The main point of this paper is that foreign aid fails because the structure of its incentives resembles that of central planning. Aid is not only ineffective, it is arguably counterproductive. Contrary to business firms that are paid by those they are supposed to serve (customers), aid agencies are paid by tax payers of developed countries and not by those they serve. This inverse structure of incentives breaks the stream of pressure that exists on the commercial market. It also creates larger loopholes in the principle-agent relationship on each point along the chain of aid delivery. Both factors enhance corruption, moral hazard and negative selection. Instead of promoting development, aid extends the life of bad institutions and those in power. Proposals to reform foreign aid – like aid privatization and aid conditionality – do not change the existing structure of the incentives in aid delivery, and their implementation may just slightly improve aid efficacy. Larger improvement is not possible. For that reason, foreign aid will continue to be a waste of resources, probably serving some objectives different to those that are usually mentioned, like recipient’s development, poverty reduction and pain relief.
{"title":"Why Foreign Aid Fails","authors":"M. Prokopijević","doi":"10.2139/ssrn.945354","DOIUrl":"https://doi.org/10.2139/ssrn.945354","url":null,"abstract":"The main point of this paper is that foreign aid fails because the structure of its incentives resembles that of central planning. Aid is not only ineffective, it is arguably counterproductive. Contrary to business firms that are paid by those they are supposed to serve (customers), aid agencies are paid by tax payers of developed countries and not by those they serve. This inverse structure of incentives breaks the stream of pressure that exists on the commercial market. It also creates larger loopholes in the principle-agent relationship on each point along the chain of aid delivery. Both factors enhance corruption, moral hazard and negative selection. Instead of promoting development, aid extends the life of bad institutions and those in power. Proposals to reform foreign aid – like aid privatization and aid conditionality – do not change the existing structure of the incentives in aid delivery, and their implementation may just slightly improve aid efficacy. Larger improvement is not possible. For that reason, foreign aid will continue to be a waste of resources, probably serving some objectives different to those that are usually mentioned, like recipient’s development, poverty reduction and pain relief.","PeriodicalId":163698,"journal":{"name":"Institutional & Transition Economics eJournal","volume":"30 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123818688","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I present a model that analyzes the coexistence of formal and informal finance in underdeveloped credit markets. Formal banks have access to unlimited funds but are unable to control the use of credit. Informal lenders can prevent non-diligent behavior but often lack the needed capital. The theory implies that formal and informal credit can be either complements or substitutes. The model also explains why weak legal institutions increase the prevalence of informal finance in some markets and reduce it in others, why financial market segmentation persists, and why informal interest rates can be highly variable within the same sub-economy.
{"title":"Informal Finance: A Theory of Moneylenders","authors":"Andreas Madestam","doi":"10.2139/ssrn.1319725","DOIUrl":"https://doi.org/10.2139/ssrn.1319725","url":null,"abstract":"I present a model that analyzes the coexistence of formal and informal finance in underdeveloped credit markets. Formal banks have access to unlimited funds but are unable to control the use of credit. Informal lenders can prevent non-diligent behavior but often lack the needed capital. The theory implies that formal and informal credit can be either complements or substitutes. The model also explains why weak legal institutions increase the prevalence of informal finance in some markets and reduce it in others, why financial market segmentation persists, and why informal interest rates can be highly variable within the same sub-economy.","PeriodicalId":163698,"journal":{"name":"Institutional & Transition Economics eJournal","volume":"95 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-12-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123587594","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study addresses the apparent puzzle that China achieved spectacular economic performance despite weak institutions. Using a World Bank survey of 1,566 manufacturing enterprises in 18 Chinese cities, we investigated whether property rights protection mattered for enterprise performance. We found that property rights protection had a positive and statistically significant impact on enterprise productivity. Two-step GMM estimation and the difference-in-differences estimation further established the causal impacts of property rights protection on enterprise productivity. These findings were robust to various controls, outliers, and alternative measures of productivity and property rights protection.
