Low Economic Growth Rates Research Articles

Asset illiquidity and market shutdowns in competitive equilibrium

This paper introduces asymmetric information in a competitive asset market into a dynamic general-equilibrium model with borrowing constraints. In the presence of borrowing constraints, asset sales become a crucial means for agents to finance opportunities to invest in new assets. In this environment, reduced asset sales due to asymmetric information lower the economic growth rate if agents invest in new assets. The volume of asset trade, however, becomes zero if and only if agents stop investing in new assets because of sufficiently low aggregate productivity. A low economic growth rate with a market shutdown is solely due to low aggregate productivity without any role of the market shutdown.

Health policy for the new government

The new presidential administration of the Republic of Korea will be launched in February 2013. We hope that the Government effectively administers national affairs as well as health care affairs under the new paradigm. In this paper, I make three proposals for the new administration. First, the new government must overcome the wave of aging, the low birth rate, and low economic growth rate. The aging society increases health care demands, but the low birth rate and low economic growth rate decrease the capability to financially underwrite these demands. Furthermore, Korea faces the unification issue as the mission of the era. The economic burden of unification would be bigger than that faced by Germany. The government must prepare rapidly with a step-by-step plan for this approaching situation. Second, the new administration must solve the top-priority policy problems that are derived not only from the existing problems of the "garbage can model," but also from priority setting with an overall and systematic view. These top-priority health policy problems are the high suicide rate, over-utilization of doctors' visits and length of hospital stay, and high out-of-pocket health care fees. The extreme phenomenon of high out-of-pocket costs affects a high percentage of households with catastrophic medical costs, which is about 3%, the highest level among the Organization for Economic Cooperation and Development countries. Third, the policy approach of the new administration must be not unilateral, but bilateral: efficiency and equity of policies, support and regulation of policy tool, demand-side and supply-side management of healthcare utilization, and service benefits and monetary benefits of Health Insurance. In the past, the main approach of healthcare policy has depended on regulation, supply-side control, and service benefits. The administration should pursue a balance of left and right approaches, regardless of which political party wins. I hope that the new government will overcome these challenges in a turbulent era, solve top-priority problems first, and approach all of this with a new paradigm as new wine must be poured into new wineskins.

Tackling cold housing and fuel poverty in New Zealand: A review of policies, research, and health impacts

About a quarter of New Zealand households are estimated to be in fuel poverty. NZ has a poor history of housing regulation, so existing houses are often poorly insulated and rental properties are not required to have insulation or heating. Average indoor temperatures are cold by international standards and occupants regularly report they are cold, because they cannot afford to heat their houses. Fuel poverty is thought to be a factor in NZ's high rate of excess winter mortality (16%, about 1600 deaths a year) and excess winter hospitalisations (8%).We examined the link between indoor cold and health in two community trials, the Housing, Insulation, and Health Study and the Housing, Heating, and Health Study and both interventions demonstrated encouraging benefit/cost ratios. NZ governments have translated this and other research into major policy programmes designed to retrofit insulation and efficient heating into existing houses. However, houses are predominantly electrical resistance heated and a largely unregulated electricity market has seen rapidly rising residential electricity prices. These rising energy prices, combined with low rates of economic growth, rising unemployment and generally rising income inequality, are likely to further increase levels of fuel poverty in NZ, unless broader policy action is taken.

Land-locked Country and Port Accessibility

Land-locked countries tend to have bottlenecks and problems of high transport costs, complicated cross border procedures, long distance and remoteness to the global market, and limited accessibility to the sea. Mongolia as a land-locked country recorded comparatively low economic growth rate in the 1980s and 1990s but it could obtain a new momentum of economic growth from the late 2000s due to a continual price increase of mineral resources and other export goods. However, high transport costs and low accessibility to the sea prevent Mongolia from diversifying its trading partners and export goods. This paper examines elemental factors of transport costs between Mongolia and trading partner countries through regression of transport costs, particularly using the ratio of cost, insurance and freight (CIF) amounts to free on board (FOB) amounts and container transport costs. This also scrutinizes the deciding variables of trade volume between Mongolia and trading partner countries by using the gravity model. In a transport cost analysis, transport costs of less than container load (LCL) cargo are affected directly by the distance of land transport and shipping transport, and common border sharing with Mongolia. The effects from the density of transport infrastructures in a transit country and a partner country which were thought to be decisive in the paper by Limao and Venables (2001) are not clear in the analysis. In the gravity model on trade volume between Mongolia and trading partners, decisive factors are Gross Domestic Product (GDP) of a trading partner, and distance from Mongolia to trading partners.

