nep-dev New Economics Papers
on Development
Issue of 2006‒03‒11
fourteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Growth and poverty in Maharashtra By Srijit Mishra; Manoj Panda
  2. Public Sector Pay and Corruption: Measuring Bribery from Micro Data By Yuriy Gorodnichenko; Klara Sabirianova Peter
  3. Heterogeneity and Microeconometrics Modelling By Martin Browning; Jesus Carro
  4. "All Types of Inequality are Not Created Equal: Divergent Impacts of Inequality on Economic Growth" By Stephanie Seguino
  5. Market integration and industrial modernization : a global middle class perspective. By Alain Desdoigts; Fernando Jaramillo
  6. The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy By Fumio Hayashi; Edward C. Prescott
  7. Child mortaility, poverty and environment in developing countries By Jennifer Franz; Felix Fitzroy
  8. On Capital Market Imperfections as a Source of Low TFP and Economic Rents By Andres Erosa; Ana Hidalgo
  9. The influence of Orphanhood on Children’s Schooling and Labour: Evidence from Sub Saharan Africa By L.Guarcello; S.Lyon; F.Rosati; C. Valdivia
  10. School-to-Work Transitions in Sub-Saharan Africa: An overview By L.Guarcello; M. Manacorda; F. Rosati; J. Fares; S.Lyon; C. Valdivia
  11. Aspects of Informalization and Income Distribution in Developing Countries: A Modified Specific Factors Approach By Arslan Razmi
  12. SME Development in Malaysia: Domestic and Global Challenges By Saleh, Ali Salman; Ndubisi, Nelson Oly
  13. Financial Liberalization, Bank Crises and Growth: Assessing the Links By Alessandra Bonfiglioli; Caterina Mendicino
  14. Equities and Inequality By Alessandra Bonfiglioli

  1. By: Srijit Mishra (Indira Gandhi Institute of Development Research); Manoj Panda (Indira Gandhi Institute of Development Research)
    Abstract: Maharashtra is among the richest states in India in terms of per capita income, yet incidence of poverty in the state remains close to the national average. The state's economy grew at a faster rate than the all-India average during 1980-1 to 1992-3, but it slowed down a bit during 1993-4 to 2003-4 due to poorer performance of agriculture and industry. Agriculture's contribution to GSDP has come down to 12 per cent in 2002-3, but more than 50 per cent of total workers are still engaged in this. Cropping pattern has been shifting to greater value addition non-cereal crops like fruits, vegetables, oilseeds and sugarcane. Composition of manufacturing has shifted towards more capital-intensive sectors. Communication, transport and public administration have accounted for large part of service growth. The benefits of this growth process have, however, not spread equally across social groups or regions, which partly explains prevalence of high poverty compared to other states at similar mean income. The much talked about Maharashtra Employment Guarantee Scheme (MEGS) has had limited success and its coverage across districts/divisions is not proportionate to the share of poor. Despite these developments, rural poverty has reduced from 38 per cent in 1993-4 to around 24 per cent in 1999-2000. Given current investment flows, the overall growth potential of Maharashtra does look bright for the medium run. But, distributional implications of the emerging growth pattern across sectors suggest that the poor might not benefit proportionately from the growth process. The lessons that Maharashtra provides is that growth has to be more broad-based and inclusive, and that intervention through social welfare programmes like MEGS should be designed to suit the local resource base of poorer regions for faster poverty reduction.
    Date: 2005
  2. By: Yuriy Gorodnichenko (University of Michigan); Klara Sabirianova Peter (Georgia State University and IZA Bonn)
    Abstract: This study is the first to provide a systematic measure of bribery using micro-level data on reported earnings, household spending and asset holdings. We use the compensating differential framework and the estimated sectoral gap in reported earnings and expenditures to identify the size of unobserved (unofficial) compensation (i.e., bribes) of public sector employees. In the case of Ukraine, we find that public sector employees receive 24-32% less wages than their private sector counterparts. The gap is particularly large at the top of the wage distribution. At the same time, workers in both sectors have essentially identical level of consumer expenditures and asset holdings that unambiguously indicate the presence of nonreported compensation in the public sector. Using the conditions of labor market equilibrium, we develop an aggregate measure of bribery and find that the lower bound estimate of the extent of bribery in Ukraine is between 460 mln and 580 mln U.S. dollars (0.9-1.2% of Ukraine’s GDP in 2003).
    Keywords: wage, wage differentials, public sector, corruption, bribery, Ukraine
    JEL: J3 J4 O1 P2
    Date: 2006–02
  3. By: Martin Browning (Department of Economics, University of Copenhagen); Jesus Carro (Department of Economics, Carlos III, Madrid)
    Abstract: Presented at the 2005 Econometric Society World Congress Plenary Session on "Modelling Heterogeneity". We survey the treatment of heterogeneity in applied microeconometrics analyses. There are three themes. First, there is usually much more heterogeneity than empirical researchers allow for. Second, the inappropriate treatment of heterogeneity can lead to serious error when estimating outcomes of interest. Finally, once we move away from the traditional linear model with a single 'fixed effect', it is very difficult to account for heterogeneity and fit the data and maintain coherence with theory structures. The latter task is one for economists: "heterogeneity is too important to be left to the statisticians". The paper concludes with a report of our own research on dynamic discrete choice models that allow for maximal heterogeneity.
