nep-dev New Economics Papers
on Development
Issue of 2006‒07‒02
29 papers chosen by
Jeong-Joon Lee
Towson University

  1. What drives liberal policies in developing countries? By Vatcharin Sirimaneetham
  2. Rough Road to Market: Institutional Barriers to Innovations in Africa By Oyelaran-Oyeyinka, Banji; Gehl Sampath, Padmashree
  3. Does the Liberalization of Trade Advance Gender Equality in Schooling and Health? By T. Paul Schultz
  4. Microfinance Games By Dean Karlan; Xavier Gine; Jonathan Morduch; Pamela Jakiela
  5. Toward the Enhanced Effectiveness of Foreign Aid By Gustav Ranis
  6. Measuring the Economic Vulnerability of Children in Developing Countries: an application to Guatemala By Fabrizia Mealli; Stephen Pudney; Furio Rosati
  7. Ethnic Fractionalization, Migration and Growth By Julian Weisbrod; Dana Schüler
  9. The Microfinance Collateralized Debt Obligation: a Modern Robin Hood? By Byström, Hans
  10. The Implications of Trade Barriers for Sectoral Diversification and Macroeconomic Stability in Developing Economies By Gabriel Srour
  11. Malaysian Capital Controls: Macroeconomics and Institutions By Simon Johnson; Todd Mitton; Kalpana Kochhar; Natalia T. Tamirisa
  12. The Dynamics of Provincial Growth in China: A Nonparametric Approach By Bulent Unel; Harm Zebregs
  13. Inequality and Growth in Rural China: Does Higher Inequality Impede Growth? By Dwayne Benjamin; Loren Brandt; John Giles
  14. Income Inequality During China's Economic Transition By Dwayne Benjamin; Loren Brandt; John Giles; Sangui Wang
  15. Water markets, demand, and cost recovery for piped water supply services : evidence from Southwest Sri Lanka By van den Berg, Caroline; Nauges, Celine
  16. Market access, supplier access, and Africa ' s manufactured exports : an analysis of the role of geography and institutions By Zeufack, Albert; Mengistae, Taye; Elbadawi, Ibrahim
  17. Linking public investment programs and SPAHD macro models : methodology and application to aid requirements By Pinto Moreira, Emmanuel; Bayraktar, Nihal; Agenor, Pierre-Richard
  18. Migration, school attainment, and child labor : evidence from rural Pakistan By Mansuri, Ghazala
  19. Migration, sex bias, and child growth in rural Pakistan By Mansuri, Ghazala
  20. Subnational fiscal sustainability analysis : what can we learn from Tamil Nadu ? By Nagarajan, Mohan; Liu, Lili; Ianchovichina, Elena
  21. Regional approaches to better standards systems By Aldaz-Carroll, Enrique
  22. Universities as drivers of the urban economies in Asia : the case of Vietnam By Tran Ngoc Ca
  23. Infrastructure and public utilities privatization in developing countries By Picard, Pierre M.; Auriol, Emmanuelle
  24. Can migration reduce educational attainment ? Evidence from Mexico By Rapopor t, Hillel; McKenzie, David
  25. Moving forward faster : trade facilitation reform and Mexican competitiveness By Mejia, Alejandro; Wilson, John S.; Soloaga, Isidro
  26. Fiscal Reform and its Firm-Level Effects in Eastern Europe and Central Asia By John E. Anderson; ;
  28. The effects of Fair Trade on marginalised producers: an impact analysis on Kenyan farmers By Leonardo Becchetti; Marco Costantino
  29. When Can the Rabble Redistribute? Democratization and Income Distribution in Low- and Middle-income Countries By Philip Nel

  1. By: Vatcharin Sirimaneetham
    Abstract: This paper investigates why governments in some developing countries have adopted more liberal policies than others. To construct a composite policy index, the paper applies a robust principal components analysis to Washington Consensus policy variables. The paper shows that income growth is higher in countries with more liberal policies. Using a Bayesian approach which addresses the model uncertainty problem, this study finds that government policies are more liberal in countries which possess right-wing or centrist governments, have greater political stability, and are former Spanish colonies. In contrast, countries which are less ethnically diverse, are former French colonies, and have a military leader tend to implement less liberal policies.
