nep-dev New Economics Papers
on Development
Issue of 2005‒05‒23
eleven papers chosen by
Jeong-Joon Lee
Towson University

  1. Human capital and economic development By Robert Tamura
  2. On the solution of the growth model with investment-specific technological change By Jesús Fernández-Villaverde; Juan Francisco Rubio-Ramírez
  3. How Does Financial Liberalization affect Economic Growth? By Bonfiglioli, Alessandra
  4. Factor Supplies and the Direction of Technical Change By Svaleryd, Helena; Vlachos, Jonas
  5. The Political Economy of Financial Liberalisation By Sourafel Girma; Anja Shortland
  6. Experiments and Economic Development: Lessons from Field Labs in the Developing World By Juan Camilo Cardenas; Jeffrey P. Carpenter
  7. Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment By Philippe Aghion; George-Marios Angeletos; Abhijit Banerjee; Kalina Manova
  8. International Borrowing and Macroeconomic Performance in Argentina By Kathryn M.E. Dominguez; Linda L. Tesar
  9. Which "industrial policies" are meaningful for Latin America? By Marcelo de Paiva Abreu
  10. “Dynamic Effects of Migrant Remittances on Growth: An Econometric Model with an Application to Mediterranean Countries”. Discussion Paper, No. 74, KEPE, Athens, 2002. By NICHOLAS GLYTSOS
  11. Genuine Dissaving and Optimal Growth By Simone Valente

