nep-dev New Economics Papers
on Development
Issue of 2007‒09‒16
twenty papers chosen by
Jeong-Joon Lee
Towson University

  1. Aid Volatility and Poverty Traps By Pierre-Richard Agénor; Joshua Aizenman
  2. Explaining China's Low Consumption: The Neglected Role of Household Income By Li Cui; Jahangir Aziz
  3. Vertical industry relations, spillovers and productivity: Evidence from Chilean plants By Ricardo Lopez; Jens Suedekum
  4. VAT, Tariffs, and Withholding: Border Taxes and Informality in Developing Countries By Michael Keen
  6. ROSCA Participation in Benin: A Commitment Issue By Olivier Dagnelie; Philippe LeMay-Boucher
  7. Corruption and Democracy By Michael T. Rock
  8. Focused Targeting against Poverty Evidence from Tunisia By Christophe Muller; Sami Bibi
  9. Africa’s food and nutrition security situation: where are we and how did we get here? By Benson, Todd
  10. Insurance for the Poor: The Case of Informal Insurance Groups in Benin By Philippe LeMay-Boucher
  11. Informal Sector, Income Inequality and Economic Development By Prabir C. Bhattacharya
  12. Determinants of Tax Revenue Efforts in Developing Countries By Abhijit Sen Gupta
  13. Monetary Policy Rules for Managing Aid Surges in Africa By Edward F. Buffie; Christopher Adam; Catherine A. Pattillo; Stephen A. O'Connell
  14. What Do We Know About Namibia's Competitiveness By Ken Miyajima
  15. Reasonable Expectations and the First Millennium Development Goal: How Much Can Aid Achieve? By Carl-Johan Dalgaard; Lennart Erickson
  16. Long-Term Effects Of The 1959-1961 China Famine: Mainland China and Hong Kong By Douglas Almond; Lena Edlund; Hongbin Li; Junsen Zhang
  17. Institutional Infrastructure to Support 'Super Growth' in Kenya: Governance Thresholds, Reversion Rates and Economic Development By Mwangi S. Kimenyi
  18. The Impact of Growth and Redistribution on Poverty and Inequality in South Africa By Kalie Pauw; Liberty Mncube
  19. Measuring the economic impact of climate change on Ethiopian agriculture : Ricardian approach By Deressa, Temesgen Tadesse
  20. Life Cycle Savings, Bequest, and the Diminishing Impact of Scale on Growth By Carl-Johan Dalgaard; Martin Kaae Jensen

  1. By: Pierre-Richard Agénor; Joshua Aizenman
    Abstract: This paper studies the impact of aid volatility in a two-period model where production may occur with either a traditional or a modern technology. Public spending is productive and "time to build" requires expenditure in both periods for the modern technology to be used. The possibility of a poverty trap induced by high aid volatility is first examined in a benchmark case where taxation is absent. The analysis is then extended to account for self insurance (taking the form of a first-period contingency fund) financed through taxation. An increase in aid volatility is shown to raise the optimal contingency fund. But if future aid also depends on the size of the contingency fund (as a result of a moral hazard effect on donors' behavior), the optimal policy may entail no self insurance.
    JEL: F35 H54 O19
    Date: 2007–09
  2. By: Li Cui; Jahangir Aziz
    Abstract: The Chinese government has recently focused on the need to increase consumption to rebalance the economy. A widely held view is that despite China's remarkably high growth, the share of consumption in total expenditure has been low and declining due to high and rising saving rate of Chinese households as uncertainty over provision of pensions, and healthcare and education costs have increased since the mid-1990s. This paper finds that the rise in saving rate has been a minor factor. Much larger has been the role of the declining share of household income in national income, which has occurred across-the-board in wages, investment income, and government transfers. The paper finds that financial sector weaknesses, by restricting firms' access to bank financing for working capital, have played quantitatively a major role in keeping wage and investment income shares low and on a declining trend.
