The oil price really is a speculative bubble. Yet only recently has the U.S. Congress, for example, showed recognition that this might even be a possibility. In general there seems to be a preference for the claim that the price increases are the result of basic economic forces: rapid growth in consumption, pushed particularly by the oil appetites of China and India, the depreciation of the U.S. dollar, real supply limitations, current and prospective and the risks of supply disruption, especially in the Middle East. These "explanations" will be taken up one by one, but first a view of what has happened to oil prices over recent years.

In its Protocol of Accession to the World Trade Organization China agreed to eliminate subsidies to loss-making state-owned enterprises (SOEs) by 2000. Nonetheless, these subsidies continued at least through 2003. OLS and random effects panel regressions using Chinese provincial data suggest that the subsidies and the annual increments in the long-term liabilities of SOEs, mainly bank loans, have been associated with the exports of SOEs in the important exporting provinces. Exports of foreign-invested enterprises, reflecting provincial exporting conditions, were also significant.

The central and especially the local governments in China have become increasingly dependent on extrabudgetary revenues (EBRs), which, by 1996, were more than half as large as tax revenues. These many thousand fees and levies are mainly ad hoc and disparate exactions that generate microeconomic inefficiencies and counter economic growth and can become sources of corruption. Regressions on a panel of provincial data indicate that the EBRs fall most heavily on the primary producing sectors, which are mainly agricultural. The regressions also suggest that dependence on these fees has also turned health and education public goods into fee-for-service sectors.

Policies under consideration within the Climate Convention would impose CO2 controls on only a subset of nations. A model of economic growth and emissions, coupled to an analysis of the climate system, is used to explore the consequences of a sample proposal of this type. The results show how economic burdens are likely to be distributed among nations, how carbon ''leakage'' may counteract the reductions attained, and how policy costs may be influenced by emissions trading. We explore the sensitivity of results to uncertainty in key underlying assumptions, including the influence on economic impacts and on the policy contribution to long-term climate goals.

A multi-sector multi-region general equilibrium model of economic growth and emissions is used to explore the conditions that will determine the market penetration of CO2 capture and disposal technology.

A multisector, multiperiod linear programming model is constructed to analyze the interactions of energy and economic policy issues in Mexico. Using piece-wise linear approximations, the model embodies non-linear substitution possibilities between alternative technologies within sectors, between foreign borrowing in successive time periods, between the rate of oil extraction and reserve depletion and in consumption and trade patterns. Complete intertemporal efficiency is achieved as compared to the temporally myopic feature of conventional computable general equilibrium models. Alternative solutions suggest that production restraint to help stabilize oil prices may have had significant costs to Mexico and that imposition of a debt ceiling could create infeasible conditions, without significant changes in behavioural relations.

Conditionality, the terms imposed by international financial institutions on borrowing countries, has been regarded by critics as being too inflexible and focussing too narrowly on demand forces and monetary policy instruments. The major intent of the paper, however, is to shift the discussion of conditionality to its functions in relation to private international lending. Conditionality provides information to lenders and certification of borrowers which, by decreasing uncertainty, may increase the quantities and reduce the costs of private lending. Yet restrictions on total and/or foreign credit may also reduce competition. These are examples of neglected issues of conditionality which deserve more attention.

I. Introduction, 121. — II. The results of the calculations, 125. — III. Summary, 130.

Invention and innovation in the less developed countries present particular problems for analysis because of the special characteristics of the organization of their economies, their resource proportions and their relations with more advanced economies and partly because of the intensity with which their economic growth is being pursued. In this paper I hope only to illustrate rather than resolve the difficulties in understanding the role of technical change and in making policy for it. The distinction which I shall adopt between invention and innovation is between the processes by which new products or processes are created and the actual implementation of the new processes and production of the new products. I shall not try to maintain the distinction which has been made much of in the past, especially by Schumpeter, between the first use of a new technology and its subsequent imitation. In some instances that distinction may be profound but I think those cases are exceptional. The limited literature with which I am familiar on the sociology of innovation suggests to me that the distinction is usually a matter of degree and that the psychological and cultural barriers to imitation of a technological change are often no less significant than those to the first use.1 The innovation-imitation distinction may also be given an economic interpretation in terms of the relative risks involved. It might be argued that except where monopolization is complete the first innovator creates a true externality which reduces risk: the knowledge of his success or failure. But success or failure is not always quickly identified, except in extreme cases, and even in the case of success in less developed countries neither the original innovator nor his potential imitators may be fully aware of how much is due to the new seed or new product, for example, or the special attention and favors of government officials. The role of process innovation in directly increasing factor produc-