nep-dev New Economics Papers
on Development
Issue of 2009‒11‒27
thirty-two papers chosen by
Mark Lee
Towson University

  1. Nutrition and Risk Sharing within the Household By Dubois, Pierre; Ligon, Ethan
  2. Internal and external factors of competitiveness in the middle-income countries By Isabel Álvarez,; Raquel Marín; Georgina Maldonado
  3. The growth-poverty convergence agenda: Optimizing social expenditures to maximize their impact on agricultural labor productivity, growth, and poverty reduction in Africa By Badiane, Ousmane; Ulimwengu, John
  4. Governance decentralization and local infrastructure provision in Indonesia: By Chowdhury, Shyamnal; Yamauchi, Futoshi; Dewina, Reno
  5. Institutional change, rural services, and agricultural performance in Kyrgyzstan: By Akramov, Kamiljon T.; Omuraliev, Nurbek
  6. Financial Structure, Informality and Development By Hernan J Moscoso Boedo; Pablo N D’Erasmo
  7. Delaying the Bell: The Effects of Longer School Days on Adolescent Motherhood in Chile By Kruger, Diana; Berthelon, Matias
  8. Adolescent Motherhood and Secondary Schooling in Chile By Kruger, Diana; Berthelon, Matias; Navia, Rodrigo
  9. Capital Flows to Developing Countries: The Allocation Puzzle By Pierre-Olivier; Olivier Jeanne
  10. Governance and Fund Management in the Chinese Pension System By Gregorio Impavido; Yu-Wei Hu; Xiaohong Li
  11. Trade and trade finance developments in 14 developing countries post September 2008 - a World Bank survey By Malouche, Mariem
  12. Explaining high transport costs within Malawi - bad roads or lack of trucking competition ? By Lall, Somik V.; Wang, Hyoung; Munthali, Thomas
  13. Privatization in development : some lessons from experience By Bourguignon, Francois; Sepulveda, Claudia
  14. Comparing condom use with different types of partners : evidence from national HIV surveys in Africa By de Walque, Damien; Kline, Rachel
  15. The Evolution of Opportunities for Children in Chile 1990-2006 By Dante Contreras; Osvaldo Larragaña; Esteban Puentes; Tomás Rau
  16. Evidence for inequality of Opportunities. A Cohort analysis for Chile By Dante Contreras; Osvaldo Larragaña; Esteban Puentes; Tomás Rau
  17. How to Manage Food Price Instability in Developing Countries ? By Galtier, F.
  18. "A Panel Threshold Model of Tourism Specialization and Economic Development" By Chia-Lin Chang; Thanchanok Khamkaew; Michael McAleer
  19. How Useful is Growth Literature for Policies in the Developing Countries? By Cooray, Arusha; B. Bhaskara Rao
  20. Referral and Job Performance: Evidence from the Ghana Colonial Army By Fafchamps, Marcel; Moradi, Alexander
  21. The Political Economy of Ethnolinguistic Cleavages By Desmet, Klaus; Ortuño-Ortín, Ignacio; Wacziarg, Romain
  22. Life Expectancy and Economic Growth: The Role of the Demographic Transition By Cervellati, Matteo; Sunde, Uwe
  23. Nudging Farmers to Utilize Fertilizer: Theory and Experimental Evidence from Kenya By Duflo, Esther; Kremer, Michael; Robinson, Jonathan
  24. War and Relatedness By Spolaore, Enrico; Wacziarg, Romain
  25. Growth After the Crisis By Rodrik, Dani
  26. Isolation and Development By Ashraf, Quamrul; Galor, Oded; Özak, Ömer
  27. A World Factory in Global Production Chains: Estimating Imported Value Added in Chinese Exports By Koopman, Robert; Wang, Zhi; Wei, Shang-Jin
  28. Testing Unilateral and Bilateral Link Formation By Comola, Margherita; Fafchamps, Marcel
  29. Does Public Governance Always Matter? How Experience of Poor Institutional Quality Influences FDI to the South By Darby, Julia; Desbordes, Rodolphe; Wooton, Ian
  30. The Distance Effect and the Regionalization of the Trade of Low-Income Countries By Carrère, Céline; de Melo, Jaime; Wilson, John
  31. Solidarity Behind Microfinance By Vittoria Cerasi; Lucia Dalla Pellegrina
  32. Do Returns to Schooling Go Up During Transition? The Not So Contrary Case of Vietnam By Tinh T. Doan; John Gibson

  1. By: Dubois, Pierre; Ligon, Ethan
    Abstract: Using data on individual consumption from farm households in the Philippines, we construct a direct test of risk-sharing within the household. We contrast the efficient outcomes predicted by the unitary household model with the outcomes we might expect if food consumption delivers not only utils, but also nutrients affecting future productivity. The efficiency conditions which characterize the within household allocation of food under the unitary model are violated, as consumption responds to earnings shocks. If productivity depends on nutrition, this explains some but not all of the response, as earnings “surprises” have some effect on the cost and composition of diet.
