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101. Evaluating Targeting Efficiency of Government Programmes: International Comparisons

Author:
Hyun H. Son and Nanak Kakwani
Publication Date:
05-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
International Relations, Economics, Government, and Poverty
Political Geography:
Africa, Russia, Vietnam, and Thailand

102. Central Banks as Agents of Economic Development

Author:
Gerald Epstein
Publication Date:
05-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In the last two decades, there has been a global sea change in the theory and practice of central banking. The currently dominant 'best practice' approach to central banking consists of the following: (1) central bank independence (2) a focus on inflation fighting (including adopting formal 'inflation targeting') and (3) the use of indirect methods of monetary policy (that is, short-term interest rates as opposed to direct methods such as credit ceilings). This paper argues that this neo-liberal approach to central banking is highly idiosyncratic in that, as a package, it is dramatically different from the historically dominant theory and practice of central banking, not only in the developing world, but, notably, in the now developed countries themselves. Throughout the early and recent history of central banking in the US, England, Europe, and elsewhere, financing governments, managing exchange rates, and supporting economic sectors by using 'direct methods' of intervention have been among the most important tasks of central banking and, indeed, in many cases, were among the reasons for their existence. The neo-liberal central bank policy package, then, is drastically out of step with the history and dominant practice of central banking throughout most of its history.
Topic:
Development and Economics
Political Geography:
United States, Europe, and England

103. The Rule of Law, Legal Traditions, and Economic Growth in East Asia

Author:
Meredith Woo-Cumings
Publication Date:
05-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper examines the literature on the rule of law and economic development, and in particular the influential argument by La Porta et al., on the superiority of the Anglo-American common law system in fostering financial development. In this paper I show that however compelling their argument might be, legal traditions and institutions do not determine the nature of the state, nor its likely role in the economy—nor do they critically determine the course of economic development. I build my case by examining the real and informal mechanisms of state intervention in the economy in East Asia.
Topic:
Development, Economics, and International Law
Political Geography:
America, Israel, and East Asia

104. Modern Bureaucracy

Author:
Joseph Toye and John Toye
Publication Date:
05-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Max Weber believed that bureaucracy could be understood by analysing its ideal-typical characteristics, and that these characteristics would become more pervasive as the modern age advanced. Weber's horizontal account of bureaucracy can be criticised on various grounds, including its unrealistic notion of bureaucratic rationality. An alternative view is proposed, namely, that the development of state bureaucracies is driven by the trajectory of the highpower politics in which they are nested.
Topic:
Development, Economics, and Politics

105. Finance and Poverty in Ethiopia: A Household Level Analysis

Author:
Alemayehu Geda, Daniel Zerfu, and Abebe Shimeles
Publication Date:
05-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In this paper, using the rich household panel data of urban and rural Ethiopia that covers the period from 1994 to 2000, we attempted to establish the link between finance and poverty in Ethiopia. Our results show that access to finance is an important factor in consumption smoothing and hence poverty reduction. We also found evidence for a poverty trap due to liquidity constraints that limits the ability of the rural households from consumption smoothing. The empirical findings from this study could inform finance policies aimed at addressing issues of poverty reduction.
Topic:
Development, Economics, and Poverty
Political Geography:
Africa and Ethiopia

106. The Corporate Debt Market: A Firm-Level Panel Study for India

Author:
Basudeb Guha-Khasnobis and Saibal Kar
Publication Date:
05-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Traditionally, firms in India have shown a low preference towards debt financing, despite its advantages. Using panel data from 450 firms during 1992-93 and 2003-04, we attempt to identify factors which could explain the pattern of financing of manufacturing firms in India and the key determinants of their debt structure. We examine the roles of age of the firm, long term borrowing and net sales in affecting its debt structure.
Topic:
Economics and Markets
Political Geography:
India and Asia

107. Manufacturing, Services and Premature Deindustrialization in Developing Countries: A Kaldorian Analysis

Author:
Ajit Singh and Sukti Dasgupta
Publication Date:
05-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper uses a Kaldorian framework to examine the evidence of deindustrialization in developing countries at low levels of income, the jobless growth in these economies and the fast expansion of the informal sector. The questions are specifically examined for the Indian economy, using state level data but the analysis has a wider application for economic policy in developing countries.
Topic:
Development, Economics, Industrial Policy, and Third World
Political Geography:
India

