nep-dev New Economics Papers
on Development
Issue of 2006‒04‒29
eighteen papers chosen by
Jeong-Joon Lee
Towson University

  1. The Diffusion of Development By Spolaore, Enrico; Wacziarg, Romain
  2. What Determines Technological Spillovers of Foreign Direct Investment: Evidence from China By Galina Hale; Cheryl Long
  3. Limits to Policy Reversal: Privatization in India By Siddhartha G. Dastidar; Raymound Fisman; Tarun Khanna
  4. Reforms, Entry and Productivity: Some Evidence from the Indian Manufacturing Sector By Sumon Kumar Bhaumik; Shubhashis Gangopadhyay; Shagun Krishnan
  5. The Impact of Bank and Non-Bank Financial Institutions on Local Economic Growth in China By Xiaoqiang Cheng; Hans Degryse
  6. Endogenous Aggregate Elasticity of Substitution By Chris Papageorgiou; Kaz Miyagiwa
  7. Household Access to Microcredit and Child Work in Rural Malawi By Sudipta Sarangi; Gautam Hararika
  8. The Relative Sophistication of Chinese Exports By Peter K. Schott
  9. "Selection or Imitation? : Organizational Evolution in the Japanese Cotton Industry, 1905-1935:" By Tetsuji Okazaki
  10. Foreign direct investment, regulations, and growth By Groizard, Jose Luis; Busse, Matthias
  11. Comparative advantage, demand for external finance, and financial development By Levchenko, Andrei A.; Do, Quy-Toan
  12. Migration in towns in China, a tale of three provinces : evidence from preliminary tabulations of 2000 census By Shi, Anqing
  13. Protection, openness, and factor adjustment : evidence from the manufacturing sector in Uruguay By Gandelman, Nestor; Casacuberta, Carlos
  14. Strengthening governance through engaged societies : lessons from the implementation of poverty reduction strategies By Sharkey, Katrina; Barbone, Luca
  15. The data chase : what ' s out there on trade costs and nontariff barriers ? By Wilson, John S.; Bagai, Shweta
  16. Do global trade distortions still harm developing country farmers ? By Valenzuela, Ernesto; Anderson, Kym
  17. Political institutions, inequality, and agricultural growth : the public expenditure connection By Lopez, Ramon; Lederman, Daniel; Allcott, Hunt
  18. Labor supply, school attendance, and remittances from international < BR > Migration : the case of El Salvador By Acosta, Pablo

  1. By: Spolaore, Enrico; Wacziarg, Romain
    Abstract: This paper studies the barriers to the diffusion of development across countries over the very long-run. We find that genetic distance, a measure associated with the amount of time elapsed since two populations' last common ancestors, bears a statistically and economically significant correlation with pairwise income differences, even when controlling for various measures of geographical isolation, and other cultural, climatic and historical difference measures. These results hold not only for contemporary income differences, but also for income differences measured since 1500 and for income differences within Europe. We uncover similar patterns of coefficients for the proximate determinants of income differences, particularly for differences in human capital and institutions. The paper discusses the economic mechanisms that are consistent with these facts. We present a framework in which differences in human characteristics transmitted across generations - including culturally transmitted characteristics - can affect income differences by creating barriers to the diffusion of innovations, even when they have no direct effect on productivity. The empirical evidence over time and space is consistent with this 'barriers' interpretation.
    Keywords: barriers; genetic distance; income differences
    JEL: O11 O57
    Date: 2006–04
  2. By: Galina Hale (Economic Growth Center, Yale University); Cheryl Long (Colgate University)
    Abstract: Using the World Bank survey of 1500 firms in five Chinese cities, we study whether the presence of foreign firms produces technology spillovers on domestic firms operating in the same city and industry. We find positive spillovers for more backward firms. We analyze the channels of such spillovers and find that the transfer of technology occurs through movement of high-skilled workers from FDI firms to domestic firms as well as through network externalities among high-skilled workers. Moreover, these two channels fully account for the spillover effects we find, which demonstrate the importance of well-functioning labor market in facilitating FDI spillovers. Insofar as our results can be generalized to other countries, they reconcile conflicting evidence found in other studies.
