The effects of growth and economic reform on income distribution in Latin America

Includes bibliography

Reforms and growth in Latin America

Includes bibliography

Latin America and the Caribbean and China: towards a new era in economic cooperation

Foreword by Alicia Bárcena

Running Hot and Cold: Economic Liberalization and Foreign Direct Investment in Latin America by Sector

This article examines the effects of market–oriented economic reforms on foreign direct investment (FDI) flows to Latin America from 1985 to 2006. In contrast with most existing scholarship, we disaggregate FDI into its destination in the primary resource, manufacturing, and service sectors allowing us to determine that different kinds of investments exhibit distinct behavior. Notably, manufacturing FDI appears to be erratic; previous investment is not a predictor of current investment. FDI across sectors is associated with varying policy environments, with service and primary resource investment attracted to hosts with policies associated with more stable economic and political contexts. Overall, manufacturing FDI appears to function more like “hot” portfolio investment and is less likely to provide some of the positive spillover effects thought to be associated with more permanent FDI. These findings have an array of implications for economic, development, and industrial policies throughout Latin America and the developing world.

Economic Reform and Social Sector Expenditures: A Study of Fifteen Indian States 1980/81-1999/2000

This paper examines social sector expenditures in fifteen Indian states between 1980/81 and 1999/2000 to find out whether the far-reaching economic reforms that began in 1991 had any significant impact on the level and trend of these expenditures; and if there was any such impact, what were the reasons behind the ensuing changes. The empirical analysis in this study shows that revenue became a major determinant of social sector expenditures from the mid 1980s with the result that real per capita social sector expenditures in most states started to decline even before the economic reforms began as states' fiscal deficits worsened in the 1980s. Economic reforms, therefore, largely did not have a major negative impact on expenditures. In fact there was a positive impact on some states, which often were those that received more foreign aid than other states. By the late 1990s, states expending more on the social sector changed from states with a traditionally strong commitment to the social sector, such as Kerala, to states having higher revenues including aid from outside the country.

Reforms in Moldova: Moderate progress and an uncertain outlook for the future. OSW Commentary No. 100, 2013-01-22

After coming to power in September 2009, the Alliance for European Integration (AIE)1 coalition began implementing a wide-ranging programme of reforms, with a view to bringing Moldova closer to the European Union, and ultimately to ensure the country’s full membership of the EU. Today, Moldova is considered a clear leader in European integration among the members of the EU’s Eastern Partnership programme. This, however, has less to do with the concrete reforms introduced by the Moldovan government, and more to do with, on the one hand, Chișinău’s excellent public relations with Brussels, achieved through effective diplomacy; and on the other hand, the growing disillusionment with the lack of progress in other Eastern Partnership countries, particularly in Ukraine. Attempts to evaluate Moldova’s reforms have proven rather problematic. On the one hand, the ruling coalition has managed to make significant progress in the areas of civil liberties, human rights and electoral reform. The government has also successfully implemented regulations which have brought Moldova closer to signing a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU, and it has made headway in talks on visa liberalisation with Brussels. On the other hand, Chișinău has still not carried out the structural and economic reforms without which real change in the country will be impossible. No reforms have been introduced in the Ministry of the Interior, the Moldovan police force, or the judiciary. The AIE has also failed to decentralise governance and has had no real success in reducing corruption; its attempts to rebuild the country’s financial institutions have proved equally unsuccessful. The main reasons for this poor performance include mutual mistrust and conflicting interests among the coalition members, a shortage of financial resources, strong resistance to change by public administration staff, and significant pressure from those political and business groups whose interests could suffer as a result of the proposed reforms. It should also be noted that since the AIE took power, the international context of the reform efforts has undergone significant changes. On the one hand, the EU has been facing an economic crisis, which has had a negative impact on Moldovan exports and contributed to the worsening of the economic situation in the country; and on the other hand, Moldova has been offered membership of the Customs Union as a viable alternative to EU membership.

On the verge of crisis? Mounting economic problems in Belarus. OSW Commentary No. 51, 2011-04-06

Belarus’s financial condition has visibly worsened since the beginning of this year. The severe falls in the country’s foreign currency reserves and its shortage of foreign currency on the international market pose an increasing threat to the stability of the Belarusian economy. Fearing an outbreak of public dissatisfaction, The government has so far been trying to avoid devaluing the rouble or structural economic reforms. Maintaining full control inside the country and the stability of the authoritarian regime are still the main concerns for President Alyaksandr Lukashenka. For this reason, the actions taken by the Belarusian government have been limited to imposing short-term administrative restrictions on the foreign currency market and obtaining external support in the form of loans. Given Belarus’s falling creditworthiness, Minsk is only able to ask Russia for financial support, thus offering the Kremlin more opportunities to realise its desire to take over strategic industrial plants in Belarus. However, the present economic problems of Belarus are so serious that no loan will be able to safeguard its government from the need of carrying out serious economic reforms.

