nep-dev New Economics Papers
on Development
Issue of 2010‒05‒22
39 papers chosen by
Mark Lee
Towson University

  1. When Is the Optimal Lending Contract in Microfinance State Non-Contingent? By Jeon, Doh-Shin; Menicucci, Dominico
  2. The Impact of the Global Financial Crisis on Poverty in the Philippines By Reyes, Celia M; Sobrevinas, Alellie B.; de Jesus, Jeremy
  3. Economic Reform, Education Expansion, and Earnings Inequality for Urban Males in China, 1988-2007 By Meng, Xin; Shen, Kailing; Xue, Sen
  4. The Economics of International Differences in Educational Achievement By Hanushek, Eric A.; Woessmann, Ludger
  5. The Marginal Cost of Public Funds and Tax Reform in Africa By Auriol, Emmanuelle; Walters, Michael
  6. Perception of Health Risk and Averting Behavior: An Analysis of Household Water Consumption in Southwest Sri Lanka By Nauges, Céline; Van Den Berg, Caroline
  7. The Aid Migration Trade-Off By Azam, Jean-Paul; Berlinschi, Ruxanda
  8. On the Role of Productivity and Factor Accumulation in Economic Development in Latin America and the Caribbean By Christian Daude; Eduardo Fernández -Arias
  9. South America for the Chinese?: A Trade-Based Analysis By Eliana Cardoso; Márcio Holland
  10. The Shape of Temptation: Implications for the Economic Lives of the Poor By Abhijit Banerjee; Sendhil Mullainathan
  11. Enterprise recovery following natural disasters By de Mel, Suresh; McKenzie, David; Woodruff, Christopher
  12. Decentralization (localization) and corruption : new cross-country evidence By Ivanyna, Maksym; Shah, Anwar
  13. Assessing poverty and distributional impacts of the global crisis in the Philippines : a microsimulation approach By Habib, Bilal; Narayan, Ambar; Olivieri, Sergio; Sanchez-Paramo, Carolina
  14. Aid quality and donor rankings By Knack, Stephen; Rogers, F. Halsey; Eubank, Nicholas
  15. Openness and technological innovation in East Asia : have they increased the demand for skills ? By Almeida, Rita K.
  16. Understanding the impact of economic shocks on labor market outcomes in developing countries : an application to Indonesia and Mexico By Gutierrez, Catalina; Paci, Pierella; Park, Beom S.
  17. Micro efficiency and macro growth By Nallari, Raj; Bayraktar, Nihal
  18. Poverty lines across the world By Ravallion, Martin
  19. Cambodia 1998-2008 : an episode of rapid growth By Guimbert, Stephane
  20. Access to water, women's work and child outcomes By Koolwal, Gayatri; van de Walle, Dominique
  21. Small state regional cooperation, south-south and south-north migration, and international trade By Schiff, Maurice
  22. Rigidities in employment protection and exporting By Seker, Murat
  23. Fiscal adjustment and growth in Sub-Saharan Africa : overview and lessons from the current downturn By Fofack, Hippolyte
  24. Fiscal competition in developing countries : a survey of the theoretical and empirical literature By Madies, Thierry; Dethier, Jean-Jacques
  25. The global apparel value chain, trade and the crisis : challenges and opportunities for developing countries By Gereffi, Gary; Frederick, Stacey
  26. Internal migration in Ghana : determinants and welfare impacts By Ackah, Charles; Medvedev, Denis
  27. Health, demographic transition and economic growth By Jorgensen, Ole Hagen
  28. Social protection in Latin America : achievements and limitations By Ferreira , Francisco H.G.; Robalino, David
  29. Disease and Development Revisited By David E. Bloom; David Canning; Gunther Fink
  30. International food prices and poverty in Indonesia By Warr, Peter; Anshory Yusuf, Arief
  31. The Global Economic Crisis: Impact on India and Policy Responses By Kumar, Rajiv; Vashisht, Pankaj
  32. Thailand's Growth Rebalancing By Jitsuchon, Somchai; Sussangkarn, Chalongphob
  33. Impacts of the Global Financial Crisis on Small and Medium Enterprises in the People's Republic of China By Liu, Xiangfeng
  34. Can Social Security Boost Domestic Consumption in the People's Republic of China? By Dewen, Wang
  35. When Globalization Meets Urbanization: Labor Market Reform, Income Inequality, and Economic Growth in the People's Republic of China By Lu, Ming; Gao, Hong
  36. The Political Economy of Fiscal Reform in Latin America: The Case of Argentina By Alejandro Bonvecchi
  37. The Political Economy of Fiscal Reform: The Case of Colombia, 1986-2006 By Mauricio Olivera; Monica Pachon; Guillermo Perry
  38. An Incentive Mechanism to Break the Low-skill Immigration Deadlock By David de la Croix; Frédéric Docquier
  39. A Life Insurance Deterrent to Risky Behavior in Africa By de Araujo, Pedro; Murray, James

  1. By: Jeon, Doh-Shin; Menicucci, Dominico
    Abstract: Whether a microfinance institution should use a state-contingent repayment or not is very important since a state-contingent loan can provide insurance for borrowers. However, the classic Grameen bank used state non-contingent repayment, which is puzzling since it forces poor borrowers to make their payments even under hard circumstances. This paper provides an explanation to this puzzle. We consider two modes of lending, group and individual lending, and for each mode we characterize the optimal lending and supervisory contracts when a staff member (a supervisor) can embezzle borrowers' repayments by misrepresenting realized returns. We identify the main trade-off between the insurance gain and the cost of controlling the supervisor's misbehavior. We also found that group lending dominates individual lending either by providing more insurance or by saving audit costs.
