nep-dev New Economics Papers
on Development
Issue of 2014‒07‒28
nine papers chosen by
Jacob A. Jordaan
Universitiet Utrecht

  1. Informality and Development By LaPorta, Rafael; Shleifer, Andrei
  2. Questionable Inference on the Power of Pre-Colonial Institutions in Africa By Denis Cogneau; Yannick Dupraz
  3. Holy Cows or Cash Cows? By Orazio Attanasio; Britta Augsburg
  4. Is it the climate or the weather? Differential economic impacts of climatic factors in Ethiopia By Mintewab Bezabih; Salvatore Di Falco; Alemu Mekonnen
  5. A New Global Index of Infrastructure: Construction, Rankings and Applications By Julian Donaubauer; Birgit Meyer; Peter Nunnenkamp
  6. Migration, Education and the Gender Gap in Labour Force Participation By Ira N. Gang
  7. Collective Action and Armed Group Presence in Colombia By Margarita Gáfaro; Ana Maria Ibáñez; Patricia Justino
  8. Why Aid is Unpredictable: An Empirical Analysis of the Gap between Actual and Planned Aid Flows By Gustavo Javier Canavire-Bacarreza; Eric Neumayer; Peter Nunnenkamp
  9. Social Structure and Institutional Design: Evidence from a Lab Experiment in the Field By Emily Breza; Arun G. Chandrasekhar; Horacio Larreguy

