Development Economics

This paper analyzes firm panel data to examine how export demand shocks associated with the 1997 Asian financial crisis affected Chinese exporters. We construct firm-specific exchange rate shocks based on the pre-crisis destinations of firms' exports. Because the shocks were unanticipated and large in magnitude, they are a plausible instrument for identifying the impact of exporting on firm productivity and other aspects of firm performance. We find that firms whose export destinations experience greater currency depreciation have slower growth in exports and that export growth increases firm productivity as well as other measures of firm performance. Consistent with the "learning-by-exporting" hypothesis, the productivity impact of export growth is greater when firms export to more developed countries. Southern California, the World Bank, and the NBER conference "Firms and the Evolving Structure of Global Economic Activity".

In spite of India's rapid economic growth, there has been a sustained decline in per capita calorie consumption during the last twenty-five years. While the decline has been largest among better-off households, it has taken place throughout the range of household per capita total expenditure. For both adults and children, anthropometric indicators of nutritional status in India are among the worst in the world. While these indicators have shown improvement over time, the rate of progress is slow relative to what might be expected based on international and historical experience. This paper presents the basic facts about growth, poverty and nutrition in India, it points to a number of puzzles, and it sketches a preliminary story that is consistent with the evidence. The reduction in calorie consumption cannot be attributed to declining real incomes, nor to any increase in the relative price of food. Our leading hypothesis, on which much work remains to be done, is that, as real incomes and wages have increased, leading to some nutritional improvement, there has been an offsetting reduction in calorie requirements due to declining levels of physical activity and possibly also to various improvements in the health environment. If correct, this analysis does not imply that Indians are currently adequately nourished; nothing could be further from the truth. Calorie intake has serious limitations as a nutritional intake; while calories are extremely important, there are too many sources of variation in calorie requirements for standard, invariant, calorie-norms to be usefully applied to large sections of the population. We conclude with a plea for better, and more regular, monitoring of nutritional status in India.

That knowledge and technology matter for economic growth and performance is widely accepted. However, most formal analyses of knowledge-driven economies have focused on the supply side: productivity, and research and development. In modern high-tech economies where information and communications technologies figure prominently, just as important is the demand side of markets for goods akin to knowledge. This paper develops a model of knowledge cluster formation in a geographical space, driven by demand-side characteristics. Knowledge concentrations in space spontaneously emerge, even when physical distance and transportation costs are irrelevant. These clusters manifest in equilibrium as waves on a smooth, otherwise featureless, three-dimensional globe; they arise to resolve the tension between spatial spillover externalities and the costs of adapting to new sophisticated knowledge-products.

Immediately after 1997 the Asian economies were viewed to be catastrophes of financial excess, corporate and political misgovernance, and diminishing returns to over-investment. But they are now freshly restored as the world's economic powerhouses, just as before the 1997 financial crises they were the growth miracles and poster children of a then-emerging consensus on managed economic development. From the perspective of global growth and income distribution, the economic successes of East and Southeast Asia are striking: Poverty alleviation in China alone has recently accounted for 100% of that for all of humanity. Even if still relatively small in size, the current contribution to world economic growth from East and Southeast Asia already matches that of economies many times larger. When the rest of the world economy has temporarily slowed, East and Southeast Asia have provided a stabilizing force in world business cycles. How have underlying fundamentals for economic growth changed since 1997? Is the current growth path sustainable; and if so, what has brought that about? What role has China's played in driving economic growth throughout East and Southeast Asia? Have patterns of trade changed towards greater global balance? This paper finds that in the main productivity growth has improved since 1997. Increasing inequality is no obstacle to poverty reduction provided economic growth is sufficiently rapid. Finally, international trade patterns have shifted towards greater exchange within just the region itself.

What are the principal issues on which research on income distribution and inequality focus? How might that focus shift in the immediate future? We examine the standard market-based approaches to theorising on the income distribution and the challenges to this analysis posed by the economics of information and various types of market failure. We also consider the problems of representing the income distribution in a way that has economic meaning and of comparing distributions in terms of inequality and social welfare. There is also a snapshot view of some of the remarkable empirical developments concerning the income distribution in advanced countries in the late 20th and early 21st centuries. Prepared for the The Elgar Companion to Social Economics.

