the impact of foreign capital inflows on domestic savings reexamined the case of argentina abstract since the beginning of the 1970 s several economists have argued that there is a negative relationship between foreign capital inflows f and domestic savings s this paper attempts to demonstrate that the framework used by these authors is not appropriate to analyze the impact of f on s the early empirical results may actually be a consequence of exogenous factors such as monetary and fiscal policies

the effect of political risk on the forward exchange bias the case of elections abstract the unsuccesful search for explanations of the forward bias has concentrated on variables suggested by traditional models of risk political news although important to foreign exchange traders has not been considered as a determinant of the forward bias i present a model in which the forward bias changes when the governing party changes elections in major industrial countries provide a natural test of the model the forward bias changed as predicted after half of the 13 elections in canada france the united kingdom and the united states between 1973 and 1985 politics provides useful information for foreign exchange traders which economists should not ignore

democratic processes political risk and foreign exchange markets 3i6 foreign exchange markets are among the deepest and widest financial markets in the world technological innovations and market liberal ization have made currency markets enormous by 1992 the vol ume of transactions topped over 1 trillion each day moreover economic agents can trade currencies with shocking speed during the september 1992 e m s crisis british monetary authorities expended over two billion dollars to support the pegged value of the pound in only a few hours the behavior of these currency markets can affect not only trade flows and in ternational investment key determinants of economic performance but also political outcomes consequently exchange rates have become a highly salient issue both at the domestic and international levels indeed some political economists assert that rapidly adjusting international markets may overwhelm the ability of policymakers to control policy and according to the most extreme view thwart any meaningful democracy understanding how currency markets behave therefore is fundamental step to assess accu rately how the internationalization of economic activity influences demo cratic politics we investigate how democratic political events affect currency markets by focusing on the relationship between the spot and forward exchange rate markets the efficient markets hypothesis implies that the forward ex change rate the price of the currency deliverable thirty days in the fu ture should be an unbiased predictor of the future spot exchange rate that is today s thirty day forward rate should on average accurately pre dict the spot exchange rate one month from today empirical studies how ever conclude that the forward rate is often a biased predictor of future ex change rate changes many economic models attribute this bias to a risk premium where currency traders demand a higher return for holding the currency

economic development and defense expenditure developing countries spend large amounts of scarce resources on military expenditure the effect of defense spending on economic growth and development is an important topic and merits close scrutiny from development economists the main purpose of this paper is to analyze the interrelationships among defense burden saving and economic growth within the context of a fully specified empirical model since benoit s seminal work published in this journal and elsewhere started the recent debate and controversy it is necessary to discuss his findings in some detail benoit made a forceful and interesting case for the existence of a causal relationship between defense expenditure and growth in less developed countries ldcs his main hypothesis was that defense burden is positively correlated to growth rates in ldcs furthermore the chain of causation is such that a high defense burden causes the growth rate to rise defense helps development policy implications of such a hypothesis are then spelled out the purpose of this section is to evaluate benoit s thesis and critically analyze its conclusions the main finding is that for a large sample of 44 countries there exists a positive correlation between rate of growth and defense burden defense expenditure as a proportion of national income benoit used the growth rate of nondefense civilian output for the index of growth to avoid the criticism of double counting there is an interesting definitional question that arises regarding the variables used by benoit here he defined growth in civilian output as growth in gdp minus growth in defense spending all in real terms defining gdp as y civilian output as v and defense spending as d we may write

a three gap model of foreign transfers and the gdp growth rate in developing countries abstract a simplified macroeconomic framework is developed for the fiscal gap which is considered to be an important stumbling block for adjustment with growth in highly indebted developing countries distinctive characteristics of a fiscally constrained economy are compared with those of economies constrained either by the availability of savings or foreign exchange tentative implications for external conditionality accompanying debt relief measures are derived

