nep-dev New Economics Papers
on Development
Issue of 2007‒10‒20
eighteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Openness, Technology Capital, and Development By Ellen McGrattan; Edward C. Prescott
  2. Determinants of Economic Growth: Will Data Tell? By Antonio Ciccone; Marek Jarocinski
  3. Growth, Democracy, and Civil War By Antonio Ciccone; Markus Brückner
  4. Technological Diversification By Koren, Miklós; Tenreyro, Silvana
  5. The Relation between Child Labour and Mothers’ Work: The Case of India By Gianna Claudia Giannelli; Francesca Francavilla
  6. Addressing the Employment-Poverty Nexus in Kenya: Comparing Cash-Transfer and Job-Creation Programmes By Eduardo Zepeda
  7. Institutions, Infrastructure, and Trade By Joseph Francois; Miriam Manchin
  8. Informal payments in developing countries' public health sector By Liu, Ting; Sun, Jiayin
  9. Heterogeneous Impact of the "Seguro Popular" Program on the Utilization of Obstetrical Services in Mexico, 2001-2006: A Multinomial Probit Model with a Discrete Endogenous Variable By Sandra G. Sosa-Rubi; Omar Galarraga; Jeffrey E. Harris
  10. Public expenditure and growth By Herrera, Santiago
  11. Sustainability and Optimality in Economic Development: Theoretical Insights and Policy Prospects By Y. Hossein Farzin
  12. Are NGOs the Better Donors? A Case Study of Aid Allocation for Sweden By Axel Dreher; Florian Mölders; Peter Nunnenkamp
  13. The determinants of rising informality in Brazil : Evidence from gross worker flows By Maloney, William; Goni, Edwin; Bosch, Mariano
  14. Absenteeism and beyond : instructional time loss and consequences By Abadzi, Helen
  15. Early identification of at-risk youth in Latin America : an applic ation of cluster analysis By Cunningham, Wendy; Bagby, Emilie
  16. Moldova?s Middle-Income ?Mistaken Identity?: The Severe Income and Human Development Costs By John Weeks
  17. Equity and Trade Policy By Joseph Francois; Hugo Rojas-Romagosa
  18. The Construction and Interpretation of Combined Cross-Section and Time-Series Inequality Datasets By Joseph Francois; Hugo Rojas-Romagosa

  1. By: Ellen McGrattan; Edward C. Prescott
    Abstract: In this paper, we extend the growth model to include firm-specific technology capital and use it to assess the gains from opening to foreign direct investment. A firm's technology capital is its unique know-how from investing in research and development, brands, and organization capital. What distinguishes technology capital from other forms of capital is the fact that a firm can use it simultaneously in multiple domestic and foreign locations. Foreign technology capital is exploited by permitting foreign direct investment by multinationals. In both steady-state and transitional analyses, the extended growth model predicts large gains to being open.
    JEL: F23 F41 O11 O32
    Date: 2007–10
  2. By: Antonio Ciccone; Marek Jarocinski
    Abstract: Many factors inhibiting and facilitating economic growth have been suggested. Will international income data tell which matter when all are treated symmetrically a priori? We find that growth determinants emerging from agnostic Bayesian model averaging and classical model selection procedures are sensitive to income differences across datasets. For example, many of the 1975-1996 growth determinants according to World Bank income data turn out to be irrelevant when using Penn World Table data instead (the WB adjusts for purchasing power using a slightly different methodology). And each revision of the 1960-1996 PWT income data brings substantial changes regarding growth determinants. We show that research based on stronger priors about potential growth determinants is more robust to imperfect international income data.
    Keywords: Growth regressions, robust growth determinants
    JEL: E01 O47
    Date: 2007–10
  3. By: Antonio Ciccone; Markus Brückner
    Abstract: Does economic growth affect the likelihood of civil war? Answering this question requires dealing with reverse causation. Our approach exploits that international commodity prices have a significant effect on the income growth of Sub-Saharan African countries. We show that lower income growth makes civil war more likely in non-democracies. This effect is significantly weaker in democracies; as a result, we find no link between growth and civil war in these countries. Our reducedform results also indicate that lower international commodity price growth has no effect on civil war in democracies, but raises the likelihood of civil war incidence and onset in nondemocracies.
