The death of development theory: From Friedrich von Hayek to the Washington consensus

Abstract

Development strategies followed by many countries in the 20th century bestowed a relevant role to the State. During the 1970s, it all reversed, and free markets became paramount to efficiency. F. von Hayek and the Mount Pelerin Society led the way to eliminate the State as a significant economic player, while P.T. Bauer extended such ideas to development economics, which would eventually give way to the Washington Consensus. Beyond actual results of such policies, it is surprising to see the appeal of Bauer’s theoretical approach, considering that it is constructed disregarding both empirical evidence, as well as the abundant discussion on development that was taking place contemporarily. This article explores the theoretical process of such reversal in development economics theory.     

Markups and income inequality: Causal links, 1975-2011

Using data for 20 countries during 1975–2011, this study provides new evidence on the association between the lack of competition, measured by an increase in markups, and income inequality. We find that an increase in markups is positively associated with rising income inequality. More interestingly, not only do extra profits from higher markups accrue to the top-income group, but also, within the top-income group (top 10%), the higher top-income earners (top 1%) tend to benefit disproportionately more than the lower top-income earners (top 5% or 10%). Finally, we highlight the role of labor market policies; the positive relationship between markups and income inequality is less pronounced in countries with better labor protection such as the statutory protection and power of labor unions, generous unemployment benefits, and mandatory minimum wages.     

The effects of works councils on overtime hours

This study analyzes the relation between works councils and overtime hours in Germany. The estimated effects differ considerably in dependence of standard contracted working time. Furthermore, we find differences across the quantiles of the overtime hours distribution and these differences between quantiles also vary between employees of establishment with and without works councils. By considering contracted working time effects and comparing conditional quantiles we find in some quantiles that employees of establishments with a works council have a higher amount of overtime hours if an employee regularly works 35 hours per week. This effect diminishes with increasing quantiles of the distribution of overtime hours. If an employee of a codetermined establishment regularly works 40 hours per week, overtime hours are reduced. This reduction becomes larger if higher quantiles are analyzed.     

Causal Links Between Financial Activity and Economic Growth: Empirical Evidence from a Cross–Country Analysis, 1970–1990

To clarify the causal links between financial activity and economic growth, a series of path models is estimated. It is shown that during the 1970s and 1980s finance was predominantly a supply–leading determinant of economic growth. The data suggest, however, that there has been a structural change and that from about 1975–80, finance was far less beneficial – and possibly even detrimental – to growth.     

Convergence and divergence in Latin America, 1970-1998

This paper examines the process of convergence in Latin America over the period 1970–1998. There has been relatively little work on income convergence among developing countries in general and in Latin America in particular, even though many studies have examined convergence both within and among developed countries. There is little support for the convergence hypothesis over the sample period as a whole - although the beta coefficient is positive, it is insignificant. Convergence is strong in the 1970s but by the 1990s it has disappeared. There is no evidence of a narrowing in the cross-country dispersion of income (sigma convergence) for the sample period as a whole. The results offer little support for the neo-classical growth model - poorer countries have not grown faster than richer ones. There is a strong case for strengthening regional development policy.     

Global influences on UK manufacturing prices: 1970-2000

We introduce the first consistent series of domestic-product and related import price indices at the industry level for the UK, using the data to analyse both domestic and international determinants of UK manufactured product prices. Foreign influences on UK prices in domestic markets are always present, but domestic cost movements dominate. We show that the pass-through of world-price, tariff and exchange rate changes into product prices is partial in general and varies markedly between product categories. Standard tariff and exchange rate theories overstate price responses to global pricing determinants and fail to allow for variation between industrial sectors. Such theories can mislead when used for policy analysis and prediction.     

社会医疗保障改革的福利效应:以中国城镇为例

This paper evaluates Chinese public health insurance reform enforced since 1998 in terms of its welfare effects. We evaluate China health insurance reform since 1998 using the China Health and Nutrition Surveys (CHNS) data with relevant econometric models. The results of empirical studies show that the public health insurance status has significant impact on medical service utilization and expenditure. The reform reduces the positive effect of public health insurance on medical service utilization, meaning the utilization gap is narrowed after the reform. However, the empirical studies find that the medical expenditure growth of the sample individuals in urban China has not been controlled after the Basic Medical Insurance (BMI) program even if a new co-payment is enforced. Two main reasons for this failure might be the rising cost of medical service and physician’s severe moral hazard, while both of them come from no managed care mechanism for medical service providers in China.      

