nep-dev New Economics Papers
on Development
Issue of 2008‒01‒26
twelve papers chosen by
Jeong-Joon Lee
Towson University

  1. International Specialization and the Return to Capital, 1976-2000 By Batista, Catia; Potin, Jacques
  2. Industrial Deregulation, Skill Upgrading, and Wage Inequality in India By Rubiana Chamarbagwala; Gunjan Sharma
  3. Institutions matter: the case of Vietnam By Thi Bich Tran, Tom Kompas and R. Quentin Grafton
  4. High Growth and Low Consumption in East Asia: How to Improve Welfare While Avoiding Financial Failures By Céline Rochon; Maral Shamloo; Andrew Feltenstein
  5. Changing Nature of North-South Linkages: Stylized Facts and Explanations By M. Ayhan Kose; Cigdem Akin
  6. Energy Savings via FDI? Empirical Evidence from Developing Countries By Michael Hübler; Andreas Keller
  7. Finding missing markets (and a disturbing epilogue) : evidence from an export crop adoption and marketing intervention in Kenya By Karlan, Dean; Gine, Xavier; Ashraf, Nava
  8. Bosnia and Herzegovina 2001-2004 : enterprise restructuring, labor market transitions and poverty By Yemtsov, Ruslan; Tiongson, Erwin R.
  9. Aid, growth, and real exchange rate dynamics By Thierfelder, Karen; Robinson, Sherman; Page, John; Go, Delfin S.; Devarajan, Shantayanan
  10. Merry Sisterhood or Guarded Watchfulness? Cooperation Between the International Monetary Fund and the World Bank By Michael Fabricius
  11. Financial Structure and Economic Growth By Luintel, Kul B; Khan, Mosahid; Arestis, Philip; Theodoridis, Konstantinos
  12. Social Network Capital, Economic Mobility and Poverty Traps By Chantarat, Sommarat; Barrett , Christopher

  1. By: Batista, Catia (University of Oxford); Potin, Jacques (ESSEC Business School)
    Abstract: Using panel data, we provide an integrated treatment of factor endowments, factor prices, and international specialization. In the various cross sections, we confirm the Heckscher-Ohlin prediction that, with sufficient differences in country endowments, there is no factor Price equalization and countries specialize in different subsets of goods. We also explain why, despite higher returns to capital, poor countries do not attract more capital from rich countries. Moreover, along their development path, countries experience the structural change predicted by theory. We find that these changes in specialization mainly occur within industries. Despite capital accumulation by most countries, we find no decrease in the return to capital at any given capital-labour ratio. This must have facilitated growth through capital accumulation
    Keywords: Economic Growth and International Trade; Heckscher-Ohlin; Multiple Cones; Marginal Product of Capital; Specialization
    JEL: F11 F14 O40
    Date: 2008–01
  2. By: Rubiana Chamarbagwala (Indiana University Bloomington); Gunjan Sharma (University of Missouri)
    Abstract: We investigate the relationship between economic deregulation (delicensing), skill upgrading, and wage inequality during the 1980s and 1990s in India. We use a unique dataset on India's industrial licensing regime to test whether industrial deregulation during the 1980s and 1990s played a role in generating demand for skilled workers, as measured by the employment and wagebill shares of white-collar workers, and in raising the returns to skilled labor, as measured by the skill premium. Our analysis focuses not only on the difference between licensed and delicensed industries but also on the comparison of these differences during the 1980s, when India's external sector remained relatively closed to the world economy, and the 1990s, when India underwent massive liberalization reforms and became increasingly integrated with the global economy. We identify two main channels through which industrial delicensing affects the demand for skills and wage inequality: capital- and output-skill complementarities. Our analysis finds two important results. First, capital- and output-skill complementarities existed for firms in both licensed and delicensed industries but were stronger in delicensed industries both before and after 1991. The exception is output-skill complementarities with respect to the skill premium, where delicensed industries experienced lower output-skill complementarities compared to licensed ones both before and after 1991. Second, the contribution of industrial delicensing to both types of complementarities was considerably higher during the 1980s and much smaller after 1991. These results suggest that industrial delicensing benefited skilled labor via capital- and output-skill complementarities during the 1980s, the decade before India liberalized it's trade and investment regime. Thus, much of the increase in the demand for and returns to skill as a result of capital- and output-skill complementarities can be attributed to domestic reforms during the pre-1991 period in India.
