In this paper, we examine the role of trade shocks in promoting the diffusion of elementary education in subnational units in Brazil during a period (1889-1930) in which they had relative financial autonomy to collect export taxes and spend on public goods. The argument is that trade shocks affect asymetrically the tax revenues of state governments and, thus, their expenditures on elementary education per capita according to what crop mix they had. We then show that states with more egalitarian and democratic institutions use positive trade shocks to invest in education, while the opposite takes place in states with less democratic institutions (e.g., in states that had more slaves). We also show using OLS and instrumental variables that positive trade shocks increased expenditures on education per capita and led to higher literacy rates and to more schools per children. The resulting distribution of human capital across states persists until today.
The motivation for this paper is to increase our understanding of the way in which inequality in educational outcomes and in the relation between measures of backgrounds is related to levels and dispersion of educational performance of young persons. The article thus sheds light on the international variation in the importance of socioeconomic status in affecting the quality of educational outcomes. This paper uses test scores on eighth-grade mathematics from the 1999 and 2007 waves of the Trends in International Mathematics and Science Study (TIMSS) to examine the magnitude and correlates of country differences in levels and dispersion in test scores. It relates test scores of students to measures of their background characteristics within each country and examines the link between the estimated association of characteristics with the country level and dispersion of test scores. The evidence shows the following: 1. Wide cross-country variation in the level and dispersion of test scores, with a virtuous equity-efficiency relation in which higher test scores are associated with lower inequality in scores across countries. 2. Substantial variation among countries in the importance of measures of family background in predicting the mathematics test scores of eighth-grade students. 3. Higher median test scores and lower variation in student test scores in countries in which family background as measured by the number of books in the home is strongly related to test scores than in countries where it is weakly related to test scores, but no such patterns when family background is measured by parents’ educational attainments.
This paper analyzes the effect of injunctions on royalty negotiations for standard essential patents. We develop a model in which courts grant injunctions only when they have sufficient evidence that the prospective licensee is unwilling, in line with the way we understand Courts to operate in Europe. In such a framework the prospective licensee has a powerful strategic tool: the offers that he makes to the patent holder will affect the royalty rate that the Court may adopt as well as the probability of being subject to injunctions (and the liability for litigation costs). We find that despite the availability of injunctions, the holder of a sufficiently weak patent will end up accepting below FRAND rates, in particular when litigation cost are high. We also find that the prospective licensee will sometimes prefer to litigate and the holder of a sufficiently strong patent will always end up in litigation by rejecting offers below FRAND. This arises in particular when the prospective licensee has little to fear from being found unwilling, namely when the trial takes time (so that the threat of injunctions is less powerful),and when litigation costs are low. Importantly, we thus find that hold up (royalties above the fair rate) as well as reverse hold up (royalties below the fair rate) may arise in equilibrium.
This paper uses the rules of engineering as a rhetorical device to discuss why the international financial architecture needs a structured mechanism for dealing with sovereign insolvency. The paper suggests that the most important problem with the status-quo relates to delayed defaults and sketches a proposal aimed at mitigating this problem.
This paper develops a simple model with credit rationing and endogenous default risk in which the expectation of a bailout may lead to a financial sector which is too large with respect to the the social optimum. The paper concludes with a short discussion of how this model could be used as a building block for models aimed at endogenizing the probability of a bailout, and discussing the relationship between the size of the financial sector and economic growth in the presence of default risk.
We examine the link between international aid, political instability and economic growth in autocratic countries. First, we discuss the manner in which externally provided liquidity can affect looting and instability in an autocratic country, through the generation of outside options for a dictator who has property rights over the resource wealth of the country. We then use a treatment-effects approach to analyze empirically the role of natural resource wealth and aid on instability and, in turn, on growth. We find that the interaction of natural resources with most forms of international aid results in increased political instability and reduced growth. Interestingly, some forms of government aid (principally humanitarian aid) do not have this effect. We explore the reasons behind the interaction between resources and specific flows of aid, and find that both flows of aid and the structure of those flows depend upon the presence of resource wealth. Specifically, we find that aid flows toward poor countries (in terms of resources, income and indebtedness), but that aid structured as loans is more likely to flow toward resource-rich countries. We conclude that aid can generally have the effect of inducing instability in resource-rich autocratic countries, and that this instability is the instrument through which growth is reduced.
This paper updates our previous work on the level and evolution of original sin. It shows that while the number of countries that issue local-currency debt in international markets has increased in the past decade, this improvement has been quite modest. Although we find that countries have been borrowing at home, thanks to deepening domestic markets, we document that foreign participation in these markets is more limited than what is usually assumed. The paper shows that the recent decline of currency mismatches and the consequent ability to conduct countercyclical macroeconomic policies is due to lower net debt (abstinence) and not to redemption from original sin. We conclude that original sin continues to make financial globalization unattractive and developing countries have opted for abstinence because foreign currency debt is too risky. The promised paradise of financial globalization will need to wait for redemption from original sin.
