 per kwh for firms engaging in self generation and range from us 1 54 to 32 46 per kwh for firms without self generation we also find that firms engaging in self generation would have suffered additional 1 183 outage losses had they not invested in self generation on the other hand firms without self generation would have reduced their outage losses by around 6 46 if they had engaged in self generation further analyses however reveal that although engagement in self generation reduced outage losses a firm engaging in self generation may still suffer a greater unmitigated outage loss relative to a firm without a backup generator the relative outage losses depend on the relative vulnerability of the operations of the two sets of firms to power interruption and the relative generating capacity of a self generating firm to its own required electricity loads policy reforms that allow firms whose operations are highly vulnerable to outages to make a binding contract with utilities in order to get preferential supply are recommended

public private entanglement entrepreneurship in lebanon s hybrid political order while the literature is clear that political influence and clientelism characterises the investment decisions of entrepreneurs and the performance of their firms when governance is weak it is less understood how governance systems and entrepreneurs interact particularly when governance is of a hybrid nature we address this issue in this paper by studying how entrepreneurs obtain access to electricity in lebanon showing that the hybrid political order imposes a high cost on electricity we furthermore find that a hybrid political order channels entrepreneurial talent into lobbying and bribery the key constraint that emerges from the hybrid political order in this case is the corrupt organisation of governance of the electricity sector this results in higher prices because bribes for contracts have to be earned back in entrenchment of oligopolies because contracts often come with political protection

on error correction models specification interpretation estimation abstract error correction models ecms have proved a popular organising principle in applied econometrics despite the lack of consensus as to exactly what constitutes their defining characteristic and the rather limited role that has been given to economic theory by their proponents this paper uses a historical survey of the evolution of ecms to explain the alternative specifications and interpretations and proceeds to examine their implications for estimation the various approaches are illustrated for wage equations by application to uk labour market data 1855 1987 we demonstrate that error correction models impose strong and testable non linear restrictions on dynamic econometric equations and that they do not obviate the need for modelling the process of expectations formation with the exception of a few special cases both the non linear restrictions and the modelling of expectations have been ignored by those who have treated ecms as merely reparameterisations of dynamic linear regression models or vector autoregressions

the effects of additive outliers on tests for unit roots and cointegration this article discusses the properties of the univariate dickey fuller test and the johansen test for the cointegrating rank when there exist additive outlying observations in the time series we provide analytical as well as numerical evidence that additive outliers may produce spurious stationary hence the dickey fuller test will reject a unit root too frequently and the johansen test will indicate too many cointegrating vectors the results easily generalize to models with temporary change outliers through an empirical example we discuss how additive and temporary change outliers can be detected in practice and we show how dummy variables can be used to remove the influence of such extreme observations

coping with poor public capital abstract despite recent successes in stabilization and structural reforms in many developing countries the private investment response to date has been mixed even among the strongest reformers this disappointing result can be partly explained by the continued poor provision of public capital and services we test this hypothesis using unique firm level data on investment and provision of public infrastructure services the results suggest that poor complementary public capital significantly reduces private investment however firms can substitute for deficient public services by investing in complementary capital themselves but this comes at a cost less productive capital will be installed

economic policies and demand for money evidence from canada this study identifies canadian fiscal and monetary policy regime changes that could influence the services of money it is argued that if these policy regime changes were not incorporated in the estimation of demand for real balances the resulting estimate would be biased and unstable using canadian monthly data for the january 1975 to june 2001 period the paper estimates a standard demand for money m1 function with and without these policy regime changes it was found the demand for money in canada is stable over the short and long run periods when these policy regime changes are incorporated and the estimated coefficients have correct signs

sri lanka s rural non farm economy removing constraints to pro poor growth summary we use a survey of rural enterprises from sri lanka to explore characteristics of the informal non farm sector and identify obstacles to its expansion and productivity value added in this sector amounts to 80 of agricultural gdp participating households incomes are significantly higher than those of households who do not participate barriers to entry are low and the impact of non farm development on inequality modest implying a large potential contribution to growth and poverty reduction infrastructure constraints negatively affect new startups investment in and productivity of existing enterprises with small enterprises being particularly affected

time varying parameter error correction models the demand for money in venezuela 1983 i 1994 iv the possibility of using time varying parameter models in the context of error correction models is studied empirically as an application a money demand relationship m1 for venezuela is estimated from 1983 to 1994 within a cointegrated var framework first the stochastic properties of the series are analysed studying each corresponding order of integration second the existence of a long run stable relation between the variables involved has been investigated and then the cointegration relation and the short run adjustment mechanism estimated as both relations are identified in the context of constant parameters a stability analysis is performed finally the technique of kalman filtering is used to estimate a model that permits the short run parameters to vary while the parameters of the long run relation are kept constant

