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GDN FUNDED PAPERS
Why the rich may favour poor protection of property rights?
Project : Awards and Medals Competition (AMC)
Author : Konstantin Sonin
Date : 2003
Description : In unequal societies, the rich might benefit from shaping economic institutions into their favor. This paper analyzes the dynamics of institutional subversion focusing on one particular institution, public protection of property rights. If this institution is imperfect, agents have incentives to invest in private protection of property rights. With economies of scale in private protection, rich agents have a significant advantage: they could expropriate other agents using their private protection capacities. Ability to maintain private protection system makes the rich natural opponents of full protection of property rights provided by the state. Such an environment does not allow grassroots demand to drive development of new market-friendly institutions (such as public protection of property rights). The economy as a whole is stuck in a ’bad’ long-run equilibrium with low growth rate, high inequality, and wide-spread rent-seeking. The Russian ‘oligarchs’ of 1990s, a handful of politically powerful agents that controlled large stakes of newly privatized property, were the major motivation for this paper.
The dynamics of civil society and the democratization process in Nigeria
Project : Awards and Medals Competition (AMC)
Author : Remi Aiyede
Date : 2003
Description : Africa’s ‘nascent’ civil societies have been portrayed as the prime movers in the democratisation process in the 1990s. However, with the establishment of democratic governments in Africa, it seems the high expectations about the role and capacity of these civil society organizations to promote governance reform and foster democratic deepening has been exaggerated. Against the growing pessimism about the capacity of these organisations to fulfil their democratic potentials, this paper explores the dynamics of these organisations in Nigeria. Adopting a historical and analytic approach,it notes that in Nigeria, democratic rule has expanded the space for political expression but nondemocratic actors have become very visible and power seekers have dominated the political space. This is the case because a substantial sector of civil society organisations in Nigeria are so alienated from the state and so oriented towards disengagement that they are not conducive to state building or democratisation. The middle class or professional associations that were at the forefront of the democracy movement tend to be divorced from the grassroots. It submits that pro-democracy civic organisations in Nigeria being largely shaped by the exigencies of confronting authoritarian regimes were constricted in their capacity to promote democratic consolidation. These organisations have to undergo a process of internal democratic renewals, expand their reach to the grassroots and build structures that can respond to the state’s institutions.
The role of property rights protection on the effect of free trade agreements on foreign direct investment
Project : Awards and Medals Competition (AMC)
Author : Lorenza Martinez Trigueros and Roberto Romero Hidalgo
Date : 2003
Description : The present paper analyzes the hypothesis that multilateral trade agreements contribute to improve property rights protection in countries characterized by inadequate protection of those rights. These agreements, by offering the option of dispute resolution using an arbitrage panel, allow countries with deficient domestic institutions to free ride the protection offered by more efficient foreign institutions. Therefore foreign investors, from the partner country, could use this alternative whenever their property rights are violated. This implies a reduction in the country risk for the mentioned investors and therefore an increase in FDI in the “free rider” country. The empirical results using a 38 country panel from 1980 to 2001 and including 203 agreements confirm our theory.
EU enlargement: benefits of the single market expansion for current and new member states
Project : Awards and Medals Competition (AMC)
Author : Maryla Maliszewska
Date : 2003
Description : This paper evaluates the implications of Eastern EU enlargement with the use of a computable general equilibrium model. The focus is on accession to the Single Market, with explicit modelling of the removal of border costs and costs of producing to different national standards. The results indicate significant welfare gains for the CEECs (volume of GDP increases by 1.4-2.4%) and modest gains for the EU. The long run scenarios, which allow for the capital stock adjustment in response to higher return to capital, more than double the static welfare gains.
