Beatrice Weder

A free press is bad news for corruption

Abstract This paper tests the proposition that a free press may be a powerful control on corruption. We find evidence of a significant relationship between more press freedom and less corruption in a large cross-section of countries. This result is robust to specification and sample and the relationship is not sensitive to the choice of a particular measure of corruption or of press freedom. Furthermore we present evidence which suggests that the direction of causation runs from higher press freedom to lower corruption.

Bureaucratic corruption and the rate of temptation: do wages in the civil service affect corruption, and by how much?

Abstract This paper presents what is to our knowledge the first empirical estimate of the effect of pay in the civil service on corruption. First, we show that theory is ambiguous on the relationship between civil-service pay and corruption. Then, we examine the issue using a new data set on wages for low-income countries. We find evidence of a statistically and economically significant relationship between relative civil-service pay and corruption in regressions based on cross-country averages, where we control for a wide array of variables. The relationship implies that a rather large increase in wages is required to eradicate corruption solely by raising wages.

Sources of contagion: is it finance or trade?

Abstract This paper presents evidence that spillovers through bank lending, as opposed to trade linkages and country characteristics, can help explain contagion. We construct a measure of competition for bank funds and find evidence in favor of a common lender effect in the Mexican, Thai, and Russian crises, after controlling for the degree of trade competition and macroeconomic fundamentals. The results are quite robust to the definition of the finance indicator. In the case of the Asian crisis, results are not always robust to the inclusion of trade competition, reflecting the high correlation between competition for funds and trade.

Investment and institutional uncertainty - a comparative study of different uncertainty measures

Investment and Institutional Uncertainty: A Comparative Study of Different Uncertainty Measures. — There is ample empirical evidence of a negative relationship between aspects of institutional uncertainty and investment. Most studies, however, do not allow a comparison between different dimensions of such uncertainty because they focus on specific indicators, particular regions or different periods. The paper concludes with an evaluation of the quantitative effects of the significant uncertainty indicators on investment finding that a lack of rule of law, high corruption, and volatility in real exchange rate distortions are the most detrimental for investment.ZusammenfassungInvestitionen und institutionelle Unsicherheit: Eine vergleichende Studie verschiedener Unsicherheitsma\e. — Es gibt reichlich empirische Belege für eine negative Beziehung zwischen der Unsicherheit über Institutionen und den Investitionen. Die meisten Untersuchungen gestatten aber keinen Vergleich zwischen unterschiedlichen Dimensionen solcher Unsicherheit, weil sie sich auf spezifische Indikatoren, bestimmte Regionen oder verschiedene Perioden konzentrieren. Die Verfasser schlie\en mit einer Bewertung der quantitativen Wirkungen der signifikanten Unsicherheitsindikatoren und finden, da\ Rechtsunsicherheit, ein hohes Ma\ an Korruption und UnbestÄndigkeit der realen Wechselkursverzerrungen besonders hinderlich für Investitionen sind.

Firm Size and the Business Environment : Worldwide Survey Results

The development of the small, and medium enterprise sector is believed to be crucial for economic growth, and poverty alleviation. Those who seek to develop the sector, must consent with the general perception that small- and medium-scale enterprises are at a disadvantage, compared with larger firms. In theory, however, smaller firms may also have advantages over larger firms. For instance, they may be less affected by excessive regulations, because they can easily slip into informal arrangements. This paper draws on a new private sector survey covering eighty countries, and one territory to study the question whether business obstacles are related to firm size. The main finding is that there is indeed a bias against small firms. Overall, (that is, for the world sample) small firms report more problems than medium-sized firms, which in turn report more problems than large firms. In particular, smaller firms face significantly more problems than larger firms with financing, taxes and regulations, inflation, corruption and street crime. Thus these impediments should be prime targets for policies directed at leveling the playing field. Some of the most severe perceived impediments to doing business affect firms of all sizes, and consequently call for across-the-board policy improvements. In addition to the worldwide analysis, the paper presents an analysis by region, and by individual country.

Spillovers through banking centers: a panel data analysis of bank flows

Abstract This paper presents evidence that spillovers through bank lending contributed to the transmission of currency crises during the recent episodes of financial instability in emerging markets. The innovation of the paper is that it looks beyond aggregated measures of contagion into the structure of bank flows, disaggregating by banking centers. The main findings are that spillovers caused by banks’ exposures to a crisis country help predict flows in third countries after the Mexican and Asian crises, but not after the Russian crisis. In the latter, there is evidence of a generalized outflow from emerging markets. The importance of spillovers through banking centers suggests that countries might reduce contagion risk by diversifying the sources of their financing and by carefully monitoring borrowing from creditors exposed to potential crisis countries.

Institutions in Transition: Reliability of Rules and Economic Performance in Former Socialist Countries

Building reliable institutions that support a market system is widely believed to be critical to a successful economic transition. The authors present indicators on the predictability of the institutional framework across twenty transition economies -including indicators of the predictability of rules, political stability, the security of property rights, the reliability of the judiciary, and the lack of corruption. They then investigate whether those indicators can explain differences in economic performance. The results suggest that the predictability of the framework may indeed explain a large part of differences in foreign direct investment and in economic growth among transition economies. Political stability and secure property rights are particularly important to entrepreneurial confidence in the economy.

Catching Up or Falling Behind

This chapter analyses the cross-country growth experience of LDCs and compares it with the predictions of growth theory. The main message will be that the puzzle of why many LDCs fail to keep pace with economic development can be resolved by analysing their political systems.

How Private Creditors Fared in Emerging Debt Markets, 1970-2000

We estimate ex post returns to emerging market debt by combining secondary-market prices with observed flows based on World Bank data. From 1970-2000, returns averaged 9 percent per annum, about the same as returns on a ten-year U.S. treasury bond. This reflects the combined effect of the 1980s debt crisis and much higher returns during 1989-2000. Annual returns since 1986 have been less volatile than emerging market equity returns but more volatile than returns on U.S. corporate or high-yield bonds. However, unlike returns on these bonds, emerging market debt returns do not seem significantly correlated with U.S. or world stock markets.

Political credibility and economic growth in less developed countries

While the mainstream of economic development theory focuses on the efficiency of policy measures, the role of the credibility of these measures is rarely analyzed. In this paper we argue that in less developed countries the problem of establishing the credibility of policy measures is at least as important as the problem of choosing the efficient policy solution. We claim that many of the difficulties less developed countries face can be understood in terms of lack of effective control on the discretionary power of governments, which ultimately leads to policies that are not credible. The private sector anticipates large swings in policies and reacts by withholding its resources. Symptoms of these credibility problems in less developed countries include the size of the informal sector, capital flight, and the reluctance of investors to commit capital. All of these reactions contribute to the slow economic growth in these countries. This paper concludes that establishing strategies for the control of state discretionary power is a crucial precondition for overcoming these problems and generating long term economic growth.