nep-dev New Economics Papers
on Development
Issue of 2006‒12‒22
sixteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Dynastic Management By Francesco Caselli; Nicola Gennaioli
  2. Lowering Child Mortality in Poor Countries: The Power of Knowledgeable Parents By P Boone; Zhaoguo Zhan
  3. Gross Worker Flows in the Presence of Informal Labor Markets. The Mexican Experience 1987-2002 By Mariano Bosch; William Maloney
  4. Job Creation and Job Destruction in the Presence of Informal Labour Markets By Mariano Bosch
  5. The Effect of Trade Liberalization on Informality and Wages: Evidence from Mexico By Benjamin Aleman-Castilla
  6. Can migration reduce educational attainments? Depressing evidence from Mexico By David McKenzie; Hillel Rapoport
  7. Individual Attitudes towards Immigrants: Welfare-State Determinants Across Countries By Giovanni Facchini; Anna Maria Mayda
  8. Intergenerational transmission of language capital and economic outcomes By Christian Dustmann; Teresa casey
  9. Why are people more pro-trade than pro-migration? By Anna Maria Mayda
  10. Measuring International Skilled Migration: New Estimates Controlling for Age of Entry By Michel Beinea; Frédéric Docquier; Hillel Rapoport
  11. Does Trade Liberalisation Lead to Poverty Alleviation? a CGE Microsimulation Approach for Zimbabwe By Margaret Chitiga; Ramos Mabugu
  12. Impact of Structural Change in Education, Industry and Infrastructure on Income Distribution in Sri Lanka By Ramani Gunatilaka; Duangkamon Chotikapanich; Brett Inder
  13. Does Increased Access Increase Equality? Gender and Child Health Investments in India By Emily Oster
  14. Emergence and Persistence of Inefficient States By Daron Acemoglu; Davide Ticchi; Andrea Vindigni
  15. The Return to Capital in China By Chong-En Bai; Chang-Tai Hsieh; Yingyi Qian
  16. The International Migration of Knowledge Workers: When is Brain Drain Beneficial? By Peter J. Kuhn; Carol McAusland

  1. By: Francesco Caselli; Nicola Gennaioli
    Abstract: The most striking difference in corporate-governance arrangements between rich and poorcountries is that the latter rely much more heavily on the dynastic family firm, whereownership and control are passed on from one generation to the other. We argue that if theheir to the family firm has no talent for managerial decision making, dynastic management isa failure of meritocracy that reduces a firm's Total Factor Productivity. We present a simplemodel that studies the macreconomic causes and consequences of dynastic management. Inour model, the incidence of dynastic management depends, among other factors, on theimperfections of contractual enforcement. A plausible calibration suggests that, via dynasticmanagement, poor contract enforcement may be a substantial contributor to observed crosscountrydifferences in aggregate Total Factor Productivity.
    Keywords: Meritocracy, Family firms, Financial Development, TFP
    JEL: E1 E2 G1 G3 O1 O4
    Date: 2006–08
  2. By: P Boone; Zhaoguo Zhan
    Abstract: Why do over 20% of children die in some poor countries, while in others only 2% die? Weexamine this question using survey data covering 278,000 children in 45 low-income countries.We find that parents' education and a mother's propensity to seek out modern healthcare areempirically important when explaining child survival, while the prevalence of common diseases,along with infrastructure such as improved water and sanitation, are not. Using a GINIcoefficient we construct for treatment services, we find that public and private health systems are"equally unequal", that is, both tend to favor children in relatively well-off households, andneither appears superior at improving outcomes in very poor communities. These facts contrastwith a common view that a much-expanded public health sector is necessary to reduce childmortality. Instead, we believe the empirical evidence points to the essential role of parents asadvocates for their child's health. If we can provide better health knowledge and generaleducation to parents, a private healthcare sector can arise to meet demand. We provide evidencethat this alternative route to low mortality is indeed a reason behind the current success of manycountries with low child mortality, including Vietnam, Indonesia, Egypt, and the Indian state ofKerala. Finally, we calculate a realistic package of interventions that target education, healthknowledge and treatment seeking could reduce child mortality by 32%.