This is an important book for many reasons. It gives us a perspective of the constraints under which our public sector works -multiple constraints in operations but being evaluated on market-based parameters. It tells us a story of what is possible within these constraints. It tells us about the human side of banking and brings something not very fashionable in banking circlesbranding and marketing. It tells us how banking could grow, even when banking is not the focus. What the book does not tell us (and this is a significant void) is the objective evaluation of Khandelwal's possible failures. Yes, he does narrate the constraints, but surely there must have been some of his plans that just did not work. With some introspection, he would have realized the existence of some pitfalls. That is missing in the book. It possibly needs more distance and time and a different style to bring it in.

We show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and inter-regional trade. Labor heterogeneity gives local monopoly power to firms but also introduces variations in the quality of the job match. Matches are likely to be better when there are more firms and workers in the local market, giving rise to an agglomeration force which can offset the forces against, trade costs and the erosion of monopoly power. We derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical simulations.

This is a more rigorous and detailed version of a paper written for a Journal of Economic Perspectives symposium on consumption and saving behavior, for publication in the summer of 2001. The JEP version of the paper is intended for a general audience; the version here would be more appropriate for the consumption segment of a first-year graduate course, or more generally as an introduction to modern consumption theory for someone interested in beginning to pursue research in this area. To help new researchers get up to speed, the Mathematica programs that produced all of the theoretical results in this paper are available on the author's website, www.econ.jhu.edu/people/carroll.

Both theory and the empirical evidence for a broad range of countries have identified a negative relationship between domestic and foreign saving. Still, based on the experience of the 1990s, a popular view has emerged that domestic and foreign saving are positively related in Asia and negatively related in Latin America. We argue that this popular discussion does not discriminate between trends in domestic saving (which are very different in the two regions) and the cyclical component of saving, which is linked to capital flows. We show that, when trend and cyclical components of domestic saving and capital flows are properly taken into account, the two regions do not differ in the short-run response of domestic saving to capital inflows. We conclude that the main differences pertain to the long-run behavior of saving rates, which are driven by trends in demographic factors, per capita GDP, and other factors that have little to do with fluctuations in capital flows.

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Dollarization, in a broad sense, is increasingly a defining characteristic of many emerging market economies. How important is this trend quantitatively and how important is it for the conduct of monetary policy and the choice of exchange rate regimes? Though these questions have become a hot topic in both the theory and policy literature, most efforts are remarkably uninformed by evidence, in no small part because meaningful data has been lacking, except for a very narrow range of assets. This paper attempts to move the discussion forward and shed light on the critical questions by proposing a measure of dollarization that is broad both conceptually and in terms of country coverage. We use this measure to identify trends in the evolution of dollarization in the developing world in the last two decades, and to ascertain the consequences that dollarization has had on the effectiveness of monetary and exchange rate policy. We find that, contrary to the general presumption in the literature, a high degree of dollarization does not seem to be an obstacle to monetary control or to disinflation. A level of dollarization does, however, appear to increase exchange rate pass-through, reinforcing the claim that "fear of floating" is a greater problem for highly dollarized economies. We also review the developing countries' record in combating their addiction to dollars. Concretely, we try to explain why some countries have been able to avoid certain forms of the addiction, and examine the evidence on successful de-dollarization.

We develop a novel system of re-classifying historical exchange rate regimes. One difference between our study and previous classification efforts is that we employ an extensive data base on market-determined parallel exchange rates. Our "natural" classification algorithm leads to a stark reassessment of the post-war history of exchange rate arrangements. When the official categorization is a form of peg, roughly half the time our classification reveals the true underlying monetary regime to be something radically different, often a variant of a float. Conversely, when official classification is floating, our scheme routinely suggests that the reality was a form of de facto peg. Our new classification scheme points to a complete rethinking of economic performance under alternative exchange rate regimes. Indeed, the breakup of Bretton Woods had a far less dramatic impact on most exchange rate regimes than is popularly believed. Also, contrary to an influential empirical literature, our evidence suggests that exchange rate arraignments may be quite important for growth, trade and inflation. Our newly compiled monthly data set on market-determined exchange rates goes back to 1946 for 153 countries.

