Neven T. Valev

Does one size fit all?: a reexamination of the finance and growth relationship

The relationship between financial development and economic growth has received a lot of attention in the economic literature in recent years. This literature has generally found that financial development has a strong positive effect on growth. In this paper, we propose that the relationship between financial development and growth may not be uniform, but varies according to the level of financial development of the country. In particular, we hypothesize that there exist three distinct regions of financial development. In the low region (countries with very low levels of financial development), additional improvements in financial markets have an uncertain effect on growth. In the intermediate region, financial development has a large, positive effect on growth. Finally, in the high region, additional financial improvements have a positive, but smaller effect on growth. We examine a panel of 74 countries using GMM dynamic panel techniques and find support for the different regions.

Finance and the Sources of Growth at Various Stages of Economic Development

This paper studies the effects of financial development on the sources of growth in different groups of countries. Recent theoretical work shows that financial development may affect productivity and capital accumulation in different ways in industrial versus developing countries. This hypothesis is tested with panel data from 74 countries using GMM dynamic panel techniques. Results are consistent with the hypothesis: finance has a strong positive influence on productivity growth primarily in more developed economies. In less developed economies, the effect of finance on output growth occurs primarily through capital accumulation.

Gender and Public Attitudes Toward Corruption and Tax Evasion

The topics of corruption and tax evasion have attracted significant attention in the literature in recent years. We build on that literature by investigating empirically: (1) whether attitudes toward corruption and tax evasion vary systematically with gender and (2) whether gender differences decline as men and women face similar opportunities for illicit behavior. We use data on eight Western European countries from the World Values Survey and the European Values Survey. The results reveal significantly greater aversion to corruption and tax evasion among women. This holds across countries and time, and across numerous empirical specifications. (JEL H260, D730, J160, Z130)

Tax Structures and FDI: The Deterrent Effects of Complexity and Uncertainty

In this study, we examine the connection between the varied experiences of the transition countries in attracting foreign direct investment (FDI) and their diverse experiences in transforming their tax structures to be consistent with a market economy. In particular, we study whether complexity and uncertainty in their tax laws have deterred FDI by increasing transaction costs, the compliance burden and the unpredictability of tax liabilities. Our results indicate that complexity and uncertainty, in the sense of multiple tax rates, indeterminate language in the tax law and inconsistent changes in the tax laws, have a significant negative effect on inward FDI.

Credibility of a new monetary regime: The currency board in Bulgaria

Abstract Low credibility, reflected in persistent expectations of high inflation, is the usual suspect in costly disinflation efforts. A currency board is a monetary regime that attempts to establish credibility by reducing uncertainty regarding the inflation preferences of the policymaker and the environment in which the policymaker operates. This paper uses unique survey data from Bulgaria and finds that expected inflation is indeed lowered by the prospect of a currency board but to a different degree for different agents. Priors of the “type” of the policymaker and familiarity with the operation of the currency board contribute to explaining the differences.

Eastern and Southern Africa Monetary Integration: A Structural Vector Autoregression Analysis

This paper uses VAR techniques to investigate the potential for forming monetary unions in Eastern and Southern Africa. All countries in the sample are members of various regional economic organizations. Some of the organizations have a monetary union as an immediate objective whereas others consider it as a possibility in the more distant future. Our objective is to sort out which countries are suitable candidates for a monetary union based on the synchronicity of demand and supply disturbances. Although economic shocks are not highly correlated across the entire region, we tentatively identify three sub-regional clusters of countries that may benefit from a currency union. We find some tentative evidence that some, though not all, sub-regions may benefit from a link to the Euro.

Beliefs about Exchange‐Rate Stability: Survey Evidence from the Currency Board in Bulgaria

Currency pegs seldom achieve full credibility even after delivering low inflation and a stable exchange rate for many years. We use unique survey data from Bulgarias currency board to investigate the origins of incomplete credibility. We show that the limitations imposed by the currency board on output stabilization policies are a major source of concern. Many people view the financial stabilization policies as a reason for high unemployment and therefore as unsustainable. Another important factor for low credibility is the concern over potential international shocks. Conversely, past instability does not seem to translate strongly into expectations of future instability.

The hysteresis of currency substitution: Currency risk vs. network externalities

It is widely documented that currency substitution (using foreign money in transactions) increases in periods of high inflation but does not decline once inflation is reduced. The paper uses survey data from Bulgaria, which experienced this phenomenon, to investigate the origins of this ratchet effect. We find that expected devaluation of the domestic currency, while relatively high, does not play a major role in sustaining the dollarization of transactions. Conversely, preferences for the use of foreign money are strongly influenced by peoples perception that foreign money is already widely used in the economy.

IMF Conditionality and Objections: The Russian Case

Emerging economies in crisis typically request assistance from the International Monetary Fund (IMF). After evaluating the situation, the IMF makes a loan available to the country conditional on certain policy reforms. Governments usually resist many of these measures and negotiation ensues. This paper analyzes the most contentious measures of IMF conditionality in the context of Russia after the August 1998 crisis. The most discussed measures include the budget deficit, structural reforms, and exchange rate policy. Our analysis suggests that to some extent the disagreement arose because the IMF is focused on changing steady states somewhat ignoring the transition path, while the Russian government is preoccupied with transitional dynamics without a clearly defined steady state concept.

Fixed exchange rate credibility with heterogeneous expectations

After disinflation has been achieved, agents who form more sophisticated forecasts have lower confidence in the sustainability of a peg compared to less sophisticated agents. Furthermore, sustained financial stability leads to a declining proportion of sophisticated agents. Thus, the credibility of a fixed exchange rate regime grows over time partly because fewer people pay attention to the workings of the monetary regime. These results are derived in a rules-versus-discretion model of a fixed exchange rate regime with heterogeneous agents. We provide unique supporting evidence using data on expectations and information about the monetary regime from Bulgarias currency board.