nep-dev New Economics Papers
on Development
Issue of 2008‒10‒28
twenty-six papers chosen by
Jeong-Joon Lee
Towson University

  1. The Democratic Transition. A study of the causality between income and the Gastil democracy index By Erich Gundlach; Martin Paldam
  2. Rain and the Democratic Window of Opportunity By Markus Brückner; Antonio Ciccone
  3. The Three Horsemen of Growth: Plague, War and Urbanization in Early Modern Europe By Nico Voigtländer; Joachim Voth
  4. How Do Heterogeneous Social Interactions Affect the Peer Effect in Rural-Urban Migration?: Empirical Evidence from China By Zhao Chen; Shiqing Jiang; Ming Lu; Hiroshi Sato
  5. Class Origin, Family Culture, and Intergenerational Correlation of Education in Rural China By Hiroshi Sato; Li Shi
  6. Does Public Investment Boost Economic Growth? Evidence from An Open-Economy Macro Model for India By Pal, Soubarna
  7. Two to Tangle: Financial Development, Political Instability and Economic Growth in Argentina (1896–2000) By Campos, Nauro F.; Karanasos, Menelaos G.; Tan, Bin
  8. Understanding Low Average Returns to Education in Africa: The Role of Heterogeneity across Education Levels and the Importance of Political and Economic Reforms By Uwaifo Oyelere, Ruth
  9. Does Gender Matter for Firm Performance? Evidence from Eastern Europe and Central Asia By Sabarwal, Shwetlena; Terrell, Katherine
  10. Tenure Security and Investments: Micro-evidence from Zimbabwe’s Fast Track Land Reform Programme By Zikhali, Precious
  11. Fast Track Land Reform and Agricultural Productivity in Zimbabwe By Zikhali, Precious
  12. Household Income As A Determinant of Child Labor and School Enrollment in Brazil: Evidence From A Social Security Reform By Irineu E. Carvalho Filho
  13. An Analysis of So-Called Export-led Growth By Jie Yang
  14. Public Financial Management and Fiscal Outcomes in sub-Saharan African Heavily-Indebted Poor Countries By Ezequiel Cabezon; Tej Prakash
  15. Beyond Macroeconomic Stability: The Quest for Industrialization in Uganda By Abebe Aemro Selassie
  16. Determinants of Government Efficiency By David Hauner; Annette Kyobe
  17. Trade Elasticities in the Middle East and Central Asia: What is the Role of Oil? By Andreas Billmeier; Dalia Hakura
  18. China's New Labour Contract Law:No Harm to Employment? By Yu-Fu Chen; Michael Funke
  19. Paul Krugman: Trade and Geography - Economies of Scale, Differentiated Products and Transport Costs By Committee, Nobel Prize
  20. Revisiting Economic Growth in Colombia: A Microeconomic Perspective By Arturo Harker
  21. The Chinese Meaning of Just War and Its Impact on the Foreign Policy of the People’s Republic of China By Nadine Godehardt
  22. Constraints to Economic Development and Growth in the Middle East and North Africa By Juliane Brach
  23. AIDS, Access to Medicines, and the Different Roles of the Brazilian and South African Governments in Global Health Governance By Jan Peter Wogart; Gilberto Calcagnotto; Wolfgang Hein; Christian von Soest
  24. Domestic resources, governance, global links, and the economic performance of Sub-Saharan Africa By Amavilah, Voxi Heinrich
  25. FDI and the labor share in developing countries: a theory and some evidence By Decreuse, Bruno; Maarek, Paul
  26. Imported Intermediate Inputs and Domestic Product Growth: Evidence from India By Pinelopi K. Goldberg; Amit Khandelwal; Nina Pavcnik; Petia Topalova

  1. By: Erich Gundlach; Martin Paldam (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: The paper considers the transformation of the political system as countries pass through the Grand Transition from a poor developing country to a wealthy developed country. In the process most countries change from an authoritarian to a democratic political system. This is shown by using the Gastil democracy index from Freedom House. First, the basic pattern of correlations reveals that a good deal of the short- to medium-run causality appears to be from democracy to income. Then a set of extreme biogeographic instruments is used to demonstrate that the long-run causality is from income to democracy. The long-run result survives various robustness tests. We show how the Grand Transition view resolves the seeming contradiction between the long-run and the short- to medium-run effects.
