nep-dev New Economics Papers
on Development
Issue of 2007‒01‒23
twenty-one papers chosen by
Jeong-Joon Lee
Towson University

  1. Ambiguity Aversion as a Predictor of Technology Choice: Experimental Evidence from Peru By Jim Engle-Warnick; Javier Escobal; Sonia Laszlo
  2. Schooling inequality and the rise of research By Bas Straathof
  3. The Impact of Tax Morale and Institutional Quality on the Shadow Economy By Benno Torgler; Friedrich Schneider
  4. Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis By Benno Torgler; Friedrich Schneider
  5. A Tale of Three Countries: Italian, Spanish and Swiss Manufacturing Operations in China By Valeria Gattai
  6. Migration, Risk and the Intra-Household Allocation of Labor in El Salvador By Timothy J. Halliday
  7. Caste Discrimination and Transaction Costs in the Labor Market: Evidence from Rural North India By Takahiro Ito
  8. Contracting-out of Reproductive and Child Health (RCH) Services through Mother NGO Scheme in India: Experiences and Implications By Bhat Ramesh; Maheshwari Sunil Kumar; Saha Somen
  9. Attitudes of the Youth towards Entrepreneurs and Entrepreneurship: A Cross-cultural Comparison of India and China By Goel Abhishek; Vohra Neharika; Zhang Liyan; Arora Bhupinder
  10. Provision of Reproductive Health Services to Urban Poor through Public-Private Partnerships: The Case of Andhra Pradesh Urban Health Care Project By Bhat Ramesh; Mavalankar Dileep; Maheshwari Sunil; Saha Somen
  11. Finance and Development: is Schumpeter’s Analysis still relevant? By Bertocco Giancarlo
  12. How Does Foreign Direct Investment Promote Economic Growth? Exploring the Effects of Financial Markets on Linkages By Areendam Chanda; Lee A. Craig; Julianne Treme
  13. Economic Growth with Constraints on Tax Revenues and Public Debt: Implications for Fiscal Policy and Cross-Country Differences By Joshua Aizenman; Kenneth Kletzer; Brian Pinto
  14. Outsourcing Tariff Evasion: A New Explanation for Entrepot Trade By Raymond Fisman; Peter Moustakerski; Shang-Jin Wei
  15. Foreign Direct Investment in Brazil and Home Country Risk By Luís Francisco Aguiar-Conraria; Gulamhussen, Mohamed Azzim
  16. Student Achievement Conditioned Upon School Selection: Religious and Secular Secondary School Quality in Bangladesh By Mohammad Niaz Asadullah (Reading University), Nazmul Chaudhury (World Bank) and Amit Dar (World Bank)
  17. Why doesn't Luxembourg export all its capital to India By Bart Taub; Rui Zhao
  18. Globalization, Economic policy and Employment: Poverty and Gender Implications By James Heintz
  19. Network Externalities and Durable Goods Consumption: A Test Using Televisions in Rural China By Zhao Rong; Peter Thompson
  20. Economic Growth and Poverty: Does Formalisation of Informal Enterprises Matter? By Kappel, Robert; Ishengoma, Esther K.
  21. Financing basic education in Bangladesh By Al-Samarrai, Samer

  1. By: Jim Engle-Warnick; Javier Escobal; Sonia Laszlo
    Abstract: The lack of adoption of new farming technologies despite known benefis is a well-documented phenomenon in development economics. In addition to a number of market constraints, risk aversion predominates the discussion of behavioral determinants of technology adoption. We hypothesize that ambiguity aversion may also be a determinant, since farmers may have less information about the distribution of yield outcomes from new technologies compared with traditional technologies. We test this hypothesis with a laboratory experiment in the field in which we measure risk and ambiguity preferences. We combine our experiment with a survey in which we collect information on farm decisions and identify market constraints. We find that ambiguity aversion does indeed predict actual technology choices on the farm. <P>Un phénomène bien documenté en économie du développement est le nombre peu élevé d’agriculteurs qui décident d’adopter de nouvelles technologies en agriculture, malgré leurs avantages connus. En plus des nombreuses contraintes imposées par le marché, l’aversion au risque prédomine la discussion sur les déterminants de l’adoption de nouvelles technologies. Nous émettons l’hypothèse que l’aversion à l’ambiguïté pourrait aussi être un déterminant puisqu’il est possible que les agriculteurs aient moins d’information sur la distribution du rendement des nouvelles technologies que sur celle des technologies traditionnelles. Nous testons la validité de cette hypothèse avec une expérience en laboratoire sur le terrain où nous mesurons les préférences vis-à-vis du risque et de l’ambiguïté. Nous combinons notre expérience à un sondage portant sur les décisions prises en matière d’agriculture et identifiant les contraintes du marché. Nous constatons qu’effectivement, l’aversion à l’ambiguïté dicte les choix technologiques réels relatifs à la ferme.
