nep-dev New Economics Papers
on Development
Issue of 2010‒10‒02
eighteen papers chosen by
Mark Lee
Towson University

  1. Microfinance Over-Indebtedness: Understanding its drivers and challenging the common myths By Jessica Schicks
  2. Microfinance and Gender: Is There a Glass Ceiling in Loan Size? By Isabelle Agier; Ariane Szafarz
  3. The Philippines’ Absorptive Capacity for Foreign Aid By Kang, Hyewon
  4. A New Model for Constructing Poverty Lines By Kakwani, Nanak
  5. The Role of Primary Commodities in Economic Development: Sub-Saharan Africa versus Rest of the World By Fabrizio Carmignani; Abdur Chowdhury
  6. Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa By Taryn Dinkelman; Vimal Ranchhod
  7. Wage Subsidies to Combat Unemployment and Poverty: Assessing South Africa’s Options By Justine Burns; Lawrence Edwards; Karl Pauw
  8. Education and Freedom of Choice: Evidence from Arranged Marriages in Vietnam By Stephen C. Smith; M. Shahe Emran; Fenohasina Maret
  9. Underemployed women: an analysis of voluntary and involuntary part-time wage employment in South Africa By Colette Muller
  10. Financial Development and Economic Growth in Latin America: Is Schumpeter Right? By Manoel Bittencourt
  11. Poverty and Land Redistribution: Quasi-Experimental Evidence from South Africa's LRAD program By Malcolm Keswell; Michael Carter
  12. On the Looting of Nations By Mare Sarr; Erwin Bulte; Chris Meissner; Tim Swanson
  13. Growth by Destination (Where you Export Matters): Trade with China and Growth in African Countries By Mina Baliamoune-Lutz
  14. The impact of a minimum pension on old age poverty and its budgetary cost. Evidence from Latin America By DETHIER, Jean - Jacques; PESTIEAU, Pierre; ALI, Rabia
  15. Public Debt and Growth By Jaejoon Woo; Manmohan S. Kumar
  16. Poverty and Vulnerability in Rural China: Effects of Taxation By Katsushi S. Imai; Woojin Kang; Xiaobing Wang
  17. Public spending composition and public sector efficiency: Implications for growth and poverty reduction in Uganda By Sennoga, Edward B.; Matovu, John Mary
  18. Institutions, Capital, and Growth By Joshua C. Hall; Russell S. Sobel; George R. Crowley

  1. By: Jessica Schicks
    Abstract: The microfinance industry has been celebrated both for its social impact on poverty alleviation and for its profitability. With issues of over-indebtedness emerging among microfinance customers, both achievements are at risk. This paper contributes to the industry's understanding of the definition and causes of over-indebtedness. It reveals why the 5 myths of microfinance over-indebtedness erroneously oversimplify the reality of microfinance customers. The paper works with theoretical and empirical contributions from economics, psychology and sociology, and unites microfinance specific findings with the general consumer finance literature. In addition to external influences, it highlights the responsibility of lenders in driving microfinance customers into over-indebtedness. It also recognises the role that borrowers involuntarily play in over-indebting themselves. Enhancing our understanding of what microfinance over-indebtedness is and how it is caused, the paper provides the basis for tailoring over-indebtedness solutions to the root causes of the phenomenon and addressing the challenge at all suitable levels.
    Keywords: Microfinance; Microcredit; Over-Indebtedness; Debt; Customer Protection; Consumer Finance; Behavioural Economics
    JEL: O16 O50 G21
    Date: 2010–09
  2. By: Isabelle Agier; Ariane Szafarz
    Abstract: Microfinance institutions serve a majority of female borrowers. But do men and women benefit from same credit conditions? This paper investigates this issue by presenting an original model and testing its predictions on an exceptional database including 34,000 loan applications from a Brazilian microfinance institution over an eleven-year period. The model considers a lender that offers standardized loan contracts with a fixed interest rate, which is common practice in microfinance. It demonstrates that biased loan attribution may lead to three different outcomes, depending on the bias intensity: 1) denial of all applications from a given group, 2) a “glass ceiling” effect, namely loan downsizing of the largest projects from a given group, or 3) no impact. The empirical analysis detects no gender bias in approval rate, but uncovers a glass ceiling effect hurting female applicants. Moreover, this effect is insensitive to the credit officer's gender. In conclusion, the good news is that the microfinance practice does ensure a fair access to credit. The bad news is the presence of a glass ceiling faced by female entrepreneurs with larger projects.
