nep-dev New Economics Papers
on Development
Issue of 2007‒01‒02
forty-nine papers chosen by
Jeong-Joon Lee
Towson University

  1. The Political Economy of Investor Protection By Pietro Tommasino
  2. Economic growth cycles in Latin America and developing countries By Adriana Moreira Amado; Marco Flávio da Cunha Resende; Frederico G. Jayme Jr.
  3. Are Financial Distortions an Impediment to Economic Growth? Evidence from China By Alessandra Guariglia; Sandra Poncet
  4. FDI in Chinese Cities: Spillovers and Impact on Growth By Nicole Madariaga; Sandra Poncet
  5. Market Access Impact on Individual Wage: Evidence from China By Laura Hering; Sandra Poncet
  6. Longevity and Lifetime Labour Input: Data and Implications By Hazan, Moshe
  7. The Economic Lives of the Poor By Banerjee, Abhijit; Duflo, Esther
  8. Adjustment to Target Capital, Finance and Growth By Ciccone, Antonio; Papaioannou, Elias
  9. Mortality Risks, Education and Child Labour By Baland, Jean-Marie; Estevan, Fernanda
  10. Missing Women and the Price of Tea in China: The Effect of Sex-Specific Earnings on Sex Imbalance By Qian, Nancy
  11. The Long Run Health and Economic Consequences of Famine on Survivors: Evidence from China's Great Famine By Meng, Xin; Qian, Nancy
  12. Insecurity and Welfare By Fafchamps, Marcel; Minten, Bart
  13. Subjective Welfare, Isolation and Relative Consumption By Fafchamps, Marcel; Shilpi, Forhad
  14. Wage Gaps and Job Sorting in African Manufacturing By Benhassine, Najy; Fafchamps, Marcel; Söderbom, Måns
  15. Heterogeneity of Preferences, Limited Commitment and Coalitions: Empirical Evidence on the Limits to Risk Sharing in Rural Pakistan By Dubois, Pierre
  16. Lucas and Anti-Lucas Paradoxes By Causa, Orsetta; Cohen, Daniel; Soto, Marcelo
  17. The Evolution of Entrepreneurial Spirit and the Process of Development By Galor, Oded; Michalopoulos, Stelios
  18. Does openness reduce wage inequality in developing countries? A panel data analysis By Munshi, Farzana
  19. Household sector portfolio allocation in India By Sanghamitra Sahu; Arvind Virmani
  20. Role of Services in the Growth Process: A Survey By Rashmi Banga
  21. Health Insurance for the poor in India: An analytical study By Rajeev Ahuja
  22. Micro-Insurance in India: Trends and strategies for further extension By Rajeev Ahuja; Basudeb Guha-Khasnobis
  23. Non-Tariff barriers and India's exports: The case of Asean and Sri Lanka By Mohammed Saqib; Nisha Taneja
  24. Revealed comparative advantage: An analysis for India and China By Amita Batra; Zeba Khan
  25. Policy regimes, growth and poverty in India : Lessons of government failure and entrepreneurial success By Arvind Virmani
  26. Critical issues in India's services-led growth By Rashmi Banga
  27. Impact on India of Tariff & Quantitative Restrictions under WTO By Bishwanath Goldar
  28. The Role of Price and Cost Competitiveness in Apparel Exports, Post-MFA: A Review By Meenu Tewari
  29. Towards Developing Subsidy Disciplines under GATS By Rajeev Ahuja
  30. Current WTO Negotiations on Domestic Subsidies in Agriculture: Implications for India By Parthapratim Pal
  31. China's Socialist Market Economy: Lessons of Success By Arvind Virmani
  32. Higher Education in India: Seizing the Opportunity By Sanat Kaul
  33. India - Pakistan Trade By Nisha Taneja
  34. Domestic Market Integration By Arvind Virmani; Surabhi Mittal
  35. An Examination of the relationship between Health and Economic Growth By Garima Malik
  36. Rural People’s Perception of Poverty in China By Bjorn Gustafsson; Ximing Yue
  37. Persistence in Infant Mortality: Evidence for the Indian States By Wiji Arulampalam; Sonia Bhalotra
  38. Minimum Wages, Globalization and Poverty in Honduras By T. H. Gindling; Katherine Terrell
  39. The Age of Mass Migration: Economic and Institutional Determinants By Graziella Bertocchi; Chiara Strozzi
  40. Poverty, Undernutrition, and Child Mortality: Some Inter-Regional Puzzles and their Implications for Research and Policy By Stephan Klasen
  41. The Evolution of Citizenship: Economic and Institutional Determinants By Graziella Bertocchi; Chiara Strozzi
  42. A New-Growth Perspective on Non-Renewable Resources By Christian Groth
  43. Measurement and Sources of Income Inequality among Rural and Urban Households in Nigeria By Abayomi Samuel Oyekale; Adetola Ibidunni Adeoti; Tolulope Olayemi Oyekale
  44. Using Ramdomization in Development Economics Research: A Toolkit By Esther Duflo; Rachel Glennerster; Michael Kremer
  45. State-Dependent Intellectual Property Rights Policy By Daron Acemoglu; Ufuk Akcigit
  46. Rural Income Volatility and Inequality in China By John Whalley; Ximing Yue
  47. State-Owned Enterprise Behaviour Responses to Trade Reforms: Some Analytics and Numerical Simulation Results Using Chinese Data By John Whalley; Shunming Zhang
  48. Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2002 By Dean Yang
  49. A Conceptual Framework for Interpreting Recorded Human History By Douglass C North; John Joseph Wallis; Barry R. Weingast

  1. By: Pietro Tommasino (Bank of Italy)
    Abstract: Why do some countries suffer from backward financial institutions and weak corporate governance rules? We show that, even if, overall, the economy would benefit corporate governance reforms, not all the agents would stand to gain from the improvement. In particular, entrepreneurs and firms that are already well-established fear better rules, which would allow the financing of new firms and enhance competition. As a consequence, industry incumbents will try to influence the political process to block the reforms. If national political institutions are weak, these efforts are likely be successful.
