How does trade openness influence budget deficits in developing countries?

Abstract

This paper analyses the effects of trade openness on budget balances by distinguishing the effects of natural openness from those of trade policy. Revealed indicators of natural openness and trade policy are computed. Using GMM-system estimator, the econometric analysis focuses on 66 developing countries over 1974–98. The results show that trade openness increases a country's exposure to external shocks. This enforces the negative impact on budget balances of terms of trade instability. Additionally, trade openness influences budget balances through several other channels: corruption, income inequalities, etc. Then natural openness and trade policy have opposite effects: the former deteriorates budget balances whereas the latter enhances them.     

A note on the current and capital accounts compilation of Barbados under the fourth and fifth IMF editions

Measurement of external positions of member countries has been a main feature of International Monetary Fund (IMF) operations since inception. A first step towards an understanding of current and capital account movements is the understanding of the IMF Manuals. The first edition was used as a guideline for Balance of Payments (BOP) compilers and published in 1948. However since then, important changes had occurred in the manner in which international transactions were conducted. This led to the publication of the second edition in the 1950's, the third edition in 1961 and the fourth edition in 1977. Since that last publication, liberalization of financial markets, innovations in the creation and packaging of financial instruments and new approaches to the restructuring of external debt have all taken place. As a result, the fifth edition was introduced and published in 1993 although not implemented by Barbados until two years later.

The purpose of this paper is to compare the fourth edition with the new edition with respect to the composition and structure of the current and capital accounts. It also intends to show what the changes would have implied for Barbados’ BOP statistics from 1979 until 1994 and how the statistics could impact on the future.     

The Cost of Empowerment: Multiple Sources of Women’s Debt in Rural India

Abstract

Poor women borrow from multiple sources. This study examines whether the source of debt matters for women’s role in household financial decisions. Drawing on a household survey from rural Tamil Nadu, we categorise women’s loans along the lines of accessibility and formality into ‘planned loans’ and ‘instant loans’. We find that ‘instant loans’ support women’s bargaining power in various types of household financial decisions, whereas ‘planned loans’ have no impact. This surprising result is better understood when the nature of ‘instant loans’ is examined – these are frequently usurious, involve coercive enforcement methods and are considered socially debasing. Hence women who use them perform a convenient role for their households and in return gain some negotiating power.     

Biased Budgeting in the Public Sector: Evidence from Italian Local Governments

Abstract

The purpose of this paper is to analyse, in terms of presence, determinants and purposes, the misrepresentation of expected revenues during budget formulation and the misrepresentation of actual revenues during budget execution. To this end, we use six-year panel data from Italian municipalities with populations above 15,000. Our results suggest that overestimations of current revenues are more frequent than underestimations, during both budget formulation and budget execution. In terms of determinants, our results highlight the impact on revenue misrepresentation of both political orientation and fiscal stress. Finally, in terms of purposes, we show that revenue underestimation during budget formulation and revenue overestimation during budget execution may contribute to the formation of surpluses. The former, in particular, may allow mayors to create a ‘war chest’ in non-election years, which can then be used to increase net borrowing on the eve of elections.     

Debt crisis of the less developed countries and the transfer debate once again

In the perspective of substantial amount of net transfers from the debtor less developed countries (LDCs) to the creditor developed countries (DCs) in the recent debt crisis years, there is a renewed debate (that started in the context of German reparation payments after the First World War) on the question of transfer burden of debt. The present study assembles some evidence to show that the LDCs in general expanded their export‐volumes and faced losses in their export unit values in the process of their debt repayments. Many LDCs faced this transfer burden of debt irrespective of whether their export drive was in the field of primary products or manufactures. Thus the Keynesian analysis for German transfer problems seems to be relevant in the context of the present experience of the LDCs. For some debtor countries, the ‘insoluble’ transfer problem mentioned by Keynes exists as they are facing ‘Fisher's paradox’: The more the debtors pay, the more they owe.     

Aid and Resource Mobilisation in Sub-Saharan Africa: the Role of Reverse Flows

This article seeks to ascertain the role of ‘reverse flows’ in explaining the observed limited impact of aid on resource mobilisation in Sub-Saharan Africa. It departs from the previous empirical literature on aid and resource mobilisation by abandoning the pervasive, but untenable, assumption that aid either displaces domestic saving (increases consumption) or increases investment. Some aid is, in fact, used to finance reverse flows (debt servicing, capital flight, and reserve accumulation). The evidence suggests that, for the period covering 1980 to 2006, nearly 50 per cent of aid to Sub-Saharan African countries was used to finance reverse flows.     

‘Illegitimate’ loans: lenders,not borrowers,are responsible

Debt relief has focused on the borrower—debt is cancelled if a country is too poor to repay and now has acceptable policies. Iraq shifted the focus to the lender—debt should be cancelled because creditors should never have lent money to the repressive regime. This paper uses domestic and international law to establish the concept of ‘illegitimate debt’, which should not be repaid independent of the status of the borrower. The concept of ‘moral hazard’ is used to argue that non-payment of illegitimate debt is necessary to discipline lenders and to prevent future lending to oppressive dictators.     

