Economic Development

It is widely acknowledged that underground (unrecorded) economic activities play a major role in transition economies. Evaluations of the success and failure of the transition experience should therefore be based on total economic activity [TEA], namely, the sum of recorded and unrecorded economic activity. Substantive conclusions concerning the effects of unrecorded activities on the transition process as well as investigations of the causes and consequences of unrecorded activities have to date, relied extensively on estimates of unrecorded income based on variants of the electric consumption method [ECM] during the first half of the transition process. We first attempt to replicate these estimates employing improved data series. We then go on to extend and update alternative versions of the ECM estimates of unrecorded income for twenty five transition countries for the period 1989-2001. These new estimates enable us to examine the sensitivity of the results to alternative specifying assumptions, particularly, initial conditions. We find that our updated ECM estimates of the size of the unrecorded sector are not only highly sensitive to initial conditions, but they produce negative estimates of unrecorded income for many transition countries. Our findings are also compared to the new national accounting procedures that attempt to estimate exhaustive measures of the “non-observed economy”. Our disturbing results call into question many of the substantive conclusions reached by other scholars who relied on earlier ECM estimates to draw inferences about the transition process as well as the causes and consequences of underground economies in transition. In short, while we conclude that ECM estimates of the size of the unrecorded economy are unreliable, it is still possible to use the growth rate of the unrecorded sector to make important inferences about the transition process by examining the dynamic relationship between recorded and unrecorded sectors. The extension of our data base to cover the entire transition period will hopefully result in new investigations employing panel data rather than the more traditional method of applying simple cross country test procedures.

propose the replacement of our current system of individual and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive “revenue neutral” Automated Payment Transaction (APT) tax. The APT tax consists of a flat rate tax levied on all voluntary transactions. The total volume of transactions represents the broadest conceivable tax base and therefore requires the lowest conceivable marginal tax rate. Since the efficiency (misallocation) costs of a tax system tend to rise geometrically with the marginal tax rate, a massive reduction in tax rates can save an estimated $300 billion of misallocation costs associated with the current tax system. The APT tax is automatically assessed and collected when transactions are routinely settled through the electronic technology of the bank/payments clearing system with no deductions, exemptions, or exclusions. The APT tax also imposes an automatically collected tax on cash as it enters and leaves the banking system. All income and information tax returns are eliminated as taxes are digitally assessed and collected by the financial equivalent of the E-Z pass that is now used to speed traffic through a toll booth system on highways. The annual savings in compliance and administrative costs are estimated to be $200 billion per year. Unlike the “Fair Tax” or “National Sales Tax” proposals which are highly regressive, the flat rate APT tax introduces progressivity through the tax base since the total volume of transactions includes all asset transactions involving exchanges of titles to property. The wealthy carry out a disproportionate share of these asset exchanges and therefore bear a disproportionate burden of the tax despite its flat rate structure. The perceived fairness, even handedness and simplicity of the APT tax will greatly reduce tax evasion, which the IRS estimates to total $325 billion per year. Like all taxes, the APT tax creates new distortions which must be weighed against the benefits obtained by scrapping the current tax system. Scrapping the present tax system tax promises potential benefits estimated at $825 billion annually. The proposed APT tax is simple, comprehensible, fair and efficient, with minimal administrative and compliance costs. The burden of proof therefore rests with APT tax opponents who must demonstrate that its costs exceed the $825 billion of potential annual benefits.

As part of the International Sexuality Description Project, 16,954 participants from 53 nations were administered an anonymous survey about experiences with romantic attraction. Mate poaching—romantically attracting someone who is already in a relationship—was most common in Southern
Europe, South America, Western Europe, and Eastern Europe and was relatively infrequent in Africa, South/Southeast Asia, and East Asia. Evolutionary and social-role hypotheses received empirical support. Men were more likely than women to report having made and succumbed to short-term poaching across all regions, but differences between men and women were often smaller in more gender-egalitarian regions. People who try to steal another’s mate possess similar personality traits across all regions, as do those who frequently receive and succumb to the poaching attempts by others. The authors conclude that human mate-poaching experiences are universally linked to sex, culture, and the robust influence of
personal dispositions.

