nep-dev New Economics Papers
on Development
Issue of 2008‒01‒19
twenty papers chosen by
Jeong-Joon Lee
Towson University

  1. The Role of Poverty and Community Norms in Child Labor and Schooling Decisions By Strulik, Holger
  2. Degrees of Development - How Geographic Latitude Sets the Pace of Industrialization and Demographic Change By Strulik, Holger
  3. The causes and consequences of informality in Peru By Norman Loayza
  4. Land Titles and Rice Production in Vietnam By Katleen Van den Broeck; Carol Newman; Finn Tarp
  5. On SARS type economic effects during infectious disease outbreaks By Dutta, Arindam; Brahmbhatt, Milan
  6. Foreign bank acquisitions and outreach : evidence from Mexico By Soledad Martinez Peria, Maria; Beck, Thorsten
  7. Finance and economic opportunity By Levine, Ross; Demirguc-Kunt, Asli
  8. Finance, financial sector policies, and long-run growth By Levine, Ross; Demirguc-Kunt, Asli
  9. Can China continue feeding itself ? the impact of climate change on agriculture By Zhang, Lijuan; Rozelle, Scott; Huang, Jikun; Dinar, Ariel; Mendelsohn, Robert; Wang, Jinxia
  10. Rising growth, declining investment : the puzzle of the Philippines breaking the " low-capital-stock " equilibrium By Magnoli Bocchi, Alessandro
  11. Patterns of export diversification in developing countries : intensive and extensive margins By Pierola, Martha Denisse; Amurgo-Pacheco, Alberto
  12. Indigenous and colonial origins of comparative economic development : the case of colonial India and Africa By Bayly, C. A.
  13. Managing post-disaster reconstruction finance -- international experience in public financial management By Kaiser, Kai; Ihsan, Ahya; Fengler, Wolfgang
  14. Informality among formal firms : firm-level, cross-country evidence on tax compliance and access to credit By Honorati, Maddalena; Gatti, Roberta
  15. Natural Resources and Violent Conflict: Resource Abundance, Dependence and the Onset of Civil Wars By Christa N. Brunnschweiler; Erwin Bulte
  16. The Poor, the Rich and the Enforcer: Institutional Choice and Growth By Thor Koeppl; Cyril Monnet; Erwan Quintin
  17. The Role of Primary Commodities in Economic Development: Sub-Saharan Africa Versus the Rest of the World By Fabrizio Carmignani; Abdur Chowdhury
  18. A Framework for Analyzing Tariffs and Subsidies in Water Provision to Urban Households in Developing Countries By David le Blanc
  19. Evaluating Aid Impact By White, Howard
  20. Oil and Challenges of Trade Policy Making In Sudan in a Globalizing Arena By Shafaeddin, Mehdi

  1. By: Strulik, Holger
    Abstract: Household poverty is a powerful motive for child labor and working frequently comes at the expense of schooling for children. Accounting for these natural links we investigate whether and when there is an additional role for community norms and how the social evaluation of schooling evolves over time. The proposed model provides an explanation for why equally poor villages or regions display different attitudes towards schooling and why children who are not working are not sent to school either but remain idle instead. The conditions for a successful implementation of a half-day school vs. a full-day school are investigated. An extension of the model explores how an education contingent subsidy paid to the poorest families of a community manages to initiate a bandwagon effect towards an equilibrium where all children are sent to school.
    Keywords: School Attendance, Child Labor, Social Norms, Targeted Transfers
    JEL: I20 I29 J13 O12
    Date: 2008–01
  2. By: Strulik, Holger
    Abstract: Successful economic development is usually characterized by two salient phenomena: industrialization and demographic transition. Chronologically both events happen so closely to each other that historians and economists alike suspect that they are interrelated. This paper develops a theory for their interaction with a special emphasis on the different pattern and pace of transition in cross-country comparison. For that purpose it rationalizes why a population grows at high rates at geographic locations of high extrinsic mortality. This mechanism is then used to explain why both demographic transition and structural change proceed at slower speed in countries of low absolute latitudes. It is also shown that at tropical locations the pace of transition can be so slow that it sometimes looks like as if societies got stuck in the midst of the process.
