do corrupt governments receive less foreign aid critics of foreign aid programs argue that these funds often support corrupt governments and inefficient bureaucracies supporters argue that foreign aid can be used to reward good governments this paper documents that there is no evidence that less corrupt governments receive more foreign aid on the contrary according to some measures of corruption more corrupt governments receive more aid also we could not find any evidence that an increase in foreign aid reduces corruption in summary the answer to the question posed in the title is no

evidence on changes in aid allocation criteria have donors changed their aid allocation criteria over the past three decades toward greater selectivity a frequently stated goal of the international development community using data on how 22 donors allocated their bilateral aid among 147 countries over 1970 2004 the article finds that after the fall of the berlin wall in 1989 and especially in the late 1990s bilateral aid responded more to poverty and the quality of the policy and institutional environment in the recipient countries furthermore the sensitivity of aid allocation to the country s size and its debt burden has declined over time these results are robust to different samples and model specifications various econometric techniques and alternative measures of institutional quality while the specific factors causing these changes cannot be identified these presumably include geopolitical and economic concerns and the many changes in the international aid architecture donors still differ greatly in their selectivity this suggests that further multifaceted reforms are needed to ensure even greater selectivity of aid

the spatial interdependence of fdi in latin america summary using a sample of 17 latin american countries with observations during 1986 2006 two forms of spatial interdependence of foreign direct investment fdi are explored 1 surrounding market potential and 2 spatial autocorrelation we find that surrounding market potential has a positive significant effect on net fdi but there is no evidence that fdi is spatially autocorrelated other factors that show a significant positive effect on fdi include control of corruption and exports of raw materials when considering only fdi inflows from the us we find that fdi is spatially autocorrelated and that surrounding market potential is not significant

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

who learns from what in policy diffusion processes the idea that policy makers in different states or countries may learn from one another has fascinated scholars for a long time but little systematic evidence has been produced so far this article improves our understanding of this elusive argument by distinguishing between the policy and political consequences of reforms and by emphasizing the conditional nature of learning processes using a directed dyadic approach and multilevel methods the analysis of unemployment benefits retrenchment in oecd countries demonstrates that policy makers learn selectively from the experience of others right governments tend to be more sensitive to information on the electoral consequences of reforms while left governments are more likely to be influenced by their policy effects

developing countries and the world trade organization negotiations there are few clearer indications of the widely perceived benefits to developing countries of more open trade than the subtitling of the current doha round of trade negotiations as the development round this claim is not disputed in this paper rather we join a strong consensus among economists that developing countries particularly the poorest have a great deal to gain from trade liberalization development requires growth and greater access to world markets is a powerful necessary condition for more rapid growth therefore poor countries have the most to gain from a more freely functioning world market clear arguments on this point are succinctly summarized in mccalla

two principles for the next round or how to bring developing countries in from the cold t he november 1999 wto ministerial meeting in seattle was expected to usher in a new round of negotiations the ninth in a series that began in geneva in 1947 although wto members proved unable to launch a round efforts will continue in 2000 to develop a negotiating agenda in this paper i want to reinforce the call of the wto s director general mr moore for the next set of negotiations to be a development round basic notions of equity and a sense of fair play require that the next round reflect developing country interests and concerns more than was the case in earlier rounds seattle demonstrated that without greater balance the success of future negotiations will be imperiled dissatisfaction by developing countries regarding the extent to which their interests were reflected was a factor leading to the failure of the ministerial meeting the stakes are high there is a growing gap between the developed and the less developed countries highlighted in this year s world development report world bank 1999 the international community is doing too little to narrow this gap aid per capita to the developing world has fallen by nearly a third in the 1990s too often cuts in aid budgets are accompanied by the slogan trade not aid exhortations for the developing world to participate fully in the global marketplace and lectures about how government subsidies and protectionism distort prices and impede growth all too often there is a hollow ring to these exhortations as developing countries take steps to open their economies and

