nep-dev New Economics Papers
on Development
Issue of 2006‒06‒17
sixteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Worker Remittances and Growth: The Physical and Human Capital Channels By Ziesemer, Thomas
  2. Creating the Capacity to Benefit from Technological Change in Developing Countries By Wamea, Watu
  3. A Technology Acquisition Model: The Role of Learning and Innovation By Wamea, Watu
  4. Are North-South Technological Spillovers Substantial? : A Dynamic Panel Data Model Estimation By Wamea, Watu
  5. Life and Death of Roscas : If Power Corrupts, Does Powerlessness Make One Blameless ? By Olivier Dagnelie
  6. What’s love got to do with it ? An experimental test of household models in East Uganda. By Alistair Munro; Bereket Kebede; Vegard Iversen; Cecile Jackson; Arjan Verschoor
  7. Regulatory Barriers and Entry in Developing Economies By John Bennett; Saul Estrin
  8. China’s Lesser Known Migrants By Deng Quheng; Bjorn Gustafsson
  9. Labor Supply Responses to Adverse Shocks under Credit Constraints: Evidence from Bukidnon, Philippines By Hazel Jean Malapit; Jade Eric Redoblado; Deanna Margarett Cabungcal-Dolor; Jasmin Suministrado
  10. Disease and Development: The Effect of Life Expectancy on Economic Growth By Daron Acemoglu; Simon Johnson
  11. When Does Domestic Saving Matter for Economic Growth? By Philippe Aghion; Diego Comin; Peter Howitt
  12. Foreign Aid and Foreign Policy: How donors undermine the effectiveness of overseas development assistance By Derek Headey
  13. How Widespread are Non-linear Crowding Out Out Effects? The Response of Private Transfers to Income in Four Developing Countries By John Gibson; Susan Olivia; Scott Rozelle
  14. Creating a more efficient financial system : challenges for Bangladesh By Rahman, Md. Habibur; Beck, Thorsten
  15. Sources of Income Persistence: Evidence from Rural El Salvador By Walter Sosa-Escudero; Mariana Marchionni; Omar Arias
  16. To Share or Not To Share? - (Non-)Violence, Scarcity and Resource Access in Somali Region, Ethiopia By Ayalneh Bogale; Benedikt Korf

  1. By: Ziesemer, Thomas (University of Maastricht, Faculty of Economics)
    Abstract: Remittances may have an impact on economic growth through channels to physical and human capital. We estimate two variants of an open economy model of these two channels consisting of seven equations using the general method of moments with heteroscedasticity and autocorrelation correction (GMM-HAC) with pooled data for four different samples of countries receiving remittances in 2003. The countries with per capita income below $1200 benefit most from remittances in the long run because they have the largest impact of remittances on savings. Their remittances account for about 2% of the steady-state level of GDP per capita when compared to the counterfactual of having no remittances. Their ratio of the steady-state growth rates with and without remittances is 1.39. Transitional gains are higher than the steady-state gains only for the human capital variables of this sample. As savings react much more strongly than investment an important benefit of remittances is that less debt is incurred and less debt service is paid than without remittances. The elasticity of the GNI/GDP ratio with respect to the remittance/GDP ratio is .002. All effects are much weaker for the richer countries.
    Keywords: remittances, growth, simultaneous equation model
    JEL: O15 J61 C33
    Date: 2006
  2. By: Wamea, Watu (CEDERS, Faculté des Sciences Economique et Gestion, Université de la Méditerranée)
    Abstract: What really makes an economy competitive? This paper reviews and discusses how the capacity to generate, exploit and diffuse new knowledge is key in enabling countries to capitalise on challenges brought about by rapid technology-driven transformations rather than succumb to their adverse effects. In particular, we look at the importance of new knowledge emanating from both domestic and foreign sources in the innovation process in view of the contention that "international technology transfer" is critical for growth in developing countries. We find that there is a tight link between high rates of technology acquisition and high investment ratios, and that the absorptive capacity is a sine qua non of foreign technology benefits.
    Keywords: absorptive capacity, knowledge, developing countries, systems of innovation
    JEL: C49 O11 O38
    Date: 2006
  3. By: Wamea, Watu (CEDERS, Faculté des Sciences Economique et Gestion, Université de la Méditerranée)
    Abstract: This paper theoretically analyses the dynamics of knowledge accumulation with the aim of understanding how developing economies can effectively engage in the process of knowledge accumulation. The main focus is on the complementarity between competence building and innovation. Our analysis is based on a simple standard economics model for the sake of clarity in understanding the link between the need for collaboration and competition in the innovation process at the national level. We find that the importance of developing an absorptive capacity in the knowledge generation process cannot be over-emphasized.
