why don t remittances appear to affect growth although measured remittances by migrant workers have soared in recent years macroeconomic studies have difficulty detecting their effect on economic growth this paper reviews existing explanations for this puzzle and proposes three new ones first it offers evidence that a large majority of the recent rise in measured remittances may be illusory arising from changes in measurement not changes in real financial flows second it shows that even if these increases were correctly measured cross country regressions would have too little power to detect their effects on growth third it points out that the greatest driver of rising remittances is rising migration which has an opportunity cost to economic product at the origin net of that cost there is little reason to expect large growth effects of remittances in the origin economy migration and remittances clearly have first order effects on poverty at the origin on the welfare of migrants and their families and on global gross domestic product but detecting their effects on growth of the origin economy is likely to remain elusive

to have and have not international migration poverty and inequality in algeria in this paper using an original survey we analyze the distributional impact of international migration across two regions of algeria a semi parametric descriptive analysis is complemented with a parametric model remittances do not significantly change the gini coefficient in nearly any of the counterfactual scenarios however migration reduced poverty by 40 percent with different effects across regions for extreme poverty foreign transfers especially foreign pensions have a strong positive impact on very poor families in one region poor families in the other region suffer from a double loss their migrants do not provide local income and they do not send much money home

remittances schooling and child labor in mexico abstract this paper studies the effects of remittances from the u s on child labor and school attendance in recipient mexican households we identify these effects using the impact of the 2008 2009 u s recession on remittance receipts the methodology employed is a differences in differences strategy that compares households that were remittance recipients before the crisis with never recipient households to avoid possible selection problems we instrument for membership in the remittance recipient group we find that the negative shock on remittance receipts caused a significant increase in child labor and a significant reduction of school attendance

monetary union in west africa who might gain who might lose and why we develop a model in which governments financing needs exceed the socially optimal level because public resources are diverted to serve the narrow interests of the group in power from a social welfare perspective this results in undue pressure on the central bank to extract seigniorage monetary policy also suffers from an expansive bias owing to the authorities inability to precommit to price stability such a conjecture about the fiscal monetary policy mix appears quite relevant in africa with deep implications for the incentives of fiscally heterogeneous countries to form a currency union we calibrate the model to data for west africa and use it to assess proposed ecowas monetary unions fiscal heterogeneity indeed appears crit ical in shaping regional currency blocs that would be mutually beneficial for all their members in particular nigeria s membership in the configurations currently envisaged would not be in the interests of other ecowas countries unless it were accompanied by effective containment on nigeria s financing needs jel classification e58 e61 e62 f33 union monetaire en afrique de l ouest qui pourrait gagner qui pourrait perdre et pourquoi les auteurs developpent un modele dans lequel les besoins financiers des gouvernements depassent le niveau socialement optimal parce que des ressources pub liques sont detournees de maniere aservir les interets etroits du groupe au pouvoir dans une perspective de bien etre social cela entraine des pressions indues sur la banque centrale pour qu elle extraie du seigneuriage la politique monetaire souffre

emigration and wages in source countries evidence from mexico abstract this paper examines empirically the effect of mexican emigration to the united states on wages in mexico using data from the mexican and us censuses from 1970 to 2000 the main result in the paper is that emigration has a strong and positive effect on mexican wages there is also evidence for increasing wage inequality in mexico due to emigration simple welfare calculations based on a labor demand supply framework suggest that the aggregate welfare loss to mexico due to emigration is small however there is a significant distributional impact between labor and other factors

the fundamental determinants of interest rate differentials in the erm the paper analyses the sources of persistent interest rate differentials vis a vis germany that have existed in belgium denmark france ireland italy and the netherlands in a target zone system like the erm interest rate differentials mainly reflect devaluation expectations which are measured here by raw 1 month euromarket interest rate differentials drift adjusted 1 month differentials and differentials in long term government bond yields the role of a large set of fundamental macroeconomic variables that may have affected these devaluation expectations is investigated within a vector autoregressive var setting by means of granger causality tests impulse response functions and variance decompositions we find no evidence that fundamentals are more relevant to drift adjusted devaluation risk than for unadjusted interest rate differentials a significant impact of inflation budget deficits and unemployment becomes evident for almost all erm participants

remittances and the dutch disease abstract using data for el salvador and bayesian techniques we develop and estimate a two sector dynamic stochastic general equilibrium model to analyze the effects of remittances on emerging market economies we find that whether altruistically motivated or otherwise an increase in remittance flows leads to a decline in labor supply and an increase in consumption demand that is biased toward non tradables the higher non tradable prices serve as incentive for an expansion of that sector culminating in reallocation of labor away from the tradable sector a phenomenon known as the dutch disease quantitative results also indicate that remittances improve the welfare of households because they smooth income flows and increase consumption and leisure levels a bvar analysis provides results that are consistent with the dynamics of the model

