nep-dev New Economics Papers
on Development
Issue of 2010‒03‒28
seventeen papers chosen by
Mark Lee
Towson University

  1. Microeconomic Approaches to Development: Schooling, Learning, and Growth By Mark R. Rosenzweig
  2. Intergenerational Income Mobility in Urban China By Gong, Cathy Honge; Leigh, Andrew; Meng, Xin
  3. Gates, hubs and urban primacy in Sub-Saharan Africa By Pholo Bala, Alain
  4. Why corrupt governments may receive more foreign aid By DE LA CROIX, David; DELAVALLADE, Clara
  5. Growth, History, or Institutions? What Explains State Fragility in Sub-Saharan Africa By Graziella Bertocchi; Andrea Guerzoni
  6. The Fragile Definition of State Fragility By Graziella Bertocchi; Andrea Guerzoni
  7. Public Expenditures on Social Programs and Household Consumption in China By David Coady; Giovanni Callegari; Jaejoon Woo; Pietro Tommasino; Emanuele Baldacci; Manmohan S. Kumar
  8. The Global Financial Crisis and Workers' Remittances to Africa: What's the Damage? By Anjali Garg; Adolfo Barajas; Ralph Chami; Connel Fullenkamp
  9. Precautionary Reserves: An Application to Bolivia By Fabian Valencia
  10. Informal Labour and Credit Markets: A Survey By Nicoletta Batini; Paul Levine; Young-Bae Kim; Emanuela Lotti
  11. Determinants of the Choice of Migration Destination By Marcel Fafchamps; Forhad Shilpi
  12. Industrializing West Bengal? : The Case of Institutional Stickiness By Deepita Chakravarty; Indranil Bose
  13. Assessing ex ante the poverty and distributional impact of the global crisis in a developing country : a micro-simulation approach with application to Bangladesh By Habib, Bilal; Narayan, Ambar; Olivieri, Sergio; Sanchez-Paramo, Carolina
  14. The school reentry decision on poor girls: structural estimation and policy analysis using PROGRESA database By María Nieves Valdés
  15. Chinaâs Regional Disparities: Experience and Policy By Fan, Shenggen; Kanbur, Ravi; Zhang, Xiaobo
  16. Technology Choice and International Trade By Gabriela Schmidt
  17. Sensitivity of loan size to lending rates: Evidence from Ghana’s microfinance sector By Annim, Samuel Kobina

  1. By: Mark R. Rosenzweig (Economic Growth Center, Yale University)
    Abstract: I illustrate the variety of approaches to development issues microeconomists employ, focusing on studies that illuminate and quantify the major mechanisms posited by growth theorists who highlight the role of education in fostering growth. I begin with a basic issue: what are the returns to schooling? I discuss microeconomic studies that estimate schooling returns using alternative approaches to estimating wage equations, which require assumptions that are unlikely to be met in low-income countries, looking at inferences based on how education interacts with policy and technological changes in the labor and marriage markets. I then review research addressing whether schooling facilitates learning, or merely imparts knowledge, and whether there is social learning that gives rise to educational externalities. I next examine studies quantifying the responsiveness of educational investments to changes in schooling returns and assess whether and where there exist important barriers to such investments when returns justify their increase.
    Keywords: schooling, development, growth
    JEL: O11 O15 O33 J24
    Date: 2010–03
  2. By: Gong, Cathy Honge (University of Canberra); Leigh, Andrew (Australian National University); Meng, Xin (Australian National University)
    Abstract: This paper estimates the intergenerational income elasticity for urban China, paying careful attention to the potential biases induced by income fluctuations and life cycle effects. Our preferred estimates are that the intergenerational income elasticities are 0.74 for father-son, 0.84 for father-daughter, 0.33 for mother-son, and 0.47 for mother-daughter. This suggests that while China has experienced rapid growth of absolute incomes, the relative position of children in the distribution is largely determined by their parents’ incomes. Investigating possible causal channels, we find that parental education, occupation, and Communist Party membership all play important roles in transmitting economic status from parents to children.