    JEL: O16 D82 G20
    Date: 2010–03–09
  2. By: Reyes, Celia M; Sobrevinas, Alellie B.; de Jesus, Jeremy
    Abstract: <p>The recent global financial and economic crisis which started in the United States and expanded to other developed countries has, to some extent, affected developing countries as well. Given the vulnerability of most developing countries, it is important to monitor the impact of this global crisis on poverty. This study, therefore, aims to assess the impact of the crisis on poverty in the Philippines. The result of this study would serve as inputs to policymakers in prioritizing mitigating measures that would address the impact of the crisis.</p> <p>In this study, monitoring is done primarily through the conduct of CBMS surveys in selected sentinel sites. Household- and community-level data were collected to capture the different dimensions of poverty. In addition to the CBMS core indicators, specific indicators (including the outcome and impact indicators) were monitored to determine the impact of the global crisis. These indicators were identified based on the relevant key transmission channels for the Philippines including overseas employment and remittances, and local employment. The study also looked at the different coping mechanisms adopted by the households in response to the crisis. The study also attempted to identify who are able to access the programs which were being implemented in the community.</p> <p>Ten barangays all over the Philippines were selected to serve as poverty observatories or sentinel sites for monitoring the impact of the global crisis. Selection of these sites was also based on the relevant transmission channels for the Philippines. Results reveal that although the impact of the crisis is generally minimal, the crisis has affected some specific sectors in the economy. The degree of impact also varies among different groups of households. Hence, policies should be designed to mitigate the impact of the crisis on these affected sectors and groups of households.</p>
    Keywords: community-based monitoring system, global financial and economic crisis, poverty impact, impact transmission channels, CBMS indicators, household-coping strategies, program targeting, leakages and exclusion
    Date: 2010
  3. By: Meng, Xin (Australian National University); Shen, Kailing (Xiamen University); Xue, Sen (Xiamen University)
    Abstract: In the past 20 years the average real earnings of Chinese urban male workers have increased by 350 per cent. Accompanying this unprecedented growth is a considerable increase in earnings inequality. Between 1988 and 2007 the variance of log earnings increased from 0.27 to 0.48, a 78 per cent increase. Using a unique set of repeated cross-sectional data this paper examines the causes of this increase in earnings inequality. We find that the major changes occurred in the 1990s when the labour market moved from a centrally planned system to a market oriented system. The decomposition exercise conducted in the paper identifies the factor that drives the significant increase in the earnings variance in the 1990s to be an increase in the within-education-experience cell residual variances. Such an increase may be explained mainly by the increase in the price of unobserved skills. When an economy shifts from an administratively determined wage system to a market-oriented one, rewards to both observed and unobserved skills increase. The turn of the century saw a slowing down of the reward to both the observed and unobserved skills, due largely to the college expansion program that occurred at the end of the 1990s.
    Keywords: earnings inequality, China
    JEL: J31 P2 P3
    Date: 2010–04
  4. By: Hanushek, Eric A. (Stanford University); Woessmann, Ludger (Ifo Institute for Economic Research)
    Abstract: An emerging economic literature over the past decade has made use of international tests of educational achievement to analyze the determinants and impacts of cognitive skills. The cross-country comparative approach provides a number of unique advantages over national studies: It can exploit institutional variation that does not exist within countries; draw on much larger variation than usually available within any country; reveal whether any result is country-specific or more general; test whether effects are systematically heterogeneous in different settings; circumvent selection issues that plague within-country identification by using system-level aggregated measures; and uncover general-equilibrium effects that often elude studies in a single country. The advantages come at the price of concerns about the limited number of country observations, the cross-sectional character of most available achievement data, and possible bias from unobserved country factors like culture. This chapter reviews the economic literature on international differences in educational achievement, restricting itself to comparative analyses that are not possible within single countries and placing particular emphasis on studies trying to address key issues of empirical identification. While quantitative input measures show little impact, several measures of institutional structures and of the quality of the teaching force can account for significant portions of the large international differences in the level and equity of student achievement. Variations in skills measured by the international tests are in turn strongly related to individual labor-market outcomes and, perhaps more importantly, to cross-country variations in economic growth.
    Keywords: human capital, cognitive skills, international student achievement tests, education production function
    JEL: I20 O40 O15 H40 H52 J24 J31 P50
    Date: 2010–05
  5. By: Auriol, Emmanuelle; Walters, Michael
    Abstract: In this paper we propose estimates of the marginal cost of public funds (MCF) in 38 African countries. We develop a simple general equilibrium model that can handle taxes on five major tax classes, and can be calibrated with little more than national accounts data. Our base case estimate of the average MCF from marginal increases in all five tax instruments is 1.2. Focusing on the lowest cost tax instruments in each country, commonly the VAT but not always, the average MCF is 1.1. A key feature of our model is explicit recognition of the informal economy. The larger the informal economy, the higher MCFs tend to be. Extending the tax base to include sections of the informal economy by removing some tax exemptions offers the potential for a low MCF source of public funds, and a lowering of MCFs on other tax instruments.
    JEL: D43 H25 H26 H32 H60
    Date: 2009–11
  6. By: Nauges, Céline; Van Den Berg, Caroline
    Abstract: Using household data from surveys made in Sri Lanka, we provide original results regarding i) factors driving the perception of risk related to water consumption and ii) the role of perceived risk on household’s decision to treat water before drinking it. First, we find evidence that water aesthetic attributes (taste, smell, and color), household’s education and information about hygiene practices drive household’s assessment of safety risk. Second, we show that a higher perceived risk increases the probability that households boil or filter water before drinking it.