    Keywords: Working Paper , China, People's Republic of ,
    Date: 2007–07–26
  3. By: Ricardo Lopez (Indiana University Bloomington); Jens Suedekum (University of Konstanz)
    Abstract: We use disaggregated data on Chilean plants, and the Chilean input-output table to examine the impact of agglomeration spillovers on total factor productivity (TFP). In common with previous studies, we find evidence of intra-industry spillovers, but no evidence of cross-industry spillovers in general. This picture changes, however, when we take vertical industry relations into account. We find important productivity spillover effects from plants in upstream industries. Interestingly, a similar effect cannot be found from plants in downstream industries. The number of plants in these sectors has no effect on firm level TFP, just as the number of plants in other industries that are neither important upstream suppliers nor downstream customers also has no effect. Agglomeration effects are stronger for small than for large plants.
    Keywords: Vertical linkages, agglomeration, productivity, Chile
    JEL: R11 R15 O18 O54
    Date: 2007–09
  4. By: Michael Keen
    Abstract: This paper explores the implications of a distinctive feature of the value added tax (VAT) that is stressed by practitioners but essentially ignored by theorists: that it functions, in part, as a tax on the purchases of informal operators from formal sector businesses and, not least, on their imports. It stresses too the potential importance of the creditable withholding taxes that are levied by many developing countries-which have also been ignored. If both of these instruments are optimally deployed, it is shown, then the usual prescription that a small economy should not deploy tariffs remains valid even in the presence of an informal sector; and indeed a simple strategy is established-generalizing the standard prescription developed in models without informality-for deploying these instruments so as to preserve government revenue and increase welfare in the face of efficiency-improving tariff cuts. Conditions are established under which a VAT alone is fully optimal, precisely because it is in part a tax on informal sector production. But they are restrictive: more generally, an efficient tax structure requires deploying both a VAT and withholding taxes.
    Date: 2007–07–19
  5. By: Alexander Cotte Poveda
    Abstract: This research paper performs a review of the most recent literature about the topic of economic growth, inequality poverty and violence in Colombia. The survey explores some of the characteristics, connections and realities which have been documented in the existing literature on the incidence that those variables may have on violence dynamics. Based on observed trends for the last fifty years, it is performed an geo-referenced exercise on the different effects that poverty, geographical localization of violent groups, and production of illegal crops may exert on the high levels of violence experienced by some regions in the country. It is presented also an empirical examination of the incidence that productive factors, violence and inequality may entail to economic growth. It is fount evidence for the hypothesis according to which the prevailing socioeconomic characteristics of every region has affected the economic growth dynamics. Thus, it is proven that productive factors and violence have effects on national economic growth.
    Date: 2007–09–08
  6. By: Olivier Dagnelie; Philippe LeMay-Boucher
    Abstract: In the light of first-hand data from a Beninese urban household survey in Cotonou, we investigate several motives aiming to explain participation in Rotating Savings and Credit Associations (ROSCAs). We provide empirical findings which lead us to think that the main reason why individuals join a ROSCA is to commit themselves against self-control problems.
    Keywords: ROSCA, self-control, Benin
    JEL: G2 O16 O17
    Date: 2007
  7. By: Michael T. Rock
    Abstract: What is the impact of democracy on corruption? In most models, analysts assume a negative relationship, with more democracy leading to less corruption. But recent theoretical developments and case evidence support an inverted U relationship between corruption and democracy. By drawing on a panel data set covering a large number of countries between 1996 and 2003, substantial empirical support is found for an inverted U relationship between democracy and corruption. The turning point in corruption occurs rather early in the life of new democracies and at rather low per capita incomes.
