When Faced with Income and Asset Shocks,Do Poor Rural Households in Vietnam Smooth Food Consumption or Assets?

Vietnamese rural households are exposed to severe covariate and idiosyncratic shocks. However, these households are remarkably resilient and have steadily increased real income and consumption over the survey period 2006 to 2012. To explain household strategies to cope with shocks we test three theoretical models: the Permanent Income Hypothesis (PIH), Complete Market Hypothesis (CMH), and Asset Smoothing Theory (AST). There is support for AST as households smooth productive assets rather than consumption; and for CMH as households smooth consumption against idiosyncratic, but not covariate shocks. There is no support for PIH.     

Shocks and their consequences across and within households in Rural Zimbabwe

Increasing attention is now being paid to poverty dynamics in developing countries. This work links the extent to which households smooth consumption or smooth assets given income shocks, the empirical evidence on the churning of households in and out of poverty, and the possibility that temporary shocks can have permanent consequences. Using longitudinal data from rural Zimbabwe, this paper extends the discussion of these issues by disaggregating the impact of shocks by levels of asset holdings, by disaggregating the impact of shocks on individual level welfare and by assessing the extent to which such shocks have permanent consequences. By doing so, it assesses the validity of distinguishing between asset and consumption smoothing and provides insights into whether poverty dynamics assessed at the household level provide an adequate picture of dynamics at the individual level.     

Private foreign asset accumulation,not just capital flight: Evidence from the Philippines

External debt problems have been accompanied in many developing countries with large private capital outflows. The latter phenomenon is usually identified in the literature as ‘capital flight’. This article argues that private foreign asset accumulation is a more appropriate term and compares a great variety of definitions and measurement methods and applies these to Philippine data for 1971–88. Outcomes show striking differences in assessment of the magnitude of the phenomenon. In the preferred definition of this study applied to the Philippines, unrecorded workers remittances from abroad, a factor omitted in other studies, represent a major source of foreign exchange earnings which indirectly support private foreign asset accumulation. Other definitions appear to severely underestimate private capital outflows. Econometric evidence on the causes of private foreign asset acquisition shows a strong sensitivity to the applied definition. Regression analysis for six alternative definitions shows that the expected real exchange rate depreciation and the real foreign‐domestic interest rate differential are ‐ in line with portfolio theory ‐ important determinants in the case of nearly all alternative measures, except for those that attempt to define a narrow ‘capital flight’ concept. Other determinants found significant are the availability of external finance and the previous year stock of private foreign assets. Debt‐fuelled private capital outflows are associated with the political economy of public external borrowing and the segmented nature of the foreign exchange market in the Philippines. Stock‐adjustment behaviour in the acquisition of private foreign assets in turn is interpreted as being a result of a simultaneous decision‐making process determining consumption demand and portfolio choice of high‐income Philippine households to satisfy demands related to their international lifestyles. These results have important welfare implications and policy consequences.     

The importance of household asset diversity for livelihood diversity and welfare among small farm colonists in the Amazon

Taking a small farm colony on the Amazon frontier as a case study, this article examines the relationships among household assets, livelihood diversity and welfare. The findings show that: (1) few households diversified into non-agricultural income sources, but those that did also had agricultural incomes comparable to households primarily reliant on agriculture; (2) distinct household assets influence the extent of agricultural and non-agricultural diversity, implying that households with combinations of specific assets were best able to diversify their livelihoods, and (3) while specific types of household assets influence household welfare, livelihood diversity does not exert an additional effect on welfare. A key issue that emerges is that different arrays of assets are important for agricultural and non-agricultural diversity as well as for household welfare, implying that households need diverse assets for diverse livelihoods as well as better welfare.     

Why are Informal Loans Still a Big Deal? Evidence from North-east Thailand

Abstract

This article examines the use and benefit of informal loans for different income groups of rural households in north-east Thailand. Using a difference-in-differences estimation approach, which is later complemented by propensity score matching, the article shows that different household groups profit from informal loans in different ways. Poor households increase their asset endowment, and in particular farming assets, whereas rich households’ (food) consumption rises, especially if households borrow due to a shock. By showing that informal loans serve different households for different purposes, this article provides an explanation why they still play an important role.     

Cows,Missing Milk Markets,and Nutrition in Rural Ethiopia

Abstract

In rural economies encumbered by significant market imperfections, farming decisions may partly be motivated by nutritional considerations, in addition to income and risk factors. These imperfections create the potential for farm assets to have direct dietary impacts on nutrition in addition to any indirect effects via income. We test this hypothesis for the dairy sector in rural Ethiopia, finding that cow ownership raises children’s milk consumption, increases linear growth, and reduces stunting. We also find that household cow ownership is less important where there is good access to local markets, suggesting that market development can substitute for household cow ownership.     

