Effects of Macroeconomic Uncertainty on Investment and Economic Growth: Evidence from Pakistan

The relationship between macroeconomic uncertainty, investment and economic growth is an empirical issue in developing countries. This paper investigates the effects of macroeconomic uncertainty on investment and economic growth in Pakistan for the period 1975–2008 by using the accelerator model of investment and endogenous growth model. The conditional variances, directly estimated through the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model is utilized for erecting the uncertainty variables related to fiscal policy, openness and foreign capital inflows. The results clearly indicate that the macroeconomic uncertainty have significant negative effects on investment and per capita income of Pakistan. We conclude that a reduction in macroeconomic uncertainty through appropriate fiscal and monetary policy, stability in capital inflows and improved trade performance could result in high investment and sustainable economic growth in the country.     

OLIGARCHIES AND DEVELOPMENT IN A GLOBAL ECONOMY: A TALE OF TWO ELITES

This paper studies how comparative advantage and the political elites' endowments shape long‐run performance in economies with imperfect political institutions. The trade regime interacts with industrial policy and regulations on capital mobility in governing capital accumulation. In a capital‐scarce economy, capitalist oligarchs striving for import substitution industrialization (ISI) initially shelter the economy from trade, while promoting industrial policies that promote total factor productivity growth in the manufacturing sector. This gradually shifts the comparative advantage toward manufacturing and renders the economy attractive to foreign investors. Allowing for trade and foreign capital inflows are thus complementary policies that spur growth in the capital oligarchy. By contrast, landed oligarchs in a capital‐scarce economy favor openness to trade at an early stage of development, neglect industrial policies, and block foreign capital to maximize extractable rents. The policy mix causes the economy to stagnate. Consistent with the experiences of South Korea and Argentina in the postwar era, the model predicts that the success of ISI policies depends crucially on the conditions governing the incentives for capital accumulation. (JEL F10, F20, P40, P50, O10, O24)     

Causes,Challenges and Prospects of Brain Drain: The Case of Eritrea

While there is little doubt that highly skilled workers in many Least Developed Countries (LDCs) are scarce, it is also true that many highly trained professionals have left LDCs to go and work in the developed world. The latter, known as the “brain drain,” or simply human capital flight, is not at all a new phenomenon; it has only become more pronounced in recent years. This paper delves into the causes, challenges, and prospects of the phenomenon of the “brain drain” in LDCs, by taking Eritrea as a case study. In so doing, it demonstrates that deteriorating economic conditions, lack of good governance and political instability are the root causes of the “brain drain” in LDCs such as Eritrea. The paper also highlights the impact of the “brain drain”, and suggests some of the measures that may be put in place by governments of LDCs in order to redress the situation.     

EXPORT INSTABILITY AND LONG-TERM CAPITAL FLOWS: RESPONSE TO ASSET RISK IN A SMALL ECONOMY

An open capital account allows long-term capital flows to automatically mitigate adverse effects of export instability on domestic saving and investment. An application of portfolio management theory shows that risks that are systematic to the domestic market are diversified internationally. This may help explain why foreign investment finances many high-risk investments in export sectors of LDCs and why results of studies of the effects of export instability show inconsistent results. This theory is presented and tested empirically.     

Structural Risks of Foreign Liabilities: Impact of Investment Income Repatriation in Emerging Economies

This paper explores the structure of foreign liabilities, the extent of capital repatriation in the form of investment income of foreign investors and its impact in emerging markets. The concept “coverage ratio of foreign investment” is introduced, which is defined as the share of total income repatriated by foreign investors in the respective cumulative inflows of the financial account. The impact of foreign investors’ returns onto external imbalances in emerging economies is studied empirically. The tendency of growing role of the investment income balance in the formation of the current account balance reveals new threats for the emerging economies.     

The Role of Migrant Remittances in Development: Evidence from Mediterranean Countries

Given the persistent problems in the balance of trade in LDCs, the limited effect of foreign aid, and the difficulties of borrowing, the often huge amounts of migrant remittances can substitute for the inadequacies of these forms of foreign exchange. As market flows of foreign exchange, remittances have complex positive and negative effects on development. In this paper, I deal with this role of migrant remittances in the theoretical framework of development economics, as related to the importance of foreign exchange as an indispensable factor of growth and structural change in LDCs. Various channels transmitting the impact of remittances on development are investigated based on the experience of countries from both sides of the Mediterranean basin.     

