nep-dev New Economics Papers
on Development
Issue of 2005‒11‒19
fourteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Will services be the new engine of economic growth in India? By Ajit Singh; Sukti Dasgupta
  2. The Cost of Poverty Alleviation Transfer Programs: A Comparative Analysis of Three Programs in Latin America By John Maluccio; Natàlia Caldés; David Coady
  3. Why Don't More Puerto Rican Men Work? The Rich Uncle (Sam) Hypothesis By Maria Enchautegui; Richard B. Freeman
  4. Monitoring Corruption: Evidence from a Field Experiment in Indonesia By Benjamin A. Olken
  6. China's capital account convertibility and financial stability By James Laurenceson; Kam Ki Tang
  7. A New Indicator of Technological Capabilities for Developed and Developing Countries (ArCo) By Daniele Archibugi
  8. Sustainable Development: Renewable Resources and Technological Progress By Simone Valente
  9. Inequality and Growth: A Semiparametric Investigation By Dustin Chambers
  10. The Transition Process in China: a Theoretical and Empirical Study By C. Hsiao; P. Chen
  11. On the Distributional Effects of Trade Policy: A Macroeconomic Perspective By Luis San Vicente Portes
  12. Functional Distribution, Land Ownership and Industrial Takeoff By Ennio Bilancini; Simone D'Alessandro
  13. Foreign Direct Investment in India: A Critical Analysis of FDI from 1991-2005 By Kulwindar Singh
  14. The Golden Growth Law in Economic Process By feng dai

  1. By: Ajit Singh; Sukti Dasgupta
    Abstract: This paper revisits the role of manufacturing and services in economic development in the light of the following new facts: (a) a faster growth of services than that of manufacturing in many developing countries (DCs). (b) The emergence of Òde-industrialisationÓ in several DCs at low levels of per capita income. (c) Jobless growth in the formal sector even in fast growing countries such as India and (d) a large expansion of the informal sector in both fast growing and slow growing DCs. Although the paper examines these phenomena in the specific case of the Indian economy, the analysis has much wider application, both for economic policy and for theories of growth and structural change.
    Keywords: manufacturing, services, de-industrialisation, developing countries
    JEL: O14
  2. By: John Maluccio; Natàlia Caldés; David Coady
    Abstract: A common criticism of antipoverty programs is that the high share of administrative (nontransfer) costs substantially reduces their effectiveness. Yet, there is surprisingly little rigorous empirical evidence on program costs. Improved information and a better understanding of the costs of such programs are crucial for effective policymaking. This study proposes and implements a replicable methodology for a comparative cost analysis of three similar poverty alleviation programs in Latin America, and assesses their cost efficiency. The findings underscore that any credible assessment of cost-efficiency requires a detailed analysis of program cost structures that goes well beyond simply providing aggregate cost information.
    Keywords: cost efficiency, poverty alleviation, human capital, Honduras, Mexico, Nicaragua
    Date: 2005
  3. By: Maria Enchautegui; Richard B. Freeman
    Abstract: Puerto Rico has an extraordinarily low employment rate for men. We document the low employment rate using Census of Population and labor force survey data and offer "the rich uncle (Sam) hypothesis" that the connection of the relatively poor economy of Puerto Rico to the wealthier US has created conditions that generate low employment. In support of the hypothesis, we show: 1) that GNP and GDP have diverged on the island, distorting the relationship between GDP and employment, due potentially to federal tax benefits to companies operating in Puerto Rico; 2) transfers to Puerto Rican families funded mainly by the federal government, which account for about 22 percent of personal income; 3) open borders to the U.S. that give men with high desire for work incentive to migrate to the US, and potentially creates a lower bound to wages on the island; (4) a wage structure with relatively higher earnings in low paid jobs; and (5) employment in the informal sector, which is unmeasured in official statistics. We note that other regional economies with rich "uncles", such as East Germany with West Germany, Southern Italy with Northern Italy, have comparable employment problems.
    JEL: J4 J6
    Date: 2005–11
  4. By: Benjamin A. Olken
    Abstract: This paper uses a randomized field experiment to examine several approaches to reducing corruption. I measure missing expenditures in over 600 village road projects in Indonesia by having engineers independently estimate the prices and quantities of all inputs used in each road, and then comparing these estimates to villages' official expenditure reports. I find that announcing an increased probability of a government audit, from a baseline of 4 percent to 100 percent, reduced missing expenditures by about 8 percentage points, more than enough to make these audits cost-effective. By contrast, I find that increasing grass-roots participation in the monitoring process only reduced missing wages, with no effect on missing materials expenditures. Since materials account for three-quarters of total expenditures, increasing grass-roots participation had little impact overall. The findings suggest that grass-roots monitoring may be subject to free-rider problems. Overall, the results suggest that traditional top-down monitoring can play an important role in reducing corruption, even in a highly corrupt environment.
