nep-dev New Economics Papers
on Development
Issue of 2011‒04‒02
fifteen papers chosen by
Mark Lee
Towson University

  1. The impact of liquidity constraints and imperfect commitment on migration decisions of o¤spring of rural households By Matthieu Delpierre
  2. Harnessing windfall revenues: Optimal policies for resource-rich developing economies By Frederick van der Ploeg; Anthony J. Venables
  3. Will GDP Growth Increase Happiness in Developing Countries? By Clark, Andrew E.; Senik, Claudia
  4. Inequality, Human Capital Formation and the Process of Development By Oded Galor
  5. Food insecurity and public agricultural spending in Bolivia : putting money where your mouth is ? By Cuesta, Jose; Edmeades, Svetlana; Madrigal, Lucia
  6. Would freeing up world trade reduce poverty and inequality ? the vexed role of agricultural distortions By Anderson, Kym; Cockburn, John; Martin, Will
  7. The insurance sector in the Middle East and North Africa : challenges and development agenda By Lester, Rodney
  8. Economic Growth, Size of the Agricultural Sector, and Urbanization By Markus Bruckner
  9. Impact of FDI on Domestic Firms' Exports in China By Yu Sheng; Chunlai Chen; Christopher Findlay
  10. Country Fixed Effects and Unit Roots: A Comment on Poverty and Civil War: Revisiting the Evidence By Markus Bruckner
  11. The Impact of Foreign Labour on Host Country Wages: The Experience of a Southern Host, Malaysia By Prema-chandra Athukorala; Evelyn S Devadason
  12. Combating chronic poverty in Uganda: towards a new strategy By Ssewanyana, Sarah
  13. Remittances and the Prevalence of Working Poor By Christian EBEKE; Jean-Louis COMBES; Mathilde MAUREL; Thierry YOGO
  14. Does Abolishing Fees Reduce School Quality? Evidence from Kenya By Tessa Bold; Mwangi Kimenyi; Germano Mwabu; Justin Sandefur
  15. Human capital and productivity By Angel de la Fuente

  1. By: Matthieu Delpierre (Earth and Life Institute, Université Catholique de Louvain)
    Abstract: This paper presents a non-cooperative model of intra-household decision-making regarding investment in migration. It is shown that the combination of liquidity constraints and imperfect commitment are a source of underinvestment in migration. More precisely, we highlight that, if remittances are unenforceable as a repayment for parent?s contribution in migration transaction costs, then both migrant and parent?s liquidity constraints, rather than households liquidity constraint as a whole, matter in determining the investment decision. Besides, the insurance motive for remittances is shown to generate divergence of interest over the characteristics of migration. This result calls for a theoretical approach that properly takes account of potential internalization problems, which the paper intends to o¤er. Plausibility checks of the model are provided by comparative statics whose outcomes are consistent with previous research on migration and remittances.
    Date: 2010–10
  2. By: Frederick van der Ploeg; Anthony J. Venables
    Abstract: A windfall of natural resource revenue (or foreign aid) faces government with choices of how to manage public debt, investment, and the distribution of funds for consumption, particularly if the windfall is both anticipated and temporary. Standard policy advice follows the permanent income hypothesis in suggesting a sustained increase in consumption supported by interest on accumulated foreign assets (a Sovereign Wealth Fund) once resource revenue are exhausted. However, this strategy is not optimal for capital-scarce developing economies. Incremental consumption should be skewed towards present generations, relative to those in the far future. Savings should be directed to accumulation of domestic private and public capital rather than foreign assets. Optimal policy depends on instruments available to government. We study cases where the government can make lump-sum transfers to consumers; where such transfers are impossible so optimal policy involves cutting distortionary taxation in order to raise investment and wages; and where Ricardian consumers can borrow against future revenues so government only has indirect control of consumption.