ces production functions and economic growth we examine inconsistencies and controversies related to the use of ces production functions in growth models first we show that not all variants of ces functions commonly used are consistently specified second using a simple growth model we find that a higher elasticity of substitution leads to a higher steady state and makes the emergence of permanent growth more probable it is also pointed out that the effect of a higher elasticity of substitution on the speed of convergence depends on the relative scarcity of the factors of production finally we discuss possible explanations of variations in the elasticity of substitution jel classification o41 o11

real exchange rates within and between currency areas how far away is emu the renewed quest for a european monetary union raises the question is europe ready for a common currency we compare the conditional variance and the persistence of real exchange rate shocks within the german monetary union and between germany and eight european countries to assess the viability of a monetary union in europe the results suggest a europe of two speeds a core union among germany her smaller neighbors and france would be viable today further reduction of real exchange rate variability is needed in contrast between these countries and denmark italy and the united kingdom alternatively monetary union should be postponed until further adjustment has occurred such a waiting period would neither require nor benefit much from further tightening of the current ems copyright 1994 by mit press

a cautionary note in using patterns of shocks to determine optimal exchange rate policy an exploration of nepalese and indian exchange rate relations 1964 1994 nepal and india are developing countries in asia whose hard peg has existed for almost forty years as well as no restriction on capital mobility between both countries however empirical results suggest that nepal and india do not face symmetric patterns of shocks and are thus not suitable for a fixed exchange rate under this criteria one possible explanation may be that the monetary authority plays some role in the short run to reduce the cost of the exchange rate regime this suggests that some caution should be used in basing optimal exchange rate policy on this single criteria

macro economic shocks the erm and tri polarity the authors use the comparative behavior of real output growth and inflation behavior of members and nonmembers of the exchange rate mechanism erm to analyze the importance of erm membership on macroeconomic performance an econometric procedure for identifying temporary and permanent shocks to output is proposed and executed the results confirm that the erm has acted as a vehicle for macropolicy coordination between members the authors also investigate several issues relating to the hypothesis of global economic tri polarity between the united states germany and japan copyright 1995 by mit press

the nature of shocks in europe and in germany demand and supply shocks in the participating countries this paper addresses that question empirically using a bivariate var identification of the underlying orthogonal demand and supply shocks is achieved using only long run restrictions data for 16 european countries

remittances financial development and growth abstract despite the increasing importance of remittances in total international capital flows the relationship between remittances and growth has not been adequately studied this paper studies one of the links between remittances and growth in particular how local financial sector development influences a country s capacity to take advantage of remittances using a newly constructed dataset for remittances covering about 100 developing countries we find that remittances boost growth in countries with less developed financial systems by providing an alternative way to finance investment and helping overcome liquidity constraints this finding controls for the endogeneity of remittances and financial development does not depend on the particular measure of financial sector development used and is robust to a number of robustness tests including threshold estimation we also provide evidence that there could be an investment channel trough which remittances can promote growth especially when the financial sector does not meet the credit needs of the population

remittances and institutions are remittances a curse summary this paper addresses the complex and overlooked relationship between the receipt of workers remittances and institutional quality in the recipient country using a simple model we show how an increase in remittance inflows can lead to deterioration of institutional quality specifically to an increase in the share of funds diverted by the government for its own purposes in a cross section of 111 countries we empirically verify this proposition and find that a higher ratio of remittances to gdp leads to lower indices of control of corruption government effectiveness and rule of law even after controlling for potential reverse causality

in quest of the slutsky diamond the slutsky equation can be constructed as a parallelogram a diamond the area of which is proportional to the elasticity of substitution this construction permits to show immediately that demand functions become concave on an interval if the elasticity of substitution increases sufficiently also the diamond sheds light on the fact that the production level increases with the elasticity of substitution as an application the author shows that the elasticity of substitution has a direct bearing not only on the rate of growth of an economy but also on the very existence of sustained growth copyright 1989 by american economic association

the long term success of the neoclassical growth model in this paper we seek to re establish the link between the constant elasticity of substitution ces production function and neoclassical solow growth theory we do so in three dimensions first we review the increasing importance of the ces technology in modern dynamic macroeconomics in expanding not only theory but also in addressing important policy questions second we aue that the importance of the ces function in growth theory is intimately linked to normalization finally we examine the data congruence between ces functions and recent growth patterns in the usa and the euro area economies where we apply a supply side system incorporating a ces function with factor augmenting and time varying technical progress

endogenous oca analysis and the early euro experience some have argued that the endogenous responses to the formation of a currency area are so strong that one need not worry about optimum currency area conditions ex ante we argue that this is much too strong a conclusion we draw on a number of recent studies to evaluate the endogeneity experiences of the eurozone in three major areas trade flows business cycle synchronisation and structural reforms to improve labour and product market flexibility simple before and after comparisons are insufficient for analysis of endogeneity the experiences of non euro western european economies suggest that broader trends also had considerable influence on trade and business cycle patterns while trade rose substantially within the eurozone it also rose with and among other european economies we argue that political economy considerations tend to dampen the magnitude of endogeneity efforts on structural reforms and that meeting conditions for entry may be a more powerful mechanism in this than are subsequent endogenous responses we also discuss a number of areas for further research

