nep-dev New Economics Papers
on Development
Issue of 2011‒08‒29
twenty papers chosen by
Mark Lee
Towson University

  1. The Effects of Foreign Aid in Sub-Saharan Africa By Robert Gillanders
  2. The Curse of the Elders? Aid Effectiveness and Gerontocracy in Developing Countries By Marc Raffinot; Baptiste Venet
  3. Group Violence, Ethnic Diversity, and Citizen Participation: Evidence from Indonesia By Christophe Muller; Marc Vothknecht
  4. Economic and Political Causes of Genocidal Violence: A comparison with findings on the causes of civil war By Frances Stewart
  5. The Effect of Interventions to Reduce Fertility on Economic Growth By Quamrul H. Ashraf; David N. Weil; Joshua Wilde
  6. Economic Returns to Education: What We Know, What We Don't Know, and Where We Are Going – Some Brief Pointers By Harmon, Colm P.
  7. Intergenerational Wealth Mobility in Rural Bangladesh By Asadullah, Niaz
  8. Towards a Better Understanding of the Informal Economy By Dan Andrews; Aida Caldera Sánchez; Åsa Johansson
  9. Catastrophe Financing for Governments: Learning from the 2009-2012 MultiCat Program in Mexico By Erwann Michel-Kerjan; Ivan Zelenko; Victor Cardenas; Daniel Turgel
  10. Inequality and poverty under Latin America’s new left regimes By Darryl McLeod; Nora Lustig
  11. Inequality of opportunity in educational achievement in Latin America: Evidence from PISA 2006-2009 By Luis Fernando Gamboa; Fábio D. Waltenberg
  12. The rise and fall of income inequality in Latin America By Leonardo Gasparini; Nora Lustig
  13. Migration Magnet: The Role of Work Experience in Rural-Urban Wage Diff erentials in Mexico By John P. Haisken-DeNew; Maren M. Michaelsen
  14. Environmental and gender impacts of land tenure regularization in Africa : pilot evidence from Rwanda By Ali, Daniel Ayalew; Deininger, Klaus; Goldstein, Markus
  15. Applying the growth identification and facilitation framework : the case of Nigeria By Lin, Justin Yifu; Treichel, Volker
  16. Firm Heterogeneity and Development: Evidence from Latin American countries By Han-Hsin Chang; Charles van Marrewijk
  17. Early Childhood Stimulation Interventions in Developing Countries: A Comprehensive Literature Review By Helen Baker-Henningham; Florencia López Bóo
  18. Are Conditional Cash Transfers Effective in Urban Areas? Evidence from Mexico By Jere R. Behrman; Jorge Gallardo-Garcia; Susan W. Parker; Petra E. Todd; Viviana Velez-Grajales
  19. Supplier Responses to Wal-Mart's Invasion in Mexico By Iacovone, Leonardo; Javorcik, Beata; Keller, Wolfgang; Tybout, James R
  20. Do multinationals beat down developing countries' export prices? The impact of FDI on net barter terms of trade By Konstantin M. Wacker

  1. By: Robert Gillanders (University College Dublin)
    Abstract: This paper contributes to the aid effectiveness debate by applying a vector autore- gression model to a panel of Sub-Saharan African countries. This method avoids the need for instrumental variables and allows one to analyse the impact of foreign aid on human development and on economic development simultaneously. The full sample results indicate a small increase in economic growth following a fairly substantial aid shock. The size of the effect puts the result somewhere between the arguments of aid optimists and those of aid pessimists. Economic growth is found to respond more to aid shocks in groups defined by better economic policies, poor institutions and high aid dependence. Human development, for which I use the growth rate of life expectancy as a proxy, responds positively to aid shocks in democracies and in good institutional environments.
