Unit roots and infrequent large shocks: new international evidence on output

The nature and magnitude of the economic shocks that have affected the per capita GDP of 16 OECD countries are analyzed over a long period using the outlier method. Strong proof of infrequent large permanent and transitory shocks were found, essentially resulting from the two major wars in the twentieth century, the recession in the 1920s, the Great Depression, among others. We also examine the nature of the output trend by combining different tests of non-stationarity on different GDP series corrected by the outliers detected. It is shown that the per capita GDP series cannot reject the unit root hypothesis in 13 of the 16 countries examined. No conclusion could be drawn for the other countries because the test results were contradictory.     

Political credibility and economic growth in less developed countries

While the mainstream of economic development theory focuses on the efficiency of policy measures, the role of the credibility of these measures is rarely analyzed. In this paper we argue that in less developed countries the problem of establishing the credibility of policy measures is at least as important as the problem of choosing the efficient policy solution. We claim that many of the difficulties less developed countries face can be understood in terms of lack of effective control on the discretionary power of governments, which ultimately leads to policies that are not credible. The private sector anticipates large swings in policies and reacts by withholding its resources. Symptoms of these credibility problems in less developed countries include the size of the informal sector, capital flight, and the reluctance of investors to commit capital. All of these reactions contribute to the slow economic growth in these countries. This paper concludes that establishing strategies for the control of state discretionary power is a crucial precondition for overcoming these problems and generating long term economic growth.     

Wealth and Risk Effects of Adopting Deposit Insurance in Canada: Evidence of Risk Shifting by Banks and Trust Companies

This paper confirms that adopting explicit deposit insurance expanded risk-shifting incentives for Canadian Banks and Trust Companies. By transferring responsibility for monitoring non-systematic risk to the Canadian Deposit Insurance Corporation (CDIC), deposit insurance eliminated the compensation previously paid to large-block stockholder monitors. This transfer fueled a redistribution of insured-institution stock from poorly diversified large-block shareholders to diversified investors. Also, subsequent changes in market volatility support the hypothesis that CDIC insurance and the absorption of catastrophic risk it provided reduced systematic risk in the stock market as a whole even as it increased non-systematic risk in the banking and trust-company sector.     

Patenting,intellectual property rights and sectoral outputs in Industrial Revolution Britain, 1780–1851

Patenting rose sharply during the British Industrial Revolution. Utilizing time series methods, we investigate the causal relationships between 16 industries and patented inventions. The results show that increased patenting was essentially a consequence of fast growth in the cotton, iron, and mining sectors, which increased the value of protecting intellectual property. Conversely, protecting intellectual property was not a cause of the Industrial Revolution.     

THE RELATIONSHIP BETWEEN THE BLACK MARKET AND OFFICIAL EXCHANGE RATES: AN EXAMINATION OF LONG-RUN DYNAMICS IN INDIA

This study is the first to use Johansen's cointegration approach for India in the analysis of the long‐term dynamics between the black and official exchange rates for the period 1953–1993. The study also estimates the long‐run elasticity of the official rate with respect to the black market rate. As monthly data over 40 years are used, and a more robust methodology is employed, the results are likely to be more reliable as compared with the earlier work on India. The results of our study suggest that while there is a long‐term relationship between the two rates, the direction of causality is from the black rate to the official exchange rate. This is plausible in the Indian context where policy has generally lagged behind events in the black market. The hypothesis of a constant black market premium is rejected, implying that there is a mismatch between the percentage change in the official exchange rate and the percentage change in the black market rate.     

IMF concern for reputation and conditional lending failure: Theory and empirics

In this paper we suggest that the dual role played by the IMF, as a creditor and as a monitor of economic reforms, might explain the lack of credibility of the Fund threat of sanctioning non-compliance with conditionality. Specifically, we show that the IMF's desire to preserve its reputation as a good monitor may distort its lending decisions towards some laxity. Moreover, such distortionary incentives may be exacerbated by the length of the relationship between a country and the Fund. Estimating a dynamic panel of 53 middle-income countries, for the period 1982–2001, we find that a longer relationship does increase IMF disbursements.     

The factory system in the British industrial revolution: A complementarity thesis

This paper offers an explanation for the rise of the factory system in Britain during the Industrial Revolution (1770-1850) based on the concept of complementarity: Investment in machinery, process supervision, and improved quality control formed a cluster of complementary activities in which adopting any one increased the marginal return to also adopting the others. Further, factory owners introduced process supervision not only to increase work effort, but also to balance worker incentives among production, quality control, and asset maintenance tasks. To test this hypothesis, I have constructed a new data set from firm studies and archival records. Measures of firms’ adoption of the activities are positively correlated in the cross-section of firms, providing evidence in favor of the complementarity hypothesis.     

Mergers, brand competition, and the price of a pint

Mergers in the UK brewing industry have reduced the number of national brewers from six to four. The number of brands, in contrast, has remained relatively constant. We analyze the effects of mergers on brand competition and pricing. Brand-level demand equations are estimated from a panel of draft beers. To model brand-substitution possibilities, we estimate the matrix of cross-price elasticities semiparametrically. Our structural model is used to assess the strength of brand competition along various dimensions and to evaluate the mergers. In particular, we compute equilibria of pricing games with different numbers of players.     

Delays and equilibria with large and small information in social learning

The general model of social learning with irreversible investment and endogenous timing is analyzed for any distribution of private informations. Strategic complementarities and multiple equilibria appear which are generated solely by information externalities. Different equilibria generate strikingly different amounts of information. The impacts of various assumptions (bounded beliefs, large number of agents, discrete time and short periods) are examined carefully. The properties are robust to the introduction of observation noise with a continuum of agents.