Economic policy

We investigate the causes of civil war, using a new data set of wars during 1960-99. Rebellion may be explained by atypically severe grievances, such as high inequality, a lack of political rights, or ethnic and religious divisions in society. Alternatively, it might be explained by atypical opportunities for building a rebel organization. While it is difficult to find proxies for grievances and opportunities, we find that political and social variables that are most obviously related to grievances have little explanatory power. By contrast, economic variables, which could proxy some grievances but are perhaps more obviously related to the viability of rebellion, provide considerably more explanatory power.

This article introduces a large new cross-country database, the Database of Political Institutions. It covers 177 countries over 21 years, 1975-95. The article presents the intuition, construction, and definitions of the different variables. Among the novel variables introduced are several measures of checks and balances, tenure and stability, identification of party affiliation with government or opposition, and fragmentation of opposition and government parties in the legislature.

This paper addresses the complex relationship between geography and macroeconomic growth. We investigate the ways in which geography may matter directly for growth, controlling for economic policies and institutions, as well as the effects of geography on policy choices and institutions. We find that location and climate have large effects on income levels and income growth, through their effects on transport costs, disease burdens, and agricultural productivity, among other channels. Furthermore, geography seems to be a factor in the choice of economic policy itself. When we identify geographical regions that are not conducive to modern economic growth, we find that many of these regions have high population density and rapid population increase. This is especially true of populations that are located far from the coast, and thus that face large transport costs for international trade, as well as populations in tropical regions of high disease burden. Furthermore, much of the population increase in the next thirty years is likely to take place in these geographically disadvantaged regions. , global competitiveness, economic growth and development, transition to a market economy, international financial markets, international macroeconomic policy coordination and macroeconomic policies in developing and developed countries.

Using bank level data for 80 countries in the 1988-1995 period, this paper shows that differences in interest margins and bank profitability reflect a variety of determinants: bank characteristics, macroeconomic conditions, explicit and implicit bank taxation, deposit insurance regulation, overall financial structure, and several underlying legal and institutional indicators. Controlling for differences in bank activity, leverage, and the macroeconomic environment, we find that a larger bank asset to GDP ratio and a lower market concentration ratio lead to lower margins and profits. Foreign banks have higher margins and profits compared to domestic banks in developing countries, while the opposite holds in developed countries. Also, there is evidence that the corporate tax burden is fully passed on to bank customers.

Recent research studying the link between law and finance has concentrated on countrylevel investor protection measures and focused on differences in legal systems across countries and legal families. Our paper extends this literature and provides a study of firmlevel corporate governance practices across emerging markets and a greater understanding of the environments under which corporate governance matters more. Our empirical tests show that better corporate governance is highly correlated with better operating performance and market valuation. More importantly, we provide evidence showing that firm-level corporate governance provisions matter more in countries with weak legal environments. These results suggest that well-governed firms benefit more in bad corporate governance environments and that firms can partially compensate for ineffective laws and enforcement by establishing good corporate governance and providing credible investor protection. Our tests also show that firm-level governance and performance is lower in countries with weak legal environments, suggesting that improving the legal system should rema in a priority for policymakers.

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The recently identified limitations of 1st-generation biofuels produced from food crops (with perhaps the exception of sugarcane ethanol) have caused greater emphasis to be placed on 2nd-generation biofuels produced from ligno-cellulosic feedstocks. Although significant progress continues to be made to overcome the technical and economic challenges, 2nd-generation biofuels production will continue to face major constraints to full commercial deployment. The logistics of providing a competitive, allyear-round, supply of biomass feedstock to a commercial-scale plant is challenging, as is improving the performance of the conversion process to reduce costs. The biochemical route, being less mature, probably has a greater cost reduction potential than the thermo-chemical route, but here a wider range of synthetic fuels can be produced to better suit heavy truck, aviation and marine applications. Continued investment in research and demonstration by both public and private sectors, coupled with appropriate policy support mechanisms, are essential if full commercialisation is to be achieved within the next decade. After that, the biofuel industry will grow only at a steady rate and encompass both 1st-and 2nd-generation technologies that meet agreed environmental, sustainability and economic policy goals.

