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On Planning for Development Editor: Dr. Róbinson Rojas Sandford
WIDER Jubilee Conference. Helsinki, Finland, June 2005.
WIDER Thinking Ahead: the Future of Development Economics
Themes addressed in this conference:
- Institutions and Governance - Conflict and Human Rights
- Development Finance
- Development Economics in Retrospect
- Poverty and Vulnerability - Foreign Aid
- Development Strategies - China - Globalization
- A New World Economic Order - Behavioural Approaches
- Poverty - Wellbeing and Human Development
- Trade and Development - Migration and Employment
- Africa - International Finance - Pro-poor Policies
- Technology and Development - Informal Sector
- Rural Development - Achieving the MDGs - Growth
- Country Strategies - Cultural and Social Capital

Conference papers:

Global inequalities in long term perspective
Richard Jolly - 2005

Adam Smith’s emphasis on the central importance for development of the division of labour is often repeated. Less well known is what he had to say about inequality and its origins. Smith was blunt:
"Wherever there is great property, there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many".
Smith also emphasized the way such inequality led on to the need for government to maintain law and order.
The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property…can sleep at night in security…The acquisition of valuable and extensive property, therefore, necessarily requires the establishment of civil government."
Smith had an evolutionary view of society and made clear how inequality evolved with property. In hunter society, the first period of society, there was little property and little inequality – and with contemporary understanding, probably less true than Smith thought – seldom any regular administration of justice. The second period of society was the ‘age of shepherds’ and with this “the inequality of fortune first begins to take place and introduces among men a degree of authority and subordination which could not possibly exist before. It thereby introduces some degree of civil government which is indispensably necessary for its own preservation.”
Smith though blunt, was measured. Thomas Paine writing two decades later also focused on land as the source of inequality, but he presented his analysis with pre-Marxian vitriol.
It is very well known that in England (and the same will be found in other countries) the great landed estates, now held in descent, were plundered from the quiet inhabitants at the conquest. The possibility did not exist of acquiring such estates honestly…That they were not acquired by trade, by commerce, by manufactures, by agriculture or by any reputable employment is certain. How then were they acquired? Blush, aristocracy, to hear your origin, for your progenitors were Thieves…When they had committed the robbery, they endeavoured to lose the disgrace of it, by sinking their real names under fictious ones, which they called Titles. It is ever the practice of Felons to act in this manner.” (Thomas Paine, Dissertations on First Principles, in Rights of Man, Common Sense and other political writings (Oxford, Oxford University Press) 1995, p 401.)

The pace and distribution of health improvements during the last 40 years: some preliminary results
Giovanni Andrea Cornia and Leonardo Menchini - 2005

This paper juxtaposes changes over the last forty years in indicators of income growth and distribution with the mortality changes recorded at the aggregate level in about 170 countries and at the individual level in 21 countries with at least two Demographic and Health Surveys covering the last twenty years. Over the 1980s-and 1990s, the infant-mortality rate (IMR), under-5 mortality rate (U5MR) and Life Expectancy at Birth (LEB) mostly continued the favourable trends that characterized the 1960s and 1970s. Yet, especially, the 1990s the pace of health improvement was slower than that recorded during the prior decades. In addition, the distribution between countries of aggregate health improvements became markedly more skewed. These trends are in part explained by the negative changes recorded in Sub- Saharan Africa and Eastern Europe, but are robust to the removal of the two regions from the sample. This tendency is observed also at the intra-regional level, with the exception of Western Europe. Thirdly, DHS data for 21 developing countries point to a frequent divergence over time in the within-country distribution of gains in IMR and U5MR among children living in urban vs. rural areas and belonging to families part of different quantiles of the asset distribution, while IMR differentials by level of education of the mother show mixed trends The paper concludes by underscoring the similarities and linkages between changes in income inequality and health inequality and suggests some tentative explanations of these trends without, however, formally testing them.

Inequality values and unequal shares
Tony Shorrocks - 2005

One of the great handicaps faced by researchers on inequality is the difficulty of conveying the significance of summary measures of inequality to a broad audience, especially non-economists. While concepts such as unemployment, inflation, growth, productivity and poverty can be grasped intuitively by the general public—although not with all the fine nuances —this is not the case with inequality values. The increasing attention given to issues concerning population heterogeneity has made the lack of an intuitive concept a more pressing problem. This perhaps explains a growing tendency to revert to the use of crude measures of inequality, such as the inter-decile ratio.
The Gini coefficient is the summary measure which comes closest to providing an intuitive interpretation. Indeed, this is the main reason why the Gini coefficient remains by far the most popular inequality index.1 Yet the standard interpretations of the Gini coefficient fall far short of immediate comprehension. The most common interpretation is the area above the curve in a Lorenz diagram expressed as a proportion of the area below the diagonal; but this presupposes familiarity with the notion of a Lorenz curve. The Gini can also be defined in terms of the average absolute difference between incomes in the population, sampling randomly with replacement over the entire population. In fact Yitzhaki (1998) lists more than 12 alternative ways of defining the Gini coefficient—“spelling Gini” is how he puts it. However none of these linguistic variations succeed in providing the simple intuitive concept that everyone craves.

Trends in income inequality: a critical examination of the evidence in WIID2
2005 Markus Jantti and Susanna Sandstrom - 2005

This paper examines changes across time in within-country inequality using the most recent, and we would argue, the most appropriate data at hand, the updated World Income Inequality Database (WIID2). We attempt to find whether it is possible to find robust evidence on inequality trends. Our empirical approach is to use so-called mixed-effects models with quintile groups means as the dependent variable, observed covariates as explanatory variables and allow for (at the most detailed level) country-specific intercepts and trends. This statistical framework allows us to assess in a structured fashion the actual patterns of inequality change across the world and to start to examine if these changes can be accounted for by readily observable economic and demographic factors.

Understanding the relationship between institutions and economic development...
Ha-Joon Chang - 2005

The issue of institutional development, or “governance reform”, has come to prominence during the last several years. During this period, the academic literature on institutions and development has exploded. And today even the World Bank and the IMF, which used to dismiss institutions as mere “details” that do not affect the wisdom of the orthodox economic theory, have come around to emphasising the role of institutions in economic development. For example, the International Monetary Fund (IMF) put great emphasis on reforming corporate governance institutions and bankruptcy laws during the 1997 Asian crisis, while the World Bank’s recent annual report (Building Institutions for Markets, 2002) focuses on institutional development, although from a rather narrow point of view, as indicated by its title.

Institutions, policies and economic development
Grzegorz Kolodko - 2005

Institutions are not only created and built, but also – and especially – need to be learnt. It is a process which takes place in all economies, but acquires a special importance in less advanced countries. Not only theoretical arguments, but also the practical experience over the past 15 years demonstrate that faster economic growth – and hence also, more broadly, socioeconomic development – is attained by those countries which take greater care to foster the institutional reinforcement of market economy. However, progress in market-economy institution building is not in itself sufficient to ensure sustained growth. Another indispensable component is an appropriately designed and implemented economic policy which must not confuse the means with the aims.

Governance in decentralized development aid programs
Frédéric Gaspart and Jean-Philippe Platteau - 2005

Largely as a response to critiques of top-down development and of a growing awareness of the low effectiveness of aid absorption in poor countries, the international donor community has recently adopted with enthusiasm and determination a new approach to fight poverty, called the community-based development approach (CBD). Such an abrupt shift in aid strategies is questionable, not because the approach is wrong (the opposite is actually the case), but because massive injections of aid funds in CBD projects, the entry into the field of numerous agencies with little or no experience in participatory development, as well as the pressing need for quick and visible results, threaten to undermine its effectiveness in reducing poverty. The cause for worry comes from the ‘elite capture’ problem that risks deflecting a large portion of the resources devoted to CBD into the hands of powerful groups dominating target communities. On the basis of a game-theoretical model, the main aim of the paper is to discuss the use of sequential and conditional disbursement procedures as a way of surmounting such a problem, and to examine how the share of CBD aid reaching the poor is influenced by various elements of the aid environment, including the pressure of competition among donor agencies and the availability of aid funds. Multilateral reputation mechanisms and intra-community competition for leadership are also assessed as possible alternatives to sequential disbursement procedures.

Corruptibility, transparency, and bureaucratic institutional structure
John Bennett and Saul Estrin - 2005

We analyze the role of bureaucratic corruption in the context of infrastructure investment and public service provision by a foreign firm in a developing economy. This type of investment involves a relatively large sunk element, and so the investor may offer a bribe to avoid expropriation, as well as to obtain more favourable terms in the initial contract. We examine these issues for both a centralized and a decentralized bureaucracy, and we consider the role of transparency in each case. Among our results is that, provided there is transparency, domestic welfare and social efficiency may be enhanced by decentralization. The key factor underlying this result is that one bureaucrat in effect may collude with the investor to reduce the payoff of another bureaucrat.

Inequality, indivisibility and insecurity (PDF 73KB)
Mansoob Murshed

Civil war and organised collective violence is a complex phenomenon. Not only does it produce human tragedies on a colossal scale, but it creates humanitarian crises that are of concern to the international community, as well as contributing to global and regional insecurity. To economists, especially development economists, civil war is important as it is now recognised as a major cause of underdevelopment and the persistence of poverty (see Murshed, 2002a; Collier et. Al. 2003). The number of countries embroiled in a civil war seems to have waned after 1994 (Hegre, 2004). The number of new civil wars emerging also seems to have fallen in the last decade (Hegre, 2004). But the average duration of civil wars, standing at 16 years in 1999, does not seem to exhibit a significant downward trend (Fearon, 2004). The number of fatalities in civil war may be declining recently, but the numbers of refugees and internally displaced persons is rising (Human Security Report, 2005). For all of these reasons ending conflict or reducing its intensity must be a very high policy imperative within the development and international security agenda.

Inequality in Historical Perspective
Richard Jolly - 2006

Adam Smith, Tom Paine, John Stuart Mill and Karl Marx were all bold and outspoken about the injustices of extreme inequality, nationally and internationally. Yet by almost every standard, global inequality has grown substantially since they were writing, and national income inequality also over the last two or three decades. There is a case today for more outspokenness about the extremes of inequality, both about the causes and how these causes are linked to extreme injustices in the past.