    Keywords: intergenerational mobility, transgenerational persistence, political party membership
    JEL: D10 D31
    Date: 2010–03
  3. By: Pholo Bala, Alain (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Keywords: economic geography, urban primacy, hub, developing countries
    JEL: D58 F12 F15 R12
    Date: 2009–05–01
  4. By: DE LA CROIX, David (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); DELAVALLADE, Clara (Abdul Latif Jameel Poverty Action Lab.)
    Abstract: In this paper we argue that if the cross-country heterogeneity in productivity is more important than the heterogeneity in government quality, it can be optimal to give more foreign aid to more corrupt countries. We build a multi-country model of optimal aid in which we disentangle the correlation between aid and equilibrium corruption into two components: the Þrst one reßects variations in the quality of institutions and the second encompasses variations in productivity levels. The data suggest that both components of the correlation are signiÞcant, however the effect of variations in productivity levels is stronger. This implies that most corrupt countries, since they are also the poorest, receive higher amounts of foreign aid.
    Keywords: corruption, aid, government spending, institutions
    JEL: O19
    Date: 2009–10–01
  5. By: Graziella Bertocchi; Andrea Guerzoni
    Abstract: We explore the determinants of state fragility in sub-Saharan Africa. Controlling for a wide range of economic, demographic, geographic and istitutional regressors, we find that institutions, and in particular the civil liberties index and the number of revolutions, are the main determinants of fragility, even taking into account their potential endogeneity. Economic factors such as income growth and investment display a non robust impact after controlling for omitted variables and reverse causality. Colonial variables reflecting the history of the region display a marginal impact on fragility once institutions are accounted for.
    Keywords: State fragility, Africa, institutions, colonial history.
    JEL: O43 H11 N17
    Date: 2010–03
  6. By: Graziella Bertocchi; Andrea Guerzoni
    Abstract: We investigates the link between fragility and economic development in sub-Saharan Africa over a yearly panel including 28 countries for the 1999-2004 period. Beside the conventional definition of fragility adopted by the OECD Development Assistance Committee, we introduce the more severe definition of extreme fragility. We show that only the latter exerts a significantly negative impact on economic development, once standard economic, demographic, and institutional regressors are accounted for. As a by-product of this investigation we produce up-to-date evidence on the growth performance of the area. We find a tendency to convergence and no influence of geographic and historical factors.
    Keywords: State fragility; growth; Africa; aid.
    JEL: O43 H11 N17
    Date: 2010–03
  7. By: David Coady; Giovanni Callegari; Jaejoon Woo; Pietro Tommasino; Emanuele Baldacci; Manmohan S. Kumar
    Abstract: This paper shows that increasing government social expenditures can make a substantive contribution to increasing household consumption in China. The paper first undertakes an empirical study of the relationship between the savings rate and social expenditures for a panel of OECD countries and provides illustrative estimates of their implications for China. It then applies a generational accounting framework to Chinese household income survey data. This analysis suggests that a sustained 1 percent of GDP increase in public expenditures, distributed equally across education, health, and pensions, would result in a permanent increase the household consumption ratio of 1¼ percentage points of GDP.
    Date: 2010–03–18
  8. By: Anjali Garg; Adolfo Barajas; Ralph Chami; Connel Fullenkamp
    Abstract: Using data on the distribution of migrants from Africa, GDP growth forecasts for host countries, and after estimating remittance multipliers in recipient countries, this paper estimates the impact of the global economic crisis on African GDP via the remittance channel during 2009-2010. It forecasts remittance declines into African countries of between 3 and 14 percentage points, with migrants to Europe hardest hit while migrants within Africa relatively unaffected by the crisis. The estimated impact on GDP for relatively remittance-dependent countries is 2 percent for 2009, but will likely be short-lived, as host country income is projected to rise in 2010.
