• Selected
• Entire List

Abstract:
While the literature on the determinants of entry mode strategies of MNCs in new countries is significant, it largely ignores emerging markets. This paper addresses this lacuna in the literature using unique firm-level data from India. The results suggest that the basis of a MNC's strategy vis a vis large emerging markets is to enter soon after the initiation of reforms to capture the potential benefits from a "first mover" advantage, but to limit both their exposure to these markets, and the extent of technology transfer to their host country operations until a much later date.

MNC, Greenfield, acquisition, joint venture, agency problem, transactions cost, India

Abstract:
The impact of expiration of derivatives contracts on the underlying cash market - on trading volumes, returns and volatility of returns - has been studied in various contexts. We use an AR-GARCH model to analyse the impact of expiration of derivatives contracts on the cash market at the largest stock exchange in India, an important emerging capital market. Our results indicate that trading volumes were significantly higher on expiration days and during the five days leading up to expiration days ("expiration weeks"), compared with nonexpiration days (weeks). We also find significant expiration day effects on daily returns to the market index, and on the volatility of these returns. Finally, our analysis indicates that it might be prudent to undertake analysis of expiration day effects (or other events) using methodologies that model the underlying data generating process, rather than depend on comparison of mean and median alone.

derivatives contracts, expiration day effect, India

Abstract:
Using bank-level data from India, for six years (1995-96 to 2000-01), we examine banks' behaviour in the context of emerging credit markets. Our results indicate that the credit market behaviour of banks in emerging markets is largely determined by past trends. We also find evidence to support the hypothesis that prudential regulations have a significant impact on the banks' behaviour with respect to credit disbursal. Finally, we find evidence that suggest that credit expansion by banks in emerging markets may be significantly constrained by the inability of the banks to reduce the liquidity risk associated with nonsecuritised loans.

Credit market, Emerging economies, Risk averseness, Panel data analysis

Abstract:
Foreign investors are expected to contribute to economic development through a variety of channels. However, many foreign investment operations are small, and almost insignificant in their impact on the local environment. An important indication of the potential contribution of foreign investors is thus their employment growth. Employees working for, and trained by, a multinational enterprise may become carriers of new technology and business practices. The more employees receive access to new knowledge, the more they in turn may spread the knowledge across the economy, for instance by setting up their own businesses. In this paper, we make a first step in investigating the determinants of this important mediating variable, employment growth. For a dataset covering four diverse emerging economies, we find that wholly-owned FDI operations have higher employment growth, while local industry characteristics moderate the growth effect.

MNE, employment growth, control, institutions, FDI policy

Abstract:
We use enterprise data to analyze and contrast the determinants of enterprise performance in China and Russia. We find that in China, enterprise growth and efficiency is associated with rapid increases in factor inputs, but not correlated with ownership or institutional factors. However, in Russia, enterprise growth is not associated with increases in factor quantity (except for labor) or quality. The main determinants of company performance are instead demand and institutional factors at a regional level. We explore possible interpretations of these results, including the impact of institutional and managerial quality.

Enterprise performance, privatization in Russia and China

Abstract:
We use enterprise data to analyse and contrast the determinants of enterprise performance in China and Russia. We find that in China, enterprise growth and efficiency is associated with rapid increases in factor inputs, but not correlated with ownership or institutional factors. However, in Russia, enterprise growth is not associated with increases in factor quantity (except for labor) or quality. The main determinants of company performance are instead demand and institutional factors at a regional level. We explore possible interpretations of these results, including the impact of institutional and managerial quality.

enterprise performance, privatization in Russia and China

Abstract:
Using bank-level data from India, for nine years (1995-1996 to 2003-2004), we examine banks' behavior in the context of emerging credit markets. Our results indicate that the credit market behavior of banks in emerging markets is determined by past trends, the diversity of the potential pool of borrowers to whom a bank can lend, and regulations regarding treatment of NPA and lending restrictions imposed by the Reserve Bank of India. Finally, we find evidence that suggest that credit disbursal by banks can be facilitated by regulatory and institutional changes that help banks mitigate the problems associated with enforcement of debt covenants and treatment of NPA on the balance sheets. On the basis of these results, we speculate on some possible policy recommendations.

