nep-dev New Economics Papers
on Development
Issue of 2008‒06‒21
thirty-one papers chosen by
Jeong-Joon Lee
Towson University

  1. Rejuveniles and Growth By Richard C. Barnett; Joydeep Bhattacharya
  2. Explaining development aid allocation by growth: A meta study By Hristos Doucouliagos; Martin Paldam
  3. A meta-analysis of development aid allocation: The effects of income level and population size By Hristos Doucouliagos; Martin Paldam
  4. A farewell to critical junctures: Sorting out long-run causality of income and democracy By Erich Gundlach; Martin Paldam
  5. Law, Finance, and Politics: The Case of India By John Armour; Priya Lele
  6. Structural Interdependence among Colombian Departments By Eduardo A. Haddad; Fernando S. Perobelli; Jaime Bonet; Geoffrey J. D. Hewings
  7. Conspicuous Consumption, Human Capital and Poverty By Moav, Omer; Neeman, Zvika
  8. The Impact of Cash Transfers on School Enrollment: Evidence from Ecuador By Hessel Oosterbeek; Juan Ponce; Norbert Schady
  9. When Does a Developing Country Use New Technologies? By Olivier Bruno; Cuong Le Van; Benoit Masquin
  10. Causes of Corruption:History, Geography, and Government By Goel, Rajeev K.; Nelson, Michael A.
  11. Armed Conflict and Schooling: Evidence from the 1994 Rwandan Genocide By Richard Akresh; Damien de Walque
  12. Poverty and Inequality among Ethnic Groups in Chile By Claudio Agostini; Phillip Brown; Andrei Roman
  13. Measuring the Informal Economy in Latin America and the Caribbean By Guillermo Javier Vuletin
  14. Accounting Challenges for Semi-Autonomous Revenue Agencies (SARAs) in Developing Countries By Seth E. Terkper
  15. Real and Financial Sector Linkages in China and India By Jahangir Aziz
  16. A Real Model of Transitional Growth and Competitiveness in China By Céline Rochon; Geneviève Verdier; Leslie Lipschitz
  17. Relative Income Positions and Labor Migration: A Panel Study Based on a Rural Household Survey in China By Zheren WU
  18. Self-selection and Earnings of Migrants: Evidence from Rural China By Zheren WU
  19. Labour Markets and Productivity in Developing Countries By Mathan Satchi; Jonathan Temple
  20. The Underground Economy in the Late 1990s: Evading Taxes, or Evading Competition? By Liliane Karlinger
  21. School Attendance of Children and the Work of Mothers: A Joint Multilevel Model for India By Gianna Claudia Giannelli; Francesca Francavilla; Leonardo Grilli
  22. Survey on Child Labour Statistics By Reggiani, Tommaso
  23. Development of Border Economic Zones in Thailand: Expansion of Border Trade and Formation of Border Economic Zones By Tsuneishi, Takao
  24. Educational inequality and educational poverty. The chinese case in the period 1975-2004 By Saccone Donatella
  25. Political Economy Origins of Financial Markets in Europe and Asia By Svetlana Andrianova; Panicaos Demetriades; Chenggang Xu
  26. Consumption risk, technology adoption and poverty traps: evidence from Ethiopia By Stefan Dercon; Luc Christiaensen
  27. Does the Chinese Banking System Promote the Growth of Firms? By Panicaos Demetriades; Jun Du; Sourafel Girma; Chenggang Xu
  28. Aid volatility, monetary policy rules and the capital account in African economies By Christopher Adam; Stephen O'Connell; Edward Buffie
  29. Poverty and Violent Conflict: A Micro Level Perspective on the Causes and Duration of Warfare By Patricia Justino
  30. Linking South Asia with East Asia: Trends, Potential, and Policies By Pradumna B. Rana
  31. Aid Effectiveness Revisited: Comparative Studies of Modalities of Aid to Asia and Africa By Hiroyuki Hino; Atsushi Iimi

  1. By: Richard C. Barnett; Joydeep Bhattacharya (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: Rejuveniles are "people who cultivate tastes and mind-sets tradi- tionally associated with those younger than themselves." (Noxon, 2006) In this paper, we study a standard AK growth model of overlapping generations populated by rejuve- niles. For our purposes, rejuveniles are old agents who derive utility from "keeping up" their consumption with that of the current young. We find that such cross-generational keeping up is capable of generating interesting equilibrium growth dynamics, including growth cycles. No such growth dynamics is possible either in the baseline model, one where no such generational consumption externality exists, or for almost any other form of keeping up. Steady-state growth in a world with rejuveniles may be higher than that obtained in the baseline model
    Keywords: Growth cycles, keeping up preferences, consumption externality
    JEL: E13 E32
    Date: 2007–09–19
  2. By: Hristos Doucouliagos; Martin Paldam (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: The empirical literature explaining the driving forces behind the flows of development aid consists of (at least) 166 studies. One factor that has been analyzed in 30 of these studies is growth in the recipient country. A priori the effect may as well be positive as negative. This is an interesting factor for two reasons: (1) It is relatively easy to interpret the results, and (2) it is an important piece in the picture which suggests aid ineffectiveness. The paper is a meta- analysis of the 211 growth-aid estimates found in the 30 empirical studies. Additionally, we present new evidence using a panel data for 147 countries for the period 1967-2004. The result from both the meta-analysis and the primary data analysis is that growth does generate aid, so the dominating sign is positive. This result is driven partly by the large development banks.
