nep-dev New Economics Papers
on Development
Issue of 2007‒12‒19
thirteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Biased Technological Change, Human Capital and Factor Shares. By Hernando Zuleta
  2. Why Are Market Economies Politically Stable? A Theory of Capitalist Cohesion By Dalgaard, Carl-Johan; Olsson, Ola
  3. The Great Mexican Emigration By Gordon H. Hanson; Craig McIntosh
  4. Path Interdependence in a Dynamic Two Country Heckscher-Ohlin Model By Beatriz Gaitan; Terry L. Roe
  5. Mexican employment dynamics : evidence from matched firm-worker data By Robertson, Raymond; Gonzalez, Gabriel Martinez; Kaplan, David S.
  6. Litigation and settlement : new evidence from labor courts in Mexico By Silva-Mendez, Jorge Luis; Sadka, Joyce; Kaplan, David S.
  7. When do enterprises prefer informal credit ? By Wimpey, Joshua; Safavian, Mehnaz
  8. Does corruption impact on firms ' ability to conduct business in Mauritania ? evidence from investment climate survey data By Pontara, Nicola; Francisco, Manuela
  9. Early development economics debates revisited By Alacevich, Michele
  10. Assessing the functioning of land rental markets in Ethiopia By Alemu, Tekie; Ali, Daniel Ayalew; Deininger, Klaus
  11. Human capital and university-industry linkages ' role in fostering firm innovation : an empirical study of Chile and Colombia By Thorn, Kristian; Blom, Andreas; Mark, Michael; Marotta, Daniela
  12. Macro Aid Effectiveness Research: A Guide for the Perplexed By David Roodman
  13. Financial Development and Instability: the Role of the Labour Share By ORGIAZZI, Elsa

  1. By: Hernando Zuleta
    Abstract: We propose a one-good model where technological change is factor saving and costly. We consider a production function with two reproducible factors: physical capital and human capital, and one not reproducible factor. The main predictions of the model are the following: (a) The elasticity of output with respect to the reproducible factors depends on the factor abundance of the economies. (b) The income share of reproducible factors increases with the stage of development. (c) Depending on the initial conditions, in some economies the production function converges to AK, while in other economies long-run growth is zero. (d) The share of human factors (raw labor and human capital) converges to a positive number lower than one. Along the transition it may decrease, increase or remain constant.
    Date: 2007–04–25
  2. By: Dalgaard, Carl-Johan (University of Copenhagen); Olsson, Ola (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The present paper documents that political stability is positively associated with the extent of domestic trade. In explaining this reg- ularity, we provide a model where political cohesion is linked to the emergence of a fully functioning market economy. Without market ex- change, the welfare of inherently selfish individuals will be mutually independent. As a result, political negotiations, echoing the prefer- ences of the citizens of society, will be dog-eat-dog in nature. Whoever has greater bargaining power will be willing to make decisions that en- hance the productivity of his supporters at the expense of other groups in society. If the gains from specialization become sufficiently large, however, a market economy will emerge. From being essentially non- cooperative under self-su¢ ciency, the political decision making process becomes cooperative in the market economy, as the welfare of individ- uals will be mutually interdependent due to the exchange of goods.<p>
    Keywords: Political cohesion; Economic growth
    JEL: O41 P16
    Date: 2007–12–14
  3. By: Gordon H. Hanson; Craig McIntosh
    Abstract: In this paper, we examine net emigration from Mexico over the period 1960 to 2000. The data are consistent with labor-supply shocks having made a substantial contribution to Mexican emigration, accounting for one third of Mexican labor flows to the U.S. over the last 25 years of the 20th century. Net emigration rates by Mexican state birth-year cohort display a strong positive correlation with the initial size of the Mexican cohort, relative to the corresponding U.S. cohort. Labor-demand shocks also contribute to emigration, but the state-specific component of these is muted relative to labor supply. In states with long histories of emigration, the effects of cohort size on emigration are relatively strong, consistent with the existence pre-existing networks. In states without a history of emigration, the effects of cohort size on emigration accelerate as a cohort ages, consistent with the creation of new networks.
    JEL: F2 J61
    Date: 2007–11
  4. By: Beatriz Gaitan; Terry L. Roe
    Abstract: The closed economy neoclassical model predicts lung-run convergence in per-capita income. We show, within a neoclassical framework, that international trade among two countries differing only in their initial capital endowment generates long-run income differences. Our results suggests that trade creates opposite incentives to accumulate capital. Transitionally, the returns to investment with trade are smaller for countries initially less endowed with capital as when compared to their autarchic situation, while the reverse happens for those countries most endowed with capital. Thus, countries starting with relatively less (more) capital end, in the long run, with less (more) capital than in autarchy.
