nep-dev New Economics Papers
on Development
Issue of 2008‒09‒20
27 papers chosen by
Jeong-Joon Lee
Towson University

  1. Too Sick To Start: Health of the Entrepreneur and Business Entry in Townships around Durban, South Africa By Li-Wei Chao; Helena Szrek; Nuno Sousa Pereira; Mark V. Pauly
  2. On the Theory of Ethnic Conflict By Francesco Caselli; Wilbur John Coleman II
  3. Family Income and Child Outcomes:The 1990 Cocoa Price Shock in Cote d'Ivoire By Denis Cogneau; Remi Jedwab
  4. Public Infrastructure, Location of Private Schools and Quality of Schooling in an Emerging Economy By Sarmistha Pal
  5. Socio-Economic Status, HIV/AIDS Knowledge and Stigma, and Sexual Behavior in India By Pedro de Araujo
  6. The Socio-Economic Distribution of AIDS Incidence and Output By Pedro de Araujo
  7. Industrial Upgrade, Employment Shock and Land Centralization in China By Shunfeng Song; Chengsi Wang; Jianghuai Zheng
  8. Culture and Human Capital Investments: Evidence of an Unconditional Cash Transfer Program in Bolivia By Yanez-Pagans, Monica
  9. Large Shocks and Small Changes in the Marriage Market for Famine Born Cohorts in China By Loren Brandt; Aloysius Siow; Carl Vogel
  10. Do Protestant Aid Organizations Aid Protestants Only? By Bengtsson, Niklas
  11. Achieving the MDGs in Kenya with some aid and reallocation of public expenditures By Kiringai, Jane; Levin, Jorgen
  12. Making the Most of Aid: Challenges for Africa’s Agribusiness By Jeff Dayton-Johnson; Kiichiro Fukasaku
  13. Effects of Subsidized Health Insurance on Newborn Health in Colombia By Adriana Camacho; Emily Conover
  14. Europeanisation Strategy of Chinese Companies: Its Perils and Promises By Filippov, Sergey; Saebi, Tina
  15. Internationalization trajectories - a crosscountry comparison: Are large Chinese and Indian companies different? By Fortanier, Fabienne; Tulder, Rob van
  16. India's Outward Foreign Direct Investments in Steel Industry in a Chinese Comparative Perspective By Kumar, Nagesh; Chadha, Alka
  17. Structural Differences in Economic Growth By Nalan Basturk; Richard Paap; Dick van Dijk
  18. A Framed Field Experiment on Collective Enforcement Mechanisms with Ethiopian Farmers By Reichhuber, Anke; Camacho, Eva; Requate, Till
  19. Adverse Selection and Entrepreneurship in a Model of Development By Esteban Jaimovich
  20. Philippine Economic Development: A Turning Point? By Kelly Bird; Hal Hill
  21. Education and Economic Development in India By Monojit Chatterji
  22. Inequality and Growth Revisited By Barro, Robert J.
  23. Economic liberalization and constraints to development in sub-Saharan africa By Jomo Kwame Sundaram; Rudiger von Arnim
  24. Status, endogenous reference standards, and the growth-inequality relation: A note By Tournemaine, frederic; Tsoukis, Chris
  25. The Efficacy of Parochial Politics: Caste, Commitment, and Competence in Indian Local Governments By Kaivan Munshi; Mark Rosenzweig
  26. How Does FDI in East Asia Affect Performance at Home?: Evidence from Electrical Machinery Manufacturing Firms By MATSUURA Toshiyuki; MOTOHASHI Kazuyuki; HAYAKAWA Kazunobu
  27. Mapping Poverty in Rural China: How Much Does the Environment Matter? By Susan Olivia; John Gibson; Scott Rozelle; Jikun Huang; Xiangzheng Deng

  1. By: Li-Wei Chao (Population Studies Department, University of Pennsylvania); Helena Szrek (CETE, Faculdade de Economia, Universidade do Porto); Nuno Sousa Pereira (CETE, Faculdade de Economia, Universidade do Porto); Mark V. Pauly (Health Care Systems Department, The Wharton School, University of Pennsylvania)
    Abstract: Small businesses contribute a substantial share of economic activity in all countries, and may be an engine for job creation in developing economies. Unlike large firms with management teams, small businesses are usually run by one key person, the owner-entrepreneur, who bears almost all of the risks and who makes almost all of the decisions related to the business. Because the owner-entrepreneur also embodies most of the firm-specific knowledge capital, health of the owner-entrepreneur is an important factor contributing to the production process. Following a cohort of respondents with and without small businesses around Durban, South Africa, over a three-year period, our prior study found that poor baseline health and deteriorations in the health of the owner-entrepreneur were strongly associated with subsequent business exit. In the current study, we examined the relationship between an individual’s physical health and the decision to start a business. Our results suggest that respondents who were recent business entrants were in better health than respondents who did not start new businesses. Moreover, respondents without a business at the beginning of the study but who later opened businesses during the three-year study interval were significantly more likely to have better health before business entry than those respondents who never started a new business. Hence, good health among entrepreneurs seems to be an important prerequisite to both small business survival and small business entry.
