nep-dev New Economics Papers
on Development
Issue of 2012‒11‒17
seventeen papers chosen by
Mark Lee
Towson University

  1. Informality and overeducation in the labor market of a developing country By Paula Herrera-Idárraga; Enrique López-Bazo; Elisabet Motellón
  2. Keeping both Corruption and the Shadow Economy in Check: The Role of Decentralization. By Roberto Dell'Anno; Désirée Teobaldelli
  3. Loan Regulation and Child Labor in Rural India By Dasgupta, Basab; Zimmermann, Christian
  4. Monetary Transfers from Children and the Labour Supply of Elderly Parents: Evidence from Vietnam By Nguyen, Trong-Ha; Liu, Amy Y.C.; Booth, Alison L.
  5. 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
  6. The Rise and Fall of Income Inequality in Mexico, 1989–2010 By Raymundo Campos; Gerardo Esquivel; Nora Lustig
  7. Labor Surplus Revisited By Ranis, Gustav
  8. Another Look at Foreign Aid By Ranis, Gustav
  9. Hoping to Win, Expected to Lose: Theory and Lessons on Micro Enterprise Development By Karlan, Dean; Knight, Ryan; Udry, Christopher
  10. Wages and Informality in Developing Countries By Meghir, Costas; Narita, Renata; Robin, Jean-Marc
  11. Vertical and Horizontal Decentralization and Ethnic Diversity in Sub-Saharan Africa By Ranis, Gustav
  12. Widow Discrimination and Family Care-Giving in India By Yoshihiko Kadoya; Ting Yin
  13. What does debt relief do for development ? evidence from India's bailout program for highly-indebted rural households By Kanz, Martin
  14. Global income inequality by the numbers : in history and now --an overview-- By Milanovic, Branko
  15. Does Structural Economic Vulnerability Matter for Public Indebtedness in Developing Countries? By Sèna Kimm GNANGNON
  16. Birth Registration and the Impact on Educational Attainment By Ana Corbacho; Steve Brito; Rene Osorio Rivas
  17. Globalization and Income Inequality: A Panel Data Analysis of 68 Countries By Atif, Syed Muhammad; Srivastav, Mudit; Sauytbekova, Moldir; Arachchige, Udeni Kathri

  1. By: Paula Herrera-Idárraga (AQR – IREA, University of Barcelona, Avda Diagonal, 690, 08034 Barcelona, Spain & Department of Economics, Pontificia Universidad Javeriana, Carrera 7 No. 40 – 62, Bogotá, Colombia.); Enrique López-Bazo (AQR – IREA, University of Barcelona, Avda Diagonal, 690, 08034 Barcelona, Spain & European Commission, Joint Research Center (JRC), Institute for Prospective Technological Studies (IPTS). Calle Inca Garcilaso 3, 41092 Sevilla, Spain.); Elisabet Motellón (AQR – IREA, University of Barcelona, Avda Diagonal, 690, 08034 Barcelona & Universitat Oberta de Catalunya, Avda Tibidabo 39-43, 08035 Barcelona, Spain.)
    Abstract: In this paper, we explore the connection between labor market segmentation in two sectors, a modern protected formal sector and a traditional- unprotected-informal sector, and overeducation in a developing country. Informality is thought to have negative consequences, primarily through poorer working conditions, lack of social security, as well as low levels of productivity throughout the economy. This paper considers an aspect that has not been previously addressed, namely the fact that informality might also affect the way workers match their actual education with that required performing their job. We use micro-data from Colombia to test the relationship between overeducation and informality. Empirical results suggest that, once the endogeneity of employment choice has been accounted for, formal male workers are less likely to be overeducated. Interestingly, the propensity of being overeducated among women does not seem to be closely related to the employment choice.
