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On Planning for Development                                                                                                  Editor: Róbinson Rojas Sandford
UNU-WIDER on development economics       Back to development economics
United Nations Universidad - World Institute for Development Economics Research

New Directions in Development Economics

Year: 2010

This project acts as an instrument for UNU-WIDER to conduct small-scale projects or studies on topics of immediate policy importance that deserve a swift and critical response; to experiment with the application of new analytical techniques to development issues, and to build new research ideas that may then constitute the basis of larger projects in the main programme. Small projects may include empirical evaluation of development insights; trade reform and employment; development economics and public policy; poverty measurement and inequality.
Keywords: Development Economics
  • Nicole Hassoun - November 2010
    Another Mere Addition Paradox? Some Reflections on Variable Population Poverty Measurement

    Debates about poverty relief and foreign aid often hinge on claims about how many poor people there are in the world and what constitutes poverty. Good measures of poverty are essential for addressing the world poverty problem. Measures of poverty require a basis for determining who is poor and a method of aggregation. Historically, the methods of aggregation were quite simple. The headcount index (H), for instance, measures the number of poor people as a percentage of the total population. The poverty gap index for the whole population (I) takes the total aggregate shortfall from the poverty line divided by the number of people and the poverty line itself. Recently, however, economists have suggested several more complicated alternatives including Sen’s index, the Sen-Shorrocks-Thon (SST) index, and the Foster-Greer-Thorbecke (FGT) index (which, under some parameterizations is equivalent to H and I). This paper critiques several of the main poverty indexes in the literature by setting out and defending its ‘axiom’ (intuition or desiderata) for any good poverty measure. It argues that if Sen’s index, the SST, and the FGT indexes do not satisfy this ‘no mere addition axiom’, they do not provide compelling measures of anything that can intuitively be considered poverty. Next, it illustrates how these poverty indexes violate this no mere addition axiom. Finally, the paper illustrates one way of modifying the indexes to satisfy the no mere addition axiom with the FGT. It notes, however, that these alternatives will not do for all policy purposes. So, it is important to consider further how poverty indexes and axioms fare in variable population contexts.

  • Nicole Hassoun - November 2010
    Are Electoral Coalitions Harmful for Democratic Consolidation in Africa?

    Electoral coalitions are becoming increasingly popular among opposition parties in Africa because they offer many advantages with respect to reducing party fragmentation and increasing incumbent turnovers. At the same time, however, they are often comprised of parties that are defined predominantly by their leaders’ personalities and exhibit little differentiation in terms of their policy orientation. Based on a dataset spanning all opposition coalitions since 2000 in Africa’s electoral democracies, this paper demonstrates not only that coalitions rarely defeat incumbents but also that they are only competitive when major opposition parties are involved. More significantly, the paper highlights that in many countries, a sizeable share of total electoral volatility is due to fluctuations in voting for opposition parties that have belonged to coalitions. The paper argues that such volatility reflects the inability of coalition members to build loyal constituency bases over time, which is critical for party development and broader consolidation.

  • Article: 'Ethnic Divisions and Public Goods Provision, Revisited'
  • Article: 'Opposition Parties and the Urban Poor in African Democracies'
  • Article: Explaining the Evolution of Poverty: The Case of Mozambique
  • Article: The Impact of the Global Commodity and Financial Crises on Poverty in Vietnam

  • Kala Seetharam Sridhar - September 2011
    The Efficiency of States and Cities: Is There a Case for Public Land Leasing and Sales to Finance India’s Cities?

    In this study an attempt has been made to assess the potential of land as a municipal financing tool in four Indian cities, to enable better public service delivery and attainment of the MDGs. The institutional arrangements for land use are fragmented in India’s cities between the urban development authorities, which are state agencies, and the cities. To determine whether or not transfer of revenues from land to cities from the para-statal entities is justified, stochastic frontier analysis is used to determine the efficiency of Indian cities and the Indian states. The efficiency of service provision is examined taking the case of roads.

  • Shiyi Chen and Amelia U. Santos-Paulino - June 2010
    Energy Consumption and Carbon Emission-Based Productivity Change and Industrialization in Post-Reform China

    The paper investigates the determinants of productivity growth in China. It also analyses the sustainability of the country's industrial growth by estimating sectoral productivity, accounting for energy usage and emission since the start of the market-oriented reforms in the late 1970s. The growth accounting analysis indicates that productivity is the most significant driver of growth. Energy and capital are also important factors promoting China's industrial growth. The substantial productivity improvement of China's industry is attributable more to high-tech light industrial sectors. Heavy industry, characterized by high energy emission levels, lags behind in terms of productivity and overall technical change.