    Keywords: liberal policy, economic freedom, economic growth, Bayesian model averaging, principal components
    JEL: C10 O11 O40
    Date: 2006–06
  2. By: Oyelaran-Oyeyinka, Banji (UNU-MERIT); Gehl Sampath, Padmashree (UNU-MERIT)
    Abstract: Translating R&D and inventive efforts into a market product is characterized by significant financial skills, and the ability to overcome technical and instititonal barriers. Research into and translation of new technologies such as biotechnology products to the market requires even greater resources. This paper aims to understand the key factors that foster or hinder the complex process of translating R&D efforts into innovative products. Different pathways exist in developed countries such as firm-level efforts, the use of IPs, the spin-off of new firms that develop new products, or a mixture of these. Developing countries differ substantially in the kinds of instruments they use because of their considerably weaker institutional environment and for this reason our framework takes a systemic and institutional perspective. The paper comtributes to this issue by examining systemic institutional barriers to commercializing biotechnology in a develping context within a systems of innovation framework.
    Keywords: research and development, biotechnology, commercialization, innovation, Africa, learning, institution building
    JEL: O32 L65 O34 O17
    Date: 2006
  3. By: T. Paul Schultz (Economic Growth Center, Yale University)
    Abstract: This paper assesses the empirical relationship between the liberalization of international trade and the economic status of women. Although historically globalization is not generally linked to the advancement of women, several recent country studies find export led growth in middle and low income countries is associated with improvements in women’s employment opportunities. Does intercountry empirical evidence confirm this association across a wider range of countries, and suggest the mechanisms by which it operates? Measures of wages for men and women are an unreliable basis for study of gender inequality in many low-income countries, and thus schooling and health are analyzed here as indicators of productivity and welfare and gender gaps. For a sample of 70 countries observed at five year intervals from 1965 to 1980, tariff, quota, and foreign exchange restrictions are found to be inversely associated with trade, and with the levels of education and health, especially for women. Natural resource exports, although providing foreign exchange for imports, appear to reduce investments in schooling and health, and delay the equalization of these human capital investments between men and women. Liberalization of trade policy is consequently linked in the cross section to increased trade, to greater accumulation of human capital, and to increased gender equality.
    Keywords: Trade Liberalization, Schooling, Health, Gender Equality
    JEL: I12 J16 I21
  4. By: Dean Karlan (Economic Growth Center, Yale University); Xavier Gine (World Bank); Jonathan Morduch (New York University); Pamela Jakiela (University of California, Berkeley)
    Abstract: Microfinance has been heralded as an effective way to address imperfections in credit markets. From a theoretical perspective, however, the success of microfinance contracts has puzzling elements. In particular, the group-based mechanisms often employed are vulnerable to free-riding and collusion, although they can also reduce moral hazard and improve selection. We created an experimental economics laboratory in a large urban market in Lima, Peru and over seven months conducted eleven different games that allow us to unpack microfinance mechanisms in a systematic way. We find that risk-taking broadly conforms to predicted patterns, but that behavior is safer than optimal. The results help to explain why pioneering microfinance institutions have been moving away from group-based contracts.
    Keywords: Microfinance, Group Lending, Information Asymmetries, Contract Theory, Experimental Economics
    JEL: O12 D92 D10 D21 D82 C93
  5. By: Gustav Ranis (Economic Growth Center, Yale University)
    Abstract: At the very time that professional skepticism concerning the effectiveness of foreign aid has reached new heights, donors seem to be ready to substantially increase the volume of aid they are willing to make available. This paper attempts to address this paradox by first examining the record of aid in the past, distinguishing between cross-country regressions and select country experience. It subsequently proceeds to propose the establishment of a new modus operandi for foreign aid, based on a much more passive, bankerlike posture by donors, leavin the initiative for defining what reforms are feasible, plus the establishment of self-conditionality, to third world recipients before they approach the international community of donors.