    Keywords: South Africa; small businesses; business entry; health; entrepreneur
    JEL: I12
    Date: 2008–09
  2. By: Francesco Caselli; Wilbur John Coleman II
    Abstract: We present a theory of ethnic conflict in which coalitions formed along ethnic lines compete for the economy’s resources. The role of ethnicity is to enforce coalition membership: in ethnically homogeneous societies members of the losing coalition can defect to the winners at low cost, and this rules out conflict as an equilibrium outcome. We derive a number of implications of the model relating social, political, and economic indicators such as the incidence of conflict, the distance among ethnic groups, group sizes, income inequality, and expropriable resources.
    Date: 2008–06
  3. By: Denis Cogneau; Remi Jedwab
    Abstract: We study the drastic cut of the administered cocoa producer price in 1990 Cote d'Ivoire and investigate the extent to which cocoa producers' children suffered from this severe income shock in terms of school enrollment, increased labor, height stature and sickness. Comparing pre-crisis (1986-1988) data and post-crisis (1993) data, we propose a difference-in-difference within-village strategy in order to identify the causal effect of family income on children outcomes. We find a strong impact of family income variation for the four variables we examine.
    Date: 2008–07
  4. By: Sarmistha Pal
    Abstract: The present paper argues that local public infrastructure exerts a significant and positive effect on the presence of private school as well as the quality of schooling in the Indian villages. Given historical distribution of land and ethnic composition, villages with more unequal distribution of land are more likely to have better access to public infrastructure (for given level of ethnic fractionalization), which in turn enhances the likelihood of having a private school in the village. Results using PROBE survey of household-, school- and village-level data from five north Indian states provide some support to this central hypothesis. There is also evidence that the quality of overall schooling is generally better in villages with a private school; rise of private schools however fails to affect the quality of local state schools.
    Date: 2008–05
  5. By: Pedro de Araujo (Colorado College)
    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: 2008–09
  6. By: Pedro de Araujo (Colorado College)
    Abstract: This paper investigates the effect of HIV/AIDS on steady state output in an overlapping generations economy calibrated to resemble sub-Sahara Africa. I use skill heterogeneity as a proxy for socioeconomic status and test scenarios where the AIDS epidemic affects skills differently. The results indicate that the effects of the epidemic are sensitive to the distribution of the disease across skills. In general, the effect is much greater as the epidemic mainly affects skilled workers. Output is found to be below a no-AIDS output in a range between 3% (10%), when only unskilled workers are affected, and 10% (28%), when only skilled workers affected, whenever the overall infection rate is 7% (20%). When investigating the hypothesis that AIDS affects skilled workers more severely than unskilled at the beginning of the epidemic, with the effect switching as the epidemic becomes more mature, the findings are that the economy can be 8% smaller along the transition path. In all scenarios where the epidemic is temporary, it would take 4 to 5 generations or about 90 years for sub-Saharan Africa to recover.
    Keywords: HIV/AIDS, capital-skill complementarity, heterogeneity, and sub-Sahara Africa
    JEL: E20
    Date: 2008–09
  7. By: Shunfeng Song (Department of Economics, University of Nevada, Reno); Chengsi Wang (Department of Economics, University of New South Wales); Jianghuai Zheng (Department of Economics, Nanjing University)
    Abstract: This paper investigates the relationships among industrial upgrading, mid-aged peasants’ non-farm employment, and land conversion systems. We prove that China’s efforts to upgrade its industries generate a negative employment shock on mid-aged peasant workers, forcing some of them to return to their home villages. The current lump-sum land acquisition system, however, will neither help peasant workers deal with the adverse employment shock nor promote land centralization for industrial and urban uses. On contrary, land cooperation, an emerging land centralization system, will help peasant workers mitigate the adverse employment shock and centralize rural land for nonagricultural purposes.
