Charles Harvie

The Budget Deficit and Economic Performance: A Survey

The relationship between budget deficits and macroeconomic variables (such as growth, interest rates, trade deficit, exchange rate, among others) represents one of the most widely debated topics among economists and policy makers in both developed and developing countries. However, the purpose of this paper is to review the extensive literature to such a relationship, concentrating on theoretical debates and empirical studies, in order to derive substantive conclusions, which can be beneficial in the macroeconomics area; policy analysis; or in terms of constructing or developing a macroeconomic model for analyzing the impact of budget deficits on macroeconomic variables. The majority of these studies regress a macroeconomic variable on the deficit variable. These studies are cross-country and utilize time series data. In general the key outcomes from the studies presented in this paper indicated that both the method of financing and the components of government expenditures could have different effects. Therefore, it is crucial for the government to distinguish between consumption and investment expenditures especially when the government is in the process of evaluating the impact of fiscal policy on private investment and output growth or in the process of cutting expenditures to reduce the fiscal imbalances in the country. Even though the overall results from the empirical literature with respect to the impact of public investment on private investment and growth are ambiguous, the bulk of the empirical studies find a significantly negative effect of public consumption expenditure on growth, while the effects of public investment expenditure (such as on education, healthcare) are found to be positive although less robust. The key findings from these studies is important in particular for developing countries to be aware of the importance of government investment expenditures in the area of education, healthcare, infrastructure to long-term economic growth and the benefits from which are an important contributor to welfare and well-being. The key outcome from all of the studies presented in this paper while investigating the relationship between the budget deficit and current account deficit showed strong evidence in both developed and developing countries towards supporting the Keynesian proposition (conventional view) which suggests that an increase in the budget deficit would induce domestic absorption and, hence import expansion, causing a current account deficit. The key findings from the empirical studies investigating the relationship between the budget deficit and interest rates indicated strong evidence towards supporting the Keynesian model of a significant and positive relationship between budget deficits and interest rates. The major outcomes from the empirical studies examining the relationship between budget deficits and inflation showed strong evidence that the budget deficit financed through monetization and a rising money supply could lead to inflation.

A factor analysis of international portfolio diversification

Purpose - The purpose of this paper is to investigate the relationships between stock market returns of 13 countries based upon monthly data spanning December 1987 to April 2007. Design/methodology/approach - Specifically, the principal component (PC) and maximum likelihood (ML) methods are used to examine any discernable patterns of stock market co-movements. Findings - Factor analysis provides evidence that stock returns in a number of Asian countries are highly correlated and, based on the resulting robust factor loadings, they form the first well-defined common factor. The paper also finds consistent results (based on both the PC and ML methods) suggesting that the stock market returns of developed countries are also highly correlated, and constitute our second factor. Practical implications - The paper concludes that, Originality/value - Very few previous studies have investigated the benefits from portfolio diversification by using the PC and ML methods.

Economic transition: what can be learned from China’s experience

The last decade of this century has witnessed the transition of the formerly centrally planned economies of Europe and Asia to market economies, a process affecting some 1.7 billion people in 28 countries. While much agreement exists on the sorts of reform measures required, disagreement exists over their sequencing. The economic and social performance of these transition economies has varied considerably and for a variety of reasons, however China’s performance, in particular, has been outstanding. The paper reviews the reform measures required for economic transition, and alternative sequencing approaches to these reforms. It conducts an overview of the performance of the transition economies, with focus placed upon the experience of the Chinese economy. An analysis of China’s approach to economic reform, its key components, major outcomes and outstanding issues are discussed. Key lessons to be derived for other transition economies from China’s experience are also presented.

The causes and impact of the Asian financial crisis

Dedication Acknowledgements Notes on the Contributors The Asian Financial Crisis: An Overview T Van Hoa Causes and Prescriptions for the Asian Financial Crisis T Van Hoa Fundamental Causes of the Asian Financial Crisis: An Econometric Study T.Van Hoa The Asian Financial Crisis and Prospects for Trade and Business with Thailand S.Khoman The Korean Financial Crisis: Is Bail-out a Solution? C.Harvie Financial Crisis in Indonesia: The Role of Good Governance C.Harvie The Asian Financial Crisis and Singapore: Can it Avoid the Contagion? G.Ta China: A Giant with an Achilles Heel? Z.Yanyun & L.Jingping Vietnam and the Asian Financial Crisis: How to Avoid the Contagion P.N.Long & T.Van Hoa Taiwan: An Island State with Economic Insulation? T.Naughton Turmoil in Asset Markets and the Prospects for Foreign Transnationals in Southeast Asia E.Ramstetter MICE in the Meltdown: An Economic Analysis of the Impact of Developments in Asia on the Meeting and Conference Industries N.Norman Some Implications of the Asian Economic Crisis for the Non-Asian World J.Perkins The Asian Currency and Economic Crisis: Macro-economic Performance and Policy M.Dowling The Current State of the Asian Crisis and Prospects T Van Hoa Index

