nep-dev New Economics Papers
on Development
Issue of 2007‒05‒19
28 papers chosen by
Jeong-Joon Lee
Towson University

  1. Growth and relative living standards - testing Barriers to Riches on post-war panel data By Meenagh, David; Minford, Patrick; Wang, Jiang
  2. FDI and credit constraints : firm level evidence in China By Jérôme Héricourt; Sandra Poncet
  4. Towards Reform of Land Acquisition Framework in India By Morris Sebastian; Pandey Ajay
  5. Modern Economic Growth and Quality of Life: Cross Sectional and Time Series Evidence By Richard A. Easterlin; Laura Angelescu
  6. Symbolic Values, Occupational Choice, and Economic Development By Giacomo Corneo; Olivier Jeanne
  7. Human Rights and National Poverty Reduction Strategies: Conceptual framework for human rights analysis of poverty reduction strategies and reviews of Guatemala, Liberia and Nepal By Sakiko Fukuda-Parr
  8. Measuring microenterprise profits : don ' t ask how the sausage is made By Woodruff, Christopher; McKenzie, David; de Mel, Suresh
  9. Returns to capital in microenterprises : evidence from a field experiment By Woodruff, Christopher; McKenzie, David; de Mel, Suresh
  10. Work-related migration and poverty reduction in Nepal By Glinskaya, Elena; Bontch-Osmolovski, Mikhail; Lokshin, Michael
  11. Do workers in Chile choose informal employment? A dynamic analysis of sector choice By Packard, Truman G.
  12. Indian manufacturing : a slow sector in a rapidly growing economy By Ural, Beyza P.; Mitra, Devashish
  13. Aid Effectiveness: A comparison of Tied and Untied Aid By Josepa Miquel-Florensa
  14. Financing Multi-stage projects under moral hazard and limited commitment By Josepa Miquel-Florensa
  15. Technology Progress, Efficiency, and Scale of Economy in Post-reform China By Kui-Wai Li; Tung Liu; Lihong Yun
  16. Service Sector Growth in China and India: A Comparison By Yanrui Wu
  17. Welfare effects of intellectual property in North-South model of endogenous growth with comparative advantage By Saint-Paul, Gilles
  18. Shadow economies and corruption all over the world : what do we really know? By Schneider, Friedrich
  19. The debt-growth nexus in poor countries : a reassessment By Presbitero, Andrea F.
  20. Is corruption anti labor? By Roy, Suryadipta
  21. On the Effect of Prior Assumptions in Bayesian Model Averaging with Applications to Growth Regression By Ley, Eduardo; Steel, Mark F.J.
  22. Innovation and Export of Vietnam’s SME Sector By Nguyen, Ngoc Anh; Pham, Quang Ngoc; Nguyen, Dinh Chuc; Nguyen, Duc Nhat
  23. Globalization and its Effects on Regional Variations in Factor Substitution and Returns to Scale in the Indian Factory Sector By Mishra, SK
  24. The Role of Education in Development By Marla Ripoll; Juan Carlos Cordoba
  25. Prospects for Development of the Garment Industry in Developing Countries: What Has Happened Since the MFA Phase-Out? By Yamagata, Tatsufumi
  26. Industrial Clusters in India: Evidence from Automobile Clusters in Chennai and the National Capital Region By Okada, Aya; Siddharthan, N.S.
  27. Financial Aspects of Transactions with FDI: Trade Credit Provision by SMEs in China By Ito, Seiro; Watanabe, Mariko; Yanagawa, Noriyuki

  1. By: Meenagh, David; Minford, Patrick; Wang, Jiang
    Abstract: The effect of business tax and regulation on growth, together with potential effects of government spending on education and R&D, is embodied in a model of a small open economy with growth choices. The structural model is estimated on post-war panel data for 76 countries and the bootstrap is used to produce the model's sampling variation for the analysis of panel regressions of growth. Statistical rejection can occur at either the structural or the growth regression stage. The models featuring government spending on education and R&D are rejected while that with business taxation is accepted.
