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on Development |
| By: | Claire Naiditch (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Radu Vranceanu (Department of Economics - ESSEC) |
| Abstract: | This paper analyzes international migrations when migrants invest part of their income in their origin country. This investment contributes to increase capital intensity and wages in the origin country, thus reducing the scope for migrating. We show that a non-total migratory equilibrium can exist if the foreign wage is not too high, and/or migratory and transfer costs are not too low. Exogenous shocks, such as an increase in the foreign wage, lead to an increase in optimal remittances per migrant, and a higher wage in the origin country. Yet the net effect on the equilibrium number of migrants is positive. Hence, in equilibrium, optimal remittances and number of migrants are positively related. We use data from twenty fiÂ…ve countries from Eastern Europe and Central Asia in 2000 in order to test for this implication of our model. OLS and bootstrap estimates put forward a positive elasticity of the number of migrants with respect to remittances per migrant. Policy implications follow. |
| Keywords: | Remittances, Investment motive, Migratory Policy. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00376472_v1&r=dev |
| By: | Petracco, Carly K.; Pender, John |
| Abstract: | "The theorized impact of land tenure and titling on access to credit has produced mixed results in the empirical literature. Land tenure and titling is hypothesized to increase access to credit because of the enhanced land security provided and the newfound ability to use land as collateral. Using land as collateral and obtaining access to credit are paramount concerns in Uganda and in all of Africa, as greater emphasis is placed on the need to modernize the agricultural system. This paper uses a new approach in evaluating whether land tenure and titling have an impact on access to credit for rural households in Uganda. The new approach includes comparisons across four categories: (1) households who have customary land with versus without a customary certificate, (2) households who have freehold land with versus without a title, (3) households with a title or certificate having freehold versus customary tenure, and (4) households without a title or certificate having freehold versus customary tenure. Each comparison is then evaluated for the impact on access to any form of credit, formal credit, and informal credit. This analysis allows for an in-depth look into which element, tenure or title, is impacting access to credit and to which type of credit, formal or informal. To conduct this analysis, matching techniques are used, including propensity score matching and the Abadie and Imbens matching method. These two methods contain both strengths and weaknesses that allow the results to support to one another. The only significant finding of the matching was a positive impact on access to credit of freehold without title over customary without certificate. Results imply that tenure, not title, impacts credit access for rural households in Uganda." from authors' abstract |
| Keywords: | Land tenure, Land titling, Rural credit, Land management, |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:853&r=dev |
| By: | Xu, Chenggang; Zhang, Xiaobo |
| Abstract: | "Township-village enterprises (TVEs) were a major engine of China's rapid rural industrialization in the past three decades. TVEs also played a key role in fostering entrepreneurship and served as a major stepping-stone for institutional changes when legal protections of private property rights were not in place and the state-owned enterprises (SOEs) were slow to react to changing market demand. As private ownership was gradually recognized legally, TVEs lost their edge in competing with private firms. In the past two decades, industrial clusters with a concentration of private entrepreneurial firms coordinated by local governments have emerged rapidly in many areas. The structures of such firms as TVEs and the subsequent clustering modes of production are an outcome of interaction with other local and macro environments. As the environment changes, a firm's organization and organizational structure may change as well." from authors' abstract |
| Keywords: | Cluster, Firm theory, Industrialization, Growth, Development strategies, |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:854&r=dev |
| By: | Douglas Gollin (Williams College); Christian Zimmermann (University of Connecticut) |