Bilateral war in a multilateral world: carrots and sticks for conflict resolution (PDF 188KB) -
Zsolt Becsi and Sajal Lahiri

This paper constructs a three-country, many-good and many-factor trade-theoretic model in which two of the countries are in conflict and where war effort is determined endogenously in a Nash equilibrium. The third country does not take part in the war, but trades with the warring countries. In the framework, we examine, inter alia, how war and welfare are affected by globalization and by two instruments available to the third country — one carrot and one stick. Our overall conclusion is that the third parties do have the incentives for, and can play an effective role in, conflict resolution.

Globalization and human rights approach to development
Siddiq Osmani - 2007

Would globalization enhance the implementation of human rights as stated in the Universal Declaration of Human Rights ( 1948 ) and the subsequent United Nations agreements , particularly the covenant on civil and political rights ( 1966 ) ,the covenant on economic, social and cultural rights (1966 ) and the declaration on the right to development (1986 ).?
Attempting an answer to this question is not an easy task, mainly because of the different and contradictory connotations of the term globalization.

Violence in peace, understanding increased violence in early post-conflict transitions and its implications for development
Marcia Hartwell

A key issue for development in the late twentieth and early twenty-first centuries has been an escalation of violence during post-conflict transitions. A long-term goal for international donor involvement is to assist in building legitimate and effective political, economic, and legal institutions. However, research and observation has revealed that increased violence is commonplace during peace processes and strongly influences the ways in which these institutions are formed. In turn post-conflict violence itself is strongly influenced and motivated by the way in which peace agreements have been negotiated. This study addresses some of the reasons for escalation of violence following peace agreements. It describes the underlying dynamics including the relationship between perceptions of justice as fairness, formation of post-conflict identity, political processes of forgiveness and revenge; and the policy implications for development particularly in relation to peace conditionality tied to aid.

Capital flows to the African continent: the development finance challenge
Elsabe Loots

In the 1960s and early 1970s Africa’s future looked bright and promising. Economic growth and development on the continent was considerably higher than in other developing regions. However, during the middle 1970s political instability increased and economic development started to deteriorate, both contributing to the marginalization of the continent. The continued marginalization constitutes a serious threat to Africa’s participation in the global economy. Nepad calls for a reversal of this process through a new partnership between Africa and the international community (Nepad, 2001: 1 & 2).
The Nepad document (2001:10), within the context of the United Nations Millennium Declaration adopted in September 2000, recognizes the fact that the continent’s underdevelopment and marginalization could be addressed by improvements in trade, aid and capital flows. To achieve the outcomes of Nepad and the UN millennium goals, quantitative goals are set such as the achievement of an average annual economic growth rate of 7 per cent per annum to fill the annual resource gap of US$ 64 billion (Nepad, 2001:36). Although it is recognized that the so-called resource gap could partly be filled by increases in domestic savings and improvements in public revenue collection, the bulk of the needed resources would have to be obtained from external sources, and in particular debt relief as well as increases in aid, trade and FDI flows.

East Asian Regional Architecture: New Economic and Security Arrangements and U.S. Policy
Dick K. Nanto - Specialist in Industry and Trade
Updated January 4, 2008
U.S. Congress' Foreign Affairs, Defense, and Trade Division

The end of the Cold War, the rise of China, globalization, free trade agreements, the war on terror, and an institutional approach to keeping the peace are causing dramatic shifts in relationships among countries in East Asia. A new regional architecture in the form of trade, financial, and political arrangements among countries of East Asia is developing that has significant implications for U.S. interests and policy. This report examines this regional architecture with a focus on China, South Korea, Japan, and Southeast Asia. The types of arrangements include bilateral free trade agreements (FTAs), regional trade pacts, currency and monetary arrangements, and political and security arrangements.
The East Asian regional architecture is supported by two distinct legs. The economic leg is strong and growing more intense. A web of bilateral and regional FTAs is developing. An East Asian Economic Community (with 13 nations), an East Asian FTA (with 16 nations), and an Asia Pacific FTA (with 21 nations) are being discussed. In contrast, the political and security leg remains relatively underdeveloped. The most progress has been made with the Association of South East Asian Nations playing the role of convener and has taken the form of the ASEAN Security Community (10 Southeast Asian nations) and ASEAN Regional Forum (25 nations, including the United States). In Northeast Asia, the six-party talks aimed at resolving the North Korean nuclear program are ongoing.

IMF concern for reputation and conditional lending failure: theory and empirics
Silvia Marchesi and Laura Sabani

In this paper we suggest that the dual role played by the IMF, as a creditor and as a monitor of economic reforms, might explain the lack of credibility of the Fund threat of sanctioning non-compliance with conditionality. Specifically, we show that the IMF's desire to preserve its reputation as a good monitor may distort its lending decisions towards some laxity. Moreover, such distortionary incentives may be exacerbated by the length of the relationship between a country and the Fund. Estimating a dynamic panel of 53 middle-income countries, for the period 1982–2001, we find that a longer relationship does increase IMF disbursements.

The determinants of foreign direct investment restrictive policies
Hadi Esfahani - 2005

This paper examines the determinants of FDI employment restrictions. We construct a political economy model where the TNE and the government have different objective functions: the TNE maximizes profits, and the host government cares about tax revenue and local employment. We show that the level of employment preferred by the government exceeds the level preferred by the TNE — the divergence in preferences motivates the government to impose restrictions. We test the implications of the model using data on employment restrictions derived from the World Bank’s World Business Environment Survey, conducted in 1999/2000. The analysis employs data for up to 1207 foreign-owned firms operating in 52 countries.

The evolution of the development doctrine and the role of foreign aid, 1950-2005
Erik Thorbecke

The economic and social development of the third world, as such, was clearly not a policy objective of the colonial rulers before the Second World Wari. Such an objective would have been inconsistent with the underlying division of labour and trading patterns within and among colonial blocks. It was not until the end of the colonial system in the late forties and fifties, and the subsequent creation of independent states, that the revolution of rising expectations could start. Thus, the end of Second World War marked the beginning of a new regime for the less developed countries involving the evolution from symbiotic to inward-looking growth and from a dependent to a somewhat more independent relation vis-à-vis the ex-colonial powers. It also marked the beginning of serious interest among scholars and policymakers in studying and understanding better the development process as a basis for designing appropriate development policies and strategies. In a broad sense a conceptual development doctrine had to be built which policymakers in the newly independent countries could use as a guideline to the formulation of economic policies.

From Seers to Sen: the meaning of economic development
Wayne E. Nafziger - 2005

How has the meaning of economic development changed during the twenty years of WIDER’s existence? Two markers are Dudley Seers, “The Meaning of Development” (1967, 1979), for the earlier period and Amartya Sen, Development as Freedom (1999), for the later. Here the meaning of development also encompasses measures and strategies of development and approaches to its study. Moreover, I examine works beyond these markers to provide more detail of the two men’s views.
Both men were critical of the development literature of their times. For Seers, neoclassical economics had a flawed paradigm and dependency theory a lack of policy realism. After the fall of state socialism in 1989-1991, the ideological struggles among economists diminished. Neoclassicism’s Washington Consensus of the World Bank, IMF, and the U.S. government reigned (Williamson 1993, pp. 1329-1336; 1994, pp. 26- 28). Sen did not focus on ideological issues but, according to the Nobel prize committee, “restored an ethical dimension to the discussion of economic problems” such as development.
According to Seers (1979) the purpose of development is to reduce poverty, inequality, and unemployment. For Sen (1999), development involves reducing deprivation or broadening choice. Deprivation represents a multidimensional view of poverty that includes hunger, illiteracy, illness and poor health, powerlessness, voicelessness, insecurity, humiliation, and a lack of access to basic infrastructure (Narayan et al. 2000, pp. 4-5).

Kuznets and Modern economic growth fifty years later
Moshe Syrquin - 2005

Simon Kuznets was awarded the 1971 Nobel Prize in economics for his empirically founded interpretation of economic growth, yet, two decades after his death it is only in the guise of the “Kuznets curve” that he may be found in the literature of growth or of economic development. In this paper I review Kuznets’ contribution to growth focusing particularly on his analysis of the costs and benefits of growth and the impossibility of conceptualizing modern economic growth without substantive structural shifts.
Kuznets maintained the impossibility of a purely economic theory of growth. He considered the more general theory as a worthwhile goal but a very remote one at the time. The central problem for Kuznets was to endogenize what economics mostly regards as givens: technology, population, tastes, and institutions.
In his studies of national income and growth Kuznets repeatedly emphasized the problems of scope, valuation, and the distinction between net and gross outputs. The answers to these questions depend on the purpose of economic activity which in turn refers to the social values of the place and time. The solutions, therefore, can never be absolute.

Turning points in development thinking and practice
Louis Emmerij - 2005

In this article, I shall first examine why and how the balance of development thinking and practice changed around 1980. This turning point coincided with a change of influence (caused among others by the industrial countries) at the level of strategic thinking from the UN to the Bretton Woods Institutions. Second, I shall look into the possibility of future turning points in development thinking and practice. In doing so, I shall describe, first, what could well become (and is already becoming) a new and expanded general concept of development, and second, the very opposite, namely development not as a global but as a regional and local strategy.
Having thus examined the future at the global, regional and national levels of development thinking, the article ends with reflections about the interests that lie behind the ideas that help to explain why they get implemented or not, why there are turning points or not.

Vulnerability, unemployment and poverty: a new class of measures...
Kaushik Basu and Patrick Nolen - 2004

Measures of unemployment and poverty have tended to focus solely on those currently unemployed or below the poverty line. This approach has ignored the members of society that are vulnerable to becoming unemployed or falling into poverty. Current literature in this area has implicitly assumed that since someone who is vulnerable experiences pain from the chance of becoming unemployed or falling into poverty, our standard measures of unemployment and poverty do not accurately account for this pain. The implication is that vulnerability is a ‘bad’ and policies should aim to reduce the number of people who are vulnerable in a society. In this paper we argue that, at the macro level, vulnerability can be viewed as a ‘good’ because, with unemployment remaining constant, the presence of vulnerable people implies that there must also exist currently unemployed people who expect to find work in the near future. And a society where unemployment is more equitably shared is better than a society where the burden of unemployment is carried by only a few. Given this view of vulnerability we then suggest a class of measures that, unlike the standard unemployment rate, account for the amount of vulnerability that exists in a society. We show some attractive axioms that our measure satisfies, fully characterize our measure and apply it to data from the U.S. and South Africa.