    Keywords: experimental economics, risk measurement instruments, risk preferences, rural development, technology choice, choix technologiques, développement rural, économie expérimentale, instruments de mesure du risque, préférences vis-à-vis du risque
    JEL: O33 O18 C91
    Date: 2007–01–01
  2. By: Bas Straathof
    Abstract: During the last twenty years the share of researchers in the workforce has been rising in OECD countries. In the same period, the distribution of schooling has become more equal. This paper proposes that the rise in the proportion of researchers is caused by the decline in schooling inequality. In particular, comparative static analysis of a semi-endogenous growth model demonstrates that a rising proportion of researchers can be a steady state phenomenon when schooling inequality is declining over time. This outcome can be accompanied by a rise in the wages of high-skilled labor compared to low-skilled labor.
    Keywords: Schooling inequality; Economic growth; Skill premium
    JEL: O40 I20 J24
    Date: 2006–12
  3. By: Benno Torgler; Friedrich Schneider
    Abstract: This paper analyses how tax morale and countries’ institutional quality affect the shadow economy, controlling in a multivariate analysis for a variety of potential factors. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. Relatively new available data sources offer the unique opportunity to shed more light in the understanding of a topic that has received an increased attention. We find strong support that a higher tax morale and a higher institutional quality lead to a smaller shadow economy.
    Keywords: Shadow economy; tax morale; institutional quality; government intervention; corruption.
    JEL: D73 D78 H2 H26 O17 O5
    Date: 2007–01
  4. By: Benno Torgler; Friedrich Schneider
    Abstract: This paper analyses how governance or institutional quality and tax morale affect the shadow economy, using an international country panel and also within country data. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. However, the limited number of investigations use cross-sectional country data with a relatively small number of observations, and hardly any paper has investigated tax morale and provides evidence using within country data. Using more than 25 proxies that measure governance and institutional quality we find strong support that its increase leads to a smaller shadow economy. Moreover, an increase in tax morale reduces the size of the shadow economy.
    Keywords: Shadow economy; tax morale; governance quality; government intervention; corruption.
    JEL: D73 D78 H2 H26 O17 O5
    Date: 2007–01
  5. By: Valeria Gattai (Bocconi University and ISESAO)
    Abstract: In this paper we investigate the choice of FDI versus joint-venture, made by Italian, Spanish and Swiss multinationals in China, as shaped by the risk of Dissipation of Intangible Assets. Probit estimates, based on an entirely new firm-level dataset, constructed by the author, show that FDI is more likely to emerge when know-how easily spills over - namely for firms endowed with more Intangible Assets or belonging to high tech sectors - in line with the theoretical expectations.
    Keywords: Intangible Assets, Internalisation, FDI, Joint-venture, China
    JEL: F23 C25 O53
    Date: 2006–12
  6. By: Timothy J. Halliday (Department of Economics, University of Hawaii at Manoa; John A. Burns School of Medicine)
    Abstract: We investigate how the gender composition of migrant flows and the intra-household allocation of labor are employed as risk-coping strategies in El Salvador. We show that agricultural productivity shocks primarily increased male migration to the US and, at the same time, increased the number of hours that the household devoted to agricultural activities. In contrast, damage sustained from the 2001 earthquakes exclusively stunted female migration. We argue that the reasons for this were that the earthquakes increased the demand for home production and that the costs of retaining women at home in the disaster's wake were lower than for men.
