Luiz R. de Mello

Corruption and Military Spending

Anecdotal evidence relates corruption with high levels of military spending. This paper tests empirically whether such a relationship exists. The empirical analysis is based on data from four different sources for up to 120 countries in the period 1985-98, The association between military spending and corruption is ascertained by using panel regression techniques. The results suggest that corruption is indeed associated with higher military spending as a share of both GDP and total government spending, as well as with arms procurement in relation to GDP and total government spending. This evidence indicates that defense spending can be considered for constructing governance indicators.

Trade and foreign direct investment in Latin America and Southeast Asia: temporal causality analysis

This paper examines the relationship between foreign trade and foreign direct investment (FDI) in selected Latin American and Southeast Asian economies in the period 1970 - 94. The hypothesis of complementarity|substitution between FDI and foreign trade is tested using bivariate VECM models and temporal causality analysis. The impact of FDI on the trade balance is also assessed and weak exogeneity tests are performed. It is found that the impact of FDI on the trade balance is stronger in trade-oriented economies, and that net FDI inflows are more sensitive to changes in exports in Southeast Asian countries, than in their Latin American counterparts, given the export-orientation of foreign investment in the former region. Copyright

Government Spending, Rights, and Civil Liberties

Government spending plays a critical role in protecting and enforcing rights and civil liberties. Empirical evidence for a sample of industrial and developing countries shows that government expenditures on defense, law and order, social security, education, and health care are associated with three rights indicators - property rights, equality of citizens before the law, and economic freedom. In particular, an increase in spending on law and order seems to improve the indicators of rights and civil liberties, and lower budget deficits seem to improve property rights and equality before the law. Of great importance is the finding that corruption is associated with worse rights indicators.

Is Foreign Debt Portfolio Management Efficient in Emerging Economies

This paper develops a simple model of foreign debt portfolio management. The model suggests that, under mild conditions, the currency composition of a countrys foreign debt portfolio is responsive to exchange rate movements. Empirical evidence is provided for a panel of 14 emerging economies in the period 1970-98. Attention is focused on the stocks of foreign liabilities denominated in U.S. dollars, deutsche marks (DM), Japanese yen, and Swiss francs. The results of the empirical analysis show that foreign debt portfolio management has been sub-optimal in the countries under examination. In these countries, the currency composition of foreign debt has not reflected a substitution effect away from the currencies that have appreciated over time vis-a-vis the U.S. dollar.