nep-dev New Economics Papers
on Development
Issue of 2006‒05‒13
twenty-one papers chosen by
Jeong-Joon Lee
Towson University

  1. Aid and Foreign Direct Investment : International Evidence By M. Uður Karakaplan; Bilin Neyaptý; Selin Sayek
  2. Intermediaries and Corruption By Cagla Okten Hasker; Kevin Hasker
  3. How Does Social Trust Affect Economic Growth? By Bjørnskov, Christian
  4. Trade Liberalization and Wage Inequality: Empirical Evidence from Bangladesh By Durevall, Dick; Munshi, Farzana
  5. Income Shocks and Gender Gaps in Education: Evidence from Uganda By Björkman, Martina
  6. Institutions and Development: What We (Think We) Know, What We Would Like to Know By Paul G. Hare; Junior R. Davis
  7. Farm Technology and Technical Efficiency: Evidence from Four Regions in China By Chen, Zhuo; Huffman, Wallace; Rozelle, Scott
  8. Size Really Doesn%u2019t Matter: In Search of a National Scale Effect By Andrew K. Rose
  9. Measures of human capital: A review of the literature By Trinh Le; John Gibson; Les Oxley
  10. Micronutrient Deprivation and Poverty Nutrition Trap in Rural India By Raghbendra Jha; Raghav Gaiha; Anurag Sharma
  11. How Can the Decline in Social Capital be Reconciled with a Satisfactory Growth Performance? By Stefano Bartolini; Luigi Bonatti
  12. Getting girls into school : evidence from a scholarship program in Cambodia By Schady, Norbert; Filmer, Deon
  13. Evaluating fiscal equalization in Indonesia By Suharnoko Sjahrir, Bambang; Kaiser, Kai; Kadjatmiko; Hofman, Bert
  14. Thailand ' s growth path : from recovery to prosperity By Richter, Kaspar
  15. Will consolidation improve sub-national governments ? By Gurley, Tami; Fox, William F.
  16. Sequencing fiscal decentralization By Martinez-Vazquez, Jorge; Bahl, Roy
  17. Rural-urban migration in developing countries : a survey of theoretical predictions and empirical findings By Shalizi, Zmarak; Selod, Harris; Lall, Somik V.
  18. Context Matters – Rethinking the Resource Curse in Sub-Saharan Africa By Matthias Basedau
  19. Major Flaws in Conflict Prevention Policies towards Africa. The Conceptual Deficits of International Actors’ Approaches and How to Overcome Them By Andreas Mehler
  20. Economic Growth and Poverty: Does Formalisation of Informal Enterprises Matter? By Esther K. Ishengoma; Robert Kappel
  21. A Paradox of Plenty? Rent Distribution and Political Stability in Oil States By Matthias Basedau; Wolfram Lacher

  1. By: M. Uður Karakaplan; Bilin Neyaptý; Selin Sayek
    Date: 2005
  2. By: Cagla Okten Hasker; Kevin Hasker
    Date: 2005
  3. By: Bjørnskov, Christian (Department of Economics, Aarhus School of Business)
    Abstract: This paper connects two strands of the literature on social trust by estimating the effects of trust on growth through a set of potential transmission mechanisms directly. It does so by modelling the process using a three-stage least squares estimator on a sample of countries for which a full data set is available. The results indicate that trust affects schooling and the rule of law directly. These variables in turn affect the investment rate (schooling) and provide a direct effect (rule of law) on the growth rate. The paper closes with a short discussion of the relevance of the findings.
    Keywords: Growth; Trust; Transmission mechanisms
    JEL: N40 O10 Z13
    Date: 2006–05–04
  4. By: Durevall, Dick (Department of Economics, School of Business, Economics and Law, Göteborg University); Munshi, Farzana (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper explores the relationship between trade liberalization and skilled-unskilled wage inequality in the Bangladesh cotton textile industry. A dynamic two-equation model is estimated for wages of skilled and unskilled workers over the period 1973-2002, using four different openness measures. In no case does opening up affect unskilled wages differently than skilled wages, implying that openness per se has not contributed to changes in wage inequality. Our findings also suggest that openness increased real wages for both skilled and unskilled workers. <p>
    Keywords: Bangladesh; cotton textile industry; openness; relative wages; trade liberalization; wage inequality
    JEL: F13 F14 F15 O15 O24
    Date: 2006–04–28
  5. By: Björkman, Martina (Institute for International Economic Studies, Stockholm University)
    Abstract: This paper uses exogenous variation in rainfall across districts in Uganda to estimate the causal effects of household income shocks to in children’s enrollment and cognitive skills conditional on gender. I find negative income shocks to have large negative and highly significant effects on female enrollment in primary schools and the effect grows stronger for older girls. The effect on boys’ enrollment is smaller and only marginally significant. Moreover, I find that a negative income shock has an adverse effect on test scores in general and test scores of female students in particular. The results imply that households respond to income shocks by varying the quantity and quality of girls’ education while boys are to a larger extent sheltered – a finding consistent with a model where parents’ values of child labor differ across sexes.
