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

workers remittances and the equilibrium real exchange rate theory and evidence economic integration in the early twenty first century is coninternational ventionally thought of in terms of increased openness to trade in goods and services as well as a dramatic increase in the volume of capital flows the twenty first century experience is sometimes contrasted with that of the last wave of globalization at the end of the nineteenth century when increased integration in both of those dimensions was also accompanied by large waves of international migration however this contrast is probably overdrawn as increases in international flows of labor services have also been characteristic of the current wave of globalization and the impact of these factor movements is increasingly being felt in the international economy a particularly dramatic manifestation of this fact is the sharp recorded increase in flows of worker remittances to the large number of developing countries that have been the source of these flows of labor services in recent years many such countries have witnessed significant increases in remittance flows to the point that their scale has come to dwarf that of other types of resource inflows whether development assistance foreign direct investment or other types of capital flows in 2007 remittance flows to sub saharan africa were equal in magnitude to flows of official development assistance for example remittance flows now account for some 17 percent of gdp and 77 percent of exports in el salvador and over 20 percent of gdp and nearly 50 percent of exports in honduras in these countries remittance flows are more than five times larger than foreign direct investment flows unlike capital flows remittances do not entail the creation of external debt with future repayment obligations unlike foreign development assistance they do not come encumbered with a variety of political and economic conditions with which the recipient country must comply despite these virtues however large inflows of worker remittances have been perceived as posing 45

responding to financial crisis the case of jamaica abstract the adverse economic and social effects of the financial crises that have afflicted many developing countries in recent years have highlighted the need to develop a policy response which addresses the vulnerability of financial systems to systemic instability and crisis the article examines the experience of jamaica a country which managed a financial sector crisis during the 1990s without the assistance or involvement of the international monetary fund lessons are drawn from the jamaica case study for the domestic management of banking sector failures in lower income countries

remittances in nepal boon or bane abstract nepal is one of the highest recipients of remittances percentage of gdp in the world for a small land locked economy battered by a decade long maoist insurgency 1996 2006 prolonged political instability slow growth rate and large exodus of youths for employment overseas high inflow of remittances bears a huge significance both at micro and macro levels exploring various facets of high migration and remittances this article shows remittance induced dutch disease effects and policy laxity to improve investment climate in nepal since it is costly to sterilise the impact of remittances each year it might be prudent to learn to live with it and gradually channel remittances to productive usages with a goal to boost productivity

the formal divide customary rights and the allocation of credit to agriculture in tanzania abstractit is generally held that one mechanism to enable inclusive growth in tanzania is enabling farmers to access credit to raise productivity and incomes the formalisation of property rights in tanzania is being undertaken by a multiplicity of actors at great expense to donors individuals and the government while there have been a variety of different justifications for allocating certificates of customary rights of occupancy ccros to farmers in tanzania perhaps the most prominent argument is that it will enable farmers to finally overcome the divide between informal customary rights and the formal banking sector ccros would provide the collateral that would induce banks to lend money to small scale farmers as part of a six year investigation in manyara mbeya and dodoma regions our research team evaluated the impact of formalisation on farmers access to credit the paper will present the results while pointing to the continuing institutional and market imperfections that perpetuate the fo

continuity in auction design abstract j cremer and r p mclean econometrica56 1988 1247 1257 have shown that the auctioneer can extract all the surplus when the private valuations of bidders are not statistically independent the paper shows that this result does not necessarily arise under limited liability or risk aversion under limited liability and or risk aversion we prove that the functions corresponding to the auctionner s optimal expected gain and to the maximum total surplus are continuous in the space of possible information distributions thus by continuity the auctioneer wil not be able to extract all the rents when bidders private valuations are approximately independent

financial sector reform and sustainable development the case of costa rica abstract how can financial sector reform be designed specifically so that it enhances the prospects for sustainable development this paper begins an analysis of this little discussed intersection with a focus on the problems and possibilities facing costa rica policy changes that encourage financial markets to incorporate long term environmental sustainability concerns will require moving beyond a standard model of financial liberalization flighty financial flows systemic pressures against innovation and unpriced environmental externalities all mean that real sector environmental performance will be adversely affected by financial sector dynamics lacking appropriate policy markers financial market policies must encourage market forces to channel capital flows that build productive capabilities based on complementarities between development and environmental quality costa rica s reform process and unusual depth of experience in pursuing sustainable development make it an ideal place for such financial market innovations to be attempted getting its incentive system right in financial restructuring could aid immensely in the emergence and application of sustainability based competitive capabilities a set of market based green financial reforms is proposed including tax advantaged banking and bond programs rural group lending and a single certification entity for potential borrowers in these programs