108. Development Strategy, Viability, and Economic Institutions: The Case of China

Author:
Mingxing Liu, Pengfei Zhang, Shiyuan Pan, and Justin Yifu Lin
Publication Date:
05-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
Development, Economics, and Government
Political Geography:
China and Asia

109. Economic Development Strategy, Openness and Rural Poverty: A Framework and China's Experiences

Author:
Justin Yifu Lin and Peilin Liu
Publication Date:
04-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper argues that both openness and poverty in a country are endogenously determined by the country's long-term economic development strategy. Development strategies can be broadly divided into two mutually exclusive groups: (i) the comparative advantage-defying (CAD) strategy, which attempts to encourage firms to deviate from the economy's existing comparative advantages in their entry into an industry or choice of technology; and (ii) the comparative advantage-following (CAF) strategy, which attempts to facilitate the firms' entry into an industry or choice of technology according to the economy's existing comparative advantages.
Topic:
Development, Economics, and Poverty
Political Geography:
China and Asia

110. Globalization and the Urban Poor in China

Author:
Guanghua Wan and Yin Zhang
Publication Date:
04-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper examines the distributional impact of globalization on the poor in urban China. Employing the kernel density estimation technique, we recovered from irregularly grouped household survey data the income distribution for 29 Chinese provinces for 1988-2001. Panels of the income shares of the poorest 20, 10 and 5 per cent of the urban residents were then compiled. In a fixed-effect model, two of the central conclusions of Dollar and Kraay (2002)—that 'the incomes of the poor rise equi-proportionately with average income' and that trade openness has little distributional effect on poverty—were revisited. Our results lend little support to either of the Dollar-Kraay conclusions, but instead indicate that average income growth is associated with worsening income distribution while globalization in general, and trade openness in particular, raises the income shares of the poor. It is also found that openness to trade and openness to FDI have differential distributional effects. The beneficial effect of trade was not restricted to the coastal provinces only, but also weakened significantly after 1992. These findings are robust to allow for nonlinearity in the effect of globalization and to control for the influence of several other variables.
Topic:
Economics, Globalization, and Poverty
Political Geography:
China and Asia

111. Vulnerability to Globalization in India: Relative Rankings of States Using Fuzzy Models

Author:
Brinda Viswanathan and S. Kavi Kumar
Publication Date:
04-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The net impact of globalization on developing countries, and more specifically on the poorer sections of population in these countries, is complex and context dependent, and hence needs to be analysed empirically. This study in the context of globalization attempts to develop regional level indices of vulnerability with respect to welfare loss in India using a methodology based on fuzzy inference systems. The vulnerability of an entity is conceptualized (following the practice in global climate change literature) as a function of its exposure, sensitivity and adaptive capacity. Empirical analysis based on such multidimensional conceptualization demands use of indicator-based approach which is attempted in this study and uses fuzzy models that adequately capture vagueness inherent in such approaches.
Topic:
Development, Economics, and Globalization
Political Geography:
India and Asia

112. Measuring Pro-Poor Progress towards the Non-Income Millennium Development Goals

Author:
Stephen Klasen, Kenneth Harttgen, and Melanie Grosse
Publication Date:
04-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In order to track progress in MDG1 and explicitly link growth, inequality, and poverty reduction, several measures of 'pro-poor growth' have been proposed in the literature and used in applied academic and policy work. These measures, particularly the ones derived from the growth incidence curve, allow a much more detailed assessment of the distributional impact of growth and its link to poverty reduction. However, there are no corresponding measures for tracking the distribution of progress in non-income dimensions of poverty, and thus the distribution of progress towards MDGs 2-7. In this paper, we propose to extend the pro-poor growth measurement to non-income dimensions of poverty (particularly health and education). We empirically illustrate the approach for Bolivia and show that it allows a much more detailed assessment of progress towards MDGs 2-7 by focusing on the distribution of progress. Furthermore, this extension also allows an explicit assessment of the linkage between progress in MDG1 and MDGs 2-7 as well as extends traditional incidence analysis by quantifying outcomes in non-income dimensions of poverty along the income distribution.
Topic:
Development, Economics, and Poverty
Political Geography:
Europe and Bolivia

113. Gender and Growth in Sub-Saharan Africa: Issues and Evidence

Author:
Stephen Klasen, David Lawson, Sudharshan Canagarajah, and Mark Blackden
Publication Date:
04-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
Development, Economics, and Gender Issues
Political Geography:
Africa

