Bilateral Trade Agreements and the Feasibility of Multilateral Free Trade

We studied how the pursuit of bilateral free‐trade agreements (FTAs) affects the likelihood of achieving multilateral free trade. We derive and compare the stable Nash equilibria of two games of trade liberalization: in the FTA game, each country can either form an FTA with one of its trading partners or both of them or none of them, whereas in the (restricted) No FTA game, purely bilateral FTAs are not permitted. The major result is that there exist circumstances under which the freedom to pursue (discriminatory) bilateral FTAs is necessary for achieving multilateral free trade.     

Exchange market reform,inflation, and fiscal deficits

This paper examines the effects of exchange market reform on inflation and quasifiscal deficits in developing countries. The first part presents the conceptual framework, which identifies a variety of implicit taxes and subsidies that must be taken into account (in addition to implicit taxes on exports, as emphasized by Pinto (1991)) in assessing the fiscal and inflationary effects of exchange market reform. A formula that attempts to capture explicitly these taxes and subsidies is derived. The second part applies the formula to six countries (Guyana, India, Jamaica, Kenya, Sierra Leone, and Sri Lanka). The results suggest that exchange market reform may lead to a significant reduction in reliance on the inflation tax.     

Development Aid to Agriculture and Economic Growth

The link between foreign aid and economic growth has been a controversial issue with no strong consensus so far. This paper argues that a possible reason why some studies may conclude that aid is ineffective in promoting economic growth might be that not all aid is given for development purposes (i.e. aid given for strategic considerations, humanitarian reasons or emergency relief). This study classifies foreign aid into four subcategories: agricultural aid, social infrastructure aid, investment aid, and non‐investment aid. Using the generalized method of moments (GMM) estimation technique on a Barro type growth regression with panel data from the aid recipient economies, this paper finds that when aid is directed to the agricultural sector of the developing countries, it is positively and significantly related to growth and can affect economic growth in the short run.     

Causal relationship between construction investment policy and economic growth in Turkey

The construction industry in countries experiencing severe economic crisis has vital importance to get out of stagnation because of its direct relations with 200 different sectors. In this study, the relationship between the construction growth data (infrastructure, building and residential (public), building and residential (private) investment) and gross domestic product (GDP) is examined for Turkey. To this end, Engle–Granger cointegration, error correction model (ECM) and Granger causality tests were applied in order to determine the aforementioned relation. It has been found that the infrastructure and building–residential investments have direct relations with the GDP and have causality effects.     

More on phantom bidding

Summary. A phantom bidding model is analyzed for a sale auction. The following issues are addressed: the effects of phantom bidding on overall social welfare and buyers' profits. It is shown that social welfare may increase or decrease as the auctioneer switches from the fixed reserve price policy to phantom bidding. The buyers' profits will increase whenever social welfare increases. Received: November 4, 1998; revised version: February 8, 1999     

Sample size needed for calibrating trip distribution and behavior of the gravity model

Conventional calibration algorithms of trip distribution models assume that the analyst has a whole base year trip matrix. To attain a whole trip matrix, the sample size for travel surveys needed to be as large as possible. However, this could be very expensive especially in large cities. Some studies in the past showed a small sized sample would be enough to estimate functional parameters of observed trip length frequency distribution. But the performance of a gravity model with small sized samples has never been addressed. This empirical study has shown that sample sizes as small as 1000 (even smaller for quick response studies) could be as dependable as large sample surveys using a line search calibration algorithm.     

Determination of the efficiency of the world railway companies by method of DEA and comparison of their efficiency by Tobit analysis

This paper attempts to measure the performance of railway companies that produce passenger and freight services around the world. The data covering 10 years from 2000 to 2009 is analyzed first via the data envelopment analysis method in order to obtain technical efficiency and allocative efficiency scores of 31 railway companies for the purpose of the study. In the analysis conducted by use of the CCR model, while total 17 firms were efficient in the first year, this figure reaches to 18 companies for the last year with one more addition. While only two companies seem efficient in the first year, this figure goes down to one for the last year. With input oriented and variable return analysis conducted by use of the BCC model, the firms having technical efficiency at the beginning of the period were 20 in number. At the end of the period, the figure reaches to 24. Next, the outputs of DEA are correlated by Tobit regression and tried to determine decisiveness of the outputs on the efficiency. It has been seen that the same output composition used with Tobit analysis gives more compliant results with the allocative efficiency scores rather than with the technical efficiency scores.     

Currency substitution,inflation, and welfare

Currency substitution affects the mapping between social welfare and inflation by altering the underlying money demand function and influencing interest rates. In order to explore the essence of this effect, I build a model with working capital under which foreign currency is substituted with the less liquid components of domestic money. The framework closely mimics the actual pattern of currency substitution across varying rates of inflation and enables the study of an additional channel that works through the impact of currency substitution on interest rates. It is found that there is a threshold inflation rate, which turns out to be 44% under baseline calibration, below which currency substitution decreases welfare and vice versa. A practical implication is that, at inflation rates lower (greater) than the threshold, the potential welfare gains from disinflation to a near-zero inflation rate are higher (lower) if there is currency substitution than otherwise.     

Verifiability and Contract Enforcement: A Model with Judicial Moral Hazard

I model the litigation of a contract containing a variable notobservable by courts, hence nonverifiable, unless the rationaland self-interested judge exerts effort. He values the correctruling but dislikes effort. Judicial effort is discretionary.I show that effort cost is inconsequential—"always breach"is equilibrium for any effort cost. But there exists anotherequilibrium where a small breach rate is achieved even withsignificant effort costs. Maximal remedies for breach are notoptimal. Because effort is discretionary, low effort cost increasesbreach. Pretrial negotiations can have a substantial negativeimpact on verifiability under arbitrarily small deviations fromfull rationality.