    Keywords: bootstrap testing; business regulation; business taxation; government R&D; growth; living standards; public education; structural model
    JEL: C52 O41 O57
    Date: 2007–05
  2. By: Jérôme Héricourt (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I], EQUIPPE - Université de Lille - [Université des Sciences et Technologie de Lille - Lille I]); Sandra Poncet (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I], CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - [Centre d'analyse stratégique])
    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 wich firms are financially constrainted 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 fincancing constraints tend to ease in a context of abundant foreign investment.
    Keywords: Financial constraint, corporate finance, Foreign Direct Investment.
    Date: 2007–05–04
  3. By: Engvall, Anders Engvall (European Institute of Japanese Studies)
    Abstract: Ethnic minorities have a significantly higher poverty incidence than the majority in Lao PDR. Based on survey data the determinants of minority poverty are analyzed, the sources of inequality decomposed, and the expected impact of polices to address minority poverty estimated. Minority poverty is found to be due to limited access to resources, while minority resource use tends to be efficient. Yet, large differences in resource use between the minority groups are found. Decomposition shows that unequal access to resources and demographic variables largely explain the majority-minority poverty gap. A strategy for alleviating minority poverty in the Lao PDR is suggested: (1) broad policies covering education, infrastructure and agricultural development can address poverty among ethnic minorities; (2) policies should be tailored to the needs of the individual minority groups.
    Keywords: Lao PDR; Laos; poverty; ethnic minorities
    JEL: I32 J15 O12 O53
    Date: 2007–04–01
  4. By: Morris Sebastian; Pandey Ajay
    Abstract: We bring out the fundamental and more important problems with the current framework of land acquisition in India, regulations on land and the functioning of land markets. We argue that reform is overdue and the current framework would be unsustainable in a democracy that is India. Current land prices are highly distorted owing largely to regulatory constraints and the process of takings. Land acquisition more than any other factor is the most important constraint on development and especially in infrastructure development. We bring out the core elements of the reform – the need to define “public purpose” ex-ante for compulsory acquisition of land, the measures that would allow the market price of land to play its correct role, and the approach to valuation. We also argue for an independent valuer when compulsory taking is involved and methods of valuation to ensure that the land owner including the farmer gets the correct value for this land in both compulsory acquisition and in voluntary sale. We also argue the need for a parallel non-compulsory framework for acquisition and develop the key elements of the same. We also bring out alternatives to physical acquisition of land especially in the context of infrastructure development in central places.
    Keywords: Land-Acquisition, Eminent-Domain, Public Purpose, Takings, Rehabilitation, Law, Valuation, Central Places, Land-Use, Regulation, India
    JEL: K2
    Date: 2007–05–08
  5. By: Richard A. Easterlin (University of Southern California and IZA); Laura Angelescu (University of Southern California)
    Abstract: To what extent are improvements in quality of life (material living levels, health, education, political and civil rights, happiness, and the like) associated with economic growth? International comparisons of quality of life (QoL) conditions almost always point to a strong positive association with real GDP per capita. Historical experience, however, frequently belies the results of these comparisons. More often than not the timing of various improvements in QoL, material living levels excepted, is different from that in real GDP per capita - some indicators preceding, others following. Moreover, the sequence of improvements in various aspects of QoL is not always the same from one part of the world to another. And sometimes, as in the case of happiness and life satisfaction, QoL indicators remain unchanged despite a doubling or more of real GDP per capita. In contrast to the results of simple international point-of-time comparisons, history suggests that improvements in many realms of life are not an automatic result of economic growth.
    Keywords: quality of life, well-being, economic growth, international and historical comparisons
    JEL: N30 O57 D60 Y1
    Date: 2007–04
  6. By: Giacomo Corneo (Free University of Berlin, CEPR, CESifo and IZA); Olivier Jeanne (International Monetary Fund and CEPR)
    Abstract: Channeling human resources into the right occupations has historically been a key to economic prosperity. Occupational choices are not only driven by the material rewards associated with the various occupations, but also by the esteem that they confer. We propose a model of endogenous growth in which occupations carry a symbolic value that makes them more or less attractive; the evolution of symbolic values is endogenous and determined by purposive transmission of value systems within families. The model sheds light on the interaction between cultural and economic development and identifies circumstances under which value systems matter for long-run growth. It shows the possibility of culturally determined poverty traps and offers a framework for thinking about the transition from traditional to modern values.