CAPITAL CONTROLS AND DEVIATIONS FROM PROPOSED INTEREST RATE PARITY; MEXICO 1982

An intervention analysis of the Mexican capital control policy of August 1982 shows the policy to have a negative, but temporary, impact on the Mexican deviation from interest rate parity. Previous studies concerning the impact of capital control inteventions have predicted positive effects of capital control policies. These stem from the effective tax capital controls place on foreign capital inflows. When capital controls are also designed to restrict domestic capital outflows, however, their net effect becomes an empirical, rather than theoretical, question.     

The world economic system and international migration in less developed countries: an ecological approach

This study examines net migration in less developed countries (LDCs) within the context of a world economic system and an urban ecological framework. Data are obtained from the "1987 World Development Report," the "1983 and 1987 World Bank Tables," and the 1984 UN Demographic Yearbook. It is posited that international migration is a direct response to the changes in the ecological subsystems in LDCs. The framework of this analysis relies on analyses by Sly and Tayman that found in multi-equation models that migration was a demographic response to environmental conditions created by organization and technology. The maximum likelihood estimates derived from the proposed structural model indicate that net capital flows positively influence net migration rate directly. Large transfers of capital were associated with net migration. It is suggested that a reduced percentage in the labor force in agriculture may have a greater impact on emigration than wages or social disadvantages. Gross national product had a smaller impact on migration than net capital outflows. Exports had a positive impact on net migration. There was a direct negative effect of value added to manufacturing on net migration, and the direct negative effect was greater than the positive indirect effect. The percentage of persons economically active had a positive impact on net migration. Increased economic activity was related to increased emigration. The evidence suggests that world economic systems did have an impact on emigration, when profits were not invested in domestic economies of LDCs. Findings suggest that the value added to manufacturing, the percentage engaged in agriculture, and the economically active population mediated the impact of trade on net migration.     

Main Determinants of Foreign Direct Investment in the Southeast European Countries

The growth of foreign direct investments (FDI) in the world has been significant in recent years. Between 1990 and 2000 worldwide FDI inflows increased more than five times, and since 2000 they have declined. During the period of FDI expansion, growth was especially strong from 1997 onward. However, most of the FDI transactions were between the developed countries. The distribution of FDI is unequal and less-developing countries face difficulties in attracting FDI. Despite the fact that FDI is increasingly important to developing countries, over the past few years the share of the developing countries in worldwide FDI inflows has been declining. The paper analyses geographical and sector distribution of FDI in the Southeast European countries (SEEC) and compares its amount with that in Central East European countries. According to economic theory, FDI towards developing countries flows for labor-intensive and low-technology production, while towards developed states, it flows for high-technology production. Identification of determining factors of FDI is a complex problem which depends on several characteristics specific for each country, sectors, and companies. All those factors could be grouped in three broad categories: economic policy of host country, economic performance, and attractiveness of national economy. On the desegregated level, FDI depends on size and growth potential of a national economy, natural resources endowments and quality of workforce, openness to international trade and access to international markets, and quality of physical, financial, and technological infrastructure. An important question is how SEEC can attract more foreign investment. To find the answer, this paper uses data on FDI inflows to SEEC to determine the main host country determinants of FDI and provides regression-based estimation of determinants of FDI. Using a sample of SEEC and panel data techniques, the determinants of FDI in this part of Europe are investigated. The paper researches the relationship between FDI, GDP, GDP per capita, number of inhabitants, trade openness, inflation, external debt, and information and communication technology sectors. For SEEC, FDI inflows are largely dependent on the completion of the privatization process and in this paper we include the level of private sector and privatization as explanatory variables. Our findings suggest that certain variables such as privatization and trade regime, as well as the density of infrastructure, appear to be robust under different specifications. A positive significance of the agglomeration factor is also observed, confirming the relevant theoretical propositions. However, certain differential variables, such as the privatization, could not be fully captured due to the statistical homogeneity of the sample.     

