Showing papers on "Economic stagnation published in 2004"

Market Institutions in Sub-Saharan Africa: Theory and Evidence

Abstract: In Market Institutions in Sub-Saharan Africa, Marcel Fafchamps synthesizes the results of recent surveys of indigenous market institutions in twelve countries, including Benin, Ghana, Kenya, Madagascar, Malawi, and Zimbabwe, and presents findings about economics exchange in Africa that have implications both for future research and current policy. Employing empirical data as well as theoretical models that clarify the data, Fafchamps takes as his unifying principle the difficulties of contract enforcement. Arguing that in an unpredictable world contracts are not always likely to be respected, he shows that contract agreements in sub-Saharan Africa are affected by the absence of large hierarchies (both corporate and governmental) and as a result must depend to a greater degree than in more developed economies on social networks and personal trust. Fafchamps considers policy recommendations as they apply to countries in three different stages of development: countries with undeveloped market institutions, like Ghana; countries at an intermediate stage, like Kenya; and countries with developed market institutions, like Zimbabwe. Market Institutions in Sub-Saharan Africa caps ten years of personal research by the author. Fafchamps, in collaboration with such institutions as the Africa Division of the World Bank and the International Food Policy Research Institute, participated in the surveys of manufacturing firms and agricultural traders that provide the empirical basis for the book. The result is a work that makes a significant contribution to research on the continuing economic stagnation of many countries in sub-Saharan Africa and is also largely accessible to researchers in other fields and policy professionals.

Japan's Financial Crisis and Economic Stagnation

Abstract: The recent Japanese economic experience has been dismal. Growth has collapsed, deflation has taken hold and the financial system is in shambles. We begin our story by documenting the macroeconomic troubles that appear to have triggered the collapse of Japan’s financial sector. We argue, however, that the macroeconomic factors alone are not likely to explain the full extent of the problems in the Japanese financial system. We then turn to the sector-specific factors that are facing the Japanese banks, insurance companies and government financial institutions, which together constitute roughly three-quarters of the financial system. Finally, we provide estimates of the size of the losses that have been accumulated and review the steps necessary to resolve the problems promptly so that the losses stop growing. The estimated losses from Japan’s financial system problems, which presumably will be borne by taxpayers eventually, are huge. Even our fairly conservative estimate suggests the full cost to the taxpayers is at least 20 percent of Japan’s GDP. The sheer size of the cost, along with the interaction among the related economic problems, has made a decisive resolution of the problems politically difficult.

Child mortality, child labour and economic development*

Abstract: The paper presents a model where the interplay between fertility, child labour and education can explain economic stagnation when parents live in an environment of high child mortality. If in contrast child mortality is low, the solution of the parental decision problem leads to perpetual economic growth. The two long-run states are connected by a path of demographic transition and economic take-off along which the incidence of child labour disappears. The paper also discusses alternative policies to escape from the low income equilibrium.

Economic growth and stagnation with endogenous health and fertility

Abstract: This article offers a theory of economic growth, stagnation, and demo-economic transition that originates from external effects of child-bearing, health expenditure, and education under endogenous mortality. Facing a hierarchy of needs, parents always consume and want to have a family. Child quality, measured as a two-dimensional vector of child health and schooling, becomes only affordable when uncontrollable mortality is sufficiently low. Child quality expenditure initiates an economic take-off and convergence towards perpetual growth while its absence may cause convergence towards an equilibrium of economic stagnation and high fertility. This way, the article provides an explanation for diverging growth rates from a cross-country perspective.

