nep-dev New Economics Papers
on Development
Issue of 2007‒11‒10
nineteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Who Remits? The Case of Nicaragua By George S. Naufal
  2. Fatal Fluctuations? Cyclicality in Infant Mortality in India By Sonia Bhalotra
  3. Inequality and Employment in a Dual Economy: Enforcement of Labor Regulation in Brazil By Rita Almeida; Pedro Carneiro
  4. Models for Non-Exclusive Multinomial Choice, with Application to Indonesian Rural Households By Christopher L. Gilbert; Francesca Modena
  5. Theory and Empirics of Real Exchange Rates in Developing Countries By Raimundo Soto; Ibrahim A. Elbadawi.
  6. International Financial Volatility and Commodity Exports: Evidence from the Thai Agricultural Sector By Justin B. May
  7. Redefining Foreign Direct Investment Policy: A Two Dimensional Framework By Filippov, Sergey; Costa, Ionara
  8. Carrot or stick? Redistributive transfers versus policing in contexts of civil unrest By Patricia Justino
  9. The Dynamics of Growth, Poverty, and Inequality: A Panel Analysis of Regional Data from the Philippines and Thailand By Kyosuke Kurita; Takashi Kurosaki
  10. Are female leaders good for education? : Evidence from India By Irma Clots-Figueras
  11. Disparities in Labor Market Outcomes across Geopolitical Regions in Nigeria: Fact or Fantasy? By Ruth Uwaifo Oyelere
  12. Africa’s Education Enigma? The Nigerian Story By Ruth Uwaifo Oyelere
  13. The Relation between Child Labour and Mothers’ Work: The Case of India By Francesca Francavilla; Gianna Claudia Giannelli
  14. Inflation, Financial Development and Human Capital-Based Endogenous Growth: an Explanation of Ten Empirical Findings By Max Gillman; Michal Kejak
  15. Revisiting the Relationship between Govenance and Foreign Direct Investment By Pierre-Guillaume Méon; Friedrich Schneider; Laurent Weill
  16. Does taking the shadow economy into account matter to measure aggregate efficiency? By Pierre-Guillaume Méon; Friedrich Schneider; Laurent Weill
  17. Effective Foreign Aid, Economic Integration and Subsidiarity: Lessons from Europe By Abdur Chowdhury; Paolo Garonna
  18. What does excess bank liquidity say about the loan market in Less Developed Countries? By Tarron Khemraj
  19. "He who sets the boundary”. Chieftaincy as a “necessary” institution in modern Ghana By Valsecchi Pierluigi

  1. By: George S. Naufal (American University of Sharjah and IZA)
    Abstract: In this paper I use a unique data set from Nicaragua to asses the behavior of persons who send money back home. I estimate a heteroskedastic Tobit with a known form of variance to estimate the correlation of the remitting decisions of migrants. Working, residing in a developed country and belonging to the nuclear family positively affect remittances. The labor status and the level of education of the head of the household both affect remittances. The decision to participate in the remitting process appears to be positively related across migrants within the same receiving household.
    Keywords: migration, remittances, censored regression, decision making, Central America, Nicaragua
    JEL: F22 J61 O15
    Date: 2007–09
  2. By: Sonia Bhalotra (University of Bristol and IZA)
    Abstract: This paper investigates the impact of macroeconomic shocks on infant mortality in India and investigates likely mechanisms. A recent OECD-dominated literature shows that mortality at most ages is pro-cyclical but similar analyses for poorer countries are scarce, and both income risk and mortality risk are greater in poor countries. This paper uses individual data on infant mortality for about 150000 children born in 1970-1997, merged by birth-cohort with a state panel containing information on aggregate income. Identification rests upon comparing the effects of annual deviations in income from trend on the mortality risks of children born at different times to the same mother, conditional upon a number of state-time varying covariates including rainshocks. I cannot reject the null that income shocks have no effect on mortality in urban households, but I find that rural infant mortality is counter-cyclical, the elasticity being about -0.46. This is despite the possibility that relatively high risk women avert birth or suffer fetal loss in recessions. It seems related to the fact that women’s participation in the (informal) labour market increases in recessions, presumably, to compensate a decline in their husband’s wages. Consistent with this but, in contrast to results for richer countries, antenatal and postnatal health-care decline in recessions. These effects are reinforced by pro-cyclicality in state health and development expenditure. Another interesting finding that is informative about the underlying mechanisms is that the effect of aggregate income on rural mortality is driven by non-agricultural income.