    Keywords: water consumption, risk perception, averting behavior
    Date: 2009–12
  7. By: Azam, Jean-Paul; Berlinschi, Ruxanda
    Date: 2009–08
  8. By: Christian Daude; Eduardo Fernández -Arias
    Abstract: This paper combines development and growth accounting exercises with economic theory to estimate the relative importance of total factor productivity and the accumulation of factors of production in the economic development performance of Latin America. The region’s development performance is assessed in contrast with various alternative benchmarks, both advanced countries and peer countries in other regions. We find that total factor productivity is the predominant factor: low and slow productivity, as opposed to impediments to factor accumulation, is the key to understand Latin America’s low income relative to developed economies and its stagnation relative to other developing countries that are catching up. While policies easing factor accumulation would help improving productivity somewhat, for the most part, closing the productivity gap requires productivity-specific policies.<BR>Afin d’estimer les rôles respectifs joués par la productivité totale des facteurs et l’accumulation des facteurs de production sur la performance de développement économique de l’Amérique latine, cet article combine des exercices comptables de développement et de croissance avec la théorie économique. La performance de la région est évaluée en comparaison avec différents benchmarks issus à la fois de pays riches et de pays en développement d’autres régions. Les résultats montrent que la productivité totale des facteurs est l’élément prédominant pour comprendre le faible revenu de l’Amérique latine par rapport à celui des pays développés, et sa stagnation par rapport à d’autres pays en développement qui sont en train de les rattraper. L’explication repose ainsi sur la faible productivité dans les économies de la région, et sa lente croissance,, et non sur l’existence d’un quelconque obstacle à l’accumulation de facteurs. Même si les politiques publiques facilitant l’accumulation de facteurs pourraient dans une certaine mesure améliorer la productivité globale, l’important est de s’orienter vers des politiques publiques centrées spécifiquement sur la productivité, et ce afin de diminuer les écarts de performance entre l’Amérique latine et les pays développés.
    Keywords: development, Latin America, economic growth, total factor productivity, croissance économique, développement, Amérique latine, productivité totale des facteurs
    JEL: O10 O47
    Date: 2010–04–21
  9. By: Eliana Cardoso; Márcio Holland
    Abstract: The case for a natural resource curse is based on the argument that in the absence of challenges, there is no progress. Is South America cursed by its natural resources? Does China’s rapid penetration of the region renew the region’s comparative advantage in natural resources? Does South America’s trade specialisation stand in the way of regional integration? This paper tries to answer these questions in five steps: It begins with an analysis of trade flows to demonstrate China’s growing importance in South America. It verifies that China’s emergence as an important partner to the region reinforces the long-established calling of its countries as natural resources and commodities exporters. It argues that this vocation matters, because there is a link between the behaviour of the price of commodities and the region’s economic performance. It claims that to deal with this relationship, the best policy is the use of a counter cyclical fiscal policy. Finally, the paper examines whether Brazil could serve as a counter weight to China’s influence in the region. By examining the experience of Mercosur, it concludes that this seems improbable, in part because all countries of the region share the same comparative advantages in producing commodities and agricultural goods.<BR>L’argument en faveur d’une malédiction des ressources naturelles s’appuie sur l’idée qu’en l’absence de défi, le progrès n’est pas possible. L’Amérique latine est-elle victime d’une malédiction liée | l’abondance de ses ressources naturelles ? La pénétration rapide de la Chine sur le marché régional relance-t-elle l’avantage comparatif de la région en matière de ressources naturelles ? La spécialisation commerciale de l’Amérique latine va-t-elle dans le sens de l’intégration régionale ? Ce papier tente de répondre à ces questions en suivant cinq étapes : Il commence par une analyse des flux commerciaux pour montrer l’importance croissante de la Chine en Amérique latine. Il constate que l’émergence de la Chine en tant que partenaire majeur de la région renforce la vocation établie d’exportateurs de matières premières et de ressources naturelles de ses pays. Il insiste sur l’importance de cette spécificité puisque il existe un lien direct entre l’évolution du prix des matières premières et la performance économique de la région. Il affirme que le recours à une politique fiscal contre-cyclique est la meilleure politique pour contrôler l’effet de cette relation de dépendance. Enfin, le papier s’interroge sur la place du Brésil dans la région et sa capacité à jouer le rôle de contrepoids face à l’influence de la Chine. En revenant sur l’expérience du Mercosur, il conclut que cela semble improbable, en partie à cause du fait que tous les pays de la région possèdent les mêmes avantages comparatifs dans la production de matières premières et de produits agricoles.
    Date: 2010–04–21
  10. By: Abhijit Banerjee; Sendhil Mullainathan
    Abstract: This paper argues that the relation between temptations and the level of consumption plays a key role in explaining the observed behaviors of the poor. Temptation goods are defined to be the set of goods that gen- erate positive utility for the self that consumes them, but not for any previous self that anticipates that they will be consumed in the future.
    Keywords: consumption, poor, temptation goods, interest rates, investment, savings, borrowing, risk-behavior, Euler inequality
    Date: 2010
  11. By: de Mel, Suresh; McKenzie, David; Woodruff, Christopher
    Abstract: Using data from surveys of enterprises in Sri Lanka after the December 2004 tsunami, the authors undertake the first microeconomic study of the recovery of the private firmsin a developing country following a major natural disaster. Disaster recovery in low-income countries is characterized by the prevalence of relief aid rather than of insurance payments; the data show this distinction has important consequences. The data indicate that aid provided directly to households correlates reasonably well with reported losses of household assets, but is uncorrelated with reported losses of business assets. Business recovery is found to be slower than commonly assumed, with disaster-affected enterprises lagging behind unaffected comparable firms more than three years after the disaster. Using data from random cash grants provided by the project, the paper shows that direct aid is more important in the recovery of enterprises operating in the retail sector than for those operating in the manufacturing and service sectors.
    Keywords: Microfinance,Debt Markets,Banks&Banking Reform,Natural Disasters,Hazard Risk Management
    Date: 2010–04–01
  12. By: Ivanyna, Maksym; Shah, Anwar
    Abstract: This paper attempts to improve the understanding and measurement of decentralization and its relationship with corruption in a worldwide context. This is done by presenting the conceptual underpinnings of such relationship as well as using superior and more defensible measures of both decentralization in its various dimensions as well as corruption for a sample of 182 countries. It is the first paper that treats various tiers of local governments (below the inter-mediate order of government) as the unit of comparative analysis. In contrast, previous analyses erroneously focused on subnational governments as the unit of analysis which yields invalid cross-country comparisons. By pursuing rigorous econometric analysis, the paper demonstrates that decentralization, when properly measured to mean moving government closer to people by empowering local governments, is shown to have significant negative effect on the incidence of corruption regardless of the choice of the estimation procedures or the measures of corruption used. In terms of various dimensions of decentralized local governance, political decentralization matters even when we control for fiscal decentralization. Further voice (political accountability) is empirically shown to be more important in combating corruption than exit options made available through competition among jurisdictions.
