Reciprocity, loyalty, and the growth of the underground-economy: A theoretical note

Taken the growth of the underground-economy for granted, this paper develops an explanation for its existence that is different from those usually provided. Presupposing a ‘generalized norm of reciprocity’ that guides the relationship between individuals and the state, it is argued that a reduction of certain payments from the government to individuals, e.g. in order lower budget deficits, may lead to an erosion of loyalty with possibly “catastrophical consequences” on overall economic activity: a situation that may ask for different policy measures than usually thought of as being appropriate.     

Urban economics and development

China’s policy of opening the door to foreign business has sometimes aroused excessive expectations. Both in China and abroad, overoptimism has now been replaced by a more realistic appraisal of what can be achieved in economic terms. Nonetheless, Deng Xiaoping’s aim of quadrupling industrial and agricultural output¹ by the year 2000 is still being pursued. Urban regions have been allocated a key role in this as the powerhouse of development. In the light of regional economic analyses,²this article examines whether the intended economic reforms go far enough to enable the conurbations to perform this function.     

Finance–Growth Nexus and the P‐bias: Evidence from OECD Countries

Recent studies provide new empirical evidence confirming that financial development is linked to economic growth in OECD countries. Using new dynamic panel regression techniques, these appraisals indicate that within the group of high‐income countries stock market size as a measure of financial advancement contributes significantly to overall economic activity. Applying the same advanced techniques, this paper questions this conclusion by showing that the findings of these studies seem to be not only not robust with respect to adding new observations but also likely to be plagued by a severe price bias which belittles the information content of the used financial indicator (stock market capitalization). We provide evidence that anticipative price effects (i.e. expectations of future growth, reflected in current stock prices) may be driving the statistical relationship between stock market activities and economic growth in high‐income countries to a much larger extent than recent analyses of the finance– growth link in OECD countries suggest .