|
on Development |
| By: | Alberto Franco Pozzolo (Universita' degli Studi del Molise and Ente Luigi Einaudi) |
| Abstract: | Endogenous growth has set a new paradigm for macroeconomic analysis. This paper overviews the most relevant theoretical contributions of this literature for the analysis of open economies, highlighting their implications both for the effects of crosscountry integration on output convergence and for the overall growth performance of the integrated economy, as compared to that of an identical group of autarchic countries. The literature is divided into three major classes, studying, respectively, the effects of factor mobility, the role of international trade, and the consequences of technology diffusion. The main conclusion is that knowledge spillovers can go a long way in explaining the differences in growth performances across countries, but additional research is needed to completely understand the mechanisms driving their international diffusion. |
| Keywords: | endogenous growth, open economies, international spillovers |
| JEL: | O4 F2 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_527_04&r=dev |
| By: | Jellal, Mohamed; Zenou, Yves |
| Abstract: | The paper mainly addresses three questions: 1) do workers tend to be employed by employers of the same ethnic group; 2) what is the structure of the equilibrium wage contract; and 3) do more ethnically homogeneous labour markets tend to have different labour contracts than more ethnically diversified ones. The answer to the first question is in the affirmative - in equilibrium all employers offer the same wage contract and workers are hired by employers of the closest ethnic affiliation. In terms of the equilibrium wage contract, its nature depends on the attitude towards risk of both sides of the market. Finally, the answer to the third question is also in the affirmative since the more homogenous the labour market, the more deterministic is the wage. |
| Keywords: | ethnicity; piece rates; sharecropping |
| JEL: | D43 J33 O12 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5366&r=dev |
| By: | Fatás, Antonio; Mihov, Ilian |
| Abstract: | There is a significant controversy among academics and policy-makers about whether policies matter for economic growth. Recently, Acemoglu et al. (2003) and Easterly (2004) have presented empirical evidence against the commonly held view that policies play an important role in the process of economic development. Their key conclusion is that macroeconomic policies (monetary, fiscal and trade) have an explanatory power for the cross-country variation in growth rates and income per capita only because they serve as proxies for institutions. While we confirm their results using levels of policy variables (inflation and government spending), we present evidence that policy volatility exerts a strong and direct negative impact on growth. In a cross-section of 91 countries, policy volatility emerges as a key determinant of macroeconomic performance. An increase in the volatility of fiscal policy corresponding to one standard deviation in the sample reduces long-term economic growth by about 0.75 percentage points. Political institutions have a role to play to the extent that they shape policy outcomes. |
| Keywords: | fiscal policy; growth; institutions; macroeconomic volatility |
| JEL: | E60 H11 O11 O57 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5388&r=dev |
| By: | Cadot, Olivier; Dutoit, Laure; Olarreaga, Marcelo |
| 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 generate large gains if moved out of subsistence, yielding useful information for the targeting of trade-adjustment assistance programs. |
| Keywords: | entry costs; Madagascar; subsistence; switching regression; threshold regression; unknown sample separation |
| JEL: | F10 O12 O19 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5392&r=dev |
| By: | Herrendorf, Berthold; Valentinyi, Akos |
| Abstract: | Standard growth accounting exercises find large cross-country differences in aggregate TFP. Here we ask whether specific sectors are driving these differences, and, if this is the case, which these problem sectors are. We argue that to answer these questions we need to consider four sectors. In contrast, the literature typically considers only two sectors. Our four sectors produce services (nontradable consumption), consumption goods (tradable consumption), construction (nontradable investment), and machinery and equipment (tradable investment). Interacting the data from the 1996 benchmark study of the Penn World Tables with economic theory, we find that the TFP differences across countries are much larger in the two tradable sectors than in the two nontradable sectors. This is consistent with the Balassa--Samuelson hypothesis. We also find that within the tradable sectors the TFP differences are much larger in machinery and equipment than in consumption goods. We illustrate the usefulness of our findings by accounting for the conflicting results of the existing two--sector analyses and by developing criteria for a successful theory of aggregate TFP. |
| Keywords: | development accounting; relative prices; sector TFPs |
| JEL: | O14 O41 O47 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5399&r=dev |
| By: | Zenou, Yves |
| 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 re-examine 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; policy; rural-urban migration; search-matching |
| JEL: | D83 J41 J64 O15 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5402&r=dev |
| By: | Antonio G. Chessa (University of Amsterdam); Marije C. Schouwstra (University of Amsterdam) |
| Abstract: | Total Factor Productivity (TFP)is often used on the macro-economic level as an indicator of changes in efficiency of a country. In many transition economies TFP is seen to have been negative the last decade of the plan economy and starts increasing and become positive after a (quite a) few years of transition. Many authors conclude that this is a gain in efficiency due to the structural changes –such as privatisation and liberalisation – carried out in order to establish a market economy in those countries. In the case of Mongolia, not only non-viable enterprises closed down, but many possibly viable enterprises with potential closed down as well. This raises the question whether changes in TFP were really attributable to increases in efficiency. To investigate this, the mathematical properties of TFP are analysed in order to generate new insights into the development of TFP in Mongolia. Simulations are performed to see what happens with TFP if not the le! ast efficient, but a certain percentage of enterprises in a (closed) economy randomly close down. The robustness of Total Factor Productivity of Mongolia was tested not only for errors in all estimated values but also for measurement errors in the data. It was concluded that in many commonly occurring cases it is not necessary to estimate alpha; that a random closure of enterprises fits the data of Mongolia much more closely than closing only the least efficient enterprises; and that measurement errors in the data influence the estimated TFP significantly. |
| Keywords: | transition; development; TFP; total factor productivity; Mongolia; measurement errors; simulation; Cobb-Douglas production function; sensitivity analysis; efficiency |
| JEL: | O C15 E2 P2 |
| Date: | 2005–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20050087&r=dev |
| By: | Christophe Muller (Departamento de Fundamentos del Análisis Económico Universidad de Alicante, Campus de San Vicente) |
