nep-dev New Economics Papers
on Development
Issue of 2008‒07‒05
twenty-two papers chosen by
Jeong-Joon Lee
Towson University

  1. Essays on Political Economy By Paulo Melo-Filho
  2. Finance and Growth: When Does Credit Really Matter? By Coricelli, Fabrizio; Roland, Isabelle
  3. Economic Geography and Wages in Brazil: Evidence from Micro-Data By Thibault Fally; Rodrigo Paillacar; Cristina Terra
  5. NAFTA and the extensive margins of Mexico's exports By Tadashi Ito
  6. Biological versus Foster Children Education: the Old-Age Support Motive as a Catch-up Determinant? Some Evidence from Indonesia By Karine Marazyan
  7. Political Polarization and the Size of Government By Lindqvist, Erik; Östling, Robert
  8. Direct Democracy and Local Public Goods: Evidence from a Field Experiment in Indonesia By Benjamin A. Olken
  9. Multi-product Firms and Product Turnover in the Developing World: Evidence from India By Pinelopi K. Goldberg; Amit Khandelwal; Nina Pavcnik; Petia Topalova
  10. The Colonial Origins of Comparative Development: An Investigation of the Settler Mortality Data By David Y. Albouy
  11. Climate Change and Economic Growth: Evidence from the Last Half Century By Melissa Dell; Benjamin F. Jones; Benjamin A. Olken
  12. Ideas and Growth By Robert E. Lucas, Jr.
  13. Models of Idea Flows By Fernando E. Alvarez; Francisco J. Buera; Robert E. Lucas, Jr.
  14. The Knowledge Trap: Human Capital and Development Reconsidered By Benjamin F. Jones
  15. Challenges for Sustainable Development: Rapid Urbanization, Poverty and Capabilities in Bangladesh By Khan, Haider
  16. Fair Wage Hypothesis, International Factor Mobility and Skilled-Unskilled Wage Inequality in a Developing Economy By Chaudhuri, Sarbajit; Banerjee, Dibyendu
  17. SOCIAL SECURITY FOR UNORGANISED WORKERS IN INDIA By Dhas, Albert Christopher; Helen, Mary Jacqueline
  18. Fair Wage Hypothesis, Foreign Capital Inflow and Skilled-unskilled Wage Inequality in the Presence of Agricultural Dualism By Chaudhuri, Sarbajit
  19. China`s Economic Development and Global Interaction in the Long Run By Thomas Rawski; Evelyn S. Rawski
  20. Prioritizing Educational Investments in Children in the Developing World By David K. Evans; Arkadipta Ghosh
  21. Democratization and Growth By Elias Papaioannou; Gregorios Siourounis
  22. The Bahaviour of the Saving Rate in the Neoclassical Optimal Growth Model By Anastastia Litina; Theodore Palivos

  1. By: Paulo Melo-Filho
    Date: 2008–06–30
  2. By: Coricelli, Fabrizio; Roland, Isabelle
    Abstract: The paper provides a simple theory and empirical evidence on the asymmetric effect of credit markets on output decline and output growth. When credit markets are underdeveloped and enterprise activity is financed outside the banking sector, exogenous shocks may induce a break-up of both credit and production chains, leading to sudden and sharp collapses in output. The development of a banking sector can reduce the probability of such collapses. Using industry-level data across a large cross-section of countries, the empirical analysis suggests that credit markets play a more important role in softening output declines than in fostering growth or recovery. These results suggest that credit markets are one of the main suspects for explaining why the magnitude of output declines tends to be larger in emerging markets than in advanced market economies.
    Keywords: credit and output; Emerging Economies; sharp recessions
    JEL: E44 O43
    Date: 2008–06
  3. By: Thibault Fally (PSE – Paris School of Economics); Rodrigo Paillacar (CES – Université de Paris 1); Cristina Terra (THEMA – Université de Cergy-Pontoise, EPGE – Fundação Getulio Vargas)
    Abstract: This paper estimates the impact of market and supplier access on wage disparities across Brazilian states, incorporating the control of individual characteristics to the new economic geography methodology. We estimate market and supplier access disaggregated by industry, and we compute separately access to international and internal markets. We find a strong correlation between market access and wages differentials, even after controlling for individual characteristics, firm productivity, the source of market access (international, national or local), and using instrumental variables. Furthermore, market access turns out to be more important than supplier access.
