nep-dev New Economics Papers
on Development
Issue of 2005‒12‒01
twenty-two papers chosen by
Jeong-Joon Lee
Towson University

  2. Will political liberalisation bring about financial development? By Yongfu Huang
  3. Accounting for Cross-Country Income Differences By Francesco Caselli
  4. Is Poland the Next Spain? By Francesco Caselli; Silvana Tenreyro
  5. Immigrants at Retirement: Stay/Return or Va-et-Vient By Francois-Charles Wolff; Augustin de Coulon
  6. Cities in the Developing World By Henry G. Overman; Anthony J. Venables
  7. Volatility and Development By Miklos Koren; Silvana Tenreyro
  8. The Todaro Paradox Revisited By Zenou, Yves
  9. Openness Can be Good for Growth: The Role of Policy Complementarities By Roberto Chang; Linda Kaltani; Norman Loayza
  10. Farm Productivity and Market Structure. Evidence from Cotton Reforms in Zambia By Irene Brambilla; Guido Porto
  11. A Tale of Two States By Amartya Lahiri; Kei-Mu Yi
  12. The Surprising Dynamism of the Malthusian Economy: England, 1200-1800 By Gregory Clark
  13. (Relative Price) Lessons from Taking an AK Model to the Data By Ana Balcao Reis; Joao Ejarque
  14. The Complementarity and Self Productivity of Human Capital Investments in a SDGE Economy with Altruism and Lifetime Liquidity Constraints By Flavio Cunha
  15. On the Joint Dynamics of Inequality and Growth By Fernando Jaramillo; Hubert Kempf
  16. Development Accounting with Endogenous TFP By Juan Carlos Cordoba; Marla Ripoll
  17. A Theory of Modern Transition Applied to Thailand By Yong Kim; Hyeok Jeong
  18. Returns to education in Bangladesh By M Niaz Asadullah
  19. Financing For Life Long Education:For Real GDP Growth In Jamaica By Peter W Jones
  20. Reconciling the Chinese Financial Development with its Economic By Jean-Claude Maswana
  21. Lucas vs. Lucas: On Inequality and Growth By Juan Carlos Cordoba; Genevieve Verdier
  22. China and the Geopolitics of Oil in the Asian Pacific Region By Pablo Bustelo

  1. By: Tiago V. de V. Cavalcanti; Anne P. Villamil
    Abstract: This paper studies the distributional implications of intermediation costs. We built a "Bewley" model economy where individuals experience uninsurable idiosyncratic shocks on labor productivity and financial intermediation is costly. Individuals smooth consumption by making deposits to a financial intermediary in good times and by running down credit balances or getting loans in bad times. Higher intermediation costs (IC) increase the costs for individuals to insure against idiosyncratic shocks and to smooth consumption over time. When IC increase by a factor of 10 from its baseline value of 4% (US case), aggregate welfare decreases by less than 1% of the average consumption. For those at the bottom 1% of the wealth distribution the welfare costs are roughly 41% of their consumption, while for those at the top 1% it is -0.17%.
    JEL: E60 G38 O11
    Date: 2005
  2. By: Yongfu Huang
    Abstract: This paper studies the e¤ect of political liberalisation on financial development in two steps. First, the paper examines whether political liberalisation in terms of institutional improvement promotes financial development, using a panel dataset of 90 developed and developing countries over 1960-99. The empirical evidence reveals a positive effect on financial development at least in the short-run, particularly for lower-income countries, ethnically divided countries and French legal origin countries. In the second part of the paper, a before-after event study approach is used to explore the impact of democratic transitions on financial development. It indicates that a democratic transformation is typically followed by an increase in financial development.
    Keywords: Political liberalisation; Financial development.
    JEL: G20 O16 O17
    Date: 2005–11
  3. By: Francesco Caselli
    Abstract: Why are some countries so much richer than others? Development Accounting is a first-passattempt at organizing the answer around two proximate determinants: factors of productionand efficiency. It answers the question "how much of the cross-country income variance canbe attributed to differences in (physical and human) capital, and how much to differences inthe efficiency with which capital is used?" Hence, it does for the cross-section what growthaccounting does in the time series. The current consensus is that efficiency is at least asimportant as capital in explaining income differences. I survey the data and the basicmethods that lead to this consensus, and explore several extensions. I argue that some ofthese extensions may lead to a reconsideration of the evidence.