foreign aid taxes and public investment abstract using time series data for india we test the foreign aid public investment hypothesis behavioral equations derived from a maximizing framework are estimated after correcting for econometric and data inadequacies of earlier models the results confirm earlier findings regarding the negative relationship between taxes and government investment in the presence of aid however in contrast to the earlier work we find that grants and loans generally go into development projects with no leakages into consumption moreover bilateral aid actually pulls resources out of consumption and puts them into development projects

motivations for aid to developing countries abstract this paper attempts to identify the underlying principles of aid allocation and particularly the balance of motivations as between the needs of recipient countries and the interests of donor countries two alternative models are fitted by cross country regressions to bilateral and multilateral aid flows to some 80 developing countries in 1969 1970 and 1978 1980 the first recipient need model assumes that all aid is given to compensate for shortfalls in domestic resources this model provides a reasonable explanation for the distribution of multilateral aid but it is clearly not applicable for bilateral aid flows the second donor interest model assumes that all aid serves only donor interests defined to cover political security investment and trade interests this model gives generally good explanations of bilateral aid but is a poor fit for multilateral aid the relative importance of the various donor interests differs sharply among donors the paper ends with an analysis of the shift in the balance of aid over the 1970s towards the recipient need element and with a reference to the sharp change in policy in the 1980s towards increasing emphasis on donor interest aid

determinants of the levels and distribution of pl 480 food aid 1955 1979 abstract this paper reports the results of statistical tests of hypotheses related to a number of debates surrounding the determinants of the levels and distribution of us food aid the statistical results supported the following hypotheses 1 pl 480 food aid is influenced by the need of the recipient country 2 pl 480 food aid is tied to political and military concerns of the us 3 pl 480 food aid is influenced by the political party occupying the white house 4 pl 480 food aid and us commercial sales of agricultural commodities are substitutes and 5 pl 480 food aid is inversely related to a recipient s foreign exchange holdings

north south growth and the terms of trade a model on kaldorian lines this paper examines equilibrium growth and stability in the world economy using a north south model in which there is assumed to be surplus labor in both the north and south at an exogenously determined level of real wages the model allows for substitution in consumption between primary commodities and industrial goods in the north and treats the cases of both surplus and scarce land in the south in the case of an exogenous shock to the model the north south terms of trade may overshoot its equilibrium value and or converge to this value along a cyclical path there is no guarantee that the adjustment path is stable

the macroeconomics of counterpart funds revisited abstract use of aid generated counterpart funds has become an important issue again especially in africa this paper explains why the monetary impact of counterpart funds is not inherently inflationary when the import of aid funded commodities and the monetary balance of payments impact are incorporated into the analysis however the expenditure of counterpart funds has a strong tendency to cause inflation even though the monetary authorities counteract any increases in the money supply but if aid funded commodities permit output to grow then the joint effect of additional imports and counterpart outlays can be deflationary further the drawdown of counterpart accounts does not reduce government deficits but merely finances them donors and recipient governments need to recognize that counterpart accounts do not represent real resources and have extremely limited use in development financing the paper is written in nontechnical language with a technical appendix supporting its arguments

the estimation of the two gap model abstract two gap and related theoretical models imply that different constraints on growth may be binding at different times this paper develops and applies an econometric methodology suitable for estimating this type of model and determining which constraints hold at different times the empirical results suggest that growth is more often constrained by savings than by foreign exchange and that these models can be used to interpret the behavior of ldcs during the oil crisis

anticipated development assistance temporary relief aid and consumption behaviour of low income countries much debate about the effectiveness of foreign aid to developing countries focuses on the assumption that aid flows mainly enhance current consumption rather than being channelled into investment this paper seeks to establish what proportion of foreign assistance is used to finance current consumption the principal hypothesis to be tested is that aid transfers include very heterogeneous components with different marginal propensity to raise consumption estimating the average marginal propensity to consume of all the components of aid as is commonly done may lead to erroneous results the flow of foreign aid from high to low income countries can be classified into two types the first includes income transfers of a relief nature such as emergency and distress relief including drought related food transfers medical and refugee relief and balance of payments crisis support these transfers are generally a temporary response to unanticipated events or shocks to the economy they can be perceived as an attempt by the donor community to help finance what is denoted in the permanent income theory as transitory consumption friedman i957 in addition they can be viewed as an attempt to maintain a subsistence level of consumption by absorbing the shocks to income entirely by changes in savings the low level of savings however and the constraints on foreign borrowing lead to dependency on foreign transfers and prevent domestic savings from being the residual that is almost all of

