nep-dev New Economics Papers
on Development
Issue of 2009‒08‒16
eighteen papers chosen by
Jeong-Joon Lee
Towson University

  1. Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila By Jonathan Zinman; Dean Karlan
  2. Credit Constraints, Entrepreneurial Talent, and Economic Development By Bianchi, Milo
  3. International Migration, Remittances and Labour Supply: The Case of the Republic of Haiti By Jadotte, Evans
  4. .Rushing in where Angels Fear to Tread?.: The Early Internationalization of Indigenous Chinese Firms By Naude, Wim
  5. Are Patent Laws Harmful to Developing Countries? Evidence from China By Belton M. Fleisher; Mi Zhou
  6. Equity in Private Health Insurance Coverage in South Africa: 2002-2007 By Steven F. Koch
  7. The One Child Policy and Family Formation in Urban China By Gordon Anderson; Teng Wah Leo
  8. Aggregate Productivity Growth in Indian Manufacturing: An Application of Domar Aggregation By Deb Kusum Das
  9. Assets and Poverty Traps in Rural Bangladesh By Agnes Quisumbing
  10. Too poor to grow By Lopez, Humberto; Serven, Luis
  11. Banking crises and exports : lessons from the past By Iacovone, Leonardo; Zavacka, Veronika
  12. Credit constraints and investment behavior in Mexico's rural economy By Love, Inessa; Sanchez, Susana M.
  13. Does Urbanisation Affect Rural Poverty? Evidence from Indian Districts By Massimiliano Cali; Carlo Menon
  14. Production Sharing in Latin America and East Asia By K.C. Fung; Alicia García-Herrero; Alan Siu
  15. Developing Countries and the World Trade Organization: A Foreign Influence Approach By Alicia García-Herrero; Alan Siu; K.C. Fung
  16. The Financial Sector and Economic Growth By Cooray, Arusha
  17. Political Selection and Persistence of Bad Governments By Daron Acemoglu; Georgy Egorov; Konstantin Sonin
  18. China's Exporters and Importers: Firms, Products and Trade Partners By Kalina Manova; Zhiwei Zhang

  1. By: Jonathan Zinman (Dartmouth College & Innovations for Poverty Action); Dean Karlan (Economic Growth Center, Yale University, Innovations for Poverty Action, MIT Jameel Poverty Action Lab)
    Abstract: Microcredit seeks to promote business growth and improve well-being by expanding access to credit. We use a field experiment and follow-up survey to measure impacts of a credit expansion for microentrepreneurs in Manila. The effects are diffuse, heterogeneous, and surprising. Although there is some evidence that profits increase, the mechanism seems to be that businesses shrink by shedding unproductive workers. Overall, borrowing households substitute away from labor (in both family and outside businesses), and into education. We also find substitution away from formal insurance, along with increases in access to informal risk-sharing mechanisms. Our treatment effects are stronger for groups that are not typically targeted by microlenders: male and higher-income entrepreneurs. In all, our results suggest that microcredit works broadly through risk management and investment at the household level, rather than directly through the targeted businesses.
