nep-dev New Economics Papers
on Development
Issue of 2012‒11‒03
twenty-two papers chosen by
Mark Lee
Towson University

  1. Financial Deregulation, Absorptive Capability, Technology Diffusion and Growth: Evidence from Chinese Panel Data By Qichun He; Meng Sun; Heng-fu Zou
  2. Urban poverty in Bangladesh: causes, consequences and coping strategies By Nicola Banks
  3. Do natural resources condition the aidgovernance relationship? Evidence from Africa. By Audrey Menard
  4. Why foreign aid does (not) improve democracy? By Audrey Menard
  5. Rwanda’s ruling party-owned enterprises : do they enhance or impede development? By Gökgür, Nilgün
  6. The Latin American Development Problem: An Interpretation By Diego Restuccia
  7. Catch me if you learn: development-specific education and economic growth By Fabio Cerina; F. Manca
  8. Declining inequality in Latin America in the 2000s : the cases of Argentina, Brazil, and Mexico By Lustig, Nora; Lopez-Calva, Luis F.; Ortiz-Juarez, Eduardo
  9. Heterogeneity in subjective wellbeing : an application to occupational allocation in Africa By Falco, Paolo; Maloney, William F.; Rijkers, Bob; Sarrias, Mauricio
  10. Impacts of an early stage education intervention on students'learning achievement : evidence from the Philippines By Yamauchi, Futoshi; Liu, Yanyan
  11. On the Sources of Risk Preferences in Rural Vietnam By Anh Duc Dang
  12. Women’s Empowerment and HIV Prevention in Rural Malawi By Gerritzen, Berit C.
  13. Competitor, Colonizer or Developer? The Many Faces of China in Africa By Terence McNamee
  14. Governance role of secondary shareholders : A study of Chinese outward foreign direct investment By Lin Cui
  15. Strategies for Managing China's State-owned Foreign Direct Investment By Shuping Liao; Yongsheng Zhang
  16. Migration, Remittances and Rural Employment Patterns : Evidence from China By Sylvie Démurger; Li Shi
  17. Trends in China’s gender employment and pay gap: estimating gender pay gaps with employment selection By Chi, Wei; Li, Bo
  18. Fighting corruption when existing corruption-control levels count : what do wealth-effects tell us in Africa? By Simplice A , Asongu
  19. Germs, Social Networks and Growth By Fogli, Alessandra; Veldkamp, Laura
  20. The African Growth Miracle By Alwyn Young
  21. Accounting for Labor Input in Chinese Industry, 1949-2009 By Harry WU; Ximing YUE
  22. How Localized is the Pro-trade Effect of Immigration? Evidence from Mexico and the United States By Michael Good

  1. By: Qichun He (CEMA, Central University of Finance and Economics); Meng Sun (SEBA, Beijing Normal University); Heng-fu Zou (Development Research Group, World Bank)
    Abstract: Technological diffusion via FDI is essential for the economic growth of backward economies. However, institutional and policy barriers may slow down technology diffusion. Using a simple theory based on Acemoglu (2009, ch. 18), we predict that there exists an interaction (i.e., a complementary) effect between inward FDI (pool of available world frontier technologies) and financial deregulation (enhancing absorptive capability via lowering institutional and policy barriers) in promoting growth. We test the predictions using the panel data on Chinese provinces during the reform and opening-up period. The Chinese experience is appealing because of the symbiotic financial deregulation and inflow of FDI. We find robust evidence that there is a significant interaction effect between FDI and the level of financial deregulation in promoting economic growth. This furthers our understanding of the reform and opening-up strategy of China.
    Keywords: Absorptive Capability, Gradual Financial Deregulation, Inward FDI, Interaction, Panel Data
    JEL: O11 O33 F43 C23
    Date: 2012
  2. By: Nicola Banks
    Abstract: Abstract Bustees are places where physical, social, economic and political vulnerabilities collide, creating a multi-layered blanket of vulnerability for their residents. Although income is central to day-to-day survival in an urban environment in which cash income is needed to meet a household’s basic needs, work options are limited to low-paid and irregular work, primarily dependent on physical labour. This forces households to rely upon loans and labour mobilisation strategies to get by. Unsanitary, poorly serviced, and densely populated environments – frequently situated in environmentally hazardous areas – mean ill health is both endemic and chronic, playing a routine and devastating role in the lives of the urban poor. The repercussions of resource scarcity at the household level are compounded by the social and political exclusion of the poor from urban governance structures and processes. Amidst a lack of formal institutional support, and in the absence of formal rights and entitlements, the process of facilitating and maintaining patron–client relationships is a central coping strategy for the urban poor. It is a means of trying to manage uncertainty and improve their access to resources. For the majority, however, these strategies are limited to helping households to cope, rather than advancing their interests. Informal systems of governance at the bustee level reproduce and exacerbate existing inequalities, with access to power, information, resources, employment and other lucrative income-generating opportunities limited to a close circle of wellconnected bustee households.
    Date: 2012
  3. By: Audrey Menard
    Abstract: This paper offers some evidence on why the governance effect of foreign aid is shadowy in African countries. The evidence suggests that the aid-governance linkages can be robust if the type of aid is differentiated between bilateral and multilateral aid and if the governance effect of aid is conditioned on the size of natural resources rents. A dynamic panel data analysis over the period 1997 – 2008 reveals that (i) foreign aid improves governance if and only if aid is allocated by multilateral agencies; and (ii) the effect of multilateral aid is the stronger the less the recipient country is dependent on natural resources, in particular on oil resources. The combination of multilateral aid and oil rents independence favour the development of good governance in Africa.
    Keywords: Governance, Natural resources, Oil, Multilateral aid.
    JEL: F35 D73 Q30 O11 C33
    Date: 2012
  4. By: Audrey Menard
    Abstract: Foreign aid has become closely connected to the development of democracy since the nineties. This paper analyses the democracy effects of aid accounting for this change in donors’ criteria. This approach contributes to the literature by analysing how the kind of donor allocating aid flows influences the effect of aid on democ- racy. I estimate a dynamic panel data model using data from 52 African countries between 1997 and 2008. I find that aid favours democracy. However when consider- ing the kind of donor, I observe that while bilateral aid does not foster democracy, multilateral aid favours democracy. Robustness tests confirm these findings.
    Keywords: Democracy; Bilateral aid; Panel data; Endogeneity.
    JEL: F35 O11 D70 C23
    Date: 2012
  5. By: Gökgür, Nilgün
    Abstract: In the last 18 years, large enterprises have emerged in post-conflict Rwanda, which are fully or partially owned and controlled by the ruling party – Rwanda Patriotic Front (RPF) – in association with state-owned enterprises, the military and the RPF-appointed managers (i.e. the new business elite). These enterprises (i.e. ‘party-statals’) operate in key sectors of the economy, thus constituting the RPF’s business empire. The Government of Rwanda (GoR) initially created them in order to spearhead much-needed economic development. Over the years, however, it has expanded them in number and in size, instead of cultivating its hapless private sector. By virtue of their incestuous relationship with the Ministry of Finance and Economic Planning, the Ministry of Defence and certain state-owned banks, the party-statals have become increasingly reliant on the state’s scarce fiscal and monetary resources – the latter made possible with budgetary support from development partners. The expansion of these capital and skill-intensive party-statals, with their guarantees of massive asymmetry in market access and profits through state backing, has begun to impede the growth of a more inclusive, broadbased and labour-intensive private sector. Based on newly available but necessarily limited data, this paper provides a framework with which to assess the actual and potential developmental impact of party-statals (individually and combined) on various stakeholders, including the Government of Rwanda, development partners, owners and operators, domestic and international investors, the Rwandan workforce and consumers. The paper further argues that the international donor community should insist on transparency and full disclosure of the partystatals’ financial statements, that it should monitor their fiscal activity with the state and that it should assess their impact on stakeholders and private sector development. Finally, the paper proposes exit strategies aimed at improving competitive dynamics within the domestic business environment, where competition is desirable and feasible, thereby benefiting Rwandans as investors, workers and consumers.
    Date: 2012–10
  6. By: Diego Restuccia
    Abstract: By international standards, gross domestic product (GDP) per capita in Latin America is low: around one fourth of that of the United States. Moreover, in the last five decades, Latin America has failed to catch-up in wealth to the level of the United States while other countries at similar or even lower stages of development have been successful. The failure to attain higher levels of relative income represents what I call the development problem in Latin America. Using a development accounting framework, I find that the bulk of the difference in GDP per capita between Latin America and the United States is accounted for by low GDP per hour and, in particular, low total factor productivity (TFP) in Latin America. I estimate that to explain the difference in GDP per hour, TFP in Latin America must be around 60 percent of that in the United States. I then consider a model with heterogeneous production units where institutions and policy distortions lead to a 60 percent productivity ratio between Latin America and the United States. Removing the barriers to productivity can increase long-run GDP per hour in Latin America by a factor of 4 relative to that of the United States. This increase is equivalent to 70-years worth of post-world-war-II economic development in the United States.
    Keywords: productivity, capital, schooling, establishments, distortions
    JEL: O1
    Date: 2012–10–25
  7. By: Fabio Cerina; F. Manca
    Abstract: This paper presents a theoretical and empirical investigation of the relationship between human capital composition and economic growth. From the theoretical point of view, we generalize Vandenbussche et al. (2006) by allowing for non-constant returns to scale in imitation and innovation activities and we find that - unlike the previous work and for a wide range of parameters’ values - the impact of skilled workers on growth increases at lower stages of development. As for empirical evidence, we estimate Vandenbussche et al. (2006) the size using a 85 countries 1960-2000 panel with developed and developing countries using System GMM technique to address the problem of endogeneity. The analysis supports the model predictions in providing robust evidence of an increasing impact of tertiary education as the economy moves farther away from the frontier. Results are robust to different proxies of human capital and different specifications.
    Keywords: Technological frontier; innovation; imitation; human capital; skilled; unskilled; growth
    JEL: O33 O47 O11
    Date: 2012
  8. By: Lustig, Nora; Lopez-Calva, Luis F.; Ortiz-Juarez, Eduardo
    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: Rural Poverty Reduction,Inequality,Poverty Impact Evaluation,Labor Policies,Labor Markets
    Date: 2012–10–01
  9. By: Falco, Paolo; Maloney, William F.; Rijkers, Bob; Sarrias, Mauricio
    Abstract: Using an extraordinarily rich panel dataset from Ghana, this paper explores the nature of self-employment and informality in developing countries through the analysis of self-reported happiness with work and life. Subjective job satisfaction measures allow assessment of the relative desirability of different jobs in ways that, conditional wage comparisons cannot. By exploiting recent advances in mixed (random parameter) ordered probit models, the distribution of subjective well-being across sectors of employment is quantified. There is little evidence for the overall inferiority of the small firm informal sector: there is not a robust average satisfaction premium for formal work vs. self-employment or informal salaried work, and owners of informal firms that employ others are on average significantly happier than workers in the formal private sector. Moreover, the estimated distribution of parameters predicting satisfaction reveal substantial heterogeneity in subjective well-being within sectors that conventional fixed parameter models, such as standard ordered probit models, cannot detect: Whatever the average satisfaction premium in a sector, all job categories contain both relatively happy and disgruntled workers. Specifically, roughly 67, 50, 40 and 59 percent prefer being a small-firm employer, sole proprietor, informal salaried, civic worker respectively, than formal work. Hence, there is a high degree of overlap in the distribution of satisfaction across sectors. The results are robust to the inclusion of fixed effects and alternate measures of satisfaction. Job characteristics, self-perceived autonomy and experimentally elicited measures of attitudes toward risk do not appear to explain these distributional patterns.
    Keywords: Labor Markets,Labor Policies,Labor Management and Relations,Work&Working Conditions,Educational Policy and Planning
    Date: 2012–10–01
  10. By: Yamauchi, Futoshi; Liu, Yanyan
    Abstract: This paper examines the impact of a large supply-side education intervention in the Philippines, the Third Elementary Education Project, on students'national achievement test scores. It finds that the program significantly increased student test scores at grades 4 to 6. The estimation indicates that two-year exposure to the program increases test scores by about 4.5 to 5 score points. Interestingly, the mathematics score is more responsive to the education reform than are other subjects. The analysis also finds that textbooks, instructional training of teachers, and new classroom construction particularly contributed to these outcomes. The empirical results imply that early-stage investment improves student performance at later stages in the elementary school cycle, which suggests that social returns to such an investment are greater than what the current study demonstrates.
    Keywords: Education For All,Tertiary Education,Primary Education,Teaching and Learning,Secondary Education
    Date: 2012–10–01
  11. By: Anh Duc Dang
    Abstract: In this paper, I provide new empirical evidence that the natural environment can shape individual risk preferences. By combining historical data on weather variation and contemporary survey questions on risk aversion, I find that risk aversion is significantly different for people who live in areas that have suffered high frequency of natural disasters. In particular, households highly affected by weather volatility show a longterm risk aversion and are more willing to buy insurance to protect crop losses. The finding also supports the hypothesis that when people are used to live in a risky environment, an incremental increase in risk affects their risk preferences less.
    JEL: D03 Q54 O53
    Date: 2012–10
  12. By: Gerritzen, Berit C.
    Abstract: Condom use and communication among sexual partners are important strategies for HIV prevention. Using a panel data set of more than 1,200 married women in rural Malawi from 1998-2008, this paper shows that adequate HIV prevention strategies, i.e. condom use within marriage and HIV-related spousal communication, are more widely used as women's bargaining power increases. I focus on different dimensions of women’s empowerment, namely personal and interpersonal empowerment. Among the proxies used for women's empowerment, own income, knowledge of other local languages and awareness of exit options from marriage are found to play a particularly important role in promoting adequate preventive behaviors. The main findings continue to hold after individual-specific fixed effects and time dummies are included in order to account for unobserved hetereogeneity and time trends.
    Keywords: HIV/AIDS, Sub-Saharan Africa, gender, development, spousal communication, condom use within marriage
    JEL: I14 O15 J16
    Date: 2012–10
  13. By: Terence McNamee (BRENTHURST FOUNDATION)
    Abstract: This paper analyses the evolving China-Africa relationship with particular reference to the competing perspectives on the impact of Chinese investment on the continent’s development. In doing so, it draws on two recent studies by the Brenthurst Foundation, one on China’s natural resource demand and the other on Chinese traders and small businesses in southern Africa. The paper also highlights potential flashpoints in future Chinese-African relations and the dangers inherent in Africa’s heavy reliance on Chinese resource demand. Ultimately, the paper concludes that China’s investment in Africa has for too long been assessed in binary terms, good or bad. Notwithstanding some troubling aspects to China’s role in Africa, that the continent has not derived a more substantial development ‘dividend’ from its burgeoning ties with China is largely down to its own failings, especially its leaders’ short-sightedness and lack of vision. In order to better exploit the growth of Chinese demand for its commodities, Africa needs to be more proactive in defining its own interests.
    Keywords: Chinese ODI in Africa, Forum on China–Africa Cooperation (FOCAC), China-Africa trade, China-Africa economic relation, FDI and Colonialist, FDI and Aid, Chinese presense in Africa
    Date: 2012–10
    Abstract: This study examines the effects of institutional and foreign ownership on the outward foreign direct investment (FDI) of Chinese firms. Based on agency theory and the resource-based view, we argue that secondary shareholders, i.e., institutional and foreign shareholders, are active and effective governance forces in Chinese firms. They promote and support Chinese firms to engage in outward FDI through their monitoring and resource roles. Their governance effect, however, may be hindered by the power of CEOs as a result of principalprincipal conflicts. Our empirical study of 224 Chinese listed firms revealed that institutional and foreign ownership is positively associated with the outward FDI propensity of Chinese firms. The positive relationship between institutional ownership and outward FDI propensity weakens when CEO power increases. There was, however, no support for the moderating effect of CEO power on the relationship between foreign ownership and outward FDI propensity.
    Keywords: Chinese firms, Agency Theory, Foreign Ownership, Institutional Ownership, Outward foreign direct investment, Resource-based View, Chinese ODI
    Date: 2012–10
  15. By: Shuping Liao (DEVELOPMENT RESEARCH CENTER); Yongsheng Zhang (STATE COUNCIL)
    Abstract: China‘s state-owned enterprises (SOEs) and their overseas investment have played an important role in China's economic development. Nonetheless, the rapid expansion of SOE-dominated overseas investment from China has also raised concerns about so-called state capitalism, and several Western countries have objected to some cases of overseas investment from China, proffering various excuses. Meanwhile, the urgent need for both domestic market-oriented reform and the transformation of China‘s development model has also raised new challenges for China‘s overseas investment pattern. Domestically, China's overseas investment should promote its economic growth and the transformation of its development model so as to best serve its national interest. Internationally, China's overseas investment should promote fair competition in the international markets, and make China's economic success a win-win situation with the rest of the world. These two objectives are internally consistent. This paper aims to examine China's overseas investment from these two perspectives, and subsequently propose recommendations on how to better manage China‘s SOE overseas investment.
    Keywords: China‘s overseas investment, state-owned enterprises, Chinese ODI, strategic adjustment, State-owned Foreign Direct Investment
    Date: 2012–10
  16. By: Sylvie Démurger (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France); Li Shi (School of Economics and Business Administration, Beijing Normal University, 19, Xinjiekouwai Dajie, Beijing 100875, China)
    Abstract: This paper explores the rural labor market impact of migration in China using crosssectional data on rural households for the year 2007. A switching probit model is used to estimate the impact of belonging to a migrant-sending household on the individual occupational choice categorized in four binary decisions : farm work, wage work, self-employment and housework. The paper then goes on to estimate how the impact of migration differs across different types of migrant households identified along two additional lines : remittances and migration history. Results show that individual occupational choice in rural China is responsive to migration, at both the individual and the family levels, but the impacts differ : individual migration experience favors subsequent local off-farm work, whereas at the family level, migration drives the left-behinds to farming rather than to off-farm activities. Our results also point to the interplay of various channels through which migration influences rural employment patterns.
    Keywords: labor migration, labor supply, remittances, temporary migration, left-behind, China
    JEL: O15 J22 R23 D13 O53
    Date: 2012
  17. By: Chi, Wei; Li, Bo
    Abstract: In contrast to the United States and European countries, China has witnessed a widening gender pay gap in the past two decades. Nevertheless, the size of the gender pay gap could still be underestimated as a result of not accounting for the low-wage women who have dropped out of the labor force. As shown by a large and representative set of household survey data in China, since the 1980s the female employment rate has been falling and the gap between male and female employment rates has been increasing. We estimate the bounds of the raw gender pay gap in China, taking into consideration the different male and female employment rates. To tighten the bounds, we use an instrumental variable, having a child aged less than 6 years. The results support the view that the raw gender pay gap, as large as it has been, is still underestimated.
    Keywords: Gender pay gap; gender employment gap; bounds; instrumental variable
    JEL: J3
    Date: 2012–10
  18. By: Simplice A , Asongu
    Abstract: Why are some nations more effective at battling corruption than others? Are there different determinants in the fight against corruption across developing nations? How do wealth effects play-out when existing corruption-control levels matter in the corruption battle? To investigate these concerns we examine the determinants of corruption-control throughout the conditional distribution of the fight against corruption. The following broad findings are established. (1) Population growth is a (an) tool (impediment) in (to) the fight against corruption in Low (Middle) income countries. (2) Democracy increases (decreases) corruption-control in Middle (Low) income countries. As a policy implication, blanket corruption-control strategies are unlikely to succeed equally across countries with different income-levels and political wills in the fight against corruption. Thus to be effective, corruption policies should be contingent on the prevailing levels of corruption-control and income-bracket.
    Keywords: Corruption; Democracy; Government quality; Quantile regression; Africa
    JEL: H10 C10 O55 O10 K10
    Date: 2012–10–24
  19. By: Fogli, Alessandra; Veldkamp, Laura
    Abstract: Does the pattern of social connections between individuals matter for macroeconomic outcomes? If so, how does this effect operate and how big is it? Using network analysis tools, we explore how different social structures affect technology diffusion and thereby a country’s rate of technological progress. The network model also explains why societies with a high prevalence of contagious disease might evolve toward growth-inhibiting social institutions and how small initial differences can produce large divergence in incomes. Empirical work uses differences in the prevalence of diseases spread by human contact and the prevalence of other diseases as an instrument to identify an effect of social structure on technology diffusion.
    Keywords: development; disease; economic networks; growth; pathogens; social networks; technology diffusion
    JEL: E02 I1 O1 O33
    Date: 2012–10
  20. By: Alwyn Young
    Abstract: Measures of real consumption based upon the ownership of durable goods, the quality of housing, the health and mortality of children, the education of youth and the allocation of female time in the household indicate that sub-Saharan living standards have, for the past two decades, been growing about 3.4 to 3.7 percent per annum, i.e. three and a half to four times the rate indicated in international data sets.
    JEL: O47
    Date: 2012–10
  21. By: Harry WU; Ximing YUE
    Abstract: Following the user cost theory on measuring labor input, after a careful scrutiny of available information, we construct employment and compensation matrices for China's industrial workforce over the period 1949-2009. Our measures are able to capture both individual and interactive effects of changes in gender, age, education, industry and ownership types of China's industrial workforce, and decompose the growth of labor input in Chinese industry into quantity and composition ("quality") effects. We find that the annual growth of the labor input in Chinese industry experienced a substantial decline from 6.9% per annum in the pre-reform period to 3.8% per annum in the post-reform period. Change of labor composition accounted for about 12% in the planning period (or 0.8% growth per annum), but it made little contribution during the reform period. We also find that the changes in industrial structure and age structure (reflecting the effects of seniority and experience) almost explained for the entire (positive) change in labor composition in the planning period. However, the change of education turned into negative after 1965 which made the average contribution of education negative in the planning period. Following the reform, education showed the most important contribution in the 1990s when the reform deepened, but the effect turned into negative again alongside China's entry into the World Trade Organization (WTO).
    Date: 2012–10
  22. By: Michael Good (Department of Economics, Florida International University)
    Abstract: I estimate the effect that immigrants have on international trade between states of current residence and states of origin. The pro-trade effect of immigrants has been thoroughly examined since the mid-1990s, connecting both destination countries with origin countries and destination sub-national divisions with origin countries, respectively. However, a recent emphasis on the importance of geographic proximity to the immigration-trade link leads me to pose the question of how localized the trade-enhancing effect of immigrants actually may be. In turn, my analysis provides the ?rst results as to the immigrant-trade nexus at the state level for both places of destination and origin, relying on a unique data set allowing the mapping of Mexican-born immigrants’ US states of residence to Mexican states of origin. I ?nd that immigrants indeed promote trade between their US states of residence and Mexican states of origin, estimating a statistically signi?cant elasticity of exports to immigration equal to 0.08. This ?gure is not only qualitatively but also quantitatively important, corresponding to $2467 extra annual exports between respective US and Mexican states associated with each additional immigrant.
    Date: 2012–10

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