nep-dev New Economics Papers
on Development
Issue of 2006‒01‒01
39 papers chosen by
Jeong-Joon Lee
Towson University

  1. Are there asymmetries in the response of bank interest rates monetary shocks? By Valerio Crispolti; Daniela Marconi
  2. Terrorism and the World Economy. By Alberto Abadíe; Javier Gardeazábal
  3. Insights into migration and spending patterns based on a small-scale study of garment workers in Phnom Penh By Dahlberg , Elisabet
  4. Human Capital, Rent Seeking, and a Transition from Stagnation to Growth By Lagerlöf, Nils-Petter; Tangerås, Thomas
  5. Effects of trade liberalisation, environmental and labour regulations on employment in India's organised textile sector By Badri Narayanan G
  6. Making the politician and the bureaucrat deliver: Employment guarantee in India By Ashima Goyal
  7. Commercialisation and Poverty in Tanzania: Household-level Analysis By Elina Eskola
  8. How Costly is it for Poor Farmers to Lift Themselves out of Subsistence? By Olivier Cadot; Laure Dutoit; Marcelo Olarreaga
  9. How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Cross-Section of Countries By Adi Brender; Allan Drazen
  10. A Dual Policy Paradox: Why Have Trade and Immigration Policies Always Differed in Labor-Scarce Economies By Timothy J. Hatton; Jeffrey G. Williamson
  11. The Economic Impact of AIDS Treatment: Labor Supply in Western Kenya By Harsha Thirumurthy; Johsua Graff-Zivin; Markus Goldstein
  12. Monitoring Works: Getting Teachers to Come to School By Esther Duflo; Rema Hanna
  13. Measuring Aggregate Productivity Growth Using Plant-Level Data By Amil Petrin; James Levinsohn
  14. Is Financial Globalization Beneficial? By Frederic Mishkin
  15. Why Doesn%u2019t Capital Flow from Rich to Poor Countries? An Empirical Investigation By Laura Alfaro; Sebnem Kalemli-Ozcan; Vadym Volosovych
  16. Remedying Education: Evidence from Two Randomized Experiments in India By Abhijit Banerjee; Shawn Cole; Esther Duflo; Leigh Linden
  17. What You Export Matters By Ricardo Hausmann; Jason Hwang; Dani Rodrik
  18. Quantifying the rural-urban gradient in Latin America and the Caribbean By Thom as, Timothy S.; Buys, Piet; Chomitz, Kenneth M.
  19. Paper walls are easier to tear down : passport costs and legal barriers to emigration By McKenzie, David J.
  20. Trade costs, export development, and poverty in Rwanda By Asarkaya, Yakup; Brenton, Paul; Diop, Ndiame
  21. A framework for evaluating alternate institutional arrangements for fiscal equalization transfers By Shah, Anwar
  22. Fiscal decentralization and fiscal performance By Shah, Anwar
  23. Public health in India : an overview By Das Gupta, Monica
  24. Simulating the poverty impact of macroeconomic shocks and policies By Essama-Nssah, B.
  25. Sri Lanka ' s migrant labor remittances : enhancing the quality and outreach of the rural remittance infrastructure By Hulugalle, Sriyani; Maimbo, Samuel Munzele; Lasagabaster, Esperanza
  26. Mexico : human capital effects on wages and productivity By Rubio, Marcela; Tinajero, Monica; López-Acevedo, Gladys
  27. Creating a Poverty Map for Azerbaijan By Hutton, Craig; Hornby, Duncan; Falkingham, Jane; Baschieri, Angela
  28. Disability, poverty, and schooling in developing countries : results from 11 household surveys By Filmer, Deon
  29. What have we learned from a decade of manufacturing enterprise surveys in Africa ? By Soderbom, Mans; Bigsten, Arne
  30. Pending issues in protection, productivity growth, and poverty reduction By Siga, Lucas; Santamaria, Mauricio; Sanchez-Paramo, Carolina; Saavedra, Jaime; Mal oney, William; Lopez Acevedo, Gladys; Fiszbein, Ariel; Cunningham, Wendy; Bosch, Mariano; Blom, Andreas; Arias, Omar
  31. Is formal lifelong learning a profitable investment for all of life ? How age, education level, and flexibility of provision affect rates of return to adult education in Colombia By Blom, Andreas; Sohnesen, Thomas Pave
  32. Neither a borrower nor a lender : does China ' s zero net foreign asset position make economic sense? By Kraay, Aart; Dollar, David
  33. Endogenous TFP and Cross-Country Income Differences By Juan Carlos Cordoba; Marla Ripoll
  34. The Janus Development Strategy: Jamaica In Transition By Peter w Jones
  36. External Debt Sustainability: Theory and Empirical Evidence By Marco Arnone; Luca Bandiera; Andrea Presbitero
  38. Technology as a channel of economic growth in India By Suparna Chakraborty

  1. By: Valerio Crispolti (Bank of Italy, Economic Research Department); Daniela Marconi (Bank of Italy, Economic Research Department)
    Abstract: In this paper we investigate two potential channels of international technology transfer towards developing countries: trade and foreign direct investments. We study the extent to which, through these channels, research and development expenditures (R&D) performed by advanced countries affect total factor productivity (TFP) levels in a panel of 45 developing countries over the period 1980-2000. Paying particular attention to the potential spillovers effects stemming from human capital, we estimate a TFP equation using the FMOLS technique. Our findings show that both channels induce substantial technology transfer across countries. In addition each developing country, for a given amount of foreign R&D, enjoys bigger spillovers the higher its educational level.
