nep-dev New Economics Papers
on Development
Issue of 2006‒10‒07
sixteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Economic Growth in the Very Long-Run By Oded Galor
  2. The Economics of Consanguinity By Quy-Toan Do; Sriya Iyer; Shareen Joshi
  3. Labour Market Regulation and Industrial Performance in India--A Critical Review of the Empirical Evidence By Aditya Bhattacharjea
  4. Why do Low- and High-Skill Workers Migrate? Flow Evidence from France By Dominique M. Gross; Nicolas Schmitt
  5. Successful Transition towards a Virtuous Cycle of Human Development and Economic Growth: Country Studies By Gustav Ranis; Frances Stewart
  6. Selection and Comparative Advantage in Technology Adoption By Tavneet Suri
  7. Education, Growth, and Redistribution in the Presence of Capital Flight By Debajyoti Chakrabarty
  8. The Political Economy of Democratic Governance and Economic Development Keywords: Economic Development, Democracy, Governance, Human Rights, Political Economy. By Manuel Couret Branco
  9. When Does a Developing Country Use New Technologies? By Cuong Le Van; Olivier Bruno; Bruno Masquin
  10. Growth expectations and banking system fragility in developing economies By Proto, Eugenio
  11. Does the Gravity Model Explain India's Direction of Trade? A Panel Data Approach By Bhattacharyya Ranajoy; Banerjee Tathagata
  12. Migrant Opportunity and the Educational Attainment of Youth in Rural China By Alan de Brauw; John Giles
  13. The role of agriculture in poverty reduction an empirical perspective By Christiaensen, Luc; Demery, Lionel; Kuhl, Jesper
  14. Do subsidized health programs in Armenia increase utilization among the poor? By Angel-Urdinola, Diego F.; Jain, Shweta
  15. Are capital shares higher in poor countries? Evidence from Industrial Surveys By Francisco Rodríguez; Daniel Ortega
  16. The Scorecard on Development: 25 Years of Diminished Progress By Mark Weisbrot; Dean Baker; David Rosnick

  1. By: Oded Galor
    Date: 2006
  2. By: Quy-Toan Do; Sriya Iyer; Shareen Joshi
    Abstract: The institution of consanguineous marriage - a marriage contracted between close biological relatives - has been a basic building block of many societies in different parts of the world. This paper argues that the practice of consanguinity is closely related to the practice of dowry, and that both arise in response to an agency problem between the families of a bride and a groom. When marriage contracts are incomplete, dowries transfer control rights to the party with the highest incentives to invest in a marriage. When these transactions are costly however, consanguinity can be a more appropriate response since it directly reduces the agency cost. Our model predicts that dowry transfers are less likely to be observed in consanguineous unions, and that close-kin marriages are more prevalent at both extremes of the wealth distribution. An empirical analysis using data from Bangladesh delivers results consistent with the predictions of the model, lending strong support to our theory.
    Keywords: Marriage, consanguinity, dowry, credit constraints
    JEL: J1 I1 O1
    Date: 2006–09
  3. By: Aditya Bhattacharjea (Delhi School of Economics)
    Abstract: This paper offers a critique of recent empirical studies on the impact of labour regulation on industrial performance in India. It begins with a review of earlier studies that tried to infer the effects on manufacturing employment of amendments to the Industrial Disputes Act (IDA) in 1976 and 1982 that required government permission for layoffs, retrenchments and closures, and shows that the results are ambiguous. It then criticizes the widely-used index of state-level labour regulation devised by Besley and Burgess (2004), and the econometric methodology they use to establish that excessively pro-worker regulation led to poor performance in Indian manufacturing. Several recent studies that have used their index are also surveyed. Finally, the paper reviews other evidence, pointing in a very different direction, on the actual enforcement of labour laws, labour flexibility, and industrial employment. Throughout, attention is paid to the crucial role of judicial interpretation of the IDA, which has been neglected in this literature.
    Keywords: India, industrial relations, employment protection laws, job security regulations, labor flexibility.
