nep-dev New Economics Papers
on Development
Issue of 2007‒03‒03
thirty-one papers chosen by
Jeong-Joon Lee
Towson University

  1. New Combinations and Growth By Juergen Antony
  3. Labor\'s Shares – Aggregate and Industry: By Hernando Zuleta; Andrew T. Young
  4. Long Run Impacts of Income Shocks: Wine and Phylloxera in 19th Century France By Banerjee, Abhijit; Duflo, Esther; Postel-Vinay, Gilles; Watts, Tim
  5. Political Institutions and Economic Growth By Marsiliani, Laura; Renström, Thomas I
  6. Insurance and Rural Welfare: What can Panel Data tell us? By Chris Elbers; Jan Willem Gunning; Lei Pan
  7. Risk Pooling through Transfers in Rural Ethiopia By Lei Pan
  8. Growth, public investment and corruption with failing institutions By David De La Croix; Clara Delavallade
  9. Education, corruption and growth in developing countries By Cuong Le Van; Mathilde Maurel
  10. Innovation, nature of investment and divergent growth paths: an explanatory model By David Flacher; Jean-Hervé Lorenzi; Alain Villemeur
  11. Human Capital Quality and Economic Growth By Nadir Altinok
  12. Institutional Enforcement, Labor-Market Rigidities, and Economic Performance By Cesar Calderon; Alberto Chong; Gianmarco Leon
  13. Public Investment in Infrastructure in Latin America: Is Debt the Culprit? By Eduardo Lora
  14. International Remittances and Income Inequality: An Empirical Investigation By Valerie Koechlin; Gianmarco Leon
  15. Institutions, infrastructure, and trade By Joseph F. Francois; Miriam Manchin
  16. Red Tape, Corruption and Finance By Keith Blackburn; Rashmi Sarmah
  17. A Theory of Infrastructure-led Development By Pierre-Richard Agénor
  18. FDI and credit constraints : firm level evidence in China. By Jérôme Héricourt; Sandra Poncet
  19. Sources of Growth in the Indian Economy By Barry Bosworth; Susan M. Collins; Arvind Virmani
  20. Migration and mental health : evidence from a natural experiment By Stillman, Steven; McKenzie, David; Gibson, John
  21. Adult mortality and children ' s transition into marriage By Beegle, Kathleen; Krutikova, Sofya
  22. A land of milk and honey with streets paved with gold : do emigrants have over-optimistic expectations about incomes abroad ? By McKenzie, David; Gibson, John; Stillman, Steven
  23. Do remittances have a flip side ? A general equilibrium analysis of remittances, labor supply responses, and policy options for Jamaica By Bussolo, Maurizio; Medvedev, Denis
  24. Trade and human capital accumulation: evidence from U.S. immigrants By Domeland, Dorte
  25. Social Network Capital, Economic Mobility and Poverty Traps By Chantarat, Sommarat; Barrett, Christopher B.
  26. Technical efficiency, technological change and total factor productivity growth in Malaysian manufacturing sector By Jajri, Idris; Ismail, Rahmah
  27. IT Clusters in India By Balatchandirane, G.
  28. IT Offshoring and India: Some Implications By Balatchandirane, G.
  29. Domestic Market-based Industrial Cluster Development in Modern China By Ding, Ke
  30. Capital adjustment patterns and uncertainty in African manufacturing By Admasu Shiferaw
  31. Emigration and human capital: who leaves, who comes back and what difference does it make? By Aitor Lacuesta

  1. By: Juergen Antony (University of Augsburg, Department of Economics)
    Abstract: This paper develops an endogenous growth model based on the idea of new combinations of input factors as a growth mechanism. The model integrates the idea of several technologies used simultaneously in producing final output. Innovations are of the horizontal and vertical type and in addition of the type of new technologies which can be combined with existing ones. All types of innovations are endogenous and the occurrence of a new technology has stochastic elements as well. This leads to endogenous dynamics in the growth rates of final output production.
