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142. The Effects of (within and with EU) Regional Integration: Impact on Real Effective Exchange Rate Volatility, Institutional Quality and Growth for MENA Countries
- Author:
- Iftekhar Hasan and Leonardo Becchetti
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- We analyse two potential effects arising from regional (and with EU) integration—increased quality of institutions (including the quality of financial institutions) and, economic policies and reduced multilateral exchange rate volatility— in a conditional convergence growth framework for MENA countries. To this purpose we outline an ad hoc methodology which implements the traditional bilateral exchange rate measures to test effects of multilateral exchange rate volatility on growth of per capita GDP. Our estimates show that both factors (quality of institutions and reduction of multilateral volatility) significantly and positively affect growth and conditional convergence. We observe that MENA countries are not far from EU and OECD countries in terms of exchange rate volatility, but much below in terms of institutional quality. We finally simulate the potential effects of an improvement in institutional quality in MENA countries on their process of growth and conditional convergence. We conclude arguing that regional integration may be highly beneficial for such countries, mainly because of its effects on institutional quality.
- Topic:
- Development, Economics, and Regional Cooperation
- Political Geography:
- Europe
143. Education, Financial Institutions, Inflation and Growth
- Author:
- Iftekhar Hasan, Leonardo Becchetti, and George Mavrotas
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Our paper investigates the unexplored impact of education on inflation and of this relationship on economic growth. By using a sample of 102 countries observed on non-overlapping five-year data spells over the period 1963-2001, we find that average schooling years of the working population have a significant negative impact on inflation rates after controlling for the effects of the stance of domestic monetary policy. We also show that the negative impact of inflation on growth in conditional convergence estimates is significantly increased when the former is instrumented by educational variables. Our findings outline a third potential role of human capital on conditional convergence. They show that education is not only a production factor or a variable which may reduce demographic pressures, but also an important antidote against inflationary pressures which, in turn, negatively affect economic growth and conditional convergence. We interpret our findings by identifying three potential rationales for the education-inflation nexus: (i) education raises consumers' awareness of their power in contrasting producers' inflationary pressures; (ii) more educated individuals have lower inflationary expectations when they are also wealthier and their consumption bundle is relatively less (more) intensive in inferior (superior) goods with higher (lower) inflation potential; (iii) more (less) educated and wealthier (less wealthy) individuals tend to be net creditors (debtors) in their maturity, thereby contributing to increase (reduce) the power of anti-inflationary lobbies.
- Topic:
- International Relations, Development, Economics, and Education
144. Financial Sector Development, Savings Mobilization and Poverty Reduction in Ghana
- Author:
- Peter Quartey
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The paper primarily investigates the interrelationship between financial sector development and poverty reduction in Ghana. This is done using time-series data from the World Development Indicators from 1970-2001. The main findings are, first, that even though financial sector development does not Granger-cause savings mobilization in Ghana, it induces poverty reduction; and second, that savings do Granger-cause poverty reduction in Ghana. Also, the effect of financial sector development on poverty reduction is positive but insignificant. This is due to the fact that financial intermediaries in Ghana have not adequately channelled savings to the pro-poor sectors of the economy because of government deficit financing, high default rate, lack of collateral and lack of proper business proposals. Another interesting finding is that there is a long-run co integration relationship between financial sector development and poverty reduction.
- Topic:
- Development, Economics, and Poverty
- Political Geography:
- Africa and Ghana
145. Financial Markets and R Investments: A Discrete-Time Model to Interpret Public Policies
- Author:
- Marco Mazzoli
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper introduces a discrete-time intertemporal investment model in which the flow of profits affects the risk premium on the cost of finance, and, as a consequence, the rate of discount of future profits. While public investments, according to a consolidated literature, constitute the main bulk of innovation policies, this model is used to comment and interpret the potential use of another, secondary, public policy, consisting of tax incentives for firms performing R expenditures and issuing securities in the stock market. Linking public policies for innovation to the stock market might help to reduce the problems of discretionality and the monitoring of public expenditure used to finance R and technical innovation.
- Topic:
- Security, Development, Economics, and Emerging Markets
146. Does Financial Liberalization Influence Saving, Investment and Economic Growth? Evidence from 25 Emerging Market Economies, 1973-96
- Author:
- Robert Lensink and Niels Hermes
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper aims to investigate the relationship between financial liberalization on the one hand and saving, investment and economic growth on the other hand, using a new dataset for measuring financial liberalization for a sample of 25 developing economies over the period 1973-96. We find no evidence that financial liberalization affects domestic saving and total investment (although there are some signs to believe that liberalization may actually reduce rather than increase domestic saving), whereas it is positively associated with private investment, as well as with per capita GDP growth. We find a negative relationship between financial liberalization and public investment. These results suggest that financial liberalization leads to a substitution from public to private investment, which may contribute to higher economic growth.