    JEL: J53 J68 O53
    Date: 2006–06
  4. By: Dominique M. Gross; Nicolas Schmitt
    Abstract: With a focus on the role of cultural clustering and income distribution, this paper investigates whether standard determinants influence international migration of workers to France with the same intensity across different skill levels and with or without free mobility. We find that low-skill migrants respond to most push and pull migration factors. High-skill migrants however respond only to financial incentives and cultural clustering does not matter. Migration policy is effective at controlling flows of low-skill migrants but free mobility has no impact on high-skill flows. Hence, France must rely on growing earnings and skill-premium to attract high-skill workers from high income countries.
    JEL: F22 J24 O24
    Date: 2006
  5. By: Gustav Ranis (Economic Growth Center, Yale University); Frances Stewart (Oxford University)
    Abstract: This paper explores the two-way links between Economic Growth and Human Development by examining the performance of some countries which have been successful in both dimensions and a few which have not. The specific aim is to examine the historical experience of six countries in order to determine how a system can move to a situation in which improvements in Human Development accompany and support higher rates of growth which, in turn, contribute to further improvements in Human Development as the basic societal objective.
    Keywords: Economic Growth, Human Development, Comparative Country Studies
    JEL: O11 O15 O57
    Date: 2006–09
  6. By: Tavneet Suri (Sloan School, MIT)
    Abstract: This paper examines a well known empirical puzzle in the literature on technology adoption: despite the potential of technologies to increase returns dramatically, a significant fraction of households do not use these technologies. I study the use of hybrid maize and fertilizer in Kenya, where there are persistent cross-sectional differences in aggregate adoption rates with a large fraction of households switching in and out of adoption. By allowing for selection of farmers into technology use via comparative advantage differences, I examine whether the yield returns to adopting hybrid maize vary across farmers. If so, high average returns can coexist with low returns for the marginal farmer. My findings indicate the existence of two interesting subgroups in the population. A small group of farmers has potentially high returns from adopting the technologies. Yet, they do not adopt. This lack of adoption appears to stem from supply and infrastructure constraints, such as the distance to fertilizer distributors. In addition, a larger group of farmers faces very low returns to adopting hybrid maize, but chooses to adopt. This latter group might benefit substantially from the development of newer hybrid strains to increase yields. On the whole, the stagnation in hybrid adoption does not appear to be due to constraints or irrationalities.
    Keywords: Technology, Heterogeneity, Comparative Advantage
    JEL: C33 O12 Q12
    Date: 2006–09
  7. By: Debajyoti Chakrabarty
    Abstract: We construct an overlapping generations model to study the effect of capital controls on human capital investments and the incidence of redistributive politics in a growing economy. We argue that the conventional wisdom linking higher capital controls to lower growth is reproduced only when an economy is sufficiently developed. For under-developed countries, higher capital controls are beneficial for human capital accumulation suggesting that the wisdom does not apply. In an augmented version of the model, we show that a modern sector, characterized by positive levels of investment in education, may not exist unless capital controls are sufficiently high. In particular, higher capital controls make it feasible for a modern sector to exist by lowering the threshold income level required by workers to invest in human capital. These results are consistent with recent evidence suggesting that capital account liberalization positively affects growth only after a country has achieved a certain threshold level of absorptive capacities.
    Keywords: Capital Flight, Economic Growth, Human Capital, Income Distribution, Long Term Capital Movements, Optimal Taxation
    JEL: D33 E62 F21 O19 O40
    Date: 2006–09
  8. By: Manuel Couret Branco (Department of Economics, University of Évora)
    Abstract: Pure mainstream economics, based on methodological and sociological individualism usually ignores politics; development economics, on the contrary frequently integrates social and political factors in order to explain economic progress. Within this branch of economics, politics can mainly be dealt in two different approaches. The classical and neoclassical approach takes politics essentially as an obstacle to the expression of agents’ rationality, and, therefore considers it a disturbance. A more heterodox approach of development, on the contrary, puts politics at the heart of the process, development being an economic as much as a political process. Those, like A. Sen, that take human rights, both as a means and an end to development do not separate the two processes as well. Be that as it may, and despite the opposed ways in which these approaches take politics, all consider governance, and its democratic or authoritarian character, a key factor in the development process. The main purpose of this paper is to discuss the importance of the issue of democratic governance within the development process. In the first part of the paper I will make a review of the main literature concerning the impacts of democracy on economic development and the importance of promoting democracy. In the second part of the paper the analysis will focus on the political economy of democratization, namely on the obstacles standing before democracy, and on the economic policies and reforms needed to facilitate democratization. The diagnosis states that democratization needs to deal with inequality of income distribution, with institutional design in order to overcome cultural divisions within the nations, with diversification of the sources of income and with a new economic order characterized by an erased debt burden and a more equitable distribution of the benefits of international trade.