    Date: 2007–01–04
  7. By: Takahiro Ito
    Abstract: This paper is an empirical attempt to quantify caste-based discrimination in the labor market using household data taken from rural North India. In the regression analysis, transaction costs associated with entry into the labor market and reservation wages are estimated along with market wages. The estimation results provide evidence of the existence of transaction costs in the labor market and discrimination against backward classes with regard to access to regular employment. In line with previous studies, the results suggest that the achievements of India's reservation policy so far have at best been limited. In addition, a comparison between the estimates from the model employed in this paper and conventional (reduced-form) approaches shows that discrimination in labor market entry is likely to be underestimated in the conventional reduced-form approaches.
    Keywords: regular employment, casual employment, labor market, India
    JEL: D23 J22 J24 J71
    Date: 2007–01
  8. By: Bhat Ramesh; Maheshwari Sunil Kumar; Saha Somen
    Abstract: Partnership with NGOs in delivering and provision of Reproductive and Child Health (RCH) services through mother NGO (MNGO) in the un-served and under-served regions is one of the important initiatives in India. The scheme involves large number of contracts between government and the NGOs. As of April 2006, 215 MNGOs were working in 324 districts of the country. In addition to this there are about 3 to 4 Field NGOs attached with each MNGO in a district. This paper discusses this scheme with an objective to understand the make up of the partnership and the development of management capacity in the system. MNGO scheme is a central sponsored scheme. This scheme faces management challenge to implement it in all states in India. Further, the case study of three states presented in this paper suggests that this challenge emanates several factors. Inter alia, these include delay and uncertainty of funding and contract renewal, lack of partnership orientation in the scheme, lack of trust among the key stakeholders, capacity constrain in the district and state health system, weak monitoring system, procedural delays and multiple points of authority and reporting relationships. It is also observed that the capacity of field NGOs to deliver in the programme is constrained due to non-availability of financial and human resources. The scheme demands a strong leadership at local levels and ownership from the state health system. This can be achieved through effective decentralisation, flexibility in decision-making and creating adequate accountability systems. Regional Resource Centres has to play an important role in coordination between state/district RCH society and the NGOs and strengthening their capacities. The central government instead of focusing on micro-management of the scheme at state level should focus on developing and strengthening the enabling environment and capacity of various stakeholders to implement the scheme. Also, they need to address various systemic issues including development of accountable and performance oriented system, ensuring financial autonomy and decentralisation, delegation of authority, building trust and accountability in the system, effective integration, continuity of the scheme and fostering true sense of partnership between the state and non-state sector.
    Date: 2007–01–15
  9. By: Goel Abhishek; Vohra Neharika; Zhang Liyan; Arora Bhupinder
    Abstract: This study argues that social support is an important enabler in entrepreneurial activity in a country or a region. One untested assumption in policy making on entrepreneurship development has been that all regions are equally desirous of entrepreneurial activity and one policy could address issues in all regions. It was argued that societal attitudes towards entrepreneurs and entrepreneurship are important determinants for future entrepreneurial activity. These attitudes would be impacted by the family background of an individual and entrepreneurial development in the region an individual comes from. It was hypothesized that more positive attitude would be seen in (i) people form entrepreneurial backgrounds, and (ii) entrepreneurially more developed regions. These hypotheses were tested on more than 5,000 respondents in India and China. The results for family background’s influence on attitudes found strong support in both India and China. Regional development showed stronger influence on attitude in India than in China. The findings and implications for studying attitudes and policy making are discussed.
