nep-dev New Economics Papers
on Development
Issue of 2004‒12‒20
twenty-one papers chosen by
Jeong-Joon Lee
Towson University

  1. Domestic vs. International Spillovers: Evidence from Swedish Firm Level Data By Poldahl, Andreas
  2. Econometric Models and Causality Relationships Between Manufacturing and Non-Manufacturing Production in MOROCCO, TUNISIA and other Northern African Countries, 1950-2000 By Guisan, Maria-Carmen; Exposito, Pilar
  3. Incentives to Learn By Michael Kremer; Edward Miguel; Rebecca Thornton
  4. Globalization and the Returns to Speaking English in South Africa By James Levinsohn
  5. A Polarization of Polarization? The Distribution of Inequality 1970-1996 By Claudia Biancotti
  6. Global Growth Opportunities and Market Integration By Geert Bekaert; Campbell R. Harvey; Christian Lundblad; Stephan Siegel
  7. Institutions and Technological Innovation During the Early Economic Growth: Evidence from the Great Inventors of the United States, 1790-1930 By B. Zorina Khan; Kenneth L. Sokoloff
  8. Is “Trade” Openness Valid for Nigeria’s Long-Run Growth: A Cointegration Approach? By Ogujiuba Kanayo; Oji Okechukwu; Adeniyi Adenuga
  9. Economic Growth and Cycles in Poland, Hungary, Czech Republic, Slovakia and Slovenia: A comparison with Spain, Austria and other EU countries, 1950-2002 By Guisan, Maria-Carmen; Aguayo, Eva; Carballas, David
  10. Employment Effects of Skill Biased Technological Change when Benefits are Linked to Per-Capita Income By Matthias Weiss
  11. Human Capital Specificity: Direct and Indirect Evidence from Canadian and US Panels and Displaced Worker Surveys By Maxim Poletaev; Chris Robinson
  12. Finance, Inequality, and Poverty: Cross-Country Evidence By Thorsten Beck; Asli Demirgu-Kunt; Ross Levine
  13. Preferential Trading Arrangements, Trade, and Growth By Arvind Panagariya
  14. The Size of the Shadow Economies of 145 Countries all over the World: First Results over the Period 1999 to 2003 By Schneider, Friedrich
  15. A New Asymptotically Non-Scale Endogenous Growth Model By Taiji Harashima
  16. Exploring the Linkages between Productivity and Social Development in Market Economies By Andrew Sharpe
  17. Finance, Firm Size, and Growth By Thorsten Beck; Asli Demirguc-Kunt; Luc Laeven; Ross Levine
  18. Trade Policy and Poverty Reduction in Brazil By Glenn W. Harrison; Thomas F. Rutherford; David G. Tarr; Angelo Gurgel
  19. Dynamic Scoring: A Back-of-the-Envelope Guide By N. Gergory Mankiw; Matthew Weinzierl
  20. The Gift of the Dying: The Tragedy of AIDS and the Welfare of Future African Generations By Alwyn Young
  21. On the Causal Links between FDI and Growth in Developing Countries By Henrik Hansen; John Rand

  1. By: Poldahl, Andreas (ESI)
    Abstract: This paper investigates the association between total factor productivity growth and the R&D expenditures of Swedish manufacturing firms in the presence of domestic- and international R&D spillovers. The paper assumes that the principal channel of transmission of new technology is through I/O relations. Econometric evidence suggests that international as well as domestic inter-industry R&D spillovers are important determinants of firms’ productivity growth in the long run. The R&D spillovers generated within the industry and following I/O links seem to be of minor importance in explaining productivity growth. It seems likely that within-industry productivity spillovers follow other channels than I/O flows, such as horizontal spillovers through copying of new products and processes, or labour turnover. The use of a convergence parameter is one way to check for such within-industry technology flows. Our results indicate that a catch-up process exists by which the non-frontier firms in the Swedish manufacturing sector absorb knowledge spillovers from the leading firms in the industry. Finally, a firm’s own R&D efforts are found to be more or less positively correlated with the TFP growth, maybe the contribution from R&D efforts in some sense are underestimated.