    Keywords: absorptive capacity, competences, domestic innovation, developing countries
    JEL: O11 O30 O40
    Date: 2006
  4. By: Wamea, Watu (CEDERS, Faculté des Sciences Economique et Gestion, Université de la Méditerranée)
    Abstract: This paper argues that actual technological spillovers are not substantial in developing countries because of the absence of an absorptive capacity. We carry out a panel data analysis in an attempt to gain insight into the specific aspects that enable economies to benefit from the backlog of existing knowledge. Our findings indicate that low productivity effects of human capital coupled with weak or virtually inexistent systems of innovation are at the root of the observed ambiguity with regard to the spillovers gains that are expected to play a significant role in sparking growth.
    Keywords: absorptive capacity, spillovers, developing countries, systems of innovation
    JEL: C33 O47 O57
    Date: 2006
  5. By: Olivier Dagnelie (CRED - Centre de Recherche en Economie du Développement - [Facultés Universitaires Notre Dame de la Paix])
    Abstract: We have very few ideas as to what factors can influence the duration of roscas and reduce their failure risk. In this research, we bring new light on these empirical questions using an original data set containing information on living and dead roscas from Cotonou, Benin. We see that the governance structure consisting of important power concentration without counterbalance is more likely to lead to the death of the rosca. We also present evidence that individuals attracted to this kind of groups are probably not the less risky ones.
    Keywords: ROSCA ; Survival Analysis ; Governance structure ; Benin
    Date: 2006–06–01
  6. By: Alistair Munro (Department of Economics, Royal Holloway, University of London); Bereket Kebede (School of Development Studies, University of East Anglia, Norwich, UK); Vegard Iversen (School of Development Studies, University of East Anglia, Norwich, UK); Cecile Jackson (School of Development Studies, University of East Anglia, Norwich, UK); Arjan Verschoor (School of Development Studies, University of East Anglia, Norwich, UK)
    Abstract: We test core theories of the household using variants of a public good game and experimental data from 240 couples in rural Uganda. Spouses do not maximise surplus from cooperation and realise a greater surplus when women are in charge. This violates assumptions of unitary and cooperative models. When women control the common account, they receive less than when men control it; this contradicts standard bargaining models. Women contribute less than men and are rewarded more generously by men than vice versa. This casts doubt on postulates in Sen (1990). While the absence of altruism is rejected, we find evidence for opportunism. The results are put in a socioeconomic context using quantitative and qualitative survey data. Assortative matching and correlates of bargaining power influence behaviour within the experiments. Our findings suggest that a ‘one-size fits all’ model of the household is unlikely to be satisfactory.
    Keywords: experiment, household theories, Uganda, unitary model, cooperative model
    JEL: D13 C92 C93
    Date: 2006–02
  7. By: John Bennett (Brunel University); Saul Estrin (London Business School and IZA Bonn)
    Abstract: We model entry by entrepreneurs into new markets in developing economies with regulatory barriers in the form of licence fees and bureaucratic delay. Because laissez faire leads to ‘excessive’ entry, a licence fee can increase welfare by discouraging entry. However, in the presence of a licence fee, bureaucratic delay creates a strategic opportunity, which can result in both greater entry by first movers and a higher steady-state number of firms. Delay also leads to speculation, with entrepreneurs taking out licences to obtain the option of immediate entry if they later observe the industry to be profitable enough.
    Keywords: entry, entry barriers, developing economy
    JEL: L50 O14
    Date: 2006–05
  8. By: Deng Quheng (Chinese Academy of Social Sciences); Bjorn Gustafsson (University of Göteborg and IZA Bonn)
    Abstract: In China hukou (the household registration system) imposes barriers on permanent migration from rural to urban areas. Using large surveys for 2002, we find that permanent migrants number about 100 million persons and constitute approximately 20 percent of all urban residents. Receiving a long education, being a cadre or becoming an officer in the People’s Liberation Army are important career paths towards urbanisation and permanent migrants are much better-off then their counterparts left behind in rural China. The probability of becoming a permanent migrant is positively related to parental education, belonging to the ethnic majority and the parent’s membership in the Communist Party. At the destination, most permanent migrants are economically well-integrated. They have a higher probability to be working than their urban-born counterparts and those who receive a hukou before age 25 typically earn at least as much as their urban-born counterparts. The exceptions for this are those permanent migrants who receive a hukou after age 25 and people who received their hukou through informal routes.
    Keywords: China, hukou, rural-to-urban migration
    JEL: J61 O15 P36
    Date: 2006–05
  9. By: Hazel Jean Malapit; Jade Eric Redoblado; Deanna Margarett Cabungcal-Dolor; Jasmin Suministrado
    Abstract: The ability of households to insure consumption from adverse shocks is an important aspect of vulnerability to poverty. How is consumption insurance achieved in a low-income setting where formal credit and insurance markets have been observed to be imperfect or missing? Using 2003 data from the Philippine province of Bukidnon, we investigate how labor supply is used to buffer transitory income shocks, in light of credit constraints. We find that the most vulnerable households are those with little education and with few or no able-bodied male members. Appropriate policy responses include counter-cyclical workfare programs targeted to households with high female-to-male ratios, households with high dependency ratios, and households with little or no education, as well as the provision of universal education and health care. These programs are likely to be effective in strengthening the labor endowments of households and improving their ability to cope with adverse shocks in the future.