| Abstract: | The World Health Organization (WHO) reports that malaria, a parasitic disease transmitted by mosquitoes, causes over 300 million episodes of “acute illness” and more than one million deaths annually. Most of the deaths occur in poor countries of the tropics, and especially sub-Saharan Africa. Most of the countries with high rates of malaria prevalence are also poor, and some researchers have suggested a direct link from malaria to poverty. This paper explores the potential impact of malaria on national income levels, using a dynamic general equilibrium framework with epidemiological features. We find that if there is no feasible prevention or control, malaria can have a significant impact on income levels. However, if people have any effective way of avoiding infection, the disease impacts on income levels are likely to be small. This is true even where preventive measures are costly. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2008-17&r=dev |
| By: | Easterlin, Richard A. (University of Southern California); Angelescu, Laura (University of Southern California) |
| Abstract: | There is no significant relationship between the improvement in happiness and the long term rate of growth of GDP per capita. This is true for three groups of countries analyzed separately − 17 developed, 9 developing, and 11 transition − and also for the 37 countries taken together. Time series studies reporting a positive relationship confuse a short-term positive association between the growth of happiness and income, arising from fluctuations in macroeconomic conditions, with the long-term relationship, which is nil. |
| Keywords: | happiness, economic growth, developing countries, transition countries, developed countries |
| JEL: | I31 D60 O10 P27 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4060&r=dev |
| By: | Cornelia Staritz (New School for Social Research, New York, NY) |
| Keywords: | economic development; financial structure |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:epa:cepawp:2008-3&r=dev |
| By: | Kiyota, Kozo |
| Abstract: | The empirical literature on trade liberalization reflects two puzzles. First, the effect of trade liberalization on economic growth is ambiguous. Second, the effect of trade liberalization by developing countries on their income distribution is ambiguous. This paper attempts to explain these two puzzles at the same time, based on a multiple-cone neoclassical growth model. The model shows that countries that are labor abundant in a global sense may see a rise in income inequality and a decline in per capita GDP and per capita consumption with liberalization if they are capital abundant in a local sense. The results suggest that the two puzzles can be explained by the existence of global and local factor abundances. |
| Keywords: | Trade Liberalization, Medium-run Growth, Income Distribution, Multiple-cone Model, Stolper-Samuelson Theorem |
| JEL: | F1 O41 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:hit:ccesdp:17&r=dev |
| By: | Pettersson, Jan (Department of Economics); Johansson, Lars M (Department of Economics) |
| Abstract: | Donor aid is often regarded as being informally tied (aid increases donorrecipient exports) and this effect is, in general, interpreted as being harmful to aid recipients. However, in this paper, using a gravity model, we show that aid is also positively associated with recipient-donor exports. That is, aid increases bilateral trade ows in both directions. Our interpretation is that an intensi ed aid relation reduces the e ective cost of geographic distance. We find a particularly strong relation between aid in the form of technical assistance and exports in both directions. When we disaggregate aid to specifically study the effects from trade-related assistance (Aid for Trade) the effect is small and fully accounted for by aid to investments in trade-related infrastructure. Our sample includes all 184 countries for which data is available during the period 1990 to 2005. |
| Keywords: | Foreign Aid; International Trade; Exports; Gravity; Aid for Trade |
| JEL: | F35 O19 O24 |
| Date: | 2009–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2009_005&r=dev |
| By: | Carlsson, Fredrik (Department of Economics, School of Business, Economics and Law, Göteborg University); Martinsson, Peter (Department of Economics, School of Business, Economics and Law, Göteborg University); Qin, Ping (Department of Economics, School of Business, Economics and Law, Göteborg University); Sutter, Matthias (Department of Public Finance, University of Innsbruck) |
| Abstract: | We study household decision making in a high-stakes experiment with a random sample of households in rural China. Spouses have to choose between risky lotteries, first separately and then jointly. We find that spouses’ individual risk preferences are more similar the richer the household and the higher the wife’s relative income contribution. A couple’s joint decision is typically determined by the husband, but women who contribute relatively more to the household income, women in high-income households, women with more education than their husbands, and women with communist party membership have a stronger influence on the joint decision.<p> |
| Keywords: | Household decision making; Risk; Field experiment; China |
| JEL: | C91 C92 C93 D10 |
| Date: | 2009–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0356&r=dev |
| By: | Feng, Jin (BOFIT); He, Lixin (BOFIT); Sato, Hiroshi (BOFIT) |