    Keywords: symbolic values, occupational choice, economic development, long-run growth
    JEL: D1 O1
    Date: 2007–04
  7. By: Sakiko Fukuda-Parr (The New School)
    Abstract: Poverty is an important human rights concern. Human rights are claims that people have for social arrangements to guarantee their substantive freedoms; poverty reflects failures in these social arrangements and in the actions of duty bearers. It is the poorest people in society --- those with low incomes, education, insecure health, and political power --- who are most vulnerable to severe abuse of their human rights in multiple areas. At the same time, it is lack of human rights protection that leaves people vulnerable to falling into economic and social destitution. Poverty is both a cause and consequence of human rights abuse and lack of protection. Yet human rights agendas are rarely explicitly built into national strategies for poverty reduction. This paper is a consolidated report of a study commissioned by OHCHR on developing a conceptual framework for integrating human rights into national strategies for poverty reduction and identifying operational priorities. It builds on and takes further the 2003 OHCHR conceptual framework on human rights and poverty reduction strategies authored by Hunt, Nowak and Osmani. It incorporates a human rights analysis of poverty reduction policies of Guatemala, Liberia and Nepal. The paper argues that human rights perspectives contribute new approaches in normative, analytical and instrumental dimensions of poverty reduction strategies. First, it brings a strong and explicit normative framework legitimized by the backing of international law that emphasize principles of equality, non-discrimination and concern for the most vulnerable, and a social justice agenda to policy priorities. Second, human rights perspectives introduce new analyses to the causes of poverty - focussing on institutionalized discrimination, lack of political voice, institutional failures to guarantee human rights including weak protection for civil and political rights. Third, human rights have instrumental (not just intrinsic) value for poverty reduction; human rights empower poor people through the power of legal protection for human rights --- civil, political, economic, social and cultural --- of poor people as well as through the power of ideas that legitimize the claims of poor people to surmount obstacles in their lives.
    Date: 2007–04
  8. By: Woodruff, Christopher; McKenzie, David; de Mel, Suresh
    Abstract: A large share of the world ' s poor is self-employed. Accurate measurement of profits from microenterprises is therefore critical for studying poverty and inequality, measuring the returns to education, and evaluating the success of microfinance programs. But a myriad of problems plague the measurement of profits. The authors report on a variety of different experiments conducted to better understand the importance of some of these problems and to draw recommendations for collecting profit data. In particular, they (1) examine how far we can reconcile self-reported profits and reports of revenue minus expenses through more detailed questions; (2) examine recall errors in sales and report on the results of experiments which randomly allocated account books to firms; and (3) ask firms how much firms like theirs underreport sales in surveys like this, and have research assistants observe the firms at random times 15-16 times during a month to provide measures for comparison. The authors conclude that firms underreport revenues by about 30 percent, that account diaries have significant effects on both revenues and expenses but not on profits, and that simply asking profits provides a more accurate measure of firm profits than detailed questions on revenues and expenses.
    Keywords: Busines s in Development,Business Environment,Competitiveness and Competition Policy,Economic Theory & Research,Income
    Date: 2007–05–01
  9. By: Woodruff, Christopher; McKenzie, David; de Mel, Suresh
    Abstract: Small and informal firms account for a large share of employment in developing countries. The rapid expansion of microfinance services is based on the belief that these firms have productive investment opportunities and can enjoy high returns to capital if given the opportunity. However, measuring the return to capital is complicated by unobserved factors such as entrepreneurial ability and demand shocks, which are likely to be correlated with capital stock. The authors use a randomized experiment to overcome this problem and to measure the return to capital for the average microenterprise in their sample, regardless of whether they apply for credit. They accomplish this by providing cash and equipment grants to small firms in Sri Lanka, and measuring the increase in profits arising from this exogenous (positive) shock to capital stock. After controlling for possible spillover effects, the authors find the average real return to capital to be 5.7 percent a month, substantially higher than the market interest rate. They then examine the heterogeneity of treatment effects to explore whether missing credit markets or missing insurance markets are the most likely cause of the high returns. Returns are found to var y with entrepreneurial ability and with measures of other sources of cash within the household, but not to vary with risk aversion or uncertainty.