    Keywords: Africa , Capital flows , Cross country analysis , Economic forecasting , Economic growth , Financial crisis , Global Financial Crisis 2008-2009 , Migration , Workers remittances ,
    Date: 2010–01–29
  9. By: Fabian Valencia
    Abstract: Using precautionary savings models we compute levels of optimal reserves for Bolivia. Because of Bolivia's reliance on commodity exports and little integration with capital markets, we focus on current account shocks as the key balance of payments risk. These models generate an optimal level of net foreign assets ranging from 29 to 37 percent of GDP. For comparison purposes, we contrasted these results with standard rule of thumb measures of reserve adequacy, which in the case of Bolivia resulted in substantially lower levels of adequate reserves. These differing results emphasize the need to appropriately account for country-specific risks in order to derive adequate measures of reserve buffers.
    Keywords: Balance of payments , Bolivia , Commodity prices , Current account , Economic models , Export prices , External shocks , Reserves accumulation , Reserves adequacy , Terms of trade ,
    Date: 2010–03–03
  10. By: Nicoletta Batini; Paul Levine; Young-Bae Kim; Emanuela Lotti
    Abstract: This paper reviews the literature on the informal economy, focusing first on empirical findings and then on existing approaches to modeling informality within both partial and general equilibrium environments. We concentrate on labour and credit markets, since these tend to be most affected by informality. The phenomenon is particularly important in emerging and other developing economies, given their high degrees of informal labour and financial services and the implications these have for the effectiveness of macroeconomic policy. We emphasize the need for dynamic general equilibrium (DGE) and ultimately dynamic stochastic general equilibrium (DSGE) models for a full understanding of the costs, benefits and policy implications of informality. The survey shows that the literature on informality is quite patchy, and that there are several unexplored areas left for research.
    Keywords: Access to capital markets , Credit , Developing countries , Economic models , Emerging markets , Labor markets , Monetary policy , Private sector ,
    Date: 2010–02–22
  11. By: Marcel Fafchamps; Forhad Shilpi
    Abstract: This paper examines migrants choice of destination conditional on migration. To this end, an empirical strategy is designed which remedies both migration selection and unobserved heterogeneity problems. The study uses data from two rounds of Nepal Living Standard Surveys and a Population Census and examine how the choice of a migration destination is influenced by income differentials and other covariates.
    Keywords: migration, Nepal, living standards, empirical strategy, population census, income differentials, covariates, heterogeneity, language, ethnic, destination
    Date: 2010
  12. By: Deepita Chakravarty; Indranil Bose
    Abstract: While there is a clear policy shift towards large-scale industrialization in the state of West Bengal (WB) during the early 1990s, not much improvement can be discerned in the performance of the manufacturing output. Moreover, contrary to the Indian experience, more than half of the manufacturing output is still produced by small initiatives in the unorganized sector. It is argued that the peculiarity of institutional behaviour that determines the policy outcomes in the state. The rigidities in the political as well as the economic institutions in the state are prompting us to look at WB as a classic case of "institutional stickiness" leading to "path dependency". Clearly the right institutions for creating a more enabling environment for industry do not seem to exist. Not only do they not exist, but also their growth or emergence is frustrated by an overarching institution -'the party' which seems to keep encroaching upon every sphere. All this results in a veritable decline of organized manufacturing alongside a corresponding growth of the unorganized sector in the state. Apart from secondary sources this paper is based on information collected from some selected stakeholders: business associations, firms, trade unions and bureaucrats. [CESS WP 83].
    Keywords: industrialization, output, India, polictical, economic instititution, institutional, formal and informal institutions,institutional stickiness, path dependency, India, West Bengal, organized manufacturing, trade unions and bureaucrats, business firms, Unogranized sector, information, institution,
    Date: 2010
  13. By: Habib, Bilal; Narayan, Ambar; Olivieri, Sergio; Sanchez-Paramo, Carolina
    Abstract: Measuring the poverty and distributional impact of the global crisis for developing countries is not easy, given the multiple channels of impact and the limited availability of real-time data. Commonly-used approaches are of limited use in addressing questions like who are being affected by the crisis and by how much, and who are vulnerable to falling into poverty if the crisis deepens? This paper develops a simple micro-simulation method, modifying models from existing economic literature, to measure the poverty and distributional impact of macroeconomic shocks by linking macro projections with pre-crisis household data. The approach is then applied to Bangladesh to assess the potential impact of the slowdown on poverty and income distribution across different groups and regions. A validation exercise using past data from Bangladesh finds that the model generates projections that compare well with actual estimates from household data. The results can inform the design of crisis monitoring tools and policies in Bangladesh, and also illustrate the kind of analysis that is possible in other developing countries with similar data availability.
