Most recent papers:

• Schooling and household welfare: The case of Sri Lanka from 1990 to 2006.
  Rozana Himaz, Harsha Aturupana.
  Review of Development Economics. October 20, 2017
  This paper looks at the effect schooling has had on household welfare in Sri Lanka during the 1990–2006 period, on average and across the welfare distribution. We account for the endogeneity of schooling using quantile instrumental variable estimation as developed in Chernozhukov, Fernández‐Val, and Kowalski (). We use pooled data from four cross‐sectional Household Income Expenditure Surveys. The results show that an extra year of schooling on the part of the most educated adult member in the household can increase welfare (proxied by real per capita consumption expenditure) by 3.8 percent on average. However, the effect varies considerably across the welfare distribution: At the lower end, around the 20th and 25th quantiles, an extra year of education increases welfare by 6 and 5 percent, respectively, while at the median it is around 3.5 percent. At the higher, 90th quantile it is much less, at 1 percent. Thus the marginal effect of schooling on welfare is significant and positive at all levels of the welfare distribution, but highest at the lower and middle quartiles. This result is different from findings in the literature that tend to show larger effects at higher quantiles, when endogeneity is uncorrected.

  October 20, 2017   doi: 10.1111/rode.12355   open full text
• Consumption dynamics and inequality of opportunity with an application to Uganda.
  Paolo Brunori, Flaviana Palmisano, Vito Peragine.
  Review of Development Economics. October 20, 2017
  This paper proposes the adoption of an opportunity egalitarian perspective to assess and compare growth processes and their distributional implications. To this aim, a set of graphical tools are introduced that allow one to evaluate the role of growth and recessions in the evolution of individuals’ opportunities over time. These tools satisfy the ex post principle of equality of opportunity and represent an extension of the “opportunity growth incidence curve,” a framework proposed by the literature to evaluate growth according to the ex ante principle of equality of opportunity. This measurement framework is applied to evaluate the economic dynamic between 2009 and 2011 in Uganda. The results show that despite a reduction in the real value of household consumption and a surge in outcome inequality, its effects appear to be less dramatic when the ex post equality of opportunity perspective is invoked.

  October 20, 2017   doi: 10.1111/rode.12357   open full text
• Competitive devaluations in commodity‐based economies: Colombia and the Pacific Alliance Group.
  Guglielmo Maria Caporale, Rodrigo Costamagna, Gustavo Rossini.
  Review of Development Economics. October 12, 2017
  This paper investigates whether there is an S‐curve in Colombia using bilateral and disaggregated quarterly data for the period 1991 to 2014. More precisely, the short‐run effects of a depreciation on the trade balance (TB) are analyzed in 27 industries covered by the Pacific Alliance Group free trade agreement. The S‐curve found in sectors representing 30 percent of total industrial production suggests that in these cases competitive devaluations have a positive effect on the TB in the short run. Our findings have important policy implications: since only large competitive devaluations can restore TB equilibrium, industrial restructuring would appear to be a more sensible strategy, though this cannot be achieved in the short run and is instead a medium‐ to long‐term goal.

  October 12, 2017   doi: 10.1111/rode.12349   open full text
• The effect of macroeconomic variables on the opening of antidumping measures: A robust analysis for Brazilian and Argentine economy.
  Vinícius Azevedo Couto Firme, Cláudio R. Fóffano Vasconcelos, Rogério Silva de Mattos.
  Review of Development Economics. October 12, 2017
  This paper analyzes the influence of macroeconomic factors on the introduction of antidumping (AD) cases in Brazil and in Argentina. Since this type of research does not have large samples, the relevant variables were selected via Sala‐i‐Martin's () test. The results, estimated using Poisson models, revealed that Brazil and Argentina are influenced by macroeconomic factors. However, the traditional (aggregated) models tend to minimize this influence on Brazil and overestimate it on Argentina. We also found that domestic and foreign income growth, exchange rate devaluation, and a reduction in domestic prices could reduce the number of AD cases in both countries. Therefore, there is evidence that these countries are using the AD law as a political tool, shifting it from its main objective of avoiding unfair trade.

  October 12, 2017   doi: 10.1111/rode.12348   open full text
• Waste not, want not: The efficiency of health expenditure in emerging and developing economies.
  Francesco Grigoli, Javier Kapsoli.
  Review of Development Economics. October 03, 2017
  Public health spending is low in emerging and developing economies relative to advanced economies and health outputs and outcomes need to be substantially improved. Simply increasing public expenditure in the health sector, however, may not significantly affect health outcomes if the efficiency of this spending is low. This paper quantifies the inefficiency of public health expenditure and the associated potential gains for emerging and developing economies using a stochastic frontier model that controls for the socioeconomic determinants of health, and provides country‐specific estimates. The results suggest that African economies have the lowest efficiency. At 2009 spending levels, they could boost life expectancy up to about 5 years if they followed best practices.

  October 03, 2017   doi: 10.1111/rode.12346   open full text
• Is Tinkering with Institutional Quality a Panacea for Firm Performance? Insights from a Semiparametric Approach to Modeling Firm Performance.
  Sumon Kumar Bhaumik, Ralitza Dimova, Subal C. Kumbhakar, Kai Sun.
  Review of Development Economics. September 28, 2017
  There is a large and growing literature on the impact of institutional quality on economic performance and the broad consensus is that “good” institutions facilitate better economic performance. The literature that provides micro‐level support for the policy discourse about institutional quality does not, however, account for significant intra‐country variation in reactions of firms to changes in business environments, even within the same industry, and it generally ignores the possibility that the impact of institutional quality on firm performance may not be neutral. In this paper, we analyze the impact of institutions on firm performance using an approach that enables us to overcome these problems with the stylized approach. Using cross‐country firm‐level data, we demonstrate that not only does the marginal impact of institutional quality vary significantly within countries, but also that the impact is economically significant only at the two extremes of the distribution. We view this as prima facie evidence that policies that tinker with institutional quality on the basis of the popular wisdom about the impact of these institutions on the average firm may not have the desired or expected impact, at least at the micro level.

  September 28, 2017   doi: 10.1111/rode.12311   open full text
• Corruption: The good, the bad, and the uncertain.
  Jamie Bologna Pavlik.
  Review of Development Economics. September 28, 2017
  This paper argues that the relationship between corruption and economic growth is dependent upon the uncertainty involved. Employing data on a cross‐section of countries, this paper uses an interaction between the frequency of bribery payments and the uncertainty regarding the delivery of the service in exchange for these bribes to show that corruption has a negative association with growth unless the uncertainty is minimal. Furthermore, the negative association becomes larger in magnitude with higher levels of uncertainty. At extremely high levels of uncertainty a relatively small increase in corruption, equivalent to moving from Sweden to the United States for example, is associated with economically large decreases in economic growth.

  September 28, 2017   doi: 10.1111/rode.12343   open full text
• Human capital consequences of violence in schools: Estimating the impact of violence in schools on education outcomes in Brazil.
  Sumit S. Deole.
  Review of Development Economics. September 28, 2017
  Implementation of policies to reduce the incidence of violence in schools needs a comprehensive understanding of the phenomenon and its consequences for the victims, perpetrators, and witnesses alike. However, much of the existing literature either focuses on the impact of violence on victim students or studies the specific cases of violent conflicts. Using Brazilian education data, this paper examines the impact of violence in schools on educational outcomes of the schooling system and emphasizes the human capital consequences of recorded violent incidents in schools. First, the paper establishes the psychological stress–threat mechanism by which violent incidents in schools directly impact students' mathematics test scores as well as school level average of these test scores. Thereafter, the paper demonstrates the reduced learning mechanism by which violence further detriments the quality of education, albeit indirectly, by disengaging the teachers and students from their professional responsibilities. The main results are tested for robustness and policy implications are discussed.

  September 28, 2017   doi: 10.1111/rode.12342   open full text
• Relative standing and temporary migration: Empirical evidence from the South Caucasus.
  Armenak Antinyan, Luca Corazzini.
  Review of Development Economics. September 13, 2017
  This paper empirically investigates the relationship between households’ relative deprivation and the intentions of their members to temporarily migrate abroad in three transition economies of the South Caucasus: Armenia, Azerbaijan and Georgia. To capture respondents’ relative deprivation, we use self‐reported information on respondents’ perception of the relative standing of their household in comparison to those of their neighbors. Controlling for households’ absolute income and other relevant subjective dimensions, we illustrate that households’ relative position vis‐à‐vis their reference groups plays an important role in determining the intentions of their members to migrate abroad. In particular, individuals are more willing to engage in temporary emigration if they perceive themselves to be poorer than the reference group. Our results may have important policy implications. A conjectural suggestion of our empirical exercise is that if migration has to be curbed, reducing absolute poverty alone may not be sufficient. In addition, policy‐makers may need to decrease relative income differentials within the country.

  September 13, 2017   doi: 10.1111/rode.12345   open full text
• Political Reservation for Women and Delivery of Public Works Program.
  Nayana Bose, Shreyasee Das.
  Review of Development Economics. September 12, 2017
  We examine the impact of political reservations for women to analyze the effectiveness of female leaders in executing public works under NREGA, India's largest public works program. The 73rd Amendment to the Indian Constitution mandated that one third of Panchayat seats be randomly assigned to women. Using detailed data on Panchayat elections, employment, and public works expenditure for nine districts in Uttar Pradesh, we find female Panchayat leaders significantly increase the demand for work under NREGA. We also find that women leaders take up projects that directly benefit women, such as water control and harvesting. Finally, we find no difference between male and female leaders in generating employment or efficiently implementing public works under NREGA.

  September 12, 2017   doi: 10.1111/rode.12336   open full text
• Regulation, Minimum Wage and Informality: Introduction to Symposium.
  Kaushik Basu, Stefan Dercon, Ravi Kanbur, Jan Svejnar.
  Review of Development Economics. September 12, 2017
  Are markets in developing and transition economies over‐regulated or under‐regulated? This is a perennial question in the development discourse, but one for which answers appear to come more from preset ideology than from context‐specific analysis and evidence. These issues become even more pressing when the debate turns to the links between regulation, deregulation and inequality. The recent experience of rising inequality in many countries has also brought to the fore predictable policy positions. A key aspect of labor regulation in developing countries, and one becoming more prominent in the era of rising inequality, is the minimum wage. The range of issues around regulation, minimum wage and informality was addressed by papers presented to a conference held in New Delhi on December 17–18, 2014. The conference was co‐sponsored by the World Bank, UK Department for International Development, Cornell University and Columbia University. The organizers of the conference were Kaushik Basu, Stefan Dercon, Ravi Kanbur and Jan Svejnar. A selection of papers from the conference which passed the usual review procedures of the Review of Development Economics, and a further selection of papers from those submitted to the journal, form this symposium.

  September 12, 2017   doi: 10.1111/rode.12341   open full text
• The Spillover Effects of Innovative Ideas on Human Capital.
  Barış Alpaslan, Abdilahi Ali.
  Review of Development Economics. August 29, 2017
  This paper extends a two‐period overlapping generations model of endogenous growth where the interactions between public infrastructure and human capital with research and development (R&D) activities and growth are studied. The paper makes two important contributions. First, it accounts for the spillover effect of the stock of ideas on learning, which in turn promotes the production of innovative technologies. In doing so, it brings to the fore a two‐way interaction between human capital and innovation. The paper then applies various econometric methods which confirm the above theoretical thesis. Second, the solutions of the model emphasize the important role public spending on infrastructure, human capital and R&D can play in promoting economic growth. However, the findings also show that trade‐offs in the allocation of public spending may inevitably emerge. In particular, investment in public infrastructure at the expense of spending on R&D is less likely to succeed in promoting economic growth, whereas it may be more effective to foster growth through an offsetting cut in another productive component, namely, education. In light of these potential trade‐offs, governments in low‐income countries need to use their limited budgets as part of holistic measures in order to achieve efficient outcomes.

  August 29, 2017   doi: 10.1111/rode.12344   open full text
• Cyclicality of Fiscal Policy in Latin America over the period 1990 ‐ 2015.
  Bruno Martorano.
  Review of Development Economics. August 29, 2017
  Latin American countries experienced important changes in the 2000s. The implementation of fiscal reforms, public debt reduction and the high level of accumulated reserves gave them more policy space than in the past. As a result, Latin American countries were able to implement countercyclical policies to face the negative economic and social consequences associated with the recent macroeconomic shock. Some countries performed better than others. In particular, Social Democratic and Centrist governments enjoyed more fiscal space; they had realized larger budget surpluses over the good years and were able to cope with the crisis without impairing their fiscal conditions. Yet, Latin America has experienced a public finance deterioration in the most recent years. While governments are showing an increasing ability on taxation they are still facing some problems on the expenditure side. As a result, fiscal policy returned acyclical after the period of the crisis. The sustainability of public accounts may be strengthened increasing tax pressure on the richest, reducing tax evasion and improving current spending efficiency. However, the increasing political problems are putting many questions about future trends of public finance in the region.

  August 29, 2017   doi: 10.1111/rode.12329   open full text
• Export Tightening, Competition, and Firm Innovation: Evidence from the Renminbi Appreciation.
  Mi Dai, Miaojie Yu, Chunming Zhao.
  Review of Development Economics. August 16, 2017
  This paper investigates how firm innovation reacts to changes in competitive pressure in the export market. We use the exchange rate appreciation of the renminbi during 2005–2007 as a natural experiment and exploit its differential impact on Chinese manufacturing firms with different export exposure. The appreciation reduced exports and imposed greater competitive pressure on exporters relative to non‐exporters. In response, exporters increased innovation activities more than non‐exporters. Using a difference‐in‐difference approach, we find that the research and development expenditure of exporters increased by 11% more than that of non‐exporters during the appreciation period, and the new product development of exporters increased by nearly 1.5 times more than that of non‐exporters. These results highlight the important role of competition in providing incentives for firm innovation.

  August 16, 2017   doi: 10.1111/rode.12340   open full text
• What drives the localization of Spanish multinationals in developing and transition countries?
  Maite Alguacil, Josep Martí, Vicente Orts.
  Review of Development Economics. August 16, 2017
  In this paper, we investigate the location determinants of Spanish multinational firms in developing and transition economies. We pay particular attention to the role played by market potential and agglomeration economies as decisive factors in location. We also analyze whether, beyond the observed attributes, there are any significant differences across regions in terms of attracting foreign affiliates. With this aim, we estimate a mixed logit model, which allows us to endogenously consider the existence of complex substitution patterns among different destinations. Our results confirm that Spanish investment in developing and transition countries depends on market potential and agglomeration externalities. The intensity of these externalities, however, depends on the nationality of competitors, greater rivalry being observed among Spanish‐owned affiliates. Furthermore, our findings show that the location of multinational firms responds both to factors related to the local business environment, including the cost and quality of labor and infrastructures, and to the existence of specific regional effects.

  August 16, 2017   doi: 10.1111/rode.12338   open full text
• Complementarity, Linkages between Firms, and the Effect of Entry Costs on Productivity.
  Fernando Rio, Antonio Sampayo.
  Review of Development Economics. August 16, 2017
  In a general equilibrium model where firms are heterogeneous in terms of productivity, we introduce differentiated goods in production that are not perfect substitutes, as well as intermediate inputs needed to produce those goods. We show that an increase in either the complementarity of differentiated goods or the share of intermediate inputs in gross output, significantly increases the negative effect of entry costs on total factor productivity (TFP) and output per worker. We also find that the effect of complementarity is quantitatively stronger. If we assume an empirically plausible value for the elasticity of substitution between differentiated goods, then the model considerably improves its ability to reproduce the observed negative relationship between entry costs and TFP or output per worker.

  August 16, 2017   doi: 10.1111/rode.12339   open full text
• Gender asymmetries: Impacts of an early‐stage school intervention in the Philippines.
  Futoshi Yamauchi, Yanyan Liu.
  Review of Development Economics. August 11, 2017
  This paper examines long‐term impacts of improved school quality at the elementary school cycle on subsequent schooling investments and labor market outcomes using unique data from a survey that tracked nearly 3,500 former students in the Philippines. The Third Elementary Education Project (TEEP) intervention introduced a package of investments and management reforms at the school level, including classroom constructions, textbooks, teacher training, and school‐based management in the period of 2000 to 2006. The impacts on subsequent schooling investments and labor market earnings differ between females and males. The intervention significantly increased earnings among females, which reduced the existing wage gap by gender. However, the findings on schooling outcomes are mixed; the gender gap tended to widen, enhancing females’ existing relative advantage in schooling, though their impacts are insignificant for both females and males.

  August 11, 2017   doi: 10.1111/rode.12337   open full text
• Foreign workers and productivity in an emerging economy: The case of Malaysia.
  Jacob A. Jordaan.
  Review of Development Economics. August 10, 2017
  Many developed and developing countries are experiencing large and growing levels of international migration of labor. However, the large majority of research on the economic impact of inflows of migrant workers on host economies focuses exclusively on developed countries. In this paper, we address this gap in the literature by examining migrant‐induced productivity effects in the emerging economy of Malaysia. Importantly, the Malaysian case is typical for many Asian economies where, next to high skilled foreign workers, large numbers of migrants consist of low skilled workers that are employed in host economies on a temporary basis. Using detailed industry level data for the period 2005 to 2009, we find that both high skilled and low skilled foreign workers generate positive productivity effects in Malaysian manufacturing industries. Furthermore, our results identify a strong presence of industry heterogeneity, as the effects of foreign workers, in general, and low skilled foreign workers, in particular, are pronounced in labor and assembly intensive modern industries with a strong export focus. This indicates the importance of foreign workers for the contemporary international competitiveness of the Malaysian manufacturing sector. As such, our findings provide important new input to the debate on the role of low skilled foreign workers in processes of development of the Malaysian economy.

