nep-dev New Economics Papers
on Development
Issue of 2005‒01‒16
eighteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Wage moderation and labour productivity By Frederik Huizinga; Peter Broer
  2. Historical Attitudes and Implications for path dependence: FDI development and Institutional changes in China By Zhang, X.; Krug, B.; Reinmoeller, P.
  3. A Meta-Analysis of Beta-Convergence: The Legendary Two-Percent By Maria Abreu; Henri L.F. de Groot; Raymond J.G.M. Florax
  4. Directions for Reforms in the Health Sector: Reflections from a State in a Developing Country By Maheshwari Sunil Kumar; Bhat Ramesh; Saha Somen
  5. Lobbies and Technology Diffusion By Diego Comin; Bart Hobijn
  6. An Index of Labour Market Well-being for OECD Countries By Lars Osberg; Andrew Sharpe
  7. Productivity Growth and Poverty Reduction in Developing Countries By Centre for the Study of Living Standards
  8. China’s Productivity Performance and its Impact on Poverty in the Transition Period By Centre for the Study of Living Standards
  9. Financial Dependence, Banking Sector Competition, and Economic Growth By Stijn Claessens; Luc Laeven
  10. Parental Education and Children’s Schooling Outcomes: Is the Effect Nature, Nurture, or Both? Evidence from Recomposed Families in Rwanda By Damien de Walque
  11. The Relative Richness of the Poor? Natural Resources, Human Capital, and Economic Growth By Claudio Bravo-Ortega; Jose de Gregorio
  12. Finance, Firm Size, and Growth By Thorsten Beck; Asli Demirgüç-Kunt; Luc Laeven; Ross Levine
  13. Localization and Corruption: Panacea or Pandora’s Box? By Tugrul Gurgur; Anwar Shah
  14. Well-Being during a Time of Change: Timor-Leste on the Path to Independence By Kaspar Richter
  15. Roads Out of Poverty? Assessing the Links between Aid, Public Investment, Growth, and Poverty Reduction By Pierre-Richard Agénor; Nihal Bayraktar; Karim El Aynaoui
  16. Use of the Formal and Informal Financial Sectors: Does Gender Matter? Empirical Evidence from Rural Bangladesh By Signe-Mary McKernan; Mark M. Pitt; David Moskowitz
  17. How Fair is Workfare? Gender, Public Works, and Employment in Rural Ethiopia By Agnes R. Quisumbing; Yisehac Yohannes
  18. Maquiladora Employment Dynamics in Chihuahua City, Mexico By Thomas M Fullerton Jr; Luis B Torres Ruiz

  1. By: Frederik Huizinga; Peter Broer
    Abstract: In the Dutch economic policy debate, wage moderation is widely considered as a key factor for achieving economic growth and low unemployment. However, some economists criticise the policy emphasis on wage moderation, claiming that high wages are needed to maintain structural labour productivity growth. This paper analyses the effects of a wage push on labour productivity within the framework of endogenous technological progress, endogenous technology adoption and insufficient competition. <P> The conclusion is that a wage push raises labour productivity in the short run. However, this rise in labour productivity is temporary and inefficient. In the long run, a wage push may well harm labour productivity. <P> The main message of the paper is that it is probably best not to use wage policy at all as a tool to influence productivity. As a tool against unemployment, however, it is very effective. These insights are applied in a review of the Dutch post-war productivity growth.
    Keywords: wage moderation; productivity; technological progress; creative destruction
    JEL: J23 J24 O33
    Date: 2004–03
  2. By: Zhang, X.; Krug, B.; Reinmoeller, P. (Erasmus Research Institute of Management (ERIM), Erasmus University Rotterdam)
    Abstract: This paper attempts to explain how institutions in the reform era of China have evolved by looking into the FDI policies and regulations. As history matters, we don?t look solely into the previous direct stage to the reform era, and rather look into a longer history starting from prior to the 14th century. The study shows that a dimension of time is crucial to understand institutional change in China. Though the initiation of the open-door policy in the reform era is commonly regarded as path-break event, we claim that this institutional change is a path dependent event from a longer historical view. The path takes a zigzag that is shaped by interaction among interested parties: the central government, local governments and economic agents (foreign investors in terms of the open-door policies). The historical study shows that mutual needs and their behaviours influence their attitudes which further influence institutional building. This also further implies how Chinese institutions may evolve in the future and what we should concern more about institutional changes in transitional economies.