- Topic:
- Development, Economics, Emerging Markets, and International Trade and Finance
147. Financial Sector Development and Productivity Growth
- Author:
- George Mavrotas and Subal C. Kumbhakar
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Recent years have witnessed important structural changes around the world as a result of the globalization process, the creation of new economic blocks and the liberalization of financial sector in many countries. Responding to these changes many sectors of the industrialized countries have gone through major deregulatory changes to acclimate themselves to new environments. At the same time, many countries have undertaken institutional reforms to build a market-orientated financial system in the hope that transition towards market economy will improve productivity. In the face of uncertainty resulting from changes in regulatory structure and the development of financial institutions to foster market economy, many countries may not be able to achieve their maximum growth potential. In other words, productivity growth is likely to depend on the development of financial institutions and the stage of economic development That is, a less developed country is likely to benefit more (in terms of output growth rate) from the development of financial institutions than a developed economy with well-developed financial system. In this paper we document this by using data covering 65 countries, varying substantially in term s of level of development and geographic location, and spanning the period 1960-1999. Empirical results obtained from the estimation of two different empirical models regarding the measurement of total factor productivity growth seem to confirm a priori expectations about the overall positive influence of financial systems on productivity in line with previous work on this front. Our results remain robust with respect to alternative definitions of financial sector development we tried.
- Topic:
- Development, Economics, Globalization, and International Trade and Finance
148. The Tax Reform Experience of Kenya
- Author:
- Stephen Njuguna Karingi and Bernadette Wanjal
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- In evaluating tax reform in the developing countries, one first needs to determine what is the unique role of the tax system in each particular country. One of the key reasons for undertaking tax reforms in Kenya was to ad dress issues of in equality and to create a sustainable tax system that could generate adequate revenue to finance public expenditures. In this respect, the tax modernization programme introduced in the country was to achieve a tax system that was sustainable in the face of changing conditions domestically and internationally. Policy was shifted towards greater reliance on indirect taxes as opposed to direct taxes. Consumption taxes were seen to be more favourable to investments and hence growth. Trade taxes, instead of being used for protection or revenue-maximization purposes, were viewed more as instruments to foster export-led industrialization. Trade taxes were therefore used to create a competitive exports sector rather than protect the import-competing manufacturing sector, as had been done in the past.
- Topic:
- International Relations, Development, and Economics
- Political Geography:
- Kenya and Africa
149. Tax Reforms in Ghana
- Author:
- Peter Quartey and Robert Darko Osei
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- Ghana's tax reforms constitute the major policy instrument needed to accelerate growth and poverty reduction. Over the past two decades, the government has consistently spent more revenue than it is able to generate and the gap is often financed with foreign aid which has perpetuated the country's aid dependency. Two options can be explored to reduce the gap between government revenue and expenditure; generate more revenue or reduce government expenditure. Although the latter sounds reasonable, the government needs to spend more on key sectors like education, health and infrastructure if the country is to significantly reduce poverty. The critical issue has been how to generate the needed resources domestically, using tax instruments that are least harmful to the poor. This will obviously involve reforming the tax system to ensure efficiency by widening the tax net without necessarily increasing the tax rate. This paper provides an assessment of the changing structure of the tax system in Ghana over the last two decades and suggests ways to improve tax administration in the country.
- Topic:
- International Relations, Development, and Economics
- Political Geography:
- Africa and Ghana
150. Taxes and Tax Reform in Ethiopia, 1990-2003
- Author:
- Alemayehu Geda and Abebe Shimeles
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- In 1991 the Ethiopian Revolution Democratic Front (EPRDF) toppled the old 'socialist' regime that had ruled the country for seventeen years. In contrast to the previous policy regime of hard control, EPRDF initiated a wide range of reforms that covered not only the tax system but also the exchange rate, interest rates, trade, domestic production and distribution. This pa per attempts to explore the contribution of the tax reform, the change s in its structure and institutional reform in order to understand its role in raising revenue.
- Topic:
- Democratization, Economics, and Government
- Political Geography:
- Africa and Ethiopia
151. Consistent Testing for Poverty Dominance
- Author:
- Bram Thuysbaert and Ricardas Zitikis
- Publication Date:
- 12-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- If uncertainty exists over the exact location of the poverty line or over which measure to use to compare poverty between distributions, one may want to check whether poverty dominance holds. We develop a consistent statistical test to test the null of poverty dominance against the alternative of nondominance. Dominance criteria corresponding to absolute and relative poverty measures are dealt with. The poverty line is allowed to depend on the income distribution. A bootstrap procedure is proposed to estimate critical values for the test. Our results cover both independent and paired samples.
