nep-dev New Economics Papers
on Development
Issue of 2010‒11‒27
twelve papers chosen by
Mark Lee
Towson University

  1. Testing the finance-growth link: is there a difference between developed and developing countries? By Gilles Dufrénot; Valérie Mignon; Anne Peguin-Feissolle
  2. What Determines Firms’ Decisions to Formalize? By Neil McCulloch; Günther G. Schulze; Janina Voss
  3. Does Female Empowerment Promote Economic Development? By Matthias Doepke; Michèle Tertilt
  4. Diamonds are not forever : Botswana medium-term fiscal sustainability By Kojo, Naoko C.
  5. When does rigorous impact evaluation make a difference ? the case of the millennium villages By Clemens, Michael A.; Demombynes, Gabriel
  6. Working with the market : a new approach to reducing urban slums in India By Annez, Patricia; Bertaud, Alain; Patel, Bimal; Phatak, V. K.
  7. Did higher inequality impede growth in rural China ? By Benjamin, Dwayne; Brandt, Loren; Giles, John
  8. Regional trade policy options for tanzania : the importance of services commitments By Jensen, Jesper; Tarr, David G.
  9. An agenda for research on urbanization in developing countries : a summary of findings from a scoping exercise By Annez , Patricia Clarke; Linn, Johannes F.
  10. Can Africa replicate Asia's green revolution in rice ? By Larson, Donald F.; Otsuka, Keijiro; Kajisa, Kei; Estudillo, Jonna; Diagne, Aliou
  11. Decomposing the gender wage gap with sample selection adjustment: evidence from Colombia By Alejandro Badel; Ximena Peña
  12. Can rising housing prices explain China’s high household saving rate? By Xin Wang; Yi Wen

  1. By: Gilles Dufrénot (DEFI - Centre de Recherche en Développement Economique et Finance Internationale - Université de la Méditerranée - Aix-Marseille II); Valérie Mignon (CEPII - Centre d'études prospectives et d'informations internationales - Université de Paris X - Nanterre); Anne Peguin-Feissolle (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)
    Abstract: We revisit the evidence of the existence of a long -run link between financial intermediation and economic growth, by testing of cointegration between the growth rate of real GDP, control variables and three series reflecting financial intermediation. We consider a model with a factor structure that allows us to determine whether the finance-growth link is due to cross countries dependence and/or whether it characterizes countries with strong heterogeneities. We employ techniques recently proposed in the panel data literature, such as PANIC analysis and cointegration in common factor models. Our results show differences between the developed and developing countries. We run a comparative regression analysis on the 1980-2006 period and find that financial intermediation is a positive determinant of growth in developed countries, while it acts negatively on the economic growth of developing countries.
    Keywords: growth; developing countries; financial intermediation
    Date: 2010–11–15
  2. By: Neil McCulloch; Günther G. Schulze; Janina Voss (Department of International Economic Policy, University of Freiburg)
    Abstract: In this paper we analyze the decision of small and micro firms to formalize, i.e. to obtain business and other licenses in rural Indonesia. We use the rural investment climate survey (RICS) that consists of non-farm rural enterprises, most of them microenterprises, and analyze the effect of formalization on tax payments, corruption, access to credit and revenue, taking into account the endogeneity of the formalization decision to such benefits and costs. We show, contrary to most of the literature, that formalization reduces tax and corruption payments. The benefits of formalization, and therefore the likelihood of being formal, also depend on characteristics such as firm size, as well as the education and ethnicity of the owner.
    Keywords: Formalization, rural development, rural investment climate, informal sector
    JEL: O17 O18
    Date: 2010–11
  3. By: Matthias Doepke; Michèle Tertilt
    Abstract: Empirical evidence suggests that money in the hands of mothers (as opposed to their husbands) benefits children. Does this observation imply that targeting transfers on women is good development policy? In this paper they develop a series of non-cooperative family bargaining models to understand what kind of frictions can give rise to the observed empirical relationships, and we assess the policy implications of these models. It had been found that targeting transfers to women can have unintended consequences. Moreover, alternative forms of empowering women may lead to opposite results. More empirical research is needed to distinguish between alternative theoretical models. [BREAD Working Paper No. 281]