the persistence of the peso problem when policy is noisy abstract the peso problem the market s belief that a discrete event may occur has frequently been blamed for the persistence of on average mistaken forecasts of macroeconomic variables this paper demonstrates how beliefs that a policy process may have switched can induce apparent ex post biased forecasts of exchange rates even after the switch has occurred furthermore during this peso problem period exchange rates may appear to contain a speculative bubble component since they will systematically deviate from the levels implied by observing fundamentals ex post and the conditional variance of exchange rates will exceed the variance implied by observing fundamentals

aid and growth in sub saharan africa the recent experience abstract this paper presents some quantitative evidence on the relationship between foreign aid and economic growth in the low income countries of sub saharan africa two key findings are presented first aid is positively and significantly correlated with investment and economic growth in africa second fix capital formation contributed to the rate of growth this result which emerges from analyzing time series data is somewhat surprising given the disappointing performance of african countries since the early 1970s

binding constraint on economic growth under export oriented industrialization and globalization the two gap model of economic growth implies that different constraints on economic growth namely the savings and the foreign exchange availability are binding at different times this article estimates these varying binding constraints in 16 countries in east and southeast asia and latin america and explores their differences across countries regions and periods i show that the east and southeast asian countries which are recognized to be successful in export oriented industrialization are less constrained by the foreign exchange availability with reinforced export capacity than the latin american countries which had carried some inertia of import substituting industrialization policy until the 1980s in addition the economic growth turns out to be more constrained by the domestic savings in recent years which can be a reflection of capital account liberalization policies typically implemented in the late 1980s and 1990s and or a diminishing return to export led growth in either case this mi

efficiency testing revisited a foreign exchange market with bayesian learning abstract the paper re examines the efficiency hypothesis in the foreign exchange market the traditional efficiency testing equations are reviewed and a more general model is developed that incorporates bayesian revisions of devaluation expectations a number of properties regarding the pattern of the coefficients in efficiency testing equations are established the empirical estimation of the model by using data from the emerging foreign exchange market in greece confirms the properties of the theoretical model

food aid a cause of development failure or an instrument for success the role of food aid in furthering the economic development of poor countries and in alleviating the adverse effects on the poor of structural and sectoral adjustment programs is discussed a simple analytical framework for evaluating the incentive and welfare impact of food aid is suggested domestic and international markets for food historically have been subject to severe distortions leading to ever growing food stocks in some mainly rich countries while in others largely poor many cannot afford to consume enough food the possible impact of distortion free global food markets is sketched the use of surplus food for payment of wages in rural work programs has often been proposed as a means to create productive assets while alleviating poverty using an applied general equilibrium model of the indian economy it is shown that a well designed and efficiently implemented food for work program can virtually eliminate abject poverty in india at a modest cost experience with food aid in several other countries is also briefly discussed

rationing in an open economy fix price equilibrium and two gap models abstract two gap models have been criticized severely for the lack of realism of their assumptions but are still prominent in development planning and implicitly in discussions of short run policy problems here the model s applicability outside a command economy is considered by comparing it with a rationing model with proper micro foundations it is shown that the two gap model in general violates fix price equilibrium properties but that the fix price model generates quite similar results

do stationary risk premia explain it all evidence from the term structure abstract predictable variations in excess returns have often been attributed to the presence of time varying risk premia in this paper we use an insight based upon new techniques from time series analysis to test whether stationary risk premia can alone explain the behavior of excess returns to long bonds relative to rolling over short rates surprisingly we reject this hypothesis using u s t bill returns we then show that either permanent shocks to the risk premia and or rationally anticipated shifts in the interest rate process could produce anomalous results

