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  • Author: Jarko Fidrmuc, Ivana Bátorová
  • Publication Date: 01-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: We analyse the business cycles in China and in selected OECD countries between 1992 and 2006. We show that, although negative correlation dominate s for nearly all countries, we can also see large differences for various frequencies of cyclical developments. On the one hand, nearly all OE CD countries show positive correlations of the very short-run developments that may correspond to intensive supplier linkages. On the other hand, business cycle frequencies (cycles with periods between 1.5 and 8 years) are typically negative. Nevertheless, countries facing a comparably longer history of intensive trading links tend to show also slightly higher correlations of business cycles with China.
  • Topic: Economics, International Trade and Finance
  • Political Geography: China, Asia
  • Author: Jun Zhang
  • Publication Date: 04-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper investigates the institutional reason underlying the change in the trajectory of economic growth in post-reform China, and argues that the trajectory of growth was much more normal during the period of 1978-89 than in the post-1989 era. In the former period, growth was largely induced by equality-generating institutional change in agriculture and the emergence of non-state industrial sector. In the latter period, growth was triggered by the acceleration of capital investments under authoritarian decentralized hierarchy within self-contained regions. Such a growth trajectory accelerates capital deepening, deteriorating total factor productivity and leads to rising regional imbalance. This paper further argues that the change in the trajectory of growth is the outcome of changes in political and inter-governmental fiscal institutions following the 1989 political crisis.
  • Topic: Economics, Government, Industrial Policy, Political Economy
  • Political Geography: China, Asia
  • Author: Gary S. Fields, María Laura Sánchez Puerta
  • Publication Date: 01-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: In recent years, the economy of Argentina has experienced both rapid economic growth and severe economic decline. In this paper, we use a series of one -year long panels to study who gained the most in pesos when the economy grew and who lost the most in pesos when the economy contracted. To answer these questions, we test two hypotheses both unconditionally and conditionally. The 'divergence of earnings' hypothesis holds that in any given year, the highest earning individuals are those who experienced the largest earnings gains or the smallest earnings losses in pesos. The 'symmetry of gains and losses' hypothesis holds that those groups that gained the most in pesos when the economy grew are those that lost the most in pesos when the economy contracted. Both hypotheses are decisively rejected in the data.
  • Topic: Development, Economics
  • Political Geography: Argentina, South America
  • Author: Lino Briguglio, Gordon Cordina, Stephanie Vella, Nadia Farrugia
  • Publication Date: 05-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: In this paper, economic vulnerability is defined as the exposure of an economy to exogenous shocks, arising out of economic openness, while economic resilience is defined as the policy-induced ability of an economy to withstand or recover from the effects of such shocks. The paper briefly reviews the work already carried out on economic vulnerability and extends the research towards the development of a conceptual and methodological framework for the definition and measurement of economic resilience. Towards this end, the paper proposes an index of economic resilience gauging the adequacy of policy in four broad areas, namely macroeconomic stability, microeconomic market efficiency, good governance and social development.
  • Topic: Development, Economics
  • Author: S. Mansoob Murshed, Philip Verwimp
  • Publication Date: 04-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper models the instability of peace agreements, motivated by the empirical regularity with which peace agreements tend to break down following civil war. When war provides opportunities for profit to one side, or when other difficulties such as historical grievances exist, peace may become incentive incompatible. The party that has something to gain from surprise warfare may agree to peace, but will later renege on it. It is shown that the levels of conflict chosen by this group are an increasing function of both grievance and greed, but decreasing in the direct costs of war. Peace is achievable via externally devised mechanisms that enhance commitment to peace. Aid and direct military peacekeeping intervention (sanctions) can reduce or eliminate conflict. These sanctions, however, need to be credible. Finally, the independent provision and finance of international sanctions are considered. When these arrangements yield little benefit to financial sponsors, or are very costly to them, the bite of the sanctions can become ineffective.
  • Topic: Conflict Prevention, Economics, Peace Studies, Treaties and Agreements
  • Author: Sanjeev Gupta
  • Publication Date: 02-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper explores the macroeconomic implications of aid flows in countries with weak institutions. It argues that these countries should take into account their overall macroeconomic position, their capacity to absorb aid at the sectoral and subnational levels, and the strength of their fiscal institutions in deciding how much and how fast to spend aid. These considerations may warrant a gradual use of aid, except when aid is provided for humanitarian purposes. There is some basis for frontloading spending for countries emerging from a conflict, otherwise fragile states should seek to smoothen their spending against the background of aid volatility and uncertainty.
