nep-dev New Economics Papers
on Development
Issue of 2007‒05‒26
twenty papers chosen by
Jeong-Joon Lee
Towson University

  1. Teenage Motherhood and Long-run Outcomes in South Africa By Siv Gustafsson; Seble Worku
  2. Are Urban Children really healthier? By Ellen van de Poel; Owen O'Donnell; Eddy van Doorslaer
  3. The growth effect of democracy: Is it heterogenous and how can it be estimated? By Torsten Persson and Guido Tabellini
  4. Health Aid and Infant Mortality By Prachi Mishra; David Locke Newhouse
  5. Interest Rate Spreads in English-Speaking African Countries By Joe Crowley
  6. Wage Gaps and Development: Lessons from U.S. History By Peter Rangazas; Alex Mourmouras
  7. Old Curses, New Approaches? Fiscal Benchmarks for Oil-Producing Countries in Sub-Saharan Africa By Jan-Peter Olters
  8. Lessons from High Inflation Epidsodes for Stabilizing the Economy in Zimbabwe By Norbert Funke; Jens R. Clausen; Sonia Munoz; Bakar Ould-Abdallah; Sharmini Coorey
  9. Rural Windfall or a New Resource Curse? Coca, Income, and Civil Conflict in Colombia By Joshua D. Angrist; Adriana D. Kugler
  10. Skilled Migration, FDI and Human Capital Investment By Daniele Checchi; Gianfranco De Simone; Riccardo Faini
  11. Globalization and Employment: Imported Skill Biased Technological Change in Developing Countries By Andrea Conte; Marco Vivarelli
  12. How Sustainable are Sustainable Development Programs? The Case of the Sloping Land Conversion Program in China By Andreas Kontoleon; Pauline Grosjean
  13. Transient and Chronic Rural Household Poverty: Evidence from Kenya By Milu Muyanga; Miltone Ayieko; Mary Bundi
  14. The Impacts of Trade Liberalization on Poverty in Nigeria: Dynamic Simulations in a CGE Model By Manson Nwafor; Adeola Adenikinju; Kanayo Ogujiuba
  15. Poverty and Inequality Impacts of Trade Policy Reforms in South Africa By Ramos Mabugu; Margaret Chitiga
  16. Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China By David Dollar; Shang-Jin Wei
  17. Financing Development: The Role of Information Costs By Jeremy Greenwood; Juan M. Sanchez; Cheng Wang
  18. Rural Nonfarm Employment Under Trade Reform Evidence From Vietnam, 1993-2002 By Pham, T.H.
  19. Endogenous (Re-)Distributive Policies and Economic Growth: A Comparative Static Analysis By Günther Rehme
  20. Inequality reduction through self-employment under high inflation periods: the Mexican experience By Mirenitzia Cárdenas; Héctor J. Villarreal

  1. By: Siv Gustafsson (Universiteit van Amsterdam); Seble Worku (Universiteit van Amsterdam)
    Abstract: Teenage motherhood is very high in South Africa. In 2001, 55 per thousand African South African women and 82 per thousand Coloured South African women were teenage mothers as compared to 8 among Indian South Africans and 3 among White South African women. In this paper we use the South African General Household Survey data of 2002 with complete retrospective fertility history to study teenage childbearing and a number of outcomes in 2002 such as completed high school and satisfaction with life. Our main findings are that teenage childbearing is negatively correlated with completing high school, but most other outcome measures do not show the negative effects from teenage motherhood as has been found in many previous US and UK studies. We estimate a bivariate probit model on the joint determination of the probability of teenage motherhood and completing high school, identifying by abortion rates and the numbers of doctors and nurses by region.