    Keywords: Paths of development, democracy, biogeography
    JEL: B25 O1
    Date: 2008–10–21
  2. By: Markus Brückner; Antonio Ciccone
    Abstract: According to the economic approach to political transitions, negative transitory economic shocks can open a window of opportunity for democratic change. Testing the theory requires a source of transitory shocks to the aggregate economy. We rely on rainfall shocks in Sub-Saharan African countries. Our analysis yields that negative transitory shocks lead to significant democratic change. A transitory 10 percent drop in income is followed by an improvement in democracy scores of 9 percentage points, and by an increase in the probability of a transition to democracy of 13 percentage points.
    Keywords: Democratization, transitory economic shocks
    JEL: O0 P0
    Date: 2008–10
  3. By: Nico Voigtländer; Joachim Voth
    Abstract: How did Europe overtake China? We construct a simple Malthusian model with two sectors, and use it to explain how European per capita incomes and urbanization rates could surge ahead of Chinese ones. That living standards could exceed subsistence levels at all in a Malthusian setting should be surprising. Rising fertility and falling mortality ought to have reversed any gains. We show that productivity growth in Europe can only explain a small fraction of rising living standards. Population dynamics – changes of the birth and death schedules – were far more important drivers of the longrun Malthusian equilibrium. The Black Death raised wages substantially, creating important knock-on effects. Because of Engel’s Law, demand for urban products increased, raising urban wages and attracting migrants from rural areas. European cities were unhealthy, especially compared to Far Eastern ones. Urbanization pushed up aggregate death rates. This effect was reinforced by more frequent wars (fed by city wealth) and disease spread by trade. Thus, higher wages themselves reduced population pressure. Without technological change, our model can account for the sharp rise in European urbanization as well as permanently higher per capita incomes. We complement our calibration exercise with a detailed analysis of intra-European growth in the early modern period. Using a panel of European states in the period 1300-1700, we show that war frequency can explain a good share of the divergent fortunes within Europe.
    Keywords: Malthus to Solow, Long-run Growth, Great Divergence, Epidemics, Demographic Regime
    JEL: E27 N13 N33 O14 O41
    Date: 2008–08
  4. By: Zhao Chen; Shiqing Jiang; Ming Lu; Hiroshi Sato
    Abstract: In this paper, we use the "2002 Chinese Household Income Project Survey" (CHIP2002) data to examine how heterogeneous social interactions affect the peer effect in the rural-urban migration decision in China. We find that the peer effect, measured by the village migration ratio, significantly increases the individual probability of outward migration. We also find that the magnitude of the peer effect is nonlinear, depending on the strength and type of social interactions with other villagers. Interactions in information sharing can increase the magnitude of the peer effect, while interactions in mutual help in labor activities, such as help in housing construction, nursing and farm work in busy seasons, will impede the positive role of the peer effect. Being aware of the simultaneity bias caused by the two-way causality between social interaction strengths and migration, we utilize "historical family political identity in land reform" as an instrumental variable for social interactions. However, the hypothesis that probit and instrumental-variable probit results are not significantly different is not rejected. The existence of a nonlinear peer effect has rich policy implications. For policy makers to encourage rural-urban migration, it is feasible to increase education investment in rural areas or increase information sharing among rural residents. However, only an increase in the constant term in the regression, i.e., a "big push" in improving institutions for migration, can help rural Chinese residents escape the low equilibrium in migration.
