nep-dev New Economics Papers
on Development
Issue of 2006‒06‒24
twelve papers chosen by
Jeong-Joon Lee
Towson University

  1. Institutional Quality, Trade, and the Changing Distribution of World Income By Brigitte Desroches; Michael Francis
  2. On the Economic and Fiscal Effects of Infrastructure Investment in Brazil By Pedro Cavalcanti Gomes Ferreira; Carlos Hamilton Vasconcelos Araújo
  3. Economic Growth and Poverty Reduction: Measurement Issues using Income and Non-Income Indicators By Stephan Klasen
  4. Macroeconomic Policy and Pro-Poor Growth in Bolivia By Stephan Klasen
  5. Measuring Pro-Poor Progress towards the Non-Income Millennium Development Goals By Melanie Grosse; Kenneth Harttgen; Stephan Klasen
  6. Corruption and Bureaucratic Structure in a Developing Economy By John Bennett; Saul Estrin
  7. Remittances, Financial Development, and Growth By Paola Giuliano; Marta Ruiz-Arranz
  8. Wealth Accumulation and Growth in a Specific-Factors Model of Trade and Finance. By Petrucci, Alberto
  9. Do Peers Affect Student Achievement in China%u2019s Secondary Schools? By Weili Ding; Steven F. Lehrer
  10. An Exploration of Technology Diffusion By Diego Comin; Bart Hobiijn
  11. Globalization, De-Industrialization and Mexican Exceptionalism 1750-1879 By Rafael Dobado González; Aurora Gómez Galvarriato; Jeffrey G. Williamson
  12. Economic liberalization with rising segmentation on China’s urban labor market By Sylvie Démurger; Martin Fournier; Li Shi; Wei Zhong

  1. By: Brigitte Desroches; Michael Francis
    Abstract: Conventional wisdom holds that institutional changes and trade liberalization are two main sources of growth in per capita income around the world. However, recent research (e.g., Rigobon and Rodrik 2004) suggests that the Frankel and Romer (1999) trade and growth finding is not robust to the inclusion of institutional quality. In this paper, the authors argue that this "trade and growth puzzle" can be explained once institutional quality is acknowledged as a determinant of the willingness to save and invest, and hence acknowledged as a determinant of long-run comparative advantage. The paper consists of two parts. First, the authors develop a theoretical model which predicts that institutions determine a country's underlying comparative advantage: countries that have good institutions will tend to export relatively more capital-intensive (or sophisticated) goods compared with countries that have poor institutions; trade can magnify the effect of institutional quality on income, leading to greater income divergence than if countries remain in autarky. Second, using a panel of over eighty countries and twenty years of data, the authors find empirical support for their hypotheses.
    Keywords: International topics; Development economics
    JEL: F11 F15 O11 P48
    Date: 2006
  2. By: Pedro Cavalcanti Gomes Ferreira (EPGE/FGV); Carlos Hamilton Vasconcelos Araújo (Banco Central do Brasil)
    Date: 2006–03
  3. By: Stephan Klasen (Universität Göttingen)
    Abstract: This paper addresses two issues concerning the measurement of pro‐poor growth, a central concept for sustainable poverty reduction in developing countries. First, it attempts to clarify the debates about the definition and measurement of pro poor growth distinguishing between a weak and a strong absolute as well as a relative definition. The relevance of each definition depends on the purpose of the analysis as well as the assumptions regarding growthinequality trade‐offs. Given the focus of existing measures of pro‐poor growth on the income dimension, the second contribution is to present ways to apply the growth incidence curve and the Ravallion‐Chen framework of measuring pro‐poor growth to non‐income indicators. The analysis, which is applied to Bolivia for illustrative purposes, shows that the extension of the propoor growth toolbox to non‐income dimensions greatly improves our understanding of the trends in non‐income indicators along the entire distribution and thus greatly increases our ability to monitor progress towards the non‐income Millennium Development Goals (particularly goals 2‐6) and assess the linkages between income and non‐income poverty along the entire distribution. This can be of critical importance for poverty monitoring as well as policy interventions including the relative merits of growth versus direct intervention to improve the non‐income dimensions of poverty.