The channels by which better health leads to higher income, and those by which higher income protects health status, are of interest to both researchers and policy makers. In general, quantifying the impact of income on health is difficult, given the simultaneous determination of health and income. In this paper, we quantify the impact on health status of a large, exogenous increase in income-that associated with the South African state old age pension. Elderly Black and Coloured men and women who did not anticipate receiving large pensions in their lifetimes, and who did not pay into a pension system, are currently receiving more than twice median Black income per capita. These elderly men and women generally live in large households, and this paper documents the effect of the pension on the pensioners, on other adult members of their households, and on the children who live with them. We find, in households that pool income, that the pension protects the health of all household members, working in part to protect the nutritional status of household members, in part to improve living conditions, and in part to reduce the stress under which the adult household members negotiate day to day life. The health effects of delivering cash provide a benchmark against which other health-related interventions can be evaluated.

This paper examines the implications of Stoner-Weiss' ideas about governance in Russia's regions for political party party development and presents some statistical evidence that, in fact, a positive relationship exists between between socio-economic indicators that may result from good governance on the one hand, and weak political parties on the other.  It also suggest the use of a new statistical measure of party volatility, Coefficient of Variance, which resolves some issues of traditional volatility measures in extreme multiparty systems, like Russia.

Data on the individual export destinations of French …rms shed light on the nature of entry barriers to national markets. While …rms are very heterogeneous with respect to where they sell and how much they sell, the data reveal some striking regularities: (1) Looking across destinations, the relationship between market size, French market share, and the number of French …rms selling there is very tight, with the number of participants rising almost in proportion with respect to market share and with an elasticity of about two-thirds with respect to market size.

The Hecksher-Ohlin Vanek model we have studied in the previous chapter allows for many goods and factors, but for much of that discussion we maintained the assumption of factor prices equalization. This theorem was proved in chapter 1 only for the case of two goods and two factors (and no factor intensity reversals). This raises the question: when there are many goods and factors, will factor price equalization continue to hold? More generally, what happens to the other theorems we discussed in chapter 1 -the Stolper-Samuelson and Rybczynski theorems? Is there some generalization of these to the many good and many factor case? These are the questions we address in this chapter.

The recent literature has shown that subjective welfare depends on relative income. Much of the existing evidence comes from developed economies. What remains unclear is whether this is a universal human trait or an artifact of a prosperous, marketoriented lifestyle. Using data from Nepal, a mountainous country where many households still live in relative isolation, we test whether poorer and more isolated households care less about relative consumption. We find that they do not. We investigate possible reasons for this. We reject that it is due to parental concerns regarding the marriage prospects of their children. But we find evidence in support of the reference point hypothesis put forth by psychologists: household heads having migrated out of their birth district still judge the adequacy of their consumption in comparison with households in their district of origin.

This paper develops a theoretical model of land leasing that includes transaction costs of enforcing labor effort, risk pooling motives and non-tradable capital inputs. We test the implications of this model compared to those of the "Marshallian" (unenforceable labor effort) and "New School" (costlessly enforceable effort) perspectives using data collected from four villages in Ethiopia. We find that land lease markets operate relatively efficiently in the villages studied, supporting the New School perspective. Land contract choice is found to depend upon the social relationships between landlords and tenants, but differences in contracts are not associated with significant differences in input use or output value per hectare. We find that other household and village characteristics do affect input use and output value, suggesting imperfections in other factor markets. The efficiency of land lease markets is a critical is sue in many developing countries, where land sales markets are often thin and inhibited by problems of asymmetric information and transaction costs. The issue is particularly important in Ethiopia, where land sales are officially prohibited by the new Constitution and where land leases were prohibited by the former Marxist government until 1991. Land leases have been permitted since 1991, and are again becoming common in many parts of Ethiopia. Now is thus an opportune time to assess the efficiency of the lease markets developing in Ethiopia. There is an old and large literature on land tenure contracts and their implications for agricultural efficiency. Adam Smith, John Stuart Mill, Alfred Marshall, and many economists since have argued that share tenancy causes inefficient resource allocation because the share tenant receives only a fraction of the value of his marginal product of labor, thus reducing the incentive to supply labor or other inputs. More recently, others have argued that if the tenant's work effort can be costlessly monitored and enforced by the landlord, then resource allocation can be as efficient under sharecropping as under owner-cultivation or fixed-rent tenancy (Johnson; Cheung). Whether costs of monitoring and enforcing tenancy contracts are sufficiently low to allow for efficient sharecropping is of course an empirical question.