    Keywords: Rainfall; education; test scores; gender
    JEL: D13 I21 O12
    Date: 2006–03–02
  6. By: Paul G. Hare; Junior R. Davis
    Abstract: This paper takes the form of an extended literature review, outlining the key ideas that will need to be developed further in the course of the IPPG Research Programme. After an extended introduction, the next two sections are conceptual, the former elucidating key concepts and definitions, the latter examining various approaches to the analysis of institutions relevant for economic growth. Then the paper reviews much of the available evidence linking institutions and growth and covers in some detail the evidence regarding economic institutions, confirming that institutions matter. However, the findings from different studies are far from consistent in terms of identifying exactly what it is that matters. Given the prevalence of weak or poorly functioning states amongst the poorest countries of the world, the paper also reviews literature on the political aspects of development, particularly in relation to the role of institutions. Likewise, the paper selectively illustrates the ideas of earlier sections through the discussion of two topics: trade policy and the institutions needed for it to work well; and institutions that make for a good business environment. The final section outlines some preliminary working hypotheses about institutions and development. While emphasising pro-poor growth throughout, the paper finds that growth itself is a fundamental, necessary condition for achieving pro-poor growth. Given that, a serious analysis of institutions and growth must pay attention to the need for institutions that foster and promote profit-seeking accumulation (without which little sustained growth is likely to occur).
    Keywords: institutions, pro-poor growth, weak states, cultural issues, institutional matrix, investment and accumulation
    JEL: O17
    Date: 2006
  7. By: Chen, Zhuo; Huffman, Wallace; Rozelle, Scott
    Abstract: In this paper we fit stochastic frontier production functions to data for Chinese farms grouped into each of four regions—North, Northeast, East, and Southwest—over 1995-1999. These frontier production functions are shown to have statistically different structures, and the marginal product information shows overuse of chemical inputs in the East and capital services in the North. Labor also has a low marginal product. Next, we use the data and the production parameters to create technical efficiency scores for each of the farms and then standardize them. Standardized technical efficiency is shown to have the same structure across regions and to be related to the age of the farmer, land fragmentation, and the village migration rate, controlling for year dummies and village or regional fixed effects.
    Keywords: Household farm; Labor migration; Land fragmentation; Stochastic production frontier; Technical efficiency
    JEL: C2 L2 O1 P2
    Date: 2006–05–01
  8. By: Andrew K. Rose
    Abstract: I search for a “scale” effect in countries. I use a panel data set that includes 200 countries over forty years and link the population of a country to a host of economic and social phenomena. Using both graphical and statistical techniques, I search for an impact of size on the level of income, inflation, material well-being, health, education, the quality of a country’s institutions, heterogeneity, and a number of different international indices and rankings. I have little success; small countries are more open to international trade than large countries, but are not systematically different otherwise.
    JEL: O57
    Date: 2006–05
  9. By: Trinh Le; John Gibson; Les Oxley (The Treasury)
    Abstract: Human capital is increasingly believed to play an important role in the growth process, however, adequately measuring its stock remains controversial. This paper identifies three general approaches to human capital measurement; cost-based, income-based and education-based, and presents a critical review of the theories and their applications to data from a range of countries. Emphasis on empirical evidence will be given to the case of New Zealand.
