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291. Aid, Public Sector Fiscal Behaviour and Developing Country Debt

Author:
Mark McGillivray and Simon Feeny
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper looks at public sector debt in developing countries, being concerned specifically with the relationship between aid inflows and the public sector borrowing requirement net of aid loans. After examining the public sector budget constraint and various conditions under which aid might lead to an increase in this borrowing, the paper surveys the empirical results of literature on aid and public sector fiscal behaviour. It finds that the results of a number of studies are consistent with aid leading to increases in this borrowing. Further investigation, in the form of econometric analysis of panel data, also points to this outcome. The paper then looks at a number of theoretical scenarios in which aid leads to increases in borrowing net of aid loans.
Topic:
Economics, Government, and International Trade and Finance

292. Producing an Improved Geographic Profile of Poverty: Methodology and Evidence from Three Developing Countries

Author:
Chris Elbers, Peter Lanjouw, Johan Mistiaen, Gabriel Demombynes, Jenny Lanjouw, and Berk Özler
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper implements a methodology for estimating poverty in Ecuador, Madagascar and South Africa, at levels of disaggregation that to date have not generally been available. The methodology is based on a statistical procedure to combine household survey data with population census data, imputing into the latter a measure of per capita consumption from the former. The countries are very unlike each other—with different geographies, stages of development, quality and types of data, and so on. Yet the paper demonstrates that in all three countries the poverty estimates produced from census data are both plausible (in that they match well stratum-level estimates calculated directly from the household surveys) and satisfactorily precise (at a level of disaggregation far below that allowed by household surveys).
Topic:
Development, Economics, Government, and International Trade and Finance
Political Geography:
South Africa

293. One Third of the World's Growth and Inequality

Author:
Danny Quah
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper studies growth and inequality in China and India—two economies that account for a third of the world's population. By modelling growth and inequality as components in a joint stochastic process, the paper calibrates the impact each has on different welfare indicators and on the personal income distribution across the joint population of the two countries. For personal income inequalities in a China-India universe, the forces assuming first-order importance are macroeconomic: Growing average incomes dominate all else. The relation between aggregate economic growth and within-country in- equality is insignificant for inequality dynamics.
Topic:
Development and Economics
Political Geography:
China, South Asia, India, and Asia

294. (Re)Distribution of Personal Incomes, Education and Economic Performance Across Countries

Author:
Günther Rehme
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In many OECD countries income inequality has risen, but surprisingly redistribution as well. The theory attributes this partly to the redistributive effect of education spending. In the model income inequality and growth depend in an inverted U-shaped way on education. To maintain a given level of human capital it is shown that a less efficient schooling technology requires more resources, which lowers pre-tax and post-tax income inequality as well as growth. Using consistently defined income data from the Luxembourg Income Study suggests that there is a negative relationship between growth and income inequality in rich countries. It is argued that using some unadjusted inequality measures in growth regressions may yield estimates that are biased upwards. The evidence suggests that a rich country would raise growth with lower pre-tax and post-tax inequality if it spent more on education.
Topic:
Development, Economics, and Education

295. Non-Financial Corporate Risk Management and Exchange Rate Volatility in Latin America

Author:
Graciela Moguillansky
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This article studies the currency risk management of multinational companies with investments in Latin American countries. The analysis is centred on episodes of currency or financial shocks, searching into the behaviour of the financial management of a firm expecting a significant devaluation. This allowed us to explore the interaction and transmission mechanisms between the microeconomic behaviour and the macroeconomic impact on the foreign exchange market. The analysis was carried out interviewing financial managers of multinational companies from different sectors with headquarters in the United Kingdom and Spain, by reviewing literature on business and currency risk management, and by analysing some surveys on financial risk management in developed countries.
Topic:
Economics and International Trade and Finance
Political Geography:
United Kingdom, South America, Latin America, and Spain

296. Does a Switch of Budget Regimes Constrain Managerial Discretion? Evidence for Italian Public Enterprises' Investment