    Keywords: Technology transfer, Economic growth, Trade, FDI
    JEL: O47 F12 F21
    Date: 2005–11
  2. By: Alberto Abadíe (Harvard University); Javier Gardeazábal (Universidad del País Vasco)
    Keywords: terrorism, FDI, international diversification, growth
    JEL: F20 F41 F43
    Date: 2005–12–27
  3. By: Dahlberg , Elisabet (European Institute of Japanese Studies)
    Abstract: The Cambodian garment industry in Phnom Penh; employing as many as a quarter of a million people could be seen as a success story. Workers are in domestic terms paid at decent rates and their employments have had an important impact on their but also their rural families’ standards of living. Against the background of the phasing out of the MFA, income linkages from the garment industry have recently received much attention. One of the most important of the studies undertaken is a major survey carried out under the auspices of the Asian Development Bank (ADB), which considers the income and expenditure patterns of garment workers as well as the effect on rural livelihoods of remittances. This working paper has been carried out with a view to adding to the extensive study initiated by the ADB by the help of a much smaller survey intended to shed light on some of the underlying mechanisms only indirectly addressed by the larger survey. The most important insights from this study include that any research into migration and spending patterns must recognize the fact that migration requires some kind of financial resources. It has been shown that the migrant sending households have access to resources and credit markets and consequently are not among the poorest ones. The study has also shown that although the garment workers’ salaries at first glance may appear relatively high their living expenses and remittance obligations do not leave them with much more than a subsistence living. Additionally the study has pointed out that one must be cautious in trusting one-sided data as mirroring data showed that there are large discrepancies in between both quantitative and qualitative answers from garment workers and the remittance-receiving households. Finally the study has indicated that the motivation for migration and the use of remittance money is likely to be very different depending on work activities and natural conditions of the migrant-sending destination.
    Keywords: Cambodia; Garments; Linkages; Migration
    JEL: O12 O15 O18
    Date: 2005–12–19
  4. By: Lagerlöf, Nils-Petter (York University); Tangerås, Thomas (The Research Institute of Industrial Economics)
    Abstract: We present a growth model where agents divide time between rent seeking in the form of resource competition; and working in a human capital sector, interpreted as trade or manufacturing. Rent seeking exerts negative externalities on the productivity of human capital, generating multiple steady states. Adding shocks to the model -- in the form of violence in the rent seeking process, and changes in the size of the contested resource base -- the model can replicate a long phase with stagnant incomes and high levels of rent seeking, interrupted by small failed growth spurts; this is eventually followed by a permanent transition to a sustained growth path where rent seeking vanishes in the limit. We illustrate the workings of the model with simulations and argue that the results, and what drives them, fit with some broad historical facts about growth, rent seeking, and the so-called natural resource curse.
    Keywords: Conflict; Long-Run Growth; Rent Seeking
    JEL: D74 N10 O15
    Date: 2005–10–19
  5. By: Badri Narayanan G (Indira Gandhi Institute of Development Research)
    Abstract: In recent years, employment has fallen in the organised textile sector despite an aggregate rise in output and capital. This paper analyses the role of various factors that influence employment using 3-digit classification of Indian textile industry from 1973-74 to 1997-98. Our results document that the fall in employment can be explained in terms of rise in wages, output shocks, lack of capital utilisation and trade restrictiveness pertaining to Multi Fibre Arrangement (MFA). Environmental regulations enhance employment in the sub-sectors that are most likely to be influenced by them. The results are robust to dierent measures of capital, its utilisation and disaggregation to statelevel. We also illustrate that in a post-MFA regime, employment in the sector is bound to increase owing to absence of trade restrictions and prospects of huge investment in general and in complying with environmental regulations, though the labour regulations might affect the magnitude of that increase.
    Date: 2005–10
  6. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: The paper examines the division of tasks required between politicians and bureaucrats to run an effective rural employment guarantee scheme (EGS) in India, in the context of Indian history and habits. There are still weaknesses in the incentive structure of the new nationwide EGS. First, there is no guarantee that high quality durable assets will be produced. Second, the role of the bureaucrat in the EGS is not clearly defined. A number of analytical results are obtained. A major one is giving the bureaucrat a long-term task (durable assets) as his objective will ensure the completion of both tasks, since effort must be allocated to the short-term task (employment) in order to achieve the long-term task. More power to the local populace and politicians will ensure that local needs, including employment are met. The results, together with an examination of the interactions between politicians and bureaucrats, village self-government, and the water economy in India, imply that an EGS with good incentive properties has the potential to reverse corruption of the executive, and vitalize village self-government. Lower level politicians are more accountable to the public. The tradition of voluntary labour associated with cooperative village management of the water economy, can make local resources available to extend the cyclical EGS. Higher own resources at stake will improve the efficiency of resource utilization and the quality of work done.
    Keywords: Politician, bureaucrat, incentives, employment guarantee
    JEL: O10 O53 H11 D72 D73
    Date: 2005–11
  7. By: Elina Eskola (Department of Economics, University of Copenhagen)
    Abstract: Data from a recent Tanzanian household survey are used to investigate households’ connectedness to market economy i.e. commercialisation. The study puts emphasis on facilitating access to the nearest markets and market information as means to enhance commercialisation. Commercialisation and total consumption are found to be highly correlated and mutually reinforcing. The more commercialised the household is, the higher probability it has to be well off and thus enhanced commercialisation should be encouraged as a way to increase households’ welfare. The distance to the nearest market and the availability of market information are found to be significant factors in households’ degree of commercialisation. However, the importance of large regional fixed effects highlights the importance of the structural barriers for trade in Tanzania.