    Keywords: Foreign Aid, Development
    JEL: O11 O19
  6. By: Fabrizia Mealli (University of Florence); Stephen Pudney (Institute for Social and Economic Research); Furio Rosati (UNICEF Innocenti Research Centre)
    Abstract: Anti-poverty policy in developing countries has focused mainly on the measurement and location of poverty and the targeting of policy towards those who are currently poor. Recently, the research effort has been extended to cover those judged to be not poor at present but vulnerable to poverty in the future. We concentrate on two aspects: inadequate education and child labor, which are closely associated with chronic poverty. We develop and apply new methods for the measurement and empirical analysis of vulnerability to future premature school leaving and/or onset of child labor. Guatemalan survey data are used for the illustrative application.
    Keywords: child labour, multi-state transition models, school drop-out, vulnerability
    Date: 2006–06
  7. By: Julian Weisbrod (Georg-August-Universität Göttingen / Germany); Dana Schüler (Georg-August-Universität Göttingen / Germany)
    Abstract: This paper has the aim of contributing to the existing research by analyzing two particular topics. First of all, we update the data set used by Alesina et al.(2003) into the 1990s to analyze the robustness of their results in a wider time range. Furthermore, we analyze whether the effect of ethnic fractionalization is the same in different regions, particularly focusing on Sub-Saharan Africa and Latin America. Secondly, we empirically investigate, if ethnic fractionalization might be positive in a nation which is ethnically diverse due to immigration. We try to distinguish between these two different kinds of ethnic fractionalization in order to determine if the result empirically indicates this multidimensionality of the index of ethnic fractionalization.
    Keywords: Growth, Ethnic Fractionalization, Migration, Cross-country Regression
    Date: 2006–06–27
  8. By: Denis H. Acclassato (LEO - Laboratoire d'économie d'Orleans - [CNRS : UMR6221] - [Université d'Orléans])
    Abstract: Microfinance institutions (MFIs) have grown fast in WAEMU surprising political decision makers. They reacted by setting up in the late 90's, a specific legislation. A legal usury rate for credits was defined fixing the borrower ceiling interest rate at 27 percent per year for microfinance institutions and 18 percent for banks. This statutory frame, fast elaborated, revealed early its incapacities and therefore, weakened structures in charge of the regulation of the sector. This structure is confronted with the difficult choice to maintain institutions outside the statutory frame or to apply a rigorous supervision and to precipitate a massive decline of MFIs. This law limits incentives to better governance, the efficiency and the flexibility expected from a good statutory frame. This paper models the behaviour of microfinance institutions in the context of interest rate ceilings and requirement of a minimal level of governance. We use comparative statics to show that a relaxation of the constraint on the usury rate does not lead necessarily to an increase of the borrower interest rate.
    Keywords: regulation, usury ; governance ; microfinance
    Date: 2006–06–26
  9. By: Byström, Hans (Department of Economics, Lund University)
    Abstract: The aim of this paper is to highlight a potentially very fruitful link between micro-entrepreneurs and the international capital markets. We discuss the role structured finance and credit derivatives could play in extending finance to micro-entrepreneurs on a much larger scale than today’s mainly non-commercial microfinance industry. The mechanisms of so called collateralized debt obligations (CDOs) are described and extended to the microfinance world. Finally, a hypothetical, but realistic, example of such a microfinance CDO (MiCDO) is used to discuss the implications of securitization and tranching of microcredits.
    Keywords: commercial microfinance; structured finance; securitization; collateralized debt obligation; MiCDO
    JEL: G15 G21 O16 R51
    Date: 2006–06–18
  10. By: Gabriel Srour
    Abstract: The paper examines the implications of lower trade barriers for sectoral diversification and macroeconomic stability in developing economies with a large primary goods sector. It shows that lower trade barriers can have ambiguous effects on macroeconomic stability. It shows also that diversification, in the form of equal distribution of resources between nonprimary sectors, may be counterproductive. In fact, investment in the nonprimary sector with lower trade barriers unambiguously enhances macroeconomic stability in a developing economy that is subject to substantial primary shocks.
