nep-dev New Economics Papers
on Development
Issue of 2005‒05‒29
nineteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Early Literacy Achievements, Population Density and the Transition to Modern Growth By Raouf, BOUCEKKINE; David, DE LA CROIX; Dominique, PEETERS
  2. Colonization, Institutions, and Inequality: A Note on Some Suggestive Evidence By Denis Cogneau; Charlotte Guénard
  3. Urban Growth By Yannis Ioannides; Esteban Rossi-Hansberg
  4. Consumption Externalities, Production Externalities and Efficient Capital Accumulation under Time Non-separable Preferences By Stephen J Turnovsky; Goncalo Monteiro
  5. The Method of Endogenous Gridpoints for Solving Dynamic Stochastic Optimization Problems By Christopher Carroll
  6. Are Household Production Decisions Cooperative? Evidence on Pastoral Migration and Milk Sales from Northern Kenya By Cheryl R. Doss; John G. McPeak
  7. The Role of Preconceived Ideas in Macroeconomic Policy: Japan's Experiences in the Two Deflationary Periods By Koichi Hamada; Asahi Noguchi
  8. Using Experimental Economics to Measure Social Capital And Predict Financial Decisions By Dean S. Karlan
  9. Information Asymmetry and the Problem of Transfers in Trade Negotiations and International Agencies By Koichi Hamada; Shyam Sunder
  10. Observing Unobservables: Identifying Information Asymmetries with a Consumer Credit Field Experiment By Dean S. Karlan; Jonathan Zinman
  11. Inter-household Allocations within Extended Family: Evidence from the Indonesia Family Life Survey By Firman Witoelar
  12. Adjusting Household Structure: School Enrollment Impacts of Child Fostering in Burkina Faso By Richard Akresh
  13. Consumption Smoothing? Livestock, Insurance and Drought in Rural Burkina Faso By Harounan Kazianga; Christopher Udry
  14. The Food Problem and the Evolution of International Income Levels By Douglas Gollin; Stephen L. Parente; Richard Rogerson
  15. Labor Surplus Economies By Gustav Ranis
  16. Demographic Determinants of Savings: Estimating and Interpreting the Aggregate Association in Asia By T. Paul Schultz
  17. Risk, Network Quality, and Family Structure: Child Fostering Decisions in Burkina Faso By Richard Akresh
  18. Productive Benefits of Health: Evidence from Low-Income Countries By T. Paul Schultz
  19. How inefficient are small-scale rice farmers in eastern India really?: Examining the effects of microtopography on technical efficiency estimates By Nobuhiko Fuwa; Christopher Edmonds; Pabitra Banik

  1. By: Raouf, BOUCEKKINE; David, DE LA CROIX; Dominique, PEETERS
    Abstract: The transition from economic stagnation to sustained growth is often modelled thanks to “population-induced” productivity improvements, which are assumed rather than derived from primary assumptions. In this paper the effect of population on productivity is derived from optimal behavior. More precisely, both the number and location of education facilities are chosen optimally by municipalities. Individuals determine their education investment depending on the distance to the nearest school, and also on technical progress and longevity. In this setting, higher population density enables the set-up costs of additional schools to be covered, opening the possibility to reach higher educational levels. Using conterfactual experiments we find that one third of the rise in literacy can be directly attributed to the effect of density, while one sixth is linked to higher longevity and one half to technical progress. Moreover, the effect of population density in the model is consistent with the available evidence from England, where it is shown that schools were established at a high rate over the period 1540-1620.
    Keywords: Human Capital; Population Density; Education Investment;School Location;Technical Progress
    JEL: O41 I21 R12 J11
    Date: 2005–03–18
  2. By: Denis Cogneau (DIAL, Paris); Charlotte Guénard (DIAL, Paris)
    Abstract: What is the kind of institutions that affect economic inequalities? Using a database on national income inequality for 73 non-European countries, we show that \'good governance\' not only contributes to the level of income but also to a more equal distribution by increasing the income share of the middle class. Beside this effect of the quality of capitalist institutions, we also find an inverted U relationship between inequalities and the extent of European settlement. We finally find a large and robust correlation between the pre-colonial population density and the present equality of income distribution. We argue that this latter correlation may have to do with institutional dimensions that are not captured by usual measures of institutional quality in available databases. Countries which were more densely populated in 1500 have indeed worse \'governance\' but give larger income shares to the poor. They had more structured pre-colonial States, more often resisted to colonisation, and more often adopted a mixed economic system. Many of them in fact ended with a more equal land distribution. The equality in the distribution of landholdings does appear as an important determinant of the overall equality of income and of poverty which is independent from \'usual\' governance issues.