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Few studies have examined the impact of international migration and remittances on poverty in the developing world. This paper fills this lacuna by constructing and analyzing a new data set on international migration, remittances, inequality, and poverty from 71 developing countries. The results show that both international migration and remittances significantly reduce the level, depth, and severity of poverty in the developing world. After instrumenting for the possible endogeneity of international migration, and controlling for various factors, results suggest that, on average, a 10% increase in the share of international migrants in a country's population will lead to a 2.1% decline in the share of people living on less than $1.00 per person per day. After instrumenting for the possible endogeneity of international remittances, a similar 10% increase in per capita official international remittances will lead to a 3.5% decline in the share of people living in poverty.

he risis prolem is one of the dominnt mroeonomi fetures of our geF sts prominene suggests questions like the followingX ere rises growing more frequentc ere they eoming more disruptivec ere eonomies tking longer to reoverc hese re fundmentlly historil questionsD whih n e nswered only y ompring the present with the pstF o this endD this pper develops nd nlyses dt se spnning IPH yers of finnil historyF e find tht risis frequeny sine IWUQ hs een doule tht of the fretton oods nd lssil gold stndrd periods nd is rivlled only y the risisEridden IWPHs nd IWQHsF ristory thus onfirms tht there is something different nd disturing out our geF roweverD there is little evidene tht rises hve grown longer or output losses hve eome lrgerF grises my hve grown more frequentD in other wordsD ut they hve not oviously grown more severeF yur explntion for the growing frequeny nd hroni osts of rises fouses on the omintion of pitl moility nd the finnil sfety netD inluding the impliit insurne ginst exhnge risk provided y n ex nte redile poliy of pegging the exhnge rteD whih enourges nks nd orportions to umulte exessive foreign urreny exposuresF e lso provide poliy reommendtions for restoring stility nd growthF wihel fordoD frry iihengreenD hniel ulingeiel nd wri oledd wrtinezEeri ionomi oliy epril PHHI rinted in qret fritin # giD giD wrD PHHIF F i n a n c i a l c r i s e s L e s s o n s f r o m t h e l a s t 1 2 0 y e a r s

Attempts to explain socioeconomic inequalities in health have often made reference to the observation that poor health behaviours and psychosocial characteristics cluster in low socioeconomic status (SES) groups. Causal interpretation of the association between SES, health behaviour, psychosocial orientations, and health inequalities has been hampered because these factors and SES have usually been measured at the same point in time. Data from the Kuopio lschaemic Heart Disease Risk Factor Study were used to examine the associations between measures of SES reflecting different stages of the lifecourse, health behaviours, and psychosocial characteristics in adulthood in a population-based study of 2674 middle-aged Finnish men. Results show that many adult behaviours and psychosocial dispositions detrimental to health are consistently related to poor childhood conditions, low levels of education, and blue-collar employment. Poor adult health behaviours and psychosocial characteristics were more prevalent among men whose parents were poor. Increases in income inequality which place children into low SES conditions may well produce a negative behavioural and psychosocial health dividend to be reaped in the future. Understanding that adult health behaviour and psychosocial orientations are associated with socioeconomic conditions throughout the lifecourse implies that efforts to reduce socioeconomic inequalities in health must recognize that economic policy is public health policy.

This paper reports on the latest version of the worldwide governance indicators, covering 213 countries and territories and measuring six dimensions of governance since 1996 until end-2005: voice and accountability political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption. The latest indicators are based on hundreds of variables and reflect the views of thousands of citizen and firm survey respondents and experts worldwide. Although global averages of governance display no marked trends over the period 1996-2005, nearly one-third of countries exhibit significant changes --for better or for worse -on at least one dimension of governance. Three new features distinguish this update.

We would like to thank Ricardo Sanhueza for superb research assistance. We are greatly indebted to David Wheeler and Manjula Singh for helpful conversations, for making their database available, and for estimating the results based on U.S. data. We would also like to thank Art Small, Tarhan Feyzioglu, and two anonymous referees for very helpful comments. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research or The World Bank.

