nep-dev New Economics Papers
on Development
Issue of 2007‒04‒28
forty-six papers chosen by
Jeong-Joon Lee
Towson University

  1. Cultural Assimilation, Cultural Diffusion and the Origin of the Wealth of Nations By Oded Galor; Quamrul Ashraf
  2. Rethinking Trade Preferences: How Africa Can Diversify its Exports By Collier, Paul; Venables, Anthony J.
  3. Can migration reduce educational attainments? Depressing evidence from Mexico By David McKenzie; Hillel Rapoport
  4. Remittances and inequality: A dynamic migration model By Frédéric Docquier; Hillel Rapoport; I-Ling Shen
  5. Self-selection patterns in Mexico-U.S. migration: The role of migration networks By David McKenzie; Hillel Rapoport
  6. The Micro-Dynamics of Catch Up in Indonesian Paper Manufacturing: An International Comparison of Plant-Level Performance By Szirmai, Adam; Van Dijk, Michiel
  7. Remittances and the Dutch disease By Pablo A. Acosta; Emmanuel K.K. Lartey; Federico S. Mandelman
  8. Barriers to Exit By Alberto Chong; Gianmarco León
  9. Institutional Enforcement, Labor-Market Rigidities, and Economic Performance By Alberto Chong; César Caldeón; Gianmarco León
  10. Economic growth in Forum Island countries: Lessons of the past decade and opportunities ahead. By Satish Chand
  11. A Note on the Contribution of Sectoral Natural Population Growth to the Aggregate Poverty Change: Evidence from Bangladesh, Mongolia and Nicaragua By Rim Chatti; AbdelRahmen El Lahga
  12. Modelling Gender Dimensions of the Impact of Economic Reforms in Pakistan By Rizwana Siddiqui
  13. Malaria and Primary Education : A cross-country analysis on primary repetition and completion rates. By Josselin Thuilliez
  14. HIV and Sexual Behavior Change: Why Not Africa? By Emily Oster
  15. Globalization, Growth and Distribution in Spain 1500-1913 By Joan R. Rosés; Kevin H. O'Rourke; Jeffrey G. Williamson
  16. Trade, Knowledge, and the Industrial Revolution By Kevin H. O'Rourke; Ahmed S. Rahman; Alan M. Taylor
  17. New evidence on the urbanization of global poverty By Sangraula, Prem; Chen, Shaohua; Ravallion, Martin
  18. Price structure and network externalities in the telecommunications industry : evidence from Sub-Saharan Africa By Iimi, Atsushi
  19. Infrastructure and trade preferences for the livestock sector : empirical evidence from the beef industry in Africa By Iimi, Atsushi
  20. Latin Americans of Japanese origin (Nikkeijin) working in Japan : a survey By Goto, Junichi
  21. Formal finance and trade credit during China ' s transition By Tian Zhu; Lixin Colin Xu; Cull, Robert
  22. Local elections and consumption insurance : evidence from Chinese villages By Yang Yao; Lixin Colin Xu; Li Gan
  23. Does " good government " draw foreign capital ? Explaining China ' s exceptional foreign direct investment inflow By Yeung, Bernard; Lixin Colin Xu; Morck, Randall; Fan, Joseph P. H.
  24. Civil war, crop failure, and child stunting in Rwanda By Bundervoet, Tom; Verwimp, Philip; Akresh, Richard
  25. Energy and emissions : local and global effects of the rise of China and India By Shalizi, Zmarak
  26. Capital flight and war By Davies, Victor A. B.
  27. Absolute poverty measures for the developing world, 1981-2004 By Ravallion, Martin; Chen, Shaohua
  28. Local conflict and development projects in Indonesia : part of the problem or part of a solution ? By Woolcock, Michael; Diprose, Rachael; Barron, Patrick
  29. Remittances and the real exchange rate By Bussolo, Maurizio; Molina, Luis; Lopez, Humberto
  30. Housing, health, and happiness By Titiunik, Rocio; Martinez, Sebastian; Gertler, Paul J.; Galiano, Sebastian; Cattaneo, Matias D.
  31. Measuring welfare gains from better quality infrastructure By Lokshin, Michael; Klytchnikova, Irina
  32. Rural land certification in Ethiopia : process, initial impact, and implications for other African countries By Zevenbergen, Jaap; Holden, Stein; Ali, Daniel Ayalew; Deininger, Klaus
  33. Government expenditures on education, health, and infrastructure : a naive look at levels, outcomes, and efficiency By Trujillo,Lourdes; Gonzalez, Marianela; Estache, Antonio
  34. Offshoring, Outsourcing, and Production Relocation—Labor-Market Effects in the OECD Countries and Developing Asia By Jacob Funk Kirkegaard
  35. Labour Productivity and Rice Production in Bangladesh By Selim, Sheikh
  36. Policy Reforms and Incentives in Rice Production in Bangladesh By Selim, Sheikh; Parvin, Naima
  37. HIV/AIDS and Poverty in South Africa: a Bayesian Estimation By Fabrice Murtin; Federica Marzo
  38. Is Bonded Labor Voluntary? Evidence from the Liberation of the Kamaiyas in the Far-Western Region of Nepal By Espen Villanger
  39. The Endogeneity of the Natural Rate of Growth – an Empirical Study for Latin-American Countries By Lena Vogel
  40. Vintage Capital in the AK growth model: a Dynamic Programming approach By Fabbri, Giorgio; Gozzi, Fausto
  41. What policies should be there for employment in urban areas of developing countries? By Gugushvili, Alexi
  42. Deterministic randomness in a model of finance and growth By Gomes, Orlando
  43. Unemployment, Education and Skills Constraints in Post-Apartheid South Africa By Rosa Dias; Dorrit Posel
  44. Subjective Well-being Poverty versus Income Poverty and Capabilities Poverty? By Geeta Kingdon; John Knight
  45. Community, Comparisons and Subjective Well-being in a Divided Society By Geeta Kingdon; John Knight
  46. Measuring Recent Changes in South African Inequality and Poverty using 1996 and 2001 Census Data By Murray Leibbrandt; Laura Poswell; Pranushka Naidoo; Matthew Welch; Ingrid Woolard

  1. By: Oded Galor; Quamrul Ashraf
    Date: 2007
  2. By: Collier, Paul; Venables, Anthony J.
    Abstract: This paper argues that the contribution of trade preferences to economic development needs to be reappraised in light of the growth of globalized trade in manufactures. Trade preferences may be able to act as a catalyst for manufacturing exports, leading to rapid growth in exports and employment. To do so, preferences need to be designed to be consistent with international trade in fragmented ‘tasks’ (as opposed to complete products) and need to be open to countries with sufficient levels of complementary inputs such as skills and infrastructure. Recent experience with the African Growth and Opportunities Act shows that, in the right conditions, Sub-Saharan African countries have had large manufacturing export supply response to trade preferences.
