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Decentralized Creditor-led Corporate Restructuring
Countries that have experienced banking crises have adopted one of two distinct approaches toward the resolution of nonperforming assets--a centralized or a decentralized solution. A centralized approach entails setting up a government agency--an asset management company--with the full responsibility for acquiring, restructuring, and selling of the assets. A decentralized approach relies on banks and other creditors to manage and resolve nonperforming assets. Dado and Klingebiel study banking crises where governments adopted a decentralized, creditor-led workout strategy following systemic crises. They use a case study approach and analyze seven banking crises in which governments mainly rel...
Macroeconomic Effects of Private Sector Participation in Latin America's Infrastructure
Abstract: Trujillo, Martín, Estache, and Campos provide empirical evidence on the impact that private participation in infrastructure has had on key macroeconomic variables in a sample of 21 Latin American countries from 1985-98. Specifically, they look at the effects on GDP per capita, current public expenditures, public investment, and private investment, controlling for country effects and institutional factors. The authors also investigate the relevance of the specific contractual form of private participation contracts on these variables and show differentiated effects according to contract types. The results suggest that: Private sector involvement in utilities and transport have some...
Between State and Market
IFC Discussion Paper No. 32. Over the years, demand for education at all levels in Kenya has greatly outpaced supply, a gap that has been reduced by private schools catering to the needs of a wide range of socioeconomic groups. This gap will widen further unless the private sectors role is expanded, but private educational institutions face a number of serious constraints, primarily stemming from lack of adequate finance and, in many cases, limited management skills. This paper reviews the market and its constraints and focuses on conditions under which private financial institutions and the International Finance Corporation might play a useful role in the sector. Annexes include 1996 operating costs of Kenya's academic, technical, and vocational schools.
Aid, Policy, and Growth in Post-conflict Societies
Countries emerging from civil war attract both aid and policy advice. This paper provides the first systematic empirical analysis of aid and policy reform in the post-conflict growth process. It is based on a comprehensive data set of large civil wars and covers 27 countries that were in their first decade of post-conflict economic recovery during the 1990s. The authors first investigate whether the absorptive capacity for aid is systematically different in post-conflict countries. They find that during the first three post-conflict years, absorptive capacity is no greater than normal, but that in the rest of the first decade it is approximately double its normal level. So ideally, aid shoul...
Financial globalization : unequal blessings
De la Torre, Levy Yeyati, and Schmukler present a framework to analyze financial globalization. They argue that financial globalization needs to take into account the relation between money (particularly in its role as store of value), asset and factor price flexibility, and contractual and regulatory institutions. Countries that have the "blessed trinity" (international currency, flexible exchange rate regime, and sound contractual and regulatory environment) can integrate successfully into the world financial markets. But developing countries normally display the "unblessed trinity" (weak currency, fear of floating, and weak institutional framework). The authors define and discuss two alternative avenues (a "dollar trinity" and a "peso trinity") for developing countries to safely embrace international financial integration while the blessed trinity remains beyond reach. This paper--a product of the Office of the Chief Economist, Latin America and the Caribbean Region, and the Investment Climate Team, Development Research Group--is part of a larger effort in the Bank to assess the implications of financial globalization for emerging economies.
Law and Finance
New research suggests that cross-country differences in legal origin help explain differences in financial development. This paper empirically assesses two theories of why legal origin influences financial development. First, the political' channel stresses that (i) legal traditions differ in the priority they give to the rights of individual investors vis- ...-vis the state and (ii) this has repercussions for the development of property rights and financial markets. Second, the adaptability' channel holds that (i) legal traditions differ in their ability to adjust to changing commercial circumstances and (ii) legal systems that adapt quickly to minimize the gap between the contracting needs of the economy and the legal system's capabilities will foster financial development more effectively than would more rigid legal traditions. We use historical comparisons and cross-country regressions to assess the validity of these two channels. We find that legal origin matters for financial development because legal traditions differ in their ability to adapt efficiently to evolving economic conditions.
Does Globalization Hurt the Poor?
Agenor attempts to examine analytically and empirically the extent to which globalization affects the poor in low- and middle-income countries. He begins with a description of various channels through which trade openness and financial integration may have an adverse effect on poverty. However, the author also stresses the possible nonlinearities involved-possibilities that have seldom been recognized in the ongoing debate. Agenor then presents cross-country regressions that relate measures of real and financial integration to poverty. The regressions control for changes in income per capita and output growth rates, as well as various other macroeconomic and structural variables, such as the...
Economic Development, Competition Policy, and the World Trade Organization
At the recent World Trade Organization (WTO) ministerial meeting in Doha, Qatar, WTO members called for the launch of negotiations on disciplines relating to competition based on explicit consensus on modalities to be agreed at the fifth WTO ministerial meeting in 2003. WTO discussions since 1997 have revealed little support for ambitious multilateral action. Proponents of the WTO antitrust disciplines currently propose an agreement that is limited to "core principles"-nondiscrimination, transparency, and provisions banning "hard core" cartels. The authors argue that an agreement along such lines will create compliance costs for developing countries without addressing the anticompetitive beh...
Financing Patterns Around the World
Using a firm-level survey database covering 48 countries, Beck, Demirgüç-Kunt, and Maksimovic investigate whether differences in financial and legal development affect the way firms finance their investments. The results indicate that external financing of investments is not a function of institutions, although the form of external finance is. The authors identify two explanations for this. First, legal and financial institutions affect different types of external finance in offsetting ways. Second, firm size is an important determinant of whether firms can have access to different types of external finance. Larger firms with financing needs are more likely to use external finance compared with small firms. The results also indicate that these firms are more likely to use external finance in more developed financial systems, particularly debt and equity finance. The authors also find evidence consistent with the pecking order theory in financially developed countries, particularly for large firms. This paper--a product of Finance, Development Research Group--is part of a larger effort in the group to understand firms' access to financial services.
The Impact of Cash Budgets on Poverty Reduction in Zambia
Abstract: Facing runaway inflation and budget discipline problems in the early 1990s, the Zambian government introduced the so-called cash budget in which government domestic spending is limited to domestic revenue, leaving no room for excess spending. Dinh, Adugna, and Myers review Zambia's experience during the past decade, focusing on the impact of the cash budget on poverty reduction. They conclude that after some initial success in reducing hyperinflation, the cash budget has largely failed to keep inflation at low levels, created a false sense of fiscal security, and distracted policymakers from addressing the fundamental issue of fiscal discipline. More important, it has had a deeply ...