  August 10, 2017   doi: 10.1111/rode.12334   open full text
• Remittances and return migration.
  William Collier, Matloob Piracha, Teresa Randazzo.
  Review of Development Economics. July 30, 2017
  This paper utilizes survey data of return migrants to analyze the determinants of remittances sent while the migrants were abroad. We approach our research question from the perspective of three sending countries in the Maghreb, namely Algeria, Morocco, and Tunisia. We investigate the remittance behavior using the migrants’ conditions before migration as well as during the migration experience. Using a two‐part model, we show that the decision to remit and the amount remitted depend on a combination of different migrant characteristics and reasons for migration as well as the form of migration. More importantly, we also consider if the remittance behavior is dependent on the type of return: “decided” or “compelled.” We show that the two groups have different incentives to remit, which can help explain the link between type of migrants and their remittance behavior.

  July 30, 2017   doi: 10.1111/rode.12335   open full text
• Is the Shadow Economy a Bane or Boon for Economic Growth?
  James W. Saunoris.
  Review of Development Economics. July 13, 2017
  This paper uses the theoretical framework developed by Feder (1983) and Ram (1986) to examine interactions (i.e. externalities and intersectoral factor productivity differentials) between the official and unofficial sectors of the economy. Results from the empirical analysis, using data on over 100 countries from 1970 to 2008, suggest that the marginal externality effect of growth in the unofficial sector on the official sector is positive. Further, input productivities are higher in the unofficial sector relative to the official sector. These results are robust using alternate measures of the (unobserved) unofficial economy and across level of development.

  July 13, 2017   doi: 10.1111/rode.12332   open full text
• Service delivery weaknesses within education and healthcare: Applying empirics from Kenya, Uganda, Tanzania, and Senegal.
  Kjell Hausken, Mthuli Ncube.
  Review of Development Economics. July 13, 2017
  Civil servants such as teachers and doctors allocate their resources into service delivery that benefits society, and alternative efforts for income. With low salary or high cost of service delivery, or high value of alternative efforts, the latter may be chosen extensively. This may mean leaving one's job. Some idealists may focus loyally and exclusively on service delivery despite the challenges. Choosing alternative efforts cannot be eradicated, but its role can be reduced if one is aware of the logic of which factors impact how actors allocate their resources between service delivery and alternative efforts. We have used data from the education and healthcare sectors in the African countries of Kenya, Uganda, Tanzania and Senegal to show the deficient and poor service delivery within education and healthcare services. In both sectors, education and healthcare, and for all four countries, teachers spend far less than the designated time teaching pupils, and clinicians spend very little time with patients, per day.

  July 13, 2017   doi: 10.1111/rode.12333   open full text
• Child Endowments and Parental Investments: Intra‐household Allocation in Oportunidades Families in Mexico.
  Hadia Majid.
  Review of Development Economics. July 05, 2017
  This paper estimates a family fixed‐effects model to test whether parental educational investments are reinforcing or compensating differences in child height and body mass index (BMI) within Oportunidades households. The results indicate that allocations are not made in response to endowment differences in isolation, but depend on the interaction of child endowment, gender, and beneficiary status. Moreover, investments are made so as to counterbalance efficiency and equity considerations: widening differences in height but closing gaps in BMI, where both strategies maximize returns given the earnings–endowment function for height and BMI in Mexico. Finally, household socio‐economic status matters. Thus, discriminatory responses within the better‐off urban beneficiary households are smaller. In contrast, indigenous beneficiary households, which have the lowest average endowment z‐scores and fraction spent on education, see the largest differences in educational outlay between child subgroups. While the economic effects seem small, these are measured relative to the mean of the base category. In some cases, then, parents are dedicating nearly a quarter of all expenditures to education for a standard deviation increase in endowment over mean sibling endowment. Hence, it seems that the success of the Oportunidades program in improving overall human capital formation may be masking rising inequalities within recipient households.

  July 05, 2017   doi: 10.1111/rode.12331   open full text
• ICT for financial access: Mobile money and the financial behavior of rural households in Uganda.
  Ggombe Kasim Munyegera, Tomoya Matsumoto.
  Review of Development Economics. July 04, 2017
  Mobile money usage has expanded tremendously in Uganda, reaching over 40% of the adult population within 8 years of inception. We use data from 820 rural households to examine the effect of this financial innovation on their financial behavior. We find that using mobile money services increases the likelihood of saving, borrowing, and receiving remittances. The corresponding amounts of each service are also significantly higher among mobile money user households relative to their nonuser counterparts. We demonstrate that the mechanism of this impact is a reduction in transaction costs—a combination of transportation fares and service charges—associated with household proximity to mobile money agents. To illustrate the convenience of service proximity, we demonstrate that the household's likelihood and frequency of using mobile money services reduces with the distance to the nearest mobile money agent. This distance variable is then used to instrument for the potentially endogenous mobile money adoption. We finally perform propensity score matching to reinforce the robustness of our results; our results are consistent across all these specifications. The results imply that developing and enhancing access to and usage of pro‐poor financial products could be a first step to achieving greater financial inclusion.

  July 04, 2017   doi: 10.1111/rode.12327   open full text
• Assessing the distributive effects of minimum wage.
  Fernando Borraz, Nicolás González‐Pampillón.
  Review of Development Economics. July 04, 2017
  This paper analyzes the role of Uruguay's sharp minimum wage increases after 2004 amidst the country's slight wage inequality decrease. We found that the minimum wage increase has contributed to the reduction of wage inequality for formal workers mainly. However, we also found a negative impact on employment outside the capital city, Montevideo, and observed a reduction in working hours. These results raise doubts about the effectiveness of minimum wage as a redistribution instrument in developing countries.

  July 04, 2017   doi: 10.1111/rode.12326   open full text
• Catch‐up cycle: A general equilibrium framework.
  Peilin Liu, Shen Jia, Xun Zhang.
  Review of Development Economics. June 30, 2017
  Successful latecomers have certain stylized facts: an inverse U‐shaped GDP and capital per capita growth rates, high growth rates during the catch‐up period, and rapid structural changes. This paper proposes a general equilibrium framework and documents a catch‐up cycle that successful latecomers are likely to experience. Technology adoption or imitation and the diminishing marginal return to capital are the two driving forces of the catch‐up cycle. Technical gap and speed/efficiency of technical catching‐up are two fundamental determinants for successful catching‐up. Market competition, a beneficial financial system for resource allocation and openness are essential factors associated with speed/efficiency of technical catching‐up and thus with successful catching‐up. This paper concludes by a case study of China and sheds light on the different policy choices in various stages of the catch‐up cycle.

  June 30, 2017   doi: 10.1111/rode.12330   open full text
• The Penn Effect revisited: New evidence from Latin America.
  Bernard Njindan Iyke.
  Review of Development Economics. June 30, 2017
  In this paper, we examine the role of relative productivity growth in real misalignment of exchange rates in Latin American countries. Specifically, we verify the validity of the Penn Effect for selected countries in this region. Our sample consists of 15 countries for the period 1951 to 2010. We employ both short‐ and long‐panel data techniques, which allow us to experiment with estimators suitable for short and long time dimensions of panel data. The Penn Effect is found to be supported for the entire sample, and for subsamples. Relative productivity growth is dominant in the real exchange rate movement during periods of mild or weak speculative attacks, as compared with periods of severe speculative attacks. To correct for real misalignment of currencies in Latin America under speculative attacks, relative productivity growth must be sizeable.

  June 30, 2017   doi: 10.1111/rode.12328   open full text
• Agricultural Productivity Growth and Household Food Security Improvement in Nepal.
  Masako Morioka, Takumi Kondo.
  Review of Development Economics. June 30, 2017
  Nepal is one of the poorest countries in the world. Using the panel data of the Nepal Living Standard Measurement Survey (NLSS), the poverty rate in 1995–96 was estimated to be about 40%, while in 2003–04 it was estimated at roughly 30%. Political instability has prevented the development of industry and threatened the food security of poor people, but scholarship on the factors contributing to food security is incomplete; while the determinants of food security have been mentioned in past research, prior studies have analyzed cross‐sectional data and thus could not have omitted heterogeneity bias. This paper analyzes the change in agricultural productivity in real terms and the impact on household food security by using the panel data of NLSS in 1995–96 and 2003–04. This analysis reveals that growth is observed in real agricultural productivity in spite of land segmentation; the growth in agricultural productivity in real terms has a positive impact on household food security; and the lower a farmer's income becomes, the more positive its impact on food security. Therefore, advancements in agricultural productivity play a critical role in promoting food security at the individual and household levels.

  June 30, 2017   doi: 10.1111/rode.12325   open full text
• Product and process innovation and total factor productivity: Evidence for manufacturing in four Latin American countries.
  M. Constanza Demmel, Juan A. Máñez, María E. Rochina‐Barrachina, Juan A. Sanchis‐Llopis.
  Review of Development Economics. June 20, 2017
  The literature on firm productivity recognizes the important role played by firm innovation activities on firm productivity in developed countries. However, the literature for developing and emerging economies is scarce and far from conclusive. The aim of this paper is to study the innovation–productivity link (distinguishing between process and product innovations) for manufacturing at the firm level for four Latin American countries (two classified as upper‐middle income countries by the World Bank—Argentina and Mexico—and two as lower‐middle income—Colombia and Peru). We aim testing whether the level of development is a mediating factor in the innovation–productivity link. The data used have been drawn from the World Bank panel enterprise surveys, for 2006 and 2010. First, we estimate total factor productivity (TFP) and, second, we use the estimated TFP as a regressor or as dependent variable, in two models for testing self‐selection of the most productive firms into innovation or the existence of returns to innovation in terms of productivity. Our results confirm the mediating role of the level of development in the innovation–productivity link: both the self‐selection and the returns‐to‐innovation hypotheses work only for the upper‐middle income countries.

  June 20, 2017   doi: 10.1111/rode.12323   open full text
• Is aid for trade effective? A panel quantile regression approach.
  Inmaculada Martínez‐Zarzoso, Felicitas Nowak‐Lehmann D., Kai Rehwald.
  Review of Development Economics. June 20, 2017
  This paper investigates whether Aid for Trade (AfT) leads to greater exports in recipient countries. Using panel quantile regression and two strategies to address endogeneity (AfT lagged by two periods and dynamic OLS), our results suggest that total AfT disbursements promote the export of goods and services mainly for the lower quantiles (0.1, 0.25, 0.50) of the conditional distribution of exports. Hence, countries that export less in volume are those benefitting most from AfT. This effect is mainly driven by the impact on exports of goods rather than on that of services. We also investigate which types of AfT are effective when endogeneity is controlled for. The main results show that whereas aid to improve trade policy and regulation is associated with higher exports for all quantiles, aid used to build infrastructure is found to affect exports at only the lowest tails of the distribution (0.10–0.35) and aid to build productive capacity is generally more effective for the lower quantiles of the export distribution (0.10–0.50). In contrast, aid disbursed for general budget support (an untargeted type of aid) is not associated with greater export levels. This finding holds irrespective of the quantile.

  June 20, 2017   doi: 10.1111/rode.12322   open full text
• Assessing the readiness of the BRICS grouping for mutually beneficial financial integration.
  Lumengo Bonga‐Bonga.
  Review of Development Economics. June 16, 2017
  This paper assesses the extent of transmission of volatility shocks in the equity and foreign exchange markets among BRICS (Brazil, Russia, India, China and South Africa) countries to infer the degree of risk sharing and the possibility of a beneficial financial integration among its member countries. To this end, the paper makes use of the spillover index methodology suggested by Diebold and Yilmaz (). Nonetheless, the paper extends this methodology by incorporating ex ante volatility measures that account for long memory in equity and foreign exchange markets. The paper finds asymmetric influences among BRICS countries in relation to the cross transmission of risks. The finding of the paper implies the possibility of unequal benefit that could result from a possible capital market liberalization between the BRICS countries.

  June 16, 2017   doi: 10.1111/rode.12324   open full text
• Informality: Causes, consequences and policy responses.
  Ravi Kanbur.
  Review of Development Economics. June 07, 2017
  A stylized prediction of the development economics discourse is that informality will disappear with development, and yet in the last 20 years conventional measures of informality, far from declining, have either remained stagnant or have actually increased. This includes countries such as India where economic growth has been at historically high levels. What exactly is informality and what are its magnitudes and trends? What are the causes of informality and why is it not decreasing as predicted by standard theories of development? What are the consequences for inclusive economic growth of a large and increasing informal sector? What are feasible and desirable policy responses to informality? These are the questions that motivate this broad based overview of informality. The questions will be addressed based on recent and ongoing research on India and globally.

  June 07, 2017   doi: 10.1111/rode.12321   open full text
• Aid, institutions and economic growth in sub‐Saharan Africa: Heterogeneous donors and heterogeneous responses.
  Hassen Abda Wako.
  Review of Development Economics. June 07, 2017
  This study contributes to the aid‐effectiveness debate using panel data from 43 sub‐Saharan African countries over the period 1980–2013. Its novelty lies in assessing the intermediary role of institutions and the importance of recipient and donor heterogeneity. The long‐run growth effect of (aggregate) aid from “traditional” donors is robustly non‐positive, and the indirect effect is negative. Disaggregation reveals donor heterogeneity. Chinese aid outperforms aggregate aid from traditional donors with respect to growth; however, it has a negative institutional effect. Recipient heterogeneity is largely a short‐run phenomenon, with only a few countries showing some deviations from shared long‐run parameter sets. Comparing donor behavior suggests that the future of aid would benefit more from focusing on quality – particularly, specialization and donor alignment.

  June 07, 2017   doi: 10.1111/rode.12319   open full text
• Dependency traps in self‐targeting food aid programs.
  Jaime Hurtubia Torres, Jutta Neitzel.
  Review of Development Economics. May 23, 2017
  We present an economy of farmers where food aid is warranted due to poverty traps triggered by nonconvex production sets. We model a food‐aid intervention as a dynamic game between a food‐aid manager and the farmers in a context of asymmetrical information. The food‐aid manager is motivated by a relief objective and targets farmers suffering the poverty trap. The food‐aid manager uses a self‐targeting mechanism by providing the aid through a food wage in exchange for participation in the intervention's activities. Guided by the relief objective and targeting constraint, he fixes the food wage equal to the reservation wage of the farmers not suffering the poverty trap. Dependency traps will then happen every time there is a considerable technological and nutritional gap between farmers who are in and out of the poverty trap. When there is a gap, poor farmers earn more working for the reservation wage of the well‐off farmers than by working in their own farm. Dependency can be overcome only if the food‐aid program allows farmers to upgrade their productive technologies and catch up with those farmers who are out of the poverty trap.

  May 23, 2017   doi: 10.1111/rode.12320   open full text
• “Love of wealth” and economic growth.
  Günther Rehme.
  Review of Development Economics. May 23, 2017
  In a Ramsey–Cass–Koopmans growth framework it is shown that for an optimum a benevolent social planner cannot have an excessive “love of wealth”. With a “right” “love of wealth” an optimum exists and implies higher long‐run per‐capita capital, income, and consumption relative to the standard model. This has important implications for comparative development trajectories. The optimum implies dynamic efficiency with the possibility of getting arbitrarily close to the golden rule where long‐run per‐capita consumption is maximal. It is shown that the optimal path attains its steady state more slowly. Thus, the beneficial effects of love of wealth materialize later than in the standard model. Furthermore, the economy can be decentralized as a competitive private ownership economy. One can then identify “love of wealth” with the “spirit of capitalism.” The paper thus implies that one needs a “right” level of the “spirit of capitalism” to realize any beneficial effects for the long run.

  May 23, 2017   doi: 10.1111/rode.12318   open full text
• Labor Informality: Choice or Sign of Segmentation? A Quantile Regression Approach at the Regional Level for Colombia.
  Gustavo A. García.
  Review of Development Economics. April 18, 2017
  The labor market in developing countries is remarkably heterogeneous, with a small productive formal sector characterized by high wages and attractive employment conditions, and a large informal sector characterized by low productivity and volatile wages. The informal sector is particularly diverse. In this paper, we examine the heterogeneity of the informal sector at the regional level in Colombia. In general, our findings suggest that both voluntary and involuntary informal employment co‐exist by choice and as a consequence of labor market segmentation. We also find that there are striking differences in labor market characteristics across cities, particularly with respect to informal employment.

  April 18, 2017   doi: 10.1111/rode.12317   open full text
• Does Financial Development Promote Innovation in Developing Economies? An Empirical Analysis.
  Maria Aristizabal‐Ramirez, Maria Camila Botero‐Franco, Gustavo Canavire‐Bacarreza.
  Review of Development Economics. April 11, 2017
  Using firm‐level data from 2006 to 2013 for a set of developing countries, we examine the effects of financial development on innovation. Financial development boosts innovation by improving resource allocation and investment in strategic sectors as well as facilitating technology to promote growth. Using binary response models and instrumental variable techniques to correct for endogeneity, we find robust but puzzling results. Contrary to most of the existing literature, financial development has a negative effect on the probability of a firm to innovate in developing countries. This effect is conditional on firm size, and only larger firms benefit from financial development. These results are robust to different measures of financial development and econometric specifications. We argue that this is a result of the design of the financial system in regard to the lack of capital and institutional system. Consequently, developing countries should first generate appropriate institutional conditions if they want financial development to spur growth through innovation.