    Keywords: Foreign Aid, Economic Growth, Human Development, Panel VAR
    Date: 2011–08–23
  2. By: Marc Raffinot (LEDa, UMR DIAL-Paris-Dauphine); Baptiste Venet (LEDa, UMR DIAL-Paris-Dauphine)
    Abstract: (english) In this paper we use a simple standard overlapping-generation model to assess the impact of foreign aid. Because of deference to the elders, donors are not able to modify the sharing out of aid between the old and the young in the recipient economy. The model shows that, if aid is considered as a device intended to help attain the spontaneous steady state of the economy, it may lead to a rise or fall in savings, and hence in the growth rate of the economy, depending on a threshold share of aid accruing to elders. Alternately, if aid is intended to help the economy to reach its golden-rule steady state, the relevant level of aid increases with the share of aid accruing to elders, up to a certain threshold. If this share is higher than the threshold, the optimal level of aid is negative. _________________________________ (français) Nous utilisons un modèle à générations imbriquées pour montre que la répartition de l’aide entre jeunes et vieux peut avoir un impact sur l’efficacité de l’aide en termes d’épargne, de croissance et de bien-être. Les sociétés en développement sont généralement marquées par une « déférence pour les anciens » profondément ancrée dans la culture traditionnelle. Nous supposons que les donateurs sont incapables de manipuler cette part, et nous montrons que la part de l’aide qui revient aux vieux a un impact sur la croissance et le bien-être positif en dessous d’un certain seuil et négatif au-delà.
    Keywords: Developing Countries, Elders, Aid effectiveness, Overlapping Generations Models.
    JEL: E61 F35 F43 O11 O19
    Date: 2011–01
  3. By: Christophe Muller; Marc Vothknecht
    Abstract: This paper addresses the impact of violent conflict on social capital, as measured by citizen participation in community groups defined for four activity types: governance, social service, infrastructure development and risk-sharing. Combining household panel data from Indonesia with conflict event information, we find an overall decrease in citizen contributions in districts affected by group violence in the early post-Suharto transition period. However, participation in communities with a high degree of ethnic polarization is less strongly affected and even stimulated for local governance and risk-sharing activities. Moreover, individual engagement appears to be dependent on the involvement of other members from the own ethnic group, which points to emphases on bonding social networks in the presence of violence. Finally, in conflict regions, the wealthier households are more likely to engage into cooperative and infrastructure improvement activities, while they are dropping from security groups. On the contrary, the poorest households get more involved in social service activities and less in infrastructure groups. Our results illustrate the danger of generalizations when dealing with violence impact on community activities. We found a large variety of responses depending on the considered activity and its expected economic or social function. We also found large observed and unobserved individual heterogeneities of the effect of violent conflict on activity participation. Once an appropriate nomenclature of activities is used and intensive controls for observed and unobserved heterogeneity are performed, we found that some activities can actually be stimulated by conflict situations. In this respect, the ethnic configuration of society seems to be central in understanding this type of social capital building.
    Date: 2011
  4. By: Frances Stewart
    Abstract: Genocide is different from civil war: it usually involves deaths on a much larger scale and targets particular groups – mostly civilians - often with the aim of exterminating them. The violence is one-sided, and, fortunately, genocides are much rarer than civil wars. Although with genocide, as with civil wars, it is possible to identify underlying political and economic patterns that make genocide more likely, there have been two distinct strands of investigation by social scientists: studies of the economic and political causes of ‘normal’ civil war; and those studying genocide. This paper contrasts the findings of the two strands of investigation, focussing on quantitative investigations, exploring the main differences in findings, and pointing to policy conclusions that emerge. It finds that civil wars tend to be higher in low income countries and in intermediate regimes, whereas genocides tend to be higher in low and middle income countries and in authoritarian regimes. Both, however, are more common during political upheaval and transition. In the case of genocides, civil wars themselves are one important predisposing condition. Hence policies to prevent civil wars may also contribute to preventing genocide. Once a situation has evolved in which there are high risks or actual episodes, any policy advice about preventative action is likely to fall on deaf ears. What is important is that appropriate policies should be in place in every multiethnic society to avoid a high risk situation emerging.
