"Managing Global Risks and Creating Prosperity: the Role of the IMF and Regional Financial Architectures"

In this paper,following an evolutionary theory of international financial institutions-- called "the extended panda's thumb" approach-- the role of IMF under the present globalization moves is analyzed. It is shown that IMF must change in a direction which allows for greater national policy autonomy. It is also shown that the IMF needs complementary regional institutions of cooperation in order to create a stabilizing financial architecture. Thus regional financial architectures will need to be integral parts of any new global financial architecture(GFA).The tentative steps taken towards regional cooperation in Asia after the financial crisis are discussed to illustrate the opportunities and challenges posed by the need to evolve towards a hybrid GFA.

"How Effective Is Japanese Foreign Aid? Econometric Results from a Bounded Rationality Model for Indonesia"

How does Japanese aid influence the allocation of government expenditures and the raising of government revenues? Using a non-linear model with an asymmetric loss function the case of Japanese aid to Indonesia is examined at the macroeconomic level. It turns out that Japanese aid led to proportionately more development expenditures than other aid. It also might have been positively related to an increased effort by the Indonesian government to raise taxes. Economic explanations based on a bounded rationality models are advanced. Econometric and institutional explanations are also offered. The three sets of explanations can be seen as overlapping and complementary.

"Towards A Field Theory of Innovating Multinational Firms in the Digital Economy: Creative Capital in a POLIS"

In the fast developing digital technological revolution connectedness has emerged as a major characteristic of both firms and markets. For multinational firms in high technology area in general this raises some interesting and fundamental theoretical questions. How is connectedness to be formalized? What is the role of increasing returns in the new connected structure? How should we formulate the firm's activities in multiproduct, multiple activities environment? A somewhat novel theoretical approach is suggested for modeling the activities of the multiproduct, multiple activities oriented. MNC. This paper discusses some of the most important economic issues conceptually by relying on the idea of each MNC as a node in the global economy as a connected field. The basic problem of innovation for a high technology firm in a connected field can be explored via the theory of a positive feedback loop innovation system (POLIS) in a nonlinear, path-dependent world where the connectedness within the firm and between the firms and its evolution matter crucially. By investing strategically in physical, creative intellectual and other forms of human and organizational capital as well as building new institutions of cooperation some firms are able to create micro-innovation systems of their own that can be extended to region-wide systems. Under the emerging globally competitive market environment this will be the best way to compete dynamically. However, creating competitive advantage in this way requires capabilities that many firms will need to promote. Creative capital acquisition as an important dimension of the MNC behavior is one implication of this new field theory and can be tested at the microlevel.

"The Extended Panda's Thumb and a New Global Financial Architecture"

An evolutionary theory of international financial institutions is developed and two broad types of possible (evolutionary) equilibrium Global Financial Architectures(GFAs) are identified. The first is called an overarching type, exemplified by the classical gold standard and the defunct Bretton Woods system. The second is called a hybrid form that allows for the existence and coevolution of some Regional Financial Architectures(RFAs) as well. The changing roles of the IMF and national economic policies are examined within these two possible financial architectures under globalization It is found that from an evolutionary perspective, a hybrid form with a reformed IMF and regional cooperation through appropriately designed RFAs can create the best possible institutional and policy environment for financial stability and sustained growth .An evolutionary argument, called "the extended panda's thumb", is advanced to establish the possibility of adapting many existing institutions including the IMF, for creating a hybrid GFA. The tentative steps taken towards regional cooperation in Asia after the financial crisis are discussed to illustrate the opportunities and challenges posed by the need to evolve towards a hybrid GFA.

"Globalization: Challenges and Opportunities"

The word globalization, as commonly used, is largely a descriptive and not an analytical category. This paper attempts to give the term analytic content. It then focuses on both the positive and normative analysis of globalization. Trade, environment, finance and gender issues receive special attention. A global governance structure based on transparent principles of both economic efficiency and social justice is shown to be a desirable state of affairs; however, the present fractured process of globalization is more likely to end up in regionalism or even national protectionism and rivalry. Multilateral cooperation on the basis of the framework advanced here is an urgent necessity.

"Development as Freedom"

This chapter offers a historical and analytical introduction to the school of thought that views 'development as freedom'. Since it is impossible to do justice to the depth and complexity of this 'new' approach to development in just one short chapter, I explore a few significant dimensions of the concept beginning with Amartya Sen's pioneering contributions. I also look at clarifications by Nussbaum and others who offer a list of important functionings that can be included in the capabilities set. The subsequent part builds on this by exploring the transition from a utilitarian welfare economics to a fully social capabilities based ethics for development with justice. The present chapter proceeds in the direction of concretizing the idea of 'development as freedom' by discussing the role of a network of social, economic and political institutions in creating social capabilities. This allows us to develop the argument that freedom is to be viewed dynamically as the development of appropriate social capabilities embedded in a specific network of social, economic and political institutions. The following section then presents an example of a concrete area of application--- namely, the problem of developing women's capabilities as an important aspect of global justice--- in order to illustrate the practical relevance of the capabilities approach. The final, concluding section reflects on the future of the social capabilities approach as an evaluative framework for development theory and policy. It turns out that in addition to the usual list of capabilities, and policies driven by them in the field of development, a deep democratic constitution backed up by ongoing democratizing social and political movement is an integral part of the historical project of enhancing social capabilities.

