Employment protection, international specialization, and innovation

We develop a model to analyze the implications of firing costs on incentives for R&D and international specialization. The key idea is that countries with a rigid labor market will tend to produce relatively secure goods, at a late stage of their product life cycle. Consequently, their researchers tend to specialize in ‘secondary innovation’ which improves existing products, rather than ‘primary innovation’ which introduces new products. This is roughly consistent with the observed pattern of R&D in Europe versus the U.S. Employment protection does not necessarily harm the country where it prevails, but typically reduces world welfare and the world number of goods.     

Enforcement in informal saving groups

Informal groups cannot rely on external enforcement to insure that members abide by their obligations. It is generally assumed that these problems are solved by ‘social sanctions’ and reputational effects. The present paper focuses on roscas, one of the most commonly found informal financial institutions in the developing world. We first show that, in the absence of an external (social) sanctioning mechanism, roscas are never sustainable, even if the defecting member is excluded from all future roscas. We then argue that the organizational structure of the rosca itself can be designed so as to address enforcement issues. The implications of our analysis are consistent with first-hand evidence from rosca groups in a Kenyan slum.     

Quality dualism

We suggest a theory of quality dualism, defined in terms of the gap between the highest quality good produced in the informal sector and the lowest quality produced in the formal sector. We develop a model of vertically differentiated products, in which firms producing in the formal and informal sectors face different factor prices, and have a relative advantage in the manufacture of different qualities. We then use the model to examine the cyclical behavior of the respective sizes of the two sectors. Finally, we point out that factor price changes, which reduce or increase the size of the informal sector, may have the same or opposite effect on the degree of dualism in the economy.     

Child gender and parental borrowing: Evidence from India

Discrimination against girls is well-documented, especially in Asia. We show that women try to level the playing field for their daughters by taking on debt. But wealth asymmetry between mothers and fathers perpetuates gender inequality across generations.     

Democracy,visibility and public good provision

We examine the role of visibility in influencing government resource allocation across a multiplicity of public goods. We show that a “visibility effect” distorts governmental resource allocation such that it helps explain why governments neglect provision of essential public goods, despite their considerable benefits. We show that greater democratization widens the gap in resource allocation between more visible (such as famine prevention) versus less visible (such as malnutrition prevention) public goods, up to an intermediate level of democracy. Beyond this level, this gap decreases. Furthermore, public goods with low visibility are prone to multiple equilibria in resource allocation, with voter expectations being shown to be important.     

Decentralizing development: Allocating public goods via competition

Decentralizing the allocation of public goods by giving funds directly to communities takes advantage of local information concerning needs, but leaves funds open to misuse or capture by local elites. A large scale development project in Indonesia attempts to overcome this downside of decentralized allocation by having communities compete locally for block grants. Competition weeds out less efficient projects. Increasing the number of villages bidding by 10% leads to a 1.8% decline in road construction costs. Increased community participation in project planning also leads to better outcomes.     

Producer price adjustment to commodity price shocks: An application of threshold cointegration

During the 1980s and 1990s, most developing countries in Sub-Saharan Africa and Latin America implemented structural adjustment reforms, which included the liberalization of export crop markets and the abolition of marketing boards. The emergence of new marketing systems may have altered price transmission mechanisms, especially if collusion behaviors have appeared among domestic stakeholders along the marketing chain. I use threshold cointegration tools to analyze the dynamics of world price transmission to coffee growers in three deregulated markets. The methods I use allow me to test the presence of a threshold in both the cointegrating relationship and its corresponding error correction model. Over the pre-reform period, I detect asymmetric price adjustments that appear favorable to producers - deviations from the long-run equilibrium resulting from largest increases in world prices being eliminated relatively quickly - and disappear in the post-reform period. On the contrary over the post-reform period, the results suggest that largest decreases in world prices may be transmitted relatively quickly to growers. These results can be seen as expressions of a favorable pricing policy over the pre-reform period and an unfavorable influence of new private agents over the post-reform period, meaning that in some cases reforms may have failed to create competitive market structures.     

Tax evasion in transition: Outcome of an institutional clash? Testing Feige's conjecture in Albania

A field survey of households was conducted in Tirana, Albania in 2000. A response rate of 89.3% yielded 1.340 valid questionnaires, allowing me to test Feige's (In: Nelson, J.M., Tilley, C., Walker, L. (Eds.), Transforming Post-communist Political Economics. National Academy Press, Washington, DC, p. 21) conjecture that more tax evasion will be observed, when formal and informal institutions clash. Respondents’ attitudes towards formal and informal institutions were obtained by applying factor analysis to their responses to a series of attitudinal questions. The theoretical importance of the interaction between formal and informal institutions in determining tax evasion finds empirical support in the data.     

On measuring the benefits of lower transport costs

Despite large amounts invested in rural roads in developing countries, little is known about their benefits. This paper derives an expression for the willingness-to-pay for a reduction in transport costs from the canonical agricultural household model and uses it to estimate the benefits of a hypothetical road project. Estimation is based on novel cross-sectional data collected in a small region of Madagascar with enormous, yet plausibly exogenous, variation in transport cost. A road that essentially eliminated transport costs in the study area would boost the incomes of the remotest households – those facing transport costs of about $75/ton – by nearly half, mostly by raising non-farm earnings. This benefit estimate is contrasted to one based on a hedonic approach.     

