nep-dev New Economics Papers
on Development
Issue of 2005‒11‒12
twenty-one papers chosen by
Jeong-Joon Lee
Towson University

  1. New Technologies and Indian SMEs By Lal, Kaushalesh
  2. Learning, Product Innovation and Firm Heterogeneity in Tanzania By Goedhuys, Micheline
  3. Is there a Role for Private Health Insurance in Developing Countries? By Denis Drechsler; Johannes Jütting
  4. Earnings Inequalities and Educational Mobility in Brazil over Two Decades By Denis Cogneau; Jérémie Gignoux
  5. Long-Term Impacts of the Oportunidades Conditional Cash Transfer Program on Rural Youth in Mexico By Jere R. Behrman; Susan W. Parker; Petra E. Todd
  6. Spatial externalities between Brazilian municipios and their neighbours By Philippe De Vreyer; Gilles Spielvogel
  7. Consumption growth and spatial poverty traps: an analysis of the effect of social services and community infrastructures on living standards in rural Peru By Philippe De Vreyer; Javier Herrera
  8. The Impact of Foreign Aid on Economic Growth: Volatility of Disbursements and Distribution of Receipts By K C Neanidis; D Varvarigos
  9. The Optimal Public Expenditure Financing Policy: Does the Level of Economic Development Matter? By N Bose; J A Holman; K C Neanidis
  10. Aid, Budgetary Policies, and the Macroeconomy: Growth, Inflation, and Welfare By K C Neanidis
  11. Fiscal Policy and Endogenous Growth with Public Infrastructure By P R Agénor
  12. Infrastructure Investment and Maintenance Expenditure: Optimal Allocation Rules in a Growing Economy By P R Agénor
  13. Schooling and Public Capital in a Model of Endogenous Growth By P R Agénor
  14. Health and Infrastructure in Models of Endogenous Growth By P R Agénor
  15. Mughal Decline, Climate Change, and Britain's Industrial Ascent: An Integrated Perspective on India's 18th and 19th Century Deindustrialization By David Clingingmsith; Jeffrey G. Williamson
  16. Income Disparity and Economic Growth: Evidence from China By Duo Qin; Marie Anne Cagas; Geoffrey Ducanes; Xinhua He; Rui Liu; Shiguo Liu
  17. Economic Returns to Social Capital in the Urban Informal Sector in Developing Countries: Micro Evidence from Small Textile Producers in Bolivia By Kurt Annen
  18. Paths to Success: The Relationship Between Human Development and Economic Growth By Michael Boozer; Gustav Ranis; Frances Stewart; Tavneet Suri
  19. Fertility and Income By T. Paul Schultz
  20. Elasticities of Demand for Consumer Credit By Dean Karlan; Jonathan Zinman
  21. New Evidence on the Convergence of International Income from a Group of 29 Countries By John W. Dawson; Amit Sen

  1. By: Lal, Kaushalesh (United Nations University, Institute for New Technologies)
    Abstract: The study identifies and analyses the factors that influenced the adoption of new technologies in SMEs. Information and communication technologies (ICTs) have been used as proxy of new technologies. The findings of the study suggest that industry-specific characteristics such as skill- and export-intensiveness have bearings on the type of ICT adoption. The size of operation measured in terms of sales turnover influenced the adoption of new technologies. The results also suggest that there are marginal differences in the labour productivity and profitability of firms that adopted varying degree of ICTs. In view of the fact that that MFA provisions are no more available to garments sector firms since January 1, 2005, the government needs to embark on providing technological, physical, and communication infrastructure at a globally competitive rate so that SMEs can withstand onslaught posed by large domestic firms and MNCs.