114. Corruption and Inequality

Author:
Eric M. Uslaner
Publication Date:
04-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Economic inequality provides a fertile breeding ground for corruption and, in turn, leads to further inequalities. Most corruption models focus on the institutional determinants of government dishonesty. However, such accounts are problematic. Corruption is remarkably sticky over time. There is a very powerful correlation between crossnational measures corruption in 1980 and in 2004. In contrast, measures of democracy such as the Freedom House scores are not so strongly correlated over time, and changes in corruption are unrelated to changes in institutional design. On the other hand, inequality and trust-like corruption are also sticky over time. The connection between inequality and the quality of government is not necessarily so simple. The aggregate relationships between inequality and corruption are not strong. The path from inequality to corruption may be indirect, through generalized trust, but the connection is key to understanding why some societies are more corrupt than others. This study estimates a simultaneous equation model of trust, corruption, perceptions of inequality, confidence in government, and demands for redistribution in Romania, and shows that perceptions of rising inequality and corruption lead to lower levels of trust and demands for redistribution.
Topic:
Corruption, Economics, and Government
Political Geography:
Europe

115. Inequality in Historical Perspective

Author:
Richard Jolly
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
International Relations, Economics, and Human Rights

116. Investing in Health for Economic Development: The Case of Mexico

Author:
Nora Lustig
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
Development, Economics, and Health
Political Geography:
Central America and Mexico

117. Indivisibility, Fairness, Farsightedness and their Implications for Security

Author:
S. Mansoob Murshed
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper is concerned with the problems of achieving lasting peace. One dimension includes fairly sharing the post-war economic and political pie or the peace dividend. This requires post-war allocations that are envy free. Many peace agreements that end civil wars are notoriously unstable in that they are often not implemented, or break down after some time. Commitments to the peace treaty are simply not credible. One reason for that could be certain indivisibilities in perceived shares of power and income in the peace settlement, as well as the inability to correctly infer the value of path dependence when future reputation depends on present actions but the future is heavily discounted. The paper also discusses the role of another type of unfairness, namely a deep sense of humiliation, in determining acts of transnational terrorism, where force may not be the answer in attempting to deter deeply motivated persons.
Topic:
Conflict Prevention, Economics, Peace Studies, and War

118. Innovations, High-Tech Trade and Industrial Development: Theory, Evidence and Policy

Author:
Lakhwinder Singh
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
Development, Economics, Industrial Policy, and International Trade and Finance
Political Geography:
East Asia

119. Decomposing Growth: Do Low-Income and HIPCs Differ from High-Income Countries? Growth, Technological Catch-up, Technological Change and Human and Physical Capital Deepening

Author:
Heli Virta and Pertti Haaparanta
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
Civil Society, Development, Economics, and Science and Technology

120. Is Social Capital Part of the Institutions Continuum and is it a Deep Determinant of Development?

Author:
Stephen Knowles
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
There is a growing literature which analyses, using cross-country data, whether institutions or geography is the most important deep determinant of economic development. The empirical proxies for institutions used in this literature focus on the definition of institutions, formal and informal. This study argues that the concept of informal institutions is similar to social capital. However, the social capital and 'institutions as a deep determinant' literatures rarely acknowledge the existence of the other. It is argued that social capital meets the criteria for being a deep determinant of development and that both the cross-country literature on social capital, and the deep determinants of development literature, could be enriched by empirically modelling social capital as a deep determinant of development.
Topic:
Civil Society, Development, and Economics

121. Applying Behavioural Economics to International Development Policy

Author:
Kostas Stamoulis and Leigh Anderson
Publication Date:
03-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Many development policies and programmes are premised on a traditional economic model of rationality to predict how individuals will respond to changes in incentives. Despite the emphasis of these programmes on poverty reduction, economists and the development community in general are still unable to fully understand how the poor make decisions, especially under uncertainty and over time. Individuals avail themselves less than predicted in health programmes, participate less than expected in market opportunities, under or over insure themselves, and make short-run decisions that are inconsistent with their long-run welfare. The rise and fall of different descriptive models and paradigms of poor household behaviour can partly be attributed to this limited understanding. More helpful answers may lay within behavioural economics, that these insights are particularly important for poor populations, and that they can improve the future design, implementation and subsequent effectiveness of development programmes. Behavioural economics is an approach that rigorously combines the insights of psychology and economics to try to better understand and predict human decision making. Empirical evidence is helping us learn, for example, how cognitive limitations, fairness, loss aversion, framing of choices, variable discount rates, and the qualitative dimensions of risk—such as proximity and control—affect decision making. The regularity of many of these anomalies suggests that these behaviours are anomalous only to traditional models, but that they may otherwise be the norm.
Topic:
Foreign Policy, Development, Economics, and International Cooperation

