Publications

We use a French firm-level panel data set over the period 1993-2004 to analyze the relationship between credit constraints and firms' R&D behavior over the business cycle. Our main results can be summarized as follows: (i) the share of R&D investment over total investment is countercyclical without credit constraints, but it becomes more procyclical as firms face tighter credit constraints; (ii) the result is magnified for firms in sectors that depend more heavily upon external finance; (iii) in more credit constrained firms, R&D investment share plummets during recessions but does not increase proportionally during upturns; (iv) average R&D investment and productivity growth are more negatively correlated with sales volatility in more credit constrained firms.

We use a French firm-level panel data set over the period 1993-2004 to analyze the relationship between credit constraints and firms' R&D behavior over the business cycle. Our main results can be summarized as follows: (i) the share of R&D investment over total investment is countercyclical without credit constraints, but it becomes more procyclical as firms face tighter credit constraints; (ii) the result is magnified for firms in sectors that depend more heavily upon external finance; (iii) in more credit constrained firms, R&D investment share plummets during recessions but does not increase proportionally during upturns; (iv) average R&D investment and productivity growth are more negatively correlated with sales volatility in more credit constrained firms.

We use a French firm-level panel data set over the period 1993-2004 to analyze the relationship between credit constraints and firms' R&D behavior over the business cycle. Our main results can be summarized as follows: (i) the share of R&D investment over total investment is countercyclical without credit constraints, but it becomes more procyclical as firms face tighter credit constraints; (ii) the result is magnified for firms in sectors that depend more heavily upon external finance; (iii) in more credit constrained firms, R&D investment share plummets during recessions but does not increase proportionally during upturns; (iv) average R&D investment and productivity growth are more negatively correlated with sales volatility in more credit constrained firms.

Advanced market economies are characterized by a continuous process of creative destruction. Market forces and technological developments play a major role in shaping this process, but institutional and policy settings also influence firms’ decision to enter, to expand if successful and to exit if competition becomes unbearable. In this paper, we focus on the effects of financial development on the entry of new firms and the expansion of successful new businesses. Drawing from harmonized firm-level data for 16 industrialized and emerging economies, we find that access to finance matters most for the entry of small firms and in sectors that are more dependent upon external finance. This finding is robust to controlling for other potential entry barriers (labor market regulations and entry regulations). On the other hand, financial development has either no effect or a negative effect on entry by large firms. Access to finance also helps new firms expand if successful. Both private credit and stock market capitalization are important for promoting entry and post entry growth of firms. Altogether, these results suggest that, despite significant progress over the past decade, many countries, including those in Continental Europe, should improve their financial markets so as to get the most out of creative destruction, by encouraging the entry of new (especially small) firms and the post-entry growth of successful young businesses.

Advanced market economies are characterized by a continuous process of creative destruction. Market forces and technological developments play a major role in shaping this process, but institutional and policy settings also influence firms’ decision to enter, to expand if successful and to exit if competition becomes unbearable. In this paper, we focus on the effects of financial development on the entry of new firms and the expansion of successful new businesses. Drawing from harmonized firm-level data for 16 industrialized and emerging economies, we find that access to finance matters most for the entry of small firms and in sectors that are more dependent upon external finance. This finding is robust to controlling for other potential entry barriers (labor market regulations and entry regulations). On the other hand, financial development has either no effect or a negative effect on entry by large firms. Access to finance also helps new firms expand if successful. Both private credit and stock market capitalization are important for promoting entry and post entry growth of firms. Altogether, these results suggest that, despite significant progress over the past decade, many countries, including those in Continental Europe, should improve their financial markets so as to get the most out of creative destruction, by encouraging the entry of new (especially small) firms and the post-entry growth of successful young businesses.

Advanced market economies are characterized by a continuous process of creative destruction. Market forces and technological developments play a major role in shaping this process, but institutional and policy settings also influence firms’ decision to enter, to expand if successful and to exit if competition becomes unbearable. In this paper, we focus on the effects of financial development on the entry of new firms and the expansion of successful new businesses. Drawing from harmonized firm-level data for 16 industrialized and emerging economies, we find that access to finance matters most for the entry of small firms and in sectors that are more dependent upon external finance. This finding is robust to controlling for other potential entry barriers (labor market regulations and entry regulations). On the other hand, financial development has either no effect or a negative effect on entry by large firms. Access to finance also helps new firms expand if successful. Both private credit and stock market capitalization are important for promoting entry and post entry growth of firms. Altogether, these results suggest that, despite significant progress over the past decade, many countries, including those in Continental Europe, should improve their financial markets so as to get the most out of creative destruction, by encouraging the entry of new (especially small) firms and the post-entry growth of successful young businesses.

