nep-dev New Economics Papers
on Development
Issue of 2006‒05‒20
fifteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Schooling, learning on-the-job, earnings and inequality By Luis P. Correia
  2. Vintage Capital By Raouf Boucekkine; David de la Croix; Omar Licandro
  3. Do South-South Trade Agreements Increase Trade? Commodity-Level Evidence from COMESA By Anna Maria Mayda; Chad Steinberg
  4. Technical Change and Total Factor Productivity Growth for Chinese Provinces: A Panel Data Analysis By Shiu, Alice; Heshmati, Almas
  5. Weather Risk and the Off-Farm Labor Supply of Agricultural Households in India By Takahiro Ito; Takashi Kurosaki
  6. The neoliberal "rebirth" of development economics. By Rémy Herrera
  7. U.S.-Based Private Voluntary Organizations: Religious and Secular PVOs Engaged in International Relief & Development By Rachel M. McCleary; Robert J. Barro
  8. Tax Law Changes, Income Shifting and Measured Wage Inequality: Evidence from India By Jagadeesh Sivadasan; Joel Slemrod
  9. Dual Poverty Trap By Ryo Horii; Masaru Sasaki
  10. Natural Disasters in a Two-Sector Model of Endogenous Growth By Masako Ikefuji; Ryo Horii
  11. Vulnerability of Consumption Growth in Rural India By Raghbendra Jha
  12. Institutional quality and trade: which institutions? which trade? By Pierre-Guillaume Méon; Khalid Sekkat
  13. The Role of Path Dependence in the Development of U.S. Bankruptcy Law, 1880-1938 By Arslan Razmi; Robert A. Blecker
  14. Endogenous Fertility, International Migration and Growth By Giam Pietro Cipriani
  15. Regional Evidence on the Finance-Growth Nexus By Andrea Vaona

  1. By: Luis P. Correia
    Abstract: Why might people in poor countries leave school earlier and invest less in learning on-thejob than people in rich ones? How do these human capital decisions impact on inequality? To give quantitative answers to these questions, I build an overlapping generations model with optimal human capital accumulation and a given distribution of abilities. Variation in mortality and population growth rates can generate large variability in schooling decisions, earnings profiles and measures of inequality. High mortality and population growth rates are shown to produce comparatively little investment in human capital, flat earnings profiles and low inequality, both within and across cohorts.
    Keywords: human capital, earnings profiles, schooling, inequality.
    JEL: I20 J11 J24 O11 O40
    Date: 2006–05
  2. By: Raouf Boucekkine; David de la Croix; Omar Licandro
    Abstract: We highlight the salient characteristics and implications of the seminal contributions in the field of vintage capital growth theory (proposed entry for the New Palgrave Dictionary of Economics, 2nd edition).
    Keywords: vintage capital, the embodied question, replacement echoes, technology diffusion, inequality, demographics
    JEL: E22 E32 O40
    Date: 2006
  3. By: Anna Maria Mayda; Chad Steinberg (Department of Economics, Georgetown University)
    Abstract: South-South trade agreements are proliferating: developing countries signed 70 new agreements between 1990 and 2003. Yet the impact of these agreements is largely unknown. In this paper, we focus on the static effects of South-South preferential trade agreements that take place through changes in trade patterns. We estimate the impact of the Common Market for Eastern and Southern Africa (COMESA) on Uganda's imports between 1994 and 2003. We use detailed import and tariff data at the 6-digit Harmonized System level for over 1,000 commodities. Based on a difference-indifference estimation strategy, we find evidence—in contrast to aggregate statistics—that COMESA’s preferential tariff liberalization has not considerably increased Uganda’s trade with member countries, on average across sectors. The effect, however, is heterogeneous across sectors. Finally, we find no evidence of trade-diversion effects. Classification-JEL Codes: F13, F14, F15, O24
    Keywords: South-South Trade Agreements, Trade Creation, Trade Diversion
  4. By: Shiu, Alice (Hong Kong Polytechnic University); Heshmati, Almas (The Ratio Institute)
    Abstract: We present in this paper the panel econometrics estimation approach of measuring the technical change and total factor productivity (TFP) growth of 30 Chinese provinces during the period of 1993 to 2003. The random effects model with heteroscedastic variances has been used for the estimation of the translog production functions. Two alternative formulations of technical change measured by the single time trend and the general index approach are used. Based on the measures of technical change, estimates of TFP growth could be obtained and its determinants were examined using regression analysis. The parametric TFP growth measure is compared with the non-parametric Solow residual. TFP has recorded positive growth for all provinces during the sample period. Regional breakdown shows that the eastern and central regions have higher average TFP growth when compared with the western region. Foreign direct investment (FDI) and information and communication technology (ICT) investment are found to be significant factors contributing to the TFP difference. While these two factors are found to have significant influence on TFP, their influence on production is relatively small compared to traditional inputs of production.
