aid policy and growth in post conflict societies countries emerging from civil war attract both aid and policy advice this paper provides the first systematic empirical analysis of aid and policy reform in the post conflict growth process it is based on a comprehensive data set of large civil wars and covers 27 countries that were in their first decade of post conflict economic recovery during the 1990s the authors first investigate whether the absorptive capacity for aid is systematically different in post conflict countries they find that during the first three post conflict years absorptive capacity is no greater than normal but that in the rest of the first decade it is approximately double its normal level so ideally aid should phase in during the decade historically aid has not on average been higher in post conflict societies and it has tended to taper out over the course of the decade the authors then investigate whether the contribution of policy to growth is systematically different in post conflict countries and in particular whether particular components of policy are differentially important for this they use the world bank policy rating database the authors find that growth is more sensitive to policy in post conflict societies comparing the efficacy of different policies they find that social policies are differentially important relative to macroeconomic policies however historically this does not appear to have been how policy reform has been prioritized in post conflict societies

inflation and asset returns in a monetary economy postwar u s data are characterized by negative correlations between real equity returns and inflation and by positive correlations between real equity returns and money growth these patterns are closely matched quantitatively by an equilibrium monetary asset pricing model the model also implies negative correlations between expected asset returns and expected inflation and it predicts that the inflationasset return correlation will be more strongly negative when inflation is generated by fluctuations in real economic activity than when it is generated by monetary fluctuations the co movements of real asset returns inflation and money growth have been studied extensively over the past fifteen years table i displays some of the statistical properties of these series using quarterly u s data from 1959 to 1990 note first the significantly negative correlation between real equity returns and inflation note also the negative correlation between inflation and the ex post real return to nominally riskless bonds while this fact is not particularly surprising numerous studies conclude that the correlations between ex ante real asset returns and expected inflation are also negative 2 in contrast to these patterns the correlation between money growth and real equity returns is weakly positive in the data while the correlation between money growth and the real bond return is virtually zero initially these empirical patterns were viewed as anomalies negative correlations between inflation and ex post real stock returns contradict the traditional view that equities ought to act as an inflation hedge 3 negative correlations between expected inflation and ex ante real returns violate the

the effects of volatility in the terms of trade on output growth new evidence abstract this paper examines the empirical evidence for the hypothesis that there is a negative relationship between terms of trade volatility and output growth it finds a statistically significant link between income terms of trade volatility and lower growth rates when the degree of volatility in the income terms of trade is decomposed into its components fluctuations in real exports are of a magnitude similar to those in the relative price of tradables similarly the volatility in the net barter terms of trade is equally affected by variations in the price of exports and of imports any policies aimed at stabilizing the terms of trade or any of its components need to take account of this

small states small problems income growth and volatility in small states abstract small states have attracted a large amount of research in this paper we test whether small states are any different from other states in terms of their income growth and volatility outcomes we find that controlling for location small states have higher per capita gdp than other states this income advantage is largely due to a productivity advantage constituting evidence against the idea that small states suffer from an inability to exploit increasing returns to scale small states also do not have different per capita growth rates than other states small states do have greater volatility of annual growth rates which is in part due to their greater volatility of terms of trade shocks this terms of trade based volatility is in turn due to small states greater openness their greater openness on balance has however a positive net payoff for growth the one differential policy measure that might be relevant for small states is to further open up to international capital markets in order to better diversify risk but the benefits of even that are still unresolved in the literature we conclude that small states are no different from large states and so should receive the same policy advice that large states do

the impact of terms of trade and real exchange rate volatility on investment and growth in sub saharan africa abstract specialization in primary product exports reduces growth but why adverse trends in and the high variance of primary product prices are possible explanations the impact on investment and growth of the level and volatility of the terms of trade and the real effective exchange rate is estimated for a panel of 14 sub saharan african countries over 1980 1995 growth is negatively affected by terms of trade instability and investment by real exchange rate instability both growth and investment increase when the terms of trade improve and real exchange rate overvaluation is eliminated