    Keywords: Foreign direct investment, technological spillovers, labor mobility, network externalities, China
    JEL: F2 O1 O3 J2 J6
  3. By: Siddhartha G. Dastidar; Raymound Fisman; Tarun Khanna
    Abstract: We examine the effect of regime change on privatization using the 2004 election surprise in India. In that election, the pro-reform BJP was un-expectedly defeated by a less reformist coalition. Government controlled companies that were being studied for complete privatization by the BJP dropped by 7.5 percent relative to private firms. By contrast, government controlled firms that were not being considered for privatization, or firms that had already been fully privatized firms, did not experience significant drop relative to private firms. Firms that the BJP had slated for definite future privatization experienced intermediate declines of approximately 3.5 percent. We interpret this as evidence consistent with investor belief of policy irreversibility in privatization, where reforms may reach a 'point of no return' beyond which future regimes have difficulty reversing those policies. Taking advantage of an 'intermediate' event where policies were expected to be more heavily influenced by the communist party, we still find evidence consistent with policy irreversibility.
    Date: 2006–03
  4. By: Sumon Kumar Bhaumik (Brunel University and IZA Bonn); Shubhashis Gangopadhyay (India Development Foundation); Shagun Krishnan (India Development Foundation)
    Abstract: It is now stylized that, while the impact of ownership on firm productivity is unclear, product market competition can be expected to have a positive impact on productivity, thereby making entry (or contestability of markets) desirable. Traditional research in the context of entry has explored the strategic reactions of incumbent firms when threatened by the possibility of entry. However, following De Soto (1989), there has been increasing emphasis on regulatory and institutional factors governing entry rates, especially in the context of developing countries. Using 3-digit industry level data from India, for the 1984-97 period, we examine the phenomenon of entry in the Indian context. Our empirical results suggest that during the 1980s industry level factors largely explained variations in entry rates, but that, following the economic federalism brought about by the post-1991 reforms, variations entry rates during the 1990s were explained largely by state level institutional and legacy factors. We also find evidence to suggest that, in India, entry rates were positively associated with growth in total factor productivity.
    Keywords: entry, productivity, institutions, regulations, India, reforms
    JEL: L11 L52 L64 L67 O14 O17
    Date: 2006–04
  5. By: Xiaoqiang Cheng; Hans Degryse
    Abstract: This paper shows that banking development spurs growth, even in a country with a high growth rate such as China. Employing data of 27 Chinese provinces over the period 1995-2003, we study whether the financial development of two different types of institutions – banks and non-bank financial institutions – have a (significantly different) impact on local economic growth. Our findings show that banks outperform non-bank financial institutions. Only banking development exerts a statistically and economically significant positive impact on local economic growth. This effect becomes more pronounced when the financial sector is less concentrated.
    Keywords: growth, financial development, Chinese provinces, banks
    JEL: E44 G21
    Date: 2006
  6. By: Chris Papageorgiou; Kaz Miyagiwa
    Abstract: In the literature studying aggregate economies the aggregate elasticity of substitution (AES) between capital and labor is often treated as a constant or “deep” parameter. This view contrasts with the conjecture put forward by Arrow et al. (1961) that AES evolves over time and changes with the process of economic development. This paper evaluates this conjecture in a simple dynamic multi-sector growth model, in which AES is endogenously determined. Our findings support the conjecture, and in particular demonstrate that AES tends to be positively related to the state of economic development, a result consistent with recent empirical findings.
