the middle income trap more politics than economics economists have identified the existence of a middle income mi trap but have yet to analyze the politics of this trap the authors argue that countries in the mi trap face two major institutional and political challenges first the policies necessary to upgrade productivity as in human capital and innovation require enormous investment in institutional capacity second these institutional challenges come at a time when political capacity for building these institutions is weak due primarily to the fragmentation of potential support coalitions politics are stalled in particular by fractured social groups especially business and labor and more generally by inequality these conditions result in large measure from previous trajectories of growth the empirical analysis concentrates on nine of the larger mi countries

trade finance specialization and synchronization i investigate the determinants of business cycle synchronization across regions the linkages between trade in goods financial openness specialization and business cycle synchronization are evaluated in the context of a system of simultaneous equations the main results are as follows i specialization patterns have a sizable effect on business cycles most of this effect is independent of trade or financial policy but directly reflects differences in gdp per capita ii a variety of measures of financial integration suggest that economic regions with strong financial links are significantly more synchronized even though they also tend to be more specialized iii the estimated role of trade is closer to that implied by existing models once intra industry trade is held constant the results obtain in a variety of data sets measurement strategies and specifications they relate to a recent strand of international business cycle models with incomplete markets and transport costs and on the empir

linking economic complexity institutions and income inequality summary a country s mix of products predicts its subsequent pattern of diversification and economic growth but does this product mix also predict income inequality here we combine methods from econometrics network science and economic complexity to show that countries exporting complex products as measured by the economic complexity index have lower levels of income inequality than countries exporting simpler products using multivariate regression analysis we show that economic complexity is a significant and negative predictor of income inequality and that this relationship is robust to controlling for aggregate measures of income institutions export concentration and human capital moreover we introduce a measure that associates a product to a level of income inequality equal to the average gini of the countries exporting that product weighted by the share the product represents in that country s export basket we use this measure together with the network of related products or product space to illustrate how the development of new products is associated with changes in income inequality these findings show that economic complexity captures information about an economy s level of development that is relevant to the ways an economy generates and distributes its income moreover these findings suggest that a country s productive structure may limit its range of income inequality finally we make our results available through an online resource that allows for its users to visualize the structural transformation of over 150 countries and their associated changes in income inequality during 1963 2008

disentangling market access effects of preferential trading arrangements with an application for asean members under an asean eu fta the paper develops two synthetic measures at the hs 10 level to depict effective market access for a country receiving preferential access and applies these to the market access asean members would receive following the implementation of an fta with the eu first the measures show that current effective market access for asean eba members is cut in half by the preferences granted by the eu to countries that compete with these countries in the eu markets second the measures show that about one quarter of the preferential margin under the proposed fta for eba members would be lost as a result of preferential access granted to asean gsp members third disaggregated estimates of the restrictiveness of rules of origin confirm that rules are more restrictive for products with higher preferential margins and that asean countries usually face tougher rules of origin in the eu because of the composition of their exports

stock market development and cross country differences in relative prices abstract we document a positive correlation between stock market capitalization and price levels wages within the group of countries with poorly developed stock markets and a negative correlation between these two variables within the group of countries with more developed stock markets this paper argues that there is a causal relationship behind these correlations stock markets initially stimulate growth pushing the demand for nontradables and increasing prices and wages stock markets also promote a shift toward more capital intensive technologies in the tradable sector increasing the migration of workers to services and eventually putting downward pressure on wages and prices

structural change and financing constraints abstract in a multi industry growth model firms need external funds for productivity enhancing r d and face financing constraints the cost of research differs across industries so financing constraints hinder industry productivity growth unevenly equilibrium industry dynamics map into a differences in differences regression specification where industry growth depends on the interaction between country financial development and industry r d intensity the paper provides a framework for interpreting several empirical results that rely on industry growth data in terms of r d induced technology transfer and identifies a new channel for finance to encourage aggregate growth the reallocation of resources towards sectors with rapidly expanding technological frontiers

want export diversification educate the kids first this paper uses bayesian model averaging to uncover the true determinants of export diversification among 36 potential factors and thus 236 potential models using data from 2001 to 2010 our results reveal two strong predictors primary school enrollment 99 7 posterior inclusion probability in the true model raises export diversification whereas the share of natural resources in gross domestic product 98 6 lowers diversification levels the importance of basic education coverage offers policymakers an opening toward diversifying exports at least in the long run this result is robust to accounting for the endogeneity of income levels by applying an instrumental variable bma method jel c11 f1 f34 o1 o2 o11