| Abstract: | (english) It is not known to what extent welfare measures result from seasonal and geographical price differences rather than from differences in living standards across households. Using data from Rwanda in 1983, we show that the change in mean living standard indicators caused by local and seasonal price deflation is moderately significant at every quarter. By contrast, the differences in poverty measures caused by this deflation can be considerable, for chronic as well as transient or seasonal poverty indicators. Thus, poverty monitoring and anti-poverty targeting can be badly affected by inaccurate deflation of living standard data. Moreover, when measuring seasonal poverty, the deflation based on regional prices instead of local prices only partially corrects for spatial price dispersion. Using annual local prices instead of quarterly local prices only yields a partial deflation, which distorts the measure of poverty fluctuations across seasons and biases estimates of annual and chronic poverty. _________________________________ (français) On ne sait pas dans quelle mesure les indicateurs de bien-être social résultent de différences de prix plutôt que de différences saisonnières et géographiques de niveaux de vie entre ménages. A partir de données du Rwanda en 1983, nous montrons que le changement de la mesure du niveau de vie moyen causé par la déflation des prix est modéré bien que significatif à chaque trimestre, contrairement au changement des mesures de la pauvreté qui peut être considérable, que ce soit pour des indices de pauvreté chronique, transitoire ou saisonnière. Ainsi le suivi de la pauvreté et le ciblage anti-pauvreté peuvent être sévèrement affectés par une déflation imprécise des données de niveaux de vie. Pour la mesure de la pauvreté saisonnière, la déflation basée sur des indices de prix régionaux, au lieu d’indices de prix locaux corrige seulement partiellement la dispersion géographique des prix. De même, employer des prix locaux annuels au lieu de prix locaux trimestriels conduit à une déflation partielle qui non seulement distord la mesure des fluctuations de la pauvreté entre les saisons, mais fournit également des estimations biaisées des pauvretés chroniques et annuelles. |
| Keywords: | Measurement and Analysis of Poverty, Income Distribution, Personal Income Distribution, Mesure du niveau de vie, Variation spatiales de prix, Mesure de la pauvreté, Politiques de lutte contre la pauvreté. |
| JEL: | I32 O15 D31 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:dia:wpaper:dt200516&r=dev |
| By: | Cruz A. Echevarría (Universidad del País Vasco); Amaia Iza (Universidad del País Vasco) |
| Keywords: | Mortality Rate, Social Security, Growth |
| JEL: | H55 J10 |
| Date: | 2005–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:dfaeii:200517&r=dev |
| By: | Walmsley, Terrie; Ahmed, Syud Amer; Parsons, Christopher |
| Abstract: | The lack of data on the movement of people, their wages and remittances has been the biggest impediment to analyzing the movement of people between regions. Recent research in this area by the Center for Global Trade Analysis (GTAP), Sussex University and the World Bank has significantly improved the availability of data and has allowed us to develop the GMig2 Data Base. This Data Base has been used by Walmsley, Winters, Ahmed and Parsons (2005) and van der Mensbrugghe (2005) to model labor movements. The purpose of this paper is to describe the methods used to create the GMig2 Data Base. The GMig2 Data Base is based on the GTAP Data Base (Dimaranan and McDougall, 2005) and uses the bilateral migration data base developed by Parsons, Skeldon, Walmsley and Winters (2005) and the remittance data obtained from Ratha (2004). |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:gta:resmem:1880&r=dev |
| By: | Patrick Villieu (LEO - Laboratoire d'économie d'Orleans - http://www.univ-orleans.fr/DEG/LEO - CNRS : FRE2783 - Université d'Orléans); Alexandru Minea (LEO - Laboratoire d'économie d'Orleans - http://www.univ-orleans.fr/DEG/LEO - CNRS : FRE2783 - Université d'Orléans) |
| Abstract: | In this paper, we study maximizing long-run economic growth trade-off in monetary and fiscal policies in an endogenous growth model with transaction costs. We show that both monetary and fiscal policies are subject to threshold effects, a result that gives account of a number of recent empirical findings. Furthermore, the model shows that, to finance public expenditures, maximizing-growth government must choose relatively high seigniorage (respectively income taxation), if "tax evasion" and "financial repression" coefficients are high (respectively low). Thus, our model may explain why some governments resort to seigniorage and inflationary finance, and others rather resort to high tax-rate, as result of maximizing-growth strategies in different structural enviroments (notably concerning tax evasion and financial repression). In addition, the model allows examining how the optimal mix of government finance changes in response to different public debt contexts. |
| Keywords: | Endogenous growth ; threshold effects ; monetary policy ; fiscal policy ; public deficit ; policy mix ; tax evasion ; financial repression ; financial development |
| Date: | 2006–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00007955_v1&r=dev |
| By: | Thomas Giblin; Alan Matthews |
| Abstract: | This paper uses the ATPSM partial equilibrium trade model (developed by UNCTAD and the FAO) to examine the impact of various agricultural trade liberalisation scenarios on the countries of Sub-Saharan Africa. The model is presented in some detail along with an assessment of some of its strengths and limitations. Two types of trade policy liberalisation scenario are simulated. The first is a set of benchmark total unilateral agricultural trade liberalisation scenarios - by the EU, other regions of the world, Sub-Saharan Africa and our two individual case study countries Tanzania and Uganda. These benchmark simulations give an idea of the potential welfare effects from trade reform. The second set of simulations covers different trade reform proposals that have been put forward in the context of the Doha Development Round. The paper focuses in particular on the Harbinson proposal. Results are reported for total welfare changes as well as more disaggregated welfare impacts on producers, consumers, and government revenue. Changes in export volume and value, and changes in quota rent from preferential trade agreements are also reported. The findings for Tanzania and Uganda are that the welfare effects of rich-country agricultural trade reform are small and typically modestly negative. This reflects both their trade balance in agricultural goods and the erosion in the value of some preferences in the case of Tanzania. Liberalisation by the countries themselves generates the biggest, albeit still small, total welfare gains but at the cost of lost government revenue and significant losses in welfare for net-agricultural producers in rural areas where most of the poor live. The paper is an important contribution in moving beyond the aggregate results for Sub-Saharan Africa that are typically presented in trade simulation papers on agricultural liberalisation, aggregates which include a significant diversity of contrasting individual country impacts. |
| Keywords: | agriculture, trade, modelling, sub-Saharan Africa |
| Date: | 2005–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp074&r=dev |
| By: | Alan Matthews; Jean-Christophe Bureau |
