Financial liberalisation and economic growth in Nigeria: an ARDL-bounds testing approach

Employing the Autoregressive Distributed Lag (ARDL)-Bounds testing approach, and using GDP – excluding the contributions from oil and gas, as well as the financial services sector – as the growth indicator between 1969 and 2008, the paper establishes a long-run relationship between economic growth and financial liberalisation, which is represented by an index. This index is calculated by using Principal Component Analysis (PCA). The paper finds that financial liberalisation policies have a positive and significant effect on economic growth in Nigeria – both in the short run and in the long run. The study, therefore, recommends that appropriate financial liberalisation policies should be pursued in Nigeria, in order to foster economic growth. However, considering the fact that financial markets are prone to market failures, the study cautions against adopting a laissez-faire approach to financial reforms.     

Trade liberalisation,market competition and wage inequality in China's manufacturing sector

Economic reforms of the late 1980s have contributed to rapid economic growth in China. While the overall standard of living has improved, economic growth has also resulted in an increase in income inequality. Rising income inequality can increase social tensions that can impede further economic growth. By making use of firm level panel data, this paper focuses on the impact of increased market competition and trade liberalisation on skilled–unskilled wage inequality in China's manufacturing sector. A theoretical model is used to argue that trade liberalisation and market competition can affect skilled–unskilled wage inequality. Based on this result, an econometric model is specified. The empirical analysis presented in this paper shows that increased trade liberalisation has contributed to an increase in skilled–unskilled wage inequality in China's manufacturing sector. However, increase in market competition has the opposite effect.     

Is Trade Liberalisation Pro-Poor in Pakistan? Evidence from Large-Scale Manufacturing

This article aims to analyse the impact of industry-level trade liberalisation (measured through industry-specific tariff rates) on poverty in Pakistan. Combining data for tariff rates with the Labour Force Survey of Pakistan, we use quantile regression analysis to estimate the impact of changes in tariff rates on workers’ wages (associated with the manufacturing sector of Pakistan) that are at different points of the income distribution. Our findings meaningfully signal that trade liberalisation helps to reduce poverty in the economy. Based on these results, this study provides policy recommendations to reap maximum benefits from trade liberalisation.     

Impact of trade liberalisation on labour market and poverty in Sri Lanka. An integrated macro-micro modelling approach

This paper revisits the long standing controversy of trade and poverty linkage using a macro-micro modelling approach based on general equilibrium and microsimulation analytical frameworks. Sri Lanka, the first country in South Asia which undertook trade reforms more than three decades ago, is taken as a case in point in this study. The paper analyses the effects of trade liberalisation on income distribution and poverty in the urban, rural and estate sectors in Sri Lanka using the first ever microsimulation model built for the country in combination with a multi-household computable general equilibrium (CGE) model. The results reveal that without any fiscal policy adjustments a 100% tariff cut would lead to an increase in economic growth and a reduction in poverty incidence both in the short run as well as in the long run. However, when the tariff cut combined with the fiscal policy adjustments to maintain the budget neutrality, poverty outcomes showed mixed results. In contrast, results show that trade liberalisation increases the income inequality in Sri Lanka.     

Trade Liberalisation in Developing Economies: Modest Benefits but Problems with Productivity Growth, Macro Prices, and Income Distribution

Microeconomically, the case for liberalisation is dubious under increasing returns to scale and when firms can invest directly in productivity enhancement. Distributional effects of commercial policy changes can be regressive and large, but the 'rents' they generate can serve as a basis for effective policy intervention contingent on firms' performance. Macroeconomically, the case of liberalisation rests on Say's Law, which is not always enforced. Recent combined current and capital market liberalisations have been associated with strong exchange rates and high interest rates and output and productivity growth have positive mutual feedbacks which liberalisation may well suppress.     

The Impact of Inequality and Redistribution on Growth

In this paper, we reassess the impact of inequality on growth. The majority of previous papers have employed (system) GMM estimation. However, recent simulation studies indicate that the problems of GMM when using non‐stationary data such as GDP have been grossly underestimated in applied research. Concerning predetermined regressors such as inequality, GMM is outperformed by a simple least‐squares dummy variable estimator. Additionally, new data have recently become available that not only double the sample size compared to most previous studies, but also address the substantial measurement issues that have plagued past research. Using these new data and an LSDV estimator, we provide an analysis that both accounts for the conditions where inequality is beneficial or detrimental to growth and distinguishes between market‐driven inequality and redistribution. We show that there are situations where market inequality affects growth positively while redistribution is simultaneously beneficial.     

