Contemporary Economic Policy 

About: Contemporary Economic Policy is an academic journal published by Wiley-Blackwell. The journal publishes majorly in the area(s): Population & Monetary policy. It has an ISSN identifier of 1074-3529. Over the lifetime, 1668 publications have been published receiving 37061 citations.

Does foreign direct investment promote economic growth? evidence from east asia and latin america

Abstract: Although there is considerable evidence on the link between foreign direct investment (FDI) and economic growth in developing countries, causal patterns of the two variables has not been investigated yet with a reliable procedure. This article provides an empirical assessment of the issue by using data for 11 economies in East Asia and Latin America. Although FDI is expected to boost host economic growth, it is shown that the extent to which FDI is growth-enhancing appears to depend on country-specific characteristics. Particularly, FDI tends to be more likely to promote economic growth when host countries adopt liberalized trade regime, improve education and thereby human capital conditions, encourage export-oriented FDI, and maintain macroeconomic stability.

The Endogeneity of the Optimum Currency Area Criteria, Intra-industry Trade, and EMU Enlargement

Abstract: 1. INTRODUCTION Countries participating in a currency area face benefits and costs of the common currency. The benefits are directly related to transaction costs in countries' bilateral trade. Therefore, countries with intensive trade relations are likely to gain relatively more from the monetary integration. In addition, Frankel and Rose (1997, 1998) hypothesize that business cycles are also becoming more similar across countries having intensive trade links. This hypothesis is supported by cross-section estimations of the relation between the correlation of business cycles and trade intensity among Organisation for Economic Co-operation and Development (OECD) countries between 1959 and 1993. Moreover, Fatas (1997) and Hochreiter and Winckler (1995) show that a common European business cycle has been emerging as predicted by the endogeneity hypothesis of optimum currency area (OCA) criteria. Nevertheless, there remains considerable doubt whether there is a causal relationship between trade links and the correlation of business cycles in the involved countries. Kose et al. (2003) find only weak evidence for the hypothesis that increased trade and financial flows have increased the synchronization of business cycles. Kenen (2000) notes that the correlation of business cycles may increase with the intensity of trade links between these countries, but he argues that this does not necessarily mean that asymmetric shocks are reduced as well. Moreover, Hughes Hallett and Piscitelli (2001) show that a currency union may increase cyclical convergence, but only if there is already a sufficient symmetry in the shocks and institutional structure across the countries. Their findings thus support Krugman's (1993) discussion of the implications from the U.S. currency union for the Economic and Monetary Union (EMU) in Europe. In Krugman's view, trade liberalization facilitates increased specialization according to comparative advantage of countries and possibly a divergence of business cycles in the EMU. Furthermore, Frankel and Rose's work lacks a stronger relation to trade structure, (1) which should also explain the similarity of business cycles, although they use intraindustry trade (IIT) as an argument. In particular, the effects of trade on the convergence of business cycles depend on the degree of industrial specialization induced by the integration. Indeed, Helpman (1987) and Hummels and Levinsohn (1995) find that trade specialization plays a lesser role for trade among developed economies. Thus a majority of trade is observed within the same industries (the so called IIT). This should imply increasing correlation of business cycles between these countries. Therefore, this article tests the OCA endogeneity using bilateral levels of IIT between OECD countries in the 1990s. It is shown that IIT induces the convergence of business cycles between trading partners, but there is no direct relation between business cycle and trade intensity. As a result, the OCA endogeneity hypothesis is confirmed. However, this finding also underlines the role of the specialization in trade. Finally, the article asks whether the Central and Eastern European countries (CEECs) should introduce the euro as soon as possible after accession to the European Union (EU), or whether they should do so at a later stage. This question is addressed by applying the endogeneity hypothesis of OCA criteria to ten transition economies (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia). This article applies the relation between the degree of trade integration, the shares of IIT, and the convergence in business cycles to CEECs and EU countries to predict the degree of business cycle harmonization of CEECs with EU countries in the medium term. This approach reflects the Lucas critique insofar as it considers possible structural changes during the accession of the CEECs to the EU and the EMU. …

