OTHER-REGARDING UZAWA PREFERENCES AND LIVING STANDARD CATCH-UP

This paper provides a new rationale for Uzawa preferences based on social choice; instead of positing that poor people are more patient because they are poor, it posits that poor people should be more patient if they wish their living standards to catch up with richer people. To provide a setting for this new rationale, the present paper studies the socially optimal choice of living standards over time by social planners for countries that, from low levels of total factor productivity (TFP), experience a gradual catch-up of their TFP level with that of the leader country. In the TFP catch-up scenario, the socially optimal choice of consumption and saving based on time additive preferences leads to no catch-up of living standards. To generate living standard catch-up we propose other-regarding Uzawa preferences, in which the rate of time preference is influenced by the gap in living standards between follower country and leader country. This other-regarding specification is consistent with recent findings emphasized in behavioural economics. The other-regarding Uzawa preferences form is illustrated quantitatively by simulating a model of the world economy.     

Excess Returns to R&D-Intensive Firms

Recent studies indicate that both current R&D investment levels and current or recent changes in R&D investment are positively associated with subsequent excess (risk-adjusted) stock returns. The tentative explanation offered for these results is that shares of R&D-intensive firms are mispriced because investors fail to see through earnings distortions caused by conservative accounting for R&D costs. However, an alternative explanation is that conventional controls for risk do not completely capture the riskiness of R&D-intensive firms, causing measured excess returns for these firms to be biased upward. This study provides evidence useful for distinguishing between the mispricing and risk explanations for R&D-related excess returns. Overall, our empirical results suggest that the positive association between R&D investment levels and excess returns is more likely to result from failure to control adequately for risk than from mispricing. On the other hand, our results do not rule out the possibility of a second source of excess returns that are due to mispricing and that are associated with changes in the level of R&D investment.     

Rejoinder: Can the downward trend in resource flows be reversed?

The author responds to the article by Maurice Williams and Thomas Stephens (pp 331–41). He criticizes the lack of praise given to the development assistance accomplishments over the past decade. However, pointing to the realism of political feasibility, this article is more pessimistic about resource flows to the Third World in the future.     

Indonesia's New Banking Law

An accumulation of old banking laws was replaced with a single new one early in 1992. The previous focus on the lending side of banks' activities has been replaced by greater emphasis on their deposit mobilisation and intermediation functions. Distinctions between commercial, savings and development banks have been dropped—the only functional distinction remaining being that between banks which offer cheque account services and the much smaller ones which do not. Important changes relating to ownership include placing the state banks on the same legal footing as those from the private sector, allowing them to sell their shares to the public, and permitting foreigners to purchase shares in domestic banks listed on the stock exchange. Those who breach the new law are liable to heavy fines and gaol terms. The law allows the government to require all (not just state) banks to undertake special developmental or equity-oriented programs.     

Indonesian Trade Reform in Close-Up: The Steel and Footwear Experiences 1

In evaluating the widespread trade liberalisation that has occurred in Indonesia since 1983, it is important not to lose sight of the uneveness of many of the reforms, both intra- and inter-industry, that have been implemented. Different industry structures help to account for the different degrees of reform delivered within and between industries. This paper examines the extent and implications of the liberalisation process in two structurally diverse industries — steel and footwear. One objective of this paper is to illustrate the consequences for competitiveness of the reform sequence and the instruments of reform; another is to highlight the impediments to further progress.     

Exchange Rate Regimes in the Asian-Pacific Region

This survey is designed to complemenl Treadgold's on Macroeconomic Manugement (APEL March 1990) by reviewing the literature on exchange rate regimes with reference to the Asian-Pacific region. After a brief typology of exchange rate regimes, the article discusses the choice between currency system, the relationship between choice of regime and policy objectives, constraints on choice of regimes, the distinction between 'traded' and 'non-traded' goods, the 'booming' export sector case and finally the relevance of regulatory distortions and the related question of transition from one regime to amiher.     

Giant negative T waves

Marked T wave inversion in a life insurance applicant's ECG may suggest high risk. Careful analysis of the ECG, an informative attending physician statement, and judicious use of additional testing allows the medical director to put this striking ECG abnormality in its proper context.