    Keywords: Commodity prices, rainfall, income growth, civil war
    JEL: O0 P0 Q0
    Date: 2007–10
  4. By: Koren, Miklós; Tenreyro, Silvana
    Abstract: Economies at early stages of development are often shaken by abrupt changes in growth rates, whereas in advanced economies growth rates tend to be relatively stable. To explain this pattern, we propose a theory of technological diversification. Production makes use of different input varieties, which are subject to imperfectly correlated shocks. Technological progress takes the form of an increase in the number of varieties, raising average productivity. In addition, the expansion in the number of varieties in our model provides diversification benefits against variety-specific shocks and it can hence lower the volatility of output growth. Technological complexity evolves endogenously in response to profit incentives. The decline in volatility thus arises as a by-product of firms' incentives to increase profits and is hence a likely outcome of the development process. We quantitatively asses the predictions of the model in light of the empirical evidence and find that for reasonable parameter values, the model can generate a decline in volatility with the level of development comparable to that in the data.
    Keywords: development; endogenous growth; technological diversification; volatility
    JEL: O30 O31 O33
    Date: 2007–10
  5. By: Gianna Claudia Giannelli; Francesca Francavilla
    Abstract: The paper deals with child labour in developing countries. We address a problem that has recently drawn much attention at the international level, that is, how to invest in women’s rights to advance the rights of both women and children. We study the problem from a new perspective. In our theoretical model we assume that the child’s time is an extension of her/his mother’s time, and that she has to decide how to allocate it. We estimate two empirical specifications, both multinomial logit. The first one, in line with the standard approach in the literature, estimates a model of the probability of the different child’s states, conditional on her/his mother’s states. The second empirical specification, in line with our theoretical model, estimates the mother-child states jointly. Using a unique, rich and representative data survey for all Indian states and for urban and rural India (NFHS-2, 1998/9), we select our sample drawing information from the household data set and the women’s data set. Our results show that the presence of the mother in the family increases children welfare, in terms of educational opportunities and protection from work activities. All our results indicate that the mother tends to stay home and send her children to school the better is the father’s employment position and the wealthier is the family. However, we observe a perverse effect. If the mother works, since female job quality and wage levels are very low, also her children have a higher probability to work.
    Keywords: income distribution, inequality trends
    JEL: J13 J22 O15 O18
    Date: 2007–10
  6. By: Eduardo Zepeda (International Poverty Centre)
    Abstract: This Working Paper seeks to provide an overview of the link between employment and poverty in Kenya. Using descriptive statistics and regression techniques, it examines unemployment, underemployment, employment and labour earnings, and the link of all these with poverty. Data are from the unit records of the Labour Force Survey of 1999/99, the latest available data at the time that this paper was written. The paper finds that Kenya faces daunting employment challenges. Unemployment is high and heavily affects urban areas, particularly young workers (15-24 years old) and mature educated workers (55-64 years old). Many of the unemployed are women. In rural areas, the main problem is underemployment, which also disproportionately affects women. Employment is dominated by traditional farming and pastoralists activities in rural areas and by informal activities in urban areas. Productive jobs are limited basically to wage employment, mostly in the modern public and private sectors concentrated in urban areas. Labour earnings are highly differentiated, starting from the high wages of employees in the modern public and private sectors, followed by the earnings of informal-sector workers, and ending with the low incomes of rural traditional farmers. Returns to education are high, very high in the case of tertiary education?suggesting that skills are scarce and highly demanded. The single two most important factors decreasing the probability of being poor are having higher education and having access to a paid job in the modern sectors. The employment landscape corresponds to that of a stagnant economy in which poor workers are in need of short-term social protection and all workers are in need of an effective long-term employment-focused development strategy. Using micro data, the paper simulates two programmes designed to provide income support to poor households: a child-transfer and a job-creation programme. Results suggest that both programmes improve the incomes of the poor and result in significant reductions in the depth of poverty. Simulations indicate that while the child-transfer programme performs better in rural areas, where dependency ratios are higher, the job-creation programme markedly reduces poverty in urban areas, particularly among the extremely poor, and even, surprisingly, among poor female workers.
