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How is economic policy made? In this paper we study a key determinant of the answer to the question: lobbying by firms. Estimating a binary choice model of firm behavior, we find significant evidence for the idea that barriers to entry induce persistence in lobbying. The existence of these costs is further confirmed in studying how firms responded to a particular policy change: the expiration of legislation relating to the H-1B visa. Due to its influence on firm behavior, we argue that this persistence fundamentally changes the environment in which legislation is made.
Empirical evidence on the relationship between democracy and economic reforms is scarce, limited to few reforms and countries and for few years. This paper studies the impact of democracy on the adoption of economic reforms using a new dataset on reforms in the financial, capital, public, and banking sectors, product and labor markets, agriculture, and trade for 150 countries over the period 1960?2004. Democracy has a positive and significant impact on the adoption of economic reforms but there is no evidence that economic reforms foster democracy. Our results are robust to the inclusion of a large variety of controls and estimation strategies.
This paper surveys the evidence on the effectiveness of monetary transmission in developing countries. We summarize the arguments for expecting the bank lending channel to be the dominant means of monetary transmission in such countries, and present a simple model that suggests why this channel may be both weak and unreliable under the conditions that usually characterize those economies. Next, we review the empirical methodologies that have been employed in the recent literature to assess monetary policy effectiveness, both in developing countries as well as in industrial and emerging economies, essentially based on vector autoregressions (VARs). It is very hard to come away from this review of the evidence with much confidence in the strength of monetary transmission in developing countries. We distinguish between the "facts on the ground" and "methodological deficiencies" interpretations of the absence of evidence for strong monetary transmission. We suspect, however, that "facts on the ground" are indeed an important part of the story. The fact that a wide range of empirical approaches have failed to yield evidence of effective monetary transmission in developing countries, and that the strongest evidence for effective monetary transmission has arisen for relatively prosperous and more institutionally developed countries such as some central and Eastern European transition economies (at least in the later stages of their transition) and Tunisia, makes us doubt whether methodological shortcomings are the whole story. If this conjecture is correct, the stabilization challenge in developing countries is acute indeed, and identifying the means of enhancing the effectiveness of monetary policy in such countries is an important challenge.
This paper uses an empirical approach based on the "mandated wage equations" to examine the relationship between trade liberalization and urban manufacturing wages in India. The main result in the paper is that trade reforms have been associated with a rise in the relative wages of medium-skilled workers (defined as having completed secondary schooling). We do not find any evidence for trade reforms to be associated with an increase or decrease in wage inequality between low and high-skilled workers. The results are consistent with the predictions of the Stolper-Samuelson theorem.
The financial implications of the National Food Security Bill, which has now become law, are going to be huge. This analysis points out that one needs to take into account not only the cost of the food subsidy but also the costs of setting up or running new institutions and bureaucracies, and the costs that are likely to arise if there are political pressures to protect the existing beneficiaries. There are still more imponderables, and the final cost could add up to much more than what is now estimated.
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