    Keywords: Economic Theory & Research,Investment and Investment Climate,Microfinance,Small Scale Enterprise,Economic Growth
    Date: 2007–05–01
  10. By: Glinskaya, Elena; Bontch-Osmolovski, Mikhail; Lokshin, Michael
    Abstract: Using two rounds of nationally representative household survey data in this study, the authors measure the impact on poverty in Nepal of local and international migration for work. They apply an instrumental variable approach to deal with nonrandom selection of migrants and simulate various scenarios for the different levels of work-related migration, comparing observed and counterfactual household expenditure distribution. The results indicate that one-fifth of the poverty reduction in Nepal occurring between 1995 and 2004 can be attributed to increased levels of work-related migration and remittances sent home. The authors also show that while the increase in work migration abroad was the leading cause of this poverty reduction, internal migration also played an important role. The findings show that strategies for economic growth and poverty reduction in Nepal should consider aspects of the dynamics of domestic and international migration.
    Keywords: Population Policies,Anthropology,Rural Poverty Reduction,Consumption,Small Area Estimation Poverty Mapping
    Date: 2007–05–01
  11. By: Packard, Truman G.
    Abstract: The degree to which a labor market is segmented and jobs in the formal sector of the economy are rationed is critical to the analysis of coverage of social insurance and pensions. Using unique panel data spanning the 1998-99 contraction in Chile, the author finds little evidence that self-employment is the residual sector of a dualistic labor market, as is often depicted in the literature. Data on transitions between sectors show that self-employment is not a free-entry sector, and that entrepreneu rs can be " pushed " out of self-employment just as others are pushed out of formal employment during economic downturns. But employment without a contract does exhibit many of the features of the free-entry, employment safety net depicted in the dualistic literature. An annex to this paper presents supportive evidence from static analysis of selection-corrected wage differentials and a comment on the drawbacks of this approach.
    Keywords: Labor Markets,Labor Standards,Work & Working Conditions,Labor Management and Relations,Educational Policy and Planning
    Date: 2007–05–01
  12. By: Ural, Beyza P.; Mitra, Devashish
    Abstract: This paper investigates the determinants of productivity in Indian manufacturing industries during the period 1988-2000. Using two-digit industry level data for the Indian states, we find evidence of imperfect interindustry and interstate labor mobility as well as misallocation of resources across industries and states. Trade liberalization increases productivity in all industries across all states, and productivity is higher in the less protected industries. These effects of protection and trade liberalizat ion are more pronounced in states that have relatively more flexible labor markets. Similar effects are also found in the case of employment, capital stock and investment. Furthermore, labor market flexibility, independent of other policies, has a positive effect on productivity. Importantly, per capita state development expenditure seems to be the strongest and the most robust predictor of productivity, employment, capital stock and investment. Industrial delicensing increases both labor productivity and employment but only in the states with flexible labor market institutions. Even after controlling for delicensing, the analysis shows that trade liberalization has a productivity-enhancing effect. Finally, trade liberalization benefits most the export-oriented industries located in states with flexible labor-market institutions.
    Keywords: Economic Theory & Research,Labor Markets,Markets and Market Access,Free Trade,Economic Growth
    Date: 2007–05–01
  13. By: Josepa Miquel-Florensa (Department of Economics, York University)
    Abstract: We evaluate the differential effects of Tied and Untied aid on growth, and how these effects vary with the policy environment of the recipient country. To do so, we use Burnside and Dollar (2000) and Easterly, Levine and Roodman (2003) datasets. We find that aid effectiveness is not significantly different for the two types of aid. However, when we condition on policies, we find that untied aid has a greater impact on growth than tied aid. We find that this difference is significant for the sample of low and middle-income countries, and is not statistically significant, but consistent in sign for the sub sample of low-income countries.
    Keywords: Foreign Aid, Aid Contracts, Tied and Untied Aid
    JEL: F35 O40
    Date: 2007–04
  14. By: Josepa Miquel-Florensa (Department of Economics, York University)
    Abstract: We present the optimal contract for financing a project that has N stages to be completed sequentially when the principal can not commit to abandone the project before it is completed and the project to be completed is valued by the agent. In a dynamic moral hazard setting, we find that the optimal contract provides decreasing transfers for successive unsuccessful attempts in a given stage, and smaller transfers when the subsequent stages are reached. We find that the optimal sequence of transfers is greater the bigger is the exogenous probability of returning to a preceding stage and the greater the principal’s cost of stage verification is. When intermediate stages are valued by the agent, we find that smaller transfers are optimal.
