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Economic development, which refers to the process of progressive transformation of an economy, is a multifaceted term without a universal definition. This article presents the constitutive elements of economic development: growth, distribution, and innovation. Economic development has been ubiquitous with the economic progress of "developing" countries, but the changing economic circumstances of "developed" countries, such as stagnant growth, regional economic disparity within developed countries, and deepening income gaps among citizens of developed countries, have made this term also relevant to address the economic problems of developed countries. The mechanisms of economic development, with respect to both developed and developing countries, are elusive, and the existing theories have not been able to explain these mechanisms of economic development adequately. This article reviews the existing theories and presents a new theoretical framework to explain the process of economic development. [ABSTRACT FROM AUTHOR]

Although technological complexity seems to be a crucial determinant of economic development, it remains insufficiently explored. Relying on microinformation stored in individual patent applications and by applying the network view of countries linked to the technologies they develop, we create a global technology space and derive complexity measures that position countries in this space. We use then the measures of technological diversification and the ubiquity of technologies present in a country's technology portfolio as an input to explain the role of technological complexity in countries' income and economic development. We show that a country's position in the global technology space affects its level of income and growth. The main channel through which it happens is the exclusiveness and uniqueness of the technological portfolio a country has, as compared to the remaining countries. [ABSTRACT FROM AUTHOR]

The Sustainable Development Goals have refocused attention on ways of providing external finance to support development. Because they have different motivations and work through different modalities, remittances, foreign direct investment (FDI), and official development assistance may be expected to have different consequences for economic growth. Existing empirical evidence suggests that both positive and negative effects are associated with each source of finance. We use both a dynamic panel model and a fixed effects model to calculate the overall effects of each source of finance in isolation and taken together over the period 1976–2015. We include a range of control variables to allow for other potential influences on economic growth. We disaggregate the effects across geographical regions and income levels to test for heterogeneity. We also undertake a series of robustness checks. Our results suggest that FDI has a significant positive effect on economic growth, whereas remittances have a significant and negative effect. The effect of foreign aid is more ambiguous but is usually insignificant. The article offers an interpretation of the results drawing on ideas from the relevant theory. [ABSTRACT FROM AUTHOR]

The existing literature suggests that it is important to understand the factors that may slow the transition of an economy from middle to high income. Many factors have been suggested as promoting or retarding economic growth, but little attention has been paid to the roles of the capital account and consumption ratio. Using panel regressions involving 48 countries over the 1950–2013 period as well as employing extreme bounds analysis, we find that foreign investment outflows are associated with a mature economy and that there is an optimal consumption ratio that must be surpassed to break out of middle‐income status. These findings are robust to an extreme bounds analysis incorporating a wide range of variables potentially related to growth performance. [ABSTRACT FROM AUTHOR]

Africa has the largest number and proportion of fragile states in the world. Fragile states are characterized by slower economic growth, higher incidences of poverty, and persistent inequality. Thus, there is a circular relationship between fragility, inequality, and slow economic growth. This study examines the relationship between fragility, financial inequalities, and inclusive growth in African countries. We introduce a novel way of examining inclusive growth in African countries by developing a unified measure of inclusive growth that captures the two dimensions of inclusive growth: income growth and income distribution. This enables us to adequately assess not just increased opportunities arising from economic growth, but also see how those new opportunities are distributed across all segments of the population. We captured the fragile status of African countries by using an index of fragility. We measured financial inequalities using new data on financial inclusion. The data analysis suggested negative relationships between fragility and inclusive growth in African countries. In addition, the results suggest positive relationships between financial inclusion and inclusive growth. Thus, inclusive growth can be fostered through policies that reduce financial inequalities. Therefore, a less fragile environment is conducive to inclusive growth both directly and indirectly through financial inclusion. [ABSTRACT FROM AUTHOR]

The existing empirical results on the relationship between FDI and migration are rather mixed. This study reevaluates, both theoretically and empirically, how inward FDI relates to emigration in developing countries. Our model illustrates that the relationship between inward FDI and emigration flows depends on the development stage of a developing country, that is, there is a positive association between inward FDI and emigration flows for relatively less‐developed countries but a negative association between these two variables for relatively developed countries. We confirm the empirical validity of our model prediction using the panel data of 21 OECD and 51 non‐OECD countries during the period from 2003 to 2012. Our results argue that as economic development proceeds in a developing country, the home effect of inward FDI associated with intensified labor demand would dominate the linkage effect that induces the brain drain problem through enhancing the socioeconomic ties with migrant networks. [ABSTRACT FROM AUTHOR]