    Keywords: Attitudes, Entrepreneurs, Entrepreneurship, Cross-cultural, India, China
    Date: 2007–01–15
  10. By: Bhat Ramesh; Mavalankar Dileep; Maheshwari Sunil; Saha Somen
    Abstract: Andhra Pradesh had initiated the Urban Slum Health Care Project to provide basic primary healthcare and family welfare services to urban poor living in slums in 2002. As of now, the project has established 192 Urban Health Centres (UHCs) in 74 municipalities of the state through contracting-out process to the NGOs. These UHCs cover population of about 3 million. State government has played pivotal role in creating capacities to monitor and supervise the functioning of these UHCs. This project was started with the World Bank support and the state has effectively managed the transition from a donor-funded project to government programme and at the same achieving demonstrable impact on health status among its target population. The scheme ensures people’s participation in management of the UHCs and placing the power for identifying the health priority in the hand of the community. The case study identifies emerging challenges in the scheme implementation relating to (a) involvement of NGOs as partners in service delivery, (b) financing and financial management system, and (c) need to reposition the UHCs in view of changing epidemiological scenario. Some of the areas needing attention to address the challenge include: need to refine the service mix to better respond to the health needs of the population served; evolving a financial management practices to increase efficiency in disbursement; motivating NGOs to actively participate in the scheme; developing management capacity and competencies of both partners; and repositioning relationship between the state and non-state actors away from a contractual basis to an effective partnership.
    Date: 2007–01–17
  11. By: Bertocco Giancarlo (Department of Economics, University of Insubria, Italy)
    Abstract: In recent years numerous studies have been published highlighting the role of financial structures in the development process of contemporary economies.1 These works represent a break with a widely-held theoretical view holding that income, wealth and economic growth are independent of the monetary and financial variables, and which thus considers money and the financial structure as neutral variables.2 In these recent studies there is always a reference to the pioneering work of Schumpeter; in many cases it is just a superficial mention, in other ones and in particular in the writings of Rajan and Zingales (2003a, 2003b, 2003c), important elements of Schumpeter’s theoretical framework are used. Hence, these works afford us an interesting opportunity to re-evaluate the importance of Schumpeter’s contribution.3 The thesis put forward in this paper is that while they do indeed highlight important elements of Schumpeter’s theory, Rajan and Zingales do not take the implications thereof into account and, furthermore, they neglect certain fundamental aspects of the Schumpeterian analysis that are closely connected with the parts that they consider. This renders their work incomplete, and prevents their analysis from achieving the coherence of Schumpeter’s theory. This paper is divided into two parts. In the first part, the most important points of the analysis of Rajan and Zingales are described; in the second part, the elements of Schumpeter’s theory that they overlook are pointed out, and it is shown that by using the Schumpeterian theoretical framework it is possible to analyse the relation between financial structure and economic system growth in a more coherent and in-depth way than the one used by Rajan and Zingales.
  12. By: Areendam Chanda; Lee A. Craig; Julianne Treme
    Abstract: Standard economic indicators suggest that the United States experienced long-run economic growth throughout the nineteenth century. However, biological indicators, including human stature, offer a different picture, rising early in the century, falling (on average) mid-century, and rising again at the end of the century. This pattern varied across geographical regions. Using a unique data set, consisting of mean adult stature by state, we test for convergence in stature among states in the nineteenth century. We find that during the period of declining mean stature, heights actually diverged. Later in the century we find a type of “negative” convergence indicating that stature among states tended to converge to a new, lower steady state. Only towards the end of the century do we find classic convergence behavior. We argue that the diversity of economic experiences across regions, e.g. urbanization, industrialization, and transportation improvements, explain this pattern of divergence and then convergence.
  13. By: Joshua Aizenman; Kenneth Kletzer; Brian Pinto
    Abstract: This paper evaluates optimal public investment and fiscal policy for countries characterized by limited tax and debt capacities. We study a non stochastic CRS endogenous growth model where public expenditure is an input in the production process, in countries where distortions and limited enforceability result in limited fiscal capacities, as captured by a maximal effective tax rate. We show how persistent differences in growth rates across countries could stem from differential public finance constraints, and differentiate between the case where the public expenditure finances the flow of recurring spending (such as law enforcement), versus the stock of tangible public infrastructure. Although the flow of public expenditure raises productivity, the government should not borrow to finance it as the resulting increase in public debt would lower welfare and the growth rate. With outstanding public debt, the optimal fiscal policy should keep the debt-to-GDP ratio constant in the economy with or without a binding constraint on tax revenues as a share of GDP - current non-durable public goods should be financed only from current revenue. With investment in the stock of public infrastructure, public sector borrowing to finance the accumulation of public capital goods may allow the economy to reach a long-run optimal growth path faster. With a binding tax capacity constraint, if the ratio of the initial public/private sector stock of capital is smaller than the sustainable balanced growth ratio, the optimal policy for the government is to purchase public capital, financed by debt, to immediately attain the sustainable ratio of public capital to private capital. The sustainable steady-state ratio is endogenous to the initial public-to-private capital ratio, the tax capacity and any exogenous debt limit (say, due to sovereign risk). With capital stock adjustment costs, these statements apply to a transition of finite duration rather than an instantaneous stock jump. With either a binding exogenous debt limit or solvency constrained borrowing, a more patient country will have a higher steady-state growth rate but a lower steady-state public-to-private capital ratio.