    Keywords: infant mortality, income volatility, business cycles, India, health care, maternal labour supply, public expenditure
    JEL: I12 J10 O49
    Date: 2007–09
  3. By: Rita Almeida (World Bank and IZA); Pedro Carneiro (University College London, IFS, cemmap and IZA)
    Abstract: This paper studies the impact of an increase in the enforcement of labor regulations on unemployment and inequality, using city level data from Brazil. We find that stricter enforcement (affecting the payment of mandated benefits to formal workers) leads to: higher unemployment, less income inequality, a higher proportion of formal employment, and a lower formal wage premium. Our results are consistent with a model where stricter enforcement causes a contraction in labor demand in the formal sector; and where workers value mandated benefits highly, so that there is an increase in the formal sector labor supply, an increase in the willingness to become unemployed to search for a formal sector job, and a decrease in labor supply to the informal sector.
    Keywords: enforcement, labor regulations, inequality, unemployment, informal sector
    JEL: J23 J30 K31 D63
    Date: 2007–10
  4. By: Christopher L. Gilbert; Francesca Modena
    Abstract: Textbook discussions of discrete choice modelling focus on binomial and multinomial choice models in which agents select a single response. We consider the situation of non-exclusive multinomial choice. The widely used Marginal Logit Model imposes independence and has other disadvantages. We propose two models which account for non-exclusive and dependent multiple responses and require at least one response. In the first and simpler specification, the Poisson-multinomial, households first choose the number of responses to a specific shock, and then the specific choices are identified to maximize household utility conditional on the former choice. The second specification, the threshold-multinomial, generalizes the standard multinomial logit model by supposing that agents will choose more than one response if the utility they derive from other choices is “close” to that of the utility-maximizing choice. We apply these two approaches to reported responses of rural Indonesian rural households to demographic and economic shocks.
    Keywords: Discrete choice models, Marginal logit, Shocks, Risk coping strategies
    JEL: C25 C51 O12
    Date: 2007
  5. By: Raimundo Soto (Instituto de Economía. Pontificia Universidad Católica de Chile.); Ibrahim A. Elbadawi.
    Abstract: This paper develops a general equilibrium model of the real exchange rate for a small open economy, taking into account often overlooked characteristics of developing economies, such as the presence of significant aid flows, terms of trade variability, distorting trade taxes, and concentration of exports on natural resources. The equilibrium RER results from the intertemporal, optimal decisions of households on consumption, production, and trade of different goods, conditional upon government policies and external conditions. The model derives a concept of the sustainable current account based on the yield of the discounted present value of net exports which provides a rigorous framework for the computation of the equilibrium RER and misalignment indexes. We test the model in a sample of 73 developing countries in the 1970-2004 period using the PMG estimator proposed by Pesaran et al. (1999) and find it to be an encompassing representation of the data. We also develop a methodology to compute the misalignment of the real exchange rate, which requires to compute the permanent components of the determinants of the RER and to identify the equilibrium path for each country.
    Keywords: Real exchange rates, general equilibrium, misalignment, panel data.