    Date: 2009–11
  2. By: Isabel Álvarez,; Raquel Marín; Georgina Maldonado
    Abstract: The diverse group of middle-income countries (MIC) is composed by some economies with an active behavior in exports of technology-intensive goods that is strictly better than the group average. One of the factors explaining such a result is the improvement of their national technological capabilities that affects the dynamism of their productive and trade structure generating competitiveness gains. There are grounded reasons to think that this is also a consequence of external effects and the potential impacts that both trade and foreign direct investments (FDI) flows generate in those economies where foreign companies have contributed to the industrialization and modernization of their productive systems. In this paper, we analyze the possibilities of integration of the MIC economies into the dynamic high-tech markets as the interplay between the role of FDI and their ability for the absorption and creation of technology. We will observe based upon empirical analysis with panel data (1998-2005), what is the relative importance of internal and external factors for the improvement of the international competitiveness in these developing economies.
    Keywords: competitiveness, FDI, high-tech, middle income countries, competitividad, IDE, alta tecnología, países de renta media
    Date: 2009
  3. By: Badiane, Ousmane; Ulimwengu, John
    Abstract: The need to achieve the Millennium Development Goals (MDGs) has raised the profile of social sector investments in Africa and other developing countries. As a result, many African countries are pressured to emphasize short-term concerns related to the symptoms of poverty at the expense of the longer-term needs to raise productivity and incomes, and thereby tackle the real roots of poverty. Because of scarce budget resources, there is a major challenge for African governments in terms of ensuring the necessary consistency of policies and strategies to promote long-term economic growth, raise smallholder productivity, achieve food security, and reduce poverty, while providing the social services that respond to immediate welfare requirements. The main objective of the convergence agenda exposed in this paper is to identify strategies that would allow developing countries to improve the management of public expenditures so as to raise the chances of meeting the income growth and social needs of their populations under tight budget constraints. In this paper we have (1) discussed the terminology used in describing the problem being studied and formulated the assumptions and hypotheses underlying the research; (2) defined a typology of growth–poverty pathways; (3) developed metrics to measure the strength of the relationship between growth and poverty reduction; (4) laid out the theory for the measurement of the degree of convergence of public expenditures on social services, that is, the extent to which they are optimized with respect to their impact on labor productivity and growth; and (5) outlined models for (a) the quantification of social services availability at the local level using a single-score concept, (b) the evaluation of the quality and efficiency of public expenditures in social services sectors in rural areas, and (c) the optimization of public expenditures allocation to maximize the impact on growth and poverty reduction; as well as (6) provided initial evidence proving the validity of the theory of convergence.
    Keywords: Poverty, Expenditure, Social services, Convergence, Agriculture, Poverty overhang, Growth deficit, Public investment,
    Date: 2009
  4. By: Chowdhury, Shyamnal; Yamauchi, Futoshi; Dewina, Reno
    Abstract: This paper examines the recent decentralization of governance in Indonesia and its impact on local infrastructure provision. The decentralization of decisionmaking power to local jurisdictions in Indonesia may have improved the matching of public infrastructures provision with local preferences. However, decentralization has made local public infrastructures depend on local resources. Due to differences in initial endowments, this may result in the divergence of local public infrastructures in rich and poor jurisdictions. Using data from village-level panel surveys conducted in 1996, 2000, and 2006, this paper finds that (1) local public infrastructures depend on local resources, (2) decentralization has improved the availability of local public infrastructures, (3) local jurisdictions are converging to a similar level of local public infrastructure, and (4) to some extent, decentralized public infrastructures' provision reflects local preferences.
    Keywords: Decentralization, local public goods, indonesia,
    Date: 2009
  5. By: Akramov, Kamiljon T.; Omuraliev, Nurbek
    Abstract: The institutional change in rural Kyrgyzstan during the transition period included farm reorganization, land reform, building markets, and community institutions. The land reform established private property rights to land, including the rights to transfer, exchange, sell, lease, and use the land as collateral for credit. These key features of Kyrgyzstan's agrarian transition are in sharp contrast with those of other transition countries in Central Asia. This paper reviews the process of institutional change in rural Kyrgyzstan, examines its impact on agricultural performance and discusses some remaining major institutional and policy constraints on agricultural growth in this country.