Globalization and Wage Inequality: A Simple General Equilibrium Approach
Project : Awards and Medals Competition (AMC)
Author : Sugata Marjit and Rajat Acharyya
Date : 2002
Description : The phenomenon of growing wage-inequality across the world during the 1980s and 1990s has posed quite a few challenges to the trade theorists. Foremost is how to explain the widening wage-gap both in the North and in the South. This has been the major concern primarily because the existing theories and models of trade fail to establish such symmetric movement of (relative) wages in all countries. Second, is the widening wage gap between skilled and unskilled workers in the South where exportables are typically relatively intensive in unskilled workers and accordingly trade should have caused a decline in the wage gap. In this paper, we provide some simple theoretical structure that can indeed generate these results and thus bridge the gap between the theory and the reality. International trade in commodities in a multi-commodity Heckscher-Ohlin-Samuelson setting, with the endowments of the countries being so dissimilar that they produce in common only a middle-good in the factor-intensity ranking, can cause a symmetric wage movement across the trading partners that has been observed, if North is a net importer of this good and lowers its initial tariff on it. On other hand, once the standard HOS model is modified properly by incorporating the changing nature of the North-South trade relations and structural features of trade and production patterns that distinguish the South from the North, growing wage-inequality in the South is no longer a puzzle. The diversified trade pattern of the South with a latent complementarity between unskilled-labour intensive agricultural exports and skill-intensive manufacturing exports, segmented labour markets and existence of a large non-traded sector, all contribute to such wage-inequality.
Global Divergence
Project : Awards and Medals Competition (AMC)
Author : David Mayer-Foulkes
Date : 2002
Description : I show that the evolution of cross-country incomes is characterized by global divergence. To do this, the sample of non-mainly-petroleum-exporting countries having market economies during the period 1960-1997 is divided into five clusters of countries by a regression clustering algorithm according to the levels and rates of change of income and life expectancy. The five clusters correspond to advanced countries, especially fast growing countries, and three tiers of less developed countries with qualitatively different development paths. I show that the following properties hold for these clusters. 1) Growth rates across groups of countries are globally divergent; some successive groups converge while most diverge. 2) Income inequality between these groups of countries has increased while income inequality within the groups has remained almost unchanged. 3) The five groups of countries exhibit β and σ income divergence between groups and convergence within groups. Besides, the implied steady state growth rates across groups of countries are globally divergent, the five-club convergence model is much more significant than the one-club model, and the distributions of country-specific convergence regression coefficients are significantly different across groups of countries. The convergence found within groups is consistent with the relative convergence (to steady state trajectories) found in the literature. However, relative convergence only means that there are a series of perhaps distinct, local equilibrium processes going on. Indeed, these may themselves be due to economic forces that prevent global convergence. The empirical facts are consistent only with theories of economic growth explaining divergence and proposing multiple steady states or other explanations for prolonged transitions Such models usually reflect advantages of the rich and disadvantages of the poor. A descriptive study of the five groups of countries suggests, as a stylized fact, that there are three large-scale steady states or convergence clubs, semi-stagnation (low income and life expectancy), semi-development (middle income and high life expectancy) and development (high income and life expectancy), according to whether countries have overcome barriers to human development and to technological innovation. Three of the five groups lie in each of these steady states and the other two transit between them.
The Differential Impact of Japanese and U.S. Foreign Direct Investments on Exports of Indian Manufacturing
Project : Awards and Medals Competition (AMC)
Author : Rashmi Banga
Date : 2002
Description : One of the most fiercely debated issues in the literature of development economics is the role played by the inward foreign direct investment in export performance of developing countries. Since the beginning of the decade of 1990s, the Indian government has adopted various reform measures to attract foreign direct investment (FDI) in the export sector of India. However, in spite of this FDI has not played any significant role in export-promotion of Indian industries. The study aims to find whether FDI from different source countries have differential impact on the exports of Indian industries. An attempt is also made to see whether FDI has, to some extent, led to higher exports in the non-traditional export sectors of Indian industries leading to export diversification. The analysis is undertaken in two steps. First, industry-level analysis is undertaken for three digit level industries for estimating the impact of Japanese and U.S. FDI on export-intensity of the industries. This analysis is undertaken separately for traditional and non-traditional export sectors. Secondly, a firm-level analysis is undertaken to compare the impact of Japanese and U.S. equity on the exportintensity of the firms. The results show that U.S. FDI has a positive and significant impact on the export-intensities of the industries in the non-traditional export sector, while the impact of Japanese FDI is not significant. Differences in the inter-industry pattern; and within the same industry, higher level of technology and more networking within the host country by U.S. firms vis-a-vis Japanese firms are some of the reasons found by the study for the differential impact of Japanese and U.S. FDI. Panel data estimation techniques are applied for the industry-level analysis and Tobit model is estimated for the firm-level analysis.