    Keywords: technical change; TFP growth; provinces; China; ICT; FDI; infrastructure
    JEL: C23 D24 E22 O18 O47
    Date: 2006–05–12
  5. By: Takahiro Ito; Takashi Kurosaki
    Abstract: This paper investigates the effects of weather risk on the offfarm labor supply of agricultural households in India. Faced with the uninsurable risk of output fluctuations, poor farmers in less developed countries have various options to smooth income. One of these options is to diversify labor allocation across activities, which this paper focuses on. A key feature of this paper is that it pays particular attention to differences in the covariance between weather risk and agricultural wages on the one hand and between weather risk and nonagricultural wages on the other. We develop a theoretical model of household optimization, which predicts that the impact of weather risk on the offfarm labor supply is larger in the case of nonagricultural wage work than in the case of agricultural wage work when agricultural wages off the farm are positively correlated with own farm income. To test this prediction, we estimate a multivariate tobit model of labor allocation using household data from rural areas of Bihar and Uttar Pradesh, India. The regression results show that the share of the offfarm labor supply increases with the weather risk, and the increase is much larger in the case of nonagricultural wage work than in the case of agricultural wage work. Simulation results based on the regression estimates show that the sectoral difference is substantial, implying that empirical and theoretical studies on farmers' labor supply response to risk should distinguish between the types of offfarm work involved.
    Keywords: corvariate risk, non-farm employment, self-employment, food security, India
    JEL: Q12 O15 J22
    Date: 2006–04
  6. By: Rémy Herrera (Centre d'Economie de la Sorbonne)
    Abstract: This article is to be published in the May 2006 issue of the Monthly Review. Nowadays, neoclassical economics' domination of development theory is on par with that of high finance's neoliberal power over development policies. There are important complementarities between these two forms of ideological domination which are mutually reinforcing and interdependent. Thus, it is not only the absence of a scientific basis and the logical inconsistencies that disqualify these approaches, but the ideological function and antisocial project that their methodologies and conclusions support in the service of world capital.
    Keywords: Development, neo-classical economics, neo-liberalism, crisis, heterodoxies.
    JEL: A12 B24 B41 F20 N10 O11
    Date: 2006–04
  7. By: Rachel M. McCleary; Robert J. Barro
    Abstract: We have constructed a new and substantial data set from 1939 to 2004 on U.S.-based private voluntary organizations (PVOs) engaged in international relief and development. The universe comprises PVOs registered with the federal government (U.S. Agency for International Development since the early 1960s). PVOs are classified by type among secular and 14 types of religious categories. Classifications were made for the date of founding and in 2004 (or last date of existence). We can therefore examine shifts in classification over time—among religion types and between religious and secular. The data set has information on revenue and expenditure for each year. We distinguish revenue by source: federal, international organization, and private. We distinguish within these sources by grants, contracts, in-kind and cash donations, and so on. We break down expenditure into categories, including a division between international and domestic programs. This data set allows us to track trends in the overall universe of PVOs and by type of PVO in terms of numbers registered, income, expenditure, and sub-categories of income and expenditure. Analysis can now be conducted at the individual agency and aggregate levels for PVOs engaged in international relief and development and registered with the U.S. federal government from 1939 to 2004.
    JEL: O1 L3 Z1
    Date: 2006–05
  8. By: Jagadeesh Sivadasan; Joel Slemrod
    Abstract: We use a large dataset covering all registered plants in the manufacturing sector in India over the period 1986 to 1995 to examine the effects of a 1992 income tax law change that eliminated the double taxation of wages paid to partners in partnership firms. This tax law change provides a unique opportunity to identify the effects of tax policy changes on firm behavior in a developing country context. Since the change provided incentives for shifting income from wages to profits, it also has important implications for certain measures of wage inequality. We find an immediate and pervasive response by partnership firms to the tax law change, reflected in a significant shifting of income from profits to managerial wages. Since about 50 percent of registered manufacturing plants are incorporated in the form of partnerships (including most family-run businesses), income shifting by these firms could have a significant impact on measured wage inequality. We find a sizeable jump in the mean and median relative wage of skilled workers (which includes managers and partners) following the tax law change in 1992. This sudden increase in measured wage inequality follows major trade liberalization and deregulation reforms announced earlier (in July 1991). We find that the income shifting induced by the tax law change explains almost all of the observed increase in measured wage inequality following these reforms. This finding is robust to inclusion of controls for a number of other potential sources of post-liberalization increases in wage inequality. Our results show that firms respond strongly to tax incentives for income shifting, and highlight the need to control for the potential effects of tax incentives in studies of wage inequality.
    JEL: H32 H25 F14 O24
    Date: 2006–05
  9. By: Ryo Horii (Graduate School of Economics, Osaka University); Masaru Sasaki (Graduate School of Economics, Osaka University)
    Abstract: This paper constructs an overlapping generations model of search equilibrium that analyzes intergenerational and coordination traps simultaneously. When parents are uneducated, their children often face difficulty in finishing school, and therefore likely to remain uneducated. In addition, if children expect that other children of the same generation do not receive education, they anticipate that firms will not create enough jobs for educated and thus are discouraged from schooling. These two mechanisms of poverty trap reinforce each other-creating a dual poverty trap. Escaping from the trap requires a combined, not separate, implementation of financial assistance for schooling and policies for changing agentsf expectation.
