nep-dev New Economics Papers
on Development
Issue of 2006‒03‒18
seventeen papers chosen by
Jeong-Joon Lee
Towson University

  1. Donor coordination and the uses of aid By Bigsten, Arne
  2. Income Mobility of Individuals in China and the United States By Niny Khor; John Pencavel
  3. Earnings Inequality in India: Has the Rise of Caste and Religion Based Politics in India Had an Impact? By Sumon Kumar Bhaumik; Manisha Chakrabarty
  4. Identification of the Poor in Sri Lanka: Development of Composite Indicator and Regional Poverty Lines By Padmasiri Siddhisena; Ruwan Jayathilaka
  5. The Impact of Trade Liberalization on Household Welfare and Poverty in India By Basanta K. Pradhan; Sahoo Amarendra
  6. The Impact of Trade Liberalization on Household Welfare in Vietnam By Nguyen Chan; Tran Kim Dung
  7. Corruption Clubs: The Allocation of Public Expenditure and Economic Growth By P R Agénor; K C Neanidis
  8. The Persistence of Underdevelopment: Institutions, Human Capital, or Constituencies? By Raghuram G. Rajan; Luigi Zingales
  9. Endogenous Growth and Exogenous Shocks in Latin America during the Twentieth Century By Pablo Astorga; Ame E. Bergés; Valpy Fitzgerald
  10. A Macroeconometric Model of the Chinese Economy By Duo Qin; Marie Anne Cagas; Geoffrey Ducanes; Xinhua He; Rui Liu; Shiguo Liu; Nedelyn Magtibay-Ramos; Pilipinas Quising
  11. Complementarity and Transition to Modern Economic Growth By Hyeok Jeong; Yong Kim
  12. From Farmers to Merchants:A Human Capital Interpretation of Jewish Economic History By Maristella Botticini; Zvi Eckstein
  13. Decentralization, Corruption And Government Accountability: An Overview By Dilip Mookherjee; Pranab Bardhan
  14. Is it wrong to rank? A critical assessment of corruption indices By Tina Søreide
  15. Measuring Individual Vulnerability By Cesar Calvo; Stefan Dercon
  16. Capital Accumulation, Technological Change, and the Distribution of Income during the British Industrial Revolution By Robert C. Allen
  17. An Experimental Analysis ofGroup Size and Risk Sharing By A. Chaudhuri; L. Gangadharan; Pushkar Maitra

  1. By: Bigsten, Arne (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The paper discusses donor coordination and its implications for the uses of aid. The paper starts by specifying a simple framework for the discussion, and then reviews the theoretical literature. It then provides some data on donor proliferation and discusses how coordination modalities have evolved over time, in particular during the current phase with partnership and ownership. The following sections summarize the limited empirical evidence available on the impact of coordination on transaction costs and public-sector management and governance. A key issue with regard to the latter is how donor coordination affects the incentives of the recipient government. The paper concludes with a review of the policy debate and some policy conclusions. <p>
    Keywords: Aid; donor coordination; transaction costs; incentive effects
    JEL: F35 O19
    Date: 2006–02–28
  2. By: Niny Khor (Stanford University); John Pencavel (Stanford University and IZA Bonn)
    Abstract: Though much has been written about annual income inequality in China, little research has been conducted on longer run measures of income inequality and on income mobility. This paper compares income mobility of urban individuals in China and the United States in the 1990s. The following questions are taken up. To what extent are measures of annual income inequality misleading indicators of long-run income inequality? How much income mobility was there in China in the first half of the 1990s and how did this compare with mobility in other countries? Have real income increases been greater for the poor or the rich? How important is the variation in permanent incomes in China and how has this changed?
    Keywords: income inequality, income mobility, China, United States
    JEL: D31 D63 O15
    Date: 2006–03
  3. By: Sumon Kumar Bhaumik (Brunel University and IZA Bonn); Manisha Chakrabarty (Keele University)
    Abstract: Since 1989, there has been a sharp increase in the role of caste and religion in determining political fortunes at both state and federal levels in India. As a consequence, significant intercaste and inter-religion differences in earnings have the potential to stall the process of economic reforms. Yet, the patterns and determinants of such differences remain unexplored. We address this lacuna in the literature, and explore the determinants of the differences in inter-caste and inter-religion earnings in India during the 1987-99 period, using the 43rd and 55th rounds of National Sample Survey (NSS). Our results suggest that (a) earnings differences between "upper" castes and SC/ST have declined between 1987 and 1999, (b) over the same period, earnings differences between Muslims and non-Muslims have increased, to the detriment of the former, and (c) inter-caste and inter-religion differences in earnings can be explained largely by corresponding differences in educational endowment and returns on age (and, hence, experience). However, differences in returns on education do not explain inter-caste and inter-religion earnings differences to a great extent.
