nep-dev New Economics Papers
on Development
Issue of 2009‒02‒28
thirty-two papers chosen by
Jeong-Joon Lee
Towson University

  1. The Puzzle of Muslim Advantage in Child Survival in India By Bhalotra, Sonia R.; Valente, Christine; van Soest, Arthur
  2. Happiness and Economic Growth: Does the Cross Section Predict Time Trends? Evidence from Developing Countries By Easterlin, Richard A.; Sawangfa, Onnicha
  3. Part-Time Work, Gender and Job Satisfaction: Evidence from a Developing Country By López Bóo, Florencia; Madrigal, Lucia; Pagés, Carmen
  4. Inflation Dynamics and Food Prices in an Agricultural Economy: The Case of Ethiopia By Loening, Josef L.; Durevall, Dick; Ayalew Birru, Yohannes
  5. The Impact of U.S. Regional Business Cycles on Remittances to Latin America By Magnusson, Kristin
  6. Examining the Regional Aspect of Foreign Direct Investment to Developing Countries By Eva Rytter Sunesen
  7. Keeping the best for last. Impact of fertility on mother's employment. Evidence from developing countries By Julio Cáceres-Delpiano
  8. The Emergence of New Successful Export Activities in Latin America: The Case of Chile By Manuel Agosin; Claudio Bravo-Ortega
  9. Economic growth, employment and poverty in the Middle East and North Africa By Mahmood Messkoub
  10. Compromising social justice in fairtrade?: case study of a fairtrade organization in India By Ranjana Das
  11. Social Interactions, Ethnicity and Fertility in Kenya By Iyer, S.; Weeks, M.
  12. Dual Poverty Trap: Intra- and Intergenerational Linkages in Frictional Labor Markets By Horii, Ryo; Sasaki, Masaru
  13. Does Employment Quota Explain Occupational Choice Among Disadvantaged Groups? A Natural Experiment from India By Prakash, Nishith; Howard, Larry
  14. The Redistributive Effects of Political Reservation for Minorities: Evidence from India By Prakash, Nishith; Chin, Aimee
  15. Big Reforms but Small Payoffs: Explaining the Weak Record of Growth and Employment in Indian Manufacturing By Gupta, Poonam; Hasan, Rana; Kumar, Utsav
  16. The Experimental Approach to Development Economics By Banerjee, Abhijit; Duflo, Esther
  17. Growing like China By Song, Zheng Michael; Storesletten, Kjetil; Zilibotti, Fabrizio
  18. Employment Laws in Developing Countries By Djankov, Simeon; Ramalho, Rita
  19. Powerful Women: Does Exposure Reduce Bias? By Beaman, Lori; Chattopadhyay, Raghabendra; Duflo, Esther; Pande, Rohini; Topalova, Petia
  20. The Incidence of Civil War: Theory and Evidence By Besley, Timothy J.; Persson, Torsten
  21. Poverty and Civil War: Revisiting the evidence By Djankov, Simeon; Reynal-Querol, Marta
  22. Two to Tangle: Financial Development, Political Instability and Economic Growth in Argentina (1896-2000) By Campos, Nauro F; Karanasos, Menelaos; Tan, Bin
  23. Are Boys and Girls Affected Differently When the Household Head Leaves for Good? Evidence from School and Work Choices in Colombia By Fitzsimons, Emla; Mesnard, Alice
  24. Development and Growth in Mineral-Rich Countries By Gylfason, Thorvaldur
  25. Agglomeration and Growth: Cross-Country Evidence By Brülhart, Marius; Sbergami, Federica
  26. Economic and Social Factors Driving the Third Wave of Democratization By Papaioannou, Elias; Siourounis, Gregorios
  27. Luddites and the Demographic Transition By O'Rourke, Kevin H; Rahman, Ahmed; Taylor, Alan M
  28. Economic Geography: a Review of the Theoretical and Empirical Literature By Redding, Stephen J
  29. Finding Missing Markets (and a disturbing epilogue): Evidence from an Export Crop Adoption and Marketing Intervention in Kenya By Ashraf, Nava; Giné, Xavier; Karlan, Dean S.