    Keywords: human capital, economic growth
    JEL: C52 F43 N10 O41
    Date: 2005–11
  10. By: Raghbendra Jha; Raghav Gaiha; Anurag Sharma
    Abstract: We test for the existence of a Poverty Nutrition Trap (PNT) in the case of five important micronutrients- calcium, carotene, iron, riboflavin, and thiamine, for three categories of wages: sowing, harvesting, and other for male and female workers separately. We use household level national data for rural India for the period January to June 1994 and robust sample selection procedures due to Heckman to arrive at consistent and efficient estimates. It is discovered that the PNT exists for calcium for female workers engaged in harvesting. In the case of carotene male workers engaged in harvesting are subject to the PNT, whereas both males and females engaged in harvesting are subject to PNT in the case of iron. In the case of riboflavin female workers engaged in harvesting and sowing and male workers engaged in harvesting are subject to PNT and in the case of thiamine female workers engaged in harvesting and sowing are subject to PNT. Thus micronutrient deficiency is having a significant impact on labour productivity in rural India.
    Keywords: Micronutrient deprivation, Poverty Nutrition Trap, Heckman Models
    JEL: C34 I32 J21 J43
    Date: 2006
  11. By: Stefano Bartolini; Luigi Bonatti
    Abstract: We aim at reconciling Putnam’s claim that social capital has declined in the U.S. in the last decades with the satisfactory growth performance of the U.S. economy over the same period. This puzzle originates from the fact that most literature on social capital emphasizes its role in enhancing factor productivity (mainly by reducing transaction costs). We model the hypotheses that the expansion of market activities (increased “marketization”) weakens social capital formation, and that firms utilize more market services in response to the declining social capital. Within this framework, perpetual growth can be consistent with the progressive erosion of social capital.
    Keywords: Endogenous growth, externalities, marketization, social assets
    JEL: O13 O41 Q20 Z13
    Date: 2006–04
  12. By: Schady, Norbert; Filmer, Deon
    Abstract: Increasing the schooling attainment of girls is a challenge in much of the developing world. The authors evaluate the impact of a program that gives scholarships to girls making the transition between the last year of primary school and the first year of secondary school in Cambodia. They show that the scholarship program had a large, positive effect on the school enrollment and attendance of girls. Their preferred set of estimates suggests program effects on enrollment and attendance at program schools of 30 to 43 percentage points. Scholarship recipients were also more likely to be enrolled at any scchool (not just program schools) by a margin of 22 to 33 percentage points. The impact of the Japan Fund for Poverty Reduction (JFPR) program appears to have been largest among girls with the lowest socioeconomic status at baseline. The results are robust to a variety of controls for observable differences between scholarship recipients and nonrecipients, to unobserved heterogeneity across girls, and to selective attrition out of the sample.
    Keywords: Primary Education,Education For All,Teaching and Learning,Gender and Education,Gender and Development
    Date: 2006–05–01
  13. By: Suharnoko Sjahrir, Bambang; Kaiser, Kai; Kadjatmiko; Hofman, Bert
    Abstract: This paper presents a methodology to evaluate fiscal decentralization focusing on the potential mis-targeting of intergovernmental fiscal equalization transfers. The approach builds on an explicit comparison and the summary measurement of different (horizontal) allocation distributions across states or localities. Whereas formula-based fiscal transfers have the merit of being transparent and promoting revenue predictability in fiscal decentralization, in practice, two challenges emerge: (1) What are the appropriate formula designs given the sub-national data constraints evident in most decentralizing developing countries? and (2) How costly in terms of mis-targeting to the presumed expenditure needs and fiscal capacity are deviations from these types of benchmark formulas (for example, due to historical factors or the need to meet establishment costs such as civil service wages)? The authors illustrate this approach by assessing Indonesia ' s evolving intergovernmental fiscal system instituted in the 2001 Big Bang decentralization. The discussion comes against Indonesia ' s recent policy decision to fully fund sub-national civil servant wages as part of the base general allocation grant (DAU) transfers, raising questions about both incentive effects for local governments and potential mis-targeting. The authors identify potential efficiency losses from the DAU ' s horizontal misallocation from half a dozen alternative scenarios found in the policy dialogue, ranging from 9 to 30 percent-on the order of US$ 3.9 billion-of the overall annual size of this large intergovernmental transfer. The scale of these tradeoffs highlights the importance of intergovernmental transfers in more general debates in public finance for decentralized countries.
    Keywords: Economic Theory & Research,Public Sector Management and Reform,Fiscal Adjustment,Regional Governance,Urban Governance and Management
    Date: 2006–05–01
  14. By: Richter, Kaspar
    Abstract: Thailand is one of the most successful developing countries. After decades of rapid growth, the economy rebounded quickly from the 1997-98 Asian crisis and is set to continue its expansion into the future. Nevertheless, there are doubts about the resilience of the Thai economy. The country appears to be on a lower growth projectory now than before the crisis. What growth can Thailand realistically expect? And what can the government do to sustain such growth into the future? Using a new methodology for identifying binding constraints to growth (Rodrik 2004 and Hausmann and others 2005), the author argues that Thailand ' s challenge is to maintain growth levels of 4 to 5 percent over the medium term. To achieve this goal, Thailand needs to continue its efforts of improving business infrastructure, trade integration, and skills, as well as intensifying its governance reforms.
