nep-dev New Economics Papers
on Development
Issue of 2011‒02‒19
fifteen papers chosen by
Mark Lee
Towson University

  1. Will GDP growth increase happiness in developing countries? By Andrew E. Clark; Claudia Senik
  2. Do tropical typhoons smash community ties? Theory and evidence from Vietnam By Yanos Zylberberg
  3. Trade liberalization and poverty dynamics in Vietnam 2002-2006 By Barbara Coello; Madior Fall; Akiko Suwa-Eisenmann
  4. Liquidity, risk and occupational choices By Milo Bianchi; Matteo Bobba
  5. Why may government transfers to the poor have modest effects on reducing rural inequality? By Christian Lehmann
  6. Decomposing wage inequality: Public and private sectors in Vietnam 1993-2006 By Clément Imbert
  7. Trade Patterns and Trade clusters: China, India, Brazil and South Africa in the Global trading system By Silvia Nenci; Luigi Montalbano
  8. What determines which children work? Empirical evidence from Kenya By Vimefall, Elin
  9. Inequality and Poverty under Latin America’s New Left Regimes By Darryl McLeod; Nora Lustig
  10. Are Public Investment Efficient in Creating Capital Stock in Developing Countries?. By Arestoff-Izzo, Florence; Hurlin, Christophe
  11. Inequality and Growth: The Role of Beliefs and Culture By Strieborny Martin
  12. Accounting for Cross-Country Income Differences with Public Capital By German Cubas
  13. Distortions, Infrastructure and Labor Supply in Latin American Countries By German Cubas
  14. Economic Growth and The Quality of Human Capital By Laabas, Belkacem; Weshah, Razzak
  15. The political economy of innovation; an institutional analysis of industrial policy and development in Brazil By Menezes, Jose H. V.

  1. By: Andrew E. Clark (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, IZA - Institute for the Study of Labor - IZA); Claudia Senik (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Université Paris-Sorbonne - Ministère de l'Education nationale, de l'Enseignement supérieur et de la Recherche)
    Abstract: This paper asks what low-income countries can expect from growth in terms of happiness. It interprets the set of available international evidence pertaining to the relationship between income growth and subjective well-being. Conforming to the Easterlin paradox, higher income always correlates with higher happiness, except in one case: whether national income growth yields higher well-being is still hotly debated; essentially, the question is whether the correlation coefficient is “too small to matter”. The explanations for the small correlation between income growth and subjective well-being over time appeal to the nature of growth itself (e.g. negative side-effects such as pollution), and to the psychological importance of relative concerns and adaptation. The available evidence contains two important lessons: income comparisons do seem to affect subjective well-being even in very poor countries; however, adaptation may be more of a rich country phenomenon. Our stand is that the idea that growth will increase happiness in low-income countries cannot be rejected on the basis of the available evidence. First, cross-country time-series analyses are based on aggregate measures, which are less reliable than individual ones. Second, development is a qualitative process that involves take-offs and thresholds. Such regime changes are eye-visible through the lens of subjective satisfaction measures. The case of Transition countries is particularly impressive in this respect: average life satisfaction scores closely mirror changes in GDP for about the first ten years of the transition process, until the regime becomes more stable. If subjective measures of well-being were made available in low-income countries, they would certainly help measuring and monitoring the different stages and dimensions of the development process.
    Keywords: income ; subjective well-being ; comparisons ; adaptation ; development
    Date: 2010–11
  2. By: Yanos Zylberberg (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    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 acoalition 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.
    Keywords: natural disasters ; informal risk-sharing ; social insurance ; altruism
    Date: 2010–10
  3. By: Barbara Coello (Banque Mondiale - Banque Mondiale); Madior Fall (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Afristat - AFRISTAT); Akiko Suwa-Eisenmann (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper shows the evolution of poverty in Vietnam during the deepening of trade liberalization and examines the impact of trade-related variables at the household level. The study is based on a panel dataset of households followed in 2002, 2004 and 2006. Trade-related variables at the household level are defined as the household specialization in terms of production and employment with respect to the type of jobs (wage earners or self-employed) and sectors (import-competing or exported manufactured goods, services, and in agriculture, rice, exported, subsistence and import-competing crops). For the poor, besides the expected positive impact of working in an export-related sector (in industry and in agriculture), diversification in self-employed non-farm activities appears to have been efficient at alleviating poverty. Moreover, the import-competing sectors (in industry and in agriculture) play also a positive role in poverty alleviation. The latter channel could be hindered in the near future, as Vietnam is now in the process of decreasing its import protection.
