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ABSTRACT: The question of whether financial intermediation has a first order effect on the development process has long been debated. There have also been questions about the ‘robustness’ of the empirical results that suggest financial development does indeed have a first order effect. This paper addresses the second issue within this debate by assessing the robustness of the link between financial development and economic growth to variations in the sample (countries included in the data set). Specifically, the procedure identifies the relative influence of ordered subsets in the data to determine whether or not these financial variables change sign or lose statistical significance after the removal a specific subset. The results of this exercise suggest that financial intermediation appears to have a first order effect, that is most of the variables are robust to variations in the sample, using a traditional cross-country growth regression framework and an instrumental variables framework (GMM).
Applied Econometrics and International Development 01/2010; 10(1).
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ABSTRACT: This paper develops a model with overlapping generations where the household's optimal fertility, child labor, and education decisions depend on the parent's expectations or beliefs. Specifically, it is shown that there exists a range of parental income where the fertility rate is high, the children participate in the labor market and receive an incomplete education if a parent believes the return to education is low. The fact that the children participate in the labor market reduces their ability to accumulate human capital as a result of a negative child labor externality. Thus, the action of sending the children into the labor market is sufficient to ensure that the parent's initially pessimistic expectations are fulfilled. On the other hand, if the parent believes the return to education is high, then fertility rate is low, and each child receives a complete education (no child labor). This action, in turn, fulfills the household's optimistic beliefs since the children do not incur the negative child labor externality. It is then shown that a one time policy intervention, such as a banning of child labor and mandatory education, can be enough to move a country from the positive child labor equilibrium to the no child labor equilibrium by temporarily removing the high fertility/child labor/incomplete education equilibrium from the household's choice set when parental income falls within this 'expectations' range. Furthermore, it is also shown that this type of policy intervention either reduces household welfare if parental income is below this 'expectations' range or is unnecessary above it. Thus, policy effectiveness depends on the stage of the development process.
11/2007;
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ABSTRACT: "This paper develops a dynamic model with overlapping generations where there are two possible equilibria: one without child labor, and one with it. It is shown that intergenerational transfers can eliminate the child labor equilibrium and that this intervention is Pareto improving. However, if society does not believe that the government will implement the transfer program, it won't, reinforcing society's expectations. This is true even if the transfer program would have been implemented in the absence of uncertainty. Thus a government may be powerless to prevent the child labor equilibrium if it does not command the confidence of their populace, leaving the country in an expectations trap." ("JEL" D91, E60, J20, O20) Copyright 2006 Western Economic Association International.
Economic Inquiry 01/2007; 45(3):453-469. · 0.98 Impact Factor
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ABSTRACT: This paper presents a model in which opportunity differences within society result in child labour, where 'opportunity' is broadly defined but can include school quality, access to higher paying jobs, access to information about the returns to education and actual discrimination. If opportunity differences exist, child labour and poverty are shown to be symptomatic of this underlying socioeconomic condition. It is then shown that policies that ban child labour and/or introduce compulsory education laws can actually reduce dynastic welfare, increase poverty and further exacerbate income inequality within society, because they treat the symptom rather than the disease: the lack of opportunity. Copyright (c) The London School of Economics and Political Science 2006.
Economica 01/2006; 73(291):413-434. · 1.15 Impact Factor
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ABSTRACT: This paper examines the effectiveness and effects of government environmental policy in a model of induced innovation and policy uncertainty. Policy uncertainty is defined as the unwritten component of government policy that is revealed through observable gestures or rhetoric and relates to the apparent willingness of the government to follow through on policy promises or to enforce existing regulations. Firms observe these gestures by the government and form beliefs about the 'true' policy and act accordingly. From this framework the paper demonstrates that a government can increase current consumption while at the same time appearing to maintain a strong environmental policy through inaction or gestures that signal to firms an unwillingness to enforce current regulations. This behavior can be politically expedient in a democratic society because the current administration can reap the benefits of increased consumption while shifting the environmental costs to future administrations.
02/2005;
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ABSTRACT: This paper develops a dynamic model with overlapping generations and child labor, where there are two possible equilibria. There is a 'good' equilibrium with a high level of education and no child labor, and a 'bad' equilibrium with a low level of education and positive child labor. It is first shown that a government program of intergenerational transfers, such as social security, can eliminate the low schooling-child labor equilibrium by replicating a missing intergenerational contracts market. This government intervention is Pareto improving in a deterministic setting. The model then introduces uncertainty to the dynamic system, where it is shown that if society does not believe that the government will implement the transfer program, then in fact it won't, thus fulfilling society's expectations. This is true even if the government would have implemented the Pareto improving transfer program in the absence of uncertainty. This result implies that governments may be powerless to prevent the low education-child labor equilibrium if the government lacks credibility, thus leaving the country in an expectations trap.
10/2004;
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