Our research found that that a reputation for ethical leadership rests upon two pillars: 1) moral being and 2) moral managing.  The first pillar, moral being, has to do with the ethical substance of ethical leadership -- being an ethical person who consistently makes decisions and behaves based upon a solid set of ethical values. The second pillar, moral managing, has more to do with the leadership process aspect of ethical leadership.  It is about creating perceptions in others of the importance of ethics and values in the organization. One’s reputation depends upon others’ perceptions.  To be perceived as an ethical leader, others must perceive the ethical dimension of your leadership.

The use of development is ubiquitous in everyday language, and theories regarding it can be found in the social sciences and humanities. Although much work has been done to examine the meaning of development and its history, little attention has been paid to Hegel's role as the philosophical anchor for the modern life of development. By revisiting Hegel's Philosophy of History and analyzing some of the most influential thinkers in modern theories of human development - spanning economic, social, cognitive and moral - the author argues that these theories are far from escaping the Hegelian logic of Development. Furthermore, he warns of the potential violence necessarily assumed in such theories, and that revolutionizing the philosophical framework upon which developmental theories rest would be a worthwhile endeavor.

In 1892, the German government introduced the Gesellschaft mit beschränkter Haftung (GmbH), a new legal form for enterprise. Prior to this date, entrepreneurs organizing a multi-owner firm had to decide between the partnership and the corporation. The partnership required unlimited liability for at least some investors and by its nature as a personal contract was impermanent. The corporation, on the other hand, did not entail these problems, but made it relatively easy for some investors to abuse the rights of others.  The GmbH allowed entrepreneurs to combine limited liability with a joint-stock form and at the same time to construct governance rules tailored to their particular firm. The GmbH is now the most common enterprise form in Germany. Many other countries introduced similar enterprise forms, sometimes deliberately modeling theirs on the GmbH. Many accounts in Germany presume that the GmbH took a specific form, and was found mostly in certain sectors. Yet little is known about numbers and characteristics of firms that organized this way. We also know little about how entrepreneurs altered the default rules to organize their own firm. This paper reports the first steps toward filling in both gaps.

Chile and Mexico experienced severe economic crises in the early 1980s. This paper analyzes four possible explanations for why Chile recovered much faster than did Mexico. Comparing data from the two countries allows us to rule out a monetarist explanation, an explanation based on falls in real wages and real exchange rates, and a debt overhang explanation. Using growth accounting and a calibrated growth model, we find that the difference in the performance of Chile and Mexico was driven not by differences in inputs of capital and labor stressed by traditional theories of depressions, but rather by differences with which these inputs were used, measured as total factor productivity (TFP). Using economic theory to interpret historical evidence, we conclude that the crucial difference between the two countries was earlier reforms in government policy in Chile. The most crucial of these reforms were in banking and bankruptcy procedures.

Problems of defining and measuring unemployemnt in the contemporary American economy are examined here using data from the official employment survey. The paper finds that only a minority of the unemployed conform to the conventional picture of a worker who has lost one job and is looking f or another job. Other important categories are those who have jobs but are not at work because the jobs have not yet started or because of layoff, workers who are in normal spells between temporary jobs, people who are looking into the possibility of work as an alternative to household duties, school, or retirement, and people who have come back into the labor force. None of these categories is dominant.

This paper develops a new instrumental-variable (IV) approach to estimate the effects of di¤erent exchange rate regimes on bilateral outcomes. The basic idea is that the characteristics of the exchange rate regime between two countries (exchange rate variability, …xed or ‡oat, autonomous or common currencies) are partially related to the independent decisions of these countries to peg -explicitly or de facto-to a third currency, notably that of a main anchor. Our approach is to use this component of the exchange rate regime as an IV in regressions of bilateral outcomes. We illustrate the methodology with one speci…c application: the economic e¤ects of currency unions. The likelihood that two countries independently adopt the currency of the same anchor country is used as an instrument for whether they share or not a common currency. Three …ndings stand out. First, sharing a common currency enhances trade, supporting previous work by Rose [2000]. Second, a common currency increases price co-movements; this …nding is consistent with the observation that a large part of the variation in real exchange rates is caused by ‡uctuations in nominal exchange rates. Finally, a common currency decreases the co-movement of shocks to real GDP. This is consistent with the view that currency unions lead to greater specialization.