  • Topic: Conflict Resolution, Economics
  • Author: Thomas Gries, Wim Naudé
  • Publication Date: 06-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: A stylized fact of economic development is the structural transformation of countries from traditional, mainly agricultural societies to modern economies dominated by manufacturing and services. In this paper we provide an endogenous growth model to illuminate the role of entrepreneurial start-up firms in structural economic transformation. We follow the Lewis-model's distinction between a traditional and modern sector, and underpin this with micro-foundations. We specify mature and start- up entrepreneurs and make a distinction between survivalist self-employment activities in the traditional sector, and opportunity-driven entrepreneurship in the modern sector. The model shows how opportunity-driven entrepreneurship can drive structural transformation through innovation, provision of intermediate inputs and services (which permits greater specialization in manufacturing), and by increasing employment and productivity in both the modern and traditional sectors.
  • Topic: Development, Economics
  • Author: Wim Naudé
  • Publication Date: 03-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: What is the role of entrepreneurship in economic development? At a minimum the answer should be able to explain the role of entrepreneurs in the structural transformation of countries from low income, primary-sector based societies into high-income service and technology based societies. More broadly though, it should also be able to explain the role of entrepreneurs in the opposite pole of stagnating development (including conflict) and in high innovation-driven growth. Although economic development lacks a 'general theory' of entrepreneurship, which could encompass a variety of development experiences, much progress has been made in extending the understanding of entrepreneurship in the process of development. This paper surveys the progress with the purpose of distilling the outlines for a more general theory of entrepreneurship in economic development. Entrepreneurship in developing countries remains a relatively under-researched phenomenon, so by surveying the current state of research, and by discussing the role of entrepreneurship in dual economy models of structural transformation and growth, a secondary objective of this paper is to identify avenues for further research. Finally, the policy implications from the economic literature suggest that a case for government support exists, and that this should focus on the quantity, the quality, and the allocation of entrepreneurial ability. Many routinely adopted policies for entrepreneurship, such as provision of credit and education, are shown to have more subtle effects, not all of which are conducive to growth-enhancing entrepreneurship.
  • Topic: Development, Economics
  • Author: Amelia U. Santos-Paulino
  • Publication Date: 03-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper analyses the patterns of export productivity and trade specialization profiles in the China, Brazil, India and South Africa, and in other regional groupings. In doing so, the investigation calculates a time varying export productivity measure using highly disaggregated product categories. The findings indicate that export productivity is mainly determined by real income and human capital endowments. Importantly, the study reveals significant differences in the export productivity and specialization patterns of countries with comparable per capita income levels. For instance, China's export productivity and implied export sophistication is in line with that of countries with higher per capita incomes, including some OECD industrial economies.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Africa, China, India, Asia, South Africa, Brazil, South America
  • Author: Slobodan Djajić
  • Publication Date: 06-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper examines the welfare implications of foreign aid within the framework of a two-period, two-country model of international trade. It is up to the donor country to decide what fraction of any given aid package is to be made available for the recipient's immediate, period-one consumption, and what part should be allocated for investment in infrastructure that expands the recipient's production possibilities in period two. The focus of the analysis is on the conditions under which both countries agree or disagree on the manner in which the aid funds should be divided between the two options.
  • Topic: Economics, International Trade and Finance
  • Author: Sumei Tang, E. A. Selvanathan, S. Selvanathan
  • Publication Date: 02-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: In this paper, we investigate the causal link between foreign direct investment (FDI), domestic investment and economic growth in China for the period 1988-2003. Towards this purpose, a multivariate VAR system with error correction model (ECM) and the innovation accounting (variance decomposition and impulse response function analysis) techniques are used. The results show that while there is a bi-directional causality between domestic investment and economic growth, there is only a single-directional causality from FDI to domestic investment and to economic growth. Rather than crowding out domestic investment, FDI is found to be complementary with domestic investment. Thus, FDI has not only assisted in overcoming shortage of capital, it has also stimulated economic growth through complementing domestic investment in China.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: China
  • Author: Ira N. Gang, Sumon Kumar Bhaumik, Myeong-Su Yun
  • Publication Date: 04-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: The paper examines the comparative economic wellbeing of female- and male-headed households among Serbs and Albanians in post-conflict Kosovo. Evidence from the living standards measurement study (LSMS) household survey, 2001, shows that Serb households, both those headed by women and men, are worse off than Albanians households. We find that female-headed households do not generally suffer more than male-headed households, but there is substantial variation among ethnic groups. While Albanian female-headed households are marginally better-off than Albanian male-headed households, Serb female-headed households have the lowest standard of living.
