Wealthy Economies Research Articles

From Families to Formal Contracts: An Approach to Development

This paper develops a theory in which individuals can use one of two types of human/social to enforce contracts: capital relies on families and other personal networks; capital relies on impersonal market institutions such as auditors and courts. Local is efficient when most trading is local, but only market can support trading between strangers that allows extensive division of labor and industrialization. We show that economies with a low cost of accumulating local (say, because people live close together) are richer than economies with a high cost of accumulation when long distance trade is difficult, but are slower to transition to impersonal market exchange (industrialize) when long distance trade becomes feasible. The model provides one way to understand why the wealthiest economies in 1600 AD, China, India, and the Islamic Middle East, failed to industrialize as quickly as the West. We report an array of historical evidence documenting the pre-industrial importance of family and kinship networks in China, India, and the Islamic world compared to Europe, and the modernization problems linked to local capital.

Air cargo services in Asian industrialising economies: Electronics manufacturers and the strategic use of advanced producer services

Abstract. The use of advanced producer services is critical to manufacturing firms in industrialising economies, but most research on such services has been situated in wealthy post‐industrial economies. We examine the use of one class of advanced producer services – those provided by the air cargo industry – by manufacturers in Southeast Asia. The air cargo industry has grown rapidly in this region and plays an increasingly important intra‐ and interregional integrative role. We are interested specifically in the demand for knowledge‐intensive advanced air cargo services, which include for instance time‐definite express services, by electronics manufacturers in Singapore, Malaysia and the Philippines. Employing several analytical approaches, we find that demand for advanced air cargo services is related to the degree to which a firm's operations are knowledge‐intensive, its size, and the scope of its internationalisation.

The Theory of the Market Economy and the Social Foundations of Innovative Enterprise

The author argues that the theory of the market economy propounded by western economists is more a hindrance than a help in understanding the difficult economic problems that nations, both rich and poor, now face. The fundamental problem is that western economists who propound the theory of the market economy - including those who recognize that markets often work `imperfectly' or `faill'-lack a theory of economic development that can explain the successful growth of the wealthy economies. The author argues further that a theory of economic development must be rooted in a theory of innov,ative enterprise. Lacking such a theory, `market' economists tend to see developed markets in labour, capital and products as cauuses rather than consequences of economic development. The 'market economy' is, of course, a very real phenomenon with great economic and political advantages if it can be achieved and controlled. But, in reality, well-functioning markets are much more the consequences than the causes of economic development. To reap the advantages of a 'market economy', a society must first put in place the organizations and institutions that generate the innovative capabilities that underpin economic development and that make possible the emergence of wellfunctioning markets in capital, labour and products. With these capabilities and markets in place, a society can then turn to the ongoing tasks of promoting the innovation process and controlling the operation of markets to achieve stable and equitable economic growth. Understanding the social foundations of innovative enterprise is, the author argues, critical to the formulation of policies to achieve this end.

The Four Key Factors for Commercialising Research

In France, as in all industrial countries, the government is seeking to promote more extensive ties between universities and enterprises in order to stimulate creativity and growth. But can this be achieved through legislation alone? The various cases studied herein show that the successful commercialisation of public research is the result of the application of an "organic paradigm" consisting of the four closely interacting factors of legislation, the economic environment and entrepreneurship, technical progress and university strategy. We have applied this method to the specific case of a young French university (Université du Littoral Côte d’Opale) and have shown that what is lacking is the close interaction between academic research and a wealthy local economy, which hinders transfers of the scientific resources of public research to the business world.

Investor Protection and Corporate Valuation

ABSTRACTWe present a model of the effects of legal protection of minority shareholders and of cash‐flow ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 539 large firms from 27 wealthy economies. Consistent with the model, we find evidence of higher valuation of firms in countries with better protection of minority shareholders and in firms with higher cash‐flow ownership by the controlling shareholder.

Poverty in a Wealthy Economy: The Case of Nigeria

This paper describes the nature and evolution of poverty in Nigeria between 1985 and 1992. It highlights the potential wealth of the Nigerian economy and examines how the economic policies pursued in the 1980s and 1990s impacted economic growth and welfare. The headcount measure of poverty in Nigeria declined from 43 percent to 34 percent between 1985 and 1992. Decomposing the factors causing the reduction in poverty shows that the overall decline of 9 percentage point was the net result of a 14 percentage point decline owing to the growth factor and a 5 percentage point increase owing to the income distribution factor. The paper proposes that promoting broad-based growth and targeted interventions in health, education, and infrastructure need to be central strategies in the fight against poverty in Nigeria.