- Topic:
- Demographics, Development, Economics, and Poverty
152. The Microeconomics of Inequality, Poverty and Market Liberalizing Reforms
- Author:
- Rafael E. De Hoyos
- Publication Date:
- 11-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper illustrates how the use of microeconometric techniques can be used to uncover the micro dynamics behind macro shocks. Using Mexican micro data we find out that—controlling for everything else—between 1994 and 1998 returns to personal characteristics in the tradable sector increase d particularly those of skilled labourers. By the year 2000 the positive shock upon the tradeable sector vanishes with returns to personal characteristics converging to the levels observed in the non-tradable sector. We use our model's results to simulate a scenario where the Mexican economy experienced the negative shock of the peso crises in the absence of trade liberalization (NAFTA) and find out that under such a scenario the poverty headcount ratio would have increased more than 2 percentage points above the one observed in 1996. The simulated second- order effect of these changes shows that the skill mixed changed in a way that favoured relatively skilled men and relatively unskilled women. These changes in labour participation and occupation had an overall positive income effect though adverse in distributive terms.
- Topic:
- Demographics, Development, and Economics
- Political Geography:
- Central America
153. Poverty Measurement and Theories of Beneficence
- Author:
- S. Subramanian
- Publication Date:
- 10-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This note points to certain similarities of orientation and outcome between Derek Parfit's quest for a theory of beneficence and Amartya Sen's quest for a suitable real-valued representation of poverty. It suggests th at both projects, in a certain sense, have been instructive failures. Using Sen's own work, the note also suggests a logically natural way of dealing with some of the problems in poverty measurement reviewed in it—but only to reject this way out on other compelling grounds.
- Topic:
- Demographics, Development, Economics, and Poverty
154. The Fiscal Effects of Aid in Ghana
- Author:
- Robert Osei, Oliver Morrissey, and Tim Lloyd
- Publication Date:
- 09-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- An important feature of aid to developing countries is that it is given to the government. As a result, aid should be expected to affect fiscal behaviour, although theory and existing evidence is ambiguous regarding the nature of these effects. This paper applies techniques developed in the 'macroeconometrics' literature to estimate the dynamic linkages between aid and fiscal aggregates. Vector autoregressive methods are applied to 34 years of annual data in Ghana to model the effect of aid on fiscal behaviour. Results suggest that aid to Ghana has been associated with reduced domestic borrowing and increased tax effort, combining to increase public spending. This constructive use of aid to maintain fiscal balance is evident since the mid-1980s, following Ghana's structural adjustment programme. The pa per provides evidence that aid has been associated with improved fiscal performance in Ghana, implying that the aid has been used sensibly (at least in fiscal terms).
- Topic:
- Development, Economics, and Government
- Political Geography:
- Africa and Ghana
155. Aid and Growth in Sub-Saharan Africa: Accounting for Transmission Mechanisms
- Author:
- Oliver Morrissey, Karuna Gomanee, and Sourafel Girma
- Publication Date:
- 09-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper is a contribution to the literature on aid and growth. Despite an extensive empirical literature in this area, existing studies have not addressed directly the mechanisms via which aid should affect growth. We identify investment as the most significant transmission mechanism, and also consider effects through financing imports and government consumption spending. With the use of residual generated regressors, we achieve a measure of the total effect of aid on growth, accounting for the effect via investment. Pooled panel results for a sample of 25 Sub-Saharan African countries over the period 1970 to 1997 point to a significant positive effect of foreign aid on growth, ceteris paribus. On average, each one percentage point increase in the aid/GNP ratio contributes one-quarter of one percentage point to the growth rate. Africa's poor growth record should not therefore be attributed to aid ineffectiveness.
- Topic:
- International Relations, Development, and Economics
- Political Geography:
- Africa
156. Reckoning Inter-group Poverty Differentials in the Measurement of Aggregate Poverty
- Author:
- S. Subramanian
- Publication Date:
- 09-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- In a heterogeneous population which can be partitioned into well-defined subgroups, it is plausible that the extent of measured aggregate poverty should depend upon the distribution of poverty across the subgroups. A judgment in favour of an equal inter-group distribution of poverty could arise in two ways. In the first approach, equality is upheld as an intrinsic social virtue, and the aggregate measure of poverty, in line with this view, is 'adjusted' to reflect the extent of inter-group disparity in the distribution of poverty that obtains. In the present paper, this approach is examined, with specific reference to the advancement of a diagrammatic aid to analysis called the group poverty profile. In the second approach, equality is upheld for instrumental reasons which arise from the observed fact that any individual's level of deprivation is a function not only of one's own income, but of the general level of prosperity of the group to which one is affiliated. Individual deprivation functions are specialized to a form which reflects this 'group-affiliation' externality, and the resulting poverty measure is studied with respect to its properties, and its implications for inter-group equity. The analysis is briefly extended to a review of the measurement of literacy, along externality-motivated lines suggested elsewhere by Basu and Foster. The paper concludes that social realism in the measurement of deprivation is often compromised by mainstream approaches to economic theorizing in which both heterogeniety and group-related externalities are generally de-emphasized.