Using detailed survey data from Uganda, this paper examines whether co¤ee producers sell to itinerant traders or directly to markets, where they can get a higher price but must incur a transport cost. We …nd that selling to the market is more likely when the quantity sold is large and the market close by. Wealthy farmers are less likely to sell to the market, possibly because the shadow value of their time is higher. But if they have a large quantity of co¤ee for sale, they are more likely to sell it to the market. They are also more likely to travel to a distant market. These …ndings are consistent with their better ability to pay for public transportation. We …nd no evidence that the decision to sell at the farm-gate is driven by a self-control motive.

Using original survey data, we document the activities, resources, and governance structure of NGOs operating in Uganda. The NGO sector is funded primarily by international non-governmental organizations and bilateral donors. We …nd large di¤erences in size and funding across NGOs, with only a few NGOs attracting most of the funding. Most NGOs are small and underfunded and focus on raising awareness and advocacy. Few NGOs are faith-based. Most screening and monitoring is done by grant agencies. Some monitoring is also done internally by members and trustees. Little monitoring is done by government. NGOs do not …le an income tax returns and few respondents are able to provide coherent …nancial accounts.

This paper tests the efficiency of insurance markets in the Pakistan Punjab by examining how crop choices are affected by the presence of price and yield risk. We estimate reduced-form and structural models of crop choices. Although we cannot reject the hypothesis that village members efficiently share risk among themselves, production choices are shown to depend on risk. Existing risk sharing and selfinsurance mechanisms thus imperfectly protect Punjab farmers against village-level shocks. Results also indicate that households respond to consumption price risk, thereby suggesting that empirical and theoretical work on risk should avoid putting an exclusive emphasis on yield and output price risk.

This paper analyses the effects of risk on the holding of inventories and liquid assets by manufacturing firms. Using a panel data set for Zimbabwe which includes firmspecific measures of contractual risk, we show that contractual risk has a major effect on the holding of stocks of inputs and, to a lesser extent, the constitution of cash reserves. This is consistent with the role of inventories as a hedge against stockout risk. By contrast, we find that firms facing more inter-annual market risk hold less inventories. This suggests that African manufacturers prefer adapting to long-term market fluctuations as they materialize rather than building up inventories. This interpretation is consistent with the finding that high market risk firms also have a low capacity utilization rate.

This paper revisits the tragedy of the commons and examines the conditions under which externalities contribute to livestock cycles. Using a stylized intertemporal model capturing the main characteristics of African livestock producers, we show that externalities magnify livestock cycles triggered by occasional droughts. This is true even when producers are fully rational. Two forces fuel such cycles: producers' concerns with consumption smoothing; and expected capital gains when demand for livestock products is inelastic. Implications regarding African livestock production are discussed. _ ______________ † I benefitted from comments from participants to various conferences and to seminars in Berkeley and Stanford.

Credit from suppliers is an important but often neglected source of finance for manufacturing firms. Zimbabwe is no exception. Unlike credit from financial institutions, trade credit does not rely on formal collateral but on trust and reputation. Contract enforcement is flexible.

This paper investigates the extent to which poor households are discouraged from making a non-divisible but profitable investment. Using data on irrigation wells in India, we estimate the parameters of a structural model of irreversible investment. Results show that poor farmers fail to undertake a profitable investment that they could, in principle, self-finance because the non-divisibility of the investment puts it out of their reach.

Does capital-embodied technological change play an important role in shaping labor market inequalities? This paper addresses the question in a model with vintage capital and search-matching frictions where costly capital investment leads to heterogeneity in productivity among vacancies in equilibrium. The paper Þrst demonstrates analytically 1) how technology growth affects equilibrium wage inequality, income shares and unemployment, and 2) how its impact depends on the presence of labor market institutions (welfare beneÞts, Þring taxes). Next, it applies the model to a quantitative evaluation of vintage capital as an origin of wage inequality: through labor market frictions, a 10-year age differential in capital translates into a 4% wage gap among exante equal workers. Finally, the model allows a U.S.-continental Europe comparison: a common embodied technological acceleration interacted with different labor market institutions can explain a substantial part of the differential rise in unemployment and capital share and some of the differential dynamics in wage inequality.