    Keywords: Pro‐Poor Growth, Inequality, Non‐Income Poverty, Millennium Development Goals
    JEL: O12 I32
    Date: 2006–06–08
  4. By: Stephan Klasen (Universität Göttingen)
    Abstract: In this paper, we analyze the potential and limitations of macroeconomic policy to affect propoor growth in Bolivia. After discussing the possibility to use macro policy to affect pro-poor growth in general, I then turn to the case of Bolivia, a highly dualistic small open economy that undertook significant macroeconomic and structural reforms in the 1990s. We show that the growth these reforms generated was generally pro-poor in the 1990s but was not enough to achieve significant poverty reduction due to high levels of initial inequality. It also made the country more vulnerable to external shocks which forced the economy into an anti-poor contraction after 1998. Using a dynamic CGE model we demonstrate that there are only limited options for pro-poor macro policy which is particularly due to the low domestic savings rate and the high rate of dollarization of the economy. Consequently, in order to increase the options for pro-poor macro policy, the large inequality, the high dualism, the low savings rate, and high dollarization of the economy need to be addressed.
    Keywords: Pro-Poor Growth, Bolivia, CGE model, dollarization
    JEL: O1 I32 C68
    Date: 2006–06–08
  5. By: Melanie Grosse (Universität Göttingen); Kenneth Harttgen (Universität Göttingen); Stephan Klasen (Universität Göttingen)
    Abstract: In order to track progress in MDG1 and explicitly link growth, inequality, and poverty reduction, several measures of \"pro-poor growth\" have been proposed in the literature and used in applied academic and policy work. These measures, particularly the ones derived from the growth incidence curve, allow a much more detailed assessment of the distributional impact of growth and its link to poverty reduction. However, there are no corresponding measures for tracking the distribution of progress in non-income dimensions of poverty, and thus the distribution of progress towards MDGs 2-7. In this paper, we propose to extend the pro-poor growth measurement to non-income dimensions of poverty (particularly health and education). We empirically illustrate the approach for Bolivia and show that it allows a much more detailed assessment of progress towards MDGs 2-7 by focusing on the distribution of progress. Furthermore, this extension also allows an explicit assessment of the linkage between progress in MDG1 and MDGs 2-7 as well as extends traditional incidence analysis by quantifying outcomes in non-income dimensions of poverty along the income distribution.
    Keywords: Multidimensionality of Poverty, Millennium Development Goals, Pro-Poor Growth, Growth Incidence Curve, Bolivia
    JEL: D30 I30 O10 O12
    Date: 2006–06–09
  6. By: John Bennett (Brunel University); Saul Estrin (London Business School and IZA Bonn)
    Abstract: We address the impact of corruption in a developing economy in the context of an empirically relevant hold-up problem - when a foreign firm sinks an investment to provide infrastructure services. We focus on the structure of the economy’s bureaucracy, which can be centralized or decentralized, and characterize the ‘corruptibility’ of bureaucrats in each case. Results are explained in terms of the non-internalization, under decentralization, of the ‘bribe externality’ and the ‘price externality.’ In welfare terms, decentralization is favoured, relatively speaking, if the tax system is less inefficient, funding is less tight, bureaucrats are less venal, or compensation for expropriation is ungenerous.
    Keywords: corruption, bureaucratic structure, developing economy
    JEL: D73 H11 H77
    Date: 2006–06
  7. By: Paola Giuliano (International Monetary Fund and IZA Bonn); Marta Ruiz-Arranz (International Monetary Fund)
    Abstract: Despite the increasing importance of remittances in total international capital flows, the relationship between remittances and growth has not been adequately studied. This paper studies one of the links between remittances and growth, in particular how local financial sector development influences a country’s capacity to take advantage of remittances Using a newly-constructed dataset for remittances covering about 100 developing countries, we find that remittances boost growth in countries with less developed financial systems by providing an alternative way to finance investment and helping overcome liquidity constraints. The study also explores some common myths about remittances and suggests that they are predominantly profit-driven and mostly pro-cyclical.
    Keywords: remittances, financial development, growth
    JEL: F22 F43 O16
    Date: 2006–06
  8. By: Petrucci, Alberto
    Abstract: This paper investigates the allocative properties of an OLG specificfactors small open economy facing perfect capital mobility. Wealth formation, economic development and different labor market regimes are at the center-stage of the analysis. In a model with competitive wages and no unemployment, we find that exogenous shocks that do not affect human wealth —like the terms of trade and land endowment shifts— or the propensity to save, leave nonhuman wealth, consumption and aggregate labor unchanged; in such cases, capital formation is driven by the static effects exerted on sectoral labor. Disturbances that alter human wealth —like the world interest rate, and capital and labor taxation shocks— or the thrift rate, instead, affect nonhuman wealth and consumption as they involve an intergenerational redistribution of resources that modifies aggregate saving; labor hours supplied may be changed. In these circumstances, capital accumulation is the result of the consequences exerted on financial wealth and input demands. The consideration of a labor market with structural unemployment does not qualitatively affect the results, except for the world interest rate and the rate of time discount shifts. Our results differ substantially from those obtained in static and dynamic specific-factors setups with financial autharky.