    Keywords: income variance, capital, development accounting
    JEL: D31 O15 O19 M00 M41
    Date: 2005–01
  4. By: Francesco Caselli; Silvana Tenreyro
    Abstract: We revisit Western Europe's record with labor-productivity convergence, and tentatively extrapolateits implications for the future path of Eastern Europe. The poorer Western European countries caughtup with the richer ones through both higher rates of physical capital accumulation and greater totalfactor productivity gains. These (relatively) high rates of capital accumulation and TFP growth reflectconvergence along two margins. One margin (between industry) is a massive reallocation of laborfrom agriculture to manufacturing and services, which have higher capital intensity and use resourcesmore efficiently. The other margin (within industry) reflects capital deepening and technology catchupat the industry level. In Eastern Europe the employment share of agriculture is typically quitelarge, and agriculture is particularly unproductive. Hence, there are potential gains from sectoralreallocation. However, quantitatively the between-industry component of the East's income gap isquite small. Hence, the East seems to have only one real margin to exploit: the within industry one.Coupled with the fact that within-industry productivity gaps are enormous, this suggests thatconvergence will take a long time. On the positive side, however, Eastern Europe already has levels ofhuman capital similar to those of Western Europe. This is good news because human capital gapshave proved very persistent in Western Europe's experience. Hence, Eastern Europe does start outwithout the handicap that is harder to overcome.
    Keywords: Economic integration, economic growth, labor, technology, productivity gaps, Europe
    JEL: F15 F43 N10 O11 O14 O47
    Date: 2005–01
  5. By: Francois-Charles Wolff; Augustin de Coulon
    Abstract: where labour considerations no longer matter, the location decisions are expected to dependnot only on a comparison of standard-of-living between the origin and host countries, butshould also be affected by the strength of family relationships. Assuming that migrants derivesome satisfaction from contact and visits with other family members, we suggest thatmigrants may choose a third type of migration move beyond the standard stay/return decisioncalled the 'va-et-vient' where individuals choose to share their time across the host and theorigin country. In the empirical analysis, we test the determinants of the location intention atretirement using a recent data set on migrants currently living in France. We found that themigrant's choice is significantly related to the location of other family members and thatthose determinants vary with respect to the different preferred choices.
    Keywords: Return migration, retirement, family interactions
    JEL: J26 O15 R23
    Date: 2005–05
  6. By: Henry G. Overman; Anthony J. Venables
    Abstract: Rapid urbanisation is a major feature of developing countries. Some 2 billion more people arelikely to become city residents in the next 30 years, yet urbanisation has received littleattention in the modern development economics literature. This paper reviews theoretical andempirical work on the determinants and effects of urbanisation. This suggests that there aresubstantial productivity benefits from cities, although unregulated outcomes may well lead toexcessive primacy as externalities and coordination failures inhibit decentralisation ofeconomic activity. Policy should operate both by identifying and addressing these marketfailures, and by seeking to remove institutional obstacles to decentralisation.
    Keywords: Urbanisation, economic development
    JEL: O18 R0
    Date: 2005–07
  7. By: Miklos Koren; Silvana Tenreyro
    Abstract: Why is GDP growth so much more volatile in poor countries than in rich ones? We identify four possiblereasons: (i) poor countries specialize in more volatile sectors; (ii) poor countries specialize in fewer sectors; (iii)poor countries experience more frequent and more severe aggregate shocks (e.g. from macroeconomic policy);and (iv) poor countries' macroeconomic fluctuations are more highly correlated with the shocks of the sectorsthey specialize in. We show how to decompose volatility into these four sources, quantify their contribution toaggregate volatility, and study how they relate to the stage of development. We document the followingregularities. First, as countries develop, their productive structure moves from more volatile to less volatilesectors. Second, the level of specialization declines with development at early stages, and slowly increases atlater stages of development. Third, the volatility of country-specific macroeconomic shocks falls withdevelopment. Fourth, the covariance between sector-specific and country-specific shocks does not varysystematically with the level of development. We argue that many theories linking volatility and developmentare not consistent with these findings and suggest new directions for future theoretical work.
    Keywords: volatility, specialization, diversification, development, economic fluctuations.
