Globalization

This chapter attempts to describe changes in economic theory over the last 50 years - both in the kinds of models used and in the factors that are identified as playing the key roles.

This century has been marked by two great economic experiments. The outcome of the first set, the socialist experiment that began, in its more extreme form, in the Soviet Union in 1917, is now clear. The second experiment is the movement back from a socialist economy to a market economy. Ten years after the beginning of the transition in Eastern Europe and the Former Soviet Union: How do we assess what has happened? What are the lessons to be learned?

In the immediate aftermath of the onset of the global financial crises, attention was focused on the weaknesses in the borrowing countries; the suggestion was that, by pursuing unsound policies and indulging in "crony capitalism" these countries had brought the ills upon themselves.

The author explains why he thinks the Global Development Network is so important and why it is that the World Bank has taken such an active role in acting as a catalytic agent in promoting it, and develops some of the underlying epistemology that lies behind the creation of this new institution.

We examine the ability of a dynamic asset-pricing model to explain the returns on G7-country stock market indices. We extend Campbell's (1996) asset-pricing model to investigate international equity returns. We also utilize and evaluate recent evidence on the predictability of stock returns. We find some evidence for the role of hedging demands in explaining stock returns and compare the predictions of the dynamic model to those from the static CAPM. Both models fail in their predictions of average returns on portfolios of high book-to-market stocks across countries.

In an environment in which bureaucratic burden and delay are exogenous, an individual firm may find bribes helpful to reduce the effective red tape it faces. The efficient grease' hypothesis asserts therefore that corruption can improve economic efficiency and that fighting bribery would be counter-productive. This need not be the case. In a general equilibrium in which regulatory burden and delay can be endogenously chosen by rent-seeking bureaucrats, the effective (not just nominal) red tape and bribery may be positively correlated across firms.

This chapter goes beyond the now well-documented failures of the Washington consensus to begin providing the foundations of an alternative paradigm, especially relevant to the least developing country.