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3391. Why isn't there more Financial Intermediation in Developing Countries?

Author:
Jonathan Conning and Michael Kevane
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper proposes to organize thinking about the opportunities for improving and extending financial markets and safety nets for the poor, by focusing on factors that may explain why the linkage of local financial networks and safety nets with the larger economy often fails or is incomplete. Understanding the nature of these impediments is the first step in proposing policies to help promote more effective linkage and intermediation. We propose four explanations for the slowness of adoption of intermediation (high costs of delegated monitoring aggravated by limited intermediary capital; lock-in and crowding out effects from local insurance arrangements, social norms against cooperation with intermediaries; and political resistance to new institutions that shift the balance of power in local polities). Of course, financial repression and weak legal systems remains important as cause of lack of intermediation. We conclude with a review of public policy for more effective intermediation.
Topic:
Development, Economics, and Government

3392. Insolvency and Debt Recovery Procedures in Economic Development: An Overview of African Law

Author:
Clas Wihlborg
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Insolvency and debt recovery procedures are as crucial to a well-performing financial sector as credit provision itself. They are even more important in Africa, where attempts are underway to create fully-fledged financial markets. For the financial system to be credible, creditors must be ensured that lenders will meet their obligations and that cases against them will be brought to closure. A good legal framework for insolvency also ensures distressed firms a form of orderly exit, thereby enabling their owners to start afresh. However, institutions of this nature take time to take effect, and need to be supported politically and by reforms in other sectors of the economy.
Topic:
Development, Economics, and Government
Political Geography:
Africa

3393. The Gradual Erosion of the Social Security Function of Customary Land Tenure Arrangements in Lineage-Based Societies

Author:
Jean-Philippe Platteau
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Customary rules governing access to land and other natural resources in village societies have characteristics that allow them to fulfil social security functions and achieve equity objectives. This is true of both common-property resources and land parcels held under individualized tenure. However, when land pressure increases under the combined influences of population growth and market integration, a shift occurs from extensive to intensive resource use patterns. As a result, the efficiency costs of erstwhile equity-and insurance-oriented arrangements rise, thus forcing them to evolve significantly. In particular, land tenure arrangements undergo a major transformation towards more individualized forms with the consequence that property rights in land are increasingly defined without regard for equity and insurance concerns.
Topic:
Development, Economics, and Government

3394. The Growth Elasticity of Poverty

Author:
Rasmus Heltberg
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
How much does economic growth contribute to poverty reduction? I discuss analytical and empirical approaches to assess the growth elasticity of poverty, and emphasize that the relationship between growth and poverty change is non-constant. For a given poverty measure, it depends on initial inequality and on the location of the poverty line relative to mean income. In most cases, growth is more important for poverty reduction than changes in inequality, but this does not render inequality unimportant. Reduction in inequality may be triple effective: (1) it will reduce poverty for a given level of income, (2) it will accelerate the poverty reducing impact of economic growth, and (3) according to cross-country growth regressions, it may contribute to a larger rate of growth.
Topic:
Development, Economics, and International Trade and Finance

3395. Poverty Incidence and Sectoral Growth: Evidence from Southeast Asia

Author:
Peter G. Warr
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In recent decades, absolute poverty incidence declined in most countries of Southeast Asia, even though in some of these countries inequality increased at the same time. This paper examines the relationship between these outcomes and the rate of economic growth in the agricultural, industrial and services sectors. It develops a time series of available data on the headcount measure of poverty incidence for Thailand, Indonesia, Malaysia and the Philippines over the period from the 1960s to 1999, in aggregate and in both rural and urban areas. It then uses this pooled data set to analyze the economic determinants of changes in poverty incidence.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
Indonesia, Malaysia, Philippines, Thailand, and Southeast Asia

3396. How Economic Growth Reduces Poverty: A General Equilibrium Analysis for Indonesia

Author:
Peter G. Warr and George Fane
Publication Date:
02-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Do changes in poverty and inequality depend directly on the rate of economic growth, or does the source of the growth also matter? This paper uses a computable general equilibrium model of the Indonesian economy to explore this question by simulating increases in GDP arising from (i) technical progress in each of seven broad sectors, and (ii) the accumulation of each of six types of physical and human capital. The more a given amount of growth raises the returns to the factors that are more important sources of income for the poor than for the non-poor, the more it reduces poverty and inequality. Different sources of growth affect poverty and inequality differently because they affect factor returns differently, and because the poor and the non-poor own factors in different proportions.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
Indonesia and Southeast Asia

