shifts in the composition of government spending in response to external debt burden abstract this paper examines the effects of external public debt burden on the composition of public spending in a sample of 47 developing countries for 1972 2001 we specify a system of equations for the relative spending shares of six economic categories and estimate it using several estimation methods and samples we find support for the adverse effect of the debt burden on capital expenditure in the full sample and in the middle east north africa and sub saharan africa subsamples where the debt burden was relatively high among components of current expenditure increased debt burden shifted the shares against nonwage goods services and subsidy and transfers while leaving the share of politically sensitive category of wages and salaries unscathed in most cases

devaluation investment and growth in ldcs abstract this paper examines the short and long run effects of devaluation in a model where following structuralist theories investment is treated as output of a composite good produced by combining domestic and imported components in fixed proportions introducing investment goods of this type alters a number of results most notably the marshall lerner condition is neither necessary nor sufficient for an expansionary outcome and under simple and plausible conditions a devaluation may worsen the payments balance

debt overhang credit rationing and investment abstract this paper evaluates the effect of foreign debt on investment in a heavily indebted country using numerical simulations of a simple rational expectations growth model two particular effects are distinguished first the effect due to debt overhang of past accumulated debts and second the effect of credit rationing or inability to obtain new financing the results from the simulations indicate that credit rationing may be a powerful disincentive to investment this suggests that in order to maximize the impact on productive investment debt reduction plans need to be accompanied by additional foreign lending

policies to move from stabilization to growth although some discussions of stabilization see growth as more or less an assured product of appropriate stabilization this paper argues that there is no guarantee that stabilization will lead to growth it may result in stagnation the paper discusses the essentials of stabilization including inflation targets fiscal policy monetary policy exchange rates and incomes policy and suggests that two areas of structural reform deregulation including trade reform and reform of the financial sector can play a central role in the long run success of a stabilization effort the paper concludes that countries that have experienced protracted high inflation financial instability and payments crises probably will have a difficult and protracted transition to growth and that external resources will be necessary as a continuing feature of the transition sustained external support in the form of long term loans heavily conditioned on the tangibility and credibility of domestic progress in adjustment will help provide a bridge by which flight capital may return and foreign direct investment may be encouraged to take advantage of fresh opportunities

theoretical and empirical foundations of hipc debt sustainability targets this article traces the origins of hipc heavily indebted poor country debt sustainability targets these targets are interpreted as switching values below which countries are expected to avoid debt service problems but as such they do not take into account that countries encounter debt problems for a variety of reasons and at different levels of debt it is likely that the true switching value of the debt to export ratio of many hipcs lie below the present target regarding the fiscal window of the hipc initiative the lack of analytical basis for a 250 per cent target for the debt torevenue ratio is noted and the problems raised by the joint openness revenue condition are discussed the article concludes that the sustainability targets as presently applied are not well supported in analytical terms

contractionary devaluation in the southern cone the case of chile abstract this paper discusses the effects of a currency devaluation on output employment and the trade balance in a small open economy chile the structure of the foreign trade sector in terms of price elasticities the sectoral differences in relative domestic value added intensities across exports and import competing industries and the degree of wage indexation are the main determinants in our model of the impact of devaluation a simulation carried out with a computable macro model for chile shows a currency devaluation to be contractionary in the short to medium run

distributional implications of macroeconomic policy theory and applications to el salvador abstract this article offers a theoretical framework for designing macroeconomic strategy for el salvador that will both respect stabilization and structural adjustment needs and enhance social equity after outlining the largely negative distributional implications of the orthodox policies followed by el salvador in recent years we argue that stabilization and efficiency could actually be improved by increased equity and sketch out the elements of an alternative approach that would be distributionally sensitive and thereby help consolidate the peace

do stronger intellectual property rights promote seed exchange evidence from u s seed exports with increased private investment in crop breeding research in the developed world intellectual property rights have gained importance in seed sector trade related aspects of intellectual property rights trips plus provisions included in recent free trade agreements between the developed and developing countries show a tendency of the developed world to impose their high standards for protection of plant intellectual property on the developing world while stronger intellectual property rights can increase international exchange in seed market power effect can lead to a reduction in exports of seed to foreign markets this article estimates the impact of intellectual property rights on u s seed exports the estimation is performed at a crop level using heckman selection model the results reveal that the impact of intellectual property rights varies across different types of crops open pollinated genetically modified and hybrid crops while trips provisions are important to facilitate transfer of genetically modified crops they play a minor role for open pollinated and hybrid crops the results also show that plant breeders rights envisioned by the upov system can be important to promote seed exchange when proper mechanisms are put in place to enforce these rights