China's Economic Growth: The Impact on Regions, Migration and the Environment

List of Tables and Figures Preface Notes on Chinese Terms Notes on the Contributors Introduction: The Economic Reforms, Demographic Processes and Environmental Problems: T.Cannon PART I: DEMOGRAPHIC PROCESSES AND THE ECONOMIC REFORMS Pressures of Development on Chinas Cities and Regions I.G.Cook Patterns of Migration under the Reforms M.Messkoub & D.Davin The Floating Population in Chinas Cities: A New Ethnic Underclass? C.J.Smith Family Planning and Fertility Among Temporary Migrants C.Hoy PART II: ECONOMIC GROWTH AND ENVIRONMENTAL PROBLEMS Wuhan: Policies for Management and Improvement of a Polluted City: J.G.Taylor & X.Qingshu Recent Developments and Prospects for the Sanxia (Three Gorges) Dam R.L.Edmonds World Bank Policies, Energy Conservation and Emissions Reduction L.Gan Urban Transport in China: Whither the Bicycle? A.Spencer Is Ecological Agriculture Sustainable in China? R.Saunders PART III: EROSION PROBLEMS AND POLICIES Assessing and Managing the Soil Erosion Problem in Southern China D.Higgitt Soil Erosion and Conservation on Subtropical Arable Soils in Yunnan Province, South-west China M.Fullen, D.J.Mitchell, A.P.Bartin, T.J.Hocking, L.Liguang, W.B.Zhi, Z.Yi & X.Z.Yuan Erosion in Deep Gorges: The Leaping Tiger Gorge on the Upper Yangtze D.Watts & Z.Yue Index

Public policy and SME development

We review the policy arguments in favour of assisting SMEs in various areas of their operations. Our review suggests that many of the arguments put forward for subsidising SME activities (as distinct from some activities of firms regardless of size) are not economically justified. Nonetheless, it is widely acknowledged that SMEs suffer from disadvantage relative to large firms, principally in the areas of access to information and technology. We then study the possibilities offered by networks in helping SMEs deal with the disadvantages they experience. Our examination indicates that there are benefits that firms can derive from participating in networks. Further, because networks can assist firms overcome some of their inherent disadvantages, they can become less reliant on public assistance and more able to compete on an equal footing with larger firms once the initial impetus is provided for the formation of cooperative networks that can enable firms to compete more effectively.

Long-term relationships of major macro-variables in a resource-related economic model of Australia. A cointegration analysis

Abstract The paper reports the results of a simple cointegration analysis applied to bivariate causality models using data on resource output, oil prices, terms of trade, current account and output growth to investigate the long-term relationships in the sense of Granger among these major macroeconomic aggregates in a resource-related economic model of Australia. For the period 1960–90, the empirical evidence indicates that these five macro-variables, as formulated in our model, are not random walks. In addition, resource production and oil prices are significantly cointegrated, and they are also significantly cointegrated with the current account, terms of trade and economic growth. These findings provide support to the long-term adjustments foundation of our resource-related model.

Terms of trade volatility and macroeconomic adjustment in a resource exporting economy: the case of Australia

Abstract The paper is concerned with analysing, from a theoretical perspective, the macroeconomic consequences arising from terms of trade shocks for a resource producing and exporting economy, with emphasis placed upon the Australian experience. The paper conducts a brief overview of macroeconomic developments in Australia during the 1980s, and links these to developments in its terms of trade. A simple deterministic macroeconomic model is then developed and utilized to identify potential macroeconomic changes, through the use of a numerical simulation procedure, arising from terms of trade shocks, which are then compared with actual developments. This procedure suggests that the theoretical framework can shed some important light on the actual macroeconomic adjustments which have arisen.

Oil production and macroeconomic adjustment in the Indonesian economy

Abstract This paper is concerned with identifying and modelling the macroeconomic contribution of the oil sector to the Indonesian economy. A brief overview of macroeconomic developments for Indonesia is conducted for the period 1970–1991, focusing upon the contribution of oil revenues to GDP, the current account and government revenue. In addition a simple theoretical macroeconomic model, incorporating oil, is presented and used for numerical simulation purposes, to identify and analyse potential macroeconomic developments for Indonesia arising from oil related shocks. The overview suggests that oil price shocks are of particular interest in the context of Indonesia, as are, therefore, the simulation results derived from this case. Consideration is also given to the effects upon macroeconomic outcomes, arising from various policy responses to oil related shocks. In particular emphasis is given to the use of oil revenues for the purpose of stimulating domestic demand or the supply side of the economy, and the adoption of a more, or less, export oriented policy towards oil production.

Sustaining Growth and Performance in East Asia

This third book in the series focuses on how small and medium sized enterprises (SMEs) contribute to achieving and sustaining growth and performance in their economies, as well as the ways in which governments can assist and enhance that contribution. This is of particular concern given the trauma suffered by East Asian economies in the wake of the financial and economic crisis of 1997–98.