nep-dev New Economics Papers
on Development
Issue of 2010‒11‒06
23 papers chosen by
Mark Lee
Towson University

  1. Global poverty estimates: Present and future By Shatakshee Dhongde; Camelia Minoiu
  2. Governance and Oil Revenues in Cameroon By Bernard Gauthier; Albert Zeufack
  3. Structural Transformation and the Oil Price By Radoslaw Stefanski
  4. Colonial Rule, Apartheid and Natural Resources: Top Incomes in South Africa 1903-2005 By Facundo Alvaredo; Anthony B Atkinson
  5. Property Rights and Elites By Amsden, Alice H.
  6. Can Private School Growth Foster Universal Literacy? Panel Evidence from Indian Districts By Pal, Sarmistha; Kingdon, Geeta
  7. Are Microloans Bad for Growth? By Emerson, Patrick M.; McGough, Bruce
  8. Do tropical typhoons smash community ties? Theory and evidence from Vietnam By Yanos Zylberberg
  9. Drought and Civil War in Sub-Saharan Africa By Mathieu Couttenier; Raphael Soubeyran
  10. Impact of Remittances on Poverty in Developing Countries By Rashmi Banga; Pritish Kumar Sahu
  11. When Globalization Meets Urbanization: Labor Market Reform, Income Inequality, and Economic Growth in the People’s Republic of China By Ming Lu; Hong Gao
  12. Trade liberalisation, skill-biased technical change and wages in developing countries: a model with heterogeneous firms By Mauro Caselli
  13. Gender, Social Norms and Household Production in Burkina Faso. By Harounan Kanzianga; Zaki Wahhaj
  14. Aggregation versus Heterogeneity in Cross-Country Growth Empirics. By Markus Eberhardt; Francis Teal
  15. Microfinance and Gender Empowerment. By Thi Minh-Phuong Ngo; Zaki Wahhaj
  16. Export Subsidies in a Heterogeneous Firms Framework: Evidence from Colombia By Christian Helmers; Natalia Trofimenko
  17. Trade, skill-biased technical change and wages in Mexican manufacturing By Mauro Caselli
  18. Are poor households credit-constrained or myopic? Evidence from a South African panel. By Erlend Berg
  19. Foreign Aid and Enlightened Leaders By Roland Hodler; Paul Raschky
  20. Non-collusive Corruption: Theory and Evidence from Education Sector in Bangladesh By Ratbek Dzumashev; Asadul Islam; Zakir H. Khan
  21. Does Exporter Turnover Contribute to Aggregate Productivity Growth? Evidence from Malaysian Manufacturing. By Ergun Dogan; Koi Nyen Wong; Michael Meow-Chung Yap
  22. Informal sector, productivity, and tax collection By Leal Ordóñez, Julio C.
  23. Chinese Saving Dynamics: The Impact of GDP Growth and the Dependent Share By Carl Bonham; Calla Wiemer

  1. By: Shatakshee Dhongde; Camelia Minoiu
    Abstract: We review the recent empirical literature on global poverty, focusing on key methodological aspects. These include the choice of welfare indicator, poverty line and purchasing power parity exchange rates, equivalence scales, data sources, and estimation methods. We also discuss the importance of the intra-household resource allocation process in determining within-household inequalities and potentially influencing poverty estimates. Based on a sensitivity analysis of global poverty estimates to different methodological approaches, we show that existing figures vary markedly with the choice of data source for mean income or consumption used to scale relative distributions; and with the statistical method used to estimate income distributions from tabulated data
    Date: 2010
  2. By: Bernard Gauthier; Albert Zeufack
    Abstract: Oil has been a curse for Cameroon, one of the potentially richest countries in Sub-Saharan Africa. While the discovery of oil in 1977 and initial prudent management accentuated hopes, Cameroon has become an example of growth collapse. GDP contracted by 5% on average per year, a combined 27% over the 8-year period, dropping per capita income in 1993 to half of its 1986 level. In 2007, Cameroon was still poorer than in 1985. Using recently available datasets on oil production, the World Bank’s Adjusted Savings data, and building on recent literature (Cossé 2006), this paper estimates the oil rent effectively captured by Cameroon since 1977 and analyzes factors explaining the aggregate savings and spending decisions from the oil rent that led to such poor development outcomes. The paper finds that Cameroon may have captured a sizeable portion of its oil rent – around 67%. However, only about 46% of total oil revenues accruing to the government between 1977 and 2006 may have been transferred to the budget. The remaining 54% are not properly accounted for. The paper argues that poor governance is the culprit. The decision to “save” Cameroon’s oil revenues abroad proves to have been sub-optimal given the lack of a transparent and accountable framework to manage them and the poor governance record of the country.The lack of transparency and accountability in oil revenues management has translated into a failure to engage in medium to long term development planning for the country. Donors have been pushing for improved governance and transparency in the oil sector for the past 20 years without significant success. The EITI, while a good initiative, is also in high risk of capture. The paper suggests changes in the incentives structure to reduce collusion and improve governance.