Why Revitalize? Labour’s Urgent Mission in a Contested Global Economy

Abstract: What looked like carte blanche for corporate-led globalization just a few years ago is now increasingly contested. The brave new vision of market fundamentalism has been challenged on several fronts, from massive demonstrations in Seattle and Genoa to contested trade and environmental summits at Johannesburg and Cancun. The critical insights of highly placed insiders have undermined the dominant neo-liberal ideology and given credence to mounting protests and opposition viewpoints (e.g. Soros 2002; Stiglitz 2002). Economic stagnation, inequality, desperate poverty and violence— whether in Japan, East Asia, Russia, Germany, or the United States and Latin America—have belied optimistic predictions of the positive effects of unbridled globalization. Economic policy makers from the rich countries are challenged both by domestic opposition and by a growing reluctance in the global South to acquiesce in one-sided trade deals. The future shape of the global economy and its international, as well as national and local economic policies, are now open to widespread and growing debate. Yet, debate is clearly not enough. What is also required are strong organized actors to promote alternative viewpoints and to build the progressive coalitions—global, national, and local—that can turn policy around. While together they cannot yet match the power of multinational corporations (even if they could act together consistently), many such actors are already present, and many of them are increasingly ready to contest the dominant policies. Opposition forces include a broad range of international and domestic nongovernmental organizations (NGOs), from environmental to health and human rights groups, swelling protest movements from global justice, and antiwar to land reform, from Jose-Bove-inspired farmers to religious and cultural defence movements, as well as increasingly independent governments across the global South (from Brazil and Argentina to South Africa, India, and China). And one clearly indispensable actor in present and future reform efforts is organized labour, the subject of this book.

Mexico's market reforms in historical perspective

Abstract: This paper examines Mexico’s main economic policies and problems during the last two centuries. Focusing on episodes of radical shifts in development strategy concerning the role of the market and the State, it argues that Mexico’s real obstacles to development have often been misperceived, and such misperception may be occurring today. This argument is tested, initially, by reviewing the causes of Mexico’s economic stagnation during most of the nineteenth century. The period of economic expansion between 1940 and 1981, which ended with the collapse of the oil boom in 1981 is also examined. A critical review is made of the radical shift in development strategy implemented in the mid-1980s in response to the external debt crisis associated with the apparent exhaustion of the strategy of import substitution and State-led industrialization. Finally, some thoughts are presented on the current challenges faced by the Mexican economy when, after more than 15 years of macroeconomic reform, it seems stuck in a low-growth situation.

Twenty-five Years of Budgeting Reform

Abstract: The network of senior budget officials (SBO) was launched in 1980 as an ad hoc response to the budget stress that beset most developed countries in the aftermath of oil price shocks, high inflation, and economic stagnation.

Education and the Economy Revisited: How Schools Matter

Abstract: A Nation at Risk (NAR; National Commission on Excellence in Education, 1983) had a tremendous impact on what schools do and has since spawned other reforms that attest to the report's ongoing influence. Coming in the wake of a decade of economic stagnation and import pressures from overseas producers, the authors of NAR blamed these problems on schools. In this article, we show that there was little justification for this conclusion, then or now. Although education clearly plays a role in the economy, it is only one of many factors. We find little evidence that there is a large or growing mismatch between worker skills and employer demands. Moreover, the American work force and economy continue to be among the most productive in the world. We should improve our schools and our economy, but real improvement will only occur when their problems are correctly diagnosed.

Patterns of Resistance: Economic Actors and Fiscal Policy Reform in Egypt in the 1990s

Abstract: After a short period of growth in the late 1970s and early 1980s, Egypt’s economic and social circumstances deteriorated dramatically. Due to a massive budgetary deficit and external debts of $50 billion at the end of the 1980s, economic stagnation gave rise to an acute crisis. Fiscal policy reform, called for by creditors and international financial institutions during negotiations over the stabilization and structural adjustment program of 1990–1991 aimed at restoring the financial viability of the Egyptian state.’ Two broad sets of policy and institutional reforms were central to these negotiations. First, general changes needed to be made in budgetary spending patterns. This required redefining the role of the state in the national economy to pave the way for the reform of the public sector. Along with other redistributive programs and subsidies, transfers to an inefficient public business sector had contributed to Egypt’s fiscal crisis. In the early 1990s, state-owned enterprises (SOEs) still produced roughly 75 percent of Egypt’s overall industrial value added.2 Thus, the IMF and the Word Bank insisted on a structural adjustment program that explicitly included demands for privatization.3 Second, patterns of revenue generation for the budget had to be adjusted, involving a rise in, as well as the introduction of, new kinds of taxes and the intelligent use of privatization proceeds.