    Keywords: Institutional change, Land reform, Agricultural growth, Rural services, Development strategies, Kyrgyzstan,
    Date: 2009
  6. By: Hernan J Moscoso Boedo; Pablo N D’Erasmo
    Abstract: This is a theory of total factor productivity based on measured capital market im- perfections and costs of creating and operating formal sector firms. We develop a firm dynamics model with endogenous formal and informal sectors where firms face a technol- ogy adoption opportunity. The model predicts that countries with a low degree of debt enforcement and high costs of formality are characterized by low allocative efficiency and a large share output produced by low productivity firms in the informal sector. We find that this mechanism is quantitatively important. When frictions are parameterized using the World Bank Doing Business database, the model explains up to 60% of total factor productivity differences between the US and developing economies.
    Keywords: Financial Structure, Informal Sector, Productivity, Policy Distortions
    JEL: D24 E26 L11 O16 O17
    Date: 2009–11
  7. By: Kruger, Diana (Universidad Catolica de Valparaiso, Chile); Berthelon, Matias (Universidad Catolica de Valparaiso, Chile)
    Abstract: We analyze the effect of a Chilean school reform that lengthened the school day from half to full-day shifts on the likelihood that adolescent girls become mothers. By increasing the number of hours spent in school, the reform curtails opportunities to engage in risky sexual behaviors. Using Chile's socio-economic household surveys and administrative data from the Ministry of Education from 1990–2006, we exploit the exogenous time and regional variation in the implementation of the reform to identify the effects of increased education and adult supervision on the likelihood that adolescent girls become mothers. We find that access to full-day schools reduces the probability of becoming an adolescent mother among poor families and in urban areas: an increase in full-day municipal enrollment of 20% reduces the likelihood of teen motherhood by 5%.
    Keywords: adolescent motherhood, adolescent pregnancy, school day reform, Chile
    JEL: H51 I18 I28 J13 O15
    Date: 2009–11
  8. By: Kruger, Diana (Universidad Catolica de Valparaiso, Chile); Berthelon, Matias (Universidad Catolica de Valparaiso, Chile); Navia, Rodrigo (Universidad Catolica de Valparaiso, Chile)
    Abstract: We analyze the determinants of adolescent motherhood and its subsequent effect on high school attendance and completion in Chile. Using eight rounds of household surveys, we find that adolescents who were born to teen mothers, those that live in poor households and in single-mother families, are more likely to have children, while access to full-time high schools reduces the likelihood of motherhood. We then estimate the effect of adolescent motherhood on the probability of high school attendance and completion. Using an instrumental variables approach to control for possible endogeneity between teen pregnancy and schooling, we find that being a mother reduces the probability of high school attendance and completion by 24 to 37 percent, making it the most important determinant of high school desertion, which implies that policies aimed at reducing early childbearing will have immediate, important effects on their school attainments.
    Keywords: adolescent motherhood, high school completion, high school desertion, Chile
    JEL: J13 O12 O15
    Date: 2009–11
  9. By: Pierre-Olivier (University of California, Berkeley); Olivier Jeanne (Peterson Institute for International Economics)
    Abstract: The textbook neoclassical growth model predicts that countries with faster productivity growth should invest more and attract more foreign capital. We show that the allocation of capital flows across developing countries is the opposite of this prediction: capital seems to flow more to countries that invest and grow less. We then introduce wedges into the neoclassical growth model and find that one needs a saving wedge in order to explain the correlation between growth and capital flows observed in the data. We conclude with a discussion of some possible avenues for research to resolve the contradiction between the model predictions and the data.
    Keywords: Capital Flows, Productivity, Growth
    JEL: F36 F43
    Date: 2009–11
  10. By: Gregorio Impavido; Yu-Wei Hu; Xiaohong Li
    Abstract: The Chinese pension system is highly fragmented and decentralized, with governance standards, pension fund management practices, their regulation and supervision varying considerably both across the funded components of the Chinese pension system and across provinces. This paper describes the key components of the system, highlights the progress made to date and identifies remaining weaknesses, in regard to information disclosure, the governance framework and pension fund management standards.
    Keywords: Banking crisis , Capital , Cross country analysis , Demand , Economic growth , External sector , Fiscal policy , Labor , Monetary policy , Productivity ,
    Date: 2009–11–09
  11. By: Malouche, Mariem
    Abstract: In the aftermath of the Lehman Brothers collapse in September 2008, drop in the supply of trade finance, a critical engine for trade transactions, has become an acute concern for the development community. Banks were increasing pricing on trade finance transactions to cover increased funding costs and higher credit risks, and trade was dropping drastically in most countries, with global trade projected to decline in 2009 for the first time in decades. Yet, little was known about the real impact of the crisis on developing country’s capacity to export. The World Bank has commissioned a firm and bank survey on trade and trade finance developments in developing countries during the first quarter of 2009 to collect field information. In total, 425 firms and 78 banks were surveyed in 14 developing countries across five regions. This paper summarizes the findings of the survey as well as discusses the type of policies governments and international organizations put in place to mitigate the impact of the crisis. In sum, the survey findings confirmed that the global financial crisis has constrained trade finance for exporters and importers in developing countries. But the impact varied by the firm size, sectoral activity, and countries’ integration into the global economy. In particular, SMEs were particularly affected, and export diversification was made more difficult, especially in low income countries. Nevertheless, drop in demand has emerged as the top concern of firms at the time when the survey was conducted in March-April 2009.
