nep-dev New Economics Papers
on Development
Issue of 2007‒07‒07
48 papers chosen by
Jeong-Joon Lee
Towson University

  1. Democracy and the curse of natural resources By Esther Hauk; Antonio Cabrales
  2. Jeremy Greenwood and Per Krusell, "Growth Accounting with Investment-Specific Technological Progress: A Discussion of Two Approaches" A Rejoinder By Nicholas Oulton
  3. The Returns to Temporary Migration to the United States: Evidence from the Mexican Urban Employment Survey By Benjamin Aleman-Castilla
  4. The Returns from Reducing Corruption: Evidence from Education in Uganda By Reinikka, Ritva; Svensson, Jakob
  5. The Origins of State Capacity: Property Rights, Taxation, and Politics By Besley, Timothy J.; Persson, Torsten
  6. Making Autocracy Work By Besley, Timothy J.; Kudamatsu, Masayuki
  7. Producer Services, Manufacturing Linkages, and Trade By Joseph Francois; Julia Woerz
  8. New Directions in the Analysis of Inequality and Poverty By Stephen P. Jenkins; John Micklewright
  9. Endogenous Aggregate Elasticity of Substitution By Kaz Miyagiwa; Chris Papageorgiou
  10. Corruption and Elections: An Empirical Study for a Cross-Section of Countries By Stefan Krause; Fabio Mendez
  11. POVERTY AND LAND POLICY IN CAMBODIA By Engvall, Anders; Kokko, Ari
  13. On the Dynamics of Ethnic Fractionalization By Nauro F. Campos; Vitaliy S. Kuzeyev
  14. Access to Higher Education and Inequality: The Chinese Experiment By Xiaojun Wang; Belton M. Fleisher; Haizheng Li; Shi Li
  15. Exposing Corrupt Politicians: The Effects of Brazil’s Publicly Released Audits on Electoral Outcomes By Claudio Ferraz; Frederico Finan
  16. Early Childbirth, Health Inputs and Child Mortality: Recent Evidence from Bangladesh By Pushkar Maitra; Sarmistha Pal
  17. Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence By Pierre Dubois; Bruno Jullien; Thierry Magnac
  18. Effects of Intergenerational Transfers on Elderly Coresidence with Adult Children: Evidence from Rural India By Sarmistha Pal
  19. Elite Dominance and Under-Investment in Mass Education: Disparity in the Social Development of the Indian States, 1960-92 By Sarmistha Pal; Sugata Ghosh
  20. Where Has All the Money Gone? Foreign Aid and the Quest for Growth By Santanu Chatterjee; Paola Giuliano; Ilker Kaya
  21. Gross Worker Flows in the Presence of Informal Labor Markets: Evidence from Mexico, 1987-2002 By Mariano Bosch; William Maloney
  22. Child Labor and Schooling Response to Changes in Coca Production in Rural Peru By Ana C. Dammert
  23. Skilled Migration: The Perspective of Developing Countries By Frédéric Docquier; Hillel Rapoport
  24. Birth Spacing, Fertility Selection and Child Survival: Analysis Using a Correlated Hazard Model By Pushkar Maitra; Sarmistha Pal
  25. Should Market Liberalization Precede Democracy? Causal Relations between Political Preferences and Development By Pauline Grosjean; Claudia Senik
  26. Minimum Wages and the Welfare of Workers in Honduras By T. H. Gindling; Katherine Terrell
  27. Economic and Political Inequality in Development: The Case of Cundinamarca, Colombia By Daron Acemoglu; María Angélica Bautista; Pablo Querubín; James A. Robinson
  28. Trade Growth under the African Growth and Opportunity Act By Garth Frazer; Johannes Van Biesebroeck
  29. Wages Equal Productivity. Fact or Fiction? By Johannes Van Biesebroeck
  30. The Debate on Labor Standards and International Trade: Lessons from Cambodia and Bangladesh By Gunseli Berik; Yana van der Meulen Rodgers
  31. Basic Needs, Government Debt and Economic Growth By Samuel Perlo-Freeman; Don Webber
  32. The Demand for Military Expenditure in Developing Countries: Hostility versus Capability By J Paul Dunne; Samuel Perlo-Freeman; Ron P Smith
  33. Jump-starting self-employment ? Evidence among welfare participants in Argentina By Galasso, Emanuela; Almeida, Rita
  34. Construction, corruption, and developing countries By Kenny, Charles
  35. Subjective Well-being and its Determinants in Rural China By John Knight; Lina Song; Ramani Gunatilaka
  36. Concerning Inequality, Technology Adoption, and Structural Change By Radhika Lahiri; Shyama Ratnasiri
  37. A growth model for a two-sector economy with endogenous productivity By Codrina Rada
  38. Inequality in India: A survey of recent trends By Parthapratim Pal; Jayati Ghosh
  39. Recent trend of village and small enterprise sector: exploring and exploiting its opportunities in the North Eastern Region of India touching upon its profile and barriers By Mishra, SK
  40. Decomposition of Changes in Earnings Inequality in China: A Distributional Approach By Chi, Wei; Li, Bo; Yu, Qiumei
  41. Determinants and impact of private sector investment in Malawi: evidence from the 2006 investment climate survey By Record, Richard; Davies, Simon
  42. The Impact of Relative Prices on Welfare and Inequality in Brazil, 1995-2005 By Sergei Suarez Dillon Soares; Rafael Guerreiro Osório
  43. The Impact of Growth and Redistribution on Poverty and Inequality in South Africa By Kalie Pauw; Liberty Mncube
  44. An Employment-targeted Economic Programme for South Africa By Robert Pollin; Gerald Epstein; James Heintz; Léonce Ndikumana
  45. Gearing Public Finance to Growth, Employment and Poverty Reduction in Moldova By Terry McKinley
  46. Does Debt Relief Increase Fiscal Space in Zambia? The MDG Implications By John Weeks; Terry McKinley
  47. Expanding the Social Security Net in South Africa: Opportunities, Challenges and Constraints By Kalie Pauw; Liberty Mncube
  48. Analysing and Achieving Pro-Poor Growth By Dag Ehrenpreis

  1. By: Esther Hauk; Antonio Cabrales
    Abstract: We propose a theoretical model to explain empirical regularities related to the curse of natural resources. This is an explicitly political model which emphasizes the behavior and incentives of politicians. We extend the standard voting model to give voters political control beyond the elections. This gives rise to a new restriction into our political economy model: policies should not give rise to a revolution. Our model clarifies when resource discoveries might lead to revolutions, namely, in countries with weak institutions. Natural resources may be bad for democracy by harming political turnover. Our model also suggests a non-linear dependence of human capital on natural resources. For low levels of democracy human capital depends negatively on natural resources, while for high levels of democracy the dependence is reversed. This theoretical finding is corroborated in both cross section and panel data regressions.