    Date: 2006–03–07
  11. By: Simon Johnson; Todd Mitton; Kalpana Kochhar; Natalia T. Tamirisa
    Abstract: We analyze the capital controls imposed in Malaysia in September 1998. In macroeconomic terms, these controls neither yielded major benefits nor were costly. At the same time, the stock market interpreted the capital controls (and associated events) as favoring firms with stronger political connections, and some connected firms reportedly received advantages immediately following the crisis. Analysis of financial accounts indicates that connected firms outperformed unconnected firms before the 1997-98 crisis but not afterward. After the crisis, connected firms were either not supported as much as the market had expected or the benefits they received were not manifest in their published accounts.
    Keywords: Capital controls , Malaysia , Financial crisis , Political economy , Stock markets ,
    Date: 2006–03–07
  12. By: Bulent Unel; Harm Zebregs
    Abstract: China's growth record since the start of its economic reforms in 1978 has been extraordinary. Yet, this impressive performance has been associated with an increasing regional income disparity. We use a recently developed nonparametric approach to analyze the variation in labor productivity growth across China's provinces. This approach imposes less structure on the data than the standard growth accounting framework and allows for a breakdown of labor productivity into capital deepening, efficiency gains, and technological progress. Like other studies before us, we do not find strong evidence of convergence in labor productivity across China's provinces during 1978-98. However, our results show that provinces converged in efficiency levels, while they diverged in capital deepening and technological progress.
    Keywords: Economic growth , China , Labor productivity , Data analysis ,
    Date: 2006–03–09
  13. By: Dwayne Benjamin; Loren Brandt; John Giles
    Abstract: We explore the relationship between the level of village inequality in 1986, and the subsequent growth of household incomes from 1986 to 1999. Using a detailed household-level data set from rural China, we find robust evidence that initial inequality is negatively related to subsequent household income growth. We are able to address a number of econometric issues that affect the use of aggregate data for this exercise, especially measurement error and aggregation: Our results strongly suggest that village inequality has an external adverse impact on household-level income trajectories. However, once we account for possibly fixed village-level unobserved heterogeneity, we find no evidence that changes in inequality are correlated with household income growth: Whatever factor drives the inequality-growth relationship only operates in the “long run.” We explore several possible avenues by which initial inequality – or an unobserved variable correlated with it – affects household income growth. While we do not find the precise mechanism, our findings point toward a class of explanations based on collective choice (like the provision of public goods or determination of local taxes), and away from credit-market based explanations.
    Keywords: Inequality; Growth; Rural China; Panel Data
    JEL: O12 O15 P20
    Date: 2006–06–19
  14. By: Dwayne Benjamin; Loren Brandt; John Giles; Sangui Wang
    Abstract: This paper provides an overview of the evolution of income inequality in China from 1987 to 2002, employing three series of data sets. Our focus is on both urban and rural inequality, as well as the urban-rural gap, with the objective of summarizing several “first-order” empirical patterns concerning the trajectory of inequality through the reform period. We document significant increases of inequality within China’s urban and rural populations. In rural areas, increased inequality is primarily related to the dis-equalizing role of non-agricultural self-employment income and slow growth in agricultural income from the mid-1990s onward. Poverty persists, and tied in part to slow growth in agricultural commodity prices. In urban areas, the declining role of subsidies and entitlements, the increase in wage inequality and the layoffs during restructuring, have fueled the growth in inequality within urban areas. Poverty levels, however, are very low. We find that spatial (regional) dimensions of inequality are significant, but are much less important than commonly believed for both the urban and rural populations, and for differences between urban and rural areas. Accounting for urban-rural reclassification, which otherwise exaggerates the rising urban-rural gap, we find a relatively stable ratio of urban to rural incomes. This hides some geographical variation, however: The urban-rural gap is increasing more rapidly in interior provinces, where SOE’s had a more dominant role in economic activity in urban areas, than in coastal provinces where the non-state sector was more important earlier in the reform period.
