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Numerous papers have shown that developing economies are more volatile. We show that, despite greater aggregate and industry stability, performance and size of individual firms in developed countries are more volatile. In developing countries, market imperfections insulate incumbent firms from competition. Consistent with this, firms in developing countries have higher profit, higher market concentration, and less capital raising. Cross-country differences in operating risk and competition intensity are greater in industries that are dependent on external finance, where we expect higher impacts of capital-market imperfections. We show the inverse relation between aggregate and firm-level volatilities has important implications for international studies of cash holding. [ABSTRACT FROM AUTHOR]

For both developed and developing countries, manufacturing plays a crucial role in international competition. There is a growing consensus that 3D printing (3DP) technologies will revolutionise the development of global manufacturing. Although considerable research has previously been conducted to define the technological and economic benefits of 3DP on global manufacturing, minimal research has linked 3DP with Chinese manufacturing (CM). Therefore, to address this research gap and to investigate 3DP’s potential impact on alleviating CM’s development issues, this paper explores the definition, characteristics and mainstream technologies of 3DP, presents the current situation and the main problems of CM, and analyses the potential impact of 3DP on the development of CM. Then, this study introduces the current 3DP promotion and industrialisation situation in China as well as the issues with promoting 3DP in CM. [ABSTRACT FROM PUBLISHER]

We investigate the role of country characteristics on the competition-governance relation. We find that competition is associated with higher ratings in corporate governance, but only in developing countries. Further, corporate governance is associated with greater firm value, but only in less competitive industries from developed countries. For developing countries, the evidence suggests that corporate governance is valuable mostly in competitive industries. Additional tests show that corporate governance increases labor productivity and cost efficiency, mostly in less competitive industries in both developed and developing countries. Furthermore, in developing countries, corporate governance increases investment in capital, but primarily in competitive industries. [ABSTRACT FROM PUBLISHER]

International migration to developing countries has attracted increasing attention because of its growing volume in absolute terms and its potential contribution to development. However, conclusions about what is happening in these countries depend crucially on the way migration and development are measured and analysed. This article shows that whether migrant stocks appear to be increasing or decreasing in developing countries depends on three factors: whether a regional or an economic criterion of "development" is used, whether volume is expressed in absolute numbers or as a percentage of total population, and whether the data include refugees and asylum seekers. The policy implications of these findings, which – due to the shortcomings of available data – can only be regarded as provisional, are then discussed. Better quality migration data and analysis informed by the limitations of the data are needed to provide a sound evidence base for current debates about migration policy. [ABSTRACT FROM AUTHOR]

We examine the record of cross-country growth over the past fifty years and ask if developing countries have made progress on closing the income gap between their per capita incomes and those in the advanced economies. We conclude that, as a group, they have not and then survey the literature on absolute convergence with particular emphasis on that from the last decade or so. That literature supports our conclusion of a lack of progress in closing the income gap between countries. We close with a brief examination of the recent literature on cross-individual distribution of income, which finds that despite the lack of progress on cross country convergence, global inequality has tended to fall since 2000. (JEL E01, E13, O11, O47, F41, F62) [ABSTRACT FROM AUTHOR]

The side effects of the Global South's 1980s debt crisis on the Council of Mutual Economic Assistance (CMEA) member countries have received scant scholarly attention, even though the members were important trading partners for many developing countries. This paper focuses on the reaction of the East by looking at internal documents from CMEA meetings. It is argued that the crisis of the South aggravated the already pending crisis of the Eastern economies. The CMEA countries reacted by taking on more risks in doing business with the South and trying to secure the debt repayments by adopting Western financial practices. [ABSTRACT FROM AUTHOR]

The implementation of socially sustainable practices in suppliers situated in challenging institutional contexts is examined using institutional theory, both in terms of how institutional pressures affect implementation and what explains the decoupling of practices from the day-to-day reality. A multi-case study approach is employed based on seven apparel industry suppliers in Bangladesh. Cross-case analysis highlights the coercive, mimetic, and normative pressures on suppliers to implement socially sustainable practices. A key pressure identified that has not previously been highlighted in the literature is horizontal collaboration between buyers, which intensifies coercive pressure on suppliers and increases the consequences of non-compliance. The factors that contribute to decoupling are categorized into firm-, supply chain-, and environment-related factors. Further, six propositions are developed on how specific forms of institutional pressure can tackle particular decoupling factors to support implementation. The paper responds to recent calls for greater scrutiny of why and how firms decouple ethical practices and supports the development of the literature specifically on social sustainability, which lags behind that on environmental sustainability and has been largely focused on the Western buyer perspective. The findings have implications for the diffusion of ethical practices into supply chains, especially distant suppliers in very different and challenging institutional contexts. [ABSTRACT FROM AUTHOR]