Poverty in a Wealthy Economy: The Case of Nigeria

This paper describes the nature and evolution of poverty in Nigeria between 1985 and 1992. It highlights the potential wealth of the Nigerian economy and examines how the economic policies pursued in the 1980s and 1990s impacted economic growth and welfare. The headcount measure of poverty in Nigeria declined from 43 percent to 34 percent between 1985 and 1992. Decomposing the factors causing the reduction in poverty shows that the overall decline of 9 percentage point was the net result of a 14 percentage point decline owing to the growth factor and a 5 percentage point increase owing to the income distribution factor. The paper proposes that promoting broad-based growth and targeted interventions in health, education, and infrastructure need to be central strategies in the fight against poverty in Nigeria.

Poverty in a Wealthy Economy: the Case of Nigeria

This paper describes the nature and evolution of poverty in Nigeria between 1985 and 1992. It begins with the potential wealth of Nigeria's oil economy and examines how the economic policies pursued in the 1980s and 1990s impacted economic growth and welfare. It then presents a profile of poverty in both 1985 and 1992 according to different socioeconomic characteristics of the country's population. The headcount measure of poverty in Nigeria declined from 43 to 34% between 1985 and 1992, primarily due to a 34% increase in mean per capita household expenditures. The benefits of growth were not shared equally throughout the country. The bottom 18% of the income distribution had a lower standard of living in 1992 compared with 1985 by any measure. However, all other income groups had a higher standard of living in 1992. Household expenditure growth was fastest in the southern and middle zones of the country, but it was much slower in the northern zone. Poverty in Nigeria, in addition to its overwhelmingly rural and regional characteristics, is also strongly influenced by education, age and the nature of employment. Those without an education constitute a large fraction of the poor and the extreme poor. Decomposing the factors causing the reduction in poverty shows that the overall decline of 8.9% was the net result of a 13.6% decline due to the growth factor and a 4.7% increase due to the income distribution factor. Based on this analysis, the paper proposes that promoting broad‐based growth and targeted interventions in health, education and infrastructure need to be central strategies in the fight against poverty in Nigeria.

Why Do Governments Sell Privatised Companies Abroad?

This paper provides an empirical analysis of Governments' decisions to sell privatised companies on both international and domestic markets in a sample of 392 privatisations in 42 countries in the 1977-1998 period. Political theories of privatisation find strong support in our analyses: market oriented Governments favour domestic investors in the allocation of shares. The need to expose the company to global competition, to penetrate foreign markets and to warrant better legal protection to shareholders also appears as relevant. Significant differences emerge in OECD and non-OECD countries. In wealthy economies stock market liquidity favours cross-listing, while in emerging countries Governments resort to cross-listing in order to import liquidity and to develop domestic stock markets. Legal institutions also play a different role. In OECD countries, weak shareholder protection induces Governments to cross-list, in order to borrow the reputation and best practices of established exchanges. On the other hand, creditors' protection is more relevant in non-OECD countries, where weak legal protection of creditors reduces the scope of bank finance, forcing Governments to look for funds abroad.

Income distribution and the process of development

This paper examines the evolution of the role of income distribution in the process of development. It presents a unified model that encompasses the transition between distinct regimes that have characterized the relationship between income inequality and the process of development. This unified modeling provides an intertemporal reconciliation for conflicting viewpoints about the effect of inequality on economic growth – the classical approach which argues that inequality stimulates capital accumulation and economic growth, and the modern approach which suggests, in contrast, that for sufficiently wealthy economies equality stimulates investment in human capital and economic growth.

Barriers to International Capital Flows: Who Should Erect Them and How Big Should They Be?

Until recently, the trend in world capital markets has been toward increasing globalization. Recent events in Latin America and Asia have caused many in policy-making circles to question whether this trend should be wholly, or at least partially, reversed. It is commonly argued that—at a minimum—countries should be given the discretion to erect such barriers, at least in certain circumstances. Recent events, then, have forced a rethinking of the desirability of unrestricted world capital flows. The general presumption appears to be that the victims of highly volatile capital flows should be allowed to limit or restrict inflows and outflows of funds. But outflows of funds from smaller and less developed economies often represent inflows of funds to larger and more developed economies. This raises the issue of whether there would be benefits associated with larger and wealthier economies taking actions to limit capital mobility. This paper presents a formal analysis of erecting barriers to international capital flows. We find that, in contrast to conventional thinking, when there are substantial differences in per capita GDP across countries, long-run output in all countries can be increased by having wealthier economies erect some partial barriers to capital mobility. Interestingly, wealthier economies need not persuade poorer economies to cooperate: by implementing an appropriately selected tax on capital flows it will often be the case that the wealthy economy can unilaterally obtain a higher steady state welfare level for all agents in all economies. We also show that these same barriers need not eliminate endogenously arising volatility in income, capital flows, and asset returns. Under some circumstances, then, if it is desirable to reduce such volatility, this must be accomplished by other means. However, and this bears emphasis, the case for imposing barriers on capital flows does not depend critically on the ability of these barriers to eliminate excess volatility.