    Keywords: Aid allocation, growth, meta-analysis
    JEL: F35 O19
    Date: 2007–10–10
  3. By: Hristos Doucouliagos; Martin Paldam (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: The effect on aid allocation of the income level and population size in the recipient country is analyzed. The data show that both variables have a significant and robust negative effect, but they explain only a small part of the variation. The main thrust of the paper is a meta-analysis of the large aid allocation literature, where the impact of the two variables is analyzed, controlled for a wide range of factors. By the standard meta-tests, the results converge to much the same as found in our own analysis of the data. The poverty effect is in accordance with stated policies of all donors, while the population effect appears contrary to the stated policy of all donors. The main multilateral donors do not influence this pattern. Indeed, the evidence suggests that the poverty effect is smaller for the multilateral donors. Six main hypotheses are presented to explain the population effect.
    Keywords: Aid allocation, poverty effect, population effect, meta-analysis
    JEL: F35 O19
    Date: 2007–10–30
  4. By: Erich Gundlach; Martin Paldam (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: We consider the empirical relevance of two opposing hypotheses on the causality between income and democracy: The Democratic Transition claims that rising incomes cause a transi¬ tion to democracy, whereas the Critical Junctures hypothesis denies this causal relation. Our empirical strategy is justified by Unified Growth Theory, which hypothe¬sizes that the present international income differences have roots in the prehistoric past. Thus, we use prehistoric measures of biogeography as instruments for modern income levels, and find a large long-run causal effect of income on the degree of democracy. This result rejects the Critical Junctures hypothesis, which is an important part of the Primacy of Institutions view.
    Keywords: Long-run growth, democracy, unified growth theory, biogeography
    JEL: B25 O1
    Date: 2008–02–18
  5. By: John Armour; Priya Lele
    Abstract: The process of liberalisation of India's economy since 1991 has brought with it considerable development both of its financial markets and the legal institutions which support these. An influential body of recent economic work asserts that a country's 'legal origin'-as a civilian or common law jurisdiction-plays an important part in determining the development of its investor protection regulations, and consequently its financial development. An alternative theory claims that the determinants of investor protection are political, rather than legal. We use the case of India to test these theories. We find little support for the idea that India's legal heritage as a common law country has been influential in speeding the path of regulatory reforms and financial development. There is a complementarity between (i) India's relative success in services and software, (ii) the relative strength of its financial markets for outside equity, as opposed to outside debt, and (iii) the relative success of stock market regulation, as opposed to reforms of creditor rights. We conclude that political explanations have more traction in explaining the case of India than do theories based on 'legal origins'.
    Keywords: India, Law and Finance, Investor Protection, Economic structure and financial structure
    JEL: G28 G38 K22 K40 O16 P37
    Date: 2008–03
  6. By: Eduardo A. Haddad; Fernando S. Perobelli; Jaime Bonet; Geoffrey J. D. Hewings
    Abstract: This paper advances on the analysis of the structural interdependence among Colombian departments. The results show that Bogotá has a large influence in the other regional economies through its purchasing power. Additionally, it can be observed a centerperiphery pattern in the spatial concentration of the effects of the hypothetical extraction of any territory. From a policy point of view, the main findings reaffirm the role played by Bogotá in the polarization process observed in the regional economies in Colombia in the last years. Any policy action oriented to reduce these regional disparities should take into account that, given the structural interdependence among Colombian departments, new investment in the lagged regions would flow through Bogotá and the major regional economies.