    Keywords: National Governance,Subnational Economic Development,Public Sector Corruption&Anticorruption Measures,Banks&Banking Reform,Governance Indicators
    Date: 2010–05–01
  13. By: Habib, Bilal; Narayan, Ambar; Olivieri, Sergio; Sanchez-Paramo, Carolina
    Abstract: As the financial crisis has spread through the world, the lack of real-time data has made it difficult to track its impact in developing countries. This paper uses a micro-simulation approach to assess the poverty and distributional effects of the crisis in the Philippines. The authors find increases in both the level and the depth of aggregate poverty. Income shocks are relatively large in the middle part of the income distribution. They also find that characteristics of people who become poor because of the crisis are different from those of both chronically poor people and the general population. The findings can be useful for policy makers wishing to identify leading monitoring indicators to track the impact of macroeconomic shocks and to design policies that protect vulnerable groups.
    Keywords: Rural Poverty Reduction,Regional Economic Development,Labor Policies,Achieving Shared Growth,Economic Theory&Research
    Date: 2010–04–01
  14. By: Knack, Stephen; Rogers, F. Halsey; Eubank, Nicholas
    Abstract: This paper offers new measures of aid quality covering 38 bilateral and multilateral donors, as well as new insights about the robustness and usefulness of such measures. The 2005 Paris Declaration on Aid Effectiveness and the follow-up 2008 Accra Agenda for Action have focused attention on common donor practices that reduce the development impact of aid. Using 18 underlying indicators that capture these practices -- derived from the OECD-DAC's Survey for Monitoring the Paris Declaration, the new AidData database, and the DAC aid tables -- the authors construct an overall aid quality index and four coherently defined sub-indexes on aid selectivity, alignment, harmonization, and specialization. Compared with earlier indicators used in donor rankings, this indicator set is more comprehensive and representative of the range of donor practices addressed in the Paris Declaration, improving the validity, reliability, and robustness of rankings. One of the innovations is to increase the validity of the aid quality indicators by adjusting for recipient characteristics, donor aid volumes, and other factors. Despite these improvements in data and methodology, the authors caution against overinterpretation on overall indexes such as these. Alternative plausible assumptions regarding weights or the inclusion of additional indicators can still produce marked shifts in the ranking of some donors, so that small differences in overall rankings are not meaningful. Moreover, because the performance of some donors varies considerably across the four sub-indexes, these sub-indexes may be more useful than the overall index in identifying donors’ relative strengths and weaknesses.
    Keywords: Gender and Health,Development Economics&Aid Effectiveness,Economic Adjustment and Lending,Disability,School Health
    Date: 2010–05–01
  15. By: Almeida, Rita K.
    Abstract: This paper examines whether the increased openness and technological innovation in East Asia have contributed to an increased demand for skills in the region. The author explores a unique firm level data set across eight countries in Asia and the Pacific region. The results strongly support the idea that greater openness and technological innovation have increased the demand for skills, especially in middle-income countries. In particular, while the presence in international markets has been skill enhancing for most middle-income countries, this is not the case for manufacturing firms operating in China and in low-income countries. The author interprets this to support the premise that if international integration in the region continues to intensify and technology continues to be skilled biased, policies aimed at mitigating the skills shortages should produce continual and persistent increase in skills.
    Keywords: Labor Markets,Labor Policies,E-Business,Emerging Markets,Technology Industry
    Date: 2010–04–01
  16. By: Gutierrez, Catalina; Paci, Pierella; Park, Beom S.
    Abstract: In this paper the authors use a search and matching model of multi-sector labor markets, to understand the channels through which economic shocks affect labor market outcomes in developing countries. In the model workers can be employed in agriculture, formal or informal urban jobs, or unemployed. Economic shocks are manifested as either increased turbulence in the formal/informal sectors or a decrease in overall sectoral productivity. By calibrating the model to Indonesia and Mexico, the authors are able to understand how the 1998 Indonesian crisis and the 2001 Mexican recession translated into labor market outcomes. They then venture to simulate how the current financial crisis might affect the allocation of labor and earnings across sectors, in these countries. The results suggest that in both countries past crises have increased the degree of turbulence of the formal sector, increasing job destruction. However, while in Indonesia the crisis affected the overall formal sector productivity, this was not the case in Mexico. This explains the larger blow to formal wages -- relative to the size of the shock- witnessed by Indonesian workers. The response of the informal sector was also different: In both countries the informal sector was able to act as a buffer, as relative earnings increased. However, while in Mexico it became much harder to find informal sector opportunities and easier to keep the job once found; in Indonesia turbulence in the informal sector increased substantially increasing the job destruction rate of informal jobs andlimiting the cushioning role that the informal sector might have played. The agricultural sector was spared from the shock in both countries. In Indonesia, it actually benefited from an unusual exogenous increase in the price of rise. The simulations show that if either the informal or agricultural sectors are spared from the shocks, large reallocations of labor might occur, and the overall effect of the shock is smaller. Instead, if these sectors can’t buffer the shock, the reallocation of labor is much smaller, but earnings in the formal sector drop substantially. The authors also explore the impact of alternative policies. They find that in relatively flexible markets where informality can be seen more as a choice rather than as queuing, unemployment benefits and informal employment subsidies may have paradoxical effects, by discouraging formal search. Instead, policies targeted at creating informal employment and boosting formal TFP growth have the desired effects.