aid governance and private foreign investment some puzzling findings for the 1990s does official aid pave the road for private foreign investment or does it suffocate private initiative by diverting resources towards unproductive activities we explore this question using panel data covering a large number of developing and emerging economies during the 1990s controlling for countries institutional environment we find that evaluated at the mean the marginal effect of aid on private foreign investment is close to zero surprisingly however the effect is strictly positive for countries in which private agents face a substantial regulatory burden this result is robust across a wide range of specifications samples and estimation methods

forward and futures prices evidence from the foreign exchange markets cornell and reinganum 1981 hereafter cr report that price differentials for future contracts and forward contracts are statistically insignificant in foreign exchange markets based on this finding cr conclude that marking to market is insignificant in the formulation of currency futures prices this note identifies two potential concerns with the cr tests one problem relates to the timing of delivery dates for matched contracts a second problem relates to the time period for the cr study we show that correcting for these problems does not affect the overall conclusions of the cr study marking to market does not appear to have a significant effect on currency futures prices

explaining african economic performance africa has had slow growth and a massive exodus of capital in many respects it has been the most capital hostile region we review and interpret the aggregate level and microeconomic literatures to identify the key explanations for this performance there is a reasonable correspondence of the two sets of evidence pointing to four factors as being important these are a lack of openness to international trade a high risk environment a low level of social capital and poor infrastructure these problems are to a substantial extent attributable to government behaviour and the paper includes a review of the political economy literature which addresses that behaviour

the stability of long run money demand in five industrial countries abstract this study provides strong evidence for the stability of long run demand functions for narrowly defined money m1 in five industrial countries u s japan canada u k and west germany using post war quarterly data evidence of stability is examined using two different estimation techniques and through a formal test of parameter constancy designed specifically for cointegrating vectors in the majority of these countries the key to stability is the imposition of a unitary long run income elasticity that is rarely rejected by the data

modelling money demand for a panel of eight transitional economies in this article we estimate money demand functions for a panel of eight transitional economies using quarterly data for the period 1995 01 1995 to 2005 03 we find that real m1 and real m2 and their determinants namely real income and short term domestic interest rate are cointegrated both for individual countries as well as for the panel long run elasticities suggest that consistent with theory real income positively and nominal interest rate negatively impact real money demand our test for panel granger causality suggests short run bidirectional causality between m1 and m2 and their determinants finally our tests for stability of the money demand functions reveal more cases of unstable money demand functions when m2 is used as a proxy for money demand

does foreign aid increase foreign direct investment summary we examine the idea that aid and foreign direct investment fdi are complementary sources of foreign capital we argue that the relationship between aid and fdi is theoretically ambiguous aid raises the marginal productivity of capital when used to finance complementary inputs like public infrastructure and human capital investments but aid may crowd out private investments when it comes in the shape of pure physical capital transfers empirically we find that aid invested in complementary inputs draws in fdi while aid invested in physical capital crowds it out the paper shows that the composition of aid matters for its overall level of efficiency

using micro surveys to measure and explain corruption summary this paper discusses survey techniques aimed at a better measurement of corruption at the micro level and argues that with appropriate survey methods and interview techniques it is possible to collect quantitative micro level data on corruption public expenditure tracking surveys service provider surveys and enterprise surveys are highlighted with several applications these surveys permit measurement of corruption at the level of individual agents such as schools health clinics or firms they also permit the study of mechanisms responsible for corruption including capture of public funds and bribery 2005 elsevier ltd all rights reserved

is the bad news principle for real abstract the bad news principle states that only the expected severity of future bad news matters for the decision whether to invest today good news should not matter at all this paper tests this prediction using firm level expectation data

the composition of public expenditure and economic growth abstract noting that the literature has focused on the link between the level of public expenditure and growth we derive conditions under which a change in the composition of expenditure leads to a higher steady state growth rate of the economy the conditions depend not just on the physical productivity of the different components of public expenditure but also on the initial shares using data from 43 developing countries over 20 years we show that an increase in the share of current expenditure has positive and statistically significant growth effects by contrast the relationship between the capital component of public expenditure and per capita growth is negative thus seemingly productive expenditures when used in excess could become unproductive these results imply that developing country governments have been misallocating public expenditures in favor of capital expenditures at the expense of current expenditures

firms operating under electricity constraints in developing countries many developing countries are unable to provide their industrial sectors with reliable electric power with the result that many enterprises must contend with an insufficient and unreliable supply of electricity because of these constraints enterprises often opt for self generation of electricity even though it is widely considered a second best solution this paper develops a theoretical model of investment behavior in remedial infrastructure in the presence of physical constraints it then illustrates the model s predictions using a large cross country sample of enterprises from the world bank enterprise survey database electricity intensive sectors in high outage countries are characterized by a significantly lower share of small firms