    Keywords: endogenous growth, new combinations
    JEL: O41 O31
    Date: 2007–02
  2. By: Hernando Zuleta
    Abstract: We present an endogenous growth model where innovation are factor saving. Tecnologies can be changed paying a cost so, tecnological change take place only if the benefits are larger than the cost. Since the gains derived from factor saving innovations depend on factor abundance, biased innovations respond to changes in factor supply, that is, as economy becomes more capital abundant agents try to use in a more intensively. Therefore (a) the elasticity of the output with respect to reproducible factors depends on the capital abundance of the economy and (b) the income share of reducible factors increase as the economy growths. Another insight of the model is that in some economies the production function converges to an AK in the long run, while in others long run growths is cero.
    Date: 2006–09–01
  3. By: Hernando Zuleta; Andrew T. Young
    Abstract: The relative stability of aggregate labor\'s share constitutes one of the great macroeconomic ratios. However, relative stability at the aggregate level masks the unbalanced nature of industry labor\'s shares – the Kuznets stylized facts underlie those of Kaldor. We present a two-sector – one labor-only and the other using both capital and labor – model of unbalanced economic development with induced innovation that can rationalize these phenomena as well as several other empirical regularities of actual economies. Specifically, the model features (i) one sector (\"goods\" production) becoming increasingly capital-intensive over time; (ii) an increasing relative price and share in total output of the labor-only sector (\"services\"); and (iii) diverging sectoral labor\'s shares despite (iii) an aggregate labor\'s share that converges from above to a value between 0 and unity. Furthermore, the model (iv) supports either a neoclassical steady-state or long-run endogenous growth, giving it the potential to account for a wide range of real world development experiences
    Date: 2007–01–01
  4. By: Banerjee, Abhijit; Duflo, Esther; Postel-Vinay, Gilles; Watts, Tim
    Abstract: This paper provides estimates of the long-term effects on height and health of a large income shock experienced in early childhood. Phylloxera, an insect that attacks the roots of grape vines, destroyed 40% of French vineyards between 1863 and 1890, causing major income losses among wine growing families. Because the insects spread slowly from the southern coast of France to the rest of the country, Phylloxera affected different regions in different years. We exploit the regional variation in the timing of this shock to identify its effects. We examine the effects on the adult height, health, and life expectancy of children born in the years and regions affected by the Phylloxera. The shock decreased long run height, but it did not affect other dimensions of health, including life expectancy. We find that, at age 20, those born in affected regions were about 1.8 millimetres shorter than others. This estimate implies that children of wine-growing families born when the vines were affected in their regions were 0.6 to 0.9 centimetres shorter than others by age 20. This is a significant effect since average heights grew by only 2 centimetres in the entire 19th century. However, we find no other effect on health, including infant mortality, life expectancy, and morbidity by age 20.
    Keywords: fetal origin; height; military data
    JEL: I12 N32 O12
    Date: 2007–02
  5. By: Marsiliani, Laura; Renström, Thomas I
    Abstract: We analyze the impact of micro-founded political institutions on economic growth in an overlapping-generations economy, where individuals differ in preferences over a public good (as well as in age). Labour and capital taxes finance the public good and a public input. The benchmark institution is a parliament, where all decisions are taken. Party entry, parliamentary composition, coalition formation, and bargaining are endogenous. We compare this constitution to delegation of decision-making, where a spending minister (elected in parliament or appointed by the largest party). Delegation of decision-making tends to yield lower growth, mainly due to the occurrence of production inefficiency.
    Keywords: bargaining; endogenous growth; overlapping generations; taxation; voting
    JEL: D72 D90 H20 H41 O41
    Date: 2007–02
  6. By: Chris Elbers (Vrije Universiteit Amsterdam); Jan Willem Gunning (Vrije Universiteit Amsterdam); Lei Pan (Vrije Universiteit Amsterdam)
    Abstract: Assessing the scope for insurance in rural communities usually requires a structural model of household behavior under risk. One of the few empirical applications of such models is the study by Rosenzweig and Wolpin (1993) who conclude that Indian farmers in the ICRISAT villages would not benefit from the introduction of formal weather insurance. In this paper we investigate how models such as theirs can be estimated from panel data on production and assets. We show that if assets can take only a limited number of values the coefficients of the model cannot be estimated with reasonable precision. We also show that this can affect the conclusion that insurance would not be welfare improving.
