Economic policy

A broad political economics literature explains the introduction and expansion of pension systems, but the effects caused by the endogenous reduction of fertility are typically disregarded, as the fertility choice is usually considered exogenous. This paper suggests a political model that takes into account these effects and analyzes the net effect of the reduction of fertility costs on the dimension of pension systems. Some stylized facts support an inverted-U development pattern: a continuous and progressive increase of the fertility cost, after inducing the introduction of pension systems, tends to reduce, ceteris paribus, their political support.

This article seeks to account for the erratic patterns of conflict and cooperation observed in MERCOSUR since 1995. It argues that the marked deterioration of trade and diplomatic relations between Argentina and Brazil in the late 1990s and early 2000s is best explained in reference to domestic political constraints on inter-state cooperation. Two domestic-level dynamics shaped the national preferences for regional cooperation of Argentina and Brazil: state–society relations and intra-state cleavages. The recurrent instances of
defection in the late 1990s reflected not only societal pressure but also the macroeconomic and political calculations of national policymakers. Tension among different state agencies sharing power over regional policy-making further undermined the coherence of member states’ behavior toward their regional commitments. This ‘second-image’ explanation of conflict in MERCOSUR is illustrated with case studies of three major trade disputes between Argentina and Brazil: the 1995 automobile sector crisis, the 1999 footwear industry dispute and the 2001 conflict over the common external tariff.

Although the empirical literature is not unanimous about the existence of a continuous long-term deterioration in the terms of trade for commodities (the original and most common formulation of the Prebisch- Singer hypothesis) and, hence, about the possibility of inferring their future behaviour on this basis, there is a consensus as to the sharp drop in the barter terms of trade, especially from the 1920s on. This paper presents a critical review of the theoretical and empirical literature on the subject and the implications for development strategies.

With the global financial crisis becoming a global economic crisis, the South African economy is facing challenges both from external and domestic quarters in terms of lower aggregate demand. In the following sections we will try to argue that perusing inflation targeting in a time of crisis has made task of the central bank to revive domestic demand more challenging. The internal growth dynamic will deteriorate further on the back of more vulnerable household sector and contracting household demand.

This paper focuses on the challenges faced by the mobile operator Nawras when entering the Omani telecoms market in 2005.  The source material consists of autoethnographic accounts of two European managers who worked at Nawras during the launch period. The result is a rich and highly personal account of market entry challenges and managerial efforts to overcome such challenges in a newly deregulated Gulf country. The Nawras story suggests that entrants into a Gulf market such as Oman need a great deal of flexibility and improvisation capabilities in order to become successful.

A variety of opinions either in favour or
against development of biofuels has risen in the last
years related to the environmental, economic and social
impacts that its diffusion could entail compared to
petroleum. Although the EU, in general, and Spain, in
particular, are strongly supporting the development of
biofuels they highlight that energy planning must be
based on a sound analysis of the impacts of the diverse
alternatives. This poster is a preliminary approach to
this analysis. The main aim is to prioritize a set of
environmental, economic and social objectives to
identify the most relevant issues that would allow
evaluating the impacts of the biofuel production and
consumption in Spain. Analytic Network Process (ANP)
and Analytic Hierarchy Process (AHP) are the
multicriteria decision-making methodologies
implemented to deal with the problem based on experts’
knowledge. The superiority of ANP versus AHP is
discussed and the former is recommended. Results
indicate that the most important objectives for a
sustainable development of biofuels in Spain are
conservation of non-renewable resources, within the
environmental issues, the ease to be technically
implemented in production, storage, distribution, and
consumption, within the economic issues, and the direct
employment in the agro-energy system, within the social
issues.

Product development partnership (PDP) success rests on an ability to create new science and technology but it also depends on the creation of new organisational structures and cultures which can successfully develop appropriate technology and products and get them to those who need them.  One of the main reasons PDPs are supported and funded is that they constitute a ‘social technology’ innovation.  As such they work both with ‘above the radar’ established and formal mechanisms for developing new products and with ‘below the radar’ networks, organisations and physical technologies in developing countries so that products are appropriate, understood and accepted and can be made accessible to those who need them.  We argue that thinking about PDPs in this light provides a useful framework for evaluation.