the effect of remittances prior to an election the objective of the article is to assess whether remittances have an influence on political manipulation which may occur prior to an election through an increase in the government consumption to gdp ratio we combine data from the national elections across democracy and autocracy data set compiled and discussed in hyde and marinov 2012 and the world development indicators data set we focus on 70 developing countries over the period 1990 2010 it appears that the political budget cycle is reduced up to the point where it is fully cancelled out at a remittance threshold of 10 7 of gdp those findings are robust to different robustness checks

stock markets corporate finance and economic growth during the past decade the capitalization of emerging markets increased twentyfold in 1994 trading on these markets accounted for about 17 percent of the 9 6 trillion of shares traded on the world s stock markets up from a mere 3 percent of the much smaller 1 6 trillion in 1985 this rapid growth in emerging stock market activity raises critical questions for developing country policymakers what effect do stock markets have on economic growth how does stock market development affect firms financing decision and if stock markets are good for growth what policies can governments adopt to foster their development this note summarizes answers to these questions drawn from a recent research project

challenges and opportunities in el salvador s financial sector abstract the formal financial sector has expanded rapidly in postwar el salvador encouraged by premature financial liberalization and a remittance windfall exceeding commercial banks capacities to lend prudently the counterpart of this spurious financial deepening is a shallow financial market for smaller firms which reflects both difficult real conditions for small urban and agricultural enterprises and the unfortunate effects of the credit channeling model characterizing development banks and most nongovernment organization projects this model discourages the growth of small scale institutions that can fund themselves from local resources and limits the ability of small producers to accumulate financial savings

optimal contracts with public ex post information abstract we are concerned with the value of public ex post information about a seller s costs to an initially uninformed buyer we derive necessary and sufficient conditions for a public ex post signal s s that is correlated with the risk neutral seller s costs to render the initial information asymmetry inconsequential to the buyer the first best outcome for the buyer is shown to be feasible if 1 the dimension of s is at least that of or 2 the conditional likelihood function of s given is for one of its realizations sj a strictly increasing function of and more concave in than is the seller s cost function

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

financial development economic growth and banking sector controls evidence from india this paper uses newly collected data from the reserve bank of india to examine the effects of various types of banking sector controls on the process of financial deepening with the exception of a lending rate ceiling these controls are found to influence financial deepening negatively independently of the well known effect of the real interest rate exogeneity tests suggest that financial deepening and economic growth are jointly determined thus policies which affect financial deepening may also have an influence on economic growth the role of banking sector controls in the process of economic development has received considerable attention in the literature the traditional approach due to mckinnon i973 and shaw i973 postulates that government intervention in the pricing and allocation of loanable funds dubbed financial repression inhibits financial development by depressing real interest rates see

financing enterprise development in sub saharan africa this paper examines some critical gaps in the financial infrastructure in sub saharan africa which have contributed to the poor performance of productive investment by private agents it first analyses the performance of financial systems encompassing both formal and informal financial sectors in relation to the changing policy environment and key features of the financial market structure it then identifies those gaps in financial services that have been particularly detrimental to private investment enterprise growth and transformation finally the paper considers policy implications drawn from east asian experiences with respect to financial policies institutional arrangements and market integration measures for financing enterprise development copyright 2001 by oxford university press

does emigration reduce corruption we study the effects of emigration on bribery experience and attitudes towards corruption in the migrants countries of origin using data from the gallup balkan monitor survey and instrumental variable analysis we find that having relatives abroad reduces the likelihood of bribing public officials renders bribe taking behavior by public officials less acceptable and reduces the likelihood of being asked for bribes by public officials receiving monetary remittances does not change the beneficial effects regarding bribe paying and attitudes toward corruption however remittances counteract the beneficial effect on bribe solicitations by public officials overall our findings support the conjecture that migration contributes to the transfer of norms and practices from destination to source countries