    Keywords: AGOA; EBA; export diversification; rules of origin; Trade preferences
    JEL: F12 F13 F14 O14
    Date: 2007–04
  3. By: David McKenzie (Development Research Group, World Bank); Hillel Rapoport (Department of Economics, Bar-Ilan University, CADRE, University of Lille II, and Stanford Center for International Development)
    Abstract: This paper examines the impact of migration on educational attainments in rural Mexico. Using historical migration rates by state to instrument for current migration, we find evidence of a significant negative effect of migration on schooling attendance and attainments of 12 to 18 year-old boys and of 16 to 18 year-old girls. IV-Censored Ordered Probit results show that living in a migrant household lowers the chances of boys completing junior high-school and of boys and girls completing high-school. The negative effect of migration on schooling is somewhat mitigated for younger girls with low educated mothers, which is consistent with remittances relaxing credit constraints on education investment for the very poor. However, for the majority of rural Mexican children, family migration depresses educational attainment. Comparison of the marginal effects of migration on school attendance and on participation to other activities shows that the observed decrease in schooling of 16 to 18 year olds is accounted for by current migration of boys and increases in housework for girls.
    Keywords: Migration, migrant networks, education attainments, Mexico
    JEL: O15 J61 D31
    Date: 2006–03
  4. By: Frédéric Docquier (FNRS and IRES, Université Catholique de Louvain); Hillel Rapoport (Department of Economics, Bar-Ilan University, CADRE, Université de Lille 2, and CReAM, University College London); I-Ling Shen (IRES, Université Catholique de Louvain)
    Abstract: We develop a model to study the effects of migration and remittances on inequality in the origin communities. While wealth inequality is shown to be monotonically reduced along the time-span, the short- and the long-run impacts on income inequality may be of opposite signs, suggesting that the dynamic relationship between migration/remittances and inequality may well be characterized by an inverse U-shaped pattern. This is consistent with the findings of the empirical literature, yet offers a different interpretation from the usually assumed migration network effects. With no need to endogenize migration costs through the role of migration networks, we generate the same result via intergenerational wealth accumulation.
    Keywords: Migration, remittances, inequality
    JEL: O11 O15 J61 D31
    Date: 2006–12
  5. By: David McKenzie (World Bank, Development Economics Research Group); Hillel Rapoport (Department of Economics, Bar-Ilan University, CADRE, Université de Lille 2, and CReAM, University College London)
    Abstract: This paper examines the role of migration networks in determining self-selection patterns of Mexico-U.S. migration. We first present a simple theoretical framework showing how such networks impact on migration incentives at different education levels and, consequently, how they are likely to affect the expected skill composition of migration. Using survey data from Mexico, we then show that the probability of migration is increasing with education in communities with low migrant networks, but decreasing with education in communities with high migrant networks. This is consistent with positive self-selection of migrants being driven by high migration costs, as advocated by Chiquiar and Hanson (2005), and with negative self-selection of migrants being driven by lower returns to education in the U.S. than in Mexico, as advocated by Borjas (1987).
    Keywords: Migration, migration networks, educational attainments, self-selection, Mexico
    JEL: O15 J61 D31
    Date: 2007–01
  6. By: Szirmai, Adam (UNU-MERIT); Van Dijk, Michiel (Centre for Research on Multinational Corporations (SOMO))
    Abstract: In this study we analyze the micro-dynamics of catch up in Indonesian paper manufacturing using a two-country plant-level data set for the period 1975-1997. The Indonesian paper industry is selected as a case-study because it experienced spectacular investment and growth. It became one of the world's largest exporters and producers of paper in the world. We apply Data Envelopment Analysis (DEA) to compare the technical efficiency of Indonesian paper mills with that of Finnish mills, which are considered to be the world technological leaders in paper making. We address three questions: What is the distribution of Indonesian plant performance vis-à-vis the technological frontier? What is the role of entry, exit and survival for catch up? What are the characteristics of catching-up plants? We find that on average the Indonesian paper industry moved closer to the technological frontier during the 1990s. However, catch up has been a highly localized process in which only a few large establishments have achieved near best-practice performance, while most other plants have stayed behind
    Keywords: economic development, economic growth, technological change, paper industry, Indonesia
    JEL: L6
    Date: 2007
  7. By: Pablo A. Acosta; Emmanuel K.K. Lartey; Federico S. Mandelman
    Abstract: Using data for El Salvador and Bayesian techniques, we develop and estimate a two-sector dynamic stochastic general equilibrium model to analyze the effects of remittances in emerging market economies. We focus our study on whether rising levels of remittances result in the Dutch disease phenomenon in recipient economies. We find that, whether altruistically motivated or otherwise, an increase in remittances flows leads to a decline in labor supply and an increase in consumption demand that is biased toward nontradables. The increase in demand for nontradables, coupled with higher production costs, results in an increase in the relative price of nontradables, which further causes the real exchange rate to appreciate. The higher nontradable prices serve as an incentive for an expansion of that sector, culminating in reallocation of labor away from the tradable sector. This resource reallocation effect eventually causes a contraction of the tradable sector. A vector autoregression analysis provides results that are consistent with the dynamics of the model.
    Date: 2007
  8. By: Alberto Chong (Inter-American Development Bank); Gianmarco León (Inter-American Development Bank)
    Abstract: Unlike previous empirical studies that focus on barriers to entry in international trade, we focus on barriers to exit as measured by passport costs for a cross-section of countries. We test four common theories on the determinants of such exit barriers and find that macroeconomic and brain-drain explanations do explain high barriers to exit. However, institutional and cultural hypotheses do not appear to be empirically robust explanations of such high barriers. Our findings hold when applying instrumental variables, changes in specification, and changes in cross-country periods.
