New capital accumulation in transition economies: implications for capital-labor and capital-output ratios

This paper investigates the impact of new capital accumulation on capital-labor and capital-output ratios in 26 transition economies (TE) of Central and Eastern Europe and former USSR. Using a perpetual inventory method, we estimate the amount of capital accumulated in these countries since the start of market reforms and compare it to results for developed countries and largest emerging market economies. We found that on per worker basis, capital accumulation in TE is lagging far behind that of their mature market neighbors in European Union. Disparities in capital-output ratios were not as pronounced, as higher capital-labor ratios were reached in economies with higher levels of GDP per capita. Regression analysis indicates that capital per worker was accumulated faster in TE having higher saving rates, relatively higher priced labor, closer proximity to Western Europe, and higher manufacturing share in the economy. The K/Y levels were influenced by the same determinants except for relative input costs.     

The Economic Cost of Crime in Chile

This study estimates that the economic cost of crime in Chile, using the accountancy method, is $1.35 billion as at 2002; that is, this cost is equivalent to 2.06% of Chile's GDP. Crimes included in the estimation are murder, robbery, larceny–theft, burglary, wounding, rape and sexual assaults, domestic violence and economic felonies such as fraud, forgery and so on. Consequential costs are the most important, representing 68% of the total cost of crime. Government spending represents 23% of the total and anticipatory cost account for the remaining 9%. Chile presents higher level of crime than most developed countries—though less than most developing nations—but government's spending on citizen's security is considerably lower than that of the US and several other European countries.     

Carbon tax scenarios for China and India: exploring politically feasible mitigation goals

China and India are two Asian giants and global players. They both have large populations and booming economies hungry for energy. China and India will therefore play a major role in shaping future global emissions of greenhouse gases. This paper assesses emissions reductions targets that can be realistically adopted by China and India in the following rounds of climate negotiations. The analysis is based on a business-as-usual (BaU) scenario and on four carbon tax scenarios until 2050, developed using the WITCH model. Results show that the lowest level of taxation (starting at 10$ per tonne of CO₂ in 2020) would reduce emissions in 2050 by 25% in China and by 30% in India, with respect to the BaU, at little cost. The marginal abatement cost curves are, however, steep and a higher level of taxation brings little emissions reductions at high costs. In China, only the two highest tax levels reduce emissions in 2050 below the 2005 level. In India, emissions in 2050 are higher than in 2005 even with the highest tax. Therefore, the pledge of the G8 and the MEF of reducing global emissions by 50% in 2050—with high-income countries cutting them by 80% and low-income ones by 25–30%—appears extremely costly and therefore unrealistic. A more sensible international climate architecture would push for the introduction of a moderate control of emissions in China and India and would avoid overly ambitious targets.     

The role of the G20 in governing the climate change regime

A wide array of institutions governing climate change has proliferated over the past years, influencing the rule-makings of the regime. One of them is the G20. When G20 leaders around the world convened in London to restore global economies, they stressed the importance of a ‘resilient, sustainable, and green recovery’ and reaffirmed their commitments to address climate change. This was followed by their agreement on phasing out inefficient fossil fuel energy subsidies over the medium term in Pittsburgh. The ‘coexistence of narrow regimes in the same issue-area’ could be described as ‘regime complexes’, which enable countries to adapt more readily, particularly when adaptation requires complex changes in norms and behavior. Given that responses to climate change would require changes in the domestic politics of different countries at different levels, loosely integrated institutions of regime complexes could be more advantageous for countries to adapt and in engaging with developing countries. This paper demonstrates that the G20’s highly informal institutional setup as well as its flexible cooperation tools could enable its members to customize their policies and better engage with third-party countries. In addition, the G20 group could collectively influence other key countries to reach an agreement on some of the key climate change–related issues, thereby facilitating the United Nations process of climate change.     

INTELLECTUAL PROPERTY IN THE TWENTY-FIRST CENTURY: WILL THE DEVELOPING COUNTRIES LEAD OR FOLLOW?