Economic freedom of the world: an accounting of the literature

Abstract: I. INTRODUCTION AND HISTORICAL BACKGROUND The Economic Freedom of the World (EFW) index was first produced by Gwartney. Block, and Lawson (1996) and has been updated annually since. (1) The EFW index has found a place as one of the top resources for academics. policy makers, and journalists who are looking for indicators on national economic policies around the world. Academically, the EFW index has been cited in hundreds of articles. Many. but not all, of these articles have a strong economic policy component to them and thus should be of interest to the readers of this journal. Here, we provide an accounting and description of this literature. The EFW index is designed to measure the consistency of a nation's policies and institutions with economic freedom. The EFW index places the concept of economic freedom within the classical liberal tradition that emphasizes the importance of private property, rule of law, free trade, sound money, and a limited role for government. Higher scores are accorded to nations with more secure property, freer trade, more stable money and prices, less government spending, and fewer regulations. The EFW index was conceived as a result of a 1984 Mont Pelerin Society meeting session in which George Orwell's book, 1984, was being discussed. (2) The question of the session was whether Orwell's dystopic depiction of the future had come true. Some discussants at the meeting thought Orwell was clearly wrong as democracy and human rights were well protected, at least in the Western nations that concerned Orwell. Others, most notably Michael Walker, the founder and then-Executive Director of Canada's Fraser Institute, countered that while that might be true of political and civil liberties, economic liberties are under increasing attack. According to Walker, economic life was becoming increasingly Orwellian. Further, he argued even our political and civil liberties were not out of the woods just yet. Walker quoted Milton Friedman, who wrote in Capitalism and Freedom (1962, p. 9): Historical evidence speaks with a single voice on the relation between political freedom and a free market. I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity. Among the participants at this meeting was Milton Friedman himself, who noted that the debate on the floor about whether economic freedom was growing or eroding suffered from a critical lack of empirical data. The debaters employed little more than isolated anecdotes to make their points. As a result of this experience. Walker and Rose and Milton Friedman organized a meeting sponsored by Liberty Fund to discuss the prospects for creating some kind of measure of economic freedom. This first meeting ultimately led to a series of six meetings. The participants at these early meetings included a veritable Who's Who of classical-liberal scholars including Armen Alchian, Peter Bauer, Gary Becker, Arthur Denzau, Stephen Easton, David Friedman, John Goodman. Herb Grubel, Ronald Jones, Richard Rahn, Henri LePage, Henry Manne. Charles Murray, and Douglass North. At the fourth conference, held in Sea Ranch, California, Gwartney, Block, and Lawson (1992) presented a prototype index for 79 countries. The organizers briefly pursued the idea of doing a survey-based economic freedom index, but that effort failed, and they eventually asked Gwartney, Block, and Lawson to complete a publishable index. The index was finally released in 1996, 10 years after the original conference, as Economic Freedom of the World: 1975-1995. (3) Milton Friedman's "Foreword" in the first volume is worth reprinting here: Freedom is a big word, and economic freedom not much smaller. To talk about economic freedom is easy; to measure it, to make fine distinctions, assign numbers to its attributes. …

