nep-dev New Economics Papers
on Development
Issue of 2010‒07‒03
thirteen papers chosen by
Mark Lee
Towson University

  1. Residual Wage Inequality in Urban China, 1995-2007 By Xing, Chunbing
  2. The Impact of Agricultural Technology Adoption of Income Inequality in Rural China By Shijun Ding; Laura Meriluoto; W. Robert Reed; Daoyun Tao; Haitao Wu
  3. Matching for Credit: Risk and Diversification in Thai Microcredit Groups By Christian Ahlin
  4. Quality and Coordination of Official Development Aid in Pakistan By Abdul Malik
  5. Agricultural distortions in Sub-Saharan Africa : trade and welfare indicators, 1961 to 2004 By Croser, Johanna; Anderson, Kym
  6. Trade and regional inequality By Rodriguez-Pose, Andres
  7. Characterizing the business cycles of emerging economies By Calderon, Cesar; Fuentes, Rodrigo
  8. China's high saving rate: myth and reality By Guonan Ma; Wang Yi
  9. Determinants of Foreign Direct Investment in Developing Countries: A Comparative Analysis By Khondoker Abdul Mottaleb; Kaliappa Kalirajan
  10. Essays on Risk-Sharing and Development. By HOANG-VU EOZENOU, Patrick; HOANG-VU EOZENOU, Patrick; HOANG-VU EOZENOU, Patrick
  11. Foreign Direct Investment in Africa: What are the Key Factors of Attraction aside from Natural Resources? By Bertrand BLANCHETON (GREThA UMR CNRS 5113); Lambert OPARA-OPIMBA (Université de Bordeaux)
  12. Financial Constraints, Endogenous Educational Choices and Self-Selection of Migrants By Juliano Assuncao; Leandro Carvalho
  13. Poverty and Time Preference By Leandro Carvalho

  1. By: Xing, Chunbing (Beijing Normal University)
    Abstract: We use three waves of urban household survey data from 1995 to 2007 to investigate the trends of residual inequality and its determinants. First, we describe the change of overall and residual wage inequality over time. One important new pattern is that the rise in both the overall and residual inequality mainly happened at the upper half of the wage distributions (i.e. the rich are getting relatively much richer) from 2002 to 2007. From 1995 to 2002, however, it is truer to say that the poor are getting relatively much poorer. Second, by using two complementary semi-parametric methods, we find that the composition effect is negligible. Instead, the change in skill prices plays a dominant role in the rise of residual inequality. Finally, by constructing a panel data at the city level, we find that ownership restructuring is an important factor that has caused the skill price to rise, especially in the earlier period. Another finding is that China’s export share of GDP has a positive effect on the enlargement of the upper half distributions. This effect is more significant in the latter period from 2002 to 2007, highlighting the impact of China’s entry into the WTO.
    Keywords: urban China, residual inequality, decomposition
    JEL: J3
    Date: 2010–06
  2. By: Shijun Ding; Laura Meriluoto (University of Canterbury); W. Robert Reed (University of Canterbury); Daoyun Tao; Haitao Wu
    Abstract: This study analyzes the impact of government efforts to increase agricultural incomes on income inequality in rural China. It collects and analyzes survey data from 473 households in Yunnan, China in 2004. In particular, it investigates the effects of government efforts to promote improved upland rice technologies. Our analysis shows that farmers who adopted these technologies had incomes approximately 32 percent higher than non-adopters. While much of this came from increased incomes from the selling of upland rice, adopters also enjoyed higher incomes from other cash crops. We attribute this to technology spillovers. Despite substantial increases associated with the adoption of improved upland rice technologies, we estimate that the impact on income inequality was relatively slight. This is primarily due to the fact that low income farmers had relatively high rates of technology adoption.