    Keywords: Peasant workers; Industrial upgrade; Employment; Land centralization
    JEL: Q15 J43
    Date: 2008–09
  8. By: Yanez-Pagans, Monica (University of Illinois at Urbana-Champaign)
    Abstract: This paper uses a policy quasi-experiment created by the introduction of an old-age unconditional cash transfer program in Bolivia to study the intra-household income allocation process towards children's educational expenditure by ethnicity and gender of the recipient. Taking advantage of a sharp discontinuity created by the program assignment mechanism, I investigate the heterogeneity in the patterns of allocation within indigenous, multiethnic, and non-indigenous families, conditional on having one elder and one school-age child living in the household. I find that cultural factors (proxied by ethnicity) count in the decision making process of human capital investments. In particular, the allocation of resources within indigenous families follows rules closely related to patriarchal family structures (in which women have limited decision-making power) and is consistent with unitary, dictatorial, and common preferences theoretical household models. Conversely, non-indigenous families follow decision rules more closely related to collective and bargaining behavior models.
    Keywords: Bolivia, culture, Bolivida, educational expenditure
    JEL: H55 O15 I12 D12
    Date: 2008–09
  9. By: Loren Brandt; Aloysius Siow; Carl Vogel
    Abstract: Between 1958 and 1961, China experienced one of its worst famines in history. Birth rates plummeted during these years, but recovered immediately afterwards. The famine-born cohorts were relatively scarce in the marriage and labor markets. The famine also adversely affected the health of these cohorts. This paper decomposes these two effects on the marital outcomes of the famine-born and adjacent cohorts in the rural areas of two hard hit provinces, Sichuan and Anhui. Individuals born pre and post-famine, who were in surplus relative to their customary spouses, were able to marry. Using the Choo Siow model of marriage matching, the paper shows that the famine substantially reduced the marital attractiveness of the famine born cohort. The modest decline in educational attainment of the famine born cohort does not explain the change in spousal quality of that cohort. Thus, the famine-born cohort, who were relatively scarce compared with their customary spouses, did not have significant above average marriage rates.
    Keywords: famine, marriage market, Choo Siow, China
    JEL: J1 O1
    Date: 2008–09–08
  10. By: Bengtsson, Niklas (Department of Economics)
    Abstract: We estimate the impact of a village-level assistance program run by the Evangelical Lutheran Church of Tanzania on literacy and schooling. The programs are partly funded by official development assistance from the US and EU. Villages in northwestern Tanzania are economically isolated but are still characterized a non-trivial degree of religious diversity. This setting allows us to study whether development assistance can spill over within villages, across religious affliation, while maintaining that treatment externalities between villages are mar- ginal. We find that the program increased literacy by 15-20 percent and primary schooling by 10-15 percent, but only among Protestant children. Catholic children living in the same targeted villages were virtually unaffected.
    Keywords: Faith-based foreign aid; Impact evaluation; Religion; Sub-Saharan Africa
    JEL: F35 O12
    Date: 2008–09–10
  11. By: Kiringai, Jane (European Commission, Kenya); Levin, Jorgen (Department of Business, Economics, Statistics and Informatics)
    Abstract: Kenya has ascribed to the Millennium Declaration and is already in the process of mobilising resources and instituting measures to achieve Millennium Development Goals (MDGs). A MDGs status report on Kenya indicates that progress has been made towards achieving the goal of universal primary education. However, the Government will need to scale-up its efforts beyond the current momentum, if the other goals are to be realised by 2015. A preliminary conclusion is that the resource requirements are not extremely large to reach the MDGs in Kenya. If the resources are effectively used and targeted to MDG sectors they could have a substantial impact on whether Kenya would reach the MDGs or not. Some targets seem to be easier to reach than others. The target of 100 percent completion in primary school can be achieved with some additional resources targeted to the primary sector. However, a substantial increase of resources is needed at secondary and tertiary level of education to reach other goals set by the Kenyan government. Even if higher investment in all MDGsectors is needed the water sector seems to be requiring a substantial increase compared to what have been invested in the past. With regard to poverty our results show that annual average real GDP growth rate of around 8 percent would be enough to meet the poverty target of reducing the number of poor by half.