I consider productive government spending and preference for diversity in an imperfectly competitive macroeconomic framework, and analyze how differences in industrial structure affect economic growth and the welfare level. Two main findings emerge from the analysis. First, the optimal ratio of government spending is related to the extent of public expenditure externalities and preference for diversity. Second, the vertical separation regime leads to a higher economic growth rate and welfare level than the vertical integration regime, provided that the degree of monopoly power is relatively small. [ABSTRACT FROM AUTHOR]

The apparel industry contributes significantly to the economic development of many developing countries. Between 1974 and 2004, the Multifiber Arrangement (MFA) heavily regulated this industry. Since the total abolition of the MFA in 2005, competition in apparel trade has increased many folds and some developing countries, such as Bangladesh and Vietnam, have been successful while some others, such as Mexico and the Philippines, are struggling to meet this challenge. This study presents a historical evolution of the apparel industry before and after the introduction of MFA and analyzes the factors that enhance apparel export performance during the post‐MFA period. The analysis reveals that cheap labor, firm size, product quality, foreign ownership, availability of local input materials, new product development, preferential market access and working conditions are the major factors that help gaining competitiveness in apparel exports during the post‐MFA period. These observations provide new insights to the policy makers and business managers to formulate and implement appropriate policies in order to become competitive in apparel exports. [ABSTRACT FROM AUTHOR]

The economy of the Democratic Republic of Congo has gained momentum between 2003 and 2015, with a high annual growth rate of over 6%. However, poverty and employment outcomes were relatively poor, while inequality increased. This study uses a computable general equilibrium (CGE) microsimulation model to study the pro‐poor effect of alternative growth strategy that is likely to strengthen the competitiveness of agro‐food products from the Congo. We experimented with three different scenarios: labor productivity growth, marketing efficiency, and transportation efficiency. The simulations demonstrated that improving the productivity of workers in agro‐food industries has not only produced strong relative pro‐poor effects, but also has the potential to lead to income convergence between rich and poor households. The analysis also revealed the underestimated contribution of agro‐food marketing and transportation efficiency. The major finding is that marketing efficiency favors the middle class. Efficiency gains in the transportation of agro‐food products generate strong pro‐poor effects in absolute and relative terms and are likely to be particularly effective in leading to income convergence. This policy has the potential not only to increase income and employment, but also to provide positive price impacts for both producers and consumers and benefits to all households, particularly low‐income households. [ABSTRACT FROM AUTHOR]

Since the change of the new millennium, general budget support (GBS) has become a prominent, yet controversial and heavily debated, modality for delivering aid. We study GBS as an aid instrument from a cross‐country perspective. We examine if any growth impacts can be identified as a result of the use of GBS. We use data covering nine 4‐year intervals from 1976 to 2011. We modify two supply‐side IV strategies from previous aid–growth literature. In our main approach, we employ an interaction of an exogenous supply‐side variable (donor government fractionalization) and an endogenous variable (probability of receiving GBS) as an instrument for GBS, and in the alternative approach we construct an instrument following a supply‐side approach. Our results suggest that GBS receiving countries have grown faster than countries receiving other types of aid. Selection bias does not explain this result. The growth effect is not only attributed to lagged GBS but also to contemporaneous GBS flows. [ABSTRACT FROM AUTHOR]

It has been well demonstrated in the empirical literature that trade policy liberalization influences trade performance. However, little is known about how trade policy reacts to trade imbalances. This article aims to address this question by investigating the impact of trade imbalances on domestic trade policy liberalization, including in the context of multilateral trade policy liberalization. This analysis is particularly relevant because countries are currently having appetite for trade protectionist measures, which could ultimately undermine multilateral trade liberalization, and hurt domestic economies and the world economy. The analysis has been conducted on a panel dataset of 166 countries over the period 1998 to 2015. The take home message of the analysis is twofold: first, an improvement in trade balance induces greater domestic trade policy liberalization. However, this impact depends on countries' development level, as the magnitude of this positive impact is higher, the higher the countries' level of development. Second, an improvement in trade balance leads to greater domestic trade policy liberalization only if multilateral trade policy liberalization reaches a certain level. [ABSTRACT FROM AUTHOR]