    JEL: I00 I1 I12 I18
    Date: 2006–10
  3. By: Mariano Bosch; William Maloney
    Abstract: This paper applies recent advances in the study of labor market dynamics to a representativedeveloping country with a large unregulated of "informal" sector, Mexico. It finds, first, that theformal salaried sector shows the same procyclical job finding rate and mildly countercyclicalseparation behavior identified in the recent US literature by Shimer (2005a) and Hall (2005). Theunregulated informal sector, however, shows reasonable acyclicality in the job finding ratecoupled with sharp countercyclical movements in the job separation rate, consistent withstandard small firm dynamics and Davis and Haltiwanger (1992 and 1999). The differentialbehavior of regulated and unregulated sectors, and the finding of relative wage rigidity in theformer, sheds suggestive light on the roots of countercyclical job finding behavior in the US.Second, the patterns of worker transitions between all sectors, formal and informal correspond tothe job-to-job dynamics observed in the US and not to the traditional idea of informalityconstituting the inferior sector of a segmented market. That said, the counter cyclical job findingin the formal sector combined with the acyclical job finding in informality does lead to the latterabsorbing relatively more labor during downturns, even as its increased separation rates drivemovements in unemployment.
    Keywords: Gross worker flows, Labor market dynamics, Informality, Developing Countries
    JEL: J41 J42 J6
    Date: 2006–10
  4. By: Mariano Bosch
    Abstract: Recessions and policy interventions in labour markets in developing countries arecharacterized not only by changes in the unemployment rate, but also by changes in theproportion of formal or protected jobs. This reallocation between formal and informal jobs islarge and occurs mainly because the job finding rate of formal jobs reacts substantially morethan the job finding rate of informal jobs. This paper presents a search and matching model tocapture this fact. I assume that firms operate the within firm margin of formality, choosing tolegalize only those matches that are good enough to compensate the costs of formality. In thisframework, recessions or stricter regulations in the labour market trigger two effects. Asexpected, they lower the incentives to post vacancies (meeting effect), but also affect thefirms' hiring standards, favouring informal contracts (offer effect). This new channel shedslight on how the actions of policy makers alter the outcomes in an economy with informaljobs. For instance, attempts to protect employment by increasing .ring costs will reallocateworkers to informal jobs, where job separation is high. They are also likely to increaseunemployment.
    Keywords: Informal economy, search models, labour markets, regulations.
    JEL: J64 H26 O17
    Date: 2006–11
  5. By: Benjamin Aleman-Castilla
    Abstract: This paper studies the impact of NAFTA on informality and real wages in Mexico. Using a dynamicindustry model with firm heterogeneity, it is predicted that import tariff elimination could reduce theincidence of informality by making more profitable to some firms to enter the formal sector, forcingthe less productive informal firms to exit the industry, and inducing the most productive formal firmsto engage in trade. The model also predicts market share reallocations towards the most productivefirms, and an increase in real wages due to the increased labour demand by these firms. Using data onMexican and U.S. import tariffs together with the Mexican National Survey of Urban Labour(ENEU), I find that reductions in the Mexican import tariffs are significantly related to reductions inthe likelihood of informality in the tradable industries. I also find that informality decreases less inindustries with higher levels of import penetration, while it decreases more in industries that arerelatively more export oriented. Finally, I confirm that the elimination of the Mexican import tariffs isrelated to an increase in real wages, and that the elimination of the U.S. import tariff has contributedto the expansion of the formal-informal wage differentials.
    Keywords: trade liberalization, informality, wage differentials
    JEL: F00 F02 F14 F15 F16 J00 J21 J23 J31
    Date: 2006–12
  6. By: David McKenzie (Development Research Group, World Bank); Hillel Rapoport (Department of Economics, Bar-Ilan University, CADRE, University of Lille II, and Stanford Center for International Development)
    Abstract: This paper examines the impact of migration on educational attainments in rural Mexico. Using historical migration rates by state to instrument for current migration, we find evidence of a significant negative effect of migration on schooling attendance and attainments of 12 to 18 year-old boys and of 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 to other activities shows that the observed decrease in schooling of 16 to 18 year olds is accounted for by current migration of boys and increases in housework for girls.
    Keywords: Migration, migrant networks, education attainments, Mexico
    JEL: O15 J61 D31
    Date: 2006–03
  7. By: Giovanni Facchini (Economics Department, University of Illinois at Urbana-Champaign); Anna Maria Mayda (Department of Economics and SFS, Georgetown University)
    Abstract: This paper analyzes welfare-state determinants of individual attitudes towards immigrants - within and across countries - and their interaction with labor-market drivers of preferences. We consider two different mechanisms through which a redistributive welfare system might adjust as a result of immigration. Under the first scenario, immigration has a larger impact on individuals at the top of the income distribution, while under the second one it is low-income individuals who are most affected through this channel. Individual attitudes are consistent with the first welfare-state scenario and with labor-market determinants of immigration attitudes. In countries where natives are on average more skilled than immigrants, individual income is negatively correlated with pro-immigration preferences, while individual skill is positively correlated with them. These relationships have the opposite signs in economies characterized by skilled migration (relative to the native population). Such results are confirmed when we exploit international differences in the characteristics of destination countries' welfare state.