Nicoletti and Scarpetta look at differences in the scope hinder the n--rtion of existing technologies, possibly by and depth of pro-competitive regulatory reforms and reducing cunipetitive pressures, technology spillovers, or privatization policies as a possible source of cross-the entry of new high-technology firms. At the same country dispersion in growth ouf , I es They suggest time, both privatization and entry liberalization are that, despite extensive liberalization and privatization in estimated to have a positive impact on productivity in all the OECD area, the cross-country variation of regulatory sectors. settings has increased in recent years, lining up with the These results offer an interpretation to the observed increasing dispersion in growth. The authors then recent differences in growth patterns across OECD investigate empirically the regulation-growth link using countries, in particular between large continental data that cover a large set of manufacturing and service European economies and the United States. Strict industries in OECD countries over the past two decades product market regulations-and lack of regulatory and focusing on multifactor productivity (MFP), which reforms-are likely to underlie the relatively poorer plays a crucial role in GDP growth and accounts for a productivity performance of some European countries, significant share of its cross-country variance. Regressing especially in those industries where Europe has MFP on both economywide indicators of regulation and accumulated a technology gap (such as information and privatization and industry-level indicators of entry communication technology-related industries). These liberalization, the authors find evidence that reforms results also offer useful insights for non-OECD countries. promoting private governance and competition (where In particular, they point to the potential benefits of these are viable) tend to boost productivity. In regulatory reforms and privatization, especially in those manufacturing the gains to be expected from lower entry countries with large technology gaps and strict regulatory barriers are greater the further a given country is from settings that curb incentives to adopt new technologies. the technology leader. So, regulation limiting entry may We thank Richard Baldwin and two anonymous referees for their valuable comments and Thierry Tressel for his significant contnbution to the construction of the industry-level database and the econometric anal) sis of productivity.

Inequality in income and opportunity involves significant economic and social costs. This paper critically reviews the arguments made in the book entitled The Price of Inequality: How Today's Divided Society Endangers Our Future by Professor Joseph Stiglitz. The central theme of this book is that political and economic forces have shaped and reinforced the extent to which concentration of income at the top is generated and protected by institutions in which the rich members of society exert considerable influence in the design and implementation of public policies.

n recent years, the demand for sovereign credit ratings-the risk assessments assigned by the credit rating agencies to the obligations of central governments-has increased dramatically. More governments with greater default risk and more companies domiciled in riskier host countries are borrowing in international bond markets. Although foreign government officials generally cooperate with the agencies, rating assignments that are lower than anticipated often prompt issuers to question the consistency and rationale of sovereign ratings. How clear are the criteria underlying sovereign ratings? Moreover, how much of an impact do ratings have on borrowing costs for sovereigns?

How much adevelopng and country can take advantage Investment, and International of technology transfer from Technology Transfer foreign direct investment depends partly on how well educated and well trained its A Survey workforce is, how much it is willing to invest in research and development, and how

What are the relative advantages and disadvantages of bank-based financial systems (as in Germany and Japan) and market-based financial systems (as in England and the United States). Does financial structure matter? In bank-based systems banks play a leading role in mobilizing savings, allocating capital, overseeing the investment decisions of corporate managers, and providing risk management vehicles. In market-based systems securities

Microfinance supports mainly informal activities that often have a low return and low market demand. It may therefore be hypothesized that the aggregate poverty impact of microfinance is modest or even nonexistent. If true, the poverty impact of microfinance observed at the participant level represents either income redistribution or short-run income generation from the microfinance intervention. This article examines the effects of microfinance on poverty reduction at both the participant and the aggregate levels using panel data from Bangladesh. The results suggest that access to microfinance contributes to poverty reduction, especially for female participants, and to overall poverty reduction at the village level. Microfinance thus helps not only poor participants but also the local economy.

War architecture. Keeping the eastern countries out seriously endangers their economic transition, and economic failure in the east could threaten peace and prosperity in western Europe. The perceived economic costs and benefits will dictate the enlargement's timing. There are four parts to the calculus -the costs and the benefits in the east and in the west. Here we break new ground in estimating the economic benefits of enlargement for east and west using simulations in a global applied general equilibrium model. Our analysis includes a scenario in which joining the EU significantly reduces the risk premium on investment in the east -with resulting huge benefits to the new entrants. We also review the existing literature on the EU budget costs and arrive at a surprisingly well-determined 'consensus' estimate, which we support with a new political economy analysis of the budget. The bottom line is unambiguous and strongly positive: enlargement is a very good deal for both the EU incumbents and the new members. E U e n l a r g e m e n t S m a l l c o s t s f o r t h e w e s t , b i g g a i n s f o r t h e e a s t

The idea of libertarian paternalism might seem to be an oxymoron, but it is both possible and legitimate for private and public institutions to affect behavior while also respecting freedom of choice. Often people's preferences are ill-formed, and their choices will inevitably be influenced by default rules, framing effects, and starting points. In these circumstances, a form of paternalism cannot be avoided. Equipped with an understanding of behavioral findings of bounded rationality and bounded self-control, libertarian paternalists should attempt to steer people's choices in welfare-promoting directions without eliminating freedom of choice. It is also possible to show how a libertarian paternalist might select among the possible options and to assess how much choice to offer. Examples are given from many areas, including savings behavior, labor law, and consumer protection.

