nep-dev New Economics Papers
on Development
Issue of 2006‒02‒12
eleven papers chosen by
Jeong-Joon Lee
Towson University

  1. Growth and labour markets in developing countries By Mathan Satchi; Jonathan Temple
  2. Financial Development and Inequality: Brazil 1985-99 By Manoel F. Meyer Bittencourt
  3. Growth and Intellectual Property By Michele Boldrin; David K Levine
  4. Human capital, R&D, and competition in macroeconomic analysis. By Eric Canton; Bert Minne; Ate Nieuwenhuis; Marc van der Steeg
  5. The Social Cost of Foreign Exchange Reserves By Rodrik, Dani
  6. Democracy and Development: The Devil in the Details By Torsten Persson; Guido Tabellini
  7. Indirect Effects of an Aid Program: The Case of Progresa and Consumption By Manuela Angelucci; Giacomo De Giorgi
  8. Child Labor, Urban Proximity and Household Composition By Marcel Fafchamps; Jackline Wahba
  9. Human Capital Externalities and Growth of High- and Low-Skilled Jobs By Jens Suedekum
  10. Sectoral Aid Priorities: Are Donors Really Doing their Best to Achieve the Millennium Development Goals? By Rainer Thiele; Peter Nunnenkamp; Axel Dreher
  11. Poverty and Poverty Dynamics in Rural Ethiopia By Christelle Swanepoel