    Keywords: Dynamic contracts, Moral Hazard, Foreign Aid, multi-stage projects
    JEL: D82 D86 F35 O12
    Date: 2007–05
  15. By: Kui-Wai Li (City University of Hong Kong, Hong Kong SAR); Tung Liu (Department of Economics, Ball State University); Lihong Yun (City University of Hong Kong, Hong Kong SAR)
    Abstract: This paper analyzes the productivity change of the thirty provinces in China’s post-reform economy. The productivity change is estimated from the stochastic frontier model, in which the maximum likelihood estimation is applied to an augmented logarithmic production function incorporated with a human capital variable. The empirical results show technical progress is the main contributor to productivity growth and the scale of economy became important in recent years, but technical efficiency has edged downwards in the sample period. We also found that the physical capital is the important factor for economic growth and human capital is inadequate even though it has a positive and significant effect on growth. The relevant policy implication for a sustainable post-reform China economy is the need to promote human capital accumulation and improvement in technical efficiency.
    Keywords: technical efficiency, technical progress, human capital, China economy
    Date: 2007–04
  16. By: Yanrui Wu (UWA Business School, The University of Western Australia)
    Abstract: China and India have recently achieved spectacular economic growth. However, services in these two Asian giants have played a very different role. In India, the service sector contributes to more than 54 per cent of GDP while its GDP share in China is much smaller (below 41 per cent in 2004). To provide an explanation for the contrasting trajectories, this paper examines and compares service sector developments in these two Asian giants. It investigates the determinants of demand for services and sheds light on the outlook for service sector growth in the two countries.
    Keywords: China and India, Asia, service sector, growth determinants and regression analysis
    Date: 2007
  17. By: Saint-Paul, Gilles
    Abstract: This paper develops a model for analyzing the costs and benefits of intellectual property enforcement in LDCs. The North is more productive than the South and is the only source of innovator. There are two types of goods, and each bloc has a comparative advantage in producing a specific type of good. If comparative advantage is strong enough, even under piracy there are goods that the South will not produce. Piracy will then lead to a reallocation of innovative activity in favor of these goods. That may harm consumers (including consumers in the South) to the extent that these goods have smaller dynamic learning externalities than the other goods, and that their share in consumption is small. Thus, whether or not piracy is in the interest of the South depends on how important are the goods for which it has a comparative advantage to its consumers, and what the growth potential of these goods is. While, all else equal, the North tends to lose more (or gain less) from piracy than the South, because monopoly profits eventually accrue to the North, the South may lose more than the North if there is a strong enough home bias in favor of the goods for which it has a comparative advantage.
    Keywords: Piracy, Intellectual property, innovation, growth, comparative advantage
    JEL: F12 F13 O30 O34
    Date: 2007
  18. By: Schneider, Friedrich
    Abstract: Estimations of the shadow economies for 145 countries, including developing, transition and highly developed OECD economies over 1999 to 2003 are presented. The average size of the shadow economy (as a percent of "official" GDP) in 2002/03 in 96 developing countries is 38.7%, in 28 transition countries 40.1% and in 21 OECD countries 16.3%. An increased burden of taxation and social security contributions, combined with a labour market regulation are the driving forces of the shadow economy. Furthermore, the results show that the shadow economy reduces corruption in high income countries, but increases corruption in low income countries. Finally, the various estimation methods are discussed and critically evaluated.
    Keywords: shadow economy of 145 countries, tax burden, tax moral, quality of state institutions, regulation, DYMIMIC and other estimation methods
    JEL: D78 H11 H2 H26 O17 O5
    Date: 2007
  19. By: Presbitero, Andrea F.
    Abstract: This paper investigates the relationship between external indebtedness and economic growth, with a particular attention to LICs, for which the theoretical arguments of debt overhang and liquidity constraint have to be reconsidered. The estimation of a growth model, with a panel of 121 developing countries, supports a negative and linear relationship between past values of the NPV of external public debt and current economic growth. This could be due to the “extended debt overhang”, according to which a large indebtedness leads to misallocation of capital and discourage long-term investment and structural reforms.