stock and credit market expansion and economic development in emerging markets further evidence utilizing cointegration analysis this paper empirically investigates the relationship between equity and credit market development and economic growth in a sample of five very important emerging markets in particular employing a multivariate time series methodology to test for long run trends and causality between variables that proxy for stock market development credit market development and economic development the results seem to suggest that equity markets have a role to play only in relatively liberalized economies like chile and mexico in financially repressed economies like india the equity market does not affect real sector growth furthermore the banking crises in the 1980s and 1990s in chile and mexico resulted in a negative relation between economic growth and the credit market in south korea equity and credit markets both affect economic growth but not vice versa in countries where the nature of the stock market has been speculative like taiwan a negative relationship is detected between equity market develo

financial liberalisation institutional transformation and credit allocation in developing countries the world bank and the internationalisation of banking the paper documents and analyses the world bank s promotion of foreign ownership of banking in developing countries in the wake of two decades of financial crises following exercises of orthodox financial reform the world bank has not only continued to push privatisation but now sees foreign banks as the missing component that will deal with the downside risks of financial liberalisation concerns that foreign banks might reduce small and medium enterprise sme loan access because of information problems are largely dismissed by the bank in fact the world bank argues for the very opposite the existence of foreign banks is likely to have the effect of pushing local banks into sme markets where they have a greater comparative advantage the question of access to credit for the private sector particularly the locally owned small and medium size enterprises is central to the issue of employment generation and poverty reduction in developing countries where the bulk of new jobs are typically created by these companies this article traces the development of the world bank s agenda on foreign ownership it critically assesses the arguments and empirical work underlying the world bank analysis and draws on alternative empirical testing and case studies to raise serious questions about the downside risks associated with the internationalisation of banking copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

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

migration and institutions exit and voice from abroad a rapidly growing body of research examines the relationship between migration and institutions three strands of studies can be distinguished some studies focused on the role of domestic and foreign institutions in the decision to migrate others were interested by the impact of migration on institutional reforms in migrants countries of origin while the effect of migration on destination countries is largely documented recent studies focus on how migrants affect social and informal institutions in the destination countries this survey puts together these three strands of literature with three purposes first we offer a short definition and synthetic typology of institutions which provide a guide to understand several studies summarized and their results second our analysis is presented following the analytic framework exit voice and loyalty of hirschman in order to highlight the brain grain phenomenon for developing countries from an institutional point of view third we review the limited existing work on the very timely topic whether migrants are harmful or not to institutions in the host countries

political economy origins of financial markets in europe and asia summary we provide historical evidence from london amsterdam and hong kong which highlights the essential role played by governments in kick starting financial development in the cases of london and amsterdam the emergence of financial markets was a by product of the rise of large trading monopolies these monopolies partly created to improve public finances were responsible for major financial innovations and helped to strengthen investors property rights in hong kong where the financial development model was bank based a large banking monopoly with close links to both the british and chinese governments set up to finance international trade played a similar role

a survey of recent developments in the literature of finance and growth this paper provides a survey of the recent progress in the literature of financial development and economic growth the survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables although the positive role of finance on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies several key issues unresolved in the literature are highlighted the paper also points to several directions for future research

the design of successful rural financial intermediaries evidence from indonesia abstract the success outreach and sustainability of eight rural financial intermediation systems in indonesia in profitably reaching large numbers of small individual clients is explained in terms of organizational design networks of semiautonomous units use local information and contract enforcement mechanisms to lower transaction costs reflecting basic concerns with institutional and financial viability elements of mechanism design have included compatible incentives such as performance based compensations profit sharing collection fees efficiency wages equivalent to quasi equity and system monitoring managerial discretion over transactions conducted at market terms policies to protect portfolio value and no dependency creating subsidies are important interventions have been appropriate for the problem at hand

can financial infrastructures foster economic development in this paper financial infrastructures increase the efficiency of the banking sector they decrease the market power due to horizontal differentiation of the financial intermediaries lower the cost of capital increase the number of depositors and the amount of intermediated savings factors which in turn increase the growth rate and may help countries to take off from a poverty trap taxation finances financial infrastructures and decreases the private productivity of capital growth and welfare maximising levels of financial infrastructures are computed