    Keywords: microfinance, microcredit, microentreprenuership, risk sharing, formal and informal finance
    JEL: O1 D1 D2 G2
    Date: 2009–07
  2. By: Bianchi, Milo
    Abstract: In this paper, we formalize the view that economic development requires high rates of productive entrepreneurship, and this requires an efficient matching between entrepreneurial talent and production echnologies. We first explore the role of financial development in promoting such efficient allocation of talent, which results in higher production, job creation and social mobility. We then show how different levels of financial development may endogenously arise in a setting in which financial constraints depend on individual incentives to misbehave, these incentives depend on how many jobs are available, and this in turn depends on the level of financial development. Such complementarity between labour market and financial marketdevelopment may generate highly divergent development paths even for countries with very similar initial
    Keywords: credit constraints; allocation of entrepreneurial talent; productive and unproductive entrepreneurs; economic development
    Date: 2009
  3. By: Jadotte, Evans
    Abstract: The Republic of Haiti is a prime international remittance recipient country in the Latin American and Caribbean (LAC) region, relative to its gross domestic product (GDP). The downside of this fact may be that Haiti, based on population size, is also the largest exporter of skilled workers in the world. The present research uses a zero-altered negative binomial (with logit inflation) to model the international migration decision process of households, and endogenous regressors. Amemiya generalized least squares method (instrumental variable Tobit, IV-Tobit) to account for selectivity and endogeneity issues to assess the impact of remittances on labour market outcomes. The results in terms of a decline of labour supply in the presence of remittances are in line with those observed thus far in the literature. However, the impact of international remittances does not seem to be important in determining the labour participation behaviour, particularly for
    Keywords: Republic of Haiti, international migration, remittances, labour supply
    Date: 2009
  4. By: Naude, Wim
    Abstract: In this paper I empirically investigate the early international entrepreneurship of indigenous Chinese firms using data on 3,948 firms surveyed by the World Bank in 2002-03. I find important differences in the extent and motivation of early internationalization between indigenous and foreign-invested Chinese firms. Despite having started with internationalization relatively more recently than most foreign-invested firms, and despite having much less least foreign experience (only 1.3 years, on average, versus nine years) than foreign-invested firms, indigenous firms who internationalize early were found to perform better than foreign-invested firms. They may be .rushing in. to international markets, but so far this seems to be paying off quite
    Keywords: international entrepreneurship, international new ventures, exports, China
    Date: 2009
  5. By: Belton M. Fleisher (Department of Economics, Ohio State University); Mi Zhou (College of Economics and Trade, Hunan University)
    Abstract: Has upgrading and enforcing its patent laws slowed China’s economic growth? The answer we draw from detailed analysis of provincial aggregate data covering roughly the period 1990 through 2007 is strongly negative, but understanding the channels through which stricter protection of intellectual property rights has contributed to more rapid productivity growth is elusive. Our best estimate of the direct impact of the 1992 and 2001 patent laws on TFP growth amounts to not quite 15 percent of the average TFP growth rate over the period, but a much larger share of TFP growth is associated with enactment of the laws in a simple interpretation of our empirical investigation. We estimate that virtually none of the laws’ impact on TFP growth can be directly associated with increased quantity of FDI or R&D, although both series are strongly positively correlated with promulgation of the patent laws. We infer that amount of technology transfer through a FDI and the focus of R&D activity, decline of state ownership and increased marketization, growth of the human capital stock, and movement of the labor force from agriculture to manufacturing and service industries are all processes that were encouraged and whose effect has been magnified by stronger IPR protection. Moreover, adopting and enforcing the patent laws probably cannot be treated as an independent event with causation running in only one direction to China’s economic development..
    Keywords: Patent law, Intellectual Property Rights, TRIPS, TFP Growth
    JEL: O31 O33 O34
    Date: 2009–09
  6. By: Steven F. Koch (Department of Economics, University of Pretoria)
    Abstract: South Africa, which allowed complete suffrage in 1994, for the first time, has committed itself to improved health outcomes through equitable economic and social development. However, South Africa fares poorly in the World Health Organization’s ranking of health system performance, while spending a large proportion of its Gross Domestic Product on health care, suggesting that inequities in health opportunities and outcomes remain. This paper reports on medical aid scheme coverage rates estimated from a series of nationally representative surveys undertaken in South Africa by Statistics South Africa between 2002 and 2007. The individual’s age group, population group and gender were all used to assess coverage to examine inequalities in health care opportunities. The estimates show that coverage rates are quite low, and differ by age group, population group and gender. Despite government efforts to improve health outcomes for the previously disadvantaged population groups, medical aid access for the most disadvantaged, under apartheid, have not improved over the analyzed time period. The study provides important information related to equitable health care financing, noting that a universal national health insurance plan would need to cover an extremely large proportion of the population, as well as the failure, heretofore, of equalizing access to medical aid schemes across population groups in South Africa.