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

a political economic critique on the theory of optimum currency areas and the implications for east asia in recent years dynamic debate has arisen as to the desirability and feasibility of creating a monetary union in east asia while the debate has relied heavily on the theory of optimum currency areas this theory has weaknesses in explaining the actual formation of monetary unions at this point political economy analysis appears to demonstrate stronger explanatory power this paper provides a systematic review of the main developments in the literature on optimum currency area theory and in the political economy literature on monetary union in addition it addresses the feasibility of an east asian monetary union by applying the findings in these two academic strands to the region it finds that even though formation of an east asian monetary union may be to some extent feasible from an economic perspective the region s political situation does not appear favourable for the creation of one

hard or soft pegs choice of exchange rate regime and trade in africa summary this paper revisits the link between fixed exchange rate regimes and trade in the context of africa s exchange rate arrangements differentiating the effects of hard pegs currency unions from conventional soft pegs using a novel dataset of exchange rate regime classification the paper augments the gravity model of bilateral trade flows with measures of currency unions and conventional pegged arrangements and benchmarks africa s experience against the rest of the world we find that in both samples currency unions and pegs increase trade vis a vis more flexible exchange rate arrangements through channels in addition to reduced exchange rate volatility however the effect is almost twice as large for africa in addition the trade generating effect of pegs is at least as large for africa as that of currency unions suggesting that pegs could present a viable option perhaps an alternative to currency unions to promote trade in the region

did the euro common currency increase or decrease business cycle synchronization for its member countries we use two variants of markov switching models to assess changes in output synchronization since the creation of the euro out of eight eurozone countries investigated only one the netherlands has synchronization increased since euro adoption supporting the endogenous optimal currency area argument of frankel and rose however in three other cases business cycle synchronization actually fell since the euro s creation thus the endogeneity of the optimal currency area criteria can go both ways adopting a common currency may increase synchronization for nations ready for a common currency but it can lower synchronization for nations that are far from synchronized before monetary unification

workers remittances and the real exchange rate a paradox of gifts abstract we test the impact of workers remittances on the real exchange rate using a panel of 13 latin american and caribbean countries the analysis reveals that workers remittances have the potential to inflict economic costs on the export sector of receiving countries by reducing its international competitiveness our findings raise concerns parallel to those raised by dutch disease or resource boom models where resource discoveries result in real exchange rate appreciation and shifting of resources from the traded to the nontraded sectors of the economy

capital account liberalization what do cross country studies tell us capital account liberalization it is fair to say remains one of the most controversial and least understood policies of our day one reason is that different theoretical perspectives have very different implications for the desirability of liberalizing capital flows another is that empirical analysis has failed to yield conclusive results the answer another influential strand of thought contends is that this efficient markets paradigm is fundamentally misleading when applied to capital flows limits on capital movements are a distortion it is an implication of the theory of the second best that removing one distortion need not be welfare enhancing when other distortions are present

economic growth and the elasticity of substitution two theorems and some suggestions at the beginning of the twentieth century the work of the swedish economist knut wicksell 1901 marked an important advance in our understanding of the relationship between the structure of production functions and income distribution wicksell had asked the following question among many others suppose that the marginal productivities are equal to the remuneration rates of each factor what then should be the form of the corresponding production function he pointed out p 125 that the general integral of the partial differential equation implied by this relationship was of the form y lf kil which meant in turn that the product y was necessarily a homogeneous of degree one function of capital k and labor l as an example he gave a function where the shares of k and l in y were constant and wrote down the function which would be rediscovered decades later by charles w cobb and paul h douglas 1928 however it is only half a century later in robert m solow s nobel prize winning 1956 essay that implications between the structure of the production function and long run equilibrium or disequilibrium of the economy were drawn in his classic article a contribution to the theory of economic growth solow had considered three cases analytically other cases were also discussed geometrically using a phase diagram he had labeled the two first cases 1hlarrod domar and cobb douglas respectively and he referred to the third type of production function as offering a bit of variety it was y ak 2 l 2 2 a particular case of y akp lp 1p in those early days solow had not pointed out to the reader that his cases could have been numbered 0 1 and 2 following the elasticity of substitution of the corresponding production function it would be only five years later in 1961 that with his coauthors kenneth j arrow et al he would find the general form of the two factor constant elasticity of substitution ces production function by integrating the differential equation corresponding to the observed relationship between output per capita and the wage rate solow s third case was indeed highly interesting since it allowed the possibility of everincreasing income per head even without any technical progress indeed solow showed that due to the efficiency of the system entailed by the particular production function he had chosen there existed a threshold for the savings rates s to generate investment per head large enough for income per head to grow forever that threshold was s nla2 where n is the growth rate of the population it was then natural to ask whether one could express that threshold in terms of the elasticity of substitution a the value of that threshold was determined by de la grandville 1989 to be equal to s no3 or where a is k s coefficient in a normalized ces function equal to a in solow s third case where u 2 for any s and n values this relationship gives also the threshold value in implicit form by the solution of ao1 1 log 3q or ilog nls by totally differentiating the last relationship one could observe that the threshold for the elasticity of substitution to entail ever sustained growth was an in klump faculty of mathematics and economics university of ulm helmholtzstrasse 20 d 89081 ulm germany de la grandville department of economics university of geneva 102 boulevard carl vogt ch 1211 geneva 4 switzerland we gratefully acknowledge the comments of seminar participants at stanford university and at the universities of stuttgart hohenheim and munich where parts of the paper were presented also we would like to thank without implicating in any way robert solow for his insightful remarks and an anonymous referee for very helnfuil supgestions wicksell cobb and douglas would no doubt burst with pride if they knew that one of our first year students wrote in a paper of his of course we recognize here a kirk douglas production function

