the hyperinflation model of money demand revisited in this paper we propose a test of the hyperinflation model of money demand which is valid under any assumption concerning agents expectations subject only to the restriction that forecasting errors are stationary it is also demonstrated that highly efficient parameter estimates can be obtained and restrictions on them tested under the same weak assumption finally it is shown how these first stage estimates can be utilized to test the stronger assumption of rational expectations the arguments are illustrated by analysis of the classic data on european hyperinflations previously analyzed by cagan 1956 barro 1970 and abel dornbusch huizinga and marcus 1979 copyright 1991 by ohio state university press

demand for money in open economies abstract the demand for real cash balances deduced from an underlying portfolio model of the financial market is shown to depend upon domestic variables and foreign monetary developments the model is estimated using quarterly postwar data for canada germany uk and us there is clear evidence that demand for money is affected not only by changes in domestic variables such as permanent income domestic interest rate and price expectations but also by fluctuations in exchange rate expectations and foreign interest rates the conclusion that domestic monetary policy is fairly ineffective and domestic financial markets are highly vulnerable to changes in foreign financial and monetary developments need to be modified in light of the results presented in this paper

the economics of investor protection isds versus national treatment abstract investor state dispute settlements isds are supposed to protect foreign investors against domestic policies causing unjustified harm this paper scrutinizes the effects of isds and national treatment provisions in a two period model where foreign investment is subject to a hold up problem it shows that isds may increase welfare but comes with additional regulatory distortions in the first period a national treatment provision avoids these regulatory distortions but implies entry distortions because it makes the hold up problem also apply to domestic firms if the domestic regulatory framework applies to many domestic firms a national treatment provision welfare dominates isds

expropriation and direct investment abstract the paper considers a model in which private foreign investors make direct long lived capital investments in a small developing country that is subject to stochastic shocks to production depending upon the preferences of the host country we find that expropriation can occur because of either desperation or opportunism we show that under reasonable assumptions increased investment makes expropriation less likely to occur and that the level of investment chosen by atomistic foreign investors may be non optimal

modelling inflation in georgia the article explains the behaviour of inflation in georgia in the post stabilization period long run equation linking prices with money and exchange rate as well as short run dynamic equation for inflation are estimated the inflation equation is stable points to a dominant role of exchange rate in the inflation behaviour the equation explains well the behaviour of inflation after the russian crises when inflation increased sharply but was quickly brought under control when the national bank of georgia kept its monetary policy tight and exchange rate stable

foreign direct investment intra firm trade and ownership structure abstract asymmetric information about true opportunity cost in trade between a multinational and its foreign affiliate can alleviate the hold up problem in foreign direct investment selling shares in the affiliate to locals is also beneficial because it increases the parent multinational s information rent that is protected from a host government s confiscatory taxation

money inflation and output in romania 1992 2000 abstract money inflation and output are tested for stationarity and found to be integrated of order one we apply the johansen procedure for cointegration to test for the rank of the matrix of cointegration relations one to test for the weak exogeneity of output accepted inflation rejected and money rejected we interpret the unique cointegrating relationship as an extended cagan money demand function we then estimate error correction mechanisms which explain the short run movements of real money and inflation the evidence suggests that in the period considered including the sub sample between the liberalization shocks inflation was largely a monetary phenomenon

politics and the implementation of public policy the case of the us military housing allowance program are bureaucracies in fact controlled by the president congress or legislation we analyze a 1998 policy change in the department of defense s dod 6 5 billion annual military housing allowance program results show that both the president and congress were able to influence the bureaucracy even in the presence of an exceedingly specific law that outlined the manner in which the dod was to allocate the funds after policy implementation allowances were disproportionately higher in locations that a supported the president in the 1996 election and b were represented by members of the house or senate armed services committees

