nep-dev New Economics Papers
on Development
Issue of 2010‒07‒17
twenty papers chosen by
Mark Lee
Towson University

  1. Financial access, precaution, and development: Theory and evidence from India By Scott Fulford
  2. Mountains, global food prices, and food security in the developing world By Akramov, Kamiljon T.; Yu, Bingxin; Fan, Shenggen
  3. Improving resource allocation and incomes in Vietnamese agriculture By Dewbre, Joshua
  4. Impact of farmer field schools on agricultural productivity and poverty in East Africa By Davis, Kristin; Nkonya, Ephraim; Kato, Edward; Mekonnen, Daniel Ayalew; Odendo, Martins; Miiro, Richard; Nkuba, Jackson
  5. Long-term impact of investments in early schooling By Mani, Subha; Hoddinott, John; Strauss, John
  6. Exploring the long-term impact of development interventions within life-history narratives in rural Bangladesh By Davis, Peter
  7. Patterns and trends of child and maternal nutrition inequalities in Nigeria By Omilola, Babatunde
  8. An experiment on the impact of weather shocks and insurance on risky investment By Hill, Ruth Vargas; Viceisza, Angelino
  9. The medium-term impact of the primary education stipend in rural Bangladesh By Baulch, Bob
  10. Country-level impact of global recession and China’s stimulus package By Diao, Xinshen; Zhang, Yumei; Chen, Kevin Z.
  11. Positional spending and status seeking in rural China By Brown, Philip H.; Bulte, Erwin; Zhang, Xiaobo
  12. Foreign inflows and growth challenges for African countries By Diao, Xinshen; Breisinger, Clemens
  13. Droughts and floods in Malawi By Pauw, Karl; Thurlow, James; van Seventer, Dirk
  14. China has reached the lewis turning point By Zhang, Xiaobo; Yang, Jin; Wang, Shenglin
  15. A review of empirical evidence on gender differences in nonland agricultural inputs, technology, and services in developing countries By Peterman, Amber; Behrman, Julia; Quisumbing, Agnes
  16. Crop Insurance in India By Gurdev Singh
  17. Shadow Economies All over the World: New Estimates for 162 Countries from 1999 to 2007 By Friedrich Schneider; Andreas Buehn; Claudio E. Montenegro
  18. Institutions and Development in Mexico By Jose Luis Velasco
  20. Expenditure Efficiency and the Optimal Size of Government in Developing Countries By Yogi Rahmayanti; Theara Horn

  1. By: Scott Fulford (Boston College)
    Abstract: Although many think of extending financial access as a means of reducing poverty, empirical studies have produced contradictory results. One problem that many studies share is that they cover only a short time frame and do not examine dynamic effects. I show that allowing effects to differ over time is crucial to understanding changes in access to credit when precautionary motives are important. While the introduction of credit initially creates a boom in consumption and reduces poverty, in the long term credit reduces mean consumption because access to credit reduces the steady state stock of wealth. Using consistent consumption data that cover a much longer time period than most studies, my empirical findings show that increased access to bank branches in rural India increased consumption initially, but consumption later fell, although the long term effect was still slightly positive.
    Keywords: financial access, precaution, development, India
    JEL: O16 D91
    Date: 2010–06–15
  2. By: Akramov, Kamiljon T.; Yu, Bingxin; Fan, Shenggen
    Abstract: This study explores the differences between mountain and non-mountain countries in food security and its determinants. Econometric analysis shows that mountain regions are likely to have lower food security. The findings suggest that people in mountain countries are especially affected by external shocks such as surges in global food prices. The results of regression decomposition indicate that the disparity in food availability we observed between mountain and non-mountain countries can be explained by differences in population size, income, road density, and governance factors as well as by a differential impact of external price shocks. The direct impacts of geographic and agroecological factors seem rather limited.
