nep-dev New Economics Papers
on Development
Issue of 2008‒07‒14
twenty-one papers chosen by
Jeong-Joon Lee
Towson University

  1. Reassessing the relationship between inequality and development By Joseph F. Francois; Hugo Rojas-Romagosa
  2. Socio-Economic Status, HIV/AIDS Knowledge and Stigma, and Sexual Behavior in India By Pedro de Araujo
  3. Skill Upgrading and the Real Exchange Rate By Roberto Alvarez; Ricardo Lopez
  4. Testing Creative Destruction in an Opening Economy : the Case of the South African Manufacturing Inudstries By Philippe Aghion; Johannes Fedderke; Peter Howitt; Chandana Kularatne; Nicola Viegi
  5. Reducing poverty and hunger in Asia: By Islam, Nurul ed.
  6. Biological versus Foster Children Education : the Old-Age Support Motive as a Catch-up Determinant ? Some Evidence from Indonesia By Karine Marazyan
  7. How should donors give foreign aid? Project aid versus budget support By Izabela Jelovac; Frieda Vandeninden
  8. Who Are the Microenterprise Owners? Evidence from Sri Lanka on Tokman v. de Soto By de Mel, Suresh; McKenzie, David; Woodruff, Christopher
  9. Cyclical Movements in Unemployment and Informality in Developing Countries By Bosch, Mariano; Maloney, William F.
  10. Informality and Macroeconomic Fluctuations By Fiess, Norbert M.; Fugazza, Marco; Maloney, William F.
  11. Fertility in Sub-Saharan African Countries with Consideration to Health and Poverty By Jeon, Yongil; Rhyu, Sang-Young; Shields, Michael P.
  12. School Attendance of Children and the Work of Mothers: A Joint Multilevel Model for India By Francavilla, Francesca; Giannelli, Gianna Claudia; Grilli, Leonardo
  13. Using Achievement Tests to Measure Language Assimilation and Language Bias among Immigrant Children By Akresh, Richard; Redstone Akresh, Ilana
  14. The Racial Saving Gap Enigma: Unraveling the Role of Institutions By Belton, Willie; Uwaifo Oyelere, Ruth
  15. The Role of Educational Choice in Occupational Gender Segregation: Evidence from Trinidad and Tobago By Sookram, Sandra; Strobl, Eric
  16. Allocation of Labour in Urban West Africa: Implication for Development Policies By Dimova, Ralitza; Nordman, Christophe Jalil; Roubaud, François
  17. Migration, the Quality of the Labour Force and Economic Inequality By Kahanec, Martin; Zimmermann, Klaus F.
  18. Family Migration: A Vehicle of Child Morbidity in the Informal Settlements of Nairobi City, Kenya? By Konseiga, Adama
  19. Human Capital, Economic Growth, and Regional Inequality in China By Fleisher, Belton M.; Li, Haizheng; Zhao, Min Qiang
  20. Good Governance and Good Aid Allocation By Epstein, Gil S.; Gang, Ira N.
  21. "Deficient Public Infrastructure and Private Costs Evidence from a Time-Use Survey for the Water Sector in India" By Lekha S. Chakraborty

  1. By: Joseph F. Francois; Hugo Rojas-Romagosa
    Abstract: We reassess the empirical relevance of the Kuznets Curve with a new inequality dataset. Using panel data estimations that account for the heterogeneity of inequality observations, we test for both the unconditional and the conditional hypothesis that includes alternative inequality determinants. We find that inequality and income levels are related in a cubic function or "tilde-pattern". This novel finding does not contradict the traditional Kuznets hypothesis, but extends it. Increasing inequality in OECD countries during recent years suggests that inequality rises at high levels of economic development. This "tilde-pattern" is robust to different inequality indicators, estimation techniques and control variables.