| Abstract: | This paper provides a consolidated, up-to-date overview of the changes to the CAP and the factors making for further reform from the particular perspective of decision-makers in developing countries. It discusses the principles and mechanisms by which EU farmers are supported under the CAP, and the way in which these mechanisms have been changing since the first major reform of the CAP was adopted in 1992. The main pressures for further reform of the CAP are identified, emphasising the political economy of further reform to provide some sense to developing country policy-makers of how these pressures for reform might play out in the future. Taking a horizontal approach, the impact of reform on developing countries of the three main policy instruments – domestic support, border protection and export subsidies – are then discussed, followed by a focus on a few commodities of particular interest to developing countries. The conclusion develops a checklist of factors which developing country policymakers can use to help track the evolution of the debate on CAP reform and its impact on developing countries. |
| Keywords: | Common Agricultural Policy, Agricultural trade, WTO, developing countries. |
| JEL: | F13 Q17 Q18 |
| Date: | 2005–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp91&r=dev |
| By: | Massimiliano Tani (UNSW@ADFA and IZA) |
| Abstract: | This paper contributes a theoretical model to study the effects of short-term movements of skilled labour on a country’s economic growth. As traditional migration models emphasise the long-term effects of migration on factor endowments, they typically omit the analysis of gross labour flows. Gross flows however capture the volume of interactions and knowledge exchanges between workers living in different countries, which in turn affect the stock of knowledge available to their places of residences, and hence their ability to innovate and grow. A simulation based on available US, British and Australian data on international business visits reveals that short-term skilled labour movements have a positive and not insignificant effect on growth. |
| Keywords: | international migration, temporary labour movements, skilled labour, economic growth |
| JEL: | F2 J6 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1934&r=dev |
| By: | Michael Landesmann (Department of Economics, Johannes Kepler University Linz, Austria); Robert Stehrer (Vienna Institute for International Economic Studies) |
| Abstract: | This paper explores the features of a dynamic multisectoral model which focuses on the relationship between income distribution, growth and international specialization. The model is explored both for the steady-state properties and the transitory dynamics of integrated economies. Income inequality affects the patterns of growth and international specialization as the model uses non-linear Engel curves and hence different income groups are characterized by different expenditure patterns. At the same time income distribution is also reflected in the relative wage rates of skilled to unskilled workers, i.e. the skill premium, and hence the wage structure affects comparative costs of industries which have different skill intensities. The model is applied to a situation which analyses qualitatively different economic development strategies of catching-up economies (a 'Latin American' scenario and a 'South East Asian' scenario). |
| Keywords: | income distribution; growth; international economic integration; catching-up; international specialization |
| JEL: | F15 F16 F43 O15 O41 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2005_13&r=dev |
| By: | Chris Papageorgiou; Winford H. Masanjala |
| Abstract: | We investigate the role of initial conditions at colonial independence on economic growth in Africa in the post-independence period using Bayesian Model Averaging (BMA). A key innovation in our estimation methodology is that we incorporate parameter heterogeneity in model averaging as well as try to mitigate the endogeneity problem present in growth regressions. In order to ensure that differences in the growth determinants between Africa and the world are not driven by experiences of an alternative group of countries, we also control for the presence of OECD countries and former European colonies in the global sample. We find that the impact of different initial conditions on growth in Africa is strikingly different from the world. We argue that these initial conditions reflect the state of development at the close of the colonial era and are therefore inherently related with the legacy of colonialism. |
| URL: | http://d.repec.org/n?u=RePEc:lsu:lsuwpp:2006-01&r=dev |
| By: | P R Agénor |
| Abstract: | This paper examines the effect of external shocks on urban poverty in a two-household (rich and poor) intertemporal optimizing model of an open economy with segmented labor markets. Skilled and unskilled labor are used in the formal sector, whereas only unskilled labor is used in the informal economy. Using the minimum wage in the formal sector as the poverty line, various poverty indicators are defined and computed. The analysis shows that the extent to which an increase in the world risk-free interest rate affects the incidence and depth of poverty depends crucially on the wedge between consumption and product wages in the formal economy. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:68&r=dev |
| By: | Olivier Bruno (GREDEG); Cuong Le Van (CERMSEM); Benoît Masquin (GREDEG) |
| Abstract: | We develop a model of optimal pattern of economic development that is first rooted in physical capital accumulation and then in technical progress. We study an economy where capital accumulation and innovative activity take place within a two sector model. The first sector produces a consumption good using physical capital and non skilled labor. Technological progress in the consumption sector is driven by the research activity that takes place in the second sector. Research activity which produces new technologies requires technological capital and skilled labor. New technologies induce and endogenous increase of the Total Factor Productivity of the consumption sector. Physical and technological capital are not substitutable while skilled and non skilled labor may be substitutable. We show that under conditions on the adoption process of new technologies, the optimal strategy for a developing country consist in accumulating physical capital first ; postponing the importation of technological capital to the second stage of development. This result is due to a threshold effect from which new technologies begin to have an impact on the productivity of the consumption sector. However, we show that once a certain level of wealth is reached, it becomes optimal for the economy to import technological capital to produce new technologies. |
| Keywords: | New technology, economic development, developing country, optimal growth. |
| JEL: | C61 O14 O41 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:b05093&r=dev |
| By: | Manh Hung Nguyen (Universté de Laval); Cuong Le Van (CERMSEM); Philippe Michel (GREQAM et EUREQua) |
| Abstract: | This paper examines a model of optimal growth where the agregation of two separate well behaved and concave production technologies exhibits a basic non-convexity. Multiple equilibria prevail in an intermediate range of interest rate. However, we show that the optimal paths monotonically converge to the one single appropriate equilibrium steady state. |
| Keywords: | Non-convex agreggative technology, optimal economic growth, steady state. |
| JEL: | O22 L11 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:b05095&r=dev |
| By: | Cuong Le Van (CERMSEM); Manh Hung Nguyen (CERMSEM); Yiannis Vailakis (CERMSEM) |
| Abstract: | The paper extends the canonical representative agent Ramsey model to include heterogeneous agents and elastic labor supply. The welfare maximization problem is analyzed and shown to be equivalent to a non-stationary reduced form model. An iterative procedure is exploited to prove the supermodularity of the indirect utility function. Supermodularity is subsequently used to establish the convergence of optimal paths. |
