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The relationship between foreign aid and economic growth has been the subject of much controversy. A recent theme suggesting that aid promotes growth, but only in a good policy environment has ratchet up that debate. In this paper, we assess the importance of policy and aid in generating growth when the aid, policy, and growth relationship is nonlinear. This allows us to examine the varying effects of aid and policy in different data segments, which we do without imposing any particular structure on the underlying relationship. We find that policy is an important determinant of growth. We also find partial corroboration of the view that aid is growth enhancing in a good policy environment, and some evidence of diminishing returns to aid. These findings suggest that nonlinearities if not appropriately addressed fail to capture the detailed underlying dynamics and thereby mask some key features of the aid-policy-growth relationship. [ABSTRACT FROM AUTHOR]

The paper presents a general equilibrium model of a developing economy with a capital intensive formal sector and a large informal sector with sector-specific capital to analyse the effects of investments on the sectoral returns to capital, sectoral wage rates, and composition of output and employment. Beginning with capital market disequilibrium (unequal sectoral rates of return) and labour market distortion (formal-informal wage gap), the model traces the evolution of the economy till capital market equilibrium is attained. The investments in the formal sector equalise the wages (a 'turning point' in growth à la Lewis) and reduces the size of the informal sector. The sectoral rates of returns equalise only if there is no factor intensity reversal, otherwise the economy specialises in the production of formal goods. The investments in the informal sector equalise the rates of return, do not affect the size of the formal sector and finally, a formal-informal wage gap persists provided factor intensities are not reversed. [ABSTRACT FROM AUTHOR]

The scope of the paper is limited by focusing on developing countries in the context of the world economy. We mostly consider the effects of globalization on income levels and a country's rate of economic growth. This focus is supported by studies (Ravallion; Bourguignon) that find that the level of income and expenditures across a continuum of household income categories is positively associated with economic growth, although wealthy households may benefit more than those with lower income. [ABSTRACT FROM AUTHOR]

Recent work suggests that financial development is important for economic growth, since financial markets more effectively allocate capital to firms with high value projects. For firms in poorly developed financial markets, implicit borrowing in the form of trade credit may provide an alternative source of funds. We show that industries with higher dependence on trade credit financing exhibit higher rates of growth in countries with weaker financial institutions. Furthermore, consistent with barriers to trade credit access among young firms, we show that most of the effect that we report comes from growth in the size of preexisting firms. [ABSTRACT FROM AUTHOR]

Copyright of Canadian Journal of Economics is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper explores how the optimal mode of public finance depends on the level of economic development. The theoretical analysis suggests that in the presence of capital market imperfection and liquidity shocks, the detrimental effect of inflation on growth is stronger (weaker) at lower (higher) levels of economic development. Consequently, income taxation (seigniorage) is a relatively less distortionary way of financing public expenditure for low-income (high-income) countries. We provide empirical support for our model’s predictions using a panel of 21 Organization for Economic Cooperation and Development countries and 40 developing countries observed over the period 1972–1999. ( JEL E44, E6, H6, O42) [ABSTRACT FROM AUTHOR]

The purpose of this paper is to model the role of trade dependency in determining the access of a developing economy to the international credit market, and its desirable growth strategy. With full integration of capital markets, the choice with respect to the inwardness of a technology is irrelevant; investment will be channeled to the more productive sectors, independently of their trade inwardness. With limited capital market integration, a given investment will generate two effects. The first is the standard, direct productivity effect that is associated with the change in future output. The second is the trade dependency externality, generated by the change in future bargaining outcomes arising from the change in the trade dependency of the nation. With partial integration, investment that increases trade dependency is desirable. If the credit markets are disjoint owing to partial defaults, greater trade dependency is disadvantageous. Thus, greater trade dependency generates a positive externality with partial integration of capital markets, and a negative externality with disjoint credit markets. We show that credit market integration is determined by the size of the indebtedness relative to the trade dependency, as reflected by the repayment burden that is supported by the bargaining outcome. The repayment bargaining outcome is determined by the sectoral composition of the economy and by the effective size of the developing and the developed economies. [ABSTRACT FROM AUTHOR]

This paper examines selected demographic characteristics of countries at different stages of economic development On one hand, the data show that the demographic status of underdeveloped countries continues to be substantially more primitive than that of more economically advanced nations. On the other hand, there is evidence to suggest that some of the traditionally observed relationships (such as the inverse relationship between economic development and the rate of population growth) may not be as pronounced as was the case earlier in the present century. Since the various characteristics that differentiate underdeveloped areas from the rest of the world are closely related to the forces and circumstances which handicap their economic development, these findings may be taken as indicative of a real need for a continuous reexamination of the nature of the characteristic features of underdeveloped areas. [ABSTRACT FROM AUTHOR]