    Keywords: Colonization, Inequalities, Institutions, Development
    JEL: N37 O40 P51
  3. By: Yannis Ioannides; Esteban Rossi-Hansberg
    Abstract: Urban growth refers to the process of growth and decline of economic agglomerations. The pattern of concentration of economic activity, and its evolution, has been found to be an important determinant, and in some cases the result, of urbanization, the structure of cities, the organization of economic activity, and national economic growth. The size distribution of cities is the result of the patterns of urbanization, which result in city growth and city creation. The evolution of the size distribution of cities is in turn closely linked to national economic growth.
    JEL: E0 O4 R0
    Date: 2005
  4. By: Stephen J Turnovsky; Goncalo Monteiro
    Abstract: We examine the effects of both consumption and production externalities on capital accumulation and economic performance under time non-separable preferences and a non-scale production technology. We show that a consumption externality in isolation has long-run distortionary effects if and only if labour is supplied elastically. With fixed labour supply, it has only transitional distortionary effects, though it may generate long-run distortions through its interaction with the production externality. Production externalities always generate long-run distortions, irrespective of labour supply. The optimal taxation to correct for the distortions is characterized. Further quantitative insights are obtained by supplementing the theoretical analysis with numerical simulations based on the calibration of a plausible macroeconomic growth model.
    Keywords: Time non-separable preferences; consumption and production externalities; capital accumulation; optimal tax policy
    JEL: D91 E21 O40
  5. By: Christopher Carroll
    Abstract: This paper introduces a method for solving numerical dynamic stochastic optimization problems that avoids rootfinding operations. The idea is applicable to many microeconomic and macroeconomic problems, including life cycle, buffer-stock, and stochastic growth problems. Software is provided.
    Date: 2005–05
  6. By: Cheryl R. Doss (Yale University); John G. McPeak (Syracuse University)
    Abstract: Market-based development efforts frequently create opportunities to generate income from goods previously produced and consumed within the household. Production within the household is often characterized by a gender and age division of labor. Market development efforts to improve well being may lead to unanticipated outcomes if household production decisions are non-cooperative. We develop and test models of household decision-making to investigate intra-household decision making in a nomadic pastoral setting from Kenya. Our results suggest that household decisions are contested, with husbands using migration decisions to resist wives' ability to market milk.
    Keywords: Intrahousehold decision-making, household production, Kenya
    JEL: D13 O12
    Date: 2005–02
  7. By: Koichi Hamada (Economic Growth Center, Yale University); Asahi Noguchi (Senshu University)
    Abstract: This paper examines the role of misleading economic ideas that most likely promoted the economic disasters of the two deflationary periods in Japanese economic history. Misleading ideas deepened the depression during the interwar years, and erroneous thinking prolonged the stagnation of the Japanese economy since the 1990s. While the current framework of political economy is based on the self-interests of political agents as well as of voters, we highlight the role of ideas in policy making, in particular, in the field of macro-economy where the incidence of a particular policy is not clear to the public. Using two significant examples, this paper illustrates the role of preconceived ideas, in contrast to economic interests, that dominantly influenced economic policy making.
    Keywords: Preconceived ideas, perception on economic mechanism, vested interests, great depression, deflation in contemporary Japan
    JEL: B2 F4 N2
    Date: 2005–03
  8. By: Dean S. Karlan (Economic Growth Center, Yale University and Princeton University)
    Abstract: Questions remain as to whether results from experimental economics games are generalizable to real decisions in non-laboratory settings. Furthermore, important questions persist about whether social capital can help solve seemingly missing credit markets. I conduct two experiments, a Trust game and a Public Goods game, and a survey to measure social capital. I then examine whether behavior in the games predicts repayment of loans to a Peruvian group lending microfinance program. Since the structure of these loans relies heavily on social capital to enforce repayment, this is a relevant and important test of the games, as well as of other measures of social capital. I find that individuals identified as "trustworthy" by the Trust game are in fact less likely to default on their loans. I do not find similar support for the Trust game as a measure of trust.
    Keywords: trust game, experimental economics, microfinance
    JEL: B4 C9 D8 O1
    Date: 2005–04
  9. By: Koichi Hamada (Economic Growth Center, Yale University); Shyam Sunder (School of Management, Yale University)
    Abstract: This paper studies the role of transfers among groups within a country as well as among countries in a two level game of nternational trade negotiations. We show that in order to realize the intended transfer in the presence of asymmetric information on the states of recipients (and donors), a transfer process uses up additional resources. The difficulty of making transfers renders it less likely that a nation would find it individually rational to participate as a member of an international institution. Costly transfers render the internal and international adjustment difficult, and serve as a barrier to trade liberalization. Costly international transfers harden the resistance against trade liberalization in the (potentially) recipient country and soften it in the (potentially) donor country.
