Author: Admin
Russia: Increasing Concentration of the Economy and Low Investment
Author: Oleg Shibanov, New Economic School and Corporate University of Sberbank.
The Russian economy became more concentrated in 2014. The new RBC-500 rating shows that the 643 largest companies in Russia produce 77% of the country’s GDP. Moreover, 94% of the net profit of these companies was generated in the oil and gas sector. This is up from 71% in 2013. This increasing concentration appears unstable at times of huge external shocks on commodity prices.
Does Gender Matter for the Innovativeness of SMEs?
This policy brief summarizes the results of an on-going research project on the gender aspect of companies’ innovativeness in transition countries. The aim of this work is to examine whether there is a gender gap in innovative behavior within the sector of small and medium-sized enterprises (SMEs). The results suggest that the propensity to innovate is higher among companies with a presence of a female owner. This finding preserves for 5 measures of innovativeness. Thus, female involvement in business might be beneficial for the innovative sustainable development of economy.
The role of small and medium-sized enterprises (SMEs) has increased lately and they are considered one of the main engines of economic growth (Radas and Bosic, 2009). Research on transition economies and development has emphasized the need for strong a SME sector, since it often acts as the backbone of the economy (Lukasc, 2005) and is the largest contributor of employment (Omar et al., 2009). Another important channel through which the SME sector contributes to development is through their innovative activities. Sustainable economic development requires competitive and successful industries. Being innovative is one way to achieve this goal. However, the innovativeness of sectors and industries depends not only on the actions of the largest companies, but also on the SME sector and individual entrepreneurs. Indeed, the latter are often argued to be more dynamic and more ambitious (Chalmers, 1989; Li and Rama, 2015).
The decision to follow an innovative strategy often depends on the company’s leader, their experience and other managerial characteristics. However, the experience of the leader is not the only factor affecting managerial actions – gender also appears to matter (Daunfeldt and Rudholm, 2012). In the absence of clear answers and knowledge about female managerial characteristics, including their innovativeness (Alsos et al., 2013), it is difficult to evaluate their role in modernizing the business society and to distinguish their competitive advantages or disadvantages over male managers and business owners.
The role becomes even more ambiguous for the transition, post-communist economies. The labor market under USSR officially provided equal rights to women. However, in practice women were treated differently than men. While women often had to do the same work as men, the patriarchal society remained with men being regarded as the main decision makers, and women being fully responsible for housework and childcare. This can explain the low presence of women in top-managerial positions and women’s weaker business ties and networks (Welter et al., 2004).
The question of gender and innovation in entrepreneurship has recently starting to attract attention. Earlier, innovativeness was strongly connected and associated with high-tech companies. Thus, innovation research mostly focused on technology-based and capital-intensive industries (Dauzenberg, 2012; Marlow and McAdam, 2012). As a result, innovation behavior in less capital-intensive SMEs was almost entirely overlooked. This can also explain the lack of focus on gender, as men usually dominated the capital-intensive industries (Ljunggren et al., 2010). In an ongoing research project, I am trying to expand the understanding of gender differences in innovation and SME entrepreneurship with a focus on transition economies and the CIS block in particular.
The idea is to estimate owners’ and CEOs propensity to implement innovations in the organization. The specification of the model follows the literature and uses a probit technique that allows for an estimation of these propensities while taking into account other influencing factors and individual characteristics of firms, their owners and CEOs, which likely affect innovative decisions. The data I use come from the 5th wave of the Business Environment and Enterprise Performance Survey (BEEPS) conducted in 2012-2013. The final dataset covered 5254 SMEs from 30 European and East Asia countries.
The main variable of interest is the innovativeness of the enterprise, proxied by 5 different indicators. The measures of implemented innovative activities are: 1) whether the firms introduced a new product or service during the last 3 years; 2) whether there was any new production process implemented; 3) whether there were any spending on research and development; 4) whether were was an introduction of a new marketing strategy and method; and 5) whether an enterprise implemented new methods in operational management. The usage of 5 indicators instead of one allows me to see whether there is any specific feature of innovativeness that differs by gender.
The list of control variables covers information on the gender of the CEO and owners, number of years of experience of the CEO, age of the firm, type of ownership, focus on internal and external markets, as well as the usage of foreign technologies and certification. I also have information on the share of skilled labor force, the share of females in the organization, and whether the organization bears additional costs on external consulting services and training of employees. Information on industry, country, size of the organization and type of residence is also available.
Unfortunately, the data lacks information on the number of owners, which will prohibit me from estimating the clear gender effects and limits the analysis to the effect of gender diversity among owners.