    Keywords: commercialisation; poverty; transaction cost; household model; Tanzania
    JEL: C31 I31 Q12
    Date: 2005–12
  8. By: Olivier Cadot; Laure Dutoit; Marcelo Olarreaga
    Abstract: The main objective of this paper is to provide estimates of the cost of moving out of subsistence for Madagascar's farmers. The analysis is based on a simple asset-return model of occupational choice. Estimates suggest that the entry (sunk) cost associated with moving out of subsistence can be quite large |somewhere between 124 and 153 percent of a subsistence farmer's annual production. Our results make it possible to identify farm characteristics likely to generatee large gains if moved out of subsistence, yielding useful information for the targeting of trade-adjustment assistance programs.
    Keywords: threshold regression; switching regression; unknown sample separation; Madagascar; subsistence; entry costs
    JEL: F10 O12 O19
    Date: 2005–11
  9. By: Adi Brender; Allan Drazen
    Abstract: Conventional wisdom is that good economic conditions or expansionary fiscal policy help incumbents get re-elected, but this has not been tested in a large cross-section of countries. We test these arguments in a sample of 74 countries over the period 1960-2003. We find no evidence that deficits help reelection in any group of countries -- developed and less developed, new and old democracies, countries with different government or electoral systems, and countries with different levels of democracy. In developed countries, especially old democracies, election-year deficits actually reduce the probability that a leader is reelected, with similar negative electoral effects of deficits in the earlier years of an incumbent's term in office. Higher growth rates of real GDP per-capita raise the probability of reelection only in the less developed countries and in new democracies, but voters are affected by growth over the leader's term in office rather than in the election year itself. Low inflation is rewarded by voters only in the developed countries. The effects we find are not only statistically significant, but also quite substantial quantitatively. We also suggest how the absence of a positive electoral effect of deficits can be consistent with the political deficit cycle found in new democracies.
    JEL: D72 E62 H62
    Date: 2005–12
  10. By: Timothy J. Hatton; Jeffrey G. Williamson
    Abstract: Today's labor-scarce economies have open trade and closed immigration policies, while a century ago they had just the opposite, open immigration and closed trade policies. Why the inverse policy correlation, and why has it persisted for almost two centuries? This paper seeks answers to this dual policy paradox by exploring the fundamentals which have influenced the evolution of policy: the decline in the costs of migration and its impact on immigrant selectivity, a secular switch in the net fiscal impact of trade relative to immigration, and changes in the median voter. The paper also offers explanations for the between-country variance in voter anti-trade and anti-migration attitude, and links this to the fundamentals pushing policy.
    JEL: F22 J1 O1
    Date: 2005–12
  11. By: Harsha Thirumurthy; Johsua Graff-Zivin; Markus Goldstein
    Abstract: Using longitudinal survey data collected in collaboration with a treatment program, this paper is the first to estimate the economic impacts of antiretroviral treatment in Africa. The responses in two important outcomes are studied: (1) labor supply of adult AIDS patients receiving treatment; and (2) labor supply of children and adults living in the patients' households. We find that within six months after the initiation of treatment, there is a 20 percent increase in the likelihood of the patient participating in the labor force and a 35 percent increase in weekly hours worked. Since patient health would continue to decline without treatment, these labor supply responses are underestimates of the impact of treatment on the treated. The upper bound of the treatment impact, which is based on plausible assumptions about the counterfactual, is considerably larger and also implies that the wage benefit from treatment is roughly equal to the costs of treatment provision. The responses in the labor supply of patients' household members are heterogeneous. Young boys and women work considerably less after initiation of treatment, while girls and men do not change their labor supply. The effects on child labor are particularly important since they suggest potential schooling impacts from treatment.
    JEL: I1 I3 O1 J2
    Date: 2005–12
  12. By: Esther Duflo; Rema Hanna
    Abstract: In the rural areas of developing countries, teacher absence is a widespread problem. This paper tests whether a simple incentive program based on teacher presence can reduce teacher absence, and whether it has the potential to lead to more teaching activities and better learning. In 60 informal one-teacher schools in rural India, randomly chosen out of 120 (the treatment schools), a financial incentive program was initiated to reduce absenteeism. Teachers were given a camera with a tamper-proof date and time function, along with instructions to have one of the children photograph the teacher and other students at the beginning and end of the school day. The time and date stamps on the photographs were used to track teacher attendance. A teacher's salary was a direct function of his attendance. The remaining 60 schools served as comparison schools. The introduction of the program resulted in an immediate decline in teacher absence. The absence rate (measured using unannounced visits both in treatment and comparison schools) changed from an average of 42 percent in the comparison schools to 22 percent in the treatment schools. When the schools were open, teachers were as likely to be teaching in both types of schools, and the number of students present was roughly the same. The program positively affected child achievement levels: a year after the start of the program, test scores in program schools were 0.17 standard deviations higher than in the comparison schools and children were 40 percent more likely to be admitted into regular schools.
    JEL: I20 I21 J13 J30
    Date: 2005–12
  13. By: Amil Petrin; James Levinsohn
    Abstract: We define productivity growth as the change in welfare that arises from additional output holding primary inputs constant. Using this traditional growth-accounting definition, we show that gains may arise because of plant-level technology shocks, and, in imperfectly competitive settings, from the reallocation of inputs across plants with differing markups and/or shadow values of primary inputs. With plant-level data, the alternative and most popular definition of productivity growth looks at the difference in the first moments of the productivity distribution. We show that this definition adds an additional term to the growth-accounting measure, which has been called “reallocation.” We show there is a very weak relationship between the two indexes in almost every 3-digit manufacturing industry in both Chile from 1987-1996 and Colombia from 1981-1991 - 49 in total - primarily because this “reallocation” term is large and volatile. We explore the theoretical reasons for this sharp divergence, in the process uncovering a number of previously unnoticed and unattractive features of the first-moment definition. For example, it is not tethered to any theoretical model, it is sensitive to measured units, and it can report positive productivity growth when welfare has fallen.