    Keywords: Labor Markets,Labor Policies,Markets and Market Access,Banks&Banking Reform,Economic Theory&Research
    Date: 2010–04–01
  17. By: Nallari, Raj; Bayraktar, Nihal
    Abstract: This paper is about micro foundations of productivity and growth. There are several studies on productivity for advanced economies but relatively few for developing countries. Using data from the investment climate surveys of the World Bank, estimation results from 45 developing countries, complemented by extended analysis at firm and industry levels for Brazil and India for the period 2002-05, indicate the following: (i) confirmation of the importance of total factor productivity at firm, industry and national levels, but total factor productivity progressively tapersoff at each level of aggregation implying that there is a less than one-to-one relationship between micro-efficiency, sector growth, and macro growth; (ii) capital accumulation is more important at the macro level than the micro level; (iii) productivity at the micro level is driven by research and development, the capacity utilization rate, and adoption of foreign technology (all of which involve management decisions), and is negatively related to corruption and instability, tax, and financial regulations; and (iii) confirmation of the lower contribution of total factor productivity to output growth in developing countries than in developed economies. Management decisions are involved in a lot of day-to-day operations at the firm level and therefore management is an unmeasured input. In developing countries, at the firm level, there is a need to understand the contribution of quality of inputs (management quality, education and labor quality, training, experience of workers, use of computers at work) and also the role of external agglomeration (for example, location in a booming city, competitive pressures from new firms, trade competition, and regulations).
    Keywords: Economic Theory&Research,Economic Growth,Labor Policies,Achieving Shared Growth,E-Business
    Date: 2010–04–01
  18. By: Ravallion, Martin
    Abstract: National poverty lines vary greatly across the world, from under $1 per person per day to over $40 (at 2005 purchasing power parity). What accounts for these huge differences, and can they be understood within a common global definition of poverty? For all except the poorest countries, the absolute, nutrition-based, poverty lines found in practice tend to behave more like relative lines, in that they are higher for richer countries. Prevailing methods of setting absolute lines allow ample scope for such relativity, even when nutritional norms are common across countries. Both macro data on poverty lines across the world and micro data on subjective perceptions of poverty are consistent with a weak form of relativity that combines absolute consumption needs with social-inclusion needs that are positive for the poorest but rise with a country’s mean consumption. The strong form of relativism favored by some developed countries -- whereby the line is set at a fixed proportion of the mean -- emerges as the limiting case for very rich countries.
    Keywords: Rural Poverty Reduction,Regional Economic Development,Achieving Shared Growth,Poverty Lines
    Date: 2010–04–01
  19. By: Guimbert, Stephane
    Abstract: Cambodia's growth over 1998-2008 has been remarkable (almost 10 percent per annum for a decade). This paper applies a"growth diagnostic"approach to understand how this happened and how it can be sustained. Past growth has been driven by the coincidence of a set of historical and geographic factors (including opportunistic policy responses), together with the use of natural assets (although in a non sustainable way) and the elaboration of productive sector-specific governance arrangements. Several of these factors are unfortunately not self-sustaining and the global economic crisis of 2008-09 is exposing these vulnerabilities. A growth diagnostic flags a number of short-term priorities to ensure the competitiveness of existing industries, as well as more medium-term priorities for the country to continue attracting foreign investment and start mobilizing more domestic savings. A key economic policy objective is the diversification of the economy, which requires a reduction in unproductive risks and costs as well as creative solutions to coordination failures.
    Keywords: Environmental Economics&Policies,Economic Theory&Research,Emerging Markets,Debt Markets,Access to Finance
    Date: 2010–04–01
  20. By: Koolwal, Gayatri; van de Walle, Dominique
    Abstract: Poor rural women in the developing world spend considerable time collecting water. How then do they respond to improved access to water infrastructure? Does it increase their participation in income earning market-based activities? Does it improve the health and education outcomes of their children? To help address these questions, a new approach for dealing with the endogeneity of infrastructure placement in cross-sectional surveysis proposed and implemented using data for nine developing countries. The paper does not find that access to water comes with greater off-farm work for women, although in countries where substantial gender gaps in schooling exist, both boys'and girls'enrollments improve with better access to water. There are also some signs of impacts on child health as measured by anthropometric z-scores.
    Keywords: Gender, Water Supply and Sanitation,Rural Labor Markets,Rural Water Supply and Sanitation,Access&Equity in Basic Education,Early Child and Children's Health
    Date: 2010–05–01
  21. By: Schiff, Maurice
    Abstract: This paper provides a different basis than previous analyses for regional bloc formation and regional migration. Due to low bargaining power and fixed costs, small states face a severe disadvantage in negotiations with the rest of the world and might benefit by forming a regional bloc. The study a) presents a general equilibrium model where bargaining power, international and regional negotiation costs, number of issues negotiated, and accession rule to the bloc determine its size and welfare impact; and b) examines the impact of international migration as well as the migration-trade relationship. The main findings are: i) the likelihood of regional bloc formation, its size and welfare impact, increases with international negotiation costs and the number of issues negotiated, and decreases with regional negotiation costs; ii) bloc size is optimal (below the optimum) if an accession fee is (is not) charged; iii) South-South migration raises bloc size and welfare; iv) South-South migration and trade are complements under market access negotiations and are substitutes under negotiations for unilateral transfers as well as under migrant remittances; and v) South-North migration and bloc formation, and South-North and South-South migration, are substitutes for the states that benefit from membership in the bloc.
    Keywords: Trade and Regional Integration,Population Policies,Economic Theory&Research,Post Conflict Reconstruction,Regional Economic Development
    Date: 2010–05–01
  22. By: Seker, Murat
    Abstract: A large number of studies have shown that contribution of exporters to economic growth and development is much higher than non-exporting firms. This evidence has lead governments to improve their trade policies in order to increase foreign exposure of firms. However, improvements in trade policies can only be fully effective when they are complemented with other regulatory reforms that improve the investment climate for firms. This study focuses on a particular aspect of investment climate, namely employment protection legislation, and shows how these regulations discourage firms from exporting. Using a rich set of firm level data from 26 countries in the Eastern Europe and Central Asia region, the author shows that firms that cannot create new jobs due to restrictive labor regulations are less likely to export. Evidence shows that firms that plan to export expand their size before they start to export. However the rigidities in labor markets make this adjustment costly. Higher costs of labor decrease operating profits and lead to a higher threshold value of productivity required for entering export markets. As a result, a smaller fraction of firms chooses to export.
