nep-dev New Economics Papers
on Development
Issue of 2007‒06‒23
25 papers chosen by
Jeong-Joon Lee
Towson University

  1. The Social Protection of Rural Workers in the Construction Industry in Urban China By Bingqin Li; Huamin Peng
  2. Power to the People: Evidence from a Randomized Field Experiment of a Community-Based Monitoring Project in Uganda By Björkman, Martina; Svensson, Jakob
  3. A land of milk and honey with streets paved with gold: Do emigrants have over-optimistic expectations about incomes abroad? By David McKenzie; John Gibson; Steven Stillman
  4. Foreign direct investment and firm level productivity - A panel data analysis By Gachino, Geoffrey
  5. Corruption and trade protection: evidence from panel data By Subhayu Bandyopadhyay; Suryadipta Roy
  6. Foreign aid and export performance: a panel data analysis of developing countries By Jonathan Munemo; Subhayu Bandyopadhyay; Arabinda Basistha
  7. Trade and child labor: a general equilibrium analysis By Subhayu Bandyopadhyay; Sudeshna C. Bandyopadhyay
  8. Trade Reform in the CEMAC: Developments and Opportunities By Charalambos G. Tsangarides; Jan Kees Martijn
  9. Pension Reform in China: The Need for a New Approach By Vivek B. Arora; Steven Vincent Dunaway
  10. Public Investment and Growth in the Eastern Caribbean By Shaun K. Roache
  11. Financial Sector Reforms and Prospects for Financial Integration in Maghreb Countries By Juan Sole; Patricia D Brenner; Eric De Vrijer; Abdelhak Senhadji; Marina Moretti; Gabriel Sensenbrenner; Amor Tahari
  12. The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets By S M Ali Abbas; Jakob Christensen
  13. Asia Rising: A Sectoral Perspective By Nikola Spatafora; Florence Jaumotte
  14. The effect of Strategic Sale of Banks: Evidence from Indonesia By Rasyad A. Parinduri; Yohanes E. Riyanto
  15. Trade Growth under the African Growth and Opportunity Act By Garth Frazer; Johannes Van Biesebroeck
  16. Wage and Productivity Premiums in Sub-Saharan Africa By Johannes Van Biesebroeck
  17. What Determines Productivity in Senegal? Sectoral Disparities and the Dual Labor By Fabrice Murtin; Damien Echevin
  18. Imported Equipment, Human Capital and Economic Growth in Developing Countries By Uwe Dulleck; Neil Foster
  20. Mental Accounting and Remittances: A Study of Malawian Households By Davies, Simon; Easaw, Joshy; Ghoshray, Atanu
  21. Human Capital, Innovation, and Productivity Growth: Tales from Latin America and Caribbean By Yoruk, Baris
  22. Competitive diversification in resource abundant countries: Argentina after the collapse of the convertibility regime. By Serino, Leandro Antonio
  23. Scaling-up HIV/AIDS Financing and the Role of Macroeconomic Policies in Kenya By Degol Hailu
  24. Barriers to Technology Adoption, International R&D Spillovers and Growth By Jesus Crespo Cuaresma; Neil Foster; Johann Scharler
  25. Education, Corruption and Constitutional Reform By Theo Eicher; Cecilia García-Peñalosa; Tanguy van Ypersele

  1. By: Bingqin Li; Huamin Peng
    Abstract: The construction industry is important for Chinese rural to urban migrants. Over 90% of urban construction workers are rural migrants, and over a third of all rural migrants work in construction. The construction industry is not only particularly important, but is also different from other industries in its pay and labour recruitment practices. In common with other rural workers, construction workers have long suffered from various problems, including delayed payment of salaries and exclusion from urban social security schemes. State policies designed to deal with these problems have in general had mixed success. Partly as a result of the peculiarities of the construction industry, state policy has been particularly unsuccessful in dealing with the problems faced by construction workers. This paper considers both the risks rural workers in the construction industry face because of the work they do and the risks they face and because of their being rural workers. It shows that social protection needs to take into account both the work related risks and status related risks. The authors first review the literature concerning work related risks, and then build up a framework to analyse the risks embedded in their work and status, and the relationship between these risks and the existing formal social protection. Thirty one in depth interviews with construction workers, carried out in Tianjin, PRC, are used to demonstrate both the risks and the inability of the state-led social policy to tackle these risks. The results suggest that rural construction workers in cities were exposed to all sorts of problems from not being paid for their work in time to miserable living conditions, from having to pay for their own healthcare to no savings for old age. This paper highlights the problems of policy prescriptions that failed to recognise the complexity of the problems faced by these workers and criticises the tendency to seek quick fixes rather than long-term and careful institutional design.