    Keywords: Corporate Governance, Entry, Financial Development, Investor Protection, Politics
    JEL: G30 G38 K22 K42 L11 O16 P16
    Date: 2006–12
  2. By: Adriana Moreira Amado (UnB); Marco Flávio da Cunha Resende (Cedeplar-UFMG); Frederico G. Jayme Jr. (Cedeplar-UFMG)
    Abstract: The Minskyan approach to financial instability and its effects on the real economy have recently been revived in order to explain the exchange rate crises undergone by the so-called emergent economies. Economies of this type are characterized by repeated scarcity of foreign currency, which can be explained by using Neo-Schumpeterian theory. Based on the Minskyan approach and on the Neo-Schumpeterian literature, this study seeks to demonstrate that there is a cyclic recurrence of exchange rate crises in Latin-American (peripheral) economies. By using data on international liquidity, the balance of payments and the increase in production in the G7 economies and in thirteen Latin-American economies, it was found that the Latin-American economies reflect the cycles of international liquidity.
    Keywords: international liquidity; financial instability; cycles
    JEL: F32 F33 F43 O30
    Date: 2006–12
  3. By: Alessandra Guariglia; Sandra Poncet
    Abstract: Using data for 30 Chinese provinces over the period 1989-2003, this study examines the relationship between the level of financial intermediary development, and real GDP growth, physical capital accumulation, and total factor productivity (TFP) growth. We find that traditionally used indicators of financial development and China-specific indicators measuring the level of state interventionism in finance are generally negatively associated with growth and its sources, while indicators measuring the degree of market driven financing in the economy are positively associated with GDP and TFP growth, and capital accumulation. These effects have gradually declined over time and are weaker for high FDI recipients.
    Keywords: Financial intermediation; economic growth; capital accumulation; productivity growth; China
    JEL: E44 G21 N15 O16 O40
    Date: 2006–12
  4. By: Nicole Madariaga; Sandra Poncet
    Abstract: We study the impact of FDI on growth performance. We rely on a data set of Chinese cities between 1990 and 2002 to investigate the effects of FDI in the traditional growth regression framework using the GMM estimator for dynamic panels. Our growth model incorporates an explicit consideration of spatial dependence effects in the form of spatially lagged income and FDI. Our results reveal that Chinese cities take advantage not only of FDI flows received locally but also of FDI flows received by their neighbors.
    Keywords: Growth; regional convergence; economic geography; foreign direct investment China
    JEL: E1 O1 O5 R1
    Date: 2006–12
  5. By: Laura Hering; Sandra Poncet
    Abstract: We study the effect of geography and in particular of market access on wages by working with individual data from 56 Chinese cities in 11 different provinces. By applying the theory of the New Economic Geography on individual survey data, we contribute to the explanation of growing disparities within the country, and even within provinces. We examine to what extent proximity to markets can explain inter-individual wage heterogeneity and growing wage disparities within Chinese provinces. Using a New Economic Geography style model, we derive an econometric specification relating wages to market access. The latter is calculated as a transport cost weighted sum of the surrounding locations’ market capacities. Based on data from 1995 on around 10,000 Chinese workers, and after controlling for individual skills and factor endowments, we find that a significant fraction of inter-individual differences in terms of return to labor can be explained by the geography of access to markets. Moreover, our study investigates whether the relationship between market access and wages holds for all types of workers equally and shows that the magnitude of the impact depends on the firm type and the level of qualification.
    Keywords: Economic geography; international trade; regional integration; wage China; inequality
    JEL: F12 F15 R11 R12
    Date: 2006–12
  6. By: Hazan, Moshe
    Abstract: The Ben-Porath (1967) mechanism suggests that prolonging the period during which individuals may receive returns on their investment spurs investment in human capital and causes growth. An important, albeit implicit implication of this mechanism is that the total labour input over a lifetime must increase as longevity does. Otherwise, the incentive to invest in education would not increase. We propose an empirical evaluation of the relevance of this mechanism to the transition from 'stagnation' to 'growth' in today’s developed economies. Specifically, we estimate the expected total lifetime working hours of consecutive cohorts of American men born between 1840 and 1970. Our results show that despite a gain of more than 15 years in life expectancy at the age 5, the expected total lifetime working hours have declined by more than 20 percent between the oldest and youngest cohorts. Furthermore, the similarity in the trends and the magnitudes of the determinants of total lifetime labour input between the US and many European countries suggest that our result is not confined to the US experience; rather, it is a robust feature of the process of development. We conclude that the Ben-Porath mechanism has had no effect on the accumulation of human capital during the growth process of the nineteenth and twentieth centuries.