    Date: 2008
  4. By: Christophe Muller (THEMA,University of Cergy-Pontoise)
    Abstract: In rural areas of Less Developed Countries because of market imperfections, the health and nutritional status of peasants may directly depend on the production levels of specific agricultural goods rather than solely on income levels. This channel of health and nutrition determination has never been studied. In order to assess and test the empirical possibility of this channel, we estimate the responses of health and nutritional status of autarkic agricultural households in Rwanda with respect to differences in socio-demographic characteristics and the main agricultural outputs and inputs while controlling for local environment and sampling scheme. Several food outputs are found to have a positive influence on health and nutrition, whereas the production of traditional beers has a negative impact. Moreover, greater land negatively affects health and nutrition, conditionally on agricultural production, perhaps because of a larger relative workload for households who have a large farm. An alternative interpretation of the estimates is that they inform on the validity of the common hypothesis of perfect agricultural input/output markets with no effect of agricultural inputs/outputs on health and nutrition status. This hypothesis is rejected.
    Keywords: Health and nutrition models, Agricultural Households
    JEL: I12 O15
    Date: 2008
  5. By: Tadashi Ito (IUHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: Using NAFTA's effect on Mexico's exports as a natural starting point to conduct an empirical analysis on the explanatory power of the recent theoretical development of the heterogeneous firm trade models, this paper analyzes NAFTA's effect on the evolution of the exports of 'new' products from Mexico to the US. The evolution is shown to be in line with the predictions of both the heterogeneous firm trade (HFT) model and the quality heterogeneous firm trade (QHFT) model. After discussing the contrasting predictions of these two models on the unit price, the paper proposes a simple way to check the explanatory power of the QHFT model, exploring the unit price evolution of Mexico's exports. The paper shows a puzzling result which cannot be explained by the QHFT model.
    Keywords: NAFTA, Extensive margins
    JEL: F14 F15
    Date: 2008–05–10
  6. By: Karine Marazyan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: This paper aims at explaining differences in education among foster-children and between foster and biological children in developing countries. Foster-children whose biological parents are alive may provide old-age support for both their host and biological parents. Therefore foster-children have lower returns to education than biological children and should receive less human capital investment in household where both types of children live together. However, in households where foster-children are alone, host parents will over-invest in their education to ensure that the expected old-age support will equal a minimum amount to survive. Using data from Indonesia, we provide some evidence supporting our hypothesis.
    Keywords: Household Structure, Child Fostering, Sibling Rivalry
    Date: 2008–06–25
  7. By: Lindqvist, Erik (Research Institute of Industrial Economics (IFN)); Östling, Robert (Stockholm School of Economics)
    Abstract: We study the effect of political polarization on government spending and redistribution using the dispersion of self-reported political preferences as our measure of polarization. Politically polarized countries have lower levels of redistribution and government consumption. The relationship between political polarization and the size of government is stronger in democratic countries, indicating that the effect goes through the political system. The results are robust to a large set of controlvariables, including GDP per capita and income inequality.
    Keywords: Political Polarization; Social Cohesion; Ethnic Fractionalization; Social Capital; Size of Government
    JEL: H11 H20 H41
    Date: 2008–05–15
  8. By: Benjamin A. Olken
    Abstract: This paper presents an experiment where 48 Indonesian villages were randomly assigned to choose development projects through either representative-based meetings or direct election-based plebiscites. Plebiscites resulted in dramatically higher satisfaction among villagers, increased knowledge about the project, greater perceived benefits, and higher reported willingness to contribute. Changing the political mechanism had much smaller effects on the actual projects selected, with some evidence that plebiscites resulted in projects chosen by women being located in poorer areas. The results show that direct participation in political decision making can substantially increase satisfaction and legitimacy, even when it has little effect on actual decisions.
