occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

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

adaptation to climate change a review through a development economics lens abstract this paper looks at adaptation to climate change from the point of view of poor households since the development literature has firmly established the role of weather risk as a source of income volatility for the poor and climate change is expected to increase this risk we review the range of risk coping mechanisms available to poorer households with a focus on possible barriers to adaptation we ask both how government interventions affect the set of options available for adaptation and risk coping and also what these adaptive responses imply for the prospects of sustainable development support for adaptation can involve efforts to make existing locations livelihoods and forms of production more resilient to climate risk in situ adaptation or reductions in vulnerability through the geographical and sectoral mobility of the poor transformational adaptation our review shows how successful adaptation will need to strike a balance between the two forms of adaptation avoiding locking in unsustainable practices in locations that are already marginal from an economic perspective and taking account of broader socio economic trends already taking place in many developing countries such as population growth and urbanisation we also highlight important considerations for policy makers which to date have been relatively neglected in the literature in particular related to the dynamic interaction between adaptation and sustainable development

banking development socioeconomic structure and income inequality abstract using rich unique data from the italian local credit markets provinces this paper investigates the impact of local banking development on income inequality and the role of the socioeconomic structure in this link exploiting the italian historical banking regulation to instrument for the local presence of bank branches we find that local banking development mitigates income inequality however the finance inequality nexus manifests itself only in relatively advanced areas when we study the structural channels of influence we uncover evidence that banking development can reduce inequality by affecting geographical mobility and urbanization while it has modest effects through the development of material infrastructures and human capital

an empirical investigation of rationing constraints in rural credit markets in india abstract the literature on rural credit markets has generally assumed that households are rationed in their access to subsidized formal credit the validity of this assumption depends on the level of effective demand for formal credit in turn a function of the demand for credit and its availability from informal sources this paper estimates the demand and the sector specific costs of credit and hence the extent of formal sector rationing through an analysis of household participation in both the formal and the informal credit sectors the results show that the extent of rationing is considerably less than what is conventionally assumed

an empirical investigation of the effects of rounding on the spf probabilities of decline and output growth histograms i consider the possibility that respondents to the survey of professional forecasters round their probability forecasts of the event that real output will decline in the future as well as their reported output growth probability distributions i make various plausible assumptions about respondents rounding practices and show how these impinge upon the apparent mismatch between probability forecasts of a decline in output and the probabilities of this event implied by the annual output growth histograms i find that rounding accounts for about a quarter of the inconsistent pairs of forecasts

the finance growth nexus evidence from bank branch deregulation this paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the united states we find that the rates of real per capita growth in income and output increase significantly following intrastate branch reform we also argue that the observed changes in growth are the result of changes in the banking system improvements in the quality of bank lending not increased volume of bank lending appear to be responsible for faster growth

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

evaluating interval forecasts a complete theory for evaluating interval forecasts has not been worked out to date most of the literature implicitly assumes homoskedastic errors even when this is clearly violated and proceed by merely testing for correct unconditional coverage consequently i set out to build a consistent framework for conditional interval forecast evaluation which is crucial when higher order moment dynamics are present the new methodology is demonstrated in an application to the exchange rate forecasting procedures advocated in risk management

financial inclusion and poverty a tale of forty five thousand households abstractusing a new nationally representative survey data covering approximately 45 000 indian households we examine the effects of financial inclusion on poverty we construct a multidimensional

protecting forests biodiversity and the climate predicting policy impact to improve policy choice p olicies must balance forest conservation s local costs with its benefits local to global in terms of biodiversity the mitigation of climate change and other eco services such as water quality the trade offs with development vary across forest locations we argue that considering location in three ways helps to predict policy impact and improve policy choice i policy impacts vary by location because baseline deforestation varies with characteristics market distances slopes soils etc of loca tions in a landscape ii different mixes of political economic pressures drive the location of different policies and iii policies can trigger second order or spillover effects likely to differ by location we provide empirical evidence that suggests the importance of all three considerations by reviewing high quality evaluations of the impact of conservation and development on forest impacts of well enforced conservation rise with private clearing pressure supporting i protection types e g federal state dif fer in locations and thus in impacts supporting ii differences in development process explain differ ent signs for spillovers supporting iii

explanations of the inconsistencies in survey respondents forecasts a comparison of the point forecasts and the probability distributions of inflation and output growth made by individual respondents to the us survey of professional forecasters indicates that the two sets of forecasts are sometimes inconsistent we evaluate a number of possible explanations and find that not all forecasters update their histogram forecasts as new information arrives this is supported by the finding that the point forecasts are more accurate than the histograms in terms of first moment prediction c 2009 elsevier b v all rights reserved

bank mergers and crime the real and social effects of credit market competition using a unique sample of commercial loans and mergers between large banks we provide micro level within county evidence linking credit conditions to economic development and find a spillover effect on crime neighborhoods that experience more bank mergers are subject to higher interest rates diminished local construction lower prices an influx of poorer households and higher property crime in subsequent years the elasticity of property crime with respect to merger induced banking concentration is 0 18 we show that these results are not likely due to reverse causation and confirm the central findings using state branching deregulation to instrument for bank competition we examine the real and social impact of local credit competition by documenting a link between the competitiveness of the local banking market credit conditions urban development and crime several recent studies peek and rosengren 2000 cetorelli and gambera 2001 klein peek and rosengren 2002 and burgess and pande 2003 tie credit market imperfections to diminished real economic activity and growth other studies connect the economic environment to property crime freeman 1999 levitt 2001 raphael and winter ebmer 2001 and nilsson 2004 it is reasonable to hypothesize therefore that reductions in bank competition may lead to economic decline and subsequently increases in property crime we empirically investigate the effects of bank consolidation and increased market power on credit availability and real activity using a unique sample of commercial loans and mergers between large banks in the 1990s we provide micro level evidence that garmaise is from the ucla anderson school and moskowitz is from the graduate school of business university of chicago and nber we have benefited from the suggestions and comments of tony bernardo marianne bertrand phillip bond doug diamond mark duggan eugene fama

