Economic Reform and Macroeconomic Stability: A Delicate Balance

The Philippines has escaped the worst of the Asian crisis. It is now the authority’s task to ensure that reforms are not overdone with trade-offs.Policymakers should therefore help minimize its adverse impacts on policy via creation of relevant institutions and establishment of regulatory frameworks.Asian financial crisis, trade liberalization, financial liberalization, economic reform, macroeconomic stabilization

Do Ideas Matter in Strategic Choices Made by Organizations? An Empirical Work on the Participation of Agricultural Organizations to the Political Making Process in Costa Rica

The new institutional economics has recently developed the idea that the institutional environment can have an impact on economic actors' mental perceptions, and reciprocally, that these perceptions can impact on the institutional environment. This latter point seems particularly relevant in the field of economic organisations participation in the political making process. Nevertheless the empirical description of this role of mental perceptions in the political behaviour had not been made clearly. To contribute to this empirical description we lead a comparative study of 4 farm sectors in Costa Rica, based on a dynamic approach of mental perceptions in relation with the institutional change occurring during the liberalisation process. We carry out a statistical analysis of mental perceptions through a textual analysis of actors perceptions of the institutional change, leading to two main conclusions. Firstly we provide an empirical confirmation that mental models are influenced by specific institutional environments and lead to different strategies regarding the participation to the political making process. Secondly, we show that when an exogenous change occurs in the institutional environment, the mental models existing before the change can persist and lead to inefficient behaviours. This can partly explain part of the difficulties some sectors to lead efficient political activity that ensures their survival in a liberalized environment.Political Economy, D7, N5, Z0,

An Analysis of Exports and Growth in India: Some Empirical Evidence (1971-2001)

The relationship between exports and economic growth has been analysed by a number of recent empirical studies. This paper re-examines the sources of growth for the period 1971-2001 for India. It builds upon Feder´s model to investigate empirically the relationship between export growth and GDP growth (the export led growth hypothesis), using recent data from the Reserve Bank of India, and by focusing on GDP growth and GDP growth net of exports. We investigate the following hypotheses: i) whether exports and GDP are cointegrated using both the Engle-Granger and the Johansen approach, ii) whether export growth Granger causes GDP growth, iii) and whether export growth Granger causes investment. Finally, a VAR is constructed and impulse response functions (IRFs) are employed to investigate the effects of macroeconomic shocks

Bringing macroeconomics back into the political economy of reform: The Lisbon Agenda and the 'fiscal philosophy' of EMU

The Lisbon Strategy supports reform of member states’ tax-benefit systems while the ‘fiscal philosophy’ of the EU postulates that governments should allow only automatic stabilisers, built into tax-benefit systems, to smooth aggregate income. We ask whether these two pillars of EU economic governance are compatible. By exploring how structural reforms affect fiscal stabilisation, we complement a political economy literature that asks whether fiscal consolidation fosters or hinders structural reforms. We conclude, based on simulations in EUROMOD, that Lisbon-type reforms may worsen the stabilising capacity of tax-benefit systems

An Analysis of Exports and Growth in India: Some Empirical Evidence (1971-2001)

The relationship between exports and economic growth has been analysed by a number of recent empirical studies. This paper re-examines the sources of growth for the period 1971-2001 for India. It builds upon Feder´s model to investigate empirically the relationship between export growth and GDP growth (the export led growth hypothesis), using recent data from the Reserve Bank of India, and by focusing on GDP growth and GDP growth net of exports. We investigate the following hypotheses: i) whether exports and GDP are cointegrated using both the Engle-Granger and the Johansen approach, ii) whether export growth Granger causes GDP growth, iii) and whether export growth Granger causes investment. Finally, a VAR is constructed and impulse response functions (IRFs) are employed to investigate the effects of macroeconomic shocks

Macroeconomic Impact of a Tariff Reduction: A Three-Gap Analysis with Model Simulations

Using a three-gap model, it can be shown that a reduction in the tariff level will lead to an unambiguous decline in the GDP growth rate if it results in a reduction of the surplus of the government’s primary account. Empirical results using Philippine data show that this condition is satisfied. Since FDI is crucial in breaking the economic gridlock brought about by capital inflows, policymakers should determine whether greater macroeconomic instability that results from larger fiscal and trade deficits can be offset by the more liberalized economic environment in attracting FDI. It may also be the case, however, that the greater macroeconomic instability will eventually countervail any benefits from microeconomic reform.savings gap, foreign exchange gap, fiscal gap, savings

Macroeconomic Impact of a Tariff Reduction: A Three-Gap Analysis with Model Simulations

Using a three-gap model, it can be shown that a reduction in the tariff level will lead to an unambiguous decline in the GDP growth rate if it results in a reduction of the surplus of the government’s primary account. Empirical results using Philippine data show that this condition is satisfied. Since FDI is crucial in breaking the economic gridlock brought about by capital inflows, policymakers should determine whether greater macroeconomic instability that results from larger fiscal and trade deficits can be offset by the more liberalized economic environment in attracting FDI. It may also be the case, however, that the greater macroeconomic instability will eventually countervail any benefits from microeconomic reform.savings gap, foreign exchange gap, fiscal gap, savings

Minsky and the Mainstream: Has Recent Research Rediscovered Financial Keynesianism

Hyman Minsky's research emphasized the central role of finance in modern economies at a time when finance was not important in most mainstream macroeconomic research. But in the 1980s, mainstream research began to explore the role of finance in firm and consumer behavior. This paper examines the extent to which this recent mainstream research captures Minsky's insights and whether it extends his work. I argue that recent work on micro foundations—the link between economic behavior and finance—complements Minsky's contributions and corresponding empirical research provides strong support for his argument that financial conditions affect expenditure. But large differences remain between Minsky and the mainstream paradigm, especially in the role played by the financial system in macroeconomic fluctuations. Furthermore, there is much in Minsky's Big Government–Big Bank policy framework that does not appear in recent mainstream work.

Democracy and reforms

The authors use a sample of 147 countries to investigate the link between democracy and reforms. Democracy may be conducive to reforms, because politicians have the incentive to embrace growth-enhancing reforms to win elections. By contrast, authoritarian regimes do not have to worry as much about public opinion and may undertake reforms that are painful in the short run but bring future prosperity. This paper tests these hypotheses, using data on micro-economic reforms from the World Bank's Doing Business database. These data do not suffer the endogeneity issues associated with other datasets on changes in economic institutions. The results provide robust support for the claim that democracy is good for growth-enhancing reforms.Parliamentary Government,Legal Products,Labor Policies,Public Sector Corruption&Anticorruption Measures,Emerging Markets