This paper characterizes the optimal way for a principal to structure a rank-order tournament in a moral hazard setting (as in Lazear and Rosen (1981)). With considerable generality, it is optimal to give rewards to top performers that are smaller in magnitude than corresponding punishments to poor performers. The paper also identifies four reasons why the principal might prefer, instead, to give larger rewards than punishments: (i) risk aversion (R) is small relative to absolute prudence (P); (ii) the distribution of shocks to output is asymmetric and the asymmetry takes a particular form; (iii) the principal faces a limited liability constraint; and (iv) there is agent heterogeneity of a particular form. Intuition is given as to why these factors affect the optimal prize schedule. This paper uses the theory developed by Green and Stokey (1983) to relate the results about tournaments to the structure of the optimal individual contract. The optimal individual contract typically punishes low output more than it rewards high output. The paper also gives conditions under which the optimal individual contract will be a concave function of output.

"This paper provides empirical estimates for the impact of R&D on economic growth in Singapore.  The Cobb–Douglas based analysis found that R&D investment had a significant impact on total factor productivity performance in the last 20 years and established a long-term equilibrium relationship between R&D investments and TFP. However, compared to OECD countries, the impact of R&D on growth in Singapore is not as strong. To catch up with the developed nations in terms of R&D productivity
not only requires increasing R&D intensity in Singapore but also more efficient exploitation of domestic R&D activity.

Keywords: Economic growth; R&D expenditure; Total factor productivity."

Executive summary
This report is the evaluation of the first project of Education Walsall’s Commissioning Group.  It commissioned a cluster of primary schools in one ward of the local authority in April 2007 to develop and implement a whole school approach to improve the lifestyles of students, staff, parents/guardians and the wider community with the aim of contributing to the prevention of childhood obesity. This executive summary outlines the evaluation’s broad findings, key messages, lessons learned and recommendations. 

Recommendations
• Introduce a range of interventions, applied locally, addressing both food and exercise, with particular focus on areas such as school meals and involving children in cooking
• Interventions need to focus on involving parents and families
• Target travel to school - the project had a significant impact here.
• Research is still limited into childhood obesity.  The project cohort is a substantial dataset which could be monitored further as the children mature to produce valuable data in what is still an emerging area for research and policy.

While the implementation of the North American Free Trade Agreement (NAFTA) has certainly benefitted Mexico in many ways over the past fifteen years, many obstacles to developing efficient logistics operations still exist. This paper discusses these major challenges—governmental policies and insufficient transportation infrastructure—as well as several minor impediments, and it provides some suggestions for improving organizations’ ability to conduct trade through Mexico.

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.

This paper examines the desirability and feasibility of replacing the present system of personal 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. In its simplest form, the APT tax consists of a flat tax levied on all transactions. The tax is automatically assessed and collected when transactions are settled through the electronic technology of the banking/ payments system. The APT tax introduces progressivity through the tax base since the volume of final payments includes exchanges of titles to property and is therefore more highly skewed than the conventional income or consumption tax base. The wealthy carry out a disproportionate share of total transactions and therefore bear a disproportionate burden of the tax despite its flat rate structure. The automated recording of all APT tax payments by firms and individuals creates a degree of transparency and perceived fairness that induces greater tax compliance. Also, the tax has lower administrative and compliance cost. Like all taxes, the APT tax creates new distortions whose costs must be weighted against the benefits obtained by replacing the current tax system

This paper proposes a 21st century global fiscal architecture to replace the present system of personal 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. In its simplest form, the APT tax consists of a flat tax levied on all transactions. The tax is automatically assessed and collected when transactions are settled through the electronic technology of the banking/ payments system. The APT tax introduces progressivity through the tax base rather than via the rate structure. Since roughly 85% of all transactions involve the exchange of financial instruments, it is the wealthy who carry out a disproportionate share of total transactions and therefore bear a disproportionate burden of the tax despite its flat rate structure. The automated recording of all APT tax payments by firms and individuals creates a degree of transparency and perceived fairness that induces greater tax compliance. Also, the tax has lower administrative and compliance cost. Like all taxes, the APT tax creates new distortions whose costs must be weighted against the benefits obtained by replacing the current tax system.

