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

The Causes and Consequences of Corruption: A Review of Recent Empirical Contributions

Summary This article presents a review of recent developments in the empirical literature on corruption which uses subjective indices and survey data. The results are presented on two broad themes: contributions to understanding the causes of corruption and theories on the consequences of corruption. Though this type of research is still in its infancy, it has already provided the field of corruption with some of the empirical discipline needed to turn its fertile theorizing into policy recommendations

Corporate governance and corruption: A cross-country analysis

10.1111/j.1468-0491.2005.00271.xGovernance182151-17