Indian banking, Development, Credit-to-deposit ratio, Risk aversion

Abstract:
Using bank-level data from India, for nine years (1995-96 to 2003-04), we examine banks' behavior in the context of emerging credit markets. Our results indicate that the credit market behavior of banks in emerging markets is determined by past trends, the diversity of the potential pool of borrowers to whom a bank can lend, and regulations regarding treatment of NPA and lending restrictions imposed by the Reserve Bank of India. Finally, we find evidence that suggest that credit disbursal by banks can be facilitated by regulatory and institutional changes that help banks mitigate the problems associated with enforcement of debt covenants and treatment of NPA on the balance sheets. On the basis of these results, we speculate on some possible policy recommendations.

Credit market, Emerging economies, Risk averseness, Panel data analysis

Abstract:
We use enterprise data to analyse and compare the determinants of enterprise performance in China and Russia. We find that in China, enterprise growth and efficiency is associated with rapid increases in factor inputs including management, as well as TFP, but not greatly associated with ownership or institutional factors. In contrast, sales growth in Russia is not associated with improvements in factor quantity (except for labor) or quality; TFP is not influenced by competition and privatization to outsiders does not enhance company performance relative to insider ownership. The main determinants of TFP are instead demand and institutional factors at a regional level.

enterprise performance, privatization in Russia and China, total factor productivity

Abstract:
Since 1989, there has been a sharp increase in the role of caste and religion in determining political fortunes at both state and federal levels in India. As a consequence, significant intercaste and inter-religion differences in earnings have the potential to stall the process of economic reforms. Yet, the patterns and determinants of such differences remain unexplored. We address this lacuna in the literature, and explore the determinants of the differences in inter-caste and inter-religion earnings in India during the 1987-1999 period, using the 43rd and 55th rounds of National Sample Survey (NSS). Our results suggest that (a) earnings differences between upper castes and SC/ST have declined between 1987 and 1999, (b) over the same period, earnings differences between Muslims and non-Muslims have increased, to the detriment of the former, and (c) inter-caste and inter-religion differences in earnings can be explained largely by corresponding differences in educational endowment and returns on age (and, hence, experience). However, differences in returns on education do not explain inter-caste and inter-religion earnings differences to a great extent.

inequality, caste, religion, India

Abstract:
This paper decomposes differences in poverty incidence (head count ratio) using estimates from a regression equation, synthesizing the approaches proposed in World Bank (2003) and Yun (2004). A significance test is developed for characteristics and coefficients effects when decomposing differences in poverty incidence. The proposed method is implemented for studying differences in poverty incidence between Serbians and Albanians in Kosovo using Living Standard Measurement Survey.

poverty incidence, head count ratio, OLS, probit, decomposition

Abstract:
In an attempt to better understand the impact of the World Bank on human development in poor countries, we use cross-country data on African countries, for the 1990-2002 period, to examine this relationship. The coefficient estimates of our parsimonious fixed-effects models indicate that while loans and grants of the Bank have had a positive impact on some relatively short-term indicators of health and education in an average African country, there is little evidence to suggest that such loans and grants have helped these countries to consolidate on the short-term gains.

Development, health, education, world bank, Africa

Abstract:
In an attempt to better understand the impact of the World Bank on human development in poor countries, we use cross-country data on African countries, for the 1990-2002 period, to examine this relationship. The coefficient estimates of our parsimonious fixed-effects models indicate that while loans and grants of the Bank have had a positive impact on some relatively short-term indicators of health and education in an average African country, there is little evidence to suggest that such loans and grants have helped these countries to consolidate on the short-term gains.

Development, health, education, world bank, Africa

Abstract:
The literature is divided in its opinion about the impact of concentration of ownership on firm performance. On the one hand, concentration of ownership that, in turn, concentrates management control in the hands of a strategic investor, eliminates agency problems associated with dispersed ownership. On the other hand, it may lead to entrenchment of upper management which may be inconsistent with the objective of profit (or value) maximisation. This paper examines the impact of M&A on profitability of firms in India, where the corporate landscape is dominated by family-owned and group-affiliated businesses, such that alignment of management and ownership coexists with management entrenchment, and draws conclusions about the impact of concentrated ownership and entrenchment of ownermanagers on firm performance. Our results indicate that, during the 1995-2002 period, M&A in India led to deterioration in firm performance. We also find that neither the investors in the equity market nor the debt holders can be relied upon to discipline errant (and entrenched) management. In other words, on balance, negative effects of entrenchment of ownermanagers trumps the positive effects of reduction in owner-vs.-manager agency problems. Our findings are consistent with bulk of the existing literature on family-owned and groupaffiliated firms in India.

mergers and acquisitions, corporate governance, manager entrenchment, firm

Abstract:
It is now stylized that, while the impact of ownership on firm productivity is unclear, product market competition can be expected to have a positive impact on productivity, thereby making entry (or contestability of markets) desirable. Traditional research in the context of entry has explored the strategic reactions of incumbent firms when threatened by the possibility of entry. However, following De Soto (1989), there has been increasing emphasis on regulatory and institutional factors governing entry rates, especially in the context of developing countries. Using 3-digit industry level data from India, for the 1984-97 period, we examine the phenomenon of entry in the Indian context. Our empirical results suggest that during the 1980s industry level factors largely explained variations in entry rates, but that, following the economic federalism brought about by the post-1991 reforms, variations entry rates during the 1990s were explained largely by state level institutional and legacy factors. We also find evidence to suggest that, in India, entry rates were positively associated with growth in total factor productivity.