    Keywords: Cameroon, growth collapse, GDP, Adjusted Savings data, oil rent, poor governance
    JEL: Q32 O41
    Date: 2010
  3. By: Radoslaw Stefanski
    Abstract: What part of the rising trend in the oil price is driven by structural transformation in China and India? Will continued structural transformation in these countries result in a permanently higher oil price? I identify an inverted-U shaped relationship in the data between aggregate oil intensity and the extent of structural transformation - countries in the middle stages of transition spend the highest fraction of their income on oil. A decomposition of aggregate oil intensity shows that only in the middle stages of transition are an economy's largest sectors also its most oil intensive ones. I construct a multi-sector, multi-country, general equilibrium growth model that accounts for these facts by generating endogenously falling aggregate elasticities of substitution between oil and non-oil inputs. The model is used to measure the impact of changing sectoral composition in China and India on world oil demand and the oil price in the OECD. Structural transformation in China and India accounts for up to a quarter of the oil price increase in the OECD between 1970 and 2007. However, continued structural transformation in China and India results in falling oil intensity and a drop in the oil price. Using a standard growth model misses this non-linearity and can give misleading implications about the long-term oil price. To understand the impact of growth on the oil price, it is necessary to take a more disaggregated view than is standard in macroeconomics.
    Keywords: structural transformation, China, India, oil price.
    JEL: O11 O41 O13 F1 F4 Q4
    Date: 2010
  4. By: Facundo Alvaredo; Anthony B Atkinson
    Abstract: There have been important studies of overall income inequality and of poverty in South Africa. In this paper, we approach the subject from a different direction: the extent and evolution of top incomes. We present estimates of the shares in total income of groups such as the top 1 per cent and the top 0.1 per cent, covering, with gaps, more than a hundred years. In order to explain the observed dynamics, here we consider —in a preliminary way— three factors: the transfer of political authority, racial discrimination, and the rich mineral resources. The estimates of top income shares for recent years bear out the picture of South Africa as a highly unequal country..
    Keywords: Natural Resources, Colonial Rule, Apartheid, South Africa, top incomes.
    JEL: C72 D74
    Date: 2010
  5. By: Amsden, Alice H.
    Abstract: An elite derives its status from its relationship to property, whether physical or human capital. While stable property rights are necessary for everyday business, unstable property rights that result in major institutional changes (such as land reform) may have a positive impact on economic development. When are the ‘wrong’ property rights right? Institutional changes have a positive impact on economic development when a country’s elite can manage them. To support this generalization we examine the managerial capacity associated with elite status, highlighting which capabilities enable them to control changes in property rights regimes to their individual and national advantage. We compare how nationalization of foreign firms, a radical change in property rights, was managed in Argentina, China, Korea and Taiwan after the Second World War.