the effects of financial liberalization on savings and investment in uruguay the following sections are included introductionfinancial reforms financial deepening and financial crisisstylized outcomes savings investment and growthfinancial liberalization savings and investmentfinancial resource allocation at the micro levelconclusions

the new structuralist critique of the monetarist theory of inflation the case of the philippines abstract developing economies may be characterized by long production lags advanced outlays to finance working capital needs will therefore assume primary importance with weak commodity and equity markets the financing is usually funded by credit either from the legal banking sector or from an underground curb market monetary and credit contraction espoused by monetarists as a key policy for controlling inflation will increase the cost of financing working capital needs this has an immediate short run stagflationary impact coming from the supply side of the economy the study uses a one sector macro model to test this hypothesis on the philippines with annual data from 1958 to 1980 the results give empirical support to the claim that the working capital cost push supply side effect is strong enough which means that austerity measures may require a heavy and costly recession before price inflation can be brought down

interest rate management in ldc s the mckinnon argument that higher time deposit rates raise output and lower inflation in the short run and increase medium term growth by raising the savings rate are shown to depend crucially on the assumption that portfolio shifts into td s come out of an asset providing less intermediation than the banking system we show that if instead the shift is out of an asset providing more intermediation e g loans on a curbmarket raising td rates is contractionary in the short run may have negative impacts on growth and can lead to more rather than less inflation in the short run

cross country evidence on the link between inflation volatility and growth it is generally accepted that short run monetary mis management as reflected in inflation volatility affects the long run growth rate of the economy this proposition is tested for a cross section sample of 78 countries over the period 1965 85 the evidence suggests that after controlling for other country specific growth correlates high inflation volatility is associated with lower mean growth inflation volatility was also found to have a negative effect on the productivity of investment but does not appear to affect the share of investment of gdp these results are also robust to an alternative data set that extends the sample period to 1994

explaining the racial unemployment gap race region and the employment status of men 1940 although the substantial and persistent gap between the unemployment rates of african americans and whites in the united states first emerged in aggregate statistics covering the 1940s and 1950s disaggregation reveals that the gap already existed in urban areas before 1940 using individual level data on male workers from the 1940 census the author analyzes the causes of the unemployment gap he finds that racial differences in measured human capital and other characteristics can explain all of the racial gap in the south but less than half of the gap in the north this result contrasts with results from studies of wages which have found a larger racial residual in the south than in the north

manufacturing output employment and real wages in the 1980s labour s loss until the century s end during the 1980s most developing countries experienced sharp declines in manufacturing output and real wages whilst their manufacturing sectors were supposedly restructured or made more competitive by having to confront market forces this article examines the extent to which macroeconomic adjustment and industrial restructuring policies succeeded in achieving their objectives

the efficiency of investment in the presence of aggregate demand spillovers in the presence of aggregate demand spillovers an imperfectly competitive form s profit is positively related to aggregate income which in turn rises with profits of all firms in the economy this pecuniary externality makes a dollar of a firm s profit raise aggregate income by more than a dollar since other firms profits also rise and in this way gives rise to a multiplier since such multipliers are ignored by firms making investment decisions privately optimal investment decisions under uncertainty will not in general be socially optimal under reasonable conditions investment is too low

trade reform aggregate investment and capital flight on credibility and the value of information abstract in this paper we demonstrate that uncertainty about future policy reversals coupled with irreversible investment confers an option value to foreign exchange and may lead to capital flight and a fall in aggregate investment after a trade reform the analysis focuses on the value of information and the credibility of the policy reform the conclusion points to a potential role for international institutions to prevent such problems

serial correlation and the fixed effects model this paper generalizes the durbin watson type statistics to test the ols residuals from the fixed effects model for serial independence also generalized are the tests proposed by sargan and bhargava for the hypothesis that the residuals form a random walk a method for efficient estimation of the parameters is also developed finally an earnings function is estimated using the michigan survey of income dynamics in order to illustrate the uses of the tests and the estimation procedures developed in this paper