Abstract: Despite the importance of remittances in total international flows, the conclusion of the studies on the relationship between remittances and financial development, is still not completely unanimous, particularly in Latin America and the Caribbean. However, financial development matters for growth and poverty alleviation and financial inclusion have many beneficial effects for households. We examine the relationship between remittances and financial sector development with several dynamic panel data methods. We find a positive, significant, and robust bidirectional link between remittances and financial development for the panel of 32 countries. [ABSTRACT FROM AUTHOR]

Abstract: We empirically analyze the causality relationship between economic growth and international trade using new advancements in the econometric methodology for heterogeneous panel data applied to Latin American countries. First, we test for dependencies between the units of cross‐section (countries) and then we test for cointegration between growth and openness. Finally, we test for Granger causality using a heterogeneous panel data test. The results reject the hypothesis of general, unidirectional, and homogeneous relationship between trade openness and economic growth in Latin American countries as a group. However, considering heterogeneity, we found significant evidence of causality from trade liberalization to economic growth in Chile, Peru, Nicaragua, and Uruguay; we have found bidirectional causality in Mexico and Honduras; and a causal relationship from economic growth to trade liberalization in Colombia, Costa Rica, Guatemala, and the Dominican Republic. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

Despite an emerging literature on political determinants of economic performance, little is known about whether standing committees of the Communist Party, an institution of collective leadership, matter for economic development. Using Chinese provincial-level panel data, we find that a higher ratio of new members in the standing committee of the local Communist Party is correlated with a higher housing sales/gross domestic product ( GDP) ratio. Moreover, more new members in the standing committee are also associated with a lower level of GDP per capita and a lower manufacturing output growth rate. The results on the size of the real estate sector are robust to dealing with the endogeneity of the ratio of new standing committee members. Our findings suggest that career incentives of party leadership affected real estate development at the expense of manufacturing growth in the locality, and that the structure of collective leadership has important economic consequences. [ABSTRACT FROM AUTHOR]

We investigate the determinants of the share of very large enterprises that a country has at the industry-level at the industry-level, using data from the Forbes Global 2000 across 48 countries and 16 industries in the period of 2004-2010. We find significant and positive evidence for three effects affecting such share: the home market effect ( HME), multinational firm effect ( MFE) and economic development effect ( EDE). A further industry-specific analysis of the HME suggests that the industry-level degree of increasing returns to scale may only partly explain the effects being positive without them being different across industries. [ABSTRACT FROM AUTHOR]

This study investigates the exchange rate exposure of Chinese firms at the industry and firm level based on the conventional capital asset pricing model ( CAPM) framework. At the industry level, the dynamic conditional correlation MGARCH (DCC MGARCH) estimates demonstrate that the market model and three-factor model are appropriate for exposure measurements, and industry returns are more likely to be exposed to unanticipated changes in the real exchange rate and the trade-weighted effective exchange rate, particularly for manufacturing industries. At the firm level, although the seemingly unrelated regression (SUR) estimates vary across markets, it is apparent that there is a relationship between firm size and exposure effects, which also show that lagged exchange rate changes have significant exposure effects on firm returns. This study finally suggests that non-financial firms should set up special commissions to hedge currency risks of their future cash flows. [ABSTRACT FROM AUTHOR]

The way central banks react to exchange market pressure is likely to affect the subsequent economic development and the associated economic costs. In a situation of currency pressure the central bank can in principle decide to let the currency float freely, to maintain the peg or to implement a managed float policy, i.e. a mix of depreciation and intervention. As the central bank's choices are subject to self selection and endogeneity, we use propensity score matching to adequately cope with these methodical challenges. We find that monetary authorities have two options to keep down the economic costs in terms of output, namely stabilizing the exchange rate or letting the currency float freely. In contrast, a managed float under currency pressure is accompanied by the worst possible outcome with an average loss of gross domestic product ( GDP) between 5% and 6%. [ABSTRACT FROM AUTHOR]