Distortions in Factor Markets and Structural Adjustments in the Economy

Abstract: In this paper, we carry out qualitative and quantitative analyses of impacts of factor market distortions on Japan’s economic stagnation in the 1990s, thereby showing that resolution of structural impediments is essential for sustained economic growth to be restored in the future. Distortions in factor markets lead the economy to exhibit inefficient resource allocations, resulting in an inward shift of the nation’s production possibility frontier and decline in its attainable output. Our estimation results reveal that the deterioration of distortions in factor markets is attributable to 0.5% of the decline in real GDP growth (−3.6%) after the bursting of the asset price bubble. This confirms that the exacerbation of structural impediments in factor markets is one of the major causes of the prolonged economic stagnation after the bursting of the asset price bubble. Moreover, given that autonomous resolution of factor market distortions through market mechanism is hardly expected, it is important to take measures to achieve a more efficient allocation of productive resources. Without such measures, monetary and fiscal policies cannot push the economy back to a sustainable growth path.

Asset Price Fluctuations, Structural Adjustments, and Sustained Economic Growth: Lessons from Japan's Experience since the Late 1980s

Abstract: In this paper, we examine implications of asset price fluctuations and resultant structural adjustments on sustained economic growth, based on Japan’s experience since the latter half of the 1980s. In doing so, we offer the view that the protracted economic stagnation in Japan can be seen as a result of the incomplete economic adjustments to significant changes in relative prices, in part triggered by the bursting of the asset price bubble. Such changes in relative prices include movements in both intertemporal and cross-sectional dimensions, which interacted crucially to lower the economy’s trend growth. This aspect of Japan’s asset price bubble, with its consequences for structural adjustments since the 1990s, is important because it illustrates the specific environment in which the Bank of Japan has to conduct monetary policy: namely, not a standard stabilization policy around a stable growth trend. Rather, it has operated in an environment of unanswered policy management questions coupled with hampered sustained growth.

Overcoming Economic Stagnation in Japan: The Importance of Total Factor Productivity and the Potential Contribution of Foreign Direct Investment

Abstract: The 1990s have been a decade of minimal growth for the Japanese economy. Examining this record from a growth accounting perspective, this paper argues that a major factor underlying Japan's disappointing growth performance in recent years has been a marked slow-down in total factor productivity (TFP) growth. It is suggested that, given present population trends and low returns on capital, any sustained increase in overall economic growth will require an acceleration in TFP growth. In this context, foreign direct investment (FDI) can potentially make an important contribution by increasing the degree of competition in the economy and, if foreign firms are more productive than domestic ones, by raising average TFP levels in Japanese industry.

Institutions, Family and Economic Performance

Abstract: It is usual to formulate policies that react on the consequences, not the causes of family structure. In the design of policies, it is important to consider that institutions evolve in response to individual incentives and affect the performance of political and economic systems. Formal rules influence transaction and production costs (costs for families to offer their services) and could induce development or economic stagnation in the long run. It is necessary to work on incentives toward efficient institutions. The purposes of this paper are: a) to analyse the family trends in past decades; b) to consider the economic externalities of the family (child rearing and human capital investment; social assistance for the elderly, sick and unemployed; economies of scale; mechanism of socialization) and how they are affected by the recent trends of households decisions; c) to identify policies related directly and indirectly on the families structure that could be fostering or preventing faster economic growth in the long run; d) to suggest some new directions for policies that could affect households decisions. Households have experienced enormous changes. However, they are still crucial to a well functioning economy and society: the families play a major role in human capital investment and these investments in people are an essential ingredient to economic progress.

Think Tanks, Economic Liberalism and Industrial Relations

Abstract: The industrial relations reforms of the 1980s and 1990s were in no small part influenced by an emerging coterie of “think tanks”. These bodies have played a critical role in promoting the economic liberalism that has underpinned much of the change of the past two decades. This paper examines organisations such as the HR Nicholls Society and the Institute of Public Affairs as examples of the importance of think tank gurus. Economic liberalism, the common usage newspeak of Australian society, is structurally sustained by unaccountable corporate sponsors who are in turn responding to the threat of gradual global economic stagnation since the 1970s. Their ongoing challenge has been how to increase business’s share of declining global profits and part of their solution has been to offset costs in some measure by funding think tank’s ideologues to spread the word – “work harder for less” – to workers.