    Keywords: Teenage motherhood; high school completion; endogeneity; bivariate probit; South Africa
    JEL: D1 J1
    Date: 2007–02–15
  2. By: Ellen van de Poel (Erasmus Universiteit Rotterdam); Owen O'Donnell (University of Macedonia, Thessaloniki, Greece); Eddy van Doorslaer (Erasmus Universiteit Rotterdam)
    Abstract: On average, child health outcomes are better in urban than in rural areas of developing countries. Understanding the nature and the causes of this rural-urban disparity is essential in contemplating the health consequences of the rapid urbanization taking place throughout the developing world and in targeting resources appropriately to raise population health. We use micro data on child health taken from the most recent Demographic and Health Surveys for 47 developing countries. First, we document the magnitude of rural-urban disparities in child nutritional status and under-five mortality across all 47 developing countries. Second, we adjust these disparities for differences in population characteristics across urban and rural settings. Third, we examine rural-urban differences in the degree of socioeconomic inequality in these health outcomes. We find considerable rural-urban differences in mean child health outcomes. The rural-urban gap in stunting does not entirely mirror the gap in under-five mortality. The most striking difference between the two is in the Latin American and Caribbean region, where the gap in stunting is more than 1.5 times higher than that in mortality. On average, the rural-urban risk ratios of stunting and under-five mortality fall by respectively 53% and 59% after controlling for household wealth. Controlling thereafter for socio-demographic factors reduces the risk ratios by another 22% and 25%. In a considerable number of countries, the urban poor actually have higher rates of stunting and mortality than their rural counterparts. The findings imply that there is a need for programs that target the urban poor, and that this is becoming more necessary as the size of the urban population grows.
    Keywords: child health; urban-rural inequality; nutrition; child mortality
    JEL: I12 I31 O53
    Date: 2007–04–10
  3. By: Torsten Persson and Guido Tabellini
    Abstract: We estimate the effect of political regime transitions on growth with semi-parametric methods, combining difference in differences with matching, that have not been used in macroeconomic settings. Our semi-parametric estimates suggest that previous parametric estimates may have seriously underestimated the growth effects of democracy. In particular, we find an average negative effect on growth of leaving democracy on the order of ?2 percentage points implying effects on income per capita as large as 45 percent over the 1960-2000 panel. Heterogenous characteristics of reforming and non-reforming countries appear to play an important role in driving these results.
  4. By: Prachi Mishra; David Locke Newhouse
    Abstract: This paper examines the relationship between health aid and infant mortality, using data from 118 countries between 1973 and 2004. Health aid has a statistically significant effect on infant mortality: doubling per capita health aid is associated with a 2 percent reduction in the infant mortality rate. For the average country, this implies that increasing per capita health aid by US$1.60 per year is associated with 1.5 fewer infant deaths per thousand births. The estimated effect is small, relative to the targets envisioned by the Millennium Development Goals.
    Date: 2007–05–01
  5. By: Joe Crowley
    Abstract: This paper examines interest rate spreads in English-speaking African countries. Higher spreads were found to be associated with lower inflation, a greater number of banks, and greater public ownership of banks. Higher deposit interest rates were found to be associated with lower interest rate spreads, but higher net interest margins. A large increase in spreads in the late 1980s and 1990s may be explained by a strengthening of financial sector supervision. Limited data suggested that poor governance, weak regulatory frameworks and property rights, and higher required reserve ratios are associated with higher spreads.
    Date: 2007–05–01
  6. By: Peter Rangazas; Alex Mourmouras
    Abstract: During the course of development, wages and labor productivity are much higher in the nonfarm sectors of the economy than in agriculture. In this paper, we examine the sources and consequences of wage and productivity gaps in the U.S. from 1800 to 2000. We build a quantitative general equilibrium model that closely matches the two-century long paths of farm and non-farm labor productivity growth, schooling, and fertility in the U.S. The family farm emerges as an important institution that contributes to differences in wages and labor productivity. Income from farm ownership compensates farm workers for the relatively low labor productivity and wages earned in agriculture. Farm ownership, along with the higher cost of raising children off the farm, generated a two-fold gap in labor productivity across the farm and nonfarm sectors in the 19th century US. Consequently, the reallocation of labor from farming to industry raised the average annual growth rate of output per worker by about half a percentage point over the 19th century. The paper also draws some lessons from the quantitative analysis of U.S. economic history for currently developing countries.
    Date: 2007–05–03
  7. By: Jan-Peter Olters
    Abstract: Buoyant oil prices have allowed oil-producing countries in sub-Saharan Africa (SSA OPCs) to increase oil exports and fiscal revenues, providing them with resources necessary to address the pressing social needs. To preclude another boom-bust cycle, this paper advocates the definition of a fiscal benchmark anchored in sustainability grounds, following Leigh- Olters (2006). The difference between current primary deficits and those that could be maintained after oil reserves are exhausted represent an indication of the degree to which fiscal positions will have to be adjusted-either gradually, while the overall balances remain in surplus, or abruptly, once oil revenues begin to dwindle.