Does capital-embodied technological change play an important role in shaping labor market inequalities? This paper addresses the question in a model with vintage capital and search-matching frictions where costly capital investment leads to heterogeneity in productivity among vacancies in equilibrium. The paper Þrst demonstrates analytically 1) how technology growth affects equilibrium wage inequality, income shares and unemployment, and 2) how its impact depends on the presence of labor market institutions (welfare beneÞts, Þring taxes). Next, it applies the model to a quantitative evaluation of vintage capital as an origin of wage inequality: through labor market frictions, a 10-year age differential in capital translates into a 4% wage gap among exante equal workers. Finally, the model allows a U.S.-continental Europe comparison: a common embodied technological acceleration interacted with different labor market institutions can explain a substantial part of the differential rise in unemployment and capital share and some of the differential dynamics in wage inequality.

This paper offers an original survey of the Malaysian crisis and the effects of the consequent imposition of capital controls by authorities in September 1998 and of their subsequent relaxation in February and September 1999. We identify Malaysia’s unique strengths and weaknesses before the crisis, appreciate the differential timing and nature of the Malaysian crisis vis-à-vis the other neighbouring crisis countries, and distinguish carefully between the restrictive and incentive components of the imposed controls. Against this backdrop, we analyse both the “level” (first-order) effects and the “volatility” (second-order) effects of controls on key macroeconomic, banking and financial market variables. On the level effects, we found the Malaysian recovery (starting late 1998) to be at least as quick, strong and lasting as that of the other crisis countries, and discovered important channels of influence from controls to interest rates (which were lowered) and stock markets (which recovered dramatically). These results on the effectiveness of controls are consistent with earlier studies by Edison & Reinhart (2001) and Kaplan & Rodrik (2001). However, due to the longer time period used here, a stronger restatement of their conclusions is now possible. We study the secondorder effects of controls by introducing a Capital Asset Pricing Model (CAPM)-based portfolio choice model and show how controls, especially when they work as an asymmetric tax on short-term investment, reduce both the volume of speculative flows and the associated interest rate volatility. To test these theoretical results, we set up a standard Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model of interest rate and stock market volatility where capital control dummies are introduced in the variance equation. Our model is an improvement over earlier studies in two ways: a more sophisticated capital control dummy was used to take account of the relaxation of controls in February 1999; and we dealt with the problem of endogeneity in the mean equation by using regressors that are not Granger-caused by the regressand (Malaysian interest rate and stock returns). The model shows that controls did limit interest rate volatility in line with the theoretical prior, but worsened stock market volatility. The latter result lends credence to the view that controls shifted the burden of adjustment from quantity to prices.

We present new evidence that households are unable to protect themselves from rainfall failure that occurs on average every five years in rural Ethiopia. However, other less extreme rainfall variation and idiosyncratic shocks such as illness and crop pests do not impact significantly on consumption. Agricultural shocks impact negatively on farm income as expected, however they also stimulate non-agricultural earnings by an equivalent amount. In the case of a covariate shock such as severe rainfall failure, this smoothing mechanism may be ineffective and rainfall insurance or drought-triggered safety nets could provide further protection.

Differing expectations about who should get what benefits from digging the wealth out of the ground are causing serious tensions in the Copperbelt region of Northern Zambia. Multinational copper-mining companies, the Zambian Government, workers and local communities all desperately want recently privatised copper mines to succeed, and for the region to return to its golden age as one of the most developed parts of Africa. Yet all have different beliefs about how to make it happen, and what rights and responsibilities should attach to private companies, the state and citizens.

After decades of decline, the price of copper has been rising at unprecedented levels since 2003.  The value of Zambia’s copper exports more than doubled between 2005 and 2006, reaching US$2.78 billion.  Government and the mining companies claim that all are benefiting from this boom on the Copperbelt. And yet in September 2006 Copperbelt voters roundly rejected current policies, electing to every urban seat in the region MPs representing the Patriotic Front (PF), a party that ran on a platform of deporting foreign investors that exploit the workforce, increasing corporate taxes and limiting foreign ownership of mines. This report aims to contribute to the discussion about the costs and benefits of privatisation and what might be done by Government, companies and donors to secure greater benefits for Zambia, and especially for those working in and living near the mines.