  7. By: Sudipta Sarangi; Gautam Hararika
    Abstract: This paper examines the effect of household access to microcredit upon work by seven to eleven year old children in rural Malawi. Given that microcredit organizations foster household enterprises wherein much child labor is engaged, this paper aims to discover whether access to microcredit might increase work by children. It is found that, in the peak harvest season, household access to microcredit, measured in a novel manner as self-assessed credit limits at microcredit organizations, raises the probability of child work in households with sample means of owned land and number of retail sales enterprises. It appears this is due to children having to take up more domestic chores as adults are busied in household enterprises following improved access to microcredit.
  8. By: Peter K. Schott
    Abstract: This paper examines the relative "sophistication" of China's exports to the United States along two dimensions. First, I compare China's export bundle to those of the relatively skill- and capital-abundant members of the OECD as well as to similarly endowed U.S. trading partners. Second, I examine prices within product categories to determine if China's varieties command a premium relative to its level of development.
    JEL: F1 F2 F4
    Date: 2006–04
  9. By: Tetsuji Okazaki (Faculty of Economics, University of Tokyo)
    Abstract: This paper explores the mechanisms by which the industrial organization of the Japanese cotton spinning industry changed over time, focusing on the rise and fall of the firms that integrated spinning and weaving processes. The basic idea is to decompose the change in the proportion of integrated firms into factors representing "selection" and "imitation" in an evolutionary sense. It was found that the factor which made the largest contribution differed between the growing phase and the declining phase of integrated firms. In the growing phase, imitation, namely the change in the attribute of the incumbent firms, was the major factor in the proportion change. On the other hand, in the declining phase, selection, in particular, birth rate, was the major factor, not only in the case where the proportion is measured in terms of firm number but also in terms of production.
    Date: 2006–04
  10. By: Groizard, Jose Luis; Busse, Matthias
    Abstract: This paper explores the linkage between income growth rates and foreign direct investment (FDI) inflows. So far the evidence is rather mixed, as no robust relationship between FDI and income growth has been established. The authors argue that countries need a sound business environment in the form of good government regulations to be able to benefit from FDI. Using a comprehensive data set for regulations, they test this hypothesis and find evidence that excessive regulations restrict growth through FDI only in the most regulated economies. This result holds true for different specifications of the econometric model, including instrumental variable regressions.
    Keywords: Public Sector Regulation,Regulatory Regimes,Pro-Poor Growth and Inequality,Economic Theory & Research,Foreign Direct Investment
    Date: 2006–04–01
  11. By: Levchenko, Andrei A.; Do, Quy-Toan
    Abstract: The differences in the levels of financial development between industrial and developing countries are large and persistent. Theoretical and empirical literature has argued that these differences are the source of comparative advantage and could therefore shape trade patterns. This paper points out the reverse link: financial development is influenced by comparative advantage. The authors illustrate this idea using a model in which a country ' s financial development is an equilibrium outcome of the economy ' s productive structure: financial systems are more developed in countries with large financially intensive sectors. After trade opening demand for external finance, and therefore financial development, are higher in a country that specializes in financially intensive goods. By contrast, financial development is lower in countries that primarily export goods which do not rely on external finance. The authors demonstrate this effect empirically using data on financial development and export patterns in a panel of 96 countries over the period 1970-99. Using trade data, they construct a summary measure of a country ' s external finance need of exports and relate it to the level of financial development. In order to overcome the simultaneity problem, they adopt a strategy in the spirit of Frankel and Romer (1999). The authors exploit sector-level bilateral trade data to construct, for each country and time period, a predicted value of external finance need of exports based on the estimated effect of geography variables on trade volumes across sectors. Their results indicate that financial development is an equilibrium outcome that depends strongly on a country ' s trade pattern.
