nep-dev New Economics Papers
on Development
Issue of 2013‒03‒23
fifteen papers chosen by
Mark Lee
Towson University

  1. Revisiting the Empirical Inconsistency of the Permanent Income Hypothesis: Evidence from Rural China By Liping Gao; Hyeongwoo Kim; Yaoqi Zhang
  2. Resources, Policies, and Agricultural Productivity in Sub-Saharan Africa By Fuglie, Keith O.; Rada, Nicholas E.
  3. Road Infrastructure and Enterprise Dynamics in Ethiopia By Admasu Shiferaw; Måns Söderbom; Eyersusalem Siba; Getnet Alemu
  4. The Labor/Land Ratio and India’s Caste System By Harriet Orcutt Duleep
  5. China's economic growth and rebalancing By Ettore Dorrucci; Gabor Pula; Daniel Santabárbara
  6. The Evaluation of Privatization Process in Kyrgyzstan: 1991-2001 By Ertugrul Deliktas; Ömer Selcuk Emsen
  7. The Emergence of Three Human Development Clubs By Sebastian Vollmer; Hajo Holzmann; Florian Ketterer; Stephan Klasen; David Canning
  8. The Role of Household Saving in the Economic Rise of China By Steven Lugauer; Nelson C. Mark
  9. Weather and Welfare: Health and Agricultural Impacts of Climate Extremes, Evidence from Mexico By Roberto Guerrero Compean
  10. Credit Constraints, Sector Informality and Firm Investments: Evidence from a Panel of Uruguayan Firms By Nestor Gandelman; Alejandro Rasteletti
  11. The Income Lever and the Allocation of Aid By Lidia Ceriani; Paolo Verme
  12. “Decomposing the Rural-Urban Differential in Student Achievement in Colombia Using PISA Microdata” By Raul Ramos; Juan Carlos Duque; Sandra Nieto
  13. “Changes in Wage Structure in Mexico Going Beyond the Mean: An Analysis of Differences in Distribution, 1987-2008” By Claudia Tello; Raul Ramos; Manuel Artís
  14. The Effects of School Libraries on Language Skills: Evidence from a Randomized Controlled Trial in India By Borkum, Evan; He, Fang; Linden, Leigh L.
  15. From Mine to Coast; Transport infrastructure and the direction of trade in developing countries By Roberto Bonfatti; Steven Poelhekke

  1. By: Liping Gao; Hyeongwoo Kim; Yaoqi Zhang
    Abstract: Chow (1985) reports strong evidence in favor of the permanent income hypothesis (PIH) using observations from 1953 to 1982 in China. We revisit this issue with rural area household data in China during the post economic reform regime (1978-2009) as well as the postwar US data for comparison. Our in-sample analysis provides strong evidence against the PIH for both countries. Out-of-sample forecast exercises also reveal that consumption changes are highly predictable. Our vector autoregressive (VAR) model analysis also shows significantly positive responses of consumption to income shocks, and non-negligible proportions of variations in consumption are explained by innovations in income.
    Keywords: Permanent Income Hypothesis; Consumption; Generalized Method of Moments; Diebold-Mariano-West Statistic; Vector Autoregressive
    JEL: E21 E27
    Date: 2013–03
  2. By: Fuglie, Keith O.; Rada, Nicholas E.
    Abstract: Agricultural productivity in Sub-Saharan Africa (SSA) remains low and is falling farther behind other regions of the world. Although agricultural output growth in the region has accelerated since the 1990s, this has been primarily due to resource expansion rather than to higher productivity. Yet there is evidence that agricultural productivity growth has improved in some countries. Enhanced productivity is correlated with investments in agricultural research, wider adoption of new technologies, and policy reforms that have strengthened economic incentives to farmers. Many of the technological improvements have come from the Consultative Group for International Agricultural Research (CGIAR) centers. Benefits from the CGIAR in SSA are estimated to be over $6 for each $1 invested. Returns to national agricultural research are also robust, at least for large countries. But overall investment in agricultural research has remained low, and increases in research capacity will likely be necessary to significantly accelerate agricultural growth in the region. Other constraints to agricultural productivity include government policies that reduce earnings in the farm sector, the spread of the HIV/AIDS virus, and armed conflict within and between countries.