| Keywords: | Single-sector growth model, heterogeneous agents, elastic labor supply. |
| JEL: | C62 D51 E13 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:b05096&r=dev |
| By: | Helje Kaldaru Author-Name: Eve Parts |
| Abstract: | The concept of social capital as an important determinant of economic development is attracting increasing attention among development economists. The present paper analyses the impact of macro-level social capital on economic development in 34 European countries. Macro-level social capital comprises different aspects of institutional quality and is closely related to the income distribution and social cohesion. We used principal component analysis to group initially selected social determinants of economic development into three components (human and social capital, income equality, and redistribution), which altogether described 64.4% of the variation of the initial variables. Following regression analysis proved that all these components have a positive effect on economic development, measured by human development index. |
| Keywords: | social capital, economic development, sustainability, European economies |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mtk:febawb:42&r=dev |
| By: | Diego Comin; Bart Hobijn; Emilie Rovito |
| Abstract: | This paper presents a new data set on the diffusion of about 115 technologies in over 150 countries over the last 200 years. We use this comprehensive data set to uncover general patterns of technology diffusion. Our main 5 findings are as follows: (i) Once the intensive margin is measured, technologies do not diffuse in a logistic way. (ii) Within a typical technology, the dispersion in the adoption levels across countries is about 5 times larger than the cross-country dispersion in income per capita. (iii) The rankings of countries by level of technology adoption are very highly correlated across technologies. (iv) Within a typical technology, there has been convergence at an average rate of 4 percent per year. (v) The speed of convergence for technologies developed since 1925 has been three times higher than the speed of convergence for technologies developed before 1925. |
| JEL: | O33 O47 O57 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11928&r=dev |
| By: | Joshua Aizenman; Yothin Jinjarak |
| Abstract: | This paper evaluates the impact of globalization on the tax bases of countries at varying stages of development. We see globalization as a process that induces countries to embrace greater trade and financial integration, and macro stabilization. This in turn should shift their tax base from "easy to collect" taxes [tariff, seigniorage, etc.] towards "hard to collect" taxes [VAT, income tax, etc.]. We confirm this prediction -- the revenue/GDP ratio of the "easy to collect" taxes declined by about 20% in developing countries between the early 1980s and the late 1990s, while the revenue/GDP of the "hard to collect" taxes increased by 9%. The relatively small initial base of "hard to collect" taxes in developing countries implied a net 7% drop in total tax revenue/GDP. Applying panel regressions and controlling for structural factors, we find that trade openness and financial integration have a positive relationship with "hard to collect" taxes, and negative relationship with the "easy to collect" taxes. The effects of globalization in our panel regressions are even larger than the effects of the institutional and political variables combined. Fiscal revenue from financial repression has also decreased, further reinforcing these results. The high income and the middle income countries managed to more than compensate for the revenue decline of the "easy to collect" taxes, increasing the total tax/GDP. In contrast, the upper and low income developing countries experienced sizeable drop in the tax/GDP. We also identify fiscal convergence: the coefficient of variation of tax revenue/GDP measures across countries declined substantially during 1980s - 1990s. The cross country variation declined by about 50% for seigniorage, about 30% for tariff, and about 15% for the "hard to collect" taxes. These results are consistent with the notion that improving the performance of the "hard to collect" taxes is more challenging than reducing the use of "easy to collect" sources of revenue. |
| JEL: | F15 H21 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11933&r=dev |
| By: | Daron Acemoglu |
| Abstract: | Why do inefficient non-growth enhancing institutions emerge and persist? This paper develops a simple framework to provide some answers to this question. Political institutions determine the allocation of political power, and economic institutions determine the framework for policy-making and place constraints on various policies. Groups with political power, the elite, choose policies to increase their income and to directly or indirectly transfer resources from the rest of society to themselves. The baseline model encompasses various distinct sources of inefficient policies, including revenue extraction, factor price manipulation and political consolidation. Namely, the elite may pursue inefficient policies to extract revenue from other groups, to reduce their demand for factors, thus indirectly benefiting from changes in factor prices, and to impoverish other groups competing for political power. The elite’s preference over inefficient policies translates into inefficient economic institutions. Institutions that can restrict inefficient policies will in general not emerge, and the elite may manipulate economic institutions in order to further increase their income or facilitate rent extraction. The exception is when there are commitment (holdup) problems, so that equilibrium taxes and regulations are worse than the elite would like them to be from an ex ante point of view. In this case, economic institutions that provide additional security of property rights to other groups can be useful. The paper concludes by providing a framework for the analysis of institutional change and institutional persistence. |
| JEL: | H2 N10 N40 O1 O10 P16 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11940&r=dev |
| By: | Dani Rodrik |
| Abstract: | Much more than comparative advantage and free markets have been at play in shaping China's export success. Government policies have helped nurture domestic capabilities in consumer electronics and other advanced areas that would most likely not have developed in their absence. As a result, China has ended up with an export basket that is significantly more sophisticated than what would be normally expected for a country at its income level. This has been an important determinant of China's rapid growth. What matters for China's future growth is not the volume of exports, but whether China will continue to latch on to higher-income products over time. |
| JEL: | F1 O4 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11947&r=dev |
| By: | Carol A. Corrado; Charles R. Hulten; Daniel E. Sichel |
| Abstract: | Published macroeconomic data traditionally exclude most intangible investment from measured GDP. This situation is beginning to change, but our estimates suggest that as much as $800 billion is still excluded from U.S. published data (as of 2003), and that this leads to the exclusion of more than $3 trillion of business intangible capital stock. To assess the importance of this omission, we add capital to the standard sources-of-growth framework used by the BLS, and find that the inclusion of our list of intangible assets makes a significant difference in the observed patterns of U.S. economic growth. The rate of change of output per worker increases more rapidly when intangibles are counted as capital, and capital deepening becomes the unambiguously dominant source of growth in labor productivity. The role of multifactor productivity is correspondingly diminished, and labor's income share is found to have decreased significantly over the last 50 years. |
