nep-dev New Economics Papers
on Development
Issue of 2006‒01‒29
fifteen papers chosen by
Jeong-Joon Lee
Towson University

  1. International Capital Market Integration, Educational Choice and Economic Growth By Hartmut Egger; Peter Egger; Josef Falkinger; Volker Grossmann
  2. Explaining Conflict in Low-Income Countries: Incomplete Contracting in the Shadow of the Future By Michael McBride; Stergios Skaperdas
  3. The Short-Run Dynamics of Optimal Growth Models with Delays By Collard, Fabrice; Licandro, Omar; Puch, Luis
  4. Machines as Engines of Growth By Zeira, Joseph
  5. Remedying Education: Evidence from Two Randomized Experiments in India By Banerjee, Abhijit; Cole, Shawn; Duflo, Esther; Linden, Leigh
  6. Technological Progress and Regress in Pre-Industrial Times By Aiyar, Shekhar; Dalgaard, Carl-Johan; Moav, Omer
  7. Individual vs. Parental Consent in Marriage: Implications for Intra-Household Resource Allocation and Growth By Edlund, Lena Cecilia; Lagerlöf, Nils-Petter
  8. Social Capital, Creative Destruction and Economic Development By Bezemer, Dirk; Dulleck, Uwe; Frijters, Paul
  9. Fiscal federalism in big developing countries: China and India By Fraschini, Angela
  10. Incomplete contracts and investment : a study of land tenancy in Pakistan By Mansuri, Ghazala; Jacoby, Hanan G.
  11. Financial performance and outreach : a global analysis of leading microbanks By Morduch, Jonathan; Demirguc-Kunt, Asli; Cull, Robert
  12. Exploring the linkages between poverty, marine protected area management, and the use of destructive fishing gear in Tanzania By Silva, Patricia
  13. Bangladesh 2020: An Analysis of Growth Prospect and External Sector Behaviour By Debapriya Bhattacharya; Uttam Kumar Deb
  14. Impact analysis of cotton subsidies on poverty: A CGE macro-accounting approach applied to Mali By Dorothée Boccanfuso; Luc Savard
  15. Knowledge Capital as the Source of Growth By Hannu Piekkola

  1. By: Hartmut Egger; Peter Egger; Josef Falkinger; Volker Grossmann
    Abstract: This paper examines the impact of capital market integration (CMI) on higher education and economic growth. We take into account that participation in higher education is non-compulsory and depends on individual choice. Integration increases (decreases) the incentives to participate in higher education in capital-importing (-exporting) economies, all other things equal. Increased participation in higher education enhances productivity progress and is accompanied by rising wage inequality. From a national policy point of view, education expenditure should increase after integration of similar economies. Using foreign direct investment (FDI) as a measure for capital flows, we present empirical evidence which largely confirms our main hypothesis: An increase in net capital inflows in response to CMI raises participation in higher education and thereby fosters economic growth. We apply a structural estimation approach to fully track the endogenous mechanisms of the model.
    Keywords: capital mobility, capital-skill complementarity educational choice, education policy, economic growth, wage income inequality
    JEL: F20 H52 J24 O10
    Date: 2005
  2. By: Michael McBride; Stergios Skaperdas
    Abstract: We examine two factors that help explain the prevalence of conflict in low-income countries: that adversaries cannot enforce long-term contracts in arms, and that open conflict alters the future strategic positions of the adversaries differently than does peace. Using an infinite horizon model, we show the conditions under which adversaries will not be able to sustain short-term contracts even though doing so is Pareto superior to open conflict. Conflict arises because adversaries attempt to gain future strategic supremacy that only victory in conflict brings. Lower incomes or wages, as well as higher discount factors and the less destructive conflict is, the higher is the likelihood of war.
    JEL: C70 D74 O10
    Date: 2005
  3. By: Collard, Fabrice; Licandro, Omar; Puch, Luis
    Abstract: Differential equations with advanced and delayed time arguments may arise in the optimality conditions of simple growth models with delays. Models with delayed adoption of new technologies, habit formation or learning-by-using lie in this category. In this paper we present new insight on the role of advanced time arguments to mitigate the echo effects induced by lag structures. In so doing we use optimal control theory with delays, and we propose a shooting method to deal with leads and lags in the Euler system associated to dynamic general equilibrium models in continuous time. We implement these methods to solve for the short run dynamics of a neoclassical growth model with a simple time-to-build lag.
    Keywords: DDEs; delay; shooting method; time-to-build
    JEL: C63 E32 O40
    Date: 2006–01
  4. By: Zeira, Joseph
    Abstract: This paper builds a model of growth through industrialization, as machines replace workers in a growing number of tasks. This enables the economy to experience long-run growth, as machines become servants of humans, and as their number can grow unboundedly. The mechanism that drives growth is the feedback between industrialization and wages. High wages are incentives to use machines and industrialize, while industrialization raises wages. The model shows that industrialization and growth take off only if the economy is productive enough. It also shows that monopoly power can stifle growth, as it lowers wages. Hence, a one-time increase in productivity, or a reduction of monopoly power can push economies from stagnation to industrialization.