crop diversity household welfare and consumption smoothing under risk evidence from rural uganda abstract in the wake of climate change there is now a resurgence of interest in the promotion of crop diversification as a climate smart agricultural practice in sub saharan africa the development economics literature suggests that increasing crop diversity is an effective risk management and consumption smoothing strategy in a context characterized by repeated exposure to shocks but weak institutional innovations using panel survey data from rural uganda merged with historical weather data this paper sheds light on the household welfare and consumption smoothing effects of crop diversity we employ instrumental variables methods to control for unobserved heterogeneity and potential reverse causality our study finds that crop diversification is a welfare enhancing strategy that increases consumption and aggregate household diets instrumental variables quantile regression results show that crop diversification generates higher consumption benefits for poorest households in the lower quantile of the consumption distribution than for relatively richer households crop diversification also improves consumption smoothing through reducing households reliance on less effective strategies such as informal insurance and involuntary diet changes as risk coping mechanisms overall the findings suggest that transforming agriculture towards a more diversified cropping system is a viable pathway for improving diets welfare risk management and the resilience of rural households

democracy diversification and growth reversals there exists convincing evidence that democratic countries are less volatile this conclusion is usually reached with respect to volatility as measured by the standard deviation of annual growth rates of per capita gdp which includes both low and high frequency fluctuations however recently several studies have documented that significant changes in trend growth such as growth accelerations that last a decade or similar periods of negative growth are quite common in this paper we ask whether democracy also has a stabilizing effect on trend volatility i e whether more democratic countries experience fewer and milder swings of trend growth we find a common phenomenon medium term reversals of growth that is periods of exceptionally high growth are on average followed by periods of exceptionally low growth and vice versa the propensity to experience large swings of trend growth is not uniform across countries less democratic countries are more susceptible to it when compared with factors commonly associated with volatility such as measures of quality of institutions macroeconomic policies and financial development we find that democracy is the most robust predictor of a country s propensity for growth reversals we construct a model in which non democracies have high barriers of entry for new firms this leads to less sectoral diversification fewer sectors are operated but more resources are channeled to each in an uncertain environment this leads to infrequent but large growth accelerations when one of the few sectors operated is successful however these accelerations are followed by large declines when fortunes change in favor of the missing sectors we present empirical evidence that confirms the positive relationship between democracy and industrial diversification

production fragmentation and business cycle comovement abstract international trade increasingly involves trade in goods being produced in fragmentation arrangements across countries with each country specializing in different stages of a production sequence this paper examines empirically whether pairs of countries with more bilateral production fragmentation arrangements tend to have more correlated business cycles using cross country data from 30 countries we find that bilateral production fragmentation has a positive effect while the standard bilateral trade intensity indicator has a negative impact on business cycle comovement we also find that the positive effect of trade in complements captured by bilateral production fragmentation dominates the negative effect of trade in substitutes explained by bilateral trade intensity resulting in an overall positive impact of trade hence bilateral production fragmentation plays a key role underlying the positive response of business cycle comovement to increases in trade

stages of diversification this paper studies the evolution of sectoral concentration in relation to the level of per capita income we show that various measures of sectoral concentration follow a u shaped pattern across a wide variety of data sources countries first diversify in the sense that economic activity is spread more equally across sectors but there exists relatively late in the development process a point at which they start specializing again we discuss this finding in light of existing theories of trade and growth which generally predict a monotonic relationship between income and diversification

the evolution of comparative advantage measurement and welfare implications using an industry level dataset of production and trade spanning 75 countries and 5 decades and a fully specied multi sector ricardian model we estimate productivities at sector level and examine how they evolve over time in both developed and developing countries we nd that in both country groups comparative advantage has become weaker productivity grew systematically faster in sectors that were initially at the greater comparative disadvantage the global welfare implications of this phenomenon are signicant relative to the counterfactual scenario in which an individual country s comparative advantage remained the same as in the 1960s and technology in all sectors grew at the same country specic average rate welfare today is 1 9 lower at the median the welfare impact varies greatly across countries ranging from 0 5 to 6 among oecd countries and from 9 to 27 among non oecd countries remarkably for the oecd countries nearly all of the welfare impact is driven by changes in technology in oecd countries and for the non oecd countries nearly all of the welfare impact is driven by changes in technology in non oecd countries

