nep-dev New Economics Papers
on Development
Issue of 2009‒04‒05
twenty-six papers chosen by
Jeong-Joon Lee
Towson University

  1. Participation by men and women in off-farm activities: An empirical analysis in rural northern Ghana By McCarthy, Nancy; Sun, Yan
  2. Assessing the vulnerability of emerging Asia to external demand shocks: the role of China By Daniela Marconi; Laura Painelli
  3. Assessing the allocation of Italian foreign aid By Riccardo Settimo; Claudia Maurini
  4. Teacher pay in South Africa: How attractive is the teaching profession? By Paula Armstrong
  5. The Economic Rationale for Agricultural Regeneration and Rural Infrastructure Investment in South Africa By NG Meyer; MC Breitenbach; TI Fényes; A Jooste
  6. Global crisis and its implications on the political transformation in China By Maria Csanadi; Hairong Lai; Ferenc Gyuris
  7. Financial constraints in China: firm-level evidence By Poncet, Sandra; Steingress, Walter; VANDENBUSSCHE, Hylke
  8. Does Migration Help Reducing Inequality and social Exclusion? By Marilena Giannetti; Daniela Federici; Michele Raitano
  9. Urban Trends and Policy in China By Lamia Kamal-Chaoui; Edward Leeman; Zhang Rufei
  10. Health investments and economic growth : macroeconomic evidence and microeconomic foundations By Jack, William; Lewis, Maureen
  11. Wage subsidy and labor market flexibility in south Africa By Go, Delfin S.; Kearney, Marna; Korman, Vijdan; Robinson, Sherman; Thierfelder, Karen
  12. Economic modeling of income, different types of capital and natural disasters By Markandya, Anil; Pedroso-Galinato, Suzette
  13. Natural disasters and the dynamics of intangible assets By Lopez, Ramon
  14. The performance of decentralized school systems : evidence from Fe y Alegría in Venezuela By Allcott, Hunt; Ortega, Daniel E.
  15. Trends in household coverage of modern infrastructure services in Africa By Banerjee, Sudeshna; Diallo, Amadou; Foster, Vivien; Wodon, Quentin
  16. Is low coverage of modern infrastructure services in African cities due to lack of demand or lack of supply ? By Wodon, Quentin; Banerjee, Sudeshna; Diallo, Amadou Bassirou; Foster, Vivien
  17. Local sources of financing for infrastructure in Africa : a cross-country analysis By Irving, Jacqueline; Manroth, Astrid
  18. Multilateral debt relief through the eyes of financial markets By Raddatz, Claudio
  19. Professional services and development : a study of Mozambique By Fernandes, Ana Margarida; Mattoo, Aaditya
  20. Small businesses in south Africa : who outsources tax compliance work and why ? By Coolidge, Jacqueline; Ilic, Domagoj; Kisunko, Gregory
  21. China's financial conundrum and global imbalances By Ronald McKinnon; Gunther Schnabl
  22. Ethnicity and Human Capital Accumulation in Urban Mexico By Hugo Nopo; Natalia Winder
  23. Recent developments in the econometrics of program evaluation By Guido Imbens; Jeffrey Wooldridge
  24. Alternative approaches to evaluation in empirical microeconomics By Richard Blundell; Monica Costa Dias
  25. Property Rights and Economic Development By Besley, Timothy J.; Ghatak, Maitreesh
  26. Why is Mobility in India so Low? Social Insurance, Inequality, and Growth By Kaivan Munshi; Mark Rosenzweig

  1. By: McCarthy, Nancy; Sun, Yan
    Abstract: "Using survey data from the Upper East region of Ghana collected in 2005, the paper evaluates the household- and community-level factors influencing women's and men's decisions to participate in off-farm activities, either in the off-farm labor market or in local community groups, and the relationship with on-farm crop returns. Results indicate that crop returns are not affected by increased labor availability over a certain labor-land ratio. Female participation in off-farm labor markets increases at higher levels of labor availability, but participation in women's groups' only increases as labor scarcity is relaxed at lower levels. Alternatively, male participation in off-farm work increases over all levels of labor availability. Results also indicate that male labor is relatively more productive on-farm versus off-farm than female labor, and, though education increases the likelihood that both women and men will work off-farm (with no impact on crop revenues), the impact is greater for women. Finally, participation in off-farm work does not appear to be driven by the need to reduce exposure to risk or to manage risk ex post; wealthier households located in wealthier communities are more likely to participate in off-farm work. Evidence for participation in groups and risk is more complicated; wealthier households in wealthier communities are also more likely to participate, but so too are female-headed households with higher dependency ratios." from authors' abstract
    Keywords: Off-farm labor supply, Participation, Community groups, Gender, Land management, Poverty reduction,
    Date: 2009
  2. By: Daniela Marconi (Bank of Italy); Laura Painelli (Bank of Italy)