In this review article we give an intuitive account of why good institutions in general, and secure property rights in particular, matter for economic growth and development. We also discuss implications for good governance, defined as the efficient provision of property rights and other aspects of governance. Finally, we briefly touch on political institutions that might be conducive to good governance and thus economic development. [ABSTRACT FROM AUTHOR]

Multisector growth ( MSG) models are dynamic versions of computable general equilibrium ( CGE) models. Non-homothetic preference (utility) functions are required for the evolution of factor allocations and industrial structures in accordance with consumption expenditure patterns implied by the non-unitary income elasticities observed in all budget data since Engel in the 1850s. But comparative static general equilibrium solutions and particularly solving the dynamics of MSG models require explicit specifications of all demand and cost (price) functions. On the demand side, the constant differences of elasticity of substitution ( CDES) non-homothetic indirect utility functions and Roy's identity provide the explicit Marshallian demand functions and budget shares. Sectorial constant elasticity of substitution ( CES) cost functions and Shephard's lemma provide the explicit relative commodity price functions and the sectorial cost shares and capital-labor ratios. Walrasian equilibria are given by one equation and the multisector dynamics by three differential equations. Benchmark solutions are given for three cost regimes of a 10-sector MSG model. History patterns of industrial/allocational evolutions are recognized. [ABSTRACT FROM AUTHOR]

A model is developed to explain trade policy interventions in response to commodity price spikes. The model predicts that government preferences for averting losses for domestic interest groups lead to changes in trade distortions. In particular, trade interventions in response to downward price spikes are predicted, which is consistent with the proposal for a Special Safeguard Mechanism ( SSM) in the World Trade Organization ( WTO). Higher tariffs are likely in a noncooperative setting, and higher export subsidies will emerge in response. An efficient cooperative trade policy can be achieved in a repeated game setting and with possible involvement of the WTO. [ABSTRACT FROM AUTHOR]

While over-financing caused crises and slow growth in advanced economies including Germany, France and the UK after 2008, more prudent financial deepening sustained higher economic growth in China and India-two major emerging economies in the world. The actual financial deepening ratios ( AFDR) observed in the non-consolidated balance sheet from the OECD exceeded by factors of 3.5, 2.4 and 5.1 the optimal financial deepening ratios ( OFDR) obtained from the solutions of dynamic general equilibrium ( DGE) models of those three advanced economies. The corresponding factors were 2.3 and 0.49 for China and India respectively. Labor intensive production technology and a low OFDR relative to a high AFDR in China allowed it to grow at 10% between 1990 and 2010 period that ended with the global financial crisis. With a reasonable OFDR and low AFDR India also managed to grow at 6.5%. Thus huge gaps between the optimal and actual financial deepening ratios led to massive macroeconomic consequences as observed after the crises in 2008. Smooth, sustainable and efficient economic growth requires adoption of strategies for separating equilibria in line of Miller- Stiglitz- Roth mechanisms avoiding problems of asymmetric information in the process of financial intermediation with as narrower gaps as possible between the AFDRs and OFDRs. [ABSTRACT FROM AUTHOR]

The objective of this study is to calculate and decompose productivity incorporating multi-environmental pollutants in Chinese industrial sectors from 1992 to 2008. We apply a weighted Russell directional distance model to calculate productivity from both the economic and environmental performance. The main findings are: (1) Chinese industrial sectors increased productivity, with the main contributing factors being labor saving prior to 2000; (2) The main contributing factors for productivity growth in coastal areas include both economic and environmental performance improvement. While central and western regions improved productivity owing to economic development, they have a trade-off relationship between economic and environmental performance. [ABSTRACT FROM AUTHOR]

The role of foreign capital inflow, foreign direct investment ( FDI) and foreign portfolio investment ( FPI), on export behavior of both recipients and non-recipient competing firms in the same sector often guides economic development policy. By using panel data of Indian IT firms over 2000-2006, we show that FDI reduces the sunk costs of entering foreign markets and therefore positively effects both the decision to export and the export propensity of recipient firms. Foreign portfolio investment has no effect on the decision to export, but it does marginally increase the volume of exports. Further, these positive FDI and FPI recipient effects do not spill-over to non-recipients. [ABSTRACT FROM AUTHOR]

