nep-dev New Economics Papers
on Development
Issue of 2012‒05‒08
twenty-two papers chosen by
Mark Lee
Towson University

  2. Whither Human Capital? The Woeful Tale of Transition to Tertiary Education in India By Sumon Bhaumik; Manisha Chakrabarty
  3. Do Developing Countries Benefit from Foreign Direct Investments? By Weshah Razzak; Elmostafa Bentour
  4. Institutions, Economics and the Development Quest By Duarte N. Leite; Sandra T. Silva; Óscar Afonso
  5. Who receives Australian aid and Why? By Satish Chand
  6. Self-Employment, Wage Employment and Informality in a Developing Economy By John Bennett; Matthew Rablen
  7. Changes in China's Wage Structure By Ge, Suqin; Yang, Dennis Tao
  8. Land Use Rights, Market Transitions, and Labor Policy Change in China (1980-4) By Chen, Yiu Por (Vincent)
  9. Distortions in the International Migrant Labor Market: Evidence from Filipino Migration and Wage Responses to Destination Country Economic Shocks By McKenzie, David; Theoharides, Caroline; Yang, Dean
  10. Does Access to Secondary Education Affect Primary Schooling? Evidence from India By Mukhopadhyay, Abhiroop; Sahoo, Soham
  11. Internal vs. International Migration: Impacts of Remittances on Child Well-Being in Vietnam By Binci, Michele; Giannelli, Gianna Claudia
  12. The Impact of HIV/AIDS on Foreign Direct Investment: Evidence from Sub-Saharan Africa By Elizabeth Asiedu; Yi Jin; Isaac Kalonda-Kanyama
  13. Household-level Recovery after Floods in a Developing Country: Further Evidence from Khyber Pakhtunkhwa, Pakistan By Kurosaki, Takashi; Khan, Humayun; Shah, Mir Kalan; Tahir, Muhammad
  14. The Probability of Military Rule in Africa, 1970-2007 By Jacopo Costa; Raul Caruso; Roberto Ricciuti
  15. 2012-15 Does finance matter for growth in the small, open Pacific Island Countries? By Parmendra Sharma, Neelesh Gounder
  16. Financial Consequences of Ill Health and Informal Coping Mechanisms in Indonesia By Robert Sparrow; Ellen Van de Poel; Gracia Hadiwidjaja; Athia Yumna; Nila Warda; Asep Suryahadi
  17. Agriculture, Structural Change and Socially Responsible Development in China and Vietnam By Tisdell, Clement A.
  18. The returns to private education: evidence from Mexico By Chiara Binelli; Marta Rubio Codina
  19. Market Intergration and Border Effects in Eastern Africa By Bruno Versailles
  20. Media Freedom and Democracy: Complements or Substitutes in the Fight against Corruption? By Sambit Bhattacharyya; Roland Hodler
  21. Resolving the African Financial Development Gap: Cross-Country Comparisons and a Within-Country Study of Kenya By Franklin Allen; Elena Carletti; Robert Cull; Jun Qian; Lemma Senbet; Patricio Valenzuela
  22. The demand for, and consequences of, formalization among informal firms in Sri Lanka By Suresh De Mel; David McKenzie; Christopher Woodruff

  1. By: Fabrizio Carmignani; Abdur Chowdhury
    Abstract: Despite the recent growth resurgence, Sub-Saharan Africa (SSA) remains the poorest region in the world. At the same time, it is a region that heavily relies on natural resources. In this paper we investigate the extent to which the second fact helps explain the first one. The distinctive feature of our study is that we take a geographical perspective and allow the effect of natural resources to differ across regions of the world. Our findings suggest that (i) the effect of natural resource intensity on per-capita income is positive and significant in general, but almost negligible and possibly negative in SSA, (ii) natural resources have a negative effect on institutional quality in SSA only, (iii) natural resources hinder human capital accumulation in SSA much more than anywhere else, and (iv) the combination of bad disease environments and large resource endowments accounts for most of the observed cross-regional differences in the effect of natural resources.
    Keywords: Development, Sub-Saharan Africa, natural resources, disease, institutions,human capital
    JEL: O11 O55 Q28
    Date: 2011–11–01
  2. By: Sumon Bhaumik; Manisha Chakrabarty
    Abstract: In this paper we examine the issue of high dropout rates in India which has adverse implications for human capital formation, and hence for the country’s long term growth potential. Using the 2004-05 National Sample Survey employment-unemployment survey data, we estimate transition probabilities of moving from a number of different educational levels to higher educational levels using a sequential logit model. Our results suggest that the overall probability of reaching tertiary education is very low. Further, even by the woeful overall standards, women are significantly worse-off, particularly in rural areas.