A summary of the politico-economic changes taking place during Vladimir Putin's first term in office; Chechnya and Russia: The significance of the Chechen problem for contemporary Russia. OSW Study 11/2003

Putin's first term in office: The most significant achievement of Vladimir Putin's team over the three years of his term of office is the realisation of legislative changes, which may constitute a base for further - more detailed - political and economic reforms. This is, to a certain degree, a return to the economic tasks set out by a team of reformists in the early 1990s, which were impossible to realise at the time due to conflicts between the Kremlin and legislative powers. Chechnya and Russia: The purpose of this analysis is to examine the significance of the Chechen issue for contemporary Russia. Part I discusses the history of the conflict from 1991 to date and the impact of developments in the republic on Russia as a whole. Part II is an attempt to indicate the areas of Russian reality that are most deeply affected by the Chechen problem.

The fiscal compact - Europe's "hard core" based on German economic conditions. OSW Commentary No. 71, 2012-03-07

On 2 March, the leaders of 25 EU member states signed the Treaty on stability, coordination and governance in the economic and monetary union. It will introduce new fiscal constraints and officially vest new competences in the eurozone countries. Thus, their right to coordinate economic policy among them will be sanctioned. So far, the Lisbon Treaty has only provided for organisation of informal Eurogroup meetings, to be attended by representatives of the European Commission. The principles introduced by the compact, if the eurozone countries are really determined to observe its provisions, will create a new way of managing the single currency. Within the next few years, the most indebted countries will have to carry out radical reforms to boost their competitiveness and adjust it to German standards. During this period the Federal Republic of Germany will most probably decide to offer higher loan guarantees to relieve these countries’ budgets. The compact’s political consequences are also of great significance, especially considering how the treaty was finalised. The eurozone states have in fact accepted that the direction for changes will be devised by France and Germany, and the role of European institutions such as the Commission or the Parliament may weaken. From the perspective of eurozone candidate countries, the introduction of the fiscal compact means expanding the scope of conditions they must meet to become members of the single currency area. In the future, a country, in order to adopt the single currency, will have to meet the structural deficit criterion, and also most probably carry out economic reforms such as unifying its fiscal system. These goals will be achieved across the eurozone gradually, in the subsequent stages of the economic governance reform.

Designing a Genuine EMU: Which "Unions" for EU and Eurozone? Bruges European Economic Policy (BEEP) Briefing 34/2014

The initial ‘framing’ (in the summer of 2012) of the ‘genuine EMU’ for the wider public suggested to design an entire series of ‘unions’. So many ‘unions’ are neither necessary nor desirable – only some are and their design matters. The paper critically discusses first the negative fall-out of the crisis for EMU, and subsequently assesses the fiscal and the banking unions as accomplished so far, without going into highly specific technical details. The assessment is moderately positive, although there is ample scope for further improvement and a risk for short-term turbulence once the ECB has finished its tests and reviews. What about the parade of other ’unions’ such as economic union, social union and political union? The macro-economic imbalances procedure (MIP) and possibly the ESRB have overcome the pre-crisis disregard of macro competitiveness. The three components of ‘economic union’ (single market, economic policy coordination and budgetary disciplines) have all been strengthened. The last two ‘unions’, on the other hand, would imply a fundamental change in the conferral of powers to the EU/ Eurozone, with drastic and possibly very serious long-run implications, including a break-up of the Union, if such proposals would be pushed through. The cure is worse than the disease. Whereas social union is perhaps easier to dismiss as a ‘misfit’ in the EU, the recent popularity of suggesting a ‘political union’ is seen as worrisome. Probably, nobody knows what a ‘political union’ is, or, at best, it is a highly elastic notion: it might be thought necessary for reasons of domestic economic reforms in EU countries, for a larger common budget, for some EU tax power, for (greater) risk pooling, for ‘symmetric’ macro-economic adjustment and for some ultimate control of the ECB in times of crisis. Taking each one of these arguments separately, a range of more typical EU solutions might be found without suggesting a ‘political union’. Just as ‘fiscal capacity’ was long an all-or-nothing taboo for shifting bank resolution to the EU level, now solved with a modest common Fund and carefully confined but centralised powers, the author suggests that other carefully targeted responses can be designed for the various aspects where seen as indispensable, including the political say of a lender-of-last-resort function of the ECB. Hence, neither a social nor a political union worthy of the name ought to be pursued. Yet, political legitimacy matters, both with national parliaments and the grassroots. National parliaments will have to play a larger role.

