Journal of Globalization and Development

Published by De Gruyter

Volume 1 Issue 1

January 2010

Issue of Journal of Globalization and Development

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Contents
Journal Overview

Research Foundation

January 1, 2010

Democracy, Autocracy and Bureaucracy

Avinash K Dixit

Abstract

Democratic and autocratic rulers alike must use a bureaucracy to implement policy. In each case the optimal policy is a second-best solution to this agency problem, giving the bureaucrat some economic rent for information revelation and effort incentive. This paper argues that autocrats are less willing to sacrifice rents, and therefore accept a worse second-best (here less of a public good) than democrats. It also finds a synergistic matching between a democratic ruler and an altruistic bureaucrat who internalizes the citizens' welfare. This synergy is absent for autocrats, but they can gain by extorting from highly altruistic agencies like NGOs.

January 1, 2010

Incomes in South Africa after the Fall of Apartheid

Murray Leibbrandt, James A Levinsohn, Justin McCrary

Abstract

This paper examines changes in individual real incomes in South Africa between 1995 and 2000. We document substantial declineson the order of 40%in real incomes for both men and women. The brunt of the income decline appears to have been shouldered by the young and the non-White. We extend nonparametric methodologies to examine the role of changes in endowments, returns to these endowments and selection into and out of positive incomes as possible explanations for this income change. We argue that changes in respondent attributes are insufficient to explain this decline. For most groups, a (conservative) correction for selection into income recipiency explains some, but not all, of the income decline. For other groups, selection is a potential explanation for the income decline. Perhaps the most persuasive explanation of the evidence is substantial economic restructuring of the South African economy in which wages are not bid up to keep pace with price changes due to a differentially slack labor market.

January 1, 2010

Poverty and Disequalization

Dilip Mookherjee, Debraj Ray

Abstract

We study the intergenerational transmission of inequality using a model in which parents can make both financial and occupational bequests to their children. An equal steady state with high per capita skill can co-exist with unequal steady states with low per capita skill. We investigate dynamics starting from arbitrary initial conditions. The main result is that even if a country starts with a perfectly equal wealth distribution, it converges to an unequal steady state if its initial per capita wealth falls below a threshold, and to the equal steady state otherwise. Hence initial poverty (even with perfect equality) can generate long-term inequality, and undermine economic development.

January 1, 2010

Dysfunctional Finance: Positive Shocks and Negative Outcomes

Karla Hoff

Abstract

In financial markets with asymmetric information about mean returns, borrowers with different default risks may pay the same rate of interest. If they do, the marginal borrower will have a high-risk, negative-value project. Under some conditions, technological change that increases each entrepreneurs output will attract a new set of negative-value projects. This adverse selection process will erode the ability rents of the inframarginal borrowers. I present an example in which it destroys the market. The results imply that a boom in a sector can lead to a crisis if institutional change to solve the screening problem does not occur.

Policy Analysis

January 1, 2010

Impact of Political Reservations in West Bengal Local Governments on Anti-Poverty Targeting

Pranab K. Bardhan, Dilip Mookherjee, Monica Parra Torrado

Abstract

Political reservation for disadvantaged groups is believed to be a way of improving targeting of publicly provided goods to those groups. This paper examines the impact of political reservations for women and scheduled castes and tribe (SC/ST) candidates in local governments in West Bengal, India between 1998-2004 on targeting to landless, low caste and female-headed households. It differs from existing literature by differences in geographic coverage, time span, and use of self-reported household benefits across a broad range of programs. Reservation of chief executive (pradhan) positions in local government for women was associated with a significant worsening of within-village targeting to SC/ST households, and no improvement on any other dimension of targeting. Reservation of pradhan posts for SC/ST members was associated with a significant increase in benefits received by the village as a whole, improvement in intra-village targeting to female-headed households, and to the group (SC or ST) of the pradhan. The effects of women's reservations are not consistent with simple citizen-candidate or elite capture models of electoral politics. They are consistent with a more complex hypothesis of capture-cum-clientelism which is weakened by election of politically inexperienced women to reserved pradhan posts.