The logic of neoliberal finance and global financial fragility: towards another great depression?

Abstract: The article provides a comparative critique of the financial underpinnings of the Great Depression of the 1930s and the recent wave of financial crises. The collapse of the financial systems in many developing nations, the bankruptcies in the Anglo-Saxon corporate sectors and a threat of more sovereign defaults on behalf of emerging markets suggest that the current wave of global financial fragility and recession rivals that of the Great Depression of the 1930s. The paper examines key elements that account for the crisis-prone nature of global capitalism: the political discipline of neo-liberalism, debt-driven expansion of the privatised financial markets, and the profound disarticulation of the financial and real economies. These factors suggests that the risk of a global depression is by no means hypothetical, and unless effective and collaborative efforts are made to tame the inherently unstable regime of global finance, even major world economies are faced with a prolonged period of financial turbulence and economic stagnation. The paper concludes by pondering the possibility of a paradigmatic shift in the transnational political consensus that can prevent a global repetition of the 1930s. While the increased awareness of financial instability and crisis may indeed prompt some ad hoc adjustments in national and foreign economic policies of major capitalist powers, in the long run these measures will be insufficient to prevent a major financial and economic disaster.

Evaluating Explanations for Stagnation

Abstract: In this paper, we evaluate four explanations for economic stagnation that have been proposed in the literature: coordination failures, ineffective mix of occupational choices, insufficient human capital accumulation, and politico-economic considerations. We calibrate models that embody these explanations in the context of the stagnant economies of sub-Saharan Africa. The methodology of calibration is ideally suited for this evaluation, given the paucity of high-quality data, the high degree of model nonlinearity, and the need for conducting counterfactual policy experiments. In addition to studying how closely and robustly these models capture the African situation, we examine the quantitative aspects of their policy implications. We find that calibrations that yield multiple equilibria -- one prosperity and the other stagnation -- are not particularly robust. This tempers optimism about the efficacy of one-shot or temporary development policies suggested by models with multiplicity. However, the calibrated models indicate that small policy interventions are sufficient to trigger development in stagnant economies.

China and Socialism: China's Economic Transformation

Abstract: When the leaders of China’s Communist Party announced their program of market socialist reforms in 1978, they argued that it was necessary to overcome the country’s growing problems of economic stagnation and waste caused by the Mao era’s overly centralized state systems of planning and production. China’s rapid growth and industrial transformation during the 1980s encouraged many on the left, both inside and outside of China, to view market socialism as an attractive vehicle for achieving sustained growth, an egalitarian distribution of goods and services, and new forms of democratic participation in economic decision making. This article can also be found at the Monthly Review website , where most recent articles are published in full. Click here to purchase a PDF version of this article at the Monthly Review website.

The Little Reversal: Capital Markets and Financial Repression in Western Europe In the Second Half of the 20 th Century

Abstract: Securities markets in Continental Europe remained relatively underdeveloped throughout the 20 th century as compared with those of Anglo-Saxon countries. The “law and finance” strand of literature argues that their secular stagnation can be traced back to legal origins and explained in terms of path dependency – ie, due to the lower protection of shareholders’ and debtors’ rights guaranteed by commercial codes based on the civil law tradition. Recent studies, however, provide ample evidence that the long-term development pattern of securities markets in Europe was not monotonical, but rather follows the ebb and flow of globalization. In fact, capital markets were well developed in a number of civil law countries on the eve of WW1. A “Great Reversal” occurred in the interwar period, from which they did not recover fully until the 1990s. The paper argues that this view of a longterm U-shaped pattern does not reflect accurately the historical experience of European securities markets. In fact, a W -shaped pattern can be observed: securities markets noticeably recovered in the 1960s, before being again marginalized in the 1970s and 80s. The paper attempts to explain this “Little Reversal” within the context of the rise of financial repression regimes in Western Europe. The paper tests empirically the public finance hypothesis, which argues that financial repression is motivated by the government’s attempt to impose implicit taxation on domestic currency- and debt-holders, including the banking system. An index measuring the intensity of financial repression is constructed for a panel of 16 European countries in the period 1950-1991. The determinants of financial repression are then empirically investigated using cross-section time-series data for a set of economic, institutional and political variables.