    Keywords: Elites, property rights, indigensim, capabilities, role models
    Date: 2010
  6. By: Pal, Sarmistha (Brunel University); Kingdon, Geeta (Institute of Education, University of London)
    Abstract: Millennium Development Goals (MDGs) set the agenda for the attainment of universal literacy by 2015 primarily to be delivered by the state sector. This agenda tends to ignore the significant private school growth around the world since early 1990s, thus initiating the policy debate as to whether private school growth may foster 'education for all'. Despite growing literature on the difficulties of attaining MDGs, there is hardly any attempt to assess the role of private sector in this respect. Using India as an important case in point, we intend to bridge this gap of the literature. Results using a unique district-level panel data-set from 17 major states of India for the period 1992-2002 that we compile highlight a significant positive impact of private school growth on literacy while its effect on gender gap in literacy remains rather limited in our sample. Compared to 15-19 year olds, private school effect of literacy is stronger among 10-14 year old children. Interesting variations across the regions and also among the marginalised ethnic groups are noted. The paper offers explanations for the findings.
    Keywords: private school growth, universal literacy, gender gap, Millennium Development Goals, India, Asia
    JEL: I21 I28 O15
    Date: 2010–10
  7. By: Emerson, Patrick M. (Oregon State University); McGough, Bruce (Oregon State University)
    Abstract: This paper constructs a two-period overlapping generations model of human capital investment decisions where a microloan program designed to finance entrepreneurial activities is active. It is shown that, in the presence of human capital externalities (social returns to education) there exists a range of microloan amounts that are growth depressing and welfare decreasing through their affect on the opportunity cost of schooling. By increasing the opportunity cost of schooling, microloans divert investment away from human capital: by failing to internalize the social returns to education, households’ individually optimal investment decisions in the face of microcredit availability act to depress the growth of the economy and result in sub-optimal welfare outcomes.
    Keywords: microloans, growth, human capital
    JEL: E24 O10 O40
    Date: 2010–10
  8. By: Yanos Zylberberg
    Abstract: Natural disasters trigger large inequalities between affected households and the rest of the community. The extent to which villages compensate for these shocks allegedly depends on the pressure imposed by the group of needy families. I model two major threats to redistribution - (i) the emergence of a coalition of winners willing to shy away from redistributing to their peers and (ii) the initial fractionalization of the community. Matching data on a wave of tropical typhoons with a panel household survey in Vietnam, I find less redistribution in villages where needy families are in the minority. Whereas 17 cents on average are covered through informal transfers for a relative income loss of $1, access to liquidity falls below 10 cents when heavily affected households are isolated in the commune. In line with the existing literature, minorities participate less in the resources reallocation. Despite these barriers to full insurance, risk-sharing through informal transfers is still economically significant. This result is related with the findings that communities having suffered important trauma show greater signs of resilience and cohesiveness.
    Date: 2010
  9. By: Mathieu Couttenier; Raphael Soubeyran
    Abstract: In this paper, we show that drought has a positive effect on the incidence of civil war over the 1945-2005 period in Sub-Saharan Africa. We use the Palmer Drought Severity Index which is a richer measurement of drought than the measures used in the literature (rainfall and temperature) as it measures the accumulation of water in the soil in taking into account the temperature and the geological characteristics of the soil. We show that the risk of civil war increases by more than 42% from a “normal” climate to an “extremely drought” climate. Surprisingly, only 2.5% of this effect is channeled through economic growth.
    Date: 2010–10
  10. By: Rashmi Banga; Pritish Kumar Sahu
    Abstract: Remittances are increasingly becoming an important source of external financing for the developing countries. For some of the developing countries, it forms almost 40-50% of their GDP. Though there is a growing literature on the impact of remittances on development, very few studies have empirically estimated the impact of remittances on poverty in the developing countries. This study undertakes impact analysis of remittances on poverty in developing countries at two levels. Firstly, it estimates the impact of remittances on poverty in 77 developing countries; Secondly, separate analyses are undertaken for 29 developing countries and 21 Asian developing counties, which have 5% or more share of remittances in GDP. The results of the study consistently show that remittances significantly reduce poverty in recipient countries but the results are more reliable for countries with remittances greater than 5% of GDP.