  • Topic: Demographics, Economics, Gender Issues
  • Political Geography: Kosovo, Balkans, Albania
  • Author: Anushree Sinha, Haider Khan
  • Publication Date: 06-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: The main purpose of this paper is to look at the incorporation of gender and the informal sector within a general equilibrium framework for India. Moreover, we clarify some important links between a gender aware informal sector based social accounting matrix (SAM) and general equilibrium models such as the computable general equilibrium (CGE) models including as a special case the fixed price multiplier (FPM) models. In particular, economy wide modelling of gender and the informal sector is facilitated by the use of national level data and constructing the base data set as an SAM. Another important strategy is to conceptualize the economy within gender structures, entailing the recognition of gender relations as an intervening variable in all economic activities.
  • Topic: Economics, Gender Issues
  • Political Geography: India, Asia
  • Author: Dominique van der Mensbrugghe, Maurizio Bussolo, Rafael E. De Hoyos, Denis Medvedev
  • Publication Date: 03-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Over the past 20 years, aggregate measures of global inequality have changed little even if significant structural changes have been observed. High growth rates of China and India lifted millions out of poverty, while the stagnation in many African countries caused them to fall behind. Using the World Bank's LINKAGE global general equilibrium model and the newly developed Global Income Distribution Dynamics (GIDD) tool, this paper assesses the distribution and poverty effects of a scenario where these trends continue in the future. Even by anticipating a deceleration, growth in China and India is a key force behind the expected convergence of per capita incomes at the global level. Millions of Chinese and Indian consumers will enter into a rapidly emerging global middle class—a group of people who can afford, and demand access to, the standards of living previously reserved mainly for the residents of developed countries. Notwithstanding these positive developments, fast growth is often characterized by high urbanization and growing demand for skills, both of which result in a widening of income distribution within countries. These opposing distributional effects highlight the importance of analysing global disparities by taking into account—as the GIDD does—income dynamics between and within countries.
  • Topic: Development, Economics, Poverty
  • Political Geography: Africa, China, India, Asia
  • Author: Anis Chowdhury
  • Publication Date: 04-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: Most small island economies or 'microstates' have distinctly different characteristics from larger developing economies. They are more open and vulnerable to external and environmental shocks, resulting in high output volatility. Most of them also suffer from locational disadvantages. Although a few small island economies have succeeded in generating sustained rapid growth and reducing poverty, most have dismal growth performance, resulting in high unemployment and poverty. Although macroeconomic policies play an important role in growth and poverty reduction, there has been very little work on the issue for small island economies or microstates. Most work follows the conventional framework and finds no or very little effectiveness of macroeconomic policies in stabilization. They also concentrate on short-run macroeconomic management with a focus almost entirely on either price stability or external balance. The presumption is that price stability and external balance are prerequisite for sustained rapid growth. This paper aims to provide a critical survey of the extant literature on macroeconomic policies for small island economies in light of the available evidence on their growth performance. Given the high output volatility and its impact on poverty, this paper will argue for a balance between price and output stabilization goals of macroeconomic policy mix. Drawing on the highly successful experience of Singapore, it will also outline a framework for growth promoting, pro-poor macroeconomic policies for small island economies/microstates.
