---------------------------------------------------------------------------- NEP: New Economics Papers All new papers ---------------------------------------------------------------------------- Edited by: Marco Novarese http://ideas.repec.org/e/pno2.html Universita del Piemonte Orientale Date: 2005-04-30 Papers: 186 This document is in the public domain, feel free to circulate it. +++++++++++++++++++++++++++++++++++++++++++++++++++ + Access to full-text contents may be restricted. + +++++++++++++++++++++++++++++++++++++++++++++++++++ 1. Interview with Assar Lindbeck Thorvaldur Gylfason Macroeconomic Dynamics commissioned this interview with Assar Lindbeck for a series of such conversations with economists, starting with Duncan Foley’s interview with Wassily Leontief in 1998. Other interviews in the series include Ben McCallum’s interview with Robert Lucas (1999), Olivier Blanchard’s interview with Janos Kornai (1999), Daniel Trefler’s interview with Elhanan Helpman (1999), William Barnett and Robert Solow’s interview with Franco Modigliani (2000), John Taylor’s interview with Milton Friedman (2001), James Poterba’s interview with Martin Feldstein (2003), Brian Snowdon’s interview with Axel Leijonhufvud (2003), William Barnett’s interview with Paul Samuelson (2003), and John Campbell’s interview with Robert Shiller (2004). Forthcoming interviews include Olivier Blanchard’s interview with Stanley Fischer ( 2005), Omar Licandro and Pierre Dehez’s interview with Jacques Dreze (2005), and George Evans and Seppo Honkapohja’s interview with Tom Sargent (2005). JEL: A10 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1408&r=all 2. Some Aspects of the Economics of Catastrophe Risk Insurance Christian Gollier The ability to share risk efficiently in the economy is essential to welfare and growth. However, the increased frequency of natural catastrophes over the last decade has raised once again questions associated to the limits of insurability in a free-market economy, and to the relevance of public interventions on risk-sharing markets. In this paper, we explore the potential reasons for the lack of insurance specifically associated to catastrophe environmental risks. Our final aim is to link each source of possible market inefficiency to its possible remedies. JEL: D52 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1409&r=all 3. The Weak Rationality Principle in Economics Gebhard Kirchgassner The weak rationality principle is not an empirical statement but a heuristic rule of how to proceed in social sciences. It is a necessary ingredient of any ‘understanding’ social science in the Weberian sense. In this paper, first this principle and its role in economic theorizing is discussed. It is also explained why it makes sense to use a micro-foundation and, therefore, employ the rationality assumption in economic models. Then, with reference to the ‘bounded rationality’ approach, the informational assumptions are discussed. Third, we address the assumption of self-interest which is often seen as a part of the rationality assumption. We conclude with some remarks on handling the problems of ‘free will’ as well as ‘weakness of the will’ within the economic approach. Keywords: rationality, self interest, micro-foundation, bounded rationality JEL: B41 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1410&r=all 4. Has the Stability and Growth Pact Stabilised? Evidence from a Panel of 12 European Countries and Some Implications for the Reform of the Pact Carlos Fonseca Marinheiro Ever since its inception EMU has been subject to controversy. The fiscal policy rules embedded in the Treaty on European Union, and clarified in the Stability and Growth Pact (SGP), are probably the most contentious. The SGP is being accused of being too rigid and of forcing pro-cyclicality in fiscal policy. We test the impact of the SGP rules on the cyclical properties of fiscal policy for a panel of 12 European countries. We conclude that contrary to what might have been expected the euro fiscal rules have reinforced the counter-cyclicality of fiscal policy. However, the results also show that the SGP is not being applied symmetrically over the cycle, leading to insufficient fiscal consolidation during economic upswings. This explains the recent difficulties of Portugal, Germany and France in complying with SGP requirements. Based on these conclusions we argue for the creation of independent national technical committees that would define an appropriate deficit target on an annual basis. Keywords: fiscal policy, stabilisation, EMU, Stability and Growth Pact reform JEL: E62 H62 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1411&r=all 5. Valuation of International Oil Companies –The RoACE Era Petter Osmundsen Frank Asche Bard Misund Klaus Mohn High oil prices are normally expected to stimulate exploration and the development of new oil and gas fields. But over the last few years, financial analysts have focused strongly on short-term accounting return (RoACE) for benchmarking and valuation, and this has led to high capital discipline among oil and gas companies. We analyse how high oil prices can be explained in terms of an implicit capacity game between the oil companies, and explore the stability of the current equilibrium. Our approach is an investigation of a key assumption among financial analysts, namely the presumed positive relation between RoACE and stock market valuation. Based on panel data for 11 international oil and gas companies, we seek to establish econometric relations between market valuation on one hand, and simple financial and operational indicators on the other. Our findings do not support the perceived positive relation between reported RoACE and market- based multiples. Recent evidence also suggests that the stock market is increasingly concerned about reserve replacement and sustained profitable growth. The current high-price equilibrium is therefore hardly stable. JEL: M21 M41 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1412&r=all 6. Lobbying and Compromise Gil S. Epstein Shmuel Nitzan The compromise enhancing effect of lobbying on public policy has been established in two typical settings. In the first, lobbies are assumed to act as 'principals' and the setters of the policy ( the candidates in a Downsian electoral competition or the elected policy maker in a citizen- candidate model of electoral competition) are conceived as 'agents'. In the second setting, the proposed policies are solely determined by the lobbies who are assumed to take the dual role of 'principals' in one stage of the public-policy game and 'agents' in its second stage. The objective of this paper is to demonstrate that in the latter setting, the compromising effect of lobbying need not exist. Our reduced-form, two-stage public-policy contest, where two interest groups compete on the approval or rejection of the policy set by a politician, is sufficient to show that the proposed and possibly implemented policy can be more extreme and less efficient than the preferred policies of the interest groups. In such situations then more than the calf (interest groups) wish to suck the cow (politician) desires to suckle thereby threatening the public well being more than the lobbying interest groups. The main result specifies the conditions that give rise to such a situation under both the perfectly and imperfectly discriminating contests. Keywords: public-policy contests, interest groups, policy makers, lobbying, compromise JEL: D60 D72 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1413&r=all 7. The Economics of Books Marcel F. M. Canoy Jan C. van Ours Frederick van der Ploeg The tensions between books and book markets as expressions of culture and books as products in profit-making businesses are analysed and insights from the theory of industrial organisation are given. Governments intervene in the market for books through laws concerning prices of books, grants for authors and publishers, a lower value-added tax, public libraries and education in order to stimulate the diversity of books on offer, increase the density of retail outlets and to promote reading. An overview of the different ways by which countries differ in terms of market structures and government policies is given. Particular attention is paid to retail price maintenance. Due to differences between European countries it is not a good idea to harmonise European book policies. Our analysis suggests that the book market seems quite able to invent solutions to specific problems of the book trade and that, apart from promoting reading, there is little need for government intervention. Keywords: books, publishers, authors, diversity, monopolistic competition, retail price maintenance, subsidies, libraries, internet JEL: D40 D60 L10 L40 Z11 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1414&r=all 8. Does Educational Tracking Affect Performance and Inequality? Differences-in-Differences Evidence across Countries Eric A. Hanushek Ludger Woessmann Even though some countries track students into differing-ability schools by age 10, others keep their entire secondary-school system comprehensive. To estimate the effects of such institutional differences in the face of country heterogeneity, we employ an international differences-in-differences approach. We identify tracking effects by comparing differences in outcome between primary and secondary school across tracked and non- tracked systems. Six international student assessments provide eight pairs of achievement contrasts for between 18 and 26 cross- country comparisons. The results suggest that early tracking increases educational inequality. While less clear, there is also a tendency for early tracking to reduce mean performance. Therefore, there does not appear to be any equity-efficiency trade-off. Keywords: tracking, streaming, ability grouping, selectivity, comprehensive school system, educational performance, inequality, international student achievement test, TIMSS, PISA, PIRLS JEL: I20 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1415&r=all 9. Alternative Approaches to Estimation and Inference in Large Multifactor Panels: Small Sample Results with an Application to Modelling of Asset Returns George Kapetanios M. Hashem Pesaran This paper considers alternative approaches to the analysis of large panel data models in the presence of error cross section dependence. A popular method for modelling such dependence uses a factor error structure. Such models raise new problems for estimation and inference. This paper compares two alternative methods for carrying out estimation and inference in panels with a multifactor error structure. One uses the correlated common effects estimator that proxies the unobserved factors by cross section averages of the observed variables as suggested by Pesaran (2004), and the other uses principal components following the work of Stock and Watson (2002). The paper develops the principal component method and provides small sample evidence on the comparative properties of these estimators by means of extensive Monte Carlo experiments. An empirical application to company returns provides an illustration of the alternative estimation procedures. Keywords: cross section dependence, large panels, principal components, common correlated effects, return equations JEL: C12 C13 C33 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1416&r=all 10. A Structural Model of Demand for Apprentices Samuel Muehlemann Juerg Schweri Rainer Winkelmann Stefan C. Wolter It is a widely held opinion that apprenticeship training represents a net investment for training firms, and that therefore firms only train if they have the possibility to recoup these investments after the training period. A recent study using a new firm-level dataset for Switzerland showed, however, that for 60 percent of the firms, the apprenticeship training itself does not result in net cost. In this context it seems important to examine the question whether the potential net cost of training (during the training period) are a major determinant for the demand for apprentices. Different count data models, in particular hurdle models, are used to estimate the effect of net cost on the demand for apprentices. The results show that the net cost has a significant impact on the training decision but no significant influence on the demand for apprentices, once the firm has decided to train. For policy purposes, these results indicate that subsidies for firms that already train apprentices would not boost the demand for apprentices. Keywords: apprenticeship training, count data, probit-Poisson- log-normal model, Switzerland JEL: C25 J24 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1417&r=all 11. Educational Standards in Private and Public Schools Giorgio Brunello Lorenzo Rocco We show that, when school quality is measured by the educational standard and attaining the standard requires costly effort, secondary education needs not be a hierarchy with private schools offering better quality than public schools, as in Epple and Romano, 1998. An alternative configuration, with public schools offering a higher educational standard than private schools, is also possible, in spite of the fact that tuition levied by private schools is strictly positive. In our model, private schools can offer a lower educational standard at a positive price because they attract students with a relatively high cost of effort, who would find the high standards of the public school excessively demanding. With the key parameters calibrated on the available micro-econometric evidence from the US, our model predicts that majority voting in the US supports a system with high quality private schools and low quality public schools, as assumed by Epple and Romano, 1998. This system, however, is not the one that would be selected by the social planner, who prefers high quality public schools combined with low quality private schools. Keywords: private schools, public schools, majority voting JEL: H42 J24 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1418&r=all 12. Relative Performance Evaluation in a Multi-Plant Firm Annalisa Luporini We analyze optimal compensation schedules for the directors of two plants belonging to the same owner and producing the same good but serving geographically differentiated markets. Since the outcome of each director depends on his own effort and on a random variable representing market conditions, the problem takes the form of a principal multi-agent model. We first provide appropriate extensions of the MLR and CDF conditions that ensure the validity of the first-order approach in the single agent case. Then, we show that affiliation of the random variables is a necessary and sufficient condition for the compensation of one director to negatively and monotonically depend on the performance of the other. Keywords: principal-agent problems, relative performance evaluation, first-order approach, monotone likelihood ratio, affiliation JEL: D23 D82 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1420&r=all 13. When the Union Hurts the Workers: A Positive Analysis of Immigration Policy Giorgio Bellettini Carlotta Berti Ceroni This paper studies the determinants of immigration policy in an economy with entrepreneurs and workers where a trade union has monopoly power over wages. The presence of the union leads a benevolent government to implement a high level of immigration and induces a welfare loss not only from an aggregate point of view, but even from the point of view of workers. In the politico- economic equilibrium where interest groups lobby for immigration, we show the condition under which workers are no longer hurt by the presence of the union. JEL: F22 J51 J61 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1421&r=all 14. Marriage and the City Pieter A. Gautier Michael Svarer Coenraad N. Teulings Do people move to cities because of marriage market considerations? In cities singles can meet more potential partners than in rural areas. Singles are therefore prepared to pay a premium in terms of higher housing prices. Once married, the marriage market benefits disappear while the housing premium remains. We extend the model of Burdett and Coles (1997) with a distinction between efficient (cities) and less efficient (non- cities) search markets. One implication of the model is that singles are more likely to move from rural areas to cities while married couples are more likely to make the reverse movement. A second prediction of the model is that attractive singles benefit most from a dense market (i.e. from being choosy). Those predictions are tested with a unique Danish dataset. Keywords: marriage, search, mobility, city JEL: J12 J64 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1422&r=all 15. Excludable and Non-Excludable Public Inputs: Consequences for Economic Growth Ingrid Ott Stephen Turnovsky Many public goods are characterized by rivalry and/or excludability. This paper introduces both non-excludable and excludable public inputs into a simple endogenous growth model. We derive the equilibrium growth rate and design the optimal tax and user-cost structure. Our results emphasize the role of congestion in determining this optimal financing structure and the consequences this has in turn for the government’s budget. The latter consists of fee and tax revenues that are used to finance the entire public production input and that may or may not suffice to finance the entire public input, depending upon the degree of congestion. We extend the model to allow for monopoly pricing of the user fee by the government. Most of the analysis is conducted for general production functions consistent with endogenous growth, although the case of CES technology is also considered. Keywords: excludable and non-excludable public goods, congestion, growth JEL: H21 H40 O40 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1423&r=all 16. Back to Keynes? Frederick van der Ploeg After a brief review of classical, Keynesian, New Classical and New Keynesian theories of macroeconomic policy, we assess whether New Keynesian Economics captures the quintessential features stressed by J.M. Keynes. Particular attention is paid to Keynesian features omitted in New Keynesian workhorses such as the micro-founded Keynesian multiplier and the New Keynesian Phillips curve. These theories capture wage and price sluggishness and aggregate demand externalities by departing from a competitive framework and give a key role to expectations. The main deficiencies, however, are the inability to predict a pro- cyclical real wage in the face of demand shocks, the absence of inventories, credit constraints and bankruptcies in explaining the business cycle, and no effect of the nominal as well as the real interest rate on aggregate demand. Furthermore, they fail to allow for quantity rationing and to model unemployment as a catastrophic event. The macroeconomics based on the New Keynesian Phillips curve has quite a way to go before the quintessential Keynesian features are captured. Keywords: Keynesian economics, New Keynesian Phillips curve, monopolistic competition, nominal wage rigidity, welfare, pro-cyclical real wage, inventories, liquidity, bankruptcy, unemployment, monetary policy JEL: E12 E32 E63 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1424&r=all 17. Exploring the International Linkages of the Euro Area: a Global VAR Analysis Stephane Dees Filippo di Mauro M. Hashem Pesaran L. Vanessa Smith This paper presents a global model linking individual country vector error-correcting models in which the domestic variables are related to the country-specific variables as an approximate solution to a global common factor model. This global VAR is estimated for 26 countries, the euro area being treated as a single economy. This paper proposes two important extensions of previous research (see Pesaran, Schuermann and Weiner, 2004). First, it provides a theoretical framework where the GVAR is derived as an approximation to a global unobserved common factor model. Also using average pair-wise cross-section error correlations, the GVAR approach is shown to be quite effective in dealing with the common factor interdependencies and international comovements of business cycles. Second, in addition to generalised impulse response functions, we propose an identification scheme to derive structural impulse responses. We focus on identification of shocks to the US economy, particularly the monetary policy shocks, and consider the time profiles of their effects on the euro area. To this end we include the US model as the first country model and consider alternative orderings of the US variables. Further to the US monetary policy shock, we also consider oil price, US equity and US real output shocks. Keywords: Global VAR (GVAR), global interdependencies, global macroeconomic modeling, impulse responses JEL: C32 E17 F47 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1425&r=all 18. Legislative Malapportionment and the Politicization of Germany’s Intergovernmental Transfer System Hans Pitlik Friedrich Schneider Harald Strotmann Legislative bargaining theory suggests that fiscal transfers among member states of a federation are determined to a substantial degree by political bargaining powers. Malapportionment of the states' population in the legislature is claimed to lead to disproportionally higher benefits to overrepresented states. The present paper analyses empirically the distribution of fiscal transfers in Germany's intergovernmental transfer system over the period 1970-2002. It can be shown that overrepresented states in the upper house receive disproportionate shares of transfers, while malapportionment in the lower house does not seem to matter. We also find empirical evidence that overrepresentation became more important over time. Keywords: legislative bargaining, overrepresentation, fiscal transfer system, Germany JEL: D70 H77 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1426&r=all 19. The Role of Government in Anti-Social Redistributive Activities Konstantinos Angelopoulos Apostolis Philippopoulos It is known that anti-social redistributive activities (rent seeking, tax evasion, corruption, violation of property rights, delay of socially beneficial reforms, etc) hurt the macroeconomy. But it is less known what is the role of government size as a determinant of such activities. We use data from 64 counties ( both developed and developing) in 5-year periods over 1980-2000. As a measure of anti-social activities, we use the ICRG index; as a measure of government size, we use the government share in GDP; and as a measure of government efficiency, we construct an index by following the methodology of Afonso, Schuknecht and Tanzi ( 2003). Our regressions show that what really matters to social incentives is the relation between size and efficiency. Specifically, while a larger size of government is bad for incentives when one ignores efficiency, the results change drastically when government efficiency is also taken into account. Only when our measure of size exceeds our measure of efficiency, larger public sectors are bad for incentives. By contrast, when efficiency exceeds size, larger public sectors are not bad; actually, in the case where efficiency is measured by government performance in the policy areas of administration, stabilization and infrastructure, larger public sectors significantly improve incentives. Keywords: government and behaviour of agents, collective decision-making JEL: D70 H11 H30 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1427&r=all 20. Asymmetries in the Trans-Atlantic Monetary Policy Relationship: Does the ECB follow the Fed? Ansgar Belke Daniel Gros The belief that the ECB follows the US Federal Reserve in setting its policy is so entrenched with market participants and commentators that the search for empirical support would seem to be a trivial task. However, this is not the case. We find that the ECB is indeed often influenced by the Fed, but the reverse is true at least as often if one considers longer sample periods. There is empirically little support for the proposition that there has been for a long time a systematic asymmetric leader- follower relationship between the ECB and the Fed. Only after September 2001 is there more evidence of such an asymmetry. We also find a clear-cut structural break between the pre-EMU and the EMU period in terms of the relationship between short term interest rates on both sides of the Atlantic. Keywords: co-movement of interest rates, European Central Bank, Federal Reserve, monetary policy, policy coordination JEL: E52 E58 F41 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1428&r=all 21. Optimal Redistributive Taxation when Government’s and Agents’ Preferences Differ Soren Blomquist Luca Micheletto Paternalism, merit goods and specific egalitarianism are concepts we sometimes meet in the literature. The thing in common is that the policy maker does not fully respect the consumer sovereignty principle and designs policies according to some other criterion than individuals’ preferences. Using the self- selection approach to tax problems developed by Stiglitz (1982) and Stern (1982), the paper provides a characterization of the properties of an optimal redistributive mixed tax scheme in the general case when the government evaluates individuals’ well- being using a different utility function than the one maximized by private agents. Keywords: optimal taxation, behavioral economics, paternalism, merit goods, non-welfarism JEL: H21 H23 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1429&r=all 22. Fundamental and Non-Fundamental Equilibria in the Foreign Exchange Market. A Behavioural Finance Framework Paul de Grauwe Roberto Dieci Marianna Grimaldi We develop a simple model of the exchange rate in which agents optimize their portfolio and use different forecasting rules. They check the profitability of these rules ex post and select the more profitable one. This model produces two kinds of equilibria, a fundamental and a bubble one. In a stochastic environment the model generates a complex dynamics in which bubbles and crashes occur at unpredictable moments. We contrast these ”behavioural” bubbles with ”rational” bubbles. Keywords: exchange rate, bounded rationality, heterogeneous agents, bubbles and crashes, complex dynamics, basins of attraction JEL: F31 F41 G10 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1431&r=all 23. Knowledge-Capital Meets New Economic Geography Peter Egger Stefan Gruber Mario Larch Michael Pfaffermayr We incorporate