learning and inflation convergence in the erm this paper develops a model where agents learn about the probability of devaluations in a fixed exchange rate regim e the true probability of devaluation is assumed to be low or zero b ut agents are initially unsure about the government s intentions and st art with a high prior belief bayesian updating dictates that private sector expectations are revised down during periods when no devaluat ion occurs but are sharply increased when a devaluation does occur thi s model of learning is embedded in a model of overlapping contracts to study the process of inflation convergence after erm entry the main results are that agents over estimate the authorities desired realignment rate so inflation will be high in anticipation but as the authorities do not actually devalue there is a terms of trade loss leading to recession before long run equilibrium in which agents correctly estimate realignment rates can be attained competitivenes s losses actually have to be regained by a sustained deflation copyright 1993 by royal economic society

foreign aid and domestic savings in less developed countries some tests for causality abstract the negative correlation between foreign aid and domestic savings rates in less developed countries is an accepted fact in the existing literature the direction of causality however remains a subject of dispute in this paper we use time series data to investigate causal relationships we conclude that causal relationships are not universal and it is suggested that in those countries where they do hold the direction of causality may depend upon the proportions of aid from bilateral and multilateral sources

foreign assistance investment and defense a methodological study with an application to israel 1960 1979 this paper develops a method for examination of the relations among outlays on capital formation and national defense and receipts of foreign assistance in developing and other aid receiving countries this model and its results should be of interest to any policy analyst concerned with the effects of aid on the indigenous allocation choices by recipients since it allows one to trace out the effect of aid on these allocative decisions the essence of the method and its novelty is to exploit the price changing feature of foreign aid as seen from the recipient s viewpoint to obtain an estimate of the price responsiveness of the recipient country with the response to prices so determined ownand cross price elasticities with respect to defense investment consumption and so forth can be calculated and the corresponding complementarities or substitutabilities among these categories of demand inferred as will become clear this question is closely related to the question of the extent to which there is a de facto diversion of military or nonmilitary foreign aid to other uses 1 this method is applied to israel chosen because of the urgency of its security and development objectives the availability of data and the magnitude of its foreignassistance receipts however the method is applicable to ldcs in general many of which in a struggle to improve living standards and simultaneously guard against perceived security threats turn increasingly to developed states for assistance the effect of aid on investment and growth has concerned economists for a generation and the possibility that aid might be diverted into consumption has long been recognized as well 2 but trade offs between development and defense especially have concerned economists in recent years e benoit found strong positive relations be

reform of foreign aid policies the issue of inter country allocation in africa abstract the aim of this paper is to assess the inter country allocation of foreign aid by selected donors to 18 recipients in eastern and southern africa esa the five country cases discussed in this paper show that the aid environment has not been supportive of recipients reform efforts during the 1980s a comparison is made between international development agency ida allocation and other donors cross section and time series regressions demonstrate a variety of considerations influencing bilateral aid lastly in discussing present aid policies and coordination efforts three options are analyzed with respect to future aid policies it is suggested that new initiatives by ida in its allocation criteria and aid coordination efforts can yield some progress

macro economic aspects of the effectiveness of foreign aid on the two gap model home goods disequilibrium and real exchange rate misalignment we construct an open economy disequilibrium model to assess the welfare effects of aid in different macroeconomic regimes aid is shown to have different effects in different unemployment regimes because it increases the social costs of wage price rigidities in the classical regime but decreases them in the keynesian unemployment regime a link is made with the two gap model but we highlight the role of real exchange rate misalignment failure to clear the nt goods market