  • Channing Arndt, M. Azhar Hussain,E. Samuel Jones, Virgulino Nhate,Finn Tarp1, James Thurlow - March 2011
    Explaining Poverty Evolution. The case of Mozambique

    Measuring poverty remains a complex and contentious issue. This is particularly true in sub-Saharan Africa where poverty rates are higher, information bases typically weaker, and the underlying determinants of welfare relatively volatile. This paper employs recently collected data on household consumption in Mozambique to examine the evolution of consumption poverty with focus on the period 2002/03 to 2008/09. The paper contributes in four areas. First, the period in question was characterized by major movements in international commodity prices. Mozambique provides an illuminating case study of the implications of these world commodity price changes for living standards of poor people. Second, a novel ‘backcasting’ approach using a computable general equilibrium model of Mozambique, linked to a poverty module is introduced. Third, the backcasting approach is also employed to rigorously examine the poverty-growth-inequality triangle. Finally, various simple but useful and rarely applied approaches to considering regional changes in poverty rates are presented. We find that the national poverty rate in Mozambique stagnated between 2002/03 and 2008/09.
    Article: Explaining The Evolution Of Poverty: The Case Of Mozambique

  • Philip Abbott and Finn Tarp - March 2011
    Globalization Crises, Trade, and Development in Vietnam

    Vietnam has been among the most successful East Asian economies, especially in weathering the external shocks of recent globalization crises—the 1997-98 Asian financial crisis and the 2008-09 great recession, financial crisis and collapse of global trade. Its success contradicts its characterization as an example of export-led growth and highlights the role of the state, particularly in maintaining and influencing investment. Examination of economic performance and policy responses shows rising dependence on foreign finance around each crisis, and actions by the government to counteract that dependence and bolster the domestic economy while continuing to restructure the economy toward greater emphasis on the private sector. Growth, employment and poverty alleviation have been maintained at the expense of renewed inflation, larger budget deficits, and currency depreciation. The ‘stop-go’ nature of present macroeconomic policy is the consequence of balancing growth versus inflation, responding to severe external shocks and holding to a growth objective in the face of substantial internal and external criticism.

  • Augustin Kwasi Fosu - January 2011 - **
    Growth, Inequality, and Poverty Reduction in Developing Countries. Recent Global Evidence

    The study presents recent global evidence on the transformation of economic growth to poverty reduction in developing countries, with emphasis on the role of income inequality. The focus is on the period since the early/mid-1990s when growth in these countries as a group has been relatively strong, surpassing that of the advanced economies. Both regional and country-specific data are analysed for the US$1.25 and US$2.50 level poverty headcount ratios using the most recent World Bank data. The study finds that on average income growth has been the major driving force behind both the declines and increases in poverty. The study, however, documents substantial regional and country differences that are masked by this ‘average’ dominant growth story. While in the majority of countries growth was the major factor behind falling or increasing poverty, inequality, nevertheless, played the crucial role in poverty behaviour in a large number of countries. And, even in those countries where growth has been the main driver of poverty reduction, further progress could have occurred under relatively favourable income distribution. For more efficient policy-making, therefore, idiosyncratic attributes of countries should be emphasized. In general, high initial levels of inequality limit the effectiveness of growth in reducing poverty while growing inequality increases poverty directly for a given level of growth. It would seem judicious, therefore, to accord special attention to reducing inequality in certain countries where income distribution is especially unfavourable. Unfortunately, the present study also points to the limited effects of growth and inequality-reducing policies in low-income countries.

  • Konstantin M. Wacker - February 2011
    The Impact of Foreign Direct Investment on Developing Countries’ Terms of Trade

    This paper first shows that important economic arguments in favor of the Prebisch-Singer hypothesis of falling terms of trade of developing countries have implicitly relied on the role of multinational corporations and foreign direct investment. As of yet, the relationship between the latter and terms of trade has not been empirically investigated. In order to start closing this gap in research, data on 111 developing countries between 1980 and 2008 is analyzed using panel data methods. The empirical results suggest that there is no reason to believe multinationals’ activities were responsible for a possible decrease of the developing countries’ net barter terms of trade. On the contrary, foreign direct investment seems to play a positive role for developing countries’ terms of trade. The paper also investigates other possible variables structurally influencing terms of trade and thus provides fruitful directions for future research.

