the microfinance promise in the past decade microfinance programs have demonstrated that it is possible to lend to low income households while maintaining high repayment rates even without requiring collateral the programs promise a revolution in approaches to alleviating poverty and spreading financial services and millions of poor households are served globally a growing body of economic theory demonstrates how new contractual forms offer a key to microfinance success particularly the use of group lending contracts with joint liability for the most part however high repayment rates have not translated into profits and studies of impacts on poverty yield a mixed picture in describing emerging tensions the paper highlights the diversity of innovative mechanisms beyond group lending contracts the measurement of financial sustainability the estimation of economic and social impacts the costs and benefits of subsidization and the potential to reduce poverty through savings programs rather than just credit the promise of microfinance has pushed far ahead of the evidence and an agenda is put forward for addressing critical empirical gaps and sharpening the terms of policy discussion

introduction imperfect information and rural credit markets puzzles and policy perspectives rural credit markets have been at the center of policy intervention in developing countries over the past forty years many governments supported by multilateral and bilateral aid agencies have devoted considerable resources to supplying cheap credit to farmers in a myriad of institutional settings the results of many of these interventions have been disappointing and one explanation for this must be that they were based on an inadequate understanding of the workings of rural credit markets the articles in this symposium issue are devoted to empirical and theoretical investigations of rural credit markets in the framework of the imperfect information paradigm the authors show how this framework is useful not only in explaining puzzling features of these markets but also in providing a policy perspective to assess the successes and failures of specific interventions

labor migration and risk aversion in less developed countries in this paper we question the pioneering work of todaro which states that rural to urban labor migration in less developed countries ldcs is an individual response to a higher urban expected income we demonstrate that rural to urban labor migration is perfectly rational even if urban expected income is lower than rural income we achieve this under a set of fairly stringent conditions an individual decision making entity a one period planning horizon and global risk aversion we obtain the result that a small chance of reaping a high reward is sufficient to trigger rural to urban labor migration

where is the plus in credit plus the case of chiapas mexico abstractit has become common to try and increase the effectiveness of microfinance programmes by adding supplementary services to the financial product however the added value accruing from this credit plus approach has been little analysed we hypothesise that the extent of added value from credit plus depends on the ability of the credit supplier to cultivate trust or social capital amongst clients applying difference in difference estimation we exploit a natural experiment of two credit plus programmes in mexico the findings suggest that credit plus is not universally effective but that it is at its most effective especially with low income groups where bonding within group social capital exists

observational equivalence in the modeling of african labor markets and urbanization abstract this article examines the appropriateness of neoclassical and rent seeking models of urbanization for the african milieu and demonstrates that the reduced forms of these two models may be quite similar the models are not observationally equivalent however and methods of distinguishing between them are discussed a demographic cohort shift model of african urbanization also is presented its excellent predictive power suggests that migration models that assume migrant homogeneity i e highly aggregate migration models ignore information that can be useful in predicting trends in migration flows

human capital minimum wage and unemployment a harris todaro model of a developed open economy in many developed countries unemployment is a serious and persistent problem although the character of this problem is highly complex one of its features which can easily be observed is the substantially higher incidence of unemployment among unskilled workers than among those who are skilled a possible explanation for this is the existence of an institutionally given minimum wage which exceeds the market clearing wage for unskilled labour but lies below the equilibrium wage for skilled labour moreover for those who find themselves unemployed because of the minimum wage the principal source of job opportunities tends to be the services sector of the economy which is relatively intensive in its use of unskilled labour the objective of this paper is to develop a simple model of a small open economy based on these observations and to examine the policy implications that emerge from it in connection with the unemployment problem the focus of the analysis however is not on the cyclical aspects of this problem but rather on its steady state nature the basic structure of the model is as follows our economy has two sectors engaged in the production of consumption goods one of these goods is assumed to be traded internationally and the other is non traded following rodriguez 1975 i draw a further distinction between the two sectors nontraded goods which may be regarded as services are assumed to require the use of only capital and unskilled labour as inputs while the traded goods sector uses only capital and skilled labour skills are viewed as productive human capital which can be acquired through formal training in order to sharpen the focus of our analysis on the process of human capital formation i will ignore the problems of physical capital accumulation and population growth the economy is assumed to be small facing a given world price of traded goods as well as a given rental at which the supply of capital from abroad is infinitely elastic in contrast with the assumption of perfect capital mobility neither type of labour is mobile internationally with only one traded commodity and one mobile factor international trade for this economy amounts to an exchange of the single traded consumption good for the services of capital at fixed terms of trade section i of the paper presents the model and solves for the stationary composition of the labour force i e skilled v unskilled and the equilibrium values of relative factor and commodity prices section ii introdluces an institutionally given minimum wage which is binding only in the market for unskilled labour in the spirit of harris and todaro 1970 it is assumed that

not all deficits are created equal recent academic and popular discussions of budget deficits rely on a simplistic and largely false conception of the effects of deficits the effects depend on the source of the deficit and on private sector responses to it also important are whether budget changes arise passively through the workings of the business cycle and whether deficit inducing policy actions are permanent or transitory the key expectations arising from the simple theories connecting interest rates and deficits are precisely opposite to what modern theory and evidence indicate

