nep-dev New Economics Papers
on Development
Issue of 2007‒09‒02
sixteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Health and Civil War in Rural Burundi By Tom Bundervoet; Philip Verwimp; Richard Akresh
  2. The HIV Anticaptory Saving Motive: An Empirical Analysis in South Africa By Kuilen, G. van de; Lammers, J.
  3. Was It Really “Growth with Equity†under Soeharto? A Theil Analysis of Indonesian Income Inequality, 1961-2002 By Frankema, Ewout; Marks, Daan
  4. Poverty dynamics in Ethiopia: state dependence By Islam, Nizamul; Shimeles, Abebe
  5. Informality as a Stepping Stone: Entrepreneurial Entry in a Developing Economy By John Bennett; Saul Estrin
  6. Globalization and Income Inequality By Elena Meschi; Marco Vivarelli
  7. The Determinants of Rising Informality in Brazil: Evidence from Gross Worker Flows By Mariano Bosch; Edwin Goni; William Maloney
  8. Social Security Coverage and the Labor Market in Developing Countries By Paula Auerbach; Maria Eugenia Genoni; Carmen Pagés
  9. Far Above Rubies: The Association Between Bride Price and Extramarital Sexual Relations in Uganda By David Bishai; Shoshana Grossbard
  10. Are All Democracies Equally Good? The Role of Interactions between Political Environment and Inequality for Rule of Law By Uwe Sunde; Matteo Cervellati; Piergiuseppe Fortunato
  11. Is the Chinese Growth Miracle Built to Last? By Eswar S. Prasad
  12. Malaria: Disease Impacts and Long-Run Income Differences By Douglas Gollin; Christian Zimmermann
  13. A Micro-Decomposition Analysis of the Macroeconomic Determinants of Human Development By LAMBERT Sylvie; RAVALLION Martin; VAN DE WALLE Dominique
  14. The Making of a Latin American Global Economist By David Colander; Hugo Nopo Key Words: Latin American economics, global economics, political economy, graduate training, Latin America, applied economics
  15. Confronting Capacity Constraints on Conditional Cash Transfers in Latin America: the cases of El Salvador and Paraguay By Fabio Veras Soares; Tatiana Britto

  1. By: Tom Bundervoet (Free University of Brussels and HiCN); Philip Verwimp (ECARES, Free University of Brussels and HiCN); Richard Akresh (University of Illinois at Urbana Champaign and IZA)
    Abstract: We combine household survey data with event data on the timing and location of armed conflicts to examine the impact of Burundi’s civil war on children’s health status. The identification strategy exploits exogenous variation in the war’s timing across provinces and the exposure of children’s birth cohorts to the fighting. After controlling for province of residence, birth cohort, individual and household characteristics, and province-specific time trends, we find that children exposed to the war have on average 0.515 standard deviations lower height-for-age z-scores than non-exposed children. This negative effect is robust to specifications exploiting alternative sources of exogenous variation.
    Keywords: child health, economic shocks, stunting, Africa
    JEL: I12 J13 O12
    Date: 2007–07
  2. By: Kuilen, G. van de; Lammers, J. (Tilburg University, Center for Economic Research)
    Abstract: This paper studies the effect of the HIV/AIDS epidemic on saving behaviour. Two important characteristics of HIV result in opposing forces on savings: mortality increases, which reduces savings, and long-term illness risk increases, which enhances savings. We use a two period life-cycle model with uncertain lifetime including perceived HIV contamination risk to illustrate both the opposing effects of the HIV epidemic on individual savings and test the predictions of our model with data obtained from an economic experiment with real monetary incentives performed in South Africa. The empirical results show that increased mortality decreases the amount of savings and that having a high perception of HIV contamination risk increases savings. The latter effect confirms the HIV anticipatory saving hypothesis.
    Keywords: HIV/AIDS;saving behavior;illness risk;mortality;life-cycle model;time preferences.
