nep-dev New Economics Papers
on Development
Issue of 2012‒02‒27
seventeen papers chosen by
Mark Lee
Towson University

  1. Optimal Public Investment, Growth, and Consumption: Evidence from African Countries By Augustin Kwasi Fosu; Yoseph Yilma Getachew; Thomas Ziesemer
  2. Rainfall shocks, parental behavior and breastfeeding: evidence from rural Vietnam By Thuan Q. Thai; Mikko Myrskylä
  3. Inequality Trends and their Determinants: Latin America over 1990-2010 By Giovanni Andrea Cornia
  4. Productivity Volatility and the Misallocation of Resources in Developing Economies By Allan Collard-Wexler; John Asker; Jan De Loecker
  5. Persistent Impact of Natural Disasters on Child Nutrition and Schooling: Evidence from the 1999 Colombian Earthquake By Bustelo, Monserrat; Arends-Kuenning, Mary P.; Lucchetti, Leonardo
  6. Estimating the Impacts of Bolivia's Protected Areas on Poverty By Canavire Bacarreza, Gustavo Javier; Hanauer, Merlin M.
  7. Credit constraints and productive entrepreneurship in Africa By Mina Baliamoune-Lutz; Zuzana Brixiová; Léonce Ndikumana
  8. Chinese Investment in Latin American Resources: The Good, the Bad, and the Ugly By Barbara Kotschwar; Theodore H. Moran; Julia Muir
  9. Child labor, schooling and household wealth in African rural area: luxury axiom or wealth paradox By KOISSY KPEIN Sandrine
  10. Soil endowments, production technologies and missing women in India By Carranza, Eliana
  11. A tale of two species : revisiting the effect of registration reform on informal business owners in Mexico By Bruhn, Miriam
  12. Financing businesses in Africa : the role of microfinance By Aggarwal, Shilpa; Klapper, Leora; Singer, Dorothe
  13. Islamic inheritance law, son preference and fertility behavior of Muslim couples in Indonesia By Carranza, Eliana
  14. Effects of birth order and sibling sex composition on human capital investment in children in India By Makino, Momoe
  15. NAFTA and its Impact on Mexico By Aghion, Edouard
  16. Social inclusion and the emergence of development traps By Vincenzo Lombardo
  17. The dynamics of inequality change in a highly dualistic economy: Honduras, 1991-2007 By Stephan Klasen; Thomas Otter; Carlos Villalobos

  1. By: Augustin Kwasi Fosu (UNU-WIDER); Yoseph Yilma Getachew (Durham Business School); Thomas Ziesemer (Maastricht University)
    Abstract: How much does public capital matter for economic growth? How large should it be? This paper attempts to answer these questions, taking the case of SSA countries. It develops and estimates a model that posits a nonlinear relationship between public investment and growth, to determine the growth-maximizing public investment GDP share. It empirically also accounts for the crowding-in and crowding-out effects between public and private investment, with equations estimated separately and simultaneously, using System GMM. The paper further runs simulation and examines the public investment GDP share that maximizes consumption. This is estimated to be between 8.4 percent and 11.0 percent. The results from estimating the growth model are in the middle of this range, which is larger than the observed value of 7.2 percent at the end of the sample period. These outcomes suggest that, on average, there has been public under-investment in Africa, contrary to previous findings
    Keywords: Public investment; Economic Growth; Nonlinearity
    JEL: H4
    Date: 2012–02–19
  2. By: Thuan Q. Thai (Max Planck Institute for Demographic Research, Rostock, Germany); Mikko Myrskylä (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: In developing countries, rainfall shocks around the time of birth have been shown decrease later health. The mechanism is unknown, but could run through income shocks, disease exposure, or increasing opportunity cost of parental time which influences parenting behavior. We use the Vietnam Demographic Health Surveys to study how rainfall shocks around the birth year influence a key dimension of parental behavior, breastfeeding. Consistent with the opportunity cost of time theory, rainfall reduces breastfeeding: 25% excess rainfall in the birth year decreases the proportion that is breastfed more than a year by 11 percentage points. The effect is particularly strong among farming families, for whom rainfall increases the opportunity cost of time through labor demand. These results are the first to shed light on the mechanism linking rainfall shocks and child health. Policy aiming to improve child health through breastfeeding should focus on the impact of labor demand on breastfeeding.