    Keywords: China, Income Distribution; Poverty; Inequality; welfare; transition; development
    JEL: I3 P2 O1 D3
    Date: 2005–07–01
  15. By: van den Berg, Caroline; Nauges, Celine
    Abstract: In many countries water supply is a service that is seriously underpriced, especially for residential consumers. This has led to a call for setting cost recovery policies to ensure that the tariffs charged for water supply cover the full cost of providing for the service. Yet, the question arises on how consumers will react to such price increases. The authors illustrate the impact of price increases on consumption of piped water through a study of the demand for water of piped and non-piped households using cross-sectional data from 1,800 households in Southwest Sri Lanka. The (marginal) price elasticity is estimated at -0.74 for households exclusively relying on piped water, and at -0.69 for households using piped water but supplementing their supply with other water sources, with no significant differences between income groups. Those households that depend on non-piped water sources have a time cost elasticity (as a proxy for price elasticity) of only -0.06. The authors discuss the implications of these results in terms of pricing policy.
    Keywords: Town Water Supply and Sanitation,Water and Industry,Water Supply and Sanitation Governance and Institutions,Water Conservation,Water Use
    Date: 2006–06–01
  16. By: Zeufack, Albert; Mengistae, Taye; Elbadawi, Ibrahim
    Abstract: In a large cross-country sample of manufacturing establishments drawn from 188 cities, average exports per establishment are smaller for African firms than for businesses in other regions. The authors show that this is mainly because, on average, African firms face more adverse economic geography and operate in poorer institutional settings. Once they control for the quality of institutions and economic geography, what in effect is a negative African dummy disappears from the firm level exports equation they estimate. One part of the effect of geography operates through Africa ' s lower " foreign market access: " African firms are located further away from wealthier or denser potential export markets. A second occurs through the region ' s lower " supplier access: " African firms face steeper input prices, partly because of their physical distance from cheaper foreign suppliers, and partly because domestic substitutes for importable inputs are more expensive. Africa ' s poorer institutions reduce its manufactured exports directly, as well as indirectly, by lowering foreign market access and supplier access. Both geography and institutions influence average firm level exports significantly more through their effect on the number of exporters than through their impact on how much each exporter sells in foreign markets.
    Keywords: Free Trade,Markets and Market Access,Economic Theory & Research,Access to Markets,Foreign Direct Investment
    Date: 2006–06–01
  17. By: Pinto Moreira, Emmanuel; Bayraktar, Nihal; Agenor, Pierre-Richard
    Abstract: The authors propose a " bottom up " approach to link public investment programs with a class of macro models recently developed to quantify Strategy Papers for Human Development (SPAHD) in low-income countries. The methodology involves establishing constant-price projections of investment outlays (disaggregated into infrastructure, education, and health), spending on maintenance and other goods and services, salaries, and user charges. These estimates are incorporated in a SPAHD macro framework to calculate, under alternative scenarios, domestic financing, foreign borrowing, and aid requirements. The authors also evaluate the impact on growth and indicators associated with the Millennium Development Goals. They use illustrative applications, based on a SPAHD model for Niger, to highlight the link between tax reform and aid requirements.
    Keywords: Public Sector Economics & Finance,Economic Theory & Research,Public Sector Expenditure Analysis & Management,Investment and Investment Climate,Population Policies
    Date: 2006–06–01
  18. By: Mansuri, Ghazala
    Abstract: Inequalities in access to education pose a significant barrier to development. It has been argued that this reflects, in part, borrowing constraints that inhibit private investment in human capital by the poor. One promise o f the recent proposals to open international labor markets to allow for the temporary economic migration of low-skilled workers from developing to industrial countries is its potential impact on human capital accumulation by the poor. The large remittance flows from migrants to their communities of origin underscores this aspect of migration. However, migration can also transform expectations of future employment and induce changes in household structure that can exert an independent effect on the private returns to investment in human capital. The author explores the relationship between temporary economic migration and investment in child schooling. A key challenge is to deal appropriately with selection into migration. She finds that the potential positive effects of temporary economic migration on human capital accumulation are large. Moreover, the gains are much greater for girls, yielding a very substantial reduction in gender inequalities in access to education. Significantly, though, the gains appear to arise almost entirely from the greater resource flows to migrant households. The author cannot detect any effect of future migration prospects on schooling decisions. More significantly, she does not find any protective effect of migration-induced female headship on schooling outcomes for girls. Rather, female headship appears to protect boys at the cost of girls.
