Economics of Developing Countries

472 Pages·2008·3.266 MB·English

by  Tiago N. Caldeira

E D
CONOMICS OF EVELOPING
COUNTRIES

No part of this digital document may be reproduced, stored in a retrieval system or transmitted in any form or
by any means. The publisher has taken reasonable care in the preparation of this digital document, but makes no
expressed or implied warranty of any kind and assumes no responsibility for any errors or omissions. No
liability is assumed for incidental or consequential damages in connection with or arising out of information
contained herein. This digital document is sold with the clear understanding that the publisher is not engaged in
rendering legal, medical or any other professional services.

E D
CONOMICS OF EVELOPING
COUNTRIES

TIAGO N. CALDEIRA
EDITOR

Nova Science Publishers, Inc.
New York
Copyright © 2009 by Nova Science Publishers, Inc.

All rights reserved. No part of this book may be reproduced, stored in a retrieval system or
transmitted in any form or by any means: electronic, electrostatic, magnetic, tape, mechanical
photocopying, recording or otherwise without the written permission of the Publisher.

For permission to use material from this book please contact us:
Telephone [phone]; Fax [phone]
Web Site: http://www.novapublishers.com

NOTICE TO THE READER
The Publisher has taken reasonable care in the preparation of this book, but makes no expressed or
implied warranty of any kind and assumes no responsibility for any errors or omissions. No
liability is assumed for incidental or consequential damages in connection with or arising out of
information contained in this book. The Publisher shall not be liable for any special,
consequential, or exemplary damages resulting, in whole or in part, from the readers’ use of, or
reliance upon, this material. Any parts of this book based on government reports are so indicated
and copyright is claimed for those parts to the extent applicable to compilations of such works.

Independent verification should be sought for any data, advice or recommendations contained in
this book. In addition, no responsibility is assumed by the publisher for any injury and/or damage
to persons or property arising from any methods, products, instructions, ideas or otherwise
contained in this publication.

This publication is designed to provide accurate and authoritative information with regard to the
subject matter covered herein. It is sold with the clear understanding that the Publisher is not
engaged in rendering legal or any other professional services. If legal or any other expert
assistance is required, the services of a competent person should be sought. FROM A
DECLARATION OF PARTICIPANTS JOINTLY ADOPTED BY A COMMITTEE OF THE
AMERICAN BAR ASSOCIATION AND A COMMITTEE OF PUBLISHERS.

LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA

ISBN 978-1-61761-917-5 (Ebook)

Published by Nova Science Publishers, Inc. (cid:30) New York
CONTENTS

Preface vii

SHORT COMMUNICATION 1

Structural VAR Approach to the Sources of Exchange Rate 3
Fluctuations in Sub-Saharan African Countries
Shigeyuki Hamori and Hisashi Tanizaki

RESEARCH AND REVIEW STUDIES 19

Chapter 1 WTO Agriculture Negotiations and Developing Countries: An 21
Overview
Valeria Costantini

Chapter 2 Volatility of Short-Term Capital Flows and Socio-Political 53
Instability in Developing Countries: A Review
Fırat Demir

Chapter 3 Administrative Quality, Structural Reforms and Capital 79
Accumulation in Developing Countries
Ahmet Faruk Aysan and Mahmut Satuk Bugrahan Budak

Chapter 4 Capital Accumulation in Less Developed Countries: Does Stock 105
Market Matter?
Prabirjit Sarkar

Chapter 5 Determinants of Child Health in Developing Countries: 117
The Experience of China and Vietnam
Alberto Gabriele and Francesco Schettino

Chapter 6 Adhering to the Principles of Knowledge 157
The Only Game in Town
Bhekuzulu Khumalo

Chapter 7 Economic Development Experiences 185
and Developing Countries
Melike Bildirici and Nevin Coşar
vi Contents
Chapter 8 Balance Sheet Effect of Currency Crisis: Evidence from Indonesia 249
Agustinus Prasetyantoko and Wahyoe Soedarmono

Chapter 9 Jump Down, Turn Around, Pick a Bale of...Poverty? U.S. Cotton 273
Policy and Household Income in Côte d’Ivoire
Justin B. May

Chapter 10 The Economics of Upgrading to Innovative Treatment 331
Technologies in the Fight Against HIV/AIDS
Patrick L. Leoni

Chapter 11 Innovations and Economic Growth in the Fast Changing Global 349
Economy: Comparative Experience of the Asian Countries
Lakhwinder Singh