    Keywords: altitude, Developing countries, food security, global food prices, mountain regions,
    Date: 2010
  3. By: Dewbre, Joshua
    Abstract: This paper uses data collected in an extensive survey of farm costs in the Dong Nai River Basin of Vietnam to estimate the parameters of production functions for rice, vegetables, and coffee. These estimates are then combined with price information to estimate marginal value products for irrigation, fertilizer, labor, and other farm inputs. Comparing marginal value products of the various inputs across crops and with factor prices suggests there may be potential for improving resource allocation and farm incomes. One novel contribution is the consideration of water and irrigation—a concern of considerable interest amidst rising water scarcity in the region. Most notably, the results indicate that fertilizer is the primary constraint to increased yields and farm income. Across all crops the marginal return to phosphorous, for example, ranges from 6,000–20,000 Vietnamese dong (VND) (US$1 = VND1, 800).Making similar comparisons with irrigation water suggests there is potential for improving resource allocation by diverting water from vegetables and coffee toward rice production. The marginal return to irrigation water for rice production is VND 2,500. For coffee and vegetables, marginal returns are negative. For vegetables, preliminary evidence suggests that all irrigation water is not created equal—groundwater and sprinkler irrigation systems have marginal physical products more than double that of traditional sources.
    Keywords: Dong Nai basin, farm input allocation, irrigation efficiency, translog production function, water allocation policy,
    Date: 2010
  4. By: Davis, Kristin; Nkonya, Ephraim; Kato, Edward; Mekonnen, Daniel Ayalew; Odendo, Martins; Miiro, Richard; Nkuba, Jackson
    Abstract: Farmer field schools (FFSs) are a popular education and extension approach worldwide. Such schools use experiential learning and a group approach to facilitate farmers in making decisions, solving problems, and learning new techniques. However, there is limited or conflicting evidence as to their effect on productivity and poverty, especially in East Africa. This study is unique in that it uses a longitudinal impact evaluation (difference in difference approach) with quasi-experimental methods (propensity score matching and covariate matching) together with qualitative approaches to provide rigorous evidence to policymakers and other stakeholders on an FFS project in Kenya, Tanzania, and Uganda. The study provides evidence on participation in FFSs and on the effects of FFSs on various outcomes. The study found that younger farmers who belong to other groups, such as savings and credit groups, tended to participate in field schools. Females made up 50 percent of FFS membership. Reasons for not joining an FFS included lack of time and information. FFSs were shown to be especially beneficial to women, people with low literacy levels, and farmers with medium-size land holdings. FFS participants had significant differences in outcomes with respect to value of crops produced per acre, livestock value gain per capita, and agricultural income per capita. FFSs had a greater impact on crop productivity for those in the middle land area (land poverty) tercile. Participation in FFSs increased income by 61 percent when pooling the three countries. FFSs improved income and productivity overall, but differences were seen at the country level. Participation in FFSs led to increased production, productivity, and income in nearly all cases: Kenya, Tanzania, and at the project level (all three countries combined). The most significant change was seen in Kenya for crops (80 percent increase) and in Tanzania for agricultural income (more than 100 percent increase). A lack of significant increases in Uganda was likely due to Uganda’s National Agricultural Advisory Services. When disaggregating by gender, however, female-headed households benefited significantly more than male-headed households in Uganda.
    Keywords: farmer field schools, agricultural productivity, adoption, extension services,
    Date: 2010
  5. By: Mani, Subha; Hoddinott, John; Strauss, John
    Abstract: This paper identifies the cumulative impact of early schooling investments on later schooling outcomes in the context of a developing country, using enrollment status and relative grade attainment (RGA) as short- and long-run measures of schooling. Using a child-level longitudinal dataset from rural Ethiopia, we estimate a dynamic conditional schooling demand function where the coefficient estimate on the lagged dependent variable captures the impact of all previous periods’ schooling inputs and resources. We find that this lagged dependent variable indicates a strong positive association between current and lagged schooling. Past history matters more for girls than boys and for children from higher-income households compared with the poor.