the now standard knowledge-capital model of multinational firms in a new economic geography setting. The theoretical predictions of our model suggest that unskilled labor mobility leads to less concentration of production than skilled labor mobility does. This is in line with empirical evidence that agglomeration of production among European nations is less pronounced than among US regions. Our model shows that the different patterns in labor mobility can explain actual differences in the spreading of industries. According to our welfare analysis, trade liberalization is likely Pareto-improving for a larger (smaller) country with mobile unskilled (skilled) labor. In the supplement, we investigate the sensitivity of our results in several respects. In the first section, we provide the figures of real factor rewards for the trade liberalization scenarios discussed in and underlying Figures 7 and 8 of the paper. Second, in Figures 3(n) - 5(v) (6(n) - 6b(v)) we infer the existence, or non-existence, of each firm type separately in the ? - ?L-space (? - ?S-space) for country i firms and all four scenarios of firm regimes. Third, we illustrate how changes in the parameters ?, ? and ? affect the outcome. Finally, we analyze how the asymmetric endowment with the immobile factor influences the core-periphery patterns. Keywords: knowledge-capital model, new economic geography, unskilled labor mobility, skilled labor mobility JEL: F12 F23 R12 R13 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1432&r=all 24. Should Green Governments Give Priority to Environmental Policies over Growth-Enhancing Policies? George Economides Apostolis Philippopoulos This paper studies the properties of second-best optimal policy in a standard general equilibrium model of growth augmented with renewable natural resources. The government chooses its policy instruments (the income tax rate and the allocation of collected tax revenues between public investment and environmental policy) to solve a Ramsey-type policy problem. The main result is that, the more the citizens care about the environment, the more growth- enhancing policies the government finds it optimal to choose in the long run. This is because when citizens care about the environment, this requires tax revenues for environmental policy and can be only achieved by large tax bases and high growth. Thus, only growing economies can afford to care about the environment. This is the case even if pollution occurs as a by-product of output produced. Keywords: second-best policy, natural resources, economic growth JEL: H23 O13 Q20 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1433&r=all 25. An Interview with Thomas J. Sargent George W. Evans Seppo Honkapohja The rational expectations hypothesis swept through macroeconomics during the 1970’s and permanently altered the landscape. It remains the prevailing paradigm in macroeconomics, and rational expectations is routinely used as the standard solution concept in both theoretical and applied macroeconomic modelling. The rational expectations hypothesis was initially formulated by John F. Muth Jr. in the early 1960s. Together with Robert Lucas Jr., Thomas (Tom) Sargent pioneered the rational expectations revolution in macroeconomics in the 1970s. We interviewed Tom Sargent for Macroeconomic Dynamics. JEL: E00 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1434&r=all 26. Zooming Out: The Trade Effect of the Euro in Historical Perspective Helge Berger Volker Nitsch In 1999, eleven European countries formed the Economic and Monetary Union (EMU); they abandoned their national currencies and adopted a new common currency, the euro. Several recent papers argue that the introduction of the euro has led (by itself) to a sizable and statistically significant increase in trade between the member countries of EMU. In this paper, we put the trade effect of the euro in historical perspective. We argue that the creation of the EMU was a continuation (or culmination) of a series of previous policy changes that have led over the last five decades to greater economic integration among the countries that now constitute EMU. Using a data set that includes 22 industrial countries from 1948 to 2003, we find strong evidence of a gradual increase in trade intensity between European countries. Once we control for this trend in trade integration, the euro’s impact on trade disappears. Moreover, a significant part of the trend in European trade integration is explained by measurable policy changes. Keywords: monetary union, currency, euro, trade, European integration JEL: F02 F15 F33 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1435&r=all 27. Rational Information Choice in Financial Market Equilibrium Marc Andreas Mundler Adding a stage of signal acquisition to the expected utility model shows that Bayesian updating results in a well defined law of demand for financial information when asset return distributions are conjugate priors to signals such as in the gamma-Poisson case. Signals have a positive marginal utility value that falls in their number if and only if investors are risk averse, asset markets large, and variance-mean ratios of asset returns high in fully revealing rational expectations equilibrium. Expected asset price increases in the number of signals so that expected excess return drops. The diminishing excess return prevents Bayesian investors from unbounded information demand even if signals are costless, unless the riskfree asset is removed. Signals mutually benefit homogeneous investors because revealing asset price permits updating so that a Pareto criterion judges competitive equilibrium as not sufficiently informative. However, asset price responses make incentives for signal acquisition dependent on portfolios so that welfare and distributional consequences become intricately linked when investors are heterogeneous. JEL: D81 D83 G14 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1436&r=all 28. Intra-Generational Externalities and Inter-Generational Transfers Martin Kolmar Volker Meier In an environment with asymmetric information the implementation of a first-best efficient Clarke-Groves-Vickrey (D’Aspremont- Gerard-Varet) mechanism may not be feasible if it has to be self- financing. By using intergenerational transfers, the arising budget deficit can generally be covered in every generation if the growth rate of the economy is positive. This result yields an alternative explanation for the existence of pay-as-you-go financed transfer mechanisms. Keywords: pay-as-you-go, externalities, mechanism design, adverse selection JEL: D82 H23 H55 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1437&r=all 29. Testing Slope Homogeneity in Large Panels M. Hashem Pesaran Takashi Yamagata This paper proposes a modified version of Swamy’s test of slope homogeneity for panel data models where the cross section dimension (N) could be large relative to the time series dimension (T). The proposed test exploits the cross section dispersion of individual slopes weighted by their relative precision. In the case of models with strictly exogenous regressors and normally distributed errors, the test is shown to have a standard normal distribution as (N, T) ?j ?. Under non- normal errors and in the case of stationary dynamic models, the condition on the relative expansion rates of N and T for the test to be valid is given by ?N /T ? 0, as (N, T) ?j ?. Using Monte Carlo experiments, it is shown that the test has the correct size and satisfactory power in panels with strictly exogenous regressors for various combinations of N and T. For autoregressive (AR) models the proposed test performs well for moderate values of the root of the autoregressive process. But for AR models with roots near unity a bias-corrected bootstrapped version of the test is proposed which performs well even if N is large relative to T. The proposed cross section dispersion tests are applied to testing the homogeneity of slopes in autoregressive models of individual earnings using the PSID data. The results show statistically significant evidence of slope heterogeneity in the earnings dynamics, even when individuals with similar educational backgrounds are considered as sub-sets. Keywords: testing slope homogeneity, Hausman type tests, cross section dispersion tests, Monte Carlo results, PSID earnings dynamics JEL: C12 C33 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1438&r=all 30. Industry Concentration and Strategic Trade Policy in Successive Oligopoly Gjermund Nese Odd Rune Staume We study a policy game between exporting and importing countries in vertically linked industries. In a successive international Cournot oligopoly, we analyse incentives for using tax instruments strategically to shift rents vertically, between exporting and importing countries, and horizontally, between exporting countries. We show that the equilibrium outcome depends crucially on the relative degree of competitiveness in the upstream and downstream parts of the industry. With respect to national welfare, a more competitive upstream industry may benefit an exporting (upstream) country and harm an importing ( downstream) country. On the other hand, a more competitive downstream industry may harm exporting countries. Keywords: successive oligopoly, strategic trade policy, industry concentration JEL: F12 F13 L13 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1439&r=all 31. A Case for Taxing Education Tomer Blumkin Efraim Sadka We illustrate a novel informational feature of education, which the government may utilize. Discretionary decisions of individuals to acquire education may serve as an additional signal (to earned labor income) on the underlying unobserved innate earning ability, thereby mitigating the informational constraint faced by the government. We establish a case for taxing education, as a supplement to the labor income tax. Keywords: optimal taxation, re-distribution, education, inequality JEL: D60 H20 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1440&r=all 32. Globalization and Values John Whalley This paper discusses a central element in globalization debate little addressed by economists, namely the interactions at global, national, and community levels between globalization and societally based values. Social values refer to wider notions of collective identity: religious values, attitudes towards materialism, moral beliefs, and a sense of collective awareness and are a broader and more encompassing concept than social capital discussed in recent economics and sociology literature. Social capital relates to trust, honesty and the social fabric of accepted norms central to the successful implementation of individual optimizing decisions, and denotes a communal asset reflecting strength of joint collective commitment whose amount can be increased or improved upon through investment of time and resources. Social values are much discussed in sociological literature going back to Comte, Durkheim, Parsons, and others. The issues taken up here are how different social values might interact and change as societies and their economies integrate ( globalize). Processes of value competition, displacement, joint assimilation occur naturally to economists, but seem little studied by sociologists who seemingly place less stress on analytical comparative statics. Scenarios for how values can interact under globalization are discussed in the text. JEL: F00 F02 Z10 Z13 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1441&r=all 33. Charging NOx Emitters for Health Damages: An Exploratory Analysis Denise L. Mauzerall Babar Sultan Namsoug Kim David Bradford We present a proof-of-concept analysis of the measurement of the health damage of ozone (O3) produced from nitrogen oxides (NOx = NO + NO2) emitted by individual large point sources in the eastern United States. We use a regional atmospheric model of the eastern United States, the Comprehensive Air Quality Model with eXtensions (CAMx), to quantify the variable impact that a fixed quantity of NOx emitted from individual sources can have on the downwind concentration of surface O3, depending on temperature and local biogenic hydrocarbon emissions. We also examine the dependence of resulting ozone-related health damages on the size of the exposed population. The investigation is relevant to the increasingly widely used "cap and trade" approach to NOx regulation, which presumes that shifts of emissions over time and space, holding the total fixed over the course of the summer O3 season, will have minimal effect on the environmental outcome. By contrast, we show that a shift of a unit of NOx emissions from one place or time to another could result in large changes in resulting health effects due to ozone formation and exposure. We indicate how the type of modeling carried out here might be used to attach externality-correcting prices to emissions. Charging emitters fees that are commensurate with the damage caused by their NOx emissions would create an incentive for emitters to reduce emissions at times and in locations where they cause the largest damage. Keywords: surface ozone, NOx emissions, point sources, health impacts, mortality, morbidity, cap-and-trade JEL: H10 Q50 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1442&r=all 34. Consumption, Wealth and Business Cycles in Germany Britta Hamburg Mathias Hoffmann Joachim Keller This paper studies the long-run relationship between consumption, asset wealth and income in Germany, based on data from 1980 to 2003. While earlier studies — mostly for the Anglo-Saxon economies — have generally documented that departures of these three variables from their common trend signal changes in asset prices, we find that for Germany they predict changes in income. Asset price changes are found to have virtually no effect on consumption — both in the short as well as in the long-run. We offer an explanation of this finding that emphasizes differences between the bank-based German financial system and the rather market-based Anglo-American system: stock ownership by private households is much less widespread in Germany than in the Anglo- Saxon economies and the share of publicly traded equity in household wealth is much smaller in Germany than in the U.S., the UK or Australia. Keywords: wealth effect on consumption, business cycles, monetary policy transmission, financial systems, asset price predictability, permanent income hypothesis JEL: E21 E32 E44 G12 G20 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1443&r=all 35. The Pygmalion Effect: An Agency Model with Reference Dependent Preferences Kohei Daido Hideshi Itoh We attempt to formulate and explain two types of self-fulfilling prophecy, called the Pygmalion effect (if a supervisor thinks her subordinates will succeed, they are more likely to succeed) and the Galatea effect (if a person thinks he will succeed, he is more likely to succeed). To this purpose, we extend a simple agency model with moral hazard and limited liability by introducing a model of reference dependent preferences (RDP) by Koszegi and Rabin (2004). We show that the agent with high expectations about his performance can be induced to choose high effort with low-powered incentives. We then show that the principal’s expectation has an important role as an equilibrium selection device. Keywords: self-fulfilling prophecy, Pygmalion effect, Galatea effect, reference dependent preferences, agency model, moral hazard JEL: B49 D82 M12 M52 M54 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1444&r=all 36. Rationality, Irrationality and Economic Cognition John Whalley This paper contrasts the modern use of the assumption that rationality guides individual economic behaviour, as reflected in simple models of utility and profit maximization, to literature between 1890 and 1930 which sharply challenged the use of such an assumption, as well as to later literature in economic psychology from Herbert Simon onwards which sees economic (and other) cognitive processes in different ways. Some of the earlier literature proposed objective and operational notions of rationality based on the availability of information, ability to reason (cognitive skills), and even morality. Learning played a major role in individuals achieving what was referred to as complete rationality. I draw on these ideas, and suggest that developing models in which economic agents have degrees (or levels) of economic cognition which are endogenously determined could both change the perceptions economists have on policy matters and incorporate findings from recent economic psychology literature. This would remove the issue of whether economic agents are dichotomously rational or irrational, and instead introduce continuous metrics of cognition into economic thinking. Such an approach also poses the two policy issues of whether raising levels of economic cognition should be an objective of policy and whether policy interventions motivated by departures from full economic cognition should be analyzed. Keywords: learning, complete rationality JEL: B00 B10 B50 D00 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1445&r=all 37. The Sustainability of Fiscal Policy in the United States Henning Bohn The paper examines the sustainability of U.S. fiscal policy, finding substantial evidence in favor. I summarize the U.S. fiscal record from 1792-2003, critically review sustainability conditions and their testable implications, and apply them to U.S. data. I particularly emphasize the ramifications of economic growth. A “growth dividend” has historically covered the entire interest bill on the U.S. debt. Unit root tests on real series, unscaled by GDP, are distorted by the series’ severe heteroskedasticity. The most credible evidence in favor of sustainability is the robust positive response of primary surpluses to fluctuations in the debt-GDP ratio. Keywords: public debt, sustainability, primary surplus, unit root JEL: E60 H00 H60 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1446&r=all 38. Is there a Role for an Active Fiscal Stabilization Policy? Torben Andersen This paper discusses the need and scope for an active fiscal stabilization policy. It is argued that the effectiveness of fiscal policy as a short run stabilizer does not depend on the long run multipliers of (balanced budget) fiscal policies. To the extent that activity can be affected by aggregate demand in the short run, there is a case for a fiscal stabilization policy in terms of temporary variations in taxes or public consumption contingent on the state of the economy. The effectiveness of fiscal policy is supported by empirical evidence. However, an appropriate policy intervention depends both on the nature of the shock and the structure of the economy. There are thus fundamental information problems in pursuing discretionary fiscal policies on top of political economy concerns, and fiscal fine- tuning is not to be recommended. Automatic stabilizers do not to the same extent suffer from these problems, but their strength is not by design but the net result of other policy considerations. Hence, there is a need to consider the structure and size of automatic stabilizers. Keywords: shocks, insurance, adjustment failures, rules, discretion and fiscal policy JEL: E60 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1447&r=all 39. Bargaining Power and Equilibrium Consumption Hans Gersbach Hans Haller We examine how a shift of bargaining power within households operating in a competitive market environment affects equilibrium allocation and welfare. If price effects are sufficiently small, then typically an individual benefits from an increase of bargaining power, necessarily to the detriment of others. If price effects are drastic the welfare of all household members moves in the same direction when bargaining power shifts, at the expense (or for the benefit) of outside consumers. Typically a shift of bargaining power within a set of households also impacts upon other households. We show that each individual of a sociological group tends to benefit if he can increase his bargaining power, but suffers if others in his group do the same. Keywords: household behavior, bargaining power, local and global changes, price effects, general equilibrium JEL: D10 D50 D62 D70 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1448&r=all 40. The Transition Economies: A NATREX Evaluation of Research Jerome L. Stein This paper applies the NATREX model of equilibrium exchange rates to evaluate several key studies of the Central and Eastern European Countries (CEEC) in general, with particular emphasis upon the Czech Republic and Hungary and with references to Poland and Bulgaria. On the basis of the NATREX model, we evaluate several key studies to answer the questions: How can the trends in the real exchange rates of the transition economies be explained? What are sustainable trends in their real exchange rates? To what extent were the real exchange rates misaligned? What are sustainable/equilibrium current account deficits and net investment positions in the medium and in the long-run? What are the policy implications for the transition economies of the NATREX analysis? Keywords: transition economies, NATREX model, equilibrium real exchange rates, current account deficits, euro area JEL: F31 F32 P20 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1449&r=all 41. Metrics Capturing the Degree to which Individual Economies are Globalized Raymond Riezman John Whalley Shunming Zhang We discuss metrics of globalization for individual economies as distance measures between fully integrated and trade restricted equilibria in economies initially operating under less than full integration with the global economy. Such metrics can be used to construct country globalization metrics reflecting the distance of economies from full global integration due to trade barriers, barriers to factor flows, barriers to international financial intermediation, solved technological diffusion and other economy specific features yielding less than full integration into the global economy. Many distance metrics present themselves and none are wholly satisfactory since they each behave differently across various displacements from integration. Distance measures can, for instance, be small in goods space but large in price space. We present alternative measures constructed for eight OECD economies and comment in a concluding section on other measures used elsewhere in the literature such as trade / GDP ratios. JEL: F00 F11 F15 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1450&r=all 42. Systemic Crises and Growth Romain Ranciere Aaron Tornell Frank Westermann In this paper, we document the fact that countries that have experienced occasional financial crises have, on average, grown faster than countries with stable financial conditions. We measure the incidence of crisis with the skewness of credit growth, and find that it has a robust negative effect on GDP growth. This link coexists with the negative link between variance and growth typically found in the literature. To explain the link between crises and growth we present a model where weak institutions lead to severe financial constraints and low growth. Financial liberalization policies that facilitate risk-taking increase leverage and investment. This leads to higher growth, but also to a greater incidence of crises. Conditions are established under which the costs of crises are outweighed by the benefits of higher growth. Keywords: financial constraints, growth and institutions, bailout guarantees, volatility, emerging markets JEL: F34 F36 F43 O41 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1451&r=all 43. Capital Quality Improvement and the Sources of Growth in the Euro Area Plutarchos Sakellaris Focco W. Vijselaar The euro area experienced a slowdown in output and Total Factor Productivity growth in the 1990s compared to the 1980s. We ask the following questions. Is the apparent slowdown in euro area output due to a lack of proper accounting for capital quality improvement? The answer is no. Did technological change really slow down in the euro area? The answer here is mixed. The part of the technological change that is embodied in capital goods and boosts output through investment in these goods in fact accelerated in the 1990s. In contrast, disembodied technological change, which boosts output through new consumer goods or new production processes, decelerated in the 1990s more sharply than the official figures portray. JEL: O30 O47 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1452&r=all 44. Regional Grants as Pork Barrel Politics Kevin Milligan Michael Smart We investigate the political and economic factors influencing the allocation of regional development grants for a panel of Canadian electoral districts in the 1988-2001 period. In a strong party system such as Canada’s, models of political competition predict little role for individual legislators, as party leaders allocate resources to maximize party success. While spending is targeted toward some “swing” districts, we do also find it is higher in districts represented by members of the government party, especially those in the federal Cabinet, and those of lower seniority. We develop a model featuring bargaining over legislative and non-legislative favours that is consistent with the evidence. JEL: D72 H25 R58 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1453&r=all 45. Skilled Emigration, Business Networks and Foreign Direct Investment Maurice Kugler Hillel Rapoport In a global context foreign direct investment (FDI) and migration substitute one another in the matching process between workers and firms. However, as labor flows can lead to the formation of business networks, migration can actually facilitate FDI in the long-run. We first present a stylized model for a small open economy illustrating these offsetting effects. We then use U.S. data on bilateral labor inflows and capital outflows to measure the extent of contemporaneous substitutability and dynamic complementarity between migration and FDI. We find that brain drain and FDI inflows are negatively correlated contemporaneously but that skilled migration is associated with future increases in FDI inflows. We also find suggestive evidence of substitutability between current migration and FDI for migrants with secondary education, and of complementarity between past migration and FDI for unskilled migrants. Keywords: brain drain, foreign direct investment inflows, migrant ties and business networks JEL: F22 F43 O41 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1455&r=all 