    Keywords: Rural Poverty Reduction,Regional Economic Development,Achieving Shared Growth,Economic Theory&Research
    Date: 2010–03–01
  14. By: María Nieves Valdés
    Abstract: In this paper I present a dynamic structural model of girls' schooling choices and estimate it using the Mexican PROGRESA database. This structural approach allows evaluating the efectiveness of several policies to increase school reentry rates for girls in low-income households. To increase school attendance among poor children in developing countries, policy makers have implemented conditional cash transfers programs. Although transfers have been successful in keeping girls at school, they do not increase school attendance among girls who have dropped out of school. Cash transfer programs may fail because most of these poor girls leave school to stay at home helping in housework, rather than working for a salary. Results suggest that effective policies to increase school reentry rates for poor girls are free access to community nurseries and kindergartens, and increasingg the availability of secondary schools.
    Keywords: Policy evaluation, Dynamic discrete choice structural models, School choices for girls, School reentry, PROGRESA
    JEL: I21 I28 J16 O15
    Date: 2009–10
  15. By: Fan, Shenggen; Kanbur, Ravi; Zhang, Xiaobo
    Keywords: International Development, International Relations/Trade,
    Date: 2010–01–28
  16. By: Gabriela Schmidt
    Abstract: This paper develops two extensions of the dynamic model presented in Melitz (2003). The first extension consists in the introduction of technology choice between three alternative production technologies: L, M and H. L is assumed to be the same as Melitz’s single production technology, while M and H are assumed to be superior production technologies, stemming this superiority from the fact these technologies substitute the more primitive capital goods used in technology L with newer, updated versions which embody technological advances, and also from the fact that M and H are more skill-intensive than L. Technologies M and H are equally skill-intensive, but H still is superior to M because it incorporates world-technology-frontier capital goods, while the capital goods used in M are below such frontier. The second extension consists in the introduction of two different exporting profiles: “Low-Commitment Exporters” –who make the minimum possible investment required to penetrate export markets- and “High-Commitment Exporters” –who are ready to make additional trade-related investments in order to gain additional export sales-
    Keywords: technology choice – heterogeneous firms – export profiles – embodied technology –resources’ redistribution – monopolistic competition
    JEL: O14 O33
    Date: 2010–03
  17. By: Annim, Samuel Kobina
    Abstract: Recent evidence from the microfinance industry reveals increase in sources of funding which anecdotally links to the profits of institutions. This phenomenon has evoked concerns for the responsiveness of the poor to credit market operational policies such as loan pricing. This paper integrates the poor’s characteristics into a loan size equation to estimate influence on interest rate stimulus. Using data from Ghana, we test the hypothesis of loan price inelasticity using quantile regression and the interaction procedure. The quantile regression shows pronounced variations in responsiveness of loan size to interest rate changes at different percentiles. In contrast to an inverse relationship depicted between the 20th and 40th quantiles, we observe positive and fairly flat curvatures at the extremes and around the median. Motivated by this finding, the interaction procedure is employed for household poverty scores and lending rates at varied statistic to identify differences in clients’ responsiveness. The semi-elasticity of loan amount responsiveness to a unit change in interest rate is more than proportionate and significant for the poorest group. In a broader context, the need for market segmentation based on socio-economic well-being is suggested in the paper in pursuance of the ‘win-win’ objective of poverty reduction and financial sustainability.
    Keywords: Interest rate; sensitivity; loan; size; poor; microfinance; Ghana
    JEL: I30 G29 G20
    Date: 2009–11

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