{"title":"Do Institutions Not Matter in China? Evidence from Manufacturing Enterprises","authors":"Yi Lu, I. Png, Z. Tao","doi":"10.2139/ssrn.1129647","DOIUrl":"https://doi.org/10.2139/ssrn.1129647","url":null,"abstract":"This study addresses the apparent puzzle that China achieved spectacular economic performance despite weak institutions. Using a World Bank survey of 1,566 manufacturing enterprises in 18 Chinese cities, we investigated whether property rights protection mattered for enterprise performance. We found that property rights protection had a positive and statistically significant impact on enterprise productivity. Two-step GMM estimation and the difference-in-differences estimation further established the causal impacts of property rights protection on enterprise productivity. These findings were robust to various controls, outliers, and alternative measures of productivity and property rights protection.","PeriodicalId":163698,"journal":{"name":"Institutional & Transition Economics eJournal","volume":"74 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-02-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114915623","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Development of Russian financial markets is gradually becoming a subject for standard economic analysis. Accumulated statistics make it possible to pose some questions about features of development and operation of financial markets in Russia. This paper analyses relationships between the two leading Moscow stock exchanges, as well as analysing performance of their indices and trading volumes, and factors determining index changes. The authors are far from thinking that their work is comprehensive or gives final answers to the questions posed. On the contrary, the authors hope that the paper will be a starting point for development of a fruitful scientific discussion of the issues concerned. Russian stock exchanges, their trading volumes and share prices, offer material which makes it possible to search for clear and steady patterns of performance. Although the period of organised stock trading in Russia is quite short, the combined use of monthly, daily and hourly observations allows a variety of questions to be posed. For example, what is the relationship between the performance of the two exchanges as regards indices and trading volumes, and how are those related to international indices and important factors traditionally affecting levels of market activity, such as economic activity in Russia, commodity prices, etc.? One interesting aspect of stock index performance is the slow rate of index growth despite the relatively long-lasting economic recovery (Figure1).
{"title":"Two Russian Stock Exchanges: Analysis of Relationships","authors":"L. Grigoriev, L. Valitova","doi":"10.1111/1467-9426.00251","DOIUrl":"https://doi.org/10.1111/1467-9426.00251","url":null,"abstract":"Development of Russian financial markets is gradually becoming a subject for standard economic analysis. Accumulated statistics make it possible to pose some questions about features of development and operation of financial markets in Russia. This paper analyses relationships between the two leading Moscow stock exchanges, as well as analysing performance of their indices and trading volumes, and factors determining index changes. The authors are far from thinking that their work is comprehensive or gives final answers to the questions posed. On the contrary, the authors hope that the paper will be a starting point for development of a fruitful scientific discussion of the issues concerned. Russian stock exchanges, their trading volumes and share prices, offer material which makes it possible to search for clear and steady patterns of performance. Although the period of organised stock trading in Russia is quite short, the combined use of monthly, daily and hourly observations allows a variety of questions to be posed. For example, what is the relationship between the performance of the two exchanges as regards indices and trading volumes, and how are those related to international indices and important factors traditionally affecting levels of market activity, such as economic activity in Russia, commodity prices, etc.? One interesting aspect of stock index performance is the slow rate of index growth despite the relatively long-lasting economic recovery (Figure1).","PeriodicalId":163698,"journal":{"name":"Institutional & Transition Economics eJournal","volume":"63 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-06-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124013532","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-06-16DOI: 10.1111/j.1468-0351.2008.00330.x
A. Muravyev
The paper tests for the existence of human capital externalities using a micro-level approach: the Mincerian wage regression augmented with the average level of education in cities. To solve identification problems arising from the endogeneity of average education, the study exploits a natural experiment provided by the process of economic transition: average education at the end of communism can be seen as exogenous in respect of wages prevailing after the start of transition. Our empirical results based on the RLMS data show that a 1 percentage point increase in the share of city residents with a university degree results in an increase of wages of city residents by about 1 percent.