    Keywords: Labor supply, credit constraints, consumption smoothing, coping strategies, idiosyncratic shocks, Philippines
    JEL: J22 J43
    Date: 2006
  10. By: Daron Acemoglu; Simon Johnson
    Abstract: What is the effect of increasing life expectancy on economic growth? To answer this question, we exploit the international epidemiological transition, the wave of international health innovations and improvements that began in the 1940s. We obtain estimates of mortality by disease before the 1940s from the League of Nations and national public health sources. Using these data, we construct an instrument for changes in life expectancy, referred to as predicted mortality, which is based on the pre-intervention distribution of mortality from various diseases around the world and dates of global interventions. We document that predicted mortality has a large and robust effect on changes in life expectancy starting in 1940, but no effect on changes in life expectancy before the interventions. The instrumented changes in life expectancy have a large effect on population; a 1% increase in life expectancy leads to an increase in population of about 1.5%. Life expectancy has a much smaller effect on total GDP both initially and over a 40-year horizon, however. Consequently, there is no evidence that the large exogenous increase in life expectancy led to a significant increase in per capita economic growth. These results confirm that global efforts to combat poor health conditions in less developed countries can be highly effective, but also shed doubt on claims that unfavorable health conditions are the root cause of the poverty of some nations.
    JEL: I10 O40 J11
    Date: 2006–06
  11. By: Philippe Aghion; Diego Comin; Peter Howitt
    Abstract: Can a country grow faster by saving more? We address this question both theoretically and empirically. In our model, growth results from innovations that allow local sectors to catch up with the frontier technology. In relatively poor countries, catching up with the frontier requires the involvement of a foreign investor, who is familiar with the frontier technology, together with effort on the part of a local bank, who can directly monitor local projects to which the technology must be adapted. In such a country, local saving matters for innovation, and therefore growth, because it allows the domestic bank to cofinance projects and thus to attract foreign investment. But in countries close to the frontier, local firms are familiar with the frontier technology, and therefore do not need to attract foreign investment to undertake an innovation project, so local saving does not matter for growth. In our empirical exploration we show that lagged savings is significantly associated with productivity growth for poor but not for rich countries. This effect operates entirely through TFP rather than through capital accumulation. Further, we show that savings is significantly associated with higher levels of FDI inflows and equipment imports and that the effect that these have on growth is significantly larger for poor countries than rich.
    JEL: E2 O2 O3
    Date: 2006–06
  12. By: Derek Headey (CEPA - School of Economics, The University of Queensland)
    Abstract: Previous aid effectiveness studies have typically attempted to identify recipient-side conditions of aid effectiveness – such as “good policies”, political and economic stability, and “tropical effects” – using cross-country growth regressions. An obvious omission from this list of conditions is the extent by which donors are concerned with achieving geopolitical rather than developmental objectives, which may reduce aid effectiveness insofar as strategic donors have less incentive to hold the recipient government accountable for the developmentally effective use of aid receipts. Aid allocation regressions can (and are) used to demonstrate the importance of geopolitical considerations, but the author also shows that such regressions cannot be used to instrument for aid in a second stage growth regression, as is standard practice in this literature, because to do so would invoke the untested assumption that strategically motivated aid is just as effective as developmentally motivated aid. Instead the author tests the effect of lagged aid flows on growth, and subsequently demonstrates that: aggregate aid flows are estimated to have significant but moderately sized effects on growth; multilateral aid flows have roughly twice the effect of bilateral flows; but that the lower average effects of bilateral aid nevertheless obscure a substantial degree of heterogeneity in the bilateral aid coefficient which is again explained by the degree to which these flows are indeed strategically motivated.
    Date: 2005–09
  13. By: John Gibson (University of Waikato); Susan Olivia (University of California, Davis); Scott Rozelle (University of California, Davis)
    Abstract: This paper investigates whether there is a non-linear relationship between income and the private transfers received by households in developing countries. If private transfers are unresponsive to household income, expansion of public social security and other transfer programs is unlikely to crowd out private transfers, contrary to concerns first raised by Barro and Becker. There is little existing evidence for crowding out effects in the literature, but this may be because they have been obscured by methods that ignore non-linearities. If donors switch from altruistic motivations to exchange motivations as recipient income increases, a sharp non-linear relationship between private transfers and income may result. In fact, threshold regression techniques find such non-linearity in the Philippines and after accounting for these there is evidence of serious crowding out, with 30 to 80 percent of private transfers potentially displaced for low-income households [Cox, Hansen and Jimenez 2004, 'How Responsiveare Private Transfers to Income?' Journal of Public Economics]. To see if these non-linear effects occur more widely, semiparametric and threshold regression methods are used to model private transfers in four developing countries - China, Indonesia, Papua New Guinea and Vietnam. The results of our paper suggest that non-linear crowding-out effects are not important features of transfer behaviour in these countries. The transfer derivatives under a variety of assumptions only range between 0 and -0.08. If our results are valid, expansions of public social security to cover the poorest households need not be stymied by offsetting private responses.