Author:
Elisabetta Bertero and Laura Rondi
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This study examines the effect of the hardening of the budget constraint on the investment behaviour of Italian state owned enterprises (SOEs). It carries out a natural experiment that exploits the 1987 shift of budget regimes due to the pressure of European Union economic policies on the Italian government.Drawing from the theory of capital market imperfections, we apply the empirical framework for the analysis of investment-cash flow sensitivity to a panel of state-owned manufacturing firms during the period 1977-93. We parallel state firms to Anglo-Saxon public corporations which, under separation of ownership and control, are afflicted by agency problems, managerial discretion, misallocation of free cash-flow and overinvestment. We argue that, under a soft budget constraint, state firms' managerial discretion and, in particular, collusion between managers and vote-seeking politicians, lead to wasteful investment.
Topic:
Economics and International Trade and Finance
Political Geography:
Europe and Italy

297. Why isn't there more Financial Intermediation in Developing Countries?

Author:
Jonathan Conning and Michael Kevane
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper proposes to organize thinking about the opportunities for improving and extending financial markets and safety nets for the poor, by focusing on factors that may explain why the linkage of local financial networks and safety nets with the larger economy often fails or is incomplete. Understanding the nature of these impediments is the first step in proposing policies to help promote more effective linkage and intermediation. We propose four explanations for the slowness of adoption of intermediation (high costs of delegated monitoring aggravated by limited intermediary capital; lock-in and crowding out effects from local insurance arrangements, social norms against cooperation with intermediaries; and political resistance to new institutions that shift the balance of power in local polities). Of course, financial repression and weak legal systems remains important as cause of lack of intermediation. We conclude with a review of public policy for more effective intermediation.
Topic:
Development, Economics, and Government

298. Insolvency and Debt Recovery Procedures in Economic Development: An Overview of African Law

Author:
Clas Wihlborg
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Insolvency and debt recovery procedures are as crucial to a well-performing financial sector as credit provision itself. They are even more important in Africa, where attempts are underway to create fully-fledged financial markets. For the financial system to be credible, creditors must be ensured that lenders will meet their obligations and that cases against them will be brought to closure. A good legal framework for insolvency also ensures distressed firms a form of orderly exit, thereby enabling their owners to start afresh. However, institutions of this nature take time to take effect, and need to be supported politically and by reforms in other sectors of the economy.
Topic:
Development, Economics, and Government
Political Geography:
Africa

299. The Gradual Erosion of the Social Security Function of Customary Land Tenure Arrangements in Lineage-Based Societies

Author:
Jean-Philippe Platteau
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Customary rules governing access to land and other natural resources in village societies have characteristics that allow them to fulfil social security functions and achieve equity objectives. This is true of both common-property resources and land parcels held under individualized tenure. However, when land pressure increases under the combined influences of population growth and market integration, a shift occurs from extensive to intensive resource use patterns. As a result, the efficiency costs of erstwhile equity-and insurance-oriented arrangements rise, thus forcing them to evolve significantly. In particular, land tenure arrangements undergo a major transformation towards more individualized forms with the consequence that property rights in land are increasingly defined without regard for equity and insurance concerns.
Topic:
Development, Economics, and Government

300. The Growth Elasticity of Poverty

Author:
Rasmus Heltberg
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
How much does economic growth contribute to poverty reduction? I discuss analytical and empirical approaches to assess the growth elasticity of poverty, and emphasize that the relationship between growth and poverty change is non-constant. For a given poverty measure, it depends on initial inequality and on the location of the poverty line relative to mean income. In most cases, growth is more important for poverty reduction than changes in inequality, but this does not render inequality unimportant. Reduction in inequality may be triple effective: (1) it will reduce poverty for a given level of income, (2) it will accelerate the poverty reducing impact of economic growth, and (3) according to cross-country growth regressions, it may contribute to a larger rate of growth.
Topic:
Development, Economics, and International Trade and Finance