    JEL: D73
    Date: 2005–11
  5. By: Emma Xiaoqin Fan; Jesus Felipe
    Abstract: This paper documents the diverging patterns of capital accumulation, profit rates, investment rates, capital productivity and technological progress of China and India since 1980. It is concluded that the two Asian economies have followed very different growth patterns, and as a consequence, they face different challenges for the future. India's problem is how to accelerate growth, while China's is how to sustain it. India must address impediments to investment so as to increase its investment rate. China must deal with the question of whether investment can continue being the main source of growth given that profit rates and capital productivity are decreasing and that the economy has created substantial excess capacity.
    JEL: O10 O30 O40 O53 O57
    Date: 2005–11
  6. By: James Laurenceson; Kam Ki Tang (EAERG - School of Economics, The University of Queensland)
    Abstract: Capital account convertibility in China is on the rise. Some see the process as a means of circumventing domestic financial sector inefficiency while others view it as potentially exposing China to financial crises. In considering these different viewpoints, this paper attempts to quantify the impact that opening the capital account will have on the volume of China’s international capital flows. It is found that were China to fully open its capital account, gross non-FDI capital flows are predicted to rise by around 4.6 percent of GDP. While an increase of this magnitude would present a prudential challenge for China’s monetary authorities, it does not appear to be large enough to seriously call into question financial sector stability, either in China or abroad.
  7. By: Daniele Archibugi (Italian National Research Council (CNR) - Istituto di Studi sulla Ricerca e Documentazione Scientifica (ISRDS); London School of Economics & Political Science (LSE); Universit Catholique de Louvain la Neuve)
    Abstract: This paper devises a new indicator (ArCo) of technological capabilities that aims at accounting for developed and developing countries. Building on similar attempts as those devised by UN Agencies, including the UNDP Human Development Report's Technology Achievement Index (TAI) and UNIDO's Industrial Performance Scoreboard, this index takes into account a number of other variables associated with technological change.Three main components are considered: the creation of technology, the technological infrastructures and the development of human skills. Eight sub-categories have also been included. ArCo also allows for comparisons between countries over time. A preliminary attempt to correlate ArCo to GDP is also presented.
    Keywords: Technology creation, infrastructures, human skills, development index
    Date: 2004–01–19
  8. By: Simone Valente (Institute of Economic Research, ETH Zurich)
    Abstract: Conflicts between optimality and sustainability are typical in the literature on sustainable development. Using the 'capital-resource' growth model, Pezzey and Withagen (1998) have proved that if natural resources are exhaustible, the time-path of consumption is single-peaked, declining from some point in time onwards. This paper extends the model to include technical progress, resource renewability, extraction costs and population growth. The main result is that, for any constant returns to scale technology, optimal paths can be sustainable only if the social discount rate does not exceed the sum of the rates of resource regeneration and augmentation. The development of resource-saving techniques is crucial for sustaining consumption per capita in the long run, whereas capital depreciation and extraction costs are neutral with respect to this sustainability condition.
    Keywords: Optimal Growth, Renewable Resources, Sustainable Development, Technological Progress
    JEL: Q20 O11 O30
    Date: 2004–04–08
  9. By: Dustin Chambers (Salisbury University public)
    Abstract: The relationship between income inequality and economic growth is re-examined using a semiparametric, dynamic panel data model. Significant empirical evidence is uncovered supporting the theory that the relationship between these variables is nonlinear. Additionally, the evidence also supports the conclusion that other important economic variables, notably past inequality and the rate of investment, directly affect the relationship between base period inequality and subsequent 5-year growth. The results of this paper suggest that higher income inequality (regardless of the magnitude of change) and small reductions in income inequality both reduce subsequent growth. Interestingly, large reductions in income inequality are growth promoting. Moreover, it is found that lower investment rates mitigate the negative effects of higher inequality on growth. It is shown that these results, collectively, are consistent with both a simple political economy model with costly bargaining and an economic growth model with capital-skill complementarities and imperfect credit markets
    Keywords: Economic Growth, Income Inequality, Capital-Skill Complementarity, Semiparametric Dynamic Panel
    JEL: E22 H52 O40
    Date: 2005–11–11
  10. By: C. Hsiao; P. Chen
    Abstract: In this paper we model the transition process in China. First we review the economic reform policies since 1978. Based on the review, a two-segment-model is constructed. The model can be viewed as a general equilibrium model, with a planned segment that produces some distortion in the model, and a market segment that tries to correct this distortion and keeps the whole economy in equilibrium. Then we examine diverse reform policies such as the price reform, the financial market reform, and the labour market reform. In the last section, the main conclusions of this study will be summarised and commented from a viewpoint of further development of the study.