The obtained results (see Table 1) show that having a female as the only, or one of the, owner(s) increases the propensity of going into uncertainty and implementation of a new good/service by 4.5% in the CIS region and 6.7% in the non-CIS block. However, the effect of having a female CEO is insignificant. This finding contradicts the literature on gender differences in the willingness to take on risk (Wagner, 2001; He et al., 2007; Eckel et al., 2008; Croson and Gneezy, 2009) that mostly demonstrates that women, on average, are more risk-averse than men.
A similar effect is observed for the implementation of a new business process or marketing strategy. The only insignificant difference is the spending on R&D in CIS countries and new managerial methods in non-CIS block. However, these measures of innovativeness raise doubts regarding its applicability for SME sector. A shift from high-intense productions towards services makes it less useful to spend enormous sums of money on technological research. Instead, other innovative actions like the development of human capital are of greater importance.
Table 1. Propensity to innovate
Source: Author’s own estimation.
Conclusion
The results show that having a female owner or gender diversity in the ownership structure positively affects the propensity of the organization to follow innovative behaviors and strategies. Therefore, promoting female entrepreneurship and gender equality in ownership seem positive for increasing the innovativeness of companies, and the economy in general, in both the CIS and non-CIS block.
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References
- Alsos, G.A., Hytti, U., and Ljunggren, E. 2013.Gender and Innovation: State of the Art and a Research Agenda.International Journal of Gender and Entrepreneurship, 5(3):236-256.
- Chalmers, N. 1989. Industrial Relations in Japan: The Peripheral Workforce. London: Routledge.
- Croson, R. and Gneezy, U. 2009. “Gender Differences in Preferences”.Journal of Economic Literature.Volume 47, #2.
- Daunfeldt, S., O., and Rudholm, N., (2012). Does gender diversity in the boardroom improve firm performance? Department of Economics, Dalarna University, SE-781 88 Borlänge, Sweden; and HUI Research, SE-103 29 Stockholm, Sweden.
- Dautzenberg, K. 2012. Gender differences of business owners in technology-based firms.International Journal of Gender & Entrepreneurship,4:79–98.
- Eckel, C. and Grossman, P. 2008. “Men, Women and Risk Aversion: Experimental Evidence”. Handbook of Experimental Economic Results.Elsevier.Volume 1, #7.
- He, X., Inman, J.J. and Mittal, V. (2007), “Gender jeopardy in financial risk taking”, Journal of Marketing Research, 44: 414-24.
- Li, Y., and Rama, M. 2015. Firm Dynamics, Productivity Growth, and Job Creation in Developing Countries: The Role of Micro- and Small Enterprises. The World Bank Research Observer, 30: 3-38.
- Ljundggren, E., Alsos, G.A., Amble, N., Ervik, R., Kvidal, T., Wiik, R. 2010. Gender and innovation: Learning from regional VRI projects. Nordland Research Institute, Norway.
- Lukacs, E. 2005. The economic role of SMEs in world economy, especially in Europe. European Integration Studies, 4(1): 3-12.
- McAdam, M. and Marlow, S. 2008.The Business Incubator and the Female High-Technology Entrepreneur: A Perfect Match? Paper presented at the 2008 International Council for Small Business World Confrence, recipient of the 2008 Best Paper Award for Women Entrepreneurship.
- Omar, S. S., Arokiasamy, L., & Ismail, M. 2009. The background and challenges faced by the small and medium enterprises. A human resources development perspectives. International Journal of Business and Management, 4(10): 95-102.
- Radas, S., and Božić, Lj. 2009.The Antecedents of SME Innovativeness in an Emerging Transition Economy. Technovation, 29: 438-450.
- Wagner, M.K. (2001), “Behavioral characteristics related to substance abuse and risk-taking, sensation-seeking, anxiety sensitivity and self-reinforcement”, Addictive Behaviors , Vol. 26, pp. 115-20.
- Welter, F., Smallbone, D., Isakova, N., Aculai, E. and Schakirova, N. 2004. Social Capital and Women Entrepreneurship in Fragile Environments: Does Networking Matter? Paper presented at Babson College-Kauffman Foundation Entrepreneurship Research Conference, University of Strathclyde.
Leniency, Asymmetric Punishment and Corruption: Evidence from China
Since coming into office two years ago, Chinese President Xi Jinping has carried out a sweeping, highly publicized anticorruption campaign. Skeptics are debating whether the campaign is biased towards Mr. Xi’s rivals, and even possibly related to the current economic slowdown. What is less debated is the next stage of Mr. Xi’s anti-corruption strategy, which is going to alter the legal statutes. Amendment IX, proposed in October 2014, includes heavier penalties, but two important tools in the fight of corruption – one-sided leniency and asymmetric punishment – became more limited and discretional. We argue that studying a 1997 reform and its effects can shed some light onto why the Chinese leadership seems dissatisfied with the current legislation and the likely effects of the proposed changes.