  April 11, 2017   doi: 10.1111/rode.12314   open full text
• Pampered Bureaucracy, Political Stability and Trade Integration.
  Caleb Stroup, Ben Zissimos.
  Review of Development Economics. March 29, 2017
  This paper examines the effect of trade integration and comparative advantage on one of a country's institutions, which in turn influences its economic efficiency. The environment we explore is one in which a country's lower classes may revolt and appropriate wealth owned by a ruling elite. The elite can avert revolution by incentivizing a potentially productive middle class to sink their human capital into a relatively unproductive bureaucracy. Thus the bureaucracy serves as an institution through which the elite can credibly commit to make transfers to the rest of society, but in the process this reduces economic efficiency. Trade integration alters the relative value of the elite's wealth. This alters the lower classes’ incentive to revolt on the one hand and the elite's incentive to subsidize participation in the inefficient bureaucracy on the other. Therefore, the interaction between a country's comparative advantage and an inefficient economic institution determines whether trade integration increases or reduces economic efficiency. The econometric findings support the model's main prediction.

  March 29, 2017   doi: 10.1111/rode.12315   open full text
• Impacts of Institutional Intervention on Price Transmissions: The Case of the Ethiopian Commodity Exchange.
  Fekadu Gelaw, Stijn Speelman, Guido Huylenbroeck.
  Review of Development Economics. March 23, 2017
  In the aftermath of the market liberalization reforms, interventions in developing countries shifted toward building institutions. One of such interventions is the introduction of commodity exchanges. The theoretical justification is that commoditization reduces the high transaction costs associated with the information and enforcement problems characterizing agricultural markets of these countries. However it is not known whether these potential gains are transmitted to the various markets along a value chain. By taking the Ethiopian Commodity Exchange (ECX) as a case, this paper examines the impacts of the introduction of the commodity exchange in transmitting price signals along the coffee value chain (world‐export‐auction‐producer prices). We found that both the speed and symmetry of transmission remains weak even after the launch of ECX. At each level, the market chain was found to favor buyers. This implies that not only the country's gains from export are sub‐optimal, the cumulative burden is on the millions of smallholder farmers who are located at the bottom of the chain. In a context where local agricultural markets remain traditional and export markets barely competitive, the introduction of the commodity exchange will have limited impacts in improving the performance of markets in transmitting price signals. Other policy measures to further liberalize both local and export markets are required.

  March 23, 2017   doi: 10.1111/rode.12312   open full text
• The Impact of Foreign Real Estate Investment on Land Prices: Evidence from Mauritius.
  Chris Brooks, Matthew Lamport, Kesseven Padachi, Vinesh Sannassee, Keshav Seetah, Boopen Seetanah.
  Review of Development Economics. March 22, 2017
  This paper examines the impact of foreign real estate on land prices in Mauritius. Using a panel dataset comprising price, quantity and other information for a variety of luxury villas and apartments, we show that the price of land paid by locals has been pushed up by a modest 4–22% in total as a result of these developments. We also examine the determinants of the prices of the dwellings in these schemes, finding that they are strongly related to the sizes of the plots, whether they have ocean views, and the desirability of the region in which they are sited, although there remains considerable unexplained heterogeneity.

  March 22, 2017   doi: 10.1111/rode.12316   open full text
• Natural Resource Revenues and Public Investment in Resource‐rich Economies in Sub‐Saharan Africa.
  Amin Karimu, George Adu, George Marbuah, Justice Tei Mensah, Franklin Amuakwa‐Mensah.
  Review of Development Economics. March 13, 2017
  The general policy prescription for resource‐rich countries is that, for sustainable consumption, a greater percentage of the windfall from resource rents should be channeled into accumulating foreign assets such as a sovereign public fund as done in Norway and other developed but resource‐rich countries. This might not be a correct policy prescription for resource‐rich sub‐Saharan African (SSA) countries, where public capital is very low to support the needed economic growth. In such countries, rents from resources serve as an opportunity to scale‐up the needed public capital. Using a panel data for the period 1990–2013, we find in line with the scaling‐up hypothesis that resource rents significantly increases public investment in SSA and that this tends to depend on the quality of political institutions. Moreover, we also find evidence of a positive effect of public investment on economic growth, which also depends on the level of resource rents.

  March 13, 2017   doi: 10.1111/rode.12313   open full text
• Explaining Export Performance through Inputs: Evidence from Aggregated Cross‐country Firm‐level Data.
  Erik Marel.
  Review of Development Economics. February 28, 2017
  Which trade barrier related to intermediate inputs forms a greater burden on the export performance of firms in developing countries? Using aggregated cross‐country firm‐level data covering 43 mostly developing economies, this paper estimates the marginal importance of the impact of various intermediate input trade cost barriers, namely tariffs, non‐tariff barriers (NTBs) and services barriers, on firms' export behavior. In a cross‐sectoral setting, this paper takes the firm's export performance in goods as a central focus to study the effects of these different trade barriers through the exporting firm's choice of use of intermediate inputs. The results show that the most significant trade barriers on inputs that impede export performance in developing countries are mainly NTBs and restrictions of services.

  February 28, 2017   doi: 10.1111/rode.12309   open full text
• Adverse Effects of Early Life Extreme Precipitation Shocks on Short‐term Health and Adulthood Welfare Outcomes.
  Olukorede Abiona.
  Review of Development Economics. February 16, 2017
  This paper examines the impact of exposure to early life rainfall shock on children's anthropometric growth status and other welfare outcomes. The study exploits World Bank repeated cross‐section household data on Malawi and exogenous variation in precipitation measures across localities to identify the impact of drought and flood shocks on health, schooling and satisfaction levels. Our main estimate for children's anthropometric growth reveals that an incidence of drought shock leads to a resultant average decrease of 15%, 17% and 43% in age‐standardized weight z‐scores for shocks experienced at in‐utero stage, first and second years respectively. Correspondingly, the relative impacts of an incidence of drought shock on age‐standardized height z‐scores are 14%, 15% and 27%. In contrast, the impacts of flood shock on each of these outcomes deteriorate over the outlined reference periods. On the adult dimension, we find that adults who face in‐utero drought shock are more likely to have greater school entry delays and be unhappy with their current economic situations. However, this adulthood result pertains to male adults in our sample.

  February 16, 2017   doi: 10.1111/rode.12310   open full text
• Aid, Environment and Climate Change.
  Channing Arndt, Finn Tarp.
  Review of Development Economics. February 01, 2017
  Aid and aid institutions constitute an important element of the global response to interlinked global developmental and environmental challenges. As such, these institutions are now being drawn into new arenas beyond the traditional focus on improving the livelihoods of poor people in low‐income countries. Development aid, by itself, cannot “save the planet.” Nevertheless, development aid and development institutions do have the potential to become important catalytic actors in achieving developmental and global environmental objectives. This requires bold reforms and political action. Without appropriate restructuring of the international institutional architecture to confront the new development context combined with the necessary complementary policy frameworks, future aid, including aid for environmental objectives, risks substantially under‐performing.

  February 01, 2017   doi: 10.1111/rode.12291   open full text
• Individual versus Village Lending: Evidence from Montenegro.
  Thorsten Beck, Patrick Behr.
  Review of Development Economics. February 01, 2017
  This paper analyzes differences in loan performance across two Montenegrin microfinance institutions with different lending techniques using a sample of individuals borrowing from both institutions. We make use of administrative data from both institutions over the period 2004–2013. While one institution relies on village associations for screening and monitoring of borrowers, the other institution uses the individual liability approach. We find that the likelihood to go into arrears is higher for the institution with a strictly individual lending technique, while the likelihood of going into arrears over 30 days is higher for the institution working with village associations. These results are robust to a variety of additional tests, including different definitions of arrears and subsamples. Our findings suggest that the institution using an individual lending technique provides certain flexibility to its clients, while the village‐based microfinance institution might face more strategic default behavior. We provide evidence that once a borrower is in arrears, (s)he is more likely to stay in arrears for more than 30 days in branches with a higher share of borrowers in arrears and in the village‐based lender. Our findings provide evidence that a village‐ or group‐based lending technique is not necessarily superior to the individual lending technique in terms of loan performance.

  February 01, 2017   doi: 10.1111/rode.12308   open full text
• A Model of Smuggling and Trafficking of Illegal Immigrants with a Host Country Policy.
  Saibal Kar, Hamid Beladi.
  Review of Development Economics. January 30, 2017
  This paper deals with illegal immigration via two distinct activities—smuggling and trafficking of workers. A destination–source model determines economic pay‐offs and a standard labor market policy works as a deterrent. Tax paid by legal unskilled workers at the destination is determined endogenously and it finances inland monitoring against illegal immigration, holding the border patrol at a given level. The tax also finances unemployment benefit to legal workers at the destination. The number of immigrant smugglers and traffickers is also determined endogenously along with employer penalty and market wage for illegal immigrants. Higher unemployment benefits may reduce illegal wages, raise traffickers’ rent and reduce flow of illegal immigrants from the source countries.

  January 30, 2017   doi: 10.1111/rode.12307   open full text
• Is Private Saving in Latin America and the Caribbean Different?
  Francesco Grigoli, Alexander Herman, Klaus Schmidt‐Hebbel.
  Review of Development Economics. January 24, 2017
  Private saving and economic growth are intimately linked, and low saving rates in Latin America and the Caribbean (LAC) have often been held responsible for disappointing growth in the region. Thus, identifying factors that spur saving is critical. This paper surveys previous empirical studies on LAC, highlighting contradictions, omissions and in some cases inconclusiveness of findings. Relying on a large dataset and a nested econometric framework, it analyzes private saving patterns and explores the role of its determinants in LAC, across LAC sub‐regions and compared with other regions. While the results highlight great heterogeneity in private saving rates within LAC and compared with the rest of the world, saving determinants are broadly the same notwithstanding some differences in sensitivity and contributions' sizes, and include its lag, income, demographics and public saving.

  January 24, 2017   doi: 10.1111/rode.12306   open full text
• Explaining Caste Differences in Private School Attendance.
  Mehtabul Azam.
  Review of Development Economics. January 22, 2017
  Using a nationally representative education survey, we explore caste differences in private school attendance in India. We find lower private school attendance among the disadvantaged castes—Scheduled Castes (SCs), Scheduled Tribes (STs) and Other Backward Castes (OBCs)—when compared with the non‐disadvantaged group (non‐SC/ST/OBC). Controlling for geographical location, household and individual level factors reduces the gaps in private school attendance considerably; however, the gaps remain quite large. We find that variation in parental education and household consumption expenditure explains a significant proportion of the observed gaps. For ST students, geographical location remains important in explaining the gap in private school attendance.

  January 22, 2017   doi: 10.1111/rode.12305   open full text
• Fiscal Incidence in Ghana.
  Stephen D. Younger, Eric Osei‐Assibey, Felix Oppong.
  Review of Development Economics. January 11, 2017
  We use methods developed by the Commitment to Equity Institute to assess the effects of government taxation, social spending and indirect subsidies on poverty and inequality in Ghana. We also simulate several policy reforms to assess their distributional consequences. Results show that, although the country has some very progressive taxes and well‐targeted expenditures, the extent of fiscal redistribution is small, but about what one would expect given Ghana's income level and relatively low initial inequality. Results for poverty reduction are less encouraging: were it not for the in‐kind benefits from health and education spending, the overall effect of government spending and taxation would actually increase poverty in Ghana. Eliminating energy subsidies and at the same time reallocating part of the savings to well‐targeted transfer programs could lower the fiscal deficit while reducing inequality and protecting the poor.

  January 11, 2017   doi: 10.1111/rode.12299   open full text
• Relative Affluence and Child Labor—Explaining a Paradox.
  Jayanta Kumar Dwibedi, Sugata Marjit.
  Review of Development Economics. January 10, 2017
  Some micro level empirical studies found child labor incidence increasing even with improvement in the economic conditions of the poor. This paper provides a possible explanation as to why increase in absolute income may not be sufficient to solve the problem of child labor. We argue that people in general are not just concerned about their own consumption; they are very much affected by the consumption of their peers. While taking decisions regarding the time allocation of their children between work and leisure, parents do keep an eye on their relative position in the society. We develop a theoretical model of household decision making to show that child labor supply from a poor family can increase even with improvements in its economic conditions, if the family's relative position in the society deteriorates and if the relative status effect is sufficiently strong.

  January 10, 2017   doi: 10.1111/rode.12304   open full text
• Entrepreneurial Saving Practices and Reinvestment: Theory and Evidence.
  Thorsten Beck, Haki Pamuk, Burak R. Uras.
  Review of Development Economics. January 10, 2017
  We use a novel enterprise survey to gauge the relationship between saving instruments and entrepreneurial reinvestment. We show that while most informal saving practices are not associated with a lower likelihood of reinvestment when compared with formal saving practices, there is a significantly lower association of saving within the household with the likelihood of reinvesting profits than other savings form, most importantly, formal saving forms. This result is robust to the model specification and controlling for a large array of variables including district‐level fixed effects. We also provide empirical tests to address reverse causation and omitted variable concerns. Our work contributes to the debate on the implications of different saving instruments in developing countries and expands the entrepreneurial financing constraints literature by focusing on internal rather than external funding constraints.

  January 10, 2017   doi: 10.1111/rode.12300   open full text
• Relative Effectiveness of Bilateral and Multilateral Aid on Development Outcomes.
  Pierre E. Biscaye, Travis W. Reynolds, C. Leigh Anderson.
  Review of Development Economics. December 27, 2016
  Aid donors are interested in understanding whether allocating aid via bilateral or multilateral channels might be more effective for achieving development goals. We review 45 papers that empirically test the associations between bilateral and multilateral aid flows and various development outcomes including gross domestic product growth, governance indicators, human development indicators and levels of non‐aid investment flows. Findings suggest that differences between countries and regions, time periods, aid objectives, and individual donor organizations all may influence the effectiveness of aid delivered bilaterally and multilaterally. We find, however, no consistent evidence that either bilateral or multilateral aid is more effective overall.

  December 27, 2016   doi: 10.1111/rode.12303   open full text
• Causal Linkages among the Product Diversification of Exports, Economic Globalization and Economic Growth.
  Giray Gözgör, Muhlis Can.
  Review of Development Economics. December 25, 2016
  This paper examines causal relationships between economic globalization, the three indices for product diversification of exports (Theil index, intensive margin and extensive margin) and economic growth in the unbalanced panel data framework in 139 countries over the period 1970–2010. We also consider the subgroup of the countries related to the income levels and run the panel Granger non‐causality tests for heterogeneous panels. The empirical results indicate that there is a bidirectional causal relationship between economic globalization and economic growth. There is also a significant causal relationship that runs from all three indices for the diversification of exports to economic growth. After implementing various robustness checks, we observe that diversification of exports and economic globalization are positively related with economic growth merely in the upper middle economies.

  December 25, 2016   doi: 10.1111/rode.12301   open full text
• Analysis of School Enrollment in Ghana: A Sequential Approach.
  Abdul Malik Iddrisu, Michael Danquah, Peter Quartey.
  Review of Development Economics. December 25, 2016
  In this paper, we depart from the standard way of analyzing school enrollment by accounting explicitly for educational selectivity in order to examine the determinants of child school enrollment in Ghana. Using data from the Ghana Living Standard Survey round 6 (GLSS 6), we estimate a three‐step sequential logit model for the determinants of secondary school enrollment and its dependence on completing primary school. We find that family resources such as parental education, household income and the gender of the head of the household play a role in households' child schooling decisions. Educated parents are relatively more likely to enroll their children in primary school and keep them in school until they complete primary education. As well, we show that educated parents do not promote a gender‐biased investment in the schooling of children at the primary level. While household welfare does not influence children's entry into primary school importantly, their completion of primary school depends on household welfare. The study sheds more light on the pro‐male bias phenomenon regarding entry into primary school and primary school completion. Policies to promote the achievement of Sustainable Development Goal 4 in Ghana must be grade sensitive.

  December 25, 2016   doi: 10.1111/rode.12302   open full text
• How Does the Minimum Wage Affect Firm Investments in Fixed and Human Capital? Evidence from China.
  Tobias Haepp, Carl Lin.
  Review of Development Economics. December 19, 2016
  This paper empirically analyzes the impact of Chinese minimum wage regulations on the firm decision to invest in physical and human capital. We exploit the geographical and inter‐temporal variations of county‐level minimum wages in a panel data set of all state‐owned and all above‐scale non‐state‐owned Chinese firms covering the introduction of the new Chinese minimum wage regulations in 2004. In our basic regressions including all Chinese firms, we find significant negative effects of the minimum wage on human capital investment rates and no overall effects on fixed capital investment rates. When grouping firms by their ownership structure, we find that these results hold for most firms. Foreign‐owned firms are an exception to some extent, because the likelihood that they invest in human capital has not decreased in response to the policy.

  December 19, 2016   doi: 10.1111/rode.12296   open full text
• Asymmetric Effects of Exchange Rate Changes and the J‐curve: New Evidence from 61 Malaysia–Thailand Industries.
  Mohsen Bahmani‐Oskooee, Muhammad Aftab.
  Review of Development Economics. December 07, 2016
  Research on the impact of currency depreciation on the trade balance is now moving in a new direction by incorporating nonlinear dynamic adjustment of the exchange rate and by using a nonlinear approach to error‐correction modeling and cointegration. Using these advances, researchers find not only more evidence of the J‐curve effect, but also new evidence of asymmetric effects of exchange rate changes on the trade balance. We contribute to this line of research by using monthly trade flow data from 61 two‐digit industries that trade between Malaysia and Thailand, and show that not only does currency depreciation have favorable effects on the trade balance of more industries, but the long‐run effects are asymmetric in 26 out of 61 cases. In line with current literature, our nonlinear model performs much better than the linear model when industry level data are used.

  December 07, 2016   doi: 10.1111/rode.12298   open full text
• Accounting for Growth Disparity: Lucas's Framework Revisited.
  Kei Hosoya.
  Review of Development Economics. December 04, 2016
  This paper proposes a theoretical method to account for historical episodes of growth disparity. A numerical computation shows that the properties of the local dynamics of the proposed model are consistent with the facts indicated by selected episodes.