    Keywords: inequality, caste, religion, India
    JEL: O15 O17
    Date: 2006–03
  4. By: Padmasiri Siddhisena; Ruwan Jayathilaka
    Abstract: The identification of the poor and the definition of poverty is rather complex since poverty dimensions are multifaceted. Poverty is not just an inadequacy of income to meet basic needs or the inability to spend. It is largely associated with numerous demographic, socio-economic, cultural, environmental, health and psychological factors. The aim of this study is therefore to compute a composite indicator of multidimensional poverty and regional poverty lines to identify the severity of poverty and regional disparities of poverty. The study was based on the two data sets and the main objectives of the study are: Identification of the poor by using a broader definition of poverty; Measurement of regional differences on poverty using the poverty indices and constructed poverty lines; and Development of a Composite Indicator of Multidimensional Poverty to identify poverty by severity and also to examine regional disparities of poverty.
    Keywords: Inequality, Basic Needs, Living Standards, Quality of Life, Measurement of Poverty, Welfare
    JEL: D63 I31 I32 I38 P46
    Date: 2006
  5. By: Basanta K. Pradhan; Sahoo Amarendra
    Abstract: A 28-sector, 3-factor and 9-household group Computable General Equilibrium (CGE) model for India is constructed to analyze the impacts of Tariffs and Non-tariff Barriers (NTBs) on the welfare and poverty of socio-economic household groups. A general cut in tariffs leads to a decrease in overall welfare and reduction in poverty, which urban households are in a relatively better position to address. The choice of a fiscal compensatory mechanism with indirect tax on domestic consumption does not substantially change the pattern of impact except that it increases overall poverty in the economy. On the other hand, quota reductions on agriculture and food products result in a gain in welfare and a bigger reduction of poverty, with rural households doing better than urban households.
    Keywords: Computable general equilibrium (CGE) model, microsimulations, International trade, poverty, India
    JEL: D33 D58 E27 F13 F14 I32 O15 O53
    Date: 2006
  6. By: Nguyen Chan; Tran Kim Dung
    Abstract: This paper evaluates the efficiency and distributional effects of trade liberalization in the context of fiscal reform in Vietnam. The analysis is performed using a computable general equilibrium (CGE) model of the Vietnamese economy calibrated to late- 1990s production and household data. It is a standard small open price taking economy model with CES nested demand and CES production functions. Results show that the efficiency gains (in term of aggregate welfare measure) from the combined tax and tariff reform are modest, but significant redistribution occurs among rich and poor household groups and between urban and rural populations. Careful analyses show that the sharpness of the redistribution falls as the country moves from only trade liberalization the combined tax and tariff reforms. Finally, additional simulations have been performed to make clearer the transmission mechanisms linking tariff policy to income distribution and household welfare. A key finding is that trade liberalization is pro-rich due essentially to the higher share of imported goods consumed by the rich.
    Keywords: CGE model, counterfactual simulations, distributional effects, efficiency, household welfare, tariff, tax reform, trade liberalization, VAT, Vietnam
    JEL: R13 R20 C68 D58 D63
    Date: 2006
  7. By: P R Agénor; K C Neanidis
    Abstract: This paper studies the optimal allocation of government spending between health, education, and infrastructure in an endogenous growth framework. In the model, infrastructure a?ects not only the production of goods but also the supply of health and education services. The production of health (education) services depends also on the stock of educated labor (health spending). Transitional dynamics associated with budget-neutral shifts in the composition of expenditure are analyzed, and growth- and welfare-maximizing allocation rules are derived and compared. The discussion highlights the key role played by the parameters that characterize the health and education technologies.