    JEL: F31 F37 C23
    Date: 2007
  6. By: Justin B. May (Department of Economics, College of William and Mary)
    Abstract: While the demise of many tightly-managed exchange rate regimes has meant that exchange rate volatility has risen for most developing countries in the past few decades, there exists little consensus on the ramifications of that volatility for real sectoral performance. Using production and export data from the Bank of Thailand, this paper measures the effect of real exchange rate volatility on Thai production and export of five key agricultural commodities. I measure volatility as the moving average standard deviation of the daily real value of the baht, the residual of an ARMA(5,4) process of the monthly real value of the baht, the residual of an ARIMA(2,1,3) process of the daily real value of the baht, and as the conditional time variance of the GARCH(2,1) process of the monthly real value of the baht. I then estimate the effects of real currency fluctuations across the agricultural sectors, controlling for both the level of the real exchange rate and foreign incomes. Point estimates of the effect of real exchange rate volatility on the volume of exports are consistently negative and often statistically significant lending support to a range of theoretical models that predict such an effect. Further, I find no significant relationship between production and lagged values of real exchange rate volatility and the control variables, suggesting that volatility is not an important determinant of agricultural supply. These results are robust to the choice of any of the measures of volatility considered here.
    Keywords: Agriculture, Exchange Rate Volatility, Exports, Thailand, Trade
    JEL: F14 O13 O24
    Date: 2007–10–31
  7. By: Filippov, Sergey (UNU-MERIT); Costa, Ionara (UNU-MERIT)
    Abstract: Many countries in the world have adopted policies to attract foreign direct investment (FDI), placing the traditional focus on the maximisation of FDI flows, what can be labeled as a quantitative approach. Recently it has been argued that the FDI policy should be more selective, promoting good quality FDI inflows. The "quality" implies a certain level of technological intensity of activities and functions encompassed in an investment project, and therefore its potential impacts on host country's development. Notwithstanding the importance of this new qualitative approach, a bias towards FDI flows has persisted. While they have received full attention, foreign-owned affiliates already established in an economy have been somehow neglected. This paper seeks to overcome this imbalance and proposes a new approach to FDI policy that incorporates both dimensions. Our main argument is that policy aiming to fostering the development and innovativeness of TNC affiliates can be more effective than the attraction of new affiliates.
    Keywords: Foreign Direct Investment, Multinational Enterprises, Foreign Affiliates, Public Policy, FDI
    JEL: F21 F23 O24 O38
    Date: 2007
  8. By: Patricia Justino (Institute of Development Studies)
    Abstract: Recurrent episodes of civil unrest significantly reduce the potential for economic growth and poverty reduction. Yet the economics literature offers little understanding of what triggers civil unrest in society and how to prevent it. This paper provides a theoretical analysis in a dynamic setting of the merits of redistributive transfers in preventing the onset of (and reducing) civil unrest and compare it with policies of more direct intervention such as the use of police. We present empirical evidence for a panel of Indian states, where conflict, transfers and policing are treated as endogenous variables. Our empirical results show, in the medium-term, redistributive transfers are both a more successful and cost-effective means to reduce civil unrest. Policing is at best a short-term strategy. In the longer term, it may trigger further social discontent.
    Keywords: Transfers, policing, conflict, unrest, India, panel data
    JEL: C23 C33 D74 I38 O53
    Date: 2007–11
  9. By: Kyosuke Kurita; Takashi Kurosaki
    Abstract: We propose a new methodological framework to empirically analyze the dynamics of growth, poverty, and inequalitythat incorporates the fact that the entire distribution of a welfare indicator, say, real percapita consumption, changes over time, and that empirical variables for growth, poverty, and inequality are often compiled from the distribution of the welfare indicator. Empirical models derived from this framework are applied to a unique panel dataset of provinces in the Philippines (1985-2003) and Thailand (1988-2004), compiled from microdata on household expenditures. The system GMM estimation results suggest that inequality reduced the subsequent growth rate of percapita consumption in both countries and differences in inequality explain a substantial portion of the Philippine-Thai difference in growth and poverty reduction during the late 1980s and the 1990s.