Legislating for Economic Sclerosis: Are Lawyers a Baleful Influence on Growth Rates?

Abstract: William Easterly, an ex-World Bank economist and widely respected growth theorist, in recently noting that skilled individuals may elect to pursue occupations that redistribute income rather than enhance growth, referred to 'the somewhat whimsical piece of evidence . . . that economies with lots of lawyers grow more slowly than economies with lots of engineers'. The remark alluded to an assertion by the Bush-Quayle camp during the 1992 Presidential campaign that too many lawyers were prejudicial to US economic growth, and sparked a heated debate that was played out in the Wall Street Journal and a number of academic journals at the time. A decade later, Easterly's rejoinder has prompted us to examine the view that occupational capture (the capture of talent by particular occupations) can contribute to economic stagnation, by revisiting the notion of lawyers as negative externalities to the growth process.

Overcoming economic stagnation in Japan: The importance of total factor productivity and the potential contribution of foreign direct investment

Abstract: The 1990s have been a decade of minimal growth for the Japanese economy. Examining this record from a growth accounting perspective, this paper argues that a major factor underlying Japan's disappointing growth performance in recent years has been a marked slow-down in total factor productivity (TFP) growth. It is suggested that, given present population trends and low returns on capital, any sustained increase in overall economic growth will require an acceleration in TFP growth. In this context, foreign direct investment (FDI) can potentially make an important contribution by increasing the degree of competition in the economy and, if foreign firms are more productive than domestic ones, by raising average TFP levels in Japanese industry.

Legislating for Economic Sclerosis: Are Lawyers a Baleful Influence on Growth Rates?

Abstract: William Easterly, an ex-World Bank economist and widely respected growth theorist, in recently noting that skilled individuals may elect to pursue occupations that redistribute income rather than enhance growth, referred to ‘the somewhat whimsical piece of evidence … that economies with lots of lawyers grow more slowly than economies with lots of engineers’. The remark alluded to an assertion by the Bush-Quayle camp during the 1992 Presidential campaign that too many lawyers were prejudicial to US economic growth, and sparked a heated debate that was played out in the Wall Street Journal and a number of academic journals at the time. A decade later, Easterly's rejoinder has prompted us to examine the view that occupational capture (the capture of talent by particular occupations) can contribute to economic stagnation, by revisiting the notion of lawyers as negative externalities to the growth process.

Can Japan Make a Comeback

Abstract: Since the beginning of the 1990s Japan has experienced economic stagnation. This paper discusses its causes and the prospects for recovery. It considers both the macroeconomic problems and the viability of the Japanese economic model itself. The potential roles of fiscal, monetary, exchange rate, and structural policies are discussed.

Sustaining free primary education and enrollment in Kenya

Abstract: Today Kenya is among the poorest countries in the world The political instability and economic stagnation of the 90s may have accelerated this by disrupting the operation of almost all the sectors in the country as argued by Abagi( 1997) For instance, Education sector was adversely affected, since in that period, costs were relatively higher than most parents would afford resulting in school dropouts, yet common investment lmowledge considers education, as a key component of human development hence needs more attention The same period also shows that Kenya is among the few countries with considerable high education expenditure (UNESCO, 1999); unfortunately no significa:nt increase in school attendance was observed until introduction of Free Primary Education (FPE) in 2002 It is against this background that this paper has two main objectives; firstly to observe the enrollment trends before and after FPE Secondly, to show the government's commitment and ability to sustain that enrollment yet they have limited financial resource While doing so, the paper shows that allocation of other social services is at a decreasing rate and that the situation may result into poor performance by other sectors It concludes that the government of Kenya is financial committed to FPE program given the percentages of education expenditure and that improvement in revenue collection will make this goal achievable