    Keywords: Economics, Remittances and poverty; Impact of Remittances on Poverty; Remittances in Developing Countries; Remittances in Asian Developing Countries
    Date: 2010
  11. By: Ming Lu; Hong Gao
    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. [ADBI Working Paper 162]
    Keywords: development, People’s Republic of China (PRC), internal, economic, global
    Date: 2010
  12. By: Mauro Caselli
    Abstract: This paper analyses the effects of trade liberalisation and technical change on real and relative wages. It builds a model with monopolistic competition, heterogeneous firms and two countries, North and South, and solves it numerically. Skill-biased technical change, caused by decreases in the price of imported equipment as a result of reduced trade costs or falls in its world price, tends to increase the relative wages of skilled workers. This increase in the skill premium can occur even in skill-scarce developing countries, as has often been observed in reality, even though Stolper-Samuelson effects pull the other way. What drives the rise in skilled wages when imported equipment becomes cheaper is the rise in demand for skilled workers in the most productive firms in each sector. Whether or not real unskilled wages increase absolutely after trade liberalisation appears to depend on whether trade costs are ad valorem or per-unit.
    Keywords: trade liberalisation, skill-biased technical change, wage inequality, real wages, equipment-skill complementarity.
    JEL: F12 O33
    Date: 2010
  13. By: Harounan Kanzianga; Zaki Wahhaj
    Abstract: Empirical studies of intra-household allocation has revealed that, in many instances, gender is an important determinant in the allocation of resources within the household. Yet, within the theoretical literature, why gender matters within the household remains an open question. In this paper, we propose a simple model of intra-household allocation based on a particular social institution for the organisation of agricultural production practised among certain ethnic groups in West Africa. We highlight how this institution, while resolving certain problems of commitment and informational asymmetry, can also lead to a gendered pattern in the allocation of productive resources and consumption within the household. Using a survey of agricultural households in Burkina Faso, we show, consistent with this theory, that plots owned by the head of the household are farmed more intensively, and achieves higher yields, than plots with similar characteristics owned by other household members. Male and female family members who do not head the household achieve similar yields. We argue that the higher yields achieved by the household head may be explained in terms of social norms that require him to spend the earnings from some plots under his control exclusively on household public goods, which in turn provides other family members the incentive to voluntarily contribute labour on his farms. Using expenditures data, and measures of rainfall to capture weather-related shocks to agricultural income, we show that the household head has, indeed, a higher marginal propensity to spend on household public goods than other household members. The fact that the head of the household is usually male accounts for the gendered pattern in labour allocation and yields across different farm plots.
    JEL: O12 D13 Q1
    Date: 2010
  14. By: Markus Eberhardt; Francis Teal
    Abstract: The cross-country growth literature commonly uses aggregate economy datasets such as the Penn World Table (PWT) to estimate homogeneous production function or convergence regression models. Against the background of a dual economy framework this paper investigates the potential bias arising when aggregate economy data instead of sectoral data is adopted in macro production function regressions. Using a unique World Bank dataset we estimate production functions in agriculture and manufacturing for a panel of 41 developing and developed countries (1963-1992). We employ novel empirical methods which can accommodate technology heterogeneity, variable nonstationarity and the breakdown of the standard crosssection independence assumption. We then investigate the potential for biased estimates due to aggregation and empirical misspecification, relying on both theory and Monte Carlo simulations. We confirm substantial bias in the technology coefficients using data for a stylised aggregate economy made up of agricultural and manufacturing sectors and a matched PWT dataset.
    JEL: C23 O47 O11
    Date: 2010
  15. By: Thi Minh-Phuong Ngo; Zaki Wahhaj
    Abstract: In the past 30 years, microfinance has carried many promises of social and economic transformation, with the shift towards targeting women being seen as a major strategic move through which the promise of social development could be most effectively delivered. However, ethnographic studies have shown that many women relinquish the use of their loans to male members of the household, belying the empowering promise of microfinance. We propose a simple model of household bargaining which examines how providing women with credit affects production and decision-making power in the household. Following Bergstrom (1996), we account for the roles of both divorce and non-cooperation in the household as relevant fall-back options in the bargaining strategy of each spouse. We show that the introduction of a microcredit programme is likely to have widely heterogeneous impacts, and can adversely affect the bargaining power of some women. We demonstrate that access to credit allows a woman to strengthen her bargaining position through an expansion of her autonomous activities (the causal mechanism hoped for) only in a limited number of cases: when she is able to invest her new capital profitably in an autonomous activity, and her husband has no alternative activity in which the same capital would generate comparable returns, or lacks the power to overrule her preferred investment choice. The two cases in which it is most likely that the availability of credit would enable the woman to strengthen her bargaining position within the household are (i) when capital can be invested in a cooperative activity to which both spouses contribute in an important way, and (ii) when a large share of the household budget is devoted to expenditures on household public goods.