    Keywords: International Trade; Passport Costs; Barriers to Exit; Development; Labor
    JEL: O1
    Date: 2006–08
  9. By: Alberto Chong (Inter-American Development Bank); César Caldeón (World Bank); Gianmarco León (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: O10 E60 J08 O40
    Date: 2006–10
  10. By: Satish Chand
    Abstract: This paper makes three principal claims with respect to the economic performance of 14 Forum Island Countries (FICs) over the decade to 2005. First, the FICs (as a group) have performed below their potential. Second, it is the poor policy-choices rather than the handicaps of smallness and isolation that have been responsible for this poor performance. Third, past experimentation with growth strategies offers several lessons for future policy choices to accelerate the rate of growth of income. Amongst the recommendations are: improving demand for better governance by allowing the public freer access to government information; integrating regional communications through open-skies and open-ports policies for the region; and, regional under-writing of security, both within and across the borders of member states.
    Date: 2006
  11. By: Rim Chatti; AbdelRahmen El Lahga
    Abstract: This note extends the Ravallion and Huppi (1991) aggregate poverty change decomposition, to account for the distinct contribution of migration and differential natural population growth between sectors to the aggregate poverty change. We apply our decomposition to three LDCs. We find that accounting for sectoral difference in natural population growth has a considerable impact on national poverty change.
    Keywords: Poverty change, migration, population growth
    JEL: I32 R23
    Date: 2007
  12. By: Rizwana Siddiqui
    Abstract: Recently, gender-aware computable general equilibrium models (CGE) have been developed to analyse the impact of trade liberalization, with focus on a gender-disaggregated analysis of the production side of the economy. However, these studies ignore the gender-specific consumption effects due to the paucity of gender disaggregated data. We introduce intra-household allocation for the first time in a CGE-framework. The data is arranged in a gender-aware social accounting matrix, which reveals the hidden work of women (market and non-market). This study analyses the gender dimensions of the impact of economic reforms using three types of poverty indicators - FGT, capability, and relative time poverty - calculated on the basis of the simulation results. The study mainly found out that both trade liberalization and cuts in government expenditure are pro-rich. Within poor households, both policies hurt women more than men. Despite declines in absolute poverty in both exercises, the gender composition of the poor population changes in the majority of households. In the trade liberalization exercise, poverty among women relative to men increases in poor households and decreases among the rich, leading to an overall increase in the relative poverty of women in Pakistan. However, in the fiscal adjustment exercise, the incidence of poverty remains constant. In both exercises, time poverty among women relative to men increases in rural areas and decreases in urban areas, leading to an increase in relative poverty among women in Pakistan. The poverty of capabilities among men and women increases in a similar way after trade liberalization when measured by the infant mortality rate, but it affects women more negatively when measured by the literacy rate. Cuts in government expenditure also increase capability poverty among women more than men in both regions and in Pakistan as a whole. The study concludes that prosperity (increase in income), as well as education, can help reduce the gender gap as poverty decreases in relatively rich households, whether it is measured in monetary terms, capability terms, or in terms of time-use.
    Keywords: Pakistan, Gender, CGE, Trade Policy, Public Policy, Time Allocation, Household Production and Intra-House Allocation, Poverty and Capability Development
    JEL: O53 J16 C68 O24 J38 J22 D13 I32
    Date: 2007
  13. By: Josselin Thuilliez (Centre d'Economie de la Sorbonne)
    Abstract: This paper explores the link between P. Falciparum malaria - most of malaria morbidity and mortality is due to the malignant Plasmodium Falciparum - and primary education in terms of school performances at the macroeconomic stage. Cross-country regression analysis shows that the relation between school results (measured by repetition and completion rates) and the P. Falciparum malaria index is strong. The results implies that the achievement of the education Millennium Development Goals will require more than just focusing on expenditure in primary education. It does not imply that resources in education are unnecessary but that increasing resources in education and improving education resources management alone are unlikely to be sufficient. This paper suggests that health conditions and especially diseases that alter cognitive capacities of children such as malaria should be taken into account much more seriously. This study also sees the need to place emphasis on research that will improve the quality of interventions to prevent malaria. Specific education expenditure to face Malaria should be examined in addition to health policies.
    Keywords: Malaria incidence, human capital, development.
    JEL: O15 I10 I20
    Date: 2007–03
  14. By: Emily Oster
    Abstract: The response of sexual behavior to HIV in Africa is an important input to predicting the path of the epidemic and to focusing prevention efforts. Existing estimates suggest limited behavioral response, but fail to take into account possible differences across individuals. A simple model of sexual behavior choice among forward-looking individuals implies that behavioral response should be larger for those with lower non-HIV mortality risks and those who are richer. I estimate behavioral response using a new instrumental variables strategy, instrumenting for HIV prevalence with distance to the origin of the virus. I find low response on average, consistent with existing literature, but larger responses for those who face lower non-HIV mortality and for those who are richer. I also show suggestive evidence, based on a very simple calibration, that the magnitude of behavioral response in Africa is of a similar order of magnitude to that among gay men in the United States, once differences in income and life expectancy are taken into account.
    JEL: I10 J17 O12
    Date: 2007–04
  15. By: Joan R. Rosés; Kevin H. O'Rourke; Jeffrey G. Williamson
    Abstract: The endogenous growth literature has explored the transition from a Malthusian world where real wages, living standards and labor productivity are all linked to factor endowments, to one where (endogenous) productivity change embedded in modern industrial growth breaks that link. Recently, economic historians have presented evidence from England showing that the dramatic reversal in distributional trends -- from a steep secular fall in wage-land rent ratios before 1800 to a steep secular rise thereafter -- must be explained both by industrial revolutionary growth forces and by global forces that opened up the English economy to international trade. This paper explores whether and how the relationship was different for Spain, a country which had relatively poor productivity growth in agriculture and low living standards prior to 1800, was a late-comer to industrialization afterwards, and adopted very restrictive policies towards imports for much of the 19th century. The failure of Spanish wage-rental ratios to undergo a sustained rise after 1840 can be attributed to the delayed fall in relative agricultural prices (due to those protective policies) and to the decline in Spanish manufacturing productivity after 1898.