    Keywords: panel data, Schooling, value-added,
    Date: 2010
  6. By: Davis, Peter
    Abstract: This paper explores the long-term effects of a set of development interventions within the life trajectories of people in rural Bangladesh, using findings from 293 life-history interviews and an accompanying set of focus group discussions conducted in 2007. The paper uses various methods to address the challenge of assessing the long-term impact of development interventions. It then goes on to discuss what was learned about the impact of microfinance, educational transfer, and agricultural technology development programs from the life-history narratives. The life-history interviews show that microfinance services are now widespread in rural Bangladesh, with 55 percent of research participants having used these services for some kind of income-generating activity at some time. Microfinance contributed to at least one of the three or four most important causes of well-being improvement within the life trajectories in 18 percent of research participants. However, 37 percent of research participants used microcredit to cope with crises or to maintain consumption, rather than to generate income. Educational transfers, such as food for education and cash for education, were also viewed positively by research participants and were seen as contributing positively in the life histories of 29 percent of participants. However, educational transfers were listed as a main cause of life improvement for only 7 percent of participants. The impact of educational transfers was limited by the relatively low monetary value of the benefits received as compared with other, more important contributors of improvement. Most research participants receiving educational transfers reported that the funds were used to help with education expenses, food, and children’s clothing, with some participants reporting that without these funds, their children may have had to withdraw from school. The life-history interviews detected little long-term benefit from the agricultural technology programs, and a number of reasons for this fact are discussed in the paper.
    Keywords: development interventions, Microfinance, Poverty,
    Date: 2010
  7. By: Omilola, Babatunde
    Abstract: Despite the fact that nonincome dimensions of well-being such as nutrition and health are now placed on the global development agenda, substantial gaps remain in our knowledge about patterns and trends in nutrition inequalities in many developing countries. The main objective of this paper is to document a useful starting point for understanding the determinants of inequalities in nutritional status and provide some understanding of the proximate causes of inequalities in nutritional status as well as the factors responsible for inequalities in health and nutritional status of children and women in the policy debate. Using Nigeria as a case study and using data from the Nigerian Demographic and Health Survey, this paper measures and decomposes the patterns and trends of inequalities in child and maternal nutritional status in Nigeria. In particular, the paper decomposes observed nutritional inequalities into inequalities between and within demographic and socioeconomic groups to ascertain the relative contributions of the between-groups and within-group components of inequalities. To identify the most vulnerable groups in Nigeria, the paper also explores the prevalence of child and maternal malnutrition in Nigeria. The paper finds that within-group inequalities are the sources of most inequalities in the nutritional status of children and women in Nigeria. Inequalities between demographic and socioeconomic groups are less important. Child and maternal malnutrition are concentrated among the least educated households, the rural population, the north (in particular its Hausa ethnic group), and those who drink water from public wells. Malnutrition in Nigeria is a vicious cycle in that child malnutrition can be partly traced back to low birth weight (and therefore to maternal malnutrition). To interrupt this vicious cycle, the Nigerian government should take targeted and concerted actions that focus attention on addressing within-group inequalities. Intervention in the areas of primary healthcare, home-based caring practices, access to basic services (such as safe drinking water and good sanitation), education of women, and direct nutritional interventions for malnourished children seem the most appropriate.
    Keywords: Developing countries, health, Inequality, malnutrition, Nigerian Demographic and Health Survey, Nutrition, Nutritional status, rural population
    Date: 2010
  8. By: Hill, Ruth Vargas; Viceisza, Angelino
    Abstract: We conduct a framed field experiment in rural Ethiopia to test the seminal hypothesis that insurance provision induces farmers to take greater, yet profitable, risks. Farmers participated in a game protocol in which they were asked to make a simple decision: whether to purchase fertilizer, and if so, how many bags. The return to fertilizer was dependent on a stochastic weather draw made in each round of the game protocol. In later rounds of the game protocol, a random selection of farmers made this decision in the presence of a stylized weather-index insurance contract. Insurance was found to have some positive effect on fertilizer purchases. Purchases were also found to depend on the realization of the weather in the previous round. We explore the mechanisms of this relationship and find that it may be the result of both changes in wealth weather brings about and changes in perceptions of the costs and benefits of fertilizer purchases.