    Keywords: D31; O15
    Date: 2008–06
  2. By: Pedro de Araujo (Indiana University Bloomington)
    Abstract: Using data from the National Family Health Surveys (NFHS-3), this paper analyzes the socioeconomic correlates of sexual behavior, HIV/AIDS knowledge and stigma in India. The main findings are that, overall, the Indian population is faithful and abstains from sex with very small variations across socioeconomic classes. However, given the large size of the population, there is still room for some concern as condom use is low, knowledge about the disease is poor, and stigma is high; especially with respect to less educated, poorer, single males and women in general. Obvious policy recommendations are; therefore, to increase condom distribution and awareness, increase very heavily HIV/AIDS basic education, and promote women empowerment with respect to sexual choices.
    Keywords: HIV/AIDS, Condom, Stigma, India
    JEL: C13 C25 O53
    Date: 2008–07
  3. By: Roberto Alvarez (Central Bank of Chile); Ricardo Lopez (Indiana University Bloomington)
    Abstract: This paper examines the effect of changes in the real exchange rate on skill upgrading in the case of Chile. Using plant-level data from the manufacturing sector we find that a real depreciation increases the share of skilled workers in the total wage bill in exporters but not in non-exporters. This result suggests that depreciations or, more generally, increases in export profitability, may induce exporters to adopt more skilled-intensive technologies. This finding gives support to recent models of trade that highlight the possible effect of the real exchange rate on skill upgrading and wage inequality. This paper also finds that real depreciations increase the probability of exporting and the export intensity of plants that export, suggesting that these two channels may explain why changes in the real exchange rate may affect wages.
    JEL: F14 F16 O30 O54
    Date: 2008–07
  4. By: Philippe Aghion; Johannes Fedderke; Peter Howitt; Chandana Kularatne; Nicola Viegi
    Date: 2008
  5. By: Islam, Nurul ed.
    Abstract: Investment Priorities for Economic Growth and Poverty Reduction in Asia Shenggen Fan, Joanna Brzeska, and Ghada Shields
    Keywords: Agricultural development, Rural development, Hunger, Poverty reduction, economic growth, Agricultural policy, Technology transfer, infrastructure, Decentralization, rural areas, Millennium Development Goals, Sustainable development, Climate change,
    Date: 2008
  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: 2008–07
  7. By: Izabela Jelovac (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Frieda Vandeninden (MGSoG - Maastricht Graduate School of Governance - Universiteit Maastricht)
    Abstract: We develop a theoretical model to compare the two major foreign aid modalities: project aid and budget support. These two modalities have a different impact on the production of ‘developmental goods’. Firstly, conditionality can be associated with budget support, but only a subset of the developmental expenses – the observable ones – can be subject to conditionality. Secondly, when using project aid, the donors control the overall allocation of the aid resources. However, we consider that, because of limited harmonisation and coordination, project aid can be associated with a cost of imperfect fit. We develop a unified framework to compare these two modalities where we allow the simultaneous utilisation of both instruments. We show that all the aid should be given via budget support, no matter whether conditionality is used or not. Furthermore, we show that the optimal use of conditionality depends on the recipient’s developmental preferences, the productivity of the inputs and the level of aid compared to the recipient’s budget: when these parameters are relatively high, conditionality should be enforced. Otherwise, the optimal aid allocation is such that all the aid is given through unconditional budget support. We conclude that conditionality does not always improve the aid effectiveness.
    Keywords: conditionality - foreign aid - optimal contract
    Date: 2008
  8. By: de Mel, Suresh (University of Peradeniya); McKenzie, David (World Bank); Woodruff, Christopher (University of California, San Diego)
    Abstract: Is the vast army of the self-employed in low income countries a source of employment generation? We use data from surveys in Sri Lanka to compare the characteristics of own account workers (non-employers) with wage workers and with owners of larger firms. We use a rich set of measures of background, ability, and attitudes, including lottery experiments measuring risk attitudes. Consistent with the ILO’s views of the self employed (represented by Tokman), we find that 2/3rds to 3/4ths of the own account workers have characteristics which are more like wage workers than larger firm owners. This suggests the majority of the own account workers are unlikely to become employers. Using a two and a half year panel of enterprises, we show that the minority of own account workers who are more like larger firm owners are more likely to expand by adding paid employees. The analysis suggests that finance is not the sole constraint to growth of microenterprises, and provides an explanation for the low rates of growth of enterprises supported by microlending.