  30. The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia By Kugler, Maurice; Verhoogen, Eric A.
  31. Population, Pensions and Endogenous Economic Growth By Heer, Burkhard; Irmen, Andreas
  32. Great Appreciations: Accounting for the Real Exchange Rate in Mexico, 1988-2002 By Felipe Meza; Antonio Carlos Urrutia

  1. By: Bhalotra, Sonia R. (University of Bristol); Valente, Christine (University of Nottingham); van Soest, Arthur (Tilburg University)
    Abstract: The socio-economic status of Indian Muslims is, on average, considerably lower than that of upper caste Hindus. Muslims have higher fertility and shorter birth spacing and are a minority group that, it has been argued, have poorer access to public goods. They nevertheless exhibit substantially higher child survival rates, and have done for decades. This paper documents and analyses this seeming puzzle. The religion gap in survival is much larger than the gender gap but, in contrast to the gender gap, it has not received much political or academic attention. A decomposition of the survival differential reveals that some compositional effects favour Muslims but that, overall, differences in characteristics between the communities and especially the Muslim deficit in parental education predict a Hindu advantage. Alternative outcomes and specifications support our finding of a Muslim fixed effect that favours survival. The results of this study contribute to a recent literature that debates the importance of socioeconomic status (SES) in determining health and survival. They augment a growing literature on the role of religion or culture as encapsulating important unobservable behaviours or endowments that influence health, indeed, enough to reverse the SES gradient that is commonly observed.
    Keywords: religion, caste, gender, child survival, anthropometrics, Hindu, Muslim, India
    JEL: O12 I12 J15 J16 J18
    Date: 2009–02
  2. By: Easterlin, Richard A. (University of Southern California); Sawangfa, Onnicha (University of Southern California)
    Abstract: Based on point-of-time comparisons of happiness in richer and poorer countries, it is commonly asserted that economic growth will have a significant positive impact on happiness in poorer countries, if not richer. The time trends of subjective well-being (SWB) in 13 developing countries, however, are not significantly related to predictions derived from the cross sectional relation of happiness to GDP per capita. The point-of-time comparison leads to the expectation that the same absolute increase in GDP per capita will have a bigger impact on SWB in a poorer than a richer country. In fact there is no significant relation between actual trends in SWB and those predicted from the cross sectional relationship. Nor is a higher percentage rate of growth in GDP per capita significantly positively associated with a greater improvement in SWB. In the developing countries studied here a greater increase in happiness does not accompany more rapid economic growth. These conclusions hold true for two measures of SWB that are separately analyzed, overall life satisfaction and satisfaction with finances. The two SWB measures themselves, however, typically trend similarly within a country, providing mutually supporting evidence of the trend in well-being.
    Keywords: happiness, economic growth, developing countries
    JEL: I31 D60 O5 O10
    Date: 2009–02
  3. By: López Bóo, Florencia (Inter-American Development Bank); Madrigal, Lucia (Inter-American Development Bank); Pagés, Carmen (Inter-American Development Bank)
    Abstract: This paper investigates the relationship between part-time work and job satisfaction using a recent household survey from Honduras. In contrast to previous work for developed countries, this paper does not find a preference for part-time work among women. Instead, both women and men tend to prefer full- time work, although the preference for working longer hours is stronger for men. Consistent with an interpretation of working part-time as luxury consumption, the paper finds that partnered women with children, poor women or women working in the informal sector are more likely to prefer full-time work than single women, partnered women without children, non-poor women or women working in the formal sector. These results have important implications for the design of family and child care policies in low-income countries.
