Does Aid Mitigate External Shocks?

The authors investigate the role of aid in mitigating the adverse effects of commodity export price shocks on growth in commodity-dependent countries. Using a large cross-country dataset, they find that negative shocks matter for short-term growth, while the ex ante risk of shocks does not seem to matter. They also find that both the level of aid and the flexibility of the exchange rate substantially lower the adverse growth effect of shocks. While the mitigating effect of aid is significant in both countries with pegs and countries with floats, the effect seems to be smaller for the latter, suggesting that aid and exchange rate flexibility are partly substitutes. They investigate whether aid has historically been targeted at shock-prone countries, but find no evidence that this is the case. This suggests that donors could increase aid effectiveness by redirecting aid toward countries with a high incidence of commodity export price shocks.     

Elections and economic policy in developing countries

This paper explores the impact of elections on economic policies and governance in developing countries. We distinguish between a structural effect, which increases accountability, and a cyclical effect which may be disruptive. Since the effects are offsetting, neither can be analysed in isolation. We implement an econometric analysis on more than 80 developing countries using positive changes in the Country Policy and Institutional Assessment of the World Bank and the International Country Risk Guide as signalling improvements in economic policy and governance. We find that both structural and cyclical effects matter. The cyclical effect suggests that mid-term is the best moment for policy change. We investigate the structural effect by comparing different frequencies of elections. Except at the extremes, a higher frequency of elections improves both policy and governance net of any cyclical effect. The important exception to this benign net effect is if the electoral process is badly conducted. Badly conducted elections have no structural efficacy for policy improvement. A reasonable interpretation of our results is that honest elections increase accountability and thereby discipline governments to improve economic policy and governance, but that if candidates can win by fraud this chain is broken.
— Lisa Chauvet and Paul Collier     

On the economic consequences of civil war

A model of the economic effects of civil war and the post-warperiod is developed. A key feature is the adjustment of thecapital stock through capital flight. Post-war this flight caneither be reversed or continue, depending partly upon how farthe capital stock has adjusted to the war. The model is testedon data for all civil wars since 1960. After long civil warsthe economy recovers rapidly, whereas after short wars it continuesto decline. We then consider the effect on the composition ofeconomic activity, distinguishing between war-vulnerable andwar-safe activities. Evidence for Uganda shows such compositionaleffects to be substantial.     

The IMF'S Role in Structural Adjustment

In the 1980s conditional lending for structural adjustment in developing countries moved the IMF beyond its role of macroeconomic crisis management. Fund-supported adjustment programmes have often been flawed by a lack of distributional analysis and by poor sequencing of reforms, notably premature financial liberalisation. As a result they have caused avoidable hardship. In addition, the attempt to taper out aid as part of the reform programme leads to avoidable reductions in post-stabilisation growth. An important role for the Fund in post-stabilisation environments is to provide credible signals to private investors.     

AUDIT FEES AND AUDITOR CHANGE; AN INVESTIGATION OF THE PERSISTENCE OF FEE REDUCTION BY TYPE OF CHANGE

Despite concern expressed over 'low-balling' or competitive price reduction in the market for audit services, the only empirical investigation of the relationship between initial audit fees, fee recovery and auditor change which has been carried out is by Simon and Francis (1988) using US cross-sectional data, although Pong and Whittington (1994, forthcoming) examine the impact on first year fees. We investigate the impact of auditor change on cross-sectional UK data for 1991 with the aim of discovering whether there is any evidence of price cutting and subsequent price recovery in a European, rather than a US context. We find that there is evidence of such a phenomenon, and investigate further to see whether this effect is robust with respect to the definition used of 'auditor change', and whether the effect varies according to whether the old auditor was a 'Big Six' or 'non-Big Six' firm. We find that the largest reductions (controlling for auditor size) are experienced by firms changing to 'Big Six' firms. We further show that involuntary changes (by auditor acquisition) are associated with positive (although statistically insignificant) increases in fees, whereasvoluntary changesare associated with negative (andsignificant) feereductions. These effects are shown to be robust with respect to model specification. This suggests that fee reductions cannot be ascribed to economies of scale or scope, but is consistent with a 'low-balling' model of behaviour.     

Africa's Economic Growth: Opportunities and Constraints

Abstract: Africa's economies have diverged from other developing regions: over the past three decades growth has been much slower. In this paper I relate this to the region's distinctive physical and political geography. These features not only make Africa different from other regions, they make some parts of Africa radically different from others. Understanding these differences is critical because they imply equally substantial differences in opportunities and hence in the strategies likely to be effective for growth. No pan‐African growth strategy offers a realistic prospect of success, nor can Africa simply copy the strategies of successful regions that have fundamentally different physical or political geography. I propose three strategies each of which is likely to be appropriate for a part of the region.     

Comparative statics under multiple sources of risk with applications to insurance demand

In this paper we propose an answer to the following problem of comparative statics in models with multiple sources of risk: How a risk averse agent will change his coinsurance demand when the distribution of the insurable loss is shifted? To answer the question, we first comment on Jack Meyer's results and then we show how an alternate approach leads to more definitive comparative statics.     

Why poor people get rich: Kenya 1960–1979

This paper challenges the conventional model underlying much thinking on Kenya which has stressed the extant inequality of assets (including human capital) and the presumed weakness of intersectoral links owing to structural rigidities in the system. On the basis of recent survey data, the authors test their hypothesis that the pattern of growth and distribution in the Kenyan smallholder sector is best understood rather as being the outcome of the complex interaction of rural factor market failure and urban labour market participation. The sources of growth may be distinguished as improved resource allocation, capital formation and innovation, so that the transmission mechanisms from factor market malfunctioning and urban employment onto growth and distribution must be via these three components. The arguments which follow question the orthodox views on such phenomena as urban bias, trickle-down growth, the functions of urban-rural remittances, and the need for land reform.