  December 04, 2016   doi: 10.1111/rode.12297   open full text
• Fields of Study and the Earnings Gap by Race in Brazil.
  Mauricio Reis.
  Review of Development Economics. November 30, 2016
  Workers with tertiary education in Brazil earn three times more than those with a lower level of schooling. Thus, the attainment of a bachelor's or graduate degree by a black worker usually provides important benefits at the individual level. However, an educational improvement of this type does not assure equal labor market outcomes relative to white workers with the same level of education. The labor earnings differential by race in Brazil is high even among individuals who completed at least a bachelor's degree. This paper investigates this labor earnings gap, emphasizing the unequal distribution of whites and blacks across fields of study. Evidence indicates that disparities in the distribution of racial groups across fields of study help explain 18% of the total median earnings differential in 2000 and 33% in 2010, accounting for most of the gap between white and black workers due to characteristic effects in this latter period.

  November 30, 2016   doi: 10.1111/rode.12292   open full text
• The Impact of Ageing and the Speed of Ageing on the Economic Growth of Least Developed, Emerging and Developed Countries, 1990–2013.
  Aurora A. C. Teixeira, N. Renuga Nagarajan, Sandra T. Silva.
  Review of Development Economics. November 29, 2016
  Studies relating ageing and countries’ economic performance address mostly developed economies. However, extant studies demonstrate that less developed countries (LDC) and emerging economies (EE) are reaching the transition process faster than those from developed regions, which renders the speed of ageing, besides ageing, a critical variable to explore in this context. Comparing system dynamic panel data estimations for 40 LDC, 19 EE and 28 developed countries (DC), between 1990 and 2013, we uncovered that ageing is detrimental to countries’ economic growth, with noticeable nuances depending on countries’ development level. The current level of ageing significantly and negatively impacts on DC's growth but not on that of LDC or EE. For these latter groups, the most relevant issue is the speed of ageing. The current annual growth of old age dependency ratio significantly diminishes EE's growth prospects whereas the lagged annual growth of the ageing index and the old age dependency ratio significantly curtails LDC's growth. Such results emphasize the need for urgent public policies that might mitigate the imbalance in LDCs’ age structure before the speed of ageing leads LDCs to become even much poorer.

  November 29, 2016   doi: 10.1111/rode.12294   open full text
• Fiscal Policy in Oil‐exporting Countries: The Roles of Oil Funds and Institutional Quality.
  Wee Chian Koh.
  Review of Development Economics. November 28, 2016
  Oil‐exporting countries face challenges in the conduct of fiscal policy owing to volatile oil revenues, especially in countries with weak institutions. Many oil exporters have established oil funds to delink government expenditure from oil revenues; however, their effectiveness remains unresolved. This paper examines the roles of oil funds and institutional quality in reducing fiscal procyclicality and macroeconomic volatility in 42 oil‐exporting countries from 1960 to 2014 using panel vector autoregression techniques. The results show that oil funds are effective in reducing fiscal procyclicality in countries with high institutional quality. There is also a reduction in the procyclical bias in those with low institutional quality but the statistical evidence is weak. Nevertheless, oil funds are associated with reduced volatility of government consumption and the real exchange rate in countries with low institutional quality. These findings give credence to the macroeconomic stabilization role of oil funds but also reinforce the importance of good institutions.

  November 28, 2016   doi: 10.1111/rode.12293   open full text
• Flexible Labor Regulations and Informality in Egypt.
  Jackline Wahba, Ragui Assaad.
  Review of Development Economics. November 02, 2016
  Do more flexible labor market regulations reduce informal employment in formal firms? This paper examines the effects of changes in labor regulations on the incidence of formal employment. Using the case of Egypt, we study the effects of the introduction of more flexible labor regulations in 2003 on the probability that non‐contractual workers will be granted a formal employment contract. To identify the effect of the law and control for potential confounding factors, we use a difference‐in‐difference estimator that measures the difference in the pre‐ and post‐law probability of obtaining a formal contract across a treatment group of non‐contractual workers initially employed in formal firms and a comparison group of non‐contractual workers initially employed in informal firms. The latter serve as a useful comparison group since informal firms are unlikely to formalize as a result of the law, so that the only way their workers can become formal is to move to another firm. Our findings show that the passage of the new labor law did in fact increase the probability of transitioning to formal employment for non‐contractual workers employed in formal firms by about 3–3.5 percentage points, or the equivalent of at least a fifth of informal workers in formal firms.

  November 02, 2016   doi: 10.1111/rode.12288   open full text
• Effect of Parental Migration on Children's Health in Rural China.
  Qian Guo, Wenkai Sun, Yijie Wang.
  Review of Development Economics. October 25, 2016
  Using 2003–2006 RCRE (Research Center for Rural Economy) panel data, we estimate the effect of parental migration on the health of children left behind, with a difference‐in‐differences and propensity score matching combined model. On average we do not find any significant effect on children's health; however, the effect varies among different groups. Children's health may improve as a result of parental migration in families with lower income in the base year and families with higher‐income growth rates. Furthermore, children's health may deteriorate with maternal migration but improve with longer distance of paternal migration and longer time of paternal migration. We argue that parental migration affects children's health through complex mechanisms: income increase may have a positive impact while decreased parental care may have a negative effect. The two effects seem to offset each other in rural China.

  October 25, 2016   doi: 10.1111/rode.12289   open full text
• The Impact of Aid on Total Government Expenditures: New Evidence on Fungibility.
  Łukasz Marć.
  Review of Development Economics. October 24, 2016
  Aid is said to be fungible at the aggregate level if it raises government expenditures by less than the total amount. This happens when the recipient government decreases domestic revenue, decreases net borrowing, or when aid bypasses the budget. This study makes three contributions to both fungibility and fiscal response literature. First, fungibility at the aggregate level is re‐examined on a larger recent panel 1980–2012, distinguishing between short‐ and long‐term impact of aid. The results indicate that aid is partly fungible in the long run and highly fungible in the short run. Second, to account for aid bypassing the budget, technical cooperation is used as a proxy for off‐budget aid. Off‐budget aid is found to be non‐fungible and on‐budget aid is partly fungible. Third, fungibility of bilateral and multilateral aid is analyzed: the results indicate lower fungibility of multilateral aid.

  October 24, 2016   doi: 10.1111/rode.12286   open full text
• Manufacturing Skill‐biased Wage Inequality, Natural Resources and Institutions.
  Nuno Torres, Óscar Afonso, Isabel Soares.
  Review of Development Economics. October 11, 2016
  We use an extensive dataset on occupational wages to measure the manufacturing skill premium and assess, for the first time, the influence of natural resources and institutional quality—in addition to traditional drivers—for advanced and less‐advanced countries and the full sample. The new findings, regarding 21 countries between 1988 and 2008 in the main panel estimations, suggest the premium of advanced countries rises with tertiary enrollment, net foreign direct investment (FDI) and institutional quality, and falls with centralized wage negotiations and geographically diffuse natural resource activities, mainly re‐exportation related. In less‐advanced countries, the premium rises with net FDI, scale effects, centralized wage negotiations and geographically concentrated natural resource activities (absorbing scarce skilled workers), and falls with trade, diffuse natural resource exploration (using mainly unskilled workers) and high‐technology exports, as emerging national low‐end technology industrial exporters may lower skill pay compared with foreign industrial exporters. In the full sample, the premium rises with scale effects, trade, institutional quality and concentrated natural resources, and falls with the relative skilled‐labor supply, centralized wage negotiations and diffuse natural resources. The results account for a wider diversity of situations compared with the previous studies.

  October 11, 2016   doi: 10.1111/rode.12287   open full text
• Honesty, Diligence and Skill: Risk Sharing and Specialization in the Kiryu Silk Weaving Cluster, Japan.
  Masaki Nakabayashi.
  Review of Development Economics. September 11, 2016
  Many economies have seen growth in industrial clusters during their industrialization, and the relational contracts between manufacturers and subcontractors are often the organizational basis of clusters. We predict that, if manufacturers form relational contracts with subcontractors, if manufacturers closely collude with each other when trading with subcontractors, if information about subcontractors’ past actions is only imperfectly shared by manufacturers as hearsay, and if demand shock is considerable, then premium subcontractors suffer more from market volatility than ordinary subcontractors would and hence, it is optimal for manufacturers to shield premium subcontractors against the risk. We then study Kiryu, a kimono weaving cluster that expanded from the late nineteenth century with the development of new synthetic dyeing techniques. We show that premium subcontracting weavers were allowed long‐term relational contracts and specialization, which shielded already honest weavers against market volatility and induced them to be diligent and to acquire skills.

  September 11, 2016   doi: 10.1111/rode.12282   open full text
• Does the Degree of Development Matter in the Impact of Banking Crises on International Trade?
  Salvador Gil‐Pareja, Rafael Llorca‐Vivero, José Antonio Martínez‐Serrano.
  Review of Development Economics. September 09, 2016
  This paper analyzes how a country's degree of economic development affects the impact of banking crises on international trade. To this end, we estimate a gravity model of trade using a sample of 139 countries over the period 1975–2012. Our results show that middle income countries are generally the most negatively affected. In contrast, financial turmoil appears to have less impact on bilateral trade flows among high income countries and, more specially, among low income nations. The level of financial development, contract enforcement, as well as the extent of the use of banking credit within international trade all help to explain our findings.

  September 09, 2016   doi: 10.1111/rode.12284   open full text
• Biting Back at Malaria: Assessing Health‐service Providers' Compliance with Treatment Guidelines.
  Alfredo Paloyo, Arndt Reichert.
  Review of Development Economics. August 17, 2016
  Non‐compliance with established medical treatment guidelines can have dire consequences for public health and economic well‐being. Based on the Demographic and Health Surveys, we examine malaria‐treatment practices of various health‐care providers in sub‐Saharan Africa, where more than 90% of malaria‐induced deaths occur. We estimate each provider's likelihood (i) to comply with guidelines to administer (effective) antimalarial drugs and (ii) to relieve children of fever—a symptom of malaria—after having had a fever episode within the previous two weeks. Our results indicate that, relative to self‐medication, seeking treatment at most providers is positively associated with taking an antimalarial drug and negatively associated with using only ineffective chloroquine. Non‐traditional healers are also associated with fever relief.

  August 17, 2016   doi: 10.1111/rode.12283   open full text
• Assessing the Impact of District Primary Education Program in India.
  Mehtabul Azam, Chan Hang Saing.
  Review of Development Economics. August 14, 2016
  We examine the impact of India's District Primary Education Program (DPEP) introduced in the mid‐1990s. We exploit the fact that the DPEP was targeted towards primary school age children and was introduced in phases to different districts in India, and many of the districts never got the program to implement a difference‐in‐difference strategy to find the causal impact of the program on probability of attended primary school, probability of completed primary education and years of schooling. We find that the DPEP program increased the probability of attended primary school and completed primary school by about 2 percentage points. Similarly, the program increased the years of schooling by 0.16 years.

  August 14, 2016   doi: 10.1111/rode.12281   open full text
• How Do Political Factors Shape the Bank Risk–Sovereign Risk Nexus in Emerging Markets?
  Stefan Eichler.
  Review of Development Economics. August 02, 2016
  This paper studies the role of political factors for determining the impact of banking sector distress on sovereign bond yield spreads for a sample of 19 emerging market economies in the period 1994–2013. Using interaction models, I find that the adverse impact of banking sector distress on sovereign solvency is less pronounced for countries with a high degree of political stability, a high level of power sharing within the government coalition, a low level of political constraint within the political system, and for countries run by powerful and effective governments. The electoral cycle pronounces the bank risk–sovereign risk transfer.

  August 02, 2016   doi: 10.1111/rode.12274   open full text
• It's a Sin—Contraceptive Use, Religious Beliefs, and Long‐run Economic Development.
  Klaus Prettner, Holger Strulik.
  Review of Development Economics. August 02, 2016
  This study presents a novel theory on the interaction of social norms, fertility, education, and their joint impact on long‐run economic development. The theory takes into account that sexual intercourse is utility enhancing and that the use of modern contraceptives potentially conflicts with prevailing social norms (religious beliefs). The theory motivates the existence of two steady states. At the traditional steady state, the economy stagnates, fertility is high, education is minimal, and the population sustains a norm according to which modern contraceptives are not used. At the modern steady state, the population has abandoned traditional beliefs, modern contraceptives are used, fertility is low and education and economic growth are high. Social dynamics explain why both equilibria are separated by a saddlepoint‐equilibrium (a separatrix), i.e. why it is so hard to transit from the traditional regime to the modern regime.

  August 02, 2016   doi: 10.1111/rode.12280   open full text
• Foreign Aid, Incentives and Efficiency: Can Foreign Aid Lead to the Efficient Level of Investment?
  Alok Kumar.
  Review of Development Economics. July 19, 2016
  This paper develops a two‐period model in which the recipient faces borrowing constraint and the donor is a Stackelberg follower to address two important policy questions: (i) whether foreign aid can lead to the efficient level of capital investment in the recipient country and (ii) how does the form (e.g. budgetary transfers, capital transfer) and the timing of aid affect the recipient's financial savings and capital investment. It finds that the disincentive effect of the capital transfer on the capital investment by the recipient is larger than the budgetary transfers. It makes financial savings more attractive relative to the capital investment for the recipient. In the absence of capital transfer, the multi‐period budgetary transfers not only lead to the efficient level of capital investment by the recipient, but also achieve the same allocation as under commitment. The capital transfer can lead to the efficient level of capital investment, but in this case, it completely crowds out the recipient's own capital investment.

  July 19, 2016   doi: 10.1111/rode.12278   open full text
• Endowments, Culture and Economic Development.
  Sherif Khalifa.
  Review of Development Economics. July 18, 2016
  This paper investigates whether the geographic characteristics of a country can explain cross‐country variations in income levels through their ability to explain cross‐country variations in cultural traits that enhance economic development. In other words, this paper attempts to determine whether the geographic endowment can serve as an instrument in examining the effect of culture on economic development. The paper conducts two‐stage least‐squares regressions. The second stage is a regression of the logarithm of real gross domestic product per capita on each of the cultural attributes that are considered in this study. In the first stage, the geographic factors that statistically explain a cultural aspect are used as instrumental variables. The results of the empirical estimation show that the cultural variables, instrumented by the geographic variables, explain cross‐country variations in economic development.

  July 18, 2016   doi: 10.1111/rode.12279   open full text
• Corporate Finance in Africa: The Interactive Impact of Firm Nationality and Characteristics.
  Abel Ebeh Ezeoha.
  Review of Development Economics. July 14, 2016
  Using a balance panel data of 351 publicly quoted firms in eleven major African stock exchanges, I investigated the impact of the differences in the internal structures of domestic and foreign firms on corporate financial decisions in Africa. I also analyzed the sensitivity of the impact of the internal firm characteristic on changes in the level of exogenous factors such as marginal tax structure and financial system development. The arising results showed that among the selected key internal characteristics of firms, only the impact of profitability and tangibility on financial structure was significantly sensitive to the proportion of domestic/foreign shareholding and that, consistent with capital structure theories, corporate financing decisions in Africa were significantly sensitive to marginal tax policies and the degree of financial system development prevailing in a country. The results suggest that by investing in assets that are acceptable to lenders and investors as collaterals and maintaining reasonable stability in their cash flow positions, domestic firms can in practice enhance their access to strategic investment capital.

  July 14, 2016   doi: 10.1111/rode.12277   open full text
• Public Transfers and Participation Decisions in Botswana's Subsistence Economy.
  Tebogo B. Seleka, Khaufelo R. Lekobane.
  Review of Development Economics. July 06, 2016
  Botswana has an extensive set of publicly provided cash and in‐kind food transfers geared at providing a safety net to poor and vulnerable groups. While such programs have improved household welfare, from a theoretical perspective they could have also created work disincentives or welfare dependency among recipient families. This article tackles this issue by modeling the impact of publicly provided cash and in‐kind food transfers on farmer participation decisions in the subsistence crop economy in Botswana, using a probit regression and agricultural census data for 2004. Results show that social pensions have had no impact on farmer participation decisions, most likely because they are too small to influence household behavior. However, government food rations (GFRs) have reduced the probability of farmer participation in subsistence crop production, and, hence, have created work disincentive among recipient subsistence families. Specifically, recipient families of GFRs are 8.1 percentage points less likely to participate in crop production than non‐recipient households.

  July 06, 2016   doi: 10.1111/rode.12275   open full text
• Will Economic Partnership Agreements Increase Poverty? The Case of Uganda.
  Ole Boysen, Alan Matthews.
  Review of Development Economics. July 05, 2016
  Economic Partnership Agreements (EPAs) between the EU and African Caribbean and Pacific countries are frequently criticized because of fears about negative implications for economic development. Using Uganda as a case study, this paper employs an integrated computable general equilibrium‐microsimulation model framework rich in household‐level detail to assess the consequences of the East African Community EPA for economic output and poverty in Uganda. Simulations of the agreement's tariff liberalization provisions indicate a very small negative economic impact and ambiguous outcomes for poverty. The poverty results depend in size and sign on the poverty line, on the way the government addresses tariff revenue losses and on labor market assumptions.