    Keywords: labor migration, urbanization, peer effect, social interaction, social multiplier
    JEL: J61 O15 R23
    Date: 2008–10
  5. By: Hiroshi Sato; Li Shi
    Abstract: This paper examines the intergenerational correlation of education in rural China. The focus is on the influence of family class origin (jiating chengfen), the political label hung on every family throughout the Maoist era. A nationally representative cross-sectional household survey for 2002 is used. It is shown that the effects of family class origin on family members' educational attainment varies across historical periods. Regarding the educational level of male heads of household with landlord/rich peasant background, we found a drop caused by the class-based discrimination in the Maoist era and a rebound in the postreform era. It was also found that family class origin remains significant for the educational achievement of the current younger generation. Children aged 16-18 who are of landlord/rich peasant and middle peasant origins are more likely to achieve higher educational attainment. We conclude that a class-specific, education-oriented family culture has been shaped first as a mixture of family cultural capital inherited from the pre-Maoist era and surfacing again in the postreform era, and, second, as intergenerational cultural reaction against class-based discrimination during the Maoist era.
    Keywords: education, intergenerational correlation, class origin, family culture, social discrimination
    JEL: D31 J24 N35 O15
    Date: 2008–10
  6. By: Pal, Soubarna
    Abstract: Using annual data for India for the period 1984-2003 and employing parametric technique (GMM), the present paper jointly determines GDP growth, real exchange rate and net foreign assets in Indian economy. There is evidence that public investment exerts a significant influence on real exchange rate and the growth rate and does so non-linearly. A comparison of the Indian estimates with those available for the UK and the USA economies is also revealing and highlights the role of governance on the effects of public investment.
    Keywords: Public investment; Economic growth; Real exchange rate; Simultaneous model; Generalised method of moments
    Date: 2008–10
  7. By: Campos, Nauro F. (Brunel University); Karanasos, Menelaos G. (Brunel University); Tan, Bin (Brunel University)
    Abstract: This paper investigates the effects of financial development and political instability on economic growth in a power-ARCH framework with data for Argentina from 1896 to 2000. Our findings suggest that (i) informal or unanticipated political instability (e.g., guerrilla warfare) has a direct negative impact on growth; (ii) formal or anticipated instability (e.g., cabinet changes) has an indirect (through volatility) impact on growth; (iii) the effect of financial development is positive and, surprisingly, not via volatility; (iv) the informal instability effects are much larger in the short- than in the long-run; and (v) the impact of financial development on economic growth is negative in the short- but positive in the long-run.
    Keywords: economic growth, financial development, volatility, political instability, power-ARCH
    JEL: C14 O40 E23 D72
    Date: 2008–10
  8. By: Uwaifo Oyelere, Ruth (Georgia Tech)
    Abstract: Until very recently, the conventional wisdom was that the return to education was very high in Africa. However, some recent analysis point to low average returns to education in some African countries including Nigeria. Given these low returns to education, a relevant question is what causes low returns or what can cause changes in returns to education? In this paper, I examine the hypothesis that economic and political reforms can lead to increased returns to schooling using the case of Nigeria. Following the sudden death of military general Sanni Abacha, Nigeria moved to democracy in 1999, ending an over 15 years stretch of military rule. This move was followed by significant institutional and economic reforms, which provide an opportunity to examine the short term impact of reforms on returns to education. The average return to education is estimated using instrumental variables exploiting a quasi experiment in Nigeria. The results provide evidence that reforms implemented post democracy in Nigeria led to a 2.6% point increase in average returns to education. Furthermore, I find that the low average return to schooling in Nigeria reflects more the low returns at the primary and secondary levels.
    Keywords: returns to education, wage reform, military, democratic reform
    JEL: J08 O12 O15 P5
    Date: 2008–10
  9. By: Sabarwal, Shwetlena (World Bank); Terrell, Katherine (University of Michigan)
    Abstract: Using 2005 firm level data for 26 ECA countries, this paper estimates performance gaps between male- and female-owned businesses, while controlling for their location by industry and country. We find that female entrepreneurs have significantly smaller scale of operations (as measured by sales revenues) and are less efficient in terms of Total Factor Productivity (TFP), although this difference is very small. However, they generate the same amount of profit per unit of revenue as men. We find that while both male and female entrepreneurs in ECA are sub-optimally small, women's returns to scale are significantly larger than men's implying that they would gain more from increasing their scale. We argue that the main reasons for the sub-optimal size of female-owned firms are that they are both capital constrained and concentrated in industries with small firms.