46. Cross-Country Relative Price Volatility: Effects of Market Structure Yin-Wong Cheung Eiji Fujii Using annual data on nine manufacturing sectors of eighteen OECD countries, the article studies the implications of market structure for cross-country relative price variability. It is found that, in accordance with predictions from a standard markup pricing model, reductions in market competition, along with increased nominal exchange rate volatility, are associated with greater variability of cross-country relative prices. The market structure also has similar effects on components of cross-country relative price variability. The empirical findings are robust to the inclusion of various control variables and alternative sample specifications. Keywords: relative price volatility, market structure, price- cost margin, variance decomposition JEL: F31 F41 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1456&r=all 47. Inequality and Relative Reliance on Tariffs: Theory and Evidence Margarita Katsimi Thomas Moutos In this paper we construct a Ricardian model of trade in vertically-differentiated products between a developing country and the (developed) rest of the world. Despite labour being the only factor of production in this model, tariffs (in addition to income taxes) have distributional consequences because the high- quality imported varieties are consumed only by high-income households. The model predicts a U-shaped relationship between income inequality and the median-voter’s preferred reliance on tariffs versus income taxes in order to effect the desired redistribution. Using data from 44 countries we test for the existence of this U-shaped relationship by estimating a cross- sectional regression relating the ratio of the tariff rate over the tax rate to inequality and a set of control variables such as GDP per capita, openness, the degree of democracy and area dummies. We find that the model’s predictions are supported by the data. Keywords: inequality, tariffs, median-voter, trade, vertical differentiation JEL: F13 H23 Date: 2005 URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_1457&r=all 48. Explanatory note on the CPB world trade series Wim Suyker This note provides detailed information on the CPB world trade series and gives a comparison of these series with those of international organisations. Keywords: world trade; statistics JEL: F17 F47 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:cpb:memodm:116&r=all 49. Explaining Diversity in Industrial Relations at Company Level in Eastern Europe: Evidence from Romania Aurora Trif Abstract Whilst most studies on the transformation of industrial relations (IR) in Eastern Europe focus on the common trends, this paper examines variations in IR practices at company level. It uses a revised version of the exchange model to analyse the evidence from nineteen case studies in Romania. As the exchange model argues that capital and labour are involved in a rational exchange, it would be expected that if a negative sum game occurs, the rational choice of the actors would be to move towards a zero or positive sum game. However, evidence indicates that nine companies investigated seem to have a long-term equilibrium with a negative sum game for capital and labour. It is argued that this is able to occur because, in addition to capital and labour, the government and, sometimes, the top management are key actors involved in complex games that sum to zero. The paper suggests that differences in the power relations between these four actors lead to variations in the IR types employed at company level within a country. The main contribution of the paper is twofold: firstly, it cites original evidence for the diversity of IR practices at company level; secondly, it operationalises a revised version of the exchange model that could be used in further research to explain the variations in IR at the company level in Eastern Europe. Overall, it aims to contribute to a deeper understanding of variations in IR at the company level. Zusammenfassung Im Gegensatz zur Mehrzahl der Studien uber die Transformation der Arbeitsbeziehungen in Osteuropa, die sich mit allgemeinen Trends beschaftigen, werden in diesem Discussion Paper die Unterschiede in der Praxis der Arbeitsbeziehungen auf Unternehmensebene betrachtet. Als Raster fur die Klassifikation von neunzehn rumanischen Unternehmen wird eine uberarbeitete Version des Exchange Model entwickelt. Dieses Modell argumentiert, dass die Kapital- und die Arbeitnehmerseite rationale Tauschpartner in einem Aushandlungsspiel sind. Bei einem sich abzeichnenden Negativsummenspiel ware somit davon auszugehen, dass die rationalen Entscheidungen der Akteure bewirken, dass sich die Konstellation in Richtung auf ein Nullsummenspiel oder ein Positivsummenspiel auflosen wird. In der Praxis jedoch ist bei neun der untersuchten Firmen ein langfristiges Gleichgewicht mit einem Negativsummenspiel fur Kapital und Arbeit festzustellen. Dies wird damit begrundet, dass als weitere Schlusselakteure die Regierung und zuweilen auch die Leitung der Unternehmen in komplexe Nullsummenspiele eingebunden sind. Die Autorin geht davon aus, dass es die Unterschiede in den Machtbeziehungen dieser vier Akteure sind, die zu unterschiedlichen „Typen“ von Arbeitsbeziehungen in Unternehmen innerhalb eines Landes fuhren. Das Discussion Paper tragt auf zweifache Weise zur Diskussion bei: Zum einen weist es eine Vielfalt von unterschiedlichen Formen der Arbeitsbeziehungen auf Unternehmensebene nach; zum anderen bietet die entwickelte uberarbeitete Version des Exchange Model einen Ansatzpunkt fur die zukunftige Erforschung der Arbeitsbeziehungen in den Unternehmen Osteuropas. Keywords: industrial relations; Romania; East-Central Europe; post-Communism; transition processes; game theory Date: 2005-04-21 URL: http://d.repec.org/n?u=RePEc:erp:mpifgx:p0066&r=all 50. Hayek Reads the Literature on the Emergence of Norms L. Andreozzi Hayek’s approach to cultural and institutional evolution has been frequently criticized because it is explicitly based on the controversial notion of (cultural) group selection. In this paper this criticism is rejected on the basis of recent works on biological and cultural evolution. The paper’s main contention is that Hayek employed group selection as a tool for the explanation of selection among several equilibria, and not as a vehicle for the emergence of out of equilibrium behavior (i.e. altruism). The paper shows that Hayek’s ideas foreshadowed some of the most promising developments in the current literature on the emergence of norms. JEL: B31 B41 URL: http://d.repec.org/n?u=RePEc:esi:evopap:2005-03&r=all 51. Knowledge-based Entrepreneurship: The Organizational Side of Technology Commercialization U. Witt C. Zellner New knowledge with commercial potential is continually created in academic institutions. How is it turned into economically valuable businesses? This paper argues that the transfer is an entrepreneurial process. To understand this, the actions and the constraints characteristic for the entrepreneurial reshaping of the division of labor must be recognized. In the case of knowledge-based entrepreneurship, specific constraints result from the peculiarities of scientific knowledge – epitomized by contrasting tacit and encoded knowledge. Scientifically trained labor is required for transferring both forms of knowledge. However, the mode of transfer differs crucially and shapes the organizational form of commercializing new scientific knowledge. JEL: L23 M13 O31 O32 URL: http://d.repec.org/n?u=RePEc:esi:evopap:2005-04&r=all 52. The Generalized Extreme Value (GEV) Distribution, Implied Tail Index and Option Pricing Sheri Markose Amadeo Alentorn Crisis events such as the 1987 stock market crash, the Asian Crisis and the bursting of the Dot-Com bubble have radically changed the view that extreme events in financial markets have negligible probability. This paper argues that the use of the Generalized Extreme Value (GEV) distribution to model the Risk Neutral Density (RND) function provides a flexible framework that captures the negative skewness and excess kurtosis of returns, and also delivers the market implied tail index of asset returns. We obtain an original analytical closed form solution for the Harrison and Pliska (1981) no arbitrage equilibrium price for the European option in the case of GEV asset returns. The GEV based option prices successfully remove the well known pricing bias of the Black-Scholes model. We explain how the implied tail index is efficacious at identifying the fat tailed behaviour of losses and hence the left skewness of the price RND functions, particularly around crisis events. Date: 2005-04-25 URL: http://d.repec.org/n?u=RePEc:esx:essedp:594&r=all 53. A Simple Alternative House Price Index Method Steven C. Bourassa (School of Urban and Public Affairs, University of Louisville) Martin Hoesli (HEC, University of Geneva, FAME and University of Aberdeen) Jian Sun (School of Urban and Public Affairs, University of Louisville) This paper presents the Sale Price Appraisal Ratio (SPAR) method for constructing house price indexes. The method, which uses ratios of transaction prices and previous appraised values to build up an index, has been applied since the early 1960s to produce semi-annual price indexes for regions and cities in New Zealand. We compare the official New Zealand indexes for three urban areas with repeat sales and hedonic indexes created from the same transactions data, and observe that the SPAR method produces an index very much like those produced by hedonic methods. Given the number of advantages and few disadvantages that we find for the SPAR method relative to the more traditional methods, we maintain that it should be considered by government agencies elsewhere when developing house price indexes. Keywords: house price indexes JEL: R31 Date: 2004-11 URL: http://d.repec.org/n?u=RePEc:fam:rpseri:rp119&r=all 54. Investment under Uncertainty and Incomplete Markets Julien Hugonnier (HEC, University of Lausanne and FAME) Erwan Morellec (Simon School of Business, University of Rochester) In the standard real options approach to investment under uncertainty, agents formulate optimal policies under the assumptions of risk neutrality or perfect capital markets. However in most situations, corporate executives face incomplete markets either because they receive compensation packages that restrict their portfolios or because cash flows from the firm's investment opportunities are not spanned by those of existing assets. The present paper examines the impact of managerial risk aversion on investment decisions when the manager is exposed to idiosyncratic risk. In the paper, the investment policy selected by the manager reflects a trade-off between his incentives to reduce risk and the need to ensure sufficient efficiency to prevent control challenges. The analysis demonstrates that risk aversion induces the manager to speed up investment, leading to a significant erosion of the value of the option to wait and to investment near the zero net present value threshold. Keywords: Incomplete markets; Risk aversion; Real options JEL: G11 G12 G13 Date: 2004-05 URL: http://d.repec.org/n?u=RePEc:fam:rpseri:rp122&r=all 55. A Double-Sided Multiunit Combinatorial Auction for Substitutes: Theory and Algorithms Henry Schellhorn (HEC, University of Lausanne and FAME) Combinatorial exchanges have existed for a long time in securities markets. In these auctions buyers and sellers can place orders on combinations, or bundles of different securities. These orders are conjunctive: they are matched only if the full bundle is available. On business-to-business (B2B) exchanges, buyers have the choice to receive the same product with different attributes; for instance the same product can be produced by different sellers. A buyer indicates his preference by submitting a disjunctive order, where he specifies how much of the product he wants, and how much he values each attribute. Only the goods with the best attributes and prices will be matched. This article considers a doubled-sided multi-unit combinatorial auction for substitutes, that is, a uniform price auction where buyers and sellers place both types of orders, conjunctive and disjunctive. We prove the existence of a linear price which is both competitive and surplus-maximizing when goods are perfectly divisible, and nearly so otherwise. We describe an algorithm to clear the market, which is particularly efficient when the number of traders is large. Keywords: Combinatorial auction, economic equilibrium JEL: C62 C63 D44 Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:fam:rpseri:rp123&r=all 56. Developer's Expertise and Dynamicsof Financial Innovation: Theory and Evidence Helios Herrera (ITAM) Enrique Schroth (HEC, University of Lausanne and FAME) We study product innovation and imitation in the market of corporate underwriting with a dynamic model where client switching costs and the bankers’ expertise in deal structuring characterize the life cycle of a security. While the clientele loyalty allows positive rent extraction, the superior expertise can account for the documented market leadership of the innovator. As expertise on product structuring is acquired by imitators, the innovator’s market share advantage decreases. Also, the speed of entry by imitators increases for later generation products. Our predictions are consistent with well documented evidence on the market share leadership of innovators. We also present new evidence from equity-linked and derivative corporate products that supports the dynamic predictions of our learning model. Keywords: Innovation and imitation, first-mover advantages, product differentiation, learning JEL: G24 L12 L89 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:fam:rpseri:rp124&r=all 57. Capital Structure, Credit Risk, and Macroeconomic Conditions Dirk Hackbarth (Finance Department, Kelley School of Business, University of Indiana) Jianjun Miao (Department of Economics, Boston University) Erwan Morellec (HEC, University of Lausanne and FAME) This paper develops a framework for analyzing the impact of macroeceomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity. A number of new predictions follow. Keywords: Dynamic capital structure; Credit spreads; Macroeconomic conditions JEL: G12 G32 G33 Date: 2004-05 URL: http://d.repec.org/n?u=RePEc:fam:rpseri:rp125&r=all 58. The Dynamics of Mergers and Acquisitions Erwan Morellec (HEC, University of Lausanne and FAME) Alexei Zdhanov (University of Rochester) This paper presents a dynamic model of takeovers based on the stock market valuations of merging firms. The model incorporates competition and imperfect information and determines the terms and timing of takeovers by solving option exercise games between bidding and target shareholders. The implications of the model for returns to stockholders are consistent with the available evidence. Notably, the model predicts that (1) returns to target shareholders should be larger than returns to bidding shareholders, and (2) returns to bidding share-holders can be negative if there is competition for the acquisition of the target. In addition, the model generates new predictions relating these returns to the drift, volatility and correlation coefficient of the bidder and the target stock returns and to the dispersion of beliefs regarding the benefits of the takeover. Keywords: takeovers; real options; competition; learning. JEL: G13 G34 Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:fam:rpseri:rp126&r=all 59. Employee cost-sharing and the welfare effects of Flexible Spending Accounts William Jack (Georgetown University), Arik Levinson ( Georgetown University), and Sjamsu Rahardja (World Bank) ( Department of Economics, Georgetown University) In recent years, employees have been shouldering an increasing share of the costs of employee-provided health care. At the same time, more and more employers have been allowing employees to pay their out-of-pocket health care costs using pre-tax earnings, through tax-subsidized Flexible Spending Accounts (FSAs). We use a cross-section of firm-level data from 1993 to show empirically that these FSAs can explain a significant fraction of the shift in health care costs to employees, and that this shift may be efficient, given the distortionary effects of the existing tax- subsidy to premiums. Correcting for selection effects, we find that FSAs are associated with insurance contracts with coinsurance rates that are about 7 percentage points higher, relative to a sample average coinsurance rate of 17 percent. In addition, coinsurance rates net of the subsidy are themselves higher by about 2 percentage points, providing evidence that FSAs are welfare-enhancing. Classification-JEL Codes: D60, H21, I18 Keywords: Health expenditure subsidies, moral hazard, Flexible Spending Accounts URL: http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~05-05-12&r=all 60. Contingent Valuation of Mortality Risk Reduction in Developing Countries: A Mission Impossible? Mahmud, Minhaj (Department of Economics, School of Economics and Commercial Law, Goteborg University) Using the contingent valuation method in developing countries to value mortality risk reduction is particularly challenging because of the low level of education of the respondents. In this paper, we examine the effect of training the respondents regarding probabilities and risk reductions, in addition to using visual aids to communicate risk and risk reductions, in a contingent valuation survey. Our results indicate a significantly higher WTP for the trained sub-sample, and WTP is sensitive to the magnitude of risk reduction both with and without the training.

Keywords: contingent valuation; risk reduction; WTP; effect of training; sensitivity to scope; Bangladesh JEL: D60 D80 H40 I10 Date: 2005-04-26 URL: http://d.repec.org/n?u=RePEc:hhs:gunwpe:0169&r=all 61. External effects of education on earnings: Swedish evidence using matched employee-establishment data Isacsson, Gunnar (National Road and Transportations Research Institute) This paper provides an empirical investigation of externalities from education in Sweden in an earnings equation framework. The empirical models are estimated on a large sample of matched employees and establishments. External effects of education are identified from the average educational attainment of workers outside the individual’s establishment. The paper also investigates the coherence of the evidence with respect to the idea that educational externalities arise through face-to-face interaction between individuals. A set of different specifications and fixed effects models is used to investigate the robustness of the basic cross-sectional model. The cross- sectional models suggest, in general, that externalities are positive and significantly different from zero. The cross- sectional evidence is also broadly coherent with the idea that externalities are declining in spatial transaction costs, such as the Euclidean distance between establishments. However, after accounting for individual fixed effects and dummy variables for the county in which the individual works the results indicate no statistically significant external effects of education on earnings in Sweden. Keywords: Education; earnings JEL: I20 Date: 2005-04-15 URL: http://d.repec.org/n?u=RePEc:hhs:ifauwp:2005_010&r=all 62. Does Inflation and High Taxes Increase Bank Leverage? Hortlund, Per (The Ratio Institute) Does the combination of inflation and high corporate taxes explain the increase in bank leverage in the 20th century? Inflation automatically increases bank debt, while high corporate taxes hinder capital accumulation. Capital ratios therefore drop, until leverage-induced returns are sufficient to uphold them at constant levels. This theory was confronted with Swedish bank data 1870–2001. Bank capital ratios dropped when inflation and corporate tax rates were high, during WWI and in 1940–1980. The theory can explain the sinking bank capital ratios during these periods, but also their relative stability since the early 1980s. High corporate taxes and inflation were estimated to account for half of the drop in Swedish bank capital ratios since WWII. Keywords: Bank leverage; Capital-asset ratio; Inflation; Corporate taxes JEL: E44 E52 G28 G32 H25 N23 N24 Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:hhs:ratioi:0069&r=all 63. Effects of Increased Demand for Biofuels: A Dynamic Model of the Swedish Forest Sector Ankarhem, Mattias (Department of Economics, Umea University) In this paper, we estimate the dynamic effects on the forest sector of an increased demand for biofuels. This is done by developing a partial adjustment model of the forest sector that enables short, intermediate, and long run price elasticities to be estimated. It is relevant to study the effects of increased demand for biofuels as the Swedish government has committed to an energy policy that is likely to further increase the use of renewable resources in the Swedish energy system. Four subsectors are included in the model: the forest owners, who supply sawtimber, pulpwood and forest fuels; the sawmills which demand sawtimber; the pulp and paper industry which demands pulpwood; and the energy industry which demands forest fuels. The results show that the short run elasticities are fairly consistent with earlier studies and that sluggish adjustment in the capital stock is important in determining the short and intermediate run responses. Simulation shows that an increase in the demand for forest fuels has a positive effect on the equilibrium price of all the three types of wood, and a negative effect on the equilibrium quantities of sawtimber and pulpwood. Keywords: Forest economics; Price elasticities; Long run; Energy sector JEL: L73 L78 Q41 Q42 Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:hhs:umnees:0658&r=all 64. Shadow Prices for Undesirables in Swedish Industry: Indication of Environmental Kuznets Curves? Ankarhem, Mattias (Department of Economics, Umea University) In this note, we estimate time series of shadow prices for Swedish emissions of CO2, SO2 , and VOC for the period 1918 - 1994. The shadow prices are in the second step related to income to explain the environmental Kuznets curves previously found for Swedish data on the three emissions. A Shephard distance function approach is used to estimate a structural model of the industry’s production process in order to calculate the opportunity costs of a reduction in the emissions. We conclude that the times series of the shadow prices obtained using this approach do not show support for EKCs for Swedish industry Keywords: Emissions; Historical time series; Distance function JEL: O11 O13 Q51 Q53 Q56 Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:hhs:umnees:0659&r=all 65. A Dual Assessment of the Environmental Kuznets Curve: The Case of Sweden Ankarhem, Mattias (Department of Economics, Umea University) In this paper, we calculate time series of shadow prices for Swedish emissions of CO2, SO2, and VOC for the period 1918 - 1994. Newly constructed historical emission time series enable studying a single country’s emission paths through increasing levels of economic activity. The shadow prices are, in the next step, related to income to explain the environmental Kuznets curves (EKC) previously found in Swedish data for these three emissions. A directional distance function approach is used to estimate the production process for Swedish industry thus enabling the opportunity costs of a reduction in these emissions to be calculated. We attribute the annual changes in the shadow prices to the main causal factors by decomposing them into a technological effect and a substitution effect. We conclude that the time series of the shadow prices show support for EKCs for Swedish industry Keywords: Emissions; Historical time series; Decomposition; Directional distance function JEL: O11 O13 Q51 Q53 Q56 Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:hhs:umnees:0660&r=all 66. Bioenergy, Pollution, and Economic Growth Ankarhem, Mattias (Department of Economics, Umea University) This thesis consists of four papers: two of them deal with the effects on the forest sector of an increase in the demand for forest fuels, and two of them concern the relation between economic growth and pollution.

Paper [I] is a first, preliminary study of the potential effects on the Swedish forest sector of a continuing rise in the use of forest resources as a fuel in energy generation. Sweden has made a commitment that the energy system should be sustainable, i.e., it should be based on renewable resources. However, an increasing use of the forest resources as an energy input could have effects outside the energy sector. We consider this in a static model by estimating a system of demand and supply equations for the four main actors on the Swedish roundwood market; forestry, sawmills, pulpmills and the energy sector. We then calculate the industries' short run supply and demand elasticities.

Paper [II], is a development of the former paper. In this paper, we estimate the dynamic effects on the forest sector of an increased demand for forest fuels. This is done by developing a partial adjustment model of the forest sector that enables short, intermediate, and long run price elasticities to be estimated. It is relevant to study the effects of increased demand for forest fuels as the Swedish government has committed to an energy policy that is likely to further increase the use of renewable resources in the Swedish energy system. Four subsectors are included in the model: forestry, sawmills, pulpmills and the energy industry. The results show that the short run elasticities are fairly consistent with earlier studies and that sluggish adjustment in the capital stock is important in determining the intermediate and long run responses. Simulation shows that an increase in the demand for forest fuels has a positive effect on the equilibrium price of all three types of wood, and a negative effect on the equilibrium quantities of sawtimber and pulpwood.

In paper [III] a Shephard distance function approach is used to estimate time series of shadow prices for Swedish emissions of CO2, SO2, and VOC for the period 1918 - 1994. The shadow prices are in a next step regressed on GDP per capita. The objective of the study is closely linked to hypothesis of environmental Kuznets curves. We conclude that the time series of the shadow prices from this approach can not be used to explain the EKCs found for Swedish emissions.