    Keywords: Fertilizer, field experiment, hypothesis, input response, Insurance,
    Date: 2010
  9. By: Baulch, Bob
    Abstract: This paper investigates the long-term impact of Bangladesh’s Primary Education Stipend (PES) program on a range of individual and household welfare measures using a unique longitudinal study spanning the years 2000 to 2006. Using covariate and propensity score matching and difference-in-difference methods, the program is shown to have negligible impacts on school enrollments, household expenditures, calorie consumption, and protein consumption. At the individual level, the PES has a negative impact on grade progression, especially among boys from poor households who are ineligible to receive stipends at the secondary level. The program does, however, lead to improvements in height for age among girls and body mass index among boys. Nonetheless, the impacts of the PES are remarkably small for a program of its size. Poor targeting combined, in particular the program’s limited coverage and lack of geographical targeting, plus the declining real value of the stipend are the most plausible reasons for this lack of impact.
    Keywords: conditional cash transfers, geographical targeting, Household expenditures, primary education, Primary Education Stipend (PES) program,
    Date: 2010
  10. By: Diao, Xinshen; Zhang, Yumei; Chen, Kevin Z.
    Abstract: A dynamic computable general equilibrium model is developed to assess the impact of the recent global recession and the Chinese government’s stimulus package on China’s economic growth. The model is first used to capture the actual sector-level economic growth in 2008 and the possible economic performance in 2009 without the intervention of the Chinese government through its stimulus package. Under this global recession scenario, the GDP growth rate in 2009 falls to 2.9 percent mainly as a result of the sharp drop in exports of manufactured goods, while the agricultural sector is more crisis-resilient. Because export-oriented manufacturing sectors are often import-intensive, the weakened economy is accompanied by a reduction in Chinese firms’ import demand for materials, intermediates, and capital goods. The model also shows that without government intervention, the negative effect of a one-year shock on the Chinese economy would last for many years. Also, over the next five to six years, China is unlikely to replicate its strong economic performance of the past two decades. China’s stimulus package is modeled through increased investment financed by government resources. With additional demand on investment goods, growth in the investment-related production sector is stimulated. Through the cross-sector linkages in a general equilibrium model, the demand for other noncapital goods increases, thus stimulating growth in these sectors. As production of more industrialized sectors starts to grow, so will households’ income and consumption, providing market opportunities for those agricultural and service sectors that mainly produce for the domestic market. Under the stimulus scenario, the Chinese economy is expected to grow 8–10 percent in 2009 and the succeeding years. The growth engine in this case differs from that before 2008: growth is led by domestic demand, while trade still falls significantly in 2009 (instead of the double-digit growth before 2008). Domestic demand-driven stimulus growth creates jobs, and hence it increases income for both urban and rural households. The model is also used to measure the overall gains of the stimulus package by comparing GDP between the two scenarios. Without considering the productivity-enhancing role of public investment as part of the stimulus package (which is important for long-term growth but unlikely to happen in the short run), the cumulative difference of the GDP between the two scenarios over the next seven years is about RMB76 trillion, which is about three times more than the GDP in 2007.
    Keywords: China stimulus package, Development strategies, general equilibrium modeling, global financial crisis,
    Date: 2010
  11. By: Brown, Philip H.; Bulte, Erwin; Zhang, Xiaobo
    Abstract: Focusing on a remote area in rural China, we use a panel census of households in 26 villages to show that socially observable spending has risen sharply in recent years. We demonstrate that such spending by households is highly sensitive to social spending by other villagers. This suggests that social spending is either positional in nature (that is, motivated by status concerns) or subject to herding behavior. We also document systematic relations between social spending and changes in higher order terms of the income distribution. In particular, and consistent with theories of rank-based status seeking, we find the poor increase spending on gifts as the income distribution tightens so that local competition for status intensifies. In addition families of unmarried men (who face grim marriage prospects given China’s high sex ratios, especially in poor areas) intensify their competition for status by increasing their spending on weddings. The welfare implications of spending in order to “keep up with the Joneses” are potentially large, particularly for poor households.
