Some current members are apprehensive, believing that they will lose from this expansion. This report scrutinizes the grounds for such anxiety. It evaluates the size and the structure of future East-West migration flows based on economic theories and empirical results forthcoming from economic literature. A broader analysis of the East-West migration potential is given in the complementary report by the University College, London. The current report also analyses concerns that cheaper workers from Central and Eastern European EU-candidate countries will flood the current EU and reduce the wages of native workers and/or push them out of their jobs. It is very difficult to estimate the potential migration flow from East to West. Studies attempting to estimate the size of the migration potential have arrived at very different conclusions. Newspapers and politicians have speculated that about 20-40 million East Europeans will emigrate. Estimations based on opinion polls in the sending countries suggest that between 13 and 27 million people are planning to move to the West, whereas more modest

Do foreign banks shy away from relationship loans requiring close monitoring and soft information in emerging economies? The difficulty in answering this question lies in separating distance constraints, i.e. constraints faced by foreign banks due to control from long distances, from traditional constraints (the usual agency costs), and borrower fundamentals. This paper separates the three by exploiting a unique panel data set containing detailed loan-level information on the universe of all 79,323 private bank loans in Pakistan. The results indicate that distance constraints significantly prevent foreign banks from lending to “informationally difficult ” yet fundamentally sound clients requiring relational contracting. Consistent with this notion, I also find that foreign banks are less likely to bilaterally renegotiate (they litigate more), and are considerably less successful at recovering defaults. A number of independent tests show that neither traditional constraints nor fundamentals are able to explain these findings. Graduate School of Business, University of Chicago.

In unequal societies, the rich might bene t from shaping economic institutions into their favor. This paper analyzes dynamics of institutional subversion focusing on one particular institution, public protection of property rights. If this institution is imperfect, agents have incentives to invest in private protection of property rights. With economies of scale in private protection, rich agents have a signi cant advantage in such an environment: they could expropriate other agents using their private protection capacities. Ability to maintain private protection system makes the rich natural political opponents of full protection of property rights provided by the state. Such an environment does not allow grass-roots demand to drive development of new market-friendly institutions (such as public protection of property rights). The economy as a whole is stuck in a 'bad ' long-run equilibrium with low growth rate, high inequality, and wide-spread rent-seeking. Russian `oligarchs ' of 90s, few politically powerful agents that controlled large stakes of the newly privatized property, were a major motivating example for this paper.

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Current risk-management practices are based on probabilities of extreme dollar losses (e.g., measures like Value at Risk), but these measures capture only part of the story. Any complete risk-management system must address two other important factors—prices and preferences. Together with probabilities, these compose the three P’s of “Total Risk Management. ” This article describes how the three P’s interact to determine sensible risk profiles for corporations and for individuals—guidelines for how much risk to bear and how much to hedge. By synthesizing existing research in economics, psychology, and decision sciences and through an ambitious research agenda to extend this synthesis into other disciplines, a complete and systematic approach to rational decision making in an uncertain world is within reach. lthough rational decision making in the face of uncertainty is by no means a new aspect of the human condition, 1 A recent events have helped to renew and deepen interest in risk management. Two forces in particular have shaped this trend: advances in financial technology (models for pricing derivative instruments and computationally efficient means for implementing them) and an ever-increasing demand for new and exotic financial engineering products (perhaps because of increased market volatility or simply because of the growing complexity of the global financial system). These forces, coupled with such recent calamities as those of Orange County, Gibson Greetings, Metallgesellschaft, Procter & Gamble, and Barings Securities, provide more than sufficient motivation for a thriving risk-management industry. Current risk-management practices focus almost exclusively on the statistical aspects of risk. For example, one of the most popular riskmanagement

As the banking business grows more complex, government supervisors of banks seem increasingly willing to share the role of policing bank risk with private investors, especially bondholders. This paper investigates the disciplinary role of markets using bond spreads, ratings, and bank portfolio data on over 4,100 new bonds issued between 1993 and 1998, including almost 600 bond issues by banks and bank holding companies. We find that the bond spread/rating relationship is the same for the bank issues as for non-bank issues, especially among the investment grade issues. This suggests the bond market prices public measures of bank risk efficiently. Investors also look beyond the ratings, as spreads on the bank issues depend on the underlying portfolio of loans and other assets. Banks contemplating a shift into riskier activities like trading, for example, can expect to pay higher spreads as a result. That is market discipline. The market, however, appears relatively soft on bigger banks and less transparent banks, pointing to possible slippage in the disciplinary mechanism for banks either considered too big to fail or too hard to understand by the bond market.

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this paper is concerned only with the theory of development (as I have defined it) and specifically with the common elements in the theories of Hume and Steuart. I shall make no attempt to discuss their work in more general terms

This paper compares the dynamics of two general equilibrium models of endogenous growth in which agents have "comparison utility." In the "inward-looking " economy, individuals care about how their consumption in the current period compares to their own consumption in the past (one way to describe this is "habit-formation " in consumption). In the "outward-looking" economy, individuals care about how their own level of consumption compares with others' consumption. While steady state growth rates are identical in the two economies, transition paths differ. For example, consider the effect of negative shock to capital. In an endogenous growth model with standard preferences, there will be no e ect on the saving rate or the growth rate of output. In both of the models that we consider, however, saving and growth will temporarily fall in response to the shock. The initial decline in saving and growth will be larger in the inward-looking case. However, since agents in the outward-looking case do not take into account the externality effect of their consumption, higher growth in this case will lead to lower utility than in the inward-looking case.

A weakening dependence on rain-fed agriculture has been a hallmark of the economic transformation of countries throughout history. Rural citizens in developing countries today, however, remain highly exposed to fluctuations in the weather. This exposure affects the incomes these citizens earn and the prices of the foods they eat. Recent work has documented the significant mortality and morbidity stress that rural households face in times of adverse weather (Burgess, Deschenes, Donaldson, and Greenstone 2009, Kudamatsu, Persson, and Stromberg 2009, Yang and Maccini 2009). Famines – times of acutely low nominal agricultural income and acutely high food prices – are an extreme manifestation of this mapping from weather to death. Knowles (1924) describes these events as “agricultural lockouts ” where both food supplies and agricultural employment, on which the bulk of the rural population depends, plummet. The result is catastrophic with widespread hunger and loss of life. Though now confined to the world’s poorest countries food shortages and famines were features of most pre-industrial societies. Over time there has been intense debate over what role openness to trade in food might play in mitigating or exacerbating the mortality impacts of weather shocks. One group of thinkers dating back to at least Smith (1776) argues that: “...drought [in “rice countries”] is, perhaps, scarce ever so universal as necessarily to occasion a famine, if the government would allow a free trade. ” (IV.5.45). This school of thought sees greater openness to trade as a key means of protecting human life by reducing volatility in