ecological public functions and fiscal equalisation at the local level in germany abstract the concept of sustainability requires the acknowledgement and appropriate financing of ecological economic and social public functions at all levels of government whereas the significance of socio economic functions has a comparably long tradition in federal systems the respective consideration of ecological functions is still waiting to be fully realised the aim of this article is to analyse the roles fiscal federalism and fiscal instruments can play in addressing ecological public functions assigned to decentralised jurisdictions in federal systems for this purpose an investigation of intergovernmental fiscal relations and their significance for the local level is carried out by way of example for the federal republic of germany based on a status quo analysis of the various german fiscal equalisation laws at the local level the article presents options for systematically integrating neglected ecological functions and indicators into the existing legal framework the empirical analysis shows that end of the pipe and infrastructure related ecological functions are already strongly integrated by way of conditional grants however precautionary functions such as nature and resource conservation issues are still largely absent therefore a comprehensive consideration of ecological public functions in germany calls for the integration of nature conservation issues and respective indicators into the system of intergovernmental fiscal relations

designing payments for environmental services in theory and practice an overview of the issues abstract payments for environmental services pes have attracted increasing interest as a mechanism to translate external non market values of the environment into real financial incentives for local actors to provide environmental services es in this introductory paper we set the stage for the rest of this special issue of ecological economics by reviewing the main issues arising in pes design and implementation and discussing these in the light of environmental economics we start with a discussion of pes definition and scope we proceed to review some of the principal dimensions and design characteristics of pes programs and then analyze how pes compares to alternative policy instruments finally we examine in detail two important aspects of pes programs their effectiveness and their distributional implications pes is not a silver bullet that can be used to address any environmental problem but a tool tailored to address a specific set of problems those in which ecosystems are mismanaged because many of their benefits are externalities from the perspective of ecosystem managers pes is based on the beneficiary pays rather than the polluter pays principle and as such is attractive in settings where es providers are poor marginalized landholders or powerful groups of actors an important distinction within pes is between user financed pes in which the buyers are the users of the es and government financed pes in which the buyers are others typically the government acting on behalf of es users in practice pes programs differ in the type and scale of es demand the payment source the type of activity paid for the performance measure used as well as the payment mode and amount the effectiveness and efficiency of pes depends crucially on program design

environmental policy in a federation with special interest politics and inter governmental grants the paper explores the potential effect of intergovernmental grants igg on sub national local environmental policy in a federal structure in the model a politically inclined local government receives campaign contributions from the polluters lobby in return for lower pollution taxes a benevolent federal government uses igg as an incentive to reduce the resulting distortion in the local pollution tax igg are formulaic transfers that are conditional on pollution levels lower pollution in a sub national jurisdiction relative to others translates into a higher share of the grant and vice versa in equilibrium the grant effect reduces the distortion created in the pollution tax by the lobby effect and may even lead to a higher than pigouvian tax when the local government assigns a large enough weight on social welfare and or when the grant is large enough further igg result in the tax levels of jurisdictions becoming interdependent in an interesting way environmental policies in two jurisdictions may become strategic complements or substitutes depending on their relative pollution levels the possibility of strategic substitution implies that federal welfare may not increase even when environmental policy becomes stricter in one state

banking the poor via savings accounts evidence from a field experiment abstract in a setting with low penetration of bank accounts i randomly gave access to bank accounts with zero fees at local bank branches to a large sample of female household heads in nepal the zero fees and physical proximity of the bank led to high take up and usage rates compared to similar studies in other settings however impact on income aggregate expenditures and assets are too imprecisely estimated to draw a conclusion i do find reallocation of expenditures across categories e g more spending on education and meat and fish and less on health and dowries and higher ability to cope with shocks on qualitative outcomes i find households report that their overall financial situation has improved the lack of a clear story on mechanisms yet strong result on aggregate self perception of financial wellbeing is consistent with access to quality savings accounts leading to household improvements via multiple mechanisms

predicting u s business cycle regimes this article examines the use of logistic classification methods for the identification and prediction of postwar u s business cycle expansion and contraction regimes as defined by the national bureau of economic research nber reference turning point dates we present a coherent theoretical framework for this task using measures of discriminatory information the analysis encompasses model selection parameter estimation and classification decision rules we examine the performance of logistic procedures in reproducing the nber regime classifications and in predicting one and three months ahead using leading indicator variables our models are shown to provide substantially more accurate business cycle regime predictions than markov switching specifications

unemployment equilibria and input prices theory and evidence from the united states the paper develops an efficiency wage model where input prices affect the equlibrium rate of unemployment we show that a simple framework based on only two prices the real price of oil and the real rate of interest is able to explain the main post war movements in the rate of u s joblessnss the equations do well in forecasting unemployment many out of sample and provide evidence that the oil price spike associated with iraq s invasion of kuweit appears to be a component of the mystery recession which followed

forecast encompassing tests and probability forecasts we consider tests of forecast encompassing for probability forecasts for both quadratic and logarithmic scoring rules we propose test statistics for the null of forecast encompassing present the limiting distributions of the test statistics and investigate the impact of estimating the forecasting models parameters on these distributions the small sample performance is investigated in terms of small numbers of forecasts and model estimation sample sizes we show the usefulness of the tests for the evaluation of recession probability forecasts from logit models with different leading indicators as explanatory variables and for evaluating survey based probability forecasts copyright c 2010 john wiley sons ltd

