Essays in Development Economics

Abstract

This thesis is a collection of three papers in development economics. The first paper provides estimates of the effects that income inequality has on economic growth in China. Our empirical analysis is at the county level. Using data provided by the China Health and Nutrition Survey, we construct measures of inequality and the growth rates of household incomes per capita for 72 Chinese counties during the period 1989-2015. System-GMM estimates of panel models show that the within-county effect of inequality on economic growth is significantly decreasing in initial average income. For the relatively low levels of initial average incomes that were prevalent in China during the 1980s and 1990s, our model estimates imply that the increase in inequality that occurred in China during the 1980s and 1990s had a significant positive effect on economic growth. However, for current levels of average income, our panel model predicts that inequality has a negative effect on economic growth: a 1 percentage point increase in the Gini would reduce the per annum growth rate by around 1 percentage point.

The second paper examines labor adjustments between the informal and formal sectors in response to the adoption of industrial robots in China. Using a longitudinal household data from 2010 to 2018, I find that robotization increases informal employment. Quantitatively, one more robot per thousand workers increases the share of informal employment by 1.16 percentage points. The reallocation is not driven by new entrants or re-entrants, but by workers initially employed in the formal sector. Displaced formal workers tend to transition into non-manufacturing or non-routine jobs in the informal sector. Lastly, this study explores labor adjustments within households, revealing that wives (daughters) are more likely to enter the labor force and take up informal jobs if their husbands (mothers) work in the informal sector than in the formal sector.

The third paper uses a local projections instrumental variables approach to estimate dynamic macroeconomic effects of temporary, exogenous remittance shocks. We identify exogenous remittance shocks by instrumenting remittances with the migrant-share-weighted GDP per capita of migrants' destination countries. Impulse response functions show that the identified remittance shock is temporary and that it has a significant positive effect on remittance-recipient countries' real GDP per capita on impact, and cumulatively over the medium term, e.g. over periods of 5 and 10 years. Household consumption and investment significantly increase while the the ratio of net-exports over GDP decreases. We also find that the increase in exogenous remittances causes a significant increase in external debt and a significant decrease, on impact, in the external debt servicing cost as a fraction of GNI. Our empirical results are consistent with the predictions of the model by Bahadir et al. ("The Macroeconomic Consequences of Remittances", Journal of International Economics, 2018) for the case that an exogenous, temporary remittance inflow accrues to credit-constrained entrepreneurs. Show more