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

factors impeding credit use in small farm households in bolivia sample survey data show few bolivian small farm households using credit but most would like to borrow from formal market institutions a theoretical framework is developed to formulate testable hypotheses to identify factors that inhibit credit use major impediments to borrowing are scale of operations as measured by amount of useable land and borrower s transactions costs that arise from loan paperwork use of indian language remoteness from market little education and low degree of market integration when farmers with these characteristics borrow they tend to use informal market sources because of the lower transactions costs compared to those of formal market lenders the policy implication is if formal market lenders are to reach more farmers they must lower transactions costs

group credit a means to improve information transfer and loan repayment performance information asymmetries plague credit markets in developing countries leading to selective rationing and market segmentation with adverse income distributional consequences for small borrowers data collected from the finca group credit programme in costa rica were used to study the viability and cost effectiveness of group credit as a means to transmit information on borrower creditworthiness groups that screened members and used local information had lower delinquency rates than those that did not however less than half the groups had positive rates of economic return suggesting that group lending may improve information flow but is a cost sensitive institutional design

the impact of credit on peasant productivity and differentiation in nicaragua abstract an endogenous switching regressions framework is used to structure and identify the impact of credit on small farm food production in nicaragua the results which emerge weakly support the hypothesis that credit had a positive impact on production and could be expected to reduce the pattern of structurally unbalanced growth in nicaraguan agriculture however the estimated impact is of a form which implies a process of differentiation and unequal growth in the peasant sector in the wake of the new opportunities afforded by credit

rural financial markets in low income countries recent controversies and lessons abstract recently some researchers have criticized traditional agricultural credit policies in low income countries this article identifies the major points of controversy between traditional views and these new views and also summarizes the primary lessons learned from these controversies savings mobilization more flexible interest rate policies less loan targeting and greater emphasis on improving the quality of financial services in rural areas are new views that are emphasized

the political economy of agricultural credit the case of bolivi a theoretical framework is established to show that agricultural credit programs in less developed countries can be used for political purposes because of a government controlled supply b implicit income transfers associated with concessionary interest rates delinquency and inflation that can be used as patronage for politically influential borrowers and c ease of implementation under guise of economic objectives the framework is applied to bolivia within that country s political context large income transfers to a few influential farmers strongly suggest the importance of political factors in credit allocation with consequent effects on income distribution development and debilitation of financial institutions

capital mobility and the current account abstract this paper analyzes the effect of unanticipated changes in the terms of trade on consumption expenditures and the current account in a small open economy simple formulas are obtained for the covariances of changes in consumption expenditures the current account and the expected current account with changes in the terms of trade it is shown that if investment is uncorrelated with the terms of trade a necessary condition for unanticipated changes in the terms of trade to be correlated with changes in consumption expenditures and the expected current account is that the real expected return on foreign bonds differs from the real expected return on domestic bonds

credit as insurance in agrarian economies abstract this paper examines consumption credit as an insurance mechanism in agrarian economies it explains the more rapid adoption of new technology in the green revolution by large farmers who had greater access to consumption credit the paper also demonstrates how the emergence and expansion of consumption credit markets by mitigating the need for hoarding in order to meet consumption contingencies enhances growth by encouraging investment

risk aversion and credit constraints in farmers decision making a reinterpretation in 1976 the agricultural development council sponsored a conference on risk uncertainty and agricultural development which has been summarised in a volume edited by james roumasset jean marc boussard and inderjit singh 1979 the volume provides an excellent review of the state of the art at that time however as discussed in the summary chapters of that volume there were few theoretical empirical or policy issues on which clear conclusions could be reached on the basis of knowledge then available in the intervening years progress has been made on a number of issues as a result of both empirical investigations and theoretical advances this paper concentrates on advances which have relevance to the controversy about the relative roles of risk aversion and credit constraints in limiting farmers investment levels especially for purchased inputs such as seeds or fertilizers in particular we review recent experimental studies on the extent of risk aversion among farmer populations in developing

is the dollar high because of large budget deficits abstract it is widely believed that the u s dollar has been high in recent years because of large u s budget deficits using three statistical techniques this paper shows that the belief has no empirical support ricardian equivalence may explain the lack of a positive association between the budget deficit and the dollar s exchange rate

capital flows investment and exchange rates abstract this paper incorporates international capital flows into a two country monetary general equilibrium model of asset prices with investment and production we calculate theoretical covariances between investment the current account the exchange rate and the terms of trade these covariances depend upon the coefficient of relative risk aversion the magnitude and sign of a country s net international indebtedness other properties of tastes and technologies and the stochastic processes on disturbances to productivity and monetary growth rates international capital flows arise from changes in world wealth and its relative composition in foreign and domestic assets

assistance to expand agricultural production abstract bilateral and multilateral development assistance agencies have devoted major resources to programs to support more rapid growth of agricultural production in developing countries in this paper i review the effectiveness of assistance activities in land and water development agricultural research and extension the reform of land tenure arrangement and the development of agricultural credit institutions investments in several of these activities particularly land and water resource development and agricultural research have had relatively high rate of return yet in almost all areas there has been a continuous cycling of program priorities and thrusts there has been a persistent failure to learn from failure or from success in the future more attention needs to be given to the generation of socialscience knowledge for the design and reform of the institutional infrastructure needed to sustain agricultural development

access to capital and its impact on agrarian structure and productivity in kenya access to capital and its distribution across agents can profoundly shape the structure and performance of an agrarian market economy it is conceptually useful to distinguish between ex ante and ex post capital access ex ante capital access denotes the ability of agents to finance production costs e g labor and purchased inputs costs which must be paid ex ante that is prior to the actual realization of production ex post capital access that is access to capital after the realization of the production process is of particular importance as an insurance substitute in low income agrarian economies where contingency markets are imperfect buoyant ex post capital access would permit an individual to stabilize consumption year to year even as production fluctuates annually a number of theoretical models have ex

industry s response to market liberalization in china evidence from jiangsu province introduction more than a decade has passed since china s communist party endorsed major economic reform at the third plenum of the eleventh central committee in december 1978 the reforms have addressed many problems but efficiency has been the focus of concern to improve efficiency china has introduced market mechanisms and reversed its import substitution policies the purpose of this article is to investigate whether industrial productivity has increased as a result using jiangsu province as a case study the background of market liberalization in china is years of development centered on a radical import substitution strategy which was both international and regional china is not alone in its reconsideration of import substitution and the role of the market versus the public sector the oil price increases in the 1970s resulted in serious debt problems for many developing countries forcing them to turn to market liberalization and export promotion the former eastern bloc countries are also in the process of radical domestic and international market reorientation as they restructure their formerly planned systems that had favored import substitution some discussions in the development literature have also been critical of import substitution in favor of outward looking strategies 1 while others argue that markets and export promotion are not a panacea 2 in these discussions the example of china is often raised with respect to its particular experience with import substitution followed by an open door policy with market liberalization but while it is clear that reforms have caused radical changes in china s economic system well beyond what might have been expected to ensue in 1978 the question remains as to whether economic performance improved during the 1980s as a result of the reform efforts