    Keywords: Capital-skill complementarities, industrial delicensing, trade liberalization, India
    JEL: F16 J23 J24 O14 O38
    Date: 2008–01
  3. By: Thi Bich Tran, Tom Kompas and R. Quentin Grafton
    Abstract: The paper investigates institutional reforms in Vietnam and their impact on the economic performance of firms. Using the provincial competitiveness index 2006 (PCI06) and firm-level data in Vietnam in 2005, the results show that provincial competitiveness is economically and statistically significant in explaining cross-province differences in firm performance. We find that a one percentage point improvement in government practice could increase the daily value-added of an average firm by an amount equivalent to nearly three times per capita GDP per day. The results show that an improvement in providing market information, more secure land tenure and labor training assistance has a positive effect on firm performance. By contrast, weaknesses in the judiciary system and administrative reforms impede growth of non-state firms. The findings indicate that governance is an important obstacle to the development of the non-state sector in Vietnam.
    Date: 2008
  4. By: Céline Rochon; Maral Shamloo; Andrew Feltenstein
    Abstract: This paper analyzes certain policies that are typical of a number of rapidly growing East Asian countries in which a fixed exchange rate, combined with a surplus labor market, has made domestic assets relatively inexpensive, generating high rates of FDI as well as domestic capital formation. This "investment hunger" can lead to unanticipated declines in the returns to investment, and resulting financial insolvencies. Private consumption remains low and there are concerns that high savings rates cannot be sustained. We construct a dynamic general equilibrium model and apply it to a stylized Asian economy, loosely based upon China. We calibrate a benchmark equilibrium, and carry out various counterfactual simulations to analyze alternative policies, in particular tax cuts and exchange rate revaluations, as instruments in increasing private consumption while avoiding bank failures.
    Keywords: Economic growth , China, People's Republic of , Consumption , Financial crisis , Exchange rates , Labor markets ,
    Date: 2007–12–18
  5. By: M. Ayhan Kose; Cigdem Akin
    Abstract: This paper examines the changing nature of growth spillovers between developed economies, the North, and developing countries, the South, driven by the process of globalization?the phenomenon of rising international trade and financial flows. We use a comprehensive database of macroeconomic and sectoral variables for 106 countries over the period 1960- 2005. We consider the South to be composed of two groups of countries, the Emerging South and the Developing South, based on the extent of their integration into the global economy. Using a panel regression framework, we find that the impact of the Northern economic activity on the Emerging South has declined during the globalization period (1986-2005). In contrast, the growth linkages between the North and Developing South have been rather stable over time. Our findings also suggest that the Northern and Emerging Southern economies have started to exhibit more intensive intra-group growth spillovers.
    Keywords: Emerging markets , Globalization , International trade , Capital flows , Economic growth ,
    Date: 2007–12–20
  6. By: Michael Hübler; Andreas Keller
    Abstract: In this paper we examine the influence of foreign direct investment inflows on energy intensities of developing countries empirically. We first show that a simple OLS estimation, as it is found in the literature, suggests energy intensity reductions from FDI inflows, which is consistent with the hypothesis of energy saving technology transfer via FDI. However, such a regression turns out to be spurious and only a starting point for further research. Therefore, we use macro level data on 60 developing countries for the period 1975-2004 including other potential determinants of energy intensities and apply panel estimation techniques and tests. The results do not confirm the hypothesis that FDI inflows reduce energy intensities of developing countries in general. Interactions of FDI with country-specific characteristics do not show significant effects, either.
    Keywords: developing countries, energy intensity, FDI, technology transfer
    JEL: F18 F21 O13 O33 Q43 Q56
    Date: 2008–01
  7. By: Karlan, Dean; Gine, Xavier; Ashraf, Nava
    Abstract: In much of the developing world, many farmers grow crops for local or personal consumption despite export options that appear to be more profitable. Thus many conjecture that one or several markets are missing. This paper reports on a randomized controlled trial conducted by DrumNet in Kenya that attempts to help farmers adopt and market export crops. DrumNet provides smallholder farmers with information about how to switch to export crops, makes in-kind loans for the purchase of the agricultural inputs, and provides marketing services by facilitating the transaction with exporters. The experimental evaluation design randomly assigns pre-existing farmer self-help groups to one of three groups: (1) a treatment group that receives all DrumNet services, (2) a treatment group that receives all DrumNet services except credit, or (3) a control group. After one year, DrumNet services led to an increase in production of export oriented crops and lower marketing costs; this translated into household income gains for new adopters. However, one year after the study ended, the exporter refused to continue buying the cash crops from the farmers because the conditions of the farms did not satisfy European export requirements. DrumNet collapsed in this region as farmers were forced to sell to middlemen and defaulted on their loans. The risk of such events may explain, at least partly, why many seemingly more profitable export crops are not adopted.