    Keywords: poverty, inequality, pro-poor growth, convergence, Thailand, the Philippines
    JEL: I32 O15
    Date: 2007–10
  10. By: Irma Clots-Figueras
    Abstract: This paper shows that the gender of politicians affects the educational levels of individuals who grow up in the districts where these politicians are elected. Increasing female political representation by 10 percentage points increases the probability that an individual attains primary education in urban areas by 6 percentage points, which is 21% of the difference in primary education attainment between the richest and the poorest Indian states. Caste also matters, as female politicians who won seats reserved for lower castes and disadvantaged tribes are those who mainly have an effect. In addition, both the gender and caste of politicians determine who benefits more from their policies: in urban areas female politicians increase educational achievements of those of their gender and caste. A unique dataset collected on politicians in India is matched with individual data by cohort and district of residence. The political data allow the identification of close elections between women and men, which yield quasi-experimental election outcomes used to estimate the causal effect of the gender of politicians.
    Date: 2007–08
  11. By: Ruth Uwaifo Oyelere (Georgia Institute of Technology and IZA)
    Abstract: Differences in geopolitical regions of Nigeria are not debatable. However, there is no clear consensus on the dimension of these disparities. In this paper, claims of geopolitical region disparities in labor market outcomes are investigated using survey data from Nigeria between 1996-1999. Both descriptive and econometric analysis are used to test the null hypothesis that there are no significant regional differences in labor market outcomes in Nigeria. The results are surprising given the anecdotal evidence and general perception of disparities along this dimension. First, similar mean incomes across regions in Nigeria were noted. In addition, returns to education were not significantly different for Northern and Southern Nigeria. Given these findings, the null hypothesis cannot be rejected. There is no evidence of significant disparities in labor market outcome across geopolitical regions in Nigeria.
    Keywords: regional disparities, labor market outcomes, Nigeria, returns to education, inequality
    JEL: O5 I0 J70 O18
    Date: 2007–09
  12. By: Ruth Uwaifo Oyelere (Georgia Institute of Technology and IZA)
    Abstract: In the last two decades, the social and economic benefits of formal education in Sub-Saharan Africa have been debated. Anecdotal evidence points to low returns to education in Africa. Unfortunately, there is limited econometric evidence to support these claims at the micro level. In this study, I focus on Nigeria a country that holds 1/5 of Africa’s population. I use instruments based on the exogenous timing of the implementation and withdrawal of free primary education across regions in this country to consistently estimate the returns to education in the late 1990s. The results show the average returns to education are particularly low in the 90s, in contrast to conventional wisdom for developing countries (2.8% for every extra year of schooling between 1997 and 1999). Surprisingly, I find no significant differences between OLS and IV estimates of returns to education when necessary controls are included in the wage equation. The low returns to education results shed new light on both the changes in demand for education in Nigeria and the increased emigration rates from African countries that characterized the 90s.
    Keywords: human capital, instrumental variables, Nigeria, returns to education, schooling
    JEL: J24 I21 I29 O12
    Date: 2007–10
  13. By: Francesca Francavilla (University of Florence); Gianna Claudia Giannelli (University of Florence, CHILD and IZA)
    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: child labour, education, women’s work, time allocation, India
    JEL: J13 J22 O15 O18
    Date: 2007–10
  14. By: Max Gillman; Michal Kejak
    Abstract: The paper presents a general equilibrium that can explain ten related sets of empirical results, providing a unified approach to understand usually disparate effects typically treated separately. These are grouped into two sets, one on financial development, investment and inflation, and one on inflations effect on other economy-wide variables such as growth, real interest rates, employment, and money demand. The unified approach also contributes a systematic explanation of certain nonlinearities that are found across these results, as based on the production function for financial intermediary services and the resultant money demand function.