    Keywords: Curse of natural resources, democracy, political game, revolution, human capital.
    JEL: D72 H52 O13
    Date: 2007–06–20
  2. By: Nicholas Oulton
    Abstract: The May 2007 issue of the Journal of Monetary Economics published a paper of mine entitled'Investment-Specific Technological Progress and Growth Accounting' which critiqued the workof Greenwood, Hercowitz and Krusell. I argued that the Greenwood-Hercowitz-Krusell (GHK)model is a special case of a two-sector, neoclassical growth model with differing rates oftechnical progress in the two sectors; that a version of Jorgensonian growth accounting can beconstructed for this two-sector model and hence for the GHK model; and that there is therefore amapping between the growth accounting concepts of total factor productivity (TFP) growth ineach of the two sectors, and GHK's concepts of investment specific and neutral technologicalprogress. The same issue of the JME published a response by Greenwood and Krusell ('GrowthAccounting with Investment-Specific Technological Progress: a Discussion of TwoApproaches'). This paper is a rejoinder to theirs. It attempts to delineate both the common groundand the remaining areas of disagreement.
    Keywords: Investment-specific technological change, embodiment, TFP, growth accounting
    JEL: O47 O41 O51
    Date: 2007–06
  3. By: Benjamin Aleman-Castilla
    Abstract: Mexican migration to the United States has been a very important issue throughout the twentiethcentury, and its relevance has reached unprecedented levels during the last two decades. Even thoughthere is a huge body of literature that analyses many different aspects of this phenomenon, theeconomic performance of migrants with respect to the Mexican labour markets has received very littleattention. This paper aims at filling this gap by presenting new evidence on the effect that migration tothe United States has on labour market outcomes of Mexican workers. It uses data from the MexicanNational Survey of Urban Labour (ENEU) for the period 1994-2002. Among other advantages, thepanel structure of the survey is ideal for minimizing the problems of self-selection bias that arecommon in most of the alternative data sources. Fixed-effects estimation indicates that Mexicanworkers that migrate temporarily to the United States obtain significantly higher earnings in the U.S.labour market than in the Mexican one during the period of migration. They also tend to work longerhours and face a generally higher likelihood of non employment during the period of return migration.Finally, the gains from temporary migration are lower for more skilled workers and for thosemigrating from the most distant regions in Mexico, relative to the United States.
    Keywords: temporary migration, real wages, labour supply
    JEL: J61 J22 J15
    Date: 2007–06
  4. By: Reinikka, Ritva; Svensson, Jakob
    Abstract: What is the most effective way to increase primary school enrolment and student learning? We argue that innovations in governance of social services may yield the highest return since social service delivery in developing countries is often plagued by inefficiencies and corruption. We examine this hypothesis by exploiting an unusual policy experiment: A newspaper campaign in Uganda aimed at reducing capture of public funds by providing schools (parents) with information to monitor local officials' handling of a large education grant program. Combining survey and administrative data, we show that the campaign was successful, and the reduction in capture of funds had a positive effect on enrolment and student learning.
    Keywords: Corruption; Education; Newspaper campaign
    JEL: D73 I22 O12
    Date: 2007–06
  5. By: Besley, Timothy J.; Persson, Torsten
    Abstract: Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.
    Keywords: development; property rights; state capacity
    JEL: D70 E60 H10 K40 O10
    Date: 2007–06
  6. By: Besley, Timothy J.; Kudamatsu, Masayuki
    Abstract: One of the key goals of political economy is to understand how institutional arrangements shape policy outcomes. This paper studies a comparatively neglected aspect of this - the forces that shape heterogeneous performance of autocracies. The paper develops a simple theoretical model of accountability in the absence of regularized elections. Leadership turnover is managed by a selectorate - a group of individuals on whom the leader depends to hold onto power. Good policy is institutionalized when the selectorate removes poorly performing leaders from office. This requires that the selectorate’s hold on power is not too dependent on a specific leader being in office. The paper looks empirically at spells of autocracy to establish cases where it has been successful according to various objective criteria. We use these case studies to identify the selectorate in specific instances of successful autocracy. We also show that, consistent with the theory, leadership turnover in successful autocracies is higher than in unsuccessful autocracies. Finally, we show by exploiting leadership deaths from natural causes that successful autocracies appear to have found ways for selectorates to nominate successors without losing power - a feature which is also consistent with the theoretical approach.
    Keywords: autocracy; democracy; development; dictatorship; political economy
    JEL: P16 P26
    Date: 2007–06
  7. By: Joseph Francois (Erasmus Universiteit Rotterdam, Joh. Kepler University (Linz), and CEPR (London)); Julia Woerz (The Vienna Institute for International Economic Studies (WIIW))
    Abstract: Working with a mix of panel data on goods and services trade for the OECD for 1994-2004, combined with social accounts data (i.e. data on intermediate linkages) for 78 countries benchmarked to the panel midpoint, we examine the role of services as inputs in manufacturing, with a particular focus on indirect exports of services through merchandise exports, and also on the related interaction between service sector openness and the overall pattern of manufacturing exports. From the cross-section, we also develop a set of stylized facts linking services to level of development and the density of intermediate linkages. We find significant and strong positive effects from increased business service openness (i.e. greater levels of imports) on industries like machinery, motor vehicles, chemicals and electric equipment, supporting the notion that off-shoring of business services may promote the competitiveness of the most skill and technology intensive industries in the OECD. Conversely, we find evidence of negative general equilibrium effects for sectors that are less service intensive.