    Keywords: Economic Theory & Research,Free Trade,Trade Policy,Investment and Investment Climate,Trade Law
    Date: 2006–04–01
  12. By: Shi, Anqing
    Abstract: There is a concern that the growth of towns in China has been stalled recently and with it, the creation of nonfarm jobs in rural industries. The author uses the 2000 census tabulations to look at this issue by examining in-migration in towns in three provinces in China-Zhejiang, Henan, and Sichuan-their educational attainment, original place, and occupational composition. In addition to the diversified patterns of town in-migrants revealed in the three provinces, the author finds that town in-migrants generally possess a higher level of educational attainment than the local population in towns, especially in the less developed western and central regions. This inf low of human capital could foster development in towns. There is also evidence that as economic opportunity increases in towns, such as in richer coastal province of Zhejiang, better educated people in rural areas are likely to shift their jobs from the farm to the nonfarm sector in towns nearby, instead of leaving the countryside to migrate to other provinces. This could reduce migration pressure on big cities. Finally, the labor market in towns in the less developed west and central regions is more flexible in accommodating in-migrants, whereas in the developed province of Zhejiang the labor market is segregated between migrants and the local population.
    Keywords: Anthropology,Town Water Supply and Sanitation,Labor Markets,Voluntary and Involuntary Resettlement,Human Migrations & Resettlements
    Date: 2006–04–01
  13. By: Gandelman, Nestor; Casacuberta, Carlos
    Abstract: The authors use a panel of manufacturing firms to analyze the adjustment process in capital blue collar and white collar employment in Uruguay during a period of trade liberalization when average tariff protection fell from 43 to 14 percent. They calculate the desired factor levels arising from a counterfactual profit maximization in the absence of adjustment costs, generating a measure of factor shortages or surpluses. The average estimated output gap for 1982-95 is 2 percent. The authors ' policy analysis shows that trade openness affected the adjustment functions of all three factors of production. Highly protected sectors adjust less when creating jobs (reducing labor shortages) than sectors with low protection. This may be due to fears of policy reversal in highly protected sectors. Also, highly protected sectors adjust more easily (than low protection sectors) when destroying jobs (reducing labor surpluses), especially in the case of blue collar labor. This suggests that trade protection may in fact destroy rather than create jobs within industries, as firms in highly protected sectors are more reluctant to hire and more ready to fire than firms in sectors with low protection. The results for capital are qualitatively similar but quantitatively smaller, suggesting that trade protection plays less of a role in explaining adjustment costs for capital. Interestingly, export-oriented sectors have lower adjustment costs for blue collar labor but not for white collar employment or capital, suggesting that export-led growth may be particularly successful in reducing blue collar unemployment.
    Keywords: Economic Theory & Research,Labor Markets,Free Trade,Economic Growth,Educational Sciences
    Date: 2006–04–01
  14. By: Sharkey, Katrina; Barbone, Luca
    Abstract: In December 1999, the Boards of the World Bank and the International Monetary Fund approved a new approach to their relations with low-income countries. The approach was centered around the development and implementation of Poverty Reduction Strategies (PRS), which are intended to be country-driven and medium- to long-term in perspective, comprehensive and results-oriented, partnership-oriented, and built on broad-based participation. Against this tall order of business, experience to date has been varied, and much debate is ongoing on whether the approach can be considered more than " old wine in new bottles. " This paper-based on the results of a thorough review of the five-year implementation experience-examines the implementation of the PRS approach from the point of view of particip ation and accountability. For some 50 countries adopting the approach since 1999, it discusses the factors which can facilitate the development of accountability and participatory governance mechanisms. Lessons learned from distinct country circumstances are analyzed, arguing that ownership of the PRS depends on the way countries and their external donor partners handle real tensions in the relationship between country ownership on the one hand, and perceptions of internationally-driven prescriptions on the other. The central message of the paper is that in several countries the PRS initiative has helped open up societies to forms of dialogue and contestability not previously experienced in-country or observed by external partners. This positive outcome, however, has been largely influenced by the extent to which the PRS process has reinforced existing trends and strengthened institutions already prone to open discussion of policy choices. The paper also shows that even in the best cases change has, to date, been largely in the area of process and that impact of participatory governance on policymaking, while emerging, is still a work in progress. The paper concludes with recommendations for how developing country societies might sustain real achievements in participatory governance and domestic accountability going forward, with external partners playing a key supportive role through harmonization and alignment.