tax competition when governments lack commitment excess capacity as a countervailing threat consider a multinational firm that can produce for the world market from two countries in each country the firm has to make a costly ex ante investment in capacity after which each government chooses a tax rate and then the firm determines output levels if there were only one country there would be the standard timeinconsistency problem the government would set a confiscatory tax ex post the firm would realize this ex ante and no investment would be made the interesting point of this paper is that the situation is very different when there are two countries the firm invests in both countries so as to gain leverage ex post if the firm holds more capacity than is needed to meet world demand then this induces tax competition for capacity utilization among governments ex post because the firm can threaten to serve the market at least partially from a plant in a different country competition leads to low enough tax rates to justify the initial investment in excess capacity when capacity costs are sufficiently low when capacity costs are too high the firm will not invest at all as the standard timeinconsistency problem suggests thus the paper generates and combines tax competition and lack of government commitment within a single framework the above logic provides also a novel argument for becoming a multinational firm there is some evidence in support of the strategic use of excess capacity for example general motors gm announced it will build almost identical plants in several risky countries which allows gm to shift production easily at the same time the newly established capacity will probably exceed gm s sales another application is the problem of how multinationals export oil from the caspian sea the caspian sea is surrounded by politically unstable countries multinationals started to build and lobby for multiple pipelines through several countries in order to keep transit fees low these and other applications are discussed in more detail in section v the paper sheds new light on the relationship between multinational firms and host governments on the one hand a multinational firm can be viewed as the powerful agent in the relationship because the firm decides in which country to invest eager governments often offer substantial tax benefits in order to attract investment this view is underlying the literature on tax competition see for example john d wilson 1986 dan a black and william h hoyt 1989 ian king et al 1993 on the other hand and in a separate literature multinational firms are portrayed as the potential victims of host governments who may renege on tax promises after the firm has made a sunk investment and has become partially immobile see for example eric w bond and larry samuelson 1989 chris doyle and sweder van wijnbergen 1994 jonathan thomas and tim worrall 1994 hence the host government is the powerful agent and this may lead to underinvestment if anticipated by the firm 2 while both views capture elements of truth it is unsatisfactory that our understanding of the relationship seems to department of economics university of colorado boulder co 80309 e mail janeba colorado edu this research was undertaken while i was at indiana university in bloomington i am grateful to mike baye susanne janeba dave schmidt greg shaffer jay wilson and two anonymous referees as well as participants at the stanford institute for theoretical economics 1998 and workshop participants at the universities of bonn colorado indiana michigan munich pennsylvania state and toronto for very helpful comments the usual disclaimer applies l in a different context patrick j kehoe 1989 considers also tax competition after a private sector decision is made in his model however atomistic individuals decide on savings and cannot influence the degree of tax competition 2 it should be noted that in the second literature strand tax holidays are sometimes derived endogenously in an infinite horizon game tax holidays help overcome lack of commitment see for instance doyle and van wijnbergen 1994

large investors regulatory taking and investor state dispute settlement abstract this paper offers an economic analysis of an international investor state dispute settlement regime isds in markets with large investors it identifies a reason for strategic overinvestment by the domestic industry leading to permissive regulation in the absence of isds an ideal investor state dispute settlement arrangement efficiency oriented transaction cost free with untouchable fully reliable and unbiased judges has positive and negative effects in this framework it generates an equal level playing field for domestic and foreign investors but it magnifies an existing overinvestment problem and may reduce world welfare the results explain anecdotal evidence according to which isds that protects foreign investors is liked by the domestic industry and disliked by other interest groups in the host country

the toxic intensity of industrial production global patterns trends and trade policy this paper exploits a newly developed data set to investigate recent changes in the international distribution of industrial pollution in particular the authors examine three issues 1 the relationship between the toxic intensity of industrial production and the level of economic development 2 the impact of oecd environmental regulation on global changes in toxic intensity and 3 the relationship between trade policy and the toxic intensity of industrial production in ldc s 10 refs