    Keywords: Structural estimation; discrete choices; insurance
    JEL: C51 D91
    Date: 2007–01–26
  7. By: Lei Pan (Vrije Universiteit Amsterdam)
    Abstract: It is often assumed that transfers received from governments, nongovernment organizations (NGOs), friends and relatives help rural households to pool risk. In this paper I investigate two functions of transfers in Ethiopia: risk pooling and income redistribution. Unlike most of the literature this paper investigates not only whether but also how much risk pooling is achieved. I find evidence that transfers from governments/NGOs play a role in insuring covariant income shocks, (weak) evidence that transfers from friends/relatives insure idiosyncratic income shocks and evidence that transfers target the poor households. However, the contributions of transfers to risk pooling and income redistribution are economically very limited.
    Keywords: Risk; Insurance; Income redistribution
    JEL: I38 O17
    Date: 2007–01–26
  8. By: David De La Croix (CORE - Department of Economics - [Université Catholique de Louvain]); Clara Delavallade (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: Corruption is thought to prevent poor countries from catching-up. We analyze one channel through which corruption hampers growth : public investment can be distorted in favor of specific types of spending for which rent-seeking is easier and better concealed. To study this distorsion, we propose an optimal growth model where households vote for the composition of public spending subject to an incentive constraint reflecting individuals' choice between productive activity and rent-seeking. At equilibrium, the intensity of corruption and the structure of public investment are determined by the predatory technology and the distribution of political power. Among different regimes, the model shows a possible scenario of distortion without corruption in which there is no effective corruption yet still the possibility of corruption distorts the allocation of public investment, thus hampering growth. We test the implications of the model on a panel of countries estimating a system of equations with instrumental variables. We find that countries with a high predatory technology invest more in housing and physical capital in comparison with health and education. For equal initial conditions, such countries grow slower and have higher corruption, in particular when political power is concentrated.
    Keywords: Public investment, optimal growth, corruption, political power.
    Date: 2007–02–08
  9. By: Cuong Le Van (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Mathilde Maurel (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: Education is key in explaining growth, as emphasized recently by Krueger and Lindahl (2001). But for a given level of education, what can explain the missing growth in developing countries ? Corruption, the poor enforcement of property rights, the government share of property rights, the government share of GDP, the regulations it imposes might influence the Total Factor Productivity (TFP thereafter) of a country's economic system. A number of empirical papers emphasize the consequences bad institutions have on growth, but few are examining the link between education, corruption (more generally bad institutions) and growth. Our model assumes that at low level of GDP per head and high level of corruption education spending has no impact on growth. The slope gets positive only at above critical size of corruption. The implications are tested using the data set of Xavier Sala-i-Martin, Gernot Doppelhofer and Ronald I. Miller (2004), which is extended with the aggregate governance indicators of Kaufman et ali.
    Keywords: Public spending, education, corruption, endogeneous growth.
    Date: 2007–02–08
  10. By: David Flacher (CEPN - Centre d'économie de l'Université de Paris Nord - [CNRS : UMR7115] - [Université Paris-Nord - Paris XIII]); Jean-Hervé Lorenzi; Alain Villemeur
    Abstract: The principle of conditional convergence, in growth theory, fails to explain growth paths that are durably divergent among countries having similar structural characteristics (same rates of investment, of capital<br />depreciation, of demographic growth, and similar access to technologies and resources...). Our research models the reasons of these divergences<br />by making the assumption that the nature of technical progress is not the same one according to the type of investment that is realized. We first deduce from this assumption relations between investment, production and employment. Then, by introducing the optimizing behavior of the firms, we show the existence of two balanced and durable growth regimes. The "fast growth regime" is characterized by the importance<br />given to the capacity investments (and thus to product innovation). The "slow growth regime" is characterized by the importance given to process investments. The nature of investments thus constitutes a crucial conditition of convergence of the economies.