Taxing agriculture to mobilize resources for industrialization has been a widely used development strategy. Using novel cross-country time-series data sets with direct measures of agricultural taxation, we examine how a policy bias against agriculture affects the speed of convergence in income per capita, structural change, and economic growth. We find that distortionary agricultural policies in poor economies can account for the emergence of convergence clubs in our sample by significantly retarding their structural transformation and economic growth. Overall, we find no evidence suggesting that policies that discriminate against agriculture have been beneficial for long-term economic growth. [ABSTRACT FROM AUTHOR]

This article investigates the effects of real exchange rale uncertainty on manufactures exports from 28 emerging economies, representing 82% of all developing country manufactures exports, and explores the sources of heterogeneity in the uncertainty effects by controlling for the direction of trade (south-north or south-south), and the level of financial development of the exporting country. The empirical results show that for more than half of the countries, the uncertainty effect is unidirectional, either south-south or south-north, and the median impact is negative. In addition, while we find that financial development augments trade, exchange rate shocks can negate this effect. Last but not least, trade among developing economies improves export growth under exchange rate shocks. [ABSTRACT FROM AUTHOR]

Insurance market activity may contribute to economic growth, both as financial intermediary and provider of risk transfer and indemnification, by allowing different risks to be managed more efficiently and by mobilizing domestic savings. During the last decade, there has been faster growth in insurance market activity, particularly in emerging markets, given the process of financial liberalization and integration, which raises questions about the overall impact on economic growth. This article tests whether there is a causal relationship between insurance market activity (life and nonlife insurance) and economic growth. Using the generalized method of moments (GMM) for dynamic models of panel data for 55 countries between 1976 and 2004, I find robust evidence for this relationship. Both life and nonlife insurance have a positive and significant causal effect on economic growth. For life insurance, high-income countries drive the results, and for nonlife insurance, both high-income and developing countries drive the results. [ABSTRACT FROM AUTHOR]

The growth in the share of resources devoted to food marketed through supermarkets and their accompanying marketing channels has grown at an unprecedented rate in developing countries during the 1990s. This article shows that differences in the relative capital intensity of the modern marketing channels, in contrast to the traditional channels, can explain part of this expansion as the process of economic growth gives rise to capital deepening in the economy even when the food share of total expenditures declines. In this case, the lack of complete markets and policy distortions can further exacerbate the effects of supermarkets on the traditional marketing system and the small farmers that it supports. The article proceeds by describing the conceptual framework of a Ramsey growth model to fit on data of the Moroccan economy. The empirical results show how capital deepening in transition growth can encourage the expansion of the supermarket system without the need to appeal to economies of scale or imperfect competition. The article concludes by noting how economic policy and other market imperfections can affect this process.

This article analyzes the role of foreign direct investment (FDI) and trade in promoting economic growth across selected developing countries and examines the interaction among FDI, trade, and economic growth. Data from 66 developing countries are examined. Results of the study suggest that FDI, trade, human capital, and domestic investment are important sources of economic growth for developing countries. It is discovered that there is a strong positive interaction between FDI and trade in advancing economic growth. Results also show that FDI stimulates domestic investment. The contribution of FDI to economic growth is enhanced by its positive interaction with human capital and sound macroeconomic policies and institutional stability. With the results, there is an implication that lowering the inflation rate, tax burden, and government consumption would advance economic growth in developing countries.

An examination and critique of the functionalist literature on corruption in the political administration of Less Developed Countries (LDCs) indicate that its claims are without empirical foundation. Its theses with regard to the political, economic and administrative effects in most LDCs contrast with the facts. No benefits for development from corruption are found; market corruption, for example, does not appear to improve allocative efficiency The erosion in a government's capacity to formulate and implement policies making for economic growth is an obstacle to economic progress. [ABSTRACT FROM AUTHOR]

Copyright of Population & Development Review is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This article examines the branches of economic theory and development economics. The proliferation and sub-division of development economics is most dramatically shown by the many periodicals which devote themselves entirely to some particular aspect of the subject, such as development finance, development agriculture and so on. Such an economist should try to acquire a good working knowledge at least, of the broad economic dimensions and the basic features of the situation, in a wide range of underdeveloped countries. His aim should be to try to apply the existing economic theory in a more realistic and fruitful way to suit the varying conditions of the different types of underdeveloped country. An equally important part of his job would be to try to prevent serious misapplications of economic theory, whether of the orthodox type or the newer modern theories, to the underdeveloped countries. The alternative view which pervades thinking at present is that the advanced countries should take the responsibility of guaranteeing a politically-acceptable target rate of economic growth for all underdeveloped countries and, if this cannot be achieved by the latter countries' own efforts, the advanced countries should be prepared not only to increase the total volume of aid but also to increase the planning and supervision of the use of this aid so that the peoples of underdeveloped countries may enjoy economic development in spite of themselves. Obviously the underdeveloped countries cannot insist on freedom to use aid in any way they like and at the same time insist that the advanced countries guarantee a minimum target rate of economic growth for them all. Ultimately they will have to choose the one or the other.