    Keywords: Vietnam, breast feeding, cost of children
    JEL: J1 Z0
    Date: 2012–02
  3. By: Giovanni Andrea Cornia (Università degli Studi di Firenze, Dipartimento di Scienze Economiche)
    Abstract: The paper reviews the steady and widespread decline in income inequality which has taken place in most of Latin America over 2002-10 and which––if continued for another 2-3 years––would reduce the average regional income inequality to pre-liberalization levels. The paper then focuses on the factors, which may explain such inequality decline. A review of the literature and an econometric test indicate that a few complementary factors played an important role in this regard, including a drop in the skill premium following a rapid expansion of secondary education, and the adoption of a new development model by a growing number of left-of-centre governments which emphasizes fiscally-prudent but more equitable macroeconomic, tax, social expenditure and labour policies. For the region as a whole, improvements in terms of trade, migrant remittances, FDI and world growth played a less important role than expected although their impact was perceptible in countries where such transactions were sizeable.
    Keywords: income inequality, human capital inequality, policy regimes, external conditions, Latin America
    JEL: D31 E6 H53 I28 I38
    Date: 2012
  4. By: Allan Collard-Wexler; John Asker; Jan De Loecker
    Date: 2011
  5. By: Bustelo, Monserrat (Inter-American Development Bank); Arends-Kuenning, Mary P. (University of Illinois at Urbana-Champaign); Lucchetti, Leonardo (World Bank)
    Abstract: This paper studies the impact of the 1999 Colombian Earthquake on child nutrition and schooling. The identification strategy combines household survey data with event data on the timing and location of the earthquake, exploiting the exogenous exposure of children to the shock. The paper uniquely identifies both the short- and medium-term impacts of the earthquake, combining two cross-sectional household surveys collected before the earthquake and two cross-sectional household surveys collected one and six years after the earthquake. Colombia provides a unique setting for our study because the government launched a very successful reconstruction program after the earthquake. Findings report a strong negative impact of the earthquake on child nutrition and schooling in the short-term. Relevantly, amid the aid received by the affected area, the negative consequences of the earthquake persist with a lesser degree in the medium-term, particularly for boys.
    Keywords: child nutrition, child schooling, natural disaster, earthquake, Colombia
    JEL: J22 I25 Q54
    Date: 2012–02
  6. By: Canavire Bacarreza, Gustavo Javier (Georgia State University); Hanauer, Merlin M. (Sonoma State University)
    Abstract: Protected areas represent a powerful policy tool for the preservation of ecosystems and their services. The rapid proliferation of protected areas in Bolivia over the past several decades has prompted interest in understanding their impacts on surrounding populations. Recent studies from other developing countries show that protected areas have had positive impacts on poverty. Using rich biophysical and socioeconomic data from Bolivia we find that municipalities with at least 10% of their area occupied by a protected area established between 1992 and 2000 exhibited differentially greater levels of poverty reduction between 1992 and 2001 compared to similar municipalities unaffected by protected areas. We find that our results are robust to a number of econometric specifications, spillover analyses and a placebo study. Although our overarching results that Bolivia's protected areas were associated with poverty reduction are similar to previous studies, our underlying results differ subtly, but significantly. Previous studies found that controlling for key observable covariates led to fundamentally antithetical results compared to naïve (uncontrolled) estimates. Conversely, our results indicate that naïve estimates lead to an over estimation of the poverty reducing impacts of protected areas. Our results expose the heterogeneity of protected area impacts across countries and, therefore, underscore the importance of country-level impact evaluations in order to build the global knowledge base regarding the socioeconomic impacts of protected areas.
    Keywords: ecosystems, poverty, protected areas, impacts, program evaluation, econometrics, Bolivia
    JEL: C14 I38 Q56
    Date: 2012–02
  7. By: Mina Baliamoune-Lutz; Zuzana Brixiová; Léonce Ndikumana
    Abstract: Limited access of entrepreneurs to credit constrains the creation and growth of private firms. In Africa, access to credit is particularly limited for small and medium enterprises (SMEs) due to unclear property rights and the lack of assets that can be used as collateral. This paper presents a model where firm creation and growth hinge on matching potential entrepreneurs with productive technologies, while firm growth depends on acquired capital. The shortage of collateral creates a binding credit constraint on borrowing by SMEs and hence private sector growth and employment, even though the banking sectors have ample liquidity, as is the case in many African countries. The model is tested using a sample of 20 African countries over the period 2005-09. The empirical results suggest that policies aimed at easing the binding credit constraints (e.g., the depth of credit information and the strength of legal rights pertaining to collateral and bankruptcy) would stimulate productive entrepreneurship and private sector employment in Africa.