currency elasticity and banking panics theory and evidence existing models of banking panics contain no role for monetary factors and fail to explain why some banking systems experienced panics while others did not a monetary model is constructed where seasonal variations in the demand for liquidity and credit play a critical role in generating banking panics these panics occur when there are restrictions on the issue of currency in private banks but they do not occur if banks are unrestricted empirical evidence from canada and the united states for the period 1880 1910 is largely consistent with the predictions of the model

on the indeterminacy of equilibrium exchange rates in this paper we consider a particular international economic policy regime the laissez faire regime the distinguishing features of which are unrestricted portfolio choice and floating exchange rates and as we show this regime although favored by many economists is not economically feasible it does not have a determinate equilibrium that is an implication of an overlapping generations model more basically it is an implication of the notion that money is wanted only in order to accomplish trades

economic organization with limited communication this paper presents formal stylized representations of communication accounting systems oral assignment portable object written message and telecommunication systems are considered the environments that allow this formalization are characterized by spatial separation private information and a need to keep track of past actions transfers and shocks in environments that have spatial separation and private information beneficial multilateral arrangements can depend critically on agents ability to communicate to one another values of contemporary shocks and to keep track of histories of past transfers or past announced shocks this paper formalizes this idea and focuses on com

dollarization and the integration of international capital markets a contribution to the theory of optimal currency areas we consider the following questions 1 does the adoption of a common currency either reduce or enhance the scope for endogenously generated volatility to emerge 2 does the adoption of a common currency reduce or enhance the scope for indeterminacies to arise 3 is there a welfare justification for the adoption of a single currency 4 what are the fiscal consequences of a move to a single currency we address these issues in a two country model with both a transactions role and a store of value role for currency moreover banks arise endogenously in each country in this context we compare the determination and characteristics of an equilibrium in each of two situations one where each country issues its own currency and one where one of the countries adopts the currency of the other country the consequences of this dollarization depend very much on the degree of integration of the capital markets of the two countries when their credit markets are poorly integrated a regime with two currencies displays a unique stationary equilibrium dollarization under very weak conditions gives rise to a continuum of equilibrium paths these may exhibit oscillation hence when capital markets are segmented dollarization may be a source of indeterminacy and endogenously arising volatility in addition the welfare justifications for dollarization are weak and dollarization my have adverse fiscal consequences when credit markets are fully integrated internationally the results are substantially different in that case both regimes display a unique equilibrium path hence in the presence of unrestricted international capital flows the adoption of a common currency does

debt relief and governance quality in developing countries summary in this paper we empirically discuss whether or not debt relief has been economically rational in the past 15 years from analyzing the determinants of debt relief our results suggest that governance quality did not play a role in the decision of creditor countries to forgive debt in the 1990s furthermore even the actual debt burden of highly indebted poor countries was not crucial in deciding whether or not debt forgiveness was granted rather debt relief followed a strong path dependence those countries whose debt had been forgiven in the first half of the 1990s were also granted debt forgiveness in the second half of the decade however this allocation pattern changed at the beginning of the 21st century when path dependence diminished and some dimensions of governance quality were taken into account by donor countries

monetary growth in a turnpike environment abstract a general equilibrium model of monetary growth in a turnpike economy is constructed it is shown that money lifts the economy up to a pareto superior growth path by eliminating the investment in projects with low returns the growth rate of the monetary economy is larger than that of the nonmonetary economy and mckinnon s complementarity hypothesis holds provided that the agents degree of relative risk aversion is not too large the main theorem states a sufficient condition for the existence of a monetary equilibrium with a constant rate of return on money

public information and performance the role of spatial dependence in the worldwide governance indicators among african countries summary the worldwide governance indicators wgi provide transparent and comparable country statistics for different dimensions of governance linked to under development yet does the public availability of governance data actually enhance performance if investors donor agencies and citizens are made aware of relative governance performance competition for inward investment such as fdi and oda and domestic legitimacy become plausible mechanisms for diffusion of good governance we test whether such mechanisms operate using the wgi for africa and find evidence for spatial diffusion of democracy rule of law and corruption control there is no evidence for diffusion of regulatory quality and government effectiveness

