Budgetary Consolidation in Europe: Quality, Economic Conditions, and Persistence

In this article we study the importance of the quality of fiscal adjustments and macroeconomic conditions for the persistence of budgetary consolidations. In contrast to previous work in this area, we do not arbitrarily predefine a measure of persistence to evaluate consolidation “success.” By employing duration analysis techniques, the length of a consolidation spell is rather determined endogenously. Our results based on a sample of industrialised OECD countries show that “consolidation fatigue” and the quality of fiscal consolidations are indeed important determinants of their longevity. Moreover, high debt–GDP ratio and fiscal tightening in other OECD countries raise the likelihood of consolidations to persist. Applying our results to European countries in the 1990s provides only weak evidence suggesting that the Maastricht process contributed much to the fiscal consolidations observed in Europe during the 1990s. J. Japan. Int. Econ., December 2002, 16(4), pp. 512–535. ZEI, University of Bonn, Bonn, Germany, Indiana University, Bloomington, Indiana; and CEPR; Strathclyde University, Glasgow, Scotland; and CEPR; and ECB, Kaiserstrasse 29, D-60311 Frankfurt a.M., Germany; and ZEI. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: E61, E62, E65.     

Business Cycles in Developing Countries: Are They Different?

This paper demonstrates that developing countries differ considerably from their developed counterparts when focus is on the nature and characteristics of short-run macroeconomic fluctuations. Cycles are generally shorter, and the stylized facts of business cycles across countries are more diverse than those of the rather uniform industrialized countries. Supply-side models are generally superior in explaining changes in output, but a “one-size fits all” approach in formulating policy is inappropriate. Our results also illustrate the critical importance of understanding business regularities as a stepping-stone in the process of designing appropriate stabilization policy and macroeconomic management in developing countries.     

Pay differences between teachers and other occupations: Some empirical evidence from Bangladesh

This paper addresses a popular debate on teacher pay in a developing country context, namely whether teachers are under-paid or over-paid. Using national level household survey data from Bangladesh, we find that teachers are significantly under-paid in comparison to non-teachers who possess similar human capital and other observed characteristics. A decomposition exercise of the teacher non-teacher wage gap reveals that the teacher non-teacher salary difference is driven mostly by differential returns to observed characteristics. Our results suggest that there is some equity justification for allowing an “across-the-board” increase in teacher pay particularly for female, rural and aided school teachers in Bangladesh.     

Life cycle and bequest savings A study of Japanese and U.S. households based on data from the 1984 NSFIE and the 1983 survey of consumer finances

This paper investigates whether the elderly save or dissave in light of two newly available sets of cross-section micro data, the 1983 “Survey of Consumer Finance” for the United States and the 1984 “National Survey of Family Income and Expenditure” for Japan. Contrary to dominant earlier findings we find for the United States that families after retirement dissave on average about a third of their peak wealth by the time of death, leaving the rest (mostly their homes) as bequests. For Japan, special handling is made to eliminate possible sample selection bias due to the different economic characteristics of the elderly forming independent households and those living with children. We find that the elderly belonging to both groups continue to save, and moreover, there appear to be significant signs of ongoing wealth transfer between the generations. The data in both countries also show that the elasticity of saving with respect to a life time income measure is significantly greater than unity, and more strongly so within higher age groups. J. Japan. Int. Econ., December 1988, 2(4), pp. 450–491. Department of Economics, University of Pennsylvania, Philadelphia, PA 19104-6297, and National Bureau of Economic Research.     

Selection and Reporting Bias in Household Surveys of Child Labor: Evidence from Tanzania

Abstract: Studies of child labor in developing countries have largely relied on data collected through national household surveys. But government‐sponsored household surveys are arguably prone to both sample selection bias and reporting bias. In this paper, we compare the demographic and labor market characteristics of working street children obtained from the 2000 Tanzanian Integrated Labor Force Survey, a government‐sponsored household survey, with the results obtained in a 2004 survey of working street children in the city of Mwanza in northern Tanzania. Our comparisons help illumine the potential biases introduced when child labor studies rely on household samples; specifically, we show that children in the non‐household based survey work longer hours, have lower educational attainment and suffer worse health outcomes than their counterparts in the government‐sponsored household survey. This suggests that studies based on national household surveys may significantly underestimate both the extent and the consequences of child labor.     

From Linear Fuel Switching to Multiple Cooking Strategies: A Critique and Alternative to the Energy Ladder Model

Promoting sustainable development requires evaluating the technical and policy options that will facilitate the adoption and use of energy efficient and less polluting cooking stoves and practices. The transition from traditional to modern fuels and devices has been explained by the “energy ladder” model that suggests that with increasing affluence, a progression is expected from traditional biomass fuels to more advanced and less polluting fuels. In this paper we evaluate the energy ladder model utilizing data from a four-year (1992–96) case study of a village in Mexico and from a large-scale survey from four states of Mexico. We show that an alternate “multiple fuel” model of stove and fuel management based on the observed pattern of household accumulation of energy options, rather than the simple progression depicted in the traditional energy ladder scenario, more accurately depicts cooking fuel use patterns in rural households. The “multiple fuel” model integrates four factors demonstrated to be essential in household decision making under conditions of resource scarcity or uncertainty: (a) economics of fuel and stove type and access conditions to fuels, (b) technical characteristics of cookstoves and cooking practices; (c) cultural preferences; and (d) health impacts. This model also allows better estimates of the expected fuelwood demand and indoor air pollution in rural households.     