    Keywords: credit constraints; productive entrepreneurship; employment, policies
    JEL: G21 L26 D24
    Date: 2012–01
  8. By: Barbara Kotschwar (Peterson Institute for International Economics); Theodore H. Moran (Peterson Institute for International Economics); Julia Muir (Peterson Institute for International Economics)
    Abstract: China's need for vast amounts of minerals to sustain its high economic growth rate has led Chinese investors to acquire stakes in natural resource companies, extend loans to mining and petroleum investors, and write long-term procurement contracts for oil and minerals in Africa, Latin America, Australia, Canada, and other resource-rich regions. These efforts to procure raw materials might be exacerbating the problems of strong demand; "locking up" natural resource supplies, gaining preferential access to available output, and extending control over the world's extractive industries. But Chinese investment need not have a zero-sum effect if Chinese procurement arrangements expand, diversify, and make more competitive the global supplier system. Previous Peterson Institute research (see Moran 2010) and new research undertaken in this paper, show that the majority of Chinese investments and procurement arrangements serve to help diversify and make more competitive the portion of the world natural resource base located in Latin America. For a more comprehensive analysis, we conduct a structured comparison of four Peruvian mines with foreign ownership: two Organization for Economic Cooperation and Development-based, and two Chinese. We examine what conditions or policy measures are most effective in inducing Chinese investors to adopt international industry standards and best-practices, and which are not. We distill from this case study some lessons for other countries in Latin America, Africa, and elsewhere that intend to use Chinese investment to develop their extractive sectors: first, that financial markets bring accountability; second, that the host country regulatory environment makes a significant difference; and third, that foreign investment is a catalyst for change.
    Keywords: Chinese foreign direct investment, foreign direct investment (FDI), natural resources, Peru, environmental impact, corporate social responsibility.
    JEL: F14 F16 F21 F22 F59 O16 O54 Q31 Q32 Q34 Q38
    Date: 2012–02
  9. By: KOISSY KPEIN Sandrine
    Abstract: This work uses MVPROBIT model and MICS surveys from rural areas of 8 sub-Saharan African countries to highlight the link between household wealth and child labor. It opposes “wealth paradox” approach of Bhalotra and Heady (2003) to “luxury axiom” approach of Basu and Van (1998). Our analysis is based on the assumption of differences in the wealth’s effect according to the gender and the type of labor. The results suggest that heterogeneity among children (gender) and labor activities leads to heterogeneous rules concerning the link between child labor and household wealth.
    Keywords: child labor; schooling; luxury axiom; wealth paradox
    Date: 2012–02
  10. By: Carranza, Eliana
    Abstract: The female population deficit in India has been explained in a number of ways, but the great heterogeneity in the deficit across districts within India still remains an open question. This paper argues that across India, a largely agrarian economy, soil texture varies exogenously and determines the workability of the soil and the technology used in land preparation. Deep tillage, possible only in lighter and looser loamy soils, reduces the use of labor in cultivation tasks performed by women and has a negative impact on the relative value of girls to a household. The analysis finds that soil texture explains a large part of the variation in women's relative participation in agriculture and in infant sex ratios across districts in India.
    Keywords: Labor Markets,Common Property Resource Development,Population Policies,Crops&Crop Management Systems,Labor Policies
    Date: 2012–02–01
  11. By: Bruhn, Miriam
    Abstract: Different views have been put forward to explain why most firms in developing countries operate informally. One view argues that informal-business owners are entrepreneurs who do not register their firm because the regulation process is too complex. Another argues that informal-business owners are people trying to make a living while searching for a wage job. This paper contributes to recent literature that argues that both factors are at work. The author uses discriminant analysis to separate informal business owners into two groups: those with personal characteristics similar to wage workers, and those with traits similar to formal-business owners. The paper then examines how the two groups were affected by a business registration reform in Mexico. Informal-business owners from the second group were more likely to register their business after the reform. By contrast, informal-business owners from the first group were less likely to register but more likely to become wage workers after the reform. This is consistent with the finding in Bruhn (2008 and 2011) that the reform led to job creation. It also explains why the earlier papers find that the reform didn’t affect the number of new registrations by all informal business owners.
    Keywords: Competitiveness and Competition Policy,Business in Development,Business Environment,E-Business,Access to Finance
    Date: 2012–02–01
  12. By: Aggarwal, Shilpa; Klapper, Leora; Singer, Dorothe
    Abstract: This paper evaluates how microfinance performed in providing business financing in 27 Sub-Saharan African countries. It uses data from the 2009 and 2010 Gallup World Poll, a nationally-representative survey of at least 1,000 individuals per country, conducted in up to 157 countries per year. The data, supported by rigorous statistical evidence in related literature on the use of microcredit around the world, demonstrate that economic gains from microcredit have been more modest than what was once believed. On the other hand, the analysis suggests that the poor save in order to start new businesses and that the introduction of formal products for small savings can be a key financial innovation. The authors also analyze the challenges the poor face in setting money aside to save, and discuss what policymakers can do to promote savings.