changing beliefs and systematic rational forecast errors with evidence from foreign exchange this paper addresses a new interpretation to the appearance in the early 1980s of systematic errors in forecasting the dollar exchange rate following a change in the process of a fundamental variable market participants revise their beliefs about the process using bayes rule since the market does not immediately recognize the change forecast errors are on average wrong during a period when the market is rationally learning for conservative parameter values the learning behavior of the dollar exchange rate in the early 1980s appears consistent with about half of the dollar s underprediction implied by the forward market copyright 1989 by american economic association

foreign aid economic structure and dependence abstract an inflow of foreign capital leads to structural changes in the economy by lowering the relative price of tradable to non tradable goods it induces a decline of the relative share of tradables in the country s production the effect on consumption shares is less obvious since price and income effects may tend to be offsetting the existence of foreign aid also establishes a dependence of the economy on the outside world estimates of the degree of such dependence through the use of national accounts aggregates would be biased by the afore mentioned effect on relative prices hence specifically estimates of time tends based on the use of current prices may lead to different conclusions from those which employ constant prices for comparison the inferences of this paper are derived in a simple two sector small country model the concreteness and probable relevance of the main propositions are then demonstrated by empirical illustrations

aid the public sector and the market in less developed countries a reply the article in this journal by mosley et al i987 concludes its analysis of aid effectiveness as demonstrating inability of development aid over more than twenty years to provide a net increment to overall growth in the third world p 636 this note purports to show that this conclusion which is ostensibly distressing as the authors claim is not warranted the section of the study which is the basis of the conclusion cited and the subject of this note is a cross section regression analysis full details of which are shown in mosley et al table 3 the note is concerned with the relation between the dependent variable specified as the growth rate of real gdp per cent per annum hereafter gdp and aid specified as a percentage of gdp hereafter aid the aid results with only two significant positive coefficients in one subsample certainly give no basis for claiming aid effectiveness in terms of gdp growth the intention in this note is to interpret the results which are assumed to be valid this is made possible by the fact that the authors have helpfully provided the full input set of mean values derived from the raw data from this it is possible to calculate the gdp aid relationship for each country for the second and third period the procedure for deriving these relationships is as follows for each country the mean values of the time series of gdp and aid are extracted from the data for i 960 70 and for i 970 80 using i 960 70 as the base the signs of the change in the levels of the gdp and aid mean values between periods are recorded this is repeated for i980 4 with i970 80 mean values as the base the relationship between the two signs is an indication of the effect of aid on gdp in the period in which the change in levels is effected thus in the case of an increase in aid being combined with a decrease in gdp the latter must have fallen relatively to the former and aid effectiveness is negative mutatis mutandis for the other three sign combinations thus generating the appropriate gdp aid relationship for each country in each period a frequency distribution of the four sign combinations relating to the full sample is presented in table i since the signs of the changes in the levels of gdp and aid are derived by making explicit the arithmetic relationship implicit in the data they form a valid base from which to draw conclusions without requiring any test of

anomalies foreign exchange most all behavior can be explained by assuming that agents have stable well defined preferences and make rational choices consistent with those preferences in markets that eventually clear an empirical result qualifies as an anomaly if it is difficult to rationalize or if implausible assumptions are necessary to explain it within the paradigm this column will present a series of such anomalies readers are invited to suggest topics for future columns by sending a note with some reference to or better yet copies of the relevant research comments on anomalies printed here are also welcome the address

tests of rational expectations and no risk premium in forward exchange markets abstract this paper tests the simple efficiency hypothesis i e that traders have rational expectations and charge no risk premium in the forward exchange market it uses a statistical procedure which is consistent under a large class of heteroscedasticity and a set of data which takes into account the institutional features of the forward exchange market the results show that this procedure leads to stronger rejections of the simple efficiency hypothesis than do procedures using the standard assumption of homoscedasticity

