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2121. Some Welfare Implications of 'Who Goes First?' in WTO Negotiations

Author:
Basudeb Guha-Khasnobis
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
We envisage a logical framework to explain why some trade negotiations are delayed because parties differ on who should 'go first'. In our model, there are substantive welfare implications depending on which party sets tariff rates (or subsidies) first in a strategic optimization exercise. When knowledge about cost levels are incomplete or missing, and hence must be guessed with a probability, the chances of conflict regarding who goes first are extremely high in the situation modeled in this paper. As an institution with some power to set the rules of negotiations, the WTO should be able to anticipate such conflicts in upcoming negotiations. It can then set the rule (in this case, dictate who should go first) depending on whose interest it wants to protect. There is a wide range of choices for the WTO in this regard: OECD consumer's surplus, OECD producers' loss, net exports of developing countries, firm profits, or even, world welfare as the sum of all these components.
Topic:
Development, International Organization, International Political Economy, and International Trade and Finance

2122. Who Gains from Tariff Escalation?

Author:
Basudeb Guha-Khasnobis
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
With the help of a simple model of production and trade, we examine the differential impact of tariff escalation on skilled and unskilled wages in an economy. Our findings provide a lobbying-based explanation of the prevalence of tariff escalation in developed countries. It also predicts the possible response of a developing country and shows how similar lobbying activity in that country can slow the pace of liberalization of service sector trade.
Topic:
Development, Economics, and International Trade and Finance

2123. Who Pays Indirect Taxes in Russia?

Author:
André Decoster and Inna Verbina
Publication Date:
08-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The interplay of a differentiated indirect tax structure and the variation in expenditure patterns across households, leads to a possibly unequal distribution of indirect tax liabilities across the population. This paper uses the ninth round of the RLMS survey to assess the distributional consequences of the two major components of the indirect tax system: VAT and excise taxes. The global indirect system can be considered to be progressive overall, according to the Kakwani index. Decomposition into constituent terms shows that this is due not only to a progressive VAT structure, but also to progressive excise taxes. This surprising result is mainly explained by the progressivity of the excise tax on car fuel, but might also be sensitive to peculiarities in the data about alcohol consumption.
Topic:
Development, Economics, and Government
Political Geography:
Russia

2124. Opening the Convergence Black Box: Measurement Problems and Demographic Aspects

Author:
Carlos Azzoni, Naercio Menezes-Filho, and Tatiane Menezes
Publication Date:
08-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In this paper we address the issues involved with the use of microeconomic data, that is, household surveys, to compare the patterns of income growth among different regions instead of the commonly used aggregate data. In particular, we investigate the issues of aggregation of household income to regional income and the problem of demography. As returns to experience generally differ across regions, differences in the patterns of income growth across regions in the same time interval will differ across age groups, which means that convergence or divergence of aggregate income among regions will depend on the age structure of their population. We apply these concepts to the case of the states of Brazil, for which we have repeated cross sections from a rich household survey. We find that patterns of income growth vary a great deal across birth cohorts, depending on the economic returns to experience.
Topic:
Demographics, Development, and Economics
Political Geography:
Brazil

2125. Regional Output Differences in International Perspective

Author:
Alan Heston and Bettina Aten
Publication Date:
08-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Accurate regional estimates of output are desired as an indicator of level of development and as a variable used to explain internal migration, demand patterns, fertility and other aspects of behaviour. This chapter explores one often neglected aspect of regional income differences, namely that due to price differences or regional purchasing power parities. When nominal regional income measures are adjusted for these price level differences they are termed real regional incomes. The preferred method of estimating regional purchasing power parities by detailed price comparisons is discussed for Brazil, the United States and the European Union. The empirical thrust of the chapter is an investigation of different methods for estimating regional real incomes based on PPP data for 167 countries and nominal regional incomes and other data for about 870 administrative areas at the subnational level. Even in their present form we believe the real income estimates provided for the geographical units present opportunities for understanding the world economic structure.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
United States, Europe, and Brazil