Growth in an Oil Abundant Economy: The Case of Venezuela

Venezuela's growth experience over the 56–year period from 1950 to 2006 was characterized by a high economic growth rate from 1950 to 1974 and a low economic growth rate from 1974 to 2006. We show that the country has been immersed in a ‘great depression’ since the mid-seventies. We also show that although Venezuela is an oil abundant economy, this growth experience is largely due to the evolution of its non-oil GDP. We perform a growth accounting exercise to quantify the extent to which the growth experience in the non-oil sector is a result of physical capital accumulation, finding that non-oil sector behavior can largely be explained by the evolution of total factor productivity (TFP). Finally, we calculate the correlations between oil rents and physical capital accumulation and TFP in the non-oil sector, finding a high positive correlation during the good performance period, but a negative correlation in the implosion period.

Economic Growth, Expected Stock Returns and Volatility: A Case of Indian Stock Market

Stock market volatility is a matter of great interest for researchers and policy makers. The present study examines the volatility of daily, weekly and monthly stock returns in view of economic growth rate. It investigates the hypothesis that high economic growth rate tend to stabilize the investment decisions and create certainty among the investors. Under such situations, investors prevent to alter their investment decisions spontaneously with regard to good or bad news. A low growth rate, on the other hand, makes their investment decisions highly volatile. The study examines the Bombay stock exchange listed index BSE 100 data for the period from 1996 through 2007, wherein Indian economy has registered high and low growth rates. It also examines additional aspect of volatility with regards to expected and unexpected variations in stock returns by applying AR(1)-GARCH(1,1) model. The findings report that investors are not sensitive to economic growth rate for short period, but they become largely sensitive with the long investment horizons. The direct observations can be made here, volatility is invariable to economic growth rate in short time period, but investors with long investment horizons are largely affected by economic growth rate. Briefly, high volatility tends to associate with low economic growth rate and low volatility is associated with high economic growth rate.

Costs of Mistrust between Ethnic Majority and Minorities: Evidence from Israel

Trust and ethnic diversity are important variables that may impact and explain different economic decisions. This paper presents theoretical models accompanied by a survey that deals with the relation between mistrust and risky economic activity (e.g., the postponement of receiving and paying for a risky asset). Using the theoretical models and surveys as a basis, we suggest that subjective discount rates and bids for a lottery can be used to measure levels of mistrust. The surveys are used to measure the level of mistrust between the Israeli majority (Jews) and minority groups (Israeli Arabs, Bedouins, and Palestinians), and between Israeli Jews from different districts. Based on the survey results we demonstrate the theoretical implications of the effect of mistrust (MT) on economic growth and resource allocation between the majority and minorities. We conclude that MT leads to inefficient resource allocation, which subsequently leads to low economic growth rates.

Do State Fiscal Policies Affect State Economic Growth?

What factors influence state economic growth? This article uses annual state (and local) data for the years 1947 through 1997 for the forty-eight contiguous states to estimate the effects of a large number of factors, including taxation and expenditure policies, on state economic growth. A special feature of the empirical work is the use of orthogonal distance regression (ODR) to deal with the likely presence of measurement error in many of the variables. The results indicate that the correlation between state (and state and local) taxation policies is often statistically significant but also quite sensitive to the specific regressor set and time period; in contrast, the effects of expenditure policies are much more consistent. Of some interest, there is moderately strong evidence that a state’s political orientation has consistent and measurable effects on economic growth; perhaps, surprisingly, a more ‘‘conservative’’ political orientation is associated with lower rates of economic growth. Finally, correction for measurement error is essential in estimating the growth impacts of policies. Indeed, when measurement error is considered via ODR estimation, the estimation results do not support conditional convergence in state per capita income.