    Keywords: hours worked; human capital; longevity
    JEL: E20 J22 J24 J26 O11
    Date: 2006–12
  7. By: Banerjee, Abhijit; Duflo, Esther
    Abstract: This paper uses survey data from 13 countries to document the economic lives of the poor (those living on less than $2 dollar per day per capita at purchasing power parity) or the extremely poor (those living on less than $1 dollar per day). We describe their patterns of consumption and income generation as well as their access to markets and publicly provided infrastructure. The paper concludes with a discussion of some apparent anomalous choices.
    Keywords: consumption choices; development; poverty
    JEL: O10 O15 O16
    Date: 2006–12
  8. By: Ciccone, Antonio; Papaioannou, Elias
    Abstract: Does financial development result in capital being reallocated more rapidly to industries where it is most productive? We argue that if this was the case, financially developed countries should see faster growth in industries with investment opportunities due to global demand and productivity shifts. Testing this cross-industry cross-country growth implication requires proxies for (latent) global industry investment opportunities. We show that tests relying only on data from specific (benchmark) countries may yield spurious evidence for or against the hypothesis. We therefore develop an alternative approach that combines benchmark-country proxies with a proxy that does not reflect opportunities specific to a country or level of financial development. Our empirical results yield clear support for the capital reallocation hypothesis.
    Keywords: financial development; growth; investment opportunities; measurement error; sector analysis
    JEL: E23 E44 F30 G10 O40
    Date: 2006–12
  9. By: Baland, Jean-Marie; Estevan, Fernanda
    Abstract: In this paper, we investigate the role of young adult mortality on child labour and educational decisions. We argue that mortality risks are a major source of risks in returns to education in developing countries. We show that, in the absence of appropriate insurance mechanisms, the level of child labour is inefficient, but it can be too high or too low. It is too high when parents are not very altruistic or anticipate positive transfers from their children in the future. Uncertain returns to education, endogenous mortality or imperfect capital markets unambiguously increase child labour. When the level of child labour is inefficiently high, we also show that a cash transfer conditional on child's schooling can always restore efficiency regarding child labour.
    Keywords: child labour; conditional cash transfers; education; mortality risks; old-age security motive
    JEL: D13 D81 H31 I00 O12
    Date: 2006–12
  10. By: Qian, Nancy
    Abstract: Economists long have argued that the severe sex imbalance that exists in many developing countries is caused by underlying economic conditions. This paper uses plausibly exogenous increases in sex-specific agricultural income caused by post-Mao reforms in China to estimate the effects of total income and sex-specific income on sex ratios of surviving children. The results show that increasing income alone has no effect on sex ratios. In contrast, increasing female income, holding male income constant, increases survival rates for girls; increasing male income, holding female income constant, decreases survival rates for girls. Moreover, increasing the mother's income increases educational attainment for all children, while increasing the father's income decreases educational attainment for girls and has no effect on boys' educational attainment.
    Keywords: development; gender; household bargaining
    JEL: I12 J13 J16 J24 O13 O15
    Date: 2006–12
  11. By: Meng, Xin; Qian, Nancy
    Abstract: In the past century, more people have perished from famine than from the two World Wars combined. Many more were exposed to famine and survived. Yet we know almost nothing about the long run impact of famine on these survivors. This paper addresses this question by estimating the effect of childhood exposure to China's Great Famine on adult health and labor market outcomes of survivors. It resolves two major empirical difficulties: 1) data limitation in measures of famine intensity; and 2) the potential joint determination of famine occurrences and survivors' outcomes. As a measure of famine intensity, we use regional cohort size of the surviving population in a place and time when there is little migration. We then exploit a novel source of plausibly exogenous variation in famine intensity to estimate the causal effect of childhood exposure to famine on adult health, educational attainment and labor supply. The results show that exposure to famine had significant adverse effects on adult health and work capacity. The magnitude of the effect is negatively correlated with age at the onset of the famine. For example, for those who were one year old at the onset of the famine, exposure on average reduced height by 2.08% (3.34cm), weight by 6.03% (3.38kg), weight-for-height by 4% (0.01 kg/cm), upper arm circumference by 3.95% (0.99cm) and labor supply by 6.93% (3.28 hrs/week). The results also suggest that famine exposure decreased educational attainment by 3% (0.19 years); and that selection for survival decreased within-region inequality in famine stricken regions.
    Keywords: children; demographic; famine; institutions
    JEL: J1 J24 O15
    Date: 2006–12
  12. By: Fafchamps, Marcel; Minten, Bart
    Abstract: Using original survey data, we examine how insecurity affects welfare. Correcting for unobserved heterogeneity and possible endogeneity, we find an effect of insecurity on incomes, school enrolment, health status, and infant mortality. Results are robust to the inclusion of various shocks potentially affecting both welfare and insecurity. But the significance of the insecurity effect varies somewhat with the method used. We further find a significant effect of insecurity on the provision of certain public services, notably schooling and health care, and in the placement of development projects. Taken together, the evidence suggests that insecurity is an important determinant of welfare in the country studied.