    JEL: O11 O14 E32
    Date: 2005–11
  8. By: Zenou, Yves (The Research Institute of Industrial Economics)
    Abstract: The Todaro Paradox states that policies aimed at reducing urban unemployment are bound to backfire: they will raise rather than reduce urban unemployment. The aim of this paper is to reexamine this paradox in the context of efficiency wage and search-matching models. For that, we study a policy that consists in decreasing the urban unemployment benefit. In an efficiency wage model, we find that there is no Todaro paradox while this is not always true in a search-matching model since a decrease in the urban unemployment benefit can increase both urban employment and unemployment.
    Keywords: Efficiency Wages; Search-Matching; Rural-Urban Migration; Policy
    JEL: D83 J41 J64 O15
    Date: 2005–11–09
  9. By: Roberto Chang; Linda Kaltani; Norman Loayza
    Abstract: This paper studies how the effect of trade openness on economic growth depends on complementary reforms that help a country take advantage of international competition. This issue is illustrated with a simple Harris-Todaro model where output gains after trade liberalization depend on the degree of labor market flexibility. In that model, trade protection may ameliorate the problem of underemployment (and underproduction) in sectors affected by labor market distortions; hence trade liberalization unambiguously increases per capita income only when labor markets are sufficiently flexible. We then present some panel evidence on how the growth effect of openness depends on a variety of structural characteristics. For this purpose, we use a non-linear growth regression specification that interacts a proxy of trade openness with proxies of educational investment, financial depth, inflation stabilization, public infrastructure, governance, labor-market flexibility, ease of firm entry, and ease of firm exit. We find that the growth effects of openness are positive and economically significant if certain complementary reforms are undertaken.
    JEL: E61 F13 F43 O40
    Date: 2005–11
  10. By: Irene Brambilla; Guido Porto
    Abstract: This paper investigates the impacts of cotton marketing reforms on farm productivity, a key element for poverty alleviation, in rural Zambia. The reforms comprised the elimination of the Zambian cotton marketing board that was in place since 1977. Following liberalization, the sector adopted an outgrower scheme, whereby firms provided extension services to farmers and sold inputs on loans that were repaid at the time of harvest. There are two distinctive phases of the reforms: a failure of the outgrower scheme, and a subsequent period of success of the scheme. Our findings indicate that the reforms led to interesting dynamics in cotton farming. During the phase of failure, farmers were pushed back into subsistence and productivity in cotton declined. With the improvement of the outgrower scheme of later years, farmers devoted larger shares of land to cash crops, and farm productivity significantly increased.
    JEL: O12 O13 Q12
    Date: 2005–11
  11. By: Amartya Lahiri; Kei-Mu Yi
    Keywords: Indian states, development
    JEL: O11 O14
    Date: 2005
  12. By: Gregory Clark
    Date: 2005
  13. By: Ana Balcao Reis; Joao Ejarque (Economics University of Essex)
    Keywords: Endogenous Growth, Technology Shocks, Investment Shocks.
    JEL: E21 E32 O40
    Date: 2005
  14. By: Flavio Cunha (Department of Economics University of Chicago)
    Keywords: Human Capital Investments, Inequality
    JEL: J24 D31
    Date: 2005
  15. By: Fernando Jaramillo; Hubert Kempf (EUREQua, U. Paris-1 Pantheon-Sorbonne)
    Keywords: inequality, growth, segmentation, coalition theory
    Date: 2005
  16. By: Juan Carlos Cordoba; Marla Ripoll (Economics Univesity of Pittsburgh)
    Keywords: development accounting, endogenous TFP, technology diffusion, factors of production
    JEL: O0 O3 O4
    Date: 2005
  17. By: Yong Kim; Hyeok Jeong (Economics University of Southern California)
    Keywords: Modern Transition, Sector-Specific Complementarity, TFP and Inequality Dynamics
    JEL: O11 O47 J31
    Date: 2005
  18. By: M Niaz Asadullah (Oxford University)
    Abstract: This paper reports labour market returns to education in Bangladesh using data from recent nationwide household survey. Returns are estimated separately for rural and urban samples, males, females and private sector employees. Substantial heterogeneity in returns is observed; e.g. estimates are higher for urban (than rural sample) and female samples (compared to their male counterparts). Our ordinary least square estimates of returns to education are robust to control for types of schools attended by individuals and selection into wage work.