| JEL: | O47 E22 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11948&r=dev |
| By: | David M. Cutler; Angus S. Deaton; Adriana Lleras-Muney |
| Abstract: | Mortality rates have fallen dramatically over time, starting in a few countries in the 18th century, and continuing to fall today. In just the past century, life expectancy has increased by over 30 years. At the same time, mortality rates remain much higher in poor countries, with a difference in life expectancy between rich and poor countries of also about 30 years. This difference persists despite the remarkable progress in health improvement in the last half century, at least until the HIV/AIDS pandemic. In both the time-series and the cross-section data, there is a strong correlation between income per capita and mortality rates, a correlation that also exists within countries, where richer, better-educated people live longer. We review the determinants of these patterns: over history, over countries, and across groups within countries. While there is no consensus about the causal mechanisms, we tentatively identify the application of scientific advance and technical progress (some of which is induced by income and facilitated by education) as the ultimate determinant of health. Such an explanation allows a consistent interpretation of the historical, cross-country, and within-country evidence. We downplay direct causal mechanisms running from income to health. |
| JEL: | I1 J1 O1 N3 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11963&r=dev |
| By: | Ryo Horii (Graduate School of Economics, Osaka University) |
| Abstract: | This paper develops a theory of endogenous growth cycles focusing on the interaction between consumersf desire to satisfy an indefinite range of wants and firmsf incentive to utilize knowledge from past production experiences. We show that firms endogenously form a number of distinguishable industries as accumulated knowledge induces them to agglomerate in the technology space. Knowledge accumulation in existing industries reduces production costs, but, as the diminishing returns from learning sets in, some firms start to adopt previously unexplored technologies so that their new goods fit consumersf unsatisfied wants and attract large demand. Thus, sporadic emergence of new industries generates growth cycles, where both the timing and the new technology to be adopted are endogenously determined. New industries based on new technology reduce the rate of per capita GDP growth in the initial phase, but nonetheless are indispensable for sustained economic growth in the long run. |
| Keywords: | endogenous growth, technology choice, wants, knowledge, cycles. |
| JEL: | O31 O33 O41 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0603&r=dev |
| By: | John Landon-Lane (Rutgers University); Peter Robertson (The Unviersity of New South Wales) |
| Abstract: | In this paper we clarify the impact that barriers to capital accumulation can have on a two-sector neoclassical growth model's ability to explain the observed differences in incomes across countries. We show that the effect of barriers to technology adoption in a two sector model is necessarily identical to a one-sector model when there are no factor market imperfections and each sector has identical technologies. We also show that this result generalizes to the case when the technologies are different across the sectors. |
| Keywords: | Economic Growth; Economic Development; Barriers; Capital Accumulation; |
| JEL: | F0 O0 O4 |
| Date: | 2005–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:200509&r=dev |
| By: | John Landon-Lane (Rutgers University); Peter Robertson (The Unviersity of New South Wales) |
| Abstract: | Barriers to investment are often regarded as an important determinant of the variation in international income levels. Nevertheless, in the standard neoclassical growth model, these barriers have only have small effects on per capita incomes. We consider the effects of barriers to accumulation in a two-sector neoclassical model that also exhibits barriers to labor mobility. Numerical simulation show that barriers to accumulation have a magnified effect in this model. The results imply that if labor markets are not efficient, then barriers to accumulation may be an important determinant of a country's income level. Moreover, we show that the removal of these barriers can produce several decades of rapid growth, reminiscent of economic growth miracles. |
| Keywords: | Barriers; Development; Dual economies; Growth; Wage gaps; |
| JEL: | O0 O4 O41 |
| Date: | 2005–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:200510&r=dev |
| By: | Cheolsung Park (Department of Economics, National University of Singapore) |
| Abstract: | I estimate the gradient among children 0 to 14 years old across different age groups using data from Indonesia. I find that while the gradient is strong among the very young, it gets weaker and almost disappears among children older than 6. I find that unequal mortality of children by socioeconomic status depresses the gradient among children 3 years old or younger. I also find evidence that limited access to private healthcare providers decreases the gradient among children 4 to 12 years old. Schooling, on the other hand, is found to have a positive impact on health status of children from low-SES families but little impact on health status of high-SES children. It weakens the gradient among school-age children. |
| URL: | http://d.repec.org/n?u=RePEc:sca:scaewp:0602&r=dev |
| By: | Mario Cimoli; Giovanni Dosi; Richard R. Nelson; Joseph Stiglitz |
| Date: | 2006–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2006/02&r=dev |
| By: | Paul Temple (University of Surrey); Robert Witt (University of Surrey); Chris Spencer (University of Surrey) |
| Abstract: | In this paper we consider the relationship between the standards created by national standards bodies and long run economic growth, exploring the relationship in the context of the UK and the British Standards Institution (BSI). We suggest that standards provide a key enabling mechanism for the widespread diffusion of major technologies, while being generally supportive of incremental innovation and general technological understanding. In order to further understanding of this mechanism we measure the ‘output’ of the BSI by estimating the size of the BSI ‘catalogue’ available to the economy since its inception in 1901. The measure allows us to estimate an augmented production function for the UK economy over the period 1948-2002. Within a co-integrating framework, we find a statistically significant and unique co-integrating vector between labour productivity, the capital-labour ratio, exogenous technological progress and the BSI catalogue. The long-run elasticity of labour productivity with respect to the standards stock is estimated to be about 0.05, so that the rapid growth of the catalogue in the postwar period is associated with about 13% of the aggregate growth in labour productivity. |
| Keywords: | standards, technological change, productivity. |
| JEL: | O11 O33 O47 L52 C22 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:1004&r=dev |
| By: | Graham Bird (University of Surrey); Dane Rowlands (Carleton University) |
| JEL: | F33 F35 O19 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:1105&r=dev |
| By: | Wang, Youjuan; Ravallion, Martin; Chen, Shaohua |