    Keywords: producer services; linkages; manufacturing exports; service imports; multiplier effects
    JEL: F14 L8 O11
    Date: 2007–06–11
  8. By: Stephen P. Jenkins; John Micklewright
    Abstract: Over the last four decades, academic and wider public interest in inequality and poverty has grown substantially. In this paper we address the question: what have been the major new directions in the analysis of inequality and poverty over the last thirty to forty years? We draw attention to developments under seven headings: changes in the extent of inequality and poverty, changes in the policy environment, increased scrutiny of the concepts of 'poverty' and inequality' and the rise of multidimensional approaches, the use of longitudinal perspectives, an increase in availability of and access to data, developments in analytical methods of measurement, and developments in modelling.
    Keywords: Inequality, poverty, distribution of income
    JEL: D31 I32
    Date: 2007
  9. By: Kaz Miyagiwa; Chris Papageorgiou
    Abstract: In the literature studying aggregate economies the aggregate elasticity of substitution (AES) between capital and labor is often treated as a constant or “deep” parameter. This view contrasts with the conjecture put forward by Arrow et al. (1961) that AES evolves over time and changes with the process of economic development. This paper evaluates this conjecture in a simple dynamic multi-sector growth model, in which AES is endogenously determined. Our findings support the conjecture, and in particular demonstrate that AES tends to be positively related to the state of economic development, a result consistent with recent empirical findings.
    Date: 2007–03
  10. By: Stefan Krause; Fabio Mendez
    Abstract: In this paper, we study whether voters are more likely to “vote out” a corrupt incumbent than to re-elect him. Specifically, we examine whether they retract their support from political candidates who they think are corrupt by looking at changes in an index of corruption perceptions between the current and the last elections. Our results suggest that corruption in public office is effectively punished by voters. Furthermore, our findings support the idea that both the political system and the democratic experience are important determinants of the voters’ reaction and control of corruption: while voters in countries with parliamentary systems or with relatively low levels of democracy react negatively to an increase in corruption, no perceptible effect of this kind was found in countries with mature democracies; and the evidence is inconclusive in the case of countries with presidential systems.
    Date: 2007–06
  11. By: Engvall, Anders (European Institute of Japanese Studies); Kokko, Ari (European Institute of Japanese Studies)
    Abstract: Slow agricultural development has restrained economic growth and poverty alleviation in Cambodia. The country's volatile history has left a legacy of weak tenure security and large areas of underutilized land. This study estimates the impact of access to land on poverty in a logistic regression framework using household survey data. Increased access to land is shown to significantly lower the risk of household poverty. Tenure security, land improvements and irrigation strengthens this effect. Simulations of the potential impact of a land reform package predicts a 16 percentage points fall in poverty incidence among landowning rural households and a 30-point fall when targeting the landless. The analysis suggests that improved tenure security should be at the top of the policy agenda. Given political and economic constraints, implementation of reforms remains a key challenge.
    Keywords: Cambodia; Economic Development; Poverty; Property Rights; Land Reform
    JEL: I32 O12 O53 Q12 Q15
    Date: 2007–06–01
  12. By: Andersson, Magnus (European Institute of Japanese Studies); Engvall, Anders (European Institute of Japanese Studies); Kokko, Ari (European Institute of Japanese Studies)
    Abstract: Lao PDR has shown a strong record of economic growth and poverty alleviation since the early 1990s. Yet, the pace of economic development has varied significantly between different parts of the country - the rate of growth was initially faster in more developed areas, but after the mid-1990s growth has been stronger in poorer rural areas. Here it is shown that this pattern of regional development has been driven by the nature of market integration. This is highlighted in three case studies covering: (i) the effect of transport infrastructure and local institutions on domestic consumer good markets; (ii) the process of regional integration with neighboring countries; and (iii) the ability of Lao producers to compete on the world market for coffee.
    Keywords: Laos; Lao PDR; regional development; market integration; infrastructure
    JEL: L11 L66 O12 O18 R11
    Date: 2007–06–01
  13. By: Nauro F. Campos (Brunel University, CEPR, WDI and IZA); Vitaliy S. Kuzeyev (Ak-Bidai Ltd.)
    Abstract: Does fractionalization change over time? If so, are there any substantial implications for economic performance? To answer such questions, we construct a new panel data set with fractionalization measures for 26 former communist countries covering the period from 1989 to 2002. Our fractionalization measures show that transition economies became more ethnically homogenous over such a short period of time, although the same did not happen in terms of linguistic and religious fractionalization. In line with the most recent literature, there seems to be little effect of (exogenous) fractionalization on macroeconomic performance (that is, on per capita GDP growth). However, we find that dynamic ethnic fractionalization is negatively related to growth (although this is still not the case for linguistic and religious fractionalization). These findings are robust to different specifications, polarization measures, instrument sets as well as to a composite index of ethnic-linguistic-religious fractionalization.
    Keywords: ethnic fractionalization, polarization, growth, transition economies
    JEL: O11 Z12 O55 H1
    Date: 2007–06
  14. By: Xiaojun Wang (University of Hawaii at Manoa); Belton M. Fleisher (Ohio State University and IZA); Haizheng Li (Georgia Tech); Shi Li (Chinese Academy of Social Sciences and IZA)
    Abstract: We apply a semi-parametric latent variable model to estimate selection and sorting effects on the evolution of private returns to schooling for college graduates during China’s reform between 1988 and 2002. We find that there were substantial sorting gains under the traditional system, but they have decreased drastically and become negligible in the most recent data. We take this as evidence of growing influence of private financial constraints on decisions to attend college as tuition costs have risen and the relative importance of government subsidies has declined. The main policy implication of our results is that labor and education reform without concomitant capital market reform and government support for the financially disadvantaged exacerbates increases in inequality inherent in elimination of the traditional "wage-grid".