    Keywords: social security, rural-urban migrants, construction workers, industrial organisation, social exclusion, People’s Republic of China, work related risks
    JEL: H75 H87 I38 J18 J28 J8 O15 O53 P25
    Date: 2006–11
  2. By: Björkman, Martina; Svensson, Jakob
    Abstract: Strengthening the relationship of accountability between health service providers and citizens is by many people viewed as critical for improving access to and quality of health care. How this is to be achieved, and whether it works, however, remain open questions. This paper presents a randomized field experiment on increasing community-based monitoring. As communities began to more extensively monitor the provider, both the quality and quantity of health service provision improved. One year into the program, we find large increases in utilization, significant weight-for-age z-scores gains of infants, and markedly lower deaths among children. The findings on staff behaviour suggest that the improvements in quality and quantity of health service delivery resulted from an increased effort by the staff to serve the community. Overall, the results suggest that community monitoring can play an important role in improving service delivery when traditional top-down supervision is ineffective.
    Keywords: Accountability; Field experiment; Health; Monitoring
    JEL: D78 I12 O15
    Date: 2007–06
  3. By: David McKenzie (Development Research Group, World Bank); John Gibson (University of Waikato); Steven Stillman (Motu Economic and Public Policy Research)
    Abstract: Millions of people emigrate every year in search of better economic and social opportunities. Anecdotal evidence suggests that emigrants may have over-optimistic expectations about the incomes they can earn abroad, resulting in excessive migration pressure, and in disappointment amongst those who do migrate. Yet there is almost no statistical evidence on how accurately these emigrants predict the incomes that they will earn working abroad. In this paper we combine a natural emigration experiment with unique survey data on would-be emigrants’ probabilistic expectations about employment and incomes in the migration destination. Our procedure enables us to obtain moments and quantiles of the subjective distribution of expected earnings in the destination country. We find a significant underestimation of both unconditional and conditional labor earnings at all points in the distribution. This under-estimation appears driven in part by potential migrants placing too much weight on the negative employment experiences of some migrants, and by inaccurate information flows from extended family, who may be trying to moderate remittance demands by understating incomes.
    Keywords: Expectations; Migration; Natural Experiment
    JEL: D84 F22 J61
    Date: 2007–05
  4. By: Gachino, Geoffrey (United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology)
    Abstract: This paper uses panel data to examine the effect of foreign presence on firm level productivity in the Kenyan manufacturing industry employing "traditional" and "recent" methodologies both based on production function framework. A detailed comparative behaviour between foreign and local indigenous firms showed that foreign firms dominated in virtually all the economic activities including productivity performance. Analysis of productivity determinants following traditional approach indicated a statistically significant role played by foreign presence on firm level total factor productivity thus, supporting spillover occurrence argument. However, results based on recent methodologies showed no effect of foreign presence on firm level total factor productivity hence failing to support spillover occurrence dictum. These results indicate that use of different methodologies even within the same theoretical framework can result in divergent findings. This notwithstanding, the paper further argues that use of productivity based methodologies largely masks the nature, actual processes and mechanisms through which spillovers occur. The paper therefore advocates for a "paradigm shift" in the spillover analysis techniques and recommends a broader approach with particular emphasis on technological innovations which takes into consideration learning, capability building and innovation.