| Abstract: | We relate household saving to pension reform, to explain the high household saving rates in urban China from a new perspective. We use the exogenous – policy induced - variation in pension wealth to explicitly estimate the impact of pension wealth on household saving, and obtain a significant offset effect of pension wealth on household saving. Our estima-tions show that pension reform boosted the household saving rate in 1999 by about 6 per-centage points for cohort aged 25-29 and by about 3 percentage points for cohort aged 50-59. Our results also indicate that declining pension wealth reduces expenditure on educa-tion and health more than on other consumption items. |
| Keywords: | pensions; pension reform; household savings rate; China |
| JEL: | H31 H55 P35 |
| Date: | 2009–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2009_002&r=dev |
| By: | Juan Carlos Echeverry; Jaime Navas; Verónica Navas; María Paula Gómez |
| Abstract: | Colombia’s oil history began in 1918 and reached its golden era at the end of the 1980s. Regulation in the oil industry changed several times since 1974, mainly responding to the discoveries made. Although agreed contract terms have been honored for oil fields allocated in the past, regulation instability has affected long term the relationships with private investors, since new conditions were imposed for future contracts. Once too onerous conditions, too low prices and international competition drove investors away from the country, regulation was softened. Recently, the Colombian government has improved contractual terms and made tributary and royalty conditions more attractive to private investors. The important discoveries made in the last two decades led Colombia to an expenditure spiral, paired with a huge fiscal deficit and a high public debt, drastically changing a seven decade long record of fiscal stability. The cycle of cheap-expensive oil has exhibited a full swing, and although exploration contracts and investment have increased, no important discoveries have been made, revealing a complicated geology that might pose a challenge to the country’s hydrocarbons’ self-sufficiency. |
| Date: | 2009–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:005428&r=dev |
| By: | Saha, U.R.; Soest, A.H.O. van (Tilburg University, Center for Economic Research) |
| Abstract: | Using longitudinal data of the Health and Demographic Surveillance System (HDSS) in Matlab, Bangladesh, covering the time period 1982 – 2005, and exploiting dynamic panel data models, we analyze siblings’ death at infancy, controlling for unobserved heterogeneity and a causal effect of death of one child on survival chances of the next child. Matlab is a rural area split into two: a “treatment†area where along with standard government services extensive maternal and child health interventions are available, and a “comparison†area where only the standard government services are available. The observed infant mortality rates are 50 per 1,000 live births in the treatment area and 67.4/1,000 in the comparison area. We use separate models for the two areas and analyze the differences in infant mortality between the two areas using several decompositions. Our model predicts that in the comparison area, the likelihood of infant death is about 30% larger if the previous sibling died at infancy than if it did not, and the estimates suggest that, in the absence of this “scarring†effect, the infant mortality rate among the second and higher order births would fall by 6.2%. There is no evidence of such a scarring effect in the treatment area, perhaps because learning effects play a larger role with the available extensive health interventions. We find that distance to the nearest health clinic can explain a substantial part of the gap in infant mortality between the two areas. |
| Keywords: | childhood mortality;millennium goals;death clustering;dynamic panel data models |
| JEL: | I12 J13 C33 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200926&r=dev |
| By: | Calderon, Cesar; Kubota, Megumi |
| Abstract: | The"New Open Economy Macroeconomics"argues that: (a) non-monetary factors have gained importance in explaining exchange rate volatility, and (b) trade and financial openness may have a potential role of mitigating and/or amplifying real and nominal shocks to real exchange rates. The goal of the present paper is to examine the ability of trade and financial openness to exacerbate or mitigate real exchange rate volatility. The authors collected information on the real effective exchange rate, its fundamentals, and (outcome and policy measures of) trade and financial openness for a sample of industrial and developing countries for the period 1975-2005. Using instrumental variables techniques, the analysis finds that: (a) High real exchange rate volatility is the result of highly volatile productivity shocks, and sharp oscillations in monetary and fiscal policy shocks. (b) Countries more integrated with international markets of goods and services tend to display more stable real exchange rate fluctuations. (c) Financial openness seems to amplify the fluctuations in real exchange rates. (d) The composition of trade and capital flows plays a role in explaining the smoothing properties of trade and financial openness. Although the former is mainly driven by manufacturing trade, the latter depends on the share of debt (and equity) in total foreign liabilities. (e) Financial openness would attenuate (magnify) real exchange rate volatility, the greater the share of equity (debt) in foreign liabilities. (f) The composition of flows also matters for explaining the smoothing properties of trade and financial openness in periods of currency crisis. |