"On Paradigms, Theories and Models"

The purpose of this brief note is to alert the reader to the existing confusing state of affairs in the social sciences regarding the terms paradigm, theories and models, trace a few of the causes, and offer some tentative distinctions that may make our discourses a bit clearer. Since the word paradigm is used in so many different ways, it is suggested that we avoid using this term unless necessary in a particular context. For most ordinary scientific discourse and debate,the terms theories and models are sufficient. As shown in this paper, they are terms that can be defined clearly, and used to raise relevant questions about choice among different theories and models. From this perspective, paradigm seems to be an example of the traps that beset a careless user of ordinary language. Wittgenstein was the most important modern philosopher to point this out in general. To use a somewhat Wittgensteinian language, paradigm is an example of a language game that has somewhere gone awry. But we still have the language games of models and theories that are eminently serviceable for the social science discourses.

"General Conclusions: From Crisis to A Global Political Economy of Freedom"

In this chapter I sum up the basic problems for a new theory of 21st century financial crises in light of the Asian and other subsequent crises. My conclusion is that there are indeed deep structural causes at work in the global markets that affect the political economy of countries and regions. Methodologically, new concepts, models and theories are constructed, at ;least partially, to conduct further meaningful empirical work leading to relevant policy conclusions. This book belongs to the beginning of intellectual efforts in this direction. Political economic analyses at the country level, CGE modeling within a new theoretical framework, and neural network approach to learning in a bounded rationality framework point to a role for reforms at the state, firm and regional level. A new type of institutional analysis called the 'extended panda's thumb approach' leads to the recommendation that path dependent hybrid structures need to be constructed at the local, national, regional and global level to lead to a new global financial architecture for the prevention--- and if prevention fails--- management of financial crises.

"China's Entry into the WTO: ICT Sectors, Innovation, Growth and Distribution"

During the debate about PRC's entry into the WTO, it was assumed by the proponents of joining the WTO that the export-led growth will continue and under WTO regime it will also lead to the modernization of the economy along the lines of the other newly industrialized economies(NIEs) of Asia. If examined rigorously, such an assumption can be seen to entail the goal of creating further technological capabilities. In particular, China seems to be firmly committed to the creation of a largely self-sustaining innovation system as part of a knowledge-based economy of the future . Such innovation systems, called positive feedback loop innovation systems or POLIS have been created by advanced countries, and NIEs such as South Korea and Taiwan are proceeding to create these as well. Can China do the same? And will China's entry into the WTO help or hinder such efforts? Using an economy wide model it is found thatThe entry into WTO can create an opportunity for technological learning and new technology imports. The challenge is to learn quickly and develop domestic capability before costs become too high. Thus, subsidizing domestic ICT firms can become an even more attractive strategic trade and technology policy. However, developing an interactive sustainable innovation system with virtuous positive feedbacks will require strategic complementarity between capital expenditures such as R&D and human resources.Therefore, upgrading education and training and developing ICT infrastructure quickly become urgent policy objectives. Also, precompetitive support of innovation needs to be separated from the actual development and marketing. In this area, clear guidelines and incentives for both the state and non-state enterprises will be necessary. A well-defined competition policy is a sine qua non for this purpose. In the Chinese case, openness can lead to increased competition under a rules-based trading regime. The challenge will be to build competitive world class ICT firms in such an environment. Even as competitive policies are pursued along with further structural reforms in China, the fact that such policies are to be pursued in an environment of incomplete information and other market imperfections mean that excess capacity, and consequently, unemployment may persist for sometime. Therefore, the role for appropriate macroeconomic policies to pursue the goal of reducing excess capacity without creating inflationary pressures need to be considered carefully.

Neural Network Models for Inflation Forecasting: An Appraisal

We assess the power of artificial neural network models as forecasting tools for monthly inflation rates for 28 OECD countries. For short out-of-sample forecasting horizons, we find that, on average, for 45% of the countries the ANN models were a superior predictor while the AR1 model performed better for 21%. Furthermore, arithmetic combinations of several ANN models can also serve as a credible tool for forecasting inflation.Artificial Neural Networks; Forecasting; Inflation