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

the macroeconomic impact of development aid a critical survey the early literature explained aid s macroeconomic impact in the context of the dual gap model showing a clear link between aid and growth many now believe that the empirical evidence shows there to be no such relationship this paper critically reviews the different theoretical perspectives the dual gap model the savings debate recipient fiscal response and aid as dutch disease and the empirical debates on aid savings and growth the basis for denying a relationship between aid and growth is shown to be weak though more recent areas of research offer promising directions for future work

is there a peso problem evidence from the dollar pound exchange rate 1976 1987 one of the most puzzling aspects of the floating exchange rate regime since 1973 has been the apparent irrationality embedded in investors exchange rate expectations this paper investigates whether exchange rate forecasts although biased are still rational the idea is that investors can be rational and yet make repeated mistakes if the true model of the exchange rate is evolving over time the author s results support the hypothesis that the exchange rate has followed a switching regime process moreover the switching regime model estimated can explain about 75 percent of the bias implied by the forward market and the survey data copyright 1993 by american economic association

imports under a foreign exchange constraint the traditional model of import behavior which looks only at the gross domestic product gdp and real import prices as explanatory variables failed to predict or explain the developing countries import slumps in the early 1980 s this paper expands on a more useful model the hemphill which incorporates the traditional variables relative prices and domestic income with the variables introduced by hemphill foreign exchange receipts and international reserves section 2 of this paper discusses the theoretical models in the present study the traditional model used here as a benchmark is presented first and is later extended to include foreign exchange constraints section 3 presents the empirical estimates of the general import models that include foreign constraints and two special cases the hemphill and benchmark models using pooled cross section time series section 4 concludes that policy makers must look at the policies that affect gdp and prices and the availability of foreign exchange when trying to estimate import behavior in developing countries

why foreign economic assistance there is general agreement in the economics literature that resource flows among countries in response to market incentives enhance global economic efficiency and welfare in both rich and poor countries it has also been argued that in the presence of capital market imperfections the transfer of resources from developed country governments to the governments of developing countries on commercial terms either directly or through multilateral agencies can normally be expected to be welfare enhancing in both developed and developing countries 1 these arguments do not apply however to official development assistance that involves a substantial grant element two arguments have typically been used in support of transfers that include a grant component one set is based on the economic and strategic self interest of the donor country the second is based on the ethical or moral responsibility of the residents of wealthy countries toward the residents of poor countries both sets of arguments have been the subject of continuous challenge i argue in this article that neither the donor self interest nor the ethical responsibility argument can be rejected on logical or theoretical grounds i also assert that the empirical evidence in support of both the economic and the strategic self interest arguments is exceedingly weak the ethical responsibility arguments impose less burden on the empirical evidence but they are subject to continuous challenge by political theorists and moral philosophers donor self interest

instrumental variables procedures for estimating linear rational expectations models abstract this paper illustrates how to use instrumental variables procedures to estimate the parameters of a linear rational expectations model these procedures are appropriate when disturbances are serially correlated and the instrumental variables are not exogenous we compare our procedures to some alternative estimators that estimate free parameters from restrictions implied by the euler equations the procedures are applicable to a variety of linear rational expectations models several examples of which we cite

the foreign exchange constraint suppression of the trade deficit and the shadow price of foreign exchange in a fix price economy abstract the foreign exchange gap is analysed as a possible feature of a fix price economy the implications of closing the gap by means of import rationing are then discussed finally a set of shadow rates of exchange is derived these shadow prices are conditional on the prevailing regimes and include the paradoxical possibility of a negative shadow rate of exchange

does concessionary aid lead to higher investment rates in low income countries goedde alan g u s multinational manufacturing firms the determinants and effects of foreign investment ph d dissertation duke university 1978 grubaugh stephen g the process of direct foreign investment working paper bentley college aug 1986 helpman elhanan a simple theory of international trade with multinational corporations journal of political economy 3 june 1984 451 471 horst thomas firm and industry determinants of the decision to invest abroad an empirical study this review 54 aug 1972 258 266 at home abroad a study of domestic and foreign operations of the a merican food processing industry cambridge ma ballinger 1974 hymer stephen h the international operations of national firms a study of direct foreign investment ph d dissertation m i t published by m i t press 1976 judge george g r carter hill william e griffiths helmut lutkepohl and tsoung chao lee introduction to the theory and practice of econometrics new york john wiley and sons 1982 macdougal g d a the benefits and costs of private investment from abroad a theoretical approach economic record 36 mar 1960 13 35 markusen james r multinationals multiplant economies and the gains from trade journal of international economics 3 4 may 1984 205 226 pindyck robert s and daniel l rubinfeld econometric models and economic forecasts second edition new york mcgraw hill 1981 rugman allen m inside the multinationals the economics of internal markets new york columbia university press 1981 vaupel james w and joan p curhan the making of multinational enterprise cambridge division of research graduate school of business administration harvard university 1969