    Keywords: Education; Transitional probability; India
    JEL: I21
    Date: 2011–07–01
  3. By: Weshah Razzak; Elmostafa Bentour
    Abstract: In addition to the wide believed positive effects on growth, employment and wages, FDIs are often perceived as sources of funds for development. Developing countries, especially low income and emerging economies, welcome FDIs because of their favorable budgetary implications. All that resulted in increasing global FDIs. We discuss some specification and estimation problems that might affect the estimation of the rate of returns on FDI, and provide new figures for a number of FDI-receiving Arab countries. We compare the results to those of some Asian countries, and discuss the policy implications. There is evidence that Arab countries have, relatively, benefited from their efforts to open their economies, to reform their institutions and to attract FDIs.
    Keywords: Rate of return on FDI, estimation and specification problems, panel data
    JEL: C13 C14 C21 C23 C26 O24
    Date: 2012–04–07
  4. By: Duarte N. Leite (CEF-UP (Center for Economics and Finance at UP), FEP (Faculdade de Economia da Universidade do Porto); Sandra T. Silva (CEF-UP (Center for Economics and Finance at UP), FEP (Faculdade de Economia da Universidade do Porto); Óscar Afonso (CEF-UP (Center for Economics and Finance at UP), FEP (Faculdade de Economia da Universidade do Porto)
    Abstract: Institutions, crucial for the analysis of how agents deal with uncertainty, have been gaining increasing relevance on the Economic research agenda. In this paper, we analyze the institutional literature that provides insights into different research fields, aiming to explain why this perspective obtains better results than others, in the field of growth and Development Economics. In particular, we stress the relevance of New Institutional Economics as an adequate framework for a broad understanding of development issues.
    Keywords: Institutions; Institutional change, Economic development
    JEL: B52 O1 D23
    Date: 2012–04
  5. By: Satish Chand (University of New South Wales, ADFA)
    Abstract: The bulk of official development assistance (ODA) from Australia is provided to Asia and Oceania. Indonesia and Papua New Guinea together account for nearly a quarter of the total. Physical proximity to Canberra and large receipts of bilateral aid from the United States is a significant determinant of who receives this aid. The level of poverty is (statistically) a significant determinant of aid allocated by Canberra only after recipients have been chosen.
    Keywords: aid
    JEL: O19
    Date: 2011–07
  6. By: John Bennett; Matthew Rablen
    Abstract: We construct a simple model incorporating various urban labour market phenomena obtaining in developing economies. Our initial formulation assumes an integrated labour market and allows for entrepreneurship, self-employment and wage employment. We then introduce labour market segmentation. In equilibrium voluntary and involuntary sel-employment, formal and informal wage employment, and formal and informal and informal entrepreneurship may all coexist. We illustrate the model by an example calibrated on Latin American data, examining individual labour market transitions and implications of education/training and labour market policies. To diminish informality, cutting the costs of formality is more effective than raising those of informality.
    Date: 2012–03
  7. By: Ge, Suqin (Virginia Tech); Yang, Dennis Tao (Chinese University of Hong Kong)
    Abstract: Using a national sample of Urban Household Surveys, we document several profound changes in China's wage structure during a period of rapid economic growth. Between 1992 and 2007, the average real wage increased by 202 percent, accompanied by a sharp rise in wage inequality. Decomposition analysis reveals 80 percent of this wage growth to be attributable to higher pay for basic labor, rising returns to human capital, and increases in the state-sector wage premium. Employing an aggregate production function framework, we account for the sources of wage growth and wage inequality in the face of globalization and economic transition. We find capital accumulation, skill-biased technological change, and export expansion to be the major forces behind the evolving wage structure in China.