    Keywords: TFP growth; R&D expenditures; Convergence; R&D spillovers
    JEL: O31 O33
    Date: 2004–12–17
  2. By: Guisan, Maria-Carmen; Exposito, Pilar
    Abstract: This article presents a general view of economic development in the countries of Magreb, analyzing the impact of manufacturing and imports on economoic growth and cycles, by means of cross correlations, Grangers´s causality analysis and dynamic models: for each country and for a panel of 4 Northern African countries. The analysis shows that these countries have low levels of trade among them and that they could improve their economic development with more industrial production and trade, both among themselves and with other areas as the Mediterranean countries of European Union. The EU agreements with Magreb are focused to foster free trade between North and South Mediterranean. Although this policy could be positive for development is not enough and EU should in our view have a more positive role to foster economic and educational cooperation with those countries in order to increase their income per inhabitant and their levels of employment. The alternative to the lack of cooperation policies could be the increase of disparities with EU and emigration pressures from Northern Africa towards most prosperous countries.
    Keywords: Northern Africa, Development of Magreb, Causality and Economic Development, Manufacturing in Africa, Tunisia, Morocco.
    JEL: C51 L6 O1 O11 O14 O15 O55
    Date: 2004
  3. By: Michael Kremer; Edward Miguel; Rebecca Thornton
    Abstract: We report results from a randomized evaluation of a merit scholarship program for adolescent girls in Kenya. Girls who scored well on academic exams had their school fees paid and received a cash grant for school supplies. Girls eligible for the scholarship showed significant gains in academic exam scores (average gain 0.12-0.19 standard deviations) and these gains persisted following the competition. There is also evidence of positive program externalities on learning: boys, who were ineligible for the awards, also showed sizeable average test gains, as did girls with low pretest scores, who were unlikely to win. Both student and teacher school attendance increased in the program schools. We discuss implications both for understanding the nature of educational production functions and for the policy debate surrounding merit scholarships.
    JEL: I21 O15 C93
    Date: 2004–12
  4. By: James Levinsohn
    Abstract: This paper takes a novel approach to trying to disentangle the impact of globalization on wages by focusing on changes in the return to speaking English, the international language of commerce, in South Africa as that country re-integrated with the global economy after 1993. The paper finds that he return to speaking English increased overall and that within racial groups the return increased primarily for Whites but not for Blacks.
    JEL: F0
    Date: 2004–12
  5. By: Claudia Biancotti (Bank of Italy, Economic Research Department)
    Abstract: This paper presents a panel of internationally comparable Gini coefficients, based on the United Nations University/World Institute for Development Economics Research (UNU/WIDER) World Income Inequality Database (WIID) version 1.0. The 221 data points that match minimum requirements of spatial and temporal homogeneity cover 67 developed and developing countries and span a twenty-six year period, from 1970 to 1996. Density functions for the Gini coefficients are estimated for selected points in time in order to evaluate how the distribution of inequality has evolved in the recent past: the aim is to offer a concise description of the evolution of polarization of societies in the world. The distribution of inequality appears to be slightly bimodal at the start of the period: alongside a sizable concentration of countries with average levels of distributional asymmetry, there is a smaller one of very unequal nations, mainly located in Latin America. In the following two decades polarization levels are more homogeneous, suggesting a convergence of class structure across states. In recent times, there has been a resurgence of bimodality; the rise in the number of highly polarized, strongly conflictual societies has been driven by transition frictions in the ex-USSR area.
    Keywords: Inequality
    JEL: D31
    Date: 2004–03
  6. By: Geert Bekaert; Campbell R. Harvey; Christian Lundblad; Stephan Siegel
    Abstract: We measure a country's growth opportunities by investigating how its industry mix is priced in global capital markets, using price earnings ratios of global industry portfolios. We derive three sets of empirical results. First, these exogenous growth opportunities strongly predict future changes in real GDP and investment in a large panel of countries. This relation is strongest in countries that have liberalized their capital accounts, equity markets, and banking systems. Second, we re-examine the link between financial development, investor protection, capital allocation, and growth. We find that financial development and investor protection measures are much less important in aligning growth opportunities with growth than is capital market openness. Third, we formulate new tests of market integration and segmentation. Under integration, the difference between a country's local PE ratio and its global counterpart should not predict relative growth, but the difference between its "exogenous" global PE ratio and the world market PE ratio should predict relative growth.