    Keywords: Attitudes;Institutions;Path dependence;China;FDI policy;
    Date: 2005–01–03
  3. By: Maria Abreu (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam); Henri L.F. de Groot (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam); Raymond J.G.M. Florax (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam, and Purdue University)
    Abstract: The topic of convergence is at the heart of a wide-ranging debate in the growth literature. Empirical studies of convergence differ widely in their theoretical backgrounds, empirical specifications and in their treatment of cross-sectional heterogeneity. Despite these differences, a rate of convergence of about 2% has been found under a variety of different conditions, resulting in the widespread belief that the rate of convergence is a natural constant. We use meta-analysis to investigate whether there is substance to the ‘myth’ of the legendary 2% convergence rate, and to assess several unresolved issues of interpretation and estimation. Our dataset contains approximately 600 estimates taken from a random sample of empirical growth studies published in peer-reviewed journals. We show that publication bias does not interfere with the analysis, and that it is misleading to speak of a natural convergence rate, since estimates of different growth regression! s come from different populations. We find that correcting for the bias resulting from unobserved heterogeneity in technology levels leads to higher estimates of the rate of convergence. We also find that correcting for endogeneity in the explanatory variables has a substantial effect on the estimates, and that measures of financial and fiscal development are important determinants of long-run differences in per-capita income levels.
    Keywords: economic growth; convergence; meta-analysis
    JEL: C52 C82 O11 O18 O50
    Date: 2005–01–05
  4. By: Maheshwari Sunil Kumar; Bhat Ramesh; Saha Somen
    Abstract: Meeting the health care needs of population goes beyond mere budget allocations. The organisation of programmes and commitment of people working in the health sector has significant bearing on sector performance and its reform process. The reform process, among other things, intrinsically makes some fundamental assumptions: high organisational commitment of health care providers, high professional commitment of health care providers and adequate skills of health care providers. The current paper attempts to analyse the HR practices in Madhya Pradesh and its implications on commitment of the health officials. The findings of the study indicate that district health officials do not share strong emotional bond with the department which is likely to affect their willingness to take initiative. The findings suggest the need to consult senior doctors in staffing decisions in order to develop a sense of belongingness in the mind of the health officials. The study suggests investing in development of multiple strategies for the growth and career development of health professionals. The study also advocates the need for intense socialisation among health professionals to facilitate the effective implementation of reforms. Finally the study advocates the need to develop informal channels of communications and networking among various health providers.
    Keywords: Commitment, Health Reform, HR Practices
    Date: 2005–01–11
  5. By: Diego Comin; Bart Hobijn
    Abstract: Do lobbies affect technology diffusion and growth? A number of authors have identified the importance of vested interests as a deterrent to technology diffusion and the relevance that this may have for growth. however, the evidence that exists about this mechanism is just anecdotal. In this paper we build a model of lobbying and technology diffusion where the speed of diffusion of new technologies depends on some dimensions of the political regime and on the whether there is an old technology that may be substituted by the new technology. This differential effect of institutions on the diffusion of technologies with a predecessor constitutes the central element of our identification strategy. To implement this test we use technology diffusion data from Comin and Hobijn [2004]. We find that the relevant institutional variables have a differential effect on the diffusion of technologies with a predecessor technology as predicted by the theory. We show that this result is unlikely to be driven by omitted variables, or reverse causality.
    JEL: N10 O30 O57
    Date: 2005–01
  6. By: Lars Osberg; Andrew Sharpe
    Abstract: This report’s objective is the construction of an index of labour market well-being that is capable of measuring the well-being that individuals in a given society at a given point in time can obtain through the labour market. Besides considering simply the average return from working, workers are also typically concerned with inequality in the distribution of earnings, as well as skills acquisition that affects future returns from working and the uncertainty surrounding these future returns due to, for example, the possibilities of job loss, injury and insufficient income in retirement. The index proposed and constructed here hence attempts to incorporate each of these aspects of labour market well-being. The Centre for the Study of Living Standards has developed an Index of Economic Well-being based on trends in consumption flows, stocks of wealth, inequality, and economic security. This framework is applied here, but the focus is on the well-being of individuals as workers. The proposed Index of Labour Market Well-being (ILMW) therefore covers all persons of working age, both employed and unemployed, and includes 1) the average current return from work; 2) the aggregate accumulation of human capital, which enables future returns from work; 3) inequality in current returns from work; and 4) insecurity in the anticipation of future returns from work. Estimates of the proposed Index are developed for 16 OECD countries for the 1980-2001 period.