Poverty, Growth, and Redistribution: a Study of Iran

The paper examines changes in the extent of poverty in Iran in the period 1983 to 1993. More specifically, it investigates the contributions of growth and redistribution factors to changes in poverty over this period of ten years. The analysis is based on household‐level data relating to three Household Income and Expenditures Surveys of 1983, 1988, and 1993. The study reveals that the extent of poverty in the rural sector declined slightly, whereas in the urban sector it increased significantly. Decomposition of changes in poverty into growth and redistribution components indicates that in each sector the redistribution component was positive, implying that the deterioration of income inequality contributed to the worsening of poverty. The growth component, however, affected the two sectors differently: it contributed to a reduction in poverty in rural areas and an increase in urban areas.     

Growth responses to competitive shocks: Market structure dynamics under liberalisation

Liberalisation transforms market structures through the responses of incumbent firms and entrants to freedom of choice. Market shares tend to turn more volatile, and the agility and competitiveness of small, as against large, firms determine whether markets grow more concentrated, or less. We analyse the way these processes played out in Indian manufacturing industries over the 17-year period from 1981, spanning the domestic liberalisation of 1985 and the more comprehensive reforms of 1991. An observer looking at summary measures of market concentration might conclude that not much happened under either liberalisation episode. In fact, market share grew significantly more turbulent, and the relationship between market share-growth and initial share changed considerably. Domestic and comprehensive liberalisation saw different types of course corrections in these processes. But in both liberalisation episodes they tended to offset one another in their impact on observed market concentration, which therefore, changed little.     

Trade liberalisation and inequalities in Nepal: A CGE analysis

In this paper we examine the effects of trade liberalisation on inequality in the small developing country of Nepal. We use a Computable General Equilibrium approach applied to a newly developed social accounting matrix, simulating three liberalisation scenarios: (i) import liberalisation; (ii) export liberalisation; and (iii) import and export liberalisations implemented together under different exchange rate regimes. Outcomes reveal that industry reallocation following liberalisation does not respond to classical trade theory expectations about factor intensity and abundance. On the distributive side, liberalisation seems to increase the high-skilled/low-skilled gap and favour rich households relatively more. However, since under fixed exchange rate also the two poorest household groups increase their income levels, liberalisation may also expected to be beneficial for poverty alleviation.     

Liberalisation, competition and innovation in the postal sector

This paper empirically assesses the effect of liberalisation and competition on innovation in the postal sector. The analysis is restricted to end-to-end competition. The effect on the incentives to innovate of letter volume, public ownership and other control variables is also tested. Data on liberalisation, competition and innovation in the postal sector is collected for seventeen European countries over eleven years. Three measures are used as proxies for innovation: (1) an innovation index based on a survey conducted for this purpose; (2) the accumulated number of innovations (based on the same survey); and (3) labour productivity. We also develop a liberalisation index to measure the percentage of market liberalised (in terms of letter volume). Several models are estimated by GLS. In general, the models estimated have a high explanatory power. We find evidence that market liberalisation has a positive effect on innovation and that an increase in the market share of the competitors stimulates the investment in innovation, at least until the market share of the competitors reaches a certain threshold. Letter volume is also significant and has a positive impact on innovation. GDP per capita turns out to be significant and has a positive relationship with innovation in all the models estimated.     

One date,one break?

This paper demonstrates that the conventional approach of using official liberalisation dates as the only existing breakdates could lead to inaccurate conclusions as to the effect of the underlying liberalisation policies. It also proposes an alternative paradigm for obtaining more robust estimates of volatility changes around official liberalisation dates and/or other important market events. By focusing on five East Asian emerging markets, all of which liberalised their financial markets in the late, and by using recent advances in the econometrics of structural change, it shows that (i) the detected breakdates in the volatility of stock market returns can be dramatically different to official liberalisation dates and (ii) the use of official liberalisation dates as breakdates can readily entail inaccurate inference. In contrast, the use of data-driven techniques for the detection of multiple structural changes leads to a richer and inevitably more accurate pattern of volatility evolution emerges in comparison with focussing on official liberalisation dates.     

Housing as a wage and luxury good: absolute poverty and the distribution of income in supply-side economics

A fundamental tenet of supply-side economics is the ‘trickle-down’ effect, according to which a redistribution of income shares to those with higher incomes is supposed to result in sufficient income growth to make everyone better off. Apart from the inherent improbability of such an outcome, it is possible to argue that such a redistribution causes scarce resources to be transferred to luxury goods production, reducing the supply of the wage goods commodities in whose production those resources are used. The reduced availability of such commodities can give rise to an increase in absolute poverty (defined as the inability to afford basic necessities). This increase in absolute poverty forms a ‘threshold’ which must be more than balanced by an increase in real income due to the supply-side acceleration of economic growth before the ‘trickle-down’ effect may be said to have been realized. Some evidence from the UK is provided, together with a note on how this poverty mechanism affects the calculation of the retail Prices index.     

