nep-dev New Economics Papers
on Development
Issue of 2007‒08‒27
63 papers chosen by
Jeong-Joon Lee
Towson University

  1. Social Attitudes and Economic Development: An Epidemiological Approach By Algan, Yann; Cahuc, Pierre
  2. Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts By Karlan, Dean S.; Zinman, Jonathan
  3. Foreign Aid and Recurrent Cost: Donor Competition, Aid Proliferation and Budget Support By ARIMOTO Yutaka; KONO Hisaki
  4. THE STATE AND THE PRIVATE SECTOR IN VIETNAM By Hakkala, Katariina; Kokko , Ari
  6. A Note on Income Distribution and Growth By William Scarth
  7. Income, Aging, Health and Wellbeing Around the World: Evidence from the Gallup World Poll By Angus Deaton
  8. Reevaluating the Modernization Hypothesis By Daron Acemoglu; Simon Johnson; James A. Robinson; Pierre Yared
  9. Financial reforms in China and India: A comparative analysis By Wendy Dobson
  10. Total Factor Productivity and Income Distribution: A Critical Review By Yongbok Jeon
  11. Do overlapping property rights reduce agricultural investment ? evidence from Uganda By Deininger, Klaus; Ali, Daniel Ayalew
  12. An emerging agricultural problem in high-performing Asian economies By Hayami, Yujiro
  13. Labor regulation and employment in India ' s retail stores By Amin, Mohammad
  14. How might climate change affect economic growth in developing countries ? a review of the growth literature with a climate lens By Shalizi, Zmarak; Lecocq, Franck
  15. Who fears competition from informal firms ? evidence from Latin America By Lamanna, Francesca; Gonzalez, Alvaro S.
  16. Specialization and adjustment during the growth of China and India : the Latin American experience By Rubiano, Eliana; Olarreaga, Marcelo; Lederman, Daniel
  17. Product innovation by incumbent firms in developing economies : the roles of research and development expenditures, trade policy, and the investment climate By Lederman, Daniel
  18. The growth of China and India in world trade : opportunity or threat for Latin America and the Caribbean? By Soloaga, Isidro; Olarreaga, Marcelo; Lederman, Daniel
  19. Strengthening the governance and performance of state-owned financial institutions By Scott, David H.
  20. Entry regulation and business start-ups : evidence from Mexico By Seira, Enrique; Piedra, Eduardo; Kaplan, David S.
  21. Determinants and consequences of land sales market participation : panel evidence from India By Nagarajan, Hari K.; Jin, Songqing; Deininger, Klaus
  22. Efficiency and equity impacts of rural land rental restrictions : evidence from India By Nagarajan, Hari K.; Jin, Songqing; Deininger, Klaus
  23. Managing agricultural risk at the country level : the case of index-based livestock insurance in Mongolia By Skees, Jerry; Mahul, Olivier
  24. Innovative experiences in access to finance: narket friendly roles for the visible hand ? By Schmukler, Sergio L.; Gozzi, Juan Carlos; de la Torre, Augusto
  25. The Impact of Tourism on Economic Growth and Development in Africa. By Bichaka Fayissa; Christian Nsiah; Badassa Tadasse
  26. The Marginal Product of Capital, Capital Flows and Convergence By Sirsha Chatterjee; Kanda Naknoi
  27. Income Distribution: Effects on Growth and Development By Nancy Birdsall
  28. Performance-based Incentives for Health: Demand- and Supply-Side Incentives in the Nicaraguan Red de Protección Social By Ferdinando Regalía and Leslie Castro; Leslie Castro
  29. Performance-Based Incentives for Health: Conditional Cash Transfer Programs in Latin America and the Caribbean By Amanda Glassman, Jessica Todd and Marie Gaarder; Jessica Todd
  30. Performance-Based Incentives for Health: Six Years of Results from Supply-Side Programs in Haiti By Rena Eichler, Paul Auxila, Uder Antoine, Bernateau Desmangles; Paul Auxila
  31. The Provision of Banking Services in Latin America: Obstacles and Recommendations By Liliana Rojas-Suarez;
  32. Openness and growth: what have we learned? By Francisco Rodriguez
  33. have collapses in infrastructure spending led to cross-country divergence in per capita gdp? By Francisco Rodriguez
  34. Industrial Policy and Growth By Helen Shapiro
  35. Governance, Economic Growth and Development since the 1960s By Mushtaq H. Khan
  37. Customary land tenure, inheritance rules, and smallholder farmers in Malawi By Takane, Tsutomu
  38. Publicness and Taken-for-granted Knowledge: A Case Study of Communal Land Formation in Rural Thailand By Shigetomi, Shin'ichi
  39. Industrial Networks between China and the Countries of the Asia-Pacific Region By Kuwamori, Hiroshi; Okamoto, Nobuhiro
  40. Fiscal Decentralization, Chinese Style: Good for Health Outcomes? By Uchimura, Hiroko; Jütting, Johannes
  41. Two Views on Institutional Development: The Grand Transition vs the Primacy of Institutions By Martin Paldam; Erich Gundlach
  42. Institutions and Trade: Competitors or Complements in Economic Development? By Sambit Bhattacharyya; Steve Dowrick; Jane Golley
  43. Software Production, Human Capital and Endogenous Growth: Theoretical Analysis and Empirical Evidence from India By Supriyo De
  44. Economic Development and Technology Diffusion By Kurt Hafner
  45. Technological Leaders and Followers in a World Economy By Testsugen Haruyama; Ken-ichi Hashimoto
  46. Northern and Southern Patent Novelty Requirement Harmonization, Growth and Trade By Gilles Koléda
  47. China's Rapid Growth, Yuan Misalignment and Global Imbalances By Tony Makin
  48. Macro Regime and Economic Growth in China By Yuwen Dai
  49. A Development Curse: Formal vs. Informal Activities in Resource-Dependent Economies By Elissaios Papyrakis
  50. Workers’ Remittances and Economic Growth in the Philippines By Alvin P. Ang
  51. Are Financial Sector Policies Effective in Deeping the Malaysian Financial System By James B. Ang
  52. What determines Financial Development? Culture, Institutions, or Trade By Nils Herger; Roland Hodler; Michael Lobsinger
  53. International Trade and Economic Growth in Developing Countries By Tobias Bidlingmaier
  54. A Tale of Two Countries: Openness and Growth in China and India By Chee Kian Leong
  55. South Africa’s Growth Paradox By Mdu Biyase; Lumengo Bonga-Bonga
  56. The Determinants of Provincial Growth in Indonesia During 1983-2003 By Yogi Vidyattama
  57. A Dynamic Growth Model for Flows of Foreign Direct Investment By Yi-Hui Chiang; Yiming Li; Chih-Young Hung
  58. Productivity Spillovers from Foreign Direct Investment: Indonesian Manufacturing Industry’s Experience 1975-2000 By Della Temenggung
  59. Public Capital Spillovers and Growth: A Foray Downunder By Timothy Kam; Yi-Chia Wang
  60. Population and Endogenous Growth By Creina Day
  61. Projected Economic Growth in China and India: The Role of Demographic Change By Rod Tyers; Jane Golley; Ian Bain
  62. The Political Economy of China's Aid Policy in Africa By Gernot Pehnelt
  63. International Competitiveness—Where Pakistan Stands? By Uzma Zia

  1. By: Algan, Yann; Cahuc, Pierre
    Abstract: In this paper we develop a new empirical approach to uncovering the impact of social attitudes on economic development. We first show that trust of second-generation Americans is significantly influenced by the country of origin of their forebears. In the spirit of the epidemiology literature, we interpret this phenomenon as the consequence of inherited social attitudes. We show that trust inherited by second-generation Americans from their country of origins has changed over time. This result allows us to use the inherited trust of second-generation Americans as a time-varying instrument to track back the evolution of trust in the home country of their parents. This strategy enables us to identify the specific impact of inherited trust on economic development relative to other traditional candidates, such as institutions and geography, by controlling for country fixed effects. We find that inherited trust has explained a substantial share of economic development on a sample of 30 countries during the post-war period, by improving total factor productivity and the accumulation of human and physical capital.