    Keywords: entrepreneurship, self-employment, De Soto
    JEL: O17 L26
    Date: 2008–05
  9. By: Bosch, Mariano (University of Alicante); Maloney, William F. (World Bank)
    Abstract: This paper analyzes the cyclical properties of worker flows in Brazil and Mexico, two important developing countries with large unregulated or “informal” sectors. It generates three stylized facts that are critical to the accurate modeling of the sector and which suggest the need to rethink the approaches to date. First, the unemployment rate is countercyclical essentially because job separations of informal workers increase dramatically in recessions. Second, the share of formal employment is countercyclical because of the difficulty of finding formal jobs from inactivity, unemployment and other informal jobs during recessions rather than because of increased separation from formal jobs. Third, flows from formality into informality are not countercyclical, but, if anything, pro-cyclical. Together, these challenge the conventional wisdom that has guided the modeling the sector that informal workers are primarily those rationed out of the formal labor market. They also offer a new synthesis of the mechanics of the cyclical adjustment process. Finally, the paper offers estimates of the moments of worker flows series that are needed for calibration.
    Keywords: gross worker flows, labor market dynamics, informality, developing countries
    JEL: J41 J42 J6
    Date: 2008–05
  10. By: Fiess, Norbert M. (University of Glasgow); Fugazza, Marco (UNCTAD); Maloney, William F. (World Bank)
    Abstract: This paper examines the adjustment of developing country labor markets to macroeconomic shocks. It models as having two sectors: a formal salaried (tradable) sector that may or may not be affected by union or legislation induced wage rigidities, and an informal (nontradable) self-employment sector facing liquidity constraints to entry. This is embedded in a standard small economy macro model that permits the derivation of patterns of comovement among relative salaried/self-employed incomes, salaried/self-employed sector sizes and the real exchange rate with respect to different types of shocks in contexts with and without wage rigidities. The paper then explores time series data from Argentina, Brazil, Colombia and Mexico to test for cointegrating relationships corresponding to the patterns predicted by theory. We confirm episodes of expansion of informal self-employment consistent with the traditional segmentation views. However, we also identify episodes consistent with the sectoral expansion being driven by relative demand or productivity shocks to the nontradables sector that lead to “procyclical” behavior of the informal self-employed sector.
    Keywords: informality, labor market dynamics, self-employment, real exchange rates
    JEL: F41 J21 J24 J31 O17
    Date: 2008–05
  11. By: Jeon, Yongil (Central Michigan University); Rhyu, Sang-Young (Yonsei University); Shields, Michael P. (Central Michigan University)
    Abstract: Fertility has begun to fall in Sub-Saharan Africa but it remains high on average and particularly for a few countries. This paper examines African fertility using a panel data set of 47 Sub-Saharan countries between 1962 and 2003. Fixed and random country effect estimates are made in models where the explanatory variables are suggested by the theory of the demographic transition as modified by Caldwell. Special attention is paid to the economic status of women, urbanization, the poverty level, and the health of the population including total health expenditures and the prevalence of HIV/AIDS. The results support Caldwell’s hypothesis and are generally supportive of hypothesis that a fertility transition is occurring. HIV/AIDS is found to have a negative impact on fertility.
    Keywords: Africa, infant mortality, fertility, poverty, health
    JEL: J13 O10 O55
    Date: 2008–06
  12. By: Francavilla, Francesca (University of Florence); Giannelli, Gianna Claudia (University of Florence); Grilli, Leonardo (University of Florence)
    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: household allocation of time, women's work, children's schooling, random effects, India
    JEL: J13 J22 O15 O18
    Date: 2008–06
  13. By: Akresh, Richard (University of Illinois at Urbana-Champaign); Redstone Akresh, Ilana (University of Illinois at Urbana-Champaign)
    Abstract: We use Woodcock Johnson III child assessment data in the New Immigrant Survey to examine language assimilation and test score bias among children of Hispanic immigrants. Our identification strategy exploits the test language randomization (Spanish or English) to quantitatively measure the degree and speed of language assimilation, in addition to the potential costs associated with taking a test in one’s non-dominant language. We find that U.S. born children of Hispanic immigrants are not bilingual as predicted by most language assimilation models but rather are English dominant. English language assimilation occurs at a rapid pace for foreign born children as well; children who arrive in the U.S. at an early age or who have spent more than four years in the U.S. do not benefit from taking the tests in Spanish. Results are robust to a fixed effects specification that controls for household level characteristics constant across siblings.