    Keywords: crime; health; project placement; school enrolment
    JEL: I38 K42 O15
    Date: 2006–12
  13. By: Fafchamps, Marcel; Shilpi, Forhad
    Abstract: The recent literature has shown that subjective welfare depends on relative income. Attempts to test this relationship in poor countries have yielded conflicting results, suggesting that the relationship is not universal or only applies above a certain income level. We revisit the issue using data from Nepal. We find a relative consumption effect that is robust, strong in magnitude, and consistent across consumption expenditure categories. We find no evidence that poor households -- in a relative or absolute sense -- care less about relative consumption than more fortunate ones. Households residing far from markets care more -- not less -- about the consumption level of their neighbors, suggesting that market interaction is not what makes people care about relative consumption. Household heads having migrated out of their birth district still judge the adequacy of their consumption in comparison with households in their district of origin.
    Keywords: relative deprivation; rivalry; subjective well-being
    JEL: I31 O12
    Date: 2006–12
  14. By: Benhassine, Najy; Fafchamps, Marcel; Söderbom, Måns
    Abstract: Using matched employer-employee data from eleven African countries, we investigate if there is job sorting in African labor markets. We find that much of the wage gap correlated with education is driven by selection across occupations and firms. This is consistent with educated workers being more effective at complex tasks like labor management. In all countries the education wage gap widens rapidly at high low levels of education. Most of the education wage gap at low levels of education can be explained by selection across occupations. We also find that the education wage gap tends to be higher for women, except in Morocco where many poorly educated women work in the export garment sector. A large proportion of the gender wage gap is explained by selection into low wage occupations and firms.
    Keywords: Africa; gender wage gap; job selection; manufacturing; return to education
    JEL: J24 J31 O14
    Date: 2006–12
  15. By: Dubois, Pierre
    Abstract: In this paper, we study the determinants of the value of informal risk sharing groups. In particular, we look at the effects of heterogeneity of preferences and of limited commitment constraints that restrict feasible allocations differently if individuals can deviate form risk sharing agreements in coalitions or not. We test empirically several predictable implications in rural Pakistan taking into account the heterogeneity of households' preferences. Our results show that exogenous size of risk sharing groups can be rejected or that only imperfect risk sharing is obtained within the village because of limited commitment and because of the risk of coalition formation that needs to be deterred.
    Keywords: coalitions; insurance; limited commitment; Pakistan; risk; risk aversion
    Date: 2006–12
  16. By: Causa, Orsetta; Cohen, Daniel; Soto, Marcelo
    Abstract: The capital-output ratio is more than 40% lower in the poor countries than in the richest ones. Comparing TFP in manufacturing and in the economy at large, we show that the Balassa-Samuelson effect explains the bulk of this scarcity: TFP in manufacturing is indeed about 40% lower than TFP in the aggregate economy. This discrepancy is one for one translated into higher prices of equipment goods, which explains that capital is scarce in volume, but not in value terms. This quantifies our interpretation of the Lucas paradox. When focusing on manufacturing, a tradable sector for which relative prices differences should not be essential, the initial paradox is actually turned into an anti-Lucas paradox: it is in the poorest countries that the capital output ratio is higher.We argue that lack of productive infrastructure is essential in explaining this anti-paradox. We finally examine the role of institutional quality. We show that public capital under provision, as reflected in low levels of infrastructure stock, is the key channel through which poor institutions hamper capital accumulation
    Keywords: Lucas paradox; Total factor productivity
    JEL: O11
    Date: 2006–12
  17. By: Galor, Oded; Michalopoulos, Stelios
    Abstract: This research suggests that the evolution of entrepreneurial spirit played a significant role in the process of economic development and the evolution of inequality within and across societies. The study argues that entrepreneurial spirit evolved non-monotonically in the course of human history. In early stages of development, the rise in income generated an evolutionary advantage to entrepreneurial, growth promoting traits and their increased representation accelerated the pace of technological advancements and the process of economic development. Natural selection therefore had magnified growth promoting activities in relatively wealthier economies as well as within the upper segments of societies, enlarging the income gap within as well as across societies. In mature stages of development, however, non-entrepreneurial individuals gained an evolutionary advantage, diminishing the growth potential of advanced economies and contributing to the convergence of the intermediate level economies to the advanced ones.