    JEL: F1 N7 O4
    Date: 2007–04
  16. By: Kevin H. O'Rourke; Ahmed S. Rahman; Alan M. Taylor
    Abstract: Technological change was unskilled-labor-biased during the early Industrial Revolution of the late eighteenth and early nineteenth centuries, but is skill-biased today. This fact is not embedded in extant unified growth models. We develop a model of the transition to sustained economic growth which can endogenously account for both these facts, by allowing the factor bias of technological innovations to reflect the profit-maximising decisions of innovators. Endowments dictated that the initial stages of the Industrial Revolution be unskilled-labor biased. The transition to skill-biased technological change was due to a growth in "Baconian knowledge" and international trade. Simulations show that the model does a good job of tracking reality, at least until the mass education reforms of the late nineteenth century.
    JEL: F15 J13 J24 N10 O31 O33
    Date: 2007–04
  17. By: Sangraula, Prem; Chen, Shaohua; Ravallion, Martin
    Abstract: The authors provide new evidence on the extent to which absolute poverty has urbanized in the developing world, and the role that population urbanization has played in overall poverty reduction. They find that one-quarter of the world ' s consumption poor live in urban areas and that the proportion has been rising over time. By fostering economic growth, urbanization helped reduce absolute poverty in the aggregate but did little for urban poverty. Over 1993-2002, the count of the " $1 a day " poor fell by 150 million in rural areas but rose by 50 million in urban areas. The poor have been urbanizing even more rapidly than the population as a whole. Looking forward, the recent pace of urbanization and current forecasts for urban population growth imply that a majority of the poor will still live in rural areas for many decades to come. There are marked regional differences: Latin America has the most urbanized poverty problem, East Asia has the least; there has been a " ruralization " of poverty in Eastern Europe and Central Asia; in marked contrast to other regions, Africa ' s urbanization process has not been associated with falling overall poverty.
    Keywords: Rural Poverty Reduction,Population Policies,Pro-Poor Growth and Inequality,Poverty Reduction Strategies
    Date: 2007–04–01
  18. By: Iimi, Atsushi
    Abstract: Many developing countries have experienced significant developments in their telecommunications network. Countries in Africa are no exception to this. The paper examines what factor facilitates most network expansion using micro data from 45 fixed-line and mobile telephone operators in 18 African countries. In theory the telecommunications sector has two sector-specific characteristics: network externalities and discrimina tory pricing. It finds that many telephone operators in the region use peak and off-peak prices and termination-based price discrimination, but are less likely to rely on strategic fee schedules such as tie-in arrangements. The estimated demand function based on a discreet consumer choice model indicates that termination-based discriminatory pricing can facilitate network expansion. It also shows that the implied price-cost margins are significantly high. Thus, price liberalization could be conducive to development of the telecommunications network led by the private sector. Some countries in Africa are still imposing certain price restrictions. But more important, it remains a policy issue how the authorities should ensure reciprocal access between operators at reasonable cost.
    Keywords: Markets and Market Access,Economic Theory & Research,Access to Markets,Rural Communications,Infrastructure Regulation
    Date: 2007–04–01
  19. By: Iimi, Atsushi
    Abstract: Trade preferences are expected to facilitate global market integration and offer the potential for rapid economic growth and poverty reduction for developing countries. But those preferences do not always guarantee sustainable external competitiveness to beneficiary countries and may risk discouraging their efforts to improve underlying productivity. This paper examines the EU beef import market where several African countries have been granted preferential treatment. The estimation results suggest that profitability improvement achieved by countries under the Cotonou protocol compares unfavorably with the returns to nonbeneficiary countries in recent years. Rather, it shows that public infrastructure, such as paved roads, has an important role in lowering production costs and thus increasing external competitiveness and market shares.
    Keywords: Livestock & Animal Husbandry,Economic Theory & Research,Markets and Market Access,Transport Economics Policy & Planning,Free Trade
    Date: 2007–04–01
  20. By: Goto, Junichi
    Abstract: Since the revision of the Japanese immigration law in 1990, there has been a dramatic influx of Latin Americans, mostly Brazilians, of Japanese origin (Nikkeijin) working in Japan. This is because the revision has basically allowed Nikkeijin to enter Japan legally even as unskilled workers, while the Japanese law, in principle, prohibits foreigners from taking unskilled jobs in the country. In response, the number of these Latin American migrants has increased from practically zero to more than 250,000. The migration of Nikkeijin is likely to have a significant impact on both the Brazilian and the Japanese economies, given the substantial amount of remittances they send to Brazil. The impact is likely to be felt especially in the Nikkeijin community in Brazil. In spite of their importance, the detailed characteristics of Nikkei migrants and the prospect for future migration and remittances are under-researched. The purpose of this paper is therefore to provide a more comprehensive account of the migration of Nikkeijin workers to Japan. The paper contains a brief review of the history of Japanese emigration to Latin America (mostly Brazil), a study of the characteristics of Nikkeijin workers in Japan and their current living conditions, and a discussion on trends and issues regarding immigration in Japan and migration policy. The final part of the paper briefly notes the limitation of existing studies and describes the Brazil Nikkei Household Survey, which is being conducted by the World Bank ' s Development Research Group at the time of writing this p aper. The availability of the survey data will contribute to a better understanding of the Japan-Brazil migration and remittance corridor.
    Keywords: Population Policies,Labor Markets,Skills Development and Labor Force Training,Human Migrations & Resettlements,Voluntary and Involuntary Resettlement
    Date: 2007–04–01
  21. By: Tian Zhu; Lixin Colin Xu; Cull, Robert
    Abstract: Using a large panel dataset of Chinese industrial firms, the authors examine the determinants of access to loans from formal financial intermediaries and extension of trade credit. Poorly performing state-owned enterprises were more likely to redistribute credit to firms with less privileged access to loans through trade credit, a pattern consistent with some of the extension of trade credit being involuntary. By contrast, profitable private domestic firms were more likely to extend trade credit than unprofitable ones. Trade credit likely provided a substitute for loans for these private firms ' customers that were shut out of formal credit markets. As biases in lending became less severe, the amount of trade credit extended by private firms declined.