    Keywords: Growth, consumption, investment, growth paths
    Date: 2007–02–20
  11. By: Nadir Altinok (IREDU - Institut de recherche sur l'éducation : Sociologie et Economie de l'Education - [CNRS : FRE5211] - [Université de Bourgogne])
    Abstract: The estimation of the relationship between education and economic growth is marked by contradictions. These contradictions underline the lack of precision characterizing indicators of human capital. This paper constructs new indicators based on a pool of international surveys concerning pupil assessment. Thus, our new database, which includes 105 countries, makes it possible to confirm or not the positive relationship between education and growth. Taking into account the endogeneity of education, we measure a positive effect of qualitative indicators of human capital and the growth of countries between 1960 and 2000. The contribution of education to growth therefore appears significant, both from a quantitative and a qualitative point of view.
    Keywords: Education quality ; Human capital ; Growth ; Development
    Date: 2007–02–21
  12. By: Cesar Calderon (World Bank); Alberto Chong (Inter-American Development Bank); Gianmarco Leon (Inter-American Development Bank)
    Abstract: This paper study the issue of institutional enforcement of regulations by focusing on labor-market policies and their potential link to economic performance. It test the different impacts of enforceable and non-enforceable labor regulations by proxying non-enforceable labor rigidity measures using data on conventions from the International Labor Organization (ILO). It has been argued that non-enforceable conventions -that is, those that exist on paper and are simply de jure regulations -appear to be more distortionary and tend to be the least enforced in practice (Squire and Suthiwart-Narueput, 1997). According to Freeman (1993), these conventions reflect the ideal regulatory framework from an institutionalist perspective and cover a variety of labor market issues, from child labor to placement agencies. Whereas in theory, a country's ratification of ILO conventions gives the country legal status and thus supersedes domestic regulations relating to those issues, in practice the degree of labor-market rigidity depends on how the conventions are enforced. It is the outcome of the regulations that matters, rather than their number.
    Keywords: Institutions; Enforcement; Labor Rigidities; Growth; GMM-IV JEL Classification Codes: O10, E60, J08, O40
    JEL: O10
    Date: 2006–10
  13. By: Eduardo Lora (Research Department, Inter-American Development Bank)
    Abstract: Panel data for seven Latin American countries are used to assess the influence of public indebtedness on public investment in infrastructure in the period 1987- 2001. Debt increases are associated with higher public infrastructure investment, an effect that is robust to the inclusion of many other fiscal and macroeconomic variables. This paper also finds some evidence of complementarity between public and private investment and of the negative effect of IMF adjustment loans on infrastructure expenditures. No evidence is found that debt defaults affect public investment in infrastructure.
    Keywords: Public investment; Public infrastructure; Public debt; Fiscal policies; Default; Latin America
    Date: 2007–01
  14. By: Valerie Koechlin (Grupo de Analisis para el Desarrollo (GRADE)); Gianmarco Leon (Inter-American Development Bank)
    Abstract: The aim of this paper is to provide comprehensive empirical evidence on the relationship between international remittances and income inequality. In simple cross-country regressions we find a non-monotonic link between these two variables when using ordinary least squares, instrumental variables; we also test our hypothesis using dynamic panel data methods. We provide evidence in support of existing theoretical work that accounts for network effects that describe how, in the first stages of migration history, there is an inequality-increasing effect of remittances on income inequality. Then, as the opportunity cost of migrating is lowered due to these effects, remittances sent to those households have a negative impact on inequality. We also show how education and the development of the financial sector can help countries to reach the inequality-decreasing section of the curve more quickly. Our results are robust to several empirical specifications, as well as for a wide variety of inequality measures.