    Keywords: economic development; growth; social capital; trust
    JEL: F10 N13 O10 P10
    Date: 2007–07
  2. By: Karlan, Dean S.; Zinman, Jonathan
    Abstract: Expanding credit access is a key ingredient of development strategies worldwide. Microfinance practitioners, policymakers, and donors have ambitious goals for expanding access, and seek efficient methods for implementing and evaluating expansion. There is less consensus on the role of consumer credit in expansion initiatives. Some microfinance institutions are moving beyond entrepreneurial credit and offering consumer loans. But many practitioners and policymakers are skeptical about “unproductive” lending. These concerns are fuelled by academic work highlighting behavioural biases that may induce consumers to overborrow. We estimate the impacts of a consumer credit supply expansion using a field experiment and follow-up data collection. A South African lender relaxed its risk assessment criteria by encouraging its loan officers to approve randomly selected marginal rejected applications. We estimate the resulting impacts using new survey data on applicant households and administrative data on loan repayment, as well as public credit reports one and two years later. We find that the marginal loans produced significant benefits for borrowers across a wide range economic and well-being outcomes. We also find some evidence that the marginal loans were profitable for the Lender. The results suggest that consumer credit expansions can be welfare-improving.
    Keywords: consumer credit; credit impact; microfinance
    JEL: D1 D9 J2 J6 O1
    Date: 2007–07
  3. By: ARIMOTO Yutaka; KONO Hisaki
    Abstract: Recent empirical studies reveal that effectiveness of aid on growth is ambiguous. This paper considers aid proliferation - excess aid investment relative to recurrent cost - as a potential cause that undermines aid effectiveness, because aid projects can only produce sustainable benefits when sufficient recurrent costs are disbursed. We consider the donor's budget support as a device to supplement the shortage of the recipient's recurrent cost and to alleviate the misallocation of inputs. However, when donors have self-interested preferences over the success of their own projects to those conducted by others, they provide insufficient budget support relative to aid which results in aid proliferation. Moreover, aid proliferation is shown to be worsened by the presence of more donors.
    Date: 2007–08
  4. By: Hakkala, Katariina (Research Institute of Industrial Economics); Kokko , Ari (European Institute of Japanese Studies)
    Abstract: In recent years, the Vietnamese government has emphasized its commitment to create a fair business environment for both the state and non-state sectors in its medium and long-term economic development programs. This paper examines the development of the private sector in Vietnam, focusing in particular on the relationship between the state and the private sector. The first part of the paper reviews the trends in private sector development, the second part discusses obstacles for private sector development, with focus on the role of state-owned enterprises, and the third part discusses future challenges and suggests some policy reforms on the basis of the lessons from the first two decades of economics reforms in Vietnam, as well as international experiences. The paper also considers the pattern of new firm establishment, including the impact of foreign investment on the domestic private sector.
    Keywords: Vietnam; economic reforms; private sector development; SOEs
    JEL: H20 L50 P31
    Date: 2007–06–01
  5. By: Forsberg, Le Thanh (European Institute of Japanese Studies); Kokko, Ari (European Institute of Japanese Studies)
    Abstract: Although it remains a one-party state, Vietnam has become one of the most popular host countries for multilateral and bilateral aid donors during the past decade. Vietnam¡¯s popularity is largely explained by the fact that it perceived as a good aid recipient, and it has often been identified as a ¡°best practice¡± example of how a government can manage external aid and own its development agenda. The purpose of this paper is to discuss the roots of Vietnam¡¯s strong ownership and to examine how the relations between the state and the donor community have influenced Vietnamese development planning. The first part of the paper highlights the uneven relation with the Soviet Union during the 1970s and 1980s as an explanation for the present ambitions to avoid dependence on foreign partners. The second part outlines the institutional setup for development planning that was created to match the existing institutions for central planning during the 1990s. The third part discusses the ongoing changes in the role of the state and in the institutional setup for development planning. The process of change is illustrated using the Comprehensive Poverty Reduction and Growth Strategy as an example. The paper concludes that donors have contributed both directly and indirectly to the changes in the Vietnamese model of economic planning, and that the donor community has to some extent taken on the roles played by civil society and a political opposition in parliamentary democracies.
    Keywords: Vietnam; development planning; ODA
    JEL: O19 O21 P21
    Date: 2007–06–01
  6. By: William Scarth
    Abstract: Many analysts expect the aging population to lead to a reduction in the growth of living standards. Income inequality – a problem that has been accentuated by the payroll tax hikes that were necessary to fund the public pension as the population ages – is becoming an increasing challenge at the same time. As a result, policy-makers need to pursue initiatives that can simultaneously address both our efficiency and our equity objectives. With the challenge of the aging population, it is all the more important that we not rely on fiscal policies that involve a trade-off between growth and equality. This paper identifies a strategy for tax policy that meets these objectives.
    Keywords: fiscal policy, endogenous growth, efficiency and equity
    JEL: E10 E60 H30 O40
    Date: 2007–06
  7. By: Angus Deaton
    Abstract: During 2006, the Gallup Organization conducted a World Poll that used an identical questionnaire for national samples of adults from 132 countries. I analyze the data on life satisfaction (happiness) and on health satisfaction and look at their relationships with national income, age, and life-expectancy. Average happiness is strongly related to per capita national income; each doubling of income is associated with a near one point increase in life satisfaction on a scale from 0 to 10. Unlike most previous findings, the effect holds across the range of international incomes; if anything, it is slightly stronger among rich countries. Conditional on national income, recent economic growth makes people unhappier, improvements in life-expectancy make them happier, but life-expectancy itself has little effect. Age has an internationally inconsistent relationship with happiness. National income moderates the effects of aging on self-reported health, and the decline in health satisfaction and rise in disability with age are much stronger in poor countries than in rich countries. In line with earlier findings, people in much of Eastern Europe and in the countries of the former Soviet Union are particularly unhappy and particularly dissatisfied with their health, and older people in those countries are much less satisfied with their lives and with their health than are younger people. HIV prevalence in Africa has little effect on Africans' life or health satisfaction; the fraction of Kenyans who are satisfied with their personal health is the same as the fraction of Britons and higher than the fraction of Americans. The US ranks 81st out of 115 countries in the fraction of people who have confidence in their healthcare system, and has a lower score than countries such as India, Iran, Malawi, or Sierra Leone. While the strong relationship between life-satisfaction and income gives some credence to the measures, as do the low levels of life and health satisfaction in Eastern Europe and the countries of the former Soviet Union, the lack of correlations between life and health satisfaction and health measures shows that happiness (or self-reported health) measures cannot be regarded as useful summary indicators of human welfare in international comparisons.
    JEL: I1 I31 O1 O15 O57
    Date: 2007–08
  8. By: Daron Acemoglu; Simon Johnson; James A. Robinson; Pierre Yared
    Abstract: This paper revisits and critically reevaluates the widely-accepted modernization hypothesis which claims that per capita income causes the creation and the consolidation of democracy. We argue that existing studies find support for this hypothesis because they fail to control for the presence of omitted variables. There are many underlying historical factors that affect both the level of income per capita and the likelihood of democracy in a country, and failing to control for these factors may introduce a spurious relationship between income and democracy. We show that controlling for these historical factors by including fixed country effects removes the correlation between income and democracy, as well as the correlation between income and the likelihood of transitions to and from democratic regimes. We argue that this evidence is consistent with another well-established approach in political science, which emphasizes how events during critical historical junctures can lead to divergent political-economic development paths, some leading to prosperity and democracy, others to relative poverty and non-democracy. We present evidence in favor of this interpretation by documenting that the fixed effects we estimate in the post-war sample are strongly associated with historical variables that have previously been used to explain diverging development paths within the former colonial world.
    JEL: O10 P16
    Date: 2007–08
  9. By: Wendy Dobson (International Tax Program, Rotman School of Management, University of Toronto)
    Abstract: This paper surveys financial reforms in the world’s two most populous and rapidly-growing economies. The contribution of financial systems to long term growth through the efficient mobilization and allocation of scarce capital is well documented in the literature. India’s financial system is popularly perceived to be better developed than China’s, yet they share two significant weaknesses: under-developed corporate bond markets and bank-dominated financial systems. High levels of state ownership of banks are associated with misdirected lending and high costs of intermediation. The paper examines the institutional frameworks that determine incentives in these sectors and marshals empirical evidence that historical decisions and insufficient market reform suggest performance problems persist. These problems will become more evident when growth slows; indeed a crisis may be necessary to force change since prevailing high economic growth rates in spite of the weaknesses undermine the case for deeper reforms.