    Keywords: Microcredit; Microfinance; Discrimination; Loan Size; Loan Approval; Gender
    JEL: O16 D82 J33
    Date: 2010–09
  3. By: Kang, Hyewon
    Abstract: This study evaluates the Philippines’ absorptive performance for foreign aid, particularly during the six-year period 2003 to 2008, and compare this to that of the previous period, 1986 to 1988. We observe that the country’s capacity to absorb foreign aid has declined during the period under study compared to that of the previous period. The study traces the causes of the reduction in aid absorptive capacity to several factors--both from the side of the recipient and donor country behavior--which negatively affected the aid absorptive capacity. The study discusses in detail these bottlenecks to aid absorption and provides policy recommendations to improve the country’s capacity for foreign aid absorption.
    Keywords: remittances, official development assistance, foreign aid, absorptive capacity, Philippines, "Divide-by-N" syndrome, donor's motivation
    Date: 2010
  4. By: Kakwani, Nanak
    Abstract: In this paper, we present a new model for constructing poverty lines. The model uses consumer theory to construct both food and nonfood poverty thresholds. Although one cannot completely eliminate the value judgments inherent in the construction of poverty thresholds, this model helps to make the ad hoc assumptions that are generally made more justifiable. The model ensures that poverty line is consistent across regions. The methodology developed in the paper is used to illustrate the construction of poverty thresholds in Pakistan.
    Keywords: economies of scale, poverty measures, poverty line, consistent poverty line, consumer theory, calorie cost
    Date: 2010
  5. By: Fabrizio Carmignani (School of Economics The University of Queensland); Abdur Chowdhury (Department of Economics Marquette University)
    Abstract: We study the nexus between natural resources and growth in Sub-Saharan Africa (SSA) and find that SSA is indeed special: resources dependence retards growth in SSA, but not elsewhere. The natural resources curse is thus specific to SSA. We then show that this specificity does not depend on the type of primary commodities on which SSA specializes. Instead, the SSA specificity appears to arise from the interaction between institutions and natural resources.
    Keywords: primary commodities, growth, institutions
    JEL: O13 O40 Q00 F43
    Date: 2010–09
  6. By: Taryn Dinkelman; Vimal Ranchhod (SALDRU, School of Economics, University of Cape Town)
    Abstract: What happens when a previously uncovered labor market is regulated? We exploit the introduction of a minimum wage in South Africa and variation in the intensity of this law to identify increases in wages and formal contract coverage, and no significant effects on employment on the intensive or extensive margins for domestic workers. These large, partial responses to the law are somewhat surprising, given the lack of monitoring and enforcement in this informal sector. We interpret these changes as evidence that external sanctions are not necessary for new labor legislation to have a significant impact on informal sectors of developing countries, at least in the short-run.
    Date: 2010–07
  7. By: Justine Burns (SALDRU, School of Economics, University of Cape Town); Lawrence Edwards (School of Economics, University of Cape Town); Karl Pauw (SALDRU, School of Economics, University of Cape Town)
    Abstract: Wage or employment subsidies have been used in both developed and developing countries to raise employment levels. Various advisers to the South African government have endorsed wage subsidies as a policy measure to deal with this country’s massive unemployment problem. This paper takes stock of the international literature and conducts an economywide macro-micro analysis to obtain insights into wage subsidy design and implementation issues facing developing countries. It also investigates whether this policy measure is appropriate in dealing with South Africa’s particular sources of unemployment. We argue that although wage subsidies may be successful at creating jobs in South Africa, they should not be seen as the primary or dominant policy instrument for dealing with the broader unemployment problem. To enhance the effectiveness of wage subsidies, they should preferably be linked to structured workplace training, be targeted to industries where employment will be responsive to changes in labor costs, and be focused on the youth. In the long run, addressing unemployment in South Africa requires policies that improve economic growth and the economy’s employment absorption capacity, that raise skills of new labor market entrants, that reduce labor market rigidities, and that promote effective job search, especially among the youth.
    Date: 2010–08
  8. By: Stephen C. Smith; M. Shahe Emran (Department of Economics/Institute for International Economic Policy, George Washington University); Fenohasina Maret (Department of Economics, George Washington University)
    Abstract: Using household data from Vietnam, we provide evidence on the causal effects of education on freedom of spouse choice. We use war disruptions and spatial indicators of schooling supply as instruments. The point estimates indicate that a year of additional schooling reduces the probability of an arranged marriage by about 14 percentage points for an individual with 8 years of schooling. We also estimate bounds that do not rely on the exact exclusion restrictions (lower bound is 6-7 percentage points). The impact of education is strong for women, but much weaker for men.