    Keywords: entrepreneurship, finance, gender, Eastern Europe, Central Asia
    JEL: D24 M21 O12 O16
    Date: 2008–10
  10. By: Zikhali, Precious (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: The government of Zimbabwe launched the Fast Track Land Reform Programme (FTLRP) in 2000 as part of its ongoing land reform and resettlement programme aimed at addressing a racially skewed land distribution. Its goal has been to accelerate both land acquisition and redistribution, targeting at least five million hectares of land for resettlement. This paper investigates the impact of the FTLRP on its beneficiaries’ perceptions of land tenure security, and how these subsequently impacted soil conservation investments. Evidence suggests that the programme created some tenure insecurity, which adversely affected soil conservation investments among its beneficiaries. We find support for the contention that households invest in land-related investments to enhance security of tenure. The results underscore the need for the government of Zimbabwe to clarify and formalise land tenure arrangements within the programme.<p>
    Keywords: Land reform; Tenure security; Investments; Zimbabwe
    JEL: O12 O13 Q15 Q24
    Date: 2008–10–21
  11. By: Zikhali, Precious (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: In the year 2000 the government of Zimbabwe launched the Fast Track Land Reform Programme (FTLRP) as part of its ongoing land reform and resettlement programme, which seeks to address the racially skewed land distribution pattern inherited at independence in 1980. This paper uses data on beneficiaries of the programme and a control group of communal farmers to investigate the programme’s impact on the agricultural productivity of its beneficiaries. The data reveals significant differences between the two groups, not only in household and parcel characteristics but also in input usage. The results suggest that FTLRP beneficiaries are more productive than communal farmers. The source of this productivity differential is found to lie in differences in input usage. In addition we find that FTLRP beneficiaries gain a productivity advantage not only from the fact that they use more fertiliser per hectare, but also from attaining a higher rate of return from its use. Furthermore we find evidence that soil conservation, among other factors, has a significant impact on productivity. Our results also confirm the constraints imposed on agricultural productivity by poverty, suggesting that policies aimed at alleviating poverty would have a positive impact on agricultural productivity.
    Keywords: Land reform; Agricultural productivity; Zimbabwe
    JEL: D24 Q12 Q15 Q18
    Date: 2008–10–21
  12. By: Irineu E. Carvalho Filho
    Abstract: This paper studies the effects of household income on labor participation and school enrollment of children aged 10 to 14 in Brazil using a social security reform as a source of exogenous variation in household income. Estimates imply that the gap between actual and full school enrollment was reduced by 20 percent for girls living in the same household as an elderly benefiting from the reform. Girls' labor participation rates reduced with increased benefit income, but only when benefits were received by a female elderly. Effects on boys' enrollment rates and labor participation were in general smaller and statistically insignificant.
    Keywords: Income distribution , Brazil , Labor , Women , Education , Social security , Human capital ,
    Date: 2008–10–07
  13. By: Jie Yang
    Abstract: The stylized fact that strong economic growth is usually accompanied with strong export growth leads many people to conclude that the export sector is the main driving force behind those episodes. The model in this paper, however, shows that the non-tradable sector may also generate high economic growth together with high export growth. Evidence shows that out of 71 "so-called" export-led growth episodes, only 37 of them are consistent with the "exports driving growth" hypothesis. Most of the remaining episodes (24 cases) experienced significant real exchange rate depreciation and are more likely to be characterized by "growth driving exports".
    Keywords: Economic growth , Exports , Real effective exchange rates , Labor productivity , Productivity , Economic models , Working Paper ,
    Date: 2008–09–15
  14. By: Ezequiel Cabezon; Tej Prakash
    Abstract: This paper examines, in a formal econometric framework, the linkages between public financial management and fiscal outcomes in sub-Saharan African countries. Similar analyses have been done for Latin America, Europe, and the United States, but none in the context of low-income countries. Using public financial management indicators, as measured in two recent assessments related to the Heavily-Indebted Poor Countries Initiative, this study shows that improving public financial management leads to better fiscal outcomes, as measured by the overall fiscal balance and external debt levels, after controlling for other characteristics that might alter fiscal outcomes.
