nep-dev New Economics Papers
on Development
Issue of 2012‒10‒20
seventeen papers chosen by
Mark Lee
Towson University

  1. Intra-Provincial Inequality in China: An Analysis of County-Level Data By Tsun Se Cheong; Yanrui Wu
  2. Regional Disparity, Transitional Dynamics and Convergence in China By Tsun Se Cheong; Yanrui Wu
  3. The Patterns of Regional Inequality in China By Tsun Se Cheong
  4. Child Education and the Family Income Gradient in China By Paul Frijters; Luo Chuliang; Xin Meng
  5. Does Non-farm Sector Employment reduce Rural Poverty and Vulnerability? Evidence from Vietnam and India By Katsushi S. Imai; Raghav Gaiha; Woojin Kang; Samuel Annim; Ganesh Thapa
  6. Business Training and Female Enterprise Start-Up, Growth, and Dynamics: Experimental Evidence from Sri Lanka By de Mel, Suresh; McKenzie, David; Woodruff, Christopher
  7. What Are We Learning from Business Training and Entrepreneurship Evaluations around the Developing World? By McKenzie, David; Woodruff, Christopher
  8. Corruption and competition for resources. By Bjorvatn, Kjetil; Søreide, Tina
  9. On the Relevance of Relative Poverty for Developing Countries By Christopher Garroway; Juan Ramón de Laiglesia
  10. Notional contracts: The Moral economy of contract farming arrangements in India By Sudha Narayanan
  11. Weathering the storm : responses by Cambodian firms to the global financial crisis By Guimbert, Stephane; Oostendorp, Remco
  12. Demystifying China's fiscal stimulus By Fardoust, Shahrokh; Lin, Justin Yifu; Luo, Xubei
  13. Declining Inequality in Latin America in the 2000s: The Cases of Argentina, Brazil, and Mexico By Nora Lustig; Luis F. Lopez-Calva; Eduardo Ortiz-Juarez
  14. Foreign Aid in the Aftermath of Large Natural Disasters By Ilan Noy; Oscar Becerra; Eduardo A. Cavallo
  15. (In)Formal and (Un)Productive: The Productivity Costs of Excessive Informality in Mexico By Matias Busso; Maria Victoria Fazio; Santiago Levy Algazi
  16. Wages and informality in developing countries. By Costas Meghir; Renata Narita; Jean-Marc Robin
  17. Households' living situation and the efficient provision of primary education in Burkina Faso By Élisé Wendlassida Miningou; Valérie Vierstraete

  1. By: Tsun Se Cheong (Business School, University of Western Australia); Yanrui Wu (Business School, University of Western Australia)
    Abstract: This study applies a decomposition technique to analyze China’s regional inequality using county-level data. It is shown that inter-provincial inequality increased significantly during 1997-2007. It is also shown that, although inter-county-level-unit inequality within all the provinces remained more or less the same during the period considered, its contribution to the overall inequality (based on the Theil-T index) amounted to about 60% in 2007. This means that intra-provincial regional inequality is the crux of the problem of regional inequality in China. According to the estimates of the Theil-T index, the increase in intra-provincial regional inequality contributed to 63% of the increase in overall inequality during over the period covered, whereas the provinces of Jiangsu, Hebei and Inner Mongolia together contributed 47%. The county-level data is then divided into city and county subgroups. Further decomposition based on the Theil-T index shows that the inter-county inequality component contributed a much higher proportion than the inter-city inequality component, whereas the component of the inequality between the city and county subgroups contributed the least to the intra-provincial regional inequality. The results from the decomposition also suggest that each province has its own characteristics and evolution pattern of inequality. The decomposition of the intra-provincial regional inequality for each province shows that provinces in the central and western zones should focus on the alleviation of inter-county inequality, while provinces in the north-eastern zone should concentrate on inter-city inequality. The provinces in the eastern zone should focus on both inter-county and inter-city inequalities. The provinces of Fujian, Jiangsu, Henan, Guizhou, and Qinghai should pay attention to the inequality between city and county subgroups.
    Date: 2012
  2. By: Tsun Se Cheong (Business School, University of Western Australia); Yanrui Wu (Business School, University of Western Australia)
    Abstract: Most studies of regional inequality in China are based on provincial level data with a few papers focusing on intra-provincial regional inequality. The objective of this study is to fill the void in the literature by using county-level data which cover 1485 counties and county-level cities in 22 provinces for the period of 1997-2007. This paper makes several contributions to the literature. First, the disparity between city and county subgroups within each province is examined. Second, the transitional dynamics of regional inequality are investigated for different spatial groups using the Markov transition matrix approach. Third, the stochastic kernel technique is applied to investigate convergence of the county-level units as a whole. The findings in this paper show high persistence in many spatial groups. Thus the poor county-level units may remain relatively poor over time. The model provides very little evidence of convergence to the mean income in various spatial groups. The empirical analysis highlights differences in transitional dynamics between cities and counties.
    Date: 2012
  3. By: Tsun Se Cheong (Business School, University of Western Australia)
    Abstract: This paper presents the inequality measures for different spatial groupings in China from 1997 to 2007. The intra-provincial inequality within each province, that is, the inequality amongst the county-level units within each province, is derived. It is found that the levels of inequality in the nation, the coastal and inland regions, the four economic zones, and most of the provinces increased over the study period. The levels of inequality amongst the county-level units in the eastern and western zones were higher than that in the other zones over the study period. The results show that the provinces with a high level of inequality are mostly situated in the northern part of China. The provinces are observed to have very different patterns of inequality, even if they are in the same economic zone. Moreover, it is found that Jiangsu had the highest level of intra-provincial regional inequality in 2007.
    Date: 2012
  4. By: Paul Frijters (School of Economics, The University of Queensland); Luo Chuliang; Xin Meng
    Abstract: This paper looks at the relation between education and family income using a 2008-2009 survey of nearly 10,000 children in 15 cities and nine provinces throughout China. We use school test scores on mathematics and language, as well as parent-reported educational progress, out-of-pocket expenses, and self-reported quality of schooling. Across all measures, children from wealthier families do better, but the gap is much smaller for older children than younger children in rural areas and is almost entirely gone at the end of secondary school. In Chinese cities and in Western countries like the US the opposite is the case, with the gap between children from poor and rich households staying constant or even widening as the kids get older. Our explanation is that it takes a generation of universal education for ability, education, and parental income to become highly correlated, which will already have happened in Chinese cities and in Western countries, but is only just now happening in rural areas in China. Accordingly, the relation between family income and child ability increases over generations, reducing future education and income mobility.
    Date: 2012–10–01
  5. By: Katsushi S. Imai (Economics, School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan)); Raghav Gaiha (Faculty of Management Studies, University of Delhi, India); Woojin Kang (Crawford School of Economics & Government, Australian National University, Australia); Samuel Annim (Lancashire Business School, University of Central Lancashire (UK) and Department of Economics, University of Cape Coast (Ghana)); Ganesh Thapa (International Fund for Agricultural Development, Italy)
    Abstract: The present study examines whether participation in the rural non-farm sector employment or involvement in activity in rural non-farm economy (RNFE) has any poverty-reducing or vulnerability-reducing effect in Vietnam and India. To take account of sample selection bias associated with RNFE, we have applied treatment-effects model, a variant of Heckman sample selection model. It is found that log per capita consumption or log mean per capita expenditure (MPCE) significantly increased as a result of access to RNFE in 2002 and 2004 for Vietnam and in 1993-4 for India. This is consistent with poverty reducing role of accessing RNFE. However, in more recent years, this consumption poverty reducing effect disappeared. That is, it was no longer statistically significant in 2006 for Vietnam and MPCE slightly reduced due to access to RNFE in 2004-5 for India. Access to RNFE significantly reduces vulnerability in India, implying that diversification of household activities into non-farm sector would reduce such risks. However, in Vietnam, RNFE increased vulnerability in 2002, but the effect vanished in 2004 and 2006.
    Keywords: Poverty, Vulnerability, Non-farm sector, Treatment Effects Model, Vietnam, India
    JEL: C21 C31 I32 O15
    Date: 2012–10
  6. By: de Mel, Suresh (University of Peradeniya); McKenzie, David (World Bank); Woodruff, Christopher (University of Warwick)
    Abstract: We conduct a randomized experiment in Sri Lanka to measure the impact of the most commonly used business training course in developing countries, the Start-and-Improve Your Business (SIYB) program. In contrast to existing business training evaluations which are restricted to microfinance clients, we consider two more representative groups: a random sample of women operating subsistence enterprises, and a random sample of women who are out of the labor force but interested in starting a business. Both samples are randomized into three groups: a control group, a group invited to attend training, and a group invited to receive training and who receive a cash grant conditional on completing training. We track impacts over four rounds of follow-up surveys taken over two years and find that the short- and medium-term impacts differ. For women already in business, we find that although training alone leads to some changes in business practices, it has no impact on business profits, sales or capital stock. In contrast the combination of training and a grant leads to large and significant improvements in business profitability in the first eight months, but this impact dissipates in the second year. For women interested in starting enterprises, we find that business training speeds up the process of opening a business, and changes the selection of who operates a business by making the entrants less analytically skilled, but leads to no increase in net business ownership by our final survey round. Receiving a grant results in poorer women opening businesses, but again does not increase net business ownership. Training appears to have increased the profitability and business practices of the businesses started up, suggesting it may be more effective for new owners than for enhancing existing businesses.
    Keywords: business training, female self-employment, randomized experiment, business start-up, trajectory of treatment effects
    JEL: O12 J16 L26 M53
    Date: 2012–10
  7. By: McKenzie, David (World Bank); Woodruff, Christopher (University of Warwick)
    Abstract: Business training programs are a popular policy option to try to improve the performance of enterprises around the world. The last few years have seen rapid growth in the number of evaluations of these programs in developing countries. We undertake a critical review of these studies with the goal of synthesizing the emerging lessons and understanding the limitations of the existing research and the areas in which more work is needed. We find that there is substantial heterogeneity in the length, content, and types of firms participating in the training programs evaluated. Many evaluations suffer from low statistical power, measure impacts only within a year of training, and experience problems with survey attrition and measurement of firm profits and revenues. Over these short time horizons, there are relatively modest impacts of training on survivorship of existing firms, but stronger evidence that training programs help prospective owners launch new businesses more quickly. Most studies find that existing firm owners implement some of the practices taught in training, but the magnitudes of these improvements in practices are often relatively modest. Few studies find significant impacts on profits or sales, although a couple of the studies with more statistical power have done so. Some studies have also found benefits to microfinance organizations of offering training. To date there is little evidence to help guide policymakers as to whether any impacts found come from trained firms competing away sales from other businesses versus through productivity improvements, and little evidence to guide the development of the provision of training at market prices. We conclude by summarizing some directions and key questions for future studies.
    Keywords: business training, consulting, randomized experiments, firm productivity
    JEL: O12 J16 L26 M53
    Date: 2012–10
  8. By: Bjorvatn, Kjetil (Dept. of Economics, Norwegian School of Economics and Business Administration); Søreide, Tina (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: An increasing share of world FDI is carried out by multinationals from developing countries. These investors may have objectives and constraints that di¤er from their developed country counterparts. In this paper we focus on differences in attitudes to corruption, and how these may shape the competition for the right to extract resources in a developing country context. We show how di¤erences in the investors’ level of technology and differences in the host country government's trade-o¤ between bribes and taxes determine who wins the competition for the resource and the winning price. We …nd that the entry of a corrupt investor may induce the honest investor to offer bribes instead of taxes. Surprisingly, however, our analysis also demonstrates that under some conditions, the entry of a corrupt investor may in fact induce the honest investor to increase its tax payments.
    Keywords: Corruption; FDI; auction; natural resources.
    JEL: K20 K40 O10
    Date: 2012–09–14
  9. By: Christopher Garroway; Juan Ramón de Laiglesia
    Abstract: Poverty is typically measured in different ways in developing and advanced countries. The majority of developing countries measure poverty in absolute terms, using a poverty line determined by the monetary cost of a predetermined basket of goods. In contrast, most analyses of poverty in advanced countries, including the majority of OECD countries and Eurostat, measure poverty in relative terms, setting the poverty line as a share of the average or median standard of living in a country. This difference in how social outcomes are measured makes it difficult to share experiences in social policy design and implementation. This paper argues that policy analysis should rely on both relative poverty – measured as a share of the median standard of living – and absolute measures. As countries reduce extreme absolute poverty, concerns of social inclusion, better represented by relative poverty lines, become increasingly relevant. Anchoring the poverty line to median welfare makes the poverty line dependent on distributional parameters beyond the mean, thus allowing for poverty lines that differ across countries with the same level of income per capita. The paper derives and presents relative poverty headcount ratios from publicly available grouped data for 114 countries. An examination of the trends in absolute and relative poverty in Brazil, China and the United States uncovers commonalities that are not apparent if the analysis focuses on national poverty lines or different concepts across countries.<BR>Les pays développés et les pays en développement mesurent en général la pauvreté de façon différente. La plupart des pays en développement utilise des mesures absolues de la pauvreté, à l’aide d’un seuil de pauvreté défini par la valeur monétaire d’un panier de biens prédéterminé. Par contre, la plupart des analyses de la pauvreté dans des pays développés, y compris dans la plupart des pays de l’OCDE et des institutions telles que Eurostat utilisent des mesures relatives de la pauvreté, avec un seuil de pauvreté définie par une proportion fixe du niveau de vie moyen ou médian dans un pays. Ces différences de mesure rendent plus difficile le partage d’expériences en formulation et mise en oeuvre de politiques sociales. Ce document soutient que l’analyse des politiques publiques devrait reposer sur en même temps sur des mesures absolues et relatives, ces dernières se rapportant à une proportion du niveau de vie médian. Les questions d’inclusion sociale, qui sont mieux prises en compte par des lignes de pauvreté relatives, voient leur importance croitre au fur et à mesure que les pays réduisent la pauvreté absolue. Du fait de l’ancrage du seuil de pauvreté à la médiane de la mesure de bien-être, le seuil de pauvreté dépend de paramètres de la distribution au-delà du niveau de vie moyen, ce qui permet aux seuils de pauvreté d’être différents pour des pays avec le même revenu par habitant. Le document présente des taux de pauvreté relative calculés à partir de données disponibles au public pour 114 pays. Une analyse des tendances des mesures absolue et relative de la pauvreté pour le Brésil, la Chine et les États-Unis relève des points communs qui demeurent cachés si l’analyse se concentre uniquement sur les seuils de pauvreté nationaux ou sur des concepts de mesure propres à chaque pays.
    Keywords: relative poverty, poverty measurement, poverty in developing countries, pauvreté relative, mesure de la pauvreté, pauvreté et développement
    JEL: I32 O10 Y10
    Date: 2012–09–25
  10. By: Sudha Narayanan (Indira Gandhi Institute of Development Research)
    Abstract: This study examines the moral economy of firm-farmer contracts in contract farming schemes in India, bringing together data from field surveys, conducted between 2007 and 2010, of 42 agribusinesses and 484 contract farmers from multiple commodity sectors. The central argument of this paper is that contract farming relationships in India are seen more as relationships and less as contracts, with formal enforcement mechanisms playing only a peripheral role in maintaining and supporting transactions. This is related only in part to the costs and inefficacy of formal enforcement mechanisms. Both firms and farmers prefer to operate outside the prescribed legal-institutional structure whenever these structures are perceived to undermine the handshake ethic. The findings indicate that state policies that presume legal institutional development to be necessary and sufficient for promoting agribusiness interaction with farmers might be misplaced if not merely ineffective.
    Keywords: contract farming, private enforcement, moral economy, legal institutions, agriculture
    JEL: K49 L14
    Date: 2012–09
  11. By: Guimbert, Stephane; Oostendorp, Remco
    Abstract: Firms have various ways to cope with external risks. This paper analyzes the risk coping behavior that entails the smoothing of inputs (labor, raw materials, or capital). The theoretical framework shows that, if they face adjustment costs, firms prefer to smooth their inputs, especially if they expect a demand shock to be temporary. However, credit constrained firms will be adversely affected by the presence of liquidity constraints, and this will create a welfare loss due to incomplete smoothing. The authors estimate this behavior using a panel of Cambodian firms at the time of the 2008 global economic crisis. The survey shows that these firms were hard hit by the economic crisis between 2008 and 2009, with an average fall in demand (sales) of 30 percent. Based on the theoretical framework, the analysis can estimate the responsiveness of labor, capital, and raw materials input demand to demand shocks. It finds that firms try to smooth in particular if they believe the shock is temporary; in fact non-credit constrained firms reduce their inputs much less than firmsthat were credit constrained when the demand shock is expected to be temporary. The paper estimates that the welfare loss from incomplete smoothing due to credit constraints is many multiples of the adjustment costs of the firms that were not credit constrained. This has important policy implications about the role of financial sector development and regulations beyond the capital market. This micro analysis also has macro implications: if all firms expect a shock to be permanent, their combined limited smoothing of inputs will indeed make the shock more likely to be permanent.
    Keywords: Economic Theory&Research,Access to Finance,Microfinance,Banks&Banking Reform,Labor Markets
    Date: 2012–10–01
  12. By: Fardoust, Shahrokh; Lin, Justin Yifu; Luo, Xubei
    Abstract: China's government economic stimulus package in 2008-09 appears to have worked well. It seems to have been about the right size, included a number of appropriate components, and was well timed. Its subnational component was designed to maximize the impact of the stimulus package on the economy and minimize the potential procyclical elements that are usually built into subnational fiscal mechanisms in federal countries. Moreover, China's massive fiscal stimulus played an important role in the overall recovery of the global economy. Using a simple analytical framework, this paper focuses on two key factors behind the success of the stimulus: investments in bottleneck-easing infrastructure projects and countercyclical nature of subnational spending based on the assumption that well-chosen infrastructure projects could improve business climate and thereby crowd in the private investment. The paper concludes that the expansionary subnational government spending played a key role in strengthening the overall impact of the stimulus and sustaining growth. It also highlights the importance of public investment quality and cautions about the sustainability of local government financing through the domestic banking system and increases in local governments off balance sheet or contingent liabilities. These lessons may be of particular relevance today for China, as well as other countries, in formulating policy response to another global economic slowdown or crisis, possibly as a result of the Eurozone turmoil. For China, investing in urban infrastructure and green economy, as well as in higher quality and better targeted social services, will be crucial for improving income inequality and inducing a more inclusive growth path.
    Keywords: Debt Markets,Subnational Economic Development,Banks&Banking Reform,Economic Theory&Research,Emerging Markets
    Date: 2012–10–01
  13. By: Nora Lustig (Department of Economics, Tulane University); Luis F. Lopez-Calva (Poverty and Gender Unit, Latin America and the Caribbean Vice-presidency, World Bank); Eduardo Ortiz-Juarez (Regional Bureau for Latin America and the Caribbean, United Nations Development Programme (UNDP))
    Abstract: Between 2000 and 2010, the Gini coefficient declined in 13 of 17 Latin American countries. The decline was statistically significant and robust to changes in the time interval, inequality measures and data sources. In depth country studies for Argentina, Brazil and Mexico suggest two main phenomena underlie this trend: a fall in the premium to skilled labor and more progressive government transfers. The fall in the premium to skills resulted from a combination of supply, demand, and institutional factors. Their relative importance depends on the country.
    Keywords: Income inequality, skill premium, government transfers, progressivity, Latin America
    JEL: D31 I24 H53 O15 O54
    Date: 2012–09
  14. By: Ilan Noy; Oscar Becerra; Eduardo A. Cavallo
    Abstract: This paper examines Official Development Assistance (ODA) in the aftermath of large natural disasters between 1970 and 2008. Using an event-study approach, the paper finds that while the median increase in ODA is 18 percent compared to pre-disaster flows, the typical surge is small in relation to the size of the affected economies. Moreover, aid surges typically cover only 3 percent of the total estimated economic damages caused by the disasters. The main determinants of post-disaster aid surges are found to be the intensity of the event itself and the recipient country’s characteristics such as level of development, country size and stock of foreign reserves. The paper does not find evidence that political considerations or strategic behavior on the part of donors determine the size of post-disaster aid surges.
    JEL: F35 Q54
    Date: 2012–08
  15. By: Matias Busso; Maria Victoria Fazio; Santiago Levy Algazi
    Abstract: The laws that regulate relations between firms and workers in Mexico distinguish sharply between salaried and non-salaried workers, and they are at the root of the existence of informality. This paper provides a clear definition of informality, distinguishing it from illegality. Using Mexico’s Economic Census, the paper shows that the majority of firms are informal but legal, that there are more small formal firms than large ones, and that some large firms are informal. It also shows that informality and illegality increased in the period 1998-2008. Using a simple model of monopolistic competition to measure the productivity losses due to distortions that misallocate resources, the paper finds that one peso of capital and labor allocated to formal and legal firms is worth 28 percent more than if allocated to illegal and informal firms, and 50 percent more than if allocated to legal and informal firms. The paper concludes arguing that the distortions in the labor market created by informality reduce total factor productivity.
    JEL: D24 L25 O47
    Date: 2012–08
  16. By: Costas Meghir (Institute for Fiscal Studies and Yale University); Renata Narita; Jean-Marc Robin (Institute for Fiscal Studies and 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: Wages, informality, developing countries
    Date: 2012–09
  17. By: Élisé Wendlassida Miningou (Department of Economics, Université de Sherbrooke); Valérie Vierstraete (Department of Economics, Université de Sherbrooke)
    Abstract: Primary education plays a central role in the Burkinabe school system. Several projects have been launched that contribute to expanding the resources available for basic education in Burkina Faso. However, education systems in the different administrative regions of Burkina Faso may not all be equally capable of employing the resources they receive to generate significant results. This study uses the data envelopment analysis (DEA) method to assess the efficiency with which basic education is provided throughout the 45 provinces of Burkina Faso. Overall, our results reveal that resources are not used optimally for the provision of basic education in the provinces of Burkina Faso. Moreover, in most of the provinces studied, returns to scale in basic education are decreasing. In order to explain inefficiency scores, we also use the Simar and Wilson (2007) procedure. We find that households' living situation can explain efficiency in primary education provision.
    Keywords: Data Envelopment Analysis, Efficiency, Primary education, Burkina Faso, Bootstrap procedures
    Date: 2012–09

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