    Keywords: Natural resource, windfall public revenues, risk premium on foreign debt, public infrastructure, private investment, credit constraints, optimal fiscal policy, debt management, Sovereign Wealth Fund, asset holding subsidy, developing economies
    JEL: E60 F34 F35 F43 H21 H63 O11 Q33
    Date: 2011
  3. By: Clark, Andrew E. (Paris School of Economics); Senik, Claudia (Paris School of Economics)
    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. Consistent with the Easterlin paradox, higher income is always associated with higher happiness scores, except in one case: whether growth in national income yields higher well-being is still hotly debated. The key question is whether the correlation coefficient is "too small to matter". The explanations for the small correlation between national income growth and subjective well-being over time appeal to the nature of growth itself (from 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 those at the individual level. Second, development is a qualitative process involving take-off points and thresholds. Such regime changes are visible to the eye through the lens of subjective satisfaction measures. The case of Transition countries is particularly impressive in this respect: average life satisfaction scores closely mirrored changes in GDP for about the first ten years of the transition process, until the regime became more stable. The greater availability of subjective measures of well-being in low-income countries would greatly help in the measurement and monitoring of the different stages and dimensions of the development process.
    Keywords: income, subjective well-being, comparisons, adaptation, development
    JEL: D63 I3 O1
    Date: 2011–03
  4. By: Oded Galor
    Abstract: #
    Keywords: Education, Gender Gap, Human capital, Income distribution, Inequality, Devel- opment, Unified Growth Theory
    Date: 2011
  5. By: Cuesta, Jose; Edmeades, Svetlana; Madrigal, Lucia
    Abstract: This paper explores the reduction of food insecurity in Bolivia, adopting a supply side approach that analyzes the role of agricultural spending on vulnerability. Vulnerability to food insecurity is captured by a municipal level composite -- developed locally within the framework of World Food Program food security analysis -- that combines welfare outcomes, weather conditions and agricultural potential for all 327 municipalities in 2003, 2006 and 2007. Our econometric results indicate that levels of public agricultural spending are positively associated with high or very high vulnerability. The authors interpret this to indicate that agricultural spending allocation decisions are driven by high or very high vulnerability levels. In other words, more agricultural spending appears to be destined to where it is more needed in line with previous findings in other sectors in Bolivia. This is confirmed through a number of specifications, including contemporaneous and lagged relationships between spending and vulnerability. They also find evidence of public spending on infrastructure and research and extension services having a significant (but very small) effect towards reducing high vulnerability. This indicates the importance of the composition of public agricultural spending in shaping its relationship with vulnerability to food insecurity.
    Keywords: Food&Beverage Industry,Rural Poverty Reduction,Public Sector Economics,Population Policies,Agricultural Knowledge&Information Systems
    Date: 2011–03–01
  6. By: Anderson, Kym; Cockburn, John; Martin, Will
    Abstract: Trade policy reforms in recent decades have sharply reduced the distortions that were harming agriculture in developing countries, yet global trade in farm products continues to be far more distorted than trade in nonfarm goods. Those distortions reduce some forms of poverty and inequality but worsen others, so the net effects are unclear without empirical modeling. This paper summarizes a series of new economy-wide global and national empirical studies that focus on the net effects of the remaining distortions to world merchandise trade on poverty and inequality globally and in various developing countries. The global LINKAGE model results suggest that removing those remaining distortions would reduce international inequality, largely by boosting net farm incomes and raising real wages for unskilled workers in developing countries, and would reduce the number of poor people worldwide by 3 percent. The analysis based on the Global Trade Analysis Project model for a sample of 15 countries, and nine stand-alone national case studies, all point to larger reductions in poverty, especially if only the non-poor are subjected to increased income taxation to compensate for the loss of trade tax revenue.
    Keywords: Rural Poverty Reduction,Economic Theory&Research,Emerging Markets,Trade Policy,Achieving Shared Growth
    Date: 2011–03–01
  7. By: Lester, Rodney
    Abstract: This paper studies the causes of the low development of the insurance sector in the Middle East and North African (MENA) region, particularly for long term insurance. The paper shows that life and non-life premiums, as well as assets, are very low relative to expected levels given per capita income and demographic characteristics, and examines the causes of such poor performance. There is a wide range of factors constraining the development of the industry, including the absence of mandatory insurance in key areas, the predominant presence of the state in some countries, gaps in regulation and supervision, unsupportive tax regimes, fragmented market structures, a chronic lack of suitably skilled people, as well as the absence of products that conform with cultural/religious preferences, especially in the case of life insurance. The lack of development of the insurance sector is a matter of concern, as research shows that the sector can contribute to both financial and economic development. Key recommendations to accelerate the development of the sector include wider introduction of mandatory insurance lines that have clear positive externalities, continuing the privatization process for government owned insurers, employing non capital techniques to force rationalization of insurance sectors with too many small and inefficient players, removing tax distortions, taking steps to stabilize motor third party liability markets (typically the largest line of business), strengthening reporting and disclosure, regulating banc-assurance, improving consumer protection, further developing Takaful long term insurance ('Family Insurance'), and establishing regional centers of excellence for skills development.