What We Know about Leniency
In our context, leniency can be defined as the concession of reduced sanctions (or full immunity) to wrongdoers that cooperate by self-reporting and providing information against former partners in crime. Formal and informal exchanges of leniency against information and collaboration are normal features of law enforcement in most countries. Policies of this kind have been extensively and quite successfully used to fight the Italian and American mafias, drug dealing and other organized crimes, and have become the main instrument to fight collusion in antitrust since the US reform in 1993 (see Spagnolo, 2008).
For crimes in which multiple offenders cooperate, one-sided leniency conditional on being the first to self-report can be a very powerful tool of law enforcement: by playing the partners in crime against each other, it may elicit information, greatly facilitate prosecution and generate deterrence at a very low cost. A conspicuous scientific literature with theoretical, experimental and empirical contributions shows the great potential of these policies, when properly designed and administered, for deterring collusive crimes (Miller 2009; Spagnolo 2008; Bigoni et al. 2012, 2015). On the other hand, Buccirossi and Spagnolo (2006) show specifically for the case of corruption that, when poorly designed or administered, these same policies may become ineffective or even counterproductive.
Asymmetric Punishment
A related way of using leniency towards one party (to play it against the other) in the fight against corruption has been at the center of a recent intense policy debate after the popular note “Why, for a Class of Bribes, the Act of Giving a Bribe Should Be Treated as Legal”, by Kaushik Basu (2011). Then chief economist of the Indian government and now of the World Bank, Basu advocated asymmetric depenalization of bribe giving, which can be thought of as a form of unconditional, one-sided leniency. More precisely, the note proposed to legalize bribe giving in the form of harassment bribes (also called extortionary, or discharge-of-duty bribes) paid to obtain something one is entitled to, while strengthening sanctions against bribe taking. As with other forms of leniency, the idea is to create a conflict of interests between the partners in crime by increasing the temptation for one party to betray and report the illegal act, leading to a severe punishment of the other.
In the debate sparked by this note many different arguments have been put forward, both against it and in favor of it. Dufwenberg and Spagnolo (2015) discuss formally some of the issues raised by critics of the proposal, while Abbink et al. (2014) provide (mixed) experimental evidence on its effectiveness. Later, a blogpost by a Chinese law scholar, Li (2012), attracted our attention to the case of China, where asymmetric punishment (bribe-giver impunity) has been in place since 1997. She argued, probably reflecting the political debate in the country rather than based on factual evidence, that the system had not been successful. We felt this claim granted a deeper investigation into the details of the Chinese legal reform and the changes it introduced, and of course a careful inspection of the data to back it.
A Study in Red
In a new working paper, Perrotta Berlin and Spagnolo (2015), we set out to understand the evolution of the anti-corruption legislation in China over the last decades, and then to evaluate the effects of the policy changes occurring in 1997. Two new elements were given the strongest legal status in 1997: leniency for wrongdoers that self-reported and cooperated with investigators, and asymmetric punishment (no charge for bribe givers) for bribes paid to obtain something one was entitled to. Concurrently, penalties were decreased, in particular for bribe-takers.
To understand the likely effects of this policy change we would ideally look at correspondent changes in corrupt transactions. Data on the prevalence of bribery, however, are notoriously hard to come by because of the secretive nature of this activity. Instead, we use several data sources which capture on the one hand actual corruption cases tried in courts, and on the other hand surveys of corruption perceptions. In particular, we have collected the number of arrests and public prosecutions on the counts of corruption and bribery from the Procuratorates’ Yearly Reports for each Chinese province since 1986.
It is not straightforward to infer changes in total corruption, which is unobserved, from changes in discovered cases tried in court. The data on prosecutions mix together corruption and anticorruption activities, as they fail to distinguish occurrence of the criminal activity from detection. A policy that deters crimes but at the same time increases the fraction of those that are successfully prosecuted will have an ambiguous effect on the number of prosecutions. We adapt for this purpose the testable predictions developed by Miller (2009): he models the occurrence of criminal activity (cartel formation, in this case) and derives predictions for how changes in the rate of occurrence and the rate of detection affect the time series of detection.
The preliminary evidence we have so far points to a substantial and stable reduction in the number of major corruption cases around the 1997 reform, a result consistent with a positive deterrence effect of the 1997 reform. The evidence is suggestive, and some alternative interpretations of the patterns in the data, shown in the plot below, cannot be excluded at the moment. While a peak-and-slump pattern as in Miller (2009) would have been much stronger evidence supporting the success of the reform at deterring corruption, we cannot exclude that the drop in prosecutions is simply due to a general worsening in detection. Although we deem this unlikely in the light of the general political climate of the time, we need more and better data to support our interpretation. Still, claims that the reform did not have an effect appear not supported by the data.
