More evidence on income distribution and growth

Inequality is often regarded as a necessary evil that has to be tolerated to allow growth, says the author. The view that inequality is necessary for the accumulation of wealth, and contains the seeds of eventual increases in everyone's income, is evident in trickle down economic theories, where societal acceptance of inequality allows the rich to earn a greater rate of return on their assets. Others argue that inequality slows growth - because increased inequality causes more conflict over distributional issues, thereby encouraging greater economic intervention and higher taxes. According to the author, the empirical evidence shows that: Inequality is negatively, and robustly, correlated with growth. This result is robust to many different assumptions about the exact form of the cross-country growth regression. Although statistically significant, the magnitude of the relationship between inequality and growth is relatively small. Decreasing inequality from one standard deviation above to one standard deviation below the mean increases the long-term growth rate by about 1.3 percentage points a year. Inequality has a similar effect in democracies and non-democracies. When an interaction term between the type of regime and inequality is included in the base regression, it is insignificant at conventional significance levels. The cross-country data on inequality follows Kuznets'inverted-U shape. Care should be taken in interpreting these results. Although inequality is negatively correlated with growth, this does not necessarily imply that soak-the-rich policies will improve long-term growth. First, theoretical work on inequality and growth stresses thatthis negative correlation is caused by high levels of inequality provoking high levels of government economic intervention. Soak-the-rich policies may be less necessary where there is less inequality. Second, although the partial correlation is robust, the direction of causality has not been determined and the effects of specific income distribution policies have not been tested. Finally, if policies designed to decrease inequality result in greater government consumption and the cost of increased government consumptions outweighs the benefits of greater equality, long-term growth may be harmed. But for certain: inequity is not a prerequisite for growth.Inequality,Governance Indicators,Poverty Impact Evaluation,Achieving Shared Growth,Economic Theory&Research

Do government policies that promote competition encourage or discourage new product and process development in low and middle-income countries?

Previous work has shown that firms in low and middle-income countries in Eastern Europe and Central Asia that feel greater pressure to innovate from their competitors are more likely to introduce new products and services than firms that donot feel pressure (Carlin and others 2001; World Bank 2004). However, competition also appears to affect innovation in other ways. In particular, firms in these countries that face greater price competition appear to be less likely to innovate than other firms (Carlin and others 2001). The author assesses how competition and trade policy affect these different aspects of competition and, consequently, assesses their net impact on innovation. He finds that reducing tariffs and enacting and enforcing competition laws modestly increases both the pressure that firms feel regarding innovation and the level of price competition in the domestic economy. The net impact that lower tariffs have on new product and process development appears to be negative but small-for the most part the opposing effects cancel out. In contrast, stricter competition laws and better enforcement of those laws appear to increase the likelihood of new product and process development, especially when competition is treated as endogenous to innovation.Environmental Economics&Policies,Markets and Market Access,Labor Policies,ICT Policy and Strategies,Economic Theory&Research,Environmental Economics&Policies,ICT Policy and Strategies,Economic Theory&Research,Markets and Market Access,Access to Markets

Bank privatization in Argentina : a model of political constraints and differential outcomes

Based on results from country case studies, many researchers have claimed that political constraints affect bank privatization transactions, which in turn affect the post-privatization performance of the banking sector. But no study has either econometrically tested how political constraints affect bank privatization transactions or theretically modeled the privatization transaction. The authors present a simple theoretical framework that models the inherent tradeoffs faced by governments and potential buyers in privatization transactions involving banks. The potential buyer is concerned about the probability that the bank will remain solvent, about the profits it will earn after privatization, and about the price paid for the assets and liabilities. The government is concerned about the price received for the assets, about layoffs, and about service coverage after privatization. The evidence from bank privatization transactions in Argentina in the 1990s supports several of their theoretical predictions. In particular, provinces with highfiscal deficits were willing to accept layoffs and to guarantee a larger part of the privatized banks'portfolio in return for a higher price. The tequila crisis (Mexico's economic crisis in 1994-95) meant that politicians could protect fewer jobs and had to assume a greater share of their public banks'assets. Evidence of better performance at banks privatized after Mexico's crisis suggests that, by tying politicians'hands, the crisis may have brought unforeseen benefits. This conjecture awaits further empirical validation, but the authors hope that by explicitly incorporating the incentives politicians face, analysis can begin to address the question of why some privatizations succeed more than others.Economic Theory&Research,International Terrorism&Counterterrorism,Banks&Banking Reform,Municipal Financial Management,Financial Crisis Management&Restructuring,Banks&Banking Reform,Municipal Financial Management,Economic Theory&Research,Financial Crisis Management&Restructuring,International Terrorism&Counterterrorism

Does internet connectivity affect export performance? Evidence from the transition economies

Over the past few years, many commentators have suggested that the Internet is one of the forces driving globalization. This paper tries to assess one aspect of these claims, looking at whether Internet access appears to affect the export performance of enterprises in low- and middle-income economies in Eastern Europe and Central Asia. The papers finds that even after controlling for self-selectivity bias and for factors that might affect both exports and Internet connectivity, enterprises with Internet access appear to export more than similar enterprises without access. Further, Internet access appears to affect industrial and service enterprises to similar degrees. – exports ; information technology ; FD

Has private participation in water and sewerage improved coverage? - empirical evidence from Latin America

