Global Economic Divergence and Portfolio Capital Flows to Emerging Markets

This paper studies the role of global and regional variations in economic activity and policy in developed world in driving portfolio capital flows (PCFs) to emerging markets (EMs). Results suggest that PCFs to EMs depend mainly on economic activity at the global level and monetary policy in America and Asia, positively on the former and negatively on the latters. PCFs are procyclical with respect to global activity, but countercyclical to regional activity. In aggregate, regional variations contribute more than global variations. This implies that economic divergence in the developed world can have significant effects on EMs via PCFs.     

The Transmission of International Shocks: A Factor-Augmented VAR Approach

The empirical literature on the transmission of international shocks is based on small -scale VARs. In this paper, we use a large panel of data for 17 industrialized countries to investigate the international transmission mechanism, and revisit the anomalies that arise in the empirical literature. We propose a factor augmented VAR (FAVAR) that extends the model in Bernanke, Boivin, and Eliasz (2005) to the open economy. The main results can be summarized as follows. First, the dynamic effects on the UK economy of an unanticipated fall of short-term interest rates in the rest of the world are: real house price inflation, investment, GDP and consumption growth peak after 1 year, wages peak after 2 years, and CPI and GDP deflator inflation peak during the third year. Second, a positive international supply shock makes the distribution of the components of the UK consumption deflator negatively skewed. Third, in response to a domestic monetary shock, we find little evidence of the exchange rate and liquidity puzzles and little evidence of the forward discount and price anomalies.     

Evolving Macroeconomic Dynamics in a Small Open Economy: An Estimated Markov Switching DSGE Model for the UK

This paper investigates the possibility of shifts in the UK economy using a Markov switching open economy dynamic stochastic general equilibrium (DSGE) model. We find overwhelming evidence to reject the hypothesis that the deep structural parameters of the underlying structural model had stayed constant throughout the sample period and there is significant changes to the volatility of the structural shocks. Counterfactual experiments based on the model with the best empirical fit indicate that the change in the policy rule as well as changes to the volatility of the structural shocks over the sample period are crucial features in explaining UK’s macroeconomic performance.     

Review Essay: Land,Labour and Agrarian Transition in Vietnam

Martin Ravallion and Dominique van de Walle argue that growing landlessness in Vietnam is a function of people capitalizing on the higher returns to education witnessed in wage labour when compared with farming. So, growing landlessness is a sign of economic success. This review argues that Ravallion and van de Walle misconstrue landlessness, misinterpret the associated data and downplay the constraints facing rural Vietnamese. In so doing, they fail to capture the complex realities of Vietnam's agrarian transition.     

The Impact of the Volatility of Monetary Policy Shocks

This paper studies the impact of the volatility of monetary policy using a structural vector auroregression (SVAR) model enriched along two dimensions. First, it allows for time‐varying variance of monetary policy shocks via a stochastic volatility specification. Second, it allows a dynamic interaction between the level of the endogenous variables in the VAR and the time‐varying volatility. The analysis establishes that the nominal interest rate, output growth, and inflation fall in reaction to an increase in the volatility of monetary policy. The analysis also develops a dynamic stochastic general equilibrium model enriched with stochastic volatility to monetary policy that generates similar responses and provides a theoretical underpinning of these findings.     

INSTITUTIONAL WAGE EFFECTS: REVISITING UNION AND BARGAINING COUNCIL WAGE PREMIA IN SOUTH AFRICA

The literature on the union wage gap in South Africa is extensive, spanning a range of data sets and methodologies. There is, however, little consensus on the appropriate method to correct for the endogeneity of union membership or the size of the union wage gap. Furthermore, there are very few studies on the bargaining council wage premium in South Africa because of lack of data on the coverage of employees under these agreements. Our study, using 2005 Labour Force Survey data, firstly reconsiders the union wage gap controlling for both firm‐level and job characteristics. When correcting for the endogeneity of union status through a two‐stage selection model and including firm size, type of employment, and non‐wage benefits, we find a much lower union wage premium for African workers in the formal sector than premiums reported in some previous studies. Secondly, our study estimates bargaining council wage premiums for the private and public sectors. We find that extension procedures are present in both private and public bargaining council systems but that unions negotiate for additional gains for their members at the plant level. Furthermore, there is some evidence that unions negotiate for awards for their members in the private sector irrespective of bargaining council coverage.     

Land Reform, Rural Social Relations and the Peasantry

A new book, Promised Land: Competing Visions of Agrarian Reform , edited by Peter Rosset, Raj Patel and Michael Courville is considered. This book, via both general analytical treatment and a series of case studies set in Latin America, Asia and Africa, offers a powerful critique of the World Bank's market-led agrarian reform (MLAR) and provides an alternative model of agrarian reform, the 'food sovereignty movement', that has been articulated by La Via Campesina. Food sovereignty requires that priority be allocated to the domestic production of food and that a right to land be given to small farmers and their families. It is a vision of agrarian reform, with an emphasis on smallholder farming and the transformative power of rural social movements, that has truly emerged 'from below'. The critique of MLAR is compelling. It is argued in this essay, however, that two crucial questions are abstracted from. The first is that of the vastly differing sets of social relations that exist (compare, say, socialist Cuba and capitalist Brazil) and their implications. It is not clear that food sovereignty can, in effect, offer a coherent political economy of an alternative global agrarianism. The second relates to the implicit assumption, found throughout the book, that the peasantry is a homogeneous, undifferentiated social group. This is manifestly not so, and what the existence of socially differentiated peasantries implies requires careful examination.