Chapter 12 On the Role of Communications Networks in REGIONAL 365
Economic Development
Toru Kikuchi and Chiharu Kobayashi

Chapter 13 Competition for FDI and the Demand for Information – Are 377
Signalling Strategies useful Tools for Developing Countries?
Sebastian Jaenichen and Torsten Steinrücken

Chapter 14 ‘Swing to the left’ and Its Impact on Investment 399
Decisions in Latin America
The Example of the Energy Sector in Bolivia and the Commercial
Real Estate Market in Brazil
Johannes Winter and André Scharmanski

Chapter 15 Winners and Losers post Democratic Reform in Nigeria: A Look 417
at Economic and Labor market Outcomes
Ruth Uwaifo Oyelere

Chapter 16 The Effect of Democratization on Growth of Developing 443
Countries
Ayla Oğuş and Sacit Hadi Akdede

Index 463
PREFACE

There are many economic issues especially relevant to developing countries and the third
world such as international aid, globalization, free trade, and labor issues. In fact, the mix of
them and other economic issues and conflicts over priorities and the urgency to transit to a
Developed Country present an often overwhelming array of dilemmas. This new book
presents new research on some of these issues.
The Short Communication investigates the sources of fluctuations in real effective
exchange rates in six sub-Saharan African countries, i.e., Burundi, Ghana, Lesotho, Malawi,
Nigeria, and South Africa. We constructed a structural vector autoregression (SVAR) model
to analyze the sources that have driven the fluctuations in real effective exchange rates since
the early 1990s. Though much of the existing literature relies on bilateral exchange rates, this
paper uses the effective exchange rate of each country. The effective exchange rate reflects a
country’s international competitiveness. An analysis of the sources behind fluctuations in the
real effective exchange rate can therefore help us understand the international
competitiveness of a country in greater depth. To the best of our knowledge, this study is the
first to use this approach for the analysis of exchange rate fluctuations in sub-Saharan Africa.
Our empirical results show that real shocks play a dominant role in driving real exchange rate
fluctuations. This suggests that a flexible exchange rate may be preferable as the exchange
rate regime in the countries studied.
The aim of Chapter 1 is to give a broad overview of the main issues faced by developing
countries in a context of trade liberalization as part of the multilateral agricultural trade
negotiations in the WTO Doha Round. The bargaining positions of developing countries in
the Doha Round are described. A comparison of empirical results on possible outcomes of a
Doha Round agreement follows with a focus on impacts in terms of poverty reduction.
Results are then analysed using the main theoretical findings on trade-poverty links and the
specific role of preference erosion in order to shed some light on potential failures of a trade
reform in the absence of complementary policy actions.
Chapter 2 reviews the theoretical and empirical evidence on the relationship between
financial liberalization and socio-political risk by identifying the inter-dependent nature of
socio-political and economic fault lines. In particular, the research examines the dynamic
relationship between the volatility of short-term capital flows and socio-political instability.
Accordingly, the socio-political risk is argued to be endogenously determined with the
volatility of short term capital inflows such that increasing volatility by disrupting market
activities, domestic investment and growth increases socio-political risk, which further feeds
viii Tiago N. Caldeira
into the volatility of such flows. Using evidence from three major developing countries that
are Argentina, Mexico and Turkey and applying Granger causality tests and Impulse
Response Functions, the paper finds support for the presence of an endogenous relationship
between the volatility of short-term capital inflows and socio-political instability. The results
challenge the previous research regarding the use of political risk as a purely exogenous
variable.
Chapter 3 empirically investigates the importance of administrative quality as one of the
key dimensions of governance institutions on structural reforms and capital formation in
developing countries between 1985 and 2004. The empirical results show that administrative
quality has considerable effects on structural reforms. Furthermore, structural reforms and
administrative quality have an effect on both on the aggregate and private investment
decisions. Empirical estimation especially reveals the positive effects of administrative
quality on capital accumulation both directly and indirectly through enhancing the structural
reforms. Our estimations also stress the importance of human capital again both on structural
reforms and capital accumulation. Even after controlling for structural reforms, human capital
and GNP per capita, macroeconomic indicators like neoclassical accelerator model and real
interest rate are still crucial for the capital accumulation decision. However, as compare
advances in these macroeconomic indicators, the improvements in administrative quality,
structural reforms and human capital yield much higher returns in developing countries.
In Chapter 4, our panel data analysis (1988-2002) of a sample of 31 less developed
countries shows that the stock market capitalization as a percentage of GDP- an important
indicator of stock market development- has no relationship with the growth rates of gross
fixed capital formation. Our time series analysis (1976-2005) of 15 countries shows that in at
least 10 cases we observe no positive long-run relationship between the stock market turnover
ratio and the growth of capital accumulation. Interestingly the countries experiencing the
developmental function of stock market are by and large civil law origin countries with
alleged poor shareholder protection.
In the first section of Chapter 5, having identified the main clusters of food insecure
households worldwide and their prevailing livelihood profiles, we discuss the interaction and
relevance of key economic and social factors affecting child health in developing countries.
Using the World Bank WDI database, we carry out a cross-country econometric analysis on
the impact of income and non-income factors on child health in developing countries. Our
main findings are threefold. First, among income factors, each country’s overall level of
economic development is paramount, but income distribution also plays an important role.
Second, each country's relative propensity to spend on basic services is significantly and
negatively correlated with child malnutrition and mortality. Third, women’s level of
education and relative status play an important role. In the second section, on the basis of this
general framework of interpretation of child health and human development outcomes in the
developing world, we focus specifically on the performance of China and Vietnam in
reducing under-five child malnutrition and mortality. Under the market socialist model, both
countries achieved very high rates of GDP growth, and managed to decrease significantly the
prevalence of malnutrition. However, China’s progress in reducing child mortality was
relatively slow in the 1980s and 1990s, before improving in the early 2000s. Vietnam’s record
was markedly better, notwithstanding the fact that Vietnam is still much poorer than its giant
Northern neighbour. We show that this apparent paradox is due mainly to the negative side-
effects of market-oriented reforms, which have reached a more advanced stage in China than
Preface ix
in Vietnam. Our results also suggest that the relatively better status of women in Vietnam
with respect to China is an additional factor. This phenomenon appears to have been
exacerbated by the perverse effects of China’s rigid population control policies, and by the
increasingly, uncontrolled and quasi-privatized availability of advanced medical services. In
the policy conclusions, we criticize the market-oriented bias of social sectors reforms, and
advocate in favour of recovering some essential features of the original socialist approach,
which had been particularly effective in the crucial task of providing universally accessible
basic public services.
Chapter 6 deals with knowledge solely as an economic resource and a commodity, it
deals with knowledge of the material and that part that can be used for economic progress,
that part of knowledge that is a commodity, and the beginning of the chapter very clearly
defines this concept. This chapter deals with key components of the knowledge theory in
regards to more specifically the need of understanding for the less developed countries. The
paper begins with why in terms of knowledge economics that developed countries are said to
be behind, this leads to the discussion of the concept of time. Time is analyzed both as an
independent variable as well as a dependent variable. Having analyzed the variable time, we
need definitive prove of why less developed countries have less knowledge, this is done using
the concept of point X and point U developed in the paper “Point X and the Economics of
Knowledge.”, written by the author. The paper then leads on to discuss the issue of systems
potential and asks the questions why systems potential in less developed countries are lower
than the more industrialized societies. Finally the paper asks and answers the question what
needs to be done in terms of knowledge for less developed countries to improve themselves
and contribute more effectively to humanity, this needs a look at using the knowledge that is
available to the best use, maximizing knowledge and reducing the opportunity costs of
decisions.
The purpose of Chapter 7 is to examine development experiences and to revise the
growth paradigm from the beginning of the nineteenth century. The characteristics of the
economic development vary with respect to time and factors which determine the growth
process from one country to another. There is not one growth and/or development recipe.
Phsical and human capital, technological innovations and the structure of the population were
common pillars for growth. Although, the importance of these factors, they are not enough to
reveal the development process. Specialization, income distribution, the role of the
goverment, foreign capital, borrowing ability, external trade and dependency, regional
characteristics, political stability and/or instability, education and genetical factors are also
have serious effects on the development process. In this study, we propose that all these
factors must be investigated altogether.
Studies in the framework of Beta-convergence, conditionally beta-convergence and
sigma convergence shows the differences in income levels among the developed countries
decreased, but between the developed countries and developing countries increased. There
was an absolute poverty trap, for example Zambia, Mozambic, Chad and Afghanistan became
relatively poor in the twentieth century than before.
In this study, beside these points OECD countries, European Union, transition
economies, Asian countries, Afrique countries and Middle-east countries will be analysed.
We hope to find answers of some questions, such as why Turkey, Brazil, Mexico and
Argentina left behind in the development proccess, why former SSCB countries failed in
transition countries.Why as an owner of petroleum Iran and Irak were lag behind in the