    Keywords: corruption, electoral democracy, consolidated democracy, rule of law, government effectiveness
    JEL: O12 D72 D73 H11 H77 K42
    Date: 2007–08
  8. By: Christophe Muller (Departamento de Fundamentos del Análisis Económico Universidad de Alicante, Campus de San Vicente); Sami Bibi (Faculté des Sciences Economiques et de Gestion de Tunis (FSEGT),Unité de Recherche en Econométrie Appliquée (URECA))
    Abstract: (english) This paper introduces a new methodology to target direct transfers against poverty. Our method is based on estimation methods that focus on the poor. Using data from Tunisia, we estimate ‘focused’ transfer schemes that highly improve anti-poverty targeting performances. Post-transfer poverty can be substantially reduced with the new estimation method. In terms of P2, the most popular axiomatically valid poverty indicator, moving from 1.30, the level reached under subsidies, to 0.36, the level reached with the best OLS method, costs about 2.9 percent of GDP. An additional reduction down to 0.25, that is another 30 percent reduction in poverty, requires only a few hours of statistician work. Finally, the obtained levels of under-coverage of the poor is so low that ‘proxy-means’ focused transfer schemes becomes a realistic alternative to price subsidies, likely to avoid social unrest.
    Keywords: Poverty, Targeting, Transfers.
    JEL: D12 D63 H53 I32 I38
    Date: 2007
  9. By: Benson, Todd
    Abstract: "Efforts and initiatives to combat hunger and malnutrition in Africa are gaining momentum at all levels—local, national, continental, and international. To design and implement effective strategies for action, it is vital that we have a clear understanding of the problems and options. In this 2020 discussion paper, Todd Benson reviews the extent of food and nutrition insecurity across Africa. He assesses recent patterns and trends, exploring where significant progress has occurred, or not, and why. The differences between food and nutrition security, and how they are linked, are clarified. Benson examines the key direct and indirect determinants and consequences of food and nutrition insecurity in the African context and offers a menu of actions and strategies. Lack of access to and availability of food—the key factors behind food insecurity—remain central concerns in Africa. When food insecurity interacts with health and care problems it translates into nutrition insecurity. HIV/AIDS is an important issue in that context. This comprehensive paper gives prominent attention to the oft-neglected issue of nutrition security. Reflecting emerging Africa-wide initiatives, the paper takes a continental perspective, which should be helpful for strategic consideration by the New Partnership for Africa’s Development (NEPAD) and the African Union. This paper was commissioned for the IFPRI 2020 Africa Conference on “Assuring Food and Nutrition Security in Africa by 2020: Prioritizing Actions, Strengthening Actors, and Facilitating Partnerships,” held in Kampala, Uganda on April 1-3, 2004. There, it served to illuminate the discussions on why Africa has not yet achieved food and nutrition security and what needs to be done." -- Foreword by Joachim von Braun, Director General, IFPRI
    Keywords: food security, Nutrition security, africa, Public action
    Date: 2007
  10. By: Philippe LeMay-Boucher
    Abstract: This paper studies indigenous insurance groups using evidence from urban areas in Benin. Many of these informal institutions co-exist within neighbourhood-distance. They are based on well-defined rules and regulations, offering premium-based insurance for funeral expenses, as well as other forms of insurance and credit to cope with hardships. We provide first a description of these groups. Then we investigate, with the help of an original dataset, which individual characteristics are significant in explaining both the probability to join such groups and the choice of insurance coverage.
    Keywords: groups, insurance, Benin
    JEL: O17 O18 C21
    Date: 2007
  11. By: Prabir C. Bhattacharya
    Abstract: This paper addresses - with the help of numerical simulation - some of the issues relating to income distribution in the context of development of an economy with an informal sector and migration of both low and high skilled workers from the rural to the urban area. A major aim has been to see under what conditions we do or do not get an inverted U-shaped curve of income distribution. The paper finds that the tendency always is for the Gini coefficient to rise and then decline. However, once it starts declining, it need not continuously decline; it may rise, then decline, then rise again and indeed rise above the previous peak before starting to decline again and may well end at the end of the simulation at a higher value than at the start. Any case for the redistribution of income is seen to be much stronger at later stages of development that at earlier stages, even though at later stages, Gini coefficient may be lower than at earlier stages. The policy implications of the findings are briefly considered.