The Reversal of Fortune Thesis Reconsidered

Acemoglu, Johnson, and Robinson have claimed that the world income distribution underwent a ‘Reversal of Fortune’ from 1500 to the present, whereby formerly rich countries in what is now the developing world became poor while poor ones grew rich. We question their analysis with regard to both of their proxies for pre-modern income, namely urbanisation and population density. More specifically, an alternative measure of urbanisation with more observations generates a positive (but not significant) correlation between pre-modern and contemporary income, while a better measure of population density on arable land no longer produces a robust relationship.     

The personal and the factor distributions of income in a cross-section of countries

The shares of capital and labour in national income vary substantially both over time and across countries. This paper shows that the factor distribution of income is an essential determinant of the personal distribution of income. We use cross-country and panel data for a group of developed and developing countries to show that a larger labour share is associated with a lower Gini coefficient of personal incomes. This effect is not only statistically significant but also economically important. An increase in the labour share in Mexico to that observed in the US would reduce the Gini coefficient of the former by between two and five points.     

Combining Household Income and Asset Data to Identify Livelihood Strategies and Their Dynamics

Current approaches to identifying and describing rural livelihood strategies, and household movements between strategies over time, in developing countries are imprecise. Here we: (i) present a new statistical quantitative approach combining income and asset data to identify household activity choice variables, characterise livelihood strategy clusters, and analyse movements between strategies, and (ii) apply the approach using an environmentally-augmented three-wave household (n = 427) level panel dataset from Nepal. Combining income and asset data provides a better understanding of livelihood strategies and household movements between strategies over time than using only income or asset data. Most households changed livelihood strategy at least once over the two three-year periods. A common pathway out of poverty included an intermediate step during which households accumulate assets through farming, petty trading, and migratory work.     

Econometric studies of household saving behaviour in developing countries: A survey

This article surveys recent attempts to measure and analyze household savings behaviour in developing economies. Studies of the relationships between savings and current income, permanent income, wealth, interest rates, the price level, household demographic characteristics, occupation, income distribution, direct taxation, and other factors are reviewed and evaluated.     

Identifying a Sustained Pathway to Multidimensional Poverty Reduction: Evidence from Two Chinese Provinces

Poor rural households in developing countries often endure many-faceted burdens including monetary poverty, nutrition deficiency and energy shortage due to reliance on limited local natural resources with low utilisation efficiency. We investigate a sustained pathway in rural China to escape the vicious circle between three important dimensions of poverty – deficiency of income, malnutrition and a low energy consumption profile in terms of reliance on firewood. By exploiting household panel data and a dynamic and recursive multi-equation mixed mode, we identify inter-locking deprivations in income, nutrition and energy consumption. Firewood plantations only offer short-term solutions to break them through income effects, while the sustained pathways in the long-term are increasing agricultural labour productivity and provision of agricultural loans.     

Prohibitive tariffs on used vehicles: Aid or obstacle to the development process?

One of the protective devices used by less developed nations to stimulate their automotive industries is a prohibitive tariff on used vehicles. The purpose of this note is to demonstrate that this restriction, via adjustments in the stock and age composition of vehicles, might reduce employment in the tariff levying nation's automotive industry, might increase that nation's demand for foreign exchange, and will violate stated (egalitarian) income distribution goals.

The behaviour of the individual vehicle consumer will be analyzed first and market consumption adjustments brought about by various vehicle tariffs will be determined. Supply characteristics of the automotive industry are then presented, and the employment effects of a prohibitive tariff on used vehicles will be examined. Balance of payments and income redistribution effects are briefly considered.     

‘We Are All Poor Here’: Economic Difference,Social Divisiveness and Targeting Cash Transfers in Sub-Saharan Africa

While the central thrust of Michael Lipton's work has been the crucial role of productivity gains in small farm agriculture for rural poverty reduction, in many sub-Saharan African countries this desirable outcome has stubbornly refused to materialise, and growing numbers of rural poor people are found persistently to fail to secure even minimal acceptable levels of food consumption. A social protection policy response is to target social cash transfers to the chronic extreme poor. This article focuses on the level of cash transfers relative to income differences between households in the bottom half of the income distribution, and the social tensions that arise from beneficiary selection and exclusion. It is found that cash transfers to target groups such as ‘the poorest 10 per cent’ or the ‘ultra-poor labour constrained’ must be set low, even below the welfare levels they seek to achieve, if they are to avoid socially invidious reshuffling of the income distribution. The article identifies critical trade-offs between the cost and coverage of different types of social transfer, their social acceptability and their political traction, helping to explain the reluctance of governments to adopt scaled-up poverty-targeted transfers as the preferred form of social cash transfer to those most in need in their societies.     