emerging stock markets portfolio capital flows and long term economie growth micro and macroeconomic perspectives abstract the paper examines two major components of financial liberalization stock market development and portfolio capital flows in the context of less developed countries the paper considers microeconomic and macroeconomic perspectives on their implications for long term development and economic growth it concentrates on 1 a the role of stock markets in financing corporate growth 2 b the implications of stock market volatility for resource allocation and productive efficiency and 3 c the interactions between the foreign exchange and stock markets in the context of economic shocks its policy recommendations are that ldcs should promote bank based systems influence the scale and composition of capital inflows and prevent a market for corporate control from emerging

moral hazard and optimal commodity taxation abstract this paper demonstrates that in an economy with moral hazard and more than one commodity competitive equilibrium is not constrained efficient to correct the market failure differential commodity taxation is necessary a general optimal tax formula is derived and special cases of is discussed

a reappraisal of state owned banks we revisit the public banks debate survey the theoretical arguments and test the robustness and expand the existing empirical evidence while we find some support for the view that public banks do not allocate credit optimally we also report indicative evidence that they exert a positive influence on private bank efficiency and may contribute to reduce credit procyclicality ultimately we find that the recent criticism to public banks has generally been based on inconclusive cross country evidence more specific bank level research is still needed to substantiate a case for or against public banks in developing economies

remittances and vulnerability in developing countries this paper examines how international remittances are affected by structural characteristics macroeconomic conditions and adverse shocks in recipient economies we exploit a novel rich panel data set covering bilateral remittances from 103 italian provinces to seventy nine developing countries over the period 2005 2011 we find that remittances are negatively correlated with the business cycle in recipient countries and in particular increase in response to adverse exogenous shocks such as large terms of trade declines this effect is stronger where the migrant communities have a larger share of newly arrived migrants finally we show that recipient country financial development is negatively associated with remittances suggesting that remittances help alleviate credit constraints

inflation and taxation with optimizing governments this paper examines the empirical validity of the predictions that if governments minimize the deadweight loss from raising revenue through inflation and tax finance there should be a positive contemporaneous association between inflation and the level of tax burdens the authors examine the empirical validity of this prediction using data from great britain france germany japan and the united states inflation and tax rates are as likely to be negatively as positively correlated so the results cast doubt on the empirical relevance of simple models in which governments with time invariant tastes choose monetary policy to equate the marginal deadweight burdens of inflation and taxes copyright 1990 by ohio state university press

can a brain drain be good for growth in the source economy this paper analyzes the interaction between income distribution human capital accumulation and migration it shows that when migration is not a certainty a brain drain may increase average productivity and equality in the source economy even though average productivity is a positive function of past average levels of human capital in an economy it is also shown how the temporary possibility of emigration may permanently increase the average level of productivity of an economy

the role of warehouse receipt systems in enhanced commodity marketing and rural livelihoods in africa most african countries have since the 1980s liberalised agriculture without experiencing food crisis as feared by sceptics but the outcome of reforms has been rather disappointing and agricultural markets remain underdeveloped and inefficient one means to improve agricultural marketing which is the focus of this paper is to develop regulated warehouse receipt wr systems the system will curtail cheating on weights and measures ease access to finance at all levels in the marketing chain moderate seasonal price variability and promote instruments to mitigate price risks it will also reduce the need for the government to intervene in agricultural markets and reduce the cost of such interventions if needed the major problem in establishing wr systems in africa is disabling elements in the policy environment drawing on experience from projects implemented in africa during the last decade 1 the authors outline how this challenge can be addressed the most crucial being to build strong stakeholder support behind the initiative 2002 elsevier science ltd all rights reserved

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

financial crisis in southeast asia dispelling illusion the minskyan way this paper extends minsky s financial instability hypothesis to the case of the open liberalised economy making it possible to put forward a specifically minskyan account of the road to the financial crisis in southeast asia 1997 1998 the analysis suggests that the threats to growth and employment emanating from the financial sector which minsky identified in the closed economy setting are much intensified in open liberalised developing economies financial liberalisation is an important key factor in this process rival explanations of the crisis are examined and rejected in favour of the extended minskyan explanation the policy implications are derived and discussed copyright 2002 oxford university press