    Keywords: job satisfaction, gender, part-time work, job flexibility
    JEL: C13 J16 J28
    Date: 2009–02
  4. By: Loening, Josef L. (World bank); Durevall, Dick (Department of Economics, School of Business, Economics and Law, Göteborg University); Ayalew Birru, Yohannes (University of Sussex)
    Abstract: Ethiopia has experienced a historically unprecedented increase in inflation, mainly driven by cereal price inflation, which is among the highest in Sub-Saharan Africa. Using monthly data over the past decade, we estimate error correction models to identify the relative importance of several factors contributing to overall inflation and its three major components, cereal prices, food prices and non-food prices. Our main finding is that, in the long run, domestic food and non-food prices are determined by the exchange rate and international food and goods prices. In the short to medium run, agricultural supply shocks and inflation inertia strongly affect domestic inflation, causing large deviations from long-run price trends. Money supply growth affects food price inflation in the short run, though excess money supply does not seem to drive inflation in the long run. Our results suggest a challenging time ahead for Ethiopia, with the need for a multipronged approach to fight inflation. Forecast scenarios suggest monetary and exchange rate policies need to take into account the cereal sector, as food staple growth is among the key determinants of inflation, assuming a decline in global commodity prices. Implementation of successful policies will be contingent on the availability of foreign exchange and the performance of agriculture.<p>
    Keywords: Agriculture; Cointegration analysis; Ethiopia; Exchange rate; Money demand; Food prices; Forecast; Inertia; Inflation
    JEL: E31 E37 E52 O55
    Date: 2009–02–23
  5. By: Magnusson, Kristin (Dept. of Economics, Stockholm School of Economics)
    Abstract: The current economic slowdown in the United States and the decline in remittance growth to some Latin American countries have intensified the interest in the relationship between these variables. We investigate whether host country conditions affect remittance outflows to Latin America, focusing on the roles of regional U.S. business cycles, geographical variation in immigrant density and sectoral factors. Using quarterly data for 1995-2008, we find that remittance flows are strongly influenced by economic conditions in the specific regions of the U.S. where migrants are clustered, as well as in the sectors especially important for immigrants' employment opportunities. The results are in sharp contrast to previous research suggesting that remittance flows are relatively insensitive to fluctuations in the aggregate U.S. business cycle. Precise estimation of these linkages is also shown to matter for gauging the sensitivity of remittances to economic conditions in the home country, and hence the extent to which remittances might buffer domestic shocks as well as transmitting external ones.
    Keywords: Remittances; Business Cycles; Central America; Mexico; United States
    JEL: E32 F15 F22 F24 R11
    Date: 2009–02–16
  6. By: Eva Rytter Sunesen (Department of Economics, University of Copenhagen)
    Abstract: This paper applies a general-to-specific analysis to detect regularities in the driving forces of foreign direct investment (FDI) that can explain why some regions are more attractive to foreign investors than others. The results suggest that regional differences in FDI inflows to African, Asian and Latin American countries can be fully explained by structural characteristics rather than fixed regional effects. The implication of this finding is that countries that are lagging behind other developing countries in attracting foreign capital have the opportunity to implement policies aimed at improving the investment climate for foreign investors. This also means that there is no African bias. Among a large number of return and risk variables applied in the empirical literature, growth and inflation turn out to be the only robust and significant FDI determinants across regions although the size of their impact varies.
    Keywords: foreign direct investment; Africa, Asia; Latin America; general-to-specifc
    JEL: F21 O57
    Date: 2009–02
  7. By: Julio Cáceres-Delpiano
    Abstract: By using the Demographic and Health Survey (DHS) data for 42 developing countries this paper studies the impact of fertility on mothers’ employment. In order to solve the problem of omitted variable bias multiple births are used as source of variation in family size. Similarly to previous evidence for developed countries, the findings reveal that family size has a negative impact on female employment. Nevertheless, two types of heterogeneity are exposed. First, the size and sign of the impact depends on the birth at which we study the increase in family size; specifically, a negative impact of fertility is observed at the time of the first birth or in a third and higher births; nevertheless, for some samples (and definitions of mother’s employment) a shift in a second birth might have a positive impact on employment. Second, the types of jobs affected by a change of fertility differ depending on at which margin the shift in fertility takes place. Thus, while for a first birth, more informal jobs, such as unpaid jobs, or jobs that are harder to combine with childbearing (working away from home or seasonal jobs) are the ones impacted by an increase in family size; at higher parities, all type of jobs are affected by the shift in fertility.
    Keywords: Fertility, Female labor force participation, Developing countries
    JEL: J13 J22 J24
    Date: 2008–11
  8. By: Manuel Agosin; Claudio Bravo-Ortega
    Abstract: This paper surveys overall export growth in Chile and focuses on three case studies of the emergence of successful export activities in Chile: wine, pork and blueberries. Each case study discusses how companies, associations, and governments at various levels have addressed market failures and facilitated the provision of public goods necessary for each activity. The case studies additionally profile first movers in each activity and describe the positive externalities they provide to imitators, particularly diffusion of export knowledge. Also included are counterfactual cases of a less successful firm or activity (an unsuccessful wine exporter, other types of berries, and commodity pork production rather than custom cuts, respectively) and a discussion of policy implications.