    Date: 2007–05–04
  8. By: Norbert Funke; Jens R. Clausen; Sonia Munoz; Bakar Ould-Abdallah; Sharmini Coorey
    Abstract: Zimbabwe has currently the highest rate of inflation in the world (an annual rate of 1,730 percent in February, 2007). The high rates of inflation have contributed to the contraction of the economy, which has declined by about 30 percent since 1999. This paper examines the stabilization experience of countries that experienced similar rates of inflation (above 1,000 percent) during 1980-2005 and draws lessons for Zimbabwe. First, with appropriate stabilization policies, the fall in inflation can be very rapid and output normally recovers within the first year or two of stabilization. Second, while reforms need to be comprehensive, a strong upfront fiscal consolidation, including elimination of quasi-fiscal activities, is a critical element of a successful stabilization program. Third, although stabilization itself can be done without significant external financing in the first year, most countries benefited from external policy advice and technical support, including from the IMF, during stabilization and from an increase in financial assistance in subsequent years.
    Date: 2007–05–01
  9. By: Joshua D. Angrist (MIT, NBER and IZA); Adriana D. Kugler (University of Houston, NBER, CEPR and IZA)
    Abstract: Natural and agricultural resources for which there is a substantial black market, such as coca, opium, and diamonds, appear especially likely to be exploited by the parties to a civil conflict. Even legally traded commodities such as oil and timber have been linked to civil war. On the other hand, these resources may also provide one of the few reliable sources of income in the countryside. In this paper, we study the economic and social consequences of a major exogenous shift in the production of one such resource - coca paste - into Colombia, where most coca leaf is now harvested. Our analysis shows that this shift generated only modest economic gains in rural areas, primarily in the form of increased selfemployment earnings and increased labor supply by teenage boys. The results also suggest that the rural areas which saw accelerated coca production subsequently became more violent, while urban areas were affected little. The acceleration in violence is greater in departments (provinces) where there was a pre-coca guerilla presence. Taken together, these findings are consistent with the view that the Colombian civil conflict is fueled by the financial opportunities that coca provides, and that the consequent rent-seeking activity by combatants limits the economic gains from coca cultivation.
    Keywords: rural development, economic shocks, civil war, illegal drugs
    JEL: Q34 O13
    Date: 2007–05
  10. By: Daniele Checchi (University of Milan and IZA); Gianfranco De Simone (University of Milan and Centro Studi Luca d’Agliano); Riccardo Faini (University of Rome Tor Vergata, CEPR and IZA)
    Abstract: It is commonly believed that accumulation of human capital (HC) and availability of physical and financial capitals are among the major determinants of economic growth. In a globalised world, where factors of production are increasingly mobile, the process of domestic accumulation of HC might be affected in several ways through migration and capital inflows. Furthermore, endowment of skilled labour and foreign direct investments (FDI) may reinforce each other through possible "complementary effects". Our paper aims to advance the existing empirical literature on the relationship between international factor mobility and domestic accumulation of HC in developing countries. We provide new evidence on how the presence of foreign firms in the domestic economy and the emigration of skilled workers impact the domestic school enrolment. We also investigate whether existing supply of skilled labour is a significant determinant of inward flows of foreign capital. The interdependence between factor mobility and HC accumulation supports some simple back-of-the-envelop calculations aiming to investigate the presence of a virtuous (vicious) circle between HC accumulation and FDI inflows.
    Keywords: human capital investment, factor mobility, FDI, brain drain/gain, complementarity effects, developing countries
    JEL: F22 F23 O15
    Date: 2007–05
  11. By: Andrea Conte (University of Turin and Max Planck Institute of Economics Jena); Marco Vivarelli (Catholic University of Milan, CSGR Warwick, Max Planck Institute of Economics Jena and IZA)
    Abstract: This paper discusses the occurrence of Skill-Enhancing Technology Import (SETI), namely the relationship between imports of embodied technology and widening skill-based employment differentials in a sample of low and middle income countries (LMICs). In doing so, this paper provides a direct measure of technology transfer at the sector level from high income countries (HICs), namely those economies which have already experienced the occurrence of skill-biased technological change, to LMICs. GMM techniques are applied to an original panel dataset comprising 28 manufacturing sectors for 23 countries over a decade. Econometric results provide robust evidence of the determinants of widening employment differentials in LMICs. In particular, capital-skill complementarity represents a source of relative skill-bias while SETI provides an absolute skill-bias effect on the employment trends of skilled and unskilled workers witnessed in these countries.