2126. How Responsive is Poverty to Growth? A Regional Analysis of Poverty, Inequality, and Growth in Indonesia, 1984-99

Author:
Jed Friedman
Publication Date:
08-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper uses six nationally representative household consumption surveys to develop successive poverty profiles for Indonesia over a fifteen-year period of sustained high growth followed by rapid contraction. Adopting a 'cost-of-basic-needs' approach to poverty determination (an approach particularly suited to measures of absolute poverty), this paper develops price indices and calculates poverty lines from unit value data, an oft neglected source of information. The summary findings confirm that Indonesia has witnessed broadbased gains in poverty reduction over the period 1984-96 and then a dramatic reversal during the recent financial crisis. These summary findings, however, mask substantial diversity in growth, inequality, and poverty change across Indonesian regions and so subsequent analysis focuses on the links between growth, inequality, and changes in poverty at the regional level. As opposed to previous studies of poverty change that have used short panels of cross-national data to identify the relationship between growth and poverty, this study employs a longer panel for a single country in order to investigate how poverty change at the provincial level varies with province growth rates and province changes in inequality (while controlling for time invariant province characteristics). The results indicate that poverty change is highly responsive to overall growth. However closer analysis reveals that regional differences in poverty levels persist even after controlling for the effects of provincial income levels, particularly for rural areas. These findings suggest that local factors play an important role in poverty determination and may interact with growth to impact poverty reduction in differing ways across Indonesia. Future investigations will need to take a more careful look at these local determinants of poverty change and attempt to identify the types of growth toward which poverty measures are particularly responsive.
Topic:
Development, Economics, and Poverty
Political Geography:
Indonesia

2127. Externalities in Rural Development: Evidence for China

Author:
Martin Ravallion
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper tests for external effects of local economic activity on consumption and income growth at the farm household level using panel data from four provinces of post-reform rural China. The tests allow for nonstationary fixed effects in the consumption growth process. Evidence is found of geographic externalities, stemming from spillover effects of the level and composition of local economic activity and private returns to local human and physical infrastructure endowments. The results suggest an explanation for rural underdevelopment arising from underinvestment in certain externality-generating activities, of which agricultural development emerges as the most important.
Topic:
Development and Economics
Political Geography:
China and Asia

2128. Are Neighbours Equal? Estimating Local Inequality in Three Developing Countries

Author:
Chris Elbers, Peter Lanjouw, Johan Mistiaen, Berk Ozler, and Ken Simler
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Based on a statistical procedure that combines household survey data with population census data, this paper presents estimates of inequality for three developing countries at a level of disaggregation far below that allowed by household surveys alone. We show that while the share of within-community inequality in overall inequality is high, this does not necessarily imply that all communities in a given country are as unequal as the country as a whole. In fact, in all three countries there is considerable variation in inequality across communities. We also show that economic inequality is strongly correlated with geography, even after controlling for basic demographic and economic conditions.
Topic:
Development and Economics
Political Geography:
Africa and South America

2129. Optimality and Overuse of Labour in Estonian Manufacturing Enterprises

Author:
Almas Heshmati and Jaan Masso
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
For transition economies labour market flexibility is necessary for successful restructuring and reallocation of labour force and for coping with the requirements of the European Monetary Union. In this paper we apply a novel approach to the issue of labour market flexibility in transition countries by studying the optimality and efficiency of labour usage among Estonian manufacturing enterprises. A dynamic model is employed where both the long run optimal level of employment and the speed at which actual employment is adjusted to the optimal are modelled as functions of several variables. Firm level panel data from 1995 to 1999 were used. The results showed that in the long run employment responds greatest to wages, followed by valueadded and capital stock. Speed of adjustment and labour use optimality and efficiency show much greater variations over firms than over time. In the course of time there occurs both labour saving technical change and an increase in the efficiency of labour usage. On average there is shortage of labour compared to firm's own optimal level, while over use of labour compared to best-practice technology. Capital seems to be a binding constraint on the development of employment in the Estonian labour market.
Topic:
Development, Economics, and Industrial Policy
Political Geography:
Eastern Europe

2130. Impact of Trade Liberalization on Returns from Land: A Regional Study of Indian Agriculture

Author:
Ghosh Nilabja
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Trade liberalization, by aligning domestic prices with world prices, is envisaged to bring welfare gains to a country. In the case of Indian agriculture, owing to the vastness and diversity of the sector, the impact is likely to be profoundly unequal across regions especially when liberalization is double-edged, acting on both output and input sides. This paper views returns from land resource as a primary determinant of farmers' economic well-being and production incentive and considers paddy both as the dominant support for the rural population and as a product with comparative advantage, as most studies have demonstrated. Working with state and sub-state level data and taking account of the differences in technologies, productivities and transport costs, the paper finds that the gains vary regionally and may not be positive in all cases when both output and input prices are globally aligned.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
South Asia and India