    Keywords: International trade, tariff negotiation, asymmetric Information, transfer, WTO, common agency, two-level game
    JEL: F13 H21 H71 H77
    Date: 2005–05
  10. By: Dean S. Karlan (Economic Growth Center, Yale University and Princeton University); Jonathan Zinman (Federal Reserve Bank of New York)
    Abstract: Information asymmetries are important in theory but difficult to identify in practice. We estimate the empirical importance of adverse selection and moral hazard in a consumer credit market using a new field experiment methodology. We randomized 58,000 direct mail offers issued by a major South African lender along three dimensions: 1) the initial "offer interest rate" appearing on direct mail solicitations; 2) a "contract interest rate" equal to or less than the offer interest rate and revealed to the over 4,000 borrowers who agreed to the initial offer rate; and 3) a dynamic repayment incentive that extends preferential pricing on future loans to borrowers who remain in good standing. These three randomizations, combined with complete knowledge of the Lender's information set, permit identification of specific types of private information problems. Specifically, our setup distinguishes adverse selection from moral hazard effects on repayment, and thereby generates unique evidence on the existence and magnitudes of specific credit market failures. We find evidence of both adverse selection (among women) and moral hazard (predominantly among men), and the findings suggest that about 20% of default is due to asymmetric information problems. This helps explain the prevalence of credit constraints even in a market that specializes in financing high-risk borrowers at very high rates.
    Keywords: Information asymmetries, field experiment, adverse selection, moral hazard, development finance, credit markets, microfinance
    JEL: C9 D8 G2 G3 O1
    Date: 2005–05
  11. By: Firman Witoelar (Economic Growth Center, Yale University)
    Abstract: This paper uses data from two waves of the Indonesia Family life Survey (IFLS2-1997 and IFLS3-2000) to investigate whether households that belong to the same extended families pool their income to smooth their consumption. We exploit the fact that the survey also tracks and interviews split-off households during the follow-up surveys, enabling us to construct a panel of extended families. The findings suggest that in contradiction to the null hypothesis of extended-family income pooling, household own income still matters to household consumption even after controlling for extended family resources. The result stands after correcting for potential measurement error and endogeneity of income. More importantly, the findings also suggest that although the change in household own income matters to the change in household consumption, controlling for extended family resources, the magnitudes of the coefficients are small. We also find evidence that household consumption is affected by characteristics of other households in the same extended family.
    Keywords: Consumption smoothing, risk-sharing, extended families
    JEL: D13 J12 O12
    Date: 2005–05
  12. By: Richard Akresh (University of Illinois at Urbana-Champaign)
    Abstract: Researchers claim that children growing up away from their biological parents may be at a disadvantage and have lower human capital investment. This paper measures the impact of child fostering on school enrollment and uses household and child fixed effects regressions to address the endogeneity of fostering. Data collection by the author involved tracking and interviewing the sending and receiving household participating in each fostering exchange, allowing a comparison of foster children with their non-fostered biological siblings. Foster children are equally likely as their host siblings to be enrolled after fostering and are 3.6 percent more likely to be enrolled than their biological siblings. Relative to children from non-fostering households, host siblings, biological siblings, and foster children all experience increased enrollment after the fostering exchange, indicating fostering may help insulate poor households from adverse shocks. This Pareto improvement in schooling translates into a long-run improvement in educational and occupational attainment.
    Keywords: Human capital investment, Child fostering, Household structure
    JEL: J12 I20 O15 D10
    Date: 2004–11
  13. By: Harounan Kazianga (Columbia University); Christopher Udry (Yale University)
    Abstract: This paper explores the extent of consumption smoothing between 1981 and 1985 in rural Burkina Faso. In particular, we examine the extent to which livestock, grain storage and interhousehold transfers are used to smooth consumption against income risk. The survey coincided with a period of severe drought, so that the results provide direct evidence on the effectiveness of these various insurance mechanisms when they are the most needed. We find evidence of little consumption smoothing. In particular, there is almost no risk sharing, and households rely almost exclusively on self-insurance in the form of adjustments to grain stocks to smooth out consumption. The outcome, however, is far from complete smoothing. Hence the main risk-coping strategies, which are hypothesized in the literature (risk sharing and buffer stock), were not effective during the survey period.
    Keywords: Livestock, consumption smoothing, permanent income hypothesis, precautionary saving, risk sharing
    JEL: D91 O16
    Date: 2004–11
  14. By: Douglas Gollin (Yale University and Williams College); Stephen L. Parente (University of Illinois); Richard Rogerson (Arizona State University)
    Abstract: This paper examines the effect of agricultural development on a country's overall development and growth experience. In most poor countries, large fractions of land, labor, and other productive resources are devoted to producing food for subsistence needs. This "food problem" can delay a country's industrial development for a long period of time, causing its per capita income to fall far behind the world leader. Once industrialization begins, this trend is reversed. The extent to which a country catches up to the leader depends primarily on factors that affect productivity in non- agricultural activities: agricultural productivity is thus largely irrelevant in the very long run. But in the short run, a country that experiences large improvements in agricultural productivity (due to, say, a Green Revolution) will experience a rapid increase in its income relative to the leaders.