    Keywords: trade liberalization ; poverty dynamics ; Vietnam
    Date: 2010–05
  4. By: Milo Bianchi (Université Paris-Dauphine - Université Paris-Dauphine); Matteo Bobba (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: We explore whether financial constraints matter and which financial constraints matter the most in the choice of becoming an entrepreneur. We exploit a randomly assigned welfare program in rural Mexico to show that cash transfers significantly increase entry into entrepreneurship, thereby providing evidence of financial constraints. We then develop a simple model to highlight how liquidity and insurance constraints respond differently to the time profile of expected cash transfers. Exploiting the cross-households variation in the timing of these transfers, we find that current occupational choices are significantly more responsive to the amount of transfers expected for the future than to the amount of transfers currently received. We interpret these findings as evidence that the program has been effective in promoting micro-entrepreneurship by enhancing the willingness to bear risk.
    Keywords: financial constraints ; entrepreneurship ; insurance, liquidity
    Date: 2010–10
  5. By: Christian Lehmann (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: High levels of inequality are a persistent feature of many rural areas in the developing world. Rural inequality is correlated with major impediments of rural development, such as crime, elite-capture, and lack of collective action. Government transfer programs, such as conditional cash transfer, unemployment insurance, old-age pension or similar programs that target the lower tail of a village's cumulative welfare distribution function have become a very popular public policy to tackle poverty and inequality in rural areas. While the poverty impacts of those programs are well documented in the literature less attention has been given to the redistributive capacity of such policies at the village level. Among the main reasons for the neglect is a common belief that monetary transfers to the lower tail of the village welfare distribution (i.e. ‘the poor'), while excluding the upper tail (i.e. ‘the rich') from the program, must lead to a reduction in inequality. In this paper we show that the impact of such programs on reducing rural inequality may be lower than previously thought. This is because program-eligible lower and program-ineligible upper tail do not behave in isolation from each other. They are linked via interactions in credit & insurance, as well as factor & commodity markets. If, consequently, a government transfer triggers the lower tail to shift then the upper tail follows, leading to modest reductions in local inequality.
    Keywords: evaluation of public policies ; inequality ; poverty ; microsimulation ; externalities
    Date: 2010–10
  6. By: Clément Imbert (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper studies the labor market in Vietnam during the transition towards market economy (1993-2006): we show that the public-private sector wage gap markedly increased, but that wage inequality decreased overall. Our aim is to assess how much of this evolution can be explained by workers' productive skills and their allocation between sectors. We use a simple, yet innovative, method that allows us to take into account workers' unobservable characteristics and their remuneration in each sector. Throughout the period we consider, public sector workers are more skilled than private sector workers. However, rising returns to workers' skills in the public sector play a major role in the increase of the public-private sector gap. Against all expectations, the public sector grew richer as Vietnam moved towards market economy. Finally, a greater homogeneity among labor market participants seems to explain the overall decline in wage inequality.
    Keywords: transition ; inequality decomposition ; public sector
    Date: 2011–02
  7. By: Silvia Nenci; Luigi Montalbano
    Abstract: The present paper analyzes the evolution of the specialization and trade patterns of China, India, Brazil and South Africa (CIBS) and other WTO countries. It aims to provide an answer to the following questions: is there a tendency to a multi-polarization of trade patterns? If so, is CIBS’ rise leading to new clusters with or among CIBS or other emerging countries? Also, ultimately, does this multi-polarization have a regional element to it? The paper deals with the above questions by presenting: i) a world map of trade clusters involving WTO countries and CIBS; ii) a comparison of the above clusters and their key characteristics in the last decade; and iii) the key drivers of clusters’ trends. The novelty of this study is twofold: first, it adopts a more comprehensive dataset for a wide range of countries and trade dimensions; second, it provides an evolutionary look at the clusters’ trends. The empirical results do not show neither a remarkable phenomenon of multi-polarization, nor evidence of CIBS as a significant separate group and/or regional agglomeration.
    Keywords: CIBS, trade patterns, trade specialization, cluster
    JEL: F10 F14 F15
    Date: 2011–02
  8. By: Vimefall, Elin (Department of Business, Economics, Statistics and Informatics)
    Abstract: This paper determines which children work and how much children work in Kenya. The results show that the educational level of the head of household is important, but it does not matter if the head has primary or higher education. Social norms have a strong effect on the child’s probability of working and access to the labor market is important. The overall finding is not consistent with the view that it is children from the poorest families who work.
    Keywords: Child labor; Education; Kenya
    JEL: D19 J22 J81 O12
    Date: 2011–02–07
  9. By: Darryl McLeod (Fordham University, Department of Economics); Nora Lustig (Tulane University, Department of Economics)
    Abstract: During the last decade, inequality and poverty fell sharply in many Latin American countries; a period in which voters chose left-leaning leaders in ten countries including about half the region’s population. Are these two developments related? Using data for 18 Latin American countries and political regime classification of Arnson and Perales (2007), this paper presents some econometric evidence that the social democratic regimes in Brazil, Chile and to a lesser extent Uruguay were more successful at reducing inequality and poverty than the so-called left populist regimes of Argentina, Bolivia and Venezuela. Both groups implemented policies to redistribute income, but the social democratic regimes redistributive efforts were more effective. Argentina and Venezuela started the 1990-2008 sample window with lower levels of inequality, so to some extent recent reductions in inequality are a return to “normal” levels (as estimated by fixed effects). Inequality and poverty in Brazil and Chile, on the other hand, fell to historic lows during this period. Second, overall terms of trade shocks were more favorable for Argentina and Venezuela, so part of the drop in inequality in those countries can be attributed to typically transient commodity price booms.