Figure 1. Change in Corruption Prosecutions before and after law reform in 1997
Source: Perrotta-Berlin and Spagnolo (2015).
More to be done
A case study analysis is under way to corroborate and help the interpretation of these preliminary findings. We will analyze in depth a stratified random sample of prosecution case files between 1980 and 2010. Given that we sample a given number of cases, in this part of the analysis we cannot gain any insight about the incidence of bribery in general. We can instead observe the impact of the legislative reform on specific details of the corrupt behavior, and the mechanisms through which this behavior occurs or is deterred. In particular, we will be able to distinguish between cases of extortionary (harassment) bribes and bribes paid to obtain illegitimate benefits. Moreover, this will allow us to shed light on whether and how leniency and asymmetric punishment were applied in practice. The details of the case files might even allow us to gain insight into how the bribe-size and the value of corrupt deals evolved through the reform and even the selection into bureaucracy.
Conclusion
One-sided leniency, conditional on reporting an act first, or unconditional, as when bribe giving is depenalized, may be powerful corruption deterrence instruments if well designed and implemented in the right environment, but may also have negative effects. It has been argued that these instruments have been ineffective in China, after they were reformed in 1997, however, without data supporting the claim. Part of the reason lies in the difficulty to obtain good data on corruption. Another obstacle is the subtlety of interpreting them when they relate only to detected and convicted cases, rather than to the whole population of corruption cases.
We cannot solve completely the issue of data quality, as we also need to rely on official reports of counts of corruption cases. However limited, the exercise performed on aggregated data clearly shows that the 1997 Criminal Law reform did have an effect, consistent with increased corruption deterrence. To further support this finding we will collect and analyze micro-data from a randomized sample of these cases. This will allow us to isolate at a higher level of detail the changes in criminal behavior, reporting behavior and prosecution activity, and link them to the details of the legal reform to highlight the mechanisms at work.
China is home to a sixth of humanity, and currently undergoing a massive crackdown on corruption. Whatever we can learn about the effectiveness of their past and present anti-corruption policies is likely to have considerable welfare effects. Moreover, the 1997 reform was the object of a policy debate, and comments on its effectiveness came without data to support them. We believe our effort to use data to shed light on what this reform actually changed will be a valuable input to further research and policy discussion on this important topic.
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References
- Abbink, K., U. Dasgupta, L. Gangadharan, and T. Jain. “Let-ting the Briber Go Free: An Experiment on MitigatingHarassment Bribes.” Journal of Public Economics, 111,2014, 17–28.
- Basu, K. “Why, for a Class of Bribes, the Act of Giv-ing a Bribe Should Be Treated as Legal.” WorkingPaper 172011 DEA, Ministry of Finance, Governmentof India, 2011
- Bigoni, M., S.-O. Fridolfsson, C. LeCoq, and G. Spagnolo.“Fines, Leniency and Rewards in Antitrust.” RANDJournal of Economics, 43, 2012a, 368–90.
- Bigoni, M., S.-O. Fridolfsson, C. LeCoq, and G. Spagnolo.. “Trust and Deterrence.”. Journal of Law, Economics, and Organization (2015)
- Buccirossi, P., and G. Spagnolo. “Leniency Policies and Ille-gal Transactions.” Journal of Public Economics, 90,2006, 1281–97.
- Buccirossi, P., Marvão, C. M. P., & Spagnolo, G. (2015). Leniency and Damages. Available at SSRN 2566774.
- Dufwenberg, M. and Spagnolo, G., Legalizing Bribe Giving (April 2015). Economic Inquiry, Vol. 53, Issue 2, pp. 836-853, 2015.
- Li, X. Guest post: bribery and the limits of game theory – the lessons from China. http://blogs.ft.com/beyond-brics/2012/05/01/guest-post-bribery-and-the-limits-of-game-theory-the-lessons-from-china/, 2012. Accessed: 2015-05-20.
- Miller, N. H. Strategic leniency and cartel enforcement. The American Economic Review, pages 750–768, 2009.
- Perrotta Berlin, M. and G. Spagnolo, Leniency, Asymmetric Punishment and Corruption: Evidence from China, SITE Working Paper, 2015 (forthcoming)
Finance for Sustainable Development
This policy brief covers a discussion on finance for sustainable development held during a full day conference at the Stockholm School of Economics on May 11, 2015. The event was organized jointly by the Stockholm Institute of Transition Economics (SITE) and the Swedish Ministry for Foreign Affairs, and was the fifth installment of Development Day – a yearly development policy conference. With the Millennium Development Goals (MDGs) expiring in 2015, the members of the United Nations are now in the process of defining a post-2015 development agenda. The Sustainable Development Goals (SDGs) build on the eight anti-poverty targets in the MDG but also include a renewed emphasis on environmental and social sustainability. Whatever targets or goals will be agreed upon in the end, we know for certain that reaching the objectives will require substantial financial resources, far beyond the current levels of official development assistance (ODA). To discuss this issue, the conference brought together a distinguished and experienced group of policy-oriented scholars and practitioners from government agencies, international organizations, civil society and the business community.