Many studies examining whether corruption lowers economic growth do not consider if the effects of corruption differ across countries. Whether corruption produces the same effects everywhere or whether its effects are conditional on some country characteristics are important questions. We investigate the association between corruption and growth, where the marginal impact of corruption is allowed to differ across democratic and nondemocratic regimes. Using cross-country, annual data from 1984 to 2007, we regress growth on corruption, democracy and their interaction. We find that decreases in corruption raise growth but more so in authoritarian regimes. Possible reasons are that in autocracies corruption causes more uncertainty, is of a more pernicious nature, or is less substitutable with other forms of rent seeking. [ABSTRACT FROM AUTHOR]

The fundamental question of whether offshoring is value enhancing and, more specifically, whether Italian manufacturing firms that undertake offshoring benefit from higher productivity and profitability is explored. Using data from the tenth wave of the ' Survey on Manufacturing Firms' conducted by Unicredit- Capitalia, it was found that, compared with domestic firms, firms relocating activities to a foreign country have different characteristics, and 'better' firms might self-select into offshoring decision. To disentangle the effect of offshoring on firms' performances from the effect of firm characteristics, several variants of propensity score matching are used. A mild and insignificant positive effect of offshoring on profitability was found and also evidence of a statistically significant positive effect of offshoring on productivity. [ABSTRACT FROM AUTHOR]

The relationship between research and development (R&D) intensity and wages is examined using a unique matched employer-employee dataset. The ordinary least squares estimates suggest that a one standard deviation increase in R&D intensity is associated with an increase in the hourly wage rate between 3.4% and 6.9% for the full sample, depending on the exact specification. The instrumental variable estimates are that a one standard deviation increase in R&D intensity is associated with an increase in the hourly wage rate between 5.5% and 11.4%. The wage elasticity with respect to R&D intensity is found to be higher in larger firms as well as for better educated workers and workers with technical skills. Consistent with the rent-sharing hypothesis it is also found that the wage elasticity with respect to R&D intensity is higher for workers who belong to the Communist Party or union. [ABSTRACT FROM AUTHOR]

Using data covering 1970-2008 for South Asia, this study investigates the influence of human capital disaggregated by gender, on economic growth. We use an extended version of the Solow growth model with per capita gross domestic product ( GDP) a function of the key variables, viz. physical capital accumulation, human capital accumulation, trade openness and capital flows, fiscal policy and financial development. The key contribution of this study is to show that openness when interacted with the human capital stock disaggregated by gender, has differential impacts on economic growth. While the positive impact of male secondary schooling captures the direct skill effect relative to primary schooling, the marginal influence of female primary/secondary schooling fails to show a positive impact on growth at higher levels of openness. An implication stemming from this study is that educational opportunities for females at the secondary level should be increased for South Asia. [ABSTRACT FROM AUTHOR]

The popular perception about economic reforms having benefitted only the richer districts of India between 1999/2000 and 2004/2005 is investigated. Using the spatial dynamics of district-level per-capita income it was found that income distribution did not change between the years examined. It is argued that this is because of per-capita income across districts being spatially positively correlated. Physical infrastructure, human capital, and factories are identified as factors responsible for increase in income for both the rich as well as the poor districts. Infrastructure, physical or social, is a key component of growth in India. A policy impact analysis shows development of better drainage and potable water systems has a large impact on income. For the year 2001/02, it was found that for every 1% increase in closed drainage system and potable water, district-level median income increases by 1.39% and 0.21%, respectively. [ABSTRACT FROM AUTHOR]

Some models support the notion that exchange-rate uncertainty promotes economic growth while others suggest that exchange-rate uncertainty slows growth. Most empirical work supports the latter hypothesis, leading policymakers to strive for more stable exchange rates. The authors question the appropriateness of the methodology usually employed, and variables constructed to measure the impact of exchange-rate uncertainty on growth. They use an alternative approach and find no discernable impact of exchange-rate uncertainty on economic performance as captured by production. [ABSTRACT FROM AUTHOR]