Efficiency of Mass Privatization and Government led Restructuring: Owner vs. Seller Effects on Performance of Companies in Slovenia
Project : Awards and Medals Competition (AMC)
Author : Marko Simoneti, Matija Rojec, Joze Pavlic Damijan and Boris Majcen
Date : 2002
Description : A new approach for studying the key policy choice in transitional economies between rapid mass privatization and continued state ownership with gradual privatization is developed by separating the owner and the seller effects on performance of companies. It is proposed that companies temporary owned by mass privatization institutions should be compared with non-privatized companies and companies sold by mass privatization institution with companies privatized by the government in a standard way. For Slovenia, we demonstrate that mass privatization institutions are better temporary owners and better sellers to strategic investors than the government and its institutions. Companies owned/sold by mass privatization institutions experience better economic performance in comparison to companies owned/sold by the government. Both static and dynamic versions of TFP model were studied, with simultaneity and heterogeneity problems explicitly controlled for using Sys-GMM approach to panel data. The issue of simultaneity between company performance and chosen privatization methods as well as the panel selection bias were explicitly controlled for using the Heckman two-step method.
Opportunities to Learn and Achievement in Mathematics in a Sample of Sixth Grade Students in Lima, Peru
Project : Awards and Medals Competition (AMC)
Author : Santiago Cueto, Juan Jesus Martin Leon Jara Almonte, Cecilia Ramirez and Oscar Pain
Date : 2002
Description : To try to better understand some policy-relevant variables that could help explain mathematics achievement in Latin American schools it would be important to get inside the classrooms, describe what is happening (and compare it with educational norms) and correlate these events with students achievement. Along this line, in the current study we attempted, first, to describe the opportunities to learn mathematics in public schools (as compared to what is prescribed in the national curriculum). The opportunities to learn were determined by analyzing each task completed in the workbooks1 and notebooks of the two best students per classroom. Second, we tried to determine whether these opportunities to learn were related to the socioeconomic status of the children attending each classroom. Third, we analyzed whether the opportunities to learn were related to achievement in mathematics tests developed by the Ministry of Education; these tests were based on the national curriculum. The study was carried out with sixth grade students given that this is the last grade in elementary school, and thus these students should reflect the accumulated learning from all previous grades, and show sufficient knowledge to advance to high school. Only public school students were included in the sample since they are the ones showing relatively worse performance (UMC & GRADE, 2001a) and because the public system includes 85% of the students, most of whom come from families with limited resources. Also, the students in the private system use different texts or workbooks, thus making the comparison with the public students difficult. The private system is for the most part managed independently by the principals or governing boards at each school. Students attending private schools have many additional resources at school or from their families as compared with students in the public system (a student in a private school could pay up to $6000 annually for tuition, while public education is for the most part free).
A study of technological change in the small enterprises of a developing economy: analytical framework and empirical examination
Project : Awards and Medals Competition (AMC)
Author : Tatiana A. Bhavani
Date : 2002
Description : This paper looks at the firm level process of diffusion of new technologies for the small enterprises in a developing economy. In particular, it focuses on the differential characteristics of small enterprises (vis-à-vis larger ones) including their differential access to inputs like finance and information that are necessary for the inevitable technological upgradation of these enterprises in the globalised era. It has two parts. First part develops an analytical framework that enables one to characterize the process of firm level technological change and examines the factors affecting it in the small enterprises of a developing nation. Within the developed analytical framework, second part examines the empirical evidence. Need for the former arises as the existing literature on technological change enables one to study changes in the technology of an enterprise that is either due to internal innovation or through the formal modes of transfer of technology. Both do not apply to a majority of small enterprises in any developing nation such as India. Following an eclectic approach, this paper develops an analytical framework to study the firm level technological change in such small enterprises. This analytical framework is comprehensive both in terms of the coverage of the concept of technology and in taking into account all those factors that can possibly cause changes in the technology of small enterprises. In respect of technology, it goes beyond the usual definition to cover all three dimensions of technology, namely, transformation (mechanisation), organisation and information. Analysis of the study reveals that product market, owner-manager's perception of market changes, technological capabilities, scale of operation, labour behaviour and attitudes of the firm, and the availability of finance, information, complementary skills and materials to the firm, and the relative factor prices that the firm faces, influence the change in the technologies of enterprises. These factors further deduced into the firm level characteristics. Using this framework, the paper investigates the factors influencing technological change in some of the small auto component units of India using the primary survey data. Results indicate that the availability of institutional finance, scale of operation and labour attitudes as the important determinants of transformation technology (i.e., level of mechanisation), and scale of operation as the significant determinant of organisation and information technologies.
 
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