the globalization of liberalization policy diffusion in the international political economy one of the most important developments over the past three decades has been the spread of liberal economic ideas and policies throughout the world these policies have affected the lives of millions of people yet our most sophisticated political economy models do not adequately capture influences on these policy choices evidence suggests that the adoption of liberal economic practices is highly clustered both temporally and spatially we hypothesize that this clustering might be due to processes of policy diffusion we think of diffusion as resulting from one of two broad sets of forces one in which mounting adoptions of a policy alter the benefits of adopting for others and another in which adoptions provide policy relevant information about the benefits of adopting we develop arguments within these broad classes of mechanisms construct appropriate measures of the relevant concepts and test their effects on liberalization and restriction of the current account the capital account and the exchange rate regime our findings suggest that domestic models of foreign economic policy making are insufficient the evidence shows that policy transitions are influenced by international economic competition as well as the policies of a country s sociocultural peers we interpret the latter influence as a form of channeled learning reflecting governments search for appropriate models for economic policy

measuring wellbeing performance of carbon emissions using hybrid measure and meta frontier techniques empirical tests for g20 countries and implications for china abstract a quantitative measure of performance that integrates national level carbon emission profiles with key parameters of social and economic wellbeing can provide an effective management tool for policy interventions this paper constructs non parametric evaluation and decomposition models using hybrid measure and meta frontier techniques the proposed models are employed to estimate the wellbeing performance of carbon emissions wpce and identify the sources of wpce inefficiency empirical analyses based on the group 20 g20 countries for the 2000 2015 period shows the worst performance is in the brics country group i e brazil russia india china and south africa known for rapid growth whereas the developed and the developing economies of the g20 group show positive trajectories of performance as for china its performance measure of wpce was the lowest among the g20 indicating significant potential for further improvement the analysis also highlights the role of managerial failure as the primary driver of inefficiency more important than technological inefficiency in explaining efficiency loss within the g20 countries this critical finding the relevance and importance of managerial capability suggests the need for a high level of attention to governance and managerial capacity to ensure continued improvements in performance on carbon emissions and human wellbeing a lesson to be drawn from this study is that china s policies to promote a low carbon economy can benefit from increased priority given to low carbon technological innovation for the energy system transition and enhancement of environmental governance and managerial capacity to achieve a long term sustainability

money banking and the determination of real and nominal exchange rates the authors consider a model where spatial separation limited communication and stochastic relocation create a role for banks and country specific currencies the same factors also permit a deviation from the law of one price the authors examine how monetary policies influence real and nominal rates of exchange and real and nominal rates of interest under both fixed and flexible exchange rate regimes they also demonstrate that both regimes are characterized by an indeterminacy of both the real and the nominal rate of exchange copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the role of governance in determining foreign aid flow composition summary we hypothesize that selective donors will use types of aid over which they have more control when providing assistance to poorly governed countries we use an original classification of project purpose codes in the aiddata dataset to categorize aid flows from the period 2004 to 2010 results from fixed effect and compositional data models provide evidence of selectivity in terms of overall aid flows a tradeoff between technical assistance and programmatic lending and a tradeoff between social sector and infrastructure projects

incumbent behavior vote seeking tax setting and yardstick competition this paper develops a model of the political economy of tax setting in a multijurisdictional world where voters choices and incumbent behavior are determined simultaneously voters are assumed to make comparisons between jurisdictions to overcome political agency problems this forces incumbents into a yardstick competition in which they care about what other incumbents are doing we provide a theoretical framework and empirical evidence using u s state data from 1960 to 1988 the results are encouraging to the view that vote seeking and tax setting are tied together through the nexus of yardstick competition

interdependence in comparative politics substance theory empirics substance interdependence is ubiquitous and often central across comparative politics indeed as the authors show first theoretically any situation involving externalities from one unit s actions on others implies interdependence positive or negative externalities induce negative or positive interdependence which spurs competitive races or free riding with corresponding early or late mover advantages and thus strategic rush to act or delay and inaction the authors show next how to model interdependent processes empirically how not doing so risks omitted variable biases favoring domestic and exogenous external accounts over interdependence but how doing so naively risks simultaneity biases with the opposite substantive implications they then discuss how to estimate properly specified interdependence models and finally how to interpret and present estimated spatio temporally dynamic effects response paths and long run steady states with associated standard errors they illustrate by replicating a not