    Keywords: wage growth, wage premium, wage inequality, capital accumulation, trade expansion, technological change, China
    JEL: J31 E24 O40
    Date: 2012–04
  8. By: Chen, Yiu Por (Vincent) (University of Sheffield)
    Abstract: This paper provides a systematic analysis of the way shifts in property utilization rights in China induced another sequence of institutional changes that led to the rise of rural-urban labor migration from 1980 to 1984, a critical period in the country's market transition. I show that the 1980s' Household Responsibility System (HRS), which brought family farming back from the communal system, endowed rural households not only with land use rights, but also with de facto labor allocation rights. These shifts in property relations promoted a growth in agricultural market size as well as the emergence of intraprovincial non-hukou rural-urban migration, which may have made labor retention policies such as the small township strategy ineffective, and may have given the government an incentive to deregulate its subsequent labor market policy.
    Keywords: rural-urban migration, labor mobility, undocumented labor, institutional change
    JEL: J43 J61 R23 R52 R58
    Date: 2012–04
  9. By: McKenzie, David (World Bank); Theoharides, Caroline (University of Michigan); Yang, Dean (University of Michigan)
    Abstract: We use an original panel dataset of migrant departures from the Philippines to identify the responsiveness of migrant numbers and wages to GDP shocks in destination countries. We find a large significant elasticity of migrant numbers to GDP shocks at destination, but no significant wage response. This is consistent with binding minimum wages for migrant labor. This result implies that labor market imperfections that make international migration attractive also make migrant flows more sensitive to global business cycles. Difference-in-differences analysis of a minimum wage change for maids confirms that minimum wages bind and demand is price sensitive without these distortions.
    Keywords: international migration, migrant demand, labor output elasticity, minimum wages
    JEL: O12 J23 F22
    Date: 2012–04
  10. By: Mukhopadhyay, Abhiroop (Indian Statistical Institute); Sahoo, Soham (Indian Statistical Institute)
    Abstract: This paper investigates if better access to secondary education increases enrolment in primary schools among children in the 6-10 age group. Using a household-level longitudinal survey covering 43 villages in a poor state in India, we find support for the hypothesis that better access to secondary education increases enrolment and attendance among children in the primary school-going age group. A 1 km decrease in the distance to the nearest secondary school increases the proportion of children in a household who are enroled in primary school by 6.5 percentage points. These results do not change significantly even after we account for endogenous placement of secondary schools and measurement error issues. Moreover, we find that the effect is consistent with what theory predicts: the marginal effect is larger for poorer households and boys (who are more likely to enter the labour force). Further, using a nationally representative survey for India (National Sample Survey 2007-08), we also provide some suggestive evidence that this effect may be quite widespread. This result gives support to the assertion that if the costs of post primary schooling are too high, as they would be if secondary schools are far away, parents have lesser interest in their children's education even at the primary stage.
    Keywords: primary schooling, returns to schooling, post primary schooling
    JEL: I2 I20 I21
    Date: 2012–04
  11. By: Binci, Michele (University of Florence); Giannelli, Gianna Claudia (University of Florence)
    Abstract: This paper focuses on the effects of domestic and international remittances on children's well-being. Using data from the 1992/93 and 1997/98 Vietnam Living Standards Surveys, we investigate average school attendance and child labour in remittance recipient and non-recipient households. The results of our cross-section and panel analyses indicate that remittances increase schooling and reduce child labour. Although international remittances are found to have a stronger beneficial impact than domestic remittances in the cross-section analysis, the panel analysis reverses this result, showing that the only significant impact stems from domestic remittances.
    Keywords: migration, remittances, schooling, child labour, panel data, Vietnam
    JEL: F22 I39 J13 O15
    Date: 2012–04
  12. By: Elizabeth Asiedu (Department of Economics, The University of Kansas); Yi Jin (Department of Economics, Monash University); Isaac Kalonda-Kanyama (Department of Economics, The University of Kansas)
    Abstract: We employ panel data from 40 countries in sub-Saharan Africa over the period 1990-2008 to examine whether HIV/AIDS has a causal effect on FDI. We find that HIV/AIDS has a negative but diminishing effect on FDI, and this adverse effect occurs even when the HIV prevalent rate is as low as 0.1 percent. The empirical result is then rationalized by a simple theoretical model.
    Keywords: Foreign Direct Investment, HIV/AIDS.