{"title":"Human Capital Externalities Evidence from the Transition Economy of Russia","authors":"A. Muravyev","doi":"10.1111/j.1468-0351.2008.00330.x","DOIUrl":"https://doi.org/10.1111/j.1468-0351.2008.00330.x","url":null,"abstract":"The paper tests for the existence of human capital externalities using a micro-level approach: the Mincerian wage regression augmented with the average level of education in cities. To solve identification problems arising from the endogeneity of average education, the study exploits a natural experiment provided by the process of economic transition: average education at the end of communism can be seen as exogenous in respect of wages prevailing after the start of transition. Our empirical results based on the RLMS data show that a 1 percentage point increase in the share of city residents with a university degree results in an increase of wages of city residents by about 1 percent.","PeriodicalId":163698,"journal":{"name":"Institutional & Transition Economics eJournal","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-06-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120005409","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
As a transition country, Croatia is confronted with fundamental changes in the segment of capital transactions. These changes are the result of the country's market orientation, of its position in the globalization(integration) processes, but especially of its needs. The limiting framework of a more significant development of the capital market is set by the reached level of development of the Croatian economy, by the underdevelopment of the entire financial market, by, until recently, inadequate legal regulation and, partially, by the specific tradition and conservatism in this segment. The present situation in the segment of capital transactions indicates the comprehensiveness of the changes regarding the development of the capital market, but at the same time the extreme sensitivity of this market to changes of the economic activity in the country, as well as in its surrounding, and high sensibility relating to the political decision about the initiation of negotiations with the European Union concerning the membership of Croatia in this association.
{"title":"The Process of Transition and the Capital Market in the Republic of Croatia","authors":"Branko Matić, Branimir Markovi","doi":"10.2139/SSRN.1144508","DOIUrl":"https://doi.org/10.2139/SSRN.1144508","url":null,"abstract":"As a transition country, Croatia is confronted with fundamental changes in the segment of capital transactions. These changes are the result of the country's market orientation, of its position in the globalization(integration) processes, but especially of its needs. The limiting framework of a more significant development of the capital market is set by the reached level of development of the Croatian economy, by the underdevelopment of the entire financial market, by, until recently, inadequate legal regulation and, partially, by the specific tradition and conservatism in this segment. The present situation in the segment of capital transactions indicates the comprehensiveness of the changes regarding the development of the capital market, but at the same time the extreme sensitivity of this market to changes of the economic activity in the country, as well as in its surrounding, and high sensibility relating to the political decision about the initiation of negotiations with the European Union concerning the membership of Croatia in this association.","PeriodicalId":163698,"journal":{"name":"Institutional & Transition Economics eJournal","volume":"35 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-06-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124466620","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Corruption, which remains a serious problem in many countries, has prompted considerable research in recent years. This paper adds to the extant literature with insights on factors influencing corrupt activity. Using cross-country data for about 100 nations, the roles of national history, geography, and government are examined to see how they affect conditions for corruption, both qualitatively and quantitatively. The innovative aspects of this research include use of a wide set of historical, geographical, and governmental determinants of corruption, as well as detailed assessment of several previously considered determinants. The main issues addressed are the effects of the size and scope of government on the incidence of corruption across countries, and the significance of historical and geographic factors in corruption. Regarding the first question, the authors find the size and scope of government can significantly affect corruption. On the second, it is shown that historical institutional inertia in older countries and new rent-seeking opportunities in younger nations can encourage corruption, while certain geographic factors can mitigate corruption. The paper ends with discussion aimed at the policymaker.
{"title":"Causes of Corruption: History, Geography, and Government","authors":"R. Goel, M. A. Nelson","doi":"10.2139/ssrn.1141772","DOIUrl":"https://doi.org/10.2139/ssrn.1141772","url":null,"abstract":"Corruption, which remains a serious problem in many countries, has prompted considerable research in recent years. This paper adds to the extant literature with insights on factors influencing corrupt activity. Using cross-country data for about 100 nations, the roles of national history, geography, and government are examined to see how they affect conditions for corruption, both qualitatively and quantitatively. The innovative aspects of this research include use of a wide set of historical, geographical, and governmental determinants of corruption, as well as detailed assessment of several previously considered determinants. The main issues addressed are the effects of the size and scope of government on the incidence of corruption across countries, and the significance of historical and geographic factors in corruption. Regarding the first question, the authors find the size and scope of government can significantly affect corruption. On the second, it is shown that historical institutional inertia in older countries and new rent-seeking opportunities in younger nations can encourage corruption, while certain geographic factors can mitigate corruption. The paper ends with discussion aimed at the policymaker.","PeriodicalId":163698,"journal":{"name":"Institutional & Transition Economics eJournal","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-05-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126808658","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The presence of a Currency Board (CB) monetary system in Bulgaria is a key factor in assessing monetary policy transmission, since a CB implies no monetary autonomy. Using the SVAR technique according to the statistical properties of macroeconomic time series, we propose evidence sustaining the endogeneity of main Bulgarian monetary aggregates to shocks on the ECB interest rate. These results shed a new perspective over CB functioning.