This paper provides a survey and synthesis of econometric tools that have been employed to study economic growth. While these tools range across a variety of statistical methods, they are united in the common goals of first, identifying interesting contemporaneous patterns in growth data and second, drawing inferences on long-run economic outcomes from cross-section and temporal variation in growth. We describe the main stylized facts that have motivated the development of growth econometrics, the major statistical tools that have been employed to provide structural explanations for these facts, and the primary statistical issues that arise in the study of growth data. An important aspect of the survey is attention to the limits that exist in drawing conclusions from growth data, limits that reflect model uncertainty and the general weakness of available data relative to the sorts of questions for which they are employed.

Although amphibian populations are thought to be declining in many parts of the world, detailed information on populations in decline are often not available. From 1988 to 2001, we studied temporal variation in the reproductive biology of the only known population of dusky gopher frogs, Rana sevosa Goin and Netting. We found high annual variation in reproductive effort, mortality at the egg and larval stages, and hydroperiod length. No overall trends were apparent in terms of either number of egg masses deposited or in reproductive success, as we found extensive variation among years in the number of egg masses deposited, a high rate of reproductive failure, and no consistent relationship between the number of females present, the number of eggs deposited, and the number of metamorphs emerging. Given the complete isolation of this population from other gopher frogs and the high rate of reproductive failure, the probability of extinction of this population appears to be quite high (0.125-0.316).

Many growth models assume that aggregate output is generated by a Cobb-Douglas production function. In this article we question the empirical relevance of this specification. We use a panel of 82 countries over a 28-year period to estimate a general constant-elasticity-of-substitution (CES) production function specification. We find that for the entire sample of countries we can reject the Cobb-Douglas specification. When we divide our sample of countries up into several subsamples, we find that physical capital and human capital adjusted labor are more substitutable in the richest group of countries and are less substitutable in the poorest group of countries than would be implied by a Cobb-Douglas specification.

Imagine a large population of individuals who will be drawn at random, one by one, to make a choice from a set of styles of consumer goods (such as shoes). Assume that individuals vary continuously in their disposition to "stand out from" or "blend in with the crowd," meaning that each has preferences over the number of others wearing the style she currently wears. More nonconformist types want to wear a style that relatively few others wear; more conformist types want to wear relatively popular styles.

Coalitions aimed at the capture of political "pork" have a strong incentive to limit their size in order not to dilute each winner's share of the spoils. This means that a criterion is needed to distinguish losers from winners so they can be excluded from entry into the winners' coalition. In mass politics, the ascriptive mark of ethnicity serves this purpose much better than marks or criteria that can be chosen by anyone who wants access to the pork, such as party affiliation or ideological beliefs. If pork is dispensed on the basis of a criterion that can be chosen or readily altered, then the winning coalition will rapidly expand. Thus, the politics of pork favors coalitions based on features not easily chosen or changed by individuals, among which ascriptive criteria such as ethnicity are leading candidates. The paper develops this simple idea, showing how it may help explain why political coalitions in some many countries are based on ethnicity, and what explains variation in the political salience of ethnicity across countries and over time.

Mainstream political economy has tended to treat the family as a unit when examining the distributional consequences of labor market institutions and of public policy. In a world with high divorce rates, we argue that this simplification is more likely to obscure than to instruct. We find that labor market opportunities for women affect women's bargaining power within the family and as a result, can explain much of the cross country variation in the household division of labor, patterns of divorce, and political preferences.

This paper shows how cross-national variation in labor market attributes, social policies affecting female employment, and divorce laws affect both female labor force participation and divorce. These, in turn, lead to a systematic gendered pattern in the preferences for government spending on social services. Analyzing data on household division of labor and divorce, we show that a politically and institutionally mediated bargaining model better explains choices over allocation of work than does Becker's economic model, which assumes a single family utility function. This analysis suggests the fruitfulness of investigating how labor markets and public policies may shape gender stereotypes, and for how child support rules may affect women's decisions about labor market participation.

