Foreign direct investment: flows, volatility and growth in developing countries

This paper contributes to the literature on FDI and economic growth. We deviate from previous studies by introducing measures of the volatility of FDI inflows. As introduced into the model, these are predicted to have a negative effect on growth. We estimate the standard model using cross-section, panel data and instrumental variable techniques. Whilst all results are not entirely robust, there is a consistent finding that FDI has a positive effect on growth whereas volatility of FDI has a negative impact. The evidence for a positive effect of FDI is not sensitive to which other explanatory variables are included. In particular, it is not conditional on the level of human capital (as found in some previous studies). There is a suggestion that it is not the volatility of FDI per se that retards growth but that such volatility captures the growth-retarding effects of unobserved variables.

Capital market imperfections, uncertainty and corporate investment in the Czech Republic

The well-known Klein-Monti model of bank behavior considers a monopolistic bank. We demonstrate that this model’s results on the comparative static effects of a change in the exogenous interbank market interest rate do not necessarily hold in oligopolistic Cournot or Stackelberg generalizations. Introducing asymmetries in the cost functions of the banks, or in their way of conduct, may imply counterintuitive effects on the individual banks’ volumes of loans and deposits. Keywords: Bank behavior, Cournot oligopoly, Stackelberg oligopoly

Is there an uncertainty-laffer curve?

This paper examines the impact of uncertainty on the capital-output ratio and per capita growth for a group of developed countries. Uncertainty seems to have non-linear effects on economic growth and positive effects on the capital-output ratio.

Aid to conflict-affected countries : lessons for donors

The first section looks at the implications of conflict for aid effectiveness and selectivity. We argue that, while aid is generally effective in promoting growth and by implication reducing poverty, it is more effective in promoting growth in post-conflict countries. We then consider the implications of these findings for donor selectivity models and for assessment of donor performance in allocating development aid among recipient countries. We argue that, while further research on aid effectiveness in post-conflict scenarios is needed, existing selectivity models should be augmented with, inter alia, post-conflict variables, and donors should be evaluated on the basis, inter alia, of the share of their aid budgets allocated to countries experiencing post-conflict episodes. We also argue for aid delivered in the form of projects to countries with weak institutions in early post-conflict years. The second section focuses on policies for donors operating in conflict-affected countries. We set out five of the most important principles: (1) focus on broad-based recovery from war; (2) to achieve a broad-based recovery, get involved before the conflict ends; (3) focus on poverty, but avoid &lsquo;wish lists&rsquo;; (4) help to reduce insecurity so aid can contribute more effectively to growth and poverty reduction; and (5) in economic reform, focus on improving public expenditure management and revenue mobilisation. The third section concludes by emphasising the fact that there is no hard or fast dividing line between &lsquo;war&rsquo; and &lsquo;peace&rsquo; and that it may take many years for a society to become truly &lsquo;post&rsquo;-conflict&rsquo;. Donors, therefore, need to prepare for the long haul.<br /

The option to wait to invest and equilibrium credit rationing

Stiglitz and Weiss (1981) show that firms considering risky projects have higher reservation interest rates and hence it is optimal for a bank to reduce loan supply. In this note we show that when the risk involved in an investment will be resolved in the future, investors with riskier projects have a greater return from waiting. More risky projects have lower reservation interest rates and hence there is no motive for banks to ration credit demand