    Keywords: national agricultural research systems, technology adoption, returns to research, structural adjustment, total factor productivity (TFP), CGIAR, international agricultural research., International Development,
    Date: 2013–02
  3. By: Admasu Shiferaw (Department of Economics, The College of William and Mary); Måns Söderbom (Economics Department, University of Gothenburg, Sweden); Eyersusalem Siba (Economics Department, University of Gothenburg, Sweden); Getnet Alemu (College of Development Studies, Addis Ababa University, Ethiopia)
    Abstract: This paper investigates firm level responses to a large scale public investment program on road infrastructure in Ethiopia during 1997 to 2010. Firms' location choices and average start-up size are examined by combining town level panel data on road accessibility with a panel of manufacturing firms for the period 1996 to 2009. We find econometric results showing that better road access increases a town's attractiveness for manufacturing firms. While towns with initially large number of firms continue to attract more firms, there has been a tendency toward convergence in the distribution of firms, reducing their geographic concentration. Average startup size in isolated locations is also smaller relative to firms entering well connected markets in terms of road access. We conclude that improved road infrastructure has a favorable impact on the entry patterns and structure of the manufacturing sector in Ethiopia.
    Keywords: Road infrastructure, Firm Entry, Location Choice, Startup-Size, Ethiopian Manufacturing
    Date: 2013–03–10
  4. By: Harriet Orcutt Duleep (Thomas Jefferson Program in Public Policy, The College of William and Mary)
    Abstract: This paper proposes that India’s caste system and involuntary labor were joint responses by a nonworking landowning class to a low labor/land ratio in which the rules of the caste system supported the institution of involuntary labor. The hypothesis is tested in two ways: longitudinally, with data from ancient religious texts, and cross-sectionally, with twentieth-century statistics on regional population/land ratios linked to anthropological measures of caste-system rigidity. Both the longitudinal and cross-sectional evidence suggest that the labor/land ratio affected the caste system’s development, persistence, and rigidity over time and across regions of India.
    Keywords: labor-to-land ratio, population, involuntary labor, immobility, value of life, marginal product of labor, market wage
    JEL: J47 J1 J30 N3 Z13
    Date: 2013–03–17
  5. By: Ettore Dorrucci (European Central Bank); Gabor Pula (European Central Bank); Daniel Santabárbara (Banco de España)
    Abstract: In this paper we provide an overview of the growth model in China and its prospects, taking a medium-run to long-run perspective. Our main conclusions are as follows. First, the still prevailing producer-biased model of managed capitalism in China tends to engender, as an inherent byproduct, serious imbalances which cannot be unwound without a fundamental overhaul of the model itself. Second, given the lack of a critical mass of economic reforms thus far, imbalances may (re-)escalate once global and domestic economic conditions normalise. Third, the fundamental factors underpinning growth in China are likely to remain supportive, at least over the medium run. Although this could help mitigate the economic costs of imbalances for some time to come, it could also reduce the incentives for policy-makers to enact much needed reforms. Fourth, delayed policy action and the persistence of the model of growth cum imbalances would increase the risk of China getting caught in the middle-income trap in the long run. Greater political will to redirect China’s growth model towards a more sustainable path is therefore needed. JEL Classification: E21, E22, E25, F14, F43, O11, O53
    Keywords: economic growth, rebalancing, China, imbalances, middle-income trap
    Date: 2013–02
  6. By: Ertugrul Deliktas (Department of Economics, Ege University); Ömer Selcuk Emsen (Department of Economics, Atatürk University)
    Abstract: No Abstract is available for this paper
    Keywords: Privatization, Kyrgyzstan
    Date: 2013–01
  7. By: Sebastian Vollmer (University of Göttingen and Harvard School of Public Health); Hajo Holzmann (University of Marburg); Florian Ketterer (University of Marburg); Stephan Klasen (University of Göttingen); David Canning (Harvard School of Public Health)
    Abstract: We examine the joint distribution of levels of income per capita, life expectancy, and years of schooling across countries in 1960 and in 2000. In 1960 countries were clustered in two groups; a rich, highly educated, high longevity “developed” group and a poor, less educated, high mortality, “underdeveloped” group. By 2000 however we see the emergence of three groups; one underdeveloped group remaining near 1960 levels, a developed group with higher levels of education, income, and health than in 1960, and an intermediate group lying between these two. This finding is consistent with both the ideas of a new “middle income trap” that countries face even if they escape the “low income trap”, as well as the notion that countries which escaped the poverty trap form a temporary “transition regime” along their path to the “developed” group.