    JEL: F30 F36 G15 O11 O57
    Date: 2004–12
  7. By: B. Zorina Khan; Kenneth L. Sokoloff
    Abstract: Employing a sample of renowned U.S. inventors that combines biographical detail with information on the patents they received over their careers, we highlight the impact of early U.S. patent institutions in providing broad access to economic opportunity and in encouraging trade in new technological knowledge. Through setting low fees and establishing administrative procedures for application, the United States deliberately created a patent system that allowed a much wider range, in socioeconomic class terms, of technologically creative individuals to obtain property rights to their inventions than did European patent institutions. Moreover, by requiring that applications be examined for novelty by technical experts, and by enforcing patent rights strictly, the U.S. system reduced uncertainty about the validity of patent rights, and in that way lowered the cost of transacting in them. Creating secure assets in new technological knowledge and facilitating access to markets in technology in this way both stimulated specialization at invention and further enhanced the opportunities available to technologically creative individuals who would otherwise have lacked the capital to directly extract returns from their efforts. Indeed, we show that until the late 19th century, the 'great inventors' of the U.S. generally had backgrounds that permitted them only limited formal schooling, and made extensive use of their abilities under the patent system to extract returns from trading their patent rights. The usefulness of the 19th century U.S. patent system to inventors with humble origins may have implications for the design of intellectual property institutions in contemporary developing countries.
    JEL: N10 N71 O31 O34
    Date: 2004–12
  8. By: Ogujiuba Kanayo (African Institute for Applied Economics); Oji Okechukwu (African Institute for Applied Economics); Adeniyi Adenuga (Central Bank of Nigeria)
    Abstract: As a prelude to tariff reduction, the government is currently assessing the implications of significantly reducing tariffs due, in part, to its 2001 agreement with Ghana to quickly implement the ECOWAS Trade Liberalization Scheme. The obvious questions are: Should Nigeria liberalize to all countries on all products or opt for a discriminatory approach through unilateral trade agreements? Where do we think Nigeria should be open, and on what issues should they be closed? What should Nigeria’s trade policy be in the face of globalization’s negative effects and increasing protectionism of developed countries? The paper reviews key issues regarding an appropriate design of trade policy reforms in Nigeria and its validity for Nigeria’s long-run growth using the cointegration approach. The VAR approach was preferred because it overcomes the limitation and ambiguity associated with the regression results (Enders, 1995). Moreover, recent Monte Carlo evidence strongly favors the Johansen Maximum Likelihood method (JML) approach over the Engle-Granger’s (Dejong, 1992) in this regard. Econometric results show that there is no significant relationship between openness and economic growth, and that unbridled openness could have deleterious implications for growth of local industries, the real sector and government revenue.
    Keywords: Trade Liberalization, Trade openness, Tariff reforms and Economic growth.
    JEL: F14 F43
    Date: 2004–12–10
  9. By: Guisan, Maria-Carmen; Aguayo, Eva; Carballas, David
    Abstract: We present an international comparison of economic development of 5 Central European countries, with special reference to Poland and Hungary, with some European Union Countries for the period 1950-2002. We analyse different stages of their evolution: 1) In 1950-60 the evolution of production per inhabitant and rates of growth of this variable, in comparison with Spain, where very alike. 2) In 1960-75 the differences increased dramatically in favour of Spain. 3) In 1975-85 the differences diminished with a better performance of Hungary in comparison with Poland. 4) In 1985-91 the differences in the evolution of economic development increased again in favour of Spain. 5) Since 1991 to 2002 the evolution of these Central European countries generally improved and their rates of growth were more similar to those of Spain. We analyse the main factors that have explained the lower average rate of growth of production per inhabitant in Central Europe as a whole in comparison with Spain, Austria and other EU countries. We focus on human capital, manufacturing capacity, foreign trade and other relevant factors of production, mainly from a supply side approach. We also analyse the differences among Central European countries, outstanding the special case of Slovenia, country which has reached a position very similar to that of Spain in the level of income per inhabitant.
    Keywords: Growth, Development and Cycles in Central Europe
    JEL: C5 C51 O52 O57
    Date: 2004
  10. By: Matthias Weiss (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: This paper studies the employment effects of technological change when benefits are endogenous. If the (i) level of welfare aid depends on the general income level in the economy and (ii) wages for unskilled workers cannot fall below the level of welfare aid, there is a link between the wage for unskilled labor and the productivity of skilled labor. An increase in the latter will lead to an increase in average income and hence the level of welfare aid. This in turn leads unions to ask for higher wages for unskilled workers. Technological change is shown to have employment effects (only) if it is skill-biased and if this link exists.