    JEL: L0
    Date: 2005–12
  14. By: Frederic Mishkin
    Abstract: This lecture examines whether financial globalization is beneficial to developing countries by first examining the evidence on financial development and economic growth and concludes that financial development is indeed a key element in promoting economic growth. It then asks why if financial development is so beneficial, it often doesn't occur. It then goes on to examine whether globalization, particularly of the financial kind, can help encourage financial and economic development and argues that it can. However, financial globalization does not always work to encourage economic development because it often leads to devastating financial crises. The issue is thus not whether financial globalization is inherently good or bad, but whether it can be done right.
    JEL: F02 O10 O16 G20
    Date: 2005–12
  15. By: Laura Alfaro; Sebnem Kalemli-Ozcan; Vadym Volosovych
    Abstract: We examine the empirical role of different explanations for the lack of flows of capital from rich to poor countries the "Lucas Paradox." The theoretical explanations include differences in fundamentals across countries and capital market imperfections. We show that during 1970-2000 low institutional quality is the leading explanation. For example, improving Peru's institutional quality to Australia's level, implies a quadrupling of foreign investment. Recent studies emphasize the role of institutions for achieving higher levels of income, but remain silent on the specific mechanisms. Our results indicate that foreign investment might be a channel through which institutions affect long-run development.
    JEL: F21 F41 O1
    Date: 2005–12
  16. By: Abhijit Banerjee; Shawn Cole; Esther Duflo; Leigh Linden
    Abstract: Many efforts to improve school quality by adding school resources have proven to be ineffective. This paper presents the results of two experiments conducted in Mumbai and Vadodara, India, designed to evaluate ways to improve the quality of education in urban slums. A remedial education program hired young women from the community to teach basic literacy and numeracy skills to children lagging behind in government schools. We find the program to be very effective: it increased average test scores of all children in treatment schools by 0.14 standard deviations in the first year, and 0.28 in the second year, relative to comparison schools. A computer-assisted learning program provided each child in the fourth grade with two hours of shared computer time per week, in which students played educational games that reinforced mathematics skills. The program was also very effective, increasing math scores by 0.35 standard deviations the first year, and 0.47 the second year. These results were not limited to the period in which students received assistance, but persisted for at least one year after leaving the program. Two instrumental variable strategies suggest that while remedial education benefited the children who attended the remedial classes, their classmates, who did not attend the remedial courses but did experience smaller classes, did not post gains, confirming that resources alone may not be sufficient to improve outcomes.
    JEL: O11 I21
    Date: 2005–12
  17. By: Ricardo Hausmann; Jason Hwang; Dani Rodrik
    Abstract: When local cost discovery generates knowledge spillovers, specialization patterns become partly indeterminate and the mix of goods that a country produces may have important implications for economic growth. We demonstrate this proposition formally and adduce some empirical support for it. We construct an index of the "income level of a country's exports," document its properties, and show that it predicts subsequent economic growth.
    JEL: F1 O4
    Date: 2005–12
  18. By: Thom as, Timothy S.; Buys, Piet; Chomitz, Kenneth M.
    Abstract: This paper addresses the deceptively simple question: What is the rural population of Latin America and the Caribbean (LAC)? It argues that rurality is a gradient, not a dichotomy, and nominates two dimensions to that gradient: population density and remoteness from large metropolitan areas. It uses geographically referenced population data (from the Gridded Population of the World, version 3) to tabulate the distribution of populations in Latin America and in individual countries by population density and by remoteness. It finds that the popular perception of Latin America as a 75 percent urban continent is misleading. Official census criteria, though inconsistent between countries, tend to classify as " urban " small settlements of less than 2,000 people. Many of these settlements are however embedded in an agriculturally based countryside. The paper finds that about 13 percent of Latin America populations live at ultra-low densities of less than 20 per square kilometer. Essentially these people are more than an hour ' s distance from a large city, and more than half live more than four hours ' distance. A quarter of the population of Latin America is estimated to live at densities below 50, again essentially all of them more than an hour ' s distance from a large city. Almost half (46 pecent) of Latin America live at population densities below 150 (a conventional threshold for urban areas), and more than 90 percent of this group is at least an hour ' s distance from a city; about one-third of them (18 percent of the total) are more than four hours distance from a large city.
    Keywords: Agricultural Resear ch,Demographics,Health Indicators,,Health Information & Communications Technologies
    Date: 2005–06–01
  19. By: McKenzie, David J.
    Abstract: Increased attention to the development potential of international migration has led to calls for greater global cooperation and for industrial countries to consider temporary worker programs and other options for increasing the number of immigrants admitted. But less attention has been devoted to policies that migrant-sending countries pursue that impact on the ability of people to emigrate under the existing system. This paper documents the existence and impact of two such policies: passport costs and legal restrictions on emigration. New data collected on passport costs in 127 countries reveals enormous variation in the cost of a passport from one country to the next. One in every 10 countries in the sample is found to have passport costs exceeding 10 percent of annual per capita income. High passport costs are found to be associated with poor governance, especially in terms of the quality of the bureaucracy, and with lower levels of migration. Countries that place legal restrictions on the rights of women to emigrate are also found to have lower migration rates than countries with similar income and population levels. These findings suggest there is scope for some developing countries to receive greater benefits from migration by tearing down the paper walls they place around their own citizens.
