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on Central and Western Asia |
| By: | Fernando A. Broner; Roberto Rigobon |
| Abstract: | The standard deviations of capital flows to emerging countries are 80 percent higher than those to developed countries. First, we show that very little of this difference can be explained by more volatile fundamentals or by higher sensitivity to fundamentals. Second, we show that most of the difference in volatility can be accounted for by three characteristics of capital flows: (i) capital flows to emerging countries are more subject to occasional large negative shocks (“crises”) than those to developed countries, (ii) shocks are subject to contagion, and (iii) – the most important one – shocks to capital flows to emerging countries are more persistent than those to developed countries. Finally, we study a number of country characteristics to determine which are most associated with capital flow volatility. Our results suggest that underdevelopment of domestic financial markets, weak institutions, and low income per capita, are all associated with capital flow volatility. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:328&r=cwa |
| By: | Dan Ariely; Uri Gneezy; George Loewenstein; Nina Mazar |
| Abstract: | Most upper-management and sales force personnel, as well as workers in many other jobs, are paid based on performance, which is widely perceived as motivating effort and enhancing productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards can in some cases produce supra-optimal motivation, resulting in a decline in performance. To test whether very high monetary rewards can decrease performance, we conducted a set of experiments at MIT, the University of Chicago, and rural India. Subjects in our experiment worked on different tasks and received performance-contingent payments that varied in amount from small to large relative to their typical levels of pay. With some important exceptions, we observed that high reward levels can have detrimental effects on performance. |
| Keywords: | Microeconomics |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:05-11&r=cwa |
| By: | Carlsson, Fredrik (Department of Economics, School of Economics and Commercial Law, Göteborg University); Gupta, Gautam (Department of Economics, Jadavpur University); Johansson-Stenman, Olof (Department of Economics, School of Economics and Commercial Law, Göteborg University) |
| Abstract: | We investigate the importance of relative income within the Indian Caste system, using a choice experiment. We find that slightly more than half of the marginal utility of income comes from some kind of relative income effects, on average, which is comparable to the results from previous studies in other countries. Belonging to a low caste and having a low family income are associated with higher concern for relative income. Moreover, an increase in the mean income of the caste to which the individual belongs, everything else held constant, reduces utility for the individual. Thus, the negative welfare effect of reduced relative income compared to the average own caste income dominates the positive welfare effect of increased relative income of the own caste relative to other castes. <p> |
| Keywords: | Caste; India; relative income; positionality; status; questionnaire-experimental methods; random utility models; choice experiments |
| JEL: | C91 D63 H21 |
| Date: | 2005–08–17 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0171&r=cwa |
| By: | Ashima Goyal (Indira Gandhi Institute of Development Research) |
| Abstract: | In a simple open EME macromodel, calibrated to the typical institutions and shocks of a densely populated emerging market economy, a monetary stimulus preceding a temporary supply shock can lower interest rates, raise output, appreciate exchange rates, and lower inflation. Simulations generalize the analytic result with regressions validating the parameter values. Under correct incentives, such as provided by a middling exchange rate regime, which imparts limited volatility to the nominal exchange rate around a trend competitive rate, forex traders support the policy. The policy is compatible with political constraints and policy objectives, but analysis of strategic interactions brings out cases where optimal policy will not be chosen. Supporting institutions are required to coordinate monetary, fiscal policy and markets to the optimal equilibrium. The analysis contributes to understanding the key issues for countries such as India and China that need to deepen markets in order to move to more flexible exchange rate regimes. |
| Keywords: | Exchange rate, hedging, supply shocks, EMEs, incentives, politics |
| JEL: | F31 F41 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2005-002&r=cwa |
| By: | Rijo M. John (Indira Gandhi Institute of Development Research) |