Measuring individual vulnerability
Cesar Calvo and Stefan Dercon - 2005

Standard poverty analysis makes statements about deprivation after the veil of uncertainty has been lifted. This implies that there is no meaningful role for risk as part of an assessment of potentially low states of well-being. In this paper, we introduce a concept of vulnerability, as a threat of poverty, with downside risk at its core. More specifically, we define a vulnerability measure as an assessment of the magnitude of the threat of poverty, measured ex-ante, before uncertainty is resolved. We describe the welfare-economic foundations for desirable properties of a vulnerability measure and assess to what extent some measures used in empirical work abide by them. We also present two families of measures that are fully consistent with our axiomatic approach.

Poverty Persistence and Transitions in Uganda: A Combined Qualitative and Quantitative Analysis
David Lawson, Andy McKay and John Okidi - December 2003

Uganda’s excellent record in reducing the national incidence of monetary poverty over the 1990s is widely known. Panel data though over this period shows that this net aggregate reduction was accompanied by substantial mobility into as well as out of poverty (Okidi and McKay, 2003). A majority of those that were poor in 1992 had escaped by 1999, but a substantial minority were left behind and many others fell into poverty over this period. Therefore, against the background of Uganda’s impressive macroeconomic performance over this decade, there was a significant variation in individual experiences of poverty movements, and it is important to understand the factors, many of which are individual or local, that contributed to this. This paper develops this understanding by combining qualitative and quantitative insights at the individual, household and community level.

Accounting for Income Fluctuations in Distributional Analysis: Theory and Evidence for Argentina
Guillemo Cruces - October 2006

This paper studies the impact of income fluctuations on poverty, motivated by the recurring economic crises that affect developing countries and the incidence of income fluctuations on household welfare. The paper presents a set of tools for empirical work based on theoretically sound extensions of the existing methodology for static distributional analysis. Results form longitudinal data for Argentina in the 1995-2002 period find that the large fluctuations in household income due to the repeated economic crises in the country in this period had a significant effect on household welfare.

Can foreign aid dampen external political shocks?
Lisa Chauvet - 2005

In this paper, an extended econometric model of aid effectiveness is proposed. In growth regressions – estimated by the application of the generalized method of moments developed by Arellano and Bond (1991) – foreign aid and aid interacted with various variables are introduced in order to capture the conditions of aid effectiveness. Results suggest that aid effectiveness depends :
(i) negatively on internal political instability ;
(ii) positively on vulnerability to trade shocks ; (iii) positively on external political shocks, implying that aid can dampen the negative impact of these shocks on economic growth.
This latter result suggests an extended notion of vulnerability, which would affect positively aid effectiveness, and would be composed of both economic and political shocks faced by developing countries.

A Wider Approach to Aid Effectiveness: Correlated Impacts on Health, Wealth, Fertility and Education
David Fielding, Mark McGillivray, and Sebastian Torres - February 2006

In this paper we discuss the results of research into the impact of foreign aid on human development. Rather than focussing on per capita income, as is common in the existing literature, we look at how aid impacts on a range of human development indicators, including measures, of health, education and fertility, and allow for the fact that these different dimensions of wellbeing are likely to interact with each other. Overall, aid is found to have a substantial positive impact on many development outcomes.

IMF Conditionality: Theory and Evidence
Axel Dreher - April 2006

This article analyzes whether and to what extent reliance on conditionality is appropriate to guarantee the revolving character of Fund resources. The paper presents theoretical arguments in favour of conditionality, and those against the use of conditions. It summarizes the track record of program implementation and discusses the evidence of factors determining implementation. Whether proponents or critics of conditionality can be supported by existing data analysis is also investigated, as is the success of conditionality in terms of outcomes. The final section draws policy implications.

Aid, Volatility and Growth Again: When Aid Volatility Matters and When It Does Not
Lisa Chauvet and Patrick Guillaumont - 2008

In previous papers we have argued that aid is likely to mitigate the negative effects of external shocks on economic growth (i.e., aid is more effective in countries that are more vulnerable to external shocks). Recently an important debate has emerged about the possible negative effects of aid volatility itself. However, the cushioning effect of aid may involve some volatility in aid flows, which then is not necessarily negative for growth. In this paper we examine to what extent the time profile of aid disbursements may contribute to an increase or a decrease of aid effectiveness. We first show that aid, even if volatile, is not clearly as procyclical as often argued, and, even if procyclical, is not necessarily destabilizing. We measure aid volatility by several methods and assess procyclicality of aid with respect to exports, thus departing from previous literature, which usually assesses procyclicality of aid with respect to national income or fiscal receipts. The stabilizing/destabilizing nature of aid is measured by the difference in the volatility of exports and the volatility of the aid plus exports flows. Then, in order to take into account the diversity of shocks to which aid can respond, we consider the effect of aid on income volatility and again find that aid is making growth more stable, while its volatility reduces this effect. Finally, we find evidence through growth regressions that the higher effectiveness of aid in vulnerable countries is to a large extent due to its stabilizing effect.

Patterns of rent-extraction and deployment in developing countries. Implications for Governance, Economic Policy and Performance
Richard M. Auty - February 2006

Rents tend to be relatively high in developing countries and also very fungible, so that differences in the scale of the rent and in its distribution among economic agents profoundly affect the nature of the political state and the development trajectory. This paper identifies two basic trajectories to a high-income democracy linked to the scale and deployment of rents. Low-rent countries tend to engender developmental political states that competitively diversify the economy and sustain rapid per capita GDP (PCGDP) growth, which strengthens three key sanctions against anti-social governance (political accountability, social capital and the rule of law) to achieve endogenous democratization that is incremental. In contrast, rent-rich countries are likely to experience a slower and more erratic transition. This is because high rents tend to nurture non-developmental (predatory) political states whose deployment of the rent locks the economy into a staple trap, which carries a high risk of a growth collapse. The events presaging a growth collapse weaken sanctions against anti-social governance. However, a growth collapse may abruptly trigger democracy if exogenous factors are favourable, although such a change is likely to prove unstable and prone to regression. Very preliminary tests of the link between PCGDP growth and sanctions against antisocial governance suggest that social capital and law strengthen as predicted by the models for low-rent countries, but political accountability lags. Rent-rich countries exhibit the expected weaker link between PCGDP growth and democratization, an outcome consistent with a more erratic transition towards a high-income democracy.

Credit Co-operatives in Locally Financed Economic Development Using Energy Efficiency as a Lever
Robert J. McIntyre - February 2006

In most transitional and many developing countries institutions capable of supporting economic development with localized saving-investment cycles have not developed. This crucial gap is in no way addressed by either country-level macro programmes dealing with ‘development finance’ or by donor-driven ‘micro credit’ schemes of Grameen and other types operating at a lower (local) level. The latter seldom evolve into financial institutions able to sustain themselves on the basis of local resources, do not operate on a sufficient scale to trigger dynamic local-level economic growth, and are ultimately artificial manifestations of concessional or charitable aid. The advantages of credit co-operatives in mobilizing and financing local economic development are contrasted with the disadvantages of both conventional micro credit and the most recent neoliberal fashion of so-called ‘new wave financial institutions’. Both precedent and the structural logic suggest that this is a promising space for the development of a localized financial system based on credit co-operatives, which elsewhere have overcome the SME credit famine and stimulated local saving-investment cycles. Recent Russian developments are placed in the context of earlier experience in structurally similar conditions. These lessons apply to all other former Soviet Union states, as well as other countries.

Resources, strategies, and investment climates as determinants of firm growth in developing countries: A dynamic resource-based view of the firm
Keun Lee and Tilahun Temesgen - 2005

Using firm-level survey data sets from a number of developing countries, this paper examines what make firms grow successfully in developing countries. We use the investment climate survey conducted by World Bank in eight developing countries from different geographical locations covering a total of about 6,600 manufacturing firms.
As a basic theoretical framework, we rely on the resource-based theory of the firm originally proposed by Penrose (1959) and its later developments, such as the dynamic resource-based theory of the firm. In Penrose theory, a firm is a bundle of resources (or capabilities) and firm growth depends on what kinds and how much of the diverse resources a firm has and how effectively it can utilize them for growth. The findings of the paper are as follows.
First, in relatively low growth (capability) firms, growth is mainly contributed by what can be termed as relatively basic resources such as physical capital and human capital, whereas in high growth (capability) firms, growth is, in a relative sense, more driven by higher level resources such as managerial capital and R&D capital.
Second, not specific human capital but general human capital of workers is found to have significant contribution to firm growth, whereas for managers, specific knowledge rather than general knowledge is found to be more important.
Third, difference between slow vs. high growth firms has more to with the different effectiveness of relevant resources less with the difference in the absolute amount of the resources.
Fourth, export orientation and conglomeration are the most important strategies for firm growth, compared to networking with other local, SOE or foreign firms.

Structural change and poverty reduction in Brazil: the impact of Doha Round
Maurizio Bussolo, Jann Lay and Dominique van der Mensbrugghe - 2005

In their review of the relationship between trade liberalization and poverty, Winters, McCulloch and McKay (2004), conclude that trade liberalization “may be one of the most cost-effective anti-poverty policies available to governments” although they go on to note that it may not be the most powerful policy and its effectiveness is likely to vary substantially from case to case. In the medium to long run time horizon, economies adjust not only to trade policy reforms but also to many other changes, including technological progress, changes in the skill composition of the population, and varying consumption patterns. This chapter’s main objective is to assess the role of trade liberalization in poverty reduction over a time horizon during which these other structural trends are operating. In particular, we assess the poverty impact of a Doha Round (and a Full Liberalization) scenario on Brazil against a baseline scenario that incorporates some of the main features of medium run structural change but no changes in trade policies.

Development Strategy, Viability, and Economic Institutions: The Case of China
Justin Yifu Lin, Mingxing Liu, Shiyuan Pan, and Pengfei Zhang - May 2006

This paper explores the politically determined development objectives and the intrinsic logic of government intervention policies in east developed countries. It is argued that the distorted institutional structure in China and in many least developed countries, after the Second World War, can be largely explained by government adoption of inappropriate development strategies. Motivated by nation building, most least-developed countries, including the socialist countries, adopted a comparative advantage defying strategy to accelerate the growth of capital-intensive, advanced sectors in their countries. In the paper we also statistically measure the evolution of government development strategies and the economic institutions in China from 1950s to 1980s to show the co-existence and coevolution of government adoption of comparative advantage defying strategy and the trinity system.