    Keywords: Industrialization, Structural Change, Demographic Transition, Geography, Health, Cross-Country Divergence
    JEL: J10 J13 O11 O12
    Date: 2008–01
  3. By: Norman Loayza (The World Bank)
    Abstract: Adopting a legal definition of informality, this article studies the causes of informality in general and with a particular application to Peru. It starts with a discussion on the definition and measures of informality, as well as on the reasons why widespread informality should be of great concern. Then, the article analyzes informality’s main determinants, arguing that informality is not single-caused but results from the combination of poor public services, a burdensome regulatory regime, and weak monitoring and enforcement capacity by the state. This combination is especially explosive when the country suffers from low educational achievement and features demographic pressures and primary production structures. Finally, using cross-country regression analysis, the article evaluates the empirical relevance of each determinant of informality. It then applies the estimated relationships to the case of Peru in order to assess the country-specific relevance of each proposed mechanism.
    Keywords: Regulation, government performance, economic growth, informal economy
    JEL: K20 K30 H11 O40 O17
    Date: 2007–12
  4. By: Katleen Van den Broeck (Department of Economics, University of Copenhagen); Carol Newman (Department of Economics, Trinity College Dublin); Finn Tarp (Department of Economics, University of Copenhagen)
    Abstract: In most of the empirical literature on land titling, the household is regarded as unitary, and land rights are found to have ambiguous effects on land allocation, investment and productivity. Using data from 12 provinces in Vietnam, we diversify land titles, and show in a household fixed effects analysis of plot level rice yields that land titles are indeed important. Only exclusively held titles have the expected positive effects, and the positive effect on yields is found in male headed households. Furthermore, a household level rice yield function reveals that exclusive user rights are inefficiency decreasing, while jointly held user rights have no efficiency effects. Finally, once the gender of the head of household is controlled for, exclusively held female titles have a greater positive effect on the efficiency of the household than that of male held titles.
    JEL: D13 O12 Q12
    Date: 2007–12
  5. By: Dutta, Arindam; Brahmbhatt, Milan
    Abstract: Infectious disease outbreaks can exact a high human and economic cost through illness and death. But, as with severe acute respiratory syndrome (SARS) in East Asia in 2003, or the plague outbreak in Surat, India, in 1994, they can also create severe economic disruptions even when there is, ultimately, relatively little illness or death. Such disruptions are commonly the result of uncoordinated and panicky efforts by individuals to avoid becoming infected, of preventive activity. This paper places these " SARS type " effects in the context of research on economic epidemiology, in which behavioral responses to disease risk have both economic and epidemiological consequences. The paper looks in particular at how people form subjective probability judgments about disease risk. Public opinion surveys during the SARS outbreak provide suggestive evidence that people did indeed at times hold excessively high perceptions of the risk of becoming infected, or, if infected, of dying from the disease. The paper discusses research in behavioral economics and the theory of information cascades that may shed light on the origin of such biases. The authors consider whether public information strategies can help reduce unwarranted panic. A preliminary question is why governments often seem to have strong incentives to conceal information about infectious disease outbreaks. The paper reviews recent game-theoretic analysis that clarifies government incentives. An important finding is that government incentives to conceal decline the more numerous are non-official sources of information about a possible disease outbreak. The findings suggest that honesty may indeed be the best public policy under modern conditions of easy mass global communications.