    Keywords: Banks&Banking Reform,Access to Finance,Debt Markets,Emerging Markets,Economic Theory&Research
    Date: 2009–11–01
  12. By: Lall, Somik V.; Wang, Hyoung; Munthali, Thomas
    Abstract: What are the main determinants of transport costs: network access or competition among transport providers? The focus in the transport sector has often been on improving the coverage of"hard"infrastructure, whereas in reality the cost of transporting goods is quite sensitive to the extent of competition among transport providers and scale economies in the freight transport industry, creating monopolistic behavior and circular causation between lower transport costs and greater trade and traffic. This paper contributes to the discussion on transport costs in Malawi, providing fresh empirical evidence based on a specially commissioned survey of transport providers and spatial analysis of the country’s infrastructure network. The main finding is that both infrastructure quality and market structure of the trucking industry are important contributors to regional differences in transport costs. The quality of the trunk road network is not a major constraint but differences in the quality of feeder roads connecting villages to the main road network have significant bearing on transport costs. And costs due to poor feeder roads are exacerbated by low volumes of trade between rural locations and market centers. With empty backhauls and journeys covering small distances, only a few transport service providers enter the market, charging disproportionately high prices to cover fixed costs and maximize markups.
    Keywords: Transport Economics Policy&Planning,Rural Roads&Transport,Roads&Highways,Banks&Banking Reform,Rural Transport
    Date: 2009–11–01
  13. By: Bourguignon, Francois; Sepulveda, Claudia
    Abstract: This paper briefly reviews the main theories of state versus private ownership and empirical evidence on the impact of privatization in developing countries (including transition economies). The paper draws some lessons for policy and offers some suggestions on how to assess privatization, at least in countries where there is still scope for it. The paper suggests that although understanding of the efficiency gains of privatization has increased significantly in recent years, there is an important area about which little is known: the distributional effects of privatization. Whether arguing from the standpoint of welfare economics or political economy, distributional effects are critical to the outcome, or the perceived outcome, of privatization. Thus, there is a need to fully evaluate the ex ante and ex post impacts of privatization, the most effective types of regulation and ownership regimes, and the way in which losers, when there are any, can be compensated. This is a need that must be met by academics and development agencies, including the World Bank and regional development banks.
    Keywords: Banks&Banking Reform,Privatization,Emerging Markets,Infrastructure Regulation,Bankruptcy and Resolution of Financial Distress
    Date: 2009–11–01
  14. By: de Walque, Damien; Kline, Rachel
    Abstract: Based on nationally representative samples from 13 Sub-Saharan African countries, this paper reinforces and expands previous findings that condom use in general is low in this region, men report using condoms more frequently than women, and unmarried individuals report they use condoms more frequently than married individuals with their spouse. Based on descriptive, bivariate, and multivariate analyses, the authors also demonstrate to a degree not previously shown in the current literature that married men from most countries report using condoms with extramarital partners about as frequently as unmarried men. However, married women from most countries included use condoms with extramarital partners less frequently than unmarried women. This result is especially troubling because marriage usually ensures regular sexual intercourse, providing more opportunities to pass HIV from extramarital partner to spouse than an unmarried person who may also have multiple partners but not as regular sexual intercourse.
    Keywords: Population Policies,Gender and Health,Adolescent Health,HIV AIDS,Gender and Law
    Date: 2009–11–01
  15. By: Dante Contreras; Osvaldo Larragaña; Esteban Puentes; Tomás Rau
    Abstract: In this article we apply some recently developed methodologies (Paes de Barros et al, 2008) tomeasure the evolution of the inequality of opportunity in Chile in the 1990-2006 period. Theopportunities are measured as intermediate outcomes for children such as access to preschool,access to sanitary infrastructure, nutritional status and timely completion of secondary education.The distribution of these varies with coverage rates and how they distribute according topopulation subgroups, grouped by circumstances. These circumstances are exogenous (to thechildren) factors that contribute to determining socioeconomic outcomes. The more unequal thedistribution of outcomes due to differences in circumstances, the more unequal the distribution ofopportunity in the country. The results show a reduction in the inequality of opportunity in theperiod analyzed. The gains are of two classes. First, there have been substantial increases in socialservice coverage leading to a general improvement in opportunities. Second, the gap in accessprobabilities among population subgroups have been reduced, making the playing field morebalanced.