State ownership and corporate performance: a quantile analysis on China's listed companies
Laixiang Sun, Tao Li and Liang Zou - November 2005

Assessing the effect of government shareholding on corporate performance in the context of China has been a hot topic. Documented results are mainly empirical, and the findings are diverse. In this paper we present a formal model that establishes a theoretical link between government shareholding and corporate performance, where firms receive private signals about their potential profitability and make private effort. Predicting a negative impact of government shareholding on corporate performance, our model further shows that this impact is more significant when the firms’ perceived profitability is high. Using a panel dataset of China’s listed companies during 1994- 2000, we find that the estimations of conditional quantile regression models are indeed consistent with these predictions.

Economic opening and industrial agglomeration in China
Zhao Chen, Yu Jin and Ming LuZhao - 2005

This paper explores the causes of industrial agglomeration in China using the provincial panel data during 1987-2001, focusing on the effects of economic opening. The determinants of industrial agglomeration are tested by controlling three types of factors, those of economic policies, economic geography and new economic geography, respectively. In summary, we find: (1) Economic opening, which is also related with geography and history encourages industrial agglomeration; (2) Large market size, effects of forward and backward linkage, high level of urbanization, better infrastructure and less involvement of local government tend to facilitate industrial concentration; (3) Costal regions have geographical advantage in attracting firms. These findings not only support the new economic geography theory from evidence within China, but also emphasize the important role that policies like economic opening might directly play in industrial agglomeration. The most important policy implication of this paper is that by quickening up the step of integrating into world economy and deregulating, even those less developed regions might accelerate industrial agglomeration and thus decrease regional disparity.

The financial crises in East Asia. The cases of Japan, China, South Korea and Southeast Asia
Beatriz Pont, Liu Lan, Fracisco García-Blanch, Clara García and Iliana Olivié - 1998

Asymmetric globalization: Global markets require good global politics
Nancy Birdsall - 2005

My remarks today are about globalization, its asymmetries between rich and poor, and because of its asymmetries, the need to rethink our global development architecture. I will be talking mostly as an economist this afternoon, but my real theme is that integration of the global economy is outpacing the development of a healthy global polity. The globalization of markets can and has brought mutual benefits to the rich and poor alike. But it is only through better global politics that the values and rules critical to a secure and just world will be realized, and it is only then that the full benefits of a global market will be available to all.
Put another way, good global politics is critical to the battle against global poverty and unrealized human development, and to a more just and fair as well as a more stable and prosperous global economy.
By globalization I mean the increasing integration of economies and societies, not only in terms of goods and services and financial flows but also of ideas, norms, information and peoples. In popular use, however, the term globalization has come to mean the increasing influence of global market capitalism or what is seen as the increasing reach of corporate and financial interests at the global level.

The darker side of globalization - Ronald Findlay & Mats Lundahl
The Impact of Globalization on the World's Poor: Transmission Mechanisms
Machiko Nissanke and Erik Thorbecke - 2005

Over the recent decades, the world economy has experienced not only a quantitative leap in the volume and value of international trade and financial transactions, but a qualitative transformation in the way residents of different nation-states interact with each other. National economies are increasingly linked through international markets for products and factor markets, leading to increased cross-border flows of goods, capital, labour, and through flows of information, technology and management know-how. The world economy is becoming increasingly integrated.
This process of globalisation is one of the most critical developments affecting the evolution of national economies. Globalization offers participating countries new opportunities for accelerating growth and development but, at the same time, it also poses challenges to, and imposes constraints on policy makers in the management of national, regional and global economic systems. While the opportunities offered by globalization can be large, a question is often raised as to whether the actual distribution of gains is fair, in particular, whether the poor benefit less than proportionately from globalization – and could under some circumstances actually be hurt by it.

Globalization, employment and poverty in Ghana
Ernest Aryeetey - 2005

One of the most significant influences on the performance of the economy of Ghana in the last two decades has been derived from the greater interaction between it and other economies. Thus, following economic reforms that focused considerably on opening the economy to greater and freer external trade, globalization has been a major aspect of the economy and society. But this influence has been observed not only in the area of external trade; it is seen also in terms of capital flows, aid, technology transfer, international migration, etc. All of these have seen significant expansion in the period of reforms, even if this has been on a scale far smaller than in South East Asia and the other faster growing developing economies.

Appropriate economic policies at different stages of development
Vladimir Popov and Victor Polterovitch

This paper summarizes theoretical arguments and provides empirical evidence to support the statement that rational economic policies depend qualitatively on two factors – technological and institutional level of development of a country. We concentrate on the impact of three policies to promote the catch up development – import tariffs, increase of government revenues/spending, and the speed of foreign exchange reserves accumulation (“exchange rate protectionism”). It is shown that the impact of these policies may be positive or negative dependening on a stage of development; in each case we find threshold levels or critical combinations of GDP per capita and/or an institutional quality indicator. A theoretical model demonstrates how tariff protection and accumulation of reserves can boost long term growth in the presence of externalities.

Real exchange rate, monetary policy and employment: economic development...
Roberto Frenkel and Lance Taylor - 2006

The exchange rate affects the economy through many channels and, consequently, has diverse macroeconomic and development impacts. Five are analysed in this paper: resource allocation, economic development, fi nance, external balance and infl ation. The use of the exchange rate as a developmental tool in conjunction with its other uses (often in coordination with monetary policy) is at the focus of the discussion.

The Human Dimensions of the Global Development Process in the Early Part of the 21st Century. Critical Trends and New Challenges
Mihály Simai - 2006

At the beginning of the twenty-first century there is a rare coincidence of profound transformations in a number of areas, in population dynamics, in human settlements, in science and technology, economics, social stratification, in the role and functions of the states and in the global power structure and in governance. The systemic transformation of the former socialist countries is an important component of the ongoing changes Political, economic, and social conditions vary immensely throughout the world, influenced by the size, natural endowments, development level, economic structure, political and institutional patterns, and competitiveness of the countries. The new state and non-state actors make the system of interests and values more diverse. All these have a major influence on the future of the global development process. The paper concludes that developing societies do not need old textbook models, neoliberal or other utopias. There is widespread demand for a new scientific thinking on development, with realistic and humanistic alternatives helping collaborative global and national actions.

Reforms and confidence
Pertti Haaparanta and Jukka Pirttila

We examine the choice of economic reforms when policymakers have present-biased preferences and can choose to discard information (maintain confidence) to mitigate distortions from excess discounting. The de- cisions of policymakers and firms are shown to be interdependent. Confident policymakers carry out welfare-improving reforms more often, which increases the probability that firms will invest in restructuring. While policy makers in diferent countries can be equally irrational, the consequences of bounded rationality are less severe in economies with beneficial initial conditions. We also examine how present-biased preferences influence the choice between big bang versus gradualist reform strategies. Our findings help explain diferences in economic reform success in various countries.

Applying behavioral economics to international development policy
C. Leigh Anderson and Kostas Stamoulis - 2006

Many national and international economic development policies and programs are premised on a traditional economic model of rationality that predicts how individuals will respond to changes in incentives. Empirical and experimental evidence, mostly from Europe and the U.S., is suggesting that there are a range of situations, especially involving uncertainty and costs and benefits spread over time, in which individuals make decisions inconsistent with the predictions of these models: individuals avail themselves more or less than predicted in health or credit programs, participate more or less than expected in market opportunities, under or over insure themselves, and make short run decisions that are inconsistent with their long run welfare.
Our primary research objective is to identify how development projects, programs and policies can be more effectively designed with a better understanding of how individuals make decisions in ways that systematically deviate from traditional assumptions of rational maximization.

Responding to economic reform: the role of psychological factors
(PDF 475KB)
2005 - Renuka Chand & Sheetal K. Chand
Why do so many attempts at economic reform elicit weak responses? The vast literature on this topic advances many economic and even political explanations, but neglects psychological factors. This paper, with Russia as a case study, considers some of the issues raised. Drawing on the workhorse stressor-strain model from psychology, a link is postulated to the standard economic reform paradigm via the concept of psychological well being (PWB). Reforms can be stressful, impact adversely on PWB, and result in counter-productive anti-social behavior. The post-reform data from Russia is suggestive of both acute stressors and widespread strains. To shed further light on inadequate coping and buffering mechanisms, a cross-sectional sample of individuals from St. Petersburg is examined. While the findings and arguments are tentative, they point to the importance of adequate psychological underpinnings in ensuring that responses to economic reform are more successful.

Evolutionary psychology and development economics
(PDF 306KB)
2005 - Wim A. Naudé
Contemporary development economics have provided much empirical evidence to suggest that democracy and other institutions that promote equity are good for growth and development. Why should this be the case? In this paper it is argued that Evolutionary Psychology (EP) can greatly enrich development economics, specifically in adding to our understanding of the micro-foundations of the family unit and the explanations of long-run economic growth and development. In this paper, emphasis was placed on the evolutionary foundations of the family unit, on the understanding of human co-operation, and how these result in institutions, such as monogamous family units with positive male parental investment, where a switch from preference for quantity of children towards the quality of children leads to improved technology and learning. Given that monogamy is more prevalent in a more egalitarian society, institutions such as democracy and an equality sensitive state may have biological roots. Human mate choices influence co-operation, conflict and competition, and the existence and nature of the family unit depend on such biologically determined choices. In particular, the argument is made that human choice, competition for mates, and the resulting sexual selection, lead to different forms of pair-bonding such as monogamy or polygyny. Each of these has different institutional repercussions, with different development outcomes since the family / kinship environment in which children grow up may have important implications for technology adaptation, innovation and learning.

Has world poverty really fallen during the 1990s?
Sanjay Reddy and Camelia Minoiu - 2007

We evaluate the claim that world consumption poverty has fallen during the 1990s in light of alternative assumptions about the extent of initial poverty and the rate of subsequent poverty reduction in China, India, and the rest of the developing world. We assess the extent of poverty using two indicators: the aggregate poverty headcount and the poverty headcount ratio, and consider two international poverty lines that are widely used ($1.08/day and $2.15/day 1993 PPP). We find that under some of the assumptions considered, world poverty has risen. We conclude that, because of uncertainties in relation to the extent and trend of poverty in China, India, and the rest of the developing world, world poverty may or may not have increased. The extent of the increase or decrease in world poverty is critically dependent on the assumptions made. Our conclusions suggest the importance of improving the quality of global poverty statistics.

Identifying and understanding chronic poverty: beyond monetary measures
David Hulme and Andrew McKay - 2005

Despite the renewed commitment over the past 15 years to poverty reduction as the core objective of international development discourses and policies, progress to this end remains disappointing. This is particularly evident in the extent to which the world is off track to achieve most of the Millennium Development Goals, globally and in most regions and countries (UNDP, 2003; UN Statistics Division, 2004). This inadequate progress raises important questions about the policies and strategies (centred around economic growth and human development) that have been adopted to achieve poverty reduction, as well as about key international issues including aid, debt and trade.