    Keywords: income per capita, life expectancy, schooling, income trap
    Date: 2013–03
  8. By: Steven Lugauer (University of Notre Dame); Nelson C. Mark (University of Notre Dame and National Bureau of Economic Research and Hong Kong Institute for Monetary Research)
    Abstract: The saving rate in China is high by historical and international norms. The high saving rate has funded capital accumulation which in turn has been the primary driver of China's economic growth. We review the evidence on Chinese household saving and conduct a small study to assess the importance of the precautionary motive for saving.
    Keywords: Household Saving, Precautionary Motive, China
    JEL: E21 F42
    Date: 2013–04
  9. By: Roberto Guerrero Compean
    Abstract: Using data for all 2,454 municipalities of Mexico for the period 1980-2010, this paper analyzes the relationship between exposure to extreme temperatures and precipitation and death, as well as the relationship between severe weather and agricultural income and crop production in the country. It is found that extreme heat increases mortality, while the health effect of extreme cold is generally trivial. Precipitation extremes seem to affect the agricultural system, but their impact on mortality is ambiguous. More specifically, exchanging one day with a temperature of 16-18C for one day with temperatures higher than 30C increases the crude mortality rate by 0. 15 percentage points, a result robust to several model specifications. It is also found that the extreme heat effect on death is significantly more acute in rural regions, leading to increases of up to 0. 2 percentage points vis-‡-vis a 0. 07-point increase in urban areas. The timing of climate extremes is relevant: if a weather shock takes place during the agricultural growing season, the effects on mortality and agricultural output, productivity, prices, and crop yields are large and significant, but not so if such shocks occur during the non-growing season.
    JEL: I12 Q12 Q51 Q54
    Date: 2013–03
  10. By: Nestor Gandelman; Alejandro Rasteletti
    Abstract: This paper explores whether the extent of informality in a sector affects a firm's investment decision directly or indirectly through a credit availability channel. The dataset used in the estimation of the econometric models consists of an unbalanced panel of Uruguayan firms for the period 1997-2008. The results suggest that financial restrictions affect investment decisions in Uruguay, as an increase in credit to the private sector translates into higher investment rates. A one percentage point increase in overall credit growth translates into a one half percent increase in investment rates. It is also found that, although there is no direct effect of informality on the firm investment decision, there is an indirect effect through the borrowing channel. More specifically, financial restrictions reduce the amount of investment undertaken by Uruguayan firms, the effect being smaller if the firm operates in a sector with lower informality.
    JEL: E26 G21 O16 O4
    Date: 2013–03
  11. By: Lidia Ceriani (Bocconi University, Milan, Italy); Paolo Verme (The World Bank, Washington DC, USA)
    Abstract: The paper develops a concept and a measure of the monetary capacity of a country to reduce its own poverty and shows how these tools can be used to guide budget allocations or the distribution of Aid. We call this concept the income lever and define it as the relation between the welfare of the poor and the welfare of the non-poor in a given society. Making use of tax and distributive theory, the paper shows how to different redistributive criteria correspond different normative criteria of income lever. We then construct various income lever indexes based on these criteria and use such indexes to rank countries according to their own monetary poverty reduction capacity. As shown in the empirical application, this methodology can provide an equitable tool to rank countries or regions when it comes to budget or Aid allocations, whether it is the allocation of social funds within the European Union (North-North transfers) or the allocation of Aid from rich to poor countries (North-South transfers).
    Keywords: Aid distribution, poverty reduction, redistribution policies.