remittances transaction costs and informality abstract recorded workers remittances to developing countries reached 167 billion in 2005 bringing increasing attention to these flows as a potential tool for development in this paper we explore the determinants of remittances and their associated transaction costs we find that recorded remittances depend positively on the stock of migrants and negatively on transfer costs and exchange rate restrictions in turn transfer costs are lower when financial systems are more developed and exchange rates less volatile the negative impact of transactions costs on remittances suggests that migrants either refrain from sending money home or else remit through informal channels when costs are high we provide evidence from household surveys supportive of a sizeable informal sector

the impact of migration on rural poverty and inequality a case study in china large numbers of agricultural labor moved from the countryside to cities after the economic reforms in china migration and remittances play an important role in transforming the structure of rural household income this article examines the impact of rural to urban migration on rural poverty and inequality in a mountainous area of hubei province using the data of a 2002 household survey since migration income is a potential substitute for farm income we present counterfactual scenarios of what rural income poverty and inequality would have been in the absence of migration our results show that by providing alternatives to households with lower marginal labor productivity in agriculture migration leads to an increase in rural income in contrast to many studies that suggest that the increasing share of nonfarm income in total income widens inequality this article offers support for the hypothesis that migration tends to have egalitarian effects on rural income for three reasons 1 migration is rational self selection farmers with higher expected return in agricultural activities and or in local nonfarm activities choose to remain in the countryside while those with higher expected return in urban nonfarm sectors migrate 2 households facing binding constraints of land supply are more likely to migrate 3 poorer households benefit disproportionately from migration

income and health spending evidence from oil price shocks health expenditures as a share of gdp in the united states have more than tripled over the past half century a common conjecture is that this is a consequence of rising income we investigate this hypothesis by instrumenting for local area income with time series variation in oil prices interacted with local oil reserves this strategy enables us to capture both partial equilibrium and local general equilibrium effects of income on health expenditures our central income elasticity estimate is 0 7 with 1 1 as the upper end of the 95 confidence interval which suggests that rising income is unlikely to be a major driver of the rising health expenditure share of gdp 2013 the president and fellows of harvard college and the massachusetts institute of technology

migration networks and microenterprises in mexico are migration networks associated with lower capital costs or the alleviation of capital constraints we examine these questions with data measuring access to remittance flows among small scale entrepreneurs in mexico using a survey of more than 6000 self employed workers and small firm owners located in 44 urban areas of mexico we estimate the impact of attachment to migration networks on the level of capital investment the capital output ratio sales and profits of microenterprises the impact is identified from the geographic pattern of migration from mexico driven by the completion of rail lines in the early 1900s for the full sample of firms we find that migration is associated with higher investment levels and higher profits but not higher sales the strongest effects on investment are in the categories of automobiles tools and inventories when the sample is limited to firms in high capital sectors investment sales and profits all increase with attachment to the migration networks suggesting that attachment to the migration network alleviates capital constraints in those sectors

do international migration and remittances reduce poverty in developing countries summary few studies have examined the impact of international migration and remittances on poverty in the developing world this paper fills this lacuna by constructing and analyzing a new data set on international migration remittances inequality and poverty from 71 developing countries the results show that both international migration and remittances significantly reduce the level depth and severity of poverty in the developing world after instrumenting for the possible endogeneity of international migration and controlling for various factors results suggest that on average a 10 increase in the share of international migrants in a country s population will lead to a 2 1 decline in the share of people living on less than 1 00 per person per day after instrumenting for the possible endogeneity of international remittances a similar 10 increase in per capita official international remittances will lead to a 3 5 decline in the share of people living in poverty