Entry, Productivity, Institutions, Regulations, India, Reforms

Abstract:
It is now stylized that, while the impact of ownership on firm productivity is unclear, product market competition can be expected to have a positive impact on productivity, thereby making entry (or contestability of markets) desirable. Traditional research in the context of entry has explored the strategic reactions of incumbent firms when threatened by the possibility of entry. However, following De Soto (1989), there has been increasing emphasis on regulatory and institutional factors governing entry rates, especially in the context of developing countries. Using 3-digit industry level data from India, for the 1984-97 period, we examine the phenomenon of entry in the Indian context. Our empirical results suggest that during the 1980s industry level factors largely explained variations in entry rates, but that, following the economic federalism brought about by the post-1991 reforms, variations entry rates during the 1990s were explained largely by state level institutional and legacy factors. We also find evidence to suggest that, in India, entry rates were positively associated with growth in total factor productivity.

entry, productivity, institutions, regulations, India, reforms

Abstract:
Economists have long claimed that inter-household monetary transfers are motivated either by altruism, namely, to protect friends and family from adverse consumption shocks, or by strategic motives aimed at eliciting quid pro quo at the time of need of the donors. A logical extension of this line of argument is that if a welfare state protects the residents of the country against adverse economic shocks, private transfers will not be observed. This, however, is not the case, indicating that inter-household transfers can be motivated by life course events like marriage that do not necessarily translate into consumption shocks. Further, anecdotal evidence suggests that friends and family make transfers even if they do not require reciprocation as such. This paper addresses this paradox that has been ignored by the largely economic literature on inter-household transfers. Using data on common 763 individuals from the 1996 and 1997 rounds of the German Socio-Economic Panel, this paper shows that life course events like marriage and childbirth indeed affect the probability of receiving transfers and the amount of such transfers significantly. Further, both the aforementioned probability and amount of private transfers increase most if at least one parent of a potential recipient is alive. The results encourage a search for explanations of inter-household transfers that lie beyond the pale of stylized economic models.

Abstract:
We use the Living Standards Measurement Study (LSMS) household survey from post-conflict Kosovo to examine economic deprivation among Serbs and Albanians. Economic deprivation is measured by per capita household expenditure and by the incidence of poverty as captured by the headcount ratio. We examine the roles played by the stock of attributes and by the impact of these attributes on deprivation using Oaxaca-type decomposition methods. Empirical results for both decomposition analyses show differences in characteristics as well as returns to measured characteristics favor Serbs, even though Serbs have lower expenditures and higher poverty incidence than Albanians.

poverty, ethnicity, decomposition

Abstract:
As Indian firms expand beyond national borders, they are increasingly exposed to a new array of strategic and operational risks, including those derived from different geopolitical and cultural contexts. This study is the result of research conducted by The Conference Board in late 2007 and early 2008. It looks at the state of risk management integration in India-based corporations and examines emerging governance practices in this area by four leading corporations: Tata Motors Ltd.; Tata Chemicals Ltd.; Dr. Reddy's; and ICICI Bank.

India, risk management, corporate governance

Abstract:
Kosovo is a war-torn corner of the former Yugoslavia, where a civil war between ethnic Albanians and ethnic Serbs raged during most of the 1990s. We examine the incidence and depth of poverty and some of its correlates in post-conflict Kosovo using the Living Standards Measurement Survey.

poverty, ethnicity, transition

Abstract:
The literature on inter vivos and intergenerational transfers has largely focused on the possible determinants of such transfers. Specifically, much of the empirical work has examined whether transfers are driven by altruistic relationship between "dynastic" households. However, the empirical literature has consistently overlooked the possibility that transfers may be driven by specific events in the recipients' lives like marriage, childbirth and illness. Further, it has not addressed the possibility that within a reasonably long time frame-say, one year-transfers may influence household income as much as household income influences the probability and magnitude of transfers. This paper addresses these lacunae in the existing literature. Using GSOEP data from the 1996 and 1997 surveys, it shows that demographic and other events determine transfers to a significant extent, and also that overlooking the possible endogeneity of income may lead to bias in the econometric estimations.