Developing countries, particularly the BRIC countries of Brazil, Russia, India, and China, should accommodate their national systems of innovation to the worldwide intellectual property (IP) regime emerging after the adoption of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in a way that maximizes global economic welfare in the foreseeable future. As many developed countries' experience demonstrates, badly configured, over-protectionist IP regimes stifle innovation by making inputs to future innovation too costly and too cumbersome to sustain over time. More carefully considered IP regimes, however, are an important way to protect innovative small- and medium-sized firms from predatory, larger competitors. The challenge is for emerging economies to capture the benefits of IP without importing the serious problems that developed countries have themselves failed to solve. Emerging economies can attain this balance by pursuing a policy of counter-harmonization in which they take advantage of existing exemptions in international agreements governing IP to establish regional, local, and international practices that promote more innovative, flexible uses of IP. Such practices include a research exemption for experimental uses of IP, government imposed nonexclusive licensing, anti-blocking provisions, an essential facilities doctrine, and compulsory licenses. Additional tools include an ex ante regime of compensatory liability rules for small scale innovation and sensible exceptions, particularly for science as well as general fair use provisions, to the exclusive rights of domestic copyright laws. Emerging economies will have to overcome strong economic pressure to accept more restrictive IP regimes as part of free trade agreements as well as a lack of technical expertise and internal government coordination. However, emerging economies have already accrued enough experience to be aware of the strengths and weaknesses of various IP schemes and their own ability to tailor IP to local needs. Developing countries will need to take advantage of that experience and defend innovative practices at international dispute resolution forums. Through creative, determined efforts, the developing countries can avoid other countries' IP excesses while establishing the kind of IP norms that address the real conditions of creativity and innovation in today's digitally empowered universe of scientific discourse.     

Technology use and availability in entrepreneurship: informal economy as moderator of institutions in emerging economies

This paper investigates the contextual influences of institutions on the use of latest available technologies by early stage entrepreneurs in emerging economies. Hypotheses are developed and then tested using multi-level modeling techniques on a dataset covering entrepreneurs in 20 emerging economies. We utilized 10,431 individual-level responses from the Global Entrepreneurship Monitor survey from 2002 to 2008 and complemented it with data on country-level institutions such as the size of a country’s informal economy, intellectual property rights (IPR) regimes obtained from the Index of Economic Freedom and inward foreign direct investment (FDI) from the World Bank Group. Results on the direct effects suggest that levels of FDI negatively influences the use of latest technology by entrepreneurs in emerging economies, while the moderation effects of informal economy suggest that as its size increases (1) the negative effects IPR on the use of latest technology by entrepreneurs strengthens, and (2) the negative effects of FDI on the use of latest technology strengthens. These findings support the overall proposition that the size of a country’s informal economy is an important moderator of institutional influences on technology use by entrepreneurs in emerging economies. More generally, the study proposes that institutions may not have the same effects on entrepreneurs in emerging economies that might be expected in developed countries, suggesting that future research should take the level of socio-economic development of a country into account when theorizing the role of institutions.     

Venturing into uncharted financial waters: an essay on climate-friendly finance

This paper explores links between global financial imbalances and tensions around reserve currency along with climate change. Currently, risky levels of private and public debts coexist with vast amounts of savings that “do not know where to go.” Long-term climate-oriented financial products could enhance investors’ confidence in low-carbon projects (LCP) and channel to them large amounts of private savings. The paper outlines a financial architecture, the cornerstone of which is an agreement on the Social Cost of Carbon (SCC) integrated into a project’s appraisal and acting as a surrogate for a carbon price. This SCC would be the value of carbon certificates issued by the government and delivered to banks to issue credit facilities reducing the risk-adjusted costs of LCPs. These carbon certificates could be gradually transformed into legal reserve assets of the banks after verification of the reality of the projects. Finally, the paper considers whether such certificates would be recognized as genuine international reserve assets, backed by the rising value of carbon over time. It shows how emerging countries could then diversify their foreign exchange reserves through an asset based on the international recognition of climate as a global public good.     

Multisectoral econometric models of the centrally planned economies and the disequilibria

The paper provides a systematic analysis of the properties of large econometric macro models built for the Centrally Planned economies of the '70s and '80s. A specific typology of macro models is introduced, distinguishing between the demand and quasi-demand determined systems on the one hand and the supply and quasi-supply determined systems on the other, and also between complete and incomplete models specifying only one side of economic activities (i.e. generating either demand or supply). It is shown that, under the command type economy, the incomplete, fully supply determined systems prevailed, generating production and showing its allocation. The economic reforms of the '80s, which aimed at a slow transition towards market economies, brought about a tendency towards constructing complete quasi-supply determined systems (especially for Poland and the CSRS). Since, in principle, they were built for shortage economies, the model builders had to allow for unobservables (final and intermediate demand, capacity utilization) and, on the other hand, for an increasing role of the financial phenomena (including prices) and financial policy instruments. A summary of the applications of macro models in forecasting and policy simulations is provided and new tendencies associated with regaining economic equilibria and approaching the market mechanisms emerging in the period of transition are shown.     

Do Corporate Tax Concessions Really Matter for the Success of Free Economic Zones?