    Keywords: Economic Theory & Research,Economic Growth,Pro-Poor Growth and Inequality,Investment and Investment Climate,Inequality
    Date: 2006–05–01
  15. By: Gurley, Tami; Fox, William F.
    Abstract: Local government size varies dramatically around the world. In Sudan, Cote d ' Ivoire, and the United Kingdom, municipalities average more than 125,000 people. Those in many European countries have less than 10,000 people. Countries often consider consolidation of local governments as a means to lower service delivery costs, improve service quality, enhance accountability, improve equity, or expand participation in government. The authors review a number of theoretical arguments and empirical findings concerning the size of sub-national governments. Countries should not presume that amalgamation will solve problems because benefits and costs are situation specific. Success depends on many factors, including getting incentives right for the various players and managing the transition properly. The effects on costs must be examined in terms of all changes occurring with consolidation, including geographic size. Size economies appear service specific and are most likely to result for infrastructure intensive services such as water and sewerage. Size economies are less likely for services such as education that are provided in numerous small production units near the population. Also, the potential for savings depends on other factors, such as willingness to eliminate redundant workers. Consolidation reduces the potential for local government competition, which appears to enhance service quality but not necessarily overall government size. There is some evidence that citizens are more willing to be involved in larger governments, but trust may fall with government size. Larger governments can improve regional planning by handling problems with a broader geographic perspective and giving the government more influence with national policymakers.
    Keywords: Urban Slums Upgrading,Municipal Financial Management,Public & Municipal Finance,Urban Economics,Education for the Knowledge Economy
    Date: 2006–05–01
  16. By: Martinez-Vazquez, Jorge; Bahl, Roy
    Abstract: While there is extensive knowledge about how to design fiscal decentralization policies, considerably less is understood about how a decentralization program should be sequenced and implemented. Countries embarking on decentralization often struggle with decisions about the essential components of decentralization, including the order of an introduction of decentralization policies, the number of years necessary to bring a full program on line, and the components of the transition strategy. The authors argue that the sequencing of decentralization policies is an important determinant of its success. The consequences of a poorly sequenced decentralization program can range from minor delays and complications to ineffectiveness and subsequent failing support of decentralization efforts, macroeconomic instability, and fundamental failure in public sector delivery. At a minimum, the strategy of " making it up as we go " will not lead to the same structure of decentralization as will a planned strategy. The paper raises two questions: First, is there an optimal sequencing for decentralization policies and implementation? The answer is that there is, and that following these sequencing rules can reduce the costs and risks of implementing fiscal decentralization. Second, to what extent do countries follow these optimal sequencing rules? The answer is, in general, they do not. The gap between theory and practice is a result of the complexity of sequencing design, which discourages fiscal planners from implementing the full process. In addition, sequencing requires a sustained discipline and vision for its implementation, as well as overcoming pressures from political actors, especially in developing countries.
    Keywords: Decentralization,Subnational Regional Economics,Economic Theory & Research,Teaching and Learning,Regional Rural Development
    Date: 2006–05–01
  17. By: Shalizi, Zmarak; Selod, Harris; Lall, Somik V.
    Abstract: The migration of labor from rural to urban areas is an important part of the urbanization process in developing countries. Even though it has been the focus of abundant research over the past five decades, some key policy questions have not found clear answers yet. To what extent is internal migration a desirable phenomenon and under what circumstances? Should governments intervene and, if so, with what types of interventions? What should be their policy objectives? To shed light on these important issues, the authors survey the existing theoretical models and their conflicting policy implications and discuss the policies that may be justified based on recent relevant empirical studies. A key limitation is that much of the empirical literature does not provide structural tests of the theoretical models, but only provides partial findings that can support or invalidate intuitions and in that sense, support or invalidate the policy implications of the models. The authors ' broad assessment of the literature is that migration can be beneficial or at least be turned into a beneficial phenomenon so that in general migration restrictions are not desirable. They also identify some data issues and research topics which merit further investigation.