The article discusses the neoconservative foreign policy and the New International Economic Order (NIEO) established in 1974 by the United Nations (UN) General Assembly. Topics explored include the reform of postwar economic order proposed by Third World representatives, the way neoconservatives acknowledged the revolutionary threat associated with NIEO with regard to the global power of the U.S., the conflict between then U.S. Ambassador to the UN Daniel Patrick Moynihan and U.S. State Secretary Henry Kissinger on NIEO policies, and the concerns raised by neoconservatives over U.S. foreign policies pertaining to the NIEO.

Donor agencies and foundations use grants to stimulate entrepreneurial growth in developing countries. However, some practitioners have asked whether these grants tend to flow to expatriate entrepreneurs with ties to developed countries (where most grants originate), rather than to local entrepreneurs. This article tackles this question using a data set of 3,434 nascent ventures from 92 developing countries. The authors find that ventures with ties to a developed country are significantly more likely to raise grant financing and in more substantial amounts. Ventures with a founder born in a developed country are the most likely to receive grants, with a weaker effect when considering prior work experience in a developed country. This "expat gap" cannot be explained by differences in education level, prior experience, or ties to other developing countries. Donors seeking to support local entrepreneurs in developing countries should consider ways to make their recruitment and selection processes more equitable. [ABSTRACT FROM AUTHOR]

This article examines the economic development of Turkey from a comparative global perspective. With the help of GDP per capita and other series, it shows that Turkey's record in economic growth and human development since 1820 has been close to world averages and a little above developing country averages. The early focus of the article is on the proximate causes—average rates of investment, below‐average rates of schooling, low rates of total productivity growth, and low technology content of production—which provide important insights into why GDP per capita increases were not any higher. For the deeper causes, the article emphasizes the role of institutions and institutional change. Turkey's formal economic institutions had been influenced by international rules since the nineteenth century, and these rules did not always support economic development. Turkey's elites also made extensive changes in formal political and economic institutions. Formal institutions were only part of the story, however. The direction of institutional change also depended on the political order and the degree of understanding between different groups and their elites. When the political system could not manage the recurring tensions and cleavages between the different elites, economic outcomes suffered. [ABSTRACT FROM AUTHOR]

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Remittances have become an important source of external finance in many developing countries. This article examines the relationship between remittances, institutions and economic growth in a panel of 26 African countries over the period 1980–2014. We apply the fixed effects (FE) and the two‐step system generalized method‐of‐moments (GMM) estimation methods. Our results show that there is a positive relationship between remittances and growth. We also find that institutions are an important determinant of economic growth. The interaction terms have a positive and statistically significant effect on economic growth. Thus, the growth effect of remittances is enhanced in the presence of strong institutions. Strong institutions are therefore germane in attracting greater remittance inflows to African countries. A clearer understanding of the channels through which remittance flows will enhance growth in African economies may assist policymakers to craft appropriate policies. In particular, a policy environment that promotes strong institutions would serve to attract more remittances. [ABSTRACT FROM AUTHOR]

• We scrutinize a global database of estimated returns to agricultural R&D investments. • Reported R&D returns differ substantially between developed and developing countries. There is widespread professional consensus that agricultural research and development (R&D) realizes high economic returns, though there are concerns as to whether the returns have been declining over the past few decades and are unevenly distributed among different regions in the world. This study examines both the time trend (i.e., increasing or decreasing) and regional developmental differences in the reported returns to agricultural R&D. Using a newly updated and expanded global database of estimated returns to agricultural R&D and a robust statistical methodology, we find that after accounting for methodological changes and other study attributes that have varied over time, the contemporary returns to agricultural R&D investments are as high as ever. We also conduct a Oaxaca decomposition to assess the relative importance of differences among countries in study attributes (e.g., what research was evaluated, by whom, and how) versus differences in how these attributes relate to the IRR (e.g., model parameter estimates). We find that the regional differences in study attributes tend to result in higher IRR estimates in developed countries, whereas developing versus developed country differences in the marginal effects of the attributes on the estimated IRRs tend to result in higher estimates in developing countries. [ABSTRACT FROM AUTHOR]