2131. Irregular Migration and Asylum Seekers in the Caribbean

Author:
Elizabeth Thomas-Hope
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Irregular migration is increasing in the Caribbean while the opportunities for applying for asylum hardly exist. The policy regarding most Caribbean irregular migrants is based on the view of the potential destinations, namely that the migrants are economic rather than political refugees. Whatever the specific cause of a migrant's departure, the movement is rooted in a complex amalgam of political, socioeconomic and (increasingly) environmental, factors. Thus irregular movements are part of the wider Caribbean migration process. The irregular movements differ from other forms of migration in that they represent the informal sector of migration, providing an alternative to those sectors of national populations that for political or economic reasons fall outside the immigration categories for entry to the United States. Locations in the Caribbean largely provide the intended transit stops to the United States, but with the implementation of policies to interdict migrants at sea, many of these intermediary locations become final destinations and, ultimately, marginalized communities of the migrants themselves and successive generations. These centres are the nodal points of an established transnational network that sustains the ongoing process of irregular migration. The economic and emotional cost and risks faced by the migrants are high, and the economic and political cost and challenges faced by host governments are also high. Irregular migration and the issue of asylum poignantly reflect various aspects of poverty and the vast economic disparities that exist within the region. Further, irregular migration and the question of asylum greatly affect diplomatic relations between Caribbean countries of migration source and destination. Better and more thoughtful policies are needed to address the continuing issues relating to irregular migration.
Topic:
Development and Migration
Political Geography:
United States, Central America, and Caribbean

2132. The EU's Everything But Arms Initiative and the Least-developed Countries

Author:
Lucian Cernat, Sam Laird, Luca Monge-Roffarello, and Alessandro Turrini
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Using a computable general equilibrium simulation model and partial equilibrium simulations, based on the SMART model, the paper attempts to assess the aggregate worldwide distribution of gains and losses of the EU's Everything But Arms (EBA) initiative for both LDCs and third developing countries under different scenarios.
Topic:
Development and International Trade and Finance
Political Geography:
Europe

2133. Developed Country Trade Barriers and the Least Developed Countries: The Economic Results of Freeing Trade

Author:
Jon D. Haveman and Howard J. Shatz
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The Doha Ministerial Declaration emphasized that priority should be given to improving market access for products originating in the Least Developed Countries (LDCs). In this paper, we analyze the importance of this proposition with respect to market access in the Triad economies. We first present a brief history of non-reciprocal preferences granted by the Triad. This covers Generalized System of Preference (GSP) programmes in each, and further preferences granted to African, Caribbean and Pacific countries by the EU and preferences granted to Caribbean Basin, Andean, and African countries by the US. This history is followed by an assessment of trade generated by these preferences in the year 2000, and of the extent to which LDC exports might be expected to increase should the preferences be made comprehensive. Preferences in 2000 are shown to have led to an increase of US$3.5 billion in LDC exports, while a complete duty-free treatment could expand LDC exports by as much as US$7.6 billion, 90 per cent of which will be absorbed by the US. As this represents a doubling of LDC exports to these countries, we interpret these results as an endorsement of this priority in the Doha Round of negotiations.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
Africa, United States, and Caribbean

2134. The New Global Determinants of FDI Flows to Developing Countries: The Importance of ICT and Democratization

Author:
Tony Addison and Almas Heshmati
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Foreign direct investment (FDI) has increased dramatically in recent years. However, the distribution of FDI is highly unequal and very poor countries face major difficulties in attracting foreign investors. This paper investigates the determinants of FDI inflows to developing countries, with a particular emphasis on the impact of the 'third wave of democratization' that started in the early 1980s and the spread of information and communication technology (ICT) that began in the late 1980s. These two global developments must now be taken into account in any explanation of what determines FDI flows. Using a large sample of countries, together with panel data techniques, the paper explores the determinants of FDI. The causal relationship between FDI, GDP growth, trade openness and ICT is investigated. The main findings are that democratization and ICT increase FDI inflows to developing countries. The paper concludes that more assistance should be given to poorer countries to help them to adopt ICT and to break out of their present 'low ICT equilibrium' trap.
Topic:
Democratization, Development, Economics, and International Trade and Finance

2135. Inflation, Output and Perfectly Enforceable Price Controls in Orthodox and Heterodox Stabilization Programmes

Author:
George Mavrotas and Mario Reyna-Cerecero
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper deals with the success of price controls in stabilizing high inflation rates and their effects on the real economy under an imperfect competition setting derived by optimal maximization. Our model builds on Helpman's work of price controls and imperfect competition, and incorporates inflation inertia through adaptive expectations. The model predicts that under these circumstances price controls can be an effective method of curving inflation when they accompany an orthodox monetary restriction programme; incomes policies alone cannot curve inflation substantially. Efforts where monetary growth is decreased gradually and price controls are implemented to achieve zero inflation result in the boom-recession cycle observed in many real life programmes. When monetary growth is curved immediately and price controls are implemented to achieve zero inflation, there follows a recession and not a boom. Orthodox money-based stabilization programmes implemented on their own need more time to control inflation and always produce a recession.
Topic:
Development, Economics, and International Trade and Finance

