Explaining the effect of financial development on the quality of property rights

Empirical evidence suggests that financial development can catalyze property rights reforms. This paper offers a theory of financial markets to explain these facts defining the relationship. The explanation is based on a simple trade‐off between the costs and the benefits of securing property. Securing the right to property at a cost allows agents to post collateral against loans. However, the benefits of collateral vary according to the existing credit market conditions, which we take into account in the tradeoff between the costs and the benefits of securing property rights along the path of financial development to explain the conditions under which financial development can create incentives for better property rights institutions.     

Inflation, the credit market, and economic growth

This paper presents a model which predicts a negative, non-linearrelationship between the rate of inflation and rate of outputgrowth, as observed in many empirical studies. The model describesan economy in which credit market imperfections arise due toasymmetric information between lenders and borrowers. Withinthis environment, two types of lending regime are possible—arationing regime, where high and low risk borrowers are separatedby means of credit rationing, and a screening regime, whereseparation takes place through costly information acquisition.An increase in the inflation rate alters lenders' behaviourin such a way (by increasing the incidence of rationing or thelevel of costly screening, or by switching the lending regimefrom screening to rationing) that adverse growth effect of inflationis magnified. The analysis provides a basis for the empiricalfinding that growth effect of inflation may be strongest insome specific range of inflation.     

Asymmetric Cointegration,Nonlinear ARDL,and the J-Curve: A Bilateral Analysis of China and Its 21 Trading Partners

This article follows the nonlinear Autoregressive Distributed Lag (ARDL) error-correction methodology to explore nonlinearity in the relationship between the trade balances and the real exchange rates for China and its 21 partners. We find evidence for short-run asymmetric effects of exchange rate in cases of 18 partners, short-run adjustment asymmetry in cases of 11 partners, short-run cumulative asymmetry in cases of seven partners, and a significant long-run asymmetric effect cases of five partners. We find support for the “J-curve” that is only due to appreciation or depreciation of the Yuan in cases of five partners, including the U.S.     

Financial Development, Financing Choice and Economic Growth

In an overlapping generations economy, households (lenders) fund risky investment projects of firms (borrowers) by drawing up loan contracts on the basis of asymmetric information. An optimal contract entails either the issue of only debt or the issue of both debt and equity according to whether a household faces a single or double enforcement problem as a result of its own decision about whether or not to undertake costly information acquisition. The equilibrium choice of contract depends on the state of the economy which, in turn, depends on the contracting regime. Based on this analysis, the paper provides a theory of the joint determination of real and financial development, with the ability to explain both the endogenous emergence of stock markets and the complementarity between debt finance and equity finance.     

An asymmetric analysis of the J‐curve effect in the commodity trade between China and the US

This paper follows a non‐linear ARDL error‐correction approach to examine the presence of the J‐curve in the commodity‐level trade between the United States and China. The analysis disaggregates the US–China trade flows by commodities and separately examines the trade balance responses of 97 commodities to the changes in the real yuan–US$ exchange rates. The analysis at the commodity level alleviates potential aggregation bias that is present in earlier studies offering little evidence for long‐run asymmetric effects of exchange rate on the China–US trade balance. We find strong support for short‐run asymmetric effects in the case of two‐third of the commodities, whereas significant long‐run asymmetric effects are present in the case of one‐third of the commodities including those commodities which command large shares in the China–US trade.     

The incidence and persistence of corruption in economic development

Economic development and bureaucratic corruption are determined jointly in a dynamic general equilibrium model of growth, bribery and tax evasion. Corruption arises from the incentives of public and private agents to conspire in the concealment of information from the government. These incentives depend on aggregate economic activity which, in turn, depends on the incidence of corruption. The model produces multiple development regimes, transition between which may or may not occur. In accordance with recent empirical evidence, the relationship between corruption and development is predicted to be negative.