    Keywords: Segmented labor markets, Formal/Informal employment, Human capital, Economic development
    JEL: O15 J21 J24
    Date: 2012–11
  2. By: Roberto Dell'Anno (Department of Economics and Statistics, University of Salerno); Désirée Teobaldelli (Department of Law, University of Urbino “Carlo Bo”)
    Abstract: This paper puts forward a framework for evaluating the effects of governmental decentralization on the shadow economy and corruption. The theoretical analysis demonstrates that decentralization exerts both a direct and an indirect impact on the shadow economy and corruption. Firstly, decentralization helps to mitigate government-induced distortions, thus limiting the extent of corruption and the informal sector in a direct way. Secondly, in more decentralized systems, individuals have the option to avoid corruption by moving to other jurisdictions, rather than going underground. This limits the impact of corruption on the shadow economy and implies that decentralization is also beneficial in an indirect way. As a result, our analysis documents a positive relationship between corruption and the shadow economy; however, this link proves to be lower in decentralized countries. To test these predictions, we developed an empirical analysis based on a cross-country database of 145 countries that includes different indexes of decentralization, corruption and shadow economy. The empirical evidence is consistent with the theory. Results are robust and significant even after controlling for the endogeneity bias.
    Keywords: Shadow economy, Federalism, Decentralization, Corruption.
    JEL: O17 H77 H11 D73
    Date: 2012
  3. By: Dasgupta, Basab (World Bank); Zimmermann, Christian (Federal Reserve Bank of St. Louis)
    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: child labor, India, informal lending, lending discrimination, interest rate caps
    JEL: O16 O17 E26
    Date: 2012–10
  4. By: Nguyen, Trong-Ha (University of Queensland); Liu, Amy Y.C. (Australian National University); Booth, Alison L. (Australian National University)
    Abstract: In the absence of a broad-based pension scheme, the elderly in developing countries may rely on monetary transfers made by their children and on their own labour supply. This paper examines whether monetary transfers from children help to reduce elderly parents' need to work. Taking the possible endogeneity of children's transfers in the parents' labour supply into account and using maximum likelihood methods and Vietnamese data, we find that monetary transfers help the elderly cope with risks associated with old age or illness. At the same time, however, monetary transfers are not sufficient to fully substitute for parents' labour supply.
    Keywords: old-age support, labour supply, inter-generational transfers, endogenous variable, maximum likelihood
    JEL: J14 J22 J26
    Date: 2012–10
  5. By: Nora Lustig (Tulane University); Luis F. Lopez-Calva (World Bank); Eduardo Ortiz-Juarez (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
  6. By: Raymundo Campos (Center for Economic Studies, El Colegio de Mexico); Gerardo Esquivel (Center for Economic Studies, El Colegio de Mexico); Nora Lustig (Tulane University)
    Abstract: Inequality in Mexico rose between 1989 and 1994 and declined between 1994 and 2010. We examine the role of market forces (demand and supply of labour by skill), institutional factors (minimum wages and unionization rate), and public policy (cash transfers) in explaining changes in inequality. We apply the ‘re-centered influence function’ method to decompose changes in hourly wages into characteristics and returns. The main driver is changes in returns. Returns rose (1989-1994) due to institutional factors and labour demand. Returns declined (1994-2006) due to changes in supply and -to a lesser extent-in demand; institutional factors were not relevant. Government transfers contributed to the decline in inequality, especially after 2000.
    Keywords: inequality; wages; disposable income; labour markets; Mexico.
    JEL: D31 J20 J31 O54
    Date: 2012–09
  7. By: Ranis, Gustav (Yale University)
    Abstract: Unskilled labor is the abundant resource in many developing countries, especially at an early stage of their development. Yet, even as at given technologies labor markets have not cleared, neo-classical economists have rejected the notion of an institutional or bargaining wage not based on competitive full employment marginal productivity fundamentals. This paper puts to rest some objections to labor surplus theory based on "red herrings" and then addresses the substantive challenges from the micro-econometric branch of neo-classical economics. We contend that the finding of inelastic supply curves of labor is based on a cross-section static analysis of labor supply within agriculture while the labor surplus model deals with tracing the dynamic reallocation of labor from a traditional to a neo-classical organized sector in a dualistic economy. We present data for a number of labor surplus developing countries showing that institutional wages lag behind agricultural productivity increases as countries move towards a "turning point" when inter-sectoral balanced growth has eliminated unskilled labor and the economy has lost its dual characteristic.