    Keywords: Empowerment, development,empirical, transfers
    Date: 2010
  4. By: Kojo, Naoko C.
    Abstract: This paper analyzes Botswana's medium-term fiscal sustainability in view of the expected depletion of diamonds in the future. The analysis shows that in the absence of policy adjustments, Botswana's current fiscal policy strategy is unsustainable over the longer term, which could endanger macroeconomic stability and Botswana's reputation as Africa's success story. Ensuring medium-term sustainability of Botswana's public finances requires stronger revenue collection, through improved revenue administration, greater tax enforcement, and the rationalization of tax exemptions in order to realize the full revenue potential. Opportunities also exist to generate more revenue from the non-mining sector through changes in the tax regime. At the same time, the government needs to maximize the effectiveness of public expenditure and bring down public spending to levels that are more in line with long-term revenue prospects. A greater control over the public sector wage bill is critically important. In-house capacity for macroeconomic monitoring and fiscal analysis also needs to be enhanced further. Looking ahead, growth of a dynamic non-mining sector is crucial for Botswana not only from the fiscal sustainability point of view, but from the point of view of achieving balanced development that will create jobs and deliver durable reduction in poverty and inequality. Fiscal policy will have to play a central role in this process.
    Keywords: Debt Markets,Economic Theory&Research,Public Sector Expenditure Policy,Access to Finance,Public Sector Economics
    Date: 2010–11–01
  5. By: Clemens, Michael A.; Demombynes, Gabriel
    Abstract: When is the rigorous impact evaluation of development projects a luxury, and when a necessity? This Paper studies one high-profile case: the Millennium Villages Project (MVP), an experimental and intensive package intervention to spark sustained local economic development in rural Africa. it illustrates the benefits of rigorous impact evaluation in this setting by showing that estimates of the project's effects depend heavily on the evaluation method. Comparing trends at the MVP intervention sites in Kenya, Ghana, and Nigeria to trends in the surrounding areas yields much more modest estimates of the project's effects than the before-versus-after comparisons published thus far by the MVP. Neither approach constitutes a rigorous impact evaluation of the MVP, which is impossible to perform due to weaknesses in the evaluation design of the project's initial phase. These weaknesses include the subjective choice of intervention sites, the subjective choice of comparison sites, the lack of baseline data on comparison sites, the small sample size, and the short time horizon. The authors describe how the next wave of the intervention could be designed to allow proper evaluation of the MVP's impact at little additional cost.
    Keywords: Housing&Human Habitats,Poverty Monitoring&Analysis,Science Education,Scientific Research&Science Parks,Population Policies
    Date: 2010–11–01
  6. By: Annez, Patricia; Bertaud, Alain; Patel, Bimal; Phatak, V. K.
    Abstract: This paper examines the policy options for India as it seeks to improve living conditions of the poor on a large scale and reduce the population in slums. Addressing the problem requires first a diagnosis of the market at the city level and a recognition that government interventions, rather than thwarting the operations of the market, should seek to make it operate better. This can substantially reduce the subsidies required to assist low income households to attain decent living standards. The authors show that government programs that directly provide housing would cost, in conservative estimates, about of 20 to 30 percent of GDP, and cannot solve a problem on the scale of India's. Using two case studies, for Mumbai and Ahmedabad, the paper offers a critical examination of government policies that shape the real estate market and make formal housing unaffordable for a large part of the population. It illustrates how simple city level market diagnostics can be used to identify policy changes and design smaller assistance programs that can reach the poor. The linkage between chronic infrastructure backlogs and policies makes housing unnecessarily expensive. Increasing the carrying capacity of cities is essential for gaining acceptance of real estate policies suited to Indian cities. The authors propose approaches for funding major investments to achieve this.
    Keywords: Housing&Human Habitats,Urban Housing,Public Sector Management and Reform,Regional Governance,Urban Governance and Management
    Date: 2010–11–01
  7. By: Benjamin, Dwayne; Brandt, Loren; Giles, John
    Abstract: This paper estimates the relationship between initial village inequality and subsequent household income growth for a large sample of households in rural China. Using a rich longitudinal survey spanning the years 1987-2002, and controlling for an array of household and village characteristics, the paper finds that households located in higher inequality villages experienced significantly lower income growth through the 1990s. However, local inequality’s predictive power and effects are significantly diminished by the end of the sample. The paper exploits several advantages of the household-level data to explore hypotheses that shed light on the channels by which inequality affects growth. Biases due to aggregation and heterogeneity of returns to own-resources, previously suggested as candidate explanations for the relationship, are both ruled out. Instead, the evidence points to unobserved village institutions at the time of economic reforms that were associated with household access to higher income activities as the source of the link between inequality and growth. The empirical analysis addresses a number of pertinent econometric issues including measurement error and attrition, but underscores others that are likely to be intractable for all investigations of the inequality-growth relationship.
