Journal Issue: World Bank Economic Review, Volume 15, Issue 2
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Volume
15
Number
2
Issue Date
Journal Title
Journal ISSN
1564-698X
Journal
World Bank Economic Review
1564-698X
Journal Volume
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Articles
Mutual Fund Investment in Emerging Markets : An Overview
(Washington, DC: World Bank, 2001-05) Kaminsky, Graciela L.; Lyons, Richard K.; Schmukler, Sergio L.
International mutual funds are key
contributors to the globalization of financial markets and
one of the main sources of capital flows to emerging
economies. Despite their importance in emerging markets,
little is known about their investment allocation and
strategies. This article provides an overview of mutual fund
activity in emerging markets. It describes their size, asset
allocation, and country allocation and then focuses on their
behavior during crises in emerging markets in the 1990s. It
analyzes data at both the fund-manager and fund-investor
levels. Due to large redemptions and injections, funds'
flows are not stable. Withdrawals from emerging markets
during recent crises were large, which is consistent with
the evidence on financial contagion.
It's Not Factor Accumulation : Stylized Facts and Growth Models
(Washington, DC: World Bank, 2001-05) Easterly, William; Levine, Ross
The article documents five stylized
facts of economic growth: (1) the 'residual'
(total factor productivity, tfp) rather than factor
accumulation accounts for most of the income and growth
differences across countries; (2) income diverges over the
long run; (3) factor accumulation is persistent while growth
is not, and the growth path of countries exhibits remarkable
variation; (4) economic activity is highly concentrated,
with all factors of production flowing to the richest areas;
and (5) national policies are closely associated with
long-run economic growth rates. These facts do not support
models with diminishing returns, constant returns to scale,
some fixed factor of production, or an emphasis on factor
accumulation. However, empirical work does not yet
decisively distinguish among the different theoretical
conceptions of tfp growth. Economists should devote more
effort toward modeling and quantifying tfp.
Comment on 'It's Not Factor Accumulation : Stylized Facts and Growth Models,' by William Easterly and Ross Levine
(Washington, DC: World Bank, 2001-05) Klenow, Pete
William Easterly and Ross Levine
document five stylized facts about growth and argue that
they imply a bigger role for total factor productivity (tfp)
and technology than for physical and human capital. The
reader agrees with the first four of their facts and
believes facts one and three provide strong support for
their conclusion that tfp should be the focus of growth research.
Comment on 'It's Not Factor Accumulation : Stylized Facts and Growth Models,' by William Easterly and Ross Levine
(Washington, DC: World Bank, 2001-05) Romer, Paul
When economists in the 1950s and 1960s
used growth models to understand the experience of
developing countries, they allowed for the possibility of
technology differences between developing countries and the
United States. But because they did not have a good theory
for talking about the forces that determined the level of
the technology-in the United States any more than in
developing countries-technology factors tended to be pushed
into the background in policy discussions. The new growth
theory of the 1980s generated a counter reaction in the
1990s that Pete Klenow and Andres Rodriguez-Clare have
called the 'neoclassical revival.' The article by
William Easterly and Ross Levine is part of the next swing
in the scholarly pendulum. It moves away from the critical
assumption in the neoclassical revival that the level of
technology is the same in all countries.
Growth Empirics and Reality
(Washington, DC: World Bank, 2001-05) Brock, William A.; Durlauf, Steven N.
This article questions current empirical
practice in the study of growth. It argues that much of the
modern empirical growth literature is based on assumptions
about regressors, residuals, and parameters that are
implausible from the perspective of both economic theory and
the historical experiences of the countries under study.
Many of these problems, it argues, are forms of violations
of an exchangeability assumption that implicitly underlies
standard growth exercises. The article shows that these
implausible assumptions can be relaxed by allowing for
uncertainty in model specification. Model uncertainty
consists of two types: theory uncertainty, which relates to
which growth determinants should be included in a model; and
heterogeneity uncertainty, which relates to which
observations in a data set constitute draw from the same
statistical model. The article proposes ways to account for
both theory and heterogeneity uncertainty. Finally, using an
explicit decision-theoretic framework, the authors describe
how one can engage in policy-relevant empirical analysis.
Applying Growth Theory across Countries
(Washington, DC: World Bank, 2001-05) Solow, Robert M.
The potential problem of reverse
causality has been obvious to everyone. It has usually been
met with the standard econometric dodge: using lagged values
of slow-moving variables as instruments. But this cannot be
a serious solution to the problem. The causality issue
points to a deeper question: Do cross-country regressions
define a meaningful surface along which countries can move
back and forth at will? If this is the idea, what mechanism
could underlie such a surface? Brock and Durlauf call such a
regression a 'model.' Reader suppose in a
statistical sense it is. But an economic model should have
some internal structure; its causal arrows should rest on
some sort of behavioral mechanism, and that seems to be
missing in this literature.
Crisis Transmission : Evidence from the Debt, Tequila, and Asian Flu Crises
(Washington, DC: World Bank, 2001-05) De Gregorio, José; Valdés, Rodrigo O.
This article analyzes how external
crises spread across countries. The authors analyze the
behavior of four alternative crisis indicators in a sample
of 20 countries during three well-known crises: the 1982
debt crisis, the 1994 Mexican crisis, and the 1997 Asian
crisis. The objective is twofold: to revisit the
transmission channels of crises, and to analyze whether
capital controls, exchange rate flexibility, and debt
maturity structure affect the extent of contagion. The
results indicate that there is a strong neighborhood effect.
Trade links and similarity in pre-crisis growth also explain
(to a lesser extent) which countries suffer more contagion.
Both debt composition and exchange rate flexibility to some
extent limit contagion, whereas capital controls do not
appear to curb it.
Comment on 'Growth Empirics and Reality,' by William A. Brock and Steven N. Durlauf
(Washington, DC: World Bank, 2001-05) Pritchett, Lant
World Bank economists are mostly
practical people, people who try to answer the question,
'what exactly should this particular country do right
now?' But if they had hoped that the growth regression
lessons summarized in William Brock and Steven
Durlauf's article would enhance their practical advice
giving, they might feel some dissatisfaction. How would they
change their advice to, say, Brazil? But that is why this
article is important conceptually. It goes to the heart of
the matter by proposing a change in the empirical growth
literature's fundamental methodology, from model
testing to decision theoretic. The article's valiant
but flawed attempt reveals the difficulties in making this
shift, however. The reader likes to make three points: there
is a tension between the interests of academics and
practitioners in growth regressions; output response
heterogeneity is a huge practical problem; and policy
decisions can be guided only in broad outlines by growth regressions.
Comment on 'Growth Empirics and Reality,' by William A. Brock and Steven N. Durlauf
(Washington, DC: World Bank, 2001-05) Sala-i-Martin, Xavier
William Brock and Steven Durlauf's
article nicely summarizes some of the recent research on
Bayesian model averaging. They make a number of important
points. One is that the empirics of growth face three key
problems: model uncertainty, parameter uncertainty, and
endogeneity. They argue that theory uncertainty can be dealt
with using Bayesian model averaging methods.