    Keywords: Migration; International Remittances; Income distribution JEL Classification Codes: O1, O15, J16
    JEL: O1
    Date: 2006–10
  15. By: Joseph F. Francois (Department of Economics, Johannes Kepler University Linz, Austria); Miriam Manchin (University College London)
    Abstract: We work with a panel of bilateral trade flows from 1988 to 2002, exploring the influence of infrastructure, institutional quality, colonial and geographic context, and trade preferences on the pattern of bilateral trade. We are interested in threshold effects, and so emphasize those cases where bilateral country pairs do not actually trade. We depart from the institutions and infrastructure literature in this respect, using selection-based gravity modeling of trade flows. We also depart from this literature by mixing principal components (to condense our institutional and infrastructure measures) with a focus on deviations from expected values for given income cohorts to control for multicollinearity. Infrastructure, and institutional quality, are significant determinants not only of export levels, but also of the likelihood exports will take place at all. Our results support the notion that export performance, and the propensity to take part in the trading system at all, depends on institutional quality and access to well developed transport and communications infrastructure. Indeed, this dependence is far more important, empirically, than variations in tariffs in explaining sample variations in North-South trade. This implies that policy emphasis on developing country market access, instead of support for trade facilitation, may be misplaced.
    Keywords: exports; trade; institutions; infrastructure; zero-trade; gravity model
    JEL: O19 F10 F15
    Date: 2007–02
  16. By: Keith Blackburn; Rashmi Sarmah
    Abstract: We study the effects of red tape and corruption in a model of occupational choice, entry regulation and imperfect capital markets. Red tape is the set of rules and regulations that private agents are obliged to comply with in order to engage in entrepreneurial activity. Corruption is the payment of bribes to public officials for the purpose of circumventing red tape. Capital market imperfections are the asymmetries of information between borrowers and lenders about the returns to entrepreneurship. We show that both red tape and corrup- tion deter entrepreneurial activity, but that only corruption affects financial market outcomes, including the probability of bankruptcy and the costs of verifying bankruptcy claims. The existence of corruption compounds the effects of both aggregate uncertainty and capital market frictions, each of which compounds the effects of corruption. We examine the interactions between red tape and corruption when both are endogenous to the bureaucratic process.
    Date: 2006
  17. By: Pierre-Richard Agénor
    Abstract: This paper proposes a theory of long-run development based on public infrastructure as the main engine of growth. The government, in addition to investing in infrastructure, spends on health services, which in turn raise labor productivity and lower the rate of time preference. Infrastructure affects the production of both commodities and health services. As a result of network effects, the degree of efficiency of infrastructure is nonlinearly related to the stock of public capital itself. This in turn may cause multiplicity of equilibrium growth paths. Provided that governance is adequate enough to ensure a sufficient degree of efficiency of public investment outlays, an increase in the share of spending on infrastructure (financed by a cut in unproductive expenditure or foreign grants) may facilitate the shift from a low growth equilibrium, characterized by low productivity and low savings, to a high growth steady state.
    Date: 2006
  18. By: Jérôme Héricourt (Université de Sciences et de Technologies Lille 1); Sandra Poncet (Centre d'Economie de la Sorbonne)
    Abstract: In this paper, we analyze whether incoming foreign investment in China plays an important role in alleviating domestic firms' credit constraints. Access to external finance is a crucial determinant of business expansion. Using firm-level data on 2,200 domestic companies for the period 1999-2002, we investigate the extent to which firms are fiancially constrained and whether direct foreign investment relaxes financing constraints of firms. When we split domestic firms into public and private firms, we find that public firms' investment decisions are not sensitive to debt ratios or the cost of debt. Nor is there any evidence that public firms are affected by foreign firms presence. We interpret this as evidence in support of the notion of a soft budget constraint for public firms. In contrast, private domestic firms appear more credit constrained than state-owned firms but their financing constraints tend to ease in a context of abundant foreign investment.
    Keywords: Financial constraint, corporate finance, Foreign Direct Investment.