    Keywords: Positional spending, Poverty, Rural-urban linkages, status,
    Date: 2010
  12. By: Diao, Xinshen; Breisinger, Clemens
    Abstract: Foreign inflows are important sources of income that many African governments use to finance public investments and to support the development of manufacturing or export-oriented service sectors. Yet the recent growth experience of many African economies shows that domestic-oriented industry (construction, utilities) and services have become the largest sectors. Using Ghana and its newly found oil as an example, we analyze the dynamic relationship between increasing foreign inflows and economic growth and structural change by developing a multisector intertemporal general equilibrium model. We find that the sudden increase in petrodollars used to finance either the government’s recurrent spending or public investment generates a substantial short-run growth shock consistent with the Dutch disease theory. Opposed short-run effects on the growth of the tradable and nontraded sectors lead the structure of the economy to become more domestic oriented. The creation of an oil fund helps reduce the negative growth and structural effect, while in the longer term, if oil spending does not enhance productivity, growth declines and the GDP share of the nontraded sector further increases. Smart use of oil revenue thus not only involves the creation of an oil fund but also spending inflows on productivity-enhancing investment. Whether public investments can help overcome Dutch disease effects also depends on the growth magnitude of the inflows. At the same level of investment-to-productivity-growth efficiency, public investments take longer to overcome the negative growth effects the higher the growth rate of inflows. This paper further shows that the structural effect of foreign inflows on economic development is a long-term challenge for Africa. The domestic-oriented economic structure can become a persistent phenomenon for countries that continue to receive foreign inflows in the form of petrodollars or in any other form.
    Keywords: Dutch disease, foreign inflows, Growth, intertemporal general equilibrium, structural change,
    Date: 2010
  13. By: Pauw, Karl; Thurlow, James; van Seventer, Dirk
    Abstract: Malawi suffers frequent droughts and floods. In an economy that is heavily dependent on the agricultural sector, it is crucial to understand the implications of these extreme climate events. Not only are rural livelihoods affected due to the severe impacts on the agricultural sector, but nonfarm and urban households are also vulnerable given the strong production and price linkages between agriculture and the rest of the economy. This study uses a general equilibrium model to estimate the economywide impacts of drought- and flood-related crop production losses. Climate simulations are based on production loss estimates from stochastic drought and flood models. Model results show that the economic losses due to extreme climate events are significant: Malawi loses 1.7 percent of its gross domestic product on average every year due to the combined effects of droughts and floods. This is equivalent to almost US$22 million in 2005 prices. Given their crop choices, it is smaller-scale farmers and those in the flood-prone southern regions of the country who are worst affected. However, urban and nonfarm households are not spared. Food shortages lead to sharp price increases that reduce urban households’ disposable incomes. This study makes an important contribution by estimating the economywide impacts of extreme climate events. However, this is only the first step toward designing appropriate agricultural and development strategies that explicitly account for climate uncertainty.
    Keywords: agricultural sector, CGE Modeling, Droughts, floods, Gross Domestic Product (GDP), households, Livelihoods, Poverty,
    Date: 2010
  14. By: Zhang, Xiaobo; Yang, Jin; Wang, Shenglin
    Abstract: In the past several years, labor shortages in China have become an issue. However, there is heated debate as to whether China has passed the Lewis turning point and moved from a period of unlimited supply to a new era of labor shortage. Most empirical studies on this topic focus on estimation of total labor supply and demand. Yet the poor quality of China’s labor statistics leaves the debate open. In this paper, China’s position along the Lewis continuum is examined though primary surveys of wage rates, which offer a more reliable statistic than employment data. Our results show a clear rising trend in real wage rates since 2003. The acceleration of real wages even in slack seasons indicates that the era of surplus labor is over. This finding has important policy implications for China’s future development.
    Keywords: dual economy, employment data, Labor market, Lewis model, Supply and demand, surplus labor, wage rates,
    Date: 2010
  15. By: Peterman, Amber; Behrman, Julia; Quisumbing, Agnes
    Abstract: This paper reviews existing microeconomic empirical literature on gender differences in use, access, and adoption of nonland agricultural inputs in developing countries. This review focuses on four key areas: (1) technological resources, (2) natural resources, (3) human resources, and (4) social and political capital. In general, there has been more empirical research on inorganic fertilizer, seed varieties, extension services, and group membership than on tools and mechanization, life-cycle effects, and political participation. Across input areas, generally men have higher input measures than women; however, this finding is often sensitive to the use of models that control for other background factors, as well as the type of gender indicator implemented in the analysis. We find few studies that meet our inclusion criteria outside Sub-Saharan Africa. Finally, future directions, opportunities, and recommendations for microeconomic gender analysis of nonland agricultural inputs are discussed.