    Keywords: Labor Markets,Labor Policies,Microfinance,Small Scale Enterprise,E-Business
    Date: 2010–05–01
  23. By: Fofack, Hippolyte
    Abstract: In light of the proliferation of exceptionally large fiscal stimuli to ward off the recession triggered by the 2008 global economic and financial crisis in most advanced economies, this paper revisits the fiscal adjustment and growth nexus in Sub-Saharan Africa. Using transfer functions, it quantifies expected losses in terms of aggregate output largely attributed to a systematic implementation of pro-cyclical expenditure switching and reducing policies to achieve low deficit targets throughout the decades ofadjustments. The results consistently highlight a much higher predicted aggregate output under the hypothesized counter-cyclical fiscal expansion option. This consistent outcome suggests that the output gap would have been significantly smaller in the region if countries had drawn on stop-and-go policies of fiscal expansion to sustainably raise the stock of capital investments.
    Keywords: Debt Markets,Public Sector Expenditure Policy,Fiscal Adjustment,Economic Stabilization,Economic Theory&Research
    Date: 2010–05–01
  24. By: Madies, Thierry; Dethier, Jean-Jacques
    Abstract: The last two decades have witnessed a sharp increase in foreign direct investment (FDI) flows and increased competition among developing countries to attract FDI, resulting in higher investment incentives offered by host governments and removal of restrictions on operations of foreign firms in their countries. Fiscal competition between governments can take the form of business tax rebates, productivity-enhancing public infrastructure or investment incentives such as tax holidays, accelerated depreciation allowances or loss carry-forward for income tax purposes. It can take place between governments of different countries or between local governments within the same country. This paper surveys the recent theoretical and empirical economic literature on decentralization which attempts to answer three questions. First, does theoretical literature on fiscal competition and"bidding races"contribute to a better understanding of such phenomenon in developing countries? Second, are FDI inflows in developing countries sensitive to fiscal incentives and is there empirical evidence of strategic behavior from the part of developing countries in order to attract FDI? Third, what evidence is there about fiscal competition among local governments in developing countries?
    Keywords: Subnational Economic Development,Debt Markets,Taxation&Subsidies,Emerging Markets,Public Sector Economics
    Date: 2010–05–01
  25. By: Gereffi, Gary; Frederick, Stacey
    Abstract: This paper examines the impact of two crises on the global apparel value chain: the World Trade Organization phase-out of the quota system for textiles and apparel in 2005, which provided access for many poor and small export-oriented economies to the markets of industrialized countries, and the current economic recession that has lowered demand for apparel exports and led to massive unemployment across the industry’s supply chain. An overarching trend has been the process of global consolidation, whereby leading apparel suppliers (countries and firms alike) have strengthened their positions in the industry. On the country side, China has been the big winner, although Bangladesh, India, and Vietnam have also continued to expand their roles in the industry. On the firm side, the quota phase-out and economic recession have accelerated the ongoing shift to more streamlined global supply chains, in which lead firms desire to work with fewer, larger, and more capable suppliers that are strategically located around the world. The paper concludes with recommendations for how developing countries as well as textile and apparel suppliers can adjust to the crisis.
    Keywords: Markets and Market Access,Economic Theory&Research,Free Trade,Labor Policies,Access to Markets
    Date: 2010–04–01
  26. By: Ackah, Charles; Medvedev, Denis
    Abstract: Using a recently compiled dataset on migration and remittances in Ghana, this paper estimates the determinants of an individual’s likelihood to be an internal migrant and the relationship between internal migration and welfare. The analysis finds that the likelihood to migrate is determined by a combination of individual (pull) and community-level (push) characteristics. The probability of migration is higher for younger and more educated individuals, but communities with higher levels of literacy, higher rates of subsidized medical care, and better access to water and sanitation are less likely to produce migrants. The analysis finds that households with migrants tend to be better off than similar households without migrants, even after controlling for the fact that households with migrants are a non-random sample of Ghanaians. However, the positive relationship is only true for households with at least one migrant in urban areas; the welfare of households with migrants exclusively in rural areas is no different from households without any migrants.
    Keywords: Population Policies,Anthropology,Gender and Development,Remittances,Voluntary and Involuntary Resettlement
    Date: 2010–04–01
  27. By: Jorgensen, Ole Hagen
    Abstract: This paper develops a link between four central components of the demographic transition: survival rates; fertility decisions; altruistic intergenerational transfers from workers toward their parents; and economic growth. An increase in child survival is found to reduce the fertility rate and altruistic transfers, and thereby increase the savings rate and the productivity growth rate. The analysis illustrates the key role of child health in the demographic transition.
    Keywords: Population Policies,Economic Theory&Research,Emerging Markets,Access to Finance,Health Monitoring&Evaluation
    Date: 2010–05–01
  28. By: Ferreira , Francisco H.G.; Robalino, David
    Abstract: Social protection systems in Latin America have been transformed in the past two decades. Until the 1980s, those who were not covered by the social security arrangements available primarily in the urban formal sector received little public assistance beyond universal subsidies for some food or fuel purchases. Since the 1990s, the introduction of non-contributory social insurance programs (including"social pensions") and conditional cash transfers has substantially extended the coverage and improved the incidence of social assistance. However, the organic growth of subsidized social assistance in parallel to the older social insurance system, financed largely out of taxes on formal sector employment, has led to a dual system that is neither properly equitable nor efficient. The twin challenges that now face social protection in Latin America are to better integrate those two halves of the system, and to develop programs that promote sustainable self-reliance, by moving from"safety nets"to"opportunity ropes."