    Keywords: economic growth; industrialization; technology
    JEL: O14 O30 O40
    Date: 2006–01
  5. By: Banerjee, Abhijit; Cole, Shawn; Duflo, Esther; Linden, Leigh
    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.
    Keywords: computer aided education; India; program evaluation; remedial education
    JEL: I21 O11
    Date: 2006–01
  6. By: Aiyar, Shekhar; Dalgaard, Carl-Johan; Moav, Omer
    Abstract: This paper offers micro-foundations for the dynamic relationship between technology and population in the pre-industrial world, accounting for both technological progress and the hitherto neglected but common phenomenon of technological regress. A growing population engenders the endogenous adoption of new techniques that increase the division of labour. Conversely, technological progress supports an increasing population in the Malthusian environment. A transient shock to population or productivity, however, induces the neglect of some techniques rendered temporarily unprofitable, which are therefore not transmitted to the next generation. When the shock passes, the division of labour remains constrained by the smaller stock of knowledge, and technology has thereby regressed. A slow process of rediscovery is required for the economy to reach its previous level of technological sophistication and population size.
    Keywords: division of labour; Malthusian stagnation; technological progress; technological regress
    JEL: J11 O10 O33 O40
    Date: 2006–01
  7. By: Edlund, Lena Cecilia; Lagerlöf, Nils-Petter
    Abstract: Marrying individuals' consent has been requirement for marriage in Europe since the Middle Ages - in most of the rest of the world parental consent reigned until at least until the 1950s. This paper investigates the role of consent in marriage for intra-household allocation of resources and growth. We argue that a shift from parental to individual consent moves resources in the same direction, favouring young men and young women over old men. If young adults have greater incentives to invest in child human capital than the old (who will be around fewer periods), this may impact on growth. We formulate a simple endogenous growth model capturing these aspects.
    Keywords: arranged marriage; endogenous growth; individual consent; love marriage; parental consent
    JEL: J12 O17 O40
    Date: 2006–01
  8. By: Bezemer, Dirk; Dulleck, Uwe; Frijters, Paul (Groningen University)
    Abstract: This paper develops a conceptual framework for the role of social capital in the political economy of innovation, growth and reform, with illustrations from developing and transition countries. It identifies separate but related roles for the individual and communal interpretations of social capital. It argues that economic growth via innovation requires the creative destruction of individual social capital linkages and discusses the roles of communal social capital and formal market institutions in the process. A negative externality associated with creative destruction implies the possibility of growth accelerations as well as growth traps.
    Date: 2005
  9. By: Fraschini, Angela
    Abstract: In South and East Asian countries a highly centralized government prevails, although recently some trends are moving toward a greater degree of decentralization. Also the two giants China and India, which cannot rely on a merely centralized Government, have experienced a greater or lesser degree of fiscal unionism. As to China the local government system provides four levels: provincial level; city level; county level; township level. Intergovernmental fiscal relations were revamped by the 1994 reform that established a new tax sharing system and gave local governments more control over the administration of local taxes but no significant degree of tax autonomy and no substantial expenditure assignments. The local financial revenue mainly derives from local taxes, shared taxes, and nontax revenue. As to India, the federal system is quite complex. The center-states relations are envisaged in the Constitution also for the financial aspects: two constitutional amendments adopted in 1992 made India one of the most politically decentralized countries among developing ones. However, the implementation of the decentralization program is still lagging: till now India seems to have considered decentralization mainly in terms of the local election system, without the transfer of all functions provided for devolution to local bodies. Only India set up a different system of local bodies in rural and urban areas with different expenditure responsibilities and financing powers. On the contrary, China has a unitary fiscal system. In India it is necessary to redesign the transfer system to improve accountability, incentives and equity, whereas in China, the fiscal revenue sharing schemes limit intergovernmental budget transfers. Finally, the rule of hard budget constraint in China is faced by all levels of government, while in India sub-national governments face soft budget constraint.
    Date: 2006–01
  10. By: Mansuri, Ghazala; Jacoby, Hanan G.
    Abstract: When contracts are incomplete, relationship-specific investments may be underprovided due to the threat of opportunistic expropriation or holdup. The authors find evidence of such underinvestment on tenanted land in rural Pakistan. Using data from households cultivating multiple plots under different tenure arrangements, they show that land-specific investment is lower on leased plots. This result is robust to the possible effects of asymmetric information in the leasing market. Greater tenure security also increases land-specific investment on leased plots. Moreover, variation in tenure security appears to be driven largely by heterogeneity across landlords, suggesting that reputation may be important in mitigating the holdup problem.