    Keywords: Employment, Poverty, Child grants, Public works
    JEL: C52 J21 J24 O55
    Date: 2007–10
  7. By: Joseph Francois (Johannes Kepler University (Linz)); Miriam Manchin (University College (London))
    Abstract: We work with a panel of bilateral trade flows from 1988 to 2002, exploring the influence of infrastructure, institutional quality, colonial and geographic context, and trade preferences on the pattern of bilateral trade. We are interested in threshold effects, and so emphasize those cases where bilateral country pairs do not actually trade. We depart from the institutions and infrastructure literature in this respect, using Heckman selection model-based gravity estimators of trade flows. We also depart from this literature by mixing principal components (to condense our institutional and infrastructure measures) with a focus on deviations from expected values for given income cohorts to control for multicollinearity. Infrastructure, and institutional quality, are significant determinants not only of export levels, but also of the likelihood exports will take place at all. Our results support the notion that export performance, and the propensity to take part in the trading system at all, depends on institutional quality and access to well developed transport and communications infrastructure. Indeed, this dependence is far more important, empirically, than variations in tariffs in explaining sample variations in North-South trade. This implies that policy emphasis on developing country market access, instead of support for trade facilitation, may be misplaced.
    Keywords: exports, trade, institutions, infrastructure, zero-trade, gravity model
    JEL: O19 F10 F15
    Date: 2007–04
  8. By: Liu, Ting; Sun, Jiayin
    Abstract: In China and some other developing countries' public health sectors, many patients give their doctors a payment outside the official channel before a major treatment. This secret payment has been documented as informal payment in the literature. We argue that the fundamental cause for informal payments is that patients have more information about doctors' skill than the government does. The price, set by the government, for services offered by doctors cannot fully differentiate patients' various needs. As a consequence, informal payment rises as a tool for patients to compete for the skillful doctor. We study the welfare implications of different policies that can potentially be used to regulate such payments. Patient heterogeneity plays a central role in welfare implications of different policies: when patients' willingness-to-pay differs a lot, informal payments should be allowed and when it differs little, informal payments should be banned. Also we show that selling the right to choose physicians publicly always improves social welfare.
    Keywords: informal payments; public health sector; welfare; efficiency
    JEL: I18 O17 H44
    Date: 2007–10–11
  9. By: Sandra G. Sosa-Rubi; Omar Galarraga; Jeffrey E. Harris
    Abstract: Objective: We evaluated the impact of Seguro Popular (SP), a program introduced in 2001 in Mexico primarily to finance health care for the poor. We studied the effect of SP on pregnant women's access to obstetrical services. Data: We analyzed the cross-sectional 2006 National Health and Nutrition Survey (ENSANUT), focusing on the responses of 3,890 women who delivered babies during 2001-2006 and whose households lacked employer-based health care coverage. Methods: We formulated a multinomial probit model that distinguished between three mutually exclusive sites for delivering a baby: a health unit accredited by SP; a clinic run by the Department of Health (Secretaria de Salud, or SSA); and private obstetrical care. Our model accounted for the endogeneity of the household's binary decision to enroll in the SP program. Results: Women in households that participated in the SP program had a much stronger preference for having a baby in a SP-sponsored unit rather than paying out of pocket for a private delivery. At the same time, participation in SP was associated with a stronger preference for delivering in the private sector rather than at a state-run SSA clinic. On balance, the Seguro Popular program reduced pregnant women's attendance at an SSA clinic much more than it reduced the probability of delivering a baby in the private sector. The impacts of the SP program at the individual and population levels varied with the woman's education and health, as well as the assets and location (rural versus urban) of the household. Conclusions: The SP program had a robust, significantly positive impact on access to obstetrical services. Our finding that women enrolled in SP switched from non-SP state-run facilities, rather than from out-of-pocket private services, is important for public policy and requires further exploration.
    JEL: I1 I18 I38 O12 O22 O38 O54
    Date: 2007–10
  10. By: Herrera, Santiago
    Abstract: Given that public spending will have a positive impact on GDP if the benefits exceed the marginal cost of public funds, the present paper deals with measuring costs and benefits of public spending. The paper discusses one cost seldom considered in the literature and in policy debates, namely, the volatility derived from additional public spending. The paper identifies a relationship between public spending volatility and consumption volatility, which implies a direct welfare loss to society. This loss is substantial in developing countries, estimated at 8 percent of consumption. If welfare losses due to volatility are this sizeable, then measuring the benefits of public spending is critical. Gauging benefits based on macro aggregate data requires three caveats: a) considering of the impact of the funding (taxation) required for the additional public spending; b) differentiating between investment and capital formation; c) allowing for heterogeneous response of output to different types of capital and differences in network development. It is essential to go beyond country-specificity to project-level evaluation of the benefits and costs of public projects. From the micro viewpoint, the rate of return of a project must exceed the marginal cost of public funds, determined by tax levels and structure. Credible evaluations require microeconomic evidence and careful specification of counterfactuals. On this, the impact evaluation literature and methods play a critical role. From individual project evaluation, the analyst must contemplate the general equilibrium impacts. In general, the paper advocates for project evaluation as a central piece of any development platform. By in creasing the efficiency of public spending, the government can permanently increase the rate of productivity growth and, hence, affect the growth rate of GDP.