    Date: 2008–06–10
  7. By: Moav, Omer; Neeman, Zvika
    Abstract: Poor families around the world spend a large fraction of their income on consumption of goods that appear to be useless in alleviating poverty, while saving at very low rates and neglecting investment in health and education. Such consumption patterns seem to be related to the persistence of poverty. We offer an explanation for this observation, based on a trade-off between conspicuous consumption and human capital as signals for unobserved income, under the assumption that individuals care about their status. Despite homothetic preferences, this trade-off gives rise to a convex saving function, which can help explain the persistence of poverty.
    Keywords: Conspicuous Consumption; Human Capital; Poverty
    JEL: D91 O11 O12 O15
    Date: 2008–06
  8. By: Hessel Oosterbeek (University of Amsterdam); Juan Ponce (FLASCO-Ecuador); Norbert Schady (World Bank)
    Abstract: This paper presents evidence about the impact on school enrollment of a program in Ecuador that gives cash transfers to the 40 percent poorest families. The evaluation design consists of a randomized experiment for families around the first quintile of the poverty index and of a regression discontinuity design for families around the second quintile of this index, which is the program's eligibility threshold. This allows us to compare results from two different credible identification methods, and to investigate whether the impact varies with families' poverty level. Around the first quintile of the poverty index the impact is positive while it is equal to zero around the second quintile. This suggests that for the poorest families the program lifts a credit constraint while this is not the case for families close to the eligibility threshold.
    Keywords: cash transfers; school enrollment; regression discontinuity; randomized experiment
    JEL: I38 I28 O15
    Date: 2008–04–08
  9. By: Olivier Bruno (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR6227 - Université de Nice Sophia-Antipolis); Cuong Le Van (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Ecole d'économie de Paris - Paris School of Economics - Université Panthéon-Sorbonne - Paris I); Benoit Masquin (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS : UMR6227 - Université de Nice Sophia-Antipolis)
    Abstract: We develop a model of optimal pattern of economic development that is first rooted in physical capital accumulation and then in technical progress. We study an economy where capital accumulation and innovative activity take place within a two sector model. The first sector produces a consumption good using physical capital and non skilled labor. Technological progress in the consumption sector is driven by the research activity that takes place in the second sector. Research activity which produces new technologies requires technological capital and skilled labor. New technologies induce an endogenous increase of the Total Factor Productivity of the consumption sector. Physical and technological capital are not substitutable while skilled and non skilled labor may be substitutable. We show that under conditions of the adoption process of new technologies, the optimal strategy for a developing country consists in accumulating physical capital first; postponing the importation of technological capital to the second stage of development. This result is due to a threshold effect from which new technologies begin to have an impact on the productivity of the consumption sector. However, we show that once a certain level of wealth is reached, it becomes optimal for the economy to import technological capital toproduce new technologies.
    Keywords: economic development, technical progress, skilled labor, non skilled labor, total factor productivity , new technology, developing countries
    Date: 2008–03
  10. By: Goel, Rajeev K. (BOFIT); Nelson, Michael A. (BOFIT)
    Abstract: Corruption, which remains a serious problem in many countries, has prompted considerable research in recent years. This paper adds to the extant literature with insights on factors influencing corrupt activity. Using cross-country data for about 100 nations, the roles of national history, geography, and government are examined to see how they affect conditions for corruption, both qualitatively and quantitatively. The innovative aspects of this research include use of a wide set of historical, geographical, and governmental determinants of corruption, as well as detailed assessment of several previously considered determinants. The main issues addressed are the effects of the size and scope of government on the incidence of corruption across countries, and the significance of historical and geographic factors in corruption. Regarding the first question, the authors find the size and scope of government can significantly affect corruption. On the second, it is shown that historical institutional inertia in older countries and new rent-seeking opportunities in younger nations can encourage corruption, while certain geographic factors can mitigate corruption. The paper ends with discussion aimed at the policymaker.