    JEL: D12 D91 E21 I12
    Date: 2007
  3. By: Frankema, Ewout; Marks, Daan (Groningen University)
    Abstract: For over three decades (1966-1998) socio-economic policies in Indonesia were founded on Soeharto?s development trilogy ?growth, stability and equity?. Literature agrees that the policy goals of growth and stability were met by and large, but remains inconclusive about equity. In this paper we estimate Theil indices of sector income distribution to evaluate the impact of structural change on the trend of Indonesian income inequality for the period 1961-2002. Where conventional Gini-coefficients based on household expenditure surveys suggest that Indonesian income equality is comparatively confined and reveals no long run tendency in either upward or downward direction, our results indicate that inter and intra-sector income inequality increased rapidly under Soeharto, as well as the share of the labour force engaged in informal sector activities.
    Date: 2007
  4. By: Islam, Nizamul (Department of Economics, School of Business, Economics and Law, Göteborg University); Shimeles, Abebe (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper focuses on the persistency of poverty in rural and urban households in Ethiopia by estimating dynamic probit models. Unobserved heterogeneity, first order state dependence and serially correlated error component are allowed for. The empirical results for both rural and urban areas show that each of these components is statistically significant in characterising the dynamics of poverty in Ethiopia. Furthermore, risk of poverty increases with the number of household’s size. Moreover, land size is highly correlated (negatively) with that risk of poverty and the most important two cash crops (Coffee and Chat) has significant role in the alleviation of poverty in Ethiopia. Finally, the effect of true state dependence and transitory shocks in poverty persistency appears to be stronger among urban households than rural households.<p>
    Keywords: Poverty persistency; State dependence; Unobserved heterogeneity
    JEL: J22
    Date: 2007–08–29
  5. By: John Bennett (Brunel University and IZA); Saul Estrin (London School of Economics and IZA)
    Abstract: We model decisions with respect to formality or informality for entrepreneurs in a new industry for a developing economy. We show that informality allows a leader to explore, without significant sunk costs, the potential profitability of the industry; that is, informality may be a stepping stone, enabling an entrepreneur to experiment cheaply in an uncertain environment. There are circumstances under which, without this option, the industry would not become established. We analyse the roles of parameters such as a minimum wage rate and we show that the existence of finance constraints can actually encourage entry in this context.
    Keywords: informal sector, entry, developing economy
    JEL: O17 L10
    Date: 2007–07
  6. By: Elena Meschi (Marche Polytechnic University, Ancona and CSGR Warwick); Marco Vivarelli (Catholic University of Milan, CSGR Warwick, IPTS (European Commission, Seville) and IZA)
    Abstract: This paper discusses the distributive consequences of trade flows in developing countries (DCs). On the theoretical side, we argue that the interplays between international openness and technology adoption may constitute an important mechanism leading to a possible increase of income differentials in the liberalizing DCs, trough skill enhancing trade. We use a dynamic specification to estimate the impact of trade on within-country income inequality in a sample of 70 DCs over the 1980-1999 period. Our results suggest that total aggregate trade flows are weakly related with income inequality. However, once we disaggregate total trade flows according to their areas of origin/destination, we find that trade with high income countries worsen income distribution in DCs, both through imports and exports. This finding provides a preliminary support to the hypothesis that technological differentials between trading partners are important in shaping the distributive effects of trade openness. Moreover, after testing for the differential impact of trade in middle income DCs vs low income ones, we observe that the previous result only holds for middle income countries (MICs). We interpret this evidence by considering the greater potential for technological upgrading in MICs both in terms of their higher "absorptive capacity" and in terms of their superior ability in serving the differentiated and high-quality markets of the developed world.
    Keywords: globalization, within-country income distribution, technology transfer, developing countries, LSDVC estimator
    JEL: F16 O15 O33
    Date: 2007–07
  7. By: Mariano Bosch (London School of Economics); Edwin Goni (World Bank); William Maloney (World Bank and IZA)
    Abstract: This paper studies gross worker flows to explain the rising informality in Brazilian metropolitan labor markets from 1983-2002. This period covers two economic cycles, several stabilization plans, a far-reaching trade liberalization, and changes in labor legislation through the Constitutional reform of 1988. Focusing first on cyclical patterns, we confirm Bosch and Maloney’s (2006) findings for Mexico that the patterns of worker transitions between formality and informality correspond primarily to the job-to-job dynamics observed in the US and not to the traditional idea of informality constituting the inferior sector of a segmented market. However, we also confirm distinct cyclical patterns of job finding and separation rates that lead to the informal sector absorbing more labor during downturns. Second, focusing on secular movements in gross flows and the volatility of flows, we find the rise in informality to be driven primarily by a reduction in job finding rates in the formal sector. A small fraction of this is driven by trade liberalization, and the remainder seems driven by the rising labor costs and reduced flexibility arising from Constitutional reform.