Although there has been considerable interest in wage discrimination in India, available studies have largely dealt with formal rather than informal markets that are of little relevance for the poorest people. Focusing on India's informal labor markets leads to three findings of interest. First, gender wage discrimination is larger in informal than in formal labor markets, resulting in losses that are larger than receipts from one of the country's most important safety-net programs. Second, economic growth will not make gender discrimination in wage labor markets disappear. Finally, contrary to what is found for gender, the hypothesis of no significant wage discrimination based on caste cannot be rejected. [ABSTRACT FROM AUTHOR]

Most people today would argue that corruption is bad for countries' economic development. Yet, we still lack a reliable empirical estimate of the effect. This study addresses the econometric shortcomings of the literature and provides an estimate of the causal impact of corruption on gross domestic product per capita across countries. Certain dimensions of a country's culture are used as instruments for corruption. These instruments stay strong when the other deep determinants of economic development, geography, and the remaining dimensions of institutions and culture are controlled for. In the process of choosing controls, however, the entire set of variables available in the Quality of Governance online database (QOG) that includes all central variables from the literature on institutions and culture are included. It is found that corruption does exert a significant and negative impact on countries' productivity levels. [ABSTRACT FROM AUTHOR]

Consistent with real option theory, the authors argue that the value of the Employment Guarantee Scheme (EGS) in rural India and its impact on workers' behavior does not depend so much on its income supplementation as on enlargement of opportunities in the uncertain local labor market. The choice between the EGS and other activities is modeled in a dynamic optimization framework, taking into account a fixed wage rate and certainty of employment under the EGS and a stochastic wage rate under other activities. Specifically, volatility of wages in the rural labor markets has important implications for switches into the EGS and for concomitant welfare effects. Under such conditions, the higher the EGS wage, the greater is its attractiveness to relatively skilled and affluent workers, and for those already in it to continue. These and related predictions of the model are validated by panel data estimation. [ABSTRACT FROM AUTHOR]

The authors study a temporary exchange-rate based stabilization plan in which agents face a sudden stop of capital inflows. The model generates a rising path of real interest rates in advance of the exchange rate collapse. This generates a time-dependent non-monotonic path of required premium on domestic assets. The model-generated asset price dynamics closely mimic their empirical counterpart, as witnessed during recent collapses of exchange-rate based stabilization plans. The model also reproduces consumption and foreign reserve dynamics that closely mimic the data. [ABSTRACT FROM AUTHOR]

The authors study the endogenous determination of financial and trade openness. They construct a theoretical framework leading to two-way feedbacks between financial and trade openness and identify these feedbacks empirically. They find that one standard deviation increase in commercial openness is associated with a 9.5% increase in de facto financial openness (% of GDP). Similarly, an increase in de facto financial openness has powerful effects on future trade openness. De jure restrictions on capital mobility have only a weak impact on de facto financial openness, while de jure restrictions on the current account have a large adverse effect on commercial openness. The authors investigate the relative magnitudes of these directions of causality using Geweke's (1982 ) decomposition methodology. They conclude that in an era of rapidly growing trade integration, countries cannot choose financial openness independently of their degree of openness to trade. Dealing with greater exposure to turbulence by imposing restrictions on financial flows is likely to be ineffectual. [ABSTRACT FROM AUTHOR]

We use a very general bivariate GARCH-M model and quarterly data for five Asian countries to test for the impact of real and nominal macroeconomic uncertainty on inflation and output growth. We conclude the following. First, in the majority of countries uncertainty regarding the output growth rate is related negatively to the average growth rate. Secondly, contrary to expectations, inflation uncertainty in most cases does not harm the output growth performance of an economy. Thirdly, inflation and output uncertainty have a mixed effect on inflation. Consistent results are found using the VAR-GARCH-M approach to investigate the dynamic relationship between inflation and output growth using impulse response functions. This evidence implies that macroeconomic uncertainty may even improve macroeconomic performance, i.e. raise output growth and reduce inflation. Our empirical results highlight important differences with those for industrialized countries. [ABSTRACT FROM AUTHOR]

