Sources of pro-cyclicality in east Asian financial systems

Procyclicality is a normal feature of economic systems, but financial sector weaknesses can exacerbate it sufficiently to pose a threat to macroeconomic and financial stability. These include shortcomings in bank risk management and governance, in supervision and in terms of dependence on volatile sources of funds. The paper tests econometrically for the importance of such features leading to pro-cyclicality in the financial systems of 11 East Asian countries. This analysis makes it possible to identify specific policy measures for East Asian countries that could limit the extent to which financial systems exacerbate pro-cyclicality

PRIVATE SAVINGS IN TRANSITION ECONOMIES: ARE THERE TERMS OF TRADE SHOCKS?

The paper examines the impact of terms of trade shocks on private savings in the transition economies after accounting for the effect of other determinants. Economic agents in the transition economies are subject to tight credit constraints which are more pronounced during bad state of nature. Thus, adverse shocks to commodity prices in the world market can force them to reduce savings by a larger amount than they would otherwise have. Empirical analysis using a dynamic panel model and data from twenty one transition economies confirm that most of the determinants of savings identified in the literature also apply to the transition economies. Favorable movements in both the permanent and transitory components of the terms of trade have a significant positive impact on private savings with transitory movements having a larger impact than the permanent component. This reflects the lack of access to foreign borrowing that many of the transition economies have faced during the last decade. Although the impact of terms of trade shocks are found to be asymmetric, the magnitude of the impact appears to be small. The results are robust for alternative estimators, determinants, and country groupings.http://deepblue.lib.umich.edu/bitstream/2027.42/39958/3/wp572.pd

Trade Reform and Informal Wages

When trade reform contracts protected formal sectors in developing countries and the formal workers move to the informal sector for employment, does that reduce informal wages? Using a 2 � 2 Heckscher-Ohlin-Samuelson (HOS) structure with formal-informal production organization for the same commodity, we show that a tariff cut in the import-competing sector increases both informal wage and employment under very reasonable assumptions. An increase in the price of the export commodity will also increase informal wages, although aggregate informal employment unambiguously falls even if the informal export sector is labor intensive. Furthermore, the formal-informal segmentation of each sector opens up an interesting, hitherto unexplored, possibility that the informal export sector may contract despite a price increase in this sector. Change in the overall size of the export sector is also ambiguous and conditional on the relative strengths of changes in these two segments. Copyright � 2007 The Authors; Journal compilation � 2007 Blackwell Publishing Ltd.

Revisiting the role of external debt in economic growth of developing countries

This paper proposes a study on the contribution of external debt to the expansion of economic growth for 31 developing countries. Over a period of 36 years, by using dynamic panel data econometrics estimation GMM-system, the results reveal that the accumulation of external debt is associated with a slowdown in the economies of the developing countries. In addition, this paper finds evidence that debt service ratio does not crowd out the investment rate in developing countries. In other words, even though external debt is negatively associated with economic growth, countries are found to be safe from being in the debt overhang hypothesis. Furthermore, there is evidence to support the existence of spatial dependence in the growth model, suggesting the existence of a positive spillover effect of growth among the neighbouring countries