Urban Land Misallocation and Markets in Russian Cities
Authors: Paul Castañeda Dower, CEFIR and William Pyle, Middlebury College.
Former socialist countries inherited factory-dominated cityscapes since planners made industrial location decisions in relative ignorance of land’s opportunity costs. Drawing on unique survey evidence and policy variation across territorial units within Russia, this brief discusses the relationship between land tenure reforms and land reallocation. The evidence points to land privatization as an important factor in the reallocation of land in Russian cities.
Local Self-Governance in the Republic of Belarus
Author: Aleh Mazol, BEROC.
This policy brief summarizes the results of our research on the development of local self-governance in the Republic of Belarus. The aim of this study was to analyze the existing system of local self-governance in the Republic of Belarus and to suggest directions for its improvement. The results show that the development of local self-governance should be directed to the reduction of concentration of the administrative-territorial division, real empowerment of local Councils of Deputies, improvement of the mechanism of alignment and balancing of local budgets, as well as the development of a financial base of local financial management and intergovernmental relations.
Evaluating the Political Man on Horseback – Coups and Economic Development
In a new paper (Meyersson, 2015) I examine the development effects of military coups. Coups overthrowing democratically elected leaders imply a very different kind of event than those overthrowing autocratic leaders, and these differences relate to the implementation of authoritarian institutions following a coup in a democracy. Although coups taking place in already autocratic countries show imprecise and sometimes positive effects on economic growth, in democracies their effects are distinctly detrimental to growth. Moreover, when coups overthrow democratic leaders, they fail to promote economic reforms, stop the occurrence of economic crises and political instability, as well as have substantial negative effects across a number of standard growth-related outcomes including health, education, and investment.
Do military coups matter for economic development? After all, successful coups – i.e. where the military or state elites have unseated an incumbent leader – have occurred 232 times in 94 states since 1950 (see Figure 1). Moreover, around a quarter of these overthrew democratically elected governments (Powell and Thyne, 2012). The prevalence of military coups has not been lost on researchers, yet despite an abundance of research aiming to explain the occurrence of coups (see for example Acemoglu and Robinson, 2001; Collier and Hoeffler, 2006 & 2007; Leon, 2014; Svolik, 2012) much less research has focused on its economic effects (two exceptions are the papers on covert US operations during the Cold War by Dube, Kaplan, and Naidu, 2011 and Berger, Easterly, Nunn, and Satyanath, 2013). Olsen (1963), for example, claimed that coups “often bring no changes in policy.” Londregan and Poole (1990), in their panel-data analysis, find no effects of coups on income.
By now, there is mostly a consensus that significant military influence in politics is detrimental for democracy (Dahl, 1971; Huntington, 1965; Linz and Stepan, 1996). Nonetheless, military coups overthrowing democratically elected governments are often met with ambiguity. Western governments have a long history of tacit support for military coups overthrowing democratic governments, be it left-leaning governments in Latin America or Islamist governments in the Middle East and North Africa (Schmitz 2006). Commentators expressing support for coups often do so invoking extreme outcomes to represent the counterfactual to the military coup; if Pinochet had not overthrown President Allende, the latter would have created a Castro-style regime in Chile; if the Algerian army hadn’t annulled the elections in 1992, the Islamist FIS would have turned Algeria into an Islamist dictatorship in the Maghreb, and so on (Los Angeles Times 2006, Open Democracy 2013). Similarly, the fault for the coup and preceding problems fall invariably upon the ousted leader, with the coup constituting an unfortunate, but necessary, means to rid the country of an incompetent, if not dangerous, leader (Foreign Policy, 2013).
Other commentators have pointed out the risks of allowing a military to intervene and dictate post-coup institutions to their advantage; a “Faustian” bargain likely to bring regime stability but no solution to the real underlying problems behind the conflict in the first place. Yet others lament the human rights abuses following coups, and the inherent ineptitude of military leaders in running the economy (NYT, 2013; New Republic, 2013; Washington Post, 2013).
Figure 1. Successful and Failed Coup Attempts by Country and Year
Notes: The graph shows successful (solid circles) and failed coup attempts (hollow circles) by country and year, and aggregated by country (right graph) as well as by year (top graph). A circle in blue means the political regime was classified by Cheibub et al 2010 as a democracy in the year before the attempt and a red circle means they classified the regime as an autocracy.