    JEL: D31 D63
    Date: 2009–10
  16. By: Dante Contreras; Osvaldo Larragaña; Esteban Puentes; Tomás Rau
    Abstract: In this paper we estimate the impact of inequality of opportunity on inequality of income in the Chilean economy. We focus on the distribution of individual labor income. It is found that the share ofoverall inequality which is due to inequality of opportunities is relatively high in Chile, but the degree ofoverall inequality is lower than in other countries in the region. It is also found that father?s education isthe circumstance that contributes the most to inequality of income in Chile. This variable is likely to behighly correlated with parental household income, which is a key determinant in the formation of earlyhuman capital through its impact on nutrition, health and education. We also conduct a cohort analysisto study the impact of opportunities on labor income inequality in three groups of workers : those thatare 25-34, 35-44 and 45-54 years old. We found that overall inequality increases with the age of the cohortand that the absolute contribution of opportunity in income inequality also increases with the age of the cohort. That the share of opportunity in income inequality is particularly low in the youngest cohort,may be associated to a more even playing ?eld resulting from the introduction of opportunity equalizingpolicies in the last decades. Further evidence for this latter hypothesis is provided by decomposing thechange in inequality across cohorts based on changes on circumstance endowments and returns, basedon the methodology introduced by Juhn, Murphy and Pierce (1994).
    JEL: D31 D63
    Date: 2009–10
  17. By: Galtier, F.
    Abstract: The food crisis of 2007-2008 and the resulting urban riots observed in about forty developing countries placed the question of price instability at the very heart of the debate. The paper states that, since the 80s, the prevailing idea is that the best option is to manage risks without "affecting prices" by means of private risk management instruments (crop insurance, future markets...) in conjunction with the provision of safety nets for vulnerable populations. Indeed, the stabilisation of agricultural prices is thought to be not desirable because i) it prevents prices from playing their role of a signal guiding production and trade behaviour and ii) by dissociating price movements from production variation, it prevents producers from taking advantage of the "natural insurance" resulting from the negative correlation between prices and harvest volumes. Nevertheless, this strategy had difficulty in standing up to the facts: the development of private risk-management instruments did not come to fruition and the safety nets did not succeed in preventing the deterioration of the nutritional situation of vulnerable households. The paper shows that the arguments against price stabilisation (the informational role of prices and the "natural insurance" of producers) do not hold when the different causes of price instability are taken into account. It also proposes a typology of the causes of instability. Instability may be "natural", as a result of natural hazards affecting production (rain, locusts...). However, it may also be "imported from international markets or "endogenous", in other words generated by the markets themselves (speculative bubbles, cobweb phenomena, etc). Lastly, the paper shows that the causes of instability are a crucial factor in the performance of price stabilisation strategies and instruments. It therefore presents the relevant stabilisation policies for each cause of instability. ...French Abstract : La crise alimentaire de 2007-2008 et les émeutes urbaines qu'elle a engendrées dans une quarantaine de PED ont conduit à mettre la question de l'instabilité des prix alimentaires au coeur des débats. L'article rappelle que, depuis les années 80, l'idée domine que la meilleure option consiste à gérer les risques sans " toucher aux prix " grâce à des instruments privés (assurance récolte, marchés à terme...) complétés par des filets de sécurité pour les populations vulnérables. En effet, la stabilisation des prix agricoles est considérée comme non souhaitable car d'une part elle empêche les prix de jouer leur rôle de signal guidant les comportements de production et d'échange et d'autre part, en déconnectant l'évolution des prix de celle de la production, elle empêche les producteurs de bénéficier de " l'assurance naturelle " procurée par la corrélation négative entre prix et niveau des récoltes. Cependant, cette stratégie a mal supporté l'épreuve des faits : le développement des instruments privés de gestion des risques ne s'est pas produit et les filets de sécurité ne sont pas parvenus à enrayer la dégradation de la situation nutritionnelle des ménages vulnérables. L'article montre que les arguments à l'encontre de la stabilisation des prix (le rôle informationnel des prix et " l'assurance naturelle " des producteurs) ne tiennent pas si on prend en compte la diversité des causes de l'instabilité des prix. Il propose en outre une typologie des causes de l'instabilité. Outre l'instabilité d'origine "naturelle" (due aux aléas naturels affectant la production comme la pluie ou les attaques de criquets), l'instabilité des prix peut en effet être "importée" des marchés internationaux ou être " endogène ", c'est-à-dire être générée par le fonctionnement des marchés eux mêmes (bulles spéculatives, phénomènes de cobweb...). Enfin, l'article montre que la performance des stratégies et instruments de stabilisation des prix dépend de manière cruciale des causes de l'instabilité. Il présente les politiques de stabilisation adaptée à chacune des causes d'instabilité.