    JEL: O10 O11 O17 O18 O41 O43 O57
    Date: 2012–09
  8. By: Ranis, Gustav (Yale University)
    Abstract: The discussion of the effectiveness of foreign aid has reached a high pitch. This paper assesses the sorry past and present key arguments for a potentially more effective and sustainable method of aid delivery. A key ingredient is to shake off the vestiges of structural adjustment and move towards true recipient country ownership complete with "self-conditionality" with aid recipients formulating their own reform packages. This means donors become much more passive, act like a bank and respond to proposals which concentrate on a few critical areas over a three to five-year period. Policy-based program lending should respond to packages put together by the main domestic stakeholders with the help, if necessary, of independent third parties. There should be no compulsion to lend; indeed, an aid hiatus is an indication that the new system is effective. What is required is for donors to stop using aid as a short-term foreign policy tool and for recipients to accept the notion that aid provides the opportunity to reduce the inevitable adjustment pains caused by real reforms.
    JEL: O11 O20 O38 P45
    Date: 2012–08
  9. By: Karlan, Dean (Yale University); Knight, Ryan (Yale University); Udry, Christopher (Yale University)
    Abstract: Many basic economic theories with perfectly functioning markets do not predict the existence of the vast number of microenterprises readily observed across the world. We put forward a model that illuminates why financial and managerial capital constraints may impede experimentation, and thus limit learning about the profitability of alternative firm sizes. The model shows how lack of information about one's own type, but willingness to experiment to learn one's type, may lead to short-run negative expected returns to investments on average, with some outliers succeeding. To test the model we put forward first a motivating experiment from Ghana, and second a small meta-analysis of other experiments. In the Ghana experiment, we provide inputs to microenterprises, specifically financial capital (a cash grant) and managerial capital (consulting services), to catalyze adoption of investments and practices aimed towards enterprise growth. We find that entrepreneurs invest the cash, and take the advice, but both lead to lower profits on average. In the long run, they revert back to their prior scale of operations. The small meta analysis includes results from 18 other experiments in which either capital or managerial capital were relaxed, and find mixed support for this theory.
    JEL: D21 D24 D83 D92 L20 M13 O12
    Date: 2012–08
  10. By: Meghir, Costas (Yale University and IFS, London); Narita, Renata (World Bank); Robin, Jean-Marc (Sciences Po, Paris and U College London)
    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.
    JEL: J24 J30 J42 J60 O17
    Date: 2012–09
  11. By: Ranis, Gustav (Yale University)
    Abstract: Vertical decentralization, either at the deconcentration, delegation or, more rarely, the devolution level, has been instituted in most countries of Sub-Saharan Africa. It usually has the effect of increasing the quantity as well as the quality, in terms of health and education, of public goods. More neglected in the literature is the issue of horizontal decentralization, shifting the decision-making power from the central ministry of finance to the ministries of education and health, as well as strengthening the legislative and judicial branches of government. We examine the relationship between horizontal decentralization with its important ethnic dimension and vertical decentralization. Local governments are accountable to the center under vertical and to democratic forces and civil society under horizontal decentralization. Smaller local units are more likely to be more homogeneous ethnically, leading to a larger quantity and higher quality of public goods.
    JEL: O11 O17 O18 O55
    Date: 2012–08
  12. By: Yoshihiko Kadoya; Ting Yin
    Abstract: The purpose of this research is to address the lack of a region-wide view of widow discrimination in India, the home of 42 million widows. This study analyzed the household data collected in face-to-face interviews from January to March of 2011 in six major Indian cities including Delhi, Mumbai, Bangalore, Chennai, Kolkata, and Hyderabad. It was revealed that widow discrimination does not prevail across the nation. That is, this research did not deny the existence of traditional widow discrimination in some areas, but demonstrated that this phenomenon does not represent the whole nation if we focus on the widowfs old age and the treatment by their family. Certainly, this research has some limitations, including the fact that the observations came only from cities. However, this is pioneering research, and more significantly, it addresses the lack of a region-wide view analysis of widow discrimination in India with an aging population.