    Date: 2011
  5. By: Quamrul H. Ashraf (Williams College); David N. Weil (Brown University); Joshua Wilde (University of South Florida)
    Abstract: We assess quantitatively the effect of exogenous reductions in fertility on output per capita. Our simulation model allows for effects that run through schooling, the size and age structure of the population, capital accumulation, parental time input into child-rearing, and crowding of fixed natural resources. The model is parameterized using a combination of microeconomic estimates, data on demographics and natural resource income in developing countries, and standard components of quantitative macroeconomic theory. We apply the model to examine the effect of an intervention that immediately reduces TFR by 1.0, using current Nigerian vital rates as a baseline. For a base case set of parameters, we find that an immediate decline in the TFR of 1.0 will raise output per capita by approximately 13.2 percent at a horizon of 20 years, and by 25.4 percent at a horizon of 50 years.
    Keywords: Fertility, Population size, Age structure, Child quality, Worker experience, Labor force participation, Capital accumulation, Natural resources, Income per capita
    JEL: E17 J11 J13 J18 J21 J22 J24 O11 O13 O55
    Date: 2011–08
  6. By: Harmon, Colm P. (University College Dublin)
    Abstract: The estimation of the economic return to education has perhaps been one of the predominant areas of analysis in applied economics for over 50 years. In this short note we consider some of the recent directions taken by the literature, and also some of the blockages faced by both science and policymakers in pushing forward some key issues. This serves by way of introduction to a set of papers for a special issue of the Economics of Education Review.
    Keywords: returns to education, education policy
    JEL: J08 J30 J38 C21
    Date: 2011–08
  7. By: Asadullah, Niaz (University of Reading)
    Abstract: Unique residential history data with retrospective information on parental assets are used to study household wealth mobility in 141 villages in rural Bangladesh. Regression estimates of father-son correlations and analyses of intergenerational transition matrices show substantial persistence in wealth even when we correct for measurement errors in parental wealth. We do not find wealth mobility to be higher between periods of a person's life than between generations. We find that the process of household division plays an important role: sons who splinter off from the father's household experience greater (albeit downward) mobility in wealth. Despite significant occupational mobility across generations, its contribution to wealth mobility, net of human capital attainment of individuals, appears insignificant. Low wealth mobility in our data is primarily explained by intergenerational persistence in educational attainment.
    Keywords: intergenerational inequality, household wealth, occupational mobility, schooling mobility, transition matrix, Bangladesh
    JEL: D63 O53
    Date: 2011–08
  8. By: Dan Andrews; Aida Caldera Sánchez; Åsa Johansson
    Abstract: It is important to understand the nature and drivers of informality, as its social and economic consequences are wide-ranging. This paper critically reviews the current state of cross-country research on informality and discusses how existing data sources can be more effectively employed and extended to shed light on the link between public policies and informality. A number of interesting findings emerge. The informal economy is multi-faceted and a wide range of definitions and measures are required to capture its diverse activities. However, most existing – and widely used – cross-country estimates of informality suffer from large measurement problems, which reduce the reliability of existing empirical evidence on the extent and drivers of informality. Accordingly, future research on informality should be closely linked to obtaining better data, particularly at the household and firm levels.<P>Vers une meilleure compréhension de l'économie informelle<BR>Il est important de comprendre la nature et les déterminants de l'économie informelle, tant ses conséquences sociales et économiques sont vastes. Ce document examine d’une façon critique l'état actuel de la recherche sur l'économie informelle, et examine la façon d'utiliser plus efficacement les données existantes et d'étendre les bases de données pour mieux établir un lien entre les politiques publiques et l'informalité. Quelques conclusions intéressantes se dégagent de cette étude. L'économie informelle présente de multiples facettes et un large éventail de définitions et de mesures sont nécessaires pour saisir ses diverses formes. Cependant, la plupart des indicateurs disponibles - et largement utilisés - souffrent de problèmes de mesurabilité, qui réduisent la fiabilité des données empiriques existantes et les résultats sur l'ampleur et les déterminants de l'informalité. Ainsi, les futures recherches sur l'informalité devraient recueillir de meilleures données, en particulier sur les ménages et les entreprises.