    Keywords: Investment and Investment Climate,Municipal Housing and Land,Contract Law,Economic Theory & Research,Real Estate Development
    Date: 2006–02–01
  11. By: Morduch, Jonathan; Demirguc-Kunt, Asli; Cull, Robert
    Abstract: Microfinance contracts have proven able to secure high rates of loan repayment in the face of limited liability and information asymmetries, but high repayment rates have not translated easily into profits for most microbanks. Profitability, though, is at the heart of the promise that microfinance can deliver poverty reduction while not relying on ongoing subsidy. The authors examine why this promise remains unmet for most institutions. Using a data set with unusually high quality financial information on 124 institutions in 49 countries, they explore the patterns of profitability, loan repayment, and cost reduction. The authors find that institutional design and orientation matter substantially. Lenders that do not use group-based methods to overcome incentive problems experience weaker portfolio quality and lower profit rates when interest rates are raised substantially. For these individual-based lenders, one key to achieving profitability is investing more heavily in staff costs-a finding consistent with the economics of information but contrary to the conventional wisdom that profitability is largely a function of minimizing cost.
    Keywords: Banks & Banking Reform,Economic Theory & Research,Economic Adjustment and Lending,Investment and Investment Climate,Rural Finance
    Date: 2006–02–01
  12. By: Silva, Patricia
    Abstract: Coastal resources in Tanzania have come under increasing pressure over the past three decades, which has led to a significant decline in the biodiversity and productivity of coastal ecosystems. The livelihoods of coastal communities that directly depend on these resources are consequently under increasing threat and vulnerability. Marine protected areas (MPAs) are one tool for managing coastal and marine resources that have been increasingly used in Tanzania. Promotion of alternative income generating activities (AIGAs) is often a component of MPA management strategies to reduce fishing pressure and address poverty concerns. However, empirical evidence on whether these AIGAs are successful in reducing pressure on fisheries, or their impact on poverty, is scarce and inconclusive. This paper seeks to contribute to this debate by investigating the linkages between household characteristics, MPA activities, and household choice of fishing gear. The empirical analysis is based on household survey data from a sample of villages located along the coast of mainland Tanzania and Zanzibar. The author finds that some aspects of poverty increase the likelihood of using destructive fishing gear. MPAs do not directly affect household choice of fishing gear. However, households participating in AIGAs are less likely to use destructive fishing gear, suggesting that MPA support to these activities in Tanzania has a positive influence on household choice of fishing gear. The author also finds the use of destructive fishing gear is associated with higher consumption levels, whereas participation in AIGAs does not significantly affect household consumption levels.
    Keywords: Water Conservation,Environmental Economics & Policies,Fishing Industry,Wildlife Resources,Coastal and Marine Resources
    Date: 2006–02–01
  13. By: Debapriya Bhattacharya; Uttam Kumar Deb
    Abstract: External factors such as export, import, remittances and foreign aid have always played important rolesto Bangladesh’s economy, though the relative importance of various external factors has changed over time. This study has analysed the trend, structure and changing features of the external sector of Bangladesh. Based on the past performance and changes in the global economy, the study has projected the growth prospect and likely behaviour of Bangladesh’s external sector under three scenarios: (i) optimistic scenario (8% GDP growth per annum), (ii) business as usual scenario (6% GDP growth per annum), and (iii) base case scenario (4% GDP growth per annum). Under these three scenarios, the study has projected the level of total GDP and per capita GDP of Bangladesh till FY2020. Projections are made about the required level of exports, imports, remittances, foreign aid and foreign investment to attain a consistent GDP growth at the rate of 4%, 6% and 8% up to the year 2020. The paper has also put forward the implications of the findings for policies related to the external sector of Bangladesh. The paper suggests that Bangladesh needs a steady growth based on foreign investment, service income and trade. The report adds that future growth of Bangladesh will depend on promoting export, sustaining remittances, and triggering export. Bangladesh will require a breakthrough in the performance of the external sector. According to the report, the key to the breakthrough lies in effective integration of Bangladesh’s economy with the global economy which will ultimately depend on the ability of political leadership to undertake necessary policy reforms and institution building measures.
    Keywords: External Sector,Growth, Bangladesh
    JEL: E61 H60
    Date: 2006–01
  14. By: Dorothée Boccanfuso (GREDI, Faculte d'administration, Université de Sherbrooke); Luc Savard (GREDI, Faculte d'administration, Université de Sherbrooke)
    Abstract: In this paper, we construct the first country specific CGE model for Mali with a micro-simulation component to analyze the poverty and inequality changes of removing cotton subsidies in developed countries. We used the macro-accounting approach proposed by Chen and Ravallion (2004). This issue has attracted significant attention as is has contributed to stall the broader trade agenda. Research on the issue has been mainly done with partial equilibrium analysis with a few exceptions. We use the first CGE-micro-simulation model to investigate. A 17 sectors CGE model with almost 5000 households is used to demonstrate that removal of subsidies on cotton will contribute to significant decrease in poverty in Mali. Our results show that combining the cotton subsidies removal to other agricultural subsidies does not attenuate the positive effects observed. We also show that the subsidies removal would marginally contribute to decrease inequality in Mali.
    Keywords: computable general equilibrium model, micro-simulation, poverty analysis, income distribution, agricultural subsidies
    JEL: D58 D31 I32 Q17
    Date: 2006
  15. By: Hannu Piekkola
    Keywords: regional growth, endogenous growth, catching-up, technology transfer
    JEL: O30 O40 O52 R11
    Date: 2005–03–18

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