| Abstract: | The tax base of tobacco in India is found to be heavily depended on about fifteen percent of the tobacco users who represent cigarettes smokers. Non-cigarette tobacco products used by the majority of tobacco users are largely out of the tax net. Analysis of the price elasticity of various tobacco products would bring out the potential of tax as an instrument to control tobacco use of any kind. In this context, this paper examines how the demand for a variety of tobacco products and addictive goods such as pan and alcohol respond to changes in prices. The spatial variations of prices that are obtained from a cross section of 120,000 households spread across the country have been used for this purpose. Estimates of price elasticities showed that the own price elasticity estimates of various addictive goods in India ranged between -0.5 to -1.0 with bidis, leaf tobacco and alcohol having elasticities close to unity, cigarettes being the least price elastic of all. As against the general notions regarding the complementarity between cigarettes and alcohol, our study nds that these are substitutes at least in urban India. We also observed that, over a five year period, the addictive goods such as bidis and leaf tobacco in India have become slightly more price responsive while elasticity of cigarettes and pan have stabilized. With some assumptions, it is shown that taxes on cigarettes can be raised nearly 2.5 times the current level while that of bidis can be raised tenfold without any fall in revenue. |
| Keywords: | Tobacco, Bidi, Cigarette, Alcohol, Consumption, Elasticity, India |
| JEL: | C31 D12 H21 I18 R22 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2005-003&r=cwa |
| By: | Jeffrey A. Frankel |
| Abstract: | To update a famous old statistic: a political leader in a developing country is almost twice as likely to lose office in the 6 months following a currency crash as otherwise. This difference, which is highly significant statistically, holds regardless whether the devaluation takes place in the context of an IMF program. Why are devaluations so costly? Many of the currency crises of the last ten years have been associated with output loss. Is this, as alleged, because of excessive reliance on raising the interest rate as a policy response? More likely it is because of contractionary effects of devaluation. There are various possible contractionary effects of devaluation, but it is appropriate that the balance sheet effect receives the most emphasis. Passthrough from exchange rate changes to import prices in developing countries is not the problem: this coefficient fell in the 1990s, as a look at some narrowly defined products shows. Rather, balance sheets are the problem. How can countries mitigate the fall in output resulting from the balance sheet effect in crises? In the shorter term, adjusting promptly after inflows cease is better than procrastinating by shifting to short-term dollar debt, which raises the costliness of the devaluation when it finally comes. In the longer term, greater openness to trade reduces vulnerability to both sudden stops and currency crashes. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11508&r=cwa |
| By: | Diego Puga; Daniel Trefler |
| Abstract: | Increasingly, a small number of low-wage countries such as China and India are involved in innovation -- not `big ideas' innovation, but the constant incremental innovations needed to stay ahead in business. We provide some evidence of this new phenomenon and develop a model in which there is a transition from old-style product-cycle trade to trade involving incremental innovation in low-wage countries. We explain why levels of involvement in innovation vary across low-wage countries and even across firms within each low-wage country. We then draw out implications for the location of production, trade, capital flows, earnings and living standards. |
| JEL: | F1 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11571&r=cwa |
| By: | Zsolt Darvas; Andrew K. Rose; György Szapáry |
| Abstract: | Using a panel of 21 OECD countries and 40 years of annual data, we find that countries with similar government budget positions tend to have business cycles that fluctuate more closely. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with more synchronized business cycles. We also find evidence that reduced fiscal deficits increase business cycle synchronization. The Maastricht “convergence criteria,” used to determine eligibility for EMU, encouraged fiscal convergence and deficit reduction. They may thus have indirectly moved Europe closer to an optimum currency area, by reducing countries’ abilities to create idiosyncratic fiscal shocks. Our empirical results are economically and statistically significant, and robust. |
| JEL: | F42 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11580&r=cwa |
| By: | Sugata Marjit (Department of Economics and Finance, City University of Hong Kong); Amit Biswas (Viswasharati University, india) |