What Drives Housing Prices Down? Evidence from an International Panel

Summary In this study, we suggest an explanation for the low growth rates of real housing prices in Canada and Germany in comparison to other OECD countries over the period 1975-2005. We show that the long-run development of housing markets is determined by real disposable per-capita income, the real long-term interest rate, population growth, and urbanization. The differential development of real housing prices in Canada and Germany is attributed to the fundamentals in these two countries. Canada and Germany are characterized by relatively low average growth rates of real disposable income and relatively high interest rates, resulting in depressed housing prices over a long period of time. Institutional structure accentuates these tendencies. Given the importance of housing wealth for private consumption, our paper aims at drawing the attention of policymakers to the necessity of preventing not only overheating but also overcooling of the housing market that entails lower economic growth rate.

Die Finanzmärkte und die Mittelschichten: der kollektive Buddenbrooks-Effekt

The article views the current financial crisis from the background of long term structural socio-economic changes in advanced industrial societies. Central points are the rise of the middle classes during the second half of the 20th century, the accumulation of financial wealth in the middle classes in combination with a continuing high and even increasing concentration of financial assets at the level of the top rich, and the advance of pension and investment funds as a new type of collective actors at global financial markets. These changes go parallel with an economic development which is characterized by increasing instability, declining growth rates and financial crises. The paper tries to clarify the interconnections between these phenomena in the framework of a multi-level analysis which culminates in the model of a “collective Buddenbrooks-effect”: A structural upward mobility of society will lead to an increasing imbalance at capital markets, since on the one hand the volume of financial assets searching for profitable investment will rise, whereas on the other hand the social reservoir of solvent debtors and promising investment opportunities will decline. Therefore, advanced industrial economies are characterized by a bias towards capital export and excessive financial liquidity, with the well known consequences of low economic growth rates and the danger of speculative bubbles at the global capital markets. The middle classes who originally benefitted from the post-war prosperity, are negatively affected too. The author argues that the current crisis cannot be understood sufficiently without taking account of these structural socio-economic backgrounds.

Resource Dependence, Knowledge Creation, And Growth : Revisiting The Natural Resource Curse

Several explanations have been put forward for the phenomenon - referred to as i®curse of natural resourcesi¯ - that resource-rich countries tend to display low rates of economic growth. This paper studies an R&D-related explanation, using an endogenous growth model with natural resources and R&D-based technological change. For suitable values of preference parameters, the model predicts that knowledge creation as well as capital formation are inversely related to natural-resource intensity, thus providing an explanation for the i®cursei¯. Estimation results on cross-sectional data for 77 countries (1965-1998) are consistent with these predictions. Basic results of the paper remain valid when institutional aspects (corruption, democracy) are included.

Introduction: Globalization–Poverty Channels and Case Studies from Sub-Saharan Africa

In 2004 the United Nations University World Institute for Development Economics Research (UNU-WIDER) embarked on a large-scale research project on the ‘Impact of Globalization on the World’s Poor’ co-directed by Machiko Nissanke and Erik Thorbecke. The first conference was essentially conceptual in nature, meant to understand better the various mechanisms and channels through which globalization affects the poor either directly or indirectly. The other three conferences focused on each of the major regions of the developing world: Asia, Africa and Latin America. Theobjectivesofthisintroductionarethreefold:first,toreviewbrieflyhow the forces of globalization influence poverty in general; second, to describe and discuss the main transmission channels and mechanisms; and third to analyze the impact of globalization on Africa and present an overview of the six Africa case studies included in this issue. 1. The Impact of Globalization on the World’s Poor Globalization provides a strong potential for a major reduction in poverty in the developing world because it creates an environment conducive to fastereconomicgrowthandtransmissionofknowledge. 1 However,structural factors and policies within the world economy and national economies have impeded the full transmission of the benefits of the various channels of globalization for poverty reduction. In particular sub-Saharan Africa (SSA) hasbeenrelativelylessaffectedbytheforcesofglobalizationthanotherparts of the world. World income distribution continues to be very unequal and many poor countries particularly in Africa are stagnating. Moreover, there is much empirical evidence that openness contributes to more within-country