    Keywords: Insurance Law,Insurance&Risk Mitigation,Debt Markets,Climate Change Economics,Emerging Markets
    Date: 2011–03–01
  8. By: Markus Bruckner (School of Economics, University of Adelaide)
    Abstract: This paper exploits the significant positive response of the share of agricultural value added and GDP per capita growth to variations in the international prices for agricultural commodities and rainfall to construct instrumental variables estimates of the causal effect that changes in the size of the agricultural sector and GDP per capita growth have on the urbanization rate for a panel of 41 African countries during the period 1960-2007. The paper's two main findings are that: (i) decreases in the share of agricultural value added lead to a significant increase in the urbanization rate; (ii) conditional on changes in the share of agricultural value added GDP per capita growth does not significantly affect the urbanization rate. The empirical results confirm the predictions of theoretical models that economic shocks which differentially affect the return across sectors matter for the rural-urban migration decision, and that economic growth mostly affects the urbanization rate through a sector shift out of agriculture.
    Keywords: economic growth, sectoral shocks, urbanization
    JEL: O0 R0
    Date: 2011–03
  9. By: Yu Sheng (Crawford School of Economics and Governance, Australian National University); Chunlai Chen (Crawford School of Economics and Governance, Australian National University); Christopher Findlay (School of Economics, University of Adelaide)
    Abstract: Using manufacturing industry firm-level census data from the period of 2000-2003 in China, this paper examines the impact of foreign direct investment on domestic firms' exports. After dealing with econometric problems of endogeneity and sample selection, we find that foreign direct investment in China has had a positive impact on domestic firms' export value through backward industrial linkages and a positive impact on domestic firms' export propensities in the same industry through demonstration effects. In particular, non-exporting FDI firms and FDI firms producing homogeneous products are more likely to generate the positive export spillovers to domestic firms through industrial linkages while exporting FDI firms and FDI firms producing heterogeneous products are more likely to generate positive export spillovers to domestic firms through demonstration effects in the same industry.
    Keywords: Foreign Direct Investment, export spillovers, industrial linkage
    JEL: F14 F23
    Date: 2011–03
  10. By: Markus Bruckner (School of Economics, University of Adelaide)
    Abstract: Djankov and Reynal Querol (2010, RESTAT) show that the level of GDP per capita has no significant effects on the risk of civil war once country fixed effects are accounted for. Therefore, they argue that the relationship between income and civil war is spurious. This paper shows that when focus is on the change, rather than on the level, of GDP per capita that the significant negative relationship between GDP per capita and an indicator variable for civil war is recovered in the country fixed effects regression. In contrast to the argument made in Djankov and Reynal Querol, the paper's findings do not support the claim that the relationship between GDP per capita and civil war is spurious due to timeinvariant omitted variables.
    Keywords: income, civil war, unbalanced regression
    JEL: O10 O40 C23
    Date: 2011–03
  11. By: Prema-chandra Athukorala; Evelyn S Devadason
    Abstract: This paper investigates the impact of foreign labour on domestic manufacturing wages through a case study of Malaysia, a country where foreign labour immigration has played a key role in manufacturing growth over the past two decades. The main focus of the paper is on an econometric analysis of the determinants of inter-industry variation in wage growth using a new panel dataset. The results suggest that wage growth is fundamentally embedded in the structure and performance of domestic manufacturing. There is evidence of a statistically significant negative impact of foreign labour on the growth of unskilled-worker wages, but the magnitude of the impact is rather small.