- Topic:
- Demographics, Economics, Human Welfare, and Poverty
157. Innovative Ways of Making Aid Effective in Ghana: Tied Aid versus Direct Budgetary Support
- Author:
- Peter Quartey
- Publication Date:
- 09-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- There has been significant amount of aid inflow s to developing countries including Ghana, but these have been very volatile. Aid flows have been associated with low domestic resource mobilization and have reduced Ghana to a country heavily dependent on aid. The amount of official development assistance (ODA) inflow s has fallen in recent years and has become unpredictable. It is general knowledge that aid has not yielded the desired benefit. In an attempt to improve aid effectiveness donors have used tie d aid not just to promote commercial interests but also to target aid to particular projects that have direct links with poverty. However, this has not yielded the maximum benefits required. Recently, the government of Ghana and its development partners agreed on an aid package dubbed the multi-donor budgetary support (MDBS), which would ensure continuous flow of aid to finance the government's poverty related expenditures.
- Topic:
- International Relations, Development, and Economics
- Political Geography:
- Africa and Ghana
158. Why Do Poverty Rates Differ From Region to Region? The Case of Urban China
- Author:
- Guanghua Wan and Yin Zhang
- Publication Date:
- 08-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper proposes a semi-parametric method for poverty decomposition, which combines the data-generating procedure of Shorrocks and Wan (2004) with the Shapley value framework of Shorrocks (1999). Compared with the popular method of Datt and Ravallion (1992), our method is more robust to misspecification errors, does not require the predetermination of functional forms, provides better fit to the underlying Lorenz curve and incorporates the residual term in a rigorous way. The method is applied to decomposing variations of urban poverty across the Chinese provinces into three components – contributions by the differences in average nominal income, inequality and poverty line. The results foreground average income as the key determinant of poverty incidence, but also attach importance to the influence of distribution. The regional pattern of the decomposition suggests provincial groupings based not entirely on geographical locations.
- Topic:
- Demographics, Economics, and Poverty
- Political Geography:
- China and Asia
159. It Works; It Doesn't; It Can, But That Depends...: 50 Years of Controversy over the Macroeconomic Impact of Development Aid
- Author:
- Mark McGillivray, Simon Feeny, Robert Lensink, and Niels Hermes
- Publication Date:
- 08-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- This paper surveys 50 years of empirical research on the macroeconomic impact of aid, looking mainly at studies examining the link between aid and growth. It argues that studies dating until the late 1990s produced either contradictory or inconclusive results. Aid either worked, or it didn't, according to this research. The paper then highlights a major shift in the literature that coincided with the release of the World Bank's Assessing Aid: What Works, What Doesn't and Why. Practically all research published since that report agrees with its general finding that aid works, to the extent that in its absence growth would be lower. One controversy may therefore have been settled. Yet, we show, the report has set-off an intense de bate over the context in which aid works. That debate centres on whether the effectiveness of these inflows depends on the policy regime of recipient countries. Some possible avenues through which the heat might be taken out of this debate are considered.
- Topic:
- International Relations, Debt, Development, and Economics
160. Explaining Threshold Effects of Globalization on Poverty: An Institutional Perspective
- Author:
- Alice Sindzingre
- Publication Date:
- 08-2005
- Content Type:
- Working Paper
- Institution:
- United Nations University
- Abstract:
- The paper focuses on the non-linearity of the transmission of the impact of globalization on poverty and the existence of threshold effects. Institutions constitute a critical factor for the creation of threshold effects in the impact of globalization on poverty. Institutions—their credibility, ability to be transformed by globalization, and the ways they give the poor access to the beneficial effects of globalization—determine whether the benefits of globalization are spread to the poor or are locked in by particular groups. They also determine whether or not the negative shocks associated with globalization are transmitted in an unfettered manner. The paper presents a theory of institutions that distinguishes several components, which evolve differently and explain the threshold effects that institutions generate upon the impact of globalization on the poor. The paper then shows that social institutions and norms have a critical role in the generation of these threshold effects. It finally examines the interactions between social institutions and state policies institutions, which may contribute to the formation of poverty traps.
- Topic:
- Development, Economics, Globalization, and Poverty