122. A Wider Approach to Aid Effectiveness: Correlated Impacts on Health, Wealth, Fertility and Education

Author:
Mark McGillivray, Sebastian Torres, and David Fielding
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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 outcome.
Topic:
Development, Economics, Health, and Humanitarian Aid

123. The Human Dimensions of the Global Development Process in the Early Part of the 21st Century: Critical Trends and New Challenges

Author:
Mihly Simai
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
Development, Economics, Globalization, and Government

124. Institutions, Policies and Economic Development

Author:
Grzegorz W. Kolodko
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Institutions are not only created and built, but al so, 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 demonstrates 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.
Topic:
Development, Economics, Globalization, and International Trade and Finance

125. Migration in the Development Studies Literature: Has It Come Out of Its Marginality?

Author:
Arjan de Hann
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
Development, Economics, Education, and Migration

126. Credit Co-operatives in Locally Financed Economic Development: Using Energy Efficiency as a Lever

Author:
Robert J. McIntyre
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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 a 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.
Topic:
Development, Economics, Humanitarian Aid, and Third World
Political Geography:
Russia

127. Patterns of Rent-Extraction and Deployment in Developing Countries: Implications for Governance, Economic Policy and Performance

Author:
Richard M. Auty
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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) politic al 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 anti- social 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.
Topic:
Development, Economics, Politics, and Third World

128. Development in Chile 1990-2005: Lessons from a Positive Experience

Author:
lvaro Garca Hurtado
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Chile, in the last 15 years, has shown remarkable results in terms of growth, poverty reduction and democratic governance. This pa per 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.
Topic:
International Relations, Development, and Economics
Political Geography:
South America and Chile

129. Why Have All Development Strategies Failed in Latin America?

Author:
Guillermo Rozenwurcel
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
Development, Economics, and Government
Political Geography:
Washington, South America, and Latin America

130. Prolonged Use and Conditionality Failure: Investigating IMF Responsibility

Author:
Laura Sabani and Silvia Marchesi
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Since the 1970s, prolonged use of resources by the IMF has consistently expanded, among both low- and middle-income countries. Overall, this phenomenon suggests a lack of effectiveness of Fund supported programmes. In the literature conditional lending failure has been explained by looking both at the characteristics of the borrowing countries (demand-side factors) and at the possible influence of IMF specific interests (supply-side factors). Among the latter it has been suggested that non- compliance with conditionality might be attributed to the lack of credibility of the IMF threat of interrupting financial assistance in case of policy slippages. In this paper we critically review this literature and we propose a novel explanation, according to which it is the repeated nature of the IMF involvement, together with the fact that the Fund acts simultaneously as a lender and as a monitor (and as an advisor) of economic reforms, that weakens the credibility of the IMF threat. Specifically, we argue that Since the 1970s, prolonged use of resources by the IMF has consistently expanded, among both low- and middle-income countries. Overall, this phenomenon suggests a lack of effectiveness of Fund supported programmes. In the literature conditional lending failure has been explained by looking both at the characteristics of the borrowing countries (demand-side factors) and at the possible influence of IMF specific interests (supply-side factors). Among the latter it has been suggested that non- compliance with conditionality might be attributed to the lack of credibility of the IMF threat of interrupting financial assistance in case of policy slippages. In this paper we critically review this literature and we propose a novel explanation, according to which it is the repeated nature of the IMF involvement, together with the fact that the Fund acts simultaneously as a lender and as a monitor (and as an advisor) of economic reforms, that weakens the credibility of the IMF threat. Specifically, we argue that the IMF desire to preserve its reputation as a good monitor/advisor may distort its lending decisions towards some laxity, which may be exacerbated by the length of the relationship between a country and the Fund. Therefore, we claim that prolonged use of IMF resources is not only a consequence of a lack of effectiveness of conditional lending but it might itself be a determinant of conditionality failure.
Topic:
Economics, International Organization, International Trade and Finance, and Markets

131. International Finance and the Developing World: The Next Twenty Years

Author:
Tony Addison
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
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.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
United States, China, and Asia

