nep-dev New Economics Papers
on Development
Issue of 2007‒01‒28
nineteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Productivity Effects of FDI Inflows: A Literature Review By Hugo Rojas-Romagosa
  2. Loans or Grants By Cohen, Daniel; Jacquet, Pierre; Reisen, Helmut
  3. Can Production Subsidies Foster Export Activity? Evidence from Chinese Firm Level Data By Girma, Sourafel; Gong, Yundan; Görg, Holger; Yu, Zhihong
  4. Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence By Dubois, Pierre; Jullien, Bruno; Magnac, Thierry
  5. Effects on School Enrollment and Performance of a Conditional Cash Transfers Program in Mexico By de Janvry, Alain; Dubois, Pierre; Sadoulet, Elisabeth
  6. The Sources of Long-run Growth in Spain 1850-2000 By Leandro Prados de la Escosura; Joan R. Roses
  7. Developing Country Borrowing from a Monopolistic Lender: Strategic Interaction and Endogenous Leadership By Saqib Jafarey; Sajal Lahiri
  8. Identifying the effect of public health program on child immunisation in rural Bangladesh By M Zia Sadique; M Niaz Asadullah
  9. Growing richer and taller: Explaining Change in the Distribution of Child Nutritional Status during Vietnam’s Economic Boom By Owen O'Donnell; Ángel López Nicolás; Eddy van Doorslaer
  10. The Role of School Improvement in Economic Development By Eric A. Hanushek; Ludger Woessmann
  11. Economics and Politics of Alternative Institutional Reforms By Francesco Caselli; Nicola Gennaioli
  12. On the Determinants of Mortality Reductions in the Developing World By Rodrigo R. Soares
  13. Competition and Inter-Firm Credit: Theory and Evidence from Firm-level Data in Indonesia By Hyndman, Kyle; Serio, Giovanni
  14. Age Dynamics and Economic Growth: Revisiting the Nexus in a Nonparametric Setting. By Théophile Azomahou; Tapas Mishra
  15. Growth and Enduring Epidemic Diseases By Clive Bell; Hans Gersbach
  16. Grameen Bank II: a possible analysis with a relational perspective By Reggiani, Tommaso
  17. Entry Liberalization, Export Subsidy and R&D By Roy Chowdhury, Prabal
  18. The effects of exports, aid and remittances on output: The case of Kiribati By Rao, B. Bhaskara; Takirua, Toani
  19. A Neoclassical Analysis of the Postwar Japanese Economy By Keisuke Otsu

  1. By: Hugo Rojas-Romagosa
    Abstract: Foreign Direct Investment (FDI) flows have increased substantially in the past two decades. These developments have motivated the appearance of a large number of empirical papers that test the expected benefits that FDI inflows are assumed to bring to the host countries.We survey the recent theoretical and empirical literature, but restrict our attention to the productivity changes that are induced by increased FDI inflows. We review both the aggregate productivity effects, as well as the spillover effects of FDI on local firms.
    Keywords: FDI; productivity growth
    JEL: F23 O33 O47
    Date: 2006–12
  2. By: Cohen, Daniel; Jacquet, Pierre; Reisen, Helmut
    Abstract: We argue in this paper that cancelling the debt of the poorest countries was a good thing, but that it should not imply that the debt instrument should be foregone. We claim that debt and debt cancellations are indeed two complementary instruments which, if properly managed, perform better than either loans or grants taken in isolation. The core of the intuition, which we develop in a simple two-period model, relates to the fact that the poorest countries are also the most volatile, so that contingent facilities, explicitly incorporating debt cancellation mechanisms, are a valuable instrument. Based on this idea, we present one of the lending scheme that could be applied to the poorest countries and calibrate the cost that would have to be borne by the creditors, were they to incorporate contingencies clause in their lending strategy.
    Keywords: developing countries; grants; loans
    JEL: O19
    Date: 2007–01
  3. By: Girma, Sourafel; Gong, Yundan; Görg, Holger; Yu, Zhihong
    Abstract: Using a unique firm level data set from the Chinese manufacturing sector, this paper analyses the impact of production subsidies on firms’ export performance. It documents robust evidence that production subsidies stimulate export activity, although this effect is conditional on firm characteristics. In particular, the beneficial impact of subsidies is found to be more pronounced amongst profit-making firms, firms in capital intensive industries and those with previous exporting experience. Compared to firm characteristics, the extent of heterogeneity across ownership structure (SOEs, collectives and privately-owned firms) proves to be relatively less important.
