Viewpoint: From cities to productivity and growth in developing countries

Abstract.  This paper reviews the evidence about the effects of urbanization and cities on productivity and economic growth in developing countries using a consistent theoretical framework. As in developed economies, there is strong evidence that cities in developing countries bolster productive efficiency. Regarding whether cities promote self-sustained growth, the evidence is suggestive but ultimately inconclusive. These findings imply that the traditional agenda of aiming to raise within-city efficiency should be continued. Furthermore, reducing the obstacles to the reallocation of factors across cities is also desirable.     

The productivity effect of government capital in developing and industrialized countries

This paper uses an aggregate production function to examine the effect of government capital formation on growth of labour productivity in an annual panel of 12 developing and 12 OECD economies covering the period 1976–1989. The results from a pooled model of all 24 countries indicate that contribution of government capital to labour productivity is positive and statistically significant. This result also holds in separate samples of the industrialized and developing economies where we find that, while there are productivity differentials between the two types of economies with respect to private capital, there are no differences with regards to public capital.     

Are labor markets segmented in developing countries? A semiparametric approach

We test the hypothesis that observably similar workers earn higher wages in the formal sector than in the informal sector in developing nations. Using data from Argentina's household survey and various definitions of informal employment, we find that on average, formal wages are higher than informal wages. Parametric tests suggest that a formal premium remains after controlling for individual and establishment characteristics. However, this approach suffers from several econometric problems, which we address with semiparametric methods. The resulting formal premium estimates prove either small and insignificant, or negative. Neither do we find significant differences in measures of job satisfaction between the two sectors. We invoke these results to question the mainstream view that labor markets are segmented along formal/informal lines in developing nations such as Argentina.     

The transmission of world commodity prices to domestic markets under policy reforms in developing countries

This paper examines the degree to which world price signals have been transmitted into domestic prices for eight countries and ten commodities, a total of 31 country/commodity pairs. The main characteristic of these countries was that they all undertook substantial policy reforms during the mid‐1980s to early 1990s. The paper investigates the effect of reforms on the speed at which signals were transmitted to domestic markets and on the extent of price transmission. We find that Chile, Mexico, and Argentina are the only countries whose domestic commodity markets were integrated with world markets. For the remaining cases (Ghana, Madagascar, Indonesia, Egypt, and Colombia) in only a few country/commodity pairs is there some passthrough of world price changes. In terms of the effects of policy reforms, in the majority of the cases the hypothesis of a structural break following the reform year is rejected.     

Labor productivity and technology heterogeneity

This paper investigates the role of technology club heterogeneity in economic growth and convergence. To do so, we break up labor productivity change into three factors – efficiency, technological, and capital–labor ratio changes – while distinguishing the impact of technology club heterogeneity respectively. This allows us to observe what is happening within and between clubs; as well as between the world and club technologies. Our labor productivity decomposition is nonparametric in nature and thus overcomes the issue of specifying functional forms for the club technologies. Our results reveal the existence of technology heterogeneity and divergence: the world technology is defined by advanced and rich countries; there exists intra-convergence phenomena (mostly due to capital–labor ratio change), but inter-convergences (owning to capital–labor ratio and technological changes) are not found. Finally, we argue that follower and marginalized countries have adopted imitating strategies, but with respect to different dimensions, namely technological change or capital–labor ratio.     

The impact of foreign direct investment on productivity: New evidence for developing countries

We provide new empirical evidence on the relationship between inward foreign direct investment (FDI) and total factor productivity (TFP) growth using cross-country data for 51 developing countries over the period 1984–2010. Our results suggest a weak direct effect of FDI on TFP growth but, after accounting for the roles of human capital and institutions as contingencies in the FDI-TFP growth relationship, we find a robust FDI-induced productivity growth response dependent on these ‘absorptive capacities’. However, the relevance of the human capital contingency effect diminishes when the effect of institutions is also considered, which suggests that improving institutions is relatively more important than human capital development for developing countries to realise productivity gains from FDI.     

