GEI Working Paper Abstracts

Working papers produced by the research projects in the Global Economic Institutions Programme have begun to appear. They are available for £4/$8 each from: Subscriptions Officer, Centre for Economic Policy Research, 90-98 Goswell Road, London EC1V 7RR, UK.

Papers: [1-5] | [6-10] | [11-15] | [16-20] | [21-25] | [26-30] | [31-35] | [36-45]

[46-47]

Working Paper No. 21
Competition Policy and Integration: Levelling or Tilting the Playing Field
Peter Holmes
November 1996

The EU is calling on the Central and East European countries (CEECs) to harmonize competition laws much more tightly than has been required for member states. The Europe Agreements indicated the general obligation and the recent White Paper spelt out the reasons in greater depth. The EU, despite asymmetrically abolishing conventional measures of protection, retains contingent protection on industrial goods. Some have argued that once the CEECs adopt competition rules akin to those in the EU, it will be possible to abolish all anti-dumping duties as the competition rules can then be used to deal with 'unfair competition'. This paper argues that the alignment of competition laws should be part of an accession strategy, and not a condition for free trade on industrial goods.

Working Paper No. 22
Is There Convergence in a Two-speed Europe? Evidence from the Labour Markets
Andrew Hughes Hallett and Maria Demertzis
January 1997

This paper examines whether Europe’s emerging ‘two-speed’ framework reflects genuine differences in market structures underpinned by relatively immobile labour, or whether it is really the result of poor economic management in the periphery. Using models of German leadership and of locational competition, we show that bargaining behaviour is the origin of the two-speed divide. The core enjoys German leadership and the periphery locational competition, and as a result convergence in competitiveness between the two was negative in the 1980s and painfully slow in the 1990s. Divergence is underpinned by strict inflation control in the leading economy, while price convergence causes increasing inequalities in the distribution of unemployment rates. That exposes a conflict between nominal convergence and real convergence, which is ultimately incompatible with further integration. Indeed, to prevent its competitive edge being eroded, the core may well prefer to preserve its two-speed regime.

Working Paper no. 23
IMF Conditionality as a Screening Device
Silvia Marchesi and Jonathan P Thomas
March 1997

A theoretical model is developed in which adoption of an IMF programme signals a country’s productivity. It is assumed that there are two types of country, one with a high return on investment and the other with a low return. thecountry’s type is known only to itself. In the prescence of debt overhang, the high productivity country may choose not to undertake the investment, despite it being socially efficient to do so. In this case the creditor would like to offer the country some debt reduction, but the low productivity type will also benefit from the debt reduction. This problem can be avoided if the country has sufficient resources to engage in a debt buyback in order to gain the debt relief: only the high productivity type would be prepared to sacrifice current resources for debt reduction, and thus separation of the types is achieved. This is similar to an argument found in Acharya and Diwan (1993). We argue, however, that it is unlikely that a heavily indebted country will have sufficient resources for a buyback. If the country is credit constrained, an alternative screening mechanism is to undertake an IMF programme in return for debt reduction and possibly an IMF loan. This mechanism can be the equilibrium outcome even if the programme creates only disutility for the country’s policy-makers.

Thomas is Professor and Marchesi is a PhD student in the Department of Economics, University of Warwick. Thomas is co-director of a GEIproject, with Marcus Miller, ‘A Bankruptcy Code for Sovereign Borrowers’. Contact: Department of Economics, University of Warwick, Coventry CV4 7AL, tel: (44 1203) 523054 / 528417, fax: (44 1203) 523032, email: j.p.thomas@warwick.ac.uk/ s.marchesi@warwick.ac.uk.

Working Paper no. 24
The Impact of IMF Programmes
Pinar Bagci and William Perraudin
March 1997

What impact do IMF programmes have on the output, inflation and current account of borrower countries? Answering the question is difficult because the decision to embark on a programme is endogenous and closely correlated with economic developments in the country concerned. This paper evaluates IMF policies explicitly allowing for such sample selectivity effects. Using a maximum likelihood estimator, allowing for selectivity effects, we find that IMF stabilization programmes result in an initial expansion in output. We also find that ignoring selectivity effects makes the impact of IMF programmes on growth and inflation appear worse.

Bagci and Perraudin are Professors of Economics at Birkbeck College, London. Bagci and Perraudin are co-directors of a GEI project, with Marcus Miller and Jonathan Thomas, ‘The Role of the IMF in the World Economy’. Contact:Department of Economics, Birkbeck College, 7–15 Greese Street, London W1P 2LL, UK, tel: (44 20) 7631 6400, fax: (44 20) 7335299, email: pbagci@econ.bbk.ac.uk / wperraudin@econ.bbk.ac.uk.

Working Paper No. 25
Delegation and Fiscal Policy in the Open Economy: More Bad News for Rogoff’s Delegation Game
Paul Levine and Joseph Pearlman
April 1997

This paper studies the open-economy delegation game taking into account both intra-country and inter-country interactions between fiscal authorities and central banks. With representative bankers, the Nash equilibrium of fiscal and monetary authorities independently responding to supply-side shocks sees insufficient monetary adjustment and an imbalance towards fiscal stabilization if shocks are sufficiently symmetric, the opposite occurring if shocks are sufficiently asymmetric. Appointing conservative bankers shifts the fiscal-monetary balance away from monetary towards fiscal policy. Unilateral delegation benefits that country; but when all countries independently delegate the outcome is only favourable if shocks are sufficiently asymmetric.

Levine is Professor of Economics at University of Surrey and Pealrman is Principal Lecturer in the Department of Economics at London Guildhall University. Contact: Department of Economics, London Guildhall University, 84 Moorgate, London EC3M 6SQ, UK, tel: (44 20) 7320 1486, fax: (44 20) 7320 1498, email: pearlman@lgu.ac.uk. Department of Economics, University of Surrey, Guildford, Surrey GU2 5XH, UK, tel: (44 1483) 259380, fax: (44 1483) 303775, email: p.levine@surrey.ac.uk.