correlated information and mechanism design in models of asymmetric information possession of private information leads to rents for the possessors this induces mechanism designers to distort away from efficiency the authors show that this is an artifact of the presumption that information is independently distributed rent extraction in a large class of mechanism design games is analyzed and a necessary and sufficient condition for arbitrarily small rents to private information is provided additionally the two person bargaining game is shown to have an efficient solution under first order stochastic dominance and a hazard rate condition similar conditions allow full rent extraction in milgrom weber auctions

credit markets and the control of capital traditional discussions of the role of capital markets have identified a number of distinct functions which they perforrn they allocate scarce capital among competing users and uses l and they provide signals to guide managers in making their investment decisions 2 in this lecture i wish to focus on a rather different function of the capital market what i shall refer to as the control of capital 3 conventional theory treats the typical firrn in an anthropomorphic manner it acts as a single rational individual doing what it is supposed to be doing maximizing stock market value that may have been well and good in those nostalgic bygone days of small firrns each run tightly by their owners who were single mindedly pursuing their lust for wealth but today a majority of production occurs in large corporations in which no shareholder owns more than a small fraction of the shares in which the separation of ownership and control that frank knight was so concerned with in his writings some sixty five years ago has become a reality those

integrating finance into the multi level perspective technology niche finance regime interactions and financial policy interventions abstract any major socio technical transition requires a fundamental re direction of financial capital from incumbent to new technologies and practices while the transitions literature conceptually covers financial markets the role of finance is marginalized and has scarcely been analysed empirically to address this gap here we build on the multi level perspective mlp which considers financial markets as part of the existing regime we argue that the role of finance is highly relevant for the niche regime interaction redirecting finance towards new niche technologies requires that either the niche is fit for and conforms to the financial regime s expectations or the financial regime is stretched and transformed in order to accept and finance niche technologies based on 56 interviews we identify factors that determine interactions between the financial regime and technology niches these include acceptable risk and transaction size an abundance of knowledge and heuristics in both the regime and niche and an extensive existing industry network we further analyse how state investment bank sib interventions in germany the uk and australia aimed to mobilise private finance into low carbon project development affect the interaction between the technology niche and financial regime i e whether they resulted in fitting and conforming the technological niche for the financial regime or stretching and transforming the financial regime our results point to several important effects of sib interventions with most effects fitting the niche to the regime however we also detect effects that stretch and transform the financial regime through evolutionary processes importantly some effects occur as a consequence of the primary effects based on our findings we discuss policy implications on how to accelerate transitions through policies aiming at finance as well as theoretical insights gained through our analysis

financial restraints and private investment evidence from a nonstationary panel we employ recently developed panel data methods to estimate a model of private investment under nancial restraints for 20 developing countries using annual data for 1972 2000 we show that the qualitative nature of the results varies depending on whether we take into account cross country eects when we allow for cross sectional dependence investment displays more sensitivity to world capital market conditions and exchange rate uncertainty a perhaps even more surprising result is the nding that countries that managed to suppress domestic real interest rates without generating high in ation enjoyed higher levels of private investment than those that would have been obtained under liberalised conditions

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

financial restraints in the south korean miracle abstract we provide novel empirical evidence on the effects of financial restraints on south korean financial development the evidence is linked to a simple model of the korean banking system that encapsulates its cartelised nature which predicts a positive association between financial development and i the degree of state control over the banking system ii mild repression of lending rates the model also predicts that in the presence of lending rate controls increases in the level of the administered deposit rate are unlikely to influence financial deepening we test the model empirically by constructing individual and summary measures of financial restraints our empirical findings are consistent with our theoretical predictions but contrast sharply with the predictions of earlier literature that postulates that interest rate ceilings and other financial restraints constitute sources of financial repression

redefining the role of the state an interview with introduction by brian snowdon professor joseph stiglitz is without question one of the world s leading economists in his extensive research he has made seminal contributions to the analysis of the economic consequences of incomplete information and uncertainty this work has greatly enhanced economists understanding of the welfare properties of markets and the sources of market failure his research has also contributed to the development of better microeconomic foundations for keynesian macroeconomic models most recently professor stiglitz has been heavily involved in controversial public policy debates relating to the east asian crisis problems of transition from communism to capitalism the limitations of the washington consensus and globalisation and development a common theme in all of these debates relates to the role of government and legitimate borders of the state in both developed and developing economies in this article interview professor stiglitz gives his views on these and several other important global issues