    Keywords: heterogeneity; applied microeconometrics; fixed effects; dyanamic discrete choice
    JEL: C30 C33 C51
    Date: 2006–01
  4. By: Stephanie Seguino
    Abstract: Evidence of an increase in various forms of inequality since the 1970s has motivated research on its relationship to growth and development. The findings of that research are contradictory and inconclusive. One source of these divergent results is that researchers rely on different group measures of inequality. Inequality by gender, household, class, and ethnicity may produce divergent effects on growth since they operate on macroeconomic outcomes via alternative pathways. Further, even within groups, the effect of inequality on growth depends on the measure used. For example, inequalities in capabilities (such as education and health status) may operate differently on growth than inequality in wages and income. This paper explores the different conceptual approaches to measuring between-group and within-group inequality and delineates the sometimes contradictory pathways by which these measures affect economic growth and development. The typology is applied to the cases of East Asia and Latin America.
    Date: 2005–12
  5. By: Alain Desdoigts (CES-EUREQua et LEG-Université de Bourgogne); Fernando Jaramillo (Universidad de Los Andes)
    Abstract: This paper highlights cross-boarder aspects of demand spillovers on (de-) industrialization into international environments with extra profits-making firms. We develop an inter- and intra-industry trade general equilibrium model featuring hierarchic and ideal-type preferences as well as inequality in labor income and shareholding. Its key feature is the introduction of complementarities propagating across both industries and boarders, which yield global profit (de-) multiplier effects. When firms are domestically-owned, trade-induced global in their scope horizontal complementarities benefit the less homogeneous middle class/more competitive/smaller trade partner. As long as differences in technology are not too large, technological catch-up growth leads the share of higher-priority goods in GDP to suffer erosion in the advanced trade partner and modernization to accelerate in those sectors which produce higher-income elasticity goods in both trade partners. However, the free trade multiplier effect is strengthened (weakened) at the aggreate level in the lagging (leading) country.
    Keywords: Horizontal complementarities, hierarchic preferences, world middle class, deindustrialization, trade.
    JEL: F10 O11 O14
    Date: 2006–02
  6. By: Fumio Hayashi; Edward C. Prescott
    Abstract: The question we address in this paper is why the Japanese miracle didn't take place until after World War II. For much of the pre-WWII period, Japan's real GNP per worker was not much more than a third of that of the U.S., with falling capital intensity. We argue that its major cause is a barrier that kept agricultural employment constant at about 14 million throughout the prewar period. In our two-sector neoclassical growth model, the barrier-induced sectoral mis-allocation of labor and a resulting disincentive for capital accumulation account well for the depressed output level. Were it not for the barrier, Japan's prewar GNP per worker would have been close to a half of the U.S. The labor barrier existed because, we argue, the prewar patriarchy, armed with paternalistic clauses in the prewar Civil Code, forced the son designated as heir to stay in agriculture.
    JEL: E1 O1 O4 N3
    Date: 2006–03
  7. By: Jennifer Franz; Felix Fitzroy
    Keywords: Child mortality, environmental health, Central Asian Republics, multivariate analysis.
    JEL: Q18 Q28 Q32 Q56
  8. By: Andres Erosa; Ana Hidalgo
    Abstract: We propose a theory in which capital market imperfections are at the origin of cross-country TFP differences. In our theory entrepreneurs have private information about the multifactor productivity of their technology. We study how the contracting environment, as described by the ability to enforce contracts, affects the provision of incentives and resource allocation to and across entrepreneurs. Our theory implies that countries with a low ability to enforce contracts use inefficient technologies in equilibrium and are characterized by differences in productivity across industries. These implications of our theory are supported by the empirical evidence. Our theory also suggests that entrepreneurs have a vested interest in maintaining a status quo with low enforcement since it allows them to extract rents from the factor services they hire.
    JEL: O40 J24 D24
  9. By: L.Guarcello; S.Lyon; F.Rosati; C. Valdivia
    Abstract: This paper explores possible links between orphanhood and two important determinants of child vulnerability - child labour and schooling - using household survey data from 10 Sub Saharan Africa countries. It forms part of a broader, on-going effort to improve policy responses to the orphan crisis and to child vulnerability generally. Marginal effects calculated after a bivariate probit indicate that becoming an orphan makes it generally less likely that a child has the opportunity to attend school and generally more likely that a child is exposed to work. The size and significance of these effects varies considerably across the 10 analysed countries, but in only one - Lesotho - does orphanhood appear to have no significant effect on either work involvement or school attendance. Double orphans appear to be especially vulnerable to schooling loss and work exposure in the analysed countries, underscoring the importance of the distinction between single and double orphans for policy purposes.