We present a model of learning and policy choice across governments. Governments choose policies with known ideological positions but initially unknown valence benefits, possibly learning about those benefits between the model's two periods. There are two variants of the model; in one, governments only learn from their own experiences, while in the other they learn from one another's experiments. Based on similarities between these two versions, we illustrate that much accepted scholarly evidence of policy diffusion could simply have arisen through independent actions by governments that only learn from their own experiences. However, differences between the gametheoretic and decision-theoretic models point the way to future empirical tests that discern learning-based policy diffusion from independent policy adoptions.

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 considers the question of how one can translate evidence of nonlinearities and threshold effects in growth into policy recommendations. We argue that the current evidence of these effects, while important in terms of scholarly debates, does not readily lend itself to policy evaluation. The reasons for this are two-fold. First, the existing evidence on nonlinearities is relatively difficult to integrate into a common coherent view. Different models of nonlinearity appear in different papers; these models are often nonnested and do not present a clear alternative to linear growth models. Second, we argue that the econometric evidence of nonlinearities is often developed in ways that do not allow one to explicitly examine the effects of alternative policies on growth. We describe some recent econometric methods that can address these problems.

A lagged dependent variable in an OLS regression is often used as a means of capturing dynamic effects in political processes and as a method for ridding the model of autocorrelation. But recent work contends that the lagged dependent variable specification is too problematic for use in most situations. More specifically, if residual autocorrelation is present, the lagged dependent variable causes the coefficients for explanatory variables to be biased downward. We use a Monte Carlo analysis to assess empirically how much bias is present when a lagged dependent variable is used under a wide variety of circumstances. In our analysis, we compare the performance of the lagged dependent variable model to several other time series models. We show that while the lagged dependent variable is inappropriate in some circumstances, it remains an appropriate model for the dynamic theories often tested by applied analysts. From the analysis, we develop several practical suggestions on when and how to use lagged dependent variables on the right-hand side of a model.

For some time, one line of research on trust in government has stressed that trust results from evaluations of the institutions of government. Here, trust reflects public sentiments toward the responsiveness of the political process. Another line of research has alternatively countered that trust tends to be a reflection of political leaders. But this research has been largely unable to demonstrate that the performance of authorities matters relative to evaluations of the political process. Changes in partisan control of Congress and the presidency, however, provides us with a natural experiment where authorities change while the political process is constant. Here, partisans should trust government more when their party controls Congress, the presidency, or both. I find that trust does respond to changes in partisan control of the Congress and presidency, which demonstrates that the effect of authorities matters relative to evaluations of the political process.

We consider a directed search model for a finite economy with heterogeneous firms in two informational environments. In the first, the productivity of all firms is publicly observed. We prove existence of equilibria in pure posting strategies by firms and show that wage dispersion is driven by fundamentals: more productive firms post higher wages and wage dispersion is absent when firms are homogeneous. When firms have heterogeneous productivities the equilibrium is not constrained efficient. These results extend to a second environment in which productivities are private information: Equilibria in pure strategies exist; strategies are increasing in productivity; and constrained efficiency does not obtain. * We thank

We study the United States Congress by constructing networks between Members of Congress based on the legislation that they cosponsor. Using the concept of modularity, we identify the community structure of Congressmen, as connected via sponsorship/cosponsorship of the same legislation, to investigate the collaborative communities of legislators in both chambers of Congress. This analysis yields an explicit and conceptually clear measure of political polarization, demonstrating a sharp increase in partisan polarization which preceded and then culminated in the 104th Congress (1995-1996), when Republicans took control of both chambers. Although polarization has since waned in the U.S. Senate, it remains at historically high levels in the House of Representatives.

This guide aims to induce more economists to talk to people in the media as a means of expanding educational outreach. It provides discussions of "dos" and "don'ts" and offers advice on which kinds of research are likely to interest reporters. It suggests specific approaches to dealing with reporters in different types of media, including print, radio and television.