    Keywords: Exports, Agriculture, Chile
    JEL: H41 L26 L65 L84 Q13
    Date: 2009–02
  9. By: Mahmood Messkoub
    Abstract: This paper  provides an assessment of economic growth, employment and poverty reduction in the Arab MENA region. Considering the high rate of unemployment (especially the youth unemployment) and poverty in most countries in the region employment and poverty impacts of growth are of particular concern to policy makers. In the short run for employment growth to be faster than output growth the employment elasticity of growth has to be greater than unity. This is an important condition that is rarely satisfied across all sectors and countries in the region, for good analytical and empirical reasons. For example growth in high productivity sectors will not boost total employment nor reduce poverty substantially in the short run, yet growth in high productivity sectors is essential for accumulation and long term growth. Moreover, if the poor were to benefit from an employment policy they should have been integrated in the sectors where jobs are created – the so called integrability condition of the ‘employment-poverty nexus. Public work projects have been one of the main short term instruments of job creation for the poor in the region, but there the long term impact on poverty has varied and depended crucially on their sustainability, their contribution to improving local infrastructure and economies. These mixed results in no way invalidate the importance of economic growth for unemployment and poverty reduction, but brings into focus the importance of going beyond short term policies for job creation and poverty reduction as well as complementing such policies with social policies both for poverty alleviation and improving skill levels of the work force.
    Keywords: economic growth, employment, unemployment, poverty, poverty alleviation, Middle East, North Africa
    Date: 2008
  10. By: Ranjana Das
    Abstract: The study investigates whether Fair Trade Organizations (FTOs) are able to adhere to their principles of social justice and development goals as they enter mainstream markets which are dominated by neo-liberalism, unequal terms of trade and propagation of the ‘free market’ principle. Through a case study of Kala-a craft marketing Fair Trade Organization in West Bengal, India, the paper shows shifts in the development of the FTO, the introduction of a certification regime and the emerging contradiction between the intentions of the FTO and its actual practice in the contemporary period. The implications of shifts in orientation from solidarity based notions of social justice to market oriented social justice, in particular on the weakest link and most vulnerable section who are women craft workers at the bottom of the production chain are investigated. A production chain analysis of handicraft production gives evidence of violation of FT principles and ILO’s decent work norms and also reveals characteristics of the informal economy with producers having no entitlements to minimum wages, or social security benefits. There remains gender bias in the employment of women in the fair-trade production chain. The data shows that there is no challenge to gender segmentation and in fact a reinforcement of the feminine stereotype. Declining partnership with cooperatives, rising partnership with large scale NGOs and setting up of a Business Development Unit within the organization are some of the strategic shifts in the FTO. These shifts and the lack of implementation of FT principles indicate that the FTO is succumbing to the logic of the neo liberal mainstream market resulting in a drift away from the social justice principles within the Fairtrade Network. While onstage FTO’s use the principle of ‘fairness’ particularly in relation to Northern Corporations, this notion of fairness is not extended to the lower end producers through which they are expanding in the global market.
    Keywords: fair trade, social justice, neoliberal market, gender, production chain
    Date: 2009
  11. By: Iyer, S.; Weeks, M.
    Abstract: This paper examines, theoretically and empirically, the impact of reproductive externalities on fertility behaviour in Kenya. We examine this issue by identifying structural forms of social interaction operating across individuals belonging to different ethnic groups on the number of children ever born. We use the 1998 Demographic and Health Survey, and meteorological data on Kenya, to examine whether social interactions effects are important over and above an individual's characteristics in order to explain variations in fertility. In so doing, we conclude that social interactions are very important for the fertility behaviour of different ethnic groups in Kenya.
    Date: 2009–01
  12. By: Horii, Ryo; Sasaki, Masaru
    Abstract: This paper constructs an overlapping generations model with a frictional labor market to explain persistent low education in developing countries. When parents are uneducated, their children often face difficulties in finishing school and therefore are likely to remain uneducated. Moreover, if children expect that other children of the same generation will not receive an education, they expect that firms will not create enough jobs for educated workers, and thus are further discouraged from schooling. These intergenerational and intragenerational mechanisms reinforce each other, creating a serious poverty trap. Escape from the trap requires the well-organized and combined implementation of a subsidy for schooling, the provision of free education, support for disadvantaged children, and public awareness programs.
    Keywords: overlapping generations model; education; poverty trap; job search; coordination failure.