    Keywords: Millennium; Development; Goals; Kenya; Aid; CGE
    JEL: F35 O11 O55
    Date: 2008–09–09
  12. By: Jeff Dayton-Johnson; Kiichiro Fukasaku
    Abstract: Aid and trade policies – in OECD countries and in developing countries – might reinforce each other to promote development, or they might be substitutes: the sign of the correlation between trade and aid flows depends on the context. East Asia’s rapid growth demonstrates the important development impact of the trade-aid link. While aid has played a strong complementary role for trade development in Viet Nam, for example, the current impasse of African cotton producers is emblematic of trade and aid policies working at cross purposes. The experience of six African countries reviewed in this brief highlights the case for development assistance that aims to eliminate bottlenecks preventing a greater and deeper African participation in the global trading system. The scaling-up of aid, macroeconomic stability and trade expansion are compatible and the ongoing international “aid for trade” initiative will remain critically relevant for African development in the coming decades.
    Date: 2008–08–01
  13. By: Adriana Camacho; Emily Conover
    Abstract: Colombia's rapid expansion of health insurance coverage in the 1990s provides an opportunity to evaluate whether health insurance coverage positively affects health care usage and outcomes. We use the discontinuity in eligibility for the Subsidized Regime (SR), the subsidized health insurance for the poor, to see if the Subsidized Regime increased the incidence of doctor assisted births, prenatal care, and hospital deliveries; and if it improved newborn health measured by birth weight, gestation period, Apgar score and incidence of low (lbw) and very low birth weight (vlbw). We find that the Subsidized Regime had positive effects on newborn birth weight, but although positive, not consistently significant effects on other health measures or access to medical personnel and facilities.
    Date: 2008–08–14
  14. By: Filippov, Sergey (UNU-MERIT); Saebi, Tina (UNU-MERIT)
    Abstract: The magnitude of outward FDI from China over the recent years has been impressive. It is widely acknowledged that China's government plays an active role in encouraging its companies to go global and become multinational as they realise the value of outward FDI. The paper traces the development of China's outward direct investment policies and discusses the various motives of Chinese companies' internationalisation. More specifically, in this paper we look at the European continent as the emerging destination for Chinese outward direct investment and analyse the implication this trend has for European companies and governments.
    Keywords: E61, F23, O52
    Date: 2008
  15. By: Fortanier, Fabienne (University of Amsterdam Business School); Tulder, Rob van (Rotterdam School of Management, Erasmus University Rotterdam)
    Abstract: This paper explores whether the internationalization trajectories - patterns over time in the level, pace, variability and temporal concentration of international expansion - of large firms from China and India are fundamentally different from those of developed country firms. A longitudinal cross-country comparative study of 256 large firms for the 1990-2004 period shows that, although internationalization trajectories of large and leading Chinese and Indian firms are indeed different, there are also considerable similarities between established developed country firms and the new firms from emerging markets, not in the least because they often interact within the same sector
    Keywords: Internationalization trajectories, Transnationality Index (TNI), longitudinal research, crosscountry comparison
    JEL: F21 F23 M19
    Date: 2008
  16. By: Kumar, Nagesh (Research and Information Systems); Chadha, Alka (Department of South Asian Studies, National University of Singapore)
    Abstract: Indian and Chinese enterprises have emerged as important outward investors in recent times with their involvement in a number of prominent Greenfield investments and acquisitions. The theory of international business posits that the ownership of some unique advantages having a revenue generating potential abroad combined with the presence of internalization and locational advantages leads to outward FDI. Conventional MNEs based in the industrialized countries have grown on the strength of ownership advantages derived from innovatory activity that is largely concentrated in these countries. It examines the case of steel industry that has become an important sector of overseas activity for Chinese and Indian companies with a string of major acquisitions of foreign MNEs for acquiring footprints and natural resources in order to identify the sources of ownership advantages and strategies of outward investments from emerging countries.