    Keywords: evolution; growth; natural Selection; risk Aversion; technological progress
    JEL: J11 J13 O11 O14 O33 O40
    Date: 2006–12
  18. By: Munshi, Farzana (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper provides panel data evidence on openness and wage inequality in Bangladesh. In particular, wage equations for skilled and unskilled workers were estimated using several static and dynamic models. The results from all the estimated models indicate that openness increased real wages of unskilled workers more than that of skilled workers, suggesting a reduction in wage inequality. <p>
    Keywords: Bangladesh; openness; wage inequality; models with panel data
    JEL: C33 F14 F15 O15
    Date: 2006–12–14
  19. By: Sanghamitra Sahu (Indian Council for Research on International Economic Rela); Arvind Virmani (Indian Council for Research on International Economic Rela)
    Date: 2005–03
  20. By: Rashmi Banga (Indian Council for Research on International Economic Rela)
    Date: 2005–03
  21. By: Rajeev Ahuja (Indian Council for Research on International Economic Relations)
    Date: 2005–06
  22. By: Rajeev Ahuja (Indian Council for Research on International Economic Relations); Basudeb Guha-Khasnobis (Indian Council for Research on International Economic Relations)
    Date: 2005–06
  23. By: Mohammed Saqib (Indian Council for Research on International Economic Relations); Nisha Taneja (Indian Council for Research on International Economic Relations)
    Date: 2005–07
  24. By: Amita Batra (Indian Council for Research on International Economic Relations); Zeba Khan (Indian Council for Research on International Economic Relations)
    Date: 2005–08
  25. By: Arvind Virmani (Indian Council for Research on International Economic Relations)
    Date: 2005–10
  26. By: Rashmi Banga (Indian Council for Research on International Economic Relations)
    Date: 2005–10
  27. By: Bishwanath Goldar (Indian Council for Research on International Economic Relations)
    Date: 2005–11
  28. By: Meenu Tewari (Indian Council for Research on International Economic Relations)
    Date: 2005–11
  29. By: Rajeev Ahuja (Indian Council for Research on International Economic Relations)
    Date: 2005–11
  30. By: Parthapratim Pal (Indian Council for Research on International Economic Relations)
    Date: 2005–12
  31. By: Arvind Virmani (Indian Council for Research on International Economic Relations)
    Date: 2005–12
  32. By: Sanat Kaul (Indian Council for Research on International Economic Relations)
    Date: 2006–05
  33. By: Nisha Taneja (Indian Council for Research on International Economic Relations)
    Abstract: Quantitative studies estimate that potential two way trade between India and Pakistan can be about 10 times than its rather unsatisfactory current level of $ 613 million. Moving towards realizing this trade potential is clearly in the interest of both countries and the region. In this context this study identifies areas of trade and investment co-operation between the two countries. On the basis of a survey conducted in three cities viz., Delhi, Mumbai and Amritsar the paper examines the characteristics of firms engaged in Indo-Pakistan trade. It also estimates existing transport arrangement between the two countries and the impact of all extant non-tariff barriers. The study suggests that the most important step towards enhancing trade would be to adopt the MFN principle as the current policy inhibits trade, lacks transparency and leads to high transaction costs. The study finds that transportation links between the two countries are inadequate and suggests that new rail and road links should be opened. Transaction costs of trading between India and Pakistan are high and can be lowered by implementing some rather simple policy measures that are spelled out in the paper. The study also examines recent developments in BIMSTEC, ASEAN and in Indo-Sri Lanka and Indo-Nepal trade agreements, and draws lessons to enhance Indo-Pakistan trade.
    Keywords: South Asia, India-Pakistan trade, commercial policy, MFN
    JEL: L6 L8 F13
    Date: 2006–06
  34. By: Arvind Virmani (Indian Council for Research on International Economic Relations); Surabhi Mittal (Indian Council for Research on International Economic Relations)
    Abstract: The paper looks into the level of integration of commodity markets in India, across centres and states using consumer price data. It measures the extent to which domestic markets for goods in India are integrated, and recommends policy options to facilitate integration. The paper addresses questions: Are domestic markets for goods integrated across states? Has market integration increased over time? What are the policy options to facilitate integration? The paper tests the methodology proposed by Bradford and Lawrence (2004) on the consumer prices of goods in major states across India. This is then repeated using consumer price data at two points in time (1994 and 2004), allowing an assessment of whether Indian markets have integrated over time. Market integration is also tested for individual commodities across markets. The annual consumer prices for commodities were compiled from the Labour Bureau series of average monthly consumer prices of commodities for Industrial workers across 70 constituent centres in 18 states and monthly data was compiled from the Indian Labour Journal, a monthly publication from Labour Bureau, Ministry of Labour Government of India. Authors are thankful to Labour Bureau, Shimla for providing data on consumer prices at the disaggregated level. This study was commissioned by The World Bank as the background paper on market integration in The World Bank Development Policy Review: Inclusive Growth and Service Delivery: Building on India's Success. July 2006
    Keywords: Market Integration, Consumer Prices, Primary Food, Manufactured Goods, India
    JEL: E3 L22
    Date: 2006–07
  35. By: Garima Malik (Indian Council for Research on International Economic Relations)
    Abstract: This paper attempts to examine the relationship between health and economic growth. The rate of growth is measured using gross national income [GNI] and health status is measured using infant mortality rate, life expectancy rate and crude health rate. The above relationships are measured using a multivariate framework controlling for other background variables. Thus we have modelled the macroeconomic impact of health. A theoretical framework has been developed to model this linkage between health and growth and this is further tested using a regression model which tests the causality between these variables of interest. These models are tested using pooled data. We have also assumed in this analysis that these variables are affected by state-specific unobservable fixed effects, since there are other cultural, political and social factors at work here.