The New Biopower: Poverty Reduction Strategy Papers and the obfuscation of international collective responsibility

As successors to structural adjustment programmes, Poverty Reduction Strategy Papers (prsps) were introduced in 1999 as preconditions for World Bank and imf concessional financing and for debt relief. prsps now serve as the basis of negotiations for a variety of development financing and have influenced the design of other aid instruments. This paper considers the impact of the prsp framework on the constitution of global economic governance, in particular its effect in foreclosing possibilities for a radical revision of the rules and institutions of international economic law. The paper argues that the prsp project not only reframes fundamental tenets of international co-operation and global communal responsibility but also establishes a new disciplinary framework for Third World state engagement with the global economy and the international law which sustains it. In this way the discourse and methods of resistance against the injustices of the international order have been appropriated to distil such dissent through qualified operationalising of contestable notions of ‘participation’, ‘ownership’, ‘partnership’ and ‘poverty reduction’, disabling the resurgence of any form of emancipatory politics in the international economic order, whether through a state-led nieo-style revival or cosmopolitan social movement.     

Rebalancing the Global Economy

The United States accuses China of subsidizing its entire export economy through artificially undervaluing its currency. China accuses the United States of fiscal profligacy while flooding the world with easy credit to keep its economy afloat. This dispute reflects the reality that the world's two largest economies are built on opposite dynamics of production and savings vs. consumerism and debt. In Europe, the wages of unsustainable debt that financed the welfare state have also come due. Rebalancing the global economy in this context is not only a matter of fixing exchange or interest rates and extending the retirement age. It must also involve a recalibration of democracy in both East and West. Two Nobel economists, the Greek prime minister, a ranking Chinese economist and the former chief economist of the IMF address these issues.     

War,Violence and the Making of the Stalinist State: A Tillyian Analysis

Abstract

Defining the state as ‘organised violence’, based on the emergence of the modern European national state system, Charles Tilly identified four essential war-driven, state-building activities: ‘war-making’; ‘state-making’; ‘protection’ of elite ‘clients’; and ‘extraction’ of resources. Drawing on Tilly's primary categories of analysis, this essay considers the ways in which war, or the threat of war, real or imagined, shaped the Soviet state, particularly in its Stalinist manifestation. This essay argues that Tilly's warfare-state paradigm, judiciously deployed, brings into high relief facets of Soviet state-making that few other paradigms do.     

Expenditure Inflexibility in the State Budget: The Fiscal Policy Latitude of the Council of State in Finland

This paper deals with expenditure inflexibility, which has a crucial bearing on the fiscal latitude which the government has in the preparation of the Finnish state budget. The government’s fiscal latitude, i.e. the possibilities available to the government to increase, decrease or change state expenditures is restricted by vari‐ous mechanisms. The source material used in this study consists of budget documents and interviews with officials involved in preparing the budget; use was also made of earlier studies relating to this subject. Our major findings fall into three groups. (i) If the degree of inflexibility is used as a basis for classification, four classes of expenditure can be identified in the Finnish state budget: expenditure controlled by statute, expenditure controlled by agree‐ment, expenditure controlled by authorization and expenditure without formal con‐trol. (ii) In the budget for 1996, 92 per cent of expenditure was controlled in various ways, leaving only 8 per cent that was flexible. The conclusion can be drawn from this that without changing the mechanisms that bind expenditures, the govermment’s ability to alter fiscal policy in the budget of a single year is very limited. In the 1990s the proportion of statute‐controlled expenditures has decreased and the proportion of agreement‐controlled and authorization‐controlled expenditures has increased. Nevertheless fiscal latitude has grown. (iii) The material used for comparison showed that there is a similar problem in other countries, but that the mechanisms governing expenditure inflexibility and the fiscal latitude that governments may enjoy can vary.     

The Effect of IMF Programmes on Economic Growth in Low Income Countries: An Empirical Analysis

Using an LIC-specific participation model, we adopt a propensity score matching (PSM) methodology to compare economic growth performance in countries with and without IMF programmes over the period 1989–2008. Concessional programmes are found to have had a generally positive effect on economic growth for up to two years after agreements were signed. The effects are contingent on other factors including overall initial economic conditions, recent prior growth performance, aid dependency, debt, IMF resources, recent history of IMF engagement and time period. We examine the implications of the results as the IMF considers how best to support the Sustainable Development Goals.     

A Retrospective Impact Evaluation of the Tamil Nadu Empowerment and Poverty Alleviation (Pudhu Vaazhvu) Project

Community based livelihood interventions, which focus directly on increasing income and employment, have become an increasingly important component of large-scale poverty reduction programmes. We evaluate the impact of a participatory livelihoods intervention – the Tamil Nadu Empowerment and Poverty Reduction (Pudhu Vaazhvu) Project (PVP) using propensity score matching methods. The paper explores the impact of PVP on its core goals of empowering women and the rural poor, improving their economic welfare, and facilitating public action. We find significant effects of PVP on reducing the incidence of high cost debt and diversifying livelihoods. We also find evidence of women’s empowerment, and increased political participation.     