    Keywords: immigration, language assimilation, New Immigrant Survey, Woodcock Johnson achievement tests
    JEL: J24 I20 J18 O15 F22
    Date: 2008–06
  14. By: Belton, Willie (Georgia Tech); Uwaifo Oyelere, Ruth (Georgia Tech)
    Abstract: It has been well documented in the literature that ethnicity matters significantly in the determination of savings. In particular, African-American savings lag far behind savings for other ethnic groups. Similarly, the literature also provides evidence of the long-lived nature of institutions and the link between institutions and culture. In this paper, we provide an explanation for the savings gap that still exists between African-Americans and White Americans even after accounting for appropriate factors that can lead to savings differentials. We initially provide evidence that the savings gap exists and persist after including several control variables in a regression analysis. We then provide evidence that the persistent gap can not be attributed solely to racial discrimination but can be explained by the response of culture to institutional scaffolding erected many years earlier. Using a novel within race decomposition we provide evidence that past institutions transmitted through culture can help to explain this persistent saving disparity.
    Keywords: savings gap, institutions, race, culture
    JEL: D14 D31 J15 J11 J71
    Date: 2008–06
  15. By: Sookram, Sandra (University of the West Indies, SALISES); Strobl, Eric (Ecole Polytechnique, Paris)
    Abstract: We analyse the role of educational choice on the degree of occupational segregation in Trinidad and Tobago during a period in which educational policies intent on equating gender opportunities in education were implemented. To this end we utilise waves of the Trinidad and Tobago labour force survey over the period 1991-2004. Our results show that while educational segregation has fallen substantially over our sample period, this has not translated into less occupational segregation. This suggests that the educational policy has not been sufficient to combat occupational segregation. However, results at a more disaggregated level show that experiences have been heterogeneous across educational and occupational groups.
    Keywords: educational choice, occupational segregation, gender
    JEL: I21 J16 J24
    Date: 2008–06
  16. By: Dimova, Ralitza (Brunel University); Nordman, Christophe Jalil (DIAL, Paris); Roubaud, François (DIAL, Paris)
    Abstract: With the use of comparable data from seven West African capitals, we attempt to assess the rationale behind development policies targeting high rates of school enrolment through the prism of allocation of labour and returns to skills across the formal and informal sectors. We find that people with high levels of education allocate to the small formal sector and receive high compensation for their education and experience. Less educated workers allocate to the informal sector. While self-employment reveals some characteristics of a sector of dynamic entrepreneurship, the characteristics of the informal salaried sector are closer to those of a sector of hidden unemployment, or a stepping stone for better jobs in the future.
    Keywords: returns to skills, allocation of labour, self-selection, informal sector, Sub-Saharan West Africa
    JEL: J24 J31 O12
    Date: 2008–06
  17. By: Kahanec, Martin (IZA); Zimmermann, Klaus F. (IZA, DIW Berlin and Bonn University)
    Abstract: Mobility of workers involves flows of labour, human capital and other production factors and thus contributes to a more efficient allocation of resources. Besides these effects on allocative efficiency, migrant flows affect relative wages and also change the international and national distribution of skills and thereby equality in the receiving society. This paper suggests that skilled immigration promotes economic equality in advanced economies under standard conditions. The context is theoretically explained in a core model and empirically documented using unique data from the WIID database and OECD.
