nep-dev New Economics Papers
on Development
Issue of 2006‒02‒19
sixteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Poverty, politics, and preferences: Field Experiments and survey data from Vietnam By Tomomi Tanaka; Colin F Camerer; Quang Nguyen
  2. Systemic Crises and Growth By Aaron Tornell
  3. Selling Labor Low: Wage Responses to Productivity Shocks in Developing Countries By Seema Jayachandran
  4. Trade and the Great Divergence: The Family Connection By Galor, Oded; Mountford, Andrew
  5. The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India By Aghion, Philippe; Burgess, Robin; Redding, Stephen J; Zilibotti, Fabrizio
  6. Reputations, Relationships and the Enforcement of Incomplete Contracts By W. Bentley MacLeod
  7. Rural Credit in Vietnam By Mikkel Barslund; Finn Tarp
  8. Cross-Border Flows of People, Technology Diffusion and Aggregate Productivity By Thomas Barnebeck Andersen; Carl-Johan Dalgaard
  9. Economic Reforms and Pro-Poor Growth: Lessons for Africa and other Developing Regions and Economies in Transition By Mwangi S. Kimenyi
  10. Sectoral Aid Priorities: Are Donors Really Doing their Best to Achieve the Millennium Development Goals? By Rainer Thiele; Peter Nunnenkamp; Axel Dreher
  11. Politico-Economic Determinants of the Crowding-in Effects of Public Investments in Developing Countries By Erdal Atukeren

  1. By: Tomomi Tanaka; Colin F Camerer; Quang Nguyen
    Date: 2006–02–08
  2. By: Aaron Tornell
    Date: 2005–05–20
  3. By: Seema Jayachandran
    Date: 2005–12–01
  4. By: Galor, Oded; Mountford, Andrew
    Abstract: This research argues that the rapid expansion of international trade in the second phase of the industrial revolution has played a major role in the timing of demographic transitions across countries and has thereby been a significant determinant of the distribution of world population and a prime cause of the 'Great Divergence' in income per capita across countries in the last two centuries. The analysis suggests that international trade had an asymmetrical effect on the evolution of industrial and non-industrial economies. While in the industrial nations the gains from trade were directed primarily towards investment in education and growth in output per capita, a significant portion of the gains from trade in non-industrial nations was channelled towards population growth.
    Keywords: demographic transition; growth; human capital; industrial revolution; international trade
    JEL: F11 F43 J10 N30 O40
    Date: 2006–02
  5. By: Aghion, Philippe; Burgess, Robin; Redding, Stephen J; Zilibotti, Fabrizio
    Abstract: This paper investigates whether the effects, on registered manufacturing output, employment, entry and investment, of dismantling the 'license raj' - a system of central controls regulating entry and production activity in this sector - vary across Indian states with different labour market regulations. The effects are found to be unequal depending on the institutional environment in which industries are embedded. In particular, following delicensing, industries located in states with pro-employer labour market institutions grew more quickly than those in pro-worker environments. Our results emphasize how local institutions matter for whether industry in a region benefits or is harmed by the nationwide delicensing reform.
    Keywords: delicensing; economic development; labour regulation
    JEL: O14 O18 O21
    Date: 2006–02
  6. By: W. Bentley MacLeod (Columbia University and IZA Bonn)
    Abstract: This paper discusses the literature on the enforcement of incomplete contracts. It compares legal enforcement to enforcement via relationships and reputations. A number of mechanisms, such as the repeat purchase mechanism (Klein and Leffler (1981)) and efficiency wages (Shapiro and Stiglitz (1984)), have been offered as solutions to the problem of enforcing an incomplete contract. It is shown that the efficiency of these solutions is very sensitive to the characteristics of the good or service exchanged. In general, neither the repeat purchase mechanism nor efficiency wages is the most efficient in the set of possible relational contracts. In many situations, total output may be increased through the use of performance pay and through increasing the quality of law.
    Keywords: contract, law and economics, reputation, repeated games, incomplete contracts, transactions costs, institutional economics, contract enforcement
    JEL: K12 C7 O17
    Date: 2006–02
  7. By: Mikkel Barslund (Department of Economics, University of Copenhagen); Finn Tarp (Department of Economics, University of Auckland)
    Abstract: This paper uses a survey of 932 rural households to uncover how the rural credit market operates in four provinces of Vietnam. Households obtain credit through formal and informal lenders, but formal loans are almost entirely for production and asset accumulation. Interest rates fell from 1997 to 2002, reflecting increased market integration; but the determinants of formal and informal credit demand are distinct. Credit rationing depends on education and credit history, but we find no evidence of a bias against women. Regional differences are striking, and a ‘one size fits all’ approach to credit policy is clearly inappropriate.
    Keywords: rural credit; household survey; Vietnam
    JEL: O12 O16 O17 O1
  8. By: Thomas Barnebeck Andersen (Department of Economics, University of Copenhagen); Carl-Johan Dalgaard (Department of Economics, University of Auckland)
    Abstract: A number of empirical studies have investigated the hypothesis that cross-border flows of goods (international trade) and capital (FDI) lead to international technology diffusion. The contribution of the present paper consists in examining an as yet neglected vehicle for technology diffusion: cross-border flows of people. We find that increasing the intensity of international travel, for the purpose of business and otherwise, by 1% increases the level of aggregate total factor productivity and GDP per worker by roughly 0.2%.