    Keywords: Transition Economy, Economic Reconstruction, Industrialization
    JEL: O14 P10 P20
    Date: 2005–11–11
  11. By: Luis San Vicente Portes (Economics Georgetown University)
    Abstract: This paper develops a theoretical model to explore the relationship between openness to trade and long-term income inequality. Empirical evidence on the issue is mixed, though greater inequality is often cited as a possible cost of trade liberalization. To quantify the effect of liberalization on inequality I calibrate a two-sector (agriculture and non-agriculture) open-economy macroeconomic model to the Mexican economy. Agents in the model are subject to idiosyncratic, uninsurable labor income risk, and precautionary saving generates endogenous distributions of wealth and income. When preferences are characterized by subsistence floor for food consumption, trade liberalization implies large welfare gains for low wealth agents. At the same time, liberalization increases long-run wealth and income inequality. After liberalization land-owners are worse off since the price of land falls along with the relative price of the agricultural commodity. When tariff revenue must be replaced by an alternative instrument, higher labor taxes are preferred to higher taxes on consumption or capital
    Keywords: Free trade; inequality; agriculture
    JEL: E60 F13 F40 O13
    Date: 2005–11–11
  12. By: Ennio Bilancini; Simone D'Alessandro
    Abstract: This paper investigates how the distribution of land property rights affects industrial take-off and aggregate income through the demand side. We study a stylized two sectors economy where the manufacturing sector is assumed to be constituted by a continuum of small markets producing distinct commodities. Following Murphy et al. [24] we model industrialization as the introduction of an increasing returns technology in place of a constant returns one. However, we depart from their framework by assuming income to be distributed according to functional groups’ membership (landowners, capitalists, workers). We carry out an equilibrium analysis for different levels of land ownership concentration proving that, under the specified conditions, there is a non-monotonic relation between the distribution of land property rights and both industrialization and income. We clarify that non-monotonicity arises because of the way land ownership concentration affects the level and the distribution of profits among capitalists. Our results suggest that i) both a too concentrated and a too diffused distribution of land property rights can be detrimental to industrialization, ii) landownership affects the economic performance of an industrializing country by determining industrial profits and iii) in terms of optimal land distribution there may be a tradeoff between income and industrialization.
    JEL: D33 O14 Q15
    Date: 2005–10
  13. By: Kulwindar Singh (Centre for Civil Society)
    Abstract: The Concept of Foreign Direct Investment is now a part of India's economic future but the term remains vague to many, despite the profound effects on the economy. Despite the extensive studies on FDI, there has been little illumination forthcoming and it remains a contentious topic. The paper explores the uneven beginnings of FDI, in India and examines the developments (economic and political) relating to the trends in two sectors: Industry and Infrastructure and sub sector Telecom, to illustrate that.
    Keywords: India FDI, FDI liberalization
    JEL: O P
    Date: 2005–11–12
  14. By: feng dai (Zhengzhou Information Engineering University, CHINA)
    Abstract: Based on the partial distribution1 and the developower (development power) 2, this paper puts forward the golden growth law in economic process for the first time. The law describes the optimal relation between the economic investment and the economic growth, and could be taken as a basis to distinguish that the economic process is higher in developing efficiency or not. A series of important constants in economy are obtained on the golden growth law, like the coefficient of golden growth and the increment contribution of developower in economic growth. These coefficients can reflect some of key number relations among the economic growth. Also in this paper, the programming and managing models for economic growth are given on the economic structure. We can use them as the tools to analyze and control the macroeconomic growth in analytic way. Finally, by the empirical researches, the golden growth law is explained to be existent and effective, the programming model for economic structure are proved to be useful to make decision in macroeconomic management.
    Keywords: partial distribution, developower, economic growth, golden growth law, economic structure
    JEL: O P
    Date: 2005–11–15

This nep-dev issue is ©2005 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.