In paper [IV], we calculate time series of shadow prices for Swedish emissions of CO2, SO2, and VOC for the period 1918 - 1994. The shadow prices are in a next step related to income, to explain the EKCs previously found for Swedish data on the three emissions. Newly constructed historical emission time series enable studying a single country's emission paths through increasing levels of economic activity. A directional distance function approach is used to estimate the industry's production process in order to calculate the opportunity costs of a reduction in the emissions. The time series of the shadow prices show support for EKCs for the Swedish industry. Keywords: Forest sector; Forest fuels; Dynamic factor demand; Adjustment costs; Economic growth; Pollution; Environmental Kuznets curve; Shadow price; Distance function JEL: L73 L78 O11 O13 Q41 Q42 Q51 Q53 Q56 Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:hhs:umnees:0661&r=all 67. Do Institutional Investors Destabilize Stock Prices? Evidence from an Emerging Market Martin T. Bohl Janusz Brzeszczynski In this paper, we provide empirical evidence on the impact of institutional investors on stock market returns dynamics in Poland. The Polish pension system reform in 1999 and the associated increase in institutional ownership due to the investment activities of pension funds are used as an unique institutional characteristic. Performing a variant of the event study methodology in an asymmetric GARCH framework we find robust empirical evidence that the increase of institutional ownership has changed the autocorrelation and volatility structure of aggregate stock returns. However, the findings do not support the hypothesis that institutional investors have destabilized stock prices. The results are interpretable in favor of a stabilizing effect on index stock returns induced by institutional trading.

Keywords: institutional traders, Polish stock market, pension fund investors, stock market volatility, asymmetric GARCH models JEL: G14 G23 Date: 2005 URL: http://d.repec.org/n?u=RePEc:hwe:certdp:0501&r=all 68. Expanding Financial Services Access for the Poor: The Transformation of SPANDANA Sriram M S The paper traces the evolution of Spandana group of institutions. At the outset we explore the background of Spandana, the motivation for the promoters to set up the organisation and how it has aggressively grown from the time it was set up. The organisation reached a stage where transformation became inevitable and this change happened in a very quick time. As a part of the study, we examine the unique issues arising out of fund movement (in the form of debt or equity) between an organisation incorporated for public purposes and a for-profit entity that would generate profits to the shareholders. The paper examines how these two seemingly contradictory aspects could be reconciled. The structural options available and how they jell with the orientation of the promoters are examined. We examine how the organisation has experimented with various options in carrying out its financial services and trading activities. We conclude that while the current legal environment did place some constraints on how the organisation’s design got determined, there were issues about the quality of governance available to the organisation during its initial years. Spandana demonstrates that there is a huge potential for many MFIs to operate both in the urban and rural space. The fact that it could garner a portfolio of Rs. 2.4 billion in a fairly limited area and time demonstrates the size of the potential market that could be served by microfinance. In undertaking activities at such scale, any organisation would face hurdles. This paper looks at the hurdles caused by the regulatory regime that forces organisations to take fairly circuitous routes to achieve obvious results in the organisational form. It also deals with the other services that were being offered by Spandana and how these had to be dropped due to regulatory requirements. The study concludes by drawing important lessons, raising further issues for regulation by bringing out the peculiar circumstances in which Spandana and similar organisations are working. Date: 2005-04-25 URL: http://d.repec.org/n?u=RePEc:iim:iimawp:2005-04-03&r=all 69. Dynamics of Equity Market Integration in Europe:Evidence of Changes over time and with Events. Keith Nurse The signs of a transition in the global gender order appear, in part, to be linked to the conjunctural shift in the global capitalist accumulation process. The main observation is that men’s traditional roles in the workplace, at home and in school have been eroding with the shift towards a knowledge-based and services world-economy. However, the transition in the gender order is more than merely a matter of economic adjustment and industrial respecialization. The transition has much to do with the impact of the antisystemic movements and changes in the politics of identity such as the rise of feminism and the women’s movement, the feminization of both male consumption culture and the workplace, the gay rights movement and the resistance to empire and racialized masculinities (Nurse 2004). These trends have evoked a counter-movement and a counter- discourse on male marginalization, demasculinization and the feminization of masculinity in core countries (Bly 1990) as well as in peripheral areas (Miller 1991). The erosion of the male superiority myth has specifically affected the hegemonic status of the white male subject. Date: 2004-05-01 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp020&r=all 70. Reforms and Productivity Dynamics in Chinese State-Owned Enterprises Peter McGoldrick Patrick Paul Walsh Institutional change has taken place incrementally since 1978 for State-Owned Enterprises (SOEs) in the Industrial Sector of China. We will provide evidence for the notion that this is largely due to increased domestic competitive pressures and the opportunities arising from the integration of international markets. In this paper we estimate the effect of deep reform (the right to hire and fire labour, buy and sell capital and operate on international markets) on the productivity dynamics of entreprises. Using a unique balanced panel of681 SOEs for the period 1980 to 1994, we find consistent production function estimatesusing an algorithm put forward in Olley and Pakes (1996), which estimates using an simultaneity bias. Futhermore, we allow selection bias by formulating an entry that exposure to deep reform hav lead to higher productivity realisations while remaining under state ownership. Date: 2004-05-01 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp021&r=all 71. The Expenditure Switching Effect, Welfare and Monetary Policy in a Small Open Economy Alan Sutherland This paper analyses the implications of the 'expenditure switching effect' for the role of the exchange rate in monetary policy in a small open economy. It is shown that, when elasticity of substitution between home and foreign goods is not equal to unity, welfare depends on the variances of producer prices and the terms of trade. Producer-price targeting is compared to consumer-price targeting and a fixed exchange rate. It is found that a fixed exchange rate yields higher welfare than the other regimes only when the elasticity of substitution between home and foreign goods is a very high. ownership. Keywords: monetary policy, exchange rates, welfare Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp022&r=all 72. MNEs and Industrial Structure in Host Countries:A Mean Variance Analysis of Ireland’s Manufacturing Sector Colm Kearney Frank Barry We use mean-variance analysis to demonstrate the importance of a hitherto neglected benefit of enticing MNEs to locate in small and medium-sized countries. During the 25 years from 1974 to 1999, over 1000 foreign MNEs have located in Ireland, and they have raised their share of all manufacturing jobs in the country from one-third to one-half. The foreign MNEs tend to operate in high- technology sectors, and they grow faster with greater volatility than the traditional low-technology indigenous firms. Because they are imperfectly correlated with the indigenous sectors, however, the foreign MNEs have helped to create a more completely diversified manufacturing sector in the host country that can grow faster without a commensurate rise in volatility and risk. Keywords: FDI, MNEs, industrial structure, Ireland. Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp023&r=all 73. International Investment Patterns Philip Lane Gian Maria Milesi-Ferretti We provide a systematic analysis of bilateral, source and host factors driving portfolio equity investment across countries, using newly-released data on international equity holdings at the end of 2001. We develop a model that links bilateral equity holdings to bilateral trade in goods and services and find that the data strongly support such a correlation. Larger bilateral positions are also associated with proxies for informational proximity. We further document that the scale of aggregate foreign equity asset and liability holdings is larger for richer countries and countries with more developed stock markets. Keywords: International portfolio equity investment, international trade; gravity. Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp024&r=all 74. Dynamics of Bond Market Integration between Existing And Accession EU Countries Brian M Lucey Suk-Joong Kim Eliza Wu In this paper, we use a set of complementary techniques to examine the time-varying level of integration of European government bond markets. We consider daily bond returns and prices over the 1998-2003 period. Strong contemporaneous and dynamic linkages are found between individual European Union (EU) markets and the German market. However, there is no such evidence for the three accession markets of the Czech Republic, Hungary and Poland. The UK’s market is also considered. In general, the degree of integration for the accession markets is weak and stable, with little evidence of further deepening despite the increased political integration. Keywords: Bond Indices, Cointegration, GARCH Models, Integration, Kalman Filter Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp025&r=all 75. Exclusion of Suspected Terrorists from Asylum: Trends in International and European Refugee Law Ben Saul Pressure to automatically exclude terrorists from asylum has increased since the late 1990s, including exclusion based on mere membership of terrorist organizations. Such pressure has emanated from the UN General Assembly, the Security Council, regional organizations, States and even UNHCR. Yet terrorism is not listed as a separate ground of exclusion in the 1951 Refugee Convention, and there is no internationally accepted definition of terrorist offences which could serve as a principled basis of exclusion. In the absence of an international definition, reference to terrorism in exclusion decisions endangers refugees. Exclusion must be based on an individual assessment of whether a person meets the criteria for exclusion in Article 1F of the 1951 Refugee Convention. Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp026&r=all 76. Labour Productivity and Foreign Direct Investment in Irish Manufacturing Industry: A Decomposition Analysis Frances Ruane Ali U?ur Overall labour productivity in the Irish manufacturing sector increased by 158 per cent between 1991 and 1999. This growth in labour productivity coincided with strong growth in employment during the same period, in stark contrast to the experience of other European countries. This paper examines the components of this labour productivity growth in the period 1991-1999, using a decomposition analysis based on plant level data. In order to account for the large presence of foreign plants we carry out our analysis separately for foreign and domestic plants, as well as for four ownership subgroups, four sectoral subgroups, and two time sub-periods. Our results show that although the main drivers of average labour productivity growth in all groups arise within plant and from plant entry, there are marked differences in the relative sizes of these effects across the ownership/sector/time- period. Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp027&r=all 77. Export Platform FDI and Dualistic Development Frances Ruane Ali Ugur This paper examines how foreign plants may impact on the averages wages paid by domestic plants within a host economy. The analysis, building on Aitken, Harrison and Lipsey (1996), is based on plant level panel data for the Irish manufacturing industry during the 1990s. We find that respective wages for both skilled and unskilled workers are relatively higher in foreign firms within the same sector, even after controlling for plant- level effects. Our analysis also shows that differences between domestic plants’ average wages across sectors are positively and significantly related to differences in foreign presence across sectors. However, this relationship disappears once sector and plant characteristics are taken into account. Keywords: Foreign Direct Investment, wages, Ireland Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp029&r=all 78. International Portfolio Formation, Skewness & the Role of Gold Brian M Lucey Edel Tully Valerio Poti This paper examines the optimal allocation of assets in well diversified equity based portfolio where the investor is concerned not only with mean and variance but also with the skewness of the returns. Beginning with an analysis of the rationale for concerning with skewness, the paper then discusses previous attempts to model multi-objective portfolio problems. The second part of the paper outlines the attractive nature of the gold asset in equity portfolios. The paper then integrates the two elements, showing the changes in portfolio composition that arise when not only skewness but gold are concerned. Keywords: Portfolio Allocation, Skewness, Gold Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp030&r=all 79. Exchange Rates and Inflation under EMU: An Update Philip Lane Patrick Honohan In our recent Economic Policy article(Honohan and Lane, 2003), we argued that the strength of the US dollar 1999-2001 had an important impact on inflation divergence within the EMU and in particular the surge in Ireland’s inflation to over 7 per cent. This hypothesis has been subjected to a grueling out-of-sample test: would the dollar’s subsequent weakness contribute to inflation convergence and in particular to a fall in Irish inflation? Fortunately for us, the theory has passed the test with flying colours. Irish inflation stopped dead in its tracks: consumer prices were unchanged between May and November of 2003. Regression analysis on quarterly inflation data across EMU members 1999.1-2004.1 confirms the importance of the exchange rate channel, although pinning down the exact dynamic specification will require a further span of data. Date: 2005-01-28 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp031&r=all 80. Ownership and Export Characteristics of Irish Manufacturing Performance Frances Ruane Julie Sutherland Recent research has sought to explore whether exporting enterprises have superior performance characteristics relative to non-exporters, and whether such superiority is associated with performance pre- and/or post- exporting. This paper extends existing research to take account of enterprise ownership and export market destination. It explores these issues using micro data on Irish manufacturing between 1991 and 1998, a time period during which Ireland experienced rapid export-driven growth. The study provides further evidence of the superior characteristics of exporters relative to nonexporters and supports the self- selection hypothesis that superior enterprises are more likely to export. However, no evidence is found for learning-by-exporting effects in enterprises. We find export destination matters: the performance characteristics of enterprises that export globally differ from those that export locally. Keywords: Trade, Export Premium, Export Destination, Foreign Ownership. JEL: F14 Date: 2005-02-01 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp032&r=all 81. Cost-Push Shocks and Monetary Policy in Open Economics Philip R. Lane Michael B. Devereux,Juanyi Xu This paper compares alternative monetary policy rules in a model of an emerging market economy that experiences external shocks to world interest rates and the terms of trade. The model is a two- sector dynamic open economy, with endogenous capital accumulation and slow price adjustment. Two key factors are highlighted in examining the response of the economy to shocks, and in the assessment of the effectiveness of monetary rules.These are: a) balance-sheet related financial frictions in capital formation; and b) delayed pass-through of changes in exchange rates to imported goods prices. We find that, while financial frictions cause a magniFcation of real and financial volatility, they have no effect on the comparison or ranking of alternative monetary policies. But the degree of exchange rate pass-through is very important for the assessment of monetary rules. With high pass- through, there is a trade-off between between real stability (in output or employment) and inflation stability. Moreover, the best monetary policy rule in this case is to stabilise non-traded goods prices. But, with delayed pass-through, the same trade off between real stability and inflation stability disappears, and the best monetary policy rule is CPI price stability Classification- Keywords: Monetary Policy, Exchange Rate Pass-through, Balance Sheet Constraints Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp036&r=all 82. Individual Farming in the New EU Member States: The Case of Hungary Marian Rizov This paper is motivated by the fact that (part-time) individual farming is commonly observed among rural households in a number of transition economies but it is not clear prima facie if such resource allocation is optimal. A conceptual model of household labor allocation between individual farming and off-farm wage employment is developed. The model explicitly accounts for the role of household endowments in labor allocation as the analysis is conditioned on the status of factor markets. The hypotheses are empirically tested using 1998 data from a country- representative survey of rural households in Hungary, an advanced transition country, which only recently became EU member state. Results provide evidence that capital market imperfections still remain. Implications for the policies related to agricultural sector restructuring, employment and rural development are discussed. Classification- Keywords: households, individual farming, labor allocation, diversification, transition economies, international integration Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp038&r=all 83. Does Does Individualisation Help Productivity of Transition Agriculture Marian Rizov There are large differences across transition countries with respect to agricultural-sector performance and corresponding scope of farm restructuring and shift to individual farming. In this paper we analyze the impact of individualization on productivity growth within an augmented neo-classical growth model framework. This approach allows us to circumvent criticisms on the grounds of lack of theoretical and objective criteria for inclusion of explanatory variables. Furthermore, in the empirical analysis using a panel data covering 15 transition countries over the period 1990-2001 and applying a GMM-IV estimator we are able to control for the impact of various factors and the potential endogeneity of variables. Our estimation results are robust and support the view that the shift to individual farming, as well as the overall economic reforms, have positively contributed to the productivity growth in agriculture during the first decade of transition. Classification- Keywords: agriculture, individual farming, productivity, economic transition, international integration Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp039&r=all 84. Are International Equity Markets Really Skewed? Colm Kearney Margaret Lynch Although the extreme tails of the distributions of equity returns tend to exhibit more negative than positive returns, very few studies have analysed how pervasive is skewness across entire distributions. We use daily returns on 6 international stock market indices from Britain, France, Germany, Italy, Japan and the United States over 24 years from January 1978 to February 2002 to search for skewness in the tails, in different intervals, and in the entire distributions using binomial distribution tests and two distribution free tests, the Wilcoxon Rank Sum Test and the Siegel Tukey test. We find limited evidence of statistically significant skewness in the tails, with more skewness closer to the means. Classification- Keywords: Asymmetric returns, skewness, international equity markets. Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp040&r=all 85. Are Re-Assessing the Evidence of an Emerging Yen Block in North and Southeast Asia Colm Kearney Cal muckley Using weekly observations on 9 Asian currencies from November 1976 to December 2003, we re-examine the evidence of an emerging yen block in North and Southeast Asia. In contrast to previous research that assumes instantaneous adjustment of exchange rates by the region’s Central Banks to variations in the world’s main global currencies, we use a dynamic general-to-specific Newey-West estimation strategy that allows gradual adjustment and calculation of both short and long run equilibrium responses. We find that there is no de facto yen block, but although the US dollar remains dominant throughout the region, the yen’s influence is rising amongst a subset of the currencies, particularly since the Asian crisis of the late 1990s. Classification- Keywords: Exchange rate systems, yen block Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp041&r=all 86. Voice of the Diaspora: An Analysis of Market Voting Behaviour Orla Doyle Jan Fidrmuc This paper utilizes a unique dataset on votes cast by Czech and Polish migrants in their recent national elections to investigate the impact of institutional, political and economic characteristics on migrants’ voting behavior. The political preferences of migrants are strikingly different from those of their domestic counterparts. In addition, there are also important differences among migrants living in different countries. This paper examines three alternative hypotheses to explain migrant voting behavior: adaptive learning;economic self- selection and political self-selection. The results of the analysis suggest that migrant voting behavior is affected by the institutional environment of the host countries, in particular the tradition of democracy and the extent of economic freedom. In contrast, there is little evidence that differences in migrants’ political attitudes are caused by self-selection based either on economic motives or political attitudes prior to migrating. These results are interpreted as indicating that migrants’ political preferences change in the wake of migration as they adapt to the norms and values prevailing in their surroundings. Classification- Keywords: Voting, elections, migration, political resocialization, transition. Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp042&r=all 87. Volume and Skewness in International Equity Markets Colm Kearney Margaret Lynch This paper utilizes a unique dataset on votes cast by Czech and Polish migrants in their recent national elections to investigate the impact of institutional, political and economic characteristics on migrants’ voting behavior. The political preferences of migrants are strikingly different from those of their domestic counterparts. In addition, there are also important differences among migrants living in different countries. This paper examines three alternative hypotheses to explain migrant voting behavior: adaptive learning;economic self- selection and political self-selection. The results of the analysis suggest that migrant voting behavior is affected by the institutional environment of the host countries, in particular the tradition of democracy and the extent of economic freedom. In contrast, there is little evidence that differences in migrants’ political attitudes are caused by self-selection based either on economic motives or political attitudes prior to migrating. These results are interpreted as indicating that migrants’ political preferences change in the wake of migration as they adapt to the norms and values prevailing in their surroundings. Classification- Keywords: International stock markets, Skewness, Volume, VAR. Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp043&r=all 88. Financial Globalisation and Exchange Rates Philip R. Lane Gian Maria Milesi-Ferretti The founders of the Bretton Woods System sixty years ago were primarily concerned with orderly exchange rate adjustment in a world economy that was characterized by widespread restrictions on international capital mobility. In contrast, the rapid pace of financial globalization during recent years poses new challenges for the international monetary system. In particular, large gross cross-holdings of foreign assets and liabilities means that the valuation channel of exchange rate adjustment has grown in importance, relative to the traditional trade balance channel. Accordingly, this paper empirically explores some of the inter- connections between financial globalization and exchange rate adjustment and discusses the policy implications. Classification- Keywords: Financial integration, capital flows, external assets and liabilities Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp044&r=all 89. Who is in Favour of Enlargement? Determinants of Support for EU Membership in the Candidate's Countries Referenda Orlagh Doyle Jan Fidrmuc This paper investigates both the macro and micro determinants of EU support as expressed in the 2003 referenda on EU membership and the 2002 Candidate Countries Eurobarometer survey data. It is found that favourable individual and regional characteristics, i. e., the “winners” of the transition process, are positively correlated with support for accession and voter participation. In contrast, those who should benefit from future EU transfers, i.e., the “losers” of the process, are less likely to vote and/or support EU membership. It is therefore argued that voters in the new member states assign greater weight on future benefits from liberalization and integration than on potential gains through redistribution. Classification- Keywords: Financial integration, capital flows, external assets and liabilities Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp045&r=all 90. From assessment to argumentation? Intelligence on WMD and the British case for war in Iraq Eunan O' Halpin This paper explores issues arising from the recent published inquiries into aspects of British intelligence assessment procedures on WMD threats. Drawing on the Butler and Hutton inquiries, and on interviews with former officials, it concludes that the process by which the Cabinet Office Joint Intelligence Committee (JIC) was drawn into producing an intelligence assessment for publication in September 2002 was a new departure in British government. It also argues that the drafting exercise disclosed by the Hutton and Butler inquiries was, incidentally if not deliberately, one in which two fundamentally distinct processes became entangled: what was published as an unvarnished professional intelligence assessment – in essence a conventional JIC assessment for once brought immediately into the public domain - was compromised by the government’s presentational imperatives. This paper will be followed by a second reflecting on the difficulties faced by the wider international community in judging what weight to put on evidence produced by the world’s major intelligence powers to argue for particular courses of action to counter WMD proliferation, terrorism, and other threats to international security and order. Classification- Keywords: Butler Report, Hutton Inquiry, JIC, John Scarlett, SIS, Iraq and WMD Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp046&r=all 91. The Translocation of Culture: Migration, Community, and the Force of Multiculturalism in History Pnina Werbner In his work on a Welsh border village, Ronald Frankenberg showed how cultural performances, from football to carnival, conferred agency on local actors and framed local conflicts. The present article extends these themes. It responds to invocations by politicians and policy makers of ‘community cohesion’ and the failure of communal leadership, following riots by young South Asians in northern British towns. Against the critique of self- segregating isolationism, the article traces the historical process of Pakistani migration and settlement in Britain, to argue that the dislocations and relocations of transnational migration generate two paradoxes of culture. The first is that in order to sink roots in a new country, transnational migrants in the modern world begin by setting themselves culturally and socially apart. They form encapsulated ‘communities’. Second, that within such communities culture can be conceived of as conflictual, open, hybridising and fluid, while nevertheless having a sentimental and morally compelling force. This stems from the fact, I propose, that culture is embodied in ritual and social exchange and performance, conferring agency and empowering different social actors: religious and secular, men, women and youth. Hence, against both defenders and critics of multiculturalism as a political and philosophical theory of social justice, the final part of the article argues for the need to theorise multiculturalism in history. In this view, rather than being fixed by liberal or socialist universal philosophical principles, multicultural citizenship must be grasped as changing and dialogical, inventive and responsive, a negotiated political order. The British Muslim diasporic struggle for recognition in the context of local racism and world international crises exemplifies this process. Classification- Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp048&r=all 92. Competiveness Implications for Ireland of EU Enlargement Frank Barry Aoife Hannon Ten states, primarily from Central and Eastern Europe, acceded to the EU in May 2004. Another 2, and possibly 3 CEE states are likely to join in 2007. We assesses the competitiveness implications of this phase of EU expansion for Ireland. Four specific topics are considered: the opportunities for trade and investment expansion, the implications for Ireland’s ability to attract FDI, the likely levels and consequences of immigration from Central and Eastern Europe, and the budgetary implications for the Irish Exchequer. Classification- Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp049&r=all 93. Export-Platform Foreign Direct Investment Jim Markusen Caroline Ekholm, Rikard Forslid An interesting empirical phenomenon is export-platform foreign- direct investment, particularly affiliate production for sale in third countries rather than in the parent or host countries. This is rather poorly understood because our theoretical understanding of multinationals is largely derived from two-country models. Our model shows how affiliate production solely for third countries can occur when a firm in each of two large, high-income countries has a domestic plant to serve its own market, and uses a plant in a small, low-cost country to serve the other highincome country. Third-country export-platform FDI can also occur when the host and third countries are inside a free-trade area and the parent is outside. Our empirical section shows that US affiliates located inside a free-trade area concentrate their exports to other free-trade member countries, consistent with parameterizations of our model in which the outside firm is the chief beneficiary of the free-trade area. Affiliates located outside of free-trade areas such as those in Southeast Asia show a balance between exports to the parent and exports to third countries, consistent with parameterizations that generate “global export-platform” production. Classification- Keywords: Multinational firms, export platform, foreign direct investment, affiliate exports, free-trade area Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp050&r=all 94. A Multi-Country Approach to Factor Proporations Trade and Trade Costs Jim Markusen Anthony Venables Classic trade questions are reconsidered by generalizing a factor-proportions model to multiple countries, multi-stage production, and country-specific trade costs. We derive patterns of production specialization and trade for a matrix of countries that differ in relative endowments (columns) and trade costs ( rows). We demonstrate how the ability to fragment production and/or a proportional change in all countries’ trade costs alters these patterns. Production specialization and the volume of trade are higher with fragmentation for most countries but interestingly, for a large block of countries, these variables fall following fragmentation. Countries with moderate trade costs engage in market-oriented assembly, while those with lower trade costs engage in export-platform production. These two cases correspond to the concepts of horizontal and vertical affiliate production in the literature on multinational enterprises. Increases in specialization and the volume of trade accelerate as trade costs go to zero with and without fragmentation. Classification- Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp051&r=all 95. Learning on the quick and cheap: Gains from trade through imported expertise Jim Markusen Thomas F. Rutherford Gains from productivity and knowledge transmission arising from the presence of foreign firms has received a good deal of empirical attention, but micro-foundations for this mechanism are weak . Here we focus on production by foreign experts who may train domestic unskilled workers who work with them. Gains from training can in turn be decomposed into two types: (a) obtaining knowledge and skills at a lower cost than if they are self-taught at home, (b) producing domestic skilled workers earlier in time than if they the domestic economy had to rediscover the relevant knowledge through “reinventing the wheel”. We develop a three- period model in which the economy initially has no skilled workers. Workers can withdraw from the labor force for two periods of self study and then produce as skilled workers in the third period. Alternatively, foreign experts can be hired in period 1 and domestic unskilled labor working with the experts become skilled in the second period. We analyze how production, training, and welfare depend on two important parameters: the cost of foreign experts and the learning (or “absorptive”) capacity of the domestic economy. Classification- Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp052&r=all 96. Psychological Barriers in Gold Prices Brian Lucey Raj Aggarwal This paper examines for the first time the existence of psychological barriers in a variety of daily and intra-day gold price series. This paper uses a number of statistical procedures and presents evidence of psychological barriers in gold prices. We document that prices in round numbers act as barriers with important effects on the conditional mean and variance of the gold price series around psychological barriers. Classification- Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp053&r=all 97. Linkages and relationships between Emerging European and Developed Stock Markets before and after the Russian Crisis of 1997-1998 Brian Lucey Svitlana Voronkova This paper examines the linkages between the Russian stock market and those of its largest neighbors in Central and Eastern Europe, and the world stock markets over the 10 year period 1995- 2004. What we find is that there was a major change in the nature of these relationships after the so called Russian Crisis of 1997- 1998. The nature of this change is such that we can no longer rely on the the traditional methods used to examine linkages between equity markets. Using a more appropriate set of tools we find that the major influences on the Russian stock market have become the equity markets of the European Union and the USA. There is very little evidence of influence from (or to) regional markets such as Poland or Hungary. Classification- Keywords: Stock Market Integration, CEE Stock markets, Russian Stock Market, Cointegration Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp054&r=all 98. The Evolving Relationship between Gold and Silver 1978-2002: Evidence from a Dynamic Cointegration Analysis: A Note Crisis of 1997-1998 Brian Lucey Edel Tully Traditionally, analysts and traders have expected to see a stable, reasonably predictable, relationship between the price ( and thus the rate of return) of gold and silver. Both these metals retain important industrial, commercial and investment uses. Recent research has cast some doubt on this assumption. We find that while over the 1990’s the relationship may well have been more unstable, when a longer timeframe is examined the relationship is stable but weakening. This we hypothesise is due to the changing nature of the demand patterns for gold versus silver. Classification- Keywords: Cointegration, Gold Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp055&r=all 99. Are Local or International influences responsible for the pre-holiday behaviour of Irish equities? Brian Lucey Edel Tully The preholiday behaviour of equity price and return indices on the Irish Stock Exchange do nor display consistent positive pre- holiday returns. This is contrary to the majority of studies on this area, and the result is found across a number of sectoral indices. The analysis also indicates that these curious results are driven by local, as opposed to international, influences Classification- Keywords: Ireland, Non-Parametric, Stock Returns Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp056&r=all 100. Seasonality, Risk And Return In Daily COMEX Gold And Silver Data 1982-2002 Brian Lucey Edel Tully This paper examines the conditional and unconditional mean returns and variance of returns of daily gold and silver contracts over the 1982-2002 period. Despite the importance of these metals as industrial and investment products, they have received scant attention in recent years. In particular, we focus on the issue of whether there exists detectable daily seasonality in these moments. Using COMEX cash and futures data we find that under both parametric and nonparametric analysis the evidence is weak in the issue of daily seasonality for the mean but strong for the variance. There appears to be a negative Monday effect in both gold and silver, across cash and futures markets. When the mean and variance are analysed simultaneously in a GARCH framework we note that a leveraged GARCH model provides a best fit for the data and that in framework the Monday seasonal does not disappear, indicating that it is not a risk-related artefact, the Monday dummy in the variance equations being significant also. No evidence of an ARCH-in-Mean effect is found. Classification- Keywords: Seasonality GARCH Models, Gold, and Silver Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp057&r=all 101. Foreign Direct Investment and Export Spillovers: How Do Export Platforms Fare? Frances Ruane Julie Sutherland Should economies that promote themselves as export platforms for FDI be expected to experience relatively high levels of export spillovers from foreign to host-country enterprises? To investigate how export decisions of host-country enterprises are associated with the presence and export intensity of foreign- owned enterprises (FOEs) in an export-platform economy we use enterprise-level data for the manufacturing sector in Ireland. We postulate that export spillovers from FOEs are dependent upon the sectoral presence and export intensity of FOEs, so that third country export-platform FDI may not result in positive export spillovers to host-country enterprises. We find that the decision by host-country enterprises to enter the export market is positively associated with the presence of FOEs in their sector. However, the export intensity of host-country enterprises is negatively associated with the export sales ratios of FOEs, a result that contrasts with evidence of positive FOE export intensity spillovers in most previous empirical studies. Classification- Keywords: FDI, export spillovers, export platforms. Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp058&r=all 102. Agricultural trade restrictiveness in the European Union and the United States Jean-Christophe Bureau Luca Salvatici The paper provides a summary measure of the Uruguay Round tariff reduction commitments in the European Union and the United States, using the Mercantilistic Trade Restrictiveness Index (MTRI) as the tariff aggregator. We compute the index for agricultural commodity aggregates assuming a specific (Constant Elasticity of Substitution) functional form for import demand. The levels of the MTRI under the actual commitments of the Uruguay Round are computed and compared with two hypothetical cases, the Swiss Formula leading to a 36 percent average decrease in tariffs and a uniform 36 percent reduction of each tariff. This makes it possible to infer how reducing tariff dispersion would help improve market access in future trade agreements. Classification- Keywords: international agricultural trade; protection, tariffs and tariff factors Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp059&r=all 103. Multilateral agricultural trade liberalization: The contrasting fortunes of developing countries in the Doha Round Jean-Christophe Bureau Antoine Bouet, Yvan Decreux, Sebastien Jean An applied general equilibrium model is used to assess the impact of multilateral trade liberalization in agriculture, with particular emphasis on developing countries. We use original data, and the model includes some specific features such as a dual labor market. Applied tariffs, including those under preferential regimes and regional agreements, are taken into account at the detailed product level, together with the corresponding bound tariffs on which countries negotiate. The various types of farm support are detailed, and several groups of developing countries are distinguished. Simulations give a contrasted picture of the benefits developing countries would draw from the Doha development round. The results suggest that previous studies that have neglected preferential agreements and the binding overhang ( in tariffs as well as domestic support), and have treated developed countries with a high level of aggregation have been excessively optimistic about the actual benefits of multilateral trade liberalization. Regions like sub-Saharan Africa are more likely to suffer from the erosion of existing preferences. The main gainers of the Doha round are likely to be developed countries and Cairns group members. Classification- Keywords: CGE model, Doha Round, agriculture, tariff preferences, domestic support. Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp060&r=all 104. Special and Differential Treatment in the WTO Agricultural Negotiations Alan Matthews This paper examines the case for special and differential (S&D) treatment for developing countries within the WTO Agreement on Agriculture and the particular instruments or exemptions it should contain. The S&D treatment currently allowed to developing countries in the Agreement and the use they have made of it is first described. The range of proposals put forward by developing countries (and by development NGOs in developed countries) is summarised, and the S&D provisions in the August 2004 Framework Agreement for Establishing Modalities in Agriculture are outlined. The reasons why developing countries want special and differential treatment under the AoA are discussed. Some of the main proposals in the Development Box are then reviewed in the light of the justifications presented by its proponents. The paper concludes that the potential exists in the Framework Agreement to take a significant step towards “operationally effective and meaningful provisions” for S&D treatment. While noting this positive outcome, the important objective for developing countries of gaining a reduction in the trade- distorting support and protection by developed countries should not be forgotten. Classification- Keywords: CGE model, Doha Round, agriculture, tariff preferences, domestic support. Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp061&r=all 105. The Effect of Capital Requirement Regulation on the Transmission of Monetary Policy: Evidence from Austria. Philipp Engler,Terhi Jokipii,Christian Merkl Pablo Rovira Kaltwasser,Lucio Vinhas de Souza This paper investigates the existence of a bank lending and a bank capital channel in Austria by applying the dynamic Arellano- Bond GMM-estimator to a quarterly bank level dataset spanning from 1997 to 2003. While we do find evidence that the bank lending channel is in existence, with an important role active for capitalization, we are unable to confirm that the bank capital channel is in force in Austria. Our results indicate some counter-cyclicality in lending activity, a finding that is in line with the existing Austrian literature. Classification- Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp066&r=all 106. A Resolution of the Fisher Effect Puzzle: A Comparison of Estimators Ekaterini Panopoulou This paper attempts a resolution of the Fisher effect puzzle in terms of estimator choice. Using both short-term and long-term interest rates for 14 OECD countries, we find ample evidence supporting the existence of a long-run Fisher effect in which interest rates move oneto- one with inflation. Our results suggest that the reason why the Fisher effect has not found support internationally lies on the estimation method. When the hypothesis of a unit coefficient relating interest rates to expected inflation is tested within the Autoregressive Distributed Lag (ADL) framework, which is invariant to the integration properties of the data, the Fisher effect easily survives the empirical evidence. Similar, but less robust, results are reached on the grounds of the Pre-Whitened Fully Modified Least Squares (PW-FMLS) or the Johansen’s (JOH) estimators. Keywords: Cointegration Estimators; Fisher Effect; ADL; DOLS; Small-sample properties Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp067&r=all 107. Immigration policy and the skills of Irish immigrants: evidence and implications. Chris Minns The rise of immigration into Ireland has been accompanied by a debate on the potential objectives of immigration policy. This paper beings with a survey of international and historical evidence on the economics of immigration policy. To place Irish immigration in the international context, a recent OECD data set is used to compare the education of Irish immigrants to their counterparts in other European economies. The data suggest that Ireland's immigrant population is remarkably skilled. Immigrants of EU origin are positively selfselected. From outside the EU, some countries supply mainly skilled immigrants, while others are sources of less-skilled workers. These findings are used as a backdrop to explore three major issues in Irish immigration: the likely impact of EU accession of new member states, the appropriateness of current immigration policy, and the relationship between current immigration and future population flows. Keywords: Ireland, immigration, immigration policy Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp068&r=all 108. Owner-Used Capital Goods and the Exchange Rate Determination Chris Minns Present paper addresses the issue of the short and long run determination of the exchange rates in the Redux model of Obstfeld and Rogoff (1995). Current extension of the Redux model includes the investment projects that simultaneously can serve as investment allocation subject to the capital gains, as well as a regular consumption good. In contrast to the standard theoretical results, our model produces the exchange rate overshooting both in presence and in absence of price rigidities in the markets for final goods. This effect depends on the size of the owner-used capital goods expenditure relative to the total consumption expenditure, as well as the initial level of inflation at home. Depending on parameter values, and the initial conditions, the model supports possibility for exchange rate dynamics that include either overshooting orundershooting.. Keywords: Exchange Rates, Overshooting, Capital, Owner-Occupied Housing. Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp070&r=all 109. Equity market integration in the Middle East and North Africa: in search for diversification benefits Brian Lucey Thomas Lagoarde-Segot The purpose of this paper is to investigate the MENA’s potential for portfolio diversification benefits by examining long run equity linkages with daily data over the 1998-2004 periods. Our analysis is based on several co-integration analyses and an extension of Akdogan measures of financial integration. We first compare financial integration with the EU and the US. Results suggest that the MENA region is growingly segmented from both regions. Although integration is relatively higher with the EMU, diversification benefits for both EU and US investors are possible since segmentation levels appear converging. At the country level, our analysis displays no evidence of regional integration, thereby suggesting potential for local diversification. Integration scores also show that Egypt and Turkey should be relatively more appealing for the US investor and Israel, and Jordan and Morocco for the EU investor. Lebanon and Tunisia are two specific cases displaying opposite dynamics. A moving average analysis also shows that financial events, internal reforms and political shocks do not affect the region stock market linkages homogeneously; real economic integration seems to diminish financial segmentation. Finally, we approach the issue of short run linkages with a VAR-VECM methodology. Impulse response analysis shows that all markets seem to respond to each other, but that Turkey is unaffected by shocks occurring in the other markets. This ultimately raises questions on the dynamics of intra-regional contagion. Keywords: Stock Market Integration, Portfolio Diversification, MENA markets, Time-varying methods. Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp071&r=all 110. Net Capital Flows and Productivity: Evidence from U.S. States Sebnem Kalemli-Ozcan, Ariell Reshef Bent E. Sorensen,Oved Yosha We study net capital flows between U.S. states. We present a simple neoclassical model in which total factor productivity (TFP) varies across states and over time and where capital freely moves across state borders. In this framework capital flows to states that experience a relative increase in TFP thus creating net cross-state capital ownership positions. Net ownership positions converge to zero over time in the absence of further TFP movements. While TFP can not be directly observed, we can identify states with high TFP growth as states with high output growth. By comparing the level of personal income to output, we construct indicators of net capital flows into a state. We then examine empirically if the level of net capital flows between states following relative movements in TFP corresponds to the predictions of the model and whether net ownership positions tend to converge to zero. Our empirical results imply large flows of capital between states; for example, we find that a state with annual per capita output growth 1 percent higher than the average state over 10 years would attract capital in the amount of $9,900 per capita over those 10 years. These magnitudes are in close agreement with the predictions of the model. We conclude that frictions associated with borders are likely to be the main explanation for “low” international capital flows. Keywords: regional net capital flows, ownership, dividend income, historical income, Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp072&r=all 111. The consequences of agricultural trade liberalization for developing countries: distinguishing between genuine benefits and false hopes Jean-Christophe Bureau Sebastien Jean, Alan Matthews Recent analyses suggest that the impact of agricultural trade liberalization on developing countries will be very uneven. Some simulations suggest that the effects of agricultural trade liberalization will be small, overall, and are likely to be negative for a significant number of developing countries. The Doha Round focuses on tariff issues, but these countries currently have practically duty-free access to European and North American markets under preferential regimes. Multilateral liberalization will erode the benefits of these preferences, which are presently rather well utilized in the agricultural sector. The main obstacles to the exports of sub-Saharan African and least developed countries appear to be in the non-tariff area sanitary, phytosanitary standards) which increasingly originate from the private sector and are not dealt with under the Doha framework (traceability requirements, etc.). An agreement in Doha is unlikely to solve these problems and open large markets for the poorest countries. It might even increase their handicap relative to developing countries that are more advanced from a technical and commercial standpoint. While this is not an argument to give up multilateral liberalization, a more specific and differentiated treatment should be considered in WTO rules, and corrective measures should be implemented. Keywords: Agricultural Trade, Liberalization, WTO Date: 2005-04-20 URL: http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp073&r=all 112. When and why do Austrian companies issue shares? Johann Burgstaller (Department of Economics, Johannes Kepler University Linz, Austria) This paper examines the issuance of share capital via the Vienna Stock Exchange between 1985 and 2004. Evidence is supplied concerning the aggregate factors that explain the time-series variation in both the numbers of and proceeds from initial public offerings (IPOs) and seasoned equity offerings (SEOs). Results indicate that there is no cyclical sensitivity of issues, but that firms successfully time their offerings to take advantage of high stock market valuations and the associated low cost of equity capital. Corporate indebtedness and interest rates are significant determinants of SEOs in statistical and economic terms. The proceeds from IPOs, rather than funds raised by firms that are already listed, are used to finance subsequent investment. Keywords: Initial public offerings; seasoned equity offerings; corporate finance; capital structure; share issuance; going public; capital demand; stock market; cost of capital. JEL: G18 G32 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:jku:econwp:2005_03&r=all 113. Wives’ Labor Supply and Taxation: a Conditional Preferences Approach Christophe Kolodziejczyk (Institute of Economics, University of Copenhagen) In the context of the unitary model of household labour supply we test whether the husband’s work is separable from consumption and the wife’s work. We apply a conditional preferences approach to derive a conditional labor supply function for the wife consistent with a unitary model with nonseparable preferences. Our main results are that consumption and wife’s work hours are not separable from the husband’s labour supply. Furthermore we find that the wife’s and husband’s work hours are complements when men tend to work longer hours than a typical full-time contract. Keywords: conditional preferences; non-separability; income taxation; married women labor supply JEL: D13 H24 H31 J22 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:kud:kuieca:2005_02&r=all 114. Employment Effects of Spatial Dispersal of Refugees Anna Piil Damm (Institute of Economics, University of Copenhagen) Michael Rosholm (Department of Economics, University of Aarhus) Spatial dispersal policies may influence labour market integration of refugees through two mechanisms. First, it may affect the local job offer arrival rate, and second, it may affect place utility. We investigate the second mechanism theoretically by formulating a partial search model in which an individual searches simultaneously for a job and for a new residential location. The model predicts that the reservation wage for local jobs is decreasing in place utility. We argue that spatial dispersal policies decrease average place utility of refugees which decrease the transition rate into first job due to large local reservation wage effects. We investigate both mechanisms empirically and test the predictions of the theoretical model by evaluating the employment effects of the Danish spatial dispersal policy carried out 1986-1998. Keywords: spatial dispersal policy; job search; residential search; employment; migration JEL: J64 J61 J68 J15 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:kud:kuieca:2005_03&r=all 115. Revealed preference analysis of characteristics models Laura Blow (Institute for Fiscal Studies, London) Martin Browning (Institute of Economics, University of Copenhagen) Ian Crawford (University of Surrey) Characteristics models have been found to be useful in many areas of economics. However, their empirical implementation tends to rely heavily on functional form assumptions. In this paper we develop a revealed preference approach to characteristics models. We derive the necessary and sufficient empirical conditions under which data on the market behaviour of heterogeneous, price-taking consumers are nonparametrically consistent with the consumer characteristics model. Where these conditions hold, we show how information may be recovered on individual consumer's marginal valuations of product attributes. In some cases marginal valuations are point identified and in other cases we can only recover bounds. Where the conditions fail we highlight the role which the introduction of unobserved product attributes can play in rationalising the data. We implement these ideas using consumer panel data on the Danish milk market. Keywords: product characteristics; revealed preference JEL: C43 D11 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:kud:kuieca:2005_04&r=all 116. Computer Use and Earnings Mary A. Silles (Institute of Economics, University of Copenhagen) This paper uses longitudinal data for the UK to investigate the observed correlation between computer use at work and labor market earnings. Our findings suggest that there are no returns to computer use at work. This is evidence against the productivity interpretation of these returns and supports the view that the premium can be attributed to unobserved characteristics. Keywords: technological change; earnings JEL: I21 J31 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:kud:kuieca:2005_05&r=all 117. Personality, Education and Earnings Mary A. Silles (Institute of Economics, University of Copenhagen) This paper examines the effects of social maladjustment in childhood on schooling and earnings using the NCDS. Net of differences in family background and cognitive ability, estimates suggest that early social maladjustment scores are associated with lower labor market earnings and schooling. These results suggest that there are substantial returns to fostering positive social development in childhood. Keywords: educational economics; social maladjustment JEL: I21 J31 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:kud:kuieca:2005_06&r=all 118. Forward-looking estimation of default probabilities with Italian data Giuseppe Marotta Chiara Pederzoli Costanza Torricelli The solution adopted in Basel II to deal with procyclicality of capital requirements (i.e. through the cycle ratings and long-run average estimates of default probabilities) implies a reduction in the risk-sensitivity that contradicts the original spirit of the new framework.In order to preserve risk-sensitivity and to dampen procyclicality at the same time, Pederzoli and Torricelli ( 2005) set up a model which relies on a business cycle forecast in the estimation of the default probability and provide an application for the US. The modelling approach hinges on a forward-looking definition of capital requirements, in anticipation of the business cycle with a possible smoothing effect on the business cycle turning points.The present paper checks the robustness of the approach for the Italian case, where alternative business cycles chronologies are used and ratings have to be approximated by exploiting default data provided by the Bank of Italy. Findings suggest that the comparison between the alternative chronologies is an important issue. Keywords: Basel II; business cycle; capital requirement; default probability; procyclicality JEL: G21 G28 E32 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:mod:modena:0504&r=all 119. Social Security Privatization with Elastic Labor Supply and Second-Best Taxes Kent Smetters (The Wharton School, University of Pennsylvania) This paper shows that many common methods of privatizing social security fail to reduce labor market distortions when taxes are second best, challenging a key reason to privatize. Ironically, providing “transition relief” to workers alive at the time of the reform, in an effort to protect their previous contributions, undercuts potential efficiency gains. Chile’s reform -- the first major privatization that also served as a model for subsequent countries -- actually increased distortions. It is then shown that privatization with limited transition relief can reduce labor market distortions and produce gains to current and future generations without hurting initial retirees, i.e., a Pareto gain even with second-best taxes. Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mrr:papers:wp092&r=all 120. Measuring Social Security’s Financial Problems Jagadeesh Gokhale (The Wharton School, University of Pennsylvania and NBER) Kent Smetters (The Wharton School, University of Pennsylvania) The U.S. Social Security system has helped keep many retirees out of poverty. However, according to the Social Security and Medicare Trustees, Social Security faces a future financial shortfall of $10.4 trillion in present value. This enormous imbalance has received little attention in public debates about Social Security. Instead, the media and policymakers continue to focus on the program’s trust fund and several other ad-hoc measures that create a misleading impression of the size of Social Security’s financial problem. Although the Social Security Trust Fund is not projected to be exhausted until 2042, Social Security’s $10.4 trillion present value imbalance is accruing interest and will grow by $600 billion during 2004 alone. The current cash-flow federal budget, however, is biased against reforms that would improve Social Security’s finances. As shown herein, a new federal accounting system would remove this bias. Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mrr:papers:wp093&r=all 121. Saving Shortfalls and Delayed Retirement Andrew Au (The Wharton School, University of Pennsylvania) Olivia S. Mitchell (The Wharton School, University of Pennsylvania) John W.R. Phillips (National Institute on Aging) Prior research has suggested that many older Americans have not saved enough to maintain consumption levels in old age. One way older persons might respond to inadequate savings would be to extend their worklives by delaying retirement. This paper examines evidence on this matter using the Health and Retirement Study, a nationally representative panel survey of people age 51- 61 in 1992 followed for several years in a panel. We use the data to project household retirement assets and to determine how much more saving would be needed to preserve post-retirement consumption levels. Our research then examines the links between derived saving shortfall measures and delayed retirement patterns. Among nonmarried persons, there is evidence that larger shortfalls do produce delayed retirement, though the effect is not quantitatively large. For married couples, pre-retirement wealth shortfalls do not appear to be significantly associated with delayed retirement. Evidently couples have other means of handling saving shortfalls. Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:mrr:papers:wp094&r=all 122. The Impact of the 1972 Social Security Benefit Increase on Household Consumption Melvin Stephens Jr. (Carnegie Mellon University and NBER) This paper examines the consumption response to the 1972 Social Security benefit increase. Nominal benefits were increased by 20 percent while annual cost of living adjustments (COLAs) were contemporaneously implemented and scheduled to begin in less than three years. Taken in isolation, this benefit increase could be viewed as a large and permanent increase in real Social Security benefits. However, the prevailing high rates of inflation that were the impetus for the COLA legislation may have caused households to view the permanent real benefit increase to be substantially less than 20 percent. Using data from the 1972-73 Survey of Consumer Expenditures, the results provide a mixed picture of the consumption impact of the benefit increase. Strictly nondurable consumption increases significantly at the time of the benefit increase. However, this increase does not persist. Furthermore, the likelihood of making any purchases from an array of durable good categories does not change throughout this period. Date: 2005-02 URL: http://d.repec.org/n?u=RePEc:mrr:papers:wp095&r=all 123. Changes in Consumption and Activities in Retirement Michael D. Hurd (RAND and NBER) Susann Rohwedder (RAND) The simple one-good model of life-cycle consumption requires “consumption smoothing.” According to previous results based on partial spending and on synthetic panels, British and U.S. households apparently reduce consumption at retirement. The reduction cannot be explained by the simple one-good life-cycle model, so it has been referred to as the retirement-consumption puzzle. An interpretation is that at retirement individuals discover they have fewer economic resources than they had anticipated prior to retirement, and as a consequence reduce consumption. This interpretation challenges the life-cycle model where consumers are assumed to be forward looking. Using panel data on anticipated consumption changes at retirement and on recollected consumption changes following retirement, we find that the median recollected change in spending at retirement is zero and that the recollections are broadly consistent with anticipations. Based on a measure of total spending in true panel we find that the actual mean and median changes are slightly positive. Therefore, we find no retirement-consumption puzzle. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:mrr:papers:wp096&r=all 124. Valuing Lost Home Production for Dual-Earner Couples John Laitner (University of Michigan) Chris House (University of Michigan) Dmitri Stolyarov (University of Michigan) Economists’ principal tool for studying household behavioral responses to changes in tax and other government policies, and the magnitude and determinants of private saving, is the life—cycle model. The purpose of this paper is to attempt to incorporate into that model one of the most conspicuous changes in the U.S. economy in the last 50 years, the rise in labor market participation for married women. The increased presence of married women in the labor force has obvious benefits: women now earn much more income than they did in the past. On the other hand, working women presumably spend less time doing housework and other types of home production, and the forgone value of time at home reduces the net benefit of their work in the market. Conventional accounts do not provide measurements of the costs of lost home production, but we attempt to use comparisons of household net worth at retirement to deduce valuations indirectly. This paper modifies a standard life—cycle model to include women’s labor supply decisions, estimates key parameters of the new specification, and attempts to assess the significance of rising female labor market participation for aggregate national saving in the U.S. Using panel data from the Health and Retirement Study, we find that the difference between measured labor market earnings for married women and earnings net of the value of lost home production seems moderately small – about 30 percent – and that the corresponding long—run effect on the overall rate of private saving is minor. Date: 2005-03 URL: http://d.repec.org/n?u=RePEc:mrr:papers:wp097&r=all 125. Minimum Variance Unbiased Maximum Likelihood Estimation of the Extreme Value Index Roger Gay New results for ratios of extremes from distributions with a regularly varying tail are presented. Deriving from independence results for certain functions of order statistics, 'consecutive' ratios of extremes are shown to be independent as well as non- distribution specific. They have tractable distributions related to beta distributions. The minimum variance unbiased maximum likelihood estimator has the form of Hill's estimator. It achieves the Cramer-Rao minimum variance bound and is a function of a sufficient statistic. For small sample sizes the form of the moment generating function of the estimator shows it has a gamma distribution. Keywords: Tail-index, Minimum variance unbiased, Maximum likelihood, Asymptotically normal JEL: C13 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:msh:ebswps:2005-8&r=all 126. Product market competition and economic performance in Iceland Thomas Laubach Michael Wise This paper discusses the current state of product market competition in Iceland, including the legal and regulatory framework, and suggests directions for further improvement. Given the size of the economy, efficiency considerations dictate high concentration in many markets, and preventing abuse of market dominance is therefore a challenging task. Changes to competition law since the early 1990s have strengthened competitive forces in many sectors of the economy, and proposed amendments to that law would further improve market surveillance. The changes in the regulatory framework for telecommunications have helped vigorous competition to develop in most segments, but there remain problems in pricing of access to the local loop. In the still publicly owned electricity sector, however, competition in generation and sales is so far virtually non existent despite new legislation. Other policies discussed include agricultural support, policies towards foreign direct investment, and public procurement and provision of publicly funded services. This Working Paper relates to the 2005 OECD Economic Survey of Iceland www.oecd.org/eco/surveys/iceland).

Concurrence sur les marches de produits et performance economique en Islande

Ce document de travail examine l’etat actuel de la concurrence sur les marches de produits en Islande, sous l’angle juridique et reglementaire notamment, et suggere un certain nombre d’ameliorations possibles. Etant donne la taille de l’economie, des raisons d’efficience impose une forte concentration sur de nombreux marches et il est donc d’autant plus indispensable d’eviter les abus de position dominante. Les modifications apportees au droit de la concurrence depuis le debut des annees 90 ont renforce les forces concurrentielles dans de nombreux secteurs de l’economie et les amendements proposes permettraient d’ameliorer encore la surveillance des marches. S’agissant des telecommunications, l’evolution du cadre reglementaire a permis le developpement d’une concurrence intense dans la plupart des segments du marche, mais des problemes subsistent en ce qui concerne la tarification de l’acces a la boucle locale. En revanche, dans le secteur de l’electricite qui est encore entre les mains de l’Etat, la concurrence est pratiquement inexistante jusqu’ici au niveau de la production et de la commercialisation, en depit des nouvelles dispositions legislatives. Les politiques concernant le soutien a l’agriculture, l’investissement direct etranger, les marches publics et les services publics sont egalement examinees. Ce Document de travail se rapporte a l'Etude economique de l'OCDE de l'Islande, 2005 (www.oecd. org/eco/etudes/islande). Keywords: Productivity; product market competition; competition law; regulatory reform; network industries; public procurement; Iceland JEL: H57 K21 K23 L1 L4 L5 L94 L96 Date: 2005-04-15 URL: http://d.repec.org/n?u=RePEc:oed:oecdec:426&r=all 127. Long-term Patterns in Australia's Terms of Trade Christian Gillitzer (Reserve Bank of Australia) Jonathan Kearns (Reserve Bank of Australia) We examine two important aspects of Australia’s terms of trade using 135 years of annual data up to 2003/04. Since Australia predominantly exports commodities and imports manufactures, the Prebisch-Singer hypothesis suggests that there should be a negative trend in the terms of trade. But the trend is no more than -0.1 per cent per annum, less than the trend decline in world commodity prices relative to manufactured goods prices. The weaker trend appears to be the result of Australia exporting, and importantly diversifying toward, commodities with faster price growth. Extending the sample using projections for the terms of trade for the two years to 2005/06 based on commodity price movements to date, the apparent downward trend disappears. Indeed, based on these projections, the terms of trade will have increased by around 50 per cent over the period 1987–2006, unwinding the decline over the preceding 30 years. We also investigate the volatility of the terms of trade and demonstrate that it was significantly higher between 1923 and 1952. This is attributable to substantially higher volatility in the export prices of a few key commodity exports. Volatility declined after 1952 due to smaller shocks to the prices of these goods. The diversification in Australia’s export base since then means that the terms of trade are less susceptible to shocks to prices of individual commodity exports. Keywords: terms of trade; commodity prices; Prebisch-Singer JEL: E30 F10 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2005-01&r=all 128. "Style Analysis Based on a General State Space Model and Monte Carlo Filter" Takao Kobayashi (Faculty of Economics, University of Tokyo) Seisho Sato (Department of Prediction and Control, Institute of Statistical Mathematics) Akihiko Takahashi (Faculty of Economics, University of Tokyo) This paper proposes a new approach to style analysis by utilizing a general state space model and Monte Carlo filter. In particular,We regard coefficients of style indices as state variables in the state space model and apply Monte Carlo filter as estimation method. Moreover, an empirical analysis using actual funds' data confirms the validity of our approach. Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:tky:fseres:2005cf337&r=all 129. Precautionary Balances and the Velocity of Circulation of Money Miquel Faig Belen Jerez The observed low velocity of circulation of money implies that households hold more money than they normally spend. A natural explanation for this behavior is that households face uncertain expenditure needs, so they have a precautionary motive for holding money. We investigate the precautionary demand for money in a search model where households are subject to preference shocks. The model predicts that the velocity of circulation of money is not only low but also interest elastic. The model closely fits United States data on the velocity of circulation of money and interest rates that span the period 1892-2003. The empirical analysis reveals a dramatic reduction in precautionary balances towards the end of our sample, probably linked to innovations in the information technology. This drop in precautionary balances is crucial for important issues of monetary economics such as the elasticity of the demand for money and the welfare cost of inflation. JEL: E41 E52 URL: http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-188&r=all 130. Overcoming Participation Constraints Norman, Peter Fang, Hanming In incomplete information environments with transferable utility, efficient outcomes are generally implementable unless interim or ex post participation constraints are imposed on the problem. In this paper we show that linking a sufficiently large number of independent but possibly unrelated social decisions, a slightly perturbed Groves mechanism can implement an efficient outcomes with probability arbitrarily close to one, while respecting all participation, incentive and balanced budget constraints. Date: 2005-04-22 URL: http://d.repec.org/n?u=RePEc:ubc:pmicro:norman-05-04-22-05-35-30&r=all 131. Some Identification Issues in Nonparametric Linear Models with Endogenous Regressors Thomas A. Severini (Northwestern University) Gautam Tripathi (University of Connecticut) In applied work economists often seek to relate a given response variable y to some causal parameter mu* associated with it. This parameter usually represents a summarization based on some explanatory variables of the distribution of y, such as a regression function, and treating it as a conditional expectation is central to its identification and estimation. However, the interpretation of mu* as a conditional expectation breaks down if some or all of the explanatory variables are endogenous. This is not a problem when mu* is modelled as a parametric function of explanatory variables because it is well known how instrumental variables techniques can be used to identify and estimate mu*. In contrast, handling endogenous regressors in nonparametric models, where mu* is regarded as fully unknown, presents di±cult theoretical and practical challenges. In this paper we consider an endogenous nonparametric model based on a conditional moment restriction. We investigate identification related properties of this model when the unknown function mu* belongs to a linear space. We also investigate underidentification of mu* along with the identification of its linear functionals. Several examples are provided in order to develop intuition about identification and estimation for endogenous nonparametric regression and related models. Keywords: Endogeneity, Identification, Instrumental variables, Nonparametric models. JEL: C14 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2005-12&r=all 132. Accounting for the Relationship between Money and Interest Rates Magnus Jonsson (Sveriges Riksbank) Paul Klein (University of Western Ontario) In time series from the United States, the relationship between the money to income ratio and the nominal interest rate is a negative and stable one. In Swedish data, there is no such stable relationship. In this paper, we argue that this difference can be explained by the differences in the shock processes that have hit the two countries. Using a dynamic general equilibrium model driven by shock processes estimated to fit the two countries, we find that we can account for the main properties of the data remarkably well. Date: 2005-04-22 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpda:0504001&r=all 133. Books, Buildings and Learning Outcomes: an impact evaluation of World Bank assistance to basic education in Ghana Howard White (OED, World Bank) Edoardo Masset (OED, World Bank) This paper demonstrates that the delivery of hardware inputs to Ghana’s basic education system – building classrooms and supplying textbooks – has had a substantial impact on higher enrollments and better learning outcomes. The Bank’s support for school building has been a major factor behind Ghana being on track to achieve the Millennium Development Goal of Universal Primary Education. The context for these improvements was a government strongly committed to implementing a program of educational reform that refocused government resources away from secondary and tertiary education and onto the basic sector. But the Bank’s support played a critical role in allowing the government to carry out its plans. Partly because of increased reliance on community contributions, a gap is opening up between the majority of schools and those in poorer communities, particularly in off-road rural areas. Facilities in schools in poorer areas are usually inferior and teacher absenteeism high, so that little learning can take place. Special attention needs to be paid to these least-privileged schools if Ghana is to remain on track to meet the education MDG. Keywords: Impact evaluation, education, Ghana, Africa JEL: O P Date: 2005-04-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0504013&r=all 134. Challenges in Evaluating Development Effectiveness Howard White Evaluation quality is a function of methodological and data inputs. This paper argues that there has been inadequate investment in methodology, often resulting in low quality evaluation outputs. With an increased focus on results, evaluation needs to deliver credible information on the role of developmentsupported interventions in improving the lives of poor people, so attention to sound methodology matters. This paper explores three areas in which evaluation can be improved. First, reporting agency-wide performance through monitoring systems that satisfy the Triple-A criteria of aggregation, attribution and alignment; which includes procedures for the systematic summary of qualitative data. Second, more attention need to be paid to measuring impact, both through the use of randomisation where possible and appropriate, or through