IS THERE AN ASYMMETRIC BEHAVIOUR IN AFRICAN INFLATION? A NON‐LINEAR APPROACH

In this paper we test the inflation persistence hypothesis as well as model the long‐run behaviour of inflation rates in a pool of African countries using a non‐linear framework. In order to do so, we rely on unit root tests applied to non‐linear models and fractional integration. The results show that the hypothesis of inflation persistence does not hold empirically for most of the countries. In addition, the estimated models (logistic smooth transition autoregressions) are stable in the sense that the variable tends to remain in the regime (low inflation or high inflation) once reached, and changes between regimes are only achieved after a shock. The results also indicate that the effects of the shocks on inflation tend to die out; exogenous factors, i.e. supply shocks and inertia may be causing this outcome, as they play a substantial role in the determination of the inflation rates for our selected African countries.     

DELAYS IN STABILIZATION OR IN REFORMS? THE DEBT CRISIS

Empirical analyses attributing the 1980s’ debt crisis to inconsistent stabilization policies rest on an inappropriate long‐run approach. Revising this long‐run approach yields opposite results: terms of trade shocks and foreign indebtedness explain this crisis, regardless of domestic stabilization policies. This prompts us to consider a new hypothesis, of delays in trade‐policy reforms, with a model in which terms‐of‐trade variation (under shocks) is endogenous to export structure and efficiency of resource allocation. Evidence from the structural equations model shows that allocation distortions negatively affect changes in terms of trade, which then explain this crisis. A political economy extension demonstrates that income inequality and regional trade policy determine the distortions, which in turn leads to this crisis.     

WHO DEVELOPS INNOVATIONS IN MEDICINE FOR THE POOR? TRENDS IN PATENT APPLICATIONS RELATED TO MEDICINES FOR HIV/AIDS,TUBERCULOSIS, MALARIA,AND NEGLECTED DISEASES

This paper analyzes patent data of medicines and vaccines for diseases spreading in low‐income countries. The data were retrieved from a database of the Japan Patent Office. Who invents medicines for the poor of the world? This is the main question that the paper addresses. Results indicate that not only public institutions but also private firms have played an important role in developing innovations for fighting both global diseases such as HIV/AIDS and tuberculosis, and so‐called neglected diseases including malaria, which seem to spread almost exclusively in low‐income countries. Moreover, the basic mechanism of innovation is similar between the development of medicines for HIV/AIDS and those for neglected diseases. Finally, among firms, infectious disease fighting innovations are quite diverse. R&D stock and economies of scope are used to explain frequent patent applications by a high‐performing pharmaceutical firm.     

AN INDUSTRIOUS REVOLUTION IN AN EAST ASIAN MARKET ECONOMY? TOKUGAWA JAPAN AND IMPLICATIONS FOR THE GREAT DIVERGENCE

This paper addresses a question raised by Jan de Vries' on the relationship between industriousness and the rise of the market in East Asia. Was the growing industriousness in Tokugawa Japan, as de Vries suggests, a substitute ‘for the absence of markets’? The examination refers to two versions of Chayanov's peasant farm model and their empirical relevance to the Tokugawa agrarian history, with special reference to the formation of labour‐intensive peasant farming (Akira Hayami's version of an industrious revolution), product specialisation, and the markets for production factors, land, and labour. Its implications for the Great Divergence debate are also discussed.     

THE EMPLOYER SIZE-WAGE EFFECT: CAN DYNAMIC MONOPSONY PROVIDE AN EXPLANATION?

In this paper we argue that a dynamic monopsony model (basedon labour market frictions) predicts a positive relationshipbetween wages and employer size, but also that the effect willbe larger in the non-union sector than in the union sector,and larger for women than for men. We examine evidence on theemployer size-wage effect using several microeconomic data sources,and find it to be generally consistent with these predictions.After examining other theoretical explanations, our conclusionis that at least part of the employer size-wage effect is aresult of monopsony power in the labour market.     