'Neighbourhood cooperation' can be viewed as a key element for livelihood improvement, particularly within areas of urban poverty in Least Developed Countries (LDCs). Such cooperation might be useful for mobilising resources and sharing risks of investing in infrastructures/services and maintaining common goods. This article explores the structural relationships between individual level cooperation and overall social capital, in relation to household and neighbourhood characteristics. These relationships are complex as various factors are interlinked, which influence cooperation at both individual and group levels. Literature on social capital has relied mainly on Western countries; from this starting point, this article analyses the relationships among aspects of social capital. Analytical models are based on Durlauf's approach of measuring 'social capital' and Manski's perspective on social interaction, which are tested on 1800 households' data across three locations in Bangladesh. The estimates reveal that individual level cooperation can be influenced directly by households' socio economic circumstances and indirectly through neighbourhood mediation, while questioning some theoretical generalisations about neighbourhood cooperation. The findings contribute to the literature on neighbourhood effects by revealing that: (a) the relationship between one's socio economic status and one's social capital is less clear than expected; and (b) extreme poverty and proximity of living in a neighbourhood can promote norms of trust and cooperation. [ABSTRACT FROM AUTHOR]

This article addresses three main issues: why there is such a huge diversity of disposable income inequality across the world, why there is such a deterioration of market inequality among countries of the Organization for Economic Cooperation and Development (OECD), and why inequality seems to move in 'waves'. There are many underlying questions: does diversity reflect a variety of fundamentals, or a multiplicity of power structures and choice? Is rising market inequality the product of somehow 'exogenous' factors (e.g., r>g), or of complex interactions between political settlements and market failures? How do we get through the veils obscuring these interactions and distorting our vision of the often self‐constructed nature of inequality? Has neoliberal globalization broadened the scope for 'distributional failures' by, for example, triggering a process of 'reverse catching‐up' in the OECD, so that highly unequal middle‐income countries like those in Latin America now embody the shape of things to come? Are we all converging towards features such as mobile élites creaming off the rewards of economic growth, and 'magic realist' politics that lack self‐respect if not originality? Should I say, 'Welcome to the Third World'? In this paper I also develop a new approach for examining and measuring inequality (distance from distributive targets), and a new concept of 'distributional waves'. The article concludes that, to understand current distributive dynamics, what matters is to comprehend the forces determining the share of the rich — and, in terms of growth, what they choose to do with it (and how they are allowed do it). [ABSTRACT FROM AUTHOR]

This article focuses on the nature of party systems to explain variations in foreign direct investment inflows within developing democracies. We hypothesize a positive relationship between the effective number of parliamentary parties and foreign direct investment inflows. Large effective number of parliamentary parties is indicative of the expropriation risks as well as stability of the political environment of host countries. We thus argue that expropriation risks are low when the presence of multiple parties makes drastic, impulsive changes in economic policies difficult. We also suggest that a larger number of parties represent diverse societal interests better, reducing the chances of underrepresented social groups driving political instability. The relationship between effective number of parliamentary party and foreign direct investment inflows is tested on a sample of 56 developing democracies from 1985 to 2011. The evidence presented lends strong support to the argument and is found robust to a number of alternative empirical scenarios. [ABSTRACT FROM AUTHOR]

This article investigates the drivers of investment growth in emerging market and developing economies with a focus on the most recent slowdown over the 2010-2015 period. Using panel regression techniques, we find that the recent investment slowdown in emerging market and developing economies is associated with a range of obstacles: weak economic activity, negative terms-of-trade shocks, declining foreign direct investment inflows, elevated private debt burdens, and heightened political risk. This stands in contrast with advanced economies, where weak economic activity is the most important factor. We briefly discuss policy implications of our findings. [ABSTRACT FROM AUTHOR]

This article seeks to identify and analyze the organizational determinants of women presence on Indian corporate boards. Using a sample set of 294 Indian firms between years 2004-2014, Tobit regression analysis indicates that firm size, family ownership and affiliation with the high-tech sector exhibit positive association with the number of female directors on corporate boards. Further, we do not find any significant impact of state-ownership on the number of women on those boards. Notably, the effects of the organizational variables are more pronounced for the proportion of female non-executive directors, as compared to female executive directors. We conclude that understanding the organizational characteristics in conjunction with business environment can provide useful insights into state of board gender diversity, particularly in developing countries. [ABSTRACT FROM AUTHOR]