| Abstract: | Stringent regulations coupled with corruption generate and sustain extra legal or informal transactions in the developing countries. Does trade related reform discourage informal activities and corruption? This appears attempts to analyze such a phenomenon. An import competing firm allocates production between a high wage formal and a low wage informal segment. Illegal use of labour in the informal sectior is characterized by a probability of punishment which depends on the size of the informal output. In such a structure, as tariff comes down, total employment contracts but the informal sector expands. However, lowering of interest rate, possibly through the liberalization of capital account, tends to reduce the size of the informal segment. Hence, trade reforms may have conflicting impact on informaility and corruption. |
| Keywords: | Trade liberalization, informal sector, corruption |
| JEL: | F11 H2 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:eab:tradew:607&r=cwa |
| By: | Raghbendra Jha; Ibotomi S. Longjam |
| Abstract: | In an economy undergoing structural reforms the composition of savings goes through considerable change. It is important to understand such changes both for increasing the volume of aggregate savings (to garner resources for higher economic growth) as well as for affecting their composition (towards more productive instruments) through an understanding of inter-asset substitutability. We conduct nonparametric tests to examine whether data on financial savings in India can be rationalized in terms of a utility function of a representative economic agent. The parametric test has the disadvantage that in some cases it is not possible to distinguish between rejections of the functional for from a rejection of weak separability. We establish that data on financial savings in India are consistent with the existence of utility function for a representative individual with a sub-preference where contractual savings (insurance and provident funds) can be separated out. This result would facilitate the construction of a suitable financial aggregate using these assets. |
| JEL: | E21 E41 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2004-06&r=cwa |
| By: | Mardi Dungey; Renee Fry; Brenda Gonzales-Hermosillo; Vance L. Martin |
| Abstract: | The transmission of the financial crises in 1998 though international equity markets is estimated through a multi-factor model of financial markets specifically allowing for contagion effects. The application measures the strength of contagion emanating from the Russia crisis of 1998, and the LTCM near collapse, using a panel of 10 emerging and developed financial markets. Pre and post default periods for Russia are distinguished. The results show that contagion is significant and widespread from both crises, although the LTCM crises has more impact on developed than emerging markets. Consisten with the existing literature, regional effects are found to be strong during financial crises. Asian markets are found to be relatively immune from contagion, perhaps reflecting the effect of their own recent crisis. |
| JEL: | C15 F31 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-15&r=cwa |
| By: | Argentino Pessoa (Faculdade de Economia, Universidade do Porto) |
| Abstract: | Foreign direct investment (FDI) can be a source not just of capital, but also of new technology and intangibles such as organizational and managerial skills, and marketing networks. In this study, a panel data approach is used to study the effects of FDI on aggregate Total Factor Productivity in a sample of 16 OECD countries. We have implemented a statistical descriptive model that allows us to show that FDI has a positive impact on TFP, possibly because FDI is a channel through which technologies are transferred internationally. |
| Keywords: | Foreign direct investment, total factor productivity, royalties and license fees, spillovers |
| JEL: | C33 F21 F23 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:188&r=cwa |
| By: | Pahlavani, Mosayeb (University of Wollongong); Wilson, Ed (University of Wollongong); Valadkhani, Abbas (University of Wollongong) |
| Abstract: | This paper employs annual time series data (1960-2003) and the ZA (Zivot and Andrews, 1992) and the LP (Lumsdaine and Papell, 1997) approaches to determine endogenously the more likely time of major structural breaks in various macroeconomic variables of the Iranian economy. We have considered the presence of one and two unknown structural breaks in the data. The results obtained from these two approaches are consistent in that the time of one structural break in eight out of the ten variables examined in the paper is the same. The resulting structural breaks coincide with important phenomena in the economy such as the 1974 oil shock, the 1979 Islamic revolution, the Iraqi war or the implementation of the exchange rate unification policy in 1993 in the case of the official exchange rate. |
| Keywords: | structural break, unit root test, Iranian economy |
| JEL: | C12 C22 C52 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp05-05&r=cwa |