    Keywords: Agriculture, Economic Growth, Subsistence, Food Problem, Agricultural Technology, Long-run Growth
    JEL: E13 O40 O41 Q10
    Date: 2004–12
  15. By: Gustav Ranis (Economic Growth Center, Yale University)
    Abstract: The labor surplus economy model has as its basic premise the inability of unskilled agricultural labor markets to clear in countries with high man/land ratios. In such situations, the marginal product of labor is likely to fall below a bargaining wage, related to the average rather than the marginal product. The reallocation of such disguisedly unemployed workers by means of "balanced" intersectoral growth ultimately permits the entire economy to operate on neo-classical principles. Finally, the paper introduces open economy dimensions, indicates the existence of other labor surplus sub-sectors and briefly responds to neo-classical critiques on both theoretical and empirical grounds.
    Keywords: Development Theory, Labor Markets
    JEL: O10 O12 O17
    Date: 2004–12
  16. By: T. Paul Schultz (Economic Growth Center, Yale University)
    Abstract: Life cycle savings is proposed as one explanation for much of the increase in savings and economic growth in Asia. The association between the age composition of a nation's population and its savings rate, observed within 16 Asian countries from 1952 to 1992, is re-estimated here to be less than a quarter the size reported in a seminal study, which assumed lagged savings is exogenous. Specification tests as well as common sense imply, moreover, that lagged savings is likely to be endogenous, and when estimated accordingly there remains no significant dependence of savings on the age composition, measured in several ways. Research should consider lifetime savings as a substitute for children, and model the causes for the decline in fertility which changes the age compositions and could thereby account for savings and growth in Asia.
    Keywords: Life Cycle Savings, Aging, Asian Growth, Demographic Transition
    JEL: D91 J11 O11 O53
    Date: 2004–12
  17. By: Richard Akresh (University of Illinois at Urbana-Champaign)
    Abstract: Researchers often assume household structure is exogenous, but child fostering, the institution in which parents send their biological children to live with another family, is widespread in sub-Saharan Africa and provides evidence against this assumption. Using data I collected in Burkina Faso, I analyze a household's decision to adjust its size and composition through fostering. A household fosters children as a risk-coping mechanism in response to exogenous income shocks, if it has a good social network, and to satisfy labor demands within the household. Increases of one standard deviation in a household's agricultural shock, percentage of good network members, or number of older girls increase the probability of sending a child above the current fostering level by 29.1, 30.0, and 34.5 percent, respectively. Testing whether factors influencing the sending decision have an opposite impact on the receiving decision leads to a rejection of the symmetric, theoretical model for child fostering.
    Keywords: Child Fostering, Risk-coping, Social Networks, Household Structure
    JEL: O15 J12 D10
    Date: 2005–01
  18. By: T. Paul Schultz (Economic Growth Center, Yale University)
    Abstract: Various household survey indicators of adult nutrition and health status are analyzed as determinants of individual wages. However, survey indicators of health status may be heterogeneous, or a combination of health human capital formed by investment behavior and variation due to genotype, random shocks, and measurement error, which are uncontrolled by behavior. Although there are no definitive methods for distinguishing between human capital and genetic variation in health outcomes, alternative mappings of health status, such as height, on community health services, parent socioeconomic characteristics, and ethnic categories may be suggestive. Instrumental variable estimates of health human capital and residual sources of variation in measured health status are included in wage functions to assess empirically whether the productivity of both components of health are equal. Evidence from Ghana, Cote d'Ivoire and Brazil suggests that the health human capital effect on wages is substantially larger than that associated with residual health variation.
    Keywords: Health Human Capital, Wage Productivity, Brazil, Ghana, Cote D'Ivoire
    JEL: I12 J24 O12
    Date: 2005–01
  19. By: Nobuhiko Fuwa (Agricultural Economics, Chiba University); Christopher Edmonds (Economics Study Area, East-West Center); Pabitra Banik (Indian Statistical Institute, Kolkata, India)
    Abstract: We focus on the impact of failing to control for differences in land types defined along toposequence on estimates of farm technical efficiency for small-scale rice farms in eastern India. In contrast with the existing literature, we find that those farms may be considerably more technically efficient than they appear from more aggregated analysis without such control. Farms planted with modern rice varieties are technically efficient. Furthermore, farms planted with traditional rice varieties operate close to the production frontier on less productive lands (upland and mid-upland), but significant technical inefficiency exists on more productive lands (medium land and lowland).
    JEL: O13 O33 Q12 Q16
    Date: 2005–05

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