State-led or market-led green revolution? Role of private irrigation investment vis-a-vis local government programs in West Bengal's farm productivity growth

We estimate the role of private investments in irrigation in farm productivity growth in West Bengal, India between 1982 and 95. Using a state-wide farm panel, we find that falling groundwater costs generated significant growth in value added per acre for farms. These resulted from investments in minor irrigation which was stimulated by tenancy registration programs implemented by local governments. This helps account for substantial spillover effects of the tenancy reform on non-tenant farms noted in an earlier study. Hence the West Bengal Green Revolution of the 1980s benefited from complementarity between private investment incentives and state-led institutional reforms.     

Household survey data for research on well-being and behavior in Central Asia

This paper summarizes the micro-level survey evidence from Central Asia generated and analyzed in the period 1991–2012. We provide an exhaustive overview over all accessible individual and household-level surveys undertaken in Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan – and of all academic papers published using these datasets. We argue that Central Asia is a fascinating region for the study of comparative economics given its dual experience of transition and development. However, the region is also understudied, in part due to lack of data, and especially due to a lack of panel data. We identify knowledge gaps derived from this lack of longitudinal surveys and suggest worthwhile areas for future research. Finally, we also present a new and novel individual-level panel dataset called “Life in Kyrgyzstan”.     

Bribery solicitations and firm performance in the Latin America and Caribbean region

This study shows that for firms in the Latin America and Caribbean region, bribery significantly distorts firm growth. Firms that were solicited for bribes when conducting business transactions – such as applying for permits, electricity, or water connections – have 23% lower annual sales growth than firms that do not face such solicitations. Moreover, these distortions are more severe for low-revenue-generating and young firms. Using the instrumental variables method on cross-sectional data as well as evidence from panel data, the authors show that these results are robust to different specifications and the use of different sub-samples.     

Globalization, rent protection institutions, and going alone in freeing trade

We construct a two-country North-South Product-cycle model of trade with endogenous growth and trade barriers. We remove the scale effects on growth by incorporating rent protection activities by Northern incumbents. We examine the effects of two forms of globalization - an expansion of the relative size of the South and unilateral trade liberalization by either country. We find that the location of rent protection institutions and the sectoral trade structure determine whether or not globalization raises steady-state economic growth. We demonstrate that for accelerating worldwide economic growth, contrary to conventional wisdom, unilateral Northern trade liberalization is preferable to bilateral trade liberalization.     

Are firms that receive R&D subsidies more innovative?

Abstract .  This paper looks at the effectiveness of R&D grants for Canadian plants that already benefit from R&D tax credits. Using a non-parametric matching estimator and data from the 2005 Survey of Innovation from Statistics Canada, we find that firms that benefited from both policy measures introduced more new products than their counterparts that only benefited from R&D tax incentives. They also made more world-first product innovations and were more successful in commercializing their innovations. The paper gives also a detailed step-by-step explanation of how to apply the non-parametric matching technique.     

Can productive government spending be a source of equilibrium indeterminacy?

This paper presents an examination of the interaction between indeterminacy and productive government spending financed by taxes in a one-sector growth model. In the paper, we show that the possibility of indeterminacy is positively affected by dependence on income tax financing and is negatively affected by consumption tax financing. Under balanced budget rules, a key determinant for indeterminacy is a revenue source for providing public services (i.e. income tax financing) rather than the presence of productive government spending.     

A percolation model of eco-innovation diffusion: The relationship between diffusion, learning economies and subsidies

An obstacle to the widespread adoption of environmentally friendly energy technologies such as stationary and mobile fuel cells is their high upfront costs. While much lower prices seem to be attainable in the future due to learning curve cost reductions that increase rapidly with the scale of diffusion of the technology, there is a chicken and egg problem, even when some consumers may be willing to pay more for green technologies. Drawing on recent percolation models of diffusion, we develop a network model of new technology diffusion that combines contagion among consumers with heterogeneity of agent characteristics. Agents adopt when the price falls below their random reservation price drawn from a lognormal distribution, but only when one of their neighbors has already adopted. Combining with a learning curve for the price as a function of the cumulative number of adopters, this may lead to delayed adoption for a certain range of initial conditions. Using agent-based simulations we explore when a limited subsidy policy can trigger diffusion that would otherwise not happen. The introduction of a subsidy policy seems to be highly effective for a given high initial price level only for learning economies in a certain range. Outside this range, the diffusion of a new technology either never takes off despite the subsidies, or the subsidies are unnecessary. Perhaps not coincidentally, this range seems to correspond to the values observed for many successful innovations.     

Shift from gross profit taxation to distributed profit taxation: Are there effects on firms?

This paper investigates the consequences of the corporate tax reform in Estonia in 2000. This unique reform nullified the taxation of retained earnings and maintained corporate income tax only on distributed profits. We investigate the outcome of the reform by comparing the performance of the affected firms in Estonia with that of firms from Latvia and Lithuania, the two other Baltic countries. We use firm-level financial data and the difference in differences approach for our analysis. The results are consistent with an increase in holdings of liquid assets and lower use of debt financing after the reform. A positive relationship of the reform with post-reform investment and productivity has also been found. The results point to a stronger effect on smaller firms.