  July 05, 2016   doi: 10.1111/rode.12272   open full text
• Investigating the Dynamic Interaction between Military Spending and Economic Growth.
  E. Desli, A. Gkoulgkoutsika, C. Katrakilidis.
  Review of Development Economics. June 22, 2016
  The relationship and interaction of military spending and economic growth have been theoretically and empirically investigated since the 1970s but it still cannot provide conclusive evidence towards the direction and the quantification of the impact between the two magnitudes. The use of different data sets in terms of time periods, and number and geographic location of countries, different theoretical background leading to different econometric specifications, and single type of econometric methodology, make any comparison impossible. This paper looks into the dynamic interaction between military spending and economic growth during the period 1988–2013 that includes the recent years of economic crisis covering 138 countries without making any prior assumptions about the theoretical channels of influence, while not limited to a single estimation method but employing a wide range of methodologies in order to form a complete picture of the long‐ and short‐run interaction. Furthermore, as such interaction might not be linear, we create three groups of countries based on the countries' income developmental stage. Overall we find no evidence of long‐ and short‐run causality from the military spending to economic growth except for the developing countries (positive in the long run). However, from economic growth to military spending we find a positive impact for all groups except the least developed countries. We also notice the interaction was more prominent prior to the start of the economic crisis.

  June 22, 2016   doi: 10.1111/rode.12268   open full text
• Progressive Lending in Microfinance—What about the Farmers?
  Imke Hering, Oliver Musshoff.
  Review of Development Economics. June 19, 2016
  Dynamic incentives have become a common measure in microfinance institutions (MFI) to counteract the risk of default and to strengthen the borrower's identification with his micro‐lender. This article focuses on progressive lending over the course of the bank–borrower relationship. As the agricultural sector is increasingly important for Azerbaijan's economy, this study differentiates between the lending policies faced by farmers and non‐farmers, and matches the findings with the repayment performances of both client groups. By means of a rich data set spanning from 2007 through 2012 provided by an MFI in Azerbaijan, it can be demonstrated that farmers face a higher degree of loan volume rationing that cannot be justified by our findings on repayment performances. Moreover, we find that repeated borrowing increases the default probabilities of both client groups. In conclusion, we deduce that the MFI and borrowers could benefit from reconsidering the current lending policies.

  June 19, 2016   doi: 10.1111/rode.12273   open full text
• REDD+ as Result‐based Aid: General Lessons and Bilateral Agreements of Norway.
  Arild Angelsen.
  Review of Development Economics. June 19, 2016
  The initiative known as Reducing Emissions from Deforestation and Forest Degradation (REDD+) officially became part of the international climate agenda in 2007. At that time, REDD+ was an idea regarding payment to countries (and possibly also projects) for reducing emission from forests, with funding primarily from carbon markets. The initiative has since become multi‐objective in nature; the policy focus has changed from a payments for environmental services (PES) approach to broader policies, and international funding primarily originates from development aid budgets. This “aidification” of REDD+ has made the program similar to previous efforts using conditional or results‐based aid (RBA). However, the experience of RBA in other sectors has scarcely been addressed in the REDD+ debate. The alleged advantages of RBA are poorly backed by empirical research. This paper reviews the primary challenges in designing and implementing a system of RBA, namely, donor spending pressure, performance criteria, reference levels, risk sharing, and funding credibility. It then reviews the four partially performance‐based, bilateral REDD+ agreements that Norway has entered with Tanzania, Brazil, Guyana, and Indonesia. These agreements and the aid experience provide valuable lessons for the design and implementation of future REDD+ mechanisms.

  June 19, 2016   doi: 10.1111/rode.12271   open full text
• Optimal Licensing Policy under Vertical Product Differentiation.
  Xuan Nguyen, Pasquale Sgro, Munirul Nabin.
  Review of Development Economics. June 08, 2016
  This paper explores a vertical product differentiation model with a licensing arrangement between a multinational firm with superior technology and a domestic firm with obsolete technology. We find that a subsidy provided by the domestic country's government to the domestic firm to assist with the licensing arrangement is welfare enhancing for the domestic country. Furthermore, both the multinational firm and the domestic country are better off under royalty than under fixed fee licensing. These findings stand in contrast to earlier results in the literature.

  June 08, 2016   doi: 10.1111/rode.12270   open full text
• The Role of Middle Class in Economic Development: What Do Cross‐Country Data Show?
  Natalie Chun, Rana Hasan, Muhammad Habibur Rahman, Mehmet Ali Ulubaşoğlu.
  Review of Development Economics. May 29, 2016
  This paper investigates the channels through which the middle class may matter for consumption growth. Using several different middle‐class measures and a panel of 105 developing countries spanning the period 1985–2013, we find that a larger middle class influences consumption growth primarily through higher levels of human capital accumulation. There is also a significant direct effect of middle‐class size on consumption growth, which is more pronounced in the latter half of the sample, the 2000–2013 period.

  May 29, 2016   doi: 10.1111/rode.12265   open full text
• Is Environmental Protection Beneficial for the Environment?
  Alberto Ansuategi, Simone Marsiglio.
  Review of Development Economics. May 29, 2016
  We analyze a simple endogenous growth model with environmental interactions. Economic production generates emissions of pollutants whose environmental impact is mitigated by abatement activities financed by government expenditure; environmental quality affects preferences but does not play any productive role. We show that government intervention, by reallocating resources from capital accumulation to environmental preservation activities, allows the economy to achieve a sustainable balanced growth path. Along such a path, softer environmental policy regimes lead to win–win outcomes, fostering economic growth and improving environmental quality. Such a result needs to be interpreted as a long run outcome, but it clearly shows that the compatibility between economic growth and environmental improvement is far from automatic. Indeed, in the long run it could paradoxically be the case that both the economy and the environment benefit from low levels of environmental protection.

  May 29, 2016   doi: 10.1111/rode.12267   open full text
• Foreign Direct Investment Determinants in OECD and Developing Countries.
  Fotini Economou, Christis Hassapis, Nikolaos Philippas, Mike Tsionas.
  Review of Development Economics. May 26, 2016
  In this paper we examine the foreign direct investment (FDI) inflow determinants in 24 Organisation for Economic Co‐operation and Development (OECD) and 22 developing (non‐OECD) countries over 1980–2012, using the standard fixed effects as well as a dynamic panel approach. The most robust finding is that lagged FDI, market size, gross capital formation and corporate taxation significantly affect FDI inflows in OECD countries. We also examine a group of developing countries, taking into consideration the increased share of world FDI inflows that developing countries have attracted, and compare the results. In this case, lagged FDI, market size, labor cost and institutional variables provide the most robust results. The empirical results have important policy implications indicating the factors that host economies should emphasize in order to attract FDI inflows.

  May 26, 2016   doi: 10.1111/rode.12269   open full text
• Fiscal Uncertainty and Currency Crises.
  Inci Gumus.
  Review of Development Economics. May 24, 2016
  Fiscal deficits have been put forward as the main factor in the occurrence of currency crises by the first‐generation currency crisis models. While most papers within this framework consider a fiscal deficit that occurs with certainty, in reality an increase in the government's fiscal burden may be an uncertain outcome. This paper introduces a model where there is uncertainty about the occurrence of a fiscal deficit for a finite number of periods, and studies the effects of such uncertainty on the evolution of currency crises. If the fiscal deficit materializes, the government has to abandon the fixed exchange rate regime, as in the standard case. However, the paper shows that the peg becomes unsustainable even if the fiscal deficit never materializes. Therefore, a speculative attack occurs and the fixed exchange rate regime collapses with the mere possibility of a deficit, independently of whether this outcome actually occurs or not.

  May 24, 2016   doi: 10.1111/rode.12136   open full text
• Institutional Determinants of Financial Development in MENA countries.
  Mondher Cherif, Christian Dreger.
  Review of Development Economics. May 24, 2016
  Developed and well regulated financial markets are usually seen as a precondition for an efficient allocation of resources and can foster long term economic growth. This paper explores the institutional determinants for financial development in the countries of the Middle East and North African (MENA) region. Institutional conditions are from the International Country Risk Guide. Panel‐econometric techniques are applied to assess the development in the banking sector and the stock market. As a main finding, institutional conditions are important in both financial segments, even after controlling for standard macroeconomic determinants and fixed effects. For the banking sector, corruption seems to be most decisive. For the stock market, the impact of corruption and law and order appear to be relevant. While per capita income and inflation do not seem to play a vital role, openness to foreign trade is quite important for all areas of financial development. Hence, overall, faster real economic integration is of key policy priority to improve financial development as a condition for higher GDP growth. Better law and enforcement practices and anti‐corruption policies are strategies to accompany this process.

  May 24, 2016   doi: 10.1111/rode.12192   open full text
• Brazil and China: Two Routes of Economic Development?
  Laura Policardo, Lionello F. Punzo, Edgar J. Sánchez Carrera.
  Review of Development Economics. May 24, 2016
  We look at two emerging economies, Brazil and China, and propose an evaluation of their recent development in terms of growth performance and the evolution of income inequality. Our analysis, therefore, is related to the literature on their recent vast growth and also to the much debated Kuznets curve and theory. However, we claim that neither the growth nor the Kuznets approach capture recent relevant phenomena characterizing such countries' dynamics: namely, the presence of at least two distinct growth models. Cointegration analysis and empirical evidence seem to corroborate our interpretation. They also offer some further insights. We surmise that while contributing to press for a further re‐examination of convergence in the light of the issue of income distribution, such findings have interpretative relevance and policy implications for other less developed countries.

  May 24, 2016   doi: 10.1111/rode.12175   open full text
• Remittances and the Effectiveness of Foreign Aid.
  Anna Minasyan, Peter Nunnenkamp.
  Review of Development Economics. May 24, 2016
  We argue that donors could improve the effectiveness of foreign aid by pursuing complementary and coherent non‐aid policies. In particular, we hypothesize that aid has stronger growth effects if recipients receive more aid from donors who allow for (temporary) worker mobility and (more permanent) migration. We focus on overall remittances paid by the donor countries to proxy for worker mobility and migration. Our empirical results support the hypothesis that higher remittances paid by donor countries strengthen the growth effects of foreign aid.

  May 24, 2016   doi: 10.1111/rode.12193   open full text
• Private Tutoring: Evidence from India.
  Mehtabul Azam.
  Review of Development Economics. May 24, 2016
  Drawing on the nationally representative “Participation and Expenditure in Education” surveys, we document the incidence and cost of private tutoring at different stages of schooling over the last two decades in India. As private tutoring involves two decisions: (1) whether to take private tuition or not, and (2) how much to spend on private tutoring conditional on positive decision in (1), we analyze the determinants of the two decisions separately using a Hurdle model. We find that private tutoring is not a new phenomenon in India: a significant proportion of students at each stage of schooling took private tutoring even in 1986/87, and there has been no dramatic increase in those proportions. Students from urban areas, private schools, and from better economic backgrounds are more likely to take private tutoring. Furthermore, the demand for private tutoring is inelastic at each stage of schooling, which implies that private tutoring is a necessary good in the household consumption basket. We also find evidence of pro‐male bias in both decisions regarding private tutoring.

  May 24, 2016   doi: 10.1111/rode.12196   open full text
• Convergence in a Dynamic Heckscher–Ohlin Model with Land.
  María Dolores Guilló, Fidel Perez‐Sebastian.
  Review of Development Economics. May 24, 2016
  Convergence among nations that share the same preferences and technologies is a key result of the closed‐economy neoclassical growth framework that has received substantial support in the data. However, Heckscher–Ohlin versions of the two‐sector neoclassical growth model predict that nations that differ in their capital–labor ratios may not converge to the same steady state, even if they are identical in all other aspects. This is a puzzling result that warns us about potential dangers of international trade. In this paper we show that when land, an input in fixed supply, is introduced into the model, international trade in goods no longer limits the capacity of poor nations to catch up with the advanced world.

  May 24, 2016   doi: 10.1111/rode.12137   open full text
• Foreign Direct Investment and Domestic Child Labor.
  Sarbajit Chaudhuri, Jayanta Kumar Dwibedi.
  Review of Development Economics. May 24, 2016
  Empirical evidence suggests that use of child labor as domestic help has increased significantly in recent years although the overall incidence of child labor across the globe has declined satisfactorily. This should draw the attention of economists and policymakers because domestic child labor is considered as exploitative and in many cases hazardous. This paper purports to explain this apparently perplexing finding theoretically in terms of a three‐sector general equilibrium model with a nontraded sector where only child labor is used to render services to the richer section of the society. The analysis shows how FDI‐led economic growth increases the size of the services sector although it lowers the overall incidence of child labor in the economy and improves the welfare of the poor families that supply child labor. Finally, a composite policy has been recommended that can deal with all three aspects favorably.

  May 24, 2016   doi: 10.1111/rode.12263   open full text
• Understanding the Intergenerational Transmission of Human Capital: Evidence from a Quasi‐natural Experiment in China.
  Dong Zhou, Aparajita Dasgupta.
  Review of Development Economics. May 24, 2016
  This paper exploits the closure of senior secondary schools in urban China from 1966 to 1971 in order to identify the causal intergenerational transmission effects of education. The paper uses the instrumental variable approach to examine the intergenerational causality of educational transmission at the senior secondary schooling level in urban China. The exogenous variation in parental senior secondary educational attainment both over time and across regions allows us account for selection bias and thus identify the causal intergenerational transmission effect in education. We further show that our conclusion is robust to alternative identification strategies and data sets.

  May 24, 2016   doi: 10.1111/rode.12266   open full text
• How Significant Is Sub‐Saharan Africa's Demographic Dividend for Its Future Growth and Poverty Reduction?
  S. Amer Ahmed, Marcio Cruz, Delfin S. Go, Maryla Maliszewska, Israel Osorio‐Rodarte.
  Review of Development Economics. May 23, 2016
  Sub‐Saharan Africa will be undergoing substantial demographic changes over the next 15 years with the rising working‐age share of its population. The opportunity of African countries to convert these changes into demographic dividends for growth and poverty reduction will depend on several factors. The outlook will likely be good if African countries can continue the gains already made under better institutions and policies, particularly those affecting the productivity of labor, such as educational outcomes. If African countries can continue to build on the hard‐won development gains, the demographic dividend could account for 11–15% of gross domestic product (GDP) volume growth by 2030, while accounting for 40–60 million fewer poor in 2030. The gains can become more substantial with better educational outcomes that allow African countries to catch up to other developing countries. If the skill share of Africa's labor supply doubles because of improvements in educational attainment, from 25 to about 50% between 2011 and 2030, then the demographic dividends can expand the regional economy additionally by 22% by 2030 relative to the base case and reduce poverty by an additional 51 million people.

  May 23, 2016   doi: 10.1111/rode.12227   open full text
• Impact of Market‐based Policies and External Fiscal Discipline on Ghana's Inflation.
  Philip Kofi Adom, William Bekoe, George Quartey, Kwaku Amakye, Charles Barnor.
  Review of Development Economics. May 23, 2016
  This study investigates the impact of liberalization of the forex exchange and financial sectors and external prudent fiscal management in Côte d'Ivoire on Ghana's inflation. We find that, in the financial sector, there is a case for liberalization, in terms of lowering inflation. However, a quasi‐liberalized system in the sector proves to have a greater potential to reduce inflation in Ghana. In the exchange market, non‐liberalization has the edge over liberalization in reducing inflation in Ghana. However, a quasi‐liberalized system in the sector has a greater potential to lower inflation. There is evidence of a strong intra‐continental transfer of inflation from Côte d'Ivoire to Ghana, but this transmission has been significantly moderated downwards by the implementation of prudent fiscal management in Côte d'Ivoire. We also find that monetary targeting and inflation targeting have deflationary effects, but we cannot claim that this has significantly reduced inflation. The implication of the result is that; a system that achieves the correct balance between the market mechanism and command system in the exchange and financial sectors has a greater potential to lower inflation in Ghana. Also, domestic monetary policies should not only be anchored on internal factors.

  May 23, 2016   doi: 10.1111/rode.12228   open full text
• Do Employers' Responses to Crises Impact Men and Women Differently? Firm‐level Evidence from Indonesia.
  Mary Hallward‐Driemeier, Bob Rijkers, Andrew Waxman.
  Review of Development Economics. May 23, 2016
  Do employers' responses to crises impact men and women differently? Using manufacturing census data from Indonesia this paper assesses gender differences in the impact of the East Asian crisis and to what extent these were due to differential treatment of men and women within firms and gender sorting across firms that varied in their exposure to the crisis. On average, women experienced higher job losses than their male colleagues within the same firm. However, the aggregate adverse effect of such differential treatment was more than offset by women being disproportionately employed in firms hit relatively less hard by the crisis. The null hypothesis that there were no gender differences in wage adjustment is not rejected.

  May 23, 2016   doi: 10.1111/rode.12230   open full text
• Is there Causal Relationship between Money Supply Growth and Inflation in China? Evidence from Quantity Theory of Money.
  Chi‐Wei Su, Jiao‐Jiao Fan, Hsu‐Ling Chang, Xiao‐Lin Li.
  Review of Development Economics. May 20, 2016
  This study examines the causal relationship between Chinese money supply growth and inflation, using the bootstrap Granger full‐sample causality test and sub‐sample rolling‐window estimation test to determine whether such a relationship in China supports the quantity theory of money. The result indicates that there is a unidirectional relationship from inflation to money supply growth. However, considering structural changes in two series, we find that short‐run relationships using full‐sample data are unstable, which suggests that full‐sample causality tests cannot be relied upon. Then, we use a time‐varying rolling‐window approach to revisit the dynamic causal relationship, and the results show that money supply growth has both positive and negative impacts on inflation in several sub‐periods, and in turn, inflation has the same effects on money supply growth for China. These findings are basically consistent with the modern quantity theory of money from the perspective of money supply and price level. When money supply growth does not outweigh output growth, inflation should not be curbed only by decreasing money supply. It notes that a stable money supply growth is critical to price level stability and economic development in China.

