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5141. Does a Switch of Budget Regimes Constrain Managerial Discretion? Evidence for Italian Public Enterprises' Investment

Author:
Elisabetta Bertero and Laura Rondi
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This study examines the effect of the hardening of the budget constraint on the investment behaviour of Italian state owned enterprises (SOEs). It carries out a natural experiment that exploits the 1987 shift of budget regimes due to the pressure of European Union economic policies on the Italian government.Drawing from the theory of capital market imperfections, we apply the empirical framework for the analysis of investment-cash flow sensitivity to a panel of state-owned manufacturing firms during the period 1977-93. We parallel state firms to Anglo-Saxon public corporations which, under separation of ownership and control, are afflicted by agency problems, managerial discretion, misallocation of free cash-flow and overinvestment. We argue that, under a soft budget constraint, state firms' managerial discretion and, in particular, collusion between managers and vote-seeking politicians, lead to wasteful investment.
Topic:
Economics and International Trade and Finance
Political Geography:
Europe and Italy

5142. Why isn't there more Financial Intermediation in Developing Countries?

Author:
Jonathan Conning and Michael Kevane
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper proposes to organize thinking about the opportunities for improving and extending financial markets and safety nets for the poor, by focusing on factors that may explain why the linkage of local financial networks and safety nets with the larger economy often fails or is incomplete. Understanding the nature of these impediments is the first step in proposing policies to help promote more effective linkage and intermediation. We propose four explanations for the slowness of adoption of intermediation (high costs of delegated monitoring aggravated by limited intermediary capital; lock-in and crowding out effects from local insurance arrangements, social norms against cooperation with intermediaries; and political resistance to new institutions that shift the balance of power in local polities). Of course, financial repression and weak legal systems remains important as cause of lack of intermediation. We conclude with a review of public policy for more effective intermediation.
Topic:
Development, Economics, and Government

5143. Insolvency and Debt Recovery Procedures in Economic Development: An Overview of African Law

Author:
Clas Wihlborg
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Insolvency and debt recovery procedures are as crucial to a well-performing financial sector as credit provision itself. They are even more important in Africa, where attempts are underway to create fully-fledged financial markets. For the financial system to be credible, creditors must be ensured that lenders will meet their obligations and that cases against them will be brought to closure. A good legal framework for insolvency also ensures distressed firms a form of orderly exit, thereby enabling their owners to start afresh. However, institutions of this nature take time to take effect, and need to be supported politically and by reforms in other sectors of the economy.
Topic:
Development, Economics, and Government
Political Geography:
Africa

5144. The Gradual Erosion of the Social Security Function of Customary Land Tenure Arrangements in Lineage-Based Societies

Author:
Jean-Philippe Platteau
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Customary rules governing access to land and other natural resources in village societies have characteristics that allow them to fulfil social security functions and achieve equity objectives. This is true of both common-property resources and land parcels held under individualized tenure. However, when land pressure increases under the combined influences of population growth and market integration, a shift occurs from extensive to intensive resource use patterns. As a result, the efficiency costs of erstwhile equity-and insurance-oriented arrangements rise, thus forcing them to evolve significantly. In particular, land tenure arrangements undergo a major transformation towards more individualized forms with the consequence that property rights in land are increasingly defined without regard for equity and insurance concerns.
Topic:
Development, Economics, and Government

5145. The Growth Elasticity of Poverty

Author:
Rasmus Heltberg
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
How much does economic growth contribute to poverty reduction? I discuss analytical and empirical approaches to assess the growth elasticity of poverty, and emphasize that the relationship between growth and poverty change is non-constant. For a given poverty measure, it depends on initial inequality and on the location of the poverty line relative to mean income. In most cases, growth is more important for poverty reduction than changes in inequality, but this does not render inequality unimportant. Reduction in inequality may be triple effective: (1) it will reduce poverty for a given level of income, (2) it will accelerate the poverty reducing impact of economic growth, and (3) according to cross-country growth regressions, it may contribute to a larger rate of growth.
Topic:
Development, Economics, and International Trade and Finance