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

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

financial development bank ownership and growth or does quantity imply quality abstract in 1980 india nationalized its large private banks this induced different bank ownership patterns across different towns allowing credible identification of the effects of bank ownership on financial development lending rates and the quality of intermediation as well as employment and investment credit markets with nationalized banks experienced faster credit growth during a period of financial repression nationalization led to lower interest rates and lower quality intermediation and may have slowed employment gains in trade and services development lending goals were met but these had no impact on the real economy

protected areas local governments and strategic interactions the case of the icms ecologico in the brazilian state of parana various conservation initiatives have been implemented in developing countries with increasing involvement on the part of local governments a concern in entrusting decisions to local governments is that the effectiveness of the conservation instrument can be threatened by interactions among these local governments we examine this concern with respect to an ecological fiscal transfer mechanism the icms ecologico implemented in brazil in the early 1990 s in order to reduce biodiversity loss the mechanism enables states to reward municipalities for the creation and management of protected areas we describe this mechanism present a conceptual framework aimed at understanding the potential sources and consequences of interactions among local governments on the effectiveness of a decentralized mechanism aimed at promoting the creation of protected areas and propose an empirical application using a bayesian spatial tobit model our empirical investigation on the creation of protected areas in the state of parana between 2000 and 2010 reveals strategic substitutability in municipalities conservation decisions this finding also leads us to discuss the issue of identification of a negative spatial lag coefficient when there is a positive spatial error correlation

caviar conditional autoregressive value at risk by regression quantiles value at risk var has become the standard measure of market risk employed by financial institutions for both internal and regulatory purposes var is defined as the value that a portfolio will lose with a given probability over a certain time horizon usually one or ten days despite its conceptual simplicity its measurement is a very challenging statistical problem and none of the methodologies developed so far give satisfactory solutions interpreting the var as the quantile of future portfolio values conditional on current information we propose a new approach to quantile estimation which does not require any of the extreme assumptions invoked by existing methodologies such as normality or i i d returns the conditional autoregressive value at risk or caviar model moves the focus of attention from the distribution of returns directly to the behavior of the quantile we specify the evolution of the quantile over time using a special type of autoregressive process and use the regression quantile framework introduced by koenker and bassett to determine the unknown parameters since the objective function is not differentiable we use a differential evolutionary genetic algorithm for the numerical optimization utilizing the criterion that each period the probability of exceeding the var must be independent of all the past information we introduce a new test of model adequacy the dynamic quantile test applications to simulated and real data provide empirical support to this methodology and illustrate the ability of these algorithms to adapt to new risk environments

saving more in groups field experimental evidence from chile abstract we test the impact of a peer group program on savings in a sample of microcredit clients we conduct two randomized trials among these 2687 microcredit clients the first finds that a savings group treatment which combines public goal setting monitoring in the group and non financial rewards increases savings in a new savings account significantly the number of deposits grows 3 7 fold and the average balance almost doubles in contrast a more classical measure a substantially increased interest rate has no effect for most participants and raises the savings balance only for the very top of the distribution a second experiment conducted a year later tests an alternative delivery mechanism and shows that effects of similar size can be achieved through feedback text messages without meetings rewards or peer pressure given that participants are borrowing at 90 apr we discuss how and when saving more could be harmful or beneficial

what constrains financial inclusion for women evidence from indian micro data summary the role and relevance of gender in financial inclusion has been an evolving area of research in recent times although there are several cross country studies on this aspect few within country studies have addressed this issue in a comprehensive manner in this context exploiting disaggregated household level data for india we analyze the interface between gender and finance more specifically we examine whether gender matters for financial inclusion and if so what are the possible factors that influence this relationship our findings suggest significant disparity in both the access to as well as the use of finance by gender on average female headed households are 8 less likely to access formal finance and 6 more likely to access informal finance as compared to households that are headed by males after taking into account other relevant household and state level characteristics that are important in explaining financial access by households similar evidence carries over to the use of finance households headed by female use 20 less cash loans as compared to male headed households subsequently we investigate the possible channels which impede financial inclusion for female headed households our analysis highlights that for female headed households education and wages are more relevant in explaining the access to finance whereas political and social factors are much more germane in explaining the use of finance

predicting u s recessions financial variables as leading indicators this paper examines the out of sample performance of various financial variables as predictors of u s recessions series such as interest rates and spreads stock prices and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial indicators the analysis focuses on out of sample performance from one to eight quarters ahead results show that stock prices are useful with one to three quarter horizons as are some well known macroeconomic indicators beyond one quarter however the slope of the yield curve emerges as the clear individual choice and typically performs better by itself out of sample than in conjunction with other variables