intergenerational transfers, demographic events, omitted variable bias, endogeneity of income

Abstract:
This paper investigates the issue of temporal ordering of the range-based volatility and volume in the Indian stock market for the period 1995-2007. We examine the dynamics of the two variables and their respective uncertainties using a bivariate dual long-memory model. We distinguish between volume traded before and after the introduction of futures and options trading. We find that in all three periods the impact of both the number of trades and the value of shares traded on volatility is negative. This result is in line with the theoretical argument that a marketplace with a larger population of liquidity providers will be less volatile than one with a smaller population. We also find that (i) the introduction of futures trading leads to a decrease in spot volatility, (ii) volume decreases after the introduction of option contracts and, (iii) there are significant expiration day effects on both the value of shares traded and volatility series.

derivatives trading, emerging markets, long-memory, range-based volatility, value of

Abstract:
Few researchers have examined the nature and determinants of earnings differentials among religious groups, and none has been undertaken in the context of conflict-prone multi-religious societies like the one in India. We address this lacuna in the literature by examining the differences in the average (log) earnings of Hindu and Muslim wage earners in India, during the 1987-2004 period. Our results indicate that education differences between Hindu and Muslim wage earners, especially differences in the proportion of wage earners with tertiary education, are largely responsible for the differences in the average (log) earnings of the two religious groups across the years. By contrast, differences in the returns to education do not explain the aforementioned difference in average (log) earnings. Citing other evidence about persistence of educational achievements across generations, however, we argue that attempts to narrow this gap using quotas for Muslim households at educational institutions might be counterproductive from the point of view of conflict avoidance.

earnings gap, education, decomposition, religion

Abstract:
Although economic agents routinely face various types of economic uncertainty, their effects are often unclear and hard to assess, in part due to the absence of suitable measures of uncertainty. Because of the numerous and very substantial institutional changes that people in the transition economies of Central and Eastern Europe experienced during the last two decades, these countries are excellent candidates for examining the effects of uncertainties on various kinds of behavior. During their periods of uncertainty, moreover, these countries have experienced sharply falling fertility rates. Some have argued that these two phenomena are linked but others have remained skeptical in view of the fact that the evidence is largely confined to the macro level. This paper demonstrates the existence of such a link at the micro level using two different types of uncertainty measures based on GSOEP data from Eastern (and for comparison purposes also Western) Germany for the years 1992-2002. The results suggest that employment uncertainty (but not financial uncertainty) was considerably greater in Eastern Germany during its transition than in Western Germany and had a highly nonlinear effect on the probability of a birth in any period. The result is rather robust to differences in specification and suggests that the higher employment uncertainty in East Germany in the transition could have contributed significantly to the sharp fall and unusually low level of its fertility. In view of the results, we argue that an options based theory is perhaps a richer analytical paradigm for a discussion of fertility decisions in a rapidly changing environment than the traditional Beckerian theory.

Falling Fertility, Uncertainty, Germany

Abstract:
Economic agents routinely face various types of economic uncertainty. Seldom have these various forms of uncertainty manifested themselves more sharply than in the transition economies of Central and Eastern Europe. In East Germany, the transition was especially rapid and sharp since East Germany virtually over night made the transition from the Eastern European system to the market economy of Western Germany. Uncertainties increased and many institutional and behavioral adjustments took place in a concentrated period of time. Among the latter was a sharp fall in fertility rates, leading to a growing literature on the explanation for this decline. This paper focuses directly on the link between uncertainty and childbearing decisions and examines the link at the micro level. It develops a stylized overlapping generations model showing that the relationship between economic uncertainty and childbearing decisions is not necessarily monotonic, and hence that the aforementioned inverse relationship is merely a testable hypothesis. It then uses GSOEP data for 1992 and 1996 to estimate the nature of this relationship, and concludes that while this relationship was indeed negative for East German women during these two years, the nature of uncertainty affecting their childbearing decisions differed across the years.

economic uncertainty, fertility, childbearing decisions, transition

Abstract:
Despite a significant expansion of the literature on conflicts and fragility of states, only a few systematic attempts have been made to link the theoretical literature on social conflicts to the available micro-level information about the people who are involved in these conflicts. We address this lacuna in the literature using a household-level data set from Kosovo. Our analysis suggests that it is individually rational for competing ethnic communities, Kosovo Albanians and Kosovo Serbs, to resist a quick agreement on a social contract to share the region's resources.