The Effects of Economic Crisis, Domestic Discord, and State Efficacy on the Decision to Initiate Interstate Conflict

Studies of diversionary conflict typically claim that lower rates of economic growth and domestic unrest increase the risk of militarized interstate conflict. Research shows that these factors are also related to regime changes. Lower rates of economic growth and domestic conflict should increase the risk that governments are overthrown. This article investigates the comparative risk of economic growth and domestic turmoil on militarized interstate conflict and regime changes on a sample of over 100 countries from 1920‐92. I find that higher rates of economic growth are related to violent militarized interstate conflicts and reduce the risk of regime changes. Democracy and economic development likewise provide internal stability and interstate peace. Yet the risk of regime change increases rapidly relative to involvement in an interstate conflict for states affected by high levels of domestic conflict, suggesting that any diversionary strategies are a risky gambit that have a high chance of failure.

The Regional Roots of Developmental Politics in India: A Divided Leviathan

The Regional Roots of Developmental Politics in India: A Divided Leviathan. By Aseema Sinha. Bloomington: Indiana University Press, 2005. 384p. $64.95 cloth, $27.95 paper. This excellent study by Aseema Sinha is a pathbreaker in the fields of political economy and comparative politics generally, and an especially welcome addition to India studies. Conventional wisdom has it that low economic growth rates in India until liberalization in the 1990s were the result of centralized control, especially in the area of the issuance of licenses governing investments known as the license raj. On this view, licensing controls and cumbersome bureaucratic implementation procedures—supported by an ideology that sought to prevent concentration of economic power in the hands of a small group of private entrepreneurs at the expense of the wider social good—have been a drag on the Indian economy. Far better, the argument goes, would have been to let the market function to determine investment patterns. In essence, the debate about Indian growth has been framed around two alternatives—the classical free market and the dirigiste state.

Sensitivity Analysis of Empirical Results on Civil War Onset

In the literature on civil war onset, several empirical results are not robust or replicable across studies. Studies use different definitions of civil war and analyze different time periods, so readers cannot easily determine if differences in empirical results are due to those factors or if most empirical results are just not robust. The authors apply a methodology for organized specification tests to check the robustness of empirical results. They isolate causes of variation in empirical results by using the same definition of civil war and analyzing the same time period while systematically exploring the sensitivity of eighty-eight variables used to explain civil war in the literature. Several relationships with the onset of civil wars prove robust: large population and low income levels, low rates of economic growth, recent political instability and inconsistent democratic institutions, small military establishments and rough terrain, and war-prone and undemocratic neighbors. Variables representing ethnic difference in the population are robust only in relation to lower level armed conflict.

Demographic Change and the European Union Labour Market

If current demographic trends continue, the combined population of the twenty-five countries that currently make up the European Union will age rapidly and decline in size in the coming decades. As the EU population ages and declines, so will its labour force, which will likely constrain the labour market and generate lower rates of economic growth. Data from the most recent round of United Nation population projections is used to illustrate the scale of these changes.

Shifting Paradigms in Water Provisioning Policies: A Trinidad Case Study

In most developing countries, planning was initially concerned with economic growth. Upon gaining political independence, post-colonial countries set about addressing the unmet backlog of physical and social infrastructure problems, low rates of economic growth, and poverty. Since the post-independence era, development in non-industrialized countries has undergone significant changes in both scope and approach and has arisen from shifts in international agency policies as well as from local factors. These transformations are reflected in issues such as the provision of infrastructure, of which water supply is a prime example. The aim here is first to provide a schematic presentation of five periods of shifting paradigms in water provisioning policies globally and give their impact on Trinidad's water policies. Second, it seeks to analyse the genesis of government ideology of water as a public good. Finally, it identifies the new concepts in water supply that have emerged since the 1990s and gives their impacts internationally and locally.