    JEL: H2 H5 I3 O1 O2 F3
    Date: 2013–01
  12. By: Raul Ramos (Faculty of Economics, University of Barcelona); Juan Carlos Duque (RiSE-group, Department of Economics, EAFIT University); Sandra Nieto (Faculty of Economics, University of Barcelona)
    Abstract: Despite the large number of studies that draw on Programme for International Student Assessment (PISA) microdata in their analyses of the determinants of educational outcomes, no more than a few consider the relevance of geographical location. In going some way to rectify this, our paper examines the differences in educational outcomes between students attending schools in rural areas and those enrolled in urban schools. We use microdata from the 2006 and 2009 PISA survey waves for Colombia. The Colombian case is particularly interesting in this regard due to the structural changes suffered by the country in recent years, both in terms of its political stability and of the educational reform measures introduced. Our descriptive analysis of the data shows that the educational outcomes of rural students are worse than those of urban students. In order to identify the factors underpinning this differential, we use the Oaxaca-Blinder decomposition and then exploit the time variation in the data using the methodology proposed by Juhn-Murphy-Pierce. Our results show that most of the differential is attributable to family characteristics as opposed to those of the school. From a policy perspective, our evidence supports actions addressed at improving conditions in the family rather than measures of positive discrimination of rural schools.
    Keywords: educational outcomes, rural-urban differences, decomposition methods. JEL classification: J24, I25, R58
    Date: 2013–03
  13. By: Claudia Tello (Faculty of Economics, University of Barcelona); Raul Ramos (Faculty of Economics, University of Barcelona); Manuel Artís (Faculty of Economics, University of Barcelona)
    Abstract: This paper conducts an empirical analysis of the relationship between wage inequality, employment structure, and returns to education in urban areas of Mexico during the past two decades (1987-2008). Applying Melly’s (2005) quantile regression based decomposition, we find that changes in wage inequality have been driven mainly by variations in educational wage premia. Additionally, we find that changes in employment structure, including occupation and firm size, have played a vital role. This evidence seems to suggest that the changes in wage inequality in urban Mexico cannot be interpreted in terms of a skill-biased change, but rather they are the result of an increasing demand for skills during that period.
    Keywords: wage inequality, quantile regressions, decomposition. JEL classification: J31
    Date: 2013–03
  14. By: Borkum, Evan (Mathematica Policy Research); He, Fang (US Government Accountability Office); Linden, Leigh L. (University of Texas at Austin)
    Abstract: We conduct a randomized controlled trial of an Indian school library program. Overall, the program had no impact on students' scores on a language skills test administered after 16 months. The estimates are sufficiently precise to rule out effects larger than 0.053 and 0.037 standard deviations, based on the 95 and 90 percent confidence intervals. This finding is robust across individual competencies and subsets of the sample. The method of treatment, however, does seem to matter – physical libraries have no effect, while visiting librarians actually reduce test scores. We find no impact on test scores in other subjects or attendance rates.
    Keywords: library, randomized controlled trial, education, development
    JEL: I21 I28 O15
    Date: 2013–03
  15. By: Roberto Bonfatti; Steven Poelhekke
    Abstract: Mine-related transport infrastructure specializes in connecting mines to the coast, and not so much to neighboring countries. This is most clearly seen in developing countries, whose transport infrastructure was originally designed to facilitate the export of natural resources in colonial times. We provide first econometric evidence that mine-to-coast transport infrastructure matters for the pattern of trade of developing countries, and can help explaining their low level of regional integration. The main idea is that, to the extent that it can be used not just to export natural resources but also to trade other commodities, this infrastructure may bias a country's structure of transport costs in favor of overseas trade, and to the detriment of regional trade. We investigate this potential bias in the context of a gravity model of trade. Our main ndings are that coastal countries with more mines import less than average from their neighbors, and this effect is stronger when the mines are located in such a way that the related infrastructure has a stronger potential to affect trade costs. Consistently with the idea that this effect is due to mine-to-coast infrastructure, landlocked countries with more mines import less than average from their non-transit neighbors, but more then average from their transit neighbors. Furthermore, this effect is specific to mines and not to oil and gas fields, arguably because pipelines cannot possibly be used to trade other commodities. We discuss the potential welfare implications of our results, and relate these to the debate on the economic legacy of colonialism for developing countries.
    Keywords: Mineral Resources, Transport Infrastructure, Regional Trade Integration, Gravity Model, Economic Legacy of Colonialism
    JEL: F14 F54 Q32 R4
    Date: 2013

This nep-dev issue is ©2013 by Mark Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.