increasing financial inclusion in the muslim world evidence from an islamic finance marketing experiment low utilization of household credit in developing countries may be partially due to religious considerations in a randomized marketing experiment in jordan this paper estimates the effect of sharia compliant loan features on demand for credit to comply with islamic law the sharia compliant product uses a bank fee rather than an interest payment structure while keeping the rest of the product features very similar sharia compliance increased the application rate for loans from 18 percent to 22 percent an increase in demand that is equivalent to a 10 percent decrease in interest rates this study also randomly varied the price of the sharia compliant loan and finds that less religious individuals are twice as elastic with respect to price as the more religious by comparing reasons for refusal across treatment groups this paper estimates that survey measures that try to assess the importance of religious objections to conventional credit overestimate the importance of this type of objection by a third

finance is good for the poor but it depends where you live i examine whether or not the incomes of the poor systematically grow with average incomes and whether financial development enhances the incomes of the poorest quintile following the methodology of dollar and kraay 2002 i find once extending dollar and kraay s data their findings are robust to the lucas critique and economic growth is important for poverty reduction universally however in comparison to other authors work i show financial development aids the incomes of the poor in certain regions whilst it may be detrimental in others this proposes evidence against a one size fits all model adding a further contribution to the literature on financial development and poverty

property rights and finance which is the tighter constraint on private sector investment weak property rights or limited access to external finance from a survey of new firms in post communist countries we find that weak property rights discourage firms from reinvesting their profits even when bank loans are available where property rights are relatively strong firms reinvest their profits where they are relatively weak entrepreneurs do not want to invest from retained earnings

directed credit and investment in small scale industry in india evidence from firm level data 1965 78 panel data on 788 modern sector indian firms during 1965 78 are used to analyse the link between the size of a firm and its financial environment exogeneity tests reveal that large firms with improved investment prospects could obtain external finance at the margin but that small firms could not the policy of directing bank credit accordingly relaxed a binding constraint on small firms raising investment assuming that all of the rise in the credit sales ratio in small firms was policy induced then so was about one third of the 170 per cent rise during 1965 78 in their investment sales ratio

the impact of formal finance on the rural economy of india india has systematically pursued a supply led approach to increasing agricultural credit its objectives have been to replace moneylenders to relieve farmers of indebtedness and to achieve higher levels of agricultural credit investment and output india s success in replacing moneylenders has been outstanding between 1951 and 1971 their share of rural credit appears to have dropped from more than 80 percent to 36 percent it may have dropped to as low as 16 percent by 1981 but that estimate is disputed still institutional credit is far from reaching all farmers only about a quarter of cultivators borrow and no more than 2 percent take out long term loans most small farmers have little access to credit and long term credit goes mostly to large farmers overall farm debt has probably not increased sharply in real terms as formal credit has primarily substituted for credit from other sources moreover with the rapid growth of commercial banks in the 1970s the system mobilized more deposits than it lent in rural areas in 1981 of course enhanced deposit services are a useful service of the rural population but one must ask what has been the impact of heavy rural credit and better financial services on agricultural investment production and rural incomes the authors econometric results suggest that the rapid expansion of commercial banks in rural areas has had a substantially positive effect on rural nonfarm employment and output the availability of better banking facilities appears to have overcome one of the obstacles to locating nonfarm activities in rural areas expanded rural finance has had less of an effect on output and employment in agriculture than in the nonfarm sector the effect on crop output has not been great despite the fact that credit to agricluture has greatly increased the use of fertilizer and private investment in machines and livestock there has been more impact on inputs than on output so the additional capital investment has been more important in substituting for agriclutural labor than in increasing crop output but overall rural credit and expansion of the rural financial system have had a positive effect on rural wages creating nonfarm jobs has apparently added more to total employment than the substitution of capital for labor has subtracted it in agriculture so wages have risen even for agricultural workers albeit modestly the supply led approach to agricultural credit that has been pursued for three decades has clearly benefited current borrowers and farm households formerly indebted to moneylenders it has also spurred fertilizer use and investment in agriculture it has been less successful in generating viable institutions and has failed to generate agricultural employment the policy s costs to india s government have been high as portfolio losses associated with poor repayment ultimately have to be borne by the government or one of its institutions under optimistic assumptions the benefits of the agricultural income are at best no more than 13 percent higher than the cost to the government of the extra agricultural credit if assumptions about the cost of supplying the credit and about repayment rates are less optimistic the social costs and the costs to the government of providing the credit would have exceeded the benefits in agricultural income the expansion of commercial banks to rural areas paid off in nonfarm growth employment and rural wages the question is could these benefits have been achieved without imposing agricultural credit targets on the commercial banks and credit cooperatives or did the commercial banks expand only because they were forced to lend to agriculture the authors could not answer these questions with the data at hand

contagious development neighbor interactions in deforestation article i nfo we estimate neighbor interactions in deforestation in costa rica to address simultaneity and the presence of spatially correlated unobservables we measure for neighbors deforestation using the slopes of neighbors and neighbors neighbors parcels we find that neighboring deforestation significantly raises the probability of deforestation policies for agricultural development or forest conservation in one area will affect deforestation rates in non targeted neighboring areas correct estimation of the interaction reverses the naive estimate s prediction of multiple equilibria

the abcs of financial education experimental evidence on attitudes behavior and cognitive biases this paper uses a large scale field experiment in india to study attitudinal behavioral and cognitive constraints that stymie the link between financial education and financial outcomes the study complements financial education with i participant classroom motivation with pay for performance on a knowledge test ii intensity of treatment with personalized financial counseling and iii behavioral nudges with financial goal setting the analysis finds no impact of pay for performance but significant effects of both counseling and goal setting on real financial outcomes these results identify important complements to financial education that can bridge the gap between financial knowledge and financial behavior change