    Keywords: Governance Indicators,Social Accountability,Poverty Monitoring & Analysis,Pro-Poor Growth and Inequality,Rural Poverty Reduction
    Date: 2006–04–01
  15. By: Wilson, John S.; Bagai, Shweta
    Abstract: Trade costs and nontariff barriers are at the forefront of discussions on competitiveness and expanding trade opportunities for developing countries. This paper provides a summary overview of data and indicators relevant to these issues and has been informed by work underway at the World Bank on trade facilitation over the past several years to catalogue data sets and indicators. Although there has been progress in expanding data sets and developing policy-relevant indicators on trade costs and barriers, much more is needed. In order to assess progress toward achieving the Millennium Development Goals, evaluating the impact of development projects, and whether meeting Aid for Trade goals will be met, for example, a dedicated and expansive new effort to collect and assess data is needed. This paper attempts to highlight gaps in data on trade costs and provides insight into the type of new data that might be developed in the future.
    Keywords: Transport Economics Policy & Planning,Economic Theory & Research,Trade Law,Free Trade,Trade Policy
    Date: 2006–04–01
  16. By: Valenzuela, Ernesto; Anderson, Kym
    Abstract: The authors estimate the impact of global m erchandise trade distortions and services regulations on agricultural value added in various countries. Using the latest versions of the Global Trade Analysis Project (GTAP) database and the GTAP-AGR model of the global economy, their results suggest real net farm incomes would rise in developing countries with a move to free trade, thereby alleviating rural poverty. This occurs despite a terms of trade deterioration for developing countries that are net food importers or that enjoy preferential access to agricultural markets of high-income countries. The authors also show, for several large developing countries, the contribution of their own versus other countries ' trade policies.
    Keywords: Agribusiness,Economic Theory & Research,Free Trade,Rural Development Knowledge & Information Systems,Trade Law
    Date: 2006–04–01
  17. By: Lopez, Ramon; Lederman, Daniel; Allcott, Hunt
    Abstract: This paper brings together the literatures on the political economy of public expenditures and the determinants of economic growth. Based on a new dataset of rural public expenditures in a panel of Latin American economies, the econometric evidence suggests that non-social subsidies reduce agricultural GDP. Furthermore, the evidence suggests that political and institutional factors as well as income inequality are determinants of the size and structure of rural public expenditures, through which they have large and significant effects on agricultural GDP.
    Keywords: Public Sector Expenditure Analysis & Management,Economic Theory & Research,Public Sector Economics & Finance,Political Economy,Pro-Poor Growth and Inequality
    Date: 2006–04–01
  18. By: Acosta, Pablo
    Abstract: The objective of this paper is to present microeconomic evidence on the economic effects of international remittances on households ' spending decisions. Remittances can increase the household budget and reduce liquidity constraint problems, allowing more consumption and investment. In particular, remittances can afford investing in children ' s human capital, a key outcome for the discussion of the perspective of growth in a high recipient developing country. Robust estimates that take into account both selection and endogeneity problems in estimating an average impact of remittances are substantially different from least squares (OLS) estimates presented in previous studies, indicating the importance of dealing with these methodological concerns. After controlling for household wealth and using selection correction techniques such as propensity score matching as well as village and household networks as instruments for remittances receipts, average estimates suggest that girls and young boys (less than 14 years old) from recipient households seem to be more likely to be enrolled at school than those from nonrecipient households. Remittances are also negatively related to child labor and adult female labor supply, while adult male labor force participation remains unaffected on average. The results signaling that the additional income derived from migration increases girls ' education and reduces women ' s labor supply, with no major impact on activity choice for males 14 years or older, suggest the presence of gender differences in the use of remittances across (and possibly, within) households.
    Keywords: Remittances,Gender and Development,Housing & Human Habitats,Economic Theory & Research,Anthropology
    Date: 2006–04–01

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