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101. Loan Processing Costs and Information Asymmetries - Implications for Financial Sector Development and Economic Growth

Author:
George Mavrotas and Salvatore Capasso
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper presents a model in which credit-constrained firms might delay the adoption of new and more productive technologies because of the very high external financing costs they face. Our point of departure is that the efficiency of the banking system can have a profound impact on real resource and investment allocation not only directly, by reducing the amount of resources channelled to the credit market, but also indirectly by affecting entrepreneurs' investment decisions. Along these lines of reasoning we develop a model of information asymmetries in the credit market in which high costs of processing bank loan applications might obstruct investments in high-tech projects and favour, instead, low-return, self-financed investments in mature sectors. The result is that these kinds of costs have a negative impact on the average capital productivity and on the rate of economic growth. In specific circumstances, the combination of these costs and the dynamics of capital accumulation can be such that the economy incurs in a 'technology trap', in which new technologies, even if readily available, will never be adopted because of high frictions and inefficiencies in the credit market, a situation that seems to be relevant to many developing countries.
Topic:
Development, Economics, and International Trade and Finance

102. The Revenue and Double Dividend Potential of Taxes on International Private Capital Flows and Securities Transactions

Author:
Ilene Grabel
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper explores two proposals to tax financial flows in developing economies—the package of policies implemented to various degrees by Chile and Colombia during the 1990s, widely referred to today as the Chilean model—and securities transactions taxes (STTs). I find that each provides a viable mechanism to raise revenue in some developing countries. Both can be introduced unilaterally (with the prospect of multilateral coordination in the future); both are progressive in their incidence, and in the case of the STT, represents an administratively manageable form of revenue collection. I also find that each entails double dividends that manifest in greater domestic and international macroeconomic stability.
Topic:
Development, Economics, and International Trade and Finance

103. Private Donations for International Development

Author:
John Micklewright and Anna Wright
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Charitable donations by private individuals and firms can help fund the Millennium Development Goals. What are the prospects for increasing donations for international development, whether from small-scale donors, the super-rich (as in the recent gifts by Bill Gates and Ted Turner), or the corporate sector? The paper starts by reviewing how large are the sums currently given in OECD countries (including gifts of time) and the problems development has in competing with domestic causes. It then looks at possibilities for the future, including tax deductions, the new 'global funds', corporate social responsibility and 'cause-related marketing', the use of the Internet, and long-term donor education.
Topic:
Development, International Cooperation, International Trade and Finance, and Third World

104. Revenue Potential of the Currency Transaction Tax for Development Finance: A Critical Appraisal

Author:
Machiko Nissanke
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper assesses the potential of currency transaction taxes (CTT, widely known as the Tobin tax), to raise revenue for global development. Though Tobin proposed and others assessed CTTs in terms of reducing exchange rate volatility and improving macroeconomic policy environments, this paper considers the CTT first and foremost from the standpoint of revenue. With a view of establishing a 'permissible' range of tax rates to obtain realistic estimates of revenue potential, it first reviews the debate over the effects of CTT on market liquidity and the efficiency of foreign exchange markets, and assesses the Spahn proposal for a two-tier currency tax. It then moves to a discussion of the technical and political feasibility of CTT, followed by an evaluation of several new proposals, such as those advanced by Schmidt and Mendez. The paper presents revenue estimates from CTT in light of recent changes in the composition and structure of foreign exchange markets.
Topic:
Development, Economics, Globalization, and International Trade and Finance

105. A Global Lottery and a Global Premium Bond

Author:
Tony Addison and Abdur R. Chowdhury
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The world lottery market now amounts to at least US$126 billion in sales. World market sales for all gaming products (public, charitable and commercial) total some US$1 trillion, of which Internet gambling accounts for US$32 billion. This paper assesses the prospects for harnessing this large and growing market for the purposes of development finance by means of a global lottery and a global premium bond (with the successful UK scheme providing a model for the latter). Each has different strengths: the global lottery can add to the supply of grant finance for development, while the global premium bond could be an attractive savings instrument for ethical investors. The paper concludes that global versions of both a lottery and a premium bond are viable and complementary in mobilizing more development finance.
Topic:
Development, Economics, International Cooperation, and International Trade and Finance
Political Geography:
United Kingdom

106. The International Finance Facility: The UK HM Treasury-DFID Proposal to Increase External Finance to Developing Countries