    Date: 2006–05
  8. By: Christian Dustmann; Teresa casey (Department of Economics and Centre for Research and Analysis of Migration (CReAM), University College London)
    Abstract: This paper investigates the intergenerational transmission of language capital in immigrant communities from one generation to the next, and the effect of language deficiencies on the economic performance of second generation immigrants. Our analysis is based on a long panel that oversamples immigrants and that allows their children to be followed even after they have left the parental home. Our results show a significant and sizeable association between parental language fluency and that of their children, conditional on a rich set of parental and family background characteristics. We also find that language deficiencies of the children of immigrants are associated with poorer labour market outcomes for females, but not for males. There is a strong relationship between parental language fluency and labour market outcomes for females, which works through the child’s language proficiency.
    Date: 2005–09
  9. By: Anna Maria Mayda (Economics Department and School of Foreign Service, Georgetown University)
    Abstract: I analyze individual attitudes towards trade and immigration in comparative terms. I find that individuals are on average more pro-trade than pro-immigration across several countries. I identify a key source of this difference: the cleavage in trade preferences, absent in immigration attitudes, between individuals working in traded as opposed to non-traded sectors.
    Keywords: Immigration Attitudes, Trade Attitudes, Political Economy
    JEL: F22 F1 J61
    Date: 2006–07
  10. By: Michel Beinea (University of Luxemburg and Université Libre de Bruxelles); Frédéric Docquier (FNRS and IRES, Université Catholique de Louvain); Hillel Rapoport (Department of Economics, Bar-Ilan University, CADRE, Université de Lille 2, and CReAM, University College London)
    Abstract: Recent data on international skilled migration define skilled migrants according to education level independently of whether education has been acquired in the home or in the host country. In this paper we use immigrants’ age of entry as a proxy for where education has been acquired. Data on age of entry are available from a subset of receiving countries which together represent more than 3/4 of total skilled immigration to the OECD. Using these data and a simple gravity model, we estimate the age-of-entry structure of skilled immigration and propose alternative brain drain measures by excluding those arrived before age 12, 18 and 22. The results for 2000 show that on average, 68% of the global brain drain is accounted for by emigration of people aged 22 or more upon arrival (78% and 87% for the 18 and 12 year old thresholds, respectively). For some countries this indeed makes a substantial difference. However, cross-country differences are globally maintained, resulting in extremely high correlation levels between corrected and uncorrected rates. Similar results are obtained for 1990.
    Date: 2006–10
  11. By: Margaret Chitiga; Ramos Mabugu
    Abstract: A CGE microsimulation model is used to study the poverty impacts of trade liberalization in Zimbabwe. A sample of 14006 households from a 1995 household survey is individually modeled in a CGE framework. The experiment performed is a 50 percent reduction in all import tariffs. The sectors with the highest initial tariffs are the non-export agriculture sectors and the most export-intensive sectors are found in agriculture and in mining. The halving of tariffs favors export-oriented sectors, mainly in agriculture, whereas industrial sectors are hardest hit by the increased import competition. As agriculture is intensive in unskilled labor and industry is intensive in skilled labor, unskilled wages rise relative to skilled wages. The consumer prices fall and this, together with increased unskilled wages, leads to a fall in poverty. The fall in the price of manufactured food, which is consumed mainly in urban areas, coupled with the large number of unskilled workers in these urban areas, explains why poverty falls more here than in rural Zimbabwe.
    Keywords: Computable General Equilibrium, Trade Liberalisation, Microsimulation, Poverty
    JEL: C68 D31 D58 I32
    Date: 2006
  12. By: Ramani Gunatilaka; Duangkamon Chotikapanich; Brett Inder
    Abstract: Income inequality increased in Sri Lanka following trade liberalization in 1977. This study applies a semi-parametric method to investigate whether structural changes in education, industry and infrastructure access underlay the change in the distribution. The study finds that while the concentration of people shifted towards higher income ranges at every stage in the distribution between 1985 and 2002, changes in access to infrastructure triggered much of the shift. Higher levels of educational attainment also had an impact. But the middle classes appear to have benefited disproportionately more from the provision of education and infrastructure services than did the poor. The analysis recommends that such services are targeted more effectively towards those in the poorest income deciles to enable them to move out of poverty to higher income ranges.