    Keywords: Health, Economic Growth
    JEL: C21
    Date: 2006–09
  36. By: Bjorn Gustafsson (University of Göteborg and IZA Bonn); Ximing Yue (Renmin University of China)
    Abstract: Subjective Poverty Line methodology is applied to rural China 2002 using a sample from 22 provinces. Respondents were asked two questions: one on amount of food necessary and another on amount of cash necessary for their households. The respondent’s perception of how much cash is needed varies profoundly and positively by income in the county where the respondent lives. The findings provide an argument for increasing the official poverty line for China as average household income increases. Poverty in rural China is disproportionally concentrated to the western regions and to poor counties. Most of rural China’s poverty can be attributed to households living outside classified poor areas. People living in a household with many members, those with a household head with a short education, and children face higher poverty risks than other persons.
    Keywords: China, poverty, poverty line
    JEL: I32 O15 P36
    Date: 2006–12
  37. By: Wiji Arulampalam (University of Warwick and IZA Bonn); Sonia Bhalotra (University of Bristol, CSAE, QEH and CHILD)
    Abstract: This paper investigates the high correlation in infant mortality across siblings using microdata for each of the fifteen major states of India. The main finding is that, in thirteen of the fifteen states, there is evidence of a causal effect of a child death on the risk of death of the subsequent child in the same family (a scarring effect), which is identified after controlling for observed and unobserved heterogeneity at the family level. The two states in which evidence of scarring is weak are Punjab, the richest, and Kerala, the state that is most advanced in socio-economic terms. In the other states, scarring effects are large. Indeed, the only other covariate that has a marginal effect on mortality that is as big, or bigger, than the survival status of a preceding sibling is an indicator for mothers having attained secondary or higher levels of education. These results show that policies targeted at reducing infant mortality will have social multiplier effects through helping avoid the death of subsequent siblings. The size of the scarring effect depends upon the gender of the previous child in three states, in a direction consistent with son-preference. Comparison of other covariate effects across the states offers some new insights, there being no previous research that has compared the determinants of infant mortality across the Indian states.
    Keywords: persistence, siblings, infant mortality, state dependence, scarring, unobserved heterogeneity, dynamic random effects logit, gender, India
    JEL: J1 C1 I1 O1
    Date: 2006–12
  38. By: T. H. Gindling (University of Maryland, Baltimore County); Katherine Terrell (University of Michigan, Ann Arbor and IZA Bonn)
    Abstract: To be competitive in the global economy, some argue that Latin American countries need to reduce or eliminate labor market regulations such as minimum wage legislation because they constrain job creation and hence increase poverty. On the other hand, minimum wage increases can have a direct positive impact on family income and may therefore help to reduce poverty. We take advantage of a complex minimum wage system in a poor country that has been exposed to the forces of globalization to test whether minimum wages are an effective poverty reduction tool in this environment. We find that minimum wage increases in Honduras reduce extreme poverty, with an elasticity of -0.18, and all poverty, with an elasticity of -0.10 (using the national poverty lines). These results are driven entirely by the effect on workers in large private sector firms, where minimum wage legislation is enforced. Increases in the minimum do not affect the incidence of poverty in sectors where minimum wages are not enforced (small firms) or do not apply (self-employed and public sector).
    Keywords: minimum wage, poverty, Central America, Honduras
    JEL: J23 J31 J38
    Date: 2006–12
  39. By: Graziella Bertocchi (Università di Modena e Reggio Emilia, CEPR, CHILD and IZA Bonn); Chiara Strozzi (Università di Modena e Reggio Emilia)
    Abstract: We study the determinants of 19th century mass migration with special attention to the role of institutional factors beside standard economic fundamentals. We find that economic forces associated with income and demographic differentials had a major role in the determination of this historical event, but that the quality of institutions also mattered. We evaluate separately the impact of political institutions linked to democracy and suffrage and of those institutions more specifically targeted at attracting migrants, i.e., citizenship acquisition, land distribution, and public education policies. We find that both sets of institutions contributed to this event, even after controlling for their potential endogeneity through a set of instruments exploiting colonial history and the quality of institutions inherited from the past.
    Keywords: 19th century international migration, institutions, migration policy, democracy, colonial history
    JEL: F22 P16 N33 O15 K40 F54
    Date: 2006–12
  40. By: Stephan Klasen (University of Göttingen and IZA Bonn)
    Abstract: This paper examines the relationship between measures of income poverty, undernourishment, childhood undernutrition, and child mortality in developing countries. While there is, as expected, a close aggregate correlation between these measures of deprivation, the measures generate some inter-regional paradoxes. Income poverty and child mortality is highest in Africa, but childhood undernutrition is by far the highest in South Asia, while the share of people with insufficient calories (undernourishment) is highest in the Caribbean. The paper finds that standard explanations cannot account for these interregional paradoxes, particularly the ones related to undernourishment and childhood undernutrition. The paper suggests that measurement issues related to the way undernourishment and childhood undernutrition is measured might play a significant role in affecting these inter-regional puzzles and points to implications for research and policy.