do all sectoral shocks lead to aggregate volatility empirics from a production network perspective abstract productive diversification has long been acknowledged as a volatility reducing strategy yet recent theoretical contributions have shown that in strongly diversified economies idiosyncratic shocks could translate into aggregate volatility via the network of inter industry linkages by exploiting exogenous cross country sector variations in demand shocks during the 2008 great recession we provide empirical evidence that the network properties of a sector affected by an individual shock determine its propensity to transmit volatility to the rest of the economy more precisely shocks to sectors that are located in denser parts of a production network fade out over a large number of alternative paths of propagation due to substitution effects whereas shocks to sectors that are more influential within the network generate aggregate fluctuations through contagion effects we also find that the impact of sectoral shocks on aggregate volatility 1 is not conditional on sector level differences in trade intensity and 2 is larger for developing countries because they tend to have more isolated influential sectors and larger structural holes in their production network our results thus help consolidate the two opposite views in the literature on the impact of productive diversification on aggregate volatility

does product complexity matter for firms output volatility abstract with this paper we provide the first micro level evidence on the linkage between firm complexity and volatility by defining product complexity a la hausmann and hidalgo 2009 we find that a higher complexity level of a firm s product basket is associated to a reduction of its output fluctuations this evidence is robust to the control for omitted variables sample selection and to the use of alternative volatility and complexity indicators across similar firms active in different sectors and regions both technological factors and product market conditions explain the effect of complexity on volatility however within narrowly defined sectors and locations the complexity volatility nexus fully reflects the role of the human capital content of firms product baskets

intermediaries and corruption surveys of businessmen and anecdotal evidence blame intermediary agents middlemen hired by corporations and individuals for increasing corruption in the developing world although this problem has gained the attention of policy makers there has been little formal analysis of it in the economics literature in a game theoretic model analyzing the interaction between clients public official and intermediary agents we find that intermediary agents worsen the impact of corruption and that traditional methods of fighting corruption can actually increase corruption in the presence of intermediary agents

roadways input sourcing and patterns of specialization abstract we propose a model where the internal transport network facilitates the sourcing of intermediate goods from geographically diffuse locations a denser internal transport network promotes thus the growth of industries that rely on a large variety of inputs the model shows that heterogeneities in internal transport infrastructures can become a key factor in shaping comparative advantage and specialization evidence based on industry level trade data grants support to the main prediction of the model countries with denser road networks export relatively more in industries that exhibit broader input bases we show that this correlation is robust to several possible confounding effects proposed by the literature such as the impact of institutions on specialization in complex goods furthermore we show that a similar correlation arises as well when the density of the local transport network is measured by the density of their internal waterways and also when road density is instrumented with measures of terrain roughness

sourcing patterns of foreign owned multinational subsidiaries in europe tavares a t and young s 2006 sourcing patterns of foreign owned multinational subsidiaries in europe regional studies 40 583 599 this paper investigates the determinants of the international sourcing propensities of foreign owned multinational mne subsidiaries in four european union host countries major findings concern the impact of subsidiary roles and economic integration on international sourcing patterns regional and global integration are leading to a greater import orientation among mne subsidiaries including product mandate firms that are assumed to be strongly embedded within host economies the results cast doubts on existing criteria for inward foreign direct investment fdi attraction policy implications are developed relating to the attraction of inward fdi and to corporate development policies tavares a t et young s 2006 la distribution des sources d approvisionnement des filiales multinationales a capital etranger en europe regional studies 40 583 599 cet article che

volatility and development why is gdp growth so much more volatile in poor countries than in rich ones we identify four possible reasons i poor countries specialize in more volatile sectors ii poor countries specialize in fewer sectors iii poor countries experience more frequent and more severe aggregate shocks e g from macroeconomic policy and iv poor countries macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in we show how to decompose volatility into these four sources quantify their contribution to aggregate volatility and study how they relate to the stage of development we document the following regularities first as countries develop their productive structure moves from more volatile to less volatile sectors second the level of specialization declines with development at early stages and slowly increases at later stages of development third the volatility of country specific macroeconomic shocks falls with development fourth the covariance between sector specific and country specific shocks does not vary systematically with the level of development we argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work