  • James Thurlow1, Finn Tarp,Simon McCoy, Nguyen Manh Hai,Clemens Breisinger, and Channing Arndt - September 2010
    The Impact of the Global Commodity and Financial Crises on Poverty in Vietnam

    Economic growth in Vietnam has been fairly resilient to the global commodity and financial crises, but it is unclear why. In addition, the impact of the crises on employment and poverty is in dispute. We develop a dynamic computable general equilibrium model to decompose impacts and estimate distributional outcomes. Our results indicate that the 2008 commodity crisis increased employment and reduced poverty by favouring labour-intensive exports, especially in agriculture. The 2009 financial crisis reversed these gains. It pushed more than a million workers into unemployment and about 3 million people below the US$2-a-day poverty line, with the vast majority of these being rural dwellers. The net effect of the crises left Vietnam little changed from a baseline (no crises) path in terms of aggregate indicators including the poverty rate. An effective stimulus package has the potential to offset one third of the increase in poverty caused by the financial crisis leaving poverty rates below the (no crises) baseline.

  • Augustin Kwasi Fosu - August 2010
    Inequality, Income and Poverty.Comparative Global Evidence

    Analysing a large sample of 1980–2004 unbalanced panel data, the current study presents comparative global evidence on the role of (income) inequality in poverty reduction. The evidence involves both an indirect channel via the tendency of high inequality to decrease the rate at which income is transformed to poverty reduction and the tendency of rising inequality to increase poverty. Based on the basic needs approach, an analysis-of-covariance model is estimated, with the headcount measure of poverty as the dependent variable and the Gini coefficient and PPP-adjusted mean income as explanatory variables. The study finds that the responsiveness of poverty to income growth is a decreasing function of inequality and that the income elasticity of poverty is actually smaller than the inequality elasticity. Thus, income distribution can play a more important role than might be traditionally acknowledged. Found also is a large variation across regions (and countries) in the poverty effects of inequality.

  • Wasseem Michel Mina - September 2011
    Institutional Reforms Debate and FDI Flows to MENA Region:
    Does one "best" fit all?

    The paper revisits the policy debate on institutional reform approaches to property rights protection and empirically examines it in the context of FDI flows to the Middle East and Northern Africa region (MENA).Using panel data on 11 MENA countries for the period 1991–2007 and adopting feasible generalized least squares estimation methodology, the paper finds a positive influence of improvement in the risk of investment expropriationin non-Gulf Cooperation Council (GCC) MENA countries and of bilateral investment treaties (BITs) in GCC countries. The joint influence of domestic institutional functions and BITs is positive in specifications containing investment expropriation risk and government stability in non-GCC MENA countries, and corruption in GCC countries. Results have important policy implications for the institutional reform approach to be adopted.

  • Jesús Otero1 and Ana María Iregui - November 2011
    The Long-Run Behaviour of the Terms of Trade between Primary Commodities and Manufactures.
    A Panel Data Approach

    This study examines the Prebisch and Singer hypothesis using a panel of 24 commodity prices from 1900 to 2010. The modelling approach stems from the need to meet two key concerns: (1) the presence of cross-sectional dependence among commodity prices; and (2) the identification of potential structural breaks. To address these concerns, the Hadri and Rao test (2008) is employed. The findings suggest that all commodity prices exhibit a structural break at different locations across series, and that support for the Prebisch and Singer hypothesis is mixed. Once the breaks are removed from the underlying series, the persistence of commodity price shocks is shorter than that obtained in other studies using alternative methodologies.