    Keywords: property rights, informal economy, tax evasion, measurement issues, regulations, économie informelle, mesurabilité, droits de propriété, régulations, évasion fiscale
    JEL: H11 H26 J53 K0 O17
    Date: 2011–05–30
  9. By: Erwann Michel-Kerjan; Ivan Zelenko; Victor Cardenas; Daniel Turgel
    Abstract: With rapidly increasing population and growing catastrophe exposure in their countries, many more government leaders (including Presidents, Prime Ministers and Rulers) are now faced with a strategic question: how best develop a national strategy to hedge against the massive economic burden of extreme events that could hit their country tomorrow? <p>We propose a framework to help those leaders in governments around the world and their advisors think more clearly about these issues, focusing specifically on the role that risk transfer mechanisms alternative to traditional insurance can play. The paper provides a case study of the $290 million multi-peril, multi-tranche catastrophe bond recently sponsored by the Government of Mexico and arranged by the World Bank under the MultiCat Program. We discuss the step-bystep creation of this catastrophe bond, from starting discussions that took place in 2008 to the investor road show and the successful issuance of the bond in October 2009. <p>This joint initiative could provide an example for other countries that wish to establish their own financial coverage solution against disasters, as part of a broader national risk management strategy. We illustrate this with the case of the government of Chile and earthquake risks. It also shows that considering countries, or even cities, for the issuance of such insurancelinked securities (ILS) could considerably expand this market for alternative catastrophe risk transfer instruments.
    Keywords: Mexico, catastrophe economics, Risk Financing, leadership in government, ART, MultiCat Program, Sovereign Catastrophe Bonds
    Date: 2011–05
  10. By: Darryl McLeod (Fordham University); Nora Lustig (Tulane University and Center for Global Development)
    Abstract: Inequality and poverty fell sharply in many Latin American countries during a decade in which voters in ten countries chose left-leaning leaders. Are these developments related? Using data for 18 Latin American countries, this paper presents econometric evidence that social democratic regimes in Brazil and Chile were more successful at reducing inequality and poverty than the so-called populist regimes of Argentina, Bolivia, and Venezuela. Both groups implemented policies to redistribute income, but the social democratic regimes’ efforts were more effective. The left populists regimes such as 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). Conversely, inequality and poverty in Brazil and Chile fell to historic lows. Moreover, overall terms of trade shocks were more favorable to Argentina and Venezuela, so part of the drop in inequality can be attributed to commodity price booms.
    Keywords: inequality, poverty, social policy, new left, Latin America.
    JEL: D31 D33 I32 I38 O15 O54 P16
    Date: 2011
  11. By: Luis Fernando Gamboa (Universidad del Rosario, Colombia); Fábio D. Waltenberg (Universidade Federal Fluminense, Brazil)
    Abstract: We assess inequality of opportunity in educational achievement in six Latin American countries, employing two waves of PISA data (2006 and 2009). By means of a non-parametric approach using a decomposable inequality index, GE(0), we rank countries according to their degree of inequality of opportunity. We work with alternative characterizations of types: school type (public or private), gender, parental education, and combinations of those variables. We calculate ?incremental contributions? of each set of circumstances to inequality. We provide rankings of countries based on unconditional inequalities (using conventional indices) and on conditional inequalities (EOp indices), and the two sets of rankings do not always coincide. Inequality of opportunities ranges from less than 1% to up to 27%, with substantial heterogeneity according to the year, the country, the subject and the specification of circumstances. Robustness checks based on bootstrap and the use of an alternative index confirm most of the initial results.
    Keywords: Inequality of Opportunity, economics of education, Latin America.
    JEL: D63 O15
    Date: 2011
  12. By: Leonardo Gasparini (CEDLAS, Universidad de La Plata); Nora Lustig (Tulane University and Center for Global Development)
    JEL: D31 D33 H53 J48 O15 O54
    Date: 2011
  13. By: John P. Haisken-DeNew; Maren M. Michaelsen
    Abstract: This study estimates separate selectivity bias corrected wage equations for formal and informal workers in rural and urban Mexico using data from the Mexican Family Life Survey (MxFLS). We control for diff erent potential selection patterns using Probit and Multinominal logit models in the fi rst step in which health, personality traits and family characteristics serve as exclusion restrictions for working per se and working in the formal sector. Oaxaca-Blinder Decompositions show that rural-urban wage inequality in the formal and informal sector is determined by diff erences in observable human capital. In the informal sector, the wage diff erential is mainly explained by diff erences in returns to experience. Furthermore, we analyse rural-to-urban migrants‘ labour market performance. The fi ndings suggest that rural-to-urban migration will continue and the informal sector will further increase.