2136. The 'Pull' and 'Push' Factors in North-South Private Capital: Conceptual Issues and Empirical Estimates

Author:
Matthew Odedokun
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper is an attempt to rectify some of the problems that characterize most earlier studies that seek to explain private capital flows to developing countries or, at least, to examine the subject from a different and complementary perspective. To accomplish this, we propose a model framework that approaches the issue from the perspective of a capital-exporting developed country and which also takes cognizance of developments in other industrialized countries that could be competing with developing countries for private capital flows. The model is operationalized and estimated with annual panel data over 1970-2000 for 19 capital-exporting developed countries. Specifically, we estimate equations for total private flows, FDI, total portfolio capital flows (PCF) and various categories of PCF. We also test for the effects of a number of factors, each of which has its own 'push' and 'pull' components. The specific explanatory factors are the level of per capita income, interest rate, economic growth, the prevailing phase of economic cycle, the degree of openness of the economy in the balance-of-payment capital account, macroeconomic imbalances, and external debt burden. The empirical findings confirm the posited effects of the 'push' and/or 'pull' component of each of the above factors.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance

2137. Export Dynamism and Market Access

Author:
Jörg Mayer
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Market access liberalization has influenced product-specific growth of world exports and contributed to the shift in the structure of world exports of manufactures towards electrical and electronic goods (including parts and components), goods that require high R expenditures, and labour-intensive products such as clothing. Multilateral trade liberalization has strongly improved market access conditions for manufactures and partly explains why manufactures have experienced particularly strong growth in exports. The increased importance of vertical international production sharing and the associated preferential trading arrangements between geographically close countries with significantly different wage rates have been a key determinant of differences in export-value growth across individual manufactured products, as well as of the distribution of market shares for some of these products among developing countries. Projections based on a standard trade model suggest that moving to full trade liberalization would lead to an increase in the share of agricultural products in total world trade by almost two percentage points and give greater weight to the textile, clothing and automotive sectors within manufactured exports.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance

2138. If People were Money: Estimating the Potential Gains from Increased International Migration

Author:
Jonathon Moses and Bjørn Letnes
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In this paper we elaborate on the findings produced by an applied equilibrium model that is used to calculate the annual efficiency gains from free international migration. These findings suggest that we can expect significant gains from liberalizing international labour flows. In particular, we expand on two implicit aspects of the estimates: the actual number of migrants being generated by the various counter-factual scenarios, and the per-migrant cost/benefits associated with each. These estimates are then compared with contemporary migration flows and the findings of studies that analyse their economic impact. In light of these comparisons, we conclude that our original findings are not unreasonable.
Topic:
Development, Economics, International Trade and Finance, and Migration

2139. 'Looking at the Other Side of the Coin': The Relationship between Classical Growth and Early Development Theories

Author:
Maiju Perälä
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper extends the history of thought narrative on Allyn Young to recognize the close relationship that the classical growth theory has with the early development theory, as Young's externalities-fuelled, cumulative growth process influenced the theoretical thought of the early development theory pioneers, Paul Rosenstein-Rodan and Ragnar Nurkse. The conditions that prevent the development of underdeveloped regions, indivisibilities and inelasticities of supplies and demands, represent the breakdown of the conditions that Young highlights as necessary for self-sustaining growth to occur. Hence, Young's cumulative growth process underlies the view of these early development theorists, though their focus is on the malfunctioning and restarting of this process.
Topic:
Development, Economics, Emerging Markets, International Trade and Finance, and Poverty

2140. Persistence of Underdevelopment: Does the Type of Natural Resource Endowment Matter?

Author:
Maiju Perälä
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper examines growth successes and failures across countries and notes the latter's perplexing predominance among ex ante low-income economies. An explanation for this persistence of underdevelopment is proposed through an empirical investigation that brings forth evidence on the importance of natural resource endowment type on growth or, more appropriately, lack of it. The results show that, in the absence of social cohesion, the nature of natural resource abundance bears great significance as a natural resource endowment characterized by oil and/or mineral resources is more negatively correlated with growth than a resource endowment that is agricultural. The robustness of this result is tested across a number of growth regression specifications within the literature.
Topic:
Agriculture, Development, Economics, and Poverty