    Keywords: skill biased technological change, capital skill complementarity, GMM estimation, general industrial statistics, world trade analyzer
    JEL: F16 J23 J24 O33
    Date: 2007–05
  12. By: Andreas Kontoleon (Department of Land Economy, University of Cambridge, UK); Pauline Grosjean (LERNA, University of Toulouse and European Bank for Reconstruction and Development, France)
    Abstract: This paper undertakes a direct comprehensive assessment of the long-run sustainability of one the world’s largest sustainable development programs, the Slopping Land Conversion Program (SLCP) in China under different plausible post-SLCP scenarios. The analysis is based on farmer contingent behavior post-program land and labor decisions as well as choice experiment data. Our econometric results highlight the main obstacles to the program’s sustainability, which include specific shortfalls in program implementation as well as certain institutional constraints such as tenure insecurity, poor land renting rights, limited access to credit and limited land management rights.
    Keywords: sustainable development programs, sustainability, recursive probit, choice modeling, Asia, China
    JEL: Q2 Q4 R4
    Date: 2007
  13. By: Milu Muyanga; Miltone Ayieko; Mary Bundi
    Abstract: Most of the earlier studies of poverty in Kenya have basically been static in nature. They have attempted to measure household welfare -- incidence, gap and severity -- at a point in time. Such studies are undeniably vital. However, they do not necessarily provide a good indication of welfare stability over time. This study makes an empirical contribution to poverty analysis in Kenya by incorporating poverty dynamics dimension. We first examine poverty dynamics using economic transition matrices. Next, we decompose total poverty into transient and chronic poverty components using transient poverty as censored fluctuation and equally-distributed equivalent poverty gaps approaches for comparison. The latter approach introduces inequality into poverty decomposition. Finally, we establish important correlates of poverty components using quantile-censored and non-parametric regressions. Given the high rural household poverty incidences and the country's limited resources, this study has critical implications for economic policy in Kenya.
    Keywords: Poverty dynamics, chronic poverty, transient poverty, transition matrices, panel data, inequality, Kenya
    JEL: C23 D31 D63 I30 I32
    Date: 2007
  14. By: Manson Nwafor; Adeola Adenikinju; Kanayo Ogujiuba
    Abstract: The study examines the effects that trade liberalization will have on poverty in Nigeria. Previous studies have been limited by static and partial equilibrium analysis. We use a Dynamic Computable General Equilibrium Model to analyze this issue. The more favorably affected sectors are capital intensive; therefore, capital income improves over time while land and labor income reduce. This has positive implications for urban households and negative implications for rural households due to the dependence of the latter on mostly land and labor income. As a result, urban poverty decreases in the short and long run while rural poverty increases in both periods. Policies to improve the agricultural sector will thus have to be implemented before or concurrently with trade liberalization in order for it to have a pro-poor effect. In this way, the rural areas which obtain most of their income from this sector will respond more positively to trade liberalization.
    Keywords: CGE Model, Trade liberalisation, Nigeria, Poverty, Dynamic, ECOWAS, Import tariffs
    JEL: D58 F13 I32 C68
    Date: 2007
  15. By: Ramos Mabugu; Margaret Chitiga
    Abstract: South Africa has undergone significant trade liberalization since the end of apartheid. Average protection has fallen while openness has increased. However, economic growth has been insufficient to make inroads into the high unemployment levels. Poverty levels have also risen. The country's experience presents an interesting challenge for many economists that argue that trade liberalization is pro-poor and pro-growth. This study investigates the short and long term effects of trade liberalization using a dynamic microsimulation computable general equilibrium approach. Trade liberalization has been simulated by a complete removal of all tariffs on imported goods and services, and by a combination of tariff removal and an increase of total factor productivity. The main findings are that a complete tariff removal on imports has negative welfare and poverty reduction impacts in the short run which turns positive in the long term due to the accumulation effects. When the tariff removal simulation is combined with an increase of total factor productivity, the short and long run effects are both positive in terms of welfare and poverty reduction. The mining sector (highest export orientation) is the biggest winner from the reforms while the textiles sector (highest initial tariff rate) is the biggest loser. African and Colored households gain the most in terms of welfare and numbers being pulled out of absolute poverty by trade liberalization.