    JEL: A10 F02 F50 F54 H11 O10 O17
    Date: 2006
  9. By: Cuong Le Van (CES - Centre d'Economie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Olivier Bruno (GREDEG - [Université de Nice Sophia-Antipolis]); Bruno Masquin (GREDEG - [Université de Nice Sophia-Antipolis])
    Abstract: We develop a model of optimal pattern of economic development that is first rooted in physical capital accumulation and then in technical progress. We study an economy where capital accumulation and<br />innovative activity take place within a two sector model. The first sector produces a consumption good using physical capital and non skilled labor. Technological progress in the consumption sector is driven by the research activity that takes place in the second sector. Research activity which produces new technologies requires technological capital<br />and skilled labor. New technologies induce an endogenous increase of the Total Factor Productivity of the consumption sector. Physical and technological capital are not substitutable while skilled and non skilled labor may be substitutable.<br />We show that under conditions on the adoption process of new technologies, the optimal strategy for a developing country consist in accumulating<br />physical capital first; postponing the importation of technological capital to the second stage of development. This result is due to<br />a threshold effect from which new technologies begin to have an impact on the productivity of the consumption sector. However, we show that<br />once a certain level of wealth is reached, it becomes optimal for the economy to import technological capital to produce new technologies.
    Keywords: capital accumulation, two sector model, technological progress, new technologies, Total Factor Productivity, skilled labor, non skilled labor
    Date: 2006–09–26
  10. By: Proto, Eugenio (University of Warwick, Department of Economics)
    Abstract: The likelihood of a banking crisis appears to be higher in fast-developing countries. An explanation is provided in a Diamond and Dybvig framework, where banks are vehicles of consumption-smoothing, offering insurance against shocks to the consumption path of consumers. The theoretical model shows that the higher consumer growth expectations, the higher the optimal level of illiquidity insurance — even if it implies higher exposure bank runs. Empirical evidence supports this result and suggests that the effect of deposit interest rates on the probability of crisis is stronger after a period of high, uniterrupted growth. Policies of providing bail-outs or deposit insurance are demonstrated to be efficient even when they increase the fragility of the banking system.
    Date: 2005–11–07
  11. By: Bhattacharyya Ranajoy; Banerjee Tathagata
    Abstract: In this paper we apply the gravity model to the panel consisting of India’s yearly bilateral trade data with all its trading partners in the second half of the twentieth century. The main conclusions that emerge from our analyses are: (1) The core gravity model can explain around 43 per cent of the fluctuations in India’s direction of trade in the second half of the twentieth century (2) India’s trade responds less than proportionally to size and more than proportionally to distance (3) Colonial heritage is still an important factor in determining India’s direction of trade at least in the second half of the twentieth century (4) India trades more with developed rather than underdeveloped countries, however (5) size has more determining influence on India’s trade than the level of development of the trading partner.
    Date: 2006–09–13
  12. By: Alan de Brauw (International Food Policy Research Institute); John Giles (Michigan State University and IZA Bonn)
    Abstract: In this paper, we investigate how reductions of barriers to migration affect the decision of middle school graduates to attend high school in rural China. Change in the cost of migration is identified using exogenous variation across counties in the timing of national identity card distribution, which made it easier for rural migrants to register as temporary residents in urban destinations. We show that timing of ID card distribution is unrelated to local rainfall shocks affecting demand for migration, and not related to proxies reflecting time-varying changes in village policy or administrative capacity. We find a robust negative relationship between migrant opportunity and high school enrollment. The mechanisms behind the negative relationship are suggested by observed increases in subsequent local and migrant non-agricultural employment of high school age young adults as the size of the current village migrant network increases.