    Abstract: The paper assesses the vulnerability of China to external shocks via the indirect negative effect of a slow-down in exports on domestic demand for investment. In the last decade China has increased its dependence on external demand, particularly from the advanced countries; at the same time it has become a primary destination market for goods produced in the rest of emerging Asia. Since 2001 investment expenditures have represented a key driver of Chinese GDP growth; as a very large share of activity in the manufacturing sector is export oriented, we expect fixed capital investment in this sector to be highly related to exports. Overcoming serious shortcomings in available data, we estimate an investment equation for the period 1993-2006 and find an elasticity of investment to exports in the manufacturing sector in the range between 0.9 and 1. Taking into account the dominant contribution of capital accumulation to Chinese GDP growth, we conclude that the growth effects of an external demand shock could become significant when taking into account the domestic investment channel.
    Keywords: exports, investment, elasticity
    JEL: F14 E22 N6
    Date: 2009–02
  3. By: Riccardo Settimo (Bank of Italy); Claudia Maurini (Bank of Italy)
    Abstract: This paper provides an assessment of Italian aid policy during the period 1983-2006. In comparison with other donors (DAC and G-7), the main stylized facts are: persistently lower aid/GDP ratio, greater recourse to multilateral channels, a higher percentage of “tied†flows and relatively greater recourse to debt relief. Drawing on the empirical literature on aid allocation, we estimate the determinants of Italy’s bilateral aid. We use three groups of explanatory variables, reflecting national-interest, humanitarian and selectivity-related motivations. We find that the distribution of Italian bilateral resources is significantly affected by both national-interest (like foreign policy or trade) and humanitarian motives, related to recipients’ needs; the latter’s role, in particular, seems to have strengthened over time. There is ample room for improving selectivity, i.e., the capacity to direct ODA flows to “deserving†countries, where better policies and institutions are likely to increase aid effectiveness.
    Keywords: Italian foreign aid, aid allocation, donor motives, economic development.
    JEL: F35 O1
    Date: 2009–03
  4. By: Paula Armstrong (Department of Economics, University of Stellenbosch)
    Abstract: Educational quality is a challenged facing the South African schooling system. It is widely acknowledged that teachers play a central role in the quality of education received by students, and that the quality of teachers is largely dependent on the wage they are offered in the teaching profession. This paper investigates the state of teacher pay in the South African labour market by comparing the remuneration received by teachers with that received by their non-teaching counterparts. Remuneration is compared across educational attainment levels, years of experience and across age groups. A Lemieux Decomposition is used to determine what the distribution of teacher wages would look like if teachers were remunerated according to the same structure as non-teachers. It is found that the teaching profession is relatively unattractive to individuals at the top end of the skills distribution in the South African labour market.
    Keywords: Education, Wage differentials by occupations, Wage level and structure
    JEL: I2 J31
    Date: 2009
  5. By: NG Meyer (Development Bank of Southern Africa and Department of Economics, University of Pretoria); MC Breitenbach (Department of Economics, University of Pretoria); TI Fényes (Department of Economics, University of Pretoria); A Jooste (Market and Economic Research Centre, National Agricultural Marketing Council (NAMC), Pretoria & Affiliate Professor, Department of Agricultural Economics, University of the Free State, Bloemfontein)
    Abstract: This paper informs government policy insofar as it relates to the agricultural and rural de- velopment sectors and infrastructure investment within these sectors. The paper first quantfies the role of agriculture in the South African economy. This is done within the context of, inter alia, food security, agriculture's contribution to gross domestic product (GDP), economic link- ages and multipliers with respect to the agricultural sector, as well as agriculture's employment creation and external stabilisation capacity. Investment in the agricultural and rural sectors are then analysed with a view of supporting the argument that agriculture's role in the economy is su¢ ciently important to warrant regenerative strategies, including renewed emphasis on agricul- tural and rural infrastructure investment by South African policy makers. The quantification of the agricultural sector in relation to the total economy and that of agricultural and rural infrastructure investment are investigated against the backdrop of declining government sup- port, increasing production risks due to a variety of exogenous events like climate change, and increasing dynamic trade impacts. In this paper, the authors offer both supporting arguments in terms of current economic policy and recommendations for more decisive policy measures aimed at agricultural regeneration and rural infrastructure investment.