Citizen Preference and Resource Allocation: The Case for Participatory Budgeting in Seoul

This article seeks to measure the extent to which the service priorities of citizens of Seoul, South Korea, are reflected in corresponding resource allocations in the city's budget, despite there being virtually no participation by citizens in the budget creation process. We find a less than perfect congruence between budget allocations and citizen preferences at both the city and district level. Given these results, we discuss the potential for participatory budgeting to address discrepancies in resource allocation by focusing on the unique demographic and cultural makeup of Seoul constituencies.     

From centralisation to fragmentation and back again: the role of non-state actors in Brazil’s transformed foreign policy

Abstract

Since the 1990s, Brazil’s foreign policy-making, traditionally a highly centralised and hierarchical process, has become more fragmented, plural and horizontal. In this context, the role of non-state actors has been increasingly relevant. The impact and significance of these actors have been however a matter of debate. While there are authors that consider that non-state actors play only a secondary role in the policy-making process, there are others that assert that these actors work alongside governmental actors and directly influence policy choices. Drawing on the concept of network governance, the paper proposes a different view from the two recurrent approaches in the literature mentioned above. It argues that the recent steps to transform Brazil’s state governance from hierarchy to horizontal networks have indeed expanded the room for the direct participation of non-state actors in the policy process. However, state authorities fought to adjust this tendency, in order to retain control over the decision-making process, by putting in place formal and informal coordinating mechanisms led by the Ministry of Foreign Relations and the Presidency. This suggests Brazil’s foreign policy was made in the shadow of hierarchy. The paper demonstrates the argument using the case of Brazil’s foreign policy towards China.     

Curse or Blessing? Has the Impact of Debt Relief Lived up to Expectations? A Review of the Effects of the Multilateral Debt Relief Initiatives for Low-Income Countries

As the multilateral debt relief initiatives draw to a close, this article reviews the impacts of debt relief to low-income countries (LICs) building on both the theoretical and empirical literature of past decades. We show that, while the pioneering studies of the early 2000s are inconclusive, the most recent analyses overcome certain methodological impediments to highlight significant multilateral debt relief initiative effects. These analyses hence suggest that these large-scale programmes may well have met expectations, at least in part.     

China's Economy Is in Balance

The United States accuses China of subsidizing its entire export economy through artificially undervaluing its currency. China accuses the United States of fiscal profligacy while flooding the world with easy credit to keep its economy afloat. This dispute reflects the reality that the world's two largest economies are built on opposite dynamics of production and savings vs. consumerism and debt. In Europe, the wages of unsustainable debt that financed the welfare state have also come due. Rebalancing the global economy in this context is not only a matter of fixing exchange or interest rates and extending the retirement age. It must also involve a recalibration of democracy in both East and West. Two Nobel economists, the Greek prime minister, a ranking Chinese economist and the former chief economist of the IMF address these issues.     

Short‐termism Is Undermining America

The United States accuses China of subsidizing its entire export economy through artificially undervaluing its currency. China accuses the United States of fiscal profligacy while flooding the world with easy credit to keep its economy afloat. This dispute reflects the reality that the world's two largest economies are built on opposite dynamics of production and savings vs. consumerism and debt. In Europe, the wages of unsustainable debt that financed the welfare state have also come due. Rebalancing the global economy in this context is not only a matter of fixing exchange or interest rates and extending the retirement age. It must also involve a recalibration of democracy in both East and West. Two Nobel economists, the Greek prime minister, a ranking Chinese economist and the former chief economist of the IMF address these issues.     

The Danger of Global Austerity

The United States accuses China of subsidizing its entire export economy through artificially undervaluing its currency. China accuses the United States of fiscal profligacy while flooding the world with easy credit to keep its economy afloat. This dispute reflects the reality that the world's two largest economies are built on opposite dynamics of production and savings vs. consumerism and debt. In Europe, the wages of unsustainable debt that financed the welfare state have also come due. Rebalancing the global economy in this context is not only a matter of fixing exchange or interest rates and extending the retirement age. It must also involve a recalibration of democracy in both East and West. Two Nobel economists, the Greek prime minister, a ranking Chinese economist and the former chief economist of the IMF address these issues.     

Chinese Prosperity Doesn't Bring Democracy

The United States accuses China of subsidizing its entire export economy through artificially undervaluing its currency. China accuses the United States of fiscal profligacy while flooding the world with easy credit to keep its economy afloat. This dispute reflects the reality that the world's two largest economies are built on opposite dynamics of production and savings vs. consumerism and debt. In Europe, the wages of unsustainable debt that financed the welfare state have also come due. Rebalancing the global economy in this context is not only a matter of fixing exchange or interest rates and extending the retirement age. It must also involve a recalibration of democracy in both East and West. Two Nobel economists, the Greek prime minister, a ranking Chinese economist and the former chief economist of the IMF address these issues.