is india s economic growth leaving the poor behind there has been much debate about how much india s poor have shared in the economic growth unleashed by economic reforms in the 1990s the authors argue that india has probably maintained its 1980s rate of poverty reduction in the 1990s however there is considerable diversity in performance across states this holds some important clues for understanding why economic growth has not done more for india s poor india s economic growth in the 1990s has not been occurring in the states where it would have the most impact on poverty nationally if not for the sectoral and geographic imbalance of growth the national rate of growth would have generated a rate of poverty reduction that was double india s historical trend rate states with relatively low levels of initial rural development and human capital development were not well suited to reduce poverty in response to economic growth the study s results are consistent with the view that achieving higher aggregate economic growth is only one element of an effective strategy for poverty reduction in india the sectoral and geographic composition of growth is also important as is the need to redress existing inequalities in human resource development and between rural and urban areas

real time forecasting regional tourism with business sentiment surveys abstract this study provides evidence that supply side soft information retrieved from business surveys is effective in real time forecasting of hotel arrivals at the regional level we assess the effect of including business sentiment indicators in commonly used naive specifications and structural time series models using residuals and predictive diagnostics we find that both the goodness of fit and the forecasting accuracy of the augmented models are superior to those of the baseline models whence the opportunity to extend to the tourism sector the surveys on the business sentiment currently realized by the provincial chambers of commerce for the manufacturing sector allowing an effective and timely managing of local tourism market where official information is likely to be either lacking or poor in quality

commodity prices and bank lending we analyze the transmission of changes in commodity prices to bank lending in a large sample of developing countries a bank level analysis shows that a fall in commodity net export prices is associated with a reduction of bank lending particularly for commodity exporters and during episodes of terms of trade decline we complement this analysis with loan level data from a credit register which allows us to identify the effect of a commodity price shock on the supply of credit controlling for unobserved factors that could drive borrowers credit demand results show that banks with relatively lower deposits and poor asset quality transmit the changes in commodity prices to lending more aggressively jel f30 f34 g21 q02

the political economy of government responsiveness theory and evidence from india the determinants of government responsiveness to its citizens is a key issue in political economy here we develop a model based on the solution of political agency problems having a more informed an politically active electorate strengthens incentives for governments to be responsive this suggests that there is a role both for democratic institutions and the mass media in ensuring that the preferences of citizens are reflected in policy the ideas behind the model are tested on panel data from india we show that public food distribution and calamity relief expenditure are greater controlling for shocks where governments face greater electoral accountability and where newspaper circulation is highest

evidence of demand for index insurance experimental games and commercial transactions in ethiopia abstractwe present results of experimental games with smallholder farmers in tigray ethiopia in 2010 in which participants in the games allocated money across risk management options one of the options was index insurance that was the same as commercial products sold locally participants exhibited clear preferences for insurance contracts with higher frequency payouts and for insurance over other risk management options including high interest savings the preference for higher frequency payouts is mirrored in commercial sales of the product with commercial purchasers paying substantially higher premiums than the minimal low frequency option available this combined evidence challenges claims that the very poor universally choose minimal index insurance coverage and supports concerns that demand may outpace supply of responsible insurance products

how important are banks for development national banks in the united states 1870 1900 abstract do banks matter for growth and if so how this paper examines the effects of national banks in the united states from 1870 to 1900 i use the discontinuity in entry caused by a large minimum size requirement to identify the effects of banking for the counties on the margin between getting a bank and not gaining a bank increased production per person by 10 national banks in rural areas improved agriculture over manufacturing moving counties toward geographic comparative advantage since these banks made few long term loans the evidence suggests that the provision of working capital and liquidity matters for growth

finance inequality nexus the long and the short of it financial development affects income inequality differently in the short and in the long term investigating oecd countries from 1870 2011 we find in the short run an improvement in financial development tends to reduce inequality while in the long run more finance contributes to more inequality the short run effect concurs with theories advocating financial development increases the availability of financial services primarily for the poor however this effect becomes nil within a few years results thus imply that policies aimed at reducing inequality through improving access of the poor to finance need to be carefully designed to ensure longevity of impact

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

estimating the impact of welfare programs on agricultural output evidence from india rural welfare programs are implemented for a variety of reasons however of key importance is to understand how government spending under such programs affects local agricultural output which is a key measure of economic activity in developing economies this article estimates the local multiplicative effects of transfer spending by the government using a novel data set of state level expenditure under rural welfare programs in india using government records as narrative evidence i use the motivation to implement new programs at the national level to construct changes in transfer spending that are largely exogenous to fluctuations in agricultural output at the state level i estimate local multipliers using this narrative shock series and find government transfers to be quite consequential for local economic activity

allocating scarce financial resources across regions for environmental management in queensland australia abstract regional governance agencies such as catchment or watershed management committees are playing a significant role in the management of natural resources these agencies often depend on central governance agencies for their revenue in australia this has created a policy dilemma for federal and state governments how should limited funds be allocated to regional groups this question is being encountered by central governance agencies worldwide based on a study from queensland australia this paper shows how multiple criteria analysis mca was used to inform fiscal equalisation of environmental funds worth a 146 6 million across 14 regions fiscal equalisation aims to equalise the ability of each region to address its natural resource management problems the mca approach allows decision makers to weight criteria and define a needs index which forms the basis for allocating funds