Military coups tend to be endogenous events, and establishing a causal relation between coups and development is therefore a challenge. The unobservable likelihood of a coup – often referred to as coup risk (Collier and Hoeffler, 2006 & 2007; Londregan and Poole, 1990; Belkin and Schofer, 2003) – may be driven by many factors also affecting a country’s development potential, such as weak institutions, the military’s political power, social conflict, and economic crises etc.
In order to address this problem, I employ several empirical strategies including comparing successful versus failed coup attempts, matching methods, as well as panel data techniques, using a dataset of coup attempts during the post-World War II era. These methods facilitate, in different ways, comparisons of development consequences of coups in situations with arguably more similar degrees of coup risk.
Of significant importance is distinguishing coups when they occur in clearly autocratic settings from those where they overthrow democratically elected governments. I show that a military coup overthrowing a regime in a country like Chad may have very different consequences than a military leader overthrowing a democratically elected president in a country like Chile. In the former, a coup appears to constitute the manner in which autocracies change leaders. In the latter, coups typically imply deeper institutional changes with long-run development consequences.
I find that, conditional on a coup-attempt taking place, the effect of coup success depends on the pre-intervention level of democratic institutions. In countries that were more democratic, a successful coup lowered growth in income per capita by as much as 1-1.3 percent per year over a decade. In more autocratic countries, I find smaller and more imprecisely estimated positive effects. This effect is robust to splitting the sample by alternative institutional measures, as well as to a range of controls relating to factors such as leader characteristics, wars, coup history, and natural resources. As Figure 2 illustrates, the economic effect of coups tend to worsen over time. Extending the analysis to matching and panel-data methods reveal these results to be highly robust.
Figure 2. Relationship between a Successful Coup and Growth in GDP per capita
Notes: The three graphs represent the coefficient on a successful coups on growth in GDP per capita (PPP) between year t-1 and t+s with s given by the x-axis for all regimes(left), autocracies (middle), and democracies (right). Controls include period t-1 values of log GDP per capita, annual growth, log population, PolityIV index, annual change in the PolityIV index military expenditures as a share of GDP, annual change in military exp/GDP, military personnel as a share of population, years since the last coup, total number of previous coups, social unrest, leader tenure, as well as continent and year dummies respectively. See Meyersson (2015) for details.
A commonly held view is that coups overthrowing democratically elected leaders often provide an opportunity for engaging in unpopular but much needed economic reforms. Not only do I show that coups fail at this, but also that they tend to reverse important economic reforms, especially in the financial sector, while also leading to increased indebtedness and an overall deteriorating net external financial position, and an increased propensity to suffer severe economic crises. A documented reduction in social spending suggests a shift in economic priorities away from the masses to the benefit of political and economic elites.
Whereas coups occur mostly in dire situations, their prescriptions, as shown, rarely constitute adequate remedies to the underlying problems, as the institutional changes brought by these events show clear detrimental development consequences. Any short-lived benefit of regime stability a coup brings, comes at a steep economic, political, and human cost in the longer run.
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References
- Acemoglu, Daron and James A. Robinson, “A Theory of Political Transitions,” The American Economic Review, Vol. 91, No. 4 (Sep., 2001), pp. 938-963
- Berger, Daniel, William Easterly, Nathan Nunn, and Shanker Satyanath. 2013. ”Commercial Imperialism? Political Influence and Trade during the Cold War.” American Economic Review, 103(2): 863-96.
- Belkin, Aaron, and Evan Schofer, 2003,“Toward a Structural Understanding of Coup Risk”, Journal of Conflict Resolution, Vol. 47 No. 5, October 2003 594-620
- Cheibub, Jos ́e Antonio, Jennifer Gandhi, and James Raymond Vreeland, 2010, “Democracy and dictatorship revisited,” Public Choice (2010) 143: 67-101.
- Collier, Paul and Anke Hoeffler, 2006, “Grand Extortion: Coup Risk and the Military as a Protection Racket,” working paper
- Collier, Paul and Anke Hoeffler, 2007, “Military Spending and the Risks of Coups d’ ́etat,” working paper.
- Dahl, Robert A., Polyarchy: Participation and Opposition, Yale University Press 1971.