IS EAST ASIA FIT FOR AN OPTIMUM CURRENCY AREA? AN ASSESSMENT OF THE ECONOMIC FEASIBILITY OF A HIGHER DEGREE OF MONETARY COOPERATION IN EAST ASIA

This paper attempts to make a contribution to the recent search for a suitable assessment of the economic feasibility of a higher degree of monetary cooperation in East Asia. By using a structural vector autoregression approach as well as a generalized purchasing power parity approach, we find that a larger group of appropriately selected East Asian economies does satisfy the macroeconomic conditions for forming an Optimum Currency Area (OCA). The East Asian group consists of four ASEAN countries (Indonesia, Malaysia, Singapore, and Thailand) and four Northeast Asian economies (Hong Kong SAR, Japan, Republic of Korea, and Taiwan). This finding presents a striking contrast to the existing research results whose policy recommendation has generally been that countries in East Asia should start with a smaller subgroup currency area. It is time that many East Asian economies as a region made a serious effort to pursue a higher degree of monetary cooperation among themselves for forming an OCA.     

CAN A RULE‐BASED MONETARY POLICY FRAMEWORK WORK IN A DEVELOPING COUNTRY? THE CASE OF YEMEN

Monetary policy in Yemen is largely rudimentary and ad hoc in nature. The Central Bank of Yemen's (CBY) approach has been based on discretionary targeting of broad money without any clear target to anchor inflation expectations. This paper argues in favor of a new formal monetary policy framework for Yemen emphasizing a proactive and rule‐based approach with a greater direct focus on price stability in the context of a flexible management of the exchange rate. Although, as in many developing countries, institutional capacity is a concern, adopting a more formal framework could impel the kind of changes that are required to strengthen the ability of the CBY in achieving low and stable rates of inflation over the medium term.     

WHY IS THE TAKE-UP OF MICROINSURANCE SO LOW? EVIDENCE FROM A HEALTH INSURANCE SCHEME IN INDIA

Insurance for the poor, called microinsurance, has recently drawn the attention of practitioners in developing countries. There are common problems among the various schemes: (1) low take-up rates, (2) high claim rates, and (3) low renewal rates. In the present paper, we investigate take-up decisions using household data collected in Karnataka, India, focusing on prospect theory, hyperbolic preference, and adverse selection. Prospect theory presumes that people behave in a risk-averse way when evaluating gains but in a risk-loving way when evaluating losses. Because insurance covers losses, the risk-loving attitude toward losses might explain the low take-up rates, and we find weak empirical support for this. Households with hyperbolic preference were more likely to purchase insurance, consistent with our theoretical prediction of demand for commitment. We also find some evidence on the existence of adverse selection: households with a higher ratio of sick members were more likely to purchase insurance.     

HONG KONG'S INFLATION AND DEFLATION UNDER THE US DOLLAR PEG: THE BALASSA-SAMUELSON EFFECT OR EXPORT PRICE SHOCKS?

Hong Kong's US dollar peg, adopted in 1983, has failed to deliver price stability. Hong Kong experienced high inflation before the Asian financial crisis and prolonged deflation after it. The annual rate of inflation (GDP-deflator based) was 7.4% in the first period (1985–97) and −2.0% in the second (1998–2007). There was no clear trend for the inflation rate to converge to the US level. The nominal anchor via a fixed exchange rate in Hong Kong had an upward and downward drift in the order of 4% from the US inflation rate, casting doubt on the anchor's efficacy. Despite Hong Kong's high output growth relative to that of the United States, the Balassa-Samuelson effect was not the main factor behind the pre-Asian crisis inflation. Price shocks in service exports played a major role in Hong Kong's general prices through the two periods.     

IS A GOVERNMENTAL MICRO‐CREDIT PROGRAM FOR THE POOR REALLY PRO‐POOR? EVIDENCE FROM VIETNAM

It is argued that without collateral the poor often face binding borrowing constraints in the formal credit market. This justifies a micro‐credit program, which is operated by the Vietnam Bank for Social Policies to provide the poor with preferential credit. The present paper examines poverty targeting and the impact of the micro‐credit program. It is found that the program is not very pro‐poor in terms of targeting. The nonpoor account for a larger proportion of the participants. The nonpoor also tend to receive larger amounts of credit compared to the poor. However, the program has reduced the poverty rate of the participants. The positive impact is found for all three Foster‐Greer‐Thorbecke poverty measures.     

WILL THE MARKET KEEP BRAZIL LIT UP? OWNERSHIP AND MARKET STRUCTURAL CHANGES IN THE ELECTRIC POWER SECTOR

After achieving significant success until the 1970s, the Brazilian electric power sector stalled due to financial problems. The government promoted a shift toward a private ownership model and tried to entrust the market with creating a stable and efficient energy supply. However, the energy crisis highlighted the difficulties in this transition. This paper points out that the uncertainty inherent in the market‐based model increased information rent for the private companies and complicated the post‐privatization expansion scenario. Privatization driven by macroeconomic problems should be carefully reexamined, especially for public utilities with strong natural monopoly characteristics, since markets tend to fail to supply the socially optimal supply, thus directly affecting people's lives.     