Public debt sustainability

AIthough in Latin America public debt-to-GDP ratios continue to be generally lower than in other emerging countries, it has nevertheless not been possible to avoid liquidity problems, which some authors attribute to the low level and high volatility of public revenue, the weakness of domestic financial systems, and the mediocre quality of fiscal institutions. This article also emphasizes some exogenous factors, however. The combination of low economic growth rates and devaluations in a context of dollarized liabilities has given rise to a huge “snowball effect", which is what has come to be called ’original sin": the impossibility for an emerging country of borrowing abroad in its own currency. Although the effort to control the dynamics of the public debt will continue to be mainly at the internal level, the medium-term sustainability of that debt will depend on actions by international financial institutions aimed at improving the public debt conditions of emerging countries.

Does Regime Type Really Matter for Economic Growth?

ABSTRACT This article reports on an attempt to duplicate the results of “Regime, Polity, and Economic Growth: The Latin American Experience,” published in the Winter 1995 issue of Growth and Change. The original article used the Parks method to analyze cross section time series data, and concluded that after controlling for other relevant variables military governments have lower rates of economic growth than their civilian counterparts. Using data provided by the original researcher, and using various regression techniques including the Parks method, we were not able to reproduce the original results. We attribute this to problems in both the original data and regression techniques.

Romania: Law on Security Interests in Personal Property and Commentaries

AbstractThis paper presents the Romanian Law on Security Interests in Movable Property, together with commentaries on its main articles. It also discusses the background research and analysis that preceded the enactment of the law. Problems in the legal and institutional framework for secured transactions ranked high among the factors that limited access to credit in Romania. Limited access to credit, in turn, led to lower rates of investment and, thence, to lower rates of economic growth. Moreover, since the existing credit system could safely take as collateral only large holdings of real estate, the credit system discriminated heavily against those with mainly movable property as assets—the poor and operators of small businesses and farms. These legal problems reduced access to credit in Romania more than did macroeconomic instability or a variety of other structural features of the economy. Moreover, these limits would have lingered on undiminished long after macroeconomic stability could have been achieved. Limited access to credit has been generally recognized as constraining growth and aggravating poverty. Many donors and governments have attempted to address this problem without remedying its underlying legal roots: they have supported directed credit programs, state loan guarantees, state-funded guarantee funds, and direct loans by state agencies. These efforts typically end in disaster. Even where employees of such institutions matched their private counterparts in their desire to collect loans, the legal and regulatory framework prevented collection. State lenders may be able to make loans that the private sector will not make; however, they are no more able to collect them. No one has devised a feasible and effective economic remedy to this legal problem. Good public policy relaxes limits to access to credit by addressing the legal roots of this problem. Notwithstanding the importance of collateral to lenders and of movable property to producers, before the reform, the laws and legal registries of Romania largely prevented private lenders from taking movable property as collateral for loans. The new Romanian Law on Security Interests in Personal Property remedies this problem. It sets out a comprehensive framework for using personal property as collateral for loans. It introduces a broad system of security interests in personal property that derogates the existing narrow regime of non-possessory pledges. The law broadens the range of property that can serve as collateral under the concept of security interests (Garantiile Reale) far beyond the scope of what the pre-reform pledge. Today, a wide variety of property and transactions can secure a loan. The law sets out a compulsory and unique system for establishing priority among creditors in collateral. It provides that the first creditor who files a notice of the security interest shall be the first entitled to receive the proceeds from the sale of the collateral should the borrower default. These provisions apply to any secured creditor and to any creditor who—under any contract—has a right to satisfaction from property of the debtor or from property in the debtor's possession. This includes creditors in financial leases, conditional sales, warehouse operations, and accounts receivable financing. The law provides that the ranking of priority depends only on the time of filing a notice of the security interest in an Electronic Archive. Unlike a pledge registry, this Archive system does not register the security agreement. Rather, it files in a database a notice that a security interest exists. This notice contains minimal information about the parties to the transaction and the security interest. Furthermore, the law sets out—for the first time anywhere in the world—a registry archive in the Internet that may be accessed on-line both to file and to retrieve information.