| Abstract: | Concerns about incentives and targeting naturally arise when cash transfers are used to fight poverty. The authors address these concerns in the context of China ' s Di Bao program, which uses means-tested transfers to try to assure that no registered urban resident has an income below a stipulated poverty line. There is little sign in the data of poverty traps due to high benefit withdrawal rates. Targeting performance is excellent by various measures. Di Bao appears to be better targeted than any other program in the developing world. However, all but one measure of targeting performance is found to be uninformative, or even deceptive, about impacts on poverty. The authors find that the majority of the poor are not receiving help, even with a generous allowance for measurement errors. While on paper, Di Bao would eliminate urban poverty, it falls well short of that ideal in practice. |
| Keywords: | Services & Transfers to Poor,Poverty Monitoring & Analysis,Poverty Impact Evaluation,Inequality,Poverty Diagnostics |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3805&r=dev |
| By: | Nabeshima, Kaoru; Yusuf, Shahid |
| Abstract: | Since the early 1980s, China has begun gradually integrating with the global system. In doing so the country has moved toward its own unique brand of market socialism, which recognizes private ownership, and is adopting market institutions and pursuing industrial change within the framework of an urban economic environment. The process of transition has now permeated every corner of Chinese life and no organization has been left untouched. Yet industrial organization in China-especially in the state sector-has been slow to shed many of the distinctive structural characteristics of the old line Maoist era state enterprises. The main prong of the industrial strategy in support of urban change is ownership reform that transforms state-owned enterprises into corporate entities with majority state ownership or places them wholly in private hands, in the process also bolstering the incentives for and the dynamism of the private sector. While the central government spearheads the ownership reform initiative, in the majority of cases the actual implementation is in the hands of municipal, county, and prefectural governments that must coordinate their efforts with other factors influencing urban changes. This paper situates industrial change in China within the context of urban development and examines the interplay of broad reform strategy with local implementation, and its actual practice by the reformed firms. |
| Keywords: | Municipal Financial Management,Private Participation in Infrastructure,Economic Theory & Research,State Owned Enterprise Reform,Microfinance |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3806&r=dev |
| By: | Rojas, Gabriel V. Montes; Maloney, William F.; Fajnzylber, Pablo |
| Abstract: | The authors employ propensity score matching and a traditional control function approach to examine the impact of participation in various societal institutions on microfirm performance in Mexico. They find that firms that participate in credit markets, receive training, pay taxes, and belong to business associations exhibit significantly higher profits, even after controlling for the various factors that drive participation in those institutions. They also find that firms that borrow from formal or informal sources and those that pay taxes are significantly more likely to stay in business, but firms that received credit exhibit lower rates of income growth. Overall, the results suggest that even if the best performing micro-firms are more likely to be selected into participating in societal institutions, causality also runs in the opposite direction. In particular, increases in strictly or broadly defined formality have the potential for increasing profits and survival rates, and appear to bring micro-firms closer to their optimal sizes. |
| Keywords: | Economic Theory & Research,Science Education,Scientific Research & Science Parks,Investment and Investment Climate,Educational Sciences |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3807&r=dev |
| By: | Hurlin, Christophe |
| Abstract: | Using panel data models, the author examines the threshold effects of the productivity of infrastructure investment in developing countries. He considers various specifications of an augmented production function that allow for endogenous thresholds. More precisely, these specifications are tested in a panel threshold regression model. The author ' s main robust result is the presence of strong threshold effects in the relationship between output and private and public inputs. Whatever the transition mechanism used, the testing procedures lead to strong rejection of the linearity of this relationship. In particular, the productivity of infrastructure investment generally exhibits some network effects. When the available stock of infrastructure is very low, investment in this sector has the same productivity as noninfrastructure investment. On the contrary, when a minimum network is available, the marginal productivity of infrastructure investment is generally largely greater than the productivity of other investment. Finally, when the main network is achieved, its marginal productivity becomes similar to the productivity of other investment. |
| Keywords: | Economic Theory & Research,Investment and Investment Climate,Public Sector Economics & Finance,Non Bank Financial Institutions,Technology Industry |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3808&r=dev |
| By: | Wilson, John S.; Otsuki, Tsunehiro; Chen, Maggie Xiaoyang |
| Abstract: | Standards and technical regulations are an increasingly prominent part of the international trade policy debate. In particular, there has been considerable discussion of whether standards and regulations affect trade costs and export prospects for developing countries. In this paper the authors examine how meeting foreign standards affects firms ' export performance, reflected in export propensity and market diversification. The analysis draws on the World Bank Technical Barriers to Trade Survey database of 619 firms in 17 developing countries. The results indicate that technical regulations in industrial countries adversely affect firms ' propensity to export in developing countries. In particular, testing procedures and lengthy inspection procedures reduce exports by 9 percent and 3percent, respectively. Furthermore, in the model, the difference in standards across foreign countries causes diseconomy of scale for firms and affects decisions about whether to enter export markets. The empirical analysis presented here implies that standards impede exporters ' market entry, reducing the likelihood of exporting to more than three markets by 7 percent. In addition, the authors find that firms that outsource components are more challenged by compliance with multiple standards. |
| Keywords: | Markets and Market Access,Small Scale Enterprise,Microfinance,Economic Theory & Research,Public Sector Regulation |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3809&r=dev |
| By: | Christiaensen, Luc; Stifel, David |
| Abstract: | Following the endorsement of the Millennium Development Goals, there is an increasing demand for methods to track poverty regularly. This paper develops an economically intuitive and inexpensive methodology to do so in the a bsence of regular, comparable data on household consumption. The minimum data requirements for the methodology are the availability of a household budget survey and a series of surveys with a comparable set of asset data also contained in the budget survey. The methodology is illustrated using a series of Demographic Health Surveys from Kenya. |