    Keywords: Gender and Development,Primary Education,Youth and Governance,Anthropology,Education For All
    Date: 2006–06–01
  19. By: Mansuri, Ghazala
    Abstract: Temporary economic migration is undertaken largely in response to resource constraints. This is evident in the volume of remittances sent back by migrants to their families of origin. In agricultural settings, where those left behind are likely to face considerable exposure to uninsured income risk, such resource flows should translate into better risk bearing capacity. In this paper the author takes up this question by asking whether economic migration allows households to avoid costly risk coping strategies. She focuses on early child growth since there is considerable epidemiological evidence that very young children are particularly vulnerable to shocks that lead to growth faltering, with substantial long-term health consequences. The data come from rural Pakistan, where, as in the rest of Asia, son preference is substantial and there are large gender gaps in most developmental outcomes. As such, the interest is in examining also whether migration-induced resource flows allow households to extend better nutrition and health care protection to girls. Recent work on the intra-household allocation of resources and risk has also shown that gender differences in the relative burden of risk may be important and that the allocation of resources to daughters is often one margin along which poor households adjust to uninsurable transitory income shocks. After accounting for selection into migration, the results indicate that migration has a substantially larger positive impact on growth outcomes for young girls. And the growth advantage is sustained among older girls, suggesting potential intergenerational benefits of averting nutritional and other health shocks for girls in early childhood. These results are further validated by restricting the sample to migrant households and comparing the growth outcomes of siblings before and after migration.
    Keywords: Health Monitoring & Evaluation,Anthropology,Youth and Governance,Gender and Development,Adolescent Health
    Date: 2006–06–01
  20. By: Nagarajan, Mohan; Liu, Lili; Ianchovichina, Elena
    Abstract: In the late 1990s the Indian state of Tamil Nadu experienced an unprecedented fiscal deterioration, which was part of the widespread fiscal deterioration in Indian states. This deterioration was troubling because current expenditure outgrew total revenue, leaving little fiscal space for infrastructure spending. The paper presents a framework for subnational fiscal sustainability analysis and applies it to Tamil Nadu where subsequent fiscal adjustment has been ambitious and politically challenging, but has promised to put state finance on a sustainable path and create fiscal space for infrastructure investment. The paper emphasizes the differences between fiscal sustainability analysis at the national and subnational levels, attempts to take into account uncertainty, and discusses the key components of the state ' s fiscal accounts and how they respond to reforms and shocks. Risks to Tamil Nadu ' s fiscal outlook include interest rate shocks, pressures on the primary balance, and contingent liabilities. Though the state ' s efforts to remove constraints to economic growth, minimize recurrent expenditures and maximize its revenue potential will be critical for fiscal sustainability, national policies feature prominently in subnational fiscal adjustment. Tamil Nadu ' s quest for fiscal sustainability is relevant for other countries. Decentralization has given subnational governments in developing countries significant spending and taxation responsibilities, and the capacity to incur debt. The fiscal stress of the Indian states echoed the fiscal crises of subnational governments in several other major emerging economies.
    Keywords: Banks & Banking Reform,Fiscal Adjustment,Public Sector Economics & Finance,Economic Theory & Research,Economic Stabilization
    Date: 2006–06–01
  21. By: Aldaz-Carroll, Enrique
    Abstract: Developing countries face an increasing need to upgrade the standards of their domestic markets and of their exports. This paper examines different approaches available to them for upgrading their standards and conformity assessment procedures. It focuses particularly on those followed within the context of regional trade agreements (RTAs), as these are yielding promising results. Based on interviews performed in Latin America and on previous literature, the paper draws common features of a RTA standard and conformity assessment upgrading and harmonization process, identifies some of its main challenges, and suggests principles that developing countries could follow in such a process.