Determinants of labour productivity: Comparison between developing and developed countries of Asia‐Pacific

The current study investigates the trends in labour productivity of the major developing and developed economies of the Asia‐Pacific region and examines its determinants over the period 1980–2014. The study analyses capital deepening, human capital, technology, share of agriculture in GDP, financial development, institutional quality, inflation as well as macroeconomic variables as potential determinants of productivity, and identifies the differences in the impact of these factors on the productivity of developing and developed countries. Using panel cointegration and group‐mean fully modified ordinary least squares estimation, the study finds that capital deepening, human capital, technology, institutional quality and macroeconomic variables (i.e. government size and openness) are significant determinants of labour productivity of both developing and developed economies of the Asia‐Pacific region. The study further finds that while both trade openness and foreign direct investment affect productivity of developing economies positively, only trade openness has a positive and significant impact on the productivity of developed economies. The share of agriculture in GDP affects the labour productivity of developing Asia‐Pacific economies significantly but not that of developed economies. Furthermore, capital deepening has a much higher impact on the productivity of developing Asia‐Pacific economies than that of developed economies.     

Growth and poverty in developing countries

Despite the developing countries' impressive aggregate growth of the past 25 years, its benefits have only reached the poor to a very limited degree. Not only have the poorest countries grown relatively slowly, but growth processes are such that within most developing countries, the incomes of the poor increase much less than the average. Although many policies have been proposed to counter these trends, little has been done to estimate the possibilities for significantly reducing world poverty within a reasonable period. This paper develops a quantitative framework to project levels of poverty under different assumptions about GNP growth population growth and changes in income distribution. Although the interactions among development processes and policy instruments are not modelled in any detail, the results serve to clarify the nature of the problem. The policy simulations demonstrate that the elimination of absolute poverty by the end of this century is a highly unlikely prospect; even to achieve a substantial reduction will require a combination of policies designed to accelerate the growth of poor countries, to distribute the benefits of growth more equitably, and to reduce population increase.     

Sulphur emissions and productivity growth in industrialised countries

Abstract ** :  In this paper, we examine the relationship between economic and environmental performance. More specifically, we analyse the impact of SO2 reduction in the eighties (1980–1992) on productivity growth, technical efficiency and technological progress for a set of 12 OECD countries. Our timeframe roughly corresponds to the adoption and implementation of the First Sulphur Protocol signed in 1985. First, we estimate an output based Malmquist productivity index using distance functions derived from successive DEA (Data Envelopment Analysis) frontiers. This index is decomposed in two components namely technical and efficiency change. Second, we regress the change in productivity and its two components on a set of explanatory variables including annual variations in SO2 emissions. The results indicate that reductions in SO2 do not seem to have had a significant impact on productivity growth. The decomposition into efficiency and technology changes suggests that two countervailing effects may explain this result. On one hand, SO2 cutbacks adversely affect efficiency but on the other hand, they stimulate technical change .     

Taxation base in developing countries

Informal sectors are larger in developing countries than in rich countries. This is a result of higher fixed costs of entry into the formal economy in developing countries. We show that raising barriers to entry is consistent with a deliberate government policy for raising tax revenue. By generating market power, and hence rents, for the permitted entrants, market entry fees foster the emergence of large taxpayers. The rents can be readily confiscated by the government through entry fees and taxes on profits at a low administrative cost. The relevance of the theory is assessed with a sample of 64 countries. Empirical analysis supports the results of the paper.     

Industrial policy in developing countries

Traditionally, proindustry policies were associated with incentives for import substitution and an inward-oriented development strategy. This is no longer so. Whereas in the past, world-market orientation was seen as implying reliance on primary production, today policies favoring international competition and export orientation are considered compatible with policies favoring rapid industrialization. Differences of opinion on the appropriate degree of public intervention remain. The debate between “purist” laissez-faire advocates and those who believe in industrial planning, public investment, and generous subsidies often obscures the real need for reduction in antiexport bias, rationalization of incentives, and reform of public-sector activities.     