The Influence of Demographics and Household-Specific Price Indices on Consumption-Based Inequality and Welfare: A Comparison of Spain and the United States

Previous research has suggested that inequality is lower in Spain than in the United States when it is based on income. For the present article, both inequality and social welfare are examined, with household consumption expenditures used as a proxy for household welfare. For tractability, equivalence scales depended only on the number of people in the household. Household-specific price indices were used to express the 1990-1991 expenditure distributions in 1981 and 1991 winter prices. Our results reveal that inequality and welfare comparisons are drastically different for smaller and larger households. When all households are considered, the two-country comparison suggests that the income inequality ranking can only be maintained for expenditure distributions when economies of scale are small or nonexistent. However, welfare is always higher in the United States than in Spain. Because inflation during the 1980s in both countries was essentially distributionally neutral, all results appear to be robust to the choice of time period.     

Global Retail Chains and Poor Farmers: Evidence from Madagascar

Global retail companies (“supermarkets”) have an increasing influence on developing countries, through foreign investments and/or through the imposition of their private standards. The impact on developing countries and poverty is often assessed as negative. In this paper we show the opposite, based on an analysis of primary data collected to measure the impact of supermarkets on small contract farmers in Madagascar, one of the poorest countries in the world. Almost 10,000 farmers in the Highlands of Madagascar produce vegetables for supermarkets in Europe. In this global supply chain, small farmers’ micro-contracts are combined with intensive farm assistance and supervision programs to fulfill complex quality requirements and phyto-sanitary standards of supermarkets. Small farmers that participate in these contracts have higher welfare, more income stability and shorter lean periods. We also find significant effects on improved technology adoption, better resource management and spillovers on the productivity of the staple crop rice. The small but emerging modern retail sector in Madagascar does not (yet) deliver these benefits as they do not (yet) request the same high standards for their supplies.     

The Increasing Selectivity of Foreign Aid, 1984–2003

The Monterrey Consensus includes the idea that foreign aid is more effective when targeted to countries with sound institutions. We examine the extent to which foreign aid, bilateral and multilateral, is “selective” in terms of democracy and property rights/rule of law. We find that multilateral assistance is more selective than bilateral aid in targeting countries with good rule of law. “Selectivity” is a new phenomenon. During 1984–89, both bilateral and multilateral aid had significant negative relationships with rule of law; by 2000–03 this had shifted to a significant positive relationship for multilateral aid, and a positive but statistically insignificant relationship for bilateral aid.     

Are Environmental Social Movements Socially Exclusive? An Historical Study from Thailand

Environmental social movements in developing countries are often portrayed as democratizing but may contain important social divisions. This paper presents a new methodology to analyze the social composition and underlying political messages of movements. Nearly 5 000 newspaper reports during 1968–2000 in Thailand are analyzed to indicate the participation of middle and lower classes, and their association with “green” (conservationist) and “red-green” (livelihoods-oriented) environmental values. Results show middle-class “green” activism has dominated forests activism, but lower-class “red-green” activism has grown for forests and pollution. Newspapers, however, portray all environmentalism as “democratization,” suggesting that the possible exclusiveness of some environmental norms is unacknowledged.     

IMF conditionality: Conceptual problems and policy alternatives

This paper argues that the main issue damaging relations between developing countries and the International Monetary Fund is the latter's position that external disequilibria are always a consequence of excess aggregate domestic demand, caused by excessive credit expansion. As a result, Fund sponsored stabilization programs center on demand contraction through a credit crunch and may establish stricter domestic performance criteria than necessary to attain the balance-of-payments objectives. The author suggests that the IMF establish a two-tier conditionality system, which he calls the “hands-off” approach, with one tier composed exclusively of balance-of-payments or foreign exchange denominated variables, and the other of domestic currency denominated variables. The two-tier system would allow more flexibility in compliance assessment and might reduce substantially the number of breakdowns of Fund programs.A revised “hands-on” approach for the Fund is also suggested. The author critiques the recessive biases of the currently used financial analytical exercises and makes specific proposals to introduce “growth exercises” to establish the foreign credit requirements of a growth-oriented stabilization program and thus to introduce performance criteria for creditor countries and banks — a form of “reciprocal conditionality.”     

Do Supermarkets Change the Food Policy Agenda?

Policy makers want supermarkets to serve the interests of important groups in society, especially small farmers and the owners of traditional, small-scale food wholesale and retail facilities. But consumer issues are also important, including “internalizing” the full environmental costs of production and marketing, and helping supermarkets be part of the solution to the health problems generated by an “affluent” diet and lifestyle. This paper places the supermarket debate in the broader evolution of food policy analysis, a framework for integrating household, market, macro, and trade issues as they affect hunger and poverty. Increasingly, supermarkets provide the institutional linkages across these issues.     