    Keywords: External Debt, HIPC, Debt Relief, Economic Growth
    JEL: C33 F34 H63 O11
    Date: 2007
  20. By: Roy, Suryadipta
    Abstract: This paper investigates the effect of corruption on trade openness in low-income and high-income countries. The results suggest corruption is anti-labor, since it reduces trade in low-income countries and increases trade in high-income countries.
    Keywords: Openness; corruption; Stolper-Samuelson effects.
    JEL: F1 O17 D73
    Date: 2007–05–07
  21. By: Ley, Eduardo; Steel, Mark F.J.
    Abstract: We consider the problem of variable selection in linear regression models. Bayesian model averaging has become an important tool in empirical settings with large numbers of potential regressors and relatively limited numbers of observations. We examine the effect of a variety of prior assumptions on the inference concerning model size, posterior inclusion probabilities of regressors and on predictive performance. We illustrate these issues in the context of cross-country growth regressions using three datasets with 41 to 67 potential drivers of growth and 72 to 93 observations. Finally, we recommend priors for use in this and related contexts.
    Keywords: Model size; Model uncertainty; Posterior odds; Prediction; Prior odds; Robustness
    JEL: C11 O47
    Date: 2007–05–12
  22. By: Nguyen, Ngoc Anh; Pham, Quang Ngoc; Nguyen, Dinh Chuc; Nguyen, Duc Nhat
    Abstract: Innovation has long been considered an important factor for creating and maintaining the competitiveness of nations and firms. The relationship between innovation and exporting has been investigated for many countries. However, there is a paucity of research in Vietnam with respect to this issue. In this paper we examine whether innovation performed by Vietnam’s small and medium enterprises (SMEs) enhances their exporting likelihood. Using the recently released Vietnam Small and Medium Enterprise Survey 2005, we find that innovation as measured directly by ‘new products’, ‘new production process’ and ‘improvement of existing products’ are important determinants of exports by Vietnamese SMEs.
    Keywords: Vietnam; Export; Innovation; Small and Medium Enterprise
    JEL: F10 O3
    Date: 2007–05
  23. By: Mishra, SK
    Abstract: The issue of inequality or imbalance in sectional, sectoral or regional distribution of economic and social variables is connected to welfare implications of the functioning of an economy responsible for allocation of resources, and production, distribution and consumption of the material requisites of well-being. Economic development and technological progress may or may not deliver justice in the Rawls’ sense although such development and progress might be perfectly just in Mill’s or Nietzsche’s sense. Inequalities and their dynamics are often studied in terms of collectives of gross variables – income, amenities and facilities, infrastructure, etc. – that directly impinge on the welfare of the people. However, deeper parameters are seldom studied in this regard. Nevertheless, these parameters - such as propensities to consume and save, rate and direction of substitution of factors of production, returns to scale, bias of technical progress, concentration of monopoly power, etc are altered in the process of development and determine the gross economic variables for a fairly long period. In this study we make an attempt to look into the spatial/regional distribution of a few structural parameters in the factory sector of India and purport to examine if, in the wake of globalization, there have been substantial changes in their distribution. Our main apparatus of analysis is ‘production functions’ that permit variable elasticities of factor substitution and returns to scale. We use data at the state level for 1990-91 and 2003-04 for our analysis.
    Keywords: Globalization; liberalization; industrialization; manufacturing sector; regional distribution; inequality; production function; variable returns to scale; substitution; factors of productions; India; state-level data.
    JEL: O53 L60 O5 L00
    Date: 2007–05–17
  24. By: Marla Ripoll; Juan Carlos Cordoba
    Abstract: . . .
    Date: 2007–05
  25. By: Yamagata, Tatsufumi
    Abstract: On January 1, 2005, the controlled trade regime on textiles and clothing which was based on the Multi-Fiber Arrangement (MFA) made in 1974 was abolished. This institutional change wrought great impacts on the world market for textiles and clothing.This paper reviews the impacts of the changes on the main markets and examines the prospects for the markets and the source countries. The main conclusions are as follows: (1) after the renewal of quantitative restrictions on Chinese garment exports were agreed with the US and the EU, the post-MFA surge in Chinese garment exports was significantly attenuated; (2) instead, the growth in garment exports from other Asian low-income countries to the two markets was revived in 2006; (3) the Japanese market has been kept almost intact from the impact of the regime shift; (4) some developing countries, such as Bangladesh and Cambodia, not only survived the liberalization but also have steadily expanded their garment exports throughout the transition; and (5) an indicative fact is that the profitability of the garment industry in Bangladesh and Cambodia was high on average according to surveys conducted in 2003, which might have bolstered the steady growth of garment exports in the past, and possibly future growth, too.