  1. By: LaPorta, Rafael; Shleifer, Andrei
    Abstract: We establish five facts about the informal economy in developing countries. First, it is huge, reaching about half of the total in the poorest countries. Second, it has extremely low productivity compared to the formal economy: informal firms are typically small, inefficient, and run by poorly educated entrepreneurs. Third, although avoidance of taxes and regulations is an important reason for informality, the productivity of informal firms is too low for them to thrive in the formal sector. Lowering registration costs neither brings many informal firms into the formal sector, nor unleashes economic growth. Fourth, the informal economy is largely disconnected from the formal economy. Informal firms rarely transition to formality, and continue their existence, often for years or even decades, without much growth or improvement. Fifth, as countries grow and develop, the informal economy eventually shrinks, and the formal economy comes to dominate economic life. These five facts are most consistent with dual models of informality and economic development.
    Date: 2014
  2. By: Denis Cogneau (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IRD - Institut de Recherche pour le Développement - Institut de Recherche pour le Développement); Yannick Dupraz (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: In their paper "Pre-Colonial Ethnic Institutions and Contemporary African Development" [Econometrica 81(1): 113-152], Stelios Michalopoulos and Elias Papaioannou claim that they document a strong relationship between pre-colonial political centralization and regional development, by combining Murdock's ethnographic atlas (1967) with light density at night measures at the local level. We argue that their estimates do not properly take into account population effects. Among lowly populated areas, luminosity is dominated by noise, so that with linear specifications the coefficient of population density is biased downwards. We reveal that the identification of the effect of ethnic centralization very much relies on these areas. We implement a variety of models where the effect of population density is non-linear, and/or where the bounded or truncated nature of luminosity is taken into account. We conclude that the impact of ethnic-level political centralization on development is all contained in its long-term correlation with population density. We also abstract from the luminosity-population nexus by analyzing survey data for 33 countries. We show that individual-level outcomes like access to utilities, education, asset ownership etc. are not correlated with ethnic-level political centralization.
    Keywords: Institutions ; Africa ; Population ; Development ; Light intensity at night
    Date: 2014–06
  3. By: Orazio Attanasio; Britta Augsburg
    Abstract: In a recent paper, Anagol, Etang and Karlan (2013) consider the income generated by these owning a cow or a buffalo in two districts of Uttar Pradesh, India. The net profit generated ignoring labour costs, gives rise to a small positive rate of return. Once any reasonable estimate of labour costs is added to costs, the rate of return is a large negative number. The authors conclude that households holding this type of assets do not behave according to the tenets of capitalism. A variety of explanations, typically appealing to religious or cultural factors have been invoked for such a puzzling fact. In this note, we point to a simple explanation that is fully consistent with rational behaviour on the part of Indian farmers. In computing the return on cows and buffaloes, the authors used data from a single year. Cows are assets whose return varies through time. In drought years, when fodder is scarce and expensive, milk production is lower and profits are low. In non-drought years, when fodder is abundant and cheaper, milk production is higher and profits can be considerably higher. The return on cows and buffaloes, like that of many stocks traded on Wall Street, is positive in some years and negative in others. We report evidence from three years of data on the return on cows and buffaloes in the district of Anantapur and show that in one of the three years returns are very high, while in drought years they are similar to the figures obtained by Anagol, Etang and Karlan (2013).
    JEL: O1 O12 O53
    Date: 2014–07
  4. By: Mintewab Bezabih; Salvatore Di Falco; Alemu Mekonnen
    Abstract: This paper assesses the distinct impacts of weather and climate change measures on agricultural revenue of farm households in the Amhara region of Ethiopia. This distinction is highlighted by observations in the temperature data, which show that the pattern of temperature for both short term and long values follows a bell-shaped distribution, with the striking feature that the extreme ends of the distribution have fatter tails for the long term values. The analysis employs monthly rainfall and 14 temperature categories related to weather measures and four categories corresponding with the extreme ends of the long term temperature distribution. The analysis also distinguishes between summer and spring seasons and different crops in recognition of Ethiopia’s multi-cropping and multi-season agriculture. The major findings show that temperature effects are distinctly non-linear but only when the weather measures are combined with the extreme ends of the distribution of the climate measures. In addition, rainfall generally has a less important role to play than temperature, contrary to expectations in rain-fed agriculture.
    Date: 2014–02
  5. By: Julian Donaubauer; Birgit Meyer; Peter Nunnenkamp
    Abstract: We construct comprehensive and comparable indices on the most relevant components of economic infrastructure. An unobserved components model is employed to cover the largest possible number of developing and developed countries over the period 1990-2010. We map major findings from the new indices of infrastructure and provide country rankings, which we also compare with subjective assessments of infrastructure in the World Economic Forum’s Global Competitiveness Report. Finally, we exemplify possible applications related to trade and FDI. By overcoming several data limitations, our new global index can help assess the links between infrastructure and economic development more systematically
    Keywords: infrastructure, transport, ICT, energy, finance, unobserved components method, trade, FDI
    JEL: O18 C43 C82 F14 F21
    Date: 2014–06
  6. By: Ira N. Gang (Rutgers University)
    Abstract: Women who want to work often face many more hurdles than men. This is true in Tajikistan where there is a large gender gap in labour force participation. We highlight the role of two factors – international migration and education – on the labour force participation decision and its gender gap. Using probit and decomposition analysis, our investigation shows that education and migration have a significant association with the gender gap in labour force participation in Tajikistan. International emigration from Tajikistan, in which approximately 93.5% of the participants are men, reduces labour force participation by men domestically; increased female education, especially at the university and vocational level, increases female participation. Both women acquiring greater access to education and men increasing their migration abroad contribute to reducing the gender gap.
    Keywords: immigration
    JEL: F1
    Date: 2014–05–27
  7. By: Margarita Gáfaro (Brown University); Ana Maria Ibáñez (Universidad de los Andes); Patricia Justino (Institute of Development Studies)
    Abstract: The main objective of this paper is to provide empirical evidence on the mechanisms that shape the relationship between violent conflict and collective action. Conflict dynamics in Colombia allow us to exploit rich variation in armed group presence and individual participation in local organizations. Our identification strategy is based on the construction of contiguous-pairs of rural communities that share common socio-economic characteristics but differ in armed group presence. This allows us to control for unobservable variables that may affect local participation and conflict dynamics simultaneously. The results show that the presence of armed groups increases overall participation in local organizations, with a particularly strong effect on political organizations. Contrary to existing results, we find that stronger individual participation may arise from coercion exercised by armed groups and not from a more vibrant civil society.
    Date: 2014–07
  8. By: Gustavo Javier Canavire-Bacarreza; Eric Neumayer; Peter Nunnenkamp
    Abstract: Aid flows continue to be volatile and unpredictable, even though it is widely accepted that this erodes the effectiveness of foreign aid. We argue that fragmented donor-recipient relationships, notably the large number of minor aid relations that tend to be associated with donors’ desire to have ‘fly their flag’ around the world, increase aid unpredictability. Our empirical analysis of the determinants of aid unpredictability suggests that aid becomes less predictable with more fragmented donor-recipient relationships. Specifically, the effect of fragmentation on overshooting previous spending plans is statistically highly significant and substantively important. In contrast, fragmented donor-recipient relationships have no effect on the shortfall of actual aid compared to donors’ spending plans
    Keywords: aid predictability, donor fragmentation, forward spending plans
    JEL: F35
    Date: 2014–06
  9. By: Emily Breza; Arun G. Chandrasekhar; Horacio Larreguy
    Abstract: In settings with poor formal contract enforcement, profitable investments are likely unrealized. While social closeness can mitigate contractual incompleteness, we examine how to improve the preponderance of cases where contracting parties cannot rely upon social ties. We ask if a community can enlist members to monitor transactions or punish offending parties. We conduct a laboratory experiment in 40 Indian villages, with 960 non-anonymized subjects, where we have social network data. Participants play modified sender-receiver investment games, with and without third-party monitors and punishers. We examine whether network centrality of the third party increases efficiency of interaction. Furthermore, we decompose the efficiency increase into a monitoring channel (central third parties are valuable since they may influence reputations) and an enforcement channel (central third parties may be more able to punish without fear of retaliation). Assigning a third party at the 75th percentile of the centrality distribution (as compared to the 25th) increases efficiency by 21% relative to the mean: we attribute 2/5 of the effect to monitoring and 3/5 to enforcement. The largest efficiency increase occurs when senders and receivers are socially distant, unable to maintain efficient levels autonomously. Results cannot be explained by demographics such as elite status, caste, wealth or gender. Our findings show not every member is equally well-equipped to be part of a local institution. Knowing that a central third party observes their interaction increases sender-receiver efficiency. More importantly, to be able to punish someone, the third party must be important in the community.
    JEL: D02 L14 O17 Z13
    Date: 2014–07

This nep-dev issue is ©2014 by Jacob A. Jordaan. 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.
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