    Keywords: Well-being, Wellbeing, Well Being, Unemployment, Labour Market Outcomes, Labour Market, Labor Market, Wages, Earnings, Labour Compensation, Labor Compensation, Compensation, Human Capital, Long-term Unemployment, Long Term Unemployment, Earnings Inequality, Low Wage Earners, Living Wage, Retirement, Pensions, Defined Benefit, Defined Contribution, Unemployment Insurance, Workplace Injuries, Workplace Fatalities, Injuries, Fatalities, Workplace Safety, Index of Economic Well-being, IEWB, ILMW
    JEL: O57 I31 E25 J30 J60 J81 J24 J26 J28 H55
    Date: 2003–09
  7. By: Centre for the Study of Living Standards
    Abstract: The United Nations has set as a goal for the world community the halving of the rate of poverty between 1990 and 2015. Previous literature and empirical work provides a strong consensus that growth reduces poverty, and several recent studies have also found that the higher is income inequality within a country the more limited is the impact of growth on reducing poverty. But in dynamic economies most economic growth comes from productivity growth, and few studies have tested the relationships between productivity growth, poverty and inequality. The present study uses several sources of international data on labour productivity, poverty and income inequality, and finds that across the developing countries for which data are available productivity growth plays a substantial role in reducing poverty. This effect is also found to be stronger in countries with relatively low income inequality. Furthermore, productivity growth is found to account for changes in poverty better than the more commonly used economic growth. This conclusion suggests that developing countries, in attempting to reach their poverty reduction objectives, should pursue policies that foster productivity growth. However, a strong social safety net is also required to ensure that the adjustment costs that come with productivity increases do not fall disproportionately on the poor and that all members of society realize the gains from growth.
    Keywords: Productivity, Poverty, Inequality, Productivity Growth, Social Security System, Social Policy, Reform, Economic Reform, Urban, Rural, Developing Countries, Development, Growth, Millenium Development Goals
    JEL: O47 O10 P17 I32 D31
    Date: 2003–09
  8. By: Centre for the Study of Living Standards
    Abstract: The objective of this report is to document China’s productivity performance since 1978 and determine its impact on poverty. The report finds that China has made substantial progress in economic development since economic reform started in 1978. Strong economic growth has been fuelled by rapid productivity growth, and has been accompanied by impressive declines in the incidence of poverty. Productivity performance has not been uniform across the agricultural and industrial sectors, but both have contributed to aggregate growth and poverty reduction. Unfortunately economic reform has also brought increasing income inequality, mostly between rural and urban areas but also within both rural and urban areas and across regions as well. Labour productivity is found to have had a strong negative effect on poverty in China, with productivity increases in the industrial sector more important for poverty reduction than those in the agricultural sector. The econometric results do not show that trends in inequality have a significant effect on poverty. However, the process of economic growth, besides bringing the benefits of productivity increases, also brings structural adjustments that exacerbate income inequality through displacing workers. The government of China has an important role to play in further developing a social security system that will ensure the gains from productivity are more equally shared, thus maintaining a healthy and equitable society in which further productivity gains can be realized.
    Keywords: China, Productivity, Poverty, Inequality, Productivity Growth, Social Security System, Social Policy, Reform, Economic Reform, Urban, Rural, Agriculture, State-Owned Enterprises, State Owned
    JEL: O47 O53 P27 I32 D31
    Date: 2003–09
  9. By: Stijn Claessens; Luc Laeven (World Bank)
    Abstract: The relationships among competition in the financial sector, access of firms to external financing, and associated economic growth are ambiguous in theory. Moreover, measuring competition in the financial sector can be complex. In this paper Claessens and Laeven first estimate for 16 countries a measure of banking system competition based on industrial organization theory. They then relate this competition measure to growth of industries and find that greater competition in countries’ banking systems allows financially dependent industries to grow faster. These results are robust under a variety of tests. The results suggest that the degree of competition is an important aspect of financial sector funding. This paper—a product of the Financial Sector Operations and Policy Department—is part of a larger effort in the department to study competition in banking.
