nep-dev New Economics Papers
on Development
Issue of 2005‒04‒03
thirteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Malthus irrelevant? By Ziesemer,Thomas
  2. Education and Training in a Model of Endogenous Growth with Creative Destruction By Zon,Adriaan ,van; Antonietti,Roberto
  3. From Education to Democracy? By Daron Acemoglu; Simon Johnson; James A. Robinson; Pierre Yared
  4. Income and Democracy By Daron Acemoglu; Simon Johnson; James Robinson; Pierre Yared
  5. Pitfalls of a State-Dominated Financial System: The Case of China By Genevieve Boyreau-Debray; Shang-Jin Wei
  6. Rural Windfall or a New Resource Curse? Coca, Income, and Civil Conflict in Colombia By Joshua D. Angrist; Adriana Kugler
  7. Constitutions, Politics and Economics: A Review Essay on Persson and Tabellini's "The Economic Effect of Constitutions" By Daron Acemoglu
  8. Empirical Assessment of Sustainability and Feasibility of Government Debt: The Philippines Case By Duo Qin; Marie Anne Cagas; Geoffrey Ducanes; Nedelyn Magtibay-Ramos; Pilipinas F. Quising
  9. Growth and Inequality: Model Evaluation Based on an Estimation-Calibration Strategy By Hyeok Jeong; Robert M. Townsend
  10. Discovering the Sources of TFP Growth: Occupational Choice and Financial Deepening By Hyeok Jeong; Robert M. Townsend
  11. Assessment of Relationship between Growth and Inequality: Micro Evidence from Thailand By Hyeok Jeong
  12. Convergence across Spanish Provinces:Cross-section and Pairwise Evidence By Don J Webber; Paul White; Asier Minondo; David O Allen
  13. Models of Military Expenditure and Growth: A Critical Review By J Paul Dunne; Ron Smith; Dirk Willenbockel

  1. By: Ziesemer,Thomas (MERIT)
    Abstract: We estimate and make population forecasts with Foley’s (2000) model in three different ways. The population forecasts for high, middle and low-income countries are quite good and suggest that the omitted variable bias from its simplicity is small. Estimation of the model as a system shows that indeed Malthusian behaviour - defined as increasing population growth through increasing per capita income - cannot be found for any of the income groups of the Worldbank classification nor for Sub-Saharan Africa, and also not for countries with per capita income below $1200 in a panel estimate. For world aggregate data and for the low-income countries we find increasing returns to scale, but for the other groups decreasing returns (outweighed by a positive time trend except for Sub-Saharan Africa and the u1200 group). For the panel of countries with income below $1200, per capita income is stagnant for the period 1970-2002 in spite of the positive growth rates of the period 1991-2002. The time trend is as strong as the population growth in connection with decreasing returns to scale. Together with the absence of Malthusian behaviour this seems to suggest a strong role for the population growth problem as seen by David Ricardo.
    Keywords: economic development and growth ;
    Date: 2005
  2. By: Zon,Adriaan ,van; Antonietti,Roberto (MERIT)
    Abstract: By formulating an endogenous growth model that combines elements from Romer (1990), Aghion and Howitt (1992), and van Zon and Yetkiner (2003), the present paper studies the contribution of education and training on economic growth through their impact on the rate of innovation. The article addresses two main issues. The first is the optimum provision of on-the-job training necessary to be able to adopt, and adapt to new technologies. The second is the impact of both formal education and on-the-job training on the innovative capacity of an economic system that is the ultimate cause of output growth. In our set-up, education enhances R&D activities and lowers adjustment costs to new technologies, thus facilitating their adoption, while on the other hand on-the-job training ensures the possibility to implement the new coming technologies and reap all the related future profits. We assume that the adoption of a new technology consists of two periods, i.e. the training phase during which newly hired workers acquire the right amount of know how in order to become familiar with the specific new technology, and the implementation or production phase in which profit flows arise for firms and in which the cost savings that can be realized arise from productivity increases in the previous phase. By extending the training phase, entrepreneurs run a greater risk of shortening the production phase for a given arrival rate of new technologies that progressively erode the profit flows obtained from existing technologies. The paper shows first that it is possible to find a profit-maximizing, endogenously determined, amount of training that depends on the workers’ educational attainment. Thus, a situation in which better educated workers may be disproportionately selected for training issues is possible, especially in times of rapid technological change. However, the paper also shows that a non-linear relationship between education and technological change (and growth) exists, so that an increase in the formal level of education can even result in a reduction in the rate of growth. The reason for this is the increase in creative destruction that raises ‘technology adoption costs’ in terms of output foregone during re-training spells that arrive at a faster rate. The results offer some insights that are interesting from an education policy perspective.