| Keywords: | Emerging Markets,Debt Markets,Currencies and Exchange Rates,Economic Theory&Research,Economic Conditions and Volatility |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4896&r=dev |
| By: | Creskoff, Stephen; Walkenhorst, Peter |
| Abstract: | Many developing countries operate geographically delineated economic areas in the form of export processing zones, special industrial zones, or free trade zones. This paper provides an overview of the application of World Trade Organization disciplines to incentive programs typically employed by developing countries in connection with such special economic zone programs. The analysis finds that the disciplines under the Agreement on Subsidies and Countervailing Measures have the most immediate relevance for middle-income World Trade Organization members that are not exempt for certain"grandfathered"programs, but will also concern other developing countries in the future, as their exemption expires or their per-capita income passes a threshold of US$1,000. Incentives related to special economic zones can be broadly grouped into three categories: (i) measures that are consistent with the World Trade Organization, notably exemptions from duties and taxes on goods exported from special economic zones; (ii) measures that are prohibited or subject to challenge under World Trade Organization law, notably export subsidies and import substitution or domestic content subsidies; and (iii) and measures where World Trade Orgainzation consistency depends on the facts of the particular case. The paper provides a set of recommendations on how to eliminate questionable incentives. The single most important zone policy reform to achieve World Trade Organization compliance is to remove all requirements to export and permit importation of goods manufactured in special economic zones into the national customs territory without any restrictions other than the application of import duties and taxes. |
| Keywords: | Economic Theory&Research,Trade Law,Trade Policy,Taxation&Subsidies,Emerging Markets |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4892&r=dev |
| By: | Dasgupta, Susmita; Laplante, Benoit; Murray, Siobhan; Wheeler, David |
| Abstract: | An increase in sea surface temperature is evident at all latitudes and in all oceans. The current understanding is that ocean warming plays a major role in intensified cyclone activity and heightened storm surges. The vulnerability of coastlines to intensified storm surges can be ascertained by overlaying Geographic Information System information with data on land, population density, agriculture, urban extent, major cities, wetlands, and gross domestic product for inundation zones likely to experience more intense storms and a 1 meter sea-level rise. The results show severe impacts are likely to be limited to a relatively small number of countries and a cluster of large cities at the low end of the international income distribution. |
| Keywords: | Wetlands,Hazard Risk Management,Climate Change,Water Resources Assessment,Population Policies |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4901&r=dev |
| By: | Stephanou, Constantinos |
| Abstract: | The objective of this paper is to address the main considerations for China of including financial services in its preferential trade agreements. The paper briefly reviews China's financial liberalization process and the state of its domestic financial system, discusses the main considerations of including financial services in China's preferential trade agreements, compares and contrasts the different'architectural'approaches that have been used by countries to include financial services in such agreements, and identifies good practices in preparing for financial services negotiations. Particular emphasis is placed on lessons from Latin American preferential trade agreements, given their more frequent and extensive coverage of financial services compared with other regions. |
| Keywords: | Emerging Markets,Banks&Banking Reform,Trade Law,Trade and Services, |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4898&r=dev |
| By: | Beata S. Javorcik (University of Oxford); Shang-Jin Wei (Columbia University) |