    Keywords: Labor Markets,Urban Housing and Land Settlements,National Urban Development Policies & Strategies,Voluntary and Involuntary Resettlement,Economic Theory & Research
    Date: 2006–05–01
  18. By: Matthias Basedau (GIGA Institute of African Affairs)
    Abstract: Natural resources in sub-Saharan Africa suffer from a bad reputation. Oil and diamonds, particularly, have been blamed for a number of Africa’s illnesses such as poverty, corruption, dictatorship and war. This paper outlines the different areas and transmission channels of how this so-called “resource curse” is said to materialize. By assessing empirical evidence on sub-Saharan Africa it concludes that the resource curse theory fails to sufficiently explain why and how several countries have not or only partly been affected by the “curse”. Theoretically, the paper argues that whether or not natural resources are detrimental to a country’s socio-economic and political development depends on a number of contextual variables, divided into country-specific conditions and resource-specific conditions (type, degree/level of abundance and dependence, resource revenue management, involved companies etc.). Methodologically, a future research agenda needs to examine the complex interplay of these contextual variables by adding sophisticated comparative research designs, especially “small and medium N” comparisons, to the tool box which has been widely confined to the juxtaposition of “large N” and country case studies.
    Keywords: Sub-Saharan Africa; Natural Resources, Political Economy, Institutions, Violent Conflict, Socio-Economic Development, Democracy
    JEL: B25 N5 N57 O13
    Date: 2005–05
  19. By: Andreas Mehler (GIGA Institute of African Affairs)
    Abstract: Current thinking on African conflicts suffers from misinterpretations (oversimplification, lack of focus, lack of conceptual clarity, state-centrism and lack of vision). The paper analyses a variety of the dominant explanations of major international actors and donors, showing how these frequently do not distinguish with sufficient clarity between the ‘root causes’ of a conflict, its aggravating factors and its triggers. Specifically, a correct assessment of conflict prolonging (or sustaining) factors is of vital importance in Africa’s lingering confrontations. Broader approaches (e.g. “structural stability”) offer a better analytical framework than familiar one-dimensional explanations. Moreover, for explaining and dealing with violent conflicts a shift of attention from the nation-state towards the local and sub-regional level is needed.
    Keywords: Sub-Saharan Africa, Conflict Prevention, Conflict Factors, Root causes, Conflict Prolonging Factors, Escalation Patterns, Peace Order, Structural Stability
    Date: 2005–06
  20. By: Esther K. Ishengoma (Faculty of Commerce and Management, University of Dar es Salaam and GIGA German Institute of Global and Area Studies); Robert Kappel (GIGA German Institute of Global and Area Studies)
    Abstract: The informal sector (IS) plays a significant role in developing countries viz. the provision of employment, income and supplying ignored markets. However, working and employment conditions within the sector are still poor. Its expansion and changing structures have thus drawn the attention of scholars and international policy makers to the factors hindering its formalisation. Among the factors addressed are the high costs of formalisation and the lack of incentives for operating in the formal sector. A variety of approaches have been adopted by different stakeholders to overcome these factors. This paper assesses these approaches along with the factors related to informality-formality trade-off and the issue of formalisation as a solution for firms’ growth. By focussing on the problems faced by informal enterprises and the literature which addresses the options for accelerating the formalisation of informal enterprises, the paper will briefly summarise the weaknesses of these approaches.
    Keywords: Informal sector, small enterprises, formal and informal institution, cost of formalisation, informality, formality, poverty, economic growth
    JEL: L5 O17 O4 D2 I3
    Date: 2006–04
  21. By: Matthias Basedau (GIGA Institute of African Affairs); Wolfram Lacher (School of Oriental and African Studies, University of London)
    Abstract: Resource curse theory claims that resource abundance encourages violent conflict. A study of 37 oil-producing developing countries, however, reveals that oil states with very high levels of oil revenue are remarkably stable. An analysis of the ways in which governments spend oil revenues identifies two distinct types of rentier systems – the large-scale distributive state and the patronage-based system – which are strongly linked to instability or its absence. However, some deviant cases, such as Equatorial Guinea and Gabon, illustrate the need for further research. Apparently, the notion of a “paradox of plenty” has neglected rentier mechanisms that avoid conflict.
    Keywords: Resource Curse, Paradox of Plenty, Oil, Rentier State, Violent Conflict, Political Stability, Developing World
    JEL: N5 N50 O13
    Date: 2006–04

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