    Keywords: Health Monitoring & Evaluation,Disease Control & Prevention,Population Policies,Hazard Risk Management,Gender and Health
    Date: 2008–01–01
  6. By: Soledad Martinez Peria, Maria; Beck, Thorsten
    Abstract: Between 1995 and 2005, foreign bank participation in Mexico rose from 2 percent of bank assets to 83 percent, as the top five largest banks were acquired by foreigners. Th is paper examines the link between foreign bank acquisitions and banking outreach. Using quarterly country, bank, and bank-municipality-level data, the authors find some contrasting patterns. As foreign bank participation rose due to foreign acquisitions, the number of municipalities with bank presence increased but the number of loan and deposit accounts fell for the country as a whole and for banks after they became foreign. The drop in the number of loans, however, was partially off-set by an increase in domestic bank loans. Further, the decline in loan and deposit accounts was more pronounced in more rural and poorer areas. Finally, only very rich and urban areas experienced an increase in branches after foreign acquisition.
    Keywords: Banks & Banking Reform,Access to Finance,,Debt Markets,Corporate Law
    Date: 2008–01–01
  7. By: Levine, Ross; Demirguc-Kunt, Asli
    Abstract: An influential body of theoretical research and an emerging line of empirical work suggest that the operation of the formal financial system affects the degree to which economic opportunities are defined by talent and initiative rather than by parental wealth and social connections. This paper discusses the theory of how financial markets influence economic opportunity and reviews recent empirical work on the relation between formal financial systems and poverty, income inequality, and economic opportunity. The authors consider recent efforts to measure the ability of households and small enterprises to access financial services, the impact of this access, and the mechanisms through which finance affects poverty and inequality. The authors argue that considerably more research is needed to identify which formal financial sector policies enhance the operation of the financial system in ways that expand the economic horizons of the economically disenfranchised.
    Keywords: Access to Finance,,Banks & Banking Reform,Emerging Markets,Debt Markets
    Date: 2008–01–01
  8. By: Levine, Ross; Demirguc-Kunt, Asli
    Abstract: The first part of this paper reviews the literature on the relation between finance and growth. The second part of the paper reviews the literature on the historical and policy determinants of financial development. Governments play a central role in shaping the operation of financial systems and the degree to which large segments of the financial system have access to financial services. The paper discusses the relationship between financial sector policies and economic development.
    Keywords: Debt Markets,Access to Finance,Emerging Markets,,Economic Theory & Research
    Date: 2008–01–01
  9. By: Zhang, Lijuan; Rozelle, Scott; Huang, Jikun; Dinar, Ariel; Mendelsohn, Robert; Wang, Jinxia
    Abstract: Several studies addressing the supply and demand for food in China suggest that the nation can largely meet its needs in the coming decades. However, these studies do not consider the effects of climate change. This paper examines whether near future expected changes in climate are likely to alter this picture. The authors analyze the effect of temperature and precipitation on net crop revenues using a cross section consisting of both rainfed and irrigated farms. Based on survey data from 8,405 households across 28 provinces, the results of th e Ricardian analysis demonstrate that global warming is likely to be harmful to China but the impacts are likely to be very different in each region. The mid latitude region of China may benefit from warming but the southern and northern regions are likely to be damaged by warming. More precipitation is beneficial to Chinese farmers except in the wet southeast. Irrigated and rainfed farmers have similar responses to precipitation but not to temperature. Warmer temperatures may benefit irrigated farms but they are likely to harm rainfed farms. Finally, seasonal effects vary and are offsetting. Although we were able to measure the direct effect of precipitation and temperature, we could not capture the effects of change in water flow which will be very important in China. Can China continue feeding itself if climate changes? Based on the empirical results, the likely gains realized by some farmers will nearly offset the losses that will occur to other farmers in China. If future climate scenarios lead to significant reductions in water, there may be large damages not addressed in this study.