    Keywords: crowding out; private transfers; social security
    JEL: H55 O15
    Date: 2006–03–31
  14. By: Rahman, Md. Habibur; Beck, Thorsten
    Abstract: While Bangladesh has embarked on a path to reform its financial system, most prominently by privatizing its government-owned banks, the Nationalized Commercial Banks (NCBs), a sustainable long-term expansion of the financial system requires a more substantial change in the role of government. Using recent research and international comparisons, this paper argues that the government should move from its role as an operator and arbiter in the financial system to a facilitator role. This implies not only divestment from government-owned banks, but also de-politicization of the licensing process and a market-based bank failure resolution framework that focuses on intermediation and not on the rescue of individual institutions. Most important, the government should move away from the implicit guarantee for depositors and owners to applying the existing limited explicit deposit insurance for depositors, while simultaneously relying more on market participants to monitor and discipline banks instead of micro-managing financial institutions. This redefinition of government ' s role should not be limited to the banking system, but applies to other segments of the financial system, such as capital markets and the micro-finance sector, and should be seen as an essential element in the governance reform agenda and in the movement from a relationship-based economy to a market and arms-length economy.
    Keywords: Banks & Banking Reform,Economic Theory & Research,Financial Intermediation,Investment and Investment Climate,Corporate Law
    Date: 2006–06–01
  15. By: Walter Sosa-Escudero (Universidad de San Andrés); Mariana Marchionni (Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) - Universidad Nacional de La Plata); Omar Arias (Poverty and Gender Group of the Latin American and Caribbean Department of the World Bank)
    Abstract: This paper uses a unique panel dataset (1995-2001) of rural El Salvador to investigate the main sources of the persistence and variability of incomes. First we propose an econometric framework where a general dynamic panel model is validly reduced to a simple linear structure with a dynamic covariance structure, which augments considerably the number of degrees of freedom usually lost in the construction of instruments to estimate standard dynamic panel models. Then we investigate the extent to which families are continuously poor due to endowments (observed and unobserved) that yield low income potential or due to systematic income shocks that they are unable to smooth. We find that life-cycle incomes are largely explained by the relatively time-invariant productive characteristics of families and their members such as education, public goods and other assets. Observed income determinants account for about half of income persistence. Controlling for unobserved heterogeneity leaves little room for pure state dependence. Although of second order, high volatility and the inability to insure from shocks is a more important source of variation in incomes than in developed countries. Low income potential is the more likely source of poverty traps in Rural El Salvador. Many of the family endowments are manipulable by policy interventions, although many not in the short term.
    Keywords: Income mobility, Poverty Traps, Panel Data, El Salvador
    JEL: I32
    Date: 2006–06
  16. By: Ayalneh Bogale (Department of Agricultural Economics,University of Alemaya, P.O. Box 170, Alemaya, Ethiopia); Benedikt Korf (Department of Geography, University of Liverpool, Roxby Building, Liverpool L69 7ZT, UK)
    Abstract: It is often argued that environmental scarcity was a trigger and source of violent conflict, in particular in African countries. At the root of such arguments is a simple environmental determinism, which understands scarcity as undermining co-operative relationships between competing resource users. Robert Kaplan popularised this thesis in his argument about "The Coming Anarchy", where he interpreted recent civil wars in Africa as an advent of a fundamental environmental crisis. In our view, this conception disregards the crucial role of local-level institutions in governing competing resource claims. In this paper, we present a case study from the violence-prone Somali Region, Ethiopia. We analyse how agro-pastoralist communities develop sharing arrangements on pasture resources with intruding pastoralist communities in drought years, even though this places additional pressure on their grazing resource. A household survey investigates the determinants for different households in the agro-pastoralist community, asset-poor and wealthy ones, to enter into different types of sharing arrangements. Our findings suggest that resource sharing offers asset-poor households opportunities to stabilise and enhance their asset-base in drought years, providing incentives for co-operative rather than conflictive relations with intruding pastoralists. We conclude that it may depend on potential incentives arising from institutional arrangements, whether competing resource claims in periods of environmental scarcity are resolved peacefully or violently.
    Date: 2005–07

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