expanding credit access using randomized supply decisions to estimate the impacts expanding access to commercial credit is a key ingredient of financial development strategies there is less consensus on whether expanding access to consumer credit helps borrowers particularly when loans are extended at high interest rates popular skepticism about unproductive usurious lending is fueled by research highlighting behavioral biases that may induce overborrowing we estimate the impacts of expanding access to consumer credit at a 200 annual percentage rate apr using a field experiment and follow up data collection the randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes there is also some evidence that the loans were profitable the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

credit constraints and productivity in peruvian agriculture this article evaluates the performance of a rural credit market in peru we develop a model that shows that collateral requirements imposed by lenders in response to asymmetric information can lead not just to quantity rationing but also to transaction cost rationing and risk rationing just like quantity rationing these two additional forms of nonprice rationing adversely affect farm resource allocation and productivity we test the insights of the model using a panel data set from northern peru we estimate the returns to productive endowments for constrained and unconstrained households using a switching regression model we find that consistent with the theory productivity is independent of endowments for unconstrained households but is tightly linked to endowments for constrained households we estimate that credit constraints lower the value of agricultural output in the study region by 26

credit constraints credit unions and small scale producers in guatemala abstract efficient and equitable development outcomes may depend in part on whether formal financial institutions leave low wealth producers tightly constrained in their access to credit if so can cooperative institutions efficiently relax these constraints these issues are explored using survey data gathered from 950 small scale producer households in areas of guatemala with market oriented credit unions that mobilize savings and make unsubsidized loans nonprice rationing by banks is found to be common among lower wealth households while credit unions relax credit constraints for a significant portion of those rationed by banks but not the poorest of the study households

currency prices terms of trade and interest rates a general equilibrium asset pricing cash in advance approach currency prices terms of trade and interest rates a general equilibrium asset pricing cash in advance approach

the use of village agents in rural credit delivery using a simple principal agent model this article examines the incentive problems that arise when a formal financial institution such as a rural bank utilises a member of the rural community to act as an agent in screening potential borrowers and collecting repayment optimal compensation schemes are derived for the agent and their implications are discussed in addition i show that the norms and rules that govern village life may aid the financial institution by helping to constrain possible strategic behaviour by the agent

access to capital and agrarian production organisation there are two problems both universal that entrepreneurs in any economy must contend with firstly an agent generally has access only to a limited amount of working capital secondly workers hired by an agent are subject to moral hazard and this necessitates their supervision this paper models for an agrarian economy the constraints imposed on entrepreneurs activities by these two problems and endogenously determines the various organisational forms of production as well as the allocation of resources that will obtain with a simple model we endeavour to explain a diverse set of empirical observations pertaining to the less developed countries in terms of the general processes that determine the distribution of income among the various agents and the hierarchical relationships that develop among them agricultural production typically involves a period of several months between the time the inputs are purchased and the time the output is marketed access to working capital and hence to the credit market thus plays an important role in a farmer s production decisions the distribution of access to credit in turn tends to be an important determinant of income distribution in poor agrarian economies credit is invariably rationed according to the ability to offer collateral the amount of working capital a farmer can mobilise therefore depends on the amount of land he owns which is often a good proxy for his overall wealth and thus his ability to offer collateral further since hired hands have a propensity to shirk they need to be supervised and therefore the

a critique of traditional agricultural credit projects and policies abstract authors critique the results assumptions and policies commonly associated with agricultural credit projects in low income countries a summary of new views on these projects is present these views emphasize voluntary savings mobilization and positive real rates of interest several explanations are given for why few of these new views have been adopted by policymakers

rebates as a mechanism to induce the entry of commercial banks into new markets abstract for several reasons governments may want to encourage commercial banks to offer credit to some specific groups this paper analyzes a contract scheme that may help achieve this objective without inducing financial disintermediation or other adverse behavior two sources of information asymmetry are considered between the government and the bank credit might be diverted to borrowers not belonging to the targeted group and between the bank and the borrower the latter may divert credit to purposes other than stated compared to other policies the scheme analyzed here is superior since it brings about lower interest rates and higher cooperation from banks to achieve the government s objective

empirical measurement of credit rationing in agriculture a methodological survey empirical analysis of rural credit market failure has been of key scientific and political interest in recent years the aim of this article is to give an overview of the various methods for measuring credit rationing that are employed in the literature furthermore the methods are subjected to a comparative evaluation of their specific strengths or shortcomings six approaches are distinguished measurement of loan transaction costs analysis of qualitative information collected in interviews analysis of quantitative information collected in interviews using the credit limit concept analysis of spill over effects with regard to secondary credit sources econometric household modeling and the econometric analysis of dynamic investment decisions an explicit comparison with a first best solution is impossible in the first three approaches since they essentially rely on a subjective assessment of borrowers access to credit based on qualitative or quantitative indicators the fifth and sixth approaches allow a rigorous interpretation in the framework of neoclassical equilibrium theory the fourth approach takes an intermediate position since spill over on segmented loan markets reveals a willingness to pay with regard to the supposedly less expensive but rationed primary source the approaches are fairly data demanding in general usually requiring specific data on loan transactions even so most approaches are applicable to cross sectional household data with the exception of the first all methods surveyed might plausibly be used to empirically detect credit rationing