    Keywords: migration, educational attainment, rural China
    JEL: O12 O15 J22 J24
    Date: 2006–09
  13. By: Christiaensen, Luc; Demery, Lionel; Kuhl, Jesper
    Abstract: The relative contribution of a sector to poverty reduction is shown to depend on its direct and indirect growth effects as well as its participation effect. The paper assesses how these effects compare between agriculture and non-agriculture by reviewing the literature and by analyzing cross-country national accounts and poverty data from household surveys. Special attention is given to Sub-Saharan Africa. While the direct growth effect of agriculture on poverty reduction is likely to be smaller than that of non-agriculture (though not because of inherently inferior productivity growth), the indirect growth effect of agriculture (through its linkages with nonagriculture) appears substantial and at least as large as the reverse feedback effect. The poor participate much more in growth in the agricultural sector, especially in low-income countries, resulting in much larger poverty reduction impact. Together, these findings support the overall premise that enhancing agricultural productivity is the critical entry-point in designing effective poverty reduction strategies, including in Sub-Saharan Africa. Yet, to maximize the poverty reducing effects, the right agricultural technology and investments must be pursued, underscoring the need for much more country specific analysis of the structure and institutional organization of the rural economy in designing poverty reduction strategies.
    Keywords: Rural Poverty Reduction,Pro-Poor Growth and Inequality,Economic Theory & Research,Rural Development Knowledge & Information Systems
    Date: 2006–09–01
  14. By: Angel-Urdinola, Diego F.; Jain, Shweta
    Abstract: This article analyzes the extent to which the Basic Benefit Package (BBP), a subsidized health program in Armenia, increases utilization and affordability of outpatient health care among the poor. The authors find that beneficiaries of the BBP pay approximately 45 percent less in fees for doctor visits (and display 36 percent higher outpatient utilization rates) than eligible users not receiving the BBP. However, even among BBP beneficiaries the level of outpatient health care utilization remains low. This occurs because the program mainly provides discounted fees for doctor visits, but fees do not constitute the main financial constraint for users. The authors estimate suggest that other non-fee expenditures, such as prescription medicines, constitute a more significant financial constraint and are not subsidized by the BBP. As a result, outpatient health care remains expensive even for BBP beneficiaries.
    Keywords: Health Monitoring & Evaluation,Health Systems Development & Reform,Health Economics & Finance,Population Policies,Public Sector Expenditure Analysis & Management
    Date: 2006–09–01
  15. By: Francisco Rodríguez (Economics Department, Wesleyan University); Daniel Ortega (Center for Finance, Instituto de Estudios Superiores de Administración)
    Abstract: This paper presents new evidence on the cross-country correlation between factor shares and per capita income. The evidence comes from UNIDO and OECD databases of industrial surveys designed to measure economic activity in the corporate manufacturing sector. We show that a statistically significant negative correlation is present in both data sets. The correlation is robust to controlling for methodological variations in the valuation, concept and definition of value added and labor income. It is also present within 3 and 4-digit industries. We argue that previous evidence on capital shares derived from national accounts statistics is consistent with the negative relation that we find on the industrial survey data.
    Date: 2006–09
  16. By: Mark Weisbrot; Dean Baker; David Rosnick
    Abstract: This paper examines data on economic growth and various social indicators and compares the past 25 years (1980-2005) with the prior two decades (1960-1980). The paper finds that the past 25 years in low- and middle-income countries have seen a sharp slowdown in the rate of economic growth, as well as a decline in the rate of progress on major social indicators including life expectancy and infant and child mortality. The authors conclude that economists and policy-makers should devote more effort to determining the causes of the economic and development failure of the last quarter-century.
    Keywords: economic development, growth, social indicators, growth failure, developing countries, education, health
    JEL: O10 O40 O11
    Date: 2006–09

This nep-dev issue is ©2006 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.