    Keywords: Governance Indicators,Economic Theory & Research,Country Strategy & Performance,Human Migrations & Resettlements,Voluntary and Involuntary Resettlement
    Date: 2005–12–01
  20. By: Asarkaya, Yakup; Brenton, Paul; Diop, Ndiame
    Abstract: For Rwanda, one of the poorest countries in the world, trade offers the most effective route for substantial poverty reduction. But the poor in Rwanda, most of whom are subsistence farmers in rural areas, are currently disconnected from markets and commercial activities by extremely high transport costs and by severe constraints on their ability to shift out of subsistence farming. The constraints include lack of access to credit and lack of access to information on the skills and techniques required to produce commercial crops. The paper is based on informatio n from the household survey and a recent diagnostic study of constraints to trade in Rwanda. It provides a number of indicative simulations that show the potential for substantial reductions in poverty from initiatives that reduce trade costs, enhance the quality of exportable goods, and facilitate movement out of subsistence into commercial activities.
    Keywords: Crops & Crop Management Systems,Rural Poverty Reduction,Rural Development Knowledge & Information Systems,Economic Theory & Research,Poverty Monitoring & Analysis
    Date: 2005–12–01
  21. By: Shah, Anwar
    Abstract: Fiscal equalization programs are fairly common features of intergovernmental fiscal relations in industrial countries. Some developing countries have also recently introduced these programs and still others are contemplating such programs. Institutional arrangements for fiscal equalization vary across countries with wide variations in the form and membership of the relevant decisionmaking bodies. This paper provides a simple neo-institutional economics framework for assessing alternative institutional arrangements for their impacts on simplicity, transparency, and objectivity of the equalization program, as well as transaction costs for various parties involved. Comparing institutional arrangements across different countries is a daunting task. The success of these arrangements depends on a multitude of factors. The success of governance structures for fiscal matters may depend not only on the incentives regime associated with their inner structures but also their interactions with other formal and informal institutions in the country. This paper presents a simple framework to understand these incentives and interactions and draw implications for their impacts on transactions costs for the society as a whole and achievement of societal objectives. An application of these concepts to the specific case of institutional arrangements for fiscal equalization transfers are carried out and the predictions based on the theory are compared with observed experiences in major federal countries. The paper demonstrates that the simple new institutional framework presented here has a significant power for predicting potential impacts. The paper concludes, both in theory and practice, that the case for independent grants commission to enhance the transparency, equity, and accountability of the intergovernmental finance system is vastly exaggerated.
    Keywords: Municipal Financial Management,Public Sector Management and Reform,Regional Governance,Urban Governance and Management,Urban Economics
    Date: 2005–12–01
  22. By: Shah, Anwar
    Abstract: A resurgence of recent interest in fiscal federalism has been a source of concern among macroeconomic stabilization experts. They argue that a decentralized fiscal system poses a threat to macroeconomic stability as it is incompatible with prudent monetary and fiscal management. The author addresses these concerns by taking a simple neo-institutional economics with an econometric analysis perspective. His analysis concludes that, contrary to a common misconception, fiscal decentralization is associated with improved fiscal performance and better function ing of internal common markets. Fiscal policy coordination represents an important challenge for federal systems. In this context, fiscal rules and institutions provide a useful framework but not necessarily a solution to this challenge. Fiscal rules binding on all levels can help sustain political commitment in countries having coalitions or fragmented regimes in power. Coordinating institutions help in the use of moral suasion to encourage a coordinated response. Industrial countries ' experiences also show that unilaterally imposed federal controls and constraints on subnational governments typically do not work. Instead, societal norms based on fiscal conservatism such as the Swiss referenda and political activism of the electorate play important roles. Ultimately capital markets and bond-rating agencies provide more effective discipline on fiscal policy. In this context, it is important not to backstop state and local debt and not to allow ownership of the banks by any level of government. Transparency of the budgetary process and institutions, accountability to the electorate, and general availability of comparative data encourages fiscal discipline. Fiscal decentralization poses significant challenges for macroeconomic management. These challenges require careful design of monetary and fiscal institutions to overcome adverse incentives associated with the " common property " resource management problems or with rent seeking behavior. Experiences of federal countries indicate significant learning and adaptation of fiscal systems to create incentives compatible with fair play and to overcome incomplete contracts. This explains why that decentralized fiscal systems appear to do better than centralized fiscal systems on most aspects of monetary and fiscal policy management and transparent and accountable governance.
    Keywords: Banks & Banking Reform,Economic Stabilization,Public Sector Economics & Finance,Economic Theory & Research,Financial Intermediation
    Date: 2005–12–01
  23. By: Das Gupta, Monica
    Abstract: Public health services, which reduce a population ' s exposure to disease through such measures as sanitation and vector control, are an essential part of a country ' s development infrastructure. In the industrial world and East Asia, systematic public health efforts raised labor productivity and life expectancies well before modern curative technologies became widely available, and helped set the stage for rapid economic growth and poverty reduction. The enormous business and other costs of the breakdown of these services are illustrated by the current global epidemic of avian flu, emanating from poor poultry-keeping practices in a few Chinese villages. For various reasons, mostly of political economy, public funds for health services in India have been focused largely on medical services, and public health services have been neglected. This is reflected in a virtual absence of modern public heal th regulations and of systematic planning and delivery of public health services. Various organizational issues also militate against the rational deployment of personnel and funds for disease control. There is strong capacity for dealing with outbreaks when they occur, but not to prevent them from occurring. Impressive capacity also exists for conducting intensive campaigns, but not for sustaining these gains on a continuing basis after the campaign. This is illustrated by the near eradication of malaria through highly organized efforts in the 1950s, and its resurgence when attention shifted to other priorities such as family planning. This paper reviews the fundamental obstacles to effective disease control in India and indicates new policy thrusts that can help overcome these obstacles.