an equilibrium model of exchange rate determination and asset pricing with nontraded goods and imperfect information this paper presents a two country model with maximizing households stochastic production stochastic money growth and perfect capital mobility because of the presence of nontraded goods households in different countries consume different goods analytic solutions are presented for the nominal exchange rate the real exchange rate nominal interest rates and real interest rates it is shown that the model is compatible with some important features of the real world behavior of exchange rates when households are imperfectly informed about the distribution of money growth the exchange rate exhibits patterns of overshooting and is more volatile than the ratio of the money stocks copyright 1987 by university of chicago press

trade in nominal assets and net international capital flows abstract nominal assets play a major role in international financial markets while trade in indexed bonds is limited as a result agents are exposed to both price and exchange rate uncertainty nonetheless previous research on net capital flows has assumed the presence of a risk free vehicle to intertemporal asset trade in this paper we develop a general equilibrium intertemporal model with trade limited to nominal bonds and equity we find that exposure to nominal risk dampens net capital flows thus making economies effectively more closed

currency appreciation and deindustrialisation a european perspective during the 1980s policy advisers were successful in promoting the view that movements in the value of the dollar have an inverse relationship to u s international competitiveness this article explains their hypothesis as well as the counterargument that exchange rates positively reflect a country s competitiveness economic policies that boost competitiveness also raise the value of the domestic currency the mirror image of these hypotheses apply to u s trading partners including europe the evidence indicates that european countries were not deindustralized from 1985 to 1990 when the ecu rose in value by more than the dollar had risen in 1980 1985 instead european competitiveness rebounded strongly in the late 1980s reversing the stagnant performance of the early 1980s similarly during the early 1980s when the united states was on one unsupported view deindustralizing european nations generally did not enjoy a surge in their share of output or capital formation instead they suffered from euroscierosis this abstract was borrowed from another version of this item

the demands for funds by agricultural households evidence from rural india this study presents estimates of borrowing functions based on rural household data for india it improves upon existing work in three key areas first it is shown that existing studies have used an inappropriate definition of the demand for funds which when rectified produces quite different results second the interaction between agricultural technical change and the rural finance market is examined and it is shown that farmers in a position to benefit from technical change tend both to borrow more and to face lower interest rates third it is shown that farm specific interest rates when introduced endogenously are quite sensitive to personal and locational characteristics and are significant determinants of borrowing

taxation aggregate activity and economic growth cross country evidence on some supply side hypotheses data from sixty three countries are used to examine the impact of average and marginal tax rates on the level and growth of economic activity apparent negative effects of tax rates on growth disappear upon controlling for 1 potential endogeneity of average tax rates to per capita income and 2 the relation between economic growth and per capita income however controlling for average tax rates increases in marginal tax rates have negative effects on the level of economic activity this evidence supports the hypothesis that reductions in the progressivity of tax rates induce a parallel shift upward in the growth path

on the relationship between openness and growth in china evidence from provincial time series data the effect of increasing openness on real output growth in china is examined the framework of analysis is a regression model that uses time series data for each province for east coastal provinces increasing openness is found to have positive effects on real output growth and some of the effects are statistically significant the results appear to be broadly consistent with the new growth theories that openness enhances long run growth through its impact on technological improvement however inland provinces in china have been isolated from world trade for several decades and their economies devastated an increased openness in these provinces is found to have in most cases negative effects on real output growth

equilibrium credit rationing of small farm agriculture it is often argued that externally imposed contractual restrictions lead to inequitable credit rationing this paper argues that unrestricted laissez faire markets may also inequitably ration credit a formal model which grants borrowers autonomy in credit application and use demonstrates that adverse incentive and selection effects may cause banks to endogenously impose interest rate restrictions and ration small farms out of the credit market consequently liberalization of financial markets may be insufficient to guarantee small farms access to credit

tariffs and growth in the late 19th century the paper estimates the correlation between tariffs and economic growth in the late 19th century in the context of three types of growth equation unconditional convergence equations conditional convergence equations and factor accumulation models it does so for a panel of ten countries between 1875 and 1914 tariffs were positively correlated with growth in these countries during this period economic theory is ambiguous as regards the relationship between trade policy and growth the growth literature of the past decade has produced an impressive array of models in which protection can either increase or reduce long run growth rates grossman and helpman 1991 rivera batiz and romer 1991 stokey 1991 young 1991 such theoretical ambiguity invites empirical research while new growth theory is ambiguous on the subject the new empirical growth literature has produced a consensus that free trade is positively associated with growth based on evidence from the late 20th century but see rodrlguez and rodrik 1999 for a sceptical review of the literature the clear

wealth weather risk and the composition and profitability of agricultural investments despite the growing evidence that farmers in low income environments are risk averse there has been little empirical evidence on the importance of risk in shaping the actual allocation of production resources among farmers differentiated by wealth the authors use panel data on investments in rural india to examine how the composition of productive and nonproductive asset holdings varies across farmers with different levels of total wealth and across farmers facing different degrees of weather risk income variability is a prominent feature of the experience of rural agents in low income countries the authors report evidence based on measures of rainfall variability that the agricultural investment portfolio behavior of farmers in such settings reflects risk aversion due evidently to limitations on consumption soothing mechanisms such as crop insurance or credit markets the authors results suggest that uninsured weather risk is a significant cause of lower efficiency and lower average incomes a one standard deviation decrease in weather risk measured by the standard deviation of the timing of the rainy season would raise average profits by up to 35 percent among farmers in the lowest wealth quartile moreover rainfall variability induces a more unequal distribution of average incomes for a given distribution of wealth wealthier farmers are willing to absorb significant risk without giving up profits to reduce production risk smaller farmers have to invest their limited wealth in ways that reduce their exposure to risk at the cost of lower profit rates the authors found that at high levels of rainfall variability differences in rates of profit per unit of agricultural assets were similar across classes of wealth but over the sample range of rainfall variability these rates of profit were always higher for the poorer farmers than for the wealthier ones suggesting that the disadvantages of small farmers in risk diffusion are more than offset by their labor cost advantage