    JEL: D72
    Date: 2008–06
  9. By: Pinelopi K. Goldberg; Amit Khandelwal; Nina Pavcnik; Petia Topalova
    Abstract: Recent theoretical work predicts that an important margin of adjustment to deregulation or trade reforms is the reallocation of output within firms through changes in their product mix. Empirical work has accordingly shifted its focus towards multi-product firms and their product mix decisions. Existing studies have however focused exclusively on the U.S. Using detailed firm-level data from India, we provide the first evidence on the patterns of multi-product firm production in a large developing country during a period (1989-2003) that spans large-scale trade and other market reforms. We find that in the cross-section, multi-product firms in India look remarkably similar to their U.S. counterparts, confirming the predictions of recent theoretical models. The time-series patterns however exhibit important differences. In contrast to evidence from the U.S., product churning--particularly product rationalization -- is far less common in India. We thus find little evidence of "creative destruction". We also find no link between declines in tariffs on final goods induced by India's 1991 trade reform and product dropping. The lack of product dropping is consistent with the role of industrial regulation in India, which, like in many other developing countries, may prevent an efficient allocation of resources.
    JEL: F13 F14 L1 L6
    Date: 2008–06
  10. By: David Y. Albouy
    Abstract: In a seminal contribution, Acemoglu, Johnson, and Robinson (2001) argue property-rights institutions powerfully affect national income, using estimated mortality rates of early European settlers to instrument capital expropriation risk. However 36 of the 64 countries in their sample are assigned mortality rates from other countries, typically based on mistaken or conflicting evidence. Also, incomparable mortality rates from populations of laborers, bishops, and soldiers - often on campaign - are combined in a manner favoring their hypothesis. When these data issues are controlled for, the relationship between mortality and expropriation risk lacks robustness, and instrumental-variable estimates become unreliable, often with infinite confidence intervals.
    JEL: I12 N10 O11 O57 P16 P51
    Date: 2008–06
  11. By: Melissa Dell; Benjamin F. Jones; Benjamin A. Olken
    Abstract: This paper uses annual variation in temperature and precipitation over the past 50 years to examine the impact of climatic changes on economic activity throughout the world. We find three primary results. First, higher temperatures substantially reduce economic growth in poor countries but have little effect in rich countries. Second, higher temperatures appear to reduce growth rates in poor countries, rather than just the level of output. Third, higher temperatures have wide-ranging effects in poor nations, reducing agricultural output, industrial output, and aggregate investment, and increasing political instability. Analysis of decade or longer climate shifts also shows substantial negative effects on growth in poor countries. Should future impacts of climate change mirror these historical effects, the negative impact on poor countries may be substantial.
    JEL: O11 O13 O40 Q54
    Date: 2008–06
  12. By: Robert E. Lucas, Jr.
    Abstract: This paper introduces and partially develops a new model of endogenous technological change, viewed as the product of a class of problem-solving producers. The model, based on earlier work by Eaton and Kortum, is built up from the premise that all knowledge resides in the head of some individual person and the knowledge of a firm, or economy, or any group of people is simply the knowledge of the individuals that comprise it. The model is applied to an economy with a cohort structure. A calibration the model using cross-section earnings data, in addition to aggregate GDP growth, is considered.
    JEL: O0
    Date: 2008–06
  13. By: Fernando E. Alvarez; Francisco J. Buera; Robert E. Lucas, Jr.
    Abstract: This paper introduces several variations of the Eaton and Kortum (1999) model of technological change and characterizes their long run implications. Both exogenous and endogenous growth examples are studied.
    JEL: O0
    Date: 2008–06
  14. By: Benjamin F. Jones
    Abstract: This paper presents a model where human capital differences - rather than technology differences - can explain several central phenomena in the world economy. The results follow from the educational choices of workers, who decide not just how long to train, but also how broadly. A "knowledge trap" occurs in economies where skilled workers favor broad but shallow knowledge. This simple idea can inform cross-country income differences, international trade patterns, poverty traps, and price and wage differences across countries in a manner broadly consistent with existing empirical evidence. The model also provides insights about the brain drain, migration, and the role for multinationals in development. More generally, this paper shows that standard human capital accounting methods can severely underestimate the role of education in development. It shows how endogenous educational decisions can replace exogenous technology differences in a range of economic reasoning.