    Keywords: access to farm inputs, Agricultural inputs, Agriculture, assets, Developing countries, Gender, life-cycle effects, mechanization, Women,
    Date: 2010
  16. By: Gurdev Singh
    Abstract: This working paper discusses the dependence of Indian agriculture on uncertain rains. In addition the farmers experience other production risks as well as marketing risks related to different crop enterprises and for different agro-climatic regions and areas. It then argues on the need for crop insurance as an alternative to manage production risk. It then takes up the historical overview of crop insurance products and their performance. It is followed by the discussion on the currently available crop insurance products for specific crops and regions. It discusses at length the two important products, namely, National Agricultural Insurance Scheme and Weather Based Insurance Scheme. It also reflects on some deficiencies in these products. [W.P. No. 2010-06-01
    Keywords: Indian agriculture,uncertain rains, crop enterprises, crop insurance, agro-climatic regions, performance, National Agricultural Insurance Scheme, Weather Based Insurance Scheme
    Date: 2010
  17. By: Friedrich Schneider; Andreas Buehn; Claudio E. Montenegro
    Abstract: This paper presents estimations of the shadow economies for 162 countries, including developing Eastern European, Central Asian, and high-income countries over the period 1999 to 2006/2007. According to the estimations, the average size of the shadow economy (as a percentage of "official" gross domestic product) in 2006 in 98 developing countries is 38.7 percent; in 21 Eastern European and Central Asian (mostly transition) countries, it is 38.1 percent, and in 25 high-income countries, it is 18.7 percent. The authors find that the driving forces of the shadow economy are an increased burden of taxation (both direct and indirect), combined with labor market regulations and the quality of public goods and services, as well as the state of the “official” economy.
    Keywords: shadow economy of 162 countries, tax burden, quality of state institutions, regulation, MIMIC and other estimation methods.
    JEL: O17 O5 D78 H2 H11 H26
    Date: 2010–07
  18. By: Jose Luis Velasco (National Autonomous University of Mexico)
    Abstract: In summarizing the five Mexican cases studied for the Institutions and Development project, The case studies summarized here were conducted from 2005 to 2008, and this paper refers mainly to that period. Yet, whenever possible, information coming from published documents or statistical reports was updated. This paper seeks to answer two main questions. First, what are the main characteristics of the five institutions analyzed, what differences and similarities are there among them? Second, what does the analysis of these institutions say about the situation of development-related institutions in Mexico?
    Keywords: development, Mexico
    JEL: D40 E01 H50 N16
    Date: 2010–04
    Abstract: The study examined the agricultural financing policies of the government of Nigeria and effects on rural development .The study found that though the government has made serious efforts at making good agricultural policies through schemes, programmes and institutions, it has not been able to back them up with adequate budgetary allocation and financing coupled with corruption in the execution of the policies. It is recommended that for the government agricultural financing policies to achieve its target of rural development, Nigeria will need an adequate level of strategically targeted investment in agriculture, upgrade rural infrastructure, boost productivity, and increase competitiveness of the farm output, in addition to fighting corruption.
    Keywords: Agricultural financing, policies, institutions, rural, development, International Development,
    Date: 2010–03–29
  20. By: Yogi Rahmayanti (Osaka School of International Public Policy, Osaka University); Theara Horn (Graduate School of Economics, Osaka University)
    Abstract: Government efficiency plays a significant role in the relationship between government expenditure and economic growth. Based on panel data from 63 developing countries 1990 to 2003, we calculate efficiency scores using Data Envelopment Analysis, incorporate them into a simple model of growth with government expenditure. We find that there is a critical level of efficiency required for government expenditure to have positive effect on growth. Further, above a critical level of efficiency, greater efficiency lowers the optimal size of government expenditure required to maximize growth.
    Keywords: Fiscal Policy, Government Expenditure, Public Sector Efficiency, Growth
    JEL: H50 E6 O4
    Date: 2010–07

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.