We construct a framework for measuring economic activity at high frequency, potentially in real time. We use a variety of stock and flow data observed at mixed frequencies (including very high frequencies), and we use a dynamic factor model that permits exact filtering. We illustrate the framework in a prototype empirical example and a simulation study calibrated to the example. frequencies, including quarterly (e.g., GDP), monthly (e.g., industrial production), weekly (e.g., employment), and continuously (e.g., asset prices), and we want to be able to incorporate all of them, to provide continuously-updated measurements.

Property rights underly the workings of almost all economic life. In the weightless economy, however, property is intellectual property-not the same as scientific knowledge, perhaps, but intellectual property nonetheless, in having all the same physical and economic properties as knowledge. What difference does this make to economic performance? Danny Tyson Quah asserts the changes will be large, and lays out some of the economic reasoning underlying decisions that societies will need to make.

When an academic, scientist, or research engineer harps on about the knowledge-based economy, it's hard to take as anything other than shameless self-serving hyperbole. Knowledge is, after all, what these people are supposed to be producing, and now here they are, telling the rest of us that that's what drives the economy. Combine those self-promoting tendencies with the superficial observation that computers, the Internet, computer software, and other information technology-all products of scientific research-are more and more used in economic life: Little wonder that knowledge-economy and information-economy pushers are in full feeding frenzy.

When the Secretary of State Stephen Byers earlier this morning spoke of globalisation and worldwide developments, that seemed to me exactly the right perspective to take, i.e., a global one. My remit this morning is narrower; I hope it turns out not to be internally inconsistent. I want to talk about "Unpacking globalisation and new technology in Britain." This is the month that observers remarked on a Wal-Mart effect lowering UK supermarket prices; that, from the US, MIT agreed to a joint venture with Cambridge University on the academics of entrepreneurship and productivity; that NASDAQ announced expanding its operations into a market for high-tech stocks in Europe, in competition with domestic stock markets already here; that Europe's first Internet-based buying cooperative described a mechanism to force down consumer prices across Europe by Internet arbitrage, pooling UK and other consumers' purchasing power; that a judge in the US concluded monopoly practice in Microsoft's bundling operation systems and internet browsers, with the EU watching closely to see what actions it too might take, all in the interests of the consumer.

Digital goods are bitstrings, sequences of 0s and 1s, that have economic value. They are distinguished from other goods by five characteristics: digital goods are nonrival, infinitely expansible, discrete, aspatial, and recombinant. The New Economy is one where the economics of digital goods importantly influence aggregate economic performance. This Article considers such influences not by hypothesizing ad hoc inefficiencies that the New Economy can purport to resolve, but instead by beginning from an Arrow-Debreu perspective and asking how digital goods affect outcomes. This approach sheds light on why property rights on digital goods differ from property rights in general, guaranteeing neither appropriate incentives nor social efficiency; provides further insight into why Open Source Software is a successful model of innovation and development in digital goods industries; and helps explain how geographical clustering matters.

This paper models spatial economic development, making explicit both time and space. Locations are not just points-which would leave unanswered the question, What happens in between?-but instead a continuum. Equilibrium is a law of motion in spatial distribution dynamics, or a transition kernel in measures on geographical space. The paper provides a model of economic geography without transportation costs; it is used to study the evolution across Earth of financial, Internet, telecommunications, and computer activity.

Hardly any economist or economic historian now disputes that technical progress and advances in scientific knowledge underpin all long-term, sustained economic growth. Sure, in the short run, sharp spurts of improvement in economic performance can arise from investing in factories, streamlining transportation and distribution networks, bettering market structure, and removing impediments to production and trade. But significant and desirable though such policy actions might be, by themselves they at best move society only towards a static and fixed state of increased economic welfare; further gains eventually grind to a halt. Only through improvements in technology can enduring growth continue.

We show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and inter-regional trade. Labor heterogeneity gives local monopoly power to firms but also introduces variations in the quality of the job match. Matches are likely to be better when there are more firms and workers in the local market, giving rise to an agglomeration force which can offset the forces against, trade costs and the erosion of monopoly power. We derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical simulations.