    Keywords: International Economic Relations, Foreign Direct Investment, Technology Transfer, Total Factor Productivity, Technological Change, Innovations, Kenya
    JEL: O33 F21 C33 O16 D24 O55
    Date: 2007
  5. By: Subhayu Bandyopadhyay; Suryadipta Roy
    Abstract: This paper provides new estimates of the effects of corruption and poor institutions on trade protection. It exploits data on several measures of trade protection including import duty, international trade taxes, and the trade-GDP ratio. The paper complements the literature on the relationship between corruption and trade reform. It deviates from the previous literature in several ways. First, unobserved heterogeneity among countries have been controlled with properly specified fixed effects exploiting the time dimension present in the dataset. Secondly, instead of using tariff and non-tariff barriers, more general measures of trade protection have been used. The issue of endogeneity of corruption with respect to trade policy has been addressed using proper instruments for corruption used in previous studies. Moreover, two separate institutional measures have been used in the same regression to estimate their comparative impacts on trade policy. In general, we find that corruption and lack of contract enforcement have strong impacts to increase trade protection and negative effects on trade openness.
    Keywords: Tariff ; International trade
    Date: 2007
  6. By: Jonathan Munemo; Subhayu Bandyopadhyay; Arabinda Basistha
    Abstract: The effect of foreign aid on economic activity of a country can be dampened due to potentially adverse effects on exports through a real exchange rate appreciation. In this study we examine the long-term relationship between export performance and foreign aid in developing countries while accounting for other factors. The estimates of direct effect of foreign aid on exports are imprecise. However, the effect of the quadratic term of foreign aid on exports is negative and precise. This implies large amount of foreign aid does adversely affect export performance. The results are robust to the use of two different export performance measures and different sub-samples.
    Keywords: Developing countries - Economic conditions ; Exports
    Date: 2007
  7. By: Subhayu Bandyopadhyay; Sudeshna C. Bandyopadhyay
    Abstract: This paper augments the existing literature on trade and child labor by exploring the effects of terms of trade changes in the context of a three good general equilibrium model, where one of the goods is a non-traded good. We find that under quasi-linear preferences the effect of the terms of trade on child labor depends critically on the pattern of substitutability (or complimentarity) in the excess demand functions between the export good and the non-traded good. We extend the analysis to the case where factors move freely between the three goods as in a Heckscher-Ohlin type framework. Finally, we show that a balanced budget policy of taxing the education of skilled families and subsidizing the education of unskilled families must reduce child labor without any impact on aggregate welfare.
    Date: 2007
  8. By: Charalambos G. Tsangarides; Jan Kees Martijn
    Abstract: This paper provides an update on the main elements of the reform agenda concerning the CEMAC trade regime as well as a tentative quantitative assessment of selected effects on tariff revenues and trade patterns. Notwithstanding data limitations, the key messages from the analysis are as follows. First, there is a need for a renewed political commitment to regional integration. In addition, key measures for improving compliance with the requirements for a customs union need to be introduced, including limiting tariff exemptions, phasing out remaining surcharges, strengthening the determination of products' country origin, and enhancing customs administration. There is also a need to improve transportation infrastructure and organization. Finally, there is a strong case for tariff reduction, with or without an EPA. Trade liberalization would help boost economic growth and poverty alleviation and limit risks of trade diversion with an EPA. Tariff reform should be complemented by improvements in domestic revenue mobilization.
    Date: 2007–06–12
  9. By: Vivek B. Arora; Steven Vincent Dunaway
    Abstract: The rapid aging of China's population over the next few decades makes it important for a new pension system with broad and adequate coverage to be put in place quickly. Pension reforms, first initiated in 1997, have become bogged down in difficulties over dealing with the "legacy costs" associated with the relatively more generous benefits provided under the old system. This paper argues that a way forward is to separate the legacy problem from the problem of setting up a new pension system, and it suggests concrete proposals for setting up such a new system which would cover both urban and rural workers.
    Date: 2007–05–07
  10. By: Shaun K. Roache
    Abstract: This paper quantifies the effect of public investment on growth in the ECCU. The results, emerging from panel vector autoregressions, indicate that the return on public investment, as defined by Perreira (2000), is very likely negative. This means that the total change in real output induced by one EC dollar of public investment, due to its short-run impact on demand, or the longer-run impact on supply, is below one EC dollar. Public investment shocks also appear to appreciate the real exchange rate, suggesting that the short-run demand impact is larger than the long-run supply response.