    Keywords: Investment and Investment Climate,Economic Theory & Research,Banks & Banking Reform,Financial Crisis Management & Restructuring,Financial Intermediation
    Date: 2007–04–01
  22. By: Yang Yao; Lixin Colin Xu; Li Gan
    Abstract: While the literature on consumption insurance is growing fast, little research has been conducted on how rural consumption insurance is affected by democracy. In this paper the authors examine how consumption insurance of Chinese rural residents is affected if the local leader is democratically elected. Exploring a unique panel data set of 1,400 households from 1987 to 2002, they find that consumption insurance is more complete when the households are in villages with elected village leaders. Furthermore, democracy improves consumption insurance only for the poor and middle-income farmers, but not for the rich. These findings underline the imp ortance of democratic governance for ensuring better rural consumption insurance and poverty reduction.
    Keywords: Rural Poverty Reduction,Consumption,Inequality,Services & Transfers to Poor,Economic Theory & Research
    Date: 2007–04–01
  23. By: Yeung, Bernard; Lixin Colin Xu; Morck, Randall; Fan, Joseph P. H.
    Abstract: China is now the world ' s largest destination of foreign direct investment (FDI), despite assessments highlighting its institutional deficiencies. But this FDI inflow corresponds closely to predicted FDI flows into China from a model that predicts FDI inflow based on government quality indicators and controls and is estimated across a sample of other weak-institution countr ies. The only real discrepancy is that, if government quality is measured by constraints on executive power, China receives somewhat more FDI than the model predicts. This might reflect an underestimation of the strength of these constraints in China, a unique institutional setting for FDI operations, FDI based on expected future institutional improvements, or a unique Chinese model of development. The authors conclude that Ockham ' s razor disfavors the last. They also note that FDI may be elevated because Chinese institutions protect foreign firms better than domestic ones.
    Keywords: Foreign Direct Investment,Economic Theory & Research,Legal Products,Investment and Investment Climate,Parliamentary Government
    Date: 2007–04–01
  24. By: Bundervoet, Tom; Verwimp, Philip; Akresh, Richard
    Abstract: Economic shocks at birth have lasting effects on children ' s health several years after the shock. The authors calculate height for age z-scores for children under age five using data from a Rwandan nationally representative household survey conducted in 1992. They exploit district and time variation in crop failure and civil conflict to measure the impact of exogenous shocks that children experience at birth on their height several years later. They find that boys and girls born after the shock in regions experiencing civil conflict are both negatively affected with height for age z-scores 0.30 and 0.72 standard deviations lower, respectively. Conversely, only girls are negat ively affected by crop failure, with these girls exhibiting 0.41 standard deviation lower height for age z-scores and the impact is worse for girls in poor households. Results are robust to using sibling difference estimators, household level production, and rainfall shocks as alternative measures of crop failure.
    Keywords: Youth and Governance,Population Policies,Rural Poverty Reduction,Children and Youth,Adolescent Health
    Date: 2007–04–01
  25. By: Shalizi, Zmarak
    Abstract: Part 1 of the paper reviews recent trends in fossil fuel use and associated externalities. It also argues that the recent run-up in international oil prices reflects growing concerns about supply constraints associated with declining spare capacity in OPEC, refining bottlenecks, and geopoli tical uncertainties rather than growing incremental use of oil by China and India. Part 2 compares two business as usual scenarios with a set of alternate scenarios based on policy interventions on the demand for or supply of energy and different assumptions about rigidities in domestic and international energy markets. The results suggest that energy externalities are likely to worsen significantly if there is no shift in China ' s and India ' s energy strategies. High energy demand from China and India could constrain some developing countries ' growth through higher prices on international energy markets, but for others the " growth retarding " effects of higher energy prices are partially or fully offset by the " growth stimulating " effects of the larger markets in China and India. Given that there are many inefficiencies in the energy system in both China and India, there is an opportunity to reduce energy growth without adversely affecting GDP growth. The cost of a decarbonizing energy strategy will be higher for China and India than a fossil fuel-based strategy, but the net present value of delaying the shift will be higher than acting now. The less fossil fuel dependent alternative strategies provide additional dividends in terms of energy security.
    Keywords: Energy Production and Transportation,Environment and Energy Efficiency,Energy and Environment,Energy Demand,Transport Economics Policy & Planning
    Date: 2007–04–01
  26. By: Davies, Victor A. B.
    Abstract: The author provides empirical evidence on the effects of inflation on post-war capital flight flows. He tests the hypothesis that inflation has a positive additional impact on capital flight flows after war. He uses a new panel dataset of 77 developing countries, of which 35 experienced at least one episode of war between 1971 and 2000. The author uses a range of estimation methods and four capital flight measures-Cline, World Bank Residual, Morgan Guarantee, and Dooley. The results consistently support the research hypothesis: Post-war inflation increases annual capital flight flows by about 0.005 to 0.01 percentage points of GDP. This ef fect is substantial in total at high inflation rates. The implication is that low inflation helps to curb capital flight in post-conflict economies.
    Keywords: Economic Theory & Research,Banks & Banking Reform,Investment and Investment Climate,Settlement of Investment Disputes,Pro-Poor Growth and Inequality
    Date: 2007–04–01
  27. By: Ravallion, Martin; Chen, Shaohua
    Abstract: The authors report new estimates of measures of absolute poverty for the developing world over 1981-2004. A clear trend decline in the percentage of people who are absolutely poor is evident, although with uneven progress across regions. They find more mixed success in reducing the total number of poor. Indeed, the developing world outside China has seen little or no sustained progress in reducing the number of poor, with rising poverty counts in some regions, notably Sub-Saharan Africa. Ther e are encouraging signs of progress in reducing the incidence of poverty in all regions after 2000, although it is too early to say if this is a new trend.