132. Turning Points in Development Thinking and Practice

Author:
Louis Emmerij
Publication Date:
02-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Why and when do turning points occur? How are they prepared? What are the choices before us when it comes to economic and social development policies? What is the role of culture in development? Do ideas play a role? What are the interests behind the ideas? The present paper tries to answer these and other questions and compares the advantages and disadvantages of global development theories with regional and local development policies that put more emphasis on the role of culture in economic development.
Topic:
International Relations, Development, Economics, and United Nations

133. Aid Allocation and Aid Effectiveness: An Empirical Analysis

Author:
George Mavrotas and Alessia Isopi
Publication Date:
01-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper performs aid allocation analysis using OECD-DAC data covering 20 aid donors and 176 recipients over the period 1980-2003. We improve upon earlier work in this area by employing inter alia the variable 'past outcome' measuring aid effectiveness in order to link together aid allocation and aid effectiveness. In line with previous work, we also account for both altruistic and selfish donor motives in the empirical analysis. As expected, empirical results based on To bit estimates of aid allocation for individual donors vary quite significantly among donors. We also test the robustness of our results by estimating individual regressions for the major donors over the period 1990-2003 in view of major events in the aid arena during that time that could potentially have an impact on the aid allocation process. Our results seem to be similar to those derived over the 1980-2003 period, thus implying that this was not the case. Overall, both altruistic and selfish donor motives seem to motivate aid allocation for most donors over the two periods under examination. However, when we further restrict our time dimension to the 1999-2003 period, some important policy changes with regard to selectivity seem to emerge for a small group of donor countries.
Topic:
International Relations, Development, Economics, and Humanitarian Aid

134. Decentralizing Aid with Interested Parties

Author:
Ira N. Gang and Gil S. Epstein
Publication Date:
01-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper analyses the decentralization of decisionmaking in aid-giving in a theoretical rent-seeking framework. In this analysis the root donor establishes a necessary criterion for potential recipients: good governance. The potential recipients compete in hierarchal contests for funds. The paper investigates whether, under certain reasonable conditions, fashionable aid procedures will lead to the development of a poverty trap.
Topic:
Development, Economics, Humanitarian Aid, and Politics

135. On the Empirics of Aid and Growth: A Fresh Look

Author:
George Mavrotas and Jan-Erik Antipin
Publication Date:
01-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper contributes to the empirics of aid and growth by taking a fresh look at the aid-policies-growth nexus emanating from the very influential but also debatable paper on the subject by Burnside and Dollar: 'Aid, Policies and Growth'. We employ three different datasets (including the one used in the Burnside and Dollar paper) and Bayesian instrumental variable methods to test the robustness of the central finding of the Burnside and Dollar paper related to the aid and policy interaction coefficient. In doing so, we applied Bayesian instrumental variable technique s to find the most probable parameter values in the growth equation. We also test for the exogeneity of the instrumental variables used. We find that the marginal effect of the disputed (Aid/GDP) x Policy variable on real per capita GDP growth is substantially smaller than in Burnside and Dollar, thus casting serious doubts on the robustness of their findings, and most importantly, on the validity of the policy lessons emerged from the Burnside- Dollar study.
Topic:
Development, Economics, and Humanitarian Aid

136. Aid Project Proliferation and Absorptive Capacity

Author:
David Roodman
Publication Date:
01-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Much public discussion about foreign aid has focused on whether and how to increase its quantity. But recently aid quality has come to the fore, by which is meant the efficiency of the aid delivery process. This paper focuses on one process problem, the proliferation of aid projects and the associated administrative burden for recipients. It models aid delivery as a set of production activities (projects) with two inputs—the donor's aid and a recipient-side resource—and two outputs—development and 'throughput', which represents the private benefits of implementing projects, from kickback s to career rewards for disbursing. The donor's allocation of aid across projects is taken as exogenous while the recipient's allocation of its resource is modelled and subject to a budget constraint. Unless the recipient cares purely about development, an aid increase can reduce development in some circumstances. Sunk costs, representing for the recipient the administrative burden of donor meetings and reports, are introduced. Using data on the distribution of projects by size and country, simulations of aid increases are run in order to examine how the project distribution evolves, how the recipient's resource allocation responds, and how this affects development if the recipient is not a pure development optimizer. A threshold is revealed beyond which marginal aid effectiveness drops sharply. It occurs when development maximization calls for the recipient to withdraw from some donor-backed projects, but the recipient does not, for the sake of throughput. Donors can push back this threshold by moving to larger projects if there are scale economies in aid projects.
Topic:
International Relations, Debt, Economics, and Humanitarian Aid