    Keywords: FDI outflows, steel, India
    JEL: O1 L61
    Date: 2008
  17. By: Nalan Basturk (Erasmus University Rotterdam); Richard Paap (Erasmus University Rotterdam); Dick van Dijk (Erasmus University Rotterdam)
    Abstract: This paper addresses heterogeneity in determinants of economic growth in a data-driven way. Instead of defining groups of countries with different growth characteristics a priori, based on, for example, geographical location, we use a finite mixture panel model and endogenous clustering to examine cross-country differences and similarities in the effects of growth determinants. Applying this approach to an annual unbalanced panel of 59 countries in Asia, Latin and Middle America and Africa for the period 1971-2000, we can identify two groups of countries in terms of distinct growth structures. The structural differences between the country groups mainly stem from different effects of investment, openness measures and government share in the economy. Furthermore, the detected segmentation of countries does not match with conventional classifications in the literature.
    Keywords: Economic growth; parameter heterogeneities; latent class models; panel time series
    JEL: C32 C33 O4 O57
    Date: 2008–09–12
  18. By: Reichhuber, Anke; Camacho, Eva; Requate, Till
    Abstract: We present the results of a framed field experiment with Ethiopian farmers that use the mountain rain forest as a common pool resource. Harvesting honey causes damage to the forest, and open access leads to overharvesting. We test different mechanisms for mitigating excessive harvesting: a collective tax with low and high tax rates, and a tax/subsidy system. We find that the high-tax scheme works best in inducing the desired level of harvesting while the tax-subsidy scheme may trigger tacit collusion. Via a panel data analysis we further investigate which variables influence the subjects’ decisions during the treatments.
    Keywords: common pool resources, collective tax, framed field experiment
    Date: 2008
  19. By: Esteban Jaimovich
    Abstract: This paper presents a theory in which risk-averse heterogeneously talented entrepreneurs are the key agents driving the process of development and modernisation. Entrepreneurial skills are private information, which prevents full risk sharing. In that setup, development to a modern industrial economy might fail to take place, since potentially talented entrepreneurs may refrain from taking on the entrepreneurial risks as a way to avoid income shocks. An interesting feature of the model is that the informational asymmetries in the economy are endogenous to the process of development, as they are related to the heterogeneity in entrepreneurial skills required in the manufacturing activities.
    Keywords: Adverse Selection, Development, Entrepreneurship, Risk-Sharing
    JEL: O12 O16 D81 D82
    Date: 2008
  20. By: Kelly Bird; Hal Hill
    Abstract: Notwithstanding its sometimes negative international image, the Philippine economy has been performing well in recent years. The country is currently experiencing its longest period - five years - of uninterrupted positive per capita economic growth since the 1970s. The key to the recent success is that, since the deep economic and political crisis of 1985-86, the reformers have been able to enact and institutionalize enough major policy victories to satisfy the business community that they are a more or less permanent feature of the country’s political economy architecture. Two in particular stand out: an independent and high quality central bank, BSP, ensuring that monetary and exchange rate policy continue to function effectively, and trade policy reform that has resulted in a much more open economy. Against this backdrop, we examine the recent growth record, and link it to macroeconomic management, trade policy, microeconomic reform and governance. We also examine social indicators, drawing attention to the recent and puzzling disconnect between trends in economic growth and poverty, and to the large regional disparities in poverty incidence.
    Keywords: The Philippines, economic policy, economic reform, poverty
    JEL: N15 O53
    Date: 2008
  21. By: Monojit Chatterji
    Abstract: This brief survey examines the returns to education in India , and then examines the role of education on both economic growth and economic development with particular reference to India. Throughout, the objective is to draw out the implications of the empirical results for education policy. The results suggest that female education is of particular importance in India. They also suggest that perhaps because of the externalities it generates, primary education is more important than might be deduced from its relatively low private rate of return.
    Keywords: education, economic growth, economic development
    JEL: I2 O53
    Date: 2008–02
  22. By: Barro, Robert J. (Harvard University)
    Abstract: This paper updates and extends the work of Barro (2000). International data confirm the presence of the Kuznets curve-an inverse-U shape relationship between income inequality and per capita GDP-that is relatively stable from the 1960s into the 2000s. The direct effect of international openness on income inequality is also found to be positive. On the other hand, a cross-country-growth equation shows a negative effect of income inequality on economic growth, holding fixed a familiar set of other explanatory variables. This effect diminishes as per capita GDP rises and may be positive for the richest countries.