Author:
George Mavrotas
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper discusses the International Finance Facility (IFF), a joint HM Treasury-DFID proposal to increase development aid substantially for the Millennium Development Goals to be achieved by 2015. The main conclusion of the paper is that the proposed IFF is a promising, forward-looking and creative proposal for it implies a substantial increase in fresh, predictable and stable aid as well as a robust financial structure. However, there are a number of concerns about potential shortcomings of the proposal, namely its underlying assumptions about continuous commitment on behalf of the donor community towards the implementation of the IFF during the life of the Facility and most importantly its heavy reliance on political coordination among donor countries participating in the proposed scheme. Potential absorptive capacity constraints in IFF aid-recipient countries may be also relevant. Achieving its huge political task as well as alleviating the crucial constraints regarding its successful implementation seem to be the main challenges this innovative proposal needs to deal with in the near future.
Topic:
Development, International Cooperation, and International Trade and Finance
Political Geography:
United Kingdom and Europe

107. Globalization and Catching-up in Emerging Market Economies

Author:
Grzegorz W. Kolodko
Publication Date:
05-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The study discusses conditions and prospects for fast and durable growth in emerging market economies. In the course of history less than 30 nations have become rich and still more than 80 per cent of the world population lives in the middle and low-income countries, some of them in extreme poverty. It is true not only for the majority of economies traditionally considered as 'developing countries', but also for the new, post-socialist emerging markets. Thus the questions arise: what is the influence of globalization process on economic growth and how real are the prospects for these emerging markets to catch up with more advanced countries? What factors may contribute to sustained and rapid growth over the long term? The paper examines strategies that can help taking the contemporary wave of globalization to the advantage of fast growth of less advanced countries and hence containing the existing development gaps.
Topic:
Economics, Emerging Markets, Globalization, and International Trade and Finance

108. The Benefits and Costs of Group Affiliation: Evidence from East Asia

Author:
Stijn Claessens, Joseph P.H. Fan, and Larry H.P. Lang
Publication Date:
05-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper investigates the benefits and associated agency costs of using internal capital markets through affiliating with groups using data of two thousand firms from nine East Asian economies between 1994-6. We find that mature and slow-growing firms with ownership structures more likely to create agency problems gain more from group affiliation, while young and high-growth firms more likely lose. Agency problems are important explanatory factors of firm value in economies outside Japan, but less so in Japan. Consistent with the literature, financially constrained firms benefit from group affiliation. Our results are robust to different time periods and estimation techniques.
Topic:
Economics and International Trade and Finance
Political Geography:
Israel and East Asia

109. The Macroeconomic Repercussions of Agricultural Shocks and their Implications for Insurance

Author:
Paul Collier
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper considers the macroeconomic impact of shocks to agricultural output and of negative and positive price shocks. It is shown that negative price shocks have particularly large externalities: it is estimated that the overall impact of these negative shocks on GDP may well be double their direct impact. In terms of policy, the presence of externalities justifies subsidising the provision of insurance. If insurance is not feasible, then foreign aid may be helpful. Turning to other systemic shocks, it is argued that the macroeconomic consequences of negative output shocks are far less important. Positive price shocks also have substantial macroeconomic externalities via their effect on asset demand. Appropriate central bank policy is crucial and requires a detailed understanding of asset demand changes in response to price shocks. Since this may well be unlikely, dollarization may be a better strategy.
Topic:
Economics, Government, and International Trade and Finance

110. Debt Relief under the HIPC Initiative. Context and Outlook for Debt Sustainability and Resource Flows

Author:
Lisandro Abrego and Doris C. Ross
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper analyses debt relief efforts by creditors to alleviate the debt burden of low- income countries. The Heavily Indebted Poor Countries (HIPC) Initiative builds on traditional debt relief, and for the first time involves relief on multilateral debt. It seeks to reduce debt to sustainable levels and eliminate any debt overhang that might hinder growth and investment. It provides substantial debt relief to eligible countries by reducing their overall debt stocks by about one-half, or, together with traditional relief over time, by some 80 per cent. It lowers debt service payments of HIPCs substantially, provides room for increased social spending, and provides a solid basis for debt sustainability. The latter requires efforts by both debtors and creditors. To find poverty reduction efforts, HIPC relief is important, but much broader international support is needed as external transfers to HIPCs in the past far exceeded debt service paid. Experience has shown that external support can only be effective if it reinforces sound policies implemented by HIPCs themselves. Thus debt relief and ODA are most important not in isolation, but as help for self-help.
Topic:
Economics, International Organization, and International Trade and Finance