trade turnover and tithing this paper examines the hypothesis that turnover affects trade preferences high turnover industries are similar to the stolper samuelson assumption of perfect factor mobility so factor of production drives trade preferences among low turnover industries as in the specific factors model net export position determines trade preferences we show that pac contribution patterns are consistent with this hypothesis in high turnover industries capital groups give significantly larger shares of their campaign contributions to free trade supporters than labor groups do among low turnover industries on the other hand exporting and import competing groups differ significantly in their financial support for free traders d 2004 elsevier b v all rights reserved

economic growth inequality and poverty estimating the growth elasticity of poverty summary this paper uses a new data set of 126 intervals from 60 developing countries to analyze the growth elasticity of poverty that is how much does poverty decline in percentage terms with a given percentage rise in economic growth the data set is both broader in coverage and more selective in terms of quality controls than those used in the past the study finds that while economic growth does reduce poverty in developing countries the rate of poverty reduction depends very much on how economic growth is defined controlling for changes in income inequality when economic growth is measured by changes in survey mean income consumption the growth elasticity of poverty excluding eastern europe and central asia is 2 79 that is a 10 increase in the survey mean will reduce poverty 1 00 person day by 27 9 but when growth is measured by changes in gdp per capita the growth elasticity of poverty is a statistically insignificant 2 27 which is lower than has previously been estimated

terms of trade uncertainty and economic growth abstract this paper examines a stochastic endogenous growth model in which terms of trade uncertainty affects savings and growth the model explains the well known positive link between growth and the mean rate of change of terms of trade and predicts also that terms of trade variability affects growth increased terms of trade variability results in faster or slower growth depending on the degree of risk aversion but in either case it reduces social welfare these growth effects imply that welfare costs of macroeconomic uncertainty are much larger than first thought cross country panel regressions provide strong support for the model s key predictions

the performance of the heckscher ohlin vanek model in predicting endogenous policy forces at the individual level this study tests the hypothesis that agents base their opinions about trade liberalization on the distribution effects as predicted by the heckscher ohlin vanek hov model the hov model is utilized to derive the probable effect of a liberalization move on the returns to different canadian occupations the predicted effect is then compared with the opinions that canadians with known occupations held about the proposed canadian u s free trade agreement of 1988 it is found that these agents took positions that were generally consistent with the prediction from the hov model

economic fluctuations and growth in sub saharan africa the importance of import instability the traditional thesis that export instability xi is deleterious to economic growth in developing economies has received mixed empirical results for african countries recent research suggests that the effect of xi is weak but that capital investment instability ki adversely influences economic growth the current study argues that in many of these nations imports are likely to be critical to the growth process while exports represent only one of the various sources of investment resources hence import instability mi may pose a more serious problem than xi in hindering economic growth employing 1968 1986 world bank data for 33 sub saharan african countries xi ki and mi variables are calculated for each country as the standard errors around the respective best fitted trends over the sample period these instability measures and additional world bank data are then used to estimate an augmented production function that controls for the effects of labour capital and exports the study fin

export instability and economic growth in sub saharan africa empirical research on the relationship between export instability and economic growth in less developed countries ldcs has yielded mixed results while some researchers find a negative relationship between export instability and economic growth others find a positive relationship a third group of researchers finds no significant relationship between export instability and economic growth in ldcs 1 those who find a negative relationship between export instability and economic growth in ldcs stress the negative effect export instability has on the supply of output through the generation of uncertainty in long term planning as well as due to shortages of inputs at critical times during the production process those who find a positive relationship between export instability and economic growth argue that ldcs respond to export instability by reducing consumption this process if repeated over a period of time increases savings and hence the rate of investment those who find no significant relationship between export instability and economic growth argue that ldcs are able to anticipate the fluctuations in export earnings and plan for such fluctuations hence instability in export earnings has no appreciable effect on economic growth c moran investigates the relationships between domestic savings rate and economic growth rate on the one hand and export instability on the other in a sample of ldcs 2 he finds that export instability has no significant long run impact on either domestic savings rate or economic growth rate however over relatively short periods of time export instability has a negative and significant effect on both savings and economic growth rate the negative effect occurs when the negative effects of price and of quantity fluctuations reinforce each other on the other hand when the negative effect of price fluctuations is counterbalanced by the effects of quantity fluctuations export instabil