    Keywords: Specific-Factors; Capital Accumulation; Land; Net Foreign Assets; Finite Horizons.
    JEL: F41 F43 O41
    Date: 2006–06–16
  9. By: Weili Ding; Steven F. Lehrer
    Abstract: Peer effects have figured prominently in debates on school vouchers, desegregation, ability tracking and anti-poverty programs. Compelling evidence of their existence remains scarce for plaguing endogeneity issues such as selection bias and the reflection problem. This paper firmly establishes a link between peer performance and student achievement, using a unique dataset from China. We find strong evidence that peer effects exist and operate in a positive and nonlinear manner; reducing the variation of peer performance increases achievement; and our semi-parametric estimates clarify the tradeoffs facing policymakers in exploiting positive peers effects to increase future achievement.
    JEL: I2 Z13 P36
    Date: 2006–06
  10. By: Diego Comin; Bart Hobiijn
    Abstract: We develop and estimate a model where technology diffusion depends on the level of productivity embodied in capital and where this is, in turn, determined by two key mechanisms: the rate at which the quality embodied in new technology vintages increases (embodiment) and the gains from varieties induced by the introduction of new vintages (variety). In our model, these two effects are related to technology adoption decisions taken at two different levels. The capital goods suppliers’ decisions of when to adopt a given vintage determines the embodiment margin. The workers’ decisions of which of the adopted vintages to use in production determines the variety margin. Estimation of our model for a sample of 19 technologies, 21 countries, and the period 1870-1998 reveals that embodied productivity growth is large for many of the technologies in our sample. On average, increases in the variety of vintages available is a more important source of growth than the increases in the embodiment margin. There is, however, substantial heterogeneity across technologies. Where adoption lags matter, they are largely determined by lack of educational attainment and lack of trade openness.
    JEL: E13 O14 O33 O41
    Date: 2006–06
  11. By: Rafael Dobado González; Aurora Gómez Galvarriato; Jeffrey G. Williamson
    Abstract: Like the rest of the poor periphery, Mexico had to deal with de-industrialization forces between 1750 and 1913, those critical 150 years when the economic gap between the industrial core and the primary-product-producing periphery widened to such huge dimensions. Yet, from independence to mid-century Mexico did better on this score than did most countries around the periphery. This paper explores the sources of Mexican exceptionalism with de-industrialization. It decomposes those sources into those attributable to productivity events in the core and to globalization forces connecting core to periphery, and to those attributable to domestic forces specific to Mexico. It uses a neo-Ricardian model (with non-tradable foodstuffs) to implement the decomposition, and advocates a price dual approach, and develops a new price and wage data base 1750-1878. There were three forces at work that account for Mexican exceptionalism: first, the terms of trade and Dutch disease effects were much weaker; second, Mexico maintained secular wage competitiveness with the core; and third, Mexico had the autonomy to devise effective ways to foster industry. The first appears to have been the most important.
    JEL: F1 N7 O2
    Date: 2006–06
  12. By: Sylvie Démurger (HIEBS, The University of Hong Kong and CNRS (France)); Martin Fournier (GATE, Université Lyon 2 (France))); Li Shi (School of Economics and Business, Beijing Normal University); Wei Zhong (Institute of Economics, Chinese Academy of Social Sciences (Beijing))
    Abstract: The massive downsizing of the state-owned sector and the concomitant impressive growth of the private sector at the end of the 1990s have altered the nature of the Chinese labor market. By bringing in more competition and market mechanisms, they have contributed to increasing labor turnover and competitiveness in market wages. Using two urban household surveys for 1995 and 2002, this paper analyzes the evolution of labor market segmentation in urban China, by applying an extended version of Oaxaca-Blinder decomposition methods. During the 7-year period, the sharp increase in earnings for all workers however shows substantial differences across ownership, economic sectors, and regions. We find strong evidence of a multi-tiered labor market along these three major lines and highlight increasing segmentation within each of the three dimensions, the gap between the privileged segments of the labor market and the most competitive segments widening over time.
    Keywords: labor market, earnings differentials, segmentation, China.
    JEL: J31 J41 P23 O53
    Date: 2006

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