    Keywords: gross worker flows, labor market dynamics, informality, labor costs, trade liberalization
    JEL: J23 J38 J63 J65 O17 F16
    Date: 2007–08
  8. By: Paula Auerbach (Inter-American Development Bank); Maria Eugenia Genoni (Duke University); Carmen Pagés (Inter-American Development Bank and IZA)
    Abstract: This paper examines the reasons behind the low rates of participation in old age pension programs in developing countries. Using a large set of harmonized household surveys from Latin America we assess how much of the low participation can be explained by involuntary rationing out of jobs with benefits versus how much can be instead explained by workers’ low willingness/ability to contribute towards such programs. We compare contribution patterns among wage employees, for whom participation is compulsory, with contribution patterns among self-employed workers, for whom participation is often voluntary. For both types of workers the probability of contributing to old age pension programs is similarly correlated with education, earnings, size of the employer, household characteristics and age. Our results indicate that on average at least 20-30 percent of the explained within-country variance in participation patterns can be accounted for by individuals’ low willingness to participate in oldage pension programs. Nonetheless, we also find evidence suggesting that some workers are rationed out of social security against their will.
    Keywords: informality, old-age pension, social security, self-employment, Latin America
    JEL: J32 J81
    Date: 2007–08
  9. By: David Bishai (Johns Hopkins University); Shoshana Grossbard (San Diego State University and IZA)
    Abstract: The custom of bride price involves the payment of goods or cash from the groom’s family to the bride’s family at the time of marriage. We present a theory that views bride price as a payment in hedonic markets for marital fidelity. Data from a household survey in Uganda are used to test the theoretical prediction that payment of bride price will be associated with fewer non-marital sexual relationships for women. The data show a robust association between bride price payment and lower rates of non-marital sexual relationships for women but not for men.
    Keywords: marriage, extra-marital relations, bride price, Uganda
    JEL: D13 I12 J13 O15
    Date: 2007–08
  10. By: Uwe Sunde (IZA, University of Bonn and CEPR); Matteo Cervellati (University of Bologna, IAE Barcelona and IZA); Piergiuseppe Fortunato (University of Bologna and United Nations)
    Abstract: Using cross-country data, we find evidence for a significant negative interaction effect between democracy and inequality in determining the quality of growth-promoting institutions like rule of law. Democracy is associated with institutions of higher quality when inequality is lower.
    Keywords: inequality, democracy, institutions, rule of law, interactions
    JEL: O43 P48 P14
    Date: 2007–08
  11. By: Eswar S. Prasad (Cornell University and IZA)
    Abstract: Is the Chinese growth miracle - a remarkably high growth rate sustained for over two decades - likely to persist or are the seeds of its eventual demise contained in the policies that have boosted growth? For all its presumed flaws, the particular approach to macroeconomic and structural policies that has been adopted by the Chinese government has helped to deliver high productivity and output growth, along with a reasonable degree of macroeconomic stability. In tandem with a benign international environment, this approach makes it unlikely that the economy will face a collapse in growth. But there comes a point when the policy distortions needed to maintain this approach could generate imbalances, impose potentially large welfare costs, and themselves become a source of instability. The traditional risks faced by emerging market economies, especially those related to having an open capital account, do not loom large in the case of China. In the process of securing protection against external risks, however, Chinese policymakers may have increased the risks of internal instability. There are a number of factors that could trigger unfavorable economic dynamics that, even if they don’t rise to the level of a crisis, could have serious adverse repercussions on growth and welfare. The flexibility and potency of macroeconomic tools to deal with such negative shocks is constrained by the panoply of policies that has supported growth so far.
    Keywords: macroeconomic policies, exchange rate flexibility, capital account liberalization, financial sector reforms
    JEL: F3 E5 O1
    Date: 2007–08
  12. By: Douglas Gollin (Williams College); Christian Zimmermann (University of Connecticut and IZA)
    Abstract: The World Health Organization (WHO) reports that malaria, a parasitic disease transmitted by mosquitoes, causes over 300 million episodes of "acute illness" and more than one million deaths annually. Most of the deaths occur in poor countries of the tropics, and especially sub- Saharan Africa. Some researchers have suggested that ecological differences associated with malaria prevalence are perhaps the most important reason why some countries today are rich and others poor. This paper explores the question in an explicit dynamic general equilibrium framework, using a calibrated model that incorporates epidemiological features into a standard general equilibrium framework.
