nep-dev New Economics Papers
on Development
Issue of 2005‒09‒17
eight papers chosen by
Jeong-Joon Lee
Towson University

  1. Institutions, Social Capital, and Economic Development in Africa: An Empirical Study. By Mina Baliamoune-Lutz
  2. What’s Keeping the Apples Away? Addressing the Market Integration Issue By Deodhar Satish Y
  3. Alternative Composite Lisbon Development Strategy Indices By Jong-Eun Oh; Almas Heshmati
  4. Endogenous Fertility, Mortality and Economic Growth: Can a Malthusian Framework Account for the Conflicting Historical Trends in Population? By Isaac Ehrlich; Jinyoung Kim
  5. Eat, Drink, Firms and Government: An Investigation of Corruption from Entertainment and Travel Costs of Chinese Firms By Hongbin Cai; Hanming Fang; Lixin Colin Xu
  6. Liquidity Constraint and Child Labor In India: Is Market Really Incapable Of Eradicating It From Wage-Labor Households? By Basab Dasgupta
  7. Ghost of 0.7%: Origins and Relevance of the International Aid Target By Michael Clemens; Todd Moss
  8. Economic Growth, Well-Being and Governance under Economic Reforms: Evidence from Indian States By Sudip Ranjan Basu

  1. By: Mina Baliamoune-Lutz
    Abstract: Using 1975-2000 panel data, this paper examines the effects of institutions and social capital, in the form of generalized trust (proxied by contract-intensive money), on economic development in 39 African countries. The results indicate that there is a robust positive influence of social capital on income. In addition, the interaction between social capital and institutional quality, and the interaction of social capital with human capital also have a positive influence on economic development. On the other hand, institutions do not seem to have an independent effect (or may even have a negative impact) on income. Overall, the empirical results suggest that social capital and institutions in Africa may be complements rather than substitutes.
    Date: 2005–07
  2. By: Deodhar Satish Y
    Abstract: Apples have been grown in India for a century. At present apple production exceeds 1.4 million tonnes a year. Still, there are wide variations in the apple prices across the country. We test the price data for market integration using cointegration and error correction methodology. Delhi, the major wholesale market for apples, does not seem to influence other markets. Mumbai market does influence Bangalore market, although with about a two week lag. Absence of integration can be attributed to traders from southern region bypassing the Delhi wholesale market, cascading effect of trader margins at various distribution points, absence of competition to agricultural produce marketing committee markets, and, inadequacy of road and cool chain infrastructure.
    Date: 2005–08–12
  3. By: Jong-Eun Oh (TEPP, Seoul National University); Almas Heshmati (TEPP, Seoul National University and IZA Bonn)
    Abstract: This study addresses the measurement of two composite Lisbon strategy indices that quantifies the level and patterns of development for ranking countries. The first index is nonparametric labelled as Lisbon strategy index (LSI). It is composed of six components: general economics, employment, innovation research, economic reform, social cohesion and environment, each generated from a number of Lisbon indicators. LSI by reducing the complexity of the set of indicators, it makes the ranking procedures quite simple. The second and parametric index is based on principal component analysis. Despite the difference in the ranking by the two indices, it is shown that the United States outperformed most EU-member states. Our investigations also show evidence of significant dynamic changes taking place, as the countries of the Union struggle to achieve the Lisbon goals. The necessity of a real reform agenda in several old and new members and candidate countries emerges from our analysis.
    Keywords: economic development, economic integration, composite index, Lisbon Agenda
    JEL: O10 C43 F15 O57
    Date: 2005–08
  4. By: Isaac Ehrlich; Jinyoung Kim
    Abstract: The 19th century economist, Thomas Robert Malthus, hypothesized that the long-run supply of labor is completely elastic at a fixed wage-income level because population growth tends to outstrip real output growth. Dynamic equilibrium with constant income and population is achieved through equilibrating adjustments in "positive checks" (mortality, starvation) and "preventive checks" (marriage, fertility). Developing economies since the Industrial Revolution, and more recently especially Asian economies, have experienced steady income growth accompanied by sharply falling fertility and mortality rates. We develop a dynamic model of endogenous fertility, longevity, and human capital formation within a Malthusian framework that allows for diminishing returns to labor but also for the role of human capital as an engine of growth. Our model accounts for economic stagnation with high fertility and mortality and constant population and income, as predicted by Malthus, but also for takeoffs to a growth regime and a demographic transition toward low fertility and mortality rates, and a persistent growth in per-capita income.
    JEL: O1 J1 I1
    Date: 2005–09
  5. By: Hongbin Cai; Hanming Fang; Lixin Colin Xu