| Keywords: | Rural Poverty Reduction,Pro-Poor Growth and Inequality,Poverty Monitoring & Analysis,Economic Theory & Research,Poverty Lines |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3810&r=dev |
| By: | Luo, Xubei; Zhu, Nong |
| Abstract: | Nonfarm activity plays an increasingly important role in rural household income. Based on data from the Living Standards Measurement Study in the provinces of Hebei and Liaoning, the authors study the distribution of nonfarm income in rural China. First, they assume nonfarm income as an exogenous transfer to total income to decompose the Gini index. Second, they assume nonfarm income as a potential substitute for farm income to take household choices into account and simulate household income. The results show that nonfarm activity reduces rural income inequality by raising the income of poor households to a larger extent than that of rich households. Improving rural infrastructure and implementing universal basic education are critical to build up the capacity of households (in particular, poor households) to participate in nonfarm activity. Strengthening the links between farm activity and nonfarm activity is essential to optimize the contribution of nonfarm activity to pro-poor rural economic development. |
| Keywords: | Rural Poverty Reduction,Poverty Monitoring & Analysis,Services & Transfers to Poor,Poverty Diagnostics,Inequality |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3811&r=dev |
| By: | Serven, Luis; Lopez, Humberto |
| Abstract: | Using a large cross-country income distribution dataset spanning close to 800 country-year observations from industrial and developing countries, the authors show that the size distribution of per capita income is well approximated empirically by a lognormal density. The null hypothesis that per capita income follows a lognormal distribution cannot be rejected-although the same hypothesis is unambiguously rejected when applied to per capita consumption. The authors show that lognormality of per capita income has important implications for the relative roles of income growth and inequality changes in poverty reduction. When poverty reduction is the overriding policy objective, poorer and relatively equal countries may be willing to tolerate modest increases in income inequality in exchange for faster growth-more so than richer and highly unequal countries. |
| Keywords: | Pro-Poor Growth and Inequality,Inequality,Economic Conditions and Volatility,Services & Transfers to Poor,Poverty Impact Evaluation |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3814&r=dev |
| By: | Walton, Michael; Ferreira, Francisco H. G. |
| Abstract: | Just as equality of opportunity becomes an increasingly prominent concept in normative economics, the authors argue that it is also a relevant concept for positive models of the links between distribution and aggregate efficiency. Persuasive microeconomic evidence suggests that inequalities in wealth, power, and status have efficiency costs. These variables capture different aspects of people ' s opportunity sets, for which observed income may be a poor proxy. One implication is that the cross-country literature on income inequality and growth may have been barking up the wrong tree, and that alternative measures of the relevant distributions are needed. The authors review some of the detailed microeconomic evidence, and then suggest three research areas where further work is needed. |
| Keywords: | Economic Theory & Research,Inequality,ICT Policy and Strategies,Poverty Impact Evaluation,Primary Education |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3816&r=dev |
| By: | Shah, Anwar |
| Abstract: | This paper examines the conceptual and empirical basis of corruption and governance and concludes that decentralized local governance is conducive to reduced corruption in the long run. This is because localization helps to break the monopoly of power at the national level by bringing decisionmaking closer to people. Localization strengthens government accountability to citizens by involving citizens in monitoring government performance and demanding corrective actions. Localization as a means to making government responsive and accountable to people can help reduce corruption and improve service delivery. Efforts to improve service delivery usually force the authorities to address corruption and its causes. However, one must pay attention to the institutional environment and the risk of local capture by elites. In the institutional environments typical of some developing countries, when in a geographical area, feudal or industrial interests dominate and institutions of participation and accountability are weak or ineffective and political interference in local affairs is rampant, localization may increase opportunities for corruption. This suggests a pecking order of anticorruption policies and programs where the rule of law and citizen empowerment should be the first priority in any reform efforts. Localization in the absence of rule of law may not prove to be a potent remedy for combating corruption. |
| Keywords: | National Governance,Governance Indicators,Corruption & Anitcorruption Law,Public Sector Corruption & Anticorruption Measures,Government Diagnostic Capacity Building |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3824&r=dev |
| By: | Bogetic, Zeljko |
| Abstract: | The author provides a preliminary benchmarking of infrastructure performance in Lesotho in four major sectors--electricity, water and sanitation, information and communication technology, and road transportation--against the relevant group of comparator countries using a new World Bank international data base with objective and perception-based indicators of infrastructure performance from over 200 countries. The results of the benchmarking are revealing of several major, comparative deficiencies in infrastructure performance in Lesotho: (1) extremely low access to electricity and its affordability; (2) poor coverage, quality, and the cost of local (non-cellular) telephony; and (3) poor quality of roads. Infrastructure service delivery in electricity, telephony, and roads is well below what would be expected, on average, for a country in Lesotho ' s income group. In these sectors, Lesotho also compares unfavorably with many other geographical country groups. Unless addressed, such infrastructure shortfalls are likely to adversely affect the welfare of Lesotho ' s poor, and the cost competitiveness and growth prospects of a range of economic sectors (such as tourism and trade) that depend critically on a stable and competitive supply of basic infrastructure service. They could also affect the speed and quality of Lesotho ' s regional economic integration within the South Africa Customs Union (SACU) sub-region with attendant consequences for the long-term growth of regional trade and real output. By contrast, Lesotho ' s performance is solid in the access to improved water and sanitation, in the aggregate and in both rural and urban areas. Finally, this benchmarking, combined with more in-depth, sector analyses, could provide policymakers in Lesotho a useful guide to the areas of infrastructure performance requiring attention. |
| Keywords: | Infrastructure Regulation,Urban Services to the Poor,Urban Slums Upgrading,Banks & Banking Reform,Roads & Highways |
| Date: | 2006–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3825&r=dev |
| By: | Manuel Oechslin |
