Why are some countries rich while others are poor? While some of the differences in income levels and economic growth can be attributed to differences in resources, geography, and openness to international trade, economists recognize that economic and political institutions play an important role. While macro-and development economists have used field data to learn much about the effects of institutions on growth, identifying the precise impact of a particular institution is typically very difficult.
Emerging markets have been a fertile ground for economic and financial market research in recent years. One argument behind the interest is that emerging markets provide great out-of-sample tests of existing models. Studies using US data show that there is a value premium: value stocks outperform growth stocks (Famaand French [1992,1996]and Lakonishok, Shleiferand Vishny[1994]).
Over the last two decades a number of developing countries have moved to liberalize their trade regimes. Proponents of these liberalizations typically argue that one of the chief beneficiaries of greater openness to trade are the workers in these countries. In particular, given abundant supplies of labor trade liberalization encourages producers to reallocate output toward labor-intensive goods. Depending on conditions in labor markets, the resulting increase in the demand for labor translates into some combination of an increase in employment and/or wages.