    Keywords: corruption; bribery; government size; government scope; rent-seeking; history; geography
    JEL: H00 P00
    Date: 2008–06–06
  11. By: Richard Akresh (University of Illinois at Urbana Champaign); Damien de Walque (World Bank)
    Abstract: To examine the impact of Rwanda’s 1994 genocide on children’s schooling, the authors combine two cross-sectional household surveys collected before and after the genocide. The identification strategy uses pre-war data to control for an age group’s baseline schooling and exploits variation across provinces in the intensity of killings and which children’s cohorts were school-aged when exposed to the war. The findings show a strong negative impact of the genocide on schooling, with exposed children completing one-half year less education representing an 18.3 percent decline. The effect is robust to including control variables, alternative sources for genocide intensity, and an instrumental variables strategy.
    Keywords: War, Human capital investment, Education, Genocide, Africa
    JEL: I20 J13 O12 O15
    Date: 2008–04
  12. By: Claudio Agostini (ILADES-Georgetown University, Universidad Alberto Hurtado); Phillip Brown (Colby College, Waterville, Maine, United States and International Food Policy Research Institute, Washington, D.C., United States.); Andrei Roman (Colby College, Waterville, Maine, United States)
    Abstract: Despite two decades of rapid growth, indigenous Chileans are disproportionately poor. However, income data obtained from non-representative surveys yield imprecise estimates of poverty and inequality. This paper therefore estimates poverty and inequality using poverty mapping methods. In contrast to previous studies, however, we use ethnicity rather than geography as a basis for disaggregation. We find that indigenous Chileans are significantly poorer than non-indigenous people, but that inequality rates are also lower for indigenous groups. These reliable estimates of poverty and inequality may augment the antipoverty targeting criteria used in Chile, helping policy-makers to better identify poor households.
    Keywords: Latin America; Chile; Poverty; Inequality; Ethnicity; Poverty Mapping
    JEL: I32 J15 D31 C53 O54
    Date: 2008–06
  13. By: Guillermo Javier Vuletin
    Abstract: This paper estimates the size of the informal economy for 32 mainly Latin American and Caribbean countries in the early 2000s. Using a structural equation modeling approach, we find that a stringent tax system and regulatory environment, higher inflation, and dominance of the agriculture sector are key factors in determining the size of the informal economy. The results also confirm that a higher degree of informality reduces labor unionization, the number of contributors to social security schemes, and enrollment rates in education.
    Keywords: Working Paper , Latin America , Caribbean , Economic conditions , Economic models , Tax systems , Inflation , Agricultural sector , Labor unions , Social security , Education ,
    Date: 2008–04–28
  14. By: Seth E. Terkper
    Abstract: The paper discusses the improvements which a semi-autonomous revenue agency (SARA) must make to its records to meet fiscal and financial accounting obligations. SARAs are legal entities, such as a service or a department, which are required to prepare accrual records that may diverge from a treasury's cash accounting records. Their records reflect revenues generated; budget funds for generating the revenues; and material programs administered for other agencies. The accounting records and financial statements (income statement, balance sheet and cash flow statement) must conform to generally-accepted accounting principles (GAAPs) or standards such as the International Public Sector Accounting Standards (IPSAS) of the International Federation of Accountants (IFAC)-and to the treatment of operating, investment and financing activities in the Government Finance Statistics (GFS) Manual.
    Keywords: Working Paper , Government accounting , Developing countries , Tax revenues , Tax administration , Fiscal transparency , Public finance , Public sector ,
    Date: 2008–05–05
  15. By: Jahangir Aziz
    Abstract: In the spirit of what is known as business cycle accounting, this paper finds that the investment wedge-the gap between household's rate of intertemporal substitution and the marginal product of capital-is large and quantitatively significant in explaining China's and India's growth. Specific financial sector policies are shown to map well the size and changes in the investment wedge. In the case of China, nonperforming loans, borrowing constraints, and uncertainty over changes in government guidance in bank lending, have implied large transfers from households to firms that have kept capital cost low and encouraged investment. In the case of India, post-1992 financial sector reforms, particularly the reduction in the funds preempted by the government from the banking system, has played an important role in reducing the cost of capital. Simulations show that for rebalancing growth in China and sustaining high investment rate in India, further financial sector reforms could turn out to be key.