risk sharing and industrial specialization regional and international evidence the authors provide empirical evidence that risk sharing enhances specialization in production to the best of their knowledge this well established and important theoretical proposition has not been tested before the empirical procedure is summarized as follows first the authors construct a measure of specialization in production and calculate an index of specialization for each of the european community ec and non ec oecd countries u s states canadian provinces japanese prefectures latin american countries and regions of italy spain and the united kingdom then they estimate the degree of capital market integration a measure of risk sharing within each of these groups of regions the ec countries the non ec oecd countries the united states canada japan italy spain and the united kingdom and rely on another author s estimate for latin america finally they perform a regression of the specialization index on the degree of risk sharing controlling for relevant economic variables they find a positive and significant relation between the degree of specialization of individual members of a group of countries provinces states or prefectures and the amount of risk that is shared within the group the authors perform regressions using variables such as shareholder rights and the size of the financial sector relative to gdp as instruments for the amount of inter regional risk sharing these regressions confirm that risk sharing facilitated by a favorable legal environment and a developed financial system is a direct causal determinant of industrial specialization this abstract was borrowed from another version of this item

oil windfalls and export diversification in oil producing countries evidence from oil booms abstract this paper examines the factors behind export diversification in oil countries specifically we investigate the impact of oil booms on export diversification through an empirical framework the paper finds that economy s export structure before the oil boom determines whether oil windfalls might affect the diversification process thus an oil boom negatively affects export diversification only if countries initially exhibit low levels of diversification in countries with a high level of diversification before the boom an oil boom has no impact on diversification these results are based on a large sample of 134 countries and are robust to various sensitivity analyses they are corroborated with data from the manufacturing sector which show that oil booms only reduce diversification in countries with a small manufacturing sector prior to the boom

does a foot in the door matter white nonwhite differences in the wage return to tenure and prior workplace experience author affiliation arthur h goldsmith department of economics washington and lee university lexington va 24450 usa goldsmitha wlu edu corresponding authordarrick hamilton milano the new school of management and urban policy 72 fifth avenue new york ny 10011 usa hamiltod newschool eduwilliam darity jr department of economics university of north carolina at chapel hill chapel hill nc 27514 usa darity unc edu this work is supported by grant 0213838 from the national science foundation acknowledgment we are grateful for suggestions provided by barry hirsch and seminar participants at bond university gold coast australia in addition we are grateful for comments from julie hotchkiss co editor for this journal and two anonymous referees this paper was presented at the 2004 southern economic association meetings 1 overviewthere is an extensive literature documenting the lower wages of black and latino workers relative to white workers in the united states the explanations for these racial and ethnic wage disparities have ranged from differential accumulation of human capital to labor market discrimination 1 farmer and terrell 1996 and more recently lewis and terrell 2001 extend this literature by advancing a hypothesis which we summarize as the theory of ability misperception this hypothesis explains how group membership may differentially influence the gains associated with workplace experience and hence the relative wages of black and latino workers over the course of their working lifecycle their basic idea is twofold first employers believe nonwhite employees acquired fewer skills on prior jobs than white workers thus employers will reward additional experience with prior employers to a greater extent for white workers than for nonwhite workers we refer to this hypothesis as proposition 1 this first proposition falls under the umbrella of statistical discrimination which explains wage inequality as a result of employers offering nonwhite workers lower wages as a result of employer reliance on their perception that the distribution of skills for nonwhite workers is worse than that of white workers second as employers directly observe nonwhite workers on the job they come to realize that their perceptions concerning the distribution of skills for nonwhite workers were incorrect and consequently they have underrated the ability of nonwhite employees this learning leads employers to update their assessment of the relative productivity of nonwhite workers therefore racial ethnic differences in the return to additional tenure or seniority with the current employer will be smaller than the racial ethnic difference in the return to prior experience when proposition 1 holds this prediction constitutes proposition 2 of the theory of ability misperception in addition we introduce a third proposition or a strong form of proposition 2 which suggests that the returns to additional tenure for nonwhite employees will actually exceed that of white employees thus proposition 2 requires that the difference in returns to additional tenure with the current employer between nonwhite and white workers be smaller than the difference in returns to prior experience while proposition 3 requires that nonwhite workers actually receive a higher return for tenure the purpose of this paper is to advance the existing empirical literature aimed at evaluating the validity of the propositions central to the theory of ability misperception using data drawn from the multi city study of urban inequality mcsui if farmer and terrell 1996 and lewis and terrell 2001 are correct that employers underestimate the skills of nonwhite workers before directly observing them at the worksite then many capable nonwhite applicants will be denied work and if employed will suffer undue economic losses