money demand the cagan model and the inflation tax some latin american evidence this paper examines the demand for money under conditions of very high inflation in argentina bolivia brazil chi le and peru during the 1970s and 1980s the authors test whether the monetary and inflationary experiences of these countries can be adequately characterized by the cagan 1956 model using an econometric procedure that is not reliant on any particular assumpti on concerning expectations formation except that forecasting errors are stationary the authors also examine the importance of foreign asset substitution in domestic portfolios and the hypothesis that monetary policy was tantamount to maximization of the inflation tax revenue before testing the rational expectations hypothesis copyright 1993 by mit press

on market integration and the development of institutions the case of international commercial arbitration abstract this paper suggests that the institutional basis necessary to support efficient international trade is provided not only by treaties among national governments but also by international coalitions of private agents international commercial arbitration is an important example of these private coalitions the paper reviews the provisions and the practice of international arbitration and presents a general equilibrium model of the relationship between the expansion of international trade and the adoption of arbitration the model shows that arbitration alters the size and composition of markets while at the same time responding to exogenous changes in trade

the taking of land when should compensation be paid the analysis focuses on the question of whether the payment of compensation for land taken by eminent domain is efficient when the taking decision is independent of land use zero compensation is efficient but full compensation is not when the project decision is no longer independent of land use and can be affected by investor decisions neither compensation rule is generally efficient because of the moral hazard problem with risk averse consumers and risk neutral firms the previous conclusions remain essentially unchanged however when the project decision rule involves a budgetary fiscal illusion additional compensation may be necessary to correct the incentives facing the project decision maker

an institutional assessment of three local government level tourism destinations at different stages of the transformation process transformation theory attempts to understand the long run process of structural shifts that occur in an industry and economy as a result of institutional change while transformation theory is being advanced and tools have emerged to measure institutions these innovations are yet to be applied to consider institutional change across the development spectrum this is critical for developing institutional theory to underpin the tourism transformation process consequently this paper aims to 1 assess the institutions of the tourism industry in three regions at different stages of transformation and 2 compare tourism to other industries within the regions the results indicate that as the tourism industry matures it becomes smarter more adaptable and takes its own trajectory by departing from the institutional norms of non tourism organizations in the region the tourism management implications are that learning research capabilities adaptability and collaborative marketing plans should be fostered in the early stages of transformation

stability of the money demand function in asian developing countries previous studies that estimated the money demand function in asian developing countries either employed traditional estimation techniques or recently popularized cointegration technique while the first group suffers from spurious regression problems the second group interpreted their finding of cointegration as a sign of stability of estimated parameters this study after incorporating the cusum and cusumsq tests into cointegration analysis shows that in some asian countries even though real m1 or m2 monetary aggregates are cointegrated with their determinants the estimated parameters are unstable

international agreements economic sovereignty and exit abstract we develop a model in which realisations of an ex ante uncertain domestic policy environment can make it attractive to a sovereign nation to renege on an international agreement we show in a fairly general setting in which the likelihood of exit is affected by the degree of cooperation that the possibility of exit reduces the optimal degree of initial cooperation full cooperation will never be optimal and the optimal degree of cooperation will never be such as to squeeze out any possibility of exit however an increase in global uncertainty may imply an increase in cooperation when exit risks are already large to begin with

redistributive politics and economic efficiency the political process often compensates the losers from technical change or international competition in an economically inefficient way namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses we find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome to achieve economically efficient outcomes it is necessary that those making economically inefficient choices not be given offsetting transfers but the political process distributes income on the basis of political characteristics which are in general different from the economic characteristics that are rewarded by the market we identify circumstances in which the inefficient choosers have desirable political characteristics and are therefore immune from threats of having to face the economic consequences of their choices

who determines mexican trade policy using a political economy approach the authors analyze the pattern of protection in mexico s manufacturing sector during the period of trade policy reforms 1985 89 when mexico experienced significant trade liberalization and an important inflow of foreign direct investment they take into account the potential effect of foreign direct investment on endogenous tariff formation it turns out that the data support this analytic approach in which the formulation of trade policy reflects political support and in which the presence of foreign direct investment in the sector strongly affects the pattern of tariff protection before and after reform in mexican manufacturing especially sectors with heavy foreign direct investment received greater protection in import competing sectors although the move toward greater openness was associated with a reduction in the influence of industrial and foreign investor lobbying