Mobilizing sufficient domestic and external resources to finance development goals is an intimidating task globally, especially in conjunction with the shortfalls in traditional resources that are no longer enough to bridge the ongoing financing gap in emerging and developing countries. This fact explains the scaled up interest in innovative financing for development as a new pragmatic approach to meet the sustainable development plans. Financing for development and the optimal exploitation of financing resources in boosting economic growth became a priority for developed and developing nations. In this regard, this study aims at testing the efficient utilization and exploitation of finance resources in a small open economy - namely Lebanon, with particular focus on the effect of these resources on economic activity represented by the central bank of Lebanon Coincident Index. The study exploits monthly data covering the period January 2002-June 2017 for: banking sector credit to resident private sector, FDI, remittances, government credit transfers, trade, government tax revenues, government expenditures, and public debt, as explanatory variables. Using a Vector Autoregressive framework, the empirical results reveal that both bank credit to resident private sector and government tax collections lower economic growth, while FDI promotes this growth. On the other hand, remittance inflows, government credit current transfers, external trade, government expenditures, and public debt do not affect significantly economic performance. The feedback effect running from economic growth to the exploited independent variables shows the following: (1) economic growth boosts bank credit supply firstly, then lowers the demand for these credit; (2) a slowdown of economic activity may boost foreign direct investment as the costs of capital and labor decline; (3) an improvement in economic performance allows the government to collect more taxes, and rely less on (or maybe become less illegible for) foreign grants and donations; (4) an increase in national output results in a lower reliance on importation, resulting in a decline in external trade. [ABSTRACT FROM AUTHOR]

The flows of foreign direct investment (FDI) to developing economies have been considered important for sustainable growth as they enhance job creation and the transfer of technology and management expertise. As a result, the attention of scholars has been drawn to examining the relationship between FDI and growth resulting in several studies in this area. Notwithstanding, few studies have been carried out on the impact of FDI on real sector growth, particularly in the Nigerian economy. Hence, this study examines the effect of FDI on the real sector in Nigeria between the periods 1981-2016 using the impulse response function (IRF) and variance decomposition (VDC) of VAR. The study found that agricultural sector output responded positively to shocks in FDI inflows but it was statistically insignificant. The IRF also revealed that industrial sector output responded positively to shocks in FDI and it was statistically significant. This presupposes that the inflows of foreign direct investment have positive effects on the growth of the industrial sector in Nigeria. The VDC showed that FDI inflows exert influence on both the agricultural sector output and industrial output. However, FDI inflows influence the industrial sector output in a greater proportion than the agricultural sector. Using the VAR Granger causality, the study also found that while FDI inflows cause growth in industrial sector output, they, however, do not cause growth in agricultural sector output. The implication of the study is hinged on the fact that FDI inflows have not been driving the growth of the agricultural sector in Nigeria. This could be adduced to some structural bottlenecks besetting the growth and competitiveness of the sector, which have made the sector unattractive to foreign investors. The study, therefore, recommends that the government should greatly invest in rural infrastructure development that will encourage foreign investment. Also, the government should intensify research and development institutions in order to seek new knowledge and enhance innovation in the agricultural sector. [ABSTRACT FROM AUTHOR]

Income risks and expectation about future income play a fundamental role in the decision making of households. The analysis of income risk is particularly important for developing countries, where incomes are more volatile than developed countries, and credit and insurance markets are inadequately developed, limiting opportunities available to households to diversify their risks. When households have inadequate opportunities to diversify their risks, income risks may lead to relatively high fluctuations in consumption and thus greater levels of transient poverty. This may also lead to a poverty trap, as poor households may enter low-risk, low-return activities, and low-return and less capital-intensive activities. This paper analyses the pattern and determinants of (perceived) expected income and income risk in rural India. It uses unique primary survey data eliciting subjective income distribution from households in twelve villages in Bihar. The sample consists of 659 households with approximately 4,100 household members. The survey was designed to elicit the cumulative distribution function (cdf) of future household income. Using this information, it constructs household-specific subjective expected future income, its variance and coefficient of variation. It finds that both expected future income and income risks (variance and coefficient of variation) differ substantially across households. Both expected future income and its variance increase with current income, however, there is a significant negative association between the coefficient of variation of future income and current income, suggesting that low-income households face greater variability in their income. Upper caste households and households reliant on non-agricultural income have significantly higher expected future income and variance. To the extent income risks lead poor households to choose low income and low risk activities, public policies designed to reduce these risks, such as provision of insurance (e.g. rainfall insurance) and easier availability of consumer credit are likely to have a significant effect on poverty and inequality. Microfinance institutions and nongovernmental organizations can play an important role in the provision of insurance and labour market information. Public investment in irrigation, better weather information, and employment guarantee schemes, such as the National Rural Employment Guarantee Act, can reduce income and consumption risk. [ABSTRACT FROM AUTHOR]