    Keywords: Rural economic development; Chinese economic development; upland rice; rural-urban income inequality; agricultural income policy
    JEL: O13 O18 O53 Q12
    Date: 2010–06–10
  3. By: Christian Ahlin
    Abstract: How has the microcredit movement managed to push financial frontiers? In a context in which borrowers vary in unobservable risk, Ghatak (1999, 2000) shows that group-based, joint liability contracts price for risk more accurately than individual contracts, provided that borrowers match homogeneously by risk-type. This more accurate risk-pricing can attract safe borrowers and rouse an otherwise dormant credit market. We extend the theory to include correlated risk, and show that borrowers will anti-diversify risk within groups, in order to lower chances of facing liability for group members. We directly test risk-matching and intra-group diversification of risk using data on Thai microcredit borrowing groups. We propose a non-parametric univariate methodology for assessing homogeneity of matching; structural multivariate analysis is carried out using Fox's (2008) matching maximum score estimator. We find evidence of a) homogeneous sorting by risk and b) risk anti-diversification within groups, though not along occupational lines. Thus there is evidence that group lending improves risk-pricing in this context and is part of the explanation of the rise in financial intermediation among the poor. However, the anti-diversification results reveal a potentially negative aspect of voluntary group formation and point to limitations of microcredit groups as risk-sharing mechanisms.[Working Paper No. 251]
    Keywords: microcredit, matching, credit markets, adverse selection, risk-sharing
    Date: 2010
  4. By: Abdul Malik
    Abstract: Pakistan has historically received large volumes of aid but it has also faced an increasingly difficult task of aid coordination. In 2007, Pakistan received more than U.S.$2.2 billion in Official Development Assistance (ODA), ranking the country as the sixth largest recipient of official aid in the world. This overall sum, however, came from diverse sources in an erratic fashion and was being spent on many different activities, often through a combination of budgetary and non-budgetary arrangements, thus leading to a complex task of coordination. This study investigates these various aspects of aid composition, fragmentation, and volatility as key measures of aid quality and discusses their implication for the coordination and effectiveness of aid.[Working Paper No.11]
    Keywords: Pakistan, historically, billion, Official Development Assistance, composition, fragmentation, volatility
    Date: 2010
  5. By: Croser, Johanna; Anderson, Kym
    Abstract: For decades, agricultural price and trade policies in Sub-Saharan Africa have hampered farmers’ contributions to economic growth and poverty reduction. Although there has been much policy reform over the past two decades, the injections of agricultural development funding, together with ongoing regional and global trade negotiations, have brought distortionary policies under the spotlight once again. A key question asked of those policies is: How much are they still reducing national economic welfare and trade? Economy-wide models are able to address that question, but they are not available for many poor countries. Even where they are, typically they apply to just one particular previous year and so are unable to provide trends in effects over time. This paper provides a partial-equilibrium alternative to economy-wide modeling, by drawing on a modification of so-called trade restrictiveness indexes to provide theoretically precise indicators of the trade and welfare effects of agricultural policy distortions to producer and consumer prices over the past half-century. The authors generate time series of country level indexes, as well as Africa-wide aggregates. They also provide annual commodity market indexes for the region, and a sense of the relative importance of the key policy instruments used.
    Keywords: Economic Theory&Research,Markets and Market Access,Emerging Markets,Trade Policy,Free Trade
    Date: 2010–06–01
  6. By: Rodriguez-Pose, Andres
    Abstract: This paper examines the relationship between openness and within-country regional inequality across 28 countries over the period 1975-2005, paying special attention to whether increases in global trade affect the developed and developing world differently. Using a combination of static and dynamic panel data analysis, we find that while increases in trade per se do not lead to greater territorial polarization, in combination with certain country-specific conditions, trade has a positive and significant association with regional inequality. In particular, states with higher inter-regional differences in sector endowments, a lower share of government expenditure, and a combination of high internal transaction costs with a higher degree of coincidence between the regional income distribution and regional foreign market access positions have experienced the greatest rise in territorial inequality when exposed to greater trade flows. This means that changes in trade regimes have had a more polarizing effect in low and middle-income countries, whose structural features tend to potentiate the trade effect and whose levels of internal spatial inequality are, on average, significantly higher than in high-income countries.
    Keywords: Economic Theory&Research,Regional Economic Development,Free Trade,Trade Policy,Emerging Markets
    Date: 2010–06–01
  7. By: Calderon, Cesar; Fuentes, Rodrigo
    Abstract: Using the dating algorithm by Harding and Pagan (2002) on a quarterly database for 23 emerging market economies (EMEs) and 12 developed countries over the period 1980.Q1 - 2006.Q2, the authors proceed to characterize and compare the business cycle features of these two groups. They first find that recessions are deeper and more frequent among EMEs (especially, among LAC countries) and that expansions are more sizable and longer (especially, among East Asian countries). After this characterization, this paper explores the linkages between the cost of recessions (as measured by the average annual rate of output loss in the peak-to-trough phase of the cycle) and several country-specific factors. The main findings are: (a) adverse terms of trade shocks raises the cost of recessions in countries with a more open trade regime, deeper financial markets and, surprisingly, a more diversified output structure. (b) U.S. interest rate shocks seem to have a significant impact on the cost of recessions in East Asian countries. (c) Recessions tend to be deeper if they coincide witha sudden stop, but the effect tends to be mitigated in countries with deeper domestic credit markets. (d) Countries with stronger institutions tend to have less costly recessions.