asset markets tariffs and political risk abstract this paper examines a simple model in which exogenous political risk creates uncertainty about tariffs the model predicts a relation between consumption and tariffs that differs radically from that implied by models without asset markets or political risk given the probability distribution of tariffs domestic consumption and utility ex post are lower in states of the world with a domestic tariff and no foreign tariff than with a foreign tariff and no domestic tariff this conclusion emerges despite the fact that the opposite would be obtained in the absence of asset markets so economists should not be surprised if observed relations between consumption and tariffs differ from the predictions of static theory in either time series or cross sections

collateral free lending with risk contingent credit for agricultural development indemnifying loans against pulse crop price risk in india this article addresses the problem of collateral free lending in the context of agricultural development we investigate a viable alternative to traditional credit products through the development of risk contingent credit for operating loans and farm mortgages and apply the concept to agricultural loans for pulse crops in india risk contingent credit mitigates business and financial risk by reducing debt obligations depending on the embedded commodity options whose payoffs are linked with commodity price fluctuations we analyze daily commodity spot prices for pulse crops in india and show how risk contingent structured financial instruments can be priced in practice

dynamic behavior of capital accumulation in a cash in advance model abstract this paper analyzes the dynamic behavior of capital accumulation in stockman s cash in advance model if the cash in advance constraint applies only to consumption then money is superneutral along the transition path as well as in the long run alternatively if the cash in advance constraint applies to gross investment as well as consumption then a permanent increase in the rate of monetary growth reduces the steady state capital stock the effect on the speed of adjustment depends on the sign of a certain simple function of the parameters of preferences and technology

money and asset prices in a cash in advance economy an asset pricing model with money introduced via a cash in advance constraint is presented the monetary velocity is variable hence money demand does not obey the trivial quantity equation the effects of disturbances in output and money growth on real balances the price level and interest rates are examined monetary policy has effects on real asset prices the fisher relation and the premium on nominal bonds are discussed the precise role of the timing of information and transactions for properties of price levels and interest rates are clarified

the distributive consequences of social banking a microempirical analysis of the indian experience abstractthe governments of many developing economies have actively promoted the expansion of banks in rural areas believing that such investments are necessary to reduce poverty and existing levels of wealth inequality there is little evidence on whether such social banking programs succeed in their objectives this article uses the government of india s credit policies of the 1980s to test the effect of the two main components of the social banking program on households the spread of rural banks and required lending for agriculture government policies were stated in terms of district level outcomes and monitored using a district level database of banking statistics i use this same database merged with household data for this analysis the availability of the data that guided policy enables the use of policy rules as instruments to identify the effects of social banking i find that social banking had a larger effect on nonpoor households relative to poor defined in terms of wealth and land owne

gdp growth and currency valuation the case of the dollar abstract one popular view on the strength of the us dollar around the turn of the century is that the higher growth in the us compared to europe had stimulated foreigners to buy american assets thereby driving up the exchange rate in this paper a modified portfolio balance model is presented in which it is shown that the impact of output growth on the exchange rate depends crucially on the origin of this growth an improvement of the output gap is shown to actually depress the exchange rate whereas an increase in potential output growth leads to an appreciation especially if this improvement is likely to be persistent in an empirical example it is shown that the equilibrium real dollar rate is indeed positively affected by high trend growth in the us whereas it is negatively affected by a positive output gap the model outperforms the random walk in forecasting future real dollar rates one to eight quarters ahead

the conundrum of successful credit projects in floundering rural financial markets many governments use credit projects to foster agricultural development and donors spend billions of dollars supporting these activities in low income countries lics most of these activities are justified by the purported impact that loans have on ultimate borrowers for example credit demands filled additional crops produced changes in modern inputs used and borrowers incomes increased most project evaluations report favorable impacts that in turn stimulate donors and governments to spend more money on agricultural credit these favorable evaluations have prompted policymakers to conclude that rural financial markets are strengthened by most credit projects at the same time other researchers have evaluated rural financial markets in countries with successful credit projects and have found mounting problems they report on markets that lose substantial portions of the purchasing power of their loan portfolios to ravages of default or inflation concentrations of cheap loans in the hands of the wealthy political meddling in lending systems that offer few savings opportunities large transaction costs for lenders and borrowers lenders who are addicted to outside funds for their sustenance and credit institutions that sporadically implode or self destruct these reports of healthy parts but infirm wholes present a conundrum how can the major parts of the rural financial system involved in donor and government projects be doing well while the system as a whole is doing poorly are these projects islands of tranquility in otherwise stormy seas or is one of these two approaches to evaluation giving an erroneous picture unfortunately few credit project evaluations are published in journals or books although a large number of these studies have been done typically evaluation results are buried in unpublished reports or in graduate student theses while millions of dollars have been spent

convergence and migration among provinces have regional disparities in canada changed over the past thirty years this paper assesses the robustness of earlier findings of convergence in the levels and growth rates of provincial per capita gdp and then estimates the extent to which interprovincial and international migration is being influenced by regional differences in incomes and employment excerpt

monetary growth innovations in a simple cash in advance asset pricing model abstract this paper contributes to the existing literature in the rational expectations cash in advance asset pricing general equilibrium model in two directions first we show that by allowing a variable velocity of circulation an increase in the conditional variance of the money growth process triggers an increase in the demand for money relative to stocks and bonds with a consequent reduction in stock and bond prices which is the opposite of the current result in the literature with constant unitary velocity second we explicitly show how the sequential markets and specific timing of information fits exactly into the notion of irreversibility in the sense that when faced with uncertainty agents might find optimal to delay decisions in order to wait for the arrival of new information