    Keywords: International trade; Development; Multiple Equilibria
    JEL: O41 F43 F11
    Date: 2007–09
  5. By: Robertson, Raymond; Gonzalez, Gabriel Martinez; Kaplan, David S.
    Abstract: Using a census of all workers in private establishments in the formal sector in Mexico to track workers and establishments over time, this paper presents the first Mexican worker and job flow statistics. The data allow for comparing these flows across time, space, and worker characteristics. Although many patterns are similar to those documented in developing countries, the analysis uncovers patterns that have potentially important policy implications. The authors compare the results to the literature, illustrate how the statistics change during times of reform and crisis, and present novel findings that contribute to the broader literature on worker reallocations.
    Keywords: Labor Markets,Microfinance,Labor Policies,Access to Finance,E-Business
    Date: 2007–12–01
  6. By: Silva-Mendez, Jorge Luis; Sadka, Joyce; Kaplan, David S.
    Abstract: Using a newly assembled data set on procedures filed in Mexican labor tribunals, the authors of this paper study the determinants of final awards to workers. On average, workers recover less than 30 percent of their claim. The strongest result is that workers receive higher percentages of their claims in settlements than in trial judgments. It is also found that cases with multiple claimants against a single firm are less likely to be settled, which partially explains why workers involved in these procedures receive lower percentages of their claims. Finally, the authors find evidence that a worker who exaggerates his or her claim is less likely to settle.
    Keywords: Bankruptcy and Resolution of Financial Distress,Arbitration,Information Security & Privacy,Labor Markets,Judicial System Reform
    Date: 2007–12–01
  7. By: Wimpey, Joshua; Safavian, Mehnaz
    Abstract: This paper tests the hypothesis that enterprises may forgo formal finance in lieu of informal credit by choice. They do so to avoid the additional regulatory scrutiny and harassment that engaging with the formal financial sector invites. We test this hypothesis using enterprise-level data on 3,564 enterprises in 29 countries. In this sample, enterprises finance approximately 57 percent of their working capital requirements with external finance. This external finance comes from formal sources, such as commercial bank s (53 percent) and informal sources (42 percent), such as trade creditors, or family and friends. In our sample, 14 percent of enterprises rely exclusively on informal finance. We find that the likelihood of enterprises preferring to only use informal finance is inversely related to the quality of the regulatory environment, particularly the quality of tax administration and overall governance. For example, we find that when an enterprise has been asked for bribes by tax inspectors, it is 17 percent more likely to prefer informal finance.
    Keywords: Access to Finance,Banks & Banking Reform,Debt Markets,,Small and Medium Size Enterprises
    Date: 2007–11–12
  8. By: Pontara, Nicola; Francisco, Manuela
    Abstract: This paper seeks to understand whether Mauritanian firms deem corruption as an obstacle to operate and grow, to identify the profile of firms that are more likely to make informal payments, and to quantify the size of these payments. The results of the analysis show that perceptions of corruption can be potentially misleading. Corruption is not considered to be one of the most taxing factors impeding the growth of firms in Mauritania. Yet, its cost to firms is significant and greater than in the comparator group countries. This means that corruption is internalized by firms and considered an accepted practice. Alternatively, firms may fear reporting corruption practices for fear of retaliation. Econometric evidence on the propensity and intensity of bribes suggests that medium-size firms suffer the most from corruption in Mauritania. Larger firms are more established and connected, do not fear exiting the market, and are less likely to be harassed. Smaller firms are less visible and may be able to escape the control of public officials by operating largely in the informal sector. Medium-size firms are the most likely to pay bribes and to pay the highest amounts as a percentage of their total annual sales, which places a heavy burden on their ability to grow.
    Keywords: Public Sector Corruption & Anticorruption Measures,Access to Finance,Governance Indicators,Microfinance,National Governance
    Date: 2007–12–01
  9. By: Alacevich, Michele
    Abstract: Development economics in its early years created the image of a fierce fight between advocates of contrasting theories or approaches- " balanced growth " vs. " unbalanced growth " or " program loans " vs. " project loans. " This view has the merit to highlight such conflicts in great detail; yet it fails to take into account the reality of development economics as it was practiced in the field. This paper reassesses these old conflicts by complementing the traditional focus on theoretical debates with an emphasis on the practice of development economics.A particularly interesting example is the debate between Albert Hirschman, one of the fathers of the " unbalanced growth " approach, and Lauchlin Currie, among the advocates of " balanced growth " on how to foster iron production in Colombia in the 1950s. An analysis of the positions held by these two economists shows that they were in fact much less antithetical than is usually held and, indeed, were in some fundamental aspects surprisingly similar. Debates among development economists during the 1950s thus must be explained-at least partially-as the natural dynamics of an emerging discipline that took shape when different groups tried to achieve supremacy-or at least legitimacy-through the creation of mutually delegitimizing systemic theories.