    Keywords: labour economics ;
    Date: 2005
  3. By: Daron Acemoglu; Simon Johnson; James A. Robinson; Pierre Yared
    Abstract: The conventional wisdom views high levels of education as a prerequisite for democracy. This paper shows that existing evidence for this view is based on cross-sectional correlations, which disappear once we look at within-country variation. In other words, there is no evidence that countries that increase their education are more likely to become democratic.
    JEL: O10
    Date: 2005–03
  4. By: Daron Acemoglu; Simon Johnson; James Robinson; Pierre Yared
    Abstract: We revisit one of the central empirical findings of the political economy literature that higher income per capita causes democracy. Existing studies establish a strong cross-country correlation between income and democracy, but do not typically control for factors that simultaneously affect both variables. We show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and various measures of democracy. We also present instrumental-variables using two different strategies. These estimates also show no causal effect of income on democracy. Furthermore, we reconcile the positive cross-country correlation between income and democracy with the absence of a causal effect of income on democracy by showing that the long-run evolution of income and democracy is related to historical factors. Consistent with this, the positive correlation between income and democracy disappears, even without fixed effects, when we control for the historical determinants of economic and political development in a sample of former European colonies.
    JEL: P16 O10
    Date: 2005–03
  5. By: Genevieve Boyreau-Debray; Shang-Jin Wei
    Abstract: State-owned financial institutions have been proposed as a way to address market failure, but the recent literature has also highlighted their pathological problems. This paper studies the case of China for pitfalls of a state-dominated financial system, including possible segmentation of the internal capital market due to local government interference and mis-allocation of capital. Even without formal legal prohibition to capital movement across regions, we find that capital mobility within China is low. Furthermore, to the extent some capital moves around the country, the government (as opposed to the private sector) tends to allocate capital systematically away from more productive regions toward less productive ones. In this context, a smaller role of the government in the financial sector might increase economic efficiency and the rate of economic growth.
    JEL: G1 F3
    Date: 2005–03
  6. By: Joshua D. Angrist; Adriana Kugler
    Abstract: Natural and agricultural resources for which there is a substantial black market, such as coca, opium, and diamonds, appear especially likely to be exploited by the parties to a civil conflict. On the other hand, these resources may also provide one of the few reliable sources of income in the countryside. In this paper, we study the economic and social consequences of a major shift in the production of coca paste from Peru and Bolivia to Colombia, where most coca leaf is now harvested. This shift, which arose in response to the disruption of the "air bridge" that previously ferried coca paste into Colombia, provided an exogenous boost in the demand for Colombian coca leaf. Our analysis shows this shift generated economic gains in rural areas, primarily in the form of increased self-employment earnings and increased labor supply by teenage boys. There is little evidence of widespread economic spillovers, however. The results also suggest that the rural areas which saw accelerated coca production subsequently became much more violent. Taken together, these findings support the view that the Colombian civil conflict is fueled by the financial opportunities that coca provides. This is in line with a recent literature which attributes the extension of civil conflicts to economic rewards and an environment that favors insurgency more than to the persistence of economic or political grievances.
    JEL: O1 R0 Q0
    Date: 2005–03
  7. By: Daron Acemoglu
    Abstract: In this essay I review the new book by Torsten Persson and Guido Tabellini, The Economic Effects of Constitutions, which investigates the policy and economic consequences of different forms of government and electoral rules. I also take advantage of this opportunity to discuss the advantages and disadvantages of a number of popular empirical strategies in the newly emerging field of comparative political economy.
    JEL: P16 O10
    Date: 2005–03
  8. By: Duo Qin (Queen Mary, University of London); Marie Anne Cagas (Asian Development Bank); Geoffrey Ducanes (Asian Development Bank); Nedelyn Magtibay-Ramos (Asian Development Bank); Pilipinas F. Quising (Asian Development Bank)
    Abstract: This paper develops empirical methods of assessing the sustainability and feasibility of public debt using the No Ponzi Game criterion, using the Philippines as the testing case. Both historical data and forecasts generated by a quarterly macro-econometric model are used in the assessment. Stochastic simulations are carried out to mimic future uncertainty. The test results show that, up to the end of the present administration in 2010, the Philippine government debt is not sustainable but weakly feasible, that the feasibility is vulnerable to major adverse shocks, and that simple budgetary deficit control policy is inadequate for achieving debt sustainability or strengthening feasibility.
    Keywords: Government debt, Ponzi game, Rollover bond portfolio.
    JEL: H62 H63 E62 F34 C53
    Date: 2005–03
  9. By: Hyeok Jeong; Robert M. Townsend
    Abstract: This paper evaluates two well-known models of growth with inequality that have explicit micro underpinnings related to household choice. With incomplete markets or transactions costs, wealth can constrain investment in business and the choice of occupation and also constrain the timing of entry into the formal financial sector. Using the Thai Socio-Economic Survey, we estimate the distribution of wealth and the key parameters that best fit cross-sectional data on household choices and wealth. We then simulate the model economies for two decades at the estimated initial wealth distribution and analyze whether the model economies at those micro-fit parameter estimates can explain the observed macro and sectoral aspects of income growth and inequality change. Both models capture important features of Thai reality. Anomalies and comparisons across the two distinct models yield specific suggestions for improved research on the micro foundations of growth and inequality.