    Keywords: comparative analysis; financial systems; China and India
    JEL: P O16 G20
    Date: 2007
  10. By: Yongbok Jeon
    Abstract: The aim of the present paper is to critically reappraise the validity and the relevance of the notion of total factor productivity (TFP) as a measure of technological progress. Placing the focus on the role that the neoclassical distribution theory plays in measuring technological progress, we take up the recent revival of the tautology argument (Felipe & McCombie 2003) and the simple results of the capital controversies. First, I argue that the measure of TFP exclusively relies on the marginal productivity theory of distribution through which factors’ income shares are linked to their technological progress. Second, it will be shown that the marginal productivity theory of distribution is based on extremely limited theoretical and empirical grounds. Third, therefore, it is concluded that the measure of TFP as a measurement of the contribution made by technical progress to the economic growth has very little to do with the reality.
    Keywords: Total Factor Productivity, Marginal Productivity Theory of Distribution, Income Accounting Identity, Capital Controversies
    JEL: B41 O11 O47
    Date: 2007–04
  11. By: Deininger, Klaus; Ali, Daniel Ayalew
    Abstract: The need for land-related investment to ensure sustainable land management and increase productivity of land use is widely recognized. However, th ere is little rigorous evidence on the effects of property rights for increasing agricultural productivity and contributing toward poverty reduction in Africa. Whether and by how much overlapping property rights reduce investment incentives, and the scope for policies to counter such disincentives, are thus important policy issues. Using information on parcels under ownership and usufruct by the same household from a nationally representative survey in Uganda, the authors find significant disincentives associated with overlapping property rights on short and long-term investments. The paper combines this result with information on crop productivity to obtain a rough estimate of the magnitudes involved. The authors make suggestions on ways to eliminate such inefficiencies.
    Keywords: Wetlands,Labor Policies,Common Property Resource Development,,Municipal Housing and Land
    Date: 2007–08–01
  12. By: Hayami, Yujiro
    Abstract: Policies to tax farmers in low-income countries and policies to subsidize them in high-income countries have been identified as a major source of the disequilibrium of world agriculture. Recently, as many high-performing economies in Asia advanced from the low-income to the middle-income stage through successful industrialization, they have been confronted with the problem of a widening income gap between farm and non-farm workers corresponding to rapid shifts in comparative advantage from agriculture to manufacturing. In order to prevent this disparity from culminating in serious social and po litical instability, policies have been reoriented toward supporting the income of farmers. At the same time, governments in middle-income countries must continue to secure low-cost food for the urban poor who are still large in number. The need to achieve the two conflicting goals under the still weak fiscal capacity of governments tends to make agricultural policies in the middle-income stage tinkering and ineffective. Greater research inputs in this area are called for in order to prevent the growth momentum of high-performing economies in Asia from being disrupted by political crises.
    Keywords: Economic Theory & Research,Rural Poverty Reduction,,Emerging Markets,Labor Policies
    Date: 2007–08–01
  13. By: Amin, Mohammad
    Abstract: A new dataset of 1,948 retail stores in India compiled by the World Bank ' s Enterprise Surveys shows that 27 percent of the stores report labor regulations as a problem for their business. Using these data we analyze the effect of labor regulation on employment at the store level. We find that stricter labor regulation has a strong negative effect on employment. Our estimates show that labor reforms are likely to increase employment by 22 percent of the current level for an average store.
    Keywords: Labor Markets,Labor Policies,Banks & Banking Reform,Regulatory Regimes,Work & Working Conditions
    Date: 2007–08–01
  14. By: Shalizi, Zmarak; Lecocq, Franck
    Abstract: This paper reviews the empirical and theoretical literature on economic growth to examine how the four components of the climate change bill, namely mitigation, proactive (ex ante) adaptation, reactive (ex post) adaptation, and ultimate damages of climate change affect growth, especially in developing countries. The authors consider successively t he Cass-Koopmans growth model and three major strands of the subsequent literature on growth: with multiple sectors, with rigidities, and with increasing returns. The paper finds that although the growth literature rarely addresses climate change per se, some issues discussed in the growth literature are directly relevant for climate change analysis. Notably, destruction of production factors, or decrease in factor productivity may strongly affect long-run equilibrium growth even in one-sector neoclassical growth models; climatic shocks have had large impacts on growth in developing countries because of rigidities; and the introducing increasing returns has a major impact on growth dynamics, in particular through induced technical change, poverty traps, or lock-ins. Among the most important gaps identified in the literature are lack of understanding of the channels by which shocks affect economic growth, lack of understanding of lock-ins, heavy reliance of numerical models assessing climate policies on neoclassical-type growth frameworks, and frequent use of an inappropriate " without climate change " counterfactual.
    Keywords: Economic Growth,Economic Theory & Research,Climate Change,Pro-Poor Growth and Inequality,Population Policies
    Date: 2007–08–01
  15. By: Lamanna, Francesca; Gonzalez, Alvaro S.
    Abstract: This paper investigates who is most affected by informal competition and how regulation and enforcement affect the extent and nature of this competition. Using newly-collected enterprise data for 6,466 manufacturing formal firms across 14 countries in Latin America, the authors show that formal firms affected by head-to-head competition with informal firms largely resemble them. They are small credit constrained, underutilize their productive capacity, serve smaller customers, and are in markets with low entry costs. In countries where the government is effective and business regulations onerous, formal firms in industries characterized by low costs to entry feel the sting of informal competition more than in other business environments. Finally, the analysis finds that in an economy with relatively onerous tax regulations and a government that poorly enforces its tax code, the percentage of firms adversely affected by informal competition will be reduced from 38.8 to 37.7 percent when the government increases enforcement to cover all firms.
    Keywords: Microfinance,Economic Theory & Research,Emerging Markets,E-Business,Banks & Banking Reform
    Date: 2007–08–01
  16. By: Rubiano, Eliana; Olarreaga, Marcelo; Lederman, Daniel
    Abstract: This paper examines the extent to which the growth of China and India in world markets is affecting the patterns of trade specialization in Latin American economies. The authors construct Vollrath ' s measure of revealed comparative advantage by 3-digit ISIC sector, country, and year. This measure accounts for both imports and exports. The empirical analyses explore the correlation between the revealed comparative advantage of Latin America and the two Asian economies. Econometric estimates suggest that the specialization pattern of Latin A-with the exception of Mexico-has been moving in opposite direction of the trade specialization pattern of China and India. Labor-intensive sectors (both unskilled and skilled) probably have been negatively affected by the growing presence of China and India in world markets, while natural resource and scientific knowledge intensive sectors have probably benefited from China and India ' s growth since 1990.
    Keywords: Free Trade,Economic Theory & Research,Trade Policy,Water and Industry,Agricultural Knowledge & Information Systems
    Date: 2007–08–01
  17. By: Lederman, Daniel
    Abstract: A model of firm innovation illustrates the effects of the threat of imitation and product varieties on a representative firm ' s decision to invest in research and development to produce new product varieties. The model motivates two empirical questions: (1) Is research and developm ent partially correlated with firms ' propensity to introduce new products or product innovation in developing countries? (2) Do trade policies and the national investment climate affect firms ' propensity for product innovation? The econometric evidence suggests that the answers are yes and yes, but the investment climate affects product innovation in a manner that is consistent with the presence of market failures and state capture. National trade-policy distortions appear to reduce the probability of product innovation, and the density of exporting firms at the national level also seems to positively affect the propensity to introduce new products by individual firms. The paper discusses some policy implications.