    Date: 2006
  8. By: Raghuram G. Rajan; Luigi Zingales
    Abstract: Why is underdevelopment so persistent? One explanation is that poor countries do not have institutions that can support growth. Because institutions (both good and bad) are persistent, underdevelopment is persistent. An alternative view is that underdevelopment comes from poor education. Neither explanation is fully satisfactory, the first because it does not explain why poor economic institutions persist even in fairly democratic but poor societies, and the second because it does not explain why poor education is so persistent. This paper tries to reconcile these two views by arguing that the underlying cause of underdevelopment is the initial distribution of factor endowments. Under certain circumstances, this leads to self-interested constituencies that, in equilibrium, perpetuate the status quo. In other words, poor education policy might well be the proximate cause of underdevelopment, but the deeper (and more long lasting cause) are the initial conditions (like the initial distribution of education) that determine political constituencies, their power, and their incentives. Though the initial conditions may well be a legacy of the colonial past, and may well create a perverse political equilibrium of stagnation, persistence does not require the presence of coercive political institutions. We present some suggestive empirical evidence. On the one hand, such an analysis offers hope that the destiny of societies is not preordained by the institutions they inherited through historical accident. On the other hand, it suggests we need to understand better how to alter factor endowments when societies may not have the internal will to do so.
    JEL: O1 O15 P5 I2 K0
    Date: 2006–03
  9. By: Pablo Astorga (Latin American Centre, St Antony’s College, Oxford); Ame E. Bergés; Valpy Fitzgerald
    Abstract: Using a new database for the whole 1900–2000 period, this paper estimates the relative contribution of endogenous and exogenous factors in GDP and productivity growth in each of the six larger Latin American economies with multivariate annual models, and complements these with a single aggregate model using panel data by decade to test for convergence within the region and with the US. Our method is innovative as it includes external economic shocks as well as endogenous growth variables. The main findings are: (i) that investment contributed most to growth during the middle of the century when the region was relatively closed to the world economy and state was proactive; (ii) that the six main economies did converge considerably over the century due to improvements in resource allocation, advances in health and education and increased investment effort; (iii) that these improvements were not, however, enough to produce convergence between Latin America and US; and (iv) that terms of trade volatility, trade and interest rate shocks were major obstacle to both sustained economic growth and catching up.
    Keywords: Economic History, Economic Growth, Latin America
    JEL: I31 O47 N16
    Date: 2006–03–15
  10. By: Duo Qin (Queen Mary, University of London); Marie Anne Cagas (Asian Development Bank (ADB)); Geoffrey Ducanes (Asian Development Bank (ADB)); Xinhua He (Institute of World Economics & Politics (IWEP), Chinese Academy of Social Sciences (CASS)); Rui Liu (Institute of World Economics & Politics (IWEP), Chinese Academy of Social Sciences (CASS)); Shiguo Liu (Institute of World Economics & Politics (IWEP), Chinese Academy of Social Sciences (CASS)); Nedelyn Magtibay-Ramos (Asian Development Bank (ADB)); Pilipinas Quising (Asian Development Bank (ADB))
    Abstract: This paper describes a quarterly macroeconometric model of the Chinese economy. The model comprises household consumption, investment, government, trade, production, prices, money, and employment blocks. The equilibrium-correction form is used for all the behavioral equations and the general→simple dynamic specification approach is adopted. Great efforts have been made to achieve the best possible blend of standard long-run theories, country-specific institutional features and short-run dynamics in data. The tracking performance of the model is evaluated. Forecasting and empirical investigation of a number of topical macroeconomic issues utilizing model simulations have shown the model to be immensely useful.
    Keywords: Macroeconometric model, Chinese economy, Forecasts, Simulations
    JEL: C51 E17
    Date: 2006–03
  11. By: Hyeok Jeong; Yong Kim
    Abstract: In developing countries, the gradual transition to modern growth seems puzzling given the large productivity growth gap between traditional and modern sectors. We document this transition and develop a theory that resolves this puzzle. The key forces are sector-specific complementarity between work-experience and labor, and exogenous technical progress present only in the modern sector. Using nationally representative micro data from the Socio-Economic Survey of Thailand (1976-1996), we measure the theory by estimating cross-sectional earnings functions, and assess if the model jointly captures the observed transition dynamics of earnings growth and inequality. The model successfully explains the gradual transition, stagnation then take-off of aggregate earnings, and the rise and fall of experience-earnings profiles in Thailand.
    Keywords: Sector-Specific Complementarity, Modern Economic Growth, TFP and Inequality
    JEL: O11 O47 J31
  12. By: Maristella Botticini (Department of Economics, Boston University); Zvi Eckstein (‡Tel Aviv University, University of Minnesota, and Federal Reserve Bank of Minneapolis.)
    Abstract: Since the early Middle Ages almost all the Jews have been engaged primarily in urban, skilled occupations. The transition from farmers to merchants occurred between the eighth and the ninth centuries in the Muslim Empire where the Jews moved from villages to the newly developed urban centers. They continued to be engaged in urban occupations throughout their history. We explain this occupational selection as the outcome of (i) the Jews’ investment in education prompted by a change in religious norms during the first and second centuries, and (ii) the increased urbanization in the Muslim Empire. Our theory also predicts that the change in religious norms would lead some Jews to voluntarily convert to other religions. A substantial reduction in Jewish population between the second and the sixth centuries confirms this prediction.