    Keywords: Access to Finance,Banks&Banking Reform,Debt Markets,Financial Intermediation,Emerging Markets
    Date: 2012–02–01
  13. By: Carranza, Eliana
    Abstract: This paper examines whether the son preference and fertility behavior of Muslim couples respond to the risk of inheritance expropriation by their extended family. According to traditional Islamic inheritance principles, only the son of a deceased man can exclude his male agnates from inheritance and preserve his estate within the nuclear household. The paper exploits cross-sectional and time variation in the application of the Islamic inheritance exclusion rule in Indonesia: between Muslim and non-Muslim populations affected by different legal systems, across men with different sibling sex composition, and before and after a change in Islamic law that allowed female children to exclude male relatives. The analysis finds that Muslim couples more affected by the exclusion rule exhibit stronger son preference, practice sex-differential fertility stopping, attain a higher proportion of sons, and have larger families than non-Muslims or Muslims for whom the exclusion rule is less binding.
    Keywords: Population Policies,Gender and Law,Population&Development,Adolescent Health,Social Inclusion&Institutions
    Date: 2012–02–01
  14. By: Makino, Momoe
    Abstract: The paper explores the effects of birth order and sibling sex composition on human capital investment in children in India using the Indian Human Development Survey (IHDS). Endogeneity of fertility is addressed using instruments and controlling for household fixed effects. Family size effect is also distinguished from the sibling sex composition effect. Previous literature has often failed to take endogeneity into account and shows a negative birth order effect for girls in India. Once endogeneity of fertility is addressed, there is no evidence for a negative birth order effect or sibling sex composition effect for girls. Results show that boys are worse off in households that have a higher proportion of boys specifically when they have older brothers.
    Keywords: India, Fertility, Family planning, Household, Birth order, Sibling sex composition, Household resource allocation
    JEL: J13 J16 O12 O53
    Date: 2012–01
  15. By: Aghion, Edouard
    Abstract: The principal objective of a free trade agreement between two or more countries is to increase efficiency. As the well-known Heckscher-Ohlin (1933) theorem suggests, by going from autarky to free trade, the countries involved will tend to specialize in the production of those goods and services that each country has a comparative advantage in, and this will lead to increased efficiency and welfare. This paper analyzes how the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico has created efficiency and welfare in Mexico, as it has been argued that NAFTA has been both advantageous as well as disadvantageous for Mexico. In sum, this paper investigates which particular sectors of Mexico’s economy benefitted from and were injured by NAFTA, while taking into account macroeconomic indicators such as GDP growth, Foreign Direct Investment (FDI) flows, volume of trade, wage inequalities and education, as most studies have found the net economic effects of NAFTA on Mexico to be ambiguous.
    Keywords: NAFTA; Mexico; growth; TFP; World Trade Organization
    JEL: F13 F14 F1
    Date: 2011–12–12
  16. By: Vincenzo Lombardo (-)
    Abstract: This paper argues that individual concerns for relative position contribute to the emergence of development traps. It demonstrates that changes in the mean and the distribution of income qualitatively modify individual reference groups by affecting the magnitude of the reference standard. Over time, this effect influences the dynamical transition of within-dynasty incomes and drives the emergence of development traps. In particular, an increase in mean income and a reduction of inequality cause an increase in the reference standard, inducing, in the long-run, the transition from a Solovian-type stage to a development traps regime as agents need to sacrifice relatively more resources in order to keep up with the reference group.
    Keywords: Social inclusion, keeping up with the Joneses, development traps, unified growth theory.
    JEL: D31 D91 O15 O40
    Date: 2012–02–20
  17. By: Stephan Klasen (University ot Goettingen / Germany); Thomas Otter; Carlos Villalobos (University of Goettingen / Germany)
    Abstract: We examine the drivers of inequality change in Honduras between 1991-2007, trying to understand why inequality increased in Honduras until 2005, while it was falling in most other Latin American countries. Using annual household surveys, we document first rising inequality between 1991-2005, which is followed by falling inequality thereafter. Using an inequality decomposition technique, we show that the rising inequality between 1991 and 2005 was, for the most part, driven by the dispersion of labour incomes in rural areas. We also show that the extraordinary labour earnings disequalization is mainly the result of a widening wage gap between the tradable and non-tradable sectors and occupations, combined with highly segmented labor markets and poor overall educational progress. The underlying determinants of the divergence between tradable and non-tradable sectors were highly overvalued currencies and poor commodity process for Honduras’ agricultural exports. Between 2005 and 2007, however, the inequality reduction was a result of equalizing trends in labour and non-labour incomes. The commodity boom promoting the tradable sector and remittances (in this order) played a significant role here, with government transfers playing a small supporting role. Since the decline in inequality is largely driven by international factors, we cannot be sure whether the decline in inequality will continue.
    Keywords: Inequality, Decomposition, Education, Wages, Honduras, Migration
    JEL: C15 D31 I21 J23 J31 R23 J31 J61
    Date: 2012–02–17

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