    Keywords: Financial management , Sub-Saharan Africa , Heavily indebted poor countries , Fiscal sector , Public sector , Economic indicators , External debt , Economic models , Fiscal policy , Working Paper ,
    Date: 2008–09–15
  15. By: Abebe Aemro Selassie
    Abstract: Uganda has registered one of the most impressive economic turnarounds of recent decades. The amelioration of conflict and wide ranging economic reforms kick-started rapid economic growth that has now been sustained for some 20 years. But there is a strong sense in policy making circles that despite macroeconomic stability and reasonably well functioning markets, economic growth has not translated into significant structural transformation. This paper considers (i) Uganda's record of economic transformation relative to the high growth Asian countries and (ii) the contending explanations as to why more transformation and higher growth has proved elusive.
    Keywords: Financial stability , Uganda , Industrialization , Economic recovery , Economic reforms , Economic growth , Economic policy ,
    Date: 2008–10–01
  16. By: David Hauner; Annette Kyobe
    Abstract: We compile the first large cross-country panel dataset of public sector performance and efficiency, encompassing 114 countries on all income levels from 1980 to 2006, with about 1,800 country-year observations for the education sector and about 900 observations for health. We regress these indicators on potential economic, institutional, demographic, and geographic determinants. Our most resounding conclusion is that higher government expenditure relative to GDP tends to be associated with lower efficiency in the respective sector. Moreover, we find that richer countries exhibit better public sector performance and efficiency, and that institutional and demographic factors also play a significant role.
    Keywords: Government expenditures , Government accounting , Public sector , Economic indicators , Fiscal policy , Gross domestic product , Public finance , Economic growth , Economic models , Working Paper ,
    Date: 2008–09–30
  17. By: Andreas Billmeier; Dalia Hakura
    Abstract: The analysis in this paper suggests that import and export volume elasticities are markedly lower in oil-exporting Middle East and Central Asian countries than in non-oil countries in the region. A key implication of this finding is that a real appreciation of the exchange rate in oil-exporting countries would achieve little in terms of expenditure switching: an appreciation does not boost imports and non-oil exports constitute only a small share of GDP and total trade in these countries. Therefore, while a real appreciation lowers the current account surplus of oil-exporting countries through valuation effects, the contribution to lowering global imbalances may be more limited.
    Keywords: Middle East and Central Asia , Trade policy , Imports , Exports , Oil exporting countries , Exchange rate appreciation , Current account surpluses , Economic integration , Real effective exchange rates , Economic models , Working Paper ,
    Date: 2008–09–15
  18. By: Yu-Fu Chen; Michael Funke
    Abstract: In January 2008, China imposed a new labour contract law. This new law is the most significant reform to the law of employment relations in mainland China in more than a decade. The paper provides a theoretical framework on the inter-linkages between labour market regulation, option value and the choice and timing of employment. All in all, the paper demonstrates that the Labour Contract Law in it´s own right will have only small impacts upon employment in the fast-growing Chinese economy. On the contrary, induced increasing unit labour costs represent the real issue and may reduce employment.
    Keywords: China, Labour Contract Law, Real Options, Employment
    JEL: C61 D81 D92 J23
    Date: 2008–10
  19. By: Committee, Nobel Prize (Nobel Prize Committee)
    Abstract: Scientific Background, The Nobel Prize in Economic Sciences 2008. Over the centuries, international trade and the location of economic activity have been at the forefront of economic thought. Even today, free trade, globalization, and urbanization remain as commonplace topics in the popular debate as well as in scholarly analyses. Traditionally, trade theory and economic geography evolved as separate subfields of economics. More recently, however, they have converged become more and more united through new theoretical insights, which emphasize that the same basic forces simultaneously determine specialization across countries for a given international distribution of factors of production (trade theory) and the long-run location of those factors across countries (economic geography).