    Keywords: overlapping generations model, education, intergenerational externality, job search.
    JEL: O11 J62 J23
    Date: 2006–05
  10. By: Masako Ikefuji (Graduate School of Economics, Osaka University); Ryo Horii (Graduate School of Economics, Osaka University)
    Abstract: This paper studies sustainability of economic growth considering the risk of natural disasters caused by pollution in an endogenous growth model with physical and human capital accumulation. We consider an environmental tax policy, and show that economic growth is sustainable only if the tax rate on the polluting input is increased over time and that the long-term rate of economic growth follows an inverted V-shaped curve relative to the growth rate of the environmental tax. The social welfare is maximized under a positive steadystate growth in which faster accumulation of human capital compensates the productivity loss due to declining use of the polluting input.
    Keywords: natural disasters, human capital, endogenous depreciation, economic growth.
    JEL: O41 O13 E22
    Date: 2006–05
  11. By: Raghbendra Jha
    Abstract: The fragility of livelihoods and hence the vulnerability of consumption growth due to aggregate shocks in the Indian rural sector have been highlighted recently. However, as yet there exist no estimates of the vulnerability of consumption growth in rural India. This paper attempts to fill this lacuna by providing certainty equivalent growth of consumption in 14 major states of India over the period 1958-1997, corresponding to NSS Rounds 13th to 53rd. The extant debates around poverty-growth elasticities are premised on the assumption of a state of world without any risks and uncertainties. In the real world in which the poor actually live they are subject to risks - both general and idiosyncratic - which affect their welfare. Thus poverty should not be viewed in static terms but within a framework that allows for changing states of the world. This paper shows that certainty equivalent consumption growth in rural India has been much lower than average real per capita consumption growth - indeed, in some cases, it has been negative. This points to the poor performance of consumer-perceived average welfare in India’s rural sector and should be a matter of urgent policy concern.
    Keywords: India, Consumption Volatility, National Sample Survey, Certainty Equivalent Consumption
    JEL: D12 D18 D69 O12 Q18
    Date: 2006
  12. By: Pierre-Guillaume Méon (DULBEA, Université libre de Bruxelles, Brussels); Khalid Sekkat (DULBEA, Université libre de Bruxelles, Brussels)
    Abstract: Using a panel of countries over 1920-2000, this paper examines the extent to which different dimensions of the institutional framework affect exports of total, manufactured, and non-manufactured goods. It is observed that exports of manufactured goods are positively affected by the control of corruption, the rule of law, government effectiveness, and the lack of political violence. This result does not hold for non-manufactured and total exports. Instrumental variable regressions finally confirm that the control of corruption, but not the other dimensions of governance, robustly cause manufactured exports.
    Keywords: Institutions, governance, trade, manufactured exports, non-manufactured exports.
    JEL: F15 O17
    Date: 2006–04
  13. By: Arslan Razmi (Department of Economics, University of Massachusetts); Robert A. Blecker (Department of Economics, American University)
    Abstract: This paper tests for a ‘fallacy of composition’ by analysing the demand for exports of the 18 developing countries that are most specialised in manufactures in the markets of the 10 largest industrial countries. Estimated export equations (both time-series and panel data) suggest that most developing countries compete with other developing country exporters rather than with industrialised country producers. A smaller number of countries that export more high-technology products compete with industrialised country producers and also have higher expenditure elasticities for their exports. Thus, the fallacy of composition applies mainly to the larger group of countries exporting mostly low-technology products.
    Keywords: Developing country exports of manufactures, intra-developing country competition, fallacy of composition, real exchange rates, technological ladder, adding-up constraint.
    JEL: O19 O14 F14
    Date: 2006–04
  14. By: Giam Pietro Cipriani (Dipartimento di Scienze economiche (Università di Verona))
    Abstract: An endogenous growth model with heterogeneous agents and endogenous rates of fertility is developed to study the relationships between population growth, human capital, migration and economic development. A variety of patterns of migration, from the migration of the unskilled to the brain drain is considered, where the decision to migrate reflects agents' optimising behaviour. The analysis yields implications which accord with the empirical evidence on the relationships between demography and development. Macroeconomic policy can foster growth by influencing labour mobility through taxation and the provision of public goods such as social infrastructure, sanitation, environmental control and medical research that affect locational preferences and child quality.
    Keywords: Fertility, human capital, migration, growth.
    JEL: J13 J24 O41
    Date: 2005–03
  15. By: Andrea Vaona (Dipartimento di Scienze economiche (Università di Verona))
    Abstract: The Finance-Growth Nexus is a classical source of debate among economists. This contribution o¤ers regional evidence on this issue in order to see if it can meet the data within a 140 years old economic union –Italy -, in the ideal context for its main competitor - New Economic Geography - and in order to avoid pooling between developed and developing countries. The results for this application support the view that …nance leads growth, reject its possible endogeneity and shows its robustness even in presence of spatial unobserved heterogeneity.
    Keywords: Finance, Growth, Regions
    JEL: O18 O16 C31
    Date: 2005–12

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