    Keywords: return to schooling, selection bias, sorting gains, heterogeneity, financial constraints, comparative advantage, China
    JEL: J31 J24 O15
    Date: 2007–06
  15. By: Claudio Ferraz (IPEA, Brazil); Frederico Finan (University of California, Los Angeles and IZA)
    Abstract: This paper examines whether access to information enhances political accountability. Based upon the results of Brazil’s recent anti-corruption program that randomly audits municipal expenditures of federally-transferred funds, it estimates the effects of the disclosure of local government corruption practices upon the re-election success of incumbent mayors. Comparing municipalities audited before and after the elections, we show that the audit policy reduced the incumbent’s likelihood of re-election by approximately 20 percent, and was more pronounced in municipalities with radio stations. These findings highlight the value of information and the role of the media in reducing informational asymmetries in the political process.
    Keywords: corruption, political agency, transparency, information
    JEL: D72 D78 H41 O17
    Date: 2007–06
  16. By: Pushkar Maitra (Monash University); Sarmistha Pal (Brunel University and IZA)
    Abstract: This paper examines the relationship between early childbearing and child mortality in Bangladesh, a country where adolescent childbearing is of particular concern. We argue that effective use of specific health inputs could however significantly lower child mortality rates even among adolescent women. This offers an attractive policy option particularly when compared to the costly alternative of delaying age at marriage. In particular, we find that women having early childbirth tend to use health inputs differently from all other women. After correcting for this possible selectivity bias, the adverse effects of early childbirth on child mortality are reversed. The favourable effects of use of health inputs however continue remain statistically significant.
    Keywords: family formation, adolescent childbearing, hospital delivery, child vaccination, child mortality, selectivity bias, unobserved heterogeneity, correlated estimates
    JEL: D13 I12 O15
    Date: 2007–06
  17. By: Pierre Dubois (University of Toulouse (GREMAQ, IDEI, INRA)); Bruno Jullien (University of Toulouse (GREMAQ, IDEI)); Thierry Magnac (University of Toulouse (GREMAQ, IDEI) and IZA)
    Abstract: We develop and estimate a model of dynamic interactions between households where commitment is limited and contracts are incomplete to explain the patterns of income and consumption growth in village economies of less developed countries. Households can insure through both formal contracts and informal agreements, that is, agreements specifying voluntary transfers that need to be self-enforceable. This theoretical setting nests the case of complete markets and the case where only informal agreements are available. We derive a system of non-linear equations for income and consumption growth. A key prediction of our model is that both variables are affected by lagged consumption as a consequence of the interplay of formal and informal contracting possibilities. In a semi-parametric setting, we prove identification, derive testable restrictions and estimate the model with the use of data from Pakistan villages. Empirical results are consistent with the economic arguments. Incentive constraints due to self-enforcement bind with positive probability and formal contracts are used to reduce this probability.
    Keywords: risk sharing, contracts, incomplete markets, informal transfers
    JEL: C14 D13 D91 L14 O12
    Date: 2007–05
  18. By: Sarmistha Pal (Brunel University and IZA)
    Abstract: The present paper argues that intergenerational transfers between elderly parents and adult children are important determinants of any coresidency arrangement though generally overlooked in the existing literature. In this respect the paper distinguishes between exchange of both financial and other kinds of transfers between elderly parents and adult children and then examines the effects of these transfers on coresidency taking account of the inherent endogeneity of these transfers to coresidency decision. There is evidence that the effects of transfers on coresidency arrangements could be biased if one does not correct for the endogeneity bias. The corrected estimates derived from a system of correlated and recursive system of transfers and coresidency equations suggest that the probability of coresidence is generally lower among the better off elderly; the likelihood is also lower for the older and female elderly without a spouse and also those with poor health, thus necessitating social protection for these disadvantaged elderly.
    Keywords: co-residence with children, intergenerational transfers, elderly health and wealth effects, simultaneity bias, correlated recursive model
    JEL: H55 I31 J14
    Date: 2007–06
  19. By: Sarmistha Pal (Brunel University and IZA); Sugata Ghosh (Brunel University)
    Abstract: Inter- and intra-state disparities in levels of literacy rates in India are striking, especially for the marginalized groups of women and low caste population. The present paper offers an explanation of this disparate development in terms of elite dominance that discriminates against the minority groups of people and systematically under-invests in mass education. We experiment with various indirect economic and political measures of elite dominance. Results based on the Indian state-level data for the period 1960-92 suggest that higher share of land held by the top 5% of the population (a) lowers spending on education as well as total developmental spending and (b) increases total non-developmental spending. Greater proportion of minority representations (female and low caste members) in the ruling government however fails to have any perceptible impact on development (including education) spending in our sample. This analysis also identifies land reform and poverty alleviation as two important policy instruments to erode the initial disadvantage of the marginalised people.
    Keywords: under-investment in education, discrimination against female and low-caste population, persistence of elite dominance, poverty, land reform
    JEL: I28 J15 O15 P48
    Date: 2007–06
  20. By: Santanu Chatterjee (University of Georgia); Paola Giuliano (International Monetary Fund, Harvard University and IZA); Ilker Kaya (University of Georgia)
    Abstract: This paper examines fungibility as a possible explanation for the "missing link" between foreign aid and economic growth. The composition of aid plays a crucial role in determining the composition of government spending and, consequently, the magnitude of fungibility and its impact on growth. Embedding fungibility as an equilibrium outcome in an endogenous growth framework, we show that the substitution away from domestic government investment is higher than from government consumption. This leads to a reduction in domestic productive public spending and completely offsets any positive impact that aid might have on growth. The main predictions of the model are tested using a panel dataset of 67 countries for 1972-2000. We find strong evidence of fungibility at the aggregate level: almost 70 percent of total aid is fungible in our sample. We also find that investment aid is more fungible than other categories of aid. In the presence of fungibility, there is no statistically significant relationship between foreign aid and economic growth.