    Keywords: Trade; Geography;
    JEL: F10
    Date: 2008–10–13
  20. By: Arturo Harker
    Abstract: This paper revisits economic growth in Colombia using the growth diagnostics methodology proposed by Hausmann, Rodrik and Velasco (2005), to identify the most binding constraints for economic growth and the policies that, if implemented, can have the largest positive impact. To rank public policy priorities the HRV (2005) methodological approach is complemented with an econometric analysis of micro-data, aimed at exploring the impact that the various potential constraints to growth have had on firm-level investment decisions. The data shows economic reactivation in areas with falling violence. Results from analysis at the microeconomic level, however, give a particular spin to this conclusion by showing that investment decisions at the firm level are also explained by the restoration of some form of public order connected to the cessation of paramilitary violence and not only by the reduction of violence. From a public policy perspective, perhaps the most relevant result is the confirmation that in Colombia investment decisions are negatively affected by the cost of financing. Empirical results, robust across model specifications, single out the provision of access to financing at fair prices as a policy priority for economic growth, relevant across country regions and independent of whether uncertainties from poor protection to property rights are resolved.
    Keywords: Growth, Investment, public policy, Colombia
    JEL: H54 O12 J18 O54
    Date: 2008–08
  21. By: Nadine Godehardt (GIGA German Institute of Global and Area Studies)
    Abstract: The image of China’s peaceful rise, which the Chinese government is keen to enforce in the world, stands in contrast to the view of China’s ascent as a threat. China’s economic and military growth is perceived as a potential threat to the (East) Asian security structure and as a challenge to the preponderance of the United States. Even though the PRC is more active in international and regional organizations—and better integrated in the international community—than ever before, the ambiguity of China’s true political intentions is still dominant. The focus of this analysis is the Chinese tradition of Just War and its benefits for an enhanced understanding of contemporary Chinese foreign policy. The tradition of Just War has rarely been studied, but the search for an understanding of Just War in Chinese traditional thinking can, nevertheless, assist in the analysis of China’s current foreign policy. Whether China’s foreign policy is benign or malignant or whether China dominates Asia is, therefore, “profoundly uncertain.” With regard to foreign policy analysis, the differentiation between the regional and the international levels might help to transcend the predominant understanding of Chinese foreign policy in international relations theory.
    Keywords: China’s foreign policy, Just War theory, Confucianism, harmonious world
    Date: 2008–09
  22. By: Juliane Brach (GIGA Institute of Middle East Studies)
    Abstract: When comparing the speed and extent of economic development in different geographic regions of the world over the past 20 years, the under-average performance of Arab countries in general and Arab Mediterranean countries in particular is striking. This is despite an overall favorable geo-strategic situation at the crossroads of three continents, with excellent connections to sea and waterways and in direct proximity to the European Union, one of the world’s economic hubs. It is also despite the minor importance of negative factors such as a high-burden diseases or high levels of ethnic fractionalization. In this paper, I focus on identifying the most important constraints on Arab Mediterranean economic development. I use state-of-the-art econometric tools to quantify constraints that have been identified through economic theory and studies of the political economy characteristics of the region. The empirical results offer support for the central hypothesis that limited technological capacities and political economy structures are the primary constraints on economic development. With a view to international structural adjustment efforts, my findings imply that the limited success of the Euro-Mediterranean policy to stimulate the economic development of the Arab Mediterranean countries might be because structural adjustment efforts do not tackle—or at least do not sufficiently tackle— these constraints.