Not only a large number of developing countries but also transition economies have established free economic zones (FEZs) with the aim of attracting foreign capital by providing tax incentives, creating employment opportunities, and promoting exports and regional development. Tax investment promotion schemes include profit tax exemption, free or accelerated depreciation, investment tax allowance, subsidy for investment costs, etc., the effects of which on firms’ investment decisions can be compared based on the net present value model. This study suggests that even a low corporate tax rate combined with generous depreciation rules does not provide incentives for investors when the inflation rate is high. A case study on Najin–Sonbong FEZ in North Korea delivers a wide range of more crucial economic and political reasons why such a development project can fail, although tax concessions offered there are more favourable than those in China and other Asian nations.     

Emerging Markets: Preferences,R isks,Performance...

The paper surveys the most important literature on emerging markets and their performance. Emerging market countries are defined here as the countries with low intuitional capacity in general, rather than the countries with particular economic characteristics and per capita income; although the latter is the predominant view in the current literature. The paper places particular importance on the legal system and legal order (compliance) in the transitional economies, stressing the importance of adequate regulation where even more advanced regulatory models, like market regulation, should not be totally excluded. Despite many common characteristics, emerging markets differ significantly one from another and it is very difficult, if really not impossible, to create one ‘general theory of emerging markets’ and its financial behaviour. Finally, the practice in the last decade or so, has proven that emerging markets are somewhat unpredictable and difficult to model.     

Are devaluations contractionary in emerging economies of Eastern Europe?

In most developing countries currency depreciation is said to be contractionary. This is because depreciation reduces the aggregate supply more than it increases the aggregate demand. However, emerging European economies have received no attention so far, mostly due to unavailability of data. Now that enough time-series data are available, we try to fill the gap by investigating the impact of real depreciation in effective exchange rates of Belarus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Russia, and Slovak Republic on their domestic output. We find that in the short run real depreciation is expansionary in Belarus, Latvia, Poland, and Slovak Republic; contractionary in Czech Republic, Estonia, Hungary, and Russia; and has no effect in Lithuania. In almost none of the countries, the short-run effects last into the long run.

The role of R&D and input trade in productivity growth: innovation and technology spillovers

Productivity improvements generally are driven by technology innovation and its spillovers. This study explores the role of R&D investment and intermediate input trade in productivity growth using country-industry-level data for 25 advanced and emerging economies. This paper confirms that R&D investment and intermediate input import/export (both intra- and inter-industry) with technologically advanced economies play important roles in productivity growth in non-frontier countries. We further find that the productivity gains of technology spillovers via input trade channels are likely larger for countries/industries where technology converges to the frontier. These findings imply that the recent slowdown in R&D investment and intermediate input trade in some advanced economies may contribute to declining productivity growth. The potential productivity improvements from R&D investment and free trade as well as the importance of domestic capacity in facilitating technology spillovers should be recognized.

     

Reinforcement of multilevel governance dynamics: creating momentum for increasing ambitions in international climate negotiations

Compared to the disappointment of the 2009 climate summit in Copenhagen, the results of the recent Conferences of the Parties can be regarded as positive progress. This was made possible due to lesson drawing and learning among states. Recent evidence from the UNFCCC negotiations suggests that countries began to reflect on the “Copenhagen experience.” They are setting up domestic climate legislation in the form of low carbon development plans and share their knowledge and experiences in the international climate change negotiations. Country representatives engage in workshops and roundtables to showcase their mitigation plans and low carbon development initiatives, thereby raising ambitions and creating group pressure on other countries. This article examines how the diffusion of policies across countries is motivated and facilitated by knowledge transfer and learning within multilevel-reinforcing governance dynamics between the domestic level and international negotiations. It analyzes how changes in the negotiation setting from confrontational formal negotiations to a more open forum and bottom-up pledge-and-review process, in combination with a positively framed win–win low carbon economic development narrative resulted in the diffusion of climate policies across developed and developing countries. Communicating these climate initiatives on the national level has shifted the debate. Countries emphasize less the win–lose perspective of economic costs and sacrifice. Thus, they focus less on the question of who should reduce emissions’, but identify co-benefits instead. The institutionalized knowledge sharing within the UNFCCC is also creating positive competitive dynamics among countries to increase their ambition and to take on a leadership role. This shift in the negotiations carries potential for a more ambitious aggregate negotiation outcome and opens up a window of opportunity.     

Cap-and-trade or carbon taxes? The feasibility of enforcement and the effects of non-compliance

One of the proposed alternatives to Kyoto’s cap-and-trade approach is a regime based on an internationally harmonized carbon tax. In this paper, we consider and compare the enforcement problems associated with a tax regime and a cap-and-trade regime, respectively. The paper tries to convey two main points. First, both types of regime require an_. effective enforcement mechanism. However, such a mechanism is unlikely to be adopted as part of a regime with full participation, because the political process leading up to its adoption tends to water down the enforcement mechanism to a point where it no longer has much bite. And even if this is somehow avoided, countries expecting compliance to be difficult or costly will almost certainly decline to sign—not to mention ratify—the resulting agreement. Second, the implications of non-compliance in a tax regime differ in important ways from the corresponding implications in a cap-and-trade regime. In a cap-and-trade regime emissions trading can make inaction legitimate for buyers of emission permits. In particular, overselling of permits by one (or a few) permit exporting countries might completely undermine the regime’s environmental effect. In a tax regime, by contrast, one country’s non-compliance can not make inaction by other countries legitimate. It follows that an agreement based on a harmonized carbon tax will always have some effect, provided that at least one country complies.     