    Keywords: Health Monitoring & Evaluation,Health Economics & Finance,Brown Issues and Health,Public Sector Management and Reform,Rural Development Knowledge & Information Systems
    Date: 2005–12–01
  24. By: Essama-Nssah, B.
    Abstract: Developing countries face a host of macroeconomic challenges in the desig n and implementation of development strategies and policies. The importance of the underlying poverty and distributional issues creates a need for relevant and reliable ways of tracking the social impact of shocks and policies. This paper describes and demonstrates the use of a stylized framework for simulating the poverty implications of the Dutch disease, a change in the terms of trade and budgetary policy. The basic approach is to embed a Lorenz model of the size distribution of economic welfare in a general equilibrium model of an open economy. It is observed that, while aggregate welfare and poverty effects may be negligible, the structural and distributional impacts tend to be significant. The latter drive the political economy of policymaking and point to the need for an analytical framework that accounts for both the structural richness of the economy and the heterogeneity of the stakeholders
    Keywords: Economic Theory & Research,Pro-Poor Growth and Inequality,Inequality,Rural Poverty Reduction,Consumption
    Date: 2005–12–01
  25. By: Hulugalle, Sriyani; Maimbo, Samuel Munzele; Lasagabaster, Esperanza
    Abstract: Remittances-money sent home by immigrant workers abroad-are hugely beneficial to Sri Lanka. Migrants ' remittances have grown dramatically in recent years and are now estimated at US$1.5 billion annually. This national phenomenon is consistent with remittance trends in neighboring countries where remittance flows are growing as rapidly. The trend is likely to continue as many workers continue to look abroad for the chance to make a better living. The economic policy implications of these trends are significant. The Sri Lankan Central Bank is now debating the following key issues: the developmental impact of remittances; the high transaction costs associated with remittances; and the level of transparency and accountability in the remittance industry, especially the informal remittance sector. This paper highlights the key policy issues associated with each of these aspects of remittances with the objective of improving the public and private infrastructure for current and future flows. Building on recent World Bank research on remittances that prominently features South Asia, it has been prepared in recognition of the development potential of these flows. It discusses some of the key issues relating to the remittance industry in Sri Lanka. This paper complements the existing literature on migrant labor remittances to Sri Lanka and extends that literature by providing specific policy-relevant guidance on short and long-term policies for enhance enhancing the quality and outreach of rural remittance infrastructure.
    Keywords: Banks & Banking Reform,Technology Industry,Gender and Development,Financial Intermediation,Economic Theory & Research
    Date: 2005–12–01
  26. By: Rubio, Marcela; Tinajero, Monica; López-Acevedo, Gladys
    Abstract: The authors follow the Hellerstein, Neumark, and Troske (1999) framework to estimate marginal productivity differentials and compare them with estimated relative wages. The analysis provides evidence on productivity and nonproductivity-based determinations of wages. Special emphasis is given to the effects of human capital variables, such as education, experience, and training on wages and productivity differentials. Higher education yields high er productivity. However, highly educated workers earn less than their productivity differentials would predict. On average, highly educated workers are unable to fully appropriate their productivity gains of education through wages. On the other hand, workers with more experience are more productive in the same proportion that they earn more in medium and large firms, meaning they are fully compensated for their higher productivity. Finally, workers in micro and small firms are paid more than what their productivity would merit. Training benefits firms and employees since it significantly increases workers ' productivity and their earnings.
    Keywords: Primary Education,Economic Theory & Research,Access & Equity in Basic Education,Labor Markets,Tertiary Education
    Date: 2005–12–01
  27. By: Hutton, Craig; Hornby, Duncan; Falkingham, Jane; Baschieri, Angela
    Abstract: " Poverty maps " -that is, graphic representations of spatially disaggregated estimates of welfare-are being increasingly used to geographically target scarce resources. But the development of detailed poverty maps in many low resource settings is hampered because of data constraints. Data on income or consumption are often unavailable and, where they are, direct survey estimates for small areas are likely to yield unacceptably large standard errors due to limited sample sizes. Census data offer the required level of coverage but do not generally contain the appropriate information. This has led to the development of a range of alternative methods aimed either at combining survey data with unit record data from the census to produce estimates of income or expenditure for small areas or at developing alternative welfare rankings, such as asset indices, using existing census data. This paper develops a set of poverty maps for Azerbaijan that can be used by different users. Two alternative approaches to the measurement and mapping of welfare are adopted. First, a map is derived using imputed household consumption. This involves combining information from the 2002 Household Budget Survey (HBS) with 1999 census data. Second, an alternative map is constructed using an asset index based on data from the 1999 census to produce estimates of welfare at the rayon level. This provides a unique opportunity to compare the welfare rankings obtained at the regional level under the two alternative approaches. I n order to visually present the spatially disgaggregated estimates of welfare in Azerbaijan, this paper has also produced a digital census map of Azerbaijan. This involved matching the census enumeration areas to a digital settlement map of Azerbaijan. Therefore, it is now possible for the State Statistical Committee of Azerbaijan to display graphically the results of the 1999 census of Azerbaijan along with other data.
    Keywords: Rural Poverty Reduction,Economic Theory & Research,Poverty Lines,Poverty Diagnostics,Technology Industry
    Date: 2005–12–01
  28. By: Filmer, Deon
    Abstract: This paper analyzes the relationship between whether a young person has a disability, the poverty status of their household, and their school participation using 11 household surveys from nine developing countries. Between 1 and 2 percent of the population is identified as having a disability. Youth with disabilities sometimes live in poorer households, but the extent of this concentration is typically neither large nor statistically signif icant. However, youth with disabilities are almost always substantially less likely to start school, and in some countries have lower transition rates resulting in lower schooling attainment. The order of magnitude of the school participation disability deficit is often larger than those associated with other characteristics such as gender, rural residence, or economic status differentials.