    Date: 2007–05–30
  11. By: Juan Sole; Patricia D Brenner; Eric De Vrijer; Abdelhak Senhadji; Marina Moretti; Gabriel Sensenbrenner; Amor Tahari
    Abstract: A healthy and dynamic financial sector is essential to achieving high and sustainable economic growth in the Maghreb region-Algeria, Libya, Mauritania, Morocco, and Tunisia. Financial integration within the Maghreb region will help deepen financial markets, increase their efficiency, and enhance the resilience of economies to shocks. It can also play a catalyst role for the global financial integration of the Maghreb region. This paper provides an overview of the financial systems, takes stock of the reform effort and highlights the challenges ahead, and examines the prospects for financial integration in the five Maghreb countries.
    Date: 2007–05–31
  12. By: S M Ali Abbas; Jakob Christensen
    Abstract: We develop a new public domestic debt (DD) database covering 93 low-income countries and emerging markets over the 1975-2004 period to estimate the growth impact of DD. Moderate levels of non-inflationary DD, as a share of GDP and bank deposits, are found to exert a positive overall impact on economic growth. Granger-causality regressions suggest support for a variety of channels: improved monetary policy; broader financial market development; strengthened domestic institutions/accountability; and enhanced private savings and financial intermediation. There is some evidence that, above a ratio of 35% percent of bank deposits, DD begins to undermine growth, lending credence to traditional crowding out and bank efficiency concerns. Importantly, the growth contribution of DD is higher if it is marketable, bears positive real interest rates and is held outside the banking system. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
    Date: 2007–06–01
  13. By: Nikola Spatafora; Florence Jaumotte
    Abstract: This paper undertakes a cross-country analysis of productivity growth at both the aggregate and sectoral level. It finds that Asia's remarkable output growth over the past 40 years reflected both high investment, and rapid productivity increases. These factors were in turn supported by the region's relatively strong institutional and policy environment, which encouraged resource shifts from low- to high-productivity sectors. Looking ahead, sustaining rapid growth requires meeting a number of key challenges: (i) implementing reforms to boost productivity in the increasingly important, but currently lagging, service sectors; (ii) providing policy support for continuing the shift of resources from agriculture to industry and services; (iii) strengthening policy frameworks in late-developing countries.
    Date: 2007–06–08
  14. By: Rasyad A. Parinduri (Singapore Center for Applied and Policy Economics (SCAPE) Department of Economics, National University of Singapore); Yohanes E. Riyanto (Department of Economics, National University of Singapore)
    Abstract: We examine the effect of strategic sale—the sale of banks to strategic foreign investors—on banks’ performance. The Government of Indonesia implemented such a policy as a part of bank restructuring in the aftermath of the 1998 banking crisis. Using difference-in-difference models, we find that strategic sale leads to 12%-15% cost reduction. These results are robust to the use of other estimators such as difference-in-difference matching-estimators and stochastic-frontier analysis, to that of other performance measures such as return on assets and net interest margin, and also to that of different types of samples. These suggest that strategic sale could play an important role in restructuring troubled banks in developing countries.
    Keywords: banking crisis, recapitalized banks, the sale of assets, difference- in-difference models, matching estimator
    JEL: C21 C23 G21 G28
    Date: 2007–05
  15. By: Garth Frazer; Johannes Van Biesebroeck
    Abstract: This paper explores whether one of the most important U.S. policies towards Africa of the past few decades achieved its desired result. In 2000, the United States dropped trade restrictions on a broad list of products through the African Growth and Opportunity Act (AGOA). Since the Act was applied to both countries and products, we estimate the impact with a triple difference-in-differences estimation, controlling for both country and product-level import surges at the time of onset. This approach allows us to better address the ‘endogeneity of policy’ critique of standard difference-in-differences estimation than if either a country or a product-level analysis was performed separately. Despite the fact that the AGOA product list was chosen to not include ‘import-sensitive’ products, and despite the general challenges of transaction costs in African countries, we find that AGOA has a large and robust impact on apparel imports into the U.S., as well as on the agricultural and manufactured products covered by AGOA. These import responses grew over time and were the largest in product categories where the tariffs removed were large. AGOA did not result in a decrease in exports to Europe in these product categories, suggesting that the U.S.-AGOA imports were not merely diverted from elsewhere. We discuss how the effects vary across countries and the implications of these findings for aggregate export volumes.
