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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