This paper analyses the development of taxes on corporate income in EU and G7 countries over the last two decades. We establish a number of stylised facts about their development. Tax-cutting and base-broadening reforms have had the effect that, on average across EU and G7 countries, effective tax rates on marginal investment have remained fairly stable, but those on more profitable investments have fallen. We discuss two possible explanations of these stylised facts arising from alternative forms of tax competition. First, governments may be responding to a fall in the cost of income shifting, which puts downward pressure on the statutory tax rate. Second, reforms are consistent with competition for more profitable projects, in particular those earned by multinational firms.

Kopits and Cropper examine the impact of income fatalities peaks is approximately $8,600 in 1985 growth on the death rate due to traffic fatalities, as well internationial dollars. This is within the range of income as on fatalities per motor vehicle and on the at which other externalities, such as air and water motorization rate (vehicles/population) using panel data pollution, have been found to peak. from 1963-99 for 88 countries. Specifically, they Projections of future traffic fatalities suggest that the estimate fixed effects models for fatalities/population, global road death toll will grow by approximately 66 vehicles/population, and fatalities/vehicles and use these percent between 2000 and 2020. This number, however, models to project traffic fatalities and the stock of motor reflects divergent rates of change in different parts of the vehicles to 2020. world-a decline in fatalities in high-income countries of The relationship between motor vehicle fatality rate approximately 28 percent versus an increase in fatalities and per capita income at first increases with per capita of almost 92 percent in China and 147 percent in India. income, reaches a peak, and then declines. This is The authors also predict that the fatality rate will rise to because at low income levels the rate of increase in approximately 2 per 10,000 persons in developing motor vehicles outpaces the decline in fatalities per countries by 2020, while it will fall to less than 1 per motor vehicle. At higher income levels, the reverse 10,000 in high-income countries. occurs. The income level at whlich per capita traffic This paper-a product of Infrastructure and Environment, Development Research Group-is part of a larger effort in the group to study the externalities associated with motorization. Copies of the paper are available free from the World Bank,

Recent years have seen the emergence, take-up and use of the term 'policy mix' by innovation policy makers and by policy analysts and scholars alike. Imported from economic policy debates, the term implies a focus on the interactions and interdependencies between different policies as they affect the extent to which intended policy outcomes are achieved. However the meaning of the term remains ambiguous. Nonetheless, we argue that the emergence of the 'policy mix' concept into common use in the field of innovation policy studies provides us with a window of opportunity to reconsider some basic and often hidden assumptions in order to better deal with a messy and complex, multi-level, multi-actor reality. We draw upon a range of literatures to re-conceptualise the basic building blocks of innovation policy studies in order to arrive at a useful definition of 'policy mix' tensions and interactions of different kinds across a series of dimensions. We suggest that this reconceptualisation has important implications for the future scope and focus of prescriptive and analytical innovation policy studies.

Botswana has had the highest rate of per-capita growth of any country in the world in the last 35 years. This occurred despite adverse initial conditions, including minimal investment during the colonial period and high inequality. Botswana achieved this rapid development by following orthodox economic policies. How Botswana sustained these policies is a puzzle because typically in Africa, "good economics" has proved not to be politically feasible. In this paper we suggest that good policies were chosen in Botswana because good institutions, which we refer to as institutions of private property, were in place.

Research on the macroeconomic impact of capital account liberalization finds few, if any, robust effects of liberalization on real variables. In contrast to the prevailing wisdom, I argue that the textbook theory of liberalization holds up quite well to a critical reading of this literature. Most papers that find no effect of liberalization on real variables tell us nothing about the empirical validity of the theory because they do not really test it. This paper explains why it is that most studies do not really address the theory they set out to test. It also discusses what is necessary to test the theory and examines papers that have done so. Studies that actually test the theory show that liberalization has significant effects on the cost of capital, investment, and economic growth.

This paper—a joint product of the Development Research Group and the Governance, Regulation, and Finance Division, World Bank Institute—is part of a larger effort in the Bank to develop and analyze governance research indicators and trends worldwide. Copies of ...

Social Capital and Civil Society - Francis Fukuyama - Prepared for del... http://www.imf.org/external /pubs/ft/seminar/1999/reforms/fukuyama.htm ... © International Monetary Fund. All rights reserved. For requests for permission to reproduce articles, see Rights and Permissions

We study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post-Bretton Woods period , using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables. In contrast with previous studies, we find that, for developing countries, less flexible exchange rate regimes are associated with slower growth, as well as with greater output volatility. For industrial countries, regimes do not appear to have any significant impact on growth. The results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature.