nep-dev New Economics Papers
on Development
Issue of 2012‒09‒16
six papers chosen by
Mark Lee
Towson University

  1. The Political Economy of Bilateral Foreign Aid By Eric Werker
  2. Loan regulation and child labor in rural India By Basab Dasgupta; Christian Zimmermann
  3. Wages and Informality in Developing Countries By Costas Meghir; Renata Narita; Jean-Marc Robin
  4. The rise and fall of (Chinese) African apparel exports By Lorenzo Rotunno; Pierre-Louis Vezina; Zheng Wang
  5. China as a Developmental State By John Knight
  6. Early-Life Health and Adult Circumstance in Developing Countries By Janet Currie; Tom Vogl

  1. By: Eric Werker (Harvard Business School, Business, Government and the International Economy Unit)
    Abstract: Kyrgyzstan is a landlocked, mountainous nation of five million people bordering three other landlocked former Soviet states and the remote Chinese province of Xinjiang. With the fall of the Soviet Union, Kyrgyzstan's production fell significantly, sending the economy back a generation to animal herding and cotton growing. Since the attacks of September 9, 2001, in the United States, however, there has been a new foreign-exchange earner, stemming from Russo-American competition over the use of an airfield-and the very allegiance of Kyrgyzstan itself. In preparation for its campaign in Afghanistan, the United States secured access to air fields in Kyrgyzstan and neighboring Uzbekistan with a mixture of foreign aid and infrastructure upgrading. However, in 2005, the United States was kicked out by the Uzbeks for criticizing a government-led massacre (Walsh, 2005; The Guardian), and the following year a new Kyrgyz government argued that the base contracts had disproportionately benefited cronies of the old regime. They demanded a 100-fold increase in "rent" from the base, to $200 million (Cooley, 2009; The New York Times).
    Date: 2012–09
  2. By: Basab Dasgupta; Christian Zimmermann
    Abstract: We study the impact of loan regulation in rural India on child labor with an overlapping-generations model of formal and informal lending, human capital accumulation, adverse selection, and differentiated risk types. Specifically, we build a model economy that replicates the current outcome with a loan rate cap and no lender discrimination by risk using a survey of rural lenders. Households borrow primarily from informal moneylenders and use child labor. Removing the rate cap and allowing lender discrimination markedly increases capital use, eliminates child labor, and improves welfare of all household types.
    Keywords: Loans ; Child labor ; India
    Date: 2012
  3. By: Costas Meghir (Cowles Foundation, Yale University); Renata Narita (World Bank); Jean-Marc Robin (Dept. of Economics, Sciences Po)
    Abstract: It is often argued that informal labor markets in developing countries promote growth by reducing the impact of regulation. On the other hand informality may reduce the amount of social protection offered to workers. We extend the wage-posting framework of Burdett and Mortensen (1998) to allow heterogeneous firms to decide whether to locate in the formal or the informal sector, as well as set wages. Workers engage in both off the job and on the job search. We estimate the model using Brazilian micro data and evaluate the labor market and welfare effects of policies towards informality.
    Keywords: Informality, Unemployment, Job search, Wage posting, Equilibrium wage distributions, On the job search, Method of moments
    JEL: J24 J3 J42 J6 O17
    Date: 2012–09
  4. By: Lorenzo Rotunno; Pierre-Louis Vezina; Zheng Wang
    Abstract: During the final years of the Multifiber Agreement the US imposed strict import quotas on Chinese apparel while it gave African apparel duty- and quota-free access. The combination of these policies led to a rapid but ephemeral rise of African exports. In this paper we argue that the African success can be explained by a temporary transhipment of Chinese apparel driven by quota-hopping Chinese assembly firms. We first provide a large body of anecdotal evidence on the Chinese apparel wave in African countries. Second, we show that Chinese apparel exports to African countries predict US imports from the same countries and in the same apparel categories but only where transhipment incentives are present, i.e. for products with binding quotas in the US and for countries with preferential access to the US unconstrained by rules of origin. Using input-output linkages, we then show that African countries imported quasi-finished products with little assembly work left to do, rather than primary textile inputs. We estimate that direct transhipment may account for around half of AGOA countries apparel exports.
    Keywords: Transhipment, AGOA, Multifiber agreement
    JEL: F13 O17 O19
    Date: 2012
  5. By: John Knight
    Abstract: The paper examines the notion of a ‘developmental state’ and shows that China possesses the characteristics of a developmental state. It explains the political economy which generated such a state in China and in some other economies. It analyses the methods and mechanisms that were introduced to create a developmental state, in particular the incentive structures that the leadership used to solve the principal-agent problem. These include personnel policies, fiscal decentralization, and patronage relationships. That leads to a review of its successes, limitations and adverse consequences, and to the question: can China’s developmental state be sustained? Conclusions are drawn for both China and other developing countries.
    Keywords: China; Developmental state; Economic growth; Incentives; Principal-agent problem; Virtuous circle
    JEL: B52 E02 O10 O53 P16 P26
    Date: 2012
  6. By: Janet Currie; Tom Vogl
    Abstract: A growing literature documents the links between long-term outcomes and health in the fetal period, infancy, and early childhood. Much of this literature focuses on rich countries, but researchers are increasingly taking advantage of new sources of data and identification to study the long reach of childhood health in developing countries. Health in early life may be a more significant determinant of adult outcomes in these countries because health insults are more frequent, the capacity to remediate is more limited, and multiple shocks may interact. However, the underlying relationships may also be more difficult to measure, given significant mortality selection. We survey recent evidence on the adult correlates of early-life health and the long-term effects of shocks due to disease, famine, malnutrition, pollution, and war.
    JEL: I12 I15 J24 O15
    Date: 2012–09

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