    Keywords: inequality; growth; Kuznets curve; Gini coefficient
    JEL: I31 O47
    Date: 2008–01–01
  23. By: Jomo Kwame Sundaram; Rudiger von Arnim
    Abstract: This paper critically reviews the impact of globalization on Sub-Saharan Africa (SSA) since the early 1980s. The large gains expected from opening up to international economic forces have, to date, been limited, and there have been significant adverse consequences. FDI in SSA has been largely confined to resource, especially mineral, extraction, even as continuing capital flight has reduced financial resources available for productive investments. Premature trade liberalization has further undermined prospects for SSA economic development as productive capacities in many sectors are not sufficiently competitive to take advantage of any improvements in market access.
    Keywords: Development, Agriculture, Africa, Trade liberalization, FDI, Bretton Woods Institutions
    JEL: O1 O2 O55
    Date: 2008–09
  24. By: Tournemaine, frederic; Tsoukis, Chris
    Abstract: We develop an endogenous growth model with heterogeneous agents who care about their status in society. Following the social psychology literature, we formalise the idea that the reference standard to which people compare themselves is a choice variable. In such a framework, we analyse the determinants of the choice of the reference standard and their effects on growth and distribution. We show that low skilled individuals can end up with a higher level of income than high skilled individuals if their level of ambition is high enough. This is because what matters for the choice of reference standard and inequality is the combination of skills and ambitions of individuals. Moreover, as skills and ambitions affect positively growth, we find that growth and inequalities can be either negatively or positively correlated.
    JEL: O41
    Date: 2008–09–11
  25. By: Kaivan Munshi; Mark Rosenzweig
    Abstract: Parochial politics is typically associated with poor leadership and low levels of public good provision. This paper explores the possibility that community involvement in politics need not necessarily worsen governance and, indeed, can be efficiency-enhancing when the context is appropriate. Complementing the new literature on the role of community networks in solving market problems, we test the hypothesis that strong traditional social institutions can discipline the leaders they put forward, successfully substituting for secular political institutions when they are ineffective. Using new data on Indian local governments at the ward level over multiple terms, and exploiting the randomized election reservation system, we find that the presence of a numerically dominant sub-caste (caste equilibrium) is associated with the selection of leaders with superior observed characteristics and with greater public good provision. This improvement in leadership competence occurs without apparently diminishing leaders' responsiveness to their constituency.
    JEL: D72 H1 O12
    Date: 2008–09
  26. By: MATSUURA Toshiyuki; MOTOHASHI Kazuyuki; HAYAKAWA Kazunobu
    Abstract: This paper pinpoints the impact of Japanese electronic machinery FDIs on productivity at home. Our analysis is based on the activity level of firms and not on their ready-made level. For example, if a firm has more than two kinds of activities such as upstream activity and downstream activity, we treat these activities as different. Our empirical results are consistent with their theoretical predictions: the horizontal FDI of an activity does not necessarily have the same significant positive impact on the productivity of domestic activities as the invested activity. On the other hand, the vertical FDI of an activity significantly enhances both the level and growth of productivity in domestic activities that have an input-output relationship with the invested activity.
    Date: 2008–09
  27. By: Susan Olivia (University of California, Davis); John Gibson (University of Waikato); Scott Rozelle (Stanford University); Jikun Huang (Chinese Academy of Sciences); Xiangzheng Deng (Chinese Academy of Sciences)
    Abstract: In this paper, we apply a recently developed small-area estimation technique to derive geographically detailed estimates of consumption-based poverty and inequality in rural Shaanxi, China. We also investigate whether using environmental variables derived mainly from satellite remote sensing improves upon traditional approaches that only use household survey and census data. According to our results, ignoring environmental variables in statistical analyses that predict small-area poverty rates leads to targeting errors. In other words, using environmental variables both helps more accurately identify poor areas (so they should be able to receive more transfers of poor area funds) and identify non-poor areas (which would allow policy makers to reduce poverty funds in these better off areas and redirect them to poor areas). Using area-based targeting may be an efficient way to reach the poor since many counties and townships in rural Shaanxi have low levels of inequality, even though, on average, there is more within-group than between-group inequality. Using information on locations that are, in fact, receiving poverty assistance, our analysis also produces evidence that official poverty policy in Shaanxi targets particular areas which in reality are no poorer than other areas that do not get targeted.
    Keywords: China; environment; poverty; small area estimation
    JEL: O15 O53 P36 Q56
    Date: 2008–09–12

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