137. Tax Policy Reforms in Nigeria

Author:
Ayodele Odusola
Publication Date:
01-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Nigeria is governed by a federal system, hence its fiscal operations also adhere to the same principle, a fact which has serious implications on how the tax system is managed. The country's tax system is lopsided, and dominated by oil revenue. It is also characterized by unnecessarily complex, distortionary and largely inequitable taxation laws that have limited application in the informal sector that dominates the economy. The primary objective of this paper is to prepare a case study on tax policy reforms in Nigeria, with the specific objectives of examining the main tax reforms in the country; highlighting tax revenue profile and composition; analysing possible distributional impacts on the poor; discussing major problems that could prevent effective tax implementation in the country; and offering suggestions for reforms.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
Africa and Nigeria

138. Taxation in Developing Countries: Case Study of Cameroon

Author:
Samuel Fambon
Publication Date:
01-2006
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In the beginning of the 1980s, Cameroon witnessed a sustained rate of growth, associated essentially with the boom in the oil sector. Increased budgetary and extra-budgetary resources generated by this sector helped to raise the investment rate in the economy, and to maintain a reasonable level of external indebtedness. But after this period of expansion, the country experienced unfavourable economic development caused by a successive decline in the terms of trade, leading to profound imbalances, notably in public finance and the external account. The government subsequently initiated a series of measures to reform its tax system and to adapt it to national economic realities. An efficient and equitable taxation encourages production and the accumulation of national wealth stimulates saving and investments and hence job creation. Such a tax system could, therefore, ensure sustainable growth and development in Cameroon.
Topic:
Development, Economics, Political Economy, and Third World

139. Sources and Effectiveness of Financial Development: What We Know and What We Need to Know

Author:
Panicos O. Demetriades and Svetlana Andrianova
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Drawing on recent literature, the paper argue s that institutions and political economy factors hold the key to understanding why some countries have succeeded in developing their financial systems while others have not. The paper also reviews new evidence which suggests that institutional quality may influence the effectiveness of financial development in delivering economic growth. These new findings highlight the possibility that poor countries may be stuck in a bad equilibrium, in which weak institutions inhibit growth both directly and indirectly, through under-developed, low- quality finance. In addition, the paper identifies a number of unanswered questions in the financial development literature, including the precise role of important institutions like law in finance, and the influence of geographical factors.
Topic:
Development, Economics, Political Economy, and Third World

140. The Poverty Macroeconomic Policy Nexus: Some Short-run Analytics

Author:
George Mavrotas and S. Mansoob Murshed
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The present paper utilises a short-run theoretical macroeconomic model of a small open economy to look at the impact of macroeconomic policies and financial deepening upon poverty through sectoral changes. This is because an expansion in certain sectors may cause greater poverty reduction. The model involves a non-traded and a traded sector on the formal side of the economy. The former is more capital intensive and the latter more unskilled labour intensive. Increased employment in the traded sector is more pro-poor compared to a similar rise in the non-traded sector as the former draws workers out of poverty in the informal sector. The model in our paper analyses short-run effects of devaluation, a rise in the money supply induced by financial deepening, and taxation to discourage non-traded goods consumption. Financial deepening can induce greater output and reduce poverty. Other results are mixed and taxonomic. We also attempt to differentiate between the stylised experiences of East Asia and Latin America. East Asian economies have relied more heavily on labour-intensive manufactured exports, whereas Latin America has had a relatively greater share of capital intensive and natural resource based exports. In recent decades countries in these two regions have had differing experiences in poverty reduction, with poverty arguably declining more in East Asia.
Topic:
International Relations, Development, Economics, and Poverty
Political Geography:
East Asia and Latin America

141. Does Financial Openness Promote Economic Integration? Some Evidence from Europe and the CIS

Author:
Fabrizio Carmignani and Abdur Chowdhury
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
We study whether financial openness facilitates the economic integration of formerly centrally planned economies with the EU- 15. Two dimensions of economic integration are considered: cross-country convergence of per-capita incomes and bilateral trade in goods and services. We find that more financially open economies effectively catch-up faster and trade more with the EU-15. These integration-enhancing effects occur over and above any effect stemming from domestic financial deepening and other factors determining growth and trade.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
Europe