    JEL: D13 D91 J16
    Date: 2010
  16. By: Christian Helmers; Natalia Trofimenko
    Abstract: We evaluate the impact of firm-specific export subsidies on exports in Colombia. Using a twostage selection correction procedure, we obtain firm-specific predicted subsidy amounts that can be explained by the characteristics that determine the firms’ eligibility for government support and its amount. Drawing on the accounts of the discretionary allocation of subsidies in developing countries, we regard the discrepancy between the predicted and the observed subsidy amounts as a proxy for a firm’s ties to government officials. Controlling for observable and unobservable firm characteristics and persistence in exports, we find that although, in general, subsidies exhibit a positive impact on export volumes, this impact is diminishing in subsidy size and in the degree of a firm’s connectedness.
    Keywords: Export promotion; export subsidies
    JEL: F10 F13 L20 H20
    Date: 2010
  17. By: Mauro Caselli
    Abstract: This paper analyses and quantifies the effects of trade liberalisation and skill-biased technical change, both exogenous and trade-induced, on the skill premium and real wages of unskilled and skilled workers in theMexican manufacturing sector, using industry- and firm-level data for 1984-1990 from the Encuesta Industrial Anual. The novelty of the paper lies in its strategy for identifying causality, which uses differences across industries over time in the relative price of machinery and equipment in the US as an instrument for skill-biased technical change. The effect of trade-induced SBTC on wages, and especially on wage inequality, appears substantial. The regressions show that trade liberalisation and changes in the relative price of equipment in the US, which induce exogenous SBTC in Mexico, explain one quarter of the increase in relative skilled wages between 1984 and 1990. This rise in the skill premium due to SBTC and trade liberalisation mainly reflect a rise in real skilled wages, although with some specifications it was amplified by a fall in the real wages of unskilled workers.
    Keywords: trade liberalisation, skill-biased technical change, wage inequality, real wages, Mexico, manufacturing
    JEL: F14 J30 L60 O30
    Date: 2010
  18. By: Erlend Berg
    Abstract: Credit constraints are an almost ubiquitous assumption in development economics. Yet direct evidence for credit constraints is limited, and many observations consistent with credit constraints are equally compatible with precautionary saving or myopic (non-forward-looking) consumption. Using household panel data and a source of widely anticipated income in South Africa, this paper first tests and rejects the standard consumption model with perfect capital markets. The standard model enriched with credit constraints is then contrasted with precautionary saving and myopic consumption as alternative explanations for the observed expenditure pattern. The standard model with credit constraints cannot be rejected in favour of precautionary saving or myopic consumption.
    Date: 2010
  19. By: Roland Hodler; Paul Raschky
    Abstract: To study whether foreign aid fuels personal, regional and ethnic favoritism, we use satellite data on nighttime light for any region in any aid-recipient country, and we determine for each year and each country the region in which the current political leader was born. Having a panel with 22,850 regions in 91 aid recipient countries with yearly observations from 1992 to 2005, we compare the effect of foreign aid on nighttime light across regions. We find that in countries with poor political institutions, this effect is significantly higher in the region in which the current political leader was born than in other regions. This finding suggests that a disproportionate share of foreign aid ends up in the leader's birth region, and we argue that it supports the view that foreign aid fuels favoritism, broadly defined. We find no such difference in aid-recipient countries with sound political institutions.