optimal use of correlated information in mechanism design when full surplus extraction may be impossible we study the mechanism design problem when the principal can condition the agent s transfers on the realization of ex post signals that are correlated with the agent s types cremer and mclean econometrica 53 1985 345 361 56 1988 1247 1257 mcafee and reny econometrica 60 2 1992 395 421 and riordan and sappington j econ theory 45 1988 189 199 studied situations where the signals are such that full surplus can be extracted from every agent type we study optimal utilization of the signals when there are fewer signals than types and the riordan and sappington conditions do not always hold for some special cases we show the level of surplus that can be extracted and identify the agent types who obtain rent

can an islamic model of housing finance cooperative elevate the economic status of the underprivileged abstract a formal home loan is onerous to subprime borrowers in efficient markets this can deter home ownership for financially strapped individuals leading to a market failure this paper proposes a special form of cooperative mortgage financing practiced in oman to overcome this market failure we integrate the literature of mortgage design with that of informal savings schemes i e roscas ascras to illustrate that this mode of financing dissipates credit risk better than the

savings investment and the corporation in the east asian miracle abstract the east asian countries have achieved a spectacular average rate of economic growth over the last 30 to 40 years with very substantial diversification and economic development korea for example managed to transform itself from being a largely agricultural society in 1960 to the point where it became the third country after the us and japan to export 256 k memory chips developed by its own firms it is no exaggeration to say that the post wwii development of east asia including japan is the most successful story of sustained economic growth in the history of mankind how does one account for this extraordinary economic success

the financial crisis and bank client relationships foreign ownership transparency and portfolio selection abstract using a unique dataset that matches banks with their client firms we investigate the differences between foreign and domestic banks in a developing country in particular we are interested in examining how foreign banks solve the information asymmetries that characterize lending relationships and whether those relationships have changed since the financial crisis of 2008 foreign banks are likely to limit their lending activity to larger firms or more transparent firms because they are at an informational disadvantage relative to domestic banks we find that foreign banks focus on relationships with foreign listed and larger firms in addition their portfolio is more heavily weighted towards firms in less competitive industries and exporting firms comparing outcomes for 2006 and 2009 we find that banks are more concerned with leverage in 2009 and have reduced the number of firms in their portfolio post crisis

stock markets corporate finance and economic growth an overview the research presented here focuses on four issues first it constructs more measures or criteria of stock market development than any previous study it compares liquidity concentration volatility institutional development and international integration across forty four industrial and developing countries from 1976 to 1993 besides identifying general characteristics of these measures and defining stock market development empirically these data facilitate further research into the relationship between stock market development and financial intermediaries corporate finance decisions and economic growth these measures ranked for each country can be used for inter country comparisons of the level of stock market development in addition the data provide a basis for gauging the success of capital market development projects using objective criteria second with these new data the research investigates the relationships between stock markets and financial intermediaries third the research analyzes the relationship between stock market development and long run economic growth fourth the research studies the ties between stock market development and financing choices of firms this overview puts this research in context and reviews the main results of the study section i provides a brief review of the role of stock markets in economic development and documents the evolution of debt and equity markets during the growth process section ii defines stock market development and presents summary data on the development of financial intermediaries and stock markets section iii presents evidence on the effect of stock market development on economic growth section iv summarizes the empirical results on how stock market development affects firm financing decisions section v concludes by discussing policy implications

the role of the state in financial markets this paper reexamines the role of the state in financial markets and identifies seven major market failures that provide a potential rationale for government intervention in practice government interventions in capital markets even in industrial countries have been pervasive the paper provides a taxonomy of those interventions with respect to both the objectives they serve and the instruments they employ there is a role for the government in financial markets but the success of government interventions has been mixed it is important that interventions be well designed the paper sets out principles for government regulatory interventions and applies them to prudential regulation it then examines three other areas of intervention directed credit finanical repression and competition policy and identifies circumstances in which some amount of financial repression may actually be beneficial

corruption and the composition of government expenditure abstract this paper asks whether predatory behavior by corrupt politicians distorts the composition of government expenditure corruption is found to reduce government spending on education in a cross section of countries