    JEL: F34 F35 I20 O19
    Date: 2012–04
  13. By: Kurosaki, Takashi; Khan, Humayun; Shah, Mir Kalan; Tahir, Muhammad
    Abstract: Based on a second survey of villages and households one year after a pilot survey, we analyze the household-level recovery process from damage due to floods in Pakistan in 2010. With regard to initial recovery from flood damage, we find that households who had initially fewer assets and were hit by greater flood damage had more difficulty in recovering. After one year, the overall recovery had improved, but there remained substantial variation across households regarding the extent of recovery. Initially rich households were associated with faster recovery than other households at the time of the second survey, but the speed of recovery declined during the most recent year. The overall pattern appears to indicate that the village economy was turning towards the initial regime, where the income distribution was characterized by a large mass of households whose welfare and asset levels were around the income poverty line and a small middle class of households whose asset levels were sufficiently high to ensure a welfare level above the poverty line.
    Keywords: natural disaster, recovery, resilience, Pakistan
    JEL: O12 D12 D91
    Date: 2012–04
  14. By: Jacopo Costa (; Raul Caruso (; Roberto Ricciuti (Department of Economics (University of Verona))
    Abstract: In this paper we empirically analyze the socio-economic determinants of the existence of military dictatorships in Africa. A recent literature in political economy analyses the relationship between the civil undemocratic government and the military as an agency problem: the civilian government needs the army to avoid internal violence, but a larger army reduces the opportunity-cost for the military to run a coup d’état and seize power. These papers derive three main causes of military rule: income inequality, ethnic fractionalization, and external threat. We empirically analyze these issues by estimating the probability that a country experiences a military rule. We consider 48 African countries over the period 1970-2007.
    Keywords: dictatorship, Africa
    JEL: D74 P48 Q34
    Date: 2012–05
  15. By: Parmendra Sharma, Neelesh Gounder
    Keywords: Finance, economic growth, Pacific Island Countries, panel data
    JEL: G00 C23
  16. By: Robert Sparrow; Ellen Van de Poel; Gracia Hadiwidjaja; Athia Yumna; Nila Warda; Asep Suryahadi
    Abstract: We assess the financial risk of ill health for households in Indonesia, the role of informal coping strategies, and the effectiveness of these strategies in smoothing consumption. Based on household panel data, we find evidence of financial risk from illness through medical expenses, while income from informal wage labour is exposed to risk for the poor and income from self-employed business activities for the non-poor. However, this lead to imperfect consumption smoothing only for the rural population and the poorest quartile; the non-poor seem to be able to maintain current spending. Borrowing and drawing on buffers, such as savings and assets, seem to be key informal coping strategies for the poor, which infers potential negative long term effects. While these results suggest scope for public intervention, the financial risk from income loss for the rural poor is beyond public health care financing reforms. Rather, formal sector employment, which reduces income risks, seems to be a key instrument for financial protection from illness.
    Keywords: Illness, income, consumption smoothing, coping strategies, Indonesia
    JEL: O15 I15
    Date: 2012
  17. By: Tisdell, Clement A.
    Abstract: The gradualism of economic reforms in China and Vietnam (especially in China, which has led the way in this regard) has been commented on favourably by many analysts studying transitional economies. Early market reforms in China and Vietnam were constrained by political considerations and consequently, began in agriculture and in China’s case, in rural areas with the development of town-and-village enterprises as well. It is argued that at the time when the reforms began, they were socially responsible. However, they have created a legacy which has resulted in agricultural land disputes and many town-and-village enterprises now face new economic challenges resulting in social conflict as the structure of China’s economy alters and greater market competition occurs. A further relevant policy issue which is discussed is whether commercial industrialised farming should be encouraged at the expense of the existing predominantly small-scale household farming in China and Vietnam. At present, titles to agricultural land continue to be held by village councils and villagers only have conditional user rights to the land allocated to them. These rights can be taken away by village councils and the use of the land involved can be reallocated which has been increasingly necessary with structural economic change in China and Vietnam. Some villagers believe that their land is taken unfairly and that they are not adequately compensated for its loss. Why this problem exists and the difficulties of solving it are given particular consideration
    Keywords: China, commercialisation of agriculture, economic reform, land rights, town-and-village enterprises, transitional economies, Vietnam., Community/Rural/Urban Development, Environmental Economics and Policy, Farm Management, International Relations/Trade, Political Economy, P21, P25, P31, P32,
    Date: 2012–04
  18. By: Chiara Binelli (Institute for Fiscal Studies and University of Southampton); Marta Rubio Codina (Institute for Fiscal Studies)
    Abstract: Despite the rapid expansion and increasing importance of private education in developing countries, very little is known about the impact of studying in private schools on educational attainment and wages. This paper contributes to fiÂ…lling this gap by estimating the returns to private high schools in Mexico. We construct a unique dataset that combines labor market outcomes and historical school census data, and we exploit changes in the availability and size of public and private high schools across states and over time for identiÂ…cation. We Â…nd substantial evidence of a positive effect of studying in a private high school on wages after college graduation, and we discuss alternative mechanisms that can explain this Â…finding.
