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11. Foreign Aid – A Fillip for Development or a Fuel for Corruption?

Author:
Keith Blackburn and Gonzalo F. Forgues-Puccio
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
We present an analysis of the effects of foreign aid on economic development when the quality of governance may be compromised by corruption. The analysis is based on a dynamic general equilibrium model in which growth is driven by capital accumulation and public policy is administered by government-appointed bureaucrats. Corruption may arise due to the opportunity for bureaucrats to embezzle public funds which are otherwise used to provide productive public goods and services. Our main results may be summarized as follows: (1) corruption impedes economic development and compromises the effectiveness of aid programmers; (2) the incidence of corruption may, itself, be affected by both the development process and the donation of aid; (3) foreign aid is good for development when governance is good, but may be bad (perhaps very bad) for development when governance is bad; and (4) corruption and poverty may co-exist as permanent, rather than just transitory, fixtures of an economy
Topic:
Corruption, Development, Foreign Aid, and Economy
Political Geography:
Global Focus

12. Financial Liberalisation, Bureaucratic Corruption and Economic Development

Author:
Keith Blackburn and Gonzalo F. Forgues-Puccio
Publication Date:
06-2008
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
We study the e§ect of international Önancial integration on economic development when the quality of governance may be compromised by corruption. Our analysis is based on a dynamic general equilibrium model of a small economy in which growth is driven by capital accumulation and public policy is administered by governmentappointed bureaucrats. Corruption may arise due to the opportunity for bureaucrats to embezzle public funds, an opportunity that is made more attractive by Önancial liberalisation which, at the same time, raises e¢ ciency in capital production. Our main results may be summarised as follows: (1) corruption is always bad for economic development, but its e§ect is worse if the economy is open than if it is closed; (2) the incidence of corruption may, itself, be a§ected by both the development and openness of the economy; (3) Önancial liberalisation is good for development when governance is good, but may be bad for development when governance is bad; and (4) corruption and poverty may co-exist as permanent, rather than just transitory, Öxtures of an economy.
Topic:
Corruption, Development, Finance, and Liberalization
Political Geography:
Global Focus

13. A note on the U-shaped relationship between political competition and economic freedom

Author:
Antonio Saravia
Publication Date:
10-2008
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
We investigate a recent political theory of institutional change according to which institutions of economic freedom are more likely to be adopted at the extreme cases of strong and weak political competition than at cases in between. We find that such a U-shaped relationship is verified when controlling for other political variables and past economic growth, but disappears when controlling for the initial level of development. In this case, the relationship between political competition and the adoption of institutions of economic freedom appears to be positive and linear as suggested by the political principal-agent paradigm.
Topic:
Politics, Institutions, Competition, and Economic Freedom
Political Geography:
Global Focus

14. Analysis of International Migration and its Impacts on Developing Countries

Author:
Paolo Barrientos
Publication Date:
11-2007
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This paper provides a review of the literature on the reasons and consequences of international migration. The principal determinants of migration are analyzed and it is seen that educated people from developing countries are more likely to migrate for several reasons (i.e. network determinants, costs of moving, pull factors and push factors). Looking into the empirical data, the global trend is that emigration of educated people (usually called “brain drain”) has increased a lot. This trend implies that industrialized countries are importing highly skilled people from developing countries and this will certainly have important consequences for developing countries in the long run. Some researchers argue that developing countries will loose, since the most qualified people leave and stop contributing to their country. Others say that the global trend can be beneficial because positive spillovers will be created; in the sense that developing countries will experience higher investments in human capital (“brain gain”). Empirical findings show that these spillovers depend on the probability to migrate and the stock of human capital that a country has. Finally another group of researchers argues that this process is inevitable, and barriers to migration should be abolished in order to reap the benefits for both sending and receiving countries as well as the migrants themselves.
Topic:
Development, Migration, Brain Drain, and Human Capital
Political Geography:
Global Focus

15. Liquidity Shocks and the Dollarization of a Banking System

Author:
Carlos Gustavo Machicado
Publication Date:
09-2006
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This paper shows how uncertainty about liquidity demand can lead to a high degree of dollarization in the banking system. I study a model where the demand for currency in each period is random, and where it is easier for banks to borrow in local currency in times of crisis than in dollars. Banks choose a portfolio composed of local currency, dollars, and real loans. Compared to the anticipated transactions demand for each currency, I show that the bank will hold a relatively large amount of dollars and a relatively small amount of local currency. I also show the existence of a dollarization multiplier : as the anticipated transactions demand for dollars increases, the dollarization of the banking sector increases more than proportionately
Topic:
Banking, Banking Crisis, Liquidity, and Dollarization
Political Geography:
Global Focus

16. Welfare Gains from Optimal Policies in a Partially Dollarized Economy

Author:
Carlos Gustavo Machicado
Publication Date:
09-2006
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This paper evaluates welfare under optimal monetary and fiscal policy in a dynamic stochastic model of currency substitution and capital. It shows that in a partially dollarized economy, the main optimal policy results, i.e. the Friedman Rule and the zero capital tax, hold. Welfare implications of these optimal policies are computed for the Bolivian economy using a second-order approximation technique. The primary conclusions are that the welfare gains under optimal monetary policy are negligible. The welfare gains when optimal fiscal policy is considered alone or in conjunction with optimal monetary policy are sizable and come from the increase in real variables and also by the increase in real balances in local currency. Thus, welfare gains are negatively related to dollarization.
Topic:
Economics, Monetary Policy, Fiscal Policy, Welfare, and Dollarization
Political Geography:
Global Focus

17. Inequality and Suicide Rates: A Cross-Country Study

Author:
Antonio Rodríguez Andrés
Publication Date:
10-2006
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
This paper tests whether economic inequality is related to suicide mortality. Using an unbalanced panel of 40 countries for the period 1947-2001 allows us to control for the effect of unobserved factors that may have an impact on suicide rates. Our results indicate that there is a statistically insignificant positive effect of inequality on the incidence of suicide. The latter result seems to be robust to a number of specification issues explored in a sensitivity analysis. Our results also suggest that female labour participation has a significant positive effect on the total (males and female) suicide rates, supporting the sociological argument that the role conflict dominates more than the role expansion. Contrary to the total and male suicide rates findings, the fertility rate matters in explaining female suicide rates. Finally, in contrast to previous studies, suicide rates were not sensitive to income levels, divorce rates and alcohol consumption.
Topic:
Economics, Inequality, Public Health, Data, and Suicide
Political Geography:
Global Focus

18. To aid or not to aid: Foreign aid and producity in cross-country regressions

Author:
Pablo Selaya
Publication Date:
11-2005
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
The paper reexamines empirically the robustness of competing theories of foreign aid e§ectiveness. By shifting the focus from the e§ects of aid on income to to e§ects of aid on productivity, it is possible to put to test 3 existing theories of foreign aid e§ectiveness. The results provide support for the hypotheses that (i) aid has a positive e§ect in fostering growth of average productivity, (ii) aid doesnít operate with diminishing returns, and (iii) the magnitude of the total e§ect depends on climate-related circumstances. The results support the policy recommendation previously made in the literature to seriously reconsider the conditionality rule for foreign aid disbursements.
Topic:
Development, Foreign Aid, Productivity, and Income
Political Geography:
Global Focus