Assessing the Allocation of Aid
Developmental Concerns and the Self-Interest of Donors
Gustavo Canavire, Peter Nunnenkamp,
Rainer Thiele and Luis Triveño

In this article, we perform a Tobit analysis of aid allocations, covering the period 1999-2002 and account for both altruistic and selfish donor motives. We first compare the allocative behaviour of all bilateral donors taken together with that of multilateral aid agencies, and then look at nine major bilateral donors individually. It turns out that poorer countries get clearly more aid from both bilateral and multilateral donors, with the possible exception of France and Japan. Most bilateral donors and the multilateral agencies are also found to direct significantly more aid to well-governed recipients if governance is measured by the World Bank’s CPIA (Country Policy and Institutional Assessment). If the CPIA is replaced by the Kaufmann index, however, the policy orientation of aid becomes extremely weak. In contrast to a recent paper by Dollar and Levin (2004), our estimates do neither suggest that multilateral aid is more poverty and policy oriented than bilateral aid, nor that IDA performs particularly well within the group of multilateral donors. Post-conflict resolution, the third altruistic motive considered in the article, emerges as a significant determinant of aid allocations in 2002. The importance of selfish aid motives clearly differs between bilateral and multilateral donors. We find no evidence that donor countries were able to push through their individual trade and political interests at the multilateral level. By contrast, the export-related selfinterest of DAC countries provided a fairly strong incentive to grant bilateral aid, as did colonial ties.

Gustavo Canavire, Georgia State University, USA. Email: gcanavire@gmail.com
Peter Nunnenkamp is Professor, Kiel Institute for World Economics, Kiel, Germany. Email: peter.nunnenkamp@ifw.uni-kiel.de 
Rainer Thiele, Kiel Institute for the World Economy, Kiel, Germany.
Email: rainer.thiele@ifw-kiel.de 
Luis Triveno, Institute for Liberty and Democracy, Lima. Email: LTriveno@ild.org.pe 
 

Growing Regional Disparities in Development in India
Post-Reform Experience and Challenges Ahead
C.H. Hanumantha Rao

The interstate disparities in the gross state domestic product, (GSDP) have been increasing, in particular, in the post-economic reform period. These disparities have been largely contributed by the large variabilities in the contributions made by the secondary and tertiary sectors. For reducing interstate disparities, there is an urgent need for enhancing the levels of public investment for improving the social and economic infrastructure in the backward regions. There is also the urgency of speeding up social transformation through the empowerment of the common people and adoption of measures for good governance. Both the Finance Commission and the Planning Commission have the responsibility of rising to the challenges of increasing disparities and adopting suitable corrective measures.

The author is Chairman, Centre for Economic and Social Studies, Hyderabad.
Email: cesshyd@hd1.vsnl.net.in 
 

Patent Systems as Regulatory Institutions
Graham Dutfield

National patent systems and the international patent rules have evolved in ways that favour transnational corporations and other firms that claim to need patents in order to innovate. The possibility that at least some of the rule changes have been made at the expense of less powerful actors including consumers and developing countries makes it timely to ask such questions as: Why were the changes made in the first place? Why have most attempts to reverse them failed? Has the patent system always been vulnerable to regulatory capture? And is it necessarily the case that if there are winners there must always be losers? This article adopts a case study approach to argue that the search for plausible answers should begin by treating patent systems for analytical purposes as economic institutions whose evolution cannot in most cases adequately be explained in terms of the objective, well-informed and public spirited calculus of judges and policy makers. In doing so, it also suggests that the patent system itself has been fundamentally shaped from a very early stage by interest group pressure. On the other hand, such interest group pressure may not be decisive in determining outcomes, and may not even be present in all cases. Indeed, even in the apparent absence of commercial interest group pressure, institutionalism can probably explain most if not all of the reforms made. Finally, while a reform may substantially benefit one interest group and have considerable implications for the interests of many other people, patent regulation should not be perceived as a zero-sum game.

The author is Professor, Queen Mary, University of London, Centre for Commercial Law Studies, London. Email: g.m.dutfield@qmul.ac.uk 
 

Changing Competitiveness of Japanese Firms
and Role of Japan’s FDI
Shigeki Tejima

The origin of Japanese firms’ international competitiveness is in the system of minimising ‘the sum of production costs and transaction costs’ in the procurements of ‘specialty’ parts. Japan’s location advantages are indispensable factors for Japanese firms to achieve the cost minimisation. Furthermore, existence of global demand for ‘specialty’ products has strongly supported the ownership advantages of Japanese automobile industry. However, recent ‘ICT revolution’ has caused accelerated ‘commoditisation’ of ‘specialty’ products, especially, in ICT and electronics industries. This ‘commoditisation’ undermined Japanese firms’ competitiveness in ICT and electronics industries. Japanese firms in the industries have to concentrate more on development of new products, instead of effective production. The Japanese electronics and ICT firms are facing several dilemmas, which need to be resolved.