evaluating density forecasts with applications to financial risk management density forecasting is increasingly more important and commonplace for example in financial risk management yet little attention has been given to the evaluation of density forecasts the authors develop a simple and operational framework for density forecast evaluation they illustrate the framework with a detailed application to density forecasting of asset returns in environments with time varying volatility finally the authors discuss several extensions copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

financial development growth and the distribution of income a paradigm is presented in which both the extent of financial intermediation and the rate of economic growth are endogenously determined financial intermediation promotes growth because it allows a higher rate of return to be earned on capital and growth in turn provides the means to implement costly financial structures thus financial intermediation and economic growth are inextricably linked in accord with the goldsmith mckinnon shaw view on economic development the model also generates a development cycle reminiscent of the kuznet hypothesis in particular in the transition from a primitive slow growing economy to a developed fast growing one a nation passes through a stage in which the distribution of wealth across the rich and poor widens

what happened to the oil price macroeconomy relationship abstract strong evidence is found that oil prices no longer granger cause many u s macroeconomic indicator variables in data after 1973 a number of potential explanations are explored that sample stability issues are responsible that oil prices are now endogenous and that linear and symmetric specifications misrepresent the form of the oil price interaction none of these hypotheses are supported by the data the opec price increases do appear to have had significant impacts while the effects of the price declines of the 1980s are smaller and harder to characterize these results have potentially important implications for the large body of research which utilizes oil prices as an instrumental or explanatory variable

decentralization effects in ecological fiscal transfers a bayesian structural time series analysis for portugal portugal has a unitary system in which the central government transfers funds to lower government levels for their public functions in 2007 portugal introduced ecological fiscal transfers eft where municipalities receive transfers for hosting protected areas pa we study whether introducing eft in portugal incentivized municipalities to designate pa and has led to a decentralization of conservation decisions we employ a bayesian structural time series approach to estimate the effect of introducing eft in comparison to a simulated counterfactual time series quantitative results show a significant increase in the ratio of municipal and national pa designations following portugal s eft introduction which we infer to be a causal consequence the analysis furthermore places emphasis on the importance of relevant municipal conservation competencies for the functioning of the instrument results have important implications for conservation policy making in terms of allocating budgets and competencies in multi level governments

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

finance and inequality the case of india although theory emphasizes the role of financial market frictions in explaining income inequality there is little empirical research exploring how financial development and financial sector reforms influence the evolution of income inequality this article examines how finance impacts income inequality in india using annual time series data for over half a century the results indicate that while financial development helps reduce income inequality financial liberalization seems to exacerbate it the results are robust to the use of different measures for financial development and financial liberalization although the relationship between financial development and economic growth has been extensively studied in the literature see for example king and levine 1993 demetriades and hussein 1996 arestis and demetriades 1997 levine loayza and beck 2000 bell and rousseau 2001 ang and mckibbin 2007 little is known about how finance impacts income inequality the importance of the finance inequality relationship has recently been highlighted in an insightful survey article by claessens and perotti 2007 they indicate that while financial development can help reduce income inequality financial liberalization captured by established interests may do the opposite the theoretical predictions of the effects of finance on income inequality are controversial rajan and zingales 2003b argue that improvements in the formal financial sector primarily benefit the rich greenwood and jovanovic 1990 predict a nonlinear relationship between financial development and income inequality where it is hypothesized that income inequality first increases with the degree of sophistication in the financial systems then stabilizes and eventually declines others propose that the presence of financial market imperfections deters the poor from borrowing adequately to invest in human and physical capital implying that financial development helps alleviate income inequality banerjee and newman 1993 galor and zeira 1993 aghion and bolton 1997 mookherjee and ray 2003 2006 given that theories provide ambiguous predictions regarding the effects of finance on the distribution of income it is useful to approach the issue at the empirical level this could facilitate our understanding of the relationship between finance and inequality and help us to assess the validity of each theoretical model despite the important role of financial market frictions in the theories of poverty and income inequality researchers so far have not adequately addressed whether financial

economic liberalization and indian economic growth what s the evidence india s growth and poverty performance over the last three decades has been a subject of great curiosity unlike the east asian countries india s growth spurt is not associated with exceptionally high domestic savings or foreign capital inflows or manufacturing exports so what triggered the change in the growth trajectory did the market liberalization policies of the 1990s help how have the initial conditions shaped the process and how has the indian model impinged on india s central problem of mass poverty this paper surveys the literature and offers its own assessment of the drivers of change jel i32 o13 o14 o15 o21 o47

a re examination of the predictability of economic activity using the yield spread this paper revisits the yield spread s usefulness for predicting future real gdp growth we show that the contribution of the spread can be decomposed into the effect of expected future changes in short rates and the effect of the term premium we find that both factors are relevant for predicting real gdp growth but the respective contributions differ we investigate whether the cyclical behavior of interest rate volatility could account for either or both effects we find that while volatility displays important correlations with both the term structure of interest rates and gdp it does not appear to account for the yield spread s usefulness for predicting gdp growth

is financial inclusion good for bank stability international evidence abstract financial inclusion has become an important public policy priority following the recent global financial crisis yet we know very little of how it impacts soundness of the providers of financial services using an international sample of 2635 banks in 86 countries over the period 2004 12 we find that higher level of financial inclusion contributes to greater bank stability the positive association is particularly pronounced with those banks that have higher customer deposit funding share and lower marginal costs of providing banking services and also with those that operate in countries with stronger institutional quality the results are robust to instrumental variables analysis controlling for bank fixed effects alternative measures of financial inclusion among several other robustness tests our results highlight that the importance of ensuring inclusive financial system is not only a development goal but also an issue that should be prioritised by banks as such a policy drive is good for their stability

