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2731. By How Much Does Conflict Reduce Financial Development?

Author:
S. Mansoob Murshed, Tony Addison, and Abdur R. Chowdhury
Publication Date:
05-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Financial development is vulnerable to social conflict. Conflict reduces the demand for domestic currency as a medium of exchange and a store of value. Conflict also leads to poor quality governance, including weak regulation of the financial system, thereby undermining the sustainability of financial institutions. Conflict therefore reduces the social return to financial liberalization and other financial-sector reforms. This paper presents a theoretical model integrating the effects of conflict and financial liberalization, and then tests the model on data for 79 countries. Using an explanatory variable that measures the intensity of conflict (from low to high) the results show that conflict significantly reduces financial development, and that this negative effect increases as conflict intensifies. The paper concludes that conflict reduction is essential if financial reform is to have its full benefit for development.
Topic:
Conflict Resolution, Development, Government, and Political Economy

2732. 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

2733. Financial Regulation and Supervision in Emerging Markets. The Experience of Latin America since the Tequila Crisis

Author:
Barbara Stallings and Rogerio Studart
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper deals with changes in the regulation and supervision of the Latin American financial sector in the aftermath of the 'Tequila Crisis' of 1994–95. While it finds that both have improved, regulation and supervision cannot resolve all problems; good macroeconomic policy and performance are essential complements. This is especially true because of the procyclical nature of financial activity. The paper presents both regional data for Latin America, contrasting it with other emerging markets, and four country case studies (Argentina, Brazil, Chile, and Mexico). The latter show how individual country characteristics and experiences affect the operation of the financial systems. We close with some policy recommendations.
Topic:
Economics, Emerging Markets, and Government
Political Geography:
Brazil, Argentina, South America, Latin America, North America, Mexico, and Chile

2734. Assessing the Impact of Fiscal Policy on Poverty

Author:
Andrew McKay
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Fiscal policy measures are a key means by which governments can influence distribution and poverty, but in fact the relationships between fiscal policy and poverty are not well understood. The most commonly used technique for assessing the distributional impact, benefit incidence analysis, is straightforward, but applied by itself it suffers from a number of serious limitations. Assessment of the impact of fiscal policy needs to be developed in various directions, including allowing for behavioural responses and incorporating a broader range of information. In parallel with this careful attention needs to be paid to more effective monitoring of the poverty impsact of fiscal policy.
Topic:
Economics, Government, and International Trade and Finance

2735. Countercyclical Fiscal Policy. A Review of the Literature, Empirical Evidence and some Policy Proposals

Author:
Carlos Budnevich L.
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
For many emerging market economies, over reliance on monetary policy may bring worse macro results, when compared to a more balanced framework of countercyclical fiscal and monetary policy. The use of countercyclical fiscal policy requires as a precondition solvent and sustainable fiscal accounts and the re-engineering of fiscal institutions to increase the timeliness and flexibility of fiscal policy. A higher degree of tax or pension fund and/or unemployment insurance contribution flexibility may help in economies subject to significant external shocks. Automatic indexing rules to terms of trade or country risk spreads for pension contributions and interest payments on public debt may also contribute to the stabilization effort. If fiscal revenues are highly volatile, structural budget rules and commodity stabilization funds may provide the necessary framework to achieve saving (dissaving) during expansions (contractions).
Topic:
Economics, Government, and International Trade and Finance

2736. Aid, Public Sector Fiscal Behaviour and Developing Country Debt

Author:
Mark McGillivray and Simon Feeny
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper looks at public sector debt in developing countries, being concerned specifically with the relationship between aid inflows and the public sector borrowing requirement net of aid loans. After examining the public sector budget constraint and various conditions under which aid might lead to an increase in this borrowing, the paper surveys the empirical results of literature on aid and public sector fiscal behaviour. It finds that the results of a number of studies are consistent with aid leading to increases in this borrowing. Further investigation, in the form of econometric analysis of panel data, also points to this outcome. The paper then looks at a number of theoretical scenarios in which aid leads to increases in borrowing net of aid loans.
Topic:
Economics, Government, and International Trade and Finance

2737. Producing an Improved Geographic Profile of Poverty: Methodology and Evidence from Three Developing Countries

Author:
Chris Elbers, Peter Lanjouw, Johan Mistiaen, Gabriel Demombynes, Jenny Lanjouw, and Berk Özler
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper implements a methodology for estimating poverty in Ecuador, Madagascar and South Africa, at levels of disaggregation that to date have not generally been available. The methodology is based on a statistical procedure to combine household survey data with population census data, imputing into the latter a measure of per capita consumption from the former. The countries are very unlike each other—with different geographies, stages of development, quality and types of data, and so on. Yet the paper demonstrates that in all three countries the poverty estimates produced from census data are both plausible (in that they match well stratum-level estimates calculated directly from the household surveys) and satisfactorily precise (at a level of disaggregation far below that allowed by household surveys).
Topic:
Development, Economics, Government, and International Trade and Finance
Political Geography:
South Africa

2738. Fiscal Policy, Growth and Poverty Reduction in Uganda

Author:
Steve Kayizzi-Mugerwa
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
After more than a decade of economic decline and civil war, Uganda was able to return to economic growth thanks to the policies pursued by Museveni's National Resistance Movement which elicited considerable donor support. They include macroeconomic reforms, public sector restructuring, privatisation and decentralization, all with emphasis on poverty reduction. The government recognises that fiscal policy is the key to success and much effort has, in the past decade, gone towards fiscal reforms and the improvement of institutional capacities. Still, in a country with limited finances and a thin tax base the competition for resources has been stiff. While the government has been able to embark on initiatives such as universal primary education, thanks to an improved revenue base and donor support, the decentralization drive is hindered by serious fiscal constraints at the local level.
Topic:
Development, Government, and Political Economy
Political Geography:
Uganda and Africa

2739. Welfare Implications of Fiscal Reform: The Case of Food Subsidies in India

Author:
Sonia Bhalotra
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper investigates the effect of a food subsidy programme in India on child malnutrition by addressing the following linked questions using household survey data that includes information on usage of the public distribution system. First, does the food subsidy induce higher expenditures on food? Second, are there gender inequalities in the distribution of food within the household, and in the gains from the food subsidy? Third, does food spending impact on child health? Is this effect similar for boys and girls and in the short and the medium term? These questions are of interest with respect to the unusually high incidence of malnutrition in India, and they are topical in the context of current and controversial reform of the public distribution system through which the food subsidy operates.
Topic:
Development and Government
Political Geography:
South Asia and India

2740. 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