Evidence on Growth, Increasing Returns and the Extent of the Market

We examine two sets of economies, (19th century U.S. states and 20th century less developed countries) where growth rates are positively correlated with initial levels of development to document how these dynamic increasing returns operate. We find that open economies do not display a positive connection between initial levels and later growth; instead, closed economies do display this positive correlation (i.e. divergence). This evidence suggests that increasing returns operate by expanding the extent of the market (as in the big push theories of Murphy, Shleifer and Vishny (1989)). For U.S. states, we also find that larger markets enhance growth by increasing the division of labor. Among LDCs, while more diversified production increases growth, diversification is negatively associated with openness for the poorest economies (as in the quality ladder theories of Boldrin and Scheinkman (1988), Young (1991) and Stokey (1991)). However, and despite the negative effect that openness has on the diversity of production and, thus, on growth, we find that openness still substantially increases growth for these poorer economies.

Exchange rate based stabilization : tales from Europe and Latin America

There is convincing empirical evidence that the cycle for exchange-rate-based disinflation in high-inflation Latin American economies typically begins with expansion and ends in recession - a surprising pattern. The authors explore whether a similar cycle can be observed in exchange-rate-based disinflation in low-inflation economies. They draw on empirical evidence from stabilizaton programs in three European countries in the early 1980s: in Denmark (1982), Ireland (1982), and France (1983). In these programs, the authorities fixed the central parity of the exchange rate band against the European currency unit (ECU). This represented a break from previous years when this rate was often realigned to accommodate inflation. They find that the Irish and French programs followed the more traditional pattern. In the initial phase, there was a recession accompanied by a continuous, gradual reduction in inflation - followed by a second, more expansionary, phase. The initial recession was attributable to a lack of credibility about the pace of disinflation (reflected in an increase in real wages) and a reduction in aggregate demand resulting from tight monetary and fiscal policies. Stabilization in Denmark, on the other hand, was expansionary. The key question is whether this expansion was similar to that in the high-inflation Latin American economies, in origins and characteristics. It has been argued that expansion in the high-inflation economies was caused by the perception that the program was temporary. Expectations of a future reversal led to an increase in spending and output. By contrast, expansion in Denmark appears to have been driven by opposite forces - by overconfidence about the speed of disinflation. These findings support the view that the high-inflation economies are a group to themselves. In particular, disinflation in these economies is likely to face obstacles inherently different from those observed in most industrial, low-inflation countries. In addition, the costs of exchange-rate-based disinflation are typically experienced at different times. The recession appears upfront in industrial countries, and at a later stage in the high-inflation economies.Environmental Economics&Policies,Economic Theory&Research,Economic Stabilization,Macroeconomic Management,Banks&Banking Reform

Evidence On Growth, Increasing Returns, And The Extent Of The Market

If economic growth relies upon the extent-of-the-market, then openness will decrease the connection between initial income and later growth. Alternatively, learning-by-doing models suggest that wealth will be more positively correlated with growth in open economies, because trade causes advanced economies to specialize in products with more opportunities for learning. We examine twentieth century less developed countries and nineteenth century U. S. states. In both data sets, there is a much stronger correlation between growth and initial wealth among closed economies. These findings support the importance of the extent-of-the-market, and aggregate demand in fostering growth. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Trade and Circuses: Explaining Urban Giants.

Using theory, case studies, and cross-country evidence, the authors investigate the factors behind the concentration of a nation's urban population in a single city. High tariffs, high costs of internal trade, and low levels of international trade increase the degree of concentration. Even more clearly, politics (such as the degree of instability) determines urban primacy. Dictatorships have central cities that are, on average, 50 percent larger than their democratic counterparts. Using information about the timing of city growth and a series of instruments, the authors conclude that the predominant causality is from political factors to urban concentration, not from concentration to political change. Copyright 1995, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Antigen-detection, Virus Culture, Polymerase Chain-reaction, and Invitro Antibody-production In the Diagnosis of Vertically Transmitted Hiv-1 Infection