| Abstract: | This paper studies the impact of corruption in emerging markets on the mode of entry and volume of inward foreign direct investment using a unique firm-level data set. It examines two effects of corruption simultaneously: a reduction in the volume of foreign investment and a shift in the ownership structure. Corruption makes local bureaucracy less transparent and hence acts as a tax on foreign investors. Moreover, corruption affects the decision to take on a local partner. On the one hand, corruption increases the value of using a local partner to cut through the bureaucratic maze. On the other hand, corruption decreases the effective protection of investor's intangible assets and lowers the probability that disputes between foreign and domestic partners will be adjudicated fairly, which reduces the value of having a local partner. The importance of protecting intangible assets increases with investor's technological sophistication, which tilts the preference away from joint ventures in a corrupt country. Empirical evidence shows that corruption reduces inward FDI and shifts the ownership structure towards joint ventures. Technologically more advanced firms are found to be less likely to engage in joint ventures. |
| Keywords: | Corruption, Developing Countries, Multinational Firms |
| JEL: | F23 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:062009&r=dev |
| By: | Reuven Glick (Federal Reserve Bank of San Francisco); Michael Hutchison (University of California, Santa Cruz) |
| Abstract: | In recent years China has faced an increasing trilemma¡Xhow to pursue an independent domestic monetary policy and limit exchange rate flexibility, while at the same time facing large and growing international capital flows. This paper analyzes the impact of the trilemma on China's monetary policy as the country liberalizes its goods and financial markets and integrates with the world economy. It shows how China has sought to insulate its reserve money from the effects of balance of payments inflows by sterilizing through the issuance of central bank liabilities. However, we report empirical results indicating that sterilization dropped precipitously in 2006 in the face of the ongoing massive buildup of international reserves, leading to a surge in reserve money growth. We estimate a vector error correction model linking the surge in China's reserve money to broad money, real GDP, and the price level. We use this model to explore the inflationary implications of different policy scenarios. Under a scenario of continued rapid reserve money growth (consistent with limited sterilization of foreign exchange reserve accumulation) and strong economic growth, the model predicts a rapid increase in inflation. A model simulation using an extension of the framework that incorporates recent increases in bank reserve requirements also implies a rapid rise in inflation. By contrast, model simulations incorporating a sharp slowdown in economic growth lead to less inflation pressure even with a substantial buildup in international reserves. |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:252008&r=dev |
| By: | Roland Straub (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Christian Thimann (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper sheds new light on the external and domestic dimension of China’s exchange rate policy. It presents an open economy model to analyse both dimensions of macroeconomic adjustment in China under both flexible and fixed exchange rate regimes. The model-based results indicate that persistent current account surpluses in China cannot be rationalized, under general circumstances, by the occurrence of permanent technology or labour supply shocks. As a result, the understanding of the macroeconomic adjustment process in China requires to mimic the effects of potential inefficiencies, which induce the subdued response of domestic absorption to permanent income shocks causing thereby the observed positive unconditional correlation of trade balance and output. The paper argues that these inefficiencies can be potentially seen as a by-product of the fixed exchange rate regime, and can be approximated by a stochastic tax on domestic consumption or time varying transaction cost technology related to money holdings. Our results indicate that a fixed exchange regime with financial market distortions, as defined above, might induce negative effects on GDP growth in the medium-term compared to a more flexible exchange rate regime. JEL Classification: E32, E62. |
| Keywords: | DSGE modelling, China, current account. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901040&r=dev |
| By: | Simon Deakin (University of Cambridge); Panicos Demetriades (University of Leicester); Gregory James (University of Leicester) |
| Abstract: | We use a new legal dataset tracking changes in creditor protection law over several decades to study the impact of legal reform on banking system development in India. Cointegration analysis is used to show that the strengthening of creditor rights in relation to the enforcement of security iterests in the 1990s and 2000s led to an increase in bank credit. We show that the change in the law was not endogenous to trends in stock market development and GDP per capita, and that the direction of causation ran from legal reform to banking development, rather than the reverse. |