    Keywords: malaria, epidemiology, GDP, disease prevention, sub-Saharan Africa
    JEL: I1 O11 E13 E21
    Date: 2007–08
  13. By: LAMBERT Sylvie; RAVALLION Martin; VAN DE WALLE Dominique
    Abstract: We show how differences in aggregate human development outcomes over time and space can be additively decomposed into a pure economic-growth component, a component attributed to differences in the distribution of income, and components attributed to “non-income” factors and differences in the model linking outcomes to income or non-income characteristics. The income effect at the micro level is modeled non-parametrically, so as to flexibly reflect distributional changes. The decomposition is illustrated using data for Morocco and Vietnam, and the results offer some surprising insights into the observed aggregate gains in schooling attainments. A user friendly STATA program is available to implement the method in other settings.
    Keywords: macroeconomics, human development, distribution of income, Morocco, Vietnam.
    JEL: O15
    Date: 2007–07
  14. By: David Colander; Hugo Nopo Key Words: Latin American economics, global economics, political economy, graduate training, Latin America, applied economics
    Abstract: This paper provides some background for considering the future of these two traditions by looking at global Latin American graduate economic programs. It reports the findings of a survey of Latin American global economics programs and discusses the debate between global economics and traditional economics, arguing that there is a role for both, with global economics concentrating on the science of economics, and traditional economics concentrating on the applied policy "political economy" branch of economics--which is much broader than the applied policy training that graduate students get in global economics.
    Date: 2007–05
  15. By: Fabio Veras Soares (International Poverty Centre); Tatiana Britto (Visiting researcher, IPC)
    Abstract: This Working Paper offers an institutional overview and comparative analysis of the Conditional Cash Transfer (CCT) experiences of El Salvador (Red Solidaria) and Paraguay (Tekoporã). We focus on the potential contradictions and tensions that arise from the double objectives of these programmes?namely, short-run poverty alleviation and breaking the intergenerational transmission of poverty though human capital accumulation. We also examine how both programmes address these tensions and compare their approaches regarding implementation issues and administrative and institutional factors. We argue that political economy issues play an important role in the decisions taken regarding targeting criteria, monitoring of conditionalities, graduation from the programme, and exit rules. These programme features are not necessarily coherent with one another because they pursue different objectives and are justified by differing rationales. These problems might be exacerbated in a scenario?common in many developing countries?characterized by financial and institutional capacity constraints and, sometimes, weak political support for a CCT programme.
    Keywords: Poverty; Cash Transfers; Government Programme; El Salvador; Paraguay
    JEL: I38
    Date: 2007–08
  16. By: Pasquale De Muro; Francesco Burchi
    Abstract: In the world there are approximately 800 million people who live in condition of food insecurity and illiteracy. This paper shows that education is a key to food security for rural populations in developing countries. Attention is drawn to rural areas because they are traditionally more disadvantaged by national educational policies. The theoretical foundation of this research is that being educated improves rural people’s capacity to diversify assets and activities, increase productivity and income, foster resilience and competitiveness, access information on health and sanitation, strengthen social cohesion and participation: these are all essential elements to ensure food security in the long run. The main findings of this research are the following: first, the association between food insecurity and primary education is very high, while it decreases progressively with basic, secondary, and tertiary education. Such a two-way relationship is expressed through graphical tools and correlation coefficients. Second, the econometric model shows that primary education is a crucial element to reduce food insecurity in rural areas, even when compared to other factors such as access to water, health, and sanitation. Concluding from this model, an increase of access to primary education by 100% causes a decrease of food insecurity by approximately 20% or 24% depending on the definition of food insecurity and its measurement. Finally, since in most of developing countries the majority of people live in rural areas, and since it is in these areas that the largest proportion of world poverty and hunger exists, we can conclude that education for rural people is a relevant tool for promoting overall national food security.
    Keywords: Education, Food Security, Human Development, Cross-
    JEL: I2 Q18 O15 C31
    Date: 2007–07

This nep-dev issue is ©2007 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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