SHOULD THE SOUTHEAST ASIAN COUNTRIES FORM A CURRENCY UNION?

This paper examines some of the factors related to the formation of a currency union in Southeast Asia. The main part of the paper presents the results of our examination of the correlation of shocks for the Southeast Asian countries using a structural vector autoregression. The shocks are identified using restrictions on the long‐run coefficient matrix as suggested by Blanchard and Quah (1989). The correlations of shocks for the EU and NAFTA countries are used for comparison. The Southeast Asian countries are shown to have more strongly correlated shocks than the EU countries. Compared with the NAFTA countries, external shocks are more closely correlated for the ASEAN countries, but the supply and demand shocks are less correlated. Indonesia, Singapore, and Malaysia, in particular, exhibit a high degree of correlation of shocks. Other criteria for monetary union, such as intra‐regional trade, openness of the economy, and similarity of monetary policy are also examined.     

THE CLUSTERING OF IPO SPREADS IN KOREAN IPO MARKET: COMPETITION OR COLLUSION?

This paper examines whether the clustering of initial public offering (IPO) spreads in the IPO market occurs through competition or collusion, using the period from January 2000 to July 2006 as the analytical range. It finds that the Korean IPO market spread is clustered at 3.5% on moderately sized IPOs (i.e., IPOs between 9 (KRW billion) and 33 (KRW billion)), representing a 74% overall rate that increases gradually over time. Our empirical results refute the collusion theory. The Korean IPO market is characterised by low concentration. A 3.5% spread does not represent abnormal profits relative to other IPOs. Cost saving (i.e. an inverse U shape) is confirmed by the use of 3.5% offers. Our results also show that factors typically related to underwriters and issuers – such as proceeds, secondary sales, earnings and reputation – affect the 3.5% spread used both positively and negatively. Thus, consistent with the efficient contract theory, the use of a 3.5% contract becomes less likely as proceeds increase but becomes more likely for IPOs of over 35 (KRW billion). On the one hand, the use of a 3.5% contract becomes more likely the more insider shares an IPO contains and the higher the volatility of the stock return (an insignificant factor). On the other hand, the use of a 3.5% contract becomes less likely the higher the earnings and debt (insignificant factors) and the more reputable the underwriter. Underpricing in 3.5% IPOs is conditioned by proceeds and secondary sales, not reputation and IPO market concentration. Thus, we conclude – against the cartel theory – that there is no collusive conspiracy in the Korean IPO market and that underwriters do not reap excess profits from 3.5% IPOs.     

WHEN DO VERTICAL RESTRAINTS HARM COMPETITION? THE ECONOMICS‐BASED APPROACH AND ITS APPLICATION IN THE BATSA CASE

An “effects‐based” or “economics‐based” approach to competition policy requires a theory of harm that causally links a business practice and its allegedly anti‐competitive effects and also weighs anti competitive effects against the pro‐competitive effects of the practice. This implies a shift away from per se prohibitions of certain practices towards case‐by‐case analysis – a move that has been hotly debated, especially in Europe. Using a case study of the recently concluded British American Tobacco case, we study the core features of an effects‐based approach to vertical restraints. We find the approach followed in the British American Tobacco South Africa case generally consistent with an effects‐based analysis, but highlight some limitations.     

THE ORDINAL AND CARDINAL JUDGMENT OF SOCIAL WELFARE CHANGES IN SINGAPORE, 1982?99

This paper analyzes the changes in social welfare in Singapore using both cardinal and ordinal measures. Labour Force Survey data published by the Manpower Research and Statistics, Department of the Ministry of Manpower, Singapore are used. It is observed with the use of Lorenz dominance technique that social welfare in Singapore during 1999 is less than in 1991 while an unambiguous conclusion cannot be made on the welfare ranking of 1982 and 1991 or of 1982 and 1999. According to the generalized Lorenz dominance, 1999 ranks first; however, this criterion is also unable to make any unambiguous ranking between 1982 and 1991. The ranking based on Sen social welfare function shows a continuous increase in the social welfare in Singapore. But when a more general social welfare function is used a different ordering might occur.