Effects of Currency Devaluations on the Economic Growth in Developing Countries: The Role of Foreign Currency-Denominated Debt

Assuming that a developing country has to denominate its debts in the currencies of the principal creditor countries, how is the country??s economic performance affected when currency devaluation occurs? The aim of this paper is to prove that devaluation can be contractionary and that its occurrence can be the result of a self-fulfilling prophecy. Assuming credit constraints on firms?? borrowing capacity and nominal price rigidities, a sharp change in the value of the domestic currency leads to an increase in the real costs of foreign currency-denominated debt. Hence, firms?? profits as well as their borrowing capacity decrease, provoking a drop in future investment and output. Moreover, expectations about future output can alone trigger a currency devaluation, confirming the initial expectations in a self-fulfilling way. Finally, it is discussed in an empirical analysis the impact of devaluation on the economic growth in a sample of five countries.     

Territorial disparities in Europe

Traditionally, EU policies have been focused on economic and social cohesion. Recently, the territorial dimension of regional disparities as an aspect of EU policy has gained importance. The European Spatial Development Perspective (ESDP), adopted in 1999, is meant to support a balanced development of the EU territory. Moreover, the European Commission addressed issues of territorial cohesion in its latest cohesion report. The present paper deals with territorial disparities and their current development in the EU. It analyses which kinds of region develop dynamically and offer favourable labour market conditions. The differences between rural and urban areas are a fundamental feature of territorial disparities in the EU and are of essential significance for the ESDP. The analysis deals with the question whether disparities between poor and rich regions as well as different growth trends and labour market conditions are still marked by the dualism between city and countryside. The authors would like to thank Elena Tcharykova for her excellent research assistance.     

An Ordered Probit Approach to Predicting the Probability of Inflation/Deflation

This paper provides an ordered probit approach that estimates the probability six months in the future of three distinct scenarios for prices: inflation, deflation, or price stability. The traditional way of forecasting inflation is to predict a single level and/or growth rate of the PCE deflator. However, this approach is not useful for identifying options or risks facing decision-makers, especially in financial markets. Also, point estimates of inflation convey a sense of overconfidence. Our approach is more practical for decision-makers who must hedge their portfolios, but it is also useful for policymakers, investors, and consumers who must attach a probability with each possible scenario of future price trends. Our results indicate that since June 2011 the probability of deflation has been persistently higher than of the other two scenarios. Thus, the recent years’ higher deflation probabilities may offer a justification for the persistence of the Federal Reserve’s highly accommodative monetary policy during 2012–14.     

Europe's Leading Cities – Success Factors and Policy Perspectives

In Europe, economic activity is concentrated more and more in the major urban centres. At the same time, these cities are in a competition with one another. Across Europe they are contending for investors and qualified workers and searching for the most successful path to a dynamic economic future. Which cities in Europe have made the greatest economic progress in the past? What are the factors that have made some cities more successful than others? And what action can cities take to achieve greater economic growth in the future?     

How elastic are national corporate income tax bases in OECD countries? The role of domestic and foreign tax rates

Abstract To what extent do reductions in corporate income tax (CIT) rates attract foreign tax bases? What are the revenue implications of a unilateral tax reduction when tax bases are internationally mobile? These questions are explored using annual data from 17 OECD countries spanning the period 1982 to 2005. Controlling for fixed country effects, year effects, and country time trends, and subjecting our results to an extensive robustness analysis, we find (i) a country’s aggregate reported corporate profits are negatively and significantly affected by CIT rate reductions in neighbouring countries; (ii) a unilateral reduction in the domestic CIT rate results in lower domestic CIT revenues.     

Specialized markets and Chinese industrial clusters: The experience of Zhejiang Province

Local specialized markets and industrial clusters have been a driving force in China's transition from a rural to a market economy, as they have constituted a means for small local producers to access markets since the reform and the launching of the “open door” policies. In this article the industrial development of local industrial clusters endowed with specialized markets is outlined on the basis of fieldwork case studies in Zhejiang Province. In this area of China, tight linkages between the development of industrial clusters and specialized markets are based on social and economic foundations that have propelled the growth of market relations since the late 1970s. Together with local traditions and skills in both handcraft production and commerce, specialized markets accompanied the take-off of industrial clusters following the so-called “Zhejiang model” of development. The role of specialized markets is still crucial nowadays as a powerful channel for the distribution of consumer goods as well as a means of coordination of fragmented productions in China and abroad.     

The migration of professionals within the EU: Any barriers left?

As shown by the intense legislative effort at the European Union level, the mutual recognition of professional qualifications represents an important step towards the completion of the single EU labor market. In this paper we provide the first empirical evidence on the link between intra‐EU mobility and mutual recognition of professional qualifications. Our results show that bilateral EU migration is positively affected by the destination country's rate of recognition of professional qualifications obtained in another EU member state.     

Public budgetary rules and GDP growth: An empirical study on OECD and twelve european countries

We study the long-term effects of budgetary rules on GDP growth rate and analyse the determinants of the short-term GDP growth dynamics. For both a sample of 19 OECD and a subsample of 12 European countries, we show that, in the long run, improvements in the cyclically adjusted budget balance, as well as increases in the tax burden, have negative effects on GDP growth. The highest effect of fiscal policy on GDP growth would be obtained if the structural deficits were used to increase the market size by reducing the tax burden. In line with Barro (1990), a deficit-financed reduction of tax burden has a stronger effect for European than for OECD countries, because in Europe the government size with respect to market size is too large. Therefore, if GDP growth is a dominant policy objective, in Europe specific actions should redress the 2012 Treaty toward a reduction of the tax burden.