    JEL: F15 F43 H20 O41
    Date: 2007–01
  14. By: Raymond Fisman; Peter Moustakerski; Shang-Jin Wei
    Abstract: Traditional explanations for indirect trade through an entrepot have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepots may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses based on existing explanations for entrepot trade.
    JEL: F1 O10 O17
    Date: 2007–01
  15. By: Luís Francisco Aguiar-Conraria (Universidade do Minho - NIPE); Gulamhussen, Mohamed Azzim (ISCTE BUSINESS SCHOOL)
    Abstract: This study looks into the factors that explain foreign direct investment in Brazil by country of origin of investment. Based on a sample of more than 100 countries that invested and have not yet invested in Brazil, multiple estimation techniques, such as the Tobit, Heckit and Probit, are used to isolate the effect of country risk on outward foreign direct investment. In sharp contrast to the findings of previous studies on the effect of home country risk on foreign investment in the United States, the findings in this paper reveal that less risky countries invest more in Brazil. These results are controlled for size of the home country, distance, trade intensity and previous investments abroad. A simple out of sample check shows that the model correctly predicts probability of investing for a large number of countries. The existing literature does not document these results.
    Keywords: Foreign Direct Investment; Country Risk; Tobit and Heckit Estimation
    JEL: F21 F3 C59
    Date: 2006
  16. By: Mohammad Niaz Asadullah (Reading University), Nazmul Chaudhury (World Bank) and Amit Dar (World Bank)
    Abstract: n this paper we present new evidence on the impact of school characteristics on secondary student achievement using a rich data set from rural Bangladesh. We deal with a potentially important selectivity issue in the South Asian context: the non-random sorting of children into madrasas (Islamic faith schools). We do so by employing a combination of fixed effects and instrumental variable estimation techniques. Our empirical results do not reveal any difference in test scores between religious and secular schools when selection into secondary school is taken into account. However, we document significant learning deficit by gender and primary school type: girls and graduates of primary madrasas have significantly lower test scores even after controlling for school and classroom-specific unobservable correlates of learning.
  17. By: Bart Taub; Rui Zhao (University of Illinois Urbana-Champaign)
    Abstract: We explore the relationship between capital accumulation, trade, and the development of property rights. In our analysis, the development of property rights is an endogenous process, driven by capital accumulation. Property rights are defined as institutions that internalize the portion of the return to capital that is otherwise treated as common property. Instituting property rights requires a multilateral agreement among agents to carry out this internalization. It can only be sustained when agents are sufficiently patient, so that the long-run benefits of sustaining agreements outweigh the short-run incentive to defect. In this model, the agents that enters the multilateral agreement are firms, whose patience is determined by the marginal product of capital. As capital grows, the marginal product of capital shrinks, and consequently patience increases. Hence property rights can be established only when capital is sufficiently abundant. Suppose there is a capital poor country, which we will label the domestic ($D$) economy, and a capital rich economy, which we label the foreign ($F$) economy. Each country has a property rights regime in place. Our focus will be on the situation in which the capital rich country has grown sufficiently so that there is enough patience to support strong property rights. At the same time, the poor country has not attained strong property rights. Our central question is the following: would the two countries consider opening to trade? If so, how would trade affect the property rights and growth in both countries?