142. The Effects of (within and with EU) Regional Integration: Impact on Real Effective Exchange Rate Volatility, Institutional Quality and Growth for MENA Countries

Author:
Iftekhar Hasan and Leonardo Becchetti
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
We analyse two potential effects arising from regional (and with EU) integration—increased quality of institutions (including the quality of financial institutions) and, economic policies and reduced multilateral exchange rate volatility— in a conditional convergence growth framework for MENA countries. To this purpose we outline an ad hoc methodology which implements the traditional bilateral exchange rate measures to test effects of multilateral exchange rate volatility on growth of per capita GDP. Our estimates show that both factors (quality of institutions and reduction of multilateral volatility) significantly and positively affect growth and conditional convergence. We observe that MENA countries are not far from EU and OECD countries in terms of exchange rate volatility, but much below in terms of institutional quality. We finally simulate the potential effects of an improvement in institutional quality in MENA countries on their process of growth and conditional convergence. We conclude arguing that regional integration may be highly beneficial for such countries, mainly because of its effects on institutional quality.
Topic:
Development, Economics, and Regional Cooperation
Political Geography:
Europe

143. Education, Financial Institutions, Inflation and Growth

Author:
Iftekhar Hasan, Leonardo Becchetti, and George Mavrotas
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Our paper investigates the unexplored impact of education on inflation and of this relationship on economic growth. By using a sample of 102 countries observed on non-overlapping five-year data spells over the period 1963-2001, we find that average schooling years of the working population have a significant negative impact on inflation rates after controlling for the effects of the stance of domestic monetary policy. We also show that the negative impact of inflation on growth in conditional convergence estimates is significantly increased when the former is instrumented by educational variables. Our findings outline a third potential role of human capital on conditional convergence. They show that education is not only a production factor or a variable which may reduce demographic pressures, but also an important antidote against inflationary pressures which, in turn, negatively affect economic growth and conditional convergence. We interpret our findings by identifying three potential rationales for the education-inflation nexus: (i) education raises consumers' awareness of their power in contrasting producers' inflationary pressures; (ii) more educated individuals have lower inflationary expectations when they are also wealthier and their consumption bundle is relatively less (more) intensive in inferior (superior) goods with higher (lower) inflation potential; (iii) more (less) educated and wealthier (less wealthy) individuals tend to be net creditors (debtors) in their maturity, thereby contributing to increase (reduce) the power of anti-inflationary lobbies.
Topic:
International Relations, Development, Economics, and Education

144. Financial Sector Development, Savings Mobilization and Poverty Reduction in Ghana

Author:
Peter Quartey
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper primarily investigates the interrelationship between financial sector development and poverty reduction in Ghana. This is done using time-series data from the World Development Indicators from 1970-2001. The main findings are, first, that even though financial sector development does not Granger-cause savings mobilization in Ghana, it induces poverty reduction; and second, that savings do Granger-cause poverty reduction in Ghana. Also, the effect of financial sector development on poverty reduction is positive but insignificant. This is due to the fact that financial intermediaries in Ghana have not adequately channelled savings to the pro-poor sectors of the economy because of government deficit financing, high default rate, lack of collateral and lack of proper business proposals. Another interesting finding is that there is a long-run co integration relationship between financial sector development and poverty reduction.
Topic:
Development, Economics, and Poverty
Political Geography:
Africa and Ghana

145. Financial Markets and R Investments: A Discrete-Time Model to Interpret Public Policies

Author:
Marco Mazzoli
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper introduces a discrete-time intertemporal investment model in which the flow of profits affects the risk premium on the cost of finance, and, as a consequence, the rate of discount of future profits. While public investments, according to a consolidated literature, constitute the main bulk of innovation policies, this model is used to comment and interpret the potential use of another, secondary, public policy, consisting of tax incentives for firms performing R expenditures and issuing securities in the stock market. Linking public policies for innovation to the stock market might help to reduce the problems of discretionality and the monitoring of public expenditure used to finance R and technical innovation.
Topic:
Security, Development, Economics, and Emerging Markets

146. Does Financial Liberalization Influence Saving, Investment and Economic Growth? Evidence from 25 Emerging Market Economies, 1973-96

