Working Papers
1999
September 1, 1999
Skill Acquisition and Firm Creation in Transition Economies
Description: The transition from plan to market has hinged on the development of a dynamic private sector that would serve as the engine of growth and employment creation. This paper examines the link between the availability of skilled workers and the creation of new private firms. Using a dynamic search model, it shows how the lack of skilled workers inhibits entrepreneurship and depresses the rate of firm creation, slowing the recovery of aggregate output and labor productivity during the transition. The paper also shows how policies designed to encourage skill acquisition by workers have a positive impact on the economy.
September 1, 1999
Neglected Heterogeneity and Dynamics in Cross-Country Savings Regressions
Description: This paper examines the extent to which conclusions of cross-country studies of private savings are robust to allowing for the possible heterogeneity of savings behavior across countries and the inclusion of dynamics. It shows that neglecting heterogeneity and dynamics can lead to misleading inferences about the key determinants of savings behavior. The results indicate that among the many variables considered in the literature only the fiscal variables—the general government surplus as a proportion of GDP and the ratio of government consumption to GDP—are important determinants of private savings rates in the industrial countries in the post-World War II period.
September 1, 1999
The Enforcement of Property Rights and Underdevelopment
Description: This paper formalizes the role of legal infrastructure in economic development in a general equilibrium model with endogenously determined property rights enforcement. It illustrates the mutual importance of property rights protection and market production by the model’s multiplicity of equilibria. In one equilibrium, property rights are enforced and market activity is unhampered. In the other, property rights are not enforced, which discourages economic activity and leaves the economy without the resources and incentives to enforce property rights. Even identically endowed economies may therefore find themselves in very different equilibria.
September 1, 1999
Long-Term International Capital Movements and Technology: A Review
Description: This paper reviews the theoretical literature on the question of how long-term international capital movements depend on the international distribution of technology. It focuses on long-term investment flows, as these are more affected by international differences in technologies than short-term financial flows. International capital movements are investigated in the context of various technology specifications, ranging from models with only one common technology to those with multiple and endogenous technologies. The paper demonstrates that the theoretical specification of technology is crucial to the prediction of the size and direction of international capital movements.
September 1, 1999
Technology and Epidemics
Description: Evidence from historical and epidemiological literatures show that epidemics tend to spread in the population according to a logistic pattern. We conjecture that the impact of new technologies on output follows a pattern of spread not unlike that of typical epidemics. After reaching a critical mass, rates of growth will accelerate until the marginal benefits of technology are fully utilized. We estimate spline functions using a GMM dynamic panel methodology for 79 countries. We use imports of machinery and equipment as a fraction of gross domestic product as a proxy for the process of technological adoption. Results confirm our hypothesis.
September 1, 1999
Three Million Foreigners, Three Million Unemployed? Immigration and the French Labor Market
Description: This paper investigates the effects of the flows of immigrant workers on the French labor market between the mid-1970s and mid-1990s. Using a system of equations for unemployment, labor-force participation, the real wage, and the immigration rate, it is shown that, in the long run, legal and amnestied immigrant workers, and their families, lower the unemployment rate permanently. In the short run, the arrival of immigrants increases unemployment slightly with an impact similar to that of an increase in domestic labor-force participation. The composition of immigration flows matters, and the proportion of skilled and less-skilled workers should remain balanced.
September 1, 1999
Regional Income Redistribution and Risk Sharing: How Does Italy Compare in Europe?
Description: This paper investigates income redistribution and risk sharing among Italy’s regions and the implications for public policy. Using a richer data set than in previous works, this study allows for an assessment of public consumption’s and investment’s roles. The findings suggest that Italy’s fiscal system provides interregional redistribution at 30–35 percent and risk sharing at 20–30 percent of GDP, mainly through public consumption. Compared with results in the literature for other European countries, there appears to be less redistribution and risk sharing in Italy through its welfare and tax systems because of their different structures.
September 1, 1999
Inflation, Money Demand, and Purchasing Power Parity in South Africa
Description: This empirical study for South Africa indicates that there exists a stable money demand type of relationship among domestic prices, broad money, real income, and interest rates, as well as a long-run relationship among domestic prices, foreign prices, and the nominal exchange rate. In the short run, shocks to the nominal exchange rate affect domestic prices but have virtually no impact on real output, while shocks to broad money have a temporary impact on real output before becoming inflationary. Both types of shocks seem to trigger a monetary policy response, since the short-term interest rate adjusts quickly.
September 1, 1999
Measuring Misalignment: Purchasing Power Parity and East Asian Currencies in the 1990s
Description: The concept of purchasing power parity (PPP) is used to evaluate whether eight East Asian currencies were overvalued on the eve of the 1997 crises. The Johansen and Horvath-Watson cointegration test procedures are applied to bilateral and multilateral exchange rates, deflated using CPIs, producer price indices (PPIs), and price indices of export goods. The second deflator yields the greatest evidence of “stationarity.” The study find’s that the Malaysian, Philippines, and Thai currencies were overvalued, while the Korean and Indonesian were substantially undervalued. Mixed results were obtained for the others. Measures of the equilibrium rate based on time trends in CPI-deflated rates typically suggest larger overvaluations.
September 1, 1999
Modeling and Forecasting Inflation in India
Description: The Reserve Bank of India (RBI) has moved away from a broad money target toward a “multiple indicators” approach to the conduct of monetary policy. In adopting such a framework, it is necessary to know which of the many potential indicators provide the most reliable and timely information on future developments in the target variable(s). This paper assesses which indicators provide the most useful information about future inflationary trends. It concludes that while the broad money target has been de-emphasized, developments in the monetary aggregates remain an important indicator of future inflation. The exchange rate and import prices are also relevant, particularly for inflation in the manufacturing sector.