    JEL: O15 P16 I32
    Date: 2010
  10. By: Arestoff-Izzo, Florence; Hurlin, Christophe
    Abstract: In many poor countries, the problem is not that governments do not invest, but that these investments do not create productive capital. So, the cost of public investments does not correspond to the value of the capital stocks. In this paper, we propose an original non parametric approach to evaluate the efficiency function that links variations (net of depreciation) of stocks to public investments. We consider four sectors (electricity, telecommunications, roads and railways) of two Latin American countries (Mexico and Colombia). We show that there is a large discrepancy between the amount of investments and the value of increases in stocks.
    Keywords: Developing Countries; Capital Stocks; Public Capital;
    JEL: E62 E22 C82
    Date: 2010–12
  11. By: Strieborny Martin
    Abstract: In egalitarian countries people believe that luck rather than hard work determines success in life and expect their government to provide both economic growth and social equity. This leads to a stronger dynamic interplay between government interventions, inequality and growth within such countries. The presented results thus confirm the importance of cultural factors and economic beliefs in shaping the inequality-growth link. More fundamentally, the paper demonstrates that cultural background does not only influence the long-run economic outcomes, but can also affect the joint dynamics of real economic variables within countries over time.
    Keywords: culture; inequality; growth
    JEL: O15 O40 P16 Z1
    Date: 2010–11
  12. By: German Cubas (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República. Banco Central del Uruguay.)
    Abstract: This paper offers new evidence on the sources of cross-country income differences by investigating the role public capital in development accounting. I explicitly measure private and public capital stocks, and I find large differences in both types of capital across countries. Moreover, differences in private capital are larger than the ones I find for total capital for the richest and poorest countries. The methodology I use implies a share of publica capital in output of at most 10%. My findings indicate that differences in capital stocks can not account for a substantial part of the observed dispersion in income across countries.
    Keywords: Income differences, Public capital, Development Accounting.
    JEL: O11 O41 H41
    Date: 2010–12
  13. By: German Cubas (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República. Banco Central del Uruguay.)
    Abstract: I document differences in labor supply between a set of Latin American countries and the U.S, in the period 1990-2005. These differences are mostly explained by large differ-´ ences in female labor supply. In the U.S. the female labor force participation was 69% by 1990, while in Brazil and Mexico was 39% and 37%, respectively. Females began to participate more in the labor market of these countries when more households acquired access to basic infrastructure and when distortive policies affecting the price of household appliances were partially removed. I use a model of home production with endogenous labor force participation to account fore these facts. I conclude that the price of household appliances and access to infrastructure are quantitatively important in explaining cross-country labor supply differences.
    Keywords: Labor Force Participation, Latin America, Policy Distortions, Household Appliances.
    JEL: O11 O14 O33
    Date: 2010–12
  14. By: Laabas, Belkacem; Weshah, Razzak
    Abstract: We calibrate an endogenous growth model to study the effect of the quality of human capital on productivity growth in a sample of thirty developed and developing countries for the period 1980 to 2007. We measure quality of human capital by relative cognitive skills. These are country scores in mathematics and science reported in Trends in International Mathematics and Science (TIMMS). The correlation between the relative quality of human capital and productivity growth is evident in the data for the developed countries. And, cross-country differences in the quality of human capital for a number of developed countries are highly positively associated with cross-country differences in productivity growth. The picture is significantly different for the developing countries in our sample.
    Keywords: quality of human capital; economic growth
    JEL: I20 J24 O40 E10
    Date: 2011–02–08
  15. By: Menezes, Jose H. V.
    Abstract: This dissertation examines Brazilian industrial policies during the administrations of President Lula (2003-2010) and questions if innovation has truly been the main driver of those instruments. It provides a brief overview on the intersections of politics, economics, innovation and institutions as well as the main choices, incentives and alliances of the Brazilian government, which are illustrated by the Innovation Law, PITCE, PDP and campaign financing of President Lula's 2002 and 2006 candidacies. By adding to the analysis Brazil's exports, its balance of trade and the expenditures of BNDES, this research indicates a disconnect between the intentions and the results of the industrial policy. China and “low-tech” businesses seem to have become the real drivers of the government's agenda; the first for its importance to the Brazilian economy and the latter for its influence with government. Finally, while recognizing some positive results, it presents an alternative model based on a “high-tech” natural resources vision of development which could convert the current challenges into opportunities
    Keywords: Brazil; development; institutions; innovation; industrial policy
    JEL: O1 O38 O3
    Date: 2010–08–01

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