    Date: 2004–01–22
  11. By: Maxim Poletaev (University of Western Ontario); Chris Robinson (University of Western Ontario)
    Abstract: Recent papers by Neal (1995) and Parent (2000), using different methods, provided evidence in support of the hypothesis that previously estimated firm tenure effects are, in fact, capturing industry specific human capital investments due to a correlation between firm and industry tenure. This paper uses both methods applied to both US and Canadian data sets to provide evidence in support of an alternative hypothesis that human capital is, for the most part, not narrowly specific to firm or industry. An analysis using either the indirect method of Neal, or the direct approach of Parent, provides evidence against the importance of industry specific capital and in favor of broad skill based specificity.
    Keywords: Not available.
    Date: 2004
  12. By: Thorsten Beck; Asli Demirgu-Kunt; Ross Levine
    Abstract: While substantial research finds that financial development boosts overall economic growth, we study whether financial development disproportionately raises the incomes of the poor and alleviates poverty. Using a broad cross-country sample, we distinguish among competing theoretical predictions about the impact of financial development on changes in income distribution and poverty alleviation. We find that financial development reduces income inequality by disproportionately boosting the incomes of the poor. Countries with better-developed financial intermediaries experience faster declines in measures of both poverty and income inequality. These results are robust to controlling for other country characteristics and potential reverse causality.
    JEL: O11 O16 G00
    Date: 2004–12
  13. By: Arvind Panagariya
    Abstract: The natural starting point in the study of the relationship among PTAs, trade, and growth is the link between growth and trade. If this relationship itself is weak, it is unlikely that we can establish a strong link between PTAs and growth since such link must work principally through trade. Until recently, trade economists had thought that their systematic research during the 1970s and 1980s had conclusively established the positive relationship between trade and growth. But the criticisms of the evidence by free-trade critics such as Joseph Stiglitz and Dani Rodrik and continued attack on the wisdom of trade liberalization by others including influential NGOs have made it essential to restate and defend this link explicitly. Once this is done, we can turn to an assessment of whether PTAs, which form a specific form of trade liberalization, promote trade in ways that is conducive to growth. Or, is there something peculiar about this instrument that renders the beneficial effects of trade liberalization ineffective?
    Date: 2004–12
  14. By: Schneider, Friedrich (University of Linz and IZA Bonn)
    Abstract: Using the DYMIMIC approach, estimates of the shadow economy in 145 developing, transition, developed OECD countries, South Pacific islands and still communist countries are presented. The average size of the shadow economy (in percent of official GDP) over 2002/2003 in developing countries is 39.1%, in transition countries 40.1%, in OECD countries 16.3%, South Pacific islands 33.4% and 4 remaining Communist countries 21.8%. An increasing burden of taxation, high unemployment and low official GDP growth are the driving forces of the shadow economy.
    Keywords: shadow economy, tax burden, government regulation, DYMIMIC method
    JEL: O17 O5 D78 H2 H11 H26
    Date: 2004–12
  15. By: Taiji Harashima (University of Tsukuba & Cabinet Office of Japan)
    Abstract: The paper explores a new endogenous growth model in which scale effects asymptotically evaporate and an economy grows without population growth. The key mechanism behind these features is substitution between investing in capital and in knowledge when firms face growing uncompensated knowledge spillovers. Both MAR and Jacobs externalities predict that uncompensated knowledge spillovers become more active if the number of firms increases. The model shows that firms invest more in capital than in knowledge and thus scale effects asymptotically evaporate as the number of population and thus uncompensated knowledge spillovers increase, and an economy grows without population growth.
