Aid allocation and fragile states

This chapter summarizes research on aid allocation and effectiveness, highlighting the current findings of recent research on aid allocation to fragile states. Fragile states are defined by the donor community as those with either critically poor policies or poorly performing institutions, or both. The chapter examines the research findings in the broader context of research and analysis on how aid should and is being allocated across all developing countries. Various aid allocation models and their implications for aid to fragile states are considered. The chapter also looks at types of instruments and their sequencing in fragile states.

Regime dependent causality : equity and credit markets

We apply a Markov switching model to investigate the possibility of an asymmetric causal relationship between the volatility process inferred from the iTraxx CDS options market and the implied volatility from the stock index options market. We find strong evidence that the stock market leads the CDS market and the effect of the implied stock market volatility is more significant during the volatile regime. We also find that a large jump in the stock return, up or down, may indeed be followed by a regime shift.

Determinants of stock price bubbles

In this paper we propose a cross-sectional model of the determinants of asset price bubbles. Using 589 firms listed on the NYSE, we find conclusive evidence that trading volume and share price volatility have statistically significant effects on asset price bubbles. However, evidence from sector-based stocks is mixed. We find that for firms belonging to electricity, energy, financial, and banking sectors, and for the smallest size firms, trading volume has a statistically significant and positive effect on bubbles. We do not discover any robust evidence of a statistically significant effect of share price volatility on bubbles at the sector-level.

International business cycles and remittance flows

In this paper, we study the macroeconomic determinants of remittance flows. We place particular attention to fluctuations in remittance flows over the international business cycles. Estimating a dynamic panel data model using the system-GMM method over the period 1970–2007, we document that remittance inflows decrease with home country volatility. Contrarily, remittance inflows increase with the volatility in host countries, especially for middle-income countries. Lower interest rates in host countries lead to larger remittance outflows. Trade and capital account openness are the most important factors that determine both remittance inflows and outflows. We conclude that macroeconomic factors of both home and host countries are important for understanding remittance flows.

Credit cycle dependent spread determinants in emerging sovereign debt markets

We address credit cycle dependent sovereign credit risk determinants. In our model, the spread determinants' magnitude is conditional on an unobservable endogenous sovereign credit cycle as represented by the underlying state of a Markov regime switching process. Our explanatory variables are motivated in the tradition of structural credit risk models and include changes in asset prices, interest rates, implied market volatility, gold price changes and foreign exchange rates. We examine daily frequency variations of U.S. dollar denominated Eurobond credit spreads of four major Latin American sovereign bond issuers (Brazil, Colombia, Mexico and Venezuela) with liquid bond markets during March 2000 to June 2011. We find that spread determinants are statistically significant and consistent with theory, while their magnitude remarkably varies with the state of the credit cycle. Crisis states are characterized by high spread change uncertainty and high sensitivities with respect to the spread change determinants. We further document that not only changes of local currencies, but also changes of the Euro with respect to the U.S. dollar are significant spread drivers and argue that this is consistent with the sovereigns' ability to pay.

Recent progress in the development and use of organic ionic plastic crystal electrolytes

Significant progress has been made recently in the development of Organic Ionic Plastic Crystals (OIPCs), a unique family of solid state electrolytes with applications in electrochemical devices such as lithium batteries and dye-sensitised solar cells. The negligible volatility of OIPCs renders them more suitable than molecular species for long-term device use, while the high thermal and electrochemical stability of many OIPCs fulfils an essential requirement for solid state electrolytes for many device applications. However, the complex mechanisms of conduction through these materials, both in their pure state and in the presence of a small amount of a second component (such as lithium salts to enable their use in lithium batteries) are still not fully understood. At the same time, the range of anions and cations utilised in the synthesis of plastic crystal phases continues to increase. This perspective concentrates on recent research into both fundamental and device-oriented aspects of these materials. Important fundamental understanding of the physical properties and transport mechanisms of different OIPCs has been achieved through use of techniques including variable temperature solid-state NMR and crystallographic analysis, as well as detailed molecular dynamics simulations. In parallel, the applicability of these materials as electrolytes for dye-sensitised solar cells and lithium batteries is being more widely demonstrated. The possibility of using OIPCs as solid state electrolytes for fuel cells is also discussed.

Beyond the usual suspects: complexity of fragility and analytical framework

Development in so-called ‘fragile states’ has become a key priority for the international community over the past few years, but international actors have not yet adequately incorporated sufficiently nuanced understandings of fragility into policies or practices. The increasing proportion of the world’s poor living in fragile contexts, the depth of human need in these contexts, and the potential regional spillover implications of this fragility, all make this an urgent concern. This chapter examines this growing need and discusses the origins and methodological approach in this volume, before setting up the rest of the book with definitions and an analysis framework. The chapter concludes with a summary of the book chapters and contributions.

Remittances and economic growth: larger impacts in smaller countries?

This paper examines the impact of remittances on economic growth in Small Island Developing States (SIDS). Results from variants of an empirical model suggest that while, on average, there is at best no association between remittances and growth in developing countries, there is a positive association between these variables in SIDS. This finding holds for SIDS in sub-Saharan Africa and the Pacific but not for those in Latin America and the Caribbean. Relationships between remittances, economic volatility, and household labour supply are offered as reasons for these findings.