policymakers horizon and trade reforms the protectionist effect of elections this paper shows that electoral incentives deter politicians from supporting trade liberalization we focus on all major trade liberalization bills introduced since the early 1970s in the u s congress in which house and senate members serve respectively two and six year terms and one third of senators face elections every two years we show that senators are more likely to support trade liberalization than house representatives however this result does not hold for the last generation of senators who face elections at the same time as house members suggesting that inter cameral differences are driven by term length considering senators alone we find that the last generation is less likely to support trade liberalization than the previous two this result is pervasive and holds both when comparing the behavior of different senators voting on the same bill and that of individual senators voting on different bills the protectionist effect of election proximity disappears for senators who are retiring or hold safe seats

taxes and subsidies for pollution intensive industries as trade policy abstract this paper constructs a model of international oligopoly with negative externalities in production in which optimal environmental policy responses to foreign emission tax and subsidy programs can be calculated it is shown that by granting subsidies for abatement efforts or for a heavily taxed polluting input domestic net welfare is improved by capturing a greater share of the world market since the subsidy programs are supposed to improve the quality of the global environment they can be justified on environmental grounds in addition we show that a pigouvion emission tax restores efficiency in natural resource allocation whereas subsidy programs are in principle used as instruments in imperfectly competitive international markets

lobbying incentives and the pattern of protection in rich and poor countries in seeking to explain why poor countries tend to choose policies that tax agriculture relative to manufacturing while rich countries do the opposite archetypical parameters for a poor agrarian economy and a rich industrial one are inserted in a computable general equilibrium model to simulate the medium term effects on income distribution of policies that distort the relative prices of tradables the model includes a non tradables sector and intermediate inputs realistic features that ensure even greater skewness in the distributional effects of protection than simpler models suggest the magnitude of the results helps explain the tendency for countries to change gradually from taxing to subsidizing agriculture relative to manufacturing as their economies develop the paper draws out the implications of the analysis for agricultural and trade policy reform in the 1990s this abstract was borrowed from another version of this item

the transactions demand for money in the presence of currency substitution evidence from vietnam currency substitution the use of foreign money to finance transactions between domestic residents is widespread in low income and transition economies traditionally however empirical models of the demand for money tend to concentrate on the portfolio motive for holding foreign currency while maintaining the assumption that the income elasticity of demand for domestic money is invariant to the degree of currency substitution a simple re specification of the demand for money is offered which more accurately reflects the process of currency substitution by allowing for a variable income elasticity of demand for domestic money this specification is estimated for vietnam in the 1990s using a standard cointegration framework evidence is found for currency substitution only in the long run but well defined wealth effects operating in the short run

voting for protection does direct foreign investment influence legislator behavior the political economy of trade protection has long been of interest to economists and policy makers the idea that levels of protection may be endogenous with trade flows has been a particularly important issue in the literature in general the endogenous protection literature postulates that import penetration will cause domestic interests to lobby more intensely for protection thus higher levels of import penetration lead to increased protection as a result a number of papers see for example arye l hillman 1982 wolfgang mayer 1984 robert e baldwin 1985 stephen p magee et al 1989 ronald d fischer 1992 have established that foreign firms will import less under a regime of endogenous protection than one where the level of protection is exogenous to trade flows on the empirical side daniel trefler 1993 finds that ignoring the endogeneity of trade and protection understates the impact of u s protection on imports by a magnitude of ten this abstract was borrowed from another version of this item

spillovers and international competition for investments abstract two jurisdictions compete to attract shares of the investment budget of a large multinational enterprise whose investments confer positive spillovers on national firms the firm has private information about its efficiency and about spillovers it is shown that the firm may be harmed by tax competition relative to a cooperative tax agreement tax competition may induce excessive investments in the country where the positive spillover effects are lowest also with sufficiently asymmetric spillovers investments under competition will be excessively spread out not properly concentrated to the country where spillovers would be largest