    Keywords: small and medium enterprises, SMEs, technological change, information and communication technologies, ICT, India, competitiveness, technology policy, industrial policy
    Date: 2005
  2. By: Goedhuys, Micheline (United Nations University, Institute for New Technologies)
    Abstract: Using a unique firm level data set on learning and product innovation in Tanzanian manufacturing and commercial farming, this paper sheds light on the various sources of firm learning, investment and collaboration and their relative importance for product innovation. The results indicate that larger and foreign owned firms invest significantly more in human and physical capital than do local micro, small and medium sized firms, and they are better connected to the internet. Their ways of upgrading technology also reveals a better financial endowment. Small and medium sized firms on the other hand report to collaborate more intensively with other local firms on product development, marketing and on the input market and upgrade technology through in-house activities, imitation and cooperation with suppliers and universities. By doing so, they are able to offset the scale disadvantages they face in competing for the market information and inputs – new machinery and specialised labour - necessary for product innovation in imperfect markets.
    Keywords: learning, innovation, technological change, competitiveness, multinational corporations, MNEs, small and medium enterprises, SMEs, investment, Tanzania
    Date: 2005
  3. By: Denis Drechsler; Johannes Jütting
  4. By: Denis Cogneau (DIAL, Paris); Jérémie Gignoux (INED, Paris)
    Abstract: This paper studies the impact of changes in educational opportunities on various definitions of labour market inequalities in Brazil over two decades (1976-96). Using four editions of the nationally representative PNAD survey, we analyze the evolution of overall inequalities and inequalities of opportunity in 40-49 year old males’ earnings. We design and implement semiparametric decompositions of the respective effects of (i) schooling expansion, (ii) changes in the structure of earnings, and (iii) changes in intergenerational educational mobility. Earnings inequalities varied little over the period, with a peak in the late 1980s that can be imputed to hyperinflation. First of all, the decompositions show that changes in the distribution of education contributed to the increase in both overall earnings inequalities and inequalities of opportunity among the oldest generations, before sharply reducing them among the post-WWII cohorts. Secondly, the decrease in returns to education also contributed to equalizing labour market opportunities in the 1988-96 period. Thirdly and lastly, the changes in educational mobility were not large enough to significantly affect earnings inequalities, whereas it is shown that they should play a prominent role in equalizing opportunities in the future.
    Keywords: Equality of opportunities, Labour market, Inequality decomposition, Brazil
    JEL: D63 J62 O15
    Date: 2005–10–21
  5. By: Jere R. Behrman; Susan W. Parker; Petra E. Todd
    Abstract: This paper studies the long-term effects of participation in the Mexican Oportunidades program on a variety of outcomes and behaviors of rural youth in Mexico. It analyzes data from a social experiment, which randomly phased-in the program in rural Mexican villages. In 1997, 320 villages (the treatment group) were randomly selected for early incorporation into the program and 186 villages (the control group) were designated as a control group to be incorporated eighteen months later. This paper examines whether differential exposure to the program significantly impacted educational attainment, labor market outcomes, marriage, migration and cognitive achievement of youth. The results show positive impacts of longer exposure on grades of schooling attained, but no effects on achievement tests. With respect to work, we find an overall reduction in work for male youth.
    Date: 2005–10–21
  6. By: Philippe De Vreyer (DIAL, Paris); Gilles Spielvogel (DIAL, Paris)
    Abstract: Clustering of economic performance and growth in space has generated considerable research on the spillovers and linkages among geographical neighbours. In this paper, we study the growth process of a large sample of Brazilian municipalities for the period 1970-1996 and attempt to evaluate the spatial externalities at work among them. We estimate the convergence speed of per capita income among municipios and test whether spatial externalities are linked to local income growth. Conditionally on structural characteristics, we find evidence of convergence between municipios and of positive spatial dependence in growth. These two facts could help explain the persistent inequalities between municipios and the increasing clustering of poor localities in the Northeast region.