    Keywords: Income inequality; Sri Lanka; education; infrastructure; kernel density decomposition
    JEL: D31
    Date: 2006–11
  13. By: Emily Oster
    Abstract: Policymakers often argue that increasing access to health care is one crucial avenue for decreasing gender inequality in the developing world. Although this is generally true in the cross section, time series evidence does not always point to the same conclusion. This paper analyzes the relationship between access to child health investments and gender inequality in those health investments in India. A simple theory of gender-biased parental investment suggests that gender inequality may actually be non-monotonically related to access to health investments. At low levels of availability, investment in girls and boys is low but equal; as availability increases, boys get investments first, creating inequality. As availability increases further, girls also receive investments and equality is restored. I test this theory using data on the relationship between gender balance in vaccinations and the availability of "Health Camps" in India. I find support for a non-monotonic relationship. This result may shed light on the contrast between the cross-sectional and time-series evidence on gender and development, and may provide guidance for health policy in developing countries.
    JEL: I18 J13 J16 O12
    Date: 2006–12
  14. By: Daron Acemoglu; Davide Ticchi; Andrea Vindigni
    Abstract: Inefficiencies in the bureaucratic organization of the state are often viewed as important factors in retarding economic development. Why certain societies choose or end up with such inefficient organizations has received very little attention, however. In this paper, we present a simple theory of the emergence and persistence of inefficient states. The society consists of rich and poor individuals. The rich are initially in power, but expect to transition to democracy, which will choose redistributive policies. Taxation requires the employment of bureaucrats. We show that, under certain circumstances, by choosing an inefficient state structure, the rich may be able to use patronage and capture democratic politics. This enables them to reduce the amount of redistribution and public good provision in democracy. Moreover, the inefficient state creates its own constituency and tends to persist over time. Intuitively, an inefficient state structure creates more rents for bureaucrats than would an efficient state structure. When the poor come to power in democracy, they will reform the structure of the state to make it more efficient so that higher taxes can be collected at lower cost and with lower rents for bureaucrats. Anticipating this, when the society starts out with an inefficient organization of the state, bureaucrats support the rich, who set lower taxes but also provide rents to bureaucrats. We show that in order to generate enough political support, the coalition of the rich and bureaucrats may not only choose an inefficient organization of the state, but they may further expand the size of bureaucracy so as to gain additional votes. The model shows that an equilibrium with an inefficient state is more likely to arise when there is greater inequality between the rich and the poor, when bureaucratic rents take intermediate values and when individuals are sufficiently forward-looking.
    JEL: H11 H26 H41 P16
    Date: 2006–12
  15. By: Chong-En Bai; Chang-Tai Hsieh; Yingyi Qian
    Abstract: China's investment rate is one of the highest in the world, which naturally leads one to suspect that the return to capital in China must be quite low. Using the data from China's national accounts, we estimate the rate of return to capital in China. We find that the aggregate rate of return to capital averaged 25% during 1978-1993, fell during 1993-1998, and has become flat at roughly 20% since 1998. This evidence suggests that the aggregate return to capital in China does not appear to be significantly lower than the return to capital in the rest of the world. We also find that the standard deviation of the rate of return to capital across Chinese provinces has fallen since 1978.
    JEL: E01 E22 E23 O11 O16 O53
    Date: 2006–12
  16. By: Peter J. Kuhn; Carol McAusland
    Abstract: We consider the welfare effects of the emigration of workers who produce a public good (knowledge). We distinguish between the knowledge diversion and knowledge creation effects of such emigration, and show that the remaining residents of a country can gain from emigration, even when tastes for knowledge goods exhibit a kind of 'home bias'. In contrast to existing models of beneficial brain drain (BBD), our results do not require agglomeration economies, education-related externalities, remittances, return migration, or an emigration 'lottery'. Instead, they are driven purely by the public nature of knowledge goods, combined with differences in market size that induce greater knowledge creation by emigrants abroad than at home. BBD is even more likely in the presence of weak sending-country intellectual property rights (IPRs), or when source country IPR policy is endogenized.
    JEL: F22 J61
    Date: 2006–12

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