    Keywords: Domestic Finance; International Economics
    Date: 2005–01–07
  10. By: Damien de Walque (World Bank)
    Abstract: Educated parents tend to have educated children. But is intergenerational transmission of human capital more nature, more nurture, or both? De Walque uses household survey data from Rwanda that contains a large proportion of children living in households without their biological parents. The data allows him to separate genetic from environmental parental influences. The nonrandom placement of children is controlled by including the educational attainment of the absent biological parents and the type of relationship that links the children to their “adoptive” families. The results of the analysis suggest that the nurture component of the intergenerational transmission of human capital is important for both parents, contrary to recent evidence proposed by Behrman and Rosenzweig (2002) and Plug (2004). The author concludes that mothers’ education had no environmental impact on children’s schooling. Interestingly, mothers’ education matters more for girls, while fathers’ education is more important for boys. Finally, an important policy recommendation in the African context emerges from the analysis: the risk for orphans or abandoned children to lose ground in their schooling achievements is minimized if they are placed with relatives. This paper—a product of the Public Services Team, Development Research Group—is part of a larger effort in the group to understand the determinants of education and its intergenerational transmission.
    Keywords: Education
    Date: 2005–01–10
  11. By: Claudio Bravo-Ortega; Jose de Gregorio
    Abstract: Are natural resources a blessing or a curse? Bravo-Ortega and De Gregorio present a model in which natural resources have a positive effect on the level of income and a negative effect on its growth rate. The positive and permanent effect on income implies a welfare gain. There is a growth effect stemming from a composition effect. However, the authors show that this effect can be offset by having a large level of human capital. They test their model using panel data for the period 1970–90. They extend the usual specifications for economic growth regressions by incorporating an interaction term between human capital and natural resources, showing that high levels of human capital may outweigh the negative effects of the natural resource abundance on growth. The authors also review the historical experience of Scandinavian countries, which in contrast to Latin America, another region well-endowed with natural resources, shows how it is possible to grow fast based on natural resources. This paper is a product of the Office of the Chief Economist, Latin America and the Caribbean Region.
    Keywords: Education; Macroecon & Growth
    Date: 2005–01–10
  12. By: Thorsten Beck (World Bank); Asli Demirgüç-Kunt (World Bank); Luc Laeven (World Bank); Ross Levine (World Bank)
    Abstract: The authors examine 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. They define an industry’s technological firm size as the firm size implied by industrial 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. This paper—a product of the Finance Group, Development Research Group—is part of a larger effort in the group to understand the growth finance link.
    Keywords: Domestic Finance; Macroecon & Growth
    Date: 2005–01–12
  13. By: Tugrul Gurgur; Anwar Shah (World Bank)
    Abstract: An extensive literature on the relationship between decentralization (or localization) and corruption has developed in recent years. While some authors argue that there is a positive relationship between decentralization and corruption, others claim that decentralization in fact leads to a reduction in the level of corruption. This important policy question has not yet been laid to rest since previous empirical work simply uses eclectic regressions and lacks a conceptual framework to discover the root causes of corruption. Gurgur and Shah attempt to fill this void by presenting a framework in identifying the drivers of corruption both conceptually and empirically to isolate the role of centralized decisionmaking on corruption. The following results emerge: • For a sample of 30 countries (developing and industrial), corruption is caused by a lack of service orientation in the public sector, weak democratic institutions, economic isolation (closed economy), colonial past, internal bureaucratic controls, and centralized decisionmaking. • Decentralization is found to have a negative impact on corruption, with the effect being stronger in unitary than in federal countries. This paper—a product of the Poverty Reduction and Economic Management Division, World Bank Institute—is part of a larger effort in the institute to exchange ideas on the reform of public sector governance.
    Keywords: Governance; Public Sector Management
    Date: 2005–01–12
  14. By: Kaspar Richter (World Bank)
    Abstract: Countries undergoing fundamental economic and political transformations might experience differential adjustments in material well-being and empowerment. Richter evaluates self-rated welfare and power changes in Timor-Leste covering the period prior to the 1999 referendum on independence from Indonesia to the eve of independence in end 2001. Drawing on the first nationally representative household survey and village census, he shows how subjective, objective, and recall information can be combined to provide a rich profile of trends in well-being from the pre- to post-conflict stage. The author’s analysis shows that changes in self-rated welfare and power broadly corresponded to changes recorded by objective indicators. While economic well-being improved little, empowerment increased dramatically. The changes were not uniform across the population but some groups benefited more than others. The evidence for Timor-Leste is consistent with these hypotheses: • Economic resources increase welfare, and more than power. • Social resources increase power, and more than welfare. • Welfare winners have low initial economic resources. • Power winners have high social resources. • Economic shocks reduce welfare and power, but welfare more than power. This paper—a product of the Poverty Reduction and Economic Management Sector Unit, East Asia and Pacific Region—is part of a larger effort in the region to promote economic research on small countries.