    Keywords: Inflation, financial development, growth, exchange credit production
    JEL: C23 E44 O16 O42
    Date: 2007–11
  15. By: Pierre-Guillaume Méon (DULBEA, Université libre de Bruxelles, Brussels); Friedrich Schneider (Department of Economics, Austria.); Laurent Weill (Université Robert Schuman, Institut d’Etudes Politiques, Strasbourg)
    Abstract: Using a sample of 96 countries over the nineties, this paper examines the extent to which different dimensions of governance affect FDI inflows. It considers six aspects of governance. The results of a least-squares estimation suggest a positive relationship between institutional quality and FDI. However, when the issue of the endogeneity of governance is tackled thanks to 2SLS regressions, the relationship appears much weaker.
    Keywords: Institutions, governance, foreign direct investment.
    JEL: C33 F21 F41 O17
    Date: 2007–10
  16. By: Pierre-Guillaume Méon (DULBEA, Université libre de Bruxelles, Brussels); Friedrich Schneider (Department of Economics, Austria.); Laurent Weill (Université Robert Schuman, Institut d’Etudes Politiques, Strasbourg)
    Abstract: We analyze how adding the shadow economy to official output figures affects estimated technical efficiency at the country level. We find that this only slightly affects the ranking of efficiency scores, but increases average efficiency in a sample of 87 to 97 countries, both developed and developing. Our results are robust to the functional form of the production technology and the adjustment of labour to account for years of schooling.
    Keywords: shadow economy, income, aggregate productivity, efficiency.
    JEL: O11 O17 O47 O5
    Date: 2007–10
  17. By: Abdur Chowdhury (United Nations Economic Commission for Europe); Paolo Garonna (United Nations Economic Commission for Europe)
    Abstract: This paper argues that the most important question regarding the efficacy of development assistance is not how much but rather for what. Economic integration and subsidiarity provides the conditions necessary for ODA to produce higher rates of economic growth on a sustained basis.
    Keywords: foreign aid, economic integration, transition economies
    JEL: F35 F02 P27 O52
    Date: 2007–06
  18. By: Tarron Khemraj
    Abstract: Evidence about developing countries’ commercial banks’ liquidity preference suggests the following about their loan markets: (i) the loan interest rate is a minimum mark-up rate; (ii) the loan market is characterized by oligopoly power; and (iii) indirect monetary policy, a cornerstone of financial liberalization, can only be effective at very high interest rates that are likely to be deflationary. The minimum rate is a mark-up over a foreign interest rate, marginal transaction costs and a risk premium. A calibration exercise demonstrates that the hypothesis of a minimum mark-up loan rate is consistent with the observed stylized facts.
    Keywords: Excess bank liquidity, oligopoly banking, loan market, monetary policy
    JEL: O10 O16 E52 G21 L13
    Date: 2007–11
  19. By: Valsecchi Pierluigi
    Abstract: The title of this paper was inspired by an etymology formulated in 1929 by a famous Gold Coast maìtre-a-penser, J. de Graft Johnson. He explained the most common akan1 term for a chief ohene as a derivation from hye, boundary, with the meaning of “he who would decide the ohi (boundary) between the various groups farming on lands commonly reputed to be under his control” (de Graft Johnson, 1929). The ohene is therefore ‘the settler of the boundary’. Etymology is a tricky territory and I am not sure whether this interpretation is reliable. However it suits perfectly what I intend to say in my paper: 1) Controversial as Chieftaincy may be in Ghana, it is perhaps the clearest embodiment of shared concepts of what it means to belong to a place. 2) The link between Chieftaincy and place is not a static one. To a great extent chiefs have the power to redefine the very nature, size and scope of the place/locality they embody. 3) They are potentially in a better position to re-shape, manipulate, enlarge or shrink boundaries than most other player on the national stage. 4) From the early 1990s many of them were able to exercise that power to an extent they had not experienced since colonial days and in ways new to Ghanaian society and to themselves. I will try to substantiate my points through reference to a recent case of chieftaincy litigation in the Western Region of Ghana.
    Date: 2007–01

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