    Keywords: Local growth, convergence, spatial externalities, spatial econometrics, Brazil
    JEL: O40 R11 R12
    Date: 2005–10–21
  7. By: Philippe De Vreyer (DIAL, Paris); Javier Herrera (DIAL, Paris)
    Abstract: We test the effect of local geographic endowment of capital on household growth in living standards in rural Peru, using a four years unbalanced panel data set. Our theoretical model of household consumption growth allows for the effect of community variables to modify the returns to augmented capital in the household production function. Three different sources of data are used: the ENAHO 1997-2000 household surveys, the population census of 1993 and the district infrastructure census of 1997. Altogether the addition of these different data sources makes an unusually rich data set, at least when considered with developing country standards. As in Jalan and Ravallion (2002), we use a quasi-differencing method to identify the impact of locally determined geographic and socioeconomic variables, while removing unobserved household and community level fixed effects. GMM are then used to estimate the model parameters. Several significant interesting results appear, confirming that private consumption growth depends on local geographic variables.
    JEL: C33 H23 I18 I32 I38
    Date: 2005–10–21
  8. By: K C Neanidis; D Varvarigos
    Abstract: This paper is concerned with the effects of aid transfers and their degree of volatility on economic growth. We develop a theoretical framework that distinguishes the allocation of foreign aid between productive and nonproductive uses. On the one hand, devoting aid inflows into productive public spending promotes growth while the related volatility has a damaging effect. On the other hand, the non-productive use of aid transfers has an adverse effect on growth while their volatility is growth-enhancing. The theoretical implications are supported by an empirical specification, formulated on similar grounds, for a panel of 74 aid-recipient countries over the time period from 1972 to 1998. The empirical results are found to be robust in a variety of sensitivity tests.
    Date: 2005
  9. By: N Bose; J A Holman; K C Neanidis
    Abstract: This paper explores how the optimal mode of public finance depends on the stage of economic development. The theoretical analysis is based on an overlapping generations growth model with an imperfect capital market. Random shocks create a demand for liquidity and establish a role for financial intermediaries. In this model, inflation matters because it affects the relative rates of return on assets in such a way that money becomes the preferred asset in the portfolio holdings of banks, causing a detrimental effect on economic growth. Such an effect is stronger (weaker) at lower (higher) levels of economic development due to the higher (lower) default risks associated with lending. Consequently, income taxation (seigniorage) is a relatively less distortionary way of financing public expenditure for low-income (high-income) countries. We provide empirical support for our model’s predictions using a panel of 21 OECD and 40 developing countries observed over the period 1972-1999.
    Date: 2005
  10. By: K C Neanidis
    Abstract: This paper examines the macroeconomic effects of foreign aid transfers in a small open recipient economy. The focus, however, is not on the impact of foreign aid per se but rather on aid’s influence conditional upon the different budgetary financing policies under the discretion of the recipient government. We compare the effects of an aid transfer tied to investment in a public good from a pure aid transfer, under income-tax and/or inflation-tax financing of government expenditures. The effects of each form of aid under each type of public financing are examined with respect to the economic growth rate, the rate of inflation, and the percentage change in welfare of the recipient economy. The economy is analyzed numerically and specific policy recommendations are provided for individual recipient countries.
    Date: 2005
  11. By: P R Agénor
    Abstract: Optimal tax and spending allocation rules are derived in an endogenous growth model in which raw labor must be educated to become productive and infrastructure services affect the schooling technology. The optimal tax rate is found to depend only on the elasticities of output with respect to infrastructure services and educated labor. The optimal share of spending on infrastructure (relative to education) depends also on these elasticities, as well as the quality of schooling and the degree to which infrastructure services affect the production of educated labor. Congestion costs in education tend to raise the optimal share of spending on infrastructure.
    Date: 2005
  12. By: P R Agénor
    Abstract: This paper studies the allocation of public expenditure between infrastructure investment and maintenance in an endogenous growth framework. In the basic model maintenance affects both the durability and efficiency of public capital. The balanced growth path is derived and transitional dynamics associated with a revenue-neutral increase in spending on maintenance are analyzed. The growth-maximizing tax rate and share of infrastructure investment are then obtained. The model is then extended to account for the possibility that public spending on maintenance affects also the durability of private capital. Implications for optimal policies are also analyzed.
