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Ebook Economic Development Planning Models: A Comparative Assessment

Submitted by puput on Tue, 01/05/2010 - 02:19

Economic development, distinguished from economic growth, results from an assessment of the economic development objectives with the available resources, core competencies, and the infusion of greater productivity, technology and innovation, as well as improvement in human capital, resources, and access to large markets. Economic development transforms a traditional dual-system society into a productive framework in which every one contributes and from which receive benefits accordingly. Economic development occurs when all segments of the society benefit from the fruits of economic growth through economic efficiency and equity. Economic efficiency will be present with minimum negative externalities to society, including agency, transaction, secondary, and opportunity costs. At the same time, disintegration of national sovereign states into more fragmented nations along the ethnic lines would not help these newly formed societies to accede to a formidable economic development regardless of their form of government.

Regional economic integration of these fragmented nations seems implausible and may not be even beneficial, since the impetus for their political disintegration has been due to the ethnic conflicts, which cannot be expected to be mitigated for mutual economic benefits, unless such disintegration has been purely exogenous, and thus temporary. It is obvious that a new competitive economic development strategy for any country or region is to facilitate regional survival in the coming century, (Kooros and O’Sullivan 1997). “Economic development is a process by which an economy is transformed from one that is dominantly rural and agricultural to one that is dominantly urban, industrial, and service in composition,"[Manley 1987]. Economic development brings a higher standard of living and welfare to a nation, while attempting to adhere to the Parato Optimality, or a “win-win strategy” without negative externalities. In their economic development pursuits, many ideological transformations are confronting these countries: foreign debt conversion into foreign direct investment, Foreign Direct Investment (FDI) privatization of economic activities; trade regionalization; conversion of import-substitute investments into export- expansion investments; technology transfer; co-production, and many other sound economic decisions, (Kooros, 1997).

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PDF Ebook Risk-Premia, Carry-Trade Dynamics, and Speculative Efficiency of Currency Markets

Submitted by antoq on Sat, 08/28/2010 - 07:47

Foreign exchange market efficiency is commonly investigated by Fama-regression tests of uncovered interest parity (UIP). In this paper, we conjecture a speculative UIP relationship which implies that exchange rate changes comprise a time-varying risk component in addition to the forward premium. This suggests that the forward premium anomaly reported in previous research potentially stems from omitting this component in UIP tests and that the popular carry-trade strategy can be rationalized to some extent. Moreover, while related work focuses on the Fama-regression slope coefficient, we show that also the intercept is important for judging the economic significance of currency speculation. Empirically, we find support for speculative UIP and the existence of a risk-premium. Furthermore, although carry-traders are able to collect some risk-premia, currency speculation does not yield economically significant excess returns, which suggests that foreign exchange markets are speculatively efficient. Disregarding the Fama-regression constant, however, leads to distortions in the assessment of economic significance and induces spurious rejection of speculative efficiency.

Tests of foreign exchange market efficiency are typically based on an assessment of uncovered interest rate parity (UIP). UIP postulates that the expected change in a bilateral exchange rate is equal to the forward premium, i.e., given that covered interest rate parity holds, it compensates for the interest rate differential. However, empirical research provides evidence that the forward rate is a biased estimate of the future spot rate, finding that the higher interest rate currency tends to not depreciate as much as predicted by UIP or even appreciates. Attempts to explain the forward bias using, among others, risk premia, consumption-based asset pricing theories, and term-structure models have not been able to convincingly solve the puzzle yet. In a recent micro structural approach, Lyons (2001) argues that while the forward bias might be statistically significant, the failure of UIP might not be substantial in economic terms due to limits to speculation. Compared to other investment opportunities, the Sharpe ratios realizable from currency speculation are too small to attract traders’ capital, who consequently leave the bias unexploited and persistent. The presumption that traders allocate capital only if Sharpe ratios exceed a certain threshold implies a range of trader inaction for smaller UIP deviations.

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Ebook Knowledge-Capital Meets New Economic Geography

Submitted by wulan on Fri, 04/09/2010 - 07:47

”European nations are less specialized than US regions” (Krugman, 1991a, p. 76). This stylized fact was recently confirmed by the study of Midelfart Knarvik et al. (2000). Although also European agglomeration tends to increase, especially after the ratification of the Maastricht Treaty that facilitates the mobility of production factors between the EU member states (Haaland et al., 1999, Overman et al., 2001), a gap is still left between concentration in Europe and the US. This gap may be explained by multinational activity.

Since the early stages of new trade theory, the consideration of multinationals may be seen as one of the major innovations in the last two decades’ economic research (Helpman, 1984, Helpman and Krugman, 1985, Markusen, 1984). From its beginning, this literature distinguishes firms by the scope of activities carried out: national single plant firms engaging in trade, horizontal (two-plant) multinationals serving both the home and the foreign market locally (Markusen and Venables, 1998, 2000), and vertical multinationals with production only in the low-wage country and headquarters in the high-wage economy (Helpman, 1984). Both the horizontal and vertical model characterize multinationals by intangible assets (knowledge capital). Only in the knowledge-capital model of multinationals and trade, all these types of firms arise endogenously and may co-exist (for an overview see Markusen, 2002), which seems well in line with the stylized facts (Carr et al. 2001, Markusen and Maskus, 2002, Egger and Pfaffermayr, 2004).

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