| Keywords: | creditor rights, legal origin, banking development, India |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:wef:wpaper:0038&r=dev |
| By: | Aidt, T.S. |
| Abstract: | Many scholarly articles on corruption give the impression that the world is populated by two types of people: the "sanders" and the "greasers". The "sanders" believe that corruption is an obstacle to development, while the "greasers" believe that corruption can (in some cases) foster development. This paper takes a critical look at these positions. It concludes that the evidence supporting the "greasing the wheels hypothesis" is very weak and shows that there is no correlation between a new measure of managers.actual experience with corruption and GDP growth. Instead, the paper uncovers a strong negative correlation between growth in genuine wealth per capita - a direct measure of sustainable development - and corruption. While corruption may have little average effect on the growth rate of GDP per capita, it is a likely source of unsustainable development. |
| Keywords: | Corruption, Growth, Sustainable Development. |
| JEL: | D78 D82 |
| Date: | 2009–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0918&r=dev |
| By: | Kazianga, Harounan; Klonner, Stefan |
| Abstract: | Building on anthropological evidence, we develop a model of intra-household decision making on fertility and child survival within the framework of the collective household model. We carry out a test of the implications of this framework with data from Demographic and Health Surveys in rural Mali, where polygyny rates among married women are close to 50 per cent. The econometric tests reject the implications of efficient intra-household allocations for junior wives in bigynous households and fail to reject for senior wives in bigynous households as well as for wives in monogamous households. These findings are consistent with existing narrative evidence according to which co-wife rivalry is responsible for resource-consuming struggle and junior wives are the adults with the weakest bargaining position in the household. |
| Keywords: | intrahousehold models; polygyny; child mortality; fertility; Mali |
| JEL: | J13 D13 I12 O15 |
| Date: | 2009–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12859&r=dev |
| By: | Tang, Weiqi; Wu, Libo; Zhang, ZhongXiang |
| Abstract: | A considerable body of economic literature shows the adverse economic impacts of oil-price shocks for the developed economies. However, there has been a lack of empirical study of this kind on China and other developing countries. This paper attempts to fill this gap by answering how and to what extent oil-price shocks impact China’s economy, emphasizing on the price transmission mechanisms. To that end, we develop a structural vector auto-regressive model. Our results show that an oil-price increase negatively affects output and investment, but positively affects inflation rate and interest rate. However, with the differentiated price control policies for materials and intermediates on the one hand and final products on the other hand in China, the impact on real economy, represented by real output and real investment, lasts much longer than that to price/monetary variables. Our decomposition results also show that the short-term impact, namely output decrease induced by the cut of capacity-utilization rate, is greater in the first one to two years, but the portion of the long-term impact, defined as the impact realized through an investment change, increases steadily and exceeds that of short-term impact at the end of the second year. Afterwards, the long-term impact dominates, and maintains for quite some time. |
| Keywords: | Structural vector auto-regressive model; Unit root test; Error-correction model; Oil-price shocks; Price transmission mechanisms; Investment; Output; Producer/consumer price index; Census X-12 approach; China |
| JEL: | Q41 O53 Q48 E22 O13 E23 P22 Q43 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14703&r=dev |
| By: | Mendolicchio, Concetta; Paolini, Dimitri; Pietra, Tito |
| Abstract: | The paper studies a two-sector economy with investments in human and physical capital and imperfect labor markets. Workers and firms endogenously select the sector they are active in, and choose the amount of their investments. To enter the high-skill sector, workers must pay a fixed cost that we interpret as direct cost of education. The economy is characterized by two different pecuniary externalities. Given the distribution of the agents across sectors, at equilibrium, in each sector there is underinvestment in both human and physical capital, due to non-contractibility of investments. A second pecuniary externality is induced by the self-selection of the agents in the two sectors. When total factor productivities are sufficiently diverse, subsidies to labor income in the low skill sector and fixed taxes on the direct costs of education increase total surplus, while subsidies to labor income in the high skill sector can actually reduce it. |
