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In a world where capital moves freely across national borders, developing countries have increasingly been subjected to devastating financial crises caused by the sudden withdrawal of foreign capital. How do such crises come about? This book focuses on a novel causal path: that of miscommunication. By examining the determinants of Asia's financial crisis of 1997-98, it demonstrates why developing democracies are exceptionally vulnerable to breakdowns in communication between financial officials and the chief executive and outlines the disastrous consequences of such breakdowns. The book offers a framework for predicting where chief executives are most likely to be ill informed about critical economic variables. It also considers those situations in which politicians are dependent on financial officials whom they cannot completely trust or in which multiple veto players damage the flow of information.
Banks and banking --- Capital movements --- Bank management --- Banking law --- Financial crises --- Law, Banking --- Financial institutions --- Management --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Money --- Law and legislation --- Social Sciences --- Political Science
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We examine the deep determinants of long-run macroeconomic stability in a cross-country framework. We find that conflict, openness, and democratic political institutions have a strong and statistically significant causal impact on macroeconomic stability. Surprisingly the most robust relationship of the three is for democratic institutions. A one standard deviation increase in democracy can reduce nominal instability nearly fourfold. This impact is robust to alternative measures of democracy, samples, covariates, and definitions of conflict. It is particularly noteworthy that a variety of nominal pathologies discussed in the recent macroeconomic literature, such as procyclical policy, original sin, and debt intolerance, have common origins in weak democratic institutions. We also find evidence that democratic institutions both strongly influence monetary policy and have a strong, independent positive effect on stability after controlling for various policy variables.
Economic stabilization --- Democracy --- Self-government --- Political science --- Equality --- Representative government and representation --- Republics --- Economic aspects --- Econometrics --- Foreign Exchange --- Inflation --- Macroeconomics --- Price Level --- Deflation --- Policy Objectives --- Policy Designs and Consistency --- Policy Coordination --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- Aggregate Factor Income Distribution --- Estimation --- Currency --- Foreign exchange --- Econometrics & economic statistics --- Income inequality --- Estimation techniques --- Multiple currency practices --- Exchange rates --- National accounts --- Econometric analysis --- Prices --- Income distribution --- Econometric models --- Argentina
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Miguel, Satyanath and Sergenti (2004) use rainfall variation as an instrument to show that economic growth is negatively related to civil conflict in sub-Saharan Africa. In the reduced form regression they find that higher rainfall is associated with less conflict. Ciccone (2010) claims that this conclusion is 'erroneous' and argues that higher rainfall levels are actually linked to more conflict. In this paper we show that the results in Ciccone's paper are based on incorrect STATA code, outdated conflict data, a weak first stage regression and a questionable application of the GMM estimator. Leaving aside these data and econometric issues, Ciccone's surprising results do not survive obvious robustness checks. We therefore conclude that Ciccone's main claims are largely incorrect and reconfirm the original result by Miguel, Satyanath and Sergenti (2004), finding that adverse economic growth shocks, driven by falling rainfall, increases the likelihood of civil conflict in sub-Saharan Africa.
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Social capital typically leads to positive political and economic outcomes. A growing literature also emphasizes the potentially “dark side” of social capital. This paper examines the role of social capital in the downfall of democracy in interwar Germany. We analyze Nazi Party entry in a cross-section of cities. Dense networks of civic associations such as bowling clubs, choirs, and animal breeders facilitated the Nazi Party's rise. Towns with one standard deviation higher association density saw at least one-third faster entry. All types of associations – veteran associations and non-military clubs, “bridging” and “bonding” associations – positively predict NS Party entry. These results suggest that social capital aided the rise of the Nazi movement that ultimately destroyed Germany's first democracy. We also show that the effects of social capital depended on the institutional context – in Prussia, where democratic institutions were stronger, the link between party entry and association density was markedly weaker.
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We exploit the recent declassification of CIA documents and examine whether there is evidence of US power being used to influence countries' decisions regarding international trade. We measure US influence using a newly constructed annual panel of CIA interventions aimed at installing and supporting leaders during the Cold War. Our presumption is that the US had greater influence over foreign leaders that were installed and backed by the CIA. We show that following CIA interventions there was an increase in foreign-country imports from the US, but there was no similar increase in foreign-country exports to the US. Further, the increase in US exports was concentrated in industries in which the US had a comparative disadvantage in producing, not a comparative advantage. This is consistent with US influence being used to create a larger foreign market for American products. Our analysis is able to rule out decreased bilateral trade costs, changing political ideology, and an increased supply of US loans and grants as explanations for the increase in US exports to the intervened country. We provide evidence that the increase in US exports arose through direct purchases of US products by foreign governments.
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A recent paper by Burke et al. (henceforth “we”) finds a strong historical relationship between warmer- than-average temperatures and the incidence of civil war in Africa (Burke et al. 2009). These findings have recently been challenged by Buhaug (2010) who finds fault with how we controlled for other potential explanatory variables, how we coded civil wars, and with our choice of historical time period and climate dataset. We demonstrate that Buhaug's proposed method of controlling for confounding variables has serious econometric shortcomings and show that our original findings are robust to the use of different climate data and to alternate codings of major war. Using Buhaug's preferred climate data under sound econometric assumptions yields results that suggest an even stronger relationship between temperature and conflict for the 1981-2002 period than we originally reported. We do find that our historical relationship between temperature and conflict weakens over the last decade, a period of unprecedented African economic growth and very few large wars.
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