    Keywords: foreign aid, economic growth, fungibility, fiscal policy
    JEL: E6 F3 F4 O1
    Date: 2007–06
  21. By: Mariano Bosch (London School of Economics); William Maloney (World Bank and IZA)
    Abstract: This paper applies recent advances in the study of labor market dynamics to a representative developing country with a large unregulated of "informal" sector. It confirms the relevance of the recent mainstream models and debates surrounding gross worker flows to the developing country context, and offers a new view of the role of the informal sector and its role in labor market adjustments. It finds, first, that the formal salaried sector shows the same procyclical job finding rate and mildly countercyclical separation behavior identified in the recent US literature by Shimer (2005a) and Hall (2005). The unregulated informal sector, however, shows reasonable acyclicality in the job finding rate coupled with sharp countercyclical movements in the job separation rate, consistent with standard small firm dynamics and Davis and Haltiwanger (1992 and 1999). The differential behavior of regulated and unregulated sectors, and the finding of relative wage rigidity in the former, sheds suggestive light on the debate surrounding countercyclical job finding behavior in the US. Second, the patterns of worker transitions between all sectors, formal and informal correspond to the jobto- job dynamics observed in the US and not to the traditional idea of informality constituting the inferior sector of a segmented market. That said, the counter cyclical job finding in the formal sector combined with the acyclical job finding in informality does lead to the latter absorbing relatively more labor during downturns, even as its increased separation rates drive movements in unemployment.
    Keywords: gross worker flows, labor market dynamics, informality
    JEL: J41 J42 J6
    Date: 2007–06
  22. By: Ana C. Dammert (McMaster University and IZA)
    Abstract: Coca eradication and interdiction are the most common policies aimed at reducing the production and distribution of cocaine in the Andes, but little is known about their impact on households. This paper uses the shift in the production of coca leaves from Peru to Colombia in 1995 to analyze the indirect effects of the anti-coca policy on children’s allocation of time. After different sensitivity checks, the results indicate that a decrease in coca production is associated with increases in work and hours children living in coca-growing states devote to work within and outside the household, with no effects on schooling outcomes. These findings suggest a previously undocumented indirect effect of drug policies on household behavior.
    Keywords: child labor, schooling, coca production, Peru
    JEL: J13 J22 O15 R23
    Date: 2007–06
  23. By: Frédéric Docquier (FNRS, IRES, Université Catholique de Louvain and IZA); Hillel Rapoport (Bar-Ilan University and EQUIPPE, Universités de Lille)
    Abstract: This chapter focuses on the effects of skilled migration on developing countries. We first present new evidence on the magnitude of the -brain drain- at the international level. Using a stylized model of education investment in a context of migration, we then survey the theoretical and empirical brain drain literature in a unified framework. Finally we use a particular specification of the model to discuss a number of policy issues from the perspective of developing countries.
    Keywords: migration, brain drain, economic development
    JEL: F22 J61
    Date: 2007–06
  24. By: Pushkar Maitra (Monash University); Sarmistha Pal (Brunel University and IZA)
    Abstract: If fertility reflects the choice of households, results of their choice (duration between successive births and health of the children) cannot be considered to be randomly determined. While most existing studies of child health tend to overlook the effects of fertility selection on child health, this paper argues that not accounting for this selection issue yields biased estimates. Additionally it is difficult to a priori predict the direction of this bias, thereby over or under estimating the effect of spacing on child survival. We find that the estimates of birth spacing on child mortality are different when we do not account for fertility selection. Additionally the correlated hazard estimates that we present here better fit our samples than the corresponding bivariate probit estimates used in the literature. A comparison of the fertility behaviour of households in the Indian and Pakistani Punjab highlights the differential nature of institutions on demographic transition in these neighbouring regions.
    Keywords: child mortality, fertility selection, correlated recursive hazard system
    JEL: J13 O10 C41 C24
    Date: 2007–06
  25. By: Pauline Grosjean (European Bank for Reconstruction and Development); Claudia Senik (Paris School of Economics, University Paris-IV Sorbonne, IUF and IZA)
    Abstract: This paper is dedicated to the relation between market development and democracy. We distinguish contexts and preferences and ask whether it is true that the demand for democracy only emerges after a certain degree of market development is reached, and whether, conversely, democratization is likely to be an obstacle to the acceptation of market liberalization. Our study hinges on a new survey rich in attitudinal variables: the Life in Transition Survey (LITS) conducted in 2006 by the European Bank for Reconstruction and Development and the World Bank, in 28 post-Transition countries. Our identification strategy consists in relying on the specific situation of frontier-zones. We find that democracy enhances the support for market development whereas the reverse is not true. Hence, the relativist argument according to which the preference for democracy is an endogenous byproduct of market development is not supported by our data.
    Keywords: market and democracy, sequencing of development, transition economies, attitudinal variables, cross-country survey
    JEL: H1 H5 P2 P3 P5 O1 O12 O57
    Date: 2007–06
  26. By: T. H. Gindling (University of Maryland, Baltimore County and IZA); Katherine Terrell (University of Michigan, Ann Arbor and IZA)
    Abstract: Taking advantage of a complex minimum wage structure in Honduras, this paper examines how changes in minimum wages over the 1990-2004 period affect unemployment as well as the employment and average wages of workers in different sectors of the economy: medium and large-scale firms v. small firms in the private sector (where minimum wage legislation applies) and civil servants and self-employed workers (where it does not apply). The evidence suggests that minimum wages are effectively enforced only in medium and largescale firms, where a 1% increase in the minimum wage leads to an increase of 0.29% in the average wage and a reduction in employment of -0.46%. We find that increases in the private sector minimum wage are emulated in public sector wages, but there are no disemployment effects there. There is some evidence that a higher minimum wage may increase unemployment. There are no discernable effects of minimum wages on the wages of workers in small-firms or the self-employed. The positive impact of higher minimum wages on average wages is greatest for the primary educated in large private firms; but this group also suffers a very large disemployment effect. We conclude that, even in the sector where minimum wages are enforced and even under our upper bound estimate of the effect on the wages of workers, the welfare - the total earnings - of low-paid workers in the large-firm covered sector falls with higher minimum wages.