aid selectivity according to augmented criteria a dominant trend in the literature maintains that donor assistance should be targeted to poor countries with sound institutions and policies in this context donor selectivity refers to what extent aid is allocated according to the principles of this canonical model this paper shows that it is legitimate for donors to simultaneously use other selectivity criteria corresponding either to expected factors of aid effectiveness or to handicaps to development it is notably argued that vulnerability to exogenous shocks and low level of human capital should be considered as selectivity criteria taking these other criteria into account dramatically changes the assessment of donor selectivity

can the world cut poverty in half how policy reform and effective aid can meet international development goals abstract poverty in the developing world will decline by about one half by 2015 if the trends of the 1990s persist most of this poverty reduction will occur in asia however while poverty will decline only slightly in africa effective aid could make a contribution to greater poverty reduction in lagging regions even more potent would be significant policy reform in these countries we develop a model of efficient aid in which flows respond to policy improvements that create a better environment for poverty reduction and effective aid we investigate scenarios of policy reform and efficient aid that point the way to how the world can cut poverty in half in every major region

the real exchange rate and macroeconomic performance in sub saharan africa abstract pooled time series and cross section data for 33 countries in sub saharan africa ssa confirm the negative relationship between the real exchange rate rer misalignment and economic performance economic growth imports exports saving and investment macroeconomic instability also slows growth and other indicators of performance higher levels of misalignment are accompanied by higher levels of macroeconomic instability both lower levels of rer misalignment and instability lead to better economic performance the edwards model of rer determination performs well for the region black market premia tend to show a greater degree of misalignment in rer than alternative measures

small island developing states and their economic vulnerabilities abstract many small island developing states sids face special disadvantages associated with small size insularity remoteness and proneness to natural disasters these factors render the economies of these states very vulnerable to forces outside their control a condition which sometimes threatens their very economic viability the gdp or gnp per capita of these states often conceals this reality in this paper the major vulnerabilities faced by sids are discussed and when possible quantified in the form of an index an attempt is also made to construct a composite index of vulnerability

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

assessing the economic vulnerability of small island developing states and the least developed countries macro vulnerability of the small island developing states sids as well as of least developed countries ldcs has been an increasing concern for the international community this has led to the design of an economic vulnerability index evi to assess the structural economic vulnerability resulting from natural or external shocks we first explain how vulnerability affects growth development and poverty reduction particularly in small developing countries we then examine how the evi has been designed and how it can be used to compare sids and ldcs we argue that evi is a relevant tool not only for identification of ldcs but also for geographical aid allocation to favour vulnerable countries including ldcs and sids even though not all sids qualify as ldcs

aid and performance a reassessment two visions of aid effectiveness and allocation are compared the first corresponding to the new aid paradigm argues that aid is only effective if domestic policies are appropriate the second in contrast argues that aid effectiveness depends on the external and climatic environment the worse this environment or the more vulnerable the recipient countries the greater the effectiveness of aid cross sectional econometric tests related to gdp growth on two 12 year pooled periods clearly favour the second view the two views can be reconciled through the principle of performance based aid allocation where performance is defined as outcomes adjusted for the impact of environmental factors performance can then be measured in several manners which are subject to comparison one approach would lead one to allocate more aid the worse the external environment is for a given policy and the better the policy is for a given environment

institutional causes macroeconomic symptoms volatility crises and growth countries that have pursued distortionary macroeconomic policies including high inflation large budget deficits and misaligned exchange rates appear to have suffered more macroeconomic volatility and also grown more slowly during the postwar period does this reflect the causal effect of these macroeconomic policies on economic outcomes one reason to suspect that the answer may be no is that countries pursuing poor macroeconomic policies also have weak institutions including political institutions that do not constrain politicians and political elites ineffective enforcement of property rights for investors widespread corruption and a high degree of political instability this paper documents that countries that inherited more extractive institutions from their colonial past were more likely to experience high volatility and economic crises during the postwar period more specifically societies where european colonists faced high mortality rates more than 100 years ago are much more volatile and prone to crises based on our previous work we interpret this relationship as due to the causal effect of institutions on economic outcomes europeans did not settle and were more likely to set up extractive institutions in areas where they faced high mortality once we control for the effect of institutions macroeconomic policies appear to have only a minor impact on volatility and crises this suggests that distortionary macroeconomic policies are more likely to be symptoms of underlying institutional problems rather than the main causes of economic