    Keywords: Working Paper , China, People's Republic of , India ,
    Date: 2008–04–22
  16. By: Céline Rochon; Geneviève Verdier; Leslie Lipschitz
    Abstract: We present a stylized real model of the Chinese economy with the objective of explaining two features: (1) domestic production is highly competitive in the sense that an accumulation of capital that raises the marginal product of labor elicits increases in employment and output rather than only in wages; and (2) even though the domestic saving rate is high, foreign direct investment is also substantial. We explain these features in terms of a conventional neoclassical growth model-with no monetary or nominal exchange rate policy-by including two aspects of the economy explicitly in the model: (1) low production wages are sustained by a large reserve army of rural labor which drives internal migration, and (2) domestic capital is distinct from importable capital and complementary with it in production. The results suggest that underlying real phenomena are important in explaining recent history; while nominal renmimbi appreciation may dampen price and wage increases, it would probably not change the real factors that have sustained rapid growth.
    Keywords: Working Paper , China, People's Republic of , Economic growth , Competition , Foreign investment , Investment , Savings , Labor supply , Wages , Prices , Exchange rates ,
    Date: 2008–04–25
  17. By: Zheren WU (Osaka School of International Public Policy, Osaka University)
    Abstract: Migration may be used as a strategy to improve a householdfs comparative income position in residential areas. Previous studies have found empirical evidence that relative incomes affect emigration decisions. However, no effect is detected for internal migration. In this paper, we reexamine the effect of relative income positions on internal migration behavior. Based on data from a rural household panel survey of the Sichuan and Anhui provinces in China, we find that motives based on relative income play an important role in householdsf migration decisions. When all else is equal, a household that is poor relative to its home village reference group is more likely to increase migration than is a household in the upper end of the village income distribution. This effect is particularly apparent in households with pioneer migrants. The empirical results also indicate that pioneer migrants may confer a positive externality on potential future migrants. Workers belonging to households with pioneers might be less impeded by migration risks and costs and may be more likely to view migration (an increase in the number of migrants) as an effective strategy for improving their relative economic positions.
    Keywords: Migration, Relative income position, Pioneer migrants
    JEL: J24 O15 R23
    Date: 2008–06
  18. By: Zheren WU (Osaka School of International Public Policy, Osaka University)
    Abstract: Using data from a rural household survey in China, this paper explores the link between employment choice (nonworking, local farm work, local nonfarm work and migratory work) and migrant earnings. We find significant self-selection in migration. Youths, males, better-educated individuals and those in good health are more likely to migrate. In terms of unobserved characteristics, we find positive selection in migration as related to the alternatives of not working and local farm work, and insignificant self-selection as related to local nonfarm work. Controlling for self-selection, the wage returns to gender (male), education and health are lower than those obtained from simple ordinary least squares (OLS), and the returns to experience are higher. More importantly, we find different self-selection between individuals who have moved as pioneers and migrants from households in which other members have already migrated.
    Keywords: Migration, Migration, Self-selection, Pioneer migrants
    JEL: J24 J31 O15
    Date: 2008–06
  19. By: Mathan Satchi; Jonathan Temple
    Abstract: In middle-income countries, the informal sector often accountes for a substantial fraction of the urban labour force. We develop a general equilibrium model with matching frictions in the urban labour market, the possibility of self-employment in the informal sector, and scope for rural-urban migration. We investigate the effects of different types of growth on wages and the informal sector, and the extent to which labour market institutions can influence aggregate productivity. We quantify these effects by calibrating the model to data for Mexico.
    Keywords: informal sector, urban unemployment, dual economies, matching frictions
    JEL: J40 O10
    Date: 2008–02
  20. By: Liliane Karlinger
    Abstract: This paper studies the driving forces behind the considerable expansion of the underground economy during the late 1990s. I propose a novel explanation for this phenomenon: the sharp increase in market competition worldwide, which reduces prices and profits and drives firms into the shadow economy. Empirical evidence from a panel covering 42 countries from 1995 to 2000 shows that increased competition is indeed correlated with an expansion of the underground economy. The effect is weaker in high-income, high-tax, low-corruption countries that provide public services which make it worthwhile for firms to operate in the official economy despite growing competitive pressure.