| Abstract: | This paper introduces credit market imperfections and barriers to entrepreneurship into the Ramsey growth model. It is assumed that only a small elite, the oligarchs, may run firms and that these oligarchs – when borrowing from workers – may renege on the debt contracts at low cost. In such an economy, poor contract enforcement slows down the transition towards the steady state and alters the dynamics of the distribution strongly in favour of the oligarchs. The reason is that the workers are forced to charge “low” borrowing rates in order to decrease the incumbents’ incentives to default. With dynastic preferences, low returns reduce the workers’ propensity to save; they discount future wages less and consume more out of current income. Calibrations of the model suggest that the elite’s welfare gains are large – even if the oligarchic structure were associated with substantially lower productivity growth rates. These findings point to political forces behind low financial development. |
| Keywords: | creditor rights, asset distribution, economic development |
| JEL: | O11 O16 K42 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:264&r=dev |
| By: | Reto Foellmi; Manuel Oechslin |
| Abstract: | Recent macroeconomic research discusses credit market imperfections as a key channel through which inequality retards growth. Limited borrowing prevents the less affluent individuals from investing the efficient amount, and the inefficiencies are considered to become stronger as inequality rises. This paper, though, argues that higher inequality may actually boost aggregate output even with convex technologies and limited borrowing. Less equality in the middle or at the top end of the distribution is associated with a lower borrowing rate and hence better access to credit for the poor. We find, however, that rising relative poverty is unambiguously bad for economic performance. Hence, we suggest that future empirical work on the inequality-growth nexus should use more specific measures of inequality rather than measures of “overall” inequality such as the Gini index. |
| Keywords: | capital market imperfections, inequality, growth, efficiency |
| JEL: | O11 F13 O16 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:265&r=dev |
| By: | Alessia LO TURCO (Universita' Politecnica delle Marche, Dipartimento di Economia) |
| Abstract: | Aim of this paper is to further investigate the growth effects of structural reforms in Latin America and the Caribbean (LAC). Although some work on the topic already exists this is based on dynamic panel data models where reforms are measured by means of the Reform Indexes, originally calculated by Lora et al.(1997) and then extended by Morley et al.(1999) for the period 1970-1995. Now, with much of the reform effort in LAC countries concentrated in the end of the 80s and in the beginning of the 90s, an empirical analysis with observations up to 1995 might not be enough for a correct detection of growth effects of structural reforms. Moreover, previous results might be driven by the estimation strategy too.;Within this frame, this paper tries to contribute in both ways. Firstly, an actualized version of the Reform Indexes(Escaith et al.(2003)) is used with observations up to 2000. Secondly, differently from previous studies, the estimation strategy is based on the adoption of Within Group estimator and Kiviet(1995) correction for Within Group estimator when, given the number of cross-section units, a shorter time dimension is at hand. Results are compared to estimates from Arellano and Bondo first difference estimator. Finally a sensitivity analysis is performed in order to check the robustness of results. |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:235&r=dev |
| By: | Renato BALDUCCI (Universita' Politecnica delle Marche, Dipartimento di Economia) |
| Abstract: | I intend to verify whether the results obtained by Barro (1990) in relation to the effects of both productive investments and public consumption on economic growth are also confirmed in a more general context. As is well-known, public expenditure may exert an effect on the economic growth rate through the positive externality in the productivity of the capital stock. When public expenditure in the households' utility function is considered, a further effect operates to modify the saving and investment decisions of households, depending on the relative weight of public consumption. In particular, if households consider public expenditure to be useful, I shall show that - whatever the exogenous fiscal policy may be - the growth rate is always higher than it is in the case of productive investments alone. Moreover, if households are able to choose the optimal income tax rate, an optimal growth rate greater than the maximum one may be obtained. |
| Keywords: | economic growth, public expenditure |
| JEL: | H5 O4 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:240&r=dev |
| By: | Andrea PRESBITERO |
| Abstract: | This paper investigates the relationship between external debt and economic growth in poor countries. The adverse effects of external debt on economic performance are due to the crowding out of public investment and to the disincentive effects, because of debt overhang and uncertainty. Notwithstanding a general agreement on theory, empirical evidence is not conclusive and lacks of robustness. This contribution aims to shed more light on the relationship between external debt and economic growth and to draw some policy implication for debt relief. This work highlights the critical role of econometric and methodological issues. The results for a panel of 152 developing countries over the period 1977-2002 support a negative linear relationship between external debt and economic growth, and between debt service and investment. These effects are found to be stronger in the Low-Income Countries than in the overall sample, raising concern about the dramatic effect that debt has on economic performance in the world's poorest countries. In LICs, a debt reduction from a debt-to-exports ratio of 300 to the HIPC threshold of 150 is estimated to add more than one percentage point to per capita GDP growth, and a debt service reduction is found to be more than two times more effective than an equal increase in foreign aid. Eventually, external debt impairs economic growth through the liquidity constraint, the creation of macroeconomic instability, the lower efficiency of investment, and its effect on macroeconomic policies and institutional development. |
| Keywords: | HIPC, debt relief, economic growth, external debt |
| JEL: | C33 F34 H63 O11 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:243&r=dev |
| By: | Glenn Harrison (Department of Economics, College of Business Administration, University of Central Florida); Steven Humphrey (School of Economics, University of Nottingham); Arjan Verschoor (School of Development Studies, University of East Anglia) |
| Abstract: | We review experimental evidence collected from risky choice experiments using poor subjects in Ethiopia, India and Uganda. Using these data we estimate that just over 50% of our sample behaves in accordance with expected utility theory and that the rest subjectively weight probability according to prospect theory. Our results show that inferences about risk aversion are robust to whichever model we adopt when we estimate each model separately. However, when we allow both models to explain portions of the data simultaneously, we infer risk aversion for subjects behaving according to expected utility theory and risk seeking behavior for subjects behaving according to prospect theory. We conclude that the current practice of designing policies under the assumption that one or other explains all behavior is fundamentally flawed. |
| Keywords: | choice under uncertainty, field experiments, developing countries |
| JEL: | O12 D81 C93 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:cdx:dpaper:2005-18&r=dev |