    Date: 2005
  13. By: P R Agénor
    Abstract: This paper studies the allocation of public spending between education services and infrastructure investment in an endogenous growth model where public capital in infrastructure affects the process of human capital accumulation. The balanced growth path is derived and the dynamics associated with a budget-neutral reallocation of spending from education to infrastructure are studied through numerical simulations. The growth-maximizing tax rate is shown to depend only on the production technology (as in standard flow models of public expenditure), whereas the optimal share of infrastructure investment depends also on the "productiveness" of infrastructure (relative to education services) in the schooling technology.
    Date: 2005
  14. By: P R Agénor
    Abstract: This paper studies the optimal allocation of government spending between infrastructure and health (which affects labor productivity as well as household utility) in an endogenous growth framework. A key feature of the model is that infrastructure affects not only the production of goods but also the supply of health services. The first part considers the case where health enters as a flow in production and utility, whereas the second focuses on a "stock" approach. Growth- and utility-maximizing rules for output taxation and the allocation of public spending are derived. It is shown, in particular, that the welfare-maximizing share of spending on health exceeds the growth-maximizing share.
    Date: 2005
  15. By: David Clingingmsith; Jeffrey G. Williamson
    Abstract: India was a major player in the world export market for textiles in the early 18th century, but by the middle of the 19th century it had lost all of its export market and much of its domestic market. India underwent secular deindustrialization as a consequence. While India produced about 25 percent of world industrial output in 1750, this figure had fallen to only 2 percent by 1900. We ask how much of India's deindustrialization was due to local supply-side forces -- such as political fragmentation in the 18th century and rising incidence of drought between the early 18th and 19th century, and how much to world price shocks. We use an open, three-sector neo-Ricardian model to organize our thinking about the relative role played by domestic and foreign forces. A newly compiled database of relative price evidence is central to our analysis. We document trends in the ratio of export to import prices (the external terms of trade) from 1800 to 1913, and that of tradable to non-tradable goods and own-wages in the tradable sectors back to 1765. Whether Indian deindustrialization shocks and responses were big or small is then assessed by comparisons with other parts of the periphery.
    JEL: F1 N7 O2
    Date: 2005–11
  16. By: Duo Qin (Queen Mary, University of London); Marie Anne Cagas (Asian Development Bank); Geoffrey Ducanes (Asian Development Bank); Xinhua He (Chinese Academy of Social Sciences); Rui Liu (Chinese Academy of Social Sciences); Shiguo Liu (Chinese Academy of Social Sciences)
    Abstract: This paper carries out a pilot empirical study on how income inequality affects growth and the macro economy by means of incorporating panel data information into a macro-econometric model. China is used as the pilot field. Provincial urban and rural household data are used to construct inequality measures, which are then used to augment household consumption equations in the ADB China model. Model simulations are performed to study the effect of inequality on GDP growth and its sectoral components. Results show that inequality is a robust explanatory variable of consumption and that the way inequality develops over time carries certain negative consequences on GDP and sectoral growth.
    Keywords: Income inequality, Growth, Econometric model, China
    JEL: R11 E21 D3 C5 C2
    Date: 2005–11
  17. By: Kurt Annen (University of Guelph, Department of Economics)
    Abstract: The paper uses micro-level data obtained from surveying informal and formal small textile producers in Bolivia to estimate the economic returns to social capital. Social capital is defined as being linked to other individuals. The paper studies forms of social links that vary with respect to their inclusiveness and their ability to enforce cooperation. The paper shows, first, that social capital has an economic return for informal firms but not for formal ones. Informal firms operate without the shadow of courts in an environment that is characterized by a lack of anonymous trust which makes self-enforcing social links valuable. Second, more inclusive social capital generates a higher return as long as the self-enforcement constraint is met. The evidence supports the hypothesis that the “strength of weak ties”- argument advanced by scholars such as Granovetter, Putnam, and Fukuyama has to be complemented by the game-theoretic condition requiring exchange among linked players to be (self)-enforceable.