Because efforts to explain international saving differentials using tranditional economic variables have not been very successful , some economists have proposed that national saving differences reflect cultural differences. We attempt to test that hypothesis by using data from the US Census to examine whether immigrants to the US from high-saving countries tend to save more than immigrants from low-saving countries. While we do find highly statistically significant differences in immigrants' saving behavior by country of origin, those differences do not match up with the differences in national saving rates. In particular, immigrants from high-saving Asian countries do not save more than other immigrants.

In this paper a national income poverty line for Namibia is derived based on estimated expenditures required to sustain a minimum calorific intake (food poverty line) as well as other basic necessities such as clothing and shelter (non-food poverty line). Estimates are based on actual consumption patterns of the poorest as recorded by the Namibia Household Income and Expenditure Survey conducted in 1993/94. This method is preferred over the previously applied food-share method. The overall poverty line is estimated at N$107 per capita per month in 1993/94 prices or approximately N$212 per capita per month in 2003 prices. According to this definition 53% of households and 65% of individuals in Namibia live below the income poverty line at the time of the survey. The analysis confirms tremendous inequalities in the way income and poverty is distributed. The poorest 20% of the population receives 2.5% of total expenditure, while the top 20% receives 71%. The standard measure of inequality, the Gini-coefficient, is estimated to be 0.697, which is probably the highest in the world. The methods and analysis presented in the paper should serve as a bench-mark for the analysis of the ongoing 2003/04 income and expenditure survey in particular and as a key tool for designing, implementing and monitoring policies that can effectively combat income poverty and inequality in Namibia in line with Vision 2030 and the Millennium Development Goals.

We analyze costly quality disclosure with horizontally differentiated products under duopoly and monopoly, and characterize the effect of competition on disclosure and welfare. We show that expected disclosure is higher under monopoly than under duopoly, and the welfare comparison depends on the level of disclosure cost: when the disclosure cost is low, welfare is higher under monopoly than duopoly, but when the disclosure cost is high (but not so high as to eliminate disclosure), welfare is higher under duopoly. In either market structure, disclosure is excessive in terms of total surplus, but insufficient in terms of consumer surplus.

We begin our study of international trade with a model that has two goods and two factors (labor and capital). We shall suppose that the two goods are traded on international markets, but do not allow for any movements of factors across borders. This reflects the fact that

We begin this chapter by describing the Hecksher-Ohlin model with two countries, two goods, and two factors (or the 2x2x2 model). This formulation is often called the Heckscher-Ohlin-Samuelson (HOS) model, based on the work of Paul Samuelson who took the original insights of Eli Heckscher and his student Bertil Ohlin (1933), and formed them into a mathematical model. 1 The goal of that model is to predict the pattern of trade in goods between the two countries, based on their differences in factor endowments. Following this, we present the multi-good, multi-factor extension that is associated with the work of Vanek (1968), and is often called the Heckscher-Ohlin-Vanek (HOV) model. As we shall see, in that formulation we do not attempt to keep track of the trade pattern in individual goods, but instead, compute the "factor content" of trade, i.e. the amounts of labor, capital, land, etc. embodied in the exports and imports of a country.

This paper develops a theoretical model of land leasing that includes transaction costs of enforcing labor effort, risk pooling motives and non-tradable capital inputs. We test the implications of this model compared to those of the "Marshallian" (unenforceable labor effort) and "New School" (costlessly enforceable effort) perspectives using data collected from four villages in Ethiopia. We find that land lease markets operate relatively efficiently in the villages studied, supporting the New School perspective. Land contract choice is found to depend upon the social relationships between landlords and tenants, but differences in contracts are not associated with significant differences in input use or output value per hectare. We find that other household and village characteristics do affect input use and output value, suggesting imperfections in other factor markets. The efficiency of land lease markets is a critical is sue in many developing countries, where land sales markets are often thin and inhibited by problems of asymmetric information and transaction costs. The issue is particularly important in Ethiopia, where land sales are officially prohibited by the new Constitution and where land leases were prohibited by the former Marxist government until 1991. Land leases have been permitted since 1991, and are again becoming common in many parts of Ethiopia. Now is thus an opportune time to assess the efficiency of the lease markets developing in Ethiopia. There is an old and large literature on land tenure contracts and their implications for agricultural efficiency. Adam Smith, John Stuart Mill, Alfred Marshall, and many economists since have argued that share tenancy causes inefficient resource allocation because the share tenant receives only a fraction of the value of his marginal product of labor, thus reducing the incentive to supply labor or other inputs. More recently, others have argued that if the tenant's work effort can be costlessly monitored and enforced by the landlord, then resource allocation can be as efficient under sharecropping as under owner-cultivation or fixed-rent tenancy (Johnson; Cheung). Whether costs of monitoring and enforcing tenancy contracts are sufficiently low to allow for efficient sharecropping is of course an empirical question.