  1. By: Mathan Satchi; Jonathan Temple
    Abstract: In middle-income countries, the informal sector often accounts for a substantial fraction of urban employment. We develop a general equilibrium model with matching frictions in the urban labour market, the possibility of self-employment in the informal sector, and scope for rural-urban migration. We investigate the effects of different types of growth on wages and the informal sector, and the extent to which labour market institutions can influence aggregate productivity. We quantify these effects by calibrating the model to data for Mexico, a country with a sizeable informal sector and significant labour market rigidities.
    Keywords: informal sector, urban unemployment, dual economies, matching frictions
    JEL: J40 O10
    Date: 2006–01
  2. By: Manoel F. Meyer Bittencourt
    Abstract: We examine the impact that financial development had on earnings inequality in Brazil in the 1980's and 90's. The empirical evidence, based on panel time series and time series data, shows that more broad access to financial and credit markets had a significant and robust effect in reducing inequality during the period investigated. We suggest that this is not only because the poor can invest the acquired credit in all sorts of productive activities, but also because those with access to financial markets can insulate themselves against recurrent poor macroeconomic performance, which is exemplified by high inflation rates. The main implication of the results is that a seemingly nondistortionary policy, such as more credit aimed at the poor, alleviates the extreme inequality present in Brazil and consequently improves welfare without distorting economic efficiency.
    Keywords: Financial development and markets, credit, inequality and welfare, inflation.
    JEL: D31 E44 O11 O54
    Date: 2006–01
  3. By: Michele Boldrin; David K Levine
    Date: 2006–02–01
  4. By: Eric Canton; Bert Minne; Ate Nieuwenhuis; Marc van der Steeg
    Abstract: Long-run per capita economic growth is driven by productivity growth. Major determinants of productivity are investments in education and research, and the intensity of competition on product markets. While these ideas have been incorporated into modern growth theories and tested in empirical analyses, they have not yet found their way to applied macroeconomic models used to forecast economic developments. In this paper, we discuss various options to include human capital, R&D, and product market competition in a macroeconomic framework. We also study how policy can affect the decisions to build human capital or to perform research, and how competition policy impacts on macroeconomic outcomes. We finally sketch how these mechanisms can be implemented into the large models used at CPB.
    Keywords: Human capital; R&D; competition; applied macroeconomic mode
    JEL: O40
    Date: 2005–07
  5. By: Rodrik, Dani
    Abstract: There has been a very rapid rise since the early 1990s in foreign reserves held by developing countries. These reserves have climbed to almost 30% of developing countries' GDP and 8 months of imports. Assuming reasonable spreads between the yield on reserve assets and the cost of foreign borrowing, the income loss to these countries amounts to close to 1% of GDP. Conditional on existing levels of short-term foreign borrowing, this does not represent too steep a price as an insurance premium against financial crises. But why developing countries have not tried harder to reduce short-term foreign liabilities in order to achieve the same level of liquidity (thereby paying a smaller cost in terms of reserve accumulation) remains an important puzzle.
    Keywords: emerging markets; financial crises
    JEL: F4
    Date: 2006–01
  6. By: Torsten Persson; Guido Tabellini
    Abstract: Does democrazy promote economic development? Reviews recent attempts to addresses this question that exploited within-country variation. It shows that the answer is largely postive, but also depends on the details of democratic reforms. First, the sequence of economic vs political reforms matters: countries liberalizing their economy before extending political rights do better. Second, different forms of democratic government lead to different economic policies, and this might explain why presidential democracy leads to faster growth than parliamentary democracy. Third, it is important to distinguish between expected and actual political reforms. Taking expectations of regime change into account helps identify a stronger growth effect of democracy.
  7. By: Manuela Angelucci (University of Arizona and IZA Bonn); Giacomo De Giorgi (University College London)
    Abstract: Aid programs in developing countries are likely to affect all households living in the treated areas, both eligible and non-eligible ones. Studies that focus on the treatment effect on the treated may fail to capture important spillover effects. We exploit the unique design of an aid program's experimental trial to identify its indirect effect on consumption for non-eligible households living in treated areas. We find that this effect is positive, and that it occurs through changes in the insurance and credit markets: non-eligible households receive more transfers, and borrow more when hit by a negative idiosyncratic shock, because of the program liquidity injection, thus they can reduce their precautionary savings. We also test for general equilibrium effects in the local labor and goods markets, finding no significant changes in labor income and prices, while there is a reduction in earnings from sales of agricultural products, which are now consumed. We show that this class of aid programs has important positive externalities, thus their overall effect is larger than the effect on the treated. Our results confirm that a key identifying assumption - that the treatment has no effect on the non-treated - is likely to be violated in similar policy designs.
    Keywords: program evaluation, consumption, Progresa
    JEL: E21 H43 I38 O12 O17
    Date: 2006–01
  8. By: Marcel Fafchamps (University of Oxford); Jackline Wahba (University of Southampton and IZA Bonn)
    Abstract: Using detailed survey data from Nepal, this paper examines the determinants of child labor with a special emphasis on urban proximity. We find that children residing in or near urban centers attend school more and work less in total but are more likely to be involved in wage work or in a small business. The larger the urban center, the stronger the effect is. Urban proximity is found to reduce the workload of children and improve school attendance up to 3 hours of travel time from the city. In areas of commercialized agriculture located 3 to 7 hours from the city, children do more farm work. Urban proximity effects are accounted for by a combination of local labor supply and demand conditions, most notably the local importance of agriculture, the education level of the parents, and the local wage rate. Child servants, which represent a small proportion of all children, work much harder than other children and appear particularly at risk.
    Keywords: child labour, Nepal, child schooling, urban proximity
    JEL: J10 J22 J24 J40 N35
    Date: 2006–02
  9. By: Jens Suedekum (University of Konstanz and IZA Bonn)
    Abstract: In this paper I analyze the impact of human capital on local employment growth for the case of West Germany (1977-2002). I find robust evidence that skilled cities grow faster than unskilled ones, but this need not indicate localized human capital externalities are at work. A large initial share of high-skilled workers significantly reduces subsequent growth of highskilled jobs. The observed positive impact on total employment growth is, therefore, due to the fact that low-skilled jobs grow faster than high-skilled jobs decline in initially skilled cities. This evidence is in line with complementarities among skill groups as the major causal link between human capital and employment growth. It challenges theories of self-reinforcing spatial concentration of high-skilled workers due to strong localized spillovers.
    Keywords: human capital, local employment growth, externalities
    JEL: R11 O40
    Date: 2006–02
  10. By: Rainer Thiele; Peter Nunnenkamp; Axel Dreher
    Abstract: We analyze the aid portfolio of various bilateral and multilateral donors, testing whether they have prioritised aid in line with the Millennium Development Goals (MDGs). In doing so, we combine sectorally disaggregated aid data with indicators reflecting the situation of recipient countries regarding the MDGs. Our results show that donors differ not only in terms of their overall generosity and the general poverty orientation of aid, but also in the extent to which their sectoral aid allocation is conducive to achieving more specific MDGs such as all children completing a full course of primary schooling, reducing child and maternal mortality as well as reversing the spread of HIV/AIDS. Overall, while some MDGs, e.g., the fight against HIV/AIDS, have shaped the allocation of aid, the sector-specific results reveal that with respect to other MDGs, most notably primary education, there is a considerable gap between donor rhetoric and actual aid allocation. These results invite the conclusion that the current focus on substantially increasing aid in order to turn the tide in trying to achieve the MDGs misses one important point: Unless the targeting of aid is improved, higher aid will not have the desired effects. Our results suggest that at least part of the blame for missing the MDGs falls on insufficient targeting of aid.
    Keywords: Aid Allocation, MDGs, Development Aid
    JEL: F35 O11 O19
    Date: 2006–01
  11. By: Christelle Swanepoel (Bureau of Economics Research, Stellenbosch University)
    Abstract: Poverty in rural Ethiopia is vast by any standard. Using the Ethiopian Rural Household Survey (ERHS), which is a panel data set consisting of four rounds between 1994 and 1997, this analysis aims to examine the broad trends in poverty by calculating and decomposing poverty measures of the Foster-Greer-Thorbecke class, as well as to analyse the correlates of poverty by means of regression trees. Furthermore, in an attempt to determine how and why some households experience changes in their poverty status over time, the poverty dynamics of households is studied according to both the spells and the components approaches. Here the distinction is made between transient and chronic poor, and regression analysis is employed to determine whether the endowments and characteristics of these groups differ.
    Keywords: poverty, poverty dynamics, Ethiopia
    JEL: I32 C2
    Date: 2005

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