    Keywords: Climate Change,Crops & Crop Management Systems,Global Environment Facility,Common Property Resource Development,Rural Development Knowledge & Information Systems
    Date: 2008–01–01
  10. By: Magnoli Bocchi, Alessandro
    Abstract: The economy of the Philippines is open to trade and capital inflows, and has grown rapidly since 2002. Over the last 10 years, however, domestic investment, while stagnant in real terms, has shrunk as a share of GDP. In an open and growing economy, why the decline? Three reasons explain the puzzle. First, the public sector cannot afford expanding its investment at GDP growth rates. Second, the capital-intensive private sector does not find it convenient to raise investment at the economy ' s pace. Third, fast-growing businesses in the service sector do not need to rapidly increase investment to enjoy rising profits. Yet, the economy keeps growing. On the demand-side, massive labor migration results in remittances that fuel consumption-led-growth. On the supply-side, free from rent-capturing regulations, a few non-capital-intensive manufactures and services boost exports. The economic system is in equilibrium at a low level of capital stock, where all economic agents have no incentive to unilaterally increase investment and the first mover bears short-term costs. As a consequence, growth is slower and less inclusive than it could be. To make it speedier and more sustainable, and to reduce unemployment and poverty, the economy needs to move to a " high-capital-stock " equilibrium. This would be attainable through better-performing eco-zones, a competitive exchange rate, greater government revenues, and fewer elite-capturing regulations.
    Keywords: Economic Theory & Research,Debt Markets,Political Economy,,Access to Finance
    Date: 2008–01–01
  11. By: Pierola, Martha Denisse; Amurgo-Pacheco, Alberto
    Abstract: This paper uses highly disaggregated trade data to investigate geographic and product diversification patterns across a group of developing nations for the period from 1990 to 2005. The econometric investigation shows that the gravity equation fits the observed differences in diversification across nations. The analysis shows that exports at the intensive margin account for the most important share of overall trade growth. At the extensive margin, geographic diversification is more important than product diversification, especially for developing countries. Taking part in free trade agreements, thereby reducing trade costs, and trading with countries in the North are also found to have positive impacts on export diversification for developing countries.
    Keywords: Economic Theory & Research,Free Trade,Trade Policy,Emerging Markets,Achieving Shared Growth
    Date: 2008–01–01
  12. By: Bayly, C. A.
    Abstract: This paper concerns the institutional origins of economic development, emphasizing the cases of nineteenth-century India and Africa. Colonial institutions-the law, western style property rights, newspapers and statistical analysis-played an important part in the emergence of Indian public and commercial life in the nineteenth and twentieth centuries. These institutions existed in the context of a state that was extractive and yet dependent on indigenous cooperation in many areas, especially in the case of the business class. In such conditions, Indian elites were critical in creating informal systems of peer-group education, enhancing aspiration through the use of historicist and religious themes and in creating a " benign sociology " of India as a prelude to development. Indigenous ideologies and practices were as significant in this slow enhancement of Indian capabilities as transplanted colonial ones. Contemporary development specialists would do well to consider the merits of indigenous forms of association and public debate, religious movements and entrepreneurial classes. Over much of Asia and Africa, the most successful enhancement of people ' s capabilities has come through the action of hybrid institutions of this type.
    Keywords: Cultural Policy,Economic Theory & Research,Corporate Law,,Anthropology
    Date: 2008–01–01
  13. By: Kaiser, Kai; Ihsan, Ahya; Fengler, Wolfgang
    Abstract: In recent years, natural and man-made disasters have confronted the international community with its most demanding reconstruction challenges since the aftermath of World War II. Managing the inflow of resources and spending those resources well have proven to be two of the main difficulties in such reconstruction projects, particularly after large-scale disasters. A central dilemma of the public financial management of reconstruction is the need for very high levels of accountability to demonstrate fiduciary credibility, while at the same time ensuring the rapid implementation of recovery programs. This paper identifies options and lessons for managing post-disaster reconstruction finance in three key areas: (i) the establishment of special institutions to manage the reconstruction process; (ii) the selection of public financial management systems with respect to the application of country systems, special fiduciary arrangements, or donor/NGO execution; and (iii) monitoring and evaluation systems. The authors synthesize the phasing of assistance and approaches in eight recent post-natural disaster reconstruction efforts (Aceh-Indonesia, Yogyakarta-Indonesia, Sri Lanka, Maldives, Pakistan, Colombia, Grenada, and Honduras) to help guide the priorities and options for future instances of public financial management for disaster reconstruction. The paper also compares the challenges posed by post-conflict versus post-natural disaster public financial management.