  May 20, 2016   doi: 10.1111/rode.12194   open full text
• On the Role of Agent‐based Modeling in the Theory of Development Economics.
  Florian Chávez‐Juárez.
  Review of Development Economics. May 19, 2016
  In this article I discuss the potential role of agent‐based modeling techniques in development economics. Development economics has recently seen a strong rise of experimental evidence from the field and the laboratory. At the same time, there is a debate on how theory should adapt to this new approach and its findings. I argue in this paper that the agent‐based modeling approach is a promising complement to the traditional modeling techniques, as it can easily incorporate the non‐standard findings of the experimental literature. Moreover, I emphasize the opportunity of a mutually beneficial interplay between experiment‐based empirical research and agent‐based models.

  May 19, 2016   doi: 10.1111/rode.12264   open full text
• Assessing Recent Determinants of Borrowing Costs in Sub‐Saharan Africa.
  Aleksandr V. Gevorkyan, Ingrid Harvold Kvangraven.
  Review of Development Economics. May 19, 2016
  This study explores macroeconomic implications of the sovereign bond rush that has been taking place in sub‐Saharan Africa since 2006. The focus is on the sub‐Saharan sovereign bond yields as proxies for the region's ability to raise new funds on international markets. Despite the subcontinent's tour‐de‐force entrance to the international bond market, this paper reveals that recent (since early 2000s) borrowing in foreign currency is not without macroeconomic risk. Empirically this paper finds that sovereign bond yields are significantly influenced by global volatility, commodity prices and global liquidity—all factors that are out of the control of the sub‐Saharan economies in question. These findings suggest that portfolio repositioning by institutional investors prompted by improved growth prospects and implicit monetary policy tightening in the advanced economies or heightened risk perceptions, are likely to result in increased borrowing costs for the sub‐Saharan bond issuers and affect their ability to raise funds in international markets. Furthermore, a change in borrowing costs might lead to higher debt‐service costs and policy uncertainty, which in turn could lead to suboptimal investment levels and, ultimately, hinder economic development.

  May 19, 2016   doi: 10.1111/rode.12195   open full text
• Son Preference, Number of Children, Education and Occupational Choice in Rural Nepal.
  Magnus Hatlebakk.
  Review of Development Economics. May 19, 2016
  A unique family survey was conducted in Nepal to investigate the economic consequences of having a first‐born girl. Women have more children, but we find no causal effect of number of children on economic outcomes, but independently of the number of children there is a positive effect on boys’ education of having a first‐born sister, who presumably takes care of household work so the boys can focus on school. This indicates a stronger son preference in Nepal than that found in studies from neighboring countries.

  May 19, 2016   doi: 10.1111/rode.12237   open full text
• Longevity, Fertility and Economic Growth: Do Environmental Factors Matter?
  Dimitrios Varvarigos, Intan Zanariah Zakaria.
  Review of Development Economics. May 19, 2016
  Our study examines the effect of environmental factors on the economic decisions regarding fertility. We incorporate health‐damaging pollution into a three period overlapping generations model in which life expectancy, fertility and economic growth are all endogenous. We show that environmental factors can cause significant changes to the economy's demographics. In particular, the entrepreneurial choice of less polluting production processes, induced by a tax on emissions, can at some point in time lead to such changes as higher longevity and lower fertility rates. Thus, we provide a novel explanation on the positive relation between fertility rates and pollution. According to this, the causality on this relation may also work from the latter to the former. Furthermore, our model can account for the empirically observed N‐shaped correlation between pollution and income per capita.

  May 19, 2016   doi: 10.1111/rode.12239   open full text
• Can Elected Minority Representatives Affect Health Worker Visits? Evidence from India.
  Elizabeth Kaletski, Nishith Prakash.
  Review of Development Economics. May 19, 2016
  This paper examines the relationship between elected minority representatives, i.e. Scheduled Castes (SC) and Scheduled Tribes (ST) and health worker visits in rural India. We estimate the effect of minority representation on the frequency of visits to villages by health workers by exploiting the state variation in the share of seats reserved for the two minority groups in state legislative assemblies mandated by the Constitution of India. Using data from state and village level surveys on 15 major Indian states, we find that ST representatives increase the frequency of visits by both doctors and mobile medical units. In contrast, SC representatives have a tendency to decrease the frequency of visits by mobile medical units. Potential explanations for the differential impact of SC and ST representatives are also explored, including geographic isolation, support for the Congress Party, a shift in power, and relative population shares.

  May 19, 2016   doi: 10.1111/rode.12255   open full text
• Inequality Stagnation in Latin America in the Aftermath of the Global Financial Crisis.
  Louise Cord, Oscar Barriga‐Cabanillas, Leonardo Lucchetti, Carlos Rodríguez‐Castelán, Liliana D. Sousa, Daniel Valderrama.
  Review of Development Economics. May 19, 2016
  Between 2003 and 2010, Latin America experienced a solid record of economic growth, coupled with a notable reduction in income inequality. The regional Gini coefficient fell from 0.556 to 0.521 and declined in all 15 out of 17 countries in which frequent data are available. However, previous studies have warned about problems in the sustainability of the decline in income inequality and this study presents evidence of stagnation on this front between 2010 and 2013. The results are robust to various measures of income inequality, but differ across the region. While largely attributable to the recovery from the global financial crisis in Mexico and some countries in Central America, the results are also supported by the demonstrated slowdown in inequality reduction in other countries, including Brazil, Ecuador and Bolivia.

  May 19, 2016   doi: 10.1111/rode.12260   open full text
• The Incidence of Child Health Improvements.
  David E. Sahn, Stephen D. Younger.
  Review of Development Economics. May 19, 2016
  Economic growth accelerated during the first decade of the 2000s in many poor countries, especially in Africa. This welcome news is widely discussed, even in the popular press. Yet as economies grow, some analysts express concerns that such growth is not having as significant an impact on poverty as one would hope. Analysts and policymakers ask whether this growth is adequately pro‐poor, shared, or inclusive. Less noticed is that improvements in children's health are accelerating, too. This paper examines the extent to which these health improvements are equitably shared or “inclusive.” We use a descriptive method, which is analogous to growth incidence curves, and apply it to eight countries from Africa, Asia and Latin America. We draw two principal conclusions. First, within countries, health improvements often have a different distribution than income/expenditure growth, and that distribution is usually more hopeful in the sense that it is more likely to be strongly pro‐poor than the distribution of income growth. Second, we have yet to see clear patterns in terms of the within‐country relationship between growth incidence curves and health improvement incidence curves. Thus, one cannot rely on the information in the growth incidence curve to infer the inclusiveness of health improvements.

  May 19, 2016   doi: 10.1111/rode.12262   open full text
• Multi‐asset Deprivation and Pro‐poor Growth in Cameroon.
  Hans Tino Ayamena Mpenya, Boniface Ngah Epo, Francis Menjo Baye.
  Review of Development Economics. May 18, 2016
  This article analyzes pro‐poor growth of multiple dimensions of household well‐being by sector of activity in Cameroon. It uses (1) a polychoric principal component analysis to construct indicators of household asset endowments, (2) the growth incidence curve to analyze the pro‐poorness of the different assets, and (3) a Shapley value framework decomposition to account for changes in deprivation in terms of within‐sector growth and changes in within‐sector inequality. Data is sourced from the second and third Cameroon household consumption surveys. Results show that: (a) pro‐poor growth is not observed for all assets and households at the bottom of the distribution of the different assets experienced an increase in inequality; (b) for all asset endowments, overall deprivation worsened between 2001 and 2007; (c) whereas the growth component mitigated the worsening incidence, depth and severity of human asset deprivation, both growth and redistribution components accounted for the worsening physical, financial and social asset deprivations; (d) while the tertiary sectors of activity benefited some human asset poverty reduction, all sectors suffered from worsening financial and social asset deprivation. These results have implications for promoting growth and improving the allocation of household assets.

  May 18, 2016   doi: 10.1111/rode.12229   open full text
• Microfinance and Female Group Action in Bangladesh.
  Christina Peters.
  Review of Development Economics. May 18, 2016
  This paper provides evidence that participation in microfinance programs may increase the likelihood of female group action against domestic violence and spousal abandonment. Although female empowerment has been an explicit target of many microfinance programs, the literature remains conflicted regarding the magnitude and direction of impact. Using multiple estimation methods with data from Bangladesh, I find that women from villages with microfinance programs are substantially more likely than women from non‐program villages to have taken group action by publicly protesting when they observed a woman being beaten, abandoned or divorced. Taking advantage of eligibility requirements for program participation, I further show that women from program villages who are eligible to participate are substantially more likely than non‐eligible women from the same village to have taken group action, which suggests that these effects are in fact related to the microfinance programs themselves.

  May 18, 2016   doi: 10.1111/rode.12238   open full text
• Exchange Rate Flexibility and the Effect of Remittances on Economic Growth.
  Emmanuel K. K. Lartey.
  Review of Development Economics. May 18, 2016
  This paper studies the question of whether exchange rate policy affects the impact of remittances on economic growth in recipient countries. The findings indicate that more flexible exchange rate regimes are associated with a greater increase in economic growth following an increase in remittances, but also that the impact of remittances on growth is positive under a fixed regime. The results further show that the effect of remittances under a fixed exchange rate regime is positive in less financially developed countries as well, but do not provide conclusive evidence that this effect varies inversely with exchange rate flexibility in such economies as theorized; the results being sensitive to the choice of financial development indicator.

  May 18, 2016   doi: 10.1111/rode.12256   open full text
• Need, Merit and Politics in Multilateral Aid Allocation: A District‐level Analysis of World Bank Projects in India.
  Peter Nunnenkamp, Hannes Öhler, Maximiliano Sosa Andrés.
  Review of Development Economics. May 18, 2016
  We assess the targeting of foreign aid within recipient countries by employing Poisson estimations on the determinants of the World Bank's allocation of project aid at the district level in India. The evidence of needs‐based location choices is very weak as long as the poverty orientation of overall commitments is taken as the yardstick. It is only for some sectors that we find stronger indications of needs‐based allocation when combining sector‐specific commitments with corresponding measures of need. The evidence for a merit‐based allocation of World Bank aid is even weaker. We typically do not find evidence that aid allocation is affected by political patronage at the state or district level. However, the World Bank prefers districts where foreign direct investors may benefit from projects related to infrastructure.

  May 18, 2016   doi: 10.1111/rode.12259   open full text
• Designing Global Governance for Agricultural Development and Food and Nutrition Security.
  Joachim Braun, Regina Birner.
  Review of Development Economics. May 18, 2016
  We point to deficits in current global institutional arrangements in support of agricultural development and food and nutrition security. A framework for global institutional arrangements proposed here is the set of essential international public goods for a well‐functioning world food system. These public goods include international natural resource management; trade and transboundary competition policy; research and innovation; handling large scale food emergencies; and transboundary food safety. Based on the framework, and institutional economics considerations, causes of current malfunctioning of global food governance are analyzed. It is proposed to redesign global food governance by establishing an international platform with policy clusters mapped along the set of global public goods. To support the platform with needed research‐based evidence an International Panel on Food, Nutrition and Agriculture (IPFNA) is suggested, partly following the design of the Intergovernmental Panel on Climate Change (IPCC). Existing organizations and mechanisms would form building blocks of the strengthened and redesigned governance system. A gradual approach toward redesign is proposed. Some redesign in the suggested direction was triggered by the food crisis of 2008, as demonstrated by the reform of the Committee on Food Security (CFS) with its high level panel of experts, but more is needed.

  May 18, 2016   doi: 10.1111/rode.12261   open full text
• The Impact of 2007/08 Financial Crisis on the Stability and Enlargement of the EMU.
  Ya‐Chi Lin, Kuo‐Chun Yeh.
  Review of Development Economics. April 13, 2016
  Before 2007/08, the European Monetary Union (EMU) was expected to be enlarged on schedule, but the European sovereign debt problem, triggered by the exogenous US sub‐prime crisis, not only has revealed the EMU's fiscal coordination failure, but also has weakened regional financial integration. The stagnation of financial integration will therefore increase the cost of sustaining a monetary union, which in turn slows EMU enlargement and ruins the reputation of the euro. This paper aims to measure the damage to financial integration and to provide a more precise answer on real interest rate parity (RIP) convergence. Our estimation indicates that RIP between the EMU and some accession candidates is still valid after the interruptions of the financial crises. However, convergence of real interest rates cannot be achieved until 2030. This implies the EMU authority must strengthen regional financial integration to solidify the EMU and then be able to re‐start enlargement.

  April 13, 2016   doi: 10.1111/rode.12251   open full text
• Technology Transfer, Welfare, and Wage Inequality.
  Yuntong Wang, Xiaopeng Yin.
  Review of Development Economics. April 13, 2016
  We use a linear two‐country, two‐factor, two‐product, two‐different technologies (2×2×2×2) model to study technology transfer and its effects on each country's welfare and factor prices. We demonstrate that technology transfer could benefit both the recipient and the transferring countries. For the recipient country, technology transfer increases the price of the factor that is more intensively used and decreases the price of the other factor. Our results provide an alternative explanation of a trend observed in the past half century: a rise in real wage inequality between relatively skilled workers and less‐skilled workers because of technological progress in numerous countries.

  April 13, 2016   doi: 10.1111/rode.12250   open full text
• A Tacit Monetary Policy of the Gulf Countries: Is There a Remittances Channel?
  Ali Termos, Ismail Genc, George Naufal.
  Review of Development Economics. April 13, 2016
  The strong economic ties between the Gulf Cooperation Council (GCC) economies and the USA are manifested in three ways: currency peg, coupling of monetary policy, and the adoption of the US dollar as the trading currency for oil. This paper examines how these dynamics result in a misalignment of the US monetary policy with the business cycles of the GCC economies. The study shows how the staggering amount of remittances outflow of the GCC economies plays a stabilizing role as a tacit monetary policy tool. Incorporating remittances in the money‐demand equation results in a more robust model than otherwise. We further find that the effect of the Federal Funds rate on money demand in these countries diminishes in significance during the period of oil boom between 2002 and 2009. However, the transmission effect of the recession periods in the USA into the demand for money in the GCC countries is not statistically significant.

  April 13, 2016   doi: 10.1111/rode.12249   open full text
• A Test for Hysteresis in International Trade.
  Ricardo Denadai, Vladimir K. Teles.
  Review of Development Economics. April 13, 2016
  The article suggests a new test for strong hysteresis, that is, at the macro level, in international trade. The variables that capture the effects of hysteresis are based on a theoretical model with calibrations using a state–space model to determine the parameters for each point in time. These variables are then applied to a cointegration test with breaks, where it is possible to verify whether the hysteresis effect is essential in determining the long‐term equilibrium.

  April 13, 2016   doi: 10.1111/rode.12243   open full text
• Product R&D Investment Policies in an International Duopoly.
  Yumiko Taba, Yasunori Ishii.
  Review of Development Economics. April 13, 2016
  This study analyzes the optimal product R&D investment policies of a developed and a developing country in an international Cournot duopoly where firms from these two countries compete through endogenous quality–quantity decisions. We explore a new international trade model by using demand functions derived from utility functions. We find that the optimal product R&D investment policies for both countries are subsidies. This study counters a finding that used Hotelling‐type demand functions and it partially modifies another result that adopted the same demand functions but with an international Bertrand duopoly.

  April 13, 2016   doi: 10.1111/rode.12241   open full text
• Revenue‐enhancing Trade Liberalization in a Differentiated Duopoly.
  Kieun Shim, Kyonghwa Jeong.
  Review of Development Economics. April 13, 2016
  Existing studies suggest that in developing countries, tax reforms that increase consumption taxes can compensate for shortfalls in revenue from a tariff reduction. However, these revenue‐enhancing tariff–tax reforms have a critical shortcoming—they generally reduce welfare under imperfect competition. This paper shows that tax reforms such as consumption tax reforms do not necessarily have to be implemented to make up for revenue shortfalls from tariff reductions under imperfect competition, because trade liberalization through tariff cuts leads to an increase in government revenue when domestic and imported goods have a high substitutability. This revenue‐enhancing effect of a tariff reduction occurs for a wider degree of product substitutability when initial tariff and consumption tax rates are high. More importantly, we show that even if initial tariff and consumption tax rates are sufficiently low, a tariff reduction still increases government revenue for a low degree of product differentiation under Bertrand competition.

  April 13, 2016   doi: 10.1111/rode.12247   open full text
• Credit Constraints, Technology Choice and Exports: A Firm‐level Study for Latin American Countries.
  Syed Hasan, Ian Sheldon.
  Review of Development Economics. April 13, 2016
  In this paper, constraints on technology choice and credit access are introduced into a firm‐level trade model in a dynamic setting in order to explain factors that limit benefits to a firm from trade liberalization. Theoretical analysis shows that firms face credit constraints depending on their initial productivity and the cost of credit. As a result, credit‐constrained firms may not be able to cross the minimum productivity threshold needed to enter and compete in a foreign market. Empirical analysis using firm‐level panel data for six Latin American countries confirms that financial constraints negatively influence firms' export and investment decisions.

  April 13, 2016   doi: 10.1111/rode.12248   open full text
• The Exporter Wage Premium Reconsidered—Destinations, Distances and Linked Employer–Employee Data.
  Achim Schmillen.
  Review of Development Economics. April 13, 2016
  This study uses detailed, reliable and up‐to‐date linked employer–employee data that take account of both the demand and the supply side of the labor market to challenge the conventional wisdom of a universal exporter wage premium. It investigates whether for German establishments an exporter wage premium can be found irrespective of export destination and the distance between export origin and destination. As expected, it finds that exporters generally pay higher wages than non‐exporters, but it also shows that only exporting to certain countries is associated with a wage premium. Moreover, such a premium exists only for establishments that ship goods over a relatively long distance.