  • Danielle Resnick1 and Daniela Casale - September 2011
    The Political Participation of Africa’s Youth.
    Turnout, Partisanship, and Protest

    The youth have long represented an important constituency for electoral mobilization in Africa. Today, as the region faces a growing ‘youth bulge’ that is disproportionately burdened by un- and underemployment, capturing the votes of this demographic is becoming more important than ever before. Yet, despite their numerical importance and the historical relevance of generational identities within the region, very little is really known about the political participation of Africa’s youth. In order to address this issue, we combine country-level variables for 19 of Africa’s most democratic countries with individual-level public opinion data from Afrobarometer survey data. A series of binomial and multinomial logit models are estimated on three key outcome variables: voter turnout in last elections, closeness to political party; and participation in protests. In comparison with older citizens, we find that Africa’s youth tend to vote less and express a lower level of partisanship, which is consistent with findings for the youth in other regions of the world. However, Africa’s youth are not more likely to protest than older citizens. Collectively, these findings cast doubt that the youth are more likely to turn to the street when they are disgruntled but question the legitimacy of the electoral process as a meaningful conduit for conveying the preferences of Africa’s youth.

  • Danielle Resnick - October 2010
    Populist Strategies in African Democracies

    Drawing on insights from Latin America, this paper examines the factors that contributed to the use of populist strategies by political parties during recent presidential elections in Kenya, South Africa, and Zambia. Specifically, the paper argues that the nature of party competition in Africa, combined with rapid urbanization and informalization of the labour force, provided a niche for populist leaders to espouse a message relevant to the region’s growing urban poor. Simultaneously, such leaders employed ethno-linguistic appeals to mobilize a segment of rural voters who could form a minimum winning coalition in concert with the urban poor and thereby deliver sizeable electoral victories. While such strategies are similar to those used by Latin American populists, the paper highlights key contrasts as well. By combining cross-regional and sub-national perspectives, this paper therefore aims to contribute to a better understanding of how demographic and socioeconomic changes in Africa intersect with voting behaviour and political party development.

  • Channing Arndt, Andres Garcia,Finn Tarp1, and James Thurlow - November 2010
    Poverty Reduction and Economic Structure
    Comparative Path Analysis for Mozambique and Vietnam

    While economic growth generally reduces income poverty, there are pronounced differences in the strength of this relationship across countries. Typical explanations for this variation include measurement errors in growth-poverty accounting and countries’ different compositions of economic growth. We explore the additional influence of economic structure in determining a country’s growth-poverty relationship and performance. Using multiplier and structural path analysis, we compare the experiences of Mozambique and Vietnam—two countries with similar levels and compositions of economic growth but divergent poverty outcomes. We find that the structure of the Vietnamese economy more naturally lends itself to generating broad-based growth. A given agricultural demand expansion in Mozambique will, ceteris paribus, achieve much less rural income growth than in Vietnam. Inadequate education, trade and transport systems are found to be more severe structural constraints to poverty reduction in Mozambique than in Vietnam. Investing in these areas can significantly enhance the effectiveness of Mozambican growth to reduce poverty.

  • Terra Lawson-Remer - November 2011
    Security of Property Rights for Whom?

    Recent research regarding property rights and economic development often treats property rights security in a country as homogeneous, although protecting the private entitlements of some can entail preventing others from claiming and controlling those same resources. This one-dimensional conception of property rights ignores the significant variation in the risk of expropriation faced by different groups in the same country. Using a new set of indicators that measures the property insecurity of ethnocultural minorities, this study finds that in many countries members of marginalized groups face significantly higher property insecurity than foreign investors and domestic elites, and that although secure property rights for elites and foreign investors may be positively related to long-run development, property rights for marginalized groups are not.

  • Augustin Kwasi Fosu - April 2011
    Terms of Trade and Growth of Resource Economies.
    A tale of two countries

    The current paper demonstrates a dichotomy of the growth response to changes in the barter terms of trade, employing as case studies the two African countries, Botswana and Nigeria.Using distributed-lag analysis, the paper finds that the effect of terms of trade on output is positive and negative for the two countries, respectively. I interpret these results as supportive of the ‘resource curse’ hypothesis for Nigeria, but not for Botswana.I further argue that the superior institutional quality in Botswana, relative to Nigeria, is likely responsible for the contrasting results. However, Nigeria appears to be making progress on institutional quality, especially in the last decade. Continuing such progress would be necessary if the country was to reverse course.

  • Luc Christiaensen1 and Lei Pan - December 2010
    Transfers and Development.
    Easy Come, Easy Go?

    Contrary to the popular notion that money that is easily earned, is also easily spent, economic theory holds that income is fungible. Drawing on the concept of mental accounting, this study theoretically explores when such a link between spending behaviour and the effort dispensed in obtaining income is plausible. Empirically, it is found that the marginal propensity to consume from unearned income is about three times larger than that from earned income, based on household panel data from rural China, with the difference more pronounced when unearned income is transitory and smaller than earned income. The policy implications are real.