    JEL: E22 E44 G31 O16
    Date: 2007–02
  19. By: Barry Bosworth; Susan M. Collins; Arvind Virmani
    Abstract: This paper empirically examines India's economic growth experience during 1960-2004, focusing on the post 1973 acceleration. Careful attention is paid to data quality. The analysis focuses on two unusual dimensions of India's experience -- the concentration of growth in services production, and the modest levels of human and physical capital accumulation. A growth accounting analysis disaggregates by major sector, and highlights implications for aggregate productivity growth of the reallocation of resources out of agriculture to more productive activities in industry and services. But concerns are raised that growth in services may be overstated. India will need to broaden its current expansion to provide manufactured goods for the world market and jobs for its large pool of low-skilled workers. Increased public saving, as well as a rise in foreign saving -- particularly FDI -- could augment the rising household saving and support the increased investment necessary to sustain rapid growth.
    JEL: F43 O4
    Date: 2007–02
  20. By: Stillman, Steven; McKenzie, David; Gibson, John
    Abstract: People migrate to improve their well-being, whether through an expansion of economic and social opportunities or a reduction in persecution. Yet a large literature suggests that migration can be a stressful process, with potentially negative impacts on mental health, reducing the net benefits of migration. However, to truly understand the effect of migration on mental health one must compare the mental health of migrants to what their mental health would have been had they stayed in their home country. The existing literature is not able to do this and typically settles for comparing the mental health of migrants to that of natives in the destination country, which takes no account of any pre-existing differences between these groups. This paper overcomes the selection problems affecting previous studies of the effect of migration on mental health by examining a migrant lottery program. New Zealand allows a quota of Tongans to immigrate each year with a lottery used to choose among the excess number of applicants. A unique survey conducted by the authors in these two countries allows experimental estimates of the mental health effects of migration to be obtained by comparing the mental health of migrants who were successful applicants in the lottery to the mental health of those who applied to migrate under the quota, but whose names were not drawn in the lottery. Migration is found to lead to improvements in mental health, particularly for women and those with poor mental health in their home country.
    Keywords: Health Monitoring & Evaluation,Population Policies,Disease Control & Prevention,Mental Health,Gender and Health
    Date: 2007–02–01
  21. By: Beegle, Kathleen; Krutikova, Sofya
    Abstract: Adult mortality due to HIV/AIDS and other diseases is posited to affect children through a number of pathways. On top of health and education outcomes, adult mortality can have significant effects on children by influencing demographic outcomes including the timing of marriage. The authors examine marriage outcomes for a sample of children interviewed in Tanzania in the early 1990s and re-interviewed in 2004. They find that while girls who became paternal orphans married at significantly younger ages, orphanhood had little effect on boys. On the other hand, non-parental deaths in the household affect the timing of marriage for boys
    Keywords: Population Policies,Youth and Governance,Population & Development,Adolescent Health,Street Children
    Date: 2007–02–01
  22. By: McKenzie, David; Gibson, John; Stillman, Steven
    Abstract: Millions of people emigrate every year in search of better economic and social opportunities. Anecdotal evidence suggests that emigrants may have over-optimistic expectations about the incomes they can earn abroad, resulting in excessive migration pressure, and in disappointment among those who do migrate. Yet there is almost no statistical evidence on how accurately these emigrants predict the incomes that they will earn working abroad. In this paper the authors combine a natural emigration experiment with unique survey data on would-be emigrants ' probabilistic expectations about employment and incomes in the migration destination. Their procedure enables them to obtain moments and quantiles of the subjective distribution of expected earnings in the destination country. The authors find a significant underestimation of both unconditional and conditional labor earnings at all points in the distribution. This underestimation appears driven in part by potential migrants placing too much weight on the negative employment experiences of some migrants, and by inaccurate information flows from extended family, who may be trying to moderate remittance demands by understating incomes.