    JEL: H26 L11 O17
    Date: 2008–06
  21. By: Gianna Claudia Giannelli; Francesca Francavilla; Leonardo Grilli
    Abstract: This paper investigates the determinants of school attendance of children and their mother’s working status when the mother decides how to allocate her time and that of her children. A multilevel random effects model is applied to study the mother’s participation and the schooling status of her children in a joint framework. Using the second National Family Health Survey (NFHS-2) for India, we find that, controlling for many covariates among which wealth is the most powerful predictor, children of working mothers have a lower probability of attending school. This, together with the result that only illiterate and poor mothers with unskilled or unemployed partners have a high probability of working, points to the need for decent labour market opportunities for females. An implication of our findings is that any policy aiming both at enhancing women’s empowerment through labour and increasing children’s welfare should also target improvements in women’s conditions in the labour market.
    Keywords: children’s schooling, women’s work, household allocation of time, random effects, India
    JEL: J13 J22 O15 O18
    Date: 2008–05
  22. By: Reggiani, Tommaso
    Abstract: This paper aims to provide a review on key methodological issues regarding two major international statistical approaches, which characterize the statistics on Child Labour, especially in poor countries. In the first section, we summarises and analyse some key concepts about the international definition on Child Labour. In the second section we analyze the methodology “Statistical Information and Monitoring Programme on Child Labour” (SIMPOC) by International Labour Organization (ILO). In the third section, we describe an alternative methodology promoted by World Bank (WB) identified through the “Living Standard Measurement Survey” (LSMS). In conclusion, in the fourth section, we briefly describe the Italian experience, reporting the major methodological implications emerged during the experimentation of the statistical research project “Children and Work” carried out in Italy by ISTAT (Italian National Institute of Statistics).
    Keywords: Child Labour Statistics; SIMPOC; LSMS.
    JEL: I30 J00 C80
    Date: 2008–06–04
  23. By: Tsuneishi, Takao
    Abstract: In the wake of economic globalization and development in Thailand, movement of people and commodities at the Thai borders is also becoming pronounced. Economic interdependence between Thailand and neighboring countries is growing through border customhouses. As a policy, Thailand is trying to stimulate trade and investment with neighboring countries following the ACMECS (Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy) scheme. In this report, first, movement of people and goods at the borders will be examined. Second, clarification of where and how development is proceeding will be presented. Last, this study will attempt to review the perspectives of policies on neighboring countries after Thaksin.
    Keywords: Migrant worker, Border trade, Border economic zone, ACMECS (Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy), Contract farming, CBTA (Cross Border Transport Agreement), Economic corridor, Thailand, International economic relations, International trade, Migrant labor
    JEL: O53 R11
    Date: 2008–05
  24. By: Saccone Donatella (University of Turin)
    Date: 2008–05
  25. By: Svetlana Andrianova (University of Leicester); Panicaos Demetriades (University of Leicester); Chenggang Xu (London School of Economics)
    Abstract: This paper contributes to the finance-growth literature by examining the political economy origins of some of the most successful financial markets in Europe and Asia. It provides historical evidence from London, Amsterdam and Hong Kong that highlights the essential role played by the government sector in kick-starting financial development. We show that the emergence of financial systems did not occur through laissez-faire approaches and that secure property rights alone were not sufficient for financial development. In the cases of London and Amsterdam, governments created large trade monopolies which were responsible for all the major financial innovations of the time. In the case of Hong Kong, where the financial developmentmodel was bank-based, large banking monopolies with close links to the state were created. We argue that the three examples are not special cases and the role of government in the early stages of financial development has been widespread world-wide.
    Keywords: Monopoly, politics, institutions, finance
    JEL: G18 N20 O16
    Date: 2008–01
  26. By: Stefan Dercon (University of Oxford); Luc Christiaensen (World Bank)
    Abstract: Much has been written on the determinants of input and technology adoption in agriculture, with issues such as input availability, knowledge and education, risk preferences, profitability, and credit constraints receiving much attention. This paper focuses on a factor that has been less well documented: the differential ability of households to take on risky production technologies for fear of the welfare consequences if shocks result in poor harvests. Building on an explicit model, this is explored in panel data for Ethiopia. Historical rainfall distributions are used to identify the counterfactual consumption risk. Controlling for unobserved household and time-varying village characteristics, it emerges that not just exante credit constraints, but also the possibly low consumption outcomes when harvests fail, discourage the application of fertiliser. The lack of insurance causes inefficiency in production choices.