    Keywords: The Market Returns to Private High Schools: Evidence from Mexico
    JEL: J31 J24 C36
    Date: 2012–04
  19. By: Bruno Versailles
    Abstract: This paper studies border efects in Eastern Africa by exploiting a consumer price data set covering 4 out of 5 EAC member states, 39 cities and 24 goods over the period 2004-2008. The Law-of-One-Price (LOP) is tested by running level regressions on relative prices with city-pairs the unit of observation. Unsurprisingly, distance plays an important role in explaining relative price movements, both within and between countries. The border efect as measured by the coefficient on a border dummy is significant but smaller compared to what is usually found in the EngelRogers literature. Consequently, distance equivalents, at 300 to 6,000 km, are much lower (and more reasonable) than what most papers working in the Engel-Rogers tradition find. Neither the significance nor the size of the border efect is reduced by allowing for nominal exchange rate variation or non-tarifbarriers. The nominal exchange rate pass through is very high across the region, but lower for country-pairs that include Kenya. The advent of the Customs Union in 2005 improved market integration, as measured by a reduced border efect between 2004 and 2008, but only between Kenya and Uganda. This makes sense as Rwanda and Burundi only joined the EAC in 2007. Further, larger departures from the LOP are found during the Kenyan political crisis as regional markets were disrupted. When splicing the data across goods, staple markets are by far the most integrated with the lowest border efects and the lowest distance coefficients. Non-Trade barriers are most important for fruits and vegetables, which could be linked to these goods being perishable. Non-food items show the largest departures from the LOP, which can be attributed to these goods (i) being less comparable, and (ii) being less present in the consumption baskets of the average Eastern African households (i.e. less deep markets).
    Date: 2012
  20. By: Sambit Bhattacharyya; Roland Hodler
    Abstract: Democracy and media freedom have been suggested as useful tools in the fight against political corruption, but so far their interplay in this fight has received scant attention. We present a game theoretic model which predicts that the corruption-reducing effect of democracy becomes stronger as media freedom increases. Using panel data covering the period 1980-2008 and 126 countries, we find empirical support for this prediction. Our main results hold when we control for the effects of income, time varying common shocks, regional fixed effects and various additional covariates. The complementarity between democracy and media freedom in the fight against corruption is also supported by Indian state level data.
    Keywords: Corruption; political institutions; democracy; media freedom
    JEL: D72 D73 H11
    Date: 2012
  21. By: Franklin Allen; Elena Carletti; Robert Cull; Jun Qian; Lemma Senbet; Patricio Valenzuela
    Abstract: With extensive country- and firm-level data sets we first document that the financial sectors of most sub-Saharan African countries remain significantly underdeveloped by the standards of other developing countries. We also find that population density appears to be considerably more important for banking sector development in Africa than elsewhere. To better understand how countries can overcome the high costs of developing viable banking sectors outside large metropolitan areas, we focus on Kenya, which has made significant strides in financial inclusion and development in recent years. We find a positive and significant impact of Equity Bank, a leading private commercial bank on financial access, especially for under-privileged households. Equity Bank’s business model—providing financial services to population segments typically ignored by traditional commercial banks and generating sustainable profits in the process—can be a potential solution to the financial access problem that has hindered the development of inclusive financial sectors in many other African countries.
    JEL: G0 K0 O5
    Date: 2012–04
  22. By: Suresh De Mel; David McKenzie; Christopher Woodruff
    Abstract: We conduct a field experiment in Sri Lanka providing informal firms incentives to formalize. Information about the registration process and reimbursement of direct costs has no effect. Payments equivalent to one-half to one month (alternatively, 2 months) of the median firm’s profits leads to registration of around one-fifth (alternatively, one-half) of firms. Land ownership issues are the most common reason for not registering. Follow-up surveys 15 to 31 months later show higher mean profits, but largely in a few firms which grew rapidly. We find little evidence for other changes in behavior, but formalized firms express more trust in the state.
    JEL: O14 O17
    Date: 2012–04

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