conflict, individual rationality, economic deprivation, micro-evidence, Balkans, Kosovo

Abstract:
Since 1989, there has been a sharp increase in the role of caste and religion in determining political fortunes at both state and federal levels in India. As a consequence, significant inter-caste and inter-religion differences in earnings have the potential to stall the process of economic reforms. Yet, the patterns and determinants of such differences remain unexplored. We address this lacuna in the literature, and explore the determinants of the differences in inter-caste and inter-religion earnings in India during the 1987-99 period, using the 43rd and 55th rounds of National Sample Survey (NSS). Our results suggest that (a) earnings differences between "upper" castes and SC/ST have declined between 1987 and 1999, (b) over the same period, earnings differences between Muslims and non-Muslims have increased, to the detriment of the former, and (c) inter-caste and inter-religion differences in earnings can be explained largely by corresponding differences in educational endowment and returns on age (and, hence, experience). However, differences in returns on education do not explain inter-caste and inter-religion earnings differences to a great extent.

Inequality, Caste, Religion, India

Abstract:
This paper investigates the issue of temporal ordering of the range-based volatility and volume in the Indian stock market for the period 1995-2007. We examine the dynamics of the two variables and their respective uncertainties using a bivariate dual long-memory model. We distinguish between volume traded before and after the introduction of futures and options trading. We find that in all three periods the impact of both the number of trades and the value of shares traded on volatility is negative. This result is in line with the theoretical argument that a marketplace with a larger population of liquidity providers will be less volatile than one with a smaller population. We also find that (i) the introduction of futures trading leads to a decrease in spot volatility, (ii) volume decreases after the introduction of option contracts and, (iii) there are significant expiration day effects on both the value of shares traded and volatility series.

derivatives trading, emerging markets, long-memory, range-based volatility, value of shares traded

Abstract:
Productivity growth has long been associated with, among others, contestability of markets which, in turn, is dependent on the ease with which potential competitors to the incumbent firms can enter the product market. There is a growing consensus that in emerging markets regulatory and institutional factors may have a greater influence on a firm's ability to enter a product market than strategic positions adopted by the incumbent firms. We examine this proposition in the context of India where the industrial policies of the eighties and the nineties are widely believed to be pro-incumbent and pro-competition, respectively, thereby providing the setting for a natural experiment with 1991 as the watershed year. In our analysis, we also take into consideration the possibility that the greater economic federalism associated with the reforms of the nineties may have affected the distribution of industrial units across states after 1991. Our paper, which uses the experiences of the textiles and electrical machinery sectors during the two decades as the basis for the analysis, finds broad support for both these hypotheses.

Entry, Institutions, Regulations, India, Textiles, Electrical Machinery, Reforms

Abstract:
In this paper we describe a method to decompose a well-known measure of debt ratings mobility into it's directional components. We show, using sovereign debt ratings as an example, that this directional decomposition allows us to better understand the underlying characteristics of debt ratings migration and, for the case of the data set used, that the standard Markov chain model is not homogeneous in either the time or cross-sectional dimensions. We find that the directional decomposition also allows us to sign the change in quality of debt over time and across
sub-groups of the population.

Ratings migration, Mobility, Sovereign debt

Abstract:
We use the Living Standards Measurement Study (LSMS) household survey from post-conflict Kosovo to examine economic deprivation among Serbs and Albanians. Economic deprivation is measured by per capita household expenditure and by the incidence of poverty as captured by the headcount ratio. We examine the roles played by the stock of attributes and by the impact of these attributes on deprivation using Oaxaca-type decomposition methods. Empirical results for both decomposition analyses show differences in characteristics as well as returns to measured characteristics favor Serbs, even though Serbs have lower expenditures and higher poverty incidence than Albanians.

poverty, ethnicity, decomposition

Abstract:
This paper is one of the first comprehensive attempts to compare earnings in urban China and India over the recent period. While both economies have grown considerably, we illustrate significant cross-country differences in wage growth since the late 1980s. For this purpose, we make use of comparable datasets, estimate Mincer equations and perform Oaxaca-Blinder decompositions at the mean and quantile decompositions at different points of the wage distribution. The initial wage differential in favour of Indian workers, observed in the middle and upper part of the distribution, partly disappears over time. While the 1980s Indian premium is mainly due to higher returns to education and experience, a combination of price and endowment effects explains why Chinese wages have caught up, especially since the mid-1990s. The price effect is only partly explained by the observed convergence in returns to education; the endowment effect is driven by faster increase in education levels in China and significantly accentuates the reversal of the wage gap in favour of this country for the first half of the wage distribution.