    JEL: O11 J62 J23
    Date: 2008–11–23
  13. By: Prakash, Nishith; Howard, Larry
    Abstract: This paper examines the effect of a federally-mandated public sector employment quota policy for minorities on their occupational choice. We utilize multiple logit models to estimate the effect of the policy on the choice between a high, middle, or low-skill public sector occupation during the 1980s and 1990s. The main findings are, first, the policy has a significant effect on the choice of occupation for both groups. The policy increases the probability of the scheduled caste group choosing high-skill occupations and decreases the probability of choosing middle-skill occupations. In contrast, the policy decreases the probability of the scheduled tribe group choosing high-skill occupations and increases their probability of choosing low-skill occupations. Second, the influence of the policy is interrelated with an individual's years of schooling. Third, we find evidence of employment quota externalities in that a policy targeted at one group affects the occupational choice of the other group. Overall, the results suggest that federally-mandated employment quotas do change occupational choice for the target disadvantaged groups and contribute to their improved socio-economic standing.
    Keywords: Occupational choice; Skill; Caste; India
    JEL: J62 O10 O2 J61 J24
    Date: 2008–11–29
  14. By: Prakash, Nishith; Chin, Aimee
    Abstract: We examine the impact of political reservation for disadvantaged minority groups on poverty. To address the concern that political reservation is endogenous in the relationship between poverty and reservation, we take advantage of the state-time variation in reservation in state legislative assemblies in India that arises from national policies that cause reservations to be revised and the time lags with which the revised reservations are implemented due to the timing of state elections. Using data on sixteen major Indian states for the period 1960-1992, we find that increasing the share of seats reserved for Scheduled Tribes significantly reduces poverty while increasing the share of seats reserved for Scheduled Castes has no impact on poverty. Political reservation for Scheduled Tribes has a greater effect on rural poverty than urban poverty, and appears to benefit people near the poverty line as well as those far below it.
    Keywords: Affirmative Action; Poverty; Minorities; India.
    JEL: I38 J15 J78
    Date: 2009–02–18
  15. By: Gupta, Poonam; Hasan, Rana; Kumar, Utsav
    Abstract: India has undertaken extensive reforms in its manufacturing sector over the last two decades. However, an acceleration of growth in manufacturing, and a corresponding increase in employment, has eluded India. Why have the reforms not produced the intended results? Using Annual Survey of Industries data at the three digit level for major Indian states, for 1980-2004, we analyze the effects of the reforms that liberalized India’s industrial licensing regime on the performance of registered manufacturing. We find that the performance of the manufacturing sector is heterogeneous across states, as well as across industries. In particular, labor intensive industries and industries dependent on infrastructure have not benefited much from reforms. Industrial performance appears to be contingent on the state specific policy and economic environment. States with relatively inflexible labor regulations have experienced slower growth of labor-intensive industries and slower employment growth overall. Additionally, states with relatively competitive product market regulations and with better infrastructure have experienced larger benefits from reforms.
    Keywords: India; Manufacturing; Product Market Deregulation; Labor Laws; Infrastructure
    JEL: H54 L51 O53 L52 P23 L50 L60
    Date: 2009–02–18
  16. By: Banerjee, Abhijit; Duflo, Esther
    Abstract: Randomized experiments have become a popular tool in development economics research, and have been the subject of a number of criticisms. This paper reviews the recent literature, and discusses the strengths and limitations of this approach in theory and in practice. We argue that the main virtue of randomized experiments is that, due to the close collaboration between researchers and implementers, they allow the estimation of parameters that it would not otherwise be possible to evaluate. We discuss the concerns that have been raised regarding experiments, and generally conclude that while they are real, they are often not specific to experiments. We conclude by discussing the relationship between theory and experiments.
    Keywords: development economics; randomized experiment
    JEL: O16
    Date: 2008–11
  17. By: Song, Zheng Michael; Storesletten, Kjetil; Zilibotti, Fabrizio
    Abstract: This paper constructs a growth model that is consistent with salient features of the Chinese growth experience since 1992: high output growth, sustained returns on capital investments, extensive reallocation within the manufacturing sector, falling labor share and accumulation of a large foreign surplus. The theory makes only minimal deviations from a neoclassical growth model. Its building blocks are financial imperfections and reallocation among firms with heterogeneous productivity. Some firms use more productive technologies than others, but low-productivity firms survive because of better access to credit markets. Due to the financial imperfections, high-productivity firms - which are run by entrepreneurs - must be financed out of internal savings. If these savings are sufficiently large, the high-productivity sector outgrows the low-productivity sector, and attracts an increasing employment share. During the transition, low wage growth sustains the return to capital. The downsizing of the financially integrated sector forces a growing share of domestic savings to be invested in foreign assets, generating a foreign surplus. We test some auxiliary implications of the theory and find robust empirical support.