when to dollarize implicit in the debate over dollarization are two very different views of the sequencing of policy measures one view is that dollarization to work smoothly and yield more benefits than costs must wait on the completion of complementary reforms the other view is that dollarization need not wait on these other reforms because the very act of dollarizing will produce the changes needed to smooth the operation of the new regime in this paper i consider these arguments as they apply to the cases of labor market reform fiscal reform and financial sector reform i conclude that neither theory nor evidence suggests that removing all scope for an independent monetary policy will necessarily accelerate the pace of reform

remittances deteriorate governance abstract i use a natural experiment of oil price driven remittance flows to poor non oil producing muslim countries to demonstrate that remittances deteriorate the quality of governance especially in countries with weak democratic institutions the results indicate that a 1 standard deviation increase in remittances raises corruption by 1 5 index points on a 6 point scale which is equivalent to a dollar 600 decrease in per capita gdp concomitantly remittances may enable governments to reduce their delivery of public services for example health care school enrollment the results suggest that political institutions may mediate the potentially beneficial socioeconomic effects of remittance inflows

how similar are country and sector responses to common shocks within the euro area abstract ever since the introduction of the euro there have been discussions about whether europe constitutes an optimal currency area the great recession and the european debt crisis have rekindled and intensified this debate heterogeneous country experiences have led to questioning the rationale for a common monetary policy in the absence of a common fiscal framework to cushion macroeconomic shocks in this paper we examine whether the impact of typical macroeconomic shocks at the european monetary union emu level varies across countries and sectors we follow furlanetto et al 2017 and estimate common euro area macroeconomic supply demand monetary investment and financial shocks using sign restrictions we calculate the impulse responses to these shocks at the country sector level using local linear projections and propose a measure for business cycle synchronisation based on the similarity of the responses we find varying degrees of heterogeneity across member countries responses to common emu shocks although the responses of economic sectors are themselves heterogeneous different sector decompositions across countries cannot explain the cross country heterogeneity contrary to e g bayoumi and eichengreen 1993 2017 we identify italy to be a core country in line with recent literature the level of heterogeneity was the most pronounced during the financial crisis compared to pre and post crisis periods

benefits from mutual restraint in a multilateral monetary union summary we show that monetary union can enhance price stability for its member countries even if none of them has a long history of stable prices and independent monetary policy as is the case in a number of monetary union initiatives among developing countries the positive effect obtains because the opportunistic objectives of one country s policy makers are kept in check at the union level by other members with disparate objectives we calibrate the model to evaluate the proposed monetary union in the east african community the empirical results show that the mutual restraint on monetary policy is an important determinant of the expected benefit from an eac monetary union

international migration remittances and household investment evidence from philippine migrants exchange rate shocks how do households respond to overseas members economic shocks overseas filipinos in dozens of countries experienced sudden heterogeneous changes in exchange rates during the 1997 asian financial crisis appreciation of a migrant s currency against the philippine peso leads to increases in household remittances from overseas the estimated elasticity of philippine peso remittances with respect to the exchange rate is 0 60 positive migrant shocks lead to enhanced human capital accumulation and entrepreneurship in origin households child schooling and educational expenditure rise while child labour falls households also work more hours in self employment and become more likely to start relatively capital intensive household enterprises

exchange rate risk and transactions costs evidence from bid ask spreads abstract this paper develops a model of exchange rate bid ask spreads which is used to examine the relationship between exchange rate risk and volatility and to measure transactions costs the empirical results indicate that market makers judge the probability of exchange rate changes based on both recent and long term volatility and that the second moment alone is not a complete measure of volatility while a proxy for trading volume does not have the expected relationship with spreads weekend and holiday effects conform to theory transactions costs vary over time and seem responsive to the imposition of exchange controls

the perils of unearned foreign income aid remittances and government survival given their political incentives governments in more autocratic polities can strategically channel unearned government and household income in the form of foreign aid and remittances to finance patronage which extends their tenure in political office i substantiate this claim with duration models of government turnover for a sample of 97 countries between 1975 and 2004 unearned foreign income received in more autocratic countries reduces the likelihood of government turnover regime collapse and outbreaks of major political discontent to allay potential concerns with endogeneity i harness a natural experiment of oil price driven aid and remittance flows to poor non oil producing muslim autocracies the instrumental variables results confirm the baseline finding that authoritarian governments can harness unearned foreign income to prolong their rule finally i provide evidence of the underlying causal mechanisms that governments in autocracies use aid and remittances inflows to reduce their expenditures on welfare goods to fund patronage