    JEL: D84 G13 L11 O24 O33 Q11 Q18
    Date: 2009
  18. By: Chia-Lin Chang (Department of Applied Economics, National Chung Hsing University); Thanchanok Khamkaew (Faculty of Economics, Chiang Mai University); Michael McAleer (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute and Center for International Research on the Japanese Economy (CIRJE), Faculty of Economics, University of Tokyo)
    Abstract: The significant impact of international tourism in stimulating economic growth is especially important from a policy perspective. For this reason, the relationship between international tourism and economic growth would seem to be an interesting empirical issue. In particular, if there is a causal link between international tourism demand and economic growth, then appropriate policy implications may be developed. The purpose of this paper is to investigate whether tourism specialization is important for economic development in East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, the Middle East and North Africa, North America, South Asia, and Sub-Saharan Africa, over the period 1991-2008. The impact of the degree of tourism specialization, which is incorporated as a threshold variable, on economic growth is examined for a wide range of countries at different stages of economic development. The empirical results from threshold estimation identify two endogenous cut-off points, namely 14.97% and 17.50%. This indicates that the entire sample should be divided into three regimes. The results from panel threshold regression show that there exists a positive and significant relationship between economic growth and tourism in two regimes, the regime with the degree of tourism specialization lower than 14.97% (regime 1) and the regime with the degree of tourism specialization between 14.97% and 17.50% (regime 2). However, the magnitudes of the impact of tourism on economic growth in those two regimes are not the same, with the higher impact being found in regime 2. An insignificant relationship between economic growth and tourism is found in regime 3, in which the degree of tourism specialization is greater than 17.50%. The empirical results suggest that tourism growth does not always lead to economic growth.
    Date: 2009–10
  19. By: Cooray, Arusha (University of Wollongong); B. Bhaskara Rao (University of Western Sydney, Sydney, Australia)
    Abstract: This paper examines the growing gap between the theoretical and empirical growth literature and policy needs of the developing economies. Growth literature has focused mainly on long term growth outcomes, but policy makers of the developing economies need rapid improvements in the short to medium term growth rates; see Pritchett (2006). In this paper we argue that this gap can be reduced by distinguishing between the short to medium term dynamic effects of policies from their long run equilibrium effects. With data from Singapore, Malaysia and Thailand, we show that an extended version of the Solow (1956) model is well suited for this purpose. We find that the short to medium term growth effects of the investment ratio are quite significant and they may persist for up to 10 years.
    Keywords: Solow Growth Model, Endogenous Growth, Dynamic Growth Effects of Investment Ratio, Policies for Developing Countries.
    JEL: O11
    Date: 2009
  20. By: Fafchamps, Marcel; Moradi, Alexander
    Abstract: As formalized by Montgomery (1991), referral by employees improves efficiency if the unobserved quality of a new worker is higher than that of unrefereed workers. Using data compiled from army archives, we test whether the referral system in use in the British colonial army in Ghana served to improve the unobserved quality of new recruits. We find that it did not: referred recruits were more likely than unreferred recruits to desert or be dismissed as 'inefficient' or 'unfit'. We find instead evidence of referee opportunism. The fact that referred recruits have better observed characteristics at the time of recruitment suggests that army recruiters may have been aware of this problem.
    Keywords: employee referral; hidden attributes; worker productivity
    JEL: J63 N47 O15
    Date: 2009–08
  21. By: Desmet, Klaus; Ortuño-Ortín, Ignacio; Wacziarg, Romain
    Abstract: This paper proposes a new method to measure ethnolinguistic diversity and offers new results linking such diversity with a range of political economy outcomes -- civil conflict, redistribution, economic growth and the provision of public goods. We use linguistic trees, describing the genealogical relationship between the entire set of 6,912 world languages, to compute measures of fractionalization and polarization at different levels of linguistic aggregation. By doing so, we let the data inform us on which linguistic cleavages are most relevant, rather than making ad hoc choices of linguistic classifications. We find drastically different effects of linguistic diversity at different levels of aggregation: deep cleavages, originating thousands of years ago, lead to measures of diversity that are better predictors of civil conflict and redistribution than those that account for more recent and superficial divisions. The opposite pattern holds when it comes to the impact of linguistic diversity on growth and public goods provision, where finer distinctions between languages matter.