    Keywords: Education, labor market participation, sample selection, Bangladesh
    JEL: O P
    Date: 2005–11–19
  19. By: Peter W Jones (Economic Development Institute)
    Abstract: In order for Jamaica to transition from a Developing Country to a Developed Country it will be highly necessary to create a Knowledge based society, the inability to seriously overcome this challenge will mean Jamaica will be in transition to a developed country for an infinite number of years. A lifelong learning framework encompasses learning throughout the lifecycle, from early childhood through retirement. It encompasses formal learning (schools, training institutions, universities); non- formal learning (structured on-the job training); and informal learning (skills learned from family members or people in the community). It allows people to access learning opportunities, as they need them rather than because they have reached a certain age. Lifelong learning in Jamaica is an important policy topic for government. This assumption is based on the impact of additional training on economic growth and on income distribution, particularly in an age when previously acquired knowledge is depreciating faster than before.
    Keywords: Government of Jamaica(GOJ), Ministry Of Education,Jamaica,Jamaica teachers association(JTA,Jamaica Union Of tertiary Students(JUTS),UWI Mona Guild Of Students,UTECH Students Union,People National Party(PNP), Jamaica Labour Party(JLP), Private Sector Of Jamaica(PSOJ),Jamaica Employers Fderation(JEF),Jamaica Chamber of Commerce(JCC),Kingston And St Andrew Corporation(KSAC), University Of The West Indies(UWI), University Of Technology(UTECH), Northern caribbean University(NCU),World Bank,Jamaica, International Monetary Fund,Jamaica, Inter-American Development Bank(IDB),Jamaica
    JEL: O P
    Date: 2005–11–21
  20. By: Jean-Claude Maswana (Kyoto University)
    Abstract: Focused on the case of China’s financial development, the present discursive essay sets out to argue that if the Chinese financial system distorted the allocation of funds then economic growth could not be sustained and financial depth would remain deficient. The essay puts forward selected financial facts and policies, discusses their relevance in the particular context of China’s economic development goals and concludes that although the Chinese financial system is not developed according to the standards of industrialized countries, financial intermediation has nevertheless been efficient in terms of promoting savings and credit to the extent that might have been good enough to facilitate economic growth. Furthermore, in order to reconcile China’s financial efficiency-growth apparent paradox, the essay supports the view that analyzing China’s financial system using market-based standards may not be valid.
    Keywords: China, financial development, growth-finance nexus
    JEL: O P
    Date: 2005–11–22
  21. By: Juan Carlos Cordoba (Rice University); Genevieve Verdier (Texas A&M)
    Abstract: Lucas (2004) asserts that 'Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion, the most poisonous, is to focus on questions of distribution...The potential for improving the lives of poor people by finding different ways of distributing current production is nothing [Italics in the original] compared to the apparently limitless potential of increasing production.' In this article we evaluate this claim using an extended version of Lucas' (1987) welfare evaluation framework. We construct a social welfare function following Lucas' (2004) own suggestion of weighing everyone's welfare equally, and compute welfare measures in the same way as Lucas (1987). The result is surprising and robust. The potential welfare gains of redistribution are substantial and likely exceed the welfare gains of economic growth. Moreover, our calculations suggest that US inequality is above its optimal level.
    Keywords: Welfare costs, business cycles, economic growth, inequality
    JEL: E1 E2 D3
    Date: 2005–11–18
  22. By: Pablo Bustelo (Elcano Royal Institute for International & Strategic Studies & Complutense University of Madrid)
    Abstract: China’s growing demand for oil is significantly changing the international geopolitics of energy, especially in the Asian Pacific region. The recent growth in oil consumption, combined with forecasts of increased oil imports (especially from the Middle East), have led to deep concern among Chinese leaders regarding their country’s energy security. They are responding in a number of different ways. In particular, they are determined to increase the security and reliability of oil imports by searching for new sources of supply, and to control purchases and transport lanes, while boosting national production at any cost. This is already causing tension and could lead to further disputes with the US and other big oil consumers, such as Japan and India, as well as with other Asian Pacific countries. However, enhanced cooperation among the big East Asian economies (China, Japan and South Korea) is also a possibility. This document first of all presents an overview of China’s energy sector, emphasising the strong growth in its energy demand to date and its potential for future growth. Secondly, we look at the oil sector, highlighting China’s growing dependence on imports. The third part deals with the Chinese perception of energy security in the oil sector. Finally, the fourth part focuses on the geopolitical implications for the Asian Pacific region of China’s search for oil.
    Keywords: China, energy consumption, energy production, oil consumption, oil production, oil imports, East Asia
    JEL: O13 Q41 Q43
    Date: 2005–11–20

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