Volume 9, Issue 2

The existing literature argues that both higher levels of political and economic development can dampen real GDP growth volatility. The problem, however, is that both forms of development are thought to be highly correlated. Using a dataset of 94 countries, we address this problem and find that not only does economic and political development have non-linear relationships with volatility, but that the effect of the former is more substantively significant than that of political development after a certain level of development is attained.

This paper focuses on a regulator's choice between setting a pure, horizontal technical barrier to trade (HTBT) or a tariff in a linear, Cournot duopoly, where a foreign firm competes with a local rival. Where a country is free to impose a tariff, it will not impose a HTBT. Only under a limited set of circumstances will the profit-shifting effect be sufficient to lead to total exclusion of the foreign firm: in other conditions, the country will set a tariff yielding some revenue. By contrast, if tariffs are constrained by international agreement, then the importing country will set an HTBT to exclude the foreign firm if and only if tariffs are reduced below a threshold level. Trade liberalisation agreements which only cover tariffs can reduce, rather than increase global welfare.

Infrastructure growth and its regional concentration can accelerate growth and diversification of international trade, in terms of both commodities and the implied factor content. The origins and mechanism are explored via a model of endogenous growth that internalizes social spending on physical infrastructure, leading to the accumulation of human capital as a result of learning by doing. Infrastructure developed in the first instance to enhance and diversify manufactured exports can create a supply push into the export of human capital services. As a leading case study, China's recent free trade agreements show clear signs of a development strategy shifting orientation towards the export of services, such as those relating to infrastructure construction and tourism, and the financial services required in support.

This paper investigates the exchange rate pass-through in 12 developing countries during the period 1980-2001 by adopting a new formulation. Rather than considering the traditional approach based on the exogenous exchange rate movement through correlation between exchange rate and prices, we focus on fundamental macroeconomic shocks that affect both exchange rate and prices. In order to do that, we employ long-run restrictions à la Blanchard and Quah (1989) to identify the different shocks through an open economic macroeconomic model (ISLM framework). We use the common trends approach proposed by Warne et al (1992). This allows us to calculate the pass-through as the responses of the exchange rate, CPI and import prices to the supply, the relative demand, the nominal and the foreign prices shocks. We show that the pass-through ratio in developing countries is different when considering different structural shocks.

The study empirically investigates ‘Wagner's law,' the relationship between ‘social progress' and ‘growth of state activity' in an economy, using Bangladesh data from 1976 to 2007 in a bivariate as well as a trivariate framework incorporating ‘population size' as a third variable. The estimated results provide evidence in favour of Wagner's law for Bangladesh in both the short-run and long-run. There is a long-run cointegration relation among real government expenditure, real GDP and the size of population where government expenditure is positively tied with the real GDP (1.14), per capita GDP (1.51) and population size (0.21). Both the real GDP and GDP per capita Granger cause total government expenditure to change. Population size also comes up as a significant stimulus for public spending to grow in both the long-run and short-run.

This article will discuss the political and economic background behind Poland's decision to join the Euro-Zone, perhaps as early as 2012. The article describes important political events and summarizes key economic data presented at the end of 2008, as well as providing important “pro and con" arguments surrounding this controversial move. In addition, the article provides a context to Poland's “march to Europe," as it has moved to full membership in the European Union, including its single currency.

We examine whether core ASEAN+3 countries might be interested in joining a financial "crisis union," allowing for the role of uncertainty by constructing a stylized real options model of the decision problem involved. We calibrate that model by proxying financial fragility with commonly used bank asset ratios and observe that, according to our criteria, a wider financial crisis union might be more attainable the more encompassing that grouping is; however, our results also reinforce the common perception of pervasive, possibly prohibitive, heterogeneity in these countries' banking and financial systems.

This paper estimates the export demand equation for the Philippines using the Gregory and Hansen procedure. We allowed for structural breaks within the Gregory and Hansen framework and obtained a cointegrating relationship between real exports, real income and relative prices. Our preferred model is the level shift where all the coefficients are significant and plausible. The income elasticity of export demand is around unity and the relative price elasticity is around -1.2.