Do institutions matter in poverty reduction?. Prospects of Achieving the MDG of Poverty Reduction in Asia
Raghav Gaiha and Katsushi Imai - 2005

Millennium Development Goals (MDGs) draw attention to several dimensions of deprivation that afflict large sections of the population in the developing world, and the imperative of reducing them substantially by 2015. Although these goals are inter-related, the most fundamental one is to halve the proportion of the dollar poor between 1990-2015. Achievement of this goal in Asia and the Pacific region- especially in South Asia- is of considerable importance as it accounted for 466 million of the 1.2 billion dollar poor in 1990.
The objective of this paper is to review progress in attaining the MDG of poverty reduction, assess prospects of achieving it by 2015, and identify priorities in accelerating poverty reduction in this region. A system of equations is specified and estimated using 3SLS. In this model, institutions are endogenous to historical and other exogenous variables, openness is endogenous to institutions, country size and a measure of physical isolation, and income inequality is endogenous to land inequality; income is posited to depend on agricultural income, openness, income inequality, institutions and regional characteristics; the head-count ratio of poverty is posited to depend on income, income inequality, institutions and regional characteristics. The estimated model and its variants are used to simulate poverty outcomes in two sub-regions of Asia and seven countries in this region in 2015 under different scenarios.
The results confirm the important role of agriculture in stimulating overall growth; institutions also have a significant effect on income; openness ceases to have a significant effect on income after its endogeneity to institutions and geographical factors is taken into account; income in turn lowers poverty while income inequality has a positive effect; and institutions have an effect on poverty but only through higher incomes. The simulations illustrate the need for growth acceleration –especially in South Asia- reduction of income inequality and institutional quality improvement. A somewhat striking result is that even modest institutional improvements have significant poverty reducing effects through growth. Factors that trigger such improvements are, however, not so obvious.

Identifying asset poverty thresholds: new methods with an application to Pakistan and Ethiopia
Feli Naschold

The degree of linearity in wealth dynamics and the potential existence of asset thresholds are at the core of two related microeconomic questions that are of fundamental interest to poverty reduction policies but about which we still know little. First, do household asset holdings converge unconditionally to a single long run equilibrium that is high enough for all poor households to escape poverty over time? Or do asset thresholds exist below the poverty line that households cannot overcome without assistance? The latter would make a good case for social policies that help lift the currently poor household out of poverty. A short term investment would be expected to yield long term benefits. Second, can short term shocks lead to long term destitution? If so, providing insurance through social safety nets would be a high return, long term investment, not only protecting current consumption but also future income streams of currently non-poor households.
Answering these questions can help in designing more effective and targeted poverty reduction policies. However, the empirical literature on identifying household welfare dynamics and poverty thresholds is very small. The contribution of this paper is threefold. First, it compares existing techniques for identifying poverty dynamics by applying them to the same dataset. Second, it examines whether other semi- and nonparametric techniques may be more suitable for locating asset poverty equilibria than these existing techniques. Third, it contributes to the small emerging empirical literature on non-linear household welfare dynamics. It is the first study to use a South Asian dataset, and provides a comparison with Ethiopia. 

DATABASE and models
World Income Inequality Database (WIID)
Susanna Sandstrom

In the UNU/WIDER World Income Inequality Database (WIID) information on income inequality for developed, developing, and transition countries is stored.
WIID was initially compiled over 1997-1999 for the UNU/WIDER-UNDP project "Rising Income Inequality and Poverty Reduction: Are They Compatible?" directed by Giovanni Andrea Cornia, the former Director of UNU/WIDER. As more observations were added to the database, WIDER decided to make the database publicly available in order to facilitate further analysis and debate on inequality. This resulted in WIID version 1.0 which was published in September 2000. The database was designed by Renato Paniccia and Sampsa Kiiski, the programming was done by Sampsa Kiiski, and the data collected by Juha Honkkila, Renato Paniccia and Sampsa Kiiski.
The current update is part of the UNU/WIDER project "Global Trends in Inequality and Poverty" directed by Tony Shorrocks, the Director of UNU/WIDER and Guang Hua Wan, Senior Research Fellow at UNU/WIDER. The revision and the update were made by Susanna Sandström and the collection of old source material by Taina Iduozee. Markus Jäntti, professor at Åbo Akademi Univerity and Senior Research Associate at UNU/WIDER was the advisor for the revision.

DARTS - a model for the Distributional Analysis of the Russian Tax and Transfer System DARTS enables you to act out the role of the Russian Finance Minister. Using this on-line model you can change various tax rates and state benefits including pension levels and housing subsidies, and then track the effects on the people of Russia: who pays the taxes, who gets the benefits, and who gains and loses. DARTS does this by calculating the impact of the changes on a representative sample of the Russian population taken from the Russia Longitudinal Monitoring Survey.

NIEP SOCIAL POLICY MODEL: policy tool for fighting poverty in South Africa
Draft Final Report - Asghar Adelzadeh
Research Director and Senior Economic Modeller, NIEP - August 2001

Modelling is teamwork and the microsimulation model developed by NIEP and presented in this report is no exception. The construction of the NIEP Social Policy Model (NIEP-SPM) is the result of the contributions of a team of six researchers. The team members are Sam Bonti-Ankomah, Likezo Karn, Piason Mlambo, Matsuma Morunyane, Katerina Nicolaou and myself. Sam Bonti-Ankomah assisted in the development of the model’s pension module. Likezo Karn reviewed government documents for the identification of eligibility and entitlement conditions of more than ten government anti-poverty programmes. Piason Mlambo prepared the survey data that was used for the development of the model database. He also assisted in writing of a number of social security modules. Matsuma Morunyane provided assistance in the ageing of the data. Finally, Katerina Nicolaou developed the tax, value added tax, and unemployment insurance modules with little extra help.

Constructed and applied microsimulation models for ten African countries
: Botswana, Cameroon, Ghana, Mozambique, Nigeria, Namibia, South Africa, Tanzania, Uganda, and Zambia

This website has been developed as part of WIDER's project on Designing Africa's Poverty Strategies: Creating the Capacity for Policy Simulation. It provides a user-friendly access to ten African country economic models. You can develop your own tax and transfer policy scenarios or conduct 'what if' simulation analysis. Each model provides you with the poverty, distribution, and budgetary impacts of your policy choices and compares the simulation results with the current state or the base scenario. For more information, you can contact Asghar Adelzadeh at

Health Improvements and Health Inequality during the Last 40 Years
Giovanni Andrea Cornia1 and Leonardo Menchini - 2006

This paper juxtaposes changes over the last forty years in income growth and distribution with the mortality changes recorded at the aggregate level in about 170 countries and at the individual level in 26 countries with at least two demographic and health surveys covering the last twenty years. Over the 1980s and 1990s, the infant mortality rate, under-5 mortality rate, and life expectancy at birth mostly continued the favourable trends that characterized the 1960s and 1970s. Yet, especially in the 1990s, the pace of health improvement was slower than that recorded during the prior decades. In addition, the distribution between countries of aggregate health improvements became markedly more skewed. These trends are in part explained by the negative changes recorded in sub-Saharan Africa and Eastern Europe, but are robust to the removal of the two regions from the sample. This tendency is observed also at the intraregional level, with the exception of Western Europe. Thirdly, demographic and health survey data for 26 developing countries point to a frequent divergence over time in the within-country distribution of gains in the infant mortality and under-5 mortality rates among children living in urban versus rural areas and belonging to families part of different quantiles of the asset distribution. The paper concludes by underscoring the similarities and linkages between changes in income inequality and health inequality and suggests some tentative explanations of these trends without, however, formally testing them.

Human development: beyond the HDI
Gustav Ranis, Emma Samman and Frances Stewart

This paper explores ways of enlarging the measurement and understanding of Human Development (HD) beyond the relatively reductionist Human Development Index. From the extensive literature on well-being, we derived eleven categories of HD. Within each category, we then identified a potential set of indicators which were measurable and reflect performance with respect to that category. In order to reduce the number of indicators representing each category, we included only one for any set highly rank order correlated with each other, as well as including indicators not correlated with any other indicator in that category. Our aim was to retain only indicators which are broadly independent of each other.

Investing in Health for Economic Development: The Case of Mexico
Nora Lustig - March 2006

Health is an asset with an intrinsic value as well as an instrumental value. Good health is a source of wellbeing and highly valued throughout the world. Health is not only the absence of illness, but capacity to develop a person’s potential. Health is also an important determinant of economic growth. Given the importance of health, both as a source of human welfare and a determinant of overall economic growth, the Popular Health Insurance (Seguro Popular) was first introduced in Mexico as a pilot programme by the federal government in 2001, becoming part of the formal legislation in 2003. This study looks at the current situation, and some of the early findings and improvements made so far with regard to public health coverage in Mexico.

International convergence or higher inequality and polarization of human development? Evidence for 1975 to 2002
Farhad Noorbakhsh - February 2006

The concept of convergence is extended to the human development index. Evidence of weak absolute convergence is found over 1975-2002. The results are robust and verified by various conditional β-convergence models and also supported by the evidence of weak σ-convergence. Population weighted analyses provide support for polarization in the human development index amongst developing countries but a slight reduction in world inequality. The dynamics of regional analysis reveal a movement of sub-Saharan Africa towards the low band of human development with Asia and Latin America making progress. High immobility of the early part of the period is followed by considerable upward and downward mobility in the latter part indicating a possible case of the ‘twin peaks’ type of polarization.

Measuring non-economic well-being achievement
Mark McGillivray - 2005

World Institute for Development Economics Research, United Nations University, Helsinki Income per capita and most widely reported, non- or non-exclusively income based human well-being indicators are highly correlated among countries. Yet many countries exhibit higher achievement in the latter than predicted by the former. The reverse is true for many other countries. This paper commences by extracting the inter-country variation in a composite of various widely-reported, non-income-based well-being indices not accounted for by variations in income pre capita. This extraction is interpreted inter alia as a measure of non-economic well-being. The paper then looks at correlations between this extraction and a number of new or less widely-used well-being measures, in an attempt to find the measure that best captures these achievements. A number of indicators are examined, including measures of poverty, inequality, health status, education status, gender bias, empowerment, governance and subjective well-being.