    Keywords: trade liberalization; sub-Saharan Africa; policy evaluation
    JEL: F13 F14 F15 O19
    Date: 2007–06–18
  16. By: Johannes Van Biesebroeck
    Abstract: Using a matched employer-employee data set of manufacturing plants in three sub-Saharan countries, I compare the marginal productivity of different categories of workers with the wages they earn. A methodological contribution is to estimate the firm level production function jointly with the individual level wage equation using a feasible GLS estimator. The additional information of individual workers leads to more precise estimates, especially of the wage premiums, and to a more accurate test. The results indicate that equality holds strongly for the most developed country in the sample (Zimbabwe), but not at all for the least developed country (Tanzania). Moreover, the breakdown in correct remuneration in the two least developed countries follows a distinct pattern. On the one hand, wage premiums exceed productivity premiums for general human capital characteristics (experience and schooling). On the other hand, salaries hardly increase for more firm-specific human capital characteristics (tenure and training), even though these have a clear productivity effect.
    Keywords: Labor market efficiency; wage gap; human capital
    JEL: J31 O12
    Date: 2007–06–18
  17. By: Fabrice Murtin (LSE, London; PSE and CREST, GREDI); Damien Echevin (GREDI, Département d'économique, Université de Sherbrooke)
    Abstract: This paper presents evidence concerning the determinants of productivity in Senegal. Using an original data set that combines data on both employers and their employees, we bring to light significant gaps between the formal and informal sectors. These differences are analyzed both at the aggregate and at the individual level. As a result, we find that differences in human and physical capital account for about two thirds (30% for physical capital and 40% for human capital) of the gap in output per worker between the two sectors. Our results also document considerable heterogeneity between branches of activity: in the formal sector, some activities such as the textile or the paper industries boast increasing returns due to large elasticity; in the informal sector, trade and services firms have the same patterns as in formal ones. Two other important findings concern the informal sector. First, older firms have high capital elasticity. Second, overall capital elasticity increases. Those results thus support the idea that a real potential for growth exists in the informal sector. Finally, adopting a development policy perspective, we emphasize that public policies should focus on infrastructures that impact significantly on both sectors, as well as on schooling that triggers considerable externality, especially in the informal sector.
    Keywords: : formal and informal sectors; productivity; externalities
    JEL: O17 O47 J24
    Date: 2007
  18. By: Uwe Dulleck; Neil Foster
    Abstract: De Long and Summers (1991) began a literature examining the impact of equipment investment on growth. In this paper we examine such a relationship for developing countries by considering imports of equipment from advanced countries as our measure of equipment investment for a sample of 55 developing countries. We examine whether the level of human capital in a country affects its ability to benefit from such investment. We find a complex interrelationship between imported equipment and human capital. Generally, the relationship between imported equipment and growth is lowest, and often negative, for countries with low levels of human capital, highest for countries within an intermediate range and somewhat in between for countries with the highest level of human capital.
    Keywords: Capital Goods Imports, Human Capital, Developing Countries, Technology Diffusion
    JEL: F43 O15 O40
    Date: 2007–05–25
  19. By: GHATAK, Anita; HALICIOGLU, Ferda
    Abstract: This study is concerned about foreign direct investment (FDI) and economic growth across the world for the period of 1991-2001. This article produces fresh empirical evidence on the relation between FDI and economic growth obtained from single-equation and simultaneous equation estimates for 140 countries using macro economic variables. The results indicate that a positive and statistically significant estimate of coefficient of FDI is obtained from single equation ordinary least squares method for real per-capita GDP regressions in all but one case. There exists a positive and statistically significant relation between the real per-capita GDP and FDI in the case of many countries but correlation coefficient between exports-GDP ratio and percentage FDI is found to be insignificant. Country risk rating and the telecommunications variables are significant in all the relevant regressions and correlation estimates.
    Keywords: Foreign direct investment; multinational corporations; composite risk rating; instrumental variable method; omitted variable method; simultaneous equation method.