    Keywords: E-Business,Innovation,Microfinance,Inequality,Economic Theory & Research
    Date: 2007–08–01
  18. By: Soloaga, Isidro; Olarreaga, Marcelo; Lederman, Daniel
    Abstract: This paper studies the relationship between the growth of China and India in world merchandise trade and Latin American and Caribbean commercial flows from two perspectives. First, the authors focus on the opportunity that China and India ' s markets have offered Latin American and Caribbean exporters during 2000-2004. Second, empirical analyses examine the partial correlation between Chinese and Indian bilateral trade flows and Latin American and Caribbean trade with third markets. Both analyses rely on the gravity model of international trade. Econometric estimations that control for the systematic correlation between expected bilateral trade volumes and the size of their regression errors, as well as importer and exporter fixed effects and year effects, provide consistent estimates of the relevant parameters for different groups of countries in Latin America and the Caribbean. Results suggest that the growth of the two Asian markets has produced large opportunities for Latin American and Caribbean exporters, which nevertheless have not been fully exploited. The evidence concerning the effects of Chinese and Indian trade with third markets is not robust, but there is little evidence of negative effects on Latin American and Caribbean exports of non-fuel merchandise. In general, China ' s and to a large extent India ' s growing presence in world trade has been good news for Latin America and the Caribbean, but some of the potential benefits remain unexploited.
    Keywords: Economic Theory & Research,Free Trade,Currencies and Exchange Rates,Trade Policy,Markets and Market Access
    Date: 2007–08–01
  19. By: Scott, David H.
    Abstract: Corporate governance arrangements define the responsibilities, authorities and accountabilities of owners, boards of directors, and executive managers of a company. Good corporate governance is as important for state financial institutions as for private sector companies. Many of the problems that commonly afflict state financial institutions can be associated with, if not attributed directly to, weaknesses in corporate governance. This note draws on guidelines recently published by the OECD and the Basel Committee for Banking Supervision to compile a comprehensive corporate governance evaluation framework relevant to state-owned commercial and development finance institutions. It highlights aspects of this framework that are considered to be of particular importance to state financial institutions by citing innovative practices in a number of countries. Finally, it presents a detailed case study of the governance arrangements in place at the Development Bank of Southern Africa.
    Keywords: National Governance,Corporate Law,Emerging Markets,Debt Markets,Banks & Banking Reform
    Date: 2007–08–01
  20. By: Seira, Enrique; Piedra, Eduardo; Kaplan, David S.
    Abstract: The authors estimate the effect on business start-ups of a program that significantly speeds up firm registration procedures. The program was implemented in Mexico in different municipalities at different dates. Authors estimates suggest that new start-ups increased by about 4 percent in eligible industries, and the authors present evidence that this is a causal effect. Most of the effect is temporary, concent rated in the first 10 months after implementation. The effect is robust to several specifications of the benchmark control group time trends. The authors find that the program was more effective in municipalities with less corruption and cheaper additional procedures.
    Keywords: Corporate Law,Microfinance,Regional Governance,Urban Governance and Management,Urban Partnerships & Poverty
    Date: 2007–08–01
  21. By: Nagarajan, Hari K.; Jin, Songqing; Deininger, Klaus
    Abstract: Although opinions on impacts of land market transfers are sharply divided, few studies explore the welfare and productivity effects of land markets on a larger scale. This paper uses a large Indian panel spanning almost 20 years, together with a climatic shock (rainfall) indicator, to assess the productivity and equity effects of market-mediated land transfers (sale and purchase) compared with no n-market ones (inheritance). The analysis shows that frequent shocks increase land market activity, an effect that is mitigated by the presence of safety nets and banks. Land sales markets improved productivity and helped purchasers, many of whom were formerly landless, to accumulate non-land assets and significantly enhance their welfare.
    Keywords: Banks & Banking Reform,Markets and Market Access,Municipal Housing and Land,,Real Estate Development
    Date: 2007–08–01
  22. By: Nagarajan, Hari K.; Jin, Songqing; Deininger, Klaus
    Abstract: Recognition of the potentially deleterious implications of inequality in opportunity originating in a skewed asset distribution has spawned considerable interest in land reforms. However, little attention has been devoted to fact that, in the longer term, the measures used to implement land reforms could negatively affect productivity. Use of state level data on rental restrictions, together with a nationally representative survey from India, suggests that, contrary to original intenti ons, rental restrictions negatively affect productivity and equity. The restrictions reduce the scope for efficiency-enhancing rental transactions that benefit poor producers. Simulations suggest that, by doubling the number of producers with access to land through rental, from about 15 million currently, liberalization of rental markets could have far-reaching impacts.
    Keywords: Rural Development Knowledge & Information Systems,Municipal Housing and Land,Housing & Human Habitats,Climate Change,Land and Real Estate Development
    Date: 2007–08–01
  23. By: Skees, Jerry; Mahul, Olivier
    Abstract: This paper describes the index-based livestock insurance program in Mongolia designed in the context of a World Bank lending operation with Government of Mongolia and implemented on a pilot basis in 2005. This program involves a combination of self -insurance by herders, market-based insurance, and social insurance. Herders retain small losses, larger losses are transferred to the private insurance industry, and extreme or catastrophic losses are transferred to the government using a public safety net program. A syndicate pooling arrangement protects participating insurance companies against excessive insured losses, with excess of loss reinsurance provided by the government. The fiscal exposure of Government of Mongolia toward the most extreme losses is protected with a contingent credit facility. The insurance program relies on a mortality rate index by species in each local region. The index provides strong incentives to individual herders to continue to manage their herds so as to minimize the impacts of major livestock mortality events; individual herders receive an insurance payout based on the local mortality, irrespective of their individual losses. This project offered the first opportunity to design and implement an agriculture insurance program using a country-wide agricultural risk management approach. During the first sales season, 7 percent of the herders in the three pilot regions purchased the insurance product.
    Keywords: Insurance & Risk Mitigation,Insurance Law,Hazard Risk Management,Debt Markets,Banks & Banking Reform
    Date: 2007–08–01
  24. By: Schmukler, Sergio L.; Gozzi, Juan Carlos; de la Torre, Augusto
    Abstract: Interest in access to finance has increased significantly in recent years, as growing evidence suggests that lack of access to credit prevents lower-income households and small firms from financing high return investment projects, having an adverse effect on growth and poverty alleviation. This study describes some recent innovative experiences to broaden access to credit. These experiences are consistent with an emerging new view that recognizes a limited role for the public sector in financial markets, but contends that there might be room for well-designed, restricted interventions in collaboration with the private sector to foster financial development and broaden access. The authors illustrate this view with several recent experiences in Latin America and then discuss some open policy questions about the role of the public and private sectors in driving these financial innovations.
    Keywords: Debt Markets,Banks & Banking Reform,,Emerging Markets,Bankruptcy and Resolution of Financial Distress
    Date: 2007–08–01
  25. By: Bichaka Fayissa; Christian Nsiah; Badassa Tadasse
    Abstract: Over the decade of the 1990s, Africa has experienced a rise in tourist arrivals from 8.4 million to 10.6 million and receipts growth from $2.3 billion to $3.7 billion, respectively. According to the World Tourism Organization (WTO, 2006), the tourism industry in Sub-Saharan Africa enjoyed a robust annual market share growth rate of 10 percent in 2006. In spite of this, there are only few empirical studies that investigate the contributions of tourism to economic growth and development for African economies. Using a panel data of 42 African countries for the years that span from 1995 to 2004, this study explores the potential contribution of tourism to economic growth and development within the conventional neoclassical framework. The results show that receipts from the tourism industry significantly contribute both to the current level of gross domestic product and the economic growth of Sub-Saharan African countries as do investments in physical and human capital. Our findings imply that African economies could enhance their short-run economic growth by strategically strengthening their tourism industries.
    Keywords: Tourism, Economic Growth, Sub-Sahara Africa, Dynamic Panel Data, Fixed Effects, Random Effects, and Arellano-Bond Models
    JEL: C33 F14 L83 O40 O54
    Date: 2007–08
  26. By: Sirsha Chatterjee; Kanda Naknoi
    Abstract: The neoclassical theory of economic growth suggests that capital inflows raise the speed of convergence because foreign financial capital is transformed into physical capital. We propose a new methodology to quantify the size of capital inflows which are transformed into physical capital. We use the predicted scale to calculate the output gains from capital flows. Our methodology takes into account cross-country differences and fluctuations in the price of investment goods relative to output. The theory predicts that inefficiency in producing investment goods reduces the gains from capital inflows. A sizable fraction of capital inflows is found to be transformed into physical capital in only a few countries. However, the gains are found to be extremely small.