moneylenders and bankers price increasing subsidies in a monopolistically competitive market abstract in many areas of the world a significant part of the cost of obtaining a good or service is the cost of enforcing the contracts entailed in its provision we present models of markets with endogenous enforcement costs motivated by studies of rural credit markets we show that subsidies may have perverse effects under monopolistic competition increasing prices or inducing exit higher prices interest rates result from the loss of scale economies or from negative externalities among suppliers the models are consistent with the puzzling evidence that infusions of government subsidized formal credit have not improved the terms offered by moneylenders

halving global poverty the goal of central importance to this paper is to cut in half the proportion of people living below 1 a day from around 30 percent of the developing world s population in 1990 to 15 percent by 2015 based on population projections in 1990 this would correspond to around one billion people exiting poverty this paper begins by discussing poverty trends on a global scale where the poor are located in the world and how their numbers have been changing over time it then discusses the relationship of economic growth and income distribution to poverty reduction finally it suggests an evidence based agenda for poverty reduction in the developing world full text available at official url

local financial development and growth using a unique sample of net domestic product data for districts in india i investigate the connection between banking sector development human capital and economic growth at the sub national level using disaggregate data avoids many of the omitted variable problems that plague cross country studies of the finance growth connection and facilitates an instrumentation strategy the findings show that the growth of many districts in india is financially constrained due to lack of banking sector development and that the relationship between finance and growth may be non linear for the districts in the sample moving from the 75th percentile of credit net domestic product to the 25th percentile implies an average loss of 4 percent in growth over the 1990s this indicates that the gains from increased banking sector outreach may be large the analysis shows that human capital deepening can reduce the effect of the financial constraint and help decouple growth from financial development in a district at the 25th literacy percentile the implied growth loss due to a constrained banking sector is twice as large as in a district at the 75th literacy percentile thus higher levels of human capital may activate alternative growth and production channels that are less finance intensive

global mechanisms for sustaining and enhancing pes schemes article i nfo an international payment for ecosystem service ipes schemes may be one of the only mechanisms available to stimulate the provision of vital non marketed ecosystem services at the global level as those nations that benefit from global ecosystem services ges cannot readily force other sovereign nations to provide them currently international trade offers trillions of dollars in incentives for countries to convert natural capital into marketable goods and services and few payments to entice countries to conserve natural capital in order to sustain critical non marketed ecosystem services we examine the biophysical characteristics of climate change and biodiversity to understand the obstacles to developing effective ipes schemes we find that none of the existing schemes for providing ges are adequate given the scale of the problem a cap and auction scheme for co2 emissions among wealthy nations could fund ipes and simultaneously deter carbon emissions to disburse funds we should adapt brazil s icms ecologico and apportion available funds to targeted countries in proportion to how well they meet specific criteria designed to measure the provision of ges individual countries can then develop their own policies for increasing provision of these services ensured of compensation if they do so indirect ipes should include funding for freely available technologies that protect or provide ges such as the low carbon energy alternatives that will be essential for curbing climate change markets rely on the price mechanism to generate profits which rations technology to those who can afford it reducing adoption rates innovation and total value

payments for ecosystem services from local to global abstract payment for ecosystem services pes is becoming increasingly popular as a way to manage ecosystems using economic incentives the environmental economics approach to pes tries to force ecosystem services into the market model with an emphasis on efficiency the ecological economics approach in contrast seeks to adapt economic institutions to the physical characteristics of ecosystem services prioritizing ecological sustainability and just distribution and requiring a transdisciplinary approach this paper summarizes the results of a participatory atelier workshop held in costa rica we developed a set of principles the heredia declaration for pes systems and report on evolving initiatives in several countries we discuss how the distinction between ecosystem goods which are stock flow resources and ecosystem services which are fund service resources and the physical characteristics of the fund services affect the appropriate institutional form for pes we conclude that pes systems represent an important way to effectively manage fund service resources as public goods and that this represents a significant departure from conventional market institutions

schooling and labor market consequences of school construction in indonesia evidence from an unusual policy experiment between 1973 and 1978 the indonesian government engaged in one of the largest school construction programs on record combining differences across regions in the number of schools constructed with differences across cohorts induced by the timing of the program suggests that each primary school constructed per 1 000 children led to an average increase of 0 12 to 0 19 years of education as well as a 1 5 to 2 7 percent increase in wages this implies estimates of economic returns to education ranging from 6 8 to 10 6 percent