    Date: 2009–03
  6. By: Maria Csanadi (Institute of Economics - Hungarian Academy of Sciences); Hairong Lai (Center for Comparative Politics and Economics - Beijing); Ferenc Gyuris (Department of Regional Science - Eötvös Loránd University, Budapest)
    Abstract: This paper analyzes the impact of global financial and economic crisis on the process of system transformation in China. First, it details the direct impact of global growth on macroeconomic development and its indirect impact on economic transformation. Second, it analyzes the direct impact of global crisis on macroeconomic decline and its indirect impact on the prospects of political transformation. The paper builds on the basic principles and ideas of the Interactive Party-State model to introduce the concept of transformation dynamics. This concept implies the direction and speed of change of the retreating party-state sphere and the emergence of the field outside of it during the process of transformation. Using this concept a statistical survey was carried out on the economic transformation of the Chinese party-state. Results reveal the disparities of the dynamics of transformation in time, in space, and at different levels of aggregation between 1999 and 2004. A dominant type of transformation dynamics is revealed during this period and the shift of dominant type within that period, sensitive to the trend of certain economic indicators. Based on those findings, the paper projects the dominance of another type of transformation dynamics as a result of the consequences of global crisis. It also outlines the possible impact of this dynamics on the premises of political transformation.
    Keywords: system transformation, China, economic transformation, political transformation, spatial disparities in system transformation
    JEL: B52 D85 N10 P2 P3 P41 P52
    Date: 2009–03
  7. By: Poncet, Sandra; Steingress, Walter; VANDENBUSSCHE, Hylke (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: This paper uses a unique micro-level data-set on Chinese firms to test for the existence of a "political-pecking order" in the allocation of credit. Our findings are threefold. Firstly, private Chinese firms are credit constrained while State-owned firms and foreign-owned firms in China are not; Secondly, the geographical and sectoral presence of foreign capital alleviates credit constraints faced by private Chinese firms. Thirdly, geographical and sectoral presence of state firms aggravates financial constraints for private Chinese firms (Òcrowding outÓ). Therefore it seems that ongoing restructuring of the state-owned sector and further liberalization of foreign capital inflows in China can help to circumvent financial constraints and can boost the investment of private firms.
    Keywords: investment-cashflow sensitivity, China, firm level data, foreign direct investment.
    JEL: E22 G32
    Date: 2008–12
  8. By: Marilena Giannetti; Daniela Federici; Michele Raitano
    Abstract: The impact of remittance flows on growth and income distribution has attracted a great deal of attention, but the theoretical and empirical literature on the relationship between remittances and economic development is far from clear. Although there is wide consensus that foreign remittances can help receiving households to increase income, consumption and capabilities to face socioeconomic shocks, there has been little quantitative research on impacts of remittances on household welfare and poverty. Our paper seeks to fill some of these gaps and it proposes an empirical analysis of the role of remittances as tool for reducing inequality and covering households against poverty and social exclusion risks. The empirical analysis focuses on four Eastern European Countries: Slovenia, Poland, the Czech Republic and Hungary, and is based on the EU-SILC 2005 data-set, that for each household provides information regarding interhousehold cash transfers received amongst which, regular cash support from households in other countries (i.e. remittances) are included.
    Keywords: Remittances, inequality, poverty.