    Keywords: Crops & Crop Management Systems,Access to Finance,,Economic Theory & Research,Banks & Banking Reform
    Date: 2008–01–01
  8. By: Yemtsov, Ruslan; Tiongson, Erwin R.
    Abstract: This paper takes stock of labor market developments in Bosnia and Herzegovina over the period 2001-2004, using the panel Living Standards Measurement Study/Living in Bosnia and Herzegovina survey. The analysis estimates a multinomial logit model of labor market transitions by state of origin (employment, unemployment, and inactivity) following the specification of widely used models of transition probabilities, and analyzes the impact of standard covariates. The results provide strong evidence that there are indeed significant differences in labor market transitions by gender, age, education, and geographic location. Using the panel structure of the multi-topic survey data, the authors find that these transitions are related to welfare dynamics, with welfare levels evolving differently for various groups depending on their labor market trajectories. The findings show that current labor market trends reflecting women ' s movement out of labor markets and laid-off male workers accepting informal sector jobs characterized by low productivity will lead to adverse social outcomes. These outcomes could be averted if the planned enterprise reform program creates a more favorable business environment and leads to faster restructuring and growth of firms.
    Keywords: Labor Markets,Labor Policies,Population Policies,,Banks & Banking Reform
    Date: 2008–01–01
  9. By: Thierfelder, Karen; Robinson, Sherman; Page, John; Go, Delfin S.; Devarajan, Shantayanan
    Abstract: Devarajan, Go, Page, Robinson, and Thierfelder argued that if aid is about the future and recipients are able to plan consumption and investment decisions optimally over time, then the potential problem of an aid-induced appreciation of the real exchange rate (Dutch disease) does not occur. In their paper, " Aid, Growth and Real Exchange Rate Dynamics, " this key result is derived without requiring extreme assumptions or additional productivity story. The economic framework is a standard neoclassical growth model, based on the familiar Salter-Swan characterization of an open economy, with full dynamic savings and investment decisions. It does require that the model is fully dynamic in both savings and investment decisions. An important assumption is that aid should be predictable for intertemporal smoothing to take place. If aid volatility forces recipients to be constrained and myopic, Dutch disease problems become an issue.
    Keywords: Economic Theory & Research,Debt Markets,Currencies and Exchange Rates,Emerging Markets,
    Date: 2008–01–01
  10. By: Michael Fabricius
    Abstract: Since their inception at the end of the Second World War, the sister organizations of the World Bank and the International Monetary Fund (IMF) have aimed to consistently speak with one voice vis-à-vis their member governments. However, anecdotal evidence suggests that they often do not speak in one voice. Fabricius draws on field research conducted in Ghana, Pakistan, Peru, and Vietnam to identify the conditions that determine whether or not the organizations are indeed on the same page and to address whether their traditional plea for consistency is always desirable. He recommends which measures seem crucial to ensure Bank-Fund consistency. At the same time he argues that under certain conditions, this consistency may lead to policy choices that are only second-best. He proposes that the Bank and the Fund pursue a case-specific approach in deciding whether they should take the same stance. A more flexible approach may increase not only the ownership of borrowing countries but also the sustainability of policy choices.
    Keywords: World Bank, International Monetary Fund, cooperation, roles, Bretton Woods
    JEL: F02 F33 F34 F35 F42 O19 O20
    Date: 2007–12
  11. By: Luintel, Kul B (Cardiff Business School); Khan, Mosahid; Arestis, Philip; Theodoridis, Konstantinos (Cardiff Business School)
    Abstract: Recent empirical work on financial structure and economic growth analyzes multicountry dataset in panel and/or cross-section frameworks and conclude that financial structure is irrelevant. We highlight their shortcomings and re-examine this issue utilizing a time series and a dynamic heterogeneous panel methods. Our sample consists of fourteen countries. Tests reveal that cross-country data cannot be pooled. Financial structure significantly explains output levels in most countries. The results are rigorously scrutinized through bootstrap exercises and they are robust to extensive sensitivity tests. We also test for several hypotheses about the prospective role of financial structure and financial development on economic growth.
    Keywords: Financial Structure; Economic Growth; Co-integration; Bootstrap; Dynamic Heterogeneous Panels
    JEL: O16 G18 G28
    Date: 2008–01
  12. By: Chantarat, Sommarat; Barrett , Christopher
    Abstract: The paper explores the role social network capital might play in facilitating poor agents’ escape from poverty traps. We model and simulate endogenous network formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can serve as either a complement to or a substitute for productive assets in facilitating some poor households’ escape from poverty. However, the voluntary nature of costly social network formation also creates both involuntary and voluntary exclusionary mechanisms that impede some poor households’ exit from poverty. Through numerical simulation, we show that the ameliorative potential of social networks therefore depends fundamentally on broader socioeconomic conditions, including the underlying wealth distribution in the economy, that determine the feasibility of social interactions and the net intertemporal benefits of social network formation. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty.
    JEL: O1 Z1 I3
    Date: 2008–01

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