    Keywords: Medical Schemes, General Household Survey
    Date: 2009–08
  7. By: Gordon Anderson; Teng Wah Leo
    Abstract: The Chinese government implemented the One Child Policy (OCP) in an attempt to ameliorate the population explosion and its potential negative economic consequences on their infant economy in 1979. Here the consequences of this policy for marital matching and family size decisions are examined. A simple General Equilibrium model demonstrates how constraints on marital output on the quantity of children dimension raises the marginal benefit of increased positive assortative matching, and greater investment in children. These theoretical predictions are examined empirically in a variety of ways. The prediction of intensified positive assortative matching was examined using Distributional Overlap and Stochastic Dominance Tests and provided support for intensified assortative matching amongst the urban population. To support this positive finding, we next examined if the policy was indeed binding. The extent to which parental family size decisions were bound by the OCP were examined using Poisson regression techniques and the results suggest that the OCP principally affected the quantity of children decision by suppressing parental preference for male heirs and they suggest that after the OCP was implemented births beyond the first child are purely accidental among younger mothers. In addition, we also found some evidence of increased educational attainment among children reflecting increased parental investments in children post OCP further supporting the view that the One Child Policy altered significantly familial decisions in urban China.
    Keywords: Family Formation, Rationing, Matching
    JEL: J12
    Date: 2009–08–06
  8. By: Deb Kusum Das
    Abstract: An attempt is made to compute the aggregate productivity growth using the Domar aggregation technique. Building up from the Total Factor Productivity Growth (TFPG) estimates for 3-digit industries, we have used Domar weights to computed total factor productivity (TFP) growth for selected 10, 2-digit industries for the period 1980-2000. [ICRIER WP no. 239].
    Keywords: total factor productivity (TFP), TFP, Productivity growth, Domar aggregation, aggregate value added, productivity, industries, Indian manufacturing, industrial sector, Indian economy, manufacturing, Indian, manufacturing,
    Date: 2009
  9. By: Agnes Quisumbing
    Abstract: This paper applies Carter and Barrett’s theory of assets poverty traps to a unique longitudinal survey from rural Bangladesh. Non-parametric and parametric methods are used to examine the shape of the dynamic asset frontier, the number of equilibria, and whether land and nonland assets stock converge to such equilibria. [CPRC Working Paper 143].
    Keywords: Asset dynamics, poverty traps, Bangladesh, land, non land asests, stock, non-parametric, parametric methods, longitudinal survey, Rural Bangladesh, Bangladesh, asset
    Date: 2009
  10. By: Lopez, Humberto; Serven, Luis
    Abstract: Recent theoretical literature has suggested a variety of mechanisms through which poverty may deter growth and become self-perpetuating. A few papers have searched for empirical regularities consistent with those mechanisms – such as aggregate non-convexities and convergence clubs. However, a seemingly basic implication of the theoretical models, namely that countries suffering from higher levels of poverty should grow less rapidly, has remained untested. This paper attempts to fill that gap and provide a direct empirical assessment of the impact of poverty on growth. The paper’s strategy involves including poverty indicators among the explanatory variables in an otherwise standard empirical growth equation. Using a large panel dataset, the authors find that poverty has a negative impact on growth that is significant both statistically and economically. This result is robust to a variety of specification changes, including (i) different poverty lines; (ii) different poverty measures; (iii) different sets of control variables; (iv) different estimation methods; (v) adding inequality as a control variable; and (vi) allowing for nonlinear effects of inequality on growth. The paper also finds evidence that the adverse effect of poverty on growth works through investment: high poverty deters investment, which in turn lowers growth. Further, the data suggest that this mechanism only operates at low levels of financial development, consistent with the predictions of theoretical models that underscore financial market imperfections as a key ingredient of poverty traps.