5146. Poverty Incidence and Sectoral Growth: Evidence from Southeast Asia

Author:
Peter G. Warr
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In recent decades, absolute poverty incidence declined in most countries of Southeast Asia, even though in some of these countries inequality increased at the same time. This paper examines the relationship between these outcomes and the rate of economic growth in the agricultural, industrial and services sectors. It develops a time series of available data on the headcount measure of poverty incidence for Thailand, Indonesia, Malaysia and the Philippines over the period from the 1960s to 1999, in aggregate and in both rural and urban areas. It then uses this pooled data set to analyze the economic determinants of changes in poverty incidence.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
Indonesia, Malaysia, Philippines, Thailand, and Southeast Asia

5147. How Economic Growth Reduces Poverty: A General Equilibrium Analysis for Indonesia

Author:
Peter G. Warr and George Fane
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Do changes in poverty and inequality depend directly on the rate of economic growth, or does the source of the growth also matter? This paper uses a computable general equilibrium model of the Indonesian economy to explore this question by simulating increases in GDP arising from (i) technical progress in each of seven broad sectors, and (ii) the accumulation of each of six types of physical and human capital. The more a given amount of growth raises the returns to the factors that are more important sources of income for the poor than for the non-poor, the more it reduces poverty and inequality. Different sources of growth affect poverty and inequality differently because they affect factor returns differently, and because the poor and the non-poor own factors in different proportions.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
Indonesia and Southeast Asia

5148. Hardening a Soft Budget Constraint Through 'Upward Devolution' to a Supranational Institution: The Case of Italian State-Owned Firms and the European Union

Author:
Elisabetta Bertero and Laura Rondi
Publication Date:
01-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper contributes to the literature on the role of decentralization in hardening the budget constraint of public enterprises. Following Qian and Roland the study adopts a 'federalist' approach. However, it interprets federalism as the upward devolution of domestic economic policies to a supranational authority and examines its role in disciplining public enterprises operating in a soft budget regime. The methodology is a case study of the shift in budget regime in Italy in the late 1980s. The study shows that a determinant role in driving this shift was played by European economic policies. The discipline imposed by participation in the EMS, the Single Market Programme and, later, the requirements to enter the EMU pushed the Italian government toward a much tougher approach to its budget deficit.
Topic:
Economics, Government, and International Trade and Finance
Political Geography:
Europe

5149. Privatization in sub-Saharan Africa: On Factors Affecting Implementation

Author:
Steve Kayizzi-Mugerwa
Publication Date:
01-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Although privatization has been a key feature of economic policy in Africa since the early 1990s its sequencing and intensity have varied from country to country, with donor leverage being an important determinant of the pace of implementation. However, although many privatization schemes were undertaken in response to donor demands for reduced government participation in business, the process soon achieved its own dynamics. The positive view of privatization suggests that it went ahead, in spite of domestic opposition, because politicians and bureaucrats perceived real benefits to themselves and their supporters. They could influence the sales to their own benefit, while, on the other hand, a more focused public sector improved service delivery.
Topic:
Development, Economics, and Government
Political Geography:
Africa

5150. Understanding the Silicon Valley Phenomena

Author:
Masahiko Aoki and Hirokazu Takizawa
Publication Date:
01-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper analyzes the "Silicon Valley model" as a novel economic institution in the domain of technological product system innovation such as computers. We focus on the information structural relationship as well as governance relationships between venture capitalists and a cluster of entrepreneurial firms. The informational conditions under which the Silicon Valley model is efficient are identified, leading to understanding the significance of standardization of interfaces, modularization and information encapsulation. We then examine the governance/incentive aspect of the model by integrating the models by Aoki (2001) and Baldwin and Clark (2000) to give comparative statics results regarding the optimal number of entrepreneurial firms competing in the same component product. The analyses enable us to evaluate the applicability of the model beyond specific localities and industries.
Topic:
Economics and Industrial Policy
Political Geography:
United States