Prabirjit Sarkar

Legal Origin, Shareholder Protection and the Stock Market: New Challenges from Time Series Analysis

This paper uses a new time series dataset of shareholder protection consisting of 60 annual legal indicators for the period 1970-2005 for France, Germany, the UK and the US. On the basis of these data it examines developments in shareholder protection and reassesses the claims that common-law countries have better shareholder protection than civil law countries. Furthermore it examines the relationship between legal changes and stock market development. It casts serious doubt on the claim that common-law countries have better shareholder protection which in turn leads to more stock market development.

The North-South terms of trade debate: a re-examination

Contrary to the classical proposition, the works of Prebisch and Singer launched the controversial hypothesis of long-term decline in the terms of trade of primary products vis-à-vis manufactures and a corresponding decline in the terms of trade of the South vis-à-vis the North. The present study traces the origin and evolution of the hypothesis and reviews the related statistical debate. It concludes that the empirical base of the Prebisch-Singer hypothesis is much stronger than it appeared in earlier decades. Reviewing some of the North-South models, the study also finds theoretical support for the Prebisch-Singer hypothesis.

Trade Openness and Growth: Is There Any Link?

The present study examines the relationship between openness (trade-GDP ratio) and growth. Our cross-country panel data analysis of a sample 51 countries of the South during 1981-2002 shows that for only 11 rich and highly trade-dependent countries a higher real growth is associated with a higher trade share. Time series study of individual country experiences shows that the majority of the countries covered in the sample including the East Asian countries experienced no positive long-term relationship between openness and growth during 1961-2002. Our study of the experience of various regions and groups shows that only the Middle Income group exhibited a positive long-term relationship.

Do the English Legal Origin Countries have more dispersed Share Ownership and more developed financial Systems

The essence of the legal origin hypothesis is that a country with an English legal origin provides better investor and creditor protection and experiences greater financial development; financial institutions and stock markets flourish, the general public participate more in financing investment projects of companies and so shareholding is less concentrated. The present paper examines this hypothesis on the basis of a cross-country study of 85 countries. We find no evidence of more dispersed share ownership in the English law countries than in other countries with different legal origins irrespective of whether we adjust for the existence of transitional economies and less developed countries present in the sample. Using three indicators of development of banking and other credit institutions and four indicators of stock market developments, we also find no evidence of more developed financial systems in the English law countries. As expected, there is some evidence of lower financial development in the less developed countries and transitional countries. It is not the English law heritage but the security of persons and goods that appears to explain the cross-country variations in financial development.

Rising manufacture exports and terms of trade: the case study of Korea

This study observed rapidly rising shares of manufactured and electronic goods in Korea’s total exports and a trend decline in Korea’s terms of trade over the period of this study (1967-2001), in accordance with the Prebisch-Singer hypothesis. Contrary to the expectation of Prebisch, the increasing proportion of manufactured and electronic goods in Korea’s exports exerted no favourable influence on the course of Korea’s terms of trade. In fact, this study supports the later extension to the Prebisch-Singer hypothesis, that rather than an emphasis on relations between types of commodities there should be an emphasis on relations between types of countries.

Corporate Governance, Stock Market Development and Private Capital Accumulation: A Case Study of India

In the present LPG (Liberalisation, Privatisation and Globalisation) regime the stock market has been assigned to play an important role. There is now a call for better corporate governance in order to protect the interests of the share holders. In this perspective the Centre for Business Research (at Judge Business School, University of Cambridge) has produced a comprehensive time series dataset for corporate governance with reference to shareholder protection for a number of countries including India. The coverage of the dataset is much more comprehensive than that of the LLSV index (La Porta et al, 1998). The paper examines this dataset to answer the question whether the government concern for corporate governance is misplaced - whether more and more reliance on private sector for capital accumulation and development through popularisation of stock market works.

Labour Law and Inclusive Development: The Economic Effects of Industrial Relations Laws in Middle-Income Countries

We use leximetric data coding techniques and panel data econometrics to test for the economic effects of laws governing worker representation and industrial action in the large middle-income countries of Brazil, China, India, Russia and South Africa. We find that more worker-protective laws on employee representation tend to be correlated with higher scores on the Human Development Index. By contrast, in the case of laws on industrial action, some negative effects on human development indicators are reported. Our findings imply that laws supporting employee voice and collective bargaining may have beneficial social effects in middle-income countries. We find no rise in unemployment due to more protective labour laws.

Does finance matter for growth? what the data show

This paper analyses the relationship between financial development (as measured by expansion of domestic credit to private sector relative to GDP) and growth for a sample of 65 less developed countries over a long period, 1980-2006. Using causality tests at various lag-orders we find a strong evidence of mutual causation. We have used alternative dynamic panel data models to estimate the relationships between the two. While the mean group model suggests no relationship in either direction, the pooled mean group model and dynamic fixed effect model show two opposite long-term relationships: finance-to-growth relationship is negative whereas growth-to-finance link is positive.

Do Labour Laws Increase Equality at the Expense of Higher Unemployment? The Experience of Six OECD Countries, 1970-2010

Using longitudinal data on labour law in France, Germany, Japan, Sweden, the UK and the USA for the four decades after 1970, we estimate the impact of labour regulation on unemployment and equality, using labour’s share of national income as a proxy for the latter. We employ a dynamic panel data analysis which distinguishes between short-run and long-run effects of legal change. We find that worker-protective labour laws in general have no consistent relationship to unemployment but are positively correlated with equality. Laws relating to working time and employee representation are found to have beneficial impacts on both efficiency and distribution.

Common Law vs. Civil Law: Which System Provides More Protection to Shareholders and Creditors and Promotes Financial Development

This study re-examines the theory of legal-origin on the basis of a new longitudinal dataset for four OECD countries (UK, USA, France and Germany) over a long time span 1970-2005. It observes that the civil law countries (France and Germany) provided better minority shareholder protection and creditor protection relating to debtors’ control while the common law countries (UK and USA) provided better creditor protection relating to credit contract and insolvency. Through dynamic panel data modelling our study shows that minority shareholder protection has a long-term favourable effect only on stock market listing of firms and debtors’ control has a similar effect on credit market expansion while the credit contract component of creditor protection has the opposite effect. Thus, our study questions the proposition that common-law countries provide more protection to their shareholders and creditors; it also casts doubt on the related proposition that shareholder and creditor protection promotes financial development.