While women's share of employment has risen in many countries over the last two decades, gender job segregation has worsened, with women increasingly excluded from 'good' jobs in the industrial sector. In this article, the determinants of gender job segregation are assessed using panel data for a broad set of developing countries covering the period 1991–2015. The effect of gender job segregation on all workers, via the labour share of income, is also analysed. The results identify two major contributors to gender job segregation — the rising capital/labour ratio and the ratio of female/male labour force participation rates — indicative of 'crowding' and exclusion as economies move up the industrial ladder. The analysis further indicates that the crowding of women into lower quality jobs has a negative effect on workers as a whole by dampening the labour share of income. Those processes are influenced by global and macroeconomic conditions and policies that have circumscribed the expansion of high‐quality jobs relative to labour supply, intensifying competition for 'good' jobs and weakening labour's bargaining power. [ABSTRACT FROM AUTHOR]

The Economic situation in most Third World countries since independence have not shown signs of improvement. The result is that those at the prime of their lives which would have stirred the economy to greater height are moving en masse out of the area in search of greener pastures elsewhere especially across the desert into Europe, a situation that has negatively affected her development over the years in these Third World Countries using Nigeria as example. The impact-effect as well as the how, why and when of this is what this paper intends to interrogate as it relates to the Nigerian situation as well as those of her neighbours especially in the last two centuries using the facts and lessons of history. Data obtained from primary and secondary sources (literature review and content analysis) were deployed to carry out the study with an analytical and narrative historical method. [ABSTRACT FROM AUTHOR]

The present study analyzes the impact of energy consumption and environmental degradation on economic growth in developing countries. Panel-ARDL Model is suitably proposed technique to estimate the long-run as well as short-run relationships due to mixed order of integration. The homogenous panel causality test is also used to find out the interrelationship among energy consumption and environmental degradation and macroeconomic variables. The results state that energy consumption has positive and statistically significant effect on growth in three panel LMICs, UMICs and in ASDCs except LICs where it has negative but insignificant effect on economic growth. The environmental degradation has negative and statistically significant influence on economic growth in all panels. Consequently the hypothesis of study that "economic growth improves with energy use and declines with environmental degradation" is fulfilled. The secondary objective of given study is to fulfill the hypothesis, 'the casual relationships exist between energy, environmental degradation and macroeconomic variables'' On the whole, the feedback hypothesis of study ''the casual relationships exist between energy, environmental degradation and macroeconomic variables'' is also fulfilled. [ABSTRACT FROM AUTHOR]

This paper studies the responsiveness of government expenditures to business cycles and introduces an index of asymmetric government expenditures using panel data for advanced and developing countries during the period 1981–2014. The empirical findings show that government expenditures tend to be procyclical in developing countries but acyclical in advanced economies. In addition, it is found that government expenditures respond in a countercyclical manner during bad times in advanced countries, but in a strongly procyclical manner during good times in developing countries. The index of asymmetric government expenditures for developing countries tends to be higher than that of the advanced countries. [ABSTRACT FROM AUTHOR]

The article explains the Bottom-of-the-Pyramid (BOP) business concept which was introduced by C. K. Prahalad and S. L. Hart. BOP contends that there is purchasing power and market opportunities in developing countries, that consumers are value-conscious and entrepreneurial, and that multinational business enterprises can help reduce poverty, as well as make significant profits from selling products to low-income consumers. The implementation of BOP strategies in Novozymes, a Danish biotechnology company, and the four organizational barriers that challenged the BOP project are discussed.

The article focuses on the outlook for capitalism in the 21st century and for prosperity in developing countries such as Brazil, Russia, India, and China which are referred to as the BRIC world. The influence of civil society, the not-for-profit sector, and non-governmental organizations on a country's transition from a state-controlled economy to a market economy is discussed, as well as the role of multinational business enterprises in the formation of civil-society institutions and on the stabilization of socioeconomic conditions in BRIC countries. The state's role in intervening and regulating its national economy in statist capitalism is also discussed.