Democracy and economic development

This discussion explains why democracy as is generally understood may not be suitable to meet the challenges of a developing economy and how democratic institutions generally fail to respond to the immediate demands of a population impatient to raise its level of living. It defines the terms economic development and democracy, reviews some theoretical models of democracy which have been proposed in economic theory, proposes an approach to the process of economic development, and considers problems of development. Economic development is a process which calls for huge investments in personnel and material. Such investment programs imply cuts in current consumption that would be painful at the low levels of living that exist in almost all developing societies. Governments need to resort to strong measures, and they must enforce them vigorously in order to marshal the surpluses required for investment. If such measures were put to a popular vote, they would certainly be defeated. Mainstream economic theory assumes the virtues of a market system and the decisions arrived at by the interaction of market forces. This is the economic equivalent of democracy. Yet, mainstream economic theory devotes little attention to the conditions under which a market system generates a just solution. The democratic developing countries have all inherited a class society, with a highly skewed distribution of income. The wealthy minority often seeks to preserve its privileged position and to enjoy the benefits of development. It even seeks the help of the judiciary to preserve the sanctity of private property and to assure that its patterns of conspicuous consumption can continue. This is done in the name of democratic rights. Many developing societies are burdened with outmoded traditions and value systems that are incompatible with the production relations of the new society they hope to achieve. The international exchange of resources is believed by some to be an attempt to control the pace and character of development so that the economic colonization will survive. To end such unfavorable conditions for development, 3rd world governments must demand greater sacrifices from their citizens, and this cannot be achieved by normal democratic means. Recent events in several developing nations illustrate this point.     

Income distribution,the structure of consumer expenditure and development policy

This paper examines how and why the effects of inequality on the structure of consumption must be taken into account in development policy. It shows that, by utilising the concept of the ‘representative’ consumer, the role of income distribution as a determinant of the structure of consumption can be modelled in a theoretically consistent and empirically constructive way. The importance and methods of introducing consumer preferences and needs into the model are also analysed. Then using a simple Greek input‐output model several hypotheses about income redistribution are empirically investigated. The results indicate that egalitarian redistributions induce favourable employment and balance of payments effects, especially when the planner takes into account other sources of variation in consumer demand arising from differences in preferences across households. Rises in inequality are likely to cause comparatively more serious opposite effects and therefore must be avoided.     

Do Relative Income and Income Inequality Affect Consumption? Evidence from the Villages of Rural China

This article examines how a household's consumption rate is affected by its relative income and income inequality within a community. Based on the theory of social status seeking in consumption, we test hypotheses related to these factors using a unique panel data set of rural households in China observed within a few hundred villages between 2003 and 2006. We find that the household's consumption rate is negatively related to the relative income position after controlling for the absolute income, and positively related to the income inequality of the village. We confirm these with different measurements of relative position.     

Revisiting the Meaning of Development: A Multidimensional Taxonomy of Developing Countries

Many have challenged the use of income per capita as the primary proxy for measuring development since Seers’s seminal works. This article continues this tradition with a more recent twist. We use cluster analysis to build a multidimensional taxonomy of developing countries using a set of indicators covering four conceptual frames on ‘development’. The value-added of the article is not to suggest that our classification is the end in itself, but – more modestly – to demonstrate that more work on taxonomies is required in light of the weakness of classifications based solely on income and the changing distribution of global poverty.     

Economic Consequences of Forced Displacement

Over 42 million people worldwide have been forcibly displaced from their communities, though little is known about the impact of this movement on livelihoods. I use a panel data set and exploit a geographic discontinuity to explore the effects of displacement in Uganda. I find that displaced households experience a significant initial decrease in consumption. Two years after households returned home, displaced households still lag behind. However, households in the top quartiles of pre-displacement assets have recovered some of their consumption, though with significantly reduced education and wealth levels. There is likely little or no recovery for the poorest households.     

The Intergenerational Effects of Political Influence: Evidence from China

This paper considers the effects of fathers’ political influence on their offspring’s labour market outcomes in China. Political influence refers to the ability to convert political power into economic benefits. This study identifies the dissolution of political influence by exploiting an age-based mandatory retirement rule in urban China. It exploits the variation of political influence in three dimensions: bureaucrat status, retirement status, and offspring gender. A difference-in-differences approach shows that the retirement of a bureaucrat translates into a 13 per cent decrease in offspring’s income. A triple-differences approach suggests retirement of a bureaucrat father translates into a 27 per cent decrease in earnings among sons. Retirement of a bureaucrat father is associated with larger income losses for offspring working in the same industry sector as their father and in industries that have a high concentration of assets or that are controlled by the state. This paper adds evidence to the growing literature estimating the economic benefits of political connections.     

Climate change: the risks of stranded fossil fuel assets and resources to the developing world

Under the Paris Agreement, 80% of all proven fossil fuel reserves become stranded resources and investments already made in such resources turn into stranded assets. Much of the existing literature focuses on equitable burden sharing; only a few articles examine the risks for developing countries that invest in new fossil fuels. Hence, this paper addresses the question: What are the risks of investing in fossil fuels for developing countries? In doing so, it examines Kenya, a prospective fossil fuel producer, and China, an investor in fossil fuels. In terms of short- to long-term risks, ignoring new fossil fuels and investing in renewables is favourable and politically, socially, ecologically and economically more rewarding, not least because latecomers to development run the risk of having to compensate investors when new fossil fuel assets strand prematurely and become unrecoverable.