Institutions and economic growth in Portugal: a quantitative exploration

This paper presents a broad diagnostic of the level of institutional development in Portugal in the legal, corporate governance and financial systems. A comparative assessment suggests that Portuguese institutions are less developed than their European Union and East Asian counterparts, more developed than Greek institutions and on a level similar to that of Spanish institutions. We use data for a wide cross-section of countries since 1960 and correlate indicators of institutional development with the long-term average growth rate, identifying issues where reform is likely to significantly affect economic growth. We construct three new indices that measure the potential of institutional reform - the impact of reform on growth, the required reform effort and the efficiency of reform index - by taking into consideration the institutional distance between Portugal and the European Union. These indices measure, respectively, which reforms have the most payoff in terms of growth, which are less costly to undertake and which deliver the most growth per required effort. Our results strongly suggest that in a large number of issues, institutional reform may translate into substantially higher rates of economic growth. Of the ten most promising reforms, six are in the legal area, irrespective of which of the indices is considered. Whereas legal reform is promising at the aggregate and the microeconomic levels, in the financial sector aggregate indicators offer the wider scope for productive reform, while in the corporate governance area it is indices at the micro level that hold the most promise. These results support the view that a comprehensive reform effort is likely to deliver higher rates of growth in Portugal, allowing faster real convergence with the rest of the European Union.Received: January 2003, Accepted: February 2004, JEL Classification: O0, O5, K00, K4, G2, G3This paper is based on Firms, Financial Markets and the Law: Institutions and Economic Growth in Portugal, prepared for the conference Desenvolvimento Económico Português no Espaço Europeu: Determinantes e Políticas, organized by the Banco de Portugal. Financial support by the Banco de Portugal, NOVA FORUM and FUNDAÇÃO Para a Ciência e tecnologia and Polti through feder are gratefully acknowledged. Comments from Marcelo Rebelo de Sousa, two anonymous referees and the editor are sincerely appreciated. The usual disclaimer applies.     

Mixed Duopoly,Merger and Multiproduct Firms

The literature on mergers has extensively analyzed the decision to merge by private firms, but it has not considered the decision to merge by private and public firms. We assume that when a private firm and a public firm merge (or when one of them acquires the other), they set up a multiproduct firm in which the government owns an exogenous percentage stake. In this framework, we show that the decision to merge by firms depends on the degree to which goods are substitutes and on the percentage of the shares owned by the government in the multiproduct firm.     

Publishing performance in economics: Spanish rankings (1990–1999)

Abstract. This paper contributes to the growing literature that analyses the Spanish publishing performance in Economics throughout the 1990s. Several bibliometric indicators are used in order to provide Spanish rankings (of both institutions and individual authors) based on Econlit journals. Further, lists of the ten most influential authors and articles over that period, in terms of citations, are reported. We are grateful to many colleagues who made very useful remarks to preliminary versions of this paper, as well as to two anonymous referees. We are particularly indebted to Xavier Sala-i-Martín, without whose invaluable help this work would not have been possible. All errors or omissions are of our exclusive responsibility.     

Altruism and the Economic Values of Environmental and Social Policies

Altruism is a type of non-use value which can have different definitions depending on the type of goods entering the utility function of the altruists and their expectations about the contributions of others. The purpose of this paper is to measure the trade-offs between different types of altruist values originating from social and environmental policies. Environmental policies are concerned with reducing health effects from a power plant while social policies involve both the attainment of public facilities for education and leisure and an increase in the income of the affected population. The empirical application utilizes a choice experiment technique which allows for valuation of multiple goods. Health effects are decomposed into the values of the risk of becoming ill, the duration of the episodes and the limitations imposed by illness. Altruist values are elicited from a population that is not affected by pollution. Results show that altruism is significant for policies directed to reducing health effects and improving the income level of the affected population, whereas there is egoism for a policy aimed at improving public facilities in the polluted suburb. The value of altruism is significantly influenced by the expectations of net benefits to be received by the affected population.     