    Keywords: Technology adoption, Fertiliser, Risk, Poverty trap, Ethiopia
    JEL: O12 O33 Q12 Q16
    Date: 2008–01
  27. By: Panicaos Demetriades (University of Leicester); Jun Du (Aston University); Sourafel Girma (University of Nottingham); Chenggang Xu (London School of Economics)
    Abstract: Using a large panel dataset of Chinese manufacturing enterprises during 1999-2005, which accounts for over 90% of China’s industrial output, and robust econometric procedures we show that the Chinese banking system has helped to support the growth of both firm value added and TFP. We find that access to bank loans is positively correlated with future value added and TFP growth. We also find that firms with access to bank loans tend to grow faster in regions with greater banking sector development. While the effects of bank loans on firm growth are more pronounced in the case of purely private-owned and foreign firms, they are positive and statistically significant even in the case of state-owned and collectively-owned firms. We show that excluding loss-making firms from the sample does not change the qualitative nature of our results.
    Keywords: Chinese banking system development, value added and TFP growth, panel dataset
    JEL: E44 O53
    Date: 2008–02
  28. By: Christopher Adam (University of Oxford); Stephen O'Connell (Swarthmore College); Edward Buffie (Indiana University)
    Abstract: We examine the properties of simple quantity-based monetary policy rules of the kind widely used in low-income African economies. Using a DSGE model and focusing our attention on responses to positive aid shocks, we suggest that policy rules involving substantial reserve accumulation in the face of aid surges serve to ease macroeconomic adjustment to shocks, particularly when a portion of aid is used to support fiscal adjustment. These rules are robust to assumptions about the degree of integration of the domestic public debt market with world capital markets. Although an open capital account facilitates smoother adjustment to temporary aid surges when an aid inflow is fully spent, it exacerbates the adjustment problem when aid is accompanied by fiscal adjustment and hence reinforces the case for a managed float in such circumstances.
    Keywords: Monetary policy, Africa, Aid volatility, foreign capital flows, stochastic simulation models
    Date: 2008–06
  29. By: Patricia Justino (Institute of Development Studies at Sussex)
    Abstract: This paper argues that endogenous mechanisms linking processes of violent conflict and household poverty provide valuable micro foundations to the ongoing debate on the causes and duration of armed conflicts. Household poverty affects the onset, sustainability and duration of violent conflict due to the direct and indirect effects of violence on the economic behaviour and decisions of households in conflict areas. These effects lead to the emergence of symbiotic relationships between armed groups and households living in areas they control that may sustain the conflict for a long time. The strength of this relationship is a function of two interdependent variables, namely household vulnerability to poverty and household vulnerability to violence.
    Keywords: Household poverty, household welfare, causes of armed conflict, duration of conflict, micro-foundations of conflict
    JEL: D74 I32
    Date: 2008
  30. By: Pradumna B. Rana (Division of Economics, Nanyang Technological University, Singapore)
    Abstract: Recently, there has been growing interest in the evolving economic relationships between South Asia and East Asia. What could be the implications of the re-emergence of the two giant economies or hegemons – India and China - on the region and globally? Could these relationships be the second phase of Pan-Asian integration? Will Asia be as well-integrated as it was during the pre-colonial period? This paper finds that the level of economic integration between South Asia and East Asia, although increasing since 1990, started to surge after 2000, albeit from a low base, mainly because of growing interdependence between India and China. The level of integration is, however, low in relative terms. By calculating the usual indices, the paper finds that, although there are overlaps, there are also significant amounts of complementarities between the two regions on goods and service trade. The level of economic integration between the two regions is, therefore, bound to increase. The paper concludes by identifying a set of measures to enhance policy-led integration between the two regions including those seeking to reduce transportation costs.
    Date: 2008–04
  31. By: Hiroyuki Hino (Research Institute for Economics & Business Administration, Kobe University); Atsushi Iimi (The World Bank)
    Abstract: This paper provides a variety of evidence that shows that in Asia, aid leveraged private investment in the long run, while in Africa the correlation between aid and domestic investment was at best ambiguous. Aid in Africa was diametrically opposite to that of Asia in terms of the amounts the countries received, the sector compositions, the size of individual projects, and the intensity of donor involvement. The sharp contrast in aid effectiveness between Asia and Africa could be attributed at least in part to those differences in the modality of aid delivery. Based on the above analysis, the paper concludes with a few suggestions that could link aid more closely to private investment, and avoid pitfalls that Africa experienced.
    Keywords: official development assistance, aid effectiveness, foreign direct investment, East Asia, Sub-Saharan Africa
    JEL: O19 O20
    Date: 2008–03

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.