    Keywords: first millennium, human capital, Jewish economic history, migration, occupational choice, religion and social norms.
    JEL: J10 J20 N30 O10
    Date: 2004–05
  13. By: Dilip Mookherjee (Department of Economics, Boston University); Pranab Bardhan
    Abstract: In summary, the effects of decentralization on corruption and government accountability are complex and cannot be summarized by simple, unconditional statements. This applies equally to theoretical analyses, cross-country regression results and more detailed empirical studies of specific countries. In this essay we reviewed the literature dealing with two principal accountability mechanisms: external competition with other governments, and internal democratic pressures.
    Date: 2005–06
  14. By: Tina Søreide
    Abstract: This paper emphasizes the importance of collecting information on corruption, while still stressing critical aspects of the most applied sources of such information, the cross-country composite corruption indices. Are these indices damaging and misleading or are they informative and useful? The paper points to the implication of the lack of a clear distinction between legal and illegal payments or ways of gaining influence. It summarizes the main limitations of Transparency International's Corruption Perceptions Index (CPI), underscores the problem of expecting perceptions to be reliable, and discusses the problem of incorrect understanding and usage of the index. Publicity does not necessarily mean progress, and the construction of the CPI should be influenced by the way this index is applied by the public. A final question is whether it is possible to increase the CPI's value by creating incentives for states to improve their achievements under, for instance, the OECD anti-bribery convention.
    Keywords: Corruption Index Data
    Date: 2006
  15. By: Cesar Calvo; Stefan Dercon
    Abstract: Standard poverty analysis makes statements about deprivation after the veil of uncertainty has been lifted. This implies that there is no meaningful role for risk as part of an assessment of potentially low states of well-being. In this paper, we introduce a concept of vulnerability, as a threat of poverty, with downside risk at its core. More specifically, we define a vulnerability measure as an assessment of the magnitude of the threat of poverty, measured ex-ante, before uncertainty is resolved. We describe the welfare-economic foundations for desirable properties of a vulnerability measure and assess to what extent some measures used in empirical work abide by them. We also present two families of measures that are fully consistent with our axiomatic approach.
    Keywords: Poverty, Risk, Vulnerability, Welfare Axioms
    JEL: O12 I3
    Date: 2005
  16. By: Robert C. Allen
    Abstract: The paper reviews the macroeconomic data describing the British economy during the industrial revolution and shows that they contain a story of dramatically increasing inequality between 1800 and 1840: GDP per worker rose 37%, real wages stagnated, and the profit rate doubled. The share of profits in national income expanded at the expense of labour and land. A "Cambridge-Cambridge" model of economic growth and income distribution is developed to explain these trends. An aggregate production function explains the distribution of income (as in Cambridge, MA), while a savings function in which savings depended on property income (as in Cambridge, England) governs accumulation. Simulations with the model show that technical progress was the prime mover behind the industrial revolution. Capital accumulation was a necessary complement. The surge in inequality was intrinsic to the growth process. Technical change increased the demand for capital and raised the profit rate and capital`s share. The rise in profits, in turn, sustained the industrial revolution by financing the necessary capital accumulation.
    Keywords: British Industrial Revolution, Kuznets Curve, Inequality, Savings, Investment
    JEL: D63 N13 O41 O47 O52
    Date: 2005
  17. By: A. Chaudhuri; L. Gangadharan; Pushkar Maitra
    Abstract: We study the relationship between group size and the extent of risk sharing in an insurance game played over a number of periods with random idiosyncratic and aggregate shocks to income in each period. Risk sharing is attained via agents that receive a high endowment in one period making unilateral transfers to agents that receive a low endowment in that period. The complete risk sharing allocation is for all agents to place their endowments in a common pool, which is then shared equally among members of the group in every period. Theoretically, the larger the group size, the smaller the per capita dispersion in consumption and greater is the potential value of insurance. Field evidence however suggests that smaller groups do better than larger groups as far as risk sharing is concerned. Results from our experiments show that the extent of mutual insurance is significantly higher in smaller groups, though contributions to the pool are never close to what complete risk sharing requires.
    Keywords: Reciprocity, Risk Sharing, Group Size, Experiments
    JEL: O12 C92 D81
    Date: 2005

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