    Keywords: Debt Markets,Currencies and Exchange Rates,Emerging Markets,Economic Theory&Research,Banks&Banking Reform
    Date: 2010–06–01
  8. By: Guonan Ma; Wang Yi
    Abstract: The saving rate of China is high from many perspectives - historical experience, international standards and the predictions of economic models. Furthermore, the average saving rate has been rising over time, with much of the increase taking place in the 2000s, so that the aggregate marginal propensity to save exceeds 50%. What really sets China apart from the rest of the world is that the rising aggregate saving has reflected high savings rates in all three sectors - corporate, household and government. Moreover, adjusting for inflation alters interpretations of the time path of the propensity to save in the three sectors. Our evidence casts doubt on the proposition that distortions and subsidies account for China's rising corporate profits and high saving rate. Instead, we argue that tough corporate restructuring (including pension and home ownership reforms), a marked Lewis-model transformation process (where the average wage exceeds the marginal product of labour in the subsistence sector) and rapid ageing process have all played more important roles. While such structural factors suggest that the Chinese saving rate will peak in the medium term, policies for job creation and a stronger social safety net would assist the transition to more balanced domestic demand.
    Keywords: corporate, household and government saving, Chinese economy
    Date: 2010–06
  9. By: Khondoker Abdul Mottaleb; Kaliappa Kalirajan
    Abstract: By bridging the gap between domestic savings and investment and bringing the latest technology and management know-how from developed countries, foreign direct investment (FDI) can play an important role in achieving rapid economic growth in developing countries. The fact is that developing countries have not been considered as favorable destinations for FDI, as FDI mostly goes to developed countries. Moreover, among the developing countries, a few countries, such as China, India, Nigeria and Sudan are the major FDI recipient countries. The rest of the developing countries are simply fighting for the scraps. Using panel data from 68 low-income and lower-middle income developing countries, this paper strives to identify the factors that determine FDI inflow to the developing countries. Based on a comparative discussion focusing on why some countries are successful in attracting FDI while others are not, the paper demonstrates that countries with larger GDP and high GDP growth rate, higher proportion of international trade and with more business friendly environment are more successful in attracting FDI.
    Keywords: FDI, developing country, low income country, lower middle income country
    JEL: F21 F23 O40
    Date: 2010
    Date: 2010
  11. By: Bertrand BLANCHETON (GREThA UMR CNRS 5113); Lambert OPARA-OPIMBA (Université de Bordeaux)
    Abstract: This input, essentially empirical by nature, analyses the FDI determinants in Africa independently from the already clearly identified attraction of natural resources. Do powers of anticipation as to the general prospects for these economies influence incoming flows of capital? What role is played by socio-political instability connected to the social consequences caused by conflicts? Are the processes of regionalization enhancing the appeal of countries that are going down that path? From a panel of 28 African countries, the results from estimations obtained using the Hausman-Taylor method of instrumental variables show that the impact of projections on any ongoing decision to invest in the continent is not statistically significant. Our results also show that, although negative, the direct correlation between social risk, a proxy of socio-political instability, and flows of foreign investment is not systematically significant.. However, the fact remains that these instabilities undermine national competencies (human capital) and compound certain ills such as HIV/Aids, whose impact on foreign investment increases along a negative curve in the presence of social risk. However, the simultaneous introduction of regionalization processes into our estimations tends to lower the adverse effects of instability on certain explicative FDI variables.
    Keywords: Foreign Direct Investment (FDI), African economies, projections/anticipations, risk and socio-political instability, regional integration
    JEL: C33 F15 F2 O16
    Date: 2010
  12. By: Juliano Assuncao; Leandro Carvalho
    Abstract: The Roy model predicts that migrants will be disproportionately drawn from the lower half of the educational distribution of the sending country if the sending country has a higher return to schooling. However, Mexican immigrants in the U.S. tend to be disproportionately drawn from the middle of the distribution. This paper argues that financial constraints may explain why. It studies migrants' selectivity when agents that face credit constraints make joint decisions about how much to invest in education and whether to migrate. The results show that financial constraints can explain the intermediate selection of migrants observed in the data.
    Keywords: migration, financial constraints, self-selection, human capital
    JEL: O15 O16 R23
    Date: 2010–05
  13. By: Leandro Carvalho
    Abstract: This paper estimates the time preference of poor households in rural Mexico. It uses data from a program that randomly assigned communities to treatment and control and paid transfers to poor households in treatment communities. The randomization implies that differences in consumption between control and treatment households are due to the program. A buffer-stock model predicts how the response of consumption to transfers depends on the discount factor. It estimates this parameter by matching simulated to sample treatment effects on consumption. The estimates being very low, it concludes that poor households are very impatient or a richer model is needed.
    Keywords: simulation, consumption, time preference, randomized experiment, poverty
    JEL: D91 O12
    Date: 2010–05

This nep-dev issue is ©2010 by Mark Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.