    Keywords: Trade and Regional Integration,Environmental Economics & Policies,Public Sector Regulation,Standards and Technical Regulations,Administrative & Regulatory Law
    Date: 2006–06–01
  22. By: Tran Ngoc Ca
    Abstract: This study looks at the contribution of the university system in Vietnam to the socioeconomic development in general, and their relationship with firms, dynamic actors of the economy in particular. The study uses different methods of research, from reliance on secondary data to interviews with universities and survey of firms. Several case studies of the key universities in four regions have been undertaken: Hanoi in the north, Danang in the center, and Ho Chi Minh City and Cantho in the south of Vietnam. The findings show that the role of Vietnamese universities in research is much weaker than teaching, and that their contribution to the socioeconomic development of the country is limited to the production of an educated labor force rather than innovation. However, in selected universities, innovation did take place to a certain extent and brought benefits for both the universities and firms they served. This situation is explained by both the inherited university system in Vietnam and its shift in behavior in the context of economic renovation and globalization.
    Keywords: Tertiary Education,ICT Policy and Strategies,Agricultural Knowledge & Information Systems,Rural Development Knowledge & Information Systems,Access & Equity in Basic Education
    Date: 2006–06–01
  23. By: Picard, Pierre M.; Auriol, Emmanuelle
    Abstract: The paper analyzes governments ' tradeoff between fiscal benefits and consumer surplus in privatization reforms of noncompetitive industries in developing countries. Under privatization, the control rights are transferred to private interests so that public subsidies decline. This benefit for tax-payers comes at the cost of price increases for consumers. In developing countries, tight budget constraints imply that privatization may be optimal for low profitability segments. For highly profitable public utilities, the combination of allocative inefficiency and critical budgetary conditions may favor public ownership. Finally, once a market segment gives room for more than one firm, governments prefer to regulate the industry. In the absence of a credible regulatory agency, regulation is achieved through public ownership.
    Keywords: Economic Theory & Research,Public Sector Economics & Finance,Privatization,Markets and Market Access,State Owned Enterprise Reform
    Date: 2006–06–01
  24. By: Rapopor t, Hillel; McKenzie, David
    Abstract: The authors examine the impact of migration on educational attainment in rural Mexico. Using historical migration rates by state to instrument for current migration, they find evidence of a significant negative effect of migration on schooling attendance and attainment of 12 to 18 year-old boys and 16 to 18 year-old girls. IV-Censored Ordered Probit results show that living in a migrant household lowers the chances of boys completing junior high school and of boys and girls completing high school. The negative effect of migration on schooling is somewhat mitigated for younger girls with low educated mothers, which is consistent with remittances relaxing credit constraints on education investment for the very poor. However, for the majority of rural Mexican children, family migration depresses educational attainment. Comparison of the marginal effects of migration on school attendance and on participation in other activities shows that the observed decrease in schooling of 16 to 18 year-olds is accounted for by the current migration of boys and increased housework for girls.
    Keywords: Education For All,Primary Education,Teaching and Learning,Anthropology,Child Labor
    Date: 2006–06–01
  25. By: Mejia, Alejandro; Wilson, John S.; Soloaga, Isidro
    Abstract: Improved competitiveness is at the top of the agenda for Mexico as it moves to leverage economic progress made over the past decade. The authors evaluate the impact of changes in trade facilitation measures on trade for main industrial sectors in Mexico. They use four indicators of trade facilitation: port efficiency, customs environment, regulatory environment, and e-commerce use by business (as a proxy for service sector infrastructure). The authors use gravity model results to consider how much trade among countries might be increased under various scenarios of improved trade facilitation. They follow a simulation strategy that uses a formula to design a unique program of reform for each country in the sample, and apply it to the case of Mexico. The formula brings the below-average countries in the group half-way to the average for the entire set of countries. After simulating these improvements in trade facilitation in all four areas, the authors find that the total increase in trade flow in manufacturing goods is estimated to be $348.2 billion (about 7.4 percent of total world trade). The analysis indicates that Mexico has a large scope for trade promotion from trade facilitation reform: overall increments from domestic reforms are expected to be on the order of $31.8 billion, equivalent to 22.4 percent of total Mexican manufacturing exports for 2000-03. On the imports side, these figures are $17.1 billion and 11.2 percent, respectively. In total exports as well as in textiles, increases in exports result from improvements in port efficiency and the regulatory environment (that is, the perception of corruption). In turn, exports of transport equipment are expected to get a greater increment from improvements in port efficiency, whereas exports of food and machinery seem to be more related to improvements in the regulatory environment. On the imports side, Mexican improvements in port efficiency appear to be the most important factor, although for imports of transport equipment improvements in service sector infrastructure are also of relative importance.