    Keywords: Property rights, Capital accumulation, International trade
    JEL: P14 O11 C73
    Date: 2006–12–03
  18. By: James Heintz
    Abstract: <p style="MARGIN: 0in 0in 0pt" class="MsoNormal"><span style="FONT-SIZE: 8.5pt; FONT-FAMILY: 'Trebuchet MS'">When we speak of the impact of globalization on national and local economies, those economies are actually composed of a wide variety of individuals, each class of whom will be effected differently by large-scale economic forces. In this paper, produced for the U.N.'s International Labour Office, PERI Associate Director James Heintz demonstrates how global labor markets are segmented by gender and how any analysis of the impact of macroeconomic policies on growth, employment and poverty reduction needs to be undertaken with this segmentation in mind. Specifically, Heintz addresses <span style="mso-spacerun: yes"> </span>how macroeconomic policies differentially effect women's and men's employment, looking at monetary policy, trade policy, exchange rate regimes and public sector restructuring. Heintz brings his findings together in recommendations for an alternative policy framework of employment-centered, poverty-reducing development.</span></p><p></p><p style="MARGIN: 0in 0in 0pt" class="MsoNormal"><span style="FONT-SIZE: 8.5pt; FONT-FAMILY: 'Trebuchet MS'"></span></p><p></p><p style="MARGIN: 0in 0in 0pt" class="MsoNormal"><span style="FONT-SIZE: 8.5pt; FONT-FAMILY: 'Trebuchet MS'"></span></p><p></p><p></p><p> </p><p ></p><p> </p><p></p><p></p>
    Keywords: employment, poverty, gender, global integration, economic policy
    JEL: E24 F02 I3 J3
    Date: 2006
  19. By: Zhao Rong (Department of Economics, Florida International University); Peter Thompson (Department of Economics, Florida International University)
    Abstract: We document the existence of a network externality in the purchase of color television sets in rural China in which increases in ownership reduce the propensity of non-owners to purchase. We construct a model of the timing of a durable good in the presence of an externality, and test its key implications using Chinese household survey data.
    Keywords: Durables, network externalities, rural china.
    JEL: D12 R21
    Date: 2007–01
  20. By: Kappel, Robert; Ishengoma, Esther K.
    Abstract: The informal sector (IS) in developing countries plays significant roles viz., the provision of employment, incomes and supplying ignored markets. However, the working and employment conditions in the sector are still poor. Thus, its expansion and changing structures have drawn the attention of scholars and international policy makers on factors hindering its formalisation. Among the addressed factors include high costs of formalisation and lack of incentives to operate in the formal sector. To overcome these factors, various approaches have been adopted by different stakeholders. The paper assesses these approaches, factors related to informality-formality trade-off and the question of formalisation as a solution for firms’ growth. Looking at the problems faced by informal enterprises and the literature addressing options to accelerate the formalisation of informal enterprises, the paper briefly summarises the weaknesses of these approaches.
    Keywords: informal sector; small enterprises; formal and informal institutions; informality; poverty; economic growth
    JEL: O4 L5 O17 I3 E26 D21
    Date: 2006
  21. By: Al-Samarrai, Samer
    Abstract: This paper presents education finance trends for Bangladesh since 2000. It shows that while government spending on education as a proportion of national income has stagnated, it has increased in real terms. Real increases in education spending have resulted in substantial increases in per student spending in basic education. At primary, enrolment declines have reinforced these trends and in 2005 per student spending in government primary schools was 30% higher, in real terms than in 2001. Despite these increases, per student spending on education in Bangladesh remains low compared to other countries in the region and countries at similar levels of development. Levels of government funding also vary enormously across different providers of basic education although these differences do not appear to have a significant impact on education outcomes at the primary level. At secondary, there appears to be a closer correlation between levels of public funding and outcomes although the socio-economic status of student intakes also appears to play an important role. To achieve equitable access to basic education, it is important to narrow these public funding differences. However, given the comparatively low levels of funding across the basic education system it is perhaps more important to increase overall levels of funding if the quality and overall efficiency of the system is to be improved.
    Keywords: Education; education finance; Bangladesh; basic education
    JEL: I28 I22
    Date: 2007–01

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