remittances and public finances evidence from oil price shocks we study the effect of inflowing remittances a major source of capital for many countries on tax revenues and tax policy instrumenting remittances with changes in the oil price interacted with a country s distance to oil producing countries we find that remittances have a large positive effect on vat revenues but no effect on income tax revenues this suggests that remittances often escape the income tax but can be taxed via consumption we further show that tax policy is responsive to shocks in incoming remittances remittances make the adoption of vat systems more likely and they lead to lower vat rates and higher income tax rates

reputation and credibility in the european monetary system ems credibility axel weber this article provides a quantitative assessment of the credibility of the european monetary system during the disinflation period of the 1980s the results contradict the widely held view that the ems has operated as a dm zone it is shown that after a brief early phase the ems has functioned as a bipolar system with a hard currency option supplied by the german bundesbank and a soft currency option offered by the banque de france whilst from the onset the netherlands have chosen the hard currency option at least in a first stage the remaining smaller economies belgium denmark and ireland adopted the soft currency alternative at a later stage of the ems however the soft currency block has disintegrated and some countries most noticeably ireland and to a lesser extent france have shifted towards the hard currency standard it is argued that this increased tightening of the ems provides a favourable starting condition for the transition to economic and monetary union

the benefits and costs of monetary union in southern africa a critical survey of the literature with the 14 members of the southern african development community sadc having set the objective of adopting a common currency for the year 2018 an expanding empirical literature has emerged evaluating the benefits and costs of a common currency area in southern africa this paper reviews that literature focusing on two categories of studies 1 those that assume that a country s characteristics are invariant to the adoption of a common currency and 2 those that assume that a monetary union alters an economy s structure resulting in trade creation and credibility gains the literature reviewed suggests that a relatively small group of countries typically including south africa satisfies the criteria necessary for monetary unification the literature also suggests that in a monetary union comprising all sadc countries and a regional central bank that sets monetary policy to reflect the average economic conditions e g fiscal balances in the region the potential losses i e higher inflation from giving up an existing credible national central bank a relevant consideration for south africa could outweigh any potential benefits of trade creation resulting from a common currency

international migration remittances and schooling evidence from el salvador abstract we examine the effect of remittances from abroad on households schooling decisions using data for el salvador following the massive war related emigration of the 1980s remittances became a significant source of household income throughout the 1990s we use the cox proportional hazard model to examine the determinants of school attendance measuring income from a source that is uncorrelated with parental schooling remittances we find that remittances have a large significant effect on school retention we estimate that while household income net of remittances has a small though significant impact on the hazard of leaving school in rural and urban areas remittances have a much larger impact on the hazard of leaving school in urban areas the effect of remittances is at its smallest 10 times the size of the effect of other income in rural areas the effect of remittances is about 2 6 times that of other income our finding is of interest in that it suggests that subsidizing school attendance particularly in poor areas may have a large impact on school attendance and retention even if parents have low levels of schooling

do remittances lead to a public moral hazard in developing countries an empirical investigation abstract this article tests the hypothesis that in a context of bad governance remittance inflows strongly reduce public spending on education and health in receiving countries a phenomenon called the public moral hazard problem using a large sample of 86 developing countries over the period 1996 2007 and after factoring in the endogeneity of remittances the results suggest a negative impact of remittances on public spending on education and health when governance is bad in remittance dependent economies

economic effects of currency unions we develop a new instrumental variable iv approach to estimate the effects of different exchange rate regimes on bilateral outcomes the basic idea is that the characteristics of the exchange rate between two countries are partially related to the independent decisions of these countries to peg explicitly or de facto to a third currency notably that of a main anchor this component of the exchange rate regime can be used as an iv in regressions of bilateral outcomes we apply the methodology to study the economic effects of currency unions the likelihood that two countries independently adopt the currency of the same anchor country is used as an instrument for whether they share a common currency we find that sharing a common currency enhances trade increases price comovements and decreases the comovement of real gross domestic product shocks

a critique of tiebout s theory of local public expenditures the last section of this paper presents a rigorous version of tiebout s theory of local public goods it is shown that equilibria exist and are pareto optimal this rigorous theory follows closely the more rigorous part of tiebout s work this rigorous theory makes a number of very special assumptions which make local public goods essentially private the body of this paper presents a series of examples which show that if one tries to generalize the rigorous version of tiebout s theory in a number of interesting directions then equilibria may no longer exist or may not be pareto optimal the conclusion is that tiebout s idea does not lead to a satisfactory general theory of local public goods the goal of this paper is to point out that tiebout s notion of equilibrium with local governments does not have the nice properties of general competitive equilibrium except under very restrictive assumptions tiebout 39 suggested that there are competitive forces which tend to make local governments allocate resources in a pareto optimal fashion consumers choose to live in those towns with the mix of taxes and public goods they prefer local governments choose this mix so as to attract inhabitants this idea may seem intriguing for it suggests that the invisible hand solves an important part of samuelson s perplexing public goods problem 32 tiebout in fact makes an argument which is nearly rigorous i give a rigorous version of his argument at the end of the paper however in this rigorous version so many restrictive assumptions are made that public goods become essentially private in the body of the paper i give a series of examples with which i try to convince the reader that one is forced to adopt tiebout s restrictive assumptions the idea is that if one changes any of his assumptions then either equilibria may not exist or may not be pareto optimal my examples are presented in the context of a general class of tiebout models i consider several subclasses one of which is the special case considered by tiebout in each of the subclasses except that considered by tiebout i give a counterexample either to the existence of equilibrium or to its pareto optimality the subclasses are so chosen that the difficulties they reveal would be shared by any reasonable tiebout model which differed from his special case i believe that my examples controvert tiebout s suggestion 39 last paragraph that his theory compares favorably with competitive equilibrium theory most of the examples in this paper have already appeared in the literature i cite related work as i go along what is new here is that i assemble the examples in a unified argument