It is widely held that foreign direct investment (FDI) has a positive effect on economic growth. To test this hypothesis, we perform convergence regressions derived from a theoretical model on the impact of FDI on endogenous technological change in small economies. The model includes FDI externalities that enhance growth, but also shows that FDI can crowd out host country income and reduce local innovation. The empirical analysis employs disaggregated US data for various FDI-related activities—in addition to the conventionally used aggregate FDI stocks and flows. We estimate the net FDI impact on the convergence rate of per-capita income to US levels, controlling for human development, financial development, and trade. We find that FDI accelerates convergence for high-income countries only, otherwise slowing it down. [ABSTRACT FROM AUTHOR]

The interaction between increased Southern trade integration (globalization) and labor market frictions is analyzed in a dynamic general-equilibrium North–South nonscale growth model with endogenous Northern innovation and endogenous Southern imitation. The qualitative employment, growth, and relative-wage effects of globalization are shown to depend crucially on the degree of Northern labor market frictions. I demonstrate that only Northern countries with particularly large labor market adjustment costs for both firms and workers benefit from globalization in terms of permanently lower unemployment, temporarily faster growth, and permanently higher wages. This is because of the resulting general-equilibrium feedback effects of Northern labor market frictions that deter Southern imitation incentives. The result does not imply the recommendation to increase Northern labor market rigidities, but it challenges the common belief that labor market flexibility helps Northern countries to better adjust to the “globalization threat” coming from the South. [ABSTRACT FROM AUTHOR]

In growth theory, foreign investment places a small open economy in the international steady state. In applied growth theory, foreign investment is assumed to shift technology. The present growth model separates foreign from domestic capital and develops the steady state where both capital/labor ratios are stationary. A capital scarce country would attract foreign investment and may arrive at a steady state with perpetual foreign investment. Such a steady state foreign investment host is characterized by low saving and high labor growth rates, and source countries the opposite. Incomplete convergence characterizes economic growth with foreign capital. [ABSTRACT FROM AUTHOR]

A new specification of the sources of productivity growth is offered. Motivated by the lack of innovation and technology adoption in backward economies, a third channel of growth related to organizational structure, work ethics, and discipline in the production process (for simplicity called organizational learning) is suggested. The suggested specification generates new insights about the dominating source of growth during the development process: organizational learning in backward economies, technology adoption in middle-income economies, and innovation in developed economies. This adds to the current understanding of development as a transition from technology adoption to innovation. Numerical simulations of the Thai catch-up process since 1965 illustrate the importance of organizational learning. A counterfactual experiment shows how investments in secondary education contribute to the move from organizational learning to adoption of more advanced foreign technology. [ABSTRACT FROM AUTHOR]

The aim of this article is to construct a European production frontier using deterministic methods, and to break down growth and convergence during the period 1980–2001. The results show that EU growth is primarily driven by physical and human capital accumulation, the contribution of which is essential for the cohesion of European countries. We find capital accumulation and efficiency change to be important convergence factors within the EU, while technical change has worked against it. The approach used has also enabled us to analyze the differences in growth performance of Member States and highlight the role of human and public capital, supporting the European cohesion and development policies carried out in this period. [ABSTRACT FROM AUTHOR]

This study asks whether, in a rapidly changing world, the estimated proportion of the world's population with income below US$1 (adjusted according to purchasing power parity) per day is still a good measure of trends in poverty. It argues that strong economic growth in nations such as China implies that the commonly accepted international poverty line definition of one half median national equivalent income is increasingly relevant and that poverty intensity (the normalized deficit or Foster–Greer–Thorbecke (FGT) index of order one) is a better summary index. This index has a convenient graphical representation—the “poverty box”. Using the proposed poverty line and the example of ranking the level of rural poverty in Chinese provinces, the study demonstrates how poverty intensity replicates the poverty rankings of the Sen family of poverty indices and captures most of the information content of higher-order FGT indices. [ABSTRACT FROM AUTHOR]

We consider a common resource economy in which agents exploit the common resource, and use it to produce goods and consume the goods produced. Also the agents can invest in private and productive capital. The resource extracted from the common resource is non-renewable and the common pool is under uncertainty in the sense that it could have a sudden increase or decrease in the course of extraction. In this model we shall explore the probability of sustainability or ruin of the economy. We compare and discuss the optimal extraction rules and the probabilities under cooperative and non-cooperative regimes. [ABSTRACT FROM AUTHOR]