Introducing private sector participation (PSP) into the water and sewerage sectors in developing countries is difficult and controversial. Empirical studies on its effects are scant and generally inconclusive. Case studies tend to find improvements in the sector following privatization, but they suffer from selection bias, and it is difficult to generalize from their results. To explore empirically the effects of PSP on coverage, we assemble a new dataset of connections to water and sewerage services at the city, and province level, based on household surveys in Argentina, Bolivia, and Brazil. The household surveys, conducted over a number of years, allow us to compile data, before and after the introduction of PSP, as well as from similar (control) regions that never privatized at all. Our analysis reveals that, in general, connection rates to piped water and sewerage, improved following the introduction of PSP, consistent with the case study literature. We also find, however, that connection rates similarly improved in the control regions, suggesting that PSP, per se, may not have been responsible for those improvements. On the other hand, connection rates for the poorest households also tended to increase in the regions with PSP, and in the control regions, suggesting that-in terms of connections at least-PSP did not harm the poor.Environmental Economics&Policies,Decentralization,Health Economics&Finance,Water Conservation,Water and Industry,Town Water Supply and Sanitation,Health Economics&Finance,Environmental Economics&Policies,Water Supply and Sanitation Governance and Institutions,Water and Industry

Telecommunications reform in Malawi

In 1998 the Government of Malawi decided to reform its telecommunications sector. Although the reform was ambitious in some ways, it was modest when compared with the most ambitious reforms adopted elsewhere in Sub-Saharan Africa. The two main accomplishments were splitting the incumbent fixed line monopoly, the Malawi Post and Telecommunications Corporation, into two companies-Malawi Telecommunications Limited (MTL) and Malawi Post Corporation (MPC)-and issuing two new cellular licenses to two new private entrants. In addition, the Government also established a new regulator which was separate from, but heavily dependent on, the Ministry of Information and liberalized entry in value-added and Internet services. However, the Government had neither privatized the fixed-line telecommunications operator nor introduced competition in fixed-line services by the end of 2002. Clarke, Gebreab, and Mgombelo discuss sector performance before reform, details of the reform, the political motivation for reform, and events in the five years following the reform. The reform yielded mixed results. Although cellular penetration and Internet use expanded dramatically following reform, prices increased, especially for cellular calls, and fixed-line penetration remains low by regional standards.Public Sector Economics&Finance,Rural Communications,Telecommunications Infrastructure,ICT Policy and Strategies,Knowledge Economy,ICT Policy and Strategies,Rural Communications,Education for the Knowledge Economy,Knowledge Economy,Public Sector Economics&Finance

A Service of zbw Leibniz-Informationszentrum Wirtschaft Leibniz Information Centre for Economics

Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Abstract Over the past few years, many commentators have suggested that the Internet is one of the forces driving globalization. This paper tries to assess one aspect of these claims, looking at whether Internet access appears to affect the export performance of enterprises in low-and middle-income economies in Eastern Europe and Central Asia. The papers finds that even after controlling for self-selectivity bias and for factors that might affect both exports and Internet connectivity, enterprises with Internet access appear to export more than similar enterprises without access. Further, Internet access appears to affect industrial and service enterprises to similar degrees

Finance and Income Inequality: What Do the Data Tell Us?

Although there are distinct conjectures about the relationship between finance and income inequality, little empirical research compares their explanatory power. We examine the relationship between finance and income inequality for 83 countries between 1960 and 1995. Because financial development might be endogenous, we use instruments from the literature on law, finance, and growth to control for this. Our results suggest that, in the long run, inequality is less when financial development is greater, consistent with Galor and Zeira (1993) and Banerjee and Newman (1993). Although the results also suggest that inequality might increase as financial sector development increases at very low levels of financial sector development, as suggested by Greenwood and Jovanovic (1990), this result is not robust. We reject the hypothesis that financial development benefits only the rich. Our results thus suggest that in addition to improving growth, financial development also reduces inequality.

Does foreign bank penetration reduce access to credit in developing countries"evidence from asking borrowers

Existing evidence on the effect of foreign bank penetration on lending to small and medium-size enterprises is ambiguous. Case studies of developing countries show that foreign banks lend less to such firms than domestic banks do. But cross-country studies find that foreign bank entry fosters competition and reduces interest rates, benefits that should extend to all firms. The authors use data from a large cross-country survey of enterprises to investigate this issue. Their results suggest that foreign bank penetration improves financing conditions (both the quantities of financing and the terms) for enterprises of all sizes, although it seems to benefit larger firms more.Banks&Banking Reform,Economic Theory&Research,Payment Systems&Infrastructure,Financial Intermediation,Financial Crisis Management&Restructuring,Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Municipal Financial Management,Economic Theory&Research

Privatization, competition and corruption: How characteristics of bribe takers and payers after bribe payments to utilities

Many recent studies have looked at the macroeconomic, cultural and institutional determinants of corruption at the cross-national level. This study complements these existing cross-country studies by focusing on firm-level evidence of microeconomic factors affecting bribes paid in a single sector of the economy. Using enterprise-level data on bribes paid to utilities in 21 transition economies in Eastern Europe and Central Asia, we examine how characteristics of the utilities taking bribes and the firms paying bribes affect the equilibrium level of corruption in the sector. Bribe takers (utility employees) are more likely to take bribes in countries with greater constraints on utility capacity, lower levels of competition in the utility sector, and where utilities are state-owned. Bribe payers (enterprises) are more likely to pay bribes when they are more profitable, have greater overdue payment to utilities, and are de novo private firms. A thorny issue in the empirical literature on corruption is how to distinguish between the "endogenous harassment" and "speed money" theories of corruption. The former receives stronger support from some of the results than the latter