  April 13, 2016   doi: 10.1111/rode.12258   open full text
• The Changing Relationship between Banking Crises and Capital Inflows.
  Jason Rastovski.
  Review of Development Economics. April 13, 2016
  Different types of capital inflows have varied effects when predicting banking crises in emerging and developing economies, and these relationships have meaningfully changed over time. In a sample of 29 developing and emerging economies over the period 1976–1991 increases in short‐term debt inflows raised the probability of a banking crisis while increases in inflows for long‐term borrowing by the private sector had the opposite effect. Conversely, over the period 1992–2007 increases in inflows for long‐term borrowing by the private sector and for equity investment both increased the probability of a banking crisis. The findings suggest distinct optimal capital account liberalization policies between the two periods.

  April 13, 2016   doi: 10.1111/rode.12242   open full text
• The Effect of Terrorist Incidents on Capital Flows.
  Randall K. Filer, Dragana Stanišić.
  Review of Development Economics. April 13, 2016
  Previous work has shown that terrorism has significant negative impact on countries' economies. We explore this relationship in more detail. Using an unbalanced panel of more than 160 countries for up to 25 years and the Global Terrorism Database (GTD) we show a decrease in foreign direct investment (FDI) as a consequence of terrorism. We also find evidence that FDI flows are more sensitive to terrorism than either portfolio investments or external debt flows. Finally, we test the hypothesis that terrorism has negative spill‐over effects on FDI flows into neighboring countries and find evidence that cultural, but not geographical, closeness matters.

  April 13, 2016   doi: 10.1111/rode.12246   open full text
• Environmental Ramsey Policy and Sustainable Balanced Growth.
  Hyun Park, Apostolis Philippopoulos.
  Review of Development Economics. April 13, 2016
  We study the link among economic growth, renewable natural resources and environmental policy. The context is a general equilibrium model of endogenous growth and environmental policy. We examine the conditions under which sustainable growth is both feasible and optimal, where the latter takes the form of second‐best optimal environmental Ramsey policies. We also investigate the conditions for an inverted U‐shaped relation between environmental policies and sustainable growth. We show that the combination of environmental production externalities and second‐best optimal Ramsey policies can lead to both local and global indeterminacy. The introduction of environmental policy, although well‐intentioned and designed to correct for market inefficiencies, triggers an expectations coordination problem; thereby differences in environmental quality and economic growth can be explained among countries with the same fundamentals.

  April 13, 2016   doi: 10.1111/rode.12245   open full text
• Welfare‐improving Coordinated Tariff and Sales Tax Reforms under Imperfect Competition.
  Masayuki Okawa, Tatsuya Iguchi.
  Review of Development Economics. April 13, 2016
  This paper studies the welfare effects of coordinated domestic sales tax reform associated with a reduction of the import tariff under imperfect competition. We set up a simple oligopoly trading model where domestic and exporting firms compete in the home market. We show that, if the initial levels of import tariff and sales tax are positive, there always exist welfare‐improving sales tax reforms. In some cases, a reduction of the sales tax accompanied by a reduction of the import tariff increases social welfare, whereas in other cases, raising the sales tax can increase social welfare.

  April 13, 2016   doi: 10.1111/rode.12244   open full text
• Kaldorian Disaggregation, Temporary Migration and Domestic Welfare.
  Jennifer T. Lai, Bharat R. Hazari, Vijay Mohan.
  Review of Development Economics. April 13, 2016
  We build a model with two agents: domestic residents and temporary immigrants. The model incorporates Kaldorian disaggregation, with the two groups consuming different goods produced in the economy. It is established that, under certain conditions, an increase in immigrant labor lowers the welfare of the domestic residents. This runs against conventional wisdom that temporary immigration enhances the welfare of domestic residents.

  April 13, 2016   doi: 10.1111/rode.12254   open full text
• Public Enterprise Privatization: A General Equilibrium Analysis.
  Chung‐Yu Wu, Wen‐Jung Liang, Chao‐Cheng Mai.
  Review of Development Economics. April 13, 2016
  This paper develops a general equilibrium model to examine the short‐run and long‐run optimal privatization policies. By assuming that all firms are public firms initially, the paper focuses on how the degree of product differentiation γ and the average efficiency of the industry influence the determination of the optimal privatization policy. The paper shows that privatization decreases the more efficient firms' outputs while increases the less efficient firms' outputs in the short run, and reduces all firms' outputs in the long run. The paper also shows that the larger is γ and the smaller is the number of firms, the more privatized will be the public firm in the short run. Moreover, as γ or the entry barrier fE is sufficiently small, full privatization is the best policy in the long run. On the contrary, as γ and fE are large enough, partial privatization is optimal.

  April 13, 2016   doi: 10.1111/rode.12253   open full text
• Is there also a North–South Divide in the Diffusion of Crime? A Cluster Analysis of Italian Provinces.
  Rosetta Lombardo.
  Review of Development Economics. April 13, 2016
  The presence of crime is often considered as one of the most important social variables to be negatively associated with economic development. As is well known, Italy exhibits an economic divide between its central‐northern and southern regions. This paper tries to ascertain whether there is also a divide in the diffusion of crime. To this purpose, Italian provinces are classified into groups by using a new methodology that combines cluster analysis with time series cross‐section data. The statistical searches for groups are carried out by using an unbalanced time series cross‐section data‐set made up of yearly observations. The results of the analysis show that crime is not inextricably tied to certain geographical locations, and not others, as is usually believed.

  April 13, 2016   doi: 10.1111/rode.12257   open full text
• Institutional Quality Mediates the Effect of Human Capital on Economic Performance.
  Jonathon Adams‐Kane, Jamus Jerome Lim.
  Review of Development Economics. April 13, 2016
  This paper considers the relationship between institutional quality, educational outcomes, and economic performance. More specifically, we seek to establish the linkages by which government effectiveness affects per capita income via its mediating impact on human capital formation. Our empirical approach adopts a two‐stage strategy that estimates national‐level educational production functions that include government effectiveness as a covariate, and uses these estimates as instruments for human capital in cross‐country regressions of per capita income. Our results identify a significant and positive effect of human capital on per capita income levels, and partially resolves the inconsistency between macro‐ and micro‐level studies of the effect of human capital on income. The results remain robust to alternative specifications, extension to a panel setting, subsamples of the data and fully endogenous institutions.

  April 13, 2016   doi: 10.1111/rode.12236   open full text
• Unemployment, Wage Inequality and International Factor Movement in the Presence of Agricultural Dualism.
  Xiaochun Li, Yuanting Xu.
  Review of Development Economics. April 13, 2016
  This paper investigates how the international factor movements affect the unemployment and skilled–unskilled wage inequality with the existence of a modern agricultural sector. Our research has the new feature that we not only consider that the rural labor migrates to the urban sector but also to the modern agricultural sector. The main conclusions are that the unskilled labor outflow certainly decreases the wage inequality and unemployment rate and the influences that skilled labor movement and capital inflow have on wage inequality and unemployment rate are dependent on the factor intensity between the urban and modern agricultural sectors.

  April 13, 2016   doi: 10.1111/rode.12235   open full text
• Exchange Rate Dynamics with Foreign Reserves: Revisiting the Dornbusch Overshooting Model.
  Jong‐Eun Lee.
  Review of Development Economics. April 13, 2016
  The purpose of this study is to shed light on the management of foreign reserves that possibly have contradictory policy intentions and impacts, for instance, (1) to defend the domestic currency, (2) to depreciate the domestic currency. With this Möbius's strip‐like nature in mind, we extend the Dornbusch (1976) exchange rate overshooting model with the foreign reserves. Depending on financial vulnerability, the presence of foreign reserves could amplify or alleviate monetary policy shocks on the exchange rate.

  April 13, 2016   doi: 10.1111/rode.12234   open full text
• Tariffs and Wages in Trade Theory.
  Henry Thompson.
  Review of Development Economics. April 13, 2016
  The theory of production and trade is motivated in large part by the effects of tariffs on wages. General equilibrium models that examine these effects include constant costs, factor proportions, specific factors, imperfect competition and noncompetitive factor market. The present paper reviews the effects of tariffs on wages in small open economies across this broad range of trade theory. From this wide perspective, tariffs support wages only under narrow sets of assumptions. There should be no presumption that tariffs support wages.

  April 13, 2016   doi: 10.1111/rode.12233   open full text
• Do Political Factors Cause the Regional Inequality in the Reform‐Era China?
  Qichun He.
  Review of Development Economics. April 13, 2016
  We construct a political variable—the number of ministers of all national government departments born in each province weighted by provincial population—to examine its effect on economic growth in China during 1981–2010. We find that the lagged per capita political variable has a significant, positive effect on economic growth in both ordinary least squares (OLS) estimation and system generalized method of moments (GMM) estimation. We also find that the lagged per capita political variable has a significant, positive effect on financial deregulation policies distributed across provinces, which offers a possible mechanism for the political variable to impact growth.

  April 13, 2016   doi: 10.1111/rode.12232   open full text
• Son Preference and Gender Gaps in Child Nutrition: Does the Level of Female Autonomy Matter?
  Shatanjaya Dasgupta.
  Review of Development Economics. April 13, 2016
  This paper examines the association between parental son preference and child anthropometric status, and the extent to which this relationship depends on the level of female autonomy. Results highlight the importance of maternal son preference and mothers' involvement in household decision making when gender gaps in child nutrition are considered. These findings have important policy implications.

  April 13, 2016   doi: 10.1111/rode.12231   open full text
• Religious Attitudes and Home Bias: Theory and New Evidence from Primary Data.
  Martin A. Leroch, Carlo Reggiani, Gianpaolo Rossini, Eugenio Zucchelli.
  Review of Development Economics. April 02, 2014
  This paper examines the relationship between religion and home bias. A theoretical framework is proposed suggesting that countries may show a certain degree of religion‐enhanced international altruism associated with a lower home bias. These predictions are investigated empirically using original individual‐level data from a survey on religious attitudes and home bias that was designed and collected in 15 countries. Contrary to previous evidence, the empirical investigation suggests that religious denominations may not play an important role in determining home bias. The findings partly corroborate the hypothesis that an open and tolerant attitude towards religion may enhance trust and altruism and, hence, may have a pro‐trade effect by lowering home bias. It is concluded that models investigating the relationship between religion and home bias should incorporate different aspects of religion beyond affiliations and should consider different dimensions of home bias.

  April 02, 2014   doi: 10.1111/rode.12092   open full text
• Royale with Cheese: Globalization, Tourism, and the Variety of Goods.
  Matthew T. Cole, Ronald B. Davies.
  Review of Development Economics. April 02, 2014
  The key result of the so‐called “New Trade Theory” is that countries gain from falling trade costs by an increase in the number of varieties available to consumers. Though the number of varieties in a given country rises, many models predict that global variety decreases as imported varieties drive out local varieties. This is potentially worrisome when consumers care about non‐exported foreign varieties as a result of tourism (especially when foreign varieties are highly desired). Since lowering trade costs induces additional firms to export and drives out some non‐exported varieties, these modifications result in welfare losses not accounted for in the existing literature. Nevertheless, improvements in non‐tourism consumption outweigh any such losses.

  April 02, 2014   doi: 10.1111/rode.12091   open full text
• Foreign Aid, Illegal Immigration, and Host Country Welfare.
  Subhayu Bandyopadhyay, Dustin Chambers, Jonathan Munemo.
  Review of Development Economics. April 02, 2014
  This paper analyzes the effect of foreign aid on illegal immigration and host country welfare using a general equilibrium model. It shows that foreign aid may worsen the recipient nation's terms of trade. Furthermore, it may also raise illegal immigration, if the terms of trade effect on immigration flows dominates the other effects identified in our analysis. Empirical analysis of the effect of foreign aid on illegal immigration to the USA broadly supports the predictions of our theoretical model. Foreign aid worsens the recipient's terms of trade. While the terms of trade effect tends to reduce illegal immigration, countervailing effects are found to dominate. The paper contributes to the related literature by establishing that there are unintended consequences of foreign aid and, while some of them are reminiscent of the classical transfer problem, others are new and arise as a result of endogenous illegal immigration flows.

  April 02, 2014   doi: 10.1111/rode.12090   open full text
• Volatility Contagion in the Asian Crisis: New Evidence of Volatility Tail Dependence.
  Alexander Karmann, Rodrigo Herrera.
  Review of Development Economics. April 02, 2014
  We analyze empirically the existence and the extent of financial contagion by means of extreme value theory in the Asian crisis. We consider two key markets, the stock exchange and the foreign exchange using daily data in the period 1992–2001. We present several notions of financial contagion as a significant change in volatility tail dependence (VTD) among different assets. To this end, we introduce a semiparametric VTD estimator in the framework of regularly varying strictly stationary time series. Our analysis provides mixed evidence with respect to the “interdependence vs contagion” dispute. Within‐country contagion is more likely to hold than across‐country contagion. Because the latter is typically symmetric, contagion in stocks and foreign exchange coincide, in line with “portfolio rebalancing” arguments. Across‐market contagion supports the “wake up call” argument of loss of confidence, as small countries' currency markets affect contagiously the stock markets of the larger economies.

  April 02, 2014   doi: 10.1111/rode.12089   open full text
• R&D Networks with Strategic Substitutability.
  Zhiwei Cui, Ziran Li, Jin Zhang, Lei Zu.
  Review of Development Economics. April 02, 2014
  This paper considers a non‐cooperative R&D network formation game. Instead of concentrating on R&D cooperation among firms, the paper focuses on one‐way externality flow in which each firm forms links in the attempt to acquire others' R&D knowledge. It is assumed that a firm has an internal R&D strategy (in‐house R&D) and an external R&D strategy (knowledge acquisition) and that these two strategic options are substitutes. It is found that a firm will trade off its own investment cost and acquisition cost. Consequently, the equilibrium network is empty when investment or linkage cost is high, whereas the equilibrium network is of core–periphery structure when both costs are relatively low, with core firms investing in R&D activities and periphery firms accessing R&D knowledge from core ones. The paper also investigates efficiency and the conclusion is that although an efficient R&D network is a periphery‐sponsored star, the core firm tends to underinvest in Nash equilibrium.

  April 02, 2014   doi: 10.1111/rode.12088   open full text
• Analyzing Bilateral Trade Barriers under Global Trade Context: A Gravity Model Adjusted Trade Intensity Index Approach.
  Bo Chen, Yao Li.
  Review of Development Economics. April 02, 2014
  There are two strands of approaches gauging bilateral trade barriers: the gravity models and the trade intensity index. This paper integrates these two approaches by developing a new trade intensity index. This so called “gravity model adjusted trade intensity” (GMATI) index can reflect the short run trade barriers while controlling for the long run ones under global trade context. Based on 182 countries' export data during 1988–2005, we first estimate the expected bilateral trade level using a gravity model with comparative advantage effects. Then we apply the GMATI index for China. While the conventional trade intensity index shows that China trades less than its expected level, our GMATI index nevertheless suggests the opposite in most cases. It indicates that after considering the effect of country characteristics such as distance, economic size and comparative advantage, China's world trade face less trade barriers than the world average level.

  April 02, 2014   doi: 10.1111/rode.12087   open full text
• Occupational Choice and Income Inequalities under Regional Integration.
  Xi Yang.
  Review of Development Economics. April 02, 2014
  In a setting with occupational choice and trade between two asymmetric regions, this paper explores the impact of market size and economic integration on both regional inequality and local income inequality within each region. It is shown that market access in a region affects income inequality measures, working through the cutoff productivity for entrepreneurship. Compared with the smaller region, selection into entrepreneurship is more likely for individuals in the larger region with better firm market access whereas the local income inequality is higher. Both regional inequality and regional disparities in the local income inequality measures exhibit an inverted U‐shaped pattern when the regional integration level increases.

  April 02, 2014   doi: 10.1111/rode.12086   open full text
• Border Trade and Regional Integration.
  Ying Ge, Yin He, Yeheng Jiang, Xiaopeng Yin.
  Review of Development Economics. April 02, 2014
  Although it is an important building block of regional integration, very little research has investigated border trade between neighboring countries. This paper fills this gap by examining the patterns and determinants of China's border trade with its neighboring countries. First, a disaggregated, firm‐product level trade data is used to provide a detailed overview of border trade growth and dynamics. The paper shows that trade liberalization has significantly encouraged new firms to enter the export market, and new private firms account for the majority of the expansion in border exports and the shift toward more sophisticated products. Second, a gravity model is used to investigate the determinants of border trade. The results suggest that multilateral and regional integration, market size and institutional quality play important roles in promoting border trade.

  April 02, 2014   doi: 10.1111/rode.12085   open full text
• How Do Technical Barriers to Trade Affect China's Imports?
  Xiaohua Bao.
  Review of Development Economics. April 02, 2014
  This research adopts the heterogeneous‐firm approach to analyze how technical barriers to trade (TBT) imposed by China affect its imports. The empirical analysis is based on a sample covering China's import control measures (e.g. TBT, tariff, license and quota) of all harmonized system (HS) 4‐digit products during the period 1998–2006. A modified two‐stage gravity model is used to correct for Heckman selection bias and firm heterogeneity bias. This paper finds that, in general, TBT reduce China's import probability with potential trade partners, but raise the import values with existing trade partners. Further evidence shows that the TBT effects on trade value remain quite stable. However, the TBT effects on trade probability vary a great deal across industries and countries in different time periods.

  April 02, 2014   doi: 10.1111/rode.12084   open full text
• Implications of Financial Development of the South for Trade and Foreign Direct Investment from the North.
  Qing Liu, Larry D. Qiu.
  Review of Development Economics. April 02, 2014
  Using a North–South model of heterogeneous firms, the paper investigates the effects of the financial development of the South on the choice of international entry mode (export vs foreign direct investment [FDI]) of Northern firms. Such development facilitates the entry of local firms and thus intensifies product market competition. As a result, the intensive margins, extensive margins and total sales from export or FDI of Northern firms are all reduced. The paper provides conditions that determine whether export or FDI is affected more significantly. The results generate empirically testable hypotheses.