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

fdi in space spatial autoregressive relationships in foreign direct investment abstract there are a number of theoretical reasons why foreign direct investment fdi into a host country may depend on the fdi in proximate countries such spatial interdependence has been largely ignored by the empirical fdi literature with only a couple recent papers accounting for such issues in their estimation this paper conducts a general examination of spatial interactions in empirical fdi models using data on us outbound fdi activity we find that estimated relationships of traditional determinants of fdi are surprisingly robust to inclusion of terms to capture spatial interdependence even though such interdependence is estimated to be significant however we find that both the traditional determinants of fdi and the estimated spatial interdependence are quite sensitive to the sample of countries one examines

the extent of nontariff barriers to industrial countries imports this paper examines the extent of non tariff barriers to sixteen industrial countries visible imports using three alternative measures it shows that governmental commodity specific border measures affect over 27 of all imports and over 34 of imports from developing countries it also shows that during the period 1981 83 ntbs became significantly more extensive detailed statistics reveal considerable variations in ntb coverage by commodity type of barrier importer and exporter the data on which these conclusions are based are compiled from official information at the finest level of disaggregation they are described in the paper

global networks and domestic policy convergence a network explanation of policy changes national economies are embedded in complex networks such as trade capital flows and intergovernmental organizations igo s these globalization forces impose differential impacts on national economies depending on a country s network positions this article addresses the policy convergence divergence debate by focusing on how networks at the international level affect domestic fiscal monetary and regulatory policies the author presents two hypotheses first similarity in network positions induces convergence in domestic economic policies as a result of peer competitive pressure second proximity in network positions facilitates policy learning and emulation which result in policy convergence the empirical analysis applies a latent space model for relational dyadic data and indicates that position similarity in the network of exports induces convergence in fiscal and regulatory policies position similarity in the network of transnational portfolio investments induces convergence in fiscal policies and position proximity in igo networks is consistently associated with policy convergence in fiscal monetary and regulatory policies

what to stabilize in the open economy we consider the question how best to maintain price level stability in an open economy and evaluate three possible policy choices a a constant money growth rate rule b a fixed exchange rate and c a policy of explicit commitment to a price level target in each case we assume that policy is conducted by injecting reserves into or withdrawing reserves from the banking system in evaluating the three regimes we adopt the criterion that the best policy should leave the least scope for indeterminacy and excessive economic volatility in a steady state equilibrium the choice of regime is largely irrelevant any steady state equilibrium under one regime can be duplicated by an appropriate choice of the control variable under any other regime however we show that the sets of equilibria under the three regimes are dramatically different when all countries follow the policy of fixing a constant rate of money growth there are no equilibria displaying endogenously arising volatility and there is no indeterminacy of equilibrium under a regime of fixed exchange rates indeterminacies and endogenously arising fluctuations are impossible if and only if the country with the low reserve to deposit ratio is charged with maintaining the fixed rate finally when one country targets the time path of its price level under very weak conditions there will be indeterminacy of equilibrium and endogenously arising volatility driven by expectations

financial markets in development and the development of financial markets what is the relationship between markets and development it is argued that markets promote growth and that growth in turn encourages the formation of markets two models with endogenous market formation are presented to analyze this issue the first examines the role that financial markets banks and stock markets play in allocating funds to the highest valued use in the economic system it is shown that intermediation will arise under weak conditions the second focuses on the role that markets play in supporting specialization in economic activity the consequences of perfect competition in market formation are highlighted