- Dube, Arindrajit, Ethan Kaplan, and Suresh Naidu, “Coups, Corporations, and Classified Infor- mation”, Quarterly Journal of Economics, Quarterly Journal of Economics, 2011 (Vol. 126, Issue 3)
- Foreign Policy, “Blame Morsy,” Michael Hanna, July 10 2013,
- Huntington, Samuel P., 1965, “Political Development and Political Decay,” World Politics, 386- 429
- Leon, Gabriel, 2014, “Loyalty for Sale? Military Spending and Coups d’Etat,” Public Choice 159, 363-383
- Linz, Juan, and Alfred Stepan, Problems of Democratic Transition and Consolidation: Southern Europe, South America, and Post-Communist Europe, Johns Hopkins University 1996
- Los Angeles Times, “Iraq needs a Pinochet”, Jonah Goldberg, December 14, 2006
- Londregan, John B and Kenneth T. Poole, “The Coup Trap, and the Seizure of Executive Power,” World Politics, Vol. 42, No. 2 (Jan., 1990), pp. 151-183
- Meyersson, Erik, 2015, Political Man on Horseback – Military Coups and Development, working paper, http://erikmeyersson.com/research/
- Olsen, Mancur, “Rapid Growth as a Destabilizing Force,” The Journal of Economic History, Vol. 23, No. 4 (Dec., 1963), pp. 529-552
- Open Democracy, February 11 2013, https://www.opendemocracy.net/arab-awakening/hicham-yezza/how-to-be-different-together-algerian-lessons-for-tunisian-crisis.
- Powell, Jonathan M, and Clayton L Thyne, 2012, “Global instances of coups from 1950 to 2010: A new dataset,” Journal of Peace Research 48(2) 249-259
- Schmitz, David F. “The United States and Right-Wing Dictatorships”, Cambridge University Press 2006
- Svolik, Milan W., The Politics of Authoritarian Rule, Cambridge University Press 2012.
- The New Republic, “Egypt Officially Declares What Is and Isn’t Important”, Nathan J. Brown, July 9 2013, http://www.newrepublic.com/article/113792/egypt-president-adli-mansour-makes-constitutional-declaration.
- The New York Times, “A Faustian Pact: Generals as Democrats”, Steven A. Cook, July 5, 2013
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Expected Effects of Tobacco Taxation in Five Countries of the Former Soviet Union
Authors: Irina Denisova and Polina Kuznetsova, CEFIR.
In this policy brief, we discuss the results from a study of different dimensions of tobacco taxation policy in five former Soviet Union countries: Belarus, Kazakhstan, Kyrgyz Republic, Russia and Ukraine. We find that the increase in budget revenue from raising excises on filter cigarettes is high in all studied countries. Furthermore, due to a low elasticity of the demand for cigarettes, the increase in excise taxes needs to be substantial to lead to a noticeable improvement in public health.
Non-Tariff Measures in the Context of Export Promotion Policies
This brief focuses on the role of non-tariff measures (NTMs) in international trade. While multilateral and bilateral trade negotiations have resulted in worldwide reductions in tariffs, we observe an increasing trend in the application of non-tariff measures. In this brief, we will discuss the evidence of the effect of such measures on exports. The brief also contributes to the discussion of export promotion policies: whether governments, especially in developing countries, should concentrate their efforts to remove only external barriers since there is empirical evidence that internal barriers are no less important for exports.
Economists, policy makers and international organizations are increasingly recognizing the importance of non-tariff measures (NTMs) as substantial impediments to international trade. A survey conducted by UNCTAD among exporters in several developing countries ranks SPS and TBT measures the top trade barriers with on average 73 percent of the respondents viewing them as the primary trade barrier (UNCTAD 2010). The World Bank published a book on NTBs where different authors contributed chapters addressing many aspects of the NTMs (World Bank, 2012). The World Trade Organization (WTO) itself devoted its entire 2012 World Trade Report to such measures with a particular focus on technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures. Availability of the new datasets on NTBs allowed researchers to study the effect of these measures on intensive (changes for existing exports) and extensive margins (changes due to entry and exit into exporting) of trade.
Even though trade theory does not specifically address the question of non-tariff barriers that include (but are not limited to) technical regulations, sanitary and phytosanitary measures, the logic of traditional models can easily be extended to these measures. In particular, they can be thought of as part of the fixed/additive costs for exporting firms as they impose compliance costs on exporters. These compliance costs are related to potential adjustments of production processes, and certification procedures needed to meet the requirements of countries imposing such regulations and standards (Schlueter et al., 2009). In a Melitz-type model, these costs are expected to have a negative impact on volumes of trade, number of exporters and number of goods exported. At the same time, average exports per firm may actually increase as the export market-shares are reallocated towards firms that are more efficient.
The existing empirical evidence of the impact of NTMs is mixed; researchers have found both positive and negative effects. The differences in results depend largely on the sector, country and type of NTM imposed. While the effect may overall be negative or null, for some sectors the effect is found to be positive (Moenius, 2004; Fontagné et al., 2005; Chen et al., 2006; Disdier et al., 2008; Medin and Melchior, 2015).
