EXPLORING POTENTIAL ARMS RACES

Defense spending accounts for a larger share of national output in most countries than many of the other allocative decisions, both public and private, which the majority of economic research aims at explaining. Yet with notable exceptions, most economists have ignored this topic and relegated to political science the task of explaining how resources are allocated to this sector. This paper aims at contributing to this literature by economists. A theoretical model is developed to explain the dynamics of the arms acquisition process. Within this framework, defense expenditures are governed by the expenditures of potential adversaries if these exist. Then the model is empirically tested using a sample of countries or dyads which have been proposed to be adversaries. The direction of the prima facie causal relationship between the military expenditures of these dyads is investigated using parametric causality tests. The results indicate that some of these country's expenditures seem to reflect an arms race while other proposed dyads seem not to be adversaries, i.e., their expenditures are independent and therefore, seem to be governed by other than an external threat.     

Restricted origin principle under triangular trade flows: Implications for trade and tax revenues

In this paper we try to show that, even when we allow for the assumptions embodied in the standard literature of border tax adjustments, and furthermore restrict ourselves to the case of uniform as well as general taxes, across products and countries, the choice between origin and destination principles need not be irrelevant. In particular, when a triangular trade flow of products takes place between two states of a federation and foreign countries, unless the same principle of border tax adjustments is adopted on both domestic and foreign trade, part of the state tax base is transferred from one state to the other, leading to an undesirable reallocation of local tax revenues. We found that adoption by the Brazilian states of the restricted origin principle (origin principle applied to interstate trade and destination principle applied to foreign trade) led to a reallocation of local tax revenues from the Northeastern states to the residents of the rest of country. An obvious implication of this analysis is that reallocation of tax revenues due to bilaterally unbalanced trade could be easily adjusted by adoption of the same principle, origin or destination, for both domestic and foreign trade.     

Measurement and Testing for Equality of Foreign Price and Consumer Price Index Transmission in Russia

This paper tests for segmentation of retail meat markets in Russia before and after the financial crisis of 1998. Using monthly prices of pork and beef in 80 regions of Russia from 1994 to 1999, we measure the short-run response of regional prices to changes in foreign prices and domestic inflation. We find that changes in both foreign prices and domestic inflation have distinct impacts on the prices of these commodities in different Russian cities, indicating that the markets are segmented in the short run. An analysis of the effect of the financial crisis shows that the response to the crisis was mixed, with some regions showing more evidence of segmentation than others.     

Earnings and Schooling of Cooperative Managers

Abstract This paper estimates econometrically the economic return on schooling among Portuguese cooperative managers, based on a survey carried out in 1999. The main findings indicate that the rate of return is in line with previous published research. The results also indicate that in this sector, the return on education does not depend on the dimensions of the cooperative in which the individual works.     

Losing Credibility: The Stabilization Blues

In exchange rate-based stabilization programs, credibility often follows a distinct time pattern. At first it rises as the highly visible nominal anchor provides a sense of stability and hopes run high for a permanent solution to fiscal problems. Later, as the domestic currency appreciates in real terms and the fiscal problems are not fully resolved, the credibility of the program falls, sometimes precipitously. This paper develops a political-economy model that focuses on the evolution of credibility over time, and is consistent with the pattern just described. Inflation inertia and costly budget negotiations play a key role.     

Intellectual property piracy in a North–South context: empirical evidence

The protection of intellectual property rights (IPR) has been a contentious issue for more than 20 years. Industrialized nations have moved to knowledge‐based economies, and simultaneously, trade barriers have fallen, making intellectual property (IP) vulnerable. Adding to this vulnerability are conflicting international institutional environments, belief systems, and economic realities. The debate over IPR protection has become a significant global trade issue pitting the net‐technology producing “North” against the net‐technology consuming “South.” With this in mind, there has been much debate about the impact of alternative IPR regimes (tight or loose) on the welfare of Southern economies. Policy makers, in both the South and the North, search for arguments to convince recalcitrant Southern countries to follow the Northern model of strict IPR regimes. The South, faced with a dilemma, searches for arguments to justify looser regimes or convince its populace that tighter regimes are in the best interest of the nation. The objective of this research is to add empirical clarity about the welfare impacts of weak IPR on the firm and host country. To this end, we employ a novel methodological design and unique context. The research design is deductive, in that we use the empirical setting of Pioneer‐Argentina, S.A., a seller of bioengineered agricultural seeds, to test the existing theory of weak IPR impacts in a North–South context.     

Specialization, factor accumulation and development

We estimate the effect of factor proportions on the pattern of manufacturing specialization in a cross-section of OECD countries, taking into account that factor accumulation responds to productivity. We show that the failure to control for productivity differences produces biased estimates. Our model explains 2/3 of the observed differences in the pattern of specialization between the poorest and richest OECD countries. However, because factor proportions and the pattern of specialization co-move in the development process, their strong empirical relationship is not sufficient to determine whether specialization is driven by factor proportions, or by other mechanisms also correlated with level of development.