returns to education, earnings, India, China, quantile regression, Oaxaca-Blinder decomposition

Abstract:
This study adapts a relatively novel model of off-farm labor supply to the changing conditions of Bulgaria during the 1990s. The model's parameters are estimated separately for each of the three different waves of the Bulgarian Integrated Household Survey, each reflecting remarkably different environmental conditions. Both the parameter values and the changes therein from one survey year to another are explained and used to characterize the way different types of households allocate their labor between farm and off-farm activities. The results demonstrate that Bulgarian households display many of the same labor supply patterns, including entitlement failures, as have previously been observed only in very poor developing countries. As such, they have potentially important policy making implications.

off-farm labor supply, diversification, entitlement failures, transition economies

Abstract:
It is generally believed that the structural reforms that usher in competition and force companies to become more efficient were introduced later in India following the macroeconomic crisis in 1991. However, whether the post-1991 growth is an outcome of more efficient use of resources or greater use of factor inputs, especially capital, remains an open empirical question. In this paper, we use plant-level data from 1989-90 and 2000-01 to address this question. Our results indicate that while there was an increase in the productivity of factor inputs during the 1990s, most of the growth in value added is explained by growth in the use of factor inputs. We also find that median technical efficiency declined in all but one of the industries between the two years, and change in technical efficiency explains a very small proportion in the change in gross value added.

efficiency, growth decomposition, productivity, manufacturing

Abstract:
In this review article, we bring together a number of aspects of family firms that are ubiquitous in a number of institutional contexts, often as part of larger business groups. We pay particular attention to the mechanisms by which families retain control over firms, and the incentives of the families in control to expropriate other stakeholders by way of tunnelling. We examine the role of earnings management in facilitating tunnelling, and evidence about the incidence of earnings management in family firms. Our review suggests that while the literature on these aspects of family control is rich, the contexts in which the empirical exercises are undertaken are relatively few, and hence there is considerable opportunity to expand it to other contexts, in particular in the form of cross-country comparisons of the relative impact of agency conflicts and institutions on these issues.

family control, group affiliation, agency problem, tunnelling, earnings management

Abstract:
Few researchers have examined the nature and determinants of earnings differentials among religious groups, and none has been undertaken in the context of conflict-prone multi-religious societies like the one in India. We address this lacuna in the literature by examining the differences in the average (log) earnings of Hindu and Muslim wage earners in India, during the 1987-2005 period. Our results indicate that education differences between Hindu and Muslim wage earners, especially differences in the proportion of wage earners with tertiary education, are largely responsible for the differences in the average (log) earnings of the two religious groups across the years. By contrast, differences in the returns to education do not explain the aforementioned difference in average (log) earnings. In conclusion, we discuss some policy implications.

earnings gap, education, decomposition, religion

Abstract:
The Chinese state undertakes large scale investments in a number of countries under the auspices of economic cooperation related investment (ECI). While there are suggestions that it is an extension of China's soft power aimed at facilitating Chinese FDI in those countries, often for access to natural resources, there is no systematic analysis of this in the literature. In this paper, we examine this investment of the Chinese state over time. Our results suggest that the pattern of investment is indeed explained well by factors that are used in the stylised literature to explain directional patterns of outward FDI. They also demonstrate that the (positive) relationship between Chinese ECI and the recipient countries' natural resource richness is not economically meaningful. Finally, while there is some support for the popular wisdom that China's willingness to do business with a country is not strongly affected by its level of corruption, there is much weaker support, if any, for the hypotheses that China favours doing business with countries where political rights are limited.

China, Economic cooperation related investment, Foreign direct investment, Natural resources, Institutional quality

Abstract:
We present a general equilibrium analysis of biofuel subsidies in an open-economy context. In the small-country case, when a Pigouvian tax on conventional fuels such as crude is in place, the optimal biofuel subsidy is zero. When the tax on crude is not available as a policy option, however, a second-best biofuel subsidy (or tax) is optimal. In the large-country case, the optimal tax on crude departs from its standard Pigouvian level and a biofuel subsidy is optimal. A biofuel subsidy spurs global demand for food and confers a terms-of-trade benefit to the food-exporting nation. This might encourage the food-exporting nation to use a subsidy even if it raises global crude use. The food importer has no such incentive for subsidization. Terms-of-trade effects wash out between trading nations; hence, any policy intervention by the two trading nations that raises crude use must be jointly suboptimal.