quasi-experimental methods. However, analysis of impact needs to be firmly embedded in a theory-based approach which maps the causal chain from inputs to impacts. Finally, analysis of sustainability needs to move beyond its current crude and cursory treatment to embrace the tools readily available to the discipline. Keywords: Evaluation, development effectiveness, World Bank JEL: O P Date: 2005-04-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0504014&r=all 135. Knowledge Sources of Innovation in a Small, Open Economy: The Case of Singapore Poh Kam Wong (Entrepreneurship Centre, National University of Singapore) Yuen Ping Ho (Entrepreneurship Centre, National University of Singapore) By tracing the flows of patent citation of prior patents and scientific journal articles, we investigate the sources of knowledge for innovation output in Singapore, a small, highly open economy that has traditionally been significantly dependent on foreign multinational corporations (MNCs). We found that the local production of new knowledge by indigenous Singaporean firms depends disproportionately on technological knowledge produced by MNCs with operational presence in Singapore and scientific knowledge generated by foreign universities. Locally produced new knowledge by indigenous firms and local universities constitute an insignificant, albeit rapidly growing, source for innovation in Singapore. Keywords: innovation system, patent citation, Singapore, knowledge sources JEL: O P Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0504015&r=all 136. Measuring Willingness-To-Pay in Discrete Choice Models with Semi- Parametric Techniques Pablo M Garcia (Centro de Estudios para la Produccion - CEP) It is usual to estimate willingness-to-pay in discrete choice models through Logit models –or their expanded versions-. Nevertheless, these models have very restrictive distributional assumptions. This paper is intended to examine the above- mentioned issue and to propose an alternative estimation using non-parametric techniques (through Simple Index Models). Furthermore, this paper introduces an empirical application of willingness-to-pay for improved subway travel times in the City of Buenos Aires. JEL: C2 L9 Date: 2005-04-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpem:0504007&r=all 137. When to Get In and Out of Dairy Farming: A Real Option Analysis Loren Tauer The Dixit entry/exit real option model, modified to accommodate a milk price support regime, was applied to the entry/exit decisions of New York dairy farmers. Results varied by farm size, but for the 500-cow farm the entry milk price is $19.09 and the exit milk price is $11.66 when farmers were allowed to continuously enter and exit the industry. With no option to ever return to dairy farming, the exit milk price falls to $10.00. JEL: G Date: 2005-04-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0504018&r=all 138. Simple market protocols for efficient risk sharing Marco LiCalzi (University of Venice, Italy) Paolo Pellizzari (University of Venice, Italy) This paper studies the performance of four market protocols with regard to allocative efficiency and other performance criteria such as volume or volatility. We examine batch auctions, continuous double auctions, specialist dealerships, and a hybrid of these last two. All protocols are practically implementable because the space of messages for traders is simple. We test the protocols by running (computerized) experiments in an environment that controls for traders’ behavior and rules out any informational effect. We find that all protocols generically converge to the efficient allocation in finite time. An extended comparison over other performance criteria produces no clear winner, but the presence of a specialist is clearly associated with the best all-round performance. Keywords: market microstructure, allocative efficiency, comparison of market institutions, agent-based simulations. JEL: G19 Date: 2005-04-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0504019&r=all 139. An Analysis of the Impacts of Non-Synchronous Trading On Silvio John Camilleri (Banking & Finance Dept. - University of Malta) Christopher J. Green (Economics Dept., - Loughborough University) The serial correlation effects which non-synchronous trading can induce in financial data have been documented by various researchers. In this paper we investigate non-synchronous trading effects in terms of the predictability that may be induced in the values of stock indices. This analysis is applied to emerging- market data, on the grounds that such markets might be less liquid and thus prone to a higher degree of non- synchronous trading. We use both a daily data set and a higher frequency one, since the latter is a prerequisite for capturing intra-day variations in trading activity. When considering one-minute interval data, we obtain clear evidence of predictability between indices with different degrees of non-synchronous trading. We then propose a simple test to infer whether such predictability is mainly attributable to non- synchronous trading or an actual delayed adjustment on part of traders. The results obtained from an intra-day analysis suggest that the former cause seems a better explanation for the observed predictability. Future research in this area is needed to shed light on the degree of data predictability which may be exclusively attributed to non- synchronous trading, and how empirical results may be influenced by the chosen data frequency. Keywords: Non-Synchronous Trading, Stock Markets, National Stock Exchange of India, High-Frequency Data. JEL: G12 G14 Date: 2005-04-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0504020&r=all 140. Credit Rationing and Internal Ratings in the face of Innovation and Uncertainty Guido Fioretti (University of Bologna) Some empirical investigations are pointing to the fact that high- tech firms are subject to credit rationing to a higher extent than the average. This excess of credit rationing may not be due to information asymmetries, but rather to the inability of credit institutions to screen projects in novel fields. This article provides a model of this phenomenon and explores its implications in the light of recent changes in the screening procedures of major banks. In particular, the changes to be made in order to comply with the ``Basel II'' accord emphasize the impact of screening procedures on credit rationing. Keywords: Credit rationing, High-Tech Firms, Internal Rating Systems, Basel II JEL: G Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0504021&r=all 141. The impact on the U.S. Dollar of the conflict between the American locomotive’s model and the emerging economies’ autopoietic growth. Carlo Viviani (LUISS 'Guido Carli' University, Roma, Italy) Paolo Savona (LUISS 'Guido Carli' University, Roma, Italy) The purpose of this paper is to put the future of the US dollar into a logical framework which comprises the global development mechanism. Two models of growth collide: the US «locomotive», based on the international use of the dollar, and which requires exogenous pushes coming permanently from the foreign deficit and periodically from the public deficit, and the «endogenous», or «autopoietic». The engine of autopoietic growth is the process of globalization, alimented by foreign investments and the emerging economies’ domestic demand, which in turn require the establishment of an international monetary standard. In absence of a real international cooperation, the conflict of the two models might bring a global currency crisis and a fall in the global growth rate, with a possible negative impact in foreign relations and policies at the global level. Keywords: International monetary system, Dollar, Euro, Exchange rate, Economic growth, International Finance, International Political Economy. JEL: F02 F31 F33 F42 Date: 2005-04-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0504009&r=all 142. The Behavioral Equilibrium Exchange Rate of the Czech Koruna Martin Melecky (School of Economics, University of New South Wales) Lubos Komarek (Czech National Bank) The behavioural equilibrium exchange rate (BEER) model of the Czech koruna is derived in this paper and estimated by three methods suitable for non-stationary time series. The considered potential determinants of the real equilibrium exchange rate are the productivity differential, the interest rate differential, the terms of trade, net foreign direct investment, net foreign assets, government consumption and the degree of openness. We find that the Czech koruna was on average undervalued over the period 1994 to 2004 by about 7 percent with respect to the estimated BEER. The significant determinants of the equilibrium exchange rate of the Czech koruna appear to be the productivity differential, the real interest rate differential, the terms of trade and the net foreign direct investment. Keywords: Equilibrium Exchange Rate Modelling, Time-Series Analysis, Exchange Rate Misalignments, Czech Republic, ERMII JEL: C52 C53 E58 E61 F31 Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpif:0504010&r=all 143. Software houses: Changing from Product vendors into solution Providers Stefan Heng (Deutsche Bank) Integrating hitherto separate IT systems while keeping within with tight budgetary restrictions is becoming the dominant software trend in this decade. Optimism is currently starting to spread again in software houses. However, there are marked regional differences in potential. Contrary to some forecasts, the US software houses are in the process of consolidating their already dominant position in the global market thanks to their economies of scale, combined with the network effect. Conversely, the only chance for most of their typically small European competitors to score points is in certain niches of the market. Keywords: system software, application software, CRM, ERP, SCM, Web services JEL: L15 L81 O14 O33 Date: 2005-04-22 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504023&r=all 144. Competition between open-source and proprietary organizations Alex Gaudeul (University of East Anglia - Norwich & ESRC Centre for Competition Policy) This paper models the competition between two production models: open- source and proprietary. An open-source and a proprietary project are put into competition. The open-source organization suffers from imperfect coordination between its volunteers and it will serve their needs in preference to those of the broader population. Commercial ventures are better coordinated and their user-orientation will lead them to develop better interfaces with users. However, open-source products are free, while an entrepreneur must pay its workers and will maximize profits by excluding some users though price. The paper derives conditions which determine the nature and size of the market for each type of product. Network effects encourage better coordination in open- source production and may deter the emergence of a proprietary alternative. Proprietary entrepreneurs specialize into niche markets when network effects are low, and compete directly with open- source products when network effects are high. Keywords: Open Source Software; Network Externalities; Information Goods; Intellectual Property; Duopoly; Production Systems; Competition; Non-Profit; Volunteer Organizations. JEL: D23 H41 L13 L22 L31 L86 O34 O38 Date: 2005-04-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504024&r=all 145. Impact of Financing Sources and Regulatory Business Costs on National Entrepreneurial Propensity Yuen Ping Ho (Entrepreneurship Centre, National University of Singapore) Poh Kam Wong (Entrepreneurship Centre, National University of Singapore) In this paper, we focus on two barriers to entry that may hinder the formation of new firms: capital requirements and regulatory business cost. The contribution of this paper is twofold: we compare different types of financing sources to address the issue of capital requirement and we utilise a new measure of business cost by constructing a composite index using data from the World Bank’s Doing Business Database. Using cross-sectional data on 36 countries that participated in the 2002 Global Entrepreneurship Monitor, we attempt to establish if financing sources and business costs have different impact on three different types of entrepreneurial activity: opportunity-driven, necessity driven and high-growth potential entrepreneurship. Three types of financing sources are analysed: traditional debt financing, Venture Capital financing, and informal investments. The findings show that only informal investments significantly influence the propensity to be entrepreneurs.Regulatory business costs were found to deter opportunity driven entrepreneurship, but had no impact on other types of entrepreneurial activity. Keywords: entrepreneurial activity, financing, venture capital, informal investment, business cost JEL: L Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504025&r=all 146. Divide and Conquer Zhijun Chen (GREMAQ Toulouse universite 1) Tournaments are well known to be vulnerable to collusion as shown by the impossibility theorem in Ishiguro (2004), which asserts that efficient effort levels are impossible to be implemented through a collusion-proof contract. However, we argue that this impossibility is a product of simple mechanisms that prevail in collusion-proof mechanism design. In this paper, we explore more sophisticated mechanisms with discrimination and asymmetric information to prevent collusion, outlining the principle of “divide and conquer”. As a result, we establish a possibility theorem of implementing efficient effort levels, and thus break down the impossibility theorem in Ishiguro (2004). Keywords: Collusion, Discrimination, Moral Hazard, Tournament Model JEL: D20 J30 Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpla:0504012&r=all 147. Comparing Monetary Policy Reaction Functions: ECB versus Bundesbank Bernd Hayo (Philipps-University Marburg) Boris Hofmann (ZEI, University of Bonn) This paper compares the ECB’s conduct of monetary policy with that of the Bundesbank. Estimated monetary policy reaction functions for the Bundesbank (1979:4-1998:12) and the European Central Bank (1999:1- 2004:5) show that, while the ECB and the Bundesbank react similarly to expected inflation, the ECB reacts significantly stronger to the output gap. Theoretical considerations suggest that this stronger response to the output gap may rather be due to a higher interest rate sensitivity of the German output gap than to a higher weight given to output stabilisation by the ECB. Counterfactual simulations based on the estimated interest rate reaction functions suggest that German interest rates would not have been lower under a hypothetical Bundesbank regime after 1999. However, this conclusion crucially depends on the assumption of an unchanged long-run real interest rate for the EMU period. Adjusting the Bundesbank reaction function for the lower long-run real interest rate estimated for the ECB regime reverses this conclusion. Keywords: Taylor rule, monetary policy, ECB, Bundesbank JEL: E5 Date: 2005-04-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504032&r=all 148. Learning the inflation target Ricardo Nunes (Universitat Pompeu Fabra) The New Keynesian model with rational expectations unrealistically predicts that unanticipated credible changes in the inflation target lead to an immediate jump in the inflation level while the output gap is unaffected. We set up a theoretical model where agents learn the behaviour of the economy. In this context, a permanent change in the inflation target leads inflation to respond sluggishly while the output gap is temporarily affected. We extend the model to allow for both learners and forward looking agents to coexist. The calibrated model explains quite well transition dynamics during the Volker disinflation. Keywords: Learning, Policy shifts, Volker disinflation JEL: D83 E31 E52 Date: 2005-04-25 Date: 2005-04-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504033&r=all 149. Controllability and non-neutrality of economic policy: The Tinbergen’s approach in a strategic context Nicola Acocella (University of Rome I) Giovanni Di Bartolomeo (University of Rome I) In the last 20 years issues of policy effectiveness and neutrality (notably with reference to monetary policy) have been increasingly raised in the context of static LQ (linear-quadratic) policy games. The general conditions ensuring policy non- neutrality in a strategic environment remains however to be inquired. We state these conditions by generalizing the classical theory of economic policy developed by Tinbergen and others to such a context. We also state necessary and sufficient conditions for the existence of Nash and Stackelberg equilibria. We finally show that the conditions for monetary policy effectiveness asserted in the literature respect our general conditions. Keywords: LQ-policy games, policy ineffectiveness, static controllability JEL: C72 E52 E61 Date: 2005-04-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504034&r=all 150. Non-neutrality of economic policy: An application of the Tinbergen-Theil’s approach to a strategic context Nicola Acocella (University of Rome I) Giovanni Di Bartolomeo (University of Rome I) Issues of policy effectiveness and neutrality are widespread in the economic literature. They have been increasingly raised in specific contexts within the class of LQ (linear-quadratic) policy games in the last 20 years, notably with reference to monetary policy. The more general conditions ensuring nonneutrality in a strategic environment remain however to be inquired. We fill this gap by applying the classical theory of economic policy to a strategic context. This is also useful to highlight some existence conditions for policy game solutions. We restrict ourselves to the common LQ-games in a static perfect information framework, but our simple logic can be extended to other more general situations. Keywords: LQ-policy games, policy ineffectiveness, controllability. JEL: C72 E52 E61 Date: 2005-04-26 Date: 2005-04-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504035&r=all 151. TINBERGEN AND THEIL MEET NASH: CONTROLLABILITY IN POLICY GAMES Nicola Acocella (University of Rome I) Giovanni Di Bartolomeo (University of Rome I) This paper generalizes the classical theory of economic policy developed by Tinbergen and Theil to a static LQ-strategic context between n players. We show how this generalized version of controllability can profitably be used to deal with policy ineffectiveness issues and Nash equilibrium existence. Keywords: Policy games, policy ineffectiveness, static controllability, Nash equilibrium existence. JEL: C72 E52 E61 Date: 2005-04-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504036&r=all 152. Is corporatism feasible? Nicola Acocella (University of Rome I) Giovanni Di Bartolomeo (University of Rome I) This paper investigates the effects of cooperation (corporatism) on macroeconomic performance by considering a rather standard policy game between the government and a monopoly union. We stress the shortcomings of the traditional way used to model cooperation in policy games (the maximization of the weighted sum of players’ preferences), which only approximates the Nash product solution. We find that it is difficult to implement corporatism, although it generally increases social welfare, since it often reduces the union’s utility. In particular, we show that an inflation-neutral union will never find it profitable to cooperate with the government, unless side-payments are considered. The study of this issue is however beyond the scope of this paper. Keywords: Employment, inflation, trade unions, government, corporatism, policy game, feasibility. JEL: E24 E61 E31 E58 J51 Date: 2005-04-26 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504037&r=all 153. Getting Polluters to Tell the Truth Marcelo Caffera (Universidad de Montevideo) Juan Dubra (Universidad de Montevideo) We study the problem of a regulator who must control the emissions of a given pollutant from a series of industries when the firms' abatement costs are unknown. We develop a mechanism in which the regulator asks firms to report their abatement costs and implements the most stringent emissions standard consistent with the firms' declarations. He also inspects one of the firms in each industry which declared the cost structure consistent with the least stringent emissions standard and with an arbitrarily small probability, he discovers whether the report was true or not. The firm is punished with an arbitrarily small fine if and only if its report was false. This mechanism is simple, is implementable in practice, its unique equilibrium is truth telling by firms, it implements the first best pollution standards and shares some features of the regulatory processes actually observed in reality. Keywords: Emissions Standards, Command and Control, Undominated Nash Implementation JEL: D78 D82 Q20 Date: 2005-04-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0504008&r=all 154. The Role of Europeanisation in the Larger Context of Globalisation Supreena Narayanan (Institute of International Business IIB , Stockholm School of Economics) Europeanisation has emerged as a significant world order because of the magnitude of changes it has brought about in terms of the construction, diffusion of formal as well as informal rules and regulations pertaining to politics, economy, technology and international relations within the European Union. The benefits of Europeanisation as consolidated and enforced by the formation of the European Union are numerous inclusive of: • Unification of a vast majority of constituent European economies territorially, politically and economically. • Stronger, simplified and more effective political control of a vast majority of European countries • A more wholesome sense of Corporate and Social Responsibility for a larger area in terms of corporate governance, environmental protection measures and pollution control. • Creation of stable democratic countries on behalf of the individual European Countries, an essential pre- requisite for individual countries becoming part of the European. • An efficient and streamlined decision making for a fair and prosperous European Union. This paper analyses Europeanisation concerning its integration with EU politics and internal politics of EU countries, its relationship with firms as well as its interplay with Globalisation. European states - members and non- members of the EU - remain challenged by the important and still unsolved question about how future policies of the EU should be considered vis a vis globalisation. While Europeanisation will further strengthen globalisation pressures it also permits the EU exhibiting great potential to emerge as a well-networked and strong system of regional governance. JEL: P Q Z Date: 2005-04-25 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0504009&r=all 155. Agricultural policies and farm structures - agent-based simulation and application to EU-policy reform Kathrin Happe (Institute of Agricultural Development in Central & Eastern Europe) The development of competitive and efficient agricultural structures has been one of the central goals of agricultural policy making in addition to ensuring a fair standard of living for farmers. To achieve these goals, the agricultural sector in most industrialised nations has long been the subject of government interven­tions. However, many agricultural policies have worked counteractively to these goals by creating distortions in the use of resources. Against this background, the emergence of new and innovative modelling methods such as agent- based models, in addition to ever-in­creasing computing capacities has offered new possibilities to model adjustment reactions and to quantify the impact of agri­cultural policies. This thesis takes up these new methodologies and applies them to the modelling and evaluation of agricultural policy impacts on regional struc­tural change. At the centre of the thesis is the development of the spatial and dynamic simula­tion model of regional agricultural structures AgriPoliS (Agricultural Policy Simulator). The core of AgriPoliS is the understanding of a regional agricultural structure as an agent-based system, i.e., a system of interacting heterogeneous agents. The thesis contributes to a deeper un­derstanding of struc­tural change dynamics and factors causing structural change. It is studied whether and to what extent policy changes can facilitate structural adjustment towards a more efficient and competitive agricultural structure. Keywords: agent-based modelling, structural change, agricultural policy, simulation, efficiency JEL: P Q Z Date: 2005-04-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpot:0504011&r=all 156. Arrow's Theorem in Judgement Aggregation Franz Dietrich Christian List In response to recent work on the aggregation of individual judgements on logically connected propositions into collective judgements, it is often asked whether judgement aggregation is a special case of Arrowian preference aggregation. We suggest the opposite. After introducing judgement aggregation and proving a general impossibility theorem, we construct an explicit embedding of preference aggregation into judgement aggregation and prove Arrow's theorem as a direct corollary of our more general result on judgement aggregation. Although we provide a new proof of Arrow's theorem, our main aim is to clarify the logical relation between judgement and preference aggregation and to illustrate the great generality of the judgement aggregation model. Keywords: judgement aggregation, formal logic, preference aggregation, Arrow's Theorem, discursive dilemma JEL: D70 D71 Date: 2005-04-22 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0504007&r=all 157. Modelling sustainable human development in a capability perspective Stefano Pareglio (Universita Cattolica del Sacro Cuore di Brescia) Alessandro Vaglio (Universita degli Studi di Bergamo) Marco Grasso (Universita degli Studi di Milano Bicocca) Stefania Migliavacca (Eni Corporate University) Enzo Di Giulio (Eni Corporate University) In this paper we model sustainable human development as intended in Sen's capability approach in a system dynamic framework. Our purpose is to verify the variations over time of some achieved functionings, due to structural dynamics and to variations of the institutional setting and instrumental freedoms (IF Vortex). The model is composed of two sections. The 'Left Side' one points out the 'demand' for functionings in an ideal world situation. The real world one, on the 'Right Side' indicates the 'supply' of functionings that the socio-economic system is able to provide individuals with. The general model, specifically tailored for Italy, can be simulated over desired time horizons: for each time period, we carry out a comparison between ideal world and real world functionings. On the basis of their distances, the model simulates some responses of decision makers. These responses, in turn influenced by institutions and instrumental freedoms, ultimately affect the dynamics of real world functionings, i.e. of sustainable human development. Keywords: Functionings, Capabilities, Institutions, Instrumental Freedoms, Sustainable Human Development JEL: D6 D7 H Date: 2005-04-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwppe:0504008&r=all 158. Nutritional Aspects of Poverty among Casual Labourer Households in Shillong (India) SK Mishra (North Eastern Hill University, Shillong, Meghalaya, India) JW Lyngskor (North Eastern Hill University, Shillong, Meghalaya, India) In this paper we report our findings as to the extent of poverty among the casual labourers of Shillong, the capital city of Meghalaya, India. Two views of poverty have been considered; first at the per capita (per month) income level and the second at the nutritional level. Nutritional level has been defined in terms of calorie, carbohydrate, protein and fat intakes of the casual labourer households. We find that income elasticites of calorie availability and carbohydrate availability move close to each other. Income elasticities of protein are always higher than carbohydrate (and calorie). Elasticities of fat are initially larger than others, but with an increase in per capita income they slide down others. At small income levels relatively high- fat-low-protein articles are consumed while with an increase in income relatively low- fat-high-protein articles are consumed. The contribution of carbohydrates to calorie intake decreases with an increase in per capita income. Our findings do not corroborate Behrman and Deolalikar (1987), who showed that the income elasticity of calorie intake was quite low, and not significantly different from zero in statistical terms. If the income elasticity were close to zero, its implication is that improvement in the income of the poor will have little impact on the extent of malnutrition. Then the developmental policies intended to improve nutrition will have to use policy instruments which attack malnutrition directly rather than relying simply on raising income. But that is not the case as shown by our study. However, our findings support Strauss and Thomas (1990), Ravallion (1990). Bouis and Haddad (1992), and Subramanian and Deaton (1996), who find that income elasticities of energy component of food, although small, are yet significantly different from and much larger than zero. Subramanian and Deaton ( 1996), based on the National Sample Survey data, estimated the expenditure elasticity of calorie intake to lie in the range of 0. 