    JEL: O10 O15 O52
    Date: 2009–02
  9. By: Lamia Kamal-Chaoui; Edward Leeman; Zhang Rufei
    Abstract: China has become the world’s largest urban nation, with over 600 million urban citizens today. Projections indicate that this level may reach 900 million in 2030. The way this urbanisation process is managed will have important policy implications for China and beyond. This paper provides an introduction to urban trends and policies in China. It describes urban growth trends, where and in what kinds of cities growth is occurring, how China’s cities are governed, and how public policy has influenced the extent, pace, and spatial distribution of urbanisation. As China continues to integrate with the globalising economy, its competitiveness will increasingly be driven by the capacities of its metropolitan regions to improve the productivity of enterprises in ever-widening supply chains. The report concludes with a description of some of the key policy challenges facing central and local urban governments in this global context, including: 1) institutional constraints to markets and factor mobility; 2) environmental challenges; 3) ensuring equity and helping vulnerable groups; and 4) metropolitan governance.
    Date: 2009–03–25
  10. By: Jack, William; Lewis, Maureen
    Abstract: This paper reviews the correlations and potential links between health and economic growth and summarizes the evidence on the role of government in improving health status. At the macroeconomic level, the evidence of an impact of health on growth remains ambiguous due both to difficulties in measuring health, and to the methodological challenges of identifying causal links. The evidence on the micro linkages from health investments to productivity and income are robust. Progress in life expectancy over the past two centuries has been spectacular, fueled by: improved agriculture that has increased food quantity; knowledge of disease transmission, and effective public health interventions that have controlled communicable diseases such as malaria, yellow fever, and hookworm; and, most recently and importantly, investments in very young children that pay off in healthier and more productive adults. Whether public investments in medical care affect health hinges on the quality of health institutions. In much of the developing world, factors such as chronic absenteeism among public providers, poor budget execution, ineffective management, and virtually no accountability weaken public efforts. Institutional issues are central in efforts to enhance public health investments, which in turn have a direct impact on the population's welfare and, perhaps over the long term, improvements in national income.
    Keywords: Health Monitoring&Evaluation,Health Systems Development&Reform,Population Policies,Health Economics&Finance,Disease Control&Prevention
    Date: 2009–03–01
  11. By: Go, Delfin S.; Kearney, Marna; Korman, Vijdan; Robinson, Sherman; Thierfelder, Karen
    Abstract: In this paper, the authors use a highly disaggregate general equilibrium model to analyze the feasibility of a wage subsidy to unskilled workers in South Africa, isolating and estimating its potential employment effects and fiscal cost. They capture the structural characteristics of the labor market with several labor categories and substitution possibilities, linking the economy-wide results on relative prices, wages, and employment to a micro-simulation model with occupational choice probabilities in order to investigate the poverty and distributional consequences of the policy. The impact of a wage subsidy on employment, poverty, and inequality in South Africa depends greatly on the elasticities of substitution of factors of production, being very minimal if unskilled and skilled labor are complements in production. The desired results are attainable only if there is sufficient flexibility in the labor market. Although the impact in a low case scenario can be improved by supporting policies that relax the skill constraint and increase the production capacity of the economy especially towards labor-intensive sectors, the gains from a wage subsidy are still modest if the labor market remains very rigid.
    Keywords: Labor Markets,Labor Policies,,Economic Theory&Research,Access to Finance
    Date: 2009–03–01
  12. By: Markandya, Anil; Pedroso-Galinato, Suzette
    Abstract: This paper provides empirical estimates of the impacts of natural disasters on different forms of capital (with a focus on human and intangible capital and natural capital), and on real gross domestic product per capita. The types of disaster considered are droughts, earthquakes, floods, and storms and their impacts are measured in terms of the number of people affected or people affected per capita. The authors find statistically significant reductions on the values of human and intangible capital and land capital as a consequence of the disasters, and these reductions are greater when the impacts last for longer periods. Based on the assumption that natural disasters indirectly affect the level of income via losses in capital, the authors estimate a Cobb-Douglas production function using the different forms of capital as inputs. The losses in income are found to vary across different countries and the type of natural disaster studied. However, a common finding is that the losses in income depend generally on two factors: the relative magnitude of impacts of a natural disaster and the values of different forms of capital. The estimates in this paper are national level figures and cannot be useful in predicting the cost of damages at the local level, where much larger amounts can be experienced per capita. Nevertheless, the estimates provide some indication of magnitudes for different disasters and for different groups of countries. More work and more data are needed to get a dynamic profile for the losses of capital and income. But given the study's results, the time profile is estimated to range typically between two and five years.