Optimal Biofuel Subsidy, Pigouvian Tax, Terms-of-Trade, Pollution Externality

Abstract:
Traditional research in the context of product market entry has explored the strategic reactions of incumbent firms when threatened by the possibility of entry, and have identified industry-specific factors that affect entry rates. However, following de Soto (1989), there has been increasing emphasis on regulatory and institutional factors governing entry rates, especially in the context of developing countries. Using three-digit industry-level data from India, for the 1984–97 period, we examine the phenomenon of entry in the Indian context. Our empirical results suggest that during the 1980s industry-level factors largely explained variations in entry rates, but that, following the economic federalism brought about by the post-1991 reforms, variations in entry rates during the 1990s were explained largely by state-level institutional and legacy factors. Past productivity growth affects net entry rates as well.

Abstract:
This paper is one of the first comprehensive attempts to compare earnings in urban China and India over the recent period. While both economies have grown considerably, we illustrate significant cross-country differences in wage growth since the late 1980s. For this purpose, we make use of comparable datasets, estimate Mincer equations and perform Oaxaca–Blinder decompositions at the mean and at different points of the wage distribution. The initial wage differential in favor of Indian workers, observed in the middle and upper part of the distribution, partly disappears over time. While the 1980s Indian premium is mainly due to higher returns to education and experience, a combination of price and endowment effects explains why Chinese wages have caught up, especially since the mid-1990s. The price effect is only partly explained by the observed convergence in returns to education; the endowment effect is driven by faster increase in education levels in China and significantly accentuates the reversal of the wage gap in favor of this country for the first half of the wage distribution.

Abstract:
While much has been discussed about the relationship between ownership and financial performance of banks in emerging markets, literature about cross-ownership differences in credit market behaviour of banks in emerging economies is sparse. Using bank-level data from India and a portfolio-choice model for nine years (1995-96 to 2003-04), we examine banks' behaviour in the context of credit markets of an emerging market economy, namely, India. Our results indicate that, in India, the data for the domestic banks fit well the aforementioned portfolio-choice model, especially for private banks, but the model cannot explain the behaviour of foreign banks. In general, allocation of assets between risk-free government securities and risky credit is affected by past allocation patterns, stock exchange listing (for private banks), risk averseness of banks, regulations regarding treatment of NPA, and ability of banks to recover doubtful credit. It is also evident that banks deal with changing levels of systematic risk by altering the ratio of securitized to non-securitized credit. These results have implications for disbursal of credit to small and medium enterprises in India.

India, Banking sector reforms, Credit disbursal, Risk appetite, Ownership

Abstract:
In this paper, we use plant level data from two Indian industries, namely, electrical machinery and textiles, to examine the empirical relationship between structural reforms like abandonment of entry restrictions to the product market, competition and firm-level productivity and efficiency. These industries have faced different sets of policies since Independence but both were restricted in the adoption of technology and in the development of optimal scales of production. They also belonged to the first set of industries that benefited from the liberalization process started in the 1980s. Our results suggest that both the industries have improved their efficiency and scales of operation by the turn of the century. However, the process of adjustment seems to have been worked out more fully for electrical machinery. We also find evidence of spatial fragmentation of the market as late as 2000-01. Gains in labour productivity were much more evident in states that either have a strong history of industrial activity or those that have experienced significant improvements in business environment since 1991.

India, Reforms, Industry, Textiles, Electrical machinery, Efficiency

Abstract:
It has long been argued that private ownership of firms leads to better firm performance. However, theory as well as empirical evidence suggest that factors like agency problems may not allow privately owned firms to operate more efficiently or perform better than state owned firms. At the same time, it has been argued that competition and hard budget constraints can induce state owned firms to operate efficiently. In India, banking sector reforms were initiated in 1992-93, leading to entry and other forms of deregulation, and a level playing field for all banks. Data for 1995-96 through 2000-01 suggest that by 1999-00 ownership was no longer a significant determinant of performance; induced by competition, public sector banks were able to eliminate the performance/efficiency gap that existed between them and domestic private sector and foreign banks.

Banking Sector Reforms, Performance, Competition, Ownership, Convergence

Abstract:
It is now stylized that the importance of FDI for developing countries and emerging markets arise from the impact of the presence of multinational corporations (MNCs) in the host country on the productivity of the local firms, by way of technology diffusion and competition. There is also general agreement about the fact that the extent of technology transfer by a MNC to a developing country affiliate depends on the extent of its control on the local affiliate and that, in turn, the extent of this control depends on the mode of entry of the MNC into the host country. However, the existing literature is based on the experience of developed countries and does not make any contributions to the development economic literature. This paper addresses this lacuna using unique firm level data from South Africa and Egypt. Our results indicate that the determinants of entry mode choice not only differ between developed and developing countries, but also among developing countries. They also bring into question the reality about the role of MNCs in fostering productivity growth in developing countries.