    Keywords: Social Cohesion,Social Protections & Assistance,Gender and Law,Primary Education,Health Monitoring & Evaluation
    Date: 2005–12–01
  29. By: Soderbom, Mans; Bigsten, Arne
    Abstract: In the early 1990s the World Bank launched the Regional Program on Enterprise Development in several African countries, a key component of which was the collection of manufacturing firm-level data. In this paper the authors review the research based on the data sets generated by these and subsequent firm surveys in Africa, with a special view to what they think are the most important policy implications. Th e authors survey the research on the African business environment, focusing on market size, risk, access to credit, labor, and infrastructure. They cover the research on how firms choose to organize themselves and how firms do business. They review the research on firm performance, including firm growth, investment and technology acquisition, and exports. They conclude with an extended discussion of the policy lessons.
    Keywords: Economic Theory & Research,Private Participation in Infrastructure,Labor Markets,Microfinance,Small Scale Enterprise
    Date: 2005–12–01
  30. By: Siga, Lucas; Santamaria, Mauricio; Sanchez-Paramo, Carolina; Saavedra, Jaime; Mal oney, William; Lopez Acevedo, Gladys; Fiszbein, Ariel; Cunningham, Wendy; Bosch, Mariano; Blom, Andreas; Arias, Omar
    Abstract: This paper selectively synthesizes much of the research on Latin American and Caribbean labor markets in recent years. Several themes emerge that are particularly relevant to ongoing policy dialogues. First, labor legislation matters, but markets may be less segmented than previously thought. The impetus to voluntary informality, which appears to be a substantial fraction of the sector, implies that the design of social safety nets and labor legislation needs to take a more integrated view of the labor market, taking into account the cost-benefit analysis workers and firms make about whether to interact with formal institutions. Second, the impact of labor market institutions on productivity growth has probably been underemphasized. Draconian firing restrictions increase litigation and uncertainty surrounding worker separations, reduce turnover and job creation, and poorly protect workers. But theory and anecdotal evidence also suggest that they, and other related state or union induced rigidities, may have an even greater disincentive effect on technological adoption, which accounts for half of economic growth. Finally, institutions can affect poverty and equity, although the effects seem generally small and channels are not always clear. Overall, the present constellation of labor regulations serves workers and firms poorly and both could benefit from substantial reform.
    Keywords: Labor Markets,Labor Standards,Economic Theory & Research,Work & Working Conditions,Labor Management and Relations
    Date: 2005–12–01
  31. By: Blom, Andreas; Sohnesen, Thomas Pave
    Abstract: Lifelong learning is increasingly being recognized as a primary factor for knowledge diffusion and productivity growth. However, little economic evidence exists on the economic value of lifelong learning for the individual, especially in developing countries. This paper contributes to remedy this shortfall. It investigates one aspect of lifelong learning: returns to formal education across ages. In the absence of long-term longitudinal data, the paper estimates rates of return for simulated re-entry into the education system. The estimations use the method of internal rate of return and are based on observed education-age-earnings profiles from the Colombian national household survey. It finds that rates of return to all levels of education are only slightly smaller for 35 year olds than for young people, thus confirming the profitability of investment in adult education. Tertiary education continues to attract a positive return until late in life, 45-50 years, whereas the economic value of re-entering primary and secondary education is positive up till the age of 40-45. So, formal lifelong learning seems to remain a profitable investment for at least half of life. But lack of part-time work, high tuition fees, and prolonged study time reduce the return. The findings suggest that adult formal education initiatives should focus on the 20 to 40 year olds and be designed flexibly to allow learners to work part time.
    Keywords: Access & Equity in Basic Education,Teaching and Learning,Gender and Education,Primary Education,Tertiary Education
    Date: 2005–12–01
  32. By: Kraay, Aart; Dollar, David
    Abstract: China in the past few years has emerged as a net foreign creditor on the international scene with net foreign assets slightly greater than zero percent of wealth. This is surprising given that China is a relatively poor country with a capital-labor ratio about one-fifth the world average and one-tenth the U.S. level. The main questions that the authors address are whether it makes economic sense for China to be a net creditor and how they see China ' s net foreign asset position evolving over the next 20 years. They calibrate a theoretical model of international capital flows featuring diminishing returns, production risk, and sovereign risk. The calibrations for China yield a predicted net foreign asset position of -17 percent of China ' s wealth. The authors also estimate nonstructural cross-country regressions of determinants of net foreign assets in which China is always a significant outlier with 5 to 7 percentage points more of net foreign assets relative to wealth than is predicted by its characteristics. China ' s extensive capital controls can explain why its current net foreign asset position is far away from what is predicted by open-economy models and cross-country empirics. It seems reasonable to assume that China ' s international financial integration will increase over time. The authors calibrate and predict different scenarios out to 2025. These scenarios are necessarily speculative, but it is interesting that they typically imply negative net foreign asset positions between 3 and 9 percent of wealth. What may be counter-intuitive for many policymakers is that successful institutional ref orm and productivity growth are likely to lead to more negative net foreign asset positions than occurs with stagnation. Starting from China ' s zero net foreign assets position, it would take current account deficits in the range of 2-5 percent of GDP to reach any of these net foreign assets positions. These are not unreasonable deficits, but they require a large adjustment from the present 6 percent of GDP current account surplus.