    Keywords: Economic Theory & Research,Banks & Banking Reform,Access to Finance,,Labor Policies
    Date: 2007–12–01
  10. By: Alemu, Tekie; Ali, Daniel Ayalew; Deininger, Klaus
    Abstract: Although a large theoretical literature discusses the possible inefficiency of sharecropping contracts, the empirical evidence on this phenomenon has been ambiguous at best. Household-level fixed-effect estimates from about 8,500 plots operated by households that own and sharecrop land in the Ethiopian highlands provide support for the hypothesis of Marshallian inefficiency. At the same time, a factor adjustment model suggests that the extent to which rental markets allow households to attain their desired operational holding size is extremely limited. Our analysis points towards factor market imperfections (no rental for oxen), lack of alternative employment opportunities, and tenure insecurity as possible reasons underlying such behavior, suggesting that, rather than worrying almost exclusively about Marshallian inefficiency, it is equally warranted to give due attention to the policy framework within which land rental markets operate.
    Keywords: Rural Land Policies for Poverty Reduction,Land Use and Policies,Labor Policies,Municipal Housing and Land,Economic Theory & Research
    Date: 2007–12–01
  11. By: Thorn, Kristian; Blom, Andreas; Mark, Michael; Marotta, Daniela
    Abstract: A firm ' s absorptive capacity, human capital and linkages with knowledge institutions have been shown to increase the firm ' s probability of innovating in OECD economies. Despite its importance for national- and firm-level competitiveness, few papers examine the impact of the same variables for firms innovation in Latin America. This paper investigates the link between firm innovation and its absorption capacity as proxied by the presence of a R & D department, the firm ' s human capital, and its interaction with research centers and universities. We analyze the case of Chilean and Colombian manufacturing firms using data from innovation surveys. A probit regression model is applied to identify the determinants of innovation activity. We find that collaboration with university and research institutions is associated with an increase in the probability of introducing a new product in Chilean and Colombian firms of 29 and 44 percent, respectively, and it can increase up to 58 percent in the case of Colombian firms interacting with research centers. Moreover, firms whose employees have a higher level of education, or whose managers/supervisors have a higher (perceived) level of knowledge, are more likely to innovate. Although the estimates could be affected by biases and suffer from shortcomings in data, the findings suggest that policies and incentives to increase firm-level human capital and industry-university linkages are important to increase innovation in Latin America.
    Keywords: E-Business,Education for Development (superceded),Innovation,Agricultural Knowledge & Information Systems,Labor Policies
    Date: 2007–12–01
  12. By: David Roodman
    Abstract: Like many public policy debates, that over whether foreign aid works carries on in two worlds. Within the research world, it plays out in the form of papers full of technical language, formulas, and numbers. Outside, the arguments are plainer and the audience broader, but those academic studies remain a touchstone. While avoiding jargon, this paper reviews recent, contending studies of how much foreign aid affects country-level outcomes such as economic growth and school attendance rates. This particular kind of study is ambitious: it is far easier to evaluate a school-building project, say, on whether the school was built and children filled its seats than to determine whether all aid, or large subcomponents of it, made the economy grow faster. Because of its ambition, this literature has attracted attention from those hoping for clear answers on whether aid "works.' On balance, the quantitative approach to exploring grand questions about aid effectiveness, which began 40 years ago, was worth trying and is probably worth pursuing somewhat further. But the literature will probably continue to disappoint as often as it offers hope. Perhaps the biggest challenge is going beyond documenting correlations to demonstrating causation—not just that aid went hand-in-hand with economic growth, but caused it. Aid has eradicated diseases, prevented famines, and done many other good things. But given the limited and noisy data available, its effects on growth in particular probably cannot be detected.
    Keywords: foreign aid, economic growth, data mining
    JEL: B40 F35 O11
    Date: 2007–12
  13. By: ORGIAZZI, Elsa
    Abstract: This paper examines the role of the labour share in creating instability in a small open economy. We assume that financial markets are imperfect so that entrepreneurs are credit constrained, and that this constraint is tighter for low levels of financial development. Aghion, Bacchetta and Banerjee (2004) have shown that as the degree of financial development increases, output rises but instability appears for intermediate levels of financial development. Crucially, they assume that labour is paid before production takes place, and hence crises are solely due to the increased cost of debt repayment as firms accumulate capital. We show that under the more reasonable assumption that wages are paid at the end of the period, changes in the labour share also play a role in eroding profitability. Our analysis also predicts that financial crises are associated with substantial movements in the sharing of value added between capital and labour.
    Keywords: Financial liberalization; Volatility; Labour share; Credit constraint
    JEL: F40 E32 E25
    Date: 2007–10–12

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