    Keywords: Foreign aid; Political leaders; Favoritism; Political institutions
    JEL: C23 D73 F35 O11
    Date: 2010–05
  20. By: Ratbek Dzumashev; Asadul Islam; Zakir H. Khan
    Abstract: We study non-collusive corruption in the education sector. For this purpose, we construct a simple theoretical model that captures non-collusive corruption between service providers (teachers) and service demanders (students). The model shows that the bribe paid by the service demander increases with the level of red tape and her income level, but it decrease with the improvement of the individual’s social status. We also establish that with the increase in the income and the social status of the private agent (networks), the probability of paying bribes and the severity of red tape declines. Then we use a survey data set collected in 2007 by Transparency International Bangladesh, to test the predictions of the model. The estimations confirm that both the probability of being subjected to noncollusive corruption and the cost of corruption is related to the individual characteristics of the bribe payer. Moreover, network connections are an important factor that helps to ease the burden of corruption on private agents, which is also likely ensuring the persistence of this type of corruption.
    Keywords: Education, non-collusive corruption, bribery, Bangladesh
    JEL: K4 O1
    Date: 2010–05
  21. By: Ergun Dogan; Koi Nyen Wong; Michael Meow-Chung Yap
    Abstract: Malaysia’s economic success is to a significant extent underpinned by its export-oriented manufacturing sector. The sector has a large foreign presence, with MNCs attracted by the open trade and investment regime, and FDI-friendly policies. Using unpublished manufacturing census data for 2000 and 2005, we apply the methodology by Foster et al. (1998) to decompose productivity growth. The analysis shows that exporters were more productive than domestic-oriented establishments, and were distinctly more competitive. The empirical evidence also shows that establishment turnover is important in boosting productivity growth. In particular, we find that turnover of exporters made a larger contribution to aggregate productivity growth compared to domestic-oriented establishments during the period from 2000 to 2005. Surviving establishments (those that operated in both years), on the other hand, made a negative contribution. It is noteworthy that entrants to export markets were more productive than surviving non-exporters and even surviving exporters. Exiters from export markets or “export failuresâ€, on the other hand, were less productive than continuing exporters. Given the importance of turnover to productivity growth, the government should ensure unrestricted entry to the export sectors for both foreign and domestic investors. Continuing with pro-FDI policies is also important, given the keener global competition.
    Keywords: Exporting; plant turnover; productivity; manufacturing; Malaysia
    JEL: F14 L60 O40
    Date: 2010–05
  22. By: Leal Ordóñez, Julio C.
    Abstract: The informal sector is a prominent characteristic of many developing countries. Most of the literature has focused on understanding the determinants of informality. The connection between the informal sector and economic development is, nonetheless, relatively less understood. One of the most important determinants of informality is the tax enforcement quality of a country which, some authors argue, additionally distorts firms' decisions and creates inefficiency. In this paper, I assess the quantitative importance of the effects of incomplete tax enforcement on aggregate output and productivity. I use a dynamic general equilibrium framework to study effects that have received little attention in the literature. I calibrate the model using data for Mexico, an economy where 31% of the employees work in informal establishments. I then investigate the effects of improving enforcement. My main finding is that under complete enforcement, Mexico's labor productivity and output would be 17% higher.
    Keywords: Informal Sector; Productivity; tax enforcement; TFP; Heterogeneous plants
    JEL: O47 O17 E26
    Date: 2010–02
  23. By: Carl Bonham (Economics Department & UHERO University of Hawaii at Manoa); Calla Wiemer (Center for Chinese Studies University of California, Los Angeles)
    Abstract: China’s national saving rate rose rapidly in the 2000s after declining through the late 1990s. These dynamics are not explained by precautionary motives, the institutional distribution of income, or reform related processes in general. Rather, we find a compelling explanation lies with GDP growth fluctuations and movement in the dependent share in population. We estimate a vector autoregressive model for the period 1978-2008, then generate in-sample simulations that successfully replicate the 2000s run-up in the saving rate. Our out of sample forecasts show the saving rate dropping in the 2010s as the dependency share falls and GDP growth moderates.
    JEL: C32 E21 O11 O53
    Date: 2010–07

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