    Keywords: Free Trade,Trade Policy,Economic Theory & Research,Common Carriers Industry,Transport and Trade Logistics
    Date: 2006–06–01
  26. By: John E. Anderson; ;
    Abstract: This paper reports the first empirical evidence that fiscal reform efforts in transition countries have positive effects. Using the EBRD BEEPS I and II data, reported in 1999 and 2002, rigorous econometric models are estimated showing that the share of bribes paid to tax collectors is reduced in countries with more extensive fiscal reforms. This effect controls for selection bias in the likelihood that firms are required to make unofficial payments to tax authorities. On the basis of this evidence, we now have some confidence in the success of fiscal reform efforts. In addition, we have insight regarding what forms of fiscal reform may be more successful as the share of revenues generated from direct taxes (both personal and corporate) has an impact on tax bribes.
    Keywords: Fiscal reform, Bribery, Transition economies, Eastern Europe, Central Asia
    JEL: C21 H25 O23 O52
    Date: 2005–08–01
  27. By: Valentina Hartarska; Steven B. Caudill; Daniel M. Gropper
    Abstract: Microfinance institutions are important, particularly in developing countries, because they expand the frontier of financial intermediation by providing loans to those traditionally excluded from formal financial markets. This paper presents the first systematic statistical examination of the performance of MFIs operating in Eastern Europe and Central Asia. A cost function is estimated for MFIs in the region from 1999-2004. First, the presence of subsidies is found to be associated with higher MFI costs. When output is measured as the number of loans made, we find that MFIs become more efficient over time and that MFIs involved in the provision of group loans and loans to women have lower costs. However, when output is measured as volume of loans rather than their number, this last finding is reversed. This may be due to the fact that such loans are smaller in size; thus for a given volume more loans must be made.
    Keywords: Eastern Europe, banking, microfinance, efficiency
    JEL: G20 G21 O16
    Date: 2006–01–01
  28. By: Leonardo Becchetti (Economics Department, University of Rome “Tor Vergata”); Marco Costantino (FORMEZ, Rome)
    Abstract: We analyse the impact of Fair Trade (FT) affiliation on monetary and non monetary measures of well-being on a sample of Kenyan farmers. Our econometric findings document significant differences in terms of price satisfaction, monthly household food consumption, (self declared) income satisfaction, dietary quality and child mortality for Fair Trade and Meru Herbs (first level local producers organisation) affiliated with respect to a control sample. Methodological problems such as the FT vis à vis Meru Herbs relative contribution, control sample bias, FT and Meru Herb selection biases are discussed and addressed. After reconstructing the dynamics of human capital investment in the observed households we show that affiliation to the younger vintage FT project is associated to a significantly higher schooling investment.
    Keywords: impact analysis, child labour, fair trade, monetary and non monetary wellbeing
    JEL: O19 O22 D64
    Date: 2006
  29. By: Philip Nel (Department of Political Studies, University of Otago)
    Abstract: In contrast to the experience in high-income OECD countries, the introduction of democracy in most low- and middle-income countries (LMICs) has been followed, as a rule, by a concentration of income. Using the median voter hypothesis as analytical tool, this paper explores the conditions under which positive regime change can lead to the mitigation of income inequality in LMICs. Analysis of panel data over the period 1960 to 1999 supports the contention that the degree to which popular sovereignty had been institutionalised through regime change is an important condition. Contrary to mainstream theory, economic openness in general tends to increase and not mitigate income inequality in countries where skilled labour is in short supply. Only in those countries with the requisite state capacity to disseminate skills amongst their populace on a broad scale, the electorate can use the vote effectively to reduce the effects of this tendency.
    Keywords: Income distribution; redistribution; democratisation; median voter hypothesis
    JEL: C33 D31 F59 H53
    Date: 2006

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