    Keywords: Returns to experience; rural-urban wage diff erentials; informality; internal migration; Mexico
    JEL: J24 J31 R23 Q15
    Date: 2011–06
  14. By: Ali, Daniel Ayalew; Deininger, Klaus; Goldstein, Markus
    Abstract: Although increased global demand for land has led to renewed interest in African land tenure, few models to address these issues quickly and at the required scale have been identified or evaluated. The case of Rwanda's nation-wide and relatively low-cost land tenure regularization program is thus of great interest. This paper evaluates the short-term impact (some 2.5 years after completion) of the pilots undertaken to fine-tune the approach using a geographic discontinuity design with spatial fixed effects. Three key findings emerge from the analysis. First, the program improved land access for legally married women (about 76 percent of married couples) and prompted better recordation of inheritance rights without gender bias. Second, the analysis finds a very large impact on investment and maintenance of soil conservation measures. This effect was particularly pronounced for female headed households, suggesting that this group had suffered from high levels of tenure insecurity, which the program managed to reduce. Third, land market activity declined, allowing rejection of the hypothesis that the program caused a wave of distress sales or widespread landlessness by vulnerable people. Implications for program design and policy are discussed.
    Keywords: Common Property Resource Development,Banks&Banking Reform,Municipal Housing and Land,Urban Housing,Rural Land Policies for Poverty Reduction
    Date: 2011–08–01
  15. By: Lin, Justin Yifu; Treichel, Volker
    Abstract: This paper applies the Growth Identification and Facilitation Framework developed by Lin and Monga (2010) to Nigeria. It identifies as appropriate comparator countries China, India, Indonesia, and Vietnam, and selects a wide range of industries in which these comparator countries may be losing their comparative advantage and which may therefore lend themselves to targeted interventions of the government to fast-track growth. These industries include food processing, light manufacturing, suitcases, shoes, car parts, and petrochemicals. The paper also discusses binding constraints to growth in each of these value chains as well as mechanisms through which governance-related issues in the implementation of industrial policy could be addressed.
    Keywords: Environmental Economics&Policies,Labor Policies,Economic Theory&Research,Transport Economics Policy&Planning,E-Business
    Date: 2011–08–01
  16. By: Han-Hsin Chang; Charles van Marrewijk
    Abstract: Motivated by the work of Melitz (2003), Helpman, et al. (2004) and Yeaple (2005), micro-firm data provided by the World Bank Enterprise Survey is used to study the empirical productivity distribution across 15 Latin American countries. This paper differs from previous work in identifying four types of firms by their ownership characteristics and their exporting status. We compare the productivity distribution of these four types of firms to reflect on theoretical modeling deficiencies. First, the productivity distributions for each type show no sign of a productivity cut-off at the lower end, contrary to current theoretical modeling. Second, we see that exporting activities are nonexclusive to firms with high productivity. In other words, by distinguishing groups of firms with different degrees of international involvement (domestic producers, exporters, nationally-owned and foreign-owned firms), we find that the productivity distributions of different groups of firms overlap with one another. This contradicts with the modeling in Melitz (2003), which suggests sorting into different international engagement according to productivity level. Third, we find a superior productivity distribution among foreign-owned firms as compared to domestic firms. The foreign ownership premium is significant and more prevailing in the services sectors than the manufacturing sectors. Exporters also show superior productivity, but this productivity premium is only enjoyed by the nationally-owned manufacturers. The premium is not constant over the quantiles. Lastly, with the cross-country data, we find a positive relationship between the overall productivity level and a country's development level, as often found in other research. However, we find that firms with low productivity in a given sector are more constrained by the macroeconomic development level of the country than firms with higher productivity, which seem to be able to advance productivity with individual micro- firm characteristics.