    Keywords: minimum wage, employment, unemployment, wage, Central America, Honduras
    JEL: J23 J31 J38
    Date: 2007–06
  27. By: Daron Acemoglu; María Angélica Bautista; Pablo Querubín; James A. Robinson
    Abstract: Is inequality harmful for economic growth? Is the underdevelopment of Latin America related to its unequal distribution of wealth? A recently emerging consensus claims not only that economic inequality has detrimental effects on economic growth in general, but also that differences in economic inequality across the American continent during the 19th century are responsible for the radically different economic performances of the north and south of the continent. In this paper we investigate this hypothesis using unique 19th century micro data on land ownership and political office holding in the state of Cundinamarca, Colombia. Our results shed considerable doubt on this consensus. Even though Cundinamarca is indeed more unequal than the Northern United States at the time, within Cundinamarca municipalities that were more unequal in the 19th century (as measured by the land gini) are more developed today. Instead, we argue that political rather than economic inequality might be more important in understanding long-run development paths and document that municipalities with greater political inequality, as measured by political concentration, are less developed today. We also show that during this critical period the politically powerful were able to amass greater wealth, which is consistent with one of the channels through which political inequality might affect economic allocations. Overall our findings shed doubt on the conventional wisdom and suggest that research on long-run comparative development should investigate the implications of political inequality as well as those of economic inequality.
    JEL: H27 N01 N1 N16 O1 O11 O16 O54
    Date: 2007–06
  28. 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 as 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.
    JEL: F13 F14 F15 O19
    Date: 2007–07
  29. By: Johannes Van Biesebroeck
    Abstract: If labor markets operated entirely frictionless, productivity premiums associated with different worker characteristics would equal the wage premiums earned by workers possessing those characteristics. Using matched employer-employee data from the manufacturing sector of three sub-Saharan countries, we evaluate to what extent the two premiums differ for four characteristics that are clearly related to human capital: schooling, training, experience, and tenure. Equality holds strongly and even surprisingly well for firms in Zimbabwe (the most developed country in the sample), but not at all in Tanzania (the least developed country), while results in Kenya are intermediate. Where equality fails, the pattern is for general human capital characteristics (schooling, experience) to receive a wage return that exceeds the productivity return, while the reverse applies to more firm-specific human capital characteristics (training, tenure). Schooling tends to be over-rewarded, even though large productivity gains are consistently associated with formal employee training programs. Wages tend to rise with experience, while productivity gains are mostly associated with tenure. We demonstrate the remarkable robustness of the findings controlling, among other things, for sampling errors, nonlinear effects, and non-wage benefits. Localized labor markets and imperfect substitutability of different worker-types provide a partial explanations for the estimated gap between the wage and productivity premiums.
    Keywords: sub-Saharan Africa; production function; labor market; human capital; market efficiency
    JEL: J31 O12 L6
    Date: 2007–06–29
  30. By: Gunseli Berik; Yana van der Meulen Rodgers
    Abstract: This study examines the nature and enforcement mechanisms of labor standards in two Asian economies (Cambodia and Bangladesh) that are experiencing strong pressures to cut labor costs and improve the price competitiveness of their textile and garment exports. Analysis of survey, interview, and compliance data indicate differing trajectories in compliance with basic labor standards. While problems persist in Bangladesh, compliance has improved in Cambodia following a trade agreement with the United States that linked positive trade incentives with labor standards enforcement. These contrasting experiences present important lessons for the debate on enforcing standards that protect female workers in formal-sector jobs.
    Keywords: Working conditions, enforcement, labor laws, female workers, gender and trade
    Date: 2007–03
  31. By: Samuel Perlo-Freeman (School of Economics, University of the West of England); Don Webber (School of Economics, University of the West of England)
    Abstract: This paper investigates the relationships between basic needs and economic growth where the interactions between output, health, nutrition and education are explicitly simultaneous. We find a unidirectional relationship that improving basic welfare contributes strongly to labour productivity change, but a clear reverse causation only from growth to nutrition. There are substantial differences in the patterns of simultaneous interactions at different income and welfare levels. There are strong self-reinforcing effects of literacy and debt service on poverty, making it difficult for poor countries to rectify their situation. Channelling resources towards improving health, education and nutrition could bring dramatic economic returns.
    Keywords: Income, Health, Education, Nutrition, Government debt, Womens’ education
    JEL: O47 I12 I20 C31
    Date: 2007–06
  32. By: J Paul Dunne (School of Economics, University of the West of England); Samuel Perlo-Freeman (School of Economics, University of the West of England); Ron P Smith (Birkbeck College, London)
    Abstract: This paper has considers the interpretation of the empirical results of the developing literature on the demand for military spending that specifies a general model with arms race and spillover effects and estimates it on cross-section and panel data. It questions whether it is meaningful to talk of an ‘arms race’ in panel data or cross-section data, and suggests that it may be more appropriate to talk about the relevant variables – aggregate military spending of the ‘Security Web’ (i.e. all neighbours and other security-influencing powers) and the aggregate military spending of ‘Potential Enemies’– as acting as proxies for threat perceptions, which will reflect both hostility and capability.
    Keywords: Military Spending, Developing Countries, Demand.
    JEL: H56 C33
    Date: 2007–06
  33. By: Galasso, Emanuela; Almeida, Rita
    Abstract: One important concern of governments in developing countries is how to phase out large safety net programs. The authors evaluate the short-run effects of one possible exit strategy-programs that promote self-employment-in Argentina. They provide evidence that a small fraction of beneficiaries were attracted by this program. Overall, potential participants to self-employment are more likely to be female household heads and more educated beneficiaries relative to the average Jefes beneficiaries. Using nonexperimental methods, the authors show that participation in the program does affect the labor supply of participants, by reducing the probability of having an outside job, especially for males, and increasing the total number of hours worked. But the intervention fails to produce on average income gains to participating individuals and households in the short run. The fact that a small subset of former welfare beneficiaries are attracted to the program, coupled with the fact that only a subset of participants (younger and more educated beneficiaries, and with previous self-employment experience) benefited from participation has important implications for this intervention to represent a viable exit strategy from welfare.