does exchange rate appreciation deindustrialize the open economy a critique of u s evidence does exchange rate appreciation deindustrialize the open economy a critique of u s evidence i introduction the sharp appreciation of the dollar in the early 1980s followed by its decline since 1985 has generated considerable interest in the output effects of exchange rate changes many academics practitioners and policymakers believe that the initial rise in the value of the dollar significantly depressed growth in the tradable goods sector of the u s economy particularly in manufacturing output and prevented the tradable goods sector from participating in the initial stages of the general u s economic expansion since 1982 the dollar s subsequent sharp decline in turn they hope will provide an independent stimulus to the nation s manufacturing sector according to this view development within the u s economy was two tiered through 1985 growth was robust in those parts of the economy not directly sensitive to international relative price changes i e nontradables such as services construction transport public utilities etc while growth languished in those parts of the economy producing either exportable or import competing goods i e tradable goods such as manufactures agriculture forestry products etc brinner 1985 marris 1985 cline 1986 branson 1986 and branson and love 1986 1987 1988 provide empirical evidence linking depressed output in manufacturing industries to the strong dollar 1 these results have been interpreted by some as evidence that the appreciation of the dollar has caused or contributed to the deindustrialization of the u s economy e g brinner 1985 2 a major shortcoming of the literature however is that it typically fails to distinguish between exchange rate changes that are truly exogenous and exchange rate changes that are endogenously determined with output changes by policy and other shocks this is especially true in the deindustrialization debate where exchange rate shocks may be largely due to domestic macro economic policies output levels and exchange rates in a general context are both endogenous variables and the association between them depends on the underlying disturbances and policy reactions depending on the underlying disturbance an appreciation of the exchange rate may be associated with an expansion as well as contraction of aggregate output in different sectors for example a disturbance emanating from the foreign exchange market that has the effect of appreciating the dollar e g an exogenous shift in international investors portfolio preferences toward dollar assets may be considered exogenous in some sense and will likely have a depressing effect on output in the tradables sector however a policy induced exchange rate appreciation arising for example from a fiscal expansion in a mundell fleming world with high capital mobility or a monetary contraction has ambiguous effects on aggregate and sectoral output movements 3 while exchange rate effects reduce output in both cases in the case of fiscal stimulus the overall net effect on output is likely to be positive while in the case of monetary contraction negative focusing on the relation between exchange rates and output alone is analogous to attributing output movements along a supply or demand curve to price changes rather than to the underlying factors causing the curves to shift in this paper we take a critical look at the arguments and empirical evidence offered in support of the hypothesis that exchange rate appreciation has been an independent cause of decline in the u s manufacturing sector in section ii we discuss several methodological problems in estimating and interpreting the relation between output and exchange rates in particular we show how the overall association of exchange rate changes with outout depends on the source of the exchange rate change i

the relationship between credit and productivity in chinese agriculture a microeconomic model of disequilibrium credit is an important element in agricultural production systems it allows producers to satisfy the cash needs induced by the production cycle which characterizes agriculture preparation planting cultivation and harvesting of the crops are typically done over a period of several months in which very little cash revenue is earned while expenditures on materials purchased inputs and consumption must be made in cash cash income is received a short time after the harvest in the absence of credit markets farmers would have to maintain cash reserves so as to facilitate production and consumption in the next cycle the availability of credit allows both greater consumption and greater purchased input use and thus increases welfare of the farmers

risk credit constraints and financial efficiency in peruvian agriculture abstract based on a panel data set we use a two stage analysis to evaluate the effects of access to formal credit on financial efficiency of farms in northern peru the first stage uses non parametric data envelope analysis to estimate farm specific measures of financial efficiency 28 per cent of farmers are financially inefficient and credit constraints reduce profits of these farmers by an average of between 17 and 27 per cent the second stage uses tobit regression to evaluate the determinants of financial inefficiency the results point to uninsured risk as a key determinant of financial inefficiency and suggest that policies to strengthen agricultural insurance markets would likely pay large dividends in rural peru

the real impact of improved access to finance evidence from mexico this paper provides new evidence on the impact of access to finance on poverty it highlights an important channel through which access affects poverty the labor market the paper exploits the opening of banco azteca in mexico a unique natural experiment in which over 800 bank branches opened almost simultaneously in preexisting elektra stores importantly the bank has focused on previously underserved low income clients our key finding is a sizeable effect of access to finance on labor market activity and income levels especially among low income individuals and those located in areas with lower preexisting bank penetration

does regulation improve small farmers access to brazilian rural credit abstract brazilian policymakers attempted to counter the inherent tendency for concentration in subsidized rural credit programs by requiring banks to lend a specified volume to small farmers inferences about the regulation s success are drawn from farm level panel data from sao paulo in the early 1980s membership in the target group should have a positive effect in an access rule relating farmers characteristics to their probability of receiving credit when allowing for time invariant individual effects possibly correlated with target group indicators tests indicate that the regulation had no effect subsidiary results cast doubt on the efficacy of a broader set of regulations

the role of saving and investment in exchange rate determination under alternative monetary mechanisms abstract we argue that the demand for national currencies depends on existing payment arrangements for imports and exports therefore exchange rate movements depend on these arrangement as a result the relationship between exchange rate movements and various macroeconomic aggregates like saving and investment depend on what we call the monetary mechanism these points are explicitly demonstrated by studying two extreme monetary mechanisms one in which all payments are done with the seller s currency and one in which all payments are done with the buyer s currency

the economic sustainability of certified coffee recent evidence from mexico and peru consumers increasingly act on preferences for a more just and sustainable world by purchasing certified agricultural products using survey data from coffee growers in mexico and peru we explore the economic sustainability of certified coffee looking at conventional fair trade organic and rainforest alliance certified growers the analysis reveals that yields rather than price premiums are most important for increasing net cash returns for coffee growing households given the link between net returns and producer participation in certified coffee schemes the findings suggest that certification norms that permit improving yields are essential for improving grower welfare and attracting and maintaining growers