    Keywords: Social Capital, Anonymous Trust, Informal Sector, Small Firms.
    JEL: O12 L14 O17
    Date: 2005–11–08
  18. By: Michael Boozer (Economic Growth Center, Yale University); Gustav Ranis (Economic Growth Center, Yale University); Frances Stewart; Tavneet Suri
    Abstract: This paper explores the two-way relationships between Economic Growth (EG) and Human Development (HD), building on an earlier work by Ranis, Stewart, and Ramirez (2000). Here, we show that HD is not only a product of EG but also an important input to it. The paper develops new empirical strategies to estimate the strength of the two-way chains connecting HD and EG. Building on existing growth literature, we explore the empirical determinants of positive growth trajectories running from HD to EG and find that HD plays an essential role in explaining growth trajectories. Our findings point to the empirical relevance of endogenous growth models in general, and threshold effect models in particular. We also develop a measure of the strength of the EG to HD relationship and explore some of its empirical determinants. A strong sequencing implication of our findings is that HD must be given priority for the achievement of both higher EG as well as HD.
    Keywords: Human Development, Economic Growth, Threshold Models
    JEL: O15 O57 C23
    Date: 2003–12
  19. By: T. Paul Schultz (Economic Growth Center, Yale University)
    Abstract: There is an inverse association between income per adult and fertility among countries, and across households this inverse association is also often observed. Many studies find fertility is lower among better educated women and is often higher among women whose families own more land and assets. What do we know about the social consequences of events and policies that change fertility, if they are independent of parent preferences for children or the economic conditions which account for much of the variation in parent lifetime fertility? These effects of exogenous fertility change on the health and welfare of children can are assessed from Kenyan household survey data by analysis of the consequences of twins, and the effect of avoiding unanticipated fertility appears to have a larger beneficial effect on the body mass index or health status of children in the family than would be expected due to variation in fertility which is accounted for by parent education and household land.
    Keywords: Sources of Fertility Decline, Twins, Child Health, Kenya
    JEL: J13 I32 I12
    Date: 2005–10
  20. By: Dean Karlan (Economic Growth Center, Yale University); Jonathan Zinman (Dartmouth College)
    Abstract: The price elasticity of demand for credit has major implications for macroeconomics, finance, and development. We present estimates of this parameter derived from a randomized trial. The experiment was implemented by a consumer microfinance lender in South Africa and identifies demand curves that, while downward-sloping with respect to price, are flatter than recent estimates in both developing and developed countries throughout most of a wide price range. However, demand becomes highly price sensitive at higher-than-normal rates. We discuss several interpretations of this kink and present some related evidence. We also find that loan size is far more responsive to changes in loan maturity than to changes in interest rate. This pattern is more pronounced among lower income individuals, a comparative static that has been observed in the United States as well and is consistent with liquidity constraints that decrease with income.
    Keywords: Credit Markets, Microfinance, Demand Elasticity, Development Finance, Maturity Elasticity, Consumer Credit
    JEL: D1 D9 E2 G2 O1
    Date: 2005–10
  21. By: John W. Dawson; Amit Sen
    Abstract: This paper updates and extends the time-series evidence on the convergence of international incomes using a set of 29 countries over the period 1900-2001. Time-series tests for stochastic convergence are supplemented with tests which provide evidence on the notion of "Beta-convergence" predicted by the Solow model. The evidence indicates that the relative income series of 21 countries are consistent with stochastic convergence, and that Beta-convergence has occurred in at least 17 countries at some point over the 1900-2001 period. Further examination of the properties of the Beta- convergence test provides anecdotal evidence of conditional convergence during the post-war period in seven countries for which the convergence hypothesis was initially rejected. Analysis of the cross-country dispersion of incomes over time also suggests that convergence has occurred over the 1900-2001 period, with structural breaks associated with World War II in many countries causing a break in the convergence process.
    Date: 2005

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