    Keywords: Natural Disasters,Disaster Management,Hazard Risk Management,Economic Theory&Research,Population Policies
    Date: 2009–03–01
  13. By: Lopez, Ramon
    Abstract: Empirical evidence suggests that the higher-order effects of natural disasters, which affect intangible assets, may be even more important than the material inter-industry effects. However, most existing general equilibrium models ignore higher order effects concerning human capital. Moreover, it is recognized that natural resource dependence increases vulnerability to natural disasters. Recent studies have indeed shown the potential importance of subsistence traps caused by asset losses in low-income economies from a partial equilibrium perspective. This paper presents an analysis that allows for endogenous investments in real assets (physical capital) as well as in human capital, explicitly considering the potential for subsistence traps arising from minimum consumption and minimum natural resource irreversibility thresholds. The general equilibrium ramifications of subsistence traps are developed. The main issue is that the economy may be subject to hysteresis: A temporary shock such as a natural disaster may leave permanent consequences for the economy. An obvious permanent effect of a one-time disaster shock is that physical man-made and natural assets owned especially by poor households may end up completely wiped out. The disaster may not be the direct cause; it may be that poor households would have to obtain minimum subsistence consumption out of depleted assets. However, not all permanent effects of a one-time shock are negative. Under certain conditions, the destruction of man-made physical and natural capital may have general equilibrium effects that increase the incentives to invest in human capital and may even propel a formerly stagnating economy into a virtuous path of continuing growth.
    Keywords: Economic Theory&Research,Access to Finance,Debt Markets,Economic Growth,Labor Policies
    Date: 2009–03–01
  14. By: Allcott, Hunt; Ortega, Daniel E.
    Abstract: This program evaluation estimates the effects on standardized test scores of graduating from the Fe y Alegría private school system in Venezuela. The authors find an Average Treatment Effect on the order of 0.1 standard deviations (approximately 16 percent of the average score), using a control group of public school students. These effects are significantly larger for households at the bottom of the distribution, and smaller for those at the top. The authors posit that the better performance of the Fe y Alegría system stems from their labor contract flexibility and decentralized administrative structure.
    Keywords: Tertiary Education,Education For All,Secondary Education,Primary Education,Teaching and Learning
    Date: 2009–03–01
  15. By: Banerjee, Sudeshna; Diallo, Amadou; Foster, Vivien; Wodon, Quentin
    Abstract: Household surveys have long been used to estimate poverty and inequality trends, as well as trends in education and health indicators, but they have not been used to the same extent to assess trends in the access to or coverage of modern infrastructure services. In this paper, we use Demographic and Health Surveys from a larger sample of sub-Saharan African countries in order to collect comparable information across countries on coverage of piped water, flush toilets, electricity, and landline telephones over time. The results suggest that coverage rates for electricity, flush toilets have improved slightly over the last decade. Coverage of piped water has declined, at the same time as coverage of landline (as well as cellular) telephone has increased rapidly. The decline has been primarily in the urban areas while the infrastructure coverage has either increased or remained stable in rural Africa. For all four services, among the poorest households coverage remains virtually inexistent. If business as usual continues, it would take a very long time to reach universal or widely shared coverage even in countries where coverage has improved. These results point to the need to increase efforts by governments and international community to progressively increase access to modern infrastructure services in Africa.
    Keywords: Town Water Supply and Sanitation,Population Policies,Urban Water Supply and Sanitation,Urban Slums Upgrading,Urban Services to the Poor
    Date: 2009–03–01
  16. By: Wodon, Quentin; Banerjee, Sudeshna; Diallo, Amadou Bassirou; Foster, Vivien
    Abstract: A majority of sub-Saharan Africa’s population is not connected to electricity and piped water networks, and even in urban areas coverage is low. Lack of network coverage may be due to demand or supply-side factors. Some households may live in areas where access to piped water and electricity is feasible, but may not be able to pay for those services. Other households may be able to afford the services, but may live too far from the electric line or water pipe to have a choice to be connected to it. Given that the policy options for dealing with demand as opposed to supply-side issues are fairly different, it is important to try to measure the contributions of both types of factors in preventing better coverage of infrastructure services in the population. This paper shows how this can be done empirically using household survey data and provides results on the magnitude of both types of factors in explaining the coverage deficit of piped water and electricity services in urban areas for a large sample of African countries.