  • Sripad Motiram and Ashish Singh - December 2012
    How Close Does the Apple Fall to the Tree? Some Evidence on Intergenerational Occupational Mobility from India

    Using data from the India Human Development Survey (IHDS) 2005, we examine intergenerational occupational mobility in India, an issue on which very few systematic and rigorous studies exist. We group individuals into classes and document patterns of mobility at the rural, urban and all-India levels, and for different caste groups. We find substantial intergenerational persistence, particularly in the case of low-skilled and low-paying occupations, e.g. almost half the children of agricultural labourers end up becoming agricultural labourers. We also document differences across caste groups. Overall, our results suggest considerable inequality of opportunity in India.

  • Martin Koch - December 2012
    International Organizations in Development and Global Inequality: The example of the World bank's pension policy

    Initial models of development debates on how to achieve economic growth have been added to by a focus on social issues such as education and political participation. These debates and discourses about development are shaped by international organizations (IGOs) as they produce reference/action frameworks for actors in development policy. The paper suggests conceptualizing IGOs as world organizations considering four dimensions: (1) world semantics; (2) the inner-organizational dynamics within IGOs; (3) external relations of IGOs to their organizational environment; (4) the kind of world order concerning development and global inequality established by IGOs. To illustrate the model the paper explains World Banks pension policy.

  • Omar Shahabudin McDoom - December 2012
    Predicting Violence within Genocides: Meso-level evidence from Rwanda

    Can we predict when and where violence will break out within cases of genocide? Given often weak political will to respond, knowing where to strategically prioritize limited resources is valuable information for international decision makers contemplating intervention. I develop a theoretical model to help identify areas vulnerable to violence during genocide. I argue vulnerability is a function of the state’s coercive power and the ruling elite’s control of this power from above, mediated by the strength of society’s cohesion below. Violence will be delayed in areas where political and military resistance to the center is high as it takes time for extremists to exert control at the periphery. Violence will also be delayed in well-integrated communities as it takes time to break existing social bonds and destroy social capital. I draw on the case of Rwanda’s 1994 genocide and examine sub-national variation in the onset of violence across the country’s 145 administrative communes using survival analysis and within-case analyses comparing early and late onset in two communes. The findings have implications for international policy makers responding to ongoing genocides.

  • Thanyaporn Chankrajang - April 2012
    The Effects of Rural Land Right Security on Labour Structural Transformation and Urbanization: Evidence from Thailand

    This paper attempts to contribute to the understanding of the impacts of secure rural agricultural land rights on labour structural transformation from agriculture to non-agriculture as well as on urbanization, with a specific focus on Thailand. Using province-level panel data and instrumental variable strategy, partial land right entitlement (known in Thailand as SPK4-01 titling) is found to have a positive impact on labour movement towards the non-agricultural sector. In particular, approximately 27 per cent of this impact can be explained by enhanced farm productivity. This, in addition, implies that the reduction of the opportunity costs of off-farm employment, which is also a predicted positive impact of titling on non-agricultural employment, should account for the rest of the overall impact on labour structural transformation Although SPK4-01 titling alone is found to have no significant effect on urbanization, its impact depends significantly on within-province transport infrastructure. More specifically, rural land right security increases urbanization more in provinces with poorer road networks. In other words, secure land rights lead to urban concentration and urban non-farm diversification only when it is relatively costly to commute within the province.

  • Gouranga Das - April 2012
    Trans-border Land Acquisitions: A New Guise of Outsourcing and Host Country Effects

    The rush for land acquisition—primarily driven by food shortages, food price volatility, and the run for agrofuel—has drawn considerable attention, as documented by reports published in late 2009, 2010, and 2011. Terminological differences aside, it is—quite distinct from material or service outsourcing—a kind of off-shoring farm production across borders to relatively land-abundant nations and exporting it back to mitigate the adverse effects of food insecurity. While the academic literature is not capacious, this paper, the first of its kind, attempts to study its (potential) effects in the context of a small open economy subject to exogenous shocks. The presence of a sector subject to land acquisition is central to the analysis. In particular, the paper notes that: (i) an increase in world prices of agro-business sector causes skewed effects (shrinkage) in manufacturing or innovative sectors, and subsistence sector (via forward and backward linkages), causing price change vulnerability; (ii) with attractive premiums offered by host country, land acquisition will undermine the avowed objective of mitigating food shortages and aggravate income inequality; (iii) technological progress or inducing technological efforts via skills, capacity building, and infrastructure development will have positive effects if host countries adopt a policy climate favourable to fostering governance and education for revitalizing agriculture. Further extensions to address pertinent (stylized) facts are also explored.