The author is Professor, Nishogakusha University, Tokyo, Japan.
Email: s-tejima@nishogakusha-u.ac.jp 
 

Financial Liberalisation: Implications for
Sustainable and Equitable Growth
D.M. Nachane

The generic term ‘financial liberalisation’ may refer to liberalisation of cross border flow of funds, financial deregulation and financial innovation. This article focuses on domestic
liberalisation and critically examines the implications of the so-called McKinnon-Shaw thesis (M-S Thesis). It is recognised that financial liberalisation process has undoubtedly conferred many tangible advantages on the economy. However, it is argued that there is need for adopting a cautious approach to the pace and sequencing of reforms by taking note of the possible negative features, which, if ignored, could pose serious instability issues before the nation.

The author is Senior Professor, Indira Gandhi Institute of Development (IGIDR), Mumbai. Email: nachane@igidr.ac.in 
 

Infrastructure Availability, Foreign
Direct Investment Inflows and Their
Export-Orientation: A Cross-Country Exploration
Nagesh Kumar

This article analyses the role of infrastructure availability in determining the attractiveness of countries for FDI inflows and for export-orientation of MNE production. We posit that investments by governments in providing efficient physical infrastructural facilities improve the investment climate for FDI. MNEs may be particularly sensitive to infrastructure availability for locating their investments designed to feed the global, regional or home country markets. First, a single composite index of infrastructure availability is constructed capturing availability of transport infrastructure, telecommunications infrastructure, information infrastructure, energy availability for 66 countries over the 1982-1994 period, using the principal component analysis. The role of infrastructure index in explaining the attractiveness for foreign production by MNEs is evaluated in the framework of an extended model of foreign production. The estimations corroborate that infrastructure availability does contribute to the relative attractiveness of a country towards FDI by MNEs, holding other factors constant. Furthermore, the export-orientation of production of MNE affiliates, especially when the production is meant for third country markets, is significantly related to infrastructure availability. Therefore, MNEs’ decision making pertaining to location of product mandates for global or regional markets sourcing is significantly influenced from infrastructure availability considerations. These findings suggest that infrastructure development should become an
integral part of the strategy to attract FDI inflows in general, and export-oriented production from MNEs in particular.

The author is Director General, Research and Information System for Developing Countries (RIS), New Delhi. E-mail: nkumar@ris.org.in 
 

Cost Efficiency and Commercial Bank Lending:
Some Empirical Results
Biswajit Chatterjee and Ram Pratap Sinha

The lending environment in the Indian commercial banking industry changed considerably in the reform years following widening of priority sector definition, dismantling of Credit Authorisation Scheme and introduction of risk-based supervision. In this context, the present article attempts to compare the performances of commercial banks in the reform period in respect of lending (in a cost minimisation framework) making use of Data Envelopment Analysis-a non-parametric method which is quite suitable for making inter-(productive) unit comparison. The results of the cost minimising DEA show that mean cost efficiency of the observed commercial banks declined in 2002-03 significantly i.e. the banks have diverged from the best practice cost frontier. Further, the observed private sector commercial banks exhibited higher mean cost efficiency than the observed public sector commercial banks. The public sector commercial banks lagged behind the private sector commercial banks both in respect of technical efficiency and allocative efficiency. The result may be the outcome of lending aversion behaviour by the public sector commercial banks in the current legal and regulatory environment which one the one hand, penalises the commercial banks heavily for low asset quality but at the same time provides little facility for the recovery of dues from the defaulting borrowers within a reasonable time limit.

Biswajit Chatterjee is Professor of Economics and Dean Faculty of Arts, Jadavpur University, Kolkata. Email: chatterjeeb@vsnl.net 
Ram Pratap Sinha is Assistant Professor of Economics (Selection Grade), A.B.N. Seal (Govt) College, Cooch Behar. Email: rp1153@rediffmail.com 

COMMUNICATIONS FOR DEBATE AND RESEARCH / 1

Making Economic Sense of Indian Science
R.A. Mashelkar

The author is Director General, Council of Scientific & Industrial Research, New Delhi. Email: DGCSIR@CSIR.RES.IN

COMMUNICATIONS FOR DEBATE AND RESEARCH / 2

A Note on Estimating Tax Elasticities
Pronab Sen

The most popular technique for estimating tax elasticities is the ‘Proportional Adjustment’ method. This article shows that the standard methodology used will almost invariably lead to biased elasticity estimates, and proposes an alternative methodology which avoids this problem.

The author is Principal Adviser (Perspective Planning), Planning Commission, Government of India, New Delhi. Email: pronab@nic.in 

BOOK REVIEW

The Future of India: Musings of Bimal Jalan
(Viking by Penguin Books India, 2005, Price Rs350/-, pp. 212)

Reviewed by Dr.V.R. Panchamukhi, Former Chairman,
Indian Council of Social Science Research New Delhi.Email: vadirajp36@yahoo.com