Xinjiang and Central Asia: Ethno-religious, political, and economic interactions

The neighboring regions of Xinjiang and Central Asia, linked historically on the famous Silk Road, later developed separately as a result of the incorporation of the former into China and the latter into the Russian Empire and Soviet Union. Thus, interaction between Xinjiang and Central Asia has been constrained by the nature of the Sino-Russian or Sino-Soviet relationship. However, the demise of the Soviet Union--which resulted in the independence of five Central Asian states--and the recent economic reforms in the People's Republic of China suggest dramatic new possibilities for interregional cooperation.^ In this thesis, an historical and comparative approach is employed to study Chinese policies in Xinjiang and Soviet policies in Central Asia, and concludes that despite several decades of separate development, the common ethnic and religious origins of the indigenous peoples and their former ties will facilitate greater interaction between the two regions. ^

Essays in economic growth, political economy and institutions

This dissertation analyzes the effects of political and economic institutions on economic development and growth.^ The first essay develops an overlapping-generations political economy model to analyze the incentives of various social groups to finance human capital accumulation through public education expenditures. The contribution of this study to the literature is that it helps explain the observed differences in the economic growth performance of natural resource-abundant countries. The results suggest that the preferred tax rates of the manufacturers on one hand and the political coalition of manufacturers and landowners, on the other hand, are equal to the socially optimal tax rate. However, we show that owners of natural resources prefer an excessively high tax rate, which suppresses aggregate output to a suboptimal level.^ The second essay examines the relationship between the political influence of different social classes and public education spending in panel data estimation. The novel contribution of this paper to the literature is that I proxy the political power and influence of the natural resource owners, manufacturers, and landowners with macroeconomic indicators. The motivation behind this modeling choice is to substantiate the definition of the political power of social classes with economic fundamentals. I use different governance indicators in the estimations to find out how different institutions mediate the overall impact of the political influence of various social classes on public education spending. The results suggest that political stability and absence of violence and rule of law are the important governance indicators.^ The third essay develops a counter argument to Acemoglu et al. (2010) where the thesis is that French institutions and economic reforms fostered economic progress in those German regions invaded by the Napoleonic armies. By providing historical data on urbanization rates used as proxies for economic growth, I demonstrate that similar different rates of economic growth were observed in the regions of France in the post-Napoleonic period as well. The existence of different economic growth rates makes it hard to argue that the differences in economic performance in the German regions that were invaded by the French and those that were spared a similar fate follow from regional differences in economic institutions.^

Estimating Income Inequality in China Using Grouped Data and the Generalized Beta Distribution

There are two main types of data sources of income distributions in China: household survey data and grouped data. Household survey data are typically available for isolated years and individual provinces. In comparison, aggregate or grouped data are typically available more frequently and usually have national coverage. In principle, grouped data allow investigation of the change of inequality over longer, continuous periods of time, and the identification of patterns of inequality across broader regions. Nevertheless, a major limitation of grouped data is that only mean (average) income and income shares of quintile or decile groups of the population are reported. Directly using grouped data reported in this format is equivalent to assuming that all individuals in a quintile or decile group have the same income. This potentially distorts the estimate of inequality within each region. The aim of this paper is to apply an improved econometric method designed to use grouped data to study income inequality in China. A generalized beta distribution is employed to model income inequality in China at various levels and periods of time. The generalized beta distribution is more general and flexible than the lognormal distribution that has been used in past research, and also relaxes the assumption of a uniform distribution of income within quintile and decile groups of populations. The paper studies the nature and extent of inequality in rural and urban China over the period 1978 to 2002. Income inequality in the whole of China is then modeled using a mixture of province-specific distributions. The estimated results are used to study the trends in national inequality, and to discuss the empirical findings in the light of economic reforms, regional policies, and globalization of the Chinese economy.

Productivity growth in pre-1990 Mongolian agriculture: Spiralling disaster or emerging success?

The reasons for the spectacular collapse of so many centrally-planned economies are a source of ongoing debate. In this paper, we use detailed farm-level data to measure total factor productivity (TFP) changes in Mongolian grain and potato farming during the 14-year period immediately preceding the 1990 economic reforms. We measure TFP growth using stochastic frontier analysis (SFA) and data envelopment analysis (DEA) methods. Our results indicate quite poor overall performance, with an average annual TFP change of - 1.7% in grain and 0.8% in potatoes, over the 14-year period. However, the pattern of TFP growth changed substantially during this period, with TFP growth exceeding 7% per year in the latter half of this period. This suggests that the new policies of improved education, greater management autonomy, and improved incentives, which were introduced in final two planning periods in the 1980s, were beginning to have a significant influence upon the performance of Mongolian crop farming. Crown Copyright (C) 2002 Published by Elsevier Science B.V. All rights reserved.

Majoritarian delays

This paper illustrates how delayed debt stabilizations can arise in a society without any emerging conflict of interests among its members. We argue that, under a majority voting rule, the economy may generate excessive levels of government spending and larger debts over time, and that this delay is increasing in income inequality. The intuition for this result is simple: a majority of citizens may find in delaying stabilizations a way to increase government expenditures, transferring in this way resources from the richest to the poorest citizens in the economy. This process may explain the upward trend and the difficulty to reduce public expenditures, the so called "ratchet effect."