    Keywords: Natural Disasters,Disaster Management,Post Conflict Reconstruction,Social Accountability,Post Conflict Reintegration
    Date: 2008–01–01
  14. By: Honorati, Maddalena; Gatti, Roberta
    Abstract: The authors use firm-level, cross-county data fr om Investment Climate surveys in 49 developing countries to investigate an important channel through which informality can affect productivity: access to credit and external finance. Informality is measured as self-reported lack of tax compliance in a sample of registered firms that also answered questions on a large set of other characteristics. The authors find that more tax compliance is significantly associated with more access to credit both in OLS and in country fixed effects estimates. In particular, the link between credit and formality is stronger in high-formality countries. This suggests that firms ' balance sheets are relatively more informative for financial institutions in environments where signal extraction is a less noisy process. The authors ' results are robust to the inclusion of a wide array of correlates and to two-stage estimation.
    Keywords: Access to Finance,,Banks & Banking Reform,Debt Markets,Bankruptcy and Resolution of Financial Distress
    Date: 2008–01–01
  15. By: Christa N. Brunnschweiler (CER-ETH Center of Economic Research at ETH Zurich, Switzerland); Erwin Bulte (Development Economics Group, Wageningen University, and Department of Economics, Tilburg University, Netherlands)
    Abstract: In this paper we examine the claim that natural resources invite civil conflict, and challenge the main stylized facts in this literature. We find that the nature of causation between resource dependence and civil war is opposite to conventional wisdom. In particular, (i) civil war creates dependence on primary sector exports, but the reverse is not true, and (ii) resource abundance is associated with a reduced probability of the onset of war. These results are robust to a range of specifications and, considering the conflict channel, we conclude there is no reason to regard resources as a general curse to development.
    Keywords: Civil war, resource abundance, resource dependence, greed versus grievance, resource curse
    JEL: Q34 O11 N40 N50
    Date: 2008
  16. By: Thor Koeppl (Queen's University); Cyril Monnet (Federal Reserve Bank of Philadelphia); Erwan Quintin (Federal Reserve Bank of Dallas)
    Abstract: We study economies where improving the quality of institutions – modeled as improving contract enforcement – requires resources, but enables trade that raises output by reducing the dispersion of marginal products of capital. We find that in this type of environment it is optimal to combine institutional building with endowment redistribution, and that more ex-ante dispersion in marginal products increases the incentives to invest in enforcement. In addition, we show that institutional investments lead over time to a progressive reduction in inequality. Finally, the framework we describe enables us to formalize the hypothesis formulated by Engerman and Sokoloff (2002) that the initial concentration of human and physical capital can explain the divergence of different countries’ institutional history.
    Keywords: Enforcement as a Choice, Institutions, Inequality, Human and Physical Capital
    JEL: D31 D52 O11 O43
    Date: 2007–12
  17. By: Fabrizio Carmignani (United Nations Economic Commission for Africa); Abdur Chowdhury (United Nations Economic Commission for Europe)
    Abstract: The impact of the dependence on primary commodities for economic development is analysed within the framework of growth regressions. While there is no evidence of a generalized primary commodity curse, reliance on primary commodities does retard growth in sub-Saharan Africa (SSA). Which factors account for theis SSA specificity. Some suggest that SSA specializes in commodities that are not conductive to economic growth and that SSA depends on primary commodities more deeply than the rest of the world. These explanations are not strongly supported by the data. The key to SSA specific curse appears to lie in the interaction between institutions and primary commodities.
