Review of Development Economics

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  • The measurement of disaster risk: An example from tropical cyclones in the Philippines

    What determines disaster fatalities? We develop a tool to estimate tropical cyclone‐induced fatalities in the Philippine provinces, and to explain the variability of these fatalities across provinces using an evidence‐based approach. We construct a new provincial‐level panel dataset, and use statistical methods to assess the influence of socioeconomic vulnerability (i.e., levels of economic and social development, urbanization, governance), exposure (i.e., population, topography, and geography), and hazard characteristics (i.e., rainfall volume and wind speed) on the resulting fatalities from tropical cyclones. We find strong evidence that socioeconomic development and good local governance reduces disaster fatalities, while unplanned urbanization is associated with more fatalities. Exposure, including topography, and tropical cyclone strength are likewise important determinants of fatalities. However, disaster fatalities appear to be influenced much more by socioeconomic vulnerability and exposure, than by the hazard itself. We quantify this difference in order to contribute to policy planning at national and subnational scales.

  • Consumption dynamics and inequality of opportunity with an application to Uganda

    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.

  • Intermediaries, transport costs and interlinked transactions

    Farmers in developing countries often encounter difficulties selling their products on local markets. Inadequate transport infrastructure in rural areas and large distances between areas of production and consumption mean that farmers find it costly to bring their produce to the market and this very often results in small net margins and poverty among farmers who are geographically isolated. Agriculture in developing countries is characterized by the presence of intermediaries that have a cost advantage over farmers. Because of their market power, these intermediaries are able to impose interlinked contracts and are free to choose the spatial pricing policy they use. In this paper, we develop a model of input–output interlinked contracts between an intermediary and geographically dispersed farmers. We establish when the intermediary uses either uniform or mill pricing policies, as opposed to spatial discriminatory pricing. For each pricing policy, we analyze what the welfare implications are in terms of an increase in farmers' income and a reduction in poverty in rural areas. We also establish how the choice of a spatial pricing policy impacts geographically isolated farmers and how it influences the participation by farmers.

  • The effects of off‐farm work on fertilizer and pesticide expenditures in China

    This study examines the effects of participation in off‐farm work on farm expenditures on fertilizer and pesticide, using farm household survey data from China. Simple mean value comparisons reveal no statistically significant differences in fertilizer and pesticide expenditures between off‐farm work participants and nonparticipants. However, econometric estimation with a treatment effects model shows a negative selection bias. After controlling for this bias, the empirical results show that participation in off‐farm work exerts a positive and statistically significant impact on fertilizer and pesticide expenditures. Our findings generally suggest that the income effect of off‐farm work stimulates agricultural production by increasing investments in productivity‐enhancing inputs.

  • Schooling and household welfare: The case of Sri Lanka from 1990 to 2006

    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.

  • Is urbanization improving real estate investment? A cross‐regional study of China

    This paper applies bootstrap panel Granger causality to test the relationship between urbanization and real estate investment from 1990 to 2014 for 29 provinces in China. We argue that the patterns of interaction between urbanization and investment in real estate vary across regions. The results show that urbanization does Granger‐cause investment in real estate, primarily in the central and northeastern regions of China, while urbanization does not Granger‐cause investment in real estate in the eastern and western regions, except for four provinces. Most regions do not have a Granger‐causality relationship from real estate investment to urbanization; the exceptions are Henan and Hei Longjiang provinces. Our results only support one theory on the relationship between urbanization and the real estate market for one‐third of the provinces. Thus, urbanization can improve real estate investment by increasing the demand for housing as a result of population agglomeration, but urbanization does not depend on real estate investment in China.

  • The more subsidies, the longer survival? Evidence from Chinese manufacturing firms

    How do government subsidies affect firm survival? By using Chinese firm‐level data for 1998 to 2007, we show that, on average, there is a positive and significant impact of government subsidies on firm survival. We also investigate the heterogeneous effects of government subsidies with different intensities on firm survival, and find that moderate‐intensity government subsidies exert a positive impact on firm survival, while high‐intensity government subsidies increase the exit probabilities, the underlying mechanisms via subsidy‐seeking investment and innovation incentive weakening are supported by empirical evidence. Furthermore, we explore the role of governance institutions in the subsidy–survival relationship, and find that the positive impact of government subsidies on firm survival is more pronounced in regions with better governance institutions.

  • Relationship between trade openness and economic growth in Latin America: A causality analysis with heterogeneous panel data

    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.

  • International inequality in subjective well‐being: An exploration with the Gallup World Poll

    In this paper we compute inequality measures over the distribution of a subjective well‐being variable constructed from a life satisfaction question included in the Gallup World Poll in almost all countries in the world. We argue that inequality in subjective well‐being may be a better proxy for the degree of unfairness in a society than income inequality. We find evidence that inequality in subjective well‐being has an inverse‐U relationship with per capita GDP, but it is monotonically decreasing with respect to mean subjective well‐being. We argue that this difference might be associated to inequality aversion in the space of utility.

  • Access to credit and investment decisions of small‐ and medium‐sized enterprises in China

    Financial constraints are common in developing countries where financial systems are underdeveloped. In China, firms report that access to finance is the most important obstacle in the business environment. This is related to firms that fail to gain access to the credit market. We examine the likelihood of gaining access to credit by firms, and find that size and exporting appear to be the key characteristics. Credit constraints are significant for investment decisions. Together with size, access to credit is among the firm characteristics with the greatest impact on the likelihood to invest.

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