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

reconciling theory and practice an alternative conceptual framework for understanding payments for environmental services article i nfo this article provides an alternative and novel theoretical approach to the conceptualization and analysis of payments for environmental services pes we devote special emphasis to institutional and political economy issues which have been somewhat neglected in the literature on pes we argue that the coasean and pure market approach dominating the conceptualization of pes in the literature cannot be easily generalized and implemented in practice by contrast taking into account complexities related to uncertainty distributional issues social embeddedness and power relations permits acknowledging the variety of contexts and institutional settings in which pes operate the alternative approach presented in this introductory article to the special section may be more appealing to pes practitioners since while avoiding restrictive and prescriptive standpoints it allows some key sources of complexities they usually deal with on the ground to be more easily understood

rural credit markets and institutions in developing countries lessons for policy analysis from practice and modern theory this article presents evidence of the failure of government intervention in rural credit markets of ldcs in the past three decades it then shows how lessons for policy analysis can be drawn from modern theory particularly those theories focussing on credit rationing in competitive markets and interlinking of credit contracts with labor and land contracts the article outlines the policy implications of these theories and finds them insufficient to account for the empirical evidence it contends that a more systematic and rigorous analysis of institutions and institutional environments is essential for understanding and implementing effective policy reforms of rural credit markets it presents suggestions for undertaking such an analysis

empowerment and efficiency tenancy reform in west bengal the paper analyzes the effect of agricultural tenancy laws offering security of tenure to tenants and regulating the share of output that is paid as rent on farm productivity theoretically the net impact of tenancy reform is shown to be a combination of two effects a bargaining power effect and a security of tenure effect analysis of evidence on how contracts and productivity changed after a tenancy reform program was implemented in the indian state of west bengal in the late 1970s suggests that tenancy reform had a positive effect on agricultural productivity there

the economic effects of a borrower bailout evidence from an emerging market this paper studies the credit market implications and real effects of one the largest borrower bailout programs in history enacted by the government of india against the backdrop of the 2008 2009 financial crisis the study finds that the stimulus program had no effect on productivity wages or consumption but led to significant changes in credit allocation and an increase in defaults post program loan performance declines faster in districts with greater exposure to the program an effect that is not driven by greater risk taking of banks loan defaults become significantly more sensitive to the electoral cycle after the program suggesting the anticipation of future credit market interventions as an important channel through which moral hazard in loan repayment is intensified

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

news and noise in g 7 gdp announcements revisions to gdp announcements are known to be quite large in all g 7 countries quarterly growth rate revisions are regularly more than a full percentage point at an annualized rate we examine the predictability of these revisions using standard statistical tests of whether the preliminary announcement is a rational forecast of the subsequently revised data previous work suggests that u s gdp revisions are largely unpredictable as would be the case if the revisions reflect news not available at the time that the preliminary number is produced we find that the degree of predictability varies throughout the g 7 although we find little predictability in u s revisions the data revisions for several foreign countries are highly predictable we also perform a simple real time forecasting exercise showing that for several countries the predictability of data revision could be used to generate improved preliminary data

tests for multiple forecast encompassing in the evaluation of economic forecasts it is frequently the case that comparisons are made between a number of competing predictors a natural question to ask in such contexts is whether one forecast encompasses its competitors in the sense that they contain no useful information not present in the superior forecast we develop tests for this notion of multiple forecast encompassing which are robust to properties expected in the forecast errors and apply the tests to forecasts of uk growth and inflation copyright 2000 john wiley sons ltd

interactions between institutional and informal credit agencies in rural india in an attempt to expand rural credit and displace the village moneylender india created a system of rural cooperatives in the 1950s and expanded branch banking into rural areas in the 1970s this article examines how these measures affected the rural market it begins with the question of how large the expansion of institutional credit has been and the extent to which it has dislodged the village and nonresident moneylenders a detailed comparison of three major surveys of the indian rural credit market suggests that in various guises the moneylender is still a major source of loans the article also examines the weak evidence on intermediation between the formal and informal sectors a formal model of the interaction between the informal moneylender and institutional lender is constructed under a variety of assumptions about the exclusivity of loan contracts and the competitive structure of the informal sector the conclusions are drawn together in the form of five proposals for public policy

fatal fluctuations cyclicality in infant mortality in india this paper investigates the impact of aggregate income shocks on infant mortality in india and investigates likely mechanisms a recent oecd dominated literature reports the provocative finding that mortality at most ages is pro cyclical similar analyses for poorer countries are scarce and both income risk and mortality risk are greater in poor countries this paper uses data and methods designed to avoid some of the specification problems in previous studies and it explores mechanisms and extensions that have not been previously considered it uses individual data on infant mortality for about 150 000 children born in 1970 1997 merged by cohort and state of birth with a state panel containing information on aggregate income identification rests upon comparing the effects of annual deviations in income from trend on the mortality risks of children born at different times to the same mother conditional upon a number of state time varying covariates including rainshocks and state social expenditure rural infant mortality is counter cyclical the elasticity being about 0 33 this is despite the finding that relatively high risk women avert birth or suffer fetal loss in recessions it seems in part related to recessions stimulating distress labor amongst mothers in contrast to the case in richer countries where they discourage labor market participation health care seeking declines in recessions and this appears to be related to the opportunity cost of maternal time disaggregation reveals that the average results are driven by rural households in which the mother is uneducated or had her first birth in teenage and that it is only girls that are at risk boys are protected from income shocks exposure to poor conditions in the fetal and neonatal period appears to have a larger effect on infant mortality than similar exposure in the postneonatal period

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model

compensation for environmental services and intergovernmental fiscal transfers the case of india this paper studies mechanisms to compensate local government for the public provision of environmental services using the theory of optimal fiscal transfers in india especially we analyzed the role of intergovernmental fiscal transfers in achieving the environmental goal simply assigning the functions at appropriate levels does not ensure optimal provision of environmental services optimality in resource allocation could be achieved by combining the assignment system with an appropriate compensation mechanism intergovernmental fiscal transfers would be a suitable mechanism for compensating the local governments and help in internalizing the spillover effects of providing environmental public goods illustrations are also provided for india