MNC, entry mode choice, technology transfer, local institutions, local knowledge

Abstract:
During the 1990s, the Indian banking sector witnessed more reforms than most other sectors of the Indian economy. Interest rates have been deregulated, and entry into the banking sector has been liberalized. The cash reserve ratio and the statutory liquidity ratio are at their historic lows, thereby granting the banks control over a greater share of their deposit base. Banks are now allowed to invest in hithertofore contraband assets like equity. Further, non-interest income by way of fees and off-balance-sheet activities is increasingly becoming an important part of banks' revenues. Finally, banks routinely take positions in the markets for complex instruments like derivatives. At the same time, however, these financial intermediaries are supposed to maintain capital adequacy ratio at the stipulated minimum level, mark assets to market, classify assets to identify doubtful and loss loans, and make provisions for non-performing assets. Despite the spate of reforms, the Indian banking industry continues to face several problems: many banks, mostly in the public sector, continue to underperform in terms of return to assets; the volume of non-performing assets continue to be at an alarmingly high level; and the issue of deposit insurance remains hostage to the fact that about 80 percent of the deposits in the country remain in the control of public sector banks. The paper takes a close look at the issues and challenges facing the Indian banking industry. It concludes that the evolution of the banking sector in India is likely to take the form of emergence of universal or quasi-universal banks, and that, therefore, risk management and development of an appropriate regulatory system remain the main challenges facing the banking industry in the foreseeable future.

Banking sector, reforms, prudential norms, privatization, non-performing assets, deposit insurance, universal banks

Abstract:
The literature on bond markets and interest rates has focused largely on the term structure of interest rates, specifically, on the so-called expectations hypothesis. At the same time, little is known about the nature of the spread of the interest rates in the money market beyond the fact that such spreads are generally unstable. However, with the evolution of complex financial instruments, it has become imperative to identify the time series process that can help one accurately forecast such spreads into the future. This paper explores the nature of the time series process underlying the spread between 3-month and 1-year US rates, and concludes that the movements in this spread over time is best captured by a GARCH(1,1) process. It also suggests the use of a relatively long term measure of interest rate volatility as an explanatory variable. This exercise has gained added importance in view of the revelation that GARCH based estimates of option prices consistently outperform the corresponding estimates based on the stylized Black-Scholes algorithm.

Expectations hypothesis, yield spread, money market, conditional heteroskedasticity

Abstract:
At the turn of events in Central and Eastern Europe in 1989, Bulgaria inherited a weak economy whose woes were aggravated by the dissolution of the COMECON trade agreement, and the sanctions imposed on traditional trading partners like Iraq and Yugoslavia. At the same time, it avoided the bloodshed and the wars that left their mark on many of the Balkan and CIS countries. Many of the post-1989 years were frittered away by successive Bulgarian governments, and the 1990-96 period saw decline in industrial output, negative GDP growth, and fairly high inflation rates. Matters came to a head in 1996-97 and resulted in a financial-currency crisis leading to a sharp devaluation of the currency and bankruptcy of banks. The government responded by ushering in a currency board agreement that has eliminated the government's ability to incur fiscal deficit, the soft budget constraints enjoyed earlier by the banking sector, and the Bulgarian National Bank's ability to pursue an expansionary monetary policy. As a consequence, the Bulgarian government runs a fiscal surplus, inflation and interest rates remain low, and the currency remains pegged to the German mark. The paper argues that these signs of macroeconomic stability are misleading, and that credit market failure and the constraints imposed by the currency board agreement on the government and central bank's ability to pursue expansionary fiscal and monetary policy is pushing Bulgaria towards another disaster.

Bulgaria, currency board agreement, fiscal policy, monetary policy, current account deficit, transition

Abstract:
In their policy proposals on how best to stimulate economic growth, economists have been increasingly emphasizing free markets. It is, however, possible that free market led economic growth can lead to increased income inequity which can further increase poverty. One of the more interesting but thus far insufficiently explored mechanisms for the latter is food-feed competition. Using Peruvian Living Standard Survey (PLSS) data for 1985-86 and 1990, the paper examines the demand patterns of households and concludes that the empirical evidence is in agreement with the hypotheses underlying the theory of food-feed competition.