    Keywords: Public Sector Economics & Finance,,Economic Theory & Research,Debt Markets,Public Sector Expenditure Analysis & Management
    Date: 2007–10–01
  11. By: Y. Hossein Farzin (University of California)
    Abstract: This paper takes sustainability to be a matter of intergenerational welfare equality and examines whether an optimal development path can also be sustainable. It argues that the general “zero-net-aggregate-investment” condition for an optimal development path to be sustainable in the sense of the maximin criterion of intergenerational justice is too demanding to be practical, especially in the context of developing countries. The maximin criterion of sustainability may be more appealing to the rich advanced industrial countries, but is too costly and ethically unreasonable for developing nations as it would act as an intergenerational “poverty equalizer”. The paper suggests that a compromise development policy that follows the optimal growth approach but adopts certain measures to mitigate the intergenerational and intragenerational welfare inequalities may better serve these countries. Some of the principal elements of such a policy are highlighted.
    Keywords: Sustainability, Intergenerational Equity, Optimality, Discounting, Development Policy
    JEL: Q01 Q56 O21 O13 D62 D63
    Date: 2007–09
  12. By: Axel Dreher; Florian Mölders; Peter Nunnenkamp
    Abstract: This paper analyzes whether and to what extent non-governmental organizations (NGOs) outperform official donors by allocating aid in a way that renders effective poverty alleviation more likely. We employ Probit and Tobit models and make use of an exceptionally detailed database that allows an assessment of the allocation of Swedish NGO aid in comparison to the allocation of Swedish official aid. Our results show that NGOs are more selective when deciding about which countries to enter at all. Moreover, in contrast to NGO aid, there is some evidence that political and commercial motives matter for the selection of ODA recipients. However, the Swedish case also supports the skeptical view according to which NGOs are unlikely to outperform official donors by providing better targeted aid when it comes to the allocation across recipients having passed the eligibility test.
    Keywords: Aid allocation, NGO aid, ODA, Sector-specific aid
    JEL: F35 O11 O19
    Date: 2007–10
  13. By: Maloney, William; Goni, Edwin; Bosch, Mariano
    Abstract: This paper studies gross worker flows to explain the rising informality in Brazilian metropolitan labor markets from 1983 to 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. First, focusing on cyclical patterns, the authors confirm that for Brazil, the patterns of worker transitions between formality and informality correspond primarily to the job-to-job dynamics observed in the United States, and not to the traditional idea of the informal queuing for jobs in a segmented market. H owever, the analysis also confirms 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, the paper finds 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 rising labor costs and reduced flexibility arising from Constitutional reform.
    Keywords: Labor Markets,Labor Policies,Population Policies,,Health Monitoring & Evaluation
    Date: 2007–10–01
  14. By: Abadzi, Helen
    Abstract: Studies have shown that learning outcomes are related to the amount of time students engage in learning tasks. However, visits to schools have revealed that students are often taught for only a fraction of the intended time, particularly in lower-income countries. Losses are due to informal school closures, teacher absenteeism, delays, early departures, and sub-optimal use of time in the classroom. A study was undertaken to develop an efficient methodology for measuring instructional time loss. Thus, instructional time use was measured in sampled schools in Tunisia, Morocco, Ghana, and the Brazilian state of Pernambuco. The percentage of time that students were engaged in learning vis-à-vis government expectations was approximately 39 percent in Ghana, 63 percent in Pernambuco, 71 percent in Morocco, and 78 percent in Tunisia. Instructional time use is a mediator variable that is challenging to measure, so it often escapes scrutiny. Research suggests that merely financing the ingredients of instruction is not enough to produce learning outcomes; students must also get sufficient time to process the information. The quantity-quality tradeoff that often accompanies large-scale enrollments may be partly due to instructional time restrictions. Time wastage also distorts budgetary outlays and teacher salary rates. To achieve the Millennium Development Goals students must get more of the time that governments, donors, and parents pay for.