Polymerase chain reaction (PCR), virus culture (V), antigen detection (Ag), and in vitro antibody production (IVAP) assays may be useful for the early detection of vertically transmitted HIV-1 infection in infants under 18 months of age, when a diagnosis cannot be based on seropositivity because of maternal antibody persistence. To assess the reliability of these procedures and to correlate diagnostic results with infection status, 101 children born to HIV-1-seropositive mothers were evaluated by all these techniques within the first 6 months of life. The children were then followed up to the age of at least 18 months, when diagnosis was made on the basis of AIDS or AIDS-related complex (ARC) onset or persistence of HIV-1 seropositivity. Out of 27 children classified as infected according to the above criteria, 25 (92.5%) were repeatedly positive in IVAP test, 22 (81.5%) in the first PCR analysis, and only 19 (70.3%) in the initial V assay. On further testing, a total of 24 children (88.9%) were found positive in PCR assay, and 23 (85.2%) in V test. All these assays were found to be more sensitive than antigen detection for HIV-1 infection diagnosis, but the antigenaemia was shown to be a useful prognostic marker of disease onset. We also found that both Ag and IVAP assays could give false-positive results in the first 2 months of life, which severely limits their diagnostic value during this period of time. False-positive results in PCR assay could occur at any time of the tested period and were unrelated to the child's age. Interestingly, positive results in both PCR and V assays were obtained in three out of 74 asymptomatic children who lost HIV-1 antibodies

The dynamics of Smithian growth

This paper analyzes the evolution of an economy where growth is driven by increased specialization caused by the geographical expansion of markets. It proves that such Smithian growth exhibits generic threshold behavior. Below a critical density of transport linkages, the economy is split into isolated local markets with limited specialization. Above the critical density, these markets begin to fuse into a large, economywide market causing growth to accelerate. This allows an explicit test of the consensus among historians of Sung dynasty China that the economic revolution during that period was a result of commercialization caused by the creation of a national waterway network

Dezentralisierung und Korruption – Erste Erfahrungen aus Indonesien

Wir analysieren die Wirkung der Dezentralisierung auf die Korruption am Beispiel Indonesiens. Aus theoretischer Sicht ist der Effekt unbestimmt: Zwar erhöht die größere Nähe der Betroffenen zu den Entscheidungsprozessen ihre Eingriffs- und Partizipationsmöglichkeiten, und auch der interjurisdiktionelle Wettbewerb senkt tendenziell das Korruptionsniveau, doch ist in Entwicklungsländern auf der lokalen Ebene der politische Prozess oft weniger transparent und die Bürokratie ineffizienter. Wir untersuchen mithilfe einer umfangreichen Befragung die ersten Erfahrungen Indonesiens, das 2001 eine sehr weitreichende Dezentralisierung implementiert hat, und finden, dass das durchschnittliche Korruptionsniveau wenig verändert ist, aber sich die Korruption systematisch zu den Institutionen verlagert hat, deren Entscheidungskompetenzen sich vergrößert haben. Schließlich analysieren wir die Determinanten der regional sehr unterschiedlichen Korruptionsniveaus. Abstract We analyze the effect of decentralization on the corruption level for the Indonesian example. From a theoretical perspective this effect is undetermined a priori – decentralization brings the decision-making process closer to the people and thus facilitates participation and accountability and sets off an interjurisdictional competition, which both tends to lower corruption. However, in developing countries local political processes are often less transparent and administrations suffer from severe capacity constraints and inefficiencies. We analyze the impact effects of Indonesia's far-reaching decentralization in 2001 on corruption through a very encompassing survey and find that the overall level has remained unaltered, but that corruption has shifted to those institutions that have gained power. We also investigate the determinants of local corruption levels which differ very substantially across Indonesia

The Geographic Effects of Trade Liberalization with Increasing Returns in Transportation

This paper develops a model of economic geography that examines how the distribution of economic activity may change as a country opens up to foreign trade. The distinctive features of the model are that transportation is costly between locations within a nation as well as between nations, and that these transportation costs are subject to increasing returns to scale. A result of the model is that trade liberalization may cause the population of a country to become more concentrated in a single megalopolis. The large megalopolis may reduce welfare due to congestion costs, which implies that liberalization may unexpectedly leave the country worse off. Copyright Blackwell Publishing, Inc 2003