3397. How Optimal are the Extremes? Latin American Exchange Rate Policies During the Asian Crisis

Author:
Ricardo Ffrench-Davis and Guillermo Larraín
Publication Date:
01-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
During the Asian crisis, intermediate exchange rate regimes vanished. It has been argued that those regimes were no longer useful and only the extremes remained valid. The paper analyses three foreign exchange regimes: Argentina (pegged), Chile (band) and Mexico (float). The Argentinean currency board delivered low financial volatility while it was credible, but even then it displayed high real volatility. Mexican float performed well in periods of instability isolating the real sector. The Chilean band delivered a mixed outcome as compared to Argentina and Mexico. This is linked apparently to a loss in the band's credibility, associated to policy mismanagement and an over-appreciation in the biennium before the crisis. Optimal exchange rate regimes vary across time and the conjuncture. Exit strategies are part of the election of the optimal system, including a flexible policy package rather than a single rigid policy tool.
Topic:
Development and International Trade and Finance
Political Geography:
Asia, Argentina, South America, Latin America, Mexico, and Chile

3398. Impact of Globalization and Liberalization on Growth, Employment and Poverty: A Case Study of Pakistan

Author:
Tilat Anwar
Publication Date:
01-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
While globalization is viewed as a key to future economic development, it is also argued that it increases poverty, threatens employment and living standards of the poor. Like many other developing countries, Pakistan also attempted to integrate its economy in the global economy through liberalizing its investment and trade regime within the framework of the IMF and the World Bank. A review of literature indicates that although a number of cross-country studies have shown a positive association between trade openness and economic growth, the recent work suggests that openness has no robust link with long-term growth. Thus, positive effects of liberalization on growth remain controversial. Evidence shows that despite numerous highly attractive incentives offered to foreign investors, Pakistan's performance in attracting the foreign investment has been poor. Similarly, despite the intensive trade liberalization, the trade performance has been dismal. The stabilization initially achieved proved to be short-lived due to the slippages in reform process occurred in the form of spread of tax exemption and concession leading to implementation of further stabilization measures. The repeated attempts to stabilize the economy together with liberalization and persistent devaluation of domestic currency pushed the economy in a vicious circle. The lowering of tariff rates led to a considerable loss of revenue and resulted in stagnant tax GDP ratio, resulting in reductio development expenditure to reduce the budget deficit. The government sought to restrain aggregate demand not only by granting wage increases below the inflation rate but also by freezing employment in the public sector. These developments together with liberalization led to lower GDP growth, increased indebtedness, higher unemployment and thus higher poverty incidence during the period of liberalization. This adverse outcome is reflection of the fact that the country was asked by the IMF to cut its tariff rates swiftly before adopting to a new system of domestic taxation. The structural adjustment programmes designed by the IMF/World Bank take the poverty as a residual issue. Hence, earlier anti-poverty programmes in Pakistan reached a small fraction of the poor, partly because their total size was limited and partly because of poor targeting. Hostility of globalization process suggests a broader approach and allocation of more funds for poverty reduction. For future growth and poverty reduction strategies, the issue of achieving higher growth must be combined with overall pattern of social progress and distribution.
Topic:
Democratization, Development, and Globalization
Political Geography:
Pakistan and South Asia

3399. Poverty in India: Misspecified Policies and Estimates

Author:
M.H. Suryanarayana
Publication Date:
01-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Specification counts in the formulation of any economic problem, estimation of its magnitude and its assessment. This is particularly so for problems in the context of economic development. Solutions for poverty alleviation in developing countries like India are often formulated under misspecified premises. This results in wrong choice and design of strategies and policies. Faulty evaluation due to specification errors in estimates of poverty only compounds the error. This paper discusses such an in issue in the context of strategies for and estimates of poverty reduction in the developing countries. The results are general. They are illustrated with reference to India.
Topic:
Development and Government
Political Geography:
South Asia and India

3400. From the Grabbing Hand to the Helping Hand: A Rent Seeking Model of China's Township-Village Enterprises

Author:
Jiahua Che
Publication Date:
01-2002
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
I present a study of ownership of firms under government rent seeking. Using its control of regulated inputs, a government agency extracts rents from a manager who undertakes an investment. Such a government rent seeking activity leads to a typical hold-up problem. Government ownership is shown to serve as a second best commitment mechanism through which the government agency will restrain itself from the rent seeking activity and even offer the manager support and favor such as tax breaks and subsidies. This mechanism works at a cost as government ownership compromises ex post managerial incentives and creates distortion in resource allocation. Nevertheless, government ownership may Pareto dominate private ownership under certain conditions. These conditions correspond to a host of stylized empirical observations concerning local government-owned firms (township-village enterprises) during China's transition to a market economy.
Topic:
Development, Emerging Markets, and Government
Political Geography:
China and Asia