FOREIGN DIRECT INVESTMENT AND COUNTRY‐SPECIFIC HUMAN CAPITAL

This paper exploits an international bilateral data set over the period 1963–1998 to investigate the relationship between foreign direct investment (FDI) and foreign‐educated labor in an FDI host country. Workers educated abroad acquire country‐specific human capital that is more productive in the host country of study. A foreign subsidiary sharing a parent firm's technology will invest more if it has more foreign‐educated labor, since it can utilize this labor more productively because of the country‐specific human capital. Consistent with our predictions, our empirical findings show that foreign‐educated labor accounted for a sizable portion of growth in FDI flows. (JEL F21, F10)     

MAPPING CULTURAL/POLITICAL DEBATES IN LATIN AMERICAN STUDIES

The theorization of postmodernism as the cultural logic of late capitalism has generated a number of debates among Latinos in the US and among Latin American critics in particular. This article examines a number of writings published between 1989 and 1994 by Latin American critics focusing on the viability of seeing Latin America as postmodern. We argue that in the rush to accept First World theoretical frameworks, there has been much confusion and a collapsing of economic, political and cultural categories. Conflating market growth and shifts with social change and the availability of a plurality of consumer goods with the distribution of goods and services, some critics have been quick to label cultural production in Latin America as ‘postmodern’. What is needed is a delimitation of the categories used, an examination of the cultural debate in relation to other debates on development, social movements, democratization and alliance politics, as well as an examination of local intellectual debates within the global context of restructuring and transnational capital.     

What is Really Social Capital? A Critical Review

This paper provides a critical review of the burgeoning literature on social capital. While our focus is primarily on social capital’s place in economics, we do consider its broader social science context. In recent years, social capital literature has produced many insights, however, a number of conceptual and empirical problems remain. In this setting, we trace a panorama of ideas of the principal theorists of social capital for then focusing us on the numerous critics whose it is the subject. Finally we provide recommendations for a prudent use of the concept.     

Internal Migration Patterns of Foreign‐Born Immigrants in a Country of Recent Mass Immigration: Evidence from New Micro Data for Spain1

This paper extends the literature on the internal migration patterns of the foreign‐born by analyzing the situation in Spain, a country affected by recent but very significant migratory flows. We utilize a standard theoretical framework in order to assess the relative importance of human capital, economic, and social capital indicators. To this end, we take advantage of a new micro database, the National Immigrant Survey (Encuesta Nacional de Inmigrantes– ENI‐2007). Our findings suggest that the main theories explaining internal migration patterns of the foreign‐born are at least partly true. Evidence is presented in support of the importance of education and knowledge of the native language, income, and networks based on the sharing of social capital among family members, though less so for those based on friends and acquaintances. Spanish citizenship and employment status seem to be less important in explaining the propensity to move within the country. We argue that the lack of significance of some indicators is due mainly to the fact that Spain has become a major destination only very recently as well as to the way different immigrant groups tend to implement strategies for promotion and integration.     

From Boom to Bust: How Different Has Microfinance Been from Traditional Banking?

This article presents in‐depth analysis of developments in the microfinance sector before and after the collapse of Lehman Brothers in 2008, by comparing them with developments in the traditional banking sectors of emerging markets and developing countries. Its findings indicate that microfinance has been part of the same credit boom observed in the traditional banking sector, and that the boom was also fostered by substantial inflows of foreign capital. Further, that risks associated with credit booms in the traditional sector also evolved in the microfinance sector. The article comes to the conclusion that, by becoming part of the global financial system, microfinance has lost one of the characteristics distinguishing it from traditional banking, namely, its greater resilience to crises in domestic and global financial markets.     

Foreign Direct Investment in the Caribbean

This article addresses the question of whether the Caribbean is particularly attractive or unattractive to foreign investors, and if it has specific characteristics that attract or deter FDI. An econometric analysis of data from 135 countries for 1980‐2002 shows that the Caribbean does not suffer from low inflows of FDI; on the contrary, Caribbean countries receive more FDI than comparable countries in other regions. This reflects two contradictory effects. On the one hand, FDI inflows may be particularly sensitive to political instability in the region; on the other hand, the absence of regulation appears to have been a particularly beneficial factor in attracting FDI to the Caribbean.     