This paper examines the relationship between culture and poverty, paying special attention to cultural diversity, economic development, and the challenges facing the reduction of poverty in a culturally complex world. Over the last several decades, anthropologists, sociologists, political scientists, and even economists have examined the relationship between culture and poverty in an international context, producing a remarkably diverse and in recent years increasingly sophisticated literature (Rao and Walton 2004). Yet the term “culture” has meant different things to different scholars, and part of our challenge is to assess those meanings against what we know about poverty and development. We cannot hope in these few pages to cover all this work, address all its complexities, or even summarize it faithfully. Instead, we cover a narrow but critical set of issues we find especially important for those attempting to reduce poverty or its consequences in the globalized world in which we live.

This paper examines the relationship between culture and poverty, paying special attention to cultural diversity, economic development, and the challenges facing the reduction of poverty in a culturally complex world. Over the last several decades, anthropologists, sociologists, political scientists, and even economists have examined the relationship between culture and poverty in an international context, producing a remarkably diverse and in recent years increasingly sophisticated literature (Rao and Walton 2004). Yet the term “culture” has meant different things to different scholars, and part of our challenge is to assess those meanings against what we know about poverty and development. We cannot hope in these few pages to cover all this work, address all its complexities, or even summarize it faithfully. Instead, we cover a narrow but critical set of issues we find especially important for those attempting to reduce poverty or its consequences in the globalized world in which we live.

A central assumption of open economy macro models with nominal rigidities relates to the currency in which goods are priced, whether there is so-called producer currency pricing or local currency pricing. This has important implications for exchange rate pass-through and optimal exchange rate policy. We show, using novel transaction level information on currency and prices for U.S. imports, that even conditional on a price change, there is a large difference in the pass-through of the average good priced in dollars (25%) versus non-dollars (95%). This finding is contrary to the assumption in a large class of models that the currency of pricing is exogenous and is evidence of an important selection effect that results from endogenous currency choice. We describe a model of optimal currency choice in an environment of staggered price setting and show that the empirical evidence strongly supports the model's predictions of the relation between currency choice and pass-through. We further document evidence of significant real rigidities, with the pass-through of dollar pricers increasing above 50% in the long-run. Lastly, we numerically illustrate the currency choice decision in both a Calvo and a menu-cost model with variable mark-ups and imported intermediate inputs and evaluate the ability of these models to match pass-through patterns documented in the data.

A central assumption of open economy macro models with nominal rigidities relates to the currency in which goods are priced, whether there is so-called producer currency pricing or local currency pricing. This has important implications for exchange rate pass-through and optimal exchange rate policy. We show, using novel transaction level information on currency and prices for U.S. imports, that even conditional on a price change, there is a large difference in the pass-through of the average good priced in dollars (25%) versus non-dollars (95%). This finding is contrary to the assumption in a large class of models that the currency of pricing is exogenous and is evidence of an important selection effect that results from endogenous currency choice. We describe a model of optimal currency choice in an environment of staggered price setting and show that the empirical evidence strongly supports the model's predictions of the relation between currency choice and pass-through. We further document evidence of significant real rigidities, with the pass-through of dollar pricers increasing above 50% in the long-run. Lastly, we numerically illustrate the currency choice decision in both a Calvo and a menu-cost model with variable mark-ups and imported intermediate inputs and evaluate the ability of these models to match pass-through patterns documented in the data.

A central assumption of open economy macro models with nominal rigidities relates to the currency in which goods are priced, whether there is so-called producer currency pricing or local currency pricing. This has important implications for exchange rate pass-through and optimal exchange rate policy. We show, using novel transaction level information on currency and prices for U.S. imports, that even conditional on a price change, there is a large difference in the pass-through of the average good priced in dollars (25%) versus non-dollars (95%). This finding is contrary to the assumption in a large class of models that the currency of pricing is exogenous and is evidence of an important selection effect that results from endogenous currency choice. We describe a model of optimal currency choice in an environment of staggered price setting and show that the empirical evidence strongly supports the model's predictions of the relation between currency choice and pass-through. We further document evidence of significant real rigidities, with the pass-through of dollar pricers increasing above 50% in the long-run. Lastly, we numerically illustrate the currency choice decision in both a Calvo and a menu-cost model with variable mark-ups and imported intermediate inputs and evaluate the ability of these models to match pass-through patterns documented in the data.

We explore the question of how political institutions and particularly democracy affect economic growth. Although empirical evidence of a positive effect of democracy on economic performance in the aggregate is weak, we provide evidence that democracy influences productivity growth in different sectors differently and that this differential effect may be one of the reasons of the ambiguity of the aggregate results. We provide evidence that political rights are conducive to growth in more advanced sectors of an economy, while they do not matter or have a negative effect on growth in sectors far away from the technological frontier. One channel of explanation goes through the beneficial effects of democracy and political rights on the freedom of entry in markets. Overall, democracies tend to have much lower entry barriers than autocracies, because political accountability reduces the protection of vested interests, and entry in turn is known to be generally more growth-enhancing in sectors that are closer to the technological frontier. We present empirical evidence that supports this entry explanation.