    Keywords: economic development, quantitative analysis, political economy, Arab countries
    JEL: F50 O10 O53 C30
    Date: 2008–09
  23. By: Jan Peter Wogart (GIGA German Institute of Global and Area Studies); Gilberto Calcagnotto (GIGA Institute of Latin American Studies); Wolfgang Hein (GIGA Institute of Latin American Studies); Christian von Soest (GIGA Institute of African Affairs)
    Abstract: The present article illustrates how the main actors in global health governance (GHG)— governments, nongovernmental organizations (NGOs), intergovernmental organizations (IOs), and transnational pharmaceutical companies (TNPCs)—have been interacting and, as a result, modifying the global health architecture in general and AIDS treatment in particular. Using the concept of “power types” (Keohane/Martin) and “interfaces” (Norman Long), the authors examine the conflicts among major GHG actors that have arisen surrounding the limited access to medicines for fighting HIV/AIDS basically as a result of the Agreement on Trade Related Intellectual Property Rights (TRIPS), in force since 1995. They then analyze the efforts of Brazil and South Africa to obtain fast and low-cost access to antiretroviral medication against AIDS. They conclude that while policy makers in the two countries have used different approaches to tackle the AIDS problem, they have been able, with the support of NGOs, to modify TRIPS and change some WTO rules at the global level along legal interfaces. At the national level the results of the fight against AIDS have been encouraging for Brazil, but not for South Africa, where authorities denied the challenge for a prolonged period of time. The authors see the different outcomes as a consequence of Brazil’s ability to combine discoursive, legal, administrative, and resource-based interfaces.
    Keywords: global health governance; HIV/AIDS in Brazil and South Africa; discoursive, legal, organizational and resource-based interfaces; WTO; transnational pharmaceutical companies; NGOs
    Date: 2008–09
  24. By: Amavilah, Voxi Heinrich
    Abstract: This paper uses a simple production function to show that the economic performance of a group of African countries in 2007 depended on three broad sources: domestic resources, governance, and global links. The results reveal that investment plays the most important part. The effects of education (knowledge) as a component of human capital is modest, while the health (life expectancy) part of human capital is negative. At the aggregate level external relations, measured as openness, are positively correlated with per capita income. However, disaggregated as integration, aid dependency, and net tourism, all three global links have a negative effect on performance. Also, two indicators of institutional quality (governance) show that average improvement in the quality of institutions has helped economic performance. Considering different dimensions of institutions, the rule of law, and safety and security of property rights are the most constraining aspects of institutions in this group of countries. The findings leave enough room technical for fine-tuning and sophisticated estimators, which cautions interpretation. However, it seems clear that developing countries do better improving domestic resources and institutions than relying for performance on external relations, even though such links cannot be dismissed lightly.
    Keywords: resources; factors and forces of production; governance; institutional quality; perfomance Afican countries
    JEL: F35 O55 O47 O43 C21
    Date: 2008–10–18
  25. By: Decreuse, Bruno; Maarek, Paul
    Abstract: This paper addresses the impact of FDI on the labor share of income in developing countries. We propose a theory that relies on the impacts of FDI on productive heterogeneity between firms in a frictional labor market. We argue that FDI have two opposite effects on the labor share: a negative force originated by market power and technological advance, and a positive force due to increased labor market competition between firms. Then, we test this theory on aggregate panel data through fixed effects and system-GMM estimations. We find a quantitatively meaningful U- shaped relationship between the labor share in the manufacturing sector and the ratio of FDI stock to GDP. However, most of the countries are stuck in the decreasing part of the curve, which we relate to multinationals' location choices.
    Keywords: FDI; Matching frictions; Firm heterogeneity; Technological advance
    JEL: F16 E25 F21
    Date: 2008–10
  26. By: Pinelopi K. Goldberg; Amit Khandelwal; Nina Pavcnik; Petia Topalova
    Abstract: New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from a large developing economy—India—to investigate the relationship between declines in trade costs, the imports of intermediate inputs and domestic firm product scope. We estimate substantial static gains from trade through access to new imported inputs. Accounting for new imported varieties lowers the exact import price index for intermediate goods on average by an additional 4.7 percent per year relative to conventional gains through lower prices of existing imports. Moreover, we find that lower input tariffs account on average for 31 percent of the new products introduced by domestic firms, which implies potentially large dynamic gains from trade. This expansion in firms' product scope is driven predominately by international trade increasing access of firms to new input varieties rather than by simply making existing imported inputs cheaper. Hence, our findings suggest that an important consequence of the input tariff liberalization was to relax technological constraints through firms' access to new imported inputs that were unavailable prior to the liberalization.
    JEL: F1 F13 F14
    Date: 2008–10

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