This paper examines the relationship between the legal system and banking development and traces this connection through to long-run rates of per capita GDP growth, capital stock growth, and productivity growth. The data indicate that countries where the legal system (1) emphasizes creditor rights and (2) rigorously enforces contracts have better developed banks than countries where laws do not give a high priority to creditors and where enforcement is lax. Furthermore, the exogenous component of banking development -- the component defined by the legal environment -- is positively and robustly associated with per capita growth, physical capital accumulation, and productivity growth.

Abstract not found

This paper explores a possible link between financial development and trade in manufactures. The theoretical model focuses on the role of financial intermediaries in facilitating large-scale, high-return projects and shows that economies with better-developed financial sectors have a comparative advantage in manufacturing industries. We provide evidence for this hypothesis, first proposed by Kletzer and Bardhan (1987), using a 30-year panel for 65 countries. Controlling for country-specifice#ects and possible reverse causality, we show that financial development exerts a large causal impact on the level of both exports and the trade balance of manufactured goods

After years of poor macroeconomic performance, many Latin American countries undertook ambitious programs of macroeconomic stabilization and structural reform during recent years. The change in policy created high expectations for the region. Some observers question, however, whether actual growth outcomes in several Latin American countries have measured up to such expectations. This paper offers some evidence that the response of economic growth to reforms in Latin America has not been disappointing. Because of the significant changes in policies achieved in Latin America by the 1990s and in spite of the global slowdown, Latin America did well to return to its historic rate of growth of 2 percent per capita in 1991-93. Latin American growth has responded to changes in policy variables as would have been predicted by the experience of other times and places, as summarized by a panel regression spanning a large number of countries and multi-year periods from 1960 to 1993. In order to obtain consistent estimates of the parameters linking policy variables and growth, this paper uses a dynamic panel methodology that both controls for unobserved time- and country-specific effects and accounts for the likely joint endogeneity of the explanatory variables.

This article takes an integrated approach to evaluating the interaction of initial conditions, political change, reforms and economic performance in a unified framework covering 28 transition economies in East Asia, Central and Eastern Europe, and the fsu. Initial conditions and economic policy jointly determine the large differences in economic performance among transition economies. Initial conditions dominate in explaining inflation, but economic liberalization is the most important factor determining differences in growth. Political reform emerges as the most important determinant of the speed and comprehensiveness of economic liberalization, raising the important question of what determines political liberalization. Results suggest the importance of the level of development in determining the decision to expand political freedoms

What determines the relationship between pollution and growth? Are the forces that explain the behavior over time of these quantities potentially useful to understand more generally the relationship between policies and growth? In this paper, we make a first attempt to analyze the equilibrium behavior of two quantities—the level of pollution and the level of income—in a setting in which societies choose, via voting, how much to regulate pollution. Our major finding is that, consistent with the evidence, the relationship between pollution and growth need not be monotone and that the precise equilibrium nature of the relationship between the two variables depends on whether individuals vote over effluent charges or directly restrict the choice of technology. Moreover, our analysis of the pollution problem suggests that, more generally, endogenous policy choices should be taken seriously as potential sources of heterogeneity when studying cross country differences in economic performance.

This paper -- a product of the Macroeconomics and GrowthDivision, Policy Research Department -- is part of a larger effort in the department to examine the determinants of economic growth. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Kari Labrie, room N11-055, telephone 202-4731001, fax 202-522-3.518, Internet address klabrie(worldbank.org. February 1996. (48 pages) The Pohcy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objectit,e of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be used and cited accordingly. The findings, interpretations, and conclusions are the authors' own and should not be attributed to the World Bank, its Executive Board of Directors, or any of its member countries

Stock markets are not merely casinos. A growing body of research suggests that access to well-functioning stock markets helps spur economic development. Of equal relevance to policymakers, countries where legal codes stress the rights of shareholders and where the regulatory system rigorously encourages corporate information disclosure tend to have better developed financial markets. Latin America suffers from relatively uninformative financial statements and relatively weak legal protection of shareholders, partly due to its Napoleonic legal heritage. Together, these legal/regulatory features help account for the comparably underdeveloped state of Latin America's bourses and its disappointing growth.229033288, RL9J@virginia.edu. This paper was prepared for the Inter-American Development Bank Conference, The Development of Securities Markets in Emerging Markets: Obstacles and Preconditions for Succe...

Abstract not found

In this paper we show that the solution to the standard consumer maximisation problem which is augmented by habit-persistence can imply a positive and linear relationship between changes in the level of savings and changes in present income. We show that these savings-income dynamics contrast with the orthodox view that the level of the savings rate is related to the present growth rate of income. The model also implies that if expectations of future changes in income are positive and present income itself is stationary, then the level of consumption tends to converge on income over time and savings fall. In these circumstances the standard model predicts that the level of savings and consumption remain constant. Using personal savings and disposable income time series data, we show that a simple bivariate version of the habits-augmented model which assumes constant expectations of future changes in income and strong habit persistence performs extremely well in terms of explaining the dynamics of post-war United States personal savings rates; in particular their recent decline to historic lows.