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

peer monitoring and credit markets a major problem for institutional lenders is ensuring that borrowers exercise prudence in the use of the funds so that the likelihood of repayment is enhanced one partial solution is peer monitoring having neighbors who are in a good position to monitor the borrower be required to pay a penalty if the borrower goes bankrupt peer monitoring is largely responsible for the successful financial performance of the grameen bank of bangladesh and of similar group lending programs elsewhere but peer monitoring has a cost it transfers risk from the bank which is in a better position to bear risk to the cosigner in a simple model of peer monitoring in a competitive credit market this article demonstrates that the transfer of risk leads to an improvement in borrowers welfare

a quantitative reassessment of the finance growth nexus evidence from a multivariate var abstract the long run relationship between financial development and economic growth is examined in a multivariate vector autoregression var framework using 10 sample countries difficulties surrounding the cross country regressions and bivariate time series studies are outlined the long run financial development and output relationships are identified in a cointegrating framework through tests of over identifying restrictions we find bi directional causality between financial development and economic growth in all the sample countries conclusions that stand distinct from those in the existing empirical literature we attribute our findings to i analysis of a higher dimensional system ii a new method of identifying the long run economic relationships and iii a new approach to long run causality testing

optimal contracts with contingent allocation abstract we study the contractual design problem of a seller that observes an ex post signal correlated with the buyer s valuation and can make the allocation but not payments contingent on it we show that to maximize her profit the seller should offer a menu of contracts whereby the good is transferred to the buyer only if the signal is sufficiently low the welfare implications of these contracts are also discussed

endogenous punishments in agency with verifiable ex post information the article studies an adverse selection model in which a contractible imperfect signal on the agent s type is revealed ex post the agent is wealth constrained which implies that the maximum penalty depends on the contracted transaction e g the volume of trade first we show that the qualitative effects of the signal can be unambiguously tied to the nature of the problem e g whether the agent is in a buyer or a seller position second the distortions caused by informational asymmetries may become more severe although more information is now available finally the signal can actually serve to increase the agent s informational rents

three and a half cycles of mania panic and asymmetric crash east asia and latin america compared this paper argues that despite some significant differences the 1982 debt crisis the 1994 mexican crisis and the 1997 east asian crisis share the common characteristic that over lending and over borrowing are basically endogenous market failures of over liquid and under regulated financial markets along the lines described by kindleberger s manias panics and crashes although these crashes have tended to be asymmetric as the largest international lenders have emerged relatively intact the paper concludes with a discussion of brazil s increasing vulnerability to a sudden collapse of confidence and withdrawal of finance which indicates the probability of another impending crisis

determinants of risk sharing through remittances abstract the sending of remittances is a decentralised decision of migrant workers nevertheless it has macroeconomic implications in providing insurance against domestic output shocks in the recipient economies a phenomenon known in literature as risk sharing income smoothing using a large sample of 86 developing countries for the period 1990 2010 we establish that remittance inflows serve as an important channel through which risk sharing takes place in the developing world the extent of income smoothing via remittances stands at around 5 on average subsequently we explore the underlying factors that explain countries ability to share risk through remittances the diversification of migrants turns out to be the leading explanation for the extent of risk sharing via remittances the more diverse the migration destinations of a country the higher the amount of risk shared in addition the size of remittance flows appears to have a strong and statistically significant impact on enhancing risk sharing we also find suggestive evidence that a higher proportion of remittances originating from farther countries facilitate more risk sharing compared to those originating from neighbouring or regional economies

what s different about monetary policy transmission in remittance dependent countries abstract despite welfare and poverty reducing benefits for recipient households remittance inflows have been shown to entail macroeconomic challenges producing dutch disease type effects reducing the quality of institutions delaying fiscal adjustment and having an indeterminate effect on long run growth this paper explores an additional challenge for monetary policy although remittances expand bank balance sheets providing a stable flow of interest insensitive funding they tend to increase banks holdings of liquid assets this both reduces the need for an interbank market and severs the link between policy rate and banks marginal cost of funds thus shutting down a major transmission channel we develop a stylized model based on asymmetric information and a lack of transparent borrowers and undertake econometric analysis providing evidence that increased remittance inflows are associated with weaker transmission as independent monetary policy becomes impaired this result is consistent with earlier findings that recipient countries tend to favor fixed exchange rate regimes