    Keywords: marginal product of capital, capital flows, convergence
    JEL: F21 F43 O47
    Date: 2007–07
  27. By: Nancy Birdsall
    Abstract: I review the literature on the effects of inequality on growth and development in the developing world. Two stylized facts emerge from empirical studies: inequality is more likely to harm growth in countries at low levels of income (below about $3200 per capita in 2000 dollars); and it is at high levels of inequality (at or above a Gini coefficient of .45) that a negative association emerges. Between 15 and 40 percent of the developing world's population lives in countries with these characteristics, depending on the inclusion of China, whose level of inequality has recently been measured at almost .45. Theory and evidence suggest that high inequality affects growth: (1) through interaction with incomplete and underdeveloped markets for capital and information; (2) by discouraging the evolution of the economic and political institutions associated with accountable government (which in turn enable a market environment conducive to investment and growth); and (3) by undermining the civic and social life that sustains effective collective decision-making.
    Keywords: Income distribution, inequality, poverty, growth, development, institutions,
    JEL: O11 O15 O43
    Date: 2007–04
  28. By: Ferdinando Regalía and Leslie Castro; Leslie Castro
    Abstract: While it is difficult to disentangle the individual impact of performance-based, demand-side interventions from the impact of performance-based, supply-side incentives, a rigorous evaluation of the program shows that their combination can work to increase the utilization of health services among the poor, and to improve health outcomes significantly. An evaluation undertaken ten months after demand-side incentives were stopped in certain areas revealed that the utilization of preventive health care services remained high. It is possible, therefore, that a well-targeted strategy of supply-side, performance-based incentives on its own may be sufficient to maintain high levels of health care service utilization, at least among poor households that have benefited from a relatively long period of education on the importance of preventive health care, while receiving demand-side financial incentives. However, the RPS evaluation results cannot exclude that, even after their removal, demand side incentives continue to exert, at least in the short term, a positive impact on service utilization. In the implementation of future RPS-type approaches, research efforts should focus on and be devoted to “unbundling the bundle” and assessing the relative contribution of supply vs. demand-side incentives.
    Keywords: Nicaragua, cash transfer programs, CCT, Health
    Date: 2007–04
  29. By: Amanda Glassman, Jessica Todd and Marie Gaarder; Jessica Todd
    Abstract: In order to support poor families in the developing world to seek and use health care, a multi-pronged strategy is needed on both the supply and the demand side of health care. A demand-side program called Conditional Cash Transfers (CCTs) strives to reduce poverty and also increase food consumption, school attendance, and use of preventive health care. Since 1997, seven countries in Latin America have implemented and evaluated CCT programs with health and nutrition components. The core of the program is based on encouraging poor mothers to seek preventive health services and attend health education talks by providing a cash incentive for their healthy behavior (with healthy behavior representing performance). Evaluations of these programs measured outputs in the utilization of services; health knowledge, attitudes, and practice; food consumption; the supply and quality of services; as well as outcomes in vaccination rates; nutritional status; morbidity; mortality; and fertility. While CCT impact evaluations provided unambiguous evidence that financial incentives increase utilization of key services by the poor, the studies gave little attention to the impact on health-related behaviors, attitudes, and household decision-making or how these factors contribute to or limit impact on health outcomes. Recommendations include expanding the scope of future evaluations to study these effects, modeling program effects beforehand, and carefully selecting the conditions for payment so that they are not too burdensome yet not irrelevant. Continuing to focus on the extreme poor is recommended since findings show that the poorest households must reach a minimum level of food consumption before they are able to make other investments in their health and well-being.
    Keywords: Health, Latin America, Caribbean
    Date: 2007–04
  30. By: Rena Eichler, Paul Auxila, Uder Antoine, Bernateau Desmangles; Paul Auxila
    Abstract: USAID launched a project in 1995 to deliver basic health services in Haiti. The project began by reimbursing contracted NGOs for documented expenditures or inputs. In 1999, payment was changed to being based partly on attaining performance targets or outputs. The project also provided technical assistance to the NGOs, along with opportunities to participate in an NGO network and other cross-fertilization activities. Remarkable improvements in key health indicators have been achieved in the six years since payment for performance was phased in. Although it is difficult to isolate the effects of performance-based payment on these improved indicators from the efforts aimed at strengthening NGOs and other factors, panel regression results suggest that the new payment incentives were responsible for considerable improvements in both immunization coverage and attended deliveries. Results for prenatal and postnatal care were less significant, perhaps suggesting a strong patient behavioral element that is not under the influence of provider actions.
    Keywords: Health, Haiti
    Date: 2007–04
  31. By: Liliana Rojas-Suarez;
    Abstract: The depth of and access to financial services provided by banks throughout Latin America are extremely low in spite of its recognized importance for economic activity, employment and poverty alleviation. Low financial depth and access hurts the poor the most and is due to a variety of obstacles that are presented in this paper in four categories, along with recommendations to overcome them. The first category groups socio-economic obstacles that undercut the demand for financial services of large segments of the population. The second category identifies problems in the operations of the banking sector that impedes the adequate provision of financial services to households and firms. The third category captures institutional deficiencies, with emphasis on the quality of the legal framework and the governability of the countries in the region. The fourth category identifies regulations that tend to distort the provision of banking services. Recommendations to confront these obstacles include innovative proposals that take into consideration the political constraints facing individual countries. Some of the policy recommendations include: public-private partnerships to improve financial literacy, the creation of juries specialized in commercial activities to support the rights of borrowers and creditors, and the approval of regulation to allow widespread usage of technological innovations to permit low-income families and small firms to gain access to financial services.
    Keywords: Banking Services, Latin America
    JEL: G21 G32 O16 O17 O54
    Date: 2007–06
  32. By: Francisco Rodriguez
    Abstract: This paper discusses recent evidence regarding the existence of a cross-country empirical relationship between openness to international trade and economic growth. I discuss the empirical contributions of Warner (2003), Dollar and Kraay (2002), and Wacziarg and Welch (2003), and argue that these studies fail to convincingly establish a positive link between trade and growth. I also discuss the 1990-03 experience and show that growth does not display a significant correlation with any measure of trade openness over this period.
    Keywords: economic growth, openness, trade policy. cross-country growth regressions
    JEL: O11 O19 O47
    Date: 2007–08
  33. By: Francisco Rodriguez
    Abstract: This paper explores whether the post-1980 decline in infrastructure investment in developing countries is a source of growing disparities in world per capita GDP. I start by reviewing the literature on the infrastructure-productivity link, arguing that a balanced reading of previous studies points to a significant effect of infrastructure provision on productivity. I then empirically study whether retrenchments in infrastructure provision have played a role in growing disparities using a data set of country-level infrastructure stocks for 121 countries since 1960. Cutbacks in infrastructure investment appear to be at most a minor cause of growing divergence in per capita incomes.
    Keywords: infrastructure, public capital, convergence, productivity, economic growth
    JEL: H54 O11
    Date: 2007–07
  34. By: Helen Shapiro
    Abstract: The paper highlights how the rationales and instruments of industrial policy have changed since the 1960s. It finds that theories of industrialization have come full circle, as many of the assumptions behind the market failure paradigm have made a comeback. The policy implications of these theories, however, have not been similarly resurrected. It makes an explicit comparison between the strategies of East Asia and Latin America, and reviews the explanations for their divergent performance. It identifies a “back to the future” quality of Latin America’s situation, pointing to the region’s balance of payments constraint and dependence on commodity-like industrial products.
    Keywords: Industrial Policy, Competitiveness, East Asia, Latin America
    JEL: L52 L53 O14 O38 O53 O54 F13
    Date: 2007–08
  35. By: Mushtaq H. Khan
    Abstract: Liberal economists have developed a framework of good governance as market-enhancing governance, focusing on governance capabilities that reduce transaction costs and enable markets to work more efficiently. In contrast, heterodox economists have stressed the role of growth-enhancing governance, which focuses on governance capacities to overcome entrenched market failures in allocating assets, acquiring productivity-enhancing technologies and maintaining political stability in contexts of rapid social transformation. The two are not necessarily mutually exclusive, but current policy exclusively focuses on the former, and ignores the strong empirical and historical evidence supporting the latter to the detriment of the growth prospects of poor countries.