January 1, 2010

Rethinking Global Economic and Social Governance

Jose Antonio Ocampo

Abstract

This paper presents a new typology of global cooperation for development, based on three objectives: managing interdependence, furthering the development of societies, and gradually overcoming the asymmetries that characterize the world economic system. It then explores the nature of these asymmetries and proposes that the concept of "special but differentiated responsibilities" offers the best framework for handing the special issues of developing countries in the global order. Finally, it develops a five point agenda for improving global economic and social governance structures: creating a dense network of world, regional and national institutions; ensuring the equitable participation of developing countries in global governance; creating a Global Council of the broad UN system, based on representation by constituencies; guaranteeing a better coherence of the decentralized system that characterizes global arrangements in the economic and social field; and effective accountability for international commitments.

January 1, 2010

Public Finance and Economic Development: Reflections based on Experience in China

Roger H. Gordon

Abstract

Public finance pressures are a central concern in developing countries. With large informal economies, the tax base is narrow and the resulting revenue on average only about half the fraction of GDP seen in developed countries. In response to the resulting tax distortions favoring the informal sector, countries commonly impose a variety of restrictions favoring the formal sector and hindering the entry of new firms that likely join the informal sector. While these policies help protect the country's tax base, they also unfortunately can hinder economic growth, by discouraging entrepreneurial activity.The experiences in China show this trade off dramatically. When restrictions on firm entry were eliminated, economic growth rates jumped but tax revenue fell by two-thirds, since the growth largely took place in sectors that were hard to tax.How should a country then handle these revenue costs of growth-promoting policies? The choices are few: cut expenditures, borrow in the hopes of higher revenue in the future, come up with new sources of revenue such as user fees, or undertake only partial reforms that yield some growth but also help preserve the existing tax base. The paper argues that the latter approach is likely to be the most successful, in spite of the lower resulting growth rate.

January 1, 2010

International Rules for Trade in Natural Resources

Paul Collier, Anthony J. Venables

Abstract

This paper investigates the scope for international rules to address market failures in trade in natural resources and the associated international transactions of prospecting and investment in resource exploitation. We argue that several market failures are likely to have substantial costs. However, due to the distinctive features of natural resources, the market failures are particular to them. The ad hoc approaches which have attempted to address them to date leave scope for a more systematic and comprehensive approach by the WTO, but the distinctive features of natural resources imply that this could not simply be an application of the rules appropriate for other forms of trade.

January 1, 2010

Macro Crises and Targeting Transfers to the Poor

Ravi Kanbur

Abstract

A central question for policy makers concerned to help the poor through a macro crisis is how to target scarcer resources at a time of greater need. Technical arguments suggest that finer targeting, through tightening individual programs or reallocating resources towards more tightly targeted programs, uses resources more efficiently for poverty reduction. These arguments survive even when the greater informational costs and the incentive effects of finer targeting are taken into account. But political economy arguments suggest that finer targeting will end up with fewer resources allocated to that program, and that looser targeting, because it knits together the interests of the poor and the near-poor, may generate greater resources and hence be more effective for poverty reduction despite being "leakier." Overall, the policy advice to tighten targeting and to avoid more loosely targeted programs during crises needs to be given with considerable caution. However, the advice to design transfer systems with greater flexibility, in the technical and the political economy senses, is strengthened by the arguments presented here. The case for external assistance, to design flexible transfer systems ex ante, and to relieve the painful tradeoffs in targeting during a crisis, is also shown to be strong.

Symposium

January 1, 2010

Symposium: The Return of Counter-cyclical Policy - Editorial Preface

Jose Antonio Ocampo

Abstract

This piece introduces the journal's symposia, entitled "The Return of Counter-Cyclical Policies."

January 1, 2010