    Keywords: civil conflict; economic growth; ethnolinguistic cleavages; ethnolinguistic diversity; language trees; public goods; redistribution
    JEL: H1 N4 O4 O5
    Date: 2009–09
  22. By: Cervellati, Matteo; Sunde, Uwe
    Abstract: In this paper we investigate the causal effect of life expectancy on economic growth by explicitly accounting for the role of the demographic transition. In addition to focusing on issues of empirical identification, this paper emphasizes the role of the econometric specification. We present a simple theory of the economic and demographic transition where individuals' education and fertility decisions depend on their life expectancy. The theory predicts that before the demographic transition improvements in life expectancy primarily increase population. Improvements in life expectancy do, however, reduce population growth and foster human capital accumulation after the onset of the demographic transition. This implies that the effect of life expectancy on population, human capital and income per capita is not the same before and after the demographic transition. Moreover, a sufficiently high life expectancy is ultimately the trigger of the transition to sustained income growth. We provide evidence supporting these predictions using data on exogenous mortality reductions in the context of the epidemiological revolution.
    Keywords: Demographic Transition; Epidemiological Revolution; Heterogeneous Treatment Effects; Life Expectancy
    JEL: E10 J10 J13 N30 O10 O40
    Date: 2009–07
  23. By: Duflo, Esther; Kremer, Michael; Robinson, Jonathan
    Abstract: While many developing-country policymakers see heavy fertilizer subsidies as critical to raising agricultural productivity, most economists see them as distortionary, regressive, environmentally unsound, and argue that they result in politicized, inefficient distribution of fertilizer supply. We model farmers as facing small fixed costs of purchasing fertilizer, and assume some are stochastically present-biased and not fully sophisticated about this bias. Even when relatively patient, such farmers may procrastinate, postponing fertilizer purchases until later periods, when they may be too impatient to purchase fertilizer. Consistent with the model, many farmers in Western Kenya fail to take advantage of apparently profitable fertilizer investments, but they do invest in response to small, time-limited discounts on the cost of acquiring fertilizer (free delivery) just after harvest. Later discounts have a smaller impact, and when given a choice of price schedules, many farmers choose schedules that induce advance purchase. Calibration suggests such small, time-limited discounts yield higher welfare than either laissez faire or heavy subsidies by helping present-biased farmers commit to fertilizer use without inducing those with standard preferences to substantially overuse fertilizer.
    Keywords: hyperbolic discounting; technology adoption
    JEL: O12 O38
    Date: 2009–08
  24. By: Spolaore, Enrico; Wacziarg, Romain
    Abstract: We develop a theory of interstate conflict in which the degree of genealogical relatedness between populations has a positive effect on their conflict propensities because more closely related populations, on average, tend to interact more and develop more disputes over sets of common issues. We examine the empirical relationship between the occurrence of interstate conflicts and the degree of relatedness between countries, showing that populations that are genetically closer are more prone to go to war with each other, even after controlling for a wide set of measures of geographic distance and other factors that affect conflict, including measures of trade and democracy.
    Keywords: conflict; democracy; genetic distance; trade
    JEL: F51 F59 N40
    Date: 2009–07
  25. By: Rodrik, Dani
    Abstract: How hospitable will the global environment be for economic growth in the developing world as we come out of the present financial crisis? The answer depends on how well we manage the following tension. On the one hand, global macro stability requires that we prevent external imbalances from getting too large. On the other hand, growth in poor nations requires that the world economy be able to absorb a rapid increase in the supply of tradables produced in the developing world. It is possible to render these two requirements compatible, but doing so requires greater use of explicit industrial policies in developing countries, which have the potential of encouraging modern tradable activities without spilling over into trade surpluses. The “price” to be paid for greater discipline on real exchange rates and external imbalances is greater use (and permissiveness towards) industrial polices.
    Keywords: Economic growth; Financial crisis
    JEL: F43 O11
    Date: 2009–09
  26. By: Ashraf, Quamrul; Galor, Oded; Özak, Ömer
    Abstract: This paper exploits cross-country variation in the degree of geographical isolation, prior to the advent of sea-faring and airborne transportation technologies, to examine its impact on the course of economic development across the globe. The empirical investigation establishes that prehistoric geographical isolation has generated a persistent beneficial effect on the process of development and contributed to the contemporary variation in the standard of living across countries.
    Keywords: Agglomeration; Development; Globalization; Growth; Isolation
    JEL: F15 N7 O10
    Date: 2009–11
  27. By: Koopman, Robert; Wang, Zhi; Wei, Shang-Jin
    Abstract: The rise of the People’s Republic of China (PRC) in world trade has brought both benefits and anxiety to other economies. For many policy questions, it is crucial to know the extent of foreign value added (FVA) in exports. We review a general formula in Koopman, Wang and Wei (2008) for computing domestic and foreign contents when processing exports are pervasive. In addition, we develop another formula for slicing up foreign content to allocate it among key individual economy’s supply chains, including sourcing from Japan and the United States. By our estimation, the share of foreign content in exports by the PRC is about 50%. There are also interesting variations across sectors. Those sectors that are likely labeled as relatively sophisticated such as electronic devices have particularly high foreign content (about 80%). By our estimation, Japan; the United States; Hong Kong, China; and the European Union are the major sources of foreign content in the PRC’s exports of computers and consumer electronics, two of its largest and fastest growing export categories.