International and intranational equity in sharing climate change mitigation burdens

Is inequality within countries relevant for global climate policy? Most burden-sharing proposals for climate mitigation treat states as homogenous agents, even those that aim to protect individual rights. This can lead to free riders in some large emerging economies and expose the poor to mitigation burdens in others. Proposals that incorporate an exemption for the poor can avoid these outcomes, but do not account for the role of internal policies on the poor’s actual emissions and mitigation burdens. This will create moral hazards in the design of such agreements and risk the misallocation of mitigation costs when implemented. To ensure equitable outcomes at the individual level, international agreements would need to build in additional provisions to encourage benefiting states to reduce emissions and target exemptions to the poor. But such agreements will face political conflicts over sovereignty and the burdensomeness of such provisions.     

State-Owned Enterprises in Less Developed Countries: Privatization and Alternative Reform Strategies

State-owned enterprises (SOEs) have typically played a much larger role in the economies of developing countries than developed countries. However, empirical evidence on the economic performance of SOEs generally yields negative results and suggests that SOEs are a major tax on the economies of developing countries reflected in the large operating subsidies required to sustain them. These inefficiencies seem in part attributable to ownership effects and partly to lack of competition effects. Empirical evidence on the effect of privatization of state-owned enterprises in both developed and developing countries suggests that this is often likely to lead to major improvement in economic performance. However, where privatization is not politically feasible, SOE reform alternatives such as management contracts, performance contracts, and greater exposure to competition may, in some contexts, enhance SOE performance, although typically they are second-best policy options to privatization.     

Health care cost-containment regulation: prospects and an alternative.

Regulation of the health care system to achieve appropriate containment of overall costs is characterized by Professor Havighurst as requiring public officials to engage, directly or indirectly, in the rationing of medical services. This rationing function is seen by the author as peculiarly difficult for political institutions to perform, given the public's expectations and the symbolic importance of health care. An effort on the part of regulators to shift the rationing burden to providers is detected, as is a trend toward increasingly arbitrary regulation, designed to minimize regulators' confrontations with sensitive issues. Irrationality and ignorance are found to plague regulatory decision making on health-related issues, even though it is the consumer who is usually thought to suffer most from these disabilities. The author argues that consumer choice under some cost constraints is a preferable mechanism for allocating resources because it better reflects individuals' subjective preferences, has a greater capacity for facing trade-offs realistically, and can better contend with professional dominance of the resource allocation process. In view of the unlikelihood of regulation that is both sensitive and effective in containing costs, the author proposes that we rely primarily on consumer incentives to reform the system. A simple change in the tax treatment of health insurance or other health plan premiums, to strengthen consumers' interest in cost containment while also subsidizing needy consumers, is advocated. Steps to improve opportunities for innovation in cost containment by health insurers, HMOs, and other actors are outlined briefly.     

Impact of the political and economic restructuring in Eastern Europe on the availability of net energy exports—An emprirical framework

The recent political changes will not only affect the domestic economies of the Eastern European countries but also important world commodity markets. This paper investigates the consequences for world energy markets. For this purpose, a disaggregated model of the Eastern European energy markets is developed that accounts for the introduction markets (‘pricing’) into the formerly central planned economies. Deregulation will stimulate conservation and will favour ‘noble’ fuels, i.e. oil, gas and electricity. (Potential) net energy exports will slightly increase by 1995 where gas exports could compensate for the decline in oil exports.     

Exchange rate, inflation and unemployment in East European economies: the case of Poland and Hungary*

The aim of the paper is to model the impact of exchange rate on both inflation and unemployment variables in economies which are characterized by important structural changes, i.e. a transition phase moving from centralized economies towards market economies. This phenomenon, which is common to the East European countries, stressed different effects both for what concerns the behaviour of economic agents and for what concerns fiscal and monetary measures adopted by governments and aiming to keep under control the inflation–unemployment trade off. Time series relationships between these variables are investigated within an econometric model. Economic theory and the available data on the hypothetically relevant variables, along with the consideration of the main facts occurred in the period under study, characterize our information set. It is found that single equation analysis yields inefficient inference relative to the whole system analysis, and important structural changes are detected which reflect possible breaks in the structure of the economic system along with a change in economic policy.