    Keywords: Achieving Shared Growth,Population Policies,Inequality,Debt Markets,Economic Theory&Research
    Date: 2009–08–01
  11. By: Iacovone, Leonardo; Zavacka, Veronika
    Abstract: This paper analyzes the impact of banking crises on manufacturing exports exploiting the fact that sectors differ in their needs for external financing. Relying on data from 23 banking crises episodes involving both developed and developing countries during the period 1980-2000 the authors separate the impact of banking crises on export growth from that of other exogenous shocks (i.e. demand shocks). Their findings show that during a crisis the export of sectors more dependent on external finance grow significantly less than other sectors. However, this result holds only for sectors depending more heavily on banking finance as opposed to inter-firm finance. Furthermore, sectors characterized by higher degree of assets tangibility appear to be more resilient in the face of a banking crisis. The effect of the banking crises on exports is robust and additional to external demand shocks. The effect of the latter is independent and additional to that of a banking shock, and is particularly significant for sectors producing durable goods.
    Keywords: Debt Markets,Economic Theory&Research,Access to Finance,Banks&Banking Reform,Emerging Markets
    Date: 2009–08–01
  12. By: Love, Inessa; Sanchez, Susana M.
    Abstract: This paper uses two recently completed surveys of individual entrepreneurs (farmers and microentrepreneurs) and registered enterprises (agricultural and nonagricultural) operating in Mexico’s rural sector to provide new evidence about the factors influencing the incidence of credit constraints and investment behavior. To measure the incidence of credit constraints, the authors use self-reported information on whether economic agents have a demand for loans, separating formal and informal markets. They define credit constraints as a situation where rural agents report an unsatisfied demand for loans (formal or informal), which originates from rural agents having projects that are too risky or from impediments hindering the ability of rural agents and lenders to reduce information asymmetries. The authors find that the self-reported demand for loans is low. Nevertheless, the incidence of credit constraints is pervasive, especially among individual entrepreneurs. The low use of loans has consequences for the amount of investments that occur in the rural economy, posing a major obstacle to Mexico’s convergence towards its NAFTA partners. The empirical analysis, which includes proxies of business prospects and creditworthiness, shows that improving the availability of loans to credit constrained agents would increase the number of agents making investments and their investment to capital ratios.
    Keywords: Access to Finance,,Debt Markets,Bankruptcy and Resolution of Financial Distress,Banks&Banking Reform
    Date: 2009–08–01
  13. By: Massimiliano Cali; Carlo Menon
    Abstract: Although the high rate of urbanization and the high incidence of rural poverty are two distinct features of many developing countries, we still do not know the effects of the former on the latter. We address this issue by exploring the mechanisms through which urbanization may alleviate rural poverty, disentangling "first round" effects, due to migration of rural poor to cities, and "second round" effects, due to positive externalities of city growth on surrounding rural areas. We test our theoretical predictions on a sample of Indian districts in the period 1981-1999, and find that urbanization has a substantial and systematic poverty reducing effect in surrounding rural areas. This effect is largely attributable to positive spillovers from urbanisation rather than to the movement of the rural poor to urban areas per se. Results using IV estimation suggest that this effect is causal in nature (from urbanisation to rural poverty).
    Keywords: Rural Poverty, Urbanization, Indian districts, India
    JEL: O12 O18 O2 I3
    Date: 2009–02
  14. By: K.C. Fung; Alicia García-Herrero; Alan Siu
    Abstract: In this paper we empirically examine the extent and properties of production sharing in Latin and North America as well as that in East Asia. In 2006, exports of parts and components from Latin and North America constituted 29.7% of the region’s exports of manufactured goods to the world. Both exports and imports of parts and components were declining shares of trade in manufactured goods or trade in all goods. A large amount of trade in parts and components in the region was with members of NAFTA, particularly the United States. Imports from East Asia and from China were increasingly important. There was a relatively thick production network of parts of motor vehicles in Latin and North America, followed by networks of parts of telecommunication equipment and electronic components. But the network was primarily within the United States, Mexico and Canada, with Brazil also playing a role. For East Asia, the motor vehicle parts network was not as significant, but the electronic components network was much wider and deeper.