    Keywords: Tertiary Education,Primary Education,Secondary Education,Education For All,Teaching and Learning
    Date: 2007–10–01
  15. By: Cunningham, Wendy; Bagby, Emilie
    Abstract: A new literature on the nature of and policies for youth in Latin America is emerging, but there is still very little known about who are the most vulnerable young people. This paper aims to characterize the heterogeneity in the youth population and identify ex ante the youth that are at-risk and should be targeted with prevention programs. Using non-parametric methodologies and specialized youth surveys from Mexico and Chile, the authors quantify and characterize the different sub-groups of youth, according to the amount of risk in their lives, and find that approximately 20 percent of 18 to 24 year old Chileans and 40 percent of the same age cohort in Mexico are suffering the consequences of a range of negative behaviors. Another 8 to 20 percent demonstrate factors in their lives that pre-dispose them to becoming at-risk youth - they are the candidates for prevention programs. The analysis finds two observable variables that can be used to identify which children have a higher probability of becoming troubled youth: poverty and residing in rural areas. The analysis also finds that risky behaviors increase with age and differ by gender, thereby highlighting the need for program and policy differentiation along these two demographic dimensions.
    Keywords: Adolescent Health,Youth and Governance,Health Monitoring & Evaluation,Population Policies,Gender and Health
    Date: 2007–10–01
  16. By: John Weeks (Professor Emeritus, School of Oriental and African Studies, University of London)
    Abstract: The newly independent Republic of Moldova joined the World Bank and the IMF in 1992. The World Bank designated it a ?middle-income? country, a status it retained for Bretton Woods lending until 1997. The middle-income designation implied that the government of Moldova was not eligible for concessionary lending from the World Bank and IMF, and would not receive concessionary finance from the major bilateral development agencies. After demonstrating that assigning middle-income status to Moldova was a mistake, which was implicitly conceded by the World Bank in 1997, this Country Study investigates the consequences. It uses a simple procedure for calculating counterfactual scenarios based on assigning Moldova low-income status in the early 1990s. The counterfactual scenarios suggest that the development and welfare costs of the mistake were extremely high: a much greater fall in income per capita than would otherwise have been the case, with an associated increase in headcount poverty and lower life expectancy. There is a cruel irony associated with this mistake. Had Moldova been designated a low-income country in the early 1990s, it would have been by the mid-2000s a middle-income country instead of remaining the poorest country in Europe. Thus, there is a strong case for multilateral compensation.
    Keywords: Moldova; Income; Human Development Costs; Poverty
    Date: 2007–10
  17. By: Joseph Francois (Johannes Kepler University (Linz)); Hugo Rojas-Romagosa (CPB (the Hague))
    Abstract: We develop a dual approach to analyzing general equilibrium relationships between trade policy and household (as distinct from functional) income distribution, highlighting how general equilibrium distributional aspects of social welfare related to import protection may be examined alongside corresponding efficiency aspects in a dual framework. This includes the introduction of a social welfare function into the dual GE system that is explicitly separable between mean income and income dispersion. This then follows through to the government ob jective function. For government, this is manifested not only in special interest politics, but also through the direct impact of inequality on a governmentÕs ob jective function. We find that equity considerations may serve to counter lobbying interests in both capital-rich and capital-poor countries, though with an opposite marginal impact on the final policy outcome. We also identify a protectionist bias on the part of welfare maximizing governments in capital-rich countries. Our dual framework also offers a possible empirical framework for decomposition of policy-induced price changes into household inequality for a broad class of models.
    Keywords: Trade and inequality, Sen welfare functions, duality, political economy of equity
    JEL: F13 O15 D31 D72
    Date: 2007–05
  18. By: Joseph Francois (Johannes Kepler University (Linz)); Hugo Rojas-Romagosa (CPB (the Hague))
    Abstract: The inequality dataset compiled in the 1990s by the World Bank and extended by the UN has been both widely used and strongly criticized. The criticisms raise questions about conclusions drawn from secondary inequality datasets in general. We develop techniques to deal with national and international comparability problems intrinsic to such datasets. The result is a new dataset of consistent inequality series, allowing us to explore problems of measurement error. In addition, the new data allow us to perform parametric non-linear estimation of Lorenz curves from grouped data. This in turn allows us to estimate the entire income distribution, computing alternative inequality indexes and poverty estimates. Finally, we have used our broadly comparable dataset to examine international patterns of inequality and poverty.
    Keywords: Income distribution datasets, inequality trends, Lorenz curve estimation, poverty estimation
    JEL: D31 D80 O15
    Date: 2007–08

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