Nadeem Ul Haque

Human Capital Flight: Impact of Migration on Income and Growth

An endogenous growth model with heterogeneous agents is analyzed to show that “human capital flight” or “brain drain” can lead to a permanent reduction in income and growth of the country of emigration relative to the country of immigration. Convergence between the two is therefore rendered unlikely with such migration. While, in a closed economy, subsidizing human capital accumulation at all levels of education can benefit economic growth, in an open economy where the educated are more likely to migrate, growth may be better fostered by subsidizing only lower levels of education.

The Economic Content of Indicators of Developing Country Creditworthiness

This paper analyzes the economic determinants of developing country creditworthiness indicators for over 60 developing countries for the period from 1980 to 1993. Our results indicate that economic fundamentals--the ratio of nongold foreign exchange reserves to imports, the ratio of the current account balance to GDP, growth, and inflation--explain a large amount of the variation in the credit ratings. All developing country ratings were adversely affected by increases in international interest rates, independent of the domestic economic fundamentals. A countrys regional location and the structure of its exports (such as whether it is primarily an exporter of fuel products or manufactured products) were also important.

Neglected Heterogeneity and Dynamics in Cross-Country Savings Regressions

This paper examines the extent to which the conclusions of cross-country studies of private savings are robust to allowing for the possible heterogeneity of savings behaviour across countries and for the inclusion of dynamics. It reviews the econometric implications of neglected slope heterogeneity and dynamics for the fixed effects estimators routinely used in such studies, and illustrates the nature and extent of the biases involved by a re-examination of time series data from 21 OECD countries. The paper shows that neglecting heterogeneity and dynamics in cross-country savings regressions can lead to misleading inferences about the key determinants of savings behaviour. The results indicate that among the many variables considered in the literature only the fiscal variables - the general government surplus as a proportion of GDP and the ratio of government consumption to GDP - seem to be the key determinants of private savings rates in the industrial countries in the post-World War II period

Foreign Borrowing and Capital Flight: A Formal Analysis

TT IS WELL RECOGNIZED that developing countries in general face a scarcity of capital and, thus, should be net foreign borrowers during the development process. This concept has been formalized in a number of studies showing that countries can attain a desirable growth path through supplementing domestic savings by external borrowing and do not have to rely solely on domestic resources (see, for example, the survey article by McDonald (1982) and the papers by Bardhan (1967), Hamada (1969), and Blanchard (1983)). Although these studies yield considerable insight into overall borrowing decisions, they provide no explanation of why residents in developing countries often choose to invest their savings abroad at the same time that they are seeking external finance. This phenomenon of simultaneous borrowing and investing in international capital markets by developing coun

Adjustment with growth: Relating the analytical approaches of the IMF and the World Bank☆

Abstract This paper describes and examines simple versions of the analytical approaches employed by the International Monetary Fund and the World Bank in designing adjustment programs that support their lending activities. In the case of the Bank this means essentially a variant of the two-gap growth model, and for the Fund a model derived from the monetary approach to the balance of payments. An attempt is also made to merge the Fund and Bank approaches within a consistent framework to demonstrate their complementarity.

Capital Mobility in Developing Countries: Some Empirical Tests

The degree of capital mobility in developing economies is seldom estimated, even though it is widely recognized to be an important element in determining the effects of stabilization policies. Instead, an economy is assumed to be open or closed mainly on grounds of analytical convenience. This paper develops a simple approach to modelling and measuring the degree of financial openness which is applicable to developing economies. Empirical estimation using data from a large number of developing countries suggests that the effective degree of capital mobility in such economies may be higher than is commonly assumed.

Do Government Wage Cuts Close Budget Deficits? Costs of Corruption

Real wage declines have been common in the public sector in many countries over substantial periods of time. In several cases, such wage reductions have coincided with declines in the efficiency of the public sector. In a simple analytical framework, it is shown that higher wage levels alter the incentive-compatible equilibrium by attracting relatively skilled human capital to the government sector, which raises the quality of public output--tax revenue collection in this paper. Increases in wages should complement appropriate monitoring and penalty rates for effective tax administration; prescriptions of raising the statutory tax rate alone, however, may not increase revenue collection.

Growth, External Debt and Sovereign Risk in a Small Open Economy

An optimizing growth model for a highly indebted small open economy is constructed and analyzed. An important innovation in the model is the incorporation of sovereign risk through the specification of an upward-sloping foreign debt supply function. The model is used to examine the interaction between external debt and growth in response to various policies and exogenous disturbances. It is shown that structural policies intended to reduce the fiscal deficit or increase productivity can lead to trade-offs in their effect on capital accumulation and the stock of debt.

A Macroeconometric Model for Developing Countries

A small macroeconomic model based on familiar theoretical considerations is developed and estimated using data from 31 developing countries. Efficient estimation techniques are used to control for country heterogeneity under the assumption of rational expectations. The estimates and the test statistics suggest that the model could serve well as a frame-work for macroeconomic analysis of developing countries. The specification of the model allows the hypothesis of capital mobility to be explicitly tested, and the empirical analysis suggests that, on average, developing countries have exhibited a high degree of capital mobility.

Fiscal Policy and Private Sector Saving Behavior in Developing Economies

Tax or debt financing of a given rate of government expenditures would, according to the well-known Ricardian equivalence proposition, have equivalent effects on aggregate demand. Among the sources of a deviation from equivalence is the possibility that the government and the private sector have different planning horizons. The paper finds no empirical support for differing planning horizons across sectors in a group of 16 developing economies and, therefore, rules out such differences as a source of deviation from equivalence.