Increased enforcement can displace crime to alternative lawbreaking methods. This paper examines a customs reform in the Philippines that raised enforcement against a specific method of avoiding import duties. Increased enforcement applied only to shipments from some countries, so shipments from other countries serve as a control group. Increased enforcement reduced the targeted duty-avoidance method, but caused substantial displacement to an alternative method. The hypothesis of zero change in total duty avoidance cannot be rejected. Displacement was greater for products with higher tariff rates and import volumes, consistent with the existence of fixed costs of switching to alternative duty-avoidance methods.

What happened to poverty in India in the 1990s has been fiercely debated, both politically and statistically. The Indian debate has run parallel to, and is itself an important component of, the wider debate about globalization and poverty in the 1990s. The economic reforms of the early 1990s were followed by rates of economic growth that were high by Indian historical standards. The effects on poverty remain controversial, and the official numbers published by the Government of India, showing an acceleration in the rate of poverty reduction, from 36 percent of the population in 1993-94 to 26 percent of the population in 1999-00, have been challenged both for showing too little and too much poverty reduction. The various claims have often been frankly political, but there are also many important statistical issues, and the Indian debate, of which this paper is a review, provides an excellent example of how politics and statistics interact in an important, largely domestic debate. Although there is no consensus on what happened to Indian poverty in the 1990s, there is good evidence both that poverty is falling and that the official estimates of poverty reduction are too optimistic, particularly for rural India. Although this paper is concerned with the measurement of poverty in India, all of the issues-discrepancies between surveys and national accounts, the effects of questionnaire design, reporting periods, survey non-response, repairing imperfect data, the choice of poverty lines, and the interplay between statistics and politics-have wide international relevance.

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.

We examine the implications of tax and subsidy policies for employment in the "three worlds of welfare", Anglo-Saxon, Continental European and Scandinavian. We argue that home production is key to a proper evaluation of the employment outcomes. Anglo-Saxon low-support policies encourage more overall market employment. Continental transfer policies encourage more home production in services with close substitutes at home. Scandinavian policies give incentives to move home production in social services to the market but discourage other service activity. We find support for our claims in sectoral employment data for five representative countries, United States, Britain, France, Italy and Sweden.

Dollarization, in a broad sense, is increasingly a defining characteristic of many emerging market economies. How important is this trend quantitatively and how important is it for the conduct of monetary policy and the choice of exchange rate regimes? Though these questions have become a hot topic in both the theory and policy literature, most efforts are remarkably uninformed by evidence, in no small part because meaningful data has been lacking, except for a very narrow range of assets. This paper attempts to move the discussion forward and shed light on the critical questions by proposing a measure of dollarization that is broad both conceptually and in terms of country coverage. We use this measure to identify trends in the evolution of dollarization in the developing world in the last two decades, and to ascertain the consequences that dollarization has had on the effectiveness of monetary and exchange rate policy. We find that, contrary to the general presumption in the literature, a high degree of dollarization does not seem to be an obstacle to monetary control or to disinflation. A level of dollarization does, however, appear to increase exchange rate pass-through, reinforcing the claim that "fear of floating" is a greater problem for highly dollarized economies. We also review the developing countries' record in combating their addiction to dollars. Concretely, we try to explain why some countries have been able to avoid certain forms of the addiction, and examine the evidence on successful de-dollarization.

This paper summarizes our recent research on evaluating the distributional consequences of social programs. This research advances the economic policy evaluation literature beyond estimating assorted mean impacts to estimate distributions of outcomes generated by different policies and to determine how those policies shift persons across the distributions of potential outcomes produced by them. Our approach enables analysts to evaluate the distributional effects of social programs without invoking the "Veil of Ignorance" assumption often used in the literature in applied welfare economics. Our methods determine which persons are affected by a given policy, where they come from in the ex-ante outcome distribution and what their gains are. We apply our methods to analyze two proposed policy reforms in American education. These reforms benefit the middle class and not the poor.