    Keywords: China; endogenous tobit; exporting; subsidies
    JEL: F1 O2 P3
    Date: 2007–01
  4. By: Dubois, Pierre; Jullien, Bruno; Magnac, Thierry
    Abstract: We develop and estimate a model of dynamic interactions where commitment is limited and contracts are incomplete to explain the patterns of income and consumption growth in village economies of less developed countries. Households can insure through both formal contracts and informal agreements, that is, agreements specifying voluntary transfers that need to be self-enforceable. This theoretical setting nests the case of complete markets and the case where only informal agreements are available. We derive a system of non-linear equations for income and consumption growth. A key prediction of our model is that both variables are affected by lagged consumption as a consequence of the interplay of formal and informal contracting possibilities. In a semi-parametric setting, we prove identification, derive testable restrictions and estimate the model with the use of data from Pakistan villages. Empirical results are consistent with the economic arguments. Incentive constraints due to self-enforcement bind with positive probability and formal contracts are used to reduce this probability.
    Keywords: Contracts; Incomplete Markets; Informal Transfers; Risk sharing
    JEL: C14 D13 D91 L14 O12
    Date: 2007–01
  5. By: de Janvry, Alain; Dubois, Pierre; Sadoulet, Elisabeth
    Abstract: We study the effects of a conditional cash transfers program on school enrollment and performance in Mexico. We provide a theoretical framework for analyzing the dynamic educational process including the endogeneity and uncertainty of performance at school (passing grades) and the effect of a cash transfer program conditional on school attendance. This framework is developed to study the Mexican social program Progresa (called now Oportunidades) in which a randomized experiment has been implemented and allows us to identify the effect of the program on enrollment and performance at school. Using the rules of the conditional program, we can explain the different incentive effects provided. We also derive the formal identifying assumptions needed to estimate consistently the average treatment effects on enrollment and performance at school. We find empirically that this program had always a positive impact on school continuation whereas for performance it had a positive impact at primary school but a negative one at secondary school (a possible consequence of disincentives due to the program termination after the third year of secondary school).
    Keywords: dynamic decisions; education demand; Mexico; randomized experiment; school performance; schooling decisions; transfer program; treatment effects
    JEL: C14 C25 D91 H52 H53 I21 I28 J24
    Date: 2007–01
  6. By: Leandro Prados de la Escosura; Joan R. Roses
    Abstract: Between 1850 and 2000, Spain’s real income increased by about 40-fold, at an average rate of 2.5 percent. The sources of this long-run growth are investigated using Jorgenson-type growth accounting analysis. We find that growth upsurges are closely related to increases in TFP. Spanish economic growth went through three successive phases. The century before 1950 was characterized by slow growth driven by factor accumulation. TFP improvements pushed up explosive growth during the Golden Age and mitigated the deceleration during the transition to democracy years (1975-86). Since the accession to the European Union Spain has experienced a dramatic productivity slowdown.
    Date: 2007–01
  7. By: Saqib Jafarey (Department of Economics, City University, London); Sajal Lahiri (Department of Economics, Southern Illinois University)
    Abstract: We develop a two-period model with endogenous investment and credit flows. Credit is subject to quantitative restrictions. With an exogenous restriction, we analyze the welfare effects of temporary tariffs. We then consider three scenarios under which a monopoly lender optimally decides the level of credit and a borrower country chooses an import tariff: one in which the two parties act simultaneously and two scenarios where one of them has a firstmover advantage. The equilibrium under the leadership of the borrower country is Pareto superior to the Nash equilibrium but may or may not be to that under the leadership of the lender. If the sequence of moves is itself chosen strategically, leadership by the borrower emerges as the unique equilibrium.
    Keywords: Trade intervention, investment credit, credit constraints, credit control, leaderfollower
    JEL: F13 O10 O16
    Date: 2005–10–12
  8. By: M Zia Sadique (Department of Economics, City University, London); M Niaz Asadullah
    Abstract: Using unit-level data from Matlab villages in rural Bangladesh, this paper examines the impact of an exogenously assigned health care intervention– Maternal and Child Health (MCH) program– on children’s immunisation status. In particular, we investigate how the program effect interacts with two key determinants of household immunisation choice, namely maternal education and risk perception of households. Results show that the MCH program has significantly enhanced immunisation status of children. In addition to directly improving immunisation demand, the MCH program also acts as a substitute for maternal education and compensates households for low access to public health information. Yet the MCH intervention does not have any influence on the household’s risk awareness and perception towards child health. On the contrary, prenatal-care visits and tetanus toxoid immunisation by pregnant mothers, services which are provided by government health facilities, have independent effects on the household’s demand for childhood immunisation. This suggests that the role of government health facilities cannot be ignored even in the presence of a very effective MCH program.