Impact of Political Risk and Uncertainty on FDI in South Asia

This study examines the potential effect of political risk and macroeconomic policy uncertainty on FDI in South Asia. To highlight the affect of political risk and macro policy uncertainty on FDI, we setup a theoretical framework based on oligopolistic and imperfect competition environment in host country. Autoregressive distributed lags (ARDL) is used to examine the impact of political risk and macro economic policy uncertainty index on FDI inflows. Macroeconomic policy uncertainty and political risk indices are constructed for this purpose. The long run results show negative affect of political risk and macroeconomic policy uncertainty indices on FDI inflows. Trade openness shows positive effect on FDI inflows only in short run while in long run it has negative impact on due lack of creditability regarding consistent trade liberalization policy and high trade cost. Furthermore, the market size significantly affects the inflow of FDI both in long run and short run which shows that FDI inflows in South Asia are mainly depend on market size. South Asian economies need to focus on political and macroeconomic factors along with FDI incentives policies to attract more FDI.     

What Drives Remittances from Saudi Arabia to Pakistan? Home Versus Host Country's Economic Conditions

Saudi Arabia is the largest source country of remittances to Pakistan since the 1970s. This study examined the impact of home versus host country’s economic conditions on remittances from Saudi Arabia to Pakistan. The ARDL bounds testing is used on the annual data set from 1973 to 2014. The study concluded that economic growth in the host country and economic crises in the home country increase remittances. 1% decrease in domestic output increases remittances by 2.79% while 1% increase in sending country’s output growth increases remittances by 5.2% in the long‐run. The bilateral trade has a positive while financial deepening has a negative impact on inflows. The impact of oil shock is insignificant. We suggest cautious foreign policy as remittances depend significantly on the host country’s economic condition that is not directly under the control of the home country but remittances can be sustained with bilateral trade.     

Gender Bias in Parental Investments in Children’s Education: A Theoretical Analysis

Human capital accumulation is one of the main engines of economic growth. Thus, many LDCs have introduced laws over the past 30 years for compulsory education and have increased their investment in public schooling. Nevertheless, the level of education in most poor countries is still very low, particularly for girls. The goal of this article is to develop a model of household decision-making in order to better understand what variables affect parents’ decision to educate girls less than boys. In the first part of the paper, a unitary model, a non-cooperative household model, and a bargaining model are developed and compared to explain factors that might produce gender bias in investment in education. As a result, the number of years of education for male and female children depends on the different costs and returns of educating girls and boys and, in the non-consensus models, on each parent’s preferences and decision power. The second part of the paper contains a simulation of the models assuming different policies for increasing women’s education using figures from the Living Standard Measurement Studies of Cote d’Ivoire.     

The Linkages Between FDI and Domestic Investment: Unravelling the Developmental Impact of Foreign Investment in Sub‐Saharan Africa

While the recent increase in foreign direct investment (FDI) to African countries is a welcome development, the impact of these resource inflows on economic development remains in doubt. This article argues that a key channel is its effects on domestic factor markets, especially domestic investment, and analyses the two‐way linkages between FDI and domestic investment in sub‐Saharan Africa. The results suggest, first, that FDI crowds in domestic investment and, secondly, that private investment is a driver of FDI, implying that African countries will gain much from improving the domestic climate. Moreover, there are alternatives to resource endowments as a means of attracting foreign investment to non‐resource‐rich countries.     

International Tax Competition: A Case for International Cooperation in Globalization

The liberalization of international financial flows and foreign direct investment has induced countries to use diverse measures to attract inflow of foreign capital and foreign direct investment, which is expected to have a positive effect on the growth of GDP and thus a positive effect on social welfare. Tax exemption, reduction of tax rate, tax holiday, or diverse subsidies are some of the most important measures used. In this paper we study international tax cooperation, i.e., countries change and especially reduce tax rate for corporate income or for asset revenues to attract inflow of foreign direct investment. Both theoretical and empirical studies have shown the sensibility of foreign direct investment decision with respect to tax rate differences between home countries and host countries. In general, more inflow of foreign direct investment can be expected if the tax rate of the home country is lower than that of foreign countries. This is the main reason for international tax cooperation. In this paper we propose a simple model to prove the sub-optimal Nash non cooperative solution in a two-country tax-competition game. The model shows that international tax cooperation can improve welfare of the participating countries. How to reach a cooperative solution for an international tax competition game (ITCG) is therefore an important issue for further discussions and studies. International institutions can play a crucial role to reach international tax cooperation or international tax harmonization.