Changing Women's Lives: Child Care Policy in Ireland

Child care as a policy issue has been forced to the center of the national planning agenda in Ireland with the report of an expert working group on child care. As Ireland has broken into the ranks of wealthy Western economies, Irish women have joined the formal workforce in ever greater numbers, dramatically breaking the traditional ideology of women as childbearers and homemakers. However, women are now carrying the double burden of work that accompanies the lack of any state policy on child care. This article traces this recent history of the feminizing of the Irish workforce, amidst a fast-changing social context for family life, and the multiple problems confronting the expert working group of securing an adequate range of policies for the provision of child care in a country which has one of the lowest rates of formal state provision in the entire European Union.

The Global Crisis—A Crisis of Values and the Domination of the Weak by the Strong

This paper is a critique of the present mode of capitalist democracy from the ethico-moral viewpoint. The crisis of values is identified as the great bane of free market-led globalization. This trend has aggravated worldwide inequality, promoted terrorism and violence, created psychological anomie and triggered eco logical disasters. Only a few business interests in the wealthier economies are gaining at the expense of humankind. The moral dimension of the government's role has been undermined by such profit-making free market gospel. The author contends that more than beingjust secular, democracy is a pre-social moral force and, as such, is perceived more proximately in the religious temper of a non-industrial society than in a mass industrial society. In the latter democracy is almost a farce with the periodic ritual of public voting as its main act. The paper castigates the global economy and global media which cleverly mastermind our lives, and pleads for a change of values which will make humans self-conscious and will restore their autonomy.

Corporate Ownership Around the World

ABSTRACTWe use data on ownership structures of large corporations in 27 wealthy economies to identify the ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely held, in contrast to Berle and Means's image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions is far less common. The controlling shareholders typically have power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in management.

150 Years of Patent Office Practice

An extensive theoretical literature has examined the impact of information problems on interactions between government bodies and private firms. One little-explored empirical testing ground is the patent system. This paper examines the administrative practices of patent offices in sixty countries over a 150-year period. I show that the usage of patent renewal fees and other mechanisms to grant discretion to patentees is consistent with theoretical suggestions. Nations where information asymmetries between government officials and patentees are likely to be more prevalent-larger countries, wealthier economies, and those where international trade is more important-incorporate discretionary features into their patent systems more frequently. I also find evidence that policymakers are more likely to restrict patent office officials' flexibility and to divide the responsibility for determining patentability between the patent office and the courts when information problems are likely to be severe.

Investor Protection and Corporate Valuation

We present a model of the effects of legal protection of minority shareholders and of cash flow ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 371 large firms from 27 wealthy economies. Consistent with the model, we find evidence of higher valuation of firms in countries with better protection of minority shareholders, and weaker evidence of the benefits of higher cash flow ownership by controlling shareholders for corporate valuation.

Corporate Ownership Around the World

We present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify the ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely held, in contrast to the Berle and Means image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions or other widely held corporations is far less common. The controlling shareholders typically have power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in management. The results suggest that the central agency problem in large corporations around the world is that of restricting expropriation of minority shareholders by the controlling shareholders, rather than that of restricting empire building by professional managers unaccountable to shareholders.

The impact of a ready‐made state: East Germans in comparative perspective

To understand the impact of reunification upon Germans, we must make before and after comparisons across time, and also across central Europe. The first section shows that from the perspective of comparative Communist regimes, east Germans have been doubly advantaged, in former times because of belonging to a relatively prosperous part of the Soviet bloc and since reunification as subjects of a ‘ready‐made state’ with democracy and a wealthy social market economy. Analysis in the second section of the impact of reunification on west Germans shows that a significant proportion feel less satisfied than before, whereas the opposite is the case for east Germans. The third section introduces comparisons with Austria. Like the Federal Republic, it has enjoyed the advantages of democracy and a market economy, but without the trauma of division and reunification.

Can a Wealthy Economy Gain from an EU Membership? Adjustment Costs and Long Term Welfare Effects of Full Integration—The Norwegian Case

We employ a large scale macroeconometric model to study adjustment problems and long term welfare effects of a Norwegian EU-membership. Accession costs depend significantly on the country's level of GDP, the size of its agricultural sector and tariff and VAT revenues as these elements determine the net membership contribution. Without the transfers, integrating the economy into EU generates a small welfare gain. This result is strongly affected by a long period with under-utilisation of resources. With the net contribution included, we identify a welfare loss. This is especially so if fiscal policy is changed to maintain the public sector budgetary balance.

Logistics: The Key to Success for the Australian Food Industry's Push into Asia

Australia is in the fortunate position of having high quality food products available for the increasingly wealthy Asian economy. Given its relatively small economic size, the key success factor of Australian food manufacturers will be the ability to ship food into Australia at an economic cost, and in doing so, maintain the quality of the product. The Australian Government, food producers and logistics service providers all have an important role to play in ensuring that the Australian economy does not lose the perceived opportunities that exist.