    Date: 2006–08
  9. By: Owen O'Donnell (University of Macedonia, Greece); Ángel López Nicolás (Universidad Politecnica de Cartagena, Universitat Pompeu Fabra, Spain); Eddy van Doorslaer (Erasmus Universiteit Rotterdam)
    Abstract: Over a five-year period in the 1990s Vietnam experienced annual economic growth of more than 8% and a decrease of 15 points in the proportion of children chronically malnourished (stunted). We estimate the extent to which changes in the distribution of child nutritional status can be explained by changes in the level and distribution of income, and of other covariates. This is done using data from the 1993 and 1998 Vietnam Living Standards Surveys and a flexible decomposition technique that explains change throughout the complete distribution of child height. One-half of the decrease in the proportion of children stunted is explained by changes in the distributions of covariates and 35% is explained by change in the distribution of income. Covariates, including income, explain less of the decrease in very severe malnutrition, which is largely attributable to change in the conditional distribution of child height.
    Keywords: Malnutrition; child height; decomposition; quantile regression; Vietnam
    JEL: I12 I31 O53
    Date: 2007–01–16
  10. By: Eric A. Hanushek; Ludger Woessmann
    Abstract: The role of improved schooling, a central part of most development strategies, has become controversial because expansion of school attainment has not guaranteed improved economic conditions. This paper reviews the role of education in promoting economic well-being, with a particular focus on the role of educational quality. It concludes that there is strong evidence that the cognitive skills of the population - rather than mere school attainment - are powerfully related to individual earnings, to the distribution of income, and to economic growth. New empirical results show the importance of both minimal and high level skills, the complementarity of skills and the quality of economic institutions, and the robustness of the relationship between skills and growth. International comparisons incorporating expanded data on cognitive skills reveal much larger skill deficits in developing countries than generally derived from just school enrollment and attainment. The magnitude of change needed makes clear that closing the economic gap with developed countries will require major structural changes in schooling institutions.
    JEL: H4 I2 J0 O1 O4
    Date: 2007–01
  11. By: Francesco Caselli; Nicola Gennaioli
    Abstract: We compare the economic consequences and political feasibility of reforms aimed at reducing barriers to entry (deregulation) and improving contractual enforcement (legal reform). Deregulation fosters entry, thereby increasing the number of firms (entrepreneurship) and the average quality of management (meritocracy). Legal reform also reduces financial constraints on entry, but in addition it facilitates transfers of control of incumbent firms, from untalented to talented managers. Since when incumbent firms are better run entry by new firms is less profitable, in general equilibrium legal reform may improve meritocracy at the expense of entrepreneurship. As a result, legal reform encounters less political opposition than deregulation, as it preserves incumbents' rents, while at the same time allowing the less efficient among them to transfer control and capture (part of) the resulting efficiency gains. Using this insight, we show that there may be dynamic complementarities in the reform path, whereby reformers can skillfully use legal reform in the short run to create a constituency supporting future deregulations. Generally speaking, our model suggests that "Coasian" reforms improving the scope of private contracting are likely to mobilize greater political support because -- rather than undermining the rents of incumbents -- they allow for an endogenous compensation of losers. Some preliminary empirical evidence supports the view that the market for control of incumbent firms plays an important role in an industry's response to legal reform.
    JEL: G34 O11 O16
    Date: 2007–01
  12. By: Rodrigo R. Soares
    Abstract: This paper presents and critically discusses a vast array of evidence on the determinants of mortality reductions in developing countries. We argue that increases in life expectancy between 1960 and 2000 were largely independent from improvements in income and nutrition. We then characterize the age and cause of death profile of changes in mortality and ask what can be learned about the determinants of these changes from the international evidence and from country-specific studies. Public health infrastructure, immunization, targeted programs, and the spread of less palpable forms of knowledge all seem to have been important factors. Much of the recent debate has revolved around antagonistic approaches, which are not supported by the evidence discussed here. Finally, the paper suggests that the evolution of health inequality across and within countries is intrinsically related to the process of diffusion of new technologies and to the nature of these new technologies (public or private).
    JEL: I10 I18 J1
    Date: 2007–01
  13. By: Hyndman, Kyle (SMU); Serio, Giovanni (Goldman Sachs)
    Abstract: Using firm-level data we investigate the relationship between trade credit and suppliers’ market structure and find an inverted U-shaped relationship between competition and trade credit, with a discontinuous increase in credit provision between monopoly and duopoly. This “big jump” arises because monopolists are more likely to not offer any trade credit than firms in competitive environments. Our model exploits the fundamentally different nature between cash and trade credit sales, arguing that firms are unable to commit ex ante to a trade credit price. We show that monopolists will often sell only on cash, while credit is always provided in competitive environments.