    Keywords: Currencies and Exchange Rates,,Economic Theory&Research,Geographical Information Systems,Markets and Market Access
    Date: 2009–03–01
  17. By: Irving, Jacqueline; Manroth, Astrid
    Abstract: With the exception of South Africa, local financial markets in sub-Saharan Africa remain underdeveloped and small, with a particular dearth of financing with maturity terms commensurate with the medium- to long-term horizons of infrastructure projects. But as financial market reforms gather momentum, there is growing awareness of the need to tap local and regional sources. Drawing on a comprehensive new database constructed for the purpose of this research, the paper assesses the actual and potential role of local financial systems for 24 African countries in financing infrastructure. The paper concludes that further development and more appropriate regulation of local institutional investors would help them realize their potential as financing sources, for which they are better suited than local banks because their liabilities would better match the longer terms of infrastructure projects. There are clear signs of positive change: private pension providers are emerging in Africa, there is a shift from defined benefit toward defined contribution plans, and African institutional investors have begun taking a more diversified portfolio approach in asset allocation. Although capital markets remain underdeveloped, new issuers in infrastructure sectors-particularly of corporate bonds-are coming to market in several countries, in some cases constituting the debut issue. More than half of the corporate bonds listed at end-2006 on these countries'markets were by companies in infrastructure sectors. More cross-border listings and investment within the region-in both corporate bonds and equity issues-including by local institutional investors, could help overcome local capital markets'impediments and may hold significant promise for financing cross-country infrastructure projects.
    Keywords: Debt Markets,,Banks&Banking Reform,Access to Finance,Emerging Markets
    Date: 2009–03–01
  18. By: Raddatz, Claudio
    Abstract: The economic benefits of debt relief for recipient countries have been the subject of arduous debate, at least partly motivated by the difficulty of identifying the causal effect of debt relief on economic performance-given that performance itself may drive the decision to grant relief. This paper conducts an event study to assess the economic consequences of multilateral debt relief for recipient countries that is robust to these reverse causality issues. It estimates the response of the stock prices of South African multinationals with subsidiaries in those countries to the announcement of debt relief initiatives, and shows that stock prices exhibit a significant increase above those of other firms, especially around the launching of the recent Multilateral Debt Relief Initiative. The improvement in financial markets'assessment of the value of these multinationals is consistent with lower expected levels of future taxation in the recipient countries. Overall, the results are consistent with the"debt overhang"argument for debt relief.
    Keywords: Debt Markets,External Debt,Banks&Banking Reform,Bankruptcy and Resolution of Financial Distress,
    Date: 2009–03–01
  19. By: Fernandes, Ana Margarida; Mattoo, Aaditya
    Abstract: Professional skills are scarce in Mozambique, even by the standards of low-income countries. The solution, however, is not necessarily to create more Mozambican training institutions but to address market-specific problems. Where skills are already the binding constraint (for example, in auditing and engineering), policy action is indeed needed to remedy supply-side problems: capital market imperfections that inhibit investment in training institutions by entrepreneurs and in education by individuals; weakness in upstream school education, which handicaps Mozambican students in their pursuit of higher education; inadequacies in professional education and training, including curricula not attuned to industry needs; and a fragmentation of the regional education market by regulatory and language differences that prevent the emergence of regional institutions that can exploit economies of scale.Where skills may be limited but are not yet the binding constraint, the priority is to stimulate demand for appropriate skills. In this respect, the emergence of professional guilds offers opportunities, but also creates risks. The guilds can design, with government support, a regulatory framework, for example, in accounting and basic engineering, which is more attuned to the needs of Mozambican firms. They can also help make firms more aware of the benefits of professional help, for example, in accounting and information technology. The risk is that guilds will create unnecessary regulatory barriers to entry, particularly for foreign or foreign-trained professionals. Greater coherence between policies affecting professional services and international migration policy can help deal with both supply-side and demand-side problems.