    Date: 2004–10
  10. By: L.Guarcello; M. Manacorda; F. Rosati; J. Fares; S.Lyon; C. Valdivia
    Abstract: While youth issues are subject of growing attention in the Sub-Saharan Africa (SSA) region, data for indicators relating specifically to youth employment remain scarce in most SSA countries. There is therefore limited empirical basis for formulating policies and programmes promoting youth employment and successful school to work transitions. The study is aimed at beginning to fill this gap by generating and analyzing a set of youth education and employment indicators based on World Bank survey data for a subset of 13 countries in the Sub Saharan Africa region. Study findings highlight the disadvantaged position of young people in the labour force in the region. They face much higher levels of unemployment than their adult counterparts or young people in developed economies, and are much more concentrated in low skill and unstable informal sector work. Youth never attending school emerge as a particular policy concern. Uneducated youth appear to be stuck not only in low income jobs but also face a high risk of unemployment. The study places particular emphasis on measuring the initial transition from school to work for different groups of young people, and on identifying the factors affecting this transition. Results indicate that the average duration of the transition is very long in many SSA countries, suggesting young people in these countries are faced with substantial labour market entry problems upon leaving the school system.
    Date: 2005–11
  11. By: Arslan Razmi (University of Massachusetts Amherst)
    Abstract: This paper explores aspects of increased informalization in developing countries with the help of a modified specific factors model with a fixed nominal wage in the formal sector, which is assumed to have a "lighthouse" effect on the informal sector wage. Both sectors produce a tradable good each, with informal sector production being embedded in international pro- duction networks. Comparative dynamic exercises that attempt to simulate recent economic developments in many developing countries yield plausible results, and suggest various channels for increased informalization. Contrary to standard sticky wage models, wage suppression in the formal sector leads to informalization. Changes in factor endowments create a conflict of interest between the owners of capital in the two sectors, unlike the canonical specific factors model where the conflict is between the owners of capital and labor. Finally, factors that lead to informalization are also likely to result in greater inequality in income shares between labor and capital even with nominal wages that are fixed and equal between the two sectors. JEL Categories: O17, O24, F11
    Keywords: Specific factors model, Ricardo-Viner model, informalization, international pro- duction networks, elasticity of factor substitution, wage rigidity.
    Date: 2006–02
  12. By: Saleh, Ali Salman (Monash University Malaysia); Ndubisi, Nelson Oly (Monash University Malaysia)
    Abstract: The primary objectives of this paper are to analyze and discuss the development of Malaysian SMEs and their role, as well as various contributions, in the national economy. The paper goes further by reviewing extant literature to identify the major challenges facing this sector in Malaysia as well as government policies aimed at the development of SMEs. We find that, while the government has implemented many programs to strengthen the performance of SMEs in the economy, Malaysian SMEs still face many challenges, both domestic and external, which could hinder their resilience and competitiveness. A number of strategies which could assist them to access new markets, increase their revenues and expand their customer bases are identified.
    Keywords: Malaysian economy, Malaysian SMEs, government assistance programs
    Date: 2006
  13. By: Alessandra Bonfiglioli; Caterina Mendicino
    Abstract: This paper studies the e?ects of financial liberalization and banking crises on growth. It shows that financial liberalization spurs on average economic growth. Banking crises are harmful for growth, but to a lesser extent in countries with open financial systems and good institutions. The positive effect of financial liberalization is robust to different definitions. While the removal of capital account restrictions is effective by increasing financial depth, equity market liberalization affects growth directly. The empirical analysis is performed through GMM dynamic panel data estimations on a panel of 90 countries observed in the period 1975-1999.
    Keywords: Capital account liberalization, equity market liberalization, financial development, institutions, dynamic panel data.
    JEL: C23 F02 G15 O11
    Date: 2004–10
  14. By: Alessandra Bonfiglioli
    Abstract: Most US credit card holders revolve high-interest debt, often combined with substantial (i) asset accumulation by retirement, and (ii) low-rate liquid assets. Hyperbolic discounting can resolve only the former puzzle (Laibson et al., 2003). Bertaut and Haliassos (2002) proposed an 'accountant-shopper'framework for the latter. The current paper builds, solves, and simulates a fully-specified accountant-shopper model, to show that this framework can actually generate both types of co-existence, as well as target credit card utilization rates consistent with Gross and Souleles (2002). The benchmark model is compared to setups without self-control problems, with alternative mechanisms, and with impatient but fully rational shoppers.
    Keywords: Income inequality, financial development, capital market frictions, investor protection, instrumental variables, dynamic panel data
    JEL: D31 E44 G30 O15 O16
    Date: 2005–09

This nep-dev issue is ©2006 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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