    JEL: F22 F23 I20 J24 J31 O11 O15
    Date: 2008–06
  15. By: Khan, Haider
    Abstract: The main purpose of this paper is to examine the causes and consequences -- in particular, the policy implications -- of the ongoing urbanization in Bangladesh. Like many other Asian developing countries, a rapidly increasing share of the population of Bangladesh migrates to urban centers in search for employment opportunities outside agriculture in industrial enterprises or the services sector. For the first time in its history, the urban population is growing faster than the rural population, At the same time, the labor force in non-agriculture is growing faster than the labor force in agriculture. But the employment opportunities in either sector are not growing adequately. This paper attempts to analyze the emerging trends and patterns of urbanization in Bangladesh within a dynamic dual-dual framework with a strong emphasis on rural-urban migration and the informal sectors. The analysis pinpoints, among other things, the need to build up productive capacities in order to create adequate employment and incomes for the rapidly growing population---particularly in the urban areas.The development of productive capacities, which is a precondition for the creation of productive employment opportunities, is a central element of viable poverty reduction strategy for Bangladesh as well. Without significant poverty reduction it is impossible to think of viable urbanization on the basis of sustainable development criteria in this poor country. Both for independent ecological reasons and for the implications of ecological damage for rising inequality and poverty, such a strategy must also be ecologically sustainable in the long run. The donors, especially the OECD/ DAC countries, should provide the necessary financial backing for such a sustainable and equitable development strategy for Bangladesh. It is necessary to reverse the trends in aid, and to provide a much larger share of aid for productive sector development, including the development of rural and urban areas, and the development of agricultural and non-agricultural sectors in line with the perspective of the dual-dual model. Although urban centers mostly host non-agricultural industries, sustainable urbanization also strongly depends on what happens in the agricultural sectors. Productive employment opportunities in rural areas are important in order to combat an unsustainable migration from rural areas to urban centers, and productive employment opportunities in urban centers are essential to absorb the rapidly increasing labor force in the non-agricultural sector.
    Keywords: Urbanization; Bangladesh; Dual-Dual Model; Informal Sector; Poverty; Employment; Capabilities.
    JEL: C68 O17 O53
    Date: 2008–06
  16. By: Chaudhuri, Sarbajit; Banerjee, Dibyendu
    Abstract: Agell and Lundborg (1995, Economica) have accommodated the fair wage hypothesis (FWH) in an otherwise 2×2 Hechscher-Ohlin-Samuelson model for examining the robustness of certain standard trade theorems. The present paper proposes to introduce the FWH in a three sector general equilibrium model with two types of labour: skilled and unskilled. Skilled labour is specific to the high-skill sector and receives the efficiency wage while unskilled labour in the other two sectors receives either the competitive wage or the high unionized wage. Using such a framework the consequences of international mobility of factors of production on the skilled-unskilled wage inequality and unemployment of skilled labour in a developing economy have been analyzed. Both foreign capital inflows and emigration of skilled labour improve the skilled-unskilled wage inequality under reasonable condition. Particularly, the result relating to emigration of skilled labour is counterintuitive.
    Keywords: Fair wage hypothesis; skilled labour; unskilled labour; wage inequality; Foreign capital; unemployment
    JEL: F13 J41 O15
    Date: 2008–06–20
  17. By: Dhas, Albert Christopher; Helen, Mary Jacqueline
    Abstract: The unorganised workers account for about 93 per cent of the total workforce and there is a steady growth in it over years in India. It is argued that India had a long tradition of informal social security and social assistance system directed particularly towards the more vulnerable sections of the society but underwent steady and inevitable erosion. The social security initiatives of the Centre, State and NGO’s implemented during the past indicated that the needs are much more than the supports provided and the efforts must be targeted and vast enough to cover the growing unorganised workers. It is argued that the major security needs of the unorganised workers are food security, nutritional security, health security, housing security, employment security, income security, life and accident security, and old age security. In sum, the study calls for a Comprehensive, Universal and Integrated Social Security System for the unorganised workers in India.