Institutional Inequality in the Publishing of Economics Papers, 1970-74

Both because of the importance of “getting published” and the difficulty of having one's work accepted by a professional journal, nearly every college teacher of economics should find this article to be of interest. Siegfried and Zak have analyzed the contributions to five leading journals in terms of the institutional affiliations of the authors, noting that “dramatic shifts in contributions among universities have occurred between the 1960s and the first half of the 1970s.” Some possible reasons for the change in the distribution of contributors are set forth. Detailed data are presented in six tables.     

School finance reform: Assessing general equilibrium effects

In 1994 the state of Michigan implemented one of the most comprehensive school finance reforms undertaken to date in any of the states. Understanding the effects of the reform is thus of value in informing other potential reform initiatives. In addition, the reform and associated changes in the economic environment provide an opportunity to assess whether a simple general equilibrium model can be of value in framing the study of such reform initiatives. In this paper, we present and use such a model to derive predictions about the effects of the reform on housing prices and neighborhood demographic compositions. Broadly, our analysis implies that the effects of the reform and changes in the economic environment are likely to have been reflected primarily in housing prices and only modestly on neighborhood demographics. We find that evidence for the Detroit metropolitan area from the decade encompassing the reform is largely consistent with the predictions of the model.     

A parametric investigation of mortality transition in India: 1970-89

"This paper attempts to analyze mortality transition in India during [the] 1970s and 1980s through the modelling of the age pattern of mortality by applying the Heligman-Pollard model mortality schedule. The analysis reveals that mortality transition in India has not been uniform in all the age [or sex] groups....Middle-life mortality has been found to be more or less unchanged during the period under reference. Implications of the age pattern of mortality transition [on] health policy [are also] discussed."     

The long-term effects of job search requirements: Evidence from the UK JSA reform

This paper investigates long-term returns from unemployment compensation, exploiting variation from the UK JSA reform of 1996, which implied a major increase in job search requirements for eligibility and in the related administrative hurdle. Search theory predicts that such changes should raise the proportion of nonclaimant nonemployed, with consequences on search effort and labor market attachment, and lower the reservation wage of the unemployed, with negative effects on post-unemployment wages. I test these ideas on longitudinal data from social security records (LLMDB). Using a difference in differences approach, I find that individuals who start an unemployment spell soon after JSA introduction, as opposed to 6 months earlier, are 2.5–3% more likely to move from unemployment into Incapacity Benefits spells, and 4–5% less likely to have positive earnings in the following year. This latter employment effect only vanishes 4 years after the initial unemployment shock. Also, annual earnings for the treated individuals are lower than for the non-treated. These results suggest that while tighter search requirements were successful in moving individuals off unemployment benefits, they were not successful in moving them onto stable or better jobs, with fairly long-lasting unintended consequences on a number of labor market outcomes.     

中国城镇养老保险制度改革的收入分配效应——基于2002年城镇住户调查数据的定量分析

Using the micro data of Urban Household Survey made by the National Bureau of Statistics of China(NBS) in 2002, this paper studies quantitatively the distributional effects of Public Pension Reform in urban China, from intragenerational and intergenerational perspectives, by measuring lifetime net benefits that urban employees obtain under the public pension system in 1997 and the newest one announced in December 2005, respectively. The results indicate that the regressive income transfer existing before implementation of the reform is improved as a consequence of the 1997 reform. However, the Act of 2005 Reform generates the obvious inclination of the regressive income transfer among people who exceed 40 years old in 2002. On the other hand, from the viewpoint of intergenerational distribution, the intergenerational inequality resulted from 1997 reform is greater than that from 2005 reform. Moreover, all generations would receive higher lifetime net benefits under the Act of 2005 Reform, but it must be based on sustainable pension system and participants’ full pension contribution during their duration of employment. __________ Translated from Jingji yanjiu 经济研究(Economic Research Journal), 2007, (3): 70–80, 91     

Money, Credit and Spending: Drawing Causal Inferences

It is widely accepted that loans cause deposits. Hitherto, though, the empirical evidence has come from bivariate causality tests which we now know can give rise to invalid inference if either of the two variables is causally influenced by some third, omitted, variable. In this paper we have used tests developed by Toda and Yamamoto to investigate the possibility that earlier inferences were incorrect because of the omission of a third relevant variable, total transactions in this particular case. Including the third variable requires us to revise some of the earlier inferences reported here, Howells and Hussein (1998). The most striking result, however, is that while deposits appear to be caused by total transactions (which could have invalidated the fundamental inference that loans cause deposits) our tests show that even in the presence of a third variable, the core of the endogeneity thesis prevails. Loans do cause deposits.