The effect of open spaces on a home's sale price

Abstract: NOELWAH R. NETUSIL [*] The relationship between a home's sale price and its proximity to different open spaces types is explored using a data set comprised of single-family home sales in the city of Portland, within Multnomah County, between 1990 and 1992. Homes located within 1,500 feet of a natural area park, where more than 50% of the park is preserved in native and/or natural vegetation, are found to experience, on average, the largest increase in sale price. The open space size that maximizes a home's sale price is calculated for each open space type. Natural area parks require the largest acreage to maximize sale price, and specialty parks are found to have the largest potential effect on a home's sale price. A zonal approach is used to examine the relationship between a home's sale price and its distance to an open space. Natural area parks and specialty parks are found to have a positive and statistically significant effect on a home's sale price for each zone studied. Homes located adjacent to golf courses (within 200 fee t) are estimated to experience the largest increase in sale price due to open space proximity although the effect drops off quickly as distance from the golf course increases. (JEL Q2, R14) I. INTRODUCTION Throughout the United States, local, state, and federal government agencies are proposing and implementing plans to preserve open spaces. In 1998, voters in 26 states approved 124 open space ballot measures, raising more than $5 billion (Pritchard, 2000). In 1995, residents of Portland, Oregon, passed a ballot measure that raised $135.6 million to purchase open spaces. To date, almost 6,000 acres have been acquired. Open spaces can include parks, golf courses, and cemeteries. The characteristics of these areas, such as the breadth of recreation opportunities and acreage, can vary dramatically both within and across open space types. This article seeks to estimate the effect on a home's sale price resulting from proximity to different open space types. Additionally, the size of each open space type that maximizes the sale price of a home is also determined. Numerous studies use the hedonic price technique (Mahan et al., 2000; Bolitzer and Netusil, 2000; Do and Grudnitski, 1995; Frech and Lafferty, 1984; Correll et al., 1978; Weicher and Zerbst, 1973) to investigate the relationship between a home's sale price, or assessed value, and its proximity to an open space. Frech and Lafferty (1984) estimate that actions taken by the California Coastal Commission to preserve open spaces raised home values in their study area by at least $990 and in some cases by as much as $5,043 (1975 dollars). Do and Grudnitski (1995) conclude that homes abutting a golf course experience an increase in sale price of 7.6%. Bolitzer and Netusil (2000), focusing on Portland, Oregon, estimate that homes located within 1,500 feet of a public park sell for $2,262 more than homes located more than 1,500 feet from any open space; the effect for homes within 1,500 feet of a golf course is estimated to be $3,400 (1990 dollars). Mahan et al. (2000) present a detailed analysis of the relationship between a home's sale price and wetlands in Portland, Oregon. The authors estimate that increasing the size of the nearest wetland by one acre increases a home's sale price by $24 (1994 dollars) and reducing the distance to the nearest wetland by 1,000 feet increases a home's sale price by $436. Wetland type is not found to have a statistically significant effect on a home's sale price. Studies have also found a negative relationship between open spaces and a home's sale price. Weicher and Zerbst (1973), focusing on five parks in Columbus, Ohio, find that homes facing a heavily used recreation area in one park sold for $1,150 less than properties one block away from the park. Negative externalities due to open space proximity are also discussed in Li and Brown (1980). …

Intellectual property rights and economic growth

Abstract: I. INTRODUCTION Intellectual property protection has been an international policy concern. Owners of intellectual property face risks of imitation or piracy not only in domestic markets but also in foreign, particularly in less developed, markets. Recent global negotiations have called for higher levels of intellectual property protection and for the harmonization of standards. Advocates of these measures cite potential economic benefits ranging from greater world innovation to greater trade and direct foreign investment flows (see Butler, 1990, for a survey of issues). This paper gauges the economic benefits of increased intellectual property protection. Specifically, it examines how patent protection affects long-run economic growth. Existing empirical and theoretical works study the importance of innovation and technology to growth, but few have empirically studied the effects of the institutions that motivate innovation and technological change, such as intellectual property laws. Studying the effects of intellectual property rights (IPRs) requires having a quantitative measure of the strength of intellectual property rights in a country. This paper constructs an index of the strength of patent protection in 60 countries and uses it to determine the role of IPRs in economic growth. The key finding is that IPRs affect economic growth by stimulating the accumulation of factor inputs like research and development capital and physical capital. The institution of IPRs does not have any direct role in explaining international variations in growth. That is, the existence of intellectual property laws does not appear to affect directly the technical efficiency of production. Instead, the benefits to growth are from encouraging the research sector to invest and take risk. This implies that countries not conducting innovative research or conducting a limited amount would enjoy few, if any, of the benefits of intellectual property protection because an innovation sector through which IPRs affect economic growth is absent. As an analogy, consider a town with few, if any, motor vehicles. If the town passes a law against lead emissions, the law is likely to have no appreciable effect on lowering pollution levels in the region (pollution arising instead from other sources). Similarly, countries would not experience the growth effects of IPRs unless a significant domestic research base exists or unless foreign multinationals are present that transfer research knowledge into the country. Given the costs of creating an IPR system, the low returns to providing IPRs (owing to a lack of innovation) act as a disincentive to creating such a system. Thus, countries without an innovative RD Lichtenberg, 1992; Park, 1995), none studies the importance of assigning proprietary rights to knowledge in the growth process. On the other hand, empirical analyses of intellectual property rights (Ferrantino, 1993; Mansfield, 1986, 1994) do focus on the effects of IPRs on innovation and foreign direct investment but have not linked these effects to long-run growth. …