    Keywords: Garment, MFA phase-out, China, Bangladesh, Cambodia, Developing countries, Apparel industry, Exports, International agreements
    JEL: L67 O53
    Date: 2007–04
  26. By: Okada, Aya; Siddharthan, N.S.
    Abstract: This study analyzes the patterns of agglomeration of some modern manufacturing sectors in India, and in particular the Indian automobile sector. It also examines and contrasts the factors that have led to different patterns of cluster development in two leading auto clusters in India-Chennai and the National Capital Region (NCR). Moreover, the study analyzes whether firms in clusters perform better than those that are excluded and whether the relative importance of variables that determine the behavior of firms differs among clusters. Our analyses, which employ a combination of quantitative and qualitative methods, show that Indian industrial clusters are largely concentrated in the three clustered regions: NCR, Mumbai-Pune, and Chennai-Bangalore, across different manufacturing sectors. Our study of the auto clusters in Chennai and the NCR find considerable differences in the patterns of cluster formation, due partly to the historical and policy conditions under which firms, particularly, the lead firms must operate. Moreover, our econometric analyses confirmed that being part of a cluster positively influences the performance of the auto component firms and those belonging to a cluster perform better.
    Keywords: Industrial clusters, Automobile industry, Spatial distribution of industry, India, Industrial estates
    JEL: L62 O14 R12
    Date: 2007–04
  27. By: Ito, Seiro; Watanabe, Mariko; Yanagawa, Noriyuki
    Keywords: Incomplete contract, Trade credit, Spillover of technology, FDI, Government-owned firms, China, Foreign investments, Credit, Small and medium-scale enterprises
    JEL: G2 K0 O5 P31
    Date: 2007–04
  28. By: Bernard Walters (Economics Discipline Area, School of Social Sciences, University of Manchester)
    Abstract: The HIV/AIDS pandemic has motivated large increases in aid commitments and disbursements, with promises of further large increases in the near future. This aid is urgently required to address the emerging humanitarian crisis and implies immediate, large-scale increases in public expenditure. The central question that this paper examines is whether such increases can effectively address the epidemic without inducing macroeconomic disturbances, especially for those countries, particularly in sub-Saharan Africa, where there is already high aid dependence and parallel commitments to the other MDGs. For the aid to lead to a real resource transfer, the monetary authorities in the recipient countries must accommodate such inflows. However, the twin dangers of ‘Dutch disease’ effects and inflation provide motivation for resisting accommodation. This paper argues that although such dangers are real, they are overemphasized: aid directed at HIV/AIDS is likely to have positive short- and long-term effects on production possibilities in the recipient countries and to be complementary to efforts to achieve the other MDGs. Furthermore, the increased fiscal deficit is a necessary condition for the appropriate resource transfer and is not likely, in itself, to have an inflationary impact. The danger of inflation lies in an effort by the monetary authorities to resist absorption. Recipient governments are understandably fearful of fiscal sustainability and debt sustainability because of the historical record of very high aid volatility and low predictability. However, spending that reduces the debilitating effects of HIV/AIDS is most likely to counteract such effects by raising government revenues in both the short and medium term. Nevertheless, donors have a responsibility to match disbursements to commitments on a more systematic and long-term basis, and reduce the dangers of volatility and unpredictability by shifting aid towards debt relief and grants. The possibility that aid-induced spending will quickly induce decreasing returns is an overly static and pessimistic view: aid targeted at HIV/AIDS can respond very elastically in the medium term and release the supply constraints that limit its effectiveness. Finally, many of the major impediments to aid effectiveness lie in donors’ behaviour, particularly their lack of co-ordination with one another and with the recipient country. In summary, although there are potential dangers in scaling up aid-supported spending to address the HIV/AIDS pandemic, they are manageable and provide no reason for delaying the immediate application of resources on a large scale.
    JEL: B41
    Date: 2007–05

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