    Keywords: Rural Poverty Reduction,Services&Transfers to Poor,Debt Markets,Insurance Law,Health Monitoring&Evaluation
    Date: 2010–05–01
  29. By: David E. Bloom (Harvard School of Public Health); David Canning (Harvard School of Public Health); Gunther Fink (Harvard School of Public Health)
    Abstract: In a recent paper, Acemoglu and Johnson (2007) argue that the large increases in population health witnessed in the 20th century may have lowered income levels. We argue that this result depends crucially on their assumption that initial health and income do not affect subsequent economic growth. Using their data we reject this assumption in favor of a model of conditional convergence, with income adjusting to its steady state over time. We show that, allowing for conditional convergence, exogenous improvements in health due to technical advances associated with the epidemiological transition appear to have increased income levels.
    Keywords: Disease, development, economic growth, health
    Date: 2010–05
  30. By: Warr, Peter; Anshory Yusuf, Arief
    Abstract: This paper argues that recent increases in international food prices worsened poverty incidence in Indonesia, even though many poor farmers benefited. This conclusion is based on the application of a multi-sectoral, multi-household general equilibrium model of the Indonesian economy. The positive effect on the welfare of poor farmers was exceeded by the negative effect on poor consumers. Indonesiaâs ban on rice imports since 2004 complicates this account. The import ban shielded Indonesiaâs internal rice market from the temporary world price increases from 2007 to 2008, but did so at the expense of permanently increasing both rice prices and poverty incidence.
    Keywords: Indonesia, Food Prices, Poverty Incidence, General Equilibrium Modeling, International Development, D58, I32, F14,
    Date: 2010
  31. By: Kumar, Rajiv (Asian Development Bank Institute); Vashisht, Pankaj (Asian Development Bank Institute)
    Abstract: India's financial sector is not deeply integrated with the global financial system, which spared it the first round adverse effects of the global financial crisis and left Indian banks mostly unaffected. However, as the financial crisis morphed in to a full-blown global economic downturn, India could not escape the second round effects. The global crisis has affected India through three distinct channels: financial markets, trade flows, and exchange rates. The reversal in capital inflows, which created a credit crunch in domestic markets along with a severe deterioration in export demand, contributed to the decline of gross domestic product by more than 2 percentage points in the fiscal year 2008–2009. In line with efforts taken by governments and central banks all over the world, the Government and the Reserve Bank of India took aggressive countercyclical measures, sharply relaxing monetary policy and introducing a fiscal stimulus to boost domestic demand. However, this paper argues that with very limited fiscal maneuverability and the limited traction of monetary policy, policy measures to restore the Indian gross domestic product growth back to its potential rate of 8–9% must focus on addressing the structural constraints that are holding down private investment demand.
    Keywords: india global financial crisis; gdp growth
    JEL: E66
    Date: 2009–11–12
  32. By: Jitsuchon, Somchai (Asian Development Bank Institute); Sussangkarn, Chalongphob (Asian Development Bank Institute)
    Abstract: This paper reviews Thailand's structural changes, the 1997 crisis experience, and recovery and lessons from the crisis. The paper then discusses the impacts of the subprime crisis on the Thai economy and the policy responses to date. The paper ends by discussing strategies to rebalance growth by reducing the dependence on exports as the main growth engine. <p>The recovery from the 1997 crisis left Thailand more dependent than ever on exports as the main engine of growth, with the ratio of exports to gross domestic product (GDP) increasing from a precrisis level of about 38% to about 65% recently. The lessons learned from the 1997 crisis led to a more risk-averse financial system, and this helped Thailand avoid the direct impacts of the subprime crisis. However, being highly dependent on exports, Thailand, along with other export oriented East Asian economies, is now heavily affected by the indirect impacts of the subprime crisis, especially in the export industries. Exports and GDP have dropped sharply over the past two quarters. <p>The government has been using fiscal stimulus and monetary easing measures to try to improve the economy. These measures are mostly short-term in nature, and if the subprime crisis is protracted, then the sustainability of the fiscal stimulus will be called into question. In the medium- to long-term, Thailand needs to move to a more balanced growth path, depending less on exports (although exports will still be important) and more on other, domestic sources of growth. The paper concludes by discussing a number of policy strategies that will contribute to a more balanced growth path.
    Keywords: thailand growth rebalancing; exports; trade statistics; financial crises
    JEL: E65 F14 F30 F40 O11
    Date: 2009–10–06
  33. By: Liu, Xiangfeng (Asian Development Bank Institute)
    Abstract: This paper conducts an in-depth analysis of the impacts of the global financial crisis on the People's Republic of China's (PRC's) small and medium enterprises (SMEs). It also provides relevant policy suggestions at the end. First, this paper reviews the impacts of the 1997 Asian financial crisis on the PRC's SMEs, evaluating the policy measures for coping with the crisis at that time and summarizing the relevant experiences. Second, it analyzes the impacts of the current global financial crisis on the PRC's SMEs, focusing the discussion on the causes of and resulting problems from SMEs' shrinking export markets via reduced export orders, rising operating costs, decreased efficiency, increased shutdowns, sharply rising unemployment, weakened investment confidence, broken lines of funding, and reduced resources. Third, the paper makes a preliminary analysis of the countermeasures taken by the government of the PRC, focusing on its support policies for SMEs and the problems exhibited in the implementation of those policies. Finally, the author makes policy suggestions for boosting the development of SMEs and puts forward relevant measures in the context of an SME credit guarantee, the expansion of financing institutions and channels, tax reductions, the improvement of service systems, and strengthening SMEs' self-construction mechanisms.
    Keywords: global financial crisis; impact on prc smes
    JEL: F14 F41 O11 O20
    Date: 2009–12–16
  34. By: Dewen, Wang (Asian Development Bank Institute)
    Abstract: This paper reviews the development of the social security system and trends in the urban labor market in the People's Republic of China (PRC). Despite its remarkable economic achievement, the PRC faces a difficult path before it can reform and improve its social security system and provide basic support for all of its people. The unemployment shock has caused rural and urban household income to decrease and has thus slowed down household consumption growth. The provision of broader social security would not only mitigate unemployment shocks in the short term, but it would also guarantee individuals and households more security for spending that could reduce the high savings rate and help achieve a balanced growth path in the long run. The author's findings argue that households with social security coverage spend more and income distribution among urban households is improved through public transfers.