    Keywords: Tertiary Education,,Access&Equity in Basic Education,Education For All,Teaching and Learning
    Date: 2009–03–01
  20. By: Coolidge, Jacqueline; Ilic, Domagoj; Kisunko, Gregory
    Abstract: The authors use firm-level survey data on 998 small and medium enterprises registered for tax in South Africa regarding tax compliance costs to investigate the use of outsourcing to complete tax compliance tasks. Overall, about 43 percent of the enterprises do all their tax compliance work in-house, 11 percent outsource all their tax compliance work, and the remaining 46 percent use a combination of both ("partial outsourcing"). The data display an inverted-U shape for outsourcing of tax compliance tasks: the smallest firms (those under R 300,000 turnover or well under US$50,000) tend not to outsource, due to a combination of relatively higher cost-burden and less complexity. Relatively larger firms (those with more than R 14 million turnover or about US$2 million) report that they have sufficient in-house capacity and therefore do not need to outsource. Those in the middle are most likely to outsource at least some of their tax compliance work, mostly because tax is a specialist field and they presumably lack sufficient capacity in-house. The survey data show that the costs of tax compliance are clearly the highest for those who engage in partial outsourcing, as it appears there is likely duplication of effort. Most such firms could reduce their tax compliance costs (and probably minimize the incidence of post-filing problems) by moving from partial to full outsourcing of all tax compliance work.
    Keywords: Taxation&Subsidies,Emerging Markets,Debt Markets,E-Business,Tax Policy and Administration
    Date: 2009–03–01
  21. By: Ronald McKinnon; Gunther Schnabl
    Abstract: China's financial conundrum arises from two sources: (1) its large trade (saving) surplus results in a currency mismatch because it is an immature creditor that cannot lend in its own currency. Instead foreign currency claims (largely dollars) build up within domestic financial institutions. And (2), economists - both American and Chinese - mistakenly attribute the surpluses to an undervalued renminbi. To placate the United States, the result is a gradual appreciation of the renminbi against the dollar of 6 percent or more per year. This predictable appreciation since 2004, and the fall in US interest rates since mid 2007, not only attracts hot money inflows but inhibits private capital outflows from financing (compensating?) China's huge trade surplus. This one-way bet in the foreign exchange markets can no longer be offset by relatively low interest rates in China compared to the United States, as had been the case in 2005-06. Thus, the People's Bank of China (PBC) now must intervene heavily to prevent the renminbi from ratcheting upwards - and so becomes the country's sole international financial intermediary. Despite massive efforts by the PBC to sterilise the monetary consequences of the reserve buildup, inflation in China is increasing, with excess liquidity that spills over into the world economy. China has been transformed from a deflationary force on American and European price levels into an inflationary one. Because of the currency mismatch, floating the RMB is neither feasible nor desirable - and a higher RMB would not reduce China's trade surplus. Instead, monetary control and normal private-sector finance for the trade surplus require a return to a credibly fixed nominal yuan/dollar rate similar to that which existed between 1995 and 2004. But for any newly reset yuan/dollar rate to be credible as a monetary anchor, foreign "China bashing" to get the RMB up must end. Currency stabilisation would allow the PBC to regain monetary control and quash inflation. Only then can the Chinese government take decisive steps to reduce the trade (saving) surplus by tax cuts, increased social expenditures, and higher dividend payouts. But as long as the economy remains overheated, the government hesitates to take these trade-surplus-reducing measures because of their near-term inflationary consequences. This is part of a series of BIS Working Papers (273 to 278) collecting papers presented at the BIS's Seventh Annual Conference on "Whither monetary policy? Monetary policy challenges in the decade ahead" in Luzern, Switzerland, on 26-27 June 2008. The event brought together senior representatives of central banks and academic institutions to exchange views on this topic. BIS Paper 45 contains the opening address of William R White (BIS), the contributions of the policy panel on "Beyond price stability - the challenges ahead" and speeches by Edmund Phelps (Columbia University) and Martin Wolf (Financial Times). The participants in the policy panel discussion chaired by Malcolm D Knight (BIS) were Martin Feldstein (Harvard University), Stanley Fischer (Bank of Israel), Mark Carney (Bank of Canada) and Jean-Pierre Landau (Banque de France). This Working Paper includes comments by Michael Mussa.