The impact of product diversification strategy on the corporate performance of large Spanish firms

We analyze the impact of product diversification on performance. This topic has been discussed in the literature, and there is no consensus so far as to the significance or the direction of the impact. Performance is measured using Tobin's q for a sample of 103 large, non-financial Spanish firms (1992–1995). Diversification is measured by means of a categorical variable, as suggested by Varadarajan. The principal results indicate that the firms with intermediate levels of product diversification have the highest performance, while the firms with low and high levels of diversification show significantly lower performance, which performance is not significantly different between them.     

Environmental Product Differentiation and Environmental Awareness

In this paper, we have considered a duopolistic model of environmental product differentiation with two types of consumers (green and brown) to analyze how environmental awareness affects the environment. “Green” consumers value the physical and environmental attributes of the good they purchase while “brown” consumers only value the physical attributes. We find that more environmental awareness may not be good news for the environment as the firm that produces the good without environmental attributes may increase its sales. The result depends on the degree of product differentiation and the cost to achieve it. Social welfare can also be inversely related to environmental awareness if the negative environmental effect dominates the positive market effect.      

Economic mechanisms for environmental protection: Business versus market transaction costs

This study presents theoretical arguments and evidence that attempt to show the contribution of economic mechanisms typical of a business for resolving problems of environmental protection. Firstly, a brief synopsis is given of the classic solutions that environmental economics proposes for correcting environmental externalities. Next, the benefit of expanding these two mechanisms is discussed so that they include those intermediate mechanisms for which it is not possible to clearly establish if they are developed within the domain of the market or the business. The study's focus resides in the fact that the explicit expansion of the range of solutions proposed from a macroeconomic point of view establishes a connecting point between environmental economics and business economics, an area in which academic attention to environmental matters has been significantly less. The present work forms part of research project SEC2002-00835, financed by MCYT-FEDER.     

Delegation and polarization of platforms in political competition

Summary. We consider a model of political competition among two ideological parties who are uncertain about the distribution of voters. The distinguishing feature of the model is that parties can delegate electoral decisions to candidates by nomination. It is shown that if the credible platform commitments of the candidates is feasible, then at least one of the parties nominates in equilibrium to a candidate who has an ideology that is more radical than the delegating party's ideology. In a variety of circumstances, this, in turn, yields a polarization of equilibrium policy choices of the candidates. It is thus argued formally here that strategic nomination of the candidates may well be one of the major reasons behind the well documented observation that the platforms associated with the political parties in two-party democracies are often surprisingly polarized. Received: January 10, 2002; revised version: May 8, 2002 RID="*" ID="*" We thank Alberto Alesina, Levent Ko?kesen, Antonio Merlo, Ronny Razin, Vijay Krishna, Alessandro Lizzeri, and seminar participants at Alicante, Columbia, Copenhagen, and NYU for helpful comments. We also thank an anonymous referee for its useful suggestions. A good fraction of this research was conducted while Ok was a visitor in the Department of Economics at University of Alicante; he thanks for the kind hospitality of this institution. We gratefully acknowledge the financial support from the Spanish Ministry of Education through grant CICYT BEC2001-0535 (Faulí-Oller) and BEC2001-0980 (Ortu?o-Ortín). Correspondence to:I. Ortu?o-Ortin     

Multiple Species Boreal Forests – What Faustmann Missed

Recent research in natural sciences shows that the dynamics in boreal forests are much more complex than what many models traditionally used in forestry economics reflect. This essay analyzes some challenges of accounting for such complexity. It shows that the optimal harvesting strategy for forest owners is history dependent and for some states of the forest, more than one strategy may be optimal.This paper confirms earlier literature on shallow lakes and coral reefs and shows that this kind of phenomena seem much more common than previously thought. They are valid for a wide range of ecosystems that cover large surfaces and they do not depend on the choice of some specific function to model the non-linearity. There are also indications that theses results could be obtained even for resources with concave growth if at least one species with non-linear growth affects their dynamics.