3-0.5 and in any case statistically different from zero. In our study, we find that income elasticities of calorie availability ( to casual labourers in Shillong) are close to 0.4, which corroborate Subramanian and Deaton. We also find that not only calories, but other nutritional ingredients of food such as carbohydrate, protein and fat availabilities (intakes) also have income elasticities significantly larger than zero and, therefore, raising income to Rs. 800 (per capita per month) or so we may overcome the mal-nutrition problem among the poor. Keywords: Poverty, Shillong, Meghalaya, India, Nutritional intakes, carbohydrate, protein, fat, calorie, income elasticity, malnutrition JEL: D31 D63 I32 Q12 Q15 Date: 2005-04-23 Date: 2005-04-23 Date: 2005-04-23 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0504006&r=all 159. Poverty, Inequality and Permeability to Globalization Effects : A Study of Select Villages in Udalguri Subdivision of Assam SK Mishra (Department of Economics, North Eastern Hill University, Shillong India) Prasen Daimari (Department of Economics, North Eastern Hill University, Shillong India) Globalization is a deliberate decision to open up a national economy to the forces of product, factor and money markets, followed by a sequence of requisite policies and actions. The Indian economy shed off its 40- year long license and quota regime and went in for globalization in the early 1990’s. However, globalization of the Indian Economy has been defensive, based on the decadence within and the pressure from without. The rural segment of the Indian economy, in particular, lacks in the social spirit and prowess, so much needed to benefit from globalization. Acute poverty is the major structural reality that makes the rural areas of India impermeable to the effects of globalization. To exploit the possibilities and opportunities that globalization has opened up, one has to produce, which in turn requires investible funds, infrastructure and links to the market. Poverty cripples the very foundations of these possibilities. Therefore, under the prevailing conditions, one cannot expect the rural areas to be much permeable to the effects of globalization. This study is based on the primary data collected from seven villages of Assam. Our findings show that the globalization effects have not entered into the rural areas of Assam in any significant sense. Keywords: Assam, Udalguri, India, Rural Economy, globalization, inequality, food security, poverty JEL: D31 D63 I32 Q12 Q15 Date: 2005-04-27 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0504007&r=all 160. Will Industrial Districts Exploit B2B? A local experience and a general assessment. Guido Fioretti (University of Bologna) What are the prospects of B2B electronic commerce when production is carried out by a number of small firms specialized in single production phases? Prato, Italy, is home to thousands of textile firms as well as the locus of an early and innovative experience of a local Internet in the mid-1980s. This experience suggests that, since they fear to be imatated by their geographical proximates, geographically clustered firms may lag behind in the exploitation of information and communication technologies. Analysis of today's web sites of Pratese firms confiorms this intuition. A similar analysis of web sites is carried out for producers of fabrics worldwide. Contrary to Europe, in Asian countries geographically clustered firms exhibit little fear of information leakages. Differences in the organization of production may explain this puzzle. Keywords: ICT, e-commerce, B2B, Textile Industry, Industrial Clusters, Industrial Districts, Prato. JEL: D82 F29 L67 L23 R12 Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0504008&r=all 161. Agent-Based Models of Industrial Clusters and Districts Guido Fioretti (University of Bologna) Agent-based models, an instance of the wider class of connectionist models, allow bottom-up simulations of organizations constituted byu a large number of interacting parts. Thus, geogrfaphical clusters of competing or collaborating firms constitute an obvious field of application. This contribution explains what agent-based models are, reviews applications in the field of industrial clusters and focuses on a simulator of infra- and inter-firm communications. Keywords: Agent-based models, industrial clusters, industrial districts JEL: R Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0504009&r=all 162. Individual Contacts, Collective Patterns. Prato 1975-97, a story of interactions. Guido Fioretti (University of Bologna) This article presents an agent-based model of an Italian textile district where thousands of small firms specialise in particular phases of fabrics production. It is an empirical model that reconstructs the communications between firms when they arrange production chains. In their turn, production chains reflect into the pattern of traffic in the geographical areas where the district extends. Keywords: Agent-based models, industrial clusters, industrial districts, Prato. JEL: R Date: 2005-04-28 URL: http://d.repec.org/n?u=RePEc:wpa:wuwpur:0504010&r=all 163. The effects of public transfers on productivity F. Calidoni This paper attempts to establish empirically the effects of transfers to household on labour productivity growth. In particular, I investigate the effects of health and social security expenditure on the rate of growth of GDP per labour units in 19 sectors and 13 OECD countries in the period 1976-2000. The main result is that transfers such as health expenditure and social security spending have positive and significant effects on labour productivity in the sectors that require low skilled workers, such as manufacturing of non-durable goods, energy supply, construction and services. This research shows that these results could be due to a "risk insuring" mechanism: employees with low wages (on average low skilled and high labour intensive jobs are less paid than high tech ones) find in higher government spending a guarantee of safety and wellbeing, otherwise difficult to achieve with their own resources. Moreover the increased security allows them to divert resources towards higher saving and investment in education. These results are consistent with the assumption that fiscal variables affect growth by means of total factor productivity and robust to the test of a possible spurious correlation between public transfers and growth, due to openness to trade. Keywords: public transfers, productivity growth JEL: F12 R12 Date: 2005 URL: http://d.repec.org/n?u=RePEc:par:dipeco:2005-ep01&r=all 164. Non-Manipulable Division Rules in Claim Problems and Generalizations Biung-Ghi Ju (Department of Economics, The University of Kansas) Eiichi Miyagawa (Department of Economics, Columbia University) Toyotaka Sakai (Department of Economics, University of Rochester) This paper studies the problem of allocating divisible resources among agents based on their characteristics. A simple example is the bankruptcy problem, which allocates the liquidation value of a bankrupted firm to creditors based on their claims. By allowing agents' characteristics to be multi-dimensional and varying the meaning of variables in the model, our model subsumes a number of existing and new alloca- tion problems, such as the problems of cost sharing, social choice under transferable utilities, income redistribution, bankruptcy with multiple assets, probability updat- ing, and probability aggregation. We characterize allocation rules under which no group of agents can increase the total amount they receive by transferring their characteristics within the group. A number of existing and new results in specific problems are obtained as corollaries. Keywords: Reallocation-proofness; proportional rule; no advantageous reallocation; manipulation via merging or splitting. JEL: C71 D30 D63 D71 H26 Date: 2003-12 Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:kan:wpaper:200307&r=all 165. Monetary Policy and Long-term Interest Rates Shu Wu (Department of Economics, The University of Kansas) This paper documents some new empirical results about the monetary policy and long-term interest rates in the United States. It shows that changes in the monetary policy stance are more predictable to the bond market in the 1990s than in the 1970s. This shift in the predictability of the monetary policy actions affects the policy??s impact on long-term interest rates as well as the forecasting power of the yield spread for the future changes in short-term interest rates. Keywords: monetary policy, interest rates, predictability JEL: E52 E43 Date: 2005-04 Date: 2005-04 URL: http://d.repec.org/n?u=RePEc:kan:wpaper:200512&r=all 166. Judgmental Overconfidence, Self-Monitoring and Trading Performance in an Experimental Financial Market BIAIS, Bruno HILTON, Denis MAZURIER, Karine POUGET, Sebastien Date: 2004-01 URL: http://d.repec.org/n?u=RePEc:ide:wpaper:1570&r=all 167. Optimal Domestic Regulation and the Pattern of Trade MARTIMORT, David VERDIER, Thierry Date: 2004-06 URL: http://d.repec.org/n?u=RePEc:ide:wpaper:2377&r=all 168. Policy-Oriented Parties and the Choice between Social and Private Insurane DE DONDER, Philippe HINDRIKS, Jean Date: 2003-06 URL: http://d.repec.org/n?u=RePEc:ide:wpaper:3348&r=all 169. Predictability and Habit Persistence COLLARD, Fabrice FEVE, Patrick GHATTASSI, Imen Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:ide:wpaper:3719&r=all 170. Collective Memory, Identity and Cultural Investments DESSI, Roberta Date: 2004-11 URL: http://d.repec.org/n?u=RePEc:ide:wpaper:565&r=all 171. Modes of Communication DEWATRIPONT, Mathias TIROLE, Jean Date: 2004-12 URL: http://d.repec.org/n?u=RePEc:ide:wpaper:601&r=all 172. Ageing in a Low-Income Country: Is an Old Age Pension Necessary and Affordable? Case Study of Sri Lanka ESAU (Unassigned) Keywords: Population ageing, elderly, retirement, social security, Sri Lanka, pension Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:odi:bpaper:1&r=all 173. Public Works as a Solution to Unemployment in South Africa? Two Different Models of Public Works Programme Compared ESAU (Unassigned) Keywords: Unemployment, poverty, public works programmes, South Africa, labour market Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:odi:bpaper:2&r=all 174. Why Bangladesh has Outperformed Kenya ESAU (Unassigned) Keywords: Bangladesh, Kenya, economic growth, corruption, low- income countries Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:odi:bpaper:3&r=all 175. What can the Fiscal Impact of Aid tell us about Aid Effectiveness? ESAU (Unassigned) Keywords: Fiscal, aid, aid effectiveness, Malawi, Uganda, Zambia, budget, economic growth Date: 2005-01 URL: http://d.repec.org/n?u=RePEc:odi:bpaper:4&r=all 176. Estimating the Economic Impact of HIV/AIDs on the countries of the Former Soviet Union Martin Wall This report assesses the evidence on the extent and prospects of an HIV/AIDS epidemic in the countries of the former Soviet Union and the impact this will have on the economies of those countries. The main focus of the report is the Russian Federation. The economic and demographic context against which the epidemic is developing is first discussed. All of the states of the FSU have suffered unprecedented falls in employment and output and a collapse in many of the state institutions that might determine or implement public health policy. Russia in particular is suffering from falling life expectancy and general declines in health that are untypical for countries with high HIV prevalence. The epidemic is still largely confined to high-risk groups such as Intravenous Drug users (IDUs) in Russia and the Ukraine. Infectivity is high in such groups and concentration of HIV among IDUs is one of the reasons the disease is spreading so rapidly. There is evidence of high recruitment and casual drug use suggesting the lines between IDUs, Commercial Sex Workers (CSWs) and the general population are more blurred than in a western country. The epidemics in the other former Soviet republics are less developed than in Russia but they exhibit many of the same risk factors and the trade and migratory links between them and Russia suggest they will suffer epidemics of similar magnitude. Keywords: HIV/AIDS, former Soviet Union (FSU), Russian Federation Date: 2003-11 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:1&r=all 177. The Fiscal Effects of Aid in Zambia Sonja FagernA¤s John Roberts Working Paper 10 forms part of a set of four ESAU papers on the fiscal effects of aid in African countries. The others are on Malawi (Working Paper 7), on Uganda (Working Paper 9) and a literature Survey and Synthesis (Working Paper 11). The first, historical and analytical background, part of the paper charts the course of Zambiaaˆ™s economic decline and impoverishment from the high point reached in the early 1970s to the 1990s, when a tentative recovery began in the wake of radical but incomplete reforms. The fall in mining revenues caused a fall in real public expenditure only partly offset by substantial aid inflows, and public services declined. The second part, devoted to the analysis of time-series data from the early 1970s to the late 1990s, shows that the main effect of aid has been to augment the capital budget, though it has also temporarily raised recurrent expenditure. Large aid inflows have not produced satisfactory development results because they have been overwhelmed by adverse economic circumstances and uncertain economic and public expenditure management. Keywords: Fiscal, aid, aid effectiveness, Zambia, budget, economic growth Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:10&r=all 178. The Fiscal Effects of Aid in Zambia Sonja FagernA¤s John Roberts Working Paper 11 gives a synthesis of Working Papers 7, 9 and 10 see the relevant Summaries for further details). It also provides a brief synthesis of earlier literature on the fiscal effects of aid, which is related to the wider literature on the development impact of aid and on budget choice. The paper presents the econometric methodology used in the country studies of Malawi, Uganda and Zambia (vector autoregression) and its application, and discusses the problem of reconciling data on aid from donor and recipient sources. It makes some general observations from the three country studies relevant to aid effectiveness aˆ“ the sui generis character of recipient countriesaˆ™ policies and institutions that govern the impact of aid, the heterogeneity of calculated fiscal impacts, the persistent rigidities in countriesaˆ™ uses of aid, and the absence of significant aid-financed expenditures from countriesaˆ™ budgets. Keywords: Fiscal, aid, aid effectiveness, Malawi, Uganda, Zambia, budget, economic growth Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:11&r=all 179. Poverty Efficient Aid Allocations - Collier/Dollar Revisited Jonathan Beynon Recent World Bank research has sparked a major debate about aid effectiveness and its implications for aid allocations. The main focus of attention has been the importance of good policy as a determinant of aid effectiveness and criterion for aid allocations. This paper briefly recaps the main arguments and evidence generated by Burnside/Collier/Dollar and their critics. It then focuses on the Collier/Dollar aid allocation models, subjecting them to a wider range of sensitivity tests to assess the robustness of their results. Finally, it analyses the relative efficiency of aid allocations over time and between donors. Keywords: Collier, Dollar, aid allocation, aid effectiveness, donors Date: 2003-11 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:2&r=all 180. Population Ageing, Elderly Welfare, and Extending Retirement Cover: The Case Study of Sri Lanka Nirosha Gaminiratne ESAU Working Paper 3 exploits recently collected survey data for Sri Lanka. Key findings are: Sri Lanka's already fast rising age dependency ratio is expected to double over the next 20years; income poverty in households with elderly people is below the national average - because of family support and because people continue to work into old age; Sri Lanka's existing contribution- based pension schemes only cover 25% of the working age population, but have reached their limit; providing a universal pension (as in parts of India and in South Africa) would do less to reduce poverty than a universal child allowance; it could be afforded now (e.g. by re-focusing the large social assistance programme) but would be become unaffordable as the old age population rises, unless subjected to a means test; and raising the public sector retirement age would bring no relief to the budget - which could afford to index the non-contributory civil service pension scheme. Keywords: Population ageing, elderly, retirement, social security, Sri Lanka, pension Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:3&r=all 181. Analysing the Distributional Impacts of Stabilisation Policy with a CGE Model: Illustrations and Critique for Zimbabwe Sonja FagernA¤s ESAU Working Paper 4 applies a standard (IFPRI) macroeconomic CGE model to Zimbabwe to ascertain the likely income distribution impacts of alternative policy instruments for stabilising the economy, specifically for eliminating the current account deficit, viz. devaluation or fiscal adjustment. The author finds, however, that the model is unable for structural reasons to simulate the impact of expenditure reduction on the current account; its closure procedure offsets decreases in public consumption with increases in private consumption. This leaves devaluation as the only analysable policy instrument for balance of payments adjustment. Devaluation is likely to be contractionary for GDP, and in all sectors except agriculture and export-oriented production. Profits and labour incomes in commercial farming rise, but in other sectors fall. Keywords: CGE model, stabilisation policy, Zimbabwe, PSIA, expenditure switching, expenditure reduction Date: 2004-04 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:4&r=all 182. Why is Bangladesh Outperforming Kenya? A Comparative Study of Growth and its Causes since the 1960s John Roberts Sonja FagernA¤s ESAU Working Paper 5 examines the contrasting growth experiences of Kenya and Bangladesh since the 1960s. The paper finds that, before 1980, Kenya grew strongly, and the economy diversified. Factors behind its subsequent deterioration in the 1990s were the governmentaˆ™s erratic, inflation-prone macroeconomic management, the overexpansion of the public sector, domestic and external indebtedness, its uncertain conduct of structural reforms, worsening cronyism and corruption, a high-cost, non- competitive, environment for the private sector and disappointing export performance. Bangladeshaˆ™s recent relative success was built on policies of macroeconomic stability, low public expenditure and taxation, the avoidance of non-concessional debt and a competitive real exchange rate. Savings and investment, once very low, rose steadily after 1990. Agriculture revived with investment in Green Revolution technology. An indigenous private sector emerged, operating in competitive conditions, out of which emerged a very successful export-oriented garment manufacturing sector. Keywords: Bangladesh, Kenya, economic growth, corruption, low- income countries Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:5&r=all 183. Recovery from Economic Collapse: Insight from Input-Output Models and the Special Case of a Collapsed Oil Producer John Roberts ESAU Working Paper 6 finds evidence from eight countries having suffered significant, multi-year, falls in per capita incomes, that the majority made remarkable swift economic recoveries. Their record differs from the conclusions presented in the some of the post-conflict literature according to which the supply response is delayed by 3-4 years by infrastructural and institutional bottlenecks. The paper tests the hypothesis, using a very simplified input-output model with stylised calibration, that demand-side stimuli from expenditure on government service, investment or exports, play a significant role in promoting recovery. The model simulates early years' recovery well, but the later recovery period years poorly. The paper presents a partial recovery scenario for Iraq showing that stimulus mainly from oil- financed public expenditure could raise per capita income by some 50% in 5 years. Keywords: Economic collapse, recovery, Iraq, input-output models Date: 2004-03 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:6&r=all 184. The Fiscal Effects of Aid in Malawi Sonja FagernA¤s Cedrik Schurich Working Paper 7 is the first of three ESAU monographs on the fiscal effects of aid - the two others covering Uganda (Working Paper 9) and Zambia (Working Paper 10). Their methodology and general conclusions are summarised in a separate Survey and Synthesis paper (Working Paper 11). The purpose of this research was to find out how aid has been absorbed through recipientsaˆ™ fiscal processes with a view to better understanding how aid is effective in promoting growth. Each country paper combines historical and institutional analysis with the econometric analysis of time series data. In Malawi, growth has been slow and fitful, and there has been a record of uneven macroeconomic management, poor fiscal control and debt problems, often leaving public services underfunded. The government has practised fiscal dichotomy aˆ“ allocating aid to the development budget, while financing its recurrent budget from revenue and domestic borrowing. The econometric evidence confirms that aid has been used to finance the development budget. It also shows that aid has, if anything, been a stabilising influence, being associated with higher domestic revenues and lower borrowing. Keywords: Fiscal, aid, aid effectiveness, Malawi, absorption, economic growth Date: 2004-09 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:7&r=all 185. Policy Expectations and Programme Reality: The Poverty Reduction and Labour Market Impact of Two Public Works Programmes in South Africa Anna McCord ESAU Working Paper 8 presents evidence from sample surveys, conducted among beneficiary households in Limpopo and KwaZulu Natal provinces, of the effectiveness of public works programmes in solving the problems of unemployment and poverty in South Africa. The programmes are implemented under the auspices of provincial public works departments. The paper contrasts the Limpopo programme, which provides full-time temporary employment in the majority of cases for dependents who are half male and half female, with the KwaZulu Natal programme, which provides part-time but permanent employment for beneficiaries who are poorer, almost all women and, in majority, household heads. Though the wages paid make a significant contribution to beneficiary householdsaˆ™ cash incomes, the research finds that the multiplicity of objectives set for public works leads to inefficient targeting. The temporary public employment model does not increase the longer-term employability of selected beneficiaries, in a labour market characterised by an excess supply of unskilled and semi-skilled labour. Former beneficiaries return to unemployment, and their household incomes drop. The permanent,part-time, employment model implemented in KwaZulu Natal, in which beneficiaries are selected by their communities on grounds of poverty, is more effective as a means of supplementing the incomes of the poor. Keywords: Unemployment, poverty, public works programmes, South Africa, labour market Date: 2004-08 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:8&r=all 186. The Fiscal Effects of Aid in Uganda Sonja FagernA¤s John Roberts Working Paper 9 forms part of a set of four ESAU papers on the fiscal effects of aid in African countries. The others are on Malawi (Working Paper 7), on Zambia (Working Paper 10) and a literature Survey and Synthesis (Working Paper 11). The first, historical and analytical background, part of the paper contrasts the pre-1986 period of misrule, instability, conflict, the exodus of entrepreneurs and professionals, dwindling aid and economic decline, with the subsequent period when growth resumed, poverty fell, economic stability was restored, aid was substantial, and the government implemented budget management and pro-poor expenditure reforms. The second, econometric, part shows that the main effect of aid between the 1970s and 1990s was to increase development budget expenditure, with lesser positive impacts on recurrent budget expenditure and domestic revenue. The effectiveness of aid has therefore turned on the (rising) quality of development budget expenditure and on the (growing) credibility of accompanying economic policies. Keywords: Fiscal, aid, aid effectiveness, Uganda, budget, economic growth Date: 2004-10 URL: http://d.repec.org/n?u=RePEc:odi:wpaper:9&r=all