    Keywords: Global Imbalances, Chinese Exchange Rate Regime
    Date: 2009–03
  22. By: Hugo Nopo; Natalia Winder
    Abstract: This study analyzes social mobility and human capital accumulation among ethnic minorities in Mexican urban areas, exploring changes in educational attainment and labor market status and using panel data from the Mexican Family Life Survey (MFxLS). The results indicate important ethnic differences in human capital accumulation patterns, especially in education, where non-indigenous individuals seem to accumulate human capital more rapidly than individuals of indigenous descent. Also, key socio-demographic characteristics linked to those patterns of human capital accumulation seem to differ between indigenous and non-indigenous individuals. In particular, for indigenous peoples in urban areas, human capital accumulation and wealth accumulation seem to work as substitutes rather than complements in the short run.
    Keywords: Social mobility, human capital accumulation, education, ethnic minorities, urban areas, Mexico
    JEL: D13 J15 O18
    Date: 2008–12
  23. By: Guido Imbens (Institute for Fiscal Studies and Harvard University); Jeffrey Wooldridge
    Abstract: <p>Many empirical questions in economics and other social sciences depend on causal effects of programs or policies. In the last two decades much research has been done on the econometric and statistical analysis of the effects of such programs or treatments. This recent theoretical literature has built on, and combined features of, earlier work in both the statistics and econometrics literatures. It has by now reached a level of maturity that makes it an important tool in many areas of empirical research in economics, including labor economics, public finance, development economics, industrial organization and other areas of empirical micro-economics. In this review we discuss some of the recent developments. We focus primarily on practical issues for empirical researchers, as well as provide a historical overview of the area and give references to more technical research. </p>
    Date: 2008–08
  24. By: Richard Blundell (Institute for Fiscal Studies and University College London); Monica Costa Dias (Institute for Fiscal Studies and Institute for Fiscal Studies)
    Abstract: <p>This paper reviews a range of the most popular policy evaluation methods in empirical microeconomics: social experiments, natural experiments, matching methods, instrumental variables, discontinuity design and control functions. It discusses the identification of both the traditionally used average parameters and more complex distributional parameters. In each case, the necessary assumptions and the data requirements are considered. The adequacy of each approach is discussed drawing on the empirical evidence from the education and labor market policy evaluation literature. We also develop an education evaluation model which we use to carry through the discussion of each alternative approach. A full set of <a href="">STATA datasets are provided free online</a> which contain Monte-Carlo replications of the various specifications of the education evaluation model. There are also a full set of STATA .do files for each of the estimation approaches described in the paper. The .do-files can be used together with the datasets to reproduce all the results in the paper.</p></p></p></p>
    Date: 2008–10
  25. By: Besley, Timothy J.; Ghatak, Maitreesh
    Abstract: This chapter develops a unified analytical framework, drawing on and extending the existing literature on the subject, for studying the role of property rights in economic development. It addresses two fundamental and related questions concerning the relationship between property rights and economic activity. (i) What are the mechanisms through which property rights affect economic activity? (ii) What are the determinants of property rights? In answering these, it surveys some of the main empirical and theoretical ideas from the extensive literature on the topic. This paper will form a chapter for Volume V of the Handbook of Development Economics edited by Dani Rodrik and Mark Rosenzweig
    Keywords: Economic Development; Property rights
    JEL: K11 O17 P14
    Date: 2009–03
  26. By: Kaivan Munshi; Mark Rosenzweig
    Abstract: This paper examines the hypothesis that the persistence of low spatial and marital mobility in rural India, despite increased growth rates and rising inequality in recent years, is due to the existence of sub-caste networks that provide mutual insurance to their members. Unique panel data providing information on income, assets, gifts, loans, consumption, marriage, and migration are used to link caste networks to household and aggregate mobility. Our key finding, consistent with the hypothesis that local risk-sharing networks restrict mobility, is that among households with the same (permanent) income, those in higher-income caste networks are more likely to participate in caste-based insurance arrangements and are less likely to both out-marry and out-migrate. At the aggregate level, the networks appear to have coped successfully with the rising inequality within sub-castes that accompanied the Green Revolution. The results suggest that caste networks will continue to smooth consumption in rural India for the foreseeable future, as they have for centuries, unless alternative consumption-smoothing mechanisms of comparable quality become available.
    JEL: J12 J61 O11
    Date: 2009–04

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