Why have the economies of some developing countries fallen back while others have advanced? Why have so many stabilization and structural adjustment programs failed to deliver growth dividends? This book shows that there is a common and valid answer: political credibility defined as the predictability of the institutional rules of the game. This case is not only argued theoretically but also found to be confirmed by empirical analysis. Ten case studies pitting Latin American countries against Southeast Asian ones reveal the sources of political credibility. Economic openness is the necessary precondition, long-term reputation or democratic participation the sufficient one. Despite the seemingly superior strength of authoritarian reputation democratic control is the more successful road.
April 1997 An indicator of the credibility of rules is constructed from broad cross-country survey data and it is shown that low credibility is associated with lower rates of growth and investment. Economic theory and case study evidence have long suggested that institutional factors, such as well-defined property and contract rights, may be crucial in explaining differences in economic performance across countries. Much of the recent discussion about governance has, for example, focused on the role of corruption and its consequences for investment and growth. By comparison, the empirical literature relating institutional factors with growth has been relatively scarce and has mainly concentrated on crude proxies such as political instability and macroeconomic volatility. The problem of most of these variables in that they inadequately capture the uncertainties that are relevant for entrepreneurs. Brunetti, Kisunko, and Weder propose new measures of institutional uncertainty based on the subjective evaluations of entrepreneurs. They surveyed the private sector in a broad cross-section of countries. The survey was designed to capture institutional factors such as the predictability of rules, entrepreneurs' fears of policy surprises and reversals, their perception of safety and security of property, the reliability of the judiciary, and their problems with bureaucratic corruption. The authors construct and test a summary indicator of the credibility of rules, as well as its components in standard cross-country growth and investment regressions. The main findings: The overall indicator of credibility is significantly related with higher rates of investment and growth. The credibility indicator calculated for the subsample of small local companies is even more closely related to the growth performance. The subindicators security of persons and property and predictability of rule-making are most closely associated with growth. The indicators of corruption, perceived political instability, and predictability of judiciary enforcement are most closely associated with investment. Preliminary results for an extended sample - including transition economies - indicate that institutional factors may also help to explain differences in economic performance in these countries. This paper - a product of the Office of the Chief Economist and Senior Vice President, Development Economics- was produced as a background paper for World Development Report 1997 on the role of the state in a changing world. The study was funded in part by the Research Support Budget under the research projects Cross-Country Indicators of Institutional Uncertainty (RPO 680-51), and Indicators of Government Quality as Perceived by the Private Sector (RPO 681-52).
This volume explores the foundations of trust, and whether social and political trust have common roots. Contributions by noted scholars examine how we measure trust, the cultural and social psychological roots of trust, the foundations of political trust, and how trust concerns the law, the economy, elections, international relations, corruption, and cooperation, among myriad societal factors. The rich assortment of essays on these themes addresses questions such as: How does national identity shape trust, and how does trust form in developing countries and in new democracies? Are minority groups less trusting than the dominant group in a society? Do immigrants adapt to the trust levels of their host countries? Does group interaction build trust? Does the welfare state promote trust and, in turn, does trust lead to greater well-being and to better health outcomes? The Oxford Handbook of Social and Political Trust considers these and other questions of critical importance for current scholarly investigations of trust.
“Timely and important . . . It should be our North Star for the recovery and beyond.” —Hillary Clinton “Sperling makes a forceful case that only by speaking to matters of the spirit can liberals root their belief in economic justice in people’s deepest aspirations—in their sense of purpose and self-worth.” —The New York Times When Gene Sperling was in charge of coordinating economic policy in the Obama White House, he found himself surprised when serious people in Washington told him that the Obama focus on health care was a distraction because it was “not focused on the economy.” How, he asked, was the fear felt by millions of Americans of being one serious illness away from financial ruin not considered an economic issue? Too often, Sperling found that we measured economic success by metrics like GDP instead of whether the economy was succeeding in lifting up the sense of meaning, purpose, fulfillment, and security of people. In Economic Dignity, Sperling frames the way forward in a time of wrenching change and offers a vision of an economy whose guiding light is the promotion of dignity for all Americans.
The long-awaited second edition of an important textbook on economic growth—a major revision incorporating the most recent work on the subject. This graduate level text on economic growth surveys neoclassical and more recent growth theories, stressing their empirical implications and the relation of theory to data and evidence. The authors have undertaken a major revision for the long-awaited second edition of this widely used text, the first modern textbook devoted to growth theory. The book has been expanded in many areas and incorporates the latest research. After an introductory discussion of economic growth, the book examines neoclassical growth theories, from Solow-Swan in the 1950s and Cass-Koopmans in the 1960s to more recent refinements; this is followed by a discussion of extensions to the model, with expanded treatment in this edition of heterogenity of households. The book then turns to endogenous growth theory, discussing, among other topics, models of endogenous technological progress (with an expanded discussion in this edition of the role of outside competition in the growth process), technological diffusion, and an endogenous determination of labor supply and population. The authors then explain the essentials of growth accounting and apply this framework to endogenous growth models. The final chapters cover empirical analysis of regions and empirical evidence on economic growth for a broad panel of countries from 1960 to 2000. The updated treatment of cross-country growth regressions for this edition uses the new Summers-Heston data set on world income distribution compiled through 2000.
Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.
The purpose of this paper is to empirically determine the effects of political instability on economic growth. Using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect.
This paper explores how fiscal policy can affect medium- to long-term growth. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. The particular mix of policy measures, however, will depend on country-specific conditions, capacities, and preferences. The paper draws on the Fund’s extensive technical assistance on fiscal reforms as well as several analytical studies, including a novel approach for country studies, a statistical analysis of growth accelerations following fiscal reforms, and simulations of an endogenous growth model.
What are fiscal policy rules? What are the principal benefits and drawbacks associated with various fiscal rules, particularly compared with alternative approaches to fiscal adjustment? Can fiscal rules contribute to long-run sustainability and welfare without sacrificing short-run stabilization? If so, what characteristics of fiscal rules make this contribution most effective? And in what circumstances and contexts, if any should the IMF encourage its member countries to adopt fiscal rules? This paper seeks to identify sensible fiscal policy rules that can succeed, if chosen by a member country, as an alternative to descretionary fiscal rules.