    Keywords: Population Policies,Economic Theory & Research,Remittances,Labor Markets,Fiscal & Monetary Policy
    Date: 2007–03–01
  23. By: Bussolo, Maurizio; Medvedev, Denis
    Abstract: Econometric analysis has established a negative relationship between labor supply and remittances in Jamaica. The authors incorporate this ex-post evidence in a general equilibrium model to investigate economywide effects of increased remittance inflows. In this model, remittances reduce labor force participation by increasing the reservation wages of recipients. This exacerbates the real exchange rate appreciation, hurting Jamaica ' s export base and small manufacturing import-competing sector. Within the narrow margins of maneuver of a highly indebted government, the authors show that a revenue-neutral policy response of a simultaneous reduction in payroll taxes and increase in sales taxes can effectively counteract these potentially negative effects of remittances.
    Keywords: Labor Markets,Economic Theory & Research,Remittances,Markets and Market Access,Economic Growth
    Date: 2007–03–01
  24. By: Domeland, Dorte
    Abstract: This study provides empirical evidence that trade increases on-the-job human capital accumulation by estimating the effect of home country openness on estimated returns to home country experience of U.S. immigrants. The positive effect of trade on on-the-job human capital accumulation remains significant when controlling for GDP, educational attainment, and institutional quality. It is not the result of self-selection, heterogeneity in returns to experience, English-speaking origin, or cultural background. The effect persists when restricting the sample to non-OECD countries, thereby resolving the theoretical ambiguity of whether trade increases or decreases learning-by-doing. The role of trade in generating economic growth is therefore likely to be more important than generally considered.
    Keywords: Economic Theory & Research,Country Strategy & Performance,Labor Markets,Population Policies,Inequality
    Date: 2007–03–01
  25. By: Chantarat, Sommarat; Barrett, Christopher B.
    Abstract: The paper explores the role social network capital might play in facilitating poor agents’ escape from poverty traps. We model endogenous network formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can serve as either a complement to or a substitute for productive assets in facilitating some poor households’ escape from poverty. However, the voluntary nature of costly social network formation also creates both involuntary and voluntary exclusionary mechanisms that impede some poor households’ efforts to exit poverty. The ameliorative potential of social networks therefore depends fundamentally on the underlying wealth distribution in the economy. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty.
    Keywords: social network capital; endogenous network formation; poverty traps; multiple equilibria; social isolation; social exclusion; crowding-in transfer
    JEL: I32 Z13 O12 D85
    Date: 2007–02–14
  26. By: Jajri, Idris; Ismail, Rahmah
    Abstract: The manufacturing sector is becoming more important for the Malaysia economy. The contribution of output and employment from this sector is continuously increasing since the 1980 an, except for certain period when an economy experiences recession. Viewing from its capacity to spearhead economic growth the government has given emphasis to the manufacturing sector in achieving industrialized nation by year 2020. It is a claim that productivity for this sector had not yet achieved optima level and in certain years, the growth of productivity was smaller than the growth of wages. Even though the concept of productivity usually referred to labour productivity, this concept is very much related to total factor productivity (TFP). This paper attempts to analysis trend of, technical efficiency, technological change and TFP growth in the Malaysian manufacturing sector. The analysis is based on data from the Industrial Manufacturing Survey of 1985 to 2000 collected by the Department of Statistics Malaysia using Data Envelopment Analysis (DEA). The results show that during the period under study, TFP growth is increasing and the major contribution of TFP growth in technical efficiency. Nevertheless, technological change show increasing trend over time. The industries that experienced high technical efficiency are food, wood, chemical and iron products. However, for food and wood industries technical progress is higher than technical progress. The other industry that shows larger technical progress than technical efficiency is textile industry but both values are below unity.
    Keywords: Technical efficiency; technological change; and total factor productivity
    JEL: O30
    Date: 2006
  27. By: Balatchandirane, G.
    Abstract: One of the facilitating factors that enabled the rise of IT industry in India is the evolution of IT clusters. A study of these clusters can provide interesting insights. The rise of the Banglaore IT cluster was due, among other things, to some of the policies the Indian government took three decades or earlier. It would be difficult to talk of “benign neglect†of the government towards this sector. Different factors worked in the case of Hyderabad. A comparison between the IT clusters in India has much to tell the new emerging IT clusters in India as well as those outside of it.
