This paper studies interactions between innovation, public capital, and human capital in an OLG model of endogenous growth. Public capital affects growth not only through productivity, but also through innovation capacity and human capital accumulation. Numerical simulations, based on a calibrated version of the model, are used to illustrate these channels. Panel data regressions are presented next; they show that higher innovation performance promotes growth directly, whereas public capital has both direct and indirect growth effects by promoting human capital accumulation and innovation capacity. Elasticity estimates derived from simultaneous equation techniques show that the general equilibrium effects of public capital on steady-state output per capita (which account for indirect effects) are significantly higher than those derived from single equation methods.

a b s t r a c tThis paper examines the determinants of financial dollarization in transition economies from a short-run perspective. Using aggregate monthly data of deposit and loan dollarization we study the drivers of shortterm fluctuations in dollarization and test their importance at different levels of dollarization. The results provide evidence that (a) the positive (negative) short-run effects of depreciation (monetary expansion) on deposit dollarization are exacerbated in high-dollarization countries; (b) short-run loan dollarization is mainly driven by banks matching of domestic loans and deposits, currency matching of assets and liabilities, international financial integration, and institutional quality; and (c) both types of short-run dollarization are affected by interest rate differentials and deviations from desired dollarization.

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JEL Classification: C23 F35 F43 O11 Keywords: Foreign aid Elite Economic growthWe study the importance of the local elite as a determinant of the effectiveness of foreign aid in developing countries. The local elite serves as an intermediary between aid donors and aid recipients through its control of the government and major firms. The likelihood of misusing aid is large if the elite is characterized by extensive economic and political power and little concern for social groups besides itself. To determine which countries have this type of elite we use a historically determined variable: the percentage of European settlers in total population in colonial times. We provide strong empirical evidence that the level of European settlement in colonial times is negatively related to the effectiveness of foreign aid as measured in a growthregression framework. Our results are robust to the inclusion of a wide set of alternative explanatory factors advanced in the aid effectiveness literature.

This paper studies the optimal allocation of government spending between health, education and infrastructure in an endogenous growth framework. Infrastructure affects not only the production of goods but also the supply of health and education services. The production of health (education) services depends also on the stock of human capital (health services). Transitional dynamics associated with budget-neutral shifts in the composition of expenditure are analyzed, and growth-and welfare-maximizing allocation rules are derived and compared. The discussion highlights the role played by the externalities associated with all three types of public services in the health and human capital technologies.