    Keywords: Sequential dynamic CGE, microsimulation, trade liberalization, total factor productivity, poverty, welfare, growth, South Africa
    JEL: D58 E27 F17 I32 O15 O55
    Date: 2007
  16. By: David Dollar; Shang-Jin Wei
    Abstract: Based on a survey that we designed and that covers a stratified random sample of 12,400 firms in 120 cities in China with firm-level accounting information for 2002-2004, this paper examines the presence of systematic distortions in capital allocation that result in uneven marginal returns to capital across firm ownership, regions, and sectors. It provides a systematic comparison of investment efficiency among wholly and partially state-owned, wholly and partially foreign-owned, and domestic privately owned firms, conditioning on their sector, location, and size characteristics. It finds that even after a quarter-of-century of reforms, state-owned firms still have significantly lower returns to capital, on average, than domestic private or foreign-owned firms. Similarly, certain regions and sectors have consistently lower returns to capital than other regions and sectors. By our calculation, if China succeeds in allocating its capital more efficiently, it could reduce its capital stock by 8 percent without sacrificing its economic growth (and hence could raise its household consumption and deliver a faster improvement to its citizens' living standard).
    JEL: E22 F21 O1
    Date: 2007–05
  17. By: Jeremy Greenwood; Juan M. Sanchez; Cheng Wang
    Abstract: How does technological progress in financial intermediation affect the economy? To address this question a costly-state verification framework is embedded into a standard growth model. In particular, financial intermediaries can invest resources to monitor the returns earned by firms. The inability to monitor perfectly leads to firms earning rents. Undeserving firms are financed, while deserving ones are under funded. A more efficient monitoring technology squeezes the rents earned by firms. With technological advance in the financial sector, the economy moves continuously from a credit-rationing equilibrium to a perfectly efficient competitive equilibrium. A numerical example suggests that finance is important for growth.
    JEL: E44 O11 O16 O43
    Date: 2007–05
  18. By: Pham, T.H. (Poverty Research Unit at Sussex, Department of Economics, University of Sussex)
    Abstract: Vietnam?s rural economy has substantially diversified over the past two decades. The rural nonfarm sector has grown rapidly and became an important source of employment and income for rural households. This growing nonfarm employment was associated with radical changes in the trade policy reform that has put the country to the top two or three performers in the developing world. This paper examines the potential effect of the trade policy reform on nonfarm employment in rural Vietnam during the period 1993-2002. It proposes two trade openness indices that allow changes in the trade policy at the macro level to be transmitted to rural households. The results reveal that the trade policy reform does have a material impact on rural nonfarm employment. While a more liberalized agricultural sector encourages nonfarm diversification, a lower protection level in the nonfarm sector discourages individual participation in nonfarm income-generating activities.
    Keywords: Trade liberalization, trade policy reform, rural nonfarm employment, Vietnam
    JEL: F13 F16 J21
    Date: 2007–01
  19. By: Günther Rehme (Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology))
    Abstract: This paper analyzes the interplay of growth, (re-)distribution and policies when the latter are set exogenously or when the latter depend on economically important fundamentals. A redistribution policy generally causes lower growth, but less so when there is technological progress. The model implies that high (endogenous) tax rates may not necessarily imply low growth. The paper shows that the longrun cross-country relationship between growth and endogenous policy is generally not clear-cut. But this relies on conditions that can be used for identification in empirical research. The paper also argues that workers benefit more from technical progress than capital owners, even though inequality might and growth would rise.
    Keywords: Growth, Distribution, Endogenous Policy
    JEL: O4 D3 H2
    Date: 2007–05
  20. By: Mirenitzia Cárdenas; Héctor J. Villarreal
    Abstract: We propose self-employment as an explanation for the observed reduction in inequality occurring after the Mexican economic crisis of 1995. The evidence appears as a contradiction to the labour-hoarding hypothesis, which states that inequality was expected to increase because the only asset of the poor was labour. Self-employment has been an escape to inflation and staggered wages bringing as a consequence reduced inequality. Therefore, individuals will be pushed into self employment as a means of survival if they lost their jobs in the formal sector, or pulled into self employment attracted by higher potential earnings if their wages were losing purchasing power.
    Keywords: self employment, self-employment, inequality, crisis of 1995, informality, labour-hoarding
    JEL: E31 E32 J21 J22
    Date: 2006–01

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