nicholas kaldor 12 may 1908 30 september 1986 nicholas kaldor1 resembled keynes more than any other twentieth century economist because of the breadth of his interests his wide ranging contributions to theory his insistence that theory must serve policy his periods as an adviser to governments his fellowship at king s and of course his membership of the house of lords it is impossible in a short article to do full justice to kaldor s extraordinary achievements so i shall concentrate on aspects of his theoretical contributions 2 to put them in perspective at least two things must be remembered first while kaldor was a highly original theorist full of ideas of his own and making important modifications to and criticisms of the theories of others he was also fortunate in his mentors as he generously acknowledged second kaldor s contributions to theory fall into three distinct stages

oil windfalls in a small parliamentary democracy their impact on trinidad and tobago in common with other oil exporters trinidad and tobago reaped large windfall gains after 1973 their use was heavily influenced by its distinctive political economy and resulted in substantial weakening of its non oil traded sectors the dutch disease attempts to diversify through gas based industrialization are not likely to replace shrinking oil income this paper traces the relationship from political objectives to use of oil windfalls and the effects on the non oil economy

the economic consequences of mrs thatcher it is difficult to overstate the gravity of what is now happening to the uk economy output is falling at an almost unprecedented rate unemployment is at a level not experienced since the inter war depression and is increasing rapidly towards 3 million or 13 of the labour force which would mean rates of 20 and above in large areas of the country nor is there any foreseeable prospect of unemployment coming down instead all the signs point to a continuing increase the social and political consequences of this are hard to predict it is not just a matter of the financial hardship suffered by those thrown out of work through no fault of their own or of the strain imposed on the social welfare system but also of the mental stress disillusionment and sense of helpless ness which come with not being able to find a job this could well have a damaging long term effect on attitudes towards work particularly among young people con demned to go straight from school on to the unemployment register and is almost bound to lead to widespread social unrest the cause of sudden high unemployment in the uk is a backlash against the consensus post war economic policies of demand management to maintain near full employment of support for industry and of income maintenance and the provision of social welfare services policies which were developed in response to the experience of the inter war years the thatcher government has embraced a doctrinaire monetarist strategy for controlling inflation and a laissez faire approach to the supply side of the economy without attempting to moderate the social impact of these policies the extreme nature of this experiment has attracted a good deal of interest from abroad especially from the usa where the new president has expressed admiration for mrs thatcher and what her government is doing if only because there is a danger of governments in other countries following the uk s lead particularly as both the imf and oecd have recently urged the pursuit of similar policies it is important to draw international attention to what is now happening in the uk 18 months after mrs thatcher took office in sharp contrast to the rhetoric of government promises the economy has been set on a path of rapidly falling output and escalating unemployment leading towards the destruction of large parts of manufacturing industry at the same time the social advances which have been made during the post war period are beginning to be reversed as the government desperately seeks ways of offsetting the increase in its budget deficit caused by deepening recession

foreign exchange market efficiency tests implications of recent empirical findings abstract the recent empirical literature on the efficiency of the foreign exchange market has been characterized by strikingly contradictory conclusions drawn from similar empirical evidence these contradictions result because 1 different maintained hypotheses are held and 2 different criteria e g micro versus macroeconomic are used to judge the evidence in this survey we organize the empirical literature under several headings the presence of risk premiums empirical regularities in regression tests profitable trading rules and advanced econometric techniques in integrating this material we consider the implications of the current evidence for investors forecasters policy makers and theorists