are devaluations contractionary recently a number of authors have criticized the role of devaluations in traditional stabilization programs it has been argued that contrary to the traditional view devaluations are contractionary and generate a decline in aggregate output in spite of the renewed theoretical interest in the possible contractionary effects of devaluations the empirical evidence on the subject has been quite sketchy in this paper the khan and knight 1981 model is extended to empirically address the issue of contractionary devaluations the extended model considers the effect of money surprises fiscal factors terms of trade changes and devaluations on the level of real output the results obtained using a variance components procedure on data for 12 developing countries provide some support to the short run contractionary devaluation hypothesis the results obtained indicate that in the short run a devaluation will generate a decline in aggregate output it is also found that after one year a devaluation will have an expansionary effecton output the evidence suggests that in the long run devaluations will have no effect on output this abstract was borrowed from another version of this item

how should structural adjustment programs be designed abstract more than seven years have elapsed since the onset of the generalized debt crisis of 1982 yet the affected countries have still not managed to stabilize their economies these countries must now attempt structural adjustment in the midst of pervasive macroeconomic and political instability structural adjustment packages should be designed with this reality in mind this paper argues that structural adjustment programs should strive for sustainability rather than the economic liberalization that they presently stress illiberal policies which do not damage overall macro stability are preferable to liberal policies which are inherently unsustainable or engender macro instability liberalization programs that are not sustainable are likely to bring few benefits but have high costs in terms of private investment the paper discusses some of the chief implications of this opinion for the design of adjustment programs

debt crisis adjustment policies and capital formation in developing countries where do we stand abstract this paper documents the decline in investment rates observed in developing countries after 1982 and explores analytically and empirically the factors contributing to explain it the paper focuses on the impact of macroeconomic adjustment and reform measures on private investment particularly in latin america and east asia and underscores the importance of macroeconomic uncertainty policy credibility and potential coordination failures in shaping the response of investment to the changes in economic incentives brought about by structural reforms the analysis concludes with some policy recommendations to improve the design of sustainable growth oriented adjustment programs

multiple expectational equilibria under monopolistic competition this paper shows that a monopolistically competitive economy with real investment can have multiple rational expectations equilibria one is associated with entrepreneurs optimistic expectations about future demand another with entrepreneurs pessimism it also shows that an optimistic expectational equilibrium pareto dominates a pessimistic equilibrium an investment subsidy can be beneficial both by reducing the original underinvestment distortion and by changing firms expectations from pessimistic to optimistic the most important assumption is increasing returns to scale and monopolistic competition makes increasing returns consistent with each producer s optimization

stagflationary effects of monetary stabilization policies a quantitative analysis of south korea this paper presents a macro model of the korean economy that focuses on short run macro economic adjustment and more in particular on the transmission channels of monetary policy between the financial and the real sector of the economy in addition to the usual link between monetary policy and aggregate demand via investment the link between monetary policy and the supply side of the economy via the financing of working capital with borrowed funds is incorporated this link can potentially reverse the short run impact of tight money on inflation and aggregate the impact on output both export prices and domestic prices show a significant sensitivity to cost of financing working capital this credit supply side link gives a stagflationary bias to restrictive credit policies the empirical relevance of this phenomenon is strongly supported by the simulation results derived with the model structurally section 2 of the paper focuses on the real sector part of the model section 3 discusses the financial sector in section 4 different monetary stabilization packages are simulated using the model presented in sections 2 and 3 and alternative policy measures are discussed the simulation runs show strong short run stagflationary effects of tight money policies

credit policy inflation and growth in a financially repressed economy this report analyzes credit policy in an open economy macro model incorporating stylized facts about the financial sector of ldc s absence of security markets existence of a curbmarket these facts are incorporated in the financial sector part of a keynes wicksell growth model it focuses on a transmission channel of monetary policy into the supply side of the economy via the cost of working capital it shows that ignoring this effect when analysing restrictive credit policy leads to underestimates of inflation and overestimation of output and current account improvements it is shown that a credit crunch can be stagflationary in the short run a cut in the real stock of credit is shown to lead to a lower steady state capital stock