    Keywords: Trade Credit, Competition, Development, Industrial Organization.
    JEL: L1 O16
    Date: 2007–01
  14. By: Théophile Azomahou; Tapas Mishra
    Abstract: This paper explores the relationship between the growth rates of per capita income and age- structured population in a non-parametric setting. Analysis in this framework provides us with new insights about the interaction structure: significant non-linear relation between the two and interesting ’direct’ and ’feedback’ effects on growth. Nonlinearity is found to be a major source of growth fluctuations in OECD and non-OECD countries.
    Keywords: Age dynamics, Economic growth, Non-parametric panel.
    JEL: C23 J10 O47
    Date: 2006
  15. By: Clive Bell (Südasien-Institut and the World Bank, University of Heidelberg); Hans Gersbach (Center of Economic Research (CER-ETH), Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: This paper studies the formation of human capital and its transmission across generations when premature adult mortality is a salient feature of the demographic landscape, either permanently or in the form of a long-period wave that follows the outbreak of an epidemic. We establish several threshold properties of the model, for such a shock can severely retard economic growth, even to the point of leading to an economic collapse. Premature adult mortality may exacerbate inequality under nuclear family arrangements. Pooling mortality risks with equal treatment of all children may fend off, or even induce, a collapse, depending on the initial conditions and the size and duration of the shock. Awareness campaigns may also trigger a collapse by introducing undesirable expectational feedbacks.
    Keywords: Epidemic Diseases, HIV/AIDS, Growth, Collapse, Pooling
    JEL: I10 I20 O11 O40
    Date: 2006–05
  16. By: Reggiani, Tommaso
    Abstract: After 25 years of effective work against the poverty, "the bank of poors", founded by Muhammd Yunus, has undertaken a new action to the innovation of the practical of microcredit, therefore to render it relationally still fecund and - I think - valuing. In this written, we will pass in review the main innovations - regarding the Grameen Classic System (GCS the original and traditional system of microcredit proposed) - concerning the products and the operating organization, in order to pass to an accurate examination of the implications that this evolution involves to an exquisitely relational level between the agents been involved, developing dynamics and nexuses that emerges inside of the relationship between the single person and the group and viceversa
    Keywords: Grameen Bank; Grameen Bank II; Yunus; Microcredito; Finanza etica
    JEL: R11 O18 O17 G21
    Date: 2005–10–01
  17. By: Roy Chowdhury, Prabal
    Abstract: We examine, in the context of less developed countries, the R&D behaviour of igopolistic firms who compete over R&D, as well as output levels. We also assume that the firms can sell in either of the two markets - the domestic, or the foreign. We show that entry liberalization, despite increasing the level of competitiveness, does not affect the level of R&D. An increase in export subsidy may, however, lead to an increase in domestic R&D. Both these results contradict the popular argument that the levels of domestic R&D is positively related to the level of domestic competitiveness. We also demonstrate that any foreign firm that may enter selects a level of R&D that is atleast as efficient as that selected by any domestic firm. Finally, we demonstrate that entry liberalization has a positive effect on exports, as well as aggregate output.
    Keywords: Entry liberalization; export subsidy; R&D; competitiveness.
    JEL: F13 O32
    Date: 2006–02
  18. By: Rao, B. Bhaskara; Takirua, Toani
    Abstract: Country specific time series models of the determinants of output for the small developing island countries in the Pacific region are relatively few. This paper explores the applicability of the framework underlying Solow (1956) to analyze the determinants output in Kiribati for the period 1970-2005. It is found that technical progress in Kiribati has been negative virtually offsetting the positive effects of factor accumulation. Aid and remittances have negative effects and exports have only a small positive effect in the short run.
    Keywords: Kiribati; Growth; Aid; Exports and Remittances
    JEL: O11
    Date: 2006–07–01
  19. By: Keisuke Otsu (Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: Two key features of the postwar Japanese economy are the delay of catch up during the 50s followed by rapid economic growth during the 60s and early 70s and the consistent decline in labor supply during the rapid growth period. A standard neoclassical growth model can quantitatively account for the Japanese postwar growth patterns of capital, output, consumption and investment taking the destruction of capital stock during the war and postwar TFP growth as given. The decline in labor can be explained by strong income effects caused by subsistence consumption during the rapidly growing period.
    Keywords: Japanese Postwar Growth, Neoclassical Growth Model, TFP
    JEL: E13 O40
    Date: 2007–01

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