This paper studies how minimum wage policies affect firm employment in China using a unique county level minimum wage data set matched to disaggregated firm survey data. We investigate both the effect of imposing a minimum wage, and the effect of the policies that tightened enforcement in 2004. We find that the average effect of minimum wage changes is modest and positive, and that there is a detectable effect after enforcement reform. Firms have heterogeneous responses to minimum wage changes which can be accounted for by differences in their wage levels and profit margins: firms with high wages or large profit margin increase employment, while those with low wages or small profit margin downsize. The increase in enforcement of China’s minimum wage in 2004 has since amplified this heterogeneity, which implies that labor regulation may reduce the monopsony rent of firms.Our results provide evidence for the theoretical predictions of the positive minimum wage-employment relationship in a monopolistic labor market.
While the impact of exchange rate changes on economic growth has long been an issue of key importance in international macroeconomics, it has received renewed attention in recent years, owing to weaker growth rates and the debate on “currency wars”. However, in spite of its prevalence in the policy debate, the connection between real exchange rates and growth remains an unsettled question in the academic literature. We fill this gap by providing an empirical assessment based on a broad sample of emerging and advanced economies. We assess the impact of appreciations, productivity booms and capital flow surges using a propensity-score matching approach to address causality issues. We show that appreciations associated with higher productivity have a larger impact on growth than appreciations associated with capital inflows. Furthermore, the appreciation per se tends to have a negative impact on growth. We provide a simple theoretical model that delivers the contrasted growth-appreciation pattern depending on the underlying shock. The model also implies adverse effects of shocks to international capital flows, so concerns about an appreciation are not inconsistent with concerns about a depreciation. The presence of an externality through firms’ destruction leads to inefficient allocations. Nonetheless, addressing them does not require a dampening of exchange rate movements.
A recurring puzzle to many academics and some policymakers is why impact evaluations, which have become something of a cottage industry in the development field, have so little impact on actual policymaking. In this paper, I study the impact of impact evaluations. I show, in a simple Bayesian framework embedded within a standard contest success function-based model of competition amongst anti-evaluation policymakers, Bayesian policymakers, and frequentist evaluators,that the likelihood of a program being cancelled is a decreasing function both of the impact estimated by the evaluation and of the prior on whose basis the program was approved to begin with. Moreover, the probability of cancellation is a decreasing function of the effectiveness of the influence exerted by frequentist evaluators. Since the latter’s effectiveness in terms of lobbying in favor of their findings in the real world is likely to be close to zero, the likelihood of cancelling a program that was approved in the first place, despite its suffering a highly negative evaluation, is extremely low. The model thus provides one possible explanation for why impact evaluations have so little impact in the realm of decisionmaking, and why they have contributed so little to evidence-based policymaking.
The aim of this synthesis paper is to provide a narrative to the empirical findings of the comprehensive literature review concerning the quantitative effects of financial development on economic growth and employment and various determinants of financial sector development. The literature review has been restricted mostly to high-quality academic research that focus on developing countries over the period of 1960-2012. Due to data constraints, this review also includes cross-country analysis, where developed and developing countries are stacked together. The main findings include (i) a positive relationship between financial development and economic growth and employment subject to a number of qualifications, (ii) a complicated relationship of regulations and supervision with financial sector development and (iii) a positive relationship between enabling institutional environment and financial sector development. This review also clarifies some missing avenues in the literature and provides a number of suggestions for future work.
This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we instrument debt with a variable that captures valuation effects brought about by the interaction between foreign currency debt and exchange rate volatility. We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction.
How can the private sector work for development? This paper provides answers to this question from the firms’ perspective by examining the trade-offs that private firms face between maximizing their profits and achieving a positive social impact. In particular, it considers the experience of microfinance as the best available data source from the point of view of a firm engaged in development issues. The paper studies balance sheet data of microfinance institutions (MFIs) to understand what drives their financial self-sustainability. The analysis focuses on how this variable is affected by firm-level proxies for social impact, such as outreach to women and loan size, using both a quantile regression and an instrumental variable approach. The findings indicate that there is low risk of mission drift as MFIs become more financially sustainable. Indeed, serving women seems to increase financial self-sustainability in all types of institutions due to reduced risk. Moreover, increasing the loan size seems to be less important as firms gain financial self-sustainability. Nevertheless, even if more profitable MFIs tend to cope better with costs, they are also more sensitive to risk and market power. This can limit their role in financing projects with a higher long-term development impact, as well as it can reduce their interest in fostering market mechanisms forward. Therefore there is room for regulation to design risk mitigation mechanisms and promote competition.
This paper uses detailed information on the latitude and longitude of conflict events within a set of Sub-Saharan African countries to study the impact of external income shocks on the likelihood of violence. We consider a number of external demand shocks faced by the country or the regions within countries - changes in the world demand of agricultural commodities, financial crises in the partner countries or changes in foreign trade policy - and combine these with information reflecting the natural level of trade openness of the location. We find that (i) within-country, the incidence, intensity and onset of conflicts are generally negatively and significantly correlated with income shocks within locations; (ii) this relationship is significantly weaker for the most remote locations, i.e those located away from the main seaports, (iii) at country-level, we cannot detect any significant effect of these shock on conflict incidence or onset; but (iv) large and longlasting shocks seem to affect the location of conflict outbreaks. In general, our results suggest that external income shocks are important determinants of the intensity and geography of conflicts within countries. However, conflicts tend to start in remote locations which are naturally less affected by foreign shocks, which might explain why these seem to have little effect on conflict onset at the country-level.