    Keywords: Poverty Monitoring & Analysis,Labor Markets,Social Accountability,Participations and Civic Engagement,Civic Participation and Corporate Governance
    Date: 2007–06–01
  34. By: Kenny, Charles
    Abstract: The construction industry accounts for about one-third of gross capital formation. Governments have major roles as clients, regulators, and owners of construction companies. The industry is consistently ranked as one of the most corrupt: large payments to gain or alter contracts and circumvent regulations are common. The impact of corruption goes beyond bribe payments to poor quality construction of infrastructure with low economic returns alongside low funding for maintenance-and this is where the major impact of corruption is felt. Regulation of the sector is nece ssary, but simplicity, transparency, enforcement, and a focus on the outcomes of poor construction are likely to have a larger impact than voluminous but poorly enforced regulation of the construction process. Where government is the client, attempts to counter corruption need to begin at the level of planning and budgeting. Output-based and community-driven approaches show some promise as tools to reduce corruption. At the same time they will need to be complimented by a range of other interventions including publication of procurement documents, independent and community oversight, physical audit, and public-private anticorruption partnerships.
    Keywords: Governance Indicators,Poverty Monitoring & Analysis,Corruption & Anitcorruption Law,Public Sector Corruption & Anticorruption Measures,Social Accountability
    Date: 2007–06–01
  35. By: John Knight; Lina Song; Ramani Gunatilaka
    Abstract: A national household survey for 2002, containing a specially designed module on subjective well-being, is used to estimate pioneering happiness functions in rural China. The variables predicted by economic theory to be important for happiness are relatively unimportant. The analysis suggests that we need to draw on psychology and sociology if we are to understand. Rural China is not a hotbed of dissatisfaction with life, possibly because most people are found to confine their reference groups to the village. Relative income within the village and relative income over time, both in the past and expected in the future, are shown to influence happiness. `Subjective well-being poverty` functions are estimated, in which income and various proxies for `capabilities` and `functionings` appear as arguments. Even amidst the poverty of rural China, social functionings, attitudes and expectations are important to subjective well-being.
    Keywords: Happiness, Subjective Well-being, Aspirations, Relative Deprivation, Reference Groups, Poverty, China
    JEL: I31
    Date: 2007
  36. By: Radhika Lahiri; Shyama Ratnasiri
    Abstract: Empirical evidence suggests that there has been a divergence over time in income distributions across countries and within countries. In this paper we study a simple dynamic general equilibrium model of technology adoption which is consistent with these stylized facts. In our model, growth is endogenous, and agents are assumed to be heterogeneous in their initial holdings of wealth and capital. We find that in the presence of barriers or costs associated with the adoption of more productive technologies, inequalities in wealth and income may increase over time tending to delay the convergence in international income differences. The model is also capable of explaining the observed diversity in the growth pattern of transitional economies. According to the model, this diversity may be the result of variability in adoption costs, or the relative position of a transitional economy in the world income distribution.
    Date: 2006–11–01
  37. By: Codrina Rada
    Abstract: A growth model is developed for an open dual economy. The economy expands due to a higher growth rate of labour productivity in the modern sector through the Kaldor-Verdoorn channel and higher effective demand through a Keynesian channel. The model incorporates a retardation mechanism affecting the slopes of productivity and output growth schedules as labour surplus and economies of scale diminish. A wage or profit-led regime and initial conditions may give rise to: de-industrialization in terms of both output and employment; a growth trap sustaining a situation of structural heterogeneity; or sustainable employment and adequate output and productivity growth.
    Keywords: productivity growth; two sector growth models; demand-led growth
    JEL: O11 O41 O47
    Date: 2007–07
  38. By: Parthapratim Pal; Jayati Ghosh
    Abstract: This paper analyses the nature and causes of the patterns of inequality and poverty in India. Since the economic liberalization in the early 1990s, the evidence suggests increasing inequality (in both spatial and vertical terms) as well as persistent poverty. The macroeconomic policies possibly responsible for these trends include—fiscal tightening, regressive tax policies and expenditure cuts; financial sector reform that reduced institutional credit flow to small producers and agriculturalists; liberalization of rules for foreign and domestic investment, leading to more regional imbalance and skewed investment patterns, and trade liberalization, which has affected livelihoods and employment generation.
    Keywords: India, inequality, poverty, growth and distribution, macroeconomic policies
    JEL: O15 O53
    Date: 2007–07
  39. By: Mishra, SK
    Abstract: Development of village, micro and small enterprises in India has a special significance with regard to bridging up the disparities between urban and rural sectors of the economy on the one hand and the more industrialized and the less industrialized states on the other. It would also channelize to the mainstream the forces of development in the rural and remote areas presently strewn with the immense possibilities of manufacturing and service activities. Mahatma Gandhi had envisioned this long back, but Indian planners exhibited their preference to development of large-scale industries first. However, after having taken a step further to globalization and liberalization, India has recognized the relevance of small enterprises. Enactment of the Micro, Small and Medium Enterprises Development Act, 2006 is an instance of the action taken in the wake of this recognition. The North Eastern Region (NER) of India comprises eight states: Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura, all well known for their handicrafts. The Schedule Tribes form the majority of population there. Most of these states are hilly and have remained agriculturally as well as industrially backward. Promotion of small enterprises is most suitable for their timely development. In this paper we present a statistically detailed profile of small enterprises in the NER. We explore the possibilities of development of the small enterprises sector and discuss the constraints on the same.
    Keywords: Micro and small enterprises; small-scale industries; North Eastern Region; India; MSME; MSE; rural; village; Arunachal Pradesh; Assam; Manipur; Meghalaya; Mizoram; Nagaland; Tripura; Sikkim; development; prospects; constraints
    JEL: D29 Z0 L88 D24 L60 O53 L80
    Date: 2007–06–29
  40. By: Chi, Wei; Li, Bo; Yu, Qiumei
    Abstract: Using the nationwide household data, this study examines the changes in the Chinese urban income distributions from 1987 to 1996 and from 1996 to 2004, and investigates the causes of these changes. The Oaxaca-Blinder decomposition method is applied to decomposing the mean earnings increases, and the Firpo-Fortin-Lemieux method based upon a recentered influence function is used to decompose the changes in the income distribution and the inequality measures such as the variance and the 10-90 ratio. The decomposition results show that the wage structure effects such as the widened gender pay gap, the increasing return to college education, and the widened gap in the return to different industries, ownership, and regions, have contributed to most of the overall increases in income inequality. During the different time periods, 1987-1996 and 1996-2004, the impacts of these factors vary at the different points (e.g. the lower half or upper half) of distribution.