a new look at the effects of export instability on investment and growth abstract this paper is concerned with the effects of export instability on investment and growth it is shown that past cross sectional empirical studies on the effects of export instability either in prices or in value terms used an incorrect measure of instability that does not properly take account of the share of exports in gdp using a new instability index and a broad set of conditioning variables it is shown that export instability was positively associated with investment but negatively associated with growth in a large sample of countries during the period from the early 1970s to the mid 1980s

who supports free trade in latin america this paper examines individual trade policy preferences across 17 countries in latin america the focus is on whether skilled or unskilled workers are more likely to support liberalised trade and on whether country characteristics such as factor endowments alter the preferences of skilled and unskilled workers based on the standard heckscher ohlin model and the stolper samuelson theorem wage inequality in developing countries will decrease under free trade and unskilled workers will benefit we find that on average skilled workers are more likely than unskilled workers to support free trade in latin american countries separate country regressions reveal that this pattern is only statistically significant in 8 out of 17 latin american countries however there are no countries in our sample in which unskilled workers are statistically more likely to support free trade than skilled workers not even in the lowest skill endowed country in the sample we also find that people from latin american countries with higher gdp faster growth more cropland and a longer period of time since reform were more likely on average to support free trade

aid instability as a measure of uncertainty and the positive impact of aid on growth this article contributes to the literature on aid and economic growth we posit that uncertainty measured as the instability of aid receipts will influence the relationship between aid and investment how recipient governments respond to aid and will capture the fact that some countries are especially vulnerable to shocks when we account for uncertainty which is negative and significant we find that aid has a significant positive effect on growth largely due to its effect on the volume of investment the finding that uncertainty of aid receipts reduces the effectiveness of aid is robust when the regression is estimated for the sub sample of african countries these findings hold although the effectiveness of aid appears weaker than for the full sample

why are some people and countries more protectionist than others we analyze two cross country data sets that contain information on attitudes toward trade as well as a broad range of socio demographic and other indicators we nd that pro trade preferences are signi cantly and robustly correlated with an individual s level of human capital in the manner predicted by the factor endowments model preferences over trade are also correlated with the trade exposure of the sector in which an individual is employed individuals in non traded sectors tend to be the most pro trade while individuals in sectors with a revealed comparative disadvantage are the most protectionist third an individual s relative economic status has a very strong positive association withpro trade attitudes finally non economic determinants in the form of values identities and attachments play an important role in explaining the variation in preferences over trade high degrees of neighborhood attachment and nationalism patriotism are associated withprotectionist tendencies c

has distance died evidence from a panel gravity model the estimated coefficient of distance on the volume of trade is generally found to increase rather than decrease through time using the traditional gravity model of trade this distance puzzle proved robust to several ad hoc versions of the model using data for 1962 96 for a large sample of 130 countries the introduction of an augmented barrier to trade function removes the paradox yielding a decline in the estimate of the elasticity of trade to distance of about 11 percent over the 35 year period for the whole sample however the death of distance is shown to be largely confined to bilateral trade between rich countries with poor countries becoming marginalized

cross country evidence on the link between volatility and growth this paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations in a sample of ninety two countries as well as a sample of oecd countries the authors find that countries with higher volatility have lower growth the addition of standard control variables strengthens the negative relationship the authors also find that government spending induced volatility is negatively associated with growth even after controlling for both time and country fixed effects copyright 1995 by american economic association

volatility and investment interpreting evidence from developing countries we uncover a significant negative correlation between various volatility measures and private investment in developing countries even when adding the standard control variables no such correlation is uncovered when the investment measure is the sum of private and public investment spending indeed public investment spending is positively correlated with some ineasures of volatility these findings suggest that the detrimental impact of volatility on investment may be easier to detect using disaggregated data we provide several possible interpretations for our findings nonlinearities in preferences or budget constraints can cause volatility to have first order negative effects on private investment