Human Well-being: issues, concepts and measures
Mark McGillivray

National governments, civil society organizations and international agencies have for many years assembled and reported data on achieved human wellbeing, be it for individuals, families, regions or countries. Human well-being achievement at the level of countries receives special attention. It is now commonplace for international agencies, such as the United Nations Development Programme (UNDP) and the World Bank, to publish annual reports that rank countries according to various well-being or well-being related indicators.

What does evidence tell us about fragmentation and outsourcing?
Ronald W. Jones, Henryk Kierzkowski and Chen Lurong

About thirty years ago international trade economists uncovered a phenomenon that had increasingly been permeating the international exchange of goods. Thanks to the outstanding work of Herbert Grubel and Peter Lloyd, overwhelming empirical evidence has been produced to demonstrate that a large part of international trade consists of flows of goods within the same industries.1 Two other stylized facts have emerged as well: First, the importance of intra-industry trade, as the new phenomenon came to be known, increased over time. Second, intra-industry exchanges have been particularly intensive between developed countries with similar per capita incomes and comparable factor endowments.
New facts demanded new theory. Although Grubel and Lloyd offered some penetrating suggestions as to what could account for this novel type of trade, more detailed theory emerged. A fresh chapter in the theory of international trade opened, with increasing returns to scale and monopolistic competition gaining a permanent place.

Labour market reform, trade liberalization, and political instability the world around - Nauro Ferreira Campos
Export Diversification and Price Uncertainty in Developing Countries: A Portfolio Theory Approach
Luisito Bertinellix, Andreas Heinen and Eric Stroblk - January 2009

Export Diversi¯cation and Price Uncertainty in Developing We evaluate the export diversification structure of developing countries using a large cross-country panel of detailed exporting activity and constructed world market prices in the context of modern portfolio theory. We found that there are considerable welfare gains from moving towards a more "optimal" export structure on the mean-variance efficient frontier, although the extent of this differs widely across countries.
Our econometric analysis also shows while in general greater openness has increased the expected earnings from exports, it has also resulted in greater variability. Whether this has thus resulted in increases in expected welfare depends crucially on the level of risk aversion of countries.

International trade and income distribution: reconsidering the evidence
Isabelle Bensidoun, Jean Sébastien and Aude Sztulman

Whether trade liberalization is associated with narrowing or widening income disparities within countries is still a matter of controversy. According to the standard factor proportions theory, openness should exert an equalizing effect in poor countries and raise income inequality in rich countries (if the skilled to unskilled relative wage is to be considered as a good proxy for income inequality). But this prediction is not systematically borne out by the data. While increased trade openness in several East Asian economies paralleled lowered inequalities, it is well documented that Latin American countries experienced a deterioration of their income distribution following liberalization.
The publication in 1996 of a comprehensive data set on income inequality paved the way for more systematic empirical investigations than previously. However, the studies failed to deliver a convincing answer as to the link between openness and inequality. Empirical results are mixed: depending upon the sample, the econometric method or the estimation period, it is shown that openness has either no impact on inequality, or has an equalizing effect, or worsens the income distribution. In addition, the conclusions do not fit the underlying theoretical models.
This study reconsiders the evidence concerning the influence of international trade on income distribution, motivated by serious concerns about data consistency, empirical specification, as well as theoretical framework.

Migration in the Development Studies Literature: Has It Come Out of Its Marginality?
Arjan de Haan - February 2006

This paper explores the role migration has played in development studies, and in debates on economic growth and poverty. It argues that, despite a recent surge of interest in international migration and remittances, research on human mobility particularly for labour within poor countries does not have the place it deserves, and that it used to have in the classical development literature. Review of the empirical literature suggests that in fact much is known about the migration–development relationship, provided we are careful with definitions, and allow for context-specificity to be a key component of analyses. Against this richness of empirical detail, the paper reviews theoretical models of migration, finding significant differences in understandings of migration and its role in shaping wellbeing, but also complementarities. This highlights the importance of interdisciplinarity, and institutional understanding of processes of economic growth. In particular, it stresses that development economics need to draw more strongly on the insights by and approaches of non-economist social sciences.

Labour Market Mobility of Low Income Households
Arup Mitra - 2006

According to the “over-urbanisation” thesis, migrants move into the urban areas in search of jobs, and in the face of limited employment opportunities in the high productivity industrial sector, they continue to work in low productivity activities. Urban poverty here is a spillover of rural poverty. But why do migrants not return to the rural areas if they continue to be engaged in low productivity activities? The reason could be that the informal sector offers them a better source of livelihood compared to rural avenues. This argument prompts us to pose a number of questions from an empirical standpoint. Based on primary surveys of slum dwellers in Delhi, the author examines if workers managed to experience a change in their occupation, over time. Even when the broad occupation categories remain the same, does the nature of employment change and do income levels rise? If so, what role do networks play in helping them access better paying jobs. The findings tend to support upward mobility in a limited sense though.

Labor Markets in Low-Income Countries:Distortions, Mobility and Migration
Mark R. Rosenzweig - March 1987
Prepared for the Handbook in Development Economics,
H. Chenery and T. N. Srinivasan, editors

Labor being by far the most abundant resource in low-income countries, the determination of the returns to labor plays a central role in models of development. Any barriers to the reallocation of labor resources accompanying economic development are potentially critical impediments to further income growth. In the last 25 years, a great deal of knowledge has accumulated about labor-markets in low-income countries. Extreme views on labor market processes that had influenced thought for many years have been moderated by the accumulation of empirical knowledge into a more eclectic and empirically grounded approach. This transformation has been influenced by both new developments in microeconomic theory concerned with information and risk problems, critical realities of low-income countries, and the increased availability of good data, which have disciplined theoretical exercises and helped weed out the merely clever models from those that inform.

Alternatives to inflation targeting monetary policy for stable and egalitarian growth: a brief research summary
Gerald Epstein - 2003

Many countries in the developing world have adopted an approach to monetary policy that focuses on maintaining a low level of inflation, to the exclusion of other important objectives such as employment generation, increasing investment or reducing poverty, despite the widespread evidence that moderate levels of inflation have few or no costs. Some have even adopted formal “inflation targeting”, an approach which commits the central bank to hitting a fairly rigid inflation target, often as low as 2%. However, this focus has led to slower economic growth and lower employment growth, without succeeding in lowering inflation at a smaller economic cost than traditional methods of inflation fighting. Clearly, it is time to find an alternative to inflation targeting.
This paper presents the real targeting approach to monetary policy, which I argue is superior alternative to the costly and ineffective inflation targeting approach. Under this real targeting approach, central banks are given a country appropriate target such as employment growth, unemployment, real GDP or investment, usually subject to an inflation constraint. Given these two targets – the real target and the constraint – the central bank will find multiple tools to reach these targets, designing new tools and rediscovering old tools such as asset based reserve requirements and other credit allocation techniques. The real targeting approach might also be complemented by other policies, such as capital management techniques to deal with possible capital flight. The real targeting approach has the potential to make central bank policy more transparent, more accountable, and more socially useful than most currently existing central bank structures.

Pro-poor macro-micro policies for South Africa: economic modeling approach - Asghar Adelzadeh
From the African Development Bank Group
Ways of Using the African Oil Boom for Sustainable Development
Geerd Wurthmann - March 2006

Sub-Saharan-Africa is considered the fastest-growing oil-producing region worldwide. Production has risen by 36 percent in the past ten years (as against 16 percent worldwide). Within 2005 alone, the revenue of the eight largest oil countries of sub- Saharan Africa will be about US$35 billion. The oil revenues can give rise to a rentseeking mentality. Political decision-makers may focus on distributing the income on the basis of private interests and not so much on putting it to use for productive development purposes. This paper reviews ways the African oil boom can be used for sustainable development of the continent.

Gender Inequality and Growth: Evidence from Sub-Saharan Africa and Arab Countries
Mina Baliamoune-Lutz and Mark McGillivray - September, 2007

This paper uses panel data from African and Arab countries and Arellano-Bond estimations to empirically assess the impact on growth of two primary indicators that are associated with MDG 3; namely the ratio of girls to boys in primary and secondary enrolment, and the ratio of 15-24 year-old literate females to males. Our findings indicate that gender inequalities in literacy have a statistically significant negative effect that is robust to changes in the specification. We show that higher gender inequality has an even stronger effect on income growth in Arab countries. In addition, in more open economies, gender inequality in literacy seems to have an additional effect, but this effect is positive; suggesting that trade-induced growth may be accompanied by greater inequalities. The results associated with the effects of gender inequality in primary and secondary enrolment are less robust.

Managing Oil Rent for Poverty Reduction and Sustaining Development in Africa (PDF 150KB) - Afeikhena Jerome

Using Extractive Industries for Sustainable Development
International Oil and Gas Resources Management Seminar
Libreville, Gabon April 27-30, 2008
Summary Report - The World Bank Group

Natural resources are an important and vital source of revenue for many developing countries. Those resource-rich countries depend on their revenues to drive growth. The World Bank recently launched a new initiative to help developing countries manage and transform this new wealth into long-term economic growth and to spread the benefits more fairly among their people.
The so-called Extractive Industries Transparency Initiative Plus Plus (EITI++) was designed to help countries develop their capacity to handle the boom in commodity prices and channel the growing revenues into reducing poverty, hunger, malnutrition, illiteracy, and disease. The success of the program and its effectiveness depends on the countries themselves, which must take responsibility for managing the resources and setting the targets for positive results. The initiative aims to improve the awarding of petroleum contracts, monitoring operations, and the collection of taxes and royalties. It will also help countries build capacity to make economic decisions on resource extraction, managing price volatility, and investing revenues effectively for national development.

EU-ACP Economic Partnership Agreements: Implication for Trade and Development in West Africa (PDF 84KB) - Adeola F. Adenikinju and Olumuyiwa B. Alaba
International Finance and the developing world: the next twenty years
Tony Addison - 2006

Much has changed in international finance in the twenty years since UNU-WIDER was founded. This paper identifies five broad contours of what we might expect in the next twenty years: the flow of capital from ageing societies to the more youthful economies of the South; the growth in the financial services industry in emerging economies and the consequences for their capital flows; the current strength in emerging market debt, and whether this represents a change in fundamentals or merely the effect of low global interest rates; the impact of globalization in goods markets in lowering inflation expectations, and therefore global bond yields; and the implications of the adjustment in global imbalances between Asia (in particular China) and the United States for emerging bond markets as a whole. The paper ends by noting the paradox that today we see ever larger amounts of capital flowing across the globe in search of superior investment returns, and yet the financing needs of the poorer countries are still largely unmet.