    Keywords: India, Information technology, Industrial estates, Clusters, Government policy
    JEL: L86 O53
    Date: 2007–01
  28. By: Balatchandirane, G.
    Abstract: There has been a large spurt in the offshore outsourcing of Information Technology (IT) recently. India has been a major recipient of such work. There have been loud protests against the “loss†of jobs in the US as work was shifted to India. The large inflow of IT related work has also had major impact on the Indian economy. There are implications on the foreign policy level as well. While the economic implications are well known, we try to see a little of the foreign policy implications in this paper.
    Keywords: India, Information technology, Software, Offshoring, Foreign policy
    JEL: L86 O53
    Date: 2007–02
  29. By: Ding, Ke
    Abstract: China’s huge domestic market is constantly expanding, and is low-end demand oriented and highly dispersed. The domestic market-based development of China’s industrial cluster, however, is not only a quantitative expansion, but has also been accompanied with remarkable qualitative upgrading. Specialized markets are a microcosm that clearly indicate this paradoxical phenomenon. By analyzing three typical cases of industrial clusters that have specialized markets, this paper will make the case that under modern China’s market conditions, the local public sector is the crucial driving force for upgrading industrial clusters, which organize complicated transactions, promote quality control, and stimulate the division of labor.
    Keywords: China, Industrial cluster, Market condition, Specialized market, Local public sector, Industrial estates, Local industy, Market, Public sector
    JEL: L1 L5 L6 O1
    Date: 2007–02
  30. By: Admasu Shiferaw
    Abstract: Judging by the provisions of its investment code and the apparent stability of the macro-economy, Ethiopia seems to offer a favourable investment climate for the private sector. However, Ethiopian manufacturing has experienced a declining rate of investment since the mid 1990s. Like other Sub-Saharan African countries, more than half of manufacturing firms in Ethiopia have zero investment episodes; episodes that have become more persistent over time. This contrasts badly with high average profit rates in African manufacturing relative to average profit rates in OECD countries. Rather than being smooth and continuous, firm level investment in Africa is less frequent and lumpy. While this pattern of capital adjustment is not unique to Africa, the discontinuity and lumpiness is starker than what is observed in developed countries. The evidence in this paper suggests that such discontinuity and the lacklustre investment performance have more to do with uncertainty and irreversibility. The paper shows that uncertainty, proxied by the volatility of profits, undermines mainly the likelihood rather than the rate of investment. However, the possibility to reverse investment decisions, captured by the scope of the second hand market for machinery, significantly increases the rate of investment.
    Keywords: investment, irreversibility, uncertainty, African manufacturing, Ethiopia
    Date: 2007
  31. By: Aitor Lacuesta (Banco de España)
    Abstract: This paper studies the loss of human capital that emigration generates in the country of origin. To that end I estimate the human capital distribution of emigrants had they not migrated. Unlike previous studies, I take into account the selection of migrants in terms of unobserved characteristics that affect their productivity. Wages in Mexico of those migrants who come back home after being abroad for some time will be crucial to learn something about the selection of non-returning migrants in terms of unobserved productivity. To test whether returning migrants' wages contain any useful information, I follow two steps. First, I use the model of Borjas and Bratsberg (1986) to show that, regardless of the cause for coming back, the distribution of abilities of non-returning migrants is more similar to the distribution of temporary migrants than to that of non-migrants. Moreover, I test some implications of the model in the data. Second, I show that returning migrants' wages reflect their pre-emigration productivity and are not affected by possible human capital gains derived from the decision to emigrate. Taking into account all this evidence, I use returning migrants' wages in Mexico upon return to estimate the distribution of human capital of non-returning migrants had they not migrated. I show that emigrants come form the middle part of the distribution of human capital in the origin country. I find evidence that taking unobserved human capital factors into account is relevant for the dispersion of the estimated distribution as well as for each of its quantiles. Moreover, it does not greatly affect the aggregate mean of human capital.
    Keywords: emigration, human capital, productivity
    JEL: C14 J10 J31
    Date: 2006–08

This nep-dev issue is ©2007 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.