    Keywords: International labour migration, foreign workers, wages, Asia, Malaysia
    JEL: F22 J31 J61 O53
    Date: 2011
  12. By: Ssewanyana, Sarah
    Abstract: Using a panel of 3,572 households in the Northern Uganda Social Action Fund (NUSAF) region interviewed in 2004 and in 2008, the paper provides new evidence on chronic poverty in Uganda. While progress in reducing poverty rates has been impressive from 64.6 percent to 52.2 percent, the levels remain high with a significant number of persistently poor households. Four in every ten households are chronically poor of which 44.9 percent are living in extreme chronic poverty. About 37.8 percent of the households are living in transient poverty of which 67.4 percent escaped poverty during the panel period. The substantial movements out of poverty can perhaps be explained largely by the relative return of peace in the region that enabled households to engage in agricultural activities. While at the aggregate level chronic poverty is significantly more prevalent than transient poverty, a mixed picture is observed at disaggregated level. The picture at aggregate level mirrors itself in the sub-regions of West Nile and Karamoja; but the reverse is observed in Lango sub-region. Chronic poverty is as equally prevalent as transient poverty in Acholi and Teso sub-regions. Overall, chronic poverty is disproportionately high among the Karamajongs. This calls for different kinds of anti-poverty interventions and public support. The paper further demonstrates that the characteristics and determinants of chronic and transient poverty are not always the same. The chronically poor households suffer from multidimensional deprivation including low incomes, low human capital development, inadequate access to infrastructure (especially input markets, trunk roads etc), and inability to access non-agricultural employment. On the other hand, the findings have demonstrated that ensuring peace in this part of the country is necessary for sustainable poverty reduction. The key policy messages: first, the on-going anti-poverty interventions such the Peace, Recovery and Development Plan (PRDP) and NUSAF II, among others, need to be refocused and targeted to ensure that the dynamic nature of poverty in this part of the country is taken into account. This will go a long way in improving the effectiveness of these interventions. Second, agriculture, whose productivity is low, remains the main source of income and employment to the households especially the chronically poor households. With the return of peace in the region, addressing the low agricultural productivity is likely to play a key role in the fight against chronic poverty. On the other hand, creation of employment outside the agricultural sector should be supported. There should be a deliberate strategy for investment in the poorest through asset accumulation â e.g. livestock re-stocking programme. The paper makes a case that chronic poverty should be recognized as a distinct dimension of poverty in governmentâs strategy against poverty if Uganda is to achieve MDG 1 by 2015.
    Keywords: chronic poverty, poverty dynamics, panel data, Uganda, Northern Uganda, EPRC, Community/Rural/Urban Development, Consumer/Household Economics, Crop Production/Industries, Food Security and Poverty,
    Date: 2010–06
  13. By: Christian EBEKE; Jean-Louis COMBES (Centre d'Etudes et de Recherches sur le Développement International); Mathilde MAUREL; Thierry YOGO
    Abstract: This paper focuses on the relationships between remittances and the share of individuals working for less than 2$ US per day. It is based on an original panel dataset containing information related to remittances in about 80 developing countries and to the number of workers being paid less than 2 dollars per day as well. Even after factoring in the endogeneity of remittance inflows the results suggest that remittances lead to a decrease in the prevalence of working poor in receiving economies. This effect is stronger in a context of high macroeconomic volatility but is mitigated by the unpredictability of remittances: remittances are more effective to decreasing the share of working poor when they are easily predictable. Moreover, domestic finance and remittances appear as substitutes: remittances are less efficient in reducing the prevalence of working poor whenever finance is available.
    Keywords: Working poor, Remittances, shocks, Financial Development
    JEL: O16 F43 F22
    Date: 2011
  14. By: Tessa Bold; Mwangi Kimenyi; Germano Mwabu; Justin Sandefur
    Abstract: In 2003 Kenya abolished user fees in all government primary schools. We find that this Free Primary Education (FPE) policy resulted in a decline in public school quality and increased demand for private schooling. However, the former did not reflect a decline in value added by public schools - as anticipated if fees contribute to local accountability - but rather the selection of weaker pupils into free education. In contrast, affluent children who exited to the private sector in response to FPE benefited from a strong, causal effect on their exam performance which is robust to selection on unobserved ability.
    Keywords: user fees; school quality; private schools
    JEL: H52 I22 O15
    Date: 2011
  15. By: Angel de la Fuente
    Abstract: This paper surveys the empirical literature on human capital and productivity and summarizes the results of my own work on the subject. On balance, the available evidence suggests that investment in education has a positive, significant and sizable effect on productivity growth.According to my estimates, moreover, the social returns to investment in human capital are higher than those on physical capital in most EU countries and in many regions of Spain.
    Keywords: human capital, productivity, growth, measurement error JEL Classification: O40, I20, O30, C19.
    Date: 2011–02

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