    Keywords: Economic Theory & Research,Investment and Investment Climate,Capital Flows,Economic Growth,Banking Law
    Date: 2005–12–01
  33. By: Juan Carlos Cordoba (Rice University); Marla Ripoll (University of Pittsburgh)
    Abstract: This paper explores the quantitative implications of a class of endogenous growth models for cross-country income differences. These models exhibit international spillovers, no scale effects and conditional convergence, and thus they overcome some difficulties faced by the early generation of endogenous growth models. Cross-country income differences arise in the model as the result of different distortions in the accumulation of rival factors of production, the objects, and in the accumulation of nonrival factor of production, the ideas. We show that object gaps play a much larger role to explain income gaps in models with endogenous TFP than in models with exogenous TFP. We also show, using a carefully calibrated version of the model, that most of the cross-country differences in output per worker are explained by barriers to the accumulation of rival factors (physical and human capital) rather than by barriers to the accumulation of knowledge.
    Keywords: endogenous growth, technology diffusion
    JEL: O10 O19 O40 O57 F43
    Date: 2005–12–20
  34. By: Peter w Jones (Economic Development Institute-Jamaica)
    Abstract: The ability to see past and present simultaneously must be of prime importance in any development scenario. This speaks to the essence of the Janus Development Strategy, whose philosophy is outlined below. .......................Janus was represented with two faces, originally one face was bearded while the other was not (probably a symbol of the sun and the moon). Later both faces were bearded. In his right hand he holds a key. This key we see as the key to sustainable economic development.
    Keywords: investment,jamaica,development,jamaica,economic development,jamaica,social development,jamaica
    JEL: O P
    Date: 2005–12–20
  35. By: Branko Milanovic (World Bank)
    Abstract: The paper presents a non-technical summary of the current state of debate on the measurement and implications of global inequality (inequality between citizens of the world). It discusses the relationship between globalization and global inequality. It shows why global inequality matters and proposes a scheme for global redistribution.
    Keywords: Globalization, inequality, aid
    JEL: D31
    Date: 2005–12–24
  36. By: Marco Arnone (Catholic University of Milan); Luca Bandiera (World Bank); Andrea Presbitero (Politechnic University of Marche Italy)
    Abstract: This paper is a review of the different approaches on external debt sustainability. The Heavily Indebted Poor Country (HIPC) Initiative was launched to assure a permanent exit from debt dependence. However, the IMF-World Bank program is not without faults, in particular for what concerns debt sustainability analysis. The aim of this work is to present the IMF-World Bank approach to debt sustainability, together with the other approaches in the literature. We show that a new and broader framework is emerging to address the main shortcomings of the standard analysis, namely, the effects that large external debts and deficits have on growth and the macroeconomic environment.
    Keywords: HIPC Initiative, Debt Sustainability, Debt Relief, External Debt.
    JEL: F34 H63 O11 O19
    Date: 2005–12–25
  37. By: Blessing Chiripanhura
    Abstract: This paper analyses labour market liberalisation and government commitment to economic reforms in Zimbabwe. The paper briefly analyses the economic policies that were implemented between 1980 and 1990 that were characterised by massive interventions in the labour market. It problematises the economic problems faced then, and examines how these persuaded the government to implement economic reforms in 1991. Economic reforms in this paper are synonymous with structural adjustment programmes of the IMF and the World Bank. The reforms included liberalisation of the controls that inhibited employment in the economy. While pointing out that the reform period was 1991 to 1996, it argues that the period up to 1999 must be analysed as reform period because of the active involvement of the IMF in economic policy formulation. The paper analyses the extent to which labour market liberalisation affected employment and wages. It briefly explores the impact of the reforms on allocative and dynamic efficiencies and income distribution. It also analyses the performance of the economy over the period after the reforms to establish the importance of government commitment to the success and/or failure of reforms. It concludes that economic reforms in Zimbabwe had adverse impact on employment (both quality and quantity) and wages. Furthermore, government commitment to reform is critical both for the full implementation of the reforms and for the realisation of the expected benefits of the reforms.
    Keywords: labour market reform, Zimbabwe, ESAP, structural adjustment, economic reforms, labour market flexibility
    JEL: J
    Date: 2005–12–22
  38. By: Suparna Chakraborty (Baruch College, CUNY)
    Abstract: After decades of slow growth since Independence from the British Raj, Indian economy registered its own small miracle, when growth rate of GDP per capita surpassed the long term growth rate of many advanced economies. What caused this miracle? In this paper, we search for an answer in the neoclassical growth model. We use productivity as measured by Solow residual as our exogenous shock. Our idea is to quantitatively measure to what extent ‡fluctuations in productivity can account for observed ‡uctuations in macro economic aggregates in India. We find that exogenous fl‡uctuations in productivity can well account for fl‡uctuations in output during the boom periods of 1982 to 1988 and 1993 to 2002. However, fluctuations in productivity alone results in a much worse drop in ouput during 1988 to 1993 than observed in the economy.
    Keywords: technology, growth accounting, neoclassical growth, calibration, transition dynamics, India
    JEL: E
    Date: 2005–12–19
  39. By: Federico Marongiu (Universidad de Buenos Aires)
    Abstract: Currency and financial crises are determinants of growth and development, mainly in developing countries subject to shocks, contagion and volatility. A relevant issue when trying to do the implementation of development policies is to anticipate or forecast the occurrence of currency crises that could turn good ideas into failure. This type of crises have strong negative economic, social and political consequences. This paper takes a look in the leading indicators literature and shows that this approach failed in predicting the Argentinean collapse of 2001-2002. We also show that particular features of the Argentinean economy needed of different indicators to forecast the collapse of the currency board system. The paper also developes some new indicators to include in an Early Warning System that can take on account specific features of Argentina´s economy. This indicators can be integrated into a wider set in order to be a useful tool for policymakers and authorities in Argentina and in other developing countries in the planification and implementation of development policies and programs.
    Keywords: currency crisis - exchange rate - leading indicators - Argentina
    JEL: D6 D7 H
    Date: 2005–12–23

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