Is public expenditure productive

Legal and accounting reform that strengthens creditor rights, contract enforcement, and accounting practices boosts financial development and accelerates economic growth. Levine, Loayza, and Beck evaluate: Whether the level of development of financial intermediaries exerts a casual influence on economic growth. Whether cross-country differences in legal and accounting systems (such as creditor rights, contract enforcement, and accounting standards) explain differences in the level of financial development. Using both traditional cross-section, instrumental-variable procedures and recent dynamic panel techniques, they find that development of financial intermediaries exerts a large causal impact on growth. The data also show that cross-country differences in legal and accounting systems help determine differences in financial development. Together, these findings suggest that legal and accounting reform that strengthens creditor rights, contract enforcement, and accounting practices boosts financial development and accelerates economic growth. This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to understand the links between the financial system and economic growth. Thorsten Beck may be contacted at tbeck@worldbank.org.

Financial Intermediation and Growth: Causality and Causes

http://faculty.haas.berkeley.edu/ross_levine/Papers/2000_JME_Fin%20Int%20Growth%20Causality.pdf

Financial intermediation and growth: Causality and causes ☆

The ultimate ownership of Western European corporations

In the last decade, economists have produced a considerable body of research suggesting that the historical origin of a country's laws is highly correlated with a broad range of its legal rules and regulations, as well as with economic outcomes. We summarize this evidence and attempt a unified interpretation. We also address several objections to the empirical claim that legal origins matter. Finally, we assess the implications of this research for economic reform.

/pdf/the-economic-consequences-of-legal-origins-3phhiol1rf.pdf

The Economic Consequences of Legal Origins

Entrepreneurship in Emerging Domestic Markets

The recent meltdown of the U.S. housing market triggered a financial crisis that evolved into the worst recession since the Great Depression. Other mature countries such as Ireland and Spain also have suffered severe housing problems in the past few years. Those difficulties continue to be a drag on economic growth. In the United States, for example, the residential housing market is still seeking to recover to a steadier condition, and home prices have yet to return to their historical trajectory in many regions. The current "shadow inventory" of delinquent and foreclosed homes is taking time for the market to absorb, which impedes employment growth in construction and related sectors and thus overall economic growth.

China's Housing Market: Is a Buggle about to Burst?

Big is bad. At least that has become the view of many individuals about big banks ever since the financial crisis of 2007-2009. The fear is that if a big bank gets into trouble, its problems will infect other financial institutions and threaten the entire economy. In theory, of course, regulators have long been expected to prevent banks from reckless behavior and to shut down failing banks in a timely, orderly, and cost-effective manner. Historically, however, big banks in the United States and in many other countries have been implicitly treated as "too big to fail." In the United States, the practice of treating troubled big banks differently from troubled small ones dates back to the 1984 bailout of Continental Illinois Corporation.

Breaking (Banks) Up Is Hard to Do: New Perspective on Too Big to Fail

The purpose of this paper is to identify important determinants of the performance of commercial banks. Two profitability measures and one measure of loss are used as indicators of performance. Each of these measures is related to different types of bank assets and other variables. The choice of these measures and variables is justified by citing several previous studies in the area. Various arguments are also presented to show that these relationships are not linear, have unknown functional forms, and are not stable. To avoid the risk of misspecifying the functional form of the relationships, a wide class of functional forms is employed that may embody the true functional form as a special case even when the specific functional forms considered in previous studies are false. The empirical results obtained from the class approach are compared with those obtained by assuming linear and specific nonlinear relations to study the robustness of the results to departures from specific functional forms. The effects of excluded variables and of errors in measurement are also accounted for in the class approach.

Determinants of U.S. commercial bank performance: regulatory and econometric issues

The test of these hypotheses is based on the estimation of a mortgage default equation and the results support the equity model of default. JK use this finding to argue that an efficiently designed homeownership subsidy program should provide for a subsidization of borrower equity rather than borrower monthly payments. It is then pointed out that this is exactly opposite to the subsidy pattern used under the FHA Section 235 homeownership program that was operative during the late 1960s and early 1970s. The purpose of this comment is to suggest that the empirical results which JK offer in support of the equity model of default are subject to question. It is, therefore, unwise to base policy recommendations on one particular view of the mortgage default process. The implied criticism of previous government homeownership programs on these grounds may also be misplaced. ' Consider the coefficients of the variables listed under location characteristics in Table 1. From the estimated coefficients of the SMSA variables, we find that an increase in the rate of new starts; an increase in the fraction of pre- 1940 housing; a decrease in city size; higher rates of population growth; and higher income per capita all significantly reduce expected default rates. Location in the city center results in significantly higher expected default than location in the suburban or rural areas. Finally, location in a neighborhood with blighted structures increases the estimated probability of default. These effects could reflect the interaction of housing

James R. Barth

Papers

Entrepreneurship in Emerging Domestic Markets

China's Housing Market: Is a Buggle about to Burst?

Breaking (Banks) Up Is Hard to Do: New Perspective on Too Big to Fail

Determinants of U.S. commercial bank performance: regulatory and econometric issues

Default Risk on Home Mortgages: A Further Test of Competing Hypotheses