    Keywords: Model Evaluation, Growth and Inequality, Wealth-Constrained Self-Selection
    JEL: C52 D31 O41
    Date: 2003–09
  10. By: Hyeok Jeong; Robert M. Townsend
    Abstract: Total factor productivity (TFP) growth is measured as a residual and its sources typically remain unknown inside the residual. This paper aims to identify the underlying sources of this residual growth, being explicit about both micro underpinnings and transitional growth. The key forces are occupational choice and limited access to credit. We develop a method of growth accounting that decomposes not only the overall growth but also TFP growth into four components: occupational shifts, financial deepening, capital heterogeneity, and sectoral Solow residuals. Thus we explicitly evaluate the quantitative importance of micro impediments to trade such as credit constraint on aggregate growth dynamics, in particular the TFP dynamics. Applying this method to Thailand, which experienced rapid growth with enormous structural changes for the two decades between 1976 and 1996, we find that 73 percent of TFP growth can be explained on average by occupational shifts and financial deepening, without presuming exogenous technical progress. Expansion of credit is a major part of this explained TFP growth. The remainder TFP growth is related to the sectoral Solow residuals, which are determined by the endogenous interaction between the price dynamics of wage, interest rate, and profits and the evolution of wealth distribution. The nature of this interaction between price dynamics and wealth distribution depends on access to credit, and the di¤erences in measured TFP growth across subgroups di¤erentiated by any specific characteristics may reflect the varying degrees of limited access to credit rather than subgroup-specific technical changes. The above key forces of TFP also provide a micro foundation of the relationship between growth and inequality. The inequality among the non-intermediated a¤ects the growth of the intermediated. The growth of the intermediated trickles down to the non-intermediated and reduces inequality among them.
    Keywords: Total Factor Productivity, Occupation Choice, Financial Deepening
    JEL: O47 O16 J24 D24
    Date: 2005–03
  11. By: Hyeok Jeong
    Abstract: This paper shows that growth and income distribution dynamics are closely linked through occupation, financial intermediation, and education. We use the micro data from Thailand for 1976-1996. The compositional changes across these characteristics account for half of the Thai inequality increase and forty percent of the Thai growth and poverty reduction. Financial deepening and educational expansion contributed to increasing inequality while occupational transformation contributed to poverty alleviation. The changes in income gaps across the income-status groups, that is, divergence and then convergence, give rise to inverted- U inequality dynamics. These two growth-related components of inequality dynamics, composition and income-gap dynamics, explain virtually all the change in overall inequality, except its initial rise. Thus, inequality dynamics can be viewed as integral part of wider process of growth as Kuznets speculated.
    Keywords: Kuznets Dynamics, Growth, Inequality, Poverty
    JEL: D31 O41 I32
    Date: 2005–03
  12. By: Don J Webber (School of Economics, University of the West of England); Paul White (Faculty of Computing, Engineering and Mathematical Sciences, University of the West of England); Asier Minondo (Faculty of Economic and Business Administration Sciences, Universidad de Deusto, San Sebastián, Spain); David O Allen (School of Economics, University of the West of England)
    Abstract: Distribution free statistics are employed to investigate biennial income per capita convergence across 52 Spanish provinces over the period 1955-1997. Based upon ideas of concordance and discordance that capture convergence and divergence properties, the paper presents results that suggest convergence is dominant for the full sample over the entire period, swings in this trend between convergence and divergence are present and switching in rank does take place. When provinces are analysed in pairs some show strong evidence of divergence.
    Keywords: Convergence; Steady state; Average UK regional male wages
    JEL: C1 O4
    Date: 2004–04
  13. By: J Paul Dunne (School of Economics, University of the West of England); Ron Smith (Birkbeck College); Dirk Willenbockel (Middlesex University Business School)
    Abstract: This paper reviews some of the theoretical and econometric issues involved in estimating growth models that include military spending. While the mainstream growth literature has not found military expenditure to be a significant determinant of growth, much of the defence economics literature has found significant effects. The paper argues that this is largely the product of the particular specification, the Feder- Ram model, that has been used in the defence economics literature but not in the mainstream literature. The paper critically evaluates this model, detailing its problems and limitations and suggests that it should be avoided. It also critically evaluates two alternative theoretical approaches, the Augmented Solow and the Barro models, suggesting that they provide a more promising avenue for future research. It concludes with some general comments about modelling the links between military expenditure and growth.
    Keywords: Military expenditure; models; growth
    Date: 2004–12

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