The impact of trade liberalisation on exports, imports and the balance of payments of developing countries

This paper uses panel data and times series/cross section analysis to estimate the effect of trade liberalisation on export growth, import growth, the balance of trade and the balance of payments for a sample of 22 developing countries that have adopted trade liberalisation policies since the mid-1970s. We find that liberalisation stimulated export growth but raised import growth by more, leading to a worsening of the balance of trade and payments. To the extent that this has constrained the growth of output and living standards, the findings have important implications for the sequencing and degree of liberalisation.     

Trade and Financial Liberalisation and Endogenous Growth in Bangladesh

This paper empirically explores the joint impact of financial and trade liberalisation on economic growth in Bangladesh using various time series techniques, endogenous growth theory and annual data from 1975–95. Our empirical results are in accordance with the predictions of endogenous growth theory that both financial and trade liberalisation, along with investment in human capital enhance economic growth, suggesting the case for liberalisation of both the financial and trade sectors and suggesting that government initiatives in education policy may expedite economic growth. Results are robust across methodologies. [E52, F43, O11, O53]     

Land rental markets and rural poverty dynamics in Northern Ethiopia: Panel data evidence using survival models

There is growing interest in understanding the links between land reforms, land markets, and poverty reduction in Africa. The study uses four‐wave panel data from the northern highlands of Ethiopia to assess the dynamics of rural poverty taking into account the status of participation of rural households in the land rental market. Applying both nonparametric (Kaplan–Meier estimator) and semi‐parametric survival models that control for duration dependence of poverty transition, results show participation and degree of participation on the supply side of the tenancy market (landlords) have highly significant and positive effect on the chances of escaping poverty while the same cannot be said about the demand side of the tenancy market (tenants). The empirical evidence also confirms that households headed by older and literate people have relatively larger exit rates from poverty as compared with households headed by younger and illiterate ones. Though transacting farmers may engage themselves in win–win rental arrangements by the time they join the tenancy market, results indicate that gains are unequal as those tenants who enter the markets from low economic leverage (were poor) are liable to face a lower margin of net gains, which may limit their ability to move out of poverty.     

Modelling Labour Market Adjustment to Trade Liberalisation in an Industrialising Economy

This paper investigates labour market responses to trade liberalisation in an industrialising country. Short and long run responses of employment and wages are examined using a specific factor trade model, which underpins the empirical work. Employment and wage equations are estimated using dynamic panel techniques for importable and exportable sectors in Mauritius and for a period covering both the pre- and post-liberalisation regimes. The empirical testing finds some support for the theoretical predictions of differential responses between sectors. Incre ases in female participation, however, appear to have dampened the adjustment burdens of liberalisation on importables     

Fiscal crisis and fiscal reform in developing countries

In recent years, policy-makers in developing countries haveresponded to crisis of macroeconomic instability with two setsof measures: conventional stabilisation policies and policiesof economic liberalisation. The fiscal implications of thisdouble agenda are set out, following three lines of enquiry.First, how can policies be kept consistent, when some liberalisationmeasures have large adverse fiscal consequences? Second, cana fiscal deficit be reduced without damaging the provision ofpublic services vital for growth and poverty alleviation? Finally,since lack of tax revenue is usually the binding constrainton government intervention, how can this most easily be relaxed?     

ON THE ESTIMATION OF GROWTH AND INEQUALITY ELASTICITIES OF POVERTY WITH GROUPED DATA

After decades of intensive research dedicated to efficient and flexible parametric statistical distributions, the lognormal distribution still enjoys, despite its empirical weaknesses, widespread popularity in the applied literature related to poverty and inequality analysis. In the present study, we emphasize the drawbacks of this choice for the calculation of the elasticities of poverty. For this purpose, we estimate the growth and inequality elasticities of poverty using 1,132 income distributions, and 15 rival assumptions on the shape of the income distributions. Our results confirm that the lognormal distribution is not appropriate in most cases for the analysis of poverty: the magnitude of the elasticities is generally overestimated and the estimation of the relative impact of growth and redistribution on poverty alleviation is biased in favor of the growth objective.     

Trade Liberalisation and the Trade‐Off Between Growth and the Balance of Payments in Latin America

The broad purpose of trade liberalisation is to raise the rate of growth of countries on a sustainable basis, consistent with the achievement of other macroeconomic objectives. In this article we consider whether trade liberalisation in 17 countries of Latin America has improved the trade‐off between gross domestic product (GDP) growth and the trade balance, allowing the countries to grow faster without sacrificing foreign exchange. We find that in the aftermath of liberalisation, the majority of countries did grow faster, but at the expense of a deteriorating trade balance. Testing formally for the impact of trade liberalisation in a full model of trade balance determination, we find that only in Chile and Venezuela has the trade‐off unequivocally improved. In other countries there has been a significant deterioration or no change. Nine out of the 17 countries have grown faster post‐liberalisation than pre‐liberalisation but, except for Chile and Venezuela, at the expense of a wider trade or current account deficit.