Using detailed data on gifts, loans, and asset sales, this paper investigates how rural Filipino households deal with income and expenditure shocks. We find that shocks have a strong effect on gifts and informal loans, but little effect on sales of livestock and grain.

We investigate whether available enforcement mechanisms a¤ects who shares risk with whom in sub-Saharan Africa by applying dyadic regression analysis to data from a lab-type experiment, surveys and a genealogical mapping exercise. During the experiment participants were invited to form risk sharing groups under three enforcement mechanisms: external, intrinsic, and extrinsic, i.e., social sanctioning. Same sex dyads and dyads who belong to the same economic community-based organizations (CBOs) are more likely to share risk.

This paper offers an original survey of the Malaysian crisis and the effects of the consequent imposition of capital controls by authorities in September 1998 and of their subsequent relaxation in February and September 1999. We identify Malaysia’s unique strengths and weaknesses before the crisis, appreciate the differential timing and nature of the Malaysian crisis vis-à-vis the other neighbouring crisis countries, and distinguish carefully between the restrictive and incentive components of the imposed controls. Against this backdrop, we analyse both the “level” (first-order) effects and the “volatility” (second-order) effects of controls on key macroeconomic, banking and financial market variables. On the level effects, we found the Malaysian recovery (starting late 1998) to be at least as quick, strong and lasting as that of the other crisis countries, and discovered important channels of influence from controls to interest rates (which were lowered) and stock markets (which recovered dramatically). These results on the effectiveness of controls are consistent with earlier studies by Edison & Reinhart (2001) and Kaplan & Rodrik (2001). However, due to the longer time period used here, a stronger restatement of their conclusions is now possible. We study the secondorder effects of controls by introducing a Capital Asset Pricing Model (CAPM)-based portfolio choice model and show how controls, especially when they work as an asymmetric tax on short-term investment, reduce both the volume of speculative flows and the associated interest rate volatility. To test these theoretical results, we set up a standard Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model of interest rate and stock market volatility where capital control dummies are introduced in the variance equation. Our model is an improvement over earlier studies in two ways: a more sophisticated capital control dummy was used to take account of the relaxation of controls in February 1999; and we dealt with the problem of endogeneity in the mean equation by using regressors that are not Granger-caused by the regressand (Malaysian interest rate and stock returns). The model shows that controls did limit interest rate volatility in line with the theoretical prior, but worsened stock market volatility. The latter result lends credence to the view that controls shifted the burden of adjustment from quantity to prices.

It is commonly asserted by economists, comparative political scientists and international policymakers that government effectiveness is important. The liberal tradition holds that good government performance leads to competitive markets and to the efficient delivery of goods and services. These ideas derive from numerous studies emphasising the benefits of good governance. These studies suggest that the incentives for good governance are created by a country’s formal political rules. Political and economic “success are often attributed to a set of formal institutions, social infrastructure, or even mental frameworks. The underlining rationale of this approach is based on the assumption that "institutions matter". Although the literature stressing the benefits of institutions for good governance is prolific, no one has actually been able to prove which institutions matter for social and economic success or to what extent. At the same time, and more fundamentally, most scholars have difficulty agreeing what effective government really is. Added to this conundrum is the reality that fully effective governments and markets have not been attained in any country. In summary, this vast literature is casual and even contradictory in defining which institutions actually matter for good governance and is generally lacking in empirical foundation.