    Keywords: China; Economic Growth; Entrepreneurs; Foreign Surplus; Investment; Productivity Heterogeneity; Rate of Return on Capital; Reallocation; State-Owned Firms.
    JEL: G18 O11 O16 O47 O53 P31
    Date: 2009–01
  18. By: Djankov, Simeon; Ramalho, Rita
    Abstract: We survey the research on the effect of employment laws in developing countries, using papers published since 2004. The survey is further supported by cross-country correlation analyses. Both exercises show that developing countries with rigid employment laws tend to have larger informal sectors and higher unemployment, especially among young workers. A number of countries, especially in Eastern Europe and West Africa, have recently undergone significant reforms to make employment laws more flexible. Conversely, several countries in Latin America have made employment laws more rigid. These reforms are larger in magnitude than any reforms in developed countries and their study can produce new insights on the benefits of labor regulation.
    Keywords: employment regulation; India; Latin America
    JEL: J53 J54
    Date: 2008–12
  19. By: Beaman, Lori; Chattopadhyay, Raghabendra; Duflo, Esther; Pande, Rohini; Topalova, Petia
    Abstract: We exploit random assignment of gender quotas across Indian village councils to investigate whether having a female chief councillor affects public opinion towards female leaders. Villagers who have never been required to have a female leader prefer male leaders and perceive hypothetical female leaders as less effective than their male counterparts, when stated performance is identical. Exposure to a female leader does not alter villagers' taste preference for male leaders. However, it weakens stereotypes about gender roles in the public and domestic spheres and eliminates the negative bias in how female leaders' effectiveness is perceived among male villagers. Female villagers exhibit less prior bias, but are also less likely to know about or participate in local politics; as a result, their attitudes are largely unaffected. Consistent with our experimental findings, villagers rate their women leaders as less effective when exposed to them for the first, but not second, time. These changes in attitude are electorally meaningful: after 10 years of the quota policy, women are more likely to stand for and win free seats in villages that have been continuously required to have a female chief councillor.
    Keywords: development planning and policy; economics of gender; non-labour descrimination; political economy
    JEL: J16 O2 P16
    Date: 2008–07
  20. By: Besley, Timothy J.; Persson, Torsten
    Abstract: This paper studies the incidence of civil war over time. We put forward a canonical model of civil war, which relates the incidence of conflict to circumstances, institutions and features of the underlying economy and polity. We use this model to derive testable predictions and to interpret the cross-sectional and times-series variations in civil conflict. Our most novel empirical finding is that higher world market prices of exported, as well as imported, commodities are strong and significant predictors of higher within-country incidence of civil war.
    Keywords: commodity prices; conflict; natural resources; political institutions
    JEL: D74 F52 O11 Q34
    Date: 2008–12
  21. By: Djankov, Simeon; Reynal-Querol, Marta
    Abstract: A popular "stylized fact" is that poverty is a main determinant of civil war: several scholars have interpreted the correlation between the two as evidence supporting this claim. In this paper, we find that the relationship between poverty and civil war is spurious, and is accounted for by historical phenomena that jointly determine income evolution and conflict. In particular, the statistical association between poverty, as proxied by income per capita, and civil wars disappears once we include country fixed effects. Also, using cross-section data for 1960-2005, we find that once historical variables like European settler mortality rates and the population density in 1500 are included in civil war regressions, poverty does not have an effect on civil wars. These results are confirmed using longer time series from 1825 to 2000.
    Keywords: Civil War; Income
    JEL: O11
    Date: 2008–10
  22. By: Campos, Nauro F; Karanasos, Menelaos; Tan, Bin
    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; political instability; power-ARCH; volatility
    JEL: C14 D72 E23 O40
    Date: 2008–10
  23. By: Fitzsimons, Emla; Mesnard, Alice
    Abstract: This paper investigates how the permanent departure of the head from the household, mainly due to death or divorce, affects children’s school enrolment and work participation in rural Colombia. In our empirical specification we use household-level fixed effects to deal with the fact that households that experience the departure of the head are likely to differ in unobserved ways from those that do not, and we also address the issue of non-random attrition from the panel. We find remarkably different effects for boys and girls. For boys, the adverse event reduces school participation and increases participation in paid work, whereas for girls we find evidence of the adverse event having a beneficial impact on schooling. To explain these differences, we provide evidence for boys consistent with the head’s departure having an important effect through the income reduction associated with it, whereas for girls, changes in the household decision-maker appear to play an important role.