    Keywords: Arranged Marriage, Education, Schooling, Freedom of choice, Development, Vietnam, Social Interactions
    JEL: I2 O12 D1 J12
    Date: 2009–11
  9. By: Colette Muller
    Abstract: Using nationally representative household survey data from 1995 to 2006, this paper explores heterogeneity among female part-time wage (salaried) workers in post-apartheid South Africa, specifically distinguishing between individuals who choose to work part-time and part-time workers who report wanting to work longer hours. As in studies of voluntary and involuntary part-time employment in other countries, the findings show that involuntary part-time workers in South Africa are outnumbered by voluntary part-time workers. In contrast to other countries, however, involuntary underemployment in South Africa has not risen substantially over time, nor is there consistent evidence to suggest a positive correlation between involuntary underemployment and broad unemployment. Significant differences are found among part-time workers, with occupational characteristics specifically being identified as key correlates of involuntary part-time employment. The wage premium to female part-time employment in South Africa, identified in an earlier study, is shown to be robust also to a distinction among part-time workers, and involuntary part-time workers are found to have a stronger labour force attachment than women who choose to work part-time.
    Date: 2010
  10. By: Manoel Bittencourt
    Abstract: In this paper we investigate the role of financial development, or more wide-spread access to finance, in generating economic growth in four Latin American countries between 1980 and 2007. The results, based on panel time-series data and analysis, con.rm the Schumpeterian prediction which suggests that finance authorises the entrepreneur to invest in productive activities, and therefore to promote economic growth. Furthermore, given the characteristics of the sample of countries chosen, we highlight the importance of macroeconomic stability, and all the institutional framework that it encompasses, as a necessary pre-condition for financial development, and consequently for sustained growth and prosperity in the region.
    Keywords: Finance, growth, Latin America
    JEL: E31 N16 O11 O54
    Date: 2010
  11. By: Malcolm Keswell; Michael Carter
    Abstract: We estimate the impact on consumption of South Africa's Land Redistribution for Agricultural Development (LRAD) program, which provides capital and other forms of assistance to beneficiaries to enable market-assisted transfers of property rights from large landowners to the rural poor. Counterfactual outcomes are derived by screening out applicants with low probability of admission into the program, and then non-parametrically matching beneficiaries to applicants that are still in the pipeline to receive assistance. We find that land transfers associated with LRAD lead to very strong benefits for program participants. Accounting for heterogeneity in the length of exposure to the program, we estimate treatment effects of the program that peak at approximately 275 Rand per capita monthly consumption. Assuming a discount rate of 5%, this estimate translates to a discounted gain in monthly per capita consumption of about 50% after three years of exposure to the program.
    Keywords: Land Reform, Poverty, Impact Evaluation
    JEL: O10 O12 O13
    Date: 2010
  12. By: Mare Sarr; Erwin Bulte; Chris Meissner; Tim Swanson
    Abstract: We develop a dynamic discrete choice model of an unchecked ruler making decisions regarding the development of a resource-rich country. Resources serve as collateral and facilitate the acquisition of loans. The ruler chooses either to stay in power while facing the risk of being ousted, or loot the country’s riches by liquefying the resources through lending. We show that unstructured lending from international credit markets can create incentives to loot the country; and an enhanced likelihood of looting causes greater political instability, and diminishes growth. Using a treatment effects model, we find strong evidence that supports our predictions.
    Keywords: Natural Resource Curse; Economic Growth; Dictatorship; Looting; Odious Debt
    JEL: O11 O13 O16
    Date: 2010
  13. By: Mina Baliamoune-Lutz
    Abstract: I perform Arellano-Bond GMM estimations using panel data over the period 1995-2008 and explore the growth effects of Africa’s trade with China, distinguishing between the effect of imports and the effect of exports, and controlling for the role of export concentration. Four important results are obtained from the empirical analysis. First, there is no empirical evidence that exports to China enhance growth unconditionally. Second, the results suggest that export concentration enhances the growth effects of exporting to China, implying that countries which export one major commodity to China benefit more (in terms of growth) than do countries that have more diversified exports. Third, contrary to the widely held view that increasing imports from China would have a negative effect, the empirical results show that the share of China in a country’s total imports has a robust positive effect on growth. Finally, the evidence suggests that there is an in verted-U relationship between exports to developed countries and growth in Africa. Overall, the results seem to provide support for the hypothesis of growth by destination (i.e., that where a country exports matters for the exporting country’s growth and development) in the sense that exports to more developed (OECD) countries has (at least up to a threshold) a positive impact on growth but no such effect is unambiguously (unconditionally) shown in the case of exports to China. I draw on these findings to outline some policy implications.