  April 02, 2014   doi: 10.1111/rode.12083   open full text
• Imposed Efficiency of Treaty Ports: Japanese Industrialization and Western Imperialist Institutions.
  Masaki Nakabayashi.
  Review of Development Economics. April 02, 2014
  An intrinsic feature of a pre‐modern society is in its fragmentary markets. Fragmentary markets are more likely to fail in the coordination of resource allocation. However, if a concentrated market is exogenously formed and the market could provide the only price to local markets, the market can work as a pivot of coordination for development. Treaty port markets imposed on nineteenth‐century Japan worked as the pivot and ignited Japan's industrialization. We examine the silk‐reeling industry, which was the major export industry and which led to Japanese industrialization, and the role of treaty ports in its development.

  April 02, 2014   doi: 10.1111/rode.12082   open full text
• Measuring the Impact of Trade Protection on Industrial Production Size.
  Wei Tian, Miaojie Yu.
  Review of Development Economics. April 02, 2014
  Trade theory has no clear prediction on how import protection affects an importing sector's relative size. In this paper, we estimate the impact of US trade protection on industrial production relative size based on a translog GDP functional system. Using an industrial panel data set and controlling for factor endowments and technology improvement, we find empirical evidence that trade protection does not help much increase a sector's relative size. Such findings are also robust to both the inclusion of the role of political economy and the coverage of various non‐tariff measures as proxies of industrial protection.

  April 02, 2014   doi: 10.1111/rode.12081   open full text
• Is Export Spillover Localized in China.
  Qun Bao, Min Shao, Ligang Song.
  Review of Development Economics. April 02, 2014
  The hypothesis of localized export spillover has been widely supported by the previous studies. Based on Chinese firm‐level data of more than 47,000 firms from 2000 to 2006, this paper investigates whether export spillover is localized in China. Drawing on the idea of revealed comparative advantage, six export spillover indicators are constructed to capture both the within‐ and between‐ provinces, cities as well as industries spillover effects. The multinomial logit model estimation results show that there is no sign of localized spillover effects despite the fact that domestic firms gain from export spillovers due to geographic and industrial agglomeration effects. This is especially true for those new entrants to export markets. The finding indicates that there may be export congestions resulting from over‐agglomeration of local exporters due to the rapid export expansion in China.

  April 02, 2014   doi: 10.1111/rode.12080   open full text
• Velocity of Money and Economic Development in Medieval China: The case of Northern Song.
  Baomin Dong, Jiong Gong.
  Review of Development Economics. April 02, 2014
  A Fisher's Identity model is established to study Northern Song China's (960–1126) level of velocity of money using money supply and gross domestic product (GDP) data. Results of the exercise help rationalize what is called the “bronze coin” puzzle, which is the massive amount of minted coins seemingly incommensurate with price levels. It is shown that the velocity of money was increasing and comparable to pre‐industrial England levels. This paper argues that the driving forces of the short supply of money are greater than usual hoarding by the state treasury and coin outflows to Song's trading partners via smuggling. Since velocity of money is an indicator of economic development in ancient societies, this paper provides a realistic validation of the premise of the Needham puzzle.

  April 02, 2014   doi: 10.1111/rode.12079   open full text
• Minimum Wage and Capital Taxes.
  Chi‐Chur Chao, Eden Siu Hung Yu.
  Review of Development Economics. April 02, 2014
  Using a general equilibrium model, this paper examines the employment and welfare effects of minimum wages coupled with capital taxes in a small open economy. The individual and joint optimal policies for a minimum wage and capital taxes are derived and explained. Specifically, policy reform to introduce a minimum wage while lowering the capital tax can be justified for some economies, notably, Hong Kong.

  April 02, 2014   doi: 10.1111/rode.12078   open full text
• The Dynamic Effects of Fiscal Stimulus in a Two‐Sector Open Economy.
  Ross Guest, Anthony Makin.
  Review of Development Economics. July 17, 2013
  In 2009/10 governments around the world implemented unprecedented fiscal stimulus in order to counter the impact of the Global Financial Crisis of 2008/09. This paper analyzes the impact of fiscal stimulus using a dynamic open economy, overlapping generations model that allows for feedback effects of fiscal stimulus on private sector expenditure via changes in the tax rate and the interest rate. There are two types of goods—traded (T) and nontraded (N) goods—which differ in their capital intensities. The main qualitative result is that the dynamic output gains from fiscal stimulus depend on the productivity of the initial stimulus spending, on the speed of repayment of debt, on the sensitivities of the interest rate to government debt and of labor supply to the tax rate. Also, the overlapping generations framework allows an intergenerational welfare analysis. Among the biggest winners from stimulus are those about to retire. The biggest losers are those near the start of their working lives when the stimulus is implemented.

  July 17, 2013   doi: 10.1111/rode.12054   open full text
• Who Benefited More from the North American Free Trade Agreement: Small or Large Farmers? Evidence from Mexico.
  Silvia Prina.
  Review of Development Economics. July 17, 2013
  This paper measures the impact of increasing trade openness between Mexico and the USA resulting from the North American Free Trade Agreement (NAFTA) on the income of small versus large farmers in Mexico. Benefits resulting from higher prices of export goods as well as losses incurred from greater import competition are considered. First, relating NAFTA cuts in trade restrictions to border prices of Mexican exports and imports, it is found that NAFTA‐induced tariff reductions decreased the border price of corn, Mexico's main agricultural import, and increased the border prices of tomatoes and melons, Mexico's main agricultural exports. Then, it is shown that the rise in fruit and vegetable prices benefited small farmers more than large farmers; while the drop in corn prices hurt large farmers more. Finally, the results from the regional‐level analysis suggests that the effects are stronger in the central states than in the northern and southern states.

  July 17, 2013   doi: 10.1111/rode.12053   open full text
• Environment, Urban Unemployment, and Tariffs in the Harris–Todaro Model.
  Azusa Nakamura.
  Review of Development Economics. July 17, 2013
  By incorporating the environment into the Harris–Todaro model, this paper examines how introduction of an import tariff on manufactured goods affects urban unemployment and the environment in a less‐developed country. In the Harris–Todaro model, introduction of an import tariff increases urban unemployment when there is no environmental pollution. In contrast, this paper shows that introduction of a tariff may decrease unemployment if the environment is incorporated into the model. Moreover, it is shown that introduction of a tariff improves the environment.

  July 17, 2013   doi: 10.1111/rode.12052   open full text
• On the State Advertising Policy under Quality Information Bias.
  Yasunori Ishii.
  Review of Development Economics. July 17, 2013
  This paper analyzes the effects of the state advertising policy of a developing country on the quality–price competition between its firm and a developed country's firm in an international duopoly. It considers the quality information bias under which the product quality of the developing country's firm is underestimated and the state advertising policy that is implemented by the developing country in order to improve such information bias at a national expense. We show that while a rise in the state advertising expense of the developing country raises (reduces) the quality, price, and profit of the firm in the developing (developed) country, it makes the firms’ quality–price competition more intense, and vice versa. We also find that the developing country's state advertising policy is an incomplete‐bias‐adjusting policy that does not completely eradicate the quality information bias of its firm.

  July 17, 2013   doi: 10.1111/rode.12051   open full text
• Does Human Capital Endowment of Foreign Direct Investment Recipient Countries Really Matter? Evidence from Cross‐country Firm Level Data.
  Sumon Kumar Bhaumik, Ralitza Dimova.
  Review of Development Economics. July 17, 2013
  The stylized literature on foreign direct investment (FDI) suggests that developing countries should invest in the human capital of their labor force in order to attract FDI. However, if educational quality in developing country is uncertain such that formal education is a noisy signal of human capital, it might be rational for multinational enterprises to focus more on job‐specific training than on formal education of the labor force. Using cross‐country data from the textiles and garments industry, we demonstrate that training indeed has a greater impact on firm efficiency in developing countries than formal education of the workforce.

  July 17, 2013   doi: 10.1111/rode.12050   open full text
• Occupational Choice, Aggregate Productivity, and Trade.
  Jürgen Meckl, Benjamin Weigert.
  Review of Development Economics. July 17, 2013
  We propose occupational decisions of heterogeneous individuals as an alternative mechanism of explaining the distribution of firm productivities emphasized by empirical studies. Thus, we integrate the frameworks of Melitz (Econometrica 71 (2003):1695–725), and of Manasse and Turrini (Journal of International Economics 54 (2001):97–117) that establish the theoretical base of trade models with heterogeneous firms. Our model is technically much simpler than the Melitz approach while preserving the main results on firm‐selection effects caused by international market integration. Our approach paves the way for detailed analysis of institutions in a heterogeneous firm model to better understand the link between institutions and an economy's productivity distribution.

  July 17, 2013   doi: 10.1111/rode.12049   open full text
• “Intentions to Return of Clandestine Migrants: The Perverse Effect of Illegality on Skills”—A Reply to the Note.
  Nicola D. Coniglio, Giuseppe De Arcangelis, Laura Serlenga.
  Review of Development Economics. July 17, 2013
  The purpose of this reply is twofold. First, we discuss the major point raised by Stark and Lukasz (Review of Development Economics 17, no. 1 (2013):156–62), i.e. the fact that a framework which explicitly considers asymmetric information is correct and would imply a reversal of our finding. Although, we acknowledge that the mechanism highlighted by the authors is an alternative explanation to return decisions, we argue that the suggested framework is unsuitable in the specific context analyzed in our paper (as well as most real‐world situations). Instead, the assumptions underlying our simple theoretical model are strictly linked to data availability in order to perform a sensible empirical analysis. Second, we present a slightly different version of the model proposed in the original article that overcomes possible inconsistencies on the saving behavior of the migrants. Although all the computations are shown in one of the articles cited in our published paper, we now prefer to show them fully in this issue of the Review. The conclusions of our theoretical model do not change. Hence, we conclude that the empirical evidence of the original article—which is the main contribution of our work—is supported by a robust framework.

  July 17, 2013   doi: 10.1111/rode.12048   open full text
• Religiosity as a Determinant of Happiness.
  Erich Gundlach, Matthias Opfinger.
  Review of Development Economics. July 17, 2013
  The empirical relation between happiness and religiosity is considered from the perspective of basic utility theory. An unbalanced cross‐country panel data set is used to study whether religiosity can be considered as a substitute in the happiness function, which itself is held to be a proxy for the utility function. We find that the same level of happiness can be maintained with high and low levels of religiosity as a result of substitution along a standard indifference curve. Our empirical results are consistent with three stylized facts of the empirical literature, namely a positive correlation between happiness and religiosity, a positive correlation between happiness and income, and a negative correlation between religiosity and income.

  July 17, 2013   doi: 10.1111/rode.12047   open full text
• The Dynamics of Expansion to Emerging Markets: Evidence from Canadian Exporters.
  Sui Sui, Zhihao Yu.
  Review of Development Economics. July 17, 2013
  This study investigates the expansion patterns of Canadian firms towards emerging markets. A unique large‐scale longitudinal (1997–2004) dataset which includes 2600 Canadian exporters is constructed by linking multiple administrative databases at Statistics Canada. Our results suggest traditional sequential exporting patterns do not apply to all Canadian exporters. Since 2001, there has been an increasing trend among a new generation of exporters to target emerging markets as their initial export destination; and both macroeconomic and firm‐specific factors seem to account for this development. Compared with foreign‐controlled firms, Canadian‐controlled firms are less likely to export to the emerging markets. In order to successfully expand into emerging markets, Canadian firms have had to improve their productivity and reduce their labor costs.

  July 17, 2013   doi: 10.1111/rode.12046   open full text
• An Application of the Melitz Model to Chinese Firms.
  Churen Sun, Guoqiang Tian, Tao Zhang.
  Review of Development Economics. July 17, 2013
  When the Melitz model is implemented in practice, the industrial productivity distribution is often assumed to be of Pareto form. In this case, a fundamental relationship κ > σ − 1 must hold to guarantee the convergence of the industrial average productivity, where κ is the concentration degree of the industrial productivity Pareto distribution and σ is the substitution elasticity across varieties in the industry. This paper estimates the concentration degrees of the Pareto distribution in industrial productivity and industrial substitution elasticities using firm‐level data of 40 Chinese manufacturing industries between 1998 and 2007. However, the paper shows that the above fundamental assumption κ > σ − 1 does not hold for nearly all the industries for Chinese firm‐level data. An explanation is proposed as a result of the distorted firm size and productivity for Chinese characteristics.

  July 17, 2013   doi: 10.1111/rode.12045   open full text
• Characteristics of Acquirers and Targets in Domestic and Cross‐border Mergers and Aquisitions.
  Qing Liu, Larry D. Qiu.
  Review of Development Economics. July 17, 2013
  To help understand mergers and acquisitions (M&As), this paper utilizes the most recent M&A data (1991–2007) to establish empirical facts on a variety of performance measures for M&A acquirers, targets, and non‐participants. Unlike the finance literature which mainly focuses on abnormal returns, our performance measures include firm size, technology, productivity, and profitability. Generally, in domestic M&As, in cross‐border M&As, in the pre‐merger period and in the post‐merger period, acquirers perform better than targets, whereas targets perform better than non‐participants. Firms' performance is improved after the M&As. We also find that in the pre‐merger period, US firms that acquire foreign firms in developing countries are significantly better than those that acquire foreign firms in developed countries.

  July 17, 2013   doi: 10.1111/rode.12044   open full text
• Does Learning by Exporting Happen? Evidence from the Automobile Industry in China.
  Tuan Anh Luong.
  Review of Development Economics. July 17, 2013
  The concept that exporters learn from their exporting experience is a theoretical result that needs to be tested empirically. However, the literature provides mixed evidence. In this paper, to estimate productivity, an approach suggested by De Loecker is applied, which corrects for econometric and consistency problems. Using a dataset for the Chinese automobile between 1998 and 2007, no evidence of learning by exporting was found. The data also suggests explanations for why it does not support this hypothesis.

  July 17, 2013   doi: 10.1111/rode.12043   open full text
• The Impacts of Technical Barriers to Trade on Different Components of International Trade.
  Xiaohua Bao, Wei‐Chih Chen.
  Review of Development Economics. July 17, 2013
  This research studies the impacts of technical barriers to trade (TBT) on trade performance of 103 countries over the period 1995–2008. The paper analyzes how TBT influences the trade probability, trade volume and trade duration. The trade volume is further decomposed into the number of products traded (extensive margin) and the trade value of each product (intensive margin). It is found that TBT imposes inconsistent impacts on the different components of trade, and that the effects differ by country. First, TBT reduces trade probability, but increases the volume and duration of existing trade relationships. Second, the positive effect of TBT on trade volume is mainly driven by an increase in the extensive margin, and the effect on the intensive margin is not statistically significant. Finally, TBT raised by developed countries have a stronger negative impact on trade probability, while TBT implemented by developing countries have a greater positive effect on trade volume.

  July 17, 2013   doi: 10.1111/rode.12042   open full text
• Is the Provincial Capital Market Segmented in China?
  Kenneth Chan, Jennifer Lai, Isabel Yan.
  Review of Development Economics. July 17, 2013
  This paper evaluates the degree of provincial capital mobility in China since 1978 by estimating the saving‐retention rate in the Feldstein and Horioka framework. It is found that the estimate of the saving retention rate tends to be biased downward if we fail to decompose the investment and saving rates into the private and government components. After the decomposition, we find that the private capital mobility was low prior to the 1990s, but improved notably in the more recent period. We also find that the saving‐retention rate for the government sector remains negative throughout the sample, which can partially be explained by the government's reallocation of capital from the more productive regions to the less productive regions. Comparing the results of China with those of Japan shows that Japan had a much higher degree of prefectural capital mobility than China before the 1990s, but the gap gradually closed up afterwards.

  July 17, 2013   doi: 10.1111/rode.12041   open full text
• Trade Variety and Productivity in Canada.
  Bo Chen.
  Review of Development Economics. July 17, 2013
  This paper combines the effects of import and export variety growth on technological development in a monopolistic competition model with endogenous technology. Using highly disaggregated international trade data at the national and provincial levels from 1988 to 2006, it is found that export variety and import variety account for 10.41% and 1.57% respectively of the variation in Canadian provincial productivity differences, and for 9.92% and 6.95% of within‐province productivity growth. Evaluated at the sample mean, Canadian productivity gained 0.74% as a result of trade variety growth: export variety contributed 0.41% and import variety contributed 0.33%. While the USA is the single most important source of export‐led Canadian productivity growth, its relative importance is much less on the import side. Emerging markets in Asia, especially China, contributed significantly to Canadian productivity growth by increasing import variety for Canadian producers.

  July 17, 2013   doi: 10.1111/rode.12040   open full text
• Net Fiscal Stimulus during the Great Recession.
  Joshua Aizenman, Gurnain Kaur Pasricha.
  Review of Development Economics. July 17, 2013
  This paper studies the patterns of government expenditure stimuli among Organisation for Economic Co‐operation and Development (OECD) countries during the Great Recession (2007–2009). Overall, we find that the USA net fiscal stimulus was modest relative to peers, despite it being the epicenter of the crisis, and having access to relatively cheap funding of its twin deficits. Of the 28 countries in the sample, the USA is ranked among the bottom third in terms of the rate of expansion of consolidated government consumption and investment expenditures. Contrary to historical experience, emerging markets had strongly countercyclical policy during the period immediately preceding the Great Recession and the Great Recession itself. Federal unions, emerging markets and countries with very high gross domestic product (GDP) growth during the pre‐recession period saw larger net fiscal stimulus on average than their counterparts. We also find that greater net fiscal stimulus was associated with lower flow costs of general government debt in the same or subsequent period.

  July 17, 2013   doi: 10.1111/rode.12039   open full text