    Keywords: Rural Poverty Reduction,Population Policies,Pro-Poor Growth and Inequality,Services & Transfers to Poor
    Date: 2007–04–01
  28. By: Woolcock, Michael; Diprose, Rachael; Barron, Patrick
    Abstract: Drawing on an integrated mixed methods research design, the authors explore the dynamics of the development-conflict nexus in rural Indonesia, and the specific role of development projects in shaping the nature, extent, and trajectories of " everyday " conflicts. They find that projects that give inadequate attention to dispute resolution mechanisms in many cases stimulate local conflict, either through the injection of development resources themselves or less directly by exacerbating preexisting tensions in target communities. But projects that have explicit and accessible procedures for managing disputes arising from the development process are much less likely to lead to violent outcomes. The authors argue that such projects are more successful in addressing project-related conflicts because they establish direct procedures (such as forums, facilitators, and complaints mechanisms) for dealing with tensions as they arise. These direct mechanisms are less successful in addressing broader social tensions elicited by, or external to, the development process, though program mechanisms can ameliorate conflict indirectly through changing norms and networks of interaction.
    Keywords: Post Conflict Reintegration,Development Economics & Aid Effectiveness,Education and Society,Rural Poverty Reduction,Population Policies
    Date: 2007–04–01
  29. By: Bussolo, Maurizio; Molina, Luis; Lopez, Humberto
    Abstract: Existing empirical eviden ce indicates that remittances have a positive impact on a good number of development indicators of recipient countries. Yet when flows are too large relative to the size of the recipient economies, as those observed in a number of Latin American countries, they may also bring a number of undesired problems. Among those probably the most feared in this context is the Dutch Disease. This paper explores the empirical evidence regarding the impact of remittances on the real exchange rate. The findings suggest that remittances indeed appear to lead to a significant real exchange rate appreciation. The paper also explores policy options that may somewhat offset the observed effect.
    Keywords: Economic Stabilization,Macroeconomic Management,Economic Theory & Research,Remittances,Pro-Poor Growth and Inequality
    Date: 2007–04–01
  30. By: Titiunik, Rocio; Martinez, Sebastian; Gertler, Paul J.; Galiano, Sebastian; Cattaneo, Matias D.
    Abstract: Despite the importance of housing for people ' s well-being, there has been little work done to assess the causal impact of housing and housing improvement programs on health and welfare. In this paper the authors help fill this gap by investigating the impact of a large-scale effort by the Mexican government to replace dirt floors with cement floors on child health and adult happiness. They find that replacing dirt floors with cement floors significantly reduces parasitic infestations in young children, reduces diarrhea, reduces anemia, and improves cognitive development. Finally, they also find that this program leave adults substantially better off, as measured by satisfaction with their housing and quality of life and by their significantly lower rates of depression and perceived stress.
    Keywords: Health Monitoring & Evaluation,Disease Control & Prevention,Housing & Human Habitats,Construction Industry,Economic Theory & Research
    Date: 2007–04–01
  31. By: Lokshin, Michael; Klytchnikova, Irina
    Abstract: Projects and reforms targeting infrastructure services can affect consumer welfare through changes in the price, coverage, or quality of the services provided. The benefits of improved service quality-while significant-are often overlooked because they are difficult to quantify. This paper reviews methods of evaluating the welfare implications of changes in the quality of infrastructure services within the broader theoretical perspective of welfare measurement. The study outlines the theoretical assumptions and data requirements involved, illustrating each method with examples that highlight common methodological features and differences. The paper also presents the theoretical underpinnings and potential applications of a new approach to analyzing the effects of interruptions in the supply of infrastructure services on household welfare.
    Keywords: Energy Production and Transportation,Town Water Supply and Sanitation,Markets and Market Access,Economic Theory & Research,Water and Industry
    Date: 2007–04–01
  32. By: Zevenbergen, Jaap; Holden, Stein; Ali, Daniel Ayalew; Deininger, Klaus
    Abstract: Although many African countries have recently adopted highly innovative and pro-poor land laws, lack of implementation thwarts their potentially far-reaching impact on productivity, poverty reduction, and governance. The authors use a representative household survey from Ethiopia where, over a short period, certificates to more than 20 million plots were issued to describe the certification process, explore its incidence and preliminary impact, and quantify the costs. While this provides many suggestions to ensure sustainability and enhance impact, Ethiopia ' s highly cost-effective first-time registration process provides important lessons.
    Keywords: Agricultural Knowledge & Information Systems,Rural Development Knowledge & Information Systems,Common Property Resource Development,Land Use and Policies,Municipal Housing and Land
    Date: 2007–04–01
  33. By: Trujillo,Lourdes; Gonzalez, Marianela; Estache, Antonio
    Abstract: All interested parties seem to agree that it is important to be able to monitor public sector performance at the sectoral level, but most current work based on multi-country databases does not lend itself to country-specific conclusions. This is due to a large extent to major data limitations both on sectoral expenditures and on sectoral outcomes. This paper discusses the related issues and shows what we can do with the current data inspite of the drastic limitations. The main conclusions of the paper are that any efforts to assess country-specific performances in relative terms are likely to be difficult in view of the data problems. A rough sense of performance across sectors can be estimated for groups of countries, allowing some modest benchmarking exercises. These estimates show that low-income countries generally lag significantly behind higher-income countries. Efficiency has improved during the 1990s in energy and education but has not improved significantly in transport.