International risk tolerance, capital market failure and capital flows to emerging markets
Valpy Fitzgerald - April 2006

The level, tenor and instability of capital flows from global financial markets towards developing countries are a major source of concern for macroeconomic managers, while their causes remain largely unexplained by economic theory. Country ‘fundamentals’ (such as economic growth, monetary stability and institutional capacity) as sources of default risk have been the main focus of economic research and policy prescriptions. However, recent empirical research on the determinants of capital flows and the roots of market failure indicate that much of the explanation lies in the nature of the home (that is, the developed country) demand for emerging market assets. In this paper, the microeconomic roots of home bias and demand instability are explained in terms of investor risk perception and credit rationing, exacerbated by traders’ behaviour. The consequences for host country macroeconomic balances and income distribution of varying investor risk tolerance are then demonstrated. Although the net impact also depends upon the host policy response, this transmission mechanism means that host ‘fundamentals’ are themselves strongly affected by capital flows and thus cannot be considered as to be independent of home asset demand. The paper concludes by examining the implications of these findings for the future of development economics in general and for policy response in particular.

Capital flows and macroeconomic policy in emerging economies
Manuel Rodolfo Agosin - 2006

As a consequence of the foreign capital surge experienced by many developing countries, since the early 1990s international economists and policy makers have been debating whether foreign capital flows should be the object of specific policy. The debate has crystallized into two opposite stances. On the one hand, some claim that capital flows are not only primarily exogenous to the recipient countries but also destabilizing (see, for example, Agosin and Ffrench-Davis, 1996 and 2001). This view recommends that economic authorities should design and implement policies to dampen the impact of capital flows on domestic macroeconomic variables. The opposing view departs from the assumption that capital flows largely respond to domestic variables, whether they are long term (i.e., affecting the country’s risk premium) or related to short-term demand management. This approach argues that there is no need to worry explicitly about capital flows and that policy makers should concentrate exclusively on improving domestic policies.

On assessing pro-poorness of government programmes: international comparisons
Nanak Kakwani and Hyun H. Son - May 2006

Nanak Kakwani and Son* This paper suggests how the targeting efficiency of government programmes may be better assessed. Using the ‘pro-poor policy’ (PPP) index developed by authors, the study investigates the pro-poorness of not only government programmes geared to the poorest segment of the population, but also basic service delivery in education, health and infrastructure. This paper also shows that the targeting efficiency for a particular socioeconomic group should be judged on the basis of a ‘total-group PPP index’, to capture the impact of operating a programme within the group. Using micro-unit data from household surveys, the paper presents a comparative analysis for Thailand, Russia, Vietnam and 15 African countries.

Linkages between Pro-Poor Growth, Social Programmes and Labour Market: The Recent Brazilian Experience
Nanak Kakwani, Marcelo Neri, and Hyun H. Son - April 2009

This paper analyses the relationship between growth patterns, poverty, and inequality in Brazil during its globalization process, focusing on the role played by the labour market and social programmes. Methodologically, the paper makes two contributions to the literature. One is the proposal of a new measure of pro-poor growth, which links growth rates in mean income and in income inequality. The other contribution is a decomposition methodology that explores linkages between three dimensions: growth patterns, labour market performances, and social policies. The proposed methodologies are then applied to the Brazilian National Household Survey covering the period 1995–2004.

Exchange rate regimes and pro-poor growth Rolf Maier - 2005

This paper extends the ongoing discussion on optimal exchange rate regimes to the issue of pro-poor growth. To analyze empirically the poverty effects of exchange rate regimes, we estimate the distribution effects of different exchange rate arrangements on the poorest 20 and 20 to 40 percent. In addition, we test the total effect, i.e. the distribution and growth effect, to capture potential trade-offs between poverty effects through overall economic growth and distribution.
To analyze this question, we collect an irregular and unbalanced panel of time-series cross-country data on the first and second quintile share from 76 countries and use two recently proposed de facto exchange rate regime classifications, Levy-Yeyati/Sturzenegger (2002) and Reinhart/Rogoff (2003). To cover econometric issues, cross-country variation and dynamic aspects of within-country changes of the income of the poor, we apply two econometric specifications, a growth equation and a system GMM estimation. We estimate the poverty effects of different exchange rate regimes for all countries and, separately, developing and industrial countries due to considerable differences in economic structure, access to international capital markets and soundness of domestic financial systems.

Poverty Accounting by Factor Components With an Empirical Illustration Using Chinese Data
Guanghua Wan - June 2006

The purpose of this paper is to develop two poverty decomposition frameworks and to illustrate their applicability. A given level of poverty is broadly decomposed into an overall inequality component and an overall endowment component in terms of income or consumption determinants or input factors. These components are further decomposed into finer components associated with individual inputs. Also, a change in poverty is decomposed into components attributable to the growth and redistributions of factor inputs. An empirical illustration using Chinese data highlights the importance of factor redistributions in determining poverty levels and poverty changes in rural China.

The technology clubs: The distribution of knowledge across nations
Fulvio Castellacci and Daniele Archibugi - October 2008

The convergence clubs literature in applied growth theory suggests that countries that differ in terms of structural characteristics and initial conditions tend to experience diverging growth performances. What is the role of technological knowledge for the formation of clubs? The paper investigates this unexplored question by carrying out an empirical study of the cross-country distribution of knowledge in a large sample of developed and developing economies in the 1990s. The results indicate the existence of three technology clubs characterized by markedly different levels of development. The clubs also differ with respect to the dynamics of their capabilities over the decade, as the most advanced group and the intermediate one are found to be much more dynamic than the large cluster of less developed economies.

Transforming Digital Divide into Digital Dividend:South-South Cooperation in Information-Communication Technologies
Joseph K. Joseph - 2005

Countries in the South are making widespread use of information-communication technologies (ICTs) adopted from the North, but have largely neglected their domestic production. To reduce this technological dependence, countries should integrate both production and use and draw on the substantial ICT capabilities existing in the South through bilateral, regional and inter-regional cooperation. Such broad pooling of resources would achieve economies of scale and minimize risks, according to K.J. Joseph, Professor at the Centre for Development Studies, Trivandrum, Kerala, India. He is also Visiting Senior Fellow, Research and Information System (RIS) for Non-Aligned and Other Developing Countries, New Delhi.

Telecommunications infrastructure and economic growth: evidence from developing countries
Sridhar K. S. and Sridhar V. - 2007

In this study, we investigate empirically the relationship between telephone penetration and economic growth, using data for developing countries. Using 3SLS, we estimate a system of equations that endogenizes economic growth and telecom penetration. We find that the traditional economic factors explain demand for mainline and mobile phones, even in developing countries. We find positive impacts of mobile and landline phones on national output, when we control for the effects of capital and labor. We discuss the associated policy implications related to improvement of telecom penetration in developing countries.

Innovations, high-tech trade and industrial development: Theory, Evidence and Policy
Lakhwinder Singh - March 2006

Innovations spur science-based trade and industrial development in a fast changing pace of globalization. Knowledge accumulation and diffusion have been increasingly recognised as fundamental factors that play an important role in long-run economic growth. This paper focuses on the long-term innovation strategy of industrial and technological development in developing countries. Growth theory, empirical evidence and several indicators of innovation have been pressed into service to draw important lessons from historical experience of the developed and newly industrializing countries for the industrial development of the developing economies. Technology development and public technology policy experience of the East Asian countries have been examined to reinvent the role of public technology policy that can be adopted to develop national innovation system to nurture and build innovative capabilities in the developing economies in the dynamic global economy.

The Informal Economy
Published by Swedish International Development Cooperation Agency, 2004
Department for Infrastructure and Economic Cooperation
Author: Kristina Flodman Becker

During 2002, Sida initiated the development of a private sector policy. According to the instructions for the policy development, Sida should among others highlight issues of relevance to the informal economy in its partner countries. In addition, the Private Sector Development working group is planning to conduct a seminar on the informal economy in developing countries. Within the framework of the current Private Sector Policy Development and in view of the future seminar, Sida has commissioned a consultant, Ms Kristina Flodman Becker, to provide a background for further discussions within Sida related to the informal economy in Sida’s partner countries. The consultant has received invaluable assistance from Ms Annika Nilsson at Sida who has recently returned from Bolivia where she was appointed as an Associate Bilateral Expert at the National Chamber of Industries.

Labor dynamics and the informal economy
Yusufchan Masatlioglu and Jamele Rigolini

Information sharing among competing microfinancing providers (PDF 207KB) - Sanjay Jain & Ghazala Mansuri
Microfinance and the achievemnt of the Millennium Development Goals: a case for subsidies (PDF 148KB) - Bernd Balkenhol
Three decades of rural development projects in Asia, Latin America, and Africa...Learning From Successes and Failures
Annelies Zoomers - March 2006

This article aims to contribute to the discussion about how to make development interventions more effective by analyzing the factors contributing to the success or failure of rural development projects. We made an aggregate level analysis of 46 projects in the field of agricultural research (AR), water management (WM), natural resource management (NRM), and integrated rural development (IRD), financed by the Netherlands’ Directorate-General for International Cooperation (DGIS) and carried out between 1975-2005 in Asia, Africa and Latin America. Making a distinction between the successful projects and failures, we showed the possibilities and limitations of evaluating projects on the basis of the official criteria (relevance, efficiency, effectiveness, sustainability and impact and/or using criteria such as poverty, gender, institutional development, governance and environment). We learned that project performance very much depends on whether interventions ‘keep track’ with local priorities and trends. This is much more important than ‘measuring output’ (are results in line with the project goal?) which is wrongly presented as a priority in monitoring and evaluation practices.

Rainfall and Africa's growth tragedy
Salvador Barrios, Luisito Bertinelli and Eric Strobl

We examine the role of the general decline in rainfall in sub-Saharan African nations in their poor growth performance relative to other developing countries. To do so we use a new cross-country panel climatic data set in an economic growth framework. Our results show that rainfall has been a significant determinant of poor economic growth for Africa, but not for other developing countries. Depending on the benchmark measure of potential rainfall, we estimate that the direct impact under the scenario of no decline in rainfall would have resulted in a reduction of between around 9 and 23 per cent (i.e.,. between 374 and 787 dollars per capita) of today’s gap in African GDP per capita relative to the rest of the developing world. *

Agrarian relations among village households - V. K. Ramachandran
Non-agricultural land use and land reform: theory and evidence from Brazil
Juliano J. Assunçao - 2005

This paper examines the effect of nonagricultural land use on agrarian organization and land reform, providing a simple model to determine its policy implications and some evidence on its importance. It is argued that, if land-rental market is imperfect, there is a role for redistributive land policies and the following implications hold: (i) land reform is more probable to enhance efficiency in a low-wage economy; (ii) such policies should aim small farmers instead of landless people, obtaining land from large landholders. Empirical evidence suggests this is a relevant issue in Brazil, specially during periods of high macroeconomic instability.