    Abstract: Entertainment and Travel Costs (ETC) is a standard expenditure item for Chinese firms with an annual amount equal to about 20 percent of total wage bills. We use this objective accounting measure as a basis to analyze the composition of ETC and the effect of ETC on firm performance. We rely on the predictions from a simple but plausible model of managerial decision-making to identify components of ETC by examining how the total ETC responds to different environmental variables. In our empirical analysis we find strong evidence that firms. ETC consists of a mix that includes bribery to government officials both as “grease money” and “protection money,” expenditures to build relational capital with suppliers and clients, and managerial excesses. ETC overall has a significantly negative effect on firm performance, but its negative effect is much less pronounced for those firms located in cities with low quality government service, those who are subject to severe government expropriation, and those who do not have strong relationship with suppliers and clients. Our findings have important implications on how to effectively curb corruption.
    JEL: L2 O1 H2
    Date: 2005–09
  6. By: Basab Dasgupta (University of Connecticut)
    Abstract: One way to measure the lower steady state equilibrium outcome in human capital development is the incidence of child labor in most of the developing countries. With the help of Indian household level data in an overlapping generation framework, we show that production loans under credit rationing are not optimally extended towards firms because of issues with adverse selection. More stringent rationing in the credit market creates a distortion in the labor market by increasing adult wage rate and the demand for child labor. Lower availability of funds under stringent rationing coupled with increased demand for loans induces the high risk firms to replace adult labor by child labor. A switch of regime from credit rationing to revelation regime can clear such imperfections in the labor market. The equilibrium higher wage rate elevates the household consumption to a significantly higher level than the subsistence under credit rationing and therefore higher level of human capital development is assured leading to no supply of child labor.
    Keywords: Credit Rationing, Informal Credit, Child Labor, Self Revelation Mechanism
    JEL: O16 O17
    Date: 2005–08
  7. By: Michael Clemens (Center for Global Development); Todd Moss (Center for Global Development)
    Abstract: The international goal for rich countries to devote 0.7% of their national income to development assistance has become a cause célèbre for aid activists and has been accepted in many official quarters as the legitimate target for aid budgets. The origins of the target, however, raise serious questions about its relevance. First, the 0.7% target was calculated using a series of assumptions that are no longer true, and justified by a model that is no longer considered credible. When we use essentially the same method used to arrive at 0.7% in the early 1960s and apply today’s conditions, it yields an aid goal of just 0.01% of rich-country GDP for the poorest countries and negative aid flows to the developing world as a whole. We do not claim in any way that this is the 'right' amount of aid, but only that this exercise lays bare the folly of the initial method and the subsequent unreflective commitment to the 0.7% aid goal. Second, we document the fact that, despite frequent misinterpretation of UN documents, no government ever agreed in a UN forum to actually reach 0.7%—though many pledged to move toward it. Third, we argue that aid as a fraction of rich country income does not constitute a meaningful metric for the adequacy of aid flows. It would be far better to estimate aid needs by starting on the recipient side with a meaningful model of how aid affects development. Although aid certainly has positive impacts in many circumstances, our quantitative understanding of this relationship is too poor to accurately conduct such a tally. The 0.7% target began life as a lobbying tool, and stretching it to become a functional target for real aid budgets across all donors is to exalt it beyond reason. That no longer makes any sense, if it ever did.
    Keywords: aid, foreign aid, development, mdg, mdgs, millennium development goals, oda, united nations, un, overseas development assistance, africa
    JEL: O19
    Date: 2005–09–07
  8. By: Sudip Ranjan Basu (Graduate Institute of International Studies HEI , Geneva)
    Abstract: This paper provides empirical evidence, from the study of sixteen major Indian states for the period 1980-2001, that under the economic reform process, the better institutional mechanism could actually help economies to grow faster with higher level of economic well-being. We estimate economic well-being index (by aggregating fifteen socio- economic variables, viz, education, infrastructure, technological progress, income, etc.) and also index of good governance (by aggregating thirteen variables indicating rule of law, government functioning, public services, press freedom, etc) by multivariate statistical measures. Panel regression showed that governance measures, and economic policy variables are crucial to explain differential level of development performance across states in India during the last two decades.
    Keywords: Growth, Well-being, Governance, Economic Reforms, Panel data, India
    JEL: B25 C23 O18 R11
    Date: 2005–09–08

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