Author:
Robert Lensink and Niels Hermes
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper aims to investigate the relationship between financial liberalization on the one hand and saving, investment and economic growth on the other hand, using a new dataset for measuring financial liberalization for a sample of 25 developing economies over the period 1973-96. We find no evidence that financial liberalization affects domestic saving and total investment (although there are some signs to believe that liberalization may actually reduce rather than increase domestic saving), whereas it is positively associated with private investment, as well as with per capita GDP growth. We find a negative relationship between financial liberalization and public investment. These results suggest that financial liberalization leads to a substitution from public to private investment, which may contribute to higher economic growth.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance

147. Financial Sector Development and Productivity Growth

Author:
George Mavrotas and Subal C. Kumbhakar
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Recent years have witnessed important structural changes around the world as a result of the globalization process, the creation of new economic blocks and the liberalization of financial sector in many countries. Responding to these changes many sectors of the industrialized countries have gone through major deregulatory changes to acclimate themselves to new environments. At the same time, many countries have undertaken institutional reforms to build a market-orientated financial system in the hope that transition towards market economy will improve productivity. In the face of uncertainty resulting from changes in regulatory structure and the development of financial institutions to foster market economy, many countries may not be able to achieve their maximum growth potential. In other words, productivity growth is likely to depend on the development of financial institutions and the stage of economic development That is, a less developed country is likely to benefit more (in terms of output growth rate) from the development of financial institutions than a developed economy with well-developed financial system. In this paper we document this by using data covering 65 countries, varying substantially in term s of level of development and geographic location, and spanning the period 1960-1999. Empirical results obtained from the estimation of two different empirical models regarding the measurement of total factor productivity growth seem to confirm a priori expectations about the overall positive influence of financial systems on productivity in line with previous work on this front. Our results remain robust with respect to alternative definitions of financial sector development we tried.
Topic:
Development, Economics, Globalization, and International Trade and Finance

148. The Tax Reform Experience of Kenya

Author:
Stephen Njuguna Karingi and Bernadette Wanjal
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In evaluating tax reform in the developing countries, one first needs to determine what is the unique role of the tax system in each particular country. One of the key reasons for undertaking tax reforms in Kenya was to ad dress issues of in equality and to create a sustainable tax system that could generate adequate revenue to finance public expenditures. In this respect, the tax modernization programme introduced in the country was to achieve a tax system that was sustainable in the face of changing conditions domestically and internationally. Policy was shifted towards greater reliance on indirect taxes as opposed to direct taxes. Consumption taxes were seen to be more favourable to investments and hence growth. Trade taxes, instead of being used for protection or revenue-maximization purposes, were viewed more as instruments to foster export-led industrialization. Trade taxes were therefore used to create a competitive exports sector rather than protect the import-competing manufacturing sector, as had been done in the past.
Topic:
International Relations, Development, and Economics
Political Geography:
Kenya and Africa

149. Tax Reforms in Ghana

Author:
Peter Quartey and Robert Darko Osei
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Ghana's tax reforms constitute the major policy instrument needed to accelerate growth and poverty reduction. Over the past two decades, the government has consistently spent more revenue than it is able to generate and the gap is often financed with foreign aid which has perpetuated the country's aid dependency. Two options can be explored to reduce the gap between government revenue and expenditure; generate more revenue or reduce government expenditure. Although the latter sounds reasonable, the government needs to spend more on key sectors like education, health and infrastructure if the country is to significantly reduce poverty. The critical issue has been how to generate the needed resources domestically, using tax instruments that are least harmful to the poor. This will obviously involve reforming the tax system to ensure efficiency by widening the tax net without necessarily increasing the tax rate. This paper provides an assessment of the changing structure of the tax system in Ghana over the last two decades and suggests ways to improve tax administration in the country.
Topic:
International Relations, Development, and Economics
Political Geography:
Africa and Ghana

150. Taxes and Tax Reform in Ethiopia, 1990-2003

Author:
Alemayehu Geda and Abebe Shimeles
Publication Date:
12-2005
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In 1991 the Ethiopian Revolution Democratic Front (EPRDF) toppled the old 'socialist' regime that had ruled the country for seventeen years. In contrast to the previous policy regime of hard control, EPRDF initiated a wide range of reforms that covered not only the tax system but also the exchange rate, interest rates, trade, domestic production and distribution. This pa per attempts to explore the contribution of the tax reform, the change s in its structure and institutional reform in order to understand its role in raising revenue.
Topic:
Democratization, Economics, and Government
Political Geography:
Africa and Ethiopia