participation in a currency union in any voluntary cooperative agreement the potential gain from deviation should determine the minimum influence required over common decision making this paper begins by observing that a highly asymmetric distribution of power between two partners is not sustainable if the choice variables are strategic substitutes it then studies a simple general equilibrium model of a monetary union and shows that a small economy will not take part in the agreement unless it can secure influence that is more than proportional to its size and a transfer of seigniorage revenues in its favor copyright 1992 by american economic association

the volatility effect of diaspora s location remittances can transmit volatility from host to home countries for some common patterns of diaspora s geographical distribution in a migration portfolio model the overall risk of volatility of any set of diaspora location is decomposed into a contagion and a concentration risks a diaspora located in more volatile destinations induces a higher contagion risk while a diaspora located in few destination countries increases the concentration risk a series of estimations on a large panel of developing countries over 1995 2015 provide evidence for these two risks estimation of a structural model confirms that the geography of diaspora has an indirect impact on the origin country s aggregate instability through remittances

improving policy credibility is there a case for african monetary unions abstract this paper analyzes experience with monetary policy in africa focusing on countries that have participated in rule based regional monetary agreements cfa zone east african currency board and rand monetary area we show that african countries have generally lacked the political institutions necessary for governments to commit credibly on an individual basis to financial stability we argue that monetary unions can provide an alternative means of credible commitment to sound macroeconomic policies but only under certain conditions first exit from a union must be made costly by the existence of parallel regional agreements and or links to the financial and technical assistance of industrial countries second governance structures of monetary unions must be designed so as to maximize chances for enforcement of monetary rules and third if a state seeks to break the rules of a union other member governments must actively oppose such attempts

why do developing countries tax so little the power to tax is taken for granted in a great deal of mainstream public finance in considering limits to taxation traditional research in the field focuses on limits imposed by incentive constraints which are tied to asymmetric information or to politics and political institutions the limits to taxation are rarely tied to the administrative capacity of the state but incentive constraints alone cannot explain the vast differences in the levels of taxation that we see across the world and across time low income countries typically collect taxes of between 10 to 20 percent of gdp while the average for high income countries is more like 40 percent in essence our view on these patterns is similar to that taken by joseph schumpeter 1918 almost a century ago when he noted the fiscal history of a people is above all an essential part of its general history an enormous influence on the fate of nations emanates from the economic bleeding which the needs of the state necessitates and from the use to which the results are put in order to understand taxation economic development and the relationships between them we need to think about the forces that drive the development process poor countries

the aggregate production function of the finnish economy in the twentieth century this article uses the bayesian approach to estimate the parameters of the normalized constant elasticity of substitution ces function with factor augmenting technical progress directly rather than using derived first order conditions of profit maximizing behavior bayesian estimation is applied because maximum likelihood estimation is sensitive to the starting values of maximization and the parameters typically fail to converge to the global optimum because of a multimodal likelihood thanks to a convenient prior distribution the posterior simulation of parameters works fairly well the results indicate that in the long run over 100 years the parameters for the elasticity of substitution and capital income share are intimately linked to the shape of capital augmenting technological progress in particular the linear restriction excludes the possibility that the speed of capital augmenting technological progress converges to zero which seems to lead to upwardly biased estimates of the elasticity of substitution and income share parameters

us food aid and civil conflict we study the effect of us food aid on conflict in recipient countries our analysis exploits time variation in food aid shipments due to changes in us wheat production and cross sectional variation in a country s tendency to receive any us food aid according to our estimates an increase in us food aid increases the incidence and duration of civil conflicts but has no robust effect on interstate conflicts or the onset of civil conflicts we also provide suggestive evidence that the effects are most pronounced in countries with a recent history of civil conflict jel d74 f35 o17 o19 q11 q18 we are unable to determine whether our aid helps or hinders one or more parties to the conflict it is clear that the losses particularly looted assets constitutes a serious barrier to the efficient and effective provision of assistance and can contribute to the war economy this raises a serious challenge for the humanitarian community can humanitarians be accused of fueling or prolonging the conflict in these two countries medecins sans frontieres amsterdam 1