  • Topic: Development, Economics, Government
  • Political Geography: Asia, Australia/Pacific, Caribbean, Singapore
  • Author: Sudhir K. Thakur
  • Publication Date: 05-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This study provides an understanding of the Indian regional economy utilizing the fundamental economic structure (FES) approach. The FES construct implies that selected characteristics of an economy will vary predictably with region size, as measured by net state domestic product, population, and total gross output. The big question addressed in this study is if identifiable patterns of relations between various macro aggregates and economic transactions can be revealed via regional input-output tables. Jensen et al. (1988) discuss the tiered, partitioned, and temporal approaches to the identification of FES using input-output tables. This research addresses the following four questions: (1) Does a regional FES exist for the Indian economy during the period 1965? (2) What proportions of the cells are predictable? (3) Can the 1965 regional FES predict 1983-84 table for Punjab economy? (4) Does regional FES manifest an enhanced understanding of the Indian regional structure? Regression analyses are used to identify the FES and non-FES cells for the Indian regional economy. The regional input-output tables for 21 States and Union Territories provide data for the analysis. Analysis reveals regional FES includes primary and secondary sectors as components of FES. This research has extended the notion of FES to include: weak, moderate and strong FES cells.
  • Topic: Economics
  • Political Geography: India, Asia, Punjab
  • Author: Ligang Song, Yu Sheng
  • Publication Date: 02-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: The study decomposes the sources of Chinese growth by first making a distinction between technological progress and technical efficiency in the growth accounting framework, and then identifying a series of reform programmes, such as urbanization, structural change, privatization, liberalization, banking and fiscal system reforms as the key components in institutional innovation which facilitate the improvement of technical efficiency and through which economic growth. These components are then incorporated into the model specification, which is estimated based on a panel dataset by applying the principal component analysis (PCA) to eliminate the multicollinearity problem. The results show that urbanization, liberalization and structural change in the form of industrialization are the most important components in contributing to the improvement of technical efficiency and hence growth, highlighting the importance of government policies aimed at enhancing further urbanization, openness to trade and industrial structural adjustments to sustain the growth momentum in China. The study also found that the potential for further enhancing growth through technical efficiency in China is considerable, which can be realized by deepening state-owned enterprises (SOEs) restructuring, and banking and fiscal system reform.
  • Topic: Economics
  • Political Geography: China, Asia
  • Author: Manoel Bittencourt
  • Publication Date: 02-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: We examine the impact of inflation on financial development in Brazil and the data available permit us to cover the period between 1985 and 2002. The results – based initially on time-series and then on panel time-series data and analysis, and robust for different estimators and financial development measures – suggest that inflation presented deleterious effects on financial development at the time. The main implication of the results is that poor macroeconomic performance has detrimental effects to financial development, a variable that is important for affecting, for example, economic growth and income inequality. Therefore, low and stable inflation, and all that it encompasses, is a necessary first step to achieve a deeper and more active financial sector with all its attached benefits.
  • Topic: Economics
  • Political Geography: Brazil, South America
  • Author: Mark McGillivray, Wim Naudé, Stephanié Rossouw
  • Publication Date: 05-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: A small but growing literature has been concerned about the economic (and environmental) vulnerability on the level of countries. Less attention is paid to the economic vulnerability of different regions within countries. By focusing on the vulnerability of subnational regions, our paper contributes to the small literature on the 'vulnerability of place'. We see the vulnerability of place as being due to vulnerability in various domains, such as economic vulnerability, vulnerability of environment, and governance, demographic and health fragilities. We use a subnational dataset on 354 magisterial districts from South Africa, recognize the potential relevance of measuring vulnerability on a subnational level, and construct a local vulnerability index (LVI) for the various districts. We condition this index on district per capita income and term this a vulnerability intervention index (VII) interpreting this as an indicator of where higher income per capita, often seen in the literature as a measure of resilience, will in itself be unlikely to reduce vulnerability.
  • Topic: Security, Demographics, Development, Economics
  • Political Geography: Africa, South Africa
  • Author: Raghav Gaiha, Katsushi Imai
  • Publication Date: 04-2008
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: This paper measures the vulnerability of households in rural India, based upon the ICRISAT panel survey. We employ both ex ante and ex post measures of vulnerability. The latter are decomposed into aggregate and idiosyncratic risks and poverty components. Our decomposition shows that idiosyncratic risks account for the largest share, followed by poverty and aggregate risks. Despite some degree of risk-sharing, the landless or small farmers are vulnerable to idiosyncratic risks, forcing them to reduce consumption. Income-augmenting policies therefore must be combined with those that not only reduce aggregate and idiosyncratic risks but also build resilience against them.
  • Topic: Demographics, Development, Economics, Poverty
  • Political Geography: India, Asia