    Keywords: governance, market failures, transaction costs
    JEL: O20 O30 O40 P14 P16
    Date: 2007–08
  36. By: Puah, Chin-Hong; Kueh, Jerome Swee-Hui; Lau, Evan
    Abstract: The relationship between Foreign Direct Investment (FDI) and Gross Domestic Products (GDP) had become the centre piece of recent researches in identifying the short run and long run implications between the two variables. Using the hypotheses of FDI led GDP and GDP led FDI as theoretical framework, this study intends to analyze the implications of the rise of China towards the ASEAN-5 countries, namely Indonesia, Malaysia, the Philippines, Singapore and Thailand from the perspective of FDI and GDP. The cointegration and vector error correlation estimate test results showed that there is a significant positive long run relationship between FDI of China and GDP of ASEAN-5. However, we failed to detect any short run causal relationship among the variables under study.
    Keywords: Foreign Direct Investment; Gross Domestic Product; ASEAN-5; China
    JEL: F10
    Date: 2007–08–20
  37. By: Takane, Tsutomu
    Abstract: Based on information derived from six villages in various parts of rural Malawi, this paper examines the interrelationship between smallholder strategies to obtain land on the one hand, and customary land tenure and inheritance rules on the other. The paper revealed that although the majority of land transactions followed customary land tenure systems and inheritance rules, in a good number of cases land transactions deviated from the basic rules. One factor behind such deviation was the unique personal relationships that were developed between original landholders and heirs. Another factor was the seemingly increasing cases of returning wives in patrilineal villages. Still another factor was the intensifying land scarcity that encouraged villagers to adopt strategies to obtain land from any source by any means. On the other hand, there were also some cases in which the same land-scarcity problem induced villagers to countercheck the practice of flexible land transfer to prevent their lineage land from being alienated to non-kin members. These facts suggest that, in a land scarce situation, an individual strategy to obtain land rights from any possible sources by deviating from customary rules may occasionally be in conflict with a lineage strategy to countercheck such tendency.
    Keywords: Land, Smallholder, Customary Tenure, Malawi, Africa, Land tenure, Farmers
    Date: 2007–05
  38. By: Shigetomi, Shin'ichi
    Abstract: The lack of public-mindedness can cause problems in the social order of people’s daily lives, such as the tragedy of the commons and the problem of free riders. Some scholars such as Habermas assert that communicative rationality is the solution, expecting that individuals will communicate with each other to reach a consensus without being bounded by aspects of social background. Other scholars advocate the revitalization of traditional community culture. These arguments, however, are not based on reality. By using the case of communal land formation in rural Thailand, the author shows that collective action is neither a revival of tradition nor a result of communication free from social constraints. Rather, cooperation emerges because the people rationally respond to their present needs and have built, through daily social interactions, taken-for-granted knowledge about how they should behave for cooperation.
    Keywords: Local organization, Rural development, Thailand, Public sphere, Community forest, Communal land, Community, Forest
    JEL: O18 Q15 Q23 Z13
    Date: 2007–06
  39. By: Kuwamori, Hiroshi; Okamoto, Nobuhiro
    Abstract: This paper investigates the changes in the structures of industrial networks that have occurred in the Asia-Pacific region in line with the rapid growth of the Chinese economy. Analyses using international input-output tables revealed that during the 1990s, there was a significant increase in the dependence of Asian countries’ manufacturing industries, such as textiles and electronics, on China’s industries, though industries in Japan and the United States remain important as the main suppliers of industries in Asian countries.
    Keywords: Input-output analysis, Backward linkage, Industrial network, Asia, China, Japan, United States, Input-output tables, Manufacturing industries
    JEL: D57 R15
    Date: 2007–06
  40. By: Uchimura, Hiroko; Jütting, Johannes
    Abstract: This study analyzes the effect of fiscal decentralization on health outcomes in China using a panel data set with nationwide county-level data. We find that counties in more fiscal decentralized provinces have lower infant mortality rates compared to those counties in which the provincial government retains the main spending authority, if certain conditions are met. Spending responsibilities at the local level need to be matched with county government’s own fiscal capacity. For those local governments that have only limited revenues, their ability to spend on local public goods such as health care depends crucially upon intergovernmental transfers. The findings of this study thereby support the common assertion that fiscal decentralization can indeed lead to more efficient production of local public goods, but also highlights the necessary conditions to make this happen.
    Keywords: Fiscal decentralization, Health outcomes, China, Fiscal policy, Decentralization, Local government, Public health
    JEL: H75 I18
    Date: 2007–07
  41. By: Martin Paldam; Erich Gundlach
    Abstract: The Grand Transition (GT) view claims that economic development is causal to institutional development, and that many institutional changes can be understood as transitions occurring at roughly the same level (zones) of development. The Primacy of Institutions (PoI) view claims that economic development is a consequence of an exogenous selection of institutions. Our survey of the empirical evidence and our own estimates reveal that it is easy to find convincing evidence supporting either of the two views. Property rights do affect development as suggested by the PoI. However, democracy is mainly an effect of development as suggested by the GT. We conclude that the empirical results are far too mixed to allow for a robust assessment that one of the two views is true and the other false. This finding implies that focusing on institutional development is unlikely to be successful as the key strategy for the economic development of poor countries.
    Keywords: Grand transition, primacy of institutions, democracy, corruption, development
    Date: 2007–06
  42. By: Sambit Bhattacharyya; Steve Dowrick; Jane Golley
    Abstract: A recent paper by Dowrick and Golley (2004) finds that the impact of trade on growth varies with income. In particular, during the period 1980-2000, trade is observed to yield larger benefits for the more advanced economies. This result is backed up by Dejong and Ripoll (2005) who show that the richer countries benefit more from tariff reduction than the poorer countries. These findings raise the question, what is it about high levels of per capita income that enable richer economies to take better advantage of trade? It appears that the reason behind the success of the high income economies is the high quality institutions. These institutions not only boost growth directly but they impact economic performance indirectly by improving trade. We capture the complementarity between institutions and trade by estimating an empirical growth model which includes an interactive term involving these two variables. Better quality institutions are indicative of lower transaction costs which facilitates trade. It also ensures better distribution of the gains from trade paving the way for further trade and growth.
    Date: 2007–06
  43. By: Supriyo De
    Abstract: Propelled by the rise of a vibrant software industry the Indian economy has demonstrated rapid growth since the 1990s. A novel three-sector endogenous growth model that encapsulates the salient features of an information technology oriented economy is developed. The dynamic optimization problem leads to a balanced growth path equilibrium characterized by output, physical capital, software assets, human capital and consumption growing at a uniform rate. Major implications of the model are reflected in empirical evidence from the growth trajectories of Indian states. The human capital production apparatus has a significant impact on economic growth. This has critical policy implications.
    Keywords: endogenous growth, India, information technology, human capital, software
    Date: 2007–06
  44. By: Kurt Hafner
    Abstract: I first present a New Economic Geography model and analyze the impact of R&D on economic development of integrating countries. I find that technology diffusion and skilled labor migration stimulates economic development through fix cost reduction on a firm level. As the inclusion of foreign technology matters for structurally backward countries, I second use time series data for Greece, Portugal, Spain and Ireland representing European integration during the 1980s and 1990s. In considering three different technology diffusion channels, estimates, however, reduces to Portugal as test procedures confirm nonstationarity and cointegration only for this country. I find empirical evidence for bilateral trade as a diffusion channel but not for FDI or foreign patents.
    Keywords: Economic Geography, Agglomeration, Technology Diffusion, Nonstationary Time Series
    Date: 2007–06
  45. By: Testsugen Haruyama; Ken-ichi Hashimoto
    Abstract: This paper develops a dynamic general equilibrium model of North-South trade and economic growth in a world economy with a continuum of countries. Countries are different in research productivity. Innovation, imitation and the relative wage between countries are endogenously determined as well as the number of the country that specialize in innovative or imitative R&D. We investigate how equilibrium is affected by globalization, intellectual property right protection, industrial policy, competition and migration. The model is also extended to introduce foreign direct investment.