{"title":"Some New Insights into Currency Boards: Evidence from Bulgaria","authors":"A. Minea, C. Rault","doi":"10.2139/ssrn.1140774","DOIUrl":"https://doi.org/10.2139/ssrn.1140774","url":null,"abstract":"The presence of a Currency Board (CB) monetary system in Bulgaria is a key factor in assessing monetary policy transmission, since a CB implies no monetary autonomy. Using the SVAR technique according to the statistical properties of macroeconomic time series, we propose evidence sustaining the endogeneity of main Bulgarian monetary aggregates to shocks on the ECB interest rate. These results shed a new perspective over CB functioning.","PeriodicalId":163698,"journal":{"name":"Institutional & Transition Economics eJournal","volume":"12 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134605110","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper investigates when trade facilitation reform should be undertaken at the regional level. First, looking at both efficiency and implementation considerations, it confirms the perception that the regional dimension matters. Investigating where efficiency gains can be made, this research explains why national markets alone fail to produce the full scale economies and positive externalities of trade facilitation reform. Second, because trade facilitation policies need to address coordination and capacity failures, and because of the operational complexity challenge, the choice of the adequate platform for delivering reform is crucial. The lessons are that regional trade agreements offer good prospects of comprehensive and effective reform and can effectively complement multilateral and national initiatives. However, examples of implementation of trade facilitation reform in regional agreements do not seem to indicate that regional integration approaches have been more successful than trade facilitation through specific cooperation agreements or other efforts, multilateral or unilateral. Customs unions may be an exception here, and the author suggests reasons why this could be the case.
{"title":"Regionalism and Trade Facilitation: A Primer","authors":"Jean-Christophe Maur","doi":"10.1596/1813-9450-4464","DOIUrl":"https://doi.org/10.1596/1813-9450-4464","url":null,"abstract":"This paper investigates when trade facilitation reform should be undertaken at the regional level. First, looking at both efficiency and implementation considerations, it confirms the perception that the regional dimension matters. Investigating where efficiency gains can be made, this research explains why national markets alone fail to produce the full scale economies and positive externalities of trade facilitation reform. Second, because trade facilitation policies need to address coordination and capacity failures, and because of the operational complexity challenge, the choice of the adequate platform for delivering reform is crucial. The lessons are that regional trade agreements offer good prospects of comprehensive and effective reform and can effectively complement multilateral and national initiatives. However, examples of implementation of trade facilitation reform in regional agreements do not seem to indicate that regional integration approaches have been more successful than trade facilitation through specific cooperation agreements or other efforts, multilateral or unilateral. Customs unions may be an exception here, and the author suggests reasons why this could be the case.","PeriodicalId":163698,"journal":{"name":"Institutional & Transition Economics eJournal","volume":"76 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125378416","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In many developing and transition countries, we observe rather high levels of corruption. This is surprising from a political economy perspective, as the majority of people in a corrupt country suffer from high corruption levels. Our model is based on the fact that corrupt officials have to pay entry fees to get lucrative positions. In a probabilistic voting model, we show that a lack of financial institutions can lead to more corruption as more voters are part of the corrupt system and, more importantly, as the rents from corruption are distributed differently. Thus, the economic system has an effect on political outcomes. Well-functioning financial institutions, in turn, increase the political support for anti-corruption measures.
{"title":"The Political Economy of Corruption & the Role of Financial Institutions","authors":"António Afonso, Christophe Rault","doi":"10.2139/ssrn.1086695","DOIUrl":"https://doi.org/10.2139/ssrn.1086695","url":null,"abstract":"In many developing and transition countries, we observe rather high levels of corruption. This is surprising from a political economy perspective, as the majority of people in a corrupt country suffer from high corruption levels. Our model is based on the fact that corrupt officials have to pay entry fees to get lucrative positions. In a probabilistic voting model, we show that a lack of financial institutions can lead to more corruption as more voters are part of the corrupt system and, more importantly, as the rents from corruption are distributed differently. Thus, the economic system has an effect on political outcomes. Well-functioning financial institutions, in turn, increase the political support for anti-corruption measures.","PeriodicalId":163698,"journal":{"name":"Institutional & Transition Economics eJournal","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122035847","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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