    Keywords: Firm heterogeneity; Productivity distribution; Exporting; Development; Latin America
    JEL: O12 D20 F14 O54
    Date: 2011–08
  17. By: Helen Baker-Henningham; Florencia López Bóo
    Abstract: This report reviews the effectiveness of early childhood stimulation interventions in developing countries. The report aims to answer the questions: What works in terms of early stimulation for young children in developing countries? For whom and under what conditions do these programs work and why do they work.
    Keywords: Social Development :: Youth & Children, Education :: Early Childhood Education, Health :: Health Care
    Date: 2010–09
  18. By: Jere R. Behrman (Department of Economics, University of Pennsylvania); Jorge Gallardo-Garcia (Bates White Consulting, Wash DC); Susan W. Parker (División de Economía, Centro de Investigación y Docencia Económicas – CIDE); Petra E. Todd (Department of Economics. University of Pennsylvania); Viviana Velez-Grajales (Inter-American Development Bank, IDB Headquarters, Wash DC)
    Abstract: Conditional cash transfer (CCT) programs have spread worldwide as a new form of social assistance for the poor. Previous evaluations of CCT programs focus mainly on rural settings, and little is known about their effects in urban areas. This paper studies the short-term (one and two-year) effects of the Mexican Oportunidades CCT program on urban children/youth. The program provides financial incentives for children/youth to attend school and for family members to visit health clinics. To participate, families had to sign up for the program and be deemed eligible. Difference-in-difference propensity score matching estimates indicate that the program is successful in increasing school enrollment, schooling attainment and time devoted to homework and in decreasing working rates of boys.
    Keywords: conditional cash transfer programs, matching estimators, program evaluation
    JEL: I21 I28 J24
    Date: 2011–08–01
  19. By: Iacovone, Leonardo; Javorcik, Beata; Keller, Wolfgang; Tybout, James R
    Abstract: This paper examines the effect of Wal-Mart's entry into Mexico on Mexican manufacturers of consumer goods. Guided by firm interviews that suggested substantial heterogeneity across firms in how they responded to Wal-Mart's entry, we develop a dynamic industry model in which firms decide whether to sell their products through Walmex (short for Wal-Mart de Mexico), or use traditional retailers. Walmex provides access to a larger market, but it puts continuous pressure on its suppliers to improve their product's appeal, and it forces them to accept relatively low prices relative to product appeal. Simulations of the model show that the arrival of Walmex separates potential suppliers into two groups. Those with relatively high-appeal products choose Walmex as their retailer, whereas those with lower appeal products do not. For the industry as a whole, the model predicts that the associated market share reallocations, adjustments in innovative effort, and exit patterns increase productivity and the rate of innovation. These predictions accord well with the results from our firm interviews. The model's predictions are also supported by establishment-level panel data that characterize Mexican producers' domestic sales, investments, and productivity gains in regions with di¤ering levels of Walmex presence during the years 1994 to 2002.
    Keywords: distribution systems; firm heterogeneity; foreign direct investment; innovation; logistics; NAFTA; retailing
    JEL: F23
    Date: 2011–08
  20. By: Konstantin M. Wacker (Georg-August-Universität Göttingen)
    Abstract: This paper explores the economic relationship between foreign direct investment to developing countries and the export prices of the latter, measured by terms of trade. It is rst shown that economic theory suggests such a relationship for various reasons but is inconclusive about the direction of the eect. To address this open issue empirically, I analyze data on more than 50 developing countries throughout the period 1980 - 2008 using dynamic panel data methods. The results show that multinational corporations, measured by data on foreign direct investment, had an economically relevant and statistically signicant positive impact on developing countries' net barter terms of trade. A higher level of education in the developing country fosters this eect.
    Keywords: Multinationals, FDI, Terms of Trade, Prebisch-Singer hypothesis
    JEL: C23 F23 O11
    Date: 2011–08–19

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