In a recent working paper, Besedina (2015) investigates the effect of introducing an NTM (either SPS or TBT) on export dynamics (in particular, exports concentration and entry and exit into exporting) using the World Bank Exporters database, with a special focus on trade in foodstuff. In particular, we examine how TBT and SPS measures affect export concentration and diversification (both at product and destination level) as well as entry and exit of firms into exporting. If introduction of an NTM increases costs of exporting, the ‘new’ trade theory started by Melitz (2003) predicts that some exporters will stop to export and thus the number of exported product varieties will fall as well (change in extensive margin).
The most important result from our analysis is that the introduction of a TBT or an SPS measure does not seem to affect sectoral export dynamics. Given the above discussion, this result may appear surprising at first. What can possibly explain this zero effect?
First, one may argue that the sector dynamic variables we use in our analysis may not capture changes in the behavior of economic agents (firms) well: while marginal firms may be affected by technical barriers and SPS, averaging across firms may actually conceal this. However, in our analysis we investigate exports at a relatively disaggregated level (4-digit product lines). So while averaging might be a concern, we believe it is not likely to be driving the zero effect.
Second, the concern is that the effect of introducing an NTM measure may not be felt immediately (within one year). In order to verify this, we include lagged trade-barrier variables two periods, but the results were unchanged. Third, it may be the case that it is the number of NTMs rather than the introduction of them that matters. In order to address this point, we performed the same type of analysis using the change in the number of measures introduced. The results were again not affected, and we still do not find any statistically significant relationship between NTMs and exports dynamics.
Despite the absence of an effect of NTMs, this paper reveals an important and policy-relevant finding: the home country’s business environment and institutional factors are important determinants of export performance. It is rather the monetary costs and more complicated exporting procedures imposed by the NTM measures that hamper product and market diversification of the country’s exporters. Hence, policy makers, especially in developing countries, should not only be concerned with removing external barriers to exports (like NTMs) but should also aim to reduce internal barriers and costs imposed on exporting firms by corrupt practices and burdensome regulatory procedures.
Another important dimension for domestic policies towards exporters stems from the work by Melchior (2015, forthcoming) who studies Norwegian exports to BRICS countries overtime and shows that export growth largely depends on the intensive margin (it explains 93 percent of the export growth). Using firm-level data for seafood exports, he finds that only 54% of “trades” – measured as firm/importing country/product combinations – survive from one year to the next. Hence, there is massive “churning” (entry and exit at the same time), and churning is relatively more important in small and in growing export markets. In other words, exporting companies constantly enter and exit foreign markets, add new products, or discontinue exporting some products. A policy implication from this finding is that export-promotion offices should help firms stay in export markets rather than focus on entering these markets. Hence, while it is important to enable domestic firms to enter foreign markets, it seems equally important to ensure their survival in foreign markets, which can be facilitated by a removal of both external and internal barriers.
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References
- Disdier, A-S, L. Fontagné and M. Mimouni (2008), “The Impact of Regulations on Agricultural Trade: Evidence from the SPS and TBT Agreements”, American Journal of Agricultural Economics 90(2): 336-350.
- Fontagné, L., F. von Kirchbach, and M. Mimouni (2005). “An Assessment of Environmentally-related Non-tariff Measures”, The World Economy 28(10): 1417-1439.
- Medin H. and A. Melchior (2015) ”Trade barriers or trade facilitators? On the heterogeneous impact of food standards in international trade”, NUPI mimeo
- Melchior (2015) ” Non-tariff barriers, firm heterogeneity and trade: A study of seafood exports, with a particular focus on BRICs”, NUPI mimeo
- Melitz, M. J. (2003), “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity,” Econometrica, 71(6): 1695–1725.
- Moenius, J. (2004), “Information versus Product Adaptation: The Role of Standards in Trade”, Working Paper, International Business & Markets Research Center, Northwestern University mimeo.
- UNCTAD (2010), Non-Tariff Measures: Evidence from Selected Developing Countries and Future Research Agenda (UNCTAD/DITC/TAB/2009/3). New York and Geneva.
- World Bank (2012), Non-Tariff Measures – A Fresh Look at Trade Policy’s New Frontier, ed. O. Cadot and M. Malouche, The World Bank, Washington D.C.
New Light on the Eastern Front – Contributions from Russia to the 70th Anniversary of the Victory in Europe in World War Two
Author: Lennart Samuelson, SITE.
Interesting results of the post-Soviet research on the Second World War are now presented in 12 imposing volumes, Velikaia Otechestvennaia Voina 1941 –1945 (Great Patriotic War 1941–45) written by specialists in military, political, international and economic history. Each chapter reflects the research frontier. Their style contrasts positively against Soviet works during the Cold War, and also against renewed anti-Russian historical campaigns in the West in recent years. Open archives, abolition of censorship, freedom of print as well as joint projects with Western scholars are the preconditions for progress in the historiography of Russia in the 20th century in general and of the Eastern Front during World War Two in particular.