  • Paul Dorosh, and James Thurlow - May 2012
    Can Cities or Towns Drive African Development? Economy-wide Analysis for Ethiopia and Uganda

    Rapid urbanization is an important characteristic of African development and yet the structural transformation debate focuses on agriculture’s relative merits without also considering the benefits from urban agglomeration. As a result, African governments are often provided conflicting recommendations on the importance of rural agriculture or urban industry. We develop dynamic economy-wide models for Ethiopia and Uganda that capture both traditional aspects of the debate (growth linkages and foreign trade) and benefits from urbanization (internal migration and agglomeration effects). Simulations suggest that urban agglomeration is an important source of long-term growth and structural transformation, but that investing in cities does not greatly reduce national poverty over the short-term. In this regard, agricultural growth is more effective, albeit with slower national growth. Given these trade-offs, we conclude that the urbanization’s benefits argue against an ‘agro-fundamentalist’ approach to African development, but the short-term imperative of reducing poverty necessitates further agricultural investment.

  • S. Subramanian - May 2012
    Variable Populations and the Measurement of Poverty and Inequality: A Selective Overview

    The present paper is a selective overview, very considerably based on work in which the author himself has been involved, of the difficulties which can arise in the measurement of poverty and inequality when one compares populations of differing size. The paper begins with certain problems attending the measurement of poverty when the overall population size is fixed but the numbers of the poor are permitted to vary: one discovers a certain commonality of outcomes between Derek Parfit’s quest for a satisfactory theory of wellbeing and the economist’s quest for a satisfactory measure of poverty. Complications arising from both the poverty and inequality rankings of distributions when the aggregate size of the population is allowed to vary are also investigated. It is suggested in the paper that, from the perspectives of both logical consistency and ethical appeal, there are problems involved in variable population comparisons of poverty and inequality which deserve to be taken note of and enquired into.

  • D. Jayaraj and S. Subramanian - June 2012
    On the ‘Inclusiveness’ of India’s Consumption Expenditure Growth

    This paper reviews the evidence on the ‘inclusiveness’ of the growth in consumption expenditure that has occurred in India over the last four decades or so. The notion of dynamic inclusiveness is framed in terms of imagined normative allocations of the inter-temporal product of growth, as dictated by notions of equity of varying orders of demandingness. There are analytical parallels between these exercises and those involved in the study of bankruptcy in ‘Talmudic estate problems’, as well as in the determination of optimal anti-poverty budgetary allocations. The issue of inclusive growth is reviewed in this paper with respect to inclusiveness across both income classes and social groups such as caste and occupation. The results of the investigation undertaken in the essay suggest distressingly little evidence of inclusiveness in India’s consumption growth experience.

  • S. Subramanian - June 2012
    On a Distance Function-Based Inequality Measure in the Spirit of the Bonferroni and Gini Indices

    A natural way of viewing an inequality or a poverty measure is in terms of the vector distance between an actual (empirical) distribution of incomes and some appropriately normative distribution (reflecting a perfectly equal distribution of incomes, or a distribution with the smallest mean that is compatible with a complete absence of poverty). Real analysis offers a number of distance functions to choose from. In this paper, the employment of what in the literature is known as the Canberra distance function leads to an inequality measure in the tradition of the Bonferroni and Gini indices of inequality. The paper discusses some properties of the measure, and presents a graphical representation of inequality which shares commonalities with the well known Lorenz curve depiction of distributional inequality.

  • Conor M. O’Toole - July 2012
    Does Financial Liberalisation Improve Access to Investment Finance in Developing Countries?