    Keywords: income inequality, Kuznets curve, informal sector, simulation
    JEL: E17
    Date: 2007
  12. By: Abhijit Sen Gupta
    Abstract: This paper contributes to the existing empirical literature on the principal determinants of tax revenue performance across developing countries by using a broad dataset and accounting for some econometric issues that were previously ignored. The results confirm that structural factors such as per capita GDP, agriculture share in GDP, trade openness and foreign aid significantly affect revenue performance of an economy. Other factors include corruption, political stability, share of direct and indirect taxes etc. The paper also makes use of a revenue performance index, and finds that while several Sub Saharan African countries are performing well above their potential, some Latin American economies fall short of their revenue potential.
    Date: 2007–07–26
  13. By: Edward F. Buffie; Christopher Adam; Catherine A. Pattillo; Stephen A. O'Connell
    Abstract: Since the turn of the century, aid flows to Africa have increased on average and become more volatile. As a result, policymakers, particularly in post-stabilization countries where inflation has only recently been brought under control, have been increasingly preoccupied with how best to deploy the available instruments of monetary policy without yielding on hard-won inflation gains. We use a stochastic simulation model, in which private sector currency substitution effects play a central role, to examine the properties of alternative monetary and fiscal policy strategies in the face of volatile aid flows. We show that simple monetary rules, specifically an (unsterilized) exchange rate crawl and a 'reserve buffer plus float'-under which the authorities set a time-varying reserve target corresponding to the unspent portion of aid financing and allow the exchange rate to float freely once this reserve target is satisfied-have attractive properties relative to a range of alternative strategies including those involving heavy reliance on bond sterilization or a commitment to a 'pure' exchange rate float.
    Date: 2007–07–26
  14. By: Ken Miyajima
    Abstract: This paper evaluates Namibia's competitiveness using several traditional indicators; it concludes that, while the real effective exchange rate (REER) is in equilibrium at present?suggesting no imminent need for concern?the country may wish to improve its competitiveness by increasing educational attainment, reducing the skills mismatch, and diversifying its exports. Moreover, although Namibia scores relatively well on survey-based major indicators of structural competitiveness, the business environment can be made more conducive to private sector activity.
    Keywords: Export competitiveness , Namibia , Economic models , Governance , Working Paper ,
    Date: 2007–08–01
  15. By: Carl-Johan Dalgaard (Department of Economics, University of Copenhagen); Lennart Erickson (International Monetary Fund)
    Abstract: While a political consensus has emerged to increase aid flows to Sub-Saharan Africa, empirical studies of the effectiveness of aid in stimulating growth and reducing poverty have yet to yield conclusive results. The present paper takes a different approach. Using the standard neoclassical growth model, we ask how much should be expected from aid a priori. Using a range of different parameter values and model specifications, we address three questions. (i) How much growth should aid flows have produced in Sub-Saharan Africa over the last 3 decades? (ii) How much aid would be needed to attain the First Millennium Development Goal (MDG#1) of cutting poverty in half by 2015? (iii) Taking proposed aid flows as given, how much would structural characteristics, such as domestic savings rates and productivity, have to change in order to reach the MDG#1? Our analysis indicates that, even under optimistic assumptions for the effectiveness of aid, past and future expectations for aid in fostering growth and poverty reduction have been too high.
    Keywords: foreign aid; economic growth; millennium development goals
    JEL: F35 O11 O19
    Date: 2007–09
  16. By: Douglas Almond; Lena Edlund; Hongbin Li; Junsen Zhang
    Abstract: This paper estimates the effects of maternal malnutrition exploiting the 1959-1961 Chinese famine as a natural experiment. In the 1% sample of the 2000 Chinese Census, we find that fetal exposure to acute maternal malnutrition had compromised a range of socioeconomic outcomes, including: literacy, labor market status, wealth and marriage market outcomes. Women married spouses with less education and later, as did men, if at all. In addition, maternal malnutrition reduced the sex ratio (males to females) in two generations -- those prenatally exposed and their children -- presumably through heightened male mortality. This tendency toward female offspring is interpretable in light of the Trivers-Willard (1973) hypothesis, according to which parents in poor condition should skew the offspring sex ratio toward daughters. Hong Kong natality micro data from 1984-2004 further confirm this pattern of female offspring among mainland-born residents exposed to malnutrition in utero.