    Keywords: inequality, income distribution, human capital, skill allocation, migration, ethnicity, minority, Gini-coefficient
    JEL: D33 E25 F22 J15 J61 O15
    Date: 2008–06
  18. By: Konseiga, Adama (IDEA International Institute)
    Abstract: Parental migration is often found to be negatively correlated with child health in Africa, yet the causal mechanisms are poorly understood. The paper uses a dataset that provides information from the respondent parent on child morbidity both in the rural and urban settings. Households first endogenously determine whether they will gain from participating in migration and, if they do, whether they will leave the children behind or not. The final choice is made to ensure the optimal survival chances for the child. This paper contributes to understanding the health consequences of raising the children in the context of increasing urban poverty in Nairobi, Kenya. The findings indicate that households who migrated together with their children in the slums of Nairobi experience higher child morbidity (43 per cent have at least one sick child in the last one month) as compared to households who leave children in their upcountry homes (31 per cent of morbidity rate). Even though children of migrants are safer upcountry, not all households can afford this strategy. Households are able to choose this strategy only if they have a strong social support network in their origin community and/or they are big size households. This is an important finding in targeting the Millennium Development Goals.
    Keywords: childhood morbidity, split migration, incidental truncation, informal settlements, Nairobi, Kenya
    JEL: C31 D13 I12 R23
    Date: 2008–06
  19. By: Fleisher, Belton M. (Ohio State University); Li, Haizheng (Georgia Tech); Zhao, Min Qiang (Ohio State University)
    Abstract: We study the dispersion in rates of provincial economic- and TFP growth in China. Our results show that regional growth patterns can be understood as a function of several interrelated factors, which include investment in physical capital, human capital, and infrastructure capital; the infusion of new technology and its regional spread; and market reforms, with a major step forward occurring following Deng Xiaoping’s “South Trip” in 1992. We find that FDI had much larger effect on TFP growth before 1994 than after, and we attribute this to emergence of other channels of technology transfer when marketization accelerated. We find that human capital positively affects output per worker and productivity growth. In particular, in terms of its direct contribution to production, educated labor has a much higher marginal product. Moreover, we estimate a positive, direct effect of human capital on TFP growth. This direct effect is hypothesized to come from domestic innovation activities. The estimated spillover effect of human capital on TFP growth is positive and statistically significant, which is very robust to model specifications and estimation methods. The spillover effect appears to be much stronger before 1994. We conduct cost-benefit analysis and a policy “experiment,” in which we project the impact of increases in human capital and infrastructure capital on regional inequality. We conclude that investing in human capital will be an effective policy to reduce regional gaps in China as well as an efficient means to promote economic growth.
    Keywords: China, TFP growth, economic growth, human capital, infrastructure
    JEL: O15 O18 O47 O53
    Date: 2008–07
  20. By: Epstein, Gil S. (Bar-Ilan University); Gang, Ira N. (Rutgers University)
    Abstract: We model the aid allocation decision where the donor government has announced that good governance is the criterion for receiving aid. Potential recipients must compete for the aid funds. The structure of the competition is important to the donor in terms of achieving good governance, and to the recipients in terms of what they receive. The leaders of potential recipient countries look at aid availability through this contest as part of the competing objectives they face – some good, some not good. The donor country prefers a contest under which the aid will only go to one country while the leaders of the receiving countries prefer that each country obtains the proportion of aid relative to its governance quality. If poverty reduction is an independent goal as well, a poverty trap may be created. With good governance as a criterion, donors may work through both bilateral and multilateral agencies.
    Keywords: foreign aid, governance, decentralization, rent seeking
    JEL: O10 O19 F35 O11 C23 O47 E21 E22
    Date: 2008–07
  21. By: Lekha S. Chakraborty
    Abstract: This paper presents new evidence on the links between public-infrastructure provisioning and time allocation related to the water sector in India. An analysis of time-use data reveals that worsening public infrastructure affects market work, with evident gender differentials. The results also suggest that access to public infrastructure can lead to substitution effects in time allocation between unpaid work and market work. The broad conclusion of the paper is that public-investment policy can redress intrahousehold inequalities, in terms of labor-supply decisions, by supporting initiatives that reduce the allocation of time in nonmarket work.
    Date: 2008–07

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