    This paper considers the effect of financial liberalisation on access to investment finance using firm level data covering 57 developing and transition countries. An index is presented which measures financial market liberalisation along the following policy dimensions: directed lending, credit controls and reserve requirements, state control of banking,openness of international financial flows, banking market entry, prudential regulation and supervision, and securities market development. Categorising firms as financially constrained across four measures, the results indicate that financial liberalisation reduces the probability of being credit constrained, with the effect strongest for young, domestic private small and medium sized enterprises. Increases in the degree of liberalisation, decrease the probability of being constrained by between 5 and 20 percent depending on the constraint definition. However, for Sub-Saharan Africa, the results indicate that financial liberalisation actually increases financing constraints for firms. This may help explain the stylised fact that despite a commitment to financial reform, the predicted growth benefits have not been realised in this region.

  • M.G. Quibria - September 2012
    Microcredit and Poverty Alleviation: Can microcredit close the deal?

    This paper explores the relationship between microcredit and poverty reduction. To investigate this question, we posit a bare-bone, household model that outlines the economic environment within which various types of family microenterprises operate. It highlights a number of issues that impinge on household earnings such as the nature of the labour market, technology, product demand and entrepreneurial skills. The paper argues that the impact of microcredit is likely to be different across household types as well as across different economic environments. The paper identifies several important demand and supply constraints to the household’s graduation from poverty. These constraints are difficult to overcome in a traditional economic environment, marked by stagnant technology and market saturation. Finally, it is suggested that microcredit has a positive effect on female empowerment—i.e., the agency to make household decisions which helps to improve the quality of family consumption and ‘human development indicators’ of the family. This claim may hold sway in some contexts. However, our a priori reasoning, as well as the available contrary empirical evidence, suggests that female empowerment does not spring automatically from the introduction of microcredit: female empowerment (or the lack thereof) seems to closely track women’s trajectory of economic success.

  • Ling Yang, James Thurlow and Michael L. Lahr - October 2012
    The (Declining) Role of Households in Sustaining China's Economy

    Current explanations for private consumption’s diminished role in China focus on the expansion of exports and investments. Using structural path analysis, we find additional contributing factors. First, growth patterns during 1997-2007 favoured sectors with low production multipliers. Secondly, income multipliers fell in most sectors, especially in fast growing sectors and partly due to urbanization. This means less trickledown from growth to household incomes. Thirdly, households became less important in sustaining domestic production processes. Together, these deep structural changes suggest that enhancing private consumption’s role in China will require new (services-oriented) growth patterns and a significant realignment of industry-household linkages.

  • Florencia Torche and Luis F. Lopez-Calva - November 2012
    Stability and Vulnerability of the Latin American Middle Class

    Using panel datasets from Mexico and Chile for the 2000s, we examine the determinants of middle-class intra-generational mobility. We define the middle class by means of a latent index of economic wellbeing that is less sensitive to short-term fluctuation and measurement error than standard measures of income. We find high rates of both upward and downward mobility in Mexico and Chile, indicating that the middle class has the opportunity to move to higher levels of wellbeing but it is also vulnerable to falling into poverty. In both countries, labour market resources (education and occupational status of the head, number of members in the labour market) are much stronger determinant of mobility than demographic factors, suggesting the importance of policies that foster human capital and that protect workers from shocks. Rural middle-class households are substantially more vulnerable to falling into poverty and have little chance of advancing to upper classes.

  • Augustin Kwasi Fosu - January 2013
    Growth of African economies: Productivity, policy syndromes, and the importance of institutions

    Recent evidence from an exhaustive political economy study of growth of African economies—the growth project of the African Economic Research Consortium (AERC) suggests that ‘policy syndromes’ have substantially contributed to the generally poor growth in sub-Saharan Africa during post-independence. The current article employs the unique data and insights generated by the growth project to further explore the importance of a ‘syndrome-free’ (SF) regime for growth in the region by examining: (i) the channels via which SF affects growth, total factor productivity (TFP) versus factors of production; and (ii) the role of institutions in mediating this impact, with special attention accorded the efficacy of the restraint on the executive branch of government in mitigating the potentially adverse effect of ethnicity.


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Other related themes:
- Aid
- Bureaucracy
- Debt
- Decentralization
- Dependency theory
- Development
- Development Economics
- Economic Policies
- Employment/Unemployment
- Foreign Direct Investment
- Gender
- Human Rights
- Human Development
- Hunger
- Inequality/social exclusion
- Informal sector
- Labour Market
- Microfinance
- Migration
- Poverty
- Privatization
- State/Civil Society/

- Sustainable Development
- Transnational Corporations
- Urbanization

- Complete list of development themes