    Keywords: social security system prc; urban labor market prc
    JEL: D12 D63 H55 J26
    Date: 2010–05–17
  35. By: Lu, Ming (Asian Development Bank Institute); Gao, Hong (Asian Development Bank Institute)
    Abstract: The development path that the People's Republic of China (PRC) has been following during the past thirty years has led to both internal and external economic imbalances, and is now greatly challenged by the global crisis. This unbalanced growth path was primarily a result of the PRC's labor market reform which took the years of the mid-1990s as its turning point. Before the mid-1990s, the scale of rural-to-urban migration was limited, but it has grown dramatically since then. 1996 also saw drastic employment restructuring in urban areas of the PRC. Labor market reform, accompanied by the foreign exchange system reform in 1994, confirmed the PRC's comparative advantage of low labor cost, and therefore further increased the PRC's reliance on exports. However, the increased income disparity that resulted from the labor market reform may jeopardize sustainable growth if no adjustment is made. To sustain the high economic growth, especially in face of the current crisis, the PRC needs to adjust its reform and development strategies to promote income equality.
    Keywords: china labor market unemployment; china income inequality; china economic growth crisis
    JEL: J21 O15 O53
    Date: 2009–11–09
  36. By: Alejandro Bonvecchi
    Abstract: This paper investigates the political economy of fiscal reform activism in Argentina since the late 1980s. Between 1988 and 2008, tax legislation was changed 83 times, fiscal federal rules 14 times, and budgetary institutions sixteen times. Tax and budgetary reforms moved from centralizing revenue sources and spending authority in the federal government to mild decentralization lately. Fiscal federal rules combined centralization of revenues and management in the federal government with short-term compensations for the provinces. This paper contends that reform activism can be explained by the recurrence of economic and policy shocks while reform patterns may be accounted for as consequences of the decreasing political integration of national parties in a polity whose decisionmaking rules encourage the formation of oversized coalitions. The decrease in political integration weakened the national party leaderships’ ability to coordinate intergovernmental bargaining, and strengthened the local bosses and factions needed to form oversized coalitions.
    Keywords: Public finance, Budget, Taxes, Federalism, Intergovernmental relations
    JEL: H77 H61 H20
    Date: 2010–05
  37. By: Mauricio Olivera; Monica Pachon; Guillermo Perry
    Abstract: This paper explores the characteristics of the political economy process that conditioned the scope and success of the combination of fiscal reforms before and after Colombia’s 1991 constitutional reforms. Using formal analysis of reforms and interviews with actors, reforms in taxation, decentralization, the budgetary process and pensions are examined in times of political crisis, economic crisis, and economic boom. The results generally confirm the hypothesis that increased political fragmentation and limited unilateral executive power after the 1991 reforms restricted the extent of reforms, particularly in tax law. Nonetheless, the enactment of piecemeal reforms was encouraged by crisis conditions.
    Keywords: Policymaking process, Political economy, Structural reform, Colombia
    JEL: H20 H71 H77
    Date: 2010–05
  38. By: David de la Croix (IRES and CORE, Université catholique de Louvain); Frédéric Docquier (National Fund for Scientific Research (Belgium) and IRES, Université catholique de Louvain)
    Abstract: Although movements of capital, goods and services are growing in importance, workers movements are impeded by restrictive policies in rich countries. Such regulations carry substantial economic costs for developing countries, and prevent global inequality from declining. Even if rich countries are averse to global inequality, a single country lacks incentives to welcome additional migrants as it would bear the costs alone while the benefits accrue to all rich states. Aversion to global inequality confers a public good nature to the South-North migration of low-skill workers. We propose an alternative allocation of labor maximizing global welfare subject to the constraints that the rich countries are at least as well off as in the current “nationalist” (or “Nashionalist”) situation. This “no regret” allocation can be decentralized by a tax-subsidy scheme which makes people internalize the fact that as soon as a rich country welcomes an additional migrant, global inequalities are reduced, and each citizen in the rich world is better off too. Our model is calibrated using statistics on immigration, working-age population and output. We simulate the proposed scheme on different sets of rich countries.
    Keywords: Public Good, Inequality Aversion, Immigration policy.
    JEL: F22 D58 D6 D7
    Date: 2010–05
  39. By: de Araujo, Pedro; Murray, James
    Abstract: The spread of HIV and AIDS and risky sexual behavior continues to be a problem in Sub-Saharan African countries despite government measures to educate people on the risk and severity of the disease and measures to promote safe sex practices such as making condoms readily available at reduced or no cost. We examine whether people decide to engage in risky sexual behavior due to low income and low life expectancy. Sub-Saharan Africa is characterized by conditions that significantly reduce life expectancy such as unsanitary conditions prevalent in poverty stricken areas, inaccessibility to health care, and dangerous working conditions such as those in very poor mining regions. Moreover, since income per capita in these countries is very low, the opportunity cost associated with dying from AIDS and foregoing future consumption is very low. We examine how a government provided life insurance benefit may be an effective means of deterring risky sexual behavior. To evaluate this policy prescription we develop a life-cycle model with personal and family consumption and endogenous probability of survival. In the model, agents can receive life insurance benefits if their death is not the result of AIDS. We demonstrate that excessive risky behavior does result from low life expectancy and low levels of income and illustrate the conditions for which the life insurance benefit can replicate the effects of higher income and life expectancy, deterring risky sexual behavior and reducing the spread of HIV/AIDS.
    Keywords: AIDS; life-cycle; life expectancy; sub-Saharan Africa
    JEL: H51 I18 I38
    Date: 2010–05–12

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