    JEL: O11 F15
    Date: 2006
  20. By: Davies, Simon; Easaw, Joshy; Ghoshray, Atanu
    Abstract: In this paper we use a behavioural approach to studying household consumption behaviour in Malawi. In particular we are interested to know whether households use mental accounting when consuming different categories of good. It is useful for assessing the impact of remittances on household consumption behaviour. We use 1998 cross-sectional data to find the following key results: (i) mental accounting systems are in operation. Remittance income exhibits a high marginal propensity to save, (ii) household income influences consumption habits, (iii) receipt of remittance income impacts on saving and spending habits. This is in line with the theory of remittances and corresponding mental accounting theory, and, finally, (iv) both remittances and loans are used for consumption smoothing and investment purposes.
    Keywords: Remittances; Household Behaviour; Consumer Economics; Economic Development; Africa; Malawi
    JEL: D12 D1 O15
    Date: 2006–10
  21. By: Yoruk, Baris
    Abstract: Why have Latin American and Caribbean countries (LAC countries) not replicated Western economic success? We investigate the reasons behind the economic stagnation of LAC countries for the past four decades. We utilize a nonparametric Malmquist productivity index for relevant cross-country and over time productivity growth, technological change, and technical efficiency change comparisons. We document that productivity growth differences between LAC countries and Western countries can only partially be attributed to human capital differences. We argue that along with inefficient production, differences in civil, political, and economic policies and institutions are promising factors in explaining the long-run economic performance of LAC countries.
    Keywords: Caribbean; Latin America; Institutions; Malmquist productivity index
    JEL: O40 N26 P52
    Date: 2007–05–15
  22. By: Serino, Leandro Antonio
    Abstract: The strong recovery of aggregate macroeconomic variables reopened the debate about the long-term development strategy of Argentina. As a contribution to this debate we develop a Scandinavian version of the dependent economy model and discuss the complex task of economic diversification in resource abundant countries. After showing the constraining role of resource abundance for tradable diversification, we discuss the effects of macroeconomic diversification policies, especially nominal devaluations. The analysis shows that: (i) the promotion of structural change through devaluations is more costly in Argentina than in other countries with different structural characteristics; (ii) to effectively promote tradable diversification and avoid falling real wages devaluations must be implemented together with export taxes; (iii) taking into account Kaldor-Verdoorn effects links macroeconomic policies to productivity growth, which now contribute to increase the competitiveness of the non-traditional tradable sector through a new channel and limit the reduction and even open the possibility for rises in real wages. However, because the reduction in sectoral productivity differences is a fundamental condition for competitive and sustainable diversification additional policies with a direct impact on productivity growth, like investment in infrastructure, are also necessary.
    Keywords: natural resource abundance, economic diversification, nominal devaluations, productivity dynamics, Kaldor-Verdoorn effects
    JEL: F41 O11 O54
    Date: 2007
  23. By: Degol Hailu (Policy Advisor, UNDP/BDP Caribbean SURF)
    Keywords: Poverty, HIV/AIDS, Kenya, Macroeconomic
    JEL: B41
    Date: 2007–06
  24. By: Jesus Crespo Cuaresma; Neil Foster; Johann Scharler
    Abstract: Panel data is used to investigate the extent of R&D spillovers between OECD countries, and the importance of barriers to technology adoption in affecting the benefits of such spillovers. Our results indicate that countries with less regulated goods and labour markets benefit more from foreign R&D.
    Keywords: R&D Spillovers, Technology Adoption, Economic Growth
    JEL: O30 O40 C33
    Date: 2007–06
  25. By: Theo Eicher; Cecilia García-Peñalosa; Tanguy van Ypersele
    Abstract: We model the two way interaction between education, corruption and the level of output. Corruption reduces income levels and hence educational attainment. Education in turn affects the incentives for corruption: more education increases output and thus the rents from corruption, but it also increases the probability that the electorate identifies corrupt behavior and ousts the incumbent politician. In this context, we identify the conditions under which an opportunist politician has the incentives to take actions that will allow the economy to escape from a poverty trap. Our analysis shows that the relationship between education, output levels and the level of corruption is non-monotonic, and that both institution-led development and education-led development are possible. Which path occurs crucially depends on the initial level of inequality.
    Date: 2006–10

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