    Keywords: Access to Finance,Inequality,Rural Poverty Reduction,Poverty Impact Evaluation,Services&Transfers to Poor
    Date: 2010–11–01
  8. By: Jensen, Jesper; Tarr, David G.
    Abstract: Despite the growing importance of commitments to foreign investors in services in regional trade agreements, there are no applied general equilibrium models in the literature that assess these regional impacts. This paper develops a 52 sector applied general equilibrium model of Tanzania with foreign direct investment, and uses that model to assess Tanzania's regional and multilateral trade options. The model incorporates the features of the modern theory of international trade that has shown empirically that trade and foreign direct investment can increase productivity, and trade and foreign direct investment with technologically advanced countries is especially valuable for that purpose. To assess the sensitivity of the results to parameter values, the model is executed 30,000 times, and the results are reported as confidence intervals of the sample distributions. The analysis finds that a 50 percent preferential reduction in the ad valorem equivalents of barriers in all business services by Tanzania with respect to its African regional partners would be slightly beneficial for Tanzania. But wider liberalization, with larger partners or multilaterally, it will yield much larger gains due to providing access to a much wider set of service providers. Finally, the results show that the largest gains in services would be derived from reduction of regulatory barriers that are geographically non-discriminatory.
    Keywords: Economic Theory&Research,Transport Economics Policy&Planning,Emerging Markets,Environmental Economics&Policies,Banks&Banking Reform
    Date: 2010–11–01
  9. By: Annez , Patricia Clarke; Linn, Johannes F.
    Abstract: This paper assesses the state of research and examines priorities for future work in the area of urbanization and growth. This is done by reviewing and summarizing the findings of five scoping papers covering the following topics: urban poverty, the political economy of urban poverty, urban real estate and housing, urban infrastructure finance, and external assistance for urban development.
    Keywords: Urban Poverty,Urban Housing and Land Settlements,National Urban Development Policies&Strategies,City Development Strategies,Banks&Banking Reform
    Date: 2010–11–01
  10. By: Larson, Donald F.; Otsuka, Keijiro; Kajisa, Kei; Estudillo, Jonna; Diagne, Aliou
    Abstract: Asia's green revolution in rice was transformational and improved the lives of millions of poor households. Rice has become an increasingly important part of African diets and imports of rice have grown. Agronomists point out that large areas in Africa are well suited for rice and are encouraged by the field tests of new rice varieties. So is Africa poised for its own green revolution in rice? This study reviews the recent literature on rice technologies and their impact on productivity, incomes, and poverty, and compares current conditions in Africa with the conditions that prevailed in Asia as its rice revolution got under way. An important conclusion is that, to a degree, a rice revolution has already begun in Africa. Moreover, many of the same practices that have proved successful in Asia and in Africa can be applied where yields are currently low. At the same time, for many reasons, Africa's rice revolution has been, and will continue to be, characterized by a mosaic of successes, situated where the conditions are right for new technologies to take hold. This can have profound effects in some places. But because diets, markets, and geography are heterogeneous in Africa, the successful transformation of the Africa's rice sector must be matched by productivity gains in other crops to fully launch Africa's Green Revolution.
    Keywords: Agricultural Research,Crops&Crop Management Systems,Climate Change and Agriculture,Food&Beverage Industry,Agricultural Knowledge&Information Systems
    Date: 2010–11–01
  11. By: Alejandro Badel; Ximena Peña
    Abstract: Despite the remarkable improvement of female labor market characteristics, a sizeable gender wage gap exists in Colombia. We employ quantile regression techniques to examine the degree to which current small differences in the distribution of observable characteristics can explain the gender gap. We find that the gap is largely explained by gender differences in the rewards to labor market characteristics and not by differences in the distribution of characteristics. We claim that Colombian women experience both a “glass ceiling effect’’ and also (what we call) a “quicksand floor effect” because gender differences in returns to characteristics primarily affect women at the top and the bottom of the distribution. Also, self selection into the labor force is crucial for gender gaps: if all women participated in the labor force, the observed gap would be roughly 50% larger at all quantiles.>
    Keywords: Wages ; Discrimination in employment ; Colombia
    Date: 2010
  12. By: Xin Wang; Yi Wen
    Abstract: China’s average household saving rate is one of the highest in the world. One popular view attributes the high saving rate to fast rising housing prices and other costs of living in China. This article uses simple economic logic to show that rising housing prices and living costs per se cannot explain China’s high household saving rate. Although borrowing constraints and demographic changes can help translate housing prices to the aggregate saving rate, quantitative simulations using Chinese data on household income, housing prices, and demographics indicate that rising mortgage costs contribute at most 5 percentage points to the Chinese aggregate household saving rate, given the down-payment structure of China’s mortgage markets.
    Date: 2010

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