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

a century long perspective on agricultural development this article strategically surveys the past century s literature on agricultural development we organize the discussion around three grand themes that reveal the richness of agricultural development as an intellectual endeavor first we explore the role of agriculture in the broader development process from a macroeconomic and political economy perspective we then examine the role of technological and institutional change in successful agricultural development finally the focus turns to a microeconomic perspective on agricultural household decision making and the problems of imperfect and missing markets asymmetric information and transactions costs that lead to widespread apparent inefficiency and disequilibrium

capital movements intersectoral resource shifts and the trade balance abstract in this paper i consider the interactions between the internal structure of the economy and its external balance in an intertemporal set up with perfect foresight a simple pattern emerges current account deficits are associated with depreciating real exchange rates the incorporation of real investments and government spendings change this pattern in a systematic way depending on factor intensities the composition of government spending and its timing

the impact of group based credit programs on poor households in bangladesh does the gender of participants matter this paper estimates the impact of participation by gender in the grameen bank and two other group based micro credit programs in bangladesh on labor supply schooling household expenditure and assets the empirical method uses a quasi experimental survey design to correct for the bias from unobserved individual and village level heterogeneity we find that program credit has a larger effect on the behavior of poor households in bangladesh when women are the program participants for example annual household consumption expenditure increases 18 taka for every 100 additional taka borrowed by women from these credit programs compared with 11 taka for men

agricultural credit programs and production efficiency an analysis of traditional farming in southeastern minas gerais brazil over the past two decades the effectiveness of subsidized credit programs in improving the productivity of traditional farmers in developing countries has been extensively debated this study analyzes the effects of one such program prodemata on the technical and allocative efficiency of traditional farmers in minas gerais brazil the empirical results suggest that prodemata has had no effect on technical efficiency and a slightly negative effect on allocative efficiency

capital market imperfections labor market disequilibrium and migration a theoretical and empirical analysis i introduction in a thoughtful and pioneering work katz and stark 1986 suggest that capital market imperfections may be an important cause of migration in less developed countries their model is important because it provides an alternative to the host of migration models which focus exclusively on labor market conditions 1 consider for the moment an agricultural region of a less developed country that is undergoing rapid technological change to avail themselves of this change in agricultural technology individuals must possess some minimum amount of financial capital to invest if capital markets were perfect any individual could obtain financing provided that the potential project had an internal rate of return greater than the interest rate if on the other hand some minimum asset value is required to enter capital markets individuals whose asset value is below this level may migrate out of the region for reasons which are more fully discussed below 2 thus katz and stark predict strong migration outflows from regions with a high marginal product of capital and a significant absence of or imperfection in capital markets in a general equilibrium framework of course disequilibrium in one market must be reflected by disequilibrium in some other market so the labor market may be in disequilibrium as well but the fundamental cause may be capital market imperfections capital market imperfections may keep wages low by limiting the amount of capital per worker and hence the marginal product of labor which is then mistakenly interpreted in a migration model as corroboration of the todaro hypothesis in a sense perhaps the todaro model is correct low origin wages in comparison to the expected wage in the destination are driving outmigration but in a more fundamental sense capital market imperfections are causing the outmigration katz and stark derive an interesting and important conclusion from their model viz if a main cause of rural to urban migration a labor market phenomenon is capital market imperfections then a policy to constrain migration should aim at enhancing access to and improving the competitiveness of capital markets and shift away from exclusive attempts to reduce rural urban wage differentials p 137 but to get to the policy conclusion one must first deal with the thorny issue of observational equivalence are low origin wages due to labor or capital market conditions this essay is an attempt to empirically disentangle the two using empirical evidence from ecuador i will proceed as follows first i briefly describe imperfections in ecuadorian capital markets which might lead to out migration from rural areas and summarize recent changes in ecuadorian agriculture which may have intensified the impact of capital market imperfections on migration the combination of these factors may provide the conditions necessary for the katz stark hypothesis i e that imperfect capital markets limit individuals ability to take advantage of changed agriculture structure and technology and that outmigration results the next section formally presents the competing hypotheses labor market vs capital market explanations for internal migration and derives estimating equations the final section attempts to distinguish between the two hypotheses and outlines some important policy conclusions ii capital market structure and technological change in ecuadorian agriculture adios smallholders agricultural credit policy in ecuador was heavily influenced by the easy money of the 1970s and early 1980s as an oil exporter ecuador benefited enormously from the two oil shocks the central bank was flush with new found foreign exchange from oil revenues and external borrowing and much of this windfall was recycled into the domestic economy in the form of sectoral credit at negative real interest rates 3 the agricultural sector was a prime beneficiary of this largesse

trade in nominal assets monetary policy and price level and exchange rate risk in a previous paper trade in risky assets i have analyzed the pattern of international trade in risky real assets between barter economies relying on the law of comparative advantage and using autarky asset price differences to predict the pattern of asset trade in this paper the analysis is extended to international trade in nominal assets assets with returns paid in currencies between monetary economies the risk chracteristics of real returns on nominal assets depend on price level and exchange rate risk and therefore on monetary policy it is examined how different combinations of monetary policies and exchange rate regimes affect nominal assets return risk characteristics their autarky perices and hence their trade pattern when countries differ with respect to their outputs or their attitudes towards risk when world asset markets are incomplete different monetary policies and exchange rate regimes have dramatic effects on risk characteristics of home and foreign currency bonds and on the trade pattern in these assets as well as on aggregate capital and current accounts

innovation in rural finance indonesia s badan kredit kecamatan program abstract donor agencies and governments are committing increasing resources to microenterprise credit programs much as they earlier funded rural credit yet few programs embody the lessons from this earlier experience central java s badan kredit kecamatan program shows considerable promise in providing the access convenience and flexibility desired by poor borrowers while assuring the financial viability of the credit institution by minimizing administrative costs and imposing interest rates sufficient to cover costs and prevent capital erosion recent progress has also been made in mobilizing voluntary savings strong political support from the government has been crucial to the program s success