    Keywords: economic diversification, commodity concentration, Africa, economic development, primary commodities
    JEL: O10 O13 O55
    Date: 2007–12
  18. By: David le Blanc
    Abstract: This paper aims to present a basic conceptual framework for understanding the main practical issues and challenges relating to tariffs and subsidies in the water sector in developing countries. The paper introduces the basic economic notions relevant to the water sector; presents an analytical framework for assessing the need for and evaluating subsidies; and discusses the recent evidence on the features and performance of water tariffs and subsidies in various regions, with a special focus on Africa. The discussion is limited to the provision of drinking water to urban households in developing countries.
    Keywords: water, access to water, tariffs, subsidies, urban development
    JEL: D42 D61 H71 L95
    Date: 2008–01
  19. By: White, Howard
    Abstract: The ultimate measure of aid effectiveness is how aid ffects the lives of poor people in developing countries. The huge literature on aid’s macroeconomic impact has remarkably little to say on this topic, and less still in terms of practical advice to government officials and aid administrators on how to improve development effectiveness. But there is an expanding toolbox of approaches to impact evaluation at the field level which can answer both questions of whether aid works, and, properly applied, why it works (or not, as the case may be). This paper lays out these approaches, describing some of their uses by official development agencies. I advocate a theory based approach to impact evaluation design, as this is most likely to yield policy insights. Academics need to engage in these real world issues and debates if their work is to help alleviate the plight of the world’s poor.
    Keywords: aid effectiveness; impact evaluation; quasi-experimental design; results agenda
    JEL: O1 O22 O3 O12
    Date: 2007–11
  20. By: Shafaeddin, Mehdi
    Abstract: Abstract The purpose of this study is to examine the potential impact of oil revenues on the economy of Sudan and the challenges facing the Government in policy making, particularly trade policy and allocation of oil revenues for long-run development and diversification of the production and export structure of the economy. The exploitation of oil resources has been accompanied by impressive liberalization of the economy by the Government of Sudan. Since then the country has been integrating into the world economy rapidly based on oil revenues. Yet, little has been achieved so far in integrating various sectors of the domestic economy despite relatively rapid GDP growth based on oil revenues. Rapid economic growth and diversification of the economy are among the main objectives of the Government. Therefore, the challenge facing the Government is to design and implement a long-term development strategy in order to build up a solid industrial and agricultural sector for sustainable development and expansion of non-oil exports. In such a strategy the design, and implementation, of trade and industrial policies and the way oil revenues are allocated, takes, inter alia, importance. Developing a conceptual framework of analysis, the author will argue that while export of petroleum provides financial resources for the acceleration of investment and growth, prospects for sustained growth and diversification will be still limited by some physical and institutional bottlenecks which can not be easily overcome by ample oil revenues. Trade in oil itself may have some detrimental socio-economic effects, including the attitude and policies of the Government, on the prospects for development and diversification of the economy in the long-run. Therefore, the Government policies, particularly trade policies, and the way oil revenues are allocated may not be necessarily conducive to long-run development and diversification of production and export structure. Proposing an alternative long-run trade and industrial policy for the country, the author will also outline the practical problems of its implementation under current international trade rules. ---------- *The author is a development economist with D.Phil from Oxford Univsity. He is currently an international consultant affiliated to the Institute of Economic Research, University of Neuchatel, Switzerland. He is the former Head, Macroeconomic and Development Policies Branch, UNCTAD and the author of a large number of articles, published in international journals, on trade and industrial policies, economic reform and other development policy issues. His latest book is: Trade Policy at the Crossroads; the recent experience of developing countries, Macmillan, 2005. This paper is developed on the basis of a part of a study undertaken for the World Bank under a DTSI project financed by the same Organization. The author benefited from interviews with Government authorities and comments from Mr. P. Shuler to whom goes his thanks. Comments are welcome and can be sent to author:
    Keywords: Oil economies; trade policy; Sudan; economic development; diversification
    JEL: F4 F0 O5 O2 Q2 Q4 Q1 F3 F1
    Date: 2007–10

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