    Keywords: Adverse even; Bargaining; Child labour; Credit and insurance market failures; Income loss; Schooling
    JEL: I20 J12 J22 O16
    Date: 2008–11
  24. By: Gylfason, Thorvaldur
    Abstract: This paper describes some of the ways in which mineral rents and their management influence economic growth and other determinants of growth as well as some of the reasons why many mineral-rich countries have not managed very well to divert their resource rents to furthering economic and social development – that is, why natural capital tends to crowd out human, social, financial and real capital. The empirical evidence of these linkages is presented in two rounds. First, we allow World Bank data covering 164 countries in 1960-2000 to speak for themselves through a sequence of bilateral correlations that suggest an inverse relationship between natural resource dependence and growth via human capital. We then repeat the exercise for two aspects of social capital, corruption and democracy, suggesting an additional adverse effect of natural resource dependence via social capital on growth. In the second round, we test for the robustness of natural resource dependence as a determinant of long-run growth by estimating a series of growth regressions for the same 164 countries.
    Keywords: Economic growth; natural resources; social policy
    JEL: O11
    Date: 2008–11
  25. By: Brülhart, Marius; Sbergami, Federica
    Abstract: We investigate the impact of within-country spatial concentration of economic activity on country-level growth, using cross-section OLS and dynamic panel GMM estimation. Agglomeration is measured alternatively through measures of urbanization and through indices of spatial concentration based on data for sub-national regions. Across estimation techniques, data sets and variable definitions, we find evidence that supports the "Williamson hypothesis": agglomeration boosts GDP growth only up to a certain level of economic development. The critical level is estimated at some USD 10,000, corresponding roughly to the current per-capita income level of Brazil or Bulgaria. This implies that the tradeoff between national growth and inter-regional equality may gradually lose its relevance.
    Keywords: agglomeration; dynamic panel estimation; economic growth; urbanisation
    JEL: O4 R11 R12
    Date: 2008–08
  26. By: Papaioannou, Elias; Siourounis, Gregorios
    Abstract: We identify permanent democratic transitions during the Third Wave of Democratization and the nineties, when many former socialist countries moved towards representative rule. Using political freedom indicators, electoral archives, and historical resources in 174 countries in the period 1960-2005, we identify 63 democratic transitions, 3 reverse transitions from relatively stable democracy to autocracy and 6 episodes of small improvements in representative institutions. We also classify non-reforming countries to stable autocracies and always democratic. We then use the dataset to test theories on the prerequisites for democracy in these countries that enter the Third Wave as non-democracies. Examining initially autocratic countries enables us to address issues of sample selection (in the beginning of the sample most developed countries were already democratic) and reverse causality (democracy can be both a cause and a consequence of wealth, for example). Our estimates reveal that democratization is more likely to emerge in affluent and especially educated societies. Economic development and education are also key factors determining the intensity of democratic reforms and how quickly democratic transitions will occur. These results appear robust to controls like the social environment (religion and fractionalization), natural resources, trade openness and proxies of early institutions.
    Keywords: democratization; institutions; political development
    JEL: O10 P16
    Date: 2008–10
  27. By: O'Rourke, Kevin H; Rahman, Ahmed; Taylor, Alan M
    Abstract: Technological change was unskilled-labor-biased during the early Industrial Revolution, but is skill-biased today. This is not embedded in extant unified growth models. We develop a model which can endogenously account for these facts, where factor bias reflects profit maximizing decisions by innovators. Endowments dictate that the early Industrial Revolution be unskilled-labor-biased. Increasing basic knowledge causes a growth takeoff, an income-led demand for fewer educated children, and the transition to skill-biased technological change. The simulated model tracks British industrialization in the 18th and 19th centuries and generates a demographic transition without relying on either rising skill premia or exogenous educational supply shocks.
    Keywords: demography; endogenous growth; unified growth theory
    JEL: J13 J24 N10 O31 O33
    Date: 2008–11
  28. By: Redding, Stephen J
    Abstract: This paper reviews the new economic geography literature, which accounts for the uneven distribution of economic activity across space in terms of a combination of love of variety preferences, increasing returns to scale and transport costs. After outlining the canonical core and periphery model, the paper examines the empirical evidence on three of its central predictions: the role of market access in determining factor prices, the related home market effect in which demand has a more than proportionate effect on production, and the potential existence of multiple equilibria. In reviewing the evidence, we highlight issues of measurement and identification, alternative potential explanations, and remaining areas for further research.