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

foreign aid war and economic development south vietnam 1955 1975 list of figures list of tables preface 1 the rise and fall of the economy 2 us aid to vietnam goals and programming 3 the growth of national income 4 indicators of economic development 5 land reform and income distribution in vietnam economic development 6 domestic saving foreign aid and economic development 7 wartime inflation 8 windfall gains from importing 9 the international value of the piaster 10 vietnam foreign assistance 11 financing public expenditures 12 the fiscal dilemma 13 foreign aid and economic development in an environment of high military threat notes references index

democracy and markets the case of exchange rates the relationships between the workings of democratic institutions and currency markets are studied severa competing propositions about how political re equilibration affects currency markets are derived and tested the results support the view that democratic politics affects currency markets expectations and uncertainty about electoral outcomes and government survival affect the probability of switching between currency market equilibria additionally opinion polls about chief executive performance have a direct effect on the probabilities of switches between currency regimes suggesting that these polls cause currency traders to revise their expectations about the stability of governments and or the contents of public policies electoral institutions mitigate the impact of politics on currency market equilibria political effects are weaker in countries with proportional representation electoral systems than in countries with majority plurality systems there is less evidence that central bank independence consensual corporatist systems or political coherency reduces the effect of politics on currency markets he study of democracy and markets is at the heart of political economy understanding how political equilibration and economic equilibration are related is one of the main challenges facing this field the size and nature of currency markets make them especially important cases substantively with globalization currency markets have become important constraints on elected governments reducing their room to maneuver analytically in comparison to most goods markets currency markets are informationally efficient asset markets with distinctive equilibria today s exchange rate is determined by currency traders fully informed expectations about tomorrow s exchange rate the sensitivity of these markets to the arrival of new information therefore makes them particularly well suited for studying the effects of political news and uncertainty on economic equilibration 1 this article demonstrates there are informationally relevant political factors insofar as exchange rate determination is concerned factors that directly affect the transition probabilities between currency market equilibria moreover these factors vary in important ways across democracies some electoral institutions lessen the effects of politics on currency

welfare effects of tied food aid abstract an important part of the overall u s aid program is public law 480 food aid the design of the program seeks to satisfy numerous and often conflicting objectives several constraints have been placed on the use by recipient countries of that aid to insure that the intentions of the program are achieved this paper examines the implications for recipient country welfare of both the traditional and the proposed restrictions on pl480 aid it also seeks to clarify the interpretation of empirical work on the effects of this aid it is shown that the net value of such commodity tied aid is simply the grant component of the subsidized sale and may easily be realized by substituting food aid imports for commercial imports restrictions which prevent aid recipients from doing so are costly to the recipient and could lead even to immuserization empirical evidence obtained by others is consistent with the notion that such restrictions are circumvented where possible by food aid recipients the results presented indicate that a schultzian disincentive effect is characteristic of a closed economy typical interventions on the part of recipient country governments do not effectively reclose the economy hence open economy models are more appropriate frameworks for evaluating the effects of pl480 aid

is foreign aid fungible the case of indonesia this paper considers whether foreign aid given for specific categories of expenditure is fungible among them and whether aid reduces tax effort by the recipient government models developed to analyze the fiscal relations among different levels of government in the united states are applied to analysis of the impact of foreign aid econometric analysis of data for indonesia reveals that aid is largely spent as the donors intended that aid does not lead to a reduction in tax effort and that aid is not diverted to nondevelopment current expenditures copyright 1990 by royal economic society

on some estimates of an asian savings function abstract recent empirical studies have led many economists to argue that a number of countries in asia could stimulate savings if they permitted higher rates of interest and accepted less foreign aid this paper critically examines the econometric basis of these claims for this purpose the model specifications found in past work are encompassed within a more general model so that they may be replicated and tested as restricted forms