Using a sample of 500 large companies over a two-year period, we examine the impact of board characteristics on opportunistic earnings management in India, a large emerging economy. In addition to board independence, we analyze how characteristics that proxy for the ''quality'' of inside and outside directors affect the role of boards in curbing earnings management. Our results indicate that it is not board independence per se, but rather board quality that is important for earnings management. We find that diligent boards are associated with lower earnings management, while boards that have directors with multiple appointments exhibit higher earnings management. With respect to inside directors, our results indicate that chief executive officer (CEO) duality and presence of controlling shareholders on the board increases earnings management. We also find that domestic institutional owners, one of our key control variables, act as a compensating control mechanism to mitigate the detrimental influence of controlling shareholders on earnings management. Our results complement the existing literature by analyzing the role of the board in reducing earnings management in emerging economies such as India, where the structures of business organizations are different from those in developed markets. [ABSTRACT FROM AUTHOR]

The article discusses the role of market-driven forces in the alleviation of poverty. The authors focus on strategic business models that encourage better distribution of resources to the urban poor in order to provide access to the open market. Details are provided regarding the global poor in developing countries and the challenges that face proper distribution, including inadequate civil infrastructure, illiteracy, and underdeveloped skills. The authors suggest strategies to improve distribution including the elimination of distributive costs, creating new routes through which resources are distributed, and increasing private sector investing. Also discussed is the example of the Imperial Tobacco Company (ITC) Ltd. in alleviating poverty through the trading of commodities.

The extensive literature on the employment impact of minimum wages has focused heavily on industrialized nations and very little on the developing world, despite the importance of minimum wages in many low-income countries. One such country, Indonesia, was the setting for an unusual quasi-natural experiment: not only did minimum wages in Indonesia increase sharply between 1990 and 1996, but the resultant increment in average wages varied markedly across different areas in Greater Jakarta. The authors use household-level labor market data to determine the extent of compliance with the legislation, then estimate the employment impact in the clothing, textiles, footwear, and leather industries based on a census of all large and medium-sized establishments. The evidence suggests that there was no negative employment impact for large establishments, either foreign or domestic, but that workers in smaller, domestic establishments may have suffered job losses as a result of minimum wage increases. [ABSTRACT FROM AUTHOR]

Increasing foreign participation and high concentration levels characterize the recent evolution of banking sectors' market structures in developing countries. We analyze the impact of these factors on Latin American bank spreads during the late 1990s. Our results suggest that foreign banks were able to charge lower spreads relative to domestic banks. This was more so for de novo foreign banks than for those that entered through acquisitions. The overall level of foreign bank participation seemed to influence spreads indirectly, primarily through its effect on administrative costs. Bank concentration was positively and directly related to both higher spreads and costs. [ABSTRACT FROM AUTHOR]

In countries with more secure property rights, firms might allocate resources better and consequentially grow faster as the returns on different types of assets are more protected against competitor's actions. Using data on sectoral value added for a large number of countries, we find evidence consistent with better property rights leading to higher growth through improved asset allocation. Quantitatively, the growth effect is as large as that of improved access to financing due to greater financial development. Our results are robust using various samples and specifications, including controlling for growth opportunities. [ABSTRACT FROM AUTHOR]

We propose that the limited financial development of emerging markets is a significant factor behind the large share of dollar-denominated external debt present in these markets. We show that when financial constraints affect borrowing and lending between domestic agents, agents undervalue insuring against an exchange rate depreciation. Since more of this insurance is present when external debt is denominated in domestic currency rather than in dollars, this result implies that domestic agents choose excessive dollar debt. We also show that limited financial development reduces the incentives for foreign lenders to enter emerging markets. The retarded entry reinforces the underinsurance problem. [ABSTRACT FROM AUTHOR]

The paper reviews the main challenges faced by policymakers in emerging market economies, EMs, in light of recent financial crises, and taking into account salient factors like the existence of partial dollarization, imperfect credibility, weak financial systems, and contagion. The standard theory of optimal currency areas is discussed and criticized for omitting the above factors. When these factors are taken into account, an extreme foreign exchange regime like dollarization is shown to become much more attractive. The paper discusses the pros and cons of dollarization and, among other things, shows that the lack of a lender of last resort is not necessarily a major drawback in EMs. The paper also discusses inflation targeting, IT. In a formal model, it is shown that IT could be subject to credibility problems similar to those found in exchange rate-based stabilization programs. [ABSTRACT FROM AUTHOR]