  1. By: Robert Tamura
    Abstract: This paper reports the results of experiments designed to examine whether a taste for fairness affects people’s preferred tax structure. Building on the Fehr and Schmidt (1999) model, we devise a simple test for the presence of social preferences in voting for alternative tax structures. The experimental results show that individuals demonstrate concern for their own payoff and inequality aversion in choosing among alternative tax structures. However, concern for redistribution decreases when it leads to increasing deadweight losses. Our findings have important implications for the design of optimal tax theory.
    Date: 2004
  2. By: Jesús Fernández-Villaverde; Juan Francisco Rubio-Ramírez
    Abstract: Recent work by Greenwood, Hercowitz, and Krusell (1997 and 2000) and Fisher (2003) has emphasized the importance of investment-specific technological change as a main driving force behind long-run growth and the business cycle. This paper shows how the growth model with investment-specific technological change has a closed-form solution if capital fully depreciates. This solution furthers our understanding of the model, and it constitutes a useful benchmark to check the accuracy of numerical procedures to solve dynamic macroeconomic models in cases with several state variables.
    Date: 2004
  3. By: Bonfiglioli, Alessandra (Institute for International Economic Studies, Stockholm University)
    Abstract: This paper assesses the effects of international financial liberalization and banking crises on investments and productivity in a sample of 93 countries (at its largest) observed between 1975 and 1999. I provide empirical evidence that financial liberalization spurs productivity growth and marginally affects capital accumulation. Banking crises depress both investments and TFP. Both levels and growth rates of productivity respond to financial liberalization and banking crises. The paper also presents evidence of conditional convergence in productivity across countries. However, the speed of convergence is unaffected by financial liberalization. These results are robust to a number of econometric specifications.
    Keywords: Capital account liberalization; equity market liberalization; financial development; banking crises; growth; productivity; investments; convergence
    JEL: C23 F43 G15 O40
    Date: 2005–05–10
  4. By: Svaleryd, Helena (The Research Institute of Industrial Economics); Vlachos, Jonas (The Research Institute of Industrial Economics)
    Abstract: In this paper, we empirically address the hypothesis that there is a relationship between the supply of human capital and the rate and direction of skill-biased technical change (SBTC). Using country- and industry-level data on OECD countries, we find R&D to be positively related to the supply of human capital. There is, however, no indication that this translates into higher rates of SBTC, when SBTC is measured as changes in the wage bill share of skilled labor. Interestingly, both R&D and the rate of SBTC seem to be relatively high in low-skill industries in countries where the supply of human capital is relatively high.
    Keywords: Skilled-biased Technical Change; Supply of Human Capital
    JEL: J32 O31
    Date: 2005–05–12
  5. By: Sourafel Girma; Anja Shortland
    Abstract: Political economy theories of financial development argue that in countries where a narrow elite controls political decisions, financial development may be deliberately obstructed to deny access to finance to potential competitors. This paper empirically examines whether the level of liberalisation of the banking system, the stock market and capital account depend on regime characteristics, using panel data from 26 countries from 1973 - 1999. Our results show that it is predominantly fully democratic regimes that have liberalised financial systems. Countries that are not fully democratic have a lower probability of having liberal banking systems and capital accounts and this probability decreases with increasing democratisation. This suggests that the attractiveness of using financial levers to allocate funds in the economy increases with the amount of competition the government faces.
    Keywords: Financial Repression; Liberalisation;Politics
    JEL: O16 D78 D72
    Date: 2005–05
  6. By: Juan Camilo Cardenas; Jeffrey P. Carpenter
    Abstract: Along with the traditional primitives of economic development (material preferences, technology, and endowments), there is a growing interest in exploring how psychological and sociological factores (e.g., bounded rationality, norms, or social preferences) also influence economic decisions, the evolution of institutions, and outcomes. Simultaneously, a vast literature has arisen arguing that economic experiments are important tools in identifying and quantifying the role of institutions, socialnorms and preferences on behavior and outcomes. Reflecting on our experience conducting experiments in the field over more than five years, we survey the growing literature at the intersection of these two research areas. Our review has four components. In the introduction we set the stage identifying a set of behavioral factors that seem to be central for understanding growth and economic development./ We then divide the existing literature in two piles: standard experiments conducted in the field and on how to econometrically identify sociological factors in experimental data. We conclude by suggesting topics for future research.
    Keywords: experimental economics, behavioral economics, institutions, social preferences, poverty, development
    JEL: C9 O1
    Date: 2005–05
  7. By: Philippe Aghion; George-Marios Angeletos; Abhijit Banerjee; Kalina Manova
    Abstract: We examine how credit constraints affect the cyclical behavior of productivity-enhancing investment and thereby volatility and growth. We first develop a simple growth model where firms engage in two types of investment: a short-term one and a long-term productivity-enhancing one. Because it takes longer to complete, long-term investment has a relatively less procyclical return but also a higher liquidity risk. Under complete financial markets, long-term investment is countercyclical, thus mitigating volatility. But when firms face tight credit constraints, long-term investment turns procyclical, thus amplifying volatility. Tighter credit therefore leads to both higher aggregate volatility and lower mean growth for a given total investment rate. We next confront the model with a panel of countries over the period 1960-2000 and find that a lower degree of financial development predicts a higher sensitivity of both the composition of investment and mean growth to exogenous shocks, as well as a stronger negative effect of volatility on growth.
    JEL: E22 E32 O16 O30
    Date: 2005–05
  8. By: Kathryn M.E. Dominguez; Linda L. Tesar
    Abstract: This paper provides an overview of the major economic events in Argentina from the adoption of the convertibility plan in 1991 to the collapse of the exchange rate regime in 2001. We focus on the relationship between the credibility of the currency board and capital flows, and the inescapable link between fiscal and monetary policy. Argentina inadvertently entered into a vicious circle with financial markets -- one in which it felt compelled to raise the exit costs from the currency board in order to maintain the regime%u2019s credibility. As exit costs mounted, financial markets became increasingly concerned about the dire implications of a devaluation, which in turn, compelled the government to raise exit costs further. In the late 1990s, when Argentina went into recession, it required some sort of stimulus -- either a loosening of monetary policy (i.e. a devaluation) or fiscal stimulus. But either way spelled disaster. The added pressure of capital outflow, first by international investors and then the withdrawal of deposits from the Argentine banking system, eventually tipped the scales.
    JEL: O54 F3 F21 F42
    Date: 2005–05
  9. By: Marcelo de Paiva Abreu (Department of Economics PUC-Rio)
    Abstract: This paper’s main concern is to assess which "industrial policies" would be meaningful for Latin America nowadays. The first section considers definitions of "industrial policies" and their nature in the past. The second section centers on national growth experiences that may serve as paradigms for LAC economies. Section 3 is on economies which are growth paradigms and on their relevant policies. Section 4 is on present multilateral constraints on "industrial policies", especially in the case of subsidies and trade-related investment measures, as these have been considerably tightened as a result of the Uruguay Round of multilateral trade negotiations. The following section analyses the link between macroeconomics and "industrial policies" both in relation to limitations imposed by macroeconomic instability on industrial policy and to how growth depends on the cost of investment on both micro and macroeconomic factors. Section 6 analyses industrial policy alternatives. The paper concludes with section 7 which is on policy recommendations seeking to improve criteria to pick winners where market failures are especially costly.
    Date: 2005–01
    Abstract: This paper builds a Keynesian type econometric model with a dynamic perspective and a sound theoretical basis, for investigating the impact of remittances on consumption, investment, imports and output. It estimates short and long-run multiplier effects of exogenous shocks of remittances, with data from five Mediterranean countries. The analysis reveals a uniform country performance of instability and uncertainty, with great temporal and inter-country fluctuations of remittance effects. The findings point to different inter-country priorities of remittance spending and to an asymmetric impact of remittance changes, in the sense that the good done to growth by rising remittances is not as great as the bad done by falling remittances.
    Keywords: Keywords: Migration, Remittances, Growth, Dynamic Model, Mediterranean Countries
    JEL: F22 O11 O19
    Date: 2005–05–14
  11. By: Simone Valente (ETH Zurich - Institute of Economic Research)
    Abstract: Green accounting theories have shown that negative genuine savings at some point in time imply unsustainability. Consequently, recent studies advocate the use of the genuine savings measure for empirical testing: a negative index implies sustainability be rejected. This criterion is not forward-looking: positive current genuine savings do not rule out ’genuine dissaving’ in the future. This paper derives a one-to-one relationship between the sign of longrun genuine savings and the limiting sustainability condition in the capital-resource model: if the sum of the rates of resource regeneration and augmentation exceeds (falls short of) the discount rate, long-run genuine savings are positive (negative). Testing this limiting condition allows to reveal whether current genuine savings are delivering a false message.
    Keywords: Genuine Saving, Green Accounting, Renewable Resources, Sustainable Development, Technological Progress.
    JEL: O47 D90
    Date: 2005–05–18

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