    Keywords: Poverty; Social Development
    Date: 2005–01–12
  15. By: Pierre-Richard Agénor; Nihal Bayraktar; Karim El Aynaoui
    Abstract: Agénor, Bayraktar, and El Aynaoui develop a macroeconomic framework that captures links between aid, public investment, growth, and poverty. Public investment is disaggregated into education, infrastructure, and health, and affects both aggregate supply and demand. Dutch disease effects are captured by accounting for changes in the relative price of domestic goods. The authors assess the impact of policy shocks on poverty by linking the model to a household survey. They calibrate the model for Ethiopia and simulate the changes in the allocation of aid and public investment. The authors also calculate the amount by which foreign aid should increase to reach the poverty targets of the Millennium Development Goals. This paper—a product of Poverty Reduction and Economic Management 2, Africa Technical Families—is part of a larger effort in the region to formulate country-specific growth strategies.
    Keywords: Macroecon & Growth
    Date: 2005–01–12
  16. By: Signe-Mary McKernan; Mark M. Pitt; David Moskowitz
    Abstract: Access to transfers and credit, whether cash or in-kind, is a major source of poverty alleviation and income generation in many developing countries around the world. Women may especially benefit from transfers and credit in countries such as Bangladesh, where they often have few work alternatives. In this paper, the authors descriptively examine the formal and informal financial sectors of rural Bangladesh, placing special emphasis on differences between men and women. Their analysis uses unique data on the credit and transfer behaviors of 1,800 households in rural Bangladesh. The authors focus on five important questions: • How important are the formal and informal financial sectors? • What are the primary sources of gifts and loans within those sectors? • Do men and women rely on different sources for finances (for example, formal versus informal) or different types of finances (for example, transfers versus loans)? • How have the financial sectors evolved during the 1990s? • What is the relationship between the formal and informal sectors? This paper—a product of the Gender Division, Poverty Reduction and Economic Management Network—is part of a larger effort in the network to integrate gender into economic policy work.
    Keywords: Poverty; Social Development
    Date: 2005–01–13
  17. By: Agnes R. Quisumbing; Yisehac Yohannes (International Food Policy Research Institute)
    Abstract: Quisumbing and Yohannes use the Ethiopian Rural Household Survey to examine the gender dimensions of public works. They use three rounds of a panel conducted in 1994–95 to explore the determinants of participation in, days worked, wages, and earnings from wage labor, food-for-work (FFW), and self-employment. Then they analyze public works data collected in 1997, together with program data collected in 2003. FFW operates in a similar fashion with other labor markets in Ethiopia where female participation is low. Gender differences are important in the participation decision, but operate differently in different types of labor markets. Better-educated women are more likely to participate in the wage labor market, while higher livestock holdings diminish participation more for women. Females with more schooling are also more likely to participate in FFW. Men’s and women’s participation in FFW and self-employment responds differently to household and community shocks. After controlling for selection in which gender plays an important role, gender disadvantages in the wage labor market and FFW are insignificant. Returns to schooling and height are consistently positive in both wage labor and FFW, suggesting returns to human capital investment, even in the low-skill labor markets of rural Ethiopia. Program characteristics significantly affect participation, with differential effects on men and women. Participation, days worked, wages, and earnings vary according to the type of project. Relative to infrastructure projects, water, social services, and other projects decrease participation probabilities. Distance has a strong negative effect on women’s participation relative to men’s. This paper—a product of the Gender Division, Poverty Reduction and Economic Management Network—is part of a larger effort in the network to integrate gender issues into economic policy.
    Keywords: Labor & Employment; Poverty; Rural Development; Social Development
    Date: 2005–01–13
  18. By: Thomas M Fullerton Jr (University of Texas at El Paso); Luis B Torres Ruiz (Banco de Mexico)
    Abstract: Greater economic integration between developing and higher income economies has caused increased 'north-south' business cycle linkages. This study applies a linear transfer function ARIMA approach to analyze regional maquiladora payroll dynamics in a non-border region of Mexico. Statistically significant responses occur as functions of variations in the exchange rate, real wages, foreign investment, and United States industrial activity. Simulation testing is also conducted as another means of empirical model verification.
    Keywords: Maquiladoras, International Business Cycle Transmission, Applied Econometrics
    JEL: O19
    Date: 2004–12–29

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