Technology assessment and developing countries

The assessment of technologies may be of great importance to developing countries in their present process of industrialization in the framework of the New International Economic Order. The main criteria for the assessment of the technologies most relevant to the needs of developing countries are reviewed from the point of view of employment, scarce capital, and energy resources. The design of appropriate technologies should take into account the tastes, culture, needs, purchasing power, and raw materials available in developing countries. A systems approach should therefore be used to assess technologies. The programs undertaken by several agencies of the United Nations System are described which may contribute to build up technology assessment capability in developing countries.     

Fiscal deficits and growth in developing countries

This paper examines the relation between fiscal deficits and growth for a panel of 45 developing countries. Based on a consistent treatment of the government budget constraint, it finds evidence of a threshold effect at a level of the deficit around 1.5% of GDP. While there appears to be a growth payoff to reducing deficits to this level, this effect disappears or reverses itself for further fiscal contraction. The magnitude of this payoff, but not its general character, necessarily depends on how changes in the deficit are financed (through changes in borrowing or seigniorage) and on how the change in the deficit is accommodated elsewhere in the budget. We also find evidence of interaction effects between deficits and debt stocks, with high debt stocks exacerbating the adverse consequences of high deficits.     

Output-inflation tradeoffs in industrial and developing countries

This paper presents further international evidence on output-inflation tradeoffs implied by Lucas's model of the Phillips curve. Various relationships among the output-inflation trade-off coefficient and variances of the nominal shocks and the general price level implied by the theoretical model are evaluated among two groups of countries. These relationships are strongly confirmed for nineteen industrial countries, but are only moderately supported for the group of thirty-seven developing countries.     

Elections and economic policy in developing countries

This paper explores the impact of elections on economic policies and governance in developing countries. We distinguish between a structural effect, which increases accountability, and a cyclical effect which may be disruptive. Since the effects are offsetting, neither can be analysed in isolation. We implement an econometric analysis on more than 80 developing countries using positive changes in the Country Policy and Institutional Assessment of the World Bank and the International Country Risk Guide as signalling improvements in economic policy and governance. We find that both structural and cyclical effects matter. The cyclical effect suggests that mid-term is the best moment for policy change. We investigate the structural effect by comparing different frequencies of elections. Except at the extremes, a higher frequency of elections improves both policy and governance net of any cyclical effect. The important exception to this benign net effect is if the electoral process is badly conducted. Badly conducted elections have no structural efficacy for policy improvement. A reasonable interpretation of our results is that honest elections increase accountability and thereby discipline governments to improve economic policy and governance, but that if candidates can win by fraud this chain is broken.
— Lisa Chauvet and Paul Collier     

Labor relations and productivity growth in advanced capitalist economies

In this paper, we claim that worker rights (including collective bargaining rights, employment protection, and income security) promote productivity growth. We argue that cooperative labor-management relations encourage workers to make positive contributions to technical and organizational innovations that raise labor productivity, and that an industrial relations system that secures strong worker rights fosters cooperative labor-management relations. These arguments are supported by an empirical analysis of long-run productivity growth in 15 advanced capitalist countries. We first develop an index of worker rights and show its positive effect on several indicators of labor-management cooperation. We then develop an index combining measures of worker rights and labor-management cooperation and show its positive effect on the rate of growth of labor productivity.     

The links between openness and productivity in Mediterranean countries

We examine the relation between the international trade, the foreign direct investment and the total factor productivity of the Mediterranean partner countries of Europe within the framework of a cointegrated panel model. The results, obtained from data on seven Mediterranean partner countries of Europe (Algeria, Egypt, Israel, Jordan, Morocco, Tunisia, Turkey), show that FDI and human capital are complementary in the acquisition of productivity gains. We identify the threshold level of human capital from which the received foreign investments generate beneficial effects. In a more general way, the improvement of the total factor productivity via the international openness results only from the indirect effects related to the transfer of technology.