    Keywords: Transport Economics Policy & Planning,Public Sector Expenditure Analysis & Management,Inequality,Economic Theory & Research,Poverty Monitoring & An alysis
    Date: 2007–05–01
  34. By: Jacob Funk Kirkegaard (Peterson Institute for International Economics)
    Abstract: This working paper evaluates the validity of available data on and the extent of the impact of offshoring on service-sector labor markets in the United States, EU-15, and Japan. A three-tier data validity hierarchy is identified. The impact of offshoring on employment in the three regions is found to be limited. Correspondingly, developing Asia is unlikely to experience large employment gains as a destination region. The paper highlights the case of the Indian IT industry, where the majority of job creation has been in local Indian companies rather than foreign multinationals. Domestic entrepreneurs have played a crucial role in the growth of the Indian IT-related service industry. However, increased tradability of services and associated skill bias in favor of higher skilled workers could have an uneven employment impact on developing Asia. Some high-skilled groups are benefiting and will continue to benefit dramatically from new employment opportunities and rising wage levels. Meanwhile, the same skill bias may eliminate many employment opportunities for unskilled or low-skilled groups in the region. Developing Asian countries therefore face a double educational challenge in the coming years: the need to simultaneously improve both primary aCreation-Date: 2006-06
    Keywords: Service Sectors, Offshoring, Production Relocation, Data Source Validity, Automation, Highly Skilled Workers
    JEL: F23 J21
    Date: 2007–04
  35. By: Selim, Sheikh (Cardiff Business School)
    Abstract: We examine the significance of labour productivity and use of inputs in explaining technical efficiency of rice production in Bangladesh. We find negative output elasticity of labour, which is consistent with the evidence of a predominantly informal agricultural labour market in Bangladesh. We find that higher labour productivity can stimulate high efficiency gains, but increased use of inputs (except land) induces negative marginal effect on technical efficiency. While more use of land, improved seeds and fertilizers contributes to the rate of labour-productivity induced marginal efficiency gain, any additional labour depresses this rate. Given the agricultural policy reform history in Bangladesh, our findings imply that rather than providing input subsidy or output price support, future reforms should put more emphasis on providing incentives to enhance labour productivity and encourage formalization of the agricultural labour market.
    Keywords: Stochastic frontier; non-neutral frontier; technical efficiency
    JEL: C33 C51 O13 Q12
    Date: 2007–04
  36. By: Selim, Sheikh (Cardiff Business School); Parvin, Naima
    Abstract: We estimate an institutional production function to capture incentive induced growth in total factor productivity (TFP) of rice production in Bangladesh. The incentive component of TFP assists in explaining farmers' response to incentives due to major policy reforms during 1980s and 1990s.
    Keywords: Bangladesh; Incentives; TFP
    JEL: C33 C51 O13 Q12
    Date: 2007–04
  37. By: Fabrice Murtin (GREDI, Université de Sherbrooke); Federica Marzo (CREST, INSEE)
    Abstract: In this paper we assess the causal impact of HIV/AIDS on monetary poverty using a panel data-set from South Africa and modeling the consequences of the illness on both earnings and transfers. Two major econometric problems are likely to bias the estimation: endogeneity of the HIV/AIDS dummy variable, and autoselection of the individuals participating to the labour market or to transfers networks. We solve both of them by proposing an original framework where we include correlated fixed-effects both in the level and the participation equations, which are estimated simultaneously with original Bayesian methods. The procedure is tested and very well-behaved. Splitting the sample into urban and rural population, we show that HIV/AIDS has a significant but moderate impact on poverty for urban population, because transfers partly compensate the fall of earnings entailed by the decrease in labour market participation. On the contrary, HIV/AIDS has an important impact on poverty for the rural population because it causes a fall of transfers. Surprisingly the effect on earnings is not significant . We argue that those results can be explained by the existence of an efficient public safety net in urban settings, while in contrast private transfers are subject to moral hazard and imperfect commitment that characterize risk-sharing in rural settings.
    Keywords: DHIV/AIDS, MCMC, Selection Models
    JEL: C3 D1 I1
    Date: 2007
  38. By: Espen Villanger
    Abstract: The UN estimates that 20 million are held in bonded labor. Several economic analyses assert that bonded laborers accept these contracts voluntarily, which could imply that a ban would make such laborers worse off. We question the voluntary nature of bonded labor, discuss different theories and new evidence on the issue, and propose a new mechanism whereby landlords keep workers trapped. With different types of landlords not revealed to the laborer, we show how some landlords manipulate loan terms so that the laborer becomes bonded if future labor is rendered as collateral. Enforcement mechanisms and the monopolistic market for credit thus play a joint role. Providing alternative sources of credit, offering proper conflict resolution institutions for settling labor-contract disputes and banning the practice of bonded labor could emancipate bonded laborers, which would make them better off.
    Keywords: Asia Nepal Bonded labor Debt slavery
    JEL: C72 D40 J41 O10
    Date: 2006
  39. By: Lena Vogel (Department for Economics and Politics, University of Hamburg)
    Abstract: The aim of this paper is to analyse the sensitivity of the natural rate of growth to the actual rate of growth for a sample of eleven Latin-American countries, assuming the natural rate to be determined endogenously by changes in the actual rate of growth. The natural rates of growth are estimated in a system of SUR estimations over the period 1986-2003. In order to determine whether they react endogenously to changes in the actual rate of growth, a dummy variable for boom periods is added to the system of regressions. In the second part of the empirical analysis, the direction of causality between input growth and output growth is then tested for four of the countries in the first sample. The results confirm not only the hypothesis about the endogeneity of the natural rate of growth, but also show causality from output growth to input growth to be much stronger than the reverse. Length: 28 pages
    Keywords: Natural rate of growth, actual rate of growth, endogeneity, Granger causality, Latin America
    JEL: O40 E10 C23
    Date: 2007–04
  40. By: Fabbri, Giorgio; Gozzi, Fausto
    Abstract: This paper deals with an endogenous growth model with vintage capital and, more precisely, with the AK model proposed in [13]. In endogenous growth models the introduction of vintage capital allows to explain some growth facts but strongly increases the mathematical difficulties. So far, in this approach, the model is studied by the Maximum Principle; here we develop the Dynamic Programming approach to the same problem by obtaining sharper results and we provide more insight about the economic implications of the model. We explicitly find the value function, the closed loop formula that relates capital and investment, the optimal consumption path and the long run equilibrium. The short run fluctuations of capital and investment and the relations with the standard AK model are analyzed.
    Keywords: Endogenous growth; Vintage capital; AK model; Dynamic programming.
    JEL: C61 O4
    Date: 2006
  41. By: Gugushvili, Alexi
    Abstract: This paper examines employment policies in urban areas of developing world. We follow traditional economic analysis and present the urban unemployment problem as an inequality of labour supply and demand on labour markets. The effects of demand-side and supply-side policies on informal urban employment are investigated through econometrical models. One or several variables are employed as crude proxies for every policy option. The dependent variable is informal urban employment as a per cent of total urban employment, with the data on eighteen developing countries from different parts of the world.