    Keywords: Social Security; unorganised Workers;unorganised labour; Security; Food Security; Income Security; nutritional security; health security; housing security; employment security; life and accident security; old age security; India
    JEL: H55 E24 E26
    Date: 2008–05–27
  18. By: Chaudhuri, Sarbajit
    Abstract: The paper develops a four-sector general equilibrium model where the fair wage hypothesis is valid and there is agricultural dualism for analyzing the consequence of an inflow of foreign capital on the skilled-unskilled wage inequality and the unemployment of skilled labour in a developing economy. The unskilled workers are fully employed but there is imperfection in the market for unskilled labour. On the contrary, the skilled wage is set by the firms by minimizing the unit cost of skilled labour and their efficiency depends on the relative income distribution and the unemployment rate. The analysis finds that an inflow of foreign capital worsens the relative wage inequality but lowers the unemployment of skilled labour. It provides an alternative theoretical foundation to the empirical finding that inflows of foreign capital might have produced unfavourable effect on the wage inequality in the developing countries during the liberalized regime by increasing the relative demand for skilled labour.
    Keywords: Fair wage hypothesis; agricultural dualism; skilled labour; unskilled labour; relative wage inequality; foreign capital; unemployment
    JEL: F13 J41 O15
    Date: 2008–06–23
  19. By: Thomas Rawski; Evelyn S. Rawski
    Abstract: . . .
    Date: 2008–06
  20. By: David K. Evans; Arkadipta Ghosh
    Abstract: The authors bring together 40 randomized and non-randomized evaluations of education programs to compare cost-effectiveness, seeking to facilitate prioritization of different candidate interventions by policymakers. They examine cost-effectiveness across three outcomes (enrollment, attendance, and test scores) and find distinct Òbest interventionsÓ for each outcome. For increasing enrollment, urban fellowships, school consolidation, and extra teachers have proven most cost effective. For school attendance, school-based deworming stands out as most cost effective. And for improving test scores, several interventions seem similarly cost effective, including providing blackboards, workbooks, training teachers, and others. They discuss some of the challenges inherent to comparing interventions.
    Keywords: education, cost-effectiveness
    JEL: O12 O15 I20
    Date: 2008–06
  21. By: Elias Papaioannou; Gregorios Siourounis
    Abstract: This paper challenges cross-sectional findings that democracy has a negligible effect on growth. We employ a new dataset of political transitions during the Third Wave of Democratization and examine the within effect of democratization in countries that abandoned autocracy and consolidated representative institutions. The panel estimates imply that on average democratizations are associated with a one half increase in annual per capita growth. The dynamic analysis reveals that: while during the transition growth is slow, in the medium and long run it stabilizes at a higher level. This evidence favours development theories of democratic rule and Friedrich Hayek (1960)’s idea that the merits of democracy appear in the long run..
    Keywords: event study, institutions, political economy, democracy, annual growth.
    Date: 2008
  22. By: Anastastia Litina (Department of Economics, University of Macedonia); Theodore Palivos (Department of Economics, University of Macedonia)
    Abstract: This paper characterizes analytically the saving rate in the Ramsey-Cass-Koopmans model with a general production function when there exists both exogenous and endogenous growth. It points out conditions involving the share of capital and the elasticities of factor and intertemporal substitution under which the saving rate path to its steady-state value exhibits overshooting, undershooting, or is monotonic. Simulations illustrate these interesting dynamics. The paper also identifies the general class of production functions that render the saving rate constant along the entire transition path and hence make the Ramsey-Cass-Koopmans model isomorphic to that of Solow-Swan.
    Keywords: The Ramsey-Cass-Koopmans model; Saving rate; Elasticities of Substitution
    JEL: E20 O41 O10
    Date: 2008–06

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