    Keywords: domestic content; foreign value added; processing trade
    JEL: C67 C82 F1
    Date: 2009–09
  28. By: Comola, Margherita; Fafchamps, Marcel
    Abstract: The literature has shown that network architecture depends crucially on whether links are formed unilaterally or bilaterally, that is, on whether the consent of both nodes is required for a link to be formed. We propose a test of whether network data is best seen as an actual link or willingness to link and, in the latter case, whether this link is generated by an unilateral or bilateral link formation process. We illustrate this test using survey answers to a risk-sharing question in Tanzania. We find that the bilateral link formation model fits the data better than the unilateral model, but the data are best interpreted as willingness to link rather than an actual link. We then expand the model to include self-censoring and find that models with self-censoring fit the data best.
    Keywords: network architecture; pairwise stability; risk sharing
    JEL: C12 C52 D85
    Date: 2009–08
  29. By: Darby, Julia; Desbordes, Rodolphe; Wooton, Ian
    Abstract: This paper investigates whether the higher prevalence of South multinational enterprises (MNEs) in risky developing countries may be explained by the experience that they have acquired of poor institutional quality at home. We confirm the intuitions provided by our analytical model by empirically showing that the positive impact of good public governance on foreign direct investment (FDI) in a given host country is moderated significantly, and even in some cases eliminated or reversed, when MNEs have had prior experience of poor institutional quality at home. In contrast, MNEs with little experience are deterred much more by bad public governance conditions than could have been inferred from an unconditional estimation of the effects of public governance on FDI.
    Keywords: Institutions; Public governance; South-South FDI
    JEL: F23
    Date: 2009–11
  30. By: Carrère, Céline; de Melo, Jaime; Wilson, John
    Abstract: The “distance effect” measuring the elasticity of trade flows to distance has been to be rising since the early 1970s in a host of studies based on the gravity model, leading observers to call it the “distance puzzle”. We review the evidence and explanations. Using an extensive data set of 124 countries over the period 1970-2005, we confirm the existence of this puzzle and identify that it only applies to poor countries (the bottom third in per capita income terms in our sample—i.e. the low-income countries according to the World Bank classification, 2006). We show that this group has intensified trade with closer partners and have chosen new partners that are closer than existing partners, leading to a regionalization of their trade at both extensive and intensive margins (regionalization of trade is absent for the other countries). Combining several methods on cross-section and panel estimates of the gravity equation, we estimate that low-income countries exhibit a significant rising distance effect on their trade around 18% between 1970 and 2006 while there is no more distance “puzzle” for trade within richer countries (the top third in per capita income terms in our sample). We dispose of several previous explanations of the puzzle, and note that this regionalization could well be a reflection of both increased integration of this group of countries in the world economy or a greater marginalization.
    Keywords: Distance Effect; Gravity Model; International Trade
    JEL: F10 F40
    Date: 2009–09
  31. By: Vittoria Cerasi (Department of Statistics, Università degli Studi di Milano-Bicocca); Lucia Dalla Pellegrina (Department of Statistics, Università degli Studi di Milano-Bicocca)
    Abstract: In this paper we analyse the role of peers' solidarity in fostering investment in production in the context of micro?nance. When there is asymmetric information between lenders and borrowers on the use of borrowed funds and loans are not collateralized, there is a high chance that borrowers use loans for current consumption sacrifying productive projects. We study the effect of solidarity in the form of insurance from a network of relatives on borrowers' intertemporal preference for consumption and its impact on myopic behavior. The main result of the model is that solidarity might increase the share of funds devoted to investment but it might also reduce the amount of the loan in equilibrium. This result is in accordance with several features of micro-lending. We test the model using survey data from the World Bank on a sample of households in Bangladesh during the period 1991-1992. Empirical fi?ndings support the predictions of the model.
    Keywords: Microfinance, credit rationing, social networks
    JEL: O16 O17
    Date: 2009–11
  32. By: Tinh T. Doan (University of Waikato); John Gibson (University of Waikato)
    Abstract: A key stylized fact about transition economies is that the returns to schooling rise as economic reform progresses. Existing research suggests that Vietnam is an exception to this pattern, with a decrease in males’ return from 1992 to 1998, and little increase in the return to females’ education (Liu, 2006). This exception may be because of the gradual economic reform applied in Vietnam, whilst in Eastern European countries the “Big Bang” transformation was conducted. Therefore to see whether Vietnam is still a counter example, we re-examine the trend in the rate of return to schooling in Vietnam over the 1998-2004 period, where the reforms have had a longer time to have an effect.
    Keywords: economic transition; returns to schooling; Vietnam
    JEL: J31 O15
    Date: 2009–10–31

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