The relation between real cash balances and physical inputs in South Korea's manufacturing sector

This study investigates the role of real cash balances and primary inputs in the production process of an average firm in a newly industrializing country, South Korea, for 1968–1983. It is hypothesized that real balances and capital in the modern sector of industrializing countries are substitutes akin to those of the developed countries; whereas in the traditional sector the two inputs are complements similar to those of the less developed countries. Using the translog cost function approach the hypothesis is verified for South Korea. The results also shed some light on the “Korean miracle” of growth along with implications for income redistribution.     

Toward a global effort to protect the earth's biological diversity

The preservation of biological diversity is discussed from a global perspective, with a focus on tropical deforestation. Economic issues in tropical deforestation, market failure, and the costs and benefits of preserving biological diversity are surveyed. It is found using a straightforward economic model based on the cost-benefit criterion that industrialized countries can realize “gains-from-trade” by financing preservation of biological diversity in tropical developing countries. This provides a strictly economic rationale for the introduction of an international system to transfer funds for the protection of biological diversity in developing countries.     

The Washington Consensus: A post-mortem

After guiding development policies for nearly 20 years, the “Washington Consensus” lies in shambles. Although selected components remain relevant for development policies around the world, some specifics of the broader policy “package” and, more generally, the concept of a standardized package of policies applicable to all developing countries has clearly been discredited.Criticism has been directed at the assumed link from economic liberalization of international trade and financial flows to more rapid economic growth. Apart from a handful of developing countries, admittedly including some large and important ones, most of the world saw little of the promised economic benefit from widespread and on-going trade and financial liberalization, initially. Many countries actually regressed, when evaluated against broader socio-economic development goals, including income inequality. We conclude that differences in initial conditions (history, culture, geography and levels of industrial and institutional development) preclude any single development policy package from being universally effective.     

Arresting the Killer in the Kitchen: The Promises and Pitfalls of Commercializing Improved Cookstoves

In a shift exemplary of neoliberal approaches to development, major funders of household energy interventions have begun to emphasize market-based stove dissemination over partially subsidized models. Stove promoters are increasingly expected to operate as self-sustaining businesses. This shift is viewed as a way to “scale-up” in order to reach millions of poor households lacking access to clean cooking technologies. Using the case of GIRA, an NGO that has successfully distributed cookstoves in Mexico’s Central Highlands for nearly two decades, we demonstrate how this trend presents challenges for organizations operating effectively with outside funding in highly contextual local conditions.     

Patterns of industrialization and the flying geese model: the case of electronics in East Asia

We use the “flying geese” framework to study the change in the geography of comparative advantages in the electronics sector in East Asia, China and the USA. Doubts have been raised about the capacity of the “flying geese” model to interpret the most recent phases of Asian development, in particular as far as progress in the electronics sector is concerned. This paper takes issue against these negative conclusions on both theoretical and empirical grounds. On the theoretical side, the paper takes up the formulation proposed by Kaname Akamatsu, arguing that some of the critical observations raised against the model look to a distorted and simplified version of Akamatsu's original theory. Analyzing the behavior of the “revealed comparative advantage index” per products and area, it is concluded that the “flying geese model” is compatible with manifold industrial development models, increasing interdependence in an integrated area which crucially also includes the US, and that asymmetries and hierarchical order persist across the countries.     

What role for IMF surveillance?

This paper reviews two recent reports on the international monetary system, one by the Group of 10 (industrial countries) and the other by the Group of 24 (developing countries). It contrasts their recommendations for improving policy surveillance by the International Monetary Fund. Its own recommendations include the strengthening of “enhanced surveillance” to make it more formal without making it more onerous, the introduction of “shadow conditionality” to give guidance to governments about their eligibility to draw on the Fund, and the further development of multilateral surveillance along lines proposed at the Tokyo Summit. It would broaden that process, however, by shifting the focus from policy compatibility, defined with reference to exchange-rate behavior, to policy quality, defined with reference to the behavior of global aggregates such as the growth rate of world trade. The paper examines the use of target zones to manage exchange rates and argues that it would not weaken the case for multilateral surveillance, which is needed not only in setting the zones but also to make sure that policies adopted by participating countries do not impart an inflationary or deflationary bias to the international economy.     

China trade: Busting gravity's bounds

Since China's accession to the World Trade Organization in 2001, annual growth rates of its imports and exports have increased, and raised tensions between China and some of its major trading partners. Using a gravity model of trade, we find that China's orientation toward foreign trade is much greater than expected for an economy of its size and level of development. Our analysis shows that China's excessive orientation toward foreign trade (“over-trading”) varies substantially across countries and we consider various explanations for the over-trading. A comparison of China's export boom with the earlier export booms of more market-based East and Southeast Asian economies shows that China's export boom has exceeded earlier booms in magnitude but not in duration. We conclude with a discussion of the likely scale of future export and import flows from and to China.