    Keywords: Earnings inequality; Unconditional Quantile Regressions; Earnings distribution; Decomposition
    JEL: J3
    Date: 2007–07
  41. By: Record, Richard; Davies, Simon
    Abstract: Over much of the last two decades, the economy of Malawi has been characterized by economic turbulence and uncertainty that has done serious damage to the private sector. Rapid liberalization exposed an unprepared private sector to potentially damaging forces. This paper draws upon the most comprehensive enterprise survey carried out in Malawi in recent years to assess the current state of private sector investment. We find the following key results: (1) low labor productivity is explained primarily by lack inputs per worker, rather than insufficient capital employed; (2) foreign competition in either domestic or export markets encourages reinvestment of current earnings; (3) firms with monopoly power are less likely to invest in increased capacity; and (4) high interest rates encourage Malawian firms to invest incrementally and using retained profits.
    JEL: O14 M20 D24 D21 L20
    Date: 2007–06
  42. By: Sergei Suarez Dillon Soares (Institute of Applied Economic Research (IPEA)); Rafael Guerreiro Osório (International Poverty Centre)
    Abstract: Our objective in this working paper is to analyze the impact of relative prices on the evolution of welfare and inequality in Brazil from 1995 to 2005. This period was characterized by monetary stability but also by large changes in relative prices. This implies that a homogeneous inflation index will yield questionable results. In order to take relative prices into account in our welfare analysis, we build specific inflation indices for each hundredth of the population ranked by per capita household income. To accomplish this task, we use data from the latest round of the Brazilian income and expenditure survey and price indices obtained from the national consumer price system. We use our distribution-specific inflation indices to deflate the nominal income distributions yielded by the Brazilian annual household survey from 1995 to 2005. Thus, we generate new income distributions that better represent the real purchasing power of the households. Based on these new income distributions, we calculate average incomes and Gini coefficients, investigate the relationships of stochastic dominance as well as Lorenz dominance, and calculate Atkinson?s social welfare function for inequality aversion parameters varying from 0.1 to 0.9. Our results can be summarized into three stylized facts: i) inflation during the 1995-2005 period was distributionally progressive up to the 93rd hundredth of the per capita household income distribution; ii) taking relative prices into account, the Gini coefficient falls 0.61 points (or 19 per cent) more than when a general price index is used; iii) surprisingly, average income deflated by the distribution-specific indices differs significantly from average income deflated by the general price index, i.e., it falls instead of rising slightly from 1995 to 2005.
    Keywords: Relative Prices, Welfare, Inequality, Brazil
    JEL: L30
    Date: 2007–05
  43. By: Kalie Pauw (Development Policy Research Unit (DPRU)); Liberty Mncube (University of Cape Town)
    Abstract: This country study evaluates the experience of the South African economy with respect to growth, poverty and inequality trends since the advent of democracy in 1994. The post-apartheid government took a definite turn toward greater spending on social security, while job creation and a narrowing of the gap between the so-called first and second economies â?? the latter defined as the informal part of the economy that is also largely removed from formal sector activities â?? enjoyed priority in its economic strategy. Despite this focus on uplifting the poor, it remains unclear to what extent the government has been successful. Some controversy exists around whether relatively fewer South Africans are poor ten years after the democratic government came into power. There seems to be greater consensus among analysts that inequality has in fact increased. This study attempts to shed some light on these issues, drawing on recent South African literature and data.
    Keywords: Poverty, CCT, Inequality, South Africa
    JEL: H21 O23 O17 F23
    Date: 2007–06
  44. By: Robert Pollin (Univ. of Massachusetts); Gerald Epstein (Univ. of Massachusetts); James Heintz (Univ. of Massachusetts); Léonce Ndikumana (Univ. of Massachusetts)
    Abstract: .
    Keywords: .
    JEL: H21
    Date: 2006–06
  45. By: Terry McKinley (International Poverty Centre)
    Abstract: .
    Keywords: Public Finance, Growth, Employment, Poverty, Reduction, Moldova
    Date: 2006–07
  46. By: John Weeks (Professor Emeritus, School of Oriental and African Studies, University of London); Terry McKinley (International Poverty Centre)
    Abstract: .
    Keywords: Debt, Increase, Fiscal Space, Zambia, MDG
    JEL: H21 O23 O17 F23
    Date: 2006–09
  47. By: Kalie Pauw (Development Policy Research Unit (DPRU)); Liberty Mncube (University of Cape Town)
    Abstract: For a large proportion of the South African population, social welfare grants are an important source of income. Since 2000, rapid increases in government expenditure on social security have further enhanced the contribution of welfare grants to the income of poor households and have thus been important in the fight against poverty. Given these apparent successes, many are calling for further expansions in social security provisioning, with the idea of developing conditional cash transfer schemes occasionally surfacing in policy circles. However, as we argue in this Country Study, there are various constraints to such expansions of the welfare net. Whereas in the past much of the increased expenditure on social security provisioning could be financed out of government revenue overruns, further increases are likely to be possible only through reallocation of government expenditures. There is already evidence of substitution taking place within the social budget since education and health expenditures have apparently declined in favour of increased welfare transfer expenditures. This trend, we argue, is untenable and may harm the already weak education and health services in South Africa. Conditional grants linked to school attendance and visits to health clinics would place further pressure on health and education services, as well as on the agencies responsible for disbursing and monitoring welfare payments in the country. We argue, therefore, that budgetary and service delivery constraints currently present a strong argument against expansion of the social welfare system in the immediate future.
    Keywords: Poverty, CCT, Inequality, South Africa, Opportunities, Challenges
    JEL: H21 O23 O17 F23
    Date: 2007–07
  48. By: Dag Ehrenpreis (International Poverty Centre)
    Abstract: .
    Keywords: Poverty, Pro-Poor Growth, measures
    JEL: B41 D11 D12 E31 I32 O54
    Date: 2007–03

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