    JEL: F1 F41 O2 O4
    Date: 2010–09
  14. By: DETHIER, Jean - Jacques (The World Bank, Washington DC, USA); PESTIEAU, Pierre (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; CREPP, University of Liège, B- 4000 Liège, Belgium); ALI, Rabia (The World Bank, Washington DC, USA)
    Abstract: This paper examines the impact on old age poverty and the fiscal cost of universal minimum old age pensions in Latin America using recent household survey data for 18 countries. Alleviating old age poverty requires different approach from other age groups and a minimum pension is likely to be the only alternative available. First we measure old age poverty rates for all countries. Second we discuss the design of minimum pensions schemes, means-tested or not, as well as the disincentive effects that they are expected to have on the economic and social behavior of households including labor supply, saving and family solidarity. Third we use the household surveys to simulate the fiscal cost and the impact on poverty rates of alternative minimum pension schemes in the 18 countries. We show that a universal minimum pension would substantially reduce poverty among the elderly except in Argentina, Brazil, Chile and Uruguay where minimum pension systems already exist and poverty rates are low. Such schemes have much to be commended in terms of incentives, spillover effects and administrative simplicity but have a high fiscal cost. The latter is a function of the age at which benefits are awarded, the prevailing longevity, the generosity of benefits, the efficacy of means testing, and naturally the fiscal capacity of the country.
    Keywords: old age poverty, income transfer, pension systems, family income, fiscal policies, human development
    JEL: D19 D31 H30 I38 O15
    Date: 2010–07–01
  15. By: Jaejoon Woo; Manmohan S. Kumar
    Abstract: This paper explores the impact of high public debt on long-run economic growth. The analysis, based on a panel of advanced and emerging economies over almost four decades, takes into account a broad range of determinants of growth as well as various estimation issues including reverse causality and endogeneity. In addition, threshold effects, nonlinearities, and differences between advanced and emerging market economies are examined. The empirical results suggest an inverse relationship between initial debt and subsequent growth, controlling for other determinants of growth: on average, a 10 percentage point increase in the initial debt-to-GDP ratio is associated with a slowdown in annual real per capita GDP growth of around 0.2 percentage points per year, with the impact being somewhat smaller in advanced economies. There is some evidence of nonlinearity with higher levels of initial debt having a proportionately larger negative effect on subsequent growth. Analysis of the components of growth suggests that the adverse effect largely reflects a slowdown in labor productivity growth mainly due to reduced investment and slower growth of capital stock.
    Keywords: Capital , Economic growth , Gross domestic product , Labor productivity , Low-income developing countries , Public debt ,
    Date: 2010–07–28
  16. By: Katsushi S. Imai; Woojin Kang; Xiaobing Wang
    Abstract: This paper studies the impact of taxation on poverty and ex ante vulnerability of households in rural China based on national household survey data in 1988, 1995 and 2002. It has been confirmed that i) poverty and vulnerability have reduced significantly with a great deal of geographical disparity, ii) education, land, and access to infrastructure and irrigation facilities are among the key factors to reduce vulnerability, and iii) the highly regressive tax system increased farmer’s poverty and vulnerability. The abolishment of rural tax since 2006 would thus have a significant negative impact on both poverty and vulnerability of rural households. [Working Paper No. 156]
    Keywords: poverty, vulnerability, taxation, rural China
    Date: 2010
  17. By: Sennoga, Edward B.; Matovu, John Mary
    Abstract: The paper examines the interrelationships between public spending composition and Uganda's development goals including economic growth and poverty reduction. We utilize a dynamic CGE model to study these interrelationships. This paper demonstrates that public spending composition does does indeed influence economic growth and poverty reduction. In particular, this study shows that improved public sector efficiency coupled with re-allocation of public expenditure away from the unproductive sectors such as public administration and security to the productive sectors including agriculture, energy, water and health leads to higher GDP growth rates and accelerates poverty reduction. Moreover, the rate of poverty is faster in rural households relative to the urban households. A major contribution of this paper is that investments in agriculture particularly with a view of promoting value addition and investing in complementary infrastructure including roads and affordable energy contributes to higher economic growth rates and also accelerates the rate of poverty reduction.
    Keywords: Sennoga, Matovu, EPRC, Public expenditure, Economic growth - Uganda, Poverty reduction, Computable General Equilibrium, Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development, Consumer/Household Economics, Crop Production/Industries, Demand and Price Analysis, Financial Economics, Institutional and Behavioral Economics, Production Economics, Public Economics, Resource /Energy Economics and Policy, C68, D58, E62, F15, H62, 132,
    Date: 2010–02
  18. By: Joshua C. Hall (Department of Economics and Management, Beloit College); Russell S. Sobel (Department of Economics, West Virginia University); George R. Crowley (Department of Economics, West Virginia University)
    Abstract: The international development community has encouraged investment in physical and human capital as a precursor to economic progress. Recent evidence shows, however, that increases in capital do not always lead to increases in output. We develop a growth model where the allocation and productivity of capital depends on a country's institutions. We find that increases in physical and human capital lead to output growth only in countries with good institutions. In countries with bad institutions, increases in capital lead to negative growth rates because additions to the capital stock tend to be employed in rent-seeking and other socially unproductive activities.
    Keywords: Institutions, Capital, and Growth
    JEL: B53 O10 I2
    Date: 2010

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