migration remittances and inequality estimating the net effects of migration on income distribution this paper examines the net effects of migration and remittances on income distribution potential home earnings of migrants are imputed as are the earnings of non migrants in migrant households in order to construct no migration counterfacmals to compare with the observed income distribution including remittances the earnings functions used to impute migrant home earnings are estimated from observations on non migrants in a selection corrected estimation framework which incorporates migration choice and labor force participation decisions for a sample of households in bluefields nicaragua migration and remittances increase income inequality when compared with the no migration counterfactual 1998 elsevier science b v

on the adequacy of monetary arrangements in sub saharan africa we examine the economic rationale for monetary union s in sub saharan africa through the use of cluster analysis on a sample of 17 countries the variables used stem from the theory of optimum currency areas and from the fear of floating literature it is found that the existing cfa franc zone cannot be viewed as an optimum currency area cemac and uemoa countries do not belong to the same clusters and a core of the uemoa can be defined on economic grounds the results support the inclusion of the gambia ghana and sierra leone in an extended uemoa arrangement or the creation of a separate monetary union with the core of the uemoa and the gambia rather than the creation of a monetary union around nigeria finally the creation of the west african monetary zone wamz around nigeria is not supported by the data

a literature survey on proposed african monetary unions this study provides a survey of recent advances in the literature on proposed african monetary unions the survey comprises about 60 empirical papers published during the past fifteen years four main strands are discussed individually and collectively notably the proposed west african monetary zone wamz east african monetary union eamu southern african monetary union samu and african monetary union amu we observe a number of issues with establishing the feasibility and or desirability of potential monetary unions inter alia variations in choice of variables empirical strategies sampled countries and considered periodicities we address this ambiguity by reviewing studies with scenarios that are consistent with hegelian dialectics and establish selective expansion as the predominant mode of monetary integration some proponents make cases for strong pegs and institutions as viable alternatives to currency unions using cluster analysis disaggregating panels into sub samples and distinguishing shocks from responses in the examination of business cycle synchronisation provide more subtle policy implications we caution that for inquiries using the same theoretical underpinnings variables and methods just by modifying the scope context and periodicity may only contribute to increasing the number of conflicting findings authors should place more emphasis on new perspectives and approaches based on caveats of and lessons from the european monetary union emu and cfa zones

factor substitution and factor augmenting technical progress in the united states a normalized supply side system approach abstract using a normalized ces function with factor augmenting technical progress we estimate a supply side system of the u s economy from 1953 to 1998 avoiding potential estimation biases that

towards european monetary union without the ems towards emu without the ems paul de grauwe this paper examines the causes of the breakdown of the ems arguing that ems credibility has always been impaired by recessions this has relevance both for the future of monetary union in europe and for the path by which it might be attained i argue that in comparison with the erm the present more flexible exchange rate arrangements will ease not exacerbate some of the technical problems in making the transition to emu i then analyse the political economy of monetary union and identify the main stumbling blocks that remain finally i set out a specific proposal that takes advantage of the new opportunities to move forward towards emu

european monetary union a cointegration analysis this paper employs systems based cointegration techniques developed by johansen 1988 1995 to determine which european union countries would form a successful economic and monetary union emu based on long run behavior of the nominal convergence criteria laid down in the maastricht treaty the original 12 european union countries are analyzed together nominal exchange rates real exchange rates longterm interest rates and government budget deficits are each analyzed for co movements among the 12 countries and various subgroups of them the results suggest that not all of the 12 original countries of the european union could possibly form a successful emu over time unless several countries made significant adjustments

the southern african development community suitable for a monetary union abstract this paper investigates whether a monetary union is desirable among the countries of the southern african development community sadc we employ a generalised auto regressive conditional heteroscedasticity garch model to consider the share of the variation in real exchange rates rers vis a vis south africa that can be explained by the divergence in monetary and fiscal policies the results show that monetary integration would substantially eliminate real exchange rate variation due to different monetary policies for some members the study concludes that a monetary union that embraces all sadc members would amass large costs relative to the benefits and hence would not be desirable

is the proposed east african monetary union an optimal currency area a structural vector autoregression analysis summary this paper empirically assesses the suitability of the east african ea countries for a regional monetary union by testing for symmetry of the underlying structural shocks the results indicate that supply and demand shocks are generally asymmetric which does not lend strong support for forming a currency union in the ea region at the moment however the speed and magnitude of adjustment to shocks is similar across the countries therefore further integration of the economies might lead to more favorable conditions for a monetary union although evidence in favor of linking an ea currency to an external anchor is weak such support seems to favor the euro