    Keywords: Home Market Effect; Market Access; Multiple Equilibria; New Economic Geography
    JEL: F12 F14 O10
    Date: 2009–01
  29. By: Ashraf, Nava; Giné, Xavier; Karlan, Dean S.
    Abstract: In much of the developing world, many farmers grow crops for local or personal consumption despite export options which appear to be more profitable. Thus many conjecture that one or several markets are missing. We report here on a randomized controlled trial conducted by DrumNet in Kenya that attempts to help farmers adopt and market export crops. DrumNet provides smallholder farmers with information about how to switch to export crops, makes in-kind loans for the purchase of the agricultural inputs, and provides marketing services by facilitating the transaction with exporters. The experimental evaluation design randomly assigns pre-existing farmer self-help groups to one of three groups: (1) a treatment group that receives all DrumNet services, (2) a treatment group that receives all DrumNet services except credit, or (3) a control group. After one year, DrumNet services led to an increase in production of export oriented crops and lower marketing costs; this translated into household income gains for new adopters. However, one year after the study ended, the exporter refused to continue buying the cash crops from the farmers because the conditions of the farms did not satisfy European export requirements. DrumNet collapsed in this region as farmers were forced to sell to middlemen and defaulted on their loans. The risk of such events may explain, at least partly, why many seemingly more profitable export crops are not adopted.
    Keywords: Export Crop; Field Experiment; Food safety standards
    JEL: F13 O12 Q17
    Date: 2009–01
  30. By: Kugler, Maurice; Verhoogen, Eric A.
    Abstract: This paper presents a tractable formalization and an empirical investigation of the quality-complementarity hypothesis, the hypothesis that input quality and plant productivity are complementary in generating output quality. We embed this complementarity in a general-equilibrium trade model with heterogeneous, monopolistically competitive firms, extending Melitz (2003), and show that it generates distinctive implications for two simple, observable within-sector correlations -- between output prices and plant size and between input prices and plant size -- and for how those correlations vary across sectors. Using uniquely rich and representative data on the unit values of outputs and inputs of Colombian manufacturing plants, we then document three facts: (1) output prices are positively correlated with plant size within industries on average; (2) input prices are positively correlated with plant size within industries on average; and (3) both correlations are more positive in industries with more scope for quality differentiation, as measured by the advertising and R&D intensity of U.S. industries. The predicted and observed correlations between export status and input and output prices are similar to those for plant size. We present additional evidence that market power of either final-good producers or input suppliers does not fully explain the empirical patterns we observe. These findings are consistent with the predictions of our model and difficult to reconcile with alternative models that impose symmetry or homogeneity of either inputs or outputs. We interpret the results as broadly supportive of the quality-complementarity hypothesis.
    Keywords: heterogeneous firms; international trade; plant size; product quality
    JEL: F1 L1 O1
    Date: 2009–01
  31. By: Heer, Burkhard; Irmen, Andreas
    Abstract: We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy. First, we establish that the net effect of a decline in population growth on the growth rate of per-capita magnitudes is positive and quantitatively significant. Second, we find that the pension system matters both for the growth performance and for individual welfare. Third, we show that the assessment of pension reform proposals may be different in an endogenous growth framework as opposed to the standard framework with exogenous growth.
    Keywords: capital accumulation; demographic transition; growth; pension reform
    JEL: C68 D31 D91 O11 O41
    Date: 2009–02
  32. By: Felipe Meza (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM)); Antonio Carlos Urrutia (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    Abstract: Between 1988 and 2002, the real exchange rate in Mexico appreciated by 45%. We account for this movement in relative prices using a two sector, dynamic general equilibrium model of a small open economy with tradable an non-tradable goods. The model allows us to identify the effect of the differential in productivity growth across sectors (the Balassa-Samuelson effect) from other types of shocks affecting the allocation of resources (terms of trade, migration remittances and international reserves accumulation). We find that productivity growth in the tradable sector and a decline in the real interest rate faced by Mexico in the international markets account for 70% of the real exchange rate appreciation. Our model is also consistent with the reallocation of capital and labor from tradable to non-tradable sectors. None of our results support a significant role for terms of trade, migration remittances or international reserves accumulation.
    Date: 2008–10

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