the effects of foreign direct investment on local communities abstract little evidence exists on the effects of foreign direct investment fdi on local communities in the united states despite evidence that u s communities actively bid against each other for fdi we use detailed county level panel data from south carolina across 5 year intervals from 1980 through 1995 to investigate the effect of foreign manufacturing plants on local labor markets and on the level and distribution of local government budgets we find that foreign investment raises local real wages much more than does domestic investment but lowers per capita county government expenditures and redistributes monies away from public school expenditures

endogenous protection foreign direct investment and protection building trade abstract we introduce the possibility of foreign direct investment fdi in a strategic oligopolistic setting with endogenous protection and find that a number of unique subgame perfect equilibria may arise including a new result we call protection building trade this phenomenon occurs in our model when foreign firms locating production in the home country try to increase protectionist pressures in the home country through increased exports to provide larger barriers against other foreign competitors in future periods we discuss how the foreign firm behavior surrounding significant u s protectionist actions including the vers on japanese automobiles may be consistent with protection building trade behavior

a stable demand for money despite financial crisis the case of venezuela the demand for broad money in venezuela is investigated over a period of financial crisis and substantial exchange rate fluctuations the analysis shows that there exist a long run relationship between real money real income inflation the exchange rate and an interest rate differential that remains stable over major policy changes and large shocks the long run properties emphasize that both inflation and exchange rate depreciations have negative effects on real money demand whereas a higher interest rate differential has positive effects the long run relationship is finally embedded in a dynamic equilibrium correction model with constant parameters these results have implications for a policy maker in particular they emphasize that with a high degree of currency substitution in venezuela monetary aggregates will be very sensitive to changes in the economic environment

limits to community participation in the tourism development process in developing countries abstract this study deals with a normative concept of participatory development approach which originates in the developed world in particular it analyses and explains the limitations to the participatory tourism development approach in the context of developing countries it was found that there are operational structural and cultural limits to community participation in the tdp in many developing countries although they do not equally exist in every tourist destination moreover while these limits tend to exhibit higher intensity and greater persistence in the developing world than in the developed world they appear to be a reflection of prevailing socio political economic and cultural structure in many developing countries on the other hand it was also found that although these limitations may vary over time according to types scale and levels of tourism development the market served and cultural attributes of local communities forms and scale of tourism developed are beyond the control of local communities it concludes that formulating and implementing the participatory tourism development approach requires a total change in socio political legal administrative and economic structure of many developing countries for which hard political choices and logical decisions based on cumbersome social economic and environmental trade offs are sine qua non alongside deliberate help collaboration and co operation of major international donor agencies ngos international tour operators and multinational companies

money demand during hyperinflation and stabilization bulgaria 1991 2000 the demand for money in bulgaria is estimated over a ten year period 1991 2000 of high inflation and inflation uncertainty the paper distinguishes between three well defined sub periods high variable but not systematically accelerating inflation from 1991 until april 1996 the near hyperinflation period from may 1996 to february 1997 and the subsequent stabilization after the adoption of a currency board the empirical analysis utilizes a standard methodology of cointegration and error correction the functional determinants of the demand for money change during the different sub periods during the hyperinflation episode cagan s model is employed

the political economy of pollution taxes in a small open economy abstract this paper develops a positive theory explaining pollution tax policy outcomes in a small open economy the equilibrium tax rate depends on lobby group membership the relative importance of lobbying activities and the tax elasticity of pollution the equilibrium properties are investigated the model is extended to incorporate pollution abatement and a pollution abatement subsidy we show that total pollution may be increasing in the pollution abatement subsidy rate this effect arises because the equilibrium pollution tax rate may be decreasing in the subsidy rate due to altered political influence of the lobby groups in the political equilibrium

another visit to the cagan model of money demand the latest russian experience abstract this paper investigates empirically the cagan style money demand function for russia during the recent hyperinflation era 1992 1994 using the johansen multivariate cointegration test results indicate that rate of change of exchange rate currency depreciation is required in the demand function for real m2 and real currency in order to obtain a stationary long run relationship error correction model results show that there exists a bidirectional causality between real money balances and determinants of real money demand including currency depreciation exchange rate sensitivity of the demand for money indicates currency substitution

