Michael Bleaney

Fiscal policy and growth: evidence from OECD countries

Abstract Is the evidence consistent with the predictions of endogenous growth models that the structure of taxation and public expenditure can affect the steady-state growth rate? Much previous research needs to be re-evaluated because it ignores the biases associated with incomplete specification of the government budget constraint. We show these biases to be substantial and, correcting for them, find strong support for the Barro model (1990, Government spending in a simple model of endogenous growth. Journal of Political Economy 98 (1), s103–117, for a panel of 22 OECD countries, 1970–95. Specifically we find that (1) distortionary taxation reduces growth, whilst non-distortionary taxation does not; and (2) productive government expenditure enhances growth, whilst non-productive expenditure does not.

Testing the endogenous growth model: public expenditure, taxation, and growth over the long run

Endogenous growth models, such as Barro (1990), predict that government expenditure and taxation will have both temporary and permanent effects on growth. We test this prediction using panels of annual and period-averaged data for OECD countries during 1970-95, isolating long-run from short-run fiscal effects. Our results strongly support the endogenous growth model and suggest that long-run fiscal effects are not fully captured by period averaging and static panel methods. Unlike previous investigations, our estimates are free from biases associated with incomplete specification of the government budget constraint and do not appear to result from endogeneity of fiscal or investment variables.

The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa

Abstract Specialization in primary product exports reduces growth, but why? Adverse trends in, and the high variance of, primary product prices are possible explanations. The impact on investment and growth of the level and volatility of the terms of trade and the real effective exchange rate is estimated for a panel of 14 sub-Saharan African countries over 1980–1995. Growth is negatively affected by terms of trade instability, and investment by real exchange rate instability. Both growth and investment increase when the terms of trade improve and real exchange rate overvaluation is eliminated.

Explaining Growth: A Contest between Models

Recent contributions to the empirical growth literature show no tendency to convergence in specification, as researchers seek to identify new variables that can account for significant regional effects in earlier work. We conduct non-nested tests between the models of Barro (1997), Easterly and Levine (1997) and Sachs and Warner (1997). The data strongly prefer an encompassing model, but fail to reject any of the candidate models, implying that each model represents a partial truth. We identify a model that includes most (but not all) of the regressors in the candidate models and is robust to the inclusion of regional dummies.

Macroeconomic stability, investment and growth in developing countries

Abstract It is widely hypothesised that sound macroeconomic policies promote growth by providing a more secure environment for private sector investment decisions. This proposition is tested for a cross-section of developing countries over the period 1980–1990 using a variety of measures of the quality of macroeconomic management. The evidence suggests that good macroeconomic management is associated with faster growth for a given rate of investment. It is less clear that the volume of investment is significantly affected. There is little evidence of non-linearities. The results are robust to an extension of the data period back to 1972.

Exchange rate regimes, inflation and output volatility in developing countries

Abstract The median developing country has had significantly higher inflation than the median advanced country since the early 1980s. We present a model in which a developing country may reduce inflationary expectations by pegging its exchange rate to the currency of an advanced country, at the expense of forgoing its ability to compensate for real exchange rate shocks. Different types of pegged exchange rate offer varying degrees of anti-inflation credibility and of exposure to shocks. Tests on a sample of 80 developing countries support the empirical predictions of the model.

Privatization, Insider Control and Managerial Entrenchment in Russia

This paper provides new survey evidence on managerial entrenchment and the role of outsiders in the post-privatization restructuring of Russian enterprises. The major findings are that managers are hostile towards outside ownership, and they effectively collude with other employees to preserve insider control. The paper also provides empirical evidence that the gradual accumulation of shares by managers is not based only on a profit motive, but is also driven by their efforts to preserve insider control. The issues raised have relevance to other transition economies where the privatization process has encouraged insider control, such as Ukraine and Belarus.

What does a University add to its local economy

The local multiplier effects of a university are estimated using data for the University of Nottingham. Gross output and disposable income multipliers are calculated. The latter are adjusted to exclude the incomes of induced migrants, whose welfare is assumed unchanged.

Mean Reversion of Real Exchange Rates in High-Inflation Countries

We test for mean reversion in real exchange rates using data from five countries, four of which have experienced episodes of high inflation. Using monthly data for Argentina, Brazil, Chile, Colombia, and Israel, we find that a stochastic unit root model is typically appropriate (Brazil is the exception). Kalman filter estimates of the stochastic unit roots show sharp deviations from unity associated with high inflation episodes. This suggests that stochastic unit root models are a more appropriate way to model mean reversion in real exchange rates for high inflation countries than models with fixed rates of mean reversion.

Financial liberalisation and private investment: evidence from Turkey

Abstract The paper tests for shifts in aggregate private investment functions for Turkey as a consequence of financial liberalisation in the early 1980s. Results for a neoclassical model in error correction form suggest that the short-run dynamics of investment were altered by financial liberalisation, with reduced sensitivity to the availability of credit, but with no evidence of increased sensitivity to the cost of capital. Estimation of an Euler equation model indicates that credit constraints remained binding after liberalisation. We interpret this as evidence of significant structural change to private investment functions after financial liberalisation, but with credit constraints continuing to operate.