policy comparisons with an agglomeration effects augmented dual economy model abstract in this paper we incorporate urban agglomeration economies as a labor pull factor in an analysis of dual labor markets in ldcs in particular the equilibrium city size approach to urban growth and the expected income approach to rural to urban migration are synthesized making it possible to generalize results that hitherto were approach specific with the aid of a simulation based on a well specified model we exploit this synthesis to rank subsidy policies our results highlight the constructive role played by urbanization in economic development and structural change

savings investment and international capital flows abstract the high correlation between national savings and domestic investment rateshas been interpreted as evidence that capital is not internationally mobile this paper surveys the theory and evidence on the relationship between savings and investment in a sample of 23 oecd countries a positive correlation between savings and investment rates is found in both the short and long runs however a wide variety of models generate such co movements in savings and investment in response to exogenous disturbances even under conditions of complete financial markets thus the savings investment correlation provides little evidence on the question of international capital mobility

on the european monetary system the spillover effects of german shocks and disinflation we analyse the disinflationary experience between 1979 93 for two traditionally inflationary countries of the european monetary system france and italy for each country a vector autoregressive model is estimated shocks in the model combine domestic and foreign sources the latter capture the world oil price shocks as well as nominal and real shocks originating in germany under investigation is the hypothesis that shocks originating in germany have a spillover disinflationary effect in france and italy the empirical evidence provides support to the validity of this hypothesis furthermore german shocks account for an important share of the total price variance in france and italy these results indicate that the interaction between countries of the european monetary system has contributed to the success of the disinflationary experiences of the 1980s the evidence sheds therefore some light on potential benefits that may be further realized as countries of the european monetary system move towards

life on the frontier migrant information earnings and past mobility this paper examines the extent to which information obtained from past geographic mobility affects both post move job search and earnings in subsequent migration in the united states the study considers this linkage between past and present mobility by estimating earnings frontiers for various categories of interstate migrants partitioned by prior mobility history the results demonstrate that migrant groups exhibiting high relative levels of human capital stock do not necessarily possess superior pre move labor market information it is also demonstrated that the incentive to acquire this pre move information is tied to psychic cost and variation in this cost among migrant types excerpt

trade interdependence and the international business cycle a stochastic general equilibrium model of the world economy is developed to analyze the contribution of trade interdependence to international business cycles we test some of the implications of the model using data from ten major industrial countries and a variety of detrending techniques to calculate the cyclical component of output we find that the significance of trade in the transmission of economic disturbances across countries is not robust to the choice of the detrending method in general the role of trade interdependence is moderate and seem to have been stronger in the period before 1973

dynamics of a floating exchange rate regime we study the full equilibrium dynamics of a two country world economy with a floating exchange rate traded and nontraded goods and explicit modeling of the use of money the resulting exchange rate equation depends on several details of the economic structure such as the supply structure and propensities to spend on various goods although real exchange rate movements have the usual association with the current account the ordinary exchange rate may appreciate or depreciate when there are deficits on current account even when the quantities of money do not change deviations from purchasing power parity and the fisher equation are shown to be the rule rather than the exception

do rural banks matter evidence from the indian social banking experiment lack of access to finance is often cited as a key reason why poor people remain poor this paper uses data on the indian rural branch expansion program to provide empirial evidence on this issue between 1977 and 1990 the indian central bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches we show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in indian states with lower initial financial development the reverse is true outside this period we exploit this fact to identify the impact of opening a rural bank on poverty and output our estimates suggest that the indian rural branch expansion program significantly lowered rural poverty and increased non agricultural output

currency preferences purchasing power risks and the determination of exchange rates in an optimizing model most recent research on the theory of exchange rate determination treats the exchange rate as the relative price of two assets domestic money and foreign money the value of an asset depends on the distribution of its return however most of the research has dealt with models in which there is no uncertainty the present paper focuses on questions that cannot be addressed in a world of certainty because in such a world an asset is never risky it investigates how purchasing power risks affect the determination of exchange rates this investigation is pursued in a fairly general optimizing model the present research is related to some recent work in international economics and in financial economics it follows the approach of obstfeld 1981 and stockman 1980 in that it uses an optimizing model and takes into account the role of government transfers in the flow budget constraint of individuals as in calvo and rodriguez 1977 stockman 1980 and others the fact that holdings of foreign monies are useful to domestic individuals is taken into account finally the paper uses techniques developed in papers in the finance literature which build on merton s 1973 asset pricing model and use a concept of equilibrium developed in

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

land ownership security and farm productivity evidence from thailand the article discusses the impact of land ownership security on farmers input use and output value economic theory suggests that farmers with secure legal ownership will have more incentives and better ability to invest due to a lower perceived risk and a favourable access to institutional credit this leads to higher variable inputs use and higher output per unit of land the article uses farm level data from three provinces in thailand to test the above propositions the data pertain to samples of squatters who lack secure legal ownership as contrasted with legally titled farmers the results confirm that the provision of secure ownership in ldcs can increase productivity significantly

rural market imperfections and the farm size productivity relationship evidence from pakistan the subject of this article is the relationships between farm size and productivity and between farm size and profitability in the developing countries the recent controversies over the inverse size output relationship are reviewed and a framework is provided that explains the inverse relationship based on plausible assumptions about imperfections in the markets for labor land credit and risk from this framework a set of testable hypotheses are derived the hypotheses are tested on recent farm level panel data from pakistan a strong inverse relationship between farm size and yield is present in the sample even when household fixed effects are used to account for unobserved heterogeneity moreover the suggested market imperfections framework is consistent with the data

financial market efficiency in an agrarian economy microeconometric analysis of the pakistani punjab the shadow price of capital in production is a useful indicator of the efficacy of the rural financial system using data on participants and non participants in a small farm credit programme from the pakistani punjab this article estimates the shadow price of capital endogenous switching regressions techniques are employed to control for the likely heterogeneity of borrowers versus non borrowers results indicate that an individual selected at random from the population of small farmers would experience a 200 per cent rate of return on the first rupee borrowed from the small farm credit programme indicating a high shadow price of capital and a prima facie case for small farm credit programmes