The recent literature has shown that subjective welfare depends on relative income. Much of the existing evidence comes from developed economies. What remains unclear is whether this is a universal human trait or an artifact of a prosperous, marketoriented lifestyle. Using data from Nepal, a mountainous country where many households still live in relative isolation, we test whether poorer and more isolated households care less about relative consumption. We find that they do not. We investigate possible reasons for this. We reject that it is due to parental concerns regarding the marriage prospects of their children. But we find evidence in support of the reference point hypothesis put forth by psychologists: household heads having migrated out of their birth district still judge the adequacy of their consumption in comparison with households in their district of origin.

Based on original trader surveys, this paper examines how agricultural traders operate in Benin and Malawi. Results indicate that the largest transactions costs are search and transport. The use modern technology is limited. Search methods rely principally on personal visits by the trader. Quality control requires the presence of the trader at the time of purchase. This raises costs as the trader has to travel a lot, and makes it di¢ cult for trading enterprises to grow. Since enterprises remain very small, personal transport and search time represents a non-negligible share of marketing costs. market segmentation, it does not explain why markets are poorly integrated or what constraints economic agents face. An enduring puzzle in the market literature in sub-Saharan Africa is that, despite liberalization and reforms, agricultural markets have remained relatively unsophisticated and marketing margins have remained high (e.g. Beynon, Jones and Yao 1992, Jayne and Jones 1997).

There are several theories of why cities exist. Many revert around agglomeration externalities driven by returns to specialization. Using survey data from Nepal, we examine the relationship between proximity to urban centers and the organization of labor. We show that wards located in and near cities have more diversiÞed and more market oriented activities.

1 Social capital is seldom used as an input in the theoretical modeling of economic production processes. However, the returns to social capital in a real world with transaction costs might be as important as to labor, physical or human capital. Evidence from Madagascar shows that agricultural traders rank the importance of relationships for success in business higher than input prices, output prices, and access to credit or equipment. It is shown that traders use social capital to overcome transaction costs through a reduction in information and search costs and through substitution for poor market institutions. Moreover, the significant effect of experience in business on performance of the traders is for a large part explained by the accumulation of social capital over time. Controlling for labor and physical capital, traders who do not develop the appropriate social capital, do not grow.

1 This paper documents the role that personal relationships play in economic exchange. Original survey data show that agricultural traders in Madagascar perceive relationships as the most important factor for success in their business. Evidence details the extent to which relationships are used to serve a variety of purposes such as: the circulation of information about prices and market conditions; the provision of trade credit; the prevention and handling of contractual difficulties; the regularity of trade flows; and the mitigation of risk. Of these, the regularity of supply and demand and the sharing of risk appear particularly important. Larger and more prosperous traders are those with quantitatively and qualitatively better relationships. Family plays little role in business beyond assistance at start-up.

Democracy and human development are the twin pillars on which to build prosperity and sustainability. Democratization and development are inherently controversial and multidimensional processes. However, from a human development perspective, both are mutually inclusive and compatible. From this standpoint, both processes are intertwined in an endogenous relationship. At least at the conceptual level, both have the same logic of inference: the promotion of individual freedoms and the expansion of well-being.

The thesis argues that: (1) Democracy contributes towards human development through its multifaceted characteristics, as well as through its individual attributes. (2) Democratization and human development turning points are both path-dependent and interdependent. However, institutional arrangements that are based on cooperation and consent lead to longer periods of development improvements. (3) Institutional arrangements for the establishment of democracy that are based in cooperation and consent may deteriorate and force a vicious circle in which non-cooperation among political parties obstructs the policy-making-processes, leading to the stagnation of human development levels. (4) There exist strong reciprocal connections between human development and democratization that form two chains. However, over the long run, and from an empirical standpoint, democratization has precedence.

In doing so, this dissertation falls within the rubric of comparative methods, both in terms of analytical substance and methodological strategy. It aims to provide arguments on the need and validity to combine quantitative and qualitative methods to explain the direction of the relationship between human development and democracy in a single study. In fact, the dissertation attempts to explain the extent to which democracy may promote (or obstruct) development in identifiable stages of transition. Costa Rica and El Salvador will be given special consideration. The findings illustrate the benefits of method triangulation (i.e. paired comparisons complemented with cross-country analyses) to explore the complementarities between democracy and development.