financial market fragmentation and reforms in ghana malawi nigeria and tanzania this article reports the findings from surveys of formal and informal institutions and their clients in ghana malawi nigeria and tanzania it investigates the hypothesis that reforming financially repressive policies would not be sufficient to overcome fragmentation of financial markets because of structural and institutional barriers to interactions across different market segments the four countries have substantially fragmented financial markets with weak linkages between formal and informal segments and interest rate differentials that cannot be adequately explained by differences in costs and risks nevertheless the relatively low transaction costs and loan losses of informal institutions indicate that they provide a reasonably efficient solution to information transaction cost and enforcement problems that exclude their clients from access to formal banking services the findings imply that financial liberalization and bank restructuring in the african context should be accompanied by complementary measures to address institutional and structural problems such as contract enforcement and information availability and to improve the integration of informal and formal financial markets

contractual design with correlated information under limited liability we examine contractual design in a principal agent model under two forms of limited liability nonnegative constraints on the transfer payments to and the profits of the agent we show that when limited liability is a binding constraint the principal cannot implement the first best solution and the agent earns rents from private information limited liability is a binding constraint in the nonnegative transfers model only when a signal is insufficiently responsible to type inelastic further as the production rule and profits are continuous in the type elasticity of the signal density function the level of the inefficiency is less than that which obtains with no signal if a signal is sufficiently responsive to type elastic in this environment then the principal can implement the first best allocation and the value of the agent s private information is zero we show that limited liability will always be a binding constraint in the nonnegative ex post profits model regardless of the information content of the signal the production rule and welfare are increasing in the informativeness of the signal

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

do remittances diminish social violence abstractthis paper represents the first attempt to formalise the relationship between remittances and social violence by developing a model that predicts that migrants remittances lead to the reduction of social violence in the recipient economy under the condition that remittances increase the average product of labour using homicide data as an indicator of social violence we tested our model s prediction controlling for the endogeneity problem with appropriate instruments we found that remittances tend to reduce social violence we performed sensitivity analysis on remittances in the empirical specification and found it robust with an unchanged negative sign

financial liberalization financial sector development and growth evidence from malaysia abstract the objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of malaysia using time series data from 1960 to 2001 we conduct cointegration and causality tests to assess the finance growth link by taking the real interest rate and financial repression into account the empirical evidence suggests that financial liberalization through removing the repressionist policies has a favorable effect in stimulating financial sector development financial depth and economic development are positively related but contrary to the conventional findings our results support robinson s view that output growth leads to higher financial depth in the long run

new perspectives on east asian development conventional explanations of rapid growth in east asia have focused on the efficient allocation of resources resulting from market led outward oriented strategies this study challenges that approach east asian success has centred around the accumulation dynamic both because of its direct importance to the growth process and also because of its close and interdependent linkages with exports on this basis the study considers the institutions and policies which were used to manage economic rents in support of rapid growth and to ensure a more strategic and orderly integration into the world economy the study also examines the contribution of regional trade and investment flows to east asian industrialisation the potential for replicating similar strategies is considered

productivity and financial sector policies evidence from south east asia this paper uses primary data collected from the central bank reports to examine the influence of financial sector policies on the average productivity of capital in five south east asian economies the data include measures of repressionist policies encompassing interest rate controls directed credit programmes and reserve and liquidity requirements we use time series techniques to examine whether these policies have a statistically significant influence on the average productivity of capital conditioning on variables suggested by economic theory these policies are found to have a significant negative effect on productivity in most cases with the important exception of south korea for which we find significant positive effects

international capital flows identifying the gender dimension abstract this paper explores the main issues involved in examining the gender impact of international capital flows to developing countries it argues that at the macroeconomic level women lose more than men from slow and or unstable economic growth financial crises and meltdowns and even more so the longer and deeper the economic downturn because without a social security system the family and women have many additional burdens women should formulate an agenda of their own with respect to international monetary reform and some proposals are outlined in this respect including those involving capital controls

financial sector reforms in developing countries the indian experience this study is based on the premise that the success failure of financial sector reforms depends heavily on country specific factors and makes an attempt to examine these factors in the indian context the financial sector reforms analysed in this paper include the deregulation of interest rates increasing competition and foreign ownership and the introduction of financial supervision we argue that an economic rationale for a gradualist approach to financial reform is that it is stability enhancing furthermore we suggest that india s complex political economy has resulted in a gradual approach to reform and this approach has been successful along the dimension of banking stability