political shirking opponent quality and electoral support several recent papers in the public choice literaturesuggest that legislators shirk or vote in a mannercontrary to constituent interest this paper exploresthe relationship between senatorial shirking andelectoral consequences i model political shirking opponent quality and election outcomes assimultaneous and find significant evidence of arelationship between shirking over the senatorial termand electoral outcomes however i find that voterspunish recent shirking much more than they punishearly term shirking and that senators apparently actconsistently with this relationship

politics and sustainable tourism development can they co exist voices from north cyprus abstract this paper investigates ways in which political obstacles inhibit the formulation and implementation of sustainable tourism development in small island developing states through the example of north cyprus the methodology draws on in depth interviews and participant observation of significant actors in the tourism sector the research findings suggest that understanding the intricate political system and power structure in a society is the key to understanding sustainable tourism policy development planning and implementation in the case of north cyprus policy development was found to be a product of political influence referred to as ego driven politics in the text specifically the use of public resources as an instrument for political power retention and that the politicisation of the public sector is the underlying cause of the weakened progress in sustainable tourism development it is therefore essential to have a clear understanding of political issues key political actors interests and how to mitigate personal interests to facilitate and maintain sustainable tourism development in such small states

anti lobbying gains from international agreements abstract i argue that an important potential benefit of international agreements is to reduce wasteful rent seeking activities by domestic and foreign special interest groups through a reduction in policy discretion the presence of foreign lobbying generates a novel type of international externality by inviting wasteful rent seeking by foreign lobbies the presence of policy discretion itself generates a negative international externality i examine the potential anti lobbying effects of three salient types of international rules exact policy commitments policy bounds and non discrimination rules unlike exact policy commitments which remove policy discretion and hence shut down ex post lobbying policy bounds may invite ex post lobbying and hence may forego part or all of the potential anti lobbying gains i also find that policy bounds may lead to mixed strategy equilibria of the rent seeking game a non discrimination rule can reduce rent seeking by foreign lobbies by injecting a free rider problem in the strategic interaction between these lobbies and under some conditions can achieve all the potential anti foreign lobbying gains

when the weak win the role of investment in environmental lobbying abstract old and environmentally damaging industries often lobby effectively for less stringent regulations and are slow to adopt new and cleaner technologies this paper explains the lobbying success of these industries in terms of the strategic role of investment as a credible commitment device it is demonstrated that if governments are predisposed to special interest groups underinvestment in new technology enables firms to lobby more effectively such industries are shown to be better placed to extract policy concessions despite contributing less to the government in political donations the analysis therefore suggests that political considerations may provide a significant incentive for firms to reject environmentally beneficial investments even when these lower production costs

institutional impact of foreign direct investment in china summary we provide firm level empirical evidence that the presence of foreign direct investment fdi has positively affected the institutional quality of the host regions in china specifically chinese domestic firms located in regions with a higher level of fdi tend to enjoy a lower level of tax and fee burdens less arbitrariness in such burdens as well as better legal protection to address the potential issue of endogeneity we adopt the instrumental variable approach in addition we explore the specific mechanisms through which the institutional impact is materialized and provide various extensions of the empirical findings that offer further support for the fdi induced institutional improvement argument

cleaning up while cleaning up pollution abatement interest groups and contingent trade policies this paper analyzes the political economy of environmental policy formation in a trading economy with established rules for administered protection we argue that the social costs associated with the adoption of an inefficient environmental regime are likely to be compounded by induced restrictions on trade when the effected industries are import competing the preferences of interest groups for alternative environmental regimes tend to be linked to the legal institutional setting in which trade policy is conducted under existing rules and practices in the area of administered protection there is reason to believe that interest group preferences for an inefficient approach to pollution control will be strengthened because the adoption of such a regime is more likely to lead to a concomitant increase in trade barriers