    Keywords: Innovation, imitation, growth, trade, North, South
    JEL: O11 O14 O31 F12 F43
    Date: 2007–06
  46. By: Gilles Koléda
    Abstract: We study the incentive that governments have to protect IPR in a trading world economy, focusing on the patent novelty requirement and its effect on growth and trade. We consider a world economy with ongoing innovation in two regions. The North is assumed to have a higher wage than the South and a greater capacity for innovation, the South is assumed to have a larger population than the North. We introduce heterogeneity in innovation size together with the obligation, imposed by Patent Office inside each region, that innovation size must be higher than the patent novelty requirement. This patent characteristic stands to be a useable instrument to promote innovation and growth, and also a strategic trade policy instrument. We numerically determine the Nash equilibrium of the strategic game that results of the patent novelty requirement setting by each regional authority. We then compare, in terms of welfare, the non-cooperative equilibrium with the equilibrium that results from the patent novelty requirement harmonization, when the level of this common patent novelty requirement is set by a supra-regional organization.
    Keywords: patent novelty requirement, innovation, growth, quality ladders, harmonization, North and South
    JEL: O34 O40 F43
    Date: 2007–06
  47. By: Tony Makin
    Abstract: This paper develops a new international monetary framework for analysing the domestic and international repercussions of China’s exchange rate policy in the context of its rapid development. This straightforward framework reveals that misalignment of the yuan against major currencies artificially assists China’s output growth, contributes to global imbalances and limits household consumption, slowing the rise in living standards. Meanwhile, China’s Western trading partners, most notably the United States and the European Union, simultaneously experience external deficits, lower output and saving due to exchange rate misalignment.
    Keywords: output, expenditure, economic development, exchange rate misalignment, trading partners, global imbalances
    Date: 2007–06
  48. By: Yuwen Dai
    Abstract: In this paper, we investigate the relationship between Chinese macroeconomic policy and economic growth, and examine how the choice of macroeconomic regime affects economic performance in China. An open-economy model is developed for this purpose. It is a three-sector “almost small" open-economy macroeconomic model, with asset markets and forward-looking agents. This open-economy model is then adopted to analyse the implications of both domestic and external growth shocks to the Chinese economy under two alternative macroeconomic policy regimes. These policy regimes have two extreme assumptions on the exchange rate, with differing degrees of financial capital mobility. The simulation results show that greater flexibility in the exchange rate regime allows the central bank to conduct independent monetary policy in the Chinese economy, the benefit from which increases as financial capital becomes more internationally mobile. Most growth shocks cause an expansion in the real GDP level, and there is a deflation in the price level and depreciation in the real exchange rate when the economy operates a floating exchange rate regime with high financial capital mobility. Overall, the expansionary effects in this macroeconomic environment will be beneficial to the Chinese economy.
    Keywords: Macroeconomics, Economic Growth, Monetary Policy, Exchange Rate, Capital Mobility, Chinese Economy, Computable General Equilibrium (CGE) Modelling
    Date: 2007–06
  49. By: Elissaios Papyrakis
    Abstract: In most resource-driven developing economies, a mineral-based formal sector and an informal resource sector (such as charcoal production) constitute the main economic activities, from which local dwellers derive their livelihoods. The paper examines the coexistence of formal and informal resource sectors in resource-dependent economies, whose production depend on an exhaustible (e.g. minerals) and a renewable resource stock (e.g. forest) respectively. We examine the implications of declining mineral stocks on public revenues, labour movements between sectors, and economic growth in an attempt to elucidate the poor economic performance of most mineral-dependent countries. Decreasing mineral stocks induce a relocation of labour towards informal production, and deprive local authorities from public revenues collected within the formal economy. This constrains the ability to improve infrastructure and welfare over time and simultaneously imposes pressure on the local environment through deforestation.
    Keywords: Mining, Growth, Environment
    JEL: O11 O13 Q32
    Date: 2007–06
  50. By: Alvin P. Ang
    Abstract: This paper considers the present issues surrounding the role of workers remittances and its contribution/effect on economic growth and development. In particular, this paper focuses on how such remittances have been able to spur development and growth. As a case study, the paper focuses on the Philippines, one of the countries in the world with a long history of sending workers abroad. In 2005, the Philippines received approximately US$11Bn of remittances, almost 10% of its GDP. It ranks as the 3rd largest recipient of remittances in the world after India and Mexico. Along this line, the paper looks into the following areas: (a) remittance and overall growth, (b) linkages between remittances and microfinance, (c) tracing the contribution of remittances to countryside development, and (d) relationship between worker remittances and structural reform policies. We are also concerned at how these remittances have impacted the poor in general. This is important as the expected benefits have generally been unfelt at the level of the poor. We hypothesize that workers’ remittance have not been properly utilized into productive and investment uses in the Philippines. There are strong anecdotal evidences that show that most of these resources are being used to fund conspicuous consumption. Hence, we would like to find ways where these resources can be harnessed into funding development needs of the country.
    Keywords: Remittances, Development, Migrant Workers
    JEL: E21 F2 G21 J61 O16
    Date: 2007–06
  51. By: James B. Ang
    Abstract: This paper provides an empirical assessment of the effects of financial sector policies on development of the financial system in Malaysia over the period 1959-2005. The technique of principal component analysis is used to construct a summary measure of interest rate policies in order to account for the joint influence of various interest rate controls imposed on the Malaysian financial system. The results show that economic development, interest rate controls and capital liquidity requirements positively affect the level of financial development. However, higher statutory reserve requirements and the presence of directed credit programs appear to be harmful for development of the Malaysian financial system. The results provide some support to the argument that some form of financial restraints may help promote financial development.
    Keywords: Financial development, financial liberalization, Malaysia
    JEL: E44 E58 O16 O53
    Date: 2007–06
  52. By: Nils Herger; Roland Hodler; Michael Lobsinger
    Abstract: This paper endeavours to explain the vast differences in the size of capital markets across countries, by drawing together theories emphasising cultural values, dysfunctional institutions, or impediments to trade as obstacles to financial development. To account for endogeneity, instrumental variables pertaining to culture, geography, and colonial history are employed. We find that trade openness and institutions constraining the political elite from expropriating financiers exhibit a strong positive effect on the size of capital markets. Conversely, cultural beliefs and the cost of enforcing financial contracts seem not to introduce significant obstacles for financial development.
    Keywords: Financial Development, Culture, Institutional Quality, Trade
    Date: 2007–06
  53. By: Tobias Bidlingmaier
    Date: 2007–06
  54. By: Chee Kian Leong
    Abstract: The policy by China and India to open their markets to international trade has been touted as the reason for their phenomenal growth. This paper investigates the impact of opening up the China and Indian economy on economic growth in these countries using new panel data sets for both the national economies and the regional economies of China. The policy change to a more liberalized economy is explicitly identified using instrumental variables. The results provide support that export growth does have a positive and statistically significant effect on economic growth in these countries. However, the growth rates of these countries are export and FDI inelastic, in the sense that a one percentage point increase in growth rate of export or FDI will have a less than one percentage point increase in economic growth rate of these countries. In the case of the Chinese regions, the presence of export processing zones may exert positive effect on the regional growth rate but the increase in regional growth is even more export inelastic than at the national level. The results dispel the popular view that adopting a policy of more openness in the economy has a “multiplier” effect on economic growth. Of the two phases of liberalization in both countries, the second stage is statistically significant. One possible reason is that the scale of liberalization is greater in the second phase. Additionally, increasing the number of SEZs has very negligible effect on economic growth. Taken together, these results suggest that what contributes to greater growth is a greater scale of liberalization, rather than increasing the number of SEZs.
    Date: 2007–06
  55. By: Mdu Biyase; Lumengo Bonga-Bonga
    Abstract: South Africa has achieved a lot since 1994, when ANC-led government took office. The Performance of the economy since 1994, as measured by the growth rate, has been encouraging with an average growth rate of approximately 2.8% per annum. The inflation rate has been recently under control at between 3% and 6% per annum, the inflation target set by the South African Reserve Bank (SARB). Despite this success problems of unemployment and poverty are still very much with us and have not yet begun to diminish unambiguously. Poverty is around 45% to 50% while broad unemployment rate is somewhere around 26% to 40%. This paper attempts to reexamine the debate on whether SA is experiencing jobless or job creating growth in the context of Okun’s law. Making use of the Structural Vector Autoregressive (SVAR) technique to characterize the dynamics of employment in response to output shocks, this study concludes that while an increase in output increases total employment in general; nevertheless there are some sectors (such as primary and secondary sectors) where the impact of output shocks has been negligible.