    Date: 2009–01
  15. By: Alicia García-Herrero; Alan Siu; K.C. Fung
    Abstract: This paper aims at providing an analytical examination of the criticism that the WTO is unfair and hurts the weak, developing countries. We utilize a formal model with the following features: in both the powerful and weak economies, pressure groups lobby to influence their trade policies in their respective countries. We then allow the powerful country the exclusive ability to spend resources to facilitate the lobbying of one of the lobby groups in the weak country, thereby moving the trade policy of the developing country in favor of the powerful trading partner. Next we compare the effects of such asymmetric foreign influence in a world with no WTO and no multilateral principles (most-favored-nation principle MFN and the negotiation principle of reciprocity) to a situation with WTO and its associated nondiscrimination principles. We show that the weak, developing country will have less "unfair" concessions of market openings and in general will be better off with the WTO and with rules of nondiscrimination.
    Date: 2009–07
  16. By: Cooray, Arusha (University of Wollongong)
    Abstract: The Mankiw-Romer-Weil (1992) augmented Solow-Swan model is extended to incorporate the financial sector in this study. Distinguishing between financial capital, physical capital and human capital, this study attempts to identify in particular, the effects of financial capital on economic growth. The study is also examines the effects of financial sector efficiency on economic growth. The financial sector augmented model is tested on 35 low and middle income economies. Strong support is found for the financial sector augmented model.
    Keywords: Mankiw-Romer-Weil model, economic growth, financial capital, banking sector, convergence
    JEL: O42 O43 O47
    Date: 2009
  17. By: Daron Acemoglu; Georgy Egorov; Konstantin Sonin
    Abstract: We study dynamic selection of governments under different political institutions, with a special focus on institutional “flexibilityâ€. A government consists of a subset of the individuals in the society. The competence level of the government in office determines collective utilities (e.g., by determining the amount and quality of public goods), and each individual derives additional utility from being part of the government (e.g., corruption or rents from holding office). We characterize dynamic evolution of governments and determine the structure of stable governments, which arise and persist in equilibrium. Perfect democracy, where current members of the government do not have an incumbency advantage or special powers, always leads to the emergence of the most competent government. However, any deviation from perfect democracy destroys this result. There is always at least one other, less competent government that is also stable and can persist forever, and even the least competent government can persist forever in office. Moreover, a greater degree of democracy may lead to worse governments. In contrast, in the presence of stochastic shocks or changes in the environment, greater democracy corresponds to greater flexibility and increases the probability that high competence governments will come to power. This result suggests that a particular advantage of democratic regimes may be their greater adaptability to changes rather than their performance under given conditions. Finally, we show that, in the presence of stochastic shocks, “royalty-like†dictatorships may be more successful than “junta-like†dictatorships, because they might also be more adaptable to change.
    JEL: C71 D71 D74
    Date: 2009–08
  18. By: Kalina Manova; Zhiwei Zhang
    Abstract: This paper uses newly available data on Chinese trade flows to establish novel and confirm existing stylized facts about firm heterogeneity in trade. First, the bulk of exports and imports are captured by a few multiâ€product firms that transact with a large number of countries. Second, the average importer imports more products than the average exporter exports, but exporters trade with more countries than importers do. Third, compared to private domestic firms, foreign affiliates and joint ventures trade more and import more products from more source countries, but export fewer products to fewer destinations. Fourth, the relationship between firms’ intensive and extensive margin of trade is non-monotonic, differs between exporters and importers, and depends on the ownership structure of the firm. Fifth, firms frequently exit and re-enter into trade and regularly change their product mix and trade partners, but foreign firms exhibit less churning. Finally, most of the growth in Chinese exports between 2003-2005 was driven by deepening and broadening of trade relationships by surviving firms, while reallocations across firms contributed only 30%. These stylized facts shed light on the cost structure of international trade and the importance of foreign ownership for firms’ export and import decisions.
    JEL: F10 F14 F23
    Date: 2009–08

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