    Keywords: technology diffusion; productivity; IV estimation
    JEL: O47 C21
    Date: 2006–02
  9. By: Mwangi S. Kimenyi (University of Connecticut)
    Abstract: The paper discusses the meaning and measurement of pro-poor growth and also reviews evidence of pro-poor growth (or the lack of it) in a large cross-section of countries and time periods. The emerging story is that many episodes of growth are not pro-poor and also that although economic reforms have had positive effects in those countries that have been steadfast in implementing market reforms, the overall impact on growth has been small for many countries and in most cases not pro-poor. I present a general theory of pro-poor growth that includes ten principles that should be incorporated in all economic reforms that seek to generate pro-poor growth. These principles highlight the importance of understanding the poor, their economic activities, capabilities, constraints that impede their participation in markets and also an appreciation of linkages within sectors and regions. It is argued that pro-poor reforms cannot have the intended impact unless there are significant changes in the institutions of governance. Finally, the principles presented underscore the fact that pro-poor growth policies cannot be sustained without workable partnerships between markets and states in the ever changing and complex processes of social and economic development.
    Keywords: Economic Reform, Pro-Poor Growth, Developing Countries, Economies in Transition, Africa, Poverty Reduction.
    JEL: O10 O21 I30
    Date: 2006–02
  10. By: Rainer Thiele (Kiel Institute for World Economics); Peter Nunnenkamp (Kiel Institute for World Economics); Axel Dreher (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH))
    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: Erdal Atukeren (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: This study investigates the politico-economic determinants of the crowding-in effects of public investments in a cross-section of 25 developing countries for the 1975-2000 period using multivariate probit analysis. The estimation results show that public fixed capital investments may crowd in private investments, but this still depends on the developments in the economic, political, and legal environment of business in individual countries. As such, our findings capture the essence of the mixed results found in this literature well and shed further light on the conditions under which public investments are more likely (not) to crowd in private investments in developing countries.
    Keywords: Public investment, crowding-in effects, environment of private business, institutions, rule of law, property rights
    JEL: E62 H54 O11
    Date: 2006–01
  12. By: Lilia Maliar (Universidad de Alicante); Dmytro Kylymnyuk (Universidad de Alicante); Serguei Maliar (Universidad de Alicante)
    Abstract: This paper presents a two-sector growth model of international trade that can account for the key features of the postwar world development experience. Two sectors represent the traditional primitive production and the modern sophisticated production. Due to increasing returns in the modern sector, the open-economy version of our model gives rise to three different equilibria: one in which the country produces only primitive goods and converges to a low-income steady state; another in which it produces both primitive and sophisticated goods and converges to the world-average steady state; and a third in which it specializes in the production of sophisticated goods and converges to a balanced growth path. We argue that the development experiences of poor, rich and growth-miracle countries are well described by these three equilibria.
    Keywords: International trade, small-open economy, multiple equilibria, poverty trap, growth miracles, coordination proble
    JEL: C00 F12 O14 O30 O41
    Date: 2004–10
  13. By: Christophe Muller (Universidad de Alicante)
    Abstract: Many social indicators are based on household consumption information. The valuation of non-monetary operations is crucial for the analysis of consumption surveys in developing countries because of the importance of own-consumption and transfers in kind. What are the price statistics used in the valuation of consumption indicators? How is the available price information exploited to produce consumption indicators? How can the different steps of the valuation process be analysed? We explore these questions by presenting the valuation method for the consumption used in rural Rwanda for the 1983 consumption survey, and by proposing a general model of valuation algorithm. This is useful not only for improving such algorithms, but also for assessing the impact of the valuation process on economic analyses.
    Keywords: Household surveys, Data processing, Consumption analysis, Valuation method, Prices, Demand Systems, Poverty Analysis.
    Date: 2004–03
  14. By: Alain Trannoy (EHESS); Christophe Muller (Universidad de Alicante)
    Abstract: This paper proposes a dominance approach to study well-being inequality across countries at the world level. We consider a class of well-being indices based on the three attributes considered in the HDI (Human Development Index). Indices are required to satisfy preference for egalitarian marginal distributions of income, health and education, inclination for less correlation between attributes and priority to poor countries for allocating funds to improve health and education. We exhibit sufficient conditions which are easy to implement to check dominance over the defined class of well-being indices.
    Keywords: Multidimensioned Welfare; Multivariate Inequality, Well-Being Dimensions, Human Development Index
    JEL: O15 D31
    Date: 2004–06
  15. By: Christophe Muller (Universidad de Alicante); Christophe Nordman (DIAL, París)
    Abstract: In this paper, we study the return to human capital variables for wages of workers observed in Tunisian matched worker-firm data in 1999. We develop a new method based on multivariate analysis of firm characteristics, which allows us most of the benefits obtained by introducing firm dummies in wage equations. It also provides a human capital interpretation of the effect of these dummy variables. Moreover, in the studied data, using three firm characteristics easily collectable yields results close to those obtained by using the matched structure of the data.
    Keywords: wage, returns to human capital, matched worker-firm data, quantile regressions, factor analysis, Tunisia
    JEL: J24 J31 O12
    Date: 2004–07
  16. By: Amparo Castelló-Climent (Universidad Carlos III de Madrid)
    Abstract: This paper studies the empirical relationship between inequality and economic growth. It estimates a dynamic panel data model that controls for fixed effects and, therefore, solves the problem of omitted variable bias present in cross-section regressions. Forbes?(2000) results suggest that income inequality and economic growth are positively related when country specific effects are taken into account. This paper shows that this result holds even controlling for education inequality. However, neither the first difference nor the system GMM estimator, which seems to perform better in growth regressions, support a positive association between education inequality and economic growth. On the contrary, an increase in human capital inequality is related to lower subsequent growth rates not only in the long-term across-countries but also in the short-term within a country. In particular, the negative relationship between human capital inequality and growth is mainly due to a discouraging effect on the physical capital investment rates and, in line with the model of De la Croix and Doepke (2003), through a channel that connects inequality an fertility decisions.
    Keywords: Human capital and income inequality; Economic growth; Dynamic panel data model.
    JEL: O15
    Date: 2004–07

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