We explore the question of how political institutions and particularly democracy affect economic growth. Although empirical evidence of a positive effect of democracy on economic performance in the aggregate is weak, we provide evidence that democracy influences productivity growth in different sectors differently and that this differential effect may be one of the reasons of the ambiguity of the aggregate results. We provide evidence that political rights are conducive to growth in more advanced sectors of an economy, while they do not matter or have a negative effect on growth in sectors far away from the technological frontier. One channel of explanation goes through the beneficial effects of democracy and political rights on the freedom of entry in markets. Overall, democracies tend to have much lower entry barriers than autocracies, because political accountability reduces the protection of vested interests, and entry in turn is known to be generally more growth-enhancing in sectors that are closer to the technological frontier. We present empirical evidence that supports this entry explanation.

We explore the question of how political institutions and particularly democracy affect economic growth. Although empirical evidence of a positive effect of democracy on economic performance in the aggregate is weak, we provide evidence that democracy influences productivity growth in different sectors differently and that this differential effect may be one of the reasons of the ambiguity of the aggregate results. We provide evidence that political rights are conducive to growth in more advanced sectors of an economy, while they do not matter or have a negative effect on growth in sectors far away from the technological frontier. One channel of explanation goes through the beneficial effects of democracy and political rights on the freedom of entry in markets. Overall, democracies tend to have much lower entry barriers than autocracies, because political accountability reduces the protection of vested interests, and entry in turn is known to be generally more growth-enhancing in sectors that are closer to the technological frontier. We present empirical evidence that supports this entry explanation.

For two hundred years, social science has provided the lens through which people view society and the visions animating most demands for political reform – at least since Adam Smith’s efforts to unleash the ‘invisible hand’ of the market without destroying the moral sentiments of society.1 However, the perspectives of social science shift, as each new generation questions its predecessors, with import for politics as well as the academy. From time to time, therefore, we should reflect on them. In this essay I do so from the perspective of political science, mainly about American scholarship and with no pretense to comprehensiveness, but with a focus on the disciplinary intersections where so many have found Archimedean points. Intellectual developments in any one field are often ‘progressive’ in the scientific sense of that term.2 But something can be lost as well as gained in the course of them, and there is reason for concern about the fate of social science over the past twenty-five years. What has been lost becomes clear only if we revisit the path taken.

Why do advanced democracies cluster into some that are highly inegalitarian and redistribute very little and others that are highly egalitarian and redistribute a great deal? Related, why do some economies rely a great deal on free market exchange while others are permeated by a dense network of non-market regulations and organizations? As Korpi reminds us in a recent World Politics article (Korpi 2006), explaining this diversity, and its persistence, is a main task for anyone interested in understanding the workings of modern capitalism.

Why do advanced democracies cluster into some that are highly inegalitarian and redistribute very little and others that are highly egalitarian and redistribute a great deal? Related, why do some economies rely a great deal on free market exchange while others are permeated by a dense network of non-market regulations and organizations? As Korpi reminds us in a recent World Politics article (Korpi 2006), explaining this diversity, and its persistence, is a main task for anyone interested in understanding the workings of modern capitalism.

It is tempting, but wrong, to infer from the failures of the EU draft constitution that all reforms based on increasing citizen participation in the European Union are doomed to fail. Andrew Moravcsik’s trenchant dismissal of the constitutional project commits this error. Moravcsik’s sweeping claims, based on what he calls empirical social science, speak well beyond the evidence on democratic institutional innovations. Participatory measures such as consultative Citizens’ Assemblies may articulate a citizens’ perspective that can help to anchor the democratic legitimacy of the EU. We do not know if such innovations can resolve the problems of the democratic deficit, but we do know that empirical social science has not spoken decisively on the issue. It is worth examining their democratic potential rather than dismissing them outright.

It is tempting, but wrong, to infer from the failures of the EU draft constitution that all reforms based on increasing citizen participation in the European Union are doomed to fail. Andrew Moravcsik’s trenchant dismissal of the constitutional project commits this error. Moravcsik’s sweeping claims, based on what he calls empirical social science, speak well beyond the evidence on democratic institutional innovations. Participatory measures such as consultative Citizens’ Assemblies may articulate a citizens’ perspective that can help to anchor the democratic legitimacy of the EU. We do not know if such innovations can resolve the problems of the democratic deficit, but we do know that empirical social science has not spoken decisively on the issue. It is worth examining their democratic potential rather than dismissing them outright.

The standard explanation for the choice of electoral institutions, building on Rokkan’s seminal work, is that proportional representation (PR) was adopted by a divided right to defend its class interests against a rising left. But new evidence shows that PR strengthens the left and redistribution, and we argue the standard view is wrong historically, analytically, and empirically. We offer a radically different explanation. Integrating two opposed interpretations of PR—minimum winning coalitions versus consensus—we propose that the right adopted PR when their support for consensual regulatory frameworks, especially those of labor markets and skill formation where co-specific investments were important, outweighed their opposition to the redistributive consequences; this occurred in countries with previously densely organized local economies. In countries with adversarial industrial relations, and weak coordination of business and unions, keeping majoritarian institutions helped contain the left. This explains the close association between current varieties of capitalism and electoral institutions, and why they persist over time.