    Keywords: Endogenous growth; Scale effects; Non scale model; Uncompensated knowledge spillover
    JEL: O40 E10
    Date: 2004–12–10
  16. By: Andrew Sharpe
    Abstract: This paper explores the linkages between productivity and social development from the perspective of synthesizing the findings of projects undertaken by the Centre for the Study of Living Standards in three related areas. The first is a project exploring the linkages between productivity and social well-being involving researchers from around the world and culminating in the edited volume Toward a Social Understanding of Productivity. Contributions discuss both linkages from productivity to social well-being, as in the case of productivity's role in improving fiscal balances; and from social well-being to productivity, as in the case of social and cultural factors surrounding the desire and capacity of families to invest in the education of children having powerful long-term consequences in a knowledge-driven economy. The second area is the Index of Economic Well-being developed by the Centre for the Study of Living Standards. Each of the four components - consumption, stocks of wealth, equality and economic security - are positively affected by productivity, and some in addition can in turn positively affect productivity. The third area is statistical research into the relationship between productivity and poverty in developing countries. It is found that this relationship is even stronger than that between economic growth and poverty reduction, and about as important as that between GDP per capita growth and poverty reduction. It is also found that the level of income inequality mediates the relationship between productivity growth and poverty reduction. The greater the level of inequality and any increase in inequality, the less an increase in productivity and income will reduce poverty.
    Keywords: Productivity, Social Well-being, Social, Economic, Index of Economic Well-being, IEWB, Inequality, Poverty, Developing Countries, Market Economies, Development, Social Development, Growth
    JEL: P17 O47 O15 I31 D30
    Date: 2004–02
  17. By: Thorsten Beck; Asli Demirguc-Kunt; Luc Laeven; Ross Levine
    Abstract: This paper examines whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth. We define an industry's technological firm size as the firm size implied by industry specific production technologies, including capital intensities and scale economies. Using cross-industry, cross-country data, the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms. This suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications.
    JEL: G2 L11 L25 O1
    Date: 2004–12
  18. By: Glenn W. Harrison; Thomas F. Rutherford; David G. Tarr; Angelo Gurgel
    Abstract: Using a multi-region CGE model, we evaluate the regional, multilateral and unilateral trade policy options of MERCOSUR from the perspective of the welfare of all potential partners. In Brazil, we focus on poverty impacts. We find that the poorest households in Brazil experience percentage gains of between 1.5 to 5.5 percent of their consumption, which is about three to four times the average for Brazil. Protection in Brazil favors capital intensive manufacturing relative to unskilled labor intensive agriculture and manufacturing. So trade liberalization raises the return to unskilled labor relative to capital, thereby helping the poor.
    Date: 2004–12
  19. By: N. Gergory Mankiw; Matthew Weinzierl
    Abstract: This paper uses the neoclassical growth model to examine the extent to which a tax cut pays for itself through higher economic growth. The model yields simple expressions for the steady-state feedback effect of a tax cut. The feedback is surprisingly large: for standard parameter values, half of a capital tax cut is self-financing. The paper considers various generalizations of the basic model, including elastic labor supply departures from infinite horizons, and non-neoclassical production settings. It also examines how the steady-state results are modified when one considers the transition path to the steady state.
    JEL: E1 H3 H6
    Date: 2004–12
  20. By: Alwyn Young
    Abstract: This paper simulates the impact of the AIDS epidemic on future living standards in South Africa. I emphasize two competing effects. On the one hand, the epidemic is likely to have a detrimental impact on the human capital accumulation of orphaned children. On the other hand, widespread community infection lowers fertility, both directly, through a reduction in the willingness to engage in unprotected sexual activity, and indirectly, by increasing the scarcity of labour and the value of a woman's time. I find that even with the most pessimistic assumptions concerning reductions in educational attainment, the fertility effect dominates. The AIDS epidemic, on net, enhances the future per capita consumption possibilities of the South African economy.
    JEL: O1
    Date: 2004–12
  21. By: Henrik Hansen (Institute of Economics, University of Copenhagen); John Rand (Institute of Economics, University of Copenhagen)
    Abstract: We analyse the Granger-causal relationships between foreign direct investment (FDI) and GDP in a sample of 31 developing countries covering the period 1970-2000. Using estimators for heterogeneous panel data we find bi-directional causality between the FDI/GDP ratio and the level of GDP. FDI is found to have a lasting impact on the level of GDP, while GDP has no long run impact on the FDI/GDP ratio. In that sense FDI causes growth. Furthermore, in a model for GDP and FDI as a fraction of gross capital formation (GCF) we also find long run effects of shifts in the mean level of FDI/GCF. We interpret this finding as evidence in favour of the hypotheses that FDI has an impact on GDP via knowledge transfers and adoption of new technology.
    Keywords: economic growth; foreign direct investment; Granger causality; panel data
    JEL: O4 F21 C33
    Date: 2004–12

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