| Keywords: | Human capital; Efficiency; Labour income tax |
| JEL: | J24 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14772&r=dev |
| By: | Nathan Nunn; Diego Puga |
| Abstract: | There is controversy about whether geography matters mainly because of its contemporaneous impact on economic outcomes or because of its interaction with historical events. Looking at terrain ruggedness, we are able to estimate the importance of these two channels. Because rugged terrain hinders trade and most productive activities, it has a negative direct effect on income. However, in Africa rugged terrain afforded protection to those being raided during the slave trades. Since the slave trades retarded subsequent economic development, in Africa ruggedness has also had a historical indirect positive effect on income. Studying all countries worldwide, we find that both effects are significant statistically and that for Africa the indirect positive effect dominates the direct negative effect. Looking within Africa, we also provide evidence that the indirect effect operates through the slave trades. |
| JEL: | N40 N50 O11 O13 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14918&r=dev |
| By: | Francisco J. Buera; Joseph Kaboski; Yongseok Shin |
| Abstract: | Income differences across countries primarily reflect differences in total factor productivity (TFP). More disaggregated data show that the TFP gap between rich and poor countries varies systematically across industrial sectors of the economy: Poor countries are particularly unproductive in tradable and investment goods sectors. In this paper, we develop a quantitatively-oriented framework to explain such cross-country patterns in aggregate and sectoral TFP. We start by documenting that an important distinction between sectors is their average establishment size. For example, establishments in tradable and investment goods sectors operate at much larger scales than those in the non-tradable sector. In our model, sectors with larger scales of operation have more financing needs, and are hence disproportionately affected by financial frictions. Our quantitative exercises show that financial frictions account for a substantial part of the observed cross-country patterns in TFP, both at the aggregate and at the sectoral level. Our model also has novel implications for the impact of financial frictions on the relative scale between the tradable and the non-tradable sectors, which are shown to be consistent with the data. |
| JEL: | E44 O11 O16 O41 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14914&r=dev |
| By: | James Feyrer |
| Abstract: | Establishing a robust causal relationship between trade and income has been difficult. Frankel & Romer (1999) use geographic instruments to identify a positive effect of trade on income. Rodriguez & Rodrik (2000) show that these results are not robust to controlling for missing variables such as distance to the equator or institutions. This paper solves the missing variable problem by generating time varying geographic instruments. The quantity of world trade carried by air has been increasing over time. Estimates from a gravity model show an increase in the elasticity of bilateral trade with regard to air distance over time while the elasticity with regard to sea distance has declined. This change has heterogeneous effects on the trade between pairs of countries depending on the relative sea and air distances between them. This heterogeneity in geography can be used to generate geography based predictions for bilateral trade that vary over time. These predictions can be aggregated and used as instruments for trade in a regression of income on trade. The time series variation allows for controls for country fixed effects, eliminating the bias from any omitted time invariant variables such as distance from the equator or historically determined institutions. Trade has a significant effect on income with an elasticity of roughly one half. Differences in predicted trade growth can explain roughly 17 percent of the variation in cross country income growth between 1960 and 1995. |
| JEL: | F1 F15 F4 F43 O4 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14910&r=dev |
| By: | Xin Meng; Nancy Qian |
| Abstract: | This paper estimates the long run impact of famine on survivors in the context of China's Great Famine. To address problems of measurement error of famine exposure and potential endogeneity of famine intensity, we exploit a novel source of variation in regional intensity of famine derived from the unique institutional determinants of the Great Famine. To address attenuation bias caused by selection for survival, we estimate the impact on the upper quantiles of the distribution of outcomes. Our results indicate that in-utero and early childhood exposure to famine had large negative effects on adult height, weight, weight-for-height, educational attainment and labor supply. |
| JEL: | I1 J01 J1 O1 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14917&r=dev |