    JEL: I10 I12 J12 J13 J16 J24 P2
    Date: 2007–09
  17. By: Mwangi S. Kimenyi (University of Connecticut)
    Abstract: Kenya Growth Vision 2030 proposes policy and institutional reforms that make it possible for the country to achieve development status of a middle income country by 2030. This paper outlines the institutional framework necessary to achieve ÈSuper Growth,É which describes the character of growth required to meet targets stipulated in the Vision. The paper provides evidence confirming the importance of improving the quality of governance to the achievement of the Vision. The paper also demonstrates that the country is characterized by a high probability of reverting to poor governance. It is argued that, to achieve super growth, the country must attain an institutional tipping point which associates with low reversion rates to weaker institutions. The paper provides suggestions for institutional reforms that result in the achievement of an institutional tipping point and super growth.
    Keywords: Geovernance, Super Growth, Institutional Tipping, Kenya Growth Vision 2030
    JEL: O10 O20 O55
    Date: 2007–09
  18. By: Kalie Pauw; Liberty Mncube (Development Policy Research Unit, University of Cape Town)
    Abstract: Abstract: This country study evaluates the experience of the South African economy with respect to growth, poverty and inequality trends since the advent of democracy in 1994. The post-apartheid government took a definite turn toward greater spending on social security, while job creation and a narrowing of the gap between the so-called first and second economies – the latter defined as the informal part of the economy that is also largely removed from formal sector activities – enjoyed priority in its economic strategy. Despite this focus on uplifting the poor it remains unclear as to what extent government has been successful. Some controversy exists around whether relatively fewer South Africans are poor ten years after the democratic government came into power. There seems to be greater consensus among analysts that inequality has increased. This study attempts to shed some light on these issues, drawing on recent South African literature and data.
    Keywords: growth, poverty and inequality trends, South Africa
    JEL: A1
    Date: 2007–08
  19. By: Deressa, Temesgen Tadesse
    Abstract: This study uses the Ricardian approach to analyze the impact of climate change on Ethiopian agriculture and to describe farmer adaptations to varying environmental factors. The study analyzes data from 11 of the country ' s 18 agro-ecological zones, representing more than 74 percent of the country, and survey of 1,000 farmers from 50 districts. Regressing of net revenue on climate, household, and soil variables show that these variables have a significant impact on the farmers ' net reven ue per hectare.The study carries out a marginal impact analysis of increasing temperature and changing precipitation across the four seasons. In addition, it examines the impact of uniform climate scenarios on farmers ' net revenue per hectare. Additionally, it analyzes the net revenue impact of predicted climate scenarios from three models for the years 2050 and 2100. In general, the results indicate that increasing temperature and decreasing precipitation are both damaging to Ethiopian agriculture. Although the analysis did not incorporate the carbon fertilization effect, the role of technology, or the change in prices for the future, significant information for policy-making can be extracted.
    Keywords: Environmental Economics & Policies,Climate Change,Crops & Crop Management Systems,Global Environment Facility,Common Property Resource Development
    Date: 2007–09–01
  20. By: Carl-Johan Dalgaard (Department of Economics, University of Copenhagen); Martin Kaae Jensen (University of Birmingham)
    Abstract: There appears to be ample evidence that the size of population acted as a stimulus to growth in historical times; scale mattered. In the post World War II era, however, there is little evidence of such scale effects on growth. Where did the scale effect go? The present paper shows that the savings motive critically affects the size and sign of scale effects in standard endogenous growth models. If the bequest motive dominates, the scale effect is positive. If the life cycle motive dominates, the scale effect is ambiguous and may be negative. A declining importance of bequest in capital accumulation could therefore be one reason why scale seems to matter less today than in historical times.
    Keywords: overlapping generations; endogenous growth; scale effects
    JEL: O41 O57
    Date: 2007–08

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