    Date: 2012–11
  13. By: Kanz, Martin
    Abstract: This paper studies the impact of a large debt relief program, intended to attenuate investment constraints among highly-indebted households in rural India. It isolates the causal effect of bankruptcy-like debt relief settlements using a natural experiment arising from India's Debt Relief Program for Small and Marginal Farmers -- one of the largest debt relief initiatives in history. The analysis shows that debt relief has a persistent effect on the level of household debt, but does not increase investment and productivity as predicted by theories of debt overhang. Instead, the anticipation of future credit constraints leads to a greater reliance on informal financing, lower investment and a decline in productivity among bailout recipients. The results suggest that one-time settlements may be insufficient to incentivize new investment, but can have significant real effects through their impact on borrower expectations.
    Keywords: Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Banks&Banking Reform,External Debt
    Date: 2012–11–01
  14. By: Milanovic, Branko
    Abstract: The paper presents an overview of calculations of global inequality, recently and over the long-run as well as main controversies and political and philosophical implications of the findings. It focuses in particular on the winners and losers of the most recent episode of globalization, from 1988 to 2008. It suggests that the period might have witnessed the first decline in global inequality between world citizens since the Industrial Revolution. The decline however can be sustained only if countries'mean incomes continue to converge (as they have been doing during the past ten years) and if internal (within-country) inequalities, which are already high, are kept in check. Mean-income convergence would also reduce the huge"citizenship premium"that is enjoyed today by the citizens of rich countries.
    Keywords: Inequality,Poverty Impact Evaluation,Services&Transfers to Poor,Equity and Development,Income
    Date: 2012–11–01
  15. By: Sèna Kimm GNANGNON
    Abstract: In this study, we examine the effect of structural economic vulnerability of developing countries on their public indebtedness. We perform our econometric analysis by relying on 96 developing countries over the period 1980-2008. The results suggest evidence of a "U-shaped" relationship between the structural vulnerability and the total public debt in developing countries. In Low-Income Countries (LICs), the build-up of the total public debt is particularly explained by structural vulnerability. Accordingly, international institutions should take into account such structural vulnerability when designing development policies, especially the ones related to debt sustainability in developing countries and particularly LICs.
    Keywords: Structural Vulnerability; Public debt; Fixed Effects
    JEL: O10 H63 E60
    Date: 2012
  16. By: Ana Corbacho; Steve Brito; Rene Osorio Rivas
    Abstract: The drivers of educational attainment have been the subject of much research both in the developed and the developing world. Yet, nothing is known about the effect of birth registration on schooling outcomes. Birth registration is not only a fundamental human right but also a requirement to obtain additional documents of legal identity and access many government benefits. Using data for the Dominican Republic, this paper is the first to shed light on the causal impact of the lack of birth registration on education. Controlling for potential endogeneity and standard socioeconomic determinants of education, this paper finds that children without documents of birth registration do not face lower chances of entering the schooling system. Yet, the absence of birth registration becomes a critical obstacle to graduate from primary school and translates into fewer years of overall educational attainment.
    Keywords: Public Sector :: Civil Registration, Economics :: Economic Development & Growth, Rural & Urban Development, Tax Revenue, Elasticities, Business Cycles, Schooling, Under-registration
    JEL: O12 R12 R20
    Date: 2012–08
  17. By: Atif, Syed Muhammad; Srivastav, Mudit; Sauytbekova, Moldir; Arachchige, Udeni Kathri
    Abstract: The causal effect of globalisation on income inequality is an issue of significant academic interest. On the one hand globalisation is considered to promote global economic growth and social progress, while on the other; it is blamed for growing income inequality and environmental degradation, causing social degeneration and difficulty of competition. The objective of the study is to determine the direction of impact of globalization on income distribution. This study hypothesises that increased globalisation worsens income inequality, and vice versa. This hypothesis is investigated using panel data econometric techniques to examine income inequality index and the index of globalization for panel data of 68 developing countries over the period of 1990-2010. The analysis shows that an increase in globalisation (represented by an increase in the KOF coefficient) leads to an increase in the level of income inequality. It is worth noting, however, that this analysis also suffers from several limitations. It is possible perhaps a simple, overarching relationship does not exist. Rather it is possible that the impact of globalisation on income distribution varies between nations, depending on the structures and institutions that are in place in each country.
    Keywords: Globalization; Income Inequality; Panel Data
    JEL: C33 F43
    Date: 2012–10–28

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