    Keywords: millennium development goals, undernutrition, child mortality, poverty
    JEL: I1 I3 O1
    Date: 2006–12
  41. By: Graziella Bertocchi (Università di Modena e Reggio Emilia, CEPR, CHILD and IZA Bonn); Chiara Strozzi (Università di Modena e Reggio Emilia)
    Abstract: We investigate the origin and evolution of the legal institution of citizenship from a political economy perspective. We compile a new data set on citizenship laws across countries of the world which documents how these institutions have evolved in the postwar period. We show that, despite a persistent impact of the original legislation, they have responded endogenously and systematically to a number of economic determinants, such as migration, the size of government, and the demographic structure of the population. Overall, a large stock of migrants decreases the probability of adoption of a mix of jus soli and jus sanguinis provisions, while it pushes jus sanguinis countries toward the adoption of jus soli elements. The welfare burden proves not to be an obstacle for a jus soli legislation, while demographic stagnation encourages the adoption of mixed and jus soli regimes. We also gauge the potential role of legal, political and cultural determinants, and find that a jus sanguinis origin is a factor of resistance to change, that a high degree of democracy promotes the adoption of jus soli elements while the instability of state borders associated with decolonization impedes it, and that cultural factors have no impact.
    Keywords: citizenship laws, international migration, legal origins, democracy, borders
    JEL: P16 K40 F22 O15
    Date: 2006–12
  42. By: Christian Groth (Department of Economics, University of Copenhagen)
    Abstract: This article reviews issues related to the incorporation of non-renewable resources in the theory of economic growth and development. As an offshoot of the new growth theory of the last two decades a series of contributions have studied endogenous technical change in relation to resource scarcity. We discuss the main approaches within this literature and consider questions like: How is the new literature related to the wave of resource economics of the 1970s? What light is thrown on the limits-to-growth issue? Does the existence of non-renewable resources have implications for the controversies within new growth theory?
    Keywords: endogenous growth; innovation; non-renewable resources; knife-edge conditions; robustness; limits to growth
    JEL: O4 Q3
    Date: 2006–10
  43. By: Abayomi Samuel Oyekale; Adetola Ibidunni Adeoti; Tolulope Olayemi Oyekale
    Abstract: Income inequality and poverty are closely related. This study decomposed income inequality in Nigeria using the Gini-decomposition, regression-based and Shapley approaches. Results show that in 2004, income inequality is higher in rural areas than in urban areas. The study also noted that employment income increases inequality while agricultural income decreases inequality. Factors suchs as urbanization, residence in the southwest zone, household size, the house head's formal education, number of time suffered from illness, engagement in a paid job, involvement in a non-farm business, formal credit and informal credit contributed to the increased income inequality. Between 1998 and 2004, income redistribution and income growth increased poverty. The study recommended that welfare enhancing programs that will benefit urban/rural poor should be identified, while better economic opportunities should be created for those in rural areas.
    Keywords: Income inequality, poverty, decomposition, economic opportunities, Nigeria
    JEL: D3 O15 O55
    Date: 2006
  44. By: Esther Duflo; Rachel Glennerster; Michael Kremer
    Abstract: This paper is a practical guide (a toolkit) for researchers, students and practitioners wishing to introduce randomization as part of a research design in the field. It first covers the rationale for the use of randomization, as a solution to selection bias and a partial solution to publication biases. Second, it discusses various ways in which randomization can be practically introduced in a field settings. Third, it discusses designs issues such as sample size requirements, stratification, level of randomization and data collection methods. Fourth, it discusses how to analyze data from randomized evaluations when there are departures from the basic framework. It reviews in particular how to handle imperfect compliance and externalities. Finally, it discusses some of the issues involved in drawing general conclusions from randomized evaluations, including the necessary use of theory as a guide when designing evaluations and interpreting results.
    JEL: C93 I0 J0 O0
    Date: 2006–12
  45. By: Daron Acemoglu; Ufuk Akcigit
    Abstract: What form of intellectual property rights (IPR) policy contributes to economic growth? Should technological followers be able to license the products of technological leaders? Should a company with a large technological lead receive the same IPR protection as a company with a more limited lead? We develop a general equilibrium framework to investigate these questions. The economy consists of many industries and firms engaged in cumulative (step-by-step) innovation. IPR policy regulates whether followers in an industry can copy the technology of the leader and also how much they have to pay to license past innovations. With full patent protection, followers can catch up to the leader in their industry either by making the same innovation(s) themselves or by making some pre-specified payments to the technological leaders. We prove the existence of a steady-state equilibrium and characterize some of its properties. We then quantitatively investigate the implications of different types of IPR policy on the equilibrium growth rate. The two major results of this exercise are as follows. First, the growth rate in the standard models used in the (growth) literature can be improved significantly by introducing a simple form of licensing. Second, we show that full patent protection is not optimal from the viewpoint of maximizing the growth rate of the economy and that the growth-maximizing policy involves state-dependent IPR protection, providing greater protection to technological leaders that are further ahead than those that are close to their followers. This form of the growth-maximizing policy is a result of the "trickle-down" effect, which implies that providing greater protection to firms that are further ahead of their followers than a certain threshold increases the R&D incentives also for all technological leaders that are less advanced than this threshold.