    Keywords: Developing countries; Urban unemployment; Employment policies
    JEL: D72 J38 C20 E24 O57
    Date: 2006–12–09
  42. By: Gomes, Orlando
    Abstract: Following the literature on growth, cycles and financial development, this paper develops an endogenous growth model where the source of endogenous business cycles relates to the allocation of credit between productive investment and consumption. An important role is given to consumer sentiment, because this determines the willingness of households in terms of demand for credit; in particular, optimistic beliefs about the economy’s macro performance deviate financial resources from investment in favour of consumption. The dynamic analysis indicates that Neimark-Sacker and flip bifurcations eventually separate stable and unstable manifolds, and as a result a region of nonlinear motion is generated: cycles of various periodicities and chaotic motion characterize the behaviour of the long run time paths of accumulated wealth, output and consumption.
    Keywords: Financial development; Endogenous business cycles; Endogenous growth; Credit to consumption; Local bifurcations; Nonlinear dynamics; Chaos.
    JEL: C62 O16 E32
    Date: 2007–02
  43. By: Rosa Dias; Dorrit Posel (Division of Economics,University of KwaZulu-Natal)
    Abstract: Abstract: This paper investigates the relationship between education and unemployment in Post-Apartheid South Africa, and probes the argument that employment growth has been inhibited particularly by skills constraints. We use probit regression analysis to show that higher education protected against unemployment in both 1995 and 2003, and that overall, the relative benefits to tertiary education rose over the period. We show also that these aggregate trends mask substantial variation among race groups and within race groups, among men and women. However, after taking into account changes in the survey instruments used to measure employment, we find only modest evidence of skills-intensive employment growth. Rather, the increase in formally qualified labour was considerably larger than the increase in demand for skilled and semi-skilled labour over the period, and so unemployment rates even among graduates increased over the period.
    Keywords: South Africa: education, unemployment, skills constraints
    JEL: A1
    Date: 2007–03
  44. By: Geeta Kingdon; John Knight (Department of Economics, University of Oxford)
    Abstract: Abstract: The conventional approach of economists to the measurement of poverty in poor countries is to use measures of income or consumption. This has been challenged by those who favour broader criteria for poverty and its avoidance. These include the fulfilment of ‘basic needs’, the ‘capabilities’ to be and to do things of intrinsic worth, and safety from insecurity and vulnerability. This paper asks: to what extent are these different concepts measurable, to what extent are they competing and to what extent complementary, and is it possible for them to be accommodated within an encompassing framework? There are two remarkable gaps in the rapidly growing literature on subjective well-being. First, reflecting the availability of data, there is little research on poor countries. Second, within any country, there is little research on the relationship between well-being and the notion of poverty. This paper attempts to fill these gaps. Any attempt to define poverty involves a value judgement as to what constitutes a good quality of life or a bad one. We argue that an approach which examines the individual’s own perception of well-being is less imperfect, or more quantifiable, or both, as a guide to forming that value judgement than are the other potential approaches.We develop a methodology for using subjective well-being as the criterion for poverty, and illustrate its use by reference to a South African data set containing much socio-economic information on the individual, the household and the community, as well as information on reported subjective well-being. We conclude that it is possible to view subjective well-being as an encompassing concept, which permits us to quantify the relevance and importance of the other approaches and of their component variables. The estimated subjective well-being functions for South Africa contain some variables corresponding to the income approach, some to the basic needs (or physical functioning) approach, some to the relative (or social functioning) approach, and some to the security approach. Thus, our methodology effectively provides weights of the relative importance of these various components of subjective well-being poverty.
    Keywords: South Africa: poverty, well-being, measures of income, consumption
    JEL: A1
    Date: 2005–07
  45. By: Geeta Kingdon; John Knight (Department of Economics, University of Oxford)
    Abstract: Abstract: Using a South African data set, the paper poses six questions about the determinants of subjective well-being. Much of the paper is concerned with the role of relative concepts. We find that comparator income – measured as average income of others in the local residential cluster – enters the household’s utility function positively but that income of more distant others (others in the district or province) enters negatively. The ordered probit equations indicate that, as well as comparator groups based on spatial proximity, race-based comparator groups are important in the racially divided South African society. It is also found that relative income is more important to happiness at higher levels of absolute income. Potential explanations of these results, and their implications, are considered.
    Keywords: South Africa: poverty, well-being, absolute income, household’s utility function
    JEL: A1
    Date: 2005–07
  46. By: Murray Leibbrandt; Laura Poswell; Pranushka Naidoo; Matthew Welch; Ingrid Woolard (University of Cape Town)
    Abstract: Abstract: The paper analyses poverty and inequality changes in South Africa for the period 1996 to 2001 using Census data. To gain a broader picture of well-being in South Africa, both income-based and access-based measurement approaches are employed. At the national level, findings from the income-based approach show that inequality has unambiguously increased from 1996 to 2001. As regards population group inequality, within-group inequality has increased; while between-group inequality has decreased (inequality has also increased in each province and across the rural/urban divide). The poverty analysis reveals that poverty has worsened in the nation, particularly for Africans. Provincially, the Eastern Cape and Limpopo have the highest poverty rates while the Western Cape and Gauteng have the lowest poverty rates. Poverty differs across the urban-rural divide with rural areas being relatively worse off than urban areas. However, due to the large extent of rural-urban migration, the proportion of the poor in rural areas is declining. The access-based approach focuses on type of dwelling, access to water, energy for lighting, energy for cooking, sanitation and refuse removal. The data reveal significant improvements in these access measures between 1996 and 2001. The proportion of households occupying traditional dwellings has decreased while the proportion of households occupying formal dwellings has risen slightly (approximately two-thirds of households occupy formal dwellings). Access to basic services has improved, especially with regard to access to electricity for lighting and access to telephones. On a provincial level, Limpopo and the Eastern Cape display the poorest performance in terms of access to basic services. The paper concludes by contrasting the measured changes in well-being that emerge from the income and access approaches. While income measures show worsening well-being via increases in income poverty and inequality, access measures show that well-being in South Africa has improved in a number of important dimensions.
    Keywords: South Africa: poverty, well-being, inequality, Census data, income-based and access-based measurement
    JEL: A1
    Date: 2005–06

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.