Building absoptive capacity to meet the MDGs
François Bourguignon and Mark Sundberg - May 2006

The ability of low-income countries to productively absorb large amounts of external assistance is a central issue for efforts to scale-up aid. This paper examines absorptive capacity in the context of MDG-based development programmes in low-income countries. It first defines absorptive capacity, and proposes a framework for measuring it. Applying a dynamic computable general equilibrium model to link the macro framework to sector results, the paper simulates MDG scenarios for Ethiopia and examines the role of infrastructure, skilled labour, macroeconomic, and other constraints on absorptive capacity. The main policy conclusions are that careful sequencing of public investment across sectors is key to minimizing the costs of reaching the MDGs; the macro impact of large aid flows on the tradeables sector can potentially be serious in the short run; large-scale frontloading of aid disbursements can be costly as it pushes against absorptive constraints; and that improvement of governance and institutional structures can significantly reduce the cost of achieving the MDGs.

Achieving the Millennium Development Goals: what is wrong with existing analytical models?
Sanjay Reddy and Antoine Heuty - 2006

Th is study critically evaluates analytical models presently used to estimate the cost of achieving the Millennium Development Goals (MDGs) from sources including the UN Millennium Project, the UN Development Programme, the World Bank and the Zedillo Commission. Effective strategic choices for achieving the MDGs must be based on sound assessments of the costs and benefits of alternative policies. However, the existing approaches are unreliable. They derive from implausible and restrictive assumptions, depend on poor quality data, and are undermined by the presence of large uncertainties concerning the future. An alternative and less technocratic approach to planning is required.

Health, wealth, fertility, education and inequality
David Fielding and Sebastian Torres - 2005

This paper uses a new cross-country dataset to estimate the strength of the links between different dimensions of social and economic development, including indicators of health, fertility and education as well as material wellbeing. The paper differs from previous studies in employing data for different income groups in each country in order to provide direct evidence on factors driving inequality, and in using a unique measure of material wellbeing that does not rely on PPP comparisons.

Manufacturing, services, jobless growth and the informal economy: Will services be the new engine of Indian economic growth?
Partha Dasgupta and Ajit Singh - 2005

This paper revisits the role of manufacturing and services in economic development in the light of the following new facts:
(a) a faster growth of services than that of manufacturing in many developing countries (DCs).
(b) The emergence of “de-industrialisation” in several DCs at low levels of per capita income.
(c) Jobless growth in the formal sector even in fast growing countries such as India and
(d) a large expansion of the informal sector in both fast growing and slow growing DCs.
Although the paper examines these phenomena in the specific case of the Indian economy, the analysis has much wider application, both for economic policy and for theories of growth and structural change.

Methods of privatization and economic growth in transition economies
John Bennet, Saul Estrin, James Maw and Giovanni Urga

We develop an analytical framework to investigate the impact of differences in privatisation methods, private sector and capital market on economic growth in transition economies. Using dynamic panel data methods, a growth equation is estimated. Growth is found to be positively associated with capital market development. However only mass privatisation is found to have a significant positive effect on growth. The explanations we suggest relate to the underdeveloped capital market in transition economies. If the wealth distribution inherited from communism is ‘wrong,’ the matching of owners to firms under full privatisation will be inefficient. This finding has important implications for privatisation methods in less developed countries.

Decomposing growth: do low-income and HIPCs differ from high-income countries?
Growth, Technological Catch-up, Technological Change and Human and Physical Capital Deepening

Pertti Haaparanta and Heli Virta - 2006

This paper studies the distribution of output per worker between the years 1980 and 2000 in different country groups. The study uses data envelopment analysis (DEA) to decompose the changes in the distribution of labour productivity into changes in productive efficiency, changes in best practice technology, accumulation of physical capital, and accumulation of human capital. The study focuses on low-income countries and within them on highly indebted poor countries (HIPCs), which has not been possible in earlier studies.

Gender and growth in sub Saharan Africa: evidence and issues
Mark Blackden, Sudharshan Canagarajah, Stephan Klasen and David Lawson

The study suggests that gender inequality acts as a significant constraint to growth in sub-Saharan Africa, and that removing gender-based barriers to growth will make a substantial contribution to realizing Africa’s economic potential. In particular we highlight gender gaps in education, related high fertility levels, gender gaps in formal sector employment, and gender gaps in access to assets and inputs in agricultural production as particular barriers reducing the ability of women to contribute to economic growth. By identifying some of the key factors that determine the ways in which men and women contribute to, and benefit (or lose) from, growth in Africa, we argue that looking at such issues through a gender lens is an essential step in identifying how policy can be shaped in a way that is explicitly gender-inclusive and beneficial to growth and the poor. We also argue that in some dimensions and channels of the gender-growth nexus, the evidence is only suggestive and needs further detailed research and analysis. Investigations of the linkage between gender inequality and growth should therefore be a priority for development economics research in coming years.

  • Development Strategy, Viability, and Economic Institutions: The Case of China
    Justin Yifu Lin, Mingxing Liu, Shiyuan Pan, and Pengfei Zhang - May 2006

    This paper explores the politically determined development objectives and the intrinsic logic of government intervention policies in east developed countries. It is argued that the distorted institutional structure in China and in many least developed countries, after the Second World War, can be largely explained by government adoption of inappropriate development strategies. Motivated by nation building, most least-developed countries, including the socialist countries, adopted a comparative advantage defying strategy to accelerate the growth of capital-intensive, advanced sectors in their countries. In the paper we also statistically measure the evolution of government development strategies and the economic institutions in China from 1950s to 1980s to show the co-existence and coevolution of government adoption of comparative advantage defying strategy and the trinity system.

    Development in Chile 1990-2005: Lessons from a Positive Experience
    Álvaro García Hurtado - February 2006

    Chile, in the last 15 years, has shown remarkable results in terms of growth, poverty reduction and democratic governance. This paper reviews the structural changes that were behind these positive outcomes, as well as the pending challenges for Chile’s development. Also shows that Chile did better in terms of growth than social integration and that this is related to the weak representation and participation of a wide majority in the national debate and decision making process. It also draws conclusions valid for other Latin American countries’ development.

Growth and Equity in Finland
Markus Jantti, Juho Saari and Juhana Vartiainen - July 2006

This paper reviews Finnish economic history during the ‘long’ twentieth century with a special emphasis on policies for equity and growth. We argue that Finland developed from a poor, vulnerable, and conflict-prone country to a modern economy in part through policies geared at both growth and equity, such as land reform and compulsory schooling. The state participated in economic activity both indirectly and directly in the post-war period, implementing many social policy reforms that facilitated the functioning of the labour market and led to greater equity. Centralised collective bargaining was just one of the many means through which central government intervened in the economy. Both the long-run growth record and the equality of different kinds of economic outcomes are fairly positive. This suggests that facilitating economic growth through such policies that further more equitable outcomes may at least in the case of Finland have met with some success. Keywords:

RP2006/12 Guillermo Rozenwurcel:
Why Have All Development Strategies Failed in Latin America?

After the Great Depression and throughout the rest of the twentieth century, Latin American countries basically approached economic development following two successive and quite opposed strategies. The first one was import substitution industrialization. The second was the so-called Washington Consensus approach. While the two views were founded on quite opposite premises, neither the import substitution industrialization nor the Washington Consensus managed to deliver sustained economic development to Latin American countries. Two domestic elements are crucial to understand this outcome. One is the failure of the state. The second is the inability to achieve mature integration into the world economy.

Ethnic Structure and Cultural Diversity around the World: A Cross-National Data Set on Ethnic Groups
James D. Fearon - January 2003

Development economists have recently focused on ethnic diversity, or “fractionalization,” as a possible cause of corruption, political instability, and poor economic performance. Political scientists have argued for years over possible links between ethnic diversity (or structure) and civil violence, democratic stability, and party systems. For its empirical evaluation in a cross-national setting, all such research requires data on ethnic groups across countries. This paper tries to do a better job of conceptually grounding, operationalizing, and constructing a list of ethnic groups across countries than is currently available. After addressing conceptual and practical problems involved in enumerating “ethnic groups,” I present a list of 820 ethnic groups in 160 countries that made up at least 1% of country population in the early 1990s. I compare a measure of ethnic fractionalization based on this list with the commonly used fractionalization measure based on the Atlas Narodov Mira (1964). Finally, I construct an index of cultural fractionalization that uses the structural distance between languages as a proxy for the cultural distance between groups in a country. This latter measure may be more appropriate when testing hypotheses that assume that ethnic groups “matter” because they have diverse preferences and cultural differences that pose obstacles to cooperation.

The future of social capital in development economics research
Stephen Knowles - 2005

Social capital is generally interpreted as the degree of trust, co-operative norms and networks and associations within a society. Economists have become increasingly interested in social capital, following the seminal work of Coleman (1988) and Putnam (1993). Since the publication of these studies a vast quantity of research on social capital has been published by economists, as well as researchers from other academic disciplines. This paper critiques a selection of the literature on social capital, in terms of its definition, measurement and effects. In terms of definitions, it is argued that social capital is a very similar concept to informal institutions, as defined by North (1990). It is argued that parallels can be drawn between the literature on social capital, and the empirical literature on the role of institutions as a deep determinant of economic development. Turning to the future of social capital research, it is argued that valuable insights can be gleaned from the institutions literature.

The inequality trap
Eric Uslaner - 2005

Successful (or “well-ordered”) democracies are marked by high levels of trust in other people and in government, low levels of economic inequality, and honesty and fairness in the public sphere. Trust in people, as the literature on social capital has shown, is essential for forming bonds among diverse groups in society (see Uslaner, 2002). Trust in government is essential for political stability and compliance with the law. Corruption robs the economy of funds and leads to less faith in government (perhaps also to less faith in fellow citizens) and thus lower compliance with the law. And institutions seen as biased (unfair) cannot secure compliance and may exacerbate inequalities in society.

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