    JEL: L16 O31 O34 O41
    Date: 2006–12
  46. By: John Whalley; Ximing Yue
    Abstract: Available data indicates a growing urban-rural income gap (the ratio of mean urban to rural incomes) with a significant increase from around 1.8 in the late 1980's to over 3 today. These estimates do not take into account the higher volatility of rural incomes in China. Current literature based on analyses of rural income volatility in China decomposes poverty into chronic and transient components using longitudinal survey data and assesses the fraction of the Foster, Greer and Thorbecke poverty gap attributable to mean income over time being below the poverty line. Resulting estimates of 40-50 % transient poverty point to the policy conclusion that poverty may be a less serious social problem than it appears in annual data due to rural income volatility. Here we use a direct method instead to adjust rural income for volatility using a certainty equivalent income measure and recompute summary statistics for the distribution of volatility corrected incomes, including the urban-rural income gap on which much of current poverty debate in China focuses. Since an uncertain income stream is worth less in utility terms than a certain income stream we argue that heightened rural volatility increases the effective urban-rural income gap and intensifies not weakens poverty concerns. Using Chinese longitudinal rural survey data for which current decompositions can be replicated, we make adjustments for certainty equivalence of rural household income streams which not only widen the urban-rural income gap in China but also increases other distributional summary statistics. Depending upon values used for the coefficient of relative risk aversion, the measured urban-rural income gap increases by 20-30% using a certainty equivalent measure to adjust rural incomes for volatility. We also conduct similar analyses using consumption data, for which slightly larger increases occur.
    JEL: O15 O20 O53
    Date: 2006–12
  47. By: John Whalley; Shunming Zhang
    Abstract: We note the absence of prior literature on analytical structures to be used for China and other economies with extensive SOEs when evaluating behavioural responses of SOEs to trade policy and other changes. This is despite both the large empirical literature discussing the productivity effects of Chinese SOE enterprise reform, and wider policy discussion of the potential impacts of various reform initiatives. We present two simple analytical formulations of SOE behaviour in response to trade policy change with the aim of investigating how traditional competitive models of enterprise behaviour can mislead when used in policy debate. One formulation centres on SOE managerial control. In this enterprise managers are politically appointed, expect any non performing loans to be recapitalized by state banks andhence capital is centrally allocated by credit rationing. The managers are assured to maximize the size of the enterprise rather than profits since this yields maximal networking benefits to managers. This implies labour is priced at its average rather than its marginal product, and with a competitive non-manufacturing (agricultural) industry free trade is not optimal policy. The other assumes worker control of SOEs and that workers satisfice in their supply of effort to the enterprise given both fixed wage rates and enterprise employment and otherwise shirk or pursue second jobs. In this formulation the enterprise meets their budget constraint and covers costs. With leisure in the preferences of enterprise members, their leisure consumption will be implied by the satisfying behaviour of the enterprise and will be non optimal. In both model variants, implications for trade policy are different from those of a standard competitive model, and computations using models calibrated to 2003 Chinese data suggest the differences can be large.
    JEL: F00 F13 P2
    Date: 2006–12
  48. By: Dean Yang
    Abstract: How well do countries cope with the aftermath of natural disasters? In particular, do international financial flows help buffer countries in the wake of disasters? This paper focuses on hurricanes (one of the most common and destructive types of disasters), and examines the impact of hurricane exposure on resource flows to developing countries. Using meteorological data on storm paths, I construct a time-varying storm index that takes into account the fraction of a country's population exposed to storms of varying intensities. Across developing countries, greater hurricane exposure leads to large increases in foreign aid. For other types of international financial flows, the impact of hurricanes varies according to income level. In the poorer half of the sample, hurricane exposure leads to substantial increases in migrants' remittances, so that total inflows from all sources in the three years following hurricane exposure amount to roughly three-fourths of estimated damages. In the richer half of the sample, by contrast, hurricane exposure stimulates inflows of new lending from multilateral institutions, but offsetting declines in private financial flows are so large that the null hypothesis of zero damage replacement cannot be rejected.
    JEL: F21 F22 F34 F35 O19 Q54
    Date: 2006–12
  49. By: Douglass C North; John Joseph Wallis; Barry R. Weingast
    Abstract: Neither economics nor political science can explain the process of modern social development. The fact that developed societies always have developed economies and developed polities suggests that the connection between economics and politics must be a fundamental part of the development process. This paper develops an integrated theory of economics and politics. We show how, beginning 10,000 years ago, limited access social orders developed that were able to control violence, provide order, and allow greater production through specialization and exchange. Limited access orders provide order by using the political system to limit economic entry to create rents, and then using the rents to stabilize the political system and limit violence. We call this type of political economy arrangement a natural state. It appears to be the natural way that human societies are organized, even in most of the contemporary world. In contrast, a handful of developed societies have developed open access social orders. In these societies, open access and entry into economic and political organizations sustains economic and political competition. Social order is sustained by competition rather than rent-creation. The key to understanding modern social development is understanding the transition from limited to open access social orders, which only a handful of countries have managed since WWII.
    JEL: A0 K0 K22 N0 N4 N40 O1 O4 P0 P1 P16 P2
    Date: 2006–12

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