    Date: 2007–06
  56. By: Yogi Vidyattama
    Abstract: The discussion of income disparity has emphasized the need for research in finding the growth determinant. This chapter will investigate the determinants of provincial growth of income per capita. It uses the regional panel data within a country, namely the 1983–2003 Indonesian provincial data sets. This will bring up some issues that will differentiate the application in sub national to cross country application and try to address those issues. To achieve this goal, this study will utilise GMM dynamic panel estimation and the reduced form of the Solow-Swan growth model in order to estimate a regional growth model. Gross Domestic Product (GDP) per capita with and without mining sector value added as well as household consumption per capita are the proxies of income in this studies. The results are as follows. The overall investment (gross fixed capital formation) is estimated to have an insignificant impact on the growth of all income proxies. The average year of schooling has a different impact on different proxies of income. There are negative impacts on growth from local government spending on GDP per capita and GDP non mining per capita. The impact of transportation infrastructure in term of roads per capita is significantly positive on GDP per capita growth, and weakly significantly positive on household expenditure. The ratio of trade to GDP, as a proxy of openness, is the only significant growth determinant of all income proxies. The result from institutional variable is positively significant for GDP per capita but not significant for GDP non mining and household consumption. On the other hand, financial institutions variable is only significant in determining GDP non mining growth.
    Date: 2007–06
  57. By: Yi-Hui Chiang; Yiming Li; Chih-Young Hung
    Abstract: In this work, we for the first time study the dynamic flows of the foreign direct investment (FDI) with a dynamic growth theory. We define the FDI flow as a process which transmits throughout a given social system by way of diverse communication channels. In model formulation, seven assumptions are thus proposed and the foreign capital policy of the host country is considered as an external influence; in addition, the investment policy of the investing country is modeled as an internal influence. Classification of influences is mainly according to the operational strategy as well as the consideration of economical/financial factors. The dynamic model of FDI flow is a differential equation which is solved numerically and verified with collected realistic data. Application of the developed model to explore, taking the electronics industry in Taiwan as an example, Taiwanese direct investment (TDI) in China (i.e. FDI flows from Taiwan to China) since 2001 is conducted. Our preliminary results successfully account for the dynamics of FDI flow for different amount of TDI outflows. It is found that the internal influence dominates the growth of TDI flow from Taiwan to China during 2001-2006.
    Keywords: Foreign direct investment, dynamic flow theory, growth model, and numerical simulation
    Date: 2007–06
  58. By: Della Temenggung
    Abstract: In recent decades, foreign direct investment (FDI) played an important role in achieving economic growth and development especially for developing countries. FDI bring capital and introduced new technology. Moreover, the new technology can also spill over to the local firms in the host country. For this reason, FDI often considered as the most significant channel for technology transfer. However, the empirical studies provide mixed evidence on the role of foreign investment in generating technology transfer to local firms. This paper attempts to provide some evidence to help reconcile the difference in empirical evidence by examining Indonesian manufacturing industries’ experienced from 1975-2000. This would provide an opportunity to examine the effect of host country economic development and policy environment to the technology spillovers process. In general, the result found positive and significant productivity spillovers in Indonesian manufacturing industry for the whole period. Interestingly, the estimation result for each economic episodes support the hypothesis on the effect of local firm absorptive capacity and host country economic policy. We found negative and significant spillovers during the pre-liberalization period (1975-1986) and found positive and significant spillovers in the post-liberalization period (1987-2000). This study also found that the spillovers effect is different between each 2-digit ISIC industry, proving that the sectoral characteristics do affect the local firm ability to learn and adopt new technology.
    Keywords: Foreign direct investment, Productivity spillovers, Economic Policy, Manufacturing
    JEL: F23 O30 L60
    Date: 2007–06
  59. By: Timothy Kam; Yi-Chia Wang
    Abstract: We extend the deterministic growth model of Glomm and Ravikumar (1994) to a stochastic endogenous growth model which nests both exogenous and endogenous growth factors. By introducing simple shocks to production technology, private capital and public capital investment, we can derive testable time series properties of the analytical model. The hypothesis of strict endogenous growth due to public capital spillovers cannot be statistically rejected for our Australian data set. We find further short-run evidence of public capital contributing to permanent increases in the levels of per capita income and private capital.
    JEL: O41 C32
    Date: 2006–09
  60. By: Creina Day
    Abstract: Using a general three sector growth model, this paper derives general conditions for positive growth in the economy along a balanced growth path under the alternative assumptions of a static population and a growing population. The framework is general enough to replicate endogenous and semi-endogenous R&D based growth models. This paper challenges the conventional wisdom that (non-) linearity is synonymous with (semi-) endogenous growth. CES technology is introduced to human capital accumulation to obtain positive balanced growth with or without population growth.
    JEL: O30 O41
    Date: 2006–10
  61. By: Rod Tyers; Jane Golley; Ian Bain
    Abstract: Within the next decade, China’s labour force will begin to contract, while that of India will expand faster than its population. Relative labour abundance will bring higher capital returns and an increasing share of global FDI to India. Yet China may relax its One Child Policy further and India’s fertility could follow the pattern elsewhere in Asia and decline faster than expected. These linkages are explored using a global demographic sub-model that is integrated with an adaptation of the GTAP-Dynamic global economic model in which regional households are disaggregated by age and gender. Even with a two-child-policy, China’s growth is projected to slow in future with India becoming the fastest growing economy in the world on the strength of its continued population expansion. While GDP depends positively on fertility and per capita income negatively in both countries, the price of more GDP growth in terms of lost per capita income is lower in China than in India, a result that depends critically on India’s initially higher fertility, its higher youth dependency and the age-gender pattern of its participation rates. India therefore has considerably more to gain, at least in per capita terms, from further reducing its fertility
    JEL: C68 E27 F43 J11 O53
    Date: 2007–11
  62. By: Gernot Pehnelt (School of Busniess and Economics, Friedrich-Schiller-University Jena, Germany.)
    Abstract: In recent years, China has become a major power on the African continent, not only with respect to trade and investment, but also as a donor of development aid. Although there is no accurate measure of the exact size of China’s aid program, since China rather underestimates the volume in official statistics, estimates on the basis of press releases, official announcements and assessments of major projects in Africa suggest that China has already overtaken the World Bank in lending to Africa. In this article, we analyze China’s aid policy in Africa from a political economy perspective. We show that China is using (tied) aid and loans in order to reach specific economic and political goals and that Beijing has been quite successful in doing so. The impressing success of China in getting access to African countries can be explained by comparative advantages of the People’s Republic, especially in unstable nations and "rough" states. China’s engagement in Africa causes some serious problems with traditional donors. We discuss these conflicts and provide a critical assessment of China’s role in Africa. Finally, we discuss the policy implications for the donor community.
    Keywords: China, Africa, development aid, political economy
    JEL: O16 O19 F35 F50
    Date: 2007–08–22
  63. By: Uzma Zia (Pakistan Institute of Development Economics, Islamabad.)
    Abstract: The concept of competitiveness has been widely accepted and has become a part of discussion in world-wide forums. Today global economy cannot be explained in the same manner as it was a few decades ago. Improved competitiveness of economies is a need of the day and ability to compete in the world market is of major concern. This paper attempts to assess the position of Pakistan in the International Competitiveness. As a survey paper, the concept, definition and the measurement of competitiveness have been analysed further to assess Pakistan’s position in the region. Competitiveness is linked with export performance of other trading and non trading countries. Pakistan’s export performance is analysed in this context. Lessons for Pakistan have been drawn on the basis of experiences of emerging economies. It has been concluded that countries can strengthen their export markets with the passage of time. They need to improve the governance as well as technological progress to increase high-tech exports. Developing countries like Pakistan start from low technology and with passage of time shift to improved technologies. Technology-based activities help improving export performance that brings competitiveness of a country. The paper also suggests a model to government of Pakistan which describes that high technology exports will be a result of extensive Research and Development (R&D) using human capital as an investment in the country. The success depends upon the combined efforts of the government, individuals and business initiatives both in public and private sectors.
    Keywords: Competitiveness, Growth Performance
    JEL: O33
    Date: 2007

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