RESOURCE CURSE,POLITICAL ENTRY,AND DEADWEIGHT COSTS

A simple model of political entry in a two‐sector economy is developed to analyze the effects of natural resource wealth on economic policy, political development, and civil insurrection. The model emphasizes the role of political entry and deadweight costs of taxation on the joint determination of these economic and political outcomes. Contrary to popular belief, my model shows that natural resource abundance is an economic blessing even in a rent‐seeking society, although resource dependence can be negatively associated with economic performance. In a contested political market, dictators care about popular support and hence resource wealth can help reduce the deadweight cost of taxation (and hence the cost of public good provision). On the other hand, natural resource wealth can be a political curse, because it encourages political entry and hence it induces incumbent dictators to run more repressive regimes. With constant returns counterinsurgent technology, however, the equilibrium number of insurgents is independent of the size of resource wealth. The onset of civil war, therefore, depends on the counterinsurgent technology and whether the costs of entry deterrence are affected by resource wealth. This helps clarify the two seemingly contradictory hypotheses that “resource wealth enhances regime durability” and “resource wealth fuels conflict.”     

Endogenous change and the economic theory of regulation

This paper extends the economic theory of regulation to include endogenous regulatory change. It outlines conditions under which endogenously rising deadweight costs of regulation can alter the policy equilibrium, even if those rising costs are fully anticipated. Within this framework, alternative wealth redistribution mechanisms can alter the equilibrium path if they bias interest groups' organization costs asymmetrically. The history of natural gas regulation is broadly consistent with this theory.     

Economic policy uncertainty and real output: evidence from the G7 countries

We use economic policy uncertainty index, and impulse response based test to assess the impact of economic policy-related uncertainty on real economic activity. We use monthly data, over the period from 1985:1 to 2015:3, and impulse response functions to investigate how the economies of the G7 countries respond to positive and negative economic policy uncertainty shocks of different magnitudes. We find that economic policy uncertainty is countercyclical, that the effects of uncertainty shocks increase with size and that the responses of real output to positive and negative economic policy uncertainty shocks are country specific. Our research is important for policymaking and in favour of policies that remove economic uncertainty and its negative effects on the economy. We argue that some control over yellow journalism, a transparent tax system and a set of predictable fiscal and monetary policies can minimize the social costs of economic policy uncertainty.     

Calibrating spatial models of trade

Empirical spatial models of trade that are based on a mathematical programming specification often exhibit a large discrepancy between the equilibrium solution and the observed demand, supply and levels of trade flows among countries. This discrepancy may be due to several causes. Assuming, however, that a trade model is not misspecified – in the sense that behavior of the economic agents involved in the specific commodity markets has been included in the study and that the relevant policy instruments have been properly taken into account – the cause of discrepancy may be traced either to imprecision of unit transaction costs or to imprecision in the measurement of the demand and supply functions' parameters, or both. Policy assessments based on this type of imprecise models are distorted. This paper presents a methodology for calibrating mathematical programming spatial trade models of increasing complexity, from the one-commodity case to a multi-commodity model with asymmetric slope matrices of demand and supply functions. The proposed calibration procedure identifies corrections of imperfectly measured parameters. The calibrated models generate solutions that exactly reproduce quantities produced and consumed in all countries, as well as trade flows among all pairs of countries, observed in a given base year. Such models may then serve as a springboard for assessing the impact of various policy changes on economic agents in the countries under study.     

Effects of mineral-commodity price shocks on monetary policy in developed countries

This article investigates effects of changes in mineral commodity prices on monetary policy. Using macroeconomic data from three mineral-producing countries (Australia, Canada and New Zealand) and two non-mineral-resource countries (USA and UK), I estimate the impulse response functions of the policy interest rates and the core consumer price index (CPI) inflation rates to mineral-commodity price shocks. I find that the central banks in both groups of the examined countries significantly respond to mineral-commodity price shocks. In responses to an unexpected 10% increase in mineral commodity prices, the central banks are estimated to increase their policy interest rates by approximately 0.8 percentage points. Moreover, the central banks seem to take anticipatory policy reactions to control core CPI variations triggered by these shocks. Thus, mineral commodity prices would act as important determinants of the monetary policies in both groups of the examined countries. These findings would be useful for analysing Taylor rules in their countries. However, effects of the increase in their policy interest rates on core CPI inflation cannot be identified for the examined countries.     

Growth in fragile states in Africa: Conflict and post‐conflict capital accumulation

This article analyses the pattern of capital accumulation in Africa and its interaction with political fragility. Political fragility, defined as armed conflict or civil war, retards or reverses gains with respect to capital accumulation, slowing long‐term economic growth. Many countries experience negative rates of capital accumulation, particularly during periods of acute political instability. In post‐war periods, countries generally continue to experience capital destruction, lending support to the “war ruin hypothesis.” This has implications for long‐term economic growth in view of the strong association between capital accumulation and economic performance. The main policy implication of the analysis is that African countries and their international partners should pay more attention to capital accumulation, including capital reconstruction after periods of political instability, to lay the foundations for sustainable economic growth.     

Bankruptcy costs,economic policy uncertainty,and FDI entry and exit

In this paper, we examine how the effect of economic policy uncertainty on foreign direct investment (FDI) entry and exit varies with the cost of bankruptcy resolution. Using a sample of bilateral FDI entry and exit for 23 countries and areas from 2004 to 2012, we find that an increase in bankruptcy costs in a country exacerbates the dampening effect of economic policy uncertainty on both FDI entry and exit. Subsample analysis reveals that the bankruptcy resolution channel only exists in high political risk countries. We also find that the bankruptcy resolution channel does not exist for foreign portfolio investment, which is consistent with real option theory. Broadly put, our contribution is at the nexus of institutional theory and FDI, as we identify the bankruptcy resolution channel through which economic policy uncertainty affects FDI entry and exit.     

对外经济政策的国内政治影响因素——国际政治经济学的视角

作为西方主流经济学的国际经济学,忽视了国内政治因素尤其是政治制度在对外经济政策中的重要作用。国际政治经济学作为一门新兴学科,将政治因素纳入了经济学的分析框架,从政治与经济相互结合的视角探讨影响对外经济政策的因素。在实行代议民主制的国家,作为政治制度主要行为体的利益集团和左右翼政党的政策偏好,以及不同的民主模式,对贸易政策、汇率政策和资本流动政策的选择都具有十分重要的影响。     

Growth volatility and the interaction between economic and political development

Research on the effect of democracy on economic growth has not reached a definitive conclusion. Yet, research on the effect of democracy on economic growth volatility has consistently found that higher levels of democracy reduce volatility. Similarly, research has found that higher levels of economic development retard volatility. Using a novel empirical approach, this article presents evidence of an interactive effect between higher levels of democratization and economic development on growth volatility. Specifically, the marginal effect of political development on volatility is negative until countries reach per capita income levels of about $2,700, depending on the conditioning set. The marginal effect is insignificant for countries with higher levels of income. This implies that at a minimum, nearly 50% of the countries in our sample could enjoy less volatile economies with greater political development.     

The economic consequences of substituting carbon payments for crop subsidies in U.S. agriculture

There is a growing body of literature on the costs of sequestering carbon. However, no studies have examined the interplay between farm commodity programs and carbon sequestration programs. This study investigates two dimensions of the interaction between farm commodity programs and afforestation programs, using a price-endogenous sector model of agriculture in the United States. First, this study compares the fiscal and welfare costs of achieving specific carbon targets through afforestation, with and without current farm programs. Second, it examines the welfare, fiscal, and carbon consequences of replacing existing farm subsidies, wholly or in part, with payments for carbon. Two approaches, Hicksian and Marshallian, are investigated. In the first, the sector model is used to quantify the carbon consequences and fiscal costs associated with various combinations of farm commodity and carbon sequestration programs that leave consumers and producers in the U.S. agricultural sector no worse off than under existing farm programs. The second approach focuses on the carbon and welfare consequences of various farm commodity and carbon sequestration programs that hold total program fiscal costs constant at current levels. Althouth the methodology and data are applied to the United States, the issues addressed are common in a number of developed nations, particularly within the European Union (EU). Adapting existing sector models in these nations to perform similar analyses would provide policy makers with more precise information about the nature of the trade-offs involved with second-best policies for replacing farm commodity subsidies with tree planting subsidies.The research reported in this paper was partially funded by the United States Environmental Protection Agency under contract number 68W90077. It does not reflect the official position of that agency. Mention of trade names does not constitute endorsement.     

Political democratization, economic liberalization, and growth volatility

This study empirically investigates the effects of political and economic liberalization on growth volatility using a difference-in-difference method for a sample of 158 countries over the 1970-2005 period. The results show that, when examined separately, economic liberalization leads to a significant reduction in volatility while democratization is not followed by a decrease in growth volatility. For countries that undertake only one liberalization, opening up the economy to international trade reduces volatility in growth; becoming a democracy, on the other hand, seems to increase macroeconomic instability. For countries that implement both political and economic liberalizations, no statistically significant effect on volatility is detected. These results serve to provide additional support for the policy recommendation that developing countries should liberalize their economy first and then consider political liberalization.     

Optimal taxation, global externalities and labor mobility

This paper concerns transboundary environmental problems in the context of an optimal tax model. We assume that part of the labor force is mobile across countries, and that the set of tax instruments includes a nonlinear income tax and a commodity tax on the ‘dirty’ good that is causing damage to the environment. The purpose is to compare the (globally optimal) second best policy of a cooperative equilibrium with the policy implicit in a noncooperative equilibrium. We show that the commodity taxes differ between equilibria because of: (i) transboundary externalities not internalized by national governments, (ii) interaction effects between environmental and other policies, and (iii) labor mobility.     

宏观经济学中的政治经济学——以新政治经济学的研究方法为视角

新政治经济学以使用经济学现代方法对政治与经济相互作用的研究为核心,成为政治经济学的一个新发展。宏观经济学中的政治经济学作为新政治经济学的一个重要分支,其研究对象是政治对宏观经济运行和政策的影响。宏观经济学中的政治经济学的出现对当代宏观经济理论的影响,则表现在研究形式和研究方法所做的创新。     

我国城乡通货膨胀的趋同演化及影响因素

本文基于一价定律和我国的经济转型背景,针对城乡通胀的数据演化特征,设定内生性结构突变的平滑机制转移模型,以此检验我国城乡通胀的趋同性及其非线性调节特征,揭示我国城乡商品市场分割与整合的演化进程。结果表明:(1)我国城乡通胀差是在1994年发生结构变化的平稳过程,平稳性表明我国城乡通胀具有趋同性,城乡商品市场整体呈现一体化特征。(2)1994年前,我国城乡商品市场分割程度较大,城乡商品流通的非套利区间较宽,城乡通胀差向均衡的回调速度较快;1994年后,城乡商品流通的非套利区间较小,城乡商品市场整合程度进一步深化,城乡通胀差向均衡的回调速度较慢。(3)城乡商品流通的运输成本、信息成本和贸易壁垒等因素较好地解释了1994年后城乡通货膨胀的趋同演化。本文结果说明,城乡二元结构的逐步消除和我国近期所实施的推动城乡经济协调发展的政策,显著促进了城乡经济一体化。     

Another note on deadweight loss

In a recent article, J.A. Kay proposed a useful measure of the deadweight loss arising from a commodity tax system. The measure answers the question: How much more would the taxed consumer be willing to pay in a lump sum rather than as a commodity tax? Kay's computation of the marginal deadweight loss does not yield the change in this measure for small changes in commodity tax rates, however. This note clarifies Kay's otherwise excellent contribution, derives the measure for Cobb–Douglas utilities, and examines a useful property of it.     

Cultural interaction and economic development: An overview

The rising scope and intensity of interaction between culturally polarized populations in a variety of political contexts has led to the emergence of a growing body of research on the reciprocal relationship between cultural interaction and economic development. This paper offers a brief overview of this literature. It first describes the multiple channels through which cultural divisions and economic development interact. Then, motivated by these observations, it presents a theoretical framework that highlights the scope for welfare-improving policy interventions in education, immigration policy and ethnic autonomy; surveys empirical evidence on such policies; and suggests directions for further research.     

Markovian Social Security in Unequal Societies

In this paper, we develop a dynamic political‐economic theory of social security. We analytically characterize a Markov perfect equilibrium and find that the interaction between Markovian tax policy and tax distortion on private investment in human capital shapes an intertemporal policy rule, linking taxes positively over time. By allowing current taxpayers to influence their own future social security benefits, the positive intertemporal tax linkage provides political support for social security. Moreover, this positive tax linkage leads to a negative correlation between wage inequality and the size of a nation's social security system, consistent with the empirical pattern observed across OECD countries.     

International Reserves and Fiscal Policy in Developing Countries

This paper investigates empirically the relationship between the pattern of fiscal policy and the demand for international reserves in developing countries, and how this relationship is associated with political risk and conditional access to global capital markets. It finds evidence that for developing countries with low political risk, countercyclical (procyclical) fiscal policies are associated with higher (lower) international reserve holdings in economic downturns. The relationship is stronger when the countries with low political risk rely heavily on external financing. For developing countries with high political risk, the link between reserves holdings and fiscal policy pattern is not clear-cut.     

Political turnover and the accumulation of democratic capital

Certain democratic institutions tend to persist in some countries whereas they are frequently reversed in others. Focusing on strong constraints on executive power as one such institution, this paper theoretically studies the cross-country differences in the costs of relaxing these constraints. The model features two political parties that stochastically alternate in office according to a political uncertainty parameter. In each period, the incumbent can make reversible investments into the future government's ability to reform executive constraints. The main results indicate that more competitive elections and higher degrees of policy polarization between the political parties lead to high and persistent levels of investment into the society's stock of “democratic capital”. These higher costs of institutional reform in turn result in durable strong executive constraint-regimes.     

Borders and Growth

This paper presents a framework to understand and measure the effects of political borders on economic growth and per capita income levels. In our model, political integration between two countries results in a positive country size effect and a negative effect through reduced openness vis-à-vis the rest of the world. Additional effects stem from possible changes in